One of the fiduciary duties of church officials is to manage corporate assets. This stewardship responsibility involves the assurance that all properties are safeguarded. An important way to ensure church assets are adequately protected is with effective internal controls. Internal controls benefit the church and its officers. The lack of internal controls can be especially harmful to the church and its officers.
Internal controls is the system of checks and balances that prevent errors and/or fraud. All organizations are vulnerable to mistakes that can lead to losses. Church officials are expected to minimize the risks that create systemic failures.
Inherent in all institutions is the chance that fraud can occur. Fraud includes theft of church property through embezzlement, misuse, or conversion. Conversion occurs when an official takes church assets with no intent of returning it. Internal control provides a safeguard against these temptations.
Some risks to the church may come from external parties. Vendors who have unreasonable access to church property could create a hazard. Visitors who are allowed to roam unsupervised in secured areas could render church controls useless.
It can be especially injurious to an innocent person when an issue arises with inadequate internal controls. Take for instance a case of missing money. A guiltless employee could find accusations level against him because he was close to the money. Without internal controls, the accused may have no viable defense to clear his name.
An effective internal controls environment begins with having the correct culture. Church employees and volunteers must accept the importance of safeguarding all aspects of the ministry. Policies should be established and procedures put in place to guide church operations. The procedures should be practical, reasonable, and consistent. Training should also be provided for all who have a role in each risk area.
Here are some practical tips for church internal control systems:
- Practice Dual Control: No single person should handle cash, checks, or valuable commodities without a witness. Additionally, access to valuable properties should require two or more persons. This rule will avoid putting well-intentioned individuals at risk of a mistake turning into an accusation.
- Separation of Duties: Persons who are responsible for various aspects of bookkeeping should be separated for their own protections. The person who writes checks should not be the same who approves invoices and reconciles account statements. Different individuals can hold each other accountable and put multiple eyes on each transaction.
- Create Internal Audit Process: Church officials should put a system in place to check everyone’s work. Internal audits may uncover weaknesses in the church controls. The auditor should be a person not affiliated with the area under review.
- Protect all Data: Churches often have personal member information. Private consumer data could be exploited by wrongdoers. It is crucial the church safeguards this information from falling into the hands of individuals with bad motive. An internal control process that ensures confidentiality and data protection will lower the risk of a harmful breach.
- Personal Access Prohibited: Church employees and officials should be prevented from manipulating their own personal information in the church system. This includes giving records, personnel files, credit card usage, and payroll records. Drawing these control lines will help insulate employees from suspicious interest conflicts.
Creating a healthy culture for internal controls and backing it up with effective policies will help protect the church and its officers. Begin the conversation with your church leadership today. You may find that an ounce of prevention can avoid a costly cure.