Church Financial Audit Preparation Checklist
Preparing for a church financial audit involves more than gathering paperwork and checking off a list. It's an opportunity to strengthen financial accountability, build trust with your congregation, and ensure the resources entrusted to your church are managed with integrity.
I've seen how organized financial records, consistent reconciliations, and clearly documented procedures can strengthen an organization's financial foundation. Preparing ahead of time can also help church leaders identify gaps, address potential concerns, and approach the audit process with greater confidence.
In this guide, I'll walk you through the essential documents to gather, internal controls to review, and practical steps to take before your church's audit. My goal is to help you approach the process with greater clarity so you can spend less time scrambling for records and more time focused on your ministry's mission.
Church Financial Review vs. Audit: Know the Difference
Before preparing your church's financial records, it's important to understand which type of financial engagement your church needs. An independent audit and a financial review differ in scope, procedures, and the level of assurance provided.
A financial review generally involves inquiries and analytical procedures to help the CPA determine whether the financial statements need material adjustments. It provides limited assurance rather than the higher level of assurance provided by an audit.
An independent financial audit involves more extensive procedures to obtain reasonable assurance that the financial statements are free from material misstatement. Depending on the engagement, these procedures may include examining supporting documentation, testing selected transactions, and evaluating relevant internal controls.
How do you determine which engagement is appropriate for your church? Consider these factors:
Annual revenue and financial complexity: Larger churches or those with more complex operations may need more extensive financial oversight.
Denominational or governing-body requirements: Your church may be required to obtain an audit or another form of independent financial examination.
Donor and grant requirements: Funding agreements may specify the type of financial reporting or independent examination required.
Board governance and risk management: Your board should consider the church's financial risks, accountability needs, and oversight responsibilities.
The right approach depends on your church's circumstances and any applicable requirements. When you're unsure, consult a qualified CPA familiar with nonprofit and church financial reporting before deciding which engagement to pursue.
Essential Church Audit Preparation Documents to Gather
Organized, complete financial records can make the audit process much more efficient. When documentation is missing or difficult to locate, church staff and volunteers may spend valuable time tracking down records instead of focusing on their regular responsibilities.
I recommend gathering your financial records well before the audit begins and organizing them into clear categories. Your CPA or independent auditor should provide a customized list of requested documents based on the engagement's scope, but the following checklist is a useful starting point.
Cash Receipts and Donation Records
Donation records are an important part of your church's financial documentation. Your records should allow you to trace contributions from the initial count or electronic transaction through deposit and recording in your accounting system.
Organize the following:
Offering count sheets, including the names or signatures of those responsible for counting and verifying the offerings
Deposit slips and supporting documentation showing the amounts deposited
Contribution records and year-end giving statements provided to donors
Reports of online donations, recurring contributions, and other electronic giving
Reports showing contributions by donor and fund, where applicable
Reconcile offering records and electronic giving reports to deposit records and accounting entries. Investigate and document discrepancies rather than assuming that differences will resolve themselves.
Protect donor confidentiality throughout this process. Provide access to contribution records only to authorized individuals and follow your church's established privacy procedures.
Cash Disbursements and Expense Documentation
Church expenses should be supported by clear documentation showing what was purchased, why the expense was incurred, and who authorized the payment. Maintaining these records helps your church demonstrate accountability and gives your auditor a clear trail to follow.
Gather and organize the following:
Vendor invoices and receipts
Purchase orders and contracts, when applicable
Documentation of expense approvals
Check registers and payment records
Bank statements and credit card statements
Receipts and supporting documentation for credit card purchases
Documentation supporting electronic payments, reimbursements, and recurring expenses
Organize the records by month, vendor, or expense category using a consistent filing system. Verify that payments recorded in your accounting system agree with the supporting documentation and investigate missing receipts, duplicate payments, or unusual transactions.
If documentation is missing, address the gap before the audit whenever possible. Document the steps taken to resolve the issue, and never create or alter supporting records to make an incomplete transaction appear fully documented.
