Financial officer report

| Thomas Mertens, CFO, Archdiocese of St. Paul and Minneapolis | February 13, 2014

The following comments elaborate on the financial statements of the Archdiocese of St. Paul and Minneapolis’ Chancery Corporation for the fiscal year ended June 30, 2013. Condensed financial statements are included in this issue of The Catholic Spirit. The full audited financial statements with footnotes and auditors’ opinion are posted at archspm.org on the Administration and Finance page.

Since I arrived at the archdiocese in late 2012, along with the Archdiocesan Finance Council (AFC), I have made recommendations regarding financial best practices, including measures to improve transparency regarding financial data of the archdiocesan Chancery Corporation. Work was underway in this area when I arrived, and I have made it my top priority to continue this important effort.

To this end, we are releasing our full audited financial report for the first time. I believe this is critically important in assuring our many stakeholders that we are accountable to them and we are good stewards of the gifts entrusted to us in service of the mission of the Church.

The recommendation to release the full audited financial report is supported fully by the archbishop and the AFC, a body made up primarily of lay accounting and finance professionals. The AFC unanimously approved the recommendation in October 2013 at its monthly meeting. As has been the practice for more than 25 years, in February, the archdiocese releases financial information regarding the previous fiscal year and publishes it in The Catholic Spirit. For the past several years, condensed financial statements and related notes have been published. This year, we again are including the condensed financial statements and notes, along with this commentary article, but encourage you to go online to archspm.org to see the full audited financial report.

The archdiocesan financial report covers the activities of the archdiocese’s Chancery Corporation. Each parish, as well as certain other Catholic entities located within the 12 counties of the archdiocese, is a separate Minnesota corporation. This means parishes, as well as Catholic entities like Catholic Charities, most Catholic high schools, and other Catholic organizations operate as separate corporations and report their own financial information to their stakeholders.

Our financial statements were audited by the independent certified public accounting firm of CliftonLarsonAllen LLP, who have issued an unqualified opinion. An unqualified opinion means that an independent auditor finds that an institution’s financial statements are fairly and appropriately presented, and in accordance with generally accepted accounting principles (GAAP).

For at least the past 15 years, the earliest for which records are readily available, independent accountants have been given full access to all of our financial records in order to perform an audit, in each case giving us an unqualified opinion on our financial statements. These audits were performed by two different firms during that 15-year time period.

It also is important to note that since March 2012, new internal controls have been put in place to safeguard assets and these controls are enforced strictly. Archdiocesan leaders have made a firm commitment to create a culture of transparency and continue to make strides in this regard, as evidenced now by the release of our full audited financial report for the first time in our history.

Financial condition

At June 30, 2013, the financial condition of the archdiocese is solid even with the contingent liability related to litigation stemming from the unprecedented third “open window” in the civil statute of limitations for alleged sexual abuse. The financial result of operating activities in 2013 resulted in a deficit of $3,872,000. The deficit can be attributed to the increase in reserves of $3,950,000 to cover potential liability related to civil litigation.

OperatingChartRevenue

Total Operating Revenue for 2013 was $35,494,000 as compared to $32,179,000 in 2012. Fees and Program Revenue increased $2,551,000, due to revenue generated by The Catholic Spirit after it became part of the Chancery Corporation on July 1, 2012.

The primary sources of revenue, Parish Assessments and the Catholic Services Appeal (CSA), were up 4 percent and 6 percent respectively in 2013. The increase in assessments reflects increased contributions at parishes during the modest economic recovery that began in 2010. CSA revenue, as reported, is after deductions for rebates to parishes and allowances. On a pre-deduction basis, the CSA generated $10,118,000, which was $174,000 more than the CSA generated the previous year ($9,944,000 pre-deduction). The growth in net CSA income speaks to the consistent generosity of the local Catholic community to the designated ministries supported by the CSA.

It is very important to note that beginning with the 2014 CSA, all contributions to the CSA will be held by the Catholic Services Appeal Foundation (CSAF), an independent 501(c)(3) organization which was established recently. CSA contributions will be used for the benefit of designated ministries of the CSAF and for no other purposes, honoring donor intent. Funds used to prepare for potential litigation costs do not come from contributions through the CSA. More information is available at csafspm.org.

