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2002 Financial Report
for the Oakland Diocese

September 30, 2003

Dear Friends:

I am presenting to you the audit of the central services of the Diocese for the year 2002. I offer it for your information and review.

The audit represents responsible stewardship on the one hand and an appraisal of financial health on the other. Additionally one can read this as an index of ministries.
The audit represents the generous support and collaboration of so many in the diocese. Although there is evidence of some recovery these are burdensome economic times. I offer commendation to all in the diocese for the sacrifices made.

We serve many in the diocese and touch many lives. We will learn much more in eternity of our work but its fruitfulness is tangible even now.
We will continue the ministries as we can. You are aware that there is potentional liability for us in these recent years. We hope that we will be able to manage whatever burdens placed upon us.

On your behalf I thank very many people, particularly our finance office, our gifted and generous finance council and all others who provide wisdom and direction in this foundational element of our administration. Again, my thanks.
Sincerely,


John S. Cummins
Bishop of Oakland

December 8, 2003

Dear Sisters and Brothers in the Lord:

As you review the results of the audit of the Central Services of the Diocese for last year, I particularly want to express the debt of gratitude all of us feel to Bishop Cummins for his twenty-six years of faithful stewardship as Oakland’s Bishop.

He correctly points out that these numbers are important signs; they bespeak the sacrifices you have made from your substance in order to support the mission Christ has entrusted to His bride, the Church. In fact, these dollars represent only a fraction of what the Catholics of the Oakland Diocese give to advance the Gospel and the life to which it calls us. To Bishop Cummins’ thanks I offer my own expression of profound gratitude for your generosity.

I also want to take this occasion to pledge to you my own resolve to be a good steward of the gifts you give to the Church. The Holy Father, Pope John Paul II, never tires of reminding all of us how urgent it is for us to be about the work of the New Evangelization. It is precisely for this cause, nothing less than the “New Pentecost” called for by the Fathers of the Second Vatican Council, that you have donated your hard-earned money. I will do my best to see that your donations are used effectively for this purpose.

With the promise of my prayers that through Our Lady’s intercession God will give you and your loved ones the grace to grow daily in holiness, I am

Sincerely yours,

Bishop Allen H. Vigneron

Accountants and
Management Consultants
Grant Thornton LLP
The US Member Firm of
Grant Thornton Internationa
l

 


ACCOUNTANTS' REVIEW REPORT
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Most Reverend John S. Cummins
The Roman Catholic Bishop of Oakland

We have audited the statements of financial position of the Roman Catholic Diocese of Oakland, Central Services Administration (the “Chancery”) as of December 31, 2002 and 2001, and the related statements of activities and cash flows for the yearss then ended. These financial statements are the responsibility of the management of the Chancery. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Roman Catholic Diocese of Oakland, Central Services Administration, as of December 31, 2002 and 2001, and the results of its activities and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As noted in Note O, the Diocese is involved in numerous lawsuits relating to claims of alleged sexual misconduct by certain individuals. The financial impact of these claims is uncertain and no accrual has been made in the financial statements relating to these claims.

