NACBA Conference

1. NACBA Conference Rod Wiltrout Church Finance Specialist Healthy Church Group California Southern Baptist Convention, Fresno, CA

2. Table of Contents • Church as a Business • Funding & Building Information You Won’t Find Anywhere Else-John Weinstein • The Treasurer • Cash Management • Review Committee • Investment Strategies, Policies and Procidures

3. Table of Contents • Dynamic Church Budgeting • The Pastor’s Role • The Finance/Stewardship Team • The Budget Process • Pastoral Compensation • Outside Contracting vs. Internal Control • Computer Software • Websites and Resources to assist you

4. Church as a Business Things every church needs to know

5. Here is What the IRS Says • You are a 501 (c) 3 business • http://www.t-tlaw.com/lr-04.htm • Focus of organization's purpose must be to benefit the community or society as a whole, not just the organization's members and their families or other select individuals. • A §501(c)(3) organization may not devote a substantial part of its activities for lobbying purposes. (section 2A.1)

6. Here is What the IRS Says • If substantial lobbying activities exist, tax exempt status is forfeited. Lobbying activities may be found to be substantial in the ten to twenty percent (10-20%) range of total nonprofit activities. (section 2A.2) • Any organization exempt from tax under §501(a) must nonetheless pay income tax on its unrelated business income. This refers to income derived from any unrelated trade or business regularly carried on. (section 3A)

7. Capital Fund Raising

8. Capital Improvement Funding California Plan of Church Finance • National Firm • Member of NASD • A subsidiary of the California Baptist Foundation • John Weinstein • (888) 378-6683 ext. • jweinstein@cpcf.com

9. The Treasurer Qualifications and Duties

10. First, the Basics • Funds must be properly managed • IRS does not tell the church how much to pay staff, but it does require that it be done in a certain and timely manner • Church members want to know that the money they give is being handled properly • They demand a greater accountability and have higher expectations of business operations

11. The Treasurer • One of the most time consuming jobs in the church • Needs to produce timely and reliable information • Bills must be paid on time • Tax requirements must be met • May be responsible for financial decisions

12. Qualifications • Willingness to work cordially with people and the ability to be fair minded • Have knowledge of the working organization of the church • Should reflect the highest Christian ideals • Should have knowledge of accounting procedures or the willingness to learn accounting procedures • Person selected to be church treasurer, tithes

13. Qualifications • Possess a sense of calling from God • Be open and willing to receive training • Be capable of managing details of financial matters • Be persons of integrity • Be good stewards • Be capable of maintaining confidentiality • Have a good reputation

14. Duties • Keep accurate records in appropriate financial journals of all monies received and disbursed. • Reconcile monthly bank statements and correct ledgers as needed. • Sign checks in accordance with church policies and procedures and verify the supporting data for each check request.

15. Duties • Make monthly and annual reports to the church. If the church has a committee to oversee the financial matters of the church the treasurer should also make regular reports to the committee. • Keep church staff and appropriate committees informed of any trends or changes in fiscal matters. • Instill and preserve a high financial confidence throughout the congregation.

16. Duties • Submit accurate financial records for annual audit according to church policy • REMEMBER : the money belongs to the CHURCH not the treasurer.

17. Cash Management

18. Church Record Keeping Someone must be responsible for the stewardship of the church's funds. • Keeping accurate financial records • Preparing accurate and meaningful financial statements • Budgeting and anticipating financial problems • Safeguarding and managing the organization's financial assets • Complying with federal and state reporting requirements

19. Preparation of Financial Reports • Comprehensible so that anyone taking the time to study them will understand the financial situation. • Concise so that the person reading them will not get lost in detail. • Inclusive so that all activities of the church are reported. • Comparative with year to date spent or budget amounts. • Timely, as soon after the end of the month as possible.

20. Accounting Methods • Single Entry • Double Entry

21. Counting the Money • At least two counters in a secure room • Necessary tools-calculators w/ paper, red pencils, coin rollers, locking money bag • Keep envelopes for three years • Loose offerings counted and verified • Envelopes opened, amounts enclosed verified and marked on each envelope

22. Total amounts taken out of envelopes should agree with total of all envelopes • Notations of designated offerings noted on count sheet • Deposit of all monies is prepared • Total deposit must be equal to coins, bills and checks, notes on count sheet • Totals of envelopes, special gifts, and the loose offerings must also equal total deposit • All money received should be deposited and have counters sign count sheet

23. Internal Control Detect error or fraud Check accuracy and dependability of financial records Encourages adherence to regulations and policies – should be in writing Keeps honest members honest by removing the temptation of dishonesty Basic Control Do not assign the same person responsibility for more than one of the following tasks: Counting the offering Writing checks Reconciling the bank statements Recording individual contributions No payments for services from offerings Cash Management

24. What are Contributions? • A charitable contribution is the voluntary transfer of cash or property motivated by something other than "consideration". • Consideration is something being received in return for a payment.

25. Gift Options:see page 15-16 • Cash • Securities • Real Estate • Life Insurance • Bargain Sale • Personal Property • Charitable Gifts of Partial Interest

26. Gift Options • Charity Auction-gift is only amount spent above fair market value • Gifts made by an individual directly to a missionary are not deductible as charitable contributions. To be tax deductible contribution must be to or for the use of an IRS approved tax-exempt organization. If the gift meets the true definition of a gift, the missionary would not have to claim it as income. See page 21.

