A fascinating look in The Economist at how the US Catholic Church finances itself. Excerpt:

The documents that have been disclosed reveal that some bishops in the bankrupt dioceses presented the diocesan funds of parishes, schools, hospitals and retirement accounts as separate when they were really simply book-keeping entries in the same pooled investment account. The diocese of San Diego, for instance, reported to the bankruptcy court that it had over 500 accounts. But these were merely entries in a “Parish, School Diocese Loan Trust Account”, maintained in a single bank account at Union Bank of California.

Such pooling saves on administrative costs and allows dioceses to use a surplus in one area to cover shortfalls in another, often a legitimate course of action. But it has presented problems when it comes to working out which assets belong to whom in bankruptcy proceedings.

The vast majority of parishes that commingled their funds with those dioceses now in bankruptcy lost all their investments. In some cases they were misled into believing that the money would be kept separate from the main diocesan funds, and thus safe in the event of bankruptcy. The judge in the Wilmington bankruptcy, Christopher Sontchi, said parishes that had suffered this fate had grounds to sue the diocese for breach of fiduciary duty. None has—but that is hardly surprising, given that the bishop and the chancellor of the diocese sit on the five-member board of trustees of each parish.

Some parishes were more careful than others in ensuring their funds were handled properly. According to a document in The Economist’s possession, a parish priest in Wilmington wrote to the diocese: “Find enclosed a cheque for $1,000,000 to be invested in [the parish of] St Thomas’s name in the diocesan account. It is my understanding that if the need arises, this is and always will be available for parish use. If this is not the case, please return it and I will put it under my mattress for safe keeping.” The diocese cashed the cheque, apparently depositing it in a general cash account. The parish lost the money when the diocese struck a sexual-abuse settlement. By contrast St Ann’s parish, also in the Wilmington diocese, wired its deposits directly into a segregated investment account at Mellon Bank rather than to the diocesan cash account at Citizen’s Bank. Its trustees also insisted on drafting a special agreement stipulating that funds provided to the diocese were held in trust.

Plaintiffs’ lawyers have raised questions about financial transfers in dioceses threatened with bankruptcy. These tend to go the other way—moving money out of diocesan accounts and into parish accounts, trusts of various sorts and any other receptacle at hand. According to an independent report commissioned by a bankruptcy judge, at one point priests in San Diego were taking cash out of accounts and putting it in safes in the rectories because they wanted to keep it out of reach of plaintiffs. Nobody becomes a priest, monk or nun in order to spend their professional life as a financial manager, so no doubt part of this money shuffling is down to innocent incompetence. But the church does shift between considering all assets as part of a single pool when that suits, and claiming that funds have always been separate and ring-fenced when they are exposed to claims.

Creditors in the Milwaukee bankruptcy case, which is still in progress, have questioned the motives behind a $35m transfer to a trust and a $55.6m transfer from archdiocese coffers to a fund for cemeteries. Cardinal Dolan, who was Archbishop of Milwaukee at the time, authorised both transactions. The creditors think the movement of such large amounts had more to do with shielding cash from sexual-abuse victims than with the maintenance of graves, calling the manoeuvre fraudulent. Cardinal Dolan’s office responded to questions about these allegations by pointing to blog posts in which he described them as “baloney” and defended the transfers as “virtuous, open and in accord with the clear directives of the professionals on our finance council and outside auditors”.

As “debtors in possession”—entities that have filed for bankruptcy yet retain their assets—bust dioceses have an obligation to enlarge their assets to satisfy their creditors. On the contrary, “we have seen a consistent tactic of Catholic bishops to shrink the size of their assets, which is not only wrong morally but in violation of state and federal law,” says Ken Brown of Pachulski Stang, a California law firm that has represented creditors in eight of the ten Catholic bankruptcy cases.

A decade ago, when the Boston blow-up was spreading across the country, I spoke to some very senior laymen in a large archdiocese who were scrambling to shield money that had been raised and earmarked for the local Catholic school system from the cardinal. Why? Because they all were convinced that he would spend anything he could to protect himself from the abuse scandal, and to cover his own behavior up. They believed he would take all the money the schools had and pay them out to victims to keep himself out of court and off the witness stand. I wonder how things turned out for those laymen and their schools. I haven’t thought to check for many years.

Back to The Economist piece: Mark Gray at CARA disputes The Economist’s numbers and understanding of how the Catholic Church functions. The Economist explains how it calculated its figures.

I should explain that I know the identity of The Economist’s correspondent, and contrary to Mark Gray’s supposition, he is not anti-Christian, but is in fact a devout practicing Christian.

UPDATE: I’d like to retract that statement about “Mark Gray’s supposition”; there was no warrant for it, and I made it because I read too much into what Mark actually said. I’ve apologized to him personally, and I take the opportunity to do so here.