ANNUAL COUNCIL 2003

SECRETARY'S REPORT, October 13, 2003

Robert Lemon

Treasurer, General Conference of Seventh-day Adventists

We have had the privilege over the weekend and on Sunday of listening to reports from the General Conference President and Secretary and others on membership growth--how God is working. In addition to growth, we have spent and will continue to spend time on the issues of unity and the quality of life within our church fellowship. We are also thrilled to see how God has blessed our Church and His children both materially and spiritually.

As you can see from chart #27, there has been increased growth in the gross amount of tithe returned by members around the world, as well as in total offerings. Total World Tithe for 2002 was up from $1,093,239,502 in 2000 to $1,161,698,977 in 2002. Total offerings, according to the General Conference Statistical Report, were up from $48,501,256 in 2000 to $50,539,907 in 2002.

As members of the General Conference Executive Committee and as the General Conference, we are concerned about the financial health of God's Church around the world. I am here looking at the specific funds which come through the General Conference from tithe percentages and mission offerings and are directed by the World Budget of the General Conference. Therefore, much of the report that I will be giving and that Steven G Rose, Undertreasurer, will be giving represents the Operating Statement for the General Conference and the World Budget, focusing only on that small portion that passes through the General Conference. Even as we have listened to the reports of progress throughout the world, we have also been reminded that there remains a great challenge in the 10/40 Window. Although there is still much work to be done in all areas of the world, when we see that in approximately one-half of the world's population we have almost no Seventh-day Adventists and very, very few Christians, it gives us pause to think of the Joshua predicament.

In Joshua 1:3, the Lord said "Every place that the sole of your foot shall tread upon, that have I given unto you, as I said unto Moses." But then after a few years and after the children of Israel had settled down, we find recorded in Chapter 13:1, "Now Joshua was old and stricken in years; and the Lord said unto him, Thou art old and stricken in years and there remaineth yet very much land to be possessed."

We have been proclaiming the Third Angel's Message for over 150 years and there remains much land to be possessed. Unfortunately, the areas that have the greatest--such as the 10/40 Window--have the least ability to fund and staff the work. With our church structure we have the entire surface of the globe mapped out as coming under the divisions, unions, conferences, and missions. Through the World Budget of the General Conference, the members around the world share in their tithes and mission offerings for support of the work in all of these divisions. In addition, they provide services and personnel to help with the work through interdivision missionaries, auditing services, and other functions covered by the World Budget. It can be argued that with the shared appropriation and all of the territories assigned under various divisions, that it should be the responsibility of the divisions, unions, conferences, and missions to enter those most difficult unentered areas. That is certainly true, but I believe that there is a special role for the General Conference in this particular area.

As we consider how the General Conference can assist in a special way with this great challenge in the 10/40 Window, it is important that we take a look at the financial projections for the General Conference in both tithe and mission offerings. In the year 2000, when we first started phasing in a new tithe-sharing formula, we knew that the next five to ten years would be a period of adjustment for the General Conference World Budget. We knew that reducing the tithe percentage for the North American Division from 10.2% to 8% over five years would result in a reduction of tithe income of approximately $20 million per year when the plan was fully implemented. At the same time, the tithe percentage from the other divisions is to increase from 1% to 2% of gross tithe. When fully implemented by the year 2005, this will represent an increase of approximately $5 to $10 million per year. The net effect would be a reduction of approximately $15 million per year in tithe available to the World Budget of the General Conference. That would reduce the total tithe per year for the World Budget of the General Conference from approximately $80 million per year to $65 million per year.

In addition to that, the World Budget receives approximately $48 million from mission offerings--including the Thirteenth Sabbath Offering for special projects and the Annual Week of Sacrifice Offering processed through the Office of Global Mission. Based on that information and the assumption that the mission offerings would remain constant in dollars through this phase-in period; there would be an increase of 4% per year in tithe from the North American Division and 2% per year in tithe from the rest of the world divisions; and taking into account exchange fluctuations in the value or exchange rate of the US dollar, we projected the following operating picture for the General Conference.

