Vestry/Finance Q&A

On September 30 in the Church Nave, the wardens were joined by treasurer Bob Broeksmit in hosting an open conversation about our parish finances. We believe that the people who attended found it helpful and we want others to have the same information. Attendees at the meeting suggested that we send out a series of questions and answers and here is a summary of the discussion.

Finance Q & A

Q. Where do we stand on the audits?
A. Our last audit was for our 2011 financial statements. The vestry and finance committee directed our staff to work with our auditor, Walker & Company, to complete an audit for the most recent fiscal year 2018 (which ended June 30, 2018), as well as audits for each of the prior years (2012-2017). However, getting this done for the prior years has been far more challenging than we anticipated for several reasons, including inadequacies in the systems we used in those earlier years and the passage of time. The vestry engaged Chazin & Company to help our staff do the necessary preparation work.

This work has been completed for 2012 and 2013, but at a cost and time that was much higher than expected. Therefore, Chazin and Walker together recommended an approach that would still provide us with the benefit of an independent review of our financial statements but in a more timely and cost effective manner for the earlier years. This approach, which is known as an “agreed upon procedures” report, requires a thorough review by the auditor of the material accounts in our financial statements, such as cash, capital campaign receivables and fixed assets, but it would be done for the five years (2013-2017) combined. Chazin would do the preparatory work for this review. The vestry accepted that recommendation. As a result, Walker will complete and issue audit reports for 2012 and 2018, and complete and issue an agreed upon procedures report for 2013-2017.

Q. Does this mean we won’t have annual financial statements for those earlier years?
A. No. We have financial statements for each of those years. Those financial statements were reviewed and approved in a timely manner each year by the finance committee and the vestry.

Financial statements are always the responsibility of the church to produce, not the auditor. An audit is an independent review by a third party of the financial statements. Most churches in the Episcopal Diocese of Washington do not complete audits.

Q. We are hearing about a significant budget deficit and a change in personnel. Does this indicate that there was some malfeasance or other problem?
A. No. Absolutely not. We explain more about the budget below. The staffing change reflects our realization that we need someone to focus more directly on our budget, finance and accounting issues. So we have split the position that was occupied by our Chief Operating Officer into a Director of Finance and an Operations Director, both of whom started at the beginning of this month.

Q. So, why do we have a significant budget deficit?
A. It’s simple: contributions — the main source of income — have been significantly less this year than we expected. Contributions had been increasing in the last few years. But for some reason, they did not this year. The chart below shows the progress up until this year:

 

2014

2015

2016

2017

# of pledges

562

624

591

624

$ pledged

$1,775,577

$1,936,789

$2,001,810

$2,191,274

Average pledge

$3,159.39

$3,103.83

$3,387.16

$3,511.66

But this year, both the number of households pledging and the total amount pledged went down, below the numbers for 2017. 570 households pledged and the total amount pledged was $2,135,000. That is $395,000 below what we budgeted and $95,000 below what was pledged in 2017.

Q. Why did we budget an increase in contributions for 2018?
A. When we passed the budget for FY 2018 (our fiscal year runs from July 1 to June 30), we were in the middle of 2017, with pledge numbers the highest they had been in years. The budget we passed had no extravagant expenditures but we put in money to do some things we had needed to do, like upgrading our accounting software. We assumed a pledge increase of 15% which seemed like an appropriately ambitious goal.

The first half of those lower pledge dollars from calendar year 2018 went into the second half of the fiscal year 2018 budget. (This is confusing because we pledge on a calendar year but budget on a fiscal year that begins July 1).

Q. Have we had deficits before?
A. Yes, St. Columba’s has a history of pledging just barely enough to keep the church going. We tightened the budget year after year, but still ran deficits in FY 2013, 2014, 2015, and 2016. But the trend in pledges since 2013 has been upward, and the total dollars pledged went up from 2013 through 2017. So we have been optimistic that things have turned around and are headed in the right direction. In FY 2017, for the first time in a long time, our revenues exceeded our expenses and we even were able to set aside money for big things like replacing the roof or fixing the boiler.

Q. Have we looked at ways to reduce our expenses?
A. Yes. We reduced funds for some of our activities and programs, e.g., hospitality, guest speakers, and we held our contribution to the Diocese at the same level as the year before. And we haven’t been funding the depreciation on our fixed assets — that is, setting aside money to reinvest in our physical facilities as wear and tear increases over time.

Q. What about our staff? Haven’t we increased the number recently?
A. We have restructured some positions with a Director of Finance & Administration focused on finance, while increasing the responsibilities of the Operations Manager. We now have a fulltime Director of Youth Ministry, but three FT priests, down from four in 2017. And, while we now have a new Director of Stewardship, Bronwyn Roy, her salary and benefits are being paid for by special contributions for this purpose from a few parishioners. That amount is included in the total number but the revenue needed for that amount is not included in the pledge number.

Q. So what is the FY 2019 budget and can we meet it?
A. The FY 2019 budget is $3,010,000. The FY 2017 budget was $2,512,000, and FY 2018 was $2,827,000.
When the vestry considered the FY 2019 budget, we reviewed a budget that reflected all of the savings we could squeeze out of it without cutting staff. We knew the pledge numbers for the first half of the fiscal year because those were the second half of the 2018 pledges. If we assumed a 10% increase in 2019 pledging over the actual 2018 pledge numbers and did not cut staff, we would have a deficit for FY 2019 of almost $400,000. We debated whether to cut staff and decided that it would be harmful to the church to do that because every staff member is needed for us to keep moving forward on the great programs they have underway. So we passed a budget that requires us to raise $2,515,000 in 2019 pledges in order to balance. That is an ambitious number. It is $380,000 more than we raised in 2018.

Q. What’s it going to take to meet that budget?
A. We can do this but only if everyone helps. In 2018, 570 households pledged. Our goal for 2019 is 650 households pledging. We know that there are people who are active at St. Columba’s but for whom pledging has not been a regular practice. Many of those who aren’t pledging may be putting money in the plate on Sunday and don’t understand that it is important to commit in advance to what they expect to give. There are lots of reasons to pledge. One is that it is an opportunity for spiritual growth — through a conversation with God and other family members about our relationship with our stuff. “Where your treasure is, there will your heart be.” It’s hard for many of us to talk about money but it’s a good opportunity to get lined up in what we say we value and where we put our treasure.

The other reason to pledge is so that the vestry can count on us when we set a budget. We need to know that there will be enough money coming in to pay the staff and run all of the programs we plan for in the coming year. Staff salaries and benefits make up about 2/3 of the total budget.

This is a good opportunity for an additional note: We are grateful to those who already pledge. Please prayerfully consider increasing your pledge so that we can carry out this glorious ministry God has given us to do.

Q. Does St. Columba’s have an endowment?
A.
No. Not at this time. The rector and vestry are committed to creating one. We will begin “planting seeds” of an endowment through a planned giving campaign. Former senior warden, Lane Heard, has enlisted the support of his fellow former wardens to lead this effort, to be supported by Bronwyn Roy. In the past couple of years the church has received bequests totaling almost $400,000. These unrestricted gifts have been placed in a savings account to serve as foundation.

Q. Does the FY 2019 budget anticipate additional fundraising, such as for Outreach?
A.
Yes. The budget assumes that we will raise $50,000 in a special event or events to raise outreach funding. We did that successfully this year.

If you have questions about St. Columba’s finances, please join the treasurer and wardens for an open conversation on Sun., Oct. 28, at 12:30 pm. We’d like to hear from you.

Elizabeth Taylor, Senior Warden
Stephen Smith, Junior Warden