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Religious Organizations Hope Audits Will Help Avert Scandal

April 6, 2005
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In the age of Enron and WorldCom, reported financial problems at an association of Reform rabbis and at the Conservative movement’s flagship seminary might not get scandalmongers’ juices flowing. But at the Reconstructionist Rabbinical College, at least, attention is being paid.

Although the RRC says it is now in the best financial shape of its nearly 40-year history, it has recently ordered a probe into its own finances. The probe is to be performed by the chair of an audit committee established at the institution last year.

The decision to initiate the audit does not reflect a concern that the institution’s finances are troubled, officials say. Rather, it is an effort to demonstrate “maximum transparency” and was taken in direct response to media reports about the finances of the Central Conference of American Rabbis and the Jewish Theological Seminary, Rabbi Dan Ehrenkrantz, the RRC’s president, told JTA.

“Given the news in the press having to do with other organizations’ difficulties, we thought that it would be a good use of the chair of our audit committee to come and take an inventory of our present financial internal controls,” Ehrenkrantz said.

“That would allow us then to have an independent voice confirm for our board of governors that our financial controls are such that the board’s fiduciary responsibility” is fulfilled.

Ehrenkrantz stressed that an independent auditor looks frequently at the school’s finances. What’s different about the latest move, he says, is that the audit committee chairman, unlike the independent auditor, is a volunteer who is not paid by the RRC.

The audit comes as the Reform movement’s rabbinic arm is making major budget cuts after discovering that it is missing $1 million. Among the money-saving efforts, Rabbi Paul Menitoff, the group’s executive vice president, has advanced his retirement by six months to help the group save money, and a search for a successor has been postponed.

Also, in December, news reports indicated that JTS was in debt and was selling off buildings and instituting a hiring freeze to cover loans. The institution’s chief financial officer resigned in February after a little more than three months on the job — just three-plus months after the resignation of its controller.

JTS officials deny there is a hiring freeze, insist that its financial position “remains strong” and say that the CFO left to take a position in the entertainment industry.

Further, a spokeswoman for the school says JTS is audited on an annual basis by an outside company.

“JTS has always maintained a rigorous auditing precess,” Elise Dowell said. “Each year we have all of our financial information reviewed and audited by a firm of certified public accountants.”

The CCAR’s missing $1 million was apparently taken from specially designated accounts by the group’s former comptroller and used for other CCAR expenses. And although the CCAR believes the money was spent on legitimate CCAR expenses, an independent accountant has been hired to look into the matter.

“He’s still in the process of going through the records to tell us how it took place and what we need to do, what controls we need to put in place in order to prevent it from ever happening again,” said the CCAR’s new president, Rabbi Harry Danziger.

Danziger said he hopes to receive a report on the situation by the group’s board meeting in May in New York.

At the CCAR’s recent conference in Houston, rabbis gathered to discuss the missing money and heard reports from the group’s audit chairwoman, Rabbi Deborah Hirsch; its incoming financial secretary, Rabbi Richard Block; and a lay adviser to its audit committee.

“There was upset; there was confusion. I think there was a sense, however, that we’re gonna make it right,” Danziger said.

RRC’s audit committee chairman, whom the college declined to name, met last Friday with the school’s treasurer, comptroller, vice president for administration and external auditor. On Sunday, the chairman met with RRC’s board in New York, where he expressed satisfaction with what he’d learned.

Jonathan Sarna, a professor of Jewish history at Brandeis University, said that the very public scandals that have rocked parts of the for-profit world have reverberated even within the walls of nonprofit institutions, reviving an old debate over the way these organizations allocate their money.

“I think that what we are seeing is a growing influence of ideas that really have grown up in the corporate sector,” he said. “Today we are increasingly seeing a view that demands much greater oversight over funding, a sense that money should only be used for very specific purposes. Rather than an instrumental view of money, it is a stewardship view.”

The “old-style” instrumental approach, Sarna said, in which organizations could “borrow from Peter to pay Paul” and in which accounting rules were viewed as “less important than the overall goal,” is no longer seen as acceptable. The newer stewardship model, he added, “demands much greater oversight over funding.”

“That instrumental view of money is simply not acceptable in an age when there have been so many scandals,” he said.

Ehrenkrantz cites the Sarbanes-Oxley Act of 2002 — Congress’s legislative effort to respond to the corporate scandals — as an inspiration for RRC’s audit committee. Although the law doesn’t regulate nonprofits, Ehrenkrantz said it can be viewed as containing “best practices” for such groups.

“The central item in Sarbanes-Oxley is the establishment of independent audit committees,” he said. “This committee is able to ask questions of the auditor that might not otherwise get asked.”

Rabbi Tzvi Hersh Weinreb, executive vice president of the Orthodox Union, says his group has been audited by an independent auditing firm semiannually for the last four years.

“We feel that we’re doing all that we need to do,” he said. “We’re constantly reviewing our internal controls. We have a lay finance committee that is really on top of things.”

The Rabbinical Council of America, an association of centrist Orthodox rabbis, was audited by an outside firm two years ago and thereafter “put in place all kinds of safeguards and balances,” said the group’s executive vice president, Rabbi Basil Herring.

“We would certainly very much favor the highest standards of accountability and financial management,” he said.

The group recently hosted a Webcast in which one of its member rabbis who had done research in the field made a presentation on such subjects as the proper management of rabbinical discretionary funds and financial guidelines.

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