The reason for preparing financial reports is to communicate with people.  This suggests that the person preparing a report has something to say, or has responsibility for communicating something.  Let’s think about what it is the recipients want to know, and what we want them to know, and find the clearest way to meet those needs.  Particularly with numerical reports, there is no escaping the notion that as soon as we begin to summarize data we are taking on the responsibility for making useful interpretations of it.

Financial Reports

It is surprising how often church financial statements are visually cluttered, unclear, or incomplete.  This frequent result happens in spite the well-intentioned treasurer naively offering every number anyone might ever want to see.  Such “thorough” reports are prepared in an apparent belief that accuracy in detail is more important in financial statements than clarity of message.  As a result board members sit around a table month after month looking at four or five pages of numbers, listening while the treasurer explains them, and still complain privately that they do not really understand what is happening.  Treasurers are quantitative souls whose world is understood by the numbers.  The others are usually not.

Good reporting makes financial people useful;  interpretation and generalization of financial material is helpful.  Overly detailed or disorganized reporting is dreadful and creates the sense that the organization is not well managed.  Everyone loses confidence in an organization whose financial reporting seems in disarray.  No one will offer wholehearted financial support in this environment.  Even board members will commit less if the financial management is foggy.  We need to find ways to make the numbers speak loudly and clearly.

Let’s begin by describing the format of a well prepared financial report.  A complete report from the treasurer contains three financial statements, each summarized on a single, separate page.  We learned a little about the first two statements in Chapter 9.

The Statement of Financial Position (balance sheet) will show where we stand right now.  It will show how much is in the checking and savings accounts, the value of church property, how much is currently due on the mortgage, all the reserves which have been set aside, and the accumulated surplus or fund balance.  It is a snapshot of the financial health of an organization at a single point in time.

The Statement of Current Activities (income statement or budget report) will show everything that has transpired thus far in the current fiscal year, usually juxtaposed with the budget to get a sense of whether the church is on target with its financial expectations.  It is a longitudinal statement about the current year.

Finally, the Statement of Cash Flows contains information from each of the other statements.  It will show the cash balance at the beginning of the year and all changes to get to the current cash position.  “Cash” in this report usually includes items such as petty cash and savings certificates.  (Whatever one decides to include or not include as “cash” must be the same for the beginning and end of the reported period, of course.)  At the bottom of the cash flow statement I also include a calculation of the amount of “working capital” in the accounts, the amount beyond requirements to meet current liabilities and fulfill the requirements of the dedicated reserves.  Here are some guidelines for preparing helpful financial reports.  (See examples in Appendix 19.)

1)         Never prepare reports to the penny.  Never. Because humans do not absorb strings of digits well, we need to lop off the least meaningful of them.  (Offering reports at that level of accuracy trumpets amateurism on the part of the preparer.)  No one is interested in that level of accuracy, not even the members of the finance committee.  The accounts must be kept to the penny, and computers do that fantastically well.  But all reports get rounded to the dollar, at least.

2)         Some line items get consolidated.  For example, you may be keeping track separately of a phone line dedicated to fax and computer, a monthly charge for internet access, an account for local telephone charges, and a separate account for a cell phone.  When you report them, they can be summarized to “telephone and internet”.  Another useful area for consolidation is personnel expenses — benefits, employment related taxes, and so on.  Where there are several paid staff members, there is no need to report to the board on the amount of salary, taxes, or benefits by individual employee.  They need to be isolated in the bookkeeper’s accounts, but in financial reports they can be summarized.

3)         Reports for different purposes have different numbers.  The budget prepared as part of the stewardship drive needs to be compatible with financial reports later in the year.  They need not be identical because they are for different purposes.  You will notice in Appendix 4, for example, that the vision budget for TCC lumps together interest expense, principal repayment, and other costs into the item “building and maintenance.”  Of course, principal repayments are not an expense and are handled differently in financial reports during the year.  (See an explanation of this in Appendix 14.)  None of us wants to stand before the congregation and explain how we need to pay down the mortgage principal, but it’s not really an expense.  It is easier to present the numbers in a format more easily digested.

Alternatively, some have argued that the stewardship drive budget might be better presented in the programmatic format I have suggested here.  But, they argue, when it comes to expense control and authority during the year it is better to reformat to the traditional line items.  If such control seems an important issue for you or your leadership through the year, I have no argument.  The traditional line item budget is a singularly unimpressive, boring and nearly useless tool with which to engage the congregation however.  One should design the format for the purpose at hand.

