Management overriding controls

by Phil Cllins
(Houston, Tx)

I work part time as the bookkeeper for a church reporting to the senior pastor. I am a retired accountant having spent 38 years in aerospace accounting, the last 25 years with Lockheed Corporation at the corporate level. Please bear with me while I provide the needed background / contextual information for my question.

The church uses QuickBooks and fund accounting with approximately 35 funds on the balance sheet. The church has two bank accounts, operating and designated. Undesignated contributions are deposited in the operating bank account, designated contributions to the designated bank account.

ALL monies received are counted by volunteer 'teller counters' on Sundays and recorded on either the operating count sheet or the designated count sheet. The tellers deposit all cash on Sunday at the bank night depository box. The endorsement stamp is placed by the tellers on all checks, a stamp for operating and a stamp for designated. The checks remain in the church and are copied on Monday morning and deposited. I enter the data from the teller's count worksheets into a similar Excel worksheet to verify the math / totals of the teller worksheets and to facilitate the grouping/identification/posting to the appropriate QB accounts.

From time to time a donor will write a check indicating on the check but sometimes with a sticky note attached to the check that $ are for operating and $ are for designated. This creates an immediate problem for the teller counters in not knowing on which count sheet to record the check, operating or designated. Either choice will not be correct.

Once I get the checks, I can't split up, i.e. between operating and designated accounts, the check including funds for both operating and designated. So the check is deposited in either the operating or the designated and a transfer is made online between the bank accounts in order to have the check amount in the correct account. The transactions (all recorded in the AJE folder) needed to complete the correction are 3: (1) transfer between online bank accounts; (2)QB: record transfer between bank accounts; (3) AJE to record the distribution of the transfer and this can only be done if I am given reliable information to do so.

Closer to my question. The senior pastor has clearly indicated that if she is approached by a member who is wanting to write a check and then decides to add an amount for a memorial, the pastor will not ask the member to write separate checks but will tell the donor that "we her staff or 'me' will fix it." I openly disagreed with the pastor by her remarks, by throwing the fix back to me and increasing my workload by unnecessary 'fix it' steps.

Furthermore, I told the senior pastor making regular transfers between cash accounts will also raise red flags during an audit. My words did not impact her position at all. In my opinion she is deliberately managing overriding controls.

Answer
Wow Phil. I am not sure what to say. 35 funds??? You do have your hands full!

Okay, I can see both sides of this dilemma. I have constantly stated that churches and pastors need to make their accounting as simple as possible for their volunteers and staff. It is very hard to find anyone willing to take on the responsibility of taking care of the church’s finances, so if you find a good one you should do everything in your power to keep them.

However, I can see your pastor’s side too. It is very difficult to ask your donors to write out two or three different checks.

We have people do that all the time, but we only have one bank account and the distinction is all done in the recording. So I have no easy solution for you.

I do believe that if your donors realized how difficult they were making it on the church staff...most would gladly write out the separate checks. Maybe your pastor could make an announcement to that effect...you know...not make it a requirement but a request and then if some still wanted to put it on one check they could...but most would probably do as requested.

Does anyone have a suggestion for Phil?

Hope this helps,



Church Accounting Package

www.freechurchaccounting.com


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Comments for Management overriding controls

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QuickBooks for a Church
by: Vickey

Great answer, Phil!

Carla, if you would like to take Phil up on his generous offer. Contact me and I will forward your request on to Phil.

Phil, thank you for all the posting you do on this site. Your posts are always informative and very much appreciated!
Budgeting for Principal and Interest
by: Phil Collins

Sounds like your situation, i.e. budgeting for principal and interest, is very much like the budget I was given to monitor and report against (the budget was mostly prepared without my input) for 2010.

Our church has a monthly mortgage note and the 2010 budgeted monthly disbursement included both principal and interest ? this was not the way it should be done but I was not asked for my input even though I am the church bookkeeper with 38+ years in my profession.

Your QuickBooks is doing the correct entry by recording the principal as a liability. When a payment is made for an example $200 that includes interest of $175 and principal $25, the entry is debit to expense $175 (increases expense), debit to liability account $25 (decreases the liability) and credit to cash $200 (decreases cash.

This is what I have done to compensate our reporting in 2010 with the principal amount being in the budget but the actual principal payment being correctly recorded in the liability:
Total Expense 50,596.49
Net Income before mortgage payment 3,067.21

Principal payment on mortgage note 1,949.26

Net Income including mortgage payment 1,117.95

Because the budgeted principal portion of the payment is not being reduced in QuickBooks, (I export all the monthly financial reports to Excel where I can do some minor formatting) I add the last 3 lines (see above example) to the financial statement(s). This provides the financial report with the principal payment without overriding how QuickBooks records the payment.

