Financial Oversight is Critical

Churches need to adhere to a strict set of guidelines to prevent malfeasance

Max H Herr

7/6/20224 min read

Every church corporation is required by the California Corporations Code to have a defined Board of Directors. This group of persons has fiduciary responsibility for the operation of the church as a corporation. It is the Board’s primary task to oversee the financial condition of the church and take action as necessary to ensure the church remains solvent. Many churches fail to properly identify the Board in their Bylaws, which can be highly problematic.

The Evangelical Council for Financial Accountability (ECFA) offers the following list of 15 questions your church Board of Directors should be asking when it receives monthly, quarterly, and annual financial reports. If any of these questions cannot be adequately answered, the Board is not receiving all the information it needs to properly exercise fiduciary oversight of the church and its finances.

1. Is our cash flow projected to be adequate? (This question presumes the ministry prepares cash flow projections. Cash flow projections are simply an assumption of future revenue based on historical trends, but an observant church treasurer will notice a pattern of increase or decline which should be reported. The Board must not ignore the importance of such reports, particularly if the report is negative.)

2. What is the trend of cash in terms of number of months of cash on hand? What is the ministry’s goal in terms of the number of days or months of cash in hand? (For ECFA’s comprehensive explanation of how ministries can easily determine the number of months of cash on hand, visit

3. Does the ministry have sufficient net assets (capital reserves)? (This question presumes the ministry has established goals for net assets so measurement is possible. Ideally, a church will have reserves of not less than three to six months of operating expenses. If a church’s unrestricted revenues are increasing, but net assets remain relatively flat or are in decline, the church needs to reevaluate its spending. Churches are also encouraged to begin setting aside funds from net assets on a monthly basis for long-term (or, “deferred”) facility maintenance needs. This is known as accounting for “depreciation.”)

4. Did total net assets increase or decrease during the accounting period – month/month, quarter/quarter, year/year – and is this a significant change from the same period one year ago? (Ideally, a church’s total net assets will increase over time.)

5. Did net assets without donor restrictions increase or decrease, and is it a significant change from last year? (This is a measurement of undesignated giving – known as “regular revenue” or “tithes and loose plate money” only.)

6. Have any funds related to net assets with donor restrictions been borrowed for operational or capital needs? (This is referring to the use of “designated” fund assets, such as money contributed for children’s ministries, benevolence, etc., to pay for other church expenses due to a revenue shortfall. The church must NEVER use “restricted” fund money, such as a capital projects fund, to pay ordinary expenses. “Restricted” fund money is that which the church solicited for a specific project, such as a new building campaign, and cannot legally be used for any other purpose without the donor's consent.)

7. Is the monthly financial activity compared with the operating and capital budgets? (This question presumes the ministry prepares both operating and capital budgets. Operating budgets are the typical “revenue and expenses” of the church, while capital budgets are the projected costs of acquiring, building, and/or maintaining church property, which may be included in the operating budget. Every church should prepare a properly balanced Revenue and Expense budget annually. Someone should be accounting for deferred maintenance items, such as HVAC systems, plumbing, carpet and furniture replacement, painting, roof replacement, etc.)

8. Are there any significant differences between actual and budgeted data? If so: Why did they occur? Do they need to be addressed, and if so, how?

9. Are there any significant differences between current year-to-date and prior year-to-date actual data? If so: Are trends reflected by major revenue categories, e.g., contributions? Are trends reflected by major expense categories, e.g., salaries and fringe benefits?

10. If investments show major changes, does the Statement of Cash Flows show significant sales or purchases? (Some churches simply list each deposit and each check written and show a running balance for the period. However, a more complete set of reports consisting of the Revenue and Expense report and Assets and Liabilities report can provide the same essential information with better detail: How much money came in? How much went out and what was it spent on? And of the money left over, how is it being accounted for?)

11. Were there significant purchases of property or equipment during the year?

12. Has long- and/or short-term debt significantly increased or decreased? (Debt-financed churches may be subject to Unrelated Business Income Tax if they rent or lease portions of their property to others for non-worship/religious purposes.)

13. Are payroll tax payments up-to-date and always timely made? (Depending on total tax liabilities to state and federal governments, payments may need to be made as soon as within three business days of a payday, quarterly, or annually.)

14. Are federal, state, and local document filings up-to-date, e.g., 941s, W-3/W-2s, 1099-NECs, etc.?

15. Are any vendor accounts in over-30-day status? (Churches must strive to set high standards for making prompt payments, ideally not carrying credit card balances forward from month to month. Recurring bills, such as mortgages and utilities, should be scheduled for automatic payments to avoid late charges.)

For a more extensive set of questions a church or ministry's Board of Directors should annually answer regarding financial issues, download a copy of ECFA's Tool #6: The Board’s Annual Financial Management Audit by visiting

ECFA Tools and Templates For Effective Board Governance: Time-Saving Solutions For Your Board by Dan Busby and John Pearson is an excellent resource for churches and may be purchased on Amazon ($39.00).

If your church or ministry Board needs training in financial oversight, call us at 909.618.4841 or send an email to