Church Management Academy Blog - Knowledge, Tips and Tools

By Michael Castrilli

Perfect Is The Enemy of Good

Yesterday, we discussed the four stages of the church budget process. As you implement the four stages, it is important to remember a guiding principle – perfect is the enemy of good! Why wait to create a collaborative and transparent budget process until you believe every aspect is perfect? No need to wait, you can start by just taking the first step.

Establish a Process

The first year of any new process can be challenging, but once established, every part of the organization will be on the same page of what is expected. For example, if your budget begins on July 1, you may want to establish that budget guidance will be distributed each April and the draft budget will be proposed by Memorial Day. Developing a schedule of key budget process dates provides everyone more flexibility so those involved can effectively manage their time. Establish a process in year one with the knowledge that it may not be perfect and that you can refine it by year two.

Reflection Questions

What are the key dates or milestones for the various phases of the budget process?
Have I informed others about what is expected of them by certain dates?

Provide Clear Guidance

Give clear guidance on your expectations for the process, the future, and what success looks like moving forward. If you are going to ask others for information, communicate your objectives and provide visibility in your thinking for the upcoming year.

Reflection Questions:

Am I clear in my direction and thinking surrounding priorities?
Do I need to simplify or improve how individuals submit calculations and estimates?
Do I need to develop additional guidance surrounding narrative descriptions?

Open Communication Lines and Seek Feedback

The budget process should be an opportunity for all voices to be heard. When you open the budget process for the upcoming year and set expectations, hold a town hall meeting where all parishioners are welcome. Listen to the voices of the people around you. Open up the priority setting process so you can gain broader involvement and commitment by the staff and your parishioners. Ask individuals to help brainstorm ideas. If not, then be clear as to the direction you are setting. When others feel involved, they will be more committed.

Reflection Questions:

Who are your stakeholders that need to be brought into this process?
What voices have been missing that will help you create a spirit of openness and transparency?

By Michael Castrilli

The Language of Church Finance

At times, church budgeting can feel like learning a new language – new words, definitions, even new processes. Finance can feel like learning grammar for the first time. But, do not be afraid. I think it can look more intimidating than reality.

I am not saying that one can become a CPA overnight, but there is a great deal of empowerment that comes from learning the nuts and bolts of finance. This also means that depending on your role at your church, you will have to determine what is the right level of education you need to manage your church finances.

One of the main drivers that Dr. Chuck Zech and I wrote our book, Parish Finance: Best Practices in Church Management was to help pastors and parish administrators translate the language of financial management to their environment. I thought it might be helpful for me to put together a quick list of common terms to get people excited! Hopefully, some of these will help you translate this language and not feel overwhelmed, but empowered!

Accounting – Accounting is the systematic means of recording, managing, reporting, and communicating financial actions of an organization (Parish Finance, Chap 9).

Budget – Planning and management tool for executing priorities by projecting, allocating, and managing the money you receive and the money you plan to spend (Parish Finance, Chap 1).

Cash Flow Budget – Financial plan that displays anticipated actual income/receipts and expenditures for a given period. Unlike a linear budget that spreads income and expenses evenly over a period, the cash flow budget presents a realistic month-to-month (or week or day) projection of cash received and cash to be expended (Parish Finance, Chap 5).

Fiscal Year (abbreviated “FY”) – Period of time for which an organization plans the use of funds and reports financial status (Parish Finance, Chap 2).

Financial Management – Planning, organizing, directing and controlling the financial activities of the organization. Focuses on generating financial information that can be used to improve decisions (Parish Finance, Chap 9)

Generally Accepted Accounting Principles (GAAP) – Set of rules that must be followed for the organization’s financial statements to be deemed a fair presentation of the organization’s financial position and results of operations (Parish Finance, Chap 9).

Internal Financial Controls –– a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies (Parish Finance, Chap. 8).

Master Budget – Comprehensive financial plan that includes operating and capital budgets and parish accounts and investments (Parish Finance, Chap 2).

Reallocation – The adjustment of resources between or within budget categories, also referred to as fund reprogramming (Parish Finance, Chap 7).

Segmentation of Duties – An approach to internal financial controls based on shared responsibilities related to the collection, deposit, disbursement, and reconciling of parish funds (Parish Finance, Chap 8).

Variance Analysis – Reporting tool to review, analyze, and take action based on the difference between budgeted and actual income and expenditures (Parish Finance, Chap 7).

By Michael Castrilli

Church Priorities + Budget = Results

Show me your budget and I can tell you how you spend your time, where you focus your resources, and what you believe are the greatest priorities for your church and programs.

Think about your personal spending. If you showed me your latest bank statement or credit card bills, I would be able to tell you how you spend your time and where you focus your personal resources. All I would have to do is take your income and expenses for the statement period and assign categories to the ones we see repeated.

For example, I may see expenses for great restaurants (dining), a gym membership (fitness), doctor visits or medications (medical), and ticket purchases for shows and concerts (entertainment).

On the incoming side, I may see a check deposit from your job (salary). If you provided two or three months of data, I would have a good idea about how you prioritize resources.

Tip 6: The budget is a reflection of your pastoral priorities

The same can be said of your church priorities. What are the categories of income and spending that the parish receives and spends? Most likely, the largest income category for the church includes offertory collections while staff salary and benefits drive the majority of expenses. These categories make sense as priorities. Without collection income, the church would have virtually no resources to operate besides savings or any endowments. Salary and benefits also make sense because of the need for the most critical resource for any organization—people to accomplish the work.

