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November 1, 1993
PERSONAL ATTENTION Sr. Frances Mlocek, IHM, CPA Director of Finance United States Catholic Conference 3211 4th Street N.E. Washington, DC 20017-1194
Dear Sr. Mlocek:
It's been three and a half years since I last corresponded with you concerning the lack of effective internal security over the Church's Sunday collection "system" nationwide. At that time, I received the impression you agreed I had uncovered a valid area of concern. I fear, however, the bishops have subsequently made it clear to you that the Sunday collection is sacrosanct and must be handled as it always has been: loosely!
As you may have guessed, my efforts at the archdiocesan level have been completely unsuccessful. It seems that even some CPAs are unable to grasp the basic premises and ramifications present in this matter, including the obvious and inescapable conclusion that the U. S. Catholic Church is losing tens if not hundreds of millions of dollars annually as a result of our hierarchy's ongoing refusal to recognize and act upon what can quite accurately be described as an appalling lack of internal security.
Quite frankly, Sr. Mlocek, I've reached the point where I believe only an expose' similar to the Reverend [name withheld] debacle will cause a correction in the hierarchy's ostrich-like stance on this critical matter. The hierarchy apparently considers tradition, even in secular matters, to be as rigid as the Ten Commandments. Before seeking media attention, however, I feel I owe it to you and our Church to make one final attempt at what now appears to be an impossible dream: voluntary, Church-wide adoption of truly secure collection, storage, counting and banking procedures.
In my final attempt to reach your fellow CPA in the Archdiocese of Boston, I cited a number of highly relevant principles of the American Institute of Certified Public Accountants. While their relevance is self-evident to anyone familiar with the Church's Sunday collection "system", I also provided him a brief synopsis of the way each principle relates to the Sunday collection. All of the principles are taken from the AICPA "Statement on Auditing Standards - Codification of Auditing Standards and Procedures" which is dated November 1972.
Section 320 of the statement concerns the study and evaluation of internal control; Section 320.42 states, in pertinent part: "The objective of safeguarding assets requires that access be limited to authorized personnel. The number and caliber of personnel to whom access is authorized should be influenced by the nature of the assets and the related susceptibility to loss through errors and irregularities. Limitation of direct access to assets requires appropriate physical segregation and protective equipment or devices." (emphasis added)
As you know, the terms "errors" and "irregularities" are applied to differentiate between accidental and intentional wrongdoing. When one considers "the nature of the assets" we're dealing with, i.e., large amounts of uncounted currency, their "related susceptibility to loss" should be obvious. Yet the need for "appropriate physical segregation and protective equipment" is and has historically been left to the discretion of individual pastors who know very little about internal control.
Section 320.44 states, in pertinent part: "..... agreement of a cash count with the recorded balance does not provide evidence that all cash received has been properly recorded. This illustrates an unavoidable distinction between fiduciary and recorded accountability: the former arises immediately upon acquisition of an asset; the latter arises only when the initial record of the transaction is prepared." (emphasis added)
In the case of the Sunday collection, I'm sure you would agree that, for the Church, fiduciary accountability begins when a parishioner places his or her offering in the collection basket. Under present procedures, however, the number of people (clergy, employees and volunteers) having lone, unobserved access to the collection or a portion thereof every week in a typical parish, prior to its tabulation and deposit (recorded accountability), would leave even the greenest of auditors aghast.
Insofar as the evaluation of any control system is concerned, Section 320.65 states, in pertinent part:
"..... apply the following steps in considering each significant class of transactions and related assets involved in the audit: a. Consider the types of errors and irregularities that could occur. b. Determine the accounting control procedures that should prevent or detect such errors and irregularities. c. Determine whether necessary procedures are prescribed and are being followed satisfactorily." (emphasis added)
I respectfully suggest that if the Sunday collection system had ever been examined in that manner and an appropriate report had been submitted and had been effectively acted upon, my efforts over the past several years would have been totally unnecessary.
I will conclude these AICPA references, Sr. Mlocek, (as I did your colleague's) with the opening sentence of Section 110.02: "Management has the responsibility for adopting sound accounting policies, for maintaining an adequate and effective system of accounts, for the safeguarding of assets, and for devising a system of internal control that will, among other things, help assure the production of proper financial statements." (emphasis added)
It's patently clear neither the national nor regional hierarchies have fulfilled that responsibility, insofar as it relates to our single most important source of revenue: the Sunday collection. The question is: will logic and common sense finally prevail, or will the Church lurch into the 21st Century without ever having availed itself of 20th Century methods. I've deduced the latter course best characterizes the hierarchy's present state of mind.
In all honesty, Sr. Mlocek, this matter can be likened to the story of the emperor's new clothes. The hierarchy stubbornly insists the Sunday collection is secure, when just the opposite is true. Whatever their motives may be, none can be rational or laudable. I know what must be done to correct the problem, but it seems I lack the necessary credentials. Enter, Sr. Mlocek. You're an integral part of the power structure, but your background sets you apart from the Church's "good ol' boy" network. If you embrace and dauntlessly champion the basic principles I have described, the bishops would be hard-pressed to ignore you.
To assist you in your deliberations, I'm enclosing a copy of my handbook, Protecting the Purse. I developed it only after it became apparent to me the hierarchy had no intention of accepting relevant, objective input on the issue of collection security. At the time, I felt individual pastors would recognize the value of its rationale, and would implement the recommended procedures on a parish-by-parish basis. I was wrong! While its contents may not be used, duplicated or disseminated without permission, it will help you understand what must be present and operational before the Sunday collection can be deemed adequately secure.
A transcript of two newspaper articles illustrating the Sunday collection's extreme vulnerability is also enclosed for emphasis. I look forward to hearing from you at your earliest convenience.
Sincerely,
[signed] M. W. Ryan
RESPONSE SUMMARY
See next letter for the details of her response.
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