Financial Reporting in the Catholic Church

Financial Reporting in the Catholic Church

The Roman Catholic Church described itself as a “visible society and spiritual community.”1 However, at the beginning of its second millennium the church faced numerous challenges on living up to these aspirations. The church had more than 60 million members in the United States, but a significant portion of its traditional contributors were withholding some or all of their financial offerings in response to a series of financial, administrative, and spiritual scandals that occurred on several levels of the church. The financial shortfalls jeopardized many of the church’s activities as well as the social services it sponsored to those beyond its membership. Thus, while its U.S. members faced the strains resulting from a tepid economy, concerns with terrorism, and military actions in foreign nations, the church’s ability to provide spiritual, moral, and financial support had been impaired by some of its own actions. This left the church leadership facing the challenge of restoring the confidence of its members and financial contributors so it might continue its activities.

Structural Overview

In 2003 Catholics accounted for approximately one-half of the world’s 2 billion Christians.2 The church operated with a three-level hierarchy analogous to local, state, and federal levels of government. Laws established by a higher authority could be made more exacting, but not countermanded, by a lesser authority. Throughout the world, there were 219,000 local territories called parishes, where Catholics directly participated in worship and other activities under the direction of a priest appointed to the office of pastor. Dioceses (sees), of which there were approximately 4,700 worldwide, were the main administrative unit of the church.3 Bishops served as heads of dioceses and oversaw worship, teaching, and governance. The Diocese of Rome, or Holy See, had special historical and spiritual significance. The bishop of the Diocese of Rome, also known as the pope, was the universal pastor of the Catholic Church. Centered in Vatican City, the pope guided the work of his fellow bishops to protect and promulgate church unity and Christian teachings while coordinating service to the world.

Global Church: The Pope and the Vatican

As the principal spiritual leader of the Roman Catholic Church, the pope based his leadership on service to God and humanity. By virtue of his office, a pope fulfilled three concurrent roles: he was the bishop of Rome, head of the college of bishops, and head of the state of the Vatican City. The pope possessed authority adequate to preserve and propagate the church’s faith, prescribe liturgical services, legislate for the whole church, interpret and alter church laws, exercise supreme juridical authority, and determine all appointments and public offices. The pope had the substantial assistance of church professionals in carrying out his duties. 4

The pope’s influence on the church was pervasive, but there were limits to his power. The pope possessed primacy among, but not over, his fellow 5,000 bishops.5 Hence, the pope’s authority in the church was not monarchical but more than a “first among equals.” “The pope . . . is circumscribed by . . . the spirit and practice of the Church, by the respect due to General Councils, to ancient statutes and customs, by the rights of bishops . . . [and] by the traditional mild tone of government indicated by the aim of the institution of the papacy—to feed.”6    A common misperception that exaggerated the pope’s influence was the Catholic doctrine of infallibility. Infallible statements were limited to ex cathedra papal pronouncements of doctrine regarding faith and morals. The most recent exercise of this authority was by Pius XII in 1950. Because bishops, pastors, and individuals possessed power and rights proper to themselves, the pope’s influence depended on both respect for his office and his ability to foster unity with people and offices in the church.

The unique goals, laws, structures, procedures, and culture made the Vatican a complex organization. “When they come to Rome, bishops are just as confused [as politicians] about Vatican decision making when confronted by a papal bureaucracy with overlapping jurisdictions and secretive procedures.”7 On the other hand, “Most Americans and Germans think Vatican City is inefficiently run, but in comparison with Italian bureaucracies it operates fairly well.”8       Offices in the central administration of the Catholic Church included the following:

The Roman Curia were the central administrative offices of the worldwide church. The secretariat of state oversaw the work of 9 congregations, 11 councils, 3 tribunals, and other offices. It did not have a legislative role but processed, advised, and implemented church policy and teachings. The curia employed approximately 2,500 people, many of them priests, bishops, and cardinals.

The College of Cardinals elected and advised the pope as well as being the authoritative assistants in the pope’s central administration. Approximately 135 cardinals served in one or more curial departments and often simultaneously as archbishops.

The Synod of Bishops was the elected representatives of bishops throughout the world who consulted with the pope and curial officers about issues effecting bishops’ local churches.

