Saturday, March 16, 2019

Church Finance, Accounting and Reporting with Tapiwa Zuze
Historically, churches have not been run much on professional grounds. Their records have mostly been kept on small papers and exercise books, which in most cases disappear without proper accountability. 

The chaos associated with church accounting and finance has cast a shadow of doubt even on the motives behind the establishment of some of the ministries. Considerable membership has been lost along the way, splits have been witnessed; with people pointing fingers at each other for misuse of public funds!

Some assets have been lost silently or in courts due to lack of proper ownership records and accountability.

In extenuating circumstances; some church leaders have been convicted and sent behind bars not because they really misused any church resources, but simply because there is no proper audit trail to prove their transparency in transacting with church resources!
Church Finance, Accounting and Reporting with Tapiwa Zuze
There are no receipts, invoices, payment vouchers, bank transfer records, title deeds or lease agreements to prove the genuineness of the declared transactions. The church must resemble the true God it preaches, “For God is not the author of confusion but of peace, as in all the churches of the saints” 1 Corinthians 14:33.

1. Stewardship Role
Right from the onset, all church leaders should understand that they naturally carry a stewardship role over the church and its resources. The church, according to Jesus Christ himself, is actually a business! Luke 2:49; “And he said to them, “Why did you seek me? Did you not know that I must be about My Father's business?”

Literary speaking, God is the investor and ultimate shareholder of the church. He has appointed leaders to “manage” his “business” called church, whose primary mandate is to preach salvation to the world, rescue sinners from the jaws of hell and sending them to heaven! The profitability of the church is measured by the number of souls it sends to heaven, as well as the numbers of lives that are changed for the better here on earth. The ultimate reward (“salaries and benefits”) for the saints was promised by God himself in Revelation 22:12, “And behold, I am coming quickly, and my reward is with me, to give to every one according to his work”.
Church Finance, Accounting and Reporting with Tapiwa Zuze
Therefore, the church has an obligation to play a proper stewardship role, fully cognisant that one day we are all going to be accountable to God, who is the paymaster of the saints and ultimate shareholder of the church!

2. Obligation to Disclose
Churches are primarily registered as voluntary; non-profit making organisations. They act as trustees of public resources. And one of the fundamental requirements of trusteeship activities is the duty to disclose the sources and uses of the resources. Church members must be periodically updated on the activities and transactions being undertaken under the name of their institution. They have a right to information, and to query certain transactions. Where clarity is sought, the church leadership should gladly do so without threatening the saints. 

3. Accounting Policies
Churches should draft accounting policies that govern the way its accounting transactions are undertaken and recorded. It is dangerous to apply policies that are sitting with people in their minds without having any compiled documentation to authenticate the practices. Churches should move away from a “people-centred administration” to a “system-centred administration”. People should just bring their skills and improvements to the accounting system, than have the whole system of the church accounting rotating around them. In unfortunate situations where such “powerful individuals” are incapacitated, die or leave the church, they leave with everything they have set-up over the years! And rarely do churches really recover from such catastrophes.

Accounting policies that a church should have (well documented) should include the following:

(a) Asset Management Policy
- Acquisition
- Depreciation
- Disposal
- Use of the assets
- Hiring
- Intra-church transfers
- Use of personal assets in church

(b) Petty Cash Policy
- Floating amount
- Maximum payment amount
- Documentation required
- Reimbursement
- Keeping of cash
- Authorised signatories 

(c) Banking Policy
- Accounts opening procedures
- Accounts modification procedures
- Accounts closing procedures
- Time of banking
- Appointment of signatories 

(d) Procurement Policy
- Requisitioning of goods/services
- Ordering of goods/services
- Methods of getting quotations
- Revenue expenditure documentation
- Capital expenditure documentation 

(e) Incomes Policy
- Church incomes (tithes and offerings)
- Special offerings (seeds and first fruits)
- Periodic contributions (subscriptions)
- Departmental incomes
- Commercial incomes (businesses and investments)
- Pledges
- Honorarium and pastors’ welfare 

4. Basic Accounting Concepts
The accounting profession is primarily governed by Generally Accepted Accounting Practice (GAAP); which is a compilation of basic accounting principles and concepts applied across many countries in the world. Churches are not spared either; they are expected to observe the same in their accounting and reporting. Amongst many of these principles and concept; below are the three basic ones that every church should adopt and implement:

