Ad Hoc Board Committee for Review of Auditor's Report-81DD6EC6
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The charge of this committee was:
To review the recommendations made in the auditors management letter and make a further recommendation to EXCOM in time for its October meeting.
Report from the ad hoc Committee to Review the Auditors’ Letter of Recommendations
Committee Members: Dan Bourland; John Gibbons; Yakov Pipman; David Pickens (Chair); Maryellen Giger, Treasurer, ex officio; Cecilia Balazs, Headquarters
Telephone Conference Meeting September 14, 2004
Notes on the letter from McGladrey & Pullen, Certified Public Accountants, dated June 2, 2004, providing comments and suggestions to the AAPM Board of Directors. These notes are organized under each numeric point in the accountants’ original letter in standard font. Recommendations from the ad hoc committee charged to review the letter and make recommendations to the President and Board of the AAPM follow each section and are high-lighted in bold and italics.
1. Benefits to establishment of an Audit Committee/Sarbanes-Oxley Act.
Currently, the Association is not required to have an audit committee, but the feeling is that with pending legislation in some states, the Sarbanes-Oxley Act requiring public companies to have an audit committee will be applied to not-forprofit organizations. Once several states pass these rules, others will follow. Without such a committee, the board has the responsibility to question management about how it is carrying out financial reporting responsibilities. The auditors recommend that the Board discuss creating such a committee or assume the responsibilities itself. Internal control is strengthened by presence of an audit committee.
There are two provisions of the Act that must be followed by not-for-profits: whistleblower protection and document destruction clauses. The Association cannot retaliate against whistleblowers. The Board must provide a mechanism for employees to air complaints. The accountants recommend that a policy be adopted to support employees reporting wrongdoing by management or Board and provide instructions as to how to communicate these matters. The Association’s law firm should be the point of initial contact.
Recommendation to have a record retention policy.
Recommendations of the ad hoc committee: form a permanent Audit Committee, primarily made up of Board members, but including some members with audit/financial experience. This committee will be responsible for hiring the accounting firm as consultants to do audits and will meet with them to review the audits. The current accounting firm has a brochure describing the duties of an audit committee in the context of not-for-profit organizations that can be used as a guide.
Recommendations of the ad hoc committee: adopt a policy supporting employees providing information about wrongdoing by management or the Board and providing a way to communicate this information. This is required by the Sarbanes-Oxley Act.
Recommendation of the ad hoc committee: establish a formal records retention policy. The current accounting firm can provide a sample schedule. This is also required by the Sarbanes-Oxley Act.
2. Accounting Policy and Procedures Manual.
The accountants suggest that standard accounting manual be created to inform employees about accounting operating procedures and policies. This would be useful as an aid to train new employees, monitor performance of existing employees, and improve internal communications. Specifics given in the letter.
Comments from the ad hoc committee: development of an Accounting Policy and Procedures Manual is in progress by the accounting staff of the Association.
3. Dual signature on checks.
Currently the Association has this requirement, but at a level of $25,000 or more. The accountants recommend that the threshold for this be reviewed for lowering to provide better scrutiny for purchases.
Comments from the ad hoc committee: The ad hoc committee believes that this is acceptable as it stands. The auditors and the Audit Committee will look at checks of $25,000 or more and sample smaller checks for review during the regular audit process.
4. Capitalization policy. The capitalization level currently is set at $3000, but for the size of the Association, $1,000 to $1500 is usually seen. The accountants recommend that this be reviewed to better match the cost of furniture and equipment with periods of use.
Comments from the ad hoc committee: this policy has been changed so that the capitalization level is $1000 and was done when the auditors’ report was made available to Headquarters staff.
5. Periodic review of AIP’s operation.
The accountants recommend that every 2-3 years, the Association perform a review of transactions that AIP processes with respect to Medical Physics and other activities as a matter of due diligence. The Association should also document controls AIP has put into place over these activities.
Recommendations from the ad hoc committee: nothing is currently done with regard to reviewing transactions with AIP. The ad hoc committee recommends that the Board initiate discussions with AIP about ways to address the issues relating to the accounting methods used by AIP and their controls for transactions involving the Association.
6. Chapters.
The accountants recommend that the Association assess corporate standing, governance structure, and tax-exempt status of each of the chapters. The accountants recommend that the Association consider sponsoring a group exemption with IRS so that chapters can be combined in a single annual filing with IRS.
Recommendations from the ad hoc committee: initial contact has been made with all but one chapter with regard to ascertaining tax status. The accounting firm has an expert in not-for-profit entities and tax law who will help evaluate the next step, which may include applying for group tax exemption for chapters. It is the feeling of the ad hoc committee that the Board should address the relationships of the chapters to the national Association.
7. Investment policy. The accountants recommend clarification of the investment policy so that large transactions do not raise questions, if it is the intent of the Board to allow the investment advisors full discretion in mutual fund transactions. If the Board or Investment Advisory Committee require approval, the policy should be clarified.
Recommendations of the ad hoc committee: the Investment Advisory Committee should be asked to review and modify as needed the existing policies as recommended by the auditors.
8. Nonstandard journal entries. It was noted that someone other than the preparer does not review non-standard journal entries. The accountants recommend that management establish procedures for review of such journal entries as part of monthly financial reporting process.
Recommendations of the ad hoc committee: someone within the financial management group of the Association who does not have journal entry authority or check writing authority should review standard and nonstandard journal entries. Currently, Cecelia Balazs has this position.
