Editor’s Note: This post first appeared on Elaine Sommerville’s blog Elaine’s Tax Tips for Nonprofits. Today is part one of a multiple-part series reviewing church compensation planning that complies with IRS guidelines.

One of the most common areas that I speak on across the country is compensation. As a general rule, it seems that nonprofit organizations struggle with the intricate rules regarding the payment of compensation—and even defining compensation. This series will offer some much needed guidance. Join in to brush up on your knowledge in this area, and maybe learn a few new things along the way.

Compensation and the Overriding Philosophy of Tax Law

Perhaps the first stumbling block or hurdle to overcome in this area is to finally acknowledge how vast an array of information this topic covers. I generally find that the normal person does not realize one of the foundational truths of the U.S. tax code. This truth is based on two premises:

ManagingYourChurch.com received a top honor Friday from the Evangelical Press Association during the organization's 2012 conference.

The site received the Award of Excellence--the highest possible--in the Christian Ministry/Digital category. Judges said: "Top notch writing and editing; touches on SO many relevant, practical topics for church leaders—news, advice, legal, etc.; well-laid-out blog. Pleasing color palette. Easy to navigate; Follows many blog best practices, thus easy for new visitors to intuit; exceptional presentation all the way around."

ManagingYourChurch.com is owned by Christianity Today, a not-for-profit global publishing ministry. Its goal is to help church leaders keep their ministries safe, legal, and financially sound.

In all, Christianity Today sites and publications received 43 honors during the conference, including the Award of Excellence for Church Finance Today in the Newsletter category and an Award of Merit for Church Law & Tax Report.

When churches receive tithes and offerings, there’s more going on than meets the eye. Along with physically collecting people’s money and bringing it to the bank, you should be tracking how much comes in, who it comes from, what it's used for, and how much each individual gives during a year.

This requires substantial record keeping and an effective internal control structure to ensure that the information is accurate and the money stays safe. Here are 10 ways to strengthen control of your cash receipts, and some tips on making cash disbursements:

For the second time in less than a month, The Wall Street Journal featured a piece focused on the sensitive, but important, topics of churches, finances, and transparency.

First it was columnist Al Lewis taking deceitful pastors to task for fleecing their flocks (a sentiment also shared in a recent house editorial by our sister publication Christianity Today). Then, this past Sunday, it was a feature article by The Journal’s Veronica Dagher, who covered the ways that donors can make certain churches honorably handle tithes.

Her piece is a beneficial 10-minute read for any church pastor or leader who wonders whether internal controls and other financial best practices are worthy of congregational time, energy, and resources. In short, they are. If standing unblemished before the Lord wasn’t enough reason to justify their efforts—and if the integrity of their witness wasn’t reason enough, either—then let Dagher’s piece provide this additional validation: influential outsiders are watching.

What they say matters, not just in the court of public opinion, but also in the minds of those coming through their doors now or in the future. It’s up to churches to answer the call.

Encouraging signs are afoot, including the Commission on Accountability and Policy for Religious Organization’s ongoing work regarding financial practices for churches and ministries. But much work remains, as Dagher points out, using a study from the Center for the Study of Global Christianity at Gordon-Conwell Theological Seminary. About 6 percent, or $35 billion, of the $569 billion given to Christian causes worldwide this year will wind up on the wrong end of a fraudulent situation, the center’s study projects.

Dagher interviewed a variety of fundraising consultants, financial counselors, investment managers, even a forensic accountant, to learn what ordinary people can do to make sure their tithes go where they should. Five lessons immediately jump out. They should sound familiar, and if they don’t, now is the time to make them familiar:

Two female teachers at Christian schools in different parts of the country were recently fired for becoming pregnant out of wedlock, according to Cincinnati.com News and WFAA-TV. Both women are working with lawyers on separate lawsuits against the schools in Ohio and Texas.

A January decision from the Supreme Court on ministerial exception plays a large role in whether or not a court will allow such lawsuits. In that ruling, the Court affirmed the ministerial exception, which bars courts from reviewing employment disputes between churches and ministers. The case involved a Christian school in Michigan that fired a teacher. The Court decided that the First Amendment prevents courts from “interfering with the freedom of religious groups to select” their clergy, and, based on various criteria, the teacher could be classified as a minister.