The Pontifical Commission of the Vatican City state oversaw the 108-acre sovereign nation of Vatican City. Five cardinals directed its administrative and financial policies.

The Vicar for Rome was an appointee of the pope who administered the Diocese of Rome.

In addition to its internal role in the church, the Vatican oversaw relations with world religious and political leaders. The Vatican maintained formal diplomatic relations with 173 nations, was an observer in international bodies such as the United Nations and the World Trade Organization, and participated in organizations ranging from the Organization for the Prohibition of Chemical Weapons to the International Atomic Energy Agency.9 The pope actively engaged the church in contemporary world affairs. A summary of the Vatican’s dossier from the week ending November 21, 2003, included: “Church’s Charity Is Not Just Material But Also Spiritual, Says Pope,” “John Paul II Disapproves of Israel’s Barrier,” “Pope Stresses Need to Respect Dignity of Migrants and Refugees,” “Pope Stresses Dialogue, Not Terrorism, to Solve Problems,” “Indian Bishops Hear Pope Condemn Caste System.”10

The pope and the Vatican had several means of communicating with outsiders including published correspondence, the Vatican press office, and bishops. Pope John Paul II made over 100 foreign visits, attracting audiences of millions at many stops. A BBC correspondent who covered John Paul II for 25 years noted, “The aspect of papal travel that impressed me is the diversity in the ways the Catholic religion is lived in different parts of the world. While Rome struggles to impose uniformity, in practice, the Catholic Church seems to me to have invented a surprising diversity in its interpretation of the Christian message.”11

Regional Church: The Bishops and Dioceses

Dioceses varied in size, population, and culture. In 2002, Sao Paulo, Brazil, claimed 6.8 million Catholics in 635 square miles12, while Fairbanks, Alaska, had 17,700 Catholics spread over 410,000 square miles. The bishop was pastor of the diocese’s cathedral (main church) and was responsible for teaching the Christian faith in his diocese. The bishop appointed pastors of parishes and oversaw educational institutions (primary and secondary schools, colleges, retreat houses, and seminaries) and Catholic media (newspapers, radio, and television). Almost every U.S. diocese had a separately incorporated Catholic Charities that provided services to at-risk populations without regard for religious affiliation. Catholic Charities was often one of the largest social service providers in most states through its contracts and partnerships with governments and other not-for-profit agencies. The Catholic health-care network was one of the largest in the United States. Bishops collaborated regionally or at their National Bishops Conference to address wider matters of church concern and public policy.

The pope appointed bishops, but they were more than his regional representatives. “[Bishops] are appointed for the government of one portion of the faithful of the Church, under the direction and authority of the sovereign pontiff [the pope], who can restrain their powers, but not annihilate them.”13 In fact, bishops possessed legislative, executive, and judicial authority in their dioceses.

The bishop appointed a staff of priests and laypeople to assist with personnel, pastoral, financial, educational, communication, and judicial matters of the diocese. The vicar general was a required appointment to whom a bishop could delegate certain authority. Canon law required bishops to have a college of consultors, made up of both appointed and elected priests from the diocese.             Also required was a finance council that included Catholics with expertise in civil affairs. Both the consultors and council possessed deliberative power; their consent was required for the alienation of property and other acts of extraordinary administration.14 A bishop was also required to have two consultative bodies. Presbyteral councils were composed entirely of priests, and pastoral councils were made up of priests, religious orders, and laypeople. Regional representative structures for priests were called vicariates. Bishops were required to have a finance officer, who was the only administrator who could not be removed by the bishop, except for serious reason and after consultation with the college of consultors and the finance council. Bishops’ reliance on the opinion and expertise of the required bodies varied.

In the United States, dioceses usually incorporated various church functions as separate not-for- profits. Commonly, discrete corporations were established for the chancery (central administration), schools, seminaries, hospitals, Catholic Charities, media, cemeteries, retirement funds, and individual parishes. The bishop ordinarily served as chair of each corporation with authority to determine board membership. Each corporation was subject to civil and canon law.

Religious orders of men and women (i.e., brothers, sisters, monks) often served in multiple dioceses offering themselves for special services such as education, health care, retreat houses, or social services. Religious orders were accountable to the local bishop and their own authority structure, which often had accountability to the Congregation of Religious and Secular Institutes in the Vatican.

