[Lnc-business] Chairs official response to: Proposed Policy Manual Changes from the Audit Committee

[Geoffrey Neale]

This is my official response to your recommendations.  I also have copied
the entire LNC on this response.

 

I have read and considered your recommendations, and am overall in support
of your recommendations, but I find that several proposals could be worded
better. I will address my concerns individually with each motion below.

 

However, I would kindly ask each and every one of you, especially the LNC,
to realize that some of these changes require costs - which may NOT be in
the budget.  Some may also require staff time, which means that other things
will get dropped, delayed or compressed.  I will not be directing staff to
put the implementation of these policies above our normal daily activities,
such as fundraising.

 

What I am going to do is direct staff to tell me how long it will take to
implement these proposals, and at what cost.  With that information in hand,
we can work constructively to addressing these recommendations.

 

As a Board, we should consider exactly what the implications are of what we
direct, and make informed decisions.

 

Geoffrey Neale

 


Insert Section 3.03.3: SPECIFIC STAFF RESPONSIBILITIES: Accounting Policies
and Procedures Manual


The Operations Director in consultation with the Treasurer and the Audit
Committee shall review the Accounting Policies and Procedures Manual at
least annually and update as needed.

 

My proposal would be 

 

"The Operations Director in consultation with the Treasurer and the Audit
Committee shall review the Accounting Policies and Procedures Manual as part
of the annual audit.  Staff shall make contemporaneous changes to this
manual as needed to ensure  that the manual always represents current
policies and procedures."

 

My reasoning:  This manual is very important, and should not be driven just
by review.  Staff needs to keep this permanently accurate.  To me, the
purpose and need for this review is oversight, and secondarily for
suggestions of modifications.  However, there are two scenarios I want to
avoid here - first is that staff have a conflicting chain of command.  If
staff is required to make changes to their procedures, I do not want to
introduce more bosses in the chain of command.  We have enough in our
command structure, but certainly could use more oversight.  Second is that I
do not want to have a permanent audit.  Audits are necessary, but they do
create conflicts for resources.  The best way to accommodate this conflict
is by scheduling the oversight concurrent with the primary function of the
Audit Committee.        




 


Section 2.03.5: Financial Matters: Credit Cards and Expense Reimbursements


 

All expenditures shall be evidenced by receipts.  The Chair or Treasurer
shall be required to approve (and evidence by signing or initialing) all
expenses and expense account reimbursements in excess of $200 made to the
Executive Director or LNC members prior to payment or within thirty days of
payment if the expenditure is incurred with a Party issued credit card. No
advance shall be made. No officer shall approve his or her own expenses.

 

Travel expenses incurred by officers for the explicit purpose of conducting
Party business (excluding those incurred for the purpose of attending LNC
meetings) may be reimbursed.  Business travel expenses not pre-authorized by
the LNC must be deemed necessary and approved in writing by the Chair to
qualify for reimbursement. All travel expense reports are to be audited by
the Treasurer, and approved by the Treasurer and the Chair. 




My feedback: this sounds good, but the devil is in the details.  I have too
many questions here.  There are currently budget lines that encompass some
of the travel scenarios noted above.  Is a budget line considered
pre-authorization for travel?  Or will the LNC have to vote on whether or
not I can use the LNC credit card to travel to speak on a panel at an
upcoming C-PAC conference in St. Louis?  If I buy lunch at McDonalds ($6.43)
on an LNC credit card, is the date, time, merchant and amount listed on the
credit card statement considered a receipt? If the machine that I pay for
parking with on an LNC credit card gives me a receipt with no printing (it's
happened to me before), will I have to reimburse the LNC?

 

I would change the language to be more specific.  Also, for the record, I
have never worked for a client or for a company that required receipts for
all expenditures.  They most usually required DOCUMENTATION for all
expenditures, and receipts for expenditures in excess of some threshold.  My
last employer set their threshold at $60.

