Assuring Trust

In his Wall Street Journal column sum­marizing the past 10 years, Thomas Frank titled his editorial “A Low, Dis­honest Decade.” He goes on to say “Ensuring that the public failed to get it was the common theme of at least three of the decade’s signature foul-ups...as the press and politicians were asleep at the switch.” Contrasting this attitude of keeping the public uninformed, ECFA starts its fourth decade of assuring the public’s trust by encouraging Christ-centered churches and parachurch ministries to function at the highest levels of integrity and accountability. Driven by a steady flow of reports of possible wrong­doing, ministries are increasingly under scrutiny by the media and the donor public. It’s an issue of trust. Congress has ramped up its attention on churches and parachurch ministries in the last few years—even implying that some ministries cannot be trusted. While we have enjoyed a brief respite from this attention during the health care reform debate, it is now back to business as usual on Capitol Hill. The recession has impacted most ministries—and the depth and length of the financial trough is still an unknown. When the flow of funds tightens, there is often a temptation to use project-restricted funds for operational purposes or to be less than fully forthright in stewardship appeals—these are paths that will not evoke trust. This all adds up to the ingredients for a perfect storm—high scrutiny by the media and public, additional concerns by Congress, and operating funds in a shorter supply than we have seen in recent years. And the issues generally relate to finances, fund­raising/stewardship, and governance; all three are found in the core of ECFA’s standards. It is a time to be trustworthy in all these areas. What an opportunity for ministries seeking to fulfill the Great Com­mission to be models of integrity and accountability during the swirling turbulence! What a time for givers to open the storehouse doors as Joseph did in times of old and support ministries that take the high ground! What a time to be trustworthy! Accountability to God, to a ministry’s governing body, to its financial supporters, and to the government are all bedrock components of trustworthiness. A ministry may be functioning at the highest level of integrity “in the eyes of the Lord.” But how does a ministry demonstrate it is doing right “in the eyes of men”? How will it demonstrate trustworthiness? This is difficult without independent oversight by an organization like ECFA. Accountability to ECFA’s standards and the commitment of a ministry to annual and special reviews is an important element of building trust in those who support ministries. With hundreds of thousands of churches and tens of thousands of parachurch ministries—and many more being approved each year by the IRS—is it any wonder that many donors are concerned about which ministries they can trust? It is not surprising that nearly two million visits are made to ECFA’s website annually—primarily to determine whether a certain ministry is an ECFA member or not; 35,000 clicks were made by Web users in January 2010 looking for a project in ServantMatch™. Givers want to support ministries they can trust. It should not be surprising that Christ-centered churches and parachurch ministries are fulfilling ECFA’s accreditation requirements at a record pace in a desire to earn the public’s trust. ECFA welcomed 100 or more new organizations into membership in 2008 and again in 2009—a pace unparalleled in the last 20 years! John Wesley said: “Our respon­sibility is to give the world the right impression of God.” ECFA plays a critical role in this process for ministries.

A Time to Focus on Fulfilling Giver-Imposed Restrictions

One of the impacts of the disastrous Haiti earthquake will be a heightened focus on how ministries raise and use gifts given for Haiti-related programs. There will be stories about charities that operated outright scams. But the focus will also be on legitimate ministries and other charities. If you doubt this, simply think back to the events after 9/11 and the loss of credibility for charities that did not spend funds as promised. The Haiti earthquake highlights the importance of truthfulness in fundraising—a key ECFA standard. There are a wide variety of programs being delivered: disaster relief, development, church planting, child sponsorship, volunteer medical teams and much more. While some ministries are well-equipped to conduct church planting and child sponsorship, it could be disingenuous to represent that they provide disaster relief or post-disaster development process of rebuilding infrastructure and livelihoods. This is a time for organizations ministering in Haiti to perform a checkup:

1. Do fundraising appeals (printed, web, and other media) clearly and accurately communicate the ministry your organization is prepared to perform?
2. Will your ministry expend the gifts within a reasonable time period?
3. If there is a possibility of raising more gifts than needed to carry out the project communicated to givers, did the fundraising appeals clearly state how any excess funds will be used?
4. Does your organization raise funds for foreign charities providing services in Haiti? If so, you may be crossing the line into conduit transactions that may not result in a charitable gift for the giver.
5. Does your organization raise funds for Haiti projects and make gifts or grants to foreign charities providing services in Haiti? If so, are policies and procedures in place to ensure proper oversight of the use of the funds?

