At my annual checkup, the doctor ordered a number of blood tests. I didn’t think much about it until a copy of the test results arrived in the mail.

The report had a lot of numbers listed under “in range,” “out of range” and “reference range” headings. I had many questions as I scanned the list, particularly about the numbers in the “out of range” column. What does that mean? Is one result more important than another? Does it matter if a number is out of the reference range by a little or a lot — or if it’s “high” or “low”?

There was a wealth of information at my fingertips, but none of it was useful to me because I didn’t understand the report as it was intended to be used. To me, it was just a scrap paper. To a knowledgeable user, it was a comprehensive picture of my overall health.

Asking the right questions
You might find yourself in a similar situation as you attempt to assess your church’s financial health. There’s a lot of information you could gather; but, unless you know the right questions to ask (and how to view the answers), you won’t gain a clear understanding of your church’s financial situation.

Space not permitting, we won’t go into the specific measures a church should track in this article. We will, however, provide insights into what types of questions you should be asking, and how you should analyze the answers.
Here are a few of the questions we always ask when looking at a church’s financial information:

• Are the resources being used effectively?
• Does the church have adequate cash reserves?
• Is the debt level appropriate?
• Are contributions reasonable?
• Are the expense ratios reasonable?
• How do the financial resources of the church compare with other churches?
• What are the most appropriate key financial performance indicators for the church?
• Does the church have adequate financial resources to accomplish its mission?
• Is the church accomplishing its strategic financial goals?

The answers to these questions offer insights into different facets of the church and how it’s using its financial resources. The resulting financial indicators will provide an assessment of your church’s overall financial health.

Gauging wellness
Just as a blood test helps the doctor know what to do to keep you in optimum health, a properly designed financial indicator can help a church administrator evaluate the financial wellness of a church, and also identify areas for improvement.

These are two ways to look at financial trends in your church. The first is with inward comparisons — comparing data from prior years to the current year. Inward comparisons allow your church to see how funds are received and spent over a set period. Reviewing and comparing this data across a number of years will help identify historical trends and any underlying changes within the church. This can help your church align its spending patterns with its mission and vision.

The second method is to compare your church with other churches of a similar size. Comparing your church against other churches with similar asset sizes can be misleading, because churches with older properties tend to have smaller property values due to depreciation. At the same time, comparing your church to churches with similar revenues might not be effective either, unless the makeup of the revenues is known.

For example, one church might rely solely on contributions, while another has significant sources of income from a school or other activities. Or, a church might be seeing unusually high contributions because of a capital campaign. That’s why we recommend that churches compare themselves against churches with a similar number of average weekend adult attendees, instead.

While the numbers these comparisons provide are important financial indicators, it’s also crucial to understand how these measurements fit within the range of peer churches against which your church is comparing itself. A measurement calculated by averaging data from just a few peer churches might produce a much different result than one calculated with data from many churches.

Finally, it’s important to benchmark your church against others in a similar region of the country. Operating costs in the Midwest, for example, can be very different from costs in New York or California. Using averages from peers with demographics similar to a church’s own can provide a more accurate and objective measure of financial health.

Next steps
Determining what information to track in your church’s indicators, and finding peers to benchmark against, can seem overwhelming and time-consuming. One suggestion is to network with peer churches in your area, and agree to share data. If your church is part of a church business administrators group (such as National Association of Church Business Administration, or NACBA), it could do comparisons with other members.

Additionally, specialized reports — such as compensation studies — are available. Your church can consider using tools such as the Church Financial Health Index™, which was designed to provide in-depth answers to several of the questions mentioned at the beginning of this article. To find out more, visit www.capincrouse.com/churchhealth.

Our hope is that your church begins to ask the right questions and use indicators that will give an accurate picture of its financial health. This insight can help your church function more efficiently and effectively to accomplish its ministry.

Sarah Thompson is audit manager at CapinCrouse LLP. She can be reached at sthompson@capincrouse.com.

When Dr. Robert Jeffress became the senior pastor of First Baptist Dallas in Dallas, TX, one of the things he set out to do was reinvent the 145-year-old downtown church.

First Baptist had amassed a hodgepodge of buildings that didn’t fit with one another, or with the aggressive revitalization of downtown Dallas. Jeffress says he knew immediately what needed to be done: Rebuild the church architecturally, as well as spiritually.

So, in November 2009 — in the midst of the country’s worst economic recession since the Great Depression — Jeffress announced a grand vision for what would become the largest church building program in modern history: a $130-million new campus in the heart of Dallas. The new 500,000-square-foot facility opened its doors to the public last Easter Sunday.

Jeffress is quick to admit that the mammoth undertaking wouldn’t have been possible without the “supernatural working of God.” Still, he says he can’t emphasize enough the importance of planning and leadership in the success of any building project.

In an interview with Church Executive, Jeffress shares some of the lessons he learned leading a church makeover.

Just do it. When people asked Jeffress if he prayed about whether or not to reconstruct the campus, his answer was a resounding “No.” Jeffress says he looked at the Old Testament book of Nehemiah and found that Nehemiah never prayed to God about whether or not he ought to return to Jerusalem to rebuild the walls of the city.

Jeffress reminds church leaders that there are some things they don’t need to pray about because God already put those things in their hearts to do. “What you need to pray for,” he says, “is that you do it in God’s way and on God’s timing.”

