Parish Administration and Accounting
BACKGROUND OF PARISH ADMINISTRATION
Introduction
Jesus spoke about his church in images. “I am the vine, you are the branches.” Consider, he said, the mustard seed, the wheat field, the catch of fish, the shepherd and the sheep. Modern scholars have developed several contemporary images or models to help us grasp what is the essence of Jesus’ Church. Jesuit Father Avery Dulles has summarized the work of theologians in this field in his book, Models of the Church. Contemporary theologians, as Dulles sees it, tend to analyze the Church according to five basis models. Since parish is an expression of Church, it is not difficult to relate each of these models to parish and make some practical applications for each.
Parish as Community
In this model of the Church a parish is a family or community of persons bound by inner ties of faith, grace and love. This concept often leads us to the Church as the Mystical Body of Christ or, more recently, the People of God.
Parish as Sacrament
This model views the Church as the visible sign (the sacrament) of Christ’s real but invisible presence in our midst. Someone focusing on this model may tend to describe the parish as a “series of sacred rites for Sundays and special occasions.”
Parish as Herald
This model looks upon the Church as a herald, as one who received and announces an official message: the good news of Jesus and the Bible. The mission of the Church, according to the herald model, is the proclamation of the Word of God to the whole world.
Parish as Servant
In this model, the Church is viewed as a servant, imitating the example of Jesus by serving, healing, reconciling, and binding up wounds.
Parish as Institution
This is the approach most people are familiar with. It stresses the visible, organizational side of the Church. It concentrates on the buildings we have built, paid for and point to with pride; it emphasizes rules, regulations, authority and obedience, the Pope, bishop, pastor, and priest. It cherishes a tradition of centuries dating back to the days of the apostles. A high regard is held for a precisely determined way of worship and formula of belief and moral code.
PURPOSE OF THIS MANUAL
The Parish Administration Manual is designed to serve as a general reference guide to pastors and parish administrators responsible for managing the financial and business affairs of the parish. Another important function is to instruct on uniform, standardized procedures that enable parishes and the diocese to comply with numerous federal and state regulations, reporting requirements and canon law. It is necessary to maintain periodic revisions of sections of the manual as changes and updates are published.
While approaching parish administration from a “business model” perspective, we have attempted to point out the unique characteristics of church administration. There are considerable differences in administrative practices between not-for-profit organizations and conventional profit-based enterprises. Those differences are manifested in the reporting requirements for parish employment tax reporting, the annual parish financial statement presentation, benefits administration, corporate taxation (from which parishes are exempt), asset depletion treatment, fiduciary controls, etc.
STEWARDSHIP
Stewardship calls for us to recognize and use the gifts given to us by God for the betterment of his kingdom on Earth. Our talent is a gift from God intended to be shared with others.
Accountability is a central obligation of stewardship. Each of us is ultimately accountable to God for our actions here on Earth. Administration is a form of ministry bound by fiduciary responsibility and accountability for sound recordkeeping, proper financial reporting, and diligent management of assets. The Parish Administration Manual is intended to assist us in properly performing our duties.
Inasmuch as each of us shares in the responsibilities of stewardship, the contents of this manual serve as instruction. As such, this instruction is construed to be the directives of the Diocesan Bishop that all are bound to obey as prescribed by the Code of Canon Law.
Parish Budgeting
What is a Budget and why do I need one?
Budgets are financial plans. They are designed to help an organization achieve specific goals. An organization must identify and prioritize its goals as the first step in the Budget process.
We are called upon to be good stewards of Parish Resources. Those resources are limited and must be allocated to meet the increasing demands on the Parish. Budgeting helps to fulfill fiduciary responsibilities and accomplish the important goals of the Parish, within the constraints of available resources.
The Bishop has directed all parishes to prepare an annual operating budget and to submit a copy with the Parish Annual Financial Report.
Planning the Budget
While a budget is a “forward thinking” plan, planning a budget requires researching past financial performance. A good starting point is to chart three to five years worth of comparative financial statements. Organizing your data by General Ledger account number allows easy comparison of year to year changes in revenues and expenses. This format helps to spot trends and forecast financial performance. Example:
OFFICE EXPENSE- Schedule H
Evaluate the Financial Environment
The information compiled in the exercise described above will help Parish Leadership to evaluate both past performance as well as current and future needs. Leadership will establish goals to be achieved within a pre-determined amount of time. Based on the resources available, and those that can be reasonably anticipated, parish leaders will prioritize those goals. The team should consider the following and how these areas will impact the Budget:
The Needs of the Parish
Diocesan Priorities
Inflation
Taxation
Social and Theological Issues
Interest Rates
Banking
Economics
Communications
Technology
Law
Forecasting
Forecasting is the process of making predictions (informed judgments, educated guesses). You can begin the process by asking the questions, “What is going to happen in the coming year? What will conditions be like three to five years from now? 10 years?”
In order to manage the volume of data, a team approach is useful. Working as a team towards a common Goal will lead to well-informed “educated guesses” that draw upon the strengths of a diverse group with special knowledge. This will help to increase the reliability of predictions.
During the Budget planning process the team may need to re-evaluate priorities. The team should examine relevant contingencies; mindful however, that information used to predict future trends is not perfect or complete.
Implementing the Budget
A team that develops a Budget, in an open environment that promotes input and consensus, is more likely to operate within Budget parameters. The team that has ownership of the Budget, and bears the responsibility for it, will be more effective in gaining support for the Budget. People work harder for causes they believe in, particularly when they have participated in setting the agenda. The more people involved in planning the Budget, the greater the commitment and the more effective the implementation.
The Budget can be integrated with the accounting system to allow tracking and comparison between actual operating results and the Budget. A Variance Report shows the “Actual vs. Budget” results for every revenue and expense account. A Variance amount can be expressed as the difference between Actual vs. Budget in dollars and/or percentages.
Using the Budget
A Variance Report should be generated along with monthly financial statements. Managers of functional areas should be provided with the relevant part of the Variance Report to track their progress. The Pastor and Business Manager should review and evaluate the entire monthly report. The Finance Committee and Trustees should review the Budget at their regular meetings. A special meeting should be convened if a crisis develops.
Significant deviations should be investigated immediately. Accounting data must be recorded in a timely manner and to the correct accounts. Determine if there are seasonal variations in revenues and expenses that might explain disproportionate variance amounts (example: heating bills higher in the winter).
Do not be tempted to “massage the numbers” by spreading revenues or expenses to inappropriate accounts to conform to the budget. Place the data where it belongs, along functional lines, and change the Budget when and where necessary. The Budget is a tool, it is not cast in stone. It can, and should, be changed to conform to the needs of the organization. A good budget should be close, in its predictions, to actual operating results. If it is not, make the necessary adjustments to bring the Budget back into alignment. Changes must conform to the purpose of the Budget; the attainment of the Goals and Priorities established by the parish leadership. Course corrections are allowed, so long as the destination is clearly defined and only the route taken is changed.
The Austerity Budget
In an austerity situation it is almost always more expeditious to cut expenses as opposed to budgeting for revenue increases. The ability of a parish with financial difficulties to increase revenue is often uncertain. It may be unrealistic for such a parish to budget for increased income. If the budgeted revenue goal is not reached the situation is made even worse. It is a matter of weighing the uncertainty and attendant risk factors of revenue generation against the certain, measurable results of cost cutting.
If you increase a revenue category you need not increase an expense by a like amount. If you increase an expense, however, you will have to increase revenue by an amount even greater than the expense! It costs money to make money, for manpower and resources. How much it costs depends on the efficiency of the organization along with many other factors, both tangible and intangible. If you increase any expense in your budget by $1.00 (all other factors being equal) then you will need to generate an additional $1.00 in revenue plus whatever it cost to raise that dollar, in order to break even.
Example: Your Finance/Budget team decides to purchase non-budgeted equipment halfway through your budget year. The cost of the equipment is $1,000. You launch a fund-raising campaign using volunteers to raise the money. Flyers and raffle tickets are printed up at a cost of $75.00. A raffle prize is purchased for $100.00. Even though you are using volunteers, a paid administrator puts in 2 hours in coordinating the event at a cost of $14.00 (wages and benefits). Excluding intangible costs, you must now raise $1,189.00 to break even.
For reasons illustrated above, it is usually a good idea to construct a budget with conservative revenue projections and “worse-case” expense projections. This allows a little breathing room to help deal with unforeseen contingencies.
Long Range Budget Planning
Parish financial professionals are called upon to be sensitive to the changing needs of the parishioners of the Church. As social demographics change, so must the priorities and goals change to be responsive to those needs. Such changes typically occur over longer periods of time and are not addressed by one-year operating budgets. For example, the declining number of priests is affecting parishes now. This condition will be even more pronounced five years from now. Long range planning should recognize that this trend, along with declines in other vital resources, has serious long-term implications. It is therefore imperative to plan for these contingencies on an ongoing basis.
Each parish is required to file an annual Budget that is subject to the approval of the Bishop. In addition to this requirement, each Parish should develop a Five-Year Plan. A Five-Year Plan follows the same conventions as the annual budget but projects five years forward. Each year the plan is typically revised and updated in response to actual operating results. Budgets for some large capital projects may require a 20 to 30 year budget time-line. Some organizations develop 100-year plans as part of their budget process.
Capital Expense Budgets
Capital disbursements may have a profound impact on operating cash and should not be ignored. However, capital expenses are not considered to be operating expenses and are typically not included in an operating budget. Parish Capital Budgets must be completed independently of operating budgets.
Resources
Most parishes have parishioners experienced in finance and budgeting. The Diocese shares information on salary ranges with Pastors to help them budget for wage and benefits expense.
The Finance Department of the Diocese is available to consult with parishes on budgeting. Parishes that use outside accounting and/or auditing firms should also consider their expertise in budget matters.
Summary
We need Budgets because we are called upon to be good stewards of Parish Resources.
A good starting point is to chart 3 to 5 years worth of comparative financial statements.
There will always be greater needs than available resources to satisfy those needs. Parish Leadership will budget its limited resources based on the cost/benefit ratio of Goals and thereby establish Priorities.
Forecasting is the process of making predictions, informed judgments, or educated guesses. Working as a team towards a common Goal will lead to well-informed “educated guesses” that draw upon the strengths of a diverse group with special knowledge. This will help to increase the reliability of predictions.
A Variance Report shows the “Actual vs. Budget” results for every operating revenue and operating expense account. The Variance Report should be reviewed regularly in order to track progress toward goals.
Parish leaders should be sensitive to the changing needs of parishioners. A Five-Year Plan addresses the imperative for long range planning to meet those needs.
Diocesan Budget Form Instructions
Schedules A through L (Schedule A, B, & C are Operating Revenues, Schedule D through L are Operating Expenses)
Column 1 Diocesan Uniform Chart of Account number
Column 2 Account Description/Title
Column 3, 4, 5 Three most recent years of Actual operating results
Column 5 Operating Budget amount
Budget Summary Page
Column 2 Schedules A through C summarized Revenue Schedules D through L summarized Expense Total Income Less: Total Expense = Actual Surplus (Deficit)
Column 3, 4, 5 Three most recent years of Actual schedule amounts summarized with Revenue and Expense sub-totals
Column 5 Budgeted Revenue and Expense by G/L line number Budget Surplus (Deficit)
Explanation Section: If a parish budgets for an operating deficit (loss), please explain how the operating shortfall will be funded (paid for).
Budget Worksheet A
Clergy Salary & Benefits Schedule
Detail the remuneration for each Priest as contained in the Priests Compensation Schedule. Priests are paid on the schedule based on Full years Ordained as of the beginning of the fiscal year (not anniversary date).
