The report, delivered by the Holy See’s Financial Information and Supervisory Authority, came shortly before a 2022 order from Pope Francis, which transferred management of the Vatican’s assets from APSA to the IOR, the Vatican City bank. That order was repealed by Pope Leo earlier this month.
The report also flagged APSA’s lack of external expertise and centralized governance structure and recommended that it be reformed to more closely mirror the IOR.
In 2022, Pope Francis ordered management of nearly all assets and funds under APSA’s management to be handed over to the IOR.
That order was revoked earlier this month by Pope Leo XIV, who restored APSA’s autonomy.
Pope Leo’s move to end the legal requirement for all curial assets to be managed via the IOR was notable, given APSA’s history of financial scandals, and because it is exempted from international regulation and from ordinary external oversight among the Vatican’s financial institutions.
While APSA has reported increased profits in recent years, critics have noted that financial statements from the department are not verified by external audits, and there is no transparency over APSA’s investments or portfolio, making objective assessment of its performance difficult.
The 2021 report, commissioned by Pope Francis personally and marked “confidential,” offers a rare external look into the operating procedures of APSA.
While APSA was previously subject to international regulations and external inspections by MONEYVAL, the European Commission’s anti-money laundering watchdog and ASIF, the Holy See’s Financial Information and Supervisory Authority, it was formally exempted from external oversight in 2015, after agreeing to cease commercial financial activity and agreeing to act solely on behalf of institutional Vatican clients.
The confidential audit report, a copy of which was obtained by The Pillar, flagged “urgent” concerns about the absence of investment planning and any formal risk assessment or control function.
The report highlighted specifically “the need to implement strategic planning that goes beyond the short term.” It noted that year-to-year management of APSA’s considerable real estate holdings had resulted in inefficient approaches to building maintenance and development and loss of revenue.
“If strategic guidelines were more clearly defined, management choices would become more intelligible, including in their overall consistency with [APSA’s] mission,” the report said, while also noting the need to “develop longer-term strategies beyond annual budgets.”
However, the report expressed even more “urgent” concern about the lack of almost any internal risk assessment or management function, calling for APSA “to adopt a system for mapping, representing, and managing risks in an integrated manner, thus enabling a comparison between the risks perceived and accepted by decision-making bodies and those actually assumed.”
“The establishment of a Risk Management function is a priority,” the report says, while noting that absent such a function, APSA’s regulations require the Management Control Office — which employs only two people — “to map and monitor the various types of risk to which the organization is exposed; to prepare a forecast audit plan to be shared with supervisors; and to periodically verify, with targeted in-depth analyses, the correct functioning and adequacy of procedures.”
“These tasks, however, are not actually performed,” the report concluded.
“Regarding anti-money laundering controls, it is advisable to identify a person responsible for reporting suspicious transactions. It is also necessary to establish an internal procedure governing the collection and review of such transactions, before any forwarding to the competent authority,” the report stated, noting that there was no such capacity at the time of ASIF’s audit of APSA.
“Equally important,” ASIF concluded, “are line controls, entrusted to operational structures. Indeed, staff, in their daily activities, should identify, analyze, and reduce the risks arising from the company’s operations, adhering to established risk objectives.”
“These controls should be made systematic, given that some gaps have been identified, for example, regarding the collectability of receivables and the accuracy of appraisals.”
Earlier this year, The Pillar reported that in 2016 the prefect of the Vatican’s Secretariat for the Economy ordered the Office of the Auditor General to undertake an “an immediate and urgent investigation” into “potentially illegal” banking transactions at APSA.
The Pillar has previously reported that in the same year, the Office of the Auditor General warned the Vatican’s Council for the Economy that APSA had “a dangerously, highly centralised investment process and opaque portfolio management operation that breed irregularities and represent significant exposure to fraud.”
The 2021 ASIF report also made a stark assessment of APSA’s investment policies, noting that “the regulatory framework underlying the investment process assigns a key role to the [Investment] Committee.”