 

Additionally, what I see missing here is any requirement for documentation
of meals and entertainment.  I think that every such expense should require
who was at the meal, and the purpose of the meal.  While auditing the books
in Texas, I noted in my report that getting a $135 receipt for sushi with
the notation "meal with donor" to be not only suspect, but woefully
inadequate.  If the meal was for three staff members and a whale of a donor,
I'd probably be more favorably inclined than if it was for three staff
members that were also supporting members.  And why exactly was this meal
necessary?  If you were soliciting a big donation for a special project, and
he wrote a $5K check, it would go a long way to justifying the expense to
our board and members.

I like the intent, but it DEFINITELY needs some crafting in order for me to
get behind it.


Insert Section 2.03.6: FINANCIAL MATTERS: Fixed Assets


 

Staff shall maintain a listing of fixed assets and update it monthly to
record any additions or disposals.  Depreciation shall be recorded monthly
on a straight-line basis over the estimated useful lives of the related
assets. 

 

My feedback:  I am a HUGE fan of this - in principle, for different reasons.
An asset register is not only valuable, it ought to be considered essential
and mandatory.  First, it serves the need to have an inventory of our
properties, for insurance purposes.  If something is stolen, or lost, or
destroyed, a good asset register will have recorded the item, manufacturer,
model, serial number, purchase price, purchase date, etc.  Second, this
information is essential to proper recording of depreciation.  Third, if you
are in a tax authority that requires property tax on assets (like in DC),
you have to know what your assets are for that purpose too, and be able to
defend your numbers.  I am concerned with all of these purposes, not just
the accounting and depreciation.

 

I performed an actual physical inventory of everything in the office more
than fifteen years ago.  I tagged and recorded everything.  I bought the
tags, and left a few hundred for future use, and staff just took what I did
and threw it away by not keeping it current.  You can probably still find my
tags on some of the older furniture.

 

In order to do this properly, you have to have a solid procedure that is
followed explicitly and contemporaneously.  There can be no exceptions.
However, you have to establish rules and thresholds.

 

I once called the IRS and asked what had to be depreciated, and was told
that everything that had a life expectancy over one year should be
depreciated.  I then asked if I was required to depreciate a stapler.  Their
answer was "I don't know".

 

Rules need to be established, and they need to be followed.  Most businesses
(mine included) set a threshold between an item being expensed or considered
an asset.  $1000 per item is common.  A $400 tablet would most likely be
expensed, and not require depreciation.  However, this same laptop should be
entered into an asset register, and noted that it was expensed.  To serve
all of the purposes of an asset register, we need to record every asset.

However, would we really log that stapler as an asset?  No.  If it was lost,
we would not file an insurance claim - we'd buy another.

 

The way this is written gets us half way to the proper solution.  We need a
fixed asset policy, of which this motion is only a part.  Too much is being
left to staff on a situational basis.  I want to know what the policy is
before I review whether or not staff is following it.  Do we have a
comprehensive written policy in place at this time? That's a question only
staff can answer, I'm afraid.

 


Insert Section 2.03.7: FINANCIAL MATTERS: Time Sheets and Expense Allocation


 

Each employee shall submit a timesheet at least once per pay period to
reflect the number of hours worked, allocating such time to corresponding
categories specified in the annual budget.  Time sheets shall be reviewed
and approved prior to employee time being entered in the payroll system.
Payroll costs for each employee shall be allocated to expense categories in
proportion with approved time.  Separate general ledger accounts shall be
used for allocated payroll costs.

 

Where appropriate, an expense shall be allocated to one category.  Expenses
that benefit more than one category or that are general administrative in
nature shall be allocated to a general administrative account in the general
ledger.  Those expenses shall then be allocated on a monthly basis to
expense categories in proportion to the allocation of payroll costs.
Separate general ledger accounts shall be used for allocated general
administrative costs.

 

Monthly financial statements shall separately report allocations of payroll
and overhead to corresponding categories.




