Accountability and Trust

"Furthermore, I want to say to you, we may not be able to reach it right away, but we expect to see the day when we will not have to ask you for one dollar of donation for any purpose, except that which you volunteer to give of your own accord, because we will have tithes sufficient in the storehouse of the Lord to pay for everything that is needful for the advancement of the kingdom of God.  I want to live to see that day, if the Lord will spare my life.  It does not make any difference, though, so far as that is concerned, whether I live or not.  That is the true purpose of the Lord in the management of the affairs of His church." - Joseph F. Smith, 1907 Conference Report

My professional career is in accounting.  One of the core aspects and value that accounting provides is transparency that engenders trust between stakeholders.

One of the difficulties of doing business is that while we may assume that others are generally acting in good faith, we have no way of truly knowing whether they will uphold their end of the deal. Even in cases where we think we know people well on a personal level, we are sometimes very wrong - loved ones of convicted fraudsters are often shocked and in denial that their loved one could have done such things.  Affinity fraud, or fraud committed by individuals in your own community that you trust implicitly, is a huge problem, particularly in locations like Utah with close-knit communities of faith.

In a free market system, we need a mechanism to allow people to independently verify information beyond simply taking ones word for it - which is where accounting and auditing comes in.  "Accounting" as the word suggests is to provide an account both to internal and external stakeholders.  As the financial reporting manager at my company, I am responsible for providing timely and accurate financial information for internal reporting as well as for external investors so they can make appropriate decisions.  The financial statements sent to external stakeholders are audited by a third party to independently verify and provide an additional level of trust that can be relied upon.

So, all this is to say that I personally believe strongly in the importance of transparency and accountability in engendering and maintaining trust.

Church Finances - brief history

Of course, the impetus for these thoughts is this last week's leak regarding the $100 billion surplus investment portfolio that has been built up by the Church of Jesus Christ of Latter-day Saints through its investment arm Ensign Peak Advisors.  

The Church was initially founded on principles of accountability, stewardship, and trust.  They provided annual financial disclosures to their members consistent with these teachings, and all things were done with common consent.  The Church initially had significant debts and had trouble making payments. Martin Harris, for example, famously had to mortgage his farm for the publishing of the Book of Mormon, much to his wife's apparent dismay. Eventually, after its move to Utah, the Church pulled out of its financial struggles and had built up a reserve through the 1950's.  At that point, building spending initiatives put the church into deficit spending, with a $32 million deficit reported in 1962.  Seemingly in an effort to hide the financial struggles and deficit spending of the Church in the late 1950s and 1960s, the Church decided to stop releasing financial information.  

The Church eventually pulled out of the deficit and started to amass a significant fortune, and in 1985 the Church officially formed its humanitarian organization.  The Church allegedly brings in around $7 billion a year (some scholars estimate much higher) and now has a surplus investment fund of approximately $124 billion from invested tithing funds.  Over the 34 year period since 1985 through 2018, the Church has disclosed spending $2.2 billion on humanitarian aid, which is a considerable and meaningful donation that undoubtedly has impacted many lives for good.

How much is too much?

One of the biggest focuses of the current discussions is "how much is too much for a Church or charitable organization to hold in reserves?" This is a debate for charitable organizations in general. Harvard for example has the largest university endowment at $38 billion and has been criticized as a "hedge fund with a university attached."  The church's stockpile of approximately $124 billion in liquid investments (not including buildings, land, operating reserves, etc) falls between the largest philanthropic endowment of $50 billion (Bill and Melinda Gates Foundation) and the largest hedge fund of $150 billion (Bridgewater).  Even without the Church's for-profit ventures which the Church says pays for the salaries and benefits of its top leadership, the investment portfolio by itself is likely at a point where it earns more from investing than the Church brings in from tithing each year. So it's a sizable amount of wealth that will only keep growing.  

It's worth noting from the onset that these funds do not seem to be used for the personal gain of any of the top leadership.  As of 2014, all general authorities received an annual salary of $120,000 plus benefits and reimbursements for most expenses.  This is still fairly modest in comparison to the wealth from their professional careers.  Many are also given paid board positions on for-profit companies in the Church as well as income from book deals.

