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Effective Church Financial Management Systems

Over the past 10 months, I and and many other Voice of the Faithful (VOTF) volunteers, with input from many VOTF members, have worked on formulating and improving a policy statement on effective church financial management systems and getting that statement approved by VOTF officers. The 8.23.2007 issue of In the Vineyard, the VOTF bi-weekly electronic newspaper, carried the approved policy statement, which follows.

If anyone has any comments or questions, please use the Reply capability of this site, or e-mail me at frankdouglas62@yahoo.com.

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VOTF National Representative Council
Resolution on
Effective Church Financial Management Systems

August 2007 - Recent media disclosures and an important university study provide compelling evidence that secrecy, ineffective internal financial controls, inadequate disclosure, and insufficient oversight characterize the financial activities, records, and reports of too many Catholic parishes, dioceses, and Catholic Conferences (the public policy and lobbying arms of the Church).

Establishing effective Church financial management systems will provide the financial transparency and accountability necessary to solve these problems. Moreover, 89 percent of American Catholics want a substantial voice in the financial decisions of their Church (the National Catholic Reporter, September 30, 2005).

Therefore, VOTF calls on lay Catholics to work in partnership with pastors and bishops to provide the responsible management of Church financial resources that justice and good stewardship demand.

Background
The Center for the Study of Church Management at Villanova’s School of Business reported in January 2007 that 85% of U.S. dioceses responding said that they had uncovered embezzlement schemes over the past five years. More than 10% reported that the amounts stolen exceeded half a million dollars. The study reported that the Catholic Church has some of the most rigorous financial guidelines of any denomination, but found that the guidelines were often ignored in parishes. Some of the cash that goes into the collection plate does not always get deposited into the church’s bank account because of high-living clerical life-styles or embezzlement or both.

In January 2007, the Diocese of Bridgeport, Conn., removed the pastor of a Greenwich, Conn., parish over the expenditure of some $500,000 without proper documentation. That follows the revelations last year that a prominent Darien, Conn., priest, Michael Jude Fay, had walked off with $1.4 million to bankroll a luxurious lifestyle of New York trips and Florida vacations with a male friend. In Virginia, a priest was accused of stealing $600,000 to help support a woman who may be his wife, while last September two Palm Beach, Fla., priests were arrested for allegedly stealing $8.6 million from their parish. In Boston, priests’ trust has been shaken by pension fund mismanagement.

On January 18, 2007, the Accounting Practices Committee, a group of lay experts who advise the United States Conference of Catholic Bishops (USCCB), called for tighter internal controls over finances in the nation’s more than 19,000 parishes.

Many of the recommendations of the Villanova Center for the Study of Church Management, as documented in Internal Financial Controls in the U.S. Catholic Church, and of the bishops’ Accounting Practices Committee have been incorporated in the general and specific recommendations that follow.

General Recommendations

1. VOTF strongly advocates the establishment of sound financial management systems, policies, procedures, controls, and practices at all levels of the Catholic Church, including parishes, dioceses, and Catholic Conferences, that provide enhanced financial accounting, full disclosure of financial information, and effective oversight.
2. Policies, procedures, controls, and practices should be documented, maintained current, available on the Internet, and provided to Church members upon request. Documentation should include a detailed description of financial controls, tools, standards and procedures.
3. At all levels, financial statements should be prepared on a consistent basis from year to year, in accordance with Generally Accepted Accounting Principles (GAAP), published on a timely basis including comprehensive and informative footnote disclosure. Disclosure of financial information should be accurate, detailed and comprehensive.
4. At all levels, policies should be implemented to guard against fraud and embezzlement, protect whistleblowers (e.g., by establishing communication channels for church workers to report suspected irregularities or fraudulent activities while protecting their anonymity), and report all suspected cases of fraud to law enforcement authorities.
5. At all levels, policies and procedures should be designed and implemented to provide effective oversight, with significant participation by knowledgeable lay persons, in the development, monitoring, and improvement of financial management systems.
6. At all levels, high priority should be given to identifying and correcting deficiencies in current financial systems. Specifically, VOTF recommends that initial improvements to parish, diocesan, and Catholic Conference financial systems be completed by December 31, 2008.
7. Catholic conference financial policies should ensure full disclosure of all expenditures for legislative initiatives.

