Two Million to the wrong place?

Dec 12, 11 • UncategorizedNo Comments

This Florida church is accused of “mishandling” donor’s contributions– two million dollars worth! Read the article here. This is a sobering reminder that, just because an organization is a Church does not mean that it is not made up of sinful people who are prone to temptation and failure. In light of this, what can your Church do to prevent a similar situation? Certain procedures can be implemented to both lessen temptation for your Church’s employees and protect the name of Christ. As always, we’re here to help…

Sourced from CBS channel 12 Florida

Chapter 8: Do You Have Any Idea How Much Money You Make?

Dec 7, 11 • BlogNo Comments

From the book, Weeds in the Garden, in Chapter 8 “When church fraud or embezzlement is mentioned most people immediately think of someone stealing from the offering plates. As a result, many, if not most churches do a pretty good job of protecting the Sunday offerings. In fact, many actually go overboard in tightly ratcheting down the money that comes into the church during worship services and Sunday School classes (pg. 102).

But what about …

  • Special event fees (conferences, banquets, etc.)
  • Fundraising activities
  • Mail in contributions
  • School or Mother’s Day-out registration and tuition

How are these funds handled? Who handles them? And is there EVER just one person in control of these funds?  The most effective control on cash is never to allow it in the possession of only one person for even the shortest amount of time.

One story I read about, while researching this topic, involved the ‘treasurer’ of a fund raising event for a church ‘borrowing’ several thousand dollars from the fund.  Strong control over cash from Sunday collections is vital, but who is maintaining this same diligence Monday through Saturday? Maybe a ‘trusted’ employee or volunteer? What challenges do you face with weekday receipts?

–Lisa Chapman is an auditor specializing in church accounting with PSK LLP.

Chapter 3: How strong is your batting order?

Nov 30, 11 • BlogNo Comments

Chapter 3 of Weeds in the Garden illustrates the value of planning and organizing the structure of the leadership in a church. “Even in a church, tone at the top does not happen by accident. It begins with a desire by the church leadership, (executive level employees and lay leaders) to operate in transparency. To instill a healthy tone at the top, a concerted effort must be taken that includes communicating on a regular basis the need for accountability in all areas of the church, as well as the values the church expects its representatives to model. Church leadership should also make an open statement of its commitment to transparency by participating in accountability measures such as requiring all individuals in positions of trust to sign conflict of interest statements. Most importantly, the church must insist that these trusted individuals live by the church’s accountability rules.”(pg. 33)

Almost all of us have experienced the ‘boss’ that either wasn’t willing to lead the team or didn’t play by the same rules they tried to implement. You can usually observe the environment around this ‘boss’ and note the lack of respect, trust, and loyalty. Unfortunately, this atmosphere often bleeds over onto the organization as well.  When employees and volunteers of a church lack these elements of integrity, the organization will suffer. How strong is the structure of your organization? Is your church in danger of making the front page?

–Lisa Chapman is an auditor specializing in church accounting with PSK LLP.

CFO gets Eight Years

Nov 18, 11 • Breaking NewsNo Comments

Washington church CFO received his eight year sentance after his August conviction of emebezzling from the church. “He exploited other people’s charity to fund his extravagant vacations, VIP tickets to NBA games, and fancy cars,” U.S. Attorney Ronald Machen said in a statement.

See the story at ABC7

Chapter 5: Are you a Geek? Maybe You Should Be!

Nov 16, 11 • BlogNo Comments

How tech-savvy is your Church? What oversights are in place to keep your Church in-step with new technology? In his book, Weeds in the Garden, Verne Hargrave points out that although advances in information technology have simplified accounting and record-keeping for Churches, it has also created additional risks.

“The area where churches may be the most naïve are cyber threats from outside the walls of the church. Few give enough thought to a basic twenty-first century fact of life; by opening one single internet account, if care is not exercised, the world has been invited into your living room. Today, except for the very smallest of congregations, all churches are vulnerable to hackers wanting to take advantage of the perceived, and in many cases, real naiveté….

