Suggested Financial Principles That Can Reduce Your Ministry Financial Risks

1. We believe your financial budget anchors should include the follow general aspects to develop the proper balance that can build and sustain a growing ministry over time. 

• Ministry programs 30%
• Salaries                 30% or less
• Debt service          30% or less
• Daily operations    10%

2.  A ministry missing financial balance functions much like a vehicle with a flat tire. A ministry missing financial balance will find it difficult to sustain its mission principles over time unless it's flat is fixed. Flat tires develop very naturally as a ministry find it necessary to pull funds from one key area to maintain the growing demands of another.  

3.  A layered system of checks and balances is necessary to protect ministry funds and those that handle them, from possible accusations that can harm the most noble of ministry staff.  More layers develop the best quality of security and accountability.  For some ministries there is a lack of qualified persons to meet these positions. Each possible added person will lessen your risk.   

• The persons that collect the funds should be different from
• The persons that count received funds,
• The persons that deposit the funds,
• The persons that keep the books,
• The persons that write the checks,
• The persons that annually audit the books.

4.  When the ministry considers adding a building by purchase or construction review the Biblical principle of Luke 14:28 (KJV) Wise planning is critical to assure all is in order before a building is built or you may end up with a foundation missing a finished superstructure or lack the funds to maintain its daily operations. Critical elements to consider when developing your planning:

• Does the need for this added property compliment your ministry mission principles
• Does the type of building compliment your ministry mission principles
• Will the property and timing of it development fit your financial budget without causing the ministry to be out of balance
• Will the property location and use compliment its use
• Will the property allow for expansion in the future should that be necessary or is it to be an end in itself.
• Environmental issues that may need to be met for the property
• Community codes and governmental requirements for the property
• Will the location allow for reasonable growth without being land locked
• Will the location be easy to access and the be location found easily for attendees 
• Cutting construction quality may result in a life time of growing maintenance issues
• An adequate building that meets the expected use and attendance is critical for less risk. Missing this factor can greatly increase your ministry risk.
• Adequate furnishings and equipment to sustain the new building must be figured in
• Adequate cash flow to sustain not only the debt service but also the added daily expenses of the property's operation.
• Adequate cash flow to sustain needed staff to meet the demands of the growing ministry. Most ministries will grow flowing a building purchase or construction program.
• Security risk factors should be reviewed and planned for the new property
• Potential disaster risk factors that could develop for the location or building should be reviewed

5.  A key person life insurance policy should be placed on key ministry personal when entering into a major financial commitment.  The untimely death of a pastor or other key person in a ministry at this time could present a critical financial loss.  I have found it normal for these ministries to experience a 25% to 35% decline in their finances and attendance with some much more as their attendees seek to deal with the loss in their own way. Some choose to avoid the loss by leaving, others in their discouragement and pain are left ministry immobile, instead of pulling together with each other. For more info click here

6.  How to intelligently provide for your clergy and support staff.  A challenging area of the ministry that we find is often not dealt with in a balanced manor.  This area of ministry can cause many lose ends, erroneous assumptions, misunderstandings, and unmet expectations that can develop growing problems for any ministry when there are missing agreed to written directives or conflicts with the ministry mission principles. Short cuts and neglects in this area are the # 1 cause of ministry litigation today. For suggested principles click here  http://www.phelpsfinancial.com/church/church/church/clergy/how

7.  The provided housing ministry financial risk: If your minister or other employee lives in a provided residence and should die, where and when will you move their spouse and family to make room for the new minister or employee?  This critical need can be met in a very affordable way with this unique plan that we have designed for this ministry risk. For more info click here  http://www.phelpsfinancial.com/risk/religious/church/clergy/providedhousing

