ShelbyNext Financials: Manage Designated/Restricted Monies

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1 ShelbyNext Financials: Manage Designated/Restricted Monies (Course #F221) Presented by: Dave Heston Shelby Consultant 2018 Shelby Systems, Inc. Other brand and product names are trademarks or registered trademarks of the respective holders.

2 Objective To provide a better understanding of the difference between designated and donor restricted moneys/funds and then look at how they can be tracked and reported within ShelbyNext Financials. This session presents the following topics: Types of Ministry income Who can restrict a gift GAAP Accounting guidelines for the proper handling of donor restricted funds Accounting Terminology Changes - ASU [1] Accounting for Ministry income Options in ShelbyNext Financials for tracking designated and donor restricted funds Report options in ShelbyNext Financials Special thanks to Dan Busby and the Evangelical Council for Financial Accountability (ECFA) for the following resources; THE GUIDE TO CHARITABLE GIVING FOR CHURCHES AND MINISTRIES 2018 CHURCH AND NONPROFIT TAX & FINANCIAL GUIDE 4 KEYS FOR A CHURCH TO PROPERLY HANDLE DESIGNATED GIFTS PRACTICAL INSIGHTS AND APPLICATIONS TO FASB S NEW NFP REPORTING STANDARD CapinCrouse LLP for the following resource; NEW NONPROFIT FINANCIAL REPORTING STANDARDS NAVIGATING THE FASB ASU CHANGES

3 Types of Ministry Income Contribution Income Without donor restrictions o FASB 117 Unrestricted o Updated ASU (1) Without Donor Restrictions o General Gifts Gifts without giver stipulations. Contributions received without giver restriction (e.g., use where needed most ) ECFA o Annual Operating Pledges With donor restrictions o FASB 117 Temporarily Restricted Permanently Restricted o Updated ASU [1] With Donor Restrictions o Restricted Gifts gifts received with donor restrictions Non-contribution Income Without donor restrictions (Unrestricted) always o Activity/Event Fees o Interest/Dividends o Gains/Losses on Investments o Facility Fees o Bookstore/Coffee House o Weddings Almost every church receives some designated gifts each year. The gifts are restricted for accounting purposes, but churches often refer to them as designated. Designated gifts are often received for a church missions fund, the building fund, the benevolence fund, and more. While the designated gift topic seems quite simple, a multitude of questions often arises about how to handle designated gifts. Not to mention, honoring giver expectation and intent is so critical to building and maintaining trust with church members, givers, and the broader community. ECFA Dan Busby 3

4 Who can restrict a gift? Only a Donor can restrict a gift. Restricted gifts limit the ministry s use of the gift by a specific purpose or time (to a later period or a later date), or both. o Limit by purpose Local outreach project Homeless ministry Mission projects Mission trips Benevolence Love Gift Building project Hurricane Relief Memorials Camp Scholarships o Limit by time Cannot use the gift until a specified date Cannot use the gift until $X has been raised Designations of unrestricted net assets by a ministry s governing board do not create restrictions. Board designations may be reversed by the board. Boards can designate (and subsequently can remove a designation) unrestricted net assets, but boards cannot unrestrict giver-restricted gifts. Board designations may be segregated and displayed separately within the unrestricted class if desired, but board designations do not create restrictions on otherwise unrestricted net assets. ECFA 4

5 Accounting Terminology Changes The Financial Accounting Standards Board (FASB) has released Accounting Standards Update (ASU) [1] Presentation of Financial Statements for Not-for-Profit Entities, that modifies the classification of contributions. ASU [1] is effective for financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, Unrestricted net assets are now labeled - Net Assets without Donor Restrictions (not subject to donor-imposed restrictions) Temporarily and Permanently restricted net assets are now combined into one class labeled - Net Assets with Donor Restrictions (subject to donor-imposed restrictions) The main reason for reducing the number of categories of net assets that must be reported on the face of the financial statements, especially the statement of activities, is to help reduce complexity, increase understandability and enable greater use of comparative financial statements that can provide readers with information useful in identifying and assessing key trends of the organization. CapinCrouse The ASU also requires enhanced disclosures about the amounts and purposes of the governing board s designations, appropriations and similar actions that result in self-imposed restrictions as of the end of the period. CapinCrouse 5

6 Without Donor Restrictions Accounting for Ministry Income The way it used to be: o Designated funds were set up as Liabilities or as Unrestricted Net Asset(s). o Associated income and expenses all washed through a liability account(s) or unrestricted net asset account(s). o Problem The church s income and expenses were understated. The way it should be: o Include under Net Assets Without Donor Restrictions. o Set up a Net Asset account for each designated item/activity that is being tracked. o Set up at least one income and expense account that closes to the Net Asset account that is being tracked; income and expense transactions should not be recorded directly to the net asset account(s). o Examples of non-donor restricted income include; Activities and events (ministry) Thrift Store (ministry) Coffee House/Bookstore (ministry) Cash Operating Reserve (board) Cash Maintenance Reserve (board) With Donor Restrictions Was include under Temporarily Restricted or Permanently Restricted Net Assets now included under Net Assets with Donor Restrictions. o Set up a Net Asset account for each Donor Restricted item being tracked. o Set up at least one income and expense account that closes to the Net Asset account that is being tracked; income and expenses should not be entered directly to the net asset account(s). o Examples of donor restricted funds include; Mission projects, trips or missionaries Benevolence Building projects Donor-restricted revenue and expense should be recorded separately from unrestricted revenue and expense. This provides the basis for determining when giver restrictions have been satisfied. ECFA. 6

