Financial Management for your Congregation

Transcription

1 Financial Management for your Congregation Rev. Karen McArthur CONGREGATIONAL FINANCE LLC LLC Financial management for faith communities

2 Welcome! Our goal is to gain an understanding of how you can add clarity and transparency to your congregation s financial management, reporting, and planning. Restricted fund balances Triple-entry bookkeeping Financial Reporting & Procedures Roles of the Treasurer, Finance Team, Bookkeeper Legal Requirements Recommended Resources, Services & Products

3 There once was a congregation Each year, for as long as anyone could remember, they had a surplus of about $8,000 They discovered that they needed to relead the stained glass windows at a cost of $75,000 over three years. They were surprised when they had a deficit of $17,000. Their first instinct was to cut program and mission. If they had kept a statement of financial position and net assets, they would have seen that they were spending $75,000 of their $160,000 accumulated surplus.

4 Our Goal is Clarity & Simplicity Financial reports should be able to easily answer basic questions: What s the balance in our checking account? What have we spent so far in Supplies? How much did we collect for Sharing the Plate? Have we paid it yet?

5 Partial Reports can be Misleading Memorial Contributions used for new telephones Capital Improvements 2016 INCOME Contributions Plate income Memorials Investment Return TOTAL EXPENSES Worship Education Care Outreach Communication Building TOTAL $ 80,000 $ 5,000 $ 2,000 $ 10,000 $ 97,000 $ 35,000 $ 10,000 $ 15,000 $ 9,500 $ 17,000 $ 29,500 $ 116,000

6 Full transparency is crucial General Fund Other Unrestricted Funds Temporarily Restricted Funds Permanently Restricted Funds TOTAL INCOME Contributions $ 80,000 $ 2,000 $ 5,000 $10,000 $ 97,000 Plate income $ 5,000 $ 5,000 Investment Return $ 10,000 $ 15,000 $ 25,000 TOTAL $ 95,000 $ 17,000 $ 5,000 $ 10,000 $ 127,000 EXPENSES 10% to Outreach $ 9,500 3,200 $ 12,700 Worship $ 35,000 $ 35,000 Education $ 10,000 $ 10,000 Care $ 15,000 $ 15,000 Communication $ 15,000 $ 2,000 $ 17,000 Building $9,500 $ 20,000 $29,500 TOTAL $94,000 $ 2,000 $ 23,200 $ 0 $ 119,200

7 Full transparency is crucial General Fund Other Unrestricted Funds Temporarily Restricted Funds Permanently Restricted Funds TOTAL INCOME Contributions $ 80,000 $ 2,000 $ 5,000 $10,000 $ 97,000 Plate income $ 5,000 $ 5,000 Investment Return $ 10,000 $ 15,000 $ 25,000 TOTAL $ 95,000 $ 17,000 $ 5,000 $ 10,000 $ 127,000 EXPENSES 10% to Outreach $ 9,500 3,200 $ 12,700 Worship $ 35,000 $ 35,000 Education $ 10,000 $ 10,000 Care $ 15,000 $ 15,000 Communication $ 15,000 $ 2,000 $ 17,000 Building $9,500 $ 20,000 $29,500 TOTAL $94,000 $ 2,000 $ 23,200 $ 0 $ 119,200

8 Full transparency is crucial General Fund Other Unrestricted Funds Temporarily Restricted Funds Permanently Restricted Funds TOTAL INCOME Contributions $ 80,000 $ 2,000 $ 5,000 $10,000 $ 97,000 Plate income $ 5,000 $ 5,000 Investment Return $ 10,000 $ 15,000 $ 25,000 TOTAL $ 95,000 $ 17,000 $ 5,000 $ 10,000 $ 127,000 EXPENSES 10% to Outreach $ 9,500 3,200 $ 12,700 Worship $ 35,000 $ 35,000 Education $ 10,000 $ 10,000 Care $ 15,000 $ 15,000 Communication $ 15,000 $ 2,000 $ 17,000 Building $9,500 $ 20,000 $29,500 TOTAL $94,000 $ 2,000 $ 23,200 $ 0 $ 119,200

9 How do we create transparency? Understand Restricted Funds Use a Bookkeeping system Record income/expense accounts Track funds Keep assets and liability transactions clear Use Accrual accounting Develop a plan for distribution of reports to congregational leaders

10 Financial Accounting Standards Board After the advent of personal computers in the 1980s, more precise financial recordkeeping became possible for small organizations. In the early 1990s, the Financial Accounting Standards Board developed new vocabulary and reporting formats for non-profit organizations, and required this format for all external reporting. The standards were re-numbered and updated in 2016.

