1. finance
2. accounting and auditing

Eastern Shore Local Church
Finance Workshop
1
Workshop Outline
1. Internal Controls
2. Audits
3. Charitable Contributions
4. Accountable Reimbursement
5. Church Taxes
6. Record Retention
7. Risk Management
8. Statistical Reports
9. Apportionments – First Mile Giving
10.Finance Team
11.Lay Employee & Clergy Tax Items
12.Clergy Tax Related Items
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Internal Controls
3
Internal Controls
• Definition:
– Checks & balances used in financial
system
–to assure records are accurate
–to assure assets are used properly
& accounted for appropriately
4
Minimum Internal Controls
1. Cash counted by two unrelated
persons - Both people must sign count sheet, pastor
nor treasurer may count money or deposit it
2. Count teams, Financial Secretary, and
Treasurer should not be related
3. Authorizer of expenditures should not be
the check signer - Disbursements should be reviewed
and approved by the committee chair or staff person
responsible for the corresponding budget item, reimb to self
should be approved by another leader of the church
4. Bank Reconciliation should reviewed by
Audit Committee
5
Minimum Internal Controls
5. No person permitted to sign check
payable to themselves
6. All original invoices from suppliers
7. Quarterly statements comparing actual
to planned expenses for committees
8. At least annually, donor statements,
quarterly is suggested
9. Year end Audit of Financial Statements
10. Adequate Bonding Insurance for any
one that handles money
6
Book of Discipline 2012
Organization and Administration
¶ 258.4c The committee on finance
shall establish written financial
policies to document the internal
controls of the local church. The
written financial policies should be
reviewed for adequacy and
effectiveness annually by the
committee on finance and submitted
as a report to the charge conference
annually.
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Church Audit
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Why have a Church Audit?
1. Build Trust & Confidence - Assure
donors that church cares about
their gifts
2. To protect elected church officials
from unwarranted charges of
improper handling of funds
3. Set habits of fiscal responsibility &
continuity and accountability
4. Book of Discipline requires the
church audit
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Practical Definition of a
Church Audit
• An independent evaluation of the financial
reports & records & the internal controls of
the church by a qualified person(s)
• Reasonably verifying the reliability of
financial reporting
• Determining whether assets are being
safeguarded
• Determining compliance with the law, the
Discipline, & Church policies/procedures
10
Criteria for person(s) conducting audit?
1. “Qualified” Experience with
Accounting Principles
2. Need not be a CPA
3. Independent – not related to Treasurer,
Financial Secretary, or Count Team Members
4. Exchange services with another
church
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What should be included in the audit?
1. Track the cash through the system
2. Document that donated funds have been
used as stipulated
3. Independently verify treasurer reports
4. Evaluate Internal Controls
5. Assess reasonableness of systems and
procedures
6. Review meeting minutes that have
financial implications
7. Adequate Insurance Coverage
12
Book of Discipline 2012
Organization and Administration
¶ 258.4d The committee shall make
provision for an annual audit of the
financial statements of the local
church and all its organizations and
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 reports and records and the
internal controls of the local church
by a qualified person or persons.
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Charitable Contributions
14
Charitable Contributions
WRITTEN ACKNOWLEDGEMENT
1. Name of church
2. Amount of cash contribution
3. Statement “no goods or services were
provided other than intangible
religious benefits.”
*Statement should be sent no later than January 31st for the prior year.
* A donor is responsible for obtaining a written acknowledgment from a
charity for any single contribution of $250 or more, before the
donor can claim a charitable contribution on his/her federal income
tax return.
15
Year-End Contributions
• Charitable Contributions must be
received no later than Dec 31st to be
included in the prior year’s
contribution, except when mailed by
the donor, then it is the year on the
postmark.
16
Non-cash Contributions
Non-cash contributions – letter should
not state value of donation.
“Thank you for your contribution of a used oak baby crib and
matching dresser that (organization’s name) received on March 15,
2012. No goods or services were provided in exchange for your
contribution.”
17
Charitable Contributions
RESOURCES:
IRS Publications:
a. #1771 – Charitable
Contributions-Substantiation &
Disclosure Requirements
b. #526 – Charitable Contributions
c. #561 – Determining Value of
Donated Property (refer donors here
if they are unsure how to determine value)
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Accountable
Reimbursement
19
Accountable Reimbursement
Policy
• What is an Accountable Reimbursement Policy?
A method of claiming and reimbursing professional or business
expense rather than providing an expense allowance
• What are the advantages?
