Boy Scouts of America
Scout Executive’s Guide to the 2005 Audit
©2000 Revised November 2005 Boy Scouts of America Irving, Texas 80-262
To the Scout Executive January 2006 Since 1994, there have been significant changes to the accounting rules for not-for-profit organizations. Because funding organizations and individuals have an increased interest in the financial results, a number of changes have been made to make statements more transparent to the readers. The standards set forth by the Financial Accounting Standards Board (FASB) and the AICPA’s guide for not-for-profit entities establish the framework for accounting in local councils. Within those rules are options, which the National Council has chosen to make our reporting more responsive to the Scouting program and to be consistent within each council. This guidebook, Scout Executive’s Guide to the 2005 Audit, gives an explanation of areas where flexibility has been exercised. This is important information both for the council and the council’s auditor. A good audit provides assurance to the reader that what is reported within the audit can be reasonably relied upon to reflect what happened financially during the period being reported. Enclosed with this guidebook is an audit checklist. This provides the council with a list of items that need to be in place before completing the audit process. It ensures that all the necessary steps have been met. The checklist, with all items marked and signed by the Scout executive, must be forwarded to your regional office along with three original audits and three copies of the management letter by June 1, 2006. Give a copy of this guidebook to your auditor to assist in completing the audit in an efficient manner. Council Administration Information Systems Division Boy Scouts of America
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To the Auditor January 2006 This guidebook is designed to help answer some of the questions that arise when performing an audit of a Boy Scout council. The accounting software and audit guidance given to local councils are designed to be in full compliance with Statements 116, 117, 124, and 133. We have encouraged councils to be in full compliance with all of the directions contained in the current literature for not-for-profit organizations. One of the options selected by the National Council is the presentation of financial data in fund format. This is not an optional presentation, but is the required presentation. Each audit of a local council must be sent to the regional offices by June 1 of each year. In planning your engagement, please keep this deadline in mind. The audit must be presented to the executive board and accepted before June 1. We have encouraged each council to create an effective and independent audit committee to advise the council as it proceeds with each yearly audit. We hope that you will take full advantage of this key committee to assist in creating the current audit. Issues arise with about 15 percent of all audits that are submitted to the regional offices. To minimize confusion over what is expected of each council audit, we have created this guidebook for local councils and their auditors. A management letter is required of each council. In this letter we are looking for suggestions on how the council can improve its internal controls and any other issues that the auditor may have observed during the audit. Please note that the audit checklist, provided as part of this document, is to be signed by the Scout executive and submitted with three copies of the audit and management letter by June 1. Council Administration Information Systems Division Boy Scouts of America
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Checklist for Local Council Audits January 2006 The following checklist should be helpful in reducing the number of defective audits and improving the value of a correct audit to the local council, its members, and benefactors. Signed copies of this completed checklist MUST be returned to the region with copies of the audit and management letter.
Preparing for the Audit
The audit can be prepared, be accepted by the executive board, and be copied and made available by June 1. The local council must forward three original copies of the accepted audit to the regional office of the National Council by June 1 of the following year. This is a requirement of the local council charter (Local Council Charter Renewal form).
The auditor has a copy of this booklet. The auditor needs a copy of this booklet to understand the Boy Scouts of America’s acceptable changes to FASB/AICPA audit requirements.
This is a consolidated audit, if applicable. Councils that have subsidiary corporations that meet the requirements of SOP 94-3 must have the subsidiary corporation consolidated into one audit.
We have asked the auditor to provide management letter suggestions. The BSA requires that each audit include a management letter. Use the local auditor’s expertise in improving local council fiscal management by including suggestions as well as identifying reportable conditions in the management letter. You have much to gain by insisting on fiscal recommendations to improve your council’s accounting.
We provided the auditor with an electronic copy of the Working Trial Balance Report.
Reviewing the Draft Audit
The audit committee has reviewed the draft audit. All statements are in three-fund format, with total of all funds. All four FASB required statements are provided in the audit.
