Finance for Veteran & New Leadership 1 0 1 e E c V I T n A a R T n S

Finance for Veteran & New Leadership 1 0 1 e E c V I T n A a R T n S I i IN F M D h A c F r O , u G R N O I h T K C C K E R R A DI M & R . R R D RE U S A E TR VICES SER

Finance for Veteran & New Leadership TOPICS Role of Treasurer/Financial Secretary Segregation of Duties The Joy of Payroll Pension and Benefits Year End Reports Apportionments Taxes Audits Helpful Resources

Finance for Veteran & New Leadership r e r u s a e r T f e o h t n f o o i t e a l g o e R r g e S & s e i t u D

Finance for Veteran & New Leadership What does a Treasurer do? Common answers include: Handle church banking accounts Pay bills Collect and count offering Deposit funds Provide financial reports Send out donation statements Handle Payroll

Finance for Veteran & New Leadership What SHOULD a Treasurer Follow Finance Committee policies to protect do? church assets. Recommend appropriate policies and procedures for handling of church funds. Ensure church bills are paid. Keep accurate records of receipts and expenses. Oversee payroll. All of which means Treasurers do not do it all alone – they work with others! (Even in a small church)

Finance for Veteran & New Leadership SEGREGATION OF DUTIES Finance Committee’s job: Identify, Perfect & Manage the Finance System Oversee Treasurer and Financial Secretary Treasurer’s job: Carry out decisions made by Finance Comm. Sign checks Oversee counting and deposits Sign off on Bank Reconciliation Provide reports on church funds Financial Secretary’s Job: Keep accurate records, handling funds May Write checks (but do not sign) Balance statements – reconcile cash Send donor receipts

Finance for Veteran & New Leadership WHY SEGREGATE DUTIES? Protect church funds. Protect the Treasurer / Financial Secretary. Protect the Finance Committee (fiduciary). Segregation of duties is standard procedure in financial dealings. Trust is not the issue; Protection is. Appropriate controls / checks & balances protect all parties. Provides We backup in case of illness, death or disability. would not handle funds for an organization that would not provide people the protection of segregation of duties.

Finance for Veteran & New Leadership WHY SEGREGATE DUTIES? THE UGLY TRUTH: Every year funds are embezzled from a church– churches of every size! These funds are taken by trusted Treasurers and or Financial Secretaries whom everybody knew. These were our small-town neighbors. Usually begins with “borrowing” funds to get through a “tight spot”. Appropriate controls make such “borrowing” very difficult, and so keeps people away from disaster!

Finance for Veteran & New Leadership Pr es un su p a re b m il id of e ls ad de dic , ga di bt al ha m cti , bi bl on t, in , et g c. WHY SEGREGATE DUTIES? “ bo I’m it. rr ju ” o s it “I’ win t “T ba ll g hi ck pa to s i .” y th ge s ju ro t m st ug e h. ”

Finance for Veteran & New Leadership WHY SEGREGATE DUTIES? No re on ca view e nc s ch elle ec ks d e r m o Sa on ( s ted ) r pe ela ons d r rs an pe nts its. u s co epo one s e d o N par ng m nti th o c ou wi c ps its. sli pos de N ch o on e st ba cks e at n to em k ve en b ba a rif ts la nk y N nc ve o on es. Re rifi e F s e ev und erv s en s e th ar e ne that er o e No cks che iled s ma ring e off t. sen

Finance for Veteran & New Leadership WHY SEGREGATE DUTIES? When you remove opportunity , you drastically decrease chance for fraud Don’t be so foolish as to think you or your fellow servants will never be tempted. Jesus Himself was tempted! Protect yourself and the church y0u love

Finance for Veteran & New Leadership EXAMPLES OF POOR Only one person counts the offering. CONTROLS No rotation of individuals who count the offering. Individuals who count the offering are related. Only one person takes the offering to the safe/bank. One individual has access to the safe by himself or herself. The offering tally sheet is not reconciled with the deposit. The person who prepares the deposit also makes the deposit.

Finance for Veteran & New Leadership FRAUD ENABLERS 1. Same person deposits and records bank deposits. 2. Same person writes checks, deposits cash and reconciles bank accounts. 3. No required vacations of staff. 4. No criminal background or credit checks of staff. 5. No “term limits” for financial volunteers (treasurer, counters, etc.) 6. No financial “expert” on Finance Committee. 7. No surprise audits/financial and bank account reviews. 8. Related persons on Finance Committee or familial relationships with financial staff. 9. References are not checked when employees are hired.

Finance for Veteran & New Leadership CHECKS AND BALANCES Deposit count sheets are compared to actual deposits. One person writes checks, but someone else signs them. Bank statement is reviewed occasionally by someone who does not balance it nor write / sign the checks. Bank accounts are not reconciled by person who writes checks. Outside person(s) review books. Cancelled checks are reviewed.

