Confusing Interactions
How “Bank Accounts” and “Local Funds” Interact. The following examples illustrate misconceptions that we encounter on a regular basis. These misconceptions can lead to incorrect Jewel entries, resulting in reports to the board that are inaccurate or misleading, and a board that believes they have more or less than they actually do. If you are a new treasurer or your church has a very simple system and you rarely transfer funds from one bank account to another, you may not need to read this. But if you like a challenge and want to move to the next level in Jewel, welcome!
Typical Church “Bank Accounts": There are churches with more complicated systems, but in general, churches with more than one bank account have:
- A main “Checking Account” which receives deposits and pays bills using checks or electronic payments.
- Sometimes a second bank account that is connected to a debit card(s).
- A “Savings Account” - revolving fund, money market or CD, to take advantage of a better rate of interest.
- Note: Very rarely, a church will have a separate checking account for Pathfinders, an active Building Project or some other ministry, and even more rarely, a separate savings account for an estate bequest. The following examples will not apply to, nor address these exceptions.
Misconception #1: Some bank accounts should be labeled as to origin or potential usage
Example: “Savings – Building Fund.” This helps us know how much we have and where it came from.
Fact: Using a bank account to preserve donation origin is not recommended. It increases the work of the treasurer and usually robs the reports of clarity, simplicity and sometimes even accuracy.
Explanation: When donors give offerings, we must keep track of how much each donor gave, and to what project or ministry. If we did this using only bank accounts, we would need to open a separate checking or savings account for tithe, another for church budget, and so on, so the donations wouldn’t get mixed up together.
This way of preserving origin would be expensive (buying checks for each account) and inefficient. So, to keep detailed records of donations without opening multiple bank accounts, we keep a second set of records called “Local Funds.” These “local funds” keep track of the donations, expenses and ending balances so that the “bank accounts” don’t need to. (See Financial Summary 101)
Misconception #2: We have the money that is in the Bank Accounts plus the money that is in the Local Funds.
Example: We have a local fund labeled as “Food Pantry,” and we have a Food Pantry savings account. Adding those together we have over $10,000 to use for Food Pantry.
Fact: The “local funds” track the very same money that is in the “bank accounts.” They don’t double it.
So how much do we have for Food Pantry? The “local fund” ending balance is the accurate total. It includes all donations in, and expenses out. There is no need to keep track of it in a dedicated bank account.
Recommendation: Keep bank account names simple (“Savings – Revolving Fund” or “Savings – Truist”) and let the local funds do what they are good at - keeping track of how much is available in each expense or ministry or project.
Misconception #3: Since we have a “Savings” and a “Local Fund” with the same name, the two totals should always match
(But they don’t. Why?)
Fact: Donations, when given, are deposited into checking and posted to local funds. Even if the “Savings” and “Building Fund” match at some point, as soon as there is a donation to “Building Fund,” they will no longer match.
Explanation: Looking at a dedicated bank account total to know how much the church has in “Building Fund,” for example, will in most cases be unreliable, because that total is not as up-to-date as the local fund “Building Fund.” The local “Building Fund” ending balance is the place to find out how much is actually in the Building Fund.
- NOTE: Once a savings account has been specified as a certain type of fund, then it is assumed that more savings accounts or Revolving Funds must be opened for other projects, since that savings account can only have “Building Funds” in it. This results in more even more work for the treasurer because it means more transfers and more bank reconciliations at the end of the month.
- It takes a lot of work and many transfers to keep a local fund and a corresponding bank account matching, and in most cases, it is confusing to the church board, results in entry errors that need auditor correction, and should not be attempted.
Recommendation: For simplicity, when setting up savings or Revolving Fund accounts, use one savings or RF account for all excess funds, and meticulously and consistently post to the various local funds, letting them do their job of accurately tracking various projects and ministries, their income, expenses and ending Balances.
Misconception #4. When we send money from checking to savings, we must choose which local fund we are taking the money from
Example: The church board authorizes the treasurer to send $50,000 from “Building Fund” to the “Revolving Fund.”
Fact: You are not moving local funds to savings. You are moving money from checking to savings, to earn interest.
- The Wrong Way: If the treasurer enters a check into Jewel, sending $50,000 from the Building Fund to the Revolving Fund, they have forgotten to ask the question “Am I spending this money or am I moving it?” Writing the check this way, posting it to a local fund, tells Jewel that the entire $50,000 has been spent, rather than being transferred.
