Section 4 — Budgeting and Reporting

Purpose of Financial Reports

Financial reports assist in decision-making and give an account of funds. For financial reports to be useful and beneficial in decision-making, they must be:

• Accurate
• Timely (up to date with current information)
• Logical and clear
• Complete (include all information).

If extremely accurate financial reports are produced but cover a period sometime in the past, then the out-of-date information is of limited use in the process of current decision-making. If the financial reports are completed very quickly but are inaccurate, then any decisions based on this data are likely to be flawed. Accuracy of financial data can be best achieved by establishing good internal controls at the transactional level, and ensuring that financial reports reconcile back to the bank statements.

Bank Reconciliations

Completing monthly bank reconciliations is an important internal control function. It is the process that identifies the difference the bank statement balances and the total amount of local church funds at the end of a given month. All bank accounts need to be reconciled.

A bank reconciliation is the final proof of the accuracy of banking, recording of bank interest and eGiving deposits, recording GST refunds/payments and the recording of expenses. It also confirms the numerical accuracy of your monthly reports to the Conference and the final church’s fund balance.

Only recent items should be outstanding on a Bank Reconciliation. If there are older items, they may require investigation.

Tips for Completing Bank Reconciliations
1.    Ensure that the starting balances of your current bank statements are the same as the ending balances of your last month’s reconciled bank statement.

2.    Tick off any outstanding items from the last bank reconciliation.

3.    Compare your payments recorded with payments listed on the bank statement. Payments not yet on the bank statement need to be included as outstanding on the bank reconciliation. Any discrepancies will need to be confirmed with the bank and relevant adjustments made.

4.    Compare your deposits recorded with the bank statement. Deposits not yet on the bank statement need to be included as outstanding on the bank reconciliation. Any discrepancies will need to be confirmed with the bank and relevant adjustments made.

5.    If there is interest, EFT deposits or bank charges on the bank statement and not in your report, they are required to be recorded. It is recommended not to record these amounts on your report until you see the bank statement.

Monthly Reports to Conference
The Conference mandates that the treasurer’s Monthly Reports be submitted to the Conference no later than the 10th of the following month.
Documents required to be submitted on a monthly basis:

• TOORS Users:
- Copies of local bank statements
- GST report and original GST paid tax invoices

• Non TOORS Users:
- Monthly Report
- Bank reconciliation and copies of local bank statements
- Copies of receipts and weekly analysis of receipts
- GST report and original GST paid tax invoices

Financial Reporting to the Local Church

“Reports of all funds received and disbursed should be presented at the regular business meetings of the church. A copy of these reports should be given to the leading officers” Church Manual Ch.11 (Revisions 2010).

It is important that the treasurer give sufficient opportunities, and encourage all members at the Business Meeting to ask questions and to seek assurances from the treasurer of good recording and reporting practices. Questions asked by church members are not necessarily a sign of distrust, but a seeking of assurance and a confirmation of the members trust in the treasurer.

On the vote at the Church Business Meeting, an affirmation is given on the financial report figures, which is effectively a sign off on the church’s financial income and expenditure report including the bank balance.

It may be preferable on some occasions, or even normal practice, for the financial reports to be discussed first at a prior Local Church Board Meeting, and then recommended to the Church Business Meeting. This allows for scrutiny, discussion of detail, and therefore support for the Treasurer from the Board members at the Business Meeting.

Frequency of Reporting
In the interest of “good governance” and of the expectations of “trust” that church members have placed in the treasurer, it is considered best practice to present up-to-date written financial reports to every Church Business Meeting. Quarterly financial reporting would be considered a minimum regular requirement.

If circumstances deem that four reports per year is not possible (exceptional circumstances), then a minute disclosing the reasons for not doing so should be recorded and voted on at the next Business Meeting.

