Audit Guidance for East Jackson Churches

James Mason
James Mason
Last updated 

Audit Guidance for East Jackson Churches for 2022 (for year 2021 financials). Reports are due June 30, 2022. If you have any questions, contact James Mason at eastjackson@mississippi-umc.org.

 
In helping to guide your efforts in the audit process, you may find it helpful to review the 7-minute video from the District Leadership Training Part 7 on Auditing at the following link. https://youtu.be/eRRZ9xNfEFU
 
Additionally, there are a number of documents and resources developed for your local church finance committee linked on the Local Church Finance page on the Administry web site.
 
If you have any questions about your church's audit requirements, you may find it helpful to review the actions of the 2021 Annual Conference found in the Conference Journal CFA Report number 1, item 17.  Remember this information is for the district finance committee to review and assure compliance.  Below is the directive of the Annual Conference.  

In short, there are three categories of audits and where each East Jackson District church falls into which category. For the detailed explanation of what is required for each category, see the fuller description in item 17 from the Annual Conference Journal further below.

  1. Fund balance report for churches with average funding receipts of $250,000 or less(every EJ church not listed below).

  2.  Financial Statement Review & Agreed upon Procedures (AUP) completed by a CPA for churches with average funding receipts between $250,001 and $1,500,000, every year (Brandon First, Canton First, Carthage First, Crossgates, Marvin, Forest, St. Mark's, Magee First, McLaurin Heights).

  3.  Full financial statement audit conducted in accordance with general accepted auditing standards (GAAS) for churches with average funding receipts over $1,500,000(Christ, Madison & St. Matthew's).
17. Guidance for the Audit of the Local Church (from the 2021 Journal of the Session of the Mississippi Annual Conference)

The Audit Requirement
The Book of Discipline 2016 (Par. 258.4 (d))requires an annual audit of the financial statements of the local church and all of its organizations and accounts.
 
A local church audit is defined as an independent evaluation of the financial reports and records and the internal controls of the local church by a qualified person or persons.
 
The term “audit” is not intended to impose the need for all churches to engage CPA firms to perform financial statement audits (under GAAS).

The procedures followed, and the level of reporting can differ depending on facts and circumstances of each church. The Mississippi Annual Conference has based its requirement on the previously available three-year average of funding receipts as reported in the statistical data of the Pastor’s annual report.

The Purpose of an Audit is to:
  • Independently verify the reports of the treasurer(s) and financial secretary.
  • Follow the money and test how it is treated at different steps.
  • Document that donated and earned funds of the congregation have been used as stipulated by the donors.
  • Reviews - accounting controls (systems that reduce the possibility of loss, embezzlement or errors).
  • Segregation of duties (assurances that more than one person is involved in critical steps in handling money so that there can be checks and balances).
  • Reasonableness of systems and procedures in the light of all factors, including the size of the church and its budget.
  • A local church’s unique circumstances may suggest that additional steps should be taken. It is important to document the financial processes of your particular local church as required in The Book of Discipline 2016 paragraph 258.4 (c).
Definitions:
  • Independent Audit – The discipline states the need for independence on the part of those conducting the annual audit. Independent means that the auditor must not be subject to control or influence by anyone who has responsibility for the financial accounts and records of the local church. There should not be even the appearance of a relationship that may dilute the perception of the independence of the auditor. An independent auditor is one who is unrelated to those with financial responsibilities in the church. If a CPA or accounting firm is chosen, the firm should be unrelated and separate from those with financial responsibilities in the church.
  • Internal controls – policies and procedures that are followed to help minimize financial risks by helping to deter potential fraud, detect errors or omissions, and protect innocent workers.
  • Internal control policy – a policy prepared for a church that documents the processes and procedures to be followed to help safeguard the financial assets of the church.
  • Permanently restricted funds – donations to the church for a particular purpose where the original gift is not spent but the earnings on the gift can be used for that purpose.
  • Temporarily restricted funds – donations to the church that come with stipulations that limit the use of the funding to a specified purpose. The funding can be spent but just for the intended purpose.
  • Unrestricted funds – donations made to the churches that are for the general use in the ministry of the church.
Selecting an Auditor for the Local Church
The type of auditor selected, and the type of audit performed at each church year will be determined based on the amount of total funds received by the church. The amounts will come from Table 3-Line 55 Total Church Income as reported in the statistical tables. The base year amount will be the average of the available two (2) preceding calendar years as documented in the statistical tables.

In general, the following guidelines should be used to determine the type of audit (i.e., if a certified public accounting firm should be hired to perform the audit or if an independent volunteer will be adequate).
 
1.  For churches with average funding receipts of $250,000 or less(every EJ church not listed below), an independent qualified member of the church or other qualified volunteer from another church can perform the audit procedures using the Fund Balance Report and audit guide developed by the General Council on Finance and Administration Audit and Review Committee. The auditor shall also review and evaluate internal controls and report the results directly to the church finance committee. Other procedures may be considered necessary based on the nature and activities of each specific church. 
 
2.  For churches with average funding receipts between $250,001 and $1,500,000, every year (Brandon First, Canton First, Carthage First, Crossgates, Marvin, Forest, St. Mark's, Magee First, McLaurin Heights) (1) a Financial Statement Review shall be conducted in accordance with Statement on Standards for Accounting and Review (SSARS) and (2) there shall be an Agreed upon Procedures (AUP) engagement completed by the external Certified Public Accountant (CPA) licensed in the State of Mississippi. The results of both shall be reported directly to the church finance committee. As part of this type of engagement, the auditor shall be engaged to communicate any internal control deficiencies that are identified during the procedures. In lieu of an annual AUP, a compliance report as defined by the audit subcommittee of the Council on Finance and Administration may be presented every three years. The first compliance report is due by June 30 in the first year that an AUP is not reported. Then every third year thereafter, the report shall be presented. 
 
3.  For churches with average funding receipts over $1,500,000(Christ, Madison & St. Matthew's), a financial statement audit conducted in accordance with general accepted auditing standards (GAAS) shall be completed every year and reported on by an external Certified Public Accountant licensed in the State of Mississippi. The report shall be delivered to the church finance committee.
 
The Church Finance Committee shall report to the Administrative Board (or other governing body) the results of the annual audit. The report shall then be forwarded to the District Superintendent’s office no later than June 30 for the preceding calendar year report.
 
David Stotts, CPA
Treasurer/Director of Finance & Administration
Conference Benefits Officer
Mississippi Conference of the United Methodist Church
320-A Briarwood Drive
Jackson, MS 39206
601-354-0515 (main office)
769-243-7020 (direct line)  
601-955-3912 (cell phone)  
601-948-5980 (fax)