Articles

Written by Dan Busby
From his column God, Government and Me—Money in the Church

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ECFA’s Church Financial Management Survey 1.0 has just been completed. Here is a sneak peek at just a few of the survey findings:

#1. The Road to Effectiveness is Paved with… Controls? We asked church personnel “how effective is your finance operation?” Then we looked to see what conditions were connected to finance effectiveness. The lesson: effective internal controls, policies, budgeting, and reporting add up to an effective finance operation. Here is the entire list of the top factors most closely correlated with “Finance Effectiveness”:

  1. Effective internal controls
  2. Effective financial policies
  3. Effective budgeting processes
  4. Effective financial reporting
  5. Financial performance
  6. Separation of duties policies
  7. Annual formal review of internal audit procedures
  8. Board very focused on measuring impact

#2. Internal Controls—More Than Just Policies. Survey respondents indicated 86 percent feel they are “very effective in financial policies.” In contrast, more than half are undecided or don’t believe they have “very effective internal controls” and 43 percent are undecided about whether their “finance department is very effective.”

This data suggests that written policies do not equate to effective church financial operations. Such efficiency involves much more than policies. Those policies must be translated into effective practices.

What to do? First, be sure you have adequate policies and they are up-to-date. Then, be sure the policies are regularly followed. Even the best policies are meaningless if they lie fallow.

#3. The Bigger they Are, the… Earlier they Begin Budgeting. As churches grow in size and complexity, the budgeting process starts earlier. Nearly all respondents start 2.5 to 4 months ahead of time (between September 1 and October 15 for calendar year fiscal years).

The number of months prior to the beginning of the fiscal year that churches begin budgeting (by revenue):

Church Revenue Months Between Start of Budgeting and Start of Fiscal Year
Below $500K 2.7
500K-3M 3.8
Above $3M 4

#4. “You Will Be My Witnesses to Jerusalem and … Jerusalem.” Churches surveyed give just six percent of their budgets to foreign missions. They give another four percent of their budgets to domestic ministries. As churches grow, their generosity to external missions also grows.

Percentage given to international mission
and domestic ministries (by revenue)

Church Revenue Percentage Given to External Ministries
Below $500K 8%
$500K-1M 9%
$1M-5M 10%
$5M+ 13%

On the whole, the external giving of respondents includes 37 percent to domestic and 63 percent to international. The division is consistent across churches of all sizes. Overall, our 500+ respondent churches have budgets of $1.7 billion. Of this, just $100 million is going to overseas ministry.

A few observations: exemplars are much more likely to be talking about money both in sermon series and in seminars (e.g., Financial Peace University), and they’re including the presence of these factors in their projections. They also look further into their financial past, recognizing that last year’s numbers may have been an aberration.

Churches that are not exemplars are more likely to rely on giving campaigns and seasonal services. To be sure, exemplars do watch the economy, but they focus more on what they control—teaching and seminars—than on what they don’t control, like the economy.

#5. Keeping the Status Quo. More than 50 percent of reporting churches indicated slight increases in operating revenue, operating expense, and cash reserves “in the last 12 months.”

The survey showed congregations recommitting 48 percent of their budget to salaries and fringe benefits, 11 percent to ministries and support, 8 percent to buildings (mortgages, rent, or lease), 6 percent to utilities, and 7 percent to international missions support.

About 34 percent of the congregations expect salaries to remain flat in the year ahead, while nearly 60 percent plan on a slight increase (3 to 5 percent). But these salary increases may be canceled out by increases in healthcare costs.

Additionally, about 80 percent of churches surveyed say they “are definitely learning how to do more with less.”

All in all, the responses provided a few surprises, but nothing earth shaking. The Top 10 Highlights of the survey will soon be available at ecfa.org.

Dan Busby is a certified public accountant (CPA) and president of the Evangelical Council for Financial Accountability(ECFA)—an accreditation organization that sets standards for governance, financial management, and fundraising/stewardship for churches and other nonprofits across the country.

Q&A

Where should our church start to determine whether our financial policies and procedures are effective?

First, are all church financial policies in writing and in one document? Once all policies are in one document, the next step is to review the policies for adequacy. Are all key areas covered, such as security of physical offerings, security over electronic transactions (revenue and expense), approval of disbursements and more? How could the policies be adjusted to be more effective?

Who should be involved in the church budgeting process?

Many people should be involved in the budgeting process. Examples may be the governing board, the finance (or similar) committee, the church treasurer and, most certainly, the pastor(s). A recent survey by one denomination indicated most of their pastors have no involvement in the budgeting process. While a pastor should not be involved in setting his or her own compensation, it is hard to imagine how a pastor could lead a church and not be involved in the overall budgeting process.

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