For generations, churches in the United States have been exempt from income taxes and they’re also given a pass on property taxes all over the 50 states and D.C. Since the founding fathers the government has a hands-off mandate for federal income taxes on churches, for their property taxes and so much more. The Washington Post debated whether churches should be tax exempt but the question for whether or not their tax exempt status should continue, is and always will be a sensitive topic.
Bearing this in mind, it is all the more important for churches, as the silently “elected” standard for non profit organisations’ management and leadership, to keep tabs on their finances; what they receive from donations, what they earn from fundraisers and what they spend in all areas of running a church. Everything should be accounted for, if only to justify their tax exemptions, impertinent as it may sound.
It’s easier to forget the importance of an organization’s financial statements, especially if you’re busy running a nonprofit one and especially if it’s a church. You have a whole community to answer to, if you fail to account for the money that the church is receiving and spending. Sometimes it’s difficult to be a volunteer at the church or be its leader. On top of that, you’ve got paperwork to finish by the pile.
However, a church’s financial accountability is important to maintain and probably even more so than your regular nonprofit organization. Otherwise, there would be so much questions to be answered and people in the community might ask for some transparency from the church, although they really shouldn’t have to. It’s a big responsibility that one person alone cannot do, especially if he or she has no background in accounting or bookkeeping but you must remember that being a good steward and having accountability should also be seen in your church’s handling of its finances. If you need more reasons for the importance of a church financial report, here are just some of them:
1. The greatest reason for organizing your finances is perhaps the fact that they help you manage the donations received by the church better. There are members of the church’s community that go out of their way and make personal sacrifices just to keep the money coming in by making donations. It is in good respect that you should be able to monitor your finances for these people too.
2. Financial statements are a big help in the decision-making process of church leaders or its board members. If they’re not properly recorded and monitored, it could affect the decisions they make and the results might not be in the church’s best interests nor that of the community.
3. From the start, it has been established that the church is exempted from reporting its taxes to the government and from being taxed, but just because it has been granted tax exempt status doesn’t mean the government and the community you vowed to serve would let you off easily on accountability. On the other hand, a church tend to get scrutinized more both by the government and by the genera public than your average private business, corporation or even an average nonprofit organization because of the tax exempt status it enjoys.
4. In the event that your church needs a bank loan or wants to get one for the biggest event of the year, the bank is going to want to see a copy of your financial statements. There won’t be an alternative.
5. Transparency. Big word for organizations who cannot keep track of money coming in and out in a year, but more than achievable by those who can justify their finances. Members of the church or the community wants to see how the church is doing with its finances and whether or not it is being wise, especially with the donations it receives. Corporations, important people and even regular people int he community will be more inclined to do share what they have and donate when they see that everything is being handled and managed well and that the funds are being used properly and not mishandled.
6. The church, no matter how well the community and its leaders supports and maintains it, may need to get a government grant and more funding at one point or another. In a situation like that, the government will be asking for the financial report.
7. We live at a time where people are quick to question and doubt so much so that public watchdogs exists, ready to expose nonprofit organizations, including churches that fails to account and manage their finances accurately. These people spends time, money, resources, effort and so much attention trying to find problems in the way you run your church and if they find any sign of mismanagement or misuse of finances, you’re going to find your church in tomorrow’s local headlines which isn’t the type of publicity you want your church to be getting, especially if it’s just starting to get more support.
Will this be a daunting task? Of course. But you’ll get the hang of it, and you will realize how much it can be of help for many reasons and in cases we have previously mentioned. It wouldn’t be easy because you may have a problem with accuracy of the records and so you may need all you the help you can get which would probably mean you should hire an accountant or bookkeeper. If not, you have to invest in learning the basic accounting principles in business.
Whether you like it or not, financial statements are your best chance to show the financial health of your church organization. They should be compiled from the daily reports of funds coming and going out. All organizations also follow a generally accepted accounting principles which uses an accrual basis to track and note income and expenses earned and incurred. Then again, a lot of churches use a cash basis form of record-keeping in which case they record income and expenses when they are received and paid or they combine both approaches.
Supporters, donors and grant-awarding corporations want to know where their hard-earned money goes. You can only provide them enough transparency by having an accurate statement of accounting for the donations and contributions they make which not only gives them assurance that the money they are willing to put in, is being used wisely and properly. It also protects the church further by presenting when and how the funds have been used in a time period.
It’s not always easy to project income and expenses for the following fiscal year but it helps when you get to review past financial statements since you have a general idea of where you stand financially and how you can better manage church activities with the funds, going forward. Understanding your current financial standing means you’re able to better plan for the future. For example, if there is a new ministry to be had or a major church state convention is beng hosted by your church, your financial statements would have information that would help you decide the best time and how such an event or activity might be funded.
Additionally, analyzing the numbers and figures can help you find more ways to manage expenses better and increase your cash flow. Since the financial reports serves a reflection of the church’s financial decisions, any budget-related discrepancies can be better identified and corrected as necessary. An evaluation process like this gives the church great chance at maintaining financial health, providing a robust foundation to their ministry and the community they continue to serve.
In 1 Corinthians 14:40, Paul wrote, “Let all things be done decently and in order.” It is safe to assume that members of the church and its leaders have make decisions that are only paved with good intentions although sometimes they fail to be at the best interests of the church and what it stands for, especially when it comes to financial accountability. To be decent and organized is more than just preaching the good news. The ministry you have been “called” to serve should then be run in order and with the virtue of reflecting its mission to financial responsibility.