Purpose of Agreed Upon Procedures (AUP’s) – Church members and others provide substantial financial resources to local churches, and expect church staff and lay leadership to provide proper oversight of such resources to ensure such resources are (1) used in a manner consistent with that expressed through the church’s annual operating budget and designated gifts, and (2) adequately safeguarded from improper use or loss. In order to meet these expectations, it is important that the church’s Finance Committee (or other governing body responsible for oversight of the church’s finances) have confidence in the accuracy and completeness of the financial information the Finance Committee (the Committee) receives in order for it to carry out its responsibilities. The purpose of these procedures is to supplement (not replace) the church’s system of internal controls in enhancing the reliability of the financial information used by the Committee and others in the church and to help in deterring the intentional misuse of the church’s financial resources.
Scope of AUP’s – The scope of these procedures should encompass all significant financial activities of the church and the resulting cash and investment balances. Accordingly, the review should include not only activities and balances associated with the church’s annual operating budget, but also any other significant activities and cash and investment balances for which the Church is responsible. Such other activities and account balances might include, but not necessarily be limited to, the following: special purpose or designated gifts; capital or debt reduction campaigns; preschool, day care and adult care operations; endowment funds; and missional and similar funds collected on behalf of others.
Applicability and Frequency of AUP’s - The frequency of having these procedures performed depends on the annual TOTAL amount of funds received by each local church from all sources (i.e., the average annual total combined funds received through the operating budget, designated or restricted gifts given for a particular purpose, monies received for capital buildings or improvements or for debt reduction, endowed funds received, and funds received from any other sources for the prior three years.) If the total funds received by a local church exceed $2,000,000, the local church should have these procedures performed annually. For those local churches who annually receive total funds of less than $2,000,000, but more than $1,000,000, those churches should have these procedures performed once every two years. For those local churches who annually receive total funds of less than $1,000,000, but more than $500,000, those churches should have these procedures performed once every three years. Churches with total annual funds received of less than $500,000 are not required to have these procedures performed, but may want to consider having them performed periodically.
“Testing Period” – The “Testing Period” shall be a period of twelve calendar months. The Testing Period is designed to be as close to the performance of the AUP’s as practicable (to allow for more timely correction of any errors or misstatements uncovered through performance of the AUP”s), while allowing the church to receive subsequent month’s bank statements and any other records that may be needed to complete the procedures in an efficient fashion. Accordingly, the last day of Testing Period should be at least 45 days but no more than 90 days prior to the start of fieldwork by the accountants performing the procedures. For example, if the church’s accountants are scheduled to begin the performance of the AUP’s on June 9th, the “Testing Period” should be the twelve month period ended March 31st, 2014 (71 days before the procedures begin.) If the procedures begin on June 23rd, the Testing Period should be either the twelve months ended April 30th, 2014 (54 days before the procedures begin) or March 31st, 2014 (84 days before the procedures begin.)
Selection of individual transactions for testing – Unless otherwise noted in the procedures, the independent accountant(s) performing the procedures should use his (her, their) professional judgment to select the transactions for testing. Care should be taken to select a wide variety of transactions (particularly in step 9), with such variety to be based on dollar amounts of the transactions, the types of transactions (i.e., payroll, charge or procurement card, checks), and the functional nature of the transactions (e.g., facilities, worship, education, personnel, missions, technology, debt service, preschool or daycare activities)
Terminology used to describe procedures – Efforts have been made to use generic terminology in the AUP’s in order to create standard minimum procedures across the Conference. It is likely that in at least some instances, one or more Churches may use different terminology to describe the accounting records referenced in the procedures. We believe in most instances, the church’s accountant(s) and the independent accountants selected to perform the procedures will be able to adapt these procedures without difficulty. However, if there are instances where this is not the case, we encourage church staff and the independent accountants to contact the CF&A’s audit committee chairperson to resolve any such issues. To the extent practicable, we encourage any such instances be resolved prior to the start of fieldwork by the independent accountants to minimize or eliminate any added cost such issues may otherwise cause.
The AUP Report – At the conclusion, the independent accountant will produce a report describing the procedures performed and the results of those procedures. The independent accountant should review the report in person with the Committee or the Committee’s designees. (Note: It is appropriate in most circumstances for the church’s accountant to be present for this discussion, but this discussion should always involve persons beyond church staff and the pastor or pastors.) This review should include a discussion of any internal control weaknesses observed by the independent accountant during the course of his or her work, and potential options to address those weaknesses. In those circumstances where financial improprieties are discovered, or where numerous and severe issues are brought to light in the report, we encourage such matters also be brought to the attention of the Administrative Board. A copy of the report should be provided to the district office after completion of the work and review of the report by local church officials.
Fund Balance Report – After receipt of the AUP report the “Fund Balance Report” should be completed and returned to the district office. The fund balance report can be completed as part of the agreed upon procedures by the independent accountant or completed by church officers based on the results of the AUP report. However, the fund balance report must be approved and signed by the independent accountant who completed the AUP report.