Contributions through unsolicited gifts and bequests decreased slightly and unrealized losses and lower income from mutual fund fixed income investments resulted in a decrease of $608,000 in Investment Income. The archdiocese maintains a conservative investment philosophy to pursue continued growth in assets without unnecessary exposure to volatility. For this reason, we primarily are invested in fixed income mutual funds, which did not see the growth equities enjoyed in 2013.

expenseOperating expenses

Operating Expense totaled $39,366,000 in 2013 as compared to $30,672,000 in 2012. Program Services costs increased $2,650,000 while Support Services costs increased $6,044,000, year over year.

The increase in Program Services costs relates to an expansion of the Communications and Community Relations office, which brought The Catholic Spirit into the Chancery Corporation and resulted in expenses related to its production being included in archdiocesan financials. This increase also was due to costs related to the Rediscover: evangelization and catechesis initiative, and continued improvements to data, fundraising, and accounting systems at the archdiocesan level that benefit parishes and Catholic schools across the archdiocese.

The archdiocese did not provide $1,000,000 of support to the Cathedral of St. Paul parish to reduce debt, as it did in 2012, which explains the decrease in Community Services expenses.

The increase in Support Services costs year over year is due to the $5,000,000 increase in Litigation Reserve Expense. This $5,000,000 change is the result of the 2013 expense of $3,950,000, due to an increase in reserve and the 2012 negative expense of $1,050,000, due to a reduction in the prior year reserve.

The Chancery Corporation is involved in various lawsuits relating to claims of alleged sexual abuse. For known claims there is no practical means to determine the likelihood of outcome. Under accounting standards, when no amount within a particular reserve range is a better estimate of a particular outcome than any other amount, we are required to use the minimum amount of the range for our accrual. We have not accrued any amount for unknown claims as these cannot be reasonably determined due in part to the unprecedented third “open window” for civil sexual abuse claims in Minnesota. We are not able to look to dioceses in other states for guidance because no other state has had as many “open windows” during which the civil statute of limitations has been lifted.

These accruals are management’s estimates and not intended to be indicative of the actual legal outcomes of the individual cases. Losses from unknown claims could be substantial. We will tender the defense of these claims to our insurers whenever possible. However, claims can go back to a time period in which insurance may not have been available or coverage limits were minimal. Most cases which have surfaced to date relate to alleged incidents 20-30 years ago; some are related to incidents alleged to have occurred more than 50 years ago.

In addition, Support Services costs increased year over year as a result of expenses related to the transition in leadership for the Chancellor for Civil Affairs and the Chief Financial Officer, in which the incumbent and new leaders were each drawing salaries for a period of time.

Following is a narrative that explains the services the various offices and programs of the archdiocese provide to serve Catholics and our larger community in support of the mission of the Church.

Accompanying the narrative is a chart depicting the expenditures by program.

Program Services

Clergy Services – $8,364,000

The role of this office is to assist the archbishop with support and formation for priests and deacons in all aspects of ministry and pastoral care.

Seminarian Formation: There are currently 65 men in formation for the priesthood in service of our archdiocese. While this number changes throughout the discernment process, our archdiocese has one of the largest enrollments of seminarians of any diocese in the country. Expenses include a portion of the cost of tuition, room and board for men at The Saint Paul Seminary School of Divinity and St. John Vianney College Seminary.

Center of Clergy Formation: Institute of Ongoing Formation for Clergy and the Institute of Diaconate Formation comprise the Center of Clergy Formation. Each entity of the center provides an integrated approach to priestly and diaconate formation, including gatherings and support for newly ordained priests, programs to assist new pastors in their role, and ongoing formation opportunities for priests and deacons throughout the archdiocese.

Continuing Education: This includes continuing education opportunities; a sabbatical program; international enculturation; and a biennial presbyteral assembly.

Chaplaincies: There are 10 priests and one deacon in full- or part-time ministry at hospitals and correctional facilities throughout the archdiocese. Numerous other priests and deacons volunteer their time in this ministry. They offer the sacraments and spiritual support during some of the most difficult times in peoples’ lives. Last year, thousands of people throughout our community were served by archdiocesan chaplains.

Specialized Ministries: This includes the Office of Vocations, support for international clergy, and retired clergy.

Accounts to support priests credibly accused of sexual abuse and other misconduct, as well as those struggling with addiction and other behavioral issues, and provide services to victims of clergy misconduct are included in Clergy Services. (See Statement from the Archdiocese regarding accounts 1-515 and 1-516 on page 19 for more information.)