Be fully involved in fundraising. Jeffress maintains that only God can stir the hearts of people to give, but that as a leader he needed to be totally dedicated to the task of asking people to give. Jeffress says one of the things he realized early on was that if he was to successfully raise $130 million, he must give 100 percent of himself to the fundraising aspect of the building project. And that’s what he did. Jeffress gave one year of his time to raising funds — no book writing, no outside speaking engagements. The only other thing he did was preach at his church.

Secure the investment of those who can give the most. As soon as the church committee approved the possibility of building a new campus, Jeffress picked 100 church members who he felt had the ability to give the largest amount of money and personally met with each one of them. In total, those 100 people made a commitment to give $65 million — one-half of the cost of the project.

Jeffress then made an announcement to the congregation: “I said, ‘Here’s what we propose to do; here’s what it’s going to look like — and, by the way, half the money has already been raised.’” People were ecstatic, he says, and voted unanimously to proceed in a public fundraising campaign.

Help your people visualize the project. Jeffress cites the example of the 12 Israelite leaders who were sent out by Moses to explore the Promised Land and came back with a visual picture: a cluster of grapes so large that it had to be put on a pole and took two men to carry.

In the case of First Baptist Dallas, Jeffress says the church used social media, technology and the “printed page” to give the people a picture of what the future could look like. “We spent a significant amount of money creating an animation [film],” he says. “I would also say not to spare any expense in the production of printed materials — make them full-color, on beautiful paper. Don’t use flimsy paper for commitment cards. People aren’t going to make a million-dollar commitment on a flimsy piece of paper. I really think attention to details like that help make for a successful project.”

Lead through the pulpit. “Use your preaching to carry the church to where you believe God wants it to go,” advises Jeffress, adding that it’s a principle he learned from Willow Creek Community Church pastor Bill Hybels. “There are a lot of pastors — and I used to be one of them — who believed they should never use the pulpit to try to get the church to do something; they ought to do that outside of their sermon,” explains Jeffress. But, Jeffress says he learned that if a leader’s vision is God-honoring and is in keeping with God’s will, he or she should use the Scripture to communicate to the people where and how God is leading the church to go.

Don’t underestimate the financially challenged. Knowing that many people at his church were struggling financially, Jeffress says he softened his appeal by excusing those who did not have jobs from giving to the building project. “I tried to show sensitivity,” he reasons. But, he says, a couple approached him — the husband had been out of work for a year — and said, “Pastor, don’t rob us of the joy of being able to participate in this undertaking.” The couple handed Jeffress a check for $5,000 — the last money they had in the bank.

“God has since blessed the husband with a wonderful job,” says Jeffress. “But I learned that, as pastors, we’re to put the challenge out there and let God speak to the hearts of those who need to give.”

Operate in your area of strength. Leading the team for the building project of First Baptist Church was executive pastor Walter A. Guillaume, Jr., who worked alongside a 12-member committee and a full-time construction supervisor. “They spared me from so many details,” says Jeffress, who admits he doesn’t know a thing about construction, electrical outlets and building materials. “One thing I learned during this project — and I learned it from talking to other pastors — was that the pastor needs to concentrate on doing what he and only he can do, and let the committee build the building,” says Jeffress. He says what God has called and gifted him to do is to encourage the people to give and provide the overall vision for what the project ought to look like and its role in fulfilling the vision of the church.

You have to spend money to make money. When Jeffress came to First Baptist Dallas as senior pastor, the church was already $15.5 million in debt from a previous project. Imagine the shock of the deacons when, one evening, Jeffress told them they needed to borrow $5 million to get the architectural plans drawn up and to do all that was needed to be done to raise the funds. Some people left the church because of it, recalls Jeffress; but the deacons, by and large, stood by him. “It cost us $5 million to raise $130 million,” he says.

Six weeks is all you need. It takes a lot of time to sow the seeds, but, according to Jeffress, the actual campaign shouldn’t last more than six weeks. Otherwise, the people at large will grow weary of it, he says.

Don’t build any more than what people are willing to give. Jeffress says one thing that gave the members of First Baptist Dallas the confidence to give was the leadership’s commitment: “We’re only going to spend what you commit.” In other words, if the project was going to cost $130 million, and the church only raised $115 million, it wasn’t going to borrow the other $15 million. “It made people give generously — and, of course, it’s going to keep us out of debt,” says Jeffress.

Bathe everything in prayer. “We had in our church 300 men, called the Pastor’s Prayer Partners, who regularly prayed throughout this project that God would guide us and bless our efforts,” says Jeffress.

Cast the vision beyond the project’s completion. Jeffress believes the new campus is not an end unto itself, but simply a tool to use in ministering to the city of Dallas even more effectively. “This is a new beginning for us — to reach more diverse groups of people,” says Jeffress.

First Baptist is also getting ready to enter into mainland China with its broadcast, with the potential of reaching 1 billion people. “We always have a new goal — but, hopefully, no new buildings for a while,” Jeffress concludes.

The well-regarded Carver governance model can work for churches.

Policy governance was created by John Carver in the 1970s and is described in his book, Boards that Make a Difference, first published in 1990. After observing our University’s governing board transition to a policy governing board several years ago, I have been an advocate of adapting John Carver’s model of policy governance for churches and other Christian organizations.

I also know from experience in consulting with churches and Christian leaders that governance structures and decision-making systems are especially slow to change. But left unchanged, these factors often become a hindrance rather than a help in accomplishing the church’s mission. What is needed, especially in larger, growing congregations is a more comprehensive, consistent, holistic process for the governing group.

