Are You Handling Donations Correctly?

Written by Kristen Calicott on Nov 13, 2019 in Church Management

After a tragic incident at a church in South Carolina in 2015, the community rallied around the church in many ways, showing great unity of spirit. 

One of the ways the church was supported through this season was in the form of financial giving. To date, donations totaling over $3 million were collected by the church from individuals worldwide in support of the victims, survivors, and their families. 

Recently, though, the church is being accused of mishandling of the donations. Today’s blog will give you a high-level overview of some steps you can take to protect your ministry’s stewardship responsibilities. 

Handling donations

It’s easy to see how having an unusual influx of finances can cause strain on the systems of an organization. Keeping track of donations for your organization can be a daunting task, but at the end of the day, it is one of the most important things you can do for your ministry. Proper stewardship takes time and effort but using counting sheets for regular offerings and donation tracking software, in general, lightens the burden tremendously. 

To help with understanding how to keep track of donations correctly, let’s consider the differences between restricted, unrestricted, and designated offerings (or donations). Understanding the difference between these three can change how you record the donation and how it will affect the donor.

    • Restricted donations. These are non-tax-deductible donations given by an individual or organization with specific intentions regarding how the money should be used. This money is given with expressed instructions to return it to the donor if it is not used for the intended purpose or to be released from restriction. In other words, the donation cannot be used for anything except what the donor intends for in this instance, but they can release it into a designated donation instead of getting a refund.
    • Designated donations. These are tax-deductible offerings given by an individual or organization with the sentiment of what they would like the donation to be used on, but ultimately the decision rests with the organization.
    • Unrestricted donations. These are tax-deductible offerings given by an individual or organization with no stipulations on where and how the money should be spent. 

Below is a sample language you can use on your church envelopes and website. If they contain specific language (see example below), it makes the designation a suggestion and allows the church to retain control, thus making the donor's contribution tax-deductible. (If you're not sure if your church or ministry is a qualified 501(c)(3) organization, please call our specialists at 877-494-4655.)

“This is a qualified 501(c)(3) organization. All tithes, offerings, or donations of any kind are under section 170(c)(2) of the IRC. Using this envelope constitutes your agreement to relinquish control in accordance with IRS regulation.”

The Charitable Contributions Publication 1771 outlines the responsibilities of the donor and the receiving organization for different donation types. Using a donation tracking program can help manage this information, and having a process for handling all donations cuts down on the confusion. Having a secure system with a backup that can be accessed off-site is extremely useful, as well. By having a cloud-based software program, you can easily access donor information without having to be in your ministry’s physical building.

If you do not currently use a program, we recommend using our donor management database called Kingdom Steward. This product can be purchased a la carte or is included free with our Bookkeeping Service. Most management programs, including Kingdom Steward, can generate giving statements for tax purposes, as well.

When counting donations, it is important to have multiple, trustworthy people to get an accurate count and log for each donation individually. Ensure that donations are being counted in a secure, locked room, and have a standard form to be filled out on the same day the donations are received, not later. Deposits to the bank should also be made the same day, with the deposit slip or envelope signed and supervised by the treasurer. This prevents any questions from arising regarding the exact amount and any designations included on checks.

You can learn more about how to properly handle donations by reading our blog, “How to Handle Designated Donations Given to Your Ministry.”

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Are you prepared?

Having a process in place for the proper handling of donations can prevent the headaches that this church is currently experiencing. By having such a proper system in place, you create accountability between the church, staff and volunteers, and donors. A church that keeps good records and is transparent with its donors avoids the risk of questioning over whether or not the church has received donations, easily answering the question, “Where has the money gone?”

Part of the call of any leadership is to provide stewardship over what is given to your organization through God’s grace and benevolence. A good system for handing the finances in a compliant way will allow you to be prepared for the days to comes. 

At StartCHURCH, we want you to lead your ministry with confidence. If you have any questions about properly handling donations, our donation-tracking software, or our bookkeeping service, please call our specialists at 877-494-4655, or click the link below to schedule a call. 

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Raul Rivera

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