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Please take a moment to relax your mind and humble your heart to

    THE METHODIST CHURCH OF SOUTHERN

    AFRICA

    ACCOUNTING PROCEDURE FOR CIRCUITS

    AND SOCIETIES

    November 2011

     Guidelines to assist Society and Circuit Stewards

    / Treasurers with completions of Annual Financial Returns (From 4S and 4C Schedules)

    ACCOUNTING PROCEDURE FOR CIRCUITS AND SOCIETIES

    (Amended November 2011)

1 PREAMBLE

    This procedure outlines the accounting objectives and financial reporting

    requirements of The Methodist Church of Southern Africa. It gives

    guidance regarding the system of accounting which is virtually identical for

    Circuits and Societies. The procedure is simple and practical and will

    enable Circuits and Societies to record accounting transactions in such a

    way as to easily prepare the Annual Return. The year end for all Circuits

    and Societies is 31 December. This year end date also applies to all

    affiliated Associations of the Church. Each Circuit and Society (or Section)

    which handles its own finances and operates its own Bank Account is

    required to complete an Annual Return called a Schedule 4C for a Circuit

    and Schedule 4S for a Society. Where comments in this booklet apply to

    both Circuits and Societies they will be reflected as “Circuits/Societies”.

    2 OBJECTIVES

    The main objectives of this uniform accounting system are to provide:

     2.1 A clear record of the financial affairs of the Circuit/Society using a

    simple method of bookkeeping;

     2.2 The facility of progressive analysis, working towards the compilation of

    regular and prompt quarterly financial statements and the Annual

    Return;

     2.3 Simple accounting records which can be taken over by new people

    without difficulty when Ministers or Officials are moved and;

     2.4 Management information to facilitate decision-making by Leaders

    Meetings, Quarterly Meetings, District Executives and the Methodist

    Connexional Office.

    3 REGULATIONS AND REQUIREMENTS RELATING TO FINANCIAL

     REPORTING

    In accordance with Laws and Discipline;

    3.1 The Superintendent Minister has the power and duty “to ensure that

    all monies held by organisations or departments in the Circuit are

    reported to the Quarterly Meeting and the accounts are audited before

    being presented to Synod.” (Par.7.14.12);

    3.2 The Circuit Stewards have the duty “to manage all Circuit funds on

    behalf of the Quarterly Meeting and in conjunction with the Circuit

    Finance Committee where this exists. No other person shall perform

    this duty and the Circuit Treasurer, where appointed, shall operate

    ALL monies received and under the direction of the Circuit Stewards.” (Par.7.18.2);

    spent by Circuits, Societies, organizations and departments, including 3.3 It is a crucial requirement therefore that

    ALL Rona, fundraising and projects be accounted for and reported to

    the Quarterly Meeting. No Society or Circuit income or expenditure of N:/Home/Common/Accounting Procedure Amended 2011 1

    whatever nature is exempt from being disclosed and accounted for in

    this way. To give effect to this requirement Organisations,

    departments projects etc may continue to produce their own separate

    audited Financial Statements but such must be submitted to the

    Society Steward/Treasurer (or Circuit Treasurer if there is one) as the

    case may be, who will ensure that the new Addendum (Section 8),

    attached to the Society Form 4S or Circuit Form 4C is completed. 3.4 All accounts of the Circuit/Society shall be audited. A registered

    Accountant or Auditor (registered with the Independent Regulatory

    Board for Auditors (IRBA), South African Institute of Charted

    Accountants (SAICA) or South African Institute of Professional

    Accountants (SAIPA)) can both prepare and audit Financial

    Statements. Financial Statements prepared by a person other than a

    registered Accountant must be audited by a person with an

    accounting qualification, whose qualification shall be stated in the

    audited Financial Statement. Where the services of qualified persons

    are not available, there should be consultation with the Methodist

    Connexional Office so that the accounts are handled by a firm of

    Accountants or the Centralised Accounting Organisation. 3.5 The audited accounts are required to be submitted to the District

    Treasurer prior to Synod. He or she will then submit them to Synod for

    consideration. The District Treasurer will then, within two weeks of full disclosure of all Financial Statements on

    Synod rising, submit a copy to the Methodist Connexional Office takes on added importance in view of the MCSA tax exempt time

    3.6 The requirement for status with the South African Revenue Services. We must submit a

    Consolidated Financial Report to SARS annually, accurately reflecting

    all Society and Circuit Income and Expenditure. We cannot

    jeopardize our tax exempt status by incomplete financial disclosure or

    the non-submission of Financial Statements - Forms 4C and 4S.

