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Federal bankruptcy officials question Crystal Cathedral compensation [Updated]

November 17, 2010 |  5:17 pm


Crystal Cathedral, the Orange County megachurch that filed for bankruptcy last month, allowed its chief financial officer to largely avoid federal income taxes by paying the bulk of his salary in the form of a housing allowance. [Updated at 7:12 p.m.: The information is contained in tax records.]

The six-figure housing allowance paid to financial officer Fred Southard -– along with compensation to members of the church founder's family –- are among the expenses questioned by the U.S. trustee's office and the creditors' committee assessing the bankruptcy case.

The documents also suggest that the church paid at least three insiders for redundant duties. The filings give the first look into the long-questioned financial practices of the Garden Grove church, which employs more than a dozen family members and in-laws of founder Robert H. Schuller.

The Crystal Cathedral has cited the weak economy and a 24% drop in donations in 2009 for its financial problems. More than 550 creditors are owed $50 million to $100 million, according to the initial bankruptcy filing last month.

According to court documents, longtime financial director Fred Southard received $132,019 out of his total $144,261 compensation in the form of a housing allowance last year.

Southard has been the Crystal Cathedral's chief financial officer since 1978 and owns a home in Newport Beach valued at $2.3 million.

Federal tax law allows religious organizations to give a housing allowance to "ordained, commissioned or licensed ministers" who perform certain duties for the church. The allowance is exempt from federal income tax.

The Reformed Church in America, to which the Crystal Cathedral belongs, had no record of Southard being commissioned or ordained as a pastor, according to a spokeswoman.

Southard told The Times on Wednesday that he was ordained as a minister by the Crystal Cathedral about 10 years ago and has taken the bulk of his compensation in the form of a housing allowance since then.

"That's what ministers are allowed to do, and so it's to the individual's advantage to do that," he said.

He said that apart from his duties as finance officer, he occasionally preached and led a weekly Bible study over the years.

[Updated at 7:12 p.m.: Southard said that other church employees who were ordained ministers also received housing allowances but that he was unsure who or how much.]

“I doubt that many would spend what I do, because most people don’t live in the area I do,” he said

The U.S. trustee's office did not address tax issues in an objection it filed to Southard's compensation package, but questioned why Southard should be employed as director of finance as the bankruptcy goes forward, when the church also employs a full-time accountant.

It also suggested that Southard should not even receive the allowance.

"There is no justification whatsoever for a housing allowance of this amount," according to the documents. "Mr. Southard has failed to explain why such a housing allowance is necessary or appropriate, given this debtor is in Chapter 11 and suffering financial difficulties."

The trustee and creditors committee also objected to compensation for the church's director of programming, Gretchen Penner, who is Schuller's daughter, and Penner's mother-in-law, Neva Penner Klaassen, the programming manager.

The church requested approval to pay Penner an annual salary of $69,525 and Klaassen a salary of $55,099 while the bankruptcy proceedings are in progress.

-- Abby Sewell and Nicole Santa Cruz

Photo: Crystal Cathedral in Garden Grove. Credit: Anne Cusack/Los Angeles Times