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Report of the member churches on the 2002 accounts

Excerpt from the Financial Report 2002 Report to the member churches on the 2002 accounts presented at the WCC central committee, 2003

02 September 2009

World Council of Churches
CENTRAL COMMITTEE
Geneva, Switzerland
26 August - 2 September 2003

Excerpt from the Financial Report 2002
REPORT TO MEMBER CHURCHES ON THE 2002 ACCOUNTS

Summary

The financial results for the year 2002 were within the expectations of the Central Committee, with an overall net decrease in funds of CHF 6.6 million, a net improvement compared with CHF 11 million in 2001. The operating deficit after transfers was CHF 1.1 million, just at the level of the approved operating budget. The programme funds’ decrease was CHF 5.5 million, being CHF 0.9 million over programme budget, in part in response to our partners’ encouragement to disburse, for their designated purpose, certain programme fund balances still retained.

The financial situation was not easy. At CHF 41.9 million, total contributions were CHF 3.2 million less than 2001, continuing the downward trend. Following Executive Committee approval, CHF 1.5 million of general endowment investments were required to be withdrawn to finance the operating deficit and the early retirement packages of 2001, paid during 2002. As directed by Central Committee, the credit line of CHF 5.5 million guaranteed by the mortgage of the Ecumenical Centre was secured as a precautionary measure. However, since the operating deficit was held at the limit, no drawings were made against that credit line in 2002, nor in the year to date.

Two significant financial projects came to completion in 2002 and are evidenced in the Financial Statements. Firstly, the programme fund balances were reviewed, with reclassifications made both to the general reserve, and in particular, to specific reserves. The specific reserves of CHF 2.8 million segregate certain funds over which the Council has discretion as to the timing of disbursement. The results of the review are very valuable for our future financial planning. Secondly, the activity based costing (ABC) process was introduced, with the redistribution of staff and related operating costs, and infrastructure and communications costs to programme activities. The allocation method is described in note 23 of the Financial Statements. Our experience has led us to simplify the process in 2003. However, ABC has met its goal in the planning process, providing a focus on the economic costs of an activity in relation to expected contributions.

The end of the financial year 2002 was marked by intensive, difficult and sometimes painful efforts in collaboration with the Task Group for Programme Adjustment, the Officers, and Officers of the Finance Committee; working towards and then implementing the necessary reorganisation decisions. In these efforts, the sustained support and solidarity of the Officers, and the significant solidarity amongst staff, served as sources of strength.

Membership Income and Other Contributions

The table on the following page compares membership income, undesignated income (UDI) and other contributions for 2002 with the budget and prior year results.

Membership income exceeded budget, and increased by 3% compared with 2001. 66% of churches participated, compared with 53% in 2001. The Contributions Report includes sections listing the member churches which participated financially in 2002, and those which did not. In addition, we acknowledge gratefully the support of those member churches which participated with non-financial contributions, such as hospitality or the secondment of their personnel. While the increased number of churches contributing membership income does raise hope, Central Committee’s enthusiasm and inspiration is needed to work towards reaching the target of CHF 10 million set by the Assembly Finance Committee in 1998.

Table: Contributions Income: Results 2002 compared with Budget and 2001

Budget 2002

2002

2001

Var with budget Fav/(Unfav)

Var with 2001 Fav/(Unfav)

CHF millions

CHF millions

CHF millions

CHF millions

CHF millions

Membership

6.0

6.5

6.3

0.5

0.2

UDI

0.6

0.6

0.8

-

(0.2)

Other Contributions

36.1

34.8

38.0

(1.3)

(3.2)

Total contributions

42.7

41.9

45.1

(0.8)

(3.2)

Following consolidation of the representative offices, as described in note 2 (ii) of the Financial Statements, other contributions included CHF 0.8 million received in those offices directly from partners. The budget for 2002 was not prepared on a consolidated basis, and therefore did not include those contributions. Adjusted for the impact of the consolidation, other contributions then fell short of budget by CHF 2.1 million. Of this, CHF 0.9 million is attributable to unfavourable exchange rates.

Financial Analysis

The appendix to this report includes an analysis of the operating results compared with budget and prior year, a review of programme results compared with budget and a balance sheet analysis.

The balance sheet analysis compares the liabilities and obligations of the Council with the assets deemed to cover them on 31 December 2002 and 2001, and derives an assessment of the total assets available to the Council after deducting obligations. The analysis demonstrates that at 31 December 2002, just as at the end of the prior year, the Council’s reserves were covered not by liquid assets, but by its land and buildings only. However, the analysis also highlights certain positive indicators in the evolution of the Council’s financial structure. In particular, and in part following the reclassification of certain programme funds as mentioned above, on 31 December 2002 there was almost complete coverage of programme funds commitments by current asset investments, marking an improvement on the prior year.