“However, the body’s regulations, consisting of the ‘Office Note’ of July 28, 2011, and other provisions, only partially regulate its activities, as the procedures for forming the opinion of the body… are unclear.”
While APSA is charged with ensuring that the “compliance of investments with the principles of the Social Doctrine of the Catholic Church,” “in this regard, however, a more detailed formalization of certain aspects is desirable,” according to the report.
Around the same time the report was issued, APSA’s ethical investment policies came under public scrutiny following news reports that it had previously invested millions in two Swiss pharmaceutical companies which produce and distribute so-called emergency contraceptive pharmaceuticals.
At that time, APSA’s then-president Bishop Nunzio Galatino said that the investments had been made before his arrival 2018 at APSA, and that all investments were by 2021 in compliance with Church teaching.
But the ASIF reported questioned that claim, saying that APSA’s “‘Investment Guidelines’ document lists, merely by way of example, only a few types of prohibited investments. In the absence of an exhaustive list, doubts arise about the ethical nature of investments in securities in [some] productive sectors.”
In the months immediately following the report, Pope Francis issued Praedicate Evangelium, his 2022 Apostolic Constitution governing the Roman curia, creating within it a new independent Investment Committee to address ethical issues around curial investments, led by Cardinal Kevin Farrell.
The same constitution established that all curial assets and funds must be deposited at APSA, a move widely understood as an effort to increase liquidity for curial operations at a time of declining revenues and budget deficits.
Just weeks after the promulgation of Praedicate Evangelium, Francis issued a rescript amending the constitution, transferring the bulk of the responsibility for managing almost all non-real estate curial investments from APSA to IOR, widely accepted to be the most efficient, profitable, and transparent financial institution in Vatican City, and the only one subject to international oversight.
The pope’s 2022 decision was widely understood then as a vindication of IOR’s credibility as a prudent and profitmaking institution.
But the ASIF report makes clear that Francis’ decision to transfer almost all curial investments to IOR also followed criticisms of APSA’s governing structure, and recommendations that it be reformed to more closely resemble the IOR itself.
“We are aware of the particular sensitivity of this matter and that all decisions in this regard rest with the Supreme Authority [Pope Francis],” the report said. “Nonetheless, given the importance of governance and the strong interaction between its adequacy and financial risk containment, the audit would not have been complete without an in-depth analysis of this aspect.”
The ASIF report went on to describe APSA’s governing structure as “characterized by the concentration of powers in the positions of the president and the secretary,” which, the report acknowledged, “undoubtedly offers significant advantages in terms of operational streamlining.”
While that structure helped to streamline operations, the report said it also posed a long-term risk for APSA.
“We cannot ignore the risks, especially in the long term, due to the limited diversification of skills and those related to the difficulty of making decisions capable of covering [APSA’s] many operational areas while always having the necessary time,” the text said.
ASIF recommended “tempering” APSA’s “model with elements of collegiality [which] could bring benefits in terms of deepening and sharing strategic decisions, diluting high-level responsibilities, and ensuring impartiality with respect to operational decisions.”
The report specifically cited the example of the IOR, saying APSA should consider “the introduction of a board into the governance system,” which could be led by the bishop-president, reporting to the pope, and charged with “defining strategic directions, supervising the internal control system, and approving the budget.”
“The executive function could be assigned to a Director General,” recommended ASIF, “who would replace the current position of Secretary. This structure, in its essential elements, is not foreign to the entities of the Holy See. In fact, it has been effectively adopted for the Institute for the Works of Religion, with which APSA shares several operational areas and exposure to related risks.”
Shifting to a lay-led, expert executive model “would also be aligned with international best practices (considering, for example, the functions of central bank and financial intermediary performed by APSA) and would be consistent with the planned establishment of an Investment Committee [created by Pope Francis in 2022] responsible for defining the strategy and investment instructions for the entire Holy See,” noted ASIF.
