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	Report Shows Diocese's Accounting System Lacking By Sandi Dolbee and Mark Sauer Union-Tribune July 31, 2007 http://www.signonsandiego.com/news/metro/20070731-0113-bn31diocese.html San Diego (CA) — The Diocese of San Diego's key contention in bankruptcy court that it does not own or control tens of millions of dollars worth of parish assets is at odds with pledges it made to its auditors, banks and investors, according to a financial expert's report filed late Monday night. The parish-ownership issue has been at the center of the contentious legal stand-off between the Roman Catholic diocese and attorneys representing about 150 victims of child sexual abuse by priests. The 175-page report, filed by court-appointed financial expert R. Todd Neilson, found no overall system of accounting. "As a result (church officials) are often woefully unaware of the specific financial operations of the individual parishes," it said. Among key findings in the report, which is not yet complete, is that financial statements filed by Bishop Robert Brom and other church officers make "no disclosure of a trust relationship" between the diocese and its 98 parishes. Victims' attorneys have insisted throughout the five-month bankruptcy case that parish assets belong to the diocese and are more than ample to settle pending lawsuits. The report says $165 million flows through the diocese annually. Neilson, a nationally recognized expert witness in bankruptcy cases and one-time FBI agent, was appointed in April by Judge Louise DeCarl Adler to help unravel what she called "the most Byzantine accounting system I've ever seen." Adler has set an Aug. 23 hearing in U.S. bankruptcy court on the report, at which time attorneys will be allowed to question Neilson. Attorneys have until Aug. 9 to file written comments. The report is another chapter in a contentious battle between attorneys for alleged victims and the diocese, which filed for Chapter 11 reorganization Feb. 27, just hours before the first lawsuit was slated to go to trial. The bankruptcy petition, which came after four years of unsuccessful settlement negotiations, put on hold the lawsuits filed by men and women who allege they were sexually abused as minors by priests and other church personnel in cases that date back decades. Finances have been the most divisive of the issues. The diocese says it cannot afford to pay more than the $95 million settlement it has offered without crippling its ministries, while the other side contends the diocese is worth much more than it claims. The judge has expressed frustration. Six weeks into the case, Adler threatened to hold the diocese's lead bankruptcy attorney, two priests and two other lawyers in contempt of court for allegedly conspiring to open new bank accounts. Adler didn't follow through on her threat, after those involved said it was simply a misunderstanding. Instead, she decided to appoint Neilson to examine hundreds of accounts associated with the diocese and parishes. "Why would anyone need 770 bank accounts?" she had asked. This is the first time in five Catholic bankruptcy cases across the country that a judge ordered such a financial review. Her assignment was sweeping, including identifying all property and other holdings by the diocese and parishes, as well as tracking all accounts that were closed or changed after the bankruptcy petition was filed. It's also been an expensive assignment. The bills for Neilson, along with accountants and consultants hired to assist him, were more than $600,000 in fees and expenses through June, according to court papers. The costs must be paid for by the diocese. Bishop Brom told parishioners he welcomed Adler's decision to appoint a financial expert. The analysis, he wrote in one of his letters updating the proceedings, "cannot be anything but helpful." Among the unresolved issues is just what's included in the diocese's assets. In a revised summary submitted earlier this month, the diocese reported $266 million in total assets. Plaintiffs' attorneys say those figures are incomplete and don't represent current market values for the properties. Auxiliary Bishop Salvatore Cordileone argues that market values are not relevant to the church's mission. "As long as property is used for church purposes, there is no need for anyone to know or even be curious about its market value," he wrote on the diocese's Web site in a rebuttal to critics. "The only relevant value of diocesan and parish property is its contribution to the mission of the church." Sandi Dolbee: (619) 292-2082; sandi.dolbee@uniontrib.com Mark Sauer: (619) 293-2227; mark.sauer@uniontrib.com
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