Bank Statements and Reconciliations
One of the first areas I recommend reviewing when preparing for a financial audit is your church's bank reconciliations. Consistent, accurate reconciliations are essential for maintaining reliable financial records and identifying discrepancies before they become larger problems.
Your church should maintain complete documentation for every financial account, including checking, savings, money market, and other applicable accounts.
Gather the following:
Bank statements for all accounts covering the entire fiscal year
Monthly bank reconciliation reports for each account
Supporting documentation for outstanding checks and deposits in transit
Explanations and supporting records for unusual or significant transactions
Documentation showing that reconciliations have been reviewed and approved by an authorized individual
Bank reconciliations should be completed monthly, with discrepancies investigated and resolved promptly. Outstanding checks, deposits in transit, and other reconciling items should be reviewed regularly to ensure they remain valid.
I also recommend having someone other than the person responsible for recording transactions review the completed reconciliations whenever possible. This additional oversight helps reduce the risk of errors and inappropriate financial activity.
If your church has fallen behind on reconciliations, don't wait until the audit begins to address the issue. Develop a plan to bring your accounts current, investigate unresolved differences, and document any necessary corrections.
Strong financial stewardship begins with knowing that your financial records accurately reflect the resources entrusted to your care.
Payroll Records and Tax Forms
Payroll is an area where churches need to exercise particular care. Unlike many traditional businesses, churches must navigate unique tax rules involving ministerial compensation, housing allowances, and employment taxes.
I recommend reviewing payroll documentation carefully before an audit to ensure compensation has been properly authorized, recorded, and reported.
Gather the following records:
Payroll registers showing gross compensation, deductions, and net payments for all employees
Forms W-2 and W-3, including copies of filed wage statements
Forms 1099-NEC for independent contractors, when applicable
Federal and state payroll tax filings, as applicable
Employment agreements, compensation approvals, and personnel records supporting payroll changes
Documentation of ministerial housing allowance designations
Records supporting employee benefits, retirement contributions, and other compensation arrangements
Documentation of payroll liabilities and year-end balances
Ministerial compensation deserves special attention. Ministers who qualify under federal tax rules are generally treated as employees for federal income tax purposes but may be subject to self-employment tax rules for Social Security and Medicare rather than regular employee FICA withholding.
Housing allowances also require careful documentation. To qualify for the federal income tax exclusion, a minister's housing allowance generally must be officially designated in advance by the employing church or other qualified organization and must satisfy applicable IRS limitations.
Churches should also understand that certain payroll tax filing requirements differ from those of other employers. For example, churches that qualify for the exception from federal unemployment tax generally are not subject to FUTA.
If your church has experienced staff turnover during the year, maintain complete payroll records for both current and former employees.
I encourage church leaders to review these matters with a qualified tax professional familiar with clergy compensation and church payroll requirements. Addressing payroll concerns proactively helps protect your church, its employees, and the resources entrusted to your care
Your Church Internal Audit Checklist: Systems and Controls
Preparing financial records is only one part of audit readiness. Equally important are the financial systems, policies, and internal controls your church uses to protect its resources and maintain accountability.
Internal controls are the procedures and safeguards designed to reduce the risk of financial errors, unauthorized transactions, and fraud. They also help ensure financial information is accurate, reliable, and available when leadership needs it.
In my experience, strong financial oversight is not simply about having policies written down. It's about making sure those policies are consistently followed and that church leadership understands who is responsible for each part of the financial process.
I encourage church leaders to evaluate their internal controls regularly rather than waiting until an audit is approaching. Even well-established churches can develop gaps in oversight as staff responsibilities change, ministries expand, or financial operations become more complex.
The following areas deserve particular attention when reviewing your church's financial controls.
Segregation of Duties and Authorization Procedures
One of the most important principles of financial accountability is segregation of duties. Simply put, no single individual should have complete control over a financial transaction from beginning to end.
Separating financial responsibilities helps reduce the risk of errors, inappropriate transactions, and potential fraud.
