Accounting Concepts and Basic Practices in Missionary Work

EMQ » October–December 2018 » Volume 54 Issue 4

[memberonly folder=”Members, EMQ2YearFolder, EMQ1YearFolder”]

Denise Dickins and Leslie Turner 

Missionary work can be one of the most rewarding endeavors an individual or family can undertake. Those that participate in mission work fulfill a calling from God, helping address the spiritual and physical needs of others. Missions is challenging. It requires dedication, perseverance, and an understanding of both the spiritual and practical aspects of missionary work. This article addresses an important practical aspect of missionary work—the understanding and application of accounting concepts and practices.

We describe four accounting-related concepts for missionary work gleaned from the actual experiences over the past nine years. These concepts are:

• Budgeting is not the same as guessing
• Trust is not a substitute for establishing internal controls
• Laws and regulations are not the same in all jurisdictions
• Robust financial reporting helps build support for future missions.

We also provide evidence based on a survey of seventy-four individuals who report having engaged in missionary work that, although many of them do not have a robust understanding of the concepts discussed, eighty-four percent agree or strongly agree that employing them contributes positively to the success of missionary work.[1]

Ideally, anyone leading a mission should have a working knowledge of accounting concepts and practices. Unfortunately, many individuals who are called to service do not even have a basic understanding of accounting. That said, if missionaries understand the importance of the four interrelated accounting concepts described here, and adhere to the recommended courses of action, they can greatly increase the likelihood that they will be successful in their calling.

Concept 1: Budgeting is Not the Same as Guessing

Although it is good practice, most of us never budget our own finances. This lack of familiarity means many missionaries may believe a budget is either an educated guess or tool to limit spending.

When asked, “Which of these options best describes a budget?

1. A tool to limit spending
2. An educated guess at the funds needed to provide for a given level of expenditures
3. An estimate of cash flows under a given set of assumptions
4. The best estimate of funding to be received and detail of how funds are expected to be expended.”

missionaries we surveyed selected the incorrect answer thirty-nine percent of the time. The correct answer is the fourth option. Sound budgets are not only a necessary condition of successful missionary work, in many cases they are required to be provided to officials in foreign countries where missions take place. They are also typically required when applying for grants in support of missionary work. Common mistakes in budgeting include not estimating contributions (also referred to as funds or donations) to be received, underestimating expected expenses, not using prior benchmarks when budgeting, failing to include contingency allowances, and not getting outside input.

We recommend budgets be developed from the top-down by first estimating the amount of funding reasonably expected to be received to support the mission—independent of expected costs. Overestimating can be avoided by reviewing the results of prior, similar missions, by polling potential sources of donations, and by determining grants available to support the mission. Once a best estimate of funds to be received has been made, a detail of expected expenditures can be developed. Good inputs for expenditures are prior, similar missions, adjusted for inflation or currency exchange rates, as applicable. To reduce the likelihood that expenditures are overly optimistic (i.e., too low), budgets should include an allowance for contingencies equal to ten percent to fifteen percent of total budgeted costs. In other words, if the best estimate of monthly expenditures is $3,000, the budget would include a contingency allowance of $300.

It is important to ask others to critique the budget. Input from a variety of individuals familiar with missionary work will not only improve the accuracy of the budget, it will also build support for the mission. Beyond providing a guideline for expenditures during the course of the mission, getting input and developing a budget from the top-down can also help determine the viability of the mission. If expected sources of contributions fall short of expected expenditures, consideration should be given to delaying the mission, or other sources of contributions should be explored. Of the surveyed missionaries, seventy-eight percent agree or strongly agree that budgeting is necessary in missionary work.  

Concept 2: Trust is Not a Substitute for Establishing Controls

Trust is an important contributor to economic development;[2] and Catholic and Protestant affiliations tend to trust more.[3] When asked to respond to the statement, “At least fifty percent of the population is trustworthy,” seventy percent of the surveyed missionaries selected, “true.” At the same time, individuals in countries commonly visited by missionaries tend to have less trust then those of more developed nations.[4] This divergence suggests establishing controls to reduce the likelihood of pilfering is particularly important in missionary work.

