The Episcopal Diocese of San Diego
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Leadership Academy
February 25, 2017
Financial and Administrative Best Practices
Presented by
Julie Young, Treasurer and Canon for Finance and Administration
Introductions
I. Familiarize Yourself with Resources
•
The Episcopal Church Canons
•
The Episcopal Diocese of San Diego Canons
•
Your own church by-laws
•
Manual of Business Methods in Church Affairs
•
Available on EDSD website – search on title
II. Financial Management is Key
•
Approve a balance budget and manage
finances accordingly
•
Create an effective stewardship plan
•
Take only a 4-5% payout from investments
•
Let your property work for you!
II a. Financial Statements
•
Statement of Activities (also known as Income Statement
or Profit & Loss (P &L) Statement
•
Statement of Financial Position (commonly known as the
balance sheet)
Understand how to read
Make sure vestry receives
Ask questions (there are no dumb questions)
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Cash: Income is recorded/dated when it is
received and expenses are recorded/dated when
they are paid
•
Accrual: Income is recorded/dated when it is
earned and expenses are recorded/dated when it is
incurred
Both are acceptable methods for use by
congregations. If cash accounting is used, it is
recommended that all unpaid bills should be
recorded as a liabilities at the end of the year.
(Business Manual p. i-4)
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Statement of Financial Position
also known as Balance Sheet
Three Components:
•
Assets: Bank and Investment Accounts, Property,
Accounts Receivable
•
Liabilities: Mortgages, Payables
(unpaid bills)
•
Net Worth/Net Assets
Assets - Liabilities = Net Worth/
Net Assets
Statement of Financial Position, cont’d
NET ASSETS Categories
•
Permanently Restricted: Funds restricted by
donors in perpetuity. Commonly known as
endowments
•
Earnings from endowments are considered
temporarily restricted
•
Temporarily Restricted: Funds that are donor
restricted for a specific use or for a specific time
Statement of Financial Position cont’d.
•
Designated: Funds that the vestry has set restricted for a certain use
•
Designated funds can be permanently or temporarily restricted funds
•
Example of temporarily restricted: Property reserve
•
Permanently restricted: “Quasi-endowment” or Board designated endowment
•
Designated restrictions can be changed by vestry vote
Unrestricted: Assets that have no restrictions put on them.
Key: Restricted net assets are obligations of
church and sufficient funds should be available to
cover them
III. Make sure you have adequate insurance
Minimum Insurance Guidelines
•
Minimum Insurance Guidelines recently approved by
diocesan executive council:
http://edsd.org/church-
property-resources
•
If Church Insurance Agency is your carrier, your insurance
meets the minimum
•
Churches insured with Church Insurance Agency have additional
diocesan wide “blanket” coverage for property related claims
•
If you don’t use Church Insurance Agency, a certificate of insurance
naming the diocese as “additionally insured” must be provided
annually
•
Church Insurance Agency Corporation insures most of our
churches
•
Jack Rutledge is the VP, Client Services
Minimum Insurance Guidelines
•
Commercial Package: Insure for replacement value of
property
•
Consider fine arts insurance
•
Commercial Crime: $25k blanket fidelity bond for employees and
key volunteers
•
Comprehensive General Liability 1 mln/5mln
•
Employees Benefits Liability 1 mln ea. Event
•
Medical Payments $25,000 per person
•
Sexual Misconduct: 1 mln/2 mln
•
Hired and Non-owned auto: 1 mln ea. event
IV. Property needs routine maintenance
. . .
And more
Recommend a physical property evaluation and establish a
property reserve
Replacement Reserve Schedule
V.a. Compliance with California
Employment Law – come to Human
Resource Management Workshop next in
this same room
Most if not all your lay employees are not exempt from wage-
hour laws so should be paid by the hour and submit a time
sheet for approval and payment
Also should not volunteer in same capacity that they are paid
V.b. Compliance with the IRS
•
Priest’s income (except short term supply) is reported on
W2 but no FICA or Medicare tax is taken out of pay –
priests pay SECA
•
Section 125 plan required if payroll deductions are taken
for health insurance if deduction is pre-tax
•
Ask your payroll service for help setting this up
•
Section 106 Plan needs to be approved by vestry
•
Simple resolution that approves implementation of 106 plan so that
health insurance benefits paid by the church are not taxable
income
V.c. Use a Payroll Service
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Do you really want to worry about making sure W2’s and
Form 941’s are filed?
Do you really want the potential liability of unpaid payroll
taxes?
V.d. Use Independent Contractors
Appropriately
•
Have control over how they deliver the job
•
Request Certificate of Insurance naming church as additionally
insured, W-9, and (if applicable), copy of license
•
Have a written contract specifying scope, pay and term (template
on our website)
•
Provide 1099 at the end of the year that includes gross payment to
non incorporated contractor if total payments exceed $600
•
Short term supply priests are considered independent contractors
and given a 1099.