Priest Name
Column 1 Include the Salary component and the Expense Allowance component from the Clergy Compensation Schedule (transfer total to Budget line # 701)
Column 2 Fill in the anticipated Health/Life Insurance premium for clergy (transfer total to Budget line # 702 or 722 depending on your COA )
Column 3 Plug in the IRA amount from the Clergy Compensation Schedule (transfer total to Budget line # 723)
Totals Total compensation budgeted for each priest
Budget Worksheet B
Religious Stipend & Benefits Schedule
Religious Name
Column 1 Scheduled Religious Stipend [obtained from Order] (transfer total to Budget line # 702)
Column 2 Fill in the anticipated Health/Life Insurance premium for religious (transfer total to Budget line # 731)
Column 3 Religious Retirement [obtained from Order] (transfer total to Budget line # 732)
Column 4 Living Allowance [obtained from Order] (transfer total to Budget line # 733)
Column 5 Transportation Allowance [obtained from Order] (transfer total to Budget line # 734)
Totals Total compensation budgeted for each religious person
Budget Worksheet C
Lay Employees Remuneration Schedule
Employee Name
Column 1 Budgeted lay annual wages (from Worksheet D if an hourly employee). Transfer total to appropriate Budget Schedule D- Salaries Expense line.
Column 2 Employer contribution for lay FICA and Medicare (7.65% x gross wages from column 1). Transfer total to Budget line # 741.
Column 3 Unemployment insurance premium (use most recent rates). Transfer total to Budget line # 742.
Column 4 Disability insurance premium (use most recent rates). Transfer total to Budget line # 743.
Column 5 Health Insurance budgeted. Transfer total to Budget line # 745.
Column 6 Retirement (most recent rate x gross wages from column 1). Transfer total to Budget Line # 746.
Column 7 Life insurance budgeted. Transfer total to Budget line # 747.
Column 8 Totals of Columns 1 through 7 yields total budgeted wage and benefits expense for each employee.
Budget Worksheet D
Hourly Lay Employee Wage Worksheet
This worksheet is a supplement to Budget Worksheet C. It provides information on the number of hours, hourly rate of pay, and number of hours budgeted for annually. The employee name and budgeted annual wages are transferred from this worksheet to Budget Worksheet C and from there to Budget Schedule D- Salaries & Wages Expense.
Summary of Budget Process
The Budget is a plan of action
Success Oriented
Goal Driven
Cooperative Effort
Dynamic, not Static
Planning the Budget
Accurate Record Keeping
Familiar with Components
Verification of Data
Evaluation of Programs & Activities
Recommendations
Analysis
Using the Budget
Monitoring Activities
Forecasting
Flexibility & Corrective Actions
Administrative Resources
Diocesan Offices
Other Parishes
Parishioners
Professionals
PARISH ACCOUNTING AND FINANCE
Introduction
A good accounting system is one of the main elements of sound fiscal management within any organization. Accounting is the process of recording, sorting, summarizing, and communicating data resulting from business transactions and events. Bookkeeping, a subset of accounting, is the mechanical, record-keeping function that tracks costs, profits, losses and changes in asset and liability balances. Financial reports summarizing operating results, trends, and significant developments are the end product of the accounting process. Those statements must clearly and accurately communicate financial information about the entity, thus enabling managers and stakeholders to make informed, intelligent decisions.
Diocesan accounting follows Generally Accepted Accounting Principles (GAAP). GAAP is a comprehensive set of rules governing the accounting for financial transactions that are communicated in a set of financial statements [Balance Sheet, Income Statement, Statement of Cashflows]. Those principles are derived from many sources including the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA), as well as the general body of accounting literature.
Since the diocese adheres to GAAP standards, the Accrual Basis of accounting is used. The Accrual Basis recognizes income in the time period in which it was earned, regardless of whether the money was actually received. Similarly, expenses are recognized in the period in which there were incurred, regardless of whether they have been paid for or not. The accrual of income is represented by an Accounts Receivable balance for the amount that is due to the parish. The accrual of expense is reported as an Accounts Payable for the balance that is owed to vendors by the parish.
The basic Accounting Equation describes the relationship between assets, liabilities and equity. Assets are the material goods held by the business such as cash, buildings, furniture, equipment, and land. Liabilities are amounts owed to others such as accounts payable (money owed to vendors), payroll taxes payable (money owed to taxing entities), and loans payable (obligation to repay money borrowed). Equity is the net worth of the business entity, or the difference between the assets and liabilities. Thus, the Accounting Equation is as follows:
ASSETS = LIABILITIES plus EQUITY or restated,
ASSETS minus LIABILITIES = EQUITY
Asset, Liability, and Equity accounts are Balance Sheet accounts. The balance sheet reports the financial position of the entity on a day to day basis. As such, the balance sheet is ongoing and is never closed out at the end of a fiscal reporting period (fiscal year) as the Income Statement is.
The Income Statement, also referred to as the Profit & Loss Statement (P&L), reports Income (Revenue), Expenses, and Gain or Loss [the difference between the Income and Expenses].
The Statement of Cash Flows is the third component in a set of Financial Statements. The Statement of Cash Flows reports “cash flows” as they relate to the Balance Sheet and Income Statement account balances. For example, cash disbursed to make loan principle payments affects asset [reduced by the payment] and liability accounts [liability balance reduced by the payment], but not Income Statement accounts [since there is no income or expense transaction]. In this scenario, the amount of change in balance sheet accounts will not be the same as the profit / loss results reported in the income statement. The Statement of Cash Flows explains such differences. Similarly, the accrual of accounts payable establishes a liability and records expense in the operating cycle in which it was incurred. The increase in expense will not have a corresponding decrease to cash; instead there is a corresponding increase in accounts payable. The Statement of Cash Flows provides explanation for transactions that “straddle” the Balance Sheet and Income Statement.
Conventional GAAP Accounting
There are several types of accounting methodologies; Conventional GAAP, Fund, and a modified type of Fund-accounting used by some governmental agencies. Fund accounting is still in use, primarily by not-for-profit organizations. Conventional GAAP accounting is the de-facto standard for most organizations today (both for-profit and not-for-profit). There is no advantage for a parish to use Fund accounting over Conventional accounting. Indeed there are some inherent complexities in Fund accounting that make it less desirable for parish use. The Diocesan Parish Chart of Accounts (COA) drafted in the mid-eighties contains many features unique to Fund accounting. The proper implementation of those features was never achieved. Misapplication of certain of those accounts has caused distortion of financial reporting that has accumulated over the years. Principal among those distortions are the Fund Balances themselves. In recent years there has been an incremental transition to correct structural problems with the Standard Chart of Accounts. Part of that transition will be to correct the Fund balances and to restate them using accounting terminology and methodology in conformance with Conventional GAAP standards. General Ledger maintenance, a normal part of the accounting process, will help to expedite this transition. Parishes are sent blank copies of the Annual Financial Report annually. With that report is a listing of necessary changes to the account structure, and procedural instructions, to be performed by parish administration as routine general ledger maintenance.
Fund Accounting
“A fund is an accounting entity with a self-balancing set of accounts consisting of assets, liabilities, and a fund balance. Separate accounts are maintained for each fund to insure observance of limitations and restrictions placed on the use of the resources. For reporting purposes, however, funds of similar characteristics are combined into fund groups.” [Fundamental Concepts of Financial Accounting and Reporting, NACUBO]
Endowment Funds
Funds that carry specific donor restrictions stipulating that the principal be invested and maintained intact, with only the investment interest earnings available for expenditures consistent with specified restrictions.
Asset Replacement Funding
Unlike land, some assets wear out over time. Roofs, computers, vehicles, appliances, and similar assets must be replaced periodically. In planning for such contingencies, parishes should maintain an inventory of their assets. The inventory should include the acquisition date and the normal life span of each asset. A time-line is then established to show when replacement of the assets is anticipated, along with a projection of future replacement cost [factored for inflation]. The replacement cost, weighted for inflation, is then divided by the number of years of useful life remaining to derive an amount that should be saved annually to fund the replacement(s). The savings should be invested in an interest bearing account such as diocesan pooling. The interest income should be allowed to compound; which will help maintain fluidity and hedge against unforeseen contingencies.
Basic Accounting System
Parishes may use a manually prepared set of accounting
records (Books), though it is encouraged that accounting be done using QuickBooks (Intuit) or Parish Data Systems Ledger accounting software. In either case, a set of Books consists of the following:
Journals
Books of original entry that record transactions in chronological order by type. Journals include Cash Receipts Journal, Cash Disbursements Journal, and the General Journal. Often, parishes use the Collection Tally sheets as their Cash Receipts Journal by placing the sheets in sequential order in a binder. Some parishes use their checkbook register as the Cash Disbursements Journal by maintaining the register or stubs in sequential order in a binder. The General Journal records all general journal entries as well as providing substantiation for each journal entry.
Ledgers
The ledger is the book used to record transactions derived from journals. In a manual system, each page of the ledger is devoted to a single account. Entries in ledgers are brought about by Posting. Posting is the process of copying transactions from journals to the appropriate pages of the Ledger. The General Ledger is the master account book that contains all asset accounts, liability accounts, equity accounts, revenue accounts, and expense accounts. Subsidiary Ledgers provide details of the balances reported in the General ledger. Common Subsidiary Ledgers include the Accounts Payable Ledger, Accounts Receivable Ledger, and Payroll Ledger.
Software
An advantage to using integrated accounting software, like QuickBooks, is that the volume of repetitive manual entries is greatly reduced. Transactions are recorded as they occur, with the appropriate posting to the various journals and ledgers occurring automatically. Accounting programs perform mathematical calculations with precision, and much faster than using a calculator. Many other functions are automated, making the bookkeeping process more efficient and reducing input errors. For example, checks to pay accounts payable can be generated from the program with much of the double-entry bookkeeping occurring automatically “behind the scenes”.
INSTRUCTIONS FOR COLLECTION COUNTING AND MONEY HANDLING
Following are the official procedures for collection counting, money handling, and recording of the collections.
Collections must be locked in a safe (in tamper evident bags) as soon as they are taken from the altar. Access to the safe must be limited to as few persons as is practical. If collections must be moved from the Church to another building and/or to the safe, at least two persons should transport the money. One person carrying the collections places both the individual and the money at risk.
Collections must remain locked in the safe until at least two counters arrive. Proceeds should be counted as soon as possible following the collection. Counting of collections must be done by a minimum of two persons. They can be volunteers or paid staff, but must be independent of the record keeping process (i.e. not the bookkeeper). Counters must prepare a tally sheet that summarizes the collections so that the revenues may be properly recorded on the parish books.
Cash must never be removed from the collections. All collections must be deposited “intact” at the bank. Checks must not be cashed from the collections. It is forbidden to make disbursements directly from the collections.
All checks must be restrictively endorsed “For Deposit Only” as soon as practical after they are received.
Deposits into the bank must be made immediately after the collections are counted. However, if counting is performed on a subsequent day then the collection must be deposited at the bank using the night deposit by two or more persons. Similarly, two or more persons must retrieve the deposit for counting.
Arrangements should be made with the bank to notify the bookkeeper (or other responsible person) of any variances of $5.00 or more in the deposit. Every effort should be made to determine the reason for the variance.
These procedures for handling the Church’s collections are in accordance with Generally Accepted Accounting Practices (GAAP) for handling of money. These procedures have been established as official policy of the Diocese to protect the persons handling funds, the funds themselves, and the Church.
