WARREN SMITH, HOST: I’m Warren Smith. Today you’ll be listening in on my conversation with the president of the evangelical Council for financial accountability. Michael Martin. 

In 1977, Senator Mark Hatfield convened a group of ministry leaders to see how they could stave off threats by the federal government to regulate Christian ministries. Two years later, in 1979, that meeting resulted in the formation of the Evangelical Council for Financial Accountability.

The ECFA was successful in this sense: government regulators turned their attention elsewhere, and for the past 40 years we have had essentially no new regulations on the Christian non-profit sector – even though transparency advocates say reforms to the Christian non-profit space are badly needed. 

The ECFA has also been successful at establishing standards for financial behavior. The ECFA’s “Seven Integrity Standards for Non-Profits” has become a gold standard in the Christian ministry space. It is an excellent document that sets the bar high for Christian ministries.

However, the ECFA’s record of enforcement of these standards over the years has been spotty. Some of the biggest frauds, scams, and scandals of the past half-century that involved Christian ministries—including the Jim and Tammy Baker/PTL scandal in the 80s, the Foundation for New Era Philanthropy in the 90s, and—more recently—scandals related to Willow Creek Church and Gospel For Asia, have all occurred while these organizations were ECFA members. 

But now the ECFA has a new president. Michael Martin became the president of the ECFA in 2020, after serving 9 years on the ECFA staff, including a tenure as Executive Vice President. He is both a lawyer and a Certified Public Accountant, and since 2013 he has been co-author of the annual Zondervan Minister’s Tax & Financial Guide and the Zondervan Church and Nonprofit Tax & Financial Guide.

Because of Covid restrictions, Michael and I had this conversation remotely. I was in my home studio in Charlotte, North Carolina. Michael was in Winchester, Virginia.

Michael Martin, welcome to the program.

MICHAEL MARTIN, GUEST: Hey, Warren, it’s great to be with you.

SMITH: Well, you know, let’s begin with some basics. Tell me about the ECFA.

MARTIN: Yeah, absolutely. I’m happy to share a little bit about ECFA and our work. And, first of all, I guess I should say thank you, because I know Ministry Watch does a lot of work to help folks know about ECFA, keeping everyone up to date on changes in the ECFA database. And as I understand it to Ministry Watch, I know, factors ECFA membership into the transparency grades that you all give your ministry so we really appreciate that. 

SMITH: You bet.

MARTIN: Yeah. But maybe for those listeners who aren’t as familiar with our work ECFA—and I’ll just break out what that stands for, that’s the Evangelical Council for Financial Accountability. We’ve been around for over 40 years as really a financial accountability partner for ministries. But in that, we serve both ministries and givers. So I’ll just share a little bit about how we serve ministries. I think, you know, as a ministry ECFA really means being part of a ministry community that cares deeply about stewarding ministry finances with integrity. And I know that’s important to folks at Ministry Watch as well. But being a part of ECFA as a ministry, it helps build trust, build confidence with donors. It also,  Warren, helps ward off the threat of burdensome regulation by the government, which is really a key part of our founding here at ECFA over 40 years ago. Folks should know there really is quite a thorough vetting process involved in becoming a member of ECFA. There’s also an annual membership renewal process, but we just ran these numbers in 2020. About 35 percent of organizations who initially apply for ECFA membership are eligible to join right away. And then for other organizations, you know, that have applied, we also offer free coaching and resources to help them meet the standards. So, that’s a little bit about what it means to be a ministry member of ECFA. I’ll also say we do a lot of education, as well, in terms of helping ministries comply with the ECFA standards, with webinars, with ebooks, sample policies, and more. So that’s really it from a ministry standpoint. I can also share a little bit from a giver standpoint as well.

SMITH: Yeah, I’d like for you to do that, Michael. But let me pause just for a moment there because you said a couple of things there that were interesting that I want to follow up with. Number one was that if I heard you, right, 30 percent of the organizations that apply for the ECFA can join right away, but if I’m doing my math right, that means that 70% may not be eligible the first time around, and they require some coaching and some compliance to get up to snuff. Am I hearing that right? And if so, what are some of the things that they would maybe fall short on?