Expenses are reimbursed and
therefore are not reported for taxes
• When should the policy be set up? At the time of
charge conference, the accountable reimbursement should be
established
• How should expenses be substantiated? Original
receipts; a log of mileage maintained; items under $75 can be listed
with purpose; reimbursement request turned into church treasurer
(<60days)
20
Examples of Improper
Reimbursement Items
•
•
•
•
•
•
•
•
•
•
•
Mileage to church from home for daily work (or lunch)
Meals with friends at which church matters are discussed
Spouse’s travel (under most circumstances)
Vacations (including a trip to the Holy Land)
Trips to see a sick relative
Trips to funeral home when Pastor received honorarium
Everyday clothing including a business suit
Medical expenses,Child care expenses,Insurance premiums
Charitable contributions
Housing related expenses
Subscriptions for personal use
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Examples of Proper
Reimbursement Items
•
•
•
•
•
•
•
•
•
•
Reasonable travel and related expenses for meetings
Church approved trips to preach at another church
Trips to visit members at hospitals, nursing homes, homes
Business lunch meetings with officers of the church
Church related continuing education
A computer required for church work
Vestments worn for worship
Church related books and periodicals
Office furnishings (desk, chair, telephone,etc)
Phone calls for church business
22
Church Taxes
23
Federal Employer Identification
Number (FEIN)
• 9 digit number (xx-1234567) to identify
organization like a SS# for individuals
• Local churches must operate under their
own FEIN number
• Required for:
 Bank accounts
 Bulk mailing permit
 Payroll processing
24
Group Ruling for UM Churches
• Recognizes certain UM organizations as
exempt from federal income tax under Section
501(c)(3)
• Exempt from Federal Unemployment Tax Act
(FUTA) & State Unemployment Tax Act (SUTA)
• Not required to file IRS Form 990
• May be required to file IRS Form 990T for
unrelated business income
• Churches do not need to file for own 501(c)(3)
• Contact Conference Treasurer Office to submit
Group Ruling Request to GCFA.
25
Virginia State Sales Tax
•Churches eligible for exemption of
sales tax
•Two types of Exemption:
–Self-issued Form ST-13A
–Certificate with VA Tax-Exempt ID
Number (broader exemption)
•Information and Application on line
at www.npo.tax.virginia.gov
26
Virginia Property Tax
Exemption
• Tax Code 58.1-3617
• Real Estate
• Personal Property (Owned & Leased)
–Vehicles
–Equipment
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Record Retention
28
Record Retention Guidelines
 Keep One Year
 Offering Envelopes
 Keep Three Years
 Business Correspondence
 Employee Personnel Records (after
termination)
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Record Retention Guidelines
Keep Five Years
 Bank Statements
 Check Reconciliations
 Worksheets & Related Documents for Tax
Returns
 W-2’s and 1099’s
 Canceled Checks
 Invoices
 Individual Giving Records
 Housing Allowance Forms
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Record Retention Guidelines
Keep Permanently










Incorporation Papers & Annual Corp. Reports
Minutes
Treasurer’s Reports
Tax Returns
Audit Reports
Property Records
Contracts and Leases in Effect
Insurance Policies (incl. Expired Policies)
Insurance Letters/Correspondence
Employee Applications (for current employees
31 )
Risk Management
32
Risk Management
1. General Liability Insurance
• Employee Liability – sexual
misconduct/discrimination
• Directors & Officers
2. Property Insurance
3. Fidelity Bonding/Crime Policy
4. Workers Compensation
United Methodist Insurance , owned by GCFA, can be
contacted at 1-800-975-5442 for a quote.
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Book of Discipline 2012
Organization and Administration
¶ 2533.2 The Board of Trustees shall review annually
the adequacy of the property, liability, and crime
insurance coverage on church-owned property,
buildings, and equipment. The Board of Trustees
shall also review annually the adequacy of
personnel insurance. The purpose of these reviews
is to ensure that the church, its properties, and its
personnel are properly protected against risks. The
board shall include in its report to the charge
conference the results or its review and any
recommendations it deems necessary.
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YEAR-END STATISTICAL
REPORTS
35
Statistical Reports
Year-End – 3 Tables
1. Membership and Attendance –
due Jan 15th
2. Expenditures - due Jan 31st
3. Income - due Jan 31st
ezra.gcfa.org
36
Apportionments
37
Apportionment Formula
For all apportionments except Active Clergy Health,
2013 Local Church Expenses
=
Church
Decimal
X
Conference
Budget
2013 All Churches Expenses
=
Your
Church
Ministry
Share
For Active Clergy Health Apportionment,
TIER 1
$5,000 flat amt
for each full-time
active clergy
+
TIER 2
Your clergy’s salary
divided by all
clergy’s salary
=
Your
Church’s
Share of
Active Clergy
Health
38
What are “Operating Expenses”?