Donations are freely given and our parishioners’ generosity should not be taken lightly. Every effort must be made to protect these gifts. Volunteers and staff are precious to the Church and they should not be put at risk by allowing them to practice unsafe and un-businesslike money handling methods.
CASH MANAGEMENT
Effective cash management will implement strategies for generating interest income from investment, and negotiation of favorable vendor discounts and terms.
Money held in non-interest bearing accounts should be limited to the smallest balance practicable. The amount held in the operating checking account should be only the minimal balance necessary for routine, short-term operations. Surplus funds should be transferred to higher interest bearing investment accounts.
Savings and Money Market accounts should contain money that will be needed in the near future but not immediately.
Certificates of Deposit [CDs] can be used for moneys not needed in the near term. CDs are time-deposit accounts that often yield higher interest than savings accounts. CD funds are usually subject to penalties for early withdrawal. There should be sufficient liquidity, either through laddering of CD investments or through other savings accounts, to provide funding for emergencies and avoid such penalties.
Diocesan Pooling offers a competitive interest rate that has been historically higher than CD rates. Another advantage is improved liquidity since there is no established length of the term of deposit, nor are there any penalties for withdrawal from the pooling fund.
CASH FLOW
A pattern of cash flow [the movement of operating cash inflows and outflows] can be derived from reviewing historical transactions recorded on the books [example: checking account balances from week to week for a fiscal year]. That data, adjusted for current conditions and seasonality, can be used to project future cash flow needs. Those projections should be integrated into the budget process for planning capital projects, maintenance & repair, asset replacement allocation funding, and operating expenditures. That data should be kept up to date, revised as necessary, and shared with the finance committee on an ongoing basis.
A daily cash log must be maintained, either manually or through accounting software, for all cash accounts. QuickBooks accounting software, when properly utilized, facilitates this process by providing up to the minute account balance information on demand.
CASH CONTROLS
Effective cash management begins with sound internal controls. Internal Controls are systems implemented to safeguard: resources, gifts given by parishioners, and parish administrators. Internal Controls can be further defined as a set of processes, functions, activities, subsystems, and people who ensure the effective achievement of objectives and goals.
A key component in any discussion of Internal Controls is the concept of “Segregation of Duties”. Segregation of Duties is designed to reduce the likelihood of errors and irregularities. Ideally, an individual should not have responsibility for more than one of the following:
Authorization- the responsibility and/or control permitting changes to parish assets (resources) and liabilities (obligations). Example: A signatory on a parish operating checking account signing a disbursement check.
Custody- individual controlling the physical, material aspects of parish resources. Example: Individual responsible for safeguarding the parish operating checkbook
Record Keeping- individual responsible for recording and reporting accounting transactions. Example: Bookkeeper recording check-disbursements and performing bank reconciliations
In small parishes, where there is a small staff, it may not be possible to completely segregate all of the above activities. However, under no circumstances should an individual have control over all three areas. Pastors must open and inspect bank statements as a control over bookkeepers responsible for cash disbursements, recording cash receipts, and reconciling bank statements. Pastors must approve bills prior to payment as a control to prevent unauthorized purchases. Pastors must sign all checks as a control over unauthorized use of parish funds. Use of signature stamps is forbidden by the Bishop. Bookkeepers must not count collections, since they record the cash receipts and are in a position to conceal the theft.
Check Signing
The check signer is the last inspection point for the expenditure of funds. The authorized signatory should review the check and supporting documents to ensure the payment is reasonable and proper. Blank checks must never be pre-signed. Lay employees are not permitted to be signers on parish operating accounts. Bookkeepers, accountants, and other personnel involved in the bookkeeping function must not handle cash or count collections. Check signing stamps are forbidden; the use of check signing stamps is expressly against diocesan policy. The use of check signing stamps may be grounds for dismissal.
Account Reconciliation
Bank reconciliation’s should be performed immediately upon receipt of the bank statements. Each account must be formally reconciled in writing using the Cash Reconciliation Form (see Appendix) or comparable form. All bank statements should flow from the bank to the Pastor directly and unopened. The Pastor should review the statements and canceled checks. The bookkeeper should be questioned about any unusual activity. The statements are then given to the bookkeeper (or other qualified personnel) to do the bank reconciliation’s. The Pastor should review the bank reconciliation’s to insure they are complete, correct and timely. Under Federal banking laws, recourse for bank error is usually forfeited if not detected and acted upon by account holders within 30 days (sometimes less).
Securing Check Stock
Checks must be secured [under lock and key, stored in safe, etc] when not in use, with access restricted to authorized personnel only.
Capitalization Procedure
Capital Improvements in excess of $20,000 require a Trustee Resolution and approval of the Bishop.
A Capital Improvement is the addition of, or to, a fixed asset(s) [buildings, land, facilities, and/or equipment], which provides function and utility into future operating cycles. Capital improvements are different from repair and maintenance. Repair and maintenance restores an existing fixed asset to normal operating condition. A Capital Improvement is adding a new fixed asset, and placing it in service where it will provide new utility for years into the future. Fixing a broken pipe is a Repair & Maintenance transaction. Adding a new bathroom is a Capital Improvement.
In commercial enterprises Capital Improvements are recorded on the books and then depreciated. Parishes in the Diocese of Syracuse have not depreciated their fixed assets, nor associated Capital Improvements. The reason for Depreciation is largely driven by corporate tax code. Since the church is exempt from corporate income taxes, there is no compelling reason to depreciate our land, building, equipment, or capital improvements.
Ordinarily, Capital Assets (land, buildings, equipment, and improvements) are carried on the balance sheet at basis (what they cost). Thus, upon acquisition there would be a reduction of liquid asset (cash), and a corresponding increase in Fixed Assets (land, buildings, equipment, and improvements), on the balance sheet. The accounting entry would have no impact on the Income Statement. This treatment confuses some laypersons that do not understand why the Capital Project they contributed to, is not reported on the Profit & Loss (aka Income) Statement. In an effort to address that concern, it was decided that the procedures for recording and reporting how capitalization is accounted for on financial statements would be changed.
Below are instructions effective July 1, 2013:
A new account shall be added to the general ledger chart-of-accounts, as follows:
The account title is: Capital Disbursements
The account general ledger number is: 902
The account type (in Quickbooks) is: Other Expense
The #902 account is a sub-account of: Schedule N: Extraordinary Disbursements
Effective July 1, 2013, Capital Improvements will be recorded and reported as extraordinary disbursements in account 902. Please call or email if you have any questions or concerns: Nick Crosby 315-422-9089, ncrosby@syracusediocese.org. Thank you.
DIOCESAN NORMS FOR PARISH FINANCE COMMITTEE
Canon 537 of the Code of Canon Law states: “Each parish is to have a finance council which is regulated by universal law as well as by norms issued by the diocesan bishop; in this council the Christian faithful, selected according to the same norms, aid the pastor in the administration of the parish goods with due regard for the prescription of canon 532.”
Canon 532 states: “The pastor represents the parish in all juridic affairs in accord with the norm of law; he is to see to it that the goods of the parish are administered in accord with the norms of canons 1281-1288.”
Canons 1281-1288 prescribe norms for the administration of church temporalities. These canons regulate the conduct of the administrator in matters involving fiduciary responsibilities. For the pastor or parish administrator these include the collection and investment of revenues, management of assets, disbursement of funds, acquisition and alienation of property, maintenance of physical plant and appurtenances, inventory accounting, record keeping and reporting. Church law “strongly recommends” that the administrator prepares an annual budget (c. 1285.2[3]) and mandates the observance of civil law pertinent to business administration. The administrator must also abide by legal and moral principles governing labor relations and employment practices (c. 1286).
In light of the above, the following principles are established for parish finance committees in the Diocese of Syracuse:
Each parish shall have a finance committee, consisting of not less than three parish members, appointed by the pastor (the term “pastor” is understood as applying as well to those serving as canonical parish administrators).
The role of the finance committee is consultative. The committee meets under the direction of the pastor in order to assist him in discharging his administrative responsibilities. It does so by offering the pastor advice, recommendations, or other forms of support in matters involving the administration of church temporalities. The pastor exercises proper authority and responsibility for ultimate decision-making in accord with the norms of church law.
Finance committee members should include laity skilled and experienced in areas of business, finance, management and law. They should be active members of the parish who are of unquestioned integrity and command the respect and confidence of their parish and community.
The pastor should insure that members of the finance committee are both conversant with and loyal to ethical principles consistent with the moral teachings of the Church. The pastor is responsible for educating finance committee members on general church law and diocesan regulations pertaining to the administration of temporalities.
Norms governing the constitution of the finance committee, terms of membership, regular scheduling of meetings, record-keeping and specific duties of the committee should be adopted by each parish, approved by the pastor and set down in writing. Regular reports of committee activity should be made available to the parish council or publicized for the parish.
Minutes of finance committee meetings are required under New York State law governing corporations. Meeting minutes must be secured in the permanent archives of the parish.
PARISH INVESTMENTS
Making use of available talents and maximization of assets is one of the requirements set forth by stewardship. Investment of parish resources provides a means of obtaining additional financial support needed to accomplish the goals and missions of the parish. Caution and prudence must always be observed when investing resources of the parish. Speculative or risky investments should never be considered.
Investments and Parish Finance Committee
To assist the Pastor, the Trustees, parish Finance Committee, and trustworthy investment counselors should be consulted prior to making investments. The investment objectives of the Parish Finance Committee can be implemented at the parish level as follows:
Maximization of investment income through certificates of deposit [CDs], savings accounts, stocks, and bonds,
The “laddering” of investments so as to provide continuous income and cash liquidity,
The diversification of portfolios to hedge against inherent market fluctuations and related investment risks,
The avoidance of speculative, risky, or questionable investments by seeking expert advice from competent investment counselors,
Conformance to the Socially Responsible Investment Guidelines adopted by the National Conference of Catholic Bishops, Investments will not be made in securities of corporations whose operations do not serve a useful social purpose consistent with Catholic moral teaching, or whose behavior raises serious questions concerning social justice,
Limitation of investments to those that meet the “Prudent Man Rule”; those opportunities that a prudent man will invest in,
Investment in corporate debt securities of the highest quality- corporate bonds of an “A’ rating or better by both Moody’s and Standard & Poors,
A semi-annual review of the performance of financial institutions, banks, trust companies, and investment counselors so as to assure the attainment of the investment objectives,
A thorough knowledge of State Banking Department Guidelines for Investment of Fiduciary Funds.
INVESTMENT DEVICES
Parish investment portfolios can be structured in the following ways:
Savings and Money Market accounts
Certificates of Deposit
Bonds (Debt Securities of “A’ grade or better)
Diocese of Syracuse Investment Fund
Stocks (Equity Securities)- Investment in stocks is not recommended at the parish level. As such, parishes may not invest in stocks without the express [written] permission of the Bishop. Any stock investments approved by the Bishop will comply with the Socially Responsible Investment Guidelines document adopted by the National Conference of Catholic Bishops.
501(c)(3) Exemption Status
Every parish is separately incorporated under section 501(c)3 of the Internal Revenue Service Tax Code. In the past, a lengthy filing process was required to obtain this filing status. Currently, this status is automatically granted to parishes of the Catholic Church nationwide. Please note that if this status is revoked (due to lack of compliance with code provisions), the application process to re-establish exempt status can be both lengthy and costly.
Occasionally, a parish or related school is asked to provide proof of their 501(c)(3) exempt status. The following letter of proof may be obtained from the Finance Department at the Chancery:
Date:
To Whom It May Concern:
Please be advised that ______________Church, Located at _____________ is an organization within the Diocese of Syracuse and is exempt from filing FORM 940 as a code 501(c)(3) organization.
