Houses of Worship and Financial Transparency
Houses of worship are the shoulders on which all of American philanthropy stands. We, as Americans, must work to keep it that way and prevent lack of financial transparency from undermining some of our most valuable resources.
Religious congregations have played an outsized role in the development of America’s culture of giving and voluntarism. Examine the history of the nonprofit governance board model and you’ll find that religious congregations have played a huge role in the development of the models and practices we use today. And for much of history, Americans gave far more to their houses of worship than to any other kind of charity. For decades, nearly half of all charitable giving in the United States was directed toward houses of worship.
Recently, those numbers have dipped slightly. Our country is experiencing a cultural shift in which fewer adults are identifying with particular religions or joining congregations. Now, it is far more fashionable to call oneself “spiritual” or a “seeker” than to identify as a Pentecostal Christian, Conservative Jew or a Sufi Muslim. I am going to stand on my soap box and say that young adults, in particular, should give religious life a second look. A congregation offers a concrete anchor to one’s community and offers countless opportunities for social connections, spiritual development and social action.
In the most recent Giving USA Report, released in June, giving to houses of worship accounted for 31 percent of all giving in America. That figure may not represent half of all giving, but at $106 billion, giving to houses of worship represents nearly a third of all American philanthropy. Despite social upheavals, churches, synagogues and mosques are still the most common vehicle for Americans to express their generosity, seek community and work in concert to make an impact upon the community, the environment and the lives of others.
Americans of all political persuasions, economic backgrounds, faiths (including atheists and agnostics) should be rooting for the continued success of our roughly 300,000 houses of worship. Our congregations contribute untold social capital to the public good. They feed the hungry, visit the sick, educate the unemployed, counsel the addict and uplift the downhearted. Furthermore, research has demonstrated those who attend religious services regularly are more likely to give philanthropically. So, American’s 1.3 million nonprofits that aren’t houses of worship are in many ways the natural partners, and not competitors, of churches, mosques and synagogues.
I’ve traveled the country in order to advise congregations and am consistently inspired by how our houses of worship are working to provide meaningful community in a digital age and make faith relevant in an often cynical society. Yet I’m often mystified by the lack of financial oversight, even at large congregations with considerable budgets. All too often, we hear about financial fraud and abuse taking place in American congregations.
The truth is that, in deference to the concept of separation of church and state, houses of worship (simply referred to as churches in the IRS code) are treated very differently than other nonprofits. Most nonprofits must register with the IRS and fill out 990 forms that disclose – both to the government and ultimately to the public – budgets, salaries and financial data. In short, 501c3 organizations must be transparent. Of course, some nonprofits are, in practice, less than transparent. Anyone who follows the nonprofit sector knows that financial irregularities sometimes occur. But on balance, disclosure requirements on 501c3s place a major check on abuse.
Houses of worship, of course, have no such checks placed on them. The majority have their financial houses in order. Yet some lack professionalization or worse, are ripe for abuse. The problem is we just don’t know. As someone who helps congregations run transformative campaigns, I would argue that the overall lack of financial transparency and accountability in Americans houses of worship represents a black eye for all religious institutions. Donors want transparency and are gravitating toward organizations that demonstrate competency – at a minimum – and show how dollars are being spent. Collectively, if American houses of worship want to compete with educational institutions, arts organizations and other nonprofits vying for a donor’s money, they must find ways to become more transparent and accountable.
What’s to be done?
Should we advocate for a change to the law? There’s little public pressure and there’s zero chance that Congress will pass, and the president will sign, any law requiring houses of worship to register with the IRS and file 990s. Any political action that is perceived as attacking religious institutions – even if in the end it might help most of them is a political non-starter. There is much, however, that congregations can do voluntarily to boost the trust of donors. All congregations should publish annual reports and budgets on their website. Congregations should hire a CPA firm to conduct an audit on an annual or semi-annual basis. Yes, it is expensive, but a CPA audit is the best way to learn where to eliminate waste and has the highest standards for ensuring that the congregation’s books are in order. If an annual CPA audit is truly out of financial reach for your congregation then opt for a CPA review. A review process is nowhere near as thorough as an audit, but it will give staff, clergy, leadership and potential donors some sense of where the organization is financially. Lastly, there is nothing stopping a house of worship from filing a 990 voluntarily. I say do it, and then post it on your website. Sure, this may expose a few financial warts; I bet that taking such steps will earn the trust of many donors.
In the end, the health of our houses of worship depends a great deal on voluntary giving. Congregations must offer their stakeholders as many reasons to give as possible. They must inspire trust.
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