MARTIN: Yeah, that’s right. With one slight tweak. And I’ll say it’s about 35 percent. So a little bit over a third. And those are folks that are, you know, like I said, when they apply for membership, they’re ready to go right away, they’ve been tracking with our standards, and have done a lot of the homework and due diligence to meet what we call our seven standards of responsible stewardship. But you know, Warren, you also mentioned the other folks that apply as well that we’re able to offer that free coaching and resource. What are some of the common areas that our team helps work through? I would say the number one is having financial statements that are prepared by an outside CPA, which helps bring some objectivity into the process. There’s a lot of ministries we work with that that’s one of their last major assignments. Maybe they have their board processes in place, their fundraising with integrity, but maybe they’re a smaller organization, or just recently getting started and they do need to engage an outside CPA for the process of getting their financial statements. I would say that’s the number one area that we work through. And then, Warren, the second one, that also sometimes requires attention is coming into compliance with ECFA’s governance standard, which is really fundamental as well, but making sure that there’s at least five individuals that are serving on the board, and that a majority of them are what we call independent.

SMITH: Let’s stick to the ministry side of this before we move on to the donor side. I want to give you an opportunity to say some more about the donor stuff. But again, on the ministry side, Michael, so a ministry gets its house in order and becomes a member of the ECFA, you talked about that annual renewal of the membership. How rigorous is that annual renewal? Because I think you and I both know that sometimes ministries start out well, but run into trouble along the way. How closely do you look at them on an annual basis? And what happens to a ministry that maybe doesn’t meet the standards after they’ve been at it for a couple of years?

MARTIN: That is a great question. I appreciate you bringing that up because that really helps underscore, too, really how seriously ECFA takes the process of overseeing compliance with our members. I know you’re aware, and other folks who are listening—By the way, we also use the term accreditation sometimes or certification when we also talk about membership, which is really, those are synonymous terms. But ECFA operates on an annual accreditation model, whereas there’s others say in hospital environments, or higher ed, where maybe it’s just only every several years. But ECFA actually goes through a thorough process each year, and making sure that all of our now over 2,500 members—2,530 as of the recording—are really in compliance with those standards on an annual basis. And those membership renewals that are submitted to us, we’re actually right in the middle of one of our busy renewal seasons, but they are actually looked at by a team of CPAs and other professionals that we have on staff. And now we’re not doing the work of the outside auditors, but we are going through the process of reviewing the ministry’s latest annual financial statements, any updates or changes that have been made from a board governance standpoint to make sure, you know, board members rotate and leadership changes. So we’re making sure that, you know, they’re continuing to be in compliance with the board governance requirement. We’re also digging into some specific questions and we change them, too, from year to year. So it’s not always the same set of questions, but making sure that the organization continues to be committed to compliance with the standards. And as our team of CPAs and other professionals are reviewing that membership renewal process, we’ll often engage in conversation with members as well. If there’s any questions that come up, or there are steps that need to be taken to be sure that they do stay in compliance.

SMITH: So that’s kind of the ministry side. Talk to me about some of your services on the donor side.

MARTIN: No, that’s great. I appreciate that as well. So, from a giver standpoint, what I would say is and many folks, you know, once we kind of describe ECFA, and that seal to say, Oh, yeah, I recognize that seal is often on the websites or the fundraising materials of ministries that I give to. S,  really, as a giver, when you see that ECFA seal on the ministry’s website, on their fundraising materials, it’s really a sign of a ministry that has voluntarily stepped up to be held accountable to operating with high standards. So that’s another distinction. Our process is one that really requires voluntary, you know, an organization to come forward on their own to be a part of ECFA. So I think that that can help provide some great confidence to givers. Some different practical ways, too, Warren, that we serve many givers as well is they can see a current list of ECFA members on our website. We also post any membership changes that have taken place in the last year. And then, Warren, there’s also an opportunity as well for givers, if there’s interactions with an organization that’s part of ECFA and a giver, let’s say, even has concerns about an organization’s compliance with the ECFA standards, there’s a very easy process for folks to even submit concerns or questions that they might have about a ministry through our website. And we pay very close attention to all of those contacts that come in as well. So that’s just another form of accountability that the ECFA provides with givers.