VI. Safeguard God’s People
•
Make sure background checks are conducted of all new
employees
•
Low cost background checks are available for lay employees from
Praesidium through the diocese
•
Make sure Safeguarding God’s People is attended by key
volunteers and employees
•
Coming soon! Online training!
VII. Know canons and deadlines
•
Any encumbrance (including leases) to your property
must be approved by the Bishop and the Standing
Committee
•
Annual Meeting report due now
•
Property Tax Exemption Claim due to County Feb. 15
•
Parochial Report Due March 1(include 2016 financial
statement, 2017 budget, and reconciliation worksheet)
•
Roster of vestry or Data Collection form due March 30
•
Notification of type of audit to diocese April 21
•
Audit Due to Diocese September 1
•
Mission Share Pledge form due November 15
VIII.
Understand
Clergy Discretionary
/Pastoral Needs Fund
•
TEC Canon III.9 provides that the “loose offering” at one
Sunday a month is designated for the rector or priest in
charge “pious and charitable uses”. Others can make
contributions to the fund as well.
•
Cannot be used for personal use or gifts
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Accounting for Discretionary Fund
•
Two Methods
•
All gifts made to the fund and all expenditures from
the fund are handled from the church operating
account
•
Or vestry may approve a separate account.
•
All gifts to the fund are deposited in the general account
and then transferred into discretionary account
•
Bank statements are sent to someone other than the rector
who should verify that deposits and review checks written
against backup material provided.
•
Cash Disbursements are discouraged
•
Subject to audit
IX
. Have Internal Controls in Place
•
Goal: to prevent or identify errors as well as potential
misuse of funds.
•
Objectives:
•
Adequately safeguard cash and other assets
•
Ensure all transactions are documented and authorized
•
Expend funds in accordance with donor restrictions
•
Provide accurate and timely financial reporting
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Internal Controls Key Elements
•
Segregation of duties: All steps in
transactions should NOT be handled by one
person
•
Authority Levels should be clearly spelled out
•
Documentation and record keeping
•
Independent reviews
•
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Internal Controls, Cont’d. -- Cash
•
Sunday Offering:
•
Two Counters should count the money after the
services and put in sealed envelope with the
amount and their signatures on it. Counters
should rotate
•
Separate individual should make the deposit
•
Ideally, separate person should record deposit
•
Petty Cash: Petty cash should be counted by
person not in charge of cash. Verify amount
against receipts
Internal Controls, Continued
Reconciling Bank Accounts
•
Bank Accounts should be reconciled monthly.
•
Person that is not a signer or processing the checks
should open the bank statement
•
Person that is not reconciling the account should review
the monthly reconciliation
Internal Controls, Continued
Payroll
•
Risks:
•
Overpaying existing employees
•
Paying fictitious employees
•
Failure to recover advances
•
Payroll should be checked or recorded by
someone other than the person processing
payroll
•
Make sure proper documentation of advances,
pay rate, time sheets and advances is
available
•
Use a payroll service
X. Make Sure an Audit is Conducted
(MMR & Audit = Healthy Congregation)
•
Annual audits are required by the Canons of the
Episcopal Church for all parishes, missions and
other institutions
•
Purpose is to assure financial statements are
fairly stated and internal controls are in place
•
Designed to protect the assets of the organization
as well as the people handling those assets
Audit Guidelines cont’d
•
Diocese has specific guidelines regarding the type of
audit that is required. Guidelines are based primarily on
the revenue of the church including school, thrift shop,
etc.
•
A
workbook has been sent to each church that explains
the guidelines and procedures for conducting audit
How can we help?
•
Quarterly trainings/roundtables?
•
Additional templates on website?
•
Don’t forget to sign up for Finance and Admin News –
each edition includes “Treasurer tip of the month”
Thanks for participating!
•
For more information:
Julie Young
Treasurer and Canon for Finance and Administration
619-481-5453
jyoung@edsd.org
Please fill out an evaluation!
The Episcopal Diocese of San Diego and its employees do not
provide, and none of the information furnished in this presentation
should be viewed as investment, tax, or legal advice. The content
is provided for your information purposes only.
Dive into financial and administrative best practices presented by Julie Young, Treasurer and Canon for Finance and Administration at The Episcopal Diocese of San Diego Leadership Academy. Learn about key tips, financial statements, accounting methods, and more to enhance your church's financial management.
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Presentation Transcript
The Episcopal Diocese of San Diego Leadership Academy February 25, 2017 Financial and Administrative Best Practices Presented by Julie Young, Treasurer and Canon for Finance and Administration
I. Familiarize Yourself with Resources The Episcopal Church Canons The Episcopal Diocese of San Diego Canons Your own church by-laws Manual of Business Methods in Church Affairs Available on EDSD website search on title
II. Financial Management is Key Approve a balance budget and manage finances accordingly Create an effective stewardship plan Take only a 4-5% payout from investments Let your property work for you!
