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Internal Financial Controls

MCC Resource for Treasurers of Our Local Churches

. 005 "udit…………………………………………………………………………………….. 00 Counting ……………………………………………………………………………… 00 Recording Cas! Receipts………………………………………………………….. 002 Separation of Duties ………………………………………………………………… 002 Physically Safeguarding Cash Receipts ………………………………… 002 Collections……………………………………………………………………………. 006 Forms…………………………………………………………………………………………… 007 MCC Resource for Treasurers of Our Local Churches . 003 Disbursements………………………………………………………………………… 004 "bout C!eck #riting…………………………………………………………………… 005 "dditional Securit$ Concerns………………………………………………………. 005 References and Resources ………………………………………………………………….1 Table of Contents Internal Financial Controls and Risk Management …………………………………….

who posts contributions to individual !ivin! records. a financial secretary or administrative assistant. because churches want to operate in an atmosphere of mutual trust. who is assi!ned specific tas s. even staff and volunteers. Separation of uties +eparation of duties not only plays a critical role in safe!uardin! church assets and protectin! staff and volunteers. churches are not immune to the actions of unscrupulous people. $inancial Operatin! %rocedures can be as detailed and comprehensive as the circumstances of your church re(uire. +maller churches often do not have the resources for paid staff to handle this function and must rely on the Treasurer and volunteers. This will provide !uidance to staff. Physically Safeguarding Cash Receipt The primary purpose of internal controls is to protect contributions from members and other contributors. different way to thin of separation of duties is to separate recordin! and reportin! functions from cash handlin! functions. Lar!e churches often have paid staff . posts receipts to the /eneral Led!er. procedures and protocols desi!ned to safe!uard the church"s assets. Three e)amples of $O%s are included at the end of this *oo let. Internal financial controls should be set forth in your church"s $inancial Operatin! %rocedures &$O%s' which describe how you will handle each of these issues. they can be especially vulnerable if they fail to establish sound internal financial controls. This be!ins with appropriate procedures for collectin! and countin! funds durin! church services and other events. this would typically fall to the Treasurer. ensure accurate financial reportin! and efficient and effective use of funds. . but also reduces the wor load of the church Treasurer. Internal financial controls are sets of ris mana!ement tools. and volunteers and is especially important as turnover occurs and new people ta e on new roles. 00 MCC Resource for Treasurers of Our Local Churches .ividin! duties amon! a number of people ensures that no one person has the opportunity for or !ives the appearance of improper conduct.1 Internal Financial Controls and Risk Management Unfortunately. for e)ample . In addition. and performs the monthly ban reconciliation. . as set forth in the $O%"s. preferably in the form of an -ssistant Treasurer. internal controls serve to protect staff and volunteers from false alle!ations of embe##lement or misuse of funds. $or e)ample. but does not handle disbursements . Indeed.uties are often separated by receivin! and disbursement functions. board. as well as any received by mail. the individual who receives and records contributions should not handle disbursements or prepare chec s. Collections…………………………………………………………………………….

eposit the collection intact6 that is. +i!n or initial the count sheet and the deposit slip . they should be secured. preferably in a safe or loc bo). Chec s received by mail should li ewise be secured until they can be counted. MCC Resource for Treasurers of Our Local Churches . . the purpose of the contribution. part of a countin! committee that rotates responsibility fre(uently.1 Collections.chec each other"s wor .eposits should be made immediately followin! countin! whenever possible and should be made by two people. Counters should3 • • • • • • • • Use a 4count sheet" to record individual contributions. Recording Cash Receipts -ccurate accountin! of member contributions and other receipts be!ins with counters.related individuals.ouble. Many churches also ta e the additional step of re(uirin! the presence of a *oard member durin! countin!. 2hen it is not possible to deposit receipts immediately. . loc ed location until they can be retrieved by at least two people responsible for countin!. chec number &or indicate cash' and to tally totals. Countin! should occur in a secure. 5nsure that the count sheet totals a!ree with the deposit slip. ideally. Ma e sure the amount written on envelopes matches the amount inside the envelope. without 0ma in! chan!e1 or disbursin! cash to cover e)penditures. %rovide a copy of the count sheet and deposit slip to the person responsible for postin! contributions to individual !ivin! records and to the !eneral led!er. This means that the offerin! should be handed directly over to counters or placed in a secure. loc ed location. Chec s received via mail should be endorsed !for deposit only1 to the church"s account and held in a secure location until they can be counted and recorded. related individuals who are. 5ndorse all chec s 4for deposit only’ to the church"s ban account. durin! the worship service or other events should always be in the custody of at least two un. where there is no 0traffic1 or interruption. Cash receipts should %&'&R be ept in an automobile or in someone"s home. Counting ……………………………………………………………………………… 00 Countin! should occur as soon after collection as possible and should be performed by two un.