Accountants learn early on about the three conditions necessary for an individual to commit fraud. These are: pressure, rationalization, and opportunity. In the context of missionary work, both individuals benefiting from missionary work and those conducting missionary work, may feel pressure to pilfer resources (e.g., cash, food, medicine, mosquito netting) as they are hungry, sick, or need funds to continue proselytizing. They may be able to rationalize pilfering as necessary for survival, or for the continuation of good works, or as “borrowing”—intending to repay. The good news is that pilfering can only be accomplished when individuals are provided opportunity. Opportunity presents itself when there is a lack of controls. For example, when doors are left unlocked, access to supplies is not restricted, and records of food, medicine, and supplies are not maintained, periodically counted, and reconciled. Controls reduce the likelihood that otherwise honest people will be able to pilfer.

Controls can be preventative, meaning they are designed to prevent pilfering, detective, meaning they are designed to detect pilfering as soon as possible after it happens, or corrective, meaning that if resources are pilfered, there is insurance available to replace the lost goods. In missionary work, “must-have” controls include physical access preventative controls, segregating responsibility preventative controls, and periodic reconciliation detective controls.

Physical access to easily pilfered resources like cash, food, medicine, and other supplies must be in place. Doors must be locked, and access must be restricted to one or two individuals. When resources arrive, two unrelated individuals should take responsibility for receipt. Both should count and record the amount of goods received. Both should take responsibility for securing the resources. Neither of these individuals should have responsibility for distributing the goods. Distributions should be recorded and signed-off on by individuals both releasing and accepting the goods. An independent count of food, medicine, supplies, should be performed at least monthly by an individual with no responsibility for receiving or distributing the goods. The independent count should agree with (or be reconciled to) the records.

In terms of cash receipts and disbursements, contributors should be encouraged to make donations directly using electronic funds transfers (ETFs). In lieu of ETFs all mail should be opened by two unrelated individuals who document and sign-off on the amount of cash (checks) received. Ideally, all cash disbursements should require the authorization of two individuals (dual check signing). Each month, the bank statement should be reconciled and reviewed by an individual with no responsibility for cash disbursements. In terms of missionary work, money and resources are always scarce. Proper stewardship and accountability require applying good internal control practices so as to not lose resources by waste or pilfering.

In spite of their importance, a large percentage of missionaries are unable to identify controls. When presented with the question, “Which of these describes a control that might be established related to missionary work?

1. The lead missionary makes contact ahead of the mission trip with the appropriate local authorities
2. Cash disbursements may not be authorized solely by the person that makes the bank deposits
3. Supplies are only distributed one day each week
4. Church services are authorized by local authorities,”

only thirty-one percent selected the correct answer, option two. Nevertheless, seventy-six percent of the surveyed missionaries agree or strongly agree that establishing strong controls is necessary in missionary work.

Concept 3: Laws and Regulations are Not the Same in All Jurisdictions

Laws, regulations, and their enforcement vary widely among nations. Missionaries must be familiar with laws and regulations both in the U.S. and in the countries they visit. Beyond closed countries prohibiting missionaries from sharing the Gospel, there are many other laws and regulations with which missionaries should be familiar. For example, bribery is typically unlawful in all countries, but in some countries prohibitions are rarely enforced. Transparency International publishes a Corruption Perceptions Index that ranks countries in terms of understanding and enforcement of laws.[5] Missionaries must be positive examples, abiding by secular laws, behaving ethically and biblically, and adhering to the golden rule.

An area in which some U.S. companies’ run-afoul is complying with provisions of the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits bribes to officials of foreign governments. Although this provision seems very clear and easy to follow, nuances suggest otherwise. For example, a U.S. company (USCo) located in Orlando, Florida purchases goods from a business that is fifty-one percent owned by the Chinese government (CCo). USCo pays the expenses (flight, hotel, rental car) of the Vice-president of CCo to travel to Orlando for a meeting with the President of USCo. The Vice-president stays in Orlando five days, attending a two-hour meeting with the President and sightseeing. Payment of these expenses could be viewed as bribing a Chinese government official. Was a trip for a two-hour meeting necessary? If yes, is more than one day’s visit required? In mission work, payments that may be viewed as necessary to get food and supplies distributed, or commonly needed to build schools and places of worship, may actually be against the (U.S. and/or local) law.

We asked missionaries whether the following question is true or false: “It is not uncommon for authorities in a foreign country to request facilitation payments. U.S. individuals making such payments can be prosecuted for violating U.S. laws.” Fewer than seventy-five percent correctly responded, “true.”

