What Does a Legal Audit of a Church Look Like? Why It Could Save You a Lot of Money
Sep 24, 2025The legal and operational issues get a lot worse as your church grows. It's not just critical for churches with 100 to 2,500 members to stay in compliance and manage risk; it's also necessary to avoid making mistakes that might cost a lot of money and put the future of your ministry at risk.
Getting a comprehensive legal audit is one of the best things you can do for your church. This thorough review discovers hidden problems, ensures your ministry respects the law as it develops, and gives your leaders specific advice on how to protect your ministry and its resources.
This book goes into a lot of detail about what a church legal audit is, why it's so important, and how the Tier 2: THE FOUNDATION PLUS PLAN may aid churches during this vital time of growth.
What Does a Church's Legal Audit Look Like?
A church legal audit looks closely at how your church is run, how it respects the law, how it handles money, and how it manages risk. It makes sure that your church is following the law and is poised to develop in the future by checking its activities against local, state, and federal regulations, IRS standards, and best practices in your field.
A legal audit is not the same as a one-time compliance check since it looks at everything and gives you a strategy for how to address weak spots and build strong structures that will last.
Key Parts of a Church Legal Audit
Look Over the Rules of Governance
Policies and Bylaws: We look at your bylaws to make sure they are clear, complete, and obey the law. We look at rules concerning storing papers, protecting whistleblowers, and avoiding conflicts of interest.
Board Structure: The audit looks to determine if your board's members, how elections are held, and how meetings are run are all legal and follow best practices.
Making sure that the church has clear lines of authority, the appropriate procedure to vote, and the right paperwork to keep people from arguing about how to administer the church.
Following the Rules of Money and Taxes
501(c)(3) Status with the IRS: You are still tax-exempt, and all of your required forms, such as Form 990 (if you need it), are current.
Financial Controls: Making sure that the rules for donations, approving expenses, setting budgets, and reporting funds are all followed to stop fraud and keep things open.
Finding any business activities that produce money outside of your religious mission that could make you responsible for taxes or put your tax-exempt status at peril is called unrelated business income.
How to Work and Volunteer
Worker Classification: Making sure that employees and contractors are put in the right tax and benefit categories.
Policies and Agreements: Making sure that volunteers and workers have signed agreements, gone through background checks, and received training, especially when it comes to keeping youngsters safe and stopping harassment.
Following Labor Laws: Making sure that rules about wages, safety at work, and not discriminating are being followed.
Managing Risk and Responsibility
Insurance Coverage: Make sure your church has enough general liability, property, and workers' compensation insurance.
Liability Waivers: Looking at the forms used for youth programs, ministry events, and other special events to decrease the chance of getting into trouble with the law.
Safety Protocols: Learning how to deal with hazards, establish preparations for emergencies, and report problems.
Looking at Contracts and Property
Real Estate Holdings: Checking out documents, titles, and usage agreements for church-owned or rented property.
Vendor Contracts: Looking through service agreements, leases, and partnership contracts to uncover terms that are dangerous or not good for you.
Following the Laws of the State
Charitable Solicitation: Make sure that your church is registered and up to date in the states where it appeals for donations.
State Tax Exemptions: Making sure that applications for exemptions from state sales, property, and income taxes are in order.
Annual Filings: Making sure you have all the state reports and documents you need to stay in good standing.
Why a Legal Audit Could Help You Save a Lot of Money
- Avoid Lawsuits: The ministry can avoid expensive lawsuits that waste resources by finding risk areas early on.
- Avoid IRS Penalties: If you don't follow the rules on taxes, you could have to pay a lot of money in fines or lose your tax-exempt status, which means you owe back taxes.
- Build Donor Trust: People are more likely to give and support when financial and governance systems are clear.
- Streamline Operations: Having clear rules and processes makes businesses run more smoothly and keeps management accountable.
- Leaders feel comfortable knowing that the ministry is legally protected and ready for crises.
How THE FOUNDATION PLUS PLAN Can Help You With Your Legal Audit
The THE FOUNDATION PLUS PLAN is for churches with 900 to 2,500 members to help them navigate through this vital time of expansion.
- A full legal check done by experts in church law.
- A thorough audit report with a list of faults in order of importance and step-by-step recommendations on how to repair them.
- Legal help to put the results of the audit into effect, change documentation, and make sure everyone follows the rules.
- Every three months, check on your church's progress and make sure it is following the most up-to-date laws.
- You get exclusive access to templates, training, and a network of professionals who can help you improve.
In short, paying for a legal audit is a smart method to make sure your church's future.
There are both chances and risks that come with growth. A legal audit of your church isn't only about fixing problems right now; it's also about making sure your ministry is successful in the long run.
The FOUNDATION PLUS PLAN can help your church safely navigate tricky legal seas, avoid spending thousands of dollars in fines and penalties, and fully focus on its mission.
Links Inside
Links Outside
- IRS Compliance Guide for Churches
- National Association of State Charity Officials (NASCO)
- GuideStar’s Nonprofit Compliance Resources
Caution
This blog post is not legal advice; it is only for your information. Please go to a licensed lawyer if you want assistance that is unique to your church.
