We recently asked church leaders about the following situation:
Over the years, various groups within some churches have set up separate bank accounts under the churchs name so that they can have money to spend on the groups pet projects.
rogueaccounts a problem?
How many bank accounts are open under your churchs Federal ID number? Dont know? We would suggest that you need to know and make sure that they are under the control of your churchs Finance Committee.
Now you might ask,
Who else would open a bank account using the churchs Federal ID number other than someone serving in an official capacity for the church? The answer is groups like senior citizen groups, Sunday School classes, womens groups, mens groups, and even the Boy Scout troop that your church charters!
You may then ask,
Whats the problem? Since the church is ultimately responsible for how the funds are handled, if they are handled incorrectly, the church could be put at risk with the IRS. In a worst case scenario, the churchs tax exemption could be revoked. And of all the assets the church has, its tax exemption is at the top of the list of importance.
If a church were to lose its tax exemption its cost of doing business would go up considerably and its income most likely would go down. Without a tax exemption none of the donations received by the church would be tax deductible. How many of your donors use the deductibility of their gifts to your church as a significant reason for how generously they give?
If a church were to lose its tax exemption, one of the most significant changes would be the assessment of property taxes. Church properties are often worth hundreds of thousands, if not millions of dollars. When assessed at commercial rates, your churchs facilities would put a smile on your local tax assessors face just thinking of the windfall that his or her taxing jurisdiction would reap.
Sometimes their spending merges very well with the churchs mission and purposesother times, possibly less so.
For example, lets say that the Scout troop has a fund raiser where they sell trash bags to help scouts to be able to afford attending scout camp. The troop is not allowed to keep track of how many trash bags each scout sold, and credit each scouts
account with the proceeds from their sales. Thats because the IRS requires that the funds be shared equally by the entire troop for its special activities. Sometimes this happens with youth group fundraisers, too, so be sure to educate your church staff about the proper way to handle these funds. For more information you might like to check out our article on fund raisers. CLICK HERE to find it.
In addition the church would now be obligated to pay other taxes, such as sales tax, from which they were previously exempt. With some areas sales tax rates in the vicinity of eight percent, your church would immediately see an eight percent increase in the cost of everything it purchases.
One reason that various church groups set up their own bank accounts under the churchs Federal ID and outside of the purview of church leaders is because then they can spend those funds however they see fit. Sometimes their spending merges very well with the churchs mission and purposesother times, possibly less so. The perception at your church as to whether or not such independent spending is a problem well leave up to your churchs leaders to decide. Well only say that churches whose leaders lead financially tend to have greater impact for the kingdom.
So, how should these various bank accounts be handled? Ideally they would be added to the churchs main bank account and kept track of in various designated accounts in the churchs financial software. That way requests for payment from these accounts are being turned in to the finance office where they can be reviewed to assure that they are valid church expenses. It also allows the funds to be included in reports to the Church Finance Committee and Board as part of the regular oversight and reporting process.
Many groups are afraid that if they give up
controlof the account, they wont be able to use the funds for their projects, or that the balance will zero out at the end of the year. There is no reason that they cant have access to the funds, since they were given for the specific purpose of the group. (With full approval of the churchs Board, of course!) And if the church is using a good financial software package, the account can be set up as a Designated Account, which means that the funds are being held for the specific purpose that they were given for, and that the balance stays in that account until the funds are used. Unless depleted, they do not zero out at the end of the year like regular budget accounts.
We mentioned earlier that if your church charters a Boy Scout Troop then they may be among the groups with bank accounts under the churchs Federal ID number. Even though its the troops money, it still is the churchs responsibility in how it is handled. Its important to make sure that the churchs liaison position is active and that that person knows how to review the account to be sure there is no private benefit issues with its use.
Sometimes churches decide to have multiple bank accounts with different institutions. This might be done in order to benefit from better interest rates, or where the total cash on hand is more than the FDIC insured limit. Regardless, all of the churchs bank accounts need to be under the churchs Finance Committees control, with Board approved signers, and included in the monthly reporting process.
Be a church that exemplifies honoring and glorifying our Lord in how it handles its money.
Please Note: This information is provided with the understanding that Church Administrative Professionals is not rendering professional advice or service.