Church leaders often use "the accountant" for whoever deals with the money, and then discover that the person keeping the books cannot answer a tax question, or that the CPA who signs a report does not want to enter deposits. These are different jobs with different credentials. Knowing which is which saves a church from paying one professional to do another's work, and from asking someone a question they are not allowed to answer.
The bookkeeper: records, reconciles, reports
A bookkeeper keeps the church's financial records week to week. That means recording deposits and payments, coding each to the right account and fund, reconciling bank and card accounts, running or recording payroll, keeping giving records in agreement with deposits, and producing monthly reports for leadership. The output is a set of books that is current, reconciled and organized.
Bookkeeping is not a licensed profession in the way public accounting is. That makes experience and references the thing to check. A bookkeeper does not give tax advice, does not express an opinion on the financial statements, and does not give legal advice.
The CPA: tax, and audits and reviews
A certified public accountant is licensed by a state board of accountancy. Churches generally go to a CPA for two kinds of work.
Tax. Churches are generally excepted from filing the annual Form 990 information return, but that does not end the tax questions. Payroll returns still apply to a church with employees, ministers are treated differently for several payroll purposes, and a church with income from an unrelated trade or business may have to file Form 990-T. Those are questions for a CPA or other tax adviser.
Financial statement engagements. The AICPA describes three services a CPA may perform on financial statements:
- Compilation. The CPA presents the statements in proper form and provides no assurance. The CPA does not have to be independent, but must say so in the report if not.
- Review. An independent CPA performs inquiry and analytical procedures and obtains limited assurance that the statements are free of material misstatement.
- Audit. An independent CPA also gains an understanding of internal controls, assesses the risk of misstatement including fraud, and verifies balances and transactions. The CPA obtains high, but not absolute, assurance and issues an opinion.
For a financial statement audit, the "auditor" is an independent CPA rather than a separate profession. Audits and reviews are what the profession calls attest work, and they require independence from the organization being examined. Getting church books ready for an audit or review explains the levels in more detail.
The enrolled agent: tax representation
An enrolled agent holds a credential awarded by the IRS, not a state license. The IRS describes an enrolled agent as someone who has earned the privilege of representing taxpayers before it, by passing a three-part examination or through experience as a former IRS employee. An enrolled agent prepares returns and handles IRS correspondence and disputes. The credential covers tax, not audits or reviews of financial statements.
The attorney: legal questions
Some church money questions are legal questions: what the bylaws require, how to handle a restricted gift whose purpose can no longer be carried out, employment matters, property, contracts, and how the church is organized. Those belong with an attorney, preferably one who works with churches or nonprofits.
Which question goes to whom
| The question | Who to ask |
|---|---|
| What is the balance in the building fund, and does it tie to the bank? | Bookkeeper |
| Why are we over budget on facilities this quarter? | Bookkeeper and treasurer |
| How much housing allowance should the board designate, and how is the pastor taxed? | CPA or tax adviser |
| Is this worker an employee or a contractor? | CPA, tax adviser or attorney |
| Is the income from renting our parking lot taxable? | CPA or tax adviser |
| Our lender wants reviewed financial statements. | An independent CPA |
| We received an IRS notice. | CPA, enrolled agent or attorney |
| Can we redirect a restricted gift? | Attorney |
Why a church often needs more than one
The work is different in kind and in frequency. Bookkeeping happens every week. Tax questions come up a few times a year. An audit or review, if the church has one, happens once a year or less. One professional rarely does all of it, and there is a structural reason as well: a review or audit requires an independent CPA, and keeping a client's books can affect that independence. If the church wants both from one firm, ask the CPA how they handle it.
The arrangement also works better in sequence. A CPA working from reconciled, organized books spends time on the questions that need a CPA, not on sorting out which deposits belong to which fund.
When a small church needs only some of this
A church with no employees, no unrelated income and no outside party asking for statements may never need an audit and may need a CPA only occasionally. It still needs accurate books, and those can be kept by a capable volunteer. See volunteer treasurer, staff bookkeeper or outside bookkeeper. Add professionals when a specific need appears, not in advance.
Where this firm sits
Danielson Bookkeeping & Consulting keeps books and helps with QuickBooks. Carey Danielson is not a CPA, an enrolled agent or an attorney, and the firm does not prepare tax returns, give tax or legal advice, or perform audits or reviews. It keeps the records and works with the CPA or adviser the church chooses. The boundaries are set out on the how we work page. If you are ready to talk with bookkeepers, start with questions to ask before you hire one.