- As a result, the financial summary now shows that the checking and bank accounts totals have decreased by $50,000. The “Savings – Revolving Fund” has not increased by $50,000. The local “Building Fund” now has lost everything and is showing a zero balance.
- If monthly reports are printed and presented at this point, they are short $50,000, which does not give the church board the accuracy and clarity that is needed. Also, if they don’t receive assistance to fix this, continued attempts (usually General Journal Entries) by the treasurer to correct the problem often result in further inaccuracies, sometimes even leading to a misuse of Trust Funds.
Fact: Had the check instead been written the correct way, a transfer would have been created, moving $50,000 to SURF, rather than spending it.
This would have resulted in a correct ending balance and a local “Building Fund” which continued to preserve all records of donations and withdrawals, which is necessary for following IRS regulations.
Misconception #5. We need more money in (whatever) fund, so we will Transfer $10,000 from Savings and “put it into” that fund
Fact 1: The money that you withdraw from Savings is not just neutral money that can be withdrawn and plugged in wherever it is needed. Each dollar in Savings is already itemized and spoken for in one of your church’s local funds. It can’t be “put into” a random local fund.
In your Financial Summary, the “Savings Ending Balance” is already included in the “Total Local Funds Ending Balance”. Remember, the Total Bank Accounts balance must always equal the Total Local Funds plus Total Conference Funds.
Fact 2: If a local fund has a negative balance and needs to be assisted, a transfer among local funds is what is needed. Pulling money from Savings is often not necessary and is never effective.
Fact 3: The only time it is necessary to pull money from Savings is when your checking account balance has fallen below 2-3 months of average expenses, or if you are expecting a large purchase or repair that your checking account balance won’t cover. Leaving the rest of your money in Savings until actually needed, in order to gain interest on it, is good church finance.
Explanation: Moving $10,000 from SURF to checking doesn’t change the “Total Bank Accounts Ending Balance.”
- The church doesn't have any more money than it did before the transfer, it has just been moved to a different bank.
Moving $10,000 from SURF to Checking doesn’t change the “Total Local Funds Ending Balance” either.
- The local funds don’t have any more money than they did before either, since their ending balance always matches the “Total Bank Accounts Ending Balance.”
- If a certain local fund needs to have more money in it, then, to accomplish that, another Local Fund will need to have less.
- You will need to find $10,000 of non-trust funds somewhere in your existing local funds if you want to make a transfer of $10,000 to a different local fund. (Non-trust funds are donations to Church Budget or some other Reserve type fund, that originally came from Church Budget.)
- You cannot take $10,000 of trust funds from one local fund just to increase the balance in another local fund. This could lead to a misuse of Trust Funds, which is against denominational policy and could even be illegal.
Review for Misconception #5:
- Savings funds are not typically helpful with local fund shortfalls.
- Local fund shortfalls are fixed by local fund transfers, not by bank account transfers.
- Leaving everything except for 2-3 months of average monthly expenses in Savings, to earn interest, is good church finance.
If you try to make a Transfer from Savings to a Local Fund, Jewel won’t let you. Why? If you could subtract $10,000 from a bank account and add it to a local fund, your database would be $20,000 out of balance on your Financial Summary, which is a real problem. Jewel won’t allow you to make a transaction that would make those Ending Balances not match.
Summary
- Bank accounts (other than the rare examples noted at the beginning, and not covered in this tutorial) are not designed to be scorekeepers for local funds, such as “Savings – Building Fund.” Give them simple names. “Savings – Revolving Fund” and use one account for all excess funds. This will save time and avoid confusion.
- Local funds preserve, on paper, the origins of all donations and the record of all monies that are spent, so they have the most accurate ending balances. This is where the church board should look for financial balance information on any ministry or project.
These are probably the most difficult concepts to explain to a treasurer or a church board. We see databases on a regular basis that have incorrect ending bank balances and/or local fund balances because of these issues.
Most treasurers have inherited an account list that was set up before they took the position, so they didn’t create this problem themselves. But they can ask for assistance in cleaning it up.
Remembering how to correctly make these types of entries can be a challenge when not done very often. The best solution is to review this information before making transfers between bank accounts, and/or ask for assistance if you think there may be a problem. Don’t wait for weeks or months, because corrections are easier when completed sooner rather than later, and you do not wish to give months of incorrect reports to your church board.