Copyright © 2002, United States Conference of Catholic Bishops, Inc. All rights reserved.
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VII. Deposit and Loan Funds
Many dioceses maintain deposits from parishes, schools, and agencies or separate entities. In turn, these funds are loaned to parishes and others within the diocesan community. Names for this may vary (deposit and loan fund, capital revolving fund, savings and loan program, etc.); but for the purposes of this discussion, this activity will be termed "deposit and loan fund." This program will be either (1) one where the diocese acts as a principal paying a return to depositors and charges interest to borrowers (diocesan program), or (2) an investment and lending program that operates for the mutual benefit (mutual program) of the parishes and others (the participants bear the loan and investment risks and proceeds).
Attractiveness to BorrowersThe deposit and loan funds generally operate on a revolving basis where cash from parishes and others are accumulated and loaned out at an interest rate that may be less than that commercially available. Loan origination points, application charges, and loan servicing fees are either non-existent or generally less than commercially available.
Attractiveness to LendersIn addition to the ability to aggregate sufficient funds for efficient lending and investment, dioceses are able to monitor payments to guard against adverse actions by outside lenders. Internal loan documentation may be less rigorous for both parishes and dioceses.
Establishment of the FundParishes and others with cash in excess of day-to-day operating requirements will be encouraged or required, according to diocesan policies, to place these assets with the diocese's deposit and loan program. The program will promulgate policies that provide for proper accountability of funds received and disbursed. Funds deposited will be protected and invested or used for lending purposes described.
Operating and Lending PoliciesThe deposits and loans of the fund should be handled in a prudent manner. This generally includes the distribution of periodic statements of account coinciding with interest due and payment dates. Loans should be (1) evaluated based on financial projections furnished by prospective borrowers; (2) evidenced by formal promissory notes indicating repayment schedules and interest rates, signed by proper ecclesial authority—including local finance council representatives; and (2) regularly reviewed.
The liquidity of the fund is important for operational purposes. Formal cash projections should be prepared using loan repayment schedules and anticipated loans, deposits, and withdrawals. Projections should be updated frequently and reviewed according to prescribed policy.
Allowance for Uncollectible AccountsProvision should be made for accounts that will be uncollectible in the ordinary course of operations. An allowance should be established so that loans can be written off when they are determined to be uncollectible. The approval for the write-off of loans as uncollectible should be substantiated.
Financial ReportingDiocesan Program
The administrator of these funds takes the investment and loan repayment risk and pays depositors a fixed or defined variable return.
On the Statement of Financial Position, the assets of the savings and lending enterprise (e.g., loans receivable net of reserve for uncollectibles, investments, cash) are reported as assets according to their character. The deposits of the participants and distributable or accrued income payable are classified as a liability.
On the Statement of Activities, the investment income, interest on loans, and capital gains and losses from the assets are reported as revenues. The expenses relating to the deposit and loan program (the interest paid to depositors and the expense for uncollectible loans) are reported as expenses.
In a mutual program, the diocese or other appropriate authority administers this endeavor as one where the benefit and risk of loss for the funds aggregated are borne by the depositing participants.
On the Statement of Financial Position, the assets of the mutual program (e.g., loans receivable, investments, cash) are reported as assets held for others. The deposits of the participants and any undistributed income are classified as a liability. No amounts are reported in the Statement of Activities because all investment income and costs inure to the participants.