by Glenn Tyndall, CPA, Realtor
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As a CPA, I have audited churches and other religious organizations. My experience is that church leaders want to know how they can better prepare for the church's audit and want to have a better understanding of what we'll be doing during the audit of their church. This guide addresses these concerns and highlights issues unique to churches accounting policies.
A complete set of financial statements for a church includes the statement of financial position, statement of activities, statement of cash flows, statement of functional expenses, and accompanying notes. The church’s audit is designed to ensure that these financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP). When conducting a church audit, we test the accuracy of the church’s accounting records and review the church’s internal control procedures to ensure that the financial statements are presented fairly.
Churches have unique accounting policies and internal control procedures.
The church uses cash and cash equivalents to fund operations. However, churches receive cash or other assets with donor-imposed restrictions that limit their use to certain purposes. Therefore, it’s important that the church maintain accurate records of restricted donations.
During a church audit, we will sit in on a service to conduct a physical walk through of the offering collection process. Any discrepencies or opportunities to improve the church's internal controls will be communicated to church management and the board.
The persons counting the money should not include the pastor or the church treasurer. This is to ensure that there is proper segregation of duties in the handling of and accounting for cash receipts.
The depositing of funds should always be performed by two members of the church. This ensures the members’ safety because they usually carry a large amount of cash, while also being a good internal control policy for the church.
Cash deposits need to be done timely and two members of the counting team should be in custody of the funds until deposited.
Churches often receive restricted donations - for construction or acquisition for the building of a new annex or for mission trips. The donor’s intention was to restrict the church’s use of those funds for only those stated purposes.
Practical advice: Some churches have chosen to physically separate operating funds from restricted funds by keeping the funds in separate bank accounts. This control ensures that restricted donations are not used to fund operations.
Churches rely on donations to fund operations and other special-purpose functions. By keeping accurate records of donations, the church can build rapport with its’ members and increase future donations by providing members with an annual summary of donations for use in preparation of their personal income tax returns
The church’s accounts payable and cash disbursement process is closely looked at by the CPA auditing a church. Therefore, we recommend that church leaders look closely at the controls and procedures in this area prior to the CPA’s audit.
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