Local Church Treasurer/Finance Training2015

Welcome!!Christine Dodson, TreasurerJennifer Walls, ControllerDiana Hunter, Accounts ReceivableChrisy Powell, Property Management & InsuranceKatherine Wilder, Accounts Receivable

Resources

Conference Treasurers Office Internet and Other Resources

Role of the Local Church Treasurer and Financial Secretary

Tab B2012 Discipline, Paragraph 258.4Job Descriptions www.gbod.org

Plan Budget Based on Ministry Needs-2015Approve Budget-2016Raise Budget-2017Spend Budget-2018Conference Budgeting and Apportionment ProcessTable II Data is Received from Statistician and Apportionments are calculated.Table I & II sent to Conference Statistician.Actual Apportionment Receipts are allocated to individual budget lines.Funds are invested for future use.CFA uses investment earnings to supplement budget and ministry needs.

Apportioned Giving

Mission and Service Commitments Booklet

Calculating ApportionmentsTab D

Statistical Tables I, II, and IIIApportionment ReportApportionment Calculation

Church RemittancesTab ERemittance Forms: www.nccumc.org/treasurerCutoff for 2015 Wednesday, January 13, 2016After January 6, mail to Garner officeCheck apportionment balances: Treasurers Office WebsiteOn-line Data Collection SystemEFT Enrollment for remittances

Pension & Insurance Payment PointersWrite SEPARATE checks for Pension and Insurance and Apportionment PaymentsPension = GREEN Envelope; Insurance = BROWN EnvelopeNote on memo line that payment is for Pension or Insurance and if possible include the pastors name or ID # found on billVerify that all the info on your statement (amount, church billing address, pastor name, etc.) is correctEffective January 1, 2014, the Conference Pension bill includes amounts for CRSP, CPP and UMPIP. There will no longer be a separate bill for UMPIP coming from or paid to the GBOP in Illinois. It may also include an amount for MTF, if your pastor has made this election. Easiest way to ensure proper payment is to enroll in EFT program

Internal ControlsTab FPolicies And Procedures That We Use To Ensure Completeness, Accuracy, Authorization And Validity Of Data.

Internal Controls Are Necessary toProtect Innocent WorkersPrevent And Detect ErrorDeter Fraud

Internal Controls Definedmethods and policies designed to prevent fraud, minimize errors, promote operating efficiency, and achieve compliancewith established policies. Even more narrowly, procedures and policies designed to prevent or uncover errors and fraud.-CWA

Source: Donald Cressey

Enablers of Fraud in the ChurchNo surprise audits/financial and bank account reviews.No required vacations of staff.No criminal background or credit checks of staff.Same person deposits and records bank deposits.No term limits for financial volunteers (treasurer, counters, etc.)No financial expert on Finance CommitteeSame person writes checks, deposits cash and reconciles bank accountsRelated persons on Finance Committee or familial relationships with financial staffReferences are not checked when employees are hired.In a survey of 132 churches of various sizes and denominations, 13.2% reported a fraud within the last 5 years. Due to under-reporting issues, the actual frequency is believed to be materially higher. Fraud Magazine, Jan/Feb 2012.

Internal Control PolicyTab FMinimum Internal Control StandardsWritten policy required by 2008 General Conference

AuthorizationFinancial policy and authority guidelines should be written and approved by the Finance CommitteeProgram leaders (with authority by Finance Committee) authorize expenses-not TreasurerInvoices required for all payments from all accountsTreasurer disburses funds once invoices are approvedAt least 2 persons listed as authorized signatures on all accounts

RecordkeepingFinancial Secretary records offering count details received from CountersOffering totals should be given to the treasurer or financial secretary to record depositFinancial Secretarys deposit log should be compared to the bank statement to verify deposits (by bank reconciliation reviewer)

CustodyCounting team: at least two unrelated personsCount offerings and document totals not treasurer and not financial secretary Offerings deposited the same or next business day

Reporting and ReviewReconcile all accounts monthlySomeone other than treasurer or fin. sec. review bank recs at least bi-annuallyIncludes statements, invoices, checks written, financial reportsTreasurer makes at least quarterly detailed reports of budget and designated fund activities to the Finance Committee

Reporting and Review (cont.)There must be an annual evaluation of financial recordsdetails >= Local Church Audit Guide including ALL accounts of the church (but UMW may be under separate evaluation/audit) ALL include the general fund, building funds, designated accounts, cemetery funds, discretionary funds, Sunday school accounts, etc.

Reporting and Review (cont.)External audit of ALL accounts at least every 3 years for churches with disbursements > $500k/yrAn annual evaluation should be performed during the interim years.External audit of ALL accounts annually for churches with disbursments > $1 mil/yr

Segregation of DutiesIdeally, 4 individuals needed for regular financial procedures: Treasurer Financial SecretaryInvoice review and approverBank reconciliation reviewer

3 possible with proper segregation

Local Church AuditsTab GFrequently Asked QuestionsLocal Church Audit

What is an audit? (pg 1)an independent evaluation of the financial reports and records and the internal controls of the local churchNot a symbol of distrust!

