General Recommendations - Church

1.      The need for an Annual Audit:
Church Management is required to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that:
     a. Transactions are executed in accordance with Church management's general or specific authorization.
     b. Transactions are recorded as necessary -
               *     To permit preparation of financial statements in conformity with Generally Accepted Accounting Principles.
               *     To maintain accountability for assets.
     c. Access to assets is permitted only in accordance with Church's management's general or specific authorization.
     d. The recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences.

An Annual Audit may detect material misstatements (or omissions) in the Church's Financial Statements.

2.      The need for a Church Law Compliance and Risk Management Audit.
While the need for risk management has always been present within the church, that need is greater today than ever before. Effective risk management addresses many areas including legal liability. Prior to the 80's, church litigation did not pose a significant risk. Times have changed. Increasingly churches find themselves engaged in civil litigation. The American Bar Association now sponsors regularly scheduled conferences on suing churches and other nonprofit organizations.

Congregational members represent the most likely plaintiffs in a case involving liability issues. Employment litigation can involve hundreds of thousands of dollars in settling cases with clergy and church staff members. Sexual misconduct cases have produced multi-million dollar jury verdicts, along with intense media coverage and negative publicity. Personal injury cases represent the single most vulnerable area within the church today. Such litigation reflects the broader trends within our society and culture. Today litigation becomes the option of first option in the settlement of disputes.

The church is just beginning to awaken to this new legal reality. Churches and denominational offices that have been named in lawsuits now understand the stakes involved in this new legal environment. Some insurance companies no longer seek churches as clients because of the risks associated with local congregations. Yet the majority of church leaders remain unaware of these changing legal realities. Churches continue to function as if they remain immune to legal liability, but they do so at their own peril. Congregations that fail to adapt to these new realities expose themselves and their members to unprecedented and unnecessary risks.

To adequately address these and other risk management concerns, church leaders must take seriously the need for preventive care. A risk management audit can assist that process.