A while back, one of our customers presented us with a scenario involving a large credit card refund that we thought had the makings for some good discussion here on the blog. [Read more…]
If you haven’t read the first part in this two part series please read it here first.
Do a little fact finding – A scenario may be a person asking the church to help them pay a bill like utilities, phone, or gas. It’s appropriate to call a company’s billing department and let them know who you are and your helping this person pay their bill. Majority of the time companies are more than happy to give the bill’s balance because they just want to get paid and they don’t care by who.
Once you know the bill’s balance, who should you give the money too? When possible, it is best for the church to pay the bill for the person instead of giving the benevolence seeker the cash. Is this an inconvenience for the church? Yes, however the church knows that it will go to where it is intended. This methods assures there’s is no mishandling of the money from the benevolence seeker is. This accountability is especially important when it is a large sum of money.
Developing ties with community businesses may be important to develop like gas stations and grocery stores. Why? If someone is passing through you can call ahead and advise the store to put the person’s purchase on the church’s tab (up to a certain limit). This process would keep you from making the trip to the store. Then you can pay the store over the phone or have a monthly bill sent to you. Some businesses will hold your debit card on file for purchases in the future. Keep in mind that cards expire and you may have to update it every so often with the business.
Documentation is a must when administering these funds for a Benevolence Ministry. You want to be held above reproach when it comes to documentation and those who are helped with the monies. This protects you from any type of questioning from others and builds a trust relationship.
Auditing is another strongly recommended suggestion. You should have a non-family person that reviews the records on an annual basis. The person should be someone that understand accounting, contributions, and various GAAP procedures and understands which compliant software to use for non-profits. Some example are a banker, CPA, investment firm, etc.
A Benevolence Ministry Committee or a group of confidants to bounce ideas off of is an added bonus. Sometimes the person in charge may need to ask the question – should we help this person? It’s always wise to seek council when needed. By having more eyes and ears on the case, it helps the person administering the money and keeps everything legit. Additionally, everyone has different backgrounds and they can chime in on the level of generosity.
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If there’s one thing churches want to eliminate when it comes to receiving contributions, it’s the Summer Slump. It’s that time of year when folks are taking vacations, attending graduations and weddings or spending weekends at the lake. The change in routine all too often causes a disconnect in regular giving, even though the light bill, salaries and other typical monthly expenses incurred by the church still need to be paid. While tools such as automatic electronic fund transfers and online giving pages can help lessen the blow, maintaining contact with those who need a little extra encouragement in order to be consistent with their giving can be beneficial for both the church and the giver. In IconCMO, you can use Contribution Statements to identify and generate mailing labels for individuals who have not made a financial contribution during a certain period of time.
From the IconCMO menu, go to Contributions : Management : Cont-Statements.
Let’s take a look at a particular scenario. To do this, we’ll make a few assumptions:
- All contributions that have come in so far for June and July have been posted.
- Giving has been consistent and on-target from January through the end of May, but began to slump in June and continued to run behind in July as well.
- We are primarily concerned with consistent giving on the part of our active members and active non-members.
- We want to make contact with individuals who have not made a contribution in either June or July. We’d like to send out a letter in August to encourage them in their giving, so we’ll need to produce some mailing labels.The setup parameters should look similar to what is shown below.
Several important parameters have been highlighted in yellow. Notice that the People Who Have option has been changed to Not Given, so that we only print labels for folks who have not given a gift. We have set a date range which covers June and July, specified that we want people with a Household Status of either Active or Active NonMbr, and set our Reporting Options choice to Labels (All) so we get mailing labels instead of statements. Setting the correct Label Type and clicking the Show Report button will generate output to a PDF document from which mailing labels can be printed.
It’s possible you may want to produce your letter by employing a mail-merge technique, as this will allow you to automatically insert first names in the salutation of the letter. You may also want to print the member’s address on the letter itself. To do this, go to Contributions : Management : Cont-Giving Reports and click on Pledges and Contributions with Contact Info to access the report.
This report can generate output for the same group of people we printed labels for from Contribution Statements. The setup for the report should look similar to what is shown below.
Notice we have set a Date Range which covers June and July, specified that we want people with a Status of either Active or Active NonMbr, set our Pledge Range so that it doesn’t matter whether they made a pledge or not, and set our Giving Range to zero so we only find those folks who have not made a contribution in either June or July. Additionally, our output will be in Excel Report format, so we can mail-merge the data. Clicking the Show Report button will generate output that looks similar to what is shown below.
