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CENTERBOARD: Checks and Balances

April 2008
By: Tom Lothamer
"I can't believe Bill would do such a thing! I trusted him as a brother in Christ."

The board member who made these statements was telling me about some recently discovered financial discrepancies at his pregnancy care center. Another board member, Bill (not his real name), had been writing checks to himself from the center's account. He'd been the board treasurer for some time, and the amount missing appeared to be in the thousands.

How could this happen? How could someone so committed to the ministry do so much to harm it? How could a crime occur "right under their noses"?

After asking some questions, I learned Bill was not only the board treasurer but also the bookkeeper for the ministry and the person who wrote and signed checks. Obviously, the leaders of this ministry had placed a great deal of trust in him. Because of this, however, they had also put him in a very vulnerable position.

Responsible for every aspect of the finances, there were no checks and balances in place to protect Bill. He received donations, made deposits, recorded invoices, and paid vendors. The board did not require a yearly audit, and they allowed Bill to turn in incomplete monthly and yearly balance statements.

Most PCCs don't make all these mistakes, but many fail to implement sufficient financial safeguards. Such ministries are at risk. What can be done to prevent such a disaster from happening at your center?

1. Organize your center's operations so that no one person handles every aspect of the finances. Have one or two people open envelopes and deposit donations while another keeps the books, reconciles bank statements, and writes checks. Two other individuals should be authorized to sign checks, transfer money between accounts, and approve advances on a line of credit. The bottom line is this: People should not sign checks made out to themselves.

Your center may be small and find it hard to assign functions to separate individuals, but it's important to aim for integrity in these matters. Your accountant or auditor can help you establish safeguards.

2. The executive director or board treasurer should submit a current financial statement to the board at each meeting. As situations arise, board members should be apprized of any potential or actual financial struggles related to the ministry.

3. A yearly audit of ministry operations is highly recommended. At the very least, a complete financial statement for the ministry should be prepared and submitted to the board each year. These documents should be available upon request to anyone outside the organization, as well.

According to Dan Busby, vice president of the Evangelical Council for Financial Accountability (ECFA), if a ministry can't afford the cost of a yearly audit, it should be able to afford a yearly CPA evaluation of key accounting areas. Typical "high risk" areas that need examination include bank reconciliation records, payroll tax returns (that taxes are actually being paid and reports filed), and staff expense reimbursement reports.

4. It's also a good idea for boards to adopt a policy on conflicts of interest. Such a policy disallows board members from engaging in discussion of and approval for any financial decisions giving their own business (or a business associated with them) an "inside track" on gaining from those decisions. If your center doesn't have a Conflict of Interest policy, I can send you a copy of ours. (Editor's Note: Also see the article on Conflict of Interest in this issue of At the Center.)

Why do we need these procedures and policies? Aren't Christians above theft or other financial irregularities? Sadly, no. The truth is, "The love of money is a root of all kinds of evil" (1 Timothy 6:10). Ministry leaders must not presume that they or anyone else in the organization is immune from temptation. Proper checks and balances not only shield individuals from danger and any appearance of impropriety but also inoculate the ministry against false accusations. It's worth it to guard your integrity.

Tom Lothamer is President of Life Matters Worldwide in Grand Rapids, Michigan. 

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