Episcopal Diocese of Rochester Accounting 101

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Episcopal Diocese of RochesterAccounting 101

• Episcopal Diocese of RochesterAccounting
  Requirements for Parishes
• Call In 800-569-1949
• Participant Code 556038
• Information on the Web in Word and Power point
  Formats
• March 30, 2007 400-600 P.M.

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Accounting Requirements for Parishes

• Workshop Leaders
• Karen Noble Hanson
• Chief Financial Officer, Diocese of Rochester
• Catherine Shoemaker,
• Assistant in the Finance Office Parish Auditor

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HOW WE WILL OPERATE TODAY

• We have mailed your material to you.
• It is also on the web at www.rochesterepiscopaldio
  cese.org
• By Teleconference at Call In Starting 400
  800-569-1949 Participant Code 556038
• Please identify yourself so we know who is on the
  line
• At the end of Each Slide, we will invite
  questions. We will not move on until everyone has
  their questions answered.

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Accounting Requirements for Parishes

• Manual of Business Methods in Church Affairs
  Overview
• Internal Controls
• Bookkeeping
• Vestry Reports
• Annual Reports

• 6. Payroll Reporting
• Tax Guide for Churches
• 8. Insurance
• Record Retention
• 10. Computerization

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Manual of Business Methods in Church Affairs
Overview

• The General Convention of the Episcopal Church
  Constitution and Canons Title I, Canon 7 reads
  
• Of Business Methods in Church Affairs
• Section 1e Books of account shall be so kept
  as to provide the basis for satisfactory
  accounting.
• The Manual of Business Methods in Church Affairs
  was created January 1, 2000 to define how to
  implement Canon 7.
• Contents Index, I. Financial Management, II.
  Internal Controls, III. Bookkeeping, IV. Taxes
  and the Episcopal Church, V. Clergy Discretionary
  Funds, VI. Audit Guidelines, VII. Insurance,
  VIII. Parochial Reports, IX. Records Management
  X. Computerization

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Internal Controls

• Vestry minutes and Budget authorize the treasurer
  to act
• All funds of the church should flow through the
  General Ledger
• All funds of the church should be consolidated in
  church reporting at all levels finance
  committee, vestry, parochial report
• Segregation of duties Treasurer, Pledge Clerk,
  Counters
• Paper trail Counters sheets, Deposit slips,
  Invoices
• Two counters prepare and sign counters sheets
• Pay by check, no blank checks signed,
  cancel/retain void check
• Multiple account signers approved by vestry
• Reconcile bank accounts monthly
• ALL BANK ACCOUNTS reported to vestry, not just
  budget accts
• ALL INVESTMENT ACCOUNTS reported to vestry
• Records on gift restrictions must be kept
  restrictions followed
• KEY WORD IS DOCUMENTATION!!!

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Bookkeeping

• Data Flow
• Documents Journal Ledger

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Bookkeeping

• Data Flow
• Documents Counters sheets Deposit slips,
  Checks backed by invoices and/or vouchers.
• Journal Chronological listing of analyses of
  entire transaction represented by the documents.
  Every figure in the journal must be posted to the
  accounts in the ledger. A simple example of a
  journal is a checkbook register.
• Ledger File of accounts, each showing the
  effects of transactions. In the ledger, the
  individual transaction no longer appears as a
  complete entity. Instead, its component parts
  are scattered among the accounts.
• The total of all the accounts in the ledger will
  match the total of all the transactions noted in
  the journal.

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Bookkeeping

• Data Flow
• Subsidiary Ledgers may be created to record more
  detail about specific accounts or to help the
  treasurer clarify details of restricted funds.
  Memorial gifts would have recorded the date and
  amount of funds, from whom, in memory of whom,
  for what purpose, when the funds were used, date
  used, check number. The total of subsidiary
  accounts should equal the total of the specific
  fund in the General Ledger Account.
• Once all income flows through the General Ledger,
  some funds may be passed through to a separate
  treasurer approved by the vestry for the purposes
  of managing the funds. It is more practical for
  a Nursery School to manage their books on tuition
  and expenses once the activity is recorded in the
  Church General Ledger. Regular reports must be
  made to the vestry on funds managed in this way.

