Faith-based nonprofits like ministries, churches, and other religious organizations typically operate in a similar manner compared to secular nonprofits. Yet, they have their own challenges that come with the financial aspect of things. This includes managing donations, tracking restricted funds, and following compliance regulations pertaining to tax and financial reports. With this in mind, church bookkeeping becomes absolutely essential so that you are maintaining your trust with congregations as well as a transparent reputation when it comes to the finances.
Simply put, financial uncertainty is something that no faith-based nonprofit should ever deal with. With the right best practices in place and knowing what to do, handling the financial elements of the nonprofit can seem less stressful.
Why Is Accurate Bookkeeping for Faith-Based Organizations Important?
Churches and ministries often depend on donors, tithes, and offerings to ensure their financial standing is stable. The funding comes with responsibility for both donors and the mission that is supported by those gifts. Not only that, but you can also enjoy the benefits of religious nonprofit bookkeeping that not only handles the numbers but also holds you accountable, transparent, and ensures that you’re keeping things in line with your organization’s values. In addition, these benefits also include:
- Builds trust with your church members and donors
- Assists leadership in making more informed decisions pertaining to their budget
- Ensures that you are complying with nonprofit tax regulations
- Makes annual reporting and audits much simpler
If accurate bookkeeping is something that you might struggle with, assistance via The Quantify Group can be a good option. Especially if you are left with more questions than answers regarding figuring out what to do to ensure your church is complying with the necessary financial regulations pertaining to nonprofits.
What Are The Unique Accounting Needs For Faith-Based Nonprofits?
Faith-based organizations typically face unique considerations pertaining to accounting. These include, but are not limited to, the following:
- Multiple streams of revenue: Churches receive tithes, offerings, grants, event fees, and designated gifts for projects and missions regularly. Thus, they need to be accounted for accordingly.
- Restricted funds: Most donations are earmarked for an intended purpose such as missionary support, maintenance for the building itself, and much more.
- Volunteer involvement: There may be situations where volunteers can handle specific financial administration tasks. As such, the need for extra oversight should be fulfilled to ensure accuracy and security.
- Tax-exempt status: In order to maintain 501(c)(3) status, proper documentation is needed to ensure that you are in compliance with the necessary regulations while also avoiding such exemptions from being jeopardized.
What Are The Core Elements of Church Bookkeeping?
Having an effective church bookkeeping system in place is important. That’s because it contains some of the supporting elements that will keep things in order for your faith-based organization. These elements include the following:
- Donation tracking for churches: Every donation needs to be recorded, complete with donor details, amount, the date, and any restrictions that are applicable.
- Tracking expenses: Be sure to record all expenditures such as utilities, salaries, mission trips, and other applicable expenses. Make sure they have proper categorization.
- Fund accounting: You need to separate restricted funds from unrestricted funds. The purpose is to ensure that compliance and transparency are prioritized.
- Financial reporting: In order to keep church leadership informed while also supporting the decision-making process they use, be sure to file regular reports whenever necessary.
- Budget management: Track actual income and expenses against the budget itself. This can help you identify any variances early on.
What Is The Role With Faith-Based Nonprofit Accounting?
Faith-based nonprofit accounting typically consists of applying accounting principles that often support a religious organization’s unique structure and funding models. This pertains to the following:
- Managing contributions according to the intent of the donor
- Following the Generally Accepted Accounting Principles (GAAP) that apply to nonprofits
- Support grant compliance
- Prepare reports for church boards, the congregation, and any applicable regulatory bodies
The Common Bookkeeping Challenges Ministries Face Regularly
Nonprofit accounting for ministries typically faces complex issues as they intersect with religious mission work and compliance with nonprofit financial regulations. The challenges that are common with these organizations include, but are not limited to:
- Inconsistent donation recording: This includes depending on manual systems that increase error risks.
- Lack of internal controls: Oversight gaps can happen if there are volunteers or a small group of staff members handling the finances.
- Mismanagement of restricted funds: If the organization spends funds outside of the donor specifications, it can lead to a breach of trust and even possible legal consequences.
- Delayed financial reporting: Reports need to be timely and accurate. If the report delivery is delayed, it can also cause issues with church leadership and the decisions that they need to make. To make things even more complicated, it can also cause them to make decisions based on outdated data.
What Are The Best Practices for Religious Nonprofit Bookkeeping?
To make sure your financial processes line up with the mission and compliance requirements you need to follow, there are some of the best religious nonprofit bookkeeping practices that we recommend. They include the following:
- Use fund accounting software: It needs to be created for nonprofit organizations that allow you to separate funds while also generating accurate reports.
- Implement internal controls: For large expenditures, consider dual approval. In addition, separate responsibilities between those who can handle the money and those who are responsible for reconciling the accounts.
- Perform reconciliations regularly: Do these every month by comparing bank statements to your accounting records so you can catch any discrepancies that may arise.
- Train volunteers and staff: Make sure that those involved with finances can understand the procedures and donor requirements clearly.
- Schedule regular reviews: Finally, you can schedule a regular review each month to determine if you are following everything properly. That’s where The Quantify Group can assist you. They’ll be able to be the fresh set of eyes you need to review your records and more.
Want Help With Faith-Based Nonprofit Bookkeeping? Contact Us Now
At The Quantify Group, we know how challenging it can be to handle bookkeeping for a faith-based nonprofit. While you can follow the best practices as listed above, it is important to make sure it is done regularly to ensure compliance and make sure you are prepared to submit reports to church leadership promptly for crucial decisions that steer a church into the right direction. For more information on how The Quantify Group can help, contact us today.
