Current "JIMs JRNL" Edition
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TO: Interested Onliners FROM: Jim Bramer, Retired Auditor-CPA
RE: J I Ms J R N L for the month of October 2008 FILE: 0210-08/jrnl
(Click Here for "Blogger like" perspective/rationale)
01 - Ministries and accounting for "Land, Buildings and Equipment (LB&E)" : (3)
APThe primary objective of a Ministry Fund Accounting system as mentioned at HERE is to timely provide decision makers with such "Vital Financial Signs" as the following:
How much money is on deposit
Who owes us money and how late are they
What "strings are attached" to this money; or our money pertains to which part of our Ministry
Are we current with our bills and like obligations
What is the scope of donor restricted money
What is the amount of Board discretionary money; often setaside by the Board for a specific purpose.
Are we living within our General (Operating) Fund Income and budget constraints
But accounting for "Land, Buildings and Equipment (LB&E)" and related matters at Churches and other Non Profit Ministries within this context is ever before us. My view of "Generally Accepted Accounting Practices/Principles - GAAP " at Ministries is two-pronged.
Daily/Internal GA
The 1st Prong is that a Ministry needs definite Daily/Internal GAAP thrust that enables their leaders to make prudent financial decisions within the "Vital Signs" mentioned above.
Year End GAAP
And the 2nd Prong is that, as explained when you go HERE , it seems that during the year there is a tendency to overlook "Daily/Internal GAAP" issues and over-emphasis "Year End GAAP " issues. Paramount among these "Daily/Internal GAAP" and related issues are matters that follow:
DEBT SERVICINGLB&E obligations like monthly Mortgage payments include both principal and interest. But the total obligation usually must come from operations income or the GPFund. Therefore, we recommend that the budget expenditure line item have a generic title like "Debt Servicing" and be for the total amount of the monthly payment. The principal portion will at least annually show up as a reduction of the liability account. More information along these lines is found at 2011. Please go to 0111 and see the discussion about a "Three Legged" accounting entry on this subject.
FURNITURE & EQUIPMENT ACQUISITIONS
At times Furniture and Equipment will be acquired from monies gathered specifically via a SPFund . But the usual practice is to purchase such items from the GPFund per se as a budget expenditure line item. All Furniture and Equipment costs should be added to the Fixed Assets at least annually. Please go to 0033 for more information about Land, Building and Equipment and related accountability issues. The Construction information at 5024 might also be of interest. Ask us about SetASide funding via the GPFund as to needed replacements or for anticipated major Facilities repairs and maintenance. Please go to 0111 and see the discussion about a "Three Legged" accounting entry on this subject.
DEPRECIATION - IS IT NECESSARY?
Yes, it is now required ONLY for "Year End GAAP , (Please note --- I said for annual GAAP purposes only -- not Daily/Internal GAAP) but it really should not be that big of a deal. Remember, as much "Depreciation Expense" as possible for tax deduction purposes is not an issue. I advise against laboriously accumulating the amount of Depreciation since date of acquisition on "each piece of fixed asset in inventory." I can not even get too excided about the need for partial year deprecation computations.
We recommend that all items be classified within life spans and you use the "block" method' of depreciation computation by year and by life span as demonstrated below:
-- Year FAssets Acquired --- Grand Accum This Yr's Total Life % B4 2000
2001
2002
Total Depr Depr Accum Span Depr 5 yr 20
5,000
4,000
1,000
10,000
2,600
2,000
4,600
10 yr 10
1,000
300
3,500
4,800
250
480
730
20 yr 5
3,000
3,500
3,500
10,000
633
500
1,133
Totals 9,000
7,800
8,000
24,800
3,483
2,980
6,463
When you get rid of an item, then set up and use an account that says something like "Gain/Loss on disposition of Fixed Assets" --- or simply use the existing "Net Investment in Fixed Assets" equity account. Remove the computed year to date (no need to make partial year computation for the year of disposition) amount of previously accumulated block depreciation for that specific fixed asset --- then charge it to the above account. Then place, in the same account, the "Cost Equivalent" from respective "Fixed asset" account along with any applicable sales proceeds. This information will show up in the appropriate place within your year end report.
PHYSICAL INVENTORY of EQUIPMENT , ETC.
Please Click Here for details about how this might be done as you periodically verify that you have said Equipment on hand, etc.
OTHER MINISTRY SETS OF BOOKS
Information on Ministry resources tied up in Land, Buildings and Equipment (LB&E), along with related mortgages or long term obligations, and Accumulated Depreciation and related LB&E equity, is NOT needed for current decision making.
