Avoiding Misappropriation of Church Funds
By Cynthia Gordon-Floyd, Contributing Writer
As it relates to church financial management, misappropriation means “the intentional, illegal use of property or funds of another person for an unauthorized purpose by a trustee or any person with a responsibility to care for and protect another’s assets.” In a church environment, if funds are given to be used for a specific reason and then used for a different reasonwithout informing the donor, it has been misappropriated and is punishable by law. You can avoid misappropriation by understanding the difference between designated, solicited, and restricted gifts.
Designated gifts are when a giver notes their desired intent for the donation. The designations are simplysuggestions, e.g., envelope categories for Church School or Youth Ministry. Designated donations are tax-deductible for the donor. Donors should understand that fortheir donation to be tax deductible, they must fullyrelinquish control of the funds when they are given. If a donor wishes to direct the use of the funds, per IRS rules, they are not eligible to receive a tax deduction for the donation. An envelope disclaimer noting that “funds may be redirected based on the needs of the church” is a recommended solution which informs the donor that designations may be overridden by the church when necessary.
Solicited gifts are givenat the request of the church for a specific purpose, e.g., the purchaseof a church bus or a roof repair). Use of the funds is restrictedfor the stated purposebutthe restriction is imposed by the churchand not the donor. Solicited donations are tax-deductible for the donor. If donations have been solicitedfor a specific purpose and the funds are no longer neededfor that purpose, it is the church’s responsibility to inform all donors who contributed and ask permission to redirect the gift to another need or offer to refund all monies given. It is critical that the request to redirect be madein an official manner that sufficiently allows all donors to decide how their gift will be handled.
Restricted gifts are when the donor requires the gift to be usedfor a specific purpose only. Restrictedgiftsare not tax-deductible because the donor has not relinquished control. These types of gifts should not be included on the donor’s annual giving statement.
The integrity of our ministry requires us to appropriately handle all funds that are entrustedto us. This must be done with the utmost transparency and accountability. Cynthia Gordon-Floyd is a certified public accountant and founder of Willing Steward Ministries, LLC. Willing Steward Ministries (https://www.willingsteward.com) is a financial consulting and accounting firm for churches and other faith-based non-profits, specializing in Bible-focused financial practices, pastoral compensation issues, IRS compliance and other financial needs specific to churches. Cynthia is a graduate of Lake Forest College and received her Master of Business Administration degree in Accounting from DePaul University. She is a steward and the financial secretary at the First AME Church of
