All It Takes is One Person

As I was doing my routine search for fraud related news this morning, I stumbled upon this story:

http://www.northjersey.com/news/crime_courts/113330879_Not-guilty_plea_in_swindle_that_snagged_church.html

In my search for fraud related news articles I have come across a wide range of scenarios, but majority had a common denominator; the church impacted by fraud either dissolved or struggled for survival in the aftermath.

Tithes, offerings and contributions are the bloodline of every church. The need to uphold the confidence amongst its members and general public is extremely important, not just because it is important for the continued existence of the ministry but also because it is our duty to be good stewards.

Most members and donors would curtail or completely disassociate themselves with a church if they have any reservations about the financial activities of that church. So performing annual fraud risk assessments at your church is not only vital for members’ confidence but also can be extremely effective in drawing additional members and contributions.

Remember, all it takes is one person with the motivation and opportunity to bring down your church.

Are you willing to take that risk?

To help you be proactive in protecting your church we have created FACT, which will identify any cracks in your system and help you prevent fraud.

Learn more at: http://pop.pskcpa.com/fact/ or give us a call at (817) 664-3000.

Health Care Bill Provides Money For Small Churches

Does your church have 25 or fewer full time employees?  If so, the government wants to give you some money.  The recently passed health care bill included a tax credit for small businesses that provide health insurance for their employees.  Although churches do not typically file income tax returns, they are still eligible for the tax credit.

You are correct, there is a catch!  There are three primary factors that would qualify your church:

  • The church must pay for a portion of its employees’ health insurance
  • The church must have less than 25 full-time employees
  • The average wage of a full-time church employee must be below $50,000

If your church meets the criteria above, the church could be reimbursed up to 25% of the health insurance costs that were paid by the church.

As of now, the credit is good for 2010 to 2013 and then the maximum rate increases to 35% (good news).  This could be money in your church's pocket!  Let PSK assist you in determining if your church qualifies for the health care tax credit.

When the cat’s away, the mice will play

Feb 25, 11 • NewsNo Comments

            Finally, church revenues can be broken down by date.  When are your cows fat and when are they lean?  Tithing patterns for some dates are predictable.  For example, Easter Sunday and the week of December 31 are fat cows with plenty of money rolling in.  But, on the other hand, in the summer the cows are pretty sleek.  Most churches are aware of these trends and have provided for these business cycles in their budgets.

             But others are not quite so obvious.  For instance, few churches look closely at their revenues when the senior pastor is not in the pulpit.  In a perfect world this should make no difference but the fact is that when the Cat’s away, the mice will play.  Regardless of planning and pleading, the tithes fall off when the pastor is away, especially for periods of longer duration. 

            Knowing this can help the church in future planning.  For example, the church can create an emergency cash reserve, or review its insurance policies to protect itself in the case of extended illness or unexpected death of the senior pastor.  This information would also be useful in determining the true cost of granting a sabbatical to the pastor.  A starting point would be to list out the church’s tithes per week for the last several years, spotting weeks when the tithes dipped below average, and conducting an investigation to see if the causes of the dip can be determined

Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.

2 Tips Related to Employee Allowances

Feb 23, 11 • Personnel, Tax ReportingNo Comments

Some churches give pastors (or other employees) monthly expense allowances in their paycheck. The allowances provide a way to advance cash to employees so that they can purchase items needed for the church or to carry out their role within the church.  There are two important things to keep in mind if your church does this. 

1.  The church needs to be aware that the expenses must be substantiated under an accountable plan, the same way a reimbursement would.  Among other things, proper substantiation includes a receipt as well as a documented business purpose. Otherwise, the allowance is taxable income.

2.  Further, some churches will allow the employee to keep the portion of the allowance that wasn't used and call it a "bonus". Taking this action would not only cause the "bonus" to be taxable income, but would also cause the entire allowance to be taxable (even the portion that was properly substantiated). This is not recommended and can cause church employees heartache come tax time.

Expense allowances are one of many ways to allow pastors to purchase items for the church.  Purchase orders, expense reimbursements and credit cards are a few others.  Each have their own advantages and pitfalls.  Which methods work well for your church?

