How small churches can master credit cards
Credit card misuse can lead to tax-related nightmares or even fraud
By Erin Peterson | Published: November 8, 2013
For the leaders of small churches, there are plenty of things demanding their attention, from preparing sermons and building a congregation to juggling a full slate of church events. Using credit cards properly? It's probably not something that cracks the top 10 on their priority list -- or even the top 100. "Credit card usage can fall between the cracks," says Rev. John F. Harrison, a financial planner and author of "Making Mammon Serve You: A Biblical Manual for Money Mastery." "It's not where the focus or the passion is."
Unfortunately, ignorance isn't bliss: Credit card misuse can lead to a wide range of problems, from documentation headaches to tax-related nightmares to fraud. However, with the right systems in place, small churches can ensure that they're avoiding common pitfalls and making the most of their money.
The problem: Personal and church expenses get intermingled on a credit card.
The details: Churches that issue credit cards to individuals within the organization may find that users are cavalier about throwing in a few personal items when they make purchases -- even if they intend to reimburse the church later.
The solution: Make it clear from the outset that personal expenses never go on a church credit card, says Matt Branaugh, director of editorial for Christianity Today's church law and tax group. It has nothing to do with trust, and everything to do with the unforgiving nature of the Internal Revenue Service. "From the IRS's perspective, it's far better to have a church card that's used only for [the church's] business and no personal purchases," he says. "The two really shouldn't intersect; that may mean people need to make two transactions at the checkout."
The problem: Minimal oversight leads to unintentional (or purposeful) misuse.
The details: Most churches have learned to treat the Sunday collection plate with Fort-Knox-like security practices. But outflowing dollars, especially in small churches, often don't get the same consideration.
The solution: Don't hand off responsibility to a single person, says Mike Kocolowski, chief operating officer at Christian Financial Resources in Lake Mary, Fla. "You want a couple people reviewing statements to ensure that purchases are legitimate expenses, and you want to make sure that the cards don't just get used and then forgotten."
The problem: The church credit card terms are tied to the personal credit of the church's leader.
The details: For many small churches that start with little more than an enthusiastic founder leading Bible study from a living room, initial expenses get charged to a personal card. But as the church grows, there's no reason a pastor's finances should influence the church's or vice versa.
The solution: By establishing accounts in the church's name, a church leader can slowly begin to separate his or her credit from the organization's. Over time, the church can receive credit based on this separate financial history.
The problem: Credit becomes a crutch.
The details: For small, cash-strapped churches, convenience can be expensive, says Harrison. "Even if your intent is to use the card only as a convenience, fluctuations in cash flow -- maybe a few families who donate heavily to the church are on vacation for the month of August and the checks aren't coming in -- can mean that suddenly you're carrying a balance," says Harrison. "Things can get out of hand without anyone meaning for it to happen."
The solution: Harrison says that a debit card may be a good choice for churches that simply don't want the temptation of carrying a balance.
The problem: Individuals pay for church expenses and get reimbursed, preventing churches from benefiting from their tax-exempt status.
The details: Some churches sidestep the complexities of credit cards by having individuals buy items for the church with their personal cards and then reimbursing them. But that can end up costing churches thousands of extra dollars because individuals making purchases can't take advantage of the savings from a church's tax-exempt status.
The solution: While churches may be willing to forgo a few dollars here and there for smaller purchases, Kocolowski says having at least one card has clear benefits. "Having a card for some of those big purchases can be beneficial," he says. "At some hotels, for example, they won't take off the sales tax on a purchase unless you've got a card with the name of the ministry on it."
[M]aybe a few families who donate heavily to the church are on vacation for the month of August, and the checks aren't coming in ... suddenly you're carrying a balance. Things can get out of hand without anyone meaning for it to happen.
Rev. John F. Harrison
Financial planner, author
The problem: The church has several authorized cardholders who have differing views on using the card responsibly.
The details: One man's necessity may be another's frivolity -- so getting everyone on the same page is critical.
The solution: Requiring all cardholders to read and sign a simple agreement on purchases and processes can help, says Verne Hargrave, the church and ministry partner of PSK LLP, a CPA firm in Arlington, Texas. That agreement can include basics such as how much can be spent, where it can be spent and what kind of purchases are acceptable.
"With churches, you have to be very careful because you not only have to limit the amount [individuals can spend], but you need to limit where those dollars can be spent," he says. "At a Baptist church, you probably wouldn't want somebody buying things on their card at a liquor store. It's not going to cause a loss of money, it's just going to cause a lot of embarrassment," he says.
Harrison, meanwhile, adds that including a section on the appropriate purchasing processes is also critical. He encourages church leaders to include rules requiring prior approval and receipts, and for receipts to be delivered within a specific number of days. While a specific written policy can't prevent all problems, it can help set the right tone, says Harrison. "These policies can help the church feel like it's dotted its I's and crossed its T's -- that it's covered itself in terms of compliance with the legal authorities," he says.
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