It’s that time. All over the Episcopal Church, clergy are up in front of their congregations during announcements, looking awkward and embarrassed, and asking for pledges.
That begs the question: Is your church being a faithful steward of the funds you give? Has it put in place basic protections to guard against theft or misuse?
Before you roll your eyes and move on, consider:
- One in three churches will be the victim of embezzlement.
- Only 27 percent will report the crime.
- Church embezzlement is a growth industry, expected to reach $170 billion by 2050 — at a time when mainline denominations are in precipitous decline.
These are only the big issues. Like most forms of abuse, financial misconduct ranges from nonfeasance, to misfeasance, to malfeasance. And it doesn’t need to involve cash — the rector who is “out of town” any time he or she feels like it, beyond what is permitted, is stealing, just as surely as if they were taking cash out of the offering plate. (The phrase is “wage theft.”)
Then we get to that perennial bugbear, the rector’s discretionary account. This has gotten more clergy into trouble than one would imagine, and it’s an easy path down the slippery slope. A few dollars to put gas in the car until payday, then a dinner out here and there, and next we see is college tuition and other craziness. And misuse of discretionary funds can land a priest in jail or get her defrocked.
Then there is the lack of understanding of the fiduciary role of vestry members. This includes the obligation to see financials, to ask questions, to review the annual audit report, to avoid self-dealing and more. Yet it’s far too common for people to say, “We don’t want to ask too many questions and give the wrong impression.” But asking questions is part of the job, and acting according to the highest ethical standards is required by law and church canons.
Asking questions also means knowing the details of our churches. Far too many people assume, for example, that a church school is a separate entity. Yet that often is not the case, and it’s not uncommon for school payroll and revenue to far exceed that of the church itself. Thus, vestry members need to not only supervise, but they need to know who and what they are supervising.
Speaking of, church canons often assign specific responsibilities to vestry members. For example, the wardens typically are responsible for ensuring adequate supervision and support for parish staff, including the rector. So if you are not doing an annual performance review and mutual ministry review, right there you have a problem.
While we’re on the topic, the rector does not, under church canons, get to choose the executive committee. He may get to choose the senior warden, but if he or she chooses the slate, that is a per se violation of the canons, even if the slate is subject to an up/down vote. Sorry, folks, no single-ballot Communist party “elections.”
So, what’s to be done?
First come three guiding principles:
- Adequate checks and balances in writing and enforcement of those policies. For example, the same person cannot request a check, prepare a check, and sign it. Similarly, your parish administrator or accountant should not be doing the bank reconciliations, and they need to be done timely. You also need an audit committee, to see the letter of engagement, and the resulting report. Far too many parishes pass off an AUP, or Agreed-Upon Procedures, which has no attestation value, as an audit. It is not. Same for policies—the best ones in the world are useless if they are not enforced.
- Transparency. Does your parish or diocese prepare a “budget” of pie charts that blend together line items? If so, you have a problem. These sorts of mixed budgets tell you nothing, and they are the black hole that hides problems. And spare us the bit about not wanting to share salaries. Both for- and non-profit entities other than churches typically publicly report the six highest compensation packages. If you take a job like that, it’s just part of the gig, and you deal with it. There’s nothing so special about a priest or a parish administrator that you can’t see what they make. And when you do, you may decide that your priest is underpaid. Or, more commonly, that you need to do better for your long-suffering lay staff. And for the record, if your rector is pulling down 200K and you are cutting health benefits to balance the budget, you need to re-read the Baptismal Covenant. And re-read it, until you figure out what respecting the dignity of every human being means.
- Cultivate an environment of accountability, versus blind trust. For instance, if your rector tells you that you had a clean audit, smile happily and review the report together. More than one vestry has been shocked to discover that their “clean audit” never actually happened. And we may have a very different definition of “clean” than our rector.
Into that mix come some additional factors, arranged in no particular order:
- Recognize that what passes for good governance in many churches would get you in serious trouble in most for-profits. Or even well-run non-profits. There’s even a quip among auditors: If you want a lesson in how not to run a non-profit, visit a church.
