Transcript Local Church Treasurer/Finance Training

2009
Methodist ministers have historically reported salary and professional expenses on Schedule C. In
a landmark court case, Weber v. Commissioner, a court determined that a Methodist minister was
a W2 employee rather than an independent contractor. The court stated the following as criteria in
determining that status:
The minister was subject to significant control.
The minister was required to work at the church to which he was assigned.
The minister didn’t have the right to unilaterally discontinue regular services of the local church.
The position was intended to be permanent, as opposed to transitory.
The benefits, such as health insurance and pension, indicated an employment relationship.
An IRS Publication on Form I-9 States: "Hiring employees without complying with the
employment eligibility verification requirements is a violation of the employer sanction laws.
This laws requires employees hired after November 6, 1986, to present documentation that
establishes identity and employment eligibility, and employers to record this information on
Forms I-9."
Employee vs. Independent Contractor
Employees typically:
Receive salaries or hourly wages (whether part-time or fulltime).
Can be fired.
Can quit without penalty.
Must submit reports.
Must obey instructions.
Must do the work themselves.
Are hired to provide services for an indefinite period of time, rather than to accomplish a
particular task.
Are eligible for fringe benefits (health, disability, pension, sick pay, etc.).
Are provided what is needed to do their job.
Are reimbursed for expenses.
Independent contractors are considered self-employed. They typically:
Set their own hours.
Decide how to get the work done (rather than follow someone else’s instructions).
Offer their services to the public.
Provide their own equipment.
May work on someone else’s property, and for several persons at the same time.
May employ assistants.
Are hired to do a particular task, and are paid by the job.
Have a substantial financial investment in the work.
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Tab P – IRS Form 941 – Employer’s Quarterly
Federal Tax Return
Part 1
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Line 1 – Number of employees
Line 2 – Wages subject to federal income tax
Line 3 – Tax withholdings
Line 4 – Check if not subject to social security or
medicare
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Part 1
◦ Line 5 – if 4 is not checked, enter wages subject to
social security and multiply by percentages
◦ Line 7 – Adjustments
◦ Line 8 – Calculation
◦ Line 9 – Advance Earned Income Credit payments
◦ Line 10 – Calculation
◦ Line 11 – Tax deposits made for the quarter
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Part 1
◦ Line 12 – Balance due
◦ Line 13 – Overpayment
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Parts 2-5 – Information and signature
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Tab P – IRS letter
◦ If one minister and no other staff, 941 not required
Note the difference between the
wages reported on line 2 and the
wages reported on lines 5a and 5c.
The difference is the amount of the
pastors wages for the quarter.
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Employment Tax (pg 101)
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Clergy Compensation (pg 94)
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Business Expenses (pg 47)
◦ FICA
◦ FUTA
◦ Discussed in detail in W-2 slides later
◦ Accountable Reimbursement Plans
◦ Non-accountable Reimbursements
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Completing a Clergy W-2
◦ www.gcfa.org, Pastor link, Tax Packet link
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Box A – Employees Social Security Number
Box B – Employer Identification Number
◦ Each church should have its own
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Boxes C, D, E, F – Name and Address
Information
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Box 1 – Compensation – includes:
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Salary
Gifts
Allowances (other than housing)
Per diem or mileage in excess of IRS rates
Taxable Fringe Benefits
Non-qualified moving expense
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Box 1 – Compensation – does not include:
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Pension withholdings
Housing and utilities allowances
Health premiums
Accountable reimbursement plan payments
MRA or DCA
Excludable fringe benefits
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Box 2 – Tax Withholdings
◦ Any voluntary withholdings for clergy
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Boxes 3, 4, 5, 6 – Blank for clergy
◦ Because clergy are considered self-employed for
social security purposes
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Boxes 7, 8, 9 – Not applicable
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Box 10 – Dependent Care Benefits Paid
Box 11 - Not Applicable for Most Clergy
◦ Applies to non-qualified pension plans
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Box 12 – Clergy Contributions – most used:
◦ C – Life insurance benefits > $50,000
◦ E – 403(b) employee salary reduction contributions
◦ P – Qualified moving expense payments
