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April 7, 2004

Greeley Library

Members present: Larry Ladd, Will Saunders, Ed Merck, Chris Reese, Darwin Smith

Also present: Rev William Gardner, Jerry Gabert, Lucia Santini-Field, Nancy Gladyszak, Richard Crowell, Glenn Charbonneau

The meeting opened with introductions.

Ladd provided a briefing on the reasons for creating the audit committee, including its role and purpose. A recently proposed change in Massachusetts law would mandate the Unitarian Universalist Association (UUA) compliance with Sarbanes-Oxley. Compliance by the UUA requires the creation of an independent audit committee that will function as a classic audit committee. The first fundamental responsibility will be to plan for the hiring and oversight of the independent audit firm, through the request for proposal (RFP) review process. The second responsibility will be for the committee members to satisfy themselves with the effectiveness of the Unitarian Universalist Association internal control system. Third is to assess any business risks facing the UUA.

The members of the audit committee are appointed to two-year (staggered) terms renewable for a period of up to eight years. Ladd also presented background information on the reason for the selection of each of the members and emphasized that his role as the founder and chairperson is temporary. One member will be expected to assume the role of the chair.

Bill Gardiner, Director of Congregational Justice Making, joined the meeting and provided an introduction to the Board of Trustees, all committee and taskforce, and all UUA staff members multicultural, anti-racist, and anti-oppressive training.

Ladd briefly described the issues facing the rest of the UUA. The UUA receives its revenue from two primary sources: the endowment and charitable giving. He also presented information on how the UUA structures its financial statements and reporting. Background information was provided on Beacon Press and the distinction between accounting for a trade-publishing firm and the rest of the UUA. Ladd further described the differences between Skinner House and Beacon Press. Beacon Press markets to the public through commercial bookstores, while Skinner produces what have historically been called 'denominational tracts'.

Lucia Santini-Field, Chair of the UUA Investment Committee, joined the meeting for lunch.

After a break, Gabert presented background information and commentary on UUA's annual financial statements, as audited by Deloitte & Touche, and the supplementary statements reporting on line of business segments. The revisited budget is presented to the October board meeting for approval. Questions were asked relating to the funding of capital campaign expenses and the reporting of income to the present Capital Campaign for Unitarian Universalism. Other questions were asked about distinctions between auditing, tax, and managerial reporting. Smith and Reece inquired about the preparation, presentation, review and approval cycle of the operating budgets. Gabert described the multi-year budget process and the reason for the final presentation and approval of the current year budget by the Board of Trustees four months into the fiscal year. The budget cycle is based on the expectation of the presentation by the Administration of a balanced budget in January for the upcoming fiscal year. Then, once the final results for the current fiscal year are known, the Administration reviews the budget that has been approved by the Board, in light of the actual results, and will make any necessary and appropriate adjustments (referred to as “framing” the budget) for the new budget year. The revised budget is presented to the October board meeting for approval.

Ladd then moved on to the question of the external auditors. Gabert provided the general history of the UUA's relationship with Deloitte & Touche and our last request for proposal (RFP) process in 2000. Ladd provided further information on why the Finance Committee had previously put the audit out to bid. Saunders asked if there were ethical questions or issues raised with regard to the timing of our RFP, the audit cycle, and our relationship with Deloitte & Touche. Santini-Field requested consideration of a separate audit of the endowment and General Investment Fund (GIF). Smith agreed that this was an important consideration as there appear to be aspects of the GIF that aren't clearly reported in the recent financial statements. Ladd asked whether it was possible to price having Deloitte audit and report on the endowment. Gabert clarified that it is already being audited but was not completely separated from Trust and Agency components. Smith then raised the issue that it should be the responsibility of the appropriate committees to sign off on the footnotes before they are incorporated into the Financial Statements. For instance, the investment committee should sign off on the footnotes dealing with the endowment and the Congregational Properties and Loan Commission should sign off on the CPLC business section. There is general consensus on this issue that this should be the case on the footnotes. The audit committee intends to take the initiative and will sign off on the FY2004 audit. Smith asked for future clarification on the scope of the committee's authority to make assignments to staff regarding audit responsibilities.

Discussion was had on future meeting dates and topics. A summary will be presented at the end of the notes.

Merck asked that we review the management letter. Ladd is not overly pleased with the management letters because of their lack of substance. He believes that there is too much emphasis on the ‘nit-picky'. Merck shared in these concerns and believed the reports were too anemic. He's concerned about the lack of substantive broad-based recommendations. Reece made several further points. Specifically, he believes that our expectations of the quality of the audit and management letter are realistic. Further, we should be asking why they haven't brought up some of the questions raised today. Reece asked about the management responses and how they are arrived at. Smith reiterated that the responses should not be written by the financial services staff but rather by the program directors of those areas responsible. Ladd again voiced his happiness with this group. Reece asked if it would not be important to include an income and expenditure to budget analysis in the actual reports.

At the request of Saunders, the committee suggested that his report to the Finance Committee focus on the following topics:

  1. Audit out for bid
  2. Audit Committee is assuming responsibility for reviewing this year's audit.
  3. Issue of footnotes
  4. Management letter and positive business advice
  5. 2 meetings scheduled – August 25 th and October 12 th .
  6. Larry is happy
  7. Conversation regarding charter and conflict of interest is forthcoming.

Ladd distributed a report he gave to the President's Council in October in Long Beach, CA.

The meeting adjourned without a vote at 2:40.

Future Meeting Dates

Wednesday, August 25, 2004 (social event the evening before).

Reservations at the Eliot & Pickett House have been made for Saunders, Reece, Smith, Merck, and Ladd.

Tuesday, October 12, 2004.

Reservations at the Pickett and Elliot House have been made for Reece and Smith.

Future agenda items

  1. RFP's
  2. Look at RFP
  3. Audit firm selection schedule (to be proposed by Gabert and Ladd)
  4. Companies
  5. Discussion on how the audit is being organized, i.e. the role of staff versus partner/manager.
  6. Meet with the partner