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Bookkeeping

• Sources of Funds
• Operating Income
• - Plate
• - Pledge
• - Investment Income
• - Fundraisers for Operations
• - Building Usage Rental
• - Gifts designated for Operations Flowers,
  Music
• Non-operating Income
• - Capital Fund Raising
• - Restricted Gifts not for Operations
• - Fundraisers for Mission Projects
• - Designated Gifts UTO, ERD, Bishops
  Discretionary

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Bookkeeping

• Uses of Funds
• Operating Expense
• - Mission
• - Worship
• - Music
• - Administrative Salaries Benefits
• - Office Supplies
• - Utilities
• Non-operating Expense
• - Capital Improvements
• - Restricted Gifts not for Operations
• - Special Mission Projects
• - Designated UTO, ERD, Bishops
  Discretionary

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Bookkeeping

• Chart of Accounts
• Maintain uniformity of classification of
  transactions from year to year and congregation
  to congregation.
• Facilitate the preparation of financial
  statements on a uniform basis.
• Provide a tie-in between the accounting records
  and the Parochial Report.

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Bookkeeping

• Chart of Accounts
• Standardized Numbering scheme Categories
• 1 Assets Bank accounts, Investments
• 2 Liabilities Loans, Accounts Payroll Taxes
  Payable
• 3 Net Assets Unrestricted Undesignated
  Designated, Temporarily
  restricted, Permanently restricted
• 4 Operating Income or Revenue Accounts
• 5 Operating Expense or Disbursement Accounts
• 6 Non-Operating Income or Revenue Accounts
• 7 Non-Operating Expense or Disbursement Accounts
  
• 8 Temporarily restricted
• 9 Permanently restricted

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Bookkeeping

• Chart of Accounts Subcategories
• Assets (1)
• Petty Cash 101
• Checking Account 102
• Savings Account 105
• Accounts Receivable 110
• Investments 120
• Building Contents 130
• Building 140

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Bookkeeping

• Chart of Accounts Subcategories
• Liabilities (2)
• Accounts Payable 201
• Pledges for next year 202
• Payroll Taxes Payable 210
• Loans Payable (Sibley) 220
• Net Assets (3)
• Unrestricted
• Undesignated 301
• Designated 305
• Contents, Land, Building 310
• Temporarily Restricted 320
• Permanently Restricted 330

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Bookkeeping

• Chart of Accounts Subcategories
• Revenue (Operating Income) (4)
• Loose Plate Offering 401
• Pledge Payments (Signed cards) 402
• Other Pledge Payments 403
• Special Initial Offerings 405
• Investment Income 410
• Fundraisers for Operations 420
• Building Usage Rental 430
• Gifts used for Operations 440
• Other Operating Income 450
• Unrestricted bequests 480
• (used for operations)

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Bookkeeping

• Chart of Accounts Subcategories
• Expense (Operating Expense) (5)
• Mission 501
• Worship 505
• Music 510
• Education 520
• Salaries Benefits 530
• Office Supplies Equipment 540
• Building Grounds 550
• Utilities 560
• Insurance 570

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Bookkeeping

• Chart of Accounts Subcategories
• Revenue (Non-operating Income) (6)
• Capital Fundraising 601
• Unrestricted bequests 610
• Restricted Gifts 620
• Fundraisers for Mission Projects 630
• Designated Gifts UTO, ERD 640
• Expense (Non-operating Expense) (7)
• Capital Purchases 701
• Unrestricted bequests (pass thru)) 710
• Restricted Gifts (pass thru) 720
• Mission Project Expense 730
• Designated Gifts UTO, ERD 740
• Not for Operations

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Bookkeeping

• Chart of Accounts Subcategories
• Temporarily Restricted Accounts (8)
• Guilds 801
• Youth Groups 810
• Memorials 820
• Permanently Restricted Accounts (9)
• Bequest Income only for windows 901
• Bequest Income only for mission 910
• Bequest Income only for any use 920
• Note that your system design would include files
  with numbers 6 and 7, or 8 or 9.
• You would choose ONE place to account for these
  files.

