Bookkeeping Foundations: Best Practices Church Accounting: Getting Off On the Right Foot E922

Transcription

1 Bookkeeping Foundations: Best Practices Church Accounting: Getting Off On the Right Foot E922 Bookkeeping Foundations: Presented by Bryan Baughman 2018 Shelby Systems, Inc. Other brand and product names are trademarks or registered trademarks of the respective holders.

2 Initial Set Up: Creating a Level Playing Field

3 Initial Set Up: Creating a Level Playing Field Financial Policy and Procedure Manual The most common weakness our firm encounters in church accounting systems is the absence of well-defined, written accounting and management policies. Common areas addressed by Financial Policy and Procedure Manual: Organizational structure of the church Budget development Cash management strategy Investment policy Financial statement presentation Conflicts of interest Property and casualty insurance Building and property use Restricted funds Gift acceptance policy

4 Initial Set Up: Creating a Level Playing Field Setting a Chart of Accounts The chart of accounts should be set up in such a way that compliments the budget Programs of the church are typically set up as departments within the chart of accounts Activity that is outside the budget is typically run through designated accounts Designated fund balances reside on the balance sheet The activity (receipts and disbursements) should run through income and expense accounts The revenue and expense accounts are set up to close to the balance sheet account It is not advisable to record the receipts and disbursements directly to the balance sheet account Use a separate fund for multi-site locations Use the same department and account structure

5 Initial Set Up: Creating a Level Playing Field Segregation of Duties Segregation of duties is a fancy way of saying that one person can t, and shouldn t, do it all. Whenever possible, accounting tasks, particularly those involving cash transactions, should be divided between several individuals to limit the possibility, or even appearance, of the misuse of funds. Segregating duties protects our employees and volunteers as much as it does the church. 3 primary areas of focus: Receipts Disbursements Payroll

6 Cash Disbursements: Getting out the Checkbook

7 Cash Disbursements: Getting out the Checkbook Overview Stewardship is not just a fancy word, it s a lifestyle that is modeled by the church. How we make financial decisions reflects the DNA of the church. How we spend our resources reflects our vision and priorities. Coding Checks and Other Payments This is the first step in producing accurate financial statements. Like the computer jargon garbage in, garbage out. A complicated chart of accounts makes coding checks more difficult, and therefore, less accurate. Invoice and Payment Approval Invoices should be routed through the business office. A copy should be sent to the appropriate ministry leader for approval.

8 Cash Disbursements: Getting out the Checkbook Vendor payments How often should we write checks? A best practice is weekly Accounts payable: cash basis verses accrual basis. Backdating checks Why it s important to pay your vendors on time. Cancel or deface paid invoices to prevent double paying. The Church should implement a filing system that arranges paid invoices alphabetically by vendor. We recommend that the Church adopt a list of approved vendors to further support the cash disbursement process.

9 Cash Disbursements: Getting out the Checkbook Reimbursements When an Employee becomes a Vendor If your organization reimburses employees for business expenses, INSIST that it adopt an accountable reimbursement policy. Credit Cards for Small (and Large) Purchases If your organization uses credit cards, INSIST on a written credit card use policy. Manage spending limits on individual cards. Large purchases should be approved by the business office prior to the purchase. Have cardholders submit monthly expense reports that document the business purpose and general ledger account codes. Expense reports should be approved by ministry leaders. Alternatives: Prepaid debit cards Reimbursing expenses Noncompliance should not be tolerated.

10 Cash Disbursements: Getting out the Checkbook Benevolence INSIST that your organization adopts a clear benevolence policy to guide the provision of assistance to needy individuals. Benevolence varies from church to church; however, some baseline guidelines should be addressed: Benevolence paid to employees is taxable compensation. As a best practice, its advisable to have a team evaluate candidates rather than a single person. Signing Authority - Limits and Considerations Checks should be signed by an individual who is independent of the disbursement processes. The validity (and myths) of dual signatures.

11 Cash Disbursements: Getting out the Checkbook Periodically perform an analysis of cash disbursements: Download your cash disbursement journal to a spreadsheet software program, such as Excel. Sort this list by payee and by amount. Invest half an hour and read the results.

