Church Budget and Finance Archives - Page 3 of 9

By Michael Castrilli

Using The Line Graph to Report Church Financial Information

We know that choosing the best visual is not a one-size fit all approach for church financial reports, so when do we choose the line graph? We’ve already discussed the pie chart, the bar chart, and now it is time to talk about the advantages and cautions of the line graph!

The Line Graph

Line graphs connect individual data points and then connect the points with a line. These graphs are primarily used to display trends in data.

Advantages

Line graphs can quickly show data ranges, minimums, gaps, clusters or outliers.
Similar to the bar/column chart, the line graph can help readers visualize trends, bumpiness or patterns in data.The graph is useful when data contains evenly spaced values such as months, quarters, or fiscal years.
The graph is useful when data contains evenly spaced values such as months, quarters, or fiscal years.

Cautions

The line graph is less appealing to the reader than other visuals that can be used (i.e. bar/column charts) to display similar data.
Be sure to create a “Key” that distinguishes the various lines in the graph.
Ensure that the horizontal and vertical axes scales are right-sized given the range of data that is presented.

Next week, we dive into the Data Table!

Interested in learning more about visuals for church financial reporting? Read our previous posts:

By Michael Castrilli

Church Visuals – Bars Aren’t Only For Drinking – The Bar Chart

As churches balance the broad range of financial information that parishioners seek, they also struggle with what to report and how to communicate this information. As we continue our discussion on best practices for communicating church finances with impact and ease and choosing the best visuals, let’s turn the infamous bar chart!

The Bar Chart

One of the most common visuals in reports is a bar/column chart. Using bars or other shapes, the visual displays discrete data in separate columns. These charts can be used to show one data set, or compare two or more data sets by lining them up in the same graphic.

Bar Charts Advantages

The chart offers readers a simple way to visualize data highs and lows at a glance.
The bar chart can help readers visualize trends, bumpiness or patterns in data. Trends occur when information moves in a general direction, or data can look bumpy meaning that the information is erratically up and down. The graph can also show patterns where data moves in a repeating fashion.
The use of colors and shapes offer an easy to read and appealing visually.
Comparing bars one against the other can quickly show progress or differentiation.

Cautions

If using a variety of colors to display more than two categories of data, ensure that the data can be easily recognized. For example, a black and white report may not show the subtle differences between columns.
Label the horizontal (X) and vertical (Y) axes.
Be careful not to overwhelm readers with so much data that the chart looks messy and then becomes difficult to read.

Next up in the world of visuals, Line Graphs! Interested in reading more? Read last week’s post All Pictures are Not Worth 1,000 Words – The Pie Chart

Excerpt from my original article in the Villanova University Center for Church Management and Business Ethics Newsletter, “Communicate Church Financial Information with Impact and Ease” (Spring 2017).

By Michael Castrilli

It’s Not Just a Phase

My experience working with ministers is that for many, church budgeting is viewed as a necessary, yet stressful and time-consuming exercise. People resist or even fear the topic because of seemingly complicating processes or past negative experiences. Even with personal finances, many people grow up learning that developing a budget is good practice but a constraining activity designed to prevent or control people from doing all of the things they want to do.

In simple terms, the budget is the tool that connects church priorities to financial resources. The alignment between church mission, vision, pastoral priorities, and budgeting are integrally linked. Effective parish budgeting not only enables you to plan, allocate, and manage resources effectively, it will empower you with information and insights to help inform decision-making.

So, where do you begin? Let me help debunk the myth of budgeting as a constraining activity and provide some simple strategies for developing an effective, efficient, and collaborative budget and financial management practices. Let’s begin with understanding the three main phases of the church budget process.

Tip 11: Formulate, Execute, Control

Below is an excerpt from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016).

Phase 1: Church Budget Formulation

Budget formulation is the process used to develop the budget. This is where you will review the variety of income and expense categories and determine how much you expect to receive and project how much you plan to spend. There are a variety of methods we can use to create the budget and in which we can develop the budget. Whether you use top-down, bottom-up, incremental, or flexible budgeting, the framework will help you structure the development.

In the budget formulation phase, the parish will get into the nuts and bolts of budget building. Here a variety of questions will be answered including:

What are the assumptions and expectations for the upcoming year?
How will resources be allocated for staff, programs, emerging requirements, or assets?
What information and methods will be used to ensure that accurate projections/forecasts are developed for income and expenses?