My feedback: We already know that Robert has expressed an opinion that is to
be expected by some staff members.  However, having spent most of my life
recording my time for either clients or as an employee, I just see this as a
fact of life.  My last employer required even the CEO to record his time.
The benefits are huge, and far outweigh the inconvenience to staff.  Right
now I cannot tell you how much staff time is involved with the production of
LP News.  Staff can only give us anecdotal information.  Also, analyzing
which skill sets we require more of is a lot easier when you can analyze
where staff spends their time today.  Also, we can give much better
information to our members of what the real cost is of what we do.  Right
now, it goes in one huge bucket - staff.

 

Caveats:

 

I do not want anyone to be tracking time in less than one hour increments. 

 

I want staff to record sick time and vacation time used. How will we
allocate that?  How frequently?

 

This should explicitly state that only direct reports can approve.  Only the
Chair can approve the ED reports.

 

This is not something that we can turn on today.  We have to choose the
proper solution, both physically and with software.  Then we have to
implement it.  This will take some time.  Or we can pass this motion as
written, and staff will be immediately in non-compliance with the Policy
Manual. Then they will ask me which takes priority - the ongoing work, or
compliance with the Policy Manual.  Then I'm going to tell them to put a
solution in place by 1/1/2014, and then I'll tell all of you that I'm
ignoring the Policy Manual for the rest of the year.

 

By the way - if we implement this say 9/1, then we will have four months of
meaningful data, and eight months of meaningless data.  For budget purposes,
we'll have two months of meaningful data, which is not enough to extrapolate
for budget purposes.

 


Insert Section 2.03.8: FINANCIAL MATTERS: Inventories


 

Staff shall maintain an inventory listing of promotional and other
inventoried items, costing units on a first-in, first-out basis.  The list
shall be updated periodically and an inventory count shall at a minimum be
conducted annually at year-end.  The results of each count shall be
reconciled to the general ledger and accounting entries shall be made to
ensure accurate presentation of ending inventory on the financial
statements.




Feedback: I have no problem with this.

 


2.04            : Legal Matters: Contracts and Contract Approval


 

All contracts or modifications thereto shall be in writing and shall
document the nature of the products or services to be provided and the terms
and conditions with respect to the amount of compensation/reimbursement or
other consideration to be paid. 

 

The Chair shall approve any contract in excess of $7,500.  

 

All contracts of more than one year in duration or for more than $25,000
shall be reviewed and approved by General Counsel prior to signing by the
Chair.  

 

No agreement involving a financial transaction with a related party shall be
executed unless first approved by the LNC.  Any such agreement shall be
disclosed in a conflict of interest statement.

 

Independent contractors doing business with the LNC are required to sign
formal contracts that clearly set forth the parties' intention that they be
treated as independent contractors.

 

Each contract for director-level employment must be circulated to the LNC on
a strictly confidential basis after it has been reviewed by Counsel and the
EPCC.

 

Feedback: I have no problem with this, but I wonder if everyone understands
two implications:

 

The LNC would be voting on whether or not Paulie's company can do business
with us.  What are the implications?  Does every "contract" for BA work in
any state have to be approved by the entire LNC first, or will the LNC
approve an "agreement" that gives latitude to the "contracts"?  I don't
know.

 

Dianna was paid for Ballot Access petitioning, at what I understand was the
going rate.  Would we have to approve this individually, or could we craft a
section that explicitly gave the Chair or BA person the authority to do so
without LNC approval specifically for petitioning?

 

If it's not clear to me, perhaps the language should be clearer.



Insert Section 2.03.9: FINANCIAL MATTERS: Related Party Reporting


 

For each related party engaging in one or more financial transactions with
the Party, all interim financial statements shall include a report of the
status, nature and current and year-to-date amounts with respect to such
transactions, including contributions, expenses, loans, commitments,
guarantees or any other transaction.

 

Feedback: I REALLY have no problem with this, but I wonder if everyone
understands two implications:

 

It will take longer for staff to prepare this information, although I do not
know how much.

 

This means that every financial statement will include a register of current
and year-to-date contributions and pledges from every LNC member.  I say
it's about time.

 





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