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Church Internal Audit Guidelines

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<div class=Section1>

<p class=MsoNormal align=center style='text-align:center'><b>Church Internal
Audit Guidelines</b></p>

<p class=MsoNormal align=center style='text-align:center'>Adapted from <i>2006
Church and Nonprofit Tax and Financial Guide</i></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Financial Statements</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are monthly financial statements prepared on a timely basis
and submitted to the organization's board?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Do the financial statements include all funds (unrestricted,
temporarily restricted. and permanently restricted)?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Do the financial statements include a statement of financial
condition (&quot;balance sheet&quot;) and statement of activity
(&quot;statement of revenue and expenses&quot;)?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are account balances in the financial records reconciled
with amounts presented in financial reports?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Cash Receipts - </b>General</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are cash handling procedures in writing?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Has the bank been notified to never cash checks payable to
the church?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are Sunday school offerings properly recorded and delivered
to the money counters?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are procedures established to care for offerings and monies
delivered or mailed to the church office between Sundays?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Cash Receipts - </b>Offering counting</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are at least two members of the counting committee present
when offerings are counted? (The persons counting the money should not include
the church treasurer.)</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Do money counters verify that the contents of the offering
envelopes are identical to the amounts written on the outside of the envelopes?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all checks stamped with a restrictive endorsement stamp
immediately after the offering envelope contents are verified?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are money counters rotated so the same people are not
handling the funds each week?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are donor-restricted funds properly identified during the
process of counting offerings?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Cash Receipts - </b>Depositing of funds</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are two members of the offering counting team in custody of
the offering until it is deposited in the bank, placed in a night depository,
or in the church's safe?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all funds promptly deposited?&nbsp; Compare offering and
other receipt records with bank deposits.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all receipts deposited intact?&nbsp; Receipts should not
be used to pay cash expenses.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Cash Receipts - </b>Restricted Funds</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are donations for restricted purposes properly recorded in
the accounting records? </p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are restricted funds held for the intended purpose(s) and
not spent on operating needs?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Donation Records</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are individual donor records kept as a basis to provide
donor acknowledgments for all single contributions of $250 or more?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If no goods or services were provided (other than intangible
religious benefits) in exchange for a gift, does the receipt include a
statement to this effect?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If goods or services (other than intangible religious
benefits) were provided in exchange for a gift, does the receipt:</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal style='margin-left:.5in;text-indent:-.25in'><span
style='font-family:"Courier New"'>o</span><span style='font-size:7.0pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</span>inform the donor that the amount of the contribution that is deductible
for federal income tax purposes is limited to the excess of the amount of any
money and the value of any property contributed by the donor over the value of
the goods and services provided by the organization, and</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal style='margin-left:.5in;text-indent:-.25in'><span
style='font-family:"Courier New"'>o</span><span style='font-size:7.0pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</span>provide the donor with a good faith estimate of the value of such goods
and services?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are the donations traced from the weekly counting sheets to
the donor records for a selected time period by the audit committee?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Cash Disbursements</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all disbursements paid by check except for minor
expenditures paid through the petty cash fund?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is written documentation available to support all
disbursements?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Has the church established an accountable reimbursement plan
for expenses?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Do employees report and substantiate expenses within 60 days
of incurring the expense?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Does the substantiation include original receipts,
documentation of the time, place, amount, and purpose of expenditure?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If a petty cash fund is used, are vouchers prepared for each
disbursement from the fund?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are prenumbered checks used? Account for all the check
numbers including voided checks</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are blank checks ever signed in advance? This should never
be done.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Information Reporting</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Has the church filed Form 990-T for gross unrelated business
income over $1,000 per fiscal year, if required?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church make payments to recipients (other than
corporations) of at least $10 in royalties or at least $600 in rents, payments
for services, prizes and awards, or medical and healthcare payments?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church obtain W-9 for all applicable recipients and
file Form 1099-MISC?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church provide Form 1099-INT to all recipients of
interest totaling $600 or more during the calendar year?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If the church operates a preschool or private school which
is not separately incorporated, did the church file Form 5578 concerning a
statement of racial nondiscrimination with the IRS?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Payroll Tax Reporting</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Does the church withhold and pay the employee's share of
FICA taxes for all non- ministerial employees?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Does the church pay the employer's share of FICA taxes for
all non-ministerial employees?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church make timely deposits of employment taxes?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church file Form 941 for each quarter of the
previous calendar year?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church verify that the totals from the four
quarterly Form 941s agree with the totals on Form W-3 prepared at year-end?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church provide Form W-2 to all persons classified as
employees (including ministers) by January 31?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Was Form W-2 and Transmittal Form W-3 provided to the IRS
for all persons classified as employees (including ministers) by February 28?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Petty Cash</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is a petty cash fund used for disbursements of a small
amount?&nbsp; If so, is the fund periodically reconciled and replenished based on
proper documentation of the cash expenditures?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Bank Statement Reconciliation</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are written bank reconciliations prepared on a timely
basis?&nbsp; Test the reconciliation for the last month in the fiscal
year.&nbsp; Trace transactions between the bank and the books for timeliness
and completeness.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are there any checks that have been outstanding over three
months?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are there any unusual transactions in the bank statement
immediately following year-end?&nbsp; Obtain the bank statement directly from
the bank for review by the audit committee or obtain the unopened last bank
statement from the treasurer.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Savings and Investment Accounts</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all savings and investment accounts recorded in the
financial records?&nbsp; Compare monthly statements to the books.</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are earnings or losses from savings and investment accounts
recorded in the books?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Land, Building, and Equipment Records</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are there detailed records of land, buildings, and equipment
including date acquired, description, and cost or fair market value at date of
acquisition?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Was a physical inventory of equipment taken at year-end?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Have the proper records been reconciled to the insurance
coverages?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Accounts Payable</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is there a schedule of unpaid invoices including vendor
name, invoice date, and due date?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are any of the accounts payable items significantly past
due?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are there any disputes with vendors over amounts owed?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Insurance</b></p>

<p class=MsoNormal>Is there a schedule of insurance coverage in force?&nbsp;
Does it reflect effective and expiration dates, kind and classification of
coverages, maximum amounts of each coverage, premiums and terms of payment?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is Workers' Compensation insurance being carried as provided
by law in most states?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are all employees (and perhaps some independent contractors)
covered under the Workers' Compensation policy?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Amortization of Debt</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is there a schedule of debt such as mortgages and notes?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Ha e the balances owed to all lenders been confirmed
directly in writing?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Have the balances owed to all lenders been compared to the
obligations recorded on the balance sheet?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>Securities</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Does the church own any marketable securities or bonds? If
so, are they kept in a safe-deposit box, and are two signatures (excluding a
pastor) required for access?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Have the contents of the safe-deposit box been examined and
recorded?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal><b>General</b></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If the church operates a preschool, child care, or school,
does the church comply with federal (and state) minimum wage and overtime
requirements?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>If overtime payments are required, has the church taken steps
to avoid paying overtime through compensatory time off?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Does the church have a record retention policy specifying
how long records should be kept??</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Are record retention and storage requirements formally
considered at year-end?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Do you know the location of the original deed of church
property?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Is the church in full compliance with restrictions imposed
by the deed?</p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>Did the church refrain from participating in or directly
opposing a particular candidate's political campaign?</p>

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