CNS photo/Bob Roller
By Patrick Downes
Hawaii Catholic Herald
It could take a while to get your financial ducks in order. Years, perhaps, if you are a Catholic parish or school unaccustomed to the particulars of worldly accounting. Seven years if you are a parish or school of the Diocese of Honolulu.
In 2016, the diocese embarked on an ambitious six-year financial review project for all its parishes and schools to “ensure transparency and accountability” in their fiscal affairs. Due to the pandemic, the journey actually took seven years.
The goal was to minimize financial loss through compliance with the diocesan Finance Manual, diocesan policies and procedures, and legal, tax and regulatory requirements; and to make sound decisions based on complete, accurate and timely financial reports.
The program has been a big success.
It started with a full third of island parishes and schools judged to be at high financial risk. By 2022 that number was nearly eliminated.
In the reviews for the fiscal year ending June 30, 2022, only two parishes or chaplaincies (ethnic communities) out of 49 were found to be high risk. Twenty-two were judged medium risk and 27 were low risk.
Of the 20 schools reviewed that year, only one was considered high risk, seven were medium risk and 12 were low risk.
“I am grateful for the expertise of all those who have assisted us in these financial reviews and for all those in the parishes and schools who are helping as well,” said vicar general Msgr. Gary Secor. “This process helps us to confirm that we are being good stewards of all that has been entrusted to us.”
170-question survey
Starting in 2016, each parish and school had to complete an annual 56-page, 170-question survey, which was then evaluated by an independent accounting firm who graded them “low risk,” “medium risk” or “high risk.”
The questionnaire was divided into about 20 areas such as governance, bank accounts, insurance, taxes, credit cards, safe environment and fundraisers.
The risk rating is the parish or school’s score for “minimizing financial loss and accomplishing business objectives.”
The process, overseen by Alicia Nakamoto, director of parish and school accounting in the diocesan Finance Office, takes about 10 months to complete.
A five-member Diocesan Audit Committee, mostly accountants, provided guidance throughout the process and advice to the bishop. Blessed Sacrament Father Francisco de los Reyes, the pastor of Mary, Star of the Sea Parish, was the committee chairman. Other members were Janessa Bonifacio, Celeste Oda, Mary Pat Waterhouse and Lawrence Lasua.
KMH LLP, a Honolulu-based accounting and consulting firm, did the reviews.
The first round of reports in 2016 came from 43 parishes (out of 66) and 24 parochial schools (out of 27).
Eleven of the parishes were rated low risk, 17 were medium risk and 15 were high risk. Of the schools, six were rated low risk, 11 were medium risk and seven were high risk.
The reviews adhered to procedures found in the “Diocese of Honolulu Parish, School and Associations Finance Manual,” the “Manual of Policies and Regulations for Catholic Schools in the Diocese of Honolulu,” “Personnel Policies for Lay Employees,” as well as federal, state, county and canon laws.
High-risk findings included the following:
- The parish finance council did not meet at least quarterly.
- Meeting minutes were not kept for council and committee meetings.
- Annual financial reports were not provided to parishioners.
- Insurance certificates were not obtained for contract labor
- Tax forms were not filed on time
- Invoices were not submitted to the pastor for approval prior to payment.
- Personnel files were missing required documents
Rating and recommendations
Representatives from KMH discussed the results with the parish or school before preparing a report for the pastor, principal, finance council, school board and other stakeholders. The parish or school was given a risk rating and recommendations of how to cut areas of high risk. The diocesan finance office staff also met with high-risk parishes to offer support and help in implementing the recommendations.
The goal is for every parish and school to be low risk.
The results were shared with the bishop, vicar general, vicar for clergy, school superintendent (for schools), the Diocesan Audit Committee and the Diocesan Finance Council.
Those parishes and schools rated high risk, or with budgets of $500,000 and up, were required to do the review annually. Those with budgets from $250,000 to $499,999 were reviewed every two years. All other parishes were reviewed every three years.
Going forward, all parishes and schools will continue to complete the questionnaire yearly. The questionnaire will be signed by the pastor, the finance council chair, principal, and the school board chair and submitted to the diocesan Finance Office for review.
For present high-risk parishes and schools, corrective action is a high priority. They are required to hire a diocesan accountant.
A medium-risk parish or school has a moderate number of findings that need correcting to bring it to low-risk status. They had a choice of paying to be reviewed again, which most declined, or hiring a diocesan accountant, or acquiring their own accountant, who must pass a skills assessment test if not a licensed certified public accountant, which most preferred.
A low-risk parish or school had few findings that need improvement. They are done with the seven-year program. Common factors for low-risk parishes were a competent staff and an engaged pastor and parish finance council.
Peter Hanashiro, a partner at KMH, was impressed by the commitment of the parishes and schools to the project.
“One of the key benefits from this project was the consistent improvement at many of the parishes and schools to produce timely, accurate and complete financial information for their stakeholders (i.e., parishioners, parents and others),” he wrote in an email. “While there are still areas for improvement, the dedication and commitment from each of the parishes and schools was an inspiration to our entire KMH project team.”
Surprise collection audits
Several actions leading up to the financial review process actually started in 2011. That was the year the diocese standardized its chart of accounts and accounting system (QuickBooks), the first draft of a diocesan Finance Manual was written, and training sessions begun.
In 2013, surprise parish offertory collection audits by independent accountants clearly demonstrated how much the financial reviews were needed. Four out of five parishes fell short in proper collection procedures, from using the wrong kind of money bag to not having more than one person handling the cash.
The diocesan Finance Manual was finished in 2013, and training sessions continued for two more years.
In 2016, the six-year process of financial reviews was launched along with annual summer training webinars. The review process included another surprise parish offertory collection audit.
In 2019, after input from parishes and schools, a revised Finance Manual was issued and training webinars given for each of its nine chapters.
In 2020, Bishop Larry Silva suspended the financial reviews due to the pandemic. A modified review continued for 2021 and 2022 with a focus on the financial reports. Entities that received a low-risk rating in 2019 were exempt from review in 2021.
In 2021, the questionnaire was divided into two parts. Part A provided the primary substance for the financial reviews conducted by KMH. Part B focuses on non-financial reporting areas.
This year, 2023, is the concluding year of the financial review for the fiscal year ending June 30, 2022.
Pastors gave the financial review process high marks. Of the 30 who responded to a post-review survey, 93% said that their parishes improved, 81% said it “provided assurance to their faith communities,” and 61% wanted to continue the process.
A few negative critiques of the process stated that it was difficult to use and too expensive at $5,400 a review.
There are no financial reviews scheduled for 2023. However, for the fiscal years ending 2024 and 2025, the diocese will implement random financial reviews for 25 entities conducted by KMH and paid for by the diocese to ensure all entities continue to ensure transparency and accountability in their fiscal affairs.
The Finance Office will introduce new accounting software in 2025, along with a new financial review process more reflective of the stewardship of treasure. It is currently being developed by an 11-member task force representing parishes and schools and chaired by Father Konelio Faletoi, pastor at St. Michael Parish, Kailua-Kona.
