Financial responsibilityLEADERSHIP Friday, February 1st, 2013
By Dan Busby
A five-part series opens with articles on governance and financial issues
It’s sad to say there is no shortage of stories about church leaders misusing the funds entrusted to them by donors and parishioners. As Dan Busby, ECFA president, writes, “We expect to hear about the inappropriate use of finances in the secular world – big business and government. But – poor stewardship of God’s resources in the church by Christians? Surely that is an oxymoron.”
Yet, based on news and public records, any contradiction seems lost.
It is in this light that Church Executive is running a five-part series on responsible financial stewardship beginning with this installment on church governance. Our goal for this series is to help inform, inspire and challenge church leaders as they commit to exercise greater financial transparency and faithful stewardship of the privileges and resources that God has entrusted them.
Join us as we gather financial and leadership experts, watch groups and advocates to bring to light issues, challenges and solutions pertaining to:
Part 1: Church governance – February
Part 2: Establishing financial controls – April
Part 3: Risk management – June
Part 4: Managing charitable gifts – August
Part 5: Financial transparency – October
Misuse of church funds a huge governing issue
Church governance comes in many different forms. Some church governance styles are more hierarchical, some place more responsibility on church staff, and, in some, the congregation has significant authority. Whatever the church governance style, all congregations have the responsibility to steward resources appropriately.
We expect to hear about the inappropriate use of finances in the secular world — big business and government. But, poor stewardship of God’s resources in the church by Christians? Surely that is an oxymoron.
And yet, media reports all too regularly relate to inappropriate stewardship of funds at one church after another. It’s a slip of integrity here and a case of fraud there. Sometimes the issues are small; other times, the issues shake a congregation to its core, causing worshipers to look for another church. Either way, the issues are not a positive witness for our Lord and Savior!
These problems occur in churches large and small. Even our theology does not insulate us. You see, financial impropriety is an equal opportunity problem!
How do these tragic financial events occur in the church? Financial impropriety occurs when leaders lose sight of the ultimate owner of everything. When we truly understand that the funds belong to God, we provide special care for the funds with the attitude of a steward-manager, not of an owner. As a steward-manager, we welcome accountability for the way we use the assets God entrusts to us. “Now it is required that those who have been given a trust must prove faithful.” (1 Corinthians 4:2).
In the parable Luke relates in Chapter 16, the manager was required to give an account of his management, and the master chastised the manager for not being trustworthy with someone else’s property.
Taking the high road of financial accountability requires church governance that demonstrates:
A heart for financial accountability. A heart to model the handing of God’s resources. A heart for accountability starts with the senior pastor and other church leaders, clergy and lay, demonstrating a heart for accountability. Then, it will permeate the staff. Without a heart for financial accountability, it will be impossible to offset such a deficiency.
Financial accountability often goes awry when the senior pastor of a church is above accountability. Peter understood leadership accountability in the early church as he called his fellow “shepherds of God’s flock” to be accountable to one another and to God (1 Peter 5:1–4).
A willingness to be diligent. Caution: Hard work required! This is what the sign might read before a church engages in financial accountability. It’s hard work to be financially accountable — it requires discipline.
Is it exciting to document expenses under an accountable expense reimbursement plan? No. It’s hard work. Does it require discipline to be sure all taxable elements of payments to staff are properly reported to the government at year end? Absolutely! But this hard work is required if we are to be financially accountable for the use of God’s resources that have been provided to the church.
An acceptance of policies and procedures. Part of the price of financial accountability is adopting and following policies and procedures with respect to handling God’s money. My friend, Brian Kluth, with Maximum Generosity, says “before God supplied resources for any ministry, the plans were written down.” When Moses built the tabernacle in the desert, he had to write down detailed plans that God gave him (Exodus 30–33). Then, the funds came in as the people gave gladly (Exodus 34–36).
David wrote a plan for the temple, and there was a huge offering from the people toward fulfilling those plans (1 Chronicles 29). The Apostle Paul wrote a letter to churches concerning who they were helping. He made it clear what he was going to do with the money, and then he did what he said he was going to do.
Regardless of church governance style, where do financial integrity issues most often arise? Here are just a few common issues:
1.) Improper handling of restricted gifts. Most churches accept donor-restricted gifts. These gifts may relate to a capital campaign for a building project, funds given specifically for missions, for benevolence, or some other purpose. These restricted gifts create specific responsibilities for the church including:
Communication with donors. Communication between the church and donors must be clear as to the donors’ intentions and that the purpose of the gifts are to benefit the church.
Tracking system. The church must provide an accounting system that tracks both restricted donations and expenses — starting with the fundamental principle of honoring the donor’s restrictions.
2.) Setting the compensation of the senior pastor. The formal approval of the senior pastor’s compensation by the full board and contemporaneous documentation of the compensation package — including fringe benefits and the reporting of all taxable compensation elements for tax purposes — are the fundamental issues for churches (see sidebar for ECFA’s new compensation-setting standard).
The higher the compensation of the senior pastor, the more important it is to use reliable comparability data in setting compensation.
3.) Transactions involving conflicts of interest. Churches are frequently involved in transactions with related parties. For example, the church purchases casualty insurance from a firm owned by a church board member. Or, web development services are provided by a pastor’s spouse.
The proper handling of related-party transactions starts with a sound conflicts-of-interest policy. Significant transactions between a church and “insiders” should be subject to certain safeguards to ensure the transaction is in the best interest of the church (see sidebar for ECFA’s new standard which includes related-party transaction guidance).
This is our day to demonstrate financial accountability in the church. Surely God will be glorified if churches always strive for the high road of financial accountability. “For we are taking pains to do what is right, not only in the eyes of the Lord, but also in the eyes of men.” (2 Corinthians 8:20–21).
Dan Busby is president, Evangelical Council for Financial Accountability (ECFA) [www.ecfa.org], Winchester, VA, and a nationally recognized author and speaker and a member of the Commission on Accountability and Policy for Religious Organizations.
New compensation-setting standard (including related-party transaction guidance)
ECFA has announced the addition of new policies for setting compensation for top leaders of its member organizations. These practices become effective Jan. 1, 2014, allowing ECFA-accredited churches and Christian nonprofit organizations time to implement the changes.
Beginning Jan. 1, Standard 6 will state: “Every organization shall set compensation of its top leader and address related-party transactions in a manner that demonstrates integrity and propriety in conformity with www.ecfa.org’s Policy for Excellence in Compensation-Setting and Related-Party Transactions.”
Organizations with higher paid leaders (defined as total compensation of $150,000) will be required to perform minimum due diligence to ensure reasonable total compensation, while all organizations are encouraged to adopt the practices. “The new standard takes compensation-setting practices for ECFA – member organizations to a higher level,” says Dan Busby, ECFA president.
The new due diligence standards do not place a cap on compensation. When the top leader’s compensation reaches the $150,000 threshold, the new compensation-setting practices are required.
For more information go to www.ecfa.org.