Vatican reforms will not be stopped, according to Joseph F.X. Zahra, an economist and Malta business and banking executive, who has spent the better part of the past few years helping to lead the changes taking place at the Vatican. In 2011, Zahra was appointed as one of five members of the International Audit Committee of the Holy See and the Vatican City State.
In July 2013, the pope named Zahra the president of a new Pontifical Commission for the Reference on the Economy and Administrative Structure of the Holy See (COSEA). The final report of COSEA offered a long list of recommendations to make the Vatican more transparent, simplified and more efficient.
In March 2014, the pope asked Zahra to serve as one of the seven lay members joining eight cardinals from around the world who serve on the newly-established Council for Economic Affairs, which oversees the work of the new Secretariat for the Economy, an agency which will have financial regulatory authority over all the departments of the curia. Zahra is the vice-coordinator of the newly established council.
Zahra is visiting the United States as a guest of the U.S.-branch of the Vatican-based Centisimus Annus Pro-Pontifice Foundation and speaking to select audiences, providing a progress report on the reforms taking place at the Vatican. Zahra serves on the foundation's board in Rome.
Zahra's arrival coincides with publication of two sensational books, Merchants in the Temple by Gianluigi Nuzzi, and Avarizia (Avarice) by Emiliano Fittipaldi, which detail mismanagement and alleged greed in the Vatican. The Vatican stated that these books "generate confusion and partial and tendentious conclusions." Pope Francis has denounced the theft of confidential documents as a crime, but remains undeterred in making the necessary reforms.
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Zahra met with NCR at Fordham University’s New York City campus to discuss the reforms. The interview has been edited for clarity and length.
NCR: The first meeting of the Council for Economic Affairs was in May 2014. How frequently does the council meet? What is the term of each member?
Zahra: The council is made up of 15 members, and I am one of the seven lay-experts. The role of the council is the highest agency as a commission that has responsibility, the oversight of all of the administrative as well as the investment side of the Vatican. It meets four times a year, but during 2014 and 2015 we exceeded in fact that number. The reason is of course this is at the start-up stage. The atmosphere, by the way, and this is also significant, is that cardinals and lay experts sit side-by-side. Each member has the same authority. It is a policy-making council. It is a decision-making council and approves of the consolidated accounts of the Holy See and the Vatican City State. It is also recommends [things] for approval by the Holy Father various matters.
We have been more active because it has the responsibility for the reforms, the recommendations made by COSEA, and this is the commission set up in July 2013 which I chaired. We came up with a number of recommendations of the various entities we were reviewing at that time.
COSEA had an advisory role and now the council is much more similar to a board of directors, which therefore now has the responsibility of implementing many of the reforms.
All members have a five-year term. All members, both lay and the cardinals, are representing the universality of the church. You have this representation of the universality around that table.
Different cultural experiences have different views of best practices in terms of internal controls and the like. How do these differences get integrated into the implementation of the reforms?
The council can engage experts from the outside to assist in specific areas. Besides that there is the Secretariat for the Economy. The council is autonomous. The secretariat is not so-to-speak the executive arm of the council, but it is obvious that much of the preparations for the council decisions are done by the Secretariat for the Economy, like a ministry of finance. The preparation of accounts, the preparation on budgets, and issues related to vigilance like the internal audit with the different departments is conducted by the Secretariat for the Economy. The secretariat reports on a regular basis to the Council on the Economy. The Secretary of State and the Prefect for the Secretariat of the Economy attend the council meetings but are not members of the council and do not have any vote. Both Cardinal Pietro Parolin [Secretary of State] and Cardinal George Pell [Prefect of the Secretariat] during each and every meeting make presentations at the meeting.
What is the timetable for implementing the reforms?
A lot has been done in a relatively short period of time. We can go through a whole list of items that are a work-in-progress or already structurally in place. However, when we are talking about the reforms, it is really a journey because on the way new things will surface, and there will always be centers of resistance in specific areas. These things don't really surprise us because this is a change process. I've been involved in many change processes in my corporate life and even on a national level in Malta for the changeover from the Maltese currency to the Euro that took place over a period of time. We also know that is a process that will take time. So you can't really say that it is going to take two years, three years or five years because you're really talking about the psychology of people and the changes in culture.
In the changes of culture, what I can say is that there has been a very positive reaction, which might surprise a lot of people on the outside -- especially when the secretariat [is] conducting a number of training programs on budgeting, planning, and on new accounting principles. There was a lot of enthusiasm on the administration's side and prelate to be able to understand what is required from them now with these changes.
When you get into the details of these administrative units of the Vatican, do they operate on the same fiscal year? Do they use the same accounting definitions? Do they use the same accounting software?
They are all on the same fiscal year, including IOR [Institute for Religious Works], which is commonly referred to as the Vatican Bank, which you know is not a bank whatsoever.
Accounting definitions now are all the same. The secretariat on the decision of the council adopted the International Public Sector Accounting Standards [IPSAS]. But that is not to say that in 2014 all the definitions were the same because even this is a journey and will take time until we can same we are compliant fully with IPSAS. The most important point here is that the accounting standards existed before but were not updated and going back to the 1960s, but now what we are getting [is] financial information that will be understood by anyone whether they are in Hong Kong or on Wall Street in New York.
There is more than one accounting software, and that is an issue that needs to be tackled. It is an area that is being tackled. You have to make sure the software can communicate with each other.