San Francisco, California
June 5, 2003

STATEMENTS OF FINANCIAL POSITION
December 31, 2002

ASSETS

2002
Audited
Total

2001
(Restated)
Audited Total

Cash and cash equivalents

$ 2,873,444

$ 4,107,732

Marketable securities

54,278,792

59,937,990

Receivables
Parishes, schools and institutions, net

12,160,161

12,106,068

Cathedral Campaign Pledge, net

-

6,278,004

Other, net

782,490

644,182

Pre-paid expenses

717,787

606,361

Property, plant and equipment, net

12,897,985

13,265,646

Total assets

$ 83,710,659

$ 96,945,983

LIABILITIES AND NET ASSETS

Liabilities

Accounts payable

$ 535,930

$ 479,543

Accrued liabilities

347,349

174,396

Deferred revenue

2,442,469

1,639,073

Deposits payable

Parishes, schools and institutions

26,497,423

27,021,469

Cemeteries

756,303

2,059,134

Assets held for parishes, schools and institutions

2,440,799

2,309,209

Equity of others in pooled investments

6,587,788

8,030,355

Total liabilities

$ 39,608,061

$ 41,713,179

Net assets

Unrestricted

Undesignated

$ 2,084,736

$ 2,635,623

Designated

28,521,914

31,418,042

Invested in plan

12,897,985

13,006,123

Temporarily restricted

597,963

8,173,016

Total net assets

$ 44,102,598

$ 55,232,804

Total liabilities and net assets

$ 83,710,659

$ 96,945,983

See accompanying notes to financial statements

STATEMENTS OF CASH FLOWS
Year ended December 31, 2002

2002
Audited
Total

2001
(Restated)
Audited Total

Cash flows from operating activities

Change in net asset

$ (3,480,371)

$ 6,691,391

Adjustments to reconcile change in net assets to net cash provided by operating activities

Depreciation

195,831

185,790

Net realized and unrealized losses on marketable securities

2,196,138

809,473

Receivables

Parishes, schools and institutions

(828,766)

(296,666)

Cathedral campaign

-

(6,278,004)

Other

(138,308)

242,110

Prepaid expenses

(111,426)

(335,622)

Accounts payable

56,387

(253,613)

Accrued liabilities

172,953

(51,601)

Medical claims incurred but not reported

-

(337,703)

Deferred revenue

803,396

562,463

Total adjustments

2,346,205

(5,753,373)

Net cash provided by/(used in)
operating activities

(1,134,166)

938,018

Cash flows from investing activities
Cash surrendered upon transfer
of assets to Cathedral

(1,112,308)

-

Loans made to parishes,
schools and institutions

(3,529,129)

(8,560,553)

Payments received on loans made to parishes

4,303,802

6,261,823

Proceeds from sales and maturities of investments

4,084,239

4,056,056

Purchases of investments

(621,179)

(3,784,408)

Purchases of plant assets

(87,693)

(679,375)

Proceeds from sale of property, land, and equipment

-

270,560

Net cash provided by/ (used in)
investing activities

3,037,732

(2,435,897)

Cash flows from financing activities

Increase (decrease) in deposits payable to parishes, schools and institutions

(1,826,877)

1,206,036

Increase (decrease) in assets held
for parishes, schools and institutions

131,590

1,177,136

Increase in equity held for others in
pooled investments

(1,442,567)

(883,630)

Net cash provided by/ (used in)
operating activities

(3,137,854)

1,499,542

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS

(1,234,288)

1,663

Cash and cash equivalents at beginning of year

4,107,732

4,106,069

Cash and cash equivalents at end of year

$ 2,873,444

$ 4,107,732

Supplemental Disclosure:
Non-cash assets transferred to Cathedral (Note P)

$ (6,537,527)

$ -

See accompanying notes to financial statements.

STATEMENTS OF ACTIVITIES
Year ended December 31, 2002

2002
Audited
Total

2001
(Restated)
Audited Total

Revenues

Bishop’s Annual Appeal

$ 2,075,681

$ 2,164,281

Parish assessment and other fees

4,011,351

3,713,424

Gifts, grants and bequests

53,718

296,586

Dividends and interest and other income

1,724,452

1,845,311

Department revenue

2,214,948

1,203,300

Catholic Voice

1,072,519

957,225

Cemetery rent

1,661,454

1,661,454

Interest income on deposit and loan fund

505,020

486,762

Insurance income/(expense), net of expenses of
$14,432,586 and $17,654, 110 in
2002 and 2001, respectively

(111,498)

673,209

Net assets released from purpose restrictions

184,741

971,352

Total revenues

13,392,386

13,972,904

Expenses and other deductions

Central Services

Services and Administration

2,868,278

2,621,736

Pastoral Life Division

3,908,453

2,444,170

Office of the Bishop Division

1,317,334

1,913,609

Central Services Overhead

401,548

422,685

Catholic Voice

1,066,777

946,671

Parishes, Schools/Diocesan General

Interest payments

650,159

1,016,822

School subsidies

750,000

750,000

Seismic repair subsidies

5,000

361,178

Bad debt expense (recovery)

