Page 02 - Unique Matters re Ministry Finance - November 2009

 


                                  
                                  UNIQUE MATTERS RE   "CHRISTIAN MINISTRY FINANCES"      ePage 02                                                            

                                                                                   PERSPECTIVE  (201)

         These observations are within context of working for over four decades with small to medium sized Christian Ministries Such Ministries (sometimes called Non Profit Organizations - NPOs) are different from regular businesses, as they:

     >>  Have a Ministry focus, or purpose, and not a profit focus,
     >>  Deal with donors instead of investors (shall we say "stake-holders"; not "stock-holders"),  
     >>  Gather, or raise, Ministry Money via Donation/Contributions  rather than primarily via sales
            of Products or Services.
   

           Please read the following verses from the book of Proverbs  as they are helpful to those of you who handle money and such things at Christian Ministries.

 9:8-9     --   A wise man welcomes instruction
10:17     --   Heed instruction
11:14     --   Lack of guidance causes failure, many advisors make victory sure
12:15     --   A wise man listens to advice
15:12     --   A scoffer will not go to the wise
15:22     --   Plans fail for lack of counsel
16:3       --   Commit to the LORD whatever you do, and your plans will succeed.
19:20     --   Listen to adviceďż˝and you will be wise
19:27     --   Stop listening to instruction, and you will stray from knowledge
20:18     --   Make plans by seeking advice
24:6       --   For victory you need many advisors
27:17     --   As iron sharpens iron, so one man sharpens another
28:26     --  Trusting oneself is foolish, but those who walk in wisdom are safe
 

                         RESTRICTED OR DESIGNATED MONEY MATTERS (202)

        The first Ministry Finance "unique" matter that enters the scene is that external money (mostly Donations) comes in for a donor's "restricted or designated" purposes; or it is to be used only for the Board's pre-approved stated special purposes.   Plus the Ministry itself often sets aside their discretionary money for applicable "restricted or designated" reasons. 

        Not too long ago I was talking with a person in charge of a Christian Ministry and I was told that this person's predecessor really goofed in money handling there.   So much so that it was the major reason that the Board had to let this person go.

>>  No ---- this person did not do any stealing that would benefit them personally

>>  Yes --- The  General Purpose Fund - GPFund - GPF (Singular)  was short of money and since it did NOT have internal (discretionary SetASide money via the Board) money available this person used external (from donors) Restricted Special Purpose Fund-SPFund-SPFs (Plural)  monies to pay what this person considered the necessary operating bills.

        I did not get into all of the details, but it is very likely that this person was in charge of a Ministry that was NOT able to timely and appropriately answer this question:

            
"Click Here for info re:  "How much money do I really have to spend this upcoming week for the appropriate GPFund purposes?"

        My prayer is that what follows provides "Christian Ministries" with the means for them to timely answer this and related questions.

                                                                        FUND ACCOUNTING - (203)

        So it is essential that you eReaders get a good grasp of what is commonly called Fund Accounting.  There is a lot of information available on the generic topic of  Fund Accounting. , but I have tried to keep Christian Ministry issues in mind as I have produced this eBOOK.   It is my view that finance and accounting systems at a Christian Ministry is synonymous with Fund Accounting  as money is used for the usual operations plus  money is also used for pre-approved "Donor and Board Restricted"  purposes/objectives.   
        Throughout all of my eBOOKS (or WebBooks) I will frequently make reference to the following "01" and "02"  Fund Accounting  categories.   Please be sure you understand what they mean and how they apply in your setting.

                                                01 - SPECIAL PURPOSE FUNDS (Plural) --- SPFunds or SPFs  (204)

       This money  (mostly Donations) comes into the Ministry for restricted/designated purposes  --- or it is to be used for a stated Ministry's Board pre-approved "Special Purpose."  Such money is sometimes called  "Spoken For Funds" ---  please note that you can also abbreviate this as "SPFunds."  Of course, both the Special Purpose and General Purpose monies below are all " Purpose Driven",  if you please. 
       We have concluded that the best Fund Accounting term for such responsibilities is "
Special Purpose Funds --SPFunds. - SPF"   Here are some of the SPFund terms that I have encountered during my time in dealing with such matters:   01>. Dedicated Funds; 02> Spoken For Funds; 03> Strings Attached; 04> In/Out;  05> Trust Funds; 06> To From;  07> Directed; 08> Encumbered; 09> Non Avail; 10> Ear Marked; 11> Protected Funds; 12> Impounds; 13> Committed and 14> Escrow.   Such issues have been around for a long time. See the "Obligatory" special purpose money found in II Chronicles 34:9-11; or note the paraphrased portions below of "II Kings Chapter 12":

