Question

You have been asked by the board of trustees of a local church to review its accounting procedures. As part of this review you have prepared the following comments relating to the collections made at weekly services and record keeping for members’ pledges and contributions:

1. The church’s board of trustees has delegated responsibility for financial management and the financial records to the finance committee. This group prepares the annual forecast and approves major disbursements, but is not involved in collections or record keeping. No internal or independent audit has been considered necessary in recent years because the same trusted employee has kept church records and serves as financial secretary for 15 years.
2. The offering at the weekly service is taken by a team of ushers. The head usher counts the offering in the church office following each service. He then places the offerings and a notation of the amount counted in the church safe. The next morning the financial secretary opens the safe and recounts the offering. He withholds about $100 to meet cash expenditures during the coming week and deposits the remainder of the offering intact. In order to facilitate the deposit, members who contribute by check are asked to draw their checks to cash.
3. At their request, a few members are furnished prenumbered, predated envelopes in which to insert their weekly contributions. The head usher removes the cash from the envelopes to be counted wit the loose cash included in the offering and discards the envelopes. No record is maintained of issuance or return of the envelopes, and the envelope system is not encouraged.
4. Each member is asked to prepare a contribution pledge card annually. The pledge is regarded as a moral commitment by the member to contribute a stated weekly amount. Based upon the amounts shown on the pledge cards, the financial secretary furnishes a letter requesting members to support the tax deductibility of their contributions.

Describe the weaknesses and recommended improvements in procedures for:

1. Offerings given at weekly services.
2. Record keeping for members’ pledges and contributions.

Answer 1

Part (a)

Weakness	Recommended Improvement
1.         Financial secretary exercises too much control over collections.	To extent possible, finance secretary’s responsibilities should be confined to recordkeeping.
2.         Finance committee is not exercising its assigned responsibility for collections.	Finance committee should assume a more active supervisory role.
3.         The internal auditing function has been assigned to the finance committee, which also has responsibility for the administration of the cash function. Also, the finance committee has not performed the internal auditing function.	An audit committee should be appointed to perform periodic internal auditing procedures or outside auditors should be engaged.
4.         The head usher has sole access to cash during the period of the count. One person should not be left alone with the cash until the amount has been recorded or control established in some other way.	The number of cash counters should be increased to at least two, and cash should remain under joint control until counted and recorded.
5.         The collection is vulnerable to robbery while it is being counted and from the church safe prior to its deposit in the bank.	The collection should be deposited in the bank’s night depository immediately after the count. Physical safeguards, such as locking and bolting the door during the period of the count should be instituted. Increasing the number of cash counters will also reduce vulnerability to robbery.
6.         The head usher’s count lack usefulness from a control standpoint because he or she surrenders custody of both the cash and the record of the count.	The finance secretary should receive a copy of the collection report for posting to the finance records. The head usher should maintain a copy of the report for use by the audit committee.
7.         Contributions are not deposited intact daily. There is no assurance that amounts withheld by the finance secretary for expenditure will be properly accounted for.	Contributions should be deposited intact daily. If it is considered necessary for the financial secretary to make cash expenditures, he or she should be provided with a cash working fund. The fund should be replenished by check based upon a properly approved reimbursement request and satisfactory support.
8.         No mention is made of bonding.	Key employees and members involved in receiving and disbursing cash should be bonded.
9.         Written instructions for handling cash collections apparently have not been prepared.	Particularly because much of the work involved in cash collections is performed by unpaid, untrained church members, often on a short-term basis, detailed instructions should be written.

Part (b)

Weakness	Recommended Improvement
1.         The envelope system has not been encouraged. Control features that it could provide have been ignored.	The envelope system should be encouraged. Donors should indicate on the outside of each envelope the amount contributed. Envelope contributions should be reported separately and supported by the empty collection envelopes. Prenumbered envelopes will permit ready identification of the donor by authorized persons without general loss of confidentiality.
2.         The church maintains no permanent record of amounts pledged and contributed. These records are needed to (1) provide valid support for tax deductibility of members’ contributions, (2) permit better planning for fund drives, and (3) provide a basis for direct confirmation of amounts contributed.	A member’s contribution record should be prepared by the financial secretary from the pledge cards and collection envelopes.
3.         No investigation is made of differences between the amounts pledged and contributed.	All members should be furnished with periodic written advice of the amounts pledged and contributed. If properly handled by the audit committee, this procedure can be combined with direct confirmation of the amount contributed. Not only will control be better, but also members more likely will fulfill their pledges.
4.         Letters certifying to amounts contributed are being furnished to members based upon the amounts shown on pledge cares. This is improper because actual contributions may not equal pledges.	The maintenance of members’ contribution record and the furnishing of periodic advices to members will correct this weakness.
5.         No provision is made for the receipt f contributions by mail. This method of giving should be encouraged, but the financial secretary should not handle mail receipts.	A church employee other than the financial secretary should open mail. This employee should list the receipts, maintain a copy of this listing, and deposit the receipts. Checks should be stamped with the restrictive endorsement when received.