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
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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
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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
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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
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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
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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
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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