12 Cash Receipts: Passing the Plate Coding Cash Receipts Sunday Collections Mid-Week Collections Online Collections Offerings Individual contributions are entered into the membership database. Only a summary of the batch or deposit is visible in the general ledger. The individual who enters the contributions into the database should be independent from the deposit and other general ledger processes. Special Events Maintain detailed records for special events. Implement policies of accounting for tickets and products sold or fees collected at each special events.

13 Cash Receipts: Passing the Plate Practical Considerations for the Handling and Safekeeping of Cash Ensure that cash and/or checks collected by volunteers or other employees promptly finds its way to the business office. Record program fees in separate revenue accounts rather than netting the receipts against the expense. Rotate offering count teams periodically. Perform credit checks on offering count team volunteers. Consider using an armored-car service to pick up the Sunday offerings. Keep the money in a dual-access safe.

14 Cash Receipts: Passing the Plate Contribution Policy When is a gift not really a gift? Too much restriction can jeopardize the deductibility Charitable Contribution Substantiation Required annually however there could be benefits from more frequency Non-Cash Contributions Substantiation is different than cash acknowledgement only with no value Beware of the Trojan horse Designated Funds vs. Donor-Restricted Funds Do not comingle in the same net asset account Establish rules for accepting gifts What types of restrictions are allowed?

15 Payroll: The Shepherds Need to Eat Too Overview Typically the largest single expense item. There are some unique rules that are specific to churches and ministers. Payroll Procedures A church's accounting and management policy statement should include extensive personnel procedures covering matters such as salary, vacations, sick pay, promotions and terminations. A file should be maintained for each employee. It is extremely important that all personnel decisions are carefully and accurately documented. Perform background checks on all new hires. Conduct regular evaluations of job performances. Require written termination letters. Establish clear segregation of duties in regard to payroll.

16 Payroll: The Shepherds Need to Eat Too Exempt verses Non-exempt Not necessarily the same as salary and hourly. Ensure there is documentation of hours worked by non-exempt employees on a weekly basis. Utilize a time clock or other alternative method. When Employees Serve Employees should only volunteer in capacities that are distinctly different from their paid duties. Different role as well as different area of ministry. Employee vs. Independent Contractor Determines whether they receive a 1099 or W2. Determines who pays the social security taxes.

17 Payroll: The Shepherds Need to Eat Too Minister Taxation Who Qualifies as a Minister? Special Tax Rules for Ministers Non-Ministerial Employees Employees of churches who are not ministers are treated essentially the same as employees of secular businesses. Non-ministerial employees are subject to FICA. Churches must match FICA. Churches are required to file form 941 quarterly and make deposits of taxes withheld from employee pay. Churches are generally not subject to state and federal unemployment taxes. Non-ministerial employees are not entitled to a tax-free housing allowance.

18 Payroll: The Shepherds Need to Eat Too Housing Allowances Establishing the Housing Allowance Give ministers a worksheet every November How the Housing Allowance Exclusion Works Lesser of 1) amount designated 2) actual cost 3) FMV of home fully furnished Reporting the Housing Allowance Box 14 of W2 not taxable for federal, social security or Medicare Subject to self-employment tax Church-Provided Parsonage Also reported in Box 14 of W2 Can have combination of housing allowance and parsonage allowance

19 Period Close: How to Finish Well Develop a Closing Checklist What sort of activities should be done daily, weekly, monthly, quarterly, annually? Bank Reconciliation (Monthly) Completely reconciling the bank accounts on a monthly basis is essential Single-best accounting control over fraud Should be reviewed by someone other than the preparer Review should include an analysis of individual outstanding items in addition to items that cleared the bank Form 941 Reconciliation (Quarterly) Reconcile the amounts reported in the 941 against those reported in the general ledger

20 Period Close: How to Finish Well Journal Entries for Capital Expenditures and Debt Payments (Monthly) Movement to Balance Sheet (Statement of Position) Depreciation can be recorded annually Debt payments generally have two components principal and interest Basic Set of Financial Statements Budget to actual (profit and loss) Statement of financial position (balance sheet) Designated funds summary

21 Q&A Session and Group Discussion

22 Bryan Baughman, CPA PSK LLP Representative Bryan Baughman is a Partner with PSK LLP in Arlington, Texas. He found his home at PSK after starting his career with KPMG. Bryan s area of focus is auditing and consulting with nonprofit organizations, specifically churches and ministry organizations. Bryan is passionate about his work and takes pride in establishing strong relationships with his clients.