Should You Outsource Your Church Accounting

Deciding whether or not to outsource your church’s accounting depends on several important factors. In this article we will …

• Examine some of the reasons why you might want to outsource this vital task,

• Review a few of the online software programs that many churches use when they decide to maintain their accounting internally, and

• Provide a basic overview of church accounting tasks and responsibilities.
  

Introduction

There are several different considerations when you and your staff begin looking at accounting options for your church. These include:

• Size of your church: If your church is small and has simple accounting needs, you may be able to handle your own accounting in-house. However, if your church is larger or has more complex financial transactions, outsourcing may be a better option.

• Expertise of your staff: If you have staff members who are experienced and knowledgeable about accounting, it may be feasible to handle your own accounting. However, if your staff lacks the necessary expertise, outsourcing may be the better choice. Outsourcing your church accounting can give you access to experienced professionals who specialize in accounting and bookkeeping. This can help ensure that your church's financial records are accurate and up-to-date, and that your organization is in compliance with tax laws and regulations.

• Time and resources: Outsourcing your accounting can save you time and resources that can be better spent on other areas of your church's mission. However, if you have the time and resources to handle your own accounting, it may be more cost-effective to do so.

• Compliance requirements: Churches are subject to certain compliance requirements, such as filing annual tax returns and adhering to accounting standards. If you and your staff are not familiar with these requirements, outsourcing to a professional accounting firm may be the safer option.

• Timesaving: Outsourcing your church accounting can free up time for your staff and volunteers to focus on other important tasks, such as outreach, ministry, and administration

• Cost-effective: Outsourcing can be more cost-effective than hiring an in-house accountant or bookkeeper, as you only pay for the services you need, and you don't have to worry about overhead costs such as benefits and office space.
  
  On the other hand, there are some potential drawbacks to outsourcing your church accounting, including

• Loss of control: Outsourcing can mean that you have less direct control over your financial records and reporting, which can be a concern for some churches.

• Security: Outsourcing your church accounting means that you are sharing sensitive financial information with a third party, which may pose a security risk if proper precautions are not taken.

• Communication: Working with an external accounting firm can sometimes create communication challenges, especially if there are language or cultural barriers.
  
  

Church Accounting Software

If you decide to handle your accounting internally, there are several church accounting software options available on the market. Here are a few examples (although we aren’t, of course, making recommendations for what is best for your particular situation):

·       Aplos (https://www.aplos.com/): This is a web-based accounting software program designed specifically for nonprofit organizations, including churches. It has such features as fund accounting, online donations, and budgeting tools.

·       PowerChurch Plus (https://www.powerchurch.com/): This software offers a range of tools for managing church finances, including accounting, payroll, and membership management. It also includes tools for tracking donations and generating financial reports.

·       ACS Technologies (https://www.acstechnologies.com/): This software is designed for churches of all sizes and includes tools for accounting, payroll, and membership management. It also includes features for managing events, online giving, and communication with members.

·       Breeze (https://www.breezechms.com/): This cloud-based software offers tools for managing church finances, including accounting and budgeting tools, online donations, and membership management.

·       ChurchTrac (https://www.churchtrac.com/): This software offers tools for managing church finances, including accounting and budgeting, donation tracking, and membership management.

When choosing church accounting software, it is important to consider your church’s specific needs and look for a solution that offers the features and functionality that best serves you.

Income and Expenses for Churches

Like any organization, churches need to manage their income and expenses to ensure financial stability and accountability. Here are some common income and expense categories for churches:

Income:

·       Tithes and offerings: This includes all monetary donations made by church members and attendees.

·       Rental income: If your church rents out its facilities to other organizations, this income would fall under this category.

·       Fundraising income: This includes income generated from various fundraising events such as bake sales, car washes, and special events.

·       Investment income: This includes any interest, dividends, or capital gains earned on church investments.

Expenses:

·       Salaries and benefits: This includes the salaries and benefits of church staff members such as pastors, administrative staff, and custodians.

·       Facilities expenses: This includes expenses related to maintaining and operating church facilities such as utilities, maintenance, and repairs.

·       Outreach and mission expenses: This includes expenses related to outreach and mission programs such as mission trips, food banks, and community service projects.

·       Supplies and materials: This includes expenses for office supplies, equipment, and materials needed for various church programs and events.

·       Insurance and legal expenses: This includes expenses for insurance policies and legal fees related to church operations.

It is important for churches to keep accurate records of their income and expenses and to regularly review and analyze their financial statements to ensure that they are meeting their financial goals and obligations.

Financial Reporting for Churches

Financial reporting is a critical part of managing the finances of a church, as it provides transparency and accountability to your congregation. Here are some key financial reports that churches should prepare and review regularly:

·       Income statement: This report summarizes your church's income and expenses for a specific period, such as a month or a year. It shows whether your church has generated a surplus or a deficit during that time.

