Powell UMC Financial ABCs: Best Practices for Audits, Budgets, Compensation and Beyond - PowerPoint Presentation

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Powell UMC

Financial ABCs: Best Practices for Audits, Budgets, Compensation and Beyond

Saturday, February

3

, 2018

Bill Brownson, CFO & Director of Administration

614.844.6200

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Key Themes

What questions and information would you like covered?

Open dialogue of what works and what doesn’t

Financial Administration is a mission of the churchBudget basicsConfidence in process and controls keeps the focus on the missionInformation ResourcesAlways and Never

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Resources

GCFA:

http://www.gcfa.org/

West Ohio Conference: http://www.westohioumc.org/The Book of Discipline of the United Methodist Church, 2016West Ohio Conference Annual Journal and Record (available online)Conference Center Staff, 1-800-437-0028Apportionment and Statistical Questions: Jack Frost

Workers Compensation: Joy Perry

Pension Benefits and Board of Pension & Health Benefits: Mike Kremnitzer

Health Insurance: Sandi GeorgeLocal Church Audit and Tax Questions: Jeri SeabaughBudgets, Policies, CFA, Trustees: Bill Brownson

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Administration & Stewardship

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A Common Budget Development Timeline

September

Annual Campaign

planning

Confirm theme

Identify leadership

Set the timeline

Prepare materials

Continue annual campaign planning

SPRC evaluates staff and recommends compensations for next year

Analyze YTD results against current year budget

Set assumptions for next year’s budget

Annual campaign concludes and results are communicated

First and second pass of budget is presented to Finance Committee

Finance Committee passes motion recommending the annual budget

Conference provides insurance, pension and apportionment

Finance Committee presents budget to Administrative Council

Administrative Council approves budget

The budget is shared with the congregation along with missional priorities and any adjustments from prior years

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Responsibility for Sources and Uses

How much revenue comes from

each source?

What other sources of income do

you have?

How much in staff compensation is

too much?

What other sources of expenses do you have?

Should you budget a surplus?

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Compensation can be 60% of Budget

Jan

Feb

Mar

April-Dec

Total

Pastor Comp

Salary4,0004,0004,00036,00048,000 Housing Allowance (if applicable)1,5001,5001,50013,50018,000 Accountable Reimbursement2502502502,2503,000

Health Insurance

(Family 2)

1,964

1,964

1,964

17,676

23,568

Pension/CPP (17% of compensation)949.50949.50949.508,545.5011,394Lay Employee (FT example)

Salary2,5002,5002,50022,50030,000 Health Insurance (single example)7237237236,5078,676 Pension-consistently applied (UMPIP)VariesVariesVariesVariesVaries Payroll Taxes: Social Security, Medicare, City [State and Federal income taxes & School District tax do not need budget; FUTA & SUI considerations]

Per tax tables and W-4Totals$11,886$11,886$11,886$106,979$142,638

Source Documents: Charge Conference Compensation Forms7

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Other Compensation Considerations

Parsonages are equal to an additional 25% of cash salary (for pension purposes)

Cash salary :

Does not include accountable reimbursementIt does include other cash allowances classified as taxable income payable to the pastor (e.g., tuition, insurance premium on a spousal plan)Supplemental clergy life insurance of $50,000 costs $174/year and is taxable; total insurance is then $100,000; $50,000 of which is a taxable benefitMaximum pre-tax contributions to the UMPIP (a 403(b) plan) is $18,000 in 2017 if not yet 50; $24,000 for 50 and overClergy and lay employees may contribute toward health insurance on a pretax basis if the church has adopted a Section 125 Flexible Spending Plan

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Tax-Related Issues

Employees – including all pastors – receive W-2’s

Withholding for Clergy: Never Social Security or Medicare; always municipal taxes; State and Federal income taxes

may be withheldNon-employee workers receive 1099’sRequest W-9 when work commences, prior to paymentTo the extent payments exceed $600 annuallyBeware of Workers Compensation

Housing allowance and housing exclusions

Approved by DS at charge conference or time of appointment

Must be kept on fileCharitable giving records; gift acknowledgement requirements

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More Expenses to Budget

Operations & Administration

Gas

ElectricWaterTelephone/internetInsuranceSuppliesRoutine maintenance, buildings and groundsService contracts (e.g., copiers)Workers’ compensation

Other Expenses

Technology hardware and software

ReservesPlanned projects

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Ministry and Mission Budget

Ministry Examples

Sheet music

Sunday school materialsNursery suppliesBible study materialsTrainingConsultants/coachesMission ExamplesCommunity outreachPartnershipsVIM/global missionsFood pantriesFundraiser expenses

Special Sundays*

Advance specials*

*pass throughs

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Connectional Giving*

What is it?

Obligations of local churches

Paid to the district, conference and general churchFor our connected mission and the administration of that missionBetween 15% & 20% of a church’s operating budget10% to 15% of total revenueAbout $211/attendee/year

Part of operating or mission and ministry budget?

What does it make possible?

