KC area megachurch foreclosed

[Billy Cox]

Saw this on the news last night...
http://www.kansascity.com/2011/09/04/3121452/first-family-church-loses-its.html

This paragraph was especially interesting:


In 2007, The Kansas City Star reported that hundreds of members had left First Family Church in previous years over concerns about financial accountability. The newspaper also found that the church was structured in a way that provided little financial oversight.

Shortly after that, the Kansas attorney general launched an investigation into the finances of the Rev. Jerry Johnston and his church after receiving complaints alleging that Johnston had misused church money. The investigation was later closed, an attorney general spokesman said, because it did not find any activity that violated the Kansas Consumer Protection Act.

What safeguards exist to prevent something like this from happening at a Church of the Nazarene?

[Bill Morrison]

A good start would be if we Nazarenes:
1. continue to allow members to vote for church board, not let pastor appoint the board
2. let any and all members who ask know about the total finances of the church, including staff salaries (not just "you need to sacrifice for God, and let us spend the money without being transparent about it")
3. don't raise money for specific things, and then when the money comes in, use it for something else
4. don't go overboard building gymns, school facilities,etc (nice, but not necessarily the prime mission of the local church, especially if it means going many millions in debt)
5. don't have 5 or 6 of the pastor's immediate family on the church payroll
6. love, respect, and support our pastors (even more than we do now), but don't treat them like they are Jerry Falwell or Billy Graham's heir apparent (even if we think they might be)

From what I have heard/read about this local situation, FFC allegedly failed on all counts.
(I am betting you know that too, but thought I would just come out and say it for the benefit of those who aren't privileged to live in Olathe!)

BILL

[Dennis M. Scott]

All other things being equal - which they aren't - their loan to value ratio seems pretty tight. Guidelines about debt service in relationship to annual income used to be similar to that described in the article. Even guidelines about LTV ratios can't control declining real estate values. A Nazarene church with an annual income in excess of $15 million and attendance of 4000 plus might probably do just about whatever they wanted, and in theory could get into such a predicament. The decline in attendance might get attention a little more quickly in a Nazarene church. I share interest in responses to your question.

My response assumes your question relates mainly to the foreclosure issue, more than the apparent leadership foibles.

[Ryan Scott]

I did a whole (investigative) report on First Family as part of a sociology of religion class at NTS. Let's just say there's a lot of bad stuff going on there. This was inevitable.

[Kevin Rector]

What safeguards exist to prevent something like this from happening at a Church of the Nazarene?

I can't speak to any other Church of the Nazarene, but at the one I pastor, it is standing policy that the books are open to inspection by anyone who has an interest. The board does have the right to refuse inspection to non-members if they felt the person had some malignant intent, but that's not likely out in the cattle fields of Arkansas. So far, no one but my dad and the board members has shown an interest in the monthly treasurer's report.

Oh, and theoretically the District Properties' Board would reject a mortgage that would sink a church.

[Billy Cox]

A good start would be if we Nazarenes:
1. continue to allow members to vote for church board, not let pastor appoint the board
2. let any and all members who ask know about the total finances of the church, including staff salaries (not just "you need to sacrifice for God, and let us spend the money without being transparent about it")
3. don't raise money for specific things, and then when the money comes in, use it for something else
4. don't go overboard building gymns, school facilities,etc (nice, but not necessarily the prime mission of the local church, especially if it means going many millions in debt)
5. don't have 5 or 6 of the pastor's immediate family on the church payroll
6. love, respect, and support our pastors (even more than we do now), but don't treat them like they are Jerry Falwell or Billy Graham's heir apparent (even if we think they might be)

From what I have heard/read about this local situation, FFC allegedly failed on all counts.
(I am betting you know that too, but thought I would just come out and say it for the benefit of those who aren't privileged to live in Olathe!)

BILL

I hadn't followed the story much in the last several months, so I was surprised to hear of the foreclosure.

[Billy Cox]

All other things being equal - which they aren't - their loan to value ratio seems pretty tight. Guidelines about debt service in relationship to annual income used to be similar to that described in the article. Even guidelines about LTV ratios can't control declining real estate values. A Nazarene church with an annual income in excess of $15 million and attendance of 4000 plus might probably do just about whatever they wanted, and in theory could get into such a predicament. The decline in attendance might get attention a little more quickly in a Nazarene church. I share interest in responses to your question.

