The Financial Audit: Building Trust with Congregants
Many years ago, my dad was the director of a JCC summer camp in Maine. Perhaps it was my high school economics class that prompted me to ask him one evening at dinner if the camp was a million dollar business. He paused for a moment before responding, and then said “not quite – more like $250,000”. Keep in mind that 8 weeks at camp in the 1970s was $750. And in those days, that $750 certainly seemed like a lot of money. $250,000 – approximately $2.5 million in today’s dollars – was astronomical.
Today, the costs to operate a synagogue are by no means small change. Like my summer camp, there are staff salaries (with benefits) as well as utility bills to keep the synagogue going for religious school, Shabbat worship, and all of the other programming that we often take for granted. The operating budget of a 100 family synagogue could be more than $200,000. That of a 1000 family synagogue could be $4 million or more! Synagogues should adhere to the same business practices as not-for-profit organizations.
As a religious institution, synagogues are exempt from filing a tax return with the IRS (or the Canada Revenue Agency). Back in 2008, The IRS changed requirements for 990 filings, with a big emphasis on compliance with rules governing exempt organizations and establishing and following sound policies and best practices demonstrated in the many new questions the 990 form asks. Most not-for-profits have to engage a CPA for the 990 filing. And in most states, in order to receive designation as a charity, completion of an audit is required as well.
In the eyes of state and federal law, completing an audit for synagogues and all religious institutions is optional.
With the goal of financial transparency, having a CPA complete a periodic audit can only be beneficial to a synagogue. Congregants want to know that the dues they are paying are going towards the purposes to which they were intended. Publishing an independent audit report on the synagogue’s website or providing the report to those who request it are examples of transparent practices that congregants and the public have come to expect from charitable organizations.
An audit is the highest level of financial assurance and lends credibility to the synagogue’s board members as to their fiduciary stewardship. As some of us know from our own work, audits, and the involvement of a CPA, also provide information as to areas of financial controls requiring further attention.
And just because a synagogue does not have to complete an audit, or file a 990, does not preclude the IRS from conducting its own audit of a synagogue. To me, being transparent with congregants trumps everything.
My CPA friends suggest that a synagogue complete an outside audit, if not annually, then every 3 years. To save the expense, a CPA in your congregation might exchange pro bono services with a CPA from a neighboring synagogue or church.
If the audit is not completed annually, asking the CPA to complete a review or a compilation is also something to consider. Of course allocating $5,000 (this is a guestimate-the larger the budget and program, the higher the cost) in your synagogue’s budget for an annual audit would be most beneficial in the long run.