New address: 24 Farnsworth Street, Boston, MA 02210-1409.
Rice Room – Eliot & Pickett House
Present: Merck, chair, Reece, Saunders, Smith, Gabert, staff liaison
Absent: Larry Ladd
Also Present: Charbonneau, Rutherford, Einhorn, Crowell
The meeting convened at 9:03 a.m.
Jim Winning from Deloitte & Touche (D&T) joined the meeting to present
D&T’s proposal for auditing services for FY05. Winning has worked
with UUA for the last six years and D&T has audited the UUA for 16 years.
While the UUA is not the largest organization that Winning serves, the UUA is
perhaps the most complex organization given its structure and holdings. Winning
provided information on his experience and provided information on the auditing
team. The proposed team will be unchanged from the previous two years. Fees
would total $97K for the UUA including Current Operations, Congregational Properties
& Loan Commission, and the General Investment Fund and $34K for the Beacon
Press audit. (Fee increase approx. 30%) Increased fees are the result of fee
structure increases as mandated by D&T management due to increases in the
cost of services provided across the board. Reece asked other than the continuity
issues what is the benefit of using D&T given the significant increase in
fees. Winning answered that the familiarity of D&T with UUA’s complex
structure and holdings makes D&T a better candidate because their proposal
probably most accurately reflects the work to be done. Rutherford asked what
would cause the BP fees to more than double. Saunders asked how Winning would
approach the UUA differently than previous years. Winning said one obvious change
would be to get input from the audit committee far earlier than this past year.
Winning would not dramatically change the approach of the audit since previous
years have been fairly successful. He’ll continue to have ongoing communications
with management. Smith asked if there were ways to significantly reduce the
number of hours charged if say Finance took on more work. Winning said that
there were no significant hours that could be reduced and, if we mandated that,
he would not be likely to accept the engagement. Reece asked if D&T were
a new group coming in what would be their big selling point. Winning said D&T
business scope and experience is a big selling point as well as D&T commitment
to providing auditing services to not for profit organizations.
Merck arrived, welcomed everyone to the meeting, and asked for a review of
collective thoughts about the presentation. Saunders gave a brief blessing.
Smith commented that it is more about the actual process of the audit than the
cost per se. Saunders has been frustrated, in the past, with D& T’s
lack of business/best practice recommendations. The group discussed the kind
of recommendations the Association should be looking for. We should look for
the auditors’ views in interest and communications, fee, style, management
letter, dimension and scope and additional services.
Steve Caron and Chris Brathas
KPMG joined the meeting. Caron is a partner in the not for profit sector and
does almost all of his work in non-profit. Brathas is a senior manager and does
all of his work in not-for-profit. Brathas stressed that they have a whole infrastructure
of their section of KPMG dedicated to the non-profit sector. KPGM needs to have
access to the audit committee. Smith asked when the reviewing concurring partner
gets involved. Caron responded that from day one the reviewing partner is involved
and that in some respect it is a parallel process. Both Caron and Brathas deal
with firms with significant (if not larger than BP) publishing sectors. KPMG
has access to another dedicated auditor in charge of publishing that they can
tap if issues come up. Saunders clarified that they will be available on a consulting
basis but they will not be available as part of the team. Caron said that he
did not think this was a major issue because most of BP fell within their own
scope of work. Reece asked how KPMG will get familiar with the processes here
given that they’re new. Brathas said they have several methods including
questioning staff, access to previous auditors’ files, internal memos,
and templates to get up to speed quickly. Reece further asked if part of this
process would involve immediately notifying management if there were irregularities
or oddities in functioning. Caron said absolutely. This is one of the advantages
of periodically changing firms. Caron said the start-up time is part of KPMG’s
time and would not be billable hours. Reece asked about communication protocols
between KPMG and both the audit committee and management. Caron said there were
several ways to handle this but most communications with the Audit committee
will be in the form of a letter to management with management’s response
and timetable for correction. In response to a question from Reece, Caron said
their biggest contribution would likely be in the areas of reporting and internal
controls. Merck asked about the line between auditing and business best practices.
Brathas said their focus is obviously on key business practices and they are
available on a case by case basis. They will draw attention to any issue if
it is noticed. Specific question (Merck) re. Management Letter: would they go
beyond pure audit-related observations? Answer: yes. Example of management relationship
with Beacon Press/knowledge of their financial controls. KPMG pledges to communicate
observations/issues as they go along. Review of timetables: “Get in early
and often.” Response was positive. General reviews were that KPMG would
be a good fit.
