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After a two-year process, Evangelical Baptist Missions has agreed to distribute final payment checks to its missionaries, offering an apology for leadership decisions that led to the agency’s closing.

“We as the Board of Directors take responsibility for the dissolution of EBM due to ineffective stewardship of the trust given to us by God and the EBM constituency,” the board said in a statement read on June 20, when missionaries and church leaders met for a final meeting. “For this we humbly ask forgiveness from God and all associated with EBM including those who heard about the dissolution of this fine ministry.”

The EBM board had voted to dissolve the agency on Aug. 23, 2011, after a consultant produced a 15-page study showing that the agency was technically insolvent and had diverted about $2 million in missionary funds to pay for administrative costs.

After voting to dissolve the nonprofit corporation, the board began a two-year process to sell its assets and pay its creditors, all of whom agreed to a 21.5 percent payout on the remaining debt. The 90 missionary families affiliated with EBM at the time of dissolution will receive the same payout as the creditors, 21.5 percent of the funds that were to have been in their accounts. Checks were distributed to the missionaries and other creditors at the end of August. When these checks clear the bank, the EBM board will file a motion of dissolution with an Indiana judge, the end of 85 years of ministry.

Complicated details

Once the board had voted to dissolve, the process of dismantling a worldwide mission agency was complicated and time consuming. To help with the development of a distribution plan, the EBM board formed a missionary committee to act as an advisory council during the liquidation. The board invited George Hatfield, a veteran EBM missionary, to serve as chair of the missionary committee.

Hatfield proved to be an ideal choice. He and his wife, Dottie, were 1970s Peace Corps activists who would later have a passion for reaching international students. After graduating from Ohio State’s law school, he was in his third year of law practice when he received Christ. They joined EBM as candidates in 1979. George graduated from Grace Theological Seminary, then began their ministry at Iowa State University in 1982. All of these experiences ended up important as he faced a complicated task. He recruited a committee of veteran missionaries who represented EBM’s regions of ministry: Phil Melton (Asia), Bill Carmichael (England, retired), Chris Marine (Africa), and Jonathan Weber (Europe).

In addition to representing the needs of the missionaries, the committee was to help the EBM board sort out complicated issues of property ownership, which included real estate in the U.S. and overseas. From a legal standpoint, EBM also owned intellectual property—copyrights to Bible translations and films created by Harvest Productions.

The complications can be illustrated by the matter of overseas property. EBM owned various parcels in faraway locations such as Niger and Mali. Although the property had functionally transferred to the overseas ministry years ago, it remained on EBM’s books. And while the property had real value, some of it was owned in countries that had laws against transferring the money back to a U.S.-based nonprofit corporation. The committee resolved these difficulties by recommending that the foreign property be given to the overseas ministry. After all, the committee reasoned, this was the original intent of the churches who had donated funds for its purchase.

In a similar way, the films from Harvest Productions were legally considered to be an asset, requiring formal appraisal prior to their sale or transfer. Their real value was entirely in their ministry potential, so the committee recommended that ownership be transferred to Biblical Ministries Worldwide, the new agency of missionaries Dennis and Linda Schermer.

After the study was complete, the final disclosure statement concluded that EBM had no significant assets other than its Indianapolis property, which EBM put on the market in three parcels: an office building, a parking lot, and revenue from a cell phone tower on the property. The final sale of these returned about $800,000, against which EBM paid off its secured creditors: a bank mortgage, a bank line of credit, and a gift annuity liability. EBM also paid its lawyers and accountants for the work performed during the dissolution process.

About a dozen other creditors and 90 missionary families shared what remained of the liquid assets. As a legal requirement of the dissolution, the remaining creditors held a formal vote to accept the board’s offer of a 21.5 percent payout. Had any of the remaining creditors—including any of the missionaries—voted against the proposed plan, it would have forced EBM into Chapter 11 bankruptcy liquidation. But the plan was approved at the April 11 vote, paving the way for the August settlement checks.

Recent problems

When the EBM board announced the agency’s closing in 2011, it avoided a detailed explanation of why the closing was necessary. “Funds to continue are not available,” said the tersely worded statement.

At the June 20 resolution meeting, the EBM board offered summary reasons why the organization collapsed, but by that time, two organizations led by Christians had filed suits against each other, leaving a trail of court documents and several ethical questions. What follows is a difficult story.