Churches also make online purchases, sell goods and event tickets online, and an increasing number receive offerings online.  Without question these steps have improved the efficiency and effectiveness of churches. Using fewer staff and volunteers and spending much less time, churches can do a better job of collecting and tabulating gifts, managing church activities, reporting results, and most importantly, reaching out to the unchurched. However, each of these new ways of doing business represents a new porthole through which fraudsters can gain entrance to church data and assets.”

Technology can greatly simplify matters for churches; however, it also opens up new ways for hackers and those with impure motives to steal money or data. What is your church doing to protect its members? Who is looking out for your church?

–Justin Baldwin, CPA is a Senior Auditor specializing in church accounting with PSK LLP.

Chapter 2: First, Be Sure You Know What You Are Looking For…

Nov 9, 11 • BlogNo Comments

In Chapter two of the book Weeds in the Garden, by Verne Hargrave, he discusses three types of fraud: fraudulent financial reporting, corruption and misappropriation of assets.  The most common of which is misappropriation of cash, or theft in the church environment.

“Generally, two terms are used to describe frauds involving an organization’s cash receipts: skimming and larceny.  The difference between the two methods is the timing of the fraud.  The process of stealing money before it is recorded in the accounts of the church is called skimming.  A classic example of church skimming is an usher removing cash from the offering plate on his way to the counting room.  On the other hand, if the usher removes money from the bank bag on his way to the bank, after the funds have been counted and recorded in the church’s records, he has committed larceny.  Cash larceny tends to be a little more difficult because it usually requires “record doctoring” in order for the thief to cover his tracks.  Because most churches tend to look closely over the Sunday offerings, thieves’ favorite targets for this type of behavior tend to be other revenue sources, such as food service cash boxes, weekday drop-off and mail receipts, and fund raising cash managed by volunteers.”

Midweek receipts are the most vulnerable to theft in most organizations.  Many times as an auditor I have seen “Timmy’s Camp Money” or “Cash from Bake Sale” sitting on a financial administrator’s desk tempting any passerby.  In keeping with Matthew 26:41, we know that the spirit is willing, but the flesh is weak when faced with temptation.  So let’s be careful to use controls like a lockbox where church members and staff may drop the cash into a locked depository that can later be opened and accounted for by the administrator.  Otherwise your cash might just walk away and you may never even know.

Are there any practices in your Church that might be vulnerable to theft?

Check out the Weeds in the Garden website.

–Daniel Lienemann, CPA is a Senior Auditor specializing in church accounting at PSK LLP.

Please don’t sue me!

In our litigious society, it seems like people file lawsuits for just about anything, but since when did copyrights and licenses become so sensitive?  The old days are gone; the truth is, operating a Church becomes more and more complex every day.  So what are a few things an administrator can do to protect their organization?

 

Worship Music, for example, is majority owned by record labels.  The Christian artists usually make licensing deals with organizations like Christian Copyright Licensing International (CCLI.com), which in turn charges a yearly subscription fee based on the size of your congregation (starting for about $50 for a small congregation).  Some worship pastor's prefer to write their own music, which is great because you don't have to buy a license for their works.  However, then the question arises – who owns those songs he/she writes on the clock?  An intellectual properties policy can help clear up any confusion between you are your creative team.

 

Does your Church show videos in youth group or as an illustration in a sermon?  There are other groups for videos such as Christian Video Licensing International (CVLI.com) that sell affordable licenses to view certain protected materials within your organization.  

 

Even looking at your copy machine, it's a best practice to have a notice posted by each machine warning against the duplication of protected materials.  And finally, let's not forget about software.  Make sure that when you are buying software that you are respecting the software licensing agreement and abide by the notice as to how many computers and users that each license allows. 

 

Is your organization at risk?  Need help navigating any of these areas?  PSK can help!

 

 

–Daniel Lienemann, CPA is a Senior Auditor specializing in church accounting at PSK LLP.