(36,758)

193,886

Parish subsidies

184,741

219,195

Capital grants (subsidized entities)

18,994

127,236

Clergy retirement

1,105,906

1,070,799

Unassigned clergy

388,990

335,000

General

1,862,456

1,478,087

Total expenses

14,491,878

13,901,074

CHANGE IN UNRESTRICTED NET ASSETS BEFORE NET REALIZED AND UNREALIZED LOSSES ON
MARKETABLE SECURITIES

(1,099,492)

(71,830)

Net realized and unrealized losses
on marketable securities

(2,196,138)

(809,473)

CHANGE IN UNRESTRICTED NET ASSETS

(3,295,630)

(737,643)

CHANGE IN TEMORARILY RESTRICTED NET ASSETS:

Gifts, grants and bequests

-

8,400,386

Net Assets released from purpose restriction

(184,741)

(971,352)

Change in Temporarily Restricted
Net Assets

(184,741)

7,429,034

CHANGE IN NET ASSETS

(3,480,371)

6,691,391

Net assets at beginning of year, as previously reported

55,232,804

48,302,681

Recognition of amounts as net assets

-

238,732

Net assets at beginning of year, as restated

55,232,804

48,541,413

Net Assets transferred to Cathedral Corporation

(7,649,835)

-

Net assets at end of year

$ 44,102,598

$ 55,232,804

See accompanying notes to financial statements.

 

NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001, 1998 and 1997
(See Accountants’ Review Report)

NOTE A – THE CHANCERY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Roman Catholic Bishop of Oakland, a California Corporation Sole, was incorporated on May 2, 1962 and operates as the Roman Catholic Diocese of Oakland (the “Diocese”). The Diocese provides ministry administrative and financial support to parishes, schools and other Catholic institutions within Alameda and Contra Costa Counties.

The financial statements include only the assets, liabilities, net assets and financial activities, which are administered by the Diocese's Central Services Administration (the “Chancery”). Parishes, schools, cemeteries and other Diocesan-related organizations such as Catholic Charities of the East Bay as well as priests retirement plans are not included in these financial statements. However, certain investments and deposits held on behalf of these organizations by the Chancery are included in the statements.

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.

• Fund Accounting and Net Assets Categories
The accounts of the Chancery are maintained in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified for accounting purposes into funds that are in accordance with specific activities or objectives. For financial statement purposes all financial transactions are reported by the following net asset categories as prescribed for not-for-profit organizations by the Financial Accounting Standards Board.

- Unrestricted
Unrestricted net assets consist of resources of the Chancery, which have not been restricted by a donor. The major sources of revenue are the parish assessments, the Bishop's Annual Appeal, interest and investment income and cemetery rent. Certain unrestricted resources have been designated as follows:

Health Insurance and Package Insurance - to collect and disburse funds for benefit programs and liability insurance.

Deposit and Loan - includes deposits, which are included in unrestricted liabilities, held by the Chancery for parishes and institutions, which are held for investment and/or loaned to other parishes and institutions. The interest rate paid on deposits in 2002 and 2001 is 2.22% and 3.49%, respectively. The rate for loans in 2002 and 2001 is 4.11% and 4.63%, respectively.

Property Sale Funds - includes net proceeds of property sales to be earmarked for specific projects.

Seismic Project Reserve - represents amounts designated for seismic retrofitting of parishes, schools and institutions.

- Temporarily Restricted
Temporarily restricted net assets consist of cash and other assets received with donor stipulations that limit the use of donated assets. When a donor restriction expires, that is, when a stipulated time restriction or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.

• Accrual Basis
The financial statements of the Chancery are prepared following the accrual basis of accounting.

• Cash and Cash Equivalents
The Chancery considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

• Marketable Securities
Marketable securities are stated at fair market value.