- Vestry minutes should be published and on the website. In addition, church records, including payroll, accounts payable and receivable, and vestry minutes/reports need to be available on request, with no need for an explanation. The only exceptions are personnel disciplinary discussions, meetings with legal counsel to discuss attorney-client privileged matters (note that just having an attorney in the room does not create privilege) and very limited contract negotiations. Rule of thumb: When it doubt, put it out. As in out there for all the world to see. And if a stranger calls and asks for them, by all means send them. There’s simply no reason for secrecy.
- Your annual report, financials, and audit should all be on your wesbite. And don’t fear that this will scare people off — for example, certification organization Guidestar reports that organizations it recognizes for transparency and good governance on average receive 53% more donations within the following fiscal year.
- Look at your budgeting process. Even a quick review of most Episcopal budgets reveals that they were not developed as zero-based budgets, meaning you start with a blank paper an go from there. Far too often, they’re based on existing budgets, where everyone gets a piece of the pie. Some pieces are large. Some are small. Many slices exist just because, with no real reason behind them, or a ministry whose time has passed.
- Recognize that young people won’t play along with the whole just-send-money-and-trust-us-because-we’re-a-church routine. Studies show that 1/3 of young people actively resist churches, while another 1/3 profess a dislike of church due to perceived hypocrisy. So we cannot assume that sweetheart exit package for the bishop, negotiated behind closed doors, is going to pass the sniff test.
- Don’t be afraid to ask tough questions. Far too many dioceses and churches don’t even know what it is in their investments, or the terms and conditions of restricted funds. And you cannot ignore restrictions on funds. To do so is at best breach of contract; at worst it is criminal fraud. And any diocese or church that is so lackadaisical that it doesn’t even know what its investments are is grossly mismanaged. Feel free to quote us.
- Know what self-dealing is. A breach of your fiduciary obligation as staff or a vestry member, it doesn’t just mean steering business to ourselves or our friends. It includes situations where petty grievances, power politics, and personal animosity stand in the way of making the best decision on behalf of the organization. These are morally wrong and they are illegal. And these situations are one of the reasons young people far too often hate church.
- Know the difference between governance and micromanagement. A good vestry works together for the good of the parish by praying, cooperating, helping each other, setting policy and standards for the church, and supervising from the highest level. But if you are squabbling for an hour at every vestry meeting about whether to buy yellow or red pencils, we have a problem.
- Accountability includes going to police in case of a theft. Far too many churches don’t want people to know about a theft, fearing the effect it will have on future giving. What were we saying about transparency? And if that $170 billion a year by 2050 number is to be avoided, we are going to need to disincentivize theft.
- Don’t be afraid to align social justice with your giving. For example, if your parish is trying to raise $1.5 million for a new pipe organ, which increasing lay employee salaries by just 2 percent to save money, you and your church have an issue. One parish we know gave the rector a $100,000 bonus—a highly questionable decision to begin with. But when it announced increased health case cost sharing at the following vestry meeting, all in the name of balancing the budget, the news went over badly with lay employees, many of whom were already struggling to make ends meet.
- Similarly, don’t be afraid to vet big donors. If, for example, someone proposes to give you $1 million, but the money was derived from prostitution, would you still want the money?
- Put the mission of the church first. The church’s role is to live into the message of the Gospels. But if one out of every five dollars goes to your rector, while less than 3 percent of your budget goes to serving the community, it might be time to do some reading about the Scribes and Pharisees. Same for things like paying for the rector’s housekeeper. Really?
- Don’t be afraid to ask questions before pledging. If you’re thinking of writing a big check, that’s great. But don’t hesitate to ask, “How can I know that this will be used in the way we’ve discussed?” It’s not wrong to make sure your hard-earned money is used wisely and in accordance with your wishes.
So, as you listen to the awkward asks for pledges this fall, ask yourself: Is my parish or diocese a good steward of my giving? Far too often, the answer is no.