IN THE NAME OF GOD, GO

John Plender argues that the Church

Commissioners' incompetence is a scandal which has not been honourably dealt with

ARE THE Church Commissioners, whose ill-judged adventures in the property mar- ket resulted in £500 million being wiped off the value of their assets, now off the hook? It was beginning to look like it. The reports on the saga of the Church's missing mil- lions by accountants Coopers & Lybrand and the Lambeth Group, a hand-picked selection of the Anglican great and good, coincided neatly with the holiday season. Few in the national press bothered to read the documents, Most of the parishioners who will have to meet more of the cost of clergy stipends after the fiasco will receive only a minimal account of how it came about. Above all, nobody has asked the obvious question: why has none of the men chiefly responsible resigned?

But the Church Commissioners might yet be wriggling on a very public hook. Frank Field, the pugnacious chairman of the Commons Social Security Select Commit- tee, has decided that the committee will take evidence from the Commissioners. His chief concern is to ask where they go from here. But that question cannot be addressed without reference to the content of the reports, which were commissioned by the Archbishop of Canterbury in Octo- ber last year after serious criticisms were made of the Commissioners' stewardship in the Financial Times.

While neither Coopers & Lybrand nor the worthies of the Lambeth Group could be accused of a whitewash, they are curi- ously circumspect about some of the cen- tral issues raised by the affair. It is not just that they are delicate in their strictures on the behaviour of those responsible for sad- dling the hapless laity with the bill for an abysmal investment management perfor- mance. They discuss the scandal — and it unquestionably is a scandal — as though it were a purely technical matter. In dealing with the key issue of responsibility, the account is sanitised, pasturised and even homogenised. It should have been more robust, for reasons that will become clear.

The starting point has to be the constitu- tion of the Church Commissioners, which is laid down in the Church Commissioners Measure of 1947, One of its most impor- tant tenets, which reflects the fact that the Commissioners are managing what is known as a `closed' fund with no new income flowing in, is that expenditure must

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be met out of current income. In other words, they are not allowed to dip into their accumulated capital to pay for clergy stipends and pensions, which is their chief task. The question raised by the Commis- sioners' activities both in property and in the gilt-edged market is whether they breached this fundamental rule.

Astonishingly, this is confronted only obliquely by the two reports. But the obiter dicta of Coopers & Lybrand are revealing. The Commissioners' choice of accounting policies relied heavily on a distinction between capital and revenue items which, says the report in characteristically charita- ble language, 'did not mirror normal com- pany accounting practice'. In their treatment of property they adopted devices which artificially protected their disclosed income at the expense of capital — curious behaviour for an arm of the Church.

At the same time they engaged in a prac- tice known as `gilt-stripping', which usually involves buying gilt-edged securities before interest payments are due and selling at a capital loss after the interest is received. In other words, it is an artificial way of boost- ing income while eroding capital. In the Commissioners' accounts this resulted in what Coopers called an `overdistribution' amounting to £20 million in the three years to 1992. Yet Coopers level no criticism at the Comptroller and Auditor General's National Audit Office, which invariably pronounced that the figures gave a true and fair view and . complied with the Church Commissioners Measure of 1947.

In permitting this the members of the Assets Committee, which has exclusive responsibility for investment policy, ignored the accounting advice of the Com- missioners' own professional advisers. No doubt the committee, whose members include well-known City dignitaries, felt that playing ducks and drakes in this way was justified by the pressing requirement to cope with short-term financial strains such as the need to protect the clergy from the poll tax. The Commissioners' annual report glosses over the practice by referring obscurely to unspecified 'special temporary measures' to generate income. Nor did the Board of Governors debate the threat to the Commissioners' capital that resulted from the Assets Committee's belief that the end justified the very questionable means.

This raises a more fundamental question about whether the culture of the organisa- tion was not, in some sense, rotten. For everyone involved seems to have operated on the basis of keeping everyone else in the dark. Michael Hutchings, the man in charge of property management, understat- ed the cost of potential developments by including interest rates in his appraisals for his superiors that were below actual market rates. He conveyed an inadequate impres- sion of the Commissioners' exposure to property by deducting borrowings from the cost of investments in his reports to the Assets Committee — no small matter given that borrowings were to reach £0.5 billion at their peak.

He also failed to keep the Assets Com- mittee fully informed about overspending on developments. The result was that pro- jects with an approved cost of nearly £600 million came in at more than £1 billion a 69 per cent overspend which comes down to 40 per cent if allowance is made (charitably) for unanticipated buying out of financially stretched partners in joint development companies.

