Online Audit Form

2018 Audit Form

  • You will receive an email with your responses upon completion of the audit form.
  • This is important if you are paying your audit committee. Make sure everyone understands the expectations. The engagement letter helps clarify the responsibility of the audit committee and vestry.
  • Reading prior year’s internal controls questionnaire will help the audit committee to know how the vestry and treasurer handle the daily operations and their various responsibilities.
  • Reading prior year’s audit recommendations will help the audit committee to know what types of issues that were a problem previously and what to look for in the current audit. It might be helpful to read the recommendations out loud together at the beginning of the audit and to talk with the treasurer and/or priest about the changes made in the prior year.
  • If the prior year’s recommendations were not implemented, that needs to be noted. It also needs to be noted in the audit findings report if prior year information (or any information for the audit) was not available.
  • The church should have a listing of all accounts. This should include discretionary funds and any funds held by other organizations within the church. The vestry has fiduciary responsibility for all funds and so should have access to information about all accounts pertaining to the church, with careful consideration regarding the sensitivity of discretionary funds
  • Note date on next line if there is a manual. Look at the accounting manual. If the date is not within a year or two, it should be reviewed. If there is no manual, encourage the vestry to adopt the accounting manual drafted by the diocesan Finance Department and Diocesan Council. It is available from the diocesan website, www.diomontana.com under the “For Parishes” and “Parish Administration” button.
  • Double entry bookkeeping affects cash and income or expenses. Using the computer meets this requirement. An example is: if pledge funds come in, it would increase the cash and it would go to income as pledge income. Or, if an insurance bill is paid, cash is decreased and the expense shows as insurance expense. If the congregation does not have its financial information on the computer, it is recommended they do so and this requirement will be met.
  • Review to see that all minutes are available. If there are minutes missing, ask where they are, and note in the audit recommendations which minutes you did not get to see. Please note if the minutes are not signed in the next question.
  • It is important to read all Vestry Minutes before beginning the audit. This helps the audit committee to understand what the vestry has done in terms of approving financial transactions or debt or any other decisions they’ve made.
  • The vestry needs to see the auditor’s findings each year. The minutes should record the fact that the vestry has received the audit.
  • Read minutes to see if this has happened
  • Vestry is responsible to approve the budget. This should be noted in their minutes.
  • The vestry should receive a report at each meeting that compares budget to actual income and expense (Income Statement) as well as a Balance Sheet. The treasurer should explain any differences and they should be noted in the minutes.
  • If the budget needs to change throughout the year, the vestry should approve and note the change(s) in their minutes.
  • The vestry should look at the budget at least quarterly. This might be done in the context of looking at the financial statements. They may determine during the course of that discussion that they need to make a change to the budget.
  • At least quarterly, the vestry should see reports for all investment funds at current market value and values of other restricted funds. That should be noted in the minutes too.
  • If there is purchase or disposal of any equipment, the vestry must approve it and it should be noted in the minutes.
  • It would be a good idea for the vestry and treasurer to meet with the investment broker at least annually. The vestry’s involvement with the investments should be noted in the Vestry Minutes
  • If there are loans or leases or any kind of debt, it should be noted in the minutes.
  • The vestry should approve any type of debt and note it in their minutes. If they have debt but it was taken on in a prior year, it does not need to be in the minutes each year – just for the year the debt began.
  • The Bishop and Diocesan Standing Committee are also required to approve church debt, and their approval should be noted in the minutes. It would be helpful to have a copy of a letter on file from them authorizing debt. If there is no new debt in the year being audited, you do not need to address this but note in the audit findings letter that there is no new debt this year
  • If there are endowments or restricted gifts, they should be noted in the Vestry Minutes.
