If you are on the board of a church, Christian school or other para church ministry, you have a fiduciary responsibility to ensure the financial affairs are conducted in a prudent manner. And if you manage one of these nonprofits, you have direct responsibility for this as well. Through a well functioning independent audit committee, you can ensure your organization’s financial affairs are being properly conducted and your organization’s reputation protected.
So what does a well managed audit committee oversee? Audit committees by definition oversee the financial audits (or CPA engagements) by the organization. However, the committee has many more functions that assist with overseeing your financial affairs. Here is a list of common functions:
- Engagement and oversight of the preparation of your final annual financial statements. Whether you use an external CPA or your financials are prepared internally, your audit committee should be responsible to ensure the financial statements are accurate.
- Are adequate internal controls present? Your audit committee, whether they conduct the review themselves or have an external auditor perform the review, will ensure adequate controls, dual custody and reviews are in place for all the financial functions.
- Are appropriate policies in place to ensure good stewardship? They will review the existing and make recommendations for new polices.
- Is the organization adhering to applicable laws and regulations? Making sure you follow federal and IRS rules and guidelines as well as state laws will help ensure compliance. Even making sure your organization complies with copyright and license agreements are an appropriate role.
- Quantify the financial risks your organization faces and report the findings to management and the board. Ensuring adequate insurance polices are in place is often a key activity.
When selecting individuals to serve on your audit committee, make sure there is adequate independence with no conflicts of interest to leadership, employees and any external auditor. Once you satisfy that requirement, you will want to select individuals who have knowledge of your ministry as well as possess financial literacy and knowledge of internal controls, business risk and compliance related to ministries. Having a group of 3-5 individuals is typically a good size group to get the work done efficiently.
Having a well functioning audit committee will perform a critical service for your ministry as well as help it improve and protect your reputation. What have been your critical success factors when engaging an audit committee?
Let’s face it; most of us are either controllers or avoiders. We either want to be in charge of the things that scare us, or ignore them altogether. And nothing can strike fear in the heart like finances. So, when it comes to your church’s finances, are you taking too much control? Or not enough?
According to a Church Central blog post, most ministry leaders either over-function or under-function in this role. How do you know if you’re taking appropriate responsibility? Read What Is Your Responsibility for Church Finances? and let us know where you fall.
A blog post by Sheri Laninga entitled Financial Review at Church? suggests that financial reviews should be conducted even if your ministry finances are in good shape and that financial accountability is important for maintaining a code of honor in the church.
What are some questions you ask in conducting your ministry’s financial review?
In the normal course of ministry, many nonprofit organizations—as well as missionaries and other individuals—maintain foreign bank and financial accounts. If you own or have authority over a foreign account (such as a bank account, brokerage account, mutual fund, or unit trust), read on. You may be required to report the account yearly to the Internal Revenue Service.
Under the Bank Secrecy Act, you must file a Report of Foreign Bank and Financial Accounts (FBAR), if:
- You have a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country and
- The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. It is a tool to help the United States government identify people who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad. Any citizen, resident, or domestic corporation of the U.S. must file the FBAR annually with the IRS on or before June 30 of the following year.
It goes without saying (but I’m going to say it anyway) that ECCU strongly encourages our members to comply with these rules. Not reporting foreign accounts to the IRS carries both civil and criminal penalties. Remember, reporting is designed to detect and curtail illegal activity of criminals. Ministries and individuals conducting legitimate ministry and personal activities should not worry about reporting these accounts.
For more specific information on the FBAR, see the IRS website.
I’d like to add to Mark Jones’ last post on the importance of transparency in your ministry. If you dig a little deeper into the practicalities of transparency, you find an important discipline: Accountability. And accountability is what U.S. Senate Finance Committee member Charles Grassley is after.
After peering into the finances of some of the nation’s largest media-driven ministries, Senator Grassley has requested that a commission be formed to tackle the issues of concern. The cool part? Senator Grassley requested the Evangelical Council for Financial Accountability (ECFA) to spearhead this effort.
The senator could have asked for a number of organizations to form a commission and make recommendations to him. That he asked ECFA to take the lead is a tribute to ECFA’s long standing reputation as an organization representing the highest levels of integrity and accountability among evangelical ministries members. ECFA has also set the standard for financial accountability even for non-ECFA members and other religious groups.
In a January 5, 2011, letter to ECFA, Grassley asked ECFA for “input on how to address these issues and to help facilitate discussion on whether these issues can be addressed without legislation.” He said, “ECFA has a proven track record of accountability with its member organizations and is uniquely situated to work with representatives from the religious and broader nonprofit community.”
ECFA accepted the challenge and created the Commission on Accountability and Policy for Religious Organizations (ECFA.org/commission) The commission will address some of the most challenging tax and policy issues involving religious organizations—issues that could potentially affect every house of worship and every member of the clergy in America. They include:
- Whether churches should file the same highly-detailed annual information return that other nonprofits must file (Form 990)
- Whether legislation is needed to curb reported abuses of the clergy housing allowance exclusion
- Whether the current prohibition against political campaign intervention by churches and other nonprofits should be repealed or modified
I’m privileged to be one of several ECFA-appointed commission members and am grateful for the opportunity. Personal and professional accountability and integrity are essential in ministry. I hope and expect that the work of the commission will raise the accountability bar for all religious organizations and further demonstrate why Congress and government agencies do not need to seek additional legislation or regulation that could hinder the freedoms we now enjoy.
Are you an ECFA member? Post a comment and tell our readers how this relationship has bolstered your ministry’s accountability and integrity.