Prospects for the Future

Despite improvements noted following the concerted efforts of the governing bodies and staff leadership in the restructuring efforts of 2001 and reorganisation efforts of 2002, we view with some uncertainty the optimism expressed in our previous report that the Council would reach financial equilibrium in 2003, with a stable level of contributions which might be sustained in future years. This uncertainty stems mainly from our awareness of the difficult financial situations amongst many member churches and some of the Council’s key funding partners. For governing bodies and staff leadership, efforts towards attaining sustainable financial equilibrium remain a priority.

The approved budget for 2003 set the target of a net surplus to general reserves, and a programme fund balance decrease of CHF 3.8 million. Income from contributions is expected to be about CHF 39 million as compared to CHF 41.9 million in 2002. The decrease of CHF 2.9 million is to be partly compensated by an increase of CHF 1 million in production and other income in 2003. At the time of writing, management accounts indicate positive results for the first four months, with a small operating surplus generated, while programme expenditure is cautious. As contributions forecasts evolve during the year, the challenge to the Council will be to ensure that expenses are held not only within budget, but within available income.

Officers and staff at various levels are intensifying efforts to stabilize programmatic contributions and to increase membership income. Although new sources of income have yet to bear fruit, focussed work continues in this direction. The financing of the Council is heavily dependent on the support of its traditional partners, who have maintained their support faithfully during difficult periods of financial uncertainty. In this critical phase of its life, the Council acknowledges its profound gratitude to these partners.

William Temu

Director of Management 10 June 2003

Appendix

FINANCIAL ANALYSIS


The financial analysis consists of three sections, as follows:

  • operating results compared with budget and prior year
  • programme results compared with budget
  • balance sheet analysis

1. Operating Results compared with Budget and Prior Year

Table 1, comparing operating results 2002 with the budget and prior year, is set out below.

Operating Results and Prior Year

The operating deficit decreased by CHF 4.9 million, from CHF 6 million in 2001 to CHF 1.1 million in 2002. This significant positive evolution includes a decrease in the operating deficit in cash terms of over CHF 3 million. The remaining positive variance stems from an increase in transfers from the Investment Reserve.

Table 1: Operating Results 2002 compared with Budget and Prior Year

Budget 2002

2002

2001

Var with budget Fav/(Unfav)

Var with 2001 Fav/(Unfav)

CHF millions

CHF millions

CHF millions

CHF millions

CHF millions

Membership & UDI

5.1

5.5

7.1

0.4

(1.6)

Other Contributions

1.6

1.5

13.3

(0.1)

(11.8)

Other Income

4

2.6

2.6

(1.4)

-

Total income

10.7

9.6

23

(1.1)

(13.4)

Grants & Operating Costs

7.4

8.9

8.8

(1.5)

(0.1)

Restructuring Costs

-

-

0.9

-

0.9

Staff Costs

20.4

19.3

20

1.1

0.7

Redistributed Costs

(16.3)

(15)

-

(1.3)

15.0

Transfers

0.3

(2.5)

(0.7)

2.8

1.8

Total Costs & Transfers

11.8

10.7

29

1.1

18.3

Deficit

(1.1)

(1.1)

(6)

-

4.9

Total Income and Total Costs & Transfers 2002 and 2001

There are significant variances between total operating income and total operating costs & transfers between 2002 and 2001 following the introduction of the ABC process. Partners’ former operating contributions were discontinued; their equivalent grants in 2002 were designated directly to programmes. The relevant staff and infrastructure costs were then reallocated to programmes as recorded on the line redistributed costs above.

Operating Results and Budget

Comparison with budget highlights three areas requiring explanation. Firstly, other income was under budget by CHF 1.4 million, following the impact of investment losses; secondly, operating costs exceeded budget by CHF 1.5 million. Finally, while the budget planned a transfer of CHF 0.3 million to reserves, in fact total net transfers of CHF 2.5 million were made from reserves, principally to compensate investment losses. The explanations for these three areas of variance are developed below.


a. Other Operating Income

Table 2 summarizes other operating income compared with budget.

Table 2: Other Operating Income

Other Income

2002 Budget

2002

Var Fav/(Unfav)

CHF millions

CHF millions

CHF millions

Investment & currency gains/(losses)

0.3

(2.2)

(2.5)

Production income

3.1

4.1

1.0

Miscellaneous income

0.6

0.7

0.1

Total

4.0

2.6

(1.4)

Investment losses

Total investment losses were CHF 2.6 million, despite the actions taken to reduce risk in the general fund portfolio in 2001. Of this, CHF 1.5 million were unrealised losses. Certain investment losses were realised in order to repay all loans guaranteed by the investment portfolio. This step had the virtue of reducing treasury risk. In addition, the increased drawdown on programme fund balances towards the year end, together with the policy decision to avoid further borrowing risks against the portfolio, resulted in the need to sell investments, thus realising certain losses.