A report issued in February by a major provider of fundraising technology and consulting services offers some helpful insights for church leaders as it relates to online giving.

In short: Use of online giving continued to grow in 2011, however, that growth remains small relative to total dollars given. Adding an online giving tool should be done to diversify options for givers and provide convenience for those who desire it. But it won’t provide an instant remedy to any organization struggling to get its vision funded.

Before looking more closely at the 2011 Online Giving Report from The Blackbaud Index of Online Giving, two important disclaimers:

• First, churches, ministries, and religious organizations aren’t included in the research because “the 990 tax data set available for this group is not considered representative at this time,” the report’s authors write.
• And second, Blackbaud analyzed 1,560 small-, mid-, and large-sized organizations across a variety of sectors. Small means the organization had a budget of less than $1 million, while medium means a budget of between $1 million and $10 million, and large means a budget of $10 million or more. For our purposes, we’ll mostly discuss the results for small- and mid-sized organizations, which more closely resemble the budget sizes of most U.S. churches.

So, the lessons below highlight notable, general trends that aren’t necessarily apples to apples for churches, but more likely crabapples to apples. They’re still of value, though, given the 41 percent of churches who indicated they used online giving in 2011, based on our recent 2012 State of the Plate constituency survey.

With that in mind, here are five lessons about online giving for nonprofits that church leaders should note:

Bible college and seminary are great for a lot of things. In my experience, important skills you need to survive in an office, such as yearly budgets, business plans, and understanding a housing allowance, are not some of those things.

I love the education I received, but I am embarrassingly lost every spring when I try to do my taxes.

For rookie pastors, or for those who start a pastoral position at a new church, someone on staff will approach you within your first 30 days and start talking about things that affect your paycheck and how many days you get off for the year.

It will be tempting to not ask questions because you are intimidated or because of some silly pride that prevents leaders from asking questions. You can go that route and miss out on some deserved benefits. Or you can ask some honest questions and get clarity.

Around lunchtime on a Friday, a man entered a Boston-area church and soon left with the church secretary’s purse, according to a local news station. The man claimed he needed money to support his five children. After the secretary went to consult the pastor on how to respond, the man—and also her purse—were gone.

The man also approached another church with the same story. That church gave him a $50 Target gift card.

Fortunately, the police caught the man at a local store using the secretary’s credit card, according to Fox News.

Benevolence ministry, like all ministries within a church, presents risk. Property, funds, and employees are at risk when doors are open to the public to request money from the church. Policies and preparation can minimize these risks.

We’re what you call a normal church. One of the little guys.

I say that so you understand I’m not from one of these cutting edge churches with communications directors and flat panel TVs and sermon graphics. We’ve got an admin assistant, and Janice puts together a mean newsletter.

So understand where I’m coming from when I say this: There’s hope for the little guy.

The people in this book talk a big talk. And many of them walk the walk. But for us little guys, it’s a little overwhelming. They’re debating microsites and we’re still high-fiving that we even have a website.

But don’t let that scare you away. Don’t let that intimidate you.

The truth is you’re already communicating. Don’t let the fact that you’re little stop you from making it better.

Here are some ways the little guy can step it up:

In a free, live webinar co-sponsored by Christianity Today and Brotherhood Mutual Insurance Company on May 2, Richard Hammar will review these critical matters for church pastors and leaders and take questions.

Hammar's background with risk management matters, including his creation of a comprehensive training program designed to help prevent child abuse in churches, makes him uniquely qualified to address the laws that churches nationwide must know, the prevention plans they must make, and the responses they should give if allegations ever arise.

Space is limited for the webinar, so sign up today.

April is National Child Abuse Prevention Month. With state legislatures, such as Georgia's, closely scrutinizing their abuse reporting laws, it's a prime opportunity for churches to assess their current practices and identify potential vulnerabilities. To go deeper on the ways churches can protect the children in their care, check out the following resources:

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Q. Redeeming Church Conflicts doesn’t apply to us because our church is being sued by non-Christians. So we have to listen to our lawyers, right?