So if your ministry is accepting funds for projects in Haiti, perform your due diligence now on what is being promised to givers, how you will track the gifts, how you will spend the funds, and how you will monitor the outcomes of the programs. It will be time well-spent.

Tax and Finance Opportunities for Clergy and Congregation in 2010

The new year 2010 brings new opportunities for congregations and clergy with respect to tax and finance issues. Here are four reminders to help you get the new year off to a good start.

• Business mileage. The IRS has provided a new maximum business mileage rate for 2010 of 50 cents per mile. The new rate is down from the 55 cents per mile maximum for 2009. The new mileage rate has the following implications for congregations and clergy:

1. If the congregation has been reimbursing business miles at a rate less than 50 cents per mile, it may be an appropriate time to consider increasing the reimbursement to the new maximum rate. Reimbursing clergy (and other staff) at a rate less than the maximum rate is simply poor stewardship. The difference between the maximum IRS mileage rate and a lower rate of reimbursement has little tax value to the staff member. It is so much better to prospectively establish compensation at a level which allows for a reimbursement of business mileage at the maximum rate.
2. If the congregation has been reimbursing business miles at a rate more than 50 cents per mile, a reduction in the reimbursement rate to the new maximum is generally appropriate. If a congregation continues to use a reimbursement rate higher than 50 cents per mile in 2010, the amount reimbursed over 50 cents per mile is additional taxable compensation to the staff member.

• Clergy housing allowance. The first of every year is a good time to review the amount of the housing allowance designation for each clergy employed by the congregation. Retroactive housing allowance designations are invalid, so if a housing allowance designation needs to be increased, the earlier the action is taken in a year, the better for the clergy. A housing allowance designation is appropriate for clergy who own or rent their own home or who live in a parsonage and pay some of their housing expenses.
• Reimbursement of business expenses. The first of the year is also an excellent time to review the accountable expense reimbursement practices of the congregation. A congregation that only reimburses a portion of clergy business expenses is generally penalizing the clergy from a financial standpoint. What is the value of business expenses not reimbursed by the congregation? They only have minimal value because:
1. The IRS is increasingly firm about disallowing the portion of unreimbursed expenses that relates to a housing allowance exemption. Example: A clergy receives $50,000 cash compensation, of which $25,000 is designated as a housing allowance. After applying the housing allowance limitations, the clergy excludes $25,000 for federal income tax purposes. The clergy has $5,000 of congregation-related expenses that were not reimbursed. The IRS takes the position that since 50% of the congregation-related compensation is tax-free under the housing allowance rules, only 50% of the unreimbursed expenses are deductible (50% x $5,000 =$2,500).
2. Clergy that do not itemize deductions on Schedule A (this includes nearly all clergy who live in congregation-provided housing) receive absolutely no income tax benefit from unreimbursed business expenses. Even clergy who itemize deductions, are limited to claiming unreimbursed expenses that exceed 2% of adjusted gross income. And, then the tax savings is limited to the marginal federal income tax rate.
• Income tax withholding. The first of the year is also a good time to determine whether the congregation will withhold federal (and, perhaps state) income taxes for 2010 on a voluntary basis. (If this withholding was in placed for 2009, then, it may only be a matter of adjusting the voluntary withholding amount for 2010.) Income tax withholding is not required by a congregation for clergy—it is a voluntary issue. But, congregations who offer this option are often doing clergy a good favor by providing this practical way to pay their taxes as they go. The amount of federal income taxes withheld may be set at an amount high enough to cover self-employment social security taxes. The withholding is FICA; it must be withheld as federal income taxes even though it funds the self-employment social security tax obligation.

