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View Financial Procedures in a New Church

Financial Procedures in a New Church
Developed by Ministry Partners Inc
For the Great Lakes Conference

First Tasks
Develop your first year budget
Your Conference Director of Church Planting will work with you on this.  For reference, included in this document is an operating report for the first year of a recent church plant that might be considered typical. 

Identify the Financial Team Leader
This position is on your advisory team and will morph into the Financial Officer position that will eventually be identified in the church’s constitution and by-laws.  This person:
•  Oversees management of finances (cash flow and budget management).
•  Prepares and presents reports of financial status to church leaders and members.
•  Ensures proper procedures are developed, approved and implemented.
•  Initiates and manages the annual budget process from start through member approval and implementation (member approval is part of the process later on).

Technical skill (counting money or recording transactions) is less important than the ability to think strategically about what needs to be done (or not done) now in order to accomplish bigger plans/goals later on and how to leverage current assets (including people) in order to accomplish something bigger.  This person might need to be the voice of reason that says we can manage with a Chevy model in this area in order to afford the Cadillac standard in another area.

This person will be a signer on the church bank account and will receive copies of the monthly financial operating reports.  This is your “go-to” person for all things financial in the church.  You will also need to evaluate who has the necessary skills for accomplishing the tasks mentioned above within the core group or if you need outside consultation to help.  Refer to the “Identify the rest of the Finance Team” section to help make this determination.  This is not an all or nothing proposition.

When the finance team leader has been identified and a plan has been sketched for who will do what, there are just two more things that need to be in place before opening a bank account in the church’s name:  Articles of Incorporation must be filed and returned from the Secretary of State and the church needs an Employer Identification Number (EIN). Ministry Partners is prepared to assist with these activities. The initial bank account will need to be opened at a bank that has internet access, most major banks have this capability.

A sample of the logistical arrangements with the church is as follows (this can be customized to the specific situation as long as good internal controls are in place):

Offering/donation procedure:
•  Two people count the offering each week,
•  Contributions are recorded in QuickBooks and a Total Contribution Report is printed,
•  Checks are endorsed immediately “for deposit only” and the account number,
•  Deposit is made at the bank.
•  A Backup copy of QuickBooks can be uploaded online for back-up.

Payables procedure:
•  Finance Team will issue all checks on a timely basis to meet the obligations.

Payroll procedure:
•  Financial Team will issue the payroll on the selected weekly, biweekly, semi-monthly, or monthly basis.


Identify the rest of the Finance Team
In order to separate tasks to facilitate strong internal financial controls and to divide the tasks into time segments manageable for volunteers, a team of 2 or preferably 3 people needs to be recruited and trained.  (Complete job descriptions are attached to this document).

Position 1.  This position is already in place (the person referred to above).  This position will morph into the Financial Officer position that will eventually be identified in the church’s constitution and by-laws.  This person:
•  Oversees management of finances (cash flow and budget management).
•  Prepares and presents reports of financial status to church leaders and members.
•  Ensures proper procedures are developed, approved and implemented.
•  Initiates and manages the annual budget process from start through member approval and implementation.

Position 2.  Receipts clerk (sometimes called Financial Secretary):
•  Records all donations/contributions and deposits in the church bank account.
•  Generates donor statements/receipts at least annually.

Position 3.  Disbursements clerk:
•  Records and generates payments for church incurred expenses.
•  Records and generates scheduled payroll if applicable.

If you are doing this with two people rather than three, Positions 1 and 3 are most easily merged into one position while maintaining appropriate fraud prevention practices.


Issues to be decided by the Financial Team:
Hardware: A laptop computer is provided by CGE and your conference as part of the initial support package. The laptop will have wireless capability for internet access.
Internet access: Internet access may be necessary for communications between your church finance officer and the conference. The access point may be at the church meeting location or other agreeable location.

Software. 
QuickBooks: CGE and your conference provide a copy of QuickBooks Pro along with a chart of accounts for your initial budget.
Microsoft Office: a copy of Microsoft Office, or separate applications of Word and Excel such as Open Office, will be provided for church plants from the conference and CGE.
Web File Storage: access to a web based storage site for file storage, including QuickBooks backup copies, is something for you to consider through QuickBooks online.

