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Managing The Church’s Financial Resources

How is your church managing its money? Is everything in order? Is the senior pastor unjustly benefiting? What would happen if someone inspected under a microscope what your church is doing?

By John P. Joseph

Important Instructions For Using PDF Forms
PDF forms in this article can be downloaded. These PDFs can be viewed and printed with the free version of Acrobat Reader 6, which you can download at However, all information entered into these forms cannot be saved unless you have Acrobat Professional 6.0 or Acrobat Standard 6.0, also available at]

If there has ever been a time for pastors to have their churches’ finances in order, it is today. Whether warranted or not, the media is searching for CEO mismanagement. Newspapers swirl with stories of mismanagement from Enron to WorldCom. Some of this searching is justified, but there is a deeper message: Corporate leaders in for-profit and not-for-profit organizations are being scrutinized for leadership and fiduciary responsibilities. They are being held accountable by their shareholders, and in the case of religious organizations, their members.

How is your church managing its money? Is everything in order? Is the senior pastor unjustly benefiting? What would happen if someone inspected under a microscope what your church is doing?

As a church business administrator, I have consulted with many churches. While visiting churches or speaking with pastors, the most common questions I am asked have centered on managing church finances.

In 1 Corinthians 14:40, Paul wrote, "Let all things be done decently and in order." Church leaders sometimes feel inadequate to fulfill Paul’s admonition, especially in the area of managing church finances.

We will discuss this broad area by taking a journey. Our starting point will be choosing a financial institution. We will then discuss offerings, making the deposit, payroll requirements, ministerial tax issues, and creating a budget. We will also address spending money, creating financial reports, and storing important financial records.

Finding the Right Bank

Finding a bank is easy. The hard part is finding the right bank. Not all banks are the same. While banks may offer similar services, they are often different in fees and structure.

There are three types of banks: the large money-center banks, regional banks, and small-community banks. Large money-center and regional banks are generally considered impersonal, whereas the community bank is not. But beware of small-community banks for reasons of confidentiality. Bank officers may serve as leaders in other churches, and your financial issues may not be held in confidence. I recommend using a local bank provided it is FDIC insured, and you feel comfortable with the privacy issues.

Search for a bank that offers free commercial checking, but find out its requirements. Watch out for minimum balances. Are such balances based on minimum or average balances? Will the bank charge the church for returned checks in the church deposits or waive such fees? Furthermore, find out if it has a per-check charge for depositing with a teller. A church may be able to avoid this by using the bank’s night drop box. However, some banks may charge for depositing checks anyway. Suggestion: Deposit offerings into a savings account, and by computer or telephone, transfer the money into your checking account to avoid the per-check deposit fees.

Once you have chosen a bank and opened your operating account, immediately open a savings account. We will address saving money when we look at budgets. Consider the Assemblies of God Foundation savings account for a higher rate of interest. For more information, contact AGFSG at:, or call toll free, 1-866-621-1786. Furthermore, do not buy checks through your bank. Contact companies such as Checks Unlimited at 1-800-533-3973, or They sell checks for half what banks charge.

Remember, banks want a lending relationship. After opening the church’s checking account, consider applying for a loan to establish credit history. This may be for purchasing a van or a line of credit to help with liquidity issues. Establishing credit does not mean a church needs to be in debt. Credit lines will be discussed later in this article.

Receiving and Managing Offerings

Once the bank account is established, the church is ready to receive offerings. Make it easy for people to give. Use offering envelopes with the following information: contributor’s name and address, tithe amount, offering amount, and a space for special offerings. Assigning a giving number for each contributor will help staff impute contributions.

Consider vendors who mail preprinted envelopes to your attendees. Some offer them with a self-enclosed stamped envelope. This makes it easy for people to give. They simply place their check in the envelope, which already has their personal information, and drop it in the offering plate or mailbox. One such vendor is Church Budget Envelope Company at 1-561-369-7767.

Suggestion: Place an offering box in the foyer. People sometimes give pastors their tithe checks if they miss the offering. With an offering box, attendees can securely drop off their offering at any time. The offering box should be locked and have ushers empty it after every service. You will see an increase in giving.

