I posted this piece yesterday, which is partly based on my experiences at Grace Episcopal Alexandria and its inept financial reporting and disclosure, including over-paying one employee for many months.
This piece is dedicated to parishioner Kelly Gable, who defamed me by falsely claiming that I embezzled from a previous employer. While there is a lawsuit under way against the church as a result, no doubt Kelly and others at Grace will want to take steps to improve transparency and accountability within the parish. – Ed
One of the great truths of non-profit governance is the importance of transparency. As one CPA firm puts it, “Transparency is a trust building tool; the more transparent your organization becomes, the more trustworthy you will be viewed by the public, donors, and regulators. It is important for non-profit organizations to clearly state their mission and communicate the outcomes of their actions to the outside world.”
But to look at governance in most Episcopal parishes and entities, you’d never suspect that this is true. Indeed, most go to great lengths to conceal specifics of their budgets. And this will come into play in the coming months, as many parishes prepare for their annual budget and parish meeting amidst the turmoil of the pandemic.
Consider an all-too-common means of presenting the budget. A pretty pie chart appears in the annual report, with total revenue and expenses allocated across ministries. But even if a separate salary category is included, most such presentations obfuscate things by allocating portions of salary expenses. Left unanswered are vital questions such as the rector’s salary, the costs of fringe benefits and indirects (which often cause a bad case of sticker shock when vestries have to wade into the specifics), and more.
Another trick is program expenses that are off-budget. A surprisingly high percentage of parishes have such expenses, whether it’s the altar guild, mission trips, a flower fund, or other earmarked funds. In such cases, funding is through off-budget donations. That’s well and good, but it leads to confusion when times are tight, and parishioners suddenly discover there’s no money for things they just take for granted. Or cases arise in which parishioners rightly are proud, for example, of their church’s food pantry, never realizing that unless they specifically give to support the food pantry, none of their funds go to that particular ministry.
Quite a few clergy also don’t realize that absent specific language to the contrary, one cannot repurpose these funds, referred to as “restricted donations,” absent donor consent or court approval. Indeed, to do so is fraud, yet I’ve heard more than one rector gleefully announce that these funds can be tapped to solve liquidity issues.
Of course, endowment funds also play a similar role. Well-intentioned donors may place very loose restrictions on their donations, such as that they be used for clergy welfare. But all too often, things like plush “annual retreats,” creep in under the rubric of “clergy welfare.” And my experience is that quite a few parishes quickly lose track of donor restrictions, ultimately just using these funds as hidden piggy banks that may offset bad financial decisions.
Still another church budget antic is the good old shell game. To give you an example, a church I used to attend has a school. Nonfungible expenses, like electricity, water, natural gas and trash are shared 50 percent, while expenses specifically attributable to the school and church (they are one legal entity), are each borne by the relevant organization. All well and good, until one realizes that the fixed costs incurred by the school are much higher than those of the church. Thus, the church, which has declining membership, participation, and aging demographics, every month subsidizes the school. Yet when a tight budget forced the church to cut back on its annual cash subsidy to the school, vestry members lamented that this was “the only thing we do for the school.”
Where things really get tricky in these situations is when there are reimbursements. In the case of the church I used to attend, funds for things like bathroom paper products and other supplies come from the already paltry junior warden fund, which was just $25,000 annually. Needless to say, much of this quickly goes for basic supplies. Yet when the school reimburses its share, the funds are treated as income and go back into the general fund. Thus, the junior warden doesn’t really have $25,000 annually to cover building expenses; it’s more like $10,000. Yet the average parishioner thinks this sounds like a reasonable sum, and doesn’t realize that much of the church’s income is illusory.
Still another budget issue is failing to recognize the value of donated labor. For example, many a parish comes, over time, to rely on volunteer accountants, facilities managers, musicians and more. To be clear, there’s nothing wrong with this. Indeed, the best non-profits engage shareholders by drawing on their skills. The problem comes when a long-time resource dies, moves, or otherwise becomes unavailable. Suddenly, the parish needs to find a replacement, and often has little idea of the scope of work, the requisite skills, or even how to source a replacement.
It’s also very common to become unduly reliant on a handful of generous parishioners. For example, in one church with which I am very familiar, three donors, all well past retirement age, contribute 12 percent of the annual budget, often truing up any shortfalls at year-end through donations of appreciated stock. Another parish gets fully 20 percent of its revenue from one donor. He’s relatively young, but heaven help the church if anyone does something to alienate that donor. But the risk is even higher with elderly parishioners, for whom the funds are not unlimited, and who may eventually face the costs of extended care. In those cases, I have yet to encounter a church that has any plan in place to deal with the inevitable loss of major donors.
Also worth noting is that while many churches complain of budget constraints, signs abound that there often is additional untapped financial capacity. Indeed, in one church near this author, the budget has been flat for many years, yet a recent major accident involving the rector, which resulted in temporary disability, quickly resulted in a purse of $42,000 to assist the rector and his family. Clearly, not suggestive that families were stretched thin, but rather that they lacked the motivation to increase their giving.
Nor is this phenomena confined to the local level. Indeed, a 2009 story in the Washington Post revealed that former Diocese of Virginia bishop Peter Lee earned a salary of $252,000 a year, including fringes and indirects. How did that information come to light? It was only through discovery related to litigation with the dissidents who seized church assets that this information became public; it was otherwise known only to a small group within the diocesan standing committee and the other insiders. Perhaps it is not unfair to point out that Lee resigned in the middle of the litigation in order to save the diocese money. True to form, the nomenklatura of the church took care of their own; it was not long before Lee bagged the ultra-cushy gig of interim dean of the American Cathedral in Paris.
See a pattern here? I’d suggest that the underlying theme is that the Episcopal Church often acts in ways that reduce donor confidence. Indeed, clergy often are reluctant to ask for money, yet they’re also reluctant to discuss how they use that money. As a result, the church operates as a financial black box—money goes in, and church services and fellowship spill out the other side, with almost no understanding of how they correlate. And while churches babble on about stewardship when it comes time to pledge, the often overlook the true meaning of stewardship, which is the judicious use and care of the resources entrusted to us.
That’s a dangerous paradigm, particularly in the midst of a pandemic, not likely to end soon, that continues to disrupt daily life and finances worldwide. As a result, the Episcopal Church is at an inflection point, and may well not survive into the 22nd century.
Now is the time to think about church budgets, church finances, church financial reporting, transparency, and how today’s practices in these areas affect sustainability. And it’s time to change that which does not work, and that which is counterproductive.