Thursday, December 14, 2017

7 Compensation Trends in Large Churches



If good stewardship is your church’s goal, you simply cannot afford to overlook compensation.

Why? Large churches in America tend to invest about half of their overall budget on compensation, according to the latest research by our friend, Dr. Warren Bird at Leadership Network.

This was just one of my top takeaways after sitting down with Warren for a recent podcast interview on large church compensation trends. In addition to the compensation/budget ratio, here were 6 other interesting insights:
  1. Church budget is the most influential factor in setting pastors’ salaries.
  2. Outsourcing is on the rise (outsourcing is included in “compensation,” which equals about half of church budgets).
  3. The second highest ranking church staff member tends to be compensated around 70% of the lead/senior pastor.
  4. Compensation is rising for staff serving in communications and student ministries.
  5. More churches are incorporating bonuses as part of their overall compensation strategy.
  6. Few churches disclose detailed compensation information beyond church boards or committees… making integrity in the compensation-setting process even more key (see ECFA Standard 6).
Listen in to my full conversation with Warren here – “Large Church CompensationTrends” [Podcast].

http://www.ecfa.church/Videos.aspx#Podcasts
 

Check out Leadnet.org/salary for more great tools and free downloads on large church compensation trends.

Tuesday, December 12, 2017

7 Deadly Sins of Year-End Gift Receipts

As we near the end of 2017, givers will once again be looking for ways to be generous while maximizing their tax benefits associated with charitable giving. It’s now your church’s job to help them achieve both goals!

Part of your important role will be to ensure that gift receipts provided by the church meet the requirements of federal tax law for those who will use the receipts as substantiation when filing their returns and claiming a charitable deduction. (We’ll use the more general term “gift receipt” in this article for what the tax code refers to as a “contemporaneous written acknowledgment”—what a mouthful!)

A few of the requirements for gift receipts are pretty intuitive, but others are not. And no matter if you consider yourself a gift receipting novice or expert, now is a great time to review your gift receipt templates and be sure they meet the appropriate guidelines.

Not to mention, the IRS and courts have historically taken a very strict approach to enforcing the gift receipting rules, in some cases, denying tax deductions to the tune of tens of thousands of dollars for not complying with the letter of the law.

As you prepare your church’s year-end receipts, avoid these seven “sins” that can spell death to your givers’ tax deductions:
  1. Failing to receipt the right kinds of gifts (single contributions of $250 or more). The first and most obvious sin to avoid is failing to provide givers with a proper receipt when one is needed. When is that the case, you ask? Tax law sets the bar at single contributions of $250 or more. Gifts below that amount do not require a receipt unless they are gifts of currency (bills and coins), which have no other form of substantiation.

    One annual summary of all gifts made throughout the year is sufficient so long as it lists the gifts by date and amount, making contributions of $250 or more identifiable within the total. Keep in mind that the $250 threshold applies to both monetary gifts and non-monetary gifts (i.e., property).
     
  2. Receipting the wrong kinds of gifts (time and rent-free use of property). Churches are often blessed by those who generously give their time or use of their property to the church. While these gifts are often extremely valuable, they cannot be claimed by the giver as deductible contributions for tax purposes. Churches should never provide receipts to givers for their time or use of their property, but they may provide a letter at year-end thanking volunteers for their time and/or use of property and advising that unreimbursed out-of-pocket expenses related to their volunteer service may be deductible.
     
  3. Receipting the wrong person (a taxpayer other than the giver). Churches are sometimes asked to provide a gift receipt in the name of someone other than the giver. To avoid being complicit in tax fraud, it is generally only appropriate to issue a gift receipt to the taxpayer remitting the funds or property.
     
  4. Missing the correct IRS wording (“no goods or services…”). Here’s a kicker. Even if your church provides a receipt for the right kinds of gifts and to the right person, it still must have some very specific information and wording to be sufficient for substantiation purposes.

    Be sure your gift receipts are in writing and include the following:
  • Your church’s name and the giver’s name
  • The date the donation was made and a date the receipt was issued
  • The amount of cash or description of the property contributed
  • A statement explaining whether the church provided any goods or services to the giver in exchange for the contribution.
It is that final technical requirement that has tripped up some well-meaning churches and nonprofits and cost givers significant losses in tax deductions.
  1. Forgetting to disclose when givers benefit (“quid pro quo”).  That brings us to the fifth deadly sin. If indeed the giver receives something of value from the church when making their contribution (e.g., a book, resource, meal, etc.), only the portion of the gift exceeding the fair market value of the benefit received may be deductible. Churches must provide a receipt for all transactions where the giver makes a payment to the church of more than $75 and receives goods or services in return (other than intangible religious benefits or items of token value).
     
