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Diocese makes dent in insurance business.

Buffalo faithful surprised by big profits

BUFFALO, N.Y. - "Trust in God, but insure with us," could be the motto of the Buffalo diocese's insurance services department. The department has made more than $1.1 million in the past two years by providing coverage to Catholic groups ranging from an order of cloistered nuns to its 280 member parishes.

And the diocese's "self-insurance program," which is. not registered with the state, has banked about $4.8 million in income in 10 years.

That surprises some observers here, even for a diocese whose top lay financial officer was hauled off to state prison last year after pleading guilty to embezzling more than $1 million in church funds.

"You mean the diocese could lower the price of my parish insurance?" one pastor responded when informed that the chancery was declaring a profit from its insurance program.

The revelation also upsets church critics, who point out that, under Bishop Edward D. Head, the diocese has at times operated more like a closely held private company than a spiritual organization.

In a 1991 interview, Head declined to reveal what he paid former diocesan comptroller Anthony F. Franjoine, now serving up to eight years in state prison, on the grounds that the diocese "is a private corporation."

Church officials revealed the insurance income figures in the diocese's annual financial report released in February.

And, according to two public accountants who studied the figures, the diocese also acknowledged making a hefty profit from its purchasing department, which serves Catholic and secular nonprofit groups in western New York.

The $4.8 million is listed in the annual report as "unrestricted funds," meaning the diocese can use it for whatever it wants, according to accountants. Is the diocese running an insurance company? "In a sense we are," John R. O'Brien, executive director of financial administration for the diocese, said. O'Brien took issue, however, with calling the banked funds "profits" and insisted that diocesan officials were following all required laws in their insurance program.

"That bothers me. Why do they have all this money tied up in insurance funds?" asked Edward J. Schunk, a Buffalo accountant. Schunk, an active Catholic who runs his own certified public accounting firm, also takes issue with what he calls the "lack of disclosure" in the annual report.

Schunk's opinions are supported by a fellow Catholic CPA who has studied the annual report but who asked not to be identified, fearing retribution from church officials. He is a board member of a small commercial insurance company. Both cited figures in the annual report that indicate the diocese has profited by about $700,000 from its purchasing department in recent years.

"Either they are making money on diocesan purchasing or they're including assets such as cash that have not been reported before," said Schunk, who studied the 10 previous annual reports after the embezzlement case became public.

State insurance officials said that they were never asked to give their blessing to the insurance program but that they would check up on it to make sure it conforms to state law. "I don't know anything about them. This is the first I've heard about it," said Paul Altruda, assistant general counsel for the New York State Insurance Department.

According to the financial report, the diocese bills parishes and other Catholic institutions to pay for coverage, including property and casualty, worker's compensation, automobile and disability losses. Pastors are forbidden to buy insurance from commercial underwriters even if the prices are lower, unless they use personal funds, according to parish sources.

In addition to parishes, those paying the diocese for coverage include a nonprofit center for the handicapped and a cloistered order of nuns in Buffalo, neither of which is part of the diocese structure.

Diocesan officials declined to identify all the insured groups. Diocesan officials have set aside about $2.9 million to provide for insurance losses. But according the report, when losses were considered from last year, the diocese ended up making more than $560,000 from its "insurance operations."

The previous year it made $580,000. Add that to the $4.8 million that the diocese has put aside from past insurance income, and the total set aside from insurance operations in recent years is about $7.4 million. "That's awful high," said the accountant who sits on an insurance company board.

And it seems even higher, accountants said, because the diocese is only liable for losses of up to $500,000 under its insurance plan. For larger losses, it has purchased coverage through Catholic Mutual Insurance Co., an Omaha insurer founded by 24 dioceses.

The annual report also reveals that the Buffalo diocese has amassed $48 million in financial investments, much of it on loan from parishes, which are not permitted to maintain their own savings accounts. Income on the portfolio nearly tripled last year, but diocesan officials are refusing to give details on the investments after Schunk and other critics questioned reports in previous years.

As a result, Schunk says, Catholics cannot tell what the diocese is investing in or how the loaned parish funds are doing in the market. Without explanation, the annual report also adjusted some 1991 figures, more than a year after they were first reported, including.

* A $217,000 increase in cash assets at the end of the fiscal year that ended in August 1991.

* A $513,814 increase in the previous year's "accounts receivable."

* Nearly $235,000 in increased inventory.

* More than $24,000 in contributions the diocese said it received during the year.

O'Brien called the changes "insignificant," saying they arose by inclusion of the diocesan purchasing department in the report for the first time, one of the reforms suggested by outside auditors after the embezzlement, which involved purchasing. Previously, diocesan officials had ordered outside auditors to ignore the purchasing department on the grounds that it was not part of the central operations of the diocese.
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Title Annotation:Buffalo, N.Y.
Author:Dolan, Thomas J.
Publication:National Catholic Reporter
Date:Mar 26, 1993
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