Nothing Petty about Cash

Oct 10, 11 • NewsNo Comments

In the grand scheme of things – yes, it’s small change, but petty cash accounts are easy to mishandle and manipulate without proper oversight and controls. What controls are currently in place and are they followed? This is the primary focus of an internal audit of the petty cash funds.

Review the written policies governing petty cash accounts; looking specifically for what types and amounts of transactions will be reimbursed from petty cash, as opposed to a disbursement paid by check.

As with all expenditures, a voucher or request form should be completed and include the place, amount, and purpose along with the original receipt (dated within 60 days of the request). Review the general ledger and note the expenses accurately recorded and the funds replenished appropriately

Finally, count it. Make sure the cash and the receipts make up the total listed on the general ledger.

How many petty cash accounts does your organization maintain? Have you developed stronger controls than these to help ensure the integrity of your funds?

 

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

All about the Benjamins…

Aug 1, 11 • NewsNo Comments

How can a Church do an excellent job of protecting itself, and do so inexpensively? The Church can do much in house to protect the provisions it has received. Let’s think specifically about Cash Receipts:

First, a Church must have written procedures for how money is received and handled. This is the starting place for assessment. Moreover, once compiled, the Church needs to actually follow the procedures! Questions to consider when reviewing your Church’s procedures (or creating them):

  • Is the offering count team composed of independent individuals (not the pastor or the Church Treasurer)?
  • Does the count team rotate? Do at least two individuals accompany the offering until it is deposited into the Church’s safe or the bank?
  • Does the Church ensure that funds are deposited intact (i.e. no expenses are paid from the offering before funds are deposited)?
  • What about offerings received during the week? Has the Church established procedures to separate the counting, depositing, recording, and receipting of such contributions, and therefore protect both the donor and the Church office employees?
  • What about those funds restricted by the donors? Does the Church have adequate processes to ensure that these funds are 1) in line with the Church’s mission before the Church chooses to accept them and 2) recorded and spent according to the donor’s wishes? 

Money and Church—the temporal object, money, is a current necessity for the eternal entity, the Church. Money is often a difficult area of discussion for Churches, but it can’t operate without it. The Church’s goal should be to protect its integrity, while at the same time the hearts of the givers. What are you doing to protect the Church the Lord has placed you at?

Keep close tabs on your cash

Jul 25, 11 • NewsNo Comments

You can’t always just look at your bank statement for the balance because there are outstanding checks and deposits; looking at the GL doesn’t always capture recurring payments, fees, and other transfers.  A thorough bank reconciliation process can go a long way toward detecting fraudulent cash activity and helping your organization know just how much cash is available for operations.  The basic process typically includes comparing outstanding items with the next month’s bank statement, ensuring both the book and bank balance agree to the rec, and reviewing the rec for old outstanding items (>90 days) that should probably be written off and potentially reissued. 

A second set of eyes is essential.  A reviewer can be a business administrator, your Church’s CPA, or you can even ask a savvy volunteer review the bank rec to ensure someone outside the process is able to help keep the train on the tracks.  When your Church receives its bank statements, how much time passes before they are reconciled to the general ledger?  We recommend that our clients reconcile their cash accounts within ten days of the month end to properly follow up on cancelled checks, unexpected fees, etc.  Furthermore, many banks require fraudulent activity to be reported within 24-48 hours, so a daily review of transactions is also recommended.  Finally, we recommend a weekly reconciliation of online donations to properly match them to donor records and respective bank deposits. 

So what does your process look like?  Is it working?  What’s the hardest part of reconciling your bank statement?  Who reviews your bank reconciliation?

Having a third party review of the reconciliation is a big fraud prevention step and one of our firm’s recommended best practices when it comes to segregation of duties.

Question #4 – “should our childcare workers be treated as employees or independent contractors”?

Jun 20, 11 • News2 Comments

I can answer this question with one word:

EMPLOYEES!

The determination of employee/contractor status revolves around one word:

CONTROL!

The more control a church exercises over an individual the more likely they are an employee.  Conversely, the less control exercised over a worker the more likely an independent contractor relationship exists. 