     4 GENERALLY ACCEPTABLE ACCOUNTING STANDARDS

    In order to comply with Laws and Discipline, the following standards must be adopted by circuits and societies:

4.1 All money collected is immediately banked;

    4.2 Receipts are issued for money collected and handed from one person

    to another, prior to banking. If it is not feasible to issue receipts,

    proper records are to be kept to substantiate the source of all money

    received with at least two persons signing such record; 4.3 All payments should be made by cheque;

    4.4 Cheques, payable to any payee, must be signed by two authorised

    signatories. Cash cheques may NOT BE ISSUED. DO NOT SIGN

    BLANK CHEQUES. Cheque books must be kept in a safe place to

    prevent unauthorised access thereto. Unused cheques that are stolen

    / lost must be reported to the Bank and SAPS immediately and a

    “Stop Payment” placed on them at the Bank.

    4.5 Wherever possible invoices must be obtained to substantiate

    payments made;

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    4.6 At the year end, all vouchers, receipts, invoices, receipt records, bank

    deposits, paid cheques and bank statements together with the cash

    book and other bookkeeping records are given to the auditor; 4.7 An Annual Return (Schedule 4C or Schedule 4S), as at the year-end

    is prepared and audited;

    4.8 The audited Annual Return is submitted, in the case of a Society to

    the Church Council for approval, and in the case of a Circuit to the

    Circuit Quarterly Meeting, and thereafter to the Synod, via the District

    Treasurer.

    4.9 For any large items of expenditure, e.g. repairs or maintenance, three

    quotes must be obtained prior to a decision to do the work. The most

    reasonably priced quote should be accepted;

    4.10 The use of credit cards is strongly discouraged;

    4.11 Electronic payments are only permissible where dual control of

    authorisation on a payment instruction is a requirement of the banking

    system and separate confidential password codes are used. 4.12 In accordance with paragraph 5.43.15 of Laws and Discipline no loan

    from Circuit or Connexional Funds may be made to any private person

    or body. 5 PRINCIPLES OF THE SYSTEM

    5.1 The principles of the system are identical for Circuits as well as

    Societies (or Sections) which administer their own finances. Please

    refer to the standard Circuit Schedule 4C and Society Schedule 4S in

    following this procedure. The Circuit has INCOME and

    EXPENDITURE Account numbers which are different from those

    relating to a Society although some Account descriptions are the

    same.

    5.2 INCOME and EXPENDITURE are the two main aspects of

    Circuit/Society finance. INCOME and EXPENDITURE transactions

    are entered in an analysis Cash Book. This must have sufficient

    columns for all the major INCOME and EXPENDITURE Accounts

    used at present throughout the Church. These include Stipends,

    Assessments, Building, Circuit Travelling, Connexional Office and

    ABank@ under both INCOME and EXPENDITURE. Sundry Payments. Each Account has a number. Ensure that there is 5.3 It is assumed that double entry bookkeeping is the basis of the system. a column for

    This means maintaining a Cash Book as well as a Ledger and a

    Journal. It would be advantageous to enlist the services of an official

    (bookkeeper) who is familiar with double entry bookkeeping. If you

    open a Ledger and do double entry bookkeeping this will assist in

    keeping accurate records of transactions concerning monies held as Afunds@, loans and investments or any other continuing Adebtor@ or

    Acreditor@ balances. Such details will be required for Sections 1 and

    5 to 7 of Schedules 4C and 4S.

     However, if a person familiar with double entry bookkeeping is not

    available, it is urged that the uniform procedure as described herein

    be maintained in the Cash Book, without using a Ledger and Journal. 5.4 The selected Account numbers heading up the various columns in the

    Cash Book are the same numbers used in the pre-printed Schedules

    N:/Home/Common/Accounting Procedure Amended 2011 3

    4C and 4S. Therefore the uniform Account numbering system will

    greatly facilitate the compilation of Quarterly Statements and Annual

    Returns. All Circuit/Society Financial Statements which are presented

    to Quarterly Meetings and Church Councils should follow the pattern

    of Schedule 4C. This regular practice will tend to help members,

    many of whom may be unfamiliar with financial matters, to read and

    understand the Statements.

    5.5 The gross amount of receipts is entered into the Cash Book in date

    order under the appropriate INCOME column. The cash and cheques

    received are then immediately deposited into your Bank Account.

