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 67-72.
SEPTEMBER 2012 TO AUGUST 2015
The following information was obtained from the 2015 Convention Workbook regarding the 2012 to 2015 triennium:
President: Rev. Donald Schiemann
1st VP: Rev. Mark Ruf
2nd VP: Rev. David Dressler
3rd VP: Rev. Craig Tufts
Ms. Rhonda Buck, Rev. Keith Haberstock, Mr. Jim Kentel (Chairman), Ms. Deloyce Weist, Rev. Vic Esperanza, Mr. Greg Giese, Ms. Melanie Kuhn, Ms. Lynn Gergens, Mr. Harold Schmidt
EA Outreach: Rev. Glenn Schaeffer
EA Parish & School Services: Mr. Daryl Becker
EA Stewardship & Financial Ministry Services: Mr. Kurt Robinson
Mr. Greg Giese (Chair) , Mr. Don Haberstock, Ms. Darla Hennig, Mr. Jim Kentel, Mr. Stan Lee, Mr. Brian Lewis, Rev. Mark Ruf, Mr. Harold Schmidt, Mr. Mark Wolgram, Mr. Kurt Robinson (EA, Advisory)
Executive Committee (EC):
Mr. Jim Kentel, Mr. Daryl Becker, Pres. Don Schiemann, Mr. Kurt Robinson, Rev. Mark Ruf, Rev. Dr. Glenn Schaeffer, Rev. Harold Haberstock, Rev. David Dressler, Rev. Craig Tufts
EnCharis minutes list the following individuals as BOD members during these years: Mr. Grant McMaster (2006-2013), Mr. Jim Werschler (2006-2013), Mr. Hans Heumann (2006-2015), Rev. Don Schiemann (2006-2015), Rev. Mark Ruf (2008-2015), Mr. Dave Schoepp (2011-2015), Mr. Jim Kentel (2012-2015), Rev. David Bode (2012-2015), Mr. John Mueller (2012-2015), Mr. Bill Morgan (2013–2015)
- September 2012 EC Meeting: MSC to recommend to BOD that the three VPs be appointed to the EC. MSC to recommend to BOD that the EC be given responsibility for Personnel Committee, Salary Review Committee; and Governance Committee. Slate of department appointments presented. MSC to recommend the BOD accept this slate. (TF Note: All of these were then MSC at the September BOD meeting.)
- September 2012 BOD Meeting: There were five new BOD members, “which is approximately half the board.” Legal information was provided about their duties and responsibilities. They were referred to important documents to be familiar with, including bylaws, constitution, and District and Synod handbooks. The DP reviewed the two-part role of DP as per Article III of the Synod Handbook: a) Chief Executive Officer: responsible for ensuring that the business of Synod and District are carried out; b) Ecclesiastical Supervisor of the District: care and concern for church workers. Administration and governance models were explained, as were the roles of departments. TF interview statements were that there was subsequently regular education in governance at BOD meetings.
- September 2012 BOD Meeting: The BOD was taught how to read financial statements by the accountant.
- TF Interview Statements: TF interview statements were that the financial information the BOD was presented with was far beyond what the average person could understand and that they were just “lay people, pastors” on the BOD.
- September 2012 BOD Meeting: The EC presented the following motions that were then MSC by the BOD:
- To appoint the 3VPs to the EC, joining the DP and BOD Chairman.
- To give the EC responsibilities for the Personnel Committee, Salary Review Committee; and Governance Committee.
- TF Interview Statements: It was stated that the new BOD members, once they had been on the BOD for a while, raised concerns about the EC being the Salary Committee.
- September 2012 BOD Meeting: MSC to loan up to $7.2M to EnCharis “for the sole purpose of constructing a pipeline and delivering potable water to all residences and facilities at the EnCharis site.” (TF Note: TF interview statements were that $3.9M of this loan was provided to buy the water license; the remaining money was never provided.)
- TF Interview Statements: TF interview statements were that if POP could get water, the land would then be considered developed vs. undeveloped and would increase in value. It was hoped
that accessing water would allow the unrealized hidden value of the land to finally be realized.
- TF Interview Statements: TF interview statements were that new BOD members in 2012 were shocked by the massive financial problems described during this first BOD meeting (“kick in the gut”, “shock”, “anger”, “furious”). Interviewees stated that new BOD members were told that previous members were shocked as well initially but got used to it, that it was “just status quo with POP”, and that things were much worse before.
- TF Interview Statements: TF interview statements were that previous BOD members described to new BOD members that things were getting better. Interviewees said that members of the EC who were also on the EC during the previous triennium said that they had a handle on things. TF interview statements were that this was a “line being told”, that the previous EC members had “blinders on”, or that previous BOD/EC members couldn’t see things objectively because they believed so much in the ministry being done at POP. Interviewees said that things were “so terrible” financially that it didn’t matter if things were getting better, that it was a “pile of a mess” with no plan. Interviews said that the financial problems with POP were viewed by the new BOD members in 2012 as unsolvable. Comments were that it wasn’t a matter of how things could be solved or turned around, but “how to mitigate” it.
