Reporting Issues

Related Party – Defined and Reporting Requirements (2 of 4)

In accordance with FAS 57, material related party transactions must be disclosed in the financial statements. In our post #1 we defined a related party. Let’s look closer at these parties to determine who is “related”:

1. Parent company and subsidiary - (under APB Opinion #16), one organization owning a majority of another organization’s voting stock.

2.Affiliate - a party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an enterprise.

Related Party – Defined and Reporting Requirements (1 of 4)

In March of 1982 the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard 57 Related Party Disclosures and this standard became effective for financial statements ending after June 15, 1982.

Transactions incurred by compensation arrangements, expense allowances, and other similar items in the ordinary course of business are not considered to be a related party transactions and therefore not required to be disclosed in the organization’s financial statements.

Proactive Hiring and Fraud Prevention - (6 of 7)

How can a church or ministry protect resources against fraud? One of the most important facets of fraud prevention is hiring and promoting appropriate employees. Each employee has a unique set of values and personal code of ethics. When faced with sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather than face the negative consequences of honest behavior. However, the threshold at which dishonest behavior starts varies among individuals.

Proactive hiring and promotion procedures may include:

Creating a Positive Workplace Environment (5 of 7)

Understanding that management has a responsibility to prevent/detect fraud is hard for all types of entities, not just churches and ministries. One aspect of enhancing a value system within an organization is creating an office culture of honesty by creating a positive workplace environment.

Controls! One Key to Preventing Fraud (4 of 7)

The first step to prevent fraud is to ensure that controls are in place. These controls may be as simple as having background checks performed on people working with the financial department of the organization.

The following are some examples of preventative controls, but they are not all-inclusive.

* Creating a Culture of Honesty and High Ethics

Are You Ripe For Fraud? (3 of 7)

This is a 3rd part posting of understanding fraud and the implications on the organization. In part 1, we discussed that churches, just like any organization, is susceptible to fraud. In an April 23, 2001 article by Christianity Today headlined "Jury Convicts Greater Ministries of Fraud," five leaders were convicted in Federal Court on 72 counts of conspiracy, wire and mail fraud, and money laundering, in one of the largest church fraud schemes in American history.

Is your organization's environment ripe for fraud?

Is It Fraud? Characteristics You Should Look For! (2 of 7)

Understanding fraud and who may be susceptible to commiting fraud is a series of postings to help church and ministry leaders understand management's responsibility. In a 2001 magazine article, 5 ministry leaders were convicted on 72 counts relating to fraud. Fraud? In the Church? You bet. The Church is not isolated nor "exempt".

The Primary factor that distinguishes fraud from error is whether the underlying action that results in the misstatement of the financial statements is intentional or unintentional.

Some characteristics of fraud are:

"I Didn't Know!" Why is Fraud Rising in the Church? (1 of 7)

"My people are destroyed for lack of knowledge..." Hosea 4:6 - King James Version

The Church is the place of salvation, healing, deliverance, transformation and deployment of people into his/her giftedness. Many of the people that enter the church doors struggle in various areas of their lives. Some may struggle with stealing, embezzlement, unlawful desires, etc. Helping individuals overcome these issues and engaging them in ministry is one of the hardest challenges faced by local congregations.

Make cash while contributing property…

You can make cash and contribute property at the same time. How? By making a “bargain sale” to a charity. Sell the property for a bargain rather than selling at full price on the market and get a charitable contribution deduction for the fair market value less the selling price to the charity. Double benefit for the giver!! Of course you would need to report capital gains on the sale of the property. The charity in turn would give the donor a statement that cash was given in exchange for the gift.

Controlling the donation…can this be done by a donor?

Gifts that are designated by a donor for a specific person through a ministry are not allowed and could endanger the ministry’s tax-exempt purpose as well as enable the donor to break the law. These types of gifts are known as “earmarked” gifts. How can a ministry identify an earmarked gift? According to Dan Busby in FOCUS On Accountability there are three tests to identify these types of gifts.
1. Does the gift benefit an indefinite group? If a gift is restricted for one person, then it fails this test.