Why don’t all ministries agree with ECFA’s Seven Standards of Responsible Stewardship?

SUMMARY

In September 2011 we asked members of ECCU’s Ministry Advisory Panel (MAP)** to provide us feedback on two of the Evangelical Council for Financial Accountability (ECFA)’s Seven Standards of Responsible StewardshipTM. There are clear differences of opinion on how churches and parachurches perceive the importance of adhering to these standards. Issues of biblical authority and the nature of church “donors” play a major role.

Here are some general findings about ministry perceptions of ECFA:

  • 96% agree somewhat or completely that ECFA provides a valuable service to the ministry community. No ministries disagree and just 4% chose to remain neutral on this statement.
  • 85% agree somewhat or completely that ECFA’s standards are applicable to all types of ministries; 8% disagree somewhat and 6% remained neutral. Of those that disagree, 75% are churches.
  • 81% agree somewhat or completely that ECFA’s standards are applicable to ministries of all sizes; 10% disagree somewhat or completely and 8% remained neutral. 60% of the ministries that disagree with this statement are micro or small within their own segment.
  • 98% agree that ECFA is a trustworthy organization; 2% remained neutral.
  • 69% believe membership in ECFA is/would be beneficial to their ministry; 8% disagree somewhat and 23% remained neutral.

** The MAP is composed of ECCU member and non-member ministry staff and leaders representing evangelical Christian churches, businesses, schools, and other ministries. This report was produced by ECCU’s research department.

ECFA’S SEVEN STANDARDS OF RESPONSIBLE STEWARDSHIPTM?

The ECFA, founded in 1979, is an accreditation agency dedicated to helping Christian ministries earn the public’s trust through adherence to Seven Standards of Responsible StewardshipTM. These standards focus on board governance, financial management and transparency, integrity in fundraising, and the proper use of charity resources. Their membership of over 1,600 includes Christian ministries, denominations, churches, educational institutions, and other tax-exempt 501(c)(3) organizations.

This joint ECCU/ECFA survey sought to shed light on how ministries of different types and sizes differ in thought and practice regarding two of the most controversial ECFA standards: Board independence and financial transparency.

BOARD INDEPENDENCE

According to the ECFA’s Seven Standards of Responsible StewardshipTM, board independence helps avoid conflicts of interest and the appearance of impropriety. The following four statements describe some characteristics of true board independence. The intent in asking the panelists about these statements was to understand whether and how ministries of different types and sizes apply these characteristics. Although the results showed no statistically significant differences amongst ministries of different sizes, those of various types had significantly different opinions on this topic.


Statement 1: To be truly independent, board members should not be employees or staff members of the organization.

  • Of the four, this statement received the highest level of disagreement (12%).

Statement 2: To be truly independent, board members should not be related by blood or marriage to staff or other board members.

  • 85% agree somewhat or completely with this statement, 5% disagree, and 10% remain neutral.

Statement 3: To be truly independent, board members should not report to or be subordinates to employees, staff, or other board members.

  • 93% agree somewhat or completely with this statement, while 6% disagree.


Statement 4: To be truly independent, board members should not have a relationship to firms with significant financial dealings with the organization or its officers or key employees.

  • This statement enjoys the highest level of general agreement, with no ministries disagreeing and 6% choosing to remain neutral.


Panelists wrote these responses to explain their position on board independence:

“Although Board independence is important, it must be balanced with spiritual leadership and vision, which usually comes from the spiritual leadership of the church, i.e., the pastoral staff. So a mix of spiritual leadership and independence is usually the best option for the church.”

“As a church, we have a combination of non-staff and staff Elders. The lay Elders always outnumber the paid Elders (pastors) so this seems to be healthy. It seems a good interchange for the church leadership to be representative of our whole church.”

“I am not sure that the item concerning relation by blood or marriage should apply as strictly to large boards as to small boards. Also, the item concerning business relationships diminishes as board size increases.”

“I believe that limitations may be good in some of these areas but their outright ban on all of them makes [ECFA] membership impossible for us. For example, I am the pastor of the church, I am paid a salary, and I am a board member. All Calvary Chapels have the pastor as a board member, and yet these folks do not allow a board member to be an employee. That would seem to exclude all Calvary Chapels and many other ministries from membership. A limitation that no more than a certain percentage of board members may be employees or may be related to each other may be acceptable.”

“I think it is okay to have the Sr pastor (or exec dir/CEO) as a part of the board. I believe there is still independence if you have the rest of the board fitting all the other conditions. Our church has the Sr pastor on the board and it works well. We do make sure there are no family connections.”

“In my experience, most churches have their senior pastor and maybe other staff pastors on their Elder Board. In smaller churches, this may/may not include blood relatives. I think, Biblically, pastors are automatically elders as well.”

