Expert: Don Sadler - 1/17/2008

Question
QUESTION: We have a church with a governing board. Our church has a daycare with a daycare board. The finance director is a member of the daycare board. We feel he is making decisions in favor of the daycare (budget and financial responsibility of the daycare) and is not necessary looking out for the interest of the church. Is this a conflict of interest or just a perceive conflict of interest. Does an audit committee have an issue with this?

ANSWER: Generally speaking, when we speak of conflicts of interest, it is in the context of conflicting duties between disparate interests.  In your case, the child care organization is part of the church so it would logically follow that what is good for the part is good for the whole (i.e. what is good for the child care is good for the church).

I would suggest that what exists here is a matter of perception and, unless you suspect some financial defalcation or malfeasance, it would not likely draw the attention of an audit committee.  Remember the audit committee is primarily concerned with financial integrity.  In other words, businesses and organizations can make bad decisions without any foul play. Lack of business acumen is neither criminal nor fatal... simply why some business and organizations prosper while others do not.

My recommendation would be to raise this concern to the individual and discuss why you (individually or collectively) believe the actions are not consistent with the goals, visions, or long range strategy of the church. It is entirely possible that this person has information the rest do not.

I hope this is helpful to you and I would be interested in what you find.

---------- FOLLOW-UP ----------

QUESTION: Thanks for the reply.

I understand what you are saying. However, if the daycare is unable to pay for their share of the expenses and is pulling the church down financially and the finance director who is a board member of the daycare is creating a situation that allows the daycare to continue. Would that be a conflict of interest or a lack of business acumen.

Answer
First I will qualify my response by telling you I am not that familiar with church business so I will apply what I think is appropriate logic.

It could be any of a conflict of interest, a lack of business acumen, or a deliberate sacrifice to achieve a higher priority objective.  I am sure you are familiar with the retail "loss leader" technique of offering a product at a low price to entice customers into the store in hopes the customer will make other purchases.

I know that religion is not retail but I think similar marketing concepts apply in that you have a target market (some demographic to whom your ministry is focused) and you have multiple objectives... some more important than others.

Consider that one church objective may be to increase the number of younger adults into the congregation and that a strategy to accomplish this objective is to offer day care in hopes that it will influence younger families to attend church.  Alternatively, consider that another objective might be to simply offer child care to lower income families as a manifestation of the ministry... even if such child care is heavily subsidized by the church itself.

I think you are prudent and insightful in recognizing the situation you have described to me. However, I stand by my original opinion that it is not really an audit concern.  Frankly, and I mean no offense in saying this, it seems more a matter of organizational politics with respect to conflicting agendas.  Again, my advice to be to resolve it through communication and disclosure of all agendas at play.