National Council of Churches’ fiscal irregularities disclosed By Parker T. Williamson The Presbyterian Layman Volume 33, Number 1 Posted March 27, 2000 CLEVELAND – An independent auditor said the National Council of Churches has disclosed a significant risk of errors or fraud with “reportable conditions rising to the level of material weaknesses.” A glossary of terms used to prepare candidates for CPA exams defines material weakness as a “condition in which internal controls do not reduce to a relatively low level the risk that material errors or fraud may occur and not be detected in a timely period by employees in the normal course of performing assigned functions.” Public disclosure of the auditor’s management letter added more controversy to the financial crisis that dampened the council’s 50th anniversary celebration, held Nov. 9-12 in Cleveland. Joan Brown Campbell, outgoing general secretary of the National Council of Churches, devoted most of her departure speech to a litany of reasons for the council’s financial condition. “We’re like an aging city with a crumbling infrastructure,” she said. “The infrastructure is sadly in need of repair, and it is not cheap to repair it.” This NCC’s General Assembly was peppered with concerns over a budget shortfall of $3,987,000, which was identified in a Nov. 11 report by the council’s transition team. There were late-night private sessions over the independent auditor’s management letter that accompanied the NCC’s combined financial statements. The letter said that “communication and staff compliance” are primary issues in the auditor’s findings. To bail out of its $4-million 1999 deficit, the National Council of Churches is asking for increased contributions from its members and seeking to divert money from Church World Service/CROP and the National Burned Churches Fund. The Burned Churches Fund was established in June, 1996, to rebuild churches that were allegedly destroyed by arson. Campaign rhetoric by the NCC officials suggested that the burned churches were primarily African-American houses of worship and that the burnings were racially motivated “hate crimes.” That assumption has been challenged. In 1998, the National Church Arson Task Force, which had been appointed by President Clinton to investigate charges made by the NCC, reported that of the 670 investigated incidents, fewer than half (225) involved African-American churches, and of that number, only 163 were in the NCC’s target area, the Southern United States. The task force found that reported church fires resulted from many causes, including inadequate wiring and poor maintenance, and that there was scant evidence of arson in many of the churches that had burned. In the few churches where arson was proved, one-third of the fires were set by African-Americans. These findings led Wall Street Journal columnist Michael Fumento to label the NCC campaign “a hoax.” The council’s financial accounting for the Burned Churches Fund raised some questions. NCC officials reported to their Cleveland assembly that they raised $9.1 million in cash for its Burned Churches Fund, distributed grants totaling $6,403,483 and had assets of $12,335 as of Sept. 30, 1999 – but they offered no explanation about where more than $2.6 million went. Furthermore, a report to the council said “a special audit was not required for the Burned Churches program.” Material weaknesses In an Oct. 29 report to the NCC Administration and Finance Committee, Cheryl Wade, chair of the Audit and Review Subcommittee, said that during her committee’s discussions with the independent auditor, the auditor listed the following irregularities: Certain material transactions were not recorded in the books of accounts due to the failure of the program offices to submit the necessary input documents or the lack of proper coordination between the various program offices and the Department of Financial Services. Transactions were not properly monitored and reviewed before these were entered into the accounting system, resulting in erroneous recording in the general ledger. The accounting records maintained at the council’s New York office were not reconciled with the financial records and reports submitted by satellite/field offices. The cash account balances in the control accounting unit were not reconciled with the cash balances in the sub-accounting units. Certain deficiencies were noted in the payroll and personnel management system such as the inclusion in a master file of the names of employees who were already terminated during the year, inadequate documentation to back up the identification and salary increases of employees, and lack of required signatures on the authorization for personnel action forms. The management letter also cited the fact that issues cited by the auditors in 1996 and 1997 remained “uncorrected in 1998.” These irregularities include: Advances that were made without sufficient documentation. Undocumented American Express charges. Certain policies and procedures to be presented in the 1999 meetings of the Administration and Finance Committee related to the Ecumenical Trust were not available for review. Delaysin the preparation of bank reconciliation statements continued. Warning issued to Council The NCC handles millions of dollars in federal funds, much of it through the relief work of Church World Service and “justice ministries” activities in the National Ministries Unit. The use of these federal dollars obliges the NCC to undergo a federal audit. Here again, auditors have found reportable conditions “rising to the level of a material weakness.” The NCC’s Audit and Review Subcommittee has issued a warning to the Council that: “A reportable condition rising to the level of a material weakness is one that urgently needs addressing, rather than a situation for which improvements may be suggested but not mandated.” Cited irregularities include: Controls that prevent and detect incorrect changes or additions to the existing chart of accounts were inadequate. Disbursements were not properly approved nor adequately documented. The audit trail for recording cash receipts transactions was not apparent, and supervisory controls on the processing of cash receipts were not strictly enforced. The functional allocation of expenses, including allocation of indirect costs, are not adequately supported. Program staff criticized The Audit and Review Subcommittee report clearly lays responsibility for the financial situation on the NCC staff, specifically “the lack of communication between programmatic staff and accounting staff, as well as to the capability of program staff to oversee certain financial issues within their purview.” Campbell brushed aside criticism of the NCC staff’s management of funds, saying, “You are right that I value courage and imagination more than caution and efficiency. I said yes to things that others say no to, and I got us in deep water.”

Respond to this article

Home · News · PLC Publications · The Presbyterian Layman Online Reviews · Archives · History of the Lay Committee · Feedback · Links