This is the phase of the budget process where we will build the “budget house.” We will review architecture plans, pour a solid foundation, frame the walls, and build a strong roof so that as storms rage, the house remains sturdy and strong.

Phase 2: Church Budget Execution

Once the income and expense parameters have been set, and the budget has been approved, the plan is ready to be implemented. Budget execution is the phase in the budget lifecycle when the checks are written, salaries paid, and income is received. Policies and procedures are established to ensure accountability. Clear roles and responsibilities are developed for who, what, when and how resources will be authorized, distributed, and accounted for. The outcomes of this phase are policies and procedures for collecting and distributing resources.

Phase 3: Church Budget Control

Complementing the execution phase, budget control is the part of the budgeting lifecycle that ensures that the efforts that you have put into the other steps of the process are successful. Strategies and techniques can be deployed to keep you on track and headed in the right direction with warnings along the way if you are getting off track. Actual income and spending amounts are compared to budgeted projections to measure variances between the amounts. With this information, parish managers can accurately account for resources or deploy mitigation tactics if spending is getting out of control or if resources need to be reallocated.

All three of these phases build upon one another and create a budget lifecycle that brings flexibility, adaptability, and accountability to financial planning and actions.

Qeustions/Comments? Contact me at mjcastrilli@gmail.com.

By Michael Castrilli

Step-By-Step Strategy to Help Churches Hire A Contractor

Selecting a company or individual to do major work at the church can be overwhelming. From short and long-term impacts on money, time, and people, along with oversight responsibilities, resources are always limited (scarce). Investing in the right people, places, or things are critical for effective parish management.

This post describes a step-by-step process churches can use for evaluating and selecting a vendor, contractor, or service provider. Recognizing this can be a complex topic, the goal is to break the process down into manageable parts. After learning the method, you can right-size the concepts to fit the needs at your church.

Examples, where you might like to use a selection strategy, include large–scale projects like choosing an architecture firm to put blueprints together for a parish facility or deciding which builder to hire for repairing the church roof. This type of process can also be used for major purchases like choosing which church management software to buy.

To simplify the terminology, throughout this post, I’ll use the words “contractor/vendor” as an all-inclusive term to include any external product or service being purchased by the church. For example, this term encompasses service providers (e.g. architecture firm, lawn care company), builders/manufacturers (e.g. construction company), Jane/Joe self-employed business, and/or vendors (e.g. church management software company).

Challenges

One of the main reasons selecting a contractor/vendor can be so complex in the church environment is that at times, the lines between pastoral care and business interest get blurred. Let me use an example of a local church that is seeking to hire someone to replace the roof.

Church Roof Replacement: The parish administrator made a presentation to the parish council on the need to replace the church roof. The estimated cost for the current roof to be removed and a new roof to be replaced is in the $100,000 ballpark. After the presentation, a member of the Council approaches the administrator and says, “My company would be happy to do this work. I’ll even try to get you a discount.” At first glance, this may seem like the perfect solution to the problem. However, going forward with this generous offer, without considering other options can be a major mistake.

How many stories have you heard where a parishioner (or their company) is hired for a project, there is a problem (maybe with schedule or cost) and then one party feels stuck with limited recourse. Whether it is the result of unclear boundaries or simply one party deciding to avoid conflict altogether, this can be a slippery slope. Of course, there are always exceptions, but, why risk misunderstandings, hurt feelings, and poor outcomes because no process existed to ensure that the right company, individual or product was purchased?

Creating a clear and transparent selection process benefits everyone involved. The process benefits the parish management team by creating a structure to make informed decisions. The process benefits contractors/vendors because all are fairly evaluated on clearly defined criteria.

Church Roof Replacement: Even though the parish administrator decides to hold off on accepting the parishioner’s offer, this does not mean that the parishioner’s company will not be considered for the job. If the company decides to put in a bid for the work, they will have to participate as part of the broader contractor selection process.

Selecting an Award Recipient

Let’s use a simple example to help understand how the process will work. Two teachers have been appointed to choose a winner of a student essay contest. The award is based on the following criteria: essay content, clarity of the student’s writing, proper use of grammar and the inclusion of a formatted bibliography. Recognizing that these criteria are not of equal weight, the teachers create a grading rubric that assigns points based on the relative importance of each criterion to the total grade.

