Monday, December 3, 2018

How to Avoid Church Financial Scandal


How transparent do your church finances need to be?

Are you aware of the legal challenges that may be facing church 990 exemptions and the minister’s housing allowance? 

These questions and more were addressed in a recent webinar from MortarStone titled How to Avoid Church Financial Scandal. The webinar features great insights from Gunnar Johnson, Executive Vice President of MortarStone and founder of Financial Freedom International, and ECFA’s Vice President, Michael Martin.

Here are a few key takeaways from the webinar:
  • Society’s view of the Church’s financial credibility is suffering. Studies have shown a growing distrust of churches and the way they handle money. Millennials in particular are skeptical of organized religion and its impact. A recent Barna study showed that of those Americans who identify as agnostic or atheist, distrust of the Church is listed as a top reason for their beliefs.

  • Leaders must be committed to stewardship. Scripture itself underscores the importance of stewardship in church leaders:
“Moreover it is required in stewards, that a man be found faithful.” (1 Cor 4:2)

“The saying is trustworthy: If anyone aspires to the office of overseer, he desires a noble task. Therefore an overseer must be above reproach…not a lover of money.” (1 Tim 3:1-3)

“We are careful to be honorable before the Lord, but we also want everyone else to see that we are honorable.” (2 Cor 8:21 NLT)
  • There is an increasing demand for transparency in churches. The courts are seeing a rise in cases in which atheist groups and others oppose religious protections for churches, such as the housing allowance and other tax advantages. The increase in this type of litigation is symptomatic of a culture that is calling churches to an account. Churches should therefore take steps toward appropriate transparency.

    As ECFA President Dan Busby says, “Facing an insatiable desire for transparency, trusted churches find the balance between being appropriately transparent and measuring privacy concerns and administrative burdens.”

  • Avoid the dreaded question: Where was the Board? When church financial scandal occurs, the responsibility nearly always comes back to the board. Churches can strive for “Verifiable Accountability” by maintaining an independent board of at least 5 members which meets at least semi-annually and focuses on policy and mission.

  •  Compensation and conflicts of interest are key issues to consider. When it comes to these issues, we must think about them from a LEGAL standpoint, a BIBLICAL standpoint, and a PERCEPTION standpoint – how will this appear to others?

  • Honor giver expectation and intent. ECFA’s 2017 Generosity Project survey found that 93% of all givers agree that it’s extremely important for ministries to uphold specific standards of financial integrity. A key ingredient in these standards is trustworthy stewardship – using the money the way you’ve said you will, and communicating accurately and appropriately with givers.

  • Churches are often vulnerable to fraud. Deliberate misappropriation of funds within a church often comes from a long-time, “trusted” member of the church. In order for fraud to occur, three conditions are usually present: PRESSURE (on the individual who commits the fraud – such as financial crisis or other life circumstances), RATIONALIZATION (the individual justifies their actions – “I’ll take this money now, but I’ll pay it back” or “I’m not being paid enough, so I deserve this”), and OPPORTUNITY, which is the only factor of the three that the church can, to some extent, control.

    Therefore, it is important to implement safeguards and internal controls which decrease the opportunity for fraud. ECFA offers resources to aid churches in this effort, such as basic fraud prevention steps, warning signs of a possible fraud environment, and steps to take if fraud is suspected. These resources and more are available through ChurchEXCEL, ECFA’s FREE online community for churches.

Ultimately, when it comes to avoiding church financial scandal, we must consider the calling we have, as it was so well stated by John Wesley, “Our responsibility is to give the world the right impression of God.”

Click here to view the full webinar, How to Avoid Church Financial Scandal.

Click here to join the free ChurchEXCEL Community and receive access to a wealth of free church financial resources from ECFA.