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An Update from the Audit Committee

August 1, 2014

Dear Friends:

In February of this year, shortly after temporarily assuming ecclesiastical authority, the Standing Committee informed you that the members had discovered that no professional audits of the finances of the Diocese had been performed since 2007.  That letter also reported that an Audit Committee had been formed to oversee the completion of the missing audits by a CPA firm without delay in order to provide to the Diocese the financial accountability that is required by canon law.

In March the members of the Audit Committee wrote to you once again, this time to provide an update on the status of the audit process – that the Audit Committee, which oversees the work of the auditors, members of the Diocesan Staff charged with preparing the work to be audited, and representatives of Campbell Rappold & Yurasits, the CPA firm engaged by the Diocese, met to lay out a schedule for preparing for and completing the work of the audits for 2008 – 2013.

As with all previous audits, both the Council funds, money received through assessments and acceptances of parishes, and the Incorporated Trustee funds, those held by the Diocese in accordance with wills, trusts, and bequests along with all investment and escrow funds held on behalf of the various parishes, are being audited.  In April we let you know that the firm's accountants would be working onsite to examine the financial records of the Diocese from the first week of April until the third week of June. It was expected that then the remaining work needed to complete all the missing audits and produce audit reports would be completed shortly thereafter by the accountants in their headquarters’ offices.

We now realize that both the Audit Committee and the accounting firm underestimated the complexity of performing six years of consecutive audits, and therefore the schedule originally proposed appears to have been overly optimistic and therefore unrealistic. Because of the complexity of the multiple audits and the numerous problems the auditors have encountered, they continued to work in the diocesan offices past the original June end-date and until the third week of July.  Regrettably work for all six audits has not been completed primarily because cash reconciliations were not performed by the staff for six years.  Additional delays have been caused by the fact that other reconciliations were either not completed or were incorrect. These problems have been compounded by the fact that the financial records of the Diocese are kept in four different general ledgers, two of which are run on a software package that is outdated and requires a great deal of manual manipulation in order to close one year  and establish opening balances for the next year.

In short the financial records of the Diocese are in such poor shape, due to bad accounting and lack of management oversight, that it is taking much longer than was originally anticipated by the firm to complete the audits.  The auditors, as communicated to the committee from the outset, have previous commitments to clients that will prevent them from resuming the diocesan work until early in October. While much of the audit work for 2010, 2011, and 2012 has been completed, the auditors are not at a point where they can issue audit reports for these years. Therefore they will have only the 2008 and 2009 audits completed by the time of our Diocesan Convention in October. These audit reports and communications letters will be shared at the convention. It should be noted that the auditors have reported that, to date, in their examination of the financial records, they have found no wrongdoing.

Reconciliations to the general ledger are required for the auditors to proceed with their work. They have instructed the diocesan staff on how to properly make these adjustments. Shortly the auditors will provide staff members with a complete revised needs list for the 2010, 2011, 2012, and 2013 audits that will be utilized by staff members in the intervening months to prepare for the auditors’ return in early October.  In this way, auditors will be able to begin examining the books for these remaining years without further delay.  As soon as the additional audit reports for the subsequent years are provided to us, they also will be shared with the Diocese.

In the meantime, the Bishop and the Audit Committee have already enacted some significant changes that will improve the quality and efficiency of the workflow in accounting activities in the diocesan offices. Payroll is now being outsourced to a payroll service and is now bi-weekly and not weekly (this means that the staff is no longer spending time processing payroll in house and every single week).  The decision has been made to consolidate the accounting software into ACS, a state-of the-art, integrated accounting system for churches. Bank reconciliations are now done monthly by staff members who have been trained by accountants from Campbell Rappold &Yurasits on how to do this work effectively. Also Charlie Barebo, a member of the Audit Committee, is working with the staff to streamline and modernize everyday business practices with the goal that the Diocese can get back to the important business of resourcing parishes.

A great deal of work has been accomplished, and while we regret that the original schedule for all the audits cannot be met, we know that the accuracy and true accountability we desire is essential and worth the extra commitment of time and effort. When all the audits are complete, the Diocese will then be able to take appropriate action going forward to bring its financial recordkeeping into compliance with generally accepted accounting practices and controls as will be recommended by the firm, and an accounting system that has been sorely lacking for decades will come up to professional standards.

Faithfully,
The Members of the Audit Committee
Raymond Arcario, Member Diocesan Council and Standing Committee, Cathedral Church of the Nativity

Charlie Barebo, Member of Diocesan Council and Incorporated Trustees, St. Margaret’s Church, Emmaus

Richard Guyer, Treasurer of the Diocese, Cathedral Church of the Nativity

Peter Hilgert, Member of Incorporated Trustees, Cathedral Church of the Nativity

Libby House, Member of Standing Committee, Cathedral Church of the Nativity

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