In Chapter six of the book Weeds in the Garden, by Verne Hargrave, he discusses the use and abuse of financial statements. Specifically he discusses how the financial statements can often be produced to “look” a certain way either to improve revenues or reallocate expenses.

“…The church should follow a budget. Every church needs to know what “normal” is. It can prove very difficult to determine if theft is taking place if a church does not have any idea of what its financial expectations are. The budget should be adopted by the church’s normal governance procedures and loaded into its accounting software. Budget results should be monitored and variations between budget and actual regularly examined. One word of warning: a practice that is frequently used by churches is to allow overspending in line-item accounts as long as total department expenditures remain within budget parameters for that department. This may not be the best practice. A budget is simply a tool and if a line-item is not sufficient, the budget should be amended by the appropriate leaders of the church. This preserves the concept of “normal for each department. Much mayhem can take place within a single departmental budget!”

Does your church have a process to amend budget line items? Is there a regular review by your governing board of budget vs. actual revenues and expenses? Don’t wait until the end of the year to realize large budget overages, be proactive and manage spending with effective use of reliable reports comparing budgeted amounts to actual cash received and spent.

Check out the Weeds in the Garden website.

–Daniel Lienemann, CPA is a Senior Auditor specializing in church accounting at PSK LLP.