Archbishop John Quinn's allegations of embezzlement against one of his own priests raise serious questions about the financial accountability of the Roman Catholic Church in San Francisco, parish leaders and law enforcement sources say.

Parishioners at St. Paul's parish in San Francisco say they are still unsatisfied with the explanation Quinn has offered in the ongoing investigation of their former pastor, the Rev. Martin Greenlaw.

After years of parish complaints and rumors about Greenlaw's spending habits and personal lifestyle, Quinn last year put Greenlaw in charge of the archdiocese's Propagation of the Faith Office, which raises money to support Catholic missions.

``That's putting the fox in charge of the hen house,'' said Terri Brady, president of the parish council at St. Paul's, in Noe Valley. ``Martin had too long a history of problems. If someone has a problem with money, you don't put them in charge of fund raising.''

Meanwhile, law enforcement sources who are conducting a criminal embezzlement probe of Greenlaw and at least two other priests say they are shocked by the accounting procedures at the archdiocese, which last year took in $32 million from its 94 parishes in San Francisco, San Mateo and Marin counties.

``Who's running the show over there?'' one law enforcement source said. ``No business would ever operate like that.''

Last week, after months of vigorously defending Greenlaw, the archdiocese admitted that it had been duped and filed a $250,000 fraud and embezzlement suit against the priest, who retired last year, citing health problems stemming from a bizarre 1993 beating.

Greenlaw has declined to be interviewed, but has denied the embezzlement allegations through his attorney, Joe O'Sullivan.

High-ranking church sources told The Chronicle this week that -- in retrospect -- they made a serious mistake in placing Greenlaw in charge of the Propagation of the Faith Office, which has reported a ``substantial'' drop in donations.

``There was some reluctance to believe a priest would do this,'' one San Francisco church official said. ``When detecting smoke, and not finding fire, we didn't keep looking for fire.''

Another church official said the archdiocese was not aware of Greenlaw's actions until the San Francisco district attorney was able to subpoena the priest's private bank records and personal credit card accounts.

According to the archdiocese's lawsuit, Greenlaw would set up bogus parish accounts, directly deposit church contributions into them, and then transfer those church funds to his personal accounts.

For that reason, a church source said, the church funds never showed up on the official parish books.

``Sizable funds were siphoned off before they reached the secretary or the bookkeeper,'' the source said. ``Normally, the pastor will hand a check to the secretary, but this money was siphoned off before it got into the system.''

For that reason, church sources say, even a complete audit of parish accounts would not have discovered any serious discrepancy.

Last month, Quinn announced new procedures to track parish and parochial school finances, including a system designed to make sure church officials are aware of all accounts opened in the name of the Roman Catholic Church.

This has sparked some protests from pastors who are used to having little oversight in how they run their parishes, including ``discretionary accounts'' that were not reported to the archdiocese.

``In the old days, and even still, the parishes and the pastors were pretty independent,'' said Monsignor James McKay, the pastor of St. Matthew Church in San Mateo and the former vicar general of the archdiocese. ``Many people think the parishes are just branch offices of the archdiocese, but in many ways that is not the case.''

According to the Rev. Tom Reese, the author of ``Archbishop: Inside the Power Structure of the Roman Catholic Church,'' it is not unusual for the local churches to have little financial control over their pastors.

``Most pastors have a kitty for emergencies that are not reported to the bishop,'' he said. ``There's a presumption that priests are good people.''

Reese said he was not surprised that Quinn, or Auxiliary Bishop Patrick McGrath, the man who assured disgruntled parishioners about Greenlaw, chose to believe their priests -- and not their parishioners.

``When confronted with allegations of crimes by their priests, many bishops can't believe it,'' Reese said. ``It's like when someone in your own family is accused of something.''

But David Joy, a longtime parishioner at St. Edward the Confessor Church, one of the San Francisco parishes recently shut down by Archbishop Quinn, said a series of church closures and sex and money scandals have caused many to lose faith in local church leaders.

``I no longer believe that those who surround the archbishop are honorable men,'' he said. ``This whole thing reminds me of Watergate.''

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