You can see in slide 0 that we are projecting in the year 2004, to have an operating loss of approximately $3 million; in the year 2005, an operating loss of approximately $5 million; and in the year 2006, a loss of approximately $3 million, as tithe is expected to increase after the year 2005. By 2007, we would be back to a break even position. As discussed in last year's Treasurer's Report, we set aside additional working capital during the strong years of 1997 through 2000 to help with this phase-in period. We increased the working capital requirement from 20% of annual income which was an increase of approximately $11 million. It was our sincere hope going into this phase-in period that with the strengthening of our working capital, some additional allocated functions set aside for meeting specific commitments relative to a new division office in the East-Central Africa Division, and annual allocations to the General Conference Session allocated function, we would be able to work through this phase-in period without any reduction in the dollar amount of appropriations to the divisions and institutions. It was also our hope that we would not have to temporarily lay off staff simply to meet this dip in income until the total income would start to increase again.

As we moved into this new phase-in period back in the year 2000, we could not project the effect that the investment markets would have on the finances of the Church and Church organizations. We will touch on this issue a little later in the report.

Graph #46 shows the tithe projections made in the year 2000 for the phase-in period. Slide #16 shows the actual for the years 2001 and 2002 as compared to what the old tithe-sharing formula would have been, and also shows the projected budget for those years and what the actual has been for the years 2000 through 2002. Although there are slight differences from what was projected, you can see that on the tithe side, we are meeting projections.

We had projected that the mission offering total would remain constant throughout the five-year period and hopefully would increase. As slide #1 shows, this has not been the case. Steven G Rose, Undertreasurer of the General Conference, will spend more time in reviewing slides #2 and #3 which show the trends for the North American Division World Mission Offerings as well as for the other world divisions. Total mission offerings in the year 2000 were $47.9 million and in the year 2002 had decreased by $1.24 million to $46.66 million.

Steve will also review graph #25 which shows the sharp decrease in mission offerings as a percentage of tithe over the period between 1930 and 2002. He will review chart #29 which shows the actual dollars of tithe as compared to the actual dollars of mission offerings over the same period of time.

Total giving to missions certainly includes more than we are showing in the statistics. Our system of reporting includes only the funds which come through the General Conference offering system and are processed through the World Budget. There are many individuals, local churches, conferences, and other organizations which are helping with the mission program through direct funding of specific projects and programs which are not included in these totals. We need to study our total reporting system to be able to give a better picture of the overall support for the world work, but it is still very important that we have a strong mission offering that can be distributed by the General Conference Executive Committee when it looks at the total needs of the world field, with special emphasis needed on the areas that are not yet entered in the 10/40 Window.

On the investment side, the picture is a little more encouraging this year than last. Graph #9 shows the market effects on the General Conference Operating Fund Investments since 1996, including 2003 through the end of August. This graph does not include the General Conference's Endowment Funds or Plant Funds, but the picture in those funds is similar.

Graph #22 shows the cumulative market's effect since 1995 of the fluctuation in the market value of securities. This does not include earnings on those securities, but the cumulative effect. As you can see, the markets have recovered some of their losses. When we look at the long-term picture of investments, it is important to realize that there will be major fluctuations. Although the markets certainly have not returned to their highs of a few years ago for the General Conference Operating Fund, we are back to within a little over $1 million of what was paid originally for the stocks in our portfolio.

Graph #47 shows the cumulative effect of the returns on the S&P 500 as compared to the Money Fund and the Consumer Price Index from the period of 1991 to the current time. As you can see, over the long period--even when including the declines of the recent years--we would still have been better off to keep a portion of our working capital in equities.

NOT-FOR-PROFIT ACCOUNTING

In For-Profit Accounting, for the Financial Statement you can say we had a good year with a profit, or we had a bad year with a loss. In For-Profit Accounting, the objective is to match revenues against expenses and show the results of the operations for a fiscal year.