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Bookkeeping

• Double Entry Bookkeeping
• Double entry bookkeeping is a method whereby at
  least two offsetting entries must be made to
  record a transaction.
• Offsetting entries are referred to as debit and
  credit.
• Double entry bookkeeping is based on a concept of
  assets, liabilities, and net assets.
• Assets are holdings of value such as cash and
  investments.
• Liabilities are claims against holdings of value
  such as unpaid bills and outstanding loans.
• Net assets are the difference between assets and
  liabilities and represent net worth. Net assets
  are increased by income and decreased by
  expenses.
• Books may be kept manually or on a computer using
  this method.

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Bookkeeping

• Double Entry Bookkeeping

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Bookkeeping

• Double Entry Bookkeeping
• Year end closing will leave all revenue and
  expense accounts with a zero balance. Net assets
  are adjusted to show the new financial position
  at year end.
• The model using Assets Liabilities Net Assets
  reflects the basic content of a balance sheet
  (statement of financial position.)
• The model using Revenue Expenses Net Income
  is the operations model reflected by the income
  statement (statement of operating results.) With
  the budget added, this becomes the standard
  monthly vestry report of Revenue Expense
  (Profit Loss.)

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Bookkeeping

• Posting Entries Deposits
• Debit Operating Checking 4000 Account 100100
  Asset
• Credit Pledge (3700) Account 400100
  Revenue
• Credit Plate ( 150) Account 400050
  Revenue
• Credit Ash Wednesday ( 75) Account
  401100 Revenue
• Credit Building Use ( 50) Account 400200
  Revenue
• Credit Non-pledge ( 25) Account 400110
  Revenue
• Posting Entries Disbursements
• Credit Operating Checking (2500) Account
  100100 Asset
• Debit Utilities-Gas 2000 Account
  520215 Expense
• Debit Utilities-Electric 500 Account
  520205 Expense

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Bookkeeping

• Posting Entries Paychex Payroll
• Pay Rector
• Credit Operating Checking (2875) Account
  100100 Asset
• Debit Salary 2300 Account 500100
  Expense
• Debit Housing 1000 Account 500110
  Expense
• Debit SECA Reimburse 510 Account 500115
  Expense
• Credit Medical Benefit ( 125) Account
  500130 Expense
• Credit Federal Tax ( 700) Account
  200100 Liability
• Credit State Tax ( 110) Account
  200130 Liability
• Pay Taxes
• Credit Operating Checking (810) Account
  100100 Asset
• Debit Federal Tax 700 Account
  200100 Liability
• Debit State Tax 110 Account 200130
  Liability
• Pay Medical to Diocese
• Credit Operating Checking (925) Account
  100100 Asset
• Debit Medical Benefit 925 Account
  500130 Expense

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Bookkeeping

• Month End closing
• Total all journals.
• Total individual payroll records and check that
  they all total to the payroll journal totals.
  Verify Paychex totals reported in your vestry
  report match Paychex reports.
• Reconcile checking account(s).
• Verify the balances in all General ledger
  accounts (checking, savings, investment)
  correspond to the reconciled checking account.

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Bookkeeping

• End of Quarter
• Total monthly payroll for the current quarterly
  reports.
• Complete quarterly payroll reports comparing
  amounts with journals and individual ledgers to
  verify accuracy.
• File quarterly reports with appropriate taxing
  authority.
• Verify Paychex reports for accuracy in this same
  way even though they create and complete the tax
  filing for the parish.

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Bookkeeping

• End of Year
• Total quarterly payroll. Complete W-2s and W-3.
  Verify all amounts on the individual ledgers
  correspond with the amount recorded on the W-3.
  Verify Paychex reports in the same way.
• Total all cumulative totals in journals if
  journals are used for General Ledger.
• General Ledger, close out all revenue and expense
  accounts to appropriate Net Asset account. This
  will leave zero balances in the income and
  expense accounts. Verify that all balances in
  the checking, savings, and investment accounts
  correspond to actual balances.

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Vestry Reports

• Monthly
• Revenue Expense (Profit Loss) Reports should
  be prepared that state all receipts and
  disbursements for the month, both operating and
  non-operating, budgeted and non-budgeted
  activity. This activity should be compared to
  the budget listing the difference and/or percent.
• Checkbook should be reconciled monthly to confirm
  the month end reconciled checkbook balance equals
  the months beginning balance plus the Net Income
  reported on the vestry report. (Income Expense
  Net Income)
• Quarterly
• Balance Sheet should include Investment updates
  that are provided to the vestry at least
  Quarterly.
• Designated and Capital Fund details of activity
  should be reported quarterly if not shown on
  monthly reports.

