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Understanding the Vatican’s structure for financial management

By Dr. Jeff Mirus (bio - articles - email) | Aug 02, 2016

Over the last several years, the effort to make the administration of Vatican funds more transparent—and the administrators more accountable—has reached center stage in the ongoing process of curial reform. Economic and financial reform have become increasingly important with rising concerns about money laundering, particularly in support of terrorism. In addition, it has become clearer to those inside the Vatican that, in some cases, curial congregations had become economic fiefdoms with insufficient consistency in accounting and financial management.

None of this is surprising. Governments and major organizations (i.e., conglomerates, universities, etc.) always have multiple levels of budgeting, financial administration, procedural control, income and expenditure. Over time bad habits can develop in some sectors, or at least there can be turf wars over control of budgets and the accountability between one sector and another. CatholicCulture.org has steadily reported on Vatican efforts at financial reform under Pope Francis, but I do not believe we have presented a snapshot of the overal Vatican financial structure to provide greater context. I’d like to do that now—in the very broad strokes of a non-specialist (and so subject to improvement).

Institute for the Works of Religion

The biggest financial scandals over the past generation have occurred in the Vatican’s Institute for the Works of Religion (IOR), which is essentially a bank for Catholic institutions worldwide. Like all banks, the IOR has separate accounts, owned by the account holders, for a wide variety of Catholic entities, including embassies, congregations, dioceses and religious orders around the world. While about 80% of its funds are in the Catholic institutional accounts, the IOR also has individual accounts, such as employee accounts.

The IOR updated its service guidelines in 2013. Among other things, no anonymous accounts are permitted. At the end of 2014, there were roughly 15,000 accounts, of which 4,300 were the institutional accounts in which most of the funds are held. But there were also 10,700 individual accounts. During 2015, all accounts were reviewed, and 4,935 accounts were closed because they did not comply with the new guidelines. They either failed the identity tests, or they were held by persons without a legitimate need for an IOR account.

Financial Information Authority

In addition to improving its banking and accounting practices in recent years to meet international standards and restore confidence, the IOR is now scrutinized by a new Vatican watchdog organization created by Pope Benedict in 2010, the Financial Information Authority (AIF). The mandate of the AIF is to serve as a financial intelligence unit to combat money laundering and the financing of terrorism. It is the AIF, for example, which recently reached a reciprocal agreement addressing these issues with the Bank of Italy. It has such agreements with some thirty countries.

Administration of the Patrimony of the Apostolic See

But there is a big difference between the sum total of assets (about $6.5 billion) held by the IOR in its worldwide Catholic banking role and the assets which actually belong to the Holy See, whether in cash, investments, various purpose-funds, or real estate. This much smaller set of assets must not only be banked but also managed by the Vatican, and that job belongs to the Administration of the Patrimony of the Apostolic See (APSA). APSA’s assets are held in two sections, called the Ordinary and the Extraordinary. Although in its present form it was established by Paul VI in 1967, the origin of APSA goes back to the loss of the Papal States in 1870.

At that time, the Church gave up most of her territory to Italy in return for an annual payment in financial compensation. Thus, the Ordinary Section of APSA’s assets consists of property still owned by the Vatican, and the Extraordinary Section consists of cash assets, arising largely from the Italian payments, but also including other sources of Vatican income. (Note that Peter’s Pence is considered as an offering to the Holy Father himself, to be used for special charitable needs, although at times some of it has had to be used to balance the overall budget.) APSA also had responsibility for such things as purchasing and human resources, both of which obviously impact the value of Vatican holdings. It became, in effect, the bank/management body for specifically Vatican assets (not for Catholic assets as a whole).

Recent Adjustments to APSA

In the process of establishing greater financial controls, the Ordinary management of Vatican real estate was shifted to the control of the new Secretariat for the Economy (see next section). However, one big concern about this shift was that asset management should not be the responsibility of the same entity which exercises oversight over management practices. The shifts in authority between APSA and the Secretariat for the Economy certainly involve internal disagreements and even wrangling, but Pope Francis knew that the decision regarding Ordinary management needed to be studied further, and he set up a commission almost immediately for that purpose. The result of the study led Pope Francis to shift most of the Ordinary functions back to APSA earlier this month (July 2016).

