Lizette Beard: [00:03] Podcasting from Nashville, Tennessee. This is Keep Asking, the weekly podcast that helps you dive in a bit deeper and wider into the research to providing insight into today’s church and culture.
Lizette: [00:16] Hello, and welcome. I’m Lizette Beard here with Scott McConnell and Casey Oliver. Today we’re going to be talking about some new data we have from American pastors about church finances. Before we jump into them, I have a super serious question for both of you.[00:49] Here’s the scenario. You’ve each been bequeathed, $785,000 by a distant relative with strict instructions. One, the money cannot be invested nor can any of it be donated to a non‑profit, yet the entire amount must be spent within the next 18 months. What’s your plan?
Scott McConnell: [01:15] Wow, you took away the first two uses that I’d normally would think of.
Lizette: [01:19] We’ve met.
Scott: [01:22] My first reaction is to try to make it last as long as possible. We’ve got to spend it how fast?
Lizette: [01:28] In 18 months, which I think is actually…I remember hearing from a financial planner. I don’t have the official results on this. A lawyer who was talking said that regardless of the amount, inheritances are typically blown in 18 months or so.
Casey Oliver: [01:46] I was thrown off by the specificity with the $785,000. You hadn’t…
Lizette: [01:52] No, I started out with $5 million. I thought, “I don’t even know if I could blow through $5 million.”
Casey: [01:58] How did you land on…?
Lizette: [02:00] I just started getting really specific. OK, stop with the chit‑chat. I need to know…I wanted to get to the fun. If you weren’t going to feel guilty by not giving it to the church and not investing it, what kind of fun could you have with $785,000?
Scott: [02:16] I don’t know. I could travel for 18 months. A little leave of absence and, “Hey kids, let’s home‑school…
Scott: [02:26] the next 18 months and hit the road.” That would be a fun way to do it. Obviously, you can go first class with that kind of money.
Casey: [02:36] My first reaction was that I would eliminate most of the responsibilities that I have. I’ll probably get a nanny. We’ll still hang out with our kids, but then…
Scott: [02:51] The first thing you think is outsourcing the parenting.
Casey: [02:52] They can change diapers, or somebody will the clean the house, whatever, all those things. I’m just doing the fun jobs around the house and none of the work jobs. That’s probably what I would…
Lizette: [03:06] I hope Scott and I get our windfall at the same time, because that’s exactly what I would do, is I would travel. I was even having trouble because I thought, “Oh, around the world cruise.” but I don’t think that’s going to take a big enough chunk out of it.
Scott: [03:22] You can always have a new house waiting for you when you get home.
Lizette: [03:25] Right. I was just thinking, what are some rich experiences? One of the thoughts I also had was, because my mom being older making sure she could travel in very high level of comfort, but get to see some of the places that she’s wanted to see.[03:45] All right. Enough about our good fortune, and windfalls, and finances, let’s talk about church finances. We asked pastors about their church’s cash reserves, any experience with embezzlement, and financial audits. Now, typically if you’re going to tell me we’re going to talk about church finances, this would automatically bore me and I’m just keeping it real. [04:13] I would just start to tune you guys out, and just have some generic questions that whenever there was a pause, but these three topics stir a little stress in me. Maybe I should clarify I do not have a guilty conscience on any of these. Is that what we were going for with this trio of questions …some stressors?
Scott: [04:37] Yeah, definitely. Some of this is more just systemic, but some of it also can be tragic if we’re talking about embezzlement or something where somebody’s misappropriated funds.
Lizette: [04:53] The responses to the question about cash reserves fascinates me. I was not expecting to see…Well, I can let you all maybe introduce that. The smaller churches had a pretty strong response more so than those with the larger churches, but I’ll let you jump in and start describing it.
Casey: [05:16] Well, just at the top level, 26 percent say their churches have cash reserves for seven weeks or less, 24 percent, 8 to 15 weeks; 15 percent, 16 to 25, 12 percent so half a year to a year basically, and 23 percent a year or more.
Lizette: [05:37] It’s really spread out.
Casey: [05:38] Yes.
Lizette: [05:38] Basically from less than two months all the way to 52 weeks we’re having…
Casey: [05:45] To have a quarter in both of those spaces of seven weeks or less and a year or more. Again, and I’m not an expert on this and that’s one of those things right I know what my expectation would be or what’s even best practice. I look to Scott to maybe tell us maybe more about that.
