Newsletter Fall 2017

Welcome to the Fall 2017 edition of Villanova’s Center for Church Management Newsletter.

Table of Contents

Welcoming Remarks
Center for Church Management Update
Church Finance Demystified
Betrayal: Theft & Embezzlement—A Cautionary Tale
The Survey Says...

matt manion

Welcome

My name is Matthew Manion and I am blessed to be writing to you as the new Faculty Director for the Center for Church Management.  I received my Master of Science in Church Management degree from Villanova in 2011 and it is an honor to return to my alma mater as a faculty member to continue the mission of the Center.

I have the honor of succeeding Charles Zech, PhD, a Professor of Economics, who founded the Center for Church Management in 2004. Chuck was a professor of mine in 2010 and like so many of you, I have admired and used his research for many years.  Fortunately, Chuck will continue to play an integral in the Center and will be able to focus more time on his pioneering research in the field of church management going forward. 

Jim Gallo, the Center Director, and I will do our best to serve you and other church leaders with innovative research and relevant programs which support you in managing the people, money, and resources necessary to fulfill your ministry.  Please keep our team and faculty in your prayers and be assured of our prayers every day!

In this edition of the newsletter, we cover four topics: new programs and activitiesbudget formulationa cautionary tale about fraud and theft, and new research on parish revenues and expenditures

Jim Gallo will share some exciting news about the latest programs and activities at the Center.  And we all share in Jim’s exciting news that he and his wife, Mary Kate, welcomed their first child, Maggie into the world since the last newsletter.  We expect to see Maggie in the Villanova class of 2039!

Michael Castrilli is Business Fellow at the Center and adjunct professor in our MS in Church Management program. Michael teaches pastoral planning and finance in our Villanova programs. He has also been a frequent contributor to our newsletter. In this volume he talks about the stages of the budget formulation process.

Colin May, M.S., CFE, an Adjunct Professor of Criminal Justice and Forensic Studies at Stevenson University, shares a cautionary tale of trust in church members without appropriate controls that cost a church over $150,000 and divided the community.  Using his past experience as a Federal agent with experience in fraud investigation and forensic accounting and his current experience as a member of the Finance Council at Saint Maria Goretti parish in Westfield, IN, Colin offers eight practical steps you can take to protect your employees, volunteers, and your church from theft and fraud.

Finally in our regular look at data, “The Survey Says”, Chuck Zech, PhD, examines some key findings on parish revenues and expenditures. Based on information in his recently published book, Catholic Parishes of the 21st Century, Oxford University Press, 2017, Dr. Zech highlights the differences in giving patterns between Catholics and non-Catholics and the potential $8 billion opportunity if the Catholic Church could close the gap.  He also examines the impact of three key expenditures on overall parish finances – facilities, labor, and schools.   He concludes with two potential responses for leaders to the realities of parish finances today.

We trust that you find the information in this newsletter useful. If you have any questions or suggestions for the future, please let us know.  Thanks for all you do in service to the Lord and your local church community.

In Christ,
Matthew F. Manion
Matthew.Manion@Villanova.edu

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Center for Church Management Update

By Jim Gallo, Center Director                                                 

   
James.Gallo@Villanova.edu

Fall has arrived here in beautiful Villanova, Pennsylvania, and we are excited to continue the work of the Center for Church Management.  Below you will find a brief update on several of our programs, as well as some of our partnerships.

Welcome Matt Manion!
First, the Center for Church Management is pleased to welcome Matt Manion as the new faculty director.  Matt comes to us with years of experience in the Church working with Catholic Leadership Institute, and has the additional advantage of being an alumni of our MSCM program.  On behalf of the faculty and staff of the Center for Church Management, welcome to VSB, Matt!

The Master of Science in Church Management:
In May of 2017 39 students graduated from the MSCM program, including 22 students from the Archdiocese of New York.  Congratulations to all of our MSCM graduates!

We are currently accepting applications for the May 2018 cohort of our MSCM Program. This will be our 10th new class!  The MSCM is an online degree that can be completed in 2 years through the Villanova University School of Business.  It is geared toward building up management capacity of both lay people and clergy.  Please click here for more information on the MSCM program.

