A recently released financial management survey explores the overall financial health of churches across America. Conducted by the Evangelical Council for Financial Accountability (ECFA), the survey includes responses from nearly 900 churches, with 43 percent of those churches carrying an operating budget of $4 million to $5 million and around 15 percent with a budget of $250,000 or less.
Six specific findings provide insights into the financial health of churches—and opportunities for improvements.
1. Perception versus reality
Churches feel pretty good about the effectiveness of their financial policies and budgeting. Of those surveyed, 86 percent of churches indicate they are "very effective in financial policies" and about 88 percent say they are "very effective in budgeting." These high statistics, however, contrast with the findings that half are undecided or don't believe they are "very effective in internal control" and 43 percent are undecided about whether "our finance department is very effective."
"I think this shows written policies do not equate to an effective finance department," says Dan Busby, president of ECFA and an editorial advisor for Church Finance Today. "It is so much more than policies. It's translating policies into effective practices."
To identify a reason behind the problem, Busby cites an unpublished survey by ECFA, which asked leaders of 15,000 churches where they went for help with financial management issues. "The overriding response was, 'We just talk to our staff,'" remarks Busby. "They are trying to figure it out on their own."
Jennifer Neal, director of finance at College Park Church in Indianapolis, Indiana, affirms the need for outside input. With several years of experience as a CFO for a number of small businesses, Neal currently heads the financial department at an ECFA-accredited church and served on the advisory panel that developed the ECFA survey.
To help area churches, Neal developed a network of around 20 churches that meets a couple of times a year for training.
Neal says the informal network especially helps smaller churches, which have questions about numerous issues, including setting policies and internal control. Beyond the face-to-face gatherings, she and other financial leaders from larger churches (her church averages 4,000 people and has an annual budget of nearly $10 million) regularly answer questions via email.
"If you're a small church, don't be afraid to reach out to larger churches," says Kerry Prosser, another survey advisor who serves as CFO of Life Center, a church in Tacoma, Washington.
2. The implications of "many hats"
The survey reveals that at many churches (43%) the senior pastor is the church's primary financial manager. Overall, those who manage finances also handle many other responsibilities. "Close to 80 percent are involved in some kind of administrative role other than finance," Busby says, adding, "This includes churches with good-sized budgets." Even a financial manager with a budget of $4 million or $5 million "must wear many hats," Busby says.
"I think we could connect the dots and say it is more challenging for a person who's carrying a variety of responsibilities to be able to provide adequate focus on the financial area," Busby says.
3. Audits aren't happening
Around 68 percent say an independent CPA has not prepared their financial statements in the past three years. This presents a notable risk, since independent audits verify the accuracy of the church's numbers and reveal whether the church has adequate policies and processes, including internal control, computer security, and more.
If small churches can't afford an audit, they should at least undergo a review by an outside consultant, recommends Prosser, who came to the 5,000-person Life Center after many years of running a family business. "Spending the dollars on a consultant to review your controls and written polices is worth the investment," he says.
4. Rushed budgeting process
More than half of the churches surveyed give themselves two months or less to complete the budgeting process, which seems "far, far too short of a timeline to effectively do budget preparations," Busby says.
College Park Church spends at least six months on budgeting. Neal says the long process allows the various departments to create budgets that focus on the church's overall strategic planning for the coming year. It also allows her to speak with various department leaders ahead of the board's initial budget review. By September, she's made any needed revisions and has sent the budget back to the board. After passing the board's scrutiny, the budget goes to the congregation for a final vote. Neal uses December to prepare the coming year's financial documents.
"We've put a lot of strategic thought into the whole process," she says. "I'm able to have early conversations with the ministry leader and say, 'How does your desire to buy, say, choir robes, fit into our strategic focus on discipleship?' I like how it's all tied into our strategic planning. And all of this planning helps us better pursue our mission of igniting a passion to follow Jesus."
5. Holding their own
Overall, churches seem to be holding their own, with more than 50 percent reporting slight increases in operating revenue, operating expense, and cash reserves "in the last 12 months." The lifts in giving have allowed some churches to hire, with 10 percent reporting a slight increase in staffing (3% to 5%) and 42 percent reporting a larger increase (6% to 10%).
The study also shows that congregations are committing, on average, 48 percent of their budget to salaries/wages (including base salary, benefits, and reimbursements), 11 percent to ministries and support, 8 percent to buildings (mortgages, rent, or lease), 6 percent to utilities, 7 percent to international missions support, and lower percentages to other areas such as cash reserves, various operational expenses, and travel. These figures closely mirror Church Law & Tax's 2014 How Churches Spend Their Money executive report, suggesting not much has changed during the past year.
Around 34 percent expect salaries to remain flat in the year ahead, while nearly 60 percent plan on a slight increase (3% to 5%). But those salary increases may be canceled out by health insurance increases. About 52 percent plan on health care expenses to increase from 6 percent to 10 percent and another 6 percent of churches plan on an 11-percent-or-more increase. Many employees likely will face higher deductibles. Around 17 percent of churches have or plan to increase deductibles and another 58 percent are undecided about an increase.
6. Doing more with less
The latest ECFA survey should help churches weigh their own situations and make better decisions, Neal says, adding she believes that will be true for her at College Park Church. The survey's findings encourage "high level thinking and continual improvement," says Prosser. "They point to the need to be diligent. If you haven't done anything, start. Make a plan. If you got a plan, keep improving the plan."
Busby says another finding in the survey gives some perspective: Around 80 percent say they "are definitely learning how to do more with less." "This can be positive as churches sharpen their focus and programs; at the same time, it can be very challenging to stretch dollars," he adds.
Neal agrees. "I'd say 'doing more with less' is a trend over the last five years," she says. "We try to be a good steward with our resources. We don't want to be heavy in the operating side. If we can cut costs or keep doing things as lean as possible, it provides more funds for ministry."