BUDGETING IN CHURCHES – A LITERATURE REVIEW AND
RESEARCH AGENDA
Denise Frost, Waikato Institute of Technology
Abstract
The process of budgeting in profit-driven businesses has been well documented
in the literature. In contrast, budgeting processes in not-for-profit churches are
relatively neglected as a research domain, even though some churches are
quite large organisations in terms of their annual budget. Church budgeting
operates on a philosophy of stewardship, which is a different philosophy from
that underpinning profit-driven businesses. This paper reviews the literature on
church budgeting to identify the key themes that have emerged from prior
research. Potential areas for further research are identified in what is a
relatively under-explored research domain.
Introduction
The preparation of a budget in a profit-driven business follows a different
underlying process to preparing a budget for a not-for-profit church. In a profitdriven business, the initial emphasis for cash budgeting purposes is on collating
sales forecast figures (Beal & Goyen, 2005), an element that is inappropriate in
the church context. The second step is to make a best estimate of cash
outflows, resulting in either an excess cash balance, or required financing. The
financial officer preparing the budget is basing his/her calculations on the
underlying motive of maximising shareholder wealth.
The literature on budgeting in churches mostly covers budgeting in mainstream,
denominational churches that have a hierarchal management structure. Some
of the literature focuses on theoretical issues such as the “sacred/secular
divide” (discussed later). Independent churches with no denominational ties or
‘top-down’ prescription of budgeting processes have been largely ignored,
representing a gap in the literature. The aim of this paper is to provide a review
of the literature on four aspects of church budgeting, namely professional
financial management, the “sacred/secular divide” forecasting income and the
use of a budget. The next section provides a background to the literature while
the four sections following address each of the four areas of church budgeting
previously identified. The final section identifies opportunities for further
research in this interesting and emerging field.
Background to the literature
The literature on budgeting in religious organizations falls into two broad
categories. In the first category, a case study approach is used to explore
financial management in mainstream churches. In these papers, budgeting is
often covered as part of a wider study. Accounting systems have been studied
in various denominations in four countries. Cunningham & Reemsnyder (1983)
investigated church accounting in a North American Presbyterian church.
Financial management practices in forty-seven non-denominational religious
foreign mission agencies were analysed by Zietlow in 1989. Laughlin (1988)
analysed accounting systems in the Church of England. Laughlin’s 1990 paper
addressed financial accountability in the Church of England. Lightbody studied
financial management behaviour in a large Protestant church in Australia in
1999.
Kluvers (2001) explored budgeting in Catholic parishes in the
Archdiocese of Melbourne, Australia.
Parker (2002) studied budgetary
incrementalism in the central offices of the Victorian Synod of the Uniting
Church in Australia. Balancing money and mission in a local church within the
Anglican diocese of Sydney, Australia was studied by Irvine in 2005. In the
same year, 2005, Jacobs published a paper examining the role of accounting in
the Church of Scotland in Edinburgh.
The second broad category comprises studies that examine church budgeting
but via the use of empirical case studies in a religious organisation. For
example, church budgeting issues are discussed by Futcher & Phillips in 1986
and in an often-quoted study on church budgeting, Booth (1993) outlines a
framework for accounting research in religious organisations. Wooten, Coker &
Elmore (2003) cover budgeting as part of a study investigating financial control
in 548 Southern Baptist Churches in North America.
Several authors (Laughlin, 1988, 1990; Booth, 1993 (referring to the work of
Laughlin); Kluvers 2001; Parker, 2001 and 2002; Irvine, 2005 and Jacobs 2005)
comment on the “sacred/secular divide” and how it applies to the adoption and
use of accounting and financial management in the church. The sacred refers
to the spiritual nature of the church or the ‘legitimate’ activities of the church.
The secular or profane refers to the support activities required to keep the
church functioning, that are not of a spiritual nature. As accounting is deemed
to be a secular or profane activity, the use of accounting within churches is
often met with some resistance (Booth 1993).
The previous discussion highlights the fact that the literature on budgeting in
churches covers a variety of ‘angles’, and has been studied in a number of
denominational churches in various countries. In the next section, the first of
the four aspects of church budgeting identified in the introduction, professional
financial management, is discussed.
Professional Financial Management
Often, churches deal with significant financial resources. Accordingly churches
must have the personnel and systems in place to manage and account for
these resources. Several studies have examined issues to do with the extent of
professional input into church financial management, including budgeting.