This Church (or School) is listed on page ____ of the Kennedy Directory. The Kennedy Directory is generally accepted as the official listing of all 501(c)(3) organizations of the Roman Catholic Church in the United States.
Sincerely,
Diocesan Official
Parish Mergers and Twinning Draft 6/18/2013
Twinning
Twinned parishes share a common pastor/administrator. A separate set of books is maintained for each parish location. A single QuickBooks license supports up to 10 distinct company files for parishes, schools, cemeteries, etc.
Offices can be consolidated so that administration can be more efficiently managed. Twinned parishes can usually (but not always) consolidate their payroll and benefits administration into a single paymaster location. However, when that is done, the employees all become technically employed by the paymaster location on its’ unique federal ID number. This can usually be accommodated yielding cost savings; reducing payroll processing expense.
Mergers
Mergers differ from twinning, in that two or more parishes become a single business entity. This legal distinction is significant. Though merged parishes may operate more than one worship site, they are a single legal entity, operating as a not-for-profit religious corporation. Merged parishes often have a name change. At some point the change of name must be communicated to banks, vendors, federal and state government, and payroll services.
The Internal Revenue Service requires notification of corporate name changes, as follows (excerpts from I.R.S. regulations):
A copy of the amendment to the Articles of Incorporation, and proof of filing with the appropriate state authority.
The letter or fax reporting the change of name must include your organization’s
full name (both the prior name and the new name)
Employer Identification Number and
authorized signature (an officer or trustee)
The individual signing the letter must state the capacity in which he or she is signing (for example, “Father John Smith, Treasurer”).
For answers to technical and procedural questions about charities and other non-profit organizations, call IRS Tax Exempt and Government Entities Customer Account Services at (877) 829-5500 (toll-free number). If you prefer to write, use the address below.
For answers to employment tax questions, call the Business and Specialty Tax Line at (800) 829-4933 (toll-free).
To obtain a determination letter that applies the principles and precedents previously announced to a specific set of facts, or to transmit copies of amended documents write or fax to:
Internal Revenue Service
Exempt Organizations Determinations
Room 4024
P.O. Box 2508
Cincinnati, OH 45201
Fax: (513)263-4330
A tax exempt organization may need a letter to confirm its tax-exempt status or to reflect a change in its name or address. If so, an organization may generally contact Customer Account Services (see address above) by phone, letter, or fax to request an affirmation letter.
A letter or fax requesting an affirmation letter must include your organization’s
full name
Employer Identification Number and
authorized signature (an officer or trustee)
The individual signing the letter must state the capacity in which he or she is signing (for example, “Father John Smith, Treasurer”).
New York State also requires notification of corporate name changes to NYS Department of State and NYS Tax Department. This is facilitated by Chancery and diocesan legal counsel at the time the legal incorporation paperwork is done.
Even though merged parishes are a single corporate entity, each must maintain a separate set of books. Plant assets (buildings, land, equipment) and indebtedness are accounted for on the books until properties are sold and debt satisfied. Plant assets (buildings and equipment) must be accounted for, including expenses to maintain and secure the premises while it is on the market (repairs/maintenance, utilities, PSI, water & sewer, etc). The simplest, clearest, and most efficient way of accomplishing that is by maintaining a separate parish company in QuickBooks.
Merged parishes, even when all properties have been sold and all debt satisfied, continue to exist as corporate entities in the event bequest gifts are given in their name. Thus, a set of books must be kept even if there are no assets, liabilities, or operating activities.
If a merged location is to be sold, all or in part, the debt of that location must be maintained on that segregated set of books; along with the plant asset valuations. In this way, the debt obligations can be paid down from sale proceeds.
Plant assets should be carried on the books at basis cost. If the historical basis cost is unknown, an insurance valuation from the Risk Management Department can be booked instead. Capital improvements increase plant asset values. Sale of property reduces plant asset values.
Expenses (and income if applicable) related to each property should be reported in the P&L, and budget variance reports, revealing vital information about what each building costs to maintain. There are different ways to achieve that within QuickBooks. Parish Services department is happy to assist in setting accounts up within QuickBooks to facilitate; tailored to the particular situation of each merger. It is important to coordinate so financial data from QuickBooks flows smoothly into the Qvinci financial reporting and consolidation system. Please call Parish services at 315-422-9089 to assist and make necessary modifications to the Qvinci system.
Unrelated Business Income Tax (UBIT)
Section 513 of the Internal Revenue Code defines unrelated business income as “any trade or business, the conduct of which is not substantially related to the exercise or performance by the organization of its charitable, educational, religious or other purpose or functions forming the basis for its exemption under Section 501 IRS.”
The Tax Reform Act of 1969 extended the tax on unrelated business income to all Section 501(c) organizations, including churches.
Unrelated business taxable income is defined as gross income derived by any organization from any unrelated trade or business carried on by it, less allocable deductions (i.e. related expenses) directly connected with the carrying on of such trade or business.
Some examples of potential unrelated business income are advertising, rental income, Games of Chance, Bazaars, Bingo, Day Care Centers, Cemetery and income from debt financed property.
Transactions that yield unrelated business income tax (UBIT) have the following characteristics:
Conducted with the same frequency as a for-profit company would,
Must be unrelated to the mission of the organization,
Must be undertaken to make a profit.
Following are ten questions to test the potential for UBIT:
Would we have undertaken this as part of our mission if it had no profit Possibilities?
Are there other similar non-profits carrying out this activity as part of their mission?
Would a detached person conclude this activity is part of the non-profits mission?
If this activity is conducted by a for profit business, does yours differ significantly in price, who is served, risk, frequency or character?
Does this activity help an individual or company make a profit or conduct business?
Do you promote the business or share the profits?
Is the activity carried on by paid employees?
Are the clients all directly connected to your mission?
Does the income flow from a group controlled by the non-profit?
Does the income flow from as asset for which the organization is in debt?
If the answers to the first four questions are Yes, and the answers to the last six questions are No, then the activity is not likely to trigger unrelated business income tax. Otherwise, the activity must be reported on a Form 990-T tax return and the applicable taxes paid.
The determination of UBIT is a tax and legal question. If in doubt, obtain professional counsel or contact the Finance Department for more information.
DONOR ACKNOWLEDGEMENT LETTER
Example:
<Letterhead>
Date
Donor Name
Donor Address
Dear <insert salutation> <insert donor name>,
This receipt acknowledges your donation to <insert church name> in the amount of _______________.
<Insert church name> has not provided, in whole or in part, any goods or services to the above named donor in exchange for this gift.
Thank you for your generous support. Your continued contributions are greatly appreciated.
GLOSSARY OF ACCOUNTING TERMS
Account
A descriptive heading under which are recorded transactions that are similar in reference, purpose, designation, or objective
Accountability
The obligation of an entity or responsible person to give an accurate, complete, timely, and clear report of performance to related parties who may be interested
Accounting Period
A period at the end of which, or for which, financial statements are prepared. The most common accounting periods are monthly, quarterly, and fiscal year
Accounts Payable
Liabilities on open accounts owed to persons, firms, or organizations for goods and services received by the parish but not yet paid for
Accounts Receivable
Amounts owed to the parish by other parishes, individuals, or organizations
Accrual Basis
A GAAP approved method of accounting that records revenues when they are earned, not necessarily when the money is received; and records expenses when they are incurred, not necessarily when they are paid for
Accrued Expense
An obligation (liability) to pay for goods / services received on credit, but not yet paid for
Asset
Items of value held by a parish and used in current operations as well as having utility value for future operations. Examples include cash, buildings, furniture, equipment , and land
Audit
The examination of documents, records, reports, systems, internal controls, procedures, and other information to determine the propriety, legality, completeness, timeliness, mathematical accuracy of transactions, and GAAP compliance of financial statements and accounts
Balance Sheet
A financial statement component presenting the financial position of the parish at a given moment in time, including assets, liabilities, and equity
Bequests
Gifts received from the disposition of a will; treated as an Extraordinary Receipt in Schedule M [general ledger account
641 in the diocesan parish standard chart of accounts]
Book Value
The net amount at which an asset, liability, or equity account is initially recorded on the books. The initial recording should be at cost (a.k.a. historical cost), however, if the market value of an asset drops below historical cost then the Book Value should be reduced to market value [LCM Convention, Lower of Cost or Market]
Budget
A financial plan detailing estimated future revenues and expenses for a given period; organized by function, activity, department, project, or operations
Capitalization
The acquisition of a plant asset or improvement that will be used in current operations as well as providing utility for future operations; including land, buildings, major equipment, building additions, remodeling that brings new utility online, and major improvements to grounds that add utility
Cash Basis
A method of accounting that records revenues when the cash is received (not necessarily when earned), and records expenses when they are paid (not necessarily when incurred) without regard to the proper accounting period in which the transactions were initiated; the cash basis of accounting does not comply with GAAP
Chart of Accounts
A listing of the accounts used in the accounting system including account numbers and descriptive account titles; the accounts are arranged along functional lines with Balance Sheet accounts first, followed by revenue accounts, and then Expense accounts
Compensation
Salary, stipends, wages and fringe benefits paid to, or on behalf of, employees
Deferred Revenue
Revenue that is received in advance of the services to be rendered, also called “unearned income”; represented as a liability on the balance sheet until the services are rendered and the income is actually earned
Disbursements
Payments in cash or checks for expenditures including asset acquisition, payment of bills, purchases, purchase of investments, and cash refunds
Double-Entry
Accounting system requiring balanced entries with equal amounts of debits and credits posted to the appropriate accounts
Entry
The complete recording of a transaction in a journal; or the posting from a journal to the appropriate ledger
Equipment
Portable property used in operations; may be recorded as an asset on the balance sheet if cost in excess of $1,000, does not include consumables such as cleaning supplies
Expenditures
Charges incurred for goods and services received and (1) either paid for in cash, or (2) purchased on credit whether paid for or not, and used in parish operations
Fiduciary Responsibility
In the handling of money and when one acts as a parish Pastor, Trustee, administrator, employee, or representative there is a fiduciary responsibility owed to the parish and church at large. It is defined as the relationship imposed by law where someone has voluntarily agreed to act in the capacity of a “caretaker” of another’s rights, assets and/or well being. The fiduciary [pastor, employee, administrator, trustee] owes an obligation to carry out the responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service of the beneficiaries [parish/church] interest.” The good faith has been interpreted to impose an obligation to act reasonably in order to avoid negligent handling of the beneficiaries interest as well the duty not to favor ANYONE ELSES'S INTEREST (INCLUDING THE TRUSTEES OWN INTEREST) over that of the beneficiary. Further, if the agent should find him/herself in a position of conflicting interests, the agent must disclose the dual agency (acting for two parties at the same time) or risk being accused of constructive fraud in regards to both or either principals. [E. F. Moody]
Fiscal Year
Any twelve month period, at the end of which the books are closed and a determination of the operating results for the year is made
Fund
“A fund is an accounting entity with a self-balancing set of accounts consisting of assets, liabilities, and a fund balance. Separate accounts are maintained for each fund to insure observance of limitations and restrictions placed on the use of the resources.” [Fundamental Concepts of Financial Accounting and Reporting, NACUBO]
General Ledger
An organized, comprehensive grouping of accounts that summarize financial transactions, supported by subsidiary detail ledgers
Impressed Petty Cash
A cash fund with an established balance for incidental purchases that is periodically replenished by trading receipts (substantiation) for a “petty cash replenishment check” up to the impressed balance, and recording expense(s) to the appropriate general ledger expense account(s)
Journal
Formal record of original (initial or first) entry for financial transactions
Liabilities
Debt or legal obligations arising from transactions in the past which are payable in the future (though not necessarily due at the time of initial entry on the books; an example is dating given by a vendor to the parish that allows a certain number of days before the bill must be paid)
Market Value
A recently quoted price; or price at which a seller is willing to sell, and a buyer is willing to purchase, in a fair, arms-length transaction
Material
Information that when, after full consideration of relevant factors and surrounding circumstances, is of such a nature that its disclosure [or lack thereof] would alter the presentation of financial position and thereby influence the judgment of the reader
Plant Assets
The physical property owned by the parish and used in operations including land, buildings, capital improvements, and equipment
Pledge
A written promise to contribute a stated amount, usually within a specified time frame; while a pledge may be legally binding on the donor, in practice a parish would not seek legal satisfaction in case of default
Prepaid Expenses
Expenses booked in the accounts for benefits that will be received in the future, such as prepaid insurance and prepaid rent
Revenue
Money received from collection offerings, service fees, donations, contributions, sales, fundraising, interest and dividends earned on investments, bequests [extraordinary receipt] and related operating activities
Transfers
The movement of a balances from one general ledger account to another general ledger account(s); the movement of cash from one asset account to another asset account on the books based on a similar physical movement of cash between actual bank accounts; usually transfers affect balance sheet accounts only, however, entries to correct certain posting errors in revenue or expense accounts can take on the characteristics of a transfer entry
Unearned Income
Revenue that is received in advance of the services to be rendered, also called “unearned income”; represented as a liability on the balance sheet until the services are rendered and the income is actually earned; sometimes also called Deferred Revenue
RECORD RETENTION
Business records can be classified into two categories, permanent and temporary. Temporary business records may be discarded periodically. Permanent business records should never be destroyed.
