2018 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%. 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

• 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

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.

Stewardship Campaigns

• What ever you do it needs to be more than raising money for the budget or keeping the lights on.

• The best run ones seem to talk about all the ways people can contribute and the many ministries the church does.

• Most churches do it in the early fall.

• www.umcdiscipleship.org and www.cokesbury.com

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

• Tax Impact for 2018

• 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 for 2018

• 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• 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

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 PayrollClergy 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

Questions•Call District Office – 904-396-3026

•Email ds-ne@flumc.org

•Call Conference Treasurer, Tony Prestipino – 863-393-1426 or x112

•Email aprestipino@flumc.org

• Get this presentation online -https://www.flumc.org/northeast%20distri

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