    Cheque payments are entered into the Cash Book in cheque number

    order and amounts are allocated under the respective EXPENDITURE ATelephones@). All receipts and payments are also

    column (e.g. Abank@ column. entered into the

    5.6 At the end of each quarter all Cash Book columns should be totalled

    and ruled off. These totals are reflected in the Quarterly Financial

    Statements and submitted to the respective meeting for approval.

    Remember to do the Reconciliation between the Cash Book balance

    and the Bank Statement balance at the end of the each period and ABank Reconciliation Statement@ in the Cash Book on the write the =s entries. final page of the relevant quarter

    . COMPUTERISED FINANCIAL REPORTS 6

     Increasingly Treasurers are making use of commercially available computer packages, or those designated by the MCSA Information Technology Committee, to capture transactions and produce standardised Financial Statements (Form 4C or 4S forms). Such developments are encouraged because of the efficiencies associated with such packages such as speed, accuracy and standardisation. It is nevertheless necessary that, to comply with Laws and Discipline, the Principles, Standards and Income and Expenditure account names and sequence thereof described above are adhered to.

    7. HOW TO DEAL WITH THE MCO STATEMENT

    The MCO sends a monthly statement to Circuits indicating the various assessments, loan instalments and debtors (insurance) amounts due for payment by the Circuit. When the payment is made it is allocated in the respective columns in the Cash Book and Accounts in the Ledger, as follows:

    7.1 For Circuits which do not receive a grant from the M&E Fund the

    operation is quite straightforward. The Circuit cheque is remitted in

    accordance with the MCO statement and the amount allocated in the

    Cash Book in the respective columns (Nos. 11, 12, 22, 30 to 38) and

    eventually posted to the Ledger in the comparable numbered

    Accounts.

    N:/Home/Common/Accounting Procedure Amended 2011 4

    7.2 Where Circuits are entitled to a grant from the M&E Fund, which is

    administered from the MCO, there are two ways of proceeding:

    (a) Either the MCO pays the grant by electronic transfer into the

    Circuit’s bank account and reflected in income account No. 2.8

    (M&E Fund grant), or;

    (b) The MCO does not pay the Circuit because the grant is intended

    to pay for specific monthly charges (assessments, etc) due to the

    MCO. Each month the MCO will credit the grant directly to the =s books

    relevant account (e.g. Circuit Assessments) in the MCOand it will appear on the Circuit statement as a grant received by

    the Circuit. In this case the Circuit should journalise the

    transaction to reflect the true position as follows:

    Debit: Account No. 31 (Circuit Assessments Paid)

    Credit: Account No. 2.8 (M&E Fund Grant Received)

     8. HOW TO COMPLETE THE ANNUAL RETURN (SCHEDULE 4C OR 4S)

    It is necessary now to study the requirements of Schedules 4C and 4S which have the following ten sections:

SECTION 1 - AStatement of Balances at.....@

    The information provided under this section on the front page gives a clear picture of the over-all financial state of the Circuit. It is a summarised statement of balances, at a given date, extracted from the Cash Book, Ledger or record of periodic statements. Please note that the balances at the previous year-end are shown in the left-hand column. When adding up Adebit@ balances, in brackets, should contra out the credit that column the balances such that the total is nil.

    (a) ACash Book Balance@ means the actual balance of the Cash Book as at

    the date of the Return, not the bank balance. If the Cash Book balance

    indicates that there is a surplus in hand, that balance must be placed in

    the left-hand column (Debit). If the Cash Book balance indicates that

    more has been drawn than has been paid in, in other words overdrawn,

    that closing balance must be placed in the right-hand column (Credit). (b) AOwing to or by the Methodist Connexional Office@

     The transactions under this heading appear on the MCO statements.

    It is required therefore that the balance owing to or by the MCO at

    the closing date of the Return should be shown accordingly.

    Whether or not loans as reflected in Section 7(a) are shown under

    (b) depends on the bookkeeping option adopted which is referred to Aowing by@ the MCO it should in Section 7 below. If the balance is Aowing be shown in the left-hand column (Debit); if the balance is

    @ the MCO, the amount should be shown in the right-hand column to

    (Credit).

