Three Prong Funding of Ministries  0030-02  ZZall

                                   - - - Rejoice in the Lord always ... again I say Rejoice !!! - - -


                            TO:  Interested Ministries                                                                            FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                       II Thess  3:5          FILE: 0030-02/all

                             RE:  Three Prong Ministry Funding                                                         Originated:  November 1987                                


       Below is a hypothetical Online Email (EML) thread between any one of the following MFTeam members: PAT (Ministry Chief Executive), LEE: (Ministry Volunteer Treasurer), or FRAN: (Ministry Computer Bookkeeper) and  Jim@bcidot.org   Click here and go to List of threads (THRDs) at www.bcidot.org


FR: LEE

        You will remember, Jim, that we are a Christian Camping/Conference Ministry.   The topic I would like to dialogue with you about today has to do with the funding of our entire Camping/Conference Ministry. Some of the issues are:

  •   What should our Camper Fees basically pay for?
  •   Should we rely on Donations Income to cover part of our everyday operating costs? Or should Donations Income be earmarked for something else?
  •   Should Concession net income, or Facility Rental Income, be earmarked  for something special?
  •   We have our initial facility in place. How do we pay for ongoing major repairs/maintenance plus equipment and facility replacements.
  •   Where does "Depreciation" accounting fit into all of this?

FR: JIM

        I think I know where you are coming from, Lee. I'm very pleased to learn that you are 'thinking' about these important things. See below as these issues also pertain to other Ministries.

                Type of Income analysis ---

(1) Fees

Donations

(2)Concessions

Church

    XXXX

School

    XXXX

     XXXX

Camp

    XXXX

     XXXX

      XXXX

(1)     This is primarily Earned Fee Income, but it could also include Rental Fees for various parts of the facility.
(2)     Departments that primarily operate like retail merchandise stores.

Facility Usage analysis ---

Church

School

Camps

   Probable average year round

weekly use of the entire facility

25%

95%

95%

        This shows that the appropriate Ministry facility, or LAND, BUILDING & EQUIPMENT (LB&E), is paramount to meaningful School and Camp Ministries. Unlike most Churches, the usual School and Camp Ministry use their facilities pretty much all week long. And, unlike Churches, Camps have a little wider range of Income types.

FR: LEE

    Yes, Jim, this is a very helpful analysis.

FR: JIM

        In discussing such matters with Ministries, I discover that there a Funding Philosophy that is somewhat 'Three Pronged' since it goes something like the following:

        PRONG #1 --- MINISTRY OPERATIONS ...

        All of the operating expenses are covered by the EARNED FEE INCOME; Donations are used only for the below PRONG #3 purposes. Operating expenses do NOT include Depreciation entries. Certain Operating departments are charged with SETASIDE assessments, that might include provision for future Equipment, etc.. See comments below on these topics. Under certain circumstances, money is prudently borrowed to purchase LAND, BUILDINGS AND EQUIPMENT (LB&E). When this happens, the debt service payments are also funded by EARNED FEE INCOME. See categories of operating expenses below:

  •    Salaries and Benefits
  •    Normal operating supplies and expenses
  •    Mortgage and/or Equipment monthly installments
  •    SetASide assessments.

PRONG #2 --- CONCESSIONS ....

        The Net Profit (after judicious allocation of appropriate General and Administrative overhead expenses) from these Merchandising sources is placed into an internally Designated Fund and such monies is then used as needed for replacement and major repairs/maintenance of Facility ----- especially things like parking lots and roads.

PRONG #3 --- FACILITIES...

        Additional LB&E facilities, primarily Buildings, are paid for from Donations Income ... often by ongoing fund raising efforts for that specific purpose. Donation in this case includes any Estate Planning gifts.   None of the Donation income is used for Operations.

FR: LEE

    Very interesting approach. Then the Earned Income Fees MUST be large enough to cover the Operating expenses plus certain Capital items. Tell me more about accounting for Depreciation.

FR: JIM

            Right. I highly recommend this "3-Pronged" approach as I believe it properly emphasizes who should be paying for what when. I especially like the idea of using Donations Income for LB&E items with the Operations Income covering  all of said expenditures. 

        With respect to "Depreciation" issues, as the link indicates, such matters include the following:

  •  "Depreciation" is a once-a-year GAAP accounting process and should NOT show up in monthly OPERATIONS.  The GAAP rationale is to allocate this prepaid assets (LB&E) to future periods of time while it is in use.

  •   Do NOT budget for "Depreciation". The given OPERATIONS Income should fund the entire active OPERATIONS budget. Including expenditures for certain smaller Equipment acquisitions and prudent installment debt in buying LB&E items. But NOT 'Depreciation'.

  •   "Depreciation" should NOT be confused with the process of prudently charging the OPERATIONS for SetASide items to be used for acquisitions in the future, etc.

FR: LEE

        Thank you, Jim. Our MFTeam will indeed 'thunk' through these items and let you know if we have questions.


       The bulk of this publication originated in November 1997 and was  .  UPTD: May 23, 2010  

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