Lost checks from last years budget

Discuss questions around local unit policies for budgeting, reconciling, etc. This forum should not contain specific financial or membership information.
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dbdobson-p40
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Lost checks from last years budget

#1

Post by dbdobson-p40 »

Does anyone know what happens when a member loses a check written against the previous years budget? If I void the checks and write them a new one, I think it comes out of the current year budget but I'm not sure. I my case, the two lost checks respresent 20% of this years YW allocation. I need to reimburse the members but it does not seem right that it should penalize the money available for this years YW needs.
I have yet to call Clerk Support but was just wondering if anyone has experienced this before?
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aebrown
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#2

Post by aebrown »

dbdobson wrote:Does anyone know what happens when a member loses a check written against the previous years budget? If I void the checks and write them a new one, I think it comes out of the current year budget but I'm not sure. I my case, the two lost checks respresent 20% of this years YW allocation. I need to reimburse the members but it does not seem right that it should penalize the money available for this years YW needs.
I have yet to call Clerk Support but was just wondering if anyone has experienced this before?

You are right that the replacement check comes out of this year's budget. But the good news is that the voiding of last year's check causes a credit to this year's budget as well. So it's not really a problem as regards your Church Unit Financial Statement. Your stake will also see on its stake financial summary both the check and the credit in 2008, so there is no net consequence for your actual budget allocation.

The tricky accounting issue is that MLS handles the issue quite differently. As far as MLS is concerned, the voiding of the 2007 check creates a credit to the 2007 budget, because of MLS's strange habit of dating corrections with the date of the orginal transaction, even though the correction appears on the CUFS for the month when the correction was made. (You can see some discussion of this in a thread dealing with reconciliation, if you have the patience to wade through 21 posts.)

So according the 2008 budget records in MLS, all that happened was the replacement check (the budget credit for the void is in MLS's 2007 Budget records), so it looks like it penalized your 2008 YW budget. I don't know of a good way to handle this. You could create a transfer from Budget to Budget:YW to cover the amount. That would look reasonable on the Budget:YW report, but would leave a deficit in the Budget category. Since Transfers create both sides (credit and debit) on the same day, there is no way I know of to create a credit to 2008 and a debit to 2007 (which is the transaction that really needs to happen to make everything balance properly).

But the bottom line is that there is no decrease in the funds available; no one has been penalized. You just have to figure out how to do the accounting to make that as clear as possible to the organizations involved.
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aebrown
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Accounting for voided Budget checks from prior year

#3

Post by aebrown »

Alan_Brown wrote:So according the 2008 budget records in MLS, all that happened was the replacement check (the budget credit for the void is in MLS's 2007 Budget records), so it looks like it penalized your 2008 YW budget. I don't know of a good way to handle this.

I don't know why I didn't think of this earlier, but there is a straightforward way to address this problem that addresses all the issues.

The basic problem is that the voiding of the check from the prior year created a credit on the CUFS in the current year, but the credit in MLS to the Budget category is dated in the previous year, so the replacement check (dated in the current year, of course) artificially reduces the MLS report of the remaining Budget Allocation. So all we have to do is to create a credit to the appropriate Budget subcategory in the current year.

As previously mentioned, creating a transfer doesn't work, because the left side (debit) has to match the right side (credit). But there is a way to create an unbalanced transfer. This can be done through creating an Other item during the Reconciliation process. So here is how to address the problem:
  1. At the end of the month in which the prior year check was voided, do the reconciliation process.
  2. In the Other Items section (not the Temporary Items), create a credit using the date of the void, the subcategory of the original check, the amount (positive, since this is a credit) of the voided check. It's probably a good idea to use the reference number of the original check.
  3. MLS will then create a credit to the Budget allocation in the correct subcategory, which will balance out the amount of the replacement check. MLS will also create a debit to the Budget category so that there is no net effect on the actual zero balance of the Budget category for reconciliation purposes. Fortunately, this debit is in the form of a Transfer, which has no effect on the Budget allocation.
  4. As far as the stake records of the Budget Allocation for the ward are concerned, there is no net effect -- the void created a credit to the Budget Allocation, and the replacement check created a debit, all occuring in the same month (assuming the void happened the same day that the replacement check was issued).
A neat and tidy solution, that solves every issue. I have actually tested this and it works as advertised (then I restored my database backup!). I wish I had thought of this years ago -- it would have eliminated a lot of stress for me and the ward clerks faced with this issue.
crislapi
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#4

Post by crislapi »

This has worked well for me at both a ward and stake level. Now here's a twist on it. One of the ward's in my stake wrote a reimbursement check at the end of 2007 for $90 (taken out of budget). However, it was not cashed because in 2008, the payee informed the clerks the check had been made out incorrectly - it should have been for $900.

So while they get the credit for the $90 they wrote in 2007 using the approach mentioned here, I'm curious if there's a way they can also get the remaining $810 from last year's budget as well. I'm assuming, of course, that they had that much remaining in their 2007 budget.

My research tells me no: the difference will have to come out of this year's budget. If someone could please tell me I'm wrong, you'd make me very popular!
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aebrown
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#5

Post by aebrown »

crislapi wrote:This has worked well for me at both a ward and stake level. Now here's a twist on it. One of the ward's in my stake wrote a reimbursement check at the end of 2007 for $90 (taken out of budget). However, it was not cashed because in 2008, the payee informed the clerks the check had been made out incorrectly - it should have been for $900.

So while they get the credit for the $90 they wrote in 2007 using the approach mentioned here, I'm curious if there's a way they can also get the remaining $810 from last year's budget as well. I'm assuming, of course, that they had that much remaining in their 2007 budget.