The Long View

We live in a 24-hour news cycle, results-now world. In contrast, our God takes the long view.

Seeking immediate results is rarely more common than when our ministries are impacted by an economic recession. All of our measurement tools are in place to report short-term measurable “success.” We impatiently scan our ministry reports for positive data indicators.

Are concerns about short-term data important? Yes, par­ticularly if questions of sustainability of the organization are in play.

Yet sound guidance of a ministry is more like running a marathon than a sprint. It is focused on the Great Commission with an appropriate desire to attain short-term effectiveness.

Matthew 14:15 records the recommendation of the disciples to Jesus as they told Him, “This is a remote place, and it’s already getting late. Send the crowds away so they can go to the villages and buy food for themselves.” In his recent book, The Longview: Lasting Strategies for Rising Leaders, Roger Parrott, president of Bellhaven College, suggests “the committee’s decision seemed like a reasonable solution.”1

But Jesus took a long view perspective in mentoring these disciples, knowing the solution had sweeping ramifications beyond where to get dinner. Bolstered by the miracle on the hillside, Peter found the faith to step out of the boat and walk on water. That evening had long view implications.

God often builds his church using the long view principle. William Carey, the first missionary to India, worked for seven years before he had his first convert. Robert Morrison, the first Protestant missionary to China, labored for a quarter century and had fewer than a dozen converts.2 When taking the long view, the following principles are fundamental.

• Remembering. We are often so focused on the current challenges that we do not take time to remember. How has God helped us in the past? Has he ever failed us? What lessons did He teach us in past challenging times?

• Reflecting. Identify the season your organization is in by reflecting on your environment. Bill Hybels refers to the seasons of growth as consolidation, transition, malaise and reinvention. He traces the seasons idea back to Ecclesiastes 3:1, which says that “there is a time for everything, and a season for every activity under the heavens.”3 Simply naming the season we are in is the basis of determining the implications of the season.

• Vision-casting. “God’s vision for your ministry will not change quickly, nor will it be something you will accomplish rapidly. His vision will require years of active pursuit. The vision itself may even outlive you!

“Thus, the heart of the vision will remain unchanged over a prolonged period. Some of the details lying at the outer edge of your understanding of the vision may shift somewhat over the course of time. But the core of the vision—the people you have been called to reach, the task you have been called to do, the purpose for which you exist—will remain constant. “Because He is not a God of confusion but of order, because He is a God who is in control, because He takes great pleasure in seeing us find success in our service, He will be faithful in His support of the vision.”4

Reflecting on these principles, have you made short-term decisions in the last 12 months impacting the budget, programming, personnel, and much more? You probably have and this was important to do in the short-run. But even the short-term decisions can and should be made with the long view foremost in mind.

