There are around 400,000 churches in the United States and very few of these file any kind of tax return but there are some who think it would be beneficial to congregations if they were brought under the protective wing of the Internal Revenue Service. While I’ve known a couple of IRS folks over the years and they have been quite helpful, professional, and agreeable, I’m not inclined to think that the IRS could help churches.
But consider why some would think the government could help churches:
Growing Fraud Sucks Billions From Churches Annually; This IRS Fix Could Help, Expert Says
The case cited in this article is one where church members showed up one Sunday to see a “for sale” sign on the parsonage next to the church. Seems the pastor had arranged to deed the property to himself and was going to sell the property and cash out. It was an ugly, messy situation. Church members sued and prevailed
Those who would “help” the church avoid such things say churches are defrauded of billions and the rates of such are rising.
Research cited by Brotherhood Mutual Insurance Company, the second largest U.S. provider of property and casualty insurance to Christian churches and related ministries, says reported cases of church financial fraud has been rising by about 6 percent annually and is expected to reach the $60 billion mark by 2025.
The level of reported fraud in churches is dwarfed, however, by the 80 percent of church fraud cases that are estimated to go unreported.
No question about the problem. Church staff, including clergy staff are known to lie, cheat, and steal from the church. That beloved deacon who takes the money to the bank every week, by himself, sometimes takes a few twenties out of it. Some church financial secretaries and treasurers steal from the church by the unsophisticated means of simply writing checks to themselves. Sometimes they are caught and prosecuted and we read about it.
But, how can the IRS help, one asks?
The experts say that it would help avoid fraud if churches were required to file the same forms that other non-profits file. The most important of these is the Form 990 in which non-profit organizations disclose their revenues, the officers of the orgainzation, salaries, and a lot of other stuff. The idea is that if churches were forced to be “transparent” with their finances their members would be safer from fraud.
I rather like the Form 990. It is useful for checking on non-church non-profit organizations. For example, one can see that Charles Stanley’s ministry has annual revenues of about $100 million and nine people on staff that make six-figure incomes. You could see that Beth Moore’s ministry had about $1.5 million in revenues for the most recent year and has assets of around $13 million in cash and investments. Both Stanley and Moore are shown as earning modest salaries. Anyone can access these forms online. Are family members on the payroll? Look ’em all up if you want to gawk a bit.
As an aside, I’m a greedy capitalist pig myself and have absolutely no problem with Stanley or Moore earning or accumulating large sums. They are highly skilled, entrepreneurial individuals whose products are valued by many.
But, no thanks on the IRS helping the church. The truth is that the vast majority of churches are already excruciatingly transparent to their members. In many of these churches members see the check register every month or quarter. They know what the pastor makes. They know how much the custodian is paid. They know what the power bill is. They even know how much is spent on toilet paper every year. They know how much money is in the bank and how much the weekly offerings are. If a member doesn’t like how his church handles money, the don’t have to give or stay around as a part of the group. I wouldn’t be a member of a church where I was denied the knowledge of how tithes and offerings were spent.
Besides, I’m not seeing Albert the welder, who handles all the finances for Podunk No. 2 Baptist Church, as being capable of filling out the 990 which means that church of 40 or 50 has to hire some accountant to do it. I’m also not seeing that it is anyone else’s business to know what Podunk’s preacher is paid or how much money is given to that church. The IRS isn’t going to do anything but cause unnecessary expenses for Podunk, money that could have been spent on ministry.
So, no thanks, Uncle Sam. We will manage on our own. Seems Ronald Reagan said something about the government’s help…
But the article linked above does provide a valuable service in that it shows that every church should pay attention to their finances. To avoid being defrauded (in ways such as this) the pastor and church leadership should have measures in place to guard against it.
Here are a few of the usual suggestions to avoid problems (and keep the IRS out of the vestibule):
- The pastor should not handle any money.
- Funds should be received and counted by a group, not an individual.
- Regular reports should be made to the church.
- An annual financial review should be conducted by a rotating group of members.
- The pastor should pay attention to all financial matters, even if he finds it boring.
- Divide the tasks of collection, depositing, and writing checks.
There are more suggestions and every state convention has folks that can help the church set up proper internal controls for their finances. Rely on them, not the IRS. It will not cost the church a nickel.
…and drop kick into the Puerto Rican trench the ridiculous suggestion that churches need to file 990s for their own protection.
_________
IRS logo shown above. Is it just me or does the logo seem unnecessarily brutalist?