Sir Douglas Lovelock, the First Estates Commissioner who was also chairman of the Assets Committee, and James Shelley, the secretary, both of whom have just retired, discouraged communication between the staff and members of the Assets Committee. The concentration of authority in these two men was not, say Coopers, effectively balanced by the Assets Committee. Meantime, the Board of Gov- ernors did not discuss the controversial decision to borrow huge sums for property development because Sir Douglas and his fellow members of the Assets Committee jealously guarded their right to exclusive power in financial matters — a lack of accountability that looks surprising by pri- vate sector standards but which was enshrined in the Commissioners' own con- stitution.

As for wider disclosure to the public, the annual report of the Commissioners has been a lamentable document, failing to offer worthwhile figures for the overall investment performance and providing a misleading picture of the property &bade. In 1991, before the Financial Times pub- lished its investigation, the Commissioners disingenuously attributed their problems to recession, when the real explanation lay in the disproportionate exposure to prop- erty.

At a more specific level the largest prop- erty, the MetroCentre shopping develop- ment in Gateshead with an estimated cost of £272 million, has been constantly trum- peted by the Commissioners as an out- standing success. Yet the return has not even kept place with inflation; and the annual report fails to reveal the excessive concentration of money in this single investment by referring to it as being val- ued at 'over £20 million'. While true, this is outrageously misleading.

There has never been any suggestion of fraud, nor any suggestion that those involved were other than well-meaning. But the combination of an internal culture that appears to have bordered on the Machiavellian and an arrogant disregard in matters of disclosure for the legitimate concerns of the laity is nonetheless shock- ing in an organisation that purports to serve the interests of the established Church. It is more shocking, in a way, than the Church Commissioners' numerous instances of incompetence, which range from the choice of a project manager for property developments who was perma- nently resident abroad, to a huge under- estimate of pension costs arising from a failure to obtain adequate actuarial data. And it raises a suspicion that the response to the scandal has been a little too cosy.

The Lambeth Group, though it included well qualified outsiders, was chaired by the Bishop of Chelmsford, the deputy chair- man of the Church Commissioners' Board of Governors. Among three other Church Commissioners on this nine-man body was Brian Howard, deputy chairman of North- ern Foods and a former deputy chairman of Marks & Spencer. Howard was the deputy chairman of the all-important Assets Committee when the damage was done.

Coopers & Lybrand, the investigating accountants, have an existing commercial relationship with the Commissioners. They have been both auditors and providers of other financial services to the controver- sial property development subsidiaries where the big money was lost.

Chesterton, the main property adviser to the Commissioners, has both given advice on property purchases and provid- ed valuations of the property on whose purchase it advised. Those valuations pro- vided the basis for data used by Coopers in reaching a judgment on the perfor- mance of the property investments.

There is no suggestion that anyone failed to do a proper job. It should also be said that the recommendations of the Lambeth Group for tighter financial con- trols and better accountability are emi- nently sensible. Yet it cannot be healthy that at all these different levels people have been investigating and reporting on their own actions. Since property valuation is a subjective art, one wonders what the performance figures in the Coopers & Lybrand report would have looked like if another firm of independent valuers had been asked to look at the portfolio. More importantly, is it healthy for the future of the Church Commissioners' activities that none of the people who really matter has been prepared openly to accept responsi- bility for a disaster that will go down in the annals of financial history?

Michael Hutchings, the property man whose reluctance to travel by air led him to monitor the Commissioners' far-flung US real estate portfolio by bus, train and car, admittedly departed. But Sir Douglas Lovelock and James Shelley, the two pow- erful key executives responsible for over- seeing the disastrous property development activities, have retired to the sound of ful- some tributes from all around. The Assets Committee has a welcome new broom as chairman in Sir Michael Colman of the mustard clan. But if any members of the committee have resigned after the revela- tions of their stunning incompetence they have been mighty quiet about it.

One can understand the natural reluc- tance to criticise individuals. In fairness, most of the members of the Assets Com- mittee serve on a voluntary basis. But peo- ple relied on their considerable reputations in the City and in business, and have been badly let down. The inescapable fact is that the committee failed in virtually all its more important designated responsibilities, from setting a proper investment strategy to maintaining the capital of the organisa- tion.

Not only does it look as though every- body in the Church hierarchy from the Archbishop of Canterbury down is taking a remarkably casual view of the financial demands that are now being inflicted on the man and woman in the pew, the Church itself seems to have been infected by the Whitehall malaise whereby no one ever resigns, however catastrophic the poli- cy mistake. To return to where we began, if eminent people in the Church of England are no longer prepared to do the decent thing, what kind of society are we living in? Perhaps the Commons Social Security Select Committee should ask.

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