Chapter 0 -
Overview
Putting moral virtues at the highest, and religion at the lowest, religion must still be allowed to
be a collateral security, at least, to virtue; and every prudent man will sooner trust to two
securities than to one.
Earl of Chesterfield (1694-1773)
Introduction
What do religion, government, management, and accounting have in common? More than meets
the eye perhaps! Consider the following: When James Madison drafted the first 10 Amendments
to the United States Constitution, he began by penning “Congress shall make no law respecting
the establishment of religion, or prohibiting the free exercise thereof...”
The federal government has, since December 15, 1791, the date that the Bill of Rights was
ratified, held true to its dual responsibility of not establishing or sanctioning any religion while
protecting every citizen’s right to worship without interference from the government.
One cannot say that the government is totally uninvolved with religious institutions, however.
Religious organizations are granted special privileges by federal and local tax laws, and are also
regulated thereby as a result of volumes of tax laws and regulations. Consequently the
government in the United States, in its role as protector of the basic individual freedoms,
interacts with religious organizations in many ways. While some may claim that this interaction
constitutes a violation of the principle of separation of church and state, a close look at the
wording of the Constitution would not bear that out. In its current and long-standing role as a
regulator of nonprofit organizations the United States Government (through employment tax and
income tax laws and regulations) in the author’s opinion, does not appear to be establishing any
religion,
nor prohibiting the free exercise of any religion.
Consider also that religious institutions and government institutions are little different from any
other of man’s institutions when it comes to the necessity to manage to be
effective and efficient,
nor in their responsibility to provide fiscal accountability to their stakeholders, whether they be
members, citizens, donors, taxpayers, or beneficiaries.
This course is about the interaction of government and religious and other faith-based
organizations and also about how such organizations can operate efficiently and effectively and
how they can, or, are required to account for their fiscal activities.
The Interaction of Faith-Based Organizations and the Federal
Government
In the first chapter we will explore the federal government’s recent efforts in expanding the
working relationship between the government and private nonprofit organizations in an effort to
address the needs of individuals and society. The Initiative, as it is called, is an initiative by the
federal government to attempt to combine the monetary and expertise resources of the federal
government with the manpower resources of the many nonprofit organizations whose missions
are in line with those of the federal government as to tending to social and individual needs.
The program, begun only in this young century by Presidential Executive Orders, is controversial
and has yet to be enacted into law. Nonetheless, it is up and running and is being administered
by no less than eleven federal agencies consisting of Cabinet Departments and other agencies.
Several state and regional coordinating agencies have also been established, grants are being
awarded, and the overall process of obtaining federal funding has the appearance of being more
efficient and less cumbersome.
Chapter 1 looks at the brief history, the present status, and explores the possible future of the
Initiative.
Operational Management Issues of Religious Organizations
In Chapter 2, we will explore religious institutions as a special type of nonprofit organization.
We will define several different types of religious organizations. This chapter also defines and
describes the characteristics of other faith-based organizations that are spiritually motivated but
not necessarily organized or operated by any particular faith or sect.
The organizational make-up of the various nonprofit institutions comprising the broad spectrum
of religious and other faith-based entities is also a subject of Chapter 2. We will take a look at
the responsibilities of the individuals who manage such organizations and this will include
responsibilities to the government, to society, and to individuals who are affected by the various
missions of the organizations.
Chapter 2 will also discuss the potential for fraud in religious and other faith-based organizations
and some of the precautions that management can take to prevent the occurrence of loss from
various types of fraud. Other topics in Chapter 2 include the nonprofit industry’s reaction to the
Sarbanes-Oxley Act, internal controls, budgeting and strategic planning.
Accounting Systems, Financial Management, and Financial Reporting
How religious and other faith-based nonprofit organizations keep their books, manage the
organization’s finances, and report to members and the public are all topics of Chapter 3. In this
chapter the reader will gain an understanding of generally accepted accounting principles as they
relate to religious and other faith-based organizations. We will explore techniques of presenting
financial information to donors and other interested parties by including sample financial
statements. Recording and reporting on unusual transactions or financial matters unique to the
religious organization will also be discussed.