Generally, only larger congregations will have the financial resources to hire a
full-time accountant. Smaller congregations are more likely to hire a part-time
financial manager, or rely on a member of the congregation to fill in (Futcher &
Phillips, 1986). Parker (2002) notes that in the Victorian Synod Central Offices
of the Uniting Church in Australia, financial expertise was often lacking among
those in higher church management, who may have been appointed on the
basis of specialist knowledge, but who lack financial and management ability.
D:\219547752.doc
2
As a consequence, budgetary information may be misinterpreted, with important
points being completely overlooked or ignored.
Irvine (2005) reported that in an Anglican church in the diocese of Sydney,
Australia, dedicated lay people with accounting skills performed accounting
tasks. Professional accountants were consulted, however, on a number of
occasions. Irvine’s study suggests it is important that accounting professionals
are church members and not merely employees. Church members are more
likely to be committed to the church vision and mission (Irvine, 2005). Her
study suggests that church financial reports prepared by a church treasurer
(professional or lay person), are more likely to be accepted by the congregation
(Irvine, 2005).
Most of the Australian Catholic parishes studied by Kluvers (2001) employed an
accountant.
The accountant was required to have a relevant tertiary
qualification, but did not have to be a member of a professional body.
Jacobs (2005) found that the Church of Scotland had no rule that a qualified
accountant was required to prepare congregational accounts. Church members
preferred to deal with a person with church connections, even if s/he was not
adequately qualified. The church was aware of the need for better financial
controls and more accounting professionalism at the congregational level. A
new, uniform accounting system was introduced, along with the recruitment of
financially literate and younger elders. However, there was a resistance to the
introduction of more financial control and accounting professionalism at higher
levels of church administration.
Pastors are usually selected for their leadership in spiritual matters. Often,
Pastors have little training in financial matters, yet are expected to participate in
making financial decisions. (Flesher & Duncan, 1999). Conway (1999) reported
on the dissatisfaction of clergy with the training received in seminary on
financial duties. In a survey of 400 clergy, Conway found that only 7% of
respondents were extremely or very satisfied with their seminary training. As a
rule, Pastors neither enjoyed nor felt skilled at handling the financial aspects of
their jobs. To overcome this problem, churches need to find an individual
suitably trained in financial matters to fulfil the role.
These various studies suggest that, despite their often large budgets and
recognised financial management challenges, churches often lack professional
advice because of resource constraints or a resistance to ‘outsiders’. This latter
point links to the next issue of the perceived “sacred/spiritual divide”.
The “Sacred/Secular Divide”
The process underlying the preparation of a budget for a not-for-profit religious
organisation such as a church is one of stewardship. Through the use of
parables, Jesus commanded his followers to be good stewards of the resources
entrusted to them.1 In a financial context, a steward is “….a person who
1
Matthew 25:14-30, Luke 19:12-27.
D:\219547752.doc
3
administers the property, house, finances, etc of another.” (Collins Concise
Dictionary, 1999, p.1459). In a biblical context, church management have the
responsibility to be good stewards of the resources entrusted to them.
The fact that Jesus taught about the wise use of resources, including financial
resources, suggests that accounting is both a sacred (spiritual) and secular
activity. Accounting can be seen as a sacred activity as it helps with the wise
stewardship of resources. Accounting can also be regarded as a secular
activity that enables the church to reach the spiritual goal of being good
stewards of the resources entrusted to them (Jacobs, 2005).
Some churches view accounting and financial management as a secular tool,
which intrudes into the sacred or spiritual domain of the church. For example,
Parker (2001) found that some church members had theological objections to
the formal planning process, believing it was an intrusion into the spiritual
nature of the church. They believed that “the Holy Spirit guides actions rather
than plans made by humans” (Parker, 2001, p.348).
Others were
uncomfortable with the process as they felt that a formal strategic planning
process encroached upon their decision-making autonomy.
Jacobs (2005) reported that church members were happy to accept the role of
accountants outside the church, in the secular world. However, within the
church, (the sacred), the accountant’s territorial domain was seen to be
contestable. The clergy would listen to advice given by accountants, but
financial matters remained the clergy’s responsibility.
Along a similar line of thought, Kluvers (2001) maintains that budgeting is an
activity in which the sacred and secular meet. Budgeting is seen as a secular
activity that supports the sacred goals of the church. Irvine (2005) reported the
lack of “sacred/secular divide” in an Anglican church in the diocese of Sydney,
Australia. In this church, “the budget was treated as a very important
document.....[and]….. was actually used as a surrogate for the spiritual goals of
the church….” (Irvine, 2005, pp.215 & 233) Irvine suggests that it is the nature
of the religious beliefs and the attitude to money at the individual church level
that ultimately determines whether accounting is deemed to be a sacred
(spiritual) or secular exercise (Irvine, 2005).
