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Does My Church Need an Audit?

By Keith Clark-Hoyos, Owner, Certified Public Bookkeeper

Chi Ki Transformation

(keith@chikitransformation.com)

Often within discussions about church finances, the question comes up, “should my church have an audit done?”  Well, similar to other questions asked in church, the answer is, “it all depends…”  The real question behind the question is what needs to be addressed.  What is it you are attempting to accomplish?

Some churches absolutely require an audit.  There are three basic reasons a church would require an audit to be completed:

1.Lender requirement – When a church seeks to borrow money, it is often required by the lender to have a Financial Audit to ensure the church is able to pay back the loan.
2.Grant requirement – similarly to lenders, grantors such as the Lilly Foundation often require a Financial Audit prior to approving the funding of a grant to ensure their investment is being made into a sustainable organization with healthy financial practices.
3.Bylaw or Membership requirement – some churches have within their bylaws or denominational membership a requirement for an annual audit of the finances.

It is important at this point to understand exactly what is a Financial Audit and what is its intended purpose.  A Financial Audit is an independent, objective evaluation of an organization’s financial reports and financial reporting processes.  The primary purpose for financial audits is to give regulators, investors, directors, and managers reasonable assurance that financial statements are accurate and complete.  If you aren’t required to do an audit by one of the three reasons above, you probably don’t need a Financial Audit.

Now that doesn’t mean you don’t need a financial check-up.  Engaging with someone from the outside who can ensure your policies and procedures are current, properly safeguard your resources, and protect your valuable volunteers from unnecessary accusations is extremely valuable.  The reality is, every church has room for improvement in their financial controls and procedures.  New processes are being developed all of the time as technology is allowing us to do more in new ways (e.g. online giving, online banking, etc.).  Knowing your church is in compliance with the law, is a safe place for people to contribute their financial resources, and that your volunteers are protected while they do this important work behind the scenes is worth the effort.

So, how do you know if you need a check-up?  Here are a few questions to help you decide.  If you say No to any of these questions, you should be seeking help to bring your church finances up to date:

1.Do you have a Financial Policies & Procedures Manual?
2.Is your Financial Policies & Procedures Manual less than 3 years old?
3.Is your Financial Policies & Procedures Manual more than 20 pages long?
4.Do you understand your Financial Policies & Procedures Manual?
5.Are you confident your Church Council is fulfilling its legal fiduciary duty to the congregation?

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About the Author:  Keith Clark-Hoyos has an M.A. in Ministry, Leadership & Service from Claremont School of Theology, a Certified Public Bookkeeper and a Certified QuickBooks Advisor. He has a background of serving the Church as the Executive Associate Conference Minister for the United Church of Christ in Southern California and Nevada, as well as, over twelve years in retail and sales.

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