Local Church: Parishes, Priests, and Laypeople

The parish was the heart of the church for many Catholics, representing the place and people with whom they worshiped. The church building served as the gathering place for weekday and Sunday Eucharist, baptisms, confirmations, marriages, funerals, and prayer. Educational and other programming and special events took place in parish facilities. Most parishes ran social outreach programs and coordinated associations of men and women for fraternity and service.

The 62 million U.S. Catholics belonged to more than 19,000 parishes ranging from 356 people per parish in the Diocese of Fairbanks to over 16,000 people per parish in the Diocese of Las Vegas. Catholic parishes in the United States were, on average, eight times larger than non-Catholic denominations.15 Loyalty to one’s parish was reinforced by its neighborhood boundaries and often

by a common ethnic heritage. Thirty-five percent of U.S. parishes had a Catholic elementary school, adding yet another thread to the communal fabric.16

The bishop appointed a priest as pastor of the parish. The priest served as administrative leader of the parish staff and councils. Larger parishes often staffed more than one priest per parish, but as of 2000, 13% of U.S. parishes had no resident pastor, and daily administrative tasks were managed by a lay administrator.17  Parish staff reflected the parish’s population, services, and budget. Large parishes often hired directors of business, music, religious education, marriage preparation, bereavement and funerals, pastoral counseling, youth ministry, and community service. The number of priests per parish was declining while professional lay staffs grew from 2.9 persons per parish in 1995 to 3.4 in 2000.18

Canon law required each parish to have a finance council to assist the pastor with the administration of parish goods. Councilors helped prepare the parish budget and reviewed annual financial statements. Selling parish property, borrowing funds, undertaking a planning process, and initiating a capital campaign required the consent of the finance council and permission from the bishop. Most parishes also established a consultative pastoral council. The selection for both councils was determined by diocesan policy and the pastor, as were the manner and degree in which the councils were used.

Some Catholics joined regional or national chapters of Catholic associations. The Knights of Columbus was a men’s international service organization with more than 12,000 local councils (1.6 million members) worldwide. The Knights donated nearly $1 billion to charity and gave nearly 400 million hours of volunteer service from 1993 to 2003.19 Women’s groups and international spiritual movements such as Communione e Liberatione, Cursillo, Opus Dei, Marriage Encounter, and Focolari complemented the spiritual and service activities of a parish.

Weekly church attendance had declined slowly over the last 50 years to approximately 45% of Catholics in 2003, presenting some challenges to the parishes.20          In the United States during 1998, 1.05 million people entered the church; 92.2% were initiated through infant baptism, and 7.8% by adult conversions. Immigration was another source of growth for the U.S. church.21 Even when Catholics disagreed with elements of their church’s official teaching, their identity as Catholics and affiliation with the church tended to stay intact. In a November 2001 poll, Pope John Paul II was given a 90% approval rating among American Catholics.22         Andrew Greeley, a Catholic priest, sociologist, and novelist, described it: “Catholics are Catholics because they like being Catholic. They like the stories. Christmas, Easter, the saints, the angels, the mother of Jesus. . . . The images and the stories are what

hold us in the Church—despite, sometimes, our leadership.”23 As did politics, the local experience had a powerful impact on a Catholic’s ties to his or her church.

Funding, Expenditures, and Financial Reporting

Church finances were relatively decentralized. “For the most part, the three levels [of the church] manage their finances independently, a setup that’s the antithesis of centralized chain of command on matters of theology and dogma. The Vatican rarely, if ever, becomes involved in finances at the diocesan level. And dioceses rarely influence the finances of individual parishes.”24   Dioceses and the Vatican depended on funds that flowed upward through parishes. The church’s primary source of funds was nondesignated free-will offerings given by families at their parish. Parishes consumed most of those contributions, passing a small portion to the diocese, which in turn made an offering to the Vatican. All contributions were subject to civil and canon law, which stated explicitly: “Offerings given by the faithful for a certain purpose can be applied only for that purpose.”25              Financial reports were generally less available for higher levels of church administration.

