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Richard Grafer

The Voice of the Faithful (VOTF) meeting attracted roughly 150 people on Thursday evening, Sept. 8, at the Unitarian Universalist Congregation at Shelter Rock, to hear local resident, Dick Grafer, retired from a career at the accounting firm of Arthur Andersen, discuss his analysis of the Diocese of Rockville Centre's (DRVC) financial statements.

The diocese began publicizing its financials in the spring of 2003 for its fiscal year ended August 31, 2002. They were published at that time at the urging of the U.S. Conference of Catholic Bishops to provide greater financial transparency in the Catholic Church.

Grafer's first analysis was published in The New York Times on March 29, 2004. At the time he believed the church had more free cash than needs warranted. Grafer said he has refined his methodology in subsequent analyses. However, his conclusion remains the same: The diocese holds excess cash reserves, or what he calls "free cash reserves," that could be better spent on charitable works. He elaborated by saying, "In the past year alone, the DRVC's free cash reserves increased by $11.4 million to $186.6 million. It is ironic that at a time dioceses around the country are struggling financially, our diocese is experiencing an embarrassment of riches."

Grafer said that understanding the DRVC financial statements is difficult because the diocese publishes 15 separate financial statements reflecting its financial condition over a three month period. His report states that, "The financial statements published then (prior years) and now by the DRVC are individual statements for the administrative offices and the various diocesan operating entities. They have not been combined or consolidated in any fashion and do not include the parishes, non-diocesan schools or Catholic Health Services. In addition, they are published in separate editions of the Long Island Catholic. Consequently, they are quite difficult to understand."

At the meeting Grafer employed a Powerpoint presentation to illustrate the methodology he used to determine the amount of free cash reserves held by the diocese. Charitable industry guidelines consider it prudent to hold one year's worth of operating expenses in the form of cash reserves to protect against funding shortfalls or extraordinary expenses. According to Grafer, the diocese holds $186.6 million of free cash reserves, which represents four year's worth of operating expenses, or three more years than the guidelines suggest is prudent. In addition, Grafer states that the diocese has $230.9 million of unrestricted net assets, which is $95.9 million more than the maximum permitted by a Better Business Bureau Wise Giving Alliance charity accountability standard.

"A charity is not supposed to be a bank," Grafer declared, "it has a charitable mission and should be using any cash reserves exceeding the guidelines for that mission." He added that the diocese could pay off all its liabilities and still be left with $95 million in cash plus all its tangible assets. "In the corporate world, our diocese would be considered a 'cash cow' and a prime takeover candidate," he said.

According to the executive summary at the beginning of his analysis, Grafer's stated purpose in examining the DRVC fiscal 2004 financial statements "is to encourage the DRVC to use more of its 'free cash reserves' to fulfill its social and humanitarian mission. The number of people in need on Long Island continues to grow despite our growing economy. There are many reasons for this, but the important thing is that it is happening, and it is happening at a time when the DRVC continues to accumulate more free cash reserves. Such free cash reserves are already excessive by any standard. The DRVC should establish a more effective mechanism to balance the human needs on Long Island with the natural tendency to accumulate more reserves on the part of the Diocesan Finance Council whose mission is the safeguarding of assets." The cash reserves continue to grow significantly despite negative demographic, economic and giving trends, he said. He also noted that it only costs Catholic Charities $368 to serve each of its 80,000 clients. Another $10 million, which is less than the annual increase in DRVC free cash reserves, he noted, would allow Catholic Charities to serve another 27,173 people in need.

Grafer's report states, "in defense of its accumulation and management of these excess cash reserves, the DRVC frequently points to the fact that its financial statements are audited. The inference is that the auditors would never allow the DRVC to accumulate excess reserves without identifying them as such. This is a mistaken inference. There is a distinct difference between the liabilities and/or reserves of non-profit entities vs. those of for-profit entities in the application of "GAAP" (generally accepted accounting principles). For-profit entities are not permitted to have liabilities and/or reserves in excess of known and reasonably estimable requirements. If they do, their auditors will undoubtedly qualify their opinion if the excess is material. Non-profits, on the other hand, are permitted to establish any amount of reserves they want, no matter how excessive, in the form of unrestricted net assets. Thus, a non-profit could have reserves one hundred times more than the amount required, and the auditors would not be required to qualify their opinion or otherwise make note of this excess. "

Whenever the DRVC is pressed to respond to criticisms of its over-accumulation policies, it usually responds in vague generalities, he said. "For example," the report says, "besides pointing to the vague, unspecific reserve 'designations' and using the mistaken audit inference discussed above, the DRVC has also used the following excuses at various times (which Grafer paraphrased): Under Canon Law the Bishop must do what the finance council tells him with respect to the reserves---Quite frankly, this is ludicrous. It suggests that the DRVC has no power to direct funds where they're needed without finance council approval. In addition, it suggests that when Gospel principles conflict with finance council recommendations, the Bishop must follow the finance council recommendations. Many examples refuting this statement exist, not to mention plain old-fashioned logic."

Another reason given by the diocese, cited in Grafer's report, is that, "The cash reserves are needed for the aging parishes and schools---There may be some truth to this, but the DRVC has spent minimally on parishes and schools as long as anyone can remember. Whenever major parish capital expenditures are required, the parish is told to initiate a capital campaign to pay for them. The average annual amount "loaned" to all parishes within the diocese in recent years approximates $3 million. This is a drop in the bucket. So, to say that the reserves are needed for this reason is misleading and inconsistent with past DRVC practice."

Grafer acknowledged that the DRVC may be concerned about the ultimate cost of the ongoing sexual abuse litigation. However, he noted that based upon his analysis of awards and settlements in other parts of the country, it is unlikely that even a dire result will reduce diocesan free cash reserves by more than $20-50 million after insurance recoveries and use of an existing diocesan reserve. In any event, he said he is not suggesting that the DRVC spend its existing reserves. He is suggesting that current and future increases in free cash reserves be used for the humanitarian mission of the church.

Sean Dolan, communications director of the DRVC, said, "the finance council is comprised of financial experts who claim the reserves are adequate." He added that "financial statements determine an organization's health at a fixed point in time and do not reflect the future."

Richard Grafer would be willing to discuss his analysis with any interested parties or to send a full electronic copy of the report upon request. Email him at Logo
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