When I first started working for JCPenney the store manager gave me this piece of advice, “Do everything in a way that no one will ever question your integrity.” For the past 50-plus years, I have tried to conduct myself in keeping with his words of wisdom. Years later while teaching QuickBooks at Midland Junior College, I tried to impress upon the students the need to make sure no one would question the accuracy of their bookkeeping work. (That was a struggle because in QuickBooks it was — and still is — very easy to change entries without anyone knowing what has been done.)
Since those days I’ve used several different systems. Why does this matter when talking about church accounting software? Church members not only look for spiritual leadership from their pastoral staff, but they also expect the donations made will be wisely used. Often they expect leadership to provide financial reports produced from a reliable accounting package. Church leaders do not have to be accountants to find out if a product is a good fit for their ministry — they just need to ask the right questions. The following list of evaluation questions, provided by Shelby Systems ChMS, should be helpful to most ministries.
- Is the product designed for nonprofit organizations? Most accounting packages are designed for businesses. On the other hand, churches and religious organizations have very different needs. As long as the church does not have unrelated business income, it does not have to file income reports with the IRS. However, it is accountable to the membership and donors. These donor groups have expectations that funds will be used properly.
- Does the chart of accounts accommodate a structure that complies with FASB and GAAP requirements? Financial Accounting Standards Board (FASB) and General Accepted Accounting Principles (GAAP) provide guidance for acceptable tracking of transactions and reports. These guidelines are used by public accountants and auditors when advising or auditing records. Make sure your accounting package provides tools that align with FASB 117 and GAAP guidelines:
- Do not readily accept someone’s view that the software cannot perform a needed function. Verify with the supplier’s support team.
- Verify that controls are in place to enforce segregation of duties.
- Conduct reviews at least every three years to keep reporting in step with ministry needs.
- Does the payroll application correctly handle clergy compensation and Form W-2? A payroll application should be designed to easily handle the complex pay package that many clergy have, and also accommodate all of the payroll requirements of non-clergy staff. It should also be able to produce required federal and state tax reports, including Forms 941, W-2, W-3, as well as the set of reports required under the Affordable Care Act.
- Does the software have a method to keep sub-ledgers in balance with the general ledger? The review of a set of books usually includes a check of accounts payable, accounts receivable, payroll, and contributions against the general ledger. Allowing changes to AP or GL without involving the other should not be allowed.
- Does the general ledger restrict changes to finalized entries? If the software uses a checkbook-style ledger or allows changes to finalized transactions, then it becomes easy — and perhaps tempting — to manipulate the books.
- Does the software track changes? Most auditors check to see if there are changes made to original entries. Therefore, it is important that the software limits that type of activity and tracks any changes that are allowed.
- Does the software’s standard reports allow omission of transactions? Some software packages only have drill-down reports with various filters, which can produce reports that might not include all transactions, thus skewing the financial picture.
- Does the software provide a method to generate consolidated reports select groups? If the software does not have this option, then the staff is usually forced to create them in Excel.
- Does the software application support strong passwords? Support for strong passwords prevents the risk of credentials being stolen and accessing systems.
- Does the software integrate with your Church Management Software (ChMS)? Tight integration with your ChMS provides a seamless transfer of giving information and other key data to your accounting software and prevents the risk of rekeying errors.
It does not matter how small or large your church is, you need a software solution that is purpose-built for the Church that will help you structure tasks so that there is less chance of someone questioning the integrity of your accounting practices. It truly is fortunate that most pastors do not have to be accountants, but they do need to be wise in their leadership roles, ensuring church finances are correctly handled.