Local Church: Parish Revenues and Expenses

Parishes received funds from weekly collections, special collections, designated appeals, rental income, wills and bequests, and fees for service. Financial contribution was not a requirement for being or participating as a Catholic. During each Sunday celebration a collection basket was passed through the church. Registered parishioners enclosed their gifts in preprinted envelopes; others placed cash or loose change into the basket. “The good news regarding this ingenious system is that, in 2000, approximately $5.6 billion, or 73% of the entire (United States) parish revenue budget, arrived via the Sunday collection. The bad news is that, while many millions of Catholic households did support their parish with weekly offerings, Catholic giving per household consistently lags far behind Protestant contributions.”26 Across the United States, Catholics gave approximately 1.1% of their annual household income, one-half to one-quarter that given by Protestant Christians.

Occasionally, parishes conducted an additional collection for designated parish, diocesan, or Vatican priorities. Bishops depended on these second collections for activities such as Catholic Relief Services, which responded to international crises, or to support of retired sisters (nuns). Peter’s Pence was an annual collection sent directly to the Vatican for the needs of the pope. Periodic parish capital campaigns were conducted separately from regular giving. Some parishes rented unused facilities, such as a closed school or gymnasium. If parishes requested fees for services such as weddings, funerals, and religious education, they typically varied from $20 to $200.

Collections were locked until counted by the pastor, parish staff, or volunteers. Parish banking practices varied, but most dioceses encouraged and used centralized banking. Some pastors were reluctant to fully participate in centralized banking, even though the diocese was not permitted by civil or canon law to take or use parish assets without their permission. “One director of [diocesan]

finances tells of a new pastor bringing him a briefcase containing $80,000 that had been hidden in the rectory. ‘The old pastor was not trying to take care of himself,’ he says. ‘He just wouldn’t send it downtown and wouldn’t trust the banks.’”27

Parishes were expected to be self-sustaining and most were by thin margins. Nationwide, salaries represented 42% of parish expenditures.28 The median salary for a priest was $13,600 plus $16,000 in living expenses. A typical parish administrator was paid $45,000.29  Other significant expenses often included plant and program expenses and school subsidies. Depending on the diocese, a parish was taxed 5% to 20% of its regular collection income. Because parishes and dioceses tended to operate on a cash rather than an accrual accounting system, issues such as deferred maintenance often plagued older facilities.

The pastor, advised by the parish and finance councils, determined if and how financial activity was reported to the parish. Some parishes produced a high-level annual report; others summarized the prior week’s revenues and expenses in the printed bulletin. Most dioceses required parishes to submit an unaudited annual financial report. Increasingly, dioceses utilized centralized electronic financial reporting. Some dioceses had internal auditors and occasionally hired external auditors for either random parish audits or for audits of parishes of particular concern.

The ownership of parish assets was complicated by their being governed by two distinct sets of laws: The Code of Canon Law of the Roman Catholic Church and civil laws of incorporation, which varied by nation and state. Canon law protected the financial autonomy of a parish’s assets but also allowed the bishops some control. Approximately one-half of U.S. dioceses were incorporated as not-for- profit corporation aggregate, where each parish incorporated separately from the diocese and the bishop was placed on its board or as a trustee. Other dioceses incorporated through not-for-profit corporation sole, a method long discouraged by the Vatican because parish assets were held in the name of the bishop of the diocese.

Parishes were generally environments of high trust and low financial sophistication, making them prone to occasional financial impropriety. A former parish business manager in Little Rock, Arkansas, was arrested in connection with $500,000 missing from a church building fund. The money disappeared over three years and was noticed by the diocese when the parish was reviewed for higher-than-expected renovation costs.30  Obviously, these incidents could create concern among parishioners. But even in the midst of a scandal with financial implications such as the ones associated with sexual abuse by clergy in Boston, some Catholics remained loyal contributors to their church. “As the morning’s only English-language Mass at Blessed Sacrament Church ended yesterday, Luis Vega, 26, a parishioner at Blessed Sacrament [in Jamaica Plain, Massachusetts] for nine years, unfolded a $20 bill and dropped it in the offering basket. ‘There is a lot going on in the church,’ said Vega, ‘but I like to come. It’s good for me.’”31