When handling money, always consider protective measures or what is commonly called internal controls. These barriers prevent theft and any accusations concerning mismanagement of funds. Generally, pastors need to avoid handling money, and employees or volunteers assigned to this task should do so in the presence of others. (See sidebar "Ten Important Financial Controls for Every Church.")

Collecting offerings

Ushers who are not deacons or officers of the church should receive the offering to avoid all appearance of impropriety. Deacons often review financial statements. At least two ushers should walk the money to the drop box or counting room. This room should be unmarked.If the offering is not going to be counted immediately, it should be placed in a locked cabinet or preferably a drop safe in the presence of at least two individuals. Do not have ushers count the money. Rather, have counters who are not rushed in counting the offering. Also, ushering is generally one of the first ministries people become involved in. It is not uncommon for people to be chosen at the last minute to help collect the offering. More diligence needs to go into selecting the counters.This is another layer of protection. (For additional reading on safeguards against money mismanagement in the local church, read "Safeguard the Church Treasury" at

Counting offerings

It is common in some churches for the pastors and church secretaries to count the offering. This is not advisable. Instead, have other trusted individuals handle the money. This prevents false accusations and protects the pastor.

Have at least two (preferably three) individuals count the offerings to avoid corroboration. Select a locked room and do not advertise when and where these people are counting the offering. Periodically, have a staff member walk in unannounced.

The counters should count the offering during or after each service and create a separate deposit slip for each service. The counters need to confirm that the amount contributed on the check is the same as what is written on the giving envelope. For checks that were not placed in an envelope, the counters will need to fill out an envelope.

A cash receipts count summary is then completed. (See form "Cash Receipts Count Summary.") This is one way to keep track of service totals and help a church access the financial growth or decline of its services. Additionally, it makes it easier if a contributor has a question about his or her offering on a particular day. Simply ask what service he or she attended and pull the offering envelopes and deposit slip for that service. The offering envelopes are stored by service and easily accessible. We will discuss how long to keep these records later.

Depositing and imputing offerings

After the offerings have been counted, the counters need to verify that the deposit receipt matches the figures on the cash summary. They then need to place all offerings in a lockable bank bag and have at least two individuals take it to the bank for deposit.

There are two common ways to input contributions—by a person’s last name or by a giving number assigned to a family or giving unit. Both are appropriate, but most churches prefer the numbering system since it is easier for the contributor and creates fewer accounts.

Undesignated and designated donations

An offering envelope will often contain instructions from the contributor on how to use his or her offering. This is called a designated offering. As a general rule, undesignated contributions (tithe or cash) are monies available for general expenses of the church (mortgage, payroll, utilities, miscellaneous expenses). However, when a donation is designated by the donor for a specific purpose, it can only be used for its intended purpose. Once accepted and deposited, the church has a fiduciary responsibility to use that money for the stated purpose. Such designated gifts must be for an approved project or program of the church. Furthermore, the church must exercise full administrative and accounting control over the contribution so it is spent in furthering the mission of the church. An example may be a gift to an approved missionary.

It is important for pastors to refrain from checking donation records of their people. It is important to know whether people tithe if they are being considered for leadership. For such occasions, it is appropriate for the pastor to know if this individual tithes. However, to inspect personal giving records on a regular basis for no other reason than personal interest may render the minister biased and frustrated.

Gifts to church leaders

It is common for churches to collect an offering for their pastor, especially on minister appreciation day or on the pastors’ anniversary or birthday. But how should such designated money be accounted for in the books? The general rule is this: If the money is collected for the pastor, it must be run through the church’s books as taxable income. It is also included on the pastor’s W-2. Thus, special-occasion gifts to a pastor funded through members’ contributions to the church need to be reported as taxable wages and are subject to self-employment taxes if the pastor has not opted for exemption. The contributor can then receive contribution credit for the gift. If donors are willing to give up their contribution credit, they can write their checks directly to the pastor. These would then be tax-free gifts.

Noncash gifts

Contributions of noncash gifts raise issues for the church and the donor. Read Richard Hammar’s Church & Clergy Tax Guidefor specifics. (See sidebar "Recommended Resources.")

