Review Task Force Report – Interviews – Pages 33-42

In early 2015, the ABC District Board of Directors initiated a Task Force to identify factors contributing to the CEF crisis. The scope of the Task Force mandate was broad and complex. It included analyzing not only financial and legal, but also underlying cultural, structural, and procedural principles and practices that helped set the stage for the current crisis. The Review Task Force said, “Identifying, understanding, and addressing these is vital to help our church walk wisely into the future.” These are pages 33 to 42. It’s a longer excerpt, but it’s one section.


SEPTEMBER 2003 TO MAY 2006
The following information was obtained from the 2006 Convention Workbook regarding the 2003 to 2006 triennium:

ABC District:

President: Rev. Donald Schiemann
BOD Members:
1st VP: Rev. Mark Beiderwieden
2nd VP: Rev. Dr. Harry Haberstock
3rd VP: Rev. Bill Ney
Rev. Mark Sander , Rev. Mark Ruf, Ms. Judith Burns, Mr. Keith Kruse, Rev. Kwang Soo, Kim, Mr. Jim Kentel, Mr. Richard Lutz, Ms. Marj Plitt, Mr. Harold Schmidt,
EA Outreach: Rev. Glenn Schaeffer
EA Parish & School Services: Mr. Daryl Becker
EA District Services: Mr. Wayne Olsen

DSFM:
Mr. Richard Lutz, Mr. Marvin Mutschler, Rev. Bill Ney, Mr. Helmuth Schroeder, Rev. Mark Sander, Mr. Terry Hagen, Mr. Harold Schmidt