Is Your Church Exposed?

Feb 21, 11 • PersonnelNo Comments

David Middlebrook, partner with the Church Law Group, recently spoke at our monthly church breakfast on the topic of intellectual property. He made some very interesting comments regarding employment agreements. Here are a few things that I learned.

Employment agreements within churches are frequently overlooked, but are one of the least expensive measures a church can adopt to help protect itself. Although churches are subject to the higher calling and authority of the Scriptures, churches must still comply with and are subject to the worldly laws that preside over them. Employment agreements allow churches to hire with confidence, and terminate with less fear of legal repercussions. As part of the human resources process, all church employees should be under an employment agreement. In addition to matters included in a standard employment agreement, such as those common in for-profit entities, a church’s employment agreement should include:

  1. A statement expressing that the church is a religious employer.
  2. Guidelines for the required Christian code of conduct for employment (for example, specific behaviors that the church considers acceptable and unacceptable). The church may reference the Bible as a general guide for defining acceptable behavior.
  3. A statement outlining the conditions of employment:
    1. Statement covering intellectual properties – absent a written agreement to the contrary, all works made for hire belong to the church.
    2. Statement mentioning that in the event of any dispute over employment, the church has the right to take the employee to Christian arbitration/mediation/dispute resolution. Additionally, the statement may mention that the employer will pay its portion of the fees and the employee will be responsible for his or her portion of the fees.
  4. A confidentiality statement that outlines the expectations the church has for its employees.

PSK frequently consults with the Church Law Group in this area. The Church Law Group specializes in legal matters for churches and nonprofit organizations, and can provide additional information regarding employment agreements.

Beware of members bearing gifts (with strings attached!)

Feb 18, 11 • NewsNo Comments

            Examining designated or restricted gifts helps the church understand who is giving how much and to what causes.  It also helps determine the spirit of unity of the congregation.  While receiving gifts is usually a good thing, unrestrained designated or restricted giving can cause significant problems.  These types of gifts can be used by disgruntled members to “circumvent the budget”.  They can create a situation where the church could be cash rich but unable to meet budget needs because too much of the members’ gifts are going to their “special” causes.  And, excessive restricted gifts increase the workload of the administrative staff.

 

            Most church management software generates all the information needed to conduct a proper evaluation of this area.  But, few churches take the time to seriously examine what is happening in this “non-budget” area.  Periodically, each church should closely examine its restricted accounts and ask the following questions about EACH designated account:

 

  • Who established the restriction?
  • How long has the account been on the books?
  • Have any accounts gone dormant?
  • Will the church ever be able to use the funds to accomplish what the donor wanted to do?
  • Does this activity conform to the mission church’s mission?

 

        The answers to these questions can help the church develop effective charitable giving policies. It also could serve as an alert informing the church that it may need to focus stewardship education not simply on the church as a whole, or even groups within the church, but to specific individuals.

Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.

 

Location, Location, Location

Feb 11, 11 • NewsNo Comments

            Tithes and offerings can also be analyzed geographically breaking dollars given down by zip code.  This technique has proven very useful to churches whose primary mission is outreach to the un-churched and who rely heavily on mass mailings. 

 It has been used effectively in two ways. 

  •  First, significant presence of gifts from a certain zip code indicates that the church is ministering effectively to people in that geographic location.  To reach out to more people likely to have an affinity with this church, mailings can be targeted heavily toward this zip code. 

 

  • Conversely, the absence of contributions from certain zip codes can be a way of identifying significant mission opportunities.  The church could target mailings to areas not being reached and conduct community out-reach events in neighborhoods in the targeted zip code

Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.

Accounting for Short Term Mission Trips

Feb 8, 11 • News2 Comments

Participants in short term mission trips are often called upon to help raise their own funds. In almost every case, churches want to know how much a specific mission trip participant has earned toward his/her trip. Additionally, they want to take donations online to help each participant reach their mission trip goals.

