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October 12, 2004

Picket & Eliot House – Rice Room

Members Present: Larry Ladd, chair, Ed Merck, Chris Reece, Will Saunders, Darwin Smith

Also Present: Glenn Charbonneau, Florence Einhorn, Lucia Santini-Field, Nancy Gladyszak, Richard Crowell, and Jerry Gabert, Liaison plus Jim Winning and Kathy Davis of Deloitte and Touche.

The meeting convened at 9:06 a.m.

Merck recommended meeting notes meetings be sent out earlier.

MSP: August meeting Minutes approved.

Ladd introduced a conversation regarding conflict of interest policy. Ladd handed out a document detailing the three Unitarian Universalist Association (UUA) conflict of interest policies and a further document of a draft a conflict of interest policy dealing with BOT members applying for or being appointed to staff positions. In the past few years two board members joined the staff. Montgomery joined the meeting to present the administration’s view. Montgomery added that there has been in the past board members who apply for jobs and do not get the position. Montgomery’s goal is to get the most skilled people on the staff. Often time board members represent the skills needed for staff, especially for senior staff. Montgomery asked for the committee members’ view on the topic. Smith has said that other not-for-profit have similar policies. He questioned why there wasn’t symmetry with the policy banning staff members from joining the board during their employment and for a period afterwards. Merck clarified the draft document to mean that a board member would have to resign in order to apply for a position. Ladd’s asking for guidance about if he’s “overreacting”. Saunders pointed out that this is a narrow issue but the broader issue is all the extended issues surrounding conflict of interest. Ladd said that disclosure is the first part of a conflict of interest policy. Saunders feels that while the interplay between staff and board is important it is too narrow. Ladd asked if we should defer until a more global statement is drafted. Merck asked Montgomery to clarify her views. Montgomery said that she feared the situation of asking a board member to resign in order to apply for a position and then not be awarded the position. Merck said that he was comfortable with the allowing a board member under rare circumstances to apply for a position under the understanding that the board member would resign upon accepting the position. Smith suggested that board members take a leave of absence upon applying for a position. Ladd said that this was a good idea although often a position can be posted and filled well within the time frame between board meetings. Saunders recommends that in point two, “ordinarily” be dropped, “should” be changed to “may”, and “further” be also dropped. Saunders feels that this would make it clear that a board member applying for a position must be initiated by the Administration. Santini-Field said that this would give the impression of currying favor.

Santini-Field was pleased with the GIF audit. Santini-Field handed out a sample engagement letter with Boston Trust’s auditors. Santini-Field feels the need for a free standing financial audit of the GIF. We need to make available to congregations the kind of materials that investors want. Santini-Field said that she has received many requests for information from congregations but also significant numbers of requests from individual donors who previously could not make sense of the GIF from the UUA audited financial statements. Santini-Field and Saunders feels that the need is growing for a separate GIF audit. Smith raised the questions of should the UUA be handling other people funds and also should the UUA be the administrator of Donor Advised Funds. These are business issues. Santini-Field said that the GIF is given an allocation for administrative costs. Gabert said that the Investment Committee needs to assume some ownership of the separate statement. Without action the separate GIF statement will not be included in the UUA’s financial statement. Gabert said that one alternative would be to have the GIF section as the final portion of main UUA audited financial package.

Jim Winning and Kathy Davis from Deloitte & Touche joined the meeting to discuss the audit and the UUA’s financial statements. Davis provided a briefing for the committee and noted that the audit was complete. It was conducted in compliance with Generally Accepted Auditing Standards (GAAS) and the financial statements, with an unqualified opinion, will be issued shortly. There were no adjustments. Saunders wanted it to be clear that in some areas the Deloitte materials use the word “management” which is a reference to committees or commissions making the ultimate decision. Some questions were raised about the post-retirement benefits calculations. Ladd clarified that while we use Deloitte for actuarial services this is not a legal conflict of interest because of the nature of the UUA. Winning also highlighted the significant increases both in investments and investment return. Gabert handed out a document that consisted of Deloitte & Touche’s comments and management’s response. Merck said the management response to the Health Insurance Plans comment should be more direct. In their management letter Deloitte recommended the UUA implement a formal fixed asset tracking and accounting software package, which has also been recommended previously. Merck asked if there were other areas that Deloitte & Touche wanted to get into but there wasn’t enough time. Winning said there were no outstanding areas that he felt needed more attention. Conversation took place around the Prudent-Man rule. Merck said we need to pay close attention to the difference between real dollar figures versus projected values. Gabert requested consideration of reformatting the business segments to be more descriptive by replacing the Endowment, Trust and Agency segment in favor of the General Investment Fund. Winning asked if this was a question about adding the GIF as supplementary schedules. Following discussion it was agreed that supplemental schedules for the General Investment Fund could be prepared to present to the Board meeting during the Audit Committee presentation with, at a minimum, the equivalent information that has been presented in the past. Winning stated that it would not be possible to issue the GIF segment as supplementary schedules in a standalone document. Saunders questioned whether or not it was useful to present the audit to the full board rather than to simply present to the finance committee. Ladd said that in terms of governance, it is necessary for the board to review the final audit results and that interest seems to have increased in recent years partially as a result of Sarbanes-Oxley.

UUA staff members left the meeting so a private discussion could take place between the Board appointed Audit Committee members and Deloitte & Touche.

Following a lunch break, committee members toured the Financial Services staff group area at the UUA’s 25 Beacon Street office.

Ladd moved the group to discussing the RFP. Gabert presented a list of potential firms to send the RFP to: KPMG, McGladrey & Pullen, Tonneson, PWCoopers, Tofias, and Deloitte & Touche. Saunders asked for progress made in looking at regional as opposed to national firms. Saunders asked if Ladd, Einhorn, and Gabert could filter the list down to the top three for interviewing. Reece noted that a decision had been made that we couldn’t filter down. How much time do we need to interview? Ladd said that 30 minutes would do. Merck said that the last clause on the first page expressed a concern for selecting a firm that can provide advice to improve our financial systems and financial management capacity and to broaden the scope of the audit. We may want to broaden the language as well. Ladd suggested best practices and other business practices. Saunders said that was covered in point three. Merck said he would also broaden the language to be consistent. Reece noted that in the interest of simplifying the language, the opening paragraph wasn’t as clean as the committee had discussed and he felt it was confusing about what we are asking for. We should consider simply saying: financial statements for the year ending June 30, 2005 and consider clarifying the 2nd paragraph from “also included” to “also consolidated”. Ladd said there needed to be language to express that we’re small yet complex and suggested we bid this out as a consolidated financial statement audit. Then, during our presentation meeting dialogues, we can discuss the potential of having separate reports for Beacon Press and possibly GIF. The committee is committed to making a selection in January. Reece asked that we request written responses by some date in December so they can be distributed to the committee members for review.

Merck left the meeting.

Ladd moved on to the draft charter, which is based on the current charter of the UUA’s Investment Committee. Reece asked for clarification on the language surrounding investigation of perceived or alleged impropriety. Ladd clarified that the role of the Audit Committee would be to hire investigators or forensic accountants. Saunders pointed out the missing year on the first page.

MSP: Present the proposed charter to the Board of Trustees at a future meeting.

Ladd asked that we have copies available for distribution to the Finance Committee.

MSP: Adjourn