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Internal Financial Controls

MCC Resource for Treasurers of Our Local Churches

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Table of Contents
Internal Financial Controls and Risk Management .. 002
Separation of Duties 002
Physically Safeguarding Cash Receipts 002
Collections. 00
Counting 00
Recording Cas! Receipts.. 00
Disbursements 00"
#bout C!eck $riting00%
#dditional Securit& Concerns. 00%
#udit.. 00%
References and Resources . 00'
Forms 00(
MCC Resource for Treasurers of Our Local Churches

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

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Collections, durin! the worship service or other events should always be in the custody of at
least two un.related individuals. This means that the offerin! should be handed directly over to
counters or placed in a secure, loced location until they can be retrieved by at least two people
responsible for countin!. Checs received by mail should liewise be secured until they can be
counted.
Counting 00
Countin! should occur as soon after collection as possible and should be performed by two un.
related individuals who are, ideally, part of a countin! committee that rotates responsibility
fre(uently. Many churches also tae the additional step of re(uirin! the presence of a *oard
member durin! countin!. Countin! should occur in a secure, loced location, where there is no
0traffic1 or interruption.
,eposits should be made immediately followin! countin! whenever possible and should be
made by two people. 2hen it is not possible to deposit receipts immediately, they should be
secured, preferably in a safe or loc bo). Cash receipts should *+,+R be ept in an
automobile or in someone"s home.
Recording Cash Receipts
-ccurate accountin! of member contributions and other receipts be!ins with counters.
Counters should3
Use a 4count sheet" to record individual contributions, the purpose of the contribution,
chec number &or indicate cash' and to tally totals.
Mae sure the amount written on envelopes matches the amount inside the envelope.
5ndorse all checs 4for deposit only to the church"s ban account.
,ouble.chec each other"s wor.
5nsure that the count sheet totals a!ree with the deposit slip.
+i!n or initial the count sheet and the deposit slip
,eposit the collection intact6 that is, without 0main! 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.
Checs 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.
Recordin! of receipts should be handled by a financial secretary, assistant treasurer or
volunteer not involved in handlin! cash or main! disbursements.
The -ssistant Treasurer should3
Receive a copy of the count sheet and deposit slip from counters.
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%ost totals to /eneral Led!er.
5nsure that totals on the count sheet and deposit slip match totals posted to /eneral
Led!er.
%ost contributions to individual !ivin! records.
Retain count sheets and deposit slips in a secure file.
%erform ban reconciliation each month.
,isbursements
Church $O%"s should desi!nate who has authority to authori#e and approve disbursements, the
process for obtainin! approval, and how and by whom they are recorded. -pproval of
e)penditures is often dele!ated accordin! to the level of e)penditure. $or e)ample, lar!er
e)penditures may re(uire approval by the *oard of ,irectors, while e)penditures below a
certain level mi!ht be approved by the %astor or another staff member. - blanet approval is
often in effect for bud!eted operational e)penses such as mort!a!e7rent, utilities and the lie.
The tas of scrutini#in! disbursements for proper documentation and approvals and preparin!
checs for si!nature, and recordin! transactions often falls to the Treasurer or another
desi!nated individual who does not handle receipt of funds.
,isbursements should3
*e documented via disbursement or chec re(uest form accompanied by ori!inal
invoices and any other necessary documentation or 8ustification, as well as the si!nature
of the approvin! official.
*e paid by serially numbered checs rather than cash6
-lways be si!ned by two authori#ed si!ners who carefully inspect the re(uest and
documentation.
*e promptly posted to the /eneral Led!er and should depict date, payee, amount,
purpose, and chec number.
Include notation of the chec number on the documentation.
,ocumentation should be retained in secure file.
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About Check Writing 00
Church $inancial Operatin! %rocedures should include specific protocol re!ardin! si!nature
authority, chec writin!, and safe!uardin! checs. +pecifically, these protocols should3
Re(uire two si!natures on every chec.
Identify who is authori#ed to si!n checs.
%rohibit the person who prepares the checs from si!nin! checs.
5nsure that ban si!nature cards are updated as si!nature authority chan!es.
%rohibit si!nin! blan checs.
%rohibit checs made to 0cash.1
%rovide for physically securin! blan, unused checs.
Additional Security Concerns
Is the location where financial records are stored loced 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

Audit!! 00
-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. +ee -udits Resource for more information on audits.
MCC Resource for Treasurers of Our Local Churches

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

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F-RMS
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Sample Financial -perating )rocedures . 00/
Count S!eet Sample . 000
C!eck Re1uest Form 00
MCC Resource for Treasurers of Our Local Churches