·       Balance sheet: This report provides an overview of your church's financial position at a specific point in time. It includes your church's assets, liabilities, and equity.

·       Cash flow statement: This report shows how your church's cash balance has changed over a specific period, such as a month or a year. It shows the sources and uses of cash and can help identify any cash flow issues.

·       Budget vs. actual report: This report compares the actual income and expenses for a specific period to the budgeted amounts for that period. It can help identify areas where your church is overspending or under-budgeting.

·       Donor reports: These reports provide information on donations received from individual donors and can help track donor giving patterns over time.

·       Depreciation: If your church owns assets such as buildings, vehicles, or equipment, it will need to record depreciation expense over time to reflect the wear and tear of those assets. This entry will debit depreciation expense and credit accumulated depreciation.

·       Adjusting entries: From time to time, your church may need to make adjusting entries to correct errors or to record accruals or deferrals. For example, if your church has received a donation for a future event that has not yet occurred, it may need to record an adjusting entry to defer the revenue until the event takes place.

It is important for churches to prepare financial reports accurately and in a timely manner, and to review them regularly to ensure that your church is meeting its financial goals and obligations.

Balance Sheets for Churches

A balance sheet is an important financial statement that provides an overview of the financial position of a church at a specific point in time. Here are some key components of a church’s balance sheet:

·       Assets: This includes all the resources that your church owns or controls, such as property, cash and cash equivalents, investments, and accounts receivable.

·       Liabilities: This includes all the debts and obligations that your church owes to others, such as loans, accounts payable, and accrued expenses.

·       Net assets: This is the difference between your church's assets and liabilities and represents the amount of equity or ownership in your church. Net assets can be further divided into two categories:

o   Unrestricted net assets: These are net assets that are not subject to any donor or legal restrictions and can be used for any purpose deemed appropriate by your church.

o   Restricted net assets: These are net assets that are subject to donors or legal restrictions and can only be used for specific purposes or programs designated by the donors or legal authorities.

Balance sheets should be maintained carefully to assess the financial health of your church. They can help churches identify areas of financial strength and weakness, and help the leadership make informed decisions about future investments and expenditures.

Church Fund Accounting

Church fund accounting is a system of accounting that is used to track and manage the financial activity of specific funds within a church. Churches often have several funds, each with a specific purpose and set of restrictions or guidelines. Here are some common types of funds that churches may use:

·       General fund: This is the primary fund of your church, and it is used to cover day-to-day operating expenses.

·       Building fund: This fund is used to pay for construction or renovation projects related to your church's physical facilities.

·       Mission fund: This fund is used to support mission work and outreach efforts both locally and globally.

·       Scholarship fund: This fund is used to provide financial assistance to church members or to those pursuing educational opportunities.

·       Benevolence fund: This fund is used to provide assistance to individuals or families in need within your church or community.

When using fund accounting, it’s important to keep separate records for each fund, including income and expenses, assets and liabilities, and net assets. Churches may also need to prepare separate financial statements for each fund to ensure and provide transparency and accountability.

The Need for Churches to Demonstrate Financial Accountability

Churches, like all nonprofit organizations, have a responsibility to demonstrate financial accountability to their members, donors, and the wider community. Here are some reasons why financial accountability is important for churches:

·       Transparency: Demonstrating financial accountability allows churches to be transparent about how they are using their resources. This transparency helps build trust with members, donors, and the wider community and can encourage greater engagement and support.

·       Legal compliance: Nonprofit organizations, including churches, are subject to various legal and regulatory requirements related to financial reporting and transparency. By demonstrating financial accountability, churches can ensure compliance with these requirements and avoid legal or financial penalties.

·       Stewardship: Churches have a responsibility to be good stewards of the resources entrusted to them. Demonstrating financial accountability helps ensure that resources are being used effectively and efficiently to support your church's mission and goals.

·       Donor expectations: Donors, whether individuals or organizations, expect that their contributions will be used appropriately and effectively. Demonstrating financial accountability can help reassure donors that their contributions are being used in accordance with their wishes and can encourage continued support.

·       Ethical considerations: Demonstrating financial accountability is an ethical responsibility for churches, as it ensures that they are acting with integrity and honesty in all financial matters.

To demonstrate financial accountability, churches should implement strong financial policies and procedures, maintain accurate and complete financial records, prepare regular financial statements and reports, and undergo independent audits or reviews. Churches may also want to consider joining a financial accountability program or organization, such as the Evangelical Council for Financial Accountability (ECFA), to demonstrate their commitment to financial transparency and accountability.

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