Statement of Financial Position
The statement is in three-fund format with a total of all funds. Interfund loans on the Statement of Financial Position show in the asset section only. All funds are shown in comparative format. Transfers show between the beginning and ending net assets.
Statement of Change in Net Assets
Fixed assets and related depreciation are derived from the Fixed Asset Register in General Ledger. Investment income from restricted contributions is reported directly (not transferred) to the Operating Fund. Investment income is recorded net of expenses. Investment portfolios are reported at fair market value.
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Donated services are booked. Direct and indirect contributions are listed by source. Provision and allowance figures are shown. Cost of goods sold is shown in trading post and product sales. The statement clearly shows why each class of net assets changed.
Statement of Cash Flows Statement of Functional Expense
A time study was conducted this year. If not this year, a study was conducted in the last three years. The study was audited. Time study used in this audit: Program_____%, Management_____%, Fundraising_____%
Notes Section
The pension plan is identified as a multiemployer plan.
The Management Letter
The management letter identifies material weaknesses and makes suggestions for improvements. The council has responded to the suggestions in the management letter.
Audit Completion
All audit adjustments have been received, using the correct BSA account numbers.
All audit adjustments have been entered in the General Ledger.
The audit statements agree with the reprinted statements. After entering all adjustments, the council has reprinted the 12th-period statements and compared them with the audit statements. The software-generated statements and audit statements should agree line by line. If they do not, contact your auditor for further assistance.
Audit adjustments were retransmitted to the National Council. When the statements agree with the audit, the council must retransmit the 12th-period fiscal report to the National Council. (To do this, at the General Ledger main menu, select Utilities, then Transmit data for the prior period (8). Type 122005. The file is updated and transmitted.)
Three copies of the audit, management letter, council response, and completed checklist were sent to the regional office by June 1.
I have completed the checklist and marked all items, indicating that each item was properly accomplished. Council Number_______ Date____________ Signed_____________________________ Council Scout Executive
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Contents To the Scout Executive ............................................................................. 1 H
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To the Auditor ............................................................................................ 2 H
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CHECKLIST FOR LOCAL COUNCIL AUDITS ................................. 3 H
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CONTENTS ....................................................................................... 5 H
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REQUIRED STATEMENTS............................................................... 7 H
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ACCOUNTING POLICY .................................................................... 9 H
Fund Accounting ....................................................................................... 9 H
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Consolidated Statements ....................................................................... 10 H
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National Service Fee ............................................................................... 10 H
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Year-End Close ........................................................................................ 11 H
CONTRIBUTIONS ........................................................................... 12 H
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Donor Restrictions .................................................................................. 12 H
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Special Events Reported as Net Revenues........................................... 14 H
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United Ways............................................................................................. 15 H
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Donated Services .................................................................................... 15 H
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Retirement Plan ....................................................................................... 15 H
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REVENUE ....................................................................................... 16 H
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Sale of Supplies Net of Cost of Goods Sold ......................................... 16 H
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Investment Income from Endowment.................................................... 17 H
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FASB Statement No. 124......................................................................... 19 H
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SAS 99 and Sarbanes-Oxley Act ............................................................ 20 H
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Product Sales .......................................................................................... 22 H
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Deferred Revenue.................................................................................... 22 H
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Investment Revenues Net of Expenses................................................. 23 H
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RECLASSIFICATIONS ................................................................... 24 H
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EXPENSES ..................................................................................... 25 H
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Deferred Expenses.................................................................................. 25 H
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STATEMENT OF FINANCIAL POSITION....................................... 26 H
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STATEMENT OF CHANGE IN NET ASSETS ................................ 28 H
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STATEMENT OF CASH FLOWS .................................................... 29 H
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STATEMENT OF FUNCTIONAL EXPENSES ................................ 29 H
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REPORTS AND SUBSIDIARY LEDGERS ..................................... 31 H
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Audit Adjustments .................................................................................. 31 H
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Statements and Reports Available to the Auditor ................................ 32 H
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Reports Required for the Audit .............................................................. 33 H
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Culture...................................................................................................... 37 H
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The Management Letter .......................................................................... 40 H
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APPENDIX A—STATEMENT FORMATS......................................... 1 H
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APPENDIX B—CODE OF ETHICS ................................................... 1 H
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Required Statements Required Statements
The Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 117, Financial Statements of Notfor-Profit Organizations, establishes standards for general-purpose external financial statements prepared by not-for-profit organizations. It specifies that a complete set of financial statements should include a statement of financial positions, a statement of activities, a statement of cash flows, accompanying notes to the financial statements, and for voluntary health and welfare organizations, a statement of functional expenses (AICPA Audit and Accounting Guide, Not-for-Profit Organizations, paragraph 3.01).