You will notice that the Name column is not in the ideal format for a mail-merge letter. There are options in Excel that can be used to put first names in one column and last names in another. In this example, we’ll use some formulas to do this. In the next two screen shots, you’ll see that we’ve inserted two new columns, First Name and Last Name. By entering (and then replicating) a formula in these columns, we can separate the first names and last names for our mail merge. The formula for extracting the First Name from Column A into Column B is shown in Figure 6, while the formula for extracting the Last Name from Column A into Column C is shown in Figure 7. The result yields some name columns with a data format that is suitable for use in a mail-merge letter.
Now that you have the tools needed to reconnect with your lapsed givers, might this be a good time to write that letter?
Our support forum is a great way to get the information that you are looking for. Everyday questions are being answered that remain public for all to see. Just type in some keywords like contributions, households, payroll, adding household, etc. and you can see what questions have been asked or suggestions that have been made.
To get started just click on the help button in the upper right corner of your screen. Then click on ‘Visit our support forum’. You can ask your questions and someone from the Icon team will respond. You can also search the older questions because more than likely it has been asked and answered by someone else.
If you have any questions using the forum give us a call at 1-218-236-1899.
Icon systems has published two eBooks that are available two download.
This e-book was designed to help staff and volunteers understand the importance of recording contributions of various different types (eg. non-cash vs. cash). Understanding the various methods of giving can help a church generate income when financial times are tough and provide donors the right documentation for their tax returns. Additionally, it helps the church and donors so neither face implications for accepting the donations incorrectly.
Once you have read this e-book, you will better understand
- how to increase and build trusting relationships with your donors.
- what giving options (eg. online, mobile, etc.) churches may choose to make available to their donors.
- general requirements of contribution reporting for donors and the church.
- how non-cash donations are properly input into a contribution system.
- how vehicles can qualify as tax-deductable donations to the church and how to record them properly.
- recording charitable contributions from IRAs and stocks.
- what features churches should look for to find the right software solutions for them.
Accounting is an often overlooked section of church management. This e-book was designed to help staff and volunteers understand the fundamental importance of accounting within the church. Many times little or no attention is paid to church financials except during a time of crisis or when there is an upcoming audit.
Once you have read this e-book, you will better understand
- A church using correct accounting principles in combination with a good fund accounting solution can foresee and avoid a financial crises
- Which guidelines a church needs to follow in order to pass a financial audit
- Which financial standards apply to every nonprofit, including churches of all sizes
- Various financial statements, such as the Statement of Financial Position and the Statement of Activities
- The downsides of tracking funds with revenues or liabilities rather than tracking funds with proper methods
One of our customers recently contacted us with an interesting scenario. She needed to be able to identify youngsters in their church who would be 5 years old by 9/1/2014. She asked us how she could generate such a list in IconCMO. IconCMO has several birthday reports which can provide such information. We started by going to People : Members : Mem-Reports. In this particular instance, we used the “Birthday Name With Age” report. While all of the birthday reports allow you to set a date range, the question quickly becomes one of using the correct range for such a situation. There is also the prerequisite of having entered the birthday dates for all the children in the database. Additionally, the birthday reports allow you to ignore or not ignore the “year” portion of the date values you enter. For this type of reporting, we will need to set the “Ignore year in date ranges” value to “No.”
So what is the correct date range to use? If the child must have turned 5 by 9/1/2014, then the latest they could have been born and still meet this requirement is 9/1/2009. This becomes our “To” date. To calculate the “From” date, simply go back in time another year minus 1 day, so they will not have turned 6 by 9/1/2014. That makes 9/2/2008 our start date.
We can double-check our calculations, beginning with the “From” date. If a child is born on 9/2/2008, they will still be 5 years old as of 9/1/2014, even though that child will turn 6 the very next day, 9/2/2014. Checking the “To” date, a child born on 9/1/2009 will turn 5 right on the cutoff date of 9/1/2014.
If you run this report prior to 9/1/2014, it’s possible you may see some children in the report who are still 4 years old, but who will be 5 by the cutoff date of 9/1/2014.
Easy, right? This type of report can be used to determine something such as how many children will be in a particular Sunday School class that begins in the fall. You can probably see how to adjust the date range to pull in a wider age group. For example, if you want a list that includes all children who will be either 4 or 5 years old by 9/1/2014, simply adjust the “To” date ahead another year, to 9/1/2010.
As you become skillful in using reports in IconCMO, you’ll find that a lot of versatility is available for extracting the information you need.