  2. Estimating the value of non-monetary gifts for givers (becoming an appraiser). For monetary gifts (e.g., currency, check, credit card), the church should simply include the dollar amount on the giver’s receipt. When it comes to non-monetary gifts of property (sometimes also called “noncash gifts”), the church should only provide a legal description of the property and not the amount.

    A tension often surrounds a significant gift of property because the giver may request that the church value the gift, even documenting an excessively high value on the receipt. However, it is wise for the church to remain impartial in the matter and simply acknowledge the property by description and condition without valuing it.
     
  3. Timing (missing the right window).  They say “timing is everything,” and that is certainly true in the context of gift receipts. The law requires that receipts not only include all of the proper elements described above, but also that they be provided to the giver in a timely manner (“contemporaneously”).

    The timing rules vary depending on the type of gift involved, but the basic point to remember is the giver will need the receipt for substantiation purposes no later than the due date, plus any extension, of their federal income tax return, or the date the return is filed, whichever date is earlier. Don’t expect mercy if the receipt is provided to the giver at a later date, even on an amended return.  
Although these rules may seem tedious, it is important for us to avoid these seven deadly sins in helping our givers receive the maximum tax benefit for their generosity.

Unlike God, the taxman and courts are not so forgiving.

Looking for more resources?

ECFA is committed to helping your church excel in gift administration.

For a limited-time, get a FREE download of the eBook Charitable Giving Guide for Acknowledging and Reporting Cash Charitable Gifts when you join ECFA’s free resource community, ChurchEXCEL.org.

And don’t miss the FREE webinar-on-DemandAcknowledging & Reporting for Churches—10 Things You Must Know! Click the image below to view the webinar.

Acknowledging and Reporting Webinar on Demand

Church Cash Reserves - How Much is Enough?


One of the most popular budgeting-related questions we receive at ECFA is “How much cash should our church have set aside in reserve?”

Why are cash reserves so important?  Cash reserves are the cushion that ensures:
  • Operating expenses are paid on-time instead of incurring late fees (typically after payables are 30-45 days late);
  • The church is in compliance with mortgage covenants, and the financial institution does not foreclose on the property;
  • Funds are available to replace worn-out HVAC (can you imagine the air conditioning system becoming history on a Sunday morning in July, there are zero capital replacement reserves, and the only option is to take a special offering to replace the unit?); and
  • The church has the necessary funds ready to open a new site or launch a new ministry instead of starting from scratch.
Even Scripture emphasizes the critical nature of reserves. Look no further than this pair of examples from the practical wisdom literature of Proverbs.

“Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest” (Prov. 6:6–8, NIV).

“The wise store up choice food and olive oil, but fools gulp theirs down” (Prov. 21:20, NIV).

Creating and maintaining cash reserves is not as easy as it seems. It requires thoughtful planning and faithful administration. There may be pressure to pay down debt early, pressure to increase the compensation of staff, pressure for a new program—but these pressures do not discount the importance of creating and maintaining cash reserves.

The manner in which a church balances these cash liquidity opportunities will speak volumes about how that church demonstrates its financial stewardship.

Back to our question, when determining “how much is enough,” the short answer is there is no one-size-fits-all.

There is a broad spectrum of church cash reserves philosophies. On one end of the spectrum, some say churches should have few reserves because “God will provide.” On the other end of the scale, some take the position that 12 months of operating reserves should be maintained. Most churches find neither extreme to be ideal for them.



Regardless of where your church happens to fall on the spectrum of cash reserves philosophies, here are a few essentials every church should consider:
  1. Understand how important cash reserves are to faithful administration of church resources.  Appreciating the need for cash reserves starts with an understanding of faithful administration of God’s resources.
    Churches must make cash reserves a priority if they desire to honor God in how they manage church finances. Cash reserves play an important part in giving the world the right impression of God!
     
  2. Build cash reserves in good financial times.  Churches in a growth mode should take advantage of opportunities to build cash reserves. When a church is holding the status quo or is in decline, there are few opportunities to build cash reserves.
    Build cash reserves increases into the budget—otherwise there will be no intentionality in the process.  Consider these two approaches:

    • Project next year’s revenue to be lower than current year expenses.  For example, a church may project the budget for the following year as 90% of the current year revenue.
       
    • Include a cash reserves line in the budget.  Include a line-item in the budget for “Additions to Cash Reserves.”  Then, if cash coming in exceeds disbursements, the excess represents an addition to cash reserves.
       