We recommend that before embarking, missionaries consult with their sponsoring organizations and other missionaries that have visited the destination country about important U.S. and local laws and regulations. Clear among the surveyed missionaries is the necessity of understanding U.S. and local laws and regulations; eighty-eight percent agree or strongly agree.

Concept 4: Robust Financial Reporting Helps Build Support for Future Missions

Contributors want and deserve to know how their donations are used in missionary work. Periodically preparing and distributing financial reports accomplishes this objective. A complete set of financial statements typically includes at least three separate statements (balance sheet, income statement, statement of cash flows) and footnotes.

A balance sheet is prepared at a point in time. Applicable to a mission, it reflects cash available, pledges for contributions not yet received, as well as purchased assets (e.g., food, medicine, other supplies), liabilities (e.g., monies owed for food, medicine, supplies, and any monies or other resources held that must be returned or passed along to governments or other entities), and equity (assets, less liabilities). Donated assets are typically not reflected in the balance sheet. However, the amount or value of such donations is frequently reflected in footnotes to the financial statements. Below is an example balance sheet of a mission. Note how the amount of total assets and total liabilities and net worth agree, or balance.

Calvary Mission in Ecuador Balance Sheet June 30, 2017
Assets			Liabilities
Cash on hand	$300		Due to vendors for purchased food, medicine & supplies	$6,655
Cash in banks	2,456		Due to 1st Baptist Church— reimbursement for travel	1,350
Pledges	2,000		Total liabilities	8,005
Purchased food, medicine & supplies to be distributed*	779		Equity	(2,470)
Total assets	$5,535		Total liabilities and equity	$5,535

*Does not include the value of donated food, medicine, and other supplies, an inventory of which as of June 30, 2017 is attached to this balance sheet.

An income statement reflects the activities of an entity over a period of time. Reported in the income statement of a mission are funds received or to-be-received and expenses paid or owed. Including pledged contributions and amounts owed in the income statement is known as accrual accounting. Pledges and liabilities are accrued – that is, recorded on the balance sheet and in the income statement when they are promised (or earned) and due (goods have been received from vendors). Below is an example of an income statement of the same mission. This format is different from the income statement of most for-profit entities in that it includes both actual and budgeted contributions and expenditures. Note that large variations between actual and budgeted amounts are explained in footnotes.

Calvary Mission in Ecuador Income Statement For the Six Months Ended June 30, 2017
	Actual	Budgeted	Difference (over) under
Contributions	$10,000	$10,000	$0
Expenses:
Rent	850	850	0
Utilities	300	300	0
Transportation	1,485	1,500	15
Food*	1,650	2,000	350
Medicine*	2,500	1,800	(1) (700)
Supplies*	4,385	3,550	(2)  835
Bible translation	800	0	(3) (800)
Bible printing	500	0	(3) (500)
Total expenditures	12,470	10,000	(2,470)
Net income (expense)	$(2,470)	$0	$(2,470)

* Does not include the value of donated food, medicine, and other supplies, which were distributed or are on-hand at June 30, 2017. A listing of donated items distributed during the six months ended June 30, 2017 is attached to this income statement.

(1) An unanticipated breakout of Yellow Fever occurred in May. As sufficient medical supplies were not on hand at the time, they had to be purchased.

(2) The charity, Give Well, unexpectedly donated 80 mosquito nets in June which, therefore, were not required to be purchased.

(3) Unbudgeted costs to translate and print bibles were incurred in June as the mission’s congregation unexpectedly increased from 45 to 75.

Like the income statement, a statement of cash flows, reflects activities of an entity for a period of time. However, activities are recorded on a cash basis, not accrual basis. Below is statement of cash flows for the example mission. Note that contributions are less than the amount included in the income statement as pledges of $2,000 that are reflected in the balance sheet were not collected during the six months ended June 30, 2017. Also note that the amounts reflected in the statement of cash flows for purchased food, medicine, and supplies and transportation are different from the amounts reflected in the income statement reflecting amounts due (not yet paid) and/or not yet distributed which are reflected in the balance sheet at June 30, 2017. Finally note that the amount of cash as of June 30, 2017, is equal to the total amount of cash reflected in the balance sheet.