We recommend that almost all Ministries maintain this type of fiscal accountability in a separate "Set of Books" and only update this information annually. Please see Memo content for another possible reporting option. Year end reports for your auditor or constituency (or for the IRS, etc.) can also efficiently flow via another "once a year" Set of Books as you comply with the "annual" GAAP reporting mentioned above. Please go to the content of 0127 for more information on this overall topic.02 - Simplify your " BANKS" and/or your "CREDIT CARD" reconciliation process - (4)
As you know, it is essential that your records agree with the data located at "BANKS" and "CREDIT CARD" - or you at least monthly go through a reconciliation process. We maintain that you should at any time go Online via the Internet and access the equivalent of your "B A N K S" and "C R E D I T C A R D" statements. Please Go Here and learn about the FINFAX accounting system as you seriously consider what follows:
- - - - - B A N K S - - - -
-- Option 1 --
For a "Small Ministry", especially, you go Online and obtain such bank transaction data via the Internet and "mirror", or place, such data within your set of books. . Such a "mirror" effort includes such things as:
Since you use this process, you do NOT have to manually post to your accounting system (computer or otherwise) from deposit & check data.
Rather the source of your origination of such transactions to your accounting system is from this Internet provided Bank Statement data
When such is available, you make full use of the automatic Online transfer from the Bank to your computerized accounting system -- or you do not have to manually enter the bulk of such data into your accounting system.
Since you are a Small Ministry you write all of your checks manually (you do NOT buy expensive checks and have your computerized accounting system "type" out the checks, etc).
You keep a duplicate copy of your manually produced checks for document attachment and appropriate filing, etc,
The weekly Bank statement balance at the Bank and the Bank balance per your set of books is always the same
Since you update your records weekly, unposted deposits or outstanding checks info is not that significant
There is no need to manually maintain any type of check stub or running balance since you get this info weekly via this source.
-- Option 2 --
If you are a "Larger Ministry", you weekly go Online and obtain such bank transaction data via the Internet and within context ---
You write your checks via your computerized accounting system (like Quickbooks-QBs)
Of course, all supporting document copies are coded and attached to the duplicate check copy and appropriately filed. etc.
Along with deposit information, these check entries appear in your set of books
Working from this weekly Bank Statement equivalent as obtained Online
You identify within your set of books the transactions that have cleared the Bank
All entered checks or deposits that have NOT yet cleared the bank are re-dated to the next day following this Online Bank statement
Plus you place the original transaction date somewhere within your set of books, etc
This process shows your weekly running Bank Balance per your set of book and that of the Bank to always be the same, plus
You can readily monitor those recorded checks or deposits that have not been processed by the bank and either timely replace or remove.
- - - - C R E D I T C A R D E N T I T I E S - - - -
Please consider the process below rather than work from those small Credit Card purchase slips (some of you also require a ministry form or document involved in this process) as you enter the authorized transaction into the applicable expenditure accounts and update a Credit Card liability account that has a running unpaid balance. Then, of course, you reconcile the content of this liability account to the Credit Card statement data.
Below is a recommended process whereby you do NOT initially post and then laboriously reconcile such activity-- Option 1 --
- You do NOT have a large number of vendor charge accounts -- like at the Christian Bookstore -- who send you a monthly transaction statement etc. Rather you "buy everything" via your Credit Card charge account.
- You weekly go Online and make a hard copy of the Credit Card transaction report
- Some Credit Card entities allow you to automatically place their transactions into your computerized (like QBs) set of books. Or you do not have to manually post the bulk of such info into your set of books.
- The weekly hard copy above goes to the person at your Ministry making the purchase for documentation attachment, authorization & expense Identification purposes.
- If the transactions automatically go into your set of books, you use these authorization reports for expense distribution purposes
- If not, you use this approved weekly report as the source for manually entering this data into your set of books, etc.
- Again, your weekly running Credit Card balance per your set of books and that of the Credit Card entity are always the same.
-- Option 2 --
- Or better yet, we further recommend a process whereby you weekly go online and pay off the Credit Card balance
- When you do this, there is no need to have a Credit Card Liability account to reconcile to within your set of books.
- The content of the above hard copy of your approved Credit Card activity is the source for Expense distribution of such weekly credit card Online payment, or check equivalent.
- Plus, by doing this, you gain the benefits of this overall process but you never have Credit Card debt
03 - Small Christ-Centered Ministries who are struggling financially (01)
We hope, as you go through the evaluation list below, that you do NOT have a number of "Yellow" or "Red" Flagable Financial Issues. But we are finding that a number of Ministries .... especially smaller Churches ... are struggling financially.
F I N A N C I A L I S S U E S:
Green
Yellow
Red
1>
There is not enough income for the Board authorized
____
____
____
expenses of the General Purpose Fund - GPFund. 2>
The Ministry Finance Team is not functioning well ____
____
____
3>
The financial record keeping is not good. Such info is not
____
____
____
timely nor is it understood by those who should know.