There are some common accounting mistakes churches make for a variety of reasons. Maybe it is because the software they are using couldn’t handle the various situations that are needed. It could be a church process that was made a long time ago and when questioned — you get the typical answer, “that’s how we have always done it”. Current church processes are not changed as technology and other societal trends improve or empower the church to do more with less work.
In this blog we are going to tackle the checking account issues we see when clients come onto the IconCMO accounting system. Below are three common mistakes with checkbooks that churches deploy to keep their money separated.
Multiple checking accounts at the bank –
Does your church have multiple checking accounts? We see this one a lot. An example is the General and Youth Fund will have their own checking account. This gives the church the ability to see the balance in the checkbook for that fund. Unfortunately, they equate a fund to a checkbook which is incorrect. Checkbooks control one thing – the money inside them and aren’t funds. In other words, they are only an account among many in the chart of accounts (COA). Checkbooks do not control the other assets like fixed assets, liabilities, revenues or expenditure accounts.
Church funds control more than just checkbooks. Funds oversee everything like fixed assets, long term liabilities, all expenses and revenue, etc., in addition to just the checkbooks. See below for a visual representation which shows the funds (ie: Building, General, Youth) over the rest of the COA. For more information on how funds interact with the COA line items you may want to read our series on Easy Church Fund Accounting.
With solutions like IconCMO, you can have one checkbook with multiple funds (either restricted, unrestricted, or temporarily restricted) and still know the balances and activity of each fund, keep the money separate as per FASB guidelines, and budget by fund. This is called fund accounting and is required for churches. In addition, current software solutions can also roll the dollar figures up into one organizational report (all fund(s) report) to show how the they are doing as a whole.
Multiple checking accounts when there is only one physically at the bank –
This is another one that will actually cause big issues down the road when it comes to reconciling a checkbook. The typical scenario – the church puts into the COA multiple checking accounts like this – Wells Fargo – Designated, Wells Fargo – General, Wells Fargo – Unrestricted, and Wells Fargo – Building. Here is the issue – banks don’t break up your transactions into the categories that you have (ie. Wells Fargo – Unrestricted vs Wells Fargo – Restricted) because they see it as ‘one’ checking account. All they care about is if you have money in that ‘one’ checking account. This leaves the user to break out the bank statement by each transaction into one of the categories they are using and then adjust the amounts for the deposits and checks/debits. This creates a lot of manual work for the user, when a fund accounting system does this easily.
The solution is to have one checking account (which is what is physically at the bank) and use funds to break up the amounts within the checkbook. By using funds, you can see balances for each fund and still reconcile under one checkbook using the bank’s statement numbers – without breaking out each transaction.
Sub accounts of checking accounts –
Checking accounts are not suppose to have sub accounts. Churches did this in the past to keep their money separate like the above examples , but then roll up the amounts into the primary checking account. Again this has issues with the reconciling the checking accounts – which are all now sub accounts and forces the user to break out their statement by each transaction to match the sub accounts in the accounting system.
A user should only put checking accounts into the COA, if you actually have that physical account at the bank. In addition if you are coming from another system and going to a true fund accounting system, seriously consider closing down all checking accounts except one, then move the money from the closed accounts to the primary checking account, and apply the money to the appropriate fund. Sound hard? – not on IconCMO, since we have a transfer window that can transfer the money from funds and also checkbooks.
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Tips on how you can make it easier for your organization to record transactions and accomplish the daily accounting work using a fund accounting system like IconCMO.
The Fund & COA must be known for each transaction:
Now that we know the differences between funds and COA from part one and have seen an example in part two using families and then in part three applied to church funds, we can move onto some tips using these fundamentals in this final part of our series.
Before moving onto to the tips (1 & 2), we need to understand how individual accounts in the COA relate to the “Budget Line” items that users are familiar with. COA and “Budget Line” items are equivalent as far as account descriptions. In fact in most systems the budget should come right from the chart of accounts. By rephrasing the terminology (COA => Budget Line), it helps the user determine which line on the church’s budget should be affected with the transaction. Additionally in the screen shots below, you will see a column ‘C’ called “Fund (Who Pays For It?)”. The “Fund (Who Pays For It?)” column is equivalent to the Fund that was discussed previously. By appending the question “Who Pays For It?”, it helps the user make the conscience decision when inputting the transaction as to which financial statement it should appear on – General Fund, Youth Fund, Mission Fund, etc.
One useful tool is a simple spreadsheet (like the one to the right) with the details necessary for each reoccurring transaction. This will help to ensure consistency for data entry each month and save time looking up previous transactions when writing checks. A transaction is easily done using only a few columns. Think of it as a cheat sheet.
