Читать книгу The Church Treasurer's Handbook - Robert Leach - Страница 6
Оглавление2. Record Keeping
BASIC PRINCIPLES
Objectives
Record keeping must be:
simple
understandable
accurate
timely
accessible.
An efficient system of record keeping is at the heart of being an effective treasurer. The exact form will depend on the size of the church, the circumstances in which you work, the exact scope of the treasurer’s job, and your own preferences. But remember that the system works for you; you do not work for the system.
The treasurer can decide whether to use a manual or computer system. The principles are the same. Computer systems simply mechanize the manual processes. They even use similar terms such as ‘folders’, ‘documents’ and ‘cut and paste’.
It is good practice for the treasurer to put all financial transactions through a bank account. Avoid transactions being paid in cash from the collection as this makes the disciplines and audit of the accounts difficult. If ready cash is needed by the church, operate a petty cash system where funds are drawn from the bank and properly controlled (see Petty Cash). In churches where casual financial arrangements exist, such disciplines may not be welcome; they soon will after you and the auditor have included a note in the annual accounts that they cannot be sure these accounts are reliable because of a lack of financial control!
Simple records
A common failing of treasurers is to set up a complicated system capable of producing a vast amount of analysis which is not needed.
The function of the treasurer is to record income and expenditure, and analyse each under main categories. It is unlikely that a church will need more than ten main categories of income and fifteen categories of expenditure.
A typical list of income and expenditure categories is given in Figure 1.
Figure 1: Typical income and expenditure categories in church accounts
| Income Pledged giving Tax recovered Loose collections Fees for weddings, etc. Investment income Hiring of hall Magazine sales Bookstall sales Refreshment sales Fund-raising activities Grants and legacies Transfers from accounts Other | Expenditure Parish share (or any payment to central body) Maintenance of building Office expenses Maintaining minister’s home Worship expenses Sunday school Music Youth work Donations to charities Church staff Stationery and telephone Electricity and gas Hall-hiring expenses Magazine expenses Refreshment expenses Transfers to accounts Other |
Each church probably may have at least one other item of income and expenditure which is relevant. A city church may receive significant income from letting out its car park during the week. A church in a tough area may spend significant sums on security. If there is a significant item of income and expenditure specific to your church, there should be a category for that. However, still keep the number of categories of each to around ten to fifteen.
Anglican churches may wish to have separate categories for parochial fees. These are paid in respect of weddings and funerals at a statutory rate and passed to the diocese. In practice, churches often charge a single fee, particularly for weddings, which includes the statutory fees along with additional fees such as for flowers, music, orders of service and other church facilities. Such fees should be apportioned between the various categories.
Another category which may be useful is that of Agency. This relates to situations where the church receives money to pass on to someone else. This includes parochial fees payable to the diocese, donations for specific charities, and payments earmarked for particular church officers. An Agency category may be created in both income and expenditure. At the end of the year, the balance on the Agency category should be zero as all payments received for payment to someone else should have been paid.
It is good practice for columns to be added to the same categories of income and expenditure on each page. Although not essential, this is good practice as it reduces the likelihood of mistakes and makes the books simpler to understand. The exact order of the categories is purely a matter for the convenience and preference of the treasurer.
Too much analysis is counter-productive. Normally, a church needs to know how much it costs to maintain its building. It does not need separate figures for cutting the grass, polishing the floor, cleaning the windows, mending pews and so on. Similarly, a church does not need to know separate figures for the vicarage water rates and altar candles. Even the telephone bill need not be disclosed separately, but can be included with stationery or office expenses. If the minister or church council wishes to know such information, it is better to produce it as a separate exercise on request, than to produce vast amounts of analysis on the off-chance that someone may want it.
All accounts are intended to paint a picture. A good picture focuses the eye on what is important, and does not distract the eye with irrelevant detail. If you do believe that some detail is needed, still prepare the simple accounts which give the overall picture, and then cross-reference the relevant part of the accounts to a separate statement giving the details.
There is always an ‘Other’ or ‘Sundry’ category for both income and expenditure for those items which do not fit into any other category, such as insurance claims, legal action and similar unusual items. Provided the total for such items is neither large nor significant in any other way, this is perfectly proper.
The process of how to analyse expenditure is explained below.
Remember that the law and accounting standards only state the minimum information you must disclose. You are always at liberty to disclose more information if you believe it is necessary to help understand the accounts. In practice, it can be better to have the information available but still to produce just simple accounts.
Understandable records
It must be possible for another treasurer or an accountant to look at the records at any stage of preparation, and understand them. There must never be a need for a treasurer to explain how the records are kept: it must be obvious.
If a treasurer has to explain the accounting records to an accountant or auditor, the treasurer is not keeping proper records. It is convenient and usual for the treasurer to give an overview explanation to the auditor or examiner, but it must never be an essential part of understanding the records.
The basic requirements of understandable accounts are:
every page and every document has a heading, such as ‘Deposit account, income April 2012’
all items are written neatly
there are no deletions or amendments which make it unclear what the figure is
no cryptic abbreviations are used (the auditor may not know that PYG is the parish youth group)
there is a proper audit trail (see Audit Trail).
Accurate records
It is obvious that records have no purpose unless accurate. However, that does not necessitate spurious accuracy, particularly with regard to rounding and estimating.
For rounding, the general rule is:
keep records to the nearest penny
publish accounts to the nearest pound.
Nothing is gained by reporting that the annual income was £147,692.14 rather than £147,692. This is an example of unnecessary detail crowding the true picture.
Sometimes it may be necessary to estimate an amount. The church may have agreed some building work and not yet know the full cost, or be in dispute about the cost. In such cases, the treasurer must:
estimate a reasonable figure, erring on the side of caution
state in the accounts that it is an estimate.
Timely records
Financial records must be kept up to date, in that all income and expenditure should be entered in a cash book or computer equivalent within a reasonable time. For income, that is likely to be no more than a day or two. For expenditure, provided details are noted on a cheque stub, it is probably sufficient that expenditure is written up once a month.
