Best Practice Update – The Local Church Audit
As we conclude the local church and district conference years, I thought you would find value in receiving a resource about local church audits. Regrettably, we tend to talk about the topic because of a bad experience. Truth be told, church audits are a vital best practice. Too often audits are viewed as a sign of lack of trust, when in reality they actually preserve and develop trust. They protect integrity, provide an opportunity to learn and improve, they demonstrate good stewardship, they are a denominational requirement (see The Discipline, paragraph 863), help prevent fraud, etc. You get the picture. I’m totally convinced every local church should conduct an audit of some sort annually. I believe in audits and really do look forward every year to our annual audit.
A word about fraud. Regrettably, fraud occurs in our local churches with devastating effects on families and sometimes the church itself. To the best of my recollection, every fraud I am aware of had one common factor–financial records were not audited regularly. People rarely intend to commit fraud. They have the best of intentions, but are tempted when they feel financial pressure, opportunity avails itself, and actions are rationalized. In the accounting/auditing profession, we call this the “Fraud Triangle” (see below). Church audits can be a means to removing one side of the triangle we can more easily influence, opportunity. Fraud doesn’t happen without opportunity. As Ben Franklin is credited with saying “an ounce of prevention is worth a pound of cure.”
Back to The Discipline. It wisely recognizes that one size does not fit all–it provides for multiple expressions based on local need. Consequently, I asked a trusted professional and friend, Mike Batts, CPA of Batts, Morrison, Wales & Lee, to describe and comment on the various kinds of audits and accountability measures a church could use. Additionally, Mike has prepared an excellent checklist for internal financials audits which can be accessed by following the link at the end of the article.
About the author. Mike Batts is a CPA and managing partner of Batts Morrison Wales and Lee, P.A., an accounting firm dedicated exclusively to serving non-profit organizations across the United States. Mike’s firms serves as the audit service provider for The Wesleyan Church. He is chair of the board of the Evangelical Council for Financial Accountability (ECFA). Mike is a frequent contributor to Christianity Today’s church law and tax resources. In 2015 Mike and Richard Hammar, co-authored Church Finance, which is a comprehensive guide addressing budgeting, financial reporting, tax compliance, insurance coverage, and other topics. It is widely considered the “go-to” reference book on church finance.
General Treasurer, The Wesleyan Church