Advantage Member Exclusive

Rethinking Your Church’s Budgeting Process for 2021

On-Demand Webinar: Guidance on how church leaders can adjust their current budgeting processes to adapt to changes caused by the pandemic.

Loading the player...

Editor’s Note. This video is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

To say that recent and current social and cultural developments have significantly affected church budgets would be a dramatic understatement. In fact, radical and ongoing societal developments have rendered the regular, annual church budget obsolete and irrelevant for 2020 and beyond.

So, how do church leaders address budgeting for the future in such an environment?

In this webinar offered exclusively to Church Law & Tax Advantage Members, CPA and Church Law & Tax Senior Editorial Advisor Michael Batts discusses these topics and challenges church leaders to completely overhaul their areas of financial focus.

Additional answers to your questions

During the live webinar, attendees submitted a number of questions. CPA Michael Batts wasn’t able to answer all the questions during the event, so he graciously agreed to answer them in this bonus PDF.

Advantage Member Exclusive

Why Churches Should Use Caution When Collaborating with Developers

The cautions churches should take when collaborating with developers to avoid costly legal battles over property.

Editor’s Note. This article is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

Many churches today are asset rich but cash constrained. Selling or developing church property has become an interesting and helpful process to create more cash flow for some churches, but it’s important to be aware of the many details—and potential pitfalls—involved with these transactions.

Sales have increased

As of August 2019, more than 6,800 religious buildings had sold in the preceding five years and more than 1,400 were for sale in the U.S., according to the commercial real estate database CoStar. The increase in property sales during this period was attributed to two factors: declining church membership and the rising costs related to the maintenance of aging and declining facilities. The pressure to sell or develop has apparently only increased for some churches.

“Two and a half years ago, we decided that upkeep of [our] building and the age factor of it was way too much for a congregation of about a hundred people to keep up with long term,” pastor David Lodwig of River Valley Church in Missoula, Montana, told In December of 2019, River Valley Church sold its property and is working on securing a new one.

There are some churches that are okay with selling their property outright and seeking a new place to worship. They view such a transaction as an opportunity to downsize and have more manageable property expenses.

Other churches will only sell a portion of the space and retain the rest. A church can structure a deal with a developer that includes the developer paying for them to rent space elsewhere while that portion of their property is under construction.

There are pros and cons to either approach, depending on the church and what its infrastructure is capable of handling. This is an important note. A church has to think through what it is capable of maintaining on its own, or once the project is completed and new responsibilities emerge with the new space.

The remainder of this article will focus on the development-based approach, since it is a less common—but increasingly popular—trend among churches.

Trends in developing property

While selling prime real estate is one option for addressing cash shortfalls, many turn to property developers and collaborative projects. Second Canaan Baptist in the New York City borough of Manhattan chose to replace its former worship facility with a new church building and residential condominiums available for purchase that include finishes like walnut vanities. The church’s pastor told The New York Times that “if you don’t undertake projects like this, chances are the ministry will fold, because the continuing costs of maintaining an old building will sink you.”

The prospect of a church working with a developer or an investment company—or even the city—can seem like an ideal solution to counter aging facilities and cash-strapped congregations. However, negative consequences can result if proper steps are not taken.

Two troubling examples

In August of 2019, St. Luke’s Baptist Church in Harlem asked the state’s highest court to intervene in a deal with a developer that the church said “left it at the precipice of shuttering its doors for good,” according to a Crain’s New York Business article. The church sued the developer and its president, accusing them of using their real estate expertise to “take advantage of a church whose unsuspecting nature and charitable parishioners left it vulnerable to the defendants’ predatory practices.”

The church entered into an agreement with the developer in 2014 expecting a new sanctuary as part of the developer’s construction of a residential building on the church’s property. The terms of the deal included a provision that if the new church was not completed by 2017, the developer would give the church $21,000 a month for each month beyond the deadline.

By August of 2019, the developer was two years past the deadline—and the developer refused to make the monthly payments. The church also asserted in its complaint that the developer had colluded with the church’s attorney at the time to enter a deal that was not to the church’s benefit. This lawyer had previously worked with the developer on another church deal and ultimately pleaded guilty to stealing $600,000 from that other church.

More recently, as reported by the New York Daily News, Gospel Mission Baptist Church, also in Harlem, entered into a deal with a developer whereby the development company would own 80 percent of the building and the church would own the remaining 20 percent. There would be no expense to members, the church would receive a new sanctuary, and the developer would build and sell condos located above the church’s space.

In the agreement between the parties, the church was listed as a commercial entity and not a religious organization, so it was required to pay condominium fees as a unit of the condo. This important requirement in the contract was missed by the church, and it was stuck with ongoing maintenance fees that accrued and exceeded $270,000.

Additionally, the building was sold in a foreclosure proceeding unbeknownst to the church. The church was evicted, despite waging a legal battle for a year, and on January 19, 2020, it held its last service at the location.

Thankfully, Gospel Mission was able to join with another congregation to continue its ministry operations at another location. However, the church expected to lose 70 percent of its members due to the distance of the relocation.

Such unfortunate outcomes could most likely have been avoided with advanced planning and preparation, the assembly of the right team, and the proper structuring of the development agreement. Here’s how these steps can help churches avoid the types of unfortunate outcomes other congregations have experienced.

Advanced planning and preparation

Before pursuing a development deal, church leaders should consider the following six questions:

  • What are the church’s goals—and what is the quantitative value of its property? What is the church looking to gain from a development deal? What can it realistically obtain through such a deal? There are factors that will determine the type of deal that can be made. Location, the size of the property, and zoning restrictions are key components for understanding which goals are realistic and what type of value the property offers.
  • What documents are required and who needs to be involved? The church must have in its possession all of its governing documents, including the articles of incorporation, the bylaws, the property deed, and any other documents required under the specific denomination and/or governing body of the church. The formal process of approving a sales transaction—whether by the church membership or the church’s board or governing body—also must be identified. These details will be required for the deal to go through. All parties and documents necessary to the transaction need to be identified and duly prepared well before a deal is signed and ready to close.
  • Who owns the church property? There must be clarity as to the ownership status of the church property. Does the church fully own the property and therefore have full authority to sell it—or portions of it—for development purposes? Remember to follow any requirements established by the overarching denomination regarding the sale of property by an individual church.
  • What are the tax ramifications? The church must determine any tax-related implications triggered by the specifics of the arrangement. Generally, these deals do not jeopardize the tax-exempt status of the church. However, if the deal provides the church with new space that is a rental property or a community space used to generate unrelated business income, then tax considerations apply. The church must consult a qualified tax attorney to evaluate the opportunity and all of its implications.
  • What are the insurance considerations? The church must weigh the types of risk management concerns that a potential development agreement raises. Is special insurance coverage now necessary? Will the church insurer even sign off on something like this? How much additional cost in insurance premiums will the church face?
  • What restrictions, if any, does the church face with respect to a lender? If the property is paid off, this isn’t a concern. But if the church currently borrows money, or needs to borrow money for the development project, it needs to verify how the deal affects current obligations and triggers new ones.

Assemble the right team

It is imperative that the church put together a proper team to deal with the property development opportunity. The ideal team, which can involve staff members who fulfill these functions or volunteers with backgrounds in these subjects, should consist of:

  • the pastor;
  • a lawyer, preferably with real estate, church law, and/or general business experience;
  • a tax attorney;
  • a person with a construction and/or real estate background; and
  • a person with financial acumen, such as a CPA or financial officer.

It bears mention that in line with the church’s 501(c)(3) status and IRS requirements, no member of this team should have a financial/pecuniary gain in this transaction.

The pastor is a critical part of articulating the vision of the church for the project. This is important in making sure that the goals of the church remain the focal point.

The attorney ensures that the deal is carefully vetted and that it reflects the terms that the church has postulated.

The team member with construction and/or real estate experience is invaluable and can be given the role of the owner’s representative. This person will interact with the developer throughout the process and manage the day-to-day details of the project for the church.

The finance person should possess the ability to craft a financial deal offering the most benefits to the church. This person has to consider the current financial state of the church, any current or potential obligations to a lender, and the church’s ability to sustain any long-term obligations derived from the development project. There are likely lending and/or banking considerations that need to be addressed, including conversations with, and approvals from, a current or prospective lender. The finance person will be instrumental in this process.

A properly structured agreement

There are many considerations to go over before the final agreement is made. For instance, does the deal require giving up a portion of ownership in the property? Does it require the church to front certain costs or absorb new ongoing costs? Does it require the church to share a percentage of revenues forever? Questions like these must be answered before a church enters into a development opportunity.

The deal also has to be one that the church is comfortable with many years down the line. Despite any financials pressures, a church should not enter into a deal solely focused on the immediacy of the projected financial windfall. They must be forward thinking. While the deal has to be contemplated from many vantage points, the church must be mainly concerned with how the deal does or doesn’t track with its mission and core values.

The church can also place conditions on the developer to protect its interests. Such conditions may include a timeline that the developer must meet, with built-in financial penalties for missing any established deadlines and benchmarks. The church can also insist on maintaining the structural and historical integrity of the property, especially where there is some significance for the church.

Proceed with caution

Property development projects have enabled some churches to achieve a financial turnaround when they otherwise might have closed their doors. Unfortunately, development projects have also caused financial ruin for other churches. The difference lies in the advanced planning and preparation, the team assembled, and the structure of the deal. These factors, when properly utilized and executed, can breathe both life and financial health into a struggling church.

Gisele Kalonzo-Douglas is an attorney, risk manager, strategic planning consultant, and crisis management professional with almost 20 years' experience.
Related Topics:

The High Cost of Fraud

ACFE study offers insights on why it happens, how it’s detected, and characteristics of both victims and perpetrators.

Internal theft of church funds remains a pervasive and largely unaddressed problem in churches.

Whether due to embarrassment, fear of bad press, or desire to “forgive and forget,” it appears that most fraud in the community of faith goes unreported and unprosecuted. The result is a loss of millions of dollars that would otherwise help fuel church ministries, outreach, and other important projects.

The real tragedy, however, is that fraud is a gross misuse of God’s resources and a breach of fiduciary duty between the church and its givers.

Church leaders would be wise to pay attention to fraud studies conducted by the Association of Certified Fraud Examiners (ACFE). Known as “Report to the Nations,” ACFE has released 11 studies since 1993. Based on responses from thousands of organizations that have been victims of fraud (“victim organizations”), these studies address occupational or workplace fraud in the US and around the world.

While not church-specific (although there are data points regarding nonprofits included), these studies offer information that is relevant to congregations and should help church leaders better understand how fraud takes place, how it is detected, the characteristics of both victims and perpetrators, and more.

What follows, then, are a number of findings from the 2020 “Report to the Nations” that I feel are most relevant to church leaders, along with my observations regarding many of the findings and links to pertinent articles.

What fraud costs

The typical fraud case lasts 14 months before detection, and costs $8,300 per month. Certified fraud examiners (CFEs) estimate that organizations lose five percent of their revenue to fraud each year. Worldwide, fraud costs organizations close to $4 billion annually.

My observation

These findings not only underscore the high cost of fraud but also the absolute necessity of early fraud detection. Note that in this court case alone, a church trustee embezzled close to $300,000 from church funds.

How fraud is detected

Fraud is detected in a number of ways, including:

  • Tip or complaint: 43 percent
  • Internal audit: 15 percent
  • By accident: 5 percent
  • Confession: 1 percent

My observation

When considering all the victim organizations, the study found that only 1 percent of fraud cases are revealed through a confession. From my own observation and study, a confession often is triggered by the offender’s perception that he or she is about to be caught.

A sound and enforced whistleblower policy can help detect fraud in churches.

Lack of internal controls

A lack of internal controls contributed to one-third of all cases of fraud.

My observation

The most basic and effective internal controls should be implemented and enforced. This article shows how to identify poor internal controls and offers preventive measures to correct any weaknesses.

High risk areas for small employers

Some risks are more likely in small employers than larger businesses. Billing fraud and payroll fraud are twice as likely in a smaller business, and check and payment tampering is four times more likely.

Regarding preventing fraud in small businesses, the report said:

Our data shows that there are clear opportunities for small businesses to increase their protection against fraud. Adopting a code of conduct and an anti-fraud policy, having managers review the work of their subordinates, and conducting targeted anti-fraud training for employees and managers are all measures that are correlated with significant reductions in fraud losses . . . yet each was implemented by fewer than half of the small businesses in our study.

My observation

I believe data billing fraud and payroll fraud are relevant information for smaller churches. Further, small churches would be wise to follow the advice offered above.

Men commit fraud in greater numbers than women

Men committed 72 percent of all cases of occupational fraud. The median loss for male perpetrators was $150,000. For female employees it was $85,000.

My observation

Consider this quote from the report in the context of male authorities and leadership in the church:

We examined gender distribution and median loss data based on the perpetrator’s level of authority. . . . At all levels of authority (employee, manager, and owner/executive), males committed a much larger percentage of frauds than women did. Male owners/executives and managers also accounted for much larger losses than their female counterparts. This was particularly true at the owner/executive level, where the median loss caused by men (USD 795,000) was more than four times larger than the median loss caused by women (USD 172,000). At the employee level, however, losses caused by males and females were equal.