Additionally, the Excel document can also be used for non-reoccurring transactions, if you like. Using the trip and food example from part three, the last four entries are entered using the same format as the reoccurring transaction.
Let’s use a utility bill as an example. In most churches this bill would be paid by the General Fund (Who pays for it?). Would you want this showing up on the Youth Fund report? Essentially by choosing the Fund (Who pays for it?), the user is choosing which ministry report should show the expense.
How to apply the excel sheet above in IconCMO:
Below you will see circled letters that correspond to the lettered columns from the sample Excel sheet above. The two most important fields are the (B) and (C) columns which are the Budget Line (B) and Fund (Who pays For It?) (C). When you knows these, it’s simple to write a check and ensure your reports are right 100% of the time. All accounting transaction screens (AP, Checkbook Writing & Deposits, Credit Card Charges, General Journal Entries, etc) in IconCMO have a similar screen layout and are created using a Fund (C) and Budget Line item (B).
2. Purchasing Items and Entering Them Correctly, Every Time
Typically in any organization there are people tasked with purchasing items for the organization or for daily operations. For example, many times a pastor goes to lunch with someone to council them, or the secretary purchases some office supplies. How can you properly account for these items?
Properly accounting for purchased items involves more than telling the treasurer how much you spent at WalMart or a restaurant. The treasurer (or data entry person) needs to know the proper expense (Budget Line) to apply it to and which Fund (Who pays for it?) should pay for it. We often hear from churches that the purchaser or even the treasurer doesn’t know what it should be. If the purchaser doesn’t know this, then what business do they have buying things for the organization?
To resolve this issue, we recommend another tool that we have found helpful for churches. It is the expense sheet that is handed into the treasurer periodically and is used in just about any organization that purchases goods or services – including non-profits. By using this simple tool, treasurers remove all issues with going back and editing transactions and cluttering their accounting system.
*Important – We encourage church councils to implement a process that has the following goal in mind – to keep treasurers from editing numerous accounting transactions after the fact. So the purchaser needs to communicate the needed information for correct data entry and accountability. We suggested one method here, however feel free to brainstorm if this one doesn’t work for your organization, but keep this goal in mind.
A sample of an expense voucher for a church may look like the following. Feel free to adjust as needed for your church.
There are a few key pieces that are absolute musts to ensure complete and accurate accounting: the date, amount, budget line item, fund affected, and name of payee (Pay To). Depending on your church’s internal controls and bylaws, the other items like approval, submitted by, address, and special instructions may or may not be needed. With these two tools there should be very little confusion or errors on any compliant church accounting system like IconCMO and for the treasurer that inputs the transactions for the church.
If the input is incorrect in any fashion, the church council can’t expect correct reports from the treasurer.
We hope that this four part series has helped to light your path on how to properly account for all the church’s money and gives you some tools to help with that task.
Did you know you can take attendance in IconCMO using the groups you create in group members and group households? Check out the video tutorial on this subject.
Now that we know the differences between funds and COA from part one and experimented with a family analogy, part two, let’s use different names for the funds instead of “the mom fund” and “the dad fund”. Below we will use General Fund (GF) and Youth Fund (YF) to better represent a church instead of a family.
As stated in part one, when two COA’s are used for a transaction, it is called double entry accounting. In fund accounting, and IconCMO in particular, these transactions are also tagged by a church fund (GF or YF) to categorize them along with the two COAs. By tagging them with the church fund, it puts the accounting activity onto the appropriate financial statement – either the General Fund or Youth Fund financial statements in this case.
In most systems on the market, especially the retrofitted systems for non-profits or for-profit systems, the fund is not assigned — only the expenditure or revenue account. Without the additional fund assignment, determining what numbers should be on the General Fund’s Statement of Activity or Financial Position report is next to impossible.
Let’s look at an example how individual COA’s affect the Fund Balances using the same exact numbers as before, but change out the expense and fund names to what you would typically see in a church’s COA and it’s funds.
- The church’s checkbook has $1,500.00 total on Jan 1st, 2013 ($750.00 goes to the GF and $750.00 for the YF).
- The pastor goes on a trip and it cost $350.00 with the GF paying for it.
- The youth go for weekly party and the food cost is $20.00 and the YF is paying for it.
- The church pays for the food at the men’s meeting and it cost $45.00 with the GF paying for it.
- The youth go on a trip which cost $425.00 and the YF will pay for it.
