Archdiocese Report Unveils Huge Financial Concerns

By Harold Brubaker
Philadelphia Inquirer
July 3, 2013

http://www.philly.com/philly/business/homepage/20130703_Archdiocese_report_unveils_huge_financial_concerns.html

The Archdiocese of Philadelphia on Wednesday reported a staggering $39.2 million loss for the year ended June 30, 2012, while disclosing unprecedented details about longterm financial deficits totaling $350 million.

Even after stripping away millions in unusual expenses, including $11.9 million for legal and professional services related to the priest sex-abuse scandal and other issues, the archdiocese said its cash expenses 2012 still exceeded revenue by $17.4 million.

"It's not so simple to say our problems are related to the sexual-abuse crisis," Timothy O'Shaughnessy, chief financial officer for the archdiocese, said. "That is a serious issue, a very serious issue that I believe the church is taking more seriously now.

"We've also had serious financial problems independent of the abuse crisis," said O'Shaughnessy, who became CFO in April 2012.

Somewhat more positive financial news could be on the horizon in the nation's sixth-largest diocese, which covers the five counties in Southeastern Pennsylvania and is home to nearly 1.5 million Catholics.

Without going into detail, O'Shaughnessy said the loss for the fiscal year just ended Sunday is expected to be in the range of $6 million, after significant cuts that included the elimination of 45 jobs at archdiocesan headquarters, or 18 percent of the staff.

The fiscal year that began Monday should show continued progress, he said, estimating that the loss for fiscal 2014 would be less than $5 million.

"We've got to, as time goes by, take bigger steps to get that to zero, but I think we've done quite a bit to moderate it and get it so it's not too far out of control," O'Shaughnessy, a graduate of Northeast Catholic High School, said.

More transparency

The report, released at mid-morning Wednesday, marked the beginning of a new financial-reporting era for the archdiocese, which for the first time published an audited financial statement for its central administrative office, the Office of Financial Services. Officials plan to release audited statements for additional archdiocesan operations in coming weeks.

Business leaders who advise the archdiocese had urged Archbishop Charles J. Chaput to publish audited statements - which allow a clearer look into any organization's financial condition than the informal reports previously favored by the archdiocese - to help garner support in a world where donors demand transparency before they open their wallets.

For O'Shaughnessy and his staff, preparing the financial statements for audit was a gargantuan task that included the restatement of some figures that had been reported for the year ended June 30, 2011.

Those adjustments included the addition of certain assets that had not been accounted for properly by previous financial managers. That included $22 million raised by the 1997 Catholic Life Capital Campaign.

"It just wasn't on any balance sheet," O'Shaughnessy said.

Among the other significant adjustments was a $26 million increase in the reserve for past-due bills that parishes and other related entities are unlikely to be able to pay.

Combined with others, those adjustments resulted in a reduction of net assets as of June 30, 2011, to negative $2.99 million from the previously reported positive balance of $34.46 million.

Gaping shortfalls

O'Shaughnessy highlighted four major financial gaps as top concerns. These are the deficits that create the approximately $350 million in ongoing financial distress.

First, the Office for Financial Services owes $82 million to the archdiocesan trust and loan fund, which was designed to collect deposits from parishes and either invest the money on their behalf or use it to make loans to other parishes, as a bank would do.

From fiscal 2004 into early in fiscal 2012, when Chaput arrived, some of those parish deposits were "borrowed" to make up for deficits at the headquarters and to pay bills for parishes and schools that were falling behind.

The $82 million gap also includes investment losses and reserves for bad loans to some parishes.

The plan to pay that money back by selling real estate was documented last year in a promissory note, essentially an IOU, to the trust and loan fund.

"We're treating that fund very differently now, and we're going to satisfy the shortfall," O'Shaughnessy said.

Three additional gaps O'Shaughnessy is focused on are: $30.4 million for a self-insurance reserve, $89.9 million for the priests' retirement fund, and $151.7 million for the archdiocesan lay employees' retirement plan.

"We have serious balance sheet issues," O'Shaughnessy said. "We've got to take serious action - and we believe we are - to get them fixed."

Contact: hbrubaker@phillynews.com