M I N I S T R Y F I N A N C E M E M O:
From: Brad Pendable, CFO RE: Self Funding Activities
To: Fellow MFT-Teammates As of April 2003
A little background first .... a part of my Job Description at the Church-Ministry where I serve says the following:
"We are in a part of the United States where a number of Evangelical Ministries are located and they need help from someone who is familiar with the nuances of Non Profit, or Ministry, finances or accounting. So, as a specialized missionary under our direction and fully financially supported by this church, we have retained Brad Pendable to, not only serve on our staff as our Financial Vice President, or equivalent, but to also be available for such purposes to assist interested Christ Centered Entities, like Evangelical Churches and/or Missionary Organizations."
So, as you can see, I deal with various MFTeamates, or colleagues, and there continues to be questions as to my views of various unique topics .... such as: Self Funding Events/Programs at a Church/Ministry. I have, therefore, decided to document them in this QUESTION AND ANSWER (Q&A) format.
To remind you ... since retired CPA Jim Bee is VERY close to me, much of my perspective flows from working with him down through the years. Plus, he has encouraged me to link to various documents on his www.bcidot.org web site that tie into what I am sharing below.He has just updated 5023 out on his web site that covers some of the topics below.
QUESTION #1
Brad, what is your "spin" on accounting for monies paid to the Church by those going to Church events?
ANSWER #1
First, I suggest that you digest what Jim Bee points out within his 0041 foundational "Fund Accounting" document, about how that monies come into a Ministry that must be used for unique operational purposes at the Ministry and how it MUST use appropriate accounting techniques and principles. There are General Fund (GPF or GPFund) monies that are to be used for the general operations of the Ministry, plus there are also Special Purpose (SPF or SPFund) monies that might come in from donors or from General Fund transfers for approved operational areas of the Ministry.
Some of my overall convictions on this topic follow:
Such money received is an "Expense Reimbursement" and does not appear in the accounting records/reports as Ministry Income per se. See Jim Bee 's comments at 0063 about Defrayments - of course, none of these "defrayment" payments per se are tax deductible. However, when you have a pre-approved Missions Trip, then you have Contribution Income which are tax-deductible. See also one of his sample Big Pix reports where such money appears as an expense (offset).
Smaller Churches will likely reflect such monies as either a reduction of an GPFund Ministry Expense line item or, preferably, as a negative expense (offset) which appears as a separate GPFund line item. See Examples below of the scenario of paying out $1,000 and receiving $300 as a reimbursement.
Example One --- GPFund Acct Nbr 530 - Event Net Expenses $700
Example Two --- GPFund Acct Nbr 532 - Event Expenses $1,000
GPFund Acct Nbr 533 - Less: Reimbursements (300)
Larger Churches will need their system to go beyond this because of the degree of such endeavors. Any Self Funding Events/Program at a Church/Ministry is a type of SPFund plus such Events/Programs require some type of a Accounts Receivable system (I like to term: YETOPAY) to record who has and who has not yet paid their bill. The operational year of such Events/Programs at larger Churches often do not coincide with the Church's operational (fiscal) year.
Another issue is that since the reimbursement proceeds seldom cover all of the Program's expenses, the balance must come from the GPFund. It is usually best for each Program to have its own SPFund as you monitor the bottom line and all of the expenses and said reimbursements.
QUESTION #2
What are the names of such Events/Programs at larger Churches? What accounting steps and reports do you recommend for such Programs? Sounds to me like all of this could get very "messy". Please give us some specifics.
ANSWER #2
OK -- below is a grid (or analysis) of information as of March 31, 2xxx re some specific Church Events/Programs which require such special handling. This Church has a March 31st fiscal year end.
Inventory or Advance
Deposit made
Prepaid
Unearned
Operations Timing
(1) Net
for facility, etc.
