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CPAs Help! - Club by-laws language

Discussion in 'Uncategorized Threads' started by dmarbell, May 11, 2008.

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  1. dmarbell

    dmarbell Active Member

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    Subject should have included "OT."

    Our club is amending it's by-laws. One change is in the language regarding the duties and responsibilities of the Treasurer. This is the new sentence added.

    "He shall cause an annual examination of the Corporation’s books to be
    made by a certified public accountant at the completion of each
    fiscal year and such other times as may be required by the Board of
    Directors."

    I seem to recall that CPAs now have three levels of service regarding financial statements: compilations, reviews and audits. The only wording I can find regarding examinations involves examinations of prospective financial statements.

    I feel that the word "examination" has no exact meaning in the CPA world, regarding financial statement services by a CPA. The closest level of service would seem to be audit. We absolutely do not need an annual audit.

    Am I over reacting? Is this wording of "examination" ok? Can a CPA accept this engagement, and interpret "examination" as meaning limited procedures?

    Danny
     
  2. missemucho

    missemucho Member

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    Our constitution reads: "During January of each year, a FINANCIAL REVIEW by a local public accounting firm will be conducted of the previous years business transactions. A report of the results of this review will be presented to the membership at the first opportunity."

    An audit would be much be more expensive, based on our club size (600 members).
    And fortunately our new treasure is a retired accountant for a large firm, so he keeps us on the straight and narrow!
    John
     
  3. g7777777

    g7777777 TS Supporters TS Supporters

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    thats a big expense you might be adding

    its easy to add words but make sure you know what you are doing and why you think you need to do it

    If it isnt a profit making enterprise for the investors or shareholders- why are you doing it?

    regards from Iowa

    Gene
     
  4. dmarbell

    dmarbell Active Member

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    Clarification.

    We do not need or want an audit. The board specifically wants to avoid an audit.

    The issue is whether "examination" has any meaning for today's levels of CPA financial statement services. I feel examination is an outdated term. I don't believe a CPA can produce an engagement letter using examination as a level of service for financial statements (except in the case of examining projects, which are prospective financial statements).

    Danny
     
  5. Neil Winston

    Neil Winston Well-Known Member

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    A review would be fine, but it depends on how much money is passing through the club since even a review can run into $$. There's no point is spending a lot of money if there isn't much of it involved. Maybe you can contract with a CPA for the equivalent of a "second opinion."

    Neil
     
  6. Fast Oil

    Fast Oil TS Member

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    Danny, how about this:

    Audit Commmittee. The President will appoint three (3) qualified members, who must be approved by the BOD to audit the books of the corporation. This committe will furnish an audit report with a financial statement, P&L statement and recommend any changes that could improve the financial position of the club. This audit report must be presented at the (fill in) meeting of BOD.

    Scott
     
  7. halfmile

    halfmile Well-Known Member

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    Not wanting an audit is a little smelly in my opinion. We have an annual audit, but not specifically by a CPA. We have a retired state tax auditor, and a retired accountant in our membership of 600. There may be others but we get the audit done by these folks for free.

    If you think there is some jiggery-pokery going on in the treasury, you probably need a CPA. This will not necessarily uncover certain anomalies if outside help is cooperating in fraud.

    I recall an instance where a board member was getting bills for machine parts from a target supplier, but instead of machine parts targets were being sent.
    The crook (long since gone) would throw the targets and pocket the money.

    The very nature of gun clubs creates opportunities for the unscrupulous, and plugging those holes before they are taken advantage of is necessary for survival.

    Forewarned is forearmed.

    HM
     
  8. Big Heap

    Big Heap TS Member

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    "Danny, how about this:

    Audit Commmittee"

    That should do it.
     
  9. School Teacher

    School Teacher Well-Known Member

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    A few comments …


    The Board of Directors, not the Treasurer, should be responsible for conducting an annual audit (or review) of the Treasurer’s activities.


    My understanding is that the Club President, along with the Treasurer, has to sign the tax return so it is in the president’s personal interest that the tax return is correct.


    The Treasurer should be responsible for properly recording all transactions, maintaining accurate records, preparing periodic financial reports and developing and maintaining adequate controls and safeguards over the clubs financial assets.


    The Treasurer should provide a monthly report to the Board listing revenue collected, expenses paid, cash on hand and other relevant items.


    An audit for the purpose of detecting fraud or other improprieties would need to be detailed and could be expensive. Audits generally provide “reasonable assurance” that the financial statements “present fairly” the financial position (Balance Sheet) and results of operations (Profit and Loss or Income Statement) of an entity.


    Something that I have seen work reasonably well is for the board to appoint a small committee of members to annually review the treasurer’s activities and to perform an independent reconciliation of the club’s bank accounts.


    Reasonable controls such as having an annual budget and dual signatures on checks over a certain dollar amount are essential. Separation of duties in small clubs is sometimes difficult.


    If your club has a large annual income and this issue is of significant concern, the club should consider engaging a CPA to review its current accounting and cash handling practices and make recommendations.




    Ed Ward
     
  10. C1

    C1 Member

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    Whatever you do, have SOMETHING, a review is usually ok but if I were Tresurer I would want an Audit at least every 5 or 10 years. It just keeps the most honest of people, honest, and the rest of the membership at ease.

    I was on the BOD of the local GC and I wish I had insisted on an audit after the tresurer had been at that post for a long time. At the time I wanted to trust and that didn't work out well for anyone.

    Gary Riecke
     
  11. dmarbell

    dmarbell Active Member

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    Thanks all for the responses. This is not the kind of help I am looking for.