“No, they are good guidelines to keep a board independent.”

“Not be employees or staff members of the organization—in our case the president of the corporation is on the board and is the Sr. Pastor of the church.”

“Pastors are usually members of the board and have great influence on the board, which isn't always appropriate, so more independence is probably a good thing.”

“Senior pastor only should be a board member casting only one vote.”

“Some relationships affect certain areas of the Church's ministry, while not affecting others. A policy of being excluded from certain discussions and votes when a conflict of interest occurs can facilitate the possibility for more people to participate within a small community where these kinds of relationships may exist and preclude many people from service on the Church Council.”

“The board is made up of many individuals; there can be an advantage in having a minority of the board being compensated individuals for providing information to the board.”

“There are unique situations where boards need non-voting members that are staff members. Often times, there are reasons to have related board members, but never more than a certain percentage of the board (e.g., not able to sway a vote through familial ties).”

“These don't translate as well to churches as to parachurches.”

“We have coaches for school sports that are board members. When it comes to some topics related to kids, it's helpful that they are directly involved in the sports.”

“What about CEOs? Should they not be on the board and have a vote? As an International organization we have staff representatives on the board but they cannot have more than a one-third vote.”

“While I agree that a majority of board members should not be blood or marriage related to other board members, I do not believe that having one board member that is related is a problem.”

FINANCIAL TRANSPARENCY

Membership in ECFA requires adherence to ECFA’s Seven Standards of Responsible StewardshipTM. One of these standards addresses the issue of financial transparency. To understand why some ministries appear reluctant on this topic, we asked them to indicate their level of agreement with the following three statements:


Statement 1: To be transparent, a ministry’s annual financial statements must be prepared, reviewed, or compiled by an independent CPA.

  • 14% disagree with this statement; 78% of these were churches.


Statement 2: To be transparent, a ministry’s annual financial statements must be widely available and readily accessible on the organization’s website or other agency’s website or via hard copy.

  • 12% disagree with this statement; 75% of these were churches.


Statement 3: To be transparent, a ministry’s annual financial statements must be provided to regular members/donors.

  • Of the three, this statement had the most (15%) ministries in disagreement.
  • Surprisingly (because 75% of churches disagreed with statement 2 above), the highest level of agreement belonged to churches at an average level of agreement of 4.3 out of a possible 5 (based on a 5-point scale, where 5 means “Agree Completely”).


Panelists provided these responses to explain their position on financial transparency:

“A church would not want to share its financials with the general public on a website.”

“A higher level of transparency comes with financial statements audited by an independent CPA, rather than just prepared, reviewed, or compiled. Financial statements don't need to be provided to regular donors, they just need to be readily available when requested.”

“Again, I would not believe that a church would need an independently produced statement that might be the best practice for other types of agency.”

“Churches do not file 990 returns, need not deal with the IRS and are not forced to disclose financial information. Just because a church chooses not to disclose this stuff does not lessen their ministry potential or mean there is something wrong with them. Churches generally do not seek donations from the general public, instead receiving offerings from members. The extent of the relationship between a church and the members is up to the individual church to work out. Since finances are not sought from the general public, financial statements need not be available to them.”

“I agree that the financial statements should be reviewed by someone independent of the ministry, but requiring them to be a CPA is costly for small organizations. Posting the financial statements on the website would be difficult for security reasons in the nations in which our families live.”

“I do not believe that a small church would need to have financial statements prepared, reviewed, or compiled by an independent CPA. A small church most likely cannot afford this.”

“If ‘provided to regular members/donors’ means to actually send 4,000 copies [that] would be costly.... the option to communicate where they can access the financial statements is in my opinion a better stewardship approach.”

“In this day of instant communication, ‘widely’ providing this information may provide fodder for those who would harm the organization or its workers, especially those who work in certain areas of the world, so there should be some diligence to know to whom the information is being provided.”

“It may not be cost effective to have a CPA compile our financials. If we have an audit committee, I think that is good enough. We are 1.5 million in revenues.”

“No issue with transparency. Should be available to all, but there should be a process whereby only interested parties get access to the information. This effort to get access will help keep only interested people looking at the data.”

“No sure what you mean by ‘provided to regular members/donors.’ If this means mailed to our 7,000 members, this would be costly. In addition, most of our members would not know how to read a complete set of GAAP financial statements.”

“No, as long as salaries are lumped together so the church members do not know what an individual staff member makes.”

“Possibility exists for misuse of information to slander and undermine confidence. I would think that complete disclosure to an independent board, and availability to hard copy the financial statement to any member upon request, would be adequate.”

“Preparation by an independent CPA has nothing to do with transparency. It certainly helps the integrity of the financial statements but not the transparency.”

“Publishing financial information on the web can create confusion and misunderstanding. The info should be available to other non-profits utilizing or considering use of your organization. Non-profit accounting deals with areas that could be misunderstood by those involved in for profit organizations. The rules are different.”