The easiest way to get the proper reporting out of church management software like Fellowship One is to configure a "sub fund" for each trip participant. This is simply a mechanism to understand how close/far each participant is from the mission trip goal. However, many churches see this as controversial and risky. They don't want to "officially" track this information for fear of compromising the charitable veracity of the gift, and they steer clear of any solution that involves a formal tracking of the contributions. However, this fear is not warranted and is usually driven by a lack of understanding of the real issues.

From a tax perspective, the important things to consider are:

1. In order for the contribution to be tax deductible, the short term mission trip must be an approved effort by the church.  Occasionally we run into circumstances where the church collects funds for a church member who is doing their own mission work, as opposed to participating the a mission effort of the church.  For example, a church member wants to go on a mission trip that’s sponsored by another church or another organization. 

2. Donor’s can designate funds for a specific individual, but in order for the contribution to be tax deductible, the church must have ultimate control/discretion as to how the money is spent.  A simple solution is to include a note or paragraph in the user document that specifically states that if an individual receives more funds than needed, the excess will be used by the church to support the mission.  This is important language.  Donors can’t expect to get their money back if the individual they are contributing towards exceeds their individual funding requirements, or even if that individual decides to back out of the trip. The gift is made to the church, or specifically towards the trip, but not the individual. That is the key.

From an accounting perspective, the considerations are different.

1. We advise church’s to have a separate GL account (not fund!) for each program’s revenue and expenses.  Churches often net receipts and disbursements together so the only thing that shows on their trial balance is the net amount.  This method is not in accordance with the accounting rules, but more importantly, the church needs to be able to see how much a program truly cost as opposed to only knowing the net result.

2. Sub accounts provide another alternative. If a church does not want to have a separate GL account for the revenues and expenses, then there is reporting power in the utilization of sub-accounts. A church can have a GL department for "Haiti Mission," for example, and then have a sub account for the receipts and another sub account on the GL for the disbursements. 

3. Lastly, subsidiary ledgers can provide the detail needed for internal reporting, without necessarily tracking that detail at the GL level. Church management software (like Fellowship One) is a good example of how a subsidiary ledger can help track the contributions for the individual participants.  Sub accounts on the GL for each individual participant is not practical or advisable, but subsidiary ledgers help meet this need effectively.

The rules for benevolence are a bit stickier than missions.  But that's a another topic…

Does your church struggle with the accounting rules for mission contributions? What other problems have you faced?  Join the conversation by commenting below.

Don’t put all your eggs in one basket

Feb 4, 11 • NewsNo Comments

            A second way for a church to answer the question “Who gave us the money?” is to determine if the bulk of the tithes and offerings are concentrated within a small group of individuals.  This is a simple process and is accomplished by generating a list of the top ten to fifteen contributors.  If the percentage giving of this small group is too high, action needs to be taken.

 

I was told of one church that had two individuals providing seventy percent of the income!  This type of situation calls not for the focused steps discussed in my previous post, but for a much broader approach in two primary areas:

 

  • The church should use extreme caution in budget planning being careful not to make significant commitments too far into the future.  Church leadership must keep in mind that their church is only one death, divorce or bad sermon away from financial disaster! 

 

  • Also, this situation would be a clear signal that it is time to implement a broad-based stewardship education program directed to all age groups of the church.

Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.

990-N Filing Threshold Increased

Feb 1, 11 • Regulatory Matters, Tax ReportingComments Off on 990-N Filing Threshold Increased

Great news for the small nonprofits.  The filing threshold has finally increased from $25,000 in gross receipts to $50,000 in gross receipts for tax years ending on or after December 31, 2010.  This means if the nonprofit’s gross receipts are normally $50,000 or less you can file the simple 990-N e-postcard as opposed to the more detailed 990-EZ or 990 forms.  To read more about how to determine if you gross receipts are considered $50,000 or less, check out the IRS's website.

It is simple to file an 990-N.  Simply go to the IRS's website and follow the instructions.  The process takes less than 15 minutes.

The increase in the filing threshold for 990-N is part of the 2006 Pension Protection Act of 2006 which mandated most tax exempt organizations file an annual return.

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