In Not-For-Profit Accounting, the objective is to show what funds have been received and to indicate the restrictions or allocations of those funds for various purposes and to reflect the expenses at the point they are incurred. There is not a matching of expenses against income in the same period. In a For-Profit business, the expenses of the General Conference Session every five years would be reflected as a cost against each year's operations. In Not-For-Profit Accounting, the amount we set aside each year for General Conference Session goes into an allocated function and increases the fund balance. In the year of the General Conference Session, the expense of the full $5 million is shown as an expense in that year and a decrease to the fund balance. So in explaining the bottom line of the Financial Statement, it is always necessary to explain what funds are being set aside as allocated functions over a period of time, and then the timing at which those expenditures are expected to be made. In the old days, we moved those funds into reserves and when they were expended, they were expended directly from the reserves which were in the fund balance and did not go through the Operating Statement in that fiscal year. That method is no longer allowed, so the Financial Statement will reflect expenditures in the year in which they are incurred.

We have two major items that will hit our Financial Statement in the next two years. The first one is over $5 million for building the new office for the East-Central Africa Division in Nairobi. Those funds have been set aside as an allocated function, but will hit the bottom line on our Operating Statement next year. The second item is the General Conference Session costs which we have been allocating to the allocated function at the rate of $1 million a year over the five-year period; but in 2005 it will hit the bottom line as an expense of $5 million. So it is very important as you look at the Financial Statement that you become aware of the major items which affect the bottom line. Do not simply look at that one number to determine whether it was a good year or a bad year for operations.

PRESENTING THE NEEDS

My experience is that our members have a tremendous passion for finishing the Lord's work and, when presented with the needs, they are extremely generous. Over the years, we have tended to take for granted that our members understand our need and the function of the mission offering in helping to finish the work. We have watched the decline in mission offerings as a percentage of tithe and lamented that we did not have more funds to help finish the work. Over this same period of time, there has been a major shift in giving patterns with more and more funds being directed towards project giving. I believe that we have failed to properly communicate the needs and the tremendous importance of what is done with the mission offerings. We give reports of huge numbers of baptisms in traditional mission field areas. There can be a tendency when there are not those kinds of baptisms in the local area to feel funds are needed locally because the mission work, obviously, is going well.

We have probably not done a good job of laying before our members the great unfinished work, particularly in the 10/40 Window area. There is a tendency to say we need to have funds to set aside for opportunities when they come up. I believe we are facing unprecedented opportunities in the 10/40 Window area now, both in the areas that have opened up somewhat, as well as in the areas that still seem very closed. Technology such as radio, television, satellite, internet, etc, has created new opportunities in addition to opportunities on the ground--including some new and exciting possibilities. Unfortunately, many of our members perceive the mission offering as going into a deep, black hole and, therefore, prefer to give to projects where they feel they can see the direct results.

I believe we have failed to communicate the importance of our regular mission offerings and the exciting things that are being done through funding these offerings. There is often the complaint that the regular mission offering simply goes for the support of the structure of the Church. The term structure has a bad connotation and, in the eyes of many, is simply money wasted in administration. Some tend to evaluate the operation of the Church as though it were a corporate financial structure. We certainly need to apply the best business principles possible to the operation of the Church and reduce as much as possible the overhead costs and inefficiencies. On the other hand, we must not forget the differences between a corporate business structure and a volunteer church organization.

We tend to look at the number of administrative units and administrators and department directors and compare them to the number of pastors in the field. We then compare those to direct line administrative structures in a corporate organization and say we have too many bosses and too few workers. The reality is, in a church structure we have millions of workers who are volunteer church members who dedicate their time and talents to spreading the gospel. In the areas that are growing the fastest, the major function of the employees of the church is that of organizing and directing the work of the volunteers. It takes a lot more training and coaching to work with unpaid volunteers than it does to work with paid employees who, once trained and directed, will simply accomplish the task that has been assigned. But at the same time, if you have funds for 100 paid employees and you have two or three supervisors directing the 97 or 98 employees, you will accomplish far less than if you have the 100 individuals supervising 10,000 volunteers. To compare the structure of the Church to the structure of a corporation and only evaluate the structure as it relates to directing the work of paid employees may not be an appropriate comparison.

