January 29, 2010
Positive and negative factors part of the 2008-2009 fiscal year
By ROBERT COX (Treasurer, Diocese of Evansville)
The fiscal year of the Diocese of Evansville ended on August 31, 2009. It was clear, even be-fore the end of the fiscal year, that there would be many positive as well as negative factors that would influence the financial results. I would like to address some of the more significant issues that affected the operating results of the Diocese.
First, the Diocesan investment portfolio, like every other investment portfolio, experienced a loss for the year. For the year ended August 31, 2009, the overall investment income was a $628,546 loss. However, I think it is important to note that nearly all of the negative results were in the first few months of the fiscal year. Beginning in March of 2009, the Diocesan portfolio had steady positive growth over the remainder of the year. The Diocesan Investment Commit-tee as well as the Diocesan Fi-nance Council will continue to closely monitor these results on a regular basis.
Second, I would like to focus on the overall level of cash available for Diocesan operations. At the end of August 2008, our audited financial statement showed cash and cash equivalents of $1,335,940. In comparison, at the end of August 2009, the cash and cash equivalents were $1,868,021. 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.
Third, I would like to look at the results of the Lay Medical Insurance Plan. For the second consecutive year, this plan experienced a significant loss. This year’s loss was approximately $563,000 before considering inter-company eliminations. Much of this loss was due to the catastrophic medical claims of several of our members. This is to be expected in a plan of our size. The Diocesan Lay Medical Insurance Plan covers approximately 750 employees and 1,100 total lives. Due to the plans experience for the last fiscal year, the Diocese implemented an improved wellness program as of September 1, 2009. These improvements include a mandated health screening for all of our employees, free flu shots to those who wanted one, routine availability of an on-site health care advocate, as well as providing coverage for weight loss and smoking cessation programs. We believe that we can only significantly influence the number and severity of medical claims by helping our members be as healthy as possible.
Fourthly, an 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 Diocese of Evansville was required to record an additional liability and related expense of $3,160,739. This adjustment was the primary component to the Diocese’s operating loss of $4,816,709. The lay pension plan continues to be reviewed and analyzed on a regular basis.
I would now like to discuss the major components of our audit report that are included in the accompanying exhibits.
The financial data presented in this article include selected financial information from the audited financial statements, conducted and prepared by BKD,LLP. The audit contains an unqualified opinion on the fi-nancial operations of the dio-cese.
The complete audited financial statements are available for review on the diocesan website or in person during normal business hours (8 a.m.-5 p.m. CST) in the office of the Treas-urer.
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, 2009 as well as August 31, 2008. 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, 2009 and 2008. 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 De-posit 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, 2009 and 2008. 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 sche-dule agrees to the total change in Net Assets as outlined in the audit report.
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 resour-ces you, the Catholic people of southwest Indiana, have so generously entrusted to our care.