A Church Finance Handbook - MACUCC

A CHURCH FINANCE HANDBOOK

FOR CHURCH TREASURERS & FINANCE COMMITTEES

MASSACHUSETTS CONFERENCE

2010

? 2010 by the Massachusetts Conference of the United Church of Christ

This Handbook was prepared with funding from Our Church's Wider Mission and

Massachusetts Conference Fellowship Dues.

For additional copies, please contact the Massachusetts Conference, United Church of Christ

One Badger Road Framingham, MA 01702 508-875-5233

FOREWORD & ACKNOWLEDGEMENTS

Thank you for agreeing to serve your church as its Treasurer or Finance Team member. Your work is essential to the ministry of your own congregation as well as the larger United Church of Christ. As you carry out your leadership responsibilities, you may find that you need information beyond what you currently know about non-profit financial management, legal and tax matters, employer responsibilities, or communications with the wider church. We offer this handbook in the hope that it will be helpful to you and your work with your church.

The first edition of this handbook was prepared in 1998 by Dawn Hammond, now Associate Conference Minister for Policy and Finance, at the request of the Commission for Leadership Development for the Massachusetts Conference of the United Church of Christ, in order to provide guidance regarding some of the questions commonly asked by church treasurers and finance committees. This second edition has been updated by Rev. Karen McArthur, Affiliate Minister of Stewardship and Finance at First Church in Cambridge, Congregational, UCC and a consultant to numerous congregations. It incorporates updated resources and requirements, along with new information about financial reporting. Some sections are excerpted from Karen McArthur's unpublished work-in-progress entitled Prophetable Stewardship: What Every Pastor (and Leader) Needs to Know about Church Finance. The drawings were contributed by Maureen Devey Jones, a member of the Congregational Church of South Dartmouth.

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Special thanks to Dawn Hammond, Associate Conference Minister for Policy and Finance; Andy Gustafson, Associate Conference Minister for Stewardship and Financial Development; Brian James, Treasurer of First Church in Cambridge; Stow Walker, Treasurer, and Ken Taylor, Trustee, of Old North Church in Marblehead; and Bob Stolte, Treasurer of West Parish of Barnstable, who have read drafts and made suggestions along the way.

If you have questions that are not addressed in this handbook, feel free to call the Massachusetts Conference office (508875-5233) and speak with Dawn Hammond.

In addition to this printed resource, the Massachusetts Conference provides Treasurers' Workshops as a part of its program. These half-day workshops take place at several locations throughout the state. Information about the programs is included on the MACUCC website and is e-mailed to each church throughout the year. Additional information may be obtained from the Massachusetts Conference.

IMPORTANT DISCLAIMER:

This Handbook seeks to provide current and accurate information about the topics presented. However, it is offered with the understanding that if you need accounting advice, you should contact an accountant who can review your situation personally and offer her or his professional advice.

Again, thank you for all you do for our local churches, the Massachusetts Conference, and the United Church of Christ!

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TABLE OF CONTENTS

I. THE ROLE OF THE TREASURER .......................................3

II. THE LEGAL STATUS OF CHURCHES ...............................5

A. Incorporation..............................................................................6 B. Reporting Compliance and E xemptions.................................7

1. E mployer Identification Number (EIN) .............................8 2. Massachusetts Reporting Requirements ..............................9 3. Federal Reporting Requirements ........................................11 C. Tax Compliance and E xemptions..........................................12 1. Federal Income Tax E xemption.........................................12 2. State Income Tax E xemption..............................................13 3. State Sales Tax Exemption...................................................13 4. Massachusetts Hotel Room Use Tax..................................14 5. Local Property Taxes............................................................15 6. Federal Excise Taxes.............................................................16 7. Unrelated Business Income Tax .........................................16 8. Payroll Tax Deposits.............................................................17 D. Banking ......................................................................................18 1. Bank Accounts.......................................................................18 2. Credit Cards ...........................................................................19 3. Loans and Lines of Credit....................................................20

III. RE CE IVING CONTRIBUTIONS ........................................21

A. Contributions from individuals ..............................................21 B. FASB116: Accounting for Contributions.............................24 C. Gifts of Stock............................................................................26 D. Gifts of Property ......................................................................26 E . Payment Methods.....................................................................27 F. Fundraising Events...................................................................27 G. Annual Stewardship Campaigns.............................................28 H. Capital Campaigns....................................................................29 I. Planned Giving .........................................................................30

