Annually a church audit must be completed and submitted to the diocese. Audits are due September 1. A properly competed audit will include the report for the auditor or audit committee completing the audit and will include a balance sheet and income statement for that fiscal year.
It would be helpful if you reviewed these procedures first, to be familiar with what is required. These procedures provide your audit committee a plan to follow and to accomplish. They also provide uniformity to the audits performed by all audit committees throughout the diocese. The procedures are for use only by the church’s internal audit committee, they are not to be given to an outside CPA to use or to follow.
All funds of the church need to be audited, not just the operating funds. This includes any endowment funds, auxiliary organizations, as well as the clergy’s discretionary fund. The Episcopal Church’s accounting manual, Manual of Business Methods in Church Affairs states, “All clergy discretionary funds are classified as restricted funds of the church.” As a fund of the church, clergy discretionary funds are subject to audit. However, the member of the clergy may be permitted to maintain confidentiality over the expenditures of the fund while maintaining a strict confidence.
When the audit is completed, the audit committee issues a report consisting of:
(1) an audit opinion
(2) any recommendations or improvements
Remember to include year-end financial statements with your audit. The audit committee must submit and sign the standard audit opinion. The original should be given to the Rector/Vicar and Vestry/Mission Council and kept in a permanent file. A copy of the audit opinion, recommendations, and financial statements must be sent to the finance office by September 1 of each year to be in accordance with the National and Diocesan Canons. Failure to file jeopardizes seat and voice at the annual Diocesan convention, and potential other consequences for non-submittal of the audit report by September 1.
Auditors should use the December 31 year end treasurer prepared financial statements and agree all numbers back to the filed parochial report for the year. Any revisions to the parochial report must be sent to the finance office, by September 1, as revisions could affect the Mission Share calculation. No Mission Share calculations will be changed after September 1 due to parochial report revisions.
If there are any concerns or questions from the auditors regarding these procedures, please do not hesitate to contact the Finance Office at 800.582.1712.
Audit during clergy leadership transition
Congregations in transition have an audit requirement beyond that of the annual audit that is required by diocesan canon. The audit of a congregation in transition with financial resources of $500,000 or more requires a certified public accountant to review the financial reporting and operations of the parish. Many types of audits can be performed by the CPA. These audits have various scopes, outcomes, and costs.
Congregations in transition and needing to fulfill this requirement have options
- Submit the financial audit currently completed by a CPA
- Engage a CPA to complete a financial audit using the guidelines set by the AICPA
- Engage a CPA to complete the agreed upon procedures developed by the diocese with specific additions suggested by the parish or CPA.
A set of documents outlining the diocesan agreed upon procedures (AUP) to be used by parishes and CPAs can be found here. This AUP may have additions but no deletions.
The cost of the ‘audit’ is the responsibility of the parish. Results of this AUP should be sent to the transition minister of the diocese and the chief financial officer.