Generally, IRS Form 8283 needs to be filed if the church receives a noncash contribution having a fair market value between $500 and $5,000. However, if the FMV is over $5,000, a qualified appraisal is needed. The donor, not the church, must establish value. Since many church members are not familiar with IRS Form 8283, keep several on hand. When your church receives a substantial gift, write a letter thanking the donor for the gift and enclose IRS Form 8283 for his or her use. Should the church decide to sell a donated asset valued over $5,000 within 2 years of donation, the church must file IRS Form 8282. (Forms can be downloaded from

Contribution statements

All offerings must be physically received or postmarked by midnight December 31. Predating a check to the church will not work, nor will postdating a check. A check can be mailed before December 31 and be received after December 31 and still satisfy IRS guidelines. Simply verify the postmark.

All donations (unrestricted and restricted) must be recorded and a record provided for the donor for income tax purposes. All church donations must be properly substantiated to be tax-deductible. There are two general rules for a church to follow. First, a donor is responsible for obtaining written acknowledgement from the church for any single contribution of $250 or more before the donor can claim it on a tax return. Second, the church is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

The church follows these substantiation rules by annually providing a contribution statement. Each person’s contribution statement needs to include all donations by that person. Suggestion: Advise your attendees not to file their tax returns until they have received the church’s written acknowledgement of their donations. Church contribution statements should be mailed before January 31. (See form "Record of Cash Contributions.")

Managing Finances in the Church Office

In smaller churches, taking care of the church financial records is often the responsibility of the church treasurer. But as a church grows—or in a larger church—it becomes necessary to hire a bookkeeper to take care of the church’s financial records. Before hiring a bookkeeper, the pastor and board need to develop a job description that lists qualifications and responsibilities for this position. (See sidebar "Sample Bookkeeper Job Description.")

Besides keeping track of donations, a church must also manage its payroll. How payroll is managed depends on the classification of your workers (nonministerial employees, ministerial employees, and independent contractors).

Workplace regulations

Regardless of whom your church hires, certain Federal, State, and IRS guidelines must be met. Order updated labor law posters, read them carefully, and abide by them. In fact, a church must post these laws in a conspicuous place in the church office. A church can purchase these posters by calling G. Neil at 1-800-999-9111 or visit their Web site at

Employee files

Once you have hired the right persons, you need to open an employee file. Include the following in each employee’s file:

1. Employment application.

2. Completed criminal background screening form and results.

3. Completed I-9 (verifying the employee is employable).

4. Completed W-4 (employee’s determination of voluntary Federal tax withdrawals).

5. Internal memo listing the starting pay, starting date, and benefits. The employee needs to sign this.

6. Annual evaluations and employer recommendations, including all written and oral employee commendations and warnings.

The employee files should be kept in a locked file cabinet since they contain private information.

Employee designation and wages

Once an employee is hired and the employee’s files have been completed, a church then needs to prepare to pay wages. There are two types of individuals who receive wages: employees and independent contractors. It is important for a church to differentiate the status of these individuals. For an employee, the church must match their 7.65 percent FICA. The church does not for an independent contractor. Herein lies the temptation for pastors to list employees as independent contractors. The IRS has criteria for churches to follow. (See sidebar "Employee or Independent Contractor?") Most church employees are just that—employees.

Employee payroll taxes: support staff

After withholding the appropriate taxes from each employee’s wages, the church must pay the IRS its portion of these withholding taxes. IRS Form 941 must be filed quarterly. This document states the total wages and the amount of Federal and Social Security taxes paid. In January each year, the church issues employees their statement of earnings and taxes on IRS Form W-2. This document must be given to each employee on or before February 1.

Employee payroll taxes: ministerial employees

Dual-tax status of ministers

The general rule is this: Ministers are self-employed for purposes of Social Security and are employees for purposes of Federal income tax. Although ministers must pay their taxes quarterly, they may elect to pay their taxes through the church as employees. This is a sound choice since it makes proper payment to the IRS easier. Suggestion: Have ministers draft and sign a memorandum stating their desire to pay the IRS directly through the church. This memo needs to contain the minister’s name, date, and amount he wants taken out of his check every pay period.

The church also needs to know if a minister has properly revoked paying Social Security. If a minister has not filed Form 4361 and elected to stay in the Social Security system, then he is responsible to pay the self-employment tax in full. The church may choose to contribute toward a minister’s self-employment taxes. Any such match must be included as income on the minister’s W-2 since it is additional income. To be specific, the church pays toward the self-employment tax rather than the employee share of FICA taxes.