It is important that money does not become the dominant motive of the church.
Rather the primary motive should remain spiritual. Church officers need to
strive to keep a biblical attitude to the secular force of money to avoid the
corrupting influence of money (Irvine, 2005). The Bible teaches, “The love of
money is a root of all evil.”2 Notice that the love of money is a root, not the root
of all evil. Accounting, when used in a biblical context, can aid the church to
attain its spiritual goals.
The literature presents conflicting views about the “sacred/secular divide”.
Some churches view the budget as a secular imposition, whose encroachment
upon church financial management should be minimised. Other churches
2
1 Timothy 6:10.
D:\219547752.doc
4
accept that the budget is a secular tool, but necessary for good church financial
management. Parker summarised the dilemma facing the church with respect
to the “sacred/secular divide” as follows:
“Faith in divine providence, patience in ascertaining the will of God, obedience
to and trust in His call are challenged by calls for accountability, cost-benefit
comparisons, protection of individual rights, and the desire for immediate
tangible results” (Parker, 2001, p.337).
The challenge to each individual church is to decide how to approach the
“sacred/secular divide” and integrate it into their financial management process.
Forecasting Income
In a profit-motivated business, the budgeting process begins with sales revenue
forecasts. Churches, however, do not start with revenue forecasts due to the
sometimes unpredictable nature of their donated income. The revenue stream
for a church is heavily dependent upon individual donations. Estimates of the
percentage of congregational revenue gained from individual giving range from
between 80% - 90%. Hoge, Zech, McNamara & Donahue (1999) report that in
North America, individual donations make up 90% of congregational revenue.
Hodgkinson (1999) found that the average North American congregation
receives 81% of its income from donations made by individuals.
The percentage of income donated by individuals did not vary much when the
congregation size was taken into account. Individual giving is not constant
across the congregation. Around 75% of donations are given by 25% of the
congregation. Hoge et al also found that the level of giving an individual
contributes to their church, as measured as a percentage of income, varies
across denominations. There are clear denominational differences in the
motives underlying the reasons individuals give to a church. (Miller,1999).
Also, giving has been found to follow a seasonal pattern in American
congregations. Cunningham & Reemsnyder (1983) report that offerings were
found to be the highest in late autumn and spring. Offerings were at their
lowest mid-winter and late summer.
In order to function effectively, the financial manager of a church must be able
to identify and anticipate income patterns. One method of estimating yearly
income is the use of pledge cards, whereby individuals pledge to give a certain
dollar figure on a regular basis, which can be used to estimate yearly income
(Futcher & Phillips, 1986). Chaves (1999) reports that pledging, or planned
giving, is associated with higher levels of giving. However, where pledging is
not consistently used, a church may find it difficult to predict the amount and
timing of cash receipts as a basis for budget-setting.
The degree to which the congregation adopts and supports the goals and vision
of the church as their own is likely to affect the level of financial support given.
Financial support is more likely to be forthcoming if members adopt and support
the leadership’s goals and vision for the church (Futcher & Phillips, 1986). As
long as the congregation adopts management’s vision for the church, there will
D:\219547752.doc
5
be little opposition to the financial resources of the church being used to
accomplish the vision. However, conflict is likely to arise if the congregation
does not support the vision, as there will be little support for the use of financial
resources to accomplish a vision they do not adhere to. This means that cash
inflow patterns are made more difficult to predict for budgeting purposes where
a church congregation and its leaders are not in clear agreement about the
church’s vision and aims.
Cunningham & Reemsnyder (1983) reported on improvements made to the
church budgeting process. One improvement implemented was to use past
experience, for example seasonal patterns, to project monthly offerings,
adjusting for months with five Sundays. In a study of independent foreign
religious mission agencies, Zietlow (1989) found that most used naive trend
projections to forecast income. Only one agency used regression analysis.
There was no use of more sophisticated time series forecasting techniques or
smoothing methods. This is consistent with the earlier points that (i) there is
often little financial expertise available to church budgeting processes and (ii)
cash inflows are seen as less critical as a starting point for church budgetsetting.
Church income must be continually monitored to ensure that income is
adequate to cover budgeted expenses. One method documented by Irvine
(2005) is for the dollar amount of the weekly offerings to be made public. This
method makes the congregation aware that for the church to continue
functioning, a level of giving equal to the weekly budgeted expenses would
have to be sustained. Irvine (2005) documents two situations over a five-year
period during which giving fell behind budget. On such occasions, the
congregation was made aware of the financial situation of the church. In this
situation, the budget was used as a management tool.