A treasurer usually needs to do some work at least once a week. Many treasurers find it convenient to set aside a regular time each week for this. A treasurer should not start work in a blaze of enthusiasm and then let things slip once the enthusiasm has waned.
Accessible records
Records must be accessible both to the treasurer and to anyone else who is legitimately entitled to see them. This always includes the minister, and usually it will include the churchwardens, trustees or equivalent. The auditor or examiner has the right to see such records whenever he wishes; the audit is not necessarily restricted to an audit period. Such people must know where the accounts are kept.
There is no objection to keeping the accounts at the treasurer’s home rather than on church premises, provided the exact location is known to at least two other people, such as an assistant treasurer and the auditor (or examiner).
The right to inspect the accounts does not mean that the auditor can knock on your door and demand immediate sight of the records in the middle of a dinner party. It does mean that such a person may ask to see the records at a convenient time and place at no more than a few days’ notice.
If you go away on holiday or for any other reason, the records should be temporarily transferred to another location and arrangements made for day-to-day transactions to continue and be properly recorded.
Types of funds
A treasurer must understand that the church may hold up to four types of funds:
1. endowment funds
2. restricted funds
3. designated funds
4. unrestricted funds
Endowment funds
These are often funds where only the interest may be spent. Technically, such funds are called capital endowment funds or permanent endowments. For example, an individual donates £100,000 which is invested at (say) 5% a year providing an indefinite income of £5,000 a year for a specific purpose. The £100,000 is the capital and £5,000 is the interest. Any expenses of administering an endowment fund should be charged to that fund and not to unrestricted funds.
In accounting, the capital of the endowment does not appear in the church accounts at all, but in a separate note to the accounts. The interest is included as income for the appropriate type of fund. In such a case, both the £100,000 capital and £5,000 a year interest will lose their value as the years pass. This is known as withering on the vine. While a few per cent each year may not seem much, the effect over a long period is immense. Inflation led to a sixty-six-fold increase in prices during the twentieth century, and a thirty-fold increase since 1945. This means that £100,000 today is worth about £1,500 from 100 years ago. If the twenty-first century has similar inflation to the twentieth, £100,000 and £5,000 today will be worth about £1,500 and £75 in a hundred years’ time. How to deal with funds which have become small during the passing of years is addressed below.
There is also a rare creature, the expendable endowment fund, where the church is allowed to spend the capital as well as the interest. In such a case, the capital (or so much of it as may be spent) is included with the appropriate restricted, designated or unrestricted fund.
An endowment fund may hold assets in addition to funds. Someone may leave a house on the basis that the church may spend the rent generated, for example. If the asset is sold, the proceeds must be treated as part of the same endowment fund.
Restricted funds
These are when the church is not allowed to do what it wishes and may only use them for a specific purpose, such as to maintain the buildings or to replace the church hall one day. Restricted funds commonly arise from legacies where the deceased stated the restriction. This is legally binding on the church.
The restriction is imposed either by the donor or by the church. A donor may leave money on condition that it is used to maintain the church building, or the bells, or whatever. Alternatively the church may have launched an appeal for a specific purpose, such as to replace the roof or build an extension. The money collected for such a specific appeal must be used only for that purpose.
For this reason, it is advisable to say at the outset what the church authorities intend to do with any surplus. The restriction then only applies until the original objective has been satisfied. If a church appeals for funds to replace the roof, raises £120,000 but only needs £100,000, a statement at the outset that any excess funds will be held to maintain the church fabric generally will allow that £20,000 excess to be transferred to a fabric fund where it could be used to repair the floor or walls the following year. If it did not make such a statement at the outset, the £20,000 would have to be held in a roof fund where it may not be needed for thirty years while the church is desperate for funds for other purposes.
Another issue is what the church will do if it raises insufficient funds. A church may always use unrestricted funds to meet an objective of a restricted fund, provided it has or can generate sufficient unrestricted funds. Otherwise it is advisable to say at the outset that insufficient restricted funds will be used for another but related purpose.
The treasurer must know exactly what the restrictions are for each fund. A restricted fund to replace the church hall cannot be used to maintain the existing hall. Conversely, if the church incurs expenditure within the scope of a restricted fund, the treasurer should use the restricted fund rather than unrestricted funds.
Sometimes there may be a special trust which is defined in Charities Act 1993 s.97 as ‘property which is held and administered by or on behalf of a charity for any special purposes of the charity, and is so held and administered on separate trusts relating only to that property’. Such funds are treated as a restricted fund of the church.
In practice, the only advantage of a restricted fund is that people tend to give more generously when a purpose is specifically identified.
It should be noted that a church is not obliged to accept any donation, and may wish to refuse if the restrictions are unreasonable, particularly if the amount is small.
Designated funds
These are when the church itself has set aside some of its money for a specific purpose. For example, the church may realize that it will need £250,000 to replace its church hall in ten years’ time, so it resolves to set aside £25,000 a year to pay for this. This is not a restricted fund as the church authority can at any time decide to reverse its decision and spend the sum as it wishes. Neither is this an unrestricted fund, as the church does not wish to spend this sum on anything else.
A designated fund must be for a specific purpose and must be approved by the church council, diaconate, trustees or similar body. A designated fund must not be created by the treasurer acting alone. Sometimes treasurers have created designated funds to ‘squirrel’ away surpluses to make the church accounts look less prosperous.
Rather than produce accounts showing that the church made a surplus of £21,467 one year, the treasurer may be tempted to transfer £20,000 to a designated fund, perhaps for building maintenance, and show a surplus of just £1,467. Sometimes this can be done to create a sense of the church ‘just about paying its way’ as an incentive for people to keep giving, and to prevent church members coming up with unwelcome ideas on how to spend this surplus. While understandable, this is a form of deception on the church members, even if you correctly report the transactions. By the time the annual accounts are prepared, the church authorities should have decided what to do with any surplus, and that should be included in the treasurer’s report.
