Risk & Economy » Audit » The FD Interview Part 2: Ian Theodoreson, CFO, Church of England

On the report published by audit firm Mazars on the Church of England’s dioscesan financial arrangements, which led to accusations it was sitting on a huge cash pile instead of paying down its pension liabilities

That report came out without anyone even knowing they were doing it and I wish they had spoken to us. In fact we have spoken to them now and said: “the next time you do this, can we do it together?” I am very pleased someone did it – you know, that is the stuff we need, that comparative data – but it does need mediating, in some of their interpretations for example. There is no standard presentation of diocesan accounting, for instance, so some of the anomalies they were identifying really needed unpicking and explaining. It was slightly crude.

I think they made too many assumptions about what certain things meant. It would have had immense value if they could have spent a bit of time unpacking that with us and saying to us, “this one looks a bit strange, what’s happening here?” We might have been able to say to them, “you are right, that one is strange” or “well, that’s because of so and so”. I applaud the intent, the application of it was just a little bit screwy. The size of reserves of individual churches: don’t forget these are all individual economic units, legal bodies, there is no single Church of England plc entity. Every church needs to think about its own particular circumstances: looking after a Grade 1 Listed building, say – there probably aren’t enough reserves in the whole of England to cover that kind of risk and liability. What they were concluding from that was sort of random.

There are some churches that are really in desperate states, there are others that are quite well resourced. Yes, some dioceses have quite a lot of reserves, but a lot of their so-called wealth is tied up in buildings, which you can’t just go off and sell when things are a bit tight, so it’s a slightly artificial wealth in some regards.

We are a bit like the landed gentry: big on property and low on income, low on cash. Mazars is looking here at the size of diocesan boards of finance and Synods, but again, you have an ancient government structure here with levels of representation that have been built up over centuries. The truth is that if you were designing from scratch, you wouldn’t do it like that: you probably wouldn’t make the Church of England like this if you had a clean sheet of paper. You’d look for something rather more streamlined.

In an organisation such as ours with a low centre of gravity, how do you get the voice and representation from people right down on the ground? It is a bit of a headache. Synod is a headache – it has a great strength and it’s a great dragon at the same time. I think the important thing is you don’t diminish the qualities of the process just because you are frustrated with some of the slow decision-making process.

On whether Mazars’ report was wrong-headed

It’s not wrong-headed at all; there was some real merit in it. The trouble is people reacted slightly negatively to it because they got it wrong; the danger is you then don’t pay any regard to the lessons that are in it. I would certainly, if we could streamline what we do, make the diocesan organisation more streamlined like local authorities, which some dioceses are taking active steps towards. The trick for us is how to get sufficient representation of all the different types of views, because what you don’t want is to have two or three people driving through a particular way of thinking. The dioceses are varied and within that churches are varied. If you have a diocese that covers a large rural patch, another with an urban conurbation and another with a suburban-type church, they are facing three completely different sets of challenges. We need to make sure that as a diocese you are trying to carry all those interests. The thing the Church stands for is having a presence in every community: that’s a heck of a challenge.

On accusations that the Church is sitting on a huge cash pile

I don’t think churches are sitting on large reserves because you are talking about 14,000 to 15,000 different organisations that Mazars added and aggregated together, each of which has its own particular financial challenges. A lot of those reserves are encompassing property which is not easily converted to spending money, so it’s a slightly artificial implication. I think we can do better with the reserves, though. Very large amounts of money are just sitting on cash deposits when quite frankly, one thing we are encouraging churches to do is to think about having a reserve strategy: what do you need your reserves for? When do you need them? If you are building up a fund to pay for the five-yearly repairs assessment which all churches have to go through, don’t leave that cash earning diddly-squat in the bank – think about putting it in some form of market-based but conservative investment. At least you will get some capital growth and be able to plan what you need for your day-to-day living, what you need to be building up for these big projects.

Some churches are quite sophisticated in what they do but for a lot of them, the fact is that the person who is managing the money has probably been dumped with it, and it isn’t their bag because they have a day job. So finance tries to provide some guidance and challenge: we can’t tell them what to do.


On the Church’s relationship with Mazars now

We meet with them because they work with us on accounting standards. We have told them we’d like to work with them when they do the next report in 2011. I was hoping to get them to come and speak to us. We have twice-yearly meetings with the heads of finance from each of the dioceses with the chair of finance board, the diocesan secretary and often their finance director. It’s a sounding board, a chance to try to take everybody with us, to hear what the dioceses are saying and see whether we can respond. I was hoping to get Mazars to come along – but I don’t particularly want to throw them to the lions. They might get chewed up if it wasn’t well set up.