[BREAK]

SMITH: Welcome back. I’m Warren Smith. And today you’re listening in on my conversation with Michael Martin, the president of the Evangelical Council for Financial Accountability. Let’s get right back to that conversation. 

Well, Michael, I appreciate that overview of what the ECFA does very much. But of course, I wouldn’t be me if I did ask you a few sort of devil’s advocate questions. The ECFA over the years, has done a lot of great work. I do, though, think that there are some areas where the ECFA has taken some criticism for. You mentioned, for example, that whenever a ministry is out of compliance with your standards, and they are being asked to leave, they’re forced to leave the ECFA, you post that on your website. But I think a lot of folks don’t really know that. They will think that an organization is a member of the ECFA. That sometimes the organizations themselves will continue to put your logo on their websites. What do you do to police these ministries that are maybe bad operators, or at least don’t comply with your standards anymore? I mean, and they’re still flying the ECFA flag and maybe their longtime donors think that they still are members? 

MARTIN: There really is a very, you know, solid due diligence process that ECFA works through. Like I mentioned, anytime that a concern would either be something that we’ve seen internally through our work that we do with the annual membership renewal process, and the monitoring that we do of our members, but also in those instances where maybe it is a giver, or someone who’s been on staff at an organization who had share a concern, and they’ve gone through the process of trying to work with the ministry and they haven’t been resolved, so maybe they come to us. Or, quite frankly, there’s also some things that, you know, we’ll see maybe that have been even reported in media or otherwise, that we’ll follow up on. And ECFA does have a process in place, you know, to work with an organization to go through a formal review process. And you know, we do this work in a spirit of, we never make assumptions regarding concerns that have been raised because, you know, nine times out of 10 it can be a misunderstanding and that sort of thing. But we do take all of those concerns very seriously and follow up on those as well. And, you know, we also—this is probably something that should be clarified as well for folks who are kind of watching from the outside with ECFA—we also follow a redemptive, biblical approach to compliance with the standards. And so we’re always looking to—even in those instances where maybe an organization has gone out of compliance with the standards—what we’re trying to do is also to help restore them back into compliance with membership whenever it’s possible to do so. And in those situations where either that can’t be done in a timely fashion, or there’s an organization that, you know, or maybe a very egregious violation, or an organization that’s not willing to make the changes. In those instances, ECFA does, like you mentioned, have the ability under our bylaws and our agreement with our members to either suspend or terminate membership. And we hope that’s, you know, not the case. But ECFA does have latitude to do that. To really, like you said, protect the integrity of the seal, and what ECFA stands for.

SMITH: Well, that’s right and I know for a fact that you have terminated some memberships, or at least in some cases, like Wycliffe Associates, within the past year, y’all didn’t terminate them, but they voluntarily resigned while they were under review. So you certainly, you know, created an environment where they knew they couldn’t stay in the ECFA, unless they were willing to do some things that y’all were requiring them to do. So, I guess there is some accountability that comes with that process, even whenever they voluntarily resign. 

MARTIN: Right, and you’re correct, too. Something else, Warren, that you mentioned, that we do as a service to givers. And quite frankly, we need to do a better job about communicating that it’s out there. But that is publishing the list of organizations or where there’s been changes in membership, either because of voluntary resignations, and you’ll see, you know, there’s quite a number of those that are on our website. That’s not all folks that have just walked away and said, well, ECFA doesn’t have value. But that’s also some, like I mentioned, who maybe are smaller organizations struggling financially. They’re not able to keep up with the annual CPA interaction, or maybe the board governance requirements. And so we do have some resignations that happen around renewal times, or whenever there’s a review process in place. If there’s an open review and an organization were to resign at that point, or to be suspended or terminated, it would show up on the list in that way. And then we also, I think this is another really helpful tool that we have as well, we also have a list of who are some of the most recent additions to the ECFA membership, as well. They’re also published on that same list.

