Ethicspoint Disappoints: Diversion of Funds

BCI continues our occasional series today on how the anonymous whistleblower process in the Boston archdiocese is corrupted. Here is yet another report recently sent to us by a reader.  As compared to the one we published last Friday about the conflict of interest in the hiring and employment of Terry Donilon, at least this one got a response with an explanation, albeit one which was still somewhat dismissive of the original claim.

Issue Type

Abuse of or Fraud with Benefits

Please identify the person(s) engaged in this behavior:

James McDonough – Chancellor

Do you suspect or know that a supervisor or management is involved?

Yes

If yes, then who?

Cardinal O’Malley

Is management aware of this problem?

Yes

What is the general nature of this matter?

Cardinal O’Malley promised in 2004 on two occasions that lay pension plan obligations from closed parishes would be repaid from reconfiguration funds. That has never happened. But somehow, $2.5M was diverted to Trinity Academy in Brockton.

Where did this incident or violation occur?

The promise to repay pension obligations is documented in letters from Bishop Lennon to priests of the archdiocese from 2004. See this document: http://www.apcboston.org/forms/PUBLIC%20REPORTS/2006_APC_Minutes_03_02.pdf

How long do you think this problem has been going on?

More than a year

Please identify any persons who have attempted to conceal this problem and the steps they took to conceal it:

Chancellor James McDonough has ignored it.

Details

From letter dated February 13, 2004 about use of reconfiguration funds: “The Archbishop has chosen this approach so that many issues may be addressed…The proceeds from the assets of suppressed parishes will provide monies due employees of suppressed parishes for past work and separation assistance, for vendors who are owed monies from suppressed parishes, for amounts for past employee benefits and parish insurances due from suppressed parishes…”

http://www.apcboston.org/forms/PUBLIC%20REPORTS/2006_APC_Minutes_03_02.pdf
A second letter, dated July 24, on pages 6-7 that reiterates the promise: “The funds raised from the sale of suppressed properties will be used to address past due obligations and employee benefits of the suppressed parishes, including: 4. For covering unfunded pension liability for lay employees and clergy of all parishes. The promise was not upheld. In this 2010 actuarial report on the pension plan,

http://www.catholicbenefits.org/PDF/pension/PensionPlanValuationReport_July2010.pdf
you can clearly see on page 9 a number of employers have unpaid obligations to the pension fund. Open parishes owe nearly $40 million, and closed parishes have a $5M debt to the pension plan. Despite that $5M debt to the pension plans from closed parishes, the 2008 annual report found here says: http://www.bostoncatholic.org/uploadedFiles/BostonCatholicorg/Offices_And_Services/Offices/Sub_Pages/Finance_and_Technology/FY08/RCAB%20Financial%20Report%2006%2030%2008%20finaltestsmall.pdf

“On August 13, 2007 as part of the parish reconfiguration process $2.5 million was transferred to Trinity Catholic Academy Brockton, Inc.” a newly formed related organization that consolidated the operations of certain parish schools in Brockton.”

How did Jack Connors’ Catholic Schools project become part of the previous “parish reconfiguration process”?

How is it that funds originally promised by the Archbishop to parishes, employee benefits, and the unfunded employee pensions were instead redirected to the Brockton project? Doesn’t this constitute illegal conversion of funds and perhaps fraud? Now, instead of repaying the $5M due to the employee pension fund, 7 years later, the remaining $5.4M in the reconfiguration fund is supposedly being slotted to create an endowment for Parish Services, under the guise that this was one of the original purposes of reconfiguration funds? Why is the 2004 promise to repay the pension fund not being kept, when some of that money was directed elsewhere? See: http://bostoncatholicinsider.wordpress.com/2011/03/11/is-boston-archdiocese-committing-fraud/

Response from Archdiocese:

4/15/2011 10:08 AM – A total of $12.7 million was transferred into the pension program from Reconfiguration funds. The first transfer was $1.3 million on October 31,  2005 and the second was $11.4 million on December 26, 2005. These transfers are detailed in the Fiscal Year 2006 Financial Statements for the Pension Fund and  Corporation Sole Audit Reports.

http://www.bostoncatholic.org/Offices-And-Services/Office-Detail.aspx?id=11050&pid=508

The governing body for the use of the management of reconfiguration funds is the Parish Reconfiguration Fund Oversight Committee. The Charter of the Parish Reconfiguration Fund Oversight Committee (http://www.bostoncatholic.org/Parishes-And- People/Content.aspx?id=14124) states:

