Corporate Governance in Religious Organizations: A Study of Current Practices in the Local Church
Elson, Raymond J., O'Callaghan, Susanne, Walker, John P., Academy of Accounting and Financial Studies Journal
This paper addresses corporate governance practices in religious organizations by examining fiscal oversight and financial management practices in the local church. Fiscal oversight includes the existence of an independent board of directors with a financial expert and documented policies and procedures. Financial management includes the existence and use of a budget, controls over cash receipts and disbursements, financial reporting and tax reporting and compliance. A questionnaire was used to collect data from various denominations. The results showed that churches do have adequate fiscal oversight and financial management controls. However, opportunity exists for improvement. Churches can do a better job of documenting their policies and procedures. In addition, they should communicate these policies and procedures to all employees. It also appears that church accounting personnel do not really know the requirements for preparing financial reports using generally accepted accounting principles. These personnel should consider attending a nonprofit course or seminar to increase their understanding of accounting standards relating to nonprofit reporting, especially Statement of Financial Accounting Standards No. 116, "Accounting for Contributions Received and Contributions Made" and Statement of Financial Accounting Standards No. 117, "Financial Statements of Not-for-Profit Organizations."
The accounting and ethical scandals within such public companies as Enron and WorldCom created an uproar in the marketplace. The United States Congress reacted with sweeping legislation which forced public companies to implement procedures to improve internal controls over financial reporting. Nonprofit organizations may be facing the same peril as scandals continue to affect the sector. The fund raising practices at the American Red Cross after the September 11, 2001, and excessive salaries paid to executives and board members at other nonprofit organizations are some of the actions that are raising concerns among the various constituents.
Religious organizations are also caught in the spotlight because of such issues as the sex abuse scandals in the Catholic Church, embezzlement of funds in various organizations and the use of government funds to support social services and other programs in faith based organizations. For instance, the director of a Christian community was charged with stealing $23,000 and other items from the organization over a two year period (Anonymous, 2000). The tax-exempt status of an organization controlled by a well known televangelist was revoked because of illegal politicking by the organization (Anonymous, 2004a). A Christian charity was accused of using government funds to pay for a job training program that included religious instruction at a local prison (Wilhelm, 2005). A California TV preacher was accused of using donations from supporters to finance a lavish lifestyle that included 30 homes, fancy cars and a private jet (Anonymous, 2004b).
Religious and other non profit organizations have a responsibility to their various constituents to be fiscally responsible and transparent in carrying out their missions. These organizations rely on the public for a significant portion of their annual budget. Support is received by nonprofit organizations in the form of tithes, pledges or donations. Some donations are quite generous such as the $40 million unrestricted gift received from an anonymous donor by a religious organization in the State of Missouri (Preston, 2005a). Others are more modest such as the $1.8 million received by a Baptist church in Alabama for its scholarship fund, and the $1 million received by another religious organization to help victims of the South Asian tsunamis (Preston, 2005b). The Annual Giving USA study published by the American Association of Fundraising Council noted that Americans donated $248.52 billions to charity in 2004, with individual donors providing the largest share at 75. …