Financial problems had begun as early as 2004, when then-president W. Paul Jackson led EBM to move from Kokomo, Ind., to new offices in Indianapolis. The move was risky—EBM was not growing at the time, not in terms of increased donations or mission families.

Purchasing the Indianapolis property for about $1 million, the board implemented a business plan that assumed EBM would rent out parts of the overly large facility, earning income that would help pay the $500,000 mortgage. The rental plan failed. EBM leaders also assumed that the Kokomo property would sell quickly. It did not.

But the biggest assumption of all was a hope that EBM itself would somehow grow to fill its new office space. The opposite occurred. A mission agency with more than 200 missionary families in 2000 would dwindle to about 100 families during the next 10 years. Church donations to the home office began to drop at the exact time administrative costs were increasing.

EBM’s financial situation became more murky in 2005 when Jackson signed a contract with Beracha Foundation, intending to develop a new Web portal that would be managed by an outsourced IT department. Subsequent contracts with Beracha also outsourced EBM’s chief financial officer and the chief security officer. Perhaps the contracts were innovative—at the time, some forward-thinking nonprofits were discovering new efficiencies by outsourcing many administrative functions.

At the very least the Beracha contracts were complicated. The IT contract was structured as a “software as a service” agreement, with EBM holding what amounted to a five-year lease on the newly developed Web technology—but they did not own it, an important consideration when finances declined and EBM wished to renegotiate the contract.

Another part of the contract allowed EBM to generate cash by recommending Beracha to other ministry partners who needed IT and Web services. If the introduction resulted in a new client for Beracha, EBM would be paid according to a Client Commission Schedule. This plan could have yielded impressive returns for EBM, had it been fully realized. “With your annual donation to EBM for technology, you will receive free website hosting and development. Find out about this incredible opportunity on the EBM website,” said one advertisement.

But the scheme struck many as unseemly. EBM’s Client Commission income would come from EBM’s (cash-strapped) ministry partners. Meanwhile, financial records show that EBM administrators were doing very little in the form of traditional missionary donor development, new support from the Baptist churches and individuals who were the mission’s core constituency.

The independent audit for the fiscal year ending on Dec. 31, 2008, had reported an “unqualified opinion,” the auditor’s technical language affirming a clean audit. Despite the operating deficit, the auditor did not have significant reservations about the accuracy of the 2008 financial statements. But the audits were showing that EBM had been in a deficit financial position every year since moving to Indianapolis.

Strapped for cash in 2009, EBM administrators began to cover general expenses with money that had been designated for individual missionary accounts. Several staff members were aware of the worsening situation, including EBM President W. Paul Jackson and Treasurer Garold Paxson Jr. In retrospect, if EBM had completed an audit in 2009, the problem of diverted funds would have been discovered. But EBM administrators postponed the audit. In fact, EBM would never again have a formal audit or review until the agency was dissolved three years later.

EBM’s failure to perform an audit was a direct violation of its own Principles and Policies manual, which said, “EBM shall be committed to the highest level of integrity and accountability in every detail of our financial activities. A Certified Public Accounting firm shall audit the financial statements of EBM annually.”

Paul Jackson resigned, having served as president since 1992. By this point EBM was in free fall, with churches and donors understanding very little about the developing situation. Early in 2010 Beracha was ready to go live with its new Web portal, allowing missionaries to see their ministry funds in real time. But administrators delayed the rollout and seemed hesitant to heed the warnings of staff members. And the mission agency was running through a rapid succession of chief financial officers—four different people would hold the position in EBM’s final five years. The board recruited a new president, David Culver, who soon learned of the financial crisis.

Looking back, George Hatfield says the missionaries did not yet know the gravity of the situation. “We should have put two and two together,” he says now, “but we really did not know. I could have figured it out, had I thought about it.”

“We were told by the leadership that EBM was going through financial difficulties. We were asked to pray and talk to our sending churches, and it was presented to us in about that tone,” Hatfield says.

Del Mohler, the former CFO of Moody Bible Institute and current president of Faith Community Foundation, served on EBM’s board during the tumultuous years. He’s helped many institutions work through financial crises—and later suggested that EBM’s problems, though serious, were not insurmountable. Explaining the matter to his church, Mohler noted that “dramatic steps would have been required to make EBM more efficient and effective,” but such steps were not taken in time to avoid dissolution.

Though several office staff had been laid off, it was becoming difficult to contain administrative costs. Three positions—chief financial officer, chief information officer, and chief security officer—were outsourced to Beracha, but the contracts called for hefty early termination penalties. This was not a typical situation where costs could be contained by laying off more managers.

