church finances

Budget Categories

Posted on January 26, 2016 Written by Steve Law

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Church budgets have only three categories: buildings, staffing, and programming. The following analogy is not exact (no analogy is) but is useful for illustrative purposes.

Buildings are the skeleton of a church
- Facilities and grounds contain many, but not all, the activities of the church. This is the place where society expects to find members. This is the place that is considered by everyone to be a safe place, a sanctuary from the world.
Staffing is the heart and brains of a church
- Personnel are what decide the vision and leadership of the church. The staff guide the volunteers to do more, worship better, reach out to others, learn deeper, and care more thoroughly for others.
Programming is blood and muscle of a church
- The activities of the church provide the energy and excitement; they demonstrate to the world what the church is all about. The programs, mission trips, worship services, educational activities, outreach efforts are the tools the church uses to attract and retain others.

Too often I’ve seen churches decide to reduce one of the three (typically, programming) without understanding the full consequences of their actions. Reducing programming can leave the church paralyzed. Not having a building can cause the church to lose its relationship with the community because it can meet elsewhere anytime it chooses. And not having staff (or having little staff) could mean having nice facilities & volunteers but they are aimless.

Think about the synergy of all three. They are a tripod which support each other and the purpose of the church. But if one of these is weaker or stronger than the others, the church can get lopsided.

Lead On!

Steve

Filed Under: accounting, budget, church finances, leadership, strategy Tagged: accounting, budget, church finances, leadership, strategy

Vanguard Stories

Posted on January 19, 2016 Written by Steve Law

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Vanguard is a financial investment company based in Philadelphia, PA. They didn’t pay for this blog post.

In 1997 I attended a conference in Bryn Mawr which is a suburb of Philly. The first evening of our conference there was a reception for the 100 of us at a member’s home. It was a nice, but not large, house but inside was tastefully decorated with original art and sculptures. Before we went, I asked a friend to tell me about the owner of the house. He looked incredulous and said, “John Bogle, the founder of Vanguard.” I was pretty naïve and that didn’t ring a bell at all. Lunch the next day was hosted by the Presbyterian Women. I noticed that the woman who served us the night before was walking around with pitchers of tea and water refilling glasses of the conference participants. That was Mrs. John Bogle doing what she enjoyed, serving others.

In the years since I’ve learned a lot about Vanguard and I now have all my investments with them where they’ve done quite nicely. I also read one of Mr. Bogle’s books. I encourage my family and the churches I consult with to have accounts at Vanguard.

I noticed this about Mr. and Mrs. Bogle is this: they are quite humble and seek to find ways to serve. Even though this couple is worth a lot of money, they are generous with their home and time. My professional experience with Vanguard says that they have instilled those values in the company they founded. Customer service at Vanguard goes out of their way to help.

I’ve worked with other high net-worth individuals and families and noticed the same traits: humility, gratitude, generosity, openness, and rarely seek the limelight. I encourage pastors to minister to high capacity donors because these members have the same human needs as everyone else but too often society sees them only as a checkbook.

If pastors would set aside one hour a week to meet individually with the top 20-25 donors and talk about their pastoral needs, some of those high net worth individuals may do what comes naturally to them – be generous with their church. Pastors should never have meetings with ulterior motives (to gain money), but they must absolutely never avoid meeting with the rich. Many high capacity donors would feel honored to have an hour of the pastor’s time and I can assure the pastor, you’ll learn a lot about leadership by just being with them.

Lead On!

Steve

Filed Under: budget, church finances, leadership, strategy Tagged: budget, church finances, leadership, strategy

Changing Plans

Posted on December 22, 2015 Written by Steve Law

Question: Several years ago (2009 or 10), Grace Church entered into a building program for a Family Life Center. They set up a designated fund for the project, and after voting on a design and posting it around the church, they started collecting money. There was an early attempt to set the fund as a general building fund, but it was set as the Family Life Center Fund. Some contributions were significant (at least $10,000 dollar gift). The goal was over $850,000 but the plan was to raise $450,000 within a few years and finance the rest.

Currently there is $211,000 in the fund and many people want to either change the plan to a smaller, cheaper building that does not meet the original use ideas and does not match the floor plan voted on or cancel the project altogether. Undesignated receipts haven’t been over $150,000 in the past 20 years. The problem is that most of the money was accepted, but no records were kept as to who donated what.

At a recent called meeting to discuss this, the questions were about what they could do legally about the situation. Can we change the building? Is there any way to cover ourselves if we cancel or change the program but cannot identify most of the contributors? I know what I have always been told, but some of my members insist that the money was given, so they can decide how to use it.

