Cheshire South Methodist Circuit
Guidance Notes for Independent Examination of the Local Church Accounts for 2016 /2017
(This guidance is intended to aid examiners who may not be familiar with the specific accounting practices of the Methodist Church, completion of the annual Standard Form of Accounts and Charity Law)
For comprehensive guidance see the Charity Commission’s publication “Independent examination of charity accounts: examiners (CC32)” which quotes:
“The key to a successful independent examination is an understanding of the respective responsibilities of the examiner and the trustees in relation to the scrutiny, preparation and filing of accounts. A successful examination will be dependent on understanding what an examination involves, who may undertake it and the examiner having the relevant skills and experience to undertake a competent examination.”
1. WHO CAN BE AN INDEPENDENT EXAMINER?
An examiner is “an independent person who is reasonably believed by the Church Council to have requisite ability and practical experience to carry out a competent examination of the accounts”.
To be independent the examiner must have no connection with the trustees, which might inhibit his/her impartiality. So the following would not be considered to be independent:
a. a trustee or anybody closely involved in the administration of the church.
b. A major donor or beneficiary (unless this was more than 5 years ago)
c. A close relative, partner, business partner or employee of those covered in a) and b)
All our churches are eligible to use the Receipts and Payments method and so examiners do not have to be professionally qualified.
2. APPOINTMENT OF THE EXAMINER
The Chair of the Finance Committee or the Treasurer should discuss the work of the church and their expectations with the proposed examiner. They should ensure that he/she is conversant with the Charity Commission requirements for examination.
A model form of a letter of engagement is available and its use is seen as good practice. Contact the Circuit Finance for further information.
3. CHARITY COMMISSION DIRECTIONS
The Charity Commission Directions define how the reporting duties of the examiner must be met. The directions must be followed and the bare essentials as applicable to our churches are set out in this guideline, together with further explanation where necessary.
(1) Examination and accounting thresholds
All churches in Cheshire South Circuit are required to submit their accounts for independent examination. Receipts and payments accounting should be employed and the Standard Form of Accounts (SFoA) ,as supplied by the Circuit Finance Team, should be completed in draft by the Treasurer this will be reviewed as part of the examination. Adjustments may be recommended by the examiner and finally confirmed as accurate by the examiner by signing the declaration. If there is insufficient information to provide reasonable assurance or if end of year cash balances cannot be reconciled to the records then a brief report should be prepared by the examiner and attached to the SFoA.
(2)Documentation
“The examiner shall record the examination procedures carried out and any matters which are important to support conclusions reached or statement provided in the examiner’s report.”
The examiner should keep working papers (normally for six years) setting out how the work was done and what judgments he/she made in completing the examination.
These papers will include the engagement letter, notes of information obtained from the Church Council minutes, details of procedures, conclusions reached and any concerns, how the concerns were resolved, schedules showing where necessary analysis of any items in the financial statements, and copies of any trial balances, etc.
(3) Understanding the charity
“The examiner shall obtain an understanding of the charity’s organisation, accounting systems, activities and nature of its assets, liabilities, incoming resources and application of resources in order to plan the specific examination procedures appropriate.”
This is particularly important when engaging a new examiner who may be unfamiliar with the Methodist Church.
(4)Accounting records
“The examiner shall review all the accounting records to provide a reasonable basis for the identification of any material failure to maintain such records.”
This means not the occasional error but a gross failure to keep proper records. The records should be organized and capable of ready retrieval and analysis, including:
· being up to date and readily available,
· providing the requisite information not only at year end but also on any selected date
· containing details and nature of all monies paid and received
· containing details of all assets and liabilities.
The examiner does not need to examine accounts of any internal organisations which are included within the total accounts of the charity but he/she should assure themselves that accounts have been kept and examined and that balances carried over from previous years are consistent. [i.e. There is a standard form completed by each internal organisation for this purpose]
(5)Comparison with accounting records
“The examiner shall compare the accounts of the charity with the charity’s accounting records in sufficient detail to provide a reasonable basis on which to decide whether the accounts are in accordance with such accounting records.”
The Financial Statements must be compared with the underlying financial records.
For receipts and payments accounts comparison must be with the cash book or equivalent records. Some test checks of postings from the source of prime entry to ledgers or computer should be carried out. Bank reconciliations are further useful means of checking completeness of posting.
Particular attention should be given to designated and restricted funds and to collections and payments made on behalf of external organisations to ensure that correct accounting practices have been employed. It is not required to check all accounting entries against source documents (invoices, statements etc) unless concerns arise from those checks that were made. If accounts are straightforward many examiners do choose to check 100% of the transactions.
(6) Analytical procedures
“The examiner shall carry out analytical procedures to identify unusual items or disclosures in the accounts. Where concerns arise from these procedures, the examiner must seek anexplanation from the treasurer.”
The analytical procedures will comprise
. comparing statements with prior periods,
. comparing with budgets,
. considering whether the receipts and payments are consistent with all the information the examiner has gathered concerning the activities of the church
. ensuring that all funds held by the church are included in the accounts
(7) Examiner’s report
The SFoA will be checked as accurate by the examiner and signed by him/her as complying with the requirements of the Charity Commission. If there is insufficient information to provide reasonable assurance or if end of year cash balances cannot be reconciled to the records following discussions then a brief report should be prepared and attached to the SFoA recommending whether any final adjustments should be made so as to be able to reconcile in future periods.
D Priaulx
July 2017