Unrestricted funds
These are when the church is free to do what it wishes with the money. For most churches, most of the funds should be unrestricted. This is what you use to pay the routine bills. Any fund which is not an endowment, designated or restricted comes within the scope of unrestricted funds.
It is not necessary for these funds to be kept in separate bank accounts, though an endowment fund will often be in a separate investment account anyway. It is possible for restricted and designated funds with any surplus unrestricted funds to be kept in a deposit account while unrestricted funds are kept in a current account on which the day-to-day cheques are drawn.
Old funds
Before 1993, there was no specific requirement in the Charities Act to separate restricted and unrestricted funds in the same way (though trust law has always required some separation of different funds), so some old funds may contain a mixture. A common example is a fabric fund which may contain restricted funds from specific appeals and designated funds allocated by the church council. The basis of how those funds arose may have been lost.
Where an old fund is mixed, the charity should go back as far as it can in its records. Since 1960, charities have been obliged to keep records for the previous six years, though many churches keep accounts indefinitely as part of their history.
THE RECORDS
The choice
Having understood the objectives, the treasurer should decide what form the records should take. The choice is between bound books and a computer system. Note that looseleaf files are generally not acceptable. Records must be seen to be timely and unfalsified. This is much more difficult for looseleaf records than for a bound book.
Each has advantages and disadvantages. Computer system have the advantage that copies are easily made, and calculations and reconciliations are easily prepared. Against that, bound books have the advantage that you do not need a computer or print-out to read them, and they are simpler to keep up to date.
Computer systems tend to copy the disciplines of manual accounting systems. For this reason, we consider the requirements of record keeping in terms of manual records written in ink on the pages of a book, and then separately consider the additional factors for computer records.
Basic disciplines in handwritten accounts
1. All entries must be made in permanent ink
It is never acceptable for entries in accounting records to be in pencil or some other erasable form. Entries may be made in fountain pen, ballpoint pen, rollerball pens or with any other permanent writing implement.
2. All entries must be legible
There must never be any doubt as to what the entry says. This usually means writing numbers more slowly and carefully than normal. It is easy for 1 and 7, and for 0 and 6 to look similar when written quickly.
Badly written number
If an entry becomes illegible, such as through an ink blot or spilt coffee, the illegible entries should be copied with a cross-reference.
3. All amendments must leave the original figure legible
If you find that you have made a mistake in the accounting records, you must correct it so that the original figures are still legible. This usually means drawing a single line through the figures, and noting why the item has been deleted. As explained in the next section, it is preferable not to delete entries but to contra them.
How not to delete a cash book entry
How to delete a cash book entry
You never use opaque correction liquids on accounts. You never paste over the original paper. Never write over a figure to make it look like another figure. Always delete the original figure and enter the correct figure.
How not to correct a wrong figure
4. An amendment usually requires two correcting entries
Suppose you enter £127 for an electricity bill, instead of £172. The best practice is to make one entry to reverse the incorrect entry, then make the correct entry. If you simply make one additional entry for the extra £45, your records will still agree and give the right answer. However, the records are not correct, as you did not receive electricity bills for £127 and £45; you received one bill for £172. It is not immediately obvious from the records to what the £45 refers.
If the two entries are close on the page, it is sufficient to mark the original entry and the reversal entry with the contra sign, ¢.
How to correct an entry in a cash book
Audit trail
A fundamental requirement of all accounting records is that they maintain what is known as the audit trail.
There are various levels of accounting records. Typically accounts have four levels:
Published accounts
|
Annual trial balance
|
Entries in cash books
|
Original documents
This simply means that you can look at the records at any level in the accounts, and trace the figures up or down to any other level. For example, the published church accounts for 2006 say you spent £23,997 on building work. From this you look at the trial balance and see that it comprises these amounts:
Note that whatever figure you find at one level must be there at the next level above or below in the accounts. Whatever figures are included in the published accounts must be present on the trial balance. No one should have to hunt or guess how any figure has been derived.
You turn to February’s page in the cash book. There is a column headed ‘Repairs and maintenance’. At the bottom of that column you see the total £4,629.23. In the column above, you see that there are three entries:
You note that the figure of £4,629.23 found at trial balance level appears at the adjacent level. The column marked ‘Folio’ is your reference to the next layer down. You look in the file of bills for number 127, and find an invoice from K. Bloggs dated 9 January for:
On the invoice the treasurer has written 127 in a circle in the top right-hand corner and ‘Paid 11 February 2012 ’ on the invoice.
You have now managed to go from the published accounts right back to one of the invoices.
Similarly, it is possible to follow the audit trail in the opposite direction. You could look at the invoice and see ‘Paid 11 February 2006’, which tells you where to find the item in the cash book. The cash book shows that this is included in the monthly total of £4,629.23. The trial balance shows that this total is included in the annual total of £23,996.83.
Vouchers
The lowest level of accounting record is the voucher. This is a document which gives the details of an item of income or expenditure. Normally the treasurer keeps two sets of vouchers:
remittance advices (income)
invoices (expenditure).
These documents are usually kept in lever-arch files in numerical order.
Sometimes it may be convenient to keep different types of voucher separately, such as keeping weekly cash sheets of collections in a separate folder from forms detailing other sources of income.
Every item of income and expenditure has a voucher unless its details are otherwise known. Two examples of the latter include:
bank charges (which appear on the bank statement)
transfers to or from other accounts (which match an equivalent entry in that account).
Sometimes the treasurer may need to create a voucher for the records. Vouchers may also comprise sheets prepared by other people, letters, statements, appeal literature or photocopies from other books. A voucher is any document which gives information about a payment.
Never pay a statement or reminder, nor regard either as an invoice. A statement is basically a list of unpaid invoices at a particular date. Statements are commonly issued about once a month by suppliers. Reminders are sent when an invoice is overdue. The purpose of a statement or reminder is to check that you have received all invoices. If you find that you are missing an invoice, ask for a copy.