Permanent Records
Permanent records may be referred to for an indefinite period of time and are archived (preserved and protected). Such records include:
Audit Reports (including Parish Review reports)
Contracts, Mortgages, Notes, and Leases that are still in effect
Canceled Checks for important payments (purchase of property, capital expenses, special contracts, tax payments (especially penalties and/or assessments). The checks may be filed with the documents pertaining to the underlying transaction
Correspondence relating to important administrative matters or which has important historical significance
Legal Documents such as those relating to Wills, Endowments, Easements, Injunctions, Licenses, Permits, Taxation, Litigation, Notices, etc.
Meeting Minutes for Finance Committee and Parish Council
Deeds, Mortgages, Bill of Sale, and any other documents relating to the transfer, sale, and/or disposition of property and/or assets
Financial Statements including Annual Reports, General Ledgers, Journals and support (notes, working papers)
Property Appraisals
Pension and Retirement Records
Payroll Records including W-4, W-2, W-3, I-9, NYS New Hire Notification, Garnishment Notices, Payroll Ledgers, Time-sheets
Quarterly Federal 941 and NYS-45 Filings (also Fed. 990 filings if appropriate)
Parish Permanent Binder
Every parish must maintain a binder containing the following documents and records. This binder is part of the permanent parish archive:
- Certificate of Incorporation
- Title for parish property including church, school, convent, hall, land etc
- Tax Exempt Determination Document
- Annual Financial Reports
- Minutes to Annual Meetings, all Trustee Meetings, Finance Committee Meetings, other community meetings
- Monthly financial statements for prior year, and current fiscal year-to-date
- Documentation for purchase and sales of any property
- Documentation for all restricted donations
- Documentation for all Bequest gifts received
- Documentation for all in-force contracts, and seven years worth of expired contracts
Temporary Records
Temporary records should be organized and stored in an orderly manner to facilitate retrieval of information and eventual disposal. Following are suggested guidelines for record disposal along three or seven year time-lines. Some discretion is advised in deciding which of the following records should be destroyed and when.
Be aware that some records are extremely sensitive and/or confidential (ex. payroll records, earnings statements). Sensitive/Confidential documents should be thoroughly shredded prior to disposal.
Seven Year Records
The following records should be retained for at least seven years. If at that time the records are irrelevant and have no historical significance, they may be destroyed.
Accident Reports, Claims, Settled Cases
Bank Reconciliations (so long as the information is contained within the body of retained financial statements)
Bank Statements (so long they have been reconciled and the information is contained within the body of retained financial statements)
Canceled Checks- Payroll and General- except those for important payments (purchase of property, capital expenses, special contracts, tax payments (especially penalties and/or assessments). Those checks may be filed with the documents pertaining to the underlying transaction
Contracts, Mortgages, Notes, and Leases that are expired
Disability and Sick Benefits Records
Invoices from Vendors- except invoices for capital expenditures which are retained permanently
Personnel Files for those who have been terminated for at least seven years
Trial Balances older than seven years
Three Year Records
General Correspondence
Insurance Policies, Service Contracts, Warranties that are expired
Computer Records
Maintaining a large volume of hard copy documentation can be costly (storage) and cumbersome (difficult to maintain). Computers allow information to be retained economically and in very little space. While advantageous, electronic data archival requires special procedures such as file back-up, hard disk defragmentation, system diagnostics and maintenance.
Computer technology has been advancing rapidly. Obsolescence of hardware and software is of concern regarding long term archival of data. It is imperative that administrators consider compatibility, both forward and backwards, when making decisions about computer equipment.
Care and Feeding of Computer Equipment
Hardware should be secured in a sturdy, well-ventilated work area in accordance with the manufacturer’s directions. The computer and work area should be kept clean using only materials (cleaners) and methods recommended by the manufacturer. Computer equipment and media (diskettes, floppies, monitors, hard drives, tapes, etc) are susceptible to static electricity and electromagnetic fields, both of which should be avoided.
Ideally, the computer CPU and monitor should be powered from a UPS (uninterruptible power supply). A UPS allows the operator to perform an orderly system shutdown in the event that the power goes off. A UPS also regulates the power going to the attached equipment and protects against power surges, brownouts and line current fluctuations. This can prevent both equipment damage and loss of data. UPS systems are sized based on the amount of reserve time they can supply during a power outage. A minimum of five minutes of reserve time is recommended.
Back Ups
Hard drives fail. This is not negotiable. When (not if) the hard drive fails, all of the data that was stored on it is lost.
BACK UP YOUR DATA REGULARLY!
A hard disk crash is not the only way to lose valuable data. A hard drive will purge its contents if the operator, either accidentally or deliberately, commands it. Files may be inadvertently purged or become corrupted due to operator error or hardware/software malfunction.
There are software applications that can perform automatic back ups. Microsoft Windows has a built-in back up utility. QuickBooks Pro accounting software and PDS Ledger both have a built in back up utility.
Back Up media [floppy disk, tapes, CD-R] should be stored in a safe place, away from excessive heat and electromagnetic fields. A fireproof safe rated for media storage is ideal. It is an excellent practice to secure a duplicate back up off-site, such as in a bank safety deposit box.
It is a good practice to use multiple sets of back up media (diskettes, zip disks, tape, etc) which should be clearly labeled. For example: keep five sets of media, one for each weekday. Each Monday perform the daily back up on the media marked Monday. Similarly, do the same for each subsequent day. If a back up disk fails, you still have the previous day(s) as a “back up”.
See also: Backup in IT Procedures
DIOCESAN PROGRAMS
The Diocese of Syracuse operates programs designed to assist parish administration. The programs have enabled greater utilization of parish resources by containing costs, taking advantage of volume discounts, and pooling resources to increase return on investment and reduce risk.
DIOCESE OF SYRACUSE INVESTMENT FUND
The Diocese of Syracuse Investment Fund provides a superior opportunity for parishes to invest surplus funds in a professionally managed stock/bond portfolio. By pooling diocesan and parish resources, larger blocks of money can be invested yielding earnings than would otherwise be unavailable to many parishes individually.
The Diocesan Finance Committee provides professional advice and counsel, while the portfolio is managed by a division of Dermody, Burke & Brown. The committee meets regularly to review fund performance, and to plan investment strategy.
Diocese of Syracuse Investment Fund investments are made only in U.S. Government and highly rated corporate securities, fully insured certificates of deposit, and the highest quality money market funds.
Diocese of Syracuse Investment Fund offers greater flexibility to parishes than conventional CD’s. Withdrawals from the Diocese of Syracuse Investment Fund are allowed without the significant penalties imposed by typical CD investments. Additionally, diocesan investment policies conform to the Socially Responsible Investment Guidelines [prescribed moral and social principles] as set forth by the National Conference of Catholic Bishops. There is no minimum deposit required to open an account. Special subsidiary accounts can be established for parish cemeteries, schools, restricted endowment funds, building funds or other segregated funds.
The most significant difference between the Diocese of Syracuse Investment Fund and the former Diocesan Pooling is that earnings are no loner capped by the set interest rate previously paid on deposits. The Diocese of Syracuse Investment Fund, while very conservative with respect to risk exposure, does follow the market and can result in monthly net unrealized losses in any given month. However, on an annualized basis the fund has demonstrated to yield positive earnings. Regular account statements detailing the beginning balance, deposits, withdrawals, earnings, and ending balance for each account are provided monthly.
Resolution
A Resolution authorizing borrowing must be approved by the parish Trustees. A proposal is forwarded to the Chancery for review and approval by the Bishop and Chancellor. Once approved, a repayment schedule is arranged through the Diocesan Finance Office. Loans are not approved to fund operating deficits.
Deposit and Loan Fund #1
Deposit and Loan Fund #1 (D&L#1) is the original loan servicing system administered through the Chancery. Those loans have specific lenders and borrowers [based on original agreements between loaning and borrowing parishes], and are administered through the Finance Office. Payments of principal and interest are remitted to the Finance Office by the borrowers, and each quarter the lenders receive those proceeds.
Deposit and Loan Fund #2
Deposit and Loan Fund # 2 is a general loan pool funded by investment account deposits of parishes with surplus funds. These deposits are not tied to a specific loan or borrower. Depositors [lenders] receive quarterly interest payments and the amount of their investment remains constant. Borrowers of loan funds repay the fund with interest quarterly. The principal component of the loan payments remains in the pool for future loans.
PROTECTED SELF INSURANCE
The Protected Self Insurance fund (PSI) provides uniform, all-risk insurance coverage under one comprehensive plan for all parishes and organizations of the diocese. Under this plan the diocese assumes risk up to a certain level after which outside insurance coverage begins.
The following items are covered under PSI:
All Parish Buildings
All Parish Owned Contents
Workers Compensation
All General Liability
All Auto Liability on Parish Owned Vehicles
Auto Physical Damage on Parish Owned Vehicles
Money and Securities
Fine Arts
Glass- Stained and Plate
Sacred Vessels
Priests’ and Sisters’ Personal Belongings [up to $5,000] on Parish Premises
New Construction
Boilers
Medical Payments (Auto & Premises)
All Parish Organizations
Fidelity and Surety
Flood
Special Events Insurance
If Church property is rented to others for gatherings, particularly when liquor is served, the person or organization must provide a certificate of insurance naming the parish or other entity, diocese and Bishop as “Additional Named Insureds.” No such certificates are required from parishes or other diocesan entities. If a person or outside [non-diocesan] organization who wishes to use diocesan property does not have insurance and only wants to use the premises for a special event, they may purchase a special events policy. This is purchased through the Risk Management Office at the Chancery.