Finance for Veteran & New Leadership How To Segregate Duties At least two unrelated, trustworthy, and competent people. One is Treasurer; one is Financial Secretary. Can switch the duties listed, if one set is performed by Treasurer, and the other by Financial Secretary. Both should report to Finance Committee at least quarterly.

Finance for Veteran & New Leadership TREASURER’S ROLE Keep accurate records: Disburse funds to causes for which they were given. Make sure reserve or escrow funds are not used for current expenses. Do not talk (information is confidential). Signs checks that are prepared by Financial Secretary (but does not prepare them). Manage Funds: Oversees counting. Careful record keeping. Invest unused funds (work with Finance Committee). Timely payment of designated funds (including monthly apportionment payments to Conf. Treasurer).

Finance for Veteran & New Leadership TREASURER’S ROLE Reporting is IMPORTANT: Regular reporting of receipts & disbursements in an accurate and easily interpreted way. Report to Finance Committee and to Church Council or Administrative Board (monthly, at least quarterly). Records of income and expenses should be available to Finance Committee, Minister, and other church leaders. Review Minister’s Compensation Form (from Chg. Conf.) to see about various withholdings. Does NOT count nor deposit funds. Does NOT write checks.

Finance for Veteran & New Leadership Financial Reporting Have written reports, with budget, current monthly expenditures as well as year to date amounts. Report on ALL church funds – EVERY account. ATTITUDE MATTERS – openness, humility, upbeat, avoiding “gloom and doom”. More than just the “balance in the bank.” Report on ways funds were used – not just the amounts spent, but the ministry that is enabled.

Finance for Veteran & New Leadership Financial Reporting Who is visited? Who grieves and is served? Are parents supported? Are children taught? Are young people guided? Are the hungry fed? Sharing the Impact of ministry is critical! Answer questions, be willing to discuss. Ask about how to handle cash balances. Ask about how much for reserves. Is a “sinking fund” needed?

Finance for Veteran & New Leadership FINANCIAL SECRETARY’S ROLE One of most important offices in a church. Protects both Treasurer and Church. Cannot be Treasurer nor related to the Treasurer (¶ 258.4).

Finance for Veteran & New Leadership FINANCIAL SECRETARY’S ROLE Receives, records, deposits all funds received by the church. Keeps records of all funds received. Records all funds received from individuals. Tax laws require documentation of all gifts. Sends out donor receipts at least quarterly. Writes checks for Treasurer to sign. Balances bank statements. Does NOT sign checks.

Finance for Veteran & New Leadership DO WE HAVE TO SEGREGATE Expect to hear comments like these: DUTIES? “We’re just a small church” “We don’t need this” “It’s just too much work” “We trust you- don’t you trust us?” These are initial reactions to a new idea. None of these are valid reasons not to have proper controls.

Finance for Veteran & New Leadership DO WE HAVE TO SEGREGATE to segregate duties is failure to exercise DUTIES?Failure fiduciary responsibility and to PROTECT volunteers. Every church, of every size, has at least two trustworthy people in it. Treasurer should take the lead, insist on this! Your business people already know these concepts, likely practice them at work. Exactly why would you NOT want to protect church funds in this way? In today’s world, you don’t have to be guilty, just accused.

Finance for Veteran & New Leadership f o h c y r o J u h e C h ( T l l o r y Pa e) l y t S

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH W-4, I-9, NC-4, NC New Hire form (I-9 and NC New STYLE) Get Hire even for pastor). Prepare quarterly tax forms (941s). Prepare annual W-2s for employees. Prepare 1099s if any outside contractors (painters, repairs, etc.) (1099s due if they are paid more than 600 in a year). Keep insurance certificates, prepare for Workers Compensation audit. May choose to hire local firm just for these duties.

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH IS NOT an employee for Social Security. STYLE) Minister Minister IS an employee for income tax reporting purposes, gets a W-2. Law is CLEAR on this. Church CANNOT withhold Social Security / Medicare taxes for clergy. Church MAY withhold federal and state income taxes for clergy. Can even “up” federal withholding to “cover” FICA bill if clergy requests. BUT they must supply amounts to hold. Lay minister (supply) is not clergy for IRS purposes, and so gets W-2, PLUS you MUST withhold taxes (including FICA) and they do NOT qualify for Housing Allowance.