  • The following housing resolution should be noted in the Vestry Minutes prior to paying the cleric: Resolution: The Vestry of CHURCH on DATE, after discussing the amount to be paid to the Rev. NAME as a parsonage allowance, on motion duly made and seconded, adopted the following resolution: Whereas the Rev. NAME is employed as a minister of the Gospel of (CHURCH NAME AND CITY), Episcopal Diocese of Montana, which does not provide a residence for HER OR HIM, the vestry resolves that of the total compensation of (AMOUNT), to be paid to the Rev NAME in YEAR (OR BEGINNING DATE AND YEAR) that (AMOUNT) be designated as a parsonage allowance within the meaning of that term as used in Section 107 of the Internal Revenue Code of 1986. If this is not done for the year audited and there have been changes in compensation or housing, note in the audit findings letter that this resolution must be done prior to paying the cleric.
  • If the pledge amount is significantly less, the vestry should discuss the fact that pledges are down and what they might do to encourage people to fulfill their pledges. They may need to adjust the budget as well, depending on the circumstances.
  • No groups other than the vestry should hold bank accounts. The vestry has responsibility for all accounts and must have access to all information. Sometimes, it is a huge battle to get the funds turned over. If the groups refuse to do so, they must at least provide minutes and bank statements to the vestry for their review. The vestry should note in their minutes they have reviewed the activities for these groups. The audit committee should recommend all funds be turned over to the vestry.
  • Note - if there are no cash counting sheets, this should be an audit committee recommendation. Look at the cash counting sheets and compare them to the deposit slip for the week. Compare a sample, at least one from each month. If there are discrepancies, ask about them.
  • Look at the cash counting sheets. Select a few from each month to see if the cash is being counted by people who are not related to each other. Cash should be counted by two unrelated people each week.
  • Look at the cash counting sheets to see if the people counting are different each week. It should not be the same people counting together every week.
  • If the church uses pledge envelopes or offering envelopes, compare a few to the cash counting sheets and deposit slips. Note, if the pledge envelopes are not filled out, by the donor, the treasurer does not need to keep them, so they might not be available to review. In this case (or if envelopes are not used) compare the records the church has for the individual donor with the cash counting sheets and deposit slips to follow the trail of the money.
  • Look at deposit slips to see if all cash that came in was deposited weekly. Review at least one week per month.
  • Since most banks don’t return checks, look at the stamp for endorsing checks to make sure it says, “For Deposit only.”
  • All cash should be deposited into the general operating account other than money that is in and out (discretionary fund, Episcopal Relief & Development (ERD), Camp Marshall, United Thank Offering (UTO) etc. List other accounts below if applicable.
  • Ask to see a sample of the thank you letters to donors from the audit year. Donations of over $250 should have the IRS language that states “No goods or services were provided in exchange for your contributions, other than intangible religious benefits.” If you didn't see a sample of the letters or the language is not included, note that as a recommendation in the audit findings letter.
  • Checks should be pre numbered and used in sequence. This makes it easier to keep track of checks.
  • If checks are voided, they should have VOID written across them and should be kept with the check register or bank statement, or on file. The audit committee needs to be able to see them. Look at the register for voided checks. Look for the original voided check.
  • Checks should not be written to cash other than to replenish petty cash. They should be written to a specific person or company.
  • Look at the paid bills to make sure this is being done. If it is not done, note it in your recommendations list. All invoices should be marked “Paid” with the date and check number.
  • Look at a sample of the checks (a few from each month – especially large amounts or unusual payees). Are they signed by the authorized signers? You’ll most likely have to look at the copies on the bank statement since most banks don’t return checks. Compare signatures with those listed in the Vestry Minutes as signers or with information from the bank.
  • Look to see if there are two signatures on checks. Checks over $500 should have two signatures. If they don’t, recommend the church change their policy (or adopt a policy if they don’t have one).
  • Look at the register to see if there are checks written to “Cash.” If there are, look for the paid bills and see if there is a petty cash sheet or detail of what this might be for.
  • If the church uses a debit card, there should be receipts to accompany the debit card transaction receipt.
  • Is there an expense approval form or initials on the bill (of someone other than the treasurer) stating that it is OK to pay? What is their policy? Some churches allow for regular, recurring bills to just be paid each month. Find out how they handle it and look to see if they are following their policy. Look at unusual checks (large amounts or unfamiliar payees).
  • Look at the registers and a sample of the checks from the bank statement to see that the amounts and payees match.