27. What is Not a Tax Deductible Gift • Service • Use of Property • Gifts made to Individuals – may not designate the recipient of the gift • Private School tuition • There can be no strings attached and the gift must be used for tax purposes in the year it was given • The gift is given at the point of “irrevocable giving over”

28. Conditions for Gift Giving • Gifts in excess of $5,000 must be appraised by an accredited appraiser and IRS form 8283 must be used to document the gift • Receipt should not list value of the gift • Receipt should list items on page 22 • Donee (church) must keep sufficient records to validate gift • Receipt must be given no later than January 31 of the year following donation

29. Restricted Funds • These funds are used to account for resources received from donors or outside agencies, but are restricted to a specific purpose. • The restrictions or guidelines for the fund should be in writing. • Takes a church vote or letter from donor to un-designate or re-designate funds

30. Restricted Funds • HOWEVER, donors cannot force church to adhere to their designation • Violates irrevocable giving over of funds • However, DA can and often does • “Enforcing Donor Restrictions on Gifts to Charity” by Richard Hammer gives full treatment of this issue.

31. Discretionary Funds • Used at the discretion of the party (s) who oversee it • List of restrictions on use of funds is required to keep funds from becoming income to recipient • Ask for IRS Publication 1828. Or, you can download a copy on the IRS website, www.irs.gov/eo.

32. Discretionary Funds • (2) private benefit • In addition to the prohibition on inurement to “insiders,” a section 501(c)(3) organization’s activities may not serve private interests. The tax guide explains this limitation as follows: • An [exempt] organization's activities must be directed exclusively toward charitable, educational, religious, or other exempt purposes. Such an organization's activities may not serve the private interests of any individual or organization. Rather, beneficiaries of an organization's activities must be recognized objects of charity (such as the poor or the distressed) or the community at large (for example, through the conduct of religious services or the promotion of religion). Private benefit is different from inurement to insiders. Private benefit may occur even if the persons benefited are not insiders. Also, private benefit must be substantial in order to jeopardize exempt status.

33. Financial Procedure and Review The purpose of a review of the church’s financial records is to: • Support the treasurer in his/her duties. • Verify that the financial records area being maintained in an accepted accounting practice manner. • Verify that disbursements and receipts are posted correctly and reconciled with the bank. • Verify that the financial reports that have been given to the church agree with the official General Ledger and Balance Sheet of the church.

34. Review Committee

35. Review is to be performed when • The fiscal year ends. • A new treasurer is elected. • Misuse of funds is suspected. • Any other time an appropriate governing board so requests.

36. Responsibilities of Review Committee • Spot-check the offering envelopes to verify the individual record of contributions • Verify bank deposit slips with entry in financial records • Spot-check disbursements for proper entry and distribution of charges to various budget accounts • Check the accuracy of the total in all accounts

37. Responsibilities of Review Committee • Determine if approved procedures have been followed in the handling of church funds • Study the insurance program of the church to determine if sufficient amount is carried. Review Committee does not perform this task if the church has assigned someone else this responsibility, such as Properties Committee.

38. Study the retirement and employee insurance programs to determine if adequate protection is provided. Do not perform this task if another committee has this task. J. David Carter, Managing Your Church Finances…Made Easy, (LifeWay Press, 1998) p. 54. Review Committee should submit list of people to be bonded including: Treasurer Counting Committee Any secretaries handling monies Others who handle funds Blanket policies may be provided through church insurance company Responsibilities of Review Committee

39. Responsibilities of Review Committee • For additional resources Call (800) 838-2272 for a copy of “A Financial Examination Guide” by Marvin peters, D. Min.

40. Investment Strategies, Policies, and Procedures Questions You Should Ask

41. Questions You Should Ask: • Which types of investments are acceptable risk to your church? • Who will administrate the funds? A person or committee? • What percentage of funds will be invested? • Can the broker be a church member? • Ethical standard – types of prohibited companies – pornography, tobacco, alcohol, abortion, gambling, etc.? • Written policies and procedures.

42. Dynamic Church Budgeting Holistic Budgeting for the 21st Century

43. Better Budgeting • A budget is nothing more than your church's plans expressed in numbers, an expression of what the church would like most to do

44. OBJECTIVES OF A BUDGET: • To be good stewards of the money with which the church has been entrusted. • To develop a total church plan to guide planning and expenditure decisions during the year. • The sharing of goals and budget needs among leaders of the church. • The harmonizing of leaders goals with individual committee goals and church needs and concerns. • To facilitate financial reporting to the church.

45. Types of budgets: • Same as Last Year • Zero Based Budget • Capital Budget • Construction

46. Ask the right questions (p.13) Analyze future needs Update ongoing costs Determine amount of debt reduction Account for cash flow fluctuations Compare to previous year’s budgets Educate staff on the budget Who monitors the budget How often is it monitored How are over and under-budgeted issues handled Is the budget used as a mirror to reflect the church’s direction and emphasis Budget Preparation and Use

47. The Pastor’s Role in the Budgeting Process

48. Why do committees so often act in a way that seems indifferent to and sometimes impedes ministry? • People making financial decisions are removed from firsthand involvement in ministry. • People who are actually involved in the ministries have little or no input into the budget process. • Little advance planning is put into the budget process.

49. Why do committees so often act in a way that seems indifferent to and sometimes impedes ministry? • The focus is on the bottom line: How much did we take in? How much did we spend? • Budget categories from previous years tend to dictate how money will be spent in subsequent years. • The arrangement of the budget reflects an emphasis on maintaining a physical plant and paying staff salaries rather than fulfilling a corporate vision.

50. Why do committees so often act in a way that seems indifferent to and sometimes impedes ministry? • How can we avoid this approach? • Bergstrom, R. L., Fenton, G., & Pohl, W. A. (1992). Mastering church finances. Series statement from jacket. [Mastering ministry] (Page 31). Portland, Or.: Multnomah Press; Christianity Today. • Recognize the different types of churches