Audit Training Leadership Workshop

1. Audit Training Leadership Workshop

2. Today’s Topics • Introductions • Why have an audit? • Audit Terms Defined • Audit Team and Participants • Audit Process • Internal Controls Checklist • Audit Program Checklist • Audit Report

3. Two things to remember! • 1. Thank your treasurer! • 2. We are here to help: • Julie Young, Diocesan Treasurer and Canon for Finance and Administration • jyoung@edsd.org • 619-481-5453 • Rosa Feeney, Diocesan Assistant Treasurer • rfeeney@edsd.org • 619-481-5457

4. Audits: Why do we need to have an audit? Benefits of Audit • Compliance with law and church canon • Assure that financial statements are accurate • Protects those handling finances • Other People’s money • Increase stewardship • Learning Experience • Chance to celebrate!

5. Audit Workbook • Workbook has been mailed to your church • Workbook is a step by step guide on audit process • Workbook was tested last year and we believe that it helped the congregations that used it • To be used whether you have an external audit, audit exchange, audit review or internal audit

6. Diocesan Auditors • Rosa Feeney, EDSD Assistant Treasurer will be spending approximately half her time starting in June 2014 on Diocesan Audits • She will be leading up a team of volunteer diocesan auditors who will help her conduct audits of selected congregations

7. Terms Defined • External Audit • Audit Review • Committee Audit • Internal audit • Audit exchange • Diocesan Audit

8. Terms Defined • External Audit: A complete audit conducted by an outside Certified Public Accountant (CPA) • Audit Review: A review of the financial statements conducted by an outside Certified Public Accountant (CPA). Typically, and audit review does not offer the same depth as an outside audit nor does it usually conduct an internal controls questionnaire . As such, it does not meet the requirements set forth below for churches that are required to have an external audit but can be used in place of a committee audit. Audit reviews must use the agreed upon procedures checklist provided by the diocese (see Section B). • Committee Audit: Audits that are conducted by committee. There are two types of committee audits. • Internal audit -- a committee audit that is done by its own church • Audit exchange -- a committee audit done on another church in exchange for that church conducting a committee audit on yours • Diocesan Review:This is an audit review conducted by the diocesan audit team. It is not as thorough as an external audit and does not take the place of one. A diocesan audit review must be applied for by March 20, 2014. • Compilations are unacceptable in meeting the requirements of an annual audit.

9. 2013 Audit Guidelines: External Audits • Churches with revenues greater than $2 million: Every other year with audit review in intervening year • Churches with revenue between $1.5 and $2 million: Every third year with audit reviews in intervening years • Churches with revenue between $1 and $1.5 million: Every fourth year with an audit review in one of the intervening years • Churches with revenue between $500,000 and $1,000,000: Audit or Audit review every fourth year with diocesan review in one of the intervening years • Churches must have an external audit or external audit review combined with a diocesan review for the year in which a rector, vicar, or priest in charge leaves • Revenue is for all business units including schools and thrift shops

10. Churches with any of the following are subject to a Diocesan audit team review: • Every 4th year for churches with less than $500,000 in revenue • During administrative transition (part time clergy, treasurer, church bookkeeper/administrator unless an external audit was done within the last year.) • Churches that did not submit any audit in the prior year

11. 2013 Guidelines -- Other Beginning with submission of the 2013 report, churches must submit with their parochial report the financial statements covering the same year and a reconciliation of one to the other. The Reconciliation Form is on our website. They must also submit their current budget.

12. Audit Process: Decide on Type of Audit • Churches not required to conduct a specific type of audit must decide what type of audit to have • This is a vestry or bishop’s committee decision • Decision on type of audit and composition of audit team needs to be conveyed to the diocese by April 15 using the form on page 8 in the book

13. Audit Process: Identify Audit Committee • Find committee members – should not include anyone involved in the finances of the church unless participating in an audit exchange • Preparation: Review audit workbook that will be mailed • Meet with priest and treasurer plus person doing the accounting • Audit team will conduct committee audit or oversee external audit

14. Audit Workbook: General Instructions Advance preparation for audit • Regardless of what type of audit is being conducted, financial staff or volunteers need to prepare for audit by assembling documentation listed in general instructions section of audit workbook (page 9)

15. Audit: Key Points • Preparation is critical; read chapters II and VI of business manual thoroughly • If your understanding of accounting is limited, read chapter III as well • All business units and accounts must be audited

16. External Audit • Audit Committee function is to select auditor, meet with auditor to review findings, and recommend to vestry or bishop’s committee to accept (or not accept audit) • Vestry must provide oversight, making sure that they receive timely reports from the audit committee and receive the final audit report for acceptance • See Section A of Audit Workbook (page 11)

17. CPA Audit Review • An audit review completed by a CPA is an agreed upon procedures contract • Section B of audit workbook provides the steps needed to take when a CPA review is the type of audit to be conducted for the year. • Section B includes a sample engagement letter required to be used for CPA audit reviews. Please consult pages 13-15 of the audit workbook for guidance.