Local Church Audit FAQsWho can do an audit? (pg 2)IndependentQualifiedNot necessarily a CPA

Local Church Audit FAQsRestricted Gifts (pg 3)Temporarily RestrictedPermanently Restricted

Designated Fund (pg 4)

Even for small churches? (pg 12)

Tax Guide for ChurchesTab H Publication 1828www.irs.gov

Tax Exempt Status (pg 3)What does that mean?Group ruling

Tax Guide for ChurchesJeopardizing Tax Exempt Status (pg 5)InurementSubstantial LobbyingPolitical CampaignUnrelated Business Income Tax (pg 16)IncomeExamplesTax

Tax Guide for ChurchesEmployment Tax (pg 18)FICA FUTAClergy Compensation (pg 19)Discussed in detail in W-2 slides laterBusiness Expenses (pg 20)Accountable Reimbursement PlansNon-accountable Reimbursements

Tax Guide for ChurchesFiling Requirements (pg 22)Charitable Contributions (pg 24)SubstantiationQuid Pro QuoDisclosure ExceptionIRS Audits of Churches (pg 26)Audit process

Record RetentionTab I www.gcfa.org Local Church link

Auditor recommendations at:www.nccumc.org/treasurer - Downloads link

Group Tax Exemption RulingTab J www.gcfa.orgEach church should have own Employer Identification Number (EIN)General IRS informationhttp://www.irs.gov/businesses/small/article/0,,id=98350,00.htmlApply for EIN Onlinehttp://www.irs.gov/businesses/small/article/0,,id=102767,00.htmlQuestions on group ruling?Email legal@gcfa.org

Accountable Reimbursement PlansTab K - 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

Accountable Reimbursement PlansAdvantagesConvenienceDataNo complex rulesFewer limitsTax savings

DisadvantagesMore church review of expendituresUse it or lose it (cant be paid as salary if not used)

Accountable Reimbursement PlansWhat is in an ARP? (Q 5)Sample policies available at www.gcfa.org/TaxPacket.html

When should an ARP be set up? (Q 6)In advance of budget yearCan be changed with new agreement

Accountable Reimbursement PlansWhat can be included in an ARP? (Q 11)Office suppliesOffice equipmentOffice postageSoftwareProfessional booksContinuing educationEtc.

Accountable Reimbursement PlansWhat is not included? Mileage to church from homeMileage to home and back to church for lunchVacationsTrips to visit sick relativesComputer used by familyMore examples in appendix to Q&A

Accountable Reimbursement PlansWho should be paid? (Q 12)Pay directly to vendorReimburse staff memberEither method is OK!Are there required documents? (Q 13)Actual receiptsDocumentation of business purposeListed property vehicles, etc.

Accountable Reimbursement PlansWhat is a business expense? (Q 21)Related to purpose and goals of churchSame requirements for churches as for other businessesCan church not pay related business expense? Yes! Payments approved by church. (Q 22)Who owns what is bought with ARP?The church (Q 24)

Accountable Reimbursement PlansIRS Standard Business Mileage Rate Current 2015 Rate - $0.575 per mileCharitable Mileage Rate - $0.14 per mile2016 rates not yet released

Housing Allowances

Tab L - Q&A from www.gcfa.org/TaxPacket.html

What is a housing allowance? (Q 1-2)An exclusion from taxable income for federal income tax purposes

Housing AllowancesHow much can an allowance be? (Q 4)The lesser of:The amount designated as the housing allowance,The amount of actual expenses, orThe fair rental value of the property (furnished plus utilities)How is an allowance set up? (Q 9)In advance and changed prospectively if neededCharge Conference resolutionAttachments A & B provide examples

Housing AllowancesWhat can be included in actual expenses? (Q10)Attachment C provides a worksheetExamples include:UtilitiesFurniture and appliancesBuilding repairs and remodelingInsurance and taxesMaintenance items

Housing AllowancesWhat if allowance is more than actual? (Q 12)Can be paid to pastor as taxable incomeHow is the allowance reported? (Q 13)Can include in box 14 on W-2Not reported in box 1 if not more than actualIs allowance excluded from social security?No! Included for social security purposes. (Q 16)

Utilities AllowancesTab M - Utilities same as housing cost for IRSNC Conference Cabinet policyPay directly to utility companyPut parsonage utilities in church nameInclude full amount in budgetWhat is a utility?Water/sewer, electricity, heat, trash pickup, local phone, internet access

Employment Status?Tab N www.irs.gov, Publication 1779Employee vs. Independent ContractorBehavioral ControlFinancial ControlRelationship

Employee? Withhold tax and W-2Ind. Contractor? No withholding and 1099

Employment Status?Proposed Overtime RegulationsEffective Dates?Final Regulations - maybe March 2016Implementation Date maybe June 2016Proposed ChangesSalary Level for Exempt StatusSalary Level for Highly Compensated Employees

Employment Status?What should churches do now?Remember that clergy are not covered by thisThink about other positionsHow are current employees classified?Would anyone be due overtime pay?Is overtime pay included in the budget?Are job descriptions clear for what is expected?