       The Temple was still in disrepair, so the King said to the Priests: "Why haven't you done anything about fixing the Temple? Do not use any more of those receipts for the usual operating needs, but from now on use it to get the Temple in good condition."
        So the Priests set up a special "Repair Fund" by making a hole in the side of a large chest and they set it on the right hand side of the alter at the Temple entrance. The doorkeepers put the people's contribution into this chest and this money was used just to repair the Temple.

       Suffice is to say, almost all "Christian Ministries" manage "Imposed Limits" money.  The dictionary defines "imposed" to include such things as:  to force or thrust something on oneself or on others; to put a burden on.  This comes about via "Outsider", or donor, directed monies plus there are "Insider",  or Board directed,  monies SetASide for a stated purpose. The information shared when you Click Here  about "Two sides of the same coin"  might also be helpful as you digest all of this. 
       
A related issue is that SPFund money comes in that is for Activity Reimbursement (or Defrayment) purposes.
  A ministry collects money to offset a portion of the costs of an event or activity.   Church examples are AWANA and Vacation Bible School.   We recommend that you report only real Income and reflect this type of "Special Purpose Fund"  activity receipts as "Defrayments", or as expense offsets  (contra expense accountsand not income per se.  Our experience is that such  activities are best managed by them having their own  "Special Purpose Fund"  that may be partially funded from the  "General Purpose Fund"   budget.   Please Click Here   and  Here  for more information about such Church operations --  also  Click Here   for more info on this topic.   
         Some Ministries buy specific "General Purpose Fund" event material in advance and then seek reimbursement, or defrayment --- especially in small Church settings.   We believe the material costs should appear as an expense and the defrayment appear, not as income per se, but as an expense offset.   Having both flow through the same "General Purpose Fund"  expense account does  NOT  fully report what has happened.
        

                                        02 - GENERAL PURPOSE FUND (Singular) - GPFund or GPF (205)

      This fund sometimes goes by General Fund or Operations  Fund,  as it, of course, has to do with accounting for unrestricted/undesignated monies available for the regular operations of the Christian Ministry
       Use of this Board discretionary income is usually
under some type of expense "line item Budget   "control";   as apposed to "control" defined as: "if a SPFund  has a balance, we can spend it."  You will note that  GPFund   is singular, while SPFunds  are plural.   Click Here  and view a sample actual to budget "line item" GPFund Budget report.
        Please also
Go Here  and learn about a  GPFund spending "control" alternative to the above "line item"  budget control method.   This "control" method especially enables you  to know if you have money to spend.
       This is accomplished, with fixed operational expenses in mind,  by the practice of priority assignment of this  GPFund  discretionary income to Ministry operating departments, or expense areas.  If there is no money balance on hand for that operating expense area, then no can spend, etc. 
   
     With respect to a Christian Ministry's finances and their  GPFund  (we shalt) and their SPFunds  (thou shalt)  money management,  I like the analogy that people are either "right handed"  or "left handed"  but  we learn to use them together. Both of these  GPFund and the SPFund accounting functions are different,  yet  (like left or right handed matters)  they are part of a Christian Ministry's single unified finance and accounting system. 
        Please  Click Here. and notice the "total" and yet the "separateGPFund   and
SPFunds activities as shown within the sample "Big Pix" report.

                                                              EXPENDITURES -- NOT EXPENSES (206)

        Another "unique"  matter is that Christian Ministries should use the term "Expenditure" rather than the term "expense" per se.   This is done because some costs of doing business at a Christ-Centered Ministry are somewhat different and the term "expense" can be misleading.   Such   Internal GAAP    "Expenditure"   examples are shown below: 

                                                                                 Debt Servicing

        Operational "Expenditures" include obligations like monthly Mortgage payments that include both Principal and Interest,  but the total obligation comes 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.   Please  Go Here  and see the discussion about a "Three Legged" accounting entry whereby the principal reduces the liability now, etc. 

