A question I am frequently asked or, when I am doing a Church Administration seminar, I make it a point to bring this issue up is, “Who has authority to spend church funds?”
Unless, and until, authority has been granted an individual by action of the Board, no person [the pastor; pastors wife; Board Members; NO one] has person authority to spend church monies. This is the responsibility of the Board of Directors, where a Budget has been established; or by a corporate resolution where expenditure of funds were approved for specific projects/programs.
We always recommend the Board develop a Policy, authorizing the Pastor to spend up to $xxx.xx amount of monies, [whatever is appropriate], giving him the latitude to pay on-going church expenses. Requiring him however, to provide an accounting to the Treasurer for any funds spent. Any expenditures over the pre-approved amount must be approved and allowed by action of the Board of Directors in advance.
In the Articles of Incorporation of every non-profit, there is, or should be, the following language – - “The property of this corporation is irrevocably dedicated to religious and charitable purposes and no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer or member thereof or to the benefit of any private person.”
What is meant by “Personal Inurnment?” This means that no person can spend church monies for his or her personal benefit. No person can spend church monies except as authorized by those defined in the church By-Laws; Or authorized by a corporate Resolution passed by the Board of Directors; Or when a Church Budget has been adopted, and specific persons authorized by the budget. In the event of an IRS inquiry, any and all other expenditures would be suspect.
Does the treasurer bear responsibility? YES, and anyone else whose name is on the church checkbook would be held accountable in the event of wrongdoing found by an audit conducted by the IRS. Severe fines, penalties and interest could be levied against anyone involved.
In other words, only the Board of Directors [unless the By-Laws say it's the congregation] have authority to spend church monies. Authority can be delegated by the Board, to a person or committee, but then that person, or committee is required to give an account of any funds spent, providing receipts as substantiation, of all expenditures, to the governing authority.
Could the church suffer loss if found in the wrong over this issue? YES – the church, and the members of the Board of Directors, will face severe fines, and even loss of the churches tax exempt status. Always remember – the IRS cares not a wit about theology, but they sure can follow the smell of money.
Would church members suffer loss? YES – In the event the IRS were to audit the church, and found there were no By-Laws in effect, or no Minutes of the meetings of the Board Members in the Corporate Minute Book authorizing said expenditures, the IRS [in addition to assessing penalties and interest], would probably take further action against the pastor as well:
- It is imperative to understand that, if there are no By-Laws, no functioning Board, and no minutes the IRS would likely ascribe ALL income for the last three years to the pastor, and he would be treated as a “Sole proprietor.” In other words, all income would be deemed his – and he will have a huge tax problem.
- They would likely disallow any contribution receipts to church members, issued for that same three year period, resulting in personal audits and additional tax liabilities.
Another Article you might read is - Church Fund Accounts and Accountability
If this discourse is of interest to you, please see “The Church Administration ‘How To’ Manual”
For more specific information. There are Worksheets and Forms at the end of the chapter to enable you to maximize Housing Allowance, and minimize personal income taxes. A CD is included with the purchase of this manual, with the Worksheets and Forms. This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.
The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE
- Can The Pastor Do As He Likes?
- IRS Inquiries and Audit Restrictions
- Some Say Don’t Incorporate! WHY?
- Can The Church ‘Give’ Small Gifts?
- Compensation & Housing Allowance