Accounting Trends and Challenges
Published in INSIGHT - Fall 2018
Interviews by Deborah Ike
Managing church finances involves much more than reconciling accounts or sending out donation receipts. This vital function requires in-depth knowledge of the structure, vision, and future plans of the church. It involves providing not just accurate financial reports but also offering information to help church leaders make wise decisions. This arena demands attention to detail, a view of the big picture, along with strong controls to prevent misuse or abuse of funds. Stewarding the resources God has entrusted to the church is a significant responsibility.
At any given time, you may deal with teaching a new staff member how to submit an expense report or talking with the church’s CPA to understand a new law or change in accounting rules. From enforcing proper internal financial controls, selecting an accounting software or church management system (ChMS), to dealing with changes in payroll, the church accounting role can be challenging.
To add to the pressure, recent changes to church accounting and general tax laws make it challenging to keep up.
For example, the Tax Cuts and Jobs Act of 2017 impacts churches directly and indirectly. The tax on parking provided to employees is a key issue for churches, and many have called for repealing that aspect of the law. Professional in the accounting area have different interpretations of the impact of the change. Additionally, the higher standard deduction for individuals has some church leaders concerned this may impact giving.
To help make sense of it all and assist you in the effort to stay up-to-date, several experts in the church accounting space have contributed some insights.
Vonna Laue, EVP at ECFA, Lisa Francisco, CPA, business administrator at Brentwood Baptist Church, and Scott Hendren, business operations director at Fellowship Bible Church each provided responses to questions about the ever-changing landscape for church business administrators.
What changes or challenges do you see coming up for church accountants in the next few years?
Tax reform may impact ministry staff and individuals within the congregation. This includes the current debate on the parking tax.
New financial reporting standards. Church financial statements and footnotes will change. Previously, the financial statements showed unrestricted amounts, etc. Now they will show this information without donor restrictions and with donor restrictions. In addition, there is a footnote disclosure required to disclose liquidity. This has never been required before, so I would advise church accountants to work with your CPA early on to determine what information you will need to pull together for these footnotes. One caveat: If a church does not produce any external financial statements, this does not apply to them.
Housing allowance – While there are not any immediate changes, we may see some changes in 2019. A Wisconsin judge ruled that the housing allowance is unconstitutional, but that is under appeal at this time.
Capacity issues – There is so much work to do with not enough time or staffing to do it. executive pastors and church business administrators often don’t have sufficient staff since we tend to focus more on the ministry roles than the support roles.
Succession planning – There are a large number of churches with pastors who will retire in the next 5-7 years. That is making it more important to develop succession plans. We also need to consider contingency plans for staff members should they become unable to work due to injuries, etc. Churches tend to be slow to implement good succession or contingency planning.
- Churches that follow GAAP accounting will have to deal with changes regarding operating leases (these will have to be on the balance sheet going forward). This includes leases for copiers, postage machines, and other items the church leases. Currently, these are run through the income statement.
- As churches are looking at multisite, this adds complexity to the accounting and reporting processes. We had to change financial systems when we went from two to five campuses to accommodate tracking each campus in the depth of detail we needed so we could manage our finances effectively.
- Tax law changes for individuals could cause some issues for smaller churches (with an increase in the standard deduction, some people will not be able to itemize their deductions going forward). Larger churches’ base of giving is more diverse and has more capacity to absorb blips in contribution giving.
- Changes in non-profit accounting standards (this may be a bigger issue for some in how they present cash flows, designated gifts, and restricted/temporarily restricted funds)
- Accounting for multi-site campuses is something that is handled very differently for each church. Unfortunately, there does not seem to be a best practice on how to do this. As more churches go down that road, they will run into the issue of deciding how to handle campuses from an accounting perspective.
- With the ministry housing allowance going through the courts now, that decision will (if the housing allowance is eliminated) impact how churches handle compensation for licensed ministers.
- The elimination of the tax deduction for moving expenses will impact churches that want to help a new employee with moving expenses.
- Raising the standard deduction may impact the timing of contributions even if it does not impact total giving.
How do you recommend church accountants stay current on the latest changes or potential changes in laws and regulations that impact the church (parking tax, etc.)?