In this approach the board or a leadership team of elders and senior staff appropriately oversees the church’s fulfillment of mission toward its vision while empowering the ministry staff to lead and manage the details of ministry. The primary purpose of this leadership team is to see that the church or Christian organization achieves what God desires and avoids what is unacceptable. The model often adopted is some form of policy governance.

John Carver model
Policy governance was created by John Carver in the 1970s and is described in his book, Boards that Make a Difference. In the foreword to The Policy Governance Fieldbook, edited by Caroline Oliver, Carver tells why, after years of serving on boards and with boards as a CEO, he devoted his life to improving board governance: “There was no model for governance.”

By model he means “a collection of principles and concepts that make sense as a whole.” Thus, he defines policy governance as “an integrated set of concepts and principles that describes the job of any governing board. It outlines the manner in which boards can be successful in their servant-leadership role, as well as in their all-important relationship with management” (see www.carvergovernance.com).

The goal of this governance model is to empower the board or governing group to focus on the “big picture” vision of the organization and to empower the administration to focus on carrying out the vision through appropriate and acceptable means within the limitations set by the board. By applying the Carver model, a board is better able to distinguish between governance and administration through the use of four different kinds of policies: (1) ends (or vision) policies; (2) executive limitations policies; (3) board-executive relationship policies; and (4) board process policies.

Some churches and ministry-based organizations have modified this four-part model into a three-pronged approach based on John Kaiser’s book, Winning on Purpose: How to Organize Congregations to Succeed in Their Mission. Kaiser calls this approach “The Accountable Leadership” strategy. Within this ministry-modified model, boards develop policies — or, as Kaiser calls them, “guiding principles” — that address three key issues: (1) defining responsibility (comparable to vision/ends policies); (2) delegating authority (comparable to limitations policies); and (3) determining accountability (comparable to some board process policies and to relationship policies).

Whichever model one chooses, it is readily apparent that boards of churches and Christian organizations would benefit from a clearer definition of the board’s role, its responsibilities, and its relationship with the director, president or pastor. In deciding whether policy governance should be adopted or adapted as the model of governance in churches, there are some important issues to address.

Biblical worldview
First of all, any discussion of governance for God’s people should begin with a biblical worldview, which means seeing the task from the Creator’s view (as revealed in creation) and Christ’s view (as revealed in redemption), not merely Carver’s view (as reflected in the Fall). In Carver’s model, the board holds itself accountable for its performance and holds the chief executive accountable to approved policies.

In Scripture, the first line of accountability for all leaders is to God, which may be missing in Carver. For Christian leaders, mutual accountability flows naturally out of living in a reconciled relationship with God and others in an authentic, accountable, covenant community. John Kaiser’s “accountable leadership” approach to applying governance in the church is consistent with God’s original intent for governance that is “safe and effective.”

Second, applying policy governance in a church context requires rethinking the issues, processes, attitudes, and behaviors of those who lead and govern. There are practical reasons for the concepts and principles of policy governance to be adapted without adopting all of the assumptions. God’s intention was not to create a board of directors and a corporate CEO, but, rather, a community of mutually accountable servant leaders who work together in fulfillment of their distinct roles by allowing for diversity in equality and unity.

Third, through a careful study of Scriptures, leaders should frame the discussion biblically so the elders can function collectively as a group “to guide God’s flock,” “guard God’s family,” and “govern God’s people,” as Rick Thompson suggests in E3: Effective Empowering Elders.

Faithful and fruitful
Many of the good elements of policy making can be incorporated, but not at the expense of other critical functions that must be carried out for a congregation to be faithful and fruitful. Elders and ministers dare not minimize the importance of fulfilling such vital tasks as shepherding, equipping, and mentoring, nor overlook the obvious need for spiritual leadership. From this writer’s perspective, church boards and often elders are too involved in managing or micromanaging the ministries of the church while no one is effectively leading the overall ministry of the church. The critical need in many churches is for clearly differentiated roles for elders who govern, ministers who lead, and ministry staff and teams who manage the ministries.

As churches adapt policy governance in some expression of elder governance, it is my prayer that they would develop a healthy leadership team comprised of elders and the senior minister, whose collective responsibility is to govern the church through necessary and appropriate policies or guiding principles.

When a leadership team fulfills this vital role, the ministry staff and entire congregation will benefit from their defining responsibility, delegating authority within boundaries, and determining accountability. And, ultimately, Christ will be served and his kingdom will be advanced.

Dr. Don Green is director and professor of leadership at Lincoln (IL) Christian University [www.lincolnchristian.edu]. Adapted from an article last year for ChristianStandard.com.

Trust, but verify when staff and volunteers handle funds.

As an auditor I often write and speak on the topic of internal controls and the importance of protecting the church from fraud. Sometimes people think I have to say these things because it’s my job, or that I’m engaging in scare tactics to get them to implement more work. The reality is I have a real heart for ministries. I understand that churches have limited time and financial resources, and that this can leave them at greater risk.

I conducted an interview at a recent seminar with a church business administrator who serves a ministry where fraud took place. This individual serves a church in Orange County, CA, with a small staff and what it thought were good, basic financial controls in place. The person primarily responsible for the bookkeeping was a trusted individual who had served in that capacity for a few years. There were strong controls in place for Sunday morning contribution collections and deposits, but the church had some weaknesses surrounding cash received at other times and from other places, such as ministry funds within the church.

