April 17, 2009
Audit report shows financial results for Fiscal Year 2007-2008
Audit Report FY 2007-2008
Starting date: September 1, 2007
Ending date: August 31, 2008
Audit Report completed: January 19, 2009
Report available on diocesan website: www.evansville-diocese.org
Report published in the Message: April 17, 2009
By ROBERT COX (Diocesan Treasurer)
The fiscal year of the Diocese of Evansville ended on August 31, 2008. The audit of the 2007-2008 financial statements began the first week of October 2008. It was obvious, even before the end of the fiscal year, that there would be many economic factors that would weigh heavily on the financial results. I would like to address some of the more significant issues that affected the operating results of the diocese.
A positive aspect
However, before I discuss some of the negative influences, I would like to spend just a moment on a positive aspect of our previous fiscal year. That is, the overall level of cash available for diocesan operations. At the end of August 2007, our audited financial statement showed cash and cash equivalents of $563,060. In comparison, at the end of August 2008, the cash and cash equivalents were $1,335,940. There are many factors for this positive change. However, it is significant to note that many of the unfavorable variances that I will describe in this article were cash neutral. In other words, the adjustments to our financial statements were only on paper. This does not mean that the source of those adjustments does not require monitoring and planning, it is just that there was not an immediate impact to cash.
Lay Medical Insurance Plan
The first area of concern is in connection with the Lay Medi-cal Insurance Plan. This plan lost approximately $945,000 before considering inter-company eliminations. Due to the plan’s experience for the last fiscal year, many plan design changes were implemented as of September 1, 2008. These changes increased deductibles, increased co-pays, and reduced co-insurance percentages in some instances. All of these changes were done for the overall financial health and viability of the Lay Medical Insurance Plan, while continuing to provide a significant benefit to the employees of the diocese.
Funding the lay pension plan
The second area that continues to be one of great exposure is the funding for the lay pension plan. This year’s audited financial statements include several adjustments that are required by the Financial Ac-counting Standards Board. The purpose of these adjustments is to reflect the diocese’s obligation under the plan to all plan participants. The accounting assumptions for the pension plan differ significantly from the actual funding requirements, thus creating a significant negative adjustment. Due to these financial accounting rules, the Dio-cese of Evansville was required to record an additional lia-bility and related expense of $5,184,448. Approximately $2,000,000 of this amount was due to market performance and the remaining $3,000,000 can be attributed to the additional costs due to improved pension benefit. This adjustment was the primary component to the diocese’s operating loss of $8,333,089. The lay pension plan continues to be reviewed and analyzed on a regular basis.
Downturn of financial markets
The third area that had a significant negative impact to our operating results was the downturn of the financial markets and the related impact to investment income. The diocese budgeted to earn net investment income of $1,000,000 for the year ending August 31, 2008. How-ever, in reality, our net investment income was ($1,063,634). This represents a swing in excess of $2,000,000. However, I will point out that the majority of this loss was on “paper only” and did not decrease the amount of available cash.
Unfortunately, this trend has only worsened during the current fiscal year. At August 31, 2008, the Dow Jones Industrial Average was 11,544. This has since fallen dramatically to a level below 8,000 points. This is not a concern that is confined to the operations of the Diocese of Evansville. All segments of our economy have been impacted by this historic downturn. We, as other employers, have al-ready responded to the market conditions by implementing cost cutting measures. These have been outlined previously in the Message.
Audit report
I would now like to discuss the major components of our audit report that are included in the exhibits that follow.
The financial data presented in this article include selected financial information from the audited financial statements. BKD, LLP, conducted and prepared the audit report dated January 19, 2009. The audit contains an unqualified opinion on the financial operations of the diocese. However, the 2007 financial data has been restated. This restatement was due to the valuation of the net assets held in endowments within the Catholic Foundation as well as reclassifications between rest-ricted and unrestricted assets.
The complete audited financial statements are available for review on the diocesan web-site or in person during normal business hours (8 a.m. to 5 p.m. CST) in the office of the Treas-urer.
Details of reports
I would like to briefly discuss each report presented. First, is the Combined Statement of Financial Position. This report lists the assets, liabilities and net assets of the diocese for the year ended August 31, 2008 as well as August 31, 2007. This will allow you to observe trends from one year to the next.
The second report is the Net Investment Income for the years ended August 31, 2008 and 2007. This report shows very clearly the loss of investment income over the two year period. The interest expense consists of amounts that are paid to the parishes and institutions of the diocese who have money on deposit with the Diocesan Deposit and Loan Fund.
The third report displays the activity from the insurance fund for the two fiscal years presented. The fourth report provides a summary of the other operating income and expenses for the years ended August 31, 2008 and 2007. You will note on this report the impact to the operating results from the Lay Pension Plan.
The fifth report is a summary of the Net Investment Income, the insurance activity, and the impact of other operating in-come and expenses. This sched-ule agrees to the total change in net assets as outlined in the audit report.
The financial future
While I have pointed out several areas of weakness and volatility within the diocesan financial statements, I am cautiously optimistic about the financial future of our diocese. The diocesan staff, under the direction of Bishop Gerald A. Gettelfinger and Tim McGuire, has built a solid financial plan for the future. It is our responsibility to be a conscientious and diligent steward of the resources you, the Catholic people of southwestern Indiana, have so generously entrusted to our care.
(Charts and figures related to this story appeared in the print edition of The Message.)