James W. Thompson, Ed.D., CPA
“Stewardship: Financial Control and Accountability,” chapter 12 in The Concise Guide to Catholic Church Management (Notre Dame, IN: Ave Maria Press, 2010)
Reviewed by Mark F. Fischer
The last chapter in the Concise Guide was written by James W. Thompson, Ed.D., CPA, Professor of Accounting and Taxation at St. John’s University. Entitled “Stewardship: Financial Control and Accountability,” the chapter considers the pastor as steward of the parish’s resources.
This distinguishes Thompson’s approach from that of Charles E. Zech in the chapter on stewardship in The Parish Management Handbook. “Developing Stewards in a Parish Setting” is the title of Zech’s chapter. It focuses on parishioners as contributors of their time, treasure, and talent.
Thompson focuses on the stewardship of the pastor. He exercises his responsibility by using financial controls to minimize the chances of impropriety and fraud, and also by rendering a strict account of his oversight of parish finances.
Thompson begins with the concepts of financial literacy and internal financial controls. Pastors are not usually accountants, but they must understand the basic concepts of accounting in order to discharge their obligation as steward of the parish’s temporal goods. Equally important is the use of financial systems and reports to ensure that the goods of the parish are well maintained. Thompson does not advise pastors how to increase the parish’s income, but he shows them how their own good stewardship can increase parishioner confidence that the church’s temporal goods are being handled safely and securely.
Perhaps Thompson’s greatest contribution in this chapter is his endorsement of a three-document method for reporting on the parish’s financial well-being. Many pastors today are content to issue an annual “Balance Sheet,” showing that the parish’s yearly income corresponds to the amounts the parish actually spent. In the eyes of Thompson, however, the “balance sheet” approach is inadequate because it reveals neither all of the parish’s assets and liabilities nor the sources of parish income. So in addition to the Balance Sheet, he argues, the good pastor will also issue a “Statement of Activities” and a “Cash Flow Statement.”
A true Balance Sheet, says Thompson, differs from a statement of income and activities. It is rather a one-time snapshot of parish assets and liabilities. When the snapshot was taken, the parish’s total assets equal its liabilities plus the remaining assets. For example, the money invested by the parish in the diocesan bank or investment pool may have increased by a certain percentage, but the entire investment is an asset, and the Balance Sheet should reflect it (and not merely what it earned in twelve months). To give another example, a loan to the parish or a mortgage is paid down little by little, but the entire loan or mortgage is a liability, and this entire sum belongs on the Balance Sheet (not merely what the parish paid on it).
By contrast to the Balance Sheet, the Statement of Activities shows financial differences over a period of time. In a given year, the parish earned something from its investments, and paid a certain amount on its loan or mortgage. The certain amount – i.e., the portion that was newly earned or recently paid off – should appear on the Statement of Activities (but not on the Balance Sheet). The statement will also show all other “activities,” such as income collected and salaries paid.
The third document that pastors ought to publish is the Cash Flow Statement. Thompson defines it as “information concerning the sources of cash and uses of cash” (242). The sources and uses may come from operations, from investing, or from financing. Thompson illustrates the differences this way:
Money could be borrowed from a bank in order to construct a parish hall. The income statement [i.e., the Statement of Activities] would not grasp this transaction. However, the cash flow statement would present the money spent on the parish hall as an investing activity and the money borrowed as a financing activity. (p. 243)
In other words, the Cash Flow Statement will distinguish between income from operations (e.g., parish collections) and income from loans.
To sum up, let’s consider all three of the documents recommended by Thompson:
- The Balance Sheet will show the total amount the parish owes to its creditors and all of its material assets.
- The Statement of Activities will show how much it paid on its loans or earned from its investments.
- The Cash Flow Statement will explain how much was moved from the bank (financing) and spent on construction (investing in the parish plant).
With this three-document approach, Thompson recommends a sound accounting standard for parishes. Were his standard to be followed, parishioners would have a great deal more information about the financial health of the parish – and a lot more confidence in the pastor as chief parish steward.
It is a shortcoming of Thompson’s 29-page chapter, however, that he does not spend more time showing the consequences of the three-document approach. Instead, Thompson moves on (altogether too quickly) to further topics, such as the development of a financial team of bookkeepers, accountants, and auditors, and also to a discussion of financial controls. All of this is valuable, but not as valuable as a thorough exposition of the three-document approach, which sets a potential standard for parishes everywhere.
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