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Forms 00(
S#M)2+ 03 FI*#*CI#2 -)+R#TI*4 )R-C+D.R+S
Church finances shall be under the ultimate direction of the con!re!ation. The $inance
Committee shall mae monthly reports to the church.
This Church shall be wholly supported by the voluntary tithes and offerin!s of members and
friends of the church.
This Church shall operate with a unified bud!et with one treasury. -ll funds received for any and
all purposes must be accounted for by the $inance Committee. $inancial statements will be
made available to members each month.
The fiscal year shall be!in on Aanuary ; and end on ,ecember >;.
The $inance Committee shall be!in the bud!et main! process, drawin! on the input of all the
ministries and teams of the church. The %ersonnel Committee shall mae recommendations
concernin! paid employees of the church. The $inance Committee shall present the bud!et to
the *oard of ,irectors and then to the church. Copies of the proposed bud!et shall be
distributed to the church members at least one wee prior to its adoption durin! the ,ecember
business meetin!.
Once an e)penditure is approved by inclusion into the church bud!et, no other approval is
needed F unless due to the church bein! in a ti!ht economy, the $inance Committee shall
announce a need for prior approval of e)penses.
,esi!nated funds must be approved by the church. :o one may establish a Gdesi!nated fundG
simply by the !ivin!. Re(uests for creatin! a new fund must first be submitted to the $inance
Committee. If the proffered !ift is outside the scope of the current bud!et or ministry of the
church, they shall brin! recommendations concernin! the offer to the con!re!ation for approval.
:o tan!ible property may be received by the church without first bein! accepted by the $inance
Committee.
+eparate persons shall be responsible for havin! custody of church offerin!s. These persons
will consist of money counters and a depositor. - minimum of three church members is re(uired
to count church offerin!s at any time.
There will be a re(uirement of two si!natories on all checs.
There will be no staff members participatin! in the collectin!, countin! or depositin! of church
offerin!s.
-ll re(uests for reimbursements will be submitted on a GRe(uest for +undry ,isbursementG form
which will be submitted to the treasurer with the proper si!nature approvals.
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S#M)2+ 23 FI*#*CI#2 -)+R#TI*4 )R-C+D.R+S
-. -ll financial accounts of EEEEEEEEE MCC will have all members of the *oard of ,irectors as
si!natories. In the event the Treasurer performs the accountin! functions of the church, the
Treasurer shall not be a si!natory on the account.
*. The countin! of all offerin!s will be done by two persons, as directed by the *oard of
,irectors, and the offerin!s shall be deposited into the appropriate church ban account.
C. Cash offerin!s shall not be used to cash personal checs.
,. -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. The fundin! is sub8ect to *oard approval
and the *oard shall determine the source account for the fundin!.
5. -n audit of the church"s finances shall be accomplished annually. +uch an audit shall be
conducted by an independent third party selected by the *oard of ,irectors.
$. - bud!et shall be prepared by the $inance Committee and presented to the *oard of
,irectors at a re!ular Con!re!ational Meetin! annually and shall be approved by a simple
ma8ority. The bud!et may be chan!ed as re(uired at any Con!re!ational Meetin!.
S#M)2+ 3 FI*#*CI#2 -)+R#TI*4 )R-C+D.R+S
1. -uthori#ation for si!natures necessary on contracts, checs, and orders for payment,
receipt or deposit or withdrawal of money, and access to securities of EEE MCC shall be
provided by resolution of the *oard.
2. -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.
3. 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!.
4. The Con!re!ation shall be responsible for approvin! the annual operatin! and capital
bud!ets.
5. :o e)pense shall be incurred in e)cess of the total bud!etary appropriations without
prior approval of the *oard.
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C-.*T S5++T S#M)2+
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C5+C6 R+7.+ST F-RM 8S#M)2+9
)a&able to3 H:ame of the %erson or Bendor to be paidI
#ddress3 H+treet or %.O. *o) to which the chec will be mailed I
-ddress <3 Hif needed to complete the addressI
Cit&:State:;ip3 HCity, +tate, Jip code of reciepentI
Telep!one *umber3 HBendor %hone :umberI Fa< *umber3 HBendor $a) :umberI
#ccount *umber3 HThe account number !iven to the church as a corporate identifierI
#mount3 H-mount due to the vendorI
Due Date3 K,ate payment is due to the recipientL
Re1uested b&3 H:ame of the person main! the re(uestI ,ate3 HToday"s dateI
Contact *umber3 H %hone number where re(ustor can be reached to answer (uestionsI
Reason for Re1uest3H+tate why this purchase madeI
#ccounting:=udget 2ine Item *umber3 HThe church"s -ccountin! or *ud!et numberI
#ppro>ed b&3 H :ame of %erson -pprovin! %aymentI
Declined due to3 HIf payment is declined, reason for the declineI
Bendor :umber3 H If your church assi!ns vendor number, record it here for the person inputtin!
the chec informaiton into the -ccountin! systemI
Signature3 H+i!nature of the person approvin! the issuance of a checI
C!eck *umber3 HRecord the chec number hereI
C!eck Date3 HRecord the date the chec is issuedI
In>oice8s9 must accompan& a completed c!eck re1uest form.
MCC Resource for Treasurers of Our Local Churches