June 10, 2010

Church Council

Lutheran Church of the Good Shepherd

580 Larkin Street

Salinas, CA 93907-1900

Subject: 2009 Church Audit

Dear Church Council

With this letter the Audit Committee presents its report on the audit of the financial books and records of the Lutheran Church of the Good Shepherd for the period January 1, 2009 through December 31, 2009.  The objectives of the 2009 Audit were previously submitted to the Stewardship and Finance Committee and are listed below.

OBJECTIVES:

1. Review Council responses to the 2008 Audit and identify any recommendations that continue to need addressing.
2. Appropriate procedures are in place and are being complied with governing key financial operations.
3. Controls governing the congregation’s investments and bank accounts are in place and operating as intended.
4. All assets and liabilities recorded in the congregation’s books and records are supported by documentation (i.e. bank statements and vendor invoices.)
5. All general ledger balances are appropriately reconciled to their underlying assets (i.e. bank statements) and liabilities (i.e. accounts payable) in a timely and accurate manner.
6. All donations are properly documented, recorded, and classified in line with the donor’s intent.
7. All necessary insurance policies are in place and in force.
8. The Sunday (or special) offering is handled and counted with appropriate methods.
9. Any petty cash funds are closely monitored and controlled.
10. That all major expenditures have been approved by the governing body (i.e. Congregation and/or Congregational Council) as called for in the Constitution or congregational bylaws.
11. Expenses are appropriately approved and supported by the appropriate documentation prior to payment.
12. Controls over the payroll process are in place and operating as intended.

AUDIT CONCLUSION:

Based on the tests and reviews performed by the Audit Committee to achieve the objectives listed above, the books, files, and records of the Lutheran Church of the Good Shepherd appear to be materially accurate in all respects.  Testing and observations found, with some exceptions as noted in this report as issues, that the controls governing the financial operation process appear to be in place and operating as intended. 

Although controls over financial operations appear adequate some additional improvement is needed in the areas listed below as issues.

ISSUES:

1. There was a $20,000 deposit in the Mission Investment Fund in March 2009.  Was the deposit approved properly in light of the fund being uninsured?

1. The Mission Investment Fund deposit showed on the account reconcilement in March but did not post to the account until April.  Consequently the 3/31/09 reconciliation balance did not tie to the statement balance.

1. For several of the reconcilements, the related statement was either not in the file or an interest posting document was used to reconcile.  Ideally reconcilements would include the supporting documentation, i.e. full statement.

1. The By-laws require that the Audit Committee report its findings in writing to the congregation at the annual meeting.  The annual meeting is typically scheduled shortly after the first of the calendar year.  There is insufficient time to complete the audit and prepare the report for the annual meeting in February unless it is in the subsequent calendar year.  This expectation could be clarified in the By-laws.

1. An up to date comprehensive list of people that have the combination to the church safe should be maintained at all times in the church records.

1. The Audit Committee monitored counting of the offering on May 8, 2010 and June 6, 2010.  On May 8^th a special free will offering was taken in the Narthex for a drama group.  During the counting process for the general offering, a member of the congregation came into the church office with some money, counted the money independently, placed the money in an envelope, and then left with the money.  The tellers were unaware of the situation or the circumstances.  Later in discussions with Pastor Embree the determination was made that this money had been the free will offering for the drama group.  This process bypassed the dual control practice of the tellers in counting money and was not included in the record of giving for the congregation.

1. On June 6^th the Tellers did not observe a number of checks that were in the safe, did not include them in the record of giving, and in the deposit.  The deposit for those checks was delayed for one week.

1. On the Teller sheets for the 2009 calendar year, one sheet is unsigned (11/15), some signatures are not legible, and the teller sheet (9/27) had only one signature.
2. The church secretary made a number of relatively small deposits late in the week (8/12, 8/13, 11/30, & 12/7) with only one signature.  It appears to the Audit Committee that it would be more appropriate that these deposits be held over for the typical Sunday teller/deposit process.
3. The financial records of the church should be kept in a locking file cabinet.

1. The attached letter was distributed randomly to 20 congregational members to help evaluate the accuracy of the church records of giving.  Fifteen congregational members have returned the survey as of this date.  Thirteen members indicated that their personal records agreed with the statement of giving received from the church.  One member indicated that a corrected statement had been issued.  The last survey is being passed on to the Stewardship and Finance Committee for review and appropriate action.