- TF Interview Statements: TF interview statements were that new BOD members would not have let their names stand if they had known about District’s financial problems. Statements were that the expectation was that it would be like “serving on the usual church board” and there was no idea that it would be “all this.”
- November 2012 EC Meeting: Salary for District staff discussed. MSC to recommend that the BOD ratify no consumer price index increase to salary and a one-step increase for the DP and each EA, as well as thank the DP and EAs for their leadership. (TF Note: This was then MSC in total at the November 2012 BOD meeting.)
- November 2012 EC Meeting: MSC to recommend to that the BOD “engage qualified third party individuals to review the current and proposed development of the EnCharis project, including the correspondence relevant to the current District audited financial statements.” (TF Note: This was then MSC at the November 2012 BOD meeting.)
- November 2012 DSFM Meeting: Request for information on EnCharis delinquent loans. Discussion about EnCharis. “Senior managers have a solid plan in staying on track with repayment of the loan.” “The mandate of CEF is not to be a “bank” but be mission minded.” Will revisit EnCharis loans next meeting.
- November 2012 Report to DSFM from the Chair of the Audit Committee: (The following is a summary of this several-page report describing the situation with the audit. This report was attached to the BOD Minutes.) The auditors phoned on Oct 19/2012. The EnCharis loan is in arrears $11M+ and technically in default, so the auditors needed to determine if assets were sufficient to cover the loan. They appraised EnCharis assets at $35M, compared to District’s value of $65M. The auditors proposed using $46.5M. EnCharis’s loan balance at that time was $70M+, meaning that the auditors were proposing a $24.1M impairment write down. The auditors would also give a “going concern disclosure, meaning that we are likely not going to survive the short term liquidity.” Options were discussed. Refusing to book it but then getting an “adverse audit opinion, which basically means that our statements are… misleading.” Booking it and getting a qualified report. “Both situations are problematic and would cause a run on the bank.” The Chair “tested the waters”, trying to determine “at what point would they consider going from an adverse to a qualified opinion.” The Chair proposed a $3M write down and disclosing the loan balance and value of assets in the notes. “This way we would be totally transparent, send an indication to our members that there may be issues forthcoming…and we would avoid a run on the bank.” The auditors said that “the magnitude of the impairment is such that this would not be enough for them to change their opinion.” The Chair set up a second conference call. All agreed that “we want a solution that would not cause panic and thus a run on the bank, that would allow the auditors (and our board) to fulfill our fiduciary duty and professional obligation to the members, and would allow us to be transparent with the members.” They discussed the proposed $24.1M impairment write down. The largest item within this was the valuation of the undeveloped land. It was appraised 1½ years prior at $7.8M before there were plans to access water. The auditors now valued it at $15M. The District valued it at $25M. The auditors could not justify such a significant increase over such a short period of time without substantiation and suggested an appraisal. The auditors questioned liquidity of District. EnCharis has not made regular loan or interest payments and is $7M in arrears. It would take EnCharis over 25 years to repay the principal alone, let alone the interest. “This would put us at a significant liquidity problem.” “Our history has shown that we have the ability to raise money in CEF without places to invest” so the Chair’s opinion was that District should be able to remain liquid. The auditors pointed out that “if we were a regulated financial organization, we would be staged at this point.” The auditors were concerned that if they did not report their deep concerns of District’s financial situation, they would be negligent. The Chair proposed that District book a $6M impairment… The auditors felt that $6M was not enough to reverse the adverse opinion. They would discuss this. There was a third conference call. All agreed that EnCharis was working on a plan to address its debt. “If the plan is viable, there may be no impairment… If the plan is not viable, we would have to liquidate.” However, the viability is currently unknown. “Since we do not have a current appraisal of all the assets and since we do not have any current financial statements, we have no indication as to the amount of the impairment. Therefore, what the auditors will issue is a Disclaimer of Opinion” stating that “due to a lack of information, the auditors are unable to determine if an impairment exists or what the value of that impairment may be.” As a condition to the auditor issuing this report, District would have to book a reserve equal to the interest in arrears ($5M+). The Chair pointed out that “if we were to book an impairment of $24.1M, we would show a loss of $23.7M and a deficit of $17.9M.” By booking the reserve of $5M+, “we would show a loss of $5.3M and we would still have an accumulated surplus of $433K.” “By showing a loss, we are being transparent and indicating to the members that we have challenges ahead.” “This solution ONLY buys us time… we need to know where we are at with this loan. We MUST have current financial statements for ECHS to see where we are at.” District has loaned EnCharis $70M and needs to know where this money is and how it has been invested. For next year, “the auditors will insist on having financials… The auditors cannot say two years in a row that current information is not available and thus no opinion can be expressed.” This has “waken (sic) the department up and allowed us to own up to our responsibility…be better stewards with the resources entrusted to us.” The Audit Committee met on Oct 29/2012. “It is felt that our department and the board as a whole have approved loans and further financing to EnCharis without adequate financial disclosure and information. We are approving loans for water rights without knowing what the outcome will be when we receive water. We have no cash flow analysis of the projects.”