Accountants Discuss Importance of Financial Records
Like salt-and-pepper or bacon-and-eggs, the accuracy of a masjid’s financial records goes hand-in-hand with the work of a licensed accountant, it was recently asserted. According to two respectable Muslim accountants, the accuracy of a masjid’s bookkeeping and financial records can only be established through the services of a certified public accountant (CPA).
In a December 9 webinar, the chief financial officer (CFO) of a Washington D.C. masjid and the chief executive officer (CEO) of a Virginia accounting firm, both stressed the critical need for masjids in the community of Imam W. D. Mohammed to secure the services of a CPA.
Besides preparing and filing tax documents, “CPAs are the only people who can provide you with an audit of financial statements,” and are licensed to certify the accuracy of those documents, said Daniel Selby, Ph.D., CPA and founder and owner of the Bilalian (African-American) accounting firm, Daniel Selby, PLLC. Despite the fact that “most masjids” in Imam W. D. Mohammad’s community can not afford a salaried CPA, Khafi Knox-McDowell, CFO of Masjid Muhammad in Washington D.C., urged “masjids to, at least, (hire) a CPA on a consultant-basis.” CFO Khafi said in a 90-minute online discussion that such an arrangement would allow the CPA to set up the accounting books; train a masjid member to enter the daily receipts and expenses; periodically, review those books; and “of course,” prepare the masjid’s financial statements. Both accountants, members of Imam Mohammed’s community, spoke on the first night of a three-night webinar on community development. The three-part webinar, held Dec. 9th, 16th and 17th, was sponsored by the teleconferencing program, Study Al-Islam and the D.C. masjid. (For a report on the two other nights, see “Webinar on Community Development Corporations,” released January 10.) The topic of the first night was “The Importance of Keeping Good Financial Records.” Technically, the body of knowledge that one studies to become an accountant is “accountancy”, which is the proper name for the accounting profession (though the two terms are often interchanged). Accountancy includes bookkeeping and accounting. According to the website of the Indian, tax-service giant, Clear (makers of the software ClearTax), “bookkeeping is the process of systematically maintaining and recording all financial transactions in the original books of entry (journals),” focusing “on the day-to-day financial activities.” While accounting, the website continued, “is the process of interpreting, analyzing, summarizing and reporting the financial transactions of a business.” Therefore, accounting starts where bookkeeping ends, while bookkeeping is the basis for accounting. Having financial records certified by a CPA, builds the masjid’s “integrity” internally as well as externally, according to CFO Khafi, who assumed the position in December of 2017. “If you are able to keep proper (financial) records . . . it will (generate) more trust” with the masjid members, said the CFO, which is crucial for an entity whose primary source of funding is donations. The masjid, she added, will also have “that integrity piece,” needed to qualify for bank loans, government and foundation grants, and private contributions. CEO Daniel, who founded his firm in 2016 in Richmond VA and has a doctorate in accountancy, utilized the tax law to support the co-speaker’s claim.
The Internal Revenue Code (501c 3) requires masjids, as a charitable non-profit organization, to keep financial records, such as books of account, receipts and canceled checks, etc. for at least seven years in the event the IRS decides to perform an audit.
In Dr. Daniel’s view, this requirement reinforces the fact that the IRS expects religious institutions to operate within a business framework.
“If you think and function like a business, you will be business-like. And if you are business-like . . . people will see you in that manner, and then you can get loans (and) people will feel more confident about their donations,” explained the Virginia entrepreneur, who is a member of the American Institute of Certified Public Accountants.
Sis. Khafi noted that places of worship are “traditionally” ineligible for government funding, and offered a reason for this policy. The accountant linked it to the Founding Fathers (George Washington, John Adams, Thomas Jefferson, etc.), and their advocacy of the “separation of Church and state" in forming the U.S. government. The CFO encouraged masjid leaders to consider creating community development corporations or “some other type of non-profit organization” to gain access to these funds.
Sis. Khafi emphasized that as Muslims begin to acquire financial assets, “we have to get into the mindset that it’s very, very important to have our financial records in order!” Finally, both accountants gave their opinion on one of the major challenges facing Imam Mohammed's community.
CFO Khafi said that "unfortunately," many of the masjids have professional bookkeepers and accountants within their memberships who won’t “step-up” and volunteer their services.
Thus, there are many “well-meaning” members in those "roles of (financial) responsibility" in the masjid, who lack the necessary "skill set", she explained, which is impeding the development of Imam Mohammed's community. Sis. Khafi recommended that these unskilled helpers consider on-line instruction or "some type of training" to increase their accounting knowledge and skills. Meanwhile, Dr. Shelby took the position that “accounting is a profession” that “can’t be learned overnight.” He posed the rhetorical question: “How do you train someone to treat cancer? You can’t do that with people who just walked in, off the street.”
This is the reason, he explained, people are willing to pay for his services, so that he can “take this (burden) off their hands.” The implication was that masjids should employ licensed accountants.