Tax-exempt status is a form of governmental recognition of the work that nonprofit organizations, including religious institutions, do every day. It carries certain obligations, however, and for ministries the obligation can include preserving a perfectly clean image.
In the “Church and Nonprofit Tax & Financial Guide,” Dan Busby, Michael Martin and John Van Drunen offer a checklist of Integrity Points aimed at ensuring that religious entities justify their tax exemption in every possible way. The Integrity Points are:
* Setting the biblical tone for financial accountability at the top. The book offers several pages of biblical references to keeping clean hands regarding money.
* The importance of an independent board. That means independent board members, not beholden to anyone.
* Accountability with givers rising with gift restrictions. The receiving entity accepts the responsibility of expending funds within the limitations of the giver’s restrictions.
* The importance of the work of an independent CPA and/or internal audits. Annual revenue of $500,000 to $1 million is often considered an appropriate threshold to obtain a CPA.
* Compensation-setting and related-party transactions. Appropriate policies should require board members without a conflict of interest to set compensation of top leaders and approve related-party transactions only after considering reliable comparability information and documenting the board’s review and approval in writing.