  3. Segregate cash related to designated funds and mortgage reserves.  An early priority for the use of cash reserves is to be sure that reserves are at least equal to unspent gifts designated (or restricted) for projects. Borrowing from designated balances to pay church operating expenses is a recipe for disaster.
    Example:  A church has cash balances of $300,000. The church has unexpended designated balances of $350,000. The difference generally means that the church has borrowed and spent $50,000 of designated gifts for operating purposes. This $50,000 should be restored as soon as possible.
    Capital replacement reserves are important. Reserves for ministry expansion are vital. But without sufficient mortgage reserves, a church may miss a loan payment and be staring at a foreclosure notice. It is a good idea to maintain mortgage reserves over and above the level required by the lender because use of lender-required reserves may create a loan default.
     
  4. Be specific with cash reserve goals.  Churches are well served to adopt policies requiring reserves at least adequate to cover unexpended designated gifts and debt service reserves. Targets may be appropriate for other reserves such as for capital replacements and ministry expansion.
    A cap and a floor may be appropriate for operating reserves (other than the reserves relating to designated gifts, mortgage reserves, capital replacements, and ministry expansion). The adequacy of these operating reserves is often measured in the number of months of cash.
     
  5. Communicate the importance of cash reserves to the congregation.  Having adequate cash reserves does not exhibit a lack of faith but reflects attentiveness to good stewardship (remember our examples straight from Proverbs!). Proactive church administrators communicate both clear measurements and the rationale for the levels of cash reserves. This can boost congregational confidence for greater giving.
We hope these considerations are a helpful starting point in determining the appropriate level of cash reserves, especially in the midst of church budgeting season. 

For more tips and essentials, check out ECFA’s latest eBook - 9 Essentials of Church Cash Reserves. For a limited-time, get a FREE download of the eBook, when you join ECFA’s free resource community, ChurchEXCEL.org.

Monday, December 11, 2017

Welcome to Integrity Matters - ECFA's Blog for Church Leaders!



Welcome to Integrity Matters – ECFA’s new blog for church leaders! Here you’ll find links to helpful resources, plus inspiration from ECFA and friends on why financial integrity is so crucial for churches before givers and a watching world.
In fact, we're kicking off the blog this week with two very timely and practical posts for year-end with free resources on the topics of church cash reserves and year-end gift receipting.

In the coming weeks, we’ll be featuring stories and insights from guest bloggers reflecting on why integrity matters in church finances.  To get things kicked off, I’m excited to share a few thoughts of my own on this topic that’s so close to my heart.

Serving here at ECFA on the church relations team the last several years, I’ve had the privilege of witnessing the number of churches carrying ECFA’s certification for financial integrity more than double (see ECFA.church/Join.)

For each new member we certify, I have the privilege of asking, “What was your motivation to apply for ECFA membership?"

And while every church has a unique story to tell, if I could summarize one common thread I hear between them all, it is their shared desire to be above reproach and to add another layer of credibility as they share the Gospel and connect with givers.

You see, according to Barna Research, we live in a growingly secular culture where 1 in 4 unchurched adults now identify as atheist or agnostic. Can you guess why? Lack of trust in the local church ranks high on the list (of course, along with other factors like rejecting the Bible as true).

This distrust can be caused by a number of factors, but we can’t deny that personal experiences and negative headlines over the years involving certain ministry leaders mishandling finances have had a role to play. To unbelievers—and believers alike—one of the top areas to investigate when checking out any church is how they handle their finances… what is their philosophy surrounding money.

It some ways this shouldn’t surprise us. The Apostle Paul responded to similar concerns in addressing the early church in Corinth. It’s a portion of scripture we turn to frequently here at ECFA: “For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of men,” 2 Corinthians 8:21 (NIV).       

So why financial integrity? The fact is it’s always mattered—going back to the earliest days of the church. It’s all about Jesus and protecting our witness for Him in the world. We also must be so careful (“taking pains”) to reinforce trust with our givers who generously provide the financial resources needed to carry out the Great Commission.

But perhaps it matters in our context of the American church today more than ever. Churches are pursuing ECFA in record numbers today because these precious churches recognize the changing landscape and have seen the difference that demonstrating financial integrity can make before their givers and a watching world. They’re looking to ECFA as a trusted partner for third-party credibility and accountability which are so crucial. It’s our honor and privilege to provide that support for those on the front lines sharing the good news of Jesus Christ.

There’s so much more I could add and will do so in future blogs, but for now, these are just a few introductory thoughts on why integrity matters in the local church from my perspective at ECFA.

What are you seeing when it comes to financial integrity in the church? How is it making a difference?

I look forward to hearing your thoughts.

Your Partner for Integrity,

Michael


P.S. Learn more about ECFA’s integrity standards for churches at ECFA.church/Standards. While you’re there, download the FREE eBook – 5 Building Blocks of Church Financial Integrity. This short and sweet resource captures the heart behind this blog and our ministry at ECFA in “Enhancing Trust in Christ-centered Churches and Ministries.”

5 Building Blocks of Financial Integrity