Most churches enjoy a tax-exempt status. With freedom comes responsibility, though. Maintaining transparency in church finances, particularly with members and regular contributors, is not just the right thing to do. It also has several benefits.
Being open about how the money donated to your church is used can help establish and build trust. While members would like to believe that church leaders are honest, providing proof that you are being good stewards of the donations made can give them better peace of mind.
Many tax-exempt organizations are required to file IRS Form 990 to report certain details of their expenditures:
- Fundraising expenses
- Programming expenses
- Administrative costs
These reports are used not only by the IRS to verify that the organization's tax-exempt status is valid but also by various watchdog groups that seek to ensure that the organization is honest about how donations are used. Potential donors may also use this information to determine whether they will contribute.
Even if your church is not legally mandated to report this information to the IRS, it's still a good idea to make it readily available, at least to members. In addition to the annual budget, you may consider releasing a monthly breakdown of the specific costs that fall within each category as well as a profit and loss statement. Not everyone will look at the paperwork every time you send it, but it may help significant contributors feel more secure about how their donations are spent.
Throughout church history, there have been many accusations of financial fraud brought against individual ministries. Though few receive as much media attention as the Jim Bakker scandal and conviction in the late 1980s, most people are acutely aware of the potential for abuse that exists in any organization that draws a large number of contributions. Keeping accurate financial records that are open to contributors makes fraud more difficult, thus improving accountability.
Providing monthly statements to church members can help them look out for red flags or suspicious behavior. Unexplained expenditures or a sudden shortage of cash in a certain fund can raise eyebrows. Staff members who seem to live consistently beyond the means of their reported salaries may be under scrutiny for embezzlement. Catching fraudulent acts in their early stages can save the church a lot of money and embarrassment in the long run.
Another way that financial transparency can serve the church well is by helping members plan their giving. An annual budget meeting to which the whole congregation is invited can give them an overall view of how much the church needs to function well. It is also a great opportunity for members to ask questions and make suggestions for updates or changes. While a separate financial committee may be in charge of actually drafting the budget and making recommendations, having the church at large vote to accept it makes members active participants in the process. Monthly statements that include a running total of the year-to-date surplus or deficit keep members accountable to the budget they voted to accept.
Increasing donations takes a little more effort. Transparency, while vital in open communication about the financial status and dealings of the church, is not enough to inspire congregants to give more than they have already planned. When coupled with accountability, however, it has a significant positive correlation with contribution levels. The more members are able to trust you with their resources, the more you are likely to receive.
You may not think that people are interested in the church's finances, but that is usually not true. When people donate money to an organization, they want to know how it is being used. Transparency helps you build the trust you need to ensure ongoing support.