My research tells me no: the difference will have to come out of this year's budget. If someone could please tell me I'm wrong, you'd make me very popular!
There's no way to answer this question without understanding your stake's budget policies. The stake president has the authority to specify how the stake's budget allowance is distributed among the wards. Part of this process involves how surpluses are carried forward from year to year.

At the stake level, budget surpluses are always carried forward in their entirety. I say "always" based on my experience of 7 years dealing with stake finances; I suppose it's possible that the Church could change this policy, or that if the surplus were too great, the Church would ask for some portion of it to be returned to general Church funds. But I think it's reasonable to make this assumption.

So then the question is how the stake deals with budget surpluses (or deficits) in the individual wards at the end of the year. I have personally seen, or heard of three different approaches. Any of these can be entirely appropriate within the Budget Allowance program and is within the stake president's discretion.
  1. Wards do not carry forward any budget allocation. The new year's allocation is based on whatever formula the stake uses to determine the specific allocation for each ward. A variation on this (to encourage fiscal responsibility by the wards) is that any deficit will cause the new year's allocation to be reduced by that amount; essentially deficits are carried forward, but surpluses are not.
  2. Wards carry forward their entire surplus or deficit to the new year, just as the stake does.
  3. Wards carry forward any deficit, but surpluses are capped at some set amount (e.g., if the cap is $1000 and a ward has a $1700 surplus, they carry forward $1000, but if they have a $200 surplus they carry forward the $200).
So with this groundwork laid, let's move to your specific question. I'm guessing your stake does not use scenario 2, since with this scenario the question really is pointless -- the ward will have the same balance whether the $900 check had been written in 2007 or 2008. (Note that from an overall stake perspective, this same logic applies to the check no matter what scenario is used -- the net budget allowance balance across the whole stake after the $900 check is written will be the same, whether it was in 2007 or 2008.)

In scenarios 1 and 3, the stake will essentially be skimming all or part of the surpluses from the wards, putting those surpluses in the general stake budget, and then either reserving it or allocating it to the wards and the stake. From the way you posed the question, it sounds like your stake uses scenario 1, and furthermore that the stake skimmed over $810 from the ward at the end of the year in bringing the ward back to $0.

To charge the $810 against last year's budget essentially means that this ward is asking the stake to refund $810 of the amount the stake skimmed from the ward on the grounds that there was a good-faith clerical error. As long as the stake still has that money in reserve and hasn't made other promises to wards or to stake auxiliaries based on the availability of that $810 to the stake, this is an issue that is easily solved.

All that would need to be done is for the stake to make a one-time increase of $810 to the 2008 budget allocation for that ward. This of course would also mean that there would be a corresponding $810 reduction in the stake reserves, or the stake budget or (and this one would probably cause some grief) other wards' allocations. It's a bit more complicated with scenario 3, but it's still very solvable.

So you see that it can be done; it just is a question of the way the stake handles surpluses and deficits at the new year, and whether the stake uses skimmed surpluses in its calculations of how to distribute the new year's budget allowance among the wards.
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aebrown
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#6

Post by aebrown »

Alan_Brown wrote:All that would need to be done is for the stake to make a one-time increase of $810 to the 2008 budget allocation for that ward.
In the spirit of the original question that started this thread, I would note that there is an additional question: If the stake simply increases the budget allocation by $810, how should the ward account for it?

With the original question, there is really no problem in making the Other Items adjustment during reconciliation. In fact, as I mentioned above, this is a perfect solution, since it truly is causing an MLS entry to be made that matches an entry on the CUFS that would otherwise not be in MLS.

But it's not nearly so tidy when the check from 2007 was written for the wrong amount. It seems to me that you have to make some sort of compromise:
  1. You can just increase the budget allocation at the ward level to cover it (specifically, this would be done in the Budget subcategory the $900 check has to be written from). This artificially inflates the budget for 2008, and so this is not a great solution in my opinion.
  2. You can make the adjustment to the Other Items during reconciliation for the full $900, rather than just the $90 for the 2007 check that was voided. This is tidy in the sense that it does not skew the 2008 budget allowance, but it creates an MLS entry which does not correspond to the CUFS. It also means that the ward is working towards a different budget allowance figure than the stake is, which seems awkward.
I don't really know what to recommend. Either way can be made to work, but both have significant downsides.
crislapi
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Take note of this post if voiding a check issued by the Stake

#7

Post by crislapi »

Alan_Brown wrote:As far as the stake records of the Budget Allocation for the ward are concerned, there is no net effect -- the void created a credit to the Budget Allocation, and the replacement check created a debit, all occuring in the same month (assuming the void happened the same day that the replacement check was issued).A neat and tidy solution, that solves every issue.
I want to clarify the effect this approach has on the Stake. For ward checks, there is none. However, when voiding a stake-issued check, you will most definitely want to do what Alan_Brown has described to credit the funds back to MLS. Let me explain.

After just spending 2 hours trying to get August's MLS Budget Report and Stake Financial Summary report to agree, I finally realized that I was off by:
1. The sum of two checks cut on 31 Aug 2008 (too late to be included in August's report) and
2. The amount of a check from 2007 I had voided and reissued in July.

I'll spare you the thought process that led me back here, but suffice to say that at the stake level, if you don't follow this approach to credit back to your MLS account the credit HQ gives you for a voided check (that you, the stake, issued), you will have to manually adjust your totals each month to make the two match.

Alan_Brown, my hat off to you yet again for this tip. I love it!
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