The Treasury Review Committee has completed their review and submitted a report to the Board of Directors. The Board has already implemented some changes which are identified in the Treasury Review Report, and the need for the changes made are supported by their recommendations. Additionally, we will study the remaining recommendations of this committee.
The Treasury Review Committee has reinforced the Board's opinion that the extensive registry collection of paper records is a valuable asset that needs to be safeguarded and preserved. The Board has already implemented changes whereby all new records are digitized and maintained in a digital repository that is online and accessible to registry personnel and Board members as needed. The Board is now investigating options for having the very large collection of paper records digitized and stored similarly.
The Board would like to express our appreciation to the members of this committee for their thoroughness and hard work. The report, in its entirety, is reproduced below. Please feel free to send any comments or suggestions to firstname.lastname@example.org.
MASCUSA TREASURY REVIEW COMMITTEE
2012-13 Internal Financial Review
April 2, 2013
From: The MASCUSA Treasury Review Committee
Susan Gesting, Kim Johnson & Colleen Storms
To: The MASCUSA Board of Directors
c/o Pat Davis, Secretary
Re: Report of the Treasury Review Committee
Dear MASCUSA Board of Directors:
The Treasury Review Committee has completed our review of the accounting and recordkeeping processes of the Club. We have prepared this report to provide information to the membership regarding the management of the Club's finances, and to provide feedback to the Board to assist them in resolving questions about the business of the Club, and setting policies and procedures that safeguard the Club's assets for the future.
Scope & Goals of Procedures
We want to clarify what the scope of our review has been and make sure that the membership understands the limitations inherent in this process. We are not auditing or representing that we are auditors in any way. The cost of hiring an audit to be done was more than $3,000 and the Board did not feel that was a good use of the treasury funds. The Board and the Committee felt that an internal review would yield adequate information for analysis at this point. We were given the opportunity to interview the Treasurer, review any documents we requested, and develop the scope of the review as we progressed. We understood that some individuals of the Board and the membership had concerns about the processes, and the lack of some checks and balances. An important goal was acting as a third party review group with varied accounting backgrounds who could subjectively look at procedures and controls and offer input to the full Board to improve them.
One large impact of the change to being the parent club for AKC was that the registration duties, titles, etc, all changed, so the fee structure substantially changed as well. The Club presently receives money for approving pedigrees and assisting members in AKC paperwork. Titles processed decreased because they would not be as relevant with AKC involved. New memberships and individual dog registrations increased. This increased activity to prepare for full recognition by AKC produced a huge load of work for the Registrar and the Treasurer in processing all the paper. It also brought in significantly more monies for the Club. The Treasury balance late in 2012 was about four times what it was five years ago, over $40,000. It had almost doubled in the past year alone.
This kind of growth would be hard for any organization to handle, let alone one run by volunteers. The obstacles of having the Board, officers and members spread across the Country has placed a huge burden on the two people processing most of that work, the Treasurer and the Registrar. Our primary goal of this internal review process was to find out how well the financial processing had gone through these stressful changes, and to make recommendations to the Board if we saw things they should consider changing. We determined there may be a likelihood of turnover in the Board officers, since this process took so much time and commitment from such a small group of people. We endeavored to assure that we could provide information to the Board that would help them implement sound policies going forward.
We chose a period of time from July 2011 through October 2011 to review because of the volume of transactions early in the transition to AKC. We obtained documents and discussed the processes followed by the Registrar, Treasurer and Secretary in preparation for reviewing the documents. This is a list of what documents were requested and analyzed:
1) Monthly Treasurer reports for the period July 1, 2011 - October 31, 2011
2) Bank statements for the same period
3) QuickBooks sales reports
4) Registrar reports for the same period
5) PayPal reports of income
6) Monthly expense reports
7) Payments to Registrar and supporting documentation
8) Annual IRS report of non-profit
9) Documents of incorporation
10) Registrar's listings of all registrations that were received and processed during May-October 2011 with enough information to tie out Registrar's records with Treasurer's deposits.