Specific recommendations for parishes, dioceses, and Catholic Conferences:

Parishes
Parish financial management systems should provide for:

1. Effective parish finance councils, as required by canon law. The council should include members with knowledge and experience in parish finances and/or financial management (e.g., financial managers, accountants, or business managers and owners). Members of the council should represent a cross section of the parish community and include members that are elected by the parish community.
2. Thorough training for parish finance council members relative to their roles and
   responsibilities.
3. An open budgeting process that solicits input from all members of the parish
   community.
4. Effective security controls over all revenue and disbursements, especially with
   respect to cash and cash equivalents. Examples of such controls include church ushers securing money in tamper proof bags with numbered seals; rotating money-counting teams; separation-of-duties standards, such as ensuring that bookkeepers recording the funds aren’t the ones counting and depositing them; pre-numbered receipts; and two signatures on checks for large disbursements.
5. A system of internal controls, including those to prevent embezzlement.
6. Preparation of annual audited or compiled financial statements by an independent CPA in conformity with Generally Accepted Accounting Principles (GAAP) and made available to the parish community.
7. Full, supplemental disclosures including:
8. • Monthly or quarterly financial reports including a balance sheet and income statement (receipts and disbursements.)
   • Preparation of an annual budget (approved by the parish finance council) that is made available to the parish community.
   • Annual report to parishioners from the parish finance council containing: i) the names, brief background, and expertise of parish finance council members; ii) dates when the council met; iii) date(s) when the approved parish financial statements and budget were made available to parishioners during the preceding fiscal year and when they will be made available during the current year.
   • Periodically, but at a minimum, every 5 years, a detailed statement itemizing the estimated fair market value of assets owned by the parish.

Dioceses
Diocesan financial management systems should provide for:

1. Diocesan financial councils including members with experience and expertise in financial management (e.g., financial managers, accountants, business managers). VOTF recommends that diocesan financial councils include significant representation by persons elected by parishioners, parish councils, parish finance councils, priests and religious communities.
2. An open budgeting process that solicits input from parish councils, parish finance councils, and other members of the diocese.
3. A system of internal controls, including those to prevent embezzlement.
4. Preparation and issuance of audited financial statements conducted by an independent CPA in conformity with Generally Accepted Accounting Principles (GAAP). VOTF recommends that the CPA firm be changed periodically (e.g., every 3-5 years)
5. Diocesan policies should include a conflicts of interest policy and require selection of the diocesan auditor by a person other than the diocesan chief financial officer.
6. Financial accounting and reporting systems should comply with the existing guidelines in the Diocesan Financial Issues document approved by the United States Conference of Catholic Bishops. In addition, we recommend the use, as appropriate, of the work products of the National Leadership Roundtable on Church Management and VOTF’s Structural Change Working Group, and other best practices (e.g., Business Administration – Best Parish Practices published by the Archdiocese of Chicago).
7. Full, supplemental disclosures including:
   • A description of the ownership/affiliation structure of all diocesan and parish entities.
   • Receipts and disbursements of diocesan appeals and appeals of all diocesan-related entities.
   • A description of the pension plan for priests and other Church workers including financial statements, vesting rules, actuarial assumptions and portfolio performance.
   • Financial disbursements to other Church entities, including the Vatican.
   • A schedule of financial support provided to and by Catholic Conferences for lobbying activities, including with regard to legislation designed to extend, temporarily suspend, or eliminate civil or criminal statutes of limitations on child sexual abuse suits, reporting child abuse, or other legislation designed to protect children from sexual abuse.
   • Payments to and contracts with public relations firms and a description of the activities for which these firms were engaged including amounts paid to defeat legislation designed to extend, temporarily suspend, or eliminate civil or criminal statutes of limitations on child sexual abuse suits, reporting child abuse, or other legislation designed to protect children from sexual abuse.
   • Costs and detailed information associated with all insurance policies, and any amounts invested in self-insurance programs.
   • Description of lawsuits and liability claims filed against the diocese, the costs of defending such claims, including fees paid to lawyers, any amounts paid to claimants, and receipts from insurance companies in settlement of claims.
   • The number, names, and costs associated with each known, admitted, or credibly accused priest and/or other church worker who has been credibly accused of sexual crimes against children and vulnerable adults and who are still receiving financial support from the Catholic Church.
   • Periodically, but at a minimum every 5 years, a detailed statement itemizing the estimated fair market value of assets owned by the diocese.

Catholic Conferences
Catholic Conference (and other similar Church lobbying organizations) financial management systems should provide for:

1. Full annual disclosure, on a line item by line item basis, of all receipts and sources of receipts for all legislative initiatives. Full annual disclosure, on a line item by line item basis of all expenditures made for legislative initiatives. The disclosure of expenditures should include, but not be limited to, payments made to legal, lobbying and public relations firms as well as the purpose of such expenditures.
2. Full annual disclosure of the amount of financial or other support each state (or inter-state) Catholic conference receives from each diocese.

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