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH few churches have musicians or nursery workers STYLE) Very who are independent contractors. They are part-time employees. IRS has detailed rules for determining if staff person is really independent – but if you are their only “client” then they will be employees. If affordable, use a Payroll Service- email [email protected] for recommendations. See our website for information

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH SALARY REDUCTIONS STYLE) Get Minister’s Compensation Form (from Church Dashboard via wnccumc.org website.) Lines 3 Net results in Box 1 of W-2 info Note various withholdings Check Housing Allowance (“utilities allowance”) This is an exclusion, not a deduction, not additional money. Pastor still gets the “cash” Let pastor set amount – they are 100% responsible. Church has no authority, not liable. You don’t need any reporting from pastor. Housing approval MUST be done prior to period paid (i.e., before January 1).

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH W2 and W3 Forms STYLE) Easiest to do online Register at Soc Sec Business Services Online https://www.ssa.gov/bso/bsowelcome.htm Check to see if church has an EIN – Call IRS- 800-829-4933 Register for Employer Identification Number (EIN) https://www.irs.gov/businesses/small-businesses-self-e mployed/apply-for-an-employer-identification-numberein-online

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH W2 and W3 Forms STYLE) Don’t lose registration for Business Services Online site – you will use every year. W-2 box help is on right side of pastor’s compensation form. Note – Box 1 and Box 16 (state) income is REDUCED by housing allowance, pension/insurance withholdings. Again, consider using a local accounting firm or payroll service to handle payroll – or just to file the quarterly 941s and do W-2s.

Finance for Veteran & New Leadership THE JOY OF PAYROLL (CHURCH ACCOUNTABLE REIMBURSEMENT STYLE) Is NOT done via Salary Reduction Should be separate line item in budget This is NOT compensation, but church expenses. Mileage, cost of business supplies, etc. Pastor does need to report this to you. Pay only by voucher/receipt except where policy says otherwise. If the church pays for it, church owns it. Not compensation; if unspent, church keeps it. If you allow pastor to NOT substantiate, it becomes taxable income to pastor.

Finance for Veteran & New Leadership & s s t n fi o i e s n n e e B P h t l a e H

Finance for Veteran & New Leadership PENSIONS & HEALTH BENEFITS TREASURY OFFICE will bill you for: CRSP-DB & CRSP-DC (pension) and CPP. Active Health Plan insurance (church pays minister’s premium; church withholds pastor contribution, spouse or family premium if pastor requests). Colonial Life (pastor, spouse, and/or family insurance), if any, withheld from salary. Flex Account (Medical or Dependent Care) if any, withheld from pay. Billed to pastor unless requested to bill to church. Wespath/GBOPHB will bill you for: UMPIP – minister’s own pension contribution, withheld from salary.

Finance for Veteran & New Leadership PENSION NAMES & TYPES The Clergy Retirement Security Program (CRSP) consists of two components: A defined benefit (CRSP-DB) plan—provides a monthly benefit at retirement based upon years of credited service to the Church (like an annuity). A defined contribution (CRSP-DC) plan—provides a cash retirement account balance funded by UMPIP and Church matching contributions. Funding payments to CRSP are the responsibility of the church.

Finance for Veteran & New Leadership PENSION NAMES & TYPES United Methodist Personal Investment Plan UMPIP (Pastor’s personal pension contribution). Contribution may be before-tax or after-tax. Contribution must be withheld from pastor’s paycheck and paid by the church. Wespath/GBOPHB will bill the church for this. MUST BE PAID – this was withheld from pastor’s check and must be paid into pension plan. Failure to pay is illegal. UMPIP (for less than ½ time pastors). These pastors cannot participate in CRSP, so their pension contribution is to UMPIP. Funding it is church’s responsibility. REMIT DIRECTLY TO WESPATH any match the local church votes to do.

Finance for Veteran & New Leadership HEALTH BENEFITS TREASURY OFFICE will bill you for: Church part of Health Benefits for Full time and ¾ Time pastors. Billing is based on appointed position, NOT PERSON. If clergy person opts to not be carried by Conference plan, the church is STILL BILLED in order to foster the connectional nature of our Benefit Plan Three Health Plans: Plan 6000 (Higher Co Pays, Higher Deductible, lowest cost) Plan 4000 (Lower Co Pays, Lower Deductible, Clergy must pay difference between plans) Plan HSA (High Deductible but HSA goes with Clergy for life) Church pays SAME cost for each plan less Clergy contribution based on Salary.

Finance for Veteran & New Leadership JUST REMEMBER There WILL BE billing errors from our office: Inaccurate salary information Wrong status for pastor Wrong start dates Churches with same name Keying errors Just a mistake If you find a mistake, or think there is one, just give Treasury Services a call. GRACE ABOUNDS!

Finance for Veteran & New Leadership T N E M N O I T R O P P A S

Finance for Veteran & New Leadership PLACE OF YEAR END REPORTS Apportionments are based on information in the Year End Report– All comes from Tables II. Discipline says the Minister is responsible. Goes back to the days of John Wesley! BUT Knowledgeable lay persons should assist! Separate login and p/w provided for pastor and one other church leader Available online- ezra.gcfa.org Information is reported on calendar year. All church operating expenses should be included in Table II (some will be excluded later). Tables I & III DO NOT affect apportionments.

