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Presbyterian Mission Agency Board team proposes strategy to address shared services and improve donor confidence

A ministerial team of the Presbyterian Mission Agency Board that’s been considering how the Presbyterian Mission Agency (PMA) allocates overhead costs is recommending changes – concluding that the rates themselves are reasonable, but that the agency should generally charge agency departments a single, flat rate and that donors need more information about how such administrative costs are assessed.

Proposed: Setting a flat rate for overhead costs
Moving to a flat rate of 19 percent would raise the costs for some PMA departments (such as World Mission, which currently pays about 11 percent), but likely would free up about $2.4 million in unrestricted funds, “which may be directed to the negatively impacted departments to help smooth the transition,” the report states.

The team also concludes that PMA is not overcharging. “The PMA’s currently budgeted overall overhead allocation rate of 13 percent would be considered low compared to the rather broad range of acceptable allocation rates for large religious and nonprofit organizations,” the report states.

As a comparison, it cites work from The Bridgespan Group, which the report describes as “a well-respected nonprofit consulting firm for nonprofits,” and which found that overhead – or indirect – costs for such groups varied between 21 percent and 89 percent of direct costs.

The board is expected to consider the recommendations during its meeting in Louisville Sept. 21-23. The ministerial team which wrote the report – a team including both PMA board members and representatives from the Presbyterian Church (U.S.A.) national staff – is one of a rotating series of short-term ministerial teams the board has created to address specific issues.

This team is not the only group examining the fees and policies associated with what’s been described as overhead costs or shared services or common services – the varying definitions of what’s involved is part of the complexity.

A joint working group of the Way Forward Commission and All Agency Review Committee is hoping to release its report regarding shared services and the PC(USA)’s corporate entity by Sept. 20 – right before the PMA board meeting commences. That work group is also looking at how PMA charges the Office of the General Assembly (OGA) for what’s often referred to as shared services – costs associated with common services such as legal services and human resources.

IMPACT ON SUPPORT AREAS. The additional amount of $2.4 million would be used to support the following areas.

Donor confidence
Most Presbyterians probably aren’t thinking very deeply about these things. It’s significant, however, for a number of reasons. More and more, Presbyterians are giving money designated for particular programs and uses – and not providing unrestricted funding that can be used to support necessary but low-profile work such as building maintenance.

Donor confidence in how the money is being handled is key.

When donors don’t understand how the charges are assessed – or realize that overhead fees may be taken out before the money is distributed – that can lead to reluctance to give, the report concludes.

“As the committee worked, it became clear that the source of concerns about overhead had more to do with communications and relationships rather than accounting principles and technical accuracy,” states the report from the board’s Overhead Costs Ministerial Team, which is led by Wendy Tajima, a board member and mid council executive from California.

“Perhaps the most problematic situation impacting donor confidence is the lack of transparency regarding cost recovery. There have been times when the deduction taken was not communicated, and attempts to inform donors were rejected. So the donor did not become aware of the deductions until the donor had direct communications with the external intended PMA grant recipient. This results in a lack of trust, which has at times led to donors and recipients making alternate arrangements for bypassing the PMA in supporting the ministry.”

The joint working group from Way Forward and All Agency Review is looking particularly at how shared services are handled by OGA and PMA, and at structural issues related to the PC(USA), A Corporation, the denomination’s corporate identity for PMA and OGA.

The ministerial team report recommends coordinating with Way Forward and All Agency Review, as well as the other five PC(USA) agencies, “to study differing calculation of overhead costs in the different agencies, and to resolve negative impacts of interagency cooperation.”

It says, for example, “because of the complexity and the direct-services nature of PMA ministries, the overhead costs [for PMA] will by necessity be higher than costs associated with more focused ministries such as the Presbyterian Foundation or Presbyterian Investment and Loan Program. Because the administrative costs for other agencies seem to be lower than for PMA, at least one ministry program has requested to be transferred out of PMA, even though PMA is supposed to coordinate all mission and ministry programs of the Church. Coordination of mission should not be impacted by lack of interagency coordination and mutual support, or implemented through financial calculations.”

COST RECOVERY RATES. The graph below shows the effects of changing to a 19% flat cost recovery rate for all areas. Nineteen percent represents the percentage of total administrative costs compared to program costs in the 2017 Mission Agency budget. This rate would yield approximately $2.4 million more in restricted funds to be used for support costs. The Board of Pensions and Jinishian rates would remain the same since these were agreed upon
rates. Theology, Formation and Evangelism have two different rates as these were formally two different ministry areas that were combined.

Report specifics
Here are some more details from the ministerial team’s report. Click here for the full ministry team report.

Consultation. The team recommends that, as part of the internal budgeting process, ministry area directors and program managers be consulted regarding the costs and types of administrative support assigned to them and asked for suggestions for “possible ways to reduce the administrative burden of supporting the PMA.”

The report states that “currently the Ministry Area Directors are not consulted in the planning, budgeting or evaluation of support services assigned to them” and don’t have a voice when certain restrictions or practices negatively affect them. For example, the publishing department uses third-party vendors for shipping, but the Special Offerings department is required to use more expensive in-house shipping services.

“Also, any prospective donor who visits the PMA donor pages can be overwhelmed by the hundreds of Extra Commitment Offerings listed on the website; it is unclear if there has been consideration of cost savings (and better donor response) that may be achieved if this list was streamlined,” the report states.