• Land, Buildings and Equipment
Property acquisitions are capitalized at cost when purchased, or fair market value at the date of gift, if donated, and are presented net of accumulated depreciation. Depreciation expense is calculated on the straight-line method using the estimated useful life of each asset. Useful lives range from 5 to 50 years.

• Tax Exempt Status
The Diocese has been granted tax exempt status by the Internal Revenue Service and the Franchise Tax Board under Sections 501(c)(3) and 23701(d), respectively.

• Contributions
The Chancery reports contributions as unrestricted revenue unless they are received with donor stipu lations that limit the use of the donated assets in which case they are recorded as restricted revenue. The Chancery recognizes all unconditional gifts and promises to give in the period notified.

• Deferred Revenue
Deferred revenue consists of amounts received in advance for health and package insurance premi ums from parishes and schools.

• Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

• Restatement
During 2002, the Chancery determined that certain liability amounts were in fact net assets and accord ingly, have been reclassified.

NOTE B- INVESTMENTS

NOTE C – RECEIVABLES

NOTE D - PROPERTY, PLANT AND EQUIPMENT

NOTE E – LINE OF CREDIT
The Chancery has an unused domestic line of credit in the amount of $10,000,000 at December 31, 2002 and 2001, respectively. There are no compensating balance arrangements with banks.

NOTE F - SELF-INSURED RISK RETENTION GROUPS
The Diocese, along with certain other Roman Catholic Dioceses and Archdiocese in the western United States, is a member of and participates in a captive mutual insurance company, The Ordinary Mutual (“TOM”). Premiums paid to TOM are for general and auto liability coverage. To withdraw from TOM an 18-month notice of intent is required and during that period, the withdrawing member’s premiums will be adjusted to cover the claims projected through the withdrawal date. Under certain circumstances, amounts may be assessed by TOM in order to maintain minimum capitalization and reserve requirements. At December 31, 2002, no such assessments were outstanding. Effective 2002, claims related to sexual misconduct are subject to certain limitations specified by the agreement with TOM.

The Diocese, along with various other not-for-profit religious organization of the Roman Catholic Church, is a Trustor of and participates in a multi-employer health plan, Religious Trust Agreement (“RETA”). Premiums are paid to RETA are for medical coverage. Under certain circumstances, amounts may be assessed by RETA in order to maintain minimum reserves in the trust fund. At December 31, 2002, no such assessments were outstanding.

The Diocese, along with certain other Roman Catholic Dioceses and Archdiocese in the western United States, is also a member of and participates in a rent-a-captive insurance association, The Catholic Insurance Association (CIA) for Workers Compensation coverage. In the event that claims and administrative expenses of CIA exceed its premiums, the accumulated capitalization of CIA would be reduced. At December 31, 2002, incurred losses and reserves were less than total premiums paid.

NOTE G - DESIGNATED NET ASSETS

NOTE H - TEMPORARILY RESTRICTED NET ASSETS

NOTE I - BISHOP'S ANNUAL APPEAL
The Bishop's Annual Appeal for the years ended December 31, 2002 and 2001 includes $1,575,681 and $1,664,281, received from parishes and a $500,000 anonymous foundation grant. The foundation grant was restricted for Diocesan Catholic Schools and spent for the restricted purpose during 2002 and 2001.

NOTE J - FUNCTIONAL CLASSIFICATION

The expenses and other deductions of the Chancery are classified on a functional basis among its program and supporting services as follows:

NOTE K - TRANSACTIONS WITH OTHER DIOCESAN ORGANIZATIONS
The Chancery receives payments from the Cemeteries of Oakland for use of Diocesan land. The Chancery received $1,661,454 in such payments for the year ended December 31, 2002 and the same amount for the year ended December 31, 2001.

