Void and replace checks from prior year

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aebrown
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Void and replace checks from prior year

Postby aebrown » Sun Nov 08, 2009 7:52 pm

Please forgive what promises to be a long post, but the issues are somewhat complex. I've thought about this off and on for years, but a recent experience with a ward financial clerk coalesced my thoughts. So here goes....

The basic question is: how do you handle a $1000 Budget check written in 2008 which then has to get voided and replaced in 2009? (I'll use year 2008 and 2009 throughout this post, but of course that could be any prior year and current year; the $1000 figure is arbitrary, but large enough to illustrate the problem). I'm assuming you followed all the proper procedures for voiding the check. My question is about the effects of the replacement check.

Regarding the Church Unit Financial Statement, the Stake Financial Summary, and actual charges against the Budget Allowance, there is actually nothing to do. This seems counter-intuitive to some financial clerks, but it is true. There is an extra $1000 charge in the month the replacement check is written, but there is also a $1000 credit in the month the 2008 check is voided. So there is no extra Budget Allowance hit, just because you had to replace a 2008 check in 2009.

The crux of the problem is that MLS records the credit for the voided 2008 check in 2008. Now the total 2008 expenses look $1000 lower than they should. But what is worse, the replacement check was written in 2009, so the 2009 expenses look $1000 higher than they should. When the clerk runs a Budget report to see how much Budget allowance remains for 2009, it appears that they have $1000 less than they actually do.

When the stake financial clerk looks at the Stake Financial Summary, he sees no problem, since the ward got a $1000 credit for the voided check and a $1000 charge for the replacement check, probably both in the same month.

So how does the ward financial clerk make the 2009 Budget Report look correct? He can:

  1. Not worry about it. That's easy, but won't help the ward live within its budget allocation.
  2. Make handwritten adjustments to the appropriate subcategory and totals. This is a pain and has to be done accurately every time a Budget Report is printed.
  3. Adjust the Budget Allocation up by $1000. This makes the Budget Allocation balance correct, but it skews your records of what you actually spent, which throws off percentages, during the year, and can be misleading when you use 2009 expenditure records to plan for 2010.
  4. You can try to create a credit for the appropriate Budget subcategory. If that could be done, it would make everything work out fine.
With that long preamble, option 4 is actually the topic of this post. The only way I can figure out how to do this is during the Reconciliation process to create an Other Item, with a positive amount equivalent to the replacement check's amount. It can use the same date, reference number, and subcategory as the replacement check.

The amount of this compensating entry will be recorded in the Transfer column, which is a bit unfortunate -- it would be better if it could be an actual credit in the Expense column. But other than that, it solves all the problems: the net Budget expenses are correct for every subcategory, the total Budget Allocation remains unaffected. It doesn't have any of the negative side effects of the other 3 options I listed.

Yet I am a bit concerned about this procedure. It seems a bit like a hack -- this is not a documented use of Other Items during Reconciliation. If I could figure out a better way, I would do it, but this is the only solution I can find. Does anyone have a better solution? Any concerns or comments?

crislapi
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Postby crislapi » Sun Nov 08, 2009 10:40 pm

I'd start by pointing back to your previous post. While I agree that this has the "feel" of a hack, it makes sense. Let me explain why.

One issue I am increasingly aware of is wards not correctly recording automatic charges (principally distribution center charges). If they don't, MLS shows them having a larger remaining balance than they in fact have. Reconciling doesn't catch this because all budget expenses are net transactions of $0 (the expense, and a corresponding transfer). What I have begun doing is periodically checking the MLS recorded monthly expenses (Income and Expense report for specific months) against the SFS reported monthly expenses. In doing this, I have come to realize that if I don't credit voided checks from previous (NOT current) years, the total expenses don't match.

I think this approach has gained validity with the inclusion of the "voided checks" section in the CUFS. I would treat this section much like the miscellaneous section - some entries have to be entered in MLS. If there is a credit for a check from a previous year, that credit must be entered in MLS manually. If the voided check was issued in the current year, it does not.

I'm not sure if this is the type of comment you were looking for, but hopefully it's at least in the right direction.

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aebrown
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Postby aebrown » Mon Nov 09, 2009 7:15 am

crislapi wrote:I'd start by pointing back to your previous post.


It's a bit embarrassing to see that I made essentially the same post 15 months ago, yet in yesterday's post I thought I was sharing a new thought.

I guess it's a lot like the scary movie I watched with my wife on Halloween. We had both seen it a few years ago, but I had so completely forgotten it that I still jumped at all the scary points, even though my wife knew exactly what was coming. She had a good laugh on my behalf.

crislapi wrote:One issue I am increasingly aware of is wards not correctly recording automatic charges (principally distribution center charges). If they don't, MLS shows them having a larger remaining balance than they in fact have. Reconciling doesn't catch this because all budget expenses are net transactions of $0 (the expense, and a corresponding transfer). What I have begun doing is periodically checking the MLS recorded monthly expenses (Income and Expense report for specific months) against the SFS reported monthly expenses. In doing this, I have come to realize that if I don't credit voided checks from previous (NOT current) years, the total expenses don't match.


This is a good point -- it is indeed important to have some way of making sure that you have entered all the Budget expenses, since the normal reconciliation process won't find them. I describe an alternate method that any financial clerk can do with just the CUFS (doesn't require the SFS) in the wiki article Reconciling the Budget category.

crislapi wrote:I think this approach has gained validity with the inclusion of the "voided checks" section in the CUFS. I would treat this section much like the miscellaneous section - some entries have to be entered in MLS. If there is a credit for a check from a previous year, that credit must be entered in MLS manually. If the voided check was issued in the current year, it does not.


That's a helpful perspective that makes it seem like a valid procedure. Thanks for the feedback.


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