II a. Financial Statements Statement of Activities (also known as Income Statement or Profit & Loss (P &L) Statement Statement of Financial Position (commonly known as the balance sheet) Understand how to read Make sure vestry receives Ask questions (there are no dumb questions)
Accounting: Cash vs Accrual Cash: Income is recorded/dated when it is received and expenses are recorded/dated when they are paid Accrual: Income is recorded/dated when it is earned and expenses are recorded/dated when it is incurred Both are acceptable methods for use by congregations. If cash accounting is used, it is recommended that all unpaid bills should be recorded as a liabilities at the end of the year. (Business Manual p. i-4)
Statement of Activities (aka Income Statement) Approved budget should be on statement! Know whether your church does accrual or cash accounting Income Statement February 2017 (cash basis) February Year to Date Actual Budget Actual Budget Variance Revenue Pledge 5,100 5,000 11,123 10,000 1,123 Plate 349 500 795 1,000 -205 Other 25 100 53 200 -147 Total 5,474 5,600 11,971 11,200 771 Expenses Personnel 7,500 8,000 500 3500 4,000 Liturgy 250 400 599 800 201 Office 99 200 315 400 85 Maintenance 1,000 750 3,523 1,500 -2,023 Total 5,349 5,350 12,437 10,700 -1,737 Net Income (Loss) 125 250 -466 500 -966
Statement of Financial Position also known as Balance Sheet Three Components: Assets: Bank and Investment Accounts, Property, Accounts Receivable Liabilities: Mortgages, Payables (unpaid bills) Net Worth/Net Assets Assets - Liabilities = Net Worth/Net Assets
Statement of Financial Position, contd NET ASSETS Categories Permanently Restricted: Funds restricted by donors in perpetuity. Commonly known as endowments Earnings from endowments are considered temporarily restricted Temporarily Restricted: Funds that are donor restricted for a specific use or for a specific time
Statement of Financial Position contd. Designated: Funds that the vestry has set restricted for a certain use Designated funds can be permanently or temporarily restricted funds Example of temporarily restricted: Property reserve Permanently restricted: Quasi-endowment or Board designated endowment Designated restrictions can be changed by vestry vote Unrestricted: Assets that have no restrictions put on them. Key: Restricted net assets are obligations of church and sufficient funds should be available to cover them
Balance Sheet February 28, 2017 Cash and Investments Net Assets Checking $3,330 Temporarily Restricted Investments Total Current Assets $12,000 $15,330 Endowment Earnings Building Fund $1,000 $27.168 Altar Guild $2,359 Fixed Assets Pastoral Fund $599 Church Building $325,000 Total Temporarily Restricted $31,126 Church Land $250,000 Furnishings $49,231 Permanently Restricted $10,000 Less Accumulated Depreciation $32,000 Total Fixed Assets $592,231 Unrestricted $441,435 TOTAL ASSETS $607,561 Total Net Assets $482,561 Liabilities Payables $25,000 Mortgage $100,000
Minimum Insurance Guidelines Minimum Insurance Guidelines recently approved by diocesan executive council: http://edsd.org/church- property-resources If Church Insurance Agency is your carrier, your insurance meets the minimum Churches insured with Church Insurance Agency have additional diocesan wide blanket coverage for property related claims If you don t use Church Insurance Agency, a certificate of insurance naming the diocese as additionally insured must be provided annually Church Insurance Agency Corporation insures most of our churches Jack Rutledge is the VP, Client Services
Minimum Insurance Guidelines Commercial Package: Insure for replacement value of property Consider fine arts insurance Commercial Crime: $25k blanket fidelity bond for employees and key volunteers Comprehensive General Liability 1 mln/5mln Employees Benefits Liability 1 mln ea. Event Medical Payments $25,000 per person Sexual Misconduct: 1 mln/2 mln Hired and Non-owned auto: 1 mln ea. event
IV. Property needs routine maintenance . . . And more Recommend a physical property evaluation and establish a property reserve
Replacement Reserve Schedule Year 1 Year 2 Year 3 Year 4 Roof 10000 Furnace 4000 Organ restoration 5000 19,000 Total Needs Reserve payment 4750 4750 4750 4750 End of year balance 4750 5500 5250 0
V.a. Compliance with California Employment Law come to Human Resource Management Workshop next in this same room Most if not all your lay employees are not exempt from wage- hour laws so should be paid by the hour and submit a time sheet for approval and payment Also should not volunteer in same capacity that they are paid
V.b. Compliance with the IRS Priest s income (except short term supply) is reported on W2 but no FICA or Medicare tax is taken out of pay priests pay SECA Section 125 plan required if payroll deductions are taken for health insurance if deduction is pre-tax Ask your payroll service for help setting this up Section 106 Plan needs to be approved by vestry Simple resolution that approves implementation of 106 plan so that health insurance benefits paid by the church are not taxable income
V.c. Use a Payroll Service Missions are required to use a diocesan approved outside payroll service; parishes are strongly encouraged to. Episcopal Payroll Services offers low cost service through ADP Do you really want to worry about making sure W2 s and Form 941 s are filed? Do you really want the potential liability of unpaid payroll taxes?