11) A listing of all members as of July 1, 2011.
(Note: items 10 and 11 were to be provided by Registrar, but were never received.)
Areas of Review & Results
Legal Compliance- Incorporation
The Club was incorporated as a non-profit in the State of New York. The State paperwork is in order and the name of the Club has been officially changed to the Miniature American Shepherd Club. The current Treasurer Traci Phillips ensured this during her term in office. Traci has also filed the 990 form that's required of the organization on time for each of the prior two years reviewed. If income over $50,000 per year is not received in three or more years, this filing is the appropriate annual report. However, the Club has not applied for a tax-exempt status with the IRS (i.e. under Code 501(c)(7)). The drawback to this is that people who donate to the club (like sponsors for nationals) do not receive a charitable deduction on their federal income taxes. Depending on who the sponsor is, however, it may be a business expense. Applying for the IRS tax exemption may be a good goal for this next year. The Club is operating from a set of Bylaws that include quite specific procedures for the officers to follow. The recommendations section of this report includes some suggestions for possible modifications to the Bylaws.
Treasurer Receipts and Reports of Receipts To Board
The deposits for the period of July to October 2011 balanced between Treasury(Reports), Bank and QuickBooks with one exception. In September the Quickbooks report did not include the PayPal deposit, but there was $1,993.40 in Pay Pal deposits on the Treasurer's report. The rest of the PayPal monies received in September, $206.60, was assumed to be included in the "Class Sponsors" revenue category.
The PayPal report during this period was not clearly stated and the reviewer was not able to track a single transaction to any of the reports in QuickBooks or the Treasury reports. Upon discussion with the Treasurer, she agreed that monies flowed into the PayPal account without any transaction record to tie the receipt to a specific service. She was not initiating the PayPal deposits, so she could only include the total received through PayPal in the treasurer's report without identification of the service that produced the revenue. The reviewer tied out the beginning balance in the PayPal account on 7/4/11 and totaled receipts, disbursements for fees, and the payment transferred to the Treasurer. The ending balance on 10/31/11 was only off by $12.36, which is not material. This confirmed that the PayPal monies received did make it to the Treasury during this period.
We were unable to obtain any ledger that detailed the Registrar's transactions with names and service transactions that could be matched to the Treasurer's receipts. This is a serious deficiency in the internal controls as it is impossible to ensure that all service fees are collected. Trying to track that all services were paid was complicated also by delays in either deposits or in registration actions. The process was that the member sent paperwork to the Registrar, with a check or without, possibly PayPal was requested, then the Registrar performed services and sent the check onto the Treasurer. The Treasurer could record the name on the check and the amount, but often didn't know what kind of service was provided. It was possible for a person to send in registration paperwork, get their registration handled, and underpay or never pay. We understand the Registrar would instruct them to send in payment, but there was no ability for the Treasurer to follow-up without a ledger.
It also did not appear if someone's check was not honored by their bank, that the Club received another payment or fees in many cases either. The Treasurer did not have the information she needed to collect on these checks and the services had already been provided. We do not believe that uncollected checks may be a huge amount, but there was no comprehensive record of collections and this was significant enough to warrant a change in how the Club deals with returned checks.
In one test we performed, we took the Registrar's reports that were prepared to request payment. We calculated how much revenue should have been received for those registration transactions using the assumption that all of the transactions were at the lowest rate for that service (for instance, all IDR's were counted as provided to members at their rate). By using that calculation, it appeared that during the test year period, receipts may have been $4,000 lower than they should have been; it could have been significantly more than that amount. Without having a listing of registration transactions that could be matched to cash receipts, and with the complication of no identification of who made most Pay Pal payments and why, there was no way to verify that all services were paid for at the correct rate.