Statement of Financial Position
The Statement of Financial Position should focus on the organization as a whole and should report the amounts of its assets, liabilities, and net assets. Assets and liabilities should be aggregated into reasonably homogeneous groups (AICPA Audit and Accounting Guide, Not-forProfit Organizations, paragraph 3.03). See appendix A for a sample report.
Statement of Change in Net Assets
The Statement of Activities (the BSA calls it Statement of Change in Net Assets) should focus on the organization as a whole and should report the amount of the change in net assets for the period. The statement should report the amount of change in permanently restricted net assets, temporarily restricted net assets, unrestricted net assets, and total net assets (AICPA Audit and Accounting Guide, Not-for-Profit Organizations, paragraph 3.08). See appendix A for a sample report.
Statement of Functional Expenses
The Statement of Functional Expenses provides relevant information about the council and its operations for all funds. It should delineate all expenses for all three funds and should divide such expenses into program, management and general, and fundraising areas. Expenses classified as invoices are processed into one of the three above categories. If the expense relates to more than one functional purpose, it is classified as unallocated. All unallocated expenses are split and added to the existing functional expense using a time study. Expenses applicable to more than one function require that the council develop reasonable methods of allocation. It is essential that the council review these methods with its auditor so the auditor can give the council an unqualified opinion.
We suggest councils conduct an analysis of employee time based on a Scout Executive’s Guide to the 2005 Audit
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representative sampling. This optional process should reflect the amount of time that the professional staff spends on its various responsibilities. A sample worksheet for conducting such a time study is available on the Support Web site. Select General Ledger in the PAS topic, then Employee Time Analysis. Support staff time is presumably reflected in the professional staff analysis and does not require a separate analysis. See appendix A for a sample report. Statement of Cash Flows
The Statement of Cash Flows provides relevant information about an organization’s cash receipts and cash payments during a period. The statement classifies these receipts and payments as resulting from investing, financing, or operating activities (AICPA Audit and Accounting Guide, Not-for-Profit Organizations, paragraph 3.15). See appendix A for a sample report.
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Accounting Policy Fund Accounting Background
Chapter 16 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations, is dedicated to fund accounting. Paragraph 16.01 explains: The continued disclosure, for external financial reporting purposes, of disaggregated data classified by fund groups, provided that the information required by FASB Statement No. 117.
The BSA’s Use of Three Funds
The BSA has determined that the use of fund accounting to segregate assets, liabilities, net assets, income, and expenses is a meaningful practice that it chooses to continue. The BSA executive board members, staffs, and some contributors have become accustomed to reading the financial statements in this format. For this and other reasons, the BSA will continue to use three funds to segregate activities. Each statement must also include a total-of-all-funds column.
The Three Funds
The three funds that the BSA accounting system uses are described in Chapter 16 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations. They are:
Operating Fund. This fund is a combination of the Unrestricted Current Fund (described in paragraphs 16.04 and 16.05) and the Restricted Current Fund (described in paragraphs 16.06 and 16.07). Capital Fund. This fund is the same as the Plant (or Land, Building, and Equipment) Fund described in paragraphs 16.08 through 16.10. Endowment Fund. This fund is the same as the Endowment Fund described in paragraphs 16.13 through 16.16.
BSA Policy
It is a requirement of the National Council of the Boy Scouts of America that local council audits be presented in the three-fundsplus-total-of-all-funds format for external financial reporting purposes.
