The Power of an Audit: Building a Stronger Church


 

Many local churches, especially smaller ones, might question the need for an auditor. Why a small church with a tiny budget? And why a big church with a lot of controls in place and with a full staff of experienced administrators? After all, the church treasurer is a trusted member of the community, and the budget seems straightforward. Hence, most churches do not have provisions for the position of Auditor or Audit Committee in their constitution. However, a financial audit offers significant benefits that go far beyond simply checking the numbers.

But there are more reasons than that for audits.

 

 Here are a few:

  • An annual audit is the best way we know of to protect the persons the local church elects to offices of financial responsibility from unwarranted charges of careless or improper handling of funds;
  • to build the trust and confidence of the financial supporters of the church in the way their money is being accounted for (trust and confidence lead to improved patterns of financial support);
  • to set habits of fiscal responsibility to assure that when there is turnover in personnel there will be continuity in accountability and nothing will fall through the cracks;
  • to assure that gifts made to the church with special conditions attached are consistently administered in accordance with the donors' instructions, and thus let donors know their gifts are used as intended;
  • to provide checks and balances for sums received and expended. 

Conducting an audit is not a symbol of distrust.

It is a mark of responsibility.

It is good stewardship demonstrated for all to see.

It is a message to local church donors that you care about their gifts.

Summarily, church committees, treasurers, finance committees, deacons, and other persons in positions of responsibility are liable for any losses which would have been discovered by an ordinary audit but were not discovered because they failed to have the audit conducted.

 

What to Expect During an Audit

A church audit typically involves a review of various financial documents, including:

  • Account statements (bank, investments)
  • Cash receipts and disbursements records
  • Payroll records
  • Budget reports
  • Internal control procedures

The auditors will assess the church's financial health and identify any areas for improvement. They will then present their findings and recommendations to the church leadership.

The audit work is sometimes perceived as superfluous or unnecessary because of the trust placed in the church’s treasurer and/or financial secretary. In the vast majority of cases that trust is well deserved. In other cases, the Audit work is viewed by those whose work comes under scrutiny as an attempt to discredit or devalue their work. Indeed, the treasurer or financial secretary should not view the Auditor as a vehicle by which the church is expressing distrust or suspicion. On the contrary, the Auditor in a church should celebrate the good work of the treasurer and financial secretary and hold it up high for all the members to see.

Here are some reasons why some local churches might resist having internal auditors, along with potential solutions to address these concerns:

Reasons for Resistance:

 

  • Misunderstanding the Purpose: Some churches might view audits as a sign of distrust in their financial leaders. Educating them on the benefits of audits, such as protecting treasurers and building donor confidence, can be helpful.
  • Cost Concerns: Audits can incur costs, especially if an external auditor is hired. Exploring options like volunteer auditors or collaborating with other churches to share the cost of an audit service can be solutions.
  • Fear of Findings: Churches might be worried that the audit will uncover financial mismanagement. Emphasize that audits are preventative measures; early detection of issues allows for correction and avoids larger problems later.
  • Lack of Transparency: In rare cases, resistance might stem from a desire to conceal financial irregularities. Open communication and emphasizing the importance of ethical financial practices are crucial. 

Solutions to Address Resistance:

 

  • Education and Communication: Church leadership can organize workshops or seminars explaining the benefits of audits and dispelling misconceptions.
  • Highlighting Positive Outcomes: Share success stories of other churches that have benefited from audits, focusing on improved financial practices and increased donor confidence.
  • Consider Volunteer Auditors: If cost is a concern, explore the possibility of qualified church members volunteering as auditors.
  • Collaborative Efforts: Churches in a denomination or region might consider joint audits to share the cost and expertise of an external auditor.
  • Focus on Stewardship: Frame audits as a way to demonstrate responsible stewardship of God's resources entrusted to the church.

 

Additional Considerations:

  • Denominational Requirements: Some denominations might have mandatory audit requirements for member churches. Encourage adherence to such regulations.
  • Focus on Transparency: Promote a culture of openness within the church regarding finances. Regularly share financial reports with members in a clear and understandable manner.
  • Building Trust: Open communication and fostering trust between church leadership, financial officers, and the congregation is key.

 

By addressing these concerns and implementing solutions, local churches can overcome resistance and embrace the benefits of internal audits. Ultimately, a well-conducted audit strengthens the church's financial health, builds trust with donors and members, and allows the church to focus on its core mission.

For many churches, especially smaller ones, generally accepted accounting principles (GAAP) are usually a non-issue. Compliance with such principles would only become important if the church needed to publish its financial statements to outside parties, such as a lending institution, and was therefore required to have the statements audited by an independent outside auditing firm. Statements prepared for internal use by the church and its members need not conform to generally accepted accounting principles, although they certainly can be so prepared if the church wishes. It is usually much simpler for the church to prepare just those statements and schedules that it finds most useful.

Conclusion

Financial audits are an essential part of responsible church administration. They promote transparency, build trust, and safeguard church assets. By embracing annual audits, local churches can demonstrate their commitment to good stewardship and inspire confidence among members and donors.


Oluwaseun Afolabi

Mental Health Advocate | Finance Expert | Strategic Alliance Partner

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