My response assumes your question relates mainly to the foreclosure issue, more than the apparent leadership foibles.

The foreclosure seems to be symptomatic. As usual, I am more curious about root causes and specifically what proactive steps the Church of the Nazarene takes/should take in order to maintain financial accountability.

[Edith Thurmond]

A good start would be if we Nazarenes:
1. continue to allow members to vote for church board, not let pastor appoint the board
2. let any and all members who ask know about the total finances of the church, including staff salaries (not just "you need to sacrifice for God, and let us spend the money without being transparent about it")
3. don't raise money for specific things, and then when the money comes in, use it for something else
4. don't go overboard building gymns, school facilities,etc (nice, but not necessarily the prime mission of the local church, especially if it means going many millions in debt)
5. don't have 5 or 6 of the pastor's immediate family on the church payroll6. love, respect, and support our pastors (even more than we do now), but don't treat them like they are Jerry Falwell or Billy Graham's heir apparent (even if we think they might be)

From what I have heard/read about this local situation, FFC allegedly failed on all counts.
(I am betting you know that too, but thought I would just come out and say it for the benefit of those who aren't privileged to live in Olathe!)

BILL

Note #5 (in bold) a/k/a The Crystal Cathedral in California.

-et-

[Craig Laughlin]

I wish this surprised me. This all was breaking just before I left KC. Billy you have framed this very well.

It seems to me that strictly speaking it was not safeguards that were the problem, in the sense of loss prevention. (Theft) Nobody stole money. The reason they got foreclosed on was that a huge number of people left. The reason a huge number of people left was a loss of confidence in handling of money in the church. It is a good reminder to churches that unlike a business it isn't just if something is legal, it is also a question of perception. There was a perception that something bad was going on and folks left in droves. (having the attorney general investigate is always bad) This is not to say that what was happening wasn't bad, I believe it lacked a great deal of integrity but technically speaking it appears that it was not illegal.


A church in my community blew up over this exact issue although on a smaller scale. One of the question I get a lot now is about financial accountability in our church and pastoral accountability. When I explain our system I usually get smiles and nods of agreement. We can't create a perfect system and some things suggested are good but ultimately it comes down to one of my favorite words, accountability and very body needs it.

[Gene Tatsch]

... I am more curious about root causes and specifically what proactive steps the Church of the Nazarene takes/should take in order to maintain financial accountability.As a layman, I see none. Where there is no openness (and resultant accountability) over financial, spiritual, etc. dimensions, the choice is a) "trust me", or b) leave. There is no productive discussion.

[John Reilly]

In the Church of the Nazarene, the District Assembly calls for an annual audit of local church books. The District Audit Committee members are available to do audits for local churches. Further in a denomination, unlike an autonomous church entity, the denomination actually owns the building and has some oversight permission giving in the local church process of actually applying for a loan so that in the case of possible foreclosure the district might instruct the local church to pay mortgages rather than district allocations to be sure loan payment is made. The district also may even make mortgage payments to prevent foreclosure.

[Steven Martinez]

I can't speak to any other Church of the Nazarene, but at the one I pastor, it is standing policy that the books are open to inspection by anyone who has an interest. The board does have the right to refuse inspection to non-members if they felt the person had some malignant intent, but that's not likely out in the cattle fields of Arkansas. So far, no one but my dad and the board members has shown an interest in the monthly treasurer's report.

Oh, and theoretically the District Properties' Board would reject a mortgage that would sink a church.

You might want to check the bylaws of your state. In California, any person for any reason can get a financial report of your church because it is a non-profit. One does not have to be a member to get one.

[Gene Tatsch]

In the Church of the Nazarene, the District Assembly calls for an annual audit of local church books. The District Audit Committee members are available to do audits for local churches.....The audit need not be an external, independent audit by qualified individual(s), as I understand it. Hence, an "audit" can be a meaningless exercise if so desired by the leadership.

[Ryan Scott]

It seems to me that strictly speaking it was not safeguards that were the problem, in the sense of loss prevention. (Theft) Nobody stole money. The reason they got foreclosed on was that a huge number of people left. The reason a huge number of people left was a loss of confidence in handling of money in the church. It is a good reminder to churches that unlike a business it isn't just if something is legal, it is also a question of perception. There was a perception that something bad was going on and folks left in droves. (having the attorney general investigate is always bad) This is not to say that what was happening wasn't bad, I believe it lacked a great deal of integrity but technically speaking it appears that it was not illegal.