7 Setting up your Chart of Accounts to handle Net Asset (Capital) Accounts Donor Restricted Gifts Many churches set up a separate Fund(s) for Donor Restricted Gifts. o The advantage is that these gifts are kept separate from operating funds and are easily tracked on a separate Balance Sheet(s). o GAAP Accounting no longer requires the use of Funds. Other churches do not use Funds o Separate Net Asset Accounts are set up to track Donor Restricted gifts. No transactions are posted directly to the Net Asset accounts. Income and Expense Accounts Set up a Cost Center and or Department(s) to track donor-restricted gifts. Include two accounts for each restricted gift type you are tracking. o Income o Expense Assign the same closing Net Asset account to both the income and expense account. When adding an income or expense account you have the option to select a GAAP Restriction Type and Functional Expense Type. Maintain clear records of designated gifts. Church accounting records must clearly reflect designated gift income and the related expenses. Otherwise, the church is unable to document the designated funds received and expended. The church board should receive a monthly report of unexpended designated gifts, distinguished from ministry accounts that derive from sales, fees, or other non-charitable gifts. The church board should monitor whether designated gifts are being expended in a timely manner and for the intended purposes. Integrity has many faces for churches. And, abiding by giver intent is one of the most important faces of integrity as a church faithfully administers its resources. Givers are watching and making giving decisions based on whether trust is being modeled. More importantly, God is watching for trustworthy actions. We are accountable for how we steward the resources He has entrusted to the churches we serve (2 Cor. 8:14-25). ECFA-Dan Busby 7

8 CHURCH USING FUNDS CHART OF ACCOUNTS Chart of Accounts-Fund 1 Church Net Asset Accounts Chart of Accounts-Fund 1 Department 350 Income and Expenses accounts notice the closing account for Student Activities 8

9 Chart of Accounts-Fund 5 School Net Asset Accounts Chart of Accounts-Fund 05 Department 800 Income and Expenses Accounts notice the closing accounts 9

10 Chart of Accounts-Fund 10 Missions-Donor Restricted Net Asset Accounts 10

11 Chart of Accounts-Fund 10 Missions Donor Restricted Departments 910, 920, 940 Income and Expense Accounts notice the closing accounts 11

12 Chart of Accounts-Fund 15 Campus Projects Donor Restricted Net Asset Accounts Chart of Accounts-Fund 10 Campus Project Department 995 Income and Expense Accounts notice the closing accounts 12

13 Church Using Multiple Funds - Reports Statement of Financial Position Columnar by Fund Filters: select All funds Options: select Columnar By Fund? 13

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17 Designated Fund Summary Report Displays the receipts, disbursements and net monthly balances for accounts in the specified period. Filters: o Select Capital accounts o Select All funds 17

18 Options > Reports Types o Regular: Prints the beginning Balance, receipts and disbursements for the period, net change and an ending balance for the period. o YTD: Prints the opening balance (beginning of the year), beginning balance (beginning of the month), receipts and disbursements for the current period and year to date, and the ending balance for the period. o YTD with Transfers and Adjustments: Transfers refers to any journal entry made with a journal type of TR and Adjustments refers to any journal entry made with a journal type of AJ. o You can also customize what you want to display on the report by using you mouse to drag options horizontally between Available Options and Selected Options. You can drag options vertically to re-order the Selected Options columns. 18

19 Fund 1 Church-Genl Operations Fund 5 School 19

20 Fund 10 Missions-Donor Restricted Fund 15 Campus Projects-Donor Restricted 20

21 Church Using Cost Centers - Chart of Accounts Cost Center 0 Department 0 Balance Sheet (Net Assets) notice the use of subaccounts 21

22 Cost Center 5 Operating-Budget Department 50 Youth Income and Expenses accounts notice the sub-accounts and closing accounts 22

23 Cost Center 10 Donor Restricted Department 510 Mission/Outreach, 520 Building, 530 Elders and Deacons Income and Expense Accounts notice the sub-accounts and closing accounts 23

24 Church Using Cost Centers - Reports Statement of Financial Position Current & Beginning of Year. 24

25 Net Assets Without Donor Restrictions portion of Statement of Financial Position 25

26 Net Assets With Donor Restrictions portion of Statement of Financial Position 26

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28 Designated Fund Summary Report Displays the receipts, disbursements and net monthly balances for accounts in the specified period. Filters: o Select Capital Accounts o Select Balance Sheet Options: select Report Type 28

29 Designated Fund Summary Custom Report for the Month of February 29

30 Q&A Class Discussion 30

31 Dave Heston Shelby Consultant Dave served as an accountant for a Phoenix-based CPA firm before he joined the staff of his church in Over the last 40 years Dave has served as an administrator at three churches in the Phoenix metro area. Dave recently retired as the Director of Finance for Phoenix Seminary in AZ. Dave has been a Shelby user since 1985 and trains as a Shelby Consultant training on Shelby v.5 and ShelbyNext Financials.