SMITH: Well, Michael, I don’t want to get too deep into the weeds here, but I do want to ask a process question because it sort of bugs me a little bit or a bit curious about. At Ministry Watch, we really think it’s important for Christian ministries to release their form 990s. That is a step that any ministry can do. You mentioned a few moments ago that one of the reasons that an organization might end their membership in the ECFA is because they can no longer afford an audit because an audit from an outside CPA firm, you know, costs money. And I guess I’m just curious, why don’t you guys require a form 990 to be released? There are a fair number—and I would say that’s a growing number—of organizations that are ECFA members that do not release their form 990s. They claim the church exemption. What’s your thinking about that?

MARTIN: I would just point folks back to—so they can see specifically—what we require at ECFA is our standard five, the transparency standard, which really has been a standard that has stood the test of time. I think when ECFA came out with this standard 40 plus years ago, we were really seen as pioneers and trailblazers, requiring an organization to not only have an annual audit, and now that has also been expanded to reviews and compilations as well for smaller members, organizations of smaller sizes. But ECFA is really a pioneer 40 years ago in requiring that transparency, and continues to do so to this day. And we really, you know, do believe that that’s an appropriate level of transparency. But I will comment on the form 990 piece as well and say I know that there’s some different legal reasons why a ministry might seek that classification for religious freedom-related considerations. We definitely don’t think that it’s appropriate for an organization to pursue that avenue simply as just a desire to avoid disclosure. We don’t think that that should be the motivating factor. Really, we think that organizations may appropriately, with the advice of their legal and tax counsel, feel like that’s the right approach for religious freedom or other considerations, but really don’t advocate that just simply out of a desire not to fully disclose their financial information.

SMITH: Well, I appreciate the religious freedom concerns a great deal, and I’ve had a lot of conversations with Alliance Defending Freedom on this point. But I can tell you that I think there’s a big fear and a little risk in that, especially when it comes to releasing a form 990. I mean, if there was a real religious liberty threat by releasing a form 990, that wouldn’t explain why the vast majority and by vast majority, I mean, probably 95 to 98 percent, of Christian ministries still do release the 990. I guess my question is that while some of these organizations say that they’re concerned about religious liberty, I can’t think of a reason other than an attempt to hide information from the public that they would actually make that choice. Can you? 

MARTIN: Yeah, I think, and I’ve had a lot of those conversations with ministry leaders as well. And, you know, I can’t say, Warren, that—we’re talking about organizations that are members of ECFA. So these are folks that I think are committed to accountability, transparency, and integrity. For those that I’ve talked with, it’s really not an issue about avoiding transparency. I think for all of them it is a serious conversation about religious freedom, and what should be the right avenues to pursue in that way. But, I mean, I certainly appreciate your question and where you’re coming from. But that’s not the sense that I’ve picked up on in terms of talking with folks about what their motivations are in pursuing that.

SMITH: Right, right. Let me, Michael, again, ask you one more sort of devil’s advocate question. And that is that one of the concerns or one of the criticisms that over the years has been leveled against the ECFA is that there’s an inherent conflict of interest in charging organizations for sort of admission to the club, so to speak. In other words, can you really perform an exercise of accountability over an organization that is also really in effect a customer? Would you answer that concern?