18. Committee AuditInternal Audit or Audit Exchange • Section C of audit workbook provides a step by step instructions on how to conduct an internal audit or audit exchange • Questions incorporate internal controls questions and audit questions • Transactions testing is required • A number of documents should be included in audit and audit workbook that is turned in

19. What is transaction testing? • Sampling deposits and disbursements to assure that backup is available and they are correctly recorded • Sample size is 10% or 25 transactions whichever is smaller • From list of transactions made, choose some that are large and others that are made out to key people and ask for invoices and other backup

20. Financial Statements • Ask for year end balance sheet (Statement of Financial Position) and income statement (Statement of Activities) • Should be in format on next slides

22. Statement of Activities

23. Filing of Audit • Upon completion of audit, committee should present audit report to treasurer, rector/vicar, vestry • A copy of the audit workbook with all attachments should be filed with the Bishop’s Office • If at any time during process, records indicate something seriously wrong, contact wardens and Diocesan Treasurer immediately

24. Questions?

25. Parochial Reports • Due March 1, 2014 (of course we are still accepting!) – need 2013 financials, reconciliation form and 2014 budget with it. • NDI – NET DISPOSABLE INCOME OR LINE B • All funds that are used for operating expenses ARE operating revenues • All funds given or designated for non-operating purposes are non-operating revenues.

26. OUTREACH • 3 Ways congregations can raise and expend money for outreach. They are different, so they are reported differently. • 1. A special appeal for a particular project outside the parish, or designate the proceeds of a fundraising event in advance for a purpose outside the parish.

27. OUTREACHExample for #1 • You receive $417 in the Good Friday envelope and transmit the entire amount (DFMS). Or you announce that whatever you net in the Fall Rummage Sale will go to Episcopal Community Services. The sale nets $1,544 and the entire amount is sent to that charity. These transactions are recorded on lines 11 & 18. If the collections and transmittals occur in the same year the amounts will be equal.

28. OUTREACHExample #2 • A special appeal for the summer day camp your congregation runs for the community or you can designate in advance that the proceeds of the Spring Fair will go to the summer day camp program. The income received from the appeal or the fair will be included on line 10. The expenses of the summer day camp will be included in line 16.

29. OUTREACHExample #3 • A vestry will often include mission and outreach line in the operating budget. They decide how much to contribute from the operating budget to various community programs or charitable causes. Because the source of the money IS operating revenues reported on lines 3-6, these expenditures are shown on line 13.

30. How to handle rental income • a. Rental of Property Income _________ • b. Less Direct Expenses _________ • c. Net Rental Income ___________ • Goes on line 5 • The figures for Net Rental and Fundraising Income (to be handled the same way as rental income) are not to be used if negative. Expenses in excess of income are included as an operating expense rather than as negative operating income.

31. How to handle flower donations • General Description of Operating Revenues : ALL funds, from whatever source, that used for the general operation of the congregation are operating revenues. The general operation of the congregation includes, clergy & lay staff compensation, all expenses related to operating and insuring the building(s), expenses of the music program, church school, adult education programs, flowers and supplies for the altar, diocesan quota and office expenses.

32. Reconciliation Form • 1. Line B of Parochial Report $______ • (Total Operating Revenues) • 2. Operating Expenses from Dec. ______ • 31st. 2013, P & L • 3. Less any outreach funds raised (_____) • by special appeal for special purpose • outside included in P & L (line 11 & 18)

33. Reconciliation FormContinued • 4. Less any special appeals for a (_______) • program your congregation runs • for the community. (line 10) • 5. Less Operating Loans from (_______) • the Diocese • 6. Adjusted Operating Expenses $________ • 7. Difference between line B of Parochial Report and Adjusted Operating Expenses • If line 7 is not zero, please explain differences

34. Questions? • Contact Rosa Feeney at rfeeney@edsd.org or 619-481-5457 The Episcopal Diocese of San Diego and its employees do not provide, and none of the information furnished in this presentation should be viewed as investment, tax, or legal advice.  The content is provided for your information purposes only.