  • Look at the registers for each month. Are checks for assessment payments to the Diocese written before the 10th of each month? The 10th is the due date and the checks should be mailed in time to arrive at the diocesan office by that date. Also, look at the assessment report from the diocese that shows when checks are deposited. That will also give you an idea about whether or not the payments were sent on time.
  • If the church does not have a credit card you can ignore the next few questions. Otherwise, list the names of the cardholders and the limits on the cards.
  • Look at the credit card statements. Look at the registers to see if it is paid in full each month
  • Are receipts attached for each transaction on the credit card statement? Look at statements for each month. Is it noted on the receipts which line item the expense belongs to? The expense item should be noted on the receipt. If there are missing receipts note the missing receipts and the cardholder’s name on the audit form. If receipts are not received within 60 days of the charge, it becomes a taxable benefit to the employee (since it becomes a non-accountable plan). The missing receipts should be noted on the employees W2 as a taxable fringe benefit. See the debt policy on the diocesan website for further information. Note any discrepancies here and in the audit findings letter.
  • Journal entries are used to bring investments to market value, correct errors, or enter service charges and interest. If there are journal entries, they should be approved by someone other than the treasurer.
  • If you see journal entries, look to see if there is information to back it up. For instance, look at the investment statement or bank statements to see if the amount on the journal entry matches the interest or dividends reported.
  • Journal entries should be approved by someone other than the treasurer. This can be done through the Vestry Minutes or using the expense approval form or initialing back up information showing it is approved. As long as it is approved by someone else, that is the main issue. Find out what their policy is, and check to see if they are following it.
  • Look at bank statements. Check to see that they are in the name of the church. All accounts must be in the name of the church, using the church's tax id number. They must not be in the name of an individual - using that person's social security number. If that is the case for any of the accounts, it needs to be noted in the audit findings letter.
  • Look at a sample of the bank statements (including discretionary fund accounts). Have they been reconciled? Are all of the checks in the register either cleared or showing as outstanding on the bank statement? Are all of the deposits in the register entered in the checkbook or showing as a Deposit in transit on the bank statement? All accounts are required to be reconciled and audited. If you are not able to review all accounts or they are not reconciled-note that in the audit findings letter.
  • Look at a sample of discretionary fund checks. Discretionary funds are to be used for “pious and charitable uses as determined by the rector or priest in charge.” (Canon III.9.5 (6)). If there are a lot of checks for items that seem to be more operating expenses (altar linens, books, flowers), ask about these expenses. There should be an explanation with them. Discretionary fund checks should not be written by the priest to the priest for reimbursement. NOTE: it is important to be discrete when reviewing all of the church's accounts, but especially discretionary funds.
  • If there are other accounts, ECW, guilds, etc. Look at their bank statements and read their minutes. And, recommend all accounts be maintained by the treasurer.
  • Look at the investment reports and bank statements to see if there are transfers between them.
  • Look to see if you can see where the funds were transferred from one church account to another church account. If you are not able to see the transfers to and from both accounts note below.
  • Look at the bank statements to see if there are debit or credit memos for NSF (Not Sufficient Funds) checks, bank errors or other errors.
  • Look at the check registers to see that they are updated to reflect the bank debit or credit memos.
  • Select one or two random checks and look at a bank statement 90 days later to see if they are outstanding 3 months after being written. For instance, choose one or two checks in January. Look in the March statement to see if they are still outstanding etc.
  • Select random checks and see if they are outstanding six months after date written.
  • If there are checks outstanding more than 180 days they should have been voided and reissued before the end of the year
  • This is an easy way to check on the status of the checks. Choose a check from December 2018 that hasn't cleared. Look at the January 2019 statement. If it has cleared you are done but if not, look into the next two months and see when it clears the bank.
  • You will need to look at December 2017 to see if as cleared in January 2018. And look into the next two months if necessary to see when it cleared.
  • Find the bank interest and service charges if applicable on the bank statements. Look at the register to see if they are recorded. If not, make a note in the recommendations letter that these charges need to be recorded.
