Transcript FINANCIAL BEST PRACTICES

FINANCIAL BEST
PRACTICES
BASIC PRINCIPLES
• Churches are not businesses, but they need to
operate like a business when it comes to finances
• Pastor is usually the functional CEO
• Board needs to function like a board of directors of a
company
• It often falls to the treasurer and the finance
committee to remind the church leadership of this
truth
BASIC PRINCIPLES
• Financial ministry of the congregation must
engender trust – members have given God’s money
to you
• Many of the good practices we will talk about are based
on the concept of having multiple avenues of oversight
over the church’s finances
• More than just 2 or 3 people should have a handle on the
church’s financial position
• Separate functions (e.g., receipt of income from writing checks)
to protect officers from possible suspicion
• Importance of communicating with donors
• Accountability and transparency are paramount
POLICIES YOU SHOULD HAVE
• Conflict of interest and ethics policies (should be
signed annually by board members)
• Record storage and retention policy
• Money-handling policies:
• Receiving and counting offering
• Tracking of donations
• Check writing (who does it, who must sign)
• Audit policies:
• Level of review
• How frequent
• Who can do them
JOB DESCRIPTIONS
• Job descriptions for treasurer and financial
secretary should be explicit and should be reviewed
frequently
• Include:
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Duties and responsibilities
Reporting relationships
Term limits
Financial positions within the church require the most
time and scrupulous attention to detail
• Oversight of Finance Committee should be clearly
spelled out in its duties
BONDING
• Consider bonding for treasurer and fin. secretary
• Essentially an insurance policy against malfeasance
• Common in the secular world for company officers who
handle money
• Generally offered by your church’s regular insurance
agency
• Bond the position rather than the individual
PREPARING A BUDGET
• A budget is a guideline, it is not fixed in stone
• Types of budgets:
• Line-item – always necessary to have this
• Narrative – explains what the money helps the
congregation to accomplish
• Zero-based – asks each department or committee to
start from scratch, rather than from prior expenditures
• Requires justification of every expense
• Difficult and time-consuming
• Cash-flow – predicts monthly income and expenses
• Encourages saving for large expenses that occur intermittently
FINANCIAL PROFILE
EXAMPLE 1
Income Sources:
Operating
Offerings
Perm. Fund. Income
Building Use Fees
Building Fund
Offering Support
This Year
$84,166
$6,000
$18,957
Lst Yr
$91,519
$4,000
$26,125
2 yrs
$103,997 Current
$4,000 Lst Yr
$35,250 2 yrs ago
$38,746
$43,964
$40,852
$147,869
$165,608
$184,099
Other
Other
Other
Other
TOTAL INCOME
56.92%
55.26%
56.49%
PREPARING A BUDGET
• When we consider the expenses of the
congregation, we group expenses into four main
categories:
• Salary Support
• Building and Administration
• Program Expenses
• Mission Giving
PREPARING A BUDGET
• Salary Support includes salaries of all church staff and
benefits associated with employing them. Such
benefits would include social security offsets, health
insurance, pension etc. It does not include costs such as
auto expense or office reimbursements. Most
congregations will expend about 50 percent of their
income on salary support. Experience has shown that
congregations that exceed 50 percent in this category
are rarely over paying their pastor. In fact, most New
Beginnings congregations fall short of average salaries
for their area. The salary amount is likely not too high
but the percentage of the budget allotted to salaries is
too high, short-changing mission, outreach and
program.
PREPARING A BUDGET
• Building and Administration costs are those
associated with running the church office and the
building. Typical costs include insurance, utility
bills, maintenance and yard upkeep. A typical
congregation will support building and
administration costs with 25 percent of their
income. Congregations that are not “right-sized”
find themselves paying more for facilities, usually at
the expense of their program.
PREPARING A BUDGET
• Program Expenses are costs associated with
running a program. This would include faith
development, evangelism, and worship materials,
choir music and supplies, advertising, and other
resources and supplies that enable the program to
operate. This is usually about 15 percent of a
church’s budget. Since this is the place where most
congregations can control spending they will
usually decrease their spending in this category
first.
PREPARING A BUDGET
• Mission Giving is giving that the congregation has
contributed to both Disciples Mission Fund as well
as local mission causes. Mission giving trends are
about 10 percent of a vital congregation’s budget as
a starting point. Congregations will often reduce
their mission spending after depleting their
program spending.
Example 1
Current Operating Budget
% of exp
% Recommended
Salary support
$83,712
50.17%
50.0%
Building/office
$71,150
42.64%
25.0%
Program
$5,787
3.47%
15.0%
Mission
$6,210
3.72%
10.0%
TOTAL EXPENSE
$166,859
Example 1
Assets and Investments
Property Value
Debt
$3,000,000
Investments
$26,000
Svgs.
$15,805
Memorial Funds
Bldg loan
$555,246.00
Bills
$2,411
Other
Other
Other
TOTAL
Mo. Debt. Pymt
Debt:Income Ratio
$3,044,216
$4,000
$48,000
44% (not over 38%)
Example 2
Income Sources:
Operating
Offerings
Perm. Fund. Income
Offering Support:
2009
2008
2007
$166,182 $161,723
$155,861
2009
78.76%
$16,500
$15,000
$30,959
2008
73.26%
$0
$12,817
$0
2007
71.85%
other
$2,436
$2,861
$1,305
other
$0
$0
$0
$25,877
$28,347
$28,804
other
$0
$0
$0
other
$0
$0
$0
$210,995 $220,747
$216,929
Building Use Fees
Rental
TOTAL INCOME
Example 2
Current Operating Budget
% of exp
% Recommended
Salary Support
$134,785
64.52%
50.0%
Building/Admin
$63,691
30.49%
25.0%
Program
$2,585
1.24%
15.0%
Mission
$7,837
3.75%
10.0%
TOTAL EXPENSE
$208,898
Example 2
Assets and Investments
Property Value
Investments
Svgs.