We had several discussions with the Board, Treasurer and within our group and received a lot of reports back from the Treasurer especially. We identified some of the obstacles that we had in reconciling the cash receipts to fees charged and the Treasurer and Secretary, with the Board's approval, made some major changes in process. They have a documented process now wherein services have to be paid for before registration paperwork will be transferred to the Registrar. They have developed a shared ledger that covers the Club transactions from the point paperwork is received, through payment deposit, check clearing, then receiving the Services. The Registrar now provides information on the services including registration numbers, and scans of paperwork, before she is paid for the services. The Treasurer is the one that reviews the ledger and the request for payment, and makes sure to only pay for completed transactions. Since that process was initiated by the Secretary and Treasurer with the assistance of the Registrar, it appears that the internal controls over the process prevent services from being performed without the Club receiving payment. It is critical that a system of controls like this ledger procedure be maintained. Another important control change has been having cash received and banked by someone other than the person who provides the services.
Cash Disbursements & Expenditure Processes
Talking with the Treasurer Traci Phillips about this, the Board doesn't adopt a budget, but they are supposed to approve all expenditures ahead of time. This happens most of the time, but there are a few problems that were observed by the Committee:
1) There is no approved annual budget, so it is difficult for the Board to make informed decisions about whether money should be spent for something in Board meetings with no guidance from a Budget. It is strongly recommended that the Board pass a budget by expenditure type before the beginning of each year. The Bylaws separate out registration-related expenses from other Club expenses. Other Club expenses require preauthorization in general.
2) It does not appear that there is a procedure where the Board approves a list of expenditures that is subsequently attached to the Minutes. This makes it really hard to verify what was approved for payment. It is recommended that a list of the approved expenditures be included in the record of Minutes of each meeting.
3) There are times when individual Board members may exceed the spending that was pre-approved by the full Board, or may not turn in detailed receipts. This may conflict with the intent of the Bylaws and can make it difficult for the Treasurer to pay or reimburse those expenditures without additional action by the Board.
Related Issues Identified
The Club has two major assets, their cash balance and the registry database of dogs. All of the areas examined above are related to the protection of cash assets. The registry database could be an even more important asset that should be safeguarded for the future of the breed. The database should be maintained in a way where it is regularly backed up to an offsite location. For the effectiveness of the Club in tracking dogs and breedings, the database should be as accessible as possible without sacrificing the security of the data. In the past decade, there was a large loss of registry data within another Miniature Australian Shepherd breed club which has highlighted the importance of internal controls over our breed database.
After discussing the processes and problems with the accuracy of the database to date, it appears that the following controls must be established as soon as possible by the Board and maintained through changes in officers. It is critical that all Board members, present and future, prioritize the maintenance of this database until such time as AKC has all of the registry record history and the Board determines that the Club is not responsible for its upkeep any longer. Recommended controls include:
1) Every addition to the registry should be reviewed by a second person prior to upload to the official registry database.
2) Every correction or change to the registry be properly authorized and reviewed before executing the change to the official database.
3) Original paperwork completed by Owner should be scanned and stored electronically with a naming convention that clearly links it to the registry database.
4) There should be a system of transferring the data to the AKC database and then receiving reports back from AKC that can be verified to the Club database to ensure that AKC has the same accurate data.
It should also be noted that with the many dogs that were added to the registry for AKC enrollment purposes in the past two years, there are a lot of errors that were discovered when AKC provided feedback and questions to the Club. There was a lot of work that has required the Treasurer and Secretary, in addition to the Registrar, to review the database and make corrections. It is the belief of the Review Committee that there should be compensation to those who are correcting this database and to the person(s) responsible for reviewing changes in the future. There has been a real growth in the Treasury over the past couple years and this is such an important function, some of that money should be used to make sure the work is completed.