“Church Expenses” INCLUDES:
Line 46 – Clergy Pension
Line 48 -- Pastor Compensation
Line 49 – Associate Pastor(s) Compensation
Line 50 – Clergy Housing and related expenses
Line 51 – Clergy Accountable Reimbursement
Line 52 – Non-Acctable Clergy Cash Allowances
Line 53 – Salary and Benefits for Deacons
Line 54 – Salary and Benefits for Diaconal Ministers
Line 55 – All Other Salary and Benefits
Line 56 – Church Program Expenses
Line 57 – Church Operating Expenses
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2015 Apportionments
Conference Apportionments
401-Conference Mission & Ministries
402-Conference Services
403-District Superintendents Fund
404-Equitable Compensation
405-Church Extension and Development
406-Virginia Education Fund
Clergy Benefits Apportionments
407-Active Clergy Health
408-Retired Clergy Health
409-Pension Liability Assessment – Pre 82
General and Jurisdictional Apportionments
410-Episcopal Fund
411-World Service
412-General and Jurisdictional Connectional Fund
413-Ministerial Education
414-Black College Fund
415-Africa University Fund
416-Interdenominational Cooperation Fund
* Reference the Mission Opportunities Booklet.
40
Online Apportionments
• Online Apportionment Statements
• Pay Apportionments and Benevolences
www.vaumcpayapp.org
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Church Finance Team
42
Responsibilities of Local
Church Finance Team
1. Financial Direction
2. Annual Funding Program
3. Operating Budget
4. Financial Communication
5. Financial Reports
6. Future Financial Planning
43
Financial Secretary
1. Receiving Funds – count teams of at least two
unrelated persons
2. Record Keeping – records of money received by
whom and what purpose
3. Communication – at least quarterly, report
contributions to individuals
44
Treasurer
1. Disbursement of Funds – payroll, expenses,
apportionments, to keep within the approved budget of the
Church Council AND disbursement of restricted gifts
2. Financial Reports – provide Financial Committee
with a report of cash status of all funds and Operating Budget
Financials
3. Payroll Taxes and Forms
4. Documentation of all Disbursements
45
Lay Employee & Clergy
Payroll Taxes
46
Employee or Independent
Contractor?
• Most cases – Employee
• Church must provide W-2
• Contractor
• Church must provide1099 Misc for anyone
paid $600 or more within the year.
• IRS provides a three fact test to help you
determine employee – vs- contractor.
• Prepare now and require any contractor to
complete a W9 to verify their FEIN.
47
Tax Limits for 2014
2014
2013
Employee Payroll Taxes (FICA)
Social Security Tax Rate (Employee Share)
Social Security Tax Rate (Employer Share)
— Social Security Wage Base
Medicare Tax Rate (Employee Share)
Medicare Tax Rate (Employer Share)
6.20%
6.20%
$113,700
1.45%
1.45%
6.20% (eff Jan 2013)
6.20%
$113,700
1.45%
1.45%
Self-Employment Taxes (SECA)
Social Security Tax Rate
— Social Security Wage Base
Medicare Tax Rate
12.40%
$113,700
2.90%
12.40% (eff Jan 2013)
$113,700
2.90%
Standard Mileage Rate
56¢ business
56.5¢ business
14¢ charitable
14¢ charitable
48
Tax Forms
• New Employees
• W4 for Fed Withholding
• VA4 for State Withholding
• New hire form
• I9 for Employment Eligibility Verification
• Monthly scheduler depositor
• Federal tax due no later than 15th of the
following month (EFTPS)
• State tax is due no later than 25th of the
following month (iFile)
49
Tax Forms
• Federal Form 941
• Quarterly due April 30, July 31, October 31,
and January 31
• If your pastor is your only employee, the
church is not required to file a form 941
• W2 given to employees by Jan 31st
• NEW – VA-6 and W2s submitted to Virginia
Department of Taxation by Jan 31st (deadline was
Feb 28th in previous years)
• 1099-misc given to individuals > $600 by Jan 31st
• W3/W2 and 1099-misc/1096 submitted to Social
Security Admin by Feb 28th
50
Clergy Payroll
51
Clergy Tax Status
•“Employees” for federal and state
tax purposes, and
•“Self-employed” for social security
purposes
52
“Self-employed” for
Social Security purposes
•Clergy pay 100% of Social Security
and Medicare
•Church cannot pay FICA
•Clergy files the quarterly estimated
return Form 1040ES
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RESOURCES
•
Virginia Conference
www.vaumc.org
toll-free 800-768-6040 or
local 804-521-1100 or direct-dial 804-521-1100
•
Virginia Conference Treasurer’s Office
David Dommisse, Conference Treasurer/Business Mgr. ext. 109 [email protected]
Carol Draper, Staff Accountant, ext 105 [email protected]
Melanie Ward, Staff Accountant, ext 104 [email protected]
Carol Crawford, Church Receipts Accounting ext. 108 [email protected]
Janet Davis, Accounts Payable/Equit.Comp. ext.107 [email protected]
Becki Stokes, All Things New ext.106 [email protected]
•
•
•
•
•
•
Internal Revenue Service
www.irs.gov
(tax information)
Virginia Tax Office www.tax.virginia.gov
Social Security Administration www.socialsecurity.gov
Gen. Council on Finance & Admin. www.gcfa.org (clergy tax packet)
Gen. Board of Global Ministries www.gbgm-umc.org UM global missions
UMCOR www.umcor.org UM Committee on Relief (disaster relief)
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