Excellent article. I agree that the IRS is not exactly a fount of protection. Look at the ongoing controversy of targeting conservative groups. As to the protection a church should have, I like your list but I would add to it an annual audit which would include the property documents. While serving with the IMB, I appreciated our annual audit as it enabled me to do a better job as a logistics coordinator as well as protected my personal integrity. The cost to a local CPA (Not a member of the church) is a good investment by a church to protect it’s stewardship of the Lord’s money.
Audits are expensive. An annual review can be done cheaply. My state convention has a list of things to do in such a review. The average SBC church would be served well by a simple review. I’ve done this a few times. If fraud is suspected then more formal measures might be taken.
Your six suggestions are quite helpful. I would add one more–require two signatures on each check.
I agree 100% Uncle Sam needs to stay out of the church unless he’s coming to repent and profess faith in Christ. On another related note, what do you make of the Pennsylvania attorney general saying that if the church can’t police itself then we’ll do it for them. That’s not a direct quote but he was referencing the latest grand jury report about the Catholic church. Seems to me if cases of fraud continue to rise, then some of these insurance companies might start requiring 990s.
I doubt insurers would require a 990 for clients. They may drop some coverages.
There are already laws about reporting sex abusers. The state has a role to play in this. Churches should support that and be diligent to follow the laws.
As an auditor I find the value of an annual audit to be of little value to most churches. As is mentioned by the author, it is better to spend more time to identify areas of risk and then assign tasks to respond to these risks. And be transparent. Monthly reports disseminated widely. Our church provides monthly reports to everyone, including non-members.
The required filing of form 990 would not, in my experience, help to avoid theft and fraud in the least. Just more forms to process for an agency already understaffed and underfunded.
As to two signature checks, it might provide some sense of internal control to the members, and perhaps even cause a perpetrator with access to church checks to think twice. But in California at least banks do not enforce two signature requirements. If one authorized signer signs the check the bank clears the check.
This post reminds me of two different church patterns I’ve seen:
The Christian-trust-the-person pattern- Nice Christians trust one another in the church. We pray, chose/elect officers & leaders, and set them loose to accomplish the job, grateful that they are willing to serve another term. Church offices are essentially vested in a person. If you want to know something about an area (finances, building, VBS) you have to find Jim, or Sam, or Betty. If they are out, no one else really knows. New people are eagerly encouraged to serve – we need you! – but it’s hard to figure out how. Nobody is sure if there are policies, maybe in an old 3 ring binder somewhere on a shelf, and there’s no training. And anyway it’s considered rude to ask questions – a lack of friendly, Christian trust & appreciation for those long timers & ‘first families’ who do the work. If a problem arises in an area, it becomes person-centered, emotional, and divided into for-Jim and against-Jim factions. The most influential tend to prevail. And then: move on. There is no forensic review or new policy-making. There’s just getting past that unpleasantness as quickly as possible; why stir it up, when people were so ugly? As some discouraged families quietly slip away, this aging, plateauing church laments why young people these days won’t take the reins.
The community-accountability pattern: This church values humility, community and accountability. It is willing to pray, research, discuss & agree on best policies & practices, adapted for this church. Some courageous leader has to shepherd the process.Once made, the policies are easily accessed & shared (often!) to educate members & train lay leaders. Training makes serving understandable & doable, so that people are willing: in time, there are fewer untouchable gatekeepers who serve in perpetuity. Accountability is a friendly expectation, due to submission to Christ & to one another, and a desire for all to serve well. Reports are frequent. Interest is welcomed, as are (reasonable) questions; friendly interest becomes an early marker of potential new lay leaders. Problems are handled according to policy and/ or best gracious practices, rather than based primarily on partiality. This is not easy, but the church will work for it, even while facing the grief & mourning of evidence that we are all in need of God’s grace.
After long experience, it seems to me the “trust the person” model is not merely susceptible of corruption, but actually corrupting.
As a young man, I thought things would improve if we just put God-called, faithful people into place. Getting into middle-age, I’ve seen wave after wave of God-called people fall into the same patterns of their predecessors, with the encouragement of those around them. Our vision for ministry leadership looks to be a factory of failure over the long term.
Great article!!!!
It is a bad idea to have the federal government through the IRS having regulatory authority over churches. The IRS could not be counted on to protect the church. The 990 form is a reporting requirement, not a protection regime.
Strong polity and sound financial practices are the keys.