A. If you are being sued by anybody, it is always wise to listen to your lawyers. Besides being licensed experts in the secular law, however, lawyers are not merely “attorneys-at-law;” they are also to be “counselors-at-law.” That means they are to be aware of what is important to you as Christians and how your faith will be expressed even as you respond to a lawsuit. And that means that Redeeming Church Conflicts does apply because you don’t stop becoming people of faith just because you are being sued by non-Christians. Christians, of course, should retain Christian lawyers who will be sensitive to the priorities and values of their fellow believers.

Tara and I define “redeeming church conflict” as:

April is Child Abuse Prevention month. Church should be the safest place on earth, where kids can learn and grow in their faith. Sadly, many children have experienced abuse—physical, emotional, and sexual—at the hands of people they trusted at church. The video clip featured here highlights curriculum your church can use for training all staff, volunteers, and board members on best practices for protecting kids at church.

We also have more resources for keeping children safe in our store and on ChurchSafety.com, a joint ministry website of Christianity Today and Brotherhood Mutual Insurance Company.

A child sexual assault case in Michigan has garnered national interest in recent weeks because the evidence used to bring criminal charges against the alleged perpetrator included testimony from his pastor.

A county judge deemed the inclusion of the pastor's statements to be a violation of the state's clergy-penitent privilege laws, and tossed it out from the county prosecution's case against the man. The suspect, who is accused of raping a girl when she was 9, faces a mandatory 25-year prison sentence if convicted.

The prosecution appealed the county judge's decision based on two factors: One, the suspect's alleged confession was given to his pastor in the presence of the suspect's mother, thus reducing expectations for confidentiality. And two, the pastor requested the meeting, not the suspect, suggesting the suspect wasn't seeking spiritual counseling when the meeting occurred.

This case once again illustrates the challenges with understanding how clergy-penitent privilege works. Richard Hammar has written a few times about the clergy-penitent privilege on ChurchLawAndTax.com, including a case in Florida in which the privilege didn't apply, another case in Rhode Island in which it didn't apply, and a Q&A about the difference between privileged and confidential communications. These articles are critical first steps for pastors to understand how clergy-penitent privileges work, as is a thorough reading of applicable state laws.

For more help, the first volume of Pastor, Church & Law by Hammar includes an extensive checklist that pastors and church leaders can use before any potential communications that may involve a confession.

Senior pastors rank at the top in total compensation plus benefits for church staff. (See the "Top 7 Paid Full-Time Positions in Church.")

In general, as church income and worship attendance increase, compensation and benefits also increase.

While a salary in the $80,000 range looks good on paper, actual take-home pay for pastors may be much different, perhaps far less. The average base salary of a full-time senior pastor ranges from $33,000 to $70,000. Eighty-four percent of senior pastors say they also receive a housing allowance, which accounts for $20,000 to $38,000 in added compensation.

The graphic below highlights the breakdown of salary and benefits senior pastors receive.

Fraud prevention in churches isn’t an easy subject to bring up. The topic naturally creates tension, pushing up emotion levels with staff, lay leaders, and volunteers. And for good reason: One significant prevention tactic requires two people—not one—to handle the money collected at services. So, tactfully explaining to a sole financial worker or volunteer why more people are needed can be awkward. And in some cases, finding available staff or volunteers, and matching schedules to handle financial duties, may not be easy, further complicating the process and creating frustrations all around.

This topic struck a chord last summer when Vonna Laue, one of our Editorial Advisors, listed the top three reasons fraud happens in church. Many readers responded in the comment section. One church secretary described the weight of being the only person working on the church’s finances and her hopes that her pastor would someday agree to put more safeguards in place. Another church staff member took measures into her own hands to protect herself: “I insist on a minimum segregation of duties. I write checks but don't sign and I have a volunteer who does the bank reconciliation. I'm regularly surprised by folks who say, ‘Don't they trust you?’" Others described how safeguards help prevent false accusations.