Flat fee. The proposal calls for developing a flat rate for recovering administrative costs that would be applied to all of PMA, with two exceptions: the Jinishian Memorial Fund, and the Board of Pensions part of the Christmas Joy Offering, both of which involve pre-existing arrangements.

The report states that cost recovery rates currently are calculated by department in PMA – ranging from 11 percent levied in World Mission to 19 percent in portions of Theology, Formation and Evangelism. There are other factors at play as well.

For example, “for every $1,000 given to World Mission in 2015, the actual dollars made available for program was $890, for a total cost recovery rate of 11.0%,” the report states. “For Special Offerings, a $1,000 donation in 2015 resulted in $636 going to recipients, for a cost recovery rate of 36.4%, because all costs related to Special Offerings are to be funded from the Special Offerings revenues,” by directive of the General Assembly.

Those variations and the reasons for them aren’t explained to Presbyterians who give money, the report states, and “this results in confusion and suspicion on the part of donors.”

If PMA were to move to one flat rate of 19 percent, that would result in increased costs for departments currently paying a lower rate. Estimates are that World Mission would pay an additional $1.28 million and Compassion, Peace and Justice more than $683,000.

“However, the impact of a 19% flat rate will result in freeing up $2.4 million of unrestricted funds, which may be directed to the negatively impacted departments to smooth the transition,” the report states.

Special Offerings. There would be some exceptions to the flat fee. “There are preexisting agreements with Jinishian Memorial Fund and Board of Pensions for cost recovery rates of 5% and 4%, respectively, so they need to be held to these rates,” the report states.

Also, the costs for staff and promotional expenses would be taken out of donations given to Special Offerings, in addition to the agency-wide flat rate for administration – that’s required by a General Assembly directive. In 2015, that meant PMA retained 36.4 percent from Special Offerings receipts for administration, passing along 63.6 percent to recipients.

The broader church doesn’t understand how that works, the team found.

“In an informal survey of presbytery executives and others, no one knew that PMA does not ‘pass through’ 100% of Special Offerings to the recipients, as is done at every other level of the Church,” the report states. “This recovery of administrative and promotional costs was directed by the General Assembly, but the actual implementation of the GA directive has not been noticed by many church members or leaders, and it will be important to review the GA directive, and possibly request a modification of it, if any change is to be made.”

Giving to PC(USA)’s Special Offerings has been declining – down from more than $6.3 million in 2012 to about $5.7 million in 2016.

In 2017, the added direct costs for Special Offerings being retained is estimated to be $2.1 million – including $1 million for personnel and fixed costs and $1.1 million in promotional expenses.

“Thus, how Special Offerings are administered and how their administrative costs are covered need further analysis, not only to provide better support to these important offerings, but in order to preserve the covenantal relationships with the different levels of the church who support this effort,” the report states. “More open explanation of the cost recovery rates will be a first step, though they may lead to negative response by the donors. The analysis of different scenarios, and the impact on donor and church perception on how Special Offerings are managed, could not be accomplished by this Ministerial Team in this time frame.”

IMPACT ON MINISTRY AREAS. The current cost recovery rates allow for $5.2 million to be used from restricted funds to support administrative and overhead costs in the PMA budget. If the rate is changed to a flat 19% rate, an additional amount of $2.4 million could be used. The additional funding would come from restricted funds that are assigned to the ministry areas. This shift in funding would free up $2.4 million in unrestricted funds.

Communications. The report stresses the importance of transparency in communicating the administrative cost-recovery system to donors. In its report in 2016, the PMA Review Committee recommended that the PMA come up with a plan “to educate all donors about how their donations are allocated, including a clear breakdown of what percentage goes directly to mission funding and what percentage is applied to administrative costs,” the ministerial team report states.

The report also says: “It has become clear that donors do indeed need not only education about the reality of administrative costs, but also the significant reduction in general mission giving and per capita funds, and how this limits the PMA’s ability to cover administrative costs with unrestricted funds. Further, the fragmented nature of communications from the national church, with separate communications strategies from each agency and even separate departments, hinders donor access to information.”

It recommends that that the PMA’s Mission Engagement staff become “the primary channel for donor education” going forth, and that a policy be developed “committed to openness in communicating overhead cost recovery rates and any future changes.”

More work needed. The report also lists areas the team thought needed more attention, but lacked the time to fully explore.

That would include a review of PMA staff structures, so “there is consistent staff for administrative support across departments.”

Another possibility: consider using more unrestricted funds to pay administrative costs. That could prove attractive to donors, who might be willing to give more if they thought all the money they gave would be used for a designated cause – nothing would be withheld to recover administrative costs. That also could create more financial pressures, however, because “the PMA is painfully aware that many of the most pressing mission priorities do not enjoy the benefit of restricted funds, and so require significant unrestricted funds in order to continue this work,” the report states. “Therefore, if unrestricted funds were used to cover more administrative costs, the PMA’s most current and critical priorities would be curtailed.”

The team suggests considering ways for PMA to cover administrative costs “in order to promote certain kinds of giving or support the connectional nature of the church.” Some ideas: try to increase the level of unrestricted giving, or encourage donations specifically to support PMA administrative costs.

The report recommends that the PMA leadership team work to implement the changes it’s recommending and that a report on implementation and evaluation be made to the board’s Finance Committee in September 2018. The board is expected to consider the team’s recommendations in plenary Sept. 22.

 

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