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Internal Financial Controls
MCC Resource for Treasurers of Our Local Churches
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Table of Contents
Internal Financial Controls and Risk Management …………………………………….. 002
Separation of Duties ………………………………………………………………… 002
Physically Safeguarding Cash Receipt s………………………………… 002
Collections……………………………………………………………………………. 003
Counting ……………………………………………………………………………… 003
Recording Cash Receipts………………………………………………………….. 003
Disbursements………………………………………………………………………… 004
About Check Writing…………………………………………………………………… 005
Additional Security Concerns………………………………………………………. 005
Audit…………………………………………………………………………………….. 005
References and Resources …………………………………………………………………. 006
Forms…………………………………………………………………………………………… 007
MCC Resource for Treasurers of Our Local Churches
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Internal Financial Controls and Risk Management
Unfortunately, churches are not immune to the actions of unscrupulous people, even staff and
volunteers. Indeed, because churches want to operate in an atmosphere of mutual trust, they
can be especially vulnerable if they fail to establish sound internal financial controls. Internal
financial controls are sets of risk management tools, procedures and protocols designed to
safeguard the church’s assets, ensure accurate financial reporting and efficient and effective
use of funds. In addition, internal controls serve to protect staff and volunteers from false
allegations of embezzlement or misuse of funds.
Internal financial controls should be set forth in your church’s Financial Operating Procedures
(FOPs) which describe how you will handle each of these issues. This will provide guidance to
staff, board, and volunteers and is especially important as turnover occurs and new people take
on new roles. Financial Operating Procedures can be as detailed and comprehensive as the
circumstances of your church require. Three examples of FOPs are included at the end of this
Booklet.
Separation of Duties
Separation of duties not only plays a critical role in safeguarding church assets and protecting
staff and volunteers, but also reduces the workload of the church Treasurer. Dividing duties
among a number of people ensures that no one person has the opportunity for or gives the
appearance of improper conduct.
Duties are often separated by receiving and disbursement functions. For example, the individual
who receives and records contributions should not handle disbursements or prepare checks. A
different way to think of separation of duties is to separate recording and reporting functions
from cash handling functions.
Large churches often have paid staff - a financial secretary or administrative assistant, for
example - who posts contributions to individual giving records, posts receipts to the General
Ledger, and performs the monthly bank reconciliation, but does not handle disbursements - this
would typically fall to the Treasurer. Smaller churches often do not have the resources for paid
staff to handle this function and must rely on the Treasurer and volunteers, preferably in the
form of an Assistant Treasurer, who is assigned specific tasks, as set forth in the FOP’s.
Physically Safeguarding Cash Receipts
The primary purpose of internal controls is to protect contributions from members and other
contributors. This begins with appropriate procedures for collecting and counting funds during
church services and other events, as well as any received by mail.
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Collections…………………………………………………………………………….
003
Collections, during the worship service or other events should always be in the custody of at
least two un-related individuals. This means that the offering should be handed directly over to
counters or placed in a secure, locked location until they can be retrieved by at least two people
responsible for counting. Checks received by mail should likewise be secured until they can be
counted.
Counting ………………………………………………………………………………
003
Counting should occur as soon after collection as possible and should be performed by two unrelated individuals who are, ideally, part of a counting committee that rotates responsibility
frequently. Many churches also take the additional step of requiring the presence of a Board
member during counting. Counting should occur in a secure, locked location, where there is no
“traffic” or interruption.
Deposits should be made immediately following counting whenever possible and should be
made by two people. When it is not possible to deposit receipts immediately, they should be
secured, preferably in a safe or lock box. Cash receipts should NEVER be kept in an
automobile or in someone’s home.
Recording Cash Receipts
Accurate accounting of member contributions and other receipts begins with counters.
Counters should:
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Use a ‘count sheet’ to record individual contributions, the purpose of the contribution,
check number (or indicate cash) and to tally totals.
Make sure the amount written on envelopes matches the amount inside the envelope.
Endorse all checks ‘for deposit only’ to the church’s bank account.
Double-check each other’s work.
Ensure that the count sheet totals agree with the deposit slip.
Sign or initial the count sheet and the deposit slip
Deposit the collection intact; that is, without “making change” or disbursing cash to cover
expenditures.