  • Look at the investment reports to see that they are in the name of the church. All investments should also be in the name of the church using the church's tax ID number. They should not be in the name of an individual using a social security number. Again, if this is the case, note a recommendation in the audit findings letter that the church have all of their accounts in the name of the church, using the church's tax ID number.
  • If the church does not have investments, check none. If the church has investments, look at the dividends and interest and check the registers to see that they are updated. This also may be done in the form of a journal entry.
  • Look at the value listed on the investment report for January. Look at the balance sheet to see that is the beginning balance. The amounts should match. If the church has no investments, leave this blank.
  • Look at the market value on the December investment statement. Look at the balance sheet for the end of the year. The amounts should match. If the church has no investments, leave this blank.
  • Check to see if they match. If they don’t match, ask some questions and find out why they don’t match. And, note in the recommendations section on the audit findings letter that the investments need to be shown on the financial statements at market value
  • Look for withdrawals or transfers on the investment statements.
  • Check the bank statements to see that the money was deposited into a church account.
  • Look at the investment reports and compare to the quarterly statements. All accounts should be listed on the financial statements at market value.
  • If there are endowments, the audit committee should review the information to find out about any restrictions. If there are none, just check "None."
  • Review the information to see what the requirements are for drawing funds and check on whether or not they are following the requirements.
  • Look at the property and equipment list. Does it show: date acquired detailed description of the equipment, quantity, cost/unit, total cost, size, serial number, cost or fair market value at the time of the donation, and funding source restrictions?
  • Walk through the church and randomly check a few of the items on the list to make sure they are there. If there is no inventory list or you were not able to find items, note in the recommendations letter.
  • Look at the deeds for land and buildings. The deeds for some churches are held by the diocese. If the church does not have their deed, check with Barb Hagen, Canon for Finance & Administration 800-247-1391, ext. 102 to see if it is held by the diocese.
  • Look at the assessment report from the diocese. Does the amount on the report match the amount listed under assessment expense on the Income Statement? Contact Barb Hagen, if this report is not available at the church.
  • Look at the income and expenses for the parochial report. Do they match income and expenses on the year end Income Statements? There might be issues with this due to some of the software used by churches. If there is a difference, find out why and note it in the audit findings letter.
  • Look at the Balance Sheet to see if land and buildings are shown. If the historical value is not available, show the value as the insured value from the insurance company. It should be available with the insurance information.
  • Look at the Balance Sheet to see if there are reserve funds set aside for building maintenance or major repairs. This is not a requirement, but is a good idea since many of our buildings are old and need extra maintenance
  • Look at the pledge cards (or donor records). Test 10% of the pledges. Note the number of pledges tested on this line. To preserve confidentiality, the church may assign a number to each person who pledges and then you can check all of the pledges for a certain number rather than individual names. How this is tested depends on how the church handles the pledges. a. Look at the pledge cards and see what has been recorded on it in terms of donations. b. If the treasurer keeps a weekly tally of funds that come in on the pledge card or electronically, you can compare it with the deposit slips (if they list the names on the deposit slip and not the check number). c. If the treasurer just has a total pledge for the year it is harder to pull out the information. Look at the deposit slips and see if you can pull the names out and total that way to check the pledges. d. If the treasurer does not keep track of this in a way that you can review it, note it in the audit findings letter.
  • Compare a sample of pledge cards (or donor records) with donor giving records or deposit slips. This provides a double check that what was reported to the donor was deposited into the church accounts. If no pledge cards used or available to test, note in the audit findings letter.
  • Compare the budget amount with the actual amount of pledges received. If there is a large discrepancy find out why.
  • Look at information about wills or life insurance policies and endowments, annuities etc. Find out what the restrictions are, if any.
  • The personnel file should include: letter of call (for clergy) or contract for lay employees, I9 Form, W4 form (or form from payroll company) and proof of new hire reporting to the State of Montana.
  • A letter of call for clergy and contact for employment for lay employees should be in th personel files.
  • Is there information about pay rates and effective dates on file? This information might also be noted in the Vestry Minutes or in the budget.