We feel this is a huge one-time effort that should pay off in having an accurate database to build from in the future. It would also be a real benefit to the Club if they can maintain this database in a way that our members can search pedigrees in future years. We mean to stress that the registry is our most important asset and as such, all additions and changes should be reviewed by two persons. It is the gold standard for the Miniature American Shepherd in the future and unlike money, there is no way to "balance it". Review as additions are made, then, is the only good control that will work.
SUMMARY OF RECOMMENDATIONS:
1. TAX EXEMPT STATUS: Board should consider decision to apply for the tax exempt status with the IRS. Assign someone to perform this duty if follow-up desired. Make sure donors know that Club is not set up as a tax exempt entity so they don't claim their donations as tax deductions.
a) Determine what change should be made to the Bylaws regarding approval of expenditures and create a Financial Policies & Procedures to adopt by Resolution that has more details. AKC requirements for parent clubs should be studied first. This could be done at a high level summary in the Bylaws, but the details could be in the form of a policy adopted by a Resolution of the Board.
b) In the Bylaws, for example, language could say simply: "The Treasurer shall collect and disburse all Club funds as directed by the Board. The Board shall approve all expenditures before they are made, and shall receive monthly reports on revenues received. At least (monthly?) quarterly the Treasurer shall prepare a statement of receipts and expenditures and a statement of cash and investment balances reconciled to the bank statements. The Treasurer shall keep and retain all receipts and transaction records per the Board-approved Financial Policies & Procedures." The Board can put more details of how the records are to be kept, paper and electronic, in the Policies & Procedures they adopt by resolution. The Policies & Procedures might include: budget policy, expenditure policy (with signature requirements on checks), recordkeeping policy, depository policy (which would include returned checks, holding of paperwork, foreign currency, how often deposits are required, etc).
c) Have a list of the expenses to approve at a Board meeting, with Invoice Dates, Amounts, Payees, and as a part of approving them for payment, note this in the minutes and attach the list to that meeting's minutes. Include in the Policy rules about members asking for reimbursement for expenses they've paid; do not allow reimbursement for expenses that were not preapproved through a Board meeting or the budget. Authorize the Treasurer to approve expenditures under a certain amount for certain categories of common office expenses that may need to happen between meetings (like under $200, postage or office supplies, etc).
d) Other than PayPal fees, do not let expenses be paid from PayPal deposits without going through the Board approval process.
e) Ensure that any independent contractors receive 1099's at year end according to IRS guidelines.
f) In Quickbooks, the P&L Report should be Cash Basis, not Accrual Basis. (Susan Gesting can offer more information about this item)
g) Consider adopting an annual budget so that the Board can contemplate the use of Club monies in a comprehensive way. The budget can also include two or three major goals for the year so that the spending aligns with the priorities of the Club. For instance, if this year's goal is to "increase memberships by 5%" the budget might include $2,500 for advertising in show premiums. This budget could be on the Club's website along with the goals set for the year. This would help the Board answer suggestions and questions by members as they come up. (i.e. "That isn't a priority this year, but we can consider it when we're setting up next year's budget..., etc")
h) Consider changing the language that says the Treasury books shall be "audited" and consider having the books reviewed before transition to the new Treasurer by "the outgoing and incoming President of the Board" or a "Finance Committee appointed by the Board".
Current Section 6.4 - The treasurer shall collect and disperse disburse all Club funds as directed by the Board. The Treasurer shall keep complete and accurate accounts of all Club funds. A report shall be given at every meeting of the condition of the Club's finances and every item of receipt or payment not before reported; and at the Annual Meeting. The Treasurer shall keep and retain all receipts, vouchers or evidence of disbursement as necessary. The Treasurer shall be responsible to supply the Secretary a back up of Records quarterly. He/she shall prepare a year end statement at the end of the Club's fiscal year for presentation to the Board and the general membership He/she shall deposit all Club funds in an institution approved by the Board in the name of and to the credit of the Club. All disbursements come from our Treasurer and only our Treasurer, and the Treasurer is required to get prior Board approval for any expense over $100 or for anything not directly related to registration certificates, processing fee, and/or office supplies, no matter what the amount is for. All disbursements shall be made by check signed by the Treasurer. Those of $1,500 or more shall also be signed by a Board member. The board of directors has the right, by quorum vote, to request additional copies of records as needed. The books shall at all times be open to inspection by the Board. The Treasury books shall be audited at the end of every term or upon replacement of a Treasurer.