On the problem of managing finance across a decentralised organisation and the pop-up church solution

We had a very parochial issue [just before the Comprehensive Spending Review] when the government said it might withdraw support for the Church’s Conservation Trust (it did not), as it put in two thirds of the money and we put in the other third to take over redundant churches for which there is no alternative use and preserve these grade-one listed buildings. It’s a massive dead weight on the church’s back: these glorious buildings, often in very small communities. Something like 60 percent of the grade-one listed buildings in England are on the Church of England books. In France, for instance, the government maintains these historic buildings and allows the churches themselves to get on and do the things churches should be doing. Wouldn’t that be fantastic! But we probably need to do something to change people’s understanding about just what an absolute burden this is. Speaking for my personal religion and my own church: we meet in a school hall which we rent. We collapse the PA equipment down ourselves, shove it in a van, stack the chairs at the end of it. We don’t have a building to worry about. All our resources are spent doing stuff which is community-focused and outreach. Wouldn’t it be awesome, absolutely awesome if we could roll that out in the Church of England? But the congregation would be horrified. People belong to the Church for all manner of reasons, but a lot of it is just to be in the glorious buildings.

I acknowledge our terrible dichotomy: I sit in some of these places and I think, this is the most wonderful thing… how much is it costing? It doesn’t cost us centrally because the congregation and the parish is responsible for that church. There are fabulous churches that are very well populated and can afford to maintain their buildings. There are wonderful buildings in a village of a couple of hundred people who are trying trying to maintain it. You could have 50 percent of the village belong to the church but that equates to 50 people. How are they going to pay hundreds of thousands of pounds to put on a new roof?

>I’m a real Philistine when it comes to buildings. I love seeing beautiful buildings, but resent the fact that money that could be used to change communities has been either diverted into erecting the building in the first place, going back hundreds of years, or is being diverted to maintaining them. I know that if I were running the whole thing, this world would be a very impoverished place in terms of quality of the built environment because I want this money to be spent on people, not on majesty – but the majesty is some of the stuff that makes it so fantastic.

On the Church of England’s ability to pass its own laws, including the ability to spend capital on its pension liabilities – and how it would pay for those if it did not have this law in place

Fundamentally, all the Church’s current income would have to be diverted to the pension funds. We couldn’t survive, we couldn’t meet our pension obligations in full without having that power. [The amount it paid out in 2009 was £111m.] And the total income we got after cost of generating funds was £116m. So we could do that, but all the support for the poorer dioceses would go. You have to pay for bishops… there would be no money to deliver the mandate. You’d have to change the whole structure of the investment portfolio to drive income out of it and lose capital growth.

The purpose of the funds of the Church Commissioners are twofold: one is to extinguish this pension liability – and we will, in about 2026 we actually reach the top of the bell curve and then it starts to diminish – and then the rest of the fund that won’t be used there is a permanent endowment to fund the work of the Church into perpetuity. If we didn’t, we would have to change the focus of our pension strategy to quite massive income generation. We could drive more income out of the portfolio by having bonds or whatever else, but we wouldn’t be growing anything for the future. The whole intention here is that we hand it on to the next generation.




On the influence of finance

We provide financial strategy guidance for the Church as well as things such as managing a huge payroll. The idea of how can we best relate, how can we influence the wider church is always at the back of my mind and the objective is to be excellent centrally, because we can’t encourage people to do certain things in certain ways if we’re not. My initial focus has been that central excellence, and then providing a resource outside. Increasingly we’re called on by dioceses to provide a bit of consultancy, gradually trying to push the envelope further, so that we can be a genuine resource for the whole Church.

On pushing the Church’s central objectives

The Archbishops’ Council is saying, “well, what’s the big objective that as a church we’re trying to achieve?” And I think our big objective at the moment is our growth. The Church is in decline in terms of numbers. The Church is amazing: there are some fabulous examples of good practice and there’s a lot of bad practice, but on the whole it isn’t very good at saying “this is what we’re trying to achieve, how can it be done, let’s set up measures to work out whether we’re getting there or not.” So you have these very grand plans about being here for the good of the nation. But how do you know you’re here for the good of the nation? What have you done? What has changed as a result of you doing that particular thing?

We are a registered charity. Charities are required to be clear about what their strategic objectives are and to measure performance: how do you know its trustees are making a difference? Why should someone give to you to invest in that? And that’s very accounting world stuff. So there’s a lot of drive from the accounting side now. We have to be able to demonstrate that we have purpose and we have output at the end – and we’re wrestling almost. The first thing is, to have some objectives for each of these organisations. What does success look like here? Let us be clear what our overriding responsibilities are, what we are accountable for, what we  are within that big range of things we do, what are we going to major on, on what are we going to focus, so we can say, “this is what we said we’d set out to do and how it could be done.”

If I can get some clarity there as a starter, that becomes a great model. But there is no single source of authority that pushes down here, no line management structure from the Archbishops down through the Bishops through the diocese. It doesn’t work like that: it’s a consensus thing. We are an organism that actually realises it is better to work in concert.

On finance’s central role

Ironically, finance is probably one of the key components that ties the Church together. With dioceses the rich churches are paying a higher contribution towards the common pot than the poorer churches. If you have 10 people in your congregation, you probably can’t raise the money to pay for your vicar, but a 400-person church jolly well ought to be able to. I’m not saying that therefore finance and the CFO pull all these strings because I’m not by any means, but I’m working within an environment where actually money really does hold things together. We pay all the Bishops’ expenses, living costs, their office costs, their salaries and everything else. Now that’s a very binding relationship and it means finance is quite a glue within the Church.