FFC was started, primarily, as a tax shelter for a rich businessman (whose name, incidently appears more prominent than the name of the church on the side of the building). They pastor's entire family was on the payroll with inflated salaries - many of them owned subsidiary for profit companies through which most of the offerings were funneled for the personal gain of those employees.

There are a lot of laws governing what non-profits can do; I find it hard to believe that FFC was following all of them. Business ethics were definitely violated.

[Marsha Lynn]

As a layman, I see none. Where there is no openness (and resultant accountability) over financial, spiritual, etc. dimensions, the choice is a) "trust me", or b) leave. There is no productive discussion.

As a church treasurer, I answer every financial question that comes my way to the best of my ability regardless of the source. (It's rare to get a question from anyone other than board members.)

I wonder which is more common -- the scene you describe or the openness I see as only to be expected for any organization that collects funds from the public. Maybe I'll do a poll.

Marsha

[Craig Laughlin]

FFC was started, primarily, as a tax shelter for a rich businessman (whose name, incidently appears more prominent than the name of the church on the side of the building). They pastor's entire family was on the payroll with inflated salaries - many of them owned subsidiary for profit companies through which most of the offerings were funneled for the personal gain of those employees.

There are a lot of laws governing what non-profits can do; I find it hard to believe that FFC was following all of them. Business ethics were definitely violated.

Yes and I certainly don't want to get into deffending this pastor or church my only point was that the attorney general's investigation brought no charges.

[Ryan Scott]

Yes and I certainly don't want to get into deffending this pastor or church my only point was that the attorney general's investigation brought no charges.

Was that the same attorney general who had a day of honor at FFC or the one who replaced him? (I'm asking this seriously even though it comes off awfully sarcastic). If it was Phill Kline, I think its safe to say there could have been a conflict of interest there.

[Craig Laughlin]

Was that the same attorney general who had a day of honor at FFC or the one who replaced him? (I'm asking this seriously even though it comes off awfully sarcastic). If it was Phill Kline, I think its safe to say there could have been a conflict of interest there.

Good question. I don't know.

[Rich Schmidt]

The reason a huge number of people left was a loss of confidence in handling of money in the church. It is a good reminder to churches that unlike a business it isn't just if something is legal, it is also a question of perception. There was a perception that something bad was going on and folks left in droves.

The same thing can happen to businesses due to bad public perception. It's not just non-profits. Businesses fail all the time due to bad pr.


Further in a denomination, unlike an autonomous church entity, the denomination actually owns the building and has some oversight permission giving in the local church process of actually applying for a loan so that in the case of possible foreclosure the district might instruct the local church to pay mortgages rather than district allocations to be sure loan payment is made. The district also may even make mortgage payments to prevent foreclosure.

While we need permission before purchasing property or getting a mortgage, in the Church of the Nazarene, it's the local church that owns the building, not the district or denomination. Yes, if the church closes or leaves the denomination, the district takes over the property. But until that time, the local church owns it.



The audit need not be an external, independent audit by qualified individual(s), as I understand it. Hence, an "audit" can be a meaningless exercise if so desired by the leadership.

I didn't think you were right about this, but the Manual does appear to provide some wiggle room. One of the responsibilities of the church board:


129.23. To appoint an auditing committee or a committee of independent examiners, or such other qualified persons, that shall audit or examine, to at least the minimum standard required by national or state law if applicable, or other recognized professional standards, at least annually, the financial records of the treasurer of the church, the Nazarene Youth International (NYI), the Sunday School and Discipleship Ministries International (SDMI) Board, Nazarene childcare/schools (birth through secondary), and any other financial records of the church. The pastor shall have access to all records of the local church.

It doesn't define what "qualified persons" means... but it does require that it meet the minimum legal and/or recognized professional standards. It sounds to me like that would require it to be done by a CPA or equivalent. Wouldn't it?

