The sexual-abuse scandals of the past 20 years have brought shame to the church around the world. In America they have also brought financial strains. By studying court documents in bankruptcy cases, examining public records, requesting documents from local, state and federal governments, as well as talking to priests and bishops confidentially, The Economist has sought to quantify the damage.

Of all the organisations that serve America’s poor, few do more good work than the Catholic church: its schools and hospitals provide a lifeline for millions. Yet even taking these virtues into account, the finances of the Catholic church in America are an unholy mess. The sins involved in its book-keeping are not as vivid or grotesque as those on display in the various sexual-abuse cases that have cost the American church more than $3 billion so far; but the financial mismanagement and questionable business practices would have seen widespread resignations at the top of any other public institution.

The sexual-abuse scandals of the past 20 years have brought shame to the church around the world. In America they have also brought financial strains. By studying court documents in bankruptcy cases, examining public records, requesting documents from local, state and federal governments, as well as talking to priests and bishops confidentially, The Economist has sought to quantify the damage.

The picture that emerges is not flattering. The church’s finances look poorly co-ordinated considering (or perhaps because of) their complexity. The management of money is often sloppy. And some parts of the church have indulged in ungainly financial contortions in some cases—it is alleged—both to divert funds away from uses intended by donors and to frustrate creditors with legitimate claims, including its own nuns and priests. The dioceses that have filed for bankruptcy may not be typical of the church as a whole. But given the overall lack of openness there is no way of knowing to what extent they are outliers.

Thousands of claims for damages following sexual-abuse cases, which typically cost the church over $1m per victim, according to lawyers involved, have led to a liquidity crisis. This seems to have encouraged a pre-existing trend towards replacing dollars from the faithful with publicly raised debt as a way of financing church business. The church is also increasingly keen to defend its access to public health-care subsidies while claiming a right not to provide certain medical services to which it objects, such as contraception. This increased reliance on taxpayers has not been matched by increased openness and accountability. The church, like other religious groups in America, is not subject to the same disclosure requirements as other non-profits or private entities.

Little is known about the Catholic church’s finances outside America. JPMorgan Chase recently closed the Vatican Bank’s accounts under pressure from the US Treasury. The Holy See has also struggled to get itself placed on lists of jurisdictions that are deemed to have strong anti-money laundering controls. This may reflect bad organisation rather than a concerted attempt to hide anything, though documents leaked by Pope Benedict XVI’s former butler to an Italian journalist suggest that maladministration in the Vatican goes beyond mere negligence. But America, not least thanks to its bankruptcy procedures, provides a slightly clearer window on the church’s finances. And America is so important to the church that it merits particular examination.

Only three countries—Brazil, Mexico and the Philippines—have larger Catholic populations than America, and nowhere has a larger Catholic minority. Almost 100m Americans, a third of the nation, have been baptised into the faith and 74m identify themselves as Catholic. Discrimination against the Catholic minority, and strong leadership from Rome, encouraged American Catholics to create a sort of parallel society in the 19th and 20th centuries, with the result that there are now over 6,800 Catholic schools (5% of the national total); 630 hospitals (11%) plus a similar number of smaller health facilities; and 244 colleges and universities. Many of these institutions are known for excellence: seven of the leading 25 part-time law school programmes in America are Catholic (five are run by Jesuits). A quarter of the 100 top-ranked hospitals are Catholic. All these institutions are subject to the oversight of a bishop or a religious order.

The Economist estimates that annual spending by the church and entities owned by the church was around $170 billion in 2010 (the church does not release such figures). We think 57% of this goes on health-care networks, followed by 28% on colleges, with parish and diocesan day-to-day operations accounting for just 6% and national charitable activities just 2.7% (see chart). In total, Catholic institutions employ over 1m people, reckons Fred Gluck, a former McKinsey managing partner and co-founder of the National Leadership Roundtable on Church Management, a lay organisation seeking to improve the way the church is run. For purposes of secular comparison, in 2010 General Electric’s revenue was $150 billion and Walmart employed roughly 2m people.

The church is the largest single charitable organisation in the country. Catholic Charities USA, its main charity, and its subsidiaries employ over 65,000 paid staff and serve over 10m people. These organisations distributed $4.7 billion to the poor in 2010, of which 62% came from local, state and federal government agencies.

The American church may account for as much as 60% of the global institution’s wealth. Little surprise, then, that it is the biggest contributor to head office (ahead of Germany, Italy and France). Everything from renovations to St Peter’s Basilica in Rome to the Pontifical Gregorian University, the church’s version of West Point, is largely paid for with American money.

Where that money comes from is hard to say (the church does not release numbers on this either). Some of it is from the offerings of the faithful. Anecdotal evidence suggests that America’s Catholics give about $10 per week on average. Assuming that one-third attend church regularly, that would put the annual offertory income at around $13 billion. More comes from elite groups of large donors such as the Papal Foundation, based in Pennsylvania, whose 138 members pledge to donate at least $1m annually, and Legatus, a group of more than 2,000 Catholic business leaders that was founded by Tom Monaghan of Domino’s Pizza.

There is also income from investments. Timothy Dolan, the president of the United States Conference of Catholic Bishops (USCCB) and Cardinal-Archbishop of New York (a “corporation sole”, meaning a legal entity consisting of a single incorporated office, occupied by a single person), is believed to be Manhattan’s largest landowner, if one includes the parishes and organisations that come under his jurisdiction. Another source of revenue is local and federal government, which bankroll the Medicare and Medicaid of patients in Catholic hospitals, the cost of educating pupils in Catholic schools and loans to students attending Catholic universities.

Wages and sin

The molestation and rape of children by priests in America has resulted in more than $3.3 billion of settlements over the past 15 years, $1.3 billion of that in California. The total is likely to increase as more states follow California and Delaware in relaxing the statute of limitations on these crimes, most of which were reported long after they happened. For an organisation with revenues of $170 billion that might seem manageable. But settlements are made by individual dioceses and religious orders, whose pockets are less deep than those of the church as a whole.

The fact that far fewer Catholics are answering the call to become nuns, monks and priests (the minor seminaries, once the first step of the recruitment process, are almost empty) adds to the pressure. It saves some current costs, but reduces in perpetuity the pool of very cheap labour that the church has relied on. Dioceses increasingly need to pay people market rates to get jobs done that were previously assigned to clergy and members of religious orders. This pushes running costs up.

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