Faced with a significant and rising  budget deficit  one of, if not the largest not-for-profit organization in the world–the Vatican –has announced a sweeping set of financial reforms. These include centralizing contract awards  as well as competitive bidding arrangements.  Additional changes are the creation of a list of  approved vendors,  disqualification of certain unsavory elements from being put on the approved list, and banning bidding by related parties. 

Previously, each department in the Vatican conducted its own fiscal affairs with little interference from other authorities. This has been the source of unending financial embarrassments for the Vatican.  Just recently, the Secretariat of State, in effect, the office of the papal  prime minister, was embroiled in a $225 million London real estate fiasco. Even more embarrassing was the funds for this came from Peter’s Pence, the world-wide collection taken up for the Vatican by every Catholic diocese. 

Anyone who works in a company of any size will recognize the new procedures as being a normal state of affairs in the business world. Organizations need an effective control environment  and system of internal controls. Obviously this has not been the case in the Vatican.  One  could wonder why the newly enacted  and elementary internal  controls  were not put into place  years or even decades ago.  The reason may be very simple:  the culture of the organization valued autonomy  above all. The Catholic Church is a very flat hierarchical organization, giving incredible independence of action  to its local leadership.  The central offices of the Vatican supervise thousands of bishops around the world with a relatively limited staff.  Each bishop is given the authority to manage his diocese with comparatively little oversight.  While this may have some very positive points such as being able to react quickly to threats like the coronavirus, it is generally not part of an efficient control environment, especially if financial oversight is not an esteemed cultural attribute. 

While the reform package is a good change to current processes, it is one thing to decree new procedures and another to enforce it.  Years ago, an executive vice-president at a large organization I worked at told me he could save a quarter million dollars a year by simply centralizing office supply purchases for the company headquarters.  We walked around the building and noticed all of the supply cabinets in each department  overflowing with staplers, post-it notes, and stationery. Rather than having each department order their own office supplies he proposed centralizing the process.  His solution was simple but not quite elegant. He would order the materials in bulk and store them in a tractor trailer in the back of the parking lot.  The purchasing department would parcel out the supplies on an as-needed basis.   While the tractor trailer part of the plan was a little beyond the pale, his overall sentiment was correct.  A simple process change would save a significant amount of money. Nonetheless, he was never able to implement centralized supply purchasing.  The culture of the company was simply too resistant. 

As difficult as it was for the Pope to decree these new policies, it will be more difficult to implement them. The culture of the Catholic Church has roots going back two thousand years. Ignatius of Antioch, a famous martyr, bishop and author of some of the earliest recorded Christian writings, was already speaking of the office of the monarchical bishop in the first century A.D.  Breaking such a  culture will be extremely difficult, and will require constant attention and reinforcement from the highest authorities. This exhausting  effort often results in the implementation failure of the new procedures. The lack of  post-implementation review and supervision is often fatal in such situations.  Will the Vatican financial reforms prevail over the countervailing culture?  Time will tell, but I am not overly optimistic. 

Many not-for-profit organizations resemble the Vatican in operational characteristics if not size. Since staffing is limited and volunteers are often used, there can be a tendency for loose administrative practices. Long time employees may build “empires”  simply out of lack of oversight or the  need to get something done. NFPs should consider some of the new reforms the Vatican has implemented.  Every dollar of revenue is precious, and needs to be diligently managed.  If anything, donors will appreciate the effort.