Community Services – $2,438,000

The archdiocese helps men, women and children most in need within our local community, including the poor, hungry, homeless, and those with special needs. The archdiocese does this through cash and non-cash support to Catholic Charities and CommonBond Communities (a housing agency for low- and moderate-income families, the elderly, and the disabled). In addition, emergency support is provided to parishes stressed by debt or operational issues.

Catholic Education – $6,547,000

The Office of Catholic Schools supports the education and formation of children at Catholic schools within the Archdiocese of St. Paul and Minneapolis. This support includes: Catholic identity review and support, leadership development and assistance in implementing academic programs. The Office of Catholic Schools also provides programmatic oversight to promote innovation and excellence in local urban Catholic schools.

Parish Services – $2,238,000

The Office of Parish Services provides consultation, planning and leadership development opportunities to parishes throughout the archdiocese. One example of this is the GROW initiative, which encourages parishes to develop and implement robust pastoral and strategic plans.

The archdiocese supports outreach ministry to various groups and members of the archdiocesan community, including Latino ministry, Indian ministry, the Commission on Black Catholics, the Venezuelan mission, and Archdiocesan Council of Catholic Women, deaf ministry, and other groups and coalitions.

As one example: the Latino Ministry Advisory Council, led by the Vicar for Latino Ministry, oversees support and programming at 23 Latino Ministry parishes throughout the archdiocese. These 23 parishes offer the sacraments, catechesis and spiritual support to tens of thousands of Spanish speaking people throughout the local Church. Latino Ministry also oversees special days of celebration of the faith and family throughout the year. In addition, Latino Ministry runs biblical, catechetical and pastoral leadership development institutes for members of the Latino community to grow in the faith and engagement in the Church.

Central Services – $6,352,000

The Department of Central Services provides support and services to the Chancery Corporation staff and the parishes. The department includes the offices of: the Chancellor (the civil and canonical counsel for the archdiocese); computer services; metropolitan tribunal who work with those seeking annulments; human resources and benefits; the Parish Accounting Service Center (which provides contract accounting services to parishes and schools); and maintenance.

Also covered in this category are administrative services to the General Insurance Program Trust, the lay and priest pension plans, and the Archdiocese Medical Benefit Plan Trust, as well as dues to the Minnesota Catholic Conference and the United States Conference of Catholic Bishops.

Marriage, Family and Life – $1,250,000

This department assists the laity and parishes through programs supporting: marriage preparation, family, youth and young adults, respect life, pro-life groups, biomedical ethics and outreach for disabilities.

The Office of Marriage, Family and Life also sponsors the annual Archdiocesan Youth Day that brings together hundreds of local high school-aged teens to praise God, grow in the faith and find fellowship. In addition, this office helps coordinate local representatives attending World Youth Day, the National Catholic Youth Conference and other youth events.

In 2013, the archdiocese provided $200,000 in financial assistance to a broad coalition to support marriage in the state of Minnesota. The sources of these funds did not come from parish assessments, the Catholic Services Appeal, or restricted donations to the archdiocese.

Communications and Community Relations – $3,608,000

The Office of Communications fulfills the role of Community Relations by helping convey the teachings of the Church and fostering two-way communication between the archdiocesan Chancery Corporation and the faithful, parish and school leaders and staff, and others in our community. It does this through The Catholic Spirit (the official archdiocesan bi-weekly newspaper) multiple websites, social media, video, radio, e-newsletters and other communications vehicles. On July 1, 2012, The Catholic Spirit newspaper became part of the Office of Communications. The move increases efficiency and will reduce expenses over time.

Rediscover: is an ongoing pre-evangelization, evangelization, and catechesis initiative that supports outreach to all Catholics and provides formation opportunities to deepen their faith by complementing the good outreach and formation work already being done by parishes, Catholic schools and ministry organizations throughout the archdiocese. Attendance topped 15,000 for the 2013 Rediscover: faith Speakers

Series, the 2013 Rediscover: Catholic Celebration at the St. Paul RiverCentre reached capacity of 5,000, and more than 130,000 people from all 50 states and nearly every country on earth have visited Rediscover-faith.org. In addition, more than 7,000 smartphone users have downloaded the Rediscover: app and an estimated 5,000 listeners tune in weekly for The Rediscover: Hour, which is produced by the archdiocese in cooperation with Relevant Radio.