Four separate checks are written out on two expenditures, a trip expense and the food expense. The GF and YF share a checkbook at the bank but they have different assets, liabilities, revenues, and expenses each month that each incurs individually as seen above. Additionally, there are some questions (similar to the family example) that get very complicated, like what fund is spending money, which fund is making more money, etc.
Some example questions may be
- How do you know what the pastor spent on travel?
- How much did the youth spend when they went on a trip?
- How much did the pastor or youth spend on food?
- How much did the entire organization spend on food?
- How much did GF and YF spend separately? And also together?
|Checking:||Expenses (5001 Trips):||Expenses (5002 Food)|
|Bal (01/01/2013) – $1,500.00 ($750 in GF, $750 in YF)||Bal (01/01/2013) – $0.00||Bal (01/01/2013) – $0.00|
|Pastor’s Trip – $350.00 (GF)||Pastor’s Trip – $350.00 (GF)||Youth Food – $20.00 (YF)|
|Youth Food – $20.00 (YF)||Youth Trip – $425.00 (YF)||Men’s Food – $45.00 (GF)|
|Youth Trip – $425.00 (YF)|
|Men’s Food – $45.00 (GF)|
|$1,500 – trips – movies = $660||$0.00 + $350 + $425 = $775||$0.00 + $20 + $45 = $65|
|Ending Balance = $660||Total Spent = $775||Total Spent = $65|
Using the above table with the expenses and fund designation (GF or YF), can we answer the same questions used in the family analogy but apply it to a church setting? Yes. Let’s get to it.
- How do you know what the pastor spent on his trip?
- Answer: looking at the trip expense, find the one marked with a “GF”– it is $350.00.
- How much did the youth spend on their trip?
- Answer: looking at the trip expense, find the one marked with a “YF” – it is $425.00.
- How much did each spend on food?
- Answer: looking at the food expense the youth spent $20.00 while the men spent $45.00.
- How much did the entire organization spend on food?
- Answer: looking at the total for the expense line and it is $65.00.
- How much did the GF and YF spend separately (a)? And also together (b)?
- Answer: (a) looking at each GF expense it would be $350.00 + $45.00 = $395.00, and looking at each YF expense it would be $425.00 + $20.00 = $445.00. (b) What they spent together is a grand total of $840.00 which leaves $660.00 in the checkbook ($1500.00 – $840.00 = $660.00).
Explanation: Before the transaction the General Fund had $750.00 and the Youth Fund had $750.00 which would total $1,500.00 for the entire organization’s checkbook. This was similar to the family’s entire checkbook when the Dad and Mom Fund both had $750.00 each to start. The balances for each fund after the above transactions, would be as follows.
- The GF would have $355.00 remaining ($750.00 – $350.00 – $45.00 = $355.00).
- The YF would have $305.00 remaining ($750.00 – $425.00 – $20.00 = $305.00).
- There’s a combined balance in the organization’s checkbook of $660.00 for both funds ($1,500.00 – all expenses = $660.00).
In this scenario there are essentially 3 separate accounting balances and activities being maintained – the overall balance for the church ($660.00), the General Fund balance ($355.00), and the Youth Fund balance ($305.00). Balances are represented on the Balance Sheet Report. The separate accounting transactions for the General Fund is the $350.00 and $45.00; and for the Youth Fund it is the $425.00 and $20.00. This activity is shown on what most people call the Profit and Loss Report. Additionally, the balances or activity can be consolidated to provide all this information on one report to the organization. We typically call this an “All Funds” report.
Explanation of Financial Statements.
Knowing what kind of individual accounts within the COA belong on different financial statements can help the user greatly in any accounting system – especially in Fund Accounting. For example, the assets and liabilities are balance sheet accounts, therefore they show up on the Balance Sheet. This is because these accounts carry a balance from year to year, unlike revenues and expenses. Revenues and expenditures are never shown on the Balance Sheet report but instead are shown on the profit and loss (P/L) statement. If the current financial statements show all of these on one report – your organization is not creating reports that are compliant to standard accounting principles.
Above we used the common terminology for the financial statements – Balance Sheet and Profit and Loss (P/L). We should note that in church accounting these are actually named differently, but the same rules apply as to what accounts show up on each. In church accounting, the Balance Sheet is called Statement of Financial Position, and for the Profit and Loss it is called Statement of Financial Activities. There is another required report, called the Cash Flow Report, which is not discussed in this blog series but required.
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For more detailed information
- on a Balance Sheet you can review our past blog on ‘Why a Church Balance Sheet is like a Pizza Pie’.
on a Statement of Activities you can review our past blog on ‘Run your church like the Pros do in the “The Big Game” this weekend’.