DIOCESAN FINANCIAL MANAGEMENT (A GUIDE TO BEST PRACTICES) NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) has issued several new accounting standards pertaining to not-for-profit entities, revenue recognition, and leasing which will take effect over the next few years. They are: • Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). • ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205- 40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. • ASU No. 2016-02, Leases (Topic 842), the goal of this guidance is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. • ASU 2016-14, Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities. These standards may have a significant impact on the financial reporting for the diocese. The implementation of these standards will require time and resources. Diocesan financial officers should begin to develop an implementation plan for review and discussion with their bishops, Finance Councils, and auditors. DIOCESAN FINANCIAL MANAGEMENT (A GUIDE TO BEST PRACTICES) (“DFM”) INTRODUCTION and FORWARD The DFM (formerly DFI) was developed by the Committee on Budget and Finance (CBF) of the United States Conference of Catholic Bishops (USCCB), in conjunction with a sub-committee, the Accounting Practices Committee (APC), and it was initially approved by the full body of bishops at its November 2002 General Meeting. The DFM was authorized for publication by Msgr. William P. Fay, General Secretary, USCCB. As this DFM is revised by the APC, revisions are reviewed and approved through the USCCB and the revised DFM is published on the USCCB website. This manual is published as an aide to diocesan Financial Officers, Religious Treasurers and other personnel responsible for the financial administration of dioceses and religious institutions of the Roman Catholic Church in the United States. As mentioned above, the DFM was initially adopted in November 2002. However, each year the APC updates the contents of the DFM for the approval of the CBF. The most recent update was drafted in April 2019. Its contents are based upon generally accepted accounting principles in the United States at the time of its annual updates. The DFM is not intended to be a comprehensive document addressing all financial administration matters that might be encountered by dioceses or religious institutions in the administration of their finances. Rather, it is intended to be a document that addresses and offers best practices in financial administration matters that could be considered unique to dioceses and religious institutions. As such, it is recommended that the DFM be used in conjunction with other authoritative guidance. The APC has recommended Practitioner’s Publishing Company’s (PPC) Nonprofit Financial and Accounting Manual, in order to access guidance to accounting and financial reporting matters that are common to all nonprofit organizations. To obtain this Guide, call 1-800-431-9025, or go to www.ppcnet.com. Other authoritative guidance materials are commonly available. The APC is a committee comprised of diocesan financial directors and officers, and treasurers of religious institutes that was formed by the CBF in 1981. The APC was formed for the purpose of monitoring, commenting upon and reporting upon accounting and financial reporting principles that are proposed and approved by regulators of such generally accepted principles in the United States. The members of the APC are aided in their mission by expert advisors from the accounting profession. The APC is the successor to the Ad Hoc Committee on Diocesan Financial Statements which was formed by the United States Catholic Conference, predecessor to the USCCB, in 1971. The DFM is the successor to these previous publications: Diocesan Accounting and Financial Reporting (1971); Accounting Principles and Reporting Practices for Churches and Church- Related Organizations (1981); Diocesan Fiscal Management Instructions (DFI) (2016). We offer our deep gratitude and profound appreciation to the members of the APC for their time and efforts in developing and maintaining this valuable resource to the dioceses and religious institutions of our Church. Msgr. J. Brian Bransfield, General Secretary, USCCB Ms. Theresa Ridderhoff, Associate General Secretary, USCCB Most Reverend Dennis M. Schnurr, Archbishop of Cincinnati Treasurer, USCCB NOTES: • Translations are from Code of Canon Law---English Edition New Translation, prepared under the auspices of the Canon Law Society of America, Washington, D.C. 1999. • Excerpts from R.T. Kennedy, Book V: The Temporal Goods of the Church (cc. 1254- 1310), in John P. Beal, James A. Coriden, and Thomas J. Greene, eds., New Commentary on the Code of Canon Law (Mahwah, N.J.: Paulist Press, 2000), 1468- 1469. Reprinted with permission from Paulist Press. • Certain materials in Chapter VI were used from the tax manual, Income Taxes for Priests Only, written by Scott A. Hoselton, CPA, CDFM, and published by Shepherds Advisor. • The contents of this manual are based upon generally accepted accounting principles in the USA promulgated at the time of publication. Copyright © 2002, United States Conference of Catholic Bishops, Inc., Washington, D.C. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from an authorized representative of the copyright holder. Table of Contents I. Financial Management Issues ........................................................................................................ 1 II. Diocesan Finance Councils .......................................................................................................... 25 III. Diocesan Finance Officer ............................................................................................................. 36 IV. Records Retention ........................................................................................................................ 37 V. Parish Financial Management ...................................................................................................... 51 VI. Compensation of Priests and the Dual Tax Status of Priests ........................................................ 89 VII. Compensation of Diocesan Priests: Pension and Other Post-Retirement Benefits ..................... 92 VIII. Compensation of Religious .......................................................................................................... 97 IX. Compensation of Lay Employees and Diocesan Deacons of the Church .................................. 101 X. Diocesan Payments Associated with Priestly Formation ........................................................... 109 XI. Deposit and Loan Programs ....................................................................................................... 116 XII. Investments ................................................................................................................................ 127 XIII. Property and Equipment ............................................................................................................. 130 XIV. Cemeteries .................................................................................................................................. 139 XV. Group Programs ......................................................................................................................... 142 XVI. National Special Collections ...................................................................................................... 145 XVII. Federal Funding .......................................................................................................................... 148 XVIII. Foundations and Endowments.................................................................................................... 153 XIX. Fundraising Appeals: Canonical Norms, Accounting Guidance and Gift Acceptance .............. 155 XX. Income Tax ................................................................................................................................. 161 XXI. School Tuition vs. Donation ....................................................................................................... 181 Appendix A – Financial Statements and Notes – Samples ....................................................................... 182 Appendix B – Resources ........................................................................................................................... 183 I. Financial Management Issues Introduction The Church is responsible for the financial resources which have been entrusted to it. This responsibility includes safeguarding Church assets, exercising prudence in financial matters, accountability to those who provide monetary support to the Church and to regulatory authorities, and compliance with all civil regulations. As such, the Church is committed to the highest standards of fiscal integrity and accountability. Strong systems of internal controls are needed to safeguard assets by reducing the risk of fraud, misuse, waste or embezzlement. It is