Understanding Internal Controls In A Church Environment – Part I

Cynthia Gordon-Floyd, C.P.A., C.F.E., Contributing Writer

What are internal controls for a church? Michael Batts, CPA and author of Church Finance, describes it as “the system of checks and balances necessary to protect the church from intentional and unintentional acts that could cause a loss of the church’s financial assets or that could result in the misreporting of th e church’s financial information.” Let us unpack this definition as it relates to the African Methodist Episcopal Church in a three-part series of articles on this subject.

The process of internal controls begins with the content of The Doctrine and Discipline of the African Methodist Episcopal Church, which outlines the policies and procedures that govern how our churches are structured and should operate. The Doctrine and Discipline was not designed to provide specific internal controls. Still, it defines the “control environment,” which is the basis for internal controls.

The control environment includes understanding the organization’s culture and what is referred to as “the tone at the top.” The tone at the top analyzes the culture of the leaders with respect to issues related to internal control and similar matters. Therefore, we must ask ourselves if we have created an environment that encourages our leadership to operate with complete integrity and in compliance with applicable laws and regulations. Our Doctrine and Disciplinespecifically references many areas of oversight and compliance. Are we ensuring that those requirements for oversight are being effectively carried out?

Since our Doctrine and Discipline is not designed for specific internal controls, we as clergy and lay persons must ensure that sound internal controls are implemented from the top of our denominational leadership down to the workings of our local churches. Unfortunately, our recent environment proves we need to do so more effectively. We must institute new targeted controls to address our systematic lapses in internal controls (i.e., misappropriation of retirement funds, fraudulent sale and mortgaging of church properties, incorrect payroll reporting practices, insufficient issuance of giving receipts, incorrect financial reporting, etc.). We must begin correcting our internal control efficiencies by addressing the “tone at the top,” which is the only way to address the lapses at the bottom effectively. Do we want change, compliance, consistency, operating, and reporting integrity? What are we willing to do about it? Please join me for the next installment of this series, which will focus on risk assessment and internal control activities local churches can easily implement at local churches.

Cynthia Gordon-Floyd is a certified public accountant and a certified fraud examiner. She is the founder of Willing Steward Ministries, LLC. Willing Steward Ministries (www.willingsteward.com) is a financial consulting and accounting firm for churches and other faithbased non-profits, specializing in Bible-focused financial practices, pastoral compensation issues, IRS compliance, and other financial needs specific to churches. Cynthia is a graduate of Lake Forest College and holds her MBA in Accounting from DePaul University She is a steward and the financial secretary at the First AME Church of Manassas in Manassas, Virginia.