Sample Reports
See appendix A for samples of the four statements required by the Boy Scouts of America; they are in fund accounting format.
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Consolidated Statements Overview
A consolidated statement is required if the council has control of a second entity through the replacement of board members or financial ownership of the entity (AICPA Audit and Accounting Guide, Not-forProfit Organizations, paragraph 8.29). Therefore, councils with separate “foundations” must report on a consolidated basis (Statement of Position, SOP 94.3).
National Service Fee BSA Practice
The Boy Scouts of America has not included payments to affiliated organizations as an expense to be allocated within the Statement of Functional Expenses.
AICPA Policy
Chapter 8 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations, is dedicated to expenses, gains, and losses. Paragraph 13.48 explains: Payments to affiliated organizations that cannot be allocated to functions should be treated as a separate supporting service, and are reported on a statement of activities as a separate line item, and labeled ‘unallocated payments to affiliated organizations.
BSA Policy
Therefore, the Boy Scouts of America shall continue its policy of not including the national service fee and charter fee expenses in the Statement of Functional Expenses.
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Year-End Close Closing Date
The Boy Scouts of America recommends that councils close their books by January 10 and no later than January 31. Under no circumstances should the books be kept open for bank statements, audit adjustments, or expected new material. You can use audit adjustments at any time during the new fiscal year to make modifications.
The Closing Process
The General Ledger software, written and updated by the Boy Scouts of America, is designed to close all income, expense, transfer, and reclassification accounts to the appropriate net asset accounts. This is completed automatically as part of December closing; closing the year follows immediately. The result is that all accounts are updated and opened with either zero balances or with a new beginning balance, where appropriate. After the year-end close is completed, audit adjustments are still possible.
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Contributions Donor Restrictions Classes of Net Assets
While Statement No. 117 does not prohibit the use of fund accounting, it does require information about three classes of net assets: Unrestricted Temporarily restricted Permanently restricted
Unrestricted
This class of net assets has no donor restrictions imposed on the contribution.
Temporarily Restricted
A temporarily restricted contribution generally is recognized as support when it is received and is reclassified from temporarily restricted net assets to unrestricted net assets when the donor’s restriction is satisfied or when the stipulated time has elapsed. Cash received in connection with a campaign to raise funds for renovating a facility would be reported as support, increasing temporarily restricted net assets. When the expenditures for the renovations are incurred, the financial statements would report a reduction in temporarily restricted net assets and an increase in unrestricted net assets. Although restricted contributions typically are reported as support that increases restricted net assets, they may be reported as unrestricted support if the restrictions are met in the same reporting period, the policy is followed consistently, and it is disclosed.
Permanently Restricted
Permanently restricted net assets are contributions to revenues received with donor-imposed restrictions that can never be removed by time or the actions of the council’s executive board. Typically, these are gifts to the council’s Operating Fund but may also include gifts of permanently restricted fixed assets, such as land that can never be sold.
Board Designations
Designations are voluntary board-approved segregation of unrestricted net assets for specific purposes, projects, or investments. The governing board of the nonprofit organization may approve designations as an aid in planning future expenditures, but designations are not expenses and should not be reported in the statement of activities. Because designations are voluntary and may be reversed by the governing board at any time, designated portions of net assets are not considered restricted.
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Designations may be reported as classifications of unrestricted net assets on the Statement of Financial Position or may be disclosed in the notes to the financial statements. However, Statement No. 117 requires them to be reported as a part of the unrestricted class of net assets. Explicit and Implicit Restrictions
Donor restrictions can be explicit in the gifting document with specific directions for use and restrictions, or they can be implicit through the gifting campaign conducted by the council. For example, if the council is conducting a capital campaign to build a new camp building, any gifts to the campaign would carry a temporary donor restriction for that purpose even though the donor did not specifically declare a restriction in a gifting document. If the council receives a gift to the Operating Fund, the gift would implicitly carry a permanent donor restriction, because the gift was specifically directed to the Operating Fund.
