Finance Office: Hardcopy Filing System (part 1 of 2)

Posted on March 29, 2016 Written by

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I have a simple filing system for my hardcopy (aka, paper) files in the church’s Finance Office. I’ve learned that simple is best: it keeps the staff and the auditors from having to hunt and hunting is just wasted productivity. I have a four drawer filing cabinet (lateral files are best) in which I’ve got the files for the current year (prior year files are boxed up and placed in storage until they are shredded). I’m doing less and less with paper files and moving as much as possible to electronic storage (with backups). We are in an age of transition – within a few years, paper files will be negligible.

  • Accounts Payable (Vendor payments)
    • All accounts payable are in separate manila folders by vendor with the vendor name on the folder tab.
    • All accounts payable invoices have stapled together the check stub followed by the supporting docs for that payment.
    • Credit cards are in separate file folders by employee. I keep them in the A/P drawer
  • Deposits
    • All deposits are in 12 folders with the month on the folder tab.
    • Deposits are placed in each monthly folder based on the date that the deposit hit the bank account.
    • All deposits have the bank deposit slip on top followed by all the docs which support the amount deposited.
  • Payroll
    • All payroll docs are in 12 folders with the month on the folder tab.
    • Payroll docs are placed in each monthly folder based on the date that the payroll hit the bank account.
    • All docs related to that payroll are stapled together to make future research easy.
  • Monthly folders
    • I have 12 folders with the month on the folder tab.
    • Each of these monthly folders has anything that doesn’t fit into one of the previous categories. Typically, this includes: journal entries, bank reconciliations, and investment statements.
  • Annual Files – there are files which are only one folder for the year. These include
    • Voided checks
    • Annual budget
  • Permanent Files – one of my drawers is for files that cross over fiscal years. This includes:
    • Contracts – I have a folder for each vendor. Somewhere on the folder I put when the contract expires. I also keep this info in an Excel spreadsheet to see at a glance when contracts expire.
    • Construction – any building info which will be needed over the course of several years is in a separate folder(s) according to the project.
    • Insurance – contracts and premium payments are kept in separate folders because this is kept forever (see records retention post)
  • Employee Files
    • Current employee files are kept in separate folders with the employee’s name on the folder tab
    • Former employees’ folders are boxed up and kept in a separate and secure location. The Department of Labor says you only need to keep those folders for three years after the employee leaves but I recommend keeping them for 10 years in case there is legal action by the former employee.

Once you are organized and get into a routine, then this system works quite well. I learned this from one of the Final Four accounting firms so it has passed muster.

Prior year files are in boxes on shelves organized by year and by contents: boxes for accounts payable (bills & invoices), a box for the monthly folders, a box for deposits, and a box with any other file (or fit those into one of the previous boxes as possible).

 

Lead On!

Steve

Filed Under: accounting, church finances Tagged: , ,

Monthly Internal Audit Checks

Posted on February 16, 2016 Written by

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I encourage all my clients to have an annual audit. You can find reasonably priced audit firms who will also provide assistance throughout the year with tricky questions.

In addition, I encourage my clients to have an Internal Auditor, typically the church’s treasurer if they have a financial assistant doing the books (or the Finance Committee chairperson if the treasurer is doing the books).

The procedures the internal auditor does each month are quite simple:

  1. After the month ends, the internal auditor receives the general ledger detail for the checking account. That lists every payment and deposit.
  2. The internal auditor will review the list and select up to 10 deposits and/or withdrawals for which he would like to have more information.
  3. The Finance Assistant finds the source documents for the requested deposits or withdrawals and has them in a folder in the church office for the auditor to review. These documents should never leave the church; the auditor can review them onsite.
  4. The auditor make notes and, if necessary, talk with the staff person or supervisor if there is an expense or receipt for which he needs further clarification.

That’s it. It is very simple and it is done every month. Church staff will be informed that every one of their expenses is subject to a random inspection and that will ensure they attach appropriate documentation and in a timely way. It also provides a sense of lay member oversight so that the church can know that there is someone “guarding the guards.”

The monthly bank reconciliation summary should also be sent to the treasurer. This is done to provide more detail about checks and deposits that cleared or haven’t cleared.

 

Lead On!

