The Unsecured Creditors Committee in the bankruptcy filing of the Archdiocese of Milwaukee has filed a petition with the court to authorize the hiring of Berkeley Research Group LLC, a forensic accounting firm with bankruptcy expertise, to examine the financial details of the Archdiocese. The experts identified for this matter formerly worked for LECG LLC, and their practice has been transferred to Berkeley.
The Archdiocese filed a petition for relief under Chapter 11 of the Bankruptcy Code, and continues to operate as a debtor in possession. The committee is interested in the creation of at least 5 trusts, which allegedly were formed in the four years prior to the bankruptcy filing and contain funds that are now not available to pay creditors.
These items to be examined by the forensic accountants include:
- $55 million transferred to a Perpetual Care Trust – The trust was established in 2007 for the maintenance and care of mausoleums, crypts, and gravesites, and allegedly was funded in 2008 after the Wisconsin Supreme Court allowed cases by victims of sexual abuse to proceed against the Archdiocese.
- St. Raphael Health Plan Irrevocable Trust established in September 2010
- Cemetery Union Pension Trust created in November 2010
- St. Raphael Accidental Death and Dismemberment Insurance Plan Irrevocable Trust established in December 2010
- St. Raphael Life Insurance Plan Irrevocable Trust created in December 2010
The first trust in the list is of interest because of the large sum of money used to fund it. The creditors committee is interested in the source of the $55 million and whether the transfer may be avoidable.
The last four trusts are of concern because they were created such a short time prior to the filing of the bankruptcy petition. The forensic accountants will be asked to determine if any of the transfers to these trusts (or any other trusts that may be discovered) were fraudulent or otherwise improper and done to deprive creditors of funds.
The creditors committee is also asking Berkeley Research Group to look at other trusts with funds designated as restricted, and therefore unavailable to pay creditors. The St. Aemilian Trust, the Mary B. Finnegan Endowment Fund, and the Rapp Trust Fund collectively hold $5.8 million, and the forensic accounting firm will be asked to determine whether the funds in these trusts are indeed restricted.
The creditors committee appears to criticize a fundraising campaign initiated by the Milwaukee Archdiocese, called “Faith in Our Future.” The Archdiocese has a goal of collecting $105 million over 3 years, and allegedly will pay 40% of the amount collected to administer the campaign. Some of this money will go to a public relations firm working on the campaign, and it appears that the creditors committee wants to examine those payments.
The Parish Deposit Fund existed on the financial statements of the Archdiocese through 2004. The committee of creditors wants the forensic accountants to examine the source and disposition of the funds.
Cases like this can involve a significant amount of financial analysis and investigation by the experts. In this case in particular, the creditors committee has said that it wants to examine cash receipts and disbursements of the Archdiocese. Such an examination is literally an item-by-item examination, which is time-consuming and tedious. This type of analysis can be aided by technology, which automates much of the process of extracting data from source documents, depositing the data into a database, and automatically reconciling the data to ensure accuracy. Such technology can cut weeks or months off the time required to process the data, and allows the forensic accountants to get right down to the real work of investigating.
There is much to investigate in this case. The forensic accountants will be asked to examine the Archdiocese’s budgets, historical financial statements, financial statement disclosures, bankruptcy reports, cash management system, and asset dispositions. Although it will likely to be costly to hire experts to analyze the numbers of the Archdiocese of Milwaukee, it is a necessary step to ensure that all funds are accounted for and nothing improper was done in an attempt to deprive creditors of funds.