Managing Resources, Part 1 Finances
This is Part 1 of 2 of a series on managing parish resources, click here to read part 1.
Sound stewardship of the parish’s property and resources is a key area of vestry responsibility. As the legal representatives and agents of a parish, the vestry functions much like the board of any nonprofit organization, with responsibility for finances and management of property and human resources.
The other areas of vestry responsibility —mission, structure and organization, team building, vision, and strategic thinking—look pretty much alike, whatever the size of your congregation. Things get a little more complicated when we consider the vestry’s responsibilities for finances, human resources, and buildings. In large churches with paid staff, vestry duties are mostly geared to governance and oversight in these areas, i.e. holding the staff accountable for their management roles, making sure funds are used efficiently for the church’s life and mission, and seeing that the church meets the canonical and legal requirements of the church and state. In small faith communities with few to no staff, the oversight and management roles often merge, with the vestry managing everything from the Sunday collection to paying taxes to maintaining the church’s sidewalks.
The same standards apply whether exercising oversight or hands-on management. The vestry is responsible for ensuring that the rules and practices for managing the church’s financial, personnel, and property resources are fair, transparent, and in compliance with state laws and church bylaws as well as diocesan and church-wide canons. The vestry does not need to manage everything, but it needs to know how the books are kept, the state of the church’s finances in relation to the budget, the plan for the annual audit, who is managing the repairs to the roof, and much more. Where work is delegated—whether to staff, committees, commissions, or individuals—clear lines of authority and accountability need to be determined, agreed to, and acted upon.
For some vestry members, these fiduciary duties are a piece of cake—part of their everyday business life. Others find it easier to understand theology, human relations, or nearly anything other than taxes and financial statements. If you’re that second person, don’t hesitate to speak up and ask questions. Clarity and straightforward talk on church finances begin with the vestry.
Vestry financial oversight is a leadership function that directly impacts your church’s future. It would be nice to think faith communities are immune to financial mismanagement, but that is not the case. You may know stories from your own congregation or other faith communities where (intentionally or through neglect) funds have gone missing, taxes have not been paid, or expenses have been poorly documented.
Poor administration combined with a lack of accountability and transparency in financial matters directly undermines the congregation’s trust and subverts the church’s mission.
Financial management is a complex topic, and we encourage you to ask questions. It is all too easy for vestry members to approve financial reports they do not understand and to avoid the discomfort of asking hard questions. The hard questions and their corresponding answers are necessary and vital to your church’s health.
Good Financial Management Begins with the Budget
The church’s annual budget is one of the most effective tools the vestry has for its role as fiduciary steward of the church’s assets. Adding a percentage increase to last year’s line items is not enough, though. You should have a budget planning process in place that combines your everyday income and expense information with what you are learning about where God is calling your faith community. The result is a realistic and balanced budget that supports your church’s growing understanding of its mission and vision.
There are different approaches to this annual budgeting process. In smaller congregations, the rector, wardens (in the absence of full-time clergy), or treasurer will manage the budget formulation process. In larger churches, program and administrative staff will also be involved. Sometimes a finance committee or commission manages the effort. However organized, it is important to have a defined budgeting process that provides for clear delegation of responsibilities and a timeline for the task. Budget formulation should be based on priorities and basic premises set by the vestry and rector, guided by real financial data and input from program leaders and staff. Discussing the priorities that guide the budget process with the congregation, as well as your hopes and challenges, helps them understandand support the budget that is approved.
Sound Business Practices
When it comes to business practices, it is important that vestry members recognize that this work is guided by the canons of The Episcopal Church, diocesan canons, federal, and state laws.
Financial policies and procedures for everything from counting and depositing the offering to accounting, reporting, and implementing safeguards are critical, whatever the size of your faith community. Your church should have written fiscal policies and procedures that are reviewed annually. You also should provide training for employees and volunteers who work with church finances. Many dioceses conduct workshops or offer training on church finances and training. Policies and procedures must include appropriate safeguards protecting the integrity of the people responsible for the disbursement and transfer of congregational funds, documentation for all reimbursed expenses, and monthly review of all fund transfers and account balances.
In large congregations staff manages this process, along with oversight from a finance committee and the treasurer, who reports to the vestry. In a small church the vestry and the treasurer may manage everything. In either case, the vestry should know who is responsible for handling money, managing and documenting financial transactions, paying taxes, and arranging the annual audit. Standard business and accounting practices should be followed. The treasurer should provide concise monthly financial statements that include a balance sheet, an income statement, a cash flow statement, and budget projections for each month.
