You were asked in February 2013 by the board of management of your 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 finance committee is responsible for preparing an annual budget based on the anticipated needs of the various church committees and for the annual fall “pledge campaign" during which most members make a commitment to contribute a certain amount to the church over the following year.
2. The financial records are maintained by the treasurer who has authority to sign cheques drawn on the church bank account.
3. The ushers take up the collection during the services each Sunday and place it uncounted in a deposit bag in the church safe.
4. The treasurer, who is retired, comes in Monday morning, counts the collection, and deposits it into the church’s bank account. Some members use predated numbered envelopes, but most do not. The treasurer enters members’ contributions into a spreadsheet for the numbered envelopes only.
5. The treasurer issues receipts to each member every January based on the spreadsheet amounts. The contributions up to 2011 had always exceeded the amounts pledged so that the value of receipts given out was less than total contributions; the excess was recorded as “loose” or “open” collection. In 2012, the total of the receipts given out by the treasurer exceeded the total funds received by the church.
6. The church is registered as a charity under the Income Tax Act and is required to file a return each year to comply with its rules. The chairperson of the finance committee is upset because the church has received a letter from the Canada Revenue Agency in connection with the return for 2012 because the return showed receipts given exceeded the funds actually received. The letter indicated that such differences could result in removal of the church’s ability to issue income tax receipts.
REQUIRED
Identify the risks of error or fraud, identify control weaknesses, and recommend improvements in procedures at the church for the following:
a. Collections made at weekly services.
b. Record-keeping for members’ pledges and contributions. Use the methodology for identifying weaknesses that was discussed in Chapter 9. Organize your answer as follows: