Annual Meeting regarding financial issuesAGENDA

Schedule L of the Rules specifies that this meeting should be held:The purpose … shall be for the [Diocesan Finance Board] to lay before the parish representatives the up-to-date financial situation of the Diocese, and the estimated income and expenditure of the Diocese for the following year.

1. Introduction Sidney Place2. Diocesan Audits 2011 – 2014 Peter Goldhawk3. Context of the 2016 budget, incl. stipends Sidney Place4. Short and longer term budgeting objectives Sidney Place5. The budget for 2015 Rodney Taylor6. Parish Finances Peter Goldhawk7. Returned debit orders Peter Goldhawk8. General

So just what is the Diocesan Finance Board (DFB) and what is its role?

The chain of reporting and accountability

Diocesan Finance BoardEncourage parishes to meet their obligations to the diocese, prepare financial statements, report regularly to Diocesan Trustees, PBO tax returns to SARS, establish financial regulations, stop parishes incurring debt without prior permission• Bishop• Dean• Diocesan Secretary• Bursar and Deputy Bursar(s)• Two Diocesan Trustees• A representative from each Archdeaconry – competent in finance• Deputy Registrar• Up to four additional advisors (Bishop appointees)

Synod / Diocesan Council (between synods)

Diocesan TrusteesDelegate everything except immovable property to the Diocesan Finance Board

Delegation of non-property issues

What was decided a year ago?• Last year, DFB tabled an initial budget for a deficit of R1,200,000 –

rejected by this meeting because DFB was already in debt of R5.5 million• Agreed to suspend interest payments of R400,000 to Deposit Fund• Agreed that each parish would add R1,000 p.m. to their contributions• Result – a balanced budget was agreed for 2015• Post-retirement medical aid identified as a major threat to future finances• Importantly, it was noted that (per a slide that was presented):

On average, each parish should give 15% of income to the diocese to balance the budget

(Total parish income divided into diocesan needs)Any parish not willing to commit 15% will be demanding a subsidy from those (few) parishes that give more than 15%.

Only 8 parishes give 15% or more of their income to the dioceseGIVING PATTERNS MUST CHANGE

Half of Diocesan income comes from only six parishes Half of the parishes give almost nothing

(There are 75 parishes in the Diocese)

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 750%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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Bryanston

Rosebank

Sunninghill

Parktown

Cathedral

Half the parishes collectively give only 7% of the total amount collected

Parish no. in order of increasing size of contribution

Smallest givers Most generous givers

How have we fared?Income and expenditure are almost matched for 2015:

2015 forecast R

Parish Contributions 6,760,545 Additional contributions of R1,000 per month 870,947 Impact of suspending interest payment to Deposit Fund 400,000

Other income 1,532,541 Total income 9,564,033

Total Bishop 1,337,826 Diocesan Administration 2,441,438 Diocesan Ministry 1,055,075 Post retirement medical and pension augmentation 1,565,584 Training clergy 1,089,415 ACSA - Common Provincial Fund 1,706,000 Total Outreach costs 96,955 Provision for Taxation 180,000 Total expenses 9,472,292

Net income 91,741

BUT: We may have to provide for bad debts that exceed the projected tiny surplus.

Funding post-retirement medical aid

• Synod resolved in May to restructure medical aid spending• Direct less to current contributions, more to post-retirement

provisioning• Investments move from cash to inflation+ balanced portfolio, and• Future increases in contributions for post retirement linked to annual

current contribution increases (9.6% for 2016) – both steps inflation-proof the scheme

• New regime commences January 2016

Net result: The rise in the burden of funding retirees has been arrested for all born after 1958. The cost of funding those born before then will continue as before – will fluctuate year-to-year according to how many there are in any given year.Conclusion: Issue has been “put to bed” – problem solved.

Further progress• Peter Goldhawk, Brian Smith and Sidney Place joined DFB in April 2015• From May 2015, meetings moved to monthly, not quarterly. • DFB has met twice in some months when work had to be done.• An Investment Fund targeting returns of inflation + 3% will open in January 2016• DFB has recommended to Trustees that “their” financial statements be

combined with DFB to improve intelligibility and cut audit costs (a double “win”)• Identified stagnant pools of cash, earmarked decades ago and never used, for

investigation – aim to use the money to cut debt or finance expansion• “Deep dive” underway into accounting and controls in the diocesan office

