New York Attorney General finds church's financial procedures in order

January 26, 1999

In response to a complaint filed nearly two years ago, the New York State Attorney General's office has found that the Episcopal Church's trust funds are being managed properly and has entered into a consent agreement with the church under which the church's accounting consultants will carry out some specific tasks. The church also will make regular reports to affirm that proper management is continuing.

"Nothing was found in this investigation that we hadn't already reported," said Stephen Duggan, financial officer and treasurer of the Domestic and Foreign Missionary Society, the church's corporate designation. He stressed that the attorney general's investigation "found no fault and made no recommendations that current financial procedures be changed." The consent agreement, issued on January 5, came after a review of material including the information gathered by two consulting firms called in by the DFMS after former treasurer Ellen F. Cooke was found to have embezzled $2.2 million of church funds and property. Cooke, who resigned January 31, 1995, is currently serving a five-year prison term.

At the time of her resignation, DFMS staff members did a preliminary probe of the extent of Cooke's theft and retained Coopers & Lybrand, an independent accounting firm, to conduct a comprehensive investigation. The firm identified ways in which Cooke had taken money, primarily through improper cash transfers out of DFMS bank and retail brokerage accounts. The DFMS also examined the nearly 1,000 trust funds monitored by the society to make sure they had been properly administered. While the principal of the funds was found to be untouched, some changes in their administration prompted the DFMS in 1996 to hire Arthur Andersen, an accounting firm that already had been retained to do the church's regular annual audit. Arthur Andersen was asked to focus its trust fund investigation on the period from 1991 to 1995, when most of Cooke's misappropriations occurred.

In 1997, a small group calling itself the Trust Group, declared it was dissatisfied with the amount of information supplied by Duggan to inquiring church members about the management of the trust funds. The group's spokesman, James H. Crosby, a lawyer whose firm is in Mobile, Alabama, said his clients were particularly concerned about the funds' management during Cooke's tenure. The group was also skeptical of the depth of the Arthur Andersen audit of selected accounts. After the Trust Group's request to do its own audit of the funds was refused by DFMS, which cited the Arthur Andersen audit already underway, the Trust Group filed a complaint with the New York State Attorney General's office.

High level of confidence
The recent consent agreement emphasized Arthur Andersen's conclusion that "the DFMS could have a high level of confidence that earnings were being properly credited to the trust funds and income was being expended in accordance with donor stipulations during the time period reviewed." The agreement also acknowledged the changes in procedure that were adopted by the DFMS in the wake of Cooke's resignation, including strengthened oversight and the hiring in late 1995 of three persons unassociated with DFMS to assume the society's top financial positions.

Crosby said in a statement that the Trust Group generally was pleased with the accounting modifications made by DFMS and acknowledged by the Attorney General, but that the Group felt that further steps were needed, including a requirement that DFMS post its trust account information on the Internet. Duggan confirmed that the work of responding to the attorney general's office cost the DFMS a total of $400,000. "I found it frustrating and upsetting," he said of the process several days after the agreement had been signed. "At a time when the church has so much ministry that needs to be done…not to have the amount of money necessary is galling. The church has suffered and the people who rely on the church have suffered because of the diversion of funds to dealing with this."

Laying doubts to rest
Under the consent agreement, which will be in force for five years, DFMS will be required to do a number of things, many of them actions and procedures the society has had in place for a number of years. Included in the agreement were specific requirements that DFMS:

· will make no material changes in financial procedures without the approval of the Administration and Finance Committee of the Executive Council and notification of the full Executive Council and the Attorney General's office;
· will continue to prepare an annual trust fund book and promptly provide copies of it to members of the church who request it;
· provide copies of its annual financial statements to church members who request them;
· submit a report to the Attorney General concerning one trust fund for which Arthur Andersen had noted an underexpenditure of income between 1991 and 1995;
· provide the Attorney General's office with a copy of a memorandum drawn up by the chancellor to the Presiding Bishop concerning standards for the use of the Presiding Bishop's discretionary funds; and
· will engage Arthur Andersen to audit certain trust funds that were not included in the original Arthur Andersen trust fund audit and report. Any irregularities discovered in the management of these funds will be corrected and annual reports made to the Attorney General's office even after the consent agreement expires.

Declaring the Attorney General's findings and continuing oversight to be reasonable, Duggan said, "It is my earnest hope that, with this development, any lingering doubts about the financial management of the Church will finally be laid to rest. "I am extremely grateful," he added, "that our energies and funds will no longer be diverted in responding to such concerns."

--Kathryn McCormick is associate director of the Office of News and Information of the Episcopal Church.

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