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2009 Audit Report

Internal Audit Report for the 2009 Fiscal Year
Prepared by Lee Carter and Marcy Pompei

Approved by Finance Committee April 19th, 2010

Summary


An internal audit committee consisting of Marcy Pompei & Lee Carter was appointed by the Finance Committee in February 2010 to conduct an audit of the Meeting's financial records and procedures for the 2009 fiscal year. They were assisted/advised by Peggy Giltrow in the Meeting’s audit procedures.

Objectives of a Church Audit

(Adapted from The Work of the Church Treasurer)


1. To determine that adequate internal control procedures exist, and that such procedures are being followed.

2. To determine that all donations to the church were deposited and recorded correctly.

3. To determine that disbursements were properly authorized -- i. e. that the budget (including any adjustments during the year) was followed or that changes were approved and that authorized members approved payment of invoices.

4. To determine that records were maintained on plant and equipment items, and that adequate insurance coverage was obtained.

5. To determine compliance with federal and state regulations, including properly and timely paid employment taxes and income taxes, if applicable.

6. To recommend improved procedures and practices.

Findings

(This checklist is adapted from Friendly Audits - Guidance for Those Asked to Review Quaker Accounts and for Those Who Keep Them, by Elizabeth Muench, The Work of the Church Treasurer, by Thomas E. McLeod, and Zondervan Church and Nonprofit Tax and Financial Guide: 2006 Edition, by Dan Busby)

The Records in General

• Does the way in which the records are kept provide for the efficient accumulation of entries and avoidance of unnecessary or duplicate work?

The donation, receipt, and payment records are kept in a church-specific software program called CCS Accounting, which is designed to track donations and produce appropriate reports. Bank transactions are immediately available online and an online billpay system is used for most checks.

• Are the records up to date, with entries made soon after events occur?

Yes, payment entries are made in the CCS at the same time as the checks are generated, and the data from the Collection Record is generally entered within a week of the collection. The Treasurer is online every one to two weeks, making updates to the CCS Accounting check register.

• Is the arithmetic accurate? Do sub-totals actually add up to the grand totals in the records and financial reports?

We learned that the Meeting has not done bank reconciliations at least since the beginning of the use of the CCS Accounting software program, and are therefore unable to verify balances. However, the CCS bank accounts activity report is continuously updated with the online bank records, and the addition is done by the CCS software program.

• Are financial reports prepared and presented often enough to catch any abnormalities while there is hopefully still time to do something about them?

Reports are presented each month in business meeting; the Finance Committee receives the Quarterly reports prior to business meeting.

• Do the financial statements include a statement of financial condition (“balance sheet”) and statement of income and expenses?

The Treasurer does not normally present a standard balance sheet because the meeting currently has only bank accounts as assets and no liabilities. The normal monthly report of income and expenses includes the balances in funds and bank accounts. The Quarterly Reports provide much more detail on income and expenses.

• Does the treasurer keep a special file of the minutes that relate to the meeting’s financial affairs— i.e., budget approvals, budget changes, general financial policies, opening and closing bank accounts, accepting earmarked contributions, etc.—so that they can be easily referred to?

All business meeting minutes are contained in the Meeting’s newsletters. The Treasurer maintains a file of newsletters. Also, all newsletters from 2006 to date are fully indexed online for easy reference. The Clerk of Finance Committee maintains a separate file of minutes of all Finance Committee Meetings.

• Are the records kept in a safe place? How long are old records kept and where? Has the yearly meeting set up a central archive for important records and are key financial records sent there after an appropriate period?

The records required for regular use are kept in the treasurer's home; the most important documents are kept in a safe deposit box. Meeting-approved financial procedures include retention and disposition directions.

• If the Meeting has property, furniture or equipment, is there an inventory listing all the assets of significant value and stating briefly when and how they were acquired and what their value was at the time of acquisition? Is this inventory kept with the rest of the financial records and updated annually?

No general inventory is kept, but the Meeting has an inventory of the art in the Meetinghouse -- which is most of the valuable objects. This inventory is not kept by the Finance Committee. A copy (print and CD) is kept onsite, and a CD copy is kept offsite by Dave Giltrow of the Building Committee.

Receipts

• Are cash handling procedures in writing?
Yes.

