|CHURCH ADMINISTRATION BASICS|
|TABLE OF CONTENTS||
(1 Corinthians 14:40 NKJV) Let all things be done decently and in order.
This should be our guideline for all church record keeping. Remember, as a nonprofit corporation the books should be open to anyone who wants to know how the church spends the donations. On the other hand, general disclosure is not advised. If someone asks, the information should be given with an explanation. There needs to be an understanding that goes along with the numbers to make them meaningful. Remember, information without explanation is dangerous.
Only tithes and offerings should be entered in your contribution file. Any other monies collected should be entered in their respective accounts.
1. When recording a check from a joint account:
2. If a cash donation, credit to whatever name is on the cash envelope.
3. If a donation is for a missionary from your church, the check should be made payable to your church and "To the ministry of John Doe" in the memo line. If the check is made payable directly to the missionary, then it must be treated as a gift to the missionary and is not taxable. It is also not deductible by the donor. The same applies if the missionary's name alone in noted on the memo line.
4. Treat a money order like a check, using the rightmost positions of the money order number as the check number.
5. If a check is from a business, it must be credited to that business. The only time it can be given to an individual is if their name appears with the firm name and a d/b/a.
You should set up a membership record for donations you receive, but cannot determine whom they are from, either because of missing or illegible information. You might call it "Anonymous". You will also need to set up a record for loose cash.
Contribution statements should be issued at the end of the year. These statements should show the following:
For all non-monetary contributions, letters of acknowledgement should be sent to the donor upon receipt, listing the item, but not stating a dollar value. When listing the item in the thank you letter, provide enough detail so that the donor can support the value he has placed on the item. Non-monetary contributions should not appear in the contribution record.
When a checks is returned from the bank unpaid, it must be determined if the check was a tithe check or a check for goods or services such as the Ladies Luncheon. If it is a tithe check:
Expenses Pending Receipts
Expenses With Receipts
Most churches have a petty cash account for miscellaneous purchases. There is a proper way to set-up and maintain a petty cash account that provides good accountability and reflects your expenditures accurately.
If an individual is to be reimbursed for purchases made for the church, be sure to note on the check that it is a reimbursement and record it as such in the accounting system. Otherwise, if no such designation is made, you may be causing him or her to pay additional income tax. If you wrote undesignated checks to this person totaling more than $600, you would have to file IRS Form 1099 which appears as income to the IRS. A better way to handle this situation is to give them a signed check made out to the store where the purchase will be made. Let them fill in the amount and when the receipt is returned you can record the expenditure. If a check signer is doing the shopping he or she should take the checkbook with him. Although it is perfectly legal, it does not look good to have a lot of checks made out to one individual, especially a signer on the checking account.
Another method of handling reimbursements for the pastor is through a credit card. If you can get a credit card in the name of the church, that is best. If not, he can use his personal credit card. When he gets his statement he makes a copy and marks the church related expenditures. The church then writes a check to the credit card company for the amount of the church related expenditures. This minimizes the checks made payable to the pastor.
All property and stock or bond donations should be properly accounted for, both acquisitions as well as dispositions. The tracking form gives a convenient method of recording and tracking disposition of property donations. The flow chart above should be copied on the back of the Donation Tracking Form. Either one can be adapted to your church.
You will receive both physical assets (clothing, food, furniture, cars, land, condominiums, homes, etc.) and financial assets (stocks, bonds, mortgages, etc.). All donations will be retained, sold, or donated. Before accepting a donation make sure that it will not become a liability to the church. This is a concern with land, condominiums or homes. If they are in a situation, legal or physical, where they are not marketable, the taxes and/or maintenance fees could become a liability to the church. All financial assets should be sold immediately, so that the church receives the full value of the donation as intended by the donor.
In all cases an approximate value must be placed on the item and that information must be conveyed to whomever is doing your accounting. A thank you letter should be written thanking the donor for the gift. Be specific in the letter, include brand name and model numbers so that the donor can justify the value that he places on it with the IRS. However, do not specify a value in your thank you letter. That is between the donor and the IRS. At this time an IRS Form 8282 should be filled out and filed. This donation will not be reflected in the annual contribution statement. The letter is sufficient.
Another method of handling donations is to ask the donor if he or she is interested in the charitable tax deductions. If not, the donor can give the item directly to the needy person. Leaving the church out of the transaction saves a lot of administration (especially titled items such as vehicles) and personalizes the donation. Occasionally this sets the stage for further direct ministry.
In time a decision will be made to retain, sell, donate or discard the asset. When the decision has been carried out, accounting must be notified so that the church's financial records can be updated to correctly reflect the disposition of the asset.
It may be difficult the first year to forecast your expenses, let alone your income, but start with a simple guideline and get more sophisticated as you have more information. One way to budget with all the unknowns of the first year is to budget by a percentage of your income. For example savings should be about 10%, tithe 10% and 80% for the church operating expenses. Tithes of the church include Missions, Benevolence and Outreach. Of the 80% no more than 40% should go to salaries and Housing Allowance. Once you get a handle on these figures, estimate the split between administrative and ministry expenses and continue from there. In time you will have a detailed budget.
As your budget process matures there are additional considerations that will shape your church budget.
Save at least 10%
Staff Expenses not to exceed 40%
Ministry Expense depends on the above
After a few months you should have a feel for the monthly tithe and offerings. When you build a budget, here are a few rules to keep in mind.
Ted Seidel and Tim Davidson