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Cardinal Edmund C. Szoka, a former Archbishop of Detroit, was appointed in 1990 as Pope John Paul II's top finance man. Within two years Szoka had turned around a 23-year string of net deficits at the Holy See [the geopolitical entity of the Church]. Now the chief administrator for Vatican City, Szoka is a strong advocate of financial transparency.

In the marble administrative offices of Vatican City, Cardinal Szoka spoke with BusinessWeek's Rome Bureau Chief Gail Edmondson about the Vatican's finances and the possible impact of lawsuits on the Church [see BW Cover Story, 4/15/02, "The Economic Strain on the Church"]. Edited excerpts of their conversation follow:

Q: Is the Holy See as wealthy as many people believe it to be?
A: When I arrived in Rome in 1990, there was a lot of talk about the great wealth of the Church. I worked hard to dispel the mythology by providing financial transparency and annual audited accounts. The Holy See ran a deficit from 1970 until 1993. It operates on a very thin budget. There are no perks. No one's getting big bonuses.

Q: You brought the Holy See's finances back to a steady net surplus in the 1990s. How did you accomplish the turnaround?
A: We were able to cut some administrative expenses, but I saw the main thing to do was to increase income. We did that mainly by asking for greater contributions from the bishops. In 1983, a new code of Canonical Law, 1271, provided that the dioceses have responsibility to pay for the operating cost of the Holy See. But many bishops didn't know that. Income to the Holy See from bishops' dioceses has more than tripled from 1990 levels, to $22 million in 2000.

Q: What elements make up the revenues of the Holy See?
A: Institutional activities, income from real estate, mainly located around Vatican City, financial activities including interest income, gains on the sales of securities or currencies.

Q: So what are the total net assets of the Holy See?
A: It's $5 billion. That doesn't include the Vatican City, which has a separate financial statement. If property is used for Church purposes and could never be sold, the value of it is considered 1 lire, or nearly zero.

Q: Ultimately, could the financial problems of the U.S. Church stemming from a backlash against the sex-abuse cases negatively impact the finances of the Holy See?
A: The concern here is over the problem of pedophilia and the harm of that publicity to the Church. Our main concern is not financial but to the faith of the people and the harm to individuals. I recognize the pain of the victims. We all regret that and suffer for it.

But the amount of publicity given has been a little unfair. Pedophilia exists among all groups in the population, and there's not any greater propensity in the Catholic Church. The rate is less than 1% of priests.

I understand that we're targets because we're supposed to be good and holy. But there's always some exception. We're all tainted by Original Sin. We're a fallen people, redeemed by Christ. Redemption has not removed human weakness.

Q: If U.S. courts award large settlements to the victims of sexual abuse by Catholic priests, threatening the financial condition of certain dioceses, would the Holy See provide some assistance?
A: It's not the practice of the Holy See to bail out dioceses. First, it's not in accord with our structure. Second, we can't convey the idea that we will pay every time a diocese is in financial trouble. We can't. In the past, when dioceses have suffered financial problems -- not related to sex-abuse lawsuits -- other dioceses have helped them with no-interest loans. It's their responsibility.

Q: Many argue that it's time for the Church to make its finances more transparent to counteract the crisis of confidence following secret payments to settle sexual-abuse claims, as well as financial mismanagement or fraud in the dioceses. Do you agree?
A: As a bishop in Michigan, we published an audited financial statement every year for 19 years, and my successor has continued that practice. We sent the audited financial statement to every pastor and published the results in a Church newsletter. I had an administrative department with 10 accountants, half of whom were certified public accountants. And for the audit, we called in an outside accountancy. I can't speak for all of the dioceses, but this kind of transparency is very common in the Midwest.

Q: Why doesn't the Church hierarchy require the same practice at all dioceses?
A: The structure of the Catholic Church is decentralized. Each diocese is autonomous. Every bishop is responsible for his own diocese -- he doesn't have to send Rome a financial statement.