Housing allowance designations

Credentialed ministers can exclude from their income for purposes of Federal income tax a certain amount designated for housing allowance. Unless the minister has exempted out of Social Security, this designation is still subject to self-employment tax. The designated amount is limited to the fair rental value of the minister’s home furnished, plus utilities. Allowed expenses include rent or mortgage payments, utilities, furnishings, repairs, insurance, and property taxes. Expenses associated with building additions and general maintenance may also be included. It is important to consult your accountant on the current legal status of this benefit. (See "Computation of Minister’s Housing Allowance" form.)

Since the minister is allowed this benefit, the governing board of the church must prospectively approve the amount elected. Suggestion: To determine the fair rental value of the home, have a Realtor determine its rental value and sign an affidavit to that amount, plus the estimated utilities. The minister must keep all receipts justifying his expenditures. Also, initiating a pastor’s housing allowance is never retroactive. Diligent planning is critical. Every December a resolution approving the pastor’s housing allowance for the coming year needs to be recorded in the board minutes.

Accountable reimbursement plan

Church employees will often have personal expenses for which the church needs to reimburse them. Using a personal vehicle for hospital visits is reimbursable. (See "Monthly Ministry Mileage Log.") To reimburse an employee, the church board must approve an accountable reimbursement plan. An employee then submits a request for reimbursement, justifying the ministerial basis for the expense. (See "Employee Monthly Expense Report.")

All of these items make up a compensation plan for the minister. (See form "Components of a Minister’s Compensation Plan.")

Guest speakers and taxes

Many churches have guest speakers who are paid by love offerings or honorariums. How should church books reflect such expenses? Guest speakers are often traveling evangelists, musicians, or convention speakers and are not considered employees. The procedure to pay them is this: Before they perform any services, issue them a W-9. (Do not confuse this with the I-9 for immigration eligibility of employment.) This IRS form is given to nonemployee workers who receive over $600 in compensation. This completed document provides the church with the guest speaker’s name, address, and Federal tax ID number. This information is critical for the church to know where to send the check. It also provides the information needed to complete Form 1099 for the IRS in January of the following year, should it be necessary.

Unrelated business income tax

Churches are normally tax-exempt. However, they may not engage in activities that are in direct competition with for-profit companies. When a church engages in income-producing activities unrelated to their tax-exempt purposes, the IRS considers any revenue from such activity as unrelated business income and subject to Unrelated Business Income Tax.

According to the IRS, income from any unrelated business is subject to UBIT if the following three conditions are met:

  1. The activity constitutes a trade or business.
  2. The trade or business is regularly carried on.
  3. The trade or business is not substantially related to the church’s exempt purpose.

A church is subject to this tax even if it uses the money earned from this business to further its charitable purpose. Examples may include sale of advertising in bulletins, magazines, and rental income.

Even if the activity falls under these criteria, the income may not be subject to UBIT if it meets one of the following exceptions:

  1. Substantially all the work in operating the trade or business is performed by church volunteers.
  2. The activity is conducted by the organization primarily for the convenience of its members.
  3. The trade or business involves selling merchandise, substantially all of which was donated.

Capital gains, interest, dividends, and real estate rentals are generally not subject to UBIT unless financed with borrowed money. Be careful anytime the church is considering a moneymaking venture. Your first question should be, "Is this subject to UBIT?" (For a more detailed discussion of this subject, read "When Your Ministry Becomes Taxable" at

Managing the Budget

The next step in managing the church’s money is how to credit income and debit expenses through a Chart of Accounts. The COA is a breakdown of accounts showing how the money comes in and how it goes out. This is an important document.

Creating a Chart of Accounts

The process of building your COA begins with an analysis of how much money you expect to collect and how the ministries will spend it. By creating this list, you establish a COA. Each dollar deposited and spent must be charged against this list. (See sidebar "Chart of Accounts.")

Setting up a budget

Once the COA is completed and you have estimated the income for your ministry, the next step is assigning the dollars to each ministry. This is commonly called a spending plan or budget. There is a misconception that a budget is a restraining document. In reality, it brings freedom. Money may be expended without guilt and followed against income to make sure a church’s spending is not out of order. (See sidebar "Church Budgeting.")