[Rich Schmidt]

BTW, it looks like someone has created a "watch out for these guys" website: http://www.thenewdaychurchkc.com/

[Gene Tatsch]

...It doesn't define what "qualified persons" means... but it does require that it meet the minimum legal and/or recognized professional standards. It sounds to me like that would require it to be done by a CPA or equivalent. Wouldn't it?For you & me, yes.
However, in my recollection, it has simply been someone in the leadership circle other than the treasurer - hence, "independent", in some sense.

[Dave McClung]

Saw this on the news last night...
http://www.kansascity.com/2011/09/04/3121452/first-family-church-loses-its.html

This paragraph was especially interesting:


What safeguards exist to prevent something like this from happening at a Church of the Nazarene?

The Church of the Nazarene is a member of the Evangelical Council forFinancial Accountability -- http://www.ecfa.org To be accepted as a member, we had to agree to disclose our financial information according to guidelines of the council. Every local congregation is obligated to abide by those guidelines.

That being said, we aren't completely protected. "The books are open" really doesn't mean much because so few people are able to read and understand raw accounting data. Without meaningful financial reports that are designed to inform, most of us can't make use of the accounting information.

I must confess that I once moved my membership out of a local Nazarene church because the accounting information wasn't accurate. I discovered that the pastor and treasurer would hold unpaid bills for months because there wasn't enough cash to pay them. The monthly financial reports always showed that the expense were equal to the income because the unpaid liabilities weren't booked until there was money to pay them. I informed the pastor that I couldn't remain a member of a church that presented misleading financial reports. When the misreporting continued, I resigned. To this day, I don't know if he was intentionally misreporting, or just didn't understand.

[Bud Pugh]

It doesn't define what "qualified persons" means... but it does require that it meet the minimum legal and/or recognized professional standards. It sounds to me like that would require it to be done by a CPA or equivalent. Wouldn't it?
Rich, there was quite a discussion on that issue in the Local Ministry committee at General Assembly in 2009. Those in Europe were saying that the language in the old paragraph about audits set a very high bar, one that required the use of an outside audit, every year at great expense. The new language was intended to open the door (outside the US, in particular) for a financial review by qualified but not necessarily professional laymen to be done.

[Dave McClung]

The audit need not be an external, independent audit by qualified individual(s), as I understand it. Hence, an "audit" can be a meaningless exercise if so desired by the leadership.

As I understand the term, "qualified" merely means someone who has the education or experience that allows them to understand the accounting records.

Personally, I don't have a high opinion of "external, independent audits" either. They are mostly a waste of time and resources. I would much rather have a review by someone I know and trust than an exteranl, independent audit.

[Dave McClung]

Yes and I certainly don't want to get into deffending this pastor or church my only point was that the attorney general's investigation brought no charges.

In some states, the role of the attorney general is merely to prosecute criminal cases. Apparently, that was the standard here -- was a criminal law violated?

In other states, like Texas, the attorney general in mandated to represent the interests of the public in all nonprofit matters. In Texas, the attorney general is a required party in all litigation involving a nonprofit corporation or association.

In other states, like New York, the attorney general has to approve the sale of realestate by a nonprofit corporation or association.

My point is that whether or not the attorney general gets involved isn't meaningful unless you know the state law in the state where the transaction takes place.

[Kevin Jackson]

One way of avoiding foreclosure is to operate a ministry without borrowing money. Dave Ramsey is fond of saying that 100% of foreclosures occur on properties with mortgages.

Disclosure: I have a mortgage and so does my church. :)

[Craig Laughlin]

BTW, it looks like someone has created a "watch out for these guys" website: http://www.thenewdaychurchkc.com/

Same sort of thing happening to the church in my community that blew up in the same way. When you Google their name the second item is a cult awareness group.

[Kevin Rector]

You might want to check the bylaws of your state. In California, any person for any reason can get a financial report of your church because it is a non-profit. One does not have to be a member to get one.

Well, yeah, I can't actually think of any reason why I wouldn't give a financial statement to someone. We do not disclose our donor list or donor amounts though.

[Rich Schmidt]

Rich, there was quite a discussion on that issue in the Local Ministry committee at General Assembly in 2009. Those in Europe were saying that the language in the old paragraph about audits set a very high bar, one that required the use of an outside audit, every year at great expense. The new language was intended to open the door (outside the US, in particular) for a financial review by qualified but not necessarily professional laymen to be done.

