Episcopal Church Foundation Vital Practices - Vestry Papers - Church Finances for Uncertain Times - Five Things Every Church Treasurer Should Know

March 2018
Church Finances for Uncertain Times

Five Things Every Church Treasurer Should Know

Linda Puckett

Whether your church employs a bookkeeper/accountant or you are a volunteer treasurer who manages the accounting, this article lists five things that I think every treasurer should know. The list is based on my own experience as a parish treasurer as well as my work as a diocesan finance director and presenter at treasurers’ workshops throughout the Episcopal Church. The greatest challenge in writing this has been to keep the list to five. I encourage you to add to it, based on your own experience, and to provide the list to your successor when your term as treasurer expires.

1. Establish a balanced budget

Establishing an annual operating budget that reflects your congregation’s mission and ministry is an important part of a church’s overall financial wellbeing. Develop a timeline and process to create a new budget for all ministry areas each year. Budgets should not automatically carry forward from year-to-year. Involve vestry liaisons, committee/ministry chairs, clergy and staff in the development of a budget based on specific ministry goals. In my experience, a balanced budget is the most effective tool for managing funds. Avoid developing a budget that is unrealistic for your congregation.

A narrative budget, in which each line item includes a description of the way the funds will be used, is a highly effective way to educate parishioners, the vestry, staff and others. Graphs and charts can be incorporated to compare prior year to current year data.

Once the budget is approved, funds should be allocated on a month-to-month basis based on historical data. To enable the church to meet its financial obligations in a timely manner, planning should take into account the periods throughout the year when revenue declines and expenses increase.

As the year progresses, budget revisions may be needed due to unanticipated expenses or changes to revenue and/or programs. Any budget revision should be reviewed by the finance committee and approved by the vestry. All budget revisions should be documented in the minutes of the vestry.

Planning for long-term building or capital needs is also important, and a separate capital budget should be developed for those projects.

2. Maintain good internal controls

Internal controls are the policies and procedures that are established to protect the assets of the church and reduce its risk. They not only protect the church, but can also protect the treasurer from false allegations. Internal controls also ensure that all financial transactions are handled properly, from the Sunday offering to writing checks. A good internal controls checklist can be found in the Manual of Business Methods, available online at www.episcopalchurch.org/finance.

3. Understand eligibility and requirements for employee benefits

Treasurers should be aware of any benefits that are available to eligible clergy and lay employees. Some benefits, such as pension and medical insurance, are mandated for eligible clergy and lay employees by the canons of the Episcopal Church and your diocese. It is the treasurer’s responsibility to ensure that benefits and employee contributions are paid in a timely manner.

4. Understand the basics of payroll reporting

The most important federal reporting obligation for most churches is the withholding and reporting of employee income taxes and Social Security and Medicare taxes. Because of the liabilities, churches should consider using a professional payroll service, such as Episcopal Payroll Services www.cpg.org/eps. Many treasurers and others responsible for withholding taxes and paying them to the government are unaware of the penalties if taxes are not withheld or remitted to the government.

Understanding the basics of clergy taxes will assist in the proper handling of the clergy payroll. Clergy are employees for federal (and where applicable, state) income tax purposes. However, they are self-employed for Social Security and Medicare tax purposes with respect to their church compensation. Clergy are exempt from mandatory income tax withholding, though they may enter into a voluntary withholding agreement with the church.

The treasurer should make certain that a proper housing allowance resolution has been adopted by the vestry before compensation is earned. Reimbursable expense plans should be established for automobile and other business expenses.

In addition to Form W-2 for clergy and lay employees, treasurers should ensure that churches issue a Form 1099-MISC for payments made during the calendar year to any individual or unincorporated entity that was paid $600 or more.

5. Conduct an annual audit

An annual audit is required by the canons of the Episcopal Church for all parishes, missions and other institutions. The annual audit ensures that the financial statements are properly reported. All funds should be included in the annual audit. In the absence of an audit, treasurers, vestries and other persons may be liable for any losses that would have been discovered by an audit. Consult your diocesan office for regulations for approved auditors or an audit by committee.

Finally, I suggest exploring the many online resources for church treasurers and taking advantage of workshops and other opportunities to learn and network with treasurers from other congregations.

Linda Puckett is a member of St. Aidan’s Episcopal Church in Milton, Georgia, where she serves as treasurer for the parish and preschool. Linda is retired after serving as a Vice President at the Church Pension Group and Director of Finance for the Diocese of Atlanta. She serves on the finance faculty for CREDO conferences and has conducted conferences and seminars in all fifty states on church finance, clergy taxes, employee benefits and planning for retirement.

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