Operating
Deferred
I.D. of Event/Program
Begins
Ends
Effects
or Reservations
Expenditures
Revenue
Annual Camp A
June
July
$ 7,000
Annual Camp B
July
July
$ 2,500
Annual Conference 1
May
May
$ 1,000
$ 500
$ 2,775
Annual Conference 2
June
June
$ 1,500
$ 250
$ 500
Mdse on Hand - like unsold Choir CDs etc
April
Mar
$ 500
Annual Vacation Bible School
July
August
$ 1,575
AWANA or like Midweek
Children's Program
Sept
May
$ 15,123
$ 12,500
Event A
April
April
$ 187
$ 2,397
$ 2,000
Variety of Church Events
April
Mar
$ 7,500
Summer Athletic Program
June
August
$ -
$ 200
$ 500
Totals
$ 12,687
$ 20,045
$ 18,275
Net Difference
$ 14,457
(1) Covered by the GPFund Budget
As to the "(1) Net Effects" mentioned above: When a particular Church Ministry developed their annual Church budget they got approval to spend, let's say, $3,000 on their Event/Program, but they planned for $2,500 to come in from participants - or they expected that much "Expense Reimbursements - sometime referred to as "Deferments." Then this Church Ministry looked to the GPFund to pay for and zero out the "Net Effect" difference of $500. The total approved "Net Effects" for the fiscal year above was $8,250 for this Sample larger Church, but they only needed $7,500.
Below is the condensed March 31, 2XXX fiscal year end Balance Sheet of this sample larger Church - note that this overdraft of $14,457 is shown in the SPFunds area below as "Self Funding Events/Programs." During the year the "Net Effects" dollars came from the GPFund as completed Events/Programs were zeroed out as explained above.
In the annual audit report , the $12,687 and $20,045 will show up as Prepaid Expenses and the $18,275 will appear as Deferred Income. The total of these numbers equal $14,457. The "doing business with yourself, or (1) Net Effect" offset dollars of $7,500 do not appear in the annual GAAP compliant report.
Assets
Checking and Savings
$ 74,538
Petty Cash Funds
$ 1,850
Other Assets
$ 2,845
Total Assets
$ 79,233
Liabilities
Due to Vendors
$ 2,745
Due on Credit Cards
$ 12,899
Total Liabilities
$ 15,644
Equity-Special Purpose Funds
Donor Restricted Fund Bals
$ 5,496
Missions Fund Bals
$ 12,875
Board Discretionary Fund Bals
$ 54,250
Self Funding Events/Programs (overdraft)
($ 14,457)
GPFund Net Income for the Fiscal Year
$ 5,425
Total
$ 63,589
Total Liabilities and Equity
$ 79,233
At our Church, it my understanding that some of our Adult Sunday School classes collect and disburse money for many of their social activities (like a Bus trip to such and such) and the checks, for instance, are payable to their Event Coordinator. What comments do you have about them not running this through the church?
ANSWER #3
At our Church, we do not have any problem with this --- largely because they are personalized, one-time and do NOT look to the GPFund for any deficits. Most churches these groups to NOT include (note, for example, that checks are payable to the Group's Event Coordinator) such activity within the Church books. But they might also have their own Sunday School Class SPFund where they fund their various Board approved projects. We DO NOT allow them to have their own checking account - like any other Church group, they function via their own SPFund.
QUESTION #4
As I recollect, you use Quickbooks (QBs) to do your Fund Accounting. I have not been able to figure out a way to do budget accounting/reporting within the QB Equity Accounts. Any suggestions?
ANSWER #4
If you use the 0601 Method 1 system via the QBs Equity Accts that Jim Bee recommends, you have no known choice but to use Excel to do your Actual to Budget Accounting and Reporting for SPFunds. Please go to 5025 for details of how a Church can (of course, only for larger endeavors) set up it's own set of QBs to better account for money due them for events and to accommodate the event's operating year (usually different that the Church's fiscal year, etc.) and then use the usual budget feature of QBs for controlling the operating costs of the endeavor, etc.
Reference is: SelfFundingAccounting.html- UPTD August 11, 2010 Originated in April 2003