On the polity end, a strong, knowledgeable group of leaders (elders, finance committee etc.) is essential. We have elders, and we do not farm out the financial side of things to others. We are pastors/elders in the biblical sense, but we are also the Board of Directors from a legal sense. That keeps the people leading spiritually also intimately aware of the finances.
We get monthly reports from the staff – including a list of each check written, to whom and for what. This includes account balances. We also have a lay-led finance committee that works with the staff person in charge of the books.
2 signatories on checks is a must, and one of them should be a lay person, even if it makes things run less smoothly.
Audits are expensive, but there is also a report called a compilation, which is less expensive.
A church should use an accountant that is not related to anyone in the church. And the church should change auditing firms every 4 years or so.
No major financial decision should be taken without approval by the governing board AND the congregation.
If you are in a church that doesn’t do these things, try to implement them. Usually, your biggest obstacles will be from people who want to emphasize spiritual things and who will think that you are being too concerned with money and overly legalistic, people who say “we have never done it that way”. The tactic used is usually to dress the opposition in some sort of spiritual talk, rather that good logic and financial principles.
Fortunately, we have developed a culture in our church where is someone starts making spiritual arguments about financial and procedure protocols, especially when they are made against a practice that will bring greater accountability and transparency, it’s recognized as being manipulative. Too many Christians fall for manipulative language that is used to keep churches from improving in the areas of polity and finances. Hate to say it, but such language often comes from pastors and other staff people.
This is a good article, William. Thanks for posting.
Does $300 billion of financial fraud in churches seem like a big number to you? I got that by dividing 60 billion in projected fraud by 20% that is reported. I would like to know the source of their numbers and their definition of fraud.
Yeah. “Goes unreported” statistics strike me as odd and essentially agenda based “data” used to bolster a point ….kinda a mathematical way of saying “but, Mom – everyone else is doing it.”
If an action/event is unreported but then numbers are given as “going unreported” – I always wonder on what factual basis such a number calculated? Isn’t it necessarily speculative?
I’m sure there’s an accepted statistical formula for such things – but even so – it’s gotta be speculative, I’d think.
I’m reminded of the saying:
“There are three progressing categories of lies: lies, damned lies, and statistics.” Mark Twain
Great article. I agree with others who have mentioned that bringing in the IRS, or any other government entity, only opens us up for more targeting and regulation.
I agree churches should not list their 990s but i am firmly behind SBC entities doing so. In light of public financial issues at the IMB and SWBTS (dramatic enrollment declines and staff layoffs), financially transparent should be at the forefront as an organization. Have no secrets. Require SBC entities to submit an IRS 990 report listing their CEO or President’s salary to Guidestar and follow Charity Navigator‘s guidelines in financial transparency.
Here is what Charity Navigator says–“We believe that charities that are accountable and transparent are more likely to act with integrity and learn from their mistakes because they want donors to know that they’re trustworthy. Generally speaking, charities that follow best practices in governance, donor relations and related areas are less likely to engage in unethical or irresponsible activities. Therefore, the risk that charities would misuse donations should be lower than for charities that don’t adopt such practices. When examining accountability and transparency, Charity Navigator seeks to answer two basic questions:
Does the charity follow good governance and ethical best practices?
Does the charity make it easy for donors to find critical information about the organization?
https://www.guidestar.org/Home.aspx
https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1093
Hear, hear! I definitely think it’s reasonable to disclose salaries for entity execs. Or at least I’d like to hear a credible reason that it’s a bad idea.
Also in the discussion is not only annual salaries but total compensation such as travel per diem, expense accounts, car allowance or mileage allowance, use of official work “time” and equipment to work on private endeavors, speaking fees that are accrued for being an SBC official and other items that produce income that is from SBC employment.
I am talking exclusively about SBC leadership positions on the national level and state level where the salaries and compensation is not on public record. My question on that is , Why? All non profits report their executive cost due to the abuse in the past.
Would any one of us go to a local church who do their financial reporting like the SBC does. It is just not right and I think it is going to blow up someday and damage greatly the trust that the lay people have in SBC leadership. Most lay people are not even aware that basically the SBC leadership benefits are in essence a secret.
No excuse for this type of financial non disclosure that I can think of . Like to hear some different opinions as maybe I cannot see the forest for the trees or something. Thanks
You’ve already asked your state convention exec and been refubbed, Steve? If not, then why not ask?
Then here’s the article that should be written: “Does the SBC need the government to make our entities more transparent?”