Certificate in Church Management
Our 2017-2018 certificate series in Church Management began in September, but there is still time to join and watch the previous two webinars as an archive!  This unique certificate, offered through the Villanova School of Business in partnership with Our Sunday Visitor and AmericanChurch.com, offers practical lessons on Church Management in a convenient online format.  For more information, the schedule, and registration details, please click here.

Diocesan Fiscal Management Conference
Two of our very own professors, Dr. Bill Wagner and Michael Castrilli, had the honor or presenting recently at the Diocesan Fiscal Management Conference in Baltimore.  In addition to Mike and Bill's presentation, the Center for Church Management has entered a partnership with the DFMC to provide a series of live webinars for CPE credits to fiscal managers, administer the annual Certified Diocesan Fiscal Management exam, and provide an online database of resources of diocesan fiscal managers for CPE credits.  For more information, please visit the DFMC's website at http://www.DFMConf.org.

  


Catholic Relief Services
The Center for Church Management is proud to announce a new customized certificate program for Catholic Relief Services.  As a continuation of our partnership with CRS, this year more than 20 sisters from the Association of Consecrated Women of Eastern and Central Africa (ACWECA) will be taking part in a custom series of webinars on Church Management.  This forms just one of many ways in which Villanova is partnering with CRS, and a vital opportunity to build capacity among our friends from CRS related organizations.


Seminary Programs
Over the summer, the Center for Church Management had the pleasure of working with seminarians from Saint Charles Borromeo Seminary in the Archdiocese of Philadelphia, as well as seminarians from the Diocese of Trenton through customized programs.  We hope to be a resource to seminarians as they learn to be great parish leaders, and stewards of Church resources.

Financial Literacy Program for Clergy
In the near future the Center for Church Management will be launching a new financial literacy program for clergy.  This program will feature a combination of live webinars, online videos, and a resource library on personal and church finance for clergy, sponsored by the Lilly Endowment's National Initiative to Address Economic Challenges Facing Pastoral Leaders.  For more information, please visit http://ClergyFinance.Villanova.edu.

International Festival of Creativity in Church Management
Save the date!  We will be hosting the second annual Festival of Creativity in Church Management here on the Villanova Campus on June 21-23, 2018 in collaboration with the Pontifical Lateran University.  Anyone who attended the 2017 festival in Rome knows we have big shoes to fill!  More information about joining us for the festival as well as presenting at the festival will be coming soon.

 

parish

Church Finance Demystified

By Michael Castrilli
Michael.Castrilli@Villanova.edu


 

Below is an excerpt from the book, Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016). The book is co-authored by MSCM adjunct professor Mike Castrilli and Center for Church Management founder Dr. Chuck Zech. In the excerpt below, Chuck and Mike discuss the four stages of budget development at a church.

What is Budget Formulation?

Budget formulation is the process used to develop resource planning estimates for income and spending categories for a given period. For church organizations, budget formulation can span a few months or a few weeks. Formulation can also occur on multiple levels. For example, as a diocese prepares the overall diocesan budget, parishes within the diocese are also undergoing their own budget processes to compile the data and information needed for their operating and capital budget submissions to the pastor, finance council, and the community at large.


Whether you have a budget from previous years or you are starting from scratch, these steps can help you to identify and strategize what you need to do to get this budget completed.
 
Let’s walk through examples of various budget formulation stages that you may develop or expand at your parish.

Budget Formulation Stages


Stage 1: Establish Priorities
Include in your budget process time to brainstorm and establish budget priorities. This is when you meet with staff, parishioners, or other stakeholders and encourage the process of formulating ideas. It is a great time to build a spirit of collaboration. Determine who should be involved in preparation of the various components of your budget. Who will develop new program proposals? Who can help with estimated costs?

Timing: approx. 4–5 months prior to the budget being finalized


Stage 2: Deliver Guidance
Develop a document (one or two pages) outlining your expectations of those from whom you are requesting information. Include guidance for developing cost estimates, proposing new programs, or justifying resources. There should be no guessing games regarding what you are looking at in estimates. Most income and expense estimates contain uncertainty anyway, so take that anxiety out of the creation of the budget. For example, if you have a budget target in mind, tell people. If not, then say so. If you have been thinking about canceling a program or initiative, let those involved know your thought process so they have the opportunity to discuss it with you. People want direct feedback. No one wants to complete a proposal only to find out that the program was not even being considered.
 
