By Michael Castrilli

Checks and Balances for Church

In some churches, one person counts the Sunday collection.

The same person deposits the collection funds with the bank and is then responsible for issuing all of the church’s checks.

And the same person is then responsible for reconciling the checkbook.

There are no checks and balances when one person performs all of these tasks. This system places too much temptation in their hands.

Segment Church Finance Duties

At every church, there needs to be segmentation of duties. That is, no one person should perform two consecutive functions in the financial chain of events.

Where possible, it is even preferable to have a separate person perform each of these tasks. Naturally, in a church with a small staff, that might not be possible. At a minimum, there should be rotating collection counting teams staffed by church volunteers and more than one person should be involved in depositing the collection. A different person should be charged with reconciling the checking account.

It is not just in the handling of collection funds where the segmentation of duties is important. In fact, it might be even more important, and the temptation to steal even greater, in the case of other church revenues such as church fundraisers, which are heavily cash-based.

Creating safeguards and internal controls for church finances is not about trust – it is about protection and accountability.

When you get pushback from those who may feel as if you are taking away some of their responsibilities, you can respond by saying, “This is not about trust, 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.

*Portions of this text come from Parish Finance: Best Practices in Church Management (New York: Paulist Press, 2016), Chapter 8.

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By Michael Castrilli

Church Budget Phases 101

There are three main phases of the church budget process. All budget processes have components of these three phases. Therefore, by understanding them, you’re on the right track to managing your church budget process with ease.

Phase 1: Budget Formulation

The budget formulation stage includes gathering relevant policies, soliciting information from staff and parishioners, documenting assumptions, and projecting revenues and expenses. By developing a resource plan to put priorities into action, collaboration and transparency are critical to this phase of the budget process to ensure openness, buy-in, and accountability by the entire parish community.

Phase 2: Budget Execution

Once the budget is approved, budget execution is the phase when the plan is put into action. The key features of budget execution include establishing and communicating clear policies and procedures for the receipt and disbursement of resources and ensuring financial transparency.

Phase 3: Budget Control

Budget control processes and procedures are established to ensure that the parish meets planned targets for revenue and expenses. If challenges arise or circumstances change for any reason, tools like variance analysis help parish leaders assess the impact of changes and proactively mitigate financial risks.

Now that we have a basic understanding of the budget phases, next week, we will review the different components of what we will call – The Master Budget!

By Michael Castrilli

Bottom-Up Budgeting: Start From The Ground Floor

Which budget method(s) do you use when you create your church budget? How do you estimate revenues and expenses? Last week we discussed top-down budgeting! This week, let’s take a look at bottom-up budgeting.

Bottom-up Budgeting

Sometimes referred to as zero-based budgeting, the bottom-up method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each cost element is developed and justified. Therefore when the budget is complete, the program manager has a thorough understanding of the budget under their management.

Advantages/Challenges

The advantage of this method is that each cost element is scrutinized and justified in order to develop the budget. The challenge to this type of method is that it can be time-consuming due to the comprehensive nature of building from zero up.

Therefore, the leader might consider using this method for one department at a time or taking a bottom-up approach every other year so that the process is not overwhelming for those involved in building the budget.

For example, maybe you start with the Music program, and the following year, review the Religious Education program. When a budget has been developed using the bottom-up approach method, the insight into a program/department is typically very good.

Another advantage of this method is that the detailed analysis provides a level of granularity not necessarily achieved by top-down budgeting. With top-down budgeting, the dollars are broken out from a broader perspective, whereas the bottom-up method creates a more precise estimate of program costs.

Can you figure out what the greatest challenge to implementing a bottom-up budget method? You guessed it; the method can cause anxiety. People may feel like you are scrutinizing them and get defensive. Help staff to understand the answer to questions like, “Why me?” or “Why my program?” Be truthful. If you are asking for staff to build a bottom-up budget because you are concerned about overspending, let them know. We often think that we don’t want to concern staff. But guess what? They become concerned anyway.

When you answer the “why?” question truthfully, watch as build buy-in and rapport. People are happy to help build a great budget when they are clear about expectations and outcomes.

Photo Credit: mripp Flickr via Compfight cc

Portions of this text are excerpted from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016), Chapter 4

By Michael Castrilli

The 3-R Approach to Address Financial Challenges

Previously we have discussed how to construct a church financial narrative with impact and ease. However, we all know that writing about money is simple when finances are in great shape. Inevitably, church financial challenges occur and also need to be communicated.

Address Financial Challenges with 3-R

Picture of doors with the inscription "Holy doors of Mercy" showing that openness if required when it comes to addressing financial challenges — The Cathedral Basilica of Saints Peter and Paul., Philadelphia, PA

For example, from a decrease in collections, the parish drew a larger percentage of endowment funds than in previous years. Responding to financial challenges can feel overwhelming, but consider breaking the problem down using the 3-R Approach. The first step is to Reflect what has occurred. What is the actual data telling you about what happened? The second step is to Review reasons or circumstances and consider any changes that are necessary for the future. The third step is to Refine any policies and procedures to mitigate the likelihood that the problem will occur again.

When reporting a challenging situation, keep the narrative simple, straightforward, and offer answers to the relevant “W” questions.

What happened?
Who is/was involved?
When did it take place?
Why did it happen?

So, we have constructed the financial narrative, we have addressed any challenges, now what? Let’s choose the most compelling visuals to include in your financial reports. Next week we discuss choosing visuals to communication financial understanding!

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By Michael Castrilli

Church Capital Assets Planning

Yesterday, I discussed the importance of creating a church capital assets budget! As a refresher, capital assets are simply those items that the church owns that have value extending beyond one year. Can you think of some examples?

Yes, I am sure you guessed – the church building, the rectory, or other assets like major equipment – for example, a boiler, the church organ, or computers and technology.

Interestingly, even though these assets are critical to accomplishing the mission of the parish, many parishes do not have a capital budget. This may be due to a number of factors, but the process of creating a capital budget does not have to be overly difficult.

If a church building is unusable due to maintenance, issues or the high cost operate the facility, how does the parish accomplish the critical mission? Capital budgets can be helpful in this regard.

Today, let’s walk through the various categories and questions that can help you put this budget together.

Capital improvements – Do you have any significant projects planned for new buildings, additions, major refurbishes or upgrades?

Asset purchases – Do you anticipate any purchases of new equipment like computers, software (e.g. financial management system) or other assets that will be available beyond one year?

Equipment repair – Do you have equipment that might require repair in the upcoming years? Is money available for unexpected equipment breakdowns?

Facility upgrades – Are there any updates planned or necessary? Examples might include painting, carpeting, or retrofitting classrooms for new LCD screens.

Deferred maintenance – Have resource been allocated for the replacement of assets before they fail? This category also includes scheduled or routine maintenance (e.g. the annual boiler inspection) to ensure that assets last for their expected useful life.

Don’t forget to consider any new planned investments on the horizon and ensure that you build into the budget the expected useful life of the assets. As you consider the categories above, create a three to five year (or more) budget. Remember, it does not have to be perfect! By undertaking this review and understanding your critical infrastructure needs, you may be surprised by the insights you gain.

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