Foreign currency operating gains reduced the overall charge to the operating results to CHF 2.2 million.

Production income

Production income recorded a CHF 1 million favourable variance against budget, resulting from a change in accounting procedures not reflected in the budget, concerning income from the staff residential building. The staff residential building recorded a surplus of CHF 4,000 in 2002. Formerly, both income and expenses had been reported in a separate fund account. Budget 2002 did not include either the respective income or expenses.

(b) Grants and Operating Costs

Grants and operating costs exceeded budget by CHF 1.5 million. CHF 1.3 million of this variance does not represent overspending, but is explained by a change of accounting procedures in relation to budget. Firstly, CHF 1 million of staff residential building operating costs were included in the results but not in the budget, as described above. In addition, a depreciation charge of CHF 0.3 million, formerly recorded through a property fund account and therefore not in the budget, was reported as an operating expense. The required compensating transfer from the property fund relieved impact on the operating results. Operating costs were in fact CHF 0.2 million over budget.

(c) Transfers and Investment Reserve

The net operating deficit before transfers was CHF 3.6 million. Net transfers of CHF 2.5 million reduced the operating loss to CHF 1.1 million.

All transfers are listed in Schedule III of the Financial Statements. The most significant transfer was CHF 1.9 million from the investment reserve, compensating investment losses.

At the end of 2001, it was reported that the investment reserve had been exhausted. During 2002, the investment reserve was replenished with CHF 2.7 million. The source for this reserve was the endowment fund; notes 10 (a) (v) and (vi) of the Financial Statements record the details.

2. Programme Financial Results

Programme financial results are compared with budget in the following table.

Table 3: Programme Financial Results compared with Budget

Budget 2002

2002

Var with budget Fav/(Unfav)

CHF millions

CHF millions

CHF millions

Membership & UDI

1.5

1.6

0.1

Other Contributions

34.6

33.3

(1.3)

Other Income

0.1

(0.3)

(0.4)

Total income

36.2

34.6

(1.6)

Grants

15.0

17.0

(2.0)

Operating Costs

8.1

5.6

2.5

Staff Costs

1.2

1.6

(0.4)

Redistributed Costs

16.3

15.1

1.2

Transfers

-

0.8

(0.8)

Total Costs & Transfers

40.6

40.1

0.5

Decrease in Programme Funds

(4.4)

(5.5)

(1.1)

Overall, total costs and transfers were held within budget. Increased disbursement of grants was compensated by reduced expenditure in programme operating costs, over which staff exercised strict control. Redistributed costs were under budget principally because of staff costs reductions. Further analysis of redistributed costs compared with budget is included in note 23 of the Financial Statements.

3. Balance Sheet Analysis

The balance sheet presented in schedule I complies with International Financial Reporting Standards. However, as in 2001, to achieve a better understanding of the Council’s financial position and the changes affecting it, assets are presented below against the liabilities or obligations which they are deemed to cover.

Table 4: Balance Sheet Structure, 31 December 2002 and 2001 compared

31 December 2002

Net assets/

(obligations)

Assets

CHF 000s

Related Obligation

CHF 000s

CHF 000s

Land & buildings

38,430

Mortgage loan, construction loan & long- term deferred income

20,229

18,201

Fixed asset investments

9,696

Endowment fund

8,806

890

Investments

11,578

Programme funds

11,806

(228)

Current assets

6,776

Current liabilities

6,627

149

-

Long term liabilities

510

(510)

Total Assets

66,480

Total obligations

47,978

Total assets available after deducting obligations 18,502

31 December 2001

Net assets

Assets

CHF 000s

Related Obligation

CHF 000s

CHF 000s

Land & buildings

35,897

Mortgage loan, construction loan & long- term deferred income

17,659

18,238

Fixed asset investments

13,315

Endowment fund

12,417

898

Investments

21,711

Programme funds

18,746

(1,035)

Loan guaranteed by investments

4,000

Current assets

6,403

Current liabilities

7,288

(885)

Total Assets

77,326

Total obligations

60,110

Total assets available after deducting obligations 17,216

The analysis reveals that :