Each entity has its own autonomy. All the entities have their own budgets, which have to conform to the council and secretariat guidelines.
We are introducing best practices. The accounts at the end of the year need to be signed-off by the various entities. There have been no issues whatsoever at the end of 2014.
How big is the Secretariat for the Economy?
It will be around 80 employees, and this is because a substantial chunk of APSA [the Vatican treasury] staff were transferred into the secretariat. The people working on procurement, the legal office were transferred to the secretariat. The secretariat needs to be resourced by professionals also on the accounting field. That is one of the plans of the secretariat to ensure that area is strengthened.
The appointment of Danny Casey, who is the head of the Secretariat Prefect's office -- we made sure we identified highly qualified, experienced people, professionals to be now part of these agencies rather than engaging consultancies.
Have you considered various agencies to have their budgets online?
That is part of the journey. We have a perfect example in IOR. It published its second report, a lovely report with all that information. Ernst von Freyberg [a German lawyer and financier appointed by Pope Emeritus Benedict XVI] did an excellent job. That is the standard established within the Vatican itself and transparency. But things don't happen overnight. We need patience.
One of the new offices is the auditor general. Is that the most thankless job at the Vatican?
Again, the council recommended and the Holy Father appointed Libero Milone, who was a very senior partner of Deloitte [Italy] with extensive experience in area of audit. The appointment was made this past July. The statutes provide for two assistant auditors, and we are in the process now of appointing the two assistants. The office already functioning will be autonomous and independent.
The auditor general does not report to the council but informs the council, which means that the council can ask the auditor general to run special investigations. But it operates autonomously. It has the authority to investigate the council itself. It is a pretty powerful entity, one of the newest entities in the reforms led by a lay-expert. I believe it will be an effective entity.
The concept of auditing has changed and today it has a guiding and consulting role. It has its own audit plan and audit cycle that in itself is essential because people will start feeling that they will be audited. In the past this function didn’t have any teeth whatsoever.
Who has the prosecution power, especially for financial crimes?
We have to make a distinction because much of the spotlight is on the three new structures, the Council for the Economy, the Secretariat for the Economy and the auditor general. But we musn't forget another very powerful authority set up in 2010 before Pope Francis, and that is AIF – Autorità di Informazione Finanziaria or Financial Intelligence Authority of the Holy See, an authority that is presided by a lay-expert, René Brülhart. He is the regulator and its remit is anti-money laundering, anti-fraud. Its spotlight is on areas like IOR, as well as APSA [the Treasury]. AIF can undertake investigations, as well.
Both AIF and the auditor general will both run their own investigations, and there is the promoter of justice. The promoter of justice is like the law courts and would have to make its own investigations.
Given that the promoter of justice has its hands full on other areas of investigations such as the abuse scandal, does the promoter of justice have the staff and expertise to judge the investigations of AIF and the auditor general?
The promoter of justice is involved in the recruitment of lawyers who are experts on corporate and financial issues. In the past most of the work was in other areas. Now we're surfacing issues related to finance. There is a particular source that has this specialization. The perspective is this one story or another story -- they are the same stories being repeated.
Do you think employees will begin to have a sense of accountability that if they go astray that there's an infrastructure that is going to say that you can't go astray?
I would use the word self-responsibility, but they will know that there is a system of controls. In the corporate world the worst situation is when you feel that you have absolute power and that you can sign checks without ever being questioned. You have a system now with checks and balances, each and every institution, to further ensure that certain situations will not in fact resurface. This is a process.
What keeps you up at night when you think about the work of the council?
Really nothing because we are in really good hands. The situation has improved immensely.
What are the key next steps?
From the accounting principles point of view, we are looking at in two years until we get the IPSA fully compliant. We are talking about the selection of external auditors, one of the Big Four. The budgetary system put into place with various analyses. It is primarily related to getting a clearer picture of the consolidated accounts of the Holy See.
Is there any going back on these reforms?
I would absolutely not. We’ve heard the Holy Father repeating this over the past week. The reforms are going on. There is no way they will be stopped. It is impossible to stop them. Change is irreversible. You can't go back. It works through human psychology and human behavior. There is no way they will be stopped.
Cardinal Pell wants to get to a point when the financial operations are 'boringly successful.' When will things become boringly successful?
I thought we were already there before these two books blew up in our face. What we really read are stories of the past, not the present. As time goes by, people will get their attention by other things. Things need to be done well but also to be seen to be done well.
Can any good come out of these sensational books?
It not easy to understand the purpose of all this. The outcome is more confusion and hurt. Things we are talking about happened before Pope Francis. Selling books is the ultimate purpose as well. I use the term, 'God acts in very strange ways,' and I think that we are talking about the reforms is good.
What is the message you want American Catholics to take away from your visit to the U.S. and your extensive work over the past four to five years?
The message here is that these reforms happening within the Vatican are coming out of the pope's mission to reach out to the poor and the marginalized and making sure that the administration and financial side of the church is being run in an honest and transparent manner, which gives you comfort that it is being controlled one way or another so that the money can go for the pope's purpose. The goal is very clear. The pope's concerns are not a manager's concern. He would like the Vatican curia to be the role model for dioceses around the world.
[Tom Gallagher is a regular contributor to NCR and lead writer for the newspaper's Mission Management column.]