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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Chapter II

REVIEW OF RELATED STUDIES AND LITERATURE

Researchers have been conducted about non-profit organizations but only a few

about religious non-profit organizations specifically, churches. Myers (2012) explained

that it is because of the large number of churches and most of them are fairly small

compared to other non- profit that the organization is sometimes ignored. He also

stated that when the churches’ management issues came to light, it was more on the

paucity in the accounting systems and prescribed accounting practices. Both researches

of Peter Booth (1993) and Duncan et al (1999) focused on the same aspects that may

affect the internal control such as the members and occupational groups involved in the

accounting of churches and its monetary resources. The only difference between the

two is that Booth focused on the sacred-secular divide while Duncan et al looked more

into the church government.

Duncan et al acquired information by sending surveys to churches of specific

denomination about their size and as well as their polity to distinguish if there are any

differences in their church government. He mentioned that there are three categories of

church government, congregational (the congregation has the final authority, usually

decided by majority vote), episcopal (a bishop is charged with authority over a number

of local congregations, and delegates power downward; local congregations or parishes

are indivisible from the rest of the denomination, effectively forming a single large,
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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

nationwide church), and Presbyterian (authority rests with elders in the local church, but

often with the power of review and control resting with higher governing bodies, usually

made up of elders from different congregations).

Their research showed that there is a significant influence between the size of

the church and its internal controls. They found out that churches that have higher

internal control were churches that are larger in terms of population and monetary

resources and that Presbyterian and Methodist churches tend to have better control

than Congregational ones. The denominational differences were due to the more

centralized nature of the principal churches than the latter.

Following the model of Duncan, Flesher, and Stocks are Wooten, et al (2003)

research aiming for a different goal. Wooten, et al (2003) wanted to test how much

financial control varied depending on church size and whether the records were audited,

and expecting that engaging an external auditor would improve internal control. Just

like Duncan, et al, Wooten, et al found out that internal control were correlated with

church size. Wooten, et al also determined that churches were more likely to have better

internal controls if audited by a CPA.

David Myers (2012) followed suit on the research about internal controls in

churches and focusing more about the correlation between external stakeholders and

controls. He tested whether churches that have external stakeholders have better

internal control than that of churches without external stakeholders. There is no

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significant influence on the internal control of churches having external stakeholders and

without external stakeholders. He emphasized on his research that there is only stricter

internal control when financial stakeholders outside their congregation is involved than

those financially independent churches. Still, potential relationship between external

stakeholders and churches should be considered when examining aggregate church

finances in the future.