Support Services

General and Administrative – $3,040,000

The offices of the archbishop, bishops, vicar general, accounting services, finance and general administration are included in the General and Administrative reporting. Changes to the allowances for potentially uncollectible amounts due from parishes and other entities also are reflected in this category.

Development and Stewardship – $1,581,000

This office is engaged in leadership development, informational resources, including the Stewardship Toolkit, and consultation services for parish and school development and stewardship efforts, as well as fundraising for the archdiocese.

In 2013, this office supported the Catholic Services Appeal. Beginning with the 2014 Catholic Services Appeal, the Appeal will be managed by the independent Catholic Services Appeal Foundation.

Non Operating Expenses

General Insurance Program Trust

The General Insurance Program Trust of the Archdiocese of St. Paul and Minneapolis provides comprehensive, uniform coverage of all of the parishes and certain related entities within the boundaries of the archdiocese, as well as the Chancery Corporation.

The program is a trust, of which the Chancery Corporation is the trustee. The coverage includes building and contents, burglary, personal property, student accident, auto, public library, boilers and workers’ compensation. The net assets of the program are held for the benefit of the participants because the participants have contributed those funds in exchange for obtaining insurance coverage.

In addition, there is an Archdiocese Medical Benefit Plan Trust for lay employees, which is a separate legal entity and as such is not included in the Chancery Corporation financial report.

Both the General Insurance Program Trust and Archdiocese Medical Benefit Plan Trust currently have reserves in excess of our historical loss experience as a result of positive financial results over the past few years. For this reason, billing for general insurance has been reduced by 30 percent and billing for the lay employee benefit plan has been reduced by 20 percent. This billing reduction will be in effect from January 1, 2014 through June 30, 2015 (the end of FY 2015). The billing will continue to be analyzed and will be adjusted accordingly.

Financial Position

Net Assets of the archdiocesan Chancery Corporation were $41,490,000 at the end of 2013, or $1,444,000 less than a year earlier. The decrease was due mainly to the Litigation Reserve Expense of $3,950,000, offset by the strong performance of the General Insurance Program Trust.

After adjusting the change in Net Assets for revenue and expense items that did not provide or require cash and activities of the General Insurance Program Trust, operations in 2013 provided cash of $1,455,000. In addition, $977,000 was realized from the repayment of a loan by a Catholic high school and $1,254,000 was used to improve archdiocesan property, equipment, and systems. The bulk of this spending was for computer equipment and software development. The archdiocese used $493,000 of cash to pay parishes that requested funds from their parish demand deposit accounts. These accounts allow parishes with excess funds to deposit such funds with the archdiocese for their administrative ease, if they so choose. The archdiocese pays interest to parishes on these funds and allows parishes to withdraw such funds on demand within 30 days of requesting a withdrawal.

Net increase in cash from operating activities, investing activities, and financing activities was $766,000, on $35,416,000 of annual expenditures in 2013.

In Summary

The archdiocese again saw an increase in resources from assessments and the Catholic Services Appeal. Those resources, which are directly related to the generosity and devotion of the Catholic faithful, have increased steadily since 2007.

The combination of expense control and increases in resources has permitted the archdiocese to reduce external debt by $6,400,000, return $2,700,000 in deposits to parishes, and increase the cash balance by $4,800,000 since 2008. During the same period, the contingent liability under guaranteed parish and school debt decreased by $30,000,000.

Due to a renewed adherence to best practices and dedicated focus on strategic planning efforts aimed at increasing sustainability on the part of parishes, Catholic schools, and the archdiocesan Chancery Corporation itself, the archdiocese remains in a strong financial state as of June 30, 2013.

The archdiocese is grateful for clergy and lay leaders throughout the local Church who work to strengthen sustainability in support of the mission of this local Church. That mission is to make the name of Jesus Christ known and loved by promoting and proclaiming the Gospel in word and deed through vibrant parish communities, quality Catholic education, and ready outreach to the poor and marginalized.

Thomas Mertens was appointed chief financial officer of the Archdiocese of Saint Paul and Minneapolis in December 2012, and he served in this capacity during the 2nd half of the fiscal year covered in this report.

 

Archdiocesan Chancery Corporation Annual Report: 2012 – 2013

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