4)         Reports for different audiences are different.  When the finance committee, the board, and even the congregation all look at the same level of financial detail, one is drawn to the question, “why”?  What issues are they each expected to deal with, and might that be more clearly understood with a somewhat different level of focus?  If your church is large enough to have a finance committee in addition to the board for example, there should be an understanding between them regarding their different responsibilities, and the financial information they receive.  The reason the board creates a finance committee is probably because they want closer scrutiny than the board provides.  Thus, the board is asking for less detail, or less frequent reports, or both.  If the board does not understand that as its request to the committee, then perhaps the board really wants a committee just to run the annual stewardship drive, in which case re-naming the committee might be in order.

5)         It can be helpful to vary the report information over the course of the year.  It might be that the treasurer’s report at the first few board meetings of the year would be oral only.  There might be a written report to the board only quarterly for the first half of the year.  Then the reports might be monthly for the second half.  Or particular items might be treated differently throughout the year.  Stewardship income, for example, might be consolidated during the first six months; then it would be broken down between commitments made during the annual stewardship drive and those received from new members through the latter months of the year.

6)         Each financial statement needs to be confined to a single page.  This is an extreme statement to some, and reminiscent of a directive to the White House staff during the Reagan Presidency to never present an issue on more than a single page.  But, consider the alternative.  If the monthly “budget” report to the board is four pages of numbers, legal sized yet, it is worse than useless.  It is dangerous because it creates the sense that the board knows what’s happening.  It is more helpful to reach toward the one page objective than to ignore it.  The sample statements in Appendix 19 are only one page each.  It is possible to provide useful reports in that format.

7)         Reports need lots of white space on the page.  If reports have more than four columns of numbers, the audience will be lost.  The following four columns on the Statement of Current Activity describe everything the board might routinely want to know:  1) annual budget, 2) budget to date, 3) actual to date, and 4) variance to date.

8)         The numbers always need to be thoughtful and relevant.  Focus for a moment on the “budget to date” column mentioned above.  Many reports which offer such a column heading use a straight line calculation, or a percentage of the year passed to calculate every number in the column.  The assumption behind the calculation is that every income or expense item is evenly distributed through time, or that we wish it were.  Do not fight reality on this point;  many income and expense items are not evenly distributed through the year.  Your report, to be most useful, must reflect reality.

Stewardship income, for example, is usually the largest single income source, but also one of the more difficult items in which to have confidence so that we can be left wondering all year whether we will end up “on budget”.  The community has fought hard to have a successful stewardship drive.  Our experience tells us the income does not arrive in equal monthly increments however.

Let’s give particular attention to this number.  There are patterns of giving which repeat year after year.  The gifts the church receives are affected by tax season, summer, and so on.  It is helpful to study the actual patterns occurring in your congregation; it will give you a stronger sense whether stewardship commitments are on target or not as the year progresses.

It may be that your chart of accounts and historical adherence to it make it very easy to determine the rate at which total stewardship receipts have been paid historically.  I try to keep stewardship income in three separate categories for accounting purposes:  1)  payment against commitments made during the stewardship campaign; 2)  payments on stewardship commitments made later, either by new members mid-year or by others who didn’t get around to pledging during the canvass drive; and 3) payments made late by either group, after the end of the fiscal year for which intended.

If you have those categories, great!  The first question to address:  How much of the amount that is pledged during the canvass can we realistically expect to receive during the following fiscal year?  Pull out the payment histories on 20% of the pledging families or individuals each year for three or four years – a different selection each year, but all from those who made a commitment during the stewardship campaign.  Find a way to do this randomly.  You do not want to choose only people you know, or like (or don’t like!).  You simply want to find the total pledged by a representative group and how much of their commitment was actually paid eventually.[1]  Break out the percentage paid in twelve months, and any increment paid late.

After doing this you can make a confident guess as you take the stewardship campaign total to the budget meeting.  You can offer two pretty good numbers – the amount of the stewardship pledge total you can count on this year, and the amount of late pledge payments you can expect both this year and next.  In my congregation we count on getting about 92% of the canvass commitments during the year and an additional 3% during the first three months of the following year.