    N:/Home/Common/Accounting Procedure Amended 2011 5

     Note: If money is owed by the Circuit to the MCO, or is owed by the

    MCO to the Circuit at the Year-end, such amount should be shown

    in Section 1, “Statement of Balances.” In the following financial

    year, receipts or payments in respect of that amount must be set off

    against that balance and must not be shown under Income and

    Expenditure when completing the 4C for that following year. (c) AInvestments@

     The final balance under this heading in the Ledger must be placed

    in the left-hand column (Debit). The figure should represent the

    total of the cash investments made by the Circuit/Society and

    should agree with the final total under Section 6 of the Schedule. (d) AMonies held as specific funds included in the accounts of the

    Circuit/Society@

     This is one figure, representing the total monies held as specific

    AFunds@ in the accounts of the Circuit/Society at the date of the

    Return. The total should be placed in the right-hand column, and

    should agree with the total of Section 5 of the Schedule. Please

    note carefully that the figure only represents specific funds which

    =s belong to the Circuit, and which appear as such in the Circuit

    books (Ledger and Cash Books), for example, Circuit Development

    Fund, Manse Furnishing/Maintenance Fund.

     Monies which belong to Societies should normally not be taken into

    =s books, but if for any reason that happens, the total of the Circuit

    ACreditor such balances must be shown under the heading

    @ which is dealt with later in this section. Any monies held Accounts

    ACreditor for external organisations should also be reflected under

    @. Accounts

    (e) ALoan Accounts@ (Other than the MCO)

     Whether loans as reflected in Section 7(b) are shown under (e) or

    not, depends on the bookkeeping option adopted which is referred

    to in Section 7 below. If they are to be reflected, show one figure,

    representing the total of loans owing by the Circuit as recorded in

    =s books, other than loans owing to the MCO. Such total the Circuit

    should be placed in the right-hand column (Credit) and should

    agree with the final total of Section 7(b) of this Schedule.

    ACreditor Accounts@ (f)

     This is one figure, representing the total of monies owing to sundry

    creditors, such as monies held temporarily for external causes (for

    example M&E Fund, Ministerial Students Fund and monies which

    belong to Societies, etc). The total must be placed in the right-hand

    column (Credit). ADebtor Accounts@ (g) Any debit balances other than those reflected in items (b) and (c)

    which are owing to the Circuit/Society at the end of the period

    should be shown here as one total and placed in the left-hand

    column (Debit). AFixed / Moveable Assets@ (h) It should be noted that Societies / Circuits do not show their

    property (fixed or movable e.g. Land, buildings, furniture, office

    equipment, etc) on the Form 4C and Form 4S. These acquisitions

    N:/Home/Common/Accounting Procedure Amended 2011 6

    are expensed under expenditure in the year in which they are

    acquired and the asset is not shown in Section 1.

     AState of Circuit (or Society) Account@

     This heading reflects the Accumulated Funds of the Circuit or

    ABalance at the beginning of the Society and commences with the

    @, which is the balance of the Circuit (or Society) Account period

    brought forward from the end of the previous financial year. The

    AExcess Income for the period@ or the AExcess Expenditure for the

    @ is taken from the calculation at the foot of either Section 3 period

    ABalance at close of period@ is or 4 of the Schedule. The

    calculated by adding or subtracting, as the case may be, the

    Excess of Income or Expenditure. For example:

     STATE OF CIRCUIT ACCOUNT DEBIT CREDIT

    Balance (beginning of period) 130.62

     Excess Income for period 484.29 OR Excess Expenditure for period Transfer to Trust Funds Transfer from Trust Funds Balance at close of period 353.67 353.67 carried down, and extended to appropriate column

    THESE TOTALS MUST AGREE 484.29 484.29

    AState of Circuit Account@ means that there was a deficit of This

    R130.62 brought forward from the previous period, from which is

    AExcess Income@ of R484.29 for the period of the deducted the

    Return. This gives a closing balance (surplus) of R353.67 which

    figure is extended into the right-hand column (Credit) and added to

    the other credit figures in that column.

     The “State of Circuit (or Society) Account” includes “Transfers to /

    from Trust Accounts.” This would be used for example, where a

    Society / Circuit sells a property but the funds are not available for

    general use. Without this line the income would go straight to the

    Trust Account bypassing account 58 in the Income Section which

    would be incorrect.

     SECTION 2 - ACertificate of Confirmation and Audit@

    The certificate is self-explanatory and attention is drawn to the audit requirements referred to above.

    N:/Home/Common/Accounting Procedure Amended 2011 7

    SECTION 3 - AIncome@

    Changes have had to be made to some account descriptions to enable

    the Church to comply with SA Revenue Services reporting requirements. For the respective year the total is extracted for each INCOME column in the Cash Book (or Ledger, if used) and indicated on the Schedule 4C or 4S. The INCOME items enable all concerned to quickly read the main sources of INCOME derived from within the Circuit or Society and establish progress or otherwise.