The use of a budget
As an elementary financial planning tool, the budget has the potential to be a
very useful tool for churches. Studies suggest that expenses rather than
income is the primary driver behind the church budget. Laughlin, (1984), (1988)
as cited in Booth (1993, p.44) describes budgets at parish, diocese and the
Central Board of Finance in the Church of England as being expenditure
orientated. Often, the budget represented more than a financial target that must
be met every week. In reality, it was the amount required to ensure the
maintenance of the existing level of ministry of the church (Irvine, 2005).
There are few practical details about the use of budgets supplied in the
literature. However, those that appear often offer an interesting insight into
church budgeting practices. No indication of the percentage of churches using
a budget is indicated. However, Zietlow (1989) reports that almost 15% of the
independent religious foreign mission agencies surveyed did not use a budget.
In terms of the time period the budget covers, both Kluvers (2001) and Wooten,
Coker & Elmore (2003) reported that 87% of those surveyed prepared budgets
on an annual basis. Cunningham & Reemsnyder (1983) mention that prior to
financial reorganisation, a budget was prepared for expenditures only, not for
D:\219547752.doc
6
income. After the process was reorganised, cash flow was projected on a
monthly basis. A 1992 survey of North American churches found that, on
average, congregations spend 83% of their financial resources on maintaining
local operations. A further 14% is donated, either within the denomination, or to
groups outside their denomination. The remainder is saved (Hodgkinson,
1999). This suggests that churches have clearly delineated goals to which they
apply their funds, and could benefit from using budgeting practices that support
these allocative decisions.
In terms of how the current year’s budget is derived, the underlying process
reported in the literature is similar. Parker (2002) reports that an incremental
adjustment to the previous years budget is made to arrive at the current year’s
budget. Futcher & Phillips (1986) document a similar process in which the
current year’s budget is virtually identical to the previous year, with the addition
of items that have “cropped up”, as required. Kluvers (2001) also documents
the incrementalist approach, in which minor changes are made to the previous
year’s budget to arrive at the current year’s budget.
In most situations reported in the literature, it can be inferred that the budget
development process was carried out by the church financial officer, sometimes
in conjunction with church ministers. The results of a survey of Catholic
parishes in Melbourne, Australia, indicated that the parish priest and the
accountant were largely responsible for budget preparation. Little consultation
with others was undertaken and lay members of the parish had very little
involvement. In the majority of parishes, members had no opportunity to
provide feedback on the budget (Kluvers 2001).
In contrast, Irvine (2005) reported on a more consultative approach to budget
development in an Anglican church in Sydney, Australia. The senior minister of
this church believed the budget should incorporate and reflect the goal and
vision of the church. Five senior people considered submissions and assessed
parish needs. The budget was then discussed and approved by the parish
council before being presented to the congregation at the annual vestry
meeting; Congregation members were able to make recommendations and vote
on the budget. However, the final decision on budget matters was made by the
parish council.
Once the budget has been prepared, actual expenditure must be compared with
budgeted amounts. According to the literature, this is generally well done.
Cunningham & Reemsnyder (1983) documented periodic comparison of actual
and budgeted year-to-date amounts. Kluvers (2001) found that almost 90% of
Catholic parishes surveyed monitored their budgets throughout the year. A
survey of over 500 Southern Baptist churches in the States found that 52% of
respondents reported monthly budgeted vs. annual receipts, 11% made
quarterly comparisons, 13% made yearly comparisons, 7% produced the
figures when requested to and 17% did not make any comparisons. When
budget variances occurred, 63% of those surveyed provided oral explanations
and 22% provided written explanations. When actual expenses exceeded
budgeted estimates, 41% provided members with a plan to sort out the budget
overage. (Wooten et al, 2003). In contrast, Parker (2002) reported that the
D:\219547752.doc
7
monitoring of actual against budgeted expenditures was highly variable and was
possibly just not carried out. It should be noted that this study reported on
budgeting practices in the central office of a church, and not in a local church.
This literature review has revealed that there are many differences as to the
process of budgeting among churches and the communication of the budget to
the congregation. It also suggests that budgeting has much to offer churches
as a management tool and that there is room for improvement in the use (and
benefits) of budgeting in church organisations to support their goals and
financial sustainability.
A proposed research agenda
This review of the literature on budgeting in churches reveals gaps and
contradictions, that highlight areas for further research.
Contradictions about the “sacred/secular divide” in churches exist in the
literature, with different studies reporting conflicting results. There are also
contradictions in the literature about the budget-setting and monitoring
processes.