We also tend to criticize the creation of new positions, conferences, and unions, saying that we are simply adding an extra burden or structure. This is certainly true in certain parts of the world where salary costs are extremely high and travel and communication costs are low. We need in those areas to have fewer organizational structures and to use technology and travel available to direct the work in those areas. In some parts of the world where the salaries are very low and the cost of travel and communication is extremely high, it might be a much more efficient use of the church dollar to create smaller units and spend less on travel and more on salaries to accomplish the work in those areas. We cannot have a "one size fits all" evaluation of church structure and needs when we have parts of the world where the average cost per month, including benefits for an employee, is $5,000 and the average cost of a ticket to go 3,000 miles is $400, when in another area, the employee cost per month is $250 and a ticket to travel 3,000 miles is $800-$1,000. In some areas the employee cost is $5,000 per month and the telephone cost is $.03-$.05 per minute, while in area where the employee cost is $250 per month, telephones either do not exist or the cost is $.30-$1.00 per minute.

We must do everything we can to create the most efficient structure for evangelism and for nourishing and supporting church members, but we must look at all the facts and understand the circumstances before we evaluate whether the structure is appropriate or not appropriate. We need to do a much better job of communicating how and why we do things in different ways in different parts of the world. We need to take a serious look at the signals we are giving from the General Conference when we make special projects out of the most interesting and exciting items, and yet following through on those projects is totally dependent on having the infrastructure in place to nurture and keep new members in the Church.

We have spent considerable time studying the needs of the 10/40 Window. We are spending time on the distribution of missionary budgets. We need to lay before our members the great need in the 10/40 Window. It will take sacrifice on the part of our members, but it will also take sacrifice on the part of the Church corporately and in how we use the currently available funds. We have said for years that we must reduce our dependence on appropriations in the parts of the world where we have strong membership on the ground. We need to focus those resources both on appropriations and interdivision missionary budgets in the parts of the world where it is impossible for local memberships to carry the burden as we are very thin on the ground, as Elder Paulsen likes to refer to it--meaning that we have virtually no membership in comparison with the population.

As we move towards directing more and more of the resources available through the General Conference to the 10/40 Window area, we must be very patient in looking for results. It is always encouraging to come back with a report of thousands of baptisms, but we will not have those kinds of reports from these areas. I believe that, with proper information, our members will continue to give and support this area--even though the reports will have to be more of the nature of the types of work we are doing rather than the results we are seeing. When we go into an area through the airwaves or through the internet, we often reach and nurture individuals who may not know anyone else in their area who is a Seventh-day Adventist Christian. We must find ways to communicate to them--even if it is a one-way communication--that they are part of the great family of God, and we must continue to nurture and support them.

The Lord may not choose to open up these areas in the same way as He has some others so that we can go in and work on the ground and see the results of the work. But we need to be careful that we do not think like Elijah. In 1 Kings 19:14 we read "and he said, I have been very jealous for the LORD God of hosts: because the children of Israel have forsaken Thy covenant, thrown down thine alters, and slain thy prophets with a sword; and I, even I only, am left; and they seek my life, to take it away." In verse 18, the Lord responded "and I have left me 7,000 in Israel, all the knees of which have not bowed unto Baal, and every mouth which hath not kissed him."

God's statistical report is very different from Matthew A Bediako's statistical report. It may be that, Elder Bediako, that at the end of your report you will have to add "all those recorded in the Book of Life, the knees which have not bowed unto Baal."

The Lord's work is going to be finished. The question is: Are we going to be a part of it? Are we going to do our part?

Steven G Rose, Undertreasurer, will present the Financial Statement for the General Conference, and I am sure that if the Lord was here looking at the balance sheet He would say, What is this? Somehow or other you have listed among the assets the cattle on a thousand hills that are Mine. God owns everything. He has entrusted us as His stewards and we must all be faithful. As Elder Paulsen has said repeatedly, no faithful steward wishes the Lord to come and find his bank account still intact.

Wednesday night when the 10/40 Window Committee discussed the need for interdivision budgets to enter many of the countries in that area, Bertil Wiklander, President of the Trans-European Division, said that he hoped the Lord would come while we were still discussing how to find a few interdivision budgets to be able to enter this huge area. Although we all want the Lord to come as quickly as possible, I do not think any of us in the divisions or the General Conference want the Lord to come while we still have all of the interdivision budgets serving in the same place that they have for the last 50 years and have the Lord ask us, But what happened in the 10/40 Window?

May the Lord bless each of us individually and corporately as we struggle with the issue of the need to finish the work everywhere, including the areas that are in such desperate need.

Robert E Lemon

General Conference Treasurer