Whenever possible, different individuals should be responsible for:
Receiving and counting offerings and other cash contributions
Recording financial transactions in the accounting system
Preparing bank reconciliations
Reviewing and approving expenses
Processing payments and handling bank deposits
Reviewing financial reports and investigating unusual transactions
I recognize that churches do not always have enough staff or volunteers to separate every financial responsibility. When complete segregation of duties is not practical, additional oversight becomes especially important.
For example, if the same individual records transactions and prepares bank reconciliations, an independent board member, treasurer, or other authorized individual should review the reconciliations and supporting documentation.
Your church should also maintain written authorization procedures that clearly establish:
Who has authority to approve expenses and applicable spending limits
What supporting documentation is required before payments are processed
How employee compensation and payroll changes are approved
Who can authorize transfers between bank accounts or funds
How significant or unusual purchases receive additional review
Who has access to online banking, accounting software, and financial records
Written policies are only effective when they are consistently followed.
I encourage church leaders to review these procedures periodically, especially when there are changes in financial personnel, ministry leadership, or organizational operations.
Strong internal controls are not about creating unnecessary bureaucracy. They are about protecting the church, supporting those entrusted with financial responsibilities, and maintaining the confidence of the congregation.
When financial accountability becomes part of your church's everyday operations, audit preparation becomes much less overwhelming.
Restricted and Designated Funds
Churches often receive contributions intended for specific ministries, building projects, missions, or other designated purposes. Understanding how these resources should be classified, tracked, and used is essential for maintaining financial accountability and honoring donor intentions.
One distinction I encourage church leaders to understand is the difference between donor-restricted funds and board-designated funds.
Donor-restricted funds are contributions subject to restrictions established by the donor. These restrictions may limit how or when the funds can be used. For example, a donor may contribute specifically toward a church building project or a particular missions initiative.
Board-designated funds, on the other hand, are resources that church leadership or the governing board has set aside for a particular purpose. Because these designations are established internally rather than imposed by donors, the board generally has the authority to modify or remove them.
During audit preparation, I recommend reviewing the following:
Documentation identifying donor-restricted contributions and their intended purposes
Records of board-approved fund designations
Accounting reports showing restricted and designated fund balances
Supporting documentation demonstrating how restricted contributions were used
Board minutes authorizing significant fund designations or changes
Reconciliations between fund balances and the church's general ledger
Financial reports showing restricted resources separately from unrestricted resources
Your accounting system should provide a reliable way to track these funds individually, whether through fund accounting, classes, projects, or other appropriate tracking methods.
An important reminder: A board designation does not create a donor restriction. Under nonprofit financial reporting standards, board-designated resources generally remain classified as net assets without donor restrictions.
I also encourage church leaders to review restricted fund balances regularly. This helps ensure contributions are used according to donor-imposed restrictions and that leadership understands which financial resources are available for general ministry operations.
When a church maintains clear records and honors the intentions of its donors, it demonstrates something far more important than accounting compliance. It demonstrates faithful stewardship of the resources entrusted to its care.
Petty Cash and Other Cash Funds
Although many churches have moved toward electronic payments, some still maintain petty cash or other cash funds for small purchases, ministry activities, or special events.
Regardless of the amount involved, these resources require appropriate oversight and documentation.
If your church maintains petty cash, I recommend establishing clear procedures that include:
A documented petty cash balance and an individual responsible for safeguarding the funds
Receipts or other supporting documentation for every disbursement
Regular reconciliations comparing cash on hand and documented expenditures to the authorized fund balance
Written guidelines defining allowable petty cash expenses
Approval requirements for replenishing petty cash
Secure storage and restricted access to physical cash
Petty cash should be reconciled regularly, preferably monthly, and any discrepancies should be investigated promptly.
Ministry-Specific Cash and Bank Accounts
Churches may also maintain separate bank accounts or cash collections for benevolence programs, building projects, missions, or other ministry activities.
These resources should be subject to the same financial accountability standards as the church's primary operating accounts.
I encourage church leaders to ensure that:
All church-controlled bank accounts are included in the accounting records
Bank accounts are reconciled monthly
Cash collections from ministry activities are counted, documented, and deposited promptly
Disbursements follow established approval procedures
Donor restrictions are properly tracked and honored
Financial reports provide leadership with visibility into all church-controlled resources
A separate bank account does not automatically mean the funds are donor-restricted. The classification depends on the source of the funds and any applicable donor-imposed restrictions.
