GREENBELT INTERNET ACCESS COOPERATIVE

1999 Audit Committee Report April 12, 2000


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OBJECTIVES OF THE 1999 AUDIT

- To verify Member Journal balances. - To compare payments received to bank deposits. - To verify all disbursements. - To evaluate GIAC record-keeping and procedures.


SUMMARY REPORT

All objectives of the 1999 audit were met. The financial records of GIAC for 1999 were found to be in good order. There were some minor errors and oversights. They have been corrected. We recommend some changes in record keeping procedures to improve internal control. These are discussed in the detailed report.

The committee as originally constituted had no accounting experience among its members. In response to our appeal to the membership for volunteer help in this area, we had the extreme good fortune to get a CPA to help us. Her presence has been of enormous value to the cooperative. She reviewed our operations with an independent eye and her recommendations, several of which are already in effect, are included as part of this report.


DETAILED REPORT

Description of Operations

During 1999 GIAC was served by three Treasurers and two different accounting systems. The major change took place in June when we simultaneously changed ISPs, Treasurers, and accounting systems. The 1998 audit was completed about the same time. As a result of the changes in Treasurers and accounting systems, coupled with the delay in completion of the 1998 audit, the 1998 auditors extended their examination to include the first half of 1999. This has complicated our examination somewhat, but in the long run has also made it easier in that most of the errors we have discovered have already been corrected.

Chris Morris handled the bookkeeping until 1 June. From January to June, the ISP was SigmaNet. Chris paid them. From June to December, Nancy Allen (briefly), then Neil McLeod, kept the books. Neil acted as "default bookkeeper" until the outsourcing arrangement with CENTER Enterprises (i.e., Accounts Manager role) began after the Special Membership Meeting on August 10, 1999. Chesapeake became the ISP on June 1. Peggy Bates became the Treasurer in August. The System Administrator (Neil) has been delegated the Secretary's responsibility for maintaining the membership records. It has been thus since the beginning of the Co-op. From June on, the tasks of computing the ISP invoices and collecting member payments were covered first by the "default treasurer/bookkeeper" (Neil), then later by the outsourcing arrangement with CENTER Enterprises (also Neil).

Available Records

- Bank statements - Cancelled checks - Quicken accounts - as received from mid-1999. Prior records reconstructed from (a) Lotus records from beginning of Co-op, (b) paper records (General Ledger reports and some backup documents) were provided by Chris Morris (Treasurer from July, 1997, through June, 1999). - The paper records - during the committee's deliberations, self-generated invoices were provided for the period January-July, 1999, using Chris's hand calculations and e-mails, membership rosters, and ISP work orders. - Work orders - Receipts for payables (i.e., expense claims) - Prior tax returns - Membership rosters - Extra webspace source documents

What We Checked and What We Found

- Payments to ISPs & CENTER Enterprises vs. membership and services. In order to audit the payments made to the ISPs, it was necessary to reconstruct the accounts as seen from the point of view of the ISP. This was done by taking the service status of each account as given by our books at the beginning of 1999 and applying the work orders (records of which exist since the beginning of the Co-op), month by month, to each account to get the status of that account as billed by the ISP.

SUMMARY: SigmaNet Network Corporation (ISP service)

Date of Amount Amount Month Check Paid Owed Diff Comments ------------------------------------------------------------------------------------------------------------------------------------------ Jan 12/31/98 $617.50 $617.50 $0.00 Account ##### was a deletion, not a suspension. This is an important distinction because the mislabeling leads to an error in the February accounting. Feb 02/11/99 $695.00 $685.50 $9.50 Difference in count of number of accounts. Chris's notes indicate 71 accounts (the "2" in "72" was overwritten with a "1"). But he used 72 in the calculation. Mar 03/11/99 $685.50 $657.00 $28.50 Account #####, ##### & ##### were included in the February payment. They were paid again in March as late starts in February. Apr 04/15/99 $628.50 $628.50 $0.00 May 05/13/99 $600.00 $600.00 $0.00 ------------------------------------------------------------------------------------------------------------------------------------------ Conclusion: SigmaNet was overpaid $38.00 in 1999. This money is not recoverable. The contract was cancelled at the end of May.