  1. September 2003 EC Meeting: Recommendations for Staff and Department member appointments. DP assigned VPs to Departments. BOD member assignments to Departments. Suggested names for members at-large to serve on Departments.
  2. September 2003 BOD Meeting: MSC to the EC recommendations for staff and department appointments.
  3. September 2003 BOD Meeting: Risk tolerance for investments changed. MSC “that the risk tolerance be increased from 50% low risk and 50% medium risk to 40% low risk, 50% medium and  10% high risk (equities under $5) with a limit of $500K and that the investment objectives be increased to 40% long-term, 40% income, 10% medium, and 10% short term investments…  notwithstanding our investment policy that equities cannot exceed 50% of the total investment portfolio.”
  4. 2003 Audited Financial Statements: Bank indebtedness triples in Current Fund. Restricted and Foundation Funds are the only accounts with cash. No activity in Agency Fund. Bank indebtedness for CEF went from $0 to $1.6M. Investments for CEF decrease by $8.2M and ABC Foundation investments decreased by $1M. Plant Fund capital properties increase by $20M.
    Investor obligations increase by another $2M. Before adjustments and transfers, CEF net loss is $1.4M, Plant Fund net loss is $14K, and Foundation Fund net loss is $254K. After adjustments, still shows net loss in Foundation Fund and CEF no longer shows the $1.4M loss. Notes indicates overdraft limit of $8M, payable on demand at bank, plus a $1M life lease contingency line of credit. District is “liable by way of a letter of credit in the amount of $2.2M” increased from $422K. Auditor notes state that no statement of cash flow is included “as the information is readily available from the financial statements”. As in 2002, the auditor indicated that financial statements were in accordance to GAAP other than non-amortization of assets (e.g. not recording depreciation). End balance of $4.5M in District. No statement of what would change if GAAP had been followed.
  5. March 2004 EC Meeting: Discussion of staff salaries. MSC to recommend to BOD increase of 1.7% for EAs. MSC that in the future, Salary Review Committee plus two addition laypersons “review
    $550 per year increase increment for Executive Staff after 10 years for a possible increase” using comparative studies. (TF Note: These motions were then MSC in the March 2004 BOD Meeting.)
  6. March 2004 BOD Meeting: DSFM presented a motion regarding what appeared to be significant financial concerns about POP. Specifically, the initial motion stated that POP was losing money every month because occupancy was not sufficient, that rents were too high for the market, and that monthly losses were resulting from operating and financing costs. DSFM’s suggested motion was to immediately drop rents to a competitive level and to “evaluate future of management agreement and take corrective action as necessary” if 40 additional units were not rented by September 2004. This motion was amended by the BOD and MSC as follows:
    WHEREAS the occupancy rate of Prince of Peace Manor has not progressed as anticipated and as necessary, and;
    WHEREAS the rental rate appears to be a major concern for potential residents, and;
    WHEREAS the combined operating and financing costs are creating significant losses on a monthly basis, be it therefore
    RESOLVED that the District Board of Directors endorse Prince of Peace Management’s decision to provide various lease arrangements, including a lifestyle investment option and to reduce   rental rates, and be it further RESOLVED that the Board encourages Prince of Peace Management to be very aggressive and innovative in their marketing strategies in order to achieve an
    occupancy level that covers operational costs as quickly as possible, and be it further
    RESOLVED that Prince of Peace Management develop occupancy goals by May 1, 2004, to share with the District, that will result in the operational costs being covered very quickly, and be it finally
    RESOLVED that these goals be a tool that helps both Prince of Peace Management and the District measure the success of new marketing and rental initiatives and helps determine if alternate strategies need to be implemented to ensure the success of this ministry.
  7. May 2004 EC Meeting: Two BOD members for POP Village/Manor appointed in MSC. Three more to be recruited by DP.
  8. May 2004 Report to BOD (Author Unidentified): The author(s) of this five-page report were not identified. “As you are now aware, we have been working with POP for a couple of months, trying to get to the bottom of some issues that have arisen. Although many solutions have been offered… the situation there is quite complex and comes with no simple solutions. It will take some time and some very careful steps to get things back on track…” The report then refers to “many structural problems in the organization at POP that… greatly inhibit any progress in resolving the tensions” and stated that these were “leading to much confusion, division and strife in determining who has the ultimate authority when it comes to the decisions that need to be made… It is safe to say that the current involvement of the ABC District has contributed to some of the problems.” Several recommendations were made. Firstly, it was recommended that POP School/Church be separated from the Village/Manor. The Church/School would remain together. The Village/Manor would be brought “into one organization. Although we want to maintain the ministry of the congregation in the Village and Manor, we are unwilling to let go of our interests in this part of the organization.” It was hoped that this would allow POP congregation to regroup and “make sure that the Village and Manor is being developed and managed professionally and is above reproach in all its operations.” Secondly, formation of a new BOD was recommended to oversee the Village/Manor, to be comprised of business people from churches. This BOD would report directly to the District BOD. The recommendation was to hire expert consultants to set up an organizational structure, to create policies for the Village/Manor, and to determine competency of employees. (TF Note: TF interview statements were that expert consultants were not obtained.) “Ultimately, in our opinion, the ideal situation is the one first envisioned – that the  Village and Manor would be a ministry of and owned by the congregation.” It was stated that if and when the congregation was able, they could take over ownership of the Village/Manor, with the new BOD there reporting to the congregation’s BOD rather than ABC District’s BOD. This plan was to be reviewed annually.
  9. TF Interview Statements: Interview statements were that multiple sources of input contributed to this report and that the DP had been involved in several months of work and meetings at POP.
