Faith-Based Accounting

Making a List and Checking it Twice (Unsolicited Accounting Advice from Santa Claus)

Though "making a list" might sound simplistic, it is important to track a church's fixed assets at some level or another. Whether utilizing software specific for this purpose or general-use software such as Access, FileMaker or Excel, a church should develop a database of some sort to aid in this tracking process. Whatever solution it employs, churches should ensure that the database includes accurate relevant details such as the cost of the item, the date acquired, its service life, and any accumulated depreciation. Many CPA firms have depreciation software that can be utilized as well.

Once you make the determination of how to track this information, it should be input into the fixed asset module or another software program designed for maintaining fixed assets. Tracking property and equipment in a spreadsheet program like Excel can become an administrative burden, but is a viable solution in some instances.

A database should be kept up-to-date for insurance purposes as well as for proper accounting. These objectives might overlap, but each subset may contain different records, as the criteria for tracking are different. The church insures buildings and property in the event that there is a theft, tornado or some other tragic event, so having a detailed inventory of the church’s assets could be critical.  A current inventory listing of property and equipment allows the church to present to the insurance company an accurate record of the assets that were lost. This property and equipment inventory should include the date of acquisition, a description of the asset, quantity, and location.

In addition to a listing, we also suggest that a church make an annual video recording of the Church property. Such a video would slowly scan church property, panning each room carefully, and should be done at least once per year. It could even be a fun project for the youth pastor and a couple of students. The inventory listing and/or video should be duplicated and stored off-site for safekeeping.

Finally, churches should prepare a periodic reconciliation of the fixed assets or depreciation schedule to the G/L. That ensures that the physical listing agrees with the financial statements and records, thereby ensuring the accuracy of both.

A fraud resistant church will watch over its assets by maintaining accurate and thorough property records, taking periodic inventories of its holdings, and making security a priority.

What software do you use to track your fixed assets? Is it reconciled routinely? Do you tag your assets? When was the last time you performed a physical inventory?

 

--As National Relationship Manager with PSK LLP, Delton de Armas is a self-described right-brain dreamer solving left-brain problems, focusing on developing relationships with church leadership, layman, and other supporting professionals to help identify challenges and offer creative solutions. 

   

I owe you what??

In any business, having a high level of confidence in the amounts that are owed to various vendors is crucial. This fact is no different within our churches. The key to having this confidence is making sure adequate recordkeeping is maintained. Best practice guides stress that you should always have a consistent method for entering all invoices into your accounting system with the correct information provided on the invoice. This includes invoice number, invoice date, due date, amount, and a description of the products/services indicated on the invoice.

With all accounting software, you should be able to pull a report from your system that will show you a list of all unpaid invoices including the vendor name, invoice date, due date and amount. Having this report can help you examine various things; for instance, are there any accounts payable items that are significantly past due? If so, these should be researched further. Perhaps they have been paid, but due to an incorrect posting, were not removed from the accounts payable list, or maybe a certain invoice was mistakenly overlooked and is truly past due and, therefore, would need to be paid. Also, if there are ever any disputes with vendors over amounts owed, the accurate recordkeeping will give you the assurance you need in order to know whether or not the amounts have been paid in full.

From a fraud perspective, having the Church Governing Council review the unpaid invoice details regularly can hopefully uncover a possible fraud in the early stages.

What methods does your Church use to ensure accurate recordkeeping? Who reviews the unpaid invoice listing and how often?

 --Tia Fisher is a Senior Auditor specializing in church accounting with PSK LLP.

Anyone want some money?

At that announcement the line begins to form.

Cash disbursements are easily the most manipulated, error prone process of any organization. Without proper controls and oversight in place, and in practice, money doesn’t have to grow legs and walk – it gets handed out. Maintaining an internal audit process of this area is essential and very easy.

Review the written policy covering the procedures for all transactions paid through the organization. The procedures should include the requirement for support of all disbursements, including the rare petty cash reimbursement.

Review documentation, such as a voucher or request form; it should be completed with the place, amount, and purpose along with the original receipt (dated within 60 days of the request) and a copy of the issued check or stub. Verify check stock is secure and account for all check numbers, including voided checks.

As an added measure, review the most recent cash disbursements against the general ledger to ensure they are recorded accurately.

Does your organization have an accountable reimbursement plan? Do you ever have a hard time getting receipts from employees?

- Lisa Chapman is an auditor specializing in church accounting at PSK LLP.

Lions and Tigers and FRAUD - Oh My !!!

Many churches think that an external audit is the best way to prevent fraud from occurring, or at least to detect fraud once it has occurred. I’m an audit partner, so I don’t encourage churches NOT to have financial audits! Financial audits are important and I believe most churches/ministries should have one. But the primary purpose of an audit is not to detect fraud, and there are more effective ways to protect your church from fraudulent activity.

The Association of Certified Fraud Examiners (ACFE) says that a much higher success rate exists for those who take matters in their own hands, doing some of the work themselves, rather than farming out fraud prevention to their auditors.

Management review and internal audit steps account for more fraud detection that anything else! These are steps that church leaders (finance committee, elders, board members, etc.) can perform.