Red flag: Living beyond their means

Forty-two percent of offenders were living beyond their means. A fraudster living beyond his or her means is the most common red flag by a sizable margin. This has ranked as the #1 red flag in every study since 2008.

My observation

Church leaders should be alert to employees having access to church finances who are living beyond their means. Note this observation from my article “Embezzling Church Funds: A Case Study”:

[The church administrator used] the church’s credit card on over 300 occasions to purchase personal items for himself and his family, including several luxury items. He knew that he was not permitted to use the church’s credit card for these purchases but continued to do so anyway.

Other red flags

Twenty-six percent of offenders were experiencing financial difficulties. Other offender traits: unwillingness to share duties, divorce or other family issues, and complaints about inadequate pay.

My observation

Church leaders should be familiar with the clues mentioned above. The chances of these behaviors leading to embezzlement can be greatly reduced when churches implement strong internal controls. Unfortunately, too many leaders and employees believe that these measures demonstrate a lack of trust, but consider this key point in my article, “Embezzlement Prevention”:

Many churches refuse to implement basic principles of internal control out of a fear of “offending” persons who may feel that they are being suspected of misconduct. The issue here is not one of hurt feelings, but accountability. The church, more than any other institution in society, should set the standard for financial accountability. After all, its programs and activities are rooted in religion, and it is funded with donations from persons who rightfully assume that their contributions are being used for religious purposes. The church has a high responsibility to promote financial accountability.

How offenders hide fraud

The top four concealment methods used by offenders:

  • Created fraudulent physical documents: 40 percent
  • Altered physical documents: 36 percent
  • Altered electronic documents: 27 percent:
  • Created fraudulent electronic documents: 26 percent

My observation

All of these risks could be managed by having a CPA audit your financial statements each year. An audit accomplishes three important functions (as outlined in my article “Reducing the Risk of Embezzlement”):

  • An audit promotes an environment of accountability in which opportunities for embezzlement (and therefore the risk of embezzlement) are reduced.
  • The CPA (or CPAs) who conducts the audit will provide the church leadership with a “management letter” that points out weaknesses and inefficiencies in the church’s accounting and financial procedures. This information is invaluable to church leaders.
  • An audit contributes to the integrity and reputation of church leaders and staff members who handle funds.

Nonprofit offenders and amount of fraud

Perpetrators of fraud falls in three categories in nonprofits—with the percentage of fraudulent activity and amount stolen (averaged below) highest among executives:

  • Executive: 39 percent; amount taken: $250,000
  • Manager: 35 percent; amount taken: $95,000
  • Employees: 23 percent; amount taken: $21,000

My observation

Sometimes a church fails to properly monitor its leaders, leading to potentially costly consequences and even imprisonment of a leader who steals from the church.

Top weaknesses in nonprofits

Nonprofits have fewer anti-fraud controls in place, making them more vulnerable to fraud. The top three weaknesses in nonprofits—with highest percentage being the lack of internal controls—are:

  • Lack of internal controls: 35 percent
  • Lack of management review: 19 percent
  • Override of existing internal controls: 14 percent

My observation

Consider this quote from the report about nonprofits in the context of small churches:

Nonprofit organizations can be more susceptible to fraud due to having fewer resources available to help prevent and recover from a fraud loss. This sector is particularly vulnerable because of less oversight and lack of certain internal controls.

Doing nothing to address financial fraud exposes any church to embezzlement. Churches are at higher risk than other organizations because an atmosphere of trust makes financial controls seem unnecessary.

For common examples of poor internal controls in churches and ways to mitigate each one, see my article “How Embezzlement Occurs.”

What about background checks?

When asked if a background check performed on the offender prior to hiring, 52 percent said yes and 48 percent said no. Of those surveyed, 13 percent said that the background check uncovered a red flag but they chose to still hire the person anyway.

The victim organizations performed the following types of background checks:

  • Employment history: 81 percent
  • Criminal checks: 75 percent
  • Reference checks: 56 percent
  • Education verification: 50 percent
  • Credit checks: 38 percent
  • Drug screening: 28 percent

My observation

All employees having access to church finances, or to church offices after hours, should have a background check that includes references and a criminal records search. Also, investigate thoroughly any red flags that are uncovered.

Previous convictions or disciplinary actions

Four percent of offenders had been previously convicted of a fraud-related offense; 16 percent had a prior employment-related disciplinary action for fraud (termination or punishment).

My observation

Be wary of hiring someone guilty of past fraud or who has been disciplined by a former employer for a fraud-related crime. Again, background screening is key to properly vetting potential employees. Evaluate your screening program with this checklist.

When fraud is substantiated, punishment takes a variety of forms—with two-thirds of the victim organizations choosing to terminate the offender:

  • Termination: 66 percent
  • Settlement agreement: 11 percent
  • Mandatory or permitted resignation: 10 percent
  • Probation or suspension: 10 percent
  • No punishment: 5 percent

Churches that are tempted to avoid terminating or punishing an offender for fraud, should consider this quote from Shakespeare’s Timon of Athens: “Nothing emboldens sin as much as mercy.”

Editor’s note: Issues related to mercy, grace and forgiveness, along with other pertinent topics, are discussed in this interview with an executive pastor from a church where internal theft had taken place, the attorney called in to help the church navigate legal issues, and the certified fraud examiner who investigated the fraud.

Should fraud be reported to law enforcement?

Here are the top five reasons victim organizations gave for not reporting suspected fraud to law enforcement (with nearly half of those failing to report it because they felt internal discipline was sufficient):

  • Internal discipline sufficient: 46 percent
  • Didn’t want bad publicity: 32 percent
  • Decided on a private settlement: 27 percent
  • Too costly: 17 percent
  • Lack of evidence: 10 percent

Here are the results when cases were referred to law enforcement (more than half of suspected perpetrators pleading guilty):

  • Guilty plea: 56 percent
  • Conviction: 23 percent
  • Declined prosecution: 12 percent
  • Acquitted: 2 percent

My observation

Nearly 80 percent of cases that were referred to law enforcement led to guilty pleas or convictions. Only 2 percent resulted in acquittal. These statistics make a strong case for reporting suspected fraud to law enforcement.

It is common for church leaders to deal with cases of embezzlement internally, with no report to law enforcement or the IRS, so long as the embezzler is terminated from employment and agrees to pay back the amount stolen. Why is this? In some cases, it is to conceal the crime from the congregation and avoid scandal. In other cases, it is to protect the embezzler, who is often a long-term and valued employee, from disgrace. But this approach requires some knowledge of how much was stolen, and this can be a difficult task. You cannot take the word of the embezzler. The best approach is to enlist the assistance of an attorney, a CPA, and quite possibly a certified fraud examiner.

A potential felony charge is just one consequence of embezzlement. For more on this consequence and three others, see my article “The Consequences of Embezzlement.”

For my analyses of court cases related to fraud, with relevance to churches, see the “embezzlement” category in Legal Developments.

For more on this topic, see the embezzlement section in the Legal Library or my book Pastor, Church & Law.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

How a Church Responded When a Trusted Minister Embezzled Funds

Experts weigh in during a panel discussion on what happened.

As the congregation and staff of Houston’s First Baptist Church were getting ready to celebrate Thanksgiving in 2017, a storm was brewing that threatened to shatter the holiday mood. Irregularities were noticed in the credit card statements of a popular associate missions minister, speaker, and Bible teacher. The investigation deepened and discovered that this individual had embezzled more than $830,000 in church funds since 2011.

The associate missions minister confessed to church officials, resigned, and was later convicted of embezzlement. He was sentenced to 10 years in prison but has been released on a special probation program for first-time nonviolent offenders.

Houston’s First Baptist is far from alone. Gordon-Conwell Theological Seminary’s Center for the Study of Global Christianity estimates fraud in churches worldwide will grow to $70 billion a year by 2025, according to a 2022 report.

At the 2019 Ultimate Financial & Legal Conference in Arlington, Texas, a panel discussed the theft from Houston’s First Baptist and the overall problem of fraud against churches. The panel included Houston’s First Baptist executive pastor David Self and two experts who assisted in the church’s case—nonprofit attorney Frank Sommerville and certified fraud examiner Charles “Chuck” Cummings.

The following interview is adapted from the panel discussion and from another presentation at the conference by Cummings.

What sparked suspicion that fraud was taking place at Houston’s First Baptist?

Self: One questionable credit card charge required some investigation. Then it was like pulling dirty laundry out of the laundry hamper. Each one led to another.

Sommerville: I was one of the first calls that were made once it was decided something was going on. I called Chuck into the case to assist in finding the fraud. It took three months to figure out some of the things that the associate missions minister was doing. This is not your ordinary case by any means. I’ve heard Chuck say that this person was extremely smart, and no matter what internal controls you had in place, they would not have prevented it. Here’s an example of how smart he was: By forging the supervisor’s initials, he circumvented the internal control that says supervisors approve expense reports

Self: This individual was perceived as a close friend of the senior pastor and of his supervisor. He purported to be everybody’s close friend. When Chuck interviewed the supervisor, he said, “I never authorized any expense he made.” That’s a major circumvention of internal controls. The supervisor was supposed to look over those credit card statements and those requests. But because of their close relationship, the supervisor looked at oversight as a signal that he didn’t trust his friend if he was looking over his friend’s shoulder, and the associate missions minister played upon that.

Our director of operations called me and said, “We have some potential problems with this employee’s credit card.” My first reaction was, “I’m sure there’s an answer because that’s not the person I know.” As it came to light, I had to confess I didn’t know that person. He was totally misrepresenting who he was. By about four or five days of looking into the matter, it was close to Thanksgiving. The senior pastor was away with his family. I did not want to interrupt him until we knew something. But by the Wednesday before Thanksgiving, it had gotten to the point where we had to tell him.

We called the senior pastor, and he said, “I don’t want to know the person. If they’re innocent, I don’t want their name smeared in my mind later on. But I want you to contact their supervisor.” The supervisor and our director of operations sat down and we looked over the credit cards. Then when they had agreed that there was, in fact, a problem, we notified the senior pastor, brought the accused in, and he resigned that day.

How do you feel about that way the church initially handled the situation?

Self: For the first three weeks, our whole emphasis was about restoration. He had a tremendous place of respect within the church. Our whole focus early on was, “You made a mistake, and we’re going to make it right.” What we didn’t understand is that you can’t sin unless you lie. That’s any sin, but especially fraud. There has to be a tremendous amount of deceit and we totally underestimated that early on.

During an interview with a church official, he confessed and resigned. But he only confessed to a small amount. Then he went to other members of the congregation and evidently, according to their testimony, gave them a totally different story: that we had misled him, that he didn’t understand our controls process, that it was less than $10,000, that he was going to write a check, that he was going to pay it back.

We should have never interviewed the suspect. We should have never done anything without legal counsel, but we did.

Before we called Frank, it was a matter of, “Can we handle this internally?” But we found out that there’s a difference between an internal problem and a legal problem. If you had somebody shoot someone in the corridor of your church on Sunday morning, you wouldn’t say, “It happened at a church. We need to forgive him and show grace.” No, that’s a legal issue. That’s what we had. We had to flip that switch and call a lawyer.

What about assembling a response team? Who should be on this team and what should their roles be?

Self: Our senior pastor said, “We want the investigation and the decisions to be made by a lay group.” Since we would be investigating someone on staff—someone who had prominence and seniority—we didn’t think it ought to be an investigation done by the staff.

We assembled our team by office. We had the chairs of the deacons, finance committee, personnel committee, and a former chair of the missions council because that’s where the money was taken from. It’s important to point out that one was an accountant, one was a banker, and one was a lawyer.

Sommerville: The church has to select a small group vested with decision-making authority. They’re the ones who decide who to pursue, how to pursue, and what you’re going to do. They are the decision makers. I gather the facts and present them to this group. They then make decisions. If you have a church that is run by a board, it should be a subcommittee of the board.

A smaller group makes sense for two reasons: First, if it’s a mere misunderstanding, the problem can then be corrected without getting the whole church in an uproar. Second, very sensitive matters like this require a good deal of confidentiality at first, which is better accomplished by a smaller group.

If you suspect a staff member of fraud, should you terminate them or suspend them?

Sommerville: You don’t terminate the employee. You suspend them and say, “We’re looking at some items.” You don’t even need to tell them precisely what you’re looking at. Suspend them first and then issue a “preserve evidence order.” This means that the church suspends all document destruction until instructed otherwise. When it comes to electronic media, the church needs to preserve it without changes. It should not be turned on except by a forensic computer expert.

Call your accounting department and all your record keepers and say, “Stop, don’t change anything.” If the person suspected of fraud has a computer, don’t touch it. If they have a laptop, don’t touch it. You leave everything exactly the way it is right now because we don’t know where this is going to go. Sometimes they’re honest, and this is an honest mistake, and we resolve it fairly easily.

The other side is that you don’t know the size of the fraud. The Houston First Baptist case started with some questioning of credit card charges. My firm sees fraudulent credit card charges all the time. It also concerns me that many churches for convenience have gone to electronic statements and electronic approvals, and it’s fraught with opportunities for theft.

If you place the employee on a leave of absence, they can say whatever they choose to. There’s nothing you can do to stop them, but you can help the situation by explaining to people: “We have things we are looking into and we have been advised by our attorney not to discuss it publicly.” That usually gives enough gravity to the situation that no matter what is being said publicly by the person who is suspected, the people who really care are going to give you the benefit of the doubt.