irectors. -pproval of e)penditures is often dele!ated accordin! to the level of e)penditure.blan et approval is often in effect for bud!eted operational e)penses such as mort!a!e7rent. lar!er e)penditures may re(uire approval by the *oard of . amount. The tas of scrutini#in! disbursements for proper documentation and approvals and preparin! chec s for si!nature.1 Recordin! of receipts should be handled by a financial secretary. The -ssistant Treasurer should3 • • • • • • Receive a copy of the count sheet and deposit slip from counters. assistant treasurer or volunteer not involved in handlin! cash or ma in! disbursements. and recordin! transactions often falls to the Treasurer or another desi!nated individual who does not handle receipt of funds. utilities and the li e.isbursements should3 • *e documented via disbursement or chec re(uest form accompanied by ori!inal invoices and any other necessary documentation or 8ustification. . %erform ban reconciliation each month. $or e)ample. payee. MCC Resource for Treasurers of Our Local Churches • • • • . as well as the si!nature of the approvin! official. the process for obtainin! approval. %ost totals to /eneral Led!er.isbursements Church $O%"s should desi!nate who has authority to authori#e and approve disbursements. 5nsure that totals on the count sheet and deposit slip match totals posted to /eneral Led!er. and how and by whom they are recorded. *e promptly posted to the /eneral Led!er and should depict date. while e)penditures below a certain level mi!ht be approved by the %astor or another staff member. *e paid by serially numbered chec s rather than cash6 -lways be si!ned by two authori#ed si!ners who carefully inspect the re(uest and documentation. Include notation of the chec number on the documentation. and chec number. . %ost contributions to individual !ivin! records. . Retain count sheets and deposit slips in a secure file. purpose.

ocumentation should be retained in secure file. MCC Resource for Treasurers of Our Local Churches .1 • .

and safe!uardin! chec s.1 %rovide for physically securin! #lan$' unused chec$s. +ee -udits Resource for more information on audits. chec writin!. Identify who is authori#ed to si!n chec s. "dditional Security Concerns • • • • Is the location where financial records are stored loc ed when not in use9 Is access to this location restricted to authori#ed individuals9 Is access to individual !ivin! records restricted to authori#ed individuals9 -re credit card receipts or other documents containin! sensitive financial information secured properly9 "udit……………………………………………………………………………………. %rohibit chec s made to 0cash. %rohibit si!nin! blan chec s.. these protocols should& • • • • • • • Re(uire two si!natures on every chec . MCC Resource for Treasurers of Our Local Churches . %rohibit the person who prepares the chec s from si!nin! chec s. 5nsure that ban si!nature cards are updated as si!nature authority chan!es. +pecifically. 005 -n important part of ensurin! that your internal financial controls are followed and provide effective protection is an annual audit by an e)ternal auditor and7or internal audit committee.1 "#out Chec$ %riting…………………………………………………………………… 005 Church $inancial Operatin! %rocedures should include specific protocol re!ardin! si!nature authority.

.boardsource. MCC %olicy Manual http://issuu.freechurchaccountin!.or! *rethren of Christ in :orth -merica http377www.html 0.html 0$ifty Internal Control %ractices for 5very Church1 The Church /uide to Internal Controls. $lesher. Church Law and Ta) Report.or!.1 R&F&R&%C&S "%D R&S()RC&S $ree Church -ccountin! http377www..$ebruary .or!7files7treasurer7InternalEControlE%racticesE. .. .com7internalcontrols.CO/pension.bic.accountin!coach. Richard A.or!7 *oard +ource www.ale L. Bar!o. <==<.CCD http377dowoca.com CO/pension.allbusiness. http377www.com/mccchurch/docs/sample_policy_manual_-us_edition MCC Resource for Treasurers of Our Local Churches .com www.church.or! www.pdf -ccountin!Coach.com7accountin!7.oes your church have appropriate internal control for cash receipts91 The :ational %ublic -ccountant.>=?>@.

1 F(RMS MCC Resource for Treasurers of Our Local Churches .

1 Sample Financial (perating *rocedures ……………………………………………. 00+ Count S!eet Sample …………………………………………………………………………. C!eck Re-uest Form ………………………………………………………………………… 0. MCC Resource for Treasurers of Our Local Churches .. 0.