We will consider the importance of the cash flow statement to the typical religious or other faithbased
nonprofit organization, and how to use the information to plan and report financial
activities. The importance of financial disclosure and of reporting expense by function as well as
by natural expense categories will be considered in this chapter as well.
The Religious Organization and the Government
Chapter 4 explores the relationship between the faith-based nonprofit organization, particularly
the religious institution, and the federal and state governments. The chapter emphasizes that
corporations and other formal institutions are citizen institutions, and as such have certain
responsibilities to the oversight governments. To many such organizations these responsibilities
may seem like an unnecessary burden on the mission-oriented nonprofit entity. The chapter
attempts to put into the proper prospective, the various reporting and accountability
responsibilities of the religious and other faith-based organization to the government.
We will consider obtaining and protecting the income tax exemption, annual filing requirements,
unrelated business income, lobbying and other political involvement, private inurement, and
Intermediate Sanctions, to name a few. Also covered will be obligations to donors, the receipt of
in-kind contributions, and implications of fund-raising activities such as raffles and silent
auctions.
Resource Management
Management aspects are touched upon in all of the chapters, but in Chapter 5 we take a close
look at managing the three principal types of resources employed by all religious and other faithbased
nonprofit organizations in the pursuit of the mission. We will discuss pitfalls a nonprofit
organization might encounter and suggestions for positive action in the management of these
resources, which consist of the following:
• People – Employees and volunteers
• Capital – Money and credit
• Materials – Inventories, operating supplies, and fixed assets
Chapter 1 -
Faith-Based and Community Initiative:
An NPO-Government Partnership?
Charity and Mercy. Not unholy names, I hope?
Charles Dickens 1812-1870
The Life and Adventures of Martin Chuzzlewit
Learning Objectives
When you have completed this chapter you will
• Know what a faith-based organization is.
• Be acquainted with the origin of and the rather short history of the Faith-Based and
Community Initiative (FBCI).
• Understand what the FBCI means to religious and other nonprofit organizations.
• Be prepared to further explore the ramifications the FBCI might have to your church,
religious affiliate or other nonprofit organization.
Introduction
The Faith-Based and Community Initiative (FBCI) came into being on January 29, 2001, as a
result of two executive orders issued by the President of the United States. Thus President Bush
gave life to his proposed concept of a “more level playing field” among spiritually-motivated
organizations and other community institutions involved in government social programs. By the
end of 2006, a series of additional executive orders relating to FBCI were in effect and eleven
federal agencies were involved. Access to those agencies will be discussed in this chapter as well
as pending or proposed legislation. For fiscal years 2007 and 2008 combined, these agencies
awarded $4.4 billion in grants to faith-based organizations. This represented a little more than
eleven percent of total grants made during the same period to all nonprofit entities. The agencies
awarding the most to faith-based organizations during that same period were Health and Human
Services and the Veteran Affairs Department.
The FBCI: From Concept to Reality
What Is FBCI?
FBCI is best defined as the basis for a joint venture between government and private institutions
(generally nonprofit organizations, faith-based and otherwise) to address societal ills and
shortcomings. The intent is that the federal government through its various agencies and cabinet
posts will provide support, tools, and funding for such efforts.
Of course, this by itself is not a new concept. What is new however are two concepts of
government involvement, which are, that there shall be
• Equal opportunity for all faith-based and other community organizations, hence the more
level playing field, and
• Respect for the religious liberties of the beneficiaries.
The Essence of the Original Executive Order
The January 2001 Order created the White House Office of Faith-Based and Community
Initiatives (Office). The Office’s purpose, as stated in the Order, was to develop, lead, and
coordinate the White House policy agenda affecting faith-based and other community programs
and initiatives and to integrate that agenda through interaction with faith-based and other
community organizations, by
• Expanding the role of such organizations in communities throughout the United States.
• Providing policy and legal education to state, local and community policymakers and
public officials seeking ways to empower faith-based and other community organizations
and to improve the opportunities, capacity, and expertise of such groups.
• Increasing the organizations’ capacity through
– Executive action.
– Legislation.
– Federal and private funding.
– Regulatory relief.
• Encouraging private charitable giving to such organizations.
• Coordinating public education activities designed to mobilize public support for such organizations.
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