  10. May 2004 BOD Conference Call: The recommendations outlined in the May 2004 Report to the BOD (to separate POP Village/Manor from POP Church/School, form a separate BOD to manage the Village/Manor which would report to the District BOD) were MSC in a BOD teleconference. One BOD member wanted a ‘no’ vote recorded to this, as well as many subsequent motions about POP in later meetings.
  11. TF Interview Statements: Statements were that a separate BOD for the Village/Manor was formed so that the church as a whole was not running POP, so that POP could be kept distant from the church, and so that POP was a separate entity.
  12. June 2004 EC Meeting: Two further POP BOD members appointed by MSC. One remaining appointment to be made.
  13. June 2004 EC Meeting: Discussed request from POP Resident’s association to have a Village/Manor BOD member. MSC to “invite a designate of the Village Residents association to serve the
    with observer status on the new board with voice.” The BOD “may limit their presence to certain meetings.”
  14. June 2004 EC Meeting: Note regarding “Disclosure: a public statement will be released to the church informing them of the actions.” (TF Note: It is not clear what this referred to. Items discussed at the EC meeting included salaries, district convention location, and appointments to POP BOD.)
  15. June 2004 BOD Meeting: “A concern was expressed regarding any more large projects and that there be regular means by which the Board may consider carefully such projects.” This concern
    appeared to be raised by DSFM.
  16. September 2004 EC Meeting: Recommended $1400 increase to EA salary scale. (TF Note: This was then MSC at the October 2004 BOD meeting.)
  17. September 2004 EC Meeting: Reappointed current members of Condo Corporation Board.
  18. October 2004 BOD Meeting: Committee report and recommendations about POP Village/Manor. MS defeated to call the question, then MSC to call the question. MSC to “approve in principle formation of a society whose initial and primary focus is POP Village and Manor and that the BOD meet in conference call in three weeks to examine the details of the proposed society and its terms of reference.” Two BOD members asked to have ‘no’ votes recorded.
  19. October 2004 EC Meeting: (Agenda arose from BOD meeting that had just occurred) Legal Matters: Very slow response (no response for at least six months) from legal counsel to apply for EnCharis charitable status. Honor request for firm’s request of $45K. EA will monitor.
  20. 20. October 2004 EC Meeting: (Agenda arose from BOD meeting that had just occurred) “In view of an apparent breakdown in communications concerning “legal issues” relative to EnCharis we underline the line of accountability-communications of EnCharis to the ABC District Board which translates to EnCharis communicating to the ABC DP.”
  21. October 2004 EC Meeting: (Agenda arose from BOD meeting that had just occurred) Loans: Discussion regarding the high percentage of interest-free loans.
  22. October 2004 EC Meeting: (Agenda arose from BOD meeting that had just occurred) Membership of EnCharis: To include director of EnCharis, Chairman of ABC BOD, and DP.
  23. October 2004 EC Meeting: (Agenda arose from BOD meeting that had just occurred) Disclosure: “Consensus requested that the Dept. of Stewardship and Financial Services, the CEF Committee, the Investors, and the Church at Large be informed of the sizeable investment in EnCharis and POP Church/School in descending order to the 4 entities, from considerable detail to general information as we continue our District’s committed involvement.” Hope that the pending bank loan to EnCharis will free up funds.
  24. TF Interview Statements: TF interview statements were that the EC discussion about disclosure to the church was a heated discussion with the decision to not go public about the significant
    financial issues specific to CEF and POP/EnCharis. Statements were that the rationale was that since an actual dollar figure could not be provided, they might be “crying wolf” for nothing, and it would be “safer” to go public with more information. Statements were that there were thoughts that perhaps the problems at POP could all be wrapped up in six months. TF interview statements were that a guest at either this meeting or a later BOD meeting where the same was discussed voiced concern and said that the BOD should “come clean” about CEF’s exposure to POP.
  25. TF Interview Statements: It was stated that “we inherited a mess” upon taking over POP, that it was “surprise package B” with massive debt, insufficient assets, and accumulated shortfalls.
  26. October 2004 BOD Conference Call: A member of the DSFM resigned as a voting member “to ensure that no perceived conflict of interest would arise. He continued to serve on the department in an advisory capacity.” (TF Note: It appears that the member’s employer became District’s auditing firm.)
  27. October 2004 BOD Conference Call: One of the EAs became the new director of POP.
  28. December 2004 EC Meeting: Discussed restructuring of District Office. New structure and staffing proposal for Financial Ministries, which involved two new administrative divisions overseen by managers (CEF and Investments; Accounting and Finance), redefining duties, and hiring an additional person. MSC to present this to BOD.
  29. December 2004 BOD Conference Call: Discussed new structure and staffing proposal for Financial Ministries as per recommendation of EC (see December 2004 EC Meeting). MSC after there  appeared to be a fair bit of discussion and calling the question.
  30. 2004 Audited Financial Statements: Reporting of Agency Fund is not listed. Current Fund bank indebtedness decreased by $310K. CEF bank indebtedness increased by $3.4M. No money in cash except for Restricted and Foundation Funds. All Funds have net losses, but transferring between funds allows the Current Fund to have surplus. CEF begins with net loss of $1M+ and
    ends with a loss of $50K after transfers between Funds. As in 2002 and 2003, the auditor states that District’s financial statements did not record any amortization/depreciation of assets, though were otherwise in accordance with GAAP. The auditor indicates that the cumulative effect of not amortizing assets is now $400K. Ending fund balance for District recorded at $4.3M. Had GAAP been followed, it appears this would have been reduced by $400K to $3.9M.
  31. March 2005 EC Meeting: MSC to recommend to the BOD that EnCharis be appointed as the manager of Shepherd’s Village Ministries with responsibility for supervising operations and reporting on status. (TF Note: This was then MSC at the March 2005 BOD meeting.)
