FAITH-BASED INITIATIVES

FAITH-BASED INITIATIVES WILL TAKE MORE THAN FAITH!
By Richard D. Locke, CPA and Larry L. Perry, CPA

OUR GOLDEN OPPORTUNITY?

Walking out of a weekend government-sponsored seminar on the White House’s Faith-Based and Community Initiatives, one pastor was thinking this way: “I’ve only wanted to do one thing my whole life–pursue the Lord’s call with no limitations, particularly the lack of money! And now here is my golden opportunity, an answer to prayer—government funding to do God’s work!” Back at his office on Monday, he downloaded the federal grant application forms, assigned a new intern the responsibility for completing the papers by Friday and began to dream of new soul-winning projects.

Meanwhile, a few miles away, the pastor of a small town church was anguishing in prayer over a notice from a federal agency reporting that the church was not in compliance with the requirements of their grant to provide job interview training for the unemployed. The letter informed the pastor their grant was being suspended and their church could even be penalized or required to pay some of the grant money back. The pastor was probably thinking: “I wish I had understood when our auditors told me our recordkeeping and reporting requirements needed improvement and that our management resources were not adequate for administering a federal grant. Maybe this wasn’t my answer to prayer after all!”

Too Good To Be True?

Someone once said, “If it sounds too good to be true, it probably is!” We’re not saying that faith-based initiatives and other federal award programs are too good to be true but, like Paul Harvey often said, we need the “rest of the story.” Briefly, here is the rest of this story.

Most churches and ministries continually need funds to expand existing programs or initiate new ones. Government funding may be one way to do this…but the “rest of the story” is that strings are attached! Luke 14:28-30 instructs us to “count the cost” before undertaking our work. Failure to “count the cost” of receiving federal funding can have devastating consequences to a church or ministry. This could even result in some of God’s men and women being prevented from fulfilling their calling!

Strings Are Attached

Here’s what they look like. Church or ministry recipients of federal funding:

* Are required to comply with extensive laws and regulations, federal, state and local.
* Are prohibited from using public funds for sectarian worship, instruction or proselytization.
* Should carefully plan their legal and operational structure.
* Must comply with extensive accounting systems, internal control systems and reporting requirements.
* Need adequate management resources to manage their programs.
* Must have annual audits of their financial statements, internal control systems and grant compliance, usually performed by CPAs.

Basic Prohibitions

In the 1996 Welfare Reform Act and earlier legislation, the question is not so much whether a given activity is religious but whether government money is funding a religious activity. Service recipients cannot be excluded based on their religious beliefs and cannot be subjected to religious activities as a condition of receiving services. A faith-based provider must be able to demonstrate that any religious activities it engages in are privately funded and that recipients of the benefits of a federal award program are not required to participate in such religious activities.

The 1996 Welfare Reform Act, and the House version of the faith-based initiatives legislation, prohibits the use of public funds for “sectarian worship, instruction, or proselytization.” Both, however, embrace the concept of “charitable choice” that allows faith-based organizations to provide social services without impairing their religious character, i.e., displaying religious symbols where services are being provided, using religious criteria in hiring and including religious concepts and language among other alternatives. The Senate version of proposed legislation, on the other hand, does not embrace the “charitable choice” concept.

Legal and Operational Structure

As future legislation emerges concerning government funding of religious groups, it is possible faith-based organizations will not enjoy the religious discrimination exemptions of the past (such as hiring members of their own faith). Courts, in fact, are likely to increase scrutiny of all forms of employment discrimination.

The possibility of greater prohibitions on the use of federal funds and fewer exemptions from employment discrimination for religious organizations, as well as other legal, audit and insurance requirements, are leading some faith-based organizations to establish legally-separate non-profit organizations to deliver government-funded services. The nature of a proposed separate organization, its operational, management and accounting resources and its impact on the government’s award selection process should be carefully considered by an organization’s professional advisors before filing a grant application.

Systems and Reporting Requirements

Not only must a faith-based organization utilize accounting and internal control systems and related computer technology that will produce accurate financial information (including indirect cost allocation), government-funded programs require accurate, detailed reporting of payroll and other expenditures, eligibility records and the numbers of persons served. Personnel requirements for a program must include persons providing the services and those necessary to comply with a program’s recordkeeping and reporting requirements.

Discussing these administrative and technical issues with pastors and directors of ministries often produces what we might call “the glazed eyeball effect.” This effect begins with a translucent coating forming over one’s eyes, coupled with a simultaneous blockage of both eardrums! During this phenomena, the person’s thoughts often run to feeding the poor in a third world country, to passing out tracts at the bar down the street or to the rapture. In short, administrative and technical issues are often the last to be considered by faith-based organizations. If an organization is planning on applying for government funding, the cost of the detailed recordkeeping and reporting requirements must be counted!

Management Resources

While this may be apparent, successfully managed federal award programs must have good managers! Federal award programs require managers that can manage projects and achieve organizational goals, not just cast a vision. These programs require managerial skills that, frankly, are beyond those found at some faith-based organizations. Planning for a program should include an assessment of internal management resources and an evaluation of available external, contractual resources such as program managers, accountants and other professionals.

Annual Audits

A surprise to many first time grant applicants, most federal and other grant applications require two years audited financial statements as a condition for application. After receiving federal funding and expending more than $300,000 during a year, a non-profit organization must comply with the Single Audit Act Amendments of 1996 and the Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-profit Organizations and submit annual audited financial statements to the granting agency. This audit, usually performed by independent certified public accountants, includes an entity-wide audit of the organization’s basic financial statements and a detailed audit of the expenditures for major federal award programs. The audit of the major programs includes testing and reporting on internal controls and the compliance requirements of the programs. Only with adequate accounting and internal control systems, and the demonstration of adequate management resources, can an organization expect to successfully complete this extensive audit process.

PROFESSIONAL ADVISORS ARE ALLIES, NOT OBSTACLES

Some pastors and directors of ministries regard relationships with CPAs and attorneys as hindrances to their faith visions. Sometimes this can be explained because the relationship is approached in the way we sometimes approach God—we make our plans then ask Him to bless them! In some cases, CPAs and attorneys aren’t familiar and experienced with the federal funding process or, as is more often the case, they don’t understand the unique operations of churches and ministries. In any event, it is simply wisdom to involve experienced, qualified professionals in your process of planning for federal award programs! Churches and ministries will benefit greatly from investing in on-going relationships with skilled professional advisors (allies!) to help plan for filing grant applications, to prepare for grant management and compliance and to successfully complete the financial audit process required for recipients of federal funding. As Proverbs 11:14 suggests, there is safety in many counselors…and we think the writer meant before we get into trouble rather than after!

Richard D. Locke is a certified public accountant with over forty years of experience. His firm, Locke & Associates, P.C., is a full service accounting firm which specializes in taxation and nonprofit services. The firm has six certified public accountants servicing approximately one thousand clients in the United States and thirty countries. You can reach Richard D. Locke, CPA at 918-488-0880.

With over 30 years’ experience as a CPA, Larry L. Perry is a nationally-known author of accounting and auditing manuals, a professional continuing education instructor and author, and a consultant to CPA firms. Larry practices in Colorado Springs, Colorado and serves primarily churches, religious organizations and other nonprofit organizations. He is also president of CPA In-House Seminars, Inc., an organization that arranges and presents cost-effective, live-taught seminars on all functional subjects in CPA firms and cities throughout the nation. He is an ordained minister and serves on the board of directors of several nonprofit organizations. Larry can be reached at 719-963-6775 or by e-mail at [email protected].