Payroll.  There are three primary decisions to make concerning payroll: payroll frequency, internal or contract, and physical checks or direct deposit. Ministry Partners will assist the Financial Team in evaluating the advantages and disadvantages of each option. A major factor will be the interests and capabilities of the Financial Team.
Payroll taxes must be withheld and deposited within certain time constraints with the governing agency, quarterly reports must be filed and annual W-2 forms generated.  Whether you decide to manage payroll in-house or contract with a payroll service will depend on the number of employees you have, what types of deductions are made from paychecks and the payroll manager’s comfort level with deadlines and forms. 
With a payroll service the client (you) generally sets up all pay and deduction types and calls or logs in on a schedule to report hours worked.  This requires that the client understand which pay types are taxable, which are not; which deductions are made pre-tax and which after-tax, etc.  So be aware that even with a payroll service, the user still needs to know something about compensation rules and particularly clergy compensation.
QuickBooks offers several payroll options including direct deposit. Each of these options require an annual subscription (to keep tax tables and forms current) ($200 per year for 3 or fewer employees; $280 for unlimited number of employees). These options will be discussed by Ministry Partners. 
If you want to offer direct deposit through QuickBooks, the fee is approximately $3.00 per transmission plus $1 per pay check.  So if you pay 4 employees twice per month the fee would be ($3 X 2 transmissions per month plus 4 employees X $1 per check X 2 pay periods each month = 6 + 8 = $14 per month).  Banks may offer direct deposit as one of their fee-based services.

Define the financial culture you want to create. 
To what extent will lay-leaders be empowered to make financial decisions in the areas they oversee?  Consider the possible answers and implications to this question on a continuum.

X                             _____X
Fully empowered lay leaders           Centralized financial authority
Lay leaders are empowered to manage     One person approves all expenditures
budget for their area   for all ministries
Likely takes longer to get payments approved   One person can make decisions
because you have to track down multiple people   faster than a group
Budget is created with input of those         Budget might not be realistic
who are “hands on” the ministry         or in touch with ministry
Budget process takes longer because         Budget process will be much quicker
meetings are harder to schedule with many people
Communication to all budget managers     Easy to communicate with one
is more complicated
Risk having many workers and no boss     Risk a financial dictatorship


Full empowerment means they are involved in the budgeting process; more people means more time and complexity.  Full empowerment means they are trusted to manage that part of the budget.  Full empowerment means they are the ones to approve expenditures for their area; seeking proper approvals before paying invoices will take longer and likely carry more frustration as more people get involved.  If the budget is managed by multiple people, how will big picture messages be communicated, i.e. “there is a spending freeze until a certain date or event”?  If the budget is managed by multiple people, in the situation of limited funds, who will decide what ministry or event has priority?  (Is it wise to buy a new rocking chair for the nursery because the children’s ministry has money in the budget while the electric bill doesn’t get paid because that area of the budget got eaten up repairing a furnace?  Who decides?  How does it get communicated?)

On the flip side, if all money and budgets are managed by one person, how do lay-leaders feel or understand their authority to lead?  Are they truly empowered to lead what you have asked them to lead?  If they have to regularly ask for resources to accomplish what has been asked of them, they likely won’t feel empowered.

Miscellaneous Notes
Brief overview of QuickBooks capabilities:
•  Sort donations by donor or type of gift (general operating, Benevolence, etc)
•  Print deposit slip and/or list of checks to accompany deposit slip
•  Print checks
•  Track expenses by vendor and type of expense (rent, supplies, curriculum, etc.)
•  Memorize recurring transactions
•  Memorize reports that are used every week/month/year
•  Track budget and expenditures against budget
•  Reconcile bank accounts

Of the four main areas (receipts, payments, payroll, reporting), QuickBooks is the weakest on receipts.  It is built to print a receipt for each donation which is not practical in a setting that receives weekly donations from the same individuals.  Several add-on programs (estimated cost of $50) can be used to generate annual contribution receipts.  If in the process of figuring out users and computers it is helpful to consider other means of accomplishing the tasks, the receipts are the first area to look for other vendors and simply record summary transactions in QB.

Bank Account Signers
The Covenant recommends at least two, and prefers three, signers on the church accounts:  Financial Officer, Chairperson and either the Disbursements Clerk or the Vice-Chairperson.  Sometimes it makes sense to have the Financial Officer sign all checks (not the Disbursement Clerk) so they know where the money is going.  This hands-on work will help them when they must explain spending variances to the Leadership Team and congregation.  Pastors and their relatives should not be signers on the bank accounts.