                                                                 Furniture and Equipment

        Operational "Expenditures" sometimes include purchases of
Furniture and Equipment.  Sometimes such "Expenditure" will be made from monies gathered specifically for that purpose via a  SPFund But what we often find is that the usual practice is to purchase such items from the  GPFund  as a budget expenditure line item. 
       All  Furniture and Equipment costs should be added to the Fixed Assets at least annually. Please  Go Here  for more information about Land, Building and Equipment and related accountability issues.  The Construction information when you  Click Here  might also be of interest.  As mentioned above, please Go Here and see the discussion about a "Three Legged" accounting entry which capitalizes such transactions.

                                                                      Prepaid Expenses

        Sometimes a vendor requires you to pay for something in advance;  examples are insurance premiums and/or a deposit for a future event.  The usual accounting procedure is to place such transactions into what we accountants call a "Prepaid Asset Account" and then you allocate the cost to the respective future periods involved.   To accurately report the use of the Ministry's resources during the year it is best to report this as another budgeted "Expenditure" of the current fiscal year.   Then, if material in amount, you comply with this "Prepayment"  accounting matter only at the end of the fiscal year.

                                                                             SetASides

       Operational "Expenditures" include internal transfers, or SetASides,  from current  GPFund operations for future needs.   Ask us about funding via the  GPFund certain anticipated major facilities repairs and maintenance -- or even replacements. 

                                                                      Depreciation --- not

            Depreciation   is NOT a budgeted "Expense" or "Expenditure" item at a "Christian Ministry"--   this is also "unique" since it is only reflected at the year end as part of External GAAP   that is mentioned below.


GENERALLY ACCEPTED ACCOUNTING PRINCIPLES -- GAAP  (207)

        We accountants have rules and regulations that are to be followed when accounting and reporting of Ministry's  financial matters to applicable interested parties.   Of course,  like many issues in life,  we have an acronym for this; please  Go Here .   Some other link references to GAAP on our  Website   are listed below:

Annual GAAP Church Financial Info 
Church-Fixed Assets Acctg Issues
Current-Dormant Sets of Books
Fixed Asset and LB&E Issues l
GAAP and Budgets
GAAP compliance via QuickBooks 
Overkill re GAAP at a Church
Pledge Accounting 
QB Fund Accounting FAQ

                     Below is an excellent link for detailed resources on Ministry/Not-for-Profit  GAAP and related information:.

http://www.muridae.com/nporegulation/accounting.html#general_subject 

                                                                        INTERNAL AND EXTERNAL GAAP

                    Throughout these writings I share my view that  GAAP  at Christian Ministries is Two-Pronged.

                                                             First Prong - Daily Internal GAAP - (208)

         T
he First Pong  is another one of our unique Ministry Finance matters that I call  Daily Internal GAAP  .   Or,  for internal management purposes, we meet issues like the "unique" matters described above that are designed to meet a Ministry's every day's needs.   Or a Ministry should have a definite Daily Internal GAAP  emphasis that enables their leaders to make prudent financial decisions within context of its every day plans and objectives.    Please note some details below:        

 

 

 

 

 

  Mission

Camps &

 

 

 

Church

School

Agencies

  Others

Prepaid Expenses - Asset (aa) No No No No

Accounts Receivable (c)

See Below

   Yes

See Below

Yes

Inventory

 

 

 

 

 

 

Retail Goods (a)

See Below

See Below

See Below

Yes

 

SCRIP (b)

 

Yes

Yes

See Below

See Below

Vendors/Plastic Payable (c)

Yes

Yes

Yes

Yes

Other Liabilities

 

 

 

 

 

 

Prepaid Income

Yes

Yes

See Below

Yes

 

Agency Monies

Yes

Yes

See Below

Yes

Operational Issues

 

 

 

 

 

 

- - -- Accrual Basis of Accounting - - -:

 

 

 

 

