2017 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• January / Feb

• 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

• Mar – May• Think of Special Projects• Audit Prior year• Prepare for Summer Slump• Review Annual Conference Material

Potential Calendar• June

• Annual Conference (sets next year’s apportionment budget)• Other changes

• July – Sept• Prepare for Charge Conference

• Sep – Dec• Charge Conference• Set clergy payroll (SPRC) for next year• Stewardship Campaign• Budget for up coming year

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%. On probation. Had several similar instances.

• 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• Adequate help provided through volunteers or staff

• 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

• Monthly Bank Reconciliations reviewed by someone are critical.

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 accounts

Some Common AccountsOperating 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

Financial Statement• Cash Basis – usually just bank statement and cash receipts and

cash disbursements• GAAP Basis – Generally Accepted Accounting Principals (show

items when incurred)• Includes

• Statement of Financial Positon / Balance Sheet• Statement of Activities / Income Statement• Statement of Cash Flows

• Modified Basis – Combination of the two…don’t let it turn into Frankenstein!

Balance Sheet / Financial PositionBalance Sheet – should reflect balances of assets (cash, investments, savings, property, etc.), liabilities (e.g. outstanding bills, credit cards, loans, etc.), and net assets (operating balances, board designated funds, restricted funds) as of a particular date

Asset 12/31/2015 Liabilities 12/31/2015

Cash 50,000 Outstanding Bill (AP)

5,000

Land 40,000 Loan 200,000

Building 310,000 Net Assets:

Unrestricted 190,000

Restricted 5,000

Total $400,000 Total $400,000

Statement of Activities / Income StatementShows Income and Expenses for a Time Period

Income: 1/1 – 12/31

Contributions 150,000

Investment Income 5,000

Total Income $155,000

Expenses:

Personal Cost 75,000

Operations 30,000

Apportionments 15,000

Depreciation 10,000

Insurance 10,000

Total Expense 140,000

Net $15,000

Cash FlowOperating

Contributions $150,000

Operating Activities -125,000

Interest on Debt -6,000

Net 19,000

Investing

Property Improvement -13,000

Financing

Principal Debt Payments -11,000

Net Change -5,000

Beginning Cash Balance 55,000

Ending Cash Balance 50,000

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.

Statistics• This is what Apportionments Are Made From!• Statistics will be completed at http://ezra.gcfa.org/• Due Mid Feb for 2017• Read Instructions

Statistics: Login• You can print a blank form to work or just work on-line.• You must submit online.

Statistics: Three Tables

Statistics: Screen Layout

Statistics: • YOUR APPORTIOMENTS ARE SET BASED ON THE VALUES IN LINES 48 – 57 (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

Some Stats we look atYear Total Church

ExpendituresNet Funds Average Worship

Attendance

2016 262,045,144 177,339,371 124,930

2015 263,371,167 177,975,893 129,788

2014 262,096,602 176,285,830 132,338

2013 263,061,053 174,063,496 135,361

2012 245,116,781 175,523,106 137,820

2018 Conference Appt. BudgetConference / District 2017 2018 % ChangeConnectional Ministry 1,705,000 1,595,000 -6.45%Higher Ed 2,366,000 2,276,000 -3.80%Camps & Retreat 585,000 585,000 0.00%Congregation Vitality 575,000 480,000 -16.52%Missional Engagement 1,414,300 1,314,300 -7.07%Conference Services & Admin 1,835,000 1,855,000 1.09%Missional / Equitable Comp 1,500,000 1,300,000 -13.33%Clergy Support 2,430,000 2,289,000 -5.80%Total 12,410,300 11,694,300 -5.77%

2018 General Church Budget

Connectional Church 2017 2018 % ChangeWorld Service 3,356,916 3,541,303 5.49%Ministerial Education 1,133,811 1,196,088 5.49%Black College 452,267 477,108 5.49%Africa University 101,215 106,775 5.49%Episcopal 994,120 1,048,724 5.49%General Admin 398,606 420,501 5.49%Interdenominational 88,672 93,543 5.49%SEJ 130,000 70,667 -45.64%

Total 6,655,607 6,954,709 4.49%

Total Apportionment Budget

Group 2017 2018 % ChangeConference 12,410,300 11,694,300 -5.77%General Church 6,655,607 6,954,709 4.49%Total 19,065,907 18,649,009 -2.19%District* 2,000,000 2,000,000 0%Expected Total with DWF 21,065,907 20,649,009 -1.98%

* DWF = District Work Fund and is calculated at 5.4% of clergy salaries.

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

• Single - $10k• +1 - $13k• Family – $16K

• 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

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 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

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

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

Questions

• Call Me – 863-393-1426 or x112• Email aprestipino@flumc.org