Internal Controls Form Page

2018 Internal Controls Questionnaire

  • You will receive an email with your responses upon completion of the internal controls questionnaire.
  • 2018 Audit

  • If the church does not have this document, download it from: www.diomontana.com. Click on “For Parishes” and “Parish Administration.” The manual has been updated and the 2012 manual is the most current.
  • The treasurer should read this manual. Preferably, the vestry should read it too, but as a minimum, the treasurer should read it.
  • It is important to have an accounting manual so everyone can understand proper procedures and expectations. A sample copy is on the diocesan website, www.diomontana.com for a template. Click on “For Parishes” and “Parish Administration.” It then needs to be adopted by the vestry as the church’s accounting manual. If you modify the manual, please send to Barb Hagen so the Finance Department can review your modifications.
  • The treasurer should read and be familiar with the accounting policies of the congregation.
  • The vestry is the only group authorized to spend church funds. Other groups with funds should turn them over to the treasurer and should not have separate bank accounts.
  • If there are groups that have funds and they are not willing to turn them over to the vestry, they should provide minutes and bank statements to the vestry, and those accounts need to be audited as well. And, it should be noted as a recommendation that they turn the funds over to the treasurer for vestry oversight.
  • The vestry should protect the cash. Ways to do so are: to make a weekly deposit, have two unrelated people counting the cash on a rotating basis; keep the cash in a locked place until the deposit is made; have different people performing different tasks.
  • The deposit should be made weekly. This is another way to protect the cash. Someone other than the treasurer should make the deposit if at all possible.
  • If the church adopts the diocesan accounting manual, this issue is taken care of.
  • This issue is also discussed in the diocesan accounting manual.
  • The treasurer should provide a report at each meeting that compares the budget with actual income to the vestry. If there are differences, they should be discussed and noted in the vestry minutes.
  • A sample form is available on the diocesan website if the church does not have one. Go to www.diomontana.com. Click on “For Parishes” and “Parish Administration.”
  • There should be two different people counting cash each week.
  • The person who makes the deposit should not be a cash counter. There should always be more than one person involved with handling the cash.
  • It can be helpful to use pledge envelopes for those who give cash, but not required.
  • Quarterly statements provide a way to remind people where they are with their pledges and it is another way to check for errors.
  • The church might not have these items, but if they do, they should be kept in a safe place where the information can be reviewed by the vestry and the audit committee.
  • There should be a file for them so they are in one place.
  • The vestry should ensure that any restrictions are being honored.
  • All expenses should be paid via check, credit card, debit card, or electronic payment. If the church has a credit card, all receipts must accompany the credit card statements. The receipts must also accompany debit card transactions.
  • If the church uses electronic payments the bill should be signed off by the same person(s) who signed off on the disbursement approval. The electronic payment confirmation showing the amount paid should be printed off and attached to the bill.
  • Someone other than the treasurer should approve the bills to be paid. This can be as simple as initials of the approving authority on the bill, or attaching a form to the bill stating who approved the expense and what it is for. If the church does not have a process, they should adopt one. See accounting manual. The person authorized to approve disbursements should be someone other than the treasurer.
  • The check signers should see all of the original invoices before signing checks.
  • This would be handled by adopting the diocesan accounting manual.
  • Also addressed in the diocesan accounting manual.
  • All checks should be made to a specific person or company. If the church has written a check to “Cash” to replenish petty cash, that should be noted and all receipts should be available.
  • If debit cards are used, a receipt for the expense needs to be attached to the debit card receipt.
  • Need to have written documentation for the debit card transaction.
  • It would be helpful to see the names of the check signers listed in the vestry minutes, but is not required.
  • If the names are not listed anywhere, you’ll need to ask the treasurer and look at bank information. It would be helpful to recommend they be listed in the vestry minutes for next year.
  • Checks should have two signatures - or at least checks over $500 should have two signatures.
  • If only one signature is required, ask who else sees the checks? How does the vestry protect the check signer and treasurer?
  • Journal entries often don’t affect cash, and may be used to bring the investments to market value or correct errors. They may also used to record service charges, bank fees, and interest. Journal entries should follow the same approval process as used for disbursements.