Observation: The Treasurer was in the habit of paying late and including in that payment all actions which occurred up to the date of the check (and in some cases beyond). This bit him when in one month he included as late starts accounts which had already been paid for.

SUMMARY: Chesapeake Online (ISP service)

Date of Amount Amount Month Check Paid Owed Diff Comments ------------------------------------------------------------------------------------------------------------------------------------------ Jun 06/02/99 $680.00 $665.00 $15.00 Paid $2.00 per extra mailbox. Charge is $1.50. Overpaid $5.00 on mailboxes. There was no deduction for the suspension of account #####. $10.00 overcharge. Jul 07/03/99 $549.50 $545.00 $4.50 Overcharged for extra websites (3). Aug 08/04/99 $635.00 $633.50 $1.50 Charged for webspace on suspended account. Credit was claimed here for June mailbox error ($5.00) and July website overcharge ($4.50). Sep 09/01/99 $591.50 $580.00 $11.50 $1.50 extra webspace charge for suspended account. $10.00 late August suspension not credited (#####). Oct 10/02/99 $547.00 $547.00 $0.00 Credits were taken here for the August & September webspace overcharges. Nov 11/01/99 $555.00 $555.00 $0.00 Credit was claimed here for $10.00 August suspension not credited in September (#####). Dec 12/01/99 $536.50 $536.50 $0.00 Jan 12/31/99 $536.50 $536.50 $0.00 ------------------------------------------------------------------------------------------------------------------------------------------ Conclusion: There was a $10.00 overpayment to Chesapeake in 1999. Failure to credit $10.00 for suspension of Account ##### 06/01/99. All other overpayments were subsequently credited.

SUMMARY: CENTER Enterprises (bookkeeping contract)

Date Computation Due Paid Diff ------------------------------------------------------------------------------------------------------------------------------------------ 08/17/99 59 accts @ $4 = $236 + $5 reactivation fee = $241 $241 09/01/99 57 accts @ $4 = $228 - $5 reactivation fee = $223 $259 $36 10/02/99 55 accts @ $4 = $220 $224 $4 11/01/99 54 accts @ $4 = $216 $220 $4 12/01/99 53 accts @ $4 = $212 $212 12/31/99 54 accts @ $4 = $216 $216 ------------------------------------------------------------------------------------------------------------------------------------------ Analysis: Charges had been made for reactivation of suspended accounts, but no deductions were taken when the accounts were suspended. So suspended accounts (which were counted as connection accounts) were paid for twice. Total overpayments $44.00. Corrected as of 04/01/00.

- Expenditures vs. invoices and reimbursement requests. No errors found.

- Membership payments vs. deposits in bank. We compared the bank deposits (which list all member checks) with journal accounts to be sure all payments were credited to Members. We found four errors, which were pre-June 1999, all of which were found and corrected by the extended 1998 audit. We found one other case where the member account had not been credited, and this has been corrected.

- Membership accounts in detail - VIP credits, suspensions and reinstatements, monthly payments vs. services received, movement of money to and from reserves, final payments to outgoing members, expense claims and reimbursements. We found one case where a member had resigned (and received the return of his member allocation) but was still carried as an active member. We also found one account whose membership allocation had not been transferred to reserves. Both of these oversights have been corrected.