After the bookkeeper left the accounting department to take another role within the church, the new bookkeeper found paperwork that didn’t seem to reconcile. The church soon discovered that the previous bookkeeper had periodically deposited checks directly into her personal bank account via an ATM, rather than into the church’s account.

Immeasurable pain
The initial discovery process progressed very quickly. The administrator obtained a copy of one of the checks in question and contacted the bank. Within hours, the bank was able to identify more than $50,000 that had been stolen. The individual was confronted and the police were notified.

The process did not finish quickly, however, and included tedious, time-consuming procedures. Several people from the church had to individually sit in a room with a police detective, review checks made out to the church and deposited into the bookkeeper’s account, and sign an affidavit that the funds were meant for the church, not the bookkeeper. The district attorney filed charges, more than $200,000 was determined to have been taken, and the former bookkeeper was sentenced to five years in jail.

Tighten up controls
The pain this created for so many people was immeasurable. People wondered how it could happen in their church. Some blamed certain individuals for allowing it to take place. Others felt the church was too hard on the individual and should never have involved the police. The time and energy it took over many months was a distraction to the church and to the ministry that should have been taking place.

During the process of getting to the bottom of this, the church realized that the bank reviews ATM deposits very sporadically, making the fraud less likely to be detected. In our interview, the administrator noted that the church had auditors who audited or reviewed their financial statements, providing some independent review of their internal control systems.

Management and the auditors had determined that while some controls were lacking, this deficit was not likely to result in a material misstatement or a material fraud. One check a week was all it took, however. “Materiality and cost-benefit analysis are tough when you are dealing with fraud,” the administrator said.

The church has moved on and the administrator looked at ways to tighten up controls he previously thought were adequate. Ministries within his church are now responsible for completing their own reconciliation of funds received, and those are compared to deposits and general ledger entries. Emphasis is placed on making people aware of the risks that exist and the controls that are in place. Trust is viewed differently.

We want you to understand that situations similar to this take place in churches across America every year, and yes, even weekly. The amounts vary significantly, but the results don’t.

While we can’t live each day under a cloud of suspicion, we do have a responsibility to “trust, but verify.” Take an opportunity to carefully consider each area of your financial processing, such as cash receipts, cash disbursements and payroll, and actively look for areas where something could go wrong. When you have identified the risks, you can create adequate controls to mitigate those risks and protect the church you have been called to serve.

Vonna Laue is a partner in the CPA firm of CapinCrouse LLP, Brea, CA. She is the co-author of Essential Guide to Church Finance. www.CapinCrouse.com

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Some lenders want a say in how the church is managed and organized.

Megachurches are usually defined as having 2,000 members or more, but when it comes to financing, a mega loan is defined as a loan amount of $5 million or greater regardless of church size.

When it comes to financing, there is a limited number of lenders who are willing to make church loans – for megachurches it is even tougher. Other issues to consider:

• Banks and credit unions are generally going to require that the megachurch move its banking relationship to them if they are providing the loan.
• A megachurch is expected to have financials that are at a minimum CPA-compiled.
• Any issues related to prior or current loan payments be addressed with a plausible solution.
• A megachurch should be able to explain declining membership or income trends.

Our firm once closed a $13-million loan for a megachurch in Philadelphia. They had been to every lender they could talk to and had been declined. The church was frustrated and looking for a solution when they found us.

Earlier, the church was working with a national bank’s religious lending department and the loan was close to being approved. The church told us that before the bank would issue a formal commitment, they wanted the church to change the structure of their board of trustees and their bylaws to conform to their standards.

The church was not happy about this request, but according to the bank this was not negotiable. The church came to us to get a loan, and about five months later they closed and the church broke ground on their new state-of-the-art sanctuary.

There are things churches could learn from this story: (1) Traditional bank lenders on large loans will often want to have a say in how the church is managed and who can make decisions. If this does not work for your church look for other options. (2) Just because you have been turned down for your loan does not mean that your loan cannot be done.

It is important to recognize that lenders make decisions based on many factors unrelated to the church and some of these are out of the control of the lender, for example:

Concentration issues – Many banks and credit unions have internal and external restrictions on how much money they can lend on a particular asset class. If the bank has reached its concentration on church loans, they simply are unable to make a loan.

Legal and internal lending limits – Legal lending limits on a single loan are set based on asset size of the institution. But, generally, banks and credit unions have their own internal policies that are more restrictive than those set by law, so even though they may legally be able to make a large loan, they may have internal policies that prohibit a large loan.

Reputation risk – The risk that a loan will go bad and that the lender will have to take back the property and there will be a long protracted battle, which will be in the local newspapers and other media. I once worked at a bank that had made a $3-million loan to a large church. The church never made a single payment.

This is called a first payment default and almost always means fraud. At the end of the day, the bank decided to write off the entire $3-million loan instead of foreclosing on the church because the bank was afraid it would be crucified in the media for going after a church.

Although it is still difficult for many churches to borrow the money they need, it is not impossible if they know where to go, are well-managed  and with a plan that makes sense.

John Berardino is president of Griffin Capital Funding in Fredericksburg, VA. www.churchloan.net

The product is not the esoteric mystical instrument that some paint it to be.