Excluded From PSI Coverage- The following items are excluded from coverage in the program:
All Personally Owned Vehicles
Property Loss Due to Wear and Tear (Depreciation)
War Risk and Nuclear Damage
Student Accident Medical Reimbursement Programs
The First $200 of Each Property Loss
The First $250 of Each Auto Physical Damage Loss
Towing- Except When the Result of Auto Collision
The First $1,000 of Each Boiler Loss
Asbestos Related Claims
Seepage and Pollution Contamination
Since the diocese assumes some degree of responsibility and risk for claims, the success of this program relies on the cooperation of each parish. An awareness of safety conditions is a key element. Please refer to the Property Management section of this manual.
Annual billings for PSI coverage premiums are sent from the Finance Office. The policy renews on July 1st of every year. A payment of 50% of the total premium is due upon receipt of the billing. The balance is due in two 25% installments. Prompt payment is important since the diocese must pay the entire premium to outside insurance carriers shortly after the new contract goes into effect.
UNEMPLOYMENT INSURANCE
Employers, including parishes, are required to pay for Unemployment Insurance in compliance with New York State Department of Labor regulations. Unemployment Insurance is billed to parishes quarterly, as described below.
Each parish has a Federal Employer Identification Number, also known as an EIN (employer identification number). This number should be used on all tax filings and referenced in all correspondence related to federal employment taxes.
Each parish must have a New York State Employer Registration number. The NYS Employer Registration number is an eight digit number configured as a two digit number, a hyphen, and then six digits. The first two numbers for a parish ER number should be a 04- prefix, indicating that the parish is an unemployment insurance Benefit Reimbursement Option employer (described below).
Unemployment Insurance can be very costly if handled improperly. For this reason, PeopleSystems has been contracted to represent the diocese, schools, and parishes. PeopleSystems acts as a liaison between the diocese / parishes and New York State for matters relating to unemployment and disability insurance. PeopleSystems handles all matters pertaining to assignment, registration, application, and changes for parish NYS Employer Registration numbers.
While it is not the intention of the diocese to deny benefits to anyone deserving of them, benefits should not be paid unnecessarily, nor in excess of required amounts. PeopleSystems assists parish administration in making such determinations.
Parishes of the Diocese of Syracuse administer unemployment and disability insurance under the Benefit Reimbursement Option. Under this plan, unemployment benefits are paid to former employees by New York State and the state is then reimbursed for the amount of those benefits directly by the diocese. Parishes pay unemployment and disability insurance premiums directly to the diocese each quarter, not to the state, based on a quarterly diocesan Unemployment and Disability Insurance billing. Parishes prepare the billing based on their payroll information and send a copy with checks payable to the Diocese of Syracuse each quarter. The information in the quarterly diocesan billing report must be consistent with the payroll information filed with the parish quarterly NYS-45 tax return.
Parishes are billed on a state form named the Notice of Benefit Reimbursement Charges quarterly by NYS for the amount of unemployment benefits paid out in that quarter. Usually those billings are directed to the diocese by the state. Occasionally, the Notice of Benefit Reimbursement Charges bills are directed to the parishes. If a parish receives such a bill, they should direct it to the diocesan finance department immediately so that it can be paid. Parishes should not pay the bill themselves, nor should they remit unemployment and/or disability taxes directly to the state through their NYS-45 filings or otherwise. The diocese must remit the billed amount to NYS within approximately 15 days from the end of each quarter.
The rates and thresholds for Unemployment and Disability insurance premiums are different for parishes than those published for Tax Based Option employers. Unemployment and Disability premiums are paid on a specified amount of gross wages paid to each parish employee annually. Rates are subject to change; parish administrators will be advised by the diocese of any future rate and/or threshold changes.
The following classes of employees must be included in the calculation of, and payment of, unemployment insurance premiums: regular employees (full and part-time), all aliens (legal or illegal), casual labor, laborers under the age of 21 working for nonprofit organizations, children under age 14 working for nonprofit organizations, musicians and performing artists. Clergy and members of religious orders must not be included in the calculation of, and payment of, unemployment insurance premiums. Disability forms should be emailed to: disabilityclaims@pomcogroup.com
New York State Department of Labor and/or the Bureau of Labor Statistics occasionally requests information from parishes. It is the responsibility of parish administration to determine whether such information requests are applicable to the parish, and if so to comply with the request.
Please note that the diocese and all parishes are exempt from filing Form 940, the Internal Revenue Service form for federal unemployment insurance.
DISABILITY INSURANCE
Employers, including parishes, must pay for Disability Insurance in compliance with New York State Disability Insurance regulations. Disability insurance provides benefits to employees unable to work due to non-work related circumstances.
Pomco administers Disability Insurance on behalf of the diocese and parishes, including payment of benefits.
Parishes are billed quarterly for Disability Insurance premiums. The quarterly premium worksheet describes the calculations upon which the disability insurance premium is based. Payments are sent to the Diocesan Finance Office quarterly.
Please note that High School students are excluded from disability coverage, so do not include their wages in calculating the disability insurance premium [unlike the calculation of unemployment insurance premium; NYS law requires their wages be included, even though they can not draw unemployment benefits].
Disability forms should be emailed to: disabilityclaims@pomcogroup.com
HEALTH INSURANCE
The Diocesan Health Insurance plan provides comprehensive health insurance coverage to all eligible employees. Employees that work 20 hours per week for seven consecutive months per year are eligible to enroll in the health insurance plan.
There are a variety of plan options available. Employees contribute towards the cost of their health insurance through payroll withholding; the employer pays for the bulk of the premiums.
Basic life insurance coverage is provided to all eligible employees at no cost to them. Supplemental life insurance coverage can be purchased at the employee’s expense.
Health and Life insurance premiums are billed monthly. The detailed bill lists the employees and their coverage. It is parish administration’s responsibility to maintain the billing roster and promptly inform the diocesan benefits department of all changes. For details on plan administration please refer to the Personnel and Benefits Administration Manual. Additional information is also available by calling the Employee Benefits Office at the Diocesan Finance Office.
PENSION
The diocesan pension plan was established to provide for the retirement needs of lay employees of the Diocese of Syracuse. All lay employees that work 1,000 hours or more annually must be enrolled in the diocesan pension plan. Such enrollment is mandatory and may not be waived.
The plan is administered by Empower Retirement Services (formerly known as Great West). There are quarterly billings; payments are directed to Empower Retirement Services. Each parish is responsible for notifying Empower Retirement Services of all changes on the monthly billing roster. Employee W-2 information must be provided annually.
For more information on plan administration please refer to the Personnel and Benefits Administration Manual. Additional information is also available by calling the Employee Benefits Office at the Diocesan Finance Office.
DIOCESAN COLLECTIONS AND ASSESSMENTS
The Chancery acts as a third-party conduit for various National Collections including:
Black & Native American
Bishops Overseas Appeal
Holy Land
Catholic Communications
Holy Father (Peter’s Pence)
Catholic University
Mission Sunday
Campaign for Human Development
Seminary
Respect Life
Cathedraticum
Missionary Co-op
Rice Bowl
Churches of Eastern Europe
Disaster Relief
Home Missions
Military (every three years)
The schedule for those collections is sent out to all parishes from the Chancellor’s Office each year.
Seminary Assessment
There is an annual assessment to provide educational support to seminarians studying for the priesthood. The assessment is billed to parishes annually and remitted to the Chancery Finance Office.
Clerical Fund Assessment
There is an annual assessment to provide living allowances for retired priests of the diocese. The fund also provides for reimbursement of priest medical expenses that may not be covered by health insurance. The assessment is billed to parishes annually and remitted to the Chancery Finance Office.
Hope Appeal
The annual Hope Appeal fund drive provides support to vital diocesan outreach programs. Parishes share in supporting the programs through an annual assessment, and remit proceeds to the Development Office [located at the Harrison Center].
7.0 PAYROLL TAXES AND TAX FILING
Introduction::Payroll is often the largest category of expense for employers. Employee compensation is governed and inspected by Federal and State regulatory agencies. Due to this scrutiny, it is imperative that your parish complies with all payroll and personnel laws. You are encouraged (but not required) to use a Payroll Service to administer your payroll due to changing, increasingly complex tax laws and compliance issues. Payroll taxes must be withheld from all lay employee wages. Payroll tax withholding for priests is different than that of lay employees. Priests are considered as employees of the parish for Federal income tax purposes but are considered as self-employed for Social Security Administration purposes. Thus, parishes are forbidden from paying any FICA taxes for, or on the behalf of, priests. Instead, priests are required to pay SECA (self-employment) tax that is their contribution for social security benefits.
New York State requires notification for all newly hired employees, including priests. Since priests are now being considered employees, NYS must be immediately notified by submitting a copy of their Federal Form W-4 or NYS Form IT-2104 to the following address. This notification procedure must be done whenever a priest moves to a new parish or assignment.
New York State Tax Department
New Hire Notification
PO Box 15119
Albany, NY 12212-5119
You may also fax the forms to the New Hire Notification fax line at (518) 463-4514.
Annual Filings
Payroll Taxes are based on a calendar year (Jan. 1 through Dec. 31), as opposed to the parish fiscal year (July 1 through June 30).
The Federal forms that must be filed on an annual basis are as follow:
Form W-2 - Employee Wage and Tax Statement (Appendix 7-A)
This form must be issued to every employee no later than January 31.
Form W-2 details Taxable Wages, Federal, State and Social Security tax withheld from employee paychecks, and Deferred Compensation (Tax Sheltered Annuities) during the calendar year.
W-2 forms must be filed with the Internal Revenue Service no later then February 28.
Beginning with calendar year 1999, remuneration paid to Priests must also be reported on Form W-2. Additionally, a priest W-2 must have the value of the rectory room and board reported in Box 14. That room and board valuation may not be less than $2,400 for a year. The valuation for room and board is reviewed periodically and is subject to increases. You may call the Finance Office for a current valuation amount for your area.
Form W-3 - Transmittal of Income Tax Statements (Appendix 7 -B)
This form must be completed and filed along with the IRS copies of the W-2 forms by February 28.
The totals on the transmittal form W-3 for wages must agree with the sum total of all W-2 forms.
Form 1099 MISC.- Miscellaneous Income Statement (Appendix 7 -C)
This form must be completed and sent to qualifying payee no later then January 31.
This form is filed for anyone that is not your employee that you pay over $600.00 to for services provided in a calendar year. Parishes are required to have Forms W-9 on file for service providers, independent contractors, and sole proprietors from whom you purchased services (including materials required for providing the service). Filing Form 1099 is not required if the service provider is a corporation as evidenced by a Form W-9.
This may include Rents, Royalties, Other Income or Non-employee Compensation.
The 1099 forms must be filed with the Internal Revenue Service no later then February 28 (do not separate the forms – see 1099 instructions).
Form 1096 - Annual Summary and Transmittal of US Information :Return
This form must be completed and filed along with the IRS copies of the 1099 forms by February 28.
The totals on the transmittal form for wages must agree with the sum total of all 1099 forms. In addition to the above forms the employer must have the following forms completed by the employees on an annual basis and retained (permanently) in the personnel files.
Form W-4 -Employee Withholding Allowance Certificate (Appendix 7 -D)
This form determines the amount of Federal withholding that is deducted from each paycheck. The amount of income tax withholding must be based on filing status, withholding allowances, and the tax tables; not on a fixed dollar amount or arbitrary percentage.
The completed form must be kept on file and remains in effect until the employee gives you a new W-4. The employee (both lay and clergy) may elect to have an additional fixed dollar amount withheld by indicating that amount in Box 6 of Form W-4.