Steve

Filed Under: accounting, budget, church administration, leadership, strategy Tagged: , , , ,

Wills for New Parents

Posted on February 9, 2016 Written by

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My wife and I have had two babies. All that we thought about for months and even years was having enough diapers on hand and getting enough sleep. Seems like we constantly ran out of both. New parents are usually overwhelmed with all the needs and their desire to do everything correctly.

There is one thing that very few new parents ever think of: getting a new will. When you have a baby, your legal status changes because you are now guardians of another human. You have assets to distribute in the event of your death and you need to find someone to care for your child(ren) in the event both parents die before the kids turn 18. There’s a LOT to think about legally when you have a baby but this occurs to almost no one.

What if members of the church who are attorneys met with the couple and drafted a very simple will. I know that some wills can be done online but I can assure you that there is nothing like talking to a person to craft your will, especially for new parents. Having a “Wills Ministry” can provide an opportunity for church members to help (and get to know) other members of the church. If the couple has a more complicated legal status, the lawyer can help them negotiate that in a paid-for will.

Doing this for new parents tells the parents that the church is concerned about them and their new addition. It also communicates to attorneys that there are ways for them to be of professional service even in their own church.

 

Lead On!

Steve

Filed Under: accounting, budget, church finances, leadership, strategy Tagged: , , , ,

Budget Categories

Posted on January 26, 2016 Written by

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Church budgets have only three categories: buildings, staffing, and programming. The following analogy is not exact (no analogy is) but is useful for illustrative purposes.

  • Buildings are the skeleton of a church
    • Facilities and grounds contain many, but not all, the activities of the church. This is the place where society expects to find members. This is the place that is considered by everyone to be a safe place, a sanctuary from the world.
  • Staffing is the heart and brains of a church
    • Personnel are what decide the vision and leadership of the church. The staff guide the volunteers to do more, worship better, reach out to others, learn deeper, and care more thoroughly for others.
  • Programming is blood and muscle of a church
    • The activities of the church provide the energy and excitement; they demonstrate to the world what the church is all about. The programs, mission trips, worship services, educational activities, outreach efforts are the tools the church uses to attract and retain others.

Too often I’ve seen churches decide to reduce one of the three (typically, programming) without understanding the full consequences of their actions. Reducing programming can leave the church paralyzed. Not having a building can cause the church to lose its relationship with the community because it can meet elsewhere anytime it chooses. And not having staff (or having little staff) could mean having nice facilities & volunteers but they are aimless.

Think about the synergy of all three. They are a tripod which support each other and the purpose of the church. But if one of these is weaker or stronger than the others, the church can get lopsided.

 

Lead On!

Steve

Filed Under: accounting, budget, church finances, leadership, strategy Tagged: , , , ,

Changing Plans

Posted on December 22, 2015 Written by

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Question: Several years ago (2009 or 10), Grace Church entered into a building program for a Family Life Center. They set up a designated fund for the project, and after voting on a design and posting it around the church, they started collecting money. There was an early attempt to set the fund as a general building fund, but it was set as the Family Life Center Fund. Some contributions were significant (at least $10,000 dollar gift). The goal was over $850,000 but the plan was to raise $450,000 within a few years and finance the rest.

Currently there is $211,000 in the fund and many people want to either change the plan to a smaller, cheaper building that does not meet the original use ideas and does not match the floor plan voted on or cancel the project altogether. Undesignated receipts haven’t been over $150,000 in the past 20 years. The problem is that most of the money was accepted, but no records were kept as to who donated what.

At a recent called meeting to discuss this, the questions were about what they could do legally about the situation. Can we change the building? Is there any way to cover ourselves if we cancel or change the program but cannot identify most of the contributors? I know what I have always been told, but some of my members insist that the money was given, so they can decide how to use it.

Answer: This is a tough situation with a hard answer but this is the proper way to handle this. Here are the proper steps to follow:

  1. Contact every donor that you know about and ask them to sign a document giving the church permission to use the funds for another purpose or even unrestricted uses (aka, to the ministry budget). After that, move out of this fund all monies you’re given permission to move to whatever purpose the donor permits.
  2. Get the church to formally vote on how the church would like to use the remaining funds. Use paper ballots and retain the ballots in case there is a need to show them later. I strongly encourage you to find a purpose that is as close as possible to the original purpose and get the church to vote on giving the money to that. The reason for doing this is to prove to others what the owners (church members) want to do with the money. Again, the church should appear unanimous in what it wants to do with the money but this vote does NOT permit the church to move the money as it wants. It is merely an indication of what the church wants to do.
  3. Contact the state Attorney General’s office at (804) 786-2071 and use the courts to seek release.Explain to the AG’s office what the story is and what the church wants to do with the money. The AG should take this request to a judge and get a judge to sign off on it. This may be done in the judge’s offices or the judge may want to have a public hearing on this – I don’t know and I suspect that each judge will handle it differently. Hopefully it is a perfunctory process but that is probably only possible if no one in the church squabbles about where to use the money. Always follow the instructions of the AG – that way you’re doing exactly the right thing.