These types of budget “paper exercises” will only undermine your leadership and dissatisfy those working with you. Expectation setting may be challenging to deliver in the moment, but honesty saves everyone time and aggravation, and helps you achieve respect during the next budget cycle and for your leadership. Allow adequate time for estimates and justifications to be produced.


Timing: approx. 4 months prior to the budget being finalized


Stage 3: Develop Preliminary Budget
Stage 3 is when your team estimates parish income and expenses, designs program budgets, and creates performance goals. Using your parish financial software and other tools at your disposal, you will be able to consolidate information so you can review the various budget elements (income, expenses, and program justifications) from different perspectives. Many archdiocesan/diocesan policies specify which software program each parish is expected or required to use. Learn more by reviewing the financial policies of your archdiocese/diocese. When the information is in this type of format, you will have a broader perspective and visibility of the various components that will make up your budget.

Timing: approx. 2 months prior to the budget being finalized


Stage 4: Gain Feedback and Finalize
Share the budget with those you have involved from the earliest phases of the process. After you have a draft budget, include stakeholders by allowing them to give you feedback as you prepare your final proposal. Consistent information sharing will continue to build momentum and ultimate buy-in for the creation of a collaborative budget. Buy-in at this stage is defined as ownership and understanding of the budget among stakeholders who are critical for the achievement of your policies and programs. In a parish, this includes staff, parishioners, finance and pastoral councils, and others who help you achieve success.


Timing: approx. 1 month prior to the budget being finalized


Transparency in how the budget is formulated, transferability of the process from year to year, and the building of a collaborative environment are just a few of the key benefits for this type of staged approach.

 
Budget Formulation Calendar


Quick Tips for Getting Started with the Budgeting Process
 
Following are some practical suggestions and reflection questions as you look to implement these components in your organization.
 
Establish a Process (Even If It Is Not Perfect)
The first year of any new process can be challenging, but once established, every part of the organization will understand what is expected. For example, if your budget begins on July 1, you may want to establish that budget guidance will be distributed each April and a draft budget will be proposed by Memorial Day. Developing a schedule of key budget process dates provides everyone more flexibility so they can effectively manage their time. Establish a process in year one with the knowledge that it may not be perfect and that you can refine it by year two.
 
Reflection Questions:
What are the key dates or milestones for the various phases of the budget process? Have you informed others about what is expected of them by certain dates?

Provide Clear Guidance
Give clear guidance on your expectations for the process, the future, and what success looks like moving forward. If you are going to ask others for information, communicate your objectives and give visibility in your thinking for the upcoming year.
 
Reflection Questions:
Am I clear in my direction and thinking surrounding priorities?
Do I need to simplify or improve how individuals submit calculations and estimates? Do I need to develop additional guidance surrounding narrative descriptions?
 
Open Communication and Stakeholder Involvement
Keep the budget process open and enable all voices to be heard. Hold a town hall-style meeting and welcome all parishioners when you open the budget process for the upcoming year and set expectations. Listen to the voices of the people around you. Open up the priority-setting process so you can gain broader involvement and commitment from those in your organization. Ask individuals to help brainstorm, but if not, be clear about the direction you are setting. When others feel involved, they will be more committed.
 
Reflection Questions:
Who are the stakeholders that need to be brought into this process? What voices have been missing that will help you create a spirit of openness and transparency?
 
Summary
The budget process can be broken down into manageable stages in order to make this process clear, collaborative, and transparent. Information sharing with staff and parishioners allows the parish community to rally and buy into shared goals and objectives. By establishing clear priorities, delivering guidance on targets and expectations, and then developing a preliminary budget that incorporates all of these elements, you are on track to deliver an effective resource plan. Once feedback is obtained, the budget is finalized and ready for implementation.
 