Finance for Veteran & New Leadership APPORTIONMENT CALCULATION Apportionments are simply the conference budget divided up (apportioned) among the churches of the annual conference. Idea is that every church shares in the Conference budget. Big churches pay more than small churches. Wealthier churches pay more than poorer churches. Your pastor(s) and your lay delegate(s) vote on this every year at Annual Conference. Expenditures matter, not income. No one’s coming after your bank account!

Finance for Veteran & New Leadership APPORTIONMENT CALCULATION Total 2022 WNC Conference and General Church Apportionment Budget: 14,815,327 Conference average net expenditures of 2018, 2019, 2020 186,937,465 Multiplier: 0.0792526421000000 2022 Apportionments consume 8% of local church expenses. Adding Districts adds 1%.

Finance for Veteran & New Leadership What are “Average Expenditures?” Apportionments Paid Appointed Clergy Benefits Paid Appointed Clergy Compensation Staff Compensation / Benefits Program Expenses Operating Expenses

Finance for Veteran & New Leadership What are NOT Included? Missions, Advances, Special Sundays Principal and Interest payments on Debt Capital Improvements

Finance for Veteran & New Leadership Paying Apportionments After Annual Conference approves the impending year budget, we will calculate and post the apportioned allocations on the church dashboard. Monthly payments are the single best way to stay caught up. Many churches pay on the 10-month plan. That lets you skip July or August and be paid up in November! OR pay through October and be done! Please remit “special offerings” at least quarterly – the agencies need the funds for ministry!

Finance for Veteran & New Leadership S E X TA

Finance for Veteran & New Leadership Tax Issues Churches May Encounter United Methodist Churches come under the UMC 501c3 classification as a tax-exempt entity. This means churches do not pay “income tax” on their income. It does NOT mean churches are wholly tax exempt. Examples of Taxes to be paid Payroll Taxes (FICA for non clergy staff) Income Tax Withholding (clergy election & non clergy required) Income Tax on Unrelated Business Income Sales Tax Property Tax on properties not considered used for “exempt purposes.”

Finance for Veteran & New Leadership Tax Churches Do NOT Pay Unemployment Tax – both Federal and State Income tax on contributions and other related revenue. Social Security Tax on Clergy (employer matching nor clergy person withholding). Clergy may elect voluntary withholding whereby they give the church an amount to withhold each check and the church remits to the IRS and NCDOR. This may include what the clergy will pay in Social Security, but it is not considered “Social Security” on the church’s part. A clergy income tax return (1040) will reconcile what a clergy person pay for SS and what was withheld

Finance for Veteran & New Leadership S T I D U A

Finance for Veteran & New Leadership Local Church Audit “An independent evaluation of the financial reports and records and internal controls of the local church by a qualified person or persons for purpose of reasonably verifying the reliability of financial reporting, determining whether assets are being safeguarded, and whether the law, the Discipline and other policies are being complied with.” From “The Local Church Audit Guide For United Methodist Congregations”, page 5

Finance for Veteran & New Leadership Local Church Audit Independence means person doing the audit should not be subject to control by or related to the person in charge of financial records. Neither the pastor nor the persons who handle church funds should conduct the audit. Recommend an outside professional, if the church has annual receipts in excess of 300,000. Small churches can do lesser versions of audit; does not require a CPA firm. Free audit guide on our website with instructions for small churches. Small churches can trade off with a neighboring church. Audit Committee should be no less than 2 and no more than 5.

Finance for Veteran & New Leadership e R s e c r u so

Finance for Veteran & New Leadership WNC Website: WNCCUMC.ORG

Finance for Veteran & New Leadership Resources Treasury Services Office 704-535-2260 R. Mark King, Treasurer [email protected] Dale Bryant, Pensions & Benefits [email protected] Carolyn Hindel, Controller [email protected] Gloria Hernandez, Receipts (Apportionments) [email protected]

Finance for Veteran & New Leadership Resources Websites: www.cokesbury.com (Guidelines for Local Congregations: Finance, other official handbooks and forms) 1-800-672-1789 www.sgaumc.org (local church audit guide, Budget At A Glance, lots of info on Administrative Services page) www.umc.org/gcfa (great tax packet, 501.c.3 ruling forms) www.wespath.org (our General Board; information on pensions) www.umcgiving.org (great place to find out info on UMC missions, what your apportionments fund, etc.

Finance for Veteran & New Leadership R U O Y R O F T U S I O R Y H K C N O A T H H T C E R C I U V H R C E S E H T D N A