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Vestry Reports
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Vestry Reports
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Annual Reports

• Financial Statements
• Balance Sheet or Statement of Financial Position
  should be a comparative statement. The comparison
  is with the same date, 12/31, of the prior year,
  preferably including fund balances.
• Statement of Activities should show a comparison
  of budget to actual activity for the current for
  the year as well as activity in accounts that are
  not budgeted.
• Budget for the coming year should be presented.
• Full disclosure of all funds of the organization
  is a must.
• This includes other organizations operating under
  the congregations
• authority, such as discretionary funds and the
  Episcopal Church Women.

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Annual Reports
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Annual Reports
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Annual Reports
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Annual Reports
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Payroll Reporting

• Employee Categories
• Clergy Self-employed for social security and
  Medicare which the clergy file on their personal
  1040 form SE, Employee of parish for medical
  deductions Flexible Spending Accounts, receives
  W-2.
• Staff Employee of parish Organist and sexton
  salaries are exempt from the parish paying New
  York State Unemployment Insurance (NYSUI),
  receives W-2.
• Staff Employee of parish Office workers -
  secretaries, bookkeepers, custodians other
  employees salaries are required to be covered by
  New York State Unemployment Insurance (NYSUI) if
  the combined earnings of this group is 1000 or
  higher each quarter, receives W-2.

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Payroll Reporting

• Federal reports
• Form 941 filed quarterly
• - Taxable portion of clergy income (Salary
  SECA) is included
• in gross income reported on line 2. ( No
  housing or medical.)
• - Taxable social security Medicare wages are
  for the staff
• only, clergy is not added to this total on
  line 5.
• - Gross income reported on the four 941s
  should equal gross
• income reported on the W-3 which is a total
  of all W-2s.
• W-2 filed annually
• - Clergy have Salary SECA reported in Box 1,
  Housing Box 14
• Salary SECA Box 16. The remaining boxes
  are empty
• unless income tax was withheld, Box 2 17.
• - Staff salary is reported in Box 1, 3, 5, 16
  and tax withheld is
• reported in box 2, 4, 6, 17.
• W-3 filed annually Summary of all W-2s.

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Payroll Reporting

• State reports
• Form 100N
• - N is for Not-for-profit use only this
  form.
• - Used to apply for a New York State
  Unemployment Insurance
• (NYSUI) number to use on form NYS-45.
• - Numbers assigned 86 for paid insurance and
  04 to self-
• insure (only owe money if there is a claim).
• Form NYS-45 filed quarterly
• - Section A reports NYSUI eligible salaries
  that are detailed in
• section C. Insurance payments, if due, are
  calculated here.
• - Section B reports any state tax withheld.
• - Section Cc lists employees quarterly taxable
  income.
• Employees exempt from NYSUI should have 0
  listed for the
• quarter Clergy, Organist, Sexton.
• - Section Cd Ce are completed annually using
  annual taxable
• income state withholding for each employee,
  matches W-2.
• - Filing required to record employees of New
  York State.

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Tax Guide for Churches

• Table of Contents
• Tax-exempt Status
• Jeopardizing Tax-exempt Status
• Unrelated Business Income Tax
• Employment Tax
• Special Rules for Compensation of Ministers
• Payment of Employee Business Expenses
• Recordkeeping Requirements
• Filing Requirements
• Charitable Contributions Substantiation
  Disclosure Rules
• Special rules limiting IRS Authority to Audit a
  Church
• www.irs.gov

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Insurance

• Property Liability Insurance
• Property Liability Blanket coverage
• Umbrella Liability
• Directors Officers
• Hired and Non-owned Auto
• Medical Accident
• Treasurers Bond/Elected Appointed Officers
  25,000
• Employee Payroll Insurance
• Workers Compensation
• New York State Disability
• New York State Unemployment (NYSUI)
• Social Security Medicare

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Insurance

• Employee Payroll Insurance
• Workers Compensation
• Required for all staff and clergy
• File annually with provider listing employees
  salaries
• Set up separately by Parish, not part of
  property insurance
• Talk with Twila Anderson and Church Insurance
• Disability Insurance
• Required for all staff, clergy optional
• File annually with provider confirming of
  employees
• Set up separately by Parish, not part of property
  insurance
• Talk with Church Insurance