You’re going to have situations where the person suspected of embezzlement is just as influential as this person was. They have a huge trust bank with the congregation. Those who are inclined to do bad things will exploit that trust bank to the maximum.

I don’t anticipate a suspension with pay would be for a long period of time. It’s just to give you enough to talk to the lawyer, talk to the public relations people, talk to the insurance company, and put your committees in place to investigate this so that then you can have a decision.

If you decide to terminate the employee, get together and have a meeting with the person suspected of fraud. The meeting will include the supervisor, HR representative, and maybe senior leadership. I don’t recommend you say, “We’re terminating you for theft” because it has not been adjudicated that he’s a thief yet. Instead, say, “There are irregularities, we have questions about them and we are going to terminate you because we have those questions.”

You will get requests to show grace and mercy to the accused. How should your church respond?

Self: That was the big question I got: “Where is the grace in this?” By “grace” they mean, “Cover it up. Let him go. Don’t do anything.” An attorney told me once, “David, without justice, you can’t have grace.”

Cummings: In the Bible, Paul wrote to the church and said, “Let him who steals, steal not.” In other words, he recognizes some church members are going to steal and they need to stop. If you say, “We’re going to show you grace, we’re going to forgive you, we’re going to restore you without any consequences,” you’ve really harmed that person and you’ve really harmed your church.

I understand the pain and agony of going through this with somebody in the congregation that you care about. All I’m saying is that, in my experience, when somebody says to me they stole X amount, the actual figure is usually more. They always understate it. There’s been a crime committed against not only the church but against the state. Forgiveness is great but there needs to be some accountability for what they did. I don’t see where grace has anything to do with anything until there’s accountability for what they’ve done.

Should a church enter into a restitution agreement in lieu of prosecution?

Sommerville: In 38 years of doing this, I have had several dozen churches enter into restitution agreements. I have yet to have a church receive the first payment. Restitution agreements make you feel good, but they don’t honor your members or the trust God gave you over their assets.

On the criminal side, to get a lighter sentence, they must provide the restitution. Restitution plays a key role in the length of time they serve. We’ve seen cases where they provided 100 percent restitution after they were charged and pled guilty where the judge gave them probation. But that’s pretty rare, depending on the size of the case.

Don’t let your congregation think in terms of restitution. We can still forgive them, but God’s Word says that he doesn’t always intervene on the consequences of our bad choices.

Self: If it’s all about restitution and forgiveness, then you’re setting up a culture of corruption within your staff and your church body. What you’re saying is, “Steal as much as you want, because if you get caught then you just pay it back and all is forgiven.”

What are best communication practices, both internally and to the community at large?

Self: A financial crime is a sin against the whole congregation. In Joshua 7, Achan’s theft and concealment of the spoils of battle affected the community. In our situation, the sin of theft impacted the congregation. It was hidden and it had to be brought to light, but in appropriate stages.

Early on, we met with the associate missions minister’s Sunday school class—he taught about 100 people on Sunday. We said there were some incongruities, that we did not terminate him, and that he voluntarily resigned.

We were legally constrained from saying much to the congregation and the community about the accusations. That put us in a difficult situation. It caused some real internal problems for us because we were not free to come out and say, “This is what happened.” The accused and those who supported him could say what they wanted to about us. I did get a text the first week from an attorney representing the the family of the associate missions minister that I could be sued for slander and libel.

Sommerville: You can’t call somebody a thief because they haven’t been determined to be a thief by a court. That’s a derogatory term. When the committee is doing the investigation, it’s very important that committee members not share their findings and discussions about the accused. You don’t want to create defamation or slander. Even though this person resigned, that didn’t stop the investigation and the need to be careful as to what was said in public.

Self: We engaged a crisis public relations firm, and followed their steps for communicating with the congregation, the community, and the media. We probably got them a month too late. We should have engaged them early on.

Sommerville: Notify your attorney that you’re going to get a PR firm involved pretty early, especially if you’re as high profile as Houston’s First Baptist. The attorney will work directly with senior church leadership regarding communications and PR.

Hiring a PR firm is money very well spent because you have to craft a message that is 100 percent truthful and yet not create liability. Public relations people know how to communicate and use words that will meet the legal standards, but will also satisfy the vast majority of your members.

Self: Our public relations firm said, “You need to identify the major donors who were affected.” Those would be the donors who have given large gifts to our missions restricted fund, from which the majority of funds were stolen. Since these donors were impacted the most by the theft, we felt they deserved an explanation.

The senior pastor and I, some members of the committee, and other senior staff made personal phone calls to all of those donors prior to this becoming public knowledge. We said, “This is what’s going on, these are the steps we’ve taken, and there’s probably going to be something in the news in the next 30 days.”

A high percentage of them said, “That’s terrible. I feel really bad for you. Now let me tell you of my story of embezzlement.” Almost all of those business owners had been through it and this was not news to them. That was a good step on our part to give a heads-up to some key people who might take this theft personally because it was their money.

Within 90 days of the publication of the indictment, we had two major gifts that have amounted to more than the amount of the theft. It wasn’t apples to apples. They weren’t paying us back for the theft. It wasn’t restitution at all. They were able to fulfill all those accounts, make whole what the moth has eaten, that sort of thing.

It was a spiritual thing for us that if we did the right thing, God was going to take care of his church.

What advice or guidance do you have when it comes to insurance coverage and communicating embezzled funds?

Sommerville: Make sure you have theft coverage or employee crime coverage. You need to notify them as soon as you have a suspicion. You have to notify some companies within 10 days. Others are more lenient and allow 30 days. But if you don’t notify them, you waive coverage. Then you have suddenly given the insurance company an unintended blessing.

Self: Concurrent with notifying the insurance company, we had to cooperate with law enforcement. In the first meeting with the associate missions minister, we said, “We have no interest in prosecution. We don’t want you to go to jail. You have two young kids at home. We want to restore you.” That was our opening response when we had no idea about the size of this thing. But to cooperate with the insurance company means we had to cooperate with legal authorities.

Sommerville: That’s a condition the insurance companies are putting into their policies now. You agree to prosecute criminally if they pay out a claim.

Should a church that’s been embezzled get the IRS involved? If so, how?

Sommerville: Embezzled funds are taxable income to the embezzler. The church, as the victim, files Form 3949-A with the IRS to report the previously unreported taxable income. That is something I strongly recommend. Some people say you’re adding insult to injury, but it’s just a consequence of their sin. Not only is the IRS going to require them to pay the money back, but they’re going to impose a 225 percent penalty on them for taking it.

Putting it all together: What is the plan of action to follow if a church catches someone embezzling funds?

Cummings: Contact your lawyer first. You want the lawyer to control everything that is about to happen. You should do this even before you call the cops because your risk is getting sued.

Be careful that you do not end up with a lawsuit with a charge of libel, slander, or false arrest. Do not put in the church bulletin that you just caught somebody stealing money. Don’t publicly accuse anyone of fraud. Do not even talk about it outside of the people who need to know.

Consider engaging a certified fraud examiner to assist you with your case. They are trained in investigations of frauds and handling those frauds.

Seriously consider prosecuting the fraudster for everyone’s sake, including any future employers. Most people who commit major fraud in a church need to be prosecuted. The percentage of cases that do not get prosecuted is very high—75 to 90 percent. The number one reason is embarrassment that someone got away with it. Some people say, “If I prosecute them, I won’t get paid back.” Let me give you a clue: you’re not going to get paid back. Restitution agreements in my view are totally useless.

Be prepared to have your case fully documented when you go to the district attorney (DA). The DA’s office might have time for your case in a small town, but in a big city, they simply don’t have time. Harris County, Texas, where Houston is located, has only four fraud investigators and two police officers dealing with fraud. You have to bring them a case and actually convince them to take it.

Engage a private investigator. This person can help locate assets and other helpful facts such as secret businesses, conviction records, real estate transactions, divorces, and lawsuits. If you’re reconstructing where their money is, it’s very helpful to take these steps.

More than anything else, be alert and less trusting. Why is the trust level too high in a church or a nonprofit organization? Because nobody could imagine somebody stealing from God. So everybody trusts people to do what is right. Unfortunately, they don’t always do what is right. The trust level is so high no one ever checks up on them. If they did, they would catch them. Trust is not an effective internal control. It’s probably the worst internal control you could ever have.

Supreme Court Again Rules that Safety and Health Regulations Override Religious Freedom

Majority of Supreme Court says safety and health regulations override religious freedom concerns during a public health crisis.

Update: Since this ruling, the Supreme Court has made a number of other decisions that have reshaped religious liberty challenges brought against pandemic-related restrictions. For Richard Hammar’s review of all of these decisions, see “Assessing US Supreme Court Rulings on Pandemic Restrictions.”

On July 24, 2020, the US Supreme Court ruled that safety and health regulations override religious freedom. Calvary Chapel v. Sisolak, 590 U.S. ___ (2020). Ruling in another such case in May, this is the second time this year the Court has denied a church’s request for an exemption from a state mandate limiting the size of worship services.

The church cited unequal treatment

A church (Calvary Chapel) in Nevada wanted to host worship services for about 90 congregants, or up to 50 percent of its fire-code capacity. In conducting these services, the church planned to take several precautions going beyond anything that the state requires.

In addition to asking congregants to adhere to proper social-distancing protocols, it intended to cut the length of services in half. It also planned to require six feet of separation between families seated in the pews, to prohibit items from being passed among the congregation, to guide congregants to designated doorways along one-way paths, and to leave sufficient time between services so that the church could be sanitized.

According to an infectious disease expert, these measures were “equal to or more extensive than those recommended by the CDC.” Yet hosting even this type of service would violate “Directive 21,” Nevada Governor Steve Sisolak’s reopening plan, which limits indoor worship services to “no more than fifty persons.”

Meanwhile, the directive caps a variety of secular gatherings at 50 percent of their operating capacity, meaning that they are welcome to exceed, and in some cases far exceed, the 50-person limit imposed on places of worship. While “houses of worship” may admit “no more than fifty persons,” many favored facilities that host indoor activities may operate at 50-percent capacity. Privileged facilities include bowling alleys, breweries, fitness facilities, and most notably, casinos, which have operated at 50 percent capacity for over a month.

Citing this unequal treatment, Calvary Chapel brought suit in federal district court seeking an injunction allowing it to conduct services for up to 50 percent of maximum occupancy. The district court refused to grant relief, and a federal appeals court affirmed the district court’s ruling.

Calvary Chapel appealed to the Supreme Court for an order barring enforcement of the governor’s restrictions on worship services. But in a one-sentence opinion without any explanation or analysis, the Court simply said “the application for injunctive relief . . . is denied.” The ruling was a split 5–4 decision, with Chief Justice John Roberts siding with the four liberal justices in denying the relief sought by the church.

Justice Alito’s dissent

Justice Alito filed a dissenting opinion that was joined by Justices Thomas and Kavanaugh. He observed:

Activities that occur in casinos frequently involve far less physical distancing and other safety measures than the worship services that Calvary Chapel proposes to conduct. Patrons at a craps or blackjack table do not customarily stay six feet apart. Casinos are permitted to serve alcohol, which is well known to induce risk taking, and drinking generally requires at least the temporary removal of masks. Casinos attract patrons from all over the country. In anticipation of reopening, one casino owner gave away 2,000 one-way airline tickets to Las Vegas. And when the Governor announced that casinos would be permitted to reopen, he invited visitors to come to the State. The average visitor to Las Vegas visits more than six different casinos, potentially gathering with far more than 50 persons in each one. Visitors to Las Vegas who gamble do so for more than two hours per day on average, and gamblers in a casino often move from one spot to another, trying their luck at different games or at least at different slot machines.

Houses of worship can—and have—adopted rules that provide far more protection. Family groups can be given places in the pews that are more than six feet away from others. Worshippers can be required to wear masks throughout the service or for all but a very brief time. Worshippers do not customarily travel from distant spots to attend a particular church; nor do they generally hop from church to church to sample different services on any given Sunday. Few worship services last two hours. (Calvary Chapel now limits its services to 45 minutes.) And worshippers do not generally mill around the church while a service is in progress. The idea that allowing Calvary Chapel to admit 90 worshippers presents a greater public health risk than allowing casinos to operate at 50% capacity is hard to swallow, and the State’s efforts to justify the discrimination are feeble. . . . In sum, the directive blatantly discriminates against houses of worship and thus warrants strict scrutiny under the Free Exercise Clause.

The state of Nevada attempted to defend the Governor’s order by relying on the Supreme Court’s recent refusal to issue a temporary injunction against enforcement of a California law that limited the number of persons allowed to attend church services. South Bay United Pentecostal Church v. Newsom, 590 U. S. ___ (2020).

But Justice Alito noted that the prior case “is different from the one now before us. In South Bay, a church relied on the fact that the California law treated churches less favorably than certain other facilities, such as factories, offices, supermarkets, restaurants, and retail stores. But the law was defended on the ground that in these facilities, unlike in houses of worship, people neither congregate in large groups nor remain in close proximity for extended periods. That cannot be said about the facilities favored in Nevada. In casinos and other facilities granted preferential treatment under the directive, people congregate in large groups and remain in close proximity for extended periods.”