Fill out a personal budget request sheet for each minister on staff. This helps plan how much of the church’s budget goes for ministerial salaries and benefits. (See form "Personnel Budget for Ministerial Staff.")

Proper procedure for spending

Once your COA and budget are prepared, a church can control its spending. It is important to know who is requesting money, the purpose, and what account is to be charged. The easiest method to monitor and approve expenditures prior to purchase is by using a check request form. (See "Check Request" form.) Once the request is approved and the check is written, it is charged against the proper budget account.

Once you have established your accounts and process to approve expenditures, the next step is to keep track of income and expenses. (See monthly and year-end "Cash Receipts Ledgers "and monthly and year-end "Cash Disbursement Ledgers.")Churches must stay on top of expenditures. The most effective way to do this is through financial reporting.

Creating and Managing Financial Records

Reviewing and reconciling bank statements

The first financial report has already been done through the bank statement. This statement is a record of all deposits, cancelled checks, and fees. Have a person who is not the bookkeeper open the bank statement and review the checks. Suggestion: Verify the endorsements on the back of each check to make sure the correct person deposited the church check. This internal control helps prevent employees from writing checks to themselves and endorsing them. This is one control to prevent embezzlement.

Next, give the bookkeeper the bank statement. It is critical to reconcile the monthly bank statement immediately. A church’s software should allow it to reconcile the account by checking off the cancelled checks with those in the register. Reconciling the bank statement reveals a church’s true bank balance. Failure to do so may cause a church to overdraw its account.

Print a reconciliation report and file it with the bank statement. Place these documents in a three-ring binder with dividers for each month. When a church’s books are audited, it will have immediate access to the bank statements and reconciliation reports.

Financial reports

When preparing financial reports, it is important to track them along with the Chart of Accounts. The next most important reports are the monthly and annual reports. A church’s computer software should allow it to break these down in more detail as necessary. The items in this report coincide with the COA. The annual report reflects the church’s income and expenses either for the calendar year, January 1 to December 31, or the fiscal year, April 1 through March 31. The annual report is submitted to the congregation for its review, questions, and approval at the annual business meeting. The minutes of the annual church business meeting record the discussion and passage of the financial report. These minutes are placed in the church’s permanent records file. (See "Financial Reports: Balance Sheet and Statement of Income and Expenses.")

Advantages and disadvantages of an audit report

Although a church’s bank statements and financial records are reconciled, church leadership needs to review a monthly and annual financial statement. The media today is alert to any financial mismanagement. This is also true for churches. Churches need to set the standard of ethical conduct and accountability. One way for a church to do this is to have an independent firm review its books. An audit promotes accountability. If a church cannot afford an audit, it may want to consider a review. A review detects irregularities in bookkeeping practices and is less expensive. But an audit brings many benefits to a church’s ministry. It often comes with a letter that lists recommendations for management on improving accounting. It reviews the internal controls with suggestions to improve them. An audit report brings integrity to the church leaders who handle the resources of the church. The disadvantages are time involvement and cost. On balance, it is well worth it. (For more information on this subject, see "When Your Church Needs a CPA" at


Most churches start in rented facilities, and as the church grows leaders face a new dilemma—build or buy permanent facilities. Building programs involve new areas of business for a church—zoning, relocation, and finances. (For more information on building, acquisition of property, and expansion, see section VI, "Managing Church Facilities and Properties," and read sidebars, "Revisiting Church Master Planning" and "The Architectural Process.")

This discussion will cover the various options of obtaining the financial resources—within the church, within the denomination, and outside the church.

Capital fund-raising

Before seeking a lender, a church may want to first tap the resources within its congregation. The best way to do this is through a capital fund-raising campaign. Hiring a professional capital fund-raising organization will assist a church in raising money within the church to finance its project or debt, instead of going to the bank. One such organization is MasterPlan Stewardship Services.1 Church leadership can conduct the campaign themselves, but there are advantages in using a professional:

  1. An unbiased evaluation of the congregation based on statistical factors.
  2. Hands-on assistance through the capital campaign’s representative to oversee the process.
  3. Access to brochures and other materials to assist the church.
  4. Oversight of lay-leadership training.
  5. Assistance with church follow-up.

The cost of such assistance can be substantial, but it is common for an excellent capital fund-raising organization to produce pledges of two to three times a church’s annual income. A capital fund-raising campaign can be a great way to access the necessary funds. (See the article "Master Plan Stewardship Services.")