11 Fund Accounting What are funds? Donor-Restricted or Unrestricted Practically, roll-over funds Technically, Net Assets Understanding this concept is the heart of non-profit financial reporting and bookkeeping Tracking funds allows us to simplify bank accounts and transfers

12 Two New Statements Restricted Contributions Definitions Proper Bookkeeping Report Formats Statement of Financial Position Statement of Activities

13 Recording the Contributions that fund our ministry Financial Accounting Standards No. 116 (ASC ) defines contributions made to non-profit organizations and classifies them according to donor-imposed restrictions as either: Unrestricted Net Assets Donor-Restricted Net Assets Temporarily Restricted Permanently Restricted Although a congregation or board may designate funds, they are not restricted unless the donor restricts them.

14 Donor-Restricted Net Assets These are temporarily restricted funds that must be used for the specific purpose for which they are given: One Great Hour of Sharing Painting the building Organ Fund

15 Permanently Restricted Net Assets These gifts are given to the congregation. However the donor requires that the original gift be maintained in perpetuity and specifies that the income be used for unrestricted or temporarily restricted purposes.

16 Unrestricted Net Assets May be used for any purpose within the general mission of the congregation.

17 How do we Keep Track? Total all assets Bank accounts Investment accounts Subtract amounts owed to others This amount is classified as: Unrestricted Net Assets Donor-Restricted Net Assets Temporarily Restricted Permanently Restricted Bank accounts Investments $14, ,000

18 How do we Keep Track? Total all assets Bank accounts Investment accounts Subtract amounts owed to others This amount is classified as: Unrestricted Net Assets Donor-Restricted Net Assets Temporarily Restricted Permanently Restricted Bank accounts Investments Liabilities Net Assets $14, ,000 3,000 $111,000

19 How do we Keep Track? Total all assets Bank accounts Investment accounts Subtract amounts owed to others This amount is classified as: Unrestricted Net Assets Donor-Restricted Net Assets Temporarily Restricted Permanently Restricted Bank accounts Investments Liabilities Net Assets Unrestricted Net Assets Temporarily Restricted Permanently Restricted Total Net Assets $14, ,000-3,000 $111,000 66,000 33,000 12,000 $111,000

20 Counting apples If I have baskets containing 99 apples, and add one apple, it s easy to tell how many there are, without having to re-count. If I have baskets of apples, 60 red and 39 green, and I add an apple, then as long as I know whether the added apple is red or green, I can easily keep track of my red and green apple count. So our goal is to begin by knowing the details of our beginning apples, and then to keep track of the details of each additional apple so that we don t have to keep re-counting our apples!

21 Single-entry entry bookkeeping Keep track of how much money you have Money comes in Money goes out Keep track of balance Looks like an old handwritten check register 1/1 1/7 1/7 1/14 1/14 1/14 Balance Offering Rev. Smith Offering Rev. Jones Food Market Checks Deposits Balance $1,500 1,740 1,440 1,790 1,490 1,462

22 Double-entry entry bookkeeping Checks Deposits Balance All the same elements of single-entry bookkeeping 1/1 1/7 Balance $1,500 1,740 Adds one dimension: income / expense categories (or accounts ) 1/7 1/14 1/14 1/14 Rev. Smith Rev. Jones Food Market ,440 1,790 1,490 1,462

23 Double-entry entry bookkeeping Account Checks Deposits Balance All the same elements of single-entry bookkeeping 1/1 1/7 Balance Offering $1,500 1,740 Adds one dimension: income / expense categories (or accounts ) 1/7 1/14 1/14 1/14 Rev. Smith Rev. Jones Food Market Leader Offering Leader Coffee ,440 1,790 1,490 1,462

24 Triple-entry entry bookkeeping Account Checks Deposits Balance All the same elements of double-entry bookkeeping Adds a third dimension: The unrestricted or restricted source of funds 1/1 1/7 1/7 1/14 1/14 1/14 Balance Rev. Smith Rev. Jones Offering Leader Offering Mission Offering Leader $1,500 1,740 1,440 1,790 1,790 1,490 1/14 Food Market Coffee ,462

25 Triple-entry entry bookkeeping Account Fund Checks Deposits Balance All the same elements of double-entry bookkeeping Adds a third dimension: The unrestricted or restricted source of funds 1/1 1/7 1/7 1/14 1/14 1/14 Balance Rev. Smith Rev. Jones Offering Leader Offering Mission Offering Leader General General General Mission General $1,500 1,740 1,440 1,790 1,790 1,490 1/14 Food Market Coffee General ,462

26 Triple-entry entry bookkeeping Account Fund Checks Deposits Balance All the same elements of double-entry bookkeeping Adds a third dimension: The unrestricted or restricted source of funds 1/1 1/7 1/7 1/14 1/14 1/14 Balance Rev. Smith Rev. Jones Offering Leader Offering Mission Offering Leader General General General Mission General $1,500 1,740 1,440 1,790 1,790 1,490 1/14 Food Market Coffee General ,462

27 Three dimensions to every entry What Account is it being deposited to or deducted from? Which Budget line is it? What is the Class of funds?

