Amid Scandal, the Pope Sticks With Reforms

Two books highlight more Vatican dysfunction and mismanagement.

Pope Francis blesses the crowd at the end of his weekly general audience at St. Peters Square in the Vatican on Dec. 2.

Photographer: Vincenzo Pinto/AFP/Getty Images

More than two and a half years after Pope Francis took office determined to clean up corruption, the Vatican is still finding financial skeletons in its many closets.

Two new books chronicle widespread mismanagement in the Holy See, including auditors’ discovery of $1.5 billion stashed in hidden accounts and the use of alms for the poor to plug holes in the church budget. The Holy See had a €25.6 million ($27.2 million) deficit in 2014. One of the books, Merchants in the Temple, by Gianluigi Nuzzi, also includes a description of a 2013 tape recording of Francis telling senior clerics that spending was “out of control.”

Adding to the impression of disarray, the Vatican in November filed criminal charges against a Spanish monsignor and two other members of a financial reform team appointed by the pope. They’re accused of leaking information to the books’ authors, who also face trial in a Vatican court. All the accused have denied any wrongdoing. “The trial is a sign the Vatican is on the defensive, and a sign of weakness,” says Emiliano Fittipaldi, author of the second book, Avarice. The Holy See hasn’t disputed the authenticity of the material, but the pope has called the breach of secrecy “a grave illegal act.”

The scandal doesn’t appear to have slowed Francis’s reform push. In the latest move, he’s ordered a panel of leaders from the Vatican and the Vatican bank, aided by professional auditors, to determine the value of the church’s massive financial and real estate holdings—including St. Peter’s Basilica and the Sistine Chapel. The group held its first meeting on Nov. 27. “You can’t plan if you don’t understand what your assets and obligations are,” says Danny Casey, right-hand man to Francis’s economic czar, Cardinal George Pell. “It’s not our money. The stakeholders are the 1.2 billion faithful and the many we serve,” says Casey, in an interview at the ornate Apostolic Palace, which includes part of the Vatican museums and the papal apartments. (Francis doesn’t live there, having opted instead to stay in a modest Vatican guesthouse.)

Francis has replaced the top management and supervisory board of the Vatican bank and brought in Promontory Financial Group, a Washington-based compliance consulting firm, to help identify suspicious transactions and close accounts that may have been used for money laundering and other illicit activities.

Much of the material in the books came from reports of a seven-member financial reform commission Francis appointed in 2013. The group, led by Maltese economist Joseph Zahra, brought in auditors Ernst & Young and KPMG, which spent almost a year combing through Vatican accounts. (Zahra wasn’t one of the members accused of leaking.) Among other things, they found inventory discrepancies suggesting theft or fraud at some Vatican shops and evidence of a thriving bootleg trade in reselling tax-exempt cigarettes and gasoline, which are ostensibly for the exclusive use of Vatican residents and employees.

At the commission’s recommendation, the pope has tightened supervision of the Roman Curia, the body that runs the Vatican. He has appointed an independent auditor and established a secretariat for the economy—the equivalent of a finance ministry—headed by Cardinal Pell. The new measures “are operating effectively and efficiently,” says Zahra, the senior lay member of another new body, the Council for the Economy, that oversees operations for most Vatican institutions. “We are seeing the results—improved financial reporting and budgetary control,” he says. For example, it was Pell’s group that identified the $1.5 billion in assets in accounts Vatican leaders were unaware of.

Francis moved swiftly to clean up a scandal in the Archdiocese of Buenos Aires after he became archbishop there in 1998. His predecessor had close ties to a local banking family and became embroiled in an insurance deal with them that left the archdiocese on the hook for millions of dollars. Investigators found that the bankers had been paying the former archbishop’s personal credit card bills. He wasn’t charged, but his secretary and two of the bankers went to jail. Francis brought in outside auditors to assess the damage, while ordering the archdiocese to maintain arm’s-length relationships with its bankers in the future.

His task at the Vatican is far more complex. The audit of church assets, the first such inventory in history, is expected to take three years. A preliminary assessment by the financial reform commission suggests that the Vatican may have been understating the value of its real estate by a factor of four—thus allowing cardinals and other clerics to pay only a fraction of the market rent while living in sumptuous Vatican-owned apartments. “It is Byzantine, like a hall of mirrors,” says Austen Ivereigh, a British journalist who has written a biography of the pope.

The undervalued real estate also deprives the Vatican of revenue it could use for operating expenses. Instead, auditors found that an estimated two-thirds of “Peter’s Pence,” an annual collection of charitable donations by church faithful, was used to cover Vatican budget deficits.

Opposition from entrenched interests within the Roman Curia, many of whom benefit from such practices, could be Francis’s most formidable obstacle. The 3,000-strong bureaucracy, led by powerful cardinals, has resisted efforts by previous popes to impose discipline, says John Pollard, a professor of papal history at Cambridge University. “The Roman Curia does feel that it in some sense is above the law, and the fact that the Catholic Church has its own legal system rather reinforces that,” he says.

The recording of Pope Francis makes clear his frustration with the bureaucrats. “If a job was done without an estimate, without authorization, we don’t pay,” he told senior clerics at a June 2013 meeting. “C-l-a-r-i-t-y. That’s what’s done in the most humble companies, and we have to do it, too.”

Francis’s best hope for change may lie outside Rome, Pollard says. The pope has stepped up the pace of meetings, or synods, with the world’s Catholic bishops. “The synods will constantly be bringing bishops to Rome to take part in discussions with him,” Pollard says. “If any momentum gets behind that, then Francis can avail himself of a very powerful instrument to constantly challenge the Roman Curia, and maybe to reform it.”

The bottom line: Pope Francis is bringing in outside auditors and consultants to help clean up questionable finances and corruption.

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