Different Funds for Different Purposes
Vestry members need to know the names and functions of all funds maintained for the congregation, where they are deposited, and who has access to each account.
Churches use various fund types to manage their assets:
- Unrestricted funds (general operating budget) may be used for any purpose designated by the vestry.
- Reserve funds are set aside by the vestry for specific purposes. Their purpose can be changed by vestry action.
- Restricted funds are designated by donors for specific purposes and must be used for those purposes. Examples include contributions raised for a building fund or a columbarium fund. They may also include a capital fund from which only the interest income may be spent.
- An endowment fund requires that the principal be maintained, with distributions made using either an “income only” or the more recently allowed “total return spending” policy. The endowment documents should give clear guidance on the purpose of the fund, whether it is restricted or unrestricted, and outline spending policies, purposes, and investment asset allocation. It is risky to use endowment income for general operating expenses—and all too common. If this is a practice in your congregation, your vestry’s gift to the future could be to begin reducing the church’s reliance on the endowment. The draw from the endowment might better be used to support a capital reserve fund.
- Savings accounts are often used for special or restricted funds. The accounts must be in the name of the church and not in the name of the treasurer or any other individual.
- Clergy discretionary funds are guided by diocesan canons. It is important to understand that they are parish funds, not personal accounts or additional compensation. The fund must be included in the annual audit and other financial reporting.
Taxes are primarily the responsibility of the treasurer, but vestry members can be held liable for tax violations and should be familiar with the general requirements. While Episcopal congregations are tax-exempt organizations, they are still required to comply with federal laws for withholding and reporting employee income taxes and Social Security taxes. There are other situations (such as sales tax or unrelated business income) where your church may carry liability. To reduce your tax liability, we recommend that you use a payroll service rather than doing it in-house.
It is helpful to consult with appropriate professionals regarding your particular situation, starting with your diocesan finance officer. You can learn about federal reporting requirements for Episcopal churches and the Episcopal payroll services recommendations provided on the Church Pension Group website.
The annual audit, required of every congregation and submitted to the diocese, is an effective tool for the vestry’s fiduciary role. It ensures that accounts and the treasurer’s reporting are accurate; funds are safe and correctly allocated; financial policies, procedures, and record keeping are followed; and the flow of cash receipts and payments is controlled. Where needed, recommendations for improvements are provided. On occasion, the annual audit reveals a serious problem. But most often, the annual audit documents that sound financial practices are being followed—a protection for all who handle your funds. That assurance enables the congregation to pursue its mission and vision with confidence in the accuracy and safety of its finances and those who manage them.
Part 2 of this article, offered in December 2015, offers an overview of the vestry's responsibilities related to insurance, reporting, property management, and human resources (volunteer and employees).
Three questions every vestry should consider:
- How is your congregation's understanding of its mission and vision represented in your budgeting process? What steps might you take to develop a budget that reflects these values?
- Does your congregation have an accounting policies and procedures manual unique to your church in addition to the Manual of Business Methods in Church Affairs? When was the last time it was reviewed and updated?
- Are the financial statements of related non-worshipping entities (such as thrift shops, ECW, men's groups, preschools) reviewed by the vestry and included in year-end reporting, including the annual audit and parochial report filing?
This article is an excerpt from the 2015 edition of the Vestry Resource Guide, an Episcopal Church Foundation (ECF) publication by Nancy Davidge, ECF associate program director and editor, ECF Vital Practices and church communications writer and consultant Susan Elliott. The Vestry Resource Guide helps vestry members and clergy work together to become an effective, even transformational leadership team. With information and recommendations for congregations of all shapes and sizes, this is an essential tool to help vestries focus on what God is calling them to do in the world. Available in English or Spanish, and in both print and eBook formats
- “Audits: Practicing Internal Controls” by Martha Goodwill, ECF Vital Practices’ Vestry Papers
- “Create a Sound Parish Budget” by Craig Bossi, ECF Vital Practices’ Vestry Papers
- “Critical Feedback” a digest of resources related to managing parish resources
- “Discretionary Funds: Guiding Principles” by Gerald Keucher, a resource from ECF Vital Practices
- “Knowledge is Power” by William Doubleday, ECF Vital Practices’ Vestry Papers
- Manual of Business Methods in Church Affairs (Available in Spanish and English)
- “Rookie Treasurer” by Tyler Schleicher, ECF Vital Practices’ Vestry Papers
- The Episcopal Church Network (formerly National Association of Church Business Administrators)
- "Top 10 Financial Management Resources for Vestries" Episcopal Diocese of Southwest Florida
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