1. At the February 21, 2010 annual meeting a question was raised regarding the paving of the church’s asphalt parking lots which involved a large capital expenditure.  The church member questioned the need for the work and asked how it had been accomplished without budget approval.  The response to the member justified the need for the work and indicated that the money had come from designated funds.  The Audit Committee reviewed the Constitution, Bylaws, and the rules for Designated Funds dated April 17, 1990.  These documents allow the establishment of designated funds but do not appear to authorize expenditures with only Council approval or other persons approval.  Bylaws should clearly identify authorizations for expenditure of designated resources.   Unless emergencies exist, typically large capital expenditures should be part of a congregational budget approval process so the congregation openly knows and has input in what is occurring.  

Very Truly Yours,

2009 Audit Committee:     Vic Davis

                                       Pat Alexander

                                       Ronald J. Lundquist

Council Response to the Audit Committee

August 17, 2010

From:    Congregational Council

To:          Audit Committee

On behalf of the entire congregation, we thank you for auditing the congregation’s financial records for 2009 and for reviewing our current financial procedures and controls.  We appreciate your recommendations for strengthening existing controls and for increasing confidence in those responsible for handling the congregation’s money.

The Council delegated to the Stewardship and Finance Committee careful examination of each of the issues identified in your report, along with appropriate responses and actions.  Those responses (keyed to the corresponding numbers in your report) are hereby endorsed by the Council as a whole.

1.            The congregation’s constitution (C12.05.f) assigns responsibility to the Council for the congregation’s investments.  Upon recommendation from the Stewardship and Finance Committee, the Council formally approved a $20,000 transfer to the ELCA Mission Investment Fund at its meeting on 3/17/2009.  Though the MIF is not insured by the FDIC, its mission, history, management, and high level of reserves make it a very secure investment.

2.            Noted, with no action required.

3.            Noted.  Reconcilement documentation is reviewed monthly at the Stewardship and Finance Committee meeting and filed in the church office.

4.            We agree that it would be quite difficult to complete a thorough financial audit before the annual meeting in February.  An amendment to the Bylaws is under consideration.  The revised section C13.03.01 would simply read:  “The Audit Committee shall annually audit the fiscal records of the congregation and report its findings and recommendations in writing to the annual meeting.”

5.            Agreed, but the number of people knowing the safe combination has no doubt grown quite large over the years.  The Stewardship & Finance Committee has recently changed the safe combination, and will now maintain a list of persons having access to the new combination.

6.            We agree that all offerings should be counted and recorded by the tellers and included in the financial records of the congregation.  This policy will be clarified in written teller instructions.  (In the particular case observed on May 8, 2010, the recipient organization provided a signed receipt for $509 on the following day.)

7.            This omission is considered an anomaly, but no harm was done.  Teller instructions will include a reminder to look for loose checks or cash in the safe prior to beginning the count.

8.            We agree that the Teller’s Offering Recap form should be signed by both tellers, as indicated in written teller instructions.  The next revision to the form will also include space for printed names, in case signatures are illegible.

9.            We agree that there is rarely any need to make mid-week bank deposits.  The church secretary has been instructed to hold all such monies received in the church safe, to be counted and recorded on the following Sunday.  If a cash flow issue prompts an earlier deposit, the teller coordinator will be contacted to make appropriate arrangements.

10.          Offering records are maintained by the Financial Secretary and payroll records are maintained by the Treasurer, at their respective homes.  Electronic copies are also maintained in password-protected software applications.  All other financial records, except invoices and payment documentation, are now kept in a locked file cabinet in the church office.

11.          The Financial Secretary has been instructed to follow up with the single individual who requested, but did not receive, a corrected receipt for 2009 gifts.

12.          The congregation’s constitution (C12.05.c) gives the Council authority to establish designated fund accounts for special purposes.  Implicit in that authority is the oversight of expenditures from any such designated funds.  We believe that the Council acted properly in authorizing the expenditure of certain designated funds for parking lot maintenance and improvements in 2009.  Nevertheless, we agree that capital expenditures should be included in the general fund budget, whenever possible, and paid from current operating receipts.  The Council intends to update the continuing resolution (dated 4/17/1990) to clarify policy and procedures for designated funds.

The Council again thanks you for a job well done.

In His Service,

Gary Wolfe

Congregation and Council President