Q: Given the crisis in confidence about the misuse of contributions, shouldn't the Holy See insist on audited financial statements by each diocese, just to restore confidence among those financing the Church's operations?
A: The dioceses are autonomous in that sense. It's the responsibility of each bishop. By what we have done here in Rome with financial transparency, we hope we have given a good example to follow. We even have a breakdown of salaries for the Cardinals, not individually but as a group. The Holy See is [now] more transparent than some large European corporations. I've looked at a lot of financial statements by large companies, and they're very complex. I'm not sure they're transparent, even for the experts -- look at Enron.

Q: So the Church is very hierarchical when it comes to doctrine but a very decentralized organization when it comes to finance.
A: We're centralized in the sense of Church doctrine, which is based on the revelation of Christ. Every bishop has to adhere to the teachings of the Holy Father. Celibacy, for example, is a disciplinary rule of the church and has to be observed. However, we're decentralized not only in administration and finance but in pastoral care given to our people.

Q: But how does the Church manage itself as a financial organization?
A: It's not an empire. It's not a financial entity. That's secular talk. We don't conceive of ourselves as a corporation. Our mission is to preach the gospel. The structure is all secondary. It's there out of necessity, because we live in a human world and need food, shelter, clothing, and schools, and churches. We need to care for the poor and sick, so we need hospitals.

These organizations don't exist for their own sake. They exist to fulfill the mission of the church. We're not a business or a corporation. The financial aspects exist to fulfill the mission of the church.

Q: The U.S. Church faces serious difficulties holding its historic ground in inner cities, where it owns and operates schools and parishes. How do you see the financial challenges, and how can the U.S. Church respond?
A: It's a huge challenge. We're still trying to maintain as many schools as we can, even if 95% of the students are not Catholic. They pay tuition, but it's not enough -- the schools are subsidized. It can get to the point that it's so expensive we have to shut them down. We want to maintain the schools out of concern for the children to get a good education. This is the work the church should do. But it's becoming increasingly difficult with the costs going up.

When I was a boy, there were many more Catholic schools staffed by religious women. In the meantime, fewer women are doing this work, and the Church has had to hire lay teachers. Most of them are lay teachers now. That caused a horrendous jump in salaries -- the biggest cost to the schools is the lay faculties. We have to pay them to live, whereas the religious women had taken a vow of poverty. That's one major reason it's more difficult to maintain the schools.

Q: What country provides the greatest contributions to the Holy See?
A: When it comes to the bishops' contributions, Germany has been the biggest contributor since the early 1980s, but the U.S. is very close and will soon overtake Germany. The U.S. is also by far the biggest when it comes to the annual collection for foreign missions -- raising between $50 million to $60 million.

Q: Do priests or bishops get any kind of formal training in accounting?
A: You don't have to be a professional accountant. But anyone in charge of church finances at a local level should learn at least to read a financial statement, so they can spot something that doesn't look right. As archbishop in Detroit, I asked my parishes to produce financial statements, and I kept after them about that.

Q: So transparency is important for the U.S. Church.
A: The U.S. Church depends on the free-will offerings of its members. It doesn't own a lot of property, and state taxes to support religion don't exist. We are totally dependent.

Q: What are the revenues and net surplus of Vatican City, which you now manage?
A: The revenues in 2000 were $180 million. The net surplus was $22 million, but that fluctuates greatly since we're responsible for the maintenance of all buildings, and it's extremely costly. One year we have a profit of $1 million and the next year $10 million. We put the surplus in a reserve, so we have it when the next work is needed.

Q: What about the Vatican Bank's assets?
A: The bank is an entirely separate structure. The money in it belongs to the depositors, which include the roughly 5,000 people who live and work in Vatican City, as well as religious congregations or dioceses in countries where banking is difficult. The Vatican can transfer funds directly to missions in countries with poor infrastructure. The Holy See uses the bank to make all its payments electronically. We do not use cash or checks. Everything is done by bank transfer, including salaries of Vatican employees.