One common reason for losing invoices is that they are sent with the goods and thrown away with the packaging. The best practice for suppliers is to send a delivery note with the goods, and send the invoice separately. However, not all suppliers do this. A delivery note simply allows the recipient to check that everything that should be there has been supplied. Once that check has been performed, the delivery note is no longer needed and can be discarded. Delivery notes are not part of the accounting system.
It is quite acceptable for invoices to be sent by fax or e-mail. It is not essential that an invoice must be a piece of paper sent by post.
Vouchers for the expenditure side usually take the form of invoices, sometimes called bills (though the word ‘bill’ can be applied to other documents). However, vouchers can take the form of receipts, letters, statements, tickets or other documents.
An invoice is not a demand to pay a sum: it is a statement that one party to a contract has completed his part and is entitled to payment. So an invoice is properly issued even when you have already paid for the work. Such invoices should have ‘Invoice paid on 4 May 2012’ or similar words on them, but this is not a legal requirement. If you receive an invoice for work already paid for but where this is not indicated, it may be advisable to check that your payment has been recorded.
Where a remittance advice does not comprise an invoice, it is necessary to show that the payment was properly incurred.
For a donation to a charity, a copy of a covering letter from the treasurer is probably the appropriate remittance advice. It clearly identifies the payment as a charitable donation and not a payment for a visiting speaker or supplies of literature.
For internal expenditure, such as reimbursing the minister’s expenses or paying the choir, the voucher should be signed by the person you paid (particularly if paid in cash) or a note made when paying by cheque. Supporting paperwork should be attached as appropriate. For example, the minister should identify the cate-gories of expenditure, such as stamps, coffee, petrol, etc. Some of these items may have vouchers, such as a receipt from the post office, supermarket or petrol station, stapled to the form or paper which notes the payment. These additional receipts should be filed when provided, but they are only normally required if the amount is particularly large or the expenditure unusual. A church may wish to set a limit when a receipt must be produced or may wish to state what items constitute usual or unusual expenditure. However, that is a matter for the church authorities.
For accounting purposes, there is no real difference between an invoice and an expenses claim. They can be kept in the same file or separately, as you prefer.
Occasionally, you may receive an expense claim with a huge pile of receipts attached. In such cases, it can be acceptable to note on the form that you have seen the receipts, and then throw them away.
Payment of the choir may comprise a photocopy of a page from the choir register on which the choirmaster has calculated the amount payable to each member. The treasurer should have sufficient details to know how much was payable to each member, even when the choirmaster makes the actual payment.
Sometimes a payment is accompanied by a form, such as payment of tax or insurance. In such cases, a photocopy of the form can serve as the document.
Sometimes one cheque may be written to pay for several invoices, such as when the church handyman has submitted four invoices for the four jobs he did that month. The four invoices should be stapled together under a single folio number. The principle of the audit trail applies even at this level, in that the figure entered in the cash book must appear on the document. The treasurer must produce a slip or piece of adding machine roll or write on the top invoice how the cash-book figure has been calculated.
Remittance advices
Church income usually comes from three main sources:
1. donations from church members by standing order or cheque
2. loose cash from collections
3. event income, such as magazine sales and hall lettings.
There is no need to create vouchers for every donation by standing order or cheque: it is obvious from the cash book that these are donations. Loose cash will probably have a completed sheet identifying how much has been collected in each value of note and coin, with a date, time and signature. Other income may take the form of a covering letter from the magazine editor or a completed form from the hall lettings secretary.
Record all income
Church income comes from various sources ranging from formal grants and tax refunds through to an envelope containing a few pounds from selling coffee after a special service. It must all be recorded.
The church treasurer must ensure that all income receivable is received, and all income received is recorded. It is not enough for the treasurer simply to record whatever is passed to him; the treasurer must be proactive in ensuring that church income is passed to him, or at least is accounted to him. The treasurer should be sufficiently knowledgeable of church life to know of flower festivals, concerts, outings and appeals, plus arrangements for refreshments, musicians, maintenance, hall bookings, children’s and youth work, and any other aspect of church life which involves handling money. This will prevent difficult situations where someone in the church accumulates large funds of which the church authorities have no knowledge, or gets into a muddle and does not know how much has been received or spent.
A simple system should be introduced for all regular sources of income. For example, a hall booking secretary should provide the treasurer with a list of all regular bookings (such as scouts and health clubs), plus one-off bookings (such as birthday parties and wedding receptions). The treasurer can check that all such income has been received.
The magazine editor (or advertising manager) can provide a list of advertisers with agreed fees and when payable. The treasurer should check this against the actual advertisements in the magazine.
Refreshment and flower-arranging teams can fill in a simple form identifying how much they receive and spend each week.
Avoid situations where you have an envelope handed to you at inconvenient moments containing a few pounds from the sale of something after the service. If you know that someone is selling geraniums after the morning service to raise funds for the church, be proactive and give the person a simple form to record details for you.
Never mix church cash passed to you with your own cash. When given amounts of cash, always create a written record somewhere. Some treasurers keep a notebook for odd cash amounts, other treasurers carry a receipt book, and always issue a receipt. Neither is ideal, as there will inevitably be an occasion when you do not have your notebook or receipt book with you.
Collecting funds
A church typically has many sources of income. The treasurer must identify them all and ensure that money owed to the church is collected. Areas where this is likely to be an issue include:
hall bookings
rent from property
interest, dividends and other income from investments
magazine subscriptions
magazine advertisements
sales of refreshments after services
income from bookstall and other sales
fees for weddings and funerals.
A treasurer may have to be insistent that the respective officers do hand over the money. Sometimes people with responsibility in these areas may regard keeping the funds under their control as part of their duties. It must be made clear that legally they have no right to hold church funds against the wishes of the treasurer. In other words, other church officers should generally only hold church funds as a temporary measure until they can be passed to the treasurer.
