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Church Finance, Accounting and Reporting - Part 5

Historically, churches have not been run much on professional grounds. Their records have mostly been kept on small papers and exercis...

Historically, churches have not been run much on professional grounds.

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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!

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

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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:

(1) 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.

(2) 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.

(3) 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.

(4) 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.

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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.

The series continues on Part 6.

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