Clergy retirement health insurance and care for disabled clergyNew churches and revitalized churchesMission work around the world

Clergy education and developmentCampsHow is it calculated?1/3 church membership2/3 church operating expenses

* Also known as apportionments

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Best Practices for Budgeting

Know your historical trends

Ratios of salary and related to total expenses

Proportion of revenue from pledge, non-pledge and cashTotal amount from other sourcesKeep your fund accounting clean!Review contracts and continuing expenses annuallyInsurance policyUtilities providersService contractsReference the conference website and personnel for questions – don’t guess

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Internal Control Basics

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Opportunity for Fraud & Error

Authority

Recordkeeping

Custody

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No audits, financial records or bank account reviews

No required staff vacations

No criminal background, credit checks, or reference checks of staff & volunteers

Same person deposits and records bank depositsNo “term limits” for financial volunteers (Treasurer, counters, etc.)No financial expert on Finance CommitteeSame person writes checks, deposits cash, and reconciles bank accountsRelated persons on Finance Committee or familial relationships with financial staff

Enablers of Fraud in the Church

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Source: Donald Cressey

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Treasurer and Financial Secretary are separate Counters are separate from Financial Secretary, rotate regularly

Checks should be signed by someone other than check writer

Checking account should be reconciled by someone other than check writer, person(s) recording cash receipts or counters

All church finance employees/volunteers must take one/two continuous weeks vacationSegregation of DutiesSource: Guidelines for Finance18

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Financial policy and authority guidelines should be written and approved by the Finance CommitteeProgram leaders (with authority by Finance Committee) authorize expenses-not Treasurer

Invoices required for all payments from all accounts

Treasurer disburses funds once invoices are approved

At least 2 persons listed as authorized signatures on all accountsAuthorization ProceduresSource: Guidelines for Finance

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Counters use forms to record details of weekly offering and receipts

Financial Secretary records offering count details received from Counters

Offering totals given to Treasurer or Financial Secretary to record deposit

Every check issued is supported by written documentation and includes an authorized person’s approvalTimesheets used for hourly employee payrollDocumentationSource: Guidelines for Finance

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Counters reconcile contents of offering envelope to amount written on envelopeQuarterly giving statements provided to donors, discrepancies reported to someone other than counters or Financial Secretary

Bank reconciliation reviewer compares Financial Secretary’s deposit log to the bank statement to verify deposits

Reconciliation

Source: Guidelines for Finance21

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Job descriptions and procedures detailing internal controls provided to employees and volunteersUshers trained on how to secure offering; office staff trained on how to secure receipts received during the week

Counter trained how to count offering

Treasurer and Financial Secretary and back-up volunteers trained on financial software

Fundraising groups trained on receipts and disbursements proceduresTrain Volunteers and EmployeesSource: Guidelines for Finance

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Reconcile all accounts monthlySomeone other than Treasurer or Financial Secretary review bank reconciliations at least semi-annually

Includes statements, invoices, checks written, financial reports

Treasurer makes at least quarterly detailed reports of budget and designated fund activities to the Finance Committee

There must be an annual evaluation of financial recordsReporting and ReviewSource: Guidelines for Finance

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Annual Church Financial Evaluations

Annual evaluation of church records required

Local church audit guide

All accountsGeneral fundBuilding fundsDesignated accountsInvestment accounts

UMW may be done separately

Any group operating under the church’s tax ID

External audit every 3 years for churches with budgets > $500,000External audit annually if budget > $1 million

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Local Church Audit FAQs

Annual Church Receipts

Recommendation

Less than $500K

Independent, qualified member or

volunteer performs procedures in Appendix A

annuallyFrom $500K to $1MEvery

3 years: External CPA performs procedures in Appendix A or GAAS auditOff years: Independent, qualified member or volunteer performs procedures in Appendix A From $1M to $2MEvery 2 years: External CPA performs a GAAS audit (not agreed upon procedures)Off year: Independent, qualified member or volunteer performs procedures in Appendix AOver $2MExternal CPA performs GAAS auditWhat counts as an audit?

Source: Local Church Audit Guide

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Local Church Audit FAQs

What counts as an audit?

Must be an audit in accordance with the Local Church Audit Guide (Appendix A)

Financial “Review” or “Compilation” is not sufficient, even when performed by CPA Who can do an audit?Independent (may be internal or external persons)QualifiedNot necessarily a CPA

Source: Local Church Audit Guide

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What should be included in the audit?ALL organizations operating under the church’s tax ID number

Preschool, Boy Scouts, UMM, Pastor’s Discretionary Fund, Trustees, Memorial Fund, Endowments

UMW funds should be audited each year but presented separately from the church financial reports.

Designated Funds Restricted Gifts – Temporary & Permanent Local Church Audit FAQsSource: Local Church Audit Guide

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Meeting between Finance Committee, Treasurer, Financial Secretary, and Auditor before audit begins, and again after audit is complete

Finding an Auditor

Gathering documents

Set timeline and expectations, monitor progressPreparing for the Audit28

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Fund Accounting & Investments

Fund accounting

Respects donor intent

Preserves resources for intended usesMay segregate authority over spendingMakes long-term planning easierInvestments

Must have policy

Governance

Diversification

Asset allocationUnited Methodist Social Principles must be followedCongregational transparency is keyConsider investing with the Council on Development

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Manage Risk- it can break a budget if you don’t

Insurance policies

Property & casualty –

Guidance from West Ohio Conference Board of TrusteesLiabilityReview riders annuallyGenerally overseen by Board of TrusteesRemember Safe SanctuariesChurch property list

Account/safe-deposit box signers: At least 2

Computers and data:

Regularly back up computer records and restore backups on a periodic basis to test functionalityImplement a password policy that includes forced, periodic changes

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Insurance Policy Considerations

Insurer

should know church market, AND

Representations/Agent should know church marketDon’t scrimp on liability coverageRarely needed but when needed…Know what you ownBook of Discipline ¶2533.2 –annual review against GCFA standardsWest Ohio Endorsed:Church MutualBrotherhood MutualUnited Methodist InsuranceGuide One*

Cincinnati Insurance*

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Always and Never

Always:

Remember your contribution to ministry

Encourage discussion of stewardshipErr on the side of reporting transparencyHave two pairs of eyes on key processes and activitiesRespect existing policies

Never:

Withhold information from governing bodies

Perform all finance functions yourselfLeave cash or checks in unlocked drawers overnightShare confidential donor information beyond approved peopleDelay sharing bad news

Conclude you alone are responsible for church income levels

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Thank you!