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Insurance

• Employee Payroll Insurance
• NYS Unemployment Insurance (NYSUI)
• Required for all Office staff, Office Custodian,
  Nursery staff
• File form NYS-45 quarterly with New York State
• Exempt employees
• 1. Clergy, Organist, Church sexton
• 2. Combined eligible staff quarterly income
  under
• 1000
• Options
• 1. Pay insurance on eligible payroll
• 2. Record self-insurance on eligible payroll
• Submit Form 100N to get NYSUI number assigned

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Insurance

• Employee Payroll Insurance
• Federal Social Security Medicare Clergy
• Required payment by clergy, self-employed
• Reimbursed by parish at .153 times salary plus
  housing
• Parish SECA reimbursement to clergy is taxable
  income to the clergy
• Clergy file1040 Form SE with their taxes each
  April
• Self-Employment Contributions Act (SECA)
• Federal Social Security Medicare Lay
• Required payment for W-2 lay employees, monthly
  or quarterly
• Deduction of .0765 times employees salary,
  matched by parish
• Parish FICA match is not taxable to the
  employee
• File Federal form 941 quarterly
• File W-2 annually
• Federal Insurance Contributions Act (FICA)

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Record Retention

• Permanent records
• Act of Incorporation
• Audit Reports
• Annual Balance Sheets
• Bequest Estate papers
• Approved Revised Budgets
• Bylaws
• Cashbooks
• Certificates of Title to Property
• Certificates of Incorporation
• Deeds
• Every Member Canvas Records
• Annual Financial Statements
• Invoices Paid Bills - Major Building
  Construction
• Journals - General Special

• General Ledgers Special Funds
• Legacies
• Donor Lists
• Litigation Papers
• Memorial Gifts Register
• Minutes
• Mortgage Deeds
• Pledge Registers/Ledgers
• Policy Statements
• Parish Profiles
• Specifications for Building Design
• Tax Exempt Certificates Form 990
• Title Search Papers
• Trust Fund Registers
• Wills, Testaments, Codicils

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Record Retention

• Retain until superseded
• Property Appraisals
• Proposed Budgets with worksheets
• Chart of Accounts
• Employee Withholding Form W-4
• Employee Form I-9, Immigration
• Insurance Plans
• Inventories of Property Equipment
• Loan Schedules
• Operating Procedural Manuals
• Pension Records
• Resource Files
• Warranties

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Record Retention

• Retention of 7 years
• Accounts Payable files
• Bank Deposit Books
• Bank Statements
• Cancelled Checks
• Cash Journals Receipts Disb.
• Cash Journals Offering, Pledges
• Cashbooks Discretionary Acct
• Check Register
• Check Stubs
• Computer Accounting Records
• Employment Tax Records
• Employee Withholding W-2
• Insurance Policies (6 years)
• Invoices, Paid Bills General Acct
• Journal Entry Sheets
• Leases
• Parochial Reports (5 years)

• Leases (6 years)
• Paid Bills
• Payroll Journals
• Payroll Registers
• Personnel Files
• Petty Cash Receipts Accounts
• Pledge Cards Journals
• Purchase Orders
• Receipts, General Accounts
• Sales Slips
• Specifications for Service/Sales Contracts
• Tax Forms 1099, 941, NYS-45
• Tax returns Filings
• Closing Trial Balances
• Vouchers
• Workers Compensation Claims Filings

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Computerization

• Just to Make a Final Plea!
• Payroll No one should be processing payroll
  today. Paychex, through our National Church is
  really a necessity.
• Computerize! There are many software packages
  you can use. ACS does offer integrated and
  powerful software that combines organizational
  data (names, addresses), pledge history and
  commitments, accounting, memberships, etc. in one
  package. But, the most important thing is to
  create the computer program that allows full
  disclosure to parishioners, while enabling good
  management.

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Further Questions After Today

• Cathy Shoemaker 585-473-4586
• catherine_at_rochesterepiscopaldiocese.com
• Twila Anderson 585-473-4083
• Karen Noble Hanson 585-473-2977