Legal Question about fund accounting

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Legal Question about fund accounting

by Chuck
(Mt.Morris,MI)

Is it illegal for a church to use money from another fund temporarily.For example,our church's general fund is out of money,but we still have money in our checking account.So instead of not spending,I am paying the bills and showing a negative number for the general fund balance.Someone told us that this was a criminal offense.

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Legal Question about fund accounting

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Jun 04, 2010
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A Criminal Offense!!!!!!!! Hardly, but...........
by: Marcus in Texas

I certainly do not believe this type of borrowing (from Peter to pay Paul ???) would rise to the level of a criminal offense. If so, I would like to see the law that is broken. However, as our church treasurer, I would not do this without first having received the support (by a vote) of the members of the church's stewardship/finance committee and perhaps even the support (by a vote) of the board of deacons. I would not do such borrowing unilaterally since the problem is a "church" problem and should not become a "personal" problem of the church treasurer or business administrator. Sounds like someone may need to put the brakes on spending, too........

Jun 22, 2010
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How does God feel about borrowing? part 1
by: Russell Montgomery

This is a thorny issue to say the least. I understand this to be illegal unless certain guidelines are followed. I have walked this road before and left a congregation because of it.

Consider that your congregation accepted the restricted funds with the stipulations the donor required (this may be implied by writing Building Fund in the memo.) You accepted those restrictions when you took his money. You gave your word to him and God that the money would be used as specified.

We are stewards of the assets both physical (money, land,...) and non-physical (your word/trust with the donor.) When you use the money for other than its intended purpose you are breaking your word with the donor and with God. Recall the parable of the servant who was entrusted with the master's money. Aren't we in charge of our Master's money? Satan will tell us this is the only way out and that God won't provide or God won't mind.

From what I recall a loan may be made from a restricted fund to another fund (in this case the the General Fund.) A loan agreement must be drawn up stipulating the repayment times and signed. Also interest must be paid or it is not a loan (this is what makes it a loan and is a legal requirement.) The lowest amount of interest I personally am comfortable with is 20%. God stipulated that when Holy things were misused in the tablernacle/temple that they were to be restored with their fifth (20%). It also makes you less likely to look at this as an easy out. It is sort of like the overdraft fees your bank charges you. They grab your attention.

Prior to a congregation taking this option time should be spent in prayer by both the congregation and the Board/Leadership asking what God wants them to do. Have other options been considered to cut back on expenses? Is the Board looking at the monthly financial reports. Didn't they see what was happening? Are there other avenues to offset this shortage e.g. car wash, selling BBQ plates (chicken is cheap when you buy it in bulk and have members cook beans and potato salad.)

(continued)

Jun 22, 2010
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How does God feel about borrowing? part 2
by: Russell Montgomery

(continued)
I believe we should have faith in God providing what we need (not what we want.) The Bible speaks a lot about borrowing because you are making yourself a slave to the lender and we should only be slaves to our one true Master.

I left a congregation over this. A woman had left a LARGE sum of money to the church's benevolence fund because of how they had ministered to her son during his battle with cancer. They wanted a new building and went and got the financing for it. A few years later there was a downturn in donations and they started borrowing from that fund. I spent much time with the minister who previously had worked for an accounting firm and knew the laws. In the end he wanted to be paid and turned his back on what was the right thing to do. (I left at that time because he wasn't following what was right.) Eventually the benevolence fund was drained but they had lots of promises to pay it back and eventually even the promises were forgotten.

Satan is very good at chiseling away at our faith and finances are an easy way to do it. Don't give him any quarter.

Personally I don't believe a church should ever borrow money and I see it as a lack of faith that God will provide or not following His direction. I serve a congregation that practices this. We were busting at the seams but didn't have the funds yet for a building and are still renting. We prayed to God about needing room and a tenant moved out right next to us. The landlord asked if we wanted to expand and lowered the square footage rate we were paying. Two years later we are cramped again. We went looking and could not find a better deal then what we had. Guess what happened. Another tenant moved out and once again we doubled our capacity. Our building fund is still growing and God is providing what we need WHEN we need it. It will be beautiful when we move into our own building that will be fully paid for.

f you haven't listened to Dave Ramsey on talk radio, go visit his site and see what he says. www.daveramsey.com I just visited there and his lead story was "Giving Into The Black -
Discover how one Georgia church turned around their messy debt situation!"

I will be praying for your leaders and congregation to witness how God cares for his children and provides when it is time.

BTW, this type of thing often goes unnoticed unless your State government starts looking. This is usually triggered by complaints from your donors. Do you want the state to take control of your church's finances?

Blessings to all of you.

(Sorry for the sermonette but I am passionate about trusting that God WILL provide.)

Sep 29, 2010
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Restricted / Unrestricted
by: KJ

You said you're taking money from the "checking" account. I believe your only suppose to NOT touch a restricted account. Meaning, if you have people contributing to a building fund account, that money can only be used for the building fund, not operating expenses. Money in a "checking" account sounds like an unrestricted account. Has the the "checking" account been set up for a particular purpose or cause? If it hasn't you're free to use it as you wish.

Unrestricted: These funds are free from any external restrictions and available for general use. Many individual contributions are unrestricted, as are general operating and unrestricted grants.

• Temporarily Restricted: These funds have donor-imposed restrictions that can be fulfilled in one of two ways – passage of a defined period of time (time restriction) or by performing defined activities (purpose restriction). These funds most often come from a grant received to operate a specific program or project or individual contributions given with the intent of supporting a particular program or campaign.

• Permanently Restricted: These funds are restricted by the donor for a designated purpose or time restriction that will never expire. The intent is that the principle balance of the contribution will remain as an investment forever, and the nonprofit will utilize the interest and investment returns, such as with an endowment.

Jan 06, 2011
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Thank you Russell
by: Paul in Ohio

Very informative reply and I greatly respect your wisdom and appreciate you sharing your unfortunate experience.

Aug 23, 2011
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Temporary borrowing is permissible if...
by: Marvel K. Tan

Firstly, only general fund emergencies, such as not being able to pay salaries and utilities, can justify temporary borrowing from restricted funds; secondly, this should be allowed by existing financial policies of the church; thirdly, the repayment is a calculated certainty such as anticipating collections from the Sunday service sufficient to cover the temporary borrowing.

If such emergencies frequently recur, however,it indicates serious budget problems of the church which should be addressed immediately.

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