Using the points system, the teachers then individually grade each student’s paper. When the grading is completed, the teachers average the grades and come together to discuss the results.

Now imagine using precisely the same process with different variables and weights for contractor/vendor selection at your church.

Step 1 – Define Requirements

Typically, organizations will refer to the initial phase of buying anything (whether a product or service) as procurement planning. Procurement planning is the process of deciding what, when, and how to purchase (buy) goods or services. This process involves the development of documentation to solicit (request) quotations, bids, and/or proposals from companies or individuals to complete a program, project, or task. Like any investment at the parish, whether large or small, getting clear on goals, needs, and requirements is critical.

Church Roof Replacement Example: Depending on whether the replacement of the roof is an immediate or longer-term need, the parish administrator and pastor discuss the timing for initiating the project. They discuss and decide that the work should be completed by November so that the roof is protected for the winter months. They also discuss the desire to work with a company that has previously worked with churches and comes highly recommended from a neighboring parish.

By brainstorming requirements, you establish some guideposts for the next step in the process. If you are unsure where to begin, many dioceses have resources available to help parishes in this phase of the process. There are also organizations that offer tools and templates to assist churches with defining requirements related to procurement decisions.

Step 2 – Establish and Weigh Criteria

Once requirements have been developed, it is important to brainstorm and establish criteria to evaluate potential contractors/vendors. Like the example of the teachers creating a rubric for essay evaluation, what are the driving factors that will help you make the decision on which contract/vendor to choose? To determine priority weights, consider the relative importance of each criterion and the impact this criterion should have on the overall score.

Some hints when developing criteria and weights:

Prioritize. Initially, you may have a large list of requirements and criteria. Take time to narrow the list down so that you have only the most critical items. Otherwise, you might fall into the trap of ‘information paralysis’ where it is difficult to differentiate any information.
Ensure that you have clear criteria definitions. Definitions will ensure precision around what has been developed so that you can return to this information in the future. Have you ever attended a meeting, a decision is made, and then a month later everyone gets back together and forgets what was decided? If this sounds similar, you are not alone; it happens in every organization.
Keep rating scales simple. Whether you decide to use a 1-100 (A+) or 1-10 (high) scale to rate proposals, simplicity will help reduce any confusion. You may also consider creating definitions for the scales. For example, “To receive a score of 10, the proposal must include X, Y, Z.”
Collaborate! Use a team approach and get others involved in this process. No need to let all of the responsibility for this process fall on one person. Allow this process to be a shared responsibility.

Step 3 – Solicit Bids

Next, you are ready to seek contractors/vendors to bid on the work. The solicitation document that is commonly used to seek bids from service providers is called a Request for Proposal (RFP). The RFP will typically include answers to the following questions:

What is the nature of the project? What are the requirements and expected deliverables for the work?
Where is the location of the work? Who is the organization that is making the purchase?
How will proposals be evaluated and what are the submission guidelines?
When are proposals due?
Who is the main point of contact?

In the Catholic Church, many dioceses will also have particular laws (financial policies) in place that require parishes to participate in specific bidding processes. For example, some dioceses require that for contracts over a specific dollar amount, the parish must request bids from at least three companies. It is imperative to be aware of what diocesan protocols may be required when examining these issues at the parochial level.

Step 4 – Evaluate Proposals

Once proposals have been requested and submitted, gather the team, and score the proposals using the criteria and weights that have been established. In choosing who should take part in the evaluation process, consider key people that will be most involved in working with the contractor/vendor.

Church Roof Replacement: Companies A, B, and C have submitted proposals for the roof replacement project. The pastor, along with the parish administrator and a member of the church maintenance staff reviews the proposals and score them against the established criteria. Once the ratings have been completed, the group will gather to discuss the results.

There are many ways to tabulate the results, but a straightforward approach is recommended. Recall the method used by the teachers to grade essays in the example above. The process can be simple:

Individually grade the proposals (essays)
Average the grades per proposal
Summarize and discuss the results.

Step 5 – Select Winner

Bring the evaluation team together and discuss scoring results for each proposal. At this point, the hard work you have completed in earlier steps of the process will pay off. You have all of the information you need to make a great selection decision.

