[Jsing
ffiHffi#wffiHW*wH
with Discretionary
Funds
by VonnaLaue, CPA
"pastor's
MANY CHURCHES will allow a
discretionaryaccount" as an expenseline
item. This is typically a budgetedamount
to be used by the pastor as he deems
appropriate.Often he is only questionedif
the amount spent is beyond the approved
budgetedlimit. He may chooseto use this
account to supplement other budgeted
amounts, such as benevolence,or as an
account for items such as meal expenses.
There are severalfactors to think about if
your church has, or is considering,such
an account.
First, is the account under the control of
the church? Tlpically, this would be an
expense line item only; however, it may
periodically be handled by depositing
funds into a separate bank account. If
the account is opened in the name of the
pastor,those funds are income to him. If
it is an account with the tax identiflcation
number of the church, it should be included in the financial statements of the
church and the additional controls listed
in this article should be followed.
Second, are the expenses properly
approved?As with any other expensesor
expensereports,an appropriate approval
processshould be followed. For the protection of the church'sassetsaswell as the
reputation of the pastor, it is important
to have individuals review and approve
the expensesthe pastor makes from this
account.This would need to be done by
"over"
someone
the pastor and, therefore,
would typically be a board member or an
assignedchurch committee.An exception
to this would be if severalpastors each
had a discretionary account and supervisor/subordinate relationships existed
within the pastoralstaff.
Third, as a part of the review process,
all necessary documentation must be
obtained. This documentation would
include necessaryreceipts as well as a
documented ministry purpose. Meals
are a typical type of expense a pastor
may incur. These receiptswould need to
have notations as to who took part in the
meal as well as the ministry purpose
(discussion of the upcoming missions
conference,counseling session, etc.). If
the expenserelatesto a confidentialsituation, the pastormay choosenot to include
an individual's name on the documentation, but he shouldstill maintain a personal record. This would also typically be an
exceptionand not the standardpractice.
The church's funds should not be spent
simply to provide the daily lunch of certain staff members.
Fourth,accuraterecordkeepingshould be
included for any requirements that may
result from how the funds were disbursed.
For example, it should probably be the
policy that the pastor not pay an individual for things such as servicesout of this
account.It could resultin an emolo'sment
(Continuedon page 32)
Summary
. A"pastor's
discretionary
account"
is
lineitemwhichistypically
anexpense
a budgeted
amount
to beusedbythe
pastor
ashedeems
appropriate.
.
Intsanlcte
racl0ni
ouflrnes
I0consroer
in$etting
upsuchanaccount.
r Themostimportant
things
toremember
aretheimpact
it mayhave
onthechurch
iffunds
fromthisaccount
aremisused
(orareapparently
misused)
aswellas
payments
taximpactthe
anypotential
mayhaveforthepastor.
Author
Vonna
Laue
isaCPA
withCapinCrouse,
LLP.
Shecanbereached
at
[email protected]
Fall 2007 NACBALedger 29
(Continuedfrom page29)
type situation that would require compliance with various laws.
Finally, benevolence payrnents should
be considered according to the overall benevolence policy of the church.
Benevolence policies generally include
things such as what the requirements
are to receive a benevolencegift from the
church and how much the church will
help with at one time or over a period of
time. This assistanceis typically reviewed
and approved by a committee (even if it
only consistsof a couple of individuals).
Benevolentamounts should be disbursed
from pastoraldiscretionaryfunds in compliancewith at leastthe spirit of the policy.
A pastormay certainlybe questionedif he
beginsto makewhat somewould consider
unreasonable assistancedisbursements
from this account.
The most important things to remember
are the impact it may have on the church
if funds from this account are misused
or are apparently misused as well as any
potential tax impact the pa1'rnentsmay
havefor the pastor.If thereis a lack of documentation for the disbursements or if
the disbursements personally benefit the
pastor, they need to be included as taxable compensation.It would then need to
be determined if all of the expenseswere
income or just certain pa),ments.
Theseaccountsmay be usedand arefairly
common. Business administrators just
need to takethe necessarystepsto be sure
the pastor and the board are awareof the
implications related to a special account
such as this. As we all know everyone is
looking to you for the answers on how to
handle the situations they createl lf'l
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32 NACBA l€dget
Fall 2007
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