Scott: [06:03] It’s not an easy thing to answer. What is best? The rule of thumb for a lot of business is this: three to six months of reserves. When we say reserves and we had this ready in case a pastor needed an explanation, but essentially “If offering stopped tomorrow at your church how long could you continue to pay your bills, and that would include your payroll?”[06:25] Both ends of the spectrum that Casey was pointing out are pretty amazing that a quarter of churches wouldn’t even make it two months, but that another almost a quarter could make it a year or more. They’ve got that much in the bank to continue to pay staff, to continue to pay a mortgage if they have one and the like. [06:48] It does tend to differ by industry how much reserves a business keeps, but a recent survey by JPMorgan Chase on small businesses, we find that the median small business has 27 days of cash reserves. Half of small businesses could not last a month without some income coming in. Obviously small businesses will often have debt, often be leveraged, and payroll is a big chunk of their business. [07:33] Those are real things that affect your cash flow, but those characteristics can be characteristics of churches as well especially a younger church often has the debt of their building. One of the biggest expenses for every church typically being at least 40 percent of their budget is their payroll. Those make you vulnerable to cash flow issues.
Lizette: [08:00] Casey, anything stand out to you on that one?
Casey: [08:05] Again it’s one of those things where I didn’t come in to say, “This is what it should be.” That’s always interesting I guess, and this is probably even a good example for people as they’re processing, researching, what was my expectation for this question? Is it different from that? Is that insightful?[08:24] Sometimes maybe it’s just a completely new area where it’s helpful to hear what Scott was saying and just to be able to process how dire a situation is that or how different a situation is that from maybe broader culture and other industries.
Scott: [08:40] We do see that larger churches avoid the lowest amount of time and they tend to land in the 8 to 15 week category, 4 out of 10 mid to large size churches land in that amount of cash reserves. They tend to be the ones that probably have somebody at least part time on staff helping with finances and more likely to be a little more organized in that way.[09:07] For every ministry we need to be surrounding ourselves with good financial minds, so that we understand how our ministry operates, what cash flow is needed to make sure that we’re ready for the unexpected, and that we don’t have too much tied up so that we’re burying our talents as the parable went that Jesus shared. [09:31] We want to be using those resources to do ministry, but at the same time we need to have enough in reserve that when something unexpected happens ministry can continue.
Lizette: [09:41] 1 out of 10 pastors say that they have had someone embezzle funds from their current church. Just to clarify the boundaries of the question. The embezzling could have happened while the pastor has been at this current church or before the pastor arrived.[09:58] Correct, that was in there. We define embezzle for the participants as taking church money for personal use. We’re talking about a pretty broad spectrum of time when it could have happened in the history that the pastor would know about and also the amount. You could be talking about petty cash or a big financial discretion. [10:21] I certainly hope we’re not talking about a church employee being found with a significant number of binder clips from the church supply closet that ended up at their home, because if that qualifies as embezzlement, I may actually have a guilty conscience.
Scott: [10:37] Or vanilla wafers from the nursery.
Lizette: [10:39] Yes, there you go. What did we learn? Did we see anything here when you broke it out Casey? Take your time.
Casey: [10:56] OK. Thanks
Lizette: [10:57] I’m just teasing you.
Casey: [10:59] It’s one of those things where…There’s not really a lot there in terms of distinction. Well, it might be telling in some ways that across the spectrum, people were at least around that 10 percent range, but it isn’t in big churches that’s happening 30 percent of the time, and at small churches because that’s never happening. That seems like it’s pretty similar across the board.
Scott: [11:28] Well, let me push on you a little bit there. We’ve got a full page of what we call significant differences and yet you’re not seeing very much. Why is it that sometimes something can be statistically significant and yet it doesn’t seem to matter?
Casey: [11:47] Yeah, statistically significant versus meaningful. If you have a large enough sample size sometimes you can say these two things that are two percent apart are statistically significant from one another. Sometimes with some of those Pew research studies where they have, I don’t know 20, 000 or whatever people come into it.[12:07] Sometimes you see things flagged significant difference you go like, “Well, that doesn’t seem like it matters at all.” When you’re saying statistically significant is, all you’re saying is we know that more than 95 percent confident that the numbers are different for the population as a whole. [12:26] Not just in our sample, not just in the people we asked, but when we say…Let me find one of the examples here. OK. When we say that pastor’s age 55 to 64, 12 percent of them are more likely to select yes than those 65 plus, four percent of those. [12:50] That eight percent gap there is enough to say that among 55 to 64‑year‑old pastors, that number is higher than it is… there’s enough evidence to say that it’s higher than it is for pastors age 65 plus. Still for both of those, that 12 percent number is not very much different from the nine percent overall. [13:11] I think it’s one of those things where it’s OK, knowing that information tells me these groups are at least a little bit different. It’s not an effect size. It’s not saying, “Here’s how different they are.” Sometimes those differences can be pretty small as opposed to gigantic.
Scott: [13:29] It’s a real difference, but it’s not enough to change the story?
Casey: [13:32] Right.
Lizette: [13:37] I know this is totally blind, crazy here, but did you happen to look and see if those churches in any crosstabs between those who’ve never had a financial audit at their church? Jumping ahead for a third question. Maybe they’re not recognizing enough embezzlement, because you didn’t look?