 

(c) Or Income as Earned

Yes

Yes

Yes

Yes

 

(c) and Expenditures as Incurred

Yes

Yes

Yes

Yes

 

(d) Furniture & Equipment

Yes

Yes

Yes

Yes

 

    SetASides from GPFund

Yes

Yes

Yes

Yes

 

(b) No Deprecation Expense

No

No

No

No

 

(d) Debt Retirement

Yes

Yes

Yes

Yes

 

 

 

 

   "See Below" means not usually applicable 

 

     (aa)  Please Click Here for more info about not using  

 

   (a)    Ask us about monthly "Cost of Goods" accounting

 

 

   (b)    Please  Click Here for more info on this topic

 

 

 

 

   (c)    Please  Click Here re Accrual basis of acctg

 

 

 

 

   (d)   Tsfd at least annually to Fixed Assets/Liabilities

 

                       Please click below for during the year Church report samples that follow the  Internal GAAP  criteria.

                                               >>  Photo - Balance Sheet      
                                               >>  Video - GPFund Income Statement      
                                               >>  Video - SPFund Income Statement     
  
                                            >>  GPFund - Actual to Budget Report     
                                               >>  GPFund - Department Proofs      

                                                           Second Prong - Year End External GAAP (209)
 

        The Second Prong  recognizes that  Daily Internal GAAP   is NOT parallel with
Year End External GAAP  that is needed for preparation of IRS forms 990 (and equivalent for the state);  plus as needed by outsiders -- such as:   External Auditors - CPAs;   Financial Institutions and the general public.

        Please note these Year End External GAAP  factors:

 

 

 

 

 

Mission

Camps &

 

 

 

Church

School

Agencies

All Others

Prepaid Expenses

 

 

 

 

 

 

Insurance

 

Yes

Yes

Yes

Yes

 

Others

 

Yes

Yes

Yes

Yes

Inventory - Supplies

 

Yes

Yes

Yes

Yes

Update Investments to Fair Market Value (FMV)

Yes

Yes

Yes

Yes

Fixed Asset Capitalization

Yes

Yes

Yes

Yes

Reduction of Debt

 

Yes

Yes

Yes

Yes

Depreciation Accounting

Yes

Yes

Yes

Yes

Functional Expense Accounting

(1)

(1)

Yes

Yes

Pledge Accounting  (1)

Yes

Maybe

Yes

Maybe

Released Restrictions --
Click here for more Info with an example

Yes

Yes

Yes

Yes

Net Assets (Fund Balances) as:

 

 

 

 

 

Unrestricted

Yes

Yes

Yes

Yes

 

Temp Restricted

Yes

Yes

Yes

Yes

 

Perm Restricted

Yes

Yes

Yes

Yes

 

 

 

 

 

   (1) Discuss with a Ministry Savvy CPA

 

 

 

 

  "Maybe" above means that it is not likely applicable

 

 

       This means that the year end results from a Ministry's internal set of books, which follow the above  Daily Internal GAAP  process, will need to be re-formatted for Year End External GAAP purposes.   
        Obviously, If you do not deal with any of the Outsiders identified above,  then Year End External GAAP is not needed.
       However, when a Ministry does deal with such outsiders, I am finding that too many Ministries unnecessarily over-emphasis Year End External GAAP matters during the year that do little to assist management in meeting their Daily Internal GAAP  goals and objectives.  I go into detail about this when you
Go Here  
       See Clicks below for Church report samples of annual Year End External GAAP .

                                        >>  Statement of Financial Position (Balance Sheet)       
                                        >>  Annual Statement of Activities #1
                                        >>  Annual Statement of Activities #2  
                                        >>  Annual Statement of Cash Flow


                                              I know, I know - that donor was not fair, but: --- Psalm 37:28
                                              This particular financial system is frustrating -- Eph. 2:10               


 
                                    Please Click Here and go to ePage 03 - TOPIC:  "In Charge- Who is Responsible"
 
           Click Here for access to the "Table of Contents"
 
                  ORIGINATED  October 2009                                                                                 UPTDDecember 18, 2014
 

 

Page 02 - Unique Matters re Ministry Finance - 11-10-09