I also recommend periodically reviewing whether separate bank accounts are necessary. In many cases, appropriate fund tracking within the accounting system can provide the information leadership needs without creating additional banking complexity.
Every financial resource entrusted to your church deserves appropriate oversight, whether it's a small petty cash balance or a significant ministry fund.
Establishing consistent procedures helps protect those resources and supports a culture of transparency, accountability, and faithful stewardship.
Church Audit Committee Responsibilities Before the Audit
A church's governing board, finance committee, or audit committee plays an essential role in maintaining financial accountability. While staff members, bookkeepers, and outside financial professionals may handle day-to-day financial responsibilities, ultimate oversight remains with church leadership.
I encourage church leaders to view the audit process as an opportunity to strengthen financial governance rather than simply fulfill an annual requirement.
Whether your church has a formal audit committee or assigns these responsibilities to its governing board, clearly defined roles and expectations are essential.
Before the Audit Begins
Preparation should begin well before the auditor arrives. Your church's leadership should:
Meet with the independent auditor to confirm the engagement's scope, timeline, and expectations.
Review and approve the audit engagement letter through the appropriate governing authority.
Ensure the auditor has access to the financial records, supporting documentation, and personnel needed for the engagement.
Review significant financial transactions, unusual activities, and changes in accounting practices that may require additional attention.
Confirm that financial statements, reconciliations, and supporting schedules are being prepared.
Discuss any known financial concerns, internal control weaknesses, or unresolved accounting issues with the auditor.
I also recommend that church leadership establish a clear process for communicating with the auditor. This helps prevent confusion and ensures important questions receive timely responses.
During the Audit
Once the audit begins, the committee's responsibility shifts toward supporting the process while maintaining appropriate independence.
Key responsibilities include:
Designating a primary contact, such as the finance director, treasurer, or another authorized individual, to coordinate document requests.
Ensuring staff members and volunteers respond promptly and accurately to auditor inquiries.
Making financial policies, board minutes, and supporting documentation available when requested.
Addressing questions about significant transactions, restricted contributions, and financial procedures.
Monitoring the audit's progress without interfering with the auditor's independent judgment.
Providing opportunities for the auditor to communicate directly with the governing board or audit committee when appropriate.
An independent audit is most valuable when church leadership supports a transparent process and allows the auditor to exercise professional judgment without interference.
After the Audit
The completion of an audit should not mark the end of the church's financial oversight responsibilities.
I encourage church leadership to carefully review the audit results and use the findings to strengthen financial operations.
Important follow-up responsibilities include:
Reviewing the audited financial statements and the auditor's report.
Discussing any internal control deficiencies or recommendations communicated by the auditor.
Developing a written corrective action plan for identified weaknesses.
Assigning responsibility and reasonable deadlines for implementing improvements.
Monitoring progress and confirming that corrective actions have been completed.
Communicating relevant financial information to the congregation in accordance with church governance policies.
When appropriate, I also recommend that the audit committee or governing board meet privately with the independent auditor. This provides an opportunity to discuss sensitive concerns, management cooperation, and financial reporting matters.
Financial Oversight Is an Ongoing Responsibility
One principle I consistently emphasize is that financial accountability cannot be delegated away.
Your church may employ a finance director, engage an outside bookkeeping firm, or work with a fractional CFO. These professionals can provide valuable financial expertise, reporting, and guidance, but the governing board remains responsible for exercising appropriate oversight.
Strong financial governance requires more than reviewing an annual audit report. It involves understanding financial statements, asking meaningful questions, monitoring financial risks, and ensuring that established policies are followed.
When church leadership approaches financial oversight with consistency and intentionality, the benefits extend well beyond audit readiness.
It creates a stronger foundation for responsible decision-making, greater financial transparency, and faithful stewardship of the resources entrusted to the ministry.
