Last month we talked about how your organization’s cash management practices are one thing lenders look at when deciding whether you qualify for a loan. But exactly what are they looking for? In his article “Three Questions to Ask about Your Church’s Financial Management,” Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA), says the way you answer these questions reveals much about the health of your financial administration. Here are the questions.
Does your church have fair compensation?
The big issue here is whether compensation is approved independently. “You need to make sure,” Busby says, “that your staff members aren't directly or indirectly helping determine how much they will be paid.” Another question in whether all taxable compensation is reported as such? This includes the way fringe benefits are reported.
Is anyone at your church challenging your senior pastor's expense report?
“It's critically important to have your pastor's expense report independently reviewed,” Busby says, pointing out that it can be awkward for another staff member to insist on this review. He offers his practice as an example. His board chair “gets to look at everything I spent, and everything I was reimbursed for.” He says too few churches require this independent review.
Is your church handling "restricted gifts" properly?
A family in your church is adopting a child. You give money and designate it to help with the family’s adoption expenses. Meanwhile, your church has a designated fund to support people who adopt children, and someone else donates to this fund. Which of these gifts is tax deductible? Or a donor gives money to a specific project but your church doesn’t end up spending the gift on that project. What happens to the money? These are questions you need to answer before accepting gifts from donors or advising them regarding designated gifts.
Busby says that while compensation, expense reimbursements and restricted giving are not the only issues churches struggle with, “If you've got these three covered, you are doing a lot right.”
To learn more about designated giving requirements, check out these ECFA articles:
ECCU member ministries have access to a wide array of deposit services to help them manage funds well and wisely. You can learn about these services here.