Questions? Comments? Contact Michael Castrilli

Betrayal: Theft & Embezzlement—A Cautionary Tale

By Colin May, M.S., CFE
Adjunct Professor of Criminal Justice and Forensic Studies
Stevenson University, Owings Mills, Maryland
CMay3231@stevenson.edu

Pastors, church councils, finance councils, lay leadership, and staff all have the duty and obligation to conduct themselves in a forthright, professional, and law-abiding manner (under both civil law and Canon law). Unfortunately, this is not always the case and it is a lesson often not learned until it happens: people steal from churches. But there are ways to ensure that our holy institutions and places of worship do not fall victim to these crimes. In this article, a study is made of one particular case of theft from a small church. While some of the details and names have been changed (since the investigation is currently on-going), the lessons it provides can be beneficial to all of us, regardless of our role in a parish or diocesan mission.

Melissa and Mike had been married for a long time. Melissa was a successful high school principal in a large metropolitan area, earning over $120,000 a year. Mike had a knack for fixing things and was able to turn that into a successful small business. They had three children, a daughter (17) and two twin sons (8). For all outward appearances, they were a happy family.

Mike and Melissa were members of a small, close-knit local protestant parish thathad about 100 families. The parish was small, but active in the local community and there were lots of volunteer opportunities. Mike taught Sunday school and Melissa joined the parish council. About two months after joining the council, she became treasurer. Like most small churches, there was only one staff member, Jody, who was the part-time secretary, so many duties, financial and operational, fell to Melissa. The pastor was also responsible for a cluster of three other small parishes in the region, which didn’t help.

As treasurer, Melissa’s duties included counting the weekly collection and depositing them into the church’s bank account, over which she and the pastor had signatory authority. The pastor (an older man), was not concerned with the finances and he was stretched to capacity caring for four parishes across a wide area, and essentially ceded total control to her. She also deposited funds from fundraisers like the spaghetti supper and other events. Chief among her responsibilities were to pay the church bills, especially the yearly assessments, which are like the diocesan “tax” which was based on collection revenue and number of families at the church.

For 13 years, Melissa appeared to be faithfully fulfilling her duties as church treasurer. But in November of 2016, at the monthly church council meeting, Melissa asked to hold the meeting in closed session (council members only). She then read a prepared statement in which she confessed to taking $40,000 in church funds over a three-year period. Melissa expressed contrition for the theft and was willing to make repayments to the parish in three equal installments. Within three days of the meeting, Melissa had mailed a check for one-third of the amount to the church.

The parish council was stunned. They were sad and scared for Melissa and her family. Council members wanted to protect her privacy and that of her family, especially since her three children were active in the church youth group. But one of the parish council members was concerned and contacted the church’s insurance carrier to see if they were covered for the “employee theft.”
The insurance carrier indicated that, although the church was covered for employee theft up to $100,000, they would not pay the claim unless the church made a police report. They further advised the church not to cash the restitution check from Melissa (or any additional checks), otherwise they would be forfeiting any possible insurance claim funds.

This news caused tremendous turmoil within the parish council. Meetings became angry and animated, with people falling on one side or another—report the theft and make the claim, or take the money and keep it a secret. The pastor failed to report the theft to the diocese and suddenly asked for a re-assignment. A new pastor was assigned and in time, he learned of the entire ordeal. Knowing his duties as a good steward and caretaker of God’s temporal goods, he reported the incident to the diocese and local law enforcement.

Once the police investigation began, the true story began to emerge. The entire community was floored. A forensic auditor was hired by the insurance company and began to reconstruct the Church’s entire financial records for the previous 15 years. The results were even worse than originally thought.
First, the forensic audit uncovered that Melissa stole more than $189,000, and the misappropriation started within three months of her taking the treasurer’s office.
Second, she had failed to pay the yearly assessments for nearly seven years. When the diocese began sending “past due” notices, she destroyed them. In addition, the audit found that she failed to maintain key financial records.

Third, not only did Melissa write checks to herself, her husband, and cash, but she also stole a $10,000 certificate of deposit in the church’s name, and opened a credit card for the church (without permission) and used it for personal expenses. To pay the credit card balance, she simply wrote checks to the credit card company from the church’s account.

Three months after the initial report, police conducted an early morning search warrant at the home of Mike and Melissa. The police gently roused the three sleeping children, who were sent to a relative’s house. Mike was interviewed, waiving his right to remain silent and told investigators that his father-in-law, a Certified Public Accountant (CPA), had calculated the total amount owed, which was about $160,000. Mike and Melissa were arrested and booked on five counts of theft over $10,000 and one count of identity theft. Mike was arrested because of evidence that he knew and/or assisted Melissa in the theft. Their case is currently pending in the justice system.