NOTE L - LAY EMPLOYEES' PENSION PLAN
The Diocese has a non-contributory money purchase pension plan for all lay employees in the Diocese (including parishes, schools and cemeteries) who have completed six months of continuous employment at 20 hours or more per week. Requirements for eligibility are met after six months of employment. Annual contributions to the plan were 7% and 5% of the compensation of all eligible lay employees in 2002 and 2001, respectively. Benefits vest incrementally after three years of service and are fully vested after seven years of service. Pension expense for the Chancery for the years ended December 31, 2002 and 2001 was $218,241 and $140,143, respectively.

NOTE M - CLERGY RETIREMENT COSTS
Diocesan priests are covered by Diocesan-sponsored retirement plans. At January 1, 2003 (latest valuation date), the present value of future benefits for both Diocesan-sponsored retirement plans was approximately $9,912,000. The market value of plans’ assets at January 1, 2002 was approximately $6,121,000. Contributions made by the Chancery to the plans were $827,186 and $784,714 for the years ended December 31, 2002 and 2001, respectively. Neither the plans’ assets nor pension obligations are included in these financial statements.

In addition, the Chancery incurred $176,061 for medical expenses and $102,659 for housing related expenses of retired clergy during 2002. In 2001, $171,250 of medical expenses and $114,835 of housing related expenses of retired clergy were incurred.

NOTE N – CONTINGENCIES
The Diocese is subject to various lawsuits and claims, including general litigation. Various lawsuits and claims, not related to sexual misconduct claims (see Note O), are pending against the Diocese. The majority of these claims, the Diocese believes, are subject to coverage under the Diocese’s insurance programs. The Diocese acrrues for uninsured amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.

NOTE O – LITIGATION
The Diocese is involved in numerous lawsuits relating to claims of alleged sexual misconduct by certain individuals. There are factors that exist relating to those claims that could affect the range of ultimate liability including, among others, increases in the number of claims, increases in the number of individuals named in the claims and how the claims will be resolved.

In addition, there are individuals who have made allegations of sexual abuse, but have not filed formal claims against the Diocese. It is uncertain whether such individuals will make monetary claims or file formal complaints. Because of a recent change in California law, effective January 1, 2003, a one-year period will exist for claimants to file suit for claims that have heretofore been barred by applicable statutes of limitations.

Uncertainties exist surrounding the financial impact of the Diocese’s involvement with these claims. The claims are expected to trigger insurance policies covering periods as early as the 1960’s. If claims are not resolved within policy limits, the potential losses to the Diocese could be material. During 2002, the Diocese incurred expenses of approximately $300,000 for legal fees, settlement and other costs related to these claims. The Diocese expects it will incur substantial future charges related to its defense of these matters, but cannot reasonably estimate the potential costs.

In light of the continuing uncertainties regarding these claims and given that a reasonable estimate of the potential cost of these claims cannot be made, no accrual has been made in the financial statements as of and for the year ended December 31, 2002.

NOTE P – NET ASSETS TRANSFERRED TO CATHEDRAL

The financial statements of the Chancery for the fiscal year ended December 31, 2001 included assets related to a capital campaign for building a new cathedral for the Diocese, The Cathedral of Christ the Light. The Cathedral will be the home church of the Bishop and will serve the Catholic communities in Alameda and Contra Costa counties. In April 2002, The Cathedral of Christ the Light was incorporated as a separate California Corporation. Subsequently, assets held for the building of the Cathedral were transferred from the Chancery to the new corporation. Because no consideration was exchanged, this transaction was treated as an equity transfer and the net assets related to the Cathedral were removed from the Chancery’s statements as of the beginning of 2002. The net assets transferred consisted of the following:

Construction in Progress transferred in 2002 related to amounts spent by the Diocese during 2001 related to the construction of the Cathedral. These amounts have been deemed capitalizable for The Cathedral of Christ the Light Corporation. Therefore, the accompanying financial statements for the fiscal year ended December 31, 2001, as restated, appropriately reflect this amount as Construction in Progress.

Official newspaper of the Roman Catholic
Diocese of Oakland, California encompassing all of
Alameda &
Contra Costa counties.

BISHOP
VIGNERON

 

DECEMBER 15, 2003