  • Bank accounts should be reconciled within 10 days of receipt by someone other than the treasurer. It would be best if someone from the vestry (who is not a check signer) reconciles the statements. At the very least, a vestry member should see the bank statement each month. The sooner statements are reconciled, the easier it is to handle errors.
  • At least one person besides the treasurer should review the bank statement. If the treasurer opens and reconciles the statement, someone from the vestry should review and initial it.
  • If there are other groups who hold funds, their bank statements should go to the vestry and they should also be reconciled within 10 days of receipt.
  • Checks that are outstanding more than 90 and 180 days should be investigated and reissued if necessary. The treasurer should contact the vendor or person to whom the check is written and ask if it has been received. A stop payment may need to be issued for the check.
  • The bank should be notified and it should be noted in the vestry minutes.
  • All accounts, including discretionary funds and those held by other groups should be included in the reports to the vestry. The vestry has fiduciary responsibility and is required to know where money is coming from and how it is being spent (other than the details of the discretionary funds). They should simply know the balance in the discretionary fund account.
  • Many churches don’t have petty cash. If they do, it should be a small amount (around $50-$100 or so).
  • Only one or two people should handle the petty cash. It shouldn’t be easily accessible
  • Petty cash should be replenished as needed and always at the end of the year to ensure expenses are properly recorded for that year. It should also be approved using the same disbursement procedure as for all other bills.
  • This is addressed by adopting an accounting manual.
  • Petty cash should be in a locked drawer or safe.
  • The church might not have investment fund but if they do, the audit committee will need to review the documents.
  • All investments should be handled by a professional manager. Copies of investment info should be available for review. Investment funds should be maintained with the investment broker and the church should have an investment policy statement.
  • The vestry must approve property and equipment purchases and disposals of equipment. It should be noted in their minutes.
  • There should be a detailed list of all property and equipment. If this is not available, Use the form from the Church Insurance to create a listing. Go to cpg.org, click on Forms & Publications - click on Property and Casualty Insurance, scroll down and you will see a 20 page document (adobe file) to print for the Parish Inventory Workbook. You can also find it on the diocesan website under the insurance section. A video inventory is also an easy way to handle the inventory process.
  • If there is a list, it should be reviewed periodically by someone on the vestry to ensure the items are still there and the list is up to date
  • The vestry should occasionally discuss ways to protect the cash and assets of the church.
  • The church might not have one, but it is a good idea, because it keeps documents safe and off premises.
  • If there is a safe deposit box, there should be an inventory of what is inside and the vestry should know who can sign and where the key is.
  • This should also be approved (and noted) by the vestry. Preferably, it should require two people to sign in to access the box.
  • All churches should be incorporated. This protects them in the event of a lawsuit. If the church is not incorporated, and there is a lawsuit, individual members’ assets may be in jeopardy. Not being incorporated may also affect the non-profit status with the IRS.
  • Permanent important files should be kept in a safe, a safe deposit box, or other fire proof place.
  • Articles of incorporation and by-laws should be up to date. There is an annual corporation report that is filed with the state at the beginning of the year. That should be done as well.
  • All vestry members, staff, and volunteers who work with children should attend the diocesan Safeguarding God’s Children training. This is required by the Church Insurance. If the church members have not had the training, and there is a lawsuit, the church may not be protected. Background checks are required for people who work with youth (and should be done every five years). We ask about this during the course of the audit because it is part of protecting the assets of the church.
  • The church might not have debt, but we need to ask each year as part of the process.
  • If there is debt, it must be approved by the vestry, Bishop and Diocesan Standing Committee. If the debt was incurred in a prior year, there probably won’t be anything in the vestry minutes for the year being audited.
  • If there are loan agreements, they must be kept in a safe place and be in writing.
  • If there is debt, the vestry should review the status of the debt periodically and see that all bills are paid on time.
  • These are items that you owe - bills that are unpaid or any loans or leases. All debt should be listed on the financial statements to the vestry.
  • The church might not have any of these. If there are gifts, there should be records that explain the details or restrictions of the gifts. Any restrictions should be listed.
  • The vestry should monitor restrictions and ensure compliance.
  • Investment income should be included in the financial statements given to the vestry quarterly and they should be aware of the investment performance. It would also be helpful to have the vestry meet with the investment manager at least annually.
  • The treasurer or designee should acknowledge these gifts.