Justice Kavanaugh’s dissent

Justice Kavanaugh began his dissenting opinion by noting:

To be clear, a State’s closing or reopening plan may subject religious organizations to the same limits as secular organizations. And in light of the devastating COVID–19 pandemic, those limits may be very strict. But a State may not impose strict limits on places of worship and looser limits on restaurants, bars, casinos, and gyms, at least without sufficient justification for the differential treatment of religion. . . . Nevada has thus far failed to provide a sufficient justification, and its current reopening plan therefore violates the First Amendment.

Justice Kavanaugh ended his opinion with these words:

The Constitution protects religious observers against unequal treatment. Nevada’s 50-person attendance cap on religious worship services puts praying at churches, synagogues, temples, and mosques on worse footing than eating at restaurants, drinking at bars, gambling at casinos, or biking at gyms. In other words, Nevada is discriminating against religion. And because the State has not offered a sufficient justification for doing so, that discrimination violates the First Amendment. I would grant the Church’s application for a temporary injunction. I respectfully dissent.

Justice Gorsuch’s dissent

In his dissenting opinion, Justice Gorsuch stated:

The world we inhabit today, with a pandemic upon us, poses unusual challenges. But there is no world in which the Constitution permits Nevada to favor Caesars Palace over Calvary Chapel.

What this means for churches

What is the practical relevance of this case to churches? Consider the following points.

First, the Court’s decision means that churches may not be able to look to the courts for assistance when confronted by a state or local law restricting their ability to conduct worship services. This conclusion is underscored by the fact that this is the second time this year that the Supreme Court has rejected a religious liberty challenge to restrictions on worship services.

Second, the Supreme Court, in its previous COVID-19 ruling (South Bay) stressed that churches can challenge restrictions on attendance that are stricter than those that apply to comparable secular organizations. Comparable organizations would include those that have similar numbers in attendance for similar periods of duration each week, with similar physical interactions. But churches can be subjected to more stringent limitations on attendance if the totality of their interactions with the public are greater than those of other organizations. The Governor’s order in Nevada provided more favorable treatment to several secular organizations, including bowling alleys, breweries, fitness facilities, and casinos. The Court did not explain why these secular organizations were not “comparable secular organizations” that were being treated more favorably than religious congregations. But the Court’s ruling in South Bay that churches cannot be treated less favorably than comparable secular organizations remains a valid defense to restrictions on worship services.

Third, church leaders who continue to hold worship services in contravention of state or local restrictions, must understand that in doing so they are exposing their congregation to possible risks and liability should one or more persons become infected with the COVID-19 virus.

These risks include potential personal liability of church board members if their decision to ignore government mandates and recommendations is deemed to constitute gross negligence. Most states have enacted laws limiting the personal liability of church officers and directors. The most common type of statute immunizes uncompensated directors and officers from legal liability for their ordinary negligence committed within the scope of their official duties. These statutes generally provide no protection for “willful and wanton” conduct or “gross negligence”—the same standard typically used as a basis for punitive damages (see the next paragraph for more details). A decision by a church board to continue holding worship services in disregard of government restrictions may constitute gross negligence subjecting board members who participated in the decision to personal liability.

Reckless inattention to risks can lead to punitive damages, and such damages ordinarily are not covered by a church’s liability insurance policy. This means that a jury award of punitive damages represents a potentially uninsured risk. As a result, church leaders should understand the basis for punitive damages, and avoid behavior which might be viewed as grossly negligent. A decision by a church’s leadership to continue holding worship services in disregard of government restrictions may constitute gross negligence subjecting the church to punitive damages.

To learn more about how federal and state courts decide religious freedom cases, and to understand which states have state RFRAs or other religious freedom laws, check out the 50-State Religious Freedom Laws Report, a new downloadable resource from Church Law & Tax.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Supreme Court Reaffirms and Expands Ministerial Exception

What the ruling means for churches and religious organizations.

In a 7-2 ruling issued on July 8, 2020, the United States Supreme Court ruled that the “ministerial exception” barred the civil courts from resolving employment discrimination lawsuits brought by former teachers against two Catholic schools. This article will review the facts of each case, summarize the Supreme Court’s ruling, and assess the relevance of the ruling to religious organizations.

Case No. 1: Teacher sues over age discrimination

For many years, a woman (the “Teacher”) was employed by a Catholic parochial school as a lay fifth or sixth grade teacher. She taught all subjects including religion.

The Teacher earned a BA in English with a minor in secondary education, and she holds a California teaching credential. While on the school faculty, she took religious education courses at the school’s request and was expected to attend faculty prayer services.

Each year the Teacher entered into an employment agreement that set out the school’s “mission” and her duties. The agreement stated that the school’s mission was “to develop and promote a Catholic School Faith Community,” and it informed the Teacher that “all her duties and responsibilities as a teacher were to be performed within this overriding commitment.”

The agreement explained that the school’s hiring and retention decisions would be guided by its Catholic mission, and the agreement made clear that teachers were expected to “model and promote” Catholic “faith and morals.” Under the agreement, the Teacher was required to participate in “school liturgical activities, as requested,” and the agreement specified that she could be terminated “for cause” for failing to carry out these duties or for “conduct that brings discredit upon the School or the Roman Catholic Church.” The agreement required compliance with the faculty handbook, which sets out similar expectations.

The pastor of the parish, a Catholic priest, had to approve the Teacher’s hiring each year. Like all teachers in the Archdiocese of Los Angeles, the Teacher was “considered a catechist” (i.e., “a teacher of religion”). Catechists are “responsible for the faith formation of the students in their charge each day.”

The Teacher provided religious instruction every day using a textbook designed for use in teaching religion to young Catholic students. Under the prescribed curriculum, she was expected to teach students, among other things, “to learn and express belief that Jesus is the son of God and the Word made flesh”; to “identify the ways” the church “carries on the mission of Jesus”; to “locate, read and understand stories from the Bible”; to “know the names, meanings, signs and symbols of each of the seven sacraments”; and to be able to “explain the communion of saints.” She also directed and produced an annual passion play.

The Teacher’s class began or ended every day with prayer. She led the students in prayer at other times, such as when a family member was ill. And she taught them to recite the Apostles’ Creed and the Nicene Creed.

The school reviewed the Teacher’s performance under religious standards. The “‘Classroom Observation Report’” evaluated whether Catholic values were “infused through all subject areas” and whether there were religious signs and displays in the classroom. The Teacher testified that she tried to instruct her students “in a manner consistent with the teachings of the Church,” and she said that she was “committed to teaching children Catholic values” and providing a “faith-based education.”

In 2014, the school asked the Teacher to move from a full-time to a part-time position, and the next year, the school declined to renew her contract. She filed a claim with the Equal Employment Opportunity Commission (EEOC), received a right-to-sue letter, and then filed suit under the federal Age Discrimination in Employment Act, claiming that the school had demoted her and had failed to renew her contract so that it could replace her with a younger teacher.

The school maintains that it based its decisions on classroom performance—specifically, the Teacher’s difficulty in administering a new reading and writing program, which had been introduced by the school’s new principal as part of an effort to maintain accreditation and improve the school’s academic program.

A federal district court dismissed the lawsuit on the basis of the “ministerial exception,” which generally bars the civil courts from resolving employment discrimination disputes between churches and ministers. A federal appeals court reversed this ruling. It acknowledged that the Teacher had “significant religious responsibilities” but noted that the Teacher did not have the formal title of “minister,” had limited formal religious training, and “did not hold herself out to the public as a religious leader or minister.” In the appeals court’s view, these factors outweighed the fact that she was invested with significant religious responsibilities, and therefore the Teacher did not fall within the ministerial exception.

The United States Supreme Court agreed to review the case. Our Lady of Guadalupe School v. Morrissey-Berru.

Case No. 2: Teacher alleges she was discharged over leave of absence request for cancer treatment

The second case concerns a woman (the “Teacher”) who worked for a year and a half as a lay teacher at a Catholic primary school in Los Angeles. For part of one academic year, the Teacher served as a substitute teacher for a first grade class, and for one full year she was a full-time fifth grade teacher. She taught all subjects, including religion. She had a BA in liberal studies and a teaching credential.

Her employment agreement was, in pertinent part, nearly identical to that of the plaintiff in case No. 1. The agreement set out the same religious mission; required teachers to serve that mission; imposed commitments regarding religious instruction, worship, and personal modeling of the faith; and explained that teachers’ performance would be reviewed on those bases. The agreement also required compliance with the school’s faculty handbook, which defined “religious development” as the school’s first goal and provides that teachers must “model the faith life,” “exemplify the teachings of Jesus Christ,” “integrate Catholic thought and principles into secular subjects,” and “prepare students to receive the sacraments.”

The Teacher instructed her students in the tenets of Catholicism. She was required to teach religion for 200 minutes each week, and administered a test on religion every week. She used a religion textbook selected by the school’s principal, a Catholic nun. The religious curriculum covered “the norms and doctrines of the Catholic Faith, including . . . the sacraments of the Catholic Church, social teachings according to the Catholic Church, morality, the history of Catholic saints, and Catholic prayers.”

Teachers at the school were “required to pray with their students every day,” and the Teacher observed this requirement by opening and closing each school day with prayer, including the Lord’s Prayer.

The school declined to renew the Teacher’s contract after one full year at the school. She filed charges with the EEOC, and after receiving a right-to-sue letter, sued the school, alleging that she was discharged because she had requested a leave of absence to obtain treatment for breast cancer. The school maintains that the decision was based on poor performance—namely, a failure to observe the planned curriculum and keep an orderly classroom. A federal district court dismissed the lawsuit on the basis of the “ministerial exception,” but a federal appeals court reversed this ruling.

The United States Supreme Court also agreed to review this case. St. James School v. Biel.

The Supreme Court’s decision

In analyzing case No. 1 and case No. 2 together, the Court first recognized the ministerial exception in 2012. Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, 565 U. S. 171 (2012).

In Hosanna-Tabor, a fourth grade teacher at an Evangelical Lutheran school sued her employer in federal court claiming that she had been discharged because of a disability in violation of the Americans with Disabilities Act of 1990. The school responded that the real reason for her dismissal was her violation of the Lutheran doctrine that disputes should be resolved internally and not by going to outside authorities. The Supreme Court ruled that her lawsuit was barred by the “ministerial exception” and noted that it “concerned government interference with an internal church decision that affects the faith and mission of the church.”

The Court declined “to adopt a rigid formula for deciding when an employee qualifies as a minister,” and concluded that the exception applied to the teacher “given all the circumstances of her employment.” The Court identified four relevant circumstances, but did not highlight any as essential:

First, we noted that her church had given [the teacher] the title of “minister, with a role distinct from that of most of its members.” Although she was not a minister in the usual sense of the term—she was not a pastor or deacon, did not lead a congregation, and did not regularly conduct religious services—she was classified as a “called” teacher, as opposed to a lay teacher, and after completing certain academic requirements, was given the formal title “‘Minister of Religion, Commissioned.’”

Second, [the teacher’s] position “reflected a significant degree of religious training followed by a formal process of commissioning.”

Third, [the teacher] “held herself out as a minister of the Church by accepting the formal call to religious service, according to its terms,” and by claiming certain tax benefits.

Fourth, “[the teacher’s] job duties reflected a role in conveying the Church’s message and carrying out its mission.” The church charged her with “‘leading others toward Christian maturity’” and “‘teaching faithfully the Word of God, the Sacred Scriptures, in its truth and purity and as set forth in all the symbolical books of the Evangelical Lutheran Church.’” Although [the teacher] also provided instruction in secular subjects, she taught religion four days a week, led her students in prayer three times a day, took her students to a chapel service once a week, and participated in the liturgy twice a year. “As a source of religious instruction,” we explained, “[the teacher] performed an important role in transmitting the Lutheran faith to the next generation.”

Back to case No. 1 and case No. 2 before it, the Court noted that “in determining whether a particular position falls within the Hosanna-Tabor exception, a variety of factors may be important,” and “our recognition of the significance of [the four factors in Hosanna-Tabor] did not mean that they must be met—or even that that they are necessarily important—in all other cases.”

The Court observed:

What matters, at bottom, is what an employee does. And implicit in our decision in Hosanna-Tabor was a recognition that educating young people in their faith, inculcating its teachings, and training them to live their faith are responsibilities that lie at the very core of the mission of a private religious school. As we put it [the teacher in the Hosanna-Tabor case] had been entrusted with the responsibility of transmitting the Lutheran faith to the next generation. . . .”

When we apply this understanding of the Religion Clauses to the [two] cases now before us, it is apparent that both teachers qualify for the exemption we recognized in Hosanna-Tabor. There is abundant record evidence that they both performed vital religious duties. Educating and forming students in the Catholic faith lay at the core of the mission of the schools where they taught, and their employment agreements and faculty handbooks specified in no uncertain terms that they were expected to help the schools carry out this mission and that their work would be evaluated to ensure that they were fulfilling that responsibility. As elementary school teachers responsible for providing instruction in all subjects, including religion, they were the members of the school staff who were entrusted most directly with the responsibility of educating their students in the faith. And not only were they obligated to provide instruction about the Catholic faith, but they were also expected to guide their students, by word and deed, toward the goal of living their lives in accordance with the faith. They prayed with their students, attended Mass with the students, and prepared the children for their participation in other religious activities. Their positions did not have all the attributes of [the teacher in Hosanna-Tabor]. Their titles did not include the term “minister,” and they had less formal religious training, but their core responsibilities as teachers of religion were essentially the same. And both their schools expressly saw them as playing a vital part in carrying out the mission of the church, and the schools’ definition and explanation of their roles is important. In a country with the religious diversity of the United States, judges cannot be expected to have a complete understanding and appreciation of the role played by every person who performs a particular role in every religious tradition. A religious institution’s explanation of the role of such employees in the life of the religion in question is important.