  • Each employee should have a signed W4 (including clergy) or form from Episcopal Payroll Services ADP or another professional payroll processing company. Even though the church is not required to withhold taxes from clergy, we need a form to obtain their social security number and they may elect federal or state withholding and they could do so on this form.
  • Each employee should have a signed and verified I9 form (including clergy) to verify eligiblity for employment.
  • The State of Montana requires all new hires (including clergy) be reported to the state within 20 days of hire. The treasurer should be able to show you copies of the forms or to tell you when they were sent in if he/she has not kept copies of the report forms. If the new hire information is reported by calling it in, it should be noted somewhere on file. If this has not been done, someone from the church should contact the New Hire Reporting Program through the Department of Revenue by calling 444-9290 to obtain necessary information for reporting.
  • This probably won’t be done for clergy, since they are generally salaried. Anyone else who works on an hourly basis should have a written record of hours and an approval noted.
  • Payroll records should show gross pay, deductions, and net pay. A quarter to date, and year to date column of information is also helpful. If the church uses ADP through Episcopal Payroll Services or another professional payroll processing company, there will be payroll records and copies of all reports from ADP or the company the church uses. If there are a number of payroll errors, the audit committee might recommend the church have the payroll processed professionally. To order a packet from Episcopal Payroll services, contact Patricia Tucker at 800-223-6602 extension 6286 or email [email protected] Or, contact Barb Hagen, 800-247-1391 ext. 102 or [email protected] . The diocesan office uses Paychex and have negotiated a rate for our churches.
  • Compare the totals on the W2s with the salary expenses on the Income Statement. They should match.
  • Add the amounts on the quarterly 941 forms. The totals should equal the totals on the W3 form. If you have no lay employees and do not withhold federal or state taxes from your clergy, your church might not be required to fill out the 941 form.
  • Clergy who serve your church regularly (not supply clergy) are required to be issued a W2 form. Lay employees are also required to be issued a W2 form and the church is required to withhold federal, state and FICA tax for lay employees.
    Look at the W2 forms. If the church provides life insurance for the priest or lay person, they will likely have imputed income because the Church Pension Fund also provides a policy. The IRS requires that anytime the employer pays for more than $50,000 of life insurance the benefit must be added to the salary on the W2 and reported in box 12 with the letter C. The Canon for Finance & Administration sends this amount to treasurers and clergy in December for their reporting on the W2. If the priest or lay person has funds sent to a 403(b) pre-tax, the amount that was withheld needs to be subtracted from the income amount in Box 1 and reported in Box 12 with the letter E. If the church contributes funds to a health savings account, the amount needs to go in box 12 letter W. It is not added to the salary, but is reported in Box 12 as information. Moving costs paid to the employee also need to be added in Box 12 – Code P.
  • Look at the dates on the reports. This form is due: April 30 (for period January-March), July 31 (for April-June), October 31 (for July-September) and January 31 for (October-December).
  • Look at the date on the tax deposit form. Taxes are due on the Wednesday or Friday following the pay date if the liability is large. Most of our churches do not fall within this category. Churches may pay their taxes quarterly if their tax liability for the quarter is less than $2500. A check would be included with the filing of Form 941. The IRS will let you know when your reporting/payment schedule is.
  • Look at the state quarterly unemployment reports. Do the salaries totals match the 941 (excluding clergy)? Clergy are excluded from unemployment insurance and it should not be paid for them. Note: Churches are not required to pay Federal Unemployment Tax (FUTA) for any employees -including lay employees.
  • Clergy are included here – salary and housing should be reported. Year runs July 1- June 30 for worker’s compensation insurance. Check to see that employees hired during that time are on the report.
  • If there are contractors or anyone who is paid for their service, they must provide proof of their own worker’s compensation coverage or a copy of the Independent Contractor’s certificate that states worker’s compensation is waived. If they do not have these documents, they must be added to the church’s report. . If this is not done, and the person does not have worker's comp coverage and is injured, the church may be liable for the medical expenses. It is recommended to not pay the contractor’s bill until you receive all of these documents.