1 The Longview: Lasting Strategies for Rising Leaders, Roger Parrott, David C. Cook, 2009.

2 Ibid.

3 Axiom, Bill Hybels, Zondervan, 2008.

4 The Power of Vision, George Barna, Regal, 2009.

Perspective

Our seven-year old grandson, Daniel, is autistic. We are blessed that he lives only a few blocks from my wife and me. This close proximity allows us to spend time with him on almost a daily basis. When Daniel was diagnosed with autism at age four, it was especially traumatic for our daughter and her husband. Their dreams for Daniel—the dreams all parents have for their children—seemed to vanish. That was based on their perspective at the time. Hundreds of hours in hyperbaric chambers, myriad therapy sessions, and a multitude of prayers later he was ready for his first tee-ball experience this summer—playing with other autistic boys and girls, some several years older than he. The first game was not enough fun and he nearly opted for early retirement after opening day. But he tried another game and then another. And in a short time-span, he went from not sharing the ball to fielding balls and running over towards first base, handing the ball to Bob who plays first base (Bob’s disabilities prevent him from catching a thrown ball) and Bob completes the play. They are quite the teammates. From our perspective today (and that of his parents), Daniel is a terrific boy—the delight of our lives! God has the unfailing power to bring good from all circumstances that come our way. But what we see as “good” often depends on our perspective. There are times when it is difficult to understand how “all things work together for good to them that love God” (Romans 8:28). Yet, with proper perspective we can “consider it pure joy...whenever you face trials of many kinds” (James 1:2). What is your perspective of where you are right now? Feeling overwhelmed by the challenges of fewer resources and increasing expenses for the ministry in which you are involved? Having difficulty coping with the realities of cutting programs—perhaps even laying off staff? Or perhaps God has helped you gain a proper perspective—gaining a grasp of the cur­rent realities for your organization and realizing the future will not be like the past. This may be a good time for you to take a blank sheet of paper and draw a horizontal line in the middle. Remember the good things that God has done for your church or ministry and note them above the line. Then, recall the dark, deep, troublesome times that threatened to engulf your organization across the years—perhaps including some current challenges. All of the items on the page can be committed to Him. He is the God of the top list and the God of the bottom list. He is just as much the God of our challenges as He is the God of our successes. Listen to what God is saying to you and your organization through the experiences of this economic decline. He wants to help you with perspective!

Health Care Reform May Impact Fringe Benefits for Nonprofits

“Cap and Trade” will be a focus on Capitol Hill for 2009…but it will pale in comparison to the debate on health care reform. It appears Congress realizes the revenue sources must be identified to fund health care reform. It is not something to be funded by the federal government like another stimulus package. The 10-year cost for revamping the health care system is estimated to exceed $1 trillion. With health care cost savings expected to pick up about 40% of the tab for overhaul, that leaves Congress needing to find more than $600 billion in revenues. You will hear a lot about a possible new consumption tax as a way to foot the bill for health care reform. After carving out exemptions for food, prescription drugs, and maybe housing and utilities, a value added tax (VAT) of perhaps 6% would be required. This is high enough to prompt most officials who want to be reelected to beat a hasty retreat. So, a VAT on top of the income tax does not appear to be in our near future. Another option being considered by taxwriters is to charge a surtax of 2% or more on upper income bracket taxpayers—the same taxpayers targeted by the Administration, letting the 33% and 35% top marginal rates rise to 36% and 39.6%, respectively. Many of the other options under discussion by the Senate and the House would impact the taxability of employer-provided health insurance, the reimbursement of out-of-pocket medical expenses, or the deductibility of unreimbursed medical expenses. Here a few of the options:

• Limiting employer provided health coverage that is excludible form gross income. The limit could be based on the value of the plan or the income of the insured, or the limit could be a combination of both.
• Repealing the tax exclusion for employer-provided health coverage. In exchange for repealing the tax-free benefit for employer provided health insurance, employees would get an extra standard deduction. (For employees who have no income tax liability, such as many pastors, the extra standard deduction would provide no benefit to the taxpayer.)
• Modify or repeal the itemized deduction for medical expenses. The 7.5 percent AGI threshold for the itemized deduction for medical expenses could be raised or eliminated.
• Increasing payroll taxes or levy on employers. This could include raising the Medicare tax from its current 1.45% rate to 1.8% or higher (for the self-employed, this would mean an increase from 2.9% to 3.6%). Another option under discussion is imposing a new payroll tax on employers of 3% or so of the amounts they spend on health care for employees. For employers that do not provide health benefits, one option is to impose a levy of 8% of payroll.
• Modify health savings accounts. HSA contributions could be limited to the lesser of the individual’s deductible under the high deductible health plan or the dollar amount of the maximum allowable aggregate HSA contributions. The additional tax on distributions from an HSA that are not used for qualified medical expenses would be increased to 20 percent. Distributions from an HSA would only be excludible from gross income as an amount used for qualified medical expenses if the expenses are substantiated by the employer or an independent third party.
• Modify or repeal the exclusion for employer-provided reimbursement of medical expenses under flexible spending arrangements and health reimbursement arrangements. A limit would be placed on the amount of salary reduction contributions that may be made to a health FSA that would be excludible from gross income. Alternatively, the exclusion for salary reduction contributions to a health FSA could be eliminated. Similar changes could be made to the exclusion for reimbursements for medical expense under an HRA.
• Limit the qualified medical expense definition. With respect to medicines, the definition of medical expense for purpose of employer plans (HRA’s and FSA’s) and health savings accounts could be conformed to the definition for purposes of the itemized deduction for medical expenses. Thus, for example, the cost of nonprescription medicines would not be reimbursed through a flexible spending arrangement.