If an employee has claimed an exemption from withholding in the prior year they must complete a new W-4 form by February 16.
Beginning 1/1/99 priests may opt to withhold or not withhold taxes (Please refer to Priest Compensation section for details). They may use the W-4 to withhold for each pay cycle, or they may continue to file quarterly estimated tax returns. All priests must complete a Form W-4 regardless of which option they choose.
NYS Form IT-2104 -Employee Withholding Allowance Certificate :(Appendix 7 -E) This form determines the amount of New York State withholding, if any, that is deducted from each pay check.
The completed form should be kept on file and remains in effect until the employee gives you a new IT-2104.
If a form IT-2104 is not filed, you may use the same number of allowances as claimed on the W-4 form.
However, if the number of allowances is different than the From W-4, an IT-2104 must be filled out.
Form I-9 - Employee Eligibility Certification (Appendix 7 -F)
This form must be completed to verify that each new employee is legally eligible to work in the United States.
All employees hired after November 6, 1986 must complete Section 1 of the I-9 form.
The completed form should be kept on file along with copies of the supporting documents.
The individual signing the form on behalf of the parish or other Diocesan entity must verify the original documents as described on the I-9 form.
Quarterly Filings
The following forms must be completed on a quarterly basis:
Form 941 -Employer’s Quarterly Federal Tax Return (Appendix 7 -G)
All employers who pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits) and/or Social Security and Medicare taxes must complete form 941.
Report wages, subject to Federal Income Tax, paid to priests and lay employees on Form 941, line 2. Wages subject to income tax do not include amounts contributed to 403(b) TSA plans, Section 125 or 143 pretax health benefit plans, or reimbursements for employee out-of-pocket business expenses.
Do not include any priest wages on Form 941 line 6(a) or 7(a). Priests are considered to be self-employed for Social Security Administration and Medicare Taxation purposes. An employer may not withhold FICA or Medicare tax from priest wages. An employer may not pay the employer-matching amount of FICA or Medicare tax on behalf of a priest.
Include Section 403(b) TSA contributions in the wages reported for lay employees on lines 6(a) and 7(a) of Federal Form 941. Do not include Section 125 & 143 Plan contributions in the lay employee wages reported on Federal 941 lines 6(a) and 7(a).
Substantiated, documented, and allowable priest business expenses that are reimbursed through the Clergy Expense Allowance contained in the Clergy Compensation Schedule are not taxable wages. Priest expenses that are not substantiated, not documented, and/or not allowable under the tax code may not be applied against the clergy business expense allowance. Surplus clergy business expense money (expense money advanced which exceeds the amount spent and substantiated) is fully taxable and must be reported as wages in the fourth quarter Federal 941 filing (line 2) as well as the priest W-2.
The amount on all four quarterly reports for income tax withholding, social security, and Medicare wages and social security and Medicare taxes should reconcile to Form W-3 and W-2’s at year end.
The due dates for filing the quarterly 941 forms are: April 30, July 31, October 31, and January 31
Form NYS-45 Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return (Appendix 7 -H)
This form is used to reconcile the withholding for NYS for the quarter and to report lay employee wage, tax, and unemployment insurance (UI) gross wages information.
If you have more than 5 employees you must file Form NYS-45-ATT attachment to report individual employee information. (Appendix 7 -I)
Lay employee gross wages are reported in Part A, line 1 and Part C, column C of form NYS-45. The lay employee UI wage base includes contributions for TSA’s (tax sheltered annuity, Section 403(b)) and Section 125 & 143 pretax health benefit plans. Do not include priest wages in Part A or Part C, column C of the NYS-45. Additionally, in the fourth quarter columns D and E in Part C must be filled in. Column D contains the state income taxable wages paid to each employee (including priests) for the tax year. Column E contains the amount of state income tax withheld from each employee for the tax year (including priests if applicable).
Report NYS income tax withheld from priest and lay employee wages in Part B of form NYS-45.
The amount on all four quarterly reports for NYS income tax withholding should agree with the sum total of amounts withheld for NYS on the W-2 forms and reported on transmittal form W-3.
The due dates for filing the quarterly returns are: April 30, July 31, October 31, and February 28
Unemployment and Disability Insurance Billing
The Catholic Diocese is self-insured for Unemployment and Disability insurance.
Quarterly reports are to be completed by the parish providing gross payroll information on the lay employees.
Priests and Religious personnel salary information should NOT be included in the quarterly unemployment and disability reports.
The completed forms and checks are to be remitted directly to the Finance Department. Separate checks for the Unemployment and Disability Insurance payments are necessary.
Unemployment and Disability insurance premiums are based on the gross wages of all lay employees. Gross UI and DBL wages include all 403(b) TSA and Section 125 & 143 pretax health benefit contributions.
Form 940 -Federal Unemployment Insurance
The Diocese and all parishes are exempt from filing form 940.
This form should not be submitted. If you receive this form, contact the Finance Department.
Pension Billing
F.P. Kessler Associates administers the Diocesan pension plan.
Premiums are billed on a quarterly basis from Kessler Associates.
Checks for pension premiums are to be sent to New England Life.
F.P. Kessler Associates must be provided with W-2 wages for each employee on an annual basis.
Monthly and Periodic Filings (Appendix 7 -J)
You must deposit income tax withheld and both the employer and employee social security and Medicare taxes either monthly or semi-weekly. Since priests are self-employed for Social Security and Medicare tax purposes, their remuneration will not be included when calculating the parish’s portion of Social Security and Medicare Tax (FICA). Therefore, the priest’s remuneration will only be included on line 1 of Form 941 and not on lines 6 and 7.
Monthly Tax Depositors
You are a monthly schedule depositor for a calendar year if the total taxes on form 941(line 11) for the four quarters of the previous year were $50,000.00 or less. Tax deposits are due by the 15th of the following month.
If you are not using the EFTPS (Electronic Federal Tax Payment System) for your tax deposits and your tax liability is less then $50,000.00 you may use Form 8109 Federal Tax Coupon to remit Federal and FICA payments.
Semi-weekly Tax Depositors
You are a semiweekly schedule depositor for a calendar year if the total taxes on form 941(line 11) for the four quarters of the previous year were more then $50,000.00.
If your tax liability exceeds the $50,000.00 threshold, you must be enrolled in EFTPS and deposit your taxes electronically by January 1, 1999. Failure to deposit tax liabilities electronically could result in significant penalties.
For NYS Personal income tax withheld remittances you are required to use Form NYS-1-MN
Forms, instructions and publications can be obtained by calling the following toll free numbers:
Internal Revenue Service:1-800-829-3676
Fax on Demand::1-703-368-9694
Via IRS web site at::www.irs.ustreas.gov
New York State::1-800-462-8100
Fax On Demand::1-800-748-3676
Via NYS web site at:www.tax.state.ny.us
For more information on withholding and tax information order:
IRS Publication 15-Circular E, Employers Tax Guide and NYS Publication - NYS-50-NYS Guide to Withholding Tax and Wage Reporting
Third Party Disability Payments
An employee who is out on disability leave receives benefits from a third party payer, Pomco. The employer receives a notification of payments made along with all amounts withheld as these payments are made. In addition, a summary of all payments is sent to the employer at the end of each quarter.
Federal tax withholding at the rate of 20% of gross benefits paid is withheld from the employee. The employees share of FICA is also withheld.
The amount withheld for Federal and FICA withholdings is sent to the employer.
The employer deposits this and includes the amount with the next federal tax deposit made. The employer is also responsible for including the employer share of FICA with the next tax deposit.
These disability payments and all related payroll taxes must be included on the quarterly Form 941 and on the year-end Form W-2’s.
On Form 941, the amounts of employee FICA deposited by the third party payer should be shown on line 9, and deducted from the total FICA liability. Additionally, Third Party Disability should be noted on this line.
On the year end Form W-2’s, all benefits paid along with appropriate withholdings must be included with regular wages and taxes. On the W-3 Transmittal Form that accompanies Forms W-2 to the IRS, the amounts of Federal Withholding withheld by the third party payer should be shown separately in section 21 of the form, as well as being included in section 9.
403(b) Tax Sheltered Annuities (TSA’s)
A tax-sheltered annuity exempts a portion of gross wages from Federal and New York State income tax liability; deferring the liability for applicable taxes until a future date when the funds are withdrawn.
For FICA calculations, the employer must take into account the entire amount of these tax-sheltered contributions. TSA contributions do not escape FICA tax.
For participants in a 403(b) TSA or any pension plan, the “Pension Plan” box on Form W-2 must be checked.
IRS Publication 571 outlines in detail the requirements relating to 403(b) TSA’s.
Section 125 and 143 Plans
Section 125 and 143 are pretax health benefit plans. Section 125 & 143 Plans are exempt from Federal and State Income Tax, as well as FICA (social security) tax. Section 125 & 143 Plan contributions must be included in the UI (unemployment insurance) wages reported on the NYS-45 (Part A, line 1 and Part C, column C).
Foreign Priests: Payroll Taxes
A foreign priest (clergy) with a “green card” is designated as a Resident Alien for U.S. income tax purposes. This tax status generally requires the same tax treatment as an U.S. citizen. Resident Alien taxpayers must obtain a social security number or an ITID (Individual Taxpayer Identification Number). Parish administration must obtain a Form W-4 and NYS IT-2104. Foreign priests also have a dual tax status, they are considered to be employees for state and federal income tax purposes and are considered to be self-employed for social security and Medicare tax. Parishes may not withhold social security (FICA) or Medicare tax from clergy wages in the way they are required to withhold from lay wages. Rather, clergy must file quarterly self-employment returns and pay their social security and Medicare taxes quarterly. Optionally, clergy may elect to have additional federal withholdings to cover their social security / Medicare tax obligation by designating a fixed amount in Box 6 on their Form W-4. Their wages are treated just as other employee wages on the quarterly state and federal employment tax filings (941, NYS-45) submitted by the parish. Clergy are not eligible for drawing unemployment insurance benefits. Their wages are not included in the wages reported on the NYS-45 Part C Column C (or ATT Column C). Clergy wages must not be included in the wages reported on Federal Form 941 lines 6a or 7a (social security FICA and Medicare wage bases).
Foreign / Resident Alien clergy must file personal income tax returns. Before leaving the U.S., Resident Alien clergy must file a 1040-C and pay any outstanding taxes prior to departure. The 1040-C is not in lieu of the annual tax return filing which is still required.
Resident Alien clergy are subject to the NYS New Hire Notification Act. Parish administration must report to the state within 10 days of placement in the parish.
INSTRUCTIONS FOR COMPLETING FORM NYS-45 QUARTERLY NEW YORK STATE TAX FILING
The form is organized into three parts. Part A has to do with Unemployment Insurance Wage reporting. Part B is for reporting NYS income tax withholding. Part C is for reporting both quarterly unemployment insurance wages, and annual NYS income tax wages and withholding. Details are as follows:
Each quarter you must report, by month, the number of employees who worked.
Part A
Only fill out line 1 of Part A. The amount reported is the sum of the quarterly wages paid to lay-person employees, including amounts contributed for TSA’s (tax sheltered annuities 403(b) plans) and Section 125 / 143 pretax health benefit plans. Do not include priest wages. [This total should match the total for Column C of Part C (or ATT).]
Part B
Report NYS income tax withholdings as you have in the past.
Part C Quarterly
Fill out Column A (social security number) and B (employee name) of either Part C or Form ATT depending upon the number of employees. If you have six or more employees you must use Form NYS-45-ATT . In Column C, fill in the quarterly UI wages for lay-person employees. UI wages include TSA and Section 124 / 143 benefit contributions.