• Introduced better corporate governance structures in the Board:• Insurance sub-committee: investigation into insurance arrangements Q1 2016• Remuneration Committee – commence Q1 2016, led by Brian Smith• Audit Committee established and operating under Peter Goldhawk

Needed: A minute-taker who understands finance so that the Diocesan Secretary can participate in the meeting, rather than having to make notes, and then execute immediately. Volunteers please! (Meetings at Bishop’s House 4.30 to 7.30 pm)

Audits 2011 - 2014

Peter Goldhawk – Chairman of Audit Committee

Stipends 2016Set Portion 2015 2016 Increase

Per year Per Year 2016Pensionable Stipend - Single or }Married - Deacon, Priest or } R 149,040 R 149,040 0.0%Licenced Layworker }Pension fund Parish Contribution R 49,183 R 52,164 6.1% - 35% of Stipend (33% in 2015)Medical Aid for married couple - no children R 69,264 R 45,480 -34.3%Post Retirement Medical Aid R 36,000 R 66,000 83.3%U. I. F. Parish Portion R 1,785 R 1,785 0.0%Group Life Benefit R 960 R 960 0.0%Group Personal Accident R 280 R 280 0.0%Total Cost to Parish of set portion R 306,512 R 315,709 3.0%

Medical aid up 5.9% from R105,624 to R111,480

Parish and other allowances may be raised by up to 6% where parishes are not in debt or running at a loss. Inflation for 2015 is likely to be 5%.

Stipends and inflation 2012 - 2015Stipends increased by 10% in 2013, 2014 and 2015Cumulative increase has been 33% (because of compounding effect)

Inflation in 2013 was 5.7%, in 2014 it was 6.1% and 2015 likely to be 5% Cumulative increase in cost of living has been 17.8%

Over three years, the real increase in stipends has been 33% -17.8% = 15.2%

If inflation next year is 6%, four year rise in cost of living = 25% vs 33% in stipend increases, so stipends remain 8% ahead of inflation.

Note that stipend increases in prior years were all well above inflation too.

The clergy are not being punished or penalised.

Why the need to keep stipends unchanged in 2016?• Raising stipends by a large margin above the inflation rate causes the defined

benefit pension fund to run into a deficit. Contribution rates have already had to rise from 30% of stipends last year to 33% this year and 35% next year

2007 2010 2015

Clergy costs R9.6 m R16.2m R25.7m

As % of DFB costs 68% 71% 75%

30 parishes are in R8 million in debt to the Deposit Fund and the debt is rising.Higher stipends create an increasing problem – solutions need to be found.Peter Goldhawk will address this later in the meeting.

• All church funding has to come from a single source, so how the money gets used becomes important. There is not a limitless supply of money.

• High pay increases have seen clergy costs increase over 9 years by 13% p.a. while contributions for other diocesan expenses have risen 7.9% p.a.

• The result is that paying clergy stipends, benefits and allowances has consumed an ever increasing amount of diocesan resources.

Clergy costs squeezing out other spending

2007 2008 2009 2010 2011 2012 2013 2014 20150

5

10

15

20

25

30

35All otherClergy

Clergy costs 2.7x higher in 2015 than in 2007. Other costs 2x.

Clergy costs 68% of total in 2007

Clergy costs 75% of total in 2015

R’million

Financial position of DFB• DFB owes R7 million at 31 October 2015. • Debt has arisen from deficits every year between 2008 and 2014• The Lent 2012 video lost over R800,000 when DFB was already in debt• The 90th Anniversary celebrations and cancelled dinner cost over R210,000• Having to borrow means DFB pays interest of nearly R500,000 p.a.

The diocese needs to record annual surpluses of R750,000 p.a. Aim to raise capital sums and use bequests to pay down the debt even faster

The Trustees need to either enforce 2006 synod resolution to pay for St Joseph’s (R6 million still needed of R10m cost) or sell the property.

The 2016 Budget

Aim: To avoid a deficit at worst, to achieve a R750,000 surplus if possible

Diocesan Administration 2,441,438 25.8%Province – paid to Capetown 1,706,000 18.0%Post retirement medical and grants 1,565,584 16.5%Bishop and his staff 1,337,826 14.1%Training of clergy 1,089,415 11.5%Diocesan Ministry 1,055,075 11.1%Provision for taxation 180,000 1.9%Outreach costs 96,955 1.0%Total expenses 9,472,292 100.0%

Not all the money gets spent on an “inefficient head office” – in 2015:

Only a quarter of the budget is for running the diocesan administration