Fraud within the church can have devastating results — it can cast a negative perception, break a congregation’s trust and cause unbelievers to avoid the church. Implementing a segregation of duties checklist can reduce opportunities for fraud and help uncover inconsistencies.
What is the segregation of duties?
Segregation of duties, also known as separation of duties, means that a single person doesn’t have too much control over church finances. Instead, responsibilities are split and shared so multiple people are involved along all points of financial transactions. These checks and balances provide internal controls.
Why Church Financial Management Matters
Churches are not exempt from fraud and its damaging consequences. Separating duties makes it more difficult to manipulate financial records, helping reduce the temptation and opportunity for embezzlement.
Transparency and accountability are critical for protecting a church’s reputation and maintaining a congregation’s trust. Clear financial policies and separation of duties can save churches precious time and energy that might otherwise be spent disciplining an offender or pursuing criminal prosecution. It can also protect employees and volunteers from wrongful suspicion.
Example of Internal Controls in Accounting
Let’s say a church would like to purchase themed t-shirts for $300 for a youth event. With internal controls, the financial transaction may look something like this:
- The finance committee sets an annual budget for the youth department.
- The youth minister submits a purchase request for the t-shirts (within the approved budget).
- Two authorized signers sign the check (requiring double signatures) and submit the invoice.
- A church volunteer with bookkeeping experience reconciles the bank account promptly at the end of the month, confirming that the cashed check matches the invoice.
- An independent auditor reviews the transaction during an unannounced review.
Download a Free Segregation of Duties Checklist for Churches
To help your church establish internal controls in accounting, download a free Segregation of Duties Checklist. Here are helpful tips you’ll find:
Separate the Following Duties
- Budgeting: Set annual budgets (finance committee)
- Cash handling: Collect and deposit funds.
At least two or three people (of no relation) should count church tithes and remain present until the deposit is made.
- Purchase requests: Require purchase requisitions from church staff who are not authorized to make purchases.
- Disbursements: Designate a minimum of two authorized purchasers for dual controls. Exclude pastors and board members to avoid conflicts of interest.
- Bank access
- Grant permission for one user to create transactions.
- Grant permission for a different user to authorize transactions.
- Credit card access
- Checks
- Require two signatures on checks.
- Don’t pre-sign blank checks.
- Don’t use signature stamps.
- Lock blank checks in a secure location.
- Bank reconciliation and financial reporting: Require prompt reporting of invoices, receipts and written checks for monthly bank reconciliation. Prepare monthly and annual financial reports. Assign this to someone other than those responsible for deposits and disbursements.
- Auditing: Conduct independent audits (annual and unannounced audits) by someone other than those responsible for deposits, disbursements and reporting.
Follow Best Practices
Develop a segregation of duties policy with guidelines for:
- Handling donations and cash
- Approving and tracking time-sensitive benevolence disbursements
- Defining steps for crisis management (e.g., identifying risks, developing steps for financial transactions, etc.)
- Requiring invoices or receipts for every purchase
- Requiring prompt investigation of irregularities (specify who must be notified)
- Setting a regular rotation of roles and responsibilities
- Protecting assets — such as cash, checks and financial records — with the use of safes, security cameras, alarm systems or other methods
- Managing data security (e.g., restricting computer access, backing up files, updating passwords regularly, etc.)
- Defining consequences for personal use of church funds
- Defining consequences for embezzlement
- Having employee dishonesty insurance (also known as a fidelity bond) for protection against losses caused by employee dishonesty, theft or embezzlement
Implementing Controls in a Small Church
Some smaller churches don’t have enough employees to separate duties to the extent mentioned above. If your organization’s headcount is limited, consider asking a volunteer to help with bank reconciliations — perhaps a church member with experience in bookkeeping. Or, if an accountant is part of your church body, he or she may be willing to conduct an audit. At a minimum, make every effort to separate responsibilities for deposits, disbursements and bank reconciliation.
Take a Faith-based Approach to Risk Management
At GuideStone®, we understand the risks your ministry faces daily. Want to know more about a faith-based approach to help protect your people, property and mission? For more information, contact us at PCSalesSupport@GuideStone.org or (214) 720-2868, Monday through Thursday, from 7 a.m. to 4:30 p.m. CT and Friday, from 7 a.m. to 4 p.m. CT.
This article is for informational purposes only. It is not intended to be construed as legal advice. Readers should use this article as a tool, along with best judgment and any terms or conditions that apply, to determine appropriate policies and procedures for your church’s risk management program.
Article 