March 28, 2013
What's Next: Transparency is the Order of the Day
Churches must handle finances in "the light of day."
Editor's Note: This is the second in a series of guest posts from Dave Travis' book, What's Next?:2012 Edition. The first post addressed how much--or little--the economy is to blame for church failures. Travis is CEO of Leadership Network.
Here is the issue: Do church leaders make decisions and handle money "in the light of day," or do things happen behind closed doors?
The degree to which this is an issue can vary, but it will increase in importance as an authenticator--not only for prospective members, but for the community at large and its local government.
Once upon a time, church members simply trusted their leaders. Some still do. But in the world we now inhabit, trust depends to some extent upon reasonable transparency. In the future, it could become a critical issue.
U.S. churches exist in a legal gray area. They are required to follow not-for-profit regulations in many areas, without being required to file reports and returns in the way other not-for-profit organizations do. They must follow rules on political activity, compensation, insider dealings and the like, but they are still given considerable leeway in the matter of financial reporting.
Even when denominations require their churches to file reports, the results may not be shared outside denominational offices.
Going forward, we feel that voluntary transparency will bolster churches in the eyes of the public--members and outsiders alike. Younger adults will insist upon it, being accustomed to detailed reports from other charitable organizations.
Areas of impact:
- Annual Reports. Already, churches are more often posting annual activity and financial reports on their websites. These show members and others the progress of recent months, but also demonstrate financial integrity.
- Audited Financial Statements. The churches we serve tend to get financial audits when they are approaching a financial institution for financing. We believe large churches should invite annual audits by qualified firms, or at least every other year, alternating with management control checks. The entire system of stewardship gains credibility when funding is shown to be above board.
- 990 Filings. Very few U.S. churches file an IRS 990 Not for Profit return. I don't believe they should be required to do so. Having said that, I also believe larger churches should prepare this form every year and release it without filing it with the government. Again, this is a confidence builder inside and outside your church. We also suspect there will be a move in the future by the IRS to require this form to be filed by churches that exceed a certain threshold of income. Now is the time to prepare for that possibility.
- Compensation Opinions and Policies. Wise larger churches are using surveys and consultants to inform their compensation agreements with staff. It's a good idea.
For more help with financial accountability, check out the Essential Guide to Church Finances and the Essential Guide to Internal Controls for Churches eBook, both available on YourChurchResources.com. Go deeper on. Learn more about church financial audits on ChurchLawAndTax.com and on compensation planning with The 2012-2013 Compensation Handbook for Church Staff.