Calvary Mission in Ecuador Statement of Cash Flows—Direct Method For the Six Months Ended June 30, 2017
	Actual
Cash from operating activities:
Contributions	$8,000
Rent	(850)
Utilities	(300)
Transportation	(135)
Food, medicine & supplies	(1)   (2,659)
Bible translation	(800)
Bible printing	(500)
Net increase in cash	2,756
Cash, January 1, 2017	0
Cash, June 30, 2017	$2,756

• Represents total expenses of $8,535, less amounts not yet paid of $6,655, plus undistributed food, medicine and supplies of $779.

Although eighty-three percent of missionaries agreed or strongly agreed that financial reporting is necessary in missionary work, most do not understand the purpose of these basic financial statements. When asked, “Which financial statement conveys information about profitability”? Seventy-three percent failed to correctly identify the Income Statement.

We recommend that each month a balance sheet, income statement, and statement of cash flows be prepared. As depicted above, the income statement should include both actual and budgeted funding and expenditures. Preparing monthly financial statements reduces the likelihood that monies may be spent too quickly and helps missionaries recognize when unanticipated expenditures require additional funding. In the above example, Bible translation and printing were an unexpected expense. It may be that contributors would be willing to separately fund these costs. On the other hand, inadequate financial reporting can lead to a loss of contributors’ trust reducing future contributions.

In any endeavor, whether a for-profit business, a government agency, a non-profit, or a Christian mission, a lack of proper accounting and reporting indicates a lack of stewardship. Since missionaries are highly dependent on voluntary contributions, the importance of accounting records and proper reporting of contributions is critically important. Donors are typically reluctant to give to endeavors that fail to demonstrate good stewardship. 

Summary

The success of missionary work is, in part, dependent on good accounting practices. Beyond increasing the likelihood of financial viability of missions, the benefits of understanding accounting can go far beyond initial outreach activities. For example, unfortunately, locals who decide to take up the cross may encounter persecution losing their homes, possessions, former livelihood, and even being beaten. Many are forced to explore non-traditional avenues of support and become entrepreneurs. Missionaries familiar with accounting concepts and practices can assist in analyzing business proposals, helping new believers get re-established. They can also teach the newly converted basic accounting concepts such as those described in this article, enabling them to manage their finances and not be dependent on foreign funding.

An accounting degree is as respected in most parts of the world as a medical or engineering degree. It alone may open the door to opportunities like teaching English at a foreign school or university, or overseeing the business and accounting aspects of mission or social endeavors abroad. While not everyone has the time or resources necessary to earn an accounting degree, everyone can follow these four basic accounting concepts for missionary work.

---

Dr. Denise Dickins is an Associate Professor at East Carolina University in Greenville, North Carolina where she teaches courses in Auditing, Corporate Governance & Accounting Ethics, and Fraud Examination.

Dr. Leslie Turner is Dean of the Rinker School of Business at Palm Beach Atlantic University, a Christ-first university in West Palm Beach, Florida.

References

Malone, K. 2014. Broadening the tent: expanding the strategic use of tent-making in cross-cultural mission. Missiology: An International Review 42(2): 195-206.

Steffen, T., and M. Barnett. 2006. Business as Mission: From Impoverished to Empowered (William Carey Library: Series 14).

Endnotes

[1] Surveyed individuals responded to an independent request (Survey Monkey) to complete the survey. The survey’s introduction stated, “We are interested in the views of individuals who have participated in the development or conduct of missionary work. If you have not participated in the development or conduct of missionary work, you should not complete this survey.” Of the 123 individuals initially accessing the survey, 49 opted-out as they believed they did not meet the missions-criteria. Of the 74 participants, 12 percent are age 18 to 29, 21 percent are age 20 to 44, 37 percent are age 45 to 59, and 30 percent are age 60 and over; 74 percent are female; and they are geographically disbursed across the U.S. The largest region represented is the South Atlantic at 27 percent.

[2] Ortiz-Ospina, E., and M. Roser. 2016. Trust. Available at: https://ourworldindata.org/trust.

[3] Guiso, L., P. Sapienza, and L. Zingales. 2006. Does culture affect economic outcomes? Journal of Economic Perspectives 20(2): 23-48.

[4] Ortiz-Ospina and Roser.

[5] Transparency International. 2016. Corruption Perceptions Index. Available at: https://www.transparency.org/news/feature/corruption_perceptions_index_2016#table.