Church Roof Replacement: Company A and B came out with the highest scores. After reviewing the information, the team decided to go with Company B. Although the bidding price from Company B was slightly more expensive than Company A, the differentiating factor came down to Company B’s excellent references and their extensive work with churches.

In this step, be sure to allow raters to confer on why they chose certain ratings for the various proposals. Rating or metric based systems are only one means of evaluation. Subjective data from individual experiences, organizational history, and general knowledge of a topic should never be discounted. The key is to bring people together, recognize and openly discuss any biases and celebrate the fact that there are always differences of opinion. “No one of us is as smart as all of us.”

Summary

Create a process, even a simple one, to evaluate and select contractors/vendors for major purchases of products or services. By defining requirements, establishing criteria, and developing a simple, yet clear evaluation and selection process, many positive results occur. First, the process will promote a spirit of equity, openness, and accountability both internally for the parish management team and externally for those working with the church. Second, although every decision will not have the same requirements, by following this systematic approach, you will have created a strategy that you can transfer and repeat for future purchasing decisions. Finally, the results of this process promote a church management structure that is efficient, effective, and transparent in conducting the business of the church.

This article was originally published by Villanova University’s Center for Church Management and Business Ethics by Michael Castrilli

By Michael Castrilli

Fraud Alert: 5 Tips to Protect Church Collections From Theft

There is nothing worse than reading about a Church who has lost thousands or even millions of dollars due to theft. Unfortunately, church collections are very susceptible to fraud because the theft involves something that is difficult to track – cash!

It would never happen here, not at our Church!

Our parishioners would never steal!

This is a Church — people are honest here!

Yes, I do believe that a majority of people are honest, but sin is a problem for a reason. I always like to say; most fraud doesn’t happen overnight. Fraud can occur slowly, even one dollar at a time and next thing you know – thousands, or in the case of some churches, millions are gone.

Fraud can occur as easy as:

Tom, the church usher, finds himself alone in the sacristy ready to put the Sunday collection in the safe. He pauses and thinks, “I work hard for this church as a volunteer. I’ve been here for 20 years; no one will care if I take a $10 bill, this church brings in tons of money.” The following week he takes a few $10s, and as time goes by, the dollars add up.

Jamie, the church administrator, always has the pastor review and sign the deposit slip before she leaves the bank. However, on her way, sometimes Jamie will make a second deposit slip that leaves out $50 or maybe $100 in cash. She forges the pastor’s signature (he won’t mind), and the bank does not notice. The fraud goes unnoticed because Jamie not only makes the deposits; she also reconciles the accounts in the church financial software.

Prevent Fraud – Protect People

Here is the main point – creating safeguards (aka internal controls) for assets is not about trust – internal controls are about protection and accountability.

Question: “Whoa – I’ve been here for years! You don’t trust me?”

Response: “This is not about trusting you, this is FOR YOUR PROTECTION.”

Think about it this way – without strong internal controls, if the money goes missing, how are people protected? If there is no process, there is also no protection. Without shared accountability, individuals are left in the lurch.

5 Tips to Safeguard Church Collections

Tip #1: Send Them Out Two-By-Two – Never allow one person to be alone with collections. If someone is bringing the collection to the office or the safe, have at least two people present.

Tip #2: Rotate Collection Counters – Set up a schedule for different people to count collections for different weeks. If people are in cahoots, and the same people count money in the same weeks, this can lead to fraud.

Tip #3: Create Checks and Balances (Literally) – Financial responsibilities should never rest on one person’s shoulders. The person who makes the bank deposits should not be the person who reconciles the accounts. An individual who writes the checks should not be the only one who signs the checks.

Tip #4: Communicate Proactively – An Information vacuum can cause people to create dirt. Establishing policies without proper communication lead people to suspicion and gossip – “Oh, I heard Laurie might be stealing money.” Be proactive with the answers to what, why, and how new policies are established.

Tip #5: Speak to Fears – Respond with “This is for your protection,” when confronted with “You don’t trust me?” Changing financial policy is not about a lack of trust but about safeguarding assets and sharing accountability.

Questions? Comments? Contact me at ChurchManagementAcademy@gmail.com.

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