Church Audit Checklist: Audit, Review & Agreed-Upon Procedures
To prepare for a church audit, review, or agreed-upon procedures engagement, gather reconciled bank records, the general ledger, board minutes, and budget reports; document offering count procedures; confirm the pastor’s housing allowance was designated in advance under IRC §107; and reconcile every designated gift fund. Strong controls and complete records shorten fieldwork.
Which engagement does my church need: audit, review, or agreed-upon procedures?
Start with whoever is asking. A denomination, lender, or major donor that wants an opinion needs an audit. A review gives limited assurance for a smaller budget. Agreed-upon procedures fit when the goal is testing specific areas, such as offering counts or clergy pay, rather than the full financial statements.
- Housing allowance (IRC §107)
- A housing allowance is the portion of a minister’s pay that the church designates in advance, by official action, for housing. It is excluded from federal income tax up to the actual housing cost and fair rental value, but remains subject to self-employment tax.
Audit vs. review vs. agreed-upon procedures for churches
All three engagements are performed by an independent CPA, but they answer different questions. In an audit, performed under the AICPA’s generally accepted auditing standards (the AU-C sections), the CPA obtains reasonable assurance and issues an opinion on whether the financial statements are fairly presented. Auditors test transactions, confirm balances with banks and lenders, observe controls, and communicate significant control deficiencies to the board.
In a review under AR-C 90 of the Statements on Standards for Accounting and Review Services, the CPA performs inquiry and analytical procedures and issues a conclusion that provides limited assurance. A review does not include testing internal controls or confirming balances. Many congregations use a review in years between audits or when a denomination accepts one. See our compilation and review services.
In an agreed-upon procedures (AUP) engagement under AT-C 215, the church chooses specific procedures, such as recounting a sample of offerings or tracing clergy pay to board resolutions, and the CPA reports the findings. There is no opinion or conclusion. AUPs are a practical, targeted option for smaller churches or for a new treasurer who wants an outside check. Learn more on our agreed-upon procedures page.
The church audit checklist
1. Financial records to gather
- Bank, savings, and investment statements for every account, including accounts held by ministries, schools, or auxiliaries
- Year-end bank reconciliations, reviewed and initialed by someone other than the preparer
- General ledger, trial balance, and chart of accounts for the full fiscal year
- Approved annual budget and budget-to-actual reports presented to the board
- Loan, mortgage, and line-of-credit agreements, plus lender covenant compliance reports
- Lease agreements (as lessee and lessor, such as facility rental income)
- Fixed asset listing with additions, disposals, and depreciation
- Accounts payable and accrued expenses at year-end, and any outstanding pledges receivable
2. Contributions and offering count procedures
- Two unrelated counters (not family members, not the person who records giving) for every offering
- Counters stay together with the funds from collection until the deposit is sealed
- Count sheets signed by both counters, with cash and checks listed separately
- Tamper-evident deposit bags and a prompt deposit, ideally the same or next business day
- Rotation of counting teams on a schedule
- Monthly reconciliation of count sheets to bank deposits and to member giving records by someone independent of counting
- Online and text-to-give reports reconciled to processor payouts and bank deposits
- Written acknowledgments for single gifts of $250 or more (IRC §170(f)(8)) and quid pro quo disclosures for payments over $75 (IRC §6115)
3. Pastor and clergy compensation
- Board or congregational resolution approving each minister’s total compensation package
- Housing allowance designated in advance by official action of the church, recorded in minutes (IRC §107; Treas. Reg. §1.107-1(b))
- Support for how the housing allowance was reported on Form W-2
- Accountable reimbursement plan and documented business expenses (Treas. Reg. §1.62-2)
- Compensation decisions made by people without a conflict of interest, to address excess benefit rules under IRC §4958
- Records of any loans, gifts, or personal use of church property by staff
4. Designated and restricted gifts (FASB ASC 958)
- A listing of every designated fund (building, missions, benevolence, scholarships) with beginning balance, gifts, releases, and ending balance
- Donor letters, campaign materials, and pledge cards that describe the purpose of each restricted gift
- Board policy on how undesignated surpluses and closed-out funds are handled
- Evidence that restricted cash was spent only for the stated purpose
- Classification of net assets as with or without donor restrictions
5. Disbursements and board oversight
- Written approval limits and dual signatures or dual approval for payments above a set amount
- No one person who both approves and signs checks or releases electronic payments
- Church credit card policy with receipts and monthly review by someone other than the cardholder
- Benevolence payments documented with need, approval, and payee
- Conflict of interest policy with annual signed disclosures
- A finance or audit committee that receives the auditor’s report and management letter
Clergy compensation: where churches most often slip
The housing allowance exclusion depends on timing. Treasury Regulation §1.107-1(b) requires the allowance to be designated in advance of payment by official action of the employing church, such as a resolution in board or congregational minutes. A designation made after the year ends cannot be applied retroactively. Adopt the resolution before January 1, or before the first paycheck of a new minister, and state that it continues until changed.
Ministers have dual tax status: they are generally treated as self-employed for Social Security and Medicare (IRC §1402) even when they are employees for income tax purposes, and the housing allowance is included in self-employment earnings. Your auditor will look for an approved compensation package, a documented designation, and payroll reporting that matches both.
Designated gifts and restricted funds
Under FASB ASC 958, a gift restricted by the donor to a purpose or time period is reported as net assets with donor restrictions until the restriction is met. Building fund campaigns, missions offerings, and memorial gifts are the most common. Keep a roll-forward for each fund, and make sure the wording on giving envelopes and campaign materials matches how the church actually uses the money. If the church wants flexibility, say so in the campaign materials before gifts are made, for example by stating how any surplus will be used once the project is complete.
Related resources
Church Audit Checklist FAQs
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