Discretionary funds rest on the canonical authority embodied in the Canons of the Episcopal Church, TEC Canon III.9.6(b)(6).
The alms and contributions, not otherwise specifically designated, at the administration of Holy Communion on one Sunday in each calendar month, and other offerings for the poor, shall be deposited with the clergyperson in charge of the parish or mission or with such church officer as shall be appointed by him, to be applied by him or under his supervision, to such pious and charitable uses as shall be fitting. During a vacancy, the vestry shall appoint a responsible person to serve as almoner.
The sources of discretionary funds vary. The TEC canon referenced above is generally interpreted to mean that at a minimum of one Sunday a month, the loose offering at the Holy Eucharist is first deposited with the parish treasurer and then set aside for the rector’s discretionary fund. In some parishes, the loose offering at all services of the Holy Eucharist on a designated day is set aside for the rector’s discretionary fund. Some congregations have trusts, the income from which is designed for the discretionary fund. Other congregations set aside a budgeted amount for the discretionary funds of the clergy in addition to the traditional sources or as a substitute for them.
Some clergy place gifts received for weddings, funerals, and baptisms into the discretionary fund. Because of income tax considerations, it is recommended that clergy either adopt the practice of putting all such fees and gifts into the discretionary fund or none.
It is improper to mingle personal funds of any kind with discretionary funds.
Some congregations maintain the discretionary fund as a line item in the parish books, and the parish treasurer draws checks on vouchers signed by the clergy. This form of recordkeeping is the safest method of ensuring adequate records. When the clergyperson controls the checkbook of the discretionary fund, it is required that all contributions to the discretionary fund be made payable to the church, recorded in the books of the church, and then subsequently transferred by the treasurer to the discretionary fund.
Clergy who maintain their own checkbooks for discretionary funds are required to record the purpose of every check drawn on the account and the source of all deposits into it.
If a clergyperson receives a check payable to the church, with no other designation, the clergyperson is required to deposit it with the parish treasurer and receive vestry authorization before that money is deposited into the discretionary fund.
The traditional uses of the discretionary fund are to assist the poor of the congregation and the larger community. Examples of appropriate discretionary spending for those in need include rent, utilities, medical bills, etc.
The clergy may also use discretionary funds for expenses related to the exercise of ministry that are not covered in the budget, such as attendance at conferences, purchase of books and journals, and membership in groups that are related to the exercise of ministry.
However, items purchased from discretionary funds are the property of the church, at least until such time as they may be given to the clergy as a gift by the vestry.
Clergy may employ a professional consultant with discretionary funds. When a clergyperson provides meals or refreshments for groups of individuals directly related to the work of ministry and in the normal course of ministerial work, such expenses may legitimately be paid from discretionary funds. It should be noted that when such business expenses are paid from the discretionary fund, they are not subsequently allowable as income tax deductions by the member of the clergy.
When the discretionary fund is used to provide a gift to a particular individual; for example, as a retirement gift to a parish secretary of long standing or a young person in need of scholarship assistance, such use is a legitimate function of the fund. However, care should be taken to advise donors that contributions whose sole intention is to benefit a named individual are not deductible contributions on the donor’s income tax returns.
Discretionary funds are not to be used to sustain the ongoing program of the church. There may be occasions when clergyperson may wish to develop a program in mid-year where there is no budgeted money available or where the clergyperson may wish to supplement some particular program through discretionary fund expenditures; however, these should be exceptions to the general rule.
The discretionary fund account is to be reviewed on a confidential basis, as part of the annual audit. Ideally, a representative of the firm doing the audit would have a private conference with the priest. In other cases, it may be more practical for the Senior Warden or some other responsible member of the congregation to serve in this role.
The clergyperson must keep a private record of exactly what is done with the proceeds of checks written on the discretionary fund account. This is both a protection to the priest in case of an IRS audit and also a protection for the congregation, should a question arise as to the use of the funds.
The clergyperson is to make regular reports to the vestry on general uses of the fund, maintaining the confidentiality of individual recipients.
Since the discretionary fund is to be used for the benefit of the church, it is not subject to income tax. Members of the clergy who improperly use discretionary funds for personal use may be subject to income tax reporting requirements, as well as ecclesiastical, civil, and/or criminal penalties.
- A. Discretionary funds are to be maintained in bank accounts in the name of the congregation and carry the church’s taxpayer identification num
- An additional signatory, approved by the vestry, must be designated.
- Clergy are to be in compliance with TEC Canon I.7.
- D. Neither the funds nor items purchased from the funds may be transferred to another cure with the rector, but must remain with the congregation.
At the beginning of a new ministry, the rector/vicar and the vestry / Bishop’s committee are urged to address the administration of the discretionary fund.
The Episcopal Church Manual of Business Methods in Church Affairs, Chapter Five.