A Practical Timeline for Church Financial Audit Preparation
Preparing for a financial audit should not be a last-minute project. The more organized your church's financial records and internal procedures are throughout the year, the easier it becomes to prepare for an independent audit.
I recommend developing an audit preparation calendar that identifies important deadlines, assigns responsibilities, and allows sufficient time to resolve outstanding issues.
The following timeline provides a practical starting point. Your church may need to adjust it based on organizational size, financial complexity, and the auditor's requirements.
Three to Four Months Before the Audit
Begin by evaluating your church's overall financial readiness.
Meet with your independent auditor to confirm the anticipated scope, timeline, and document requirements.
Review your church's financial statements and identify unusual balances or significant changes.
Evaluate existing internal controls and financial procedures.
Identify missing documentation, unreconciled accounts, or other accounting concerns.
Review donor-restricted and board-designated fund balances.
Assign responsibility for preparing financial schedules and supporting documentation.
Establish a shared audit preparation checklist with deadlines.
I encourage church leaders to address significant accounting concerns early. Waiting until the auditor begins fieldwork can create unnecessary delays and additional costs.
Two Months Before the Audit
Focus on organizing financial records and preparing supporting schedules.
Gather contribution records, offering count sheets, and donation reports.
Organize vendor invoices, payment records, and expense approvals.
Compile payroll records, tax filings, and compensation documentation.
Review bank reconciliations and investigate outstanding discrepancies.
Prepare schedules supporting major balance sheet accounts.
Review restricted contributions and verify that expenditures comply with donor restrictions.
Organize board minutes, financial policies, and significant contracts.
If your church operates multiple ministries or locations, confirm that financial information from each is accurately reflected in the accounting records.
One Month Before the Audit
At this stage, your focus should shift toward verifying the completeness and accuracy of your financial information.
Review the auditor's preliminary document request list.
Confirm that required financial records and schedules are complete.
Investigate unusual account balances and unresolved transactions.
Verify that significant year-end adjustments have been properly recorded.
Review outstanding receivables, payables, and other liabilities.
Confirm that supporting documentation is organized and accessible.
Brief staff members and volunteers who may assist with the audit.
I also recommend reviewing your church’s financial statements with the appropriate leadership team before the audit begins. This gives leadership an opportunity to identify questions or concerns that deserve attention.
Two Weeks Before the Audit
Conduct a final readiness review.
Confirm that bank reconciliations are complete through the applicable reporting period.
Verify that the general ledger agrees with supporting schedules.
Review restricted and designated fund balances for accuracy.
Confirm that payroll records and applicable tax filings are available.
Ensure requested documentation has been provided through the auditor's approved process.
Review unresolved questions and assign responsibility for obtaining answers.
Any remaining discrepancies should be documented and communicated appropriately rather than overlooked.
One Week Before the Audit
Finalize the practical arrangements for the engagement.
Confirm the audit schedule and primary contacts.
Ensure the auditor has appropriate access to requested financial information.
Verify that staff members understand their responsibilities.
Prepare a list of significant transactions, organizational changes, or accounting concerns for discussion.
Confirm that leadership is available to respond to questions when needed.
Review procedures for securely sharing sensitive financial and donor information.
Make Audit Readiness a Year-Round Practice
Although this timeline can help your church prepare for an upcoming audit, I believe the most effective approach is to build audit readiness into your regular financial operations.
Monthly reconciliations, timely financial reporting, consistent documentation, and periodic internal control reviews should be part of your church's ongoing financial management practices.
When these responsibilities are handled consistently, audit preparation becomes less about correcting past problems and more about demonstrating the financial accountability your church already practices.
The goal is not simply to be ready for an audit. It's to maintain financial systems that support faithful stewardship throughout the year.
Common Audit Findings and How to Prevent Them
Even churches with dedicated staff and experienced leadership can encounter financial reporting challenges. As ministries grow, financial processes often become more complex, and procedures that worked well in the past may no longer provide adequate oversight.
I encourage church leaders to view audit findings as opportunities for improvement rather than simply problems to correct.
Although every church's circumstances are different, several financial control weaknesses deserve particular attention during audit preparation.