The Court concluded: “When a school with a religious mission entrusts a teacher with the responsibility of educating and forming students in the faith, judicial intervention into disputes between the school and the teacher threatens the school’s independence in a way that the First Amendment does not allow.”

What this means for churches

While the Court’s primary concern was addressing the application of the ministerial exception to religious school teachers, some aspects of the Court’s ruling have a broader relevance. Consider the following:

  1. The Court noted that “in determining whether a particular position falls within the Hosanna-Tabor exception, a variety of factors may be important,” and “our recognition of the significance of [the four factors in Hosanna-Tabor] did not mean that they must be met—or even that that they are necessarily important—in all other cases.”
  2. What matters, the Court concluded, “is what an employee does” rather than a title. Neither of the ministers in the cases before it was an ordained minister. One’s status as an ordained, commissioned, or licensed minister is not determinative or even essential to be a “minister” who is subject to the ministerial exception. This aspect of the Court’s opinion could serve as justification for liberalizing the current definition of “minister” in the context of federal tax law. There are several provisions in the federal tax code that apply to “ministers,” including most notably the housing allowance. The tax code and regulations refer to “ordained, commissioned, or licensed” ministers in describing persons who qualify as ministers for tax purposes. The Tax Court amplified upon this definition in a 1989 ruling, Knight v. Commissioner, 92 T.C. 199 (1989). This definition has been endorsed by the Internal Revenue Service (IRS) in its audit guidelines for ministers.

    Under this test, the following five factors must be considered in deciding whether a person is a minister for federal tax reporting: (1) Does the individual administer the “sacraments”? (2) Does the individual conduct worship services? (3) Does the individual perform services in the “control, conduct, or maintenance of a religious organization” under the authority of a church or religious denomination? (4) Is the individual “ordained, commissioned, or licensed”? (5) Is the individual considered to be a spiritual leader by his or her religious body? Only the fourth factor is required in all cases (the individual must be ordained, commissioned, or licensed). The remaining four factors need not all be present for a person to be considered a minister for tax reporting.

    By defining the term “minister” to apply only to “ordained, commissioned, or licensed ministers,” the tax code, regulations, Tax Court, and the IRS adopted a definition more restrictive than the analysis applied by the Supreme Court in this decision. This may serve as a future basis for liberalizing the Tax Court’s definition to include persons who perform ministerial functions but who are not formally recognized as ordained, commissioned, or licensed ministers.

  3. The Supreme Court’s decision provides little, if any, guidance on the application of the ministerial exception to cases outside of employment discrimination claims. These include, for example, disputes between churches and church staff involving breach of contract claims, defamation, or the application of the Fair Labor Standards Act to ministers.
  4. The Court made the following comments regarding church autonomy:
  5. The First Amendment provides that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” Among other things, the Religion Clauses protect the right of churches and other religious institutions to decide matters “of faith and doctrine’” without government intrusion. State interference in that sphere would obviously violate the free exercise of religion, and any attempt by government to dictate or even to influence such matters would constitute one of the central attributes of an establishment of religion. The First Amendment outlaws such intrusion. The independence of religious institutions in matters of “faith and doctrine” is closely linked to independence in what we have termed “‘matters of church government.” This does not mean that religious institutions enjoy a general immunity from secular laws, but it does protect their autonomy with respect to internal management decisions that are essential to the institution’s central mission. And a component of this autonomy is the selection of the individuals who play certain key roles.

    The “ministerial exception” was based on this insight. Under this rule, courts are bound to stay out of employment disputes involving those holding certain important positions with churches and other religious institutions. The rule appears to have acquired the label “ministerial exception” because the individuals involved in pioneering cases were described as “ministers.” See McClure v. Salvation Army, 460 F. 2d 553, 558–559 (CA5 1972); Rayburn v. General Conference of Seventh-day Adventists, 772 F. 2d 1164, 1168 (CA4 1985). Not all pre-Hosanna-Tabor decisions applying the exception involved “ministers” or even members of the clergy. See, e.g., EEOC v. Southwestern Baptist Theological Seminary, 651 F. 2d 277, 283–284 (CA5 1981); EEOC v. Roman Catholic Diocese of Raleigh, N.C., 213 F. 3d 795, 800–801 (CA4 2000). But it is instructive to consider why a church’s independence on matters “of faith and doctrine” requires the authority to select, supervise, and if necessary, remove a minister without interference by secular authorities. Without that power, a wayward minister’s preaching, teaching, and counseling could contradict the church’s tenets and lead the congregation away from the faith. The ministerial exception was recognized to preserve a church’s independent authority in such matters.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Advantage Member Exclusive

Reopening Your Church during the Pandemic—A Discussion of Church Management Issues

On-Demand Webinar: 10 questions that church leaders face right now when it comes to reopening their buildings during the COVID-19 pandemic.

Loading the player...

Editor’s Note. This video is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

Church Law & Tax Advantage Members get a front-row seat to a recent panel discussion exploring 10 questions that church leaders face right now when it comes to reopening their buildings during the COVID-19 pandemic.

Matthew Branaugh, content editor for Church Law & Tax, hosted the breakout session, which occurred immediately following a leadership roundtable discussion on June 30, 2020, titled, “Reopening Your Church.” Branaugh was joined by:

Don’t miss these highlights from their conversation, outlined by starting time as an exclusive courtesy to Advantage Members:

1:07: Vonna Laue introduction

1:49: Nathan Adams introduction

2:46: Holly Hammar Lear introduction

3:38: Lear discusses how her church decided to reopen its building, including:

  • the factors contributing to the decision, such as health department recommendations and case counts; and,
  • the steps her church has taken as a part of reopening, including adding an additional service and determining a policy for mask-wearing.

6:20: Should church leaders listen to local, state, or federal officials—or all of the above—when it comes to public-gathering directives? Adams provides an answer, including:

  • an explanation on the hierarchy of government rules, laws, and ordinances; and,
  • common ways churches fall under that hierarchy.

8:57: The pandemic forced many churches to add digital giving options for congregants. As congregations reconvene face to face, will the traditional passing of the plate re-emerge? And will those recently added digital options fade away? Laue explores both of those questions, plus takes a big-picture view on the internal controls needed to ensure new ways of taking physical collections—as well as those of the digital variety—don’t create new vulnerabilities for churches.

12:21: Lear describes the precautions her church took before, during, and after restarting in-person services, drawing upon her experience in the medical field to shape the church’s communications, traffic flows, building signs, offering collections, the administration of communion, and more.

15:41: What happens if someone attends a church service and becomes ill with COVID-19 soon after? Adams explains the legal duties and the privacy concerns that may arise for church leaders under such a scenario.

18:50: Regarding a possible COVID-19 case within a church, Lear addresses the ways leaders will need to think through who may have been exposed, and what needs to be monitored and communicated going forward.

21:41: Should churches facing significant budgetary challenges begin making big expense cuts now? Laue discusses the giving fluctuations some—but not all—congregations have experienced since the pandemic hit. She also encourages leaders not only to take a cautious, thoughtful approach before making dramatic cuts, but also to evaluate ways to reinforce their cash situations before instituting those changes, such as talking with lenders and vendors about flexibility with payment due dates.

26:59: Adams provides a quick overview of employment law issues that churches must bear in mind if there is a point in time when they need to lay off pastors or staff. He briefly describes considerations related to protected classes of workers, the meaning of “employment at will,” and the role of severance agreements.

31:09: What should churches do about toddlers, children, and youth? Lear describes the steps her church took to account for the unpredictability that comes with the congregation’s youngest participants, making certain precautions were taken while remaining as inclusive as possible.

34:06: Temperature-taking has become a common step used by many businesses and organizations as a way to minimize the possibility of sick individuals from entering their buildings. But what privacy concerns and other legal issues arise because of such a practice? Lear talks about the temperature-taking measures, based on her medical experience, as well as other questions churches will want to ask congregants before allowing them to enter. Adams tackles the privacy concerns and reminds leaders of the obligations that can arise when they find out in advance that someone may be ill.

40:45: Concluding thoughts

Stay updated on the latest COVID-19 news and advice from Church Law & Tax, visit:

Supreme Court Endorses Some Aid to Parents of Religious School Students

Parents of religious school students may receive state aid, Supreme Court says.

On June 30, 2020, the United States Supreme Court ruled in a 5–4 decision that a scholarship program enacted by Montana’s state legislature, which denied funds for use in religious schools, was an unconstitutional restriction on the free exercise of religion. This decision will allow religious schools, at least in some cases, to benefit from financial aid made available to all other kinds of schools.

Montana’s scholarship program

In 2015, Montana’s state legislature sought “to provide pa­rental and student choice in education” by enacting a schol­arship program for students attending private schools. The program grants a tax credit of up to $150 to any taxpayer who donates to a par­ticipating “student scholarship organization.” The scholarship organizations then use the donations to award scholarships to children for tuition at a private school.

So far, only one scholarship organization, Big Sky Schol­arships, has participated in the program. Big Sky focuses on providing scholarships to families who face financial hardship or have children with disabilities. Scholarship or­ganizations like Big Sky must, among other requirements, maintain an application process for awarding the scholar­ships; use at least 90 percent of all donations on scholarship awards; and comply with state reporting and monitoring re­quirements.

A family whose child is awarded a scholarship under the program may use it at any “qualified education provider”—that is, any private school that meets certain accreditation, testing, and safety requirements. Vir­tually every private school in Montana qualifies. Upon re­ceiving a scholarship, the family designates its school of choice, and the scholarship organization sends the scholar­ship funds directly to the school. Neither the scholarship organization nor its donors can restrict awards to particular types of schools.

The Montana legislature allotted $3 million annually to fund the tax credits, beginning in 2016. If the annual allotment is exhausted, it increases by 10 percent the following year. The program is slated to expire in 2023.

The “no-aid” provision and “Rule 1”

The Montana legislature also directed that the program be administered in accordance with the Montana state constitution, which contains a “no-aid” provi­sion barring government aid to sectarian schools. In full, that provision states:

Aid prohibited to sectarian schools. . . . The leg­islature, counties, cities, towns, school districts, and public corporations shall not make any direct or indi­rect appropriation or payment from any public fund or monies, or any grant of lands or other property for any sectarian purpose or to aid any church, school, acad­emy, seminary, college, university, or other literary or scientific institution, controlled in whole or in part by any church, sect, or denomination.

Shortly after the scholarship program was created, the Montana Department of Revenue promulgated “Rule 1” that prohibited families from using scholar­ships at religious schools. It did so by changing the definition of “qualified education provider” to exclude any school “owned or controlled in whole or in part by any church, re­ligious sect, or denomination.” The department ex­plained that Rule 1 was needed to reconcile the scholar­ship program with the “no-aid” provision of the Montana constitution.

The Montana Attorney General disagreed. In a letter to the department, he advised that the Montana constitution did not require excluding religious schools from the pro­gram, and if it did, it would “very likely” violate the United States Constitution by discriminating against the schools and their students.

Petitioners sue the Department of Revenue

Three mothers (the “petitioners”) enrolled their children in a private Christian school in northwestern Mon­tana. The school meets the statutory criteria for “qualified education providers.” It serves students in pre-kindergarten through 12th grade, and petitioners chose the school in large part because it “teaches the same Christian values that [they] teach at home.”

The child of one petitioner has already received scholarships from Big Sky, and the other petitioners’ children are eligible for scholarships and planned to apply. While in effect, how­ever, Rule 1 blocked petitioners from using scholarship funds for tuition at a Christian school.

To overcome that obstacle, petitioners sued the Department of Revenue in Montana state court. They claimed that Rule 1 discriminated on the basis of their religious views and the religious nature of the school they had chosen for their children.

The trial court concluded that Rule 1 was not required by the no-aid provision, because that provision prohibits only “appropriations” that aid religious schools, “not tax credits.” The ruling freed Big Sky to award scholarships to students regardless of whether they attended a religious or secular school.

For the school year beginning in fall 2017, Big Sky received 59 applications and ultimately awarded 44 scholarships of $500 each. The next year, Big Sky re­ceived 90 applications and awarded 54 scholarships of $500 each. Several families, most with incomes of $30,000 or less, used the scholarships to send their children to the Christian school the petitioners’ children attended.

The state supreme court reverses earlier ruling

In December 2018, the Montana Supreme Court reversed the trial court. The state supreme court ruled that the program aided religious schools in violation of the no-aid provision of the Montana constitu­tion.

In the court’s view, the no-aid provision “broadly and strictly prohibits aid to sectarian schools.” The scholarship program provided such aid by using tax credits to “subsidize tuition payments” at pri­vate schools that are “religiously affiliated” or “controlled in whole or in part by churches.” In that way, the scholarship program flouted the state constitution’s “guarantee to all Montanans that their government will not use state funds to aid religious schools.”