Answer: This is a tough situation with a hard answer but this is the proper way to handle this. Here are the proper steps to follow:

Contact every donor that you know about and ask them to sign a document giving the church permission to use the funds for another purpose or even unrestricted uses (aka, to the ministry budget). After that, move out of this fund all monies you’re given permission to move to whatever purpose the donor permits.
Get the church to formally vote on how the church would like to use the remaining funds. Use paper ballots and retain the ballots in case there is a need to show them later. I strongly encourage you to find a purpose that is as close as possible to the original purpose and get the church to vote on giving the money to that. The reason for doing this is to prove to others what the owners (church members) want to do with the money. Again, the church should appear unanimous in what it wants to do with the money but this vote does NOT permit the church to move the money as it wants. It is merely an indication of what the church wants to do.
Contact the state Attorney General’s office at (804) 786-2071 and use the courts to seek release.Explain to the AG’s office what the story is and what the church wants to do with the money. The AG should take this request to a judge and get a judge to sign off on it. This may be done in the judge’s offices or the judge may want to have a public hearing on this – I don’t know and I suspect that each judge will handle it differently. Hopefully it is a perfunctory process but that is probably only possible if no one in the church squabbles about where to use the money. Always follow the instructions of the AG – that way you’re doing exactly the right thing.

Lead On!

Steve

Filed Under: accounting, church finances, leadership, strategy Tagged: accounting, church finances, leadership, strategy

10 Financial Ratios (part 5 of 10)

Posted on November 10, 2015 Written by Steve Law

Debt to Cash in Bank
1. Definition: Total amount of debt divided by average 3 month bank balance
2. Results
  1. Minimum: Not to exceed 4:1 which means you have at least one-fourth of your debt in cash on hand
  2. Optimum: Less than 3:1 which means your cash on hand is one-third or more of your debt; you can pay off one-third or more of your debt immediately.
3. Consequences: The more cash you have, the better interest rate you can get for your debt. This will be a significant savings over time. It will also help you have more peace of mind.

Now What? So What?

Compare your church’s financial ratios to the optimum range for each ratio.
Develop a 2-3 year plan to bring your ratios in line with best financial practices.

Lead On!

Steve

Filed Under: accounting, budget, church finances, leadership, strategy Tagged: accounting, budget, church finances, leadership, strategy

Staff Members’ Meeting on the Church’s Nickel

Posted on August 18, 2015 Written by Steve Law

I received the following question: “Our church budgets $100 per month for meals for ministers. Is it allowable for our pastor and worship director go out to lunch each week for a planning session and have the church pay for both meals every week?”

My reply:
There are two components to this question

Legal
1. The IRS does not permit an excessive benefit to the staff in a non-profit. A lunch every week is not an excessive benefit if the meal is typical $8-$15 meal.
2. The IRS does encourage an accountable reimbursement plan. That means that for every expense, there must be a receipt and documentation about who was there and how it related to the church. It can be as simple as “Prospective member lunch with the Smiths” – there is NO need to write a paragraph. If you don’t have the proper receipts, then reimbursements might be considered income for IRS purposes. Documentation is not only good but absolutely necessary.
Church Policy
1. The church SHOULD care if staff are good stewards or not. My professional opinion is that staff members work alongside each other all day and can meet with each other at any point during the work day and work week. If they want to go out to lunch, then that is NOT a professional expense because they could have had that meeting any other time during that day.

To me this is not a financial matter, it is a personnel matter. I suggest that the personnel manual (and finance manual if you have one) make a statement that “meetings between staff members which have expenses (meal, coffee, etc.) are not reimbursable expenses because staff could have met at the church without incurring an expense” or words to that effect.

I do not know the relationship you have with the pastor

If your relationship is strong and he isn’t threatened, then you can approach him and help him understand that if all staff were to do this it would cost the church tens of thousands a year which could be used for other things.
If the pastor might be threatened by you and this subject, then you have to be willing to leave. You can either approach the pastor with this matter OR you can talk with the personnel and/or financechairleader and ask him/her to address this and to keep your name confidential. If the personnel or finance committeechairleader doesn’t think it is a problem, then drop it. That just means you have higher standards than they do.What they are doing is not illegal or immoral but it does stray into the ethical gray area for churches. And one of my sayings is, “Stay Out of the Gray!”

Lead On!

