Are You Misappropriating Church Funds?
By Raul Rivera
Often times, churches and ministries receive designated offerings for building campaigns, outreach programs or benevolence.
You may be surprised to know that a large number of churches have trouble properly handling designated offerings. The main reason for this problem is that not many know what the proper procedure is for handling designated funds. So, can a church get in trouble? The answer is yes, if the church mishandles a certain type of designated offering. Let me explain.
There are two reasons why a person would give a designated offering. It is their reason for giving the offering that determines how the church is supposed to handle it. Under Section 170, if a person wants to give an offering to the church and get a tax deduction, the giver must relinquish control and allow the church to use it however the church best decides. Let me give you an example.
Jim Steward writes a check for $1,000.00 and designates on the memo and on the church envelope that he wishes for it to be used to buy the church a new computer. After receiving the offering, Pastor Larry notices that the church has a bigger need. The rent was due 2 days ago and the $1,000.00 was exactly what they needed to pay it. He instructs his treasurer to write a church check for the rent. In this example Pastor Larry did nothing wrong. He acted in the best interest of the church. The giver gets a tax deduction because he did not apply any conditions to his contribution. Under current IRS regulation, the church has the right to use the money any way it sees fit so long as it is an honest effort to further the purposes of the church, and paying the rent is pretty important to the well being of the church.
That seems simple enough. However, there are times when a designation must be used for the purpose for which it was given or the church could face some very serious consequences such as loss of tax exempt status and maybe even criminal charges against those responsible for not using the designated offerings properly. Let me give you an example.
First Church decides to announce that they are going to raise money for an orphanage in South America which is in need of $9,000.00. Over the next two months they announce it from the pulpit and special offerings are taken up for for the orphanage every Sunday. At the end of the two months the church has collected a total of $7,800.00. Because the church was already suffering financially, the pastor directs the treasurer to send $6,000.00 to the orphanage and to apply the remaining $1,800.00 to desperately needed pastoral salaries. This is a classic case of misuse of designated offerings because the church announced to the congregation from the pulpit that the special offerings they were collecting were for a specific purpose. The use of these offerings is restricted because they were specifically collected for one reason. The church does not have the liberty to use the funds as it wishes. One amazing thing I have learned about the way many churches have used restricted offerings is that budget shortfalls have caused many a church to improperly use restricted funds to cover other bills. This type of violation also happens when love offerings are taken up for guest speakers. The church announces that they want to take up a love offering for the guest speaker but do not announce that they will only give the guest speaker up to a certain amount. After the love offering is taken up, the church gives only a certain portion of it to the guest. Ouch! The congregation believes that 100% of the offering was given to the guest speaker. Like the misuse of the funds given to the orphanage, this, too, is a crime if a pastor tells the congregation that their love offering will be given to the guest speaker, but then withholds a certain portion for the church. Not to mention that it undermines the congregation's ability to trust their leadership when it comes to handling finances.