The US Supreme Court declares Rule 1 unconstitutional

The United States Supreme Court agreed to review the case, and in its 5–4 decision written by Chief Justice John Roberts, concluded that Rule 1 was an unconstitutional restriction on the free exercise of religion. The Court rejected the claim that the Montana scholarship program was an unconstitutional establishment of religion:

We have repeatedly held that the Establishment Clause is not offended when religious observers and organizations benefit from neutral government programs. . . . Any Establishment Clause objection to the schol­arship program here is particularly unavailing because the government support makes its way to religious schools only as a result of Montanans independently choosing to spend their scholarships at such schools.

The Court relied heavily on its recent ruling in Trinity Lutheran Church of Columbia, Inc. v. Comer, 137 S. Ct. 2012 (2017), in which it ruled that disqualifying otherwise eligible recipients from a public benefit “solely because of their religious character” imposes “a penalty on the free exercise of religion that triggers the most exacting scrutiny.”

In Trinity Lutheran, Missouri provided grants to help nonprofit organizations pay for playground resurfacing, but a state policy disqualified any organization “owned or controlled by a church, sect, or other religious entity.” Because of that policy, an otherwise eligible church-owned preschool was denied a grant to resurface its playground. The Court concluded that Missouri’s policy discriminated against the church “simply because of what it is—a church,” and so the policy was subject to the “strictest scrutiny,” which it failed.

The Court, in Trinity Lutheran, acknowledged that the state had not “criminalized” the way in which the church worshiped or “told the church that it cannot subscribe to a certain view of the Gospel.” But the state’s discriminatory policy was “odious to our Constitution all the same.”

Here, too, in the Montana case the Court concluded:

Montana’s no-aid provision bars religious schools from public benefits solely because of the religious character of the schools. The provision also bars parents who wish to send their children to a religious school from those same benefits, again solely because of the religious character of the school. . . . The provi­sion plainly excludes schools from government aid solely be­cause of religious status,” just as in Trinity Lutheran. . . . The Free Ex­ercise [of religion] Clause protects against even “indirect coercion,” and a State “punishes the free exercise of religion” by disqual­ifying the religious from government aid as Montana did here.

The Court continued:

The Montana Supreme Court should have “disre­garded” the no-aid provision and decided this case “con­formably to the Constitution” of the United States. That “supreme law of the land” condemns discrimination against religious schools and the families whose children attend them. They are “members of the community too,” and their exclusion from the scholarship program here is “odi­ous to our Constitution” and “cannot stand” (citing Trinity Lu­theran).

What this means for churches with religious schools

Churches or denominations with religious schools should note the following significant points regarding the Supreme Court’s decision:

  1. Most importantly, this case will allow religious schools, at least in some cases, to benefit from financial aid made available to all other kinds of schools (i.e., public and private secular schools). Religious schools cannot be excluded from such aid solely on the basis of their religious status. As the Court concluded, religious schools are “members of the community too,” and their exclusion from the scholarship program here is “odi­ous to our Constitution” and “cannot stand” (citing Trinity Lu­theran).
  2. This case may contribute to a greater degree of school choice, depending on current and future state-enabling legislation.
  3. The trial court in this case noted that the no-aid provision in the Montana constitution prohibits only “appropriations” that aid religious schools, “not tax credits” to donors.
  4. The Supreme Court noted that any Establishment Clause objection to the Montana schol­arship program “is particularly unavailing because the government support makes its way to religious schools only as a result of Montanans independently choosing to spend their scholarships at such schools.” In other words, the primary beneficiaries of the scholarship program were parents who were empowered to use scholarships to pay for the tuition of their children in a school of their choice. The fact that this might include a religious school did not make such schools the primary beneficiary.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Q&A: Dynamic Cash-Flow Forecasting is Key to Managing Rapid Change

Budgeting during a time of rapid change is a matter of ditching the annual budget and doing some dynamic cash-flow forecasting and planning.

Q: Our church has always tried so hard to stick to our budget, but the current crisis makes it impossible to do so. What do we do about budgeting in this time of rapid change and uncertainty? What are some strategies for preserving cash, if that’s one of the things we should be doing?

Here’s some fairly radical advice as it relates to budgeting—radical in the sense that this is not conventional church financial management wisdom: Stop focusing on your regular annual budget. For churches experiencing rapid changes in their giving levels, the annual budget developed months ago is largely irrelevant.

I realize that as a matter of church governance and policy, you might have to have a budget. But what you planned when you developed that budget is no longer reality. Your spending levels and spending categories most likely have changed. Your revenue levels may be very different. So, what do you do?

Stop focusing on what you’re calling the budget and start doing what I call dynamic cash-flow forecasting and planning. That may sound like a fancy term. Dynamic just means it’s changing. It’s moving. And cash-flow forecasting and planning means estimating what’s going to happen, as best you can, and continuously updating your estimate based on new developments as they unfold.

Forecast this way each week over the next few months. Estimate as best you can, and adjust the forecast frequently based on new developments.

What dynamic cash-flow forecasts look like

Weekly cash-flow forecasts could start with a spreadsheet in which you start with your beginning cash and then project your expected cash inflow and your expected cash outflow. Put simply: cash inflow, which might include borrowing, is cash that’s coming into your church. And then cash outflow, including debt service—is whatever cash is going out for whatever purpose. And then, of course, the difference between your expected inflow and your expected outflow is your expected net cash flow. Add your beginning cash to your expected net cash flow; this would be your expected ending cash.

Forecasting also includes modeling different scenarios with different assumptions. If giving for your church so far is relatively flat, you should model one scenario that shows your giving level staying flat. You might also want to model a scenario of your giving level going down by 10 percent or 15 percent, or whatever makes sense to you depending on your current circumstances and trending. You might want to run various scenarios and update them each time as you have better information about what seems to be happening.

Weekly cash-flow forecasts should be developed for a reasonable and appropriate period of time in the future. I would suggest at least eight to ten weeks out. A forecast much shorter than that has little value for cash-flow planning and strategic decision-making. And in a highly dynamic environment, a forecast much longer than that is likely to have less reliability.

Rolling budgets

Rolling budgets are an alternative to annual budgets suitable for some churches to use as their regular approach to budgeting. Maintaining weekly cash-flow forecasts is an accelerated version of maintaining rolling budgets. Maintaining rolling budgets is not a “do it once a year” approach to budgeting. (I discuss this process on pages 18 and 19 of Church Finance: The Church Leader’s Guide to Financial Operations.)

Churches that are experiencing rapid growth are good candidates for rolling budgets, since their revenue and expense levels change more rapidly than a full-year budget is typically designed to address. Normally, for churches that utilize rolling budgets, I would recommend updating the rolling budget approximately quarterly. But these are not normal times. For this reason, I recommend updating it weekly—or every time you learn or observe something new and different. Doing this allows you to better manage cash and financial activities during a dynamic or very challenging, rapidly changing season.

Editor’s note. For additional details on dynamic cash-flow forecasting and planning—along with a helpful PowerPoints on the topic—see the free video of Mike Batts’s webinar with Church Law & Tax.

Protecting and preserving cash

Now, regarding protecting and preserving cash. While this is not conventional financial management, I suggest churches consider drawing on a line of credit—if you have a line of credit available. Borrowing money to pay operating expenses is a very high-risk proposition, and I am not saying you want to spend the borrowed funds on operations. Only do so if it’s deemed absolutely essential—and only if you have a viable plan to pay off the borrowed funds.

The main reason I suggest this is the risk that the bank may curtail your line of credit if it is not used. Banks curtailed lines of credit significantly during the Great Recession and it can easily happen again. Borrowing the funds can prevent a scenario where you go to borrow the funds later. . . only to be told by the bank that it has frozen your line of credit due to financial concerns. (Don’t forget to consider FDIC insurance levels with respect to your bank deposits. If you have significant bank account balances, you may wish to diversify the funds among multiple banks—banks also have economic risks in the current environment.)

For churches that do not have a line of credit—and if you, again, want to preserve cash—you may want to consider carrying a balance on a credit card account. Again, I stress that this is not traditional advice. It will be important to review your modeling—looking at the future. Maybe you have a loan that has been approved but not yet funded. This means, though, that those funds should be coming in. In the meantime, you could cautiously use the credit card in order to stay afloat until you have the needed funds from, say, the PPP money. When you are more financially stable, you would pay off the credit card. Keep in mind, though, that this is very short-term strategy.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

Are We Protecting Our Youth Ministry?

12 question checklist to assess the safeguards you have in place.

Use the following checklist to gauge how your church is doing at protecting youth in its ministry.

Download a PDF version of this checklist.

As a young, newly married couple, my husband and I worked with a small group of teens through our church. Barely older than the kids we worked with, I remember our struggle to maintain boundaries. I particularly remember one girl who came from an unchurched family. She made no secret of the crush she developed on my husband.

Looking back, I recognize the risk we naively assumed. The only instruction we had from church leadership was to befriend the teens, and provide spiritual instruction and some form of entertainment. No one thought about written policies and procedures to safeguard the ministry and those involved. We were on our own. That was more than thirty years ago.

Times have changed and today’s youth worker needs to be more aware than ever of the risks involved in ministry.

Are We Prepared for Gun Violence at Church?

Discover if you’re protecting your congregation.

Use the following checklist to see if your church is well-equipped to respond if the unthinkable should happen.

Download a PDF version of this checklist.

Not so long ago, believers were able to seek a quiet, solitary moment of worship in their church sanctuaries. No locked door, or armed guard, there was no prohibited entry. In many places, those opportunities to meet God in his house (without first being cleared for admittance) are gone.

The shooting of 14 people attending a youth rally at Wegdwood Baptist Church, in Fort Worth, Texas—the bomb that exploded at First Assembly of God in Danville, Illinois, injuring 35 people—the killing of a wife, son, and fellow-member by a congregant of New St. John Fellowship Baptist Church in Gonzales, Louisiana: these are only a few examples of the violence that has shattered the peace of sanctuaries across our nation.

Does this mean we should barricade the doors, shrinking back in fear of what could happen at our church? No! This is a time not only to exercise our trust in the Lord, but to fully equip ourselves with the right tools to protect our congregation.

Is Your Data Left Unguarded?

Keep your church records and data safe with the right precautions and software.

Use the following checklist to gauge how your church is doing at protecting data.

Computers are absolutely vital to help keep a church running, but they are also vulnerable. Keep your church records and data safe with the right precautions and software. We’ve compiled the following simple tips to help you secure your valuable information.

Download a PDF version of this checklist.

Strategic Plans

  • One database is enough. If you’re using multiple databases to store information, the more you’ll need to protect. Try to consolidate your data so you can better secure it.
  • Guessable passwords. Are your passwords guessable? Avoid using words, names, or numbers that could be easily guessed by an outsider. Also, never share passwords with your coworkers.
  • Perform regular backups. Backing up your computers daily, even hourly will save you time in the future if there’s a power surge. Taking your vital records and data to an off-site location also gives you a safety if a natural disaster occurs.

Software Prevention

  • Suspicious activity. Has your Internet service been acting strangely? If new homepages, toolbars, or unwanted ads are continually appearing on your browser, update your security software immediately.
  • Don’t be fooled. Adware and spyware are softwares want to trick you into installing their software onto your computer. Never agree to install software before you know what it is.
  • Update security patches. Continually update security patches on your Windows, Internet server, and email. Sometimes these programs provide safety features to keep malicious software off of your computer.
  • The antivirus. If your church does not already own antivirus software, purchase it. If you own an older version of this software, you may need to update it since older versions do not protect against adware and spyware.

Is Your Church Prepared to Host a Large Event?

11 question checklist to help you assess the unique risks your event presents.

Use this checklist to gauge how prepared your church is for the next event.

Download a PDF version of this checklist.

Perhaps God has blessed your ministry with the vision and ministry space to practice hospitality and put on your own big event. Whether it’s a national conference or a smaller scale event like a carnival night for your local community, opening your church’s doors to non-members presents many logistical challenges.

Planning a big event requires foresight and attention to detail. We all know things don’t always go exactly according to plan. Unfortunately, the more people you bring together in one place, the higher the probability of something unexpected occurring. You could have unwelcome visitors or unforeseen emergency situations that can take you by surprise and leave even the best of planners scrambling to address the needs of the moment.

But take heart, with a little risk management planning now, you can feel confident that whatever situation arises, you’ll have the staff and contingency plans to address it.

How Well Do We Screen and Train Children’s Workers?

12 question checklist to help you identify gaps in your screening process.

Use the following checklist to gauge how your church is doing at screening.

Download a PDF version of this checklist.

Carefully screening people before allowing them to work with children in your ministry costs little, but it can increase safety greatly. Here’s why. Background screening can:

  • deter child predators from applying to work in your ministry, reducing the likelihood of child sexual assault.
  • demonstrate that your ministry has taken reasonable care to safeguard its members.
  • reduce your liability in court if you should accidentally hire someone who commits a crime.
  • help you learn if someone has been convicted of a crime in the past that may lead to future problems.
  • offer a glimpse into the candidate’s past work performance and why he or she is seeking a new ministry position.
  • give you information about a person’s character, skills, knowledge, and suitability for a particular position.

More than a criminal background check

Background screening and criminal background checks are similar terms that can be confused with one another. Background screening is far more comprehensive than running a person’s name through a criminal records database.

How do you screen paid and volunteer workers?

A thorough background screen includes four components: written application, reference checks, personal interview, and criminal records inspection.