MARTIN: Absolutely. And these are great questions, by the way. I appreciate you raising them because I know they’re on the minds of folks and that would be a question that comes up from time to time. You know, Warren, I will say, really in all practicality here at ECFA, with having now over 2,500 members—and I’ve been with the ECFA for almost a decade now in different roles—I have never once seen a situation, I’ve never been involved with one, I’ve never seen a situation where even as the ECFA board is processing these things that an organization’s membership fee would it all be factored into the decision about what is the right thing to do with respect to whether or not an organization should be in compliance with the ECFA or any of those compliance decisions. And maybe let me also just help folks understand a little bit, too, more about the fee structure. It is on a sliding scale. Really, the motivation behind that is we want ECFA membership not to be cost prohibitive, depending on the size of the organization, because we run anything from an organization, the entry point is at 50,000 in total revenue each year, all the way to some of the largest, you know, household names in Christian ministry that are out there. But even, Warren, for those that are on that larger size, and also would pay a larger ECFA membership fee, even the largest fee that would come into ECFA is is really, I think, one half of 1 percent of our total budget each year. So we’re really not talking in terms of the finances of the member paying a fee of that really tipping the scales so to speak. And again, personally, you know, I’ve never seen that be the motivation at all, but I can certainly understand the question.

SMITH: Well, and I appreciate that answer as well. And I will say in a spirit of sort of conciliation here, you guys have gone after some of your biggest members. I remember a number of years ago, you guys, I think put Samaritan’s Purse on a suspended list, suspended their membership for a number of months or maybe even more than that, because they had fallen out of compliance. They came back into compliance when they, you know, renewed their membership. You’ve kicked out big organizations like Gospel for Asia in the past as well. So I do want to acknowledge that. But I also, Michael, want to ask you to address this concern or this issue as well. And of course, I run into this in my work at Ministry Watch. And whenever I’ve done reporting when I was at WORLD Magazine, there are more than a million Christian organizations in this country. And as you said, 2,500 of them are members of the ECFA. That’s a lot. But it’s only a tiny fraction of the total number. I mean, there are a lot of folks that just say, if they’re bad operators, they just choose not to join the ECFA. And there’s really no stigma for not being a member. There may be a benefit to being a member, but a lot of donors just kind of don’t count it against them if they’re not members. Do you have any thoughts about that?

MARTIN: Yeah, absolutely. So, I think with respect to that, Warren, kind of something else that I would consider folks who have that perspective, or offer encouragement to consider is that, you know, ECFA, like you mentioned, has just north of 2,500 members today. But a lot of the—you mentioned, I can’t remember the exact number that you mentioned—but a lot of organizations that are out there that are not members of ECFA, a lot of those who are out there that are not members of ECFA, for the most part, many of those would also be smaller organizations that may not be eligible to meet ECFAs membership requirements. So, you know, I would tend to say that probably the universe of organizations that, because we’re talking about kind of the gold standard, meeting some of these high standards of integrity and accountability, and some smaller organizations just don’t have the budget, they don’t have the sophistication, necessarily, to to be members of ECFA and bear the seal. I would suggest that the universe of organizations that could be members of ECFA within the parachurch, nonprofits at least is probably closer to 20,000 potential members of ECFA. And, to your point, we’re definitely working hard to do everything that we can to encourage even those that are within that universe who could qualify to take those steps to be members of ECFA. And we appreciate the work that Ministry Watch does as well in publishing which organizations are members of ECFA, because I think that does encourage those folks to take that step forward.

[BREAK]

SMITH: Welcome back. Today you’re listening in on my interview with Michael Martin. Let’s get right back to that conversation. 

Michael, I’d like to pivot once again in our conversation because we have talked about the seven standards of the ECFA a couple of times in our conversation, and I’ve got to tell you that from where I sit, from my point of view, I think that’s probably—those seven standards—is the probably the greatest thing that the ECFA has done. Whether an organization complies with those standards or not, whether they’re members of the ECFA or not, the world knows that there is a standard. In fact, there are these seven standards and you guys go into a lot of detail about what does it mean to be in compliance or out of compliance on that? I don’t want you to name each and every standard, but can you just say maybe a minute or two about those standards and what they cover and how they came about? 