Take part in ChurchExcel which is a free online community hosted by the ECFA. This site includes webinars, podcasts, and ebooks to help people stay updated and be resourced. Of course, The Church Network is an excellent resource along with Church Law & Tax. Ongoing communication with your church’s CPA is very useful as well.
I recommend the ECFA, The Church Network, and classes from your state’s board of accountancy. Also, many local CPA firms offer classes as well.
I subscribe to a number of newsletters, blogs, emails from the ECFA, CapinCrouse, AICPA, The Church Network, and others, as well as following many sources on social media. I also participate in webinars hosted by ECFA and CapinCrouse. In addition, Church Law & Tax is a source of information through their website, emails, etc.
Church management systems are always a hot topic. What is your view of having accounting records contained within the ChMS (versus a separate software)?
As long as both systems do what they are designed to do well, it does not matter as much whether you have the accounting records and membership database in the same system or not. I encourage people to use whatever system they have as it was designed.
Our accounting software is separate from our ChMS. We have not had any issues in keeping them separate. Our ChMS feeds over the contribution data as a journal entry into our accounting system. An advantage to having these functions in different systems is you can more readily pick the ChMS that will help you manage member data most effectively for your church.
Also, the decision on what ChMS tool to select depends greatly on what your church needs. The size of your church, how much you are able to spend, how well the vendor will work with you, and what you are needing it to do are all keys factors in this decision. Is it completely canned or can you customize it to your needs? Get references from current customers to confirm you will get good customer service from a potential vendor.
Ours are separate. In fact, we have not had an integrated ChMS and accounting system in my nearly ten years here. We feel like we are able to get best of breed approach for each system with them being separate.
I’ll admit that it is rare that I meet someone who is really happy with their ChMS. Thankfully, there are a ton of options available. A lot of it depends on the size of your church and whether you are multisite or not. Make sure you are looking at a package that can accommodate multisite if you think you will go in that direction. Talk with other churches who are already using a particular system before you buy it. Also, talk with them about the implementation process.
What are the top few systems or processes you recommend churches have in place to save time and steward church finances well?
- Get adequate training – This includes training on software, staying up-to-date on current issues, etc.
- Have good internal controls – Embezzlement or fraud causes the congregation to lose trust in church leadership.
- Be on the lookout for those who can volunteer in church administration tasks. There are likely skilled individuals in your congregation who are willing to volunteer in this area. This can help reduce the need for additional staff, save money, and implement better internal controls.
- Do not settle when it comes to competence whether that is with volunteers or staff. That is not a good stewardship of their skills or of the church’s finances.
- Complete reconciliations on a timely basis. The longer you wait to do these, the harder they are to finish since you may not be able to recall all the details.
- Review internal reporting and make sure it is useful. Talk with the users of each report and see if you need to make any changes. You might be spending time developing reports that people do not use or do not like.
We use Sage Intacct for our financial system; this is a multidimensional database that makes setting up a new campus easier. In addition, we use Martus Tools which allows ministry leaders to have access to run their financial statements and see their own data. They can also prepare their own budgets in Martus Tools (instead of in Excel spreadsheets). We provide training on the budgeting process each year.
Something else that has been very helpful is that we use credit cards for ministers so they do not have to turn in receipts for reimbursement. Our card provider has a system that allows individuals to code their charges and upload their receipts. This keeps accounting staff from having to do that data entry.
One final tip: Always find someone who is ahead of you in the process. Ask people who can help and share their experience.
One of the well-received things we have done with our staff is to add an expense reporting system. This allows staff members to enter expense coding information via an app on their phones or online to manage expense reports. This process eliminates a lot of paperwork and saves time for pastors and their administrative assistants.
We have also upgraded our HVAC control systems and we are working to integrate them with our calendaring system to help us save money on energy costs.
We are seeing more use of financial and operational metrics. The ability to measure beyond just attendance and money is helpful.
Additionally, we are working to be transparent regarding our finances and the information we provide. People want to know how the money they are giving is being put to use for Kingdom work, so we are trying to ensure we have that information readily available.
As you can see, there are several upcoming changes and trends to consider as you seek to steward your church’s finances wisely. From providing accurate and timely financial reports to ensuring your church is compliant with the latest laws and regulations, The Church Network supports you as you support your local church.
We wish to extend our thanks to our experts for sharing their time and expertise.