Debt
$4,891,919
$212,531
$9,272
other
$2,813
other
$0
other
$0
Mo. Debt. Pymt
Debt:Income Ratio
$0.00
Bills
$0.00
$28,497
Memorial Funds
TOTAL
Bldg loan
$5,145,032
$0
$0 (not over 38%)
0%
PREPARING A BUDGET
• Process:
• Identify priorities
• Estimate income
• Estimate expenses
• The setting priorities step is often skipped, but is
the most important
• Don’t just work from the previous year’s budget, year
after year after year
• Take time regularly within the congregation’s life to
reconsider your priorities and ministry activities
TAKING MONEY IN
• Individuals in the congregation should be
designated to count the offering
• Two people each week are needed; does not need to
include the financial secretary
• But it is best not to make it the same two people every
week – those people tend to start seeing individuals as
dollar signs rather than people
• Nor should the two people be husband and wife
TAKING MONEY IN
• Record income on a tally sheet
• Checks, cash received
• Any irregularities are noted
• Two signatures required
• Tally sheet original is filed in the church office
• Financial secretary gets a copy of the tally sheet
and bank deposit slip
TAKING MONEY IN
• Depositing the money:
• Should be done as soon as possible
• Offering should not be kept in the church or in someone’s
home for any length of time
• Deposit slip should be saved and (at the time of audit)
compared to the bank statements
• Receipts:
• Should be provided (usually quarterly) to all identifiable
donors
• IRS no longer accepts an individual’s cancelled checks as
documentation of charitable donation; gifts must be
acknowledged in writing by the receiving organization
TAKING MONEY IN
• Electronic giving:
• Not everyone carries a checkbook these days – how
then can they give?
• A person with an electronic billpaying service can enter
the church’s name and address (and account number?)
and have the bank cut the check
• One could also set up an automatic transfer to the
church’s bank account
• Treasury Svcs offers local churches a secure donation
web site, options for credit card giving, etc. (at a cost to
the congregation)
PAYING MONEY OUT
• Each check paid (other than routine payroll and
bills) should be based on an invoice or receipt that
has been approved by a committee chair (someone
other than the person paying the check)
• Two signatures should be required on checks
• A committee chair can authorize spending up to
the amount allocated in the budget; additional
spending beyond this amount should be approved
by the board
PAYING MONEY OUT
• Payment of employees and compliance with tax
withholding is a BIG deal
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Income taxes must be paid quarterly
Withholding must be tracked for each employee
W-2 forms must be sent out annually
Large penalties can be accrued if these are not done
correctly
• The General Church has an arrangement with
Paycor payroll service that allows congregations to
contract for this service
PAYING MONEY OUT
• Remitting funds to the General Church for your
DMF donation or special-day offerings is easy to do
• Online form
• Designation of recipient is very important
• Treasury Svcs would like these remittances to be made
monthly (TH p. 49)
• You may request reports of your congregation’s giving
from Treasury Svcs (TH p. 50)
REPORTING
• A financial report should be given at every regular
board meeting
• A single-page report is usually sufficient:
• Opening balance, income, expenses, ending balance
• Variances vs. budgeted amounts
• Status of checking and savings accounts and
reconciliation with operational balances
• Delve into financial variances only when the
Finance Committee deems it important
COMPUTERIZED BOOKS
• Who is doing their treasurer work on computer?
What programs are you using?
• Basic money-management programs such as
Microsoft Money or QuickBooks work well
• Need to have the ability to identify expenses as going
into different categories
• Church-specific programs are often much more
involved and may include functions that are
unnecessary (e.g., membership management)
• These are often also more expensive
COMPUTERIZED BOOKS
• QuickBooks has an online version with a $200/year
membership fee
• Your documents are stored in the cloud
• No paper transfer from old to new treasurer
• Allows board chair, pastor access to financial
information at any time (but not ability to make any
transactions)
COMPUTERIZED BOOKS
• Computer records (whether online or on your
computer) should be password-protected and
backed up regularly
• Try as much as possible to use the same program
through treasurer transitions
• Consider having the administrative asst/office
manager act as the church’s bookkeeper
• Does data entry on each transaction
• Prints checks (treasurer must still sign)
AUDITS OF THE BOOKS
• General definition – third-party review of financial
records and practices
• Levels:
• Audit (specific definition) requires specific testing of
records and an opinion by the auditor; most
comprehensive, may be done by a professional,
expensive
• Review is an overall assessment of the financial records
to determine if they seem reasonable; no opinion
offered; done by a professional but at about half the
cost
• Compilation is a bookkeeping assessment of the
financial records only; costs about 25% as much as an
audit
AUDITS OF THE BOOKS
• Whatever level you choose, it should be conducted
by people with financial expertise, ideally from
outside the congregational membership
• Use of an outside accountant supports the financial
integrity of the congregation; also helpful for keeping up
to date on tax law, suggesting methods for accounting,
etc.
• In-house audit – should include at least 2 competent
laypeople, neither of whom has any direct part in the
financial functions of the congregation
• See TH pp. 18-20
WHEN WORST COMES TO WORST
• When you don’t have enough money to pay the
bills, what happens?
• The treasurer (initially) is the one who has to decide
how to go forward
• But don’t let it be just your problem – share the anxiety
with the congregation