The Problem of Inurement
Mark Helland, C.P.A.

Mark Helland, CPA is a partner with the public accounting firm of Elliott, Dozier and Helland, PC which is located in Tulsa, Oklahoma. Mark specializes in audit and tax related issues for church and ministry clients across the United States. For further assistance from Mark on this topic or for assistance on any other tax, accounting or church audit and compliance need, Mark can be contacted via email at [email protected] or by phone at (888) 893-1259 or (918) 488-0880.

The term “private inurement” is not one to be thrown around lightly and can conjures up images of extreme financial fraud in the church and ministry environment – i.e. extravagant personal spending, cars, travel, etc. In reality, I fear that inurement is more common in churches than one might expect and is as simple as using church or ministry funds for a purchase that is personal in nature, providing no benefit or serving no ministry purpose. More importantly, inurement is really in the eye of the beholder, as inurement could be alleged by the IRS or by a congregation member even if a transaction has the appearance of impropriety or lacks sufficient documentation to substantiate what actually took place.

Key Point #1 – Inurement is inurement, regardless of “materiality”!

The first thing which must be understood is that when it comes to ministry funds, there is no materiality standard when it comes to inurement. Materiality is a commonly used term to describe smaller items that are simply not significant. In other words, smaller errors, mistakes or issues are ignored so that larger issues will not be missed. It seems that many pastors and church staff take the same approach to expenditures that are actually personal in nature and provide no benefit to the church, simply because they are small in size. In reality, the magnitude of the expenditure is not relevant to whether inurement exists. If an expense is personal in nature and does not provide a benefit to the church or ministry, inurement is present.

Key Point #2 – Inurement is in the eye of the beholder!

The second key point to remember in this area is that inurement can be alleged even when it does not exist. The only cure to this is effective and solid documentation of all church and ministry expenditures. A simple receipt is a basic standard, but beyond the receipt, there must be written notations as to the nature of the expense and details as to why the expense was necessary. Consider this hypothetical scenario; a church in Kansas pays for the senior pastor to attend a seminar in Orlando, Florida. The pastor meets other pastors over the course of the conference and buys dinner for himself and four other pastors on the final night of the conference. The credit card bill arrives with the charge for $220 at a restaurant in Orlando along with the hotel and airfare expenses. If the IRS, a congregation member or even a staff member were to look at these charges with no accompanying detail, it would appear that the pastor spent extravagantly on dinner on a personal trip to Florida. Without documentation of the nature of the trip, the business purpose for the meal, the individuals present and a copy of the receipt, this could appear to be inurement even though it really was not.

Key Point #3 – Meals are a huge problem area!

The key area where we see inurement is in the area of meals and reimbursements. These areas seem to be the source of most problems – with easy access to a ministry credit card being the kerosene added to the fire. I have written many articles in the past as to why expanded credit card use in churches and ministries is a horrible, horrible idea from an internal controls perspective, but it is also a great way to create a wide open door for the temptation of personal inurement. The best example that I can give of basic inurement is the tendency for pastors to use a church credit card for meals at restaurants that are not really related to church business. Pastors are always on the go and frequently meet with congregation members, board members and members of the local community. So long as the purpose of such meetings is to discuss valid church business and is well documented, no potential for problem exists. However, if a pastor regularly uses the church credit card to simply dine out by himself, within his own home city, this is a clear and simple instance of inurement. A pastor dining out by himself in his home city (i.e. not on the road traveling) and paying for such meals with church or ministry funds is engaging in a transaction which provides personal benefit with no resulting benefit to his church or ministry.

I recently learned of a church that had discovered a huge problem that had been building for some time. The church had managed to build up over $100,000 in credit card debt, primarily due to unrestrained access and use of credit cards by nearly ten pastors on staff. Upon further investigation of the charges, it appeared that many of the underlying charges were of a personal nature including gas and meal expenses, many that were clearly the purchases of lunch by single individuals. For example, there were many meal receipts at local fast food restaurants under $10 within the city limits of the church. Obviously, these expenditures simply amounted to these individuals using the church credit card to buy their own lunch.

The remedy to this situation in terms of avoiding financial fraud is simple. The church or ministry must include all items of a personal nature in the W-2 income of church or ministry personnel. Failure to do so results in the church or ministry paying the personal expenditures of an individual which is fraud. Make sure to watch expenditures and documentation closely to avoid having your church or ministry being caught in this trap.

 

This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is shared with the understanding that neither the author nor Tony Cooke Ministries is engaged in rendering legal, accounting, psychological, medical or other professional services. Laws and regulations are continually changing, and can vary according to location and time. No representation is made that the information herein is applicable for all locations and times. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

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