Guidelines for Clergy Discretionary Funds

From National Church Canon III 9 5b (6): “The Alms and Contributions, not otherwise specifically designated, at the Administration of the Holy Communion on one Sunday in each calendar month, and other offerings for the poor, shall be deposited with the Rector or with such Church officer as the Rector shall appoint to be applied to such pious and charitable uses as the Rector shall determine. When a Parish is without a Rector or Priest-in-Charge, the Vestry shall designate a member of the Parish to fulfill this function.”

The following guidelines are intended as recommended minimum standards and not to be cumbersome or to threaten the discretion of the clergy in carrying out their ministry often times of a confidential nature.

The purpose is to establish policy operating guidelines to be in compliance with income tax law and regulations set forth by the Internal Revenue Service as well as to support and promote continued good stewardship of Discretionary Funds.

1. A Clergy Discretionary Fund is a Church account, to be opened in the name of the church corporation, by authority of a corporate resolution of the Vestry, and use the church’s Federal Employer Identification Number. The account title should not include the name of any individual. In addition to the clergy who will normally sign the account, at least two other persons should be authorized to sign on the account in the absence of the clergy person. It is especially appropriate that the Senior Warden (who is canonically charged with the duty of appointing an almoner during a vacancy) and the Parish Treasurer be signatories by virtue of their offices. The clergy person’s spouse should not be one of the permissible signatories. Signature privileges should be updated annually at the same time after the Annual meeting as with other church accounts. Expenditures from the funds are at the sole discretion of the clergy; no authorization or “second signature” is appropriate.

2. As a church account, the Clergy Discretionary Fund’s assets remain with the parish or mission upon the departure of the member of the clergy who has been administering it.

3. The Discretionary Fund is principally a vehicle for providing assistance to persons in need. The Vestry insures that funds equal at least to the loose offering on an average Sunday each month are placed in it for that purpose. Miscellaneous expenses of ministry shall be reimbursed from a line item in the church’s budget titled “Professional Expenses” and thereby segregated from ministry funds.

4. When reimbursement to a member of the clergy is made from the Discretionary Fund, it is good policy (but not obligatory) that the check be signed by one of the lay officers authorized rather than by the clergy reimbursed. Additionally, a simple form showing the nature of the expense reimbursed should be prepared and signed by both the clergyperson and the lay officer. It is appropriate that the anonymity of a person assisted with cash be protected on the expenses form, but a few words of description of the situation along with time and date of assistance should be provided. A cash receipt should be signed by the recipient at the time of assistance, said receipt to be part of the clergy records.
5. It is not appropriate that the clergy person disburse funds from the Discretionary Fund for members of his or her family. In case where the clergy family is in need help should be sought elsewhere.

6. It is good accounting practice that a person other than the member of the clergy who will be the primary disburser of the Discretionary Funds handle and record funds being deposited into the Fund, particularly if substantial sums are involved. Monies given to the Discretionary Fund are tax deductible contributions to the Church and should be so reflected on statements provided to donors.

7. Honoraria from weddings, funerals, and the like may either be received as contributions to the Discretionary Fund or as personal income of the clergyperson. The decision as to where such honoraria are placed is at the sole discretion of the clergy person. Honoraria retained by the clergy as personal service income must be reported on the clergyperson’s personal income tax return. Schedule C. This income must not be commingled with any church funds. Honoraria placed in the Discretionary Fund should be used for the advancement of ministry at the clergy’s discretion, and not used for any personal expense.

8. If honoraria are routinely deposited in the Discretionary Fund, and there is stated policy as above in paragraph 6, it should pose no problem if checks are made payable to the priest by name but endorsed over to the Discretionary Fund. In that case he or she is acting as agent for the church, and with timely deposit of the funds there should be no personal tax liability implied. However, if there is no policy, or if there is a mix of uses of honoraria, it may be necessary for the clergyperson to report the honorarium as income and then to deduct it as a personal contribution when it goes into the Discretionary Fund.

9. Major items purchased with discretionary funds are the property of the church and remain with the church. Items such as books and tapes purchased at continuing education events and other incidentals are not considered major items in this regard, though these should, more appropriately be paid for from “Professional Expenses” where the same principle applies.

10. A contemporaneous and careful journal of expenditures from the Discretionary Fund should be kept, showing the nature, date, and amount of each transaction and noting the ministerial purpose thereof. Such notes along with complete bank statements will be required at the annual audit. Confidentiality of persons receiving benefits or in some cases making contributions must be maintained. The Rector, in consultation with the Vestry, shall designate the person(s) responsible for conducting the audit of the Discretionary Fund.

11. An annual audit report shall be given to the vestry summarizing (so as to maintain confidentiality) the activity of the fund for the year.

12. If a Discretionary Fund is endowed, control of the principal remains with the Vestry or other designated Trustees.

13. The Vestry shall establish review procedures for the Discretionary Fund.

The above guidelines are not intended to be cumbersome or to threaten the discretion of the clergy in carrying out the work of ministry. Rather, they are intended to protect both churches of the Diocese and the clergy in the face of increasing IRS scrutiny. Ignorance or omission in regard to handling funds is no excuse, and can be costly to all involved.

Revised April 2005