Jim Mecone; Joe Mahoney, Alexandra Reagan
Mecone introduced his group which would be part of the auditing team. McGladrey’s
not-for-profit section goes back to 1977. Most of their current clients are
long-term clients. Their proposal includes fees for the services requested while
acknowledging that some services may change or be fluid. Mahoney has experience
within both the non-profit and for profit sectors and will focus on BP. Reagan’s
responsibility would be as a point person between McGladrey and UUA Management.
Her focus has been solely non-profit and clients include UUWF. Mecone listed
the items they would look at, review, and possibly suggest changes in presentation
for some of the information in the audit report. In response to a question from
Saunders, Mecone said that some interest is in the mission. Mecone said he feels
that his group is the most experienced auditing firm in the Boston area. Mahoney
said that anyone can do an audit; it’s a regurgitation of historical data.
Mahoney said the interest, experience, and push is in the management letter.
Reagan stressed their team approach.
Mecone said that while they are the 5th largest accounting firm they have less
than 100 publicly traded companies. It lowers their public profile. The firm
may be national but it is regional / local in feel. Merck asked for some expansion
on Mahoney’s comment on the management letter. Mahoney said that the management
letter can be used as a tool to comment on best practices in comparison to other
businesses. Mecone said there were also levels of communication in the management
letter between required information and general recommendations. Another area
of expertise they are able to bring is a focus on tax issues.
After the reps left, some conversation took place around the presentation.
Reece said that he liked their local focus. Reece however didn’t buy into
their level of passion. Smith said there is a philosophical question as to whether
or not we should be using one of the big four auditing firms. Smith said that
there is this aura of our appearance in the eyes of donors if we don’t
use one of the major auditing firms. However, Smith feels that we’ll get
more attention from a smaller firm because we are a much bigger fish in their
bucket. We’ll be a major client. Merck agreed but he felt their energy
level was not great. Merck likes the reach and depth of KPMG. Reece said that
accessibilities is only one issue. He further said that something to keep in
mind is that we are not a Wall Street firm. Rutherford said that to her the
references are the key item in the determination of a best firm.
Michael Burns, Catherine Latham, Jennifer Ciliberto, David Plant
Gave some background information on the presenters. Burns had previously been
with Grant Thornton. They have experience dealing with foundations with extremely
large endowments including the Archdiocese of Boston. Latham briefed the group
as a corporate auditor in terms of Beacon Press’ operations. Tofias would
utilize a two manager system with Latham dealing with BP and Ciliberto focusing
on the remainder of the UUA. Plant also serves as principal with Harvard, MIT,
and Yale University Press. A large focus of work will be on transparency which
is really key with organizations that do not file taxes. Burns said they are
clear that they work for the audit committee and with the management. There
needs to be open communications between the Audit Committee members and the
audit team. Tofias uses an inverse pyramid in their client interactions. We
can expect to see partners on site frequently. Discussion regarding Tofias’s
ongoing emphasis on not-for-profit business (versus those firms that emphasize
SEC clients). Tofias has 28 partners; 6 are women, none are people of color.
General impression was positive. They had some salient comments and good advice.
They had good knowledge of the UUA already. Smith asked if we are hiring the
people or the firm. There is some concern about their ability to pull in other
areas of knowledge. Smith is concerned about what happens if the whole team
is hit by a truck, who would handle the ongoing work.
John McTiernan, Vincent Luccitelli
The group from Tonneson joined the committee to give their presentation: First
point is to review their firm’s background and capabilities. Want to review
the firm’s ability to provide advice in the not-for-profit arena. Want
to be ahead of the curve, should more regulation come along. Emphasis on continuity;
has strong staff retention. Outline of office: 75 people; 8 shareholders. Local
to this area. Large involvement with various local Jewish groups. They feel
that this is a close match for their skills. They really focus on the firms
they are specializing in and will walk away from a firm which falls outside
their area of expertise. They have dedicated staff to deal with not-for-profits.
They will also thoroughly test for fraud and internal control processes. They
throw in one or two free projects per year for their clients. Such projects
may include a complete scrub of internal control features. They stressed that
there would be involvement at all levels of Tonneson; three of the seven partners
are here today. Saunders asked what intrigues them the most. Tonneson responded
that that would be the endowment and the restricted assets. It is Tonneson’s
role to provide alternatives to business practices (such as Financial Reporting
format) that might better serve the UUA. Reece asked about the methodology to
be used of communicating any issues outside the audit that may come up. There
is a need to format the annual financial statements to make them look like monthly
statements. Reece asked for some information on the makeup of the staff. Approximately
55% are female. One partner is female and most managers are female and approx.