Casey: [14:02] We haven’t actually looked at that, but that’s actually worth looking at. That was interesting. Sometimes we do that a little bit of the deep dive where we say, not just on demographics, but here’s this other question that might relate to how they would answer those and look at a different cut.
Lizette: [14:19] I’m going to go ahead and assign that to you, and then if there’s anything super exciting, we’ll put it in the show notes. It makes me think, and I’m jumping ahead here. In full disclosure, I’ve never been in‑charge of handling or managing the finances for a congregation, I realize that’s stunning for everyone involved.
[14:39] I’m stunned that 10 percent of pastors say that their church has never had a complete financial audit. Now, again we didn’t have an open end where they gave us the story or the reasons. It could be transparency. Everybody can see the books anytime they want. It could be we’ve never gotten around to it. We don’t have the expertise.[15:04] It could be any indication, but I would be interested to see if that number changes if my hunch should be those who’ve never had an audit might be less likely to report that they’ve ever had embezzlement, because they’re not looking at it.
Casey: [15:20] They might not, right.
Lizette: [15:21] Yeah.
Casey: [15:22] Even though the way we ask that question, on the embezzlement question, we gave the options, as yes or not that I know of, because we’re aware that just because we’re not aware that somebody, like Scott said, took a hundred dollars from the petty cash, doesn’t mean those didn’t happen, it’s just that sometimes people aren’t aware of when that embezzlement happens.
Scott: [15:43] If we add in the pastors that weren’t sure when the last time their church had a complete audit, that’s a quarter of pastors. It’s not in recent memory that their church had an audit. Obviously, you’re looking for indiscretions in an audit, but you’re also making sure that your accounting practices themselves are ethical.[16:08] As ministries we’re called to be above reproach. That’s true of leaders and that’s true of ministries. As leaders we’ve got to be leading our ministry to take those steps whether it be in the set of ethics that relate to accounting, or the set of ethics in how we communicate, or other aspects of our ministry. [16:32] We’re definitely served by ministries like [ECFA] and others that have been coming along side ministries, and coming along side churches, and giving them guidance on how to make sure their practices, and how the taxes, and other accounting things, they can be above reproach.
Lizette: [17:00] You guys, I didn’t tell you I was going to say this or ask this, which is like many of my questions.
Lizette: [17:08] If a pastor or ministry looks at this and realizes, “Oh, that’s something we need to be doing.” But they don’t have any orientation. They’re just sitting there with Quicken hanging on for dear life, any suggestions or tips on…?
Scott: [17:27] Well, I think you eluded to it earlier, Lizette. The fact that you’ve never been near this…
Scott: [17:36] That’s a matter of using people’s skills and their spiritual gifts.
Lizette: [17:40] Right.
Scott: [17:41] Finances isn’t a spiritual gift, but it is a gift that God give certain people to handle finances. Even in the church of a dozen people, one of those dozen people is going to be better with finances than the others. Even that person though, needs some accountability to someone else. That someone may need to be on the outside of that fellowship to look over what they’re doing.
Lizette: [18:09] That’s a good point. Hasn’t it been in some traditional churches, the treasurer or the person who actually works in the church office who handles the money is actually a member at a different church and goes on Sundays? Have you all seen that?[18:30] A couple of churches I’ve gone to have actually had that. It could be the sweetest little old lady who’s just a fiend with the numbers, but she goes to the Presbyterian Church down the street. It’s just a little bit of that separation. [18:45] I’m not advocating, “Hey, cut out your member.” I’m not saying good or bad, but it’s that just having a choice of, “Hey, we’re having someone here, but there’s also making sure there’s some relationship separation.”
Casey: [18:59] That’s a good word of advice in a lot of different areas, just to have layers of accountability. Maybe not for everyone they need that, but for some people, that’s a good step that they can take to…Like Scott said, “Be above reproach.”[19:16] Thinking about that in other areas, even we asked in the pastor protection survey about having another staff member present when they’re counseling members of the opposite sex. 78 percent of pastors say that they do that. That’s just another one of those steps, whether it’s financial or whether it’s in a different space where you can say, “How can I make sure I’m above reproach and make sure that I’m protecting against risks, potentially?”
Lizette: [19:43] All right. Good stuff guys. Casey’s going to dig in and spend the next couple of days just soaking up what other rich finds that we can have. We’ll see if we have anything else and add that to the show notes.[19:54] Thanks for listening to Keep Asking, the library research podcast. If you like what you’ve just heard, we hope you’ll pass along our web address, lifewayresearch.com to colleagues or friends who may be interested. Write and review us on iTunes and be sure to tweet your questions and comments to us @LifewayReseach and individually @smcconn, @StatsGuyCasey, and @LizetteBeard.
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Lifeway Research: 1 in 10 Churches Has Had Funds Stolen by Lifeway Research