3. CASH RECEIPTS & TREASURY
a) Currently the new process of holding checks for two weeks before paperwork is transmitted to the Registrar is a control that was set to avoid registrations from being processed prior to discovering that checks haven't cleared. However, this can slow paperwork for a lot of people who have never bounced a check. Other ways to possibly address the risk of check losses: send paperwork through to Registrar sooner, but have other controls in place like stiffer fees; have the Registrar complete, but not release paperwork until the time limit has passed from day of banking, bank more often; consider loss of ability to take checks from the person in the future; loss of membership or ability to register in the future unless all fees are paid up with penalties for NSF checks, etc.
b) Maintain a clear procedure where the monies are received and recorded by someone removed from providing services. This means the person recording the money received should not be able to issue membership or registration services.
c) Reduce the amount of money in the checking account by setting aside reserves that the Board designates for certain purposes in their Financial Policies & Procedures. Determine what are appropriate investments for Club's reserve funds, and include in the Financial Policy.
d) Encourage the use of PayPal or other electronic methods available for transactions. Could promote PayPal on the website.
4. REGISTRY & OTHER RECOMMENDATIONS
During the course of this review, the Committee has asked a lot of questions and touched on things that are not only financial in nature. The Committee realized, after trying to tie out the Registrar's records to cash deposits, that issues with storing the paperwork supporting each registration, problems with the consistency of names and numbers used within the database, and the possible lack of completion of the electronic registry work present one of the bigger risks to the organization. We believe that it should be a top priority of the Board right now to ensure our registry is:
- Accurate and complete
- Protected from errors and omissions in entry by good policies that include second party review
- Secured electronically by appropriate remote backup and redundancy
- Developed and maintained with the goal of making it one day accessible to those members who are doing research
We strongly recommend that the Club use some of the one-time cash resources we've received from this registration change to move to AKC to ensure that the registry is safeguarded. We believe that the work needed to complete this is too much to expect from one or two volunteers and cannot be performed by a multitude of people, so it should be compensated work. The Club should also consider funding technology that makes this possible.
b) FUTURE REVIEWS & FOLLOW-UP
There are several important changes and procedures that require follow-through in order to assure the Club maintains appropriate internal controls. The Board should consider actions they will take to make sure of the following:
- Who and how will they ensure that the registry changes and additions are reviewed per policy and maintained accurately along with the supporting documents?
- How can the Club ensure that the AKC records of our dogs tie to our own database and when does it become not the problem of the Club?
- How do you set up for transition in the officers of the Club, especially the Treasurer? How can you maintain a depository address with proper controls without having to move it as the Treasurer changes?
- How do you ensure ownership of and security over the Registry, the documentation, and the Treasury monies?
The Treasury Committee greatly appreciates the commitment of time on the part of the Registrar, the Treasurer, and the Secretary to provide the documentation and discussion we needed to review the transactions of the Club. We have a great appreciation for how hard these few individuals have worked to position this Club where we can be a strong parent club for our breed. The time and commitment it took, especially for those who volunteer their time, is way beyond what we generally expect from members. The feedback we've provided herein is not intended to focus on errors or omissions by this small crew of dedicated individuals. We hope that our assessment and recommendations will help the Board focus resources on assisting these workers in completing the work that they know better than we do how to accomplish. We greatly appreciate the patience of the Board that allowed us the time to do a comprehensive review and return this report. We are available to answer questions at the Board's pleasure.
The MASCUSA Treasury Review Committee
Susan Gesting, Kim Johnson, & Colleen Storms