Annual Meeting regarding financial issues AGENDA 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 Place 2.Diocesan Audits 2011 – 2014Peter Goldhawk 3.Context of the 2016 budget, incl. stipendsSidney Place 4.Short and longer term budgeting objectivesSidney Place 5.The budget for 2015Rodney Taylor 6.Parish FinancesPeter Goldhawk 7.Returned debit ordersPeter Goldhawk 8.General

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

The chain of reporting and accountability Diocesan Finance Board Encourage 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 Trustees Delegate 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 diocese GIVING 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) 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 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 Q 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 Peter Goldhawk – Chairman of Audit Committee

Stipends 2016 Set Portion Increase Per yearPer Year2016 Pensionable Stipend - Single or } Married - Deacon, Priest or }R 149, % Licenced Layworker } Pension fund Parish ContributionR 49,183R 52,1646.1% - 35% of Stipend (33% in 2015) Medical Aid for married couple - no childrenR 69,264R 45, % Post Retirement Medical AidR 36,000R 66, % U. I. F. Parish PortionR 1, % Group Life BenefitR % Group Personal AccidentR % Total Cost to Parish of set portionR 306,512R 315,7093.0% 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 Stipends increased by 10% in 2013, 2014 and 2015 Cumulative 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 Clergy costsR9.6 mR16.2mR25.7m As % of DFB costs68%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 Clergy costs 2.7x higher in 2015 than in 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 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 90 th 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, % Province – paid to Capetown 1,706, % Post retirement medical and grants 1,565, % Bishop and his staff 1,337, % Training of clergy 1,089, % Diocesan Ministry 1,055, % Provision for taxation 180,0001.9% Outreach costs 96,9551.0% Total expenses 9,472, % 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