Purpose: To fulfill its mission of reviewing the integrity of the financial reporting of the reconfiguration process and to provide recommendations to the  archdiocese for operational improvements, the committee will review transactions contemplated by the archdiocese, such as the following:
• The closing and cash transfers of all unrestricted suppressed parish bank accounts.
• The process of dealing with all suppressed parish restricted accounts.
• Expenses related to the closing process.
• Property management methods and expenses.
• The sale of all parish personal property, sacred and non-sacred.
• The valuation and sale of all real property.
• Severance payments.
• The repayment of debts of a suppressed parish.
• Payments for past pension service (active and suppressed parishes), lay and clergy.
• Restore the equity, totaling $28,226,028, to the revolving loan fund, the clergy medical and hospital trust, the hospital chaplaincy, the parish school tax fund, the group life insurance fund, the lay pension plan, the health benefit trust, the long term disability trust, the insurance fund and the transition assistance trust that were incurred as a result of Jubilee Year debt forgiveness.
• Establishment of a sinking fund to cover the retirement of an operating line of credit that will total roughly $32 million and that results from the decline in annual appeal revenue since 2001.
• Funding of ongoing support services for parishes.
• Direct operating aid to parishes.
• Direct construction aid to parishes.

Finally, the $2.5 million transferred to Trinity Catholic Academy Brockton, Inc., on August 13, 2007, was a decision of Cardinal O’Malley, and was well within the Cardinal’s discretionary authority.

All three  transactions were clearly publicly  documented and the respective financial  statements  for each fiscal year were successfully audited and received  unqualified opinions.

This is BCI commenting now with several reactions. First, the person who submitted the claim was incorrect on one very important point when they said “Cardinal O’Malley promised in 2004 on two occasions that lay pension plan obligations from closed parishes would be repaid from reconfiguration funds. That has never happened.” Indeed, as documented in the response, funds were repaid at the times indicated, even if that was ultimately not adequate to fund the pensions considering the variations in the plan funding as of 2011.  As BCI has learned on more than one occasion, if you get one fact wrong, the archdiocese will then dismiss everything else you say, almost forever.

But, even with that claim incorrect and even with the archdiocese having contributed funds to repay a particular pension obligation at that time, as we all know, the pension plan trustees did–and still do–have an obligation to maintain sufficient funds to cover pension obligations in the future, and when that pension fund balance dropped a few years later, no more monies were contributed to meet the obligation.

Beyond that, is it just BCI, or is anyone else asking why the fact that the transactions referenced (such as the diversion of funds to Trinity Academy in Brockton) were publicly documented and audited necessarily also means that they were consistent with the promises and commitments made by the archdiocese to the Catholic faithful?  Is it permissible to break a promise as long as you publicly document it? Why was the decision of Cardinal O’Malley to send reconfiguration funds to Trinity Academy in Brockton “well within the Cardinal’s discretionary authority” when funding an archdiocesan school was nowhere on the list of possible beneficiaries for reconfiguration funds? Was it somehow justified as being some sort of pseudo-funding “support service for parishes,” or new way to provide “direct operating or construction aid to parishes,” even though it’s not a parish school?  Furthermore, the comment about the audit opinion is nothing but a diversion and the archdiocesan respondent knows that.  An audit opinion is just a reasonable assurance that the financial statements are presented to give a fair and accurate view of the numbers and financial status–it does not say whether the decisions to spend money in a certain way were right or wrong, or inconsistent with promises and commitments made.

In reading the claim and the response, we credit the archdiocese at least with responding, as they pledged to do when this facade of a true whistleblower program was first launched. But the flippant response–and those we have posted previously and been copied on–leaves us wondering whether anyone has actually gotten a response to a claim that suggested these complaints were being taken seriously.

As recommended by auditors years ago, the archdiocese needs a real whistleblower policy and program that is taken seriously and that does not fall under Chancellor McDonough for execution and management, but rather has some degree of authority over him.  Maybe this one needs to go on the list for the new Vicar General in the fall.

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3 Responses to Ethicspoint Disappoints: Diversion of Funds

  1. Suzanne says:

    This is another sad proof that the Archdiocese of Boston is controlled by pathetic, corrupt people. There will be very little left of the Archdiocese by the time O’Malley finishes with us.

  2. Little Red Hen says:

    Monsignor Deeley can’t get here fast enough.

  3. Jerry says:

    Jason Berry’s new book “Render unto Rome” has a complete study of the RCAB Fiscal Crises.

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