I didn't realize the portion I quoted from the 2009-2013 Manual included new language. It isn't marked with italics. But now that I compare it to the 2005-2009 Manual, I see that, indeed, part of it is new.

The 2005-2009 version:

129.23. To appoint an auditing committee that shall audit, at least annually, the financial records...

The 2009-2013 version:

129.23. To appoint an auditing committee or a committee of independent examiners, or such other qualified persons, that shall audit or examine, to at least the minimum standard required by national or state law if applicable, or other recognized professional standards, at least annually, the financial records...

[Bud Pugh]

I didn't realize the portion I quoted from the 2009-2013 Manual included new language. It isn't marked with italics. But now that I compare it to the 2005-2009 Manual, I see that, indeed, part of it is new.

The 2005-2009 version:


The 2009-2013 version:

Yep, I knew that this was different because I was on that committee and because I have a Manual that has all the changes underlined in red (I think the General Secretary's office provides such a Manual to DSs; when my DS got his I had my secretary copy it into a couple of Manuals for me- Lucky me, I get to refer to the Manual fairly regularly so it is good to have the changes highlighted!). I think the only time wording is italicized in the Manual is when it has not yet been ratified by the District Assemblies (i.e. Articles of Faith, I, VI, X and XI in 2009-13 Manual).

[Ryan Scott]

BTW, it looks like someone has created a "watch out for these guys" website: http://www.thenewdaychurchkc.com/

It's amazing. Change the name, change the location - then just keep on going like nothing happened.

[David Pettigrew]

It's amazing. Change the name, change the location - then just keep on going like nothing happened.

Have you ever seen a CoTN pastor come in to a new assignment with an agenda, destroy a church, then just get moved to another one to do it again? Not saying it's the same thing, but nothing really amazes me anymore.

[Ryan Scott]

Have you ever seen a CoTN pastor come in to a new assignment with an agenda, destroy a church, then just get moved to another one to do it again? Not saying it's the same thing, but nothing really amazes me anymore.

I've seen that happen with District Superintendents.

[Billy Cox]

Was that the same attorney general who had a day of honor at FFC or the one who replaced him? (I'm asking this seriously even though it comes off awfully sarcastic). If it was Phill Kline, I think its safe to say there could have been a conflict of interest there.

Yep, I wondered that too. It's not hard to imagine Phill Kline turning a blind eye toward the misdeeds of an evangelical church with lots of money.

[David Pettigrew]

I've seen that happen with District Superintendents.

While "your behind is covered based on who you know" is present in all types of organizations, those which capitalize on relationships, rather than money, tend to be especially vulnerable.

[Bob Carabbio]

Actually the ISSUE is "Loss of faith in the organization".

Apparently in the FFC case it occurred over "suspicion about financial issues".

Larry Lea's "Church on the Rock" went under when Lea's personal "credibility" came into question.

"Word of Faith" Church in Farmer's Branch, TX went under when Robert Tilton was exposed on TV as a total Con Man by Ole Anthony, who took down W.V. Grant's church in Dallas also.

Leroy Jenkin's church in Delaware, OH went down because it turned out the Jenkins had taken a "Contract" out on an Ohio State trooper, who was giving him trouble -.

And Hobart Freeman's "Glory Barn" went under when the "Body Count" from failed Faith healings (mostly infants at birth) exceeded 100, and the State of Indiana stepped in.

In Billy Graham's case, there was the "Modesto Manifesto" between him and Shea, and Barrows:

HONESTY:
It was resolved that no communications to media and to the Church would be
inflated or exaggerated. The size of crowds and number of inquirers would not
be embellished for the sake of making the Billy Graham Evangelistic Association
look better.
INTEGRITY:
It was resolved that financial matters would be submitted to a board of
directors for review and facilitation of expenditures. Every local Crusade
would maintain a policy of "open books" and publish a record of where and how
monies were spent.
PURITY:
It was resolved that members of the Team would pay close attention to avoiding
temptation-never being alone with another woman, remaining accountable to one
another. Wives would be kept informed of activities on the road in order to
help the wives feel a part of the Crusades.
HUMILITY:
It was resolved that members of the Team were never to speak negatively of
another Christian minister, regardless of his denominational affiliation or
differing theological views and practices. The mission of evangelism included
strengthening the Body of Christ as well as building it.

Not a bad "code of organizational behavior" for any group -