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                    TO:   All Interested Onliners                                                                                                 FROM: Jim Bramer. Retired CPA-Auditor
                                                                                                                                                                         FILE:  0919-03/fwi

                    RE:   Church & Functional Expense (GAAP) Overkill                                                    Originated in July 2002      

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    "Today's "Ax to Grind"         

   To  remind you,  GAAP stands for Generally Accepted Accounting Principles,  or rules and regulations that CPA-Auditors must follow when they render any type of year end audit, or do an attestation of a Church's (or any NPO - Non Profit Organization) finances.  Or as required by the IRS Form 990.  Please click on 0004 for more GAAP details
.
    There are a lots of Non Profit Organizations (NPOs)  'out there'  who have less than $500,000 of annual income, but no doubt the vast majority of such NPOs are Churches, or such religious organizations. It seems that unique financial accounting aspects of  Churches include:

a>  They are funded by local members/constituents and NOT via the general public.
b>  Quite a bit of their annual income comes from Donor restricted income.
c>  They are tax-exempt and do NOT file annual IRS forms 990 like other NPOs so they usually do not account for, or report, GAAP required  functional  expenses of Program, General/Administration and Fund Raising.
d>   They do meet accounting system essentials as pointed out within 0031

ESSENTIALS

      Financial accounting needs of such groups include current status/knowledge of such essentials as the following:

1> Pooled Operational Assets and Liabilities
2> Unspent donations by named restriction or purpose.
3> Unspent SetASides by the Board from discretionary funds for a named purpose
4> Status of authorized General Fund "Actual to Budget" info.
5> Applicable Income and Expenditures by named purpose or fund.

    Our view is that most of the GAAP requirements pertain to presentation of annual financial statements to non-Management.  You will notice that our GAAP view via the  0004  link contents divide such issues between that which pertains to "Daily/Monthly" and to "Year End"  GAAP issues.  Please note the Church aspects of 0004 below. 

       Daily/Monthly

			Applicable to a Church
Accounts Receivable (c)			Discuss with your CPA
Inventory
	Retail Goods (a)		Discuss with your CPA
	SCRIP (b)		Yes
Vendors/Plastic Payable (c)			Yes
Other Liabilities
	Prepaid Income		Discuss with your CPA
	Money belonging to Others		Yes
Operation Issues
	(c) Income as Earned		Yes
	(c) Expenditures as Incurred		Yes
	(d) FAssets - Go to 0102		Yes
	(d) Debt Obligations		Yes

                                                                                                                 

                                                                        (a) Ask me about monthly "Costs of Goods" Accounting
                                                                        (b) See  0101  for more on this topic
                                                                        (c) Accrual basis of Accounting, or as Income earned/Expenses incurred.
                                                                        (d) Transferred only annually (at least) to FAssets/Liabilities"  

                                                                       

                  Pertains to Year End  Only

			Church
Prepaid Expenses/Income
	Insurance Expense		Year End Only
	Others-including Future Event activity		Year End Only
Inventory - Supplies			Year End Only
Update Investments to Fair Market Value (FMV)			Year End Only
Fixed Asset Capitalization			See Above
Reduction of Debt			See Above
Depreciation Accounting			Year End Only
Functional Expense Accounting			Discuss with your CPA
Pledge Accounting			Year End Only
Released Restrictions -- Click here for more Info with an example
Show Net Assets (Fund Balances) as:
	Unrestricted		Year End Only
	Temp Restricted		Year End Only
	Perm Restricted		Year End Only

                                                                          

        We maintain that Fund Accounting software for Churches and like kind of Ministries should concentrate on providing the above essentials and not provide Functional Expense/"GAAP Overkill."  This happens, in our judgment,  when "Year End" GAAP matters are unnecessarily included with "Daily/Monthly"  issues.  For example,  we maintain that it is not necessary for such Ministries to do the 'cost accounting'  of dividing up the functional expenses of  Program, General/Administration and Fund Raising.  Or is it necessary for such software to provide during the year Temporary Restricted or Unrestricted  Net Asset  reports.

        We share some of our Fund Accounting perspective within the 0041 and within 0601  as we provide some information about using the usual Quickbooks product to meet these essential needs - especially at a Church.  Please view samples via  0719  of  "during the year" reports of a larger church.  Then see samples of GAAP compliant annual Church reports thereof within the  5900  link contents.

        We are pleased to see more and more software products are becoming available that speak to the unique NPO fund accounting and reporting needs.  But, it appears that too many contain Functional Expense/GAAP Overkill, as they are undesirably emphasizing the above  "Year End Only"  GAAP issues during the year -- especially with Churches and like Ministries in mind..  We all need to remember that the priority of any accounting system is to meet management's day to day essentials  (as defined above)  so they can make informed and prudent financial decisions.  And not to structure for "Year End Only"  GAAP reporting requirements.  Management is not likely to make operating decisions based on whether departmental expenses are classified per the GAAP Functional Expense categories of: "Program, General/Admin or Fund Raising.

        In my humble opinion, I believe it is unnecessary to require your Church accounting system to do GAAP/Functional Expense assigning as part of each expense transaction. One reason is that most Church budget expense line items are greatly condensed for annual reporting purposes.  And my experience is that Fund Accounting is complicated enough and having an unnecessary  "During the year GAAP emphasis" distracts from timely providing the above named essentials.  Do the appropriate recapping at the year end (see 0079 for sample) and at that time care for the "Year End"  GAAP requirements.   Contact me at   Jim@bcidot.org  for more thoughts along these lines.

        We recommend that you use various Quickbooks (QB) fund accounting methods, especially Method One as set forth within 0601 ,  as the normal QB software meets Church Management's above defined essentials.  A Church Ministry does NOT need the latest version of QB,  or Excel,  to make use of any of these methods. For example, someone recently shared with me that they paid $1.00 to a vendor for a complete QBPro2000 version, which covers most of the named  0601  Methods..  

K E E P   L O O K I N G   U P !!

       Click here for a list of of our "For What it is Worth" Editorials or Online documents.

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UPTD: April 27, 2008

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