Basics of Church Financial Reporting - Part 1
Vestries are the fiduciaries of the parish corporation. Whatever word we use — fiduciaries, stewards, trustees — we mean the ones responsible for the good management of something that doesn’t belong to them. The parish has been put into the hands of the current vestry, and the current vestry is responsible for it. Vestries discharge their fiduciary responsibilities by trying to make sure that they hand on to their successors a parish that is stronger and more viable than it was when they took office.
The financial well-being of the parish is one of the most important fiduciary responsibilities of the vestry. No vestry can fulfill its responsibility in this area without regular monthly financial reports. The report the vestry should receive every month is a statement of income and expenses-- that is, what money came in from what source, and what it was spent on.
Many vestry members do not have a financial background and may feel intimidated by a discussion of numbers. If that describes you, this article is intended to give you a basic grasp of the concepts, which are not difficult. If you find the financial reports you receive at vestry meetings mystifying, it might be because the reports are not organized and presented in a way that facilitates understanding. The purpose of the accompanying spreadsheet is to give your Treasurer a format for a financial report that is easily understood. In addition, you may wish to view the ECF webinar entitled “Fearless Finances” held on October 2016 that discussed the topic of this article.
Income and Expense Report
The basic tool is a monthly report of income and expenses, a summary of what income has been received from what source, and what expenditures have been made. A good way to make the report user-friendly is to group together similar income and expense items, so the first thing we will discuss are the sources of income a congregation may have and where the money is likely to be spent.
First, the report should separate operating income and expenses from non-operating ones. Even if you’ve never heard these terms before, you already make the distinction. Operating expenses are the “normal” things that are in the budget — things like salaries and benefits, utilities, insurance, supplies for the office, buildings and programs. Non-operating items are “special” things that are often unbudgeted — a major repair, a bequest, or a gift that you are supposed to pass on to someone else, like contributions to the Bishop’s discretionary fund or the United Thank Offering.
Mixing operating and non-operating items makes a report hard to understand. The Treasurer may say, “Contributions may look high this year, but that includes the $10,000 we raised to replace the boiler in the rectory.” That just causes confusion.
The report should be organized in such a way that similar income items and similar expense items are grouped together with a subtotal being shown for each group. This gives you a sense of what proportion of your income comes from what source, and how much each expense area of the budget is costing you.
We’ll look at the operating items first.
Sources of Operating Income
Contributions from Individuals: Congregations are usually primarily supported by the gifts of the members. Gifts come in the form of pledge payments, contributions made without a pledge, cash in the offering plate, and other gifts. Sometimes, for example, your box of envelopes contains envelopes marked “Fuel” or “Diocesan Assessment.” Paying for energy and contributing to the diocesan budget are basic operating expenses of a parish, so these gifts would be included as individual gifts toward the operating budget. Gifts from individuals for non-operating items would not be included here.
Fundraising Events:. Maybe you have a Christmas Fair or fish fries during Lent or an auction, a bus trip, or some other fundraising events. The report should group the fundraising events together, and the income should be reported net of expenses. That means, for a bus trip, say, the rental of the bus and other expenses should be subtracted from total income for the event, and the net income number should be on the report. You want to know how much you made on the bus trip. It is confusing to include the direct expenses of fundraising events shown separately on the expense side of the report.
Space Use: Many congregations make spaces available for 12-step groups, a nursery school or some other tenant. Some congregations own houses that they rent out. Group all the rental income items together on the report, and report the rent net of direct expenses. If you rent out a house, you have to pay property taxes, and there will be other expenses that are the landlord’s responsibility. As with fundraising events, these expenses should be subtracted from the gross rental income on the report because you want to know how much the congregation is actually making.
And just to be clear, the money you receive when you make spaces available is rent; it is not a donation. When you get something back for the money you pay, like the use of someone else’s space, the money is not a gift. It’s perfectly all right for a parish to receive rent for its spaces. There may be instances where you have to put a property fully or partially back on the property tax rolls, but then the property taxes are just part of the overhead, the way they are for any commercial landlord. None of this affects your status as a 501(c)(3) tax-exempt organization.
Parish Organizations: Sometimes the Episcopal Church Women (ECW) or Men’s Group do their own fundraising, give the money away to worthy causes, and also make a contribution to the parish operating budget. Group those contributions together on the report. If the ECW buys 50 new chairs for the parish hall, however, that is not an operating item; that is a capital expense.
Investment Income:If you have an endowment or long-term investments, the operating budget may be supported in part by income or draws from the investments. The total that is being taken from the investments for the operating budget should be shown in one line on the report. I will try later to persuade you not to use investment income in the operating budget, but if you do, the total amount being used in the operating budget should be shown in one line.
There are no other sources of regular income for your operating budget unless you receive regular support from your diocese. Grants from other organizations are almost always for capital projects or for outreach programs. Please don’t use bequests you receive in the operating budget. First, it’s disrespectful to the deceased member to use their final gift to pay current bills. Second, if your members know that you do that with bequests, they will make their planned gifts to organizations that conserve them. Bequests should be treated as principal contributions to an endowment fund that supports capital projects to keep the physical plant in good repair.
Part II of this article in April will continue with the Income and Expense Report and Grouping Operating Expenses; Non-operating Income and Expense Report; and the Four Important Questions Vestry Members Should Ask about Financial Reports.
If you have any questions, please contact me: firstname.lastname@example.org or 347-713-2218.
Jerry Keucher, an Episcopal priest, is the author of Remember the Future: Financial Leadership and Asset Management for Congregations (2006) and Back from the Dead: The Book of Congregational Growth (2012). He serves as priest-in-charge at St. Mary’s Episcopal Church in Brooklyn, New York, and works with ECF as a consultant. Jerry has served as chief of finance and operations for the Episcopal Diocese of New York. He has held similar positions in financial leadership, including Staten Island Botanical Garden and Staten Island Institute of Arts and Sciences. A gifted linguist he has taught Greek and Hebrew at Princeton Theological Seminary and Yale Divinity School.
- Basics of Parish Finance, an ECF webinar led by Jerry Keucher, October 2016
- Basics of Endowments, an ECF webinar led by Ken Quigley, October 2013
- Being on the Same Page by Ronald D. Pogue, Vestry Papers May 2012
- Knowledge is Power by William A. Doubleday, Vestry Papers May 2012
- Lessons from a Rookie Treasurer by Tyler D. Schleicher, Vestry Papers May 2014
- Managing Resources, Part 1 Finances by Nancy Davidge and Susan Elliot, Vestry Papers, November 2015
- Sample treasurer reports (handout), a template that can be used for financial reports to the vestry
- Who Can You Call? by Chris Meyer, Vestry Papers May 2014
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