Overhaul church accounting

The archbishop grinned. His public relations aide was describing the whiz-bang accounting software that purportedly tracked 99 and 44/100 cents of every dollar collected by his parishes.

“Yes, of course, we make every effort to account for the money,” the archbishop told our correspondent. He chuckled the knowing laugh of someone about to let you in on a secret. “But it’s impossible to control everything -- we know a lot of the pastors still have their little kitties,” he said. (“That’s off-the-record,” interjected the aide.)

In fact, the archbishop was disclosing the worst kept secret in church financial circles. Even in the best-managed dioceses, parishes are far from the green-eyeshade scrutiny of the chancery’s number crunchers, assuming such oversight even exists. And the controls that do exist under canon law -- each parish is to have its own finance council and each diocese a similar body -- are hardly guarantees of good stewardship at either the local or diocesan level.

Here are some of the other “secrets,” known to those who track such events or participate in church governance:

• Bishops take gifts, sometimes very expensive gifts, from those who seek business from the church.
• Family members and friends of church officials can unduly benefit from their connections.
• The vast majority of U.S. Catholics have no idea how their $6 billion in annual donations are spent (or misspent) because diocesan and parish financial reporting, if it exists at all, is generally designed to obscure, to confuse, and not to enlighten.

Ah, but what about those financial reports published in the diocesan newspaper or, for parishes, inserted annually into the church bulletin?

“Many dioceses provide parishioners with an annual financial and administrative newsletter which provides a highly summarized view of the cash flows for the year and the results of social and spiritual programs offered by the diocese,” write Villanova researchers Charles Zech and Robert West in their recent study, Internal Financial Controls in the U.S. Catholic Church.

In fact, Zech and West, being sober academics, understate the case. With a handful of exceptions, the “highly summarized view” of finances presented by dioceses amounts to gibberish, indecipherable to those accustomed to reading such reports, much less to the average pew-sitter. Of course, as the researchers note, many dioceses don’t even humor local Catholics with such reports. “Since they are not required by law to be transparent and accountable in their finances, they choose to keep their finances private,” the authors write.

Financial statements, in the case of private enterprise, are designed to give potential investors a sense of the risks and opportunities present in a business. In the case of nonprofits, like a church or diocese, these reports should give some comfort or raise red flags to those considering whether to donate. It’s all about disclosure -- providing the potential investor or donor the information they need to make an informed decision.

In the U.S. Catholic church, what we typically see instead are audited financials whose “scope” is limited to the cash that flows in and out of the central administrative offices, the chancery. (And even here it’s nearly impossible, based on how the numbers are categorized and reported, to figure out what is really going on.) Left off these reports are all the affiliated entities of the diocese, such as parishes, schools, hospitals, nursing homes, church-owned real estate outside the chancery, multimillion dollar cemetery trusts, and so on and on.

In other words, financial reports that should provide a picture of the financial health of a diocese omit from scrutiny the vast majority of the church’s assets and liabilities.

It’s a sham. And the public accounting firms that generate these reports, though ever so careful in “limiting the scope” of their audits, should not trade their credibility for easy fees. What are the consequences? In the Cleveland diocese, to take a recent example, the best-case scenario from the church’s perspective is that the diocese’s former chief financial officer, Joseph Smith, might be found guilty in a trial that begins in April of conspiring with another employee to steal more than $700,000. The worst case, the one presented by Smith’s lawyers in court filings, is that the now-retired archbishop, Anthony Pilla, and other high-ranking officials of the diocese, kept hundreds of thousands of dollars in off-the-book accounts to use for their own purposes.

Amazingly, as allegations about Smith publicly surfaced in 2004 and he resigned his job in Cleveland, he was hired by the Columbus, Ohio, diocese as their chief financial officer. He quit that job after he was indicted.

So what’s to be done?

Accountability starts at the top, and in the U.S. church that means individual bishops acting in their own dioceses. Some questions each bishop should consider:

• Do you accept more than token gifts from those who seek church business? Expensive golf outings, handcrafted crosiers, fine wines, vacation homes, expensive automobiles? These may not be the justified perks of high office. They may be bribes -- the offering of something of value with the expectation of receiving a return. It’s corrupt and it should stop.
• Do you insist that the diocese’s canonically required finance advisers -- the diocesan finance council -- be conflict free? Or do some members use their posts to get the inside track on church business?
• Do diocesan employees who handle real estate or contracting or hiring of vendors feel explicit or implicit pressure to meet with those who have familial connections to church leaders?
• Do your financial statements present a fair portrait of the entirety of diocesan finances or just a slice of a larger pie?

Zech and West suggest that parish audits be conducted regularly, that finance boards abide by conflict-of-interest guidelines, that their membership be publicly disclosed, and that church financial statements present an accurate picture of financial conditions. These, and other such commonsense recommendations, are already included in the U.S. Conference of Catholic Bishops’ guidelines for financial stewardship. But they are guidelines, not rules, so dioceses typically implement the ones they like, disregard the ones they don’t.

Lawyer Thomas Gallagher ( see related story) suggests that civil law be changed to empower the laity in the noncanonical functions of parish management. He might be onto something, though church leaders are loathe to invite legislators to help solve what the church sees as an internal problem, assuming a problem is even acknowledged.

Meanwhile, secrecy is the watchword.

John McCarthy, a former Price Waterhouse Coopers partner who now lectures on nonprofit issues at the Kennedy School of Government, told a 2004 meeting of the National Leadership Roundtable on Church Management of his efforts to modernize the Boston archdiocese’s financial reporting. “The archdiocese, under the old leadership, had followed practices that can be described as secretive. That’s not an uncommon word when you talk about church matters. There just wasn’t what I’d consider to be a full sharing of information; it was done on sort of a need-to-know basis.”

Thanks to the efforts of McCarthy and others, the Roundtable presented an award to the Boston archdiocese for the transparency of its financial reporting under Cardinal Sean O’Malley.

There was a time in the church when the faithful would not have dreamed of asking for an accounting. Such a request would have suggested mistrust of the leader of the community, the priest believed to be ontologically different from the rest, operating in the place of Christ and beyond rebuke. The reality, we have come to know in recent decades, is something far more pedestrian and human. We are all in this together, all subject to the same temptations and frailty.

Transparency is essential to the health of the community.

Absent public scandal, however, or a leader who demands transparency, it is left to a diocesan bishop or the parish pastor to decide who needs to know what. And that decision does not typically include the people who pay the bills.

National Catholic Reporter, March 9, 2007