Chapter 9: Can’t You Control Your Spending?

Oct 26, 11 • BlogNo Comments

As a nation, uncontrolled spending at the personal level has led us into financial crisis in the past several years. Churches are not immune to detrimental attitudes and practices of the nation. Additionally, churches are particularly vulnerable to potential fraudsters. In his book, Weeds in the Garden, Verne Hargrave discusses the church’s finances, its attitude and responsibilities towards them, as well as steps it can take to manage them in an intelligent and responsible manner.

Verne writes,

“A church should develop a rational plan to expend its resources, giving equal weight to accountability and ministry effectiveness. This is not only good stewardship; it is also good fraud protection…

Fraud prevention over cash disbursements follows the same cardinal principle used in managing cash receipts. Money, or access to it, should never be in the possession of one individual, regardless of the brevity of time. The only difference between these two areas of fraud prevention is the direction; outflow as compared with inflow.

Every church should perform a periodic fraud assessment of its cash disbursements with the objective of identifying and strengthening weak spots. Weak spots consist of any place along the church’s cash ‘outflow’ path (disbursements) where one individual can help himself to the church’s money.”

Has your church performed a Fraud Risk Assessment lately, or ever? Can your church’s contributors rest at ease that their sacrificial giving is being spent wisely and is not lost to theft?

–Justin Baldwin, CPA is a Senior Auditor specializing in church accounting with PSK LLP.

YA MEAN I GOTTA DEAL WITH THE I.R.S.?

That’s right!  Even though churches normally do not have to file a tax return (most nonprofits have to file an informational return annually – IRS form 990), there is certain information that you must collect and provide to the IRS.  And I’m not talking about payroll tax information – 941 and W-2 forms.

If you pay at least $600 in a calendar year for the services of non-employees (and they are not corporations), you must get them to complete form W-9 (provides tax reporting information to you) and you must issue them an IRS form 1099-MISC.

 And if the church operates a preschool or private school that is not separately incorporated, you must file IRS form 5578.  This is a statement about racial non-discrimination.

 And if your church has “unrelated business income” of over $1,000 before deducting related expenses, you must file and IRS form 990-T.  Again, I’m not talking about net income of over $1,000; I’m talking about gross receipts of that amount.  And you could possibly have to pay income tax!  But that’s the subject of a whole new blog entry!

For more information, go to the IRS website – www.irs.gov.  Or even better, contact us at www.pskcpa.com.

 

 –Dan Williams, CPA, Church and Ministry partner at PSK LLP.

Chapter 6: Are you producing financial statements or spin documents?

Oct 19, 11 • BlogNo Comments

In Chapter six of the book Weeds in the Garden, by Verne Hargrave, he discusses the use and abuse of financial statements. Specifically he discusses how the financial statements can often be produced to “look” a certain way either to improve revenues or reallocate expenses.

“…The church should follow a budget. Every church needs to know what “normal” is. It can prove very difficult to determine if theft is taking place if a church does not have any idea of what its financial expectations are. The budget should be adopted by the church’s normal governance procedures and loaded into its accounting software. Budget results should be monitored and variations between budget and actual regularly examined. One word of warning: a practice that is frequently used by churches is to allow overspending in line-item accounts as long as total department expenditures remain within budget parameters for that department. This may not be the best practice. A budget is simply a tool and if a line-item is not sufficient, the budget should be amended by the appropriate leaders of the church. This preserves the concept of “normal for each department. Much mayhem can take place within a single departmental budget!”

Does your church have a process to amend budget line items? Is there a regular review by your governing board of budget vs. actual revenues and expenses? Don’t wait until the end of the year to realize large budget overages, be proactive and manage spending with effective use of reliable reports comparing budgeted amounts to actual cash received and spent.

Check out the Weeds in the Garden website.

–Daniel Lienemann, CPA is a Senior Auditor specializing in church accounting at PSK LLP.

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