Job Description
Financial Officer

Job Scope:  Chief Financial Officer
Attend and participate in regular leadership meetings and congregational meetings as scheduled
Consider proposed plans from a organizational financial health perspective
Oversee management of finances (cash flow and budget management)
Prepare and present reports of financial status to church leaders and members
Ensure proper procedures are developed, approved and implemented
Initiate and manage the annual budget process from start through member approval and implementation
Monthly bank reconciliation(s).  Note:  this task is on this job description as a fraud prevention measure although the reconciliations will be completed by Ministry Partners.

Qualities/Abilities
Able to interpret financial reports
Understands what information is helpful for making a decision
Able to consider future plans alongside current realities when making decisions with money attached to them (if we plan to do this then, we need to not do that now.  If we plan to do this then, we can prepare the way by doing this other thing now)
Able to manage volunteers (receipts clerk, disbursements clerk, offering counts team)
Some knowledge of policies and procedures that will reduce the risk of fraud
Godly character

Time Commitment
Specific time expectation is dependent on the complexity of the finances in the particular church.  Plan on some time for:
Leadership Team meeting (at least monthly)
Preparation for Leadership Team (review reports, identify variances from budget/plan and be ready to explain the difference)
If cash flow is tight, time to evaluate priorities to review anticipated expenditures and prioritize against anticipated revenues
Budget process (likely process:  receive requests for funding, evaluate against anticipated revenues, create and evaluate different scenarios that will balance budget, communicate to ministry leaders, prepare presentation to Leadership Team, make adjustments as necessary, prepare presentation to membership.  How much of this is done in isolation or in group think meetings will vary from place to place.)

Job Description
Receipts Clerk

Job Scope:  Record all receipts/donations, deposit in church bank account, generate receipts
As soon as possible after offering count, deposit in church bank account
As soon as possible after offering count, record offerings in donor records.  This might be done from copies of checks and cash donor list.
Record deposit in accounting software.
At least annually, generate donor statements/receipts of all giving over the period.  This can be done at intervals during the year to remind people to continue giving or only after the end of the year to be used for tax deduction records.

Qualities/Abilities
Not intimidated by computers or computer programs
Attention to detail
Able to keep donor information confidential
Able and willing to work as a team with disbursements clerk and financial officer
A general understanding of fund accounting (general operating fund as opposed to the Benevolence fund or the missions fund or the building fund) and how it impacts receipts
Some knowledge of tax deductibility rules
Some knowledge of policies and procedures that will reduce the risk of fraud
Godly character; especially trustworthy with regard to finances

Time Commitment
Specific time expectation is dependent on the volume of receipts and complexity of the finances in the particular church.  Perhaps the most difficult time constraint of this role is the time sensitivity of getting the money to the bank as soon as possible after service(s).  It’s a weekly task that doesn’t have much flexibility in particular time.

Job Description
Disbursements Clerk

Job Scope:  Insure all financial obligations of the church are paid appropriately and in a timely fashion including payroll and payroll tax obligations.
Seek appropriate approval for all payment requests whether an invoice received by mail, a credit card charge or a payment request
Record bills against appropriate budget expense
Generate checks in payment of approved obligations
Generate Form 1099 forms as required
Generate scheduled payroll
Make payroll tax deposits when they are due (Federal and State)
Prepare quarterly Form 941 and annual Forms W-2 and W-3


Qualities/Abilities
Understanding of basic accounting/bookkeeping principles and processes (debits and credits, difference between a liability and an expense, importance of timing, etc.)
Not intimidated by computers or computer programs.  Some experience with QuickBooks would be extremely helpful
Attention to detail
Able to keep information confidential
Able and willing to work as a team with receipts clerk and financial officer
A general understanding of fund accounting (general operating fund as opposed to the Benevolence fund or the missions fund or the building fund)
Some knowledge of policies and procedures that will reduce the risk of fraud
Godly character; especially trustworthy with regard to finances

Time Commitment
Specific time expectation is dependent on the volume of expenditures and complexity of the finances in the particular church.  The payroll schedule will be the most constraining time commitment since information (time sheets) might not be available much before processing deadlines.  Other payments can generally be accumulated and processed on a weekly (sometimes bi-weekly) basis.

 


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