28 Example: Sunday Offering Deposit of Sunday offering Account = checking account Budget line = Plate offering and/or Pledged contributions Class of funds = General Fund (Unrestricted)

29 Example: Buy Stamps Buy stamps at post office, check #123 Account = checking account Budget line = Postage Class of funds = General Fund (Unrestricted)

30 Example: Special Offering Deposit of Share the Plate offering Account = checking account Budget line = Special Offering Income (Contributions) Class of funds = Share the Plate Fund (Temporarily Restricted)

31 Example: Pre-paid Pledge Deposit of pledge for next year. Account = checking account Budget line = Pledged contributions Class of funds = Next Year Fund (Donor Restricted) Then, on January 1 st Make an entry to move pledge contribution from Next Year Fund to General Fund

32 There once was a church The Treasurer, who had served faithfully for several years, moved to Florida. She explained to the new Treasurer the Bills folder: When you receive new bills, put them in the back of the folder. Each week, after you make the Sunday deposit, pay as many bills as you can from the front of the folder. The new Treasurer was appalled to discover that there was $8,000 in unpaid bills. The Finance Committee had no idea, since each month, the Treasurer s meticulous reports had showed that the church was breaking even. When a congregation operates on a cash basis, then by definition, the only expenses that are recorded are those that the congregation has been able to pay. That is why the accountants require accrual basis for non-profit organizations.

33 Cash vs. accrual Cash basis accounting only pays attention to money when it is actually received or spent. Income is counted when the money is deposited in the bank Expenses are counted on the date of the check Accrual accounting counts income when it is committed to you and expenses when you commit to them. Expenses are counted on the date of the bill Income is counted when it is earned i.e. a contribution is given, or building space is provided, or tuition is due. Contributions are generally counted when received, unless you have a legally binding pledge to give.

34 Best Practice: Accrual Accrual accounting is required for non-profit organizations for any external reporting requirements (FASB 117). More accurate Helps with cash flow Not difficult with computerized bookkeeping

35 Generally Accepted Accounting Principles We have the elements of accounting: Assets, Liabilities & Net Assets Income & Expenses Accrual Accounting Now What do we do with them? What is required? What are best practices? 2 1 3

36 Financial Reporting Financial Accounting Standards No. 117 (ASC ) specifies the following reports for all non-profit organizations: Statement of Financial Position (Assets & Liabilities) including Net Assets, labeled as either: Unrestricted Donor Restricted Statement of Activities (Revenues & Expenditures)

37 Statement of Financial Position Assets What you have in bank accounts What others owe you Fixed assets (building, etc.) are not usually included Liabilities What you owe (bills, credit cards, payroll taxes) Net Assets The financial assets you have available to you for the mission of your organization -- as of one particular date

38 Financial Position beginning & end ASSETS Checking Account Investment Accounts TOTAL ASSETS LIABILITIES Accounts Payable Payroll Liabilities TOTAL LIABILITIES NET ASSETS Unrestricted Funds General Fund Investment Funds Total Unrestricted Funds Temporarily Restricted Funds Permanently Restricted Fund TOTAL NET ASSETS 12/31/15 $ 14,000 $ 100,000 $ 114,000 $ 1,000 $ 2,000 $ 3,000 $ 40,000 $ $ 66,000 $ 33,000 $ 12,000 $ 111,000 12/31/16 $ 8,800 $ 112,000 $ 120,800 $ 500 $ 1,500 $ 2,000 $ 41,000 $ 41,000 $ 82,000 $ 14,800 $ 22,000 $ 118,800

39 Statement of Activities Income: What you receive Contributions Program fees (ski trip, etc.) Event income (concert) Donations for use of building Expenditures: What you spend What you give to others What you spend on ministry -- over a time period

40 Activities over Time 2016 General Fund Other Unrestricted Funds Temporarily Restricted Funds Permanently Restricted Funds TOTAL INCOME Contributions $ 80,000 $ 2,000 $ 5,000 $10,000 $ 97,000 Plate income $ 5,000 $ 5,000 Investment Return $ 10,000 $ 15,000 $ 25,000 TOTAL $ 95,000 $ 17,000 $ 5,000 $ 10,000 $ 127,000 EXPENSES 10% to Outreach $ 9,500 3,200 $ 12,700 Worship $ 35,000 $ 35,000 Education $ 10,000 $ 10,000 Care $ 15,000 $ 15,000 Communication $ 15,000 $ 2,000 $ 17,000 Building $9,500 $ 20,000 $29,500 TOTAL $94,000 $ 2,000 $ 23,200 $ 0 $ 119,200