These components are the same for both paid and volunteer employees, although additional laws govern background screening for paid employment.

Because states often have additional laws employers must follow, you should strongly consider hiring a qualified agency to conduct criminal background checks on prospective employees.

Reference checks are vital

Criminal background checks are important, but reference checks are vital, says John Hein, corporate counsel for Brotherhood Mutual Insurance Company. “There’s no substitute for a reference check,” Hein says. “It’s a good indicator of whether this person will be a good fit for your ministry.”

Do We Prevent Crime at our Church?

A checklist to help you evaluate your building’s security.

Use the following checklist to gauge how your church is doing at preventing crime.

Download a PDF version of this checklist.

What Makes a Church Vulnerable?

The days of unlocking a church in the morning and leaving it open all day have gone the way of the one-room, wooden chapel. Churches today house thousands of dollars’ worth of sound equipment, musical instruments, and computers, not to mention sizable contributions. If criminals sense easy access to potential cash, it’s only a matter of time before your church becomes a target. By understanding your vulnerabilities, you can strengthen your resistance to property crimes.

Step 1: Do a Risk Assessment

The first step in knowing how to prevent burglaries, theft, and vandalism is to assess your risks. If you’re unsure how to do this, ask a security consultant or a local law enforcement agency to help you. The assessment section of this download can help you get started, but you’re also encouraged to examine the type and frequency of crimes in your area and determine if any of your policies and procedures are leaving you susceptible, such as leaving a door open all of the time or having one person be responsible for all financial records within the church office.

Step 2: Create a Security Plan

Once you know your vulnerabilities, you can create a plan for solving them. Your security plan should include:

  • An objective: What are you trying to achieve? In what time frame?
  • An analysis: How can the problems be solved? What problems take first priority?
  • A training component: Is staff trained in security awareness? What role should staff members and volunteers play in an emergency situation?
  • Implementation: What steps will we take to improve security in the next one to five years?

Step 3: Take Action

Knowing what makes your church vulnerable and what you can do about it gives you a road map to follow. Even if your church has improved security in the past, it makes sense to review your systems and procedures regularly, to make sure you haven’t missed anything or that new susceptibilities haven’t crept in.

Do You Know How to Select Church Insurance?

16 questions to help select and retain your church’s insurance.

Use the following check list to gauge how your church is selecting insurance.

Download a PDF version of this checklist.

Why Learn about Insurance

True story: A pastor arrived at his church property only to witness the entire building burning in flames. It was a total loss. The following morning, as he wondered where the church would meet, and whether they had enough coverage to rebuild, he found out the church was underinsured. It would cost well over $1 million to rebuild what they had lost. But with only $700,000 in coverage, what were their options?

True story: After carefully performing reference and background checks, a church hired a part-time youth pastor. One year later, when he admitted to engaging in inappropriate behavior with students, he was arrested and charged. It was determined that there was prior knowledge of an incident, but no action had been taken. When the church was sued by parents, the church—without separate sexual misconduct coverage—quickly reached its general liability limit and was forced to find money from reserves, donations, and loans to pay the judgments.

Regardless of good intentions, inadequate church insurance can lead to significant and permanent losses. Some churches never recover. Though nearly every church has insurance coverage, many church leaders lack confidence in their understanding of their policies and the terminology associated with them.

So let me encourage you: You are not alone. Guidance is available, and you’re already taking important steps in receiving it. As you gain a better understanding of church insurance, as well as your church’s specific needs, you are making progress toward better safeguarding your ministry.

When it comes to church insurance, you must be informed. Get to know your insurance agent. And purchase only from a company that offers not only good prices, but good service, claims coverage, and specific knowledge of church insurance issues.

Advantage Member Exclusive

Video: Politics in the Church—What to Know for Election Season

Politics in the church is a complex topic. In this video, Richard R. Hammar offers helpful insights and tips in navigating the issues.

Politics in the church is a complex and passionate topic. But there are realities to face.

In order to maintain their exemption from federal income taxes, churches must comply with several requirements specified in section 501(c)(3) of the tax code. Two of these requirements involve political activities: Churches may not participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office. And, churches may not engage in substantial efforts to influence legislation.

So, what do these requirements exactly mean? How should church leaders navigate them as election season heats up? And what happens if they violate them?

In this webinar offered exclusively for Church Law & Tax Advantage Members, renowned church attorney and CPA Richard R. Hammar—author of Pastor, Church & Law, Fifth Edition and the annual Church & Clergy Tax Guide—explores the requirements and discusses how leaders should approach this sensitive, and often volatile, issue.

Want more information on this topic? Check out the “Churches and Political Activities” Recommended Reading page.

Editor’s Note. This video is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

Loading the player...

Download the presentation slides here.

Supreme Court Rules that Title VII’s Ban on “Sex” Discrimination Includes Sexual Orientation

Why the Supreme Court’s Title VII decision changes the definition of “sex” discrimination–and how it affects churches.

In a 6–3 decision, the United States Supreme Court on June 15, 2020, ruled that an employer who fires an individual for being homosexual or transgender engages in “sex” discrimination in violation of Title VII of the Civil Rights Act of 1964.

This article will review the facts of the case, summarize the Court’s decision, and assess its significance to churches and other religious organizations.

The facts

The case involved three plaintiffs.

One plaintiff worked for a Georgia county as a child welfare advocate. Under his leadership, the county won national awards for its work. After a decade with the county, he began participating in a gay recreational softball league. Not long after that, influential members of the community allegedly made disparaging comments about his sexual orientation and participation in the league. Soon, he was fired for conduct “unbecoming” a county employee.

The second plaintiff worked as a skydiving instructor in New York. After several seasons with the company, he mentioned that he was gay and, days later, was fired.

The third plaintiff worked for a funeral home. When she got the job, she presented as a male. But two years into her service with the company, she began treatment for despair and loneliness. Ultimately, clinicians diagnosed her with gender dysphoria and recommended that she begin living as a woman. In her sixth year with the company, she wrote a letter to her employer explaining that she planned to “live and work fulltime as a woman” after she returned from an upcoming vacation. The funeral home fired her before she left, telling her “this is not going to work out.”

Each plaintiff brought suit under Title VII, which prohibits employers with at least 15 employees from discriminating in any employment decision on the basis of race, color, national origin, sex, or religion. A federal appeals court dismissed the first plaintiff’s case on the ground that Title VII’s ban on “sex” discrimination did not extend to sexual orientation. But another federal appeals court ruled that the second plaintiff could pursue his discrimination claim since Title VII’s ban on sex discrimination in employment did encompass sexual orientation. And a third federal appeals court allowed the third plaintiff’s discrimination claim to proceed for the same reason. All three cases were appealed to the United States Supreme Court.

The Court’s ruling

The Supreme Court sided with the two appeals courts that interpreted Title VII’s ban on sex discrimination to include sexual orientation and gender identity. Title VII states that it is “unlawful . . . for an employer to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”

The Court concluded that an employer that fires an employee merely for being gay or transgender violates Title VII’s ban on sex discrimination.

Application to churches and religious schools

What is the relevance of the Court’s ruling to churches and other religious organizations, including schools? Consider the following points.

1. Title VII exemption for religious organizations

Title VII section 702 contains the following exemption for religious organizations:

This title shall not apply to . . . a religious corporation, association, educational institution, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities.

This provision permits religious corporations and educational institutions to discriminate on the basis of religion in the employment of any person for any position.

As originally enacted, section 702 permitted religious employers to discriminate on the basis of religion only in employment decisions pertaining to their “religious activities.” Congress amended section 702 in 1972 to enable religious organizations to discriminate on the basis of religion in all employment decisions. In the years following the 1972 amendment, a number of federal courts suggested that the amendment violated the First Amendment’s nonestablishment of religion clause. But in 1987, the United States Supreme Court resolved the controversy by ruling unanimously that section 702 did not violate the First Amendment’s nonestablishment of religion clause. Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints v. Amos, 483 U.S. 327 (1987).

Note that religious organizations are exempt only from the ban on religious discrimination in employment. They remain subject to Title VII’s ban on employment discrimination based on race, color, national origin, or sex—except with respect to employment decisions involving clergy.

Churches that take an adverse action against an employee or applicant for employment based on religious considerations should describe their action appropriately. Refer to the religious or doctrinal principle at issue, and avoid generic labels like “sex” or other gender- or sexuality-based labels.

2. Covered employers

Title VII only applies to employers engaged in interstate commerce and having 15 or more employees. The courts have defined “commerce” very broadly, and so most churches will be deemed to be engaged in commerce. Note that most states have also enacted their own employment discrimination laws that eliminate the commerce requirement and generally apply to employers with fewer than 15 employees.

3. Ministers

In 2012, a unanimous United States Supreme Court affirmed the so-called “ministerial exception” which bars the civil courts from resolving employment discrimination disputes between churches and ministers. The Court concluded:

We agree that there is such a ministerial exception. The members of a religious group put their faith in the hands of their ministers. Requiring a church to accept or retain an unwanted minister, or punishing a church for failing to do so, intrudes upon more than a mere employment decision. Such action interferes with the internal governance of the church, depriving the church of control over the selection of those who will personify its beliefs. By imposing an unwanted minister, the state infringes the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments. According the state the power to determine which individuals will minister to the faithful also violates the Establishment Clause, which prohibits government involvement in such ecclesiastical decisions. Hosanna-Tabor Evangelical Lutheran Church and School v. E.E.O.C., 132 S.Ct. 694 (2012).

This means that all discrimination disputes involving clergy are off limits to the civil courts, not just those involving religious discrimination, including those alleging discrimination based on sexual orientation or transgender status.

4. Religious schools

Title VII contains three religious exemptions for religious schools. The first, quoted above, is section 702. In addition, Title VII, Section 703(e)(2), of the Civil Rights Act of 1964 specifies:

[I]t shall not be an unlawful employment practice for a school, college, university, or other educational institution or institution of learning to hire and employ employees of a particular religion if:

  • such school, college, university, or other educational institution or institution of learning is, in whole or in substantial part, owned, supported, controlled, or managed by a particular religion or by a particular religious corporation, association, or society, or
  • if the curriculum of such school, college, university, or other educational institution or institution of learning is directed toward the propagation of a particular religion.

A federal appeals court interpreted this language as follows in a case involving a discrimination lawsuit brought against Samford University by a theology professor:

Samford says that, even if its refusal to allow Plaintiff to teach at the divinity school were not covered by the religious educational institution exemption, it is entitled to an exemption as an educational institution substantially “owned, supported, controlled or managed by a particular religion or religious corporation, association, or society.” Samford argues for a flexible interpretation of Section 703 and points to Samford’s historical ties with the [Southern Baptist] Convention, the fact that the Convention is the single largest contributor to the university, and that its Board of Trustees requires it to report to the Convention on all budgetary and operational matters. Plaintiff, on the other hand, says Samford is not “owned, supported, controlled, or managed” by a religious association because (1) the Convention no longer appoints trustees and (2) only seven percent of its budget comes from the Convention. Neither side cites precedents interpreting Section 703, and we are aware of no precedent that speaks to the issue of what it means to be “owned, supported, controlled, or managed” by a religious association.

The court quoted from another federal court ruling construing section 703(e)(2), Pime v. Loyola University of Chicago, 803 F.2d 351, 357 (7th Cir.1986):

Is the combination of a Jesuit president and nine Jesuit directors out of 22 enough to constitute substantial control or management by the Jesuit order? There is no case law pertinent to this question; the statute itself does not answer it; corporate-control and state-action analogies are too remote to be illuminating; and the legislative history, though tantalizing, is inconclusive.

The court concluded that Samford is “in substantial part” “supported” by the Convention:

“Substantial” is not defined by the statute. But the word substantial ordinarily has this meaning: “Of real worth and importance; of considerable value; valuable. Belonging to substance; actually existing; real; not seeming or imaginary; not illusive; solid; true; veritable. Something worthwhile as distinguished from something without value or merely nominal. Synonymous with material.” Black’s Law Dictionary, 1428 (6th ed. 1990). Continuing support annually totaling over four million dollars (even in the abstract, no small sum), accounting for seven percent of a university’s budget, and constituting a university’s largest single source of funding is of real worth and importance. This kind of support is neither illusory nor nominal. So, the Convention’s support is substantial. We hold—as an alternative to our Section 702 holding—that Samford qualifies as an educational institution which is in “substantial part” supported by a religious association and that the exemption protects Samford in this case.

A federal appeals court concluded that Title VII’s exemption of “religious institutions” from the ban on religious discrimination in employment applied to the school. It based this conclusion on the following considerations: (1) the university was established as a “theological” institution. (2) The university’s trustees are all Baptists. (3) Nearly 7 percent ($4 million) of the university’s budget comes from the Alabama Baptist Convention (the “Convention”)—representing the university’s largest single course of funding. (4) The university submits financial reports to the Convention, and its audited financial statements are made available to all Baptist churches in Alabama. (5) All university professors who teach religious courses must subscribe to the Baptist “statement of faith,” and this requirement is clearly set forth in the faculty handbook and in faculty contracts. (6) The university’s charter states that its chief purpose is “the promotion of the Christian religion.” (7) The university is exempt from federal income taxes as a “religious educational institution.”