This Church shall be wholly supported by the voluntary tithes and offerin!s of members and friends of the church. . The %ersonnel Committee shall ma e recommendations concernin! paid employees of the church. The $inance Committee shall be!in the bud!et ma in! process. they shall brin! recommendations concernin! the offer to the con!re!ation for approval. The $inance Committee shall present the bud!et to the *oard of .ecember >. no other approval is needed F unless due to the church bein! in a ti!ht economy.minimum of three church members is re(uired to count church offerin!s at any time. This Church shall operate with a unified bud!et with one treasury. drawin! on the input of all the ministries and teams of the church. There will be no staff members participatin! in the collectin!.isbursementG form which will be submitted to the treasurer with the proper si!nature approvals. Once an e)penditure is approved by inclusion into the church bud!et. MCC Resource for Treasurers of Our Local Churches . countin! or depositin! of church offerin!s. and end on . +eparate persons shall be responsible for havin! custody of church offerin!s. the $inance Committee shall announce a need for prior approval of e)penses. S"M*/& . .. :o tan!ible property may be received by the church without first bein! accepted by the $inance Committee. :o one may establish a Gdesi!nated fundG simply by the !ivin!.0 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S Church finances shall be under the ultimate direction of the con!re!ation.esi!nated funds must be approved by the church. $inancial statements will be made available to members each month. Re(uests for creatin! a new fund must first be submitted to the $inance Committee.1 Forms…………………………………………………………………………………………… 00. -ll re(uests for reimbursements will be submitted on a GRe(uest for +undry . These persons will consist of money counters and a depositor. Copies of the proposed bud!et shall be distributed to the church members at least one wee prior to its adoption durin! the . There will be a re(uirement of two si!natories on all chec s. If the proffered !ift is outside the scope of the current bud!et or ministry of the church.irectors and then to the church.ecember business meetin!. -ll funds received for any and all purposes must be accounted for by the $inance Committee. The $inance Committee shall ma e monthly reports to the church. The fiscal year shall be!in on Aanuary .

and orders for payment.. -ll re(uests for fundin! outside of the bud!et with the e)ception of desi!nated !ifts shall be in writin! and shall include a written detailed estimate. and the offerin!s shall be deposited into the appropriate church ban account. >.irectors. *. -ny individual authori#ed to purchase !oods and7or services for the EEE MCC shall follow the procedures set forth in these policies and the Internal Control Procedures Manual.irectors at a re!ular Con!re!ational Meetin! annually and shall be approved by a simple ma8ority. <. -ll financial accounts of EEEEEEEEE MCC will have all members of the *oard of . Cash offerin!s shall not be used to cash personal chec s. the Treasurer shall not be a si!natory on the account. S"M*/& 0 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S . as directed by the *oard of . -uthori#ation for si!natures necessary on contracts.bud!et shall be prepared by the $inance Committee and presented to the *oard of . In the event the Treasurer performs the accountin! functions of the church. . The countin! of all offerin!s will be done by two persons. +uch an audit shall be conducted by an independent third party selected by the *oard of .irectors as si!natories. The Con!re!ation shall be responsible for approvin! the annual operatin! and capital bud!ets.. The bud!et may be chan!ed as re(uired at any Con!re!ational Meetin!. MCC Resource for Treasurers of Our Local Churches . . The fundin! is sub8ect to *oard approval and the *oard shall determine the source account for the fundin!. receipt or deposit or withdrawal of money. and access to securities of EEE MCC shall be provided by resolution of the *oard. The $inance Committee shall be responsible for reviewin! and recommendin! an annual operatin! and a capital bud!et to the *oard for review and sendin! to the Con!re!ational Meetin!. $. D. chec s. C.irectors. -n audit of the church"s finances shall be accomplished annually.1 S"M*/& 20 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S -. 5. :o e)pense shall be incurred in e)cess of the total bud!etary appropriations without prior approval of the *oard. ?.

1 C()%T S2&&T S"M*/& MCC Resource for Treasurers of Our Local Churches .

oice5s6 must accompan$ a completed c!eck re-uest form.O. *o) to which the chec will be mailed I -ddress <3 Hif needed to complete the addressI Cit$7State78ip0 HCity.ed b$3 H :ame of %erson -pprovin! %aymentI Declined due to3 HIf payment is declined. record it here for the person inputtin! the chec informaiton into the -ccountin! systemI Signature0 H+i!nature of the person approvin! the issuance of a chec I C!eck %umber0 HRecord the chec number hereI C!eck Date3 HRecord the date the chec is issuedI In.ate payment is due to the recipientL Re-uested b$3 H:ame of the person ma in! the re(uestI .ate3 HToday"s dateI Contact %umber3 H %hone number where re(ustor can be reached to answer (uestionsI Reason for Re-uest3H+tate why this purchase madeI "ccounting7:udget /ine Item %umber3 HThe church"s -ccountin! or *ud!et numberI "ppro.1 C2&C3 R&4)&ST F(RM 5S"M*/&6 *a$able to0 H:ame of the %erson or Bendor to be paidI "ddress0 H+treet or %. MCC Resource for Treasurers of Our Local Churches . reason for the declineI Bendor :umber3 H If your church assi!ns vendor number. Jip code of reciepentI Telep!one %umber3 HBendor %hone :umberI Fa9 %umber3 HBendor $a) :umberI "ccount %umber3 HThe account number !iven to the church as a corporate identifierI "mount0 H-mount due to the vendorI Due Date3 K. +tate.