The case of Mike and Melissa is difficult and hard for some to accept because of their alleged betrayal. It also presents an opportunity to learn from this case, and while some details have been changed, the underlying facts are well-documented and provide us with some excellent lessons:
  • Report it, no matter what: When suspicious activity occurs or questions arise, don’t brush it off. Ask for an expert to help. Often diocese can supply independent auditors or review the books themselves to help you. Reporting a possible crime isn’t a violation of our morals, it’s imperative. If we know if someone’s sins, yet fail to do anything about it, we ourselves have sinned in that violation too. They always say, “the cover-up is worse than the crime.” Let the professionals handle it.
  • Conduct annual audits: No annual audits were either required or conducted in this church. Audits by a third-party, like a CPA firm, should be done to ensure the treasurer is doing their job and the financials are accurate. Without this control, there is a significant possibility of not identifying the issue until it has spiraled to an unmanageable problem.
  • Spot check the checks: The pastor, or church council chair, should conduct periodic “spot checks” on the bank account statements to see if there are any unusual items, if the funds balance, and if the checks are for legitimate purposes (and to legitimate vendors). Random inspections are another excellent control point to deter and detect fraud.
  • Keep (good) records: When asked by police for their financial records, the church had almost none. The forensic auditor had to reconstruct 15 years of records primarily through third-party sources (like banks). This can become burdensome and expensive. The church should write and implement a policy about what records should be maintained and for how long. They should also be stored in a safe place with limited access.
  • Conduct background investigations: Background checks are relative simple and easy to do, and they often yield a lot of valuable information. They are not always fool-proof, but they provide another control point that will deter would-be fraudsters. In this case, a simple check of online public court records showed the Mike and Melissa were defendants in 13 civil cases from 2001 to 2015. Seven of these cases were state tax warrants for unpaid taxes, which is incredulous, considering Melissa’s salary was $120,000 a year. Church leaders should also consult a competent attorney with experience in this area before embarking on any investigation.
  • Work with the bank: The church’s bank should be aware of (1) who is authorized to sign checks and make withdrawals; (2) who is able to make deposits; (3) who can make changes to the account; and (4) what documentation is needed to make those changes. You may also want to alert the bank to the types of expenses that the church will be routinely processing, since they may be able to identify oddities or assist in flagging potentially problematic transactions.
  • Check your insurance policy: Ask your insurance agent if the church is covered for theft or embezzlement in your current policy. This is often called “employee dishonesty” or “commercial crime” policy.  Also see what amount the policy covers. For example, in this case Melissa stole over $189,000 but the church’s policy only covered $100,000. Determine what restrictions or protocols are required to make a claim on the policy (like having annual audits, rotating job assignments, dual signature control, etc.)
  • Rotate Mailbox Duties: the same person shouldn’t be collecting the mail, opening it, and be responsible for posting, depositing, or reconciling the bank account information. These functions should be spread out to ensure that no one person has the ability to steal checks, destroy records, or alter information. It may seem like a small control, but it can have a lasting impact on a potential fraudster’s perception of the points of weaknesses in an organization.
Implementing these and other basic controls may not stop a committed fraudster who is skilled at circumventing them and manipulating records. But they provide critical assurances that theft and embezzlement will be much harder to occur and discovery will happen faster (thus reducing the amount lost). Done well, it can be an important “check and balance” that enables the board or finance council to adequately oversee the assets of the church, which is a Canon Law responsibility (cf. c. 1284)

Fraud, theft, and embezzlement are difficult issues to address, especially in a church setting. No one wants to be the “bad guy” and it can be even harder to confront these issues after being victimized. That is why it is essential to have procedures in place before something happens. The pastor, staff, finance council and lay leadership need to properly monitor and safeguard all temporal goods of the church. We, as a faith community, have a collective responsibility to also ensure that we keep true the words of Saint Mark, “you shall not defraud.” (Mk 10:19)

The Devil loves division and he thoroughly enjoys every theft from a church—it’s his way of sowing fear, doubt, division, and uncertainty into a faith community.  Having a thorough financial control program, a prayerful oversight process, and ensuring the proper use of the church’s financial assets are critical to preventing the Devil from our midst. It allows us to focus on the primary mission of the Universal Church—preaching and living the Gospel, saving souls through charity and service, and being true disciples of Christ in our local communities.
 