Reporting Format
The form of the report presented to Board and Business Meetings is largely governed by the information requirements of the Church Members and the Board. The report should disclose the current financial status of the church’s finance and be consistent with the monthly reports presented to the Conference. The Board and Business Meeting members need sufficient information to make a value judgement on how best to allocate limited local church funds to achieve the church's objectives. A copy of the Bank Reconciliation statement should accompany the financial reports.

Where a budget is prepared and approved by the Business Meeting it may be expected that the treasurer will include a running comparison of “actual” local church income and expenditure as compared with the ‘year to date’ proportion of budget income and expenditure.

Income and expenditure usually fall within three clear-cut categories. Reports can be presented based on these categories:

1.    Conference Funds – tithes and offerings that flow through the church financial records destined for higher organisations. Examples include tithe, Sabbath School offerings and annual sacrifice offerings. The monthly report records the flow of Conference funds each month. Whatever funds come in must go out in the same month it is received.

2.    Local Church Funds – funds destined for local church use. Income can be from offerings, budget allocations or fundraising activities. Monthly outflow of these funds occurs with expense documentation and budget allocations.

3.    Auxiliary Funds – money collected on behalf of an auxiliary organisation, for example Adopt-A-Clinic and Signs Campaigns. These funds are held in the local church’s funds until they are passed onto the auxiliary organisation.

TOORS users can use the Monthly Report of Tithes and Offerings along with the Funds Report when presenting to their Board or Business Meeting.

Non-TOORS users will have to use the information in their monthly report to the Conference to compile a report. Below is a basic illustration that can be expanded in accord with the needs of the Board and Business Meeting.



Note: The total of Local Church Funds balances and Auxiliary Funds balances should equal the total balance of your last treasurers report balance and will be reconciled to the bank account/s. There is no need to show the outgoing of Conference Funds as it is a given that all are transferred to the Conference.

Budgeting

“Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?” (Luke 28:14, NIV)

A very important part of financial planning in the local church is the formulation of an annual budget, which will indicate the sources of funding and provide authorised expenditure amounts for the various church departments and ministries. The annual budget provides a benchmark for tracking income and expenditure and important information for effective financial control to avoid overspending or unauthorised allocation of resources.

Advantages of a budget include:

•    Provides knowledge of what the organisation can achieve with scarce resources
•    Facilitates early detection of unwanted or unexpected trends with income or expenditure
•    Assists in avoiding cost overruns with predetermined income and expenditure
•    Provides department heads with a clear idea of their specific scope for activities and constraints in finance
•    Reduces the need for day-to-day approvals or otherwise of expenditure requests

Preparing a Church Budget
There are several approaches to preparing a local church budget, including:

•    Start with last year's budget figures and compare them to the actual income and expenditure achieved over that year. Then consult with the pastor and church officers, and adjust the proposed budget figures based on comparative activity and future promotions for each department.

•    Alternatively, start with a zero base and build up an estimate of future income and expenditure based on anticipated income and planned activities of the church.

It is recommended to consider breaking income into two categories to help with budgeting:

•    Income that is considered almost certain provided that the numbers and socio-economic mix of the membership remains fairly static.

•    Income that is considered uncertain such as special fund raising ventures. Predictions in this area should always be conservative.

Likewise, it is suggested to consider breaking expenses into two main types:

•    Fixed expenditure charges that arrive regularly and can be estimated with a fair degree of accuracy. For example, rates, insurance, electricity and cleaning.

•    Variable expenditure that is generally activity related and may depend on participant numbers. For example, Pathfinders, Social Club and Evangelism. Consultation with the Church Board, the Pastor and Departmental Leaders is suggested for budget forecasting in this area.

Approval Process
“The budget should be presented to the church for its study and adoption ... to assure that funds shall be provided to balance the budget during the coming year." — Church Manual Ch.11 (Revisions 2010).

Once it has been formulated, the budget may, if necessary, be discussed by the Local Church Board and then recommended to the Local Church Business Meeting who then is able to adopt the annual budget.