Sunday, July 3, 2011

Reflections on the Vatican's annual financial report...


This Sunday’s readings include the Prophet Zechariah’s statement, “See, your king shall come to you; a just savior is he, meek, and riding on an ass, on a colt, the foal of an ass (Zec 9:9).”  This same weekend, the Vatican released its annual financial report which listed revenues of $356.1 million against expenses of $341.8 million, an annual profit of $14.3 million.  That much money can buy a lot of donkeys. 

The pope calls himself “Vicar of Christ”, Christ’s representative.  Jesus was homeless, reigned over a kingdom not of this world, traveled by donkey or foot, and owned almost nothing.  In contrast Pope Benedict XVI resides within Vatican City’s edifices, is the absolute monarch of his own country, travels in a custom Mercedes Benz “pope-mobile” and garners $14.3 million in annual profits.   Is someone a credible “Vicar of Christ” when his lifestyle differs from Jesus to the point of requiring $341.8 million in expenses each year to maintain his possessions and power structure?

In 1981, Pope John Paul II began publishing an annual financial report for the Vatican in hopes of dispelling notions that the Vatican held great wealth.  A financial report typically includes building and property valuations, forms of wealth.  Within its report, the Vatican declares each Vatican City building to be worth a very modest €1.  For example, the pope says St. Peter’s Basilica is worth €1.  Depending upon exchange rates, that’s typically some amount less than $1.50.  This seems grossly inaccurate.  I would hope the Sistine Chapel or St. Peter's Basilica could fetch more than $1.50 if placed on the real estate market.     

Regardless of Vatican properties’ declared values, the pope spends $100s millions annually to maintain them.  This makes a more profound value statement than the valuation claimed in the financial report.  Would the pope spend so much to protect and maintain things he truly found worthless?

As currently derived, the Vatican’s annual report does not reflect its complete wealth.  By the way, the Vatican is one of few entities whose annual report lists “gold” as an asset, an indicator of the quantity of its gold holdings.  Nonetheless, with what is reported, under-reported or not reported as assets, the report seems to reinforce the exact message Pope John Paul II hoped to refute. 

The Vatican indicated that their profits occurred despite a significant reduction in donations by the faithful.  The primary vehicle through which individuals donate is the annual Peter’s Pence.  Those donations declined 18% or $14.8 million, leaving the pope only $67.7 million from this collection.  Vatican officials did not comment on causes of individuals’ marked decreases in giving but rather cited increased stock prices as the reason for posting a profit despite reduced contributions.  So, in addition to owning enough gold to list it on their annual report, and owning properties, the Vatican owns enough stocks that their increased values can not only offset $14.8 million in reduced contributions but post $14.3 million in profit.  That implies the Vatican has a significant stock portfolio…just like Jesus had?

The separately administered Vatican City also posted a $30.6 million profit.  Vatican officials attribute this to the Vatican Museums’ booming sale of tickets, priced at about $22 each.  The Sistine Chapel is accessed via a Vatican Museum ticket.  Would Jesus turn holy places into for-profit tourist destinations?  Scripture lends some insight into this.  In the same passage where Jesus names the original twelve male apostles he tells them, “Without cost you have received; without cost you are to give (MT 10:8).”  Should the faithful permit today’s apostles to charge for access to holy places?

With total profits nearing $44 million, the Vatican seems to have financial sources independent of individual church members.  Individual donations seem to be less and less relevant to church leaders, breaking communal interdependency.  What impact does this have upon their connection to and intimacy with the faithful?  What should the faithful do about this?    

6 comments:

  1. Pretty sure international accounting principals follows this same rule but US generally accepted accounting principals dictate fixed assets (including buildings) be reported at historical cost less accumulated depreciation and salvage. Considering the cost of the buildings were incurred centuries ago it wouldn't be unreasonable for the net book value to be minimal. Note that this is book value and not fair market value. The accounting rules read this way because the alternative is extremely cost prohibative. Imagine the $$ that would have to be spent estimating the fair value of everything in Vatican City. Plus this cost would have to be repeated and incurred every single year in order to make the statements consistent/comparative (not very useful if an entity can change their accounting rules then stop following them a year later).

    On another note the vatican museum is a museum and it costs money to guard and maintain the artwork/Egyptian mummy exhibit/Sistine chapel ceiling/ in them. The exhibits are maintained as a historical collection... they could be disposed of. The churches that are in operation and offer services (i.e st peters basilica) do not charge an entrance fee.

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  2. Thanks for the comments. Will check with my accounting pals. Regardless, of if offering services or not, the Sistine Chapel is a holy site. It has not been re-purposed for profane use. I've been there at least 4 times. There are signs indicating it's a holy place not a tourist attraction and encouraging quiet. It's always bothered me that I had to pay to get to the Sistine Chapel. The rest of the collection in the museum was not very memorable for me. By that, I mean I've been there at least 4 times and only the Sistine Chapel stands out in my mind...and I had to pay to pray there.

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  3. Found this pertaining to fixed assets..."Fixed assets refer to tangible assets with long lives. Generally accepted accounting principles in the United States require the valuation of fixed assets at historical costs, adjusted for any estimated loss in value from the aging of these assets. The loss in value is called depreciation."

    I don't think that the Vatican's properties have suffered from loss in value due to aging. Thus, why would they have any depreciation? I would assume that if the property rose in value, that is a negative depreciation and would need to be reflected as such...meaning it should indicate the rise in value if it's an appreciating asset over time? Not an accountant so just asking.

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  4. US GAAP doesn't allow for negative depreciation since it wouldn't be conservative to the accounting records. Without that rule, the risk is companies would always estimate that their assets are appreciating in value so that they could show more revenues on their books. GAAP now does allow for fair market value accounting which would make all numbers on the financials reflect their value at a certain period of time each year. But that would involve annual FMV appraisals and could be cost prohibitive and expensive. The IRS for tax purposes has non residential buildings having a useful life of 39 years (book useful lives can be different). I don't know when the Vatican started keeping accounting records (double entry accounting like we use today started in the 15th century) but they could have expected to rebuild/replace the churches/cathedrals as they got older so they estimated them to have a useful life to be much shorter than it turned out to be.

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  5. What exactly is the Vatican spending this money on? I understand that the Vatican is handling a lot of money, but I can't begin to evaluate the prudence of their spending without first knowing how it's being used. Spending a lot of money on something good is something that Jesus would encourage.

    Also, what are your sources?

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  6. The pope, as head of state for his own country gets to set financial disclosure rules. My sources are the public statements made by the Vatican in releasing its financial report as well as "Render Unto Rome" by Jason Berry and statements in there by Dr. Ruhl a Western Michigan University professor of accountancy who has studied the Vatican's financial reports extensively. The Vatican does not provide details as to the disposition of the monies. If they turn a profit as they reported, that is money that is not spent but accumulated. To have over $14 million in income from investments, they must have very large investments. That is also money that is accumulated, not spent. My concern is the accumulated money. That is something Jesus explicitly told the apostles not to do (in commissioning the apostles he said, "Without cost you have received; without cost you are to give. Do not take gold or silver or copper for your belts; no sack for the journey, or a second tunic, or sandals, or walking stick (MT 10:8-10)."

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