In addition to regular sources of income, there will be one-off occasions such as concerts, festivals, fetes, fund-raising events and sale of church property (such as selling old hymn books or kneelers). This does not necessarily mean that the treasurer must act as debt collector for each of these items, but it does mean that the treasurer must ensure that someone is responsible for collecting money due, and does do so. If there is a problem collecting money due, the treasurer should report this to the appropriate church authorities who should consider what further steps to take.
The separate consideration of bounced cheques is considered below.
Counting the collection
A church collection typically comprises donations in envelopes for regular giving plus loose cash. The treasurer will rarely be responsible for counting and banking the collection at every service. Usually this task is delegated to sidespeople, ushers or people specially deputed for the task.
Some basic disciplines for counting the collection are:
the collection must be counted promptly after the end of each service
two people must always be present when the collection is counted
the loose cash is counted before the envelopes are opened
the envelopes are opened, and the amounts recorded against the name or identifying number on the envelope, on a list
a separate form is completed recording the total received in every different value of note and coin, whether from loose cash or envelopes
notes are held together in bundles of £100 by rubber bands
coins are bagged in cash bags provided free by banks in amounts of
– £20 for £1 and £2 coins
– £10 for 20p and 50p coins
– £5 for 5p and 10p coins
– £1 for 1p and 2p coins.
Do not mix coins of different values in the bag. Close the bag if it contains the full value, as indicated above. Leave the bag open if it contains less than the full value
cheques, foreign coins and anything else which has monetary value are recorded separately on the form, and are only included in the total if they can be paid into a bank account
keep the cash safe until it can be paid into the bank. It should either be kept in a safe, using a large cloth bag such as those which banks can be persuaded to provide free, or be taken home by the treasurer
the form should be signed or initialled by both of those who counted the collection
a record of the amount collected must be left at church premises.
Envelopes must have the amounts recorded in a manner which allows the donor to be identified, even if indirectly, such as against a list of numbers held by a stewardship secretary. This is not to check up on whether church members are ‘paying their dues’, but is an essential requirement for reclaiming income tax under Gift Aid; you may not know whether the donor had completed a Gift Aid form.
Paying money straight from the collection is not a good practice, and should be discouraged rather than banned. There is no problem if someone simply wants to change notes or coins from one value to another, such as handing over a £1 coin to have a stock of 10p coins as change when selling plants for 90p. You should discourage anyone from cashing a personal cheque from the collection.
If it is necessary to take money from the collection for any other purpose, such as to pay the choir or the refreshment team, ensure that full details are noted on the form. This will create a problem for your record keeping. If you received £200 and paid out £20, you will only bank £180 but must record £200 income and £20 payment. If a payment is made from the collection, it must be supported by such paperwork as is appropriate if you issued a cheque for the amount. See below. This means that those who count the collection will fill in two forms. First is the pledged giving form which can be as simple as the following:
The second form is an analysis of the cash receipts. A typical form is shown in Figure 2.
Figure 2: Collection Analysis Form
The form above allows for all eventualities, including receiving cheques, £50 notes, Scottish and Irish banknotes and other items. It also allows for non-collection items to be added, though these should normally be separately accounted for. The form allows for payments to be made directly out of the collection, though this practice should also be discouraged. Notes on what constitutes legal tender are given below.
Often someone other than the treasurer will arrange for the money to be paid in, usually on the Monday. It is then sufficient for that person to attach the paying-in counterfoil to the slip above and pass it to the treasurer.
Pledged giving
Churches increasingly rely on regular giving from members paid by standing order from the member’s bank account to the church’s. These matters are looked at in Chapter 17 on stewardship, usually administered by a separate stewardship secretary.
For the treasurer, the issues here are:
that both the treasurer and pledged giving secretary want the bank statement for their records
it is tedious for the treasurer to list each donation as a separate source of income
identifying donors in the main church records can be seen as a breach of confidentiality or sensitivity.
A convenient approach is to have a separate bank account for receiving such donations by standing order. The balance can be transferred to the main bank account once a month as a single figure entered into the records. The separate bank account is still part of the church’s accounts and so must be kept by the treasurer, but it makes it easier for both the treasurer and stewardship secretary to do their jobs.
Income in kind
Churches do not just receive cash, they also receive payments in kind through voluntary labour and gifts of assets.
Gifts of cash are always included in the church accounts.
Gifts of labour are not included in the accounts, although it is almost always the case that the church could not function without much voluntary work. If a church has a volunteer secretary, organist, youth worker, cleaner or whatever, the treasurer must resist any call to include a figure to reflect the value of that work. The church has not received that benefit in cash and it is false accounting to include it as such. Such a benefit would be difficult to value. Its inclusion would completely distort the accounts and destroy their purpose.
An exception to this may be needed if applying for a grant from certain bodies. In such cases, it may be appropriate to estimate the value of volunteer labour and treat this as both income in kind and expenditure in kind.
Gifts of assets for church use which are not consecrated or heritage assets usually are included in the accounts unless their value is small. Where someone gives a piano or computer to the church, that should be recognized as both income in kind and expenditure on the asset, which is usually a fixed asset. If an asset is donated for the church to sell, it is usually acceptable to include it only when sold, treating the sale proceeds as a receipt.
A church is not obliged to accept gifts they do not want. A church should not become a dump for old furniture and pianos.
Gifts may take the form of intangible income such as an interest-free loan, use of office space, temporary accommodation, professional services, and loan or free use of equipment. The general policy is that where the donor has borne expenses in providing the intangible income, an estimate of its value should be included as both income and expenditure. In other cases, the benefit should not be included. A discount or free business sample is not intangible income.
Trading income
In church accounting, trading means little more than incurring expenditure to receive income. It is not necessary that an activity has a commercial or fund-raising motive. Producing a magazine to promote the gospel is a trading activity if people are asked to pay for it or if it carries paid advertising. It is a trading activity even if priced so that it cannot make a surplus. Other trading activities may include concerts, fetes, hall lettings, refreshments, training and bookstalls. Each trading activity must be separately disclosed.