Regional Church: Dioceses

Each Catholic diocese was financially autonomous. The complex civil and canonical legislation of diocesan finances ensured that the bishop maintained substantial control over the church assets. U.S. dioceses’ operating budgets ranged from hundreds of thousands to hundreds of millions of dollars. Diocesan activities were funded, primarily, from five sources: taxes on parishes, an annual appeal to families facilitated through parishes, special collections conducted through parishes, income from investments, and direct contributions from individuals. Diocesan expenses included salaries and benefits, insurance, program expenses, support for social services, and subsidies for schools. Bishops sent funds outside their dioceses for international humanitarian needs and to the U.S. Catholic Conference of Bishops, which addressed national church concerns. Dioceses sent a small percentage of their funds directly to the Vatican. The United States, along with Germany, was the largest contributor to the Vatican; each country contributed approximately 5% to the $200 million annual Vatican budget.

Canon law directed bishops to conserve the patrimony of their dioceses and avoid debilitating debt.32  Diocesan assets included land, buildings, churches, retirement funds, cemeteries, seminaries, and investments, and occasionally an endowment. Dioceses held, but did not own, the parishes and their savings. Some diocesan real estate and buildings had substantial value. However, many properties had old structures that, if repaired or torn down and sold, had no net value. Canon law required that bishops get approval from their finance council before alienating church property worth over $500,000 and approval from the Vatican of property worth over $1 million. However, money and securities given but not designated for a specific purpose did not come under the alienation rules. Permission from a bishop’s finance council and college of consultors was required for extraordinary acts such as purchasing land, undertaking construction, signing long-term leases, investing capital, taking special collections, and incurring debt.33

Bishops had responsibility for coordinating diocesan wide service to the poor and facilitating transfers of funds to places of international need. Bishops bore a heavy burden for fund-raising. Catholic Charities spent $2.3 billion annually in the U.S. for an array of activities such as soup kitchens, childcare and eldercare, and refugee resettlement. Catholic Relief Services (CRS), organized through the U.S. bishops, spent more than $270 million in 2002 responding to natural and man-made disasters throughout the world. In 2003, CRS partnered with international agencies and responded to the Iranian earthquake, refugees in Afghanistan, Iraqi humanitarian needs, and people devastated by a cyclone in Madagascar. Similarly, the bishops ran their annual Catholic Campaign for Human Development, which addressed systemic issues of domestic poverty with approximately $10 million of grants. Dioceses also subsidized the education of many of the 2.6 million U.S. students who attended Catholic schools.

Changes in patterns of donations to parishes were often amplified at the diocesan level. In 2002, in the midst of a moral and financial crisis that many Catholics held bishops responsible for, a Gallup poll indicated that 30% of Catholics were considering decreasing or stopping their donations to the church.34 At the same time, foundations that gave to Catholic dioceses were demanding additional assurances that their money would be used only for its designated purposes. In 2002, the Archdiocese of Boston was facing a $5 million budget deficit, New York’s $20 million, and Chicago’s $23 million.

As a result, Boston Catholic Charities, Massachusetts’s second-largest provider of social services, planned a 15% reduction in its central staff and its $40 million budget, which helped serve more than 170,000 people.

Few bishops possessed professional training in finances, making them reliant on professional staffs. The wide latitude given to bishops could lead to unique, even idiosyncratic financial decisions in dioceses. “In New York, for instance, the late Cardinal John O’Connor, though beloved by his flock, had a reputation for being a terrible financial administrator. He was ill at ease with wealthy donors who could have pumped up Church coffers. Yet he loved to bail out money-losing schools and parishes and blew through the entire endowment.”35   While most bishops managed to effectively oversee the financial activities and services of their dioceses, occasionally bishops or their financial officers jeopardized dioceses. It was discovered in 2000 that Bishop De Roo of Victoria, British Columbia, and his financial administrator circumvented the diocesan finance council, violated canon law, and engaged for 13 years in investments that evolved into a $17 million debt for the diocese’s 90,000 Catholics. A $30,000 investment in Arabian horses began a series of poor investments that culminated in the diocese signing a $12 million loan guarantee on a horse track near Olympia, Washington. After the information was made public, retired Bishop De Roo stated, “In today’s world it is almost impossible for bishops to both tend to the spiritual needs of the diocese and at the same time be a first-class business administrator.”36

