By Deborah Taylor
Churches will often reach out to the Tennessee Baptist Convention seeking help and advice about having an “audit” performed on the finances of the church.
The reasons are varied:
— New finance team members coming aboard, asking questions not asked before
— New pastor wants to get a handle on how the church operates financially
— Church treasurer feels it is an appropriate procedure to have done periodically
— Suspicion that something is not being done correctly or even of fraudulent behavior
An audit of the financial statements is performed by an independent accounting firm. It involves an examination of the church’s financial statements and required disclosures. The auditor will issue a report attesting to the fairness of presentation of the financial statements.
An audit of the financial statements is the most expensive approach because the auditor is required to perform several procedures. The independent accounting firm also can perform a review of the financial statements or a compilation of the financial statements. Both of these are less costly than an audit. Accounting firms also can perform specific tasks, such as bank reconciliations or review of the church’s internal controls. These services can be far less costly than an audit, review or compilation.
Many of these procedures are still cost-prohibitive for smaller to medium-sized churches. Upon further discussion with the church and an explanation of what an audit involves, most churches decide against an audit. Rather, the church wants assurance they are following proper procedures and reporting correctly to the Internal Revenue Service. They want to ensure the assets of the church, primarily cash, are being safeguarded and reported accurately to the church.
Many times, what the church needs is an analysis of the church’s financial policies and procedures. If the church has a functioning finance committee, an internal review of the procedures by this body can meet their needs. Procedures can be implemented to strengthen internal controls of the financial procedures, the purpose of which is to safeguard assets and to present reliable financial information to the church.
If fraudulent behavior is suspected, we would encourage the church to find a local Certified Public Accounting firm to perform procedures to make that determination.
Whether performed internally or by someone independent to the church, generally it is a good business practice for the financial procedures to be looked at annually with “fresh eyes.” If not annually, a review is appropriate upon the change of a church treasurer or individuals responsible for the church’s financial operations.
Deborah Taylor, CPA, retired as accounting manager for the Tennessee Baptist Convention. She continues to consult with Tennessee Baptist Churches on matters related to accounting and tax issues. Churches may contact her through LUsery@TNBaptist.org.