4>
The GPFund. is borrowing from non discretionary funds
____
____
____
(especially donor designated Special Purpose Funds
SPFunds) in order to meet expenses. 5>
There are few finance savvy people on the Board of Leadership
____
____
____
6>
Staff members are not getting paid timely
____
____
____
7>
The rent (or mortgage payment) is behind
____
____
____
8>
The withheld payroll taxes are not paid timely
____
____
____
9>
Unpaid bills are 60 to 90 days old
____
____
____
10>
Perhaps operations are being funded by sale of assets
____
____
____
11>
The Ministry "Mover & Shaker" (often a Pastor) has little expertise
____
____
____
in Ministry Finance matters.
If you have too many "red" or "yellow" Flagable items above here is a possible solution.
You utilize the FINFAX accounting system to "Control your Spending" as discussed when you Go Here . It is a "PRIORITY" BUXBOX Receipts and Disbursements accounting method where money is placed into BUXBOXES and you "SPEND ONLY" when the applicable prioritized BUXBOX has a balance, etc. Of course, this "PRIORITY" BUXBOX system can be operated by someone locally or via the help of a remote HELPER. Please Go Here and discover more details.04 - Automatic direct deposit of Net Pay (03)
As pointed out when you Click Here, I am an advocate of having the net pay of your staff go automatically to their Bank Account. The reasons include: No check to process; save costs of printing; save cost of checks; save check distribution/processing costs; save overall logistics re paper handling and/or processing; you do not have to get a piece of paper to the staffer; Staffer does not have to get a piece of paper/check to their bank; encourages all Staffer money going to their bank -- they do not cash checks etc. The staffer gets a hard copy of their pay details but this process is an overall savings to both the Ministry and each Staffer-Employee. I understand that some Ministries even charge the Staffer-Employee an administrative fee, if they work some 30 to 40 hr a week and they choose to NOT allow you to make an automatic deposit of their net pay.
Below is a recent slightly edited dialog within a Forum (let me know if you want details about this Forum) on this topic.Onliner #1: Do any of you that have the automatic deposit of payroll require it?
Onliner #2: No, it's optional. Very few opt for a check.
Onliner #3: Yes, we require it of everyone who draws a paycheck.
Onliner #4: We require automatic deposit for all employees. It is not an option because of our software requirements.
Onliner #5: It is optional for us. Most folks take advantage of it. I believe that some of our employees (especially nursery workers) don't have a checking account.
Onliner #6: Yes ... when approaching our staff, it was presented as a "go" vs. "no go" to automatic payroll deposit ... to be determined based on a majority vote. For business office efficiency we did not want to have to print some checks and not others.
Onliner #7: Yes, we require it -- we only make exceptions for the first payroll or two if the employee is having trouble establishing a bank account
Onliner #8: Yes, we pay all employees by electronic deposit and have since about the year 2000. We do payroll once per month (25th). Our staff would not want to go back to paper checks and nobody has any problem with being paid once a month. Both reduce the workload for the finance office. Monthly payroll makes it easier to plan cash flow needs, making tax deposits and reconciling quarterly payroll tax forms.
Onliner #9: We would love to require it, it would be so much easier to have every one on the same process. However, Our State doesn't allow private employers to make it mandatory, except, ironically, for their governmental employers. You might check with your state's Department of Labor before requiring your employees to participate.
Onliner #10: It is required for all W-2 employees.
Onliner #11: We have most of our staff set up on automatic payroll deposit, but do not require it. I understood we are not legally able to require direct deposit. Anyone else know if there is a legal concern in requiring direct deposit?
Onliner #12: I am in agreement with comment above. It has been my understanding that you cannot require your employees to participate in Auto Deposit.
Onliner #13: In our state we must pay at least twice a month, and cannot require direct deposits. We make paychecks available in the Business Office after 3:00 p.m. on paydays. Those with direct deposits receive their pay advices at least one day earlier, often two. This provides enough incentives that nearly everyone uses and really appreciates direct deposit, even our student workers.
Onliner #14: According to our state's Department of Labor web site, any employer can require direct deposit of all employees as long as any fees associated with that process by the employee does not bring his/her pay below minimum wage. Of course, that only applies to churches in this state.
Onliner #15: The question that comes up is that we require two signatures on all checks at this time (the church treasurer -a volunteer- and myself). How do you all still maintain this checks and balances when using direct deposit?
Onliner #16: Keep a second person involved on this and any type of Online Payment, but change your process. The person who gets a copy of the statement checks online transactions against a copy of the payroll summary.
Onliner #17: We have 95% of our employees on direct deposit, but we do not require that you be on direct deposit.