Church Internal Audit Checklist Guidelines

Churches often conduct internal audits to validate their financial statements and records, which differs from an external audit performed by an independent third party.

Auditor should possess an understanding of accounting, particularly nonprofit accounting. Furthermore, they should allocate enough time and energy for a complete and thorough audit process.

1. Review Financial Statements

Any business needs a budget and set of financial statements in order to track its finances; churches are no different.

Verify that account balances in reality match those in church financial records, including receivables and payables; matching detailed ledger accounts to general ledger accounts; reviewing fixed assets; and verifying accurate reporting of income and expenses.

Audits performed by independent persons will reduce any appearance of bias in audit results.

2. Review Payroll

Churches must manage all funds that flow through them with caution and oversight, to avoid mishandling. One way of safeguarding against this possibility is conducting annual audits on your financial records.

Audits should be carried out impartially, meaning that those conducting them should not have any relationship to those on the church finance team or handling its financial data, in order to conduct reviews with maximum objectivity and review data procedures with maximum objectivity. An effective audit should include checking time clock records as well as receiving donations.

3. Review Financial Records

Reviewing financial records is an integral part of an internal audit, including making sure all funds are recorded and reported accurately, as well as determining if the church’s accounting procedures are sound and sufficient.

Audits or evaluations should be performed on all church financial records at some level. The Local Church Audit Guide offers criteria that can assist in selecting an appropriate level of assessment based on transaction volume.

Designated assets are those selected by a church’s governing body (church council or administrative board) as being set aside from other funds for use for specific purposes.

4. Review Financial Policies

The church board must review any financial policies that affect their church – such as spending, investment and tax compliance policies. This may involve reviewing board meeting minutes to ensure any significant expenses are recorded properly and also looking into loan approvals and contracts that could have an effect on church finances.

Individuals chosen to conduct internal audits must possess a solid grasp of accounting, particularly nonprofit accounting, be able to navigate their process effectively and ask relevant questions; additionally they should have enough time available for the task at hand.

5. Review Insurance Policies

Church financial records should be protected by being stored safely in an accessible place and accounting software program data backed up. Furthermore, all employees handling its finances must be adequately bonded (check prospective employee background checks as well as references before hiring).

Ideal Audit Committee members should not participate in decision making and record keeping functions of their congregation, except when conducting an exchange audit. Furthermore, these members should not hold positions within clergy, vestry or finance committees during the audited year (e.g. holding positions as warden).

6. Review Investments

This church audit section is an important one that checks all physical assets are documented and secured properly, and that proof-of-cash forms have been completed for all accounts in accordance with national and diocesan guidelines.

Small local churches may find members with accounting or business expertise who are willing to conduct audits for free; larger congregations may contract an outside firm for these services.

7. Review Human Resources

Church boards should conduct an internal audit as part of their compliance efforts to comply with federal and state employment practices laws, such as employment practices laws. An internal audit provides an effective means of doing this.

An audit’s effectiveness hinges on its frequency. At least once annually should be scheduled.

The process audit table begins by asking audit questions related to PDCA (plan-do-check-act) cycles and interface functionality, while also looking for opportunities for improvement.

8. Review Information Technology

Process audit tables cover similar ground as supplier audit checklists but also contain an opportunity for improvement (OFI). Here’s where auditors will make suggestions to enhance processes.

An impartial audit needs to be performed, which means ensuring the individual selected to carry it out has no connection with or is related to members of the management team or church finances. They should possess sufficient knowledge about accounting principles and internal controls in order to conduct an efficient audit.