(a) Consistency Concept
The consistency concept conscientises church leaders that when they begin to apply their policies, they should remain consistent in doing so. Changing from one policy practice to the other causes a lot of confusion to both the preparers and users of the information. For instance, if the church adopts a policy which says that honorarium collected on Big Sundays be given to the resident pastor in full, the practice should remain consistent at least for the foreseeable future. Where a policy change is instituted, there must be reasonable cause to do that; and such changes must not be frequent. Otherwise it then defeats the whole purpose of having policies as church guidelines.

(b) Accruals Concept
The accruals concept seeks to equip administrators to be able to accrue expenditure in their books when it is incurred even before it is paid. This concept seeks to address the common problem in churches where bills are left piling up without being recorded anywhere. Administrators are usually guilty of declaring surplus cash balances in church when in the background the church is owing thousands of bills that are not declared anywhere. All church expenses must be declared in full, whether they have been paid or not. The balance sheet must then show the total amount owing to different suppliers/service providers. 

(c) Prudence Concept
The prudence concept seeks to address the problem of over-planning in churches. Most administrators are normally accused of lacking faith in their planning (really??)! This is because their God-given gifts require them to balance between faith and reality. Take for instance, a conference chairman who has failed to feed 5000 people in attendance for the last five years, comes up with a conference budget that he is able to feed 20000 people in attendance in his sixth year of chairmanship! And when you look at the factors on the ground, nothing has changed in any way.

The reality of the matter is that chairman is planning to fail!

The prudence concept throws a headwind of caution against such wild dreams. Even God, in all his supremacy and sovereignty, created the universe in a systematic way. For six days he carried out his plan, and rested on the seventh day. Genesis 2:2, “And on the seventh day God ended His work which He had done, and He rested on the seventh day from all His work which He had done”. God could have done everything in a split second because HE CAN; but he chose to apply the prudence concept for gradual creation, at least for all for us to learn!

5. Source Documents
One of the key components of proper accounting and reporting is the ability to produce primary sources of data. The presence of source documents help to authenticate the genuineness of recorded transactions. They are valuable components of audit trail for both internal and external audits. Nomatter how “small” a transaction is assumed to be, people must be taught the importance of providing source documents to back up their claims.

Some of the common source documents that the church should be familiar with include: 

(a) Receipts
(b) Invoices
(c) Bank deposit slips
(d) Bank statements
(e) Bank transfer slips
(f) Mobile money statements
(g) Petty cash vouchers
(h) Petty cash returns
(i) Cash counting forms
(j) Cash submission forms
(k) Delivery notes

6. Bookkeeping
The bookkeeping arm is a primary function that ensures the church’s accounting records are captured in the books of original entry. This function should normally be carried out just after the main church service when transaction memories are still fresh. There church should assign administration officers who possess basic accounting skills for this task. Where available people do not possess accounting qualifications, at least they should receive basic training before embarking on this task. Bookkeeping forms the primary records that will be used in preparing the church’s financial statements, therefore once an error happens at the primary source of entry, chances are very high that it will not be detected along the chain of reporting. Bookkeeping include manning of the cashbook, recording of credit transactions in journals and compiling of asset registers. 

Church Finance, Accounting and Reporting with Tapiwa Zuze


7. Financial Statements
The administrator and his team should be able to produce basic financial statements at least on a monthly basis. The good practice will be to present a summary of the church’s monthly performance during Big Sundays, with more detailed reports being provided on a quarterly basis. This practice gives the congregants an assurance that their leadership is accountable over its stewardship role on the church’s resources. Most of the congregants may not even understand the financial statements of their church, but the habitual and consistent practice of giving them feedback gives them the much desired comfort!

The set of financial statements should at least include the following key reports:

(a) Income and Expenditure Statement (for church operations)
(b) Profit and Loss Statement (for business operations)
(c) Balance Sheet (showing the church’s assets and liabilities)
(d) Cashflow Statement (showing summary cash movements)
(e) Notes to the Financial Statements (notes on key transactions/records)

8. Budgeting and Forecasting
Churches have for long operated without proper budgets, and this why the majority of their expenditures are dealt with real-time! It is a common feature in churches to see conference leaders sweating in front of congregants trying to “crank” them to pay money! However, where proper budgeting and forecasting is done, people are advised way in advance of what is expected of them. A proper budgeting process starts with primary input from the heads of departments at assembly level until a consolidated ministry budget has been approved at the highest level.