50% of supervisors and staff are female.
Group reconvened. Merck led off the discussion to decide what the next step(s)
should be. First of all, it needs to be determined whether the Audit Committee
is empowered to select the auditors. The Audit Committee is authorized to recommend
to the board the selection of an auditing firm. Smith said that the last group
is solid. He said that their problem is that they were following someone who
was very energetic and that they were the last group of the day. They absolutely
know their business and they are very traditional yet risk taking. Smith said
they are the only firm to define themselves geographically. Einhorn was struck
by the fact that they stressed what they wouldn’t do. Merck said that
Tonneson has some very respectable people. Einhorn feels they are solid.
Reece shared his compilation of ways to assess/rate/rank the alternatives:
1. Comprehensiveness of Services
5. Communications/Relationship Building
6. Best Practices / Mgt/ Letter
7. Cultural Fit
1. Comprehensiveness of Services
5. Communications/Relationship Building
6. Best Practices / Mgt/ Letter
7. Cultural Fit
Merck asked the UUA staff members present to share their views of the audit
firms with the committee members. Rutherford feels that anyone can do the physical
audit. She feels there are certain groups who could provide better one-on-one
service and those tended to be the small groups. Obviously some were better
at talking. She feels that some of them would be more fun to work with and we
would be a bigger fish. Tofias is the best cultural fit. Rutherford feels that
it is very important to get the references done. Tofias, Tonneson, and McGladrey
are the top three. Rutherford feels that it would be neat to do a test (a two
year commitment). Einhorn said that she feels that the firms are in this for
the long run even though we may be looking at this as a test run. Her preferences
for the auditors were Tofias, Tonneson, and then McGladrey, in that order. Charbonneau
raised the point of ‘do we want someone who is such a close match’.
Gabert believes the national footprint is important. KPMG is the best fit as
one of the top four accounting firms with its name recognition and the appearance
of the broader coverage that it gives. He would then say McGladrey and then
either Tofias or Tonneson. Crowell feels that in terms of capacity, KPMG or
McGladery would be best. Style wise, Tofias is number one for him because of
the amount of face time work needed. Tofias with the reservation of being small
and McGladrey or KPMG tied for second. Montgomery said that her main issue is
to have a partner that they can have a close relationship with. Montgomery would
go with Tofias with the understanding that they are a small firm and that the
references would check out. Second choice would be KPMG. She can live with anything
with the exception of Deloitte.
Reece asked if we want to engage Ladd in this conversation. He ranked the firms
on his scale of 0 to 5 for each of the first six points listed above. D&T
was ranked the lowest. McGladery and Tonneson were next lowest. Tofias was his
first choice with KPMG second and Tonneson third. Acknowledging Gabert’s
comments regarding national footprint, Reece really likes KPMG in terms of resources,
resourcefulness, and footprint. Tofias and KPMG are tied with an edge towards
Tofias for the multi-cultural workplace environment.
Saunders’ top two are Tofias and KPMG. The tension he feels between the
two is footprint and resources versus cultural fit and alignment with UU values.
Smith is wrestling with the footprint issue. Our impressions of each firm are
almost immaterial. It’s how we are perceived by the outside UU world.
Big four firms won’t even do business with some firms so going with a
big four gives us an endorsement of sorts. Also, if we go small now maybe we
will not be able to go back to a big four in the future. Organization wise,
KPMG is the clear choice. Tofias on the other hand is that Tofias is a clear
winner in terms of cultural alignment with the UUA. He ranks the firms as KPMG
then Tofias then McGladrey.
Merck feels that Tofias doesn’t serve as a negative but KPMG serves as
a strong positive. Smith feels that this is a matter of packaging. Merck is
leaning towards the polar argument between KPMG and Tofias. KPMG and footprint
along with resources, depth of knowledge, depth in education and not-for-profit
are impressive. He is also drawn to Montgomery’s desire for there to be
a resource that Management can turn to and work with. He’s concerned that
Mike Burns from Tofias serves his firm as more of a marketing resource than
as an operational resource. Merck feels, however, that he would serve as a good
resource to senior management. Merck’s rankings: Tofias, with KPMG a close
Einhorn questioned who really the users of our statements are and thus who
we were serving. Saunders said that we should not look at this as a question
of who we like best but more of what’s in the best interest of the Association
in the long run. Merck said if you look at the two top firms you have to look
at who has the best long term value. Smith asked is there a way to tap both
The meeting adjourned at 4:15 p.m.
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Last updated on Friday, July 22, 2011.
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