Over the last couple of years a few articles have been written on the subject of interest rate swaps. Some have been authored by individuals purporting expertise on the topic, yet never referencing any direct role in or experience with the execution of an interest rate swap.

Often their commentary includes references to churches who were upset with their lenders after being surprised to learn that the potential benefit of refinancing in the current low interest rate environment was reduced by virtue of a prepayment penalty owing on their current interest rate swap.

Understandably, no one likes surprises in a business relationship, certainly not of such a nature. While borrowers should always understand the contracts they sign, many lenders may have understated the risk of a prepayment penalty when selling swaps.

I have made more than $3 billion in church loans and have been a direct party to the execution of hundreds of millions of dollars in interest rate swaps for church loans. When the upfront disclosure is comprehensive, informed decisions can be made to use swaps in conjunction with other loan products to achieve a certain level of insulation against future interest rate volatility while also retaining the flexibility to prepay some of the debt without penalty.

Anyone encountering a swap for the first time will admittedly need some educating. However, the product is not the esoteric mystical instrument that some paint it to be. In fact, on June 7, 2012, during his testimony before Congress, Federal Reserve Board Chairman Ben Bernanke was asked about interest rate swaps. He stated: “ … interest rates swaps are typically among the most straightforward and simple to understand of derivatives.”

What is a swap?
Swaps essentially convert a variable rate loan to a fixed rate loan. While clients want to lock in historically low interest rates for as long as possible, lenders prefer variable rate loans. If a bank were to commit to a low fixed income stream for the next five years or 10 years, and if the economy later gathers steam, then three or four years from now the bank may be paying more to their depositors on CDs than they are receiving from the church loan. Church loans are specialty credits. Consequently, the bank cannot readily securitize and sell off the church loan – or get out from under the fixed income stream as they commonly do with more standardized credits such as single family residence mortgages.

In essence, the swap can be thought of as a three-party agreement. While the bank may not be willing to commit to a fixed income stream in a historically low interest rate environment, another institution (the counterparty) may be willing to do so. The other institution then commits to pay the lender bank the variable income stream that they prefer. The two financial institutions effectively exchange the interest income streams – thus the term swap.

The church gets what they want – a fixed rate loan, and the bank gets what they want – a variable income stream. The counterparty also gets what they want: as long as future variable rates do not rise above the fixed rate, the counterparty receives the benefit of the difference between the variable and fixed interest rates without putting any capital at risk (they don’t fund the loan, the lender bank does).

Per the lender bank’s credit rating, the counterparty also benefits from limited credit risk because should the borrower default and disappear at a time when a penalty is due on the swap, the counterparty will look to the lending bank to make them whole. The two financial institutions reach a comfort level with each other based on their credit ratings (Standard & Poor’s, Moody’s, etc.).

Why consider a swap now?
A good lender will provide a comprehensive disclosure upfront so that the borrower can select the appropriate product, or mix of products, based on their repayment plans. For debt with a fixed interest rate via an interest rate swap, the risk of incurring a prepayment penalty can and should be understood. While it is hard to illustrate the math in an article such as this, suffice to say when prepaying against a swap (or attempting to refinance) at a time when interest rates are lower, a prepayment penalty will be incurred.

However, this is a two-way street. If rates increase sufficiently in the months or years following the execution of your swap, prepayments will generate a cash gain back to the borrower. Given that interest rates are currently at or near historic lows, one might argue that now is not a bad time to consider interest rate swaps.

A church seeking to borrow in the current environment should attempt to forecast their best- and worst-case repayment capacity. Now is an ideal time to insulate the church from the near certainty of substantially higher interest rates several years from now. Therefore, place a substantial portion of the debt on a long-term fixed interest rate.

Some lenders offer a 10-year fixed interest rates via a swap. In order to retain some flexibility to prepay without a penalty, place the balance of the debt under a 1- to 5-year adjustable rate as such may be available without a swap or risk of a prepayment penalty.

For example, perhaps the church has some limited near-term prepayment capability via some outstanding pledges from an existing capital pledge campaign. A portion of the debt can be placed on a low variable interest rate. The note will likely be paid off before interest rates increase very much. The benefit of the lower variable rate outweighs the risk of the interest rate increasing on this small portion of the debt.

Further, if a subsequent capital pledge campaign is contemplated, it may make sense to put a portion of the debt on a 5-year fixed rate. The portion of the debt, which the church does not anticipate prepaying, may be placed on a 10-year fixed rate.

The interest rate swap can be a very beneficial instrument in the current interest rate environment, particularly when the lender is willing and able to offer other supplemental products. Structure your debt to achieve a measure of insulation against longer-term rate volatility while also retaining the flexibility to prepay a portion of your debt without risk of incurring a penalty.

Don’t let a fear of the unknown cause you to shy away from an instrument that can provide a 10-year fixed rate at a time when rates are at or near historic lows. If you pass by this opportunity now you may find yourself renewing your debt at much higher interest rates five years from now. Look for a good financial partner that can work with you to achieve a level of understanding that will enable you to make the best possible decision for your church.

Dan Mikes is executive vice president and national manager of the religious institution division of Bank of the West, San Ramon, CA. www.bankofthewest.com

In recent months the Federal Reserve has been uncommonly explicit regarding their intentions to hold interest rates low for the next couple of years. While this is hard on savers it certainly extends a rare window of opportunity for borrowers.

Refinancing an existing debt at today’s low rates can free up substantial resources for outreach or new hiring which may have been frozen in recent years in response to economic circumstances. Knowing what to prepare and how to approach a prospective lender could prove key to securing a highly advantageous offer.