Provide a copy of the count sheet and deposit slip to the person responsible for posting
contributions to individual giving records and to the general ledger.
Checks received via mail should be endorsed “for deposit only” to the church’s account and
held in a secure location until they can be counted and recorded.
Recording of receipts should be handled by a financial secretary, assistant treasurer or
volunteer not involved in handling cash or making disbursements.
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The Assistant Treasurer should:
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Receive a copy of the count sheet and deposit slip from counters.
Post totals to General Ledger.
Ensure that totals on the count sheet and deposit slip match totals posted to General
Ledger.
Post contributions to individual giving records.
Retain count sheets and deposit slips in a secure file.
Perform bank reconciliation each month.
Disbursements
Church FOP’s should designate who has authority to authorize and approve disbursements, the
process for obtaining approval, and how and by whom they are recorded. Approval of
expenditures is often delegated according to the level of expenditure. For example, larger
expenditures may require approval by the Board of Directors, while expenditures below a
certain level might be approved by the Pastor or another staff member. A blanket approval is
often in effect for budgeted operational expenses such as mortgage/rent, utilities and the like.
The task of scrutinizing disbursements for proper documentation and approvals and preparing
checks for signature, and recording transactions often falls to the Treasurer or another
designated individual who does not handle receipt of funds.
Disbursements should:
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Be documented via disbursement or check request form accompanied by original
invoices and any other necessary documentation or justification, as well as the signature
of the approving official.
Be paid by serially numbered checks rather than cash;
Always be signed by two authorized signers who carefully inspect the request and
documentation.
Be promptly posted to the General Ledger and should depict date, payee, amount,
purpose, and check number.
Include notation of the check number on the documentation.
Documentation should be retained in secure file.
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About Check Writing…………………………………………………………………… 005
Church Financial Operating Procedures should include specific protocol regarding signature
authority, check writing, and safeguarding checks. Specifically, these protocols should:
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Require two signatures on every check.
Identify who is authorized to sign checks.
Prohibit the person who prepares the checks from signing checks.
Ensure that bank signature cards are updated as signature authority changes.
Prohibit signing blank checks.
Prohibit checks made to “cash.”
Provide for physically securing blank, unused checks.
Additional Security Concerns
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Is the location where financial records are stored locked when not in use?
Is access to this location restricted to authorized individuals?
Is access to individual giving records restricted to authorized individuals?
Are credit card receipts or other documents containing sensitive financial information
secured properly?
Audit…………………………………………………………………………………….. 005
An important part of ensuring that your internal financial controls are followed and
provide effective protection is an annual audit by an external auditor and/or internal
audit committee. See Audits Resource for more information on audits.
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REFERENCES AND RESOURCES
Free Church Accounting http://www.freechurchaccounting.com/internalcontrols.html
“Does your church have appropriate internal control for cash receipts?” The National Public
Accountant, Dale L. Flesher,February 1, 2002. http://www.allbusiness.com/accounting/1304371.html
“Fifty Internal Control Practices for Every Church” The Church Guide to Internal Controls,
Church Law and Tax Report, Richard J. Vargo, 1995
http://dowoca.org/files/treasurer/Internal_Control_Practices_.pdf
AccountingCoach.com www.accountingcoach.com
COGpension.org www.COGpension.org
Brethren of Christ in North America http://www.bic-church.org/
Board Source www.boardsource.org.
MCC Policy Manual http://issuu.com/mccchurch/docs/sample_policy_manual_-us_edition
MCC Resource for Treasurers of Our Local Churches
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FORMS
MCC Resource for Treasurers of Our Local Churches
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Sample Financial Operating Procedures ……………………………………………. 009
Count Sheet Sample …………………………………………………………………………. 011
Check Request Form ………………………………………………………………………… 013
MCC Resource for Treasurers of Our Local Churches
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Forms…………………………………………………………………………………………… 007
SAMPLE 1: FINANCIAL OPERATING PROCEDURES
Church finances shall be under the ultimate direction of the congregation. The Finance
Committee shall make monthly reports to the church.
This Church shall be wholly supported by the voluntary tithes and offerings of members and
friends of the church.
This Church shall operate with a unified budget with one treasury. All funds received for any and
all purposes must be accounted for by the Finance Committee. Financial statements will be
made available to members each month.
