Scarcely a church board meeting can proceed it seems without some discussion, however minor, about some financial matter. The chairperson has to keep in mind various factors in order to ensure that the board deals with financial matters effectively, ethically, legally, and spiritually, all the while securing the congregation against inappropriate financial risk. A board chair unfamiliar with the mysteries of accounting or lacking experience in financial management may feel intimidated by money matters, particularly when a chair is required to facilitate effective board leadership in such issues.
Effective leadership usually occurs when the gifts, competency and experience of the entire team becomes engaged in decision-making. Usually among the board members there are one or two who have some experience in managing finances or accountancy, whose expertise you as chair can rely upon. If there is no one among the board members with this competence, then it is probably wise to develop a relationship with someone in the congregation whom you might use as a financial consultant until such time as this kind of expertise is represented at the board table. In such cases the appointment of someone with financial competence to the board should be a priority.
Three important areas in financial oversight deserve a chair’s close attention. The first is the question of operational funds, i.e. caring for the day-to-day expenses, salaries, and annual expenditures (e.g. insurance). This also includes the secure reception of financial gifts and their appropriate accounting and depositing in the church’s bank account. The people receiving the funds should be different from those responsible for expending them. There should be clarity about the employees who may authorize budgeted expenditures without reference to the board. Any cheques need to be authorized by the appropriate fund manager and have two different signatures from signing officers approved by the board. The church treasurer should be providing to the board a monthly statement of accounts so that the board can track income and expenses regularly. This report should include information about the percentage of the annual budget spent to date and comparison of rate of expenditures with prior year. The treasurer should also be providing a summary set of comments as to whether the congregation is facing financial risk or whether the budget is being met. In all of this the board needs to be careful not to micromanage the budget, but to make sure delegated authority is clearly and appropriately defined and monitored.
The second area is the end-of-fiscal year review and report. The board should decide how it will proceed with an annual audit or financial review and whom it will appoint to accomplish this work. Often in smaller churches this work is done by a volunteer. If that is the case, then make sure that the person has adequate financial credentials, has access to all of the information, is not the treasurer, has no family ties with the staff, and is willing to tell the board the truth regarding the financial situation. Establish a date by which the board needs to have the report so that it can review it prior to the annual general meeting. Also, make sure the reviewer knows that the board expects recommendations to be made if the book-keeping or other accounting processes have to be improved. In the case of congregations whose annual budgets exceed $500,000, it would be very wise to contract this work with an accounting firm and have a formal financial review or audit done annually.
A third area is the development of the annual budget. In many cases the board finance committee will work with the lead or executive pastor and the treasurer to develop a budget recommendation. Usually a church board will review a draft budget and recommend it to the congregation at the annual general meeting for its approval. Once a budget is approved by the congregation, then the board should have in place specific guidelines as to how much flexibility the lead pastor has in deviating from the categories and at what points the lead pastor has to seek approval for expenditures (e.g. anything over $3,000?). The board may expect the lead pastor to manage to the bottomline.
Usually an effective board will manage these financial responsibilities through a ‘finance and audit committee.’ This committee will work with the church treasurer (who often will be a member of this committee) and the lead pastor, particularly in the preparation of the annual budget. A personnel committee also is a good thing for a board to appoint, particularly for making recommendations regarding salary and benefits increases. To this end a salary grid should be used so that such recommendations are not done in an arbitrary manner.
When you as chair review the monthly statements, watch several indicators. First, is the income keeping pace generally with expenses? Second, is there any area of the budget that is exceeding its limits? This may occur because of the way some expenditures flow through the fiscal year or may indicate that unexpected expenses are being incurred. It becomes something to monitor. The monthly financial report should provide two measurements. First, what proportion of the budgeted amount in each category should be spent by this point in the budget. Second, how does the expense (and income) projection compare with the prior year? Where you discern significant difference, that is where you may what to ask some questions.
A church board chair needs to keep an eye on these indicators because when financial emergencies occur, it diverts energy and attention from the congregation’s mission. Being proactive to address emerging difficulties gives opportunity to prevent disaster and set in place strategies for recovery and improved health. Often the remedies take considerable time and discipline to implement, but in the end will create a much more positive spirit within a congregation.