The political struggle will probably take months to play out but if some of these options are enacted into law it will bring increased pressure on churches and other Christ-centered organizations…and their staff. Reductions in tax-free benefits means employees have less take-home pay in their pockets. Because of the economic trough we may be in for several years, many churches and other nonprofit organizations will find it difficult to raise salaries to offset benefit reductions. Stay tuned!

The Trust Factor

There is a crisis of trust and confidence in our country...in the world. 

Trust in Wall Street has been shattered. Major portions of retirement accounts are gone. Investment portfolios of nonprofits have experienced staggering losses. The largest Ponzi scheme in history has been revealed. The unemployment rate continues to spiral.  

Trust in government and its officials has been diminished as the national debt rockets into the stratosphere.

Our trust is not heightened by ominous proposals which could impose new restrictions on churches and other charities. The combination of higher taxes and potentially increased restrictions on charitable deductions could be significantly burdensome to donors.

Who can we trust? The Bible tells us a lot about trust. “Put your trust in the light” John 12:36. “In God I trust; I will not be afraid” Psalm 56:4. “Trust in the Lord with all your heart and lean not on your own understanding” Proverbs 3:5. “Whoever trusts in riches will fall” Proverbs 11:28. One thing is clear. Deciding in whom and in what we trust is very important.
   
Olan Hendix, ECFA’s first executive director, once wrote, “Christians are very trusting by nature—looking for the best in other Christians and Christ-centered organizations. Trust is the vital element in the very beginning of the Christian life. We believe in or trust Jesus Christ in order to become a Christian. It is trust that enables us to claim God’s promises.” The trust that is so highly emphasized in our spiritual lives must not be neglected in the life of the organizations we represent.  

Donors decide which churches and charities they can trust. In financially challenging times, donors are asking some fresh and tougher questions. How these questions are answered will impact resources available for ministry.  

Trust is enhanced when leaders do the right thing. There is generally more than one path a leader may take; more than one way to address various opportunities with which we are presented. In his book, Leading Without Power, Max DePree suggests that “trust grows when people see leaders translate their personal integrity into organizational fidelity.”  

Trust increases as churches and other charities meet their obligations. The failure to meet obligations is a poor witness—corporately or personally. The importance of meeting obligations to vendors, lenders, and staff does not diminish during tough economic times. Clear communication with vendors and financial institutions is vital if the timely payment of obligations cannot be made. Meeting our obligations starts with a clear plan to balance resources and expenses—even when hard decisions are required.  

Trust includes keeping commitments to donors. Especially when funds are tight, our word must be our bond with donors. Economic challenges are never an excuse to exercise anything but the highest integrity. The commitments we make to donors, written or verbal, explicit or implicit, must be upheld. The use of donor-restricted funds for operating purposes should rarely occur. 

  Trust in organizations requires an accountability structure. ECFA provides this accountability structure for its members. The initial membership application process is designed to demonstrate accountability, as is the annual membership renewal. ECFA’s field review program provides on-site accountability as trained reviewers look over the shoulder of its members. Our compliance process provides a communication channel for those who are concerned about Standards-related practices of members.  

Final thoughts. History suggests that during times of uncertainty, leaders communicate less to constituents with the rationale that waiting for more definitive answers will better assure people. However, waiting lowers trust levels among constituents.  

Donors are looking for trust­worthy organizations. Trust will either be enhanced or diminished during the current economic valley. It is up to each one of us as Christian leaders to take the high roads that enhance trust.