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Checklist for Internal Auditors

 

Church Internal Audit Guidelines

Adapted from 2006 Church and Nonprofit Tax and Financial Guide

Financial Statements

Are monthly financial statements prepared on a timely basis and submitted to the organization's board?

Do the financial statements include all funds (unrestricted, temporarily restricted. and permanently restricted)?

Do the financial statements include a statement of financial condition ("balance sheet") and statement of activity ("statement of revenue and expenses")?

Are account balances in the financial records reconciled with amounts presented in financial reports?

Cash Receipts - General

Are cash handling procedures in writing?

Has the bank been notified to never cash checks payable to the church?

Are Sunday school offerings properly recorded and delivered to the money counters?

Are procedures established to care for offerings and monies delivered or mailed to the church office between Sundays?

Cash Receipts - Offering counting

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.)

Do money counters verify that the contents of the offering envelopes are identical to the amounts written on the outside of the envelopes?

Are all checks stamped with a restrictive endorsement stamp immediately after the offering envelope contents are verified?

Are money counters rotated so the same people are not handling the funds each week?

Are donor-restricted funds properly identified during the process of counting offerings?

Cash Receipts - Depositing of funds

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?

Are all funds promptly deposited? Compare offering and other receipt records with bank deposits.

Are all receipts deposited intact? Receipts should not be used to pay cash expenses.

Cash Receipts - Restricted Funds

Are donations for restricted purposes properly recorded in the accounting records?

Are restricted funds held for the intended purpose(s) and not spent on operating needs?

Donation Records

Are individual donor records kept as a basis to provide donor acknowledgments for all single contributions of $250 or more?

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?

If goods or services (other than intangible religious benefits) were provided in exchange for a gift, does the receipt:

o 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

o provide the donor with a good faith estimate of the value of such goods and services?

Are the donations traced from the weekly counting sheets to the donor records for a selected time period by the audit committee?

Cash Disbursements

Are all disbursements paid by check except for minor expenditures paid through the petty cash fund?

Is written documentation available to support all disbursements?

Has the church established an accountable reimbursement plan for expenses?

Do employees report and substantiate expenses within 60 days of incurring the expense?

Does the substantiation include original receipts, documentation of the time, place, amount, and purpose of expenditure?

If a petty cash fund is used, are vouchers prepared for each disbursement from the fund?

Are prenumbered checks used? Account for all the check numbers including voided checks

Are blank checks ever signed in advance? This should never be done.

Information Reporting

Has the church filed Form 990-T for gross unrelated business income over $1,000 per fiscal year, if required?

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?

Did the church obtain W-9 for all applicable recipients and file Form 1099-MISC?

Did the church provide Form 1099-INT to all recipients of interest totaling $600 or more during the calendar year?

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?

Payroll Tax Reporting

Does the church withhold and pay the employee's share of FICA taxes for all non- ministerial employees?

Does the church pay the employer's share of FICA taxes for all non-ministerial employees?

Did the church make timely deposits of employment taxes?

Did the church file Form 941 for each quarter of the previous calendar year?

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?

Did the church provide Form W-2 to all persons classified as employees (including ministers) by January 31?

Was Form W-2 and Transmittal Form W-3 provided to the IRS for all persons classified as employees (including ministers) by February 28?

Petty Cash

Is a petty cash fund used for disbursements of a small amount? If so, is the fund periodically reconciled and replenished based on proper documentation of the cash expenditures?

Bank Statement Reconciliation

Are written bank reconciliations prepared on a timely basis? Test the reconciliation for the last month in the fiscal year. Trace transactions between the bank and the books for timeliness and completeness.

Are there any checks that have been outstanding over three months?

Are there any unusual transactions in the bank statement immediately following year-end? Obtain the bank statement directly from the bank for review by the audit committee or obtain the unopened last bank statement from the treasurer.

Savings and Investment Accounts

Are all savings and investment accounts recorded in the financial records? Compare monthly statements to the books.

Are earnings or losses from savings and investment accounts recorded in the books?

Land, Building, and Equipment Records

Are there detailed records of land, buildings, and equipment including date acquired, description, and cost or fair market value at date of acquisition?

Was a physical inventory of equipment taken at year-end?

Have the proper records been reconciled to the insurance coverages?

Accounts Payable

Is there a schedule of unpaid invoices including vendor name, invoice date, and due date?

Are any of the accounts payable items significantly past due?

Are there any disputes with vendors over amounts owed?

Insurance

Is there a schedule of insurance coverage in force? Does it reflect effective and expiration dates, kind and classification of coverages, maximum amounts of each coverage, premiums and terms of payment?

Is Workers' Compensation insurance being carried as provided by law in most states?

Are all employees (and perhaps some independent contractors) covered under the Workers' Compensation policy?

Amortization of Debt

Is there a schedule of debt such as mortgages and notes?

Ha e the balances owed to all lenders been confirmed directly in writing?

Have the balances owed to all lenders been compared to the obligations recorded on the balance sheet?

Securities

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?

Have the contents of the safe-deposit box been examined and recorded?

General

If the church operates a preschool, child care, or school, does the church comply with federal (and state) minimum wage and overtime requirements?

If overtime payments are required, has the church taken steps to avoid paying overtime through compensatory time off?

Does the church have a record retention policy specifying how long records should be kept??

Are record retention and storage requirements formally considered at year-end?

Do you know the location of the original deed of church property?

Is the church in full compliance with restrictions imposed by the deed?

Did the church refrain from participating in or directly opposing a particular candidate's political campaign?


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