Audit Forms and Updates
A Letter from the Treasurer
To: Vestries and Vestry Committees and their respective Treasurers
From: Michael J. Kerr, Treasurer/Chief Financial Officer
Date: February 7, 2013
Re: 2012 Audit of Church Accounts
The diocesan canons require that an annual audit of church financial records be submitted to the Office of the Bishop. The canonical deadline for filing the 2012 audit is August 31, 2013. As I mentioned at Annual Council in Reston two weeks ago, my office is assisting a church with an employee theft (“defalcation”) claim. This matter very well would have been mitigated with the combination of audit and oversight.
There are three methods for completing your church audit:
First, an outside audit firm may be employed. Please forward a copy of their entire audit report, the supporting management letter and your church response to issues raised by the auditors. An “audit” or a “review” are acceptable levels of reporting, however the third level of audit work, a “compilation”, is not acceptable. If your church’s year-end financial documents and supporting papers are in a clean and accessible format, this will reduce the billable hours required by the auditor.
Second, your church may use the Diocese of Virginia internal audit program which is based on the Manual of Business Methods in Church Affairs (Revised 2012). This internal audit program is a usable and proactive process for an audit committee to assure each congregation of their financial position. The provided program should be directed to the person(s) responsible for the audit process. There is a “short-form” audit for churches with total operating budgets of less than $150,000, and these pages should be used rather than the longer format. The attached proof of cash form is to be completed for all church accounts in accordance with national and diocesan canons.
The third form is now in its fifth year and this is a process known as “Agreed Upon Procedures”, or AUP, and involves the contracting of a CPA, or audit firm, to test specific information. This is not meant to be a GAAP audit and there should be no expectation that an opinion will be issued by the involved CPA or audit firm. It is my hope that this option provides a hybrid model for churches that seek external assurance of their financial position at a reasonable cost.
There are three posted documents for the AUP option. The first is a sample engagement letter that the auditor/firm will provide to the church once they have reviewed what is asked of them in this model. Included with this document is a sample of the procedures the firm is to use. A firm may have an existing form for limited engagements, but please be certain of what they intend to accomplish for you and submit based on their testing of the Church Financial Report. The second and third documents are the instructions for the report and an excel template for the production of the Church Financial Report. The fields will self-adjust as you enter data. As a reminder, the church is responsible for the completion of the underlying Church Financial Report that the auditor or firm will test against.
One item to be clear on is that charitable contributions must be claimed in the year they were delivered. A contribution must either be in the hands of the church or postmarked by December 31, 2012 to be considered a contribution for 2012. Pre-dated checks delivered after the end of the year are contributions for 2013. If you have questions on this, please call me.
While I noted this in my cover letter last year, there remains a question as to the taxation and accounting for the use of sabbatical money. If a priest receives compensation from the church employer, the compensation is treated as income. If the compensation is funded from a grant for sabbatical planning, it is treated as compensation. What can be excluded from such compensation reporting (W-2) are program expenses paid by the church employer directly to the sabbatical program provider (perhaps a university or seminary). Some business expenses paid by the church on behalf of the priest for continuing education can be excluded from W-2 income, providing the program of continuing education was approved in advance by the vestry. Clergy should be cognizant of the potential tax consequences during sabbatical preparation. I encourage you to visit the Church Pension Group’s web site (www.cpg.org) and download their 2013 Tax Guide when it is available in mid-February.
Please make every effort to complete a review of your financial records using one of these approved forms of documentation. Simply sending me a letter stating that you consider your finances to be in order does not qualify as submitting an audit and without actual documentation, should issues arise, may allow for the potential of a Directors and Officers Liability claim.
Being current in your audits is a condition for approval of church debt, should your church require Standing Committee approval per the diocesan Canons. As a matter of due diligence and responsibility, I encourage every vestry and vestry committee to look at all internal business practices, particularly control issues related to receipt and management of cash. Of course, annual reviews should always cover investments, property and insurance coverages, etc.
A list of prior year’s audits is maintained in the Journal of Annual Council. If you have questions or need assistance, please feel free to contact Ms. Millie Lofton or myself at 1-800-DIOCESE, or you may email us at email@example.com or firstname.lastname@example.org.
A printable copy Audit_Cover Letter is available here.
|Agreed Upon Procedures docs
||Audit Committee doc (pdf)
||Audit Committee docs (doc/xls)|
|Sample AUP Engagement Letter||Audit Form 2012 EZ|
|Audit Form 2012|
|Proof of Cash|
Forms for 2011
|Agreed Upon Procedures Docs||Audit Committee Docs|
|Sample AUP Engagement Letter||Audit Form 2011 EZ|
|AUP Instructions||Audit Form 2011|
|AUP Church Financials Report||Proof of Cash|
Forms for 2010
|PDF Docs||Word/Excel Docs|
|Audit Cover Letter 2010||Proof of Cash Form|
|Audit Form 2010 EZ|
|Audit Form 2010|
|Agreed Upon Procedures - Instructions 2010||AUP Financial Report 2010|
Forms for 2009
|PDF Docs||Word/Excel Docs|
|Audit Cover Letter 2009|
|Audit Form 2009 (Short)||Audit Form 2009 (Short)|
|Audit Form 2009 (Full)||Audit Form 2009 (Full)|
|Sample AUP Report|
|Sample AUP Engagement Letter||AUP Financial Report & Instructions|