Line of credit

Another way to seek additional finances is through a line of credit—a loan that makes cash available on the spur-of-the-moment. A line of credit is usually given to a church by its lending institution. Once this line of credit is established, a church will receive either a checkbook to draw on its line or it may simply fax a request for a transfer from the line into its operating account.

A line of credit is usually set up as a 5-year note. Often the interest rate is a point over the current prime rate. It is also common to have a note tied to a floating loan rate for this type of financing.

How does a church receive a line of credit? Contact the commercial account representative at the bank where the church’s operating account is located and fill out a line of credit application.

A line of credit has certain benefits, including immediate access to cash should a need arise. The drawbacks are closing costs and other bank fees. It is usually prudent to have a line of credit even if a church never draws on it.

Denominational loans

An often overlooked method of financing is the resources within a church’s denomination. Many denominations offer financing options for small and large churches. Assemblies of God Loan Services can provide information concerning its various loan options.2

Conventional bank lending

This is the most common method of church financing. The convenience of the local bank is a big benefit.

However, bank loans to churches are generally different from residental loans. Most 30-year residential loans have a fixed interest rate throughout the life of the loan. Most church loans will probably contain a balloon or renewal feature after 5 years. When a loan balloons, the principal loan amount becomes due and payable. Usually the bank renews the loan and adjusts the interest rate to the market. Some banks are now extending the loans to 10 years before they balloon.

Bond issues

How a church goes about this method is unlike simple bank financing. Instead of going to a bank for money, the church contacts a bond company that specializes in not-for-profit corporations or churches. Bond companies are different from local banks in that their money comes from individual investors or bondholders. The bonds are usually sold to investors in $1,000 increments. The size of the bond issue is equal to the amount of money needed by the borrower, plus costs and expenses (audit fees, attorney fees, title insurance, etc.). The bond company adds these costs into the loan. Similar to a bank loan, a church must have adequate collateral or property to cover the bonds.

The church makes its principal and interest payments to the bondholders through the corporate trustee or bonding company. The trustee handles recordkeeping and payment functions. The church’s payments are deposited in a special account called a sinking fund where the church’s payments are held and withdrawn when the bondholders’ interest or principal payments are necessary. Suggestion: Ask for a healthy interest rate in the sinking fund. Trustees fees may be paid from the interest accrued in the sinking fund.

Not all bond issues are the same. There are two types of bond issues: best efforts and firm underwriting. It is important to understand each type to choose which best suits your congregation.

Best efforts

This type of issue requires the church to sell the bonds itself, often with the help of the bonding company. The bonding company’s representative explains the benefits to church members and asks them to buy bonds. The advantage is lower costs for the church versus a firm underwriting campaign. The disadvantage is that people sometimes consider such investments as donations. As a result, this confusion may detrimentally lower a church’s capital campaign contributions from donations, gifts, and pledges.

Firm underwriting

Another type of bond issue is firm underwriting. With firm underwriting, no bonds are sold to the congregation. The bond company underwrites a church’s loan by purchasing a church’s bonds and selling them to its investors. By agreeing to buy all of a church’s bonds, the church is guaranteed to receive the funds at closing. The investors who buy the bonds are pension funds or individual investors. These bonds are secured by church property.

Unlike commercial bank balloon loans, bond issues are fully amortized over a 15- to 20-year period providing a level debt service. This aids in budgeting and ensures that the loan can eventually be retired without the hassle of refinancing.

Make sure the bond company includes a prepayment provision that allows the church to prepay its bonds without premium or penalty. Usually this is agreeable if it is paid through the church’s operating account.

There are several positives to the firm underwriting method:

  1. It guarantees that all bonds will be sold.
  2. There is no confusion about donations since they are not sold to the congregation.
  3. A church can immediately begin a debt-reduction program after the purchase.

The negatives to firm underwriting are the expenses associated with this method.

To find a bonding company contact the National Association of Church Business Administration at 1-800-898-8085, subscribe to its Ledger magazine, or contact the Assemblies of God Church Administration Association at

Keep these options in mind when your church is faced with a building project, acquisition of property, or expansion.