  32. May 2005 BOD Meeting: During the report from EnCharis, the BOD meeting was adjourned in the Minutes, the Annual General Meeting of the POP Village Condominium Corporation and The Shepherd’s Village Condominium Corporation was convened and adjourned, and the ABC District BOD meeting then reconvened. This was all recorded in the same Minutes. During this embedded meeting, it appears that banking and signing authority for Shepherd’s Village was given to EnCharis. As well, there were two MSCs: that the EC of the BOD be elected to the Condo Board for The Shepherd’s Village Condominium Corporation and to the Condo Board for The POP Village Condominium Corporation.
  33. September 2005 BOD Meeting: EnCharis report and business plan presented. In October 2004, debt for POP Village/Manor and Shepherd’s Village totaled $34M+. In 2004 EnCharis was given
    responsibility by the BOD “to manage senior’s housing projects…, eliminate the outstanding debt on these projects and become the primary vehicle through which congregations could become involved in seniors’ housing projects.” MSC that EnCharis provide annual budget, quarterly cash forecasts and financial statements, and occupancy target goals against a milestone chart. MSC to limit line of credit appropriations to approved operating budgets. Capital appropriations for new phases of any project to be advanced only upon aforementioned information and upon
    approval of project phases by the EC and the DSFM Chair. MSC “that the total line of credit for EnCharis be $45M to effect the restructuring and financing scheme covered in the EnCharis Business Plan.”
  34. 2005 Audited Financial Statements: Current Fund bank indebtedness decreased to $8K. CEF bank indebtedness decreased by $3.8M. Accounts payable to Current Fund of $1M+ due to land sale that was designated to ABC District. CEF loans increased by $6.4M. Amount payable to CEF depositors on demand goes from $62.9M to $69.3M (e.g. CEF needs to be able to give this back in cash to depositors upon demand). $8M overdraft still in place with bank, Life Lease contingency for $1M. Before adjustments, Current, Plant and Foundation Funds have net increase. CEF has net loss initially but net surplus after transfers. Capitalized interest for seniors housing project now at $7.9M. As in 2002, 2003, and 2004, the auditor states that District’s financial statements did not record any amortization/depreciation of assets, though were otherwise in accordance with GAAP. The auditor indicates that the effect of this is an overstatement of the financial picture in the amount of $445K . District’s ending balance is $6.8M. Had GAAP been followed, it appears that this would be reduced by $445K to $6.3M+.
  35. January 2006 BOD Conference Call:  MSC to “allow EnCharis borrow up to $4M from CEF, which does not exceed the $45M line of credit approved in the EnCharis business plan… for the installation of a lateral lift station and transmission line” for POP.
  36. January 2006: The following info was obtained from the Monitor’s Fourth Report (June 2015): Originally, the District owned the lands within the POP Development. Effective January 2006, District sold the POP Development to EnCharis (ECHS) for $71.4M. Of this, $33.3M was satisfied through assumption of the Life Lease Liabilities by ECHS. The balance, which was reported to be the amount paid by District to acquire and build out the POP Development to that date, was satisfied by loans/mortgage. The loans were later guaranteed by Shepherd’s Village in December 2008.
  37. March 2006 DSFM Meeting: Notes state that a meeting with EnCharis was needed to review the mandate and intended undertakings.
  38. March 2006 EC Meeting: Department appointment recommendations made. (TF Note: Discussion of this at June 2006 BOD Meeting, whereupon “appointments of the Departments has been delegated to the Executive Committee.”)
  39. March 2006 BOD Meeting: CEF rates changed, ranging from 2.35% (Savings) to 4.15% (5 year).
  40. April 2006 EnCharis Meeting: “There was a discussion on procedure for disclosure at the upcoming convention.”
  41. 2006 Convention, DP Report: “A new initiative resulted in major changes within our District. The ABC District has invested itself in Seniors’ ministry, most notably in Valleyview and Calgary. Both of these involved the development of seniors’ housing. The original approach was to have the local congregation take responsibility for mission and ministry undertakings at the seniors’ housing. It also called for the congregation to develop and manage the housing. It became obvious at POP Village and Manor that this was not an effective approach. For a number of related reasons, people were not moving into the Village and Manor. Questions arose about the financial viability of such a project. The Board of Directors asked five individuals with expertise in this kind of development and who were also members of our Calgary-area churches to take an in-depth look at this project and make recommendations… From these recommendations, EnCharis was born. EnCharis has developed appropriate development and management strategies for the Calgary site and has also assumed management of the Valleyview site. With a growing expertise, EnCharis is consulting with other congregations in our District who might be interested in housing as an aspect of seniors’ ministry. This also has the capability of expanding to become a service for all of LCC.” One EA to become director of EnCharis, another EA to become fund developer of EnCharis.
  42. 2006 Convention, DSFM Report, CEF: CEF deposits grew from $57.6M in January 2003 to $73.9M in January 2006. During this same period, loans for capital projects grew from $ 48.5M to $60.9M. “Security of Church Extension funds remains a priority, however, for the sake of the Gospel we must be willing to take reasonable risks. Balancing risk and protecting our investors requires the Department to always ensure that it is in compliance with the management policies and practices governing its operation. Investments and loans continue to be scrutinized against these criteria and as a consequence of these prudent practices the Fund Balance continues to grow and preserves a proven history of success.”
  43. 2006 Convention, DSFM Report, DIL: Deposits totaled $17.3M as of January 2006.
  44. 2006 Convention, EnCharis Report: There has been a “significant shift in our District’s approach to seniors’ housing… development of a new organization to manage seniors’ housing so that  congregations could focus on ministry in these places.” Notes a 5-year business plan “to chart a path for debt elimination and future development…” and “great confidence that past difficulties will be overcome.” “Regular financial statements and reports are now being provided to CEF and the ABC District BOD.” Refers to agreement reached to connect POP to new wastewater utility, which will reduce costs. States “a highly qualified and experienced management team is being assembled.”

 

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