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

Yes, the Meeting’s resident secures them until a member of Finance or the Treasurer collects them.

• Are all checks and cash received recorded promptly and deposited in their entirety?

Yes. However, the Meeting’s Resident may write a check for the cash which she has collected and then use the cash for personal use, but apart from that no collected cash is used before it is deposited.

• Most unprogrammed Meetings do not “pass the plate” on a weekly basis but instead receive individual contributions in one or more annual installments. Is there a confidential, detailed listing of these contributions as they are received? Does the treasurer acknowledge them by means of annual letters or individual receipts? If the records are not in order it may be necessary to check with individuals to be sure that contributions have been properly recorded and attributed.

Yes. Donations are tracked in an accounting program designed for that purpose. Contributions are acknowledged on an annual basis (or immediately in special circumstances.)

• In the case of Meetings that do pass a collection plate—or otherwise receive multiple cash contributions—are such receipts always counted and deposited by a committee, not by one person alone, and does the membership of this committee rotate two or three times a year?

No. Because the Meeting is small and donations and payments for use of the building arrive through the week, it has not been possible to design a method for having two persons handle collections. A procedure for handling collections is included in the financial procedures, and it provides for two members of the Finance Committee to rotate responsibility for the weekly collection and deposits.

• How are earmarked contributions and funds handled? How does the Meeting assure that they are spent for the purpose for which they were contributed? If the treasurer is authorized to receive contributions for transmission to another organization, this needs to be minuted by the Meeting. Has this been done?

Earmarked donations and funds are tracked and reported on regularly to the business meeting. In 2009, the Meeting approved the Finance Committee’s recommendation to only accept earmarked donations for the Meeting’s designated funds.

• 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?

Yes.

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

Yes. The 2009 Audit committee chose August and December.

Expenditures

• Are all expenditures made in accordance with an approved budget? Has the Meeting minuted its approval, preferably beforehand, for any expenditures not budgeted?

Almost all expenditures have prior approval by the business meeting, but occasionally the treasurer must pay bills for which no specific authorization is available until the next business meeting; in these cases the treasurer consults with the Clerk of the Meeting, or the Finance Committee.

• Are all expenditures, except small ones from petty cash, made by check? Are all expenditures from petty cash funds supported by written vouchers?

In general, yes. Most of the regular and routine bills are paid via the bank’s online billpay system. The rest are handwritten. At this time, there is no documentation for “petty cash” - this is being researched by Treasurer – re: the quarterly payments to the Resident for supplies.

• Are expense accounts submitted promptly, adequately supported and, if necessary, approved by a committee clerk before payment?

Yes.

• Are supporting documents (bills, etc.) for checks marked in some way to avoid duplicate payments and facilitate identifying which check paid which bill?

In general, yes. However, the two main independent contractors (the cleaning person and the FDS teacher) have not been submitting invoices/bills. WE RECOMMEND THAT A YEARLY CONTRACT IS DRAWN UP REGARDING THE AGREED PAYMENT RATE, IN LIEU OF WEEKLY OR MONTHLY BILLS. ALSO, THAT FDS SUBSTITUTES SUBMIT BILLS, APRROVED BY THE CONTRACTED FDS TEACHER, FOR PAYMENT.

Bank Accounts

• Are personal funds and meeting funds kept strictly segregated from each other?

Yes.

• Are all checks pre-numbered and all numbers accounted for?

Yes. Paper checks have carbon copy, and the CCS program automatically generates numbers.

• Are all checks recorded when issued?

Yes. Checks generated through the Bank’s online billpay system are recorded when the Treasurer issues the check – usually every one to two weeks. In addition, there are 3 monthly debits to checking account for the utilities. It may also happen that handwritten checks are written by other signers when the Treasurer is away, in which case the Treasurer records the checks upon return.

• Are all unused checks kept in a safe place?

Yes.

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

NO.

• Are all voided checks retained and mutilated?

For handwritten checks, only the carbon copy is retained. If a handwritten check is lost (i.e., in the mail) a stop-payment is put on the check. For bills paid through the online system, no actual check exists for the Treasurer to mutilate; a stop-payment is done instead .

• Are bank reconciliations prepared whenever a statement is received? Differences between the bank balance and the book balance should be infrequent and promptly resolved.