  • All contactors should provide an Independent Contractor certificate, and a W9 form. The IRS requires that backup withholding of 31% be withheld if the W9 form is not provided. The general recommendation is to not pay contractors until they provide the W9 form and the worker's comp information. If the contractor or person checks C Corp or S Corp, the treasurer will not need to issue a 1099 at the end of the year . But if the person or contractor checks anything else and the church pays $600 or more, they should be issued a 1099 form.
  • Look at the pension expense on the Income Statements. For clergy, it should equal 18% of salary and housing. For lay people in a defined benefit plan, it should be 9% of salary. Add together the clergy salary and housing. Multiply by .18. If that amount does not equal the pension, find out why. For lay people, multiply the salary by .09 and that amount should equal the expense on the Income Statement. Again, if it doesn’t match, check on it. It is very important to make sure pension is accurate, because the Church Pension Fund can only go back two years to make corrections without charging penalties and interest to the church. The pension expense for lay people may be less if they are in a defined contribution plan and the matching amount is less. If there are lay employees, check on the type of pension plan they are in.
  • The treasurer will tell you if there are contractors, individuals, or unincorporated entities that were paid for services. When you are looking through the check registers, look to see if you can find the names and check to see that they did receive 1099s. If the treasurer has said there were none, when you are looking through the register if you see checks written to a company or person for something that might be maintenance related or contract labor or others who were paid for services, double check to see if they should have received 1099s. If they have checked anything other than S corp or C Corp on the W9 form, the treasurer should have issued a 1099. If there is no W9 form, that needs to be a recommendation. The treasurer should always ask for a completed W9 form prior to paying anyone (and also ask for the proof of worker’s comp coverage). There is no way of knowing the status and reporting it correctly without the W9.
  • Cash and modified accrual are most common. If the church only reports actual income and expenses as they pay or receive them and does not have any receivables, they are using the cash basis and so you can check "none" for questions #16 b-g
  • Look to see if there are debts or any other unpaid bills. If there are, they should be listed on the balance sheet as a liability if the church uses accrual or modified accrual accounting.
  • If the church has loans, look at the information about the loans and check to see how much has been paid. This also should show as a liability on the balance sheet.
  • Look at the January check register. Were there checks written in January that were for December bills?
  • If so, they should show as a liability at the end of the year.
  • Are there items paid in December that are for expenses for the next year? For instance, insurance is paid in July. Part of that expense is for the next year since the insurance year runs July 1 – June 30. So, only half of the insurance expense is for the current year and the other half is a pre-paid expense. If the church uses accrual accounting, they would show the prepaid expenses under assets on the Balance Sheet.
  • Look at the pre-paid line item to see what was paid.
  • Look at the copies of the insurance information. It should be up to date for the year being audited.
  • The worker’s compensation coverage poster is sent to each congregation every July. It should be posted each year.
  • The unemployment poster (if there are lay employees) should be posted as well. If the church does not have lay employees, you don't need to worry about this.
  • The OSHA poster that lists minimum wage and other employment issues should be posted. If the church does not have this poster, the treasurer can contact the job service in your area and ask for the employment poster. They will give you one free of charge. Don’t buy the one from the mail solicitation! If no lay employees, don't need to worry about this one either.
  • Look at the by-laws and articles of incorporation. They should be discussed periodically and updated as needed. If the dates are more than 5 years old and there is no mention in the Vestry Minutes of discussion about them, they should be reviewed.
  • Look at the annual incorporation report filed with the state to make sure it was filed at the beginning of the year. If the report was not filed, it needs to be filed immediately. If they have trouble, please be in touch with Barb Hagen regarding filing the report. Filing this report keeps the corporation in good standing with the state and protects the vestry.
  • The vestry letter is the final step in the audit process. It states that the vestry has provided the audit team with all of the necessary information and acknowledges their compliance with requests for information. The auditors just need to remind them to write this letter (see the vestry letter on the audit forms page).
  • It is important to celebrate what is going well! List everything that the church is doing well in terms of their financial work. These comments are also included in the audit findings letter so you can just list them there instead.