Identify prospects
You should begin your refinancing quest by identifying prospective lenders. Other churches can be a good referral source. Ask them who their lender is, whether they would recommend that lender, which other lenders they included in their competitive bid process, and any other advice they may be able to offer. You can also contact, or visit the websites of various religious trade organizations and magazines.

The most important point to remember is you should not limit yourself to dealing with local institutions. Although you may have relationships within the community or a desire to support local commerce, the overriding commitment should be to stewardship. Several national lenders which specialize in church financing have financial products tailored specifically for churches. Their products exclude onerous and potentially expensive loan covenants.

Expert church lenders also offer a well-defined and efficient process as well as deep experience with cash management for ministries, guidance regarding future borrowing capacity, and numerous other helpful tips which they have gathered from working exclusively with churches.

When contacting prospective lenders there is a basic list of items which you should be prepared to provide. Each lender will then specify additional items which, upon their receipt and review, will likely result in a series of up-and-back communications which will serve to fully orient your ministry with the bank.

Guide through the process
An experienced lender can guide you through this process and deliver a detailed Term Sheet or Preliminary Expression of Interest letter outlining pricing, loan structure, and sample covenants usually within one or two weeks. Allow up to a month or more with local lenders or banks which do not specialize in financing ministry.  After selecting a lender, assume an additional four to six weeks to close the loan.

The initial list of items you should be prepared to submit to a prospective lender includes: three years of income statements and balance sheets, three years of adult worship attendance totals, details of any capital pledge campaign, number of years in existence as a church, lead pastoral tenure, by-laws, board composition (i.e., family, staff, local lay persons, long-distance ministers, etc.), a brief description of real property owned and a layman’s estimate of the current market value. If physical plant expansion and related borrowings are anticipated within the foreseeable future, be sure to discuss this with the bank so that you are entering into your new relationship with mutual expectations.

If your church has fewer than 500-600 adults in average weekly worship attendance the bank may not be concerned if the pastor or a board member acts as the lead contact person for communications with the bank through the financing process. However, churches with larger congregations have the financial wherewithal to employ a qualified full-time business administrator. Frankly, when the pastor, board member, or, worse yet, a loan broker is identified as the banking contact for a large church the bank will see this as a red flag weighing against the prospects for loan approval.

Assessment of worthiness
Banks work with businesses of all sizes on a daily basis. One of the key risk matrixes in the assessment of the credit worthiness of any organization is its management team. At a point, the sheer size of an organization dictates that in order for continued success there must be sufficient staffing, separations of duties and delegation of authority.

That is not to say the pastor is not recognized as the head of the organization or that he should not be present at the eventual meeting with the bank and capable of demonstrating a sufficient grasp of the business side of the ministry. Pastoring a large church is an enormous task as well as the top priority which contribute to the continued success of the ministry.

Above a certain level of financial exposure the lender needs to know there is a capable business contact whose livelihood is linked to the continued success of the organization, and who is available to interact with the bank and the ministry’s other business partners on a full-time, daily basis. The loan application process provides the opportunity for the bank to make these observations. Designating a board member or a loan broker as a contact person obstructs the bank’s ability to make this key assessment.

In closing, don’t wait to move to move forward with your efforts to refinance your church’s existing debt. Interest rates have never been lower and they will eventually move higher. Admittedly interacting with lenders is a time consuming stewardship task. Experienced church lenders have a well-defined process and can streamline your efforts, thereby leaving time for your other responsibilities which carry greater eternal significance.

Dan Mikes is executive vice president/manager church banking division, Bank of the West, San Ramon, CA. www.bankofthewest.com

Embezzlement happens far too often, as churches are naturally trusting.

While a church’s ministry often refers to its worship services, activities and community outreach programs, protecting your financial resources also is an important part of the organization’s mission.  Financial collections are vital to keeping the various programs running. Unfortunately, it is all too common to have a trusted church member admit to embezzling from the funds they were asked to safeguard.

Recently, the treasurer for a church in Connecticut was charged with embezzling nearly $300,000 over a five-year period. This church member had access to all of the church’s accounts and engaged in more than 100 thefts of church funds during this time period.

Sadly, this type of theft happens far too often, as churches are naturally trusting. However, every church has the stewardship responsibility of protecting the money that is given by its members. The best way to ensure your finances are secure is to have a financial policy in place. The policy should address procedures for handling funds from the time collections are taken until the money is disbursed. Having such a policy is likely to help deter individuals from embezzling.

Handling the collection
The weekly collection is a large part of the church’s financial resources. Often, ushers play a key role in this process, and they should be trained on how to safeguard the money during and after it’s taken. It cannot be stressed enough that the two unrelated person rule should always be followed when handling funds. This means from the time it is collected to the time it is deposited, at least two people who are unrelated should be in the presence of the collection to help deter any temptations.

Some churches choose to count collections the same day, while others count the following day. Either way, collections should remain in a locked room and/or safe until it’s time for counting. When transferring funds to the bank, a nondescript bag should be used, and taking varying routes to the bank is suggested.

A team of people should count the collection, and these teams should rotate weekly or monthly to help hold everyone accountable. Figures should be double-checked, and a deposit slip completed. Never allow collections to be taken home.