No actual bank reconciliations have been done. We recommend to start doing this on a quarterly basis. We do note, however, that the CCS bank accounts activity report is continuously updated with the online bank records.

• Are there many outstanding checks? If so, why? Checks that have been outstanding for six months should probably be voided and those out standing for a year certainly should be.

The online billpay system provides an email notification when a check is outstanding more than 30 days. For 2009, there was one notice: a payment for the safe deposit box – payment was stopped January, 2010.

• When a check is voided is a corresponding adjustment made in the expenditure accounts?

Yes. They are voided through the CCS program. Handwritten checks are manually voided, with the original check destroyed, leaving the carbon copy, and then being voided on the CCS program.

• Look at the backs of the returned checks: have they been cashed by the person or business that they were made out to? If not, why not?

Checks are not returned by the bank; nor are check images provided with bank statements. Images of cleared handwritten checks are available only online. However, there is no indication that any check was not cashed by the person to whom it was written. AS MOST CHECKS ARE DONE THROUGH ONLINE BILLPAY, AND GCU DOES NOT PROVIDE CHECK IMAGES – NO VERIFICATION IS POSSIBLE. However, there have been no complaints of nonpayment.

• Are Meeting bank accounts provided with alternate signers in case of illness or vacations?

Yes, as confirmed by Peggy Giltrow.

• Do at least two of the Meeting’s officers have an up-to-date list of all the meeting’s bank accounts, with the names and addresses of the authorized signers? Are all changes of authorized signers or the opening and closing of bank accounts made only after being properly minuted by the Monthly Meeting?

Yes.

• What taxpayer identification number is used on the meeting’s bank accounts? If the meeting does not have its own number, should it?

The Meeting has a TIN.

Information Reporting

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

There is no unrelated business income, so no 990-T has been filed.

• 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?

Yes, primarily for cleaning, FDS, and repairs. WE RECOMMEND ANNUAL CONTRACTS FOR Independent Contractors (CLEANER & FDS Teacher).

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

Yes, for all known individual contractors. However, no confirmation has been made for self-employed contractors using a business name, for services such as repairs and landscaping. We ask the Finance Committee to determine if this project is a priority for this year.

General

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

This item is not under the purview of the Finance Committee – it is handled by the Trustees.

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

Yes – the Meeting did not support or oppose any political candidate, either in cash or in any other form.

Test of Transactions and Audit of Cash
 
The purpose of the test of transactions is to determine that the church's established procedures are being followed, and that the procedures can be relied upon to produce financial statements presenting fairly the cash transactions of the church and the assets, liabilities, and fund balances resulting from cash transactions. The objective of the test of cash is to determine that cash as shown by financial statements is stated properly and that cash is under the church's control.

1. Obtain:
a. A list of individuals authorized to sign checks.
b. Beginning and ending bank reconciliations for the test period, including lists of outstanding checks.
c. Bank statements and canceled checks for both the test months and subsequent months.
d. Cash receipts and disbursements records.

2. Select test months -- The last month of the fiscal year and at least one other month.
a. Trace transactions between the bank and the books for timeliness and completeness.
b. Are there any unusual transactions in the bank statement immediately following year-end?
c. Are there any checks that have been outstanding over three months?
d. Compare monthly statements to the books and to financial reports.

3. In addition, the written procedures for the Treasurer and Finance Committee should be reviewed each time an audit is conducted.

The internal audit committee selected August and December 2009 as test months. For these months, the committee traced transactions between the bank and the books, and compared the collection records to the receipt journal entries. A few discrepancies were found, resulting in several recommendations. The written procedures were reviewed and are up-to-date.

Summary of RECOMMENDATIONS:

   1. That bank reconciliations begin this year, done at the end of every quarter.

   2. That bank deposits for weekly collection show the date of deposit, not just date of collection.

   3. To clarify the quarterly amount paid to the Resident for supplies, i.e. documentation

   4. To begin annual contracts with the two main Independent Contractors – the cleaning person and the FDS teacher.

   5. To determine whether or not to start a process of confirmation of other possible Independent Contractors who should be supplied with 1099’s.

   6. That the Finance Committee clarify for the record the difference between cash and accrual accounting, and maintain consistency. This mostly affects the end-of-year donations received in January.

Respectfully submitted:

Lee Carter and Marcy Pompei

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