Donor Restrictions Extended to Unrestricted Net Assets
In certain situations, a donor can place restrictions on unrestricted net assets held by the council. For example, if a donor makes a permanently restricted gift to the council’s Operating Fund with the condition that the council match the gift with unrestricted net assets, then both the original gift and the matching amount would become permanently restricted by the donor’s restriction.
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Special Events Reported as Net Revenues Background
The BSA has consistently reported revenues earned from conducting special events as revenues net of direct benefit costs. Paragraph 24 in Statement No. 117 explains that a statement of activities shall report the gross amounts of revenues and expenses. This paragraph has created some concern about the practice of netting direct benefit costs against gross revenues for special events on the audited statement of activities.
Accepted Practices
Paragraphs 25 and 138 in Statement No. 117 outline the accepted practices for reporting gross or net amounts for special events. Paragraph 138 explains that an organization may report net amounts for their special events if they result from peripheral or incidental transactions. The AICPA Audit and Accounting Guide, Not-for-Profit Organizations clarifies this with the explanation: Paragraphs 25 and 138 of FASB Statement No. 117 permit, but do not require, organizations to report receipts from special events that are peripheral or incidental activities net of related costs, without reporting those costs on the face of the statement of activities. Costs netted against receipts from peripheral or incidental special events should be limited to direct costs.
BSA Policy
Most special events conducted by Scout councils are peripheral and incidental to the programs of the BSA and meet these standards. Therefore, it will continue to be the practice of the Boy Scouts of America to report special event receipts net of direct benefits received by the donor. All other costs that do not directly benefit the donor, for example, postage and printing, will be reported as an expense in keeping with gross reporting principles.
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United Ways Process
United Ways may have two sources of contributions: allocations from the United Way itself and donor designations received through the United Way campaign. Both sources of income should be booked when received. United Way allocation letters may be conditional and, if so, are not booked until the condition is removed. Also, United Ways may not pay all of their allocation, so an allowance and provision account is available for the council to use, if necessary.
Donated Services Process
Donated services are recognized as contributions in accordance with FASB 116, Accounting for Contributions Received and Contributions Made, if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the council. Many volunteers provide services throughout the year that are not recognized as contributions in the financial statements, because the recognition criteria under FASB 116 was not met.
Retirement Plan Process
The Boy Scouts of America has a defined benefit multiemployer retirement plan that covers eligible employees of the National Council and this council and is administered by the National Council. Eligible employees contribute 1 percent of compensation and the council contributes an additional 6 percent to the plan. Pension expenses for the years ending December 31, 20XX and 20XX were $XX,XXX and $XX,XXX respectively. (Fill in the X’s for your auditor.)
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Revenue Sale of Supplies Net of Cost of Goods Sold Background
The BSA has consistently reported revenues earned from the sale of Scouting supplies or products as revenues net of cost of goods sold. Paragraph 24 in Statement No. 117 explains that a statement of activities shall report the gross amounts of revenues and expenses. This paragraph has created some concern about the BSA’s procedure for netting sales and cost of goods sold. Although paragraphs 25 and 138 give specific direction to special event income, they are silent on the recording of cost of goods sold.
AICPA Policy
The AICPA Audit and Accounting Guide, Not-for-Profit Organizations, does, however, give guidance in the matter. Paragraphs 13.05 and 13.15 clearly define how cost of goods sold can be reported. They explain in part: Some expenses, such as cost of goods sold, are recognized simultaneously with revenues that result directly and jointly from the same transactions or other events as the expenses. The way that costs related to sales of goods and services are displayed depends on whether the sales constitute a major or central activity of the organization or a peripheral or incidental activity. For example, a museum that has a store that is a major or central activity should report and display separately the revenues from its sales and the related cost of sales. Cost of sales is permitted to be reported immediately after revenues from sale of merchandise, and may be followed by a descriptive subtotal, or it may be reported with other expenses.