Finance packet

Once a church has decided on a financing method, the next step is to create a financing packet. This packet provides the lender with information about the church. It also demonstrates a church’s trustworthiness and capacity for financing. Remember, creditors are in the business to assess risk. Informing them of the church’s creditworthiness is key. Providing the lender with a packet of information demonstrating the church’s capacity to pay a loan goes a long way toward approval.

Here is a list of items to include in this packet:

1. Church biography: a brief history of the church and a description of the senior pastor, especially if the pastor has long tenure that has brought stability.

2. Legal documents:

Constitution (Articles of Incorporation).


IRS 501(c)(3) certificate proving the church is a legitimate not-for-profit corporate entity with the IRS.

A church may fall under a group or umbrella exemption from its denomination. A church with a parent organization can fall under its denominational or group ruling for a 501(c)(3). If the parent church has a group ruling, the IRS may already recognize the church as tax-exempt. The parent organization is then required to submit an annual group exemption update. If you are not sure your church falls under this group or umbrella ruling, ask your parent organization to fax you a copy of its list of affiliated churches or other organizations. Include this document in your finance package.

3. Membership: membership and adherent totals (including youth and children). Include a graph demonstrating growth in attendance.

4. Financial statements:

a. Annual—financial statements for the past 3 years.

b. Property—a balance sheet showing all assets and liabilities. This includes cash and property information and current valuations (appraisals). County tax valuations may be included. (See "Balance Sheet" included with financial report.)

Remember, your first impression is a lasting impression.

Managing Financial Records

Whether for a future IRS inquiry or an insurance claim, it is important to have all important documents on hand. According to the IRS, all churches are required to maintain records to justify their claim of exemption in case of an audit. (See sidebar "Why Documentation in a Church Is Important.")

There is no specific format for keeping church records, nor does the IRS specify a length of time records must be kept. Below is a list of what documents should be kept and for how long.

Place the following documents in permanent files:

  1. IRS exemption letter or umbrella letter.

  2. All insurance records: liability, workmen’s compensation, and vehicles. Include all records relating to acquisition of real estate.

  3. Employee files: employment application, current and past evaluations, I-9 and W-4, and criminal record check.

  4. Annual business meeting and board minutes.

  5. All IRS documents including, but not limited to, W-4 (employee claiming withholding allowances), W-2 (employee paid wage forms), 941 (report employees amount of Social Security, Medicare, and income taxes).

All correspondence from Federal, State and local governments.

Place the following documents in temporary files:

  1. Records of expenditures and income for 6 years.
  2. Contribution records for 6 years.
  3. Check-in sheets for childcare for 1 year.
  4. Cancelled checks for 3 years.
  5. Policy manual: continual.
  6. Vehicle titles until disposed.

There is peace of mind knowing these important documents are organized and in a safe place.


The days of collecting offerings and paying bills without thought of outside oversight are long gone. But managing church resources is possible.

The current environment is ripe for scandal; church leaders need to be wise. Correctly completing forms and filing records will go a long way to assist a church in case of an IRS investigation.

Be careful and deliberate in this area. When we manage the Lord’s money, we need to remember it is just that—His. We are called to be good stewards of His resources. May the Lord give you wisdom as you faithfully handle the resources He has placed in your hands.


1. MasterPlan Stewardship Services is a division of the Assemblies of God Financial Services Group. For more information, call 1-800-962-7499, e-mail, or visit their Web site at

2. AG Loan Services is a division of the Assemblies of God Financial Services Group. Whether the need is for $10,000 or $10 million, AG Loan Services can partner with you in your financing needs. For more information, call 1-800-449-5626, e-mail, or visit their Web site at

John P. Joseph, J.D., FCBA, is an attorney, certified church business administrator, Assemblies of God minister, and president of Assemblies of God Church Administration Association, and a full-time church consultant. He lives in St. Petersburg, Florida. He can be contacted at


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Order Paraclete CD

All 29 years of the out-of-print Paraclete magazine. Excellent source of Pentecostal themes and issues, theological articles on the work and ministry of the Holy Spirit, and sermon and Bible study material. Fully searchable subject/author index.

Good News Filing System

Order Advance CD

Long out of print but fondly remembered, Advance magazine blessed thousands of A/G ministers. Now the entire Advance archives — 30 years of information and inspiration, helps, and history — is available on CD.