5. Concerns about sweeping effects of the Court’s decision

Responding to concerns the Court’s June 15, 2020, decision “will sweep beyond Title VII to other federal or state laws that prohibit sex discrimination. And, under Title VII itself, they say sex-segregated bathrooms, locker rooms, and dress codes will prove unsustainable after our decision today.” The Court responded:

But none of these other laws are before us; we have not had the benefit of adversarial testing about the meaning of their terms, and we do not prejudge any such question today. Under Title VII, too, we do not purport to address bathrooms, locker rooms, or anything else of the kind. The only question before us is whether an employer who fires someone simply for being homosexual or transgender has discharged or otherwise discriminated against that individual “because of such individual’s sex.” . . . Whether other policies and practices might or might not qualify as unlawful discrimination or find justifications under other provisions of Title VII are questions for future cases, not these.

The employers also expressed concern that the Court’s decision may require some employers to violate their religious convictions. The Court responded:

We are also deeply concerned with preserving the promise of the free exercise of religion enshrined in our Constitution; that guarantee lies at the heart of our pluralistic society. But worries about how Title VII may intersect with religious liberties are nothing new; they even predate the statute’s passage. As a result of its deliberations in adopting the law, Congress included an express statutory exception for religious organizations. This Court has also recognized that the First Amendment can bar the application of employment discrimination laws “to claims concerning the employment relationship between a religious institution and its ministers.” Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, 565 U. S. 171 (2012). And Congress has gone a step further yet in the Religious Freedom Restoration Act of 1993 (RFRA). That statute prohibits the federal government from substantially burdening a person’s exercise of religion unless it demonstrates that doing so both furthers a compelling governmental interest and represents the least restrictive means of furthering that interest. Because RFRA operates as a kind of super statute, displacing the normal operation of other federal laws, it might supersede Title VII’s commands in appropriate cases.

But how these doctrines protecting religious liberty interact with Title VII are questions for future cases too. [The defendant funeral home] did unsuccessfully pursue a RFRA-based defense in the proceedings below. In its certiorari petition, however, the company declined to seek review of that adverse decision, and no other religious liberty claim is now before us. So while other employers in other cases may raise free exercise arguments that merit careful consideration, none of the employers before us today represent in this Court that compliance with Title VII will infringe their own religious liberties in any way.

6. Justice Alito’s dissent

Justice Alito issued a dissenting opinion in which he noted, in part:

Briefs filed by a wide range of religious groups—Christian, Jewish, and Muslim—express deep concern that the position now adopted by the Court “will trigger open conflict with faith-based employment practices of numerous churches, synagogues, mosques, and other religious institutions.” They argue that “[r]eligious organizations need employees who actually live the faith,” and that compelling a religious organization to employ individuals whose conduct flouts the tenets of the organization’s faith forces the group to communicate an objectionable message.

This problem is perhaps most acute when it comes to the employment of teachers. A school’s standards for its faculty “communicate a particular way of life to its students,” and a “violation by the faculty of those precepts” may undermine the school’s “moral teaching.” Thus, if a religious school teaches that sex outside marriage and sex reassignment procedures are immoral, the message may be lost if the school employs a teacher who is in a same-sex relationship or has undergone or is undergoing sex reassignment. Yet today’s decision may lead to Title VII claims by such teachers and applicants for employment.

At least some teachers and applicants for teaching positions may be blocked from recovering on such claims by the “ministerial exception” recognized in Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, 565 U. S. 171 (2012). Two cases now pending before the Court present the question whether teachers who provide religious instruction can be considered to be “ministers.” But even if teachers with those responsibilities qualify, what about other very visible school employees who may not qualify for the ministerial exception? Provisions of Title VII provide exemptions for certain religious organizations and schools “with respect to the employment of individuals of a particular religion to perform work connected with the carrying on” of the “activities” of the organization or school, 42 U. S. C. §2000e–1(a); see also §2000e–2(e)(2), but the scope of these provisions is disputed, and as interpreted by some lower courts, they provide only narrow protection.

The November 2019 Church Law & Tax Advantage Member article previewed the cases before the United States Supreme Court and included five steps that churches and religious organizations holding traditionally orthodox views of human sexuality could take if the Court decided to expand the definition of “sex” under Title VII.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

What Churches Should Know About State-Mandated Sexual Harassment Training Laws

Some states now require employers to train annually on harassment, and don’t exempt churches. More states may follow suit.

Since 2018, the majority of states have enacted legislation either mandating or recommending that employers train employees on sexual harassment avoidance. This happened at great speed. It can often take decades for legal changes at the state level to become a national trend.

The speed of this development can be traced to the great cultural shift arising from the #MeToo movement, which became a high-profile cultural marker following heavily publicized Hollywood sexual harassment scandals in 2017. With sexual harassment in the workplace as a major focal point, a program to reduce the incidence of harassment at work through education became a significant objective of the #MeToo movement. Legislation to mandate such workplace training ensued.

Varying requirements by state

Most states have enacted laws that address workplace sexual harassment in some fashion. Nearly all of these have been enacted within the last two years, and many took effect just in 2020.

One impact of this rapidly evolving development has been in the widely varied approaches from state to state. No two states have statutes that follow any type of uniform approach.

Mandatory education for adults as a condition for employment was one dramatic shift in the law, but most states that have legislated in this area have done so cautiously. A number of states require only that public employees obtain some training in avoiding sexual harassment, and other states recommend training. At least seven states, however, mandate some form of training requiring private employers to provide training for their employees on creating a work environment that is informed about how to identify and avoid sexual harassment (see “How Seven States Mandate Employers to Train on Sexual Harassment” for more details).

Because the enactment of these state laws has not led to a significant public backlash, it can be expected that more states will pass these types of laws, and those that merely encourage training may follow the lead of those who have mandated such training.

How churches are affected

While #ChurchToo, a church-focused variation of #MeToo, began in 2018, mandatory harassment training in church offices has not been a visible part of that movement. Churches nonetheless may fall under these emerging state laws, since the laws are aimed directly at the employer-employee relationship, and none of the state laws carve out exceptions for churches.

While the claim of a religious liberty exception to any government-mandated training program may someday prove to have merit, these laws have not yet been challenged in court. Churches should be prepared for federal courts to take the position that workplace protection statutes are laws of general application that are not subject to a free exercise of religion exemption.

Inevitably, a church’s response to these government-mandated training programs will impact the defense of a sexual harassment claim within the church. Any church without a training program in place may be at a disadvantage in defending such a case because the church may appear to have been insensitive to the risks faced by the alleged victim. Considering this rapidly emerging trend, churches may reduce the risk of sexual harassment if they stay ahead of this issue by providing helpful training to employees to foster a healthy workplace environment.

Training requirements states have set

State laws that mandate training possess some common traits. Among them:

  • There are generally minimum thresholds in the size of the workplace before the training obligation is triggered (ranging from any employer of any size to employers with 50 or more employees);
  • Specific time periods are mandated within which the training must take place for new hires;
  • Training for supervisors is more comprehensive than for other employees;
  • In most instances, the training must be regularly repeated (such as annually); and
  • Most of the statutes are vague about what specific content the training should contain, although California and New York give substantial detail. Some states provide model training materials, although none are specifically required.

The states that do provide guidance on the content follow a general pattern that includes the following points:

  • Sexual harassment should be defined with reference to state and federal law, and include examples of harassment;
  • Employees should receive an explanation regarding their rights on how to make a harassment claim against their employer and remedies they may seek from their employer;
  • Employees should receive a description of state and federal remedies also available to victims; and
  • Employees should receive an explanation regarding how employers are legally prohibited from retaliating against employees who raise a harassment claim.

Shaping useful training for church offices

Several human resources education vendors offer products meeting the requirements of all states, including those few that give specific details regarding the content of the instruction. However, these generalized programs are provided for a wide range of businesses, not specifically religious organizations.

As a result, some of these materials might strike a tone that church leaders and other religious employers find unsuitable, even if the principles taught in these programs are generally agreeable. For example, a church that wants scripturally based instruction may find the secular foundation of the commercial materials to be out of touch with the church’s moral positions.

The best approach for many churches may be to take the general content outline suggested by their state’s law (or another state’s, if their respective state offers none) and then develop a program that can be rooted in the church’s general approach to ministry. To satisfy the emerging pattern of legal requirements for workplace training, the training should be comprehensive and run at least two hours. It should cover:

  • The broad definition of sexual harassment, including how the church’s home state defines it, as well as how it is defined as a form of sex discrimination under federal law (both “quid pro quo” harassment and “hostile environment” harassment);
  • Examples of what constitutes sexual harassment (not just reliance upon simple definitions); and
  • A description of remedies and how to obtain them.

One good model for a church’s training is the “State of Illinois Sexual Harassment Prevention Training” program prepared by the state’s Department of Human Rights. These materials need to be adapted to the law of the church’s home state. But the general outline laid out in this 35-slide PowerPoint presentation is comprehensive and offers a good template for the scope and depth of adequate training. Notably, it provides a lengthy list of behaviors that constitute sexual harassment, including gestures, the use of nicknames, and the making of certain sounds.

Caution. Every church preparing its training program will need to consider how it will approach gender identity and sexual orientation issues. While states may differ in their treatments of these issues, several states consider these issues to be subject to the same approaches used in addressing any other harassment. Since these statutes are very new, the full implications of these laws to churches have not been developed by courts. Christian churches with orthodox views of human sexuality and marriage should consult further with qualified local legal counsel regarding how they handle these specific topics.

Make preparations now

While some churches may bristle at the idea of government-mandated messages of instruction within churches, the liability exposure to churches that are unprepared for sexual harassment training is significant. Even in those states that do not expressly mandate training, the absence of a training program may be used as evidence of negligence by a church. Ascertaining the church’s best approach to risk assessment will increasingly include a full discussion of the best way to reduce the incidence of sexual harassment, which unfortunately remains an issue in churches.

Myron Steeves is founder and senior attorney at the Church Law Center of California, and dean emeritus of Trinity Law School. He is an active member of the nonprofit committees of both the California Bar Association and the American Bar Association (ABA), and chairs the ABA's Religious Organizations Subcommittee.

Giving Is Climbing, Say Some Church Leaders

New survey offers reasons to be cautiously optimistic after weeks of restrictions on in-person gatherings.

Signs of hope are returning on the giving front after weeks of government restrictions and precautionary measures hampered many from gathering in person, according to a new survey of church and religious nonprofit leaders conducted in mid-May.

The survey from the Evangelical Council for Financial Accountability (ECFA) drew responses from 684 churches and 657 nonprofits. Among the church leaders who responded:

  • 47 percent said giving in April of 2020 was higher than April of 2019, while 19 percent said it was flat; 20 percent said it was down by as much as 20 percent; 9 percent said it was down between 20 percent and 40 percent; and 5 percent said it was down 40 percent or more;
  • 47 percent said total cash donations (excluding one-time “extraordinary gifts”) were up in April 2020 compared with January 2020 (before the pandemic’s fallout hit the United States), while 25 percent said it was flat; 15 percent said it was down by as much as 20 percent; 10 percent said it was down between 20 percent and 40 percent; and 3 percent said it was down 40 percent or more.
  • 69 percent expressed optimism regarding the outlook for total cash and donations they expected to receive between May and July of 2020, while 21 percent said they were “uncertain,” and 15 percent said they were “pessimistic.”

These latest results provide a more positive vibe compared to the findings of “The State of the Plate,” a constituency poll conducted in April by several church-serving organizations, including Church Law & Tax. Among the 1,091 church leaders polled by The State of the Plate, two-thirds said their giving declined sharply in March as the pandemic hit the country—with 8 percent indicating drops of 50 percent or more and 9 percent revealing declines of 75 percent or more.

The new ECFA results tend to match findings the organization made in January, when a separate survey on 2020 financial outlooks struck a positive tenor, wrote Warren Bird, ECFA’s vice president of research, in a white paper. “To our surprise, the optimism documented in January is already beginning to return,” Bird wrote in the newest report. “Rough and uncertain waters are still ahead for some, particularly summer camps, schools, short-term missions, and other ministries involving near-term travel and large in-person gatherings. Yet the responses in this report indicate the impact of the pandemic to date is reasonably manageable.”

Along with probing about financial well-being, ECFA also asked leaders about other ways the pandemic crisis, which led to significant general economic hardship across most parts of the country, affected their ministries. About a third of churches said their online giving levels remained steady, but 14 percent said online giving grew 10 percent to 19 percent, 21 percent said it grew 20 percent to 29 percent, and 29 percent said it increased 30 percent or more.

Meanwhile, 59 percent of churches said they applied for the federal government’s Paycheck Protection Program, which offers short-term, low-interest loans to small employers that can convert into nontaxable grants if certain criteria are met. Only 1 percent plan to still apply, while 40 percent said they have no intention of doing so.

As far managing financial hardships through the end of April went:

  • 48 percent of churches said they hadn’t yet touched cash reserves, while 20 percent said they used some cash reserves, and only 1 percent said they had exhausted all cash reserves; and
  • 81 percent said they kept staffing about the same, with 11 percent cutting the number of hours of part-time staff and only 3 percent reducing the number or hours of full-time staff. Relatedly, 18 percent said they implemented hiring freezes for nonessential roles.

For help with navigating financial management in a crisis, check out our free recorded webinar with CPA Michael E. Batts, a Church Law & Tax senior editorial advisor.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay