Zion Decatur Final Project Summary and Recommendations October 2009

Presentation Outline

Project Scope Project Approach Interview Summary Financial Analysis Recommendations Financial Governance School Next Steps

Project Scope
2009 True North Engagement By The Lutheran Foundation
Financial Planning Assistance This type of assistance will typically arise when a school faces the potential for a sudden drop in enrollment or loss in income. In these cases, our assistance typically involves the following deliverables: Multi-Year Financial Model Creation and Modeling of Several Scenarios Typically these are various levels of enrollment and staffing Summary of Assumptions, Findings, and Recommendations The primary objective of this analysis is to provide additional information to the schools and their leadership. Once True North completes the analysis, the school and its leadership are ultimately responsible for making the decisions and implementing the recommendations.

Project Approach

Discovery/Analysis:

1. Depth Interviews with Key Staff and Lay Leaders

A. B. C. D. Mission Current Situation Value of Education The Future

2. Detailed Review of Financial Reports 3. Analysis of Constitution and Bylaws

Interview Summary

Interviewees:

Pastor Phil Phifer - Senior Pastor Pastor Dan Gadbaw - Associate Pastor John August - Congregational President, Board of Directors Chair Roy Bohning - School Principal Terry Bultimeier Congregational Treasurer Tony Fullenkamp - Board of Education Chair Diane Zeser Board of Education Member

Interview Summary
High Level of Agreement: The school seeks to be highly missional both in educating congregational members and in reaching new families from the community. The school is fulfilling its mission, yet we would like to see more children from the congregation attend the school and see the school extend a broader reach into the community. We are disappointed by the relatively low enrollment on the part of Zion members - the congregation does not seem to know or realize what the school has to offer. Further promoting the school within the community is very important and we need to improve in making this happen.

For a variety of reasons, change is required at Zion Decatur. These changes were suggested in governance, people, policy, procedures and attitudes.

Interview Summary
Lack of Clarity / Consensus: General lack of understanding about financial issues

Various perspectives on the effectiveness of governance

Appropriateness of the tuition and fees o Lack of consensus as to right level of tuition and fees o Lack of clarity regarding actual cost to educate a student Quality of the school o Has varied over time and with changes in staffing

Role of the school ministry at Zion Decatur o General agreement on the mission of the school o Need to clarify expectations and responsibilities between the church and school
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Interview Summary
Selected Responses of Interest: Q: In your opinion, what is the most critical issue facing Zion Decatur as a combined church and school ministry?

Biggest challenge is the relational tension between the church and school. There is a significant need to help these two groups function effectively together. The primary issue is the allocation of resources between the church and school.
Financial issues / understanding money needs to be spent wisely. Financial accountability is lacking on the part of the school. Consolidation of area churches and schools should be considered. The most critical issue at Zion Decatur is all those who are listed as members but are not regular attendees of the church or school. We need to find a way to get these families to return. ----------------------------------------------Need to grow the membership and increase giving per communicant. ----------------------------------------------Zion Decaturs congregation is dwindling and in need of rebirth.
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Interview Summary
Selected Responses of Interest: Q: In your opinion, how effective is the Board of Directors in directing the affairs of the congregation? Why?

The effectiveness of the Board of Directors could be strengthened by keeping the big picture in mind and more carefully evaluating decisions.
The effectiveness of the church council is reduced by the complexity of the committee structure with overlapping responsibilities and the lack of term limits for the various board leadership roles. At the present time, the board is not very effective. Personal agendas get in the way, and many of the members do not enjoy attending these meetings. The board is often dealing with conflict. Term limits for board members may be effective as long as there is still good continuity of leadership. ----------------------------------------------The governance structure includes too many boards.
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Interview Summary
Selected Responses of Interest: Q: In your opinion, how effective is the Board of Education in directing the affairs of the school? Why?

The major concern is attendance. We had built the board back up to 10 members but now we have the same 6 individuals who come every time. Sometimes our meetings are too long and that may be keeping people away.
Not as effective as it could be. The Board of Education generally is not strategic in its approach to governance although did act strategically in seeking accreditation. It seems the Board of Education is more focused on damage control and keeping things running. It appears as if school board members defer to the direction of the principal instead of providing strategic leadership to the school board. ----------------------------------------------The Board of Education is more operational than strategic in its focus.
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Interview Summary
Selected Responses of Interest: Q: What are the most significant changes that should be made to ensure the ongoing
viability and sustainability of the school? Financial clarity - written policies, checks and balances. Endowment needs to be set up. Leadership involvement by more / different people the same people do the same things year after year. ---------------------------------------------- Achieve clear fiscal separation and financial accountability between church and school. Examine the governance to impose or enforce term limits. Leadership Development. ----------------------------------------------Once again, I would make every attempt to get the families back that are not currently attending the church or school. This is our most significant problem. ---------------------------------------------- Clarify the roles of the various financial positions. Fill the seats (utilize capacity). Become more intentional in promoting the school in the community. ----------------------------------------------Need to establish a clear vision for the future of the schools ministry.