Incomplete or Missing Financial Documentation
When transactions lack appropriate supporting documentation, it becomes more difficult to verify that funds were spent properly and recorded accurately.
How to prevent it:
Establish consistent procedures for maintaining invoices, receipts, and payment approvals.
Require supporting documentation before processing expenditures.
Use a centralized filing system that authorized personnel can access.
Review transactions regularly to identify missing documentation.
Incomplete or Delayed Bank Reconciliations
Bank reconciliations help identify recording errors, unauthorized transactions, and discrepancies between accounting records and bank activity.
When reconciliations are delayed or incomplete, financial reporting becomes less reliable.
How to prevent it:
Complete bank reconciliations monthly.
Investigate outstanding reconciling items promptly.
Require an independent review of completed reconciliations whenever practical.
Document corrections and maintain supporting records.
Inadequate Segregation of Financial Duties
When one individual controls too many aspects of the financial process, the risk of undetected errors or inappropriate activity increases.
How to prevent it:
Separate transaction authorization, recording, payment processing, and reconciliation responsibilities whenever possible.
Require independent review of significant transactions.
Establish additional oversight when staffing limitations prevent complete segregation of duties.
Review financial system access and permissions periodically.
Incomplete Payroll Documentation
Church payroll requires careful attention to compensation approvals, employee classifications, ministerial housing allowances, and applicable tax reporting requirements.
Incomplete records or inconsistent procedures can create financial reporting and compliance concerns.
For additional guidance on church-specific tax responsibilities, I encourage church leaders to review the IRS resources for churches and religious organizations.
How to prevent it:
Maintain complete payroll records for current and former employees.
Document compensation approvals and payroll changes.
Review ministerial compensation arrangements and housing allowance designations.
Reconcile payroll liabilities regularly.
Consult qualified tax professionals when addressing church-specific payroll requirements.
Inadequate Tracking of Restricted Funds
Churches have a responsibility to honor donor-imposed restrictions and accurately report the resources available for ministry operations.
When restricted contributions are not properly tracked, leadership may misunderstand how much funding is available for general expenses.
How to prevent it:
Maintain documentation of donor-imposed restrictions.
Track restricted contributions and related expenditures accurately.
Review restricted fund balances regularly.
Distinguish donor-restricted resources from board-designated funds.
Provide leadership with financial reports that clearly communicate fund availability.
Missing or Outdated Financial Policies
Written financial policies establish expectations for how church resources should be managed.
Without clear procedures, staff members and volunteers may rely on informal practices that create inconsistent financial oversight.
How to prevent it:
Establish written expense approval and purchasing policies.
Document procedures for handling offerings and other contributions.
Define authorization requirements for financial transactions.
Maintain appropriate payroll and reimbursement policies.
Review and update financial policies as church operations change.
Lack of Consistent Financial Review
Even when financial records are accurate, leadership needs timely financial information and meaningful oversight.
A church may have appropriate accounting procedures in place but still lack a consistent process for reviewing financial performance and identifying emerging concerns.
How to prevent it:
Provide regular financial reports to the governing board or finance committee.
Review actual financial results against the approved budget.
Monitor cash flow, financial obligations, and available reserves.
Investigate significant budget variances and unusual transactions.
Document leadership's review of financial information and follow-up actions.
Turning Audit Findings Into Meaningful Improvements
Not every issue identified during an audit represents fraud or a significant financial reporting problem. However, findings and recommendations should be evaluated carefully and addressed according to their nature and significance.
I recommend that church leadership establish a corrective action plan identifying the issue, the steps needed to address it, the individual responsible, and a reasonable completion date.
The most important step is following through.
Strong financial stewardship is not measured by whether a church has ever experienced an accounting problem. It is demonstrated through leadership's commitment to accountability, transparency, and continuous improvement.
When churches approach financial oversight with this mindset, they build stronger systems that support their mission and protect the trust placed in their leadership.
Conclusion: Building a Culture of Financial Stewardship
Preparing for a church financial audit is about more than organizing records, reconciling accounts, and satisfying reporting requirements. It's an opportunity to strengthen the financial foundation that supports your church's mission.