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Box 13 – Check if on retirement plan
Box 14 May report housing and utilities
allowances here
◦ If you do not list, must tell clergy separately
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Boxes 16-20 – State and local wages and tax
withholdings
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Example information and W2
◦ Cash Compensation
◦ Parsonage Allowance ( own home)
◦ Contributions to Salary Reduction
403(b) Retirement
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(Page 94 Worth’s Guide)
$51,000
24,000
6,000
Taxable Salary on W-2
$ 21,000
Federal Income Tax voluntarily Withheld $ 6,000
Health Insurance Premiums
$ 5,520
Group Term Life Insurance Premium
$ 420
($50,000 policy)
Other Church Employee on Salary
Q&A from www.gcfa.org/TaxPacket.html
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What is a housing allowance? (Q 1-2)
◦ An exclusion from taxable income for federal
income tax purposes
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How much can an allowance be? (Q 4)
◦ The lesser of:
 The amount designated as the housing allowance,
 The amount of actual expenses, or
 The fair rental value of the property (furnished plus
utilities)
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How is an allowance set up? (Q 9)
◦ In advance and changed prospectively if needed
◦ Charge Conference resolution
◦ Attachments A & B provide examples
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What can be included in actual expenses?
(Q10)
◦ Attachment C provides a worksheet
◦ Examples include:
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Utilities
Furniture and appliances
Building repairs and remodeling
Insurance and taxes
Maintenance items
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What if allowance is more than actual? (Q 12)
◦ Can be paid to pastor as taxable income
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How is the allowance reported? (Q 13)
◦ Can include in box 14 on W-2
◦ Not reported in box 1 if not more than actual
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Is allowance excluded from social security?
◦ No! Included for social security purposes. (Q 16)
BREAK TIME
Role of the Local Church
Finance Committee, Financial
Secretary and Treasurer
◦ 2004 Discipline, Paragraph 259
◦ New 259.4 from 2008 General Conference!
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Provide Financial Direction
Provide for the Annual Funding Program
Provide for the Church’s Budget (Balanced)
Provide Financial Communications
Provide for Financial Reports
Provide Substantiation
Provide Safeguards for Church Funds
Provide for the Annual Audit
Preserve Financial Records
Plan for Giving Beyond the Budget
Encourage Planned Giving
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Supervise the Counting Committee, which shall
consist of at least 2 persons not related
Receive and deposit all funds given to the church
Provide the Church Treasurer with a record of the
funds deposited
Check your records with those of the Treasurer at
least once a quarter
Report to the Committee on Finance the amount of
revenue on a monthly basis
Work with the Committee on Finance to develop
policies and procedures for handling all funds and
then implement those policies
Record all funds received from individuals or groups
on a separate form
Send to individuals, preferably monthly, a statement
of the amount of gifts they have given the church
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Keep accurate and detailed records of the expenditures of the church
Disburse funds to the cause for which they have been contributed
Make monthly remittances to the conference treasurer for
apportionment payments and other gifts
Receive from the financial secretary weekly deposit slips indicating the
amounts deposited, along with the statement recording the sources of
all funds received and the purpose for which they were given
Provide a regular report to the Committee on Finance and the
Administrative Council of the expenditures for the year and fund
balances
Implement the policies of the Committee on Finance to establish
procedures for paying bills, investing “idle” funds, and payment of
special offerings
Provide to the Committee on Finance, a listing of all checks written each
month(check number, payee, & amount), including voided checks
Make yourself aware of all responsibilities the treasurer has with the
different governmental units
Prepares records for annual audit
Policies And Procedures
That We Use To Ensure
Completeness, Accuracy,
Authorization And
Validity Of Data.
Protect Innocent
Workers
Prevent And Detect Error
3. Deter Fraud
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DRAFT Template for Internal Control Policy
◦ Should be available at Annual Conference
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Required for local churches from 2008
General Conference
FISCAL RESPONSIBILITY and MANAGEMENT POLICIES
IN LOCAL CHURCHES
Florida Annual Conference
The Cabinet of the Florida Annual Conference after consulting with The United Methodist Book of Discipline, the
Financial Services Office of the Florida Conference, the Conference Chancellor, and Florida Law establish the
following fiscal and management policies to insure the protection of the Church as well as those persons involved
in the handling of church funds.
All local church bank accounts, brokerage and investment accounts, and any other financial accounts shall require
two signatures for all transactions. The local church pastor or his or her family member, relative, or business
associate shall not be one of those signatories for any local church accounts.
The local church shall have in place a process (paper trail) by which all local church expenses are approved by
the local church pastor and/or other responsible person(s) who are not themselves signatories for local church
accounts. It is preferable that the pastor not be one of the persons authorizing payment.
The church treasurer, or someone so designated, will produce clear and timely financial reports on a monthly
basis and provide copies to the pastor and the Chair of the Finance Committee and Chair of the Church Council.
The person(s) responsible for reconciling bank, brokerage and similar accounts shall not be the person(s) who
also has signatory authority for that account and also shall not be the local church pastor or a family member or
business associate of the local church pastor. Bank and other investment statements shall not be mailed to a
person with signatory authority.
The use of ATMs or other means to withdraw cash directly from local church accounts shall not be permitted.
Cash expenses, for example through a petty cash fund, shall be kept to a minimum ($100.), reconciled regularly
(at least quarterly), and accounted for in the same way as other expenses.
United Methodist churches sometimes commonly have a fund called the Pastor’s Discretionary Fund. Written
policies in accordance with the General Council on Finance and Administration guidelines are required. (See "A
Matter of Good Stewardship: Tips For Responsible Handling of a Pastor’s Discretionary Fund." GCFA Legal
Department, September 20, 2001). If a Pastor’s Discretionary Fund exists, the pastor shall be required to maintain
a log and receipts as documentation for the money spent out of such a fund. No checks will be made out to cash.
This fund is not to be used as a reimbursement account for business expenses. Every effort should be made to
write the check directly to the merchant or agency. On rare occasion a check may be written to the pastor for
expenses that fit the guidelines but only when a receipt is presented.
All financial records will be maintained on the church campus. If physical circumstances necessitate, a written
exception by the district superintendent, with directives as provided by the district superintendent, may be
obtained.
If a credit card is made available to the pastor or staff for the purpose of church-related expenses, the pastor or
staff person is responsible for the submission of receipts and explanation of the purpose for all transactions.
Church credit cards shall not be used for personal expenses. Clear guidelines as to the nature of "church-related
expenses" should be established in advance of provision of the card.
A travel allowance will no longer be documented separately from the cash salary of a pastor. Travel may be
reimbursed through a Reimbursable Account that requires the documentation of travel through mileage logs and
receipts.
The church shall make provisions for an annual audit according to The Book of Discipline ¶258.4c. Guidelines for
this audit are provided by The General Council on Finance and Administration "Local Church Audit Guide" which is
available from the Conference Treasurer’s office and the GCFA website www.gcfa.org.
Many Local Churches have Policies and Procedures of their own in
addition to the Florida Conference Policies and Procedures.
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What is an audit? (pg 4)
◦ “an independent evaluation of the financial reports
and records and the internal controls of the local
church”
◦ Not a symbol of distrust!
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Utilizes Fund Accounting
Types of Funds
◦ Unrestricted Current – Main operating fund
◦ Restricted Current – Contributor specified or for a specific
operating purpose (budgeted items)
◦ Plant/Capital – Used to acquire or renovate capital assets or
to service debt on capital assets
◦ Endowment-Permanent –principal held in perpetuity and
earnings used for specific purpose
 Term- principal held for a specific period then
becomes available for use
 Quasi – endowment fund –designated by the
governing board for specific purposes for a
long but unspecified period
Three Kinds of Net Assets (Donor Imposed)
 Permanently Restricted Net Assets – Permanent
Endowments
 Temporarily Restricted Net Assets – Restrictions
that expired by the passage of time or by actions
of the church. Such as Term endowments or
Building Funds
 Unrestricted Net Assets
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Statement of Financial Position – Assets,
Liabilities, and Net Assets
Statement of Activities – Revenues, Gains,
Expenses, and Loses
◦ All expenses are reported as decreases in net assets
◦ Non Profits have a great deal of flexibility in the
layout of the Statement of Activities
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Statement of Cash Flows –Changes in Net
Assets, Adjustments, Investments, and
Financing
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Why do an audit? (pg 6-7)
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Protection for you!
Build trust and confidence
Set habits of responsibility
Reassure donors
Provide checks and balances
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Who can do an audit? (pg 8-9)
◦ Independent
◦ Qualified
◦ Not necessarily a CPA
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Restricted Gifts (pg 10)
◦ Temporarily Restricted
◦ Permanently Restricted
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Designated Fund (pg 12)
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What does an audit do? (pg 12-13)
◦ Verify reports
◦ Document restrictions
◦ Evaluate processes
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What is included in an audit? (pg 14)
◦ ALL funds or organizations operating under
Churches Federal ID #.
(Except UMW which must be audited but may be
audited separately)
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What do auditors need? (pg 15)
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Policies
Administrative Council and Finance Committee Minutes
Bank and Investment Account Statements
Bank Reconciliations
List of all Bank and Investment Accounts, including persons
authorized to sign on each
Contribution counter tally sheets and deposit records
All Invoices, payroll data and payroll tax returns
Financial Reports, General Ledgers, General Journals and
any Subsidiary Journals, Check registers and Fund Balance
Reports
Budget Information
Fixed Asset Schedule
And more!!
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How is an audit done? (pg 16-22)
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Confirmations (Addendum III – example)
Bank reconciliations
Deposit records
Procedure review – internal controls
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Internal Controls
◦ Segregation of duties (pg 24)
 Fin. Secretary & Treasurer – not same person and not
related
 Auditor – not Fin. Secretary or Treasurer and not
related to either
 Receipts & Disbursements – by different people (when
possible)
◦ Authorizations (pg 25)
◦ Reporting
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Auditor’s Report (pg 28)
◦ Audit Report to Church Audit Committee
◦ Annual Audit Report by Church (Addendum II)
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Audit Check-off List (Addendum I)
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Q&A from www.gcfa.org/TaxPacket.html
What is an Accountable Reimbursement Plan
(ARP)? (Q 1)
◦ “a method for claiming and reimbursing
professional or business expenses”
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Is part of the Charge Conference Documents
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Advantages
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Convenience
Data
No complex rules
Fewer limits
Tax savings
Disadvantages
◦ More church review of expenditures
◦ Use it or lose it (can’t be paid as salary if not
used)
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What is in an ARP? (Q 5)
◦ Sample policies available at
www.gcfa.org/TaxPacket.html
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When should an ARP be set up? (Q 6)
◦ In advance of budget year
◦ Can be changed with new agreement
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What can be included in an ARP? (Q 11)
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Office supplies
Office equipment
Office postage
Software
Professional books
Continuing education
Etc….
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What is not included?
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Mileage to church from home
Mileage to home and back to church for lunch
Vacations
Trips to visit sick relatives
Computer used by family
More examples in appendix to Q&A
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Who should be paid? (Q 12)
◦ Pay directly to vendor
◦ Reimburse staff member
◦ Either method is OK!
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Are there required documents? (Q 13)
◦ Actual receipts
◦ Documentation of business purpose
 Listed property – cell phones, vehicles, etc.
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What is a business expense? (Q 21)
◦ Related to purpose and goals of church
◦ Same requirements for churches as for other
businesses
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Can church not pay related business
expense?
◦ Yes! Payments approved by church. (Q 22)
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Who owns what is bought with ARP?
◦ The church (Q 24)
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IRS Standard Business Mileage Rate
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2008 Rate = $0.505 per mile (Jan-Jun)
2008 Rate = $0.585 per mile (Jul-Dec)
2009 Rate = $0.55 per mile
Charitable Mileage Rate - $0.14 per mile
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Pastors Discretionary Fund
Record Retention
Fraud Detection
Additional Resources
GCFA.org website
IRS Tax Guide
Florida Annual Conference Web Site
Hammer Church & Clergy Tax Guide
Questions?