41 The Accounting Equation At any moment in time Assets Liabilities = Net Worth Assets Liabilities = Equity Assets Liabilities = Net Assets OR Assets = Liabilities + Net Assets AND over time, Income Expenses = change in Net Assets

42 The Accounting Equation 12/31/15 Net Assets = $111,000 12/31/16 Net Assets = $118,800 This is an increase of $7,800 Jan Dec 2016 Income = $127,000 Jan Dec 2016 Expenses = $119,200 This is a surplus of $7,800

43 The Accounting Equation 12/31/15 Net Assets = $111,000 12/31/16 Net Assets = $118,800 This is an increase of $7,800 Jan Dec 2016 Income = $127,000 Jan Dec 2016 Expenses = $119,200 This is a surplus of $7,800

44 The importance of Net Assets The Statement of Net Assets as of the day before the year begins tells a congregation what it has to begin the year with. A $20,000 deficit means one thing to a congregation that starts the year with $150,000 in net assets. It means something very different to a congregation that starts the year with $15,000 in net assets.

45 Three Financial Responsibilities Classify restricted and unrestricted financial resources Prepare complete financial statements Monitor all invested funds according to donor stipulations and record all investment income properly

46 Policies & Procedures Cash Receipts Procedure Including Contributions Statements Cash Disbursements Procedure Who can approve expenditures? How is payroll monitored? Personnel Handbook Unbudgeted Income or Expense Protocol Memorial Fund Policy Gift Acceptance & Investment Policy Financial Reporting

47 Financial Roles Report to congregation, helping to guide congregation to make financial decisions Member of Executive Council Develop annual budget Develop multi-year capital budget Sign documents Sign checks Prepare monthly reports Reconcile bank accounts Payroll Prepare checks Prepare weekly deposits Make bank deposit Mail checks and manage files

48 Financial Roles TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER RECORDER RECORDER TREASURER Report to congregation, helping to guide congregation to make financial decisions Member of Executive Council Develop annual budget Develop multi-year capital budget Sign documents Sign checks Prepare monthly reports Reconcile bank accounts Payroll Prepare checks Prepare weekly deposits Make bank deposit Mail checks and manage files

49 Financial Roles TREASURER TREASURER TREASURER TREASURER TREASURER BOOKKEEPER BOOKKEEPER BOOKKEEPER BOOKKEEPER BOOKKEEPER BOOKKEEPER BOOKKEEPER BOOKKEEPER Report to congregation, helping to guide congregation to make financial decisions Member of Executive Council Develop annual budget Develop multi-year capital budget Sign documents Sign checks Prepare monthly reports Reconcile bank accounts Payroll Prepare checks Prepare weekly deposits Make bank deposit Mail checks and manage files

50 Financial Roles TREASURER TREASURER TREASURER TREASURER TREASURER TREASURER BOOKKEEPER BOOKKEEPER BOOKKEEPER OFFICE OFFICE OFFICE OFFICE Report to congregation, helping to guide congregation to make financial decisions Member of Executive Council Develop annual budget Develop multi-year capital budget Sign documents Sign checks Prepare monthly reports Reconcile bank accounts Payroll Prepare checks Prepare weekly deposits Make bank deposit Mail checks and manage files

51 Legal Requirements Corporate status President, Clerk, Treasurer Payroll Collect USCIS Form I-9 for every employee hired Federal & State payroll tax deposits Quarterly and annual reporting (941, W-2, 1099, MA M-942, MA Quest) Workers Compensation Insurance Teen Work Permits Overtime law Local Property tax Massachusetts Form 3ABC for exemption Parsonage exempt only if minister is living there Land exempt only if you are building on it Written Information Security Plan IRS 8822-B when Treasurer changes IRS Form 5578 if you operate a school State Sales tax collect if you sell products Local Raffle permit

52 Recommended Vendors, Services & Products Recommendations: Software and Vendors TechSoup.org software discounts QuickBooks Pro Desktop bookkeeping software LogMeIn remote access to the church computer ServantKeeper software for tracking membership and contributions Vanco Payment Solutions electronic money solutions From Bank accounts Credit/Debit cards Give by Text National Payment Corporation direct deposit

53 Recommended Vendors, Services & Products PEX Cards Visa debit cards for staff and volunteers (use CFLLC referral link for discount) Church Finance Today monthly newsletter (Richard Hammar) CutePDF Writer free pdf writer DropBox free cloud storage Google Drive group collaboration Zoom virtual meeting space Sendthisfile for sending large files Compuchecks.com customized financial supplies

54 Recommended Vendors, Services & Products Information: Congregational Finance LLC Annual subscription Training Videos Consultation Thank you for all you do for our congregations!