Part C Annually
In the fourth quarter you must report the annual NYS wages for each employee (including priests) and the amount of annual NYS income tax withheld for each employee. These amounts are reported in Column D (annual SIT wages), and Column E (annual SIT withholdings). SIT (state income taxable) wages do not include TSA or Section 125 / 143 contributions. You must report annual SIT wage information on priests in Column D and Column E. NEVER fill in Column C (Part C or ATT) for a priest.
W-2’s for Priests
As of January 1, 1999 clergy wages are reported on a Form W-2 rather than a Form 1099 as previously done. There are several notable differences between filing Clergy W-2’s and lay employee W-2’s.
Priests are considered to be employees for Federal & NYS Income Tax purposes
Priests are considered to be self-employed for Social Security Administration purposes, and are responsible for both sides of Social Security tax under the SECA provisions of the tax code. Withholding of FICA and Medicare taxes from clergy wages is strictly forbidden.
Priests may elect to pay their taxes in the following ways:
Quarterly estimated tax returns (as in the past)
Payroll withholding via W-4 and IT-2104
Combination of the above
Priests business expense reimbursement and substantiation:
Follows the Accountable Reimbursement Provisions of the Tax Code
Clergy are advanced an expense allowance monthly with their pay
Expense substantiation is required (mileage/odometer log, receipts, etc)
Unsubstantiated portion of the clergy expense allowance advanced is classified as taxable income
All expenses applied against the expense allowance must be bona fide business expenses as defined, and allowed, by the IRS Tax Code.
Housing, Mass Stipend & IRA Reporting
Housing and Mass Stipend income is included in SECA tax ::: calculation
The value of Housing (room & board) is not included in Federal & NYS Income Tax calculation
Formerly, Mass Stipends were treated as income, but not wages. However, Mass Stipends are now included as a component of wages reported on a clergy W-2 Box 1.
Record Retention
Parishes are required to have substantiation for all clergy business expense administered under the accountable reimbursement plan. Those documents are parish property and must be kept in the parish permanent archives.
Clergy Employment Forms
The parish must have the following forms on file for all clergy employed by the parish: W-4, I-9, IT-2104, annual W-2’s
Clergy that perform services in a parish as an Independent Contractor, (leading retreats, conducting seminars, managing fund-raising campaigns) on a temporary basis, must be issued a Form 1099 for payment of $600 or more in a tax year. The parish must have a Form W-9 on file for all such clergy. In most cases clergy are NOT considered independent contractors, rather they are considered employees and receive W-2’s.
Chart of Accounts
Organization of Chart of Accounts and Parish Financial Reports
Balance Sheet : Assets, Liabilities, Funds/Equity
Assets
Assets are resources established for the operations of the parish and are organized into three categories, (1) Operating Assets, (2) Plant Assets, and (3) Endowments. Descriptions of each follow.
Operating Assets
cash, investment accounts, accounts receivable, inventory
Plant Assets (also referred to as Fixed Assets)
Land, Buildings, Capital Improvements, Furniture, Equipment, Automotive Equipment, and Other Real property (example: art).
Endowments
Funds established for specific programs and/or purposes with expressed (written) restrictions and/or directions for use of the funds. Examples include Scholarships, Cemetery Perpetual Care Funds, and some Building Funds. Restrictions may prevent use of the principal investment, requiring that only the interest earned on the invested funds may be used to fund the specific purpose for which it was established. Use of restricted (endowment) funds must be consistent with the wishes of the donor(s) and as such, those wishes should be in writing.
Liabilities
Liabilities are obligations (debts, credit) to pay money to other parties. Examples include Accounts Payable (example: money owed to vendors for goods/services purchased on credit), Taxes Payable (taxes and/or garnishments withheld from employee paychecks and due to the government), and Loans Payable (borrowed money).
Funds/Equity
Equity is the amount of money that would be left after paying all obligations and debts (liabilities) from the available resources (assets) on hand. Equity is increased by successful operations (income exceeding expenses) and decreased by operating losses and/or excessive debt.
Income Statement - Income and Expenses
Income / Revenue
Income, or Revenue by another name, is money received from parish operations. The income is organized in three Revenue Schedules characterized by the source of the funds: Schedule A- Regular Collections, Schedule B- Auxiliary Receipts, and Schedule C- Fundraising Receipts.
Schedule A
Regular Collections: These are the monies given by parishioners during Mass and include Ordinary Offertory, Christmas/Easter/Holy Day Offertory, and Special Collections for Church Purposes [Flower, Fuel, Building Improvement Collections, etc.].
Schedule B
Auxiliary Receipts: These monies are brought in from programs such as Religious Education, Donations from Parish Societies, Contributions for the Diocesan Newspaper, Youth Program Dues, Votive Shrines (candles), Stole Fees (marriages, baptism, funerals), and refunds of Hope Appeal Overages. Additionally, Rent income and Interest income is included in Schedule B.
Schedule C
Fundraising Receipts: Includes monies raised through Games of Chance (bingo, bell-jar, raffles), Dinners, Bazaars / Festivals, and other fundraising activities.
Expenses
Expense is the outflow of money disbursed for operations (including accruals to recognize the current effect of an obligation to pay for goods/services in the future). Expenses are organized into Expense Schedules along functional lines as follows:
Schedule D
Salaries and Remuneration: Includes the gross wages of the pastor, staff, and religious stipends.
Schedule E
Priest Fringe Benefits: Includes any Substantiated Clergy Business Expenses, Clergy Health/Life Insurance, Clergy IRA wages, annual Clergy Retreat and Educational expenses.
Schedule F
Religious Allowances: Includes Religious Health Insurance premiums, Religious Retirement premiums, Religious Living and Transportation Expenses.
Schedule G
Employee Fringe Benefits: Includes lay employee fringe benefit expenses including the Employer Share of FICA and Medicare expense, lay Unemployment and Disability Insurance premiums, lay Health/Life insurance premiums, and Pension premiums.
Since employees typically make a contribution towards the cost of their health care insurance through payroll withholding. Their contributions should be recorded as credits to G/L expense account #745-Health Insurance. This will yield the net amount of insurance expense to the parish. Any voluntary coverage for supplemental health and/or supplemental life is paid for entirely by the employee through payroll withholding. Those contributions are also credited to the G/L #745 Health and Life Insurance expense account to yield the net expense to the parish.
Schedule H
Office Expense: Includes administrative expenses such as Postage, Telephone, Printing/Copying, Equipment Service Contracts, Office Supplies, Collection Envelopes, Bank Fees, Conferences/Workshops, Office/Computer Equipment [under $1,000 at cost each], and expense for Professional Services [legal, payroll processing, engineer, architect, fundraising].
Schedule I
Program Related Expense: Includes Religious Education and Youth Program expense [not including payroll], Community Service and Human Development expense, Parish Life and Worship, Formation for Ministry, and Parish Council expenses.
Schedule J
Rectory Household: Includes expenses for stocking food and cleaning supplies, rubbish removal, and cable for the rectory. Do not include repair and maintenance; that is reported in Schedule K.
Schedule K
Building Operation and Maintenance: Includes all maintenance, repair, and utility expense for all parish buildings including the church, rectory, hall, convent, etc. Expenses should be organized by building if there are separate meters or a logical allocation for the expense can be determined.
Schedule L
Other Expenses: Includes expenses for Parish Owned Automobiles/Trucks, Interest expense [on borrowed money], Diocesan Newspaper, Direct School Support and School Assessment expenses, Clerical Fund Assessment, and Tithing [money given to assist another parish].
Schedule M
Extraordinary Receipts: Includes revenue from an Approved Capital Campaign, Bequests, Insurance Claim proceeds to cover casualty losses, Restricted / Endowment Donations, and proceeds from Heritage Campaign overage. This schedule also includes proceeds that are not operating revenues such as net gains on disposal of fixed assets and/or investments, and diocesan collections [detailed in Schedule O Collections].
Schedule M
Extraordinary Disbursements: Includes disbursements that are not operating expenses such as Net Loss on Sale of Investments or Fixed Assets, and diocesan collections remitted [detailed in Schedule O Remittances], and capital improvements.
Schedule O
Diocesan Collections: Proceeds from second collections (see list in chart of accounts, G/L #’s 671 through 690).
Schedule O
Diocesan Collections Remitted: The amount remitted from the Diocesan second collections reported in the schedule above (see list in chart of accounts, G/L #’s 971 through 990).
Schedules P, Q, R, S, and T provide additional details on amounts reported in various balance sheet accounts. Schedules P Notes, Loans, and Mortgage Payable, Q- Cash Accounts, R- Investments, and S- Capital Improvements detail changes in account balances from the prior year fiscal end to the balance reported as of the current year report. Schedule T provides detail on the liabilities for Taxes and Payroll Payable [including benefits payable], and Accounts Payable [money owed to the diocese and/or vendors for goods/services purchased on credit during the fiscal year].
Summary of Cash Received and Disbursed
[a.k.a. Summary of Cash Flows]
The Summary of Cash Flows contains: (1) revenue and expense schedules from the Income Statement, (2) the amount of Operating Gain or (Loss) for the fiscal year, (3) the amount of Net Cash Inflow or (Outflow) for the fiscal year, (4) a reconciliation between the results reported in the Income Statement and the balances reported on the Balance Sheet, and (5) a detailed listing of any “reconciling items” including a thorough explanation of each item.
Examples of typical reconciling items include:
Principal payments on loans decrease cash without impacting the Income Statement [principal payments reduce the loan liability account on the balance sheet; cash is reduced but there is no corresponding expense on the P&L].
Accruals to recognize Accounts Payable obligations [liability on balance sheet] and operating expense [expense increases on the P&L, but there is no corresponding cash outflow on the balance sheet].
Accruals to recognize Accounts Receivable and income [revenue increases on the P&L, but there is no corresponding cash inflow on the balance sheet].
Standard Parish Chart of Accounts (Revision 4/3/2007)
BALANCE SHEET
ASSETS
PLANT FUND
ENDOWMENTS
401
405
491
Cash- Income
Investments
Endowment Fund Balance
LIABILITIES
EQUITY
INCOME STATEMENT
REGULAR COLLECTION- Revenue Schedule A
AUXILIARY RECEIPTS- Revenue Schedule B
FUNDRAISING RECEIPTS- Revenue Schedule C
632
633
634
Booster Club
Bingo
Fundraising
SALARIES- Expense Schedule D
PRIEST ALLOWANCE- Expense Schedule E
RELIGIOUS ALLOWANCE- Expense Schedule F
732
733
Retirement- Religious
Living Allowances- Religious
EMPLOYEE FRINGE BENEFITS- Expense Schedule G
OFFICE EXPENSE- Expense Schedule H
PROGRAM RELATED EXPENSES- Expense Schedule I
RECTORY HOUSEHOLD- Expense Schedule J
BUILDING / PLANT- Expense Schedule K
OTHER EXPENSES- Expense Schedule L
EXTRAORDINARY RECEIPTS- Schedule M
DIOCESAN COLLECTIONS- Expense Schedule O
Total Schedule O- Trans to Schedule M
EXTRAORDINARY DISBURSEMENTS- Schedule N
905
Unrealized Loss on Investments
906
971-987
Unrealized Loss on Other Assets
Schedule O Remitted
DIOCESAN COLLECTIONS REMITTED- Schedule O
Schedules A + B + C= Total Operating income
Schedules D thru L= Operating Disbursements
Operating Income (Loss)
Extraordinary Receipts
Extraordinary Disbursements
Net Cash In (Out)