BSA Practice
The sale of goods or products in a Scout council is peripheral to the delivery of the Scouting program. The BSA’s accounting practice of netting the cost of goods sold with sales of goods through the trading post sales, product sales such as popcorn, and trading post sales at camp and other activities, as outlined in the BSA Local Council Accounting Manual, is substantiated by the AICPA Audit and Accounting Guide, Not-for-Profit Organizations.
BSA Policy
Therefore, it will continue to be the policy of the Boy Scouts of America to report receipts from the sale of supplies and products net of cost of goods sold.
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Investment Income From Endowment Background
The BSA has historically recorded unrestricted interest and dividends from the Operating Fund as unrestricted investment income in the Operating Fund.
Investments
Chapter 8 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations, is dedicated to investments. Paragraph 8.07 explains: Investment income includes dividends, interest, rents, royalties, and similar payments and should be recognized as earned. The revenue (often referred to as income) should be reported as an increase in unrestricted, temporarily restricted, or permanently restricted net assets, depending on donor stipulations on the use of the income. For example, if there are no donor-imposed restrictions on the use of the income, it should be reported as an increase in unrestricted net assets. On the other hand, a donor may stipulate that a gift be invested in perpetuity, with the income to be used to support a specific program. The initial gift creates permanently restricted net assets; the investment income is temporarily restricted for support of the donor-specified program. If the restrictions on the income are met, the statement of activities should report a reclassification from temporarily restricted net assets to unrestricted net assets.
Fund Accounting
Chapter 16 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations, is dedicated to fund accounting. Paragraph 16.01 explains: FASB Statement No. 117 permit the continued disclosure, for external financial reporting purposes, of disaggregated data classified by fund groups, provided that the information required by FASB Statement No. 117 is presented.
Previous Practice
Since 1974, the Boy Scouts of America has complied with the AICPA Industry Audit Guide, Audits of Voluntary Health and Welfare Organizations, which clearly requires: If endowment income is not subject to donor-imposed restriction, it should be credited, as earned, to the appropriate revenue account of the unrestricted fund. (The fund refers to the BSA’s Operating Fund.)
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BSA Policy
Therefore, the BSA will continue the practice of recording the original entry for unrestricted investment income from the Operating Fund as income in the Operating Fund.
Fixed Rate of Return
This concept has become popular with some councils in recent years, but it is a difficult concept to administer. It also may not provide the results intended. Council experience, so far, indicates that it may be helpful in years when the stock market is on an upward trend. However, during downward trends, this system results in painful corrections. In accounting for investments using this concept, we provide the following guidelines: •
Restricted funds may not be reclassified to deal with this issue.
•
Investment earnings should not be booked as investment income in restricted funds and then transferred to an unrestricted fund.
•
The Financial and Accounting Guide for Not-for-Profit Organizations explains: The accounting for a fixed percent return must be handled in exactly the same manner as it would be if the organization were making its own investments in its own separate endowment fund. It is not acceptable to record the full percent payment as dividend income. Therefore, it is necessary for the organization to know the amount of its share of the actual dividends and realized gains of the outside investment fund. Its share of the actual dividends is recorded as unrestricted income and its share of the actual total realized gains is recorded as gains, restricted or unrestricted as appropriate, without regard to the percent cash payment received from the investment fund. The carrying value of the organization’s share of this investment fund is thus increased or decreased to the investment fund’s cost basis as though there were no separate investment fund.
•
In short the accounting for the dividends and interest and realized gains is completely independent of the 5 percent cash payment. It is dependant on the underlying actual results of the investment fund. Our recommendation is that councils continue to estimate the amount of investment income that they can expect from their endowment net assets and use this figure as the amount to be budgeted in the coming year.
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FASB Statement No. 124 Requirements of Statement No. 124
In November 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 124, which requires the following:
Investments in equity securities with readily determinable fair values and all investments in debt securities should be reported at fair value with gains and losses included in a Statement of Changes in Net Assets.
Certain disclosures must be made about all investments held by not-for-profit organizations and the return on those investments. This is normally covered in the notes section of the council’s audit. (See FASB Statement No. 124, page 4, paragraphs 14–16 for more information.)
In the absence of donor stipