Before launching into a study of anything, I like to make sure I have at least a basic understanding of what the topic is all about. So, before launching into church budget development I looked up a few definitions of what a budget is:
- An accounting device used to plan and control resources of operational departments and divisions. (Warren, Survey of Accounting)
- A plan of financial operation consisting of an estimate of proposed expenditures for a given period and the proposed means of financing them. (Beams, Brozovsky & Shoulders, Advanced Accounting)
- A budget is one of the most effective internal controls… (ECFA, Accounting & Financial Reporting for Christian Ministries)
Re-reading these definitions I notice several key phrases:
– An accounting device
– Control resources
– A plan of financial operation
– An estimate of proposed expenditures
– Effective internal control
Are these definitions sufficient?
I hope everyone is finding a way to keep cool in this brutal summer heat. Unfortunately, what I am about to tell you may cause your thermometer to pop up a few degrees!
Over the last year and a half or so, we have been advising our church clients and breakfast attendees that the IRS’s attitude towards churches and ministries appeared to be taking a less than desirable turn. Our fear was that due to some high-profile cases of abuse, the IRS would begin taking a closer look at churches, ministries and individual ministers. This week, our fears were confirmed by a brief comment in The Kiplinger Tax Letter. The following is a quote from the July 10, 2009 issue.
“Ministers will get special attention from auditors as well: A new audit guide tells examiners to be on the lookout for several potential trouble spots. Among them: Incorrectly figuring the tax free housing allowance and failing to pay SECA tax on it. Wrongfully claiming to be exempt from SECA tax, and deducting business expenses that are attributable to tax-exempt income. Go to the IRS's guide to check out the complete list of tax issues that examiners will be looking for.”
You might want to follow the link above to make sure you will come out ok should your church or any of its ministers receive one of those very inconvenient letters from our friends at the IRS.
If you need any help interpreting any of the IRS gibberish don’t hesitate to give us a call.
Also, this might be a good time to consider having PSK perform an IRS compliance review. In a compliance review we perform many of the tests that an IRS auditor would perform with one huge difference. If we find areas of noncompliance we help you get it fixed. If the IRS finds it… Well you know.
In the past year or two, Texas and many other states, have enacted a version of a new model institutional funds act (UPMIFA). In response, the Financial Accounting Standards Board issued a staff position paper (FAS 117-1) in August 2008. It applies to not-for-profit organizations (including churches) beginning with 2008 year-ends. Many are completely unaware of this new pronouncement which addresses net asset classification as well as enhanced (financial statement) disclosures. In addition to disclosure of more details about endowment activities, the organization must disclose in the notes to its financial statements information about:
1. its governing board's interpretation of the laws pertaining to the endowments,
2. investment policies, and
3. spending policies and how they relate to the organization's investment policies.
In light of the recent securities markets doldrums, many funds have deficiencies that require disclosure as well (not related to new pronouncement, but according to FAS 124.)
The FASB staff position paper is available on line: http://www.fasb.org/pdf/fsp_fas117-1.pdf
Also, in Texas, UPMIFA is technically Chapter 163 of the Texas Property Code: http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.163.htm