The Church refers to its surplus investment fund in official communication as "sav[ing] and invest[ing] its surplus pennies."  $124 billion is larger than most can fathom. To put this in perspective, doing some quick math, at 1.52 mm thick. $124 billion in pennies stacked would be about 11,711,604 miles, enough to go around the Earth 470 times or almost 25 round-trips to the moon and back.  Or put another way, at 0.0043 inches thick per bill, A stack of $100 bills equal to $124 billion would be approximately 84.1 miles high, which would be 164x taller than the tallest skyscraper in the world. If the Church gave away $1 million per day, it would take almost 340 years to give away $124 billion.

One of the problems I think the Church faces is that you can't just immediately spend $100 billion without disrupting local economies. The Church does contribute significantly to humanitarian efforts which make a meaningful impact in the world, including, as the Church points out, approximately $40 million per year, plus many hours of service from its members.  Critics will point out that this represents less than 1% of annual tithing income, and if were to add in the Church's investment income and for-profit income, that percent decreases significantly.  For comparison, the Utah Department of Alcoholic Beverage Control (state liquor stores) contributed $45 million in its fiscal 2018 just to the school lunch program on about $450 million of revenue. Walmart has donated more than $1 billion in cash and in-kind donations a single year.  So I do think they could manage to spend more on charitable causes? Yes, but it would take significant planning and shifts in its resources like adding more humanitarian efforts into traditionally proselyting missions.

Saving for a rainy day

The Church and many of its members see the savings as a financially sound practice - saving for a rainy day.  This is supported by the parable of the talents - investing your assets to grow them. If all of the catastrophic events and destruction foretold in scripture take place prior to the Second Coming, it could require significant money to rebuild.  However, if such events took place, the investment portfolio in stocks and bonds would also be immediately worthless given it would cause a massive crash or outright collapse of Wall Street and US capitalism as we know it. Also worth mentioning that Jesus Himself was raised as a poor to middle-class peasant from Nazareth and who fought his entire life against the abuses of wealth by Church and government.  So I would think a perfect government and economic system in any millennium period run by Jesus may be a post-monetary society. That's just my opinion though.

Did the Church do anything illegal?

Allegedly, none of the funds contributed to Ensign Peak since its inception in the late 1990's have been used for any charitable cause since its inception, which is the focus of the whistleblower complaint, along with two seemingly taxable distributions made from Ensign Peak to bail out or invest in for-profit Church ventures.  If these claims are true and the Church did not pay taxes on its distributions for City Creek or the insurance company bailout, then the Church should and would likely pay the amounts required by law, and the IRS would determine the outcome of the tax-exempt status for Ensign Peak.  I don't have enough information or knowledge of tax law to make any further comments or conclusions, but I don't personally think much will actually come of the whistle-blower complaints.  Other things like Boyd K. Packer as President of the Quorum of the Twelve being refused access to how much money the Church held are interesting but in no way illegal.  Pressuring auditors to not independently verify the valuation of the fund is perhaps unethical but if anything would result in fines to Deloitte as its external auditors rather than come back to hurt the Church.

My takeaway

My takeaway from all of this is that the Church is only hurting itself by not being open and transparent about its financial information.  The average life-long member will not be shaken up by any of this as it's human nature to have a strong loyalty to our own institution.  Where these types of leaks hurt are with those that are already starting to lose trust in the Church for various reasons - be it learning about troubling aspects of Church history such as the Book of Abraham facsimiles being a gross mistranslation of Egpytian funerary texts, polygamy, polyandry, or modern issues such as the treatment of LGBTQ or women's equality. Leaked information will cause further loss of trust among this group. Once you lose someone's trust, it is very difficult to earn it back.

I don't think the Church can afford to continue to allow its story to be leaked and told from a critical perspective rather than being able to tell their own story. Similar to coming clean on historical issues, they would face some initial criticism and some may actually leave the Church as a result.  But I personally think the long-term benefits of honesty, transparency and accountability would far outweigh the negatives.