Showing posts with label financial transparency. Show all posts
Showing posts with label financial transparency. Show all posts

Sunday, September 13, 2020

Financial Transparency: An Epic Failing of The Episcopal Church

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

Grace Episcopal Alexandria


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.

Saturday, October 12, 2019

Financial Transparency: What It Really Looks Like

Some time ago, I posted an example of a transparent church budget developed by a parish not too far from Grace. Included in the budget were line items for the compensation of each member of the clergy and staff, as well as sufficient detail to allow anyone who’s curious to learn more. Indeed, the church’s budget is published on the parish website for all the world to see.

This contrasts sharply with Grace Church, where former senior warden Lisa Medley shrilly proclaims there’s “total financial transparency.” (That’s in addition to her various lies about me.) That’s a remarkable claim, since:
  • The church is not audited (contrary to her claims).
  • Vestry members do not see the accounting firm’s engagement letter when it does its Agreed-Upon Procedures (AUP) review, which has no attestation value. In other words, it is not intended, nor is it likely to, uncover any sort of major issue.
  • Vestry members, contrary to law and church policy, do not see financials for the school, which constitutes 2/3 of the total annual budget.
  • There have been major payroll errors in the past that went undetected for months.
  • Thousands of dollars in unaccounted-for loose cash and stale checks were found in a former parish administrator’s office, with no explanation.
  • The church does not publicly release its vestry minutes, its financial reports, its budget, or its annual report.
  • The loan to Bob Malm was carried off the books for years, contrary to Generally Accepted Accounting Principles.
  • When factoring in depreciation, the parish has been running a deficit for many years.
  • There have been multiple illegal misuses of restricted solicitations.
  • Even the AUP was not completed in a timely manner in 2015–a fact not shared with the vestry.
In other words, if there indeed is total transparency at Grace church, then it follows that the Princess Porcine and other vestry members willfully turned a blind eye to the misuse of funds, the stale checks in the church office, the major payroll errors, and more. 

So which is it?

Speaking of, below is a good example of financial transparency from the Church of the Holy Comforter in Vienna.

When was the last time Grace Church members saw data of this sort?

Answer: NEVER.

Oh, and this was sent to the entire parish email list. 

So much for “complete financial transparency” at Grace.

And while we’re on the topic, Lisa Medley publishes details of people’s giving in cyberspace. How did she get that access? What kind of imbecile posts confidential giving information publicly? Did it not occur to the Princess Porcine that publicly showing that giving is NOT confidential is a powerful disincentive to further giving?

Yet another reason to avoid Grace Church, and to refrain from pledging.





Friday, December 21, 2018

Notice Something Amusing? Grace Church Further Retreats from Good Governance

One recent amusing change is that Grace Church has pulled the vestry minutes from the website. Leaving aside the fact — the “burning question,” as Kemp Williams would call it — that I don’t rely on the website for access to the vestry minutes, it shows how utterly clueless Bob Malm and the church are.

Why is that? It’s because when an organization is in crisis, which St. Dysfunction clearly is, the secret to turning the situation around is utter — almost ruthless — transparency. That’s right, warts and all, you make a public commitment to transparency and accountability.

Going the opposite direction suggests to detractors, of whom Bob now has many, both within and without the church, that you have something to hide. 

And indeed that is the case. Bob is eager to reduce awareness of his multiple courtroom lies, his lies to parishioners (ranging from his infamous, “Don’t worry about it, they’ll be retiring this year,” to his claim, in writing, to multiple parishioners, that I agreed at the Fredericksburg meeting to adhere to the bishop’s “directives” — a curious proposition for someone not then even a member of the diocese of Virginia). Indeed, in utopia, Dysfunctional Bob would get a confidentiality agreement and the opportunity to slap a little Jesus-babble on things, with his usual inane claptrap about moving forward in grace, love and peace, as he continues to avoid accountability for his actions.

Moreover, Bob would like to shield from view the church’s collapsing finances and attendance. Yet the reality is all of that data gets reported to the national church and is a matter of public record, and available online to anyone who may be interested. Moreover, any church that can’t or won’t publicly share its board/vestry minutes, financial reports, and budget is one of which you should be most wary.

In short, at a time when numerous questions remain about the multiple governance issues and problems at St. Dysfunction, it’s utterly boneheaded to try to be clever by withholding information.