- Systematic random sample of 10% of member accounts (to get a detailed audit), plus [a detailed review of] all board members and officers. Errors found and corrected: - We verified the checking account to see that each member received the payment listed in the journal. We noted the following anomalies: - One over-reimbursement for $10.00 (Account #####). Also caught in 1998 audit. - One over-reimbursement for $3.00 (Account #####). Also caught in 1998 audit. - We reviewed the "other money issues" raised in the 1998 audit and found that all but two had been resolved. Account numbers ##### and ##### had received excessive refunds of $10.00 and $3.00, respectively. Letters have not been sent requesting return of the excess payment. - We reviewed the recommendations made in the 1998 audit with respect to inactive accounts. Some of these recommendations had been resolved but the bulk of them were unaddressed. We divided these accounts into three categories: - Inactive but has signified a (documented) intent to remain in the Co-op (5 accounts). - Stated (oral) intention to remain in the Co-op but no documentation (1 account). - Inactive but intention unknown (12 accounts). We believe no action is need for the first group. A letter should be sent to the second two groups informing them that they are due a refund if they resign from the Co-op and asking them to sign and return the letter if they wish to remain in the Co-op. - We compared the bank deposits (which list all member checks) with journal accounts to be sure all payments were credited to members. We found four errors that were pre-June 1999, all of which were found and corrected by the extended 1998 audit. We found one other case where the member account had not been credited, and this has been corrected.

- Check registers were verified against bank statements. One anomaly was found. Check number 331 to Mr. #### on September 1, 1999, was sent to him as a resigning member. Mr. #### has not cashed his check.

- The VIP credits in member accounts were checked and found to be in order.

- Assets - Tangible Assets - GREENBELT.COM banner (and storage tube). Donated to GIAC by Neil McLeod. Location: Gilbert Lee, 2 Greenknolls Place, Greenbelt, MD 20770. Condition: Both banner and tube are in good condition. - GREENBELT.COM polo shirts. Many shirts were purchased in small lots. All were sold. - Intangible Assets - GREENBELT.COM domain name.


CPA RECOMMENDATIONS

Mary Halford's review of the record-keeping procedures revealed two major failures of internal control: one person responsible for too many things and a lack of written procedures. Neil has pointed out that the written procedures exist; but over the years it has not been possible to find enough people to fill all the functions. As a result, they have devolved to a precious few. Mary recommended the following procedures:

Internal Controls

One of the most important things an organization can do insure its success is to set up a good internal control system. Such a system insures that the goals of the organization are understood and carried out by everyone involved. The major elements of an internal control plan are written procedures, division of duties well trained members, and the use of appropriate mechanical and physical devices.

In a volunteer organization such as this one, where tasks can be expected to change hands frequently, detailed instructions for the various officers and committees ensure that important information is not overlooked or misunderstood, as often happens with verbal instructions.

A division of duties serves three purposes: it prevents any one member from becoming overburdened; it provides a check on the accuracy of the records; and, by separating the custody of the assets of the organization from the record-keeping, reduces the already unlikely possibility of a member appropriating the organization's assets.

Training the members is essential. They must have copies of the written procedures, understand the need for them and be able to follow them.

The final element, physical & mechanical devices, includes the use of numbered checks and invoices, secure storage for assets and records, and backup of any computer records or programs used.

Duties

As applied to GIAC, four members are needed: the treasurer, the bookkeeper, the system administrator and the membership administrator.

The treasurer should: - Collect and sort the mail at least weekly: - Payments received should be deposited in the bank, and a list of payments received and deposited given to the bookkeeper and membership director. - Applications for membership should be given to the membership director. - Bills should be given to the bookkeeper. - Other correspondence should be given to the president (mail addressed to "Occupant" may be discarded). - Sign and mail all checks after reviewing supporting documents (invoices, member resignations, board authorizations). - At least monthly, review the financial and membership reports with the bookkeeper and membership administrator and reconcile any differences. - Sign and mail all tax returns after reviewing them with the preparer.

The bookkeeper should: - Enter into the accounting program all payments received and made. - Prepare checks for the payment of bills (for the review and signature of the treasurer). - Prepare checks for the refund of member equity upon notice from the membership administrator that the member has resigned (for the review and signature of the treasurer). - Reconcile the bank account. - Notify the Membership Administrator of delinquent members. - At least monthly, prepare an Income Statement, Statement of Members' Equity and Balance Sheet. - At least monthly, provide the treasurer with backup disks. - Prepare the tax returns.