The fiscal year shall begin on January 1 and end on December 31.
The Finance Committee shall begin the budget making process, drawing on the input of all the
ministries and teams of the church. The Personnel Committee shall make recommendations
concerning paid employees of the church. The Finance Committee shall present the budget to
the Board of Directors and then to the church. Copies of the proposed budget shall be
distributed to the church members at least one week prior to its adoption during the December
business meeting.
Once an expenditure is approved by inclusion into the church budget, no other approval is
needed – unless due to the church being in a tight economy, the Finance Committee shall
announce a need for prior approval of expenses.
Designated funds must be approved by the church. No one may establish a "designated fund"
simply by the giving. Requests for creating a new fund must first be submitted to the Finance
Committee. If the proffered gift is outside the scope of the current budget or ministry of the
church, they shall bring recommendations concerning the offer to the congregation for approval.
No tangible property may be received by the church without first being accepted by the Finance
Committee.
Separate persons shall be responsible for having custody of church offerings. These persons
will consist of money counters and a depositor. A minimum of three church members is required
to count church offerings at any time.
There will be a requirement of two signatories on all checks.
There will be no staff members participating in the collecting, counting or depositing of church
offerings.
All requests for reimbursements will be submitted on a "Request for Sundry Disbursement" form
which will be submitted to the treasurer with the proper signature approvals.
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SAMPLE 2: FINANCIAL OPERATING PROCEDURES
A. All financial accounts of _________ MCC will have all members of the Board of Directors as
signatories. In the event the Treasurer performs the accounting functions of the church, the
Treasurer shall not be a signatory on the account.
B. The counting of all offerings will be done by two persons, as directed by the Board of
Directors, and the offerings shall be deposited into the appropriate church bank account.
C. Cash offerings shall not be used to cash personal checks.
D. All requests for funding outside of the budget with the exception of designated gifts shall be
in writing and shall include a written detailed estimate. The funding is subject to Board approval
and the Board shall determine the source account for the funding.
E. An audit of the church’s finances shall be accomplished annually. Such an audit shall be
conducted by an independent third party selected by the Board of Directors.
F. A budget shall be prepared by the Finance Committee and presented to the Board of
Directors at a regular Congregational Meeting annually and shall be approved by a simple
majority. The budget may be changed as required at any Congregational Meeting.
SAMPLE 3: FINANCIAL OPERATING PROCEDURES
1. Authorization for signatures necessary on contracts, checks, and orders for payment,
receipt or deposit or withdrawal of money, and access to securities of ___ MCC shall be
provided by resolution of the Board.
2. Any individual authorized to purchase goods and/or services for the ___ MCC shall
follow the procedures set forth in these policies and the Internal Control Procedures
Manual.
3. The Finance Committee shall be responsible for reviewing and recommending an annual
operating and a capital budget to the Board for review and sending to the
Congregational Meeting.
4. The Congregation shall be responsible for approving the annual operating and capital
budgets.
5. No expense shall be incurred in excess of the total budgetary appropriations without
prior approval of the Board.
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COUNT SHEET SAMPLE
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CHECK REQUEST FORM (SAMPLE)
Payable to: [Name of the Person or Vendor to be paid]
Address: [Street or P.O. Box to which the check will be mailed ]
Address 2: [if needed to complete the address]
City/State/Zip: [City, State, Zip code of reciepent]
Telephone Number: [Vendor Phone Number]
Fax Number: [Vendor Fax Number]
Account Number: [The account number given to the church as a corporate identifier]
Amount: [Amount due to the vendor]
Due Date: {Date payment is due to the recipient}
Requested by:
[Name of the person making the request] Date: [Today’s date]
Contact Number: [ Phone number where requstor can be reached to answer questions]
Reason for Request:[State why this purchase made]
Accounting/Budget Line Item Number: [The church’s Accounting or Budget number]
Approved by: [ Name of Person Approving Payment]
Declined due to: [If payment is declined, reason for the decline]
Vendor Number: [ If your church assigns vendor number, record it here for the person inputting
the check informaiton into the Accounting system]
Signature: [Signature of the person approving the issuance of a check]
Check Number: [Record the check number here]
Check Date: [Record the date the check is issued]
Invoice(s) must accompany a completed check request form.
MCC Resource for Treasurers of Our Local Churches