“The complete financial statement is hard for most to understand.”

“Yes. Persons/organizations that want to manipulate or skew ministries’ operations may have been used to cause division, etc.”


To conclude the set of questions related to ECFA, we asked panelists what ECFA could do to better serve ministries like theirs. Here are their responses:

“A church does not need ECFA to validate its ministry to its own members. The people sitting in the pews believe in the ministry of the church or they wouldn't be there. This type of organization serves a vital purpose with big, nationwide ministries that seek donations from the general public, such as Compassion International. That helps all of us to know that our finances are being used wisely. This type of outside help is not needed by local churches, who typically govern themselves as membership organizations.”

“[Parachurch ministry name] has been a member of the ECFA since 1993/1994 and finds it valuable to have for questions and concerns as well as to serve as a watchdog group that is recognized by outside groups—especially donors.”

“As a school, most revenues come from tuition. We do not meet the standards set out by ECFA, but as a donor to other ministries I look for ECFA membership before giving.”

“Be more responsive to questions we may have.”

“Continue to publish guidance that is readily accessible to the general public.”

“Continue to pursue personal connection with clients—a name and a face is critical to interaction.... ECFA does this well!”

“Help us find CPAs who would be able to do audits at low costs as their ministry.”

“I have accessed the Seven Standards of ResponsibilityTM. That is a wonderful resource.”

“Improve its positioning as a trusted resource, I don’t' believe most of the general public knows what ECFA is or why they benefit from associating with ECFA member ministries.”

“It has been great to be a member of ECFA. At this time I do not have any suggestions.”

“Keep providing information, surveys, and updates.”

“Keep the communications coming.”

“Keep up the good work! You are doing great!”

“Keep us aware of changes in the law and best practices.”

“Keep us posted of events and information that our ministry needs to hear.”

“Lower the cost.”

“Lower the membership fee for large churches.”

“Most smaller churches cannot afford to have their financial statements reviewed/audited by an independent CPA. ECFA could provide this service at a greatly reduced rate.”

“Provide a church ‘hotline’ to answer questions that come up which the church can't seem to find answers for.”

“Their website is quite helpful. Can they let people know of their website to review somehow?”

“They are doing a good job.”

“Training for a variety of sized ministries. Lower fees for certification!”

QUARTERLY MINISTRY TRENDS FOR Q2 2011

Quarterly trends have been captured in the format below since the second quarter of 2010 (baseline period). Ministries are segmented by type and size as follows:

(Every effort is made to ensure a broad representation of ministries by type and by size. The nature of online survey panels and seasonality play a role in our ability to provide statistically significant results. Where statistical significance cannot be achieved, the results are omitted.)

Churches
The following table reports church attendance and revenue for the second quarter of 2011by church size. The “Low” figure represents the lowest reported number in this category. The “High” figure represents the highest reported number in this category.

The following table reports the percent of change over the previous period (Q1 2011). Negative changes are shown in red.

  • Mega churches experienced the largest drop in average weekend worship attendance (23%) while Medium churches reported the greatest increase in average weekend worship attendance (22%) for any single quarterly period since reporting began.
  • On the revenue side, Micro churches continue to experience financial pressure but have been showing improvement over the past period with a 36% increase in the lowest reported number.
  • Small churches reported the greatest increase in quarterly revenue at 60% over the previous period.

The following chart represents the quarterly changes to revenue as a percent of difference from the baseline period (Q2 2010) shown as 0. The baseline period is when we first started tracking ministry revenue in this format.


K-12 Schools

The following table reports K-12 school enrollment for the second quarter of 2011 by school size. The “Low” figure represents the lowest reported number in this category. The “High” figure represents the highest reported number in this category. Due to the limited number of K-12 schools reporting quarterly revenue figures, revenue comparisons are excluded from this report.

The following table reports the percent of change over the previous period (Q1 2011). Negative changes are shown in red.

  • Small K-12 schools were omitted from the findings due to insufficient participation to provide statistically significant results.
  • On average, both Medium and Large K-12 schools saw an increase in enrollment over the previous period.

Parachurches

The following table reports parachurch revenue for the second quarter of 2011. The “Low” figure represents the lowest reported number in this category. The “High” figure represents the highest reported number in this category.

The following table reports the percent of change over the previous period (Q1 2011). Negative changes are shown in red.

  • Large and Mega parachurch ministries were insufficiently represented and thus excluded from these results.
  • The reported increase in revenues in excess of 900% by small parachurch ministries is skewed quarter-over-quarter due to the addition of several new panelists on the high-end of revenue within this segment.

The following chart represents the quarterly changes to revenue as a percent of difference from the baseline period (Q2 2010) shown as 0.

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