In previous posts, I reported on the various governance gaps at Grace Church. With the church presently working towards replacing its HVAC systems, and to obtain funding for this project, I believe it’s timely to revisit these issues. Most importantly, I want to flag for readers a big issue, which is that there’s a huge governance gap in the breakdown in communication between the school board and the vestry.
To begin, serving on the vestry creates a fiduciary legal obligation on the part of vestry members. This means putting aside one’s own interests and acting according to the highest legal and ethical standards in the interests of the beneficiary. In this case, the beneficiary is the parish itself.
This obligation, which includes the obligations of due diligence and reasonable inquiry, is reflected (albeit poorly) in written parish policy, which requires that the executive committee see school board minutes and the school’s financial reports. This in itself does not go far enough, for the school is part and parcel of the parish, and has no existence independent of the church. Thus, the fiduciary obligation of vestry members extends to all vestry members, not just those on the executive committee.
That said, the practice in recent years has been to ignore those requirements, with only Dysfunctional Bob Malm seeing these school documents. That’s hardly reassuring, as Dysfunctional Bob allowed church financials to become a hot mess over a period of years, as acknowledged in the vestry’s own minutes more than a year after Charlotte Payne Wright’s departure as parish administrator. Nor was he alert to potential problems; director of music Richard Newman was overpaid for many months before the matter was discovered by then-director-of-parish-operations Jeff “Airhead” Aaron. As a result, Richard was forced to repay the sum, despite the fact that he was hardly overpaid at the time. Moreover, the news may have had a deleterious effect on the relationship between Dysfunctional Bob and Jeff, as shortly after Jeff broke the news things appear to have gone south for Jeff, and a few months later he transitioned to a new job.
Of course, Dysfunctional Bob is quick to say, “Well, I see them.” But that’s exactly the point: Leaving Dysfunctional Bob in charge of money or financial reporting is worse than no supervision at all, for it gives the illusion of security, despite the evidence that Bob is feckless at best when it comes to these issues.
To make matters worse, when I brought the matter up, the vestry subsequently decided it didn’t need to see these documents, as it might make the school board feel that it’s not trusted. Big mistake. One cannot readily delegate away one’s fiduciary obligation as a vestry member, and saying, “Well, I trusted Bob and the school board,” isn’t going to cut it. Too bad Jeff “Sugarland” Chiow didn’t wade in on this issue — it would have been a far better use of his time versus subsequently trying to drag dying people into court. And yes, I am referring to my mother.
So what exactly is the risk? My take on it is that school internal controls are good—certainly vastly better than the almost non-existent controls at the church. Instead, issues are more likely to come up in the context of errors, omissions, and misunderstandings. For example, I have heard school board members glibly say of the parish budget, “We won’t have a deficit if we move money over from reserves.” Well, yes, you will still have a deficit. Money from reserves is not income, and you will still have a deficit, no matter how you choose to cover the bills.
So what could happen? I’d say the biggest risk is that the school incurs liability that could attach to the church. For instance, an incident of child sexual abuse would, even if covered by insurance, prove devastating for both church and school. And heaven knows, there are gaps a mile wide in both the church’s and the school’s prevention efforts. So while Dysfunctional Bob stirs the pot with fears of an active shooter (a phrase that he likely didn’t even know in 2014), the far greater threat is internal misconduct.
Similarly, a bad investment decision by the school could result in liability for the church. To use a real-life example from another non-profit with which I am familiar, suppose the school took out a loan containing a derivative. These are surprisingly common, and if the school’s loan contained an interest rate swap, versus a cap or collar, it could soon be on the hook for millions of dollars in payments. As I said, this happened to one prominent northern Virginia non-profit, with devastating results, and all because the executive director did not have adequate board supervision.