  • The amount of assets, net of all obligations and available to the Council as reserves, comparable to "net equity" in "for profit" organisations, increased from CHF 17,216,000 on 31 December 2001 to CHF 18,502,000 in 2002 on 31 December 2002. This increase is the net result of the reclassification of certain programme funds to general reserve and to specific reserves.
  • Total assets decreased by CHF 10.8 million, and related obligations by CHF 12.1 million. Current asset investments were reduced by CHF 10.1 million. CHF 5.8 million was applied to repay short-term loans whose proceeds financed programme fund drawdowns in both 2001 and 2002; CHF 3 million were withdrawals financing programme fund drawdowns in 2002 and the remaining CHF 1.3 million was the net investment loss for the year.
  • The Council’s reserves, including the general reserve and the specific reserves, are covered not by liquid assets, but by its land and buildings. In accordance with the Central Committee’s guidelines, the Council is required to realise a surplus in 2003 in order to improve this situation.
  • Programme fund commitments are almost entirely covered by investments, showing a marked improvement over the prior year. This has been achieved through the reclassifications described above.
  • Current assets on 31 December 2002 exceeded current liabilities by CHF 149,000. The Council could thus theoretically meet all current liabilities at the balance sheet date. Comparing the information on the two balance sheet dates, working capital improved by CHF 1 million, indicating positive signs of financial improvement.
  • Long-term liabilities are amounts due to staff in the future under the long service bonus scheme, described in note 20 (ii), being a liability to be met normally from future income. These may thus fairly be presented without asset coverage in this analysis.

REPORT OF THE AUDITORS TO THE EXECUTIVE COMMITTEE AND MEMBER CHURCHES OF THE WORLD COUNCIL OF CHURCHES

We have audited the financial statements of the World Council of Churches, a not for profit organisation, as of 31 December 2002 as set out on schedules I to V and the notes which follow. These financial statements are the responsibility of the Council’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with international standards on auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the financial statements present fairly, in all material respects, the financial position of the World Council of Churches as of 31 December 2002, movements on the Council’s funds and its cash flows for the year then ended, in accordance with International Financial Reporting Standards.

Our audit was carried out for the purpose of forming an opinion on the basic financial statements taken as a whole. The annual summary of contributions is presented for the purpose of additional analysis. Such information has been subject to the audit procedures applied in the audit of the basic financial statements, and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole.

KPMG Klynveld Peat Marwick Goerdeler S.A.

David J.W. Colledge David Curry

Chartered Accountant Chartered Accountant


Geneva, 10 June 2003


Schedule I Balance Sheet
As at 31 December 2002
(Swiss Francs 000’s)

Notes

2002

2001

CURRENT ASSETS

Prepaid Expenses

83

277

Accounts Receivable

5

2,424

3,183

Investments

4

11,578

21,711

Cash

4,269

2,943

18,354

28,114

FIXED ASSETS

Land, Buildings & Equipment

3

38,430

35,897

Investments

4

9,696

13,315

48,126

49,212

TOTAL ASSETS

66,480

77,326

CURRENT LIABILITIES

Deferred Income

9

202

229

Accounts Payable

6

6,425

6,932

Bank Overdrafts & Short Term Loans

8

6,261

7,992

12,888

15,153

LONG TERM LIABILITIES

Mortgage Loan

7

11,600

11,726

Deferred Income

9

2,368

2,068

Accounts Payable

6

510

-

14,478

13,794

RESERVES & FUNDS

Endowment Funds

10

8,806

12,417

Reserves

11

3,420

2,944

Other Funds

12

5,819

6,715

Operating Funds

13

6,465

7,557

Specific Reserves

14

2,798

-

Programme Funds

15

11,806

18,746

39,114

48,379

TOTAL LIABILITIES

66,480

77,326

Schedule II Income & Expenditure Account
For the year ended 31 December 2002
(Swiss Francs 000’s)

Total

Total

Operating

Programmes

Funds

Funds

Notes

2002

2002

2002

2001

CONTRIBUTIONS INCOME

Membership & UDI

5,489

1,639

7,128

7,097

Other Contributions

1,494

33,332

34,826

38,039

6,983

34,971

41,954

45,136

OTHER INCOME

Investment Loss

16

(2,234)

(784)

(3,018)

(2,301)

Production Income

17

4,084

52

4,136

4,047

Miscellaneous Income

18

739

364

1,103

1,252

2,589

(368)

2,221

2,998

TOTAL INCOME

9,572

34,603

44,175

48,134

COST OF OPERATIONS

Grants

638

17,029

17,667

21,484

Operating Costs

8,314

5,602

13,916

16,354

Restructuring Costs

-

-

-

922

Salaries

19

19,309

1,598

20,907

21,208

TOTAL COST OF OPERATIONS

28,261

24,229

52,490

59,968

Redistributed Salary Costs

23 I

(9,980)

9,980

-

-

Redistributed Infrastructure & Communication Costs

23 II

(5,121)

5,121

-

-

TOTAL COSTS BEFORE TRANSFERS

13,160

39,330

52,490

59,968

NET DECREASE BEFORE TRANSFERS

(3,588)

(4,727)

(8,315)

(11,834)

TRANSFERS

Transfers between Funds

291

(291)

-

-

Transfers from/(to) Reserves & Funds

2,495

(286)

2,209

835

Transfers to Current Liabilities

(283)

(167)

(450)

-

NET DECREASE FOR THE YEAR

(1,085)

(5,471)

(6,556)

(10,999)