In the church accounts, the income and expenditure must be shown separately. It is not acceptable to net off these figures and show just a single figure of profit. An exception is if the income and expenditure is immaterial. If the youth club raises £4 for church funds by earning £5 from washing cars and spending £1 on materials, only the £4 needs to be added to income.
While this is clearly the correct accounting, it can lead to the objection that the accounts do not state how much profit or loss has been made by each trading activity. This is an area where accounts presentation must compromise between competing criteria. It is considered more important that church members can see the total income and total expenditure of the church. Seeing whether an activity is profitable involves no more than seeing if one number in the accounts is bigger than another.
MAKING PAYMENTS
Checking invoices and expenses
Before paying an invoice, the treasurer should check that:
the items or service were properly ordered by the church
the items or service were received by the church and are satisfactory
the price agrees with what was quoted
the arithmetic on the invoice is correct
The huge variety of invoices which can pass to a treasurer makes it almost impossible to produce prescriptive guidance which is sensible in all circumstances. The treasurer should decide how far he is satisfied that the first three conditions have been met. If necessary, the treasurer should ask another church officer to confirm the details and note this on the invoice. This may be a churchwarden confirming repairs to the boiler, or the Sunday school leader confirming an order for materials.
If goods were not ordered by the church at all, they are legally unsolicited goods, for which the law is explained below.
In practice, a more likely problem is that a church member simply decided to order goods without appropriate authority. It is not unknown for clergy, church officers and non-officers simply to order goods without bothering to get authorization. In such circumstances, the treasurer should not pay the invoice but refer it to the church council (or equivalent body) to see if they will authorize the expenditure retrospectively. If they do, the invoice can be paid as normal. If the council decides not to pay the invoice retrospectively, the council could find itself in a legal dispute with the supplier, as explained below. However, this is not an issue for the treasurer. The use of budgets, as explained below, is a simple way to prevent such problems.
Checking that the goods were received and are satisfactory may mean checking with the officer who received the goods. In such a case, the details must be noted on the invoice. This may be a handwritten note saying ‘4.7.12 (John Smith) confirmed goods received OK’.
Checking the price quoted may mean checking against a purchase order or quotation for larger items. For many bills, this may be part of the same process as checking that the goods were received and are satisfactory.
Payments with order
Sometimes a cheque needs to be sent with a document where there is no invoice. Examples include insurance premiums and taxing vehicles. The treasurer should simply ensure that he has a photocopy of whatever document is completed and should use that as the invoice equivalent. The principle is that no cheque is issued without a document readily identifiable explaining what the payment is for.
Advances and IOUs
Sometimes a church may need to provide someone with funds before they have incurred expenditure. This may be to buy materials or as a float to pay for incidental expenses on a church outing.
An advance is perfectly acceptable in such situations, provided the ultimate expenditure is authorized and budgeted. The person to whom the money is advanced should be given a reasonable sum which may be slightly in excess of expected spending. The person should sign for the advance. That person should provide details of expenditure as soon as possible. Any excess funds should be returned to the treasurer. Any shortfall should be paid by the treasurer.
An advance is a remittance in its own right and should therefore have its own voucher. When the person has accounted for the expenditure, that accounting is another remittance or a receipt for which a separate voucher is prepared. This should be cross-referenced to the paperwork for the advance.
An IOU is when an individual borrows money. In general, IOUs should be discouraged. The church is not a money lender. Unless expressly authorized otherwise (which would be unusual), no one should borrow money on an IOU unless the minister or treasurer or some equivalent church officer has expressly authorized it.
If, say, a church employee finds that she has insufficient funds for her bus fare home, an IOU is probably tolerable, but this should not become a habit. In the High Court case Sinclair v Neighbour [1967], the manager of a betting shop who earned £22 a week borrowed £15 from the till without permission. He put in an IOU and replaced the money the following day. When the employers discovered this, he was summarily dismissed (that is, without any notice and without any payment in lieu of notice). This was upheld by the court. This was a financial irregularity, and any financial irregularity from a person in a position of trust justifies summary dismissal.
A chuch should normally never lend money to an individual, but the church may consider a donation as explained below. Many personal loans to help individuals are never repaid, which can cause difficulties to both parties. If made as a gift, the individual always has the option to repay.
Regular payments
All payments must be supported by paperwork sufficient to identify their nature and purpose. Some items, such as bank charges, appear on the bank statement without any supporting paperwork. Here the bank statement is the supporting paperwork. Other regular payments, such as leases or rent, may not have paperwork for each payment, but have a document in the treasurer’s file to which the regular payments relate.
Analyse payments
The expenditure side of the accounts should be analysed into the categories you have already determined. You should be reluctant to create new categories.
The process of analysing expenditure can itself be problematic because most items of expenditure can be analysed in two ways:
1. by nature
2. by purpose.
For example, the wages of a youth worker could be analysed as either ‘Wages and salaries’ or ‘Youth work’. Organ maintenance could be analysed as either ‘Church maintenance’ or ‘Music’.
You should remember that the accounts are painting a picture. You must decide which is the more helpful analysis for church members. Are they more likely to be concerned at the total amount paid in all salaries or how much youth work costs? The answer is the latter. So, if you really cannot decide, choose a purposive analysis.
Cross-casting
The traditional method of analysing income and expenditure is using columns in a cash analysis book. Each (vertical) column represents an item of income or expenditure. The first three or four columns will give general information. This is:
date (of payment or receipt)
payee or payer, or nature of payment
total amount of payment or receipt.
Sometimes a fourth column is added to relate it to the voucher number.
Each (horizontal) row analyses the total amount into the categories of income or expenditure. In many cases, the analysis will be to just one column.
Figure 3 is an example of what a page in a cash book may look like recording receipts.