Those reforms were not adopted.
Instead, Pope Francis moved APSA’s investment management functions to the IOR, essentially acting to place the vast majority of curial financial activity under the bank’s governing structure, and its own compliance with international financial regulations.
However, as previously reported by The Pillar, officials at APSA declined to actually comply with the 2022 papal order — only an estimated 35-40% of curial deposits and investments made their way to the IOR, most from smaller curial dicasteries.
In his first major act of governance related to curial financial affairs, Pope Leo last month repealed Francis’ rescript, the Vatican announced earlier this month.
Vatican officials close to several financial departments told The Pillar the new pope’s move was a nod of acceptance toward the status quo, and a move to “reset” relationships between curial financial bodies, with Leo asking and expecting a renewed level of cooperation.
In his first at-length interview, published by Crux last month, Pope Leo downplayed the Vatican’s financial crisis and noting especially APSA’s recent reporting of increased profits.
After more than a decade of financial scandals and on-again-off-again-on-again reforms, Pope Francis’ final months in office appeared to strike a tone of mounting urgency on financial matters, with the pope warning the Vatican would soon be unable to meet its pension obligations, insisting on urgent action on the curia’s budget deficit, and creating a crisis fundraising committee to increase revenues.
Leo told Crux that “during Francis’ time already, significant steps were taken to put new checks and balances, controls, on what the financial operation would look like, how it would work. There have been some very positive things in that respect, so the results are showing.”
But some observers say that Leo’s decision to repeal Francis’ 2022 directive represents a rolling back of those same checks and balances, and some curial officials have begun privately questioning the new pope’s confidence in APSA.
In the interview, published in September but given in July, Leo said that “APSA just published their 2024 financial report and for the year they report a positive result of over 60 million euros. Why are we crying about a crisis?”
On July 28, APSA issued a profit notice of 62.2 million euros for 2024, up 16 million on the previous year. The result was hailed by Vatican media as “extraordinary,” and credited the result to the institution’s “legal autonomy” and “proactive and propositional” approach to investment management.
But curial financial officials told The Pillar that APSA’s reported profits were difficult to assess beyond the headline figures made public by the administration itself.
“What we don’t know — what no one knows outside of APSA — is what is behind this number of 60 million,” one senior source observed. “How much of this ‘profit’ comes from external income and investments, and how much of it is essentially derived from its curial clients, which is basically one Vatican department paying another?”
The same source noted that the Vatican has not released any consolidated financial statements, which would provide an overall context for the profit announcement.
“Is this 60 million profit enough or even close to meet expenses for the whole curia, or is it a drop in the ocean?” he asked. “That is the real question.”
The Vatican has not released a budget statement since 2022. That statement forecast an operating loss of 33.4 million euros for the Vatican, even after expected donations from sources including Peter’s Pence — which in 2023 allocated 90% of its revenue to Vatican operating costs.
In October 2023, the prefect of the Secretariat for the Economy, Maximino Caballero Ledo, said that the Holy See had a structural budget deficit of “between 50 and 60 million euros a year.”
Another senior Vatican financial official said of the 2024 APSA profit announcement that “there are still only two people responsible for the analysis and execution of the financial assets area,” posing “a massive risk operationally” for APSA.
“How is this supposed to deliver any kind of strategy or credibly present results?” the Vatican official said.
“What APSA needs always is cash — liquidity — but there is no segregation of assets between APSA’s own assets and those of their clients,” the senior Vatican official explained.
“And this is not just a failure of bookkeeping,” he said. Instead, APSA officials “believe that all the money of the different dicasteries is, ultimately, the money of the Holy See and therefore, in a sense, their money.”
“What this means in practice is the money of clients can be used by APSA for other purposes, or their profits considered ‘APSA profits’ — there are very specific recent cases from certain client institutions where this has been seen. What you end up with is a kind of scheme where a client’s money is treated as profit.”