I will be glad to discuss this further if this is not clear enough. You might contact Vickey on this website how we might could discuss this in more detail if so needed.
Restricted Accounts
by: Carla

I have been using Quicken 2009 and recently (June 2010) switched to QuickBooks Pro 2010 so we could do payroll ourselves. This is an accounting nightmare for me as church financial secretary because I do not have accounting education.

Our Budget was set up with expenses for principle and interest seperate. Now QuickBooks shows principle under "Liabilities" and we are wondering if we can still do as original budget was set up.

As far as your 1st comment on splitting checks for various accounts, do you use tithe envelopes? We have members use 1 check and use the tithe envelope to seperate tithe (General Fund), Faith Promise Missions, and then Other (Restricted Accounts). All money is deposited into the General Fund and then transferred to Mission, Restricted and Payroll accounts. The Restricted Account uses "classes" to seperate various restricted funds rather than individual checking accounts.

We do one General Account entry per deposit slip and have not been entering individual check numbers by members. Is that necessary?

We are still trying to work on various ways of doing reports to look as simple as Quicken's reports, but haven't mastered that yet.
Mgnt overriding controls
by: Anonymous

Get the software, Servant Keeper. It will keep the contributions and you can set up catagories for various payments, print the report and enter it in QB for financials. It also keeps up with membership. I am a financial secretary for a church and use this software.
Another Example Needing A Solution
by: Phil

This is about another example of management overriding accounting controls. The reason for sharing this example is not to build a stronger case about weaknesses of church management but rather to see if there are others who experience the same and may have some ideas to resolve the issue.

The starting point of this example is that the senior pastor basically prepared the 2010 annual budget herself, with some requested input from me the bookkeeper. In doing so, she combined both the interest and principle amounts of the debt service on the church mortgage as debt retirement expense. The budget was reviewed by the finance committee and approved by the church council. I was never asked to review the budget. Now in 2010 as payments are made to the mortgage company, I record the interest portion of the payment to the debt retirement expense (income statement) and the principal to the liability or note payable (balance sheet account). This recording is basic 101 accounting. However, the effect is going to be an underrun for the debt retirement expense because the principal was budgeted as an expense but will be posted to the note payable account. She is quite upset about this and the "false underrun condition" that will appear on the income statement. But she is experiencing the consequence of trying to doing an accountant's job when she is not an accountant. She is good with numbers and sharp in analysis but totally void of accounting theory which is needed whether the organization is a not-for-profit church or mega oil company. She now wants me to make some kind of entry each month to offset the underrun. I have told her it cannot be done and not violate generally accepted accounting principles at the same time. I told her I can add a note to the financial statements but it does not appear that will satisify her. She is determined not to show the undderrun. If the note/mortgage payable is not reduced each month, then the balance sheet will not be fairly presented. The drama continues.
Build healthy relationships without compromise
by: Phil

Thanks for your comments Pete. You have touched on a number of key areas and provided beneficial insight at the same time. Healthy relationships in these situations are important especially since most all individuals involved do not have the accounting knowledge/experience and need to be able to trust the bookkeeper/treasurer. I came into this position with a lot of “back work” to catch up which is not that unusual with the smaller organizations and particularly the not for profit types. I have been able to clean up the back work, and as you do, I provide timely and accurate reports to the finance committee. In fact, they are getting more ‘useful’ reports than before. I have gained the respect and I believe trust with the finance committee and 99% of the senior pastor. She commented to me that she sees more calmness, less anxiety among the staff and finance committee since I have come on board. I consider this is due not so much with me but establishing and following principles through the accounting process. She will defer to me unless it crosses with one of her set opinions. What puzzles me and I would like to ask the question (but it is not my role to do so), ‘how does she find time to prepare and fulfill her pastoral responsibilities while she is spending so much time micro-managing the office staff?” Even though I have worked over 40 years in accounting, I am still very much a self starter and will get the job done whether my manger is around or not. I thank you and concur with your suggestions. Phil
Treasuers Dilemma
by: Pete

As Treasurer of my church I have taken the necessary steps to form a close bond and respectful relationship with my pastor. Because I present the pastor and board with timely and accurate accounting information and am not afraid to speak my mind;I am able to convince my pastor of necessary changes which have some common sense about them. Most of the time he will defer to my expertise. First off 35 funds is rediculous unless your Joel Osteen's Church. Second if the church has a board of directors and they have spines perhaps bringing accounting problems before the board and asking for a vote on various provisions, overriding the pastor maybe in order if your relationship is already cool. Third if this is getting to be too much to bear consider getting additional help or resign, stating your reasons.

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