    I need help from CPAs who know about the three levels of service provided by CPAs for financial statements: compilations, reviews and audits.

    I think the language using the word "examination" is incorrect in our by-laws, and cannot possibly be complied with. I think that "examination" would be interpreted, if any interpretation is possible, as audit.

    Please don't comment on whether we need an audit vs. review vs. compilation.

    The language I have suggested is "......compilation on a tax-basis of financial information for completion of the club's tax return filing." Any irregularities noted would be reported. Even audits cannot assure that irregularities or fraud would be detected.

    Danny
     
  12. School Teacher

    School Teacher Well-Known Member

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    Dmarbell:

    Your recommended language does not make sense. “Basis” relates to when income and expense are recognized and is typically “cash”, “accrual” or “modified accrual.” Larger entities often have separate sets of books for financial and tax reporting to allow for different methods of depreciation and other differences between tax reporting and financial reporting.

    When a CPA performs an audit, the CPA issues an audit report which contains an opinion of the CPA of the financial statements that the CPA has audited. Management prepares the financial statements and the CPA performs an audit for the purpose of expressing an opinion. This audit is not intended to detect minor fraud or provide assurance that minor fraud has not occurred. The audit report is typically used to provide assurance to a third party such as stockholders or a creditor that the financial statements are materially accurate, that accepted accounting principles are used and that the financial practices of the company are consistent with prior periods. Other factors such as collectability of receivables, currentness of inventory, possible adverse legal action and other factors come into play. Audits, especially first time audits, can be expensive.

    A compilation is where the CPA assists a company in preparing financial statements. CPA’s charge by the hour so hiring a CPA to summarize a large box full of year’s transactions can be expensive. Again, the CPA can only summarize what he is given and there is typically no assurance that fraud has not occurred.

    A review is when a CPA conducts a targeted study of some aspect of a firm’s operations and makes recommendations for improvements. A CPA may review the collectability of receivables, currentness of inventory, investment of cash not required for daily operations, replacement of equipment and any number of things.

    A good starting point might be to engage a CPA who practices in the area of non-profit corporations (which most clubs are) and have him answer your questions.

    The bottom line is that the Board of Directors is responsible for ensuring that the Treasurer is carrying out his duties in a proper manner and that adequate records are being kept.

    A good system of “checks and balances”, called the system of internal control, is essential to ensure security of financial assets and accurate recording and summarizing of a firm’s transactions.

    Ed Ward
     
  13. Jeff P

    Jeff P Well-Known Member

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    Ok...I guess I'm the only CPA up on the boards tonight.

    The 3 levels of 'examinations' have always been compilation (you get nothing but some financial statements that Quickbooks would print for free. A review is a little bit more in depth...but not much. Basically, the CPA is saying that nothing jumped out at him when he put the statements together. A full blown audit is just that...but even that is not designed to detect fraud. They might find it, but they might not, too.

    What you might be looking for is an "other agreed upon procedure" whereby the CPA will do whatever you want him to. A letter will be generated explaining what he's to do and then he'll do it. The fee could vary wildly, depending on just what you thought you needed and what the hourly rate is, AND HOW GOOD YOUR BOOKS ARE. If you hand over a shopping bag full of receipts and check stubs, get ready to spend money. If you have things shipshape, you'll save a ton.

    So to answer your specific question...examination, in my opinion, leaves it open to the boards discretion as to what they want to do. I'd want to nail that down with more specific language if it were my club. You want someone to make sure the money's going where it's supposed to go. When I did my clubs books, I found out that we were spending over $300 a month on gas for 3 trucks that never left the grounds - when gas was $1.79 a gallon.

    Also in the 'for what its worth' category...my local club does about $800k in revenue annually, with about 1,100 members. My ballpark figure for an audit would be someplace around $9,500. A review might be closer to $7,500 and a compiliation might be in the area of $4k or so...I billed $100/hr when I was in public practice 3 years ago - that's way cheap - and now I'm a controller for a private company. Better money, less hours and travelling.

    Long way to get to the bottom line: see if you have a CPA in your club, and talk to him/her. Or where are you at? You could persuade me to come do it, if you're somplace neat and I can get some shooting in....

    Hit me with a PM if you have questions...hope I helped.

    Jeff Pokorny, CPA
    Alaska License 2132
     
  14. noknock1

    noknock1 Active Member

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    Jeff P.,

    Thanks for the explanation. You cleared up a couple questions of mine. I know in my small suberb town in Indiana a CPA from a reputable LOWER end firm is $175.00 per hour. I didn't bother checking out his competition, LOL!
     
  15. 870

    870 Well-Known Member

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    Edited after I realized you already knew about the topic and that the description of a "review" above by another poster is incorrect.

    As has been stated, the use of the term "examination" is not really accurate, kinda like running into someone that wants "certified" financial statements - it just indicates that the person is not really familar with what a CPA does. That said, the wording you posted is used very often and to me it indicates a situation where they really did intend an audit. Remember, the bylaws may have been written a long time ago, or copied from another set of older by-laws.

    I agree with you that audited financials are probably just a waste of money for you. Having financials prepared on the tax-basis of accounting as you mentioned is also a good idea, since meeting your tax filing burden is probably the first priorty and the additional GAAP requirements really won't mean anything to the members.
     
  16. Jeff P

    Jeff P Well-Known Member

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    noknock1 - Ouch. Man, smaller independant firms up here are getting that much for the partners time, but associates run about $100.

    We only have one big 4 firm up here - KPMG - and they bill their unlicensed guys out about that $175, and I don't even want to speculate what the partners think their time is worth...

    I'm moving south and opening up a practice, LOL.
     
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