8. Clergy and staff benefit choices require wise choices and careful review:  Benefits can offer both a downside and benefit for both the ministry and the staff, a careful review is necessary before you choose to offer these and the way you might offer them. Provided housing or a cash housing allowance might include the merit of offering the clergy and staff opportunity to build equity if the ministry is in a position to include the choice many are not. These benefits and any possible related allowances for utilities or other expenses should be reported on your tax form but can be expensed up to the actual expenses (for housing the fair market rental value)thus avoiding them as taxable income, any amount above actual expenses should be reported as taxable income. However, for Social Security taxes and workers comp these are included as income. Transportation allowances should follow a similar form but may require extra bookkeeping to track personal use and ministry use which must be reported separately.  Health premiums paid by the ministry that are not part of a group plan should be included as income as well.  Social security taxes paid by the ministry should be included as income as well. There are other benefits that you may choose to include which need a full review for their merits, including their possible tax effect for both the ministry and the staff or clergy. We suggest that you check with your tax professional about these suggestions before you finalize your choices with these benefits to decide how your choices might effect your minsitry's risks.  The penalties by taxing entities or other governmental entities can be large and a big surprise when not properly dealt with.     

9.  Quality bookkeeping is critical for today's ministry.  Financial records in proper order can often make the difference in the interest rate you could qualify for by presenting a clear and correct picture of your financial position.  This also gives an indication of what the lending institution could expect in dealing with your ministry.  Properly developed financials will also lessen the risk of accusations and misunderstood income and expense paperwork.  Financial paperwork properly communicated and developed can also assist attendees in properly assessing the financial needs of the ministry and how they might be involved.  Anything less will always present the ministry with many developing issues that could result in missed opportunities and painful issues that could affect all areas of the ministry.

10.  Ministry reserves and financial safeguards if left out of the ministry plan can present some very unforgiving and possible destructive issues. We believe that outside professional investment advice is wise for these funds.  We believe it is wise to have several safeguard financial funds placed into the budget which are looked at as an expense by the church so that they are properly funded in a balanced manor for the ministry. This will insure they will provide the financial safeguards for their intended areas:

1. A fund that is equal to a minimum of six months of fixed and critical ongoing expenses although we feel twelve months best to finance income short falls that can happen to most any ministry from time to time.
2. A fund that allows for the proper matching of possible suggested maintenance requirements or the timely replacement of your property, equipment, and possible owned vehicles.
3. A fund that allows for anticipated future growth of the ministry

11.  Setting written and agreed to accountability limits for those that use provided cell phones, credit cards, cash funds, and checking accounts is vital in our culture.  This helps to avoid accusations of misuse and discourages the development of an easy environment for dishonesty that might occur.

12. An annual financial review of ministry progress and goals is an important factor to place into the ministry calender.  Without goals and the ability to measure ministry progress against them, ministry direction and purpose can falter.  This also brings a general accountability for both income and expenses that the ministry deals with and is projecting.  A quality review and communication of this information can greatly allow all in the ministry to understand the ministry financial strengths and weakness and what should be adjusted or fixed when needed.  

13. We believe an outside professional audit by a CPA firm that specializes in ministry organizations and understands their specifics, is important today.  A good audit should include a review of your financial procedures as well as the actual bookkeeping.  This draws a professional line "in the sand" of your financial records and provides a solid foundation for the following years. We suggest this should be done after major financial transactions as a major building project, treasure changes so the new one can start with a clean slate, or otherwise every three to five years. Internal audits should be done annually and reported to the ministry as a whole for review. Audits can relieve the possible stress that can come with managing the ministry finances and possible accusation of even the most noble and honest persons.

Embezzlement issues for ministries are on the rise today across all denominational lines, for large as well as the very small ministry as one of the most often reported  claims.  In fact it is the #3 area of ministry litigation today. This happens usually because of the lack of checks and balances that have built in accountability procedures and proper audits in place.  How are your ministry procedures and safeguards?

14. Financial security, privacy, and integrity are the #3 area of ministry litigation today for ministry of any size. Most ministries are very unaware of this growing litigation area. Paper and digital data is often compromised in ministry procedures today allowing many issues to grow.  How is you ministry doing with these issues?  Missing financial records to back giving by attendees could cause destructive issues as well as missing or properly kept employment records for your staff.  Governmental entities can very unforgiving today when your financial records are missing or not in proper order.    

Rev (03/09)