In this blog, over the next couple of months, we’ll discuss a variety of concrete ways you can examine yourselves to see how your church might be susceptible to fraud – and what you can do about it!

And don’t forget our website dedicated to Church Fraud – http://weedsinthegarden.com/

NACBA - It's On To Orlando!

The National Association of Church Business Administration hosts its annual conference next week in Orlando (July 19-23).  Always lots interesting conversation and insightful presentations at these annual gatherings!  I encourage you to attend Verne Hargrave's presentation on Church Fraud.  What he has to say will scare you to death, but also give you the tools to greatly reduce fruad risk.

NACBA website  www.nacba.net

Verne's websites www.pskcpa.com

    www.weedsinthegarden.com

IRS releases Dirty Dozen Tax Schemes

... and charitable organizations make the 2008 list.

The IRS listed the misuse of charitable organizations as one of the 12 most egregious tax scams by taxpayers.  Abuse by donors who try to maintain control over donated assets or income from donated assets is just one example.  Taxpayers are also claiming overvalued property donations for a larger deduction.  Finally, taxpayers are disguising private tuition payments as contributions to charitable or religious organizations.

This information is good to keep in mind.  We all like to think that our donors have the best intentions but the IRS is saying that these scams are happening on a large scale basis.  If you have someone who wants to control how their donation is used, you should know that the donation is considered a donor advised fund and is subject to strict rules. 

Noncash contributions also have certain requirements.  Individuals are required to file a form 8283 for noncash donations over $500.  A form 8282 is generally required to be completed by the charitable organization (aka you) to report dispositions of certain charitable property made within 3 years after the donor contributed the property.  Yes, I did say 3 years.  Certain charitable property is any donated property other than money and publicly traded securities over $5,000.

Remember there are usually exceptions to the rules but I have listed the general rules. 

Click here to see the entire list.

Botox

This article (http://www.msnbc.msn.com/id/30089614/) reminded me of a fraud prevention principle - Most church embezzlements are probably not committed by crooks. Sinister looking guys usually don’t hang around churches with cigarettes hanging out of their mouths looking for the right opportunity to jump. Instead, I think more financial attacks on churches are committed by people who are basically good but, for one reason or another, find themselves in bad circumstances such as addictions (gambling being the most frequent), business reversals, and health issues.

Unfortunately, many churches operate under the belief that you have to be a crook to be a church embezzler, and convince themselves that since “We have no crooks here we have nothing to worry about.” What they forget is this: they do have hurting people. Probably more than they realize. In fact, every church has plenty of wounded members and employees with all sorts of “issues”. And unfortunately, many of their wounds can be eliminated, or at least, soothed with money.

I don’t know if the need for plastic surgery and Botox constitutes an “issue". But it did for this particular priest. And his church is $85,000 the poorer for it…

Crisis Management

At our most recent monthly breakfast for church business administrators, Lawrence Swicegood offered great info on Crisis Management.  He runs Clarion Call Marketing - www.clarioncallmarketing.com.  Very insightful!  Everything from how to be prepared even before a crisis erupts, how to handle and how to do a "post mortem."  Topics, in outline form:

• Everyone is Affected by a Crisis
• Characteristics of a Crisis
• Planning for a Crisis
• Potential Crises for a Church
• Developing a Response Plan
• Internal & External Communications

• Post Crisis Analysis

For more info, contact Lawrence (lswicegood@msn.com) or give us a call at PSK.

Picking up speed...

Because of our involvement in fraud prevention we make it a point to keep up with the latest news by periodically searching the web for news stories.  It seems like the pace of fraud occurrence is quickening.  Take a look here, (LINK) and here, (LINK) and here. (LINK)  PSK is not involved in any of these situations so I have no idea about anyone’s guilt, innocence or the ultimate outcome of the cases.  But, I am sure of one thing; no church or ministry wants to make these types of headlines.

To avoid this kind of publicity we have been urging, almost pleading with churches to take this situation seriously.  A "clear and present danger" exists and every church should immediately perform an analysis of their current management structures to determine their vulnerabilities to fraud.

This does not have to be complicated.  For example, a great start would be to simply hold a brainstorming session with key employees and volunteers. The meeting agenda could be organized around a few key questions.  For example you could start with the revenue streams of your church:

What are our church's different sources of revenues? (Offerings, counseling fees, tuition, fund-raising events, etc.)

Do we have processes in place to effectively and safely account for ALL sources of revenues?

Who is involved in the money collecting, counting, recording, and depositing processes?

Reason for Benevolence Policy - Don't Fall for Scam

So a chaplain at the University of Dallas wanted to be kind and reach out to someone who seemed needy.  And now the Chapel at the University is $100,000 poorer!  See the article in the Dallas Morning News -http://www.dallasnews.com/sharedcontent/dws/dn/education/stories/021709dnmetchaplain.36f29b2.html

Your church needs to have a clearly written benevolence policy - AND it needs to be followed!  The policy should address questions like -

• To whom will your church offer assistance?
• For what reasons?
• How much?
• How many times?

By the way, you cannot offer assistance to anyone on staff or their relatives.  By law, that is taxable income that MUST be reported to the IRS!

So take care!  If you don't have a formal benevolence policy, give us a call - we'll provide help and a policy template.