You need a church reimbursement system to create a clear record or paper trail of all the expenses for your church plant. If you don’t, your church could lose its nonprofit status.
Your church is a nonprofit, which means that all of its cash & assets need to be used for nonprofit purposes. If you don’t have receipts to prove you spent money on nonprofit activities, the IRS could revoke your 501c3 nonprofit status. And/or they could count all of those undocumented reimbursements as taxable income to the employee. I’m not sure which is worse.
And every State expects its corporations to have a Treasurer/CFO who is charged with keeping good track of the money. If you have sloppy books, they could bring a lawsuit against your church and/or suspend your corporation (which also nixes your 501c3).
Enforce a Process
It’s a small hassle that is totally worth the trouble. There are 3 practical ways to accomplish getting all the receipts turned in. Choose one:
1. Chase Everyone Down
Spend money right out of the church checking account with a paper check or debit card. Keep the receipts and maybe make a note on each one about the type of expense it was (outreach, worship, etc.). Then when you’re balancing the bank statement every month and/or preparing the monthly report that goes to your parent ministry, make sure you have all of the receipts in a pile or in a file. If even one is missing, it’s time to scramble and find it.
Ah, time well spent…
The same problem happens when a church gets a credit card for employees or key volunteer leaders: there is no urgency for getting receipts turned in. Worse, now they’re borrowing money on the church’s behalf and creating debt.
I strongly discourage both of these ‘chase everyone down’ methods.
2. Set Up Petty Cash
Advance a small amount from the church checking account into a petty cash fund to have on hand. This can either be actual cash in a lockbox (old school) or a prepaid credit card. The petty cash gets spent down and only replenished from the church checking account when receipts are turned in.
This creates some urgency for turning in receipts, but doesn’t have a strong incentive and will probably result in some amount of ‘chase everyone down’.
3. Set Up Church Reimbursement System
Have all church staff and volunteers make church purchases on their own and then turn in the receipts for reimbursement from the church. This creates significant urgency – nobody’s not going to turn in a receipt because they want their money back. And if they don’t, then you don’t have a problem because the church didn’t technically spend that money. I think it’s the best way to go.
Of course this puts the burden of fronting the money on the individual and their family. That doesn’t work for every church planter or volunteer who is just trying to help by picking something up for the church. If it’s enough of a burden, then going with a prepaid petty cash card is a decent alternative.
Keeping all the receipts is a standard business & ministry practice. Setting up a church reimbursement system now will save you from trouble later.