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IV. GIVING TO OTHE RS............................................................31

A. Supporting the Mission and Ministry of the United Church of Christ ................................31

1. Fellowship Dues....................................................................31 2. Our Church's Wider Mission Basic Support ....................32 3. Our Church's Wider Mission Special Support .................33 B. Community and Global Missions ..........................................36

V. SPE NDING FOR MINISTRY.................................................36

A. The Budgeting Process............................................................37 B. Types of Budgets......................................................................38 C. Monitoring your Budget..........................................................40

VI. SAVING FOR THE FUTURE ...............................................43

A. Capital Planning........................................................................43 B. Cash Reserves ...........................................................................45 C. Investment Accounts...............................................................45

1. Investment Definitions ........................................................46 2. Investment Opportunities Related to the UCC ...............47 3. Investment Regulations........................................................49

VII. MANAGING YOUR FINANCIAL RE CORDS...............51

A. Recordkeeping..........................................................................51 B. Bookkeeping Basics .................................................................51

1. Assets, Liabilities, Income, E xpenses ................................51 2. Double-entry Bookkeeping.................................................53 3. Net Assets: The Heart of Non-Profit Accounting ..........54 4. Fixed Assets or Capital Expenditures................................56 C. Financial Reporting: FASB 117..............................................57 1. Cash or Accrual? ...................................................................58 2. Statement of Financial Position with Net Assets.............60 3. Statement of Activities.........................................................64 4. Accounting for Restricted Funds .......................................66 5. Connecting the Two Reports..............................................68

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D. Recording Investment Income, Gains and Losses..............68 1. FASB124: Classifying Investment Return.........................69 2. UPMIFA: Uniform Prudent Management of Institutional Funds Act .........................................69

E . Minister's Discretionary Fund - Tax Implications...............72 F. Computer Software for Church Accounting........................74 G. Records Retention....................................................................76

VIII. E MPLOYING INDIVIDUALS ..........................................79

A. Hiring .......................................................................................79 B. Independent Contractors ........................................................81 C. Personnel Policies and Compensation of Employees.........84 D. Poster Compliance...................................................................84 E . Payroll Taxes .............................................................................85

1. Lay E mployees ......................................................................86 2. Clergy......................................................................................86 F. Minister's Housing ...................................................................88 1. Budgeted vs. Actual Housing Allowance Amounts.........88 2. IRS Requirements --Designating Housing Allowances...90 3. Guidelines for Ministers L iving in Parsonages.................90 4. Guidelines for Clergy Who Rent or Own their Homes..91 G. Tax Reporting ...........................................................................92 1. E mployees..............................................................................93 2. Independent Contractors.....................................................95 H. Reimbursement of Business Expenses..................................96 I. E mployee Use of Church-Owned Vehicles.............................98 J. Benefit Plans Offered by the UCC Pension Boards...............98 1. Pension Plan ..........................................................................99 2. Health Benefits................................................................... 100 3. Dental Benefits................................................................... 103 4. Vision Plan.......................................................................... 103 5. Life Insurance/Disability Income Benefit Plan............. 104 6. Long-Term Care Insurance.............................................. 105 7. Life Insurance..................................................................... 105 K. Workers' Compensation Insurance .................................... 106 L. Housing Equity Allowances................................................. 106

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IX. MANAGING LE GAL AND FINANCIAL RISKS...........109

A. Insurance .................................................................................109 1. Workers' Compensation Insurance..................................110 2. Property Insurance .............................................................111 3. Liability Insurance...............................................................112 4. Vehicle Insurance................................................................113 5. Use of Church Buildings by Other Organizations.........113

B. Protecting the Assets of the Church ...................................114 1. Internal Controls.................................................................115 2. Protecting Investments ......................................................121 3. Audits....................................................................................122 4. Bonding of Staff and Volunteers......................................123

C. Minimizing Legal Risks to the Church................................124 D. Minimizing Legal Risks to Church Volunteers..................125 E . Protecting the Privacy of E mployees and Donors............127

1. Issues to Consider...............................................................129 2. What Should Go into a Plan Document? .......................130 3. Resources .............................................................................132

X. UNITE D CHURCH OF CHRIST REPORTING .............133

XI. CONCLUSION.........................................................................135

BIBLIOGRAPHY AND RESOURCE LIST .............................137

A. Stewardship and Church Finance Websites .......................137 B. Source Materials......................................................................139 C. Glossary of Financial Terms.................................................141

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