Canon law did not mandate external audits or specific financial reporting practices for dioceses, but it did require bishops to “render an account to the faithful concerning the goods offered by the faithful to the Church.”37             In 1984, approximately 70% of the dioceses published their financial reports, of which public accounting firms prepared 78%. The diocesan finance committee typically reviewed the audit and management letter, and the diocesan newspaper and Web page published all or part of the financial statements. To most nonprofessionals the reports were unintelligible.38 Dioceses received more letters from Catholics if they did not publish the annual report than if they did. However, most dioceses supplied financial information for only the activities of the diocesan central administration, which was one of many corporations within the archdiocese. Dioceses did not attempt to consolidate the financial statements of all their corporations nor did parish financial activities appear in their statements.

Bishops had few financial reporting requirements to the Vatican. Every five years each diocesan bishop made an ad limina visit to the Vatican. The bishop prepared a comprehensive report of the activities of his diocese, including its economic condition. While in Rome, the bishop met with various officials culminating in a 15-minute meeting with the pope. Cardinal Edmund Szoka, president of the Prefecture for the Economic Affairs for the Holy See, commented, “Every bishop is responsible for his own diocese—he doesn’t have to send Rome a financial statement.”39 The Vatican depended on contributions from dioceses but was not in the practice of bailing them out of financial difficulty. Dioceses in distress often turned to other dioceses for loans. Cardinal Szoka, who was somewhat of a champion of financial transparency both as an archbishop in Detroit and in his role in the Vatican, responded to a BusinessWeek interviewer who asked why the church did not require the

same of all dioceses, “Each diocese is autonomous. A bishop is not the representative of the pope. He is the representative of Christ.”40

Global Church: The Vatican

The Vatican began to professionalize its financial affairs in the 1990s. Prior to that it is unlikely that even an insider could have approximated a complete financial picture. Part of the challenge was the complex working and financial relationships between the three discrete entities that made up the Holy See. The other challenge was the Vatican’s premium on privacy about its financial affairs.

Vatican City received revenue from taxes on goods and services; property rentals; the sale of coins, stamps, and souvenirs; as well as fees from galleries and the Vatican Museum. This revenue was used to fund 1,300 city employees providing service such as security, fire department, post office, and the upkeep of ancient facilities and streets. If the city operated at a surplus, a portion was distributed to the Holy See. In 2002 the city had a shortfall of $18 million, which was caused by the burden of a special payment to cover half of Vatican Radio’s deficit.41

The activities and services of the Diocese of Rome and the curia often blended together. They received income from three primary sources: donations from dioceses, religious orders, institutions, foundations, and associations; gifts; and investment income. Required contributions from dioceses began in 1990; amounts were not prescribed but suggested to equal a diocese’s financial commitment to its national bishops conference.42      In 2002, the Holy See reported that contributions from dioceses, religious orders, foundations, and individuals around the world had unexpectedly more than doubled, to $96.9 million.43         The Vatican collected only nominal fees for services to avoid appearances of simony. The curia had approximately 2,500 people on its payroll, which represented the Holy See’s largest expenditure. Other significant expenses were papal embassies, utilities, maintenance, and administrative costs. Multiple offices within the curia made distributions, particularly the Council Cor Unum, which sent funds to victims of natural or man-made disasters. In 1994, approximately $5.5 million was sent to Rwanda and Yugoslavia.44             Peter’s Pence, given by dioceses and individuals directly to the pope for discretionary use, amounted to $53 million in 2002, an increase of 2% from the prior year.45

Most, but not all, of the Vatican’s investments were overseen by the Administration of the Patrimony of the Holy See (APHS). APHS investments tended to be conservative and long term. An internationally diversified portfolio of stocks, bonds, and real estate was managed internally with the assistance of external advisors who worked at some of the world’s leading investment houses. The Vatican had also been a professional and aggressive trader of currency. The market value of the

investments was not known, as the Vatican’s balance sheet reflected stocks at purchase price and valued real estate in a manner unacceptable to auditors.46

Perhaps no Vatican institution created more intrigue about the Vatican’s finances than The Institute for the Works of Religion, the Vatican Bank. It provided banking services for Vatican employees, dioceses, religious orders, Vatican offices, and other religious institutions. The bank also was critical for protecting Catholic institutions from confiscation by unfriendly governments and providing currency exchange for religious institutions with multinational sources of income and expenses. The church used the bank to deliberately avoid international restrictions on the transfer of money. For example, the church opposed economic sanctions against Poland after the imposition of martial law in 1981 and used the bank to funnel money to the Polish church and Solidarity. The bank sought to be profitable, and the commission of cardinals who oversaw the bank approved distributions to the Holy See.