MARTIN: Yeah, absolutely. And because I know our time is limited here on the podcast, just a quick reference point for folks. You can go to ECFA.org/standards and actually take a look at those. Along with each of the seven standards, there’s also commentary that really helps provide context around how to apply the standards, what do they mean. And also on our project list for 2021 is also to come out with a series of what we’re calling the ECFA standards simplified to, again, kind of help unpack what did these standards mean, and how do they apply, and so be on the lookout for those. But really, Warren, it begins with standard one, which is the doctrinal standard that organizations that are part of ECFA, that they are evangelical in nature, you know, have a statement of faith and operating in accordance with biblical truths and practices. That’s so foundational to who we are at ECFA. But there’s also the governance standard, which we touched on actually earlier in the podcast, but having that majority independent board of at least five members performing responsible governance. We’ve also touched on another standard, which is financial oversight and making sure that an organization has, depending on their size, the appropriate level of engagement with an outside CPA, with an annual audit or review or a compilation of the financial statements. We talked about use of resources complying with laws, transparency, we’ve already touched on today, as well. And then, you know, just a couple others would be making sure that there is a sound process in place for compensation, setting of the top leader, and avoiding conflicts of interest. And then finally, integrity in fundraising is that seventh standard, where things like truthfulness, and communications and honoring gift giver expectation, and intent are some of the requirements of the ECFA membership.

SMITH: Yeah, well, they’re just really wise standards. And I have used them a great deal over the years in my journalistic efforts to kind of, you know, hold organizations accountable, and to make the point that even if they’re not members of the ECFA, the world should know that this organization is not in compliance. And here’s the particular standard that they’re not in compliance with. Michael, I want to pivot for one final time in our conversation and just kind of, you know, bring us up to date here on where the ECFA is right now. I know one of the things that you guys do is look at financial trends and kind of learnings for ministry leaders, and you publish those as white papers and as e-books or e-articles from time to time. What are you seeing right now? What are some of the financial trends and learnings from 2020? And, again, looking forward here to 2021?

MARTIN: Well, I think folks probably have the impression by now, but we are numbers people here at ECFA. So, you know, we’re always tracking those, but Warren, especially in 2020, we just really leaned in to making sure that we’re on top of the trends and with the with COVID, and the pandemic impact, I mean, it was just, you know, such a volatile situation day by day, not knowing what you know, would happen. And so one of the things that we did is enlisted Dr. Warren Bird, who’s our Vice President of Research, a PhD researcher, to really help lead the charge with our members. Every three months, we kind of checked in and we said, How are things going? What kind of trends, what challenges are you seeing financially? But then also, what is your outlook? You know, how do you feel about the next three months that are ahead? And Warren, one of the—I’m an optimistic person by nature, but I was even surprised by just how high the level of optimism—that was just a keyword that kept coming back from the evangelical ministries and churches that were taking our survey. But I don’t know, maybe we shouldn’t be as surprised as maybe some of us were by those findings. But that was certainly encouraging. And then, you know, I’ll mention that some more good news, which was as of our last reported survey—and that covered through the first three quarters of 2020, we’re about to engage in another survey, actually, just probably, as this podcast is airing, we’re getting ready to release that survey. But the good news was that even for a slight majority, they saw that cash giving in 2020 was the same or better as 2019, compared to that same time period. And then even for those organizations that, you know, didn’t have the same or better giving, the majority said that their cash giving was down only one to 10 percent for 2020 compared to 2019. So, that’s definitely some news to rejoice in. And then you asked about 2021. I mean, I don’t know I think we’re all kind of waiting to see what comes together. But lots of encouraging signs from 2020 even though many ministries, of course, walk through some challenging times. We also saw a lot of God’s faithfulness and ministries continuing to press on, even in spite of some of the challenges. And so the survey that I mentioned that’s gonna poll that fourth quarter of 2020, we’d love to have the help of all those who are listening participate. So, we’ll be sure to share that with you at Ministry Watch as well for folks to participate. 

SMITH: Well, I appreciate that very much. And you know, Michael, that would probably be—that optimistic note, that hopeful note—would probably be a good way for us to end. I’ve got so many more questions, and I know that the ECFA does so much more. You do an annual tax and finance guide and provide other kinds of resources. We’ll just have to talk about that the next time we get together.
MARTIN: That sounds great. I’ll look forward to it.


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