Several things that should be noted:
1. Entity trustees are elected every year and if these aren’t doing their job they can be replaced.
2. In many cases, if Southern Baptists ask they will be given the answer. The usual pattern is that gripes are aired but no one has asked.
3. If SBCers don’t think our entities are trustworthy then they can not donate.
Anyone can make a motion, more probably a resoution, asking trustees to consider making more detailed financial info available. Why not do it next June?
William Thornton, I respectfully ask, is that what you really believe is in the best interest of the SBC as a organization built on trust. Tell me a lay person, how I can find out what I asked in my comments above , do I write a letter, do I ask my church delegates to the national convention? I am not griping I hope, I was trying to bring up a valid concern. The vast majority of SBC lay members who finance the SBC do not know how the accountability trustee system works, that is like saying the Deacons know how much the Pastor makes so ask them in writing etc. I think your answer #3 would be not to donate or perhaps to leave the SBC, my words about leaving, not yours.
From what I know and again I am an “average” member , the resolution would get as far as the people in charge want it to get , which would be no where.
Again I am talking total compensation , total benefits etc not just salary. If the SBC was a private enterprise that is capitalism . Beth Moore and many others are not getting paid by SBC members and they are partial entrepreneurs , who make money off the voluntary purchase of their work but it is a SBC platform that gives them the exposure.
Why the recultance to show to show pay packages and perks, Red Cross, United Way and many other non profits do now, because of the demand of the “donors”, but the leadership did not want to do it and reveal all their perks. Of all people , SBC leadership should be aware of the culture of transparency in SBC churches but it changes at the top, again why?
Thank you for the courtsey of your above reply..
Why not ask your state exec? You might get an answer. Ask for the salary range of the executive leadership. Let me know what answer you get. All email addresses or contact info is public. Will take ten minutes at the most.
Why should a SBC member who simply wants an accounting for the money given to the SBC have to go though this hoop jumping exercise ?
I just googled CEO pay on non profit organizations and got annual salary and benefits for most major non profits in seconds. Why is there no transparency? What is the purpose of not freely disclosing the benefits and total payment to all SBC positions.
It seems like the SBC is not comfortable with the salaries and benefits that are paid, There will be a problem with this someday if SBC members start paying attention. No one would have any problem if SBC employees are paid well but I believe with all the perks, benefits and pay it is more than “well”. Not a good situation for sure.
Why does the SBC maintain this policy?
Let me jump in real quick. I’m not sure we want to advertise the salaries and be fits of our entity heads. The SBC is criticized heavily, so why make it easy to find critical material. I’m also not sure how a phone call is that much harder than a google search. If we comply with federal regulations and the by laws of our convention, I see no reason to make that information any more public.
As far as entity heads being overpaid, just remember you get what you pay for.
Tony Jones, okay, call whoever you think you can and find out the salary , benefits and total pay package of SBC leaders and get back with me. I can only say to your comments Wow, really? So you must think that the entity heads get paid so highly it would be open to critics, how much would that be? I will not comment on this subject anymore but I am truly saddened with the SBC position on this issue. I trust my local church and Pastor but we have fully transparent business meetings and the Pastor is fairly paid but certainly , j he is in our eyes priceless.
My guesstimate based on nothing more than guessing as there is no public disclosure that entity heads total pay , benefits, travel, per diem, sick leave , vacation time, retirement contributions , hidden perks come to a total of $500,000 a year per entity head, maybe more, Who knows , certainly not the people who fund the SBC operations.
If you don’t want to ask, and obviously you don’t, then you can just complain. I would have thought that what you wanted was information. It may be readily available to you.
As you can see, the thinking goes like this: “The people I like are good people and worth being paid well. And good people don’t need me looking over their shoulder. No one wants a troublemaker, so I’ll not ask about his salary unless there’s evidence this is a bad person.” Of course, if it comes down to that, it’s mostly too late to save them.
And, as Tony points out, the agency head faces concrete harms — they’ll be handing ammunition to cranks. At all points in Baptist history, there’s been a handful of folks who think stewardship is demanding a doctor’s note for scurvy before letting a man suck on a Cooperative Program-paid lemon. If you tell them a number, they’ll look for evidence you’re lying about even that.
You and I might agree that greater-than-required transparency builds trust, which allows greater cooperation among rational people, and want to overlook the cranks. But I’ll admit it’s difficult to count the dollars raised by that policy; it’s easy to count the complaint letters.