Accounting For Churches: 3 Common Mistakes to Avoid
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You likely got into the church in order to help people and bring about a better sense of good into your community. Of course, along with that mission comes a lot of hard work. Running a church isn’t all roses all of the time, it also requires a great deal of hard work.
One of the biggest obstacles most churches run into is their finances. As a nonprofit, the paperwork and accounting that is required to properly operate can be quite complicated and is often outside of the expertise of most religious organizations.
Accounting for churches can be tricky and it’s easy to make mistakes. Knowing which ones to look out for and avoid can be helpful. Read on and we’ll walk you through a few common mistakes worth looking out for.
1. Misunderstanding Designated Funding
One thing churches often get tripped up over is designated funding. These are specific funds that come into a church that is intended to be used for a specific reason. This kind of funding happens all of the time.
For example, the church will realize it needs a few new vans, or perhaps it needs to repair a certain pew in the main body of the church. It will open a fund and collect money to fill this specific purpose.
Money that is brought in via this fund needs to be carefully managed. Any money that a donor gives for a specific fund needs to be allocated properly to the project it was designated for. Even if there is some sort of emergency or a falling out somewhere else in the budget, a church can not move these funds around.
This can create a complicated accounting situation. The church may end up with cash in a fund totaling a large amount, and be stuck not able to use this excess cash in other areas.
Sometimes, this kind of funding can even produce a shortage. People are less willing to give more during collection or donate to the church in general because they’ve already allocated funds towards this specific project.
Improper use of these donated designated funds, however, could land a church in hot water. It might even threaten the privileged financial status of the institution.
It’s important to learn how to properly handle designated funds and to have a system in place that can keep track of where each dollar is going. Having proper church management software can be a big help in achieving this kind of thing.
2. Relying Too Much on an Offer Plate
Yes, the collections process is as old as time. However, the times they are a-changing, and any religious institution that doesn’t try to keep up with modern trends might find itself in some financial trouble later on.
We are quickly becoming a cashless society, with an increased focus on credit cards, debit cards, and other various forms of electronic accounting. That means if you’re looking to rely on cash donations for your main source of income, you may end up with some less than stellar results at the end of the day.
What’s a much better way to handle donations? An automated system.
Allow patrons to your institution to sign up for a recurring or automatic donation. If they’re used to giving a certain amount each Sunday, allow them to automate that payment so it goes straight from their bank account to the church’s on that day each week.
They’ll have less to worry about, and you’ll have a much more consistent sense of what to expect from your budget. The more automated your payments are, the less you’ll have to feel uncertain about how much money you’ll be bringing in each year.
The added bonus to this is that these automatic payments will still come in, even if a family has to miss a Sunday service.
These days, it’s easier than ever to set up an automated payment system. All you have to do is talk with your bank and they’ll be happy to get something set up on your behalf. It can take a lot of guesswork out of your budgeting.
Put this in place and you’ll be living up to the current accounting standards for churches.
3. Improper Classification Practices
The accountant or accounting team at your place of worship has a big job in front of them. They need to keep careful track of all the money that comes and goes through your organization.
Record-keeping is one of the most important practices that your church can get into. Bad record-keeping can get you in trouble with the public and the IRS and could threaten the very existence of your church. If you don’t want that, you need to make sure the work is going smoothly.
Having an error when it comes to an account assignment is one of the biggest mistakes your team can make. Having a misfiled disbursement will totally throw your books out of wack and your team into a tizzy.
Despite these high stakes, making this kind of mistake is all too easy. Something that belongs in one category is accidentally put into another. Something that should count as revenue is counted elsewhere instead.
All of a sudden, the numbers are totally off. You need to have your accounting team double-check their work to ensure this kind of mistake isn’t happening. This is basic accounting for churches and it’s something you need to be on top of.
Understanding Accounting For Churches
It takes a lot of work to properly run a religious institution and there’s a lot of different areas that need taking care of. Learning the ins and outs of accounting for churches can help to ensure you’re on top of what you need to be handling financially.
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