Budgeting and forecasting comes with many benefits to the church, which include:

(a) Improves resource allocation
(b) Improves financial discipline
(c) Improves leadership accountability
(d) Eliminates last minute pressures

9. Audit and Compliance
The church should set-up an internal audit function which consistently monitors the church’s operations against set policies and standards. This is done to ensure that the church’s level of compliance be improved for the better. Audit and compliance also helps to reinforce the practice that church management be based on systems rather than individuals. In addition to the internal audit function, the church should contract professional and independent external auditors to come and audit the church’s books of accounts and pass their professional opinion. The professional opinion can be any of the following:

(a) Unqualified opinion
(b) Qualified opinion
(c) Adverse opinion
(d) Disclaimer opinion

The professional opinion of external auditors counts a lot on:

(a) Filing of tax returns – the tax authorities may easily accept the church’s taxation return and figures if the computation is based on audited financial statements.
(b) Applying for tax relief – tax authorities may easily grant a tax relief certificate to a church organisation if they can support their application with audited financial statements.
(c) Loan application – sometimes a church may need to borrow some funding to be able to complete a certain project. And in such cases, the bank normally require submission of recently audited financial statements as part of the conditions.
(d) Obtaining a bank guarantee – sometimes a church may need to enter into a material transaction that require strong financial back-up. And for the church obtain a bank guarantee from their bankers, part of the conditions normally require the submission of recently audited financial statements.

10. Taxation
The tax function is responsible for planning and managing all tax-related expenditures. The circumstances surrounding taxation are normally complex, and this emanates from the fact that different countries have different tax regimes to different tax operations. The tax function can become more complex for the church when the ministry’s operations have turned international. In such cases, the church may need to engage independent tax accountants to minimise errors in tax computations. It is a risky venture that may attract huge interest charges, penalties or even litigation for the church if not properly handled.

11. Payroll Administration
When churches are still small, they are usually run on voluntary basis. Trust and loyalty plays a big part at that inception stage; there is little regard for qualifications. However, as the ministry grows, full-time employees begin to be engaged to run the affairs of the ministry. From an accounting perspective, the following must be clearly defined and submitted to the administrator for ease of implementation:

(a) Salaries structure
- Basic pay
- Overtime
- Bonus (13th cheque)

(b) Benefits structure
- School fees
- Medical aid cover
- Funeral cover
- Communication
- Transport

(c) Schedules of allowances
- Duty travel allowances
- Board sitting allowances

(d) Income Tax Schedule
- Tax free threshold
- Tax bands
- Taxation of expatriates

12. Investments
Gone are the days when churches used to live from hand to mouth! Church leaders must now begin to think of setting up an investments function under administration. Policies must be promulgated that ensure setting aside of certain percentages of incomes for investments. For instance, a policy can be developed which mandates assemblies and sub-ministries to set aside 5% of all their incomes, and submit the same to the head office for investments. And when the investments portfolio grows, the church can easily pay for all its conference expenses without even waiting for conferences fees or collections from services! It can pay for pre-conference expenses like air tickets for guest speakers, accommodation, conference hall, live broadcasting services, security and guest musicians even before the conference starts! Such luxuries can only be done when proper investments have been done to cushion the church.

Investments can also be made in acquiring land and buildings, even for speculative purposes. In future, the church can dispose the same and realise good value out of it. 

Church Finance, Accounting and Reporting with Tapiwa Zuze

13. Computerised Accounting
The corporate world has now gone a step further by introducing accounting softwares to manage their books of accounts. Likewise, churches have also gone the same way by adopting the use of systems to manage their information, records and activities. This improves data integrity and completeness. In addition to that, it also helps the church to move away from “people centred administration” to “system centred administration”.

Extract from my book: CALLED TO ADMINISTER!

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Tapiwa Zuze: Administrator, Accountant, Leadership Coach, Conference Speaker, Minister, Author, Blogger.

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