Once you have determined how much stewardship income you are likely to receive in total you will still want to know what to expect as a likely rate of monthly receipts.  It is best, I think, to use gross averages for this rather than averaging together the behaviors of particular individuals.  So, it is a less complex problem:

a.   Get copies of all the monthly financial reports for the past three years.  Copy the cumulative receipts by month for all those years onto a spreadsheet.  If you have reports showing only the gifts from the canvass commitments, use those; otherwise use what you have.

b.   Add together all the receipts through July, through August, through September, and so on.  This eliminates distortions caused by occasional five week months.

c.  Calculate the percentage of the total for each month.  You will end up with a series of numbers like 12% 17%, 24% 30%, . . . . .etc

d.   Apply those percentages to the total income you expect to receive actually, not to the total commitments.

Make a similarly thoughtful calculation with other expense categories too if you wish.  Some staff, for example, may be paid year around; others may be paid on a ten month basis.  Many RE expenses occur in the same months every year because that’s when the DRE orders most supplies.  It makes no sense to compare actual spending in such instances to an irrelevant even distribution of the budget throughout the year.

Stewardship Drive Reports

Rarely is the “report on the stewardship drive” more than the repeating of a single number to the Trustees and to the congregation: How much is the gifts commitment this year?  The answer to that one question is held up as either indicative of success, or failure.  What congregants decide to contribute to their congregation is a terrific indicator, however, of a congregation’s gestalt and ministerial health.  Surely we might learn something more if, after the stewardship drive is over, we look at the results a little more closely.

There are two ways to study data after the stewardship drive – one can compare a given congregation with others that seem pretty similar, or one can compare a congregation’s  results with what has happened with that same congregation in years past.  Both kinds of analysis can yield useful information in theory.  My own preference however is to spend more time and energy thinking about what happened in our congregation this year vs. what has been happening in prior years.  There are two reasons to be a little wary of comparisons across different congregations.  First, while two congregations may seem similar, they are never so.  One can make crude comparisons regarding the number of members, or staff, or whether they are in the same community, but factors not as easily comparable are most important in determining member support.  So, while one can say the average commitment here is such and such amount, as compared with this other church, after making the comparison one does not know, nor can one easily determine, why.  Thus, one is left with numeric comparisons without insight — which have questionable value.

Second, when one is looking at a single congregation over a number of years, one has more control over the collection and manipulation of the data.  For example, does the “average commitment” amount include the zero commitments?  Does it include only those commitments received during the annual stewardship drive?  Is it computed as a per member number or a per family number?  The difficulties of maintaining consistency over the years within a single congregation are considerable; they are more onerous when comparing different churches.

Having said this, there is still some value in congregational comparisons.  If, for example, your church has a “similar” sister church in the next town and you learn that the average commitment is double what yours is, or even 50% higher, that’s enough of a discrepancy that it might be useful to explore it further.  This does not mean simply accepting the unfavorable comparison and exhorting your own members to “do like they do” in the next annual drive.  Rather, the leadership of the two congregations might pursue the apparent difference through discussion.

When thinking about what kind of year to year changes might be important to the leadership of a congregation, I suggest the following data at a minimum:  How many new committing families or individuals are there?  How many have disappeared, or stopped?  How many are still present but have decreased giving by more than $25/month?  How many have increased giving by more than $25/month?  What is the median percentage change in stewardship commitments (note: not the median dollar change)?  How are these changes in commitment distributed among the large, medium, and small givers?

I have included a sample stewardship history report in Appendix 21.  The annual budget drive team needs to prepare such a report to be shared with the leadership every year.  After collecting such data for three years or more, you will be able to detect trends or expectations.  It becomes clear in reviewing the report what kind of follow-up might be called for, where the weaknesses and strengths of giving are in your congregation.

You will notice in my sample report (Appendix 21) I have segmented families and individuals into giving groups by dollar amount.  While you might prefer to conduct a stewardship drive with recognition levels using percentages, when analyzing stewardship giving (which has a very limited audience) use hard dollar information for increased accuracy.  I divide stewardship giving families into quartile groups.  That is, I arrange all the families or individuals from largest commitment to smallest.  Then, I add the gifts from the top and work down until I get to about 25% of the total.  That’s the first quartile.  I continue down until I find the group giving the next 25% of the total, and so on.  The reason for this more detailed level of understanding is to set aside the “noise” introduced by the lowest level givers.  As a group you will find that their stewardship has a life of its own, and they are not subject to the trends of higher level givers.  Your discernment regarding the primary supporters will be more informed if you break away from overall averages.