Colin May, M.S., CFE is an Adjunct Professor of Criminal Justice and Forensic Studies at Stevenson University in Owings Mills, Md. He is a former Federal agent with experience in fraud investigation and forensic accounting. He is a member of the Finance Council at Saint Maria Goretti parish in Westfield, Ind. The views in this article are his own. His email is cmay3231@stevenson.edu
Charles Zech

The Survey Says...

By Charles Zech, Ph.D.
Charles.Zech@Villanova.edu

In a recent volume we discussed some findings on parishioner satisfaction from the recently published book Catholic Parishes of the 21st Century.Briefly, using data from a variety of national surveys, this book provides a 360 degree examination of contemporary Catholic parish life in the United States. In this newsletter volume we examine some of the findings on parish finances reported in the book.
 
First, to no one’s surprise, many Catholic parishes are struggling financially. This is due to a combination of factors, both with regards to parish revenues and parish expenses.
 
On the revenue side Catholic parishioners are relatively low givers to their parish. The typical Catholic household contributes about 1.1 percent of their income to their parish, while the typical Protestant household contributes 2.2 to 2.3 percent of their income to their congregation. What does this mean? It means that if the typical Catholic household just gave at the same rate as the typical Protestant household (we’re not even talking about tithing), US Catholic paishes would receive an additional $8 billion in revenue each year. Another way of looking at it is that your parish’s annual revenues would double.
 
On the expenditure side, the average parish church building was built in 1950. Nearly a third were built before 1930. These church buildings are typically accompanied by other parish facilities, such as schools and rectories that are similarly dated. Parishes have frequently done a poor job of maintaining their facilities over the years, so many are faced with a large deferred maintenance expense.
 
The other facilities issue has to do with the mismatch between the location of parish facilities and the location of parishioners. At the time many that many parishes were established most US Catholics lived in urban areas in the Northeast and Midwest. Over time that population has migrated to suburbs and to the South and West. As a result, the Northeast and Midwest currently contain 46% of US Catholics but 62% of the parishes, while the South and West contain 54% of the Catholics but only 38% of the parishes. The result is a large number of underutilized facilities in the Northeast and Midwest, while dioceses in the South and West are struggling to build sufficient facilities.
 

Labor costs have also risen. Parishes employ an average of 4.5 paid lay staff, many of whom are professionally qualified (master’s degree or higher). The average pay for parish lay ecclesial ministers is only $27,600. They also frequently receive fringe benefits, such a retirement pension (82%), life insurance (63%) and paid vacation days (84%). While not generous by any stretch of the imagination, this compensation has risen significantly in the last three decades.
 
Finally, many parishes still support a school, either parochial or regional. This study found that parishes with parochial schools on the average contributed 25% of their budget to support the school, while parishes supporting regional schools contributed 19% of the parish’s budget.
 
The bottom line is that in the year 2013 nearly a quarter of US Catholic parishes were operating at a loss, which was actually an improvement from the height of the great recession, when a third of all parishes operated at a loss. In 2013 8 percent of the parishes required a diocesan subsidy.
 
The financial difficulties of US Catholic parishes will likely not disappear soon. Unfortunately many of the solutions currently being employed, such as reconfiguring parish organizational structures, are not particularly appealing. The best hope lies in increasing parish revenues by emphasizing the role of stewardship in parishioners’ lives. Getting parishioners to recognize that all they have is a gift from God, who asks them to return a portion in the form of their time, talent, and treasure to support His work on earth, will help close the gap between Catholic and Protestant giving, and is in fact what the Church should be teaching in any event.
 
Catholic Parishes of the 21st Century, Oxford University Press, 2017.

For More Information

Center for Church Management
Villanova University
800 Lancaster Avenue
Villanova, PA 19085
Tel: (610) 519-6015
Fax: (610) 519-6054
ccm@villanova.edu