EBM had paid Beracha more than $1 million between 2005 and the close of 2010, but the agency’s financial picture became far worse, not better. In a press release after the announced closing, Beracha attributed the decline to EBM’s failure to heed its financial advice.

Representatives from both organizations tried to negotiate a new agreement in September 2010. The situation appeared workable for a while—then collapsed entirely the next January when EBM terminated the Beracha contracts. EBM then filed a civil suit, charging that Beracha refused to relinquish control of EBM’s Internet domains and Web portals unless EBM agreed to pay a significant termination fee. The court twice ordered Beracha to turn over the domain names. Rather than complying, Beracha countersued in April, asking for $708,339.27 in breach of contract and $25,000 in damages.

By all accounts the situation was an embarrassing mess, full of charges and countercharges and entrenched positions. EBM administrators believed it would be impossible for the agency to survive under the Beracha contract, but in reality the financial problems could be attributed to unwise decisions for many years.

When both parties settled out of court, they signed a nondisclosure agreement, making it difficult for supporting churches to understand the details of the fragmented relationship, including the financial settlement.

Beracha filed for voluntary dismissal of its suit on May 31, 2011. A few days later on June 7, EBM disclosed the prolonged deficits to guests at the agency’s annual conference, revealing the seriousness of the situation without providing details. Then the board ordered an outside review, the report that would lead to the agency’s closing a few months later.

Board action

The previous details, discouraging to read, help observers understand several aspects of the transition that followed. Don Whipple says the board had a specific goal when it chose legal dissolution instead of bankruptcy proceedings.

“Bankruptcy would have been more expensive and offered us less control,” he says, explaining how many of the board’s later actions were geared toward preserving liquid assets for the missionaries.

When an agency is dissolved, “missionaries are between a rock and a hard place,” George Hatfield says. Because of his legal background, Hatfield understood that missionaries are regarded (legally) as employees of EBM. They have no rights to the donated funds until the money is distributed to them.

“EBM had no legal responsibility to the missionaries after the last paycheck was paid,” Hatfield explains. “But the board chose to treat us as creditors with valid claims so we would receive at least a proportion of what was in our accounts.”

Some missionaries hoped for another potential funding stream. The board had a directors and officers insurance policy to protect them against liability claims. However, the hope of recovery was soon abandoned for two reasons: (1) It became clear that the missionaries as employees had a claim for only unpaid wages, and (2) The insurance company would probably reject the claim. The missionaries would be required to file a lawsuit against the officers and board members—and the Beracha mess had shown the bitter fruit of such ideas. After some discussion, the possibility was abandoned.

The board received some criticism for the lack of forthcoming information during the dissolution process. Whipple acknowledged the tension he felt as a board chair, juggling the expectations of lawyers (who advise their clients against public statements) and supporting churches (who value transparency and disclosure).

The final resolution meeting on June 20 featured a freewheeling discussion, and what participants later characterized as a transparent explanation of what went wrong—at least from the standpoint of those who attended. Former president David Culver, now a pastor, attended. And Whipple says he also invited Paul Jackson (former president) and Garold Paxson (former treasurer), but they declined.

“Not all parties to EBM’s demise were present at this meeting,” observed Charlie Armstrong, a pastoral intern at the host church. “As this gradually became clear, it led to the pivotal moment of the day. When it was pointedly stated that others should be sharing at least equally in blame with the board, then-chairman Don Whipple replied, ‘If you’re asking who is responsible, who did this, we’re—this board—we are saying to you today, We did. We accept responsibility. ’”

Armstrong called this a “not quite spoken distinction between being fully responsible and accepting full responsibility.”

“Everyone in the EBM family—staff, board, missionaries, sending and supporting churches—had, in order to preserve a cherished myth, neglected to act on warning signs,” Armstrong said in summary. (Read Charlie Armstrong’s full essay.)

What should a church be doing to demand financial integrity from its mission agencies? EBM’s closure has left George Hatfield with several ideas: “Churches should ask if the agency has an audit each year. Churches need to ask their supported missionaries what financial information their agency is reporting to them. They need to talk to board members to see if they are in reality getting information from the administration in a timely manner.”

Read more:

Kevin Mungons is managing editor of the Baptist Bulletin. Melissa Meyer, assistant editor, also contributed to this report.

In the November/December Baptist Bulletin:

What agencies did the missionaries use after EBM closed, and what does this tell us about the changing face of missions?