Steve

Filed Under: church finances, church staff, wisdom Tagged: church finances, church staff, wisdom

Rubber Stamps on invoices instead of paper forms

Posted on May 5, 2015 Written by Steve Law

I don’t like unnecessary paperwork. Years ago I came up with a rubber stamp to cut down on paperwork in the church’s finance office. Every invoice paid by a church should have information attached to it so that there is a clear description of all the info that is needed to process the payment accurately.

Most churches have a “payment request” form that is filled out and attached to each invoice. A form is fine but sometimes the attached form is detached from the original invoice. Instead of a form, I created a rubber stamp (see below) which I stamp on many (but not all) invoices from vendors.

Payment Approval & Coding Info

Payee______________________________

Description _________________________

Account # Amount

_________________ _____________

______________ ___ _____________

Approval ___________________________

Ck# _______________ Date _________

Using this rubber stamp ensures that it won’t be separated from the invoice, it saves money by not having to make copies of the payment request form, and it saves time by having a smaller “form” to complete than most large paper forms. I even buy a rubber stamp for each person in the office who completes the paper forms to make it more convenient for them.

Consider having this (or a similar) rubber stamp to make your finance office more efficient.

Lead On!

Steve

Filed Under: accounting, church administration, church finances Tagged: accounting, church administration, church finances

Designated Funds and UPMIFA (part 2)

Posted on March 17, 2015 Written by Steve Law

Every church I’ve worked with has designated funds which are dormant. The long-standing rule of thumb was that to re-purpose the money in these funds was that each donor needed to be contacted to request permission to alter the use of their gifts. That is a good rule to use but in many cases, this is not practical or even possible. Fortunately, there is a legal alternative. It is called UPMIFA: Uniform Prudent Management of Institutional Funds Act.

UPMIFA has been passed by almost every state legislature (there are a couple of holdouts) and it is virtually the same in each state. Look at your state’s legal code for the specific language – I’ll use the one from Virginia (where I live) for this post. In all instances the church must consult with a court or the attorney general. If the request is reasonable, they courts will agree to the church’s desires.

Below is the actual law from the Code of Virginia. Here are the salient points:

Donors can change the purpose of their gift but it still must be used for a charitable purpose
Judges and Attorneys General can change the purpose of a fund but it still must be used for a charitable purpose
An institution can change the purpose of a fund by working with the Attorney General if the fund is less than $250,000
An institution can change the purpose of a fund by notifying the Attorney General if the fund is less than $50,000, is over 20 years old, and it will be used for a similar purpose

55-268.16. Release or modification of restrictions on management, investment, or purpose.

If the donor consents in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund. A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.
The court, upon application of an institution, may modify a restriction contained in a gift instrument regarding the management or investment of an institutional fund if the restriction has become impracticable or wasteful, if it impairs the management or investment of the fund, or if, because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard. To the extent practicable, any modification shall be made in accordance with the donor’s probable intention.
If a particular charitable purpose or restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard.
If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, without application to the court but with the consent of the Attorney General, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument if the fund subject to the restriction has a total value of less than $250,000.
If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, 60 days after notification to the Attorney General, may release or modify the restriction, in whole or part, if:
1. The institutional fund subject to the restriction has a total value of less than $50,000;
2. More than 20 years have elapsed since the fund was established; and
3. The institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.

Lead On!

Steve

Filed Under: accounting, church administration, church finances, church financial statements, strategy Tagged: accounting, church administration, church finances, church financial statements, strategy

Designated Funds and UPMIFA (part 1)

Posted on March 10, 2015 Written by Steve Law

Churches are the beneficiaries of designated gifts – people who give to specific causes that touch their heart. This can be scholarships for students to go on mission trips or to college, to pay for children’s supplies and events, and scores of other ministries. Used wisely, designated funds can enhance a church’s mission by adding extra dollars to a church’s budget.

Every designated fund must have a specific purpose (why it was established and what it is to be used for) and a sunset clause (a determination of when the fund will cease to exist). However, many churches have funds that don’t have either a purpose or a timeline.

I challenge each church to go through all of it designated funds and write down its purpose and when it will cease to exist. The good news is that most church accounting software has a section in the chart of accounts where a memo can be written about each fund. Use that memo tab to write in this info so that this knowledge can be passed from one person to another and not lost.

Then, use you designated funds to supplement your budget needs. Use them as much as you can and encourage people to give to them – over and above what they give to the church’s operating budget.

However, even doing all that, churches are going to have funds whose purpose ceased to exist long ago. There is legal help for that and I’ll describe it in the next post.

Lead On!

Steve