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Financial Analysis
Congregational
Zion Lutheran Church - Decatur Income Statement
Historical 2005 Income Contributions School Revenue - All Sources1 Interest Income All Other Contributions & Income Total Income Expenses* 2 Board of Education School Expenses Synod/Benevolences Disbursements Board of Elders Expenses Church & School Overhead Miscellaneous & Other Expenses Total Expenses Net Income/(Loss) 2006 2007 2008 2009*

$407,205 $469,188 $436,600 $452,261 145,699 52,952 50,103 53,469 575 527 6,743 7,612 334,730 11,396 30,532 20,421 $888,210 $534,063 $523,978 $533,763

318,476 30,657 156,048 91,284 111,178 707,641

281,979 26,167 174,679 96,334 8,334 587,492

269,165 5,260 169,291 115,839 3,327 562,881

284,594 0 132,424 114,605 2,647 534,270 ($507)

341,552 0 242,462 161,349 12,800 758,163

$180,568 ($53,430) ($38,903)

* 2009 Expenses were from the "2009 Ministry Funding Plan" 1 Revenue does not include the 60% of income allocated to the Balance Sheet Account-"#30202-DES-Day School" 1 Revenue does not include "Lutheran Foundation Grants" that were not recorded on the Church Income Statement. 2 School Expenses do not include "Lutheran Foundation Grants" & "Other Fundraising" that were not recorded on the church's Income Statement

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Financial Analysis
School
Zion Lutheran School - Decatur Income Statement
School Year 2001-02 Income Sources Parish Contribution - Direct Total Congregation Gross Registration Fees Account 30202-DES - Day School (60%) Account 40403 - Gross Registration Fees (40%) Less Discounts Net Registration Fees Account 40403 Non-Member Tuition Less: Discounts Total Tuition Tuition after Discounts Pre-School Income Chapel Offerings Athletics Class Trip Funds Day School General & Special Funded Scholarship Income Capital/Project Grants Growth 2012 Operating Grants Scrip Other Fund Raising Other Sources Total School Revenue before Congregational Support Total School Income with Congregational Support 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Budget 2009-10 $245,347 245,347 53,300 31,980 21,320 (5,995) 15,325 31,835 (7,056) 24,780 72,085 13,060

$148,972 $151,810 $193,942 $244,289 $167,301 $207,277 $187,852 $182,938 148,972 23,897 151,810 27,696 193,942 31,125 244,289 20,730 167,301 36,500 21,900 14,600 (5,335) 9,265 33,600 (13,734) 19,866 51,031 10,615 1,874 5,190 8,745 29,436 465 20,600 29,950 0 8,644 1,050 167,599 334,901 207,277 45,000 27,000 18,000 (1,475) 16,525 33,350 (5,235) 28,115 71,640 7,430 187,852 41,400 24,840 16,560 (5,764) 10,796 27,723 0 27,723 63,359 11,584 182,938 55,250 33,150 22,100 (6,214) 15,886 33,000 (7,314) 25,686 74,722 10,448

23,897 6,679 0 6,679 30,576

27,696 11,514 0 11,514 39,210

31,125 12,657 0 12,657 43,782

20,730 11,085 0 11,085 31,815

0 0 0 0 25,331 1,377 57,284 206,256

0 0 0 0 30,681 4,374 74,265 226,075

0 0 0 0 29,290 16,992 90,064 284,006

0 0 0 0 25,101 34,448 91,364 335,653

10,000

24,900 18,545

15,000 882 94,952 302,229

15,000

15,000 1,449 126,519 309,457

15,000 1,500 120,190 365,537

99,943 287,795

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Financial Analysis
School

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Financial Analysis
School

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Financial Analysis
Summary Observations

Summary Observations:

1. The average cost per student over the last four years has been approximately $3,100.
2. The total annual expenses for the school have ranged from $290,000 to $365,000 in recent years. The current year budgeted expenses are $341,552. 3. The total revenue for the school has ranged from $95,000 to $168,000 range. We estimate current revenue at approximately $120,000. 4. Thus, the resulting direct congregational support has ranged from $167,000 to $245,000 which is the current year estimate.

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Financial Analysis
Summary Observations

Summary Observations: 5. The financial reporting for the congregation does not include significant items of income and expense. More specifically, funds are flowing in and out of Designated Accounts without the income and expense for these items showing on the income statements: a. Revenue does not include 60% of registration fees that are allocated directly to the Balance Sheet Account-"#30202-DES-Day School. b. There are multiple instances of The Lutheran Foundation grants for both the church and school that are not reported as income on the income statements. c. Expenditures related to various grants from The Lutheran Foundation for both the church and school are not reported on the income statements. d. Other fundraising contributions have not been reported on the income statements. e. Expenses out of Balance Sheet Account-#30202-DES-Day School have not been budgeted or reported on the income statements.

