Financial Integrity as the Foundation: My Interview with Dan Busby
Published in INSIGHT - Fall 2018
“In the long run, only integrity matters. In fact, without integrity, there will be no long run.”
As we celebrate another National Church Administration Day, I am reminded that without integrity, there is no sound basis for church administration. In all the busyness and complexity of our day-to-day life as church administrators, we cannot afford to forget the foundation of integrity.
I recently had a chance to visit with my friend Dan Busby, President of ECFA (see ECFA.church) and an honoree in the Church Administration Hall of Fame, about his take on the foundational aspects of financial integrity. I hope you enjoy our discussion and these very practical insights from Dan.
How can churches work together to pursue financial integrity?
Integrity with church finances comes down to the integrity of the people involved in the related responsibilities. It involves a team of people at a church—the larger the church, the larger the team.
Financial integrity almost always flows down the organization chart of a church; it rarely flows up. Some may ask why that is. Usually, the authority to impose and reinforce meaningful change rests at the top of the chart. Folks lower in the organization chart simply don’t have the influence to push a culture of financial integrity up the chart.
Financial integrity starts with the leadership and requires the efforts of a team working together. Here are some practical examples of how this is lived out:
- Financial integrity exists when the pastor(s) respects the financial team, readily providing adequate substantiation of credit card expenses when asked for them. Accountability and cooperation are key.
- Financial integrity exists when the board respects the financial team when concerns are raised about whether the year-to-date flow of gifts is adequate to meet budget projections. Though they may not agree with the conclusions of the financial team, the input is carefully considered, and the team is respected.
- Financial integrity exists when the financial team respects the board’s decision to add a cash reserve line to the budget to shore up the church’s cash reserves even if the financial team does not think it is necessary.
What are some practical examples of how the church financial team can demonstrate financial integrity?
Here are a few examples that may be familiar. It takes financial integrity to
- Accurately reconcile the church banking accounts instead of hoping to find the differences next month.
- Carefully track designated (or restricted) gifts to ensure they will be used for the purpose communicated by the giver AND are used in a timely manner.
- Reconcile both digital and physical gifts to the donor management system and to the accounting records. Digital fraud may well be a greater risk than physical fraud.
- Tell a giver that the church cannot issue a gift receipt for a gift of their time.
- Tell a pastor that the church cannot withhold FICA-type social security tax from the pastor’s salary, even though a previous church erroneously did so.
- Tell an intern pastor who is not yet ordained, licensed, or commissioned that he or she does not yet qualify for the ministerial housing exclusion.
What policies, systems, and processes do churches need to put in place for financial integrity?
It all starts with an accounting manual of policies and procedures. These should be supported by solid IT systems in terms of hardware, software, and cloud-based systems.
To operate with financial integrity, sound and documented procedures are both helpful and necessary. These should be in place addressing all areas of operation, including physical and digital gifts, payroll processing procedures, handling of offerings, procedures for determining who is an employee and who is an independent contractor, and more.
There are many basic policies that churches should adopt. To start, here are two: a Gift Acceptance policy and a Gift Receipting policy. Samples of these policies and many more are available for free on ECFA.church.
The term “internal controls” refers to all the processes that the church puts in place to help make sure that its assets are protected. Internal controls also help ensure that church activities are conducted in accordance with the church’s established policies and procedures. Without this sound foundation, there are no internal controls.
How can a church pursue financial integrity without being “micromanage-y” of staff or volunteers?
This may be the largest problem for most churches—getting involved in minutiae. Church boards need to set a high standard on this matter, as they have a natural gravitational pull toward issues that should be reserved for the church staff.
Stephen Covey shares the example of placing big rocks, pebbles, sand, and water in a gallon jar. The principle is that unless we place the big rocks in first, we may never get them in.
Church boards need to focus on the “big rocks” when framing board meeting agendas. The board chair plays the key role in keeping the board out of micromanaging territory—although any board member can move to pause and refocus when the board transitions into staff responsibility.
Essentially, the church board must focus on the big financial issues—the budget, high level review of financial reports, adopting financial polices—and allow staff to handle the real work of church finances.
Will you share some examples of how the board can pursue financial integrity at a high level?
Here are a few examples—these are also examples of teamwork:
| Financial Information
||The board should receive and understand the financial information needed to govern well.
||The staff must produce timely financial reports that are easy to understand.
|| The board should set cash reserve policies enabling the church to meet its financial obligations.
||The staff should faithfully apply those policies.
|| The board should approve a reasonable operating budget that supports the church’s strategic plan.
|| The staff must endeavor to operate within those budgeting guardrails.
|| The board should be aware of staff policies designed to minimize physical and digital fraud.
|| The staff must diligently apply these policies to minimize fraud.
| Designated Gifts
|| The board should be aware of designated (restricted) gift balances and understand if the designated gifts are being used in a timely manner.
||The staff must diligently track designated gifts recorded – both the gift and the use of the gift.
| Legal Compliance
|| The board should understand if key payroll tax forms are being filed on a timely basis and if applicable taxes are paid.
What is the impact for churches who do (or do not) faithfully demonstrate financial integrity?
William Arthur Ward said, “Once trust is tarnished, it is hard to restore it to its original glow.”
For a church that fails to demonstrate financial integrity, there is a loss of trust that is difficult to contain and usually spreads. When you distrust a church, you are suspicious of it, its agenda, its culture, and its programs. A low trust church is also likely to have internal dissension, staff disengagement, high turnover, and even fraud.
However, when you trust a church, you have confidence in its leaders, its staff, and the ministry being done. Trust enhances giving, volunteerism, board service, and divine support.
John Wesley is quoted as saying, “Our primary responsibility is to give the world the right impression of God.”
It is that simple. A church with financial integrity will give the world the right impression of God.