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2019 District Training:Finance Committee
Keep in Mind
The material in this is provided as general information and education. Individuals should consult with their counsel(s) or other professional advisor before acting on any information contained in this presentation.
Potential Calendar
Year end tax forms and payments (W-2s, 1099s, 941s)
Finalize current year budget
Close prior year
Denominational Statistics
Set up new year payroll
Thank Donors
Jan.–Feb.
Think of Special Projects
Audit Prior year
Prepare for Summer Slump
Review Annual Conference Material
Mar.–May
Potential Calendar
Annual Conference (sets next year’s apportionment budget)
Other changes
June
Prepare for Charge Conference
July–Sep.
Charge Conference
Set clergy payroll (SPRC) for next year
Stewardship Campaign
Budget for up coming year
Sep.–Dec.
Some basic responsibility?
• The basic function of the Finance Committee needs to be monitoring the financial health of the church.
• Institute a system of controls and accounting practices.
• Monitor Controls.
• Ask the questions: are we in compliance with tax requirements, legal requirements, Discipline Requirement
• Budget
• Ensure the annual “audit” is done.
• Communicate, Communicate, Communicate!
Working Definition of Controls
The system of checks and balances necessary to protect the church from intentional or unintentional acts that could cause a loss of the church’s financial assets or that could result in misreporting of the church’s financial information.
Church Finance: The Complete Guide To Managing Ministry Resources by Michael E. Batts and Richard R Hammar
Why? Frauds Happen!
Mid-sized church secretary managed all financial aspects. Over a couple of years stole $250k. Hid transactions in books in payments to conference. Uncovered when DS asked why the church wasn’t paying all of the Conference askings. Church thought it was 100%. This has been common.
Large Church Business Administrator used church credit card for personal use. Concealed it as a Deposit in Transit on Bank Reconciliation every month. Stole approximately $45k.
Small church volunteer Treasurer stole $495k over three years. Most of the checks written to cash or CDs were outright liquidated. Didn’t record in financial statements and 5 church members signed they “audited books.” Apparent no audit took place.
Key to Controls
Monthly Bank Reconciliations reviewed by someone are critical.
One person should not have the ability to do everything without review. Such as:
Receiving and Depositing Checks or Cash (2 unrelated people)
Authorizing and Recording Disbursements / Transfers
Adequate help provided through volunteers or staff
What are some good controls?
At least two unrelated people count and prepare deposits
Segregation of duties such as:
• A person who approves an expense is separate from the person who signs a check.
• Who approves and signs a check is different than the person recording it to the ledger.
• Software users set up for specific rights.
Set up systems so someone cannot delete or modify a posted entry to the General Ledger.
Comparison of actual amounts to budget or prior year
Reconciliations
Audits
Review all third party accountsSome Common Accounts
Operating Cash Restricted Cash
Investment Endowments
Money Market Savings
PayPal Merchant (e.g. credit card processor)
Loans Credit Cards
UM Foundation Others using church name or EIN on account
Discipline Paragraphs / Audit
Paragraph 258.4 (page 197) is section on Finance Committee
• 258.4d deals with Audits….
• The committee shall make provision for an annual audit of the financial statements of the local church all its organization accounts. The committee shall make a full and complete report to the annual charge conference. A local church audit is defined as an independent evaluation of the financial repots and records and the internal controls of the local church by a qualified person or persons.
Church Silos & Structure• Often there are many people
in a church that use the tax id.
• That is ok if the church views it all as one, manages it as one, and audits it all as one.
• No one is on an island on their own when using the name or tax id. Must be accountable to someone.
• Do not let multiple groups run their own payrolls using church EIN or otherwise operate without some oversight.
Outreach
DaycareSunday School
Church
If not a CPA, then a church committee
Who cannot participate in the audit: those being audited or who can direct financial activity such as:
• Pastor (s)
• Treasurer
• Financial Secretary
• Chair, Finance Committee
• Business Manager / Office Staff
• Those who count offering
• Church Secretary
Also exclude those related to the folks above
We can provide a checklist
If you hire for “audit”
Audit to us has many meanings, but regardless…
Only CPAs (Certified Public Accountants) are licensed to render an opinion and provide certain other services with respect to an organizations financial statements. Such as:
• We have audited the accompany financial statements…
• In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of x …. in accordance with GAAP…
• …in accordance with Generally Accepted Auditing Standards (GAAS)…
CPAs & Church
For most churches that hire a CPA they will want agreed upon procedures. This generally tests very specific items (such as controls) or focuses on an area the church wants attention.
Regardless of who you hire, they cannot do anything if you financial records are non existent or not accurate.
Budgeting
• We all want zero based budget, but we all start with last year and add x%
• Keep track of giving patterns and there should be an someone who has an idea of who the large contributors are.
• Summer Slump
• Generous December
• Salaries, benefits, insurance, utilities…just the general cost of business keeps increasing every year.
Statistics
• This is what Apportionments Are Made From!
• Statistics will be completed at http://ezra.gcfa.org/
• Due Mid Feb 2020 for 2019
• Read Instructions
Statistics: Three Tables
Statistics:
YOUR APPORTIOMENTS ARE SET BASED ON THE VALUES IN LINES Operating Cost of the Local Church (Plus Pension & Health Insurance that we have).
These are specific questions on what it cost you to operate the church.
Do not report on these lines:
• Property & Casualty Insurance
• Amounts paid for debt
• Amounts paid for new construction or significant overall (capital additions)
• Amounts paid for missions (apportionments, special offerings such as Children's Home, local mission support)
• Most amounts you send to conference will be reported for you by us.