Before anyone is allowed to handle funds for your congregation, they should undergo a background and financial reference check. At a minimum, those with high integrity should be selected. All persons privy to contributions should have the ability to be discreet with this sensitive information.

Keeping accountability
In order to maintain a checks and balance system, and hold everyone handling funds accountable, it is important to utilize internal financial controls.

Consider separating duties between the counting team, treasurer, and financial secretary so that no one person has control over the church’s financial processes.

Such controls could include making sure that the person who prepares the checks does not have the authority to sign them as well. Those with check-signing authority should not have access to blank checks. A person uninvolved in counting and depositing the monies should review unopened bank statements. Also, consider requiring dual signatures for all checks over a specified dollar amount.

Many churches utilize a pastor’s discretionary or benevolent fund, which allows the minister to address cases of special financial need within the congregation. However, if not set up correctly, there can be income tax implications to the pastor with this type of account, so consult your tax advisor on how to do this properly. These funds also should be monitored by establishing a monetary account limit, requiring documentation of all expenses, prohibiting cash gifts, requiring bank account reconciliation, and performing a periodic audit.

With all of the activities that take place in a church, outside of the regular Sunday service, there are often special funds and accounts held by different groups. This includes ongoing programs, as well as one-time events. Every effort should be made to safeguard these funds and accounts as well.

Monies should never be taken directly from a collection and given to an individual or ministry group. They should be counted, deposited and disbursed according to the church’s regular financial procedures. These special accounts should be audited periodically on an unannounced basis.

Regular auditing and reporting
Regular audits should be performed on your accounts by a certified public accountant (CPA).  While annual audits are recommended, some churches opt to have a formal audit undertaken every two to three years, with a lesser financial review conducted by a person uninvolved with the church’s finances in the intervening years. A church member who is a CPA or who has a strong financial background is a good candidate for such financial reviews.

Financial reporting also is necessary. As part of their responsibilities, church board or finance committee members should regularly review the church’s financial reports. It also is recommended that, at a minimum, summary financial reports be regularly provided or made available to the congregation.

While you hope it never happens, if an accusation or suspicion of embezzlement is reported, it is important to act promptly and with care. Consultation with the church’s legal advisor and insurance company is recommended. They will likely suggest an immediate investigation with the assistance of a forensic accountant to quantify the loss and make sure that records are preserved.

If the suspected embezzler remains involved in church finances, a suspension of their duties while the investigation is ongoing is advisable. With information in hand and in consultation with the church’s legal advisor, in most cases the suspected embezzler should be asked for a full account of the situation.

If investigation or a confession point to guilt, church leaders must then decide on a course of action – whether to turn the matter over to the police or handle it internally. There are important considerations for either course of action, so church leaders should proceed with the guidance of their expert advisors, always bearing in mind their stewardship responsibility on behalf of the congregation.

By ensuring the above elements are in place, the chances of robbery or embezzlement can be reduced. Not only have church leaders been called to take care of and lead the people of their congregations, but they also are responsible as stewards for the finances that keep the church’s various ministries alive.

Eric Spacek is senior risk manager at GuideOne Insurance, West Des Moines, IA, and has been a liability litigation trial attorney. www.GuideOne.com

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Why churches need financial controls

• The Atlanta Journal-Constitution reported in October that an Adairsville couple were jailed for allegedly stealing more than $88,000 from Noonday Baptist Church. The woman opened a joint account with the man, funded by 51 checks written by the woman on the church’s account.
• A Visalia, CA woman pleaded guilty to 13 counts of felony embezzlement and money laundering with special allegations in connection with the ongoing theft of more than $2 million from Visalia First Assembly of God Church, where the woman was employed as a bookkeeper. The thefts occurred over the course of seven years.
• A former Rogersville, AR, church treasurer was sentenced to eight years of house arrest and ordered to pay $75,000 in restitution for embezzling funds over a three year period from Bridge Baptist Church. She was the treasurer and secretary for the church, and cashed about 100 church checks for herself and stole from the offerings.
• A man convicted of conspiring with his mother to steal $1.5 million from First Baptist Church in Morristown, TN, was sentenced in October to just over four years in prison. His mother was financial secretary at the church for 46 years, and confessed to writing more than 1,600 checks to herself from the church’s general checking account

Should you change audit firms? If so, when? Neither not-for-profit nor public companies are required to change firms at set intervals. Also, while there are times when it may be appropriate to switch, it is not a decision to be made lightly.

Studies have shown that changing audit firms can result in higher audit fees, because firms will not be able to recover all of the costs they typically treat as an investment in the business relationship and absorb over time.

Switching firms can also result in a lower quality audit. An auditor who works with your organization over consecutive years gains substantial understanding of your operations and is able to look more closely at areas of risk as well as processes over time.

One way to gain new perspective on your organization’s finances and accounting practices without the cost and difficulty of changing audit firms is to work with a firm that can rotate key partners and engagement team members. There are valid reasons for considering a complete switch, however.

It’s important to work with an audit firm that is well versed in church financial management, accounting and financial reporting issues. If you are not currently working with a firm with these qualifications, it may be beneficial to think about a change.

If you decide to select another firm, take these steps to make the process efficient and effective:

Begin by determining the criteria you will use to compare competing firms. This may include expertise, staffing, price, and timing. Each is important, but you will seldom make the decision on one criterion alone.

Send a request for proposal to firms you believe are qualified to provide excellent service to your church. You may choose to include your current firm in the proposal process.