Lead On!

Steve

Filed Under: accounting, church finances, leadership, strategy Tagged: , , ,

10 Financial Ratios (part 10 of 10)

Posted on December 15, 2015 Written by
Startup Stock Photos

Planning Meeting

Capital Campaign

  1. Definition: a multi-year fundraising church-wide event
  2. Results:
    1. Minimum: Held every 5-10 years
    2. Purpose: Raising money for a church need (a building, debt reduction, etc) and maybe an intangible goal (a missions project or missionary support)
  3. Consequences:
    1. Capital campaigns are additional times to do member education about stewardship and generosity
    2. Capital campaigns are opportunities to receive input from members and to cast vision for the future of the church
    3. If these are too infrequent, the church can have
      1. Complacency by members about their roles in the church
      2. Deferred maintenance on the church facilities and church’s vision

Now What? So What?

  • Compare your church’s financial ratios to the optimum range for each ratio.
  • Develop a 2-3 year plan to bring your ratios in line with best financial practices.

 

Lead On!

Steve

Filed Under: accounting, budget, leadership, strategy Tagged: , ,

10 Financial Ratios (part 9 of 10)

Posted on December 8, 2015 Written by

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Weekly Offerings to Weekly Budget Goal

  1. Definition: Divide weekly receipts by weekly goal
  2. Results:
    1. Worst Case Scenario: this should not go below 75% for more than three consecutive weeks
    2. Best Case: if this ratio goes above 125% for more than three weeks in a row, thank the church
  3. Consequences:
    1. If your weekly budget receipts drop below the weekly goal for more than three consecutive weeks without a visible reason, then
      1. Push the “Concerned” Button (but not the Panic Button just yet). Push the Panic Button when you go five consecutive weeks
      2. Tighten up on expenses and explain to the congregation ASAP about the financial situation and encourage (never belittle) them to be generous.
      3. When the financial situation returns to normal, thank the members publicly for their gifts and God’s faithfulness.
    2. If your weekly budget receipts exceed the goal for more than three consecutive weeks, determine why this happened
      1. A one-time only gift such an inheritance or bonus
      2. Increased giving by several people
      3. Several new people joining and giving

Now What? So What?

  • Compare your church’s financial ratios to the optimum range for each ratio.
  • Develop a 2-3 year plan to bring your ratios in line with best financial practices.

 

Lead On!

Steve

Filed Under: accounting, budget, church finances, leadership, strategy Tagged: , , ,

10 Financial Ratios (part 8 of 10)

Posted on December 1, 2015 Written by

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Receipts & Expenses: Ratio of Actual to Budget

  1. Definition: Divide actual receipts and expenses to the budgeted figure
  2. Results:
    1. Annual receipts should be between 95%-100% of the budget goal
    2. Annual expenses must never exceed the annual receipts figure (unless there was a significant event in the history of the church – departure of pastor, major local employer shutting down, etc.). Based on the figure above, expenses should be 90%-95% of the budget.
    3. Annual expenses should be less than the annual receipts in order to have a positive cash flow at the end of the year. There should be a difference of 2%-5%.
  3. Consequences:
    1. Receipts: if your receipts fall outside the 95%-100% of the budget (and there hasn’t been a significant event in the church), then you may not be budgeting properly.
    2. Expenses: these can exceed revenues for one or perhaps two consecutive years but any more than that is a sign of poor budgeting or lack of control over expenses. Both are unhealthy.
    3. The difference between receipts and expenses:
      1. This should be a positive cash flow which is added to the cash reserves at the end of the year.
      2. These reserves can be used for capital investment needs in the church.

Now What? So What?

  • Compare your church’s financial ratios to the optimum range for each ratio.
  • Develop a 2-3 year plan to bring your ratios in line with best financial practices.

 

Lead On!

Steve

Filed Under: accounting, budget, leadership Tagged: , , ,
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