• Special rules for Daycares and Schools
Ministry Protection / Benefits
Board of Pension:
• 15% Bill Factor for Clergy Benefits (base salary + housing factor)
• Most Clergy Retirement benefits managed by Wespath
• Conference Provides some retiree benefits to clergy who entered by 2014
• Health Subsidies
Ministry Protection – provides most property, casualty, work comp coverages to church
• More information found on website
• We get rates in Dec and then push them to churches in Jan / Feb
Ministry Protection
• MVRs Ran in 2018 – 1,205
• Active Shooter Training Participants – 310
• New Claims Received - 491
• Claims Closed – 283
• New Lawsuits / Petition for Benefits – 17
• Open Suits - 39
Ministry Protection Projects
Youth Protection Policy Hire new Claims Specialist
Daycare/Additional Insured Project
Additional Active Shooter Training
Child Protection Training World Aware Enhancement
Certificate of Liability / 3rd Party Rental or Use of
Church Property
Accommodation to churches not paying will likely not be extended
much longer.
Ministry Protection Program
• 2019 increased premiums to local church by 4%, premiums billed to us increased about 12%
• 2020 Preliminary Meeting was 10/22/19 – Preliminary estimated increase is 30% - 40%
• Significant concern about sexual misconduct and concussion injuries from excess insurance companies. Most property insurance markets are strained and being in Florida doesn’t help.
• Introduced a new child youth protection policy.
• Looking at Stewards of Children Training created by non-profit Darkness to Light to introduce as a resource.
• No deductible assistance
Some General Numbers• EIN – (12-3456789) issued by the IRS – for
banking, interactions with Federal Government, and most other items.
• Florida State Sales Tax Exemption - (11-1234567890A-1) – used to purchase items for use by the Church free of sales tax in Florida.
• GCFA Number – (123456) Unique Methodist ID assigned to each Local Church. Used by District, Conference and General Church Agencies for tracking.
Hire a payroll company
HIRE A REPUTABLE PAYROLL COMPANY!!!
And many others…
Why so serious on payroll?
Problems are easy to cause and expensive to fix
Failure to properly set up = pain and or legal problems
Failure to file correct forms timely = large IRS penalty
Failure to pay taxes timely = Larger IRS Penalty up to 100% of unpaid taxes
Not knowing is not a defense
Failure to file forms or pay deposits on payroll is not covered by insurance
Board of Trustees or others with responsibility (i.e. Treasurer) can be held personally responsible even if the church is incorporated
Contractor?
Just executing a contract for services may not be sufficient.
Use common sense i.e. “Duck Test”
Musicians (choir director, worship leader, accompanist), Church Secretaries, Janitors are generally going to be considered employees.
True contractors receive a 1099 if they cumulatively receive $600 or more in a calendar year. Some exemptions for Corporations.
1099 deadline to recipients - February 1st.
1099s deadline (transmitted on Form 1096) to IRS by February 28
Clergy vs. Lay in Payroll
Clergy Lay
Salary
Health Supplement
Parsonage or Housing Allowance
Housing Exclusion
Mandatory Deductions:
Federal Income Tax
Social Security & Match
Medicare & Match
Optional Deductions:
UMPIP
Health Insurance
FSA / DCA / HRA Programs
RECEIVE A W-2
Love Offerings
• Donors generally cannot make contributions to a non-profit organization that earmark funds for a particular individual or family and get a charitable deduction.
• Generally there is no such thing as a gift to an employee. Therefore, if a love offering flows through the church then it is considered income to the recipient and should be reported as such.
• If donor wants to make a gift or love offering to the minister or other church employee then it is better to just have that be something between the two parties. Like a parent may to a child. Still isn’t tax deductible, but it also generally isn’t income.
Reimbursements
• Two Types:• Accountable – receipts / accounting submitted within 60 days and if valid it
isn’t considered income
• Unaccountable –think of an allowance. You get $1,000 no questions asked from the church and don’t submit receipts. This is considered income and needs to be reported as such on your W-2 (NOT RECOMMENDED!)
• If you have a question about the validity of an expense ask, but they generally should be work related.
• Spouse travel costs generally are not a valid reimbursement.
• GCFA has a tax packet that includes some good examples.
Housing Related Items
Amounts need to be stated in writing / adopted by church before they are applicable
Amounts designated cannot be applied retroactively
Housing Standards are adopted by District
Amount that clergy can claim is the lesser of, but this is generally between the individual and the IRS:
• The amount actually used to provide a home
• The amount officially designated
• The fair rental value of the home, including furnishings, utilities, etc.
Software
• Generally a church will want a general financial management program.
• Some Common Software Used by Local Churches that have payroll modules:• QuickBooks
• ACS Technologies
• Shelby Systems
• Church Windows
• PowerChurch
• Shepard's Staff
A Note on Software
• There are many options at many price points that can do multiple stuff (online giving, event registration, volunteer screening, child tracking, computer generated checks, etc.)
• Most churches should have some basic way of doing stuff through computer software.
• Regular backup or use a cloud system?
• I would encourage multiple users.
• REMEMBER: it doesn’t matter what you have if those you rely on are not properly trained to set up or use
• Garbage In = Garbage Out
Resources: Tax Guidance
• Richard Hammar’s Annual Clergy & Tax Guide. It is about $40 but is a good investment to have a if interested in technical tax topics. Also has monthly new letters and good Church Finance Guide.
• Available through Christianity Today’s Church Law & Tax Store
• The Accountant Beside You – Good Resource for QuickBooks
