Transparency In Ministry

Straight from the IRS hotline:

The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form. The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.

In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.

This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.

Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on this web site. This is the official IRS Web site and it's not phony!

Another shadow for the groundhog!

It's that time of year and churches and ministries are preparing and filing the end of year payroll reports. If you are having trouble reconciling the W-2s with Form 941, start and perform a reconciliation quarter by quarter. Then a determination of when/where the discrepancy. A form is attached for your use, Download Form Here.

If you have any questions, contact us.

Small non-public entities prepare financial statements for a variety of reasons. Usually, it is done at the request of third parties (banks, potential investors or other interested parties) or simply for internal monitoring purposes. The basis of accounting that an entity uses to prepare its financial statements generally is determined by the needs of the users.

A large number of companies, including public entities (SEC registered), prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP). GAAP basis statements require that entities comply with a large amount of accounting rules and standards resulting in management time ensuring compliance. When these entities consider the cost benefit of such compliance compared to the needs of the users, they have the option to prepare their financial statements on another basis, commonly referred to as OCBOA (Other Comprehensive Basis of Accounting). Typical examples of OCBOA include Cash Basis, Modified Cash Basis, Tax Basis and Regulatory Basis of accounting.

See our next post, as we discuss the differences between the cash and modified cash basis of accounting for non-profit entities.

Charities and other tax-exempt organizations are required to file certain informational returns with the IRS. Earlier in 2007, the IRS released a proposed draft of modifications to the Form 990 and asked for public comments relating to the draft. In late December the IRS issued an updated version of Form 990, and provided transition relief so that small exempt organizations will have time to adjust to the new form.

These organizations will be allowed to file the Form 990-EZ instead of the Form 990. For the 2008 tax year (returns filed in 2009), organizations with gross receipts over $1.0 million or total assets over $2.5 million will be required to file the Form 990. For the 2009 tax year (returns filed in 2010), organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file the Form 990. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

The final Form 990 and background material explaining the changes from the current form and the June draft are available on the Exempt Organizations portion of the IRS Web site, IRS.gov/eo.

For an overview of the significant changes, see overview.

Many of us understand that once a month/quarter/year a business, ministry or church will need to do an assessment of its activity and the stewardship of that activity. This is considered a monthly/quarterly/yearly closing of the financial records, which is a review or overview of the books, to ensure that they are complete and all information is recorded correctly. In addition, it gives an analysis on how well an organization has done during the month/quarter/year. A similar assessment was performed in the Bible regarding the story of the talents as follows:

Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master's money. After a long time, the master of those servants returned and settled accounts with them. The man who had received the five talents brought the other five. 'Master,' he said, 'you entrusted me with five talents. See, I have gained five more. His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.' His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned, I would have received it back with interest. 'Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have abundance. Whoever does not have, even what he has will be taken from him. Matt. 25:14-21,24-29 NIV

Most of you may know this parable. In like manner, when proper stewardship is not performed over the finances of the business, ministry or church, the entity may receive IRS inquiries and/or audits; monies may be fraudulently used or wasted without the organization being aware. In closing the books, we need to review the cash accounts, review revenue and expenditures to ensure completeness and classification, determine which items purchased represents property, plant and equipment, determine if the organization has operating/capital leases and ensure that all documents are available to support long-term debt (i.e. notes payable and mortgages). If accrual basis is used, the entity will need to determine the account receivable, accounts payable, accruals and prepaid and/or deferred revenue transactions and properly post entries to set up these accounts at year-end.

In the next four blog posts we will address many of these areas, assisting you and your Church’s efforts in closing the books.

In post #2 – we will look at closing cash and reviewing revenue and expenses – Stay tuned.

Churches/Ministries can do a lot of things to prepare for an audit. This preparation can greatly decrease audit time and therefore decrease the related audit fees.

The Ministry can begin by documenting the internal controls related to financial transactions and cycles. They should have clear, detailed procedures for each significant transaction cycle (cash receipts, disbursements, payroll and financial reporting). This could also include contribution collection procedures, fees for services, accounts payable voucher processing, debt procedures, and compliance with donor designations/restrictions. This documentation will assist the auditors in evaluating whether controls/procedures are adequate (based on the size of the Ministry) and whether they have been placed in service for the period under audit.

The Ministry should formally document the understanding and management’s measurement of risks. These risks include

> The Ministry’s strategic business risk,

> Accounting reporting risks, and

> Fraud risks within the Ministry

The Ministry should document the understanding of the above risks and steps taken by management and the board of directors to mitigate the risks identified.

Understanding the Ministry’s controls and risks will help management understand various risks that must be considered by the auditor in auditing the financial statements of the ministry.

See post #2 relating to additional documentation needed for the audit.

Well it's official. WWW.THEMINISTRYBLOG.com is 1 year old.

In February 2007, Stanfield & O'Dell, P.C. officially launched our ministry blog to offer "solutions beyond numbers". We believe that ministries need/desire accountability and transparency and we offer solutions. The regulatory environment continues to expand their reach into churches/ministries and churches/ministries must continue to be stewards and operate with fiduciary responsbility.

This is one of the reasons we created the blog.

Todate we have published nearly 200 posts, have welcomed a number of subscribers to our inner circle and we celebrate each and every comment that you, the user, provide. If there is a topic that you would like discussed, please contact us.

Coming soon..."ask us" icon.

Have a great day...and HAPPY BIRTHDAY to us!!!

So what defines a designated fund/contribution? Shouldn't accounting be simple? Isn't it basic math (one plus one equals two)?

The difficulty lies in the terminology or meaning of words. The manner in which the word designated is used can cause significant differences in how churches account for a transaction.

Not all designated funds are accounted for as restricted funds. Accounting standards state only third party designated funds are to be accounted for as restricted funds. Internally designated funds, such as board-designated funds, are accounted for as unrestricted funds.

The following was a recent question we received via e-mail and we want to share the common situation with you.

Introduction: Contributions may be the most gracious form of expression that a donor can provide a church/ministry to aid in its vision. Yet, with gracious offerings can come many challenges when attempting to account for the funds. Most ministries solicit contributions through a variety of avenues each offering it’s own set of challenges in how the revenues and expenditures should be treated.

The following example is a scenario that many ministries and churches encounter:

A donor purchased an event ticket in advance with the understanding (clearly printed on the ticket) that a portion of the ticket price was a charitable contribution to the church, and the remaining portion of the ticket price was for value received, a meal (therefore not tax-deductible). The ticket price was $125 — $100 charitable gift, $25 value of event. ($25 per person was the church's cost to hold the event.)

The purchase of the ticket by that individual was recorded by the church accordingly- a portion as a charitable contribution and a portion as not tax-deductible.

Later, the individual was not able to attend the event, and did not request a refund of their ticket purchase.

The church relied on and used $25 of the ticket price to pay for the costs of the event.

How should the $25 be treated? Since the donor didn’t show up, is this a contribution?

What if the cost of the meal is $25 and the church/ministry spends an additional $10 per person in advertising the event?

Is this a $125, $100, or $90 contribution? See post #2 for the answer.