The ultimate result of these changes is that APSA remains in charge of management of Vatican resources, while the new Secretariat for the Economy has the task of specifying the proper procedures to be used and exercising oversight to ensure that the procedures are followed, with all parties operating properly and transparently. The Secretariat also retained APSA’s former role in overseeing the Vatican’s allocation of human resources.

Secretariat for the Economy

The Secretariat for the Economy was established by Pope Francis in 2014 under the leadership of Cardinal George Pell. It is the permanent office which carries out the mandate of the Council for the Economy, a group of cardinals, bishops and financial experts charged with ensuring that the Vatican’s financial affairs are properly ordered. Since its inception, the Secretariat has worked to establish appropriate guidelines and procedures for financial management of all income and expenditures, to be uniformly applied to the entire Curia.

As in any organization, many different sub-entities are involved in budgeting to fulfill their own assigned responsibilities. Thus all curial entities—congregations, commissions, academies, committees, offices, etc.—contribute to the overall Vatican budget. The mandate of the Secretariat for the Economy includes implementation and oversight of the budgeting process, in a uniform manner, using best practices, ensuring accuracy and transparency. The Secretariat must also offer support and guidance to ensure a clear and cohesive budget process as well as strict accountability in controlling costs and handling funds across the board.

Along with the Council for the Economy and the Secretariat for the Economy, Pope Francis also established the Office of the Auditor General. This office is responsible for auditing all the dicasteries of the Roman Curia, independently reporting directly to the Pope. It must also submit an annual audit plan and an annual report of its activities to the Council for the Economy. The purpose of the audit is to ensure that everything is properly accounted for, and to identify practices, procedures and failures which indicate risk.

Clearly some sort of effective auditing is essential. This is why it appeared to be a setback for the new Secretariat for the Economy that Pope Francis sided with the Secretary of State in a conflict over the nature and scope of the initial audit under the new structure. It remains to be seen whether the Secretariat for the Economy’s original audit proposal—which relied heavily on a completely external audit by PriceWaterhouseCooper—will prove essential, or whether the internal mechanisms of the Office of the Auditor General will be sufficient to the purpose.

Prefecture for the Economic Affairs of the Holy See

Finally, there is also a Prefecture for the Economic Affairs of the Holy See, a team of cardinals who keep a general eye on the “big picture” for all temporal goods in the Vatican’s charge. In this capacity the Prefecture reviews all financial reports, income and expenditures from the previous year; reviews the proposed budgets for the coming year; compiles the consolidated financial statement for the previous year and the consolidated estimate of expenditures for the coming year; and keeps particular watch over both projects of major importance and any damages which might require penal or civil action.

The goals of all recent changes to the Vatican’s financial structures have been increased transparency and accountability, the use of contemporary best practices, the establishment of methodological uniformity, the prevention of abuse, and more effective coordination—all without impeding the ability of any curial entity to do its job. Thus, the object was an interlocking structure, without unnecessary duplication, that would improve the legitimate operational capabilities of the Vatican as a whole. Of course, no large organization operates perfectly. Time will tell whether further adjustments will be needed to make satisfactory progress toward these goals.

 

Jeffrey Mirus holds a Ph.D. in intellectual history from Princeton University. A co-founder of Christendom College, he also pioneered Catholic Internet services. He is the founder of Trinity Communications and CatholicCulture.org. See full bio.

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  • Posted by: rjbennett1294 - Jul. 29, 2016 1:25 AM ET USA

    Fine essay, but the question, unfortunately, still comes down to this: if the Vatican has nothing to hide, why did it stop the work of its outside auditor and limit the areas in which Cardinal Pell's office had authority?

  • Posted by: cincinnatus - Jul. 28, 2016 7:36 PM ET USA

    You did not discuss or mention the role or person of the Auditor General, an office created by Pope Francis. That office and person has broad and sweeping powers and should be included in any discussion.