Speaking of, if you’re pledging at Grace Episcopal, did you ever get an good explanation as to the thousands of dollars of cash and stale checks found in the parish administrator’s office when Charlotte left? As in how it happened, and why no one discovered it for years? Or what steps have been taken to prevent a repeat? As I have said before, “We trust Beth,” is NOT an internal control.

I’ve got $100 that says the best anyone has gotten is some deflection from Dysfunctional Bob about how “we all knew Charlotte had to go.” Which does absolutely nothing to answer the question.

My advice if you are pledging: Caveat emptor. There is less transparency at Grace Church under Bob Malm than there is at many evangelical mega-churches, and this should make you very, very cautious.

In the meantime, check out this screen cap from churchtransparency.org, especially the part about increasing donations. Hashtag clueless.




Wednesday, October 3, 2018

Lack of Transparency Hinders Grace Episcopal Stewardship

There’s a great article on ECF Vital Practices this month about the importance of financial transparency to these success of churches. The article, found here, also illustrates why Grace Episcopal Church is in serious financial and spiritual trouble.

In the article, the author correctly notes that the vestry legally is responsible for establishing and supervising internal controls; the rector, vicar, or priest in charge is responsible for implementing those policies. 

The challenge for Grace church is that the church not only has next to no internal controls, but there is no vestry overnight of Bob Malm’s role in the church. None. Nada. Zip.

To make matters worse, Bob actively resists any supervision. Indeed, if you push his too hard, Bob will trot out the comment, “I’ve tried reaching out to you, but the anger and criticism continues. So you can either decide to be happy, or resign your positions....” You get the drill. But true to form, that overlooks the reality that Bob reports to the vestry, not the other way around, and he has no legitimate business trying to push people out of the church.

Nor is there any meaningful financial transparency. Line item detail for budgets and financials is conspicuously absent, and vestry members are asked to take Bob Malm’s word on the results of the annual pseudo-audit. In addition, details of compensation arrangements are kept secret from vestry members—which in one case, resulted in Richard Newman being overpaid, and being forced to repay the overage. (Not that he is over-compensated, by any measure.) So much for transparency.

And, of course, there is the more than a decade of absolute bedlam in the s***hole that was the parish administrator’s office. Hoards of paper, disorder, chaos, and facially obvious errors in financial reporting, not to mention repeated issues with the church’s bank deposits. Yet Bob Malm, compensated at a level consistent with many Episcopal bishops, adamantly refused to address these issues for years.

Then we come to the ugly matter of Bob’s bonus. Leaving aside the fact that bonuses should be reserved for employees who, at a minimum, meet job requirements, the $100,000 lump sum was negotiated not even by the executive committee, but by the senior warden and treasurer, and largely presented to the rest of the vestry as a fait accompli.  Indeed, the only argument came from one vestry member who wanted to write off the other $100K. Talk about throwing good money after bad!

In short, transparency, accountability, strategic planning and adherence to church canons are all in desperately short supply at Grace Church. So, this fall, as members think about their pledges for the coming year, I encourage them to ask tough questions like:
  • How do I know my money will be used appropriately?
  • Why didn’t we save the money for the HVAC work, instead of now talking about borrowing it?
  • When was the last time Bob Malm had a meaningful performance review, including being held accountable for his actions undertaken as rector?
  • Do I understand how my money is being used?
  • Why aren’t the budget and financial reports made publicly available?
  • Why can’t I see a copy of the “audit?”
  • Are internal controls adequate, and how do I know they are being followed?
  • What does it mean for the vestry to act as a fiduciary?
  • Why has the church experienced so many issues with its financial reporting over the years, and how do I know that these issues are really resolved?
  • How did Bob Malm manage to unilaterally get into a conflict with former church members? Was the vestry involved in the decision to remove Mike and Eric from church membership roles? Or did I find out about that after the fact? And what does this situation tell me about internal controls and decision making at Grace Church?
  • When independent third parties, like commenters at The Wartburg Watch, say things like, “That is one seriously toxic church you have, Eric,” why do they say that, and what might this be telling me about governance at the church?
Until these questions are answered, I encourage church members to withhold their funds. Members have a right to transparency, accountability, and Christian conduct by Bob Malm, the vestry, and church staff, and so far they are getting damned little of any of these items.