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Financial Analysis
Summary Observations

Use of Designated Accounts

Restricted Accounts Funds in these accounts must be spent only for the specific purpose as defined by the donor. Examples: The Lutheran Foundation grants. Designated Accounts Accounts created for a specific purpose. Funds in these accounts may be spent at the discretion of the authorized signor as long as consistent with the general intent of the account. Proper treatment of these accounts: The actual income and expense of these accounts should be reflected on the financial statements. Budgeting activity should exclude restricted accounts these gifts are seldom planned for. Borrowing from restricted accounts should be discouraged. Unfunded designated accounts or designated accounts that have been borrowed against should require justification otherwise these accounts should be eliminated. Funded designated accounts can be thought of as a special reserve. Reserve accounts should not be borrowed against. Reserve accounts can be helpful for the large ministry areas school, benevolence.

Designated Accounts

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Recommendations

Financial
True North Recommendations

1.
2. 3. 4. 5. 6. 7.

Within the financial reporting for the congregation, clearly separate the budget and actual financial results for the church and school.
Move both the congregation and the school to an August 1 July 31 fiscal year to better align with the ministry cycles of the church and school. The school should retain all income generated from the school and be responsible and accountable for all of its expenses. Report all income and expense for both the church and school. Obtain the services of an outside accounting firm to produce the financial statements for the church and school. In the future, the congregation may want to consider a book-keeping position that could replace or coordinate with the accounting firm. Financial reports should be produced and reviewed on a monthly basis with reporting of actual vs. budget.

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Recommendations

Financial
True North Recommendations

Consolidate Congregation Financials

True North is recommending better information and accountability for the school not the separation of the school ministry from the congregation ministry.

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Recommendations

Governance
True North Recommendations
1. The Board of Directors should establish a base annual level of financial support for the school increased annually for inflation. It would seem reasonable for this commitment to be in the $210,000 to $230,000 range initially. It is also suggested that the Board of Directors affirm the long-term role of the school in the ministry of the congregation. Empower the Board of Education with primary accountability for the school, including financial accountability. Aside from approving the Board of Education budget annually, the Board of Directors should expect the Board of Education to be responsible for the quality of education and the sustainability of the school. Should the Board of Education not be able to sustain and grow the school given this level of congregational support, a consolidation of the school should be considered at that time. True North applauds the long-range planning work that is underway and encourages Zion Decatur to carefully consider the opportunity it has to minister to young families in the city of Decatur and surrounding areas.

2.

3.

4.

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Recommendations

Governance - continued
True North Recommendations 5. Zion Decatur should consider revisions to its constitution and bylaws: a. The Treasurer of the congregation should have primary accountability for all financial matters for church and school. The Board of Education should also have a Treasurer position accountable to the Treasurer of the congregation. These two positions should be on the Board of Finance, with the Treasurer of the congregation as chair. Four other lay leaders could be appointed to the Board of Finance. The Board of Finance should annually appoint one of its members to serve as Financial Secretary for the congregation. b. Seek to reduce the number of boards. For example, the non-school responsibilities of the Board of Education should be combined with the Board of Youth and Family Life. c. It is also recommended that term limits be imposed for board members. Any board officer or subsidiary board chair should be limited to two consecutive terms. d. The pastors and Board of Elders should consider leadership development part of their responsibility. This would include creating leadership opportunities for young leaders that meet the biblical qualifications of leadership.

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Recommendations

Governance - continued
True North Recommendations

Board of Finance
Treasurer of Congregation
Elected Ex-officio

Treasurer of School Board Financial Secretary 3 Others

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Elected Ex-officio

Appointed

Elected/Appointed

Recommendations

School
True North Recommendations 1. The school, along with pastoral and congregational leadership, should aggressively focus on growing enrollment. We believe that a long-term, public commitment on the part of the Board of Directors will be a significant step in improving the number of member students attending the school. The school should explore the following methods of generating additional income: a. Create a tuition assistance matching gift fund, perhaps through Thrivent, to fully recover any tuition discounts that are provided. Such a program has the added benefit of attracting additional families who perceive they can not afford the cost of education. b. Consider raising tuition and registration fees. Clearly, Zion Decatur has a large gap between the true cost of education and its current tuition and fees. This could be effective when combined with a tuition assistance program.

2.

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Recommendations

School
True North Recommendations 3. The school should explore the following methods of generating additional income: c. Utilize special events such as silent auction, dinner / dance, golf outings, etc. to raise additional revenue. d. Implement a Scrip program and/or Market Day or other packaged programs designed to assist schools in offsetting costs. e. Research and write grants to community, denominational, and educational granting institutions. 4. 5. Set an appropriate expectation on board attendance and require active involvement from Board of Education members. Focus the board agenda on growth and sustainability. Leave administrative matters to the principal, where possible.

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Next Steps
1. Begin immediately to plan and implement the financial recommendations for the church and school and the transition to an August 1 July 31 fiscal year. In order to resource this effort properly, an outside accounting firm and/or a qualified staff book-keeping position should be used. The treasurer of the congregation should take a lead role in these efforts. Appoint an ad-hoc committee of the Board of Directors to consider and implement any approved governance changes. Examine membership of the Board of Education and consider additional appointments to equip this board for additional financial and sustainability responsibilities. Use a board retreat or strategic plan process to focus the board on growth and sustainability efforts. The pastors and Board of Elders should carefully and prayerfully consider lay leadership development as a crucial priority. This group should speak into the work of the next nominating committee.

2. 3.

4.

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