“Our Finance Committee looks at everything…”
On the surface, this sounds reasonable. But, it all hinges on how one defines “everything.” The success of this statement in preventing or discouraging fraud depends totally on exactly what the finance committee or elders are given.
Often, in the interest of expediency, those charged with the financial oversight of a church are simply given summary reports of their church’s financial activity. And many times, these summary reports consist of financial highlights generated by spreadsheet software like Microsoft Excel. These programs are very powerful and have their place in the financial operations of a church, but they also have two significant limitations:
First, they are extremely easy to manipulate. Spreadsheets can be changed at will and their accuracy is totally dependent on the integrity and competence of the preparer.
Second, spreadsheets leave no “audit trail” like formal general ledger accounting systems. An embezzler can change numbers indiscriminately without leaving any “fingerprints.”
These two features make it easy for a thief to steal and cover themselves as long as church leadership is content to receive only a summary of their church’s financial results. In order to shield against fraud, the financial records presented to a church’s finance team must be comprehensive. At a minimum, the financial reports given to leadership should include:
A statement of financial position (Balance Sheet)
A statement of activities (Income Statement or Budget Report)
A statement of restricted fund activities
We caution against providing TOO much data, as it can have the tendency of being only cursorily reviewed. That notwithstanding, more can clearly be added to this list, even some helpful spreadsheets from Excel. But anything less than the minimum opens the opportunity for a fraud portal…
Interested in finding out how your reporting package measures up? Contact us today about an internal financial reporting review or other Best Practice Engagements at (817)664-3000 or email us using our contact form.