2006-01-28 Audit Committee Report

 

 

Report to the PNB

 

Since the Audit Committee Chair is an outgoing Director from KPFK, she has asked that the committee's report be delivered by a current Director from that station.

 

Several members of the Audit Committee have reviewed the draft audit report from Ross Wisdom, Pacifica's independent auditor, but the committee has not met to publicly discuss this draft.  Following are the recommendations of the Audit Committee Chair, initially distributed to committee members and subsequently incorporating any
comments, suggestions, objections, or corrections received in response to that distribution.

 

Following are the audit committee recommendations.

 

1. First we want to congratulate Mr. Wisdom for complying with our earlier recommendation to write notes specific to expense.  The notes were more informative in '05 than the previous year of '04.  We ask Mr. Wisdom however to number the note to the specific item to make the report easier to read.  E.g., note 8 relate to the Katrina expense shown in the "Statement of Activities", page 6 but the expense does not notate Note 8.  Including a reference to Note 8 on the "Statement of Activities" would make for easier interpretation.
2. The audit committee recommends that Pacifica continue to look at large expense items to determine if they may be reduced.  For example, our Employee Benefits of $1,055,812 include health benefits which (we are told) cost the Foundation $700/$800 per month per employee.  Might Pacifica combine with other media groups to obtain a lower rate?  The former chair of the audit committee is a Federal retiree who pays $84 a month for full coverage with co-pays for office visits and medicine.  While it is not known how much the federal government pays for this retiree, it may be worth Pacifica's while to look at this expense and other expenses which appear to be overly costly.
3. Our independent auditor, Ross Wisdom, was paid $81,652 for work done in 2004.  The audit committee recommends that the finance committee review Mr. Wisdom's hours, rate and scope of work to determine if the charges are reasonable.
4. The notes on "intangible assets" and "contributions" indicate the year 2004.  Is this correct or did the auditor mean ‘2005'?
5. Note 1 "Concentration of Credit Risk" addresses funds in banks which exceed the FDIC insurance guarantee of $100,000 per account. The audit committee recommends that Pacifica investigate ways to ensure that its funds are adequately protected and earn the highest yield possible under restrictions for a non-profit.
6. Note 8 "Temporarily Restricted Contributions - Katrina Relief Fund" addresses the KPFK on-air fundraising activities which raised $111,349 from listeners for Katrina Hurricane Relief efforts.  The audit committee recommends that the PNB issue a letter of appreciation to KPFK and its GM, Eva Georgia for distributing $100,000 to 501© (3) public charities for Katrina disaster relief.  To this end, we offer the following motion.

 

"RESOLVED, that the Pacifica National Board congratulates the staff, management, and volunteers of KPFK for their superior work in the Katrina Hurricane Relief effort, and thanks the listeners of KPFK for their support in this service to Gulf Coast communities. The PNB further commends KPFK General Manager Eva Georgia for her timely distribution of $100,000 raised in this emergency project to various
public charities positioned to provide urgently needed Katrina disaster relief."

 

1. Note 9 "Grant Revenue" shows that the Corporation for Public Broadcasting has provided funding to Pacifica of $1,739,282 through September 30, 2006.  In light of the CFO's remarks which warned the PNB that we may lose this level of CPB funding if the Board, staff and audience of the stations fall below a 50% threshold for participation by minorities, the audit committee that the PNB form a task force to look at CPB requirements for various funding levels to ensure optimal compliance -- and if compliance will not be met, propose methods to bring minority participation up to desired levels.
2. Note 11.  The audit report fails to report on rent of premises.  Since this is an issue with WBAI, the audit committee recommends that the audit report include a note to detail rental amount and terms.  The audit report reports on "studio rent" but it's not known if this is rent for premises.  In addition, the audit committee recommends that the note on "studio rent" detail terms such as length of lease and amount.
3. Note 11.  Equipment Financing.  The audit report reports on remote broadcasting equipment financed at an APR of 16% for 3 years.  The audit committee recommends that the PNB direct the CFO to attempt to negotiate a lower interest rate.
4. Note 12.  "Pended Legal Matters".   The audit committee recommends that the PNB be given enough information to be able to determine if "pended legal matters" are (as management believes) "without merit" and "will not have a material effect ...  to the financial position" of the foundation.
5. Note 13.  "Central Services".  The audit committee recommends that allocation factors and their computation be reported for central services.

 

Matters Not Completed by the 2005 Audit Committee.