All the previous studies have been carried out on denominational, mainstream
churches. There has been no study of an independent church with no
denominational ties. Such a church is unlikely to be constrained by imposed
budgetary guidelines imposed by church hierarchy, giving it greater autonomy in
how budgeting practices are structured. As a consequence, there are no
benchmarks or guidelines regarding best practice budgeting in an independent
church.
There have been no prior studies conducted on budgeting practices in any New
Zealand church, irrespective of whether the church is a denominational or
independent church. There is no broad background knowledge about the use
of budgets and the budgeting process in New Zealand churches. For example,
there is no indication of basic facts such as the percentage of New Zealand
churches that use a budget. Little information is available about how budgeting
and strategic planning are linked in churches. Neither is there much information
about monitoring and accountability.
All of these issues warrant further examination to explore how budget setting,
monitoring and reporting can be better integrated into the sacred domain of the
church and better utilised as an operational, goal-setting and accountability tool.
Much remains to be learned about the role of, and potential for, budgeting in the
church context, particularly in New Zealand where little research has been
done, and in independent churches where budgeting practices are less
prescribed
and
perhaps
more
challenging.
D:\219547752.doc
8
References
Beal, D. & Goyen, M. (2005). Introducing Corporate Finance, Milton Qld: John Wiley &
Sons Australia Ltd.
Booth, P. (1993). Accounting in Churches: A Research Framework and Agenda,
Accounting, Auditing and Accountability Journal, 6, (4), 37-67.
Chaves, M. (1999). “Financing American Religion”, in Chaves, M., & Miller, S. L.,
(Eds.), Financing American Religion, (pp.169-188). Walnut Creek CA: Alta Mira
Press.
Collins Concise Dictionary, (1999). 4th ed, Collins: Glasgow.
Conway, D. (1999). “Clergy as Reluctant Stewards of Congregational Resources”, in
Chaves, M., & Miller, S. L., (Eds.), Financing American Religion, (pp.95-101).
Walnut Creek CA: Alta Mira Press.
Cunningham, G.M., & Reemsnyder, D. E., (1983). Church Accounting: The Other
Side of Stewardship, Management Accounting, 65, (2), Aug, 58-62.
Futcher, T. J., & Phillips, T. J. (1986). Church Budgeting – A Secular Approach,
National Public Accountant, 31, (9), September, 28-29.
Hodgkinson, V., (1999). “Financing Religious Congregations – A National Review”, in
Chaves, M., & Miller, S. L., (Eds.), Financing American Religion, (pp.79-86).
Walnut Creek CA: Alta Mira Press.
Hoge, D. R., Zech, C., McNamara P. & Donahue, M. J. (1999). “Giving in Five
Denominations”, in Chaves, M., & Miller, S. L., (Eds.), Financing American
Religion, (pp.3-10). Walnut Creek CA: Alta Mira Press.
Irvine, H., (2005). Balancing money and mission in a local church budget, Accounting,
Auditing and Accountability Journal, 18, (2), 211-237.
Jacobs, K., (2005). The sacred and the secular: examining the role of accounting in
the religious context, Accounting, Auditing and Accountability Journal, 18, (2),
189-210.
Kluvers, R., (2001). Budgeting in Catholic Parishes: An Exploratory Study, Financial
Accountability & Management, 17, (1), February, 41-58.
Laughlin, R. C., (1984). The Design of Accounting Systems: A General Theory with an
Empirical Study of the Church of England, unpublished PhD thesis, University
of Sheffield.
Laughlin, R. C., (1988). Accounting in its Social Context: An Analysis of the Accounting
Systems of the Church of England, Accounting, Auditing and Accountability
Journal, 1, (2), 19-42.
Laughlin, R. C., (1990). A model of financial accountability and the church of England,
Financial Accountability & Management, 6, (2), Summer, 93-114.
Lightbody, M., (2000). Storing and shielding: financial management behaviour in a
church organisation, Accounting, Auditing and Accountability Journal, 13,(2),
156-174.
Miller, S. L. (1999). “The meaning of Religious Giving”, in Chaves, M., & Miller, S. L.,
(Eds.), Financing American Religion, (pp.37-45). Walnut Creek CA: Alta Mira
Press.
Parker, L., D. (2002).
Budgetary incrementalism in a Christian bureaucracy,
Management Accounting Research, 13, 71-100.
Wooten, T. C., Coker, J. W., & Elmore, R. C. (2003). Financial Control in Religious
Organisations, Nonprofit Management & Leadership, 13, (4), Summer, 343-365.
Zietlow, J. T., (1989). Capital and Operating Budgeting Practices in Pure Nonprofit
Organisations, Financial Accountability & Management, 5, (4), Winter, 219-232.
D:\219547752.doc
9