Episcopal Church Foundation Vestry Papers - for leading congregations

April is financial literacy month and a good time to talk about basic financial statements. It’s easy, when preparing financial statements, to do what has been done in the past. We take out last year’s financial statements and drop in this year’s numbers. But does that statement tell the reader what he or she needs to know? I suggest that we take some time to think about what could make our financial statements more meaningful to the reader.

My approach in providing basic financial statements has four goals:

Goal 1 - Provide complete and accurate financial information to the reader

It is important that the finances of the parish be transparent. All financial activity should be reflected in the statements and not just the general operating account. To accomplish this, we need an adequate accounting system that is properly maintained. This means that all financial information is entered into the system and there are checks and balances to verify that nothing has been left out.

Goal 2 - Present understandable information to the reader

To do this, we need to identify the reader. Who will be reading the financial statements? Is it the Finance Committee, where members may understand the terminology? Or is it the vestry, where some members may not have an understanding of accounting? It is important that everyone using the statements understands the terms that are used.

One way to help is to include a glossary with financial statements. The glossary might include the following:

• Revenue is the funds that have been collected.
• Pledged income is the money that has been paid towards the pledges that have been received.
• Plate income is the funds collected in the plate that are unrelated to a pledge.
• Disbursements are the expenses of the church. They are presented in categories.
• Variance represents the difference between a budgeted number and the actual amount spent. If the number is in parentheses (1.00), the actual amount is greater than the budgeted amount.

A glossary can help assure that reader understands the terms used in the statements. The list here is not comprehensive, but rather an example of terms you might include.

Goal 3 - Provide information that is useable to the reader

Once we have identified the reader, we need to be sure the financial statements provide all the relevant information to help him or her make informed decisions. For example, the Finance Committee may want to have details of the expenses comprising the Music Ministry but a simple total may be sufficient for the vestry meeting.

Another consideration might be the type of statement presented. Does the vestry want a financial statement that shows this year’s numbers, the current budget, and the variance in those numbers? Would they like to have a comparison of this year’s numbers to last year’s numbers? Determining what would be most helpful to the reader should guide the information provided.

Goal 4 - Make sure that the financial statements are flexible and can be adapted

As programs and circumstances change, it may be necessary to explain items and add narrative to the statements. Has your congregation added a new ministry this year that needs to be reflected in the financial statements? Each category can provide useful information, but relying on previous presentations may not tell the full story. In the past the reader may have only been interested in how much cash is on hand and the expenses that need to be paid in the next month. But now we may need to provide financial statements that show how the actual expenses differ from the budget. Being flexible can help provide useful information to the reader.

There are three basic financial statements that will help to communicate the church’s financial status:

• Budget
• Statement of Assets, Liabilities and Fund Balances (Balance Sheet)
• Treasurer’s Report

To summarize, the needs of the reader of the financial statements should be identified before we prepare the statements. Our goal is to provide complete and accurate information that is both understandable and useful. And we want that information to provide a clear picture of the financial position of the parish.

Nancy Fritschner answers the clergy tax line for the Church Pension Group. She is a life-long Episcopalian, a CPA and is married to an Episcopal priest. Nancy is a former finance faculty member for CREDO. She currently lives in Louisville, KY, where she is a member of Church of the Advent.

Resources

• Basics of Parish Finances, an ECF webinar led by Jim Murphy and Jerry Keucher, February 5, 2014
• Fearless Finances – Parish Budgets an ECF webinar led by Donald Romanik and Jerry Keucher, October 13, 2016
• Manual of Business Methods in Church Affairs
• Make Your Money Talk. Or at least Your Budget, by Richelle Thompson, ECF Vital Practices blog, November 10, 2015