To review the recommendations made in the auditors management letter and make a further recommendation to EXCOM in time for its October meeting.
Report from the ad hoc Committee to Review the Auditors’ Letter of Recommendations
Committee Members: Dan Bourland; John Gibbons; Yakov Pipman; David Pickens (Chair); Maryellen Giger, Treasurer, ex officio; Cecilia Balazs, Headquarters
Telephone Conference Meeting September 14, 2004
Notes on the letter from McGladrey & Pullen, Certified Public Accountants, dated June 2, 2004, providing comments and suggestions to the AAPM Board of Directors. These notes are organized under each numeric point in the accountants’ original letter in standard font. Recommendations from the ad hoc committee charged to review the letter and make recommendations to the President and Board of the AAPM follow each section and are high-lighted in bold and italics.
1. Benefits to establishment of an Audit Committee/Sarbanes-Oxley Act.
Currently, the Association is not required to have an audit committee, but the feeling is that with pending legislation in some states, the Sarbanes-Oxley Act requiring public companies to have an audit committee will be applied to not-forprofit organizations. Once several states pass these rules, others will follow. Without such a committee, the board has the responsibility to question management about how it is carrying out financial reporting responsibilities. The auditors recommend that the Board discuss creating such a committee or assume the responsibilities itself. Internal control is strengthened by presence of an audit committee.
There are two provisions of the Act that must be followed by not-for-profits: whistleblower protection and document destruction clauses. The Association cannot retaliate against whistleblowers. The Board must provide a mechanism for employees to air complaints. The accountants recommend that a policy be adopted to support employees reporting wrongdoing by management or Board and provide instructions as to how to communicate these matters. The Association’s law firm should be the point of initial contact.
Recommendation to have a record retention policy.
Recommendations of the ad hoc committee: form a permanent Audit Committee, primarily made up of Board members, but including some members with audit/financial experience. This committee will be responsible for hiring the accounting firm as consultants to do audits and will meet with them to review the audits. The current accounting firm has a brochure describing the duties of an audit committee in the context of not-for-profit organizations that can be used as a guide.
Recommendations of the ad hoc committee: adopt a policy supporting employees providing information about wrongdoing by management or the Board and providing a way to communicate this information. This is required by the Sarbanes-Oxley Act.
Recommendation of the ad hoc committee: establish a formal records retention policy. The current accounting firm can provide a sample schedule. This is also required by the Sarbanes-Oxley Act.
2. Accounting Policy and Procedures Manual.
The accountants suggest that standard accounting manual be created to inform employees about accounting operating procedures and policies. This would be useful as an aid to train new employees, monitor performance of existing employees, and improve internal communications. Specifics given in the letter.
Comments from the ad hoc committee: development of an Accounting Policy and Procedures Manual is in progress by the accounting staff of the Association.
3. Dual signature on checks.
Currently the Association has this requirement, but at a level of $25,000 or more. The accountants recommend that the threshold for this be reviewed for lowering to provide better scrutiny for purchases.
Comments from the ad hoc committee: The ad hoc committee believes that this is acceptable as it stands. The auditors and the Audit Committee will look at checks of $25,000 or more and sample smaller checks for review during the regular audit process.
4. Capitalization policy. The capitalization level currently is set at $3000, but for the size of the Association, $1,000 to $1500 is usually seen. The accountants recommend that this be reviewed to better match the cost of furniture and equipment with periods of use.
Comments from the ad hoc committee: this policy has been changed so that the capitalization level is $1000 and was done when the auditors’ report was made available to Headquarters staff.
5. Periodic review of AIP’s operation.
The accountants recommend that every 2-3 years, the Association perform a review of transactions that AIP processes with respect to Medical Physics and other activities as a matter of due diligence. The Association should also document controls AIP has put into place over these activities.
Recommendations from the ad hoc committee: nothing is currently done with regard to reviewing transactions with AIP. The ad hoc committee recommends that the Board initiate discussions with AIP about ways to address the issues relating to the accounting methods used by AIP and their controls for transactions involving the Association.
6. Chapters.
The accountants recommend that the Association assess corporate standing, governance structure, and tax-exempt status of each of the chapters. The accountants recommend that the Association consider sponsoring a group exemption with IRS so that chapters can be combined in a single annual filing with IRS.
Recommendations from the ad hoc committee: initial contact has been made with all but one chapter with regard to ascertaining tax status. The accounting firm has an expert in not-for-profit entities and tax law who will help evaluate the next step, which may include applying for group tax exemption for chapters. It is the feeling of the ad hoc committee that the Board should address the relationships of the chapters to the national Association.
7. Investment policy. The accountants recommend clarification of the investment policy so that large transactions do not raise questions, if it is the intent of the Board to allow the investment advisors full discretion in mutual fund transactions. If the Board or Investment Advisory Committee require approval, the policy should be clarified.
Recommendations of the ad hoc committee: the Investment Advisory Committee should be asked to review and modify as needed the existing policies as recommended by the auditors.
8. Nonstandard journal entries. It was noted that someone other than the preparer does not review non-standard journal entries. The accountants recommend that management establish procedures for review of such journal entries as part of monthly financial reporting process.
Recommendations of the ad hoc committee: someone within the financial management group of the Association who does not have journal entry authority or check writing authority should review standard and nonstandard journal entries. Currently, Cecelia Balazs has this position.