Health Insurance ChangesTab OHealth Care ReformConference Rates for 2016http://nccumc.org/treasurer/insurance/ health-life-insurance-rates/No pre-tax premium reimbursement

Clergy PensionTab P www.nccumc.org/treasurer - Downloads LinkClergy Compensation Worksheet and InstructionsClergy Retirement Security Program (CRSP)Comprehensive Protection Plan (CPP)United Methodist Personal Investment Plan (UMPIP)New Roth contribution option!Ministers Transition Fund (MTF)Pension and Insurance Arrearages

Clergy Pension ChangesPension Plan Changes January 1, 2014Full-time pastors CRSP rate reduction2013 CRSP-DB 10.4% - 2014 CRSP-DB 8.8%Part-time pastors moving to UMPIP at 11.8%New Matching component at least 1% personal contribution to UMPIP to receive full benefit from church's contributionsFull-time pastors: included in CRSP-DC 3%Part-time pastors: included in UMPIP 11.8%All pastors should consider starting or increasing personal UMPIP contributionUMPIP bill from GBOP consolidated with NC Conference pension bill

Clergy Income ReportingTab Q Completing a Clergy W-2www.gcfa.org, Pastor link, Tax Packet link

Box B Employer Identification NumberEach church should have its own

Boxes C, D, E, F Name and Address Information

Clergy Income Reporting W2Box 1 Compensation includes:SalaryGiftsAllowances (other than housing)Per diem or mileage in excess of IRS ratesTaxable Fringe BenefitsNon-qualified moving expense

Clergy Income Reporting W2Box 1 Compensation does not include:Pension withholdingsHousing and utilities allowancesHealth premiumsAccountable reimbursement plan paymentsMRA or DCAExcludable fringe benefits

Clergy Income Reporting W2Box 2 Tax WithholdingsAny voluntary withholdings for clergy

Boxes 3, 4, 5, 6 Blank for clergyBecause clergy are considered self-employed for social security purposes

Boxes 7, 8, 9 Not applicable

Clergy Income Reporting W2Box 10 Dependent Care Benefits PaidBox 11 - Not Applicable for Most ClergyApplies to non-qualified pension plansBox 12 Clergy Contributions most used:C Life insurance benefits > $50,000E 403(b) employee salary reduction contributionsP Qualified moving expense payments

Clergy Income Reporting W2Box 13 Check if on retirement plan

Box 14 May report housing and utilities allowances hereIf do not list, must tell clergy separately

Boxes 16-20 State and local wages and tax withholdings

Clergy Income Reporting W2Example information and W2 in Tab Q

Clergy Income Reporting - 941Tab R IRS Form 941 Employers Quarterly Federal Tax ReturnPart 1Line 1 Number of employeesLine 2 Wages subject to federal income taxLine 3 Tax withholdingsLine 4 Check if not subject to social security or Medicare

Clergy Income Reporting 941Part 1Line 5 if 4 is not checked, enter wages subject to social security and multiply by percentagesLine 7 Adjustments for centsLine 8 Adjustments for sick payLine 9 Adjustments for tips and life ins.Line 10 CalculationLine 11 Tax deposits made for the quarter

Clergy Income Reporting - 941Part 1Line 12 Balance dueLine 13 Overpayment

Parts 2-5 Information and signature

Tab P IRS letterIf one minister and no other staff, 941 not required

Clergy Income ReportingOther ReportingState ReportingWithholding Forms (W-4, NC-4)I-9 ComplianceState Reporting of New Hires for Child Support Enforcement:www.ncnewhires.com

Church IncorporationTab S

Some guidance and sample forms available at www.gcfa.org Local Church link

Memo Incorporating a Day Care

Local Church InsuranceTab TProperty InsuranceUnited Methodist Insurance - Captive Insurance TrustRecommended minimum coverageWorkers Compensation Coverage

Sales TaxTab UState Taxation and Nonprofit Organizationswww.dor.state.nc.us/publications/nonprofit.htmlSales and Use Tax (pg 5)Sample Form E-585 and instructionsFrequently asked questions (pg 21)Forms and Legislative Changeswww.dor.state.nc.us/downloads/sales.htmlApplication for Employer Identification Numberwww.4.irs.gov

Escheat PropertyTab V - www.nccash.com

Annual Reporting of Unclaimed Property

Holder Reporting Guide

Other ResourcesWebsite Resources Tab WTreasurers Office WebsiteTraining MaterialsFrequently Asked QuestionsLCFinance Email list

Thank you for coming!

Questions?

*****Apportionments are based on disbursements. Not all disbursements but just those monies that we spend on our own programs, activities, and operations. The formula on page 4 itemizes the excluded items such as benevolent activity and capital expenditures. The remaining expenses are salaries, benefits, programs, and operating costs. These become the basis on which the Conference approved budget is allocated.

This formula is continuously reviewed to ensure fairness between churches in the sharing of ministry cost.

The formula also provides methods to limit the growth of apportionments in any year by utilizing a four year average of disbursements if it is lower than the current year. Finally, apportionments are not allowed to increase more than 15%

****These are some helpful hints to ensure that your payments are applied correctly in our billing systems.******************************************************