This makes analyzing the next categories of spending very important. After salary and benefits, what is the next highest level of spending? And next? And next? This is when budget analysis can really help determine a way forward (More on this topic later in the week).

There is no doubt that church leaders are busy people, so the next step in the process is to take the data that has been collected and focus your time. Focusing on the “right” areas of the budget means prioritizing your time so that you spend the greatest amount of effort in those areas that will provide the most significant benefits. A nice tool to deploy during this phase of the process is to calculate the Budget Category Impact Percentage (BCIP). Tomorrow, we will discuss how to calculate the BCIP!

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By Michael Castrilli

Limit Church Bank Accounts

It’s not unusual in a typical church for each ministry or organization to want control of their finances. Each will insist they need their own checking account. They don’t.

If a church has too many checking accounts it makes it difficult, if not impossible, for the church’s leadership to maintain control of finances. This will impact, not only the ability of the parish to provide accurate financial information but will greatly increase the opportunity and the temptation for embezzlement.

As my co-author Dr. Chuck Zech notes in our Parish Finance book,

In a classic case, when the Diocese of San Diego declared bankruptcy in 2007 in conjunction with the clergy sexual abuse scandal, it was discovered that the average church had eight checking accounts. The presiding judge wondered aloud how any parish could effectively control its finances with that many individual checking accounts. The authors have tales of parishes with more than 50 checking accounts, each controlled by a separate parish organization. This is clearly untenable

In reality, some church organizations do need their own checking account. A parochial school, for example, needs its own account. A national fraternal organization, like the Knights of Columbus, could justify having its own checking account. But the choir, adult education committee, youth group, etc. will also argue that they need their own separate checking account.

Limit Church Bank Accounts – One Checking Account Can Work!

The vast majority of church organizations could easily get by simply having individual line items in the parish’s statement of accounts, one for revenue and one for expenses. That would allow the parish to control the organization’s finances while still providing the opportunity to monitor its budget. By creating a budget that is built by program area, there is no need for separate accounts because managers can easily access reporting information.

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Picture of the front and steps of Saint Martin of Tours Chapel, St. Charles Seminary, Philadelphia, PA — Saint Martin of Tours Chapel, St. Charles Seminary, Philadelphia

By Michael Castrilli

Fraud Alert: 5 Tips to Protect Church Collections From Theft

There is nothing worse than reading about a Church who has lost thousands or even millions of dollars due to theft. Unfortunately, church collections are very susceptible to fraud because the theft involves something that is difficult to track – cash!

It would never happen here, not at our Church!

Our parishioners would never steal!

This is a Church — people are honest here!

Yes, I do believe that a majority of people are honest, but sin is a problem for a reason. I always like to say; most fraud doesn’t happen overnight. Fraud can occur slowly, even one dollar at a time and next thing you know – thousands, or in the case of some churches, millions are gone.

Fraud can occur as easy as:

Tom, the church usher, finds himself alone in the sacristy ready to put the Sunday collection in the safe. He pauses and thinks, “I work hard for this church as a volunteer. I’ve been here for 20 years; no one will care if I take a $10 bill, this church brings in tons of money.” The following week he takes a few $10s, and as time goes by, the dollars add up.

Jamie, the church administrator, always has the pastor review and sign the deposit slip before she leaves the bank. However, on her way, sometimes Jamie will make a second deposit slip that leaves out $50 or maybe $100 in cash. She forges the pastor’s signature (he won’t mind), and the bank does not notice. The fraud goes unnoticed because Jamie not only makes the deposits; she also reconciles the accounts in the church financial software.

Prevent Fraud – Protect People

Here is the main point – creating safeguards (aka internal controls) for assets is not about trust – internal controls are about protection and accountability.

Question: “Whoa – I’ve been here for years! You don’t trust me?”

Response: “This is not about trusting you, this is FOR YOUR PROTECTION.”

Think about it this way – without strong internal controls, if the money goes missing, how are people protected? If there is no process, there is also no protection. Without shared accountability, individuals are left in the lurch.

5 Tips to Safeguard Church Collections

Tip #1: Send Them Out Two-By-Two – Never allow one person to be alone with collections. If someone is bringing the collection to the office or the safe, have at least two people present.

Tip #2: Rotate Collection Counters – Set up a schedule for different people to count collections for different weeks. If people are in cahoots, and the same people count money in the same weeks, this can lead to fraud.

Tip #3: Create Checks and Balances (Literally) – Financial responsibilities should never rest on one person’s shoulders. The person who makes the bank deposits should not be the person who reconciles the accounts. An individual who writes the checks should not be the only one who signs the checks.

Tip #4: Communicate Proactively – An Information vacuum can cause people to create dirt. Establishing policies without proper communication lead people to suspicion and gossip – “Oh, I heard Laurie might be stealing money.” Be proactive with the answers to what, why, and how new policies are established.

Tip #5: Speak to Fears – Respond with “This is for your protection,” when confronted with “You don’t trust me?” Changing financial policy is not about a lack of trust but about safeguarding assets and sharing accountability.

Questions? Comments? Contact me at ChurchManagementAcademy@gmail.com.

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