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Steubenville Diocese Must Repay $3.5M in Back Taxes

The Catholic Diocese of Steubenville has to pay $3.5 million in back taxes as a result of misallocating funds that had been taken out of its employees’ paychecks.

Bishop Jeffrey M. Monforton said Thursday the diocese has to make those payments after a two-month forensic investigation of its books — which examined them as far back as 2004 — found the money had been taken out of those checks but used for other purposes. The payments, which are coming from the liquidation of unrestricted diocesan investments, will go to state, local and federal taxing agencies.

The Schneider Downs accounting firm, of Pittsburgh, recently revealed its findings to the Bodman law firm, of Detroit, which provided the information to Monforton.

“A misallocation of funds in the finance office occurred between 2004 and 2016 as a result of the actions of the former comptroller,” said Monforton, who identified the former comptroller as David Franklin. “Payroll taxes were withheld from employees’ checks, but the money was not sent to the appropriate taxing authorities. The money that should have been used to pay employee withholding taxes was instead apparently used for other diocesan purposes.”

He said the audit confirmed the irregularities and the misallocation.

Monforton said the diocese paid $3.1 million to the IRS on Thursday. It will have to pay an additional $400,000 to state and local taxing authorities.

The bishop said he met Wednesday with the diocese’s priests in St. Clairsville and the diocese’s staff in Steubenville to tell them of the accountant’s findings.

Monforton also said the diocese decided to turn over the information it learned to the tax authorities. He said any further action will be up to them.

“What we do has to be an exercise of justice and accountability, and I will certainly exercise transparency as I’m instructed by our attorneys in a way not to impede or compromise any action that is taken on our part,” he said.

“In my first announcement back in February, I said we would determine what had happened, how do we address it and how do we make certain this does not happen again,” said Monforton. “We have had a chance to address all three of those questions now.”

The diocese hired a new chief financial officer, Patrick Henry, in 2017. It also has put into place new financial controls, including using a third-party payroll processor; requiring two signatures on every check issued by the diocese; and implementing annual independent financial audits, which started in 2017.

“We most certainly need to embrace austerity measures,” said Monforton. “We can ill afford to manage decline.”

The bishop said he realizes Catholics within the diocese might be upset about the financial and potential legal issues.

“They have every right to be angry, and it’s the matter of our sharing the measures, some of which we have articulated,” said Monforton. “New controls are in place. What’s been fortunate is that we have not had a finance office of just two people since February. We’ve had two attorneys as well as two forensic auditors as well as their respective firms.

“That will continue,” the bishop said. “I have not, in any way, stopped retaining either firm. They’re going to walk us through the entire process as necessary.”

Monforton said the diocese still has work to do. That will start with the needs of the parishes.

The Holy Name Cathedral project is on indefinite hold until Monforton ascertains the diocese is in a healthy position to continue. The cathedral, on South Fifth Street, Steubenville, closed in 2014 with more than $1 million spent on improvements, including the creation of a cul-de-sac in front of the church. Interior renovations were to have started during the winter. Monforton said he doesn’t know when the resumption of the work can begin.

A statement from the diocese said the previous chief financial officer did not exercise appropriate administrative oversight with the finance office.

Msgr. Kurt Kemo stepped down Friday for health reasons from the vicar general’s post. He remains pastor of Blessed Sacrament Church in Wintersville. On Monday, the Rev. James Dunfee became the diocese’s vicar general.

Monforton said prayer and seeking proper counsel has helped him get through the recent changes.

The diocese conducts its annual parish sharing campaign during the winter, where funds are raised to support the diocese and each parish receives an amount back above the parish’s assessment.

Monforton said there was no discernible change in giving in the campaign to this point.

“I’m very grateful that people realize the health of their parishes is critical and we need to be able to reach out to our brothers and sisters, especially our schools and other institutions,” he said. “So much depends on our annual campaign.”

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