The membership director should: - Maintain a list of all active members. - Notify the system administrator and bookkeeper when new members are added, old ones dropped or new services requested (work orders). - Notify delinquent members that service is to be terminated.

The system administrator should: - Notify the ISP of changes in service (via work orders). - At least monthly, either verify the accuracy of the ISP's invoice or prepare one and give it to the bookkeeper.


ADJUSTING TO REALITY

The organization is so strapped for volunteers that compromises with the ideal have been necessary. We have only two volunteers to perform the functions of the four recommended positions, and the responsibilities are divided in the following ways:

The treasurer/bookkeeper should: - At least monthly, review the financial and membership reports with the bookkeeper and membership administrator and reconcile any differences. - Enter into the accounting program all payments received and made. - Prepare, sign & mail checks for the payment of bills. - Retain documentation for all money disbursed. - Prepare checks for the refund of member equity upon notice from the membership administrator that the member has resigned. - Reconcile the bank account. - Notify the Membership Administrator of delinquent members. - At least monthly, prepare an Income Statement, Statement of Members' Equity and Balance Sheet. - At least monthly, provide the System Administrator with backup disks. (The purpose of this is to have backup disks in two different locations.) - Prepare (or have prepared), sign and mail the tax returns.

The system administrator/membership director should: - Collect and sort the mail at least weekly: - Payments received should be deposited in the bank, and a list of payments received and deposited given to the bookkeeper. - Applications for membership should be processed. - Bills should be given to the bookkeeper. - Other correspondence should be given to the president (mail addressed to "Occupant" may be discarded). - Maintain a list of all active members. - Notify the bookkeeper when new members are added, old ones dropped or new services requested (work orders). - Notify delinquent members that service is to be terminated. - Notify the ISP of changes in service (work orders). - At least monthly, either verify the accuracy of the ISP's invoice or prepare one and give it to the bookkeeper.


CHART OF ACCOUNTS

Mary Halford and Peggy reviewed the current accounting methodology and procedures. During this review, they developed recommendations for a new chart of accounts and procedures. Neil McLeod modified and is implementing them in the current accounting files. These do not reflect the procedures extant during 1999. They are the outcome of the fourth objective of the 1999 audit. The chart of accounts continues to evolve to accommodate transactions Neil is transcribing from historical financial records.

Assets: 111 Petty Cash 112 Bank of America Checking Account 130 Supplies (stamps, envelopes, membersip forms) 140 Inventory (in case we do shirts again) 150 Tangible Assets (the banner, the books, software, portable file) 151 Accumulated Depreciation -- Tangible Assets 160 Intangible Assets (did we pay to register the logo?) Liabilities: 211 Unearned Member Fees 212 Accounts Payable (just in case) Equity: 310 Member's Equity (membership fee) 311 Donated Member's Equity (donated fees from resigned members) 312 Retained Earnings (what you have been calling surplus) Revenue: 410 Member Service Fees 420 Sales Expenses: 510 Internet Service Provider Expense 520 Cost of Goods Sold (in case we do shirts again) 530 Accounting Expense 540 Supplies Expense (stamps, envelopes, etc., after we have used them) 550 Postal Expense (for the Post office Box) 560 Depreciation Expense (nothing lasts forever) 570 Tax Expense 580 Miscellaneous Expense


ACCOUNTING METHOD

Mary Halford recommended a change to our bookkeeping system which will save us money on income taxes: change from a cash basis to accrual basis. This will enable us to accept advance payments for services without their becoming an income tax liability. Mary and Peggy are working on accomplishing this.


UPGRADE OF FINANCIAL RECORDS

Neil completed the task of transcribing and categorizing all historical transactions into Quicken before passing the files to Peggy. The only tasks remaining (and which will be reported in the third and final portion of the 1998 Audit Report) are the reconstructed hardcopy backups of deposit splits and ISP payments for years prior to 1999.


Respectfully submitted,

Jim Bates, Chairman Gilbert Lee, GIAC President Peggy Bates, GIAC Treasurer Mary Camp, GIAC Vice President Mary Halford, CPA April 12, 2000