wfn.org | Episcopal Church's financial procedures in order

[Daphne Mack <dmack@dfms.org>]

99-2286
New York Attorney General finds church's financial procedures in 
order

by Kathryn McCormick
 (ENS) In response to a complaint filed nearly two years ago, 
the New York State Attorney General's office has found that the 
Episcopal Church's trust funds are being managed properly and has 
entered into a consent agreement with the church under which the 
church's accounting consultants will carry out some specific 
tasks. The church also will make regular reports to affirm that 
proper management is continuing.

"Nothing was found in this investigation that we hadn't 
already reported," said Stephen Duggan, financial officer and 
treasurer of the Domestic and Foreign Missionary Society, the 
church's corporate designation. He stressed that the attorney 
general's investigation "found no fault and made no 
recommendations that current financial procedures be changed."

The consent agreement, issued on January 5, came after a 
review of material including the information gathered by two 
consulting firms called in by the DFMS after former treasurer 
Ellen F. Cooke was found to have embezzled $2.2 million of church 
funds and property. Cooke, who resigned January 31, 1995, is 
currently serving a five-year prison term.

At the time of her resignation, DFMS staff members did a 
preliminary probe of the extent of Cooke's theft and retained 
Coopers & Lybrand, an independent accounting firm, to conduct a 
comprehensive investigation. The firm identified ways in which 
Cooke had taken money, primarily through improper cash transfers 
out of DFMS bank and retail brokerage accounts.

The DFMS also examined the nearly 1,000 trust funds 
monitored by the society to make sure they had been properly 
administered. While the principal of the funds was found to be 
untouched, some changes in their administration prompted the DFMS 
in 1996 to hire Arthur Andersen, an accounting firm that already 
had been retained to do the church's regular annual audit.

Arthur Andersen was asked to focus its trust fund 
investigation on the period from 1991 to 1995, when most of 
Cooke's misappropriations occurred.

In 1997, a small group calling itself the Trust Group, 
declared it was dissatisfied with the amount of information 
supplied by Duggan to inquiring church members about the 
management of the trust funds. The group's spokesman, James H. 
Crosby, a lawyer whose firm is in Mobile, Alabama, said his 
clients were particularly concerned about the funds' management 
during Cooke's tenure. The group was also skeptical of the depth 
of the Arthur Andersen audit of selected accounts.

After the Trust Group's request to do its own audit of the 
funds was refused by DFMS, which cited the Arthur Andersen audit 
already underway, the Trust Group filed a complaint with the New 
York State Attorney General's office.

High level of confidence
The recent consent agreement emphasized Arthur Andersen's 
conclusion that "the DFMS could have a high level of confidence 
that earnings were being properly credited to the trust funds and 
income was being expended in accordance with donor stipulations 
during the time period reviewed." 

The agreement also acknowledged the changes in procedure 
that were adopted by the DFMS in the wake of Cooke's resignation, 
including strengthened oversight and the hiring in late 1995 of 
three persons unassociated with DFMS to assume the society's top 
financial positions.

Crosby said in a statement that the Trust Group generally 
was pleased with the accounting modifications made by DFMS and 
acknowledged by the Attorney General, but that the Group felt that 
further steps were needed, including a requirement that DFMS post 
its trust account information on the Internet.
Duggan confirmed that the work of responding to the attorney 
general's office cost the DFMS a total of $400,000.

"I found it frustrating and upsetting," he said of the 
process several days after the agreement had been signed. "At a 
time when the church has so much ministry that needs to be 
done.not to have the amount of money necessary is galling. The 
church has suffered and the people who rely on the church have 
suffered because of the diversion of funds to dealing with this."

Laying doubts to rest
Under the consent agreement, which will be in force for five 
years, DFMS will be required to do a number of things, many of 
them actions and procedures the society has had in place for a 
number of years. Included in the agreement were specific 
requirements that DFMS:
* will make no material changes in financial procedures 
without the approval of the Administration and Finance 
Committee of the Executive Council and notification of the 
full Executive Council and the Attorney General's office;
* will continue to prepare an annual trust fund book and 
promptly provide copies of it to members of the church who 
request it;
* provide copies of its annual financial statements to church 
members who request them;
* submit a report to the Attorney General concerning one trust 
fund for which Arthur Andersen had noted an underexpenditure 
of income between 1991 and 1995;
* provide the Attorney General's office with a copy of a 
memorandum drawn up by the chancellor to the Presiding 
Bishop concerning standards for the use of the Presiding 
Bishop's discretionary funds; and
* will engage Arthur Andersen to audit certain trust funds 
that were not included in the original Arthur Andersen trust 
fund audit and report. Any irregularities discovered in the 
management of these funds will be corrected and annual 
reports made to the Attorney General's office even after the 
consent agreement expires.

Declaring the Attorney General's findings and continuing 
oversight to be reasonable, Duggan said, "It is my earnest hope 
that, with this development, any lingering doubts about the 
financial management of the Church will finally be laid to rest. 

"I am extremely grateful," he added, "that our energies 
and funds will no longer be diverted in responding to such 
concerns."

--Kathryn McCormick is associate director of the Office of News 
and Information of the Episcopal Church.

Episcopal News Service
Kathryn McCormick
(212) 922-5383
kmccormick @dfms.org
www.ecusa.anglican.org/ens