    Provision is also made for infrequent income not derived from normal Ainterest earned on investments@ or Aother income@, such means, such as as money received on a loan, which must be specified. (When paying out

    Aother@, under the EXPENDITURE this money, it will be shown as

    heading).

    SECTION 4 - AExpenditure@

    The selected main EXPENDITURE headings and sub-sections are arranged to easily determine trends and for convenience. Adequate explanation of each sub-heading is available on the Schedule. For the respective quarter or accounting period, the total is extracted for each EXPENDITURE column in the Cash Book (or Ledger, if used) and indicated on the Schedule 4C or 4S.

    The totals of Income and Expenditure at the foot of the respective columns indicate the exact state of Income and Expenditure for the period for which the Return has been completed, namely quarterly or yearly. The difference ATOTAL INCOME for the period@ and the ATOTAL

    between the @ is either AEXCESS EXPENDITURE@ or EXPENDITURE for the period

    AEXCESS INCOME@, which amounts are transferred to the ASTATE OF

    @ as referred to in the previous CIRCUIT (OR SOCIETY) ACCOUNT

    section.

    SECTION 5 - AMonies held as specific funds= funds included in the

    @ accounts of the Circuit (or Society)

    In the case of a Circuit, this section calls for details of specific funds included in the accounts of the Circuit, not funds which belong to individual Societies in the Circuit. In effect, the monies which belong to a Circuit

    =s Cash would be those monies which have been taken into the CircuitBook and Ledger and over which the Circuit Quarterly Meeting has jurisdiction. Also, the Schedule provides for the review of such funds, as to

    Amoney does whether they have been invested or not, so as to ensure that

    @. The total of Section 5 should agree with the figure in item (d) not lie idle

    of Section 1 of the Schedule. (If a Society within that Circuit administers its own finances, it would complete a Schedule 4S and reflect in Section 5 specific funds which belong to that Society).

     SECTION 6 - AAnalysis of Investments made in the name of the Circuit (or

    @ Society)

    This section calls for the analysis of the investment of funds held in the

    name of the Circuit. (If a Society, within that Circuit administers its own

    N:/Home/Common/Accounting Procedure Amended 2011 8

    finances, it would complete a Schedule 4S and reflect in Section 6 investments held in the name of that Society). This Section enables those

    concerned with Stewardship of Church funds to plan wisely and purposefully. The total of Section 6 should agree with the figure in item (c) of Section 1 of the Schedule.

     SECTION 7 - ALoans owing by the Circuit (or Society)@

    This section reflects loans taken by the Circuit/Society from the MCO in sub-section (a) and other institutions in sub-section (b). It also shows the progress made in the repayment to loans and the amounts owing. This important information is only a source of reference and the closing balance not be disclosed in the Statement of Balances. should A more informative option, involving some bookkeeping knowledge, would be to disclose the closing balance from Section 7 in the Statement of

    not recommend this option. Balances but we do

     - AAddendum of Income and Expenditure of organizations SECTION 8

    @ etc.

    ALL monies received and spent by As stated in paragraph 3.3

    organisations, departments, Rona, fund raising and projects must be accounted for, audited and attached to the relevant Financial Statements (Form 4S or Circuit Form 4C). Organisations, departments, projects etc may continue to produce their own separate audited Financial Statements which must be submitted to the Society Steward/Treasurer (or Circuit Treasurer if there is one) as the case may be, to enable him/her to complete the new Addendum (Section 8).

     SECTION 9 - AConsolidated Schedule of Society and Circuit Income and

    @ Expenditure (4C Only)

    This schedule only needs to be completed by the Circuit official where

    are Societies (or Sections) in the Circuit which administers their own there

    funds. These Societies or Sections will have completed Schedule 4S. The purpose of this schedule is to enable those responsible in Circuits, Districts and at the MCO to monitor, in one document, the progress of Circuits and provide information to facilitate strategic planning for the Church. The format is simple and calls for the names of Societies in the Circuit and extracts the TOTALS of Income and Expenditure (in their sub-sections) as detailed on Schedule 4S.

     SECTION 9 - (4S only) ADetail of Pastoral Salaries and Allowances Paid by

    @ Society direct to Pastoral Staff

    Please ensure that Section 9 is completed with all the details requested on

    the Schedule.

     - (4S Only) AProperty Addresses, Insurance and SECTION 10

    Membership”

    To be completed by the Society / Section Treasurer. This gives important

    information on the whereabouts, value and membership of the Society / Section.

    N:/Home/Common/Accounting Procedure Amended 2011 9

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