  • The personnel file should at minimum contain the I-9 form, the W4 form (or payroll processing company form), and a letter of call for clergy and employment agreement for lay employees. You also need to have on file proof of notification to the State of Montana for the new hire for both clergy and lay employees.
  • Anyone who is paid by the church to perform work, and has equipment provided for him/her to perform the job (organ, cleaning supplies, lawn mower, etc.) and hours set by the church) is considered an employee for this question. They should all receive a W2. Typically, priest, secretary, bookkeeper, sexton, and organist fall under this category. See the Manual of Business Methods in Church Affairs or the IRS website, www.irs.gov for more detailed information about employees. When referring to clergy in these questions, it means the priest who serves the congregation regularly, not supply priests.
  • The IRS requires that if an employer provides more than $50,000 in life insurance, the benefit is reported on the W2 as taxable income. The Church Pension fund provides life insurance and if the church also provides life insurance, this benefit needs to be reported. The priest and treasurer will receive a report from the Canon for Finance & Administration from the Church Pension Fund that lists the amount of benefit to report. The amount is reported in Box 12 with a C next to it. It is also added to the salary in Box 1.
  • If the church makes contributions to a health savings account for a high deductible health plan, that amount is reported on the W2 in Box 12 with a code W. It is not added to the salary. The premiums paid for health insurance are not reported on the W2.
  • If so, the amount is subtracted from salary in box 1 and noted in Box 12 with a letter E.
  • If the travel is reimbursed (i.e. the priest submits actual mileage from church to visit location - hospital or parishioner's home for example within 60 days and is reimbursed up to the current IRS rate) the travel is not taxable income. Travel that would be considered taxable income would be flat rate travel and commuting miles. Some churches just pay a flat rate on a monthly basis. If that is the case, the travel needs to be added to the salary (but not included as part of the pension calculation). If the church owns a vehicle and the priest uses it for personal use, those personal miles also need to be reported on the W2. They are put in Box 14 and added to the salary. If miles from home to church are included in the travel reimbursement request, they are considered taxable income. None of the travel even if taxable income is used as part of the pension calculation.
  • If the church has paid anyone $600 or more for services provided, they must provide a 1099 form if the person/company checks anything other than S or C Corp on the W9 form. Anyone who is paid for services should provide proof of their own worker’s compensation coverage or exemption (regardless of the amount paid to them). If they don’t have the proof of worker’s compensation coverage, the church is responsible for adding them to its worker’s compensation report for the year.
  • Files should be backed up each time they are updated. This way if there is a problem, the most current information is available
  • Back up files should also be maintained in a fireproof safe or off premises.
  • Computer information should be protected and only those who need to know should have access to it.
  • It is a good idea to have passwords. Many churches have other groups using their buildings, and passwords help protect sensitive information. Passwords should be changed periodically to help keep information secure.
  • Paper copies of statements should be maintained in case there is a computer crash.
  • The vestry should discuss this issue and try to determine a plan. Where would they meet? How would they notify the parishioners? If there is a flood or fire or theft, how will the church continue to track financial information? If there are copies maintained off premises, and files are backed up, it will be much easier to continue to do the financial work of the church.
  • The church might use the cash basis (income and expenses are recorded as they come in) or accrual basis (income and expenses are recorded when incurred), or a modified accrural basis (a combination of the two). Any of these methods are acceptable.
  • If there are bills that are unpaid in December, that are for the current year expenses, they should be noted on the balance sheet as a liability, if the church uses the accrual or modified accrual basis of accounting.
  • If they are not listed as a liability, and the church uses the accrual or modified accrual method of accounting, they should be included on the balance sheet.
  • If the church is facing potential lawsuits, it is important to know that because it could affect the finances of the church. The audit committee does not need to know the particulars of the suit (and probably can’t know) but if there is potential for a large loss of money, it is important to have that information, and to note it in the report.
  • It is a good idea to set up reserve funds to plan for building maintenance and major repairs. A rule of thumb is to set aside 6% of the assessed value of the building, and then spend 3-4% of that amount on scheduled maintenance each year and the remainder would be set aside for long term maintenance. It is also a good idea to have the furnace etc. professionally inspected. That is another way to get an idea of how long equipment will last and so the congregation can plan for replacement of equipment.