The Vatican recently announced Giovanni Angelo Cardinal  Becciu has resigned as prefect of the Congregation for the Causes of Saints (the Vatican department overseeing investigations into the lives of potential saints) and his rights as a cardinal.  What the latter means is unclear at this moment, but presumably tCardinal Becciu will not be able to participate in any conclave for the election of a new pope. If so, he becomes the third cardinal stripped of such rights under Pope Francis. This his is a rare public rebuke, especially since Cardinal Becciu is 72 years old and could have participated in papal conclaves until the age of 80.  To be fair, the Cardinal has maintained his innocence, claiming he should be judged by the norms in place at the time, and not retroactively.  Sadly, he has overlooked the fact legal action always has the benefit of hindsight. 

This blog has previously reported on the use of Peter’s Pence funds (the world wide collection taken up for the Vatican) for the purchase of a warehouse property in London that would eventually be converted into luxury apartments. The purchase price was purportedly somewhere in the vicinity of $225 million, but that also remains unclear at this point.  Cardinal Becciu’s name has been prominently connected with this transaction while he served as sostituto, the deputy to the Vatican Secretary of State (papal prime minister) and functioned as the Pope’s chief of staff.  There are also claims of nepotism in the form of payments to relatives. 

What can an NFP manager learn from this debacle? Not only was the use of the funds apparently not authorized  by Pope Francis, the books and records of the transaction were also tampered with.  The loan for the financing of the property was netted against the asset on the balance sheet of the Vatican. As any student of accounting will tell you, this is a major no-no in accounting.  Transactions must be shown “broad” with no netting so important details such as the true amounts or even the existence of the debt in this case could not be concealed. Netting the loan value against the asset value is simply an outright attempt to conceal liability. Even more importantly, this serves as a reminder for the management of any not-for-profit organization the accounting for transactions must be separated from the personnel initiating and conducting the transaction.  If this is not possible because of limited personnel,  there must be a robust review of the accounting records to make sure “entrepreneurial” accounting of this type will be detected. 

To Pope Francis’ credit, he had prohibited netting in accounting some time ago, instituted new controls on contract approvals and has punished the apparent wrong-doer.  This is all good. However, what about the more general question of the control environment?  How did the Vatican Secretary of State (the Pope’s prime minister) not know his deputy Becciu was involved in some very shady dealings? The Church is a hierarchical structure.  It would seem there should have been some effective detective controls in place.  Apparently, there were not.  Also, segregation of duties  seem to have been very poor since one would not think a chief of state would be involved in such a major acquisition or access funds in the manner he did. 

Update: On July 2, 2021 Cardinal Becchiu was indicted for fraud, embezzlement, and a host of other crimes. The trial is scheduled to begin on July 27, 2021.

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