 

"Interdivisional Reconciliation" and "Interdivisional Outline Reconciliation"

 

• "Interdivisional Reconciliation" and "Interdivisional Outline Reconciliation", August 23, 2004 PNB Motion 43.  Motion 43 requested Pacifica's independent auditor Ross Wisdom audit inter-unit transfers beyond those for central services since January 1, 2002.  Before Mr. Wisdom began the audit, Accountant Alvin Yip put the schedules together.  This work was done in an estimated 270 hours.  If Mr. Wisdom had put the schedules together, it would have cost the foundation about $54,000 (Ross charges about $200 per hour for his non-profit rate).

 

• As reported at the PNB meeting in Houston in October 2005, Mr. Wisdom is willing to do a limited review (with a written report) of Mr. Yip's work following certain procedures but issue no comment on the reasonableness, allowability and allocability of the expenses.  This work is estimated to cost anywhere from $5,000 to $10,000.  Mr. Wisdom would test transactions and apply audit procedures and if he were to change anything he would follow through with an explanation.

 

• The audit committee asked the controller not to commit to Mr. Wisdom's proposal at this time.

 

• A member of the national finance committee requested the audit committee look at source documents for the interdivisional transfers.  The Houston October PNB authorized a member of the national finance committee and the chair of the audit committee to go to Berkeley to look at these documents.  However, the chair of the audit committee no longer sits on the PNB; therefore, if the PNB still desires the former chair of the audit committee to review these documents, new arrangements need to be made with her as a consultant to the PNB.

 

Cost of the Independent Auditor

 

A duty of the audit committee is to decide if the outside auditor is suitable for the organization.  While the committee is generally satisfied with the work of the firm currently used, the committee feels that this firm's rate of $200 an hour may be too high for a non-profit entity. 

 

The audit committee would like to compare rates and duties to see if Ross' rates are reasonable for a non-profit entity and to see if Pacifica could attract a qualified CPA with experience in auditing public broadcast radio or television stations at a lower rate.  If we
cannot get competitive bids for free, the audit committee will ask the PNB to authorize funds to do this review.

 

 

New Matters

 

• WPFW 2005 PNB member Rob Robinson graciously wrote a draft on organizing audit committee duties and responsibilities.  We suggest the incoming audit committee consider this draft.  Please contact former chair, Director D. Warren for a copy of the draft.

 

• The PNB should elect new members to the audit committee so the work of this important committee can continue.  However, the Audit Committee has experienced several quorum failures at scheduled meetings this past year, so asks Directors and Delegates not to join this committee if they will not be able to attend a monthly teleconference.

 

PROPOSED MOTIONS (requiring a maker and a second).

1. RESOLVED, That this Audit Committee Report shall be sent to Pacifica's Auditor for that firm's consideration in finalizing its draft audit of the Foundation for the fiscal year ended September 30, 2005.

2. RESOLVED, That Pacifica should investigate reducing employee benefit costs through partnering with other media groups.  (Motion may be immediately referred to the Finance Committee.)

3. RESOLVED, That the hours, rate, and scope of work of the independent auditor shall be reviewed to determine if the charges are reasonable.  (Motion may be immediately referred to the Finance Committee.)

5. RESOLVED, That Pacifica shall investigate ways to ensure that its funds are adequately protected and earn the highest yield possible under restrictions for a non-profit, and that Foundation management shall report its progress on this concern to the PNB Finance Committee.

6. RESOLVED, That the Pacifica National Board congratulates the staff, management, and volunteers of KPFK for their superior work in the Katrina Hurricane Relief effort. The PNB further commends KPFK General Manager Eva Georgia for the timely distribution of $100,000 raised in this effort to various public charities for Katrina disaster relief.

7. RESOLVED, That a special workgroup of the PNB shall immediately be established by appointment of the Chair, that the name of this workgroup shall be the CPB Minority Funding Workgroup, and that the purpose of this workgroup shall be to examine CPB requirements for various funding levels, to evaluate and report on whether or not
Pacifica's current funding level has been jeopardized by recent changes in the demographics of the Board, staff, and audience, and to propose methods to bring minority participation up to desired levels if it has fallen.  FUTHER RESOLVED, that the CPB Minority Funding Workgroup may consult with the Committee of Inclusion in preparing its recommendations to the Board.

8. RESOLVED, That the CFO shall attempt to negotiate a lower interest rate on the current financing of remote broadcasting equipment.

Respectfully submitted by Donna J. Warren, Chair pro tem of the 2005 Audit Committee

January 2006