The Vatican Bank had been accused of abuse ranging from helping rich Italians avoid taxes to laundering money for the Mafia. There was wide speculation about its involvement in the 1982 collapse of the Banco Ambrosiano, but the bank denied any wrongdoing. Since that time, the bank labored to improve its image including instituting an audit by an independent firm in 1994. Vatican officials asserted that the Vatican Bank was not part of the Holy See. The bank was run by a professional director who was supervised by a council of five financial experts from around the world. The director and his advisors reported to a commission of five cardinals appointed by the pope. While the bank’s management was separate from the Holy See, the pope was the only stockholder.47

A committee of 15 cardinals appointed by the pope and chaired by the secretary of state had final oversight authority over all financial matters of the Holy See, including the Vatican Bank. The Prefecture for the Economic Affairs coordinated and supervised the administration of the patrimony of the Holy See. The prefecture did not handle money or investments, but it reviewed and recommended budgets and expenditures and served as an internal auditor. When the prefecture was given responsibility for auditing the Holy See in 1987, it had no computers and the Vatican had no unified chart of accounts. With strong leadership from Cardinal Szoka, the Vatican reported a surplus in 1993 after 23 consecutive years of deficit, which peaked at $87.5 million in 1991.48                Independent audits were not performed on the Holy See, but outside experts reviewed the internal audit before it was passed to the council of 15 cardinals and the pope.

The Holy See’s financial statements were given to curia officials, bishops, and superiors of religious orders. The public received a press release, which provided only the net surplus or deficit and a few notable items. The press release for the 2002 financial results indicated that the Vatican received $246 million and spent $261 million. The $15 million deficit was attributed to an $18.5 million loss in investments and high costs associated with the construction of embassies—partially offset by a $22 million gain from real estate activities.49 Cardinal Szoka indicated in an interview that the Vatican had approximately $5 billion in assets.50 However, the balance sheet of the Holy See’s

financial statements was somewhat misleading; investments were recorded at purchase price, some of which had been held for decades. Art and real estate valuations were often valued at a token of one lira.51

The Consolidated Financial Statements of the Holy See were said to include entities that directly helped the pope in the governance of the church. However, the consolidated statements did not include the unpublished results of the diocese of Rome, Vatican City, the Vatican Bank, and other semi-autonomous agencies. When presenting the 2002 financial statement, Cardinal Sergio Sebastiani, president of the Prefecture for the Economic Affairs of the Holy See, noted:

As a consolidated financial statement, it represents as an integrated whole all the income and expenses of the various Vatican administrations that are within the area of consolidation. It thus includes the Administration of the Patrimony of the Holy See (APHS)—which is the most important in that it provides for all the administrative operations of almost the totality of the offices and entities of the Roman Curia—the Congregation for the Evangelization of People, the Apostolic Camera, Vatican Radio, L’Osservatore Romano (merged with regard to administration), the Vatican Television Centre, and the Vatican Publishing House.52

When asked about the church managing itself as a financial organization, Cardinal Szoka commented, “We are not a business or a corporation. The financial aspects existed to fulfill the mission of the Church.”53    Amidst a storm of attention that resulted from the U.S. church’s moral failings and its associated financial crises, Pope John Paul II called an unprecedented gathering of all the American cardinals in Rome in March of 2002. The pope’s biographer, an American, and Cardinal Szoka insisted that the convocation was not about money. Cardinal Szoka said, “Our main concern here is not financial, but to the faith of the people.”54

In 2003, the Catholic Church, which defined itself as both a visible society and a spiritual community, was being plagued by some of what its members had seen of the visible society and what they feared that they could not see.

 

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