Here are six finance-related tips for religious leaders to consider at every stage of stage of the organization’s development.
A religious institution such as a church, synagogue, or mosque, is not, strictly speaking, a “business” as we usually define it. But if these organizations expect to thrive and fulfill their missions, their finances must adhere to many of the same best practices as any successful for-profit organization.
It takes dollars to achieve your mission, and using those dollars wisely and effectively should be the top priority of your finance committee.
Here are six finance-related tips for religious leaders to consider as they strive to maintain their financial footing and do the work that is the foundation of why they exist.
1. Correctly account for contributions
Accurate record-keeping begins with proper classification of the contributions you receive.
- Unrestricted — Contributions that are received with no restrictions or designations on how the funds can be spent.
- Temporarily restricted or designated contributions — A stipulation from the donor must be met before these funds can be spent. The donation may be designated for a particular purpose or a specific time frame.
- Permanently restricted contributions — Contributions that the donor has stated must be maintained permanently.
2. Develop a gift acceptance policy
Ensuring that contributions are being used as the donor intended can be time consuming and cumbersome for finance committees. To make it easier, your committee should establish a written gift acceptance policy to help avoid confusion and misunderstanding.
Start by establishing the minimum amount of a gift in order for it to be designated or restricted. Having a minimum will save the committee a great deal of time. We recommend developing a gift acceptance form for larger, more significant gifts that come in with some type of restriction. The form should be completed at the time of the original gift. Ask the donor if you can redirect funds to another project if they are not needed for the designated purpose.
3. Consider offering online giving
Everyone is giving to charities and conducting business online. Or are they? Young people tend to adopt new technologies quickly, but there is a sizable population of seniors — many who may be members of your congregation — who still hesitate to deal with money matters online. To find out if the time is right for you, analyze your donor base by asking questions like:
- What is the biggest donor base of your congregation by age and size of gift? Are these individuals tech savvy?
- Who is in your smallest donor base? These may be younger members who do most of their banking online or with credit/debit cards. Would online giving increase the number who give or the size of their gifts?
It may be worrisome when you look at the ages of your largest donors. In most cases, these are your older members. You need to take steps to address what will happen when those members are no longer contributors. Talk to them about planned giving and how to include your organization in their estate planning.
4. Address risk management
Work toward developing a risk management plan to make sure you are adequately protecting the church and your members. Safety should be your number one priority for all members and guests while they are on your property.
- Establish a security team that is responsible for developing emergency plans, monitoring the premises, and training staff and volunteers on how to safely conduct events.
- If you have a large children’s ministry or a preschool program, make sure you are taking the necessary steps to protect the children and youth. Operating a preschool requires compliance with many laws and regulations that you might not have considered before, such as the proper teacher/student ratio, adequate entrances and exits for parents and students, and background checks for all those working with children and youth.
- Review transportation activities and personnel to verify that you have licensed drivers and that all vehicles are properly maintained.
- Review the coverage of all your insurance policies.
- Analyze your vulnerability to cyberattacks and IT system penetration. Steps to protect your technology systems include:
- Having sufficient controls in place
- Using a firewall
- Using anti-virus software
- Limiting access to software
- Changing passwords on a regular basis
5. Understand the housing allowance
Under the federal tax code, clergy members can typically exclude a portion of their income as a housing allowance. However, the allowance is still subject to self-employment tax. Key items to remember about the allowance:
- It is the clergy member’s responsibility for keeping adequate records to show that he/she is eligible for the allowance.
- The amount has to be declared in a formal resolution and documented by the religious organization prior to the allowance being paid.
- Within certain limits, the housing allowance must be used to provide housing.
- The housing allowance is really an exclusion from income, not a deduction, since the amount is not reported on the clergy member’s W-2.
- The clergy member should complete a formal estimate of housing expenses for the year.
- Reasonable expenses can be included in the cost of operating the home, including mortgages, down payments, and home equity loans.
6. Establish a finance committee
Common duties of the committee include:
- Overseeing the finances and financial stewardship of the organization
- Securing budget requests from ministerial staff and committees, and formulating a budget
- Preparing and approving a budget that is in line with your mission
- Reviewing monthly financial statements
- Establishing and periodically reviewing policies and procedures for financial controls
- Periodically assessing the need for a financial review or audit by an independent CPA
- Reviewing investment allocation and performance (in some cases there are separate investment committees, but overall the finance committee should at least oversee the investment function)
- If required, providing an annual report to the congregation
- Periodically reviewing risk management issues
- Working closely with other committees such as stewardship and compensation
The make-up of the finance committee will vary depending on the size of the organization. Items to consider include:
- Election or appointment of committee members
- Having clergy members and finance personnel participate as ex-officio members
- Two- or three-year term limits
- Frequency of meetings (at least quarterly)
- Sharing financial results using online dashboards or graphic presentations
- Training on understanding financial reports for new committee members
For most religious organizations, strong finances are the foundation for success. It takes dollars to achieve your mission, and using those dollars wisely and effectively should be the top priority of your finance committee. Access to sound financial and legal advice and direction is also critical at every stage of your organization’s growth and development.