Judge Orders External Audit of San Diego Diocese Accounts

By Allison Hoffman
Associated Press, carried in San Luis Obispo Tribune
April 11, 2007

San Diego — A federal bankruptcy judge Wednesday ordered an external audit of the Roman Catholic Diocese of San Diego, chastising church lawyers for a lack of transparency in court filings.

U.S. Bankruptcy Judge Louise DeCarl Adler grilled attorneys representing both the diocese and a parish organization, as well as two pastors who had sent letters the judge said misrepresented comments made from the bench during an earlier hearing.

Adler criticized church attorneys for failing to include 770 parish accounts in bankruptcy documents.

"This is the most Byzantine accounting system I've ever seen," Adler said. "I am mystified."

In a sternly worded order issued Monday, Adler said attorneys Susan Boswell, Jeffry Davis and Victor Vilaplana, as well as two priests, appeared to have "conspired with parishes" to create new bank accounts separate from the diocese. The judge wrote that the attorneys appeared to have misrepresented facts and may have violated court orders and bankruptcy laws.

Boswell apologized and said she had misinterpreted the judge's comments at a March 1 hearing concerning how the parishes should go about protecting their cash flow through the bankruptcy process.

"We are not dealing with a commercial enterprise - we are dealing with a church," said Boswell. "What it does is give money to the parishes. This is not a nefarious function."

Boswell agreed to file amended statements with the court reflecting parish accounts operating under the diocese's taxpayer identification number and to cooperate with an independent audit.

Attorneys representing more than 140 people who have sued the diocese claiming sexual abuse by priests have repeatedly accused the diocese of attempting to shield assets from any potential settlement with victims by transferring money to parishes and schools.

The diocese abruptly filed for bankruptcy protection Feb. 27, just hours before the first civil trial was scheduled to begin in San Diego Superior Court and after a last-ditch round of settlement negotiations with plaintiffs' attorneys.

Adler cited a March 29 letter sent by a diocese parish organization to pastors urging them to get new taxpayer identification numbers and transfer funds to new accounts.

The judge said any post-bankruptcy transfers between the diocese and parishes outside of normal cash operations violate bankruptcy rules against shifting the diocese's assets while the bankruptcy case is pending.

Boswell wrote in court documents Tuesday no intentional misrepresentations or misstatements had been made. She said the diocese has "no access or control" over money in more than 770 bank accounts opened by parishes and parochial schools under the diocese's taxpayer identification number.

Davis wrote in court papers he thought comments Adler made in an earlier court hearing suggested that parishes should obtain their own taxpayer identification numbers for clarity in the bankruptcy case.

In March, the diocese proposed a $95 million settlement schedule for victims that would pay 83 plaintiffs who say they were forced to have sex as much as $800,000 each, while others were offered between $10,000 and $575,000.

Attorneys estimate that a fair settlement would total about $200 million.

With nearly 1 million Catholics and holdings throughout San Diego County, the diocese here is by far the largest and, by all accounts, the wealthiest of the five U.S. dioceses to have filed for Chapter 11 bankruptcy protection under the shadow of civil claims over sexual abuse.

San Diego was the fifth U.S. diocese to file for bankruptcy. The other dioceses that have filed for bankruptcy protection are Davenport, Iowa; Portland, Ore.; Spokane, Wash.; and Tucson, Ariz. Tucson has emerged from bankruptcy protection, while proposed settlements are awaiting final approval in Portland and Spokane.


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