So if a church is paying those with the responsibility of guarding their children’s welfare as independent contractors it is as much as admitting the church is exercising little control over its childcare program.  Not a good idea…

If our answers only raise more questions (which is typical for CPAs) feel free to post a question on the blog or email me at verne.hargrave@pskcpa.com

Question #3 – Why is it not a good idea to move dollars between budget line items to make the budget look better?

Jun 13, 11 • NewsNo Comments

Two answers to this question come quickly to mind.

  • First, this technique in essence is untruthful.  In order to make good financial decisions a church MUST provide accurate financial reports.  Implicit in the word “accurate” is the assumption that “We are telling the truth”.  In the handful of times when I have seen this become an issue in a church, the loss of trust that was experienced turned out to be devastating.
  • Second, a budget is intended to be a tool that must be used properly.  I am no handy man, so I generally leave the use of hand tools to others who are proficient in their use.  But, I have enough handy man sense to know that if I use a hand saw improperly, I might cut the board badly. (Or worse, myself!)  Likewise, a church budget should be used properly so that no one gets hurt. 

A budget should be used to guide the church through its fiscal year.  When things don’t go according to the budget plan, that’s OK.  The budget’s role is to tell the church when it is time to make mid-course corrections.  It cannot perform its role, if it is monkeyed with repeatedly.

If our answers only raise more questions (which is typical for CPAs) feel free to post a question on the blog or email me at verne.hargrave@pskcpa.com

Question #2 – Do we have to maintain a separate bank account for EACH restricted/designated fund our church maintains?

Jun 6, 11 • NewsNo Comments

It’s all up to the donor…  If a donor makes no stipulation to set up a separate bank account, then you don’t have to.

In fact, our advice is usually to not set up separate accounts.  Here’s why.

  • First, maintaining multiple bank accounts means multiple bank reconciliations increasing the workload of the church’s administrative staff.  We have repeatedly seen this type of situation result in late or incomplete monthly financial reports.
  • Second, the administration is further complicated by the presence of multiple bank accounts.  Church members making donations to both the budget funds and restricted purposes seldom split their contribution between two or more checks.  Instead, they write one check with instructions on the check or offering envelope on how the gift is to be allocated.  This requires the staff to make transfers from one account to another.  Excessive transfers can lead to multiple journal entries and often multiple confusion!
  • The final reason why we discourage multiple accounts is related to the previous warning.  Multiple bank accounts, along with multiple journal entries can turn out to be “embezzler heaven”.  In the interest of security (making sure funds are safe by placing them in their own bank accounts) the establishment of multiple bank accounts creates just the opposite – a huge smokescreen (or shell game) where a thief can take what is not his and not get caught.

If our answers only raise more questions (which is typical for CPAs) feel free to post a question on the blog or email me at verne.hargrave@pskcpa.com

Question #1 – What is the best way to handle expense reimbursements?

May 30, 11 • NewsNo Comments

Without question, this is the most frequent question of all.  It is also one of the most important because it involves one of the current “hot-button” issues as far as the IRS is concerned.  If a church or exempt organization is not careful, it can stumble into some very significant IRS penalties (often called Intermediate Sanctions).

The answer to how these transactions should be handled is fairly simple – adopt a written accountable reimbursement plan which establishes the processes by which employees and volunteers will be reimbursed for expenses they incur on behalf of the church.

To avoid problems, the church should make sure that its policy conforms to IRS regulations by:

  • Establishing the business purpose of the transaction
  • Adequately substantiating the expense with expense reports and vendor receipts
  • Requiring that any excess be returned

Also, the church’s policy should dictate that all of the above be accomplished in a reasonable amount of time.  The most common method is to require that:

  • No advances can be paid to individuals more than 30 days in advance of an event
  • Substantiation must be presented within 60 days of the employee’s incurrence of an expense
  • Any excess advanced over the amount spent on a project be returned within 120 days

If our answers only raise more questions (which is typical for CPAs) feel free to post a question on the blog or email me at verne.hargrave@pskcpa.com

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.

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.

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