V.d. Use Independent Contractors Appropriately Have control over how they deliver the job Request Certificate of Insurance naming church as additionally insured, W-9, and (if applicable), copy of license Have a written contract specifying scope, pay and term (template on our website) Provide 1099 at the end of the year that includes gross payment to non incorporated contractor if total payments exceed $600 Short term supply priests are considered independent contractors and given a 1099.
VI. Safeguard Gods People Make sure background checks are conducted of all new employees Low cost background checks are available for lay employees from Praesidium through the diocese Make sure Safeguarding God s People is attended by key volunteers and employees Coming soon! Online training!
VII. Know canons and deadlines Any encumbrance (including leases) to your property must be approved by the Bishop and the Standing Committee Annual Meeting report due now Property Tax Exemption Claim due to County Feb. 15 Parochial Report Due March 1(include 2016 financial statement, 2017 budget, and reconciliation worksheet) Roster of vestry or Data Collection form due March 30 Notification of type of audit to diocese April 21 Audit Due to Diocese September 1 Mission Share Pledge form due November 15
VIII. Understand Clergy Discretionary /Pastoral Needs Fund TEC Canon III.9 provides that the loose offering at one Sunday a month is designated for the rector or priest in charge pious and charitable uses . Others can make contributions to the fund as well. Cannot be used for personal use or gifts See chapter V of the Manual of Business Methods in Church Affairs
Accounting for Discretionary Fund Two Methods All gifts made to the fund and all expenditures from the fund are handled from the church operating account Or vestry may approve a separate account. All gifts to the fund are deposited in the general account and then transferred into discretionary account Bank statements are sent to someone other than the rector who should verify that deposits and review checks written against backup material provided. Cash Disbursements are discouraged Subject to audit
IX. Have Internal Controls in Place Goal: to prevent or identify errors as well as potential misuse of funds. Objectives: Adequately safeguard cash and other assets Ensure all transactions are documented and authorized Expend funds in accordance with donor restrictions Provide accurate and timely financial reporting Remember to ask questions! Think of internal controls as a 3 legged stool!
Internal Controls Key Elements Segregation of duties: All steps in transactions should NOT be handled by one person Authority Levels should be clearly spelled out Documentation and record keeping Independent reviews Review Internal Control Questionnaire on page II-8 of Manual of Business Methods in Church Affairs
Internal Controls, Contd. -- Cash Sunday Offering: Two Counters should count the money after the services and put in sealed envelope with the amount and their signatures on it. Counters should rotate Separate individual should make the deposit Ideally, separate person should record deposit Petty Cash: Petty cash should be counted by person not in charge of cash. Verify amount against receipts
Internal Controls, Continued Reconciling Bank Accounts Bank Accounts should be reconciled monthly. Person that is not a signer or processing the checks should open the bank statement Person that is not reconciling the account should review the monthly reconciliation
Internal Controls, Continued Payroll Risks: Overpaying existing employees Paying fictitious employees Failure to recover advances Payroll should be checked or recorded by someone other than the person processing payroll Make sure proper documentation of advances, pay rate, time sheets and advances is available Use a payroll service
X. Make Sure an Audit is Conducted (MMR & Audit = Healthy Congregation) Annual audits are required by the Canons of the Episcopal Church for all parishes, missions and other institutions Purpose is to assure financial statements are fairly stated and internal controls are in place Designed to protect the assets of the organization as well as the people handling those assets
Audit Guidelines contd Diocese has specific guidelines regarding the type of audit that is required. Guidelines are based primarily on the revenue of the church including school, thrift shop, etc. A workbook has been sent to each church that explains the guidelines and procedures for conducting audit
How can we help? Quarterly trainings/roundtables? Additional templates on website? Don t forget to sign up for Finance and Admin News each edition includes Treasurer tip of the month
Thanks for participating! For more information: Julie Young Treasurer and Canon for Finance and Administration 619-481-5453 jyoung@edsd.org Please fill out an evaluation! The Episcopal Diocese of San Diego and its employees do not provide, and none of the information furnished in this presentation should be viewed as investment, tax, or legal advice. The content is provided for your information purposes only.
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