Almost every amount listed on this page is analysed by a single figure in one column, but there are a few exceptions.
On 16.7.12, someone bought a book from the bookstall for £17.95. He paid by a £20 note and, when no one had change, he said that the church could keep it. Arguably, you could say that the bookstall has made £20 worth of sales because the customer was prepared to overpay. It is probably more realistic to say that the extra £2.05 was a donation, which is how the item has been recorded.
On 18.7.12, John Smith came to the parish office to pay £60 to hire the hall for a birthday party. He noticed a book on the stall for £5, and gave one cheque to pay for them both. So his cheque for £65 is analysed as two figures.
On 23.7.12, you mistakenly entered the collection as £106.44 instead of £104.66. You don’t alter the entry you have already made in ink. You reverse the entry below it, putting brackets round the figures to show that they are the other way round; they are negative numbers. The original wrong entry and the matching correction are indicated by the contra symbol ¢ to make clear what has happened. Contra entries should still be analysed. The correct entry is then entered without any crossing out, scribbles or opaque correction fluid.
On 24.7.12, David Jones paid £100 in respect of his wedding fees. Of this £40 was the balance to hire the hall for a reception, and £60 was to pay the organist. This latter payment goes into ‘Other’ as we do not have a column for organist fees. If we had an ‘Agency’ column (see above), this payment could go there, as the whole £60 is paid out again.
On 30.7.12, the refreshments team took £16.31 but the supervisor took out £10 to buy some more coffee. This is not good practice. The supervisor should pay in the whole £16.31 and the treasurer provide funds for her to buy more coffee. However, that is the ideal world rather than the real world. The treasurer banks the balance of £6.31 and analyses that the takings were £16.31 and then shows £10 with brackets round. This means that the figure is the other way round from normal. Instead of this being money coming in, it is money going out. It is a negative figure. That is why the total for ‘Other’ is £50. You have added £60 to minus £10.
Each column of figures is added to give a sub-total. A sub-total is a sum of numbers which is itself to be added to other numbers. It is advisable to write all these sub-totals in pencil. The sub- totals for the columns from ‘Collections’ to ‘Other’ when added together should equal the total under ‘Amount’ as both figures represent the total of all the numbers you have entered in the cash analysis. The problem is that often they do not. This means that you have a mistake which must be found.
Sometimes the entries will not fit on a single page of a cash book. When this happens, the sub-totals, known as running totals, are produced for the first page. When balanced, as explained below, these sub-totals are marked ‘Carried forward’, commonly abbreviated to ‘c/fwd’. Exactly the same numbers are entered at the top of the next page with the narrative ‘Brought forward’, commonly abbreviated to ‘b/fwd’. This process can be repeated indefinitely over as many pages as needed.
It is advisable to add up figures using an adding machine which produces a till roll. This way you can check that your entries are correct. When using an adding machine, you may find a selector switch which says something like ‘A0234F’. The setting should be on ‘A’ for adding machine. (The numbers indicate the number of decimal places in arithmetical calculations, where F means full display for as many decimal places as the machine can display.) There may be another selector switch with positions P and NP for print and non-print. You should set it to P. You must remember that whole amounts of pounds are entered using the ‘00’ button, so £12.00 is entered as 12. At the end of each addition, you press the key marked * which produces the total, even though this may already be displayed. If you do not press this key, the old total may be added into the next total. A further complication is that on adding machines and calculators the keys are in a different order from a telephone, with 1, 2, 3 at the bottom rather than the top. All these disciplines soon become second nature.
Before adding machines were invented, book-keepers developed considerable mental arithmetic skills, and could calculate sub-totals in their head in a few seconds. Even though such skills are not needed now, it is still good practice to check that the sub-total is credible. It is easy to enter the hall hire figure of £280.60 as £28060.00, which would give a ludicrous sub-total £28,280.00 for hall hire for the month.
If you have produced a till roll, it is a simple matter to check that all figures have been entered correctly. It may console you to know that when the author first typed the sample page above, the sub-total for ‘Amount’ was 11,048.98 because the figure of 65.00 had been entered as 6.50.
If the mistake cannot easily be found, there is an old bookkeeping skill called difference-finding. You find the difference between the total under ‘Amount’ and the figure from adding the other sub-totals together. If the difference is a multiple of 9, this can indicate that two numbers have been reversed in the cash analysis, such as analysing £753 as £573. If you divide the difference by 9, you find the difference between the two figures which have been reversed, and the number of zeros after this figure tells you where that difference occurs. In our example, the difference is £180, of which one-ninth is £20. This indicates that there is a difference of 2 between the hundreds and tens digits. Your eyes can scan the page for figures where there is a difference of two between consecutive digits in that position to see if they have been correctly analysed.
If the difference is a multiple of 10, this can indicate that a digit has been incorrectly written in the analysis. For example, suppose you analysed £358 as £368. You check down the page to see if all the figures have been correctly analysed.
If the difference is a specific figure, say £27.81, this can indicate that you forgot to analyse that figure. You scan the page to see if that figure appears.
These short cuts, which are simpler to understand than to explain, are effective in dealing with a single obvious mistake. If there is more than one mistake, these methods may not help. Sometimes a page of a cash book refuses to balance. You can become ‘number blind’ in hunting for the difference as the eyes start to see what they want to see. The procedure for a page which will obstinately not agree is:
check all cross-casting to see that each row has been fully analysed
add up all columns again, covering up your previous sub-total
put a piece of paper about halfway down the page and add up half the column, and then the other half. This narrows down where the difference occurs
if all else fails, leave it, and return the following day when in five seconds you may find the discrepancy that eluded you for 30 minutes.
These disciplines may appear not to be necessary in the modern world of computer accounts programs. However, these disciplines can still be needed. Difference-hunting can be needed when performing a bank reconciliation in Microsoft Money, for example.