Consider each proposal carefully against the criteria you set, and follow up on references provided. Even if vendors only provide a list of satisfied clients, you can still learn a lot from these references. For example, another church may mention that they really appreciate the service they receive from the audit team, but that the firm’s tax department is unfamiliar with nonprofits and churches in particular.

After narrowing the field to two or three prospective firms, schedule a time for each to present their proposal to you and the finance committee. This will give you the opportunity to clarify differences between the firms, meet the firm leadership, and get a better understanding of who each firm is and how they operate. When the interviews are complete, you should have enough information to make an informed decision.

If you select a new firm, you need to send a letter to your former firm informing them of the switch and giving them permission to share information with the new firm. While this formality is required, out of respect for the business relationship, you may choose to initially notify them with a personal phone call.

Start off on the right foot with the new firm. Prepare all the requested information, and ask questions whenever something is unclear. You should also feel free to ask if information can be provided in a different format. The new firm will probably need information that is similar to what your prior firm requested. If you already have items in a particular format, ask the new firm if they can use that, rather than taking the time to recreate it.

Vonna Laue is a partner in the California offices of the CPA firm of Capin Crouse LLP.   www.CapinCrouse.com

How technology and communications are changing church fundraising.

Church capital campaigns are hardly a new concept. For nearly half a century, pastors and their congregations have depended on opportunities for special giving to help them build buildings, pay off debt and fund their God-inspired vision. But the landscape is changing quickly — so fast that your father may soon not even recognize the process he perfected during his tenure.

Two things have dramatically influenced how churches approach capital campaigns: the economic crash of 2008 and the adoption of technology by the person in the pew. Both have provided opportunities to deviate from what have become hallmarks of the traditional campaign — one defined by a predetermined process, a large number of enlisted lay volunteers, and heavily dependent on paper-based communications.

The transition to digital communications and its impact on ministry initiatives such as capital fundraising projects was already in full swing prior to the economic collapse of 2008. The challenging circumstances, however, accelerated the rate at which churches adopted new ways of communicating and connecting with their members and even the community at large. The seismic changes altering the way churches conduct capital campaigns are revitalizing the function and effectiveness of this proven and very effective ministry venture.

A tale of two churches

Two churches that have significantly benefited from this shift are Eagle Brook Church (www.eaglebrookchurch.com) and Granger Community Church (www.gccwired.com). Eagle Brook is located in the Twin Cities area of Minnesota while Granger Community Church is in northern Indiana, just miles from the Michigan state line and close to the South Bend area.

Eagle Brook averages about 15,000 on any given weekend, and Granger averages 4,700 attendance.

Both tend to have demographics that find the median age to be in the 30s with a blend of professional and blue collar workers. Each church was already dependent upon technology and digital communications.

When it was time to embark on another capital funds project, both turned to RSI Church Stewardship, Dallas, TX, knowing that they not only could get the help to raise the money but also to incorporate the technology in the campaign. “People are much more connected technologically than we think they are, and they expect churches to honor their preferences,” says Joel Mikell, president.

Scott Anderson, executive pastor at Eagle Brook, says “We needed help with a unique approach.

Our goal was really big, and the economy was really bad.” Anderson says that self-led campaigns had been their chosen path prior to their most recent campaign, but they didn’t want to go it alone this time.

When they set out in late 2009 to begin the Not Without You campaign (www.notwithoutyou.org) with a $30 million dollar need, Anderson knew it was time to partner with people who they believed understood their church and could get them to their goal.

Tim Stevens, executive pastor at Granger says, “The New Normal Project (www.thenewnormalproject.com) was descriptive of the time in which the initiative was birthed.

Everything we were certain of was being challenged.” In the midst of a community that reached 20 percent unemployment at the peak of the recession, Stevens wanted some perspective about how to approach capital campaigns in ways that were very different from how they had in the past.

Integrating technology
“Risky ventures often lead to innovative, breakthrough experiences,” says Bill McMillan, executive vice president at RSI Church Stewardship. Both Stevens and Anderson agreed that their respective campaigns were both innovative and breakthrough compared to past experiences, especially in the midst of challenging economic realities.

Stevens believes e-mail communication strategy was a catalyst for the success for his campaign. “I’d never heard of a ‘drip campaign’ before RSI introduced it to us. This is where we divided the information we wanted to send out and shared it in small, regular installments throughout the campaign rather than all at one time.” Stevens doesn’t remember a campaign when more average, regular attendees and marginal members were engaged and knowledgeable about what was taking place than during this most recent experience.

“Our people were really ‘leaning in,’” he says. “We felt like we had an empowered base of supporters who believed in what we were doing. Primarily sending communications digitally also made it easy for members to share details with others in their own spheres of influence.”

“Post-campaign, our investments in digital communication strategy continued to pay off through ​new online pledges,” says Anderson, “giving to the campaign that wasn’t pledged, and email communication as a way to follow up with pledges made.”

Stevens feels the same way. He believes the micro-site that housed all critical information for their campaign became an online gathering place where people could learn more, get involved, and spread the word both during and after the defined campaign season.

Neither Anderson nor Stevens believe that technology and digital communications are the only two keys to capital campaign success. They both recognize that clear vision, effective strategy, and personal relationships were critical to campaign success.

Ben Stroup is a freelance writer on church leadership and blogger, working from Greenbriar, TN. He posts regularly on The Content Matrix www.thecontentmatrix.com.