Throughout this checklist, we've explored the importance of accurate financial records, effective internal controls, responsible fund management, and consistent leadership oversight. These practices should not begin and end with an annual audit. They should be part of how your church manages its financial responsibilities throughout the year.
I believe financial stewardship is an important part of ministry leadership. When churches maintain transparent financial practices and make informed financial decisions, they are better positioned to serve their congregations, support their ministries, and plan confidently for the future.
Financial clarity gives church leaders the confidence to make decisions that support their mission.
Strong financial systems are an important part of faithful financial stewardship. When churches approach financial oversight with consistency and intentionality, they create a stronger foundation for ministry growth and long-term sustainability.
At Laurel Spring, this belief is central to my approach to financial advisory services. Through the Kingdom Stewardship Advisory™ program, I help churches and mission-driven nonprofits strengthen financial oversight, improve reporting, and develop sustainable financial practices.
Whether your church is preparing for its first independent audit, addressing recommendations from a previous engagement, or seeking greater confidence in its financial operations, the goal remains the same: building financial systems that support faithful stewardship and long-term ministry sustainability.
If your church leadership is ready to move beyond simply maintaining financial records and begin developing a more proactive approach to financial stewardship, I invite you to explore the Kingdom Stewardship Advisory™ program.
Because every dollar entrusted to your church represents an opportunity to advance its mission and make a lasting impact.
Frequently Asked Questions
What documents should a church prepare for an audit?
Churches should begin by gathering their financial statements, general ledger, chart of accounts, bank statements, and monthly bank reconciliations.
Additional documentation typically includes:
Offering count sheets, donation records, and contribution reports
Vendor invoices, expense receipts, and payment approvals
Payroll registers, Forms W-2 and W-3, and applicable Forms 1099 - Federal and state payroll tax filings, as applicable
Donor-restricted contribution records and fund balance reports - Board meeting minutes, financial policies, and significant contracts
Supporting schedules for assets, liabilities, and other financial statement balances.
I recommend organizing these records throughout the year rather than waiting until an audit is scheduled. Your independent auditor will provide a specific document request list based on your church's financial operations and the scope of the engagement.
What is the difference between a church audit and a financial review?
A financial review and an independent audit provide different levels of assurance regarding a church's financial statements. A financial review primarily involves inquiries and analytical procedures. It provides limited assurance that the CPA is not aware of material modifications needed for the financial statements to conform to the applicable financial reporting framework. An independent financial audit involves more extensive procedures and provides reasonable assurance that the financial statements are free from material misstatement. The auditor expresses an opinion on whether the financial statements are fairly presented, in all material respects, under the applicable reporting framework. The appropriate engagement depends on your church's financial complexity, governing requirements, funding agreements, and leadership's accountability needs.
How can a church prepare its financial records for an audit?
I recommend beginning with a thorough review of your church's accounting records and supporting documentation. Make sure bank reconciliations are current, significant account balances agree with supporting schedules, and outstanding discrepancies have been investigated. Review donor-restricted contributions, payroll records, accounts payable, and other significant financial transactions for accuracy and completeness. Your church should also organize its financial policies, board minutes, and supporting documentation so the auditor can access requested information efficiently. Developing a written audit preparation checklist, assigning responsibilities, and establishing deadlines can help your church approach the engagement with greater confidence.
What internal controls should a church review before an audit?
Church leaders should evaluate the financial procedures designed to protect church resources, prevent unauthorized transactions, and support accurate financial reporting.
Important internal controls include:
Segregation of duties for receiving, recording, approving, and reconciling transactions
Independent review of monthly bank reconciliations
Documented expense approvals and spending limits
Appropriate controls over offerings and cash contributions
Accurate tracking of donor-restricted funds
Restricted access to banking and accounting systems
Regular financial reporting and governing board oversight
When staffing limitations make complete segregation of duties impractical, I recommend implementing additional independent review procedures.
These controls should be evaluated regularly, not simply when an audit is approaching. Consistent financial oversight helps church leadership maintain accountability and make informed decisions throughout the year.