Petty cash
It is reasonable and quite acceptable for a church to have a petty cash account, provided it is properly controlled. These controls are:
the petty cash is kept on church premises in a secure place
it does not hold unnecessarily large amounts of cash
cash is kept with sufficient quantities of notes and coins of different denominations
there is a list of those authorized to draw from petty cash
every withdrawal is supported by a completed and signed petty cash voucher left in the box. Such vouchers can be bought inexpensively from local stationers.
Petty cash is operated on either the float basis or imprest system. Under the float system, a cheque is periodically cashed at the bank in whatever notes and coins are appropriate and added to the box. Under the imprest system the box is topped up by the value of vouchers since the last top-up. Thus the value of cash plus vouchers always equals the same figure. This does not really represent any improvement in security over the simpler float system.
Petty cash should not be used for payments which could easily be made by cheque or standing order. Petty cash is for paying the milk bill and buying glue and coffee.
There is no great objection to someone simply exchanging currency of one denomination for another, such as changing a £5 note into five £1 coins. Otherwise petty cash should not be used for cashing cheques or lending money.
The treasurer should periodically remove the vouchers and write them in the petty cash book or computer equivalent. The petty cash should also be counted periodically, at least once a month, to see that the balance agrees. It rarely does. This does not necessarily mean that anything is necessarily untoward; provided discrepancies are small and vary between being overstated and understated, there is no cause for concern. The difference is entered into the petty cash book, usually as a ‘sundry’ expenditure or income, so that the petty cash again agrees.
Even a large discrepancy of say £50 does not necessarily mean that anything improper is happening. The minister could have been reimbursing himself for an expense when suddenly called away before completing the voucher. Reasonable enquiries will usually determine if this is the case, allowing the records to be corrected.
If the treasurer does have concern about how petty cash is being used, that concern should be raised with the church council or equivalent. The treasurer should not make any decisions on its operation.
Computer software
For all but the simplest financial arrangements, a computer should be used. Computers themselves (the hardware) can now be bought for less than £1,000, while accounting software can be bought for £100 or less.
The government has promoted the use of computers and since 6 April 2009 it has been illegal to pay over income tax and national insurance from a payroll other than electronically. This means that payroll must be run on a computer, which is now almost essential anyway.
A computer is simply a tool, like a fountain pen. It does not think or make decisions, but obediently follows your instructions and those written into its programs. A computer error is better described as a computer operator error. There is a computing term known as GIGO – garbage in, garbage out. It means that the quality of computer output depends on computer input.
A computer simply automates the procedures that were previously done manually. It even uses the same terms, such as ‘folders’ and ‘documents’, for its electronic equivalents.
If you have no experience of computers, it is worth learning, as so much of everyday life is now computer based. The best way to learn is to:
buy a computer but get someone else to set it up
have someone show you how to use it (don’t try to follow the often incomprehensible instructions)
start with something simple, such as producing a document, and then learn one new trick at a time
practise using the computer, and try to work out answers to problems before asking for help
ask for help if you cannot resolve an issue for yourself.
Don’t be embarrassed to acknowledge that your grandchildren may have a better grasp than you, and may be happy to explain it to you.
There is no objection to a treasurer keeping church records on his own computer, provided the records are kept entirely separate from the treasurer’s personal records. If you need to acquire a computer or accounting software, there is probably a computer specialist in your congregation who can advise. If not, there may be accountants and others who keep financial records who can help.
When acquiring any software, you should consider more than just what it does and how much it costs. You must also consider what support you will get in the future, and whether the software will be kept up to date. Software is updated in two ways: compliance updating, and specification updating. The first, compliance updating, is to reflect changes in law and accounting standards. The second, specification updating, is simply to add more functions – colloquially known as ‘bells and whistles’. You need the former, but probably not the latter. A computer or software should not be regarded as obsolete just because there is a later version. If they still do what you want and comply with current regulations, there is no reason to discard them. For specification updating, it is usually sufficient to review what products are available every five years or so.
Software often comes with many functions that may not always be needed. For this reason it is common for software to be supplied with a ‘wizard’ which allows you to choose which functions you want. Wizards usually have a standard setting which is appropriate for most purposes and should be selected when starting. You can always adjust the scope of the wizard later.
Remember that, when you buy software, you are buying a licence to use that software and must comply with the terms of the licence. This usually means that you may only load and use that software on one computer, other than as a back-up. You must not allow or use unauthorized copies, commonly known as ‘grey software’. This is a form of theft. If you do need several copies of software, the supplier will usually sell you a group licence.
Accounting software
In terms of software, you should be clear at the outset what you want the computer to do. We are assuming that you already have basic software such as Word for producing written text, and Excel for producing spreadsheets.
If you simply want the computer to keep track of bank accounts and cash, Microsoft Money is adequate. This may be provided as part of the Microsoft Windows package when you first acquired the computer. Money allows you to produce reports from which annual accounts can usually be easily prepared, but they do not allow you to prepare the final accounts themselves.
There are plenty of other accounting software packages available, but it is unlikely that they will contain many additional features required by a church treasurer.
One program specifically designed for churches and charities is Finance Co-Ordinator, produced by Data Developments, Wolverhampton Science Park, Stafford Road, Wolverhampton, West Midlands wv10 9ru. Telephone: 01902-824044, e-mail: sales@data-developments.co.uk, website: www.data-developments.co.uk. This is designed to ensure compliance with charity law and accounting standards, and is specifically designed for fund-based non-commercial organizations. The company has been providing this software since 1985, and so is likely to remain in business, which has not always been the case with such software. It allows for restricted and unrestricted funds, endowments, statement of financial activity (SOFA) reports, and the suchlike. The software also produces management reports.
Payroll
A payroll for a church is not significantly different from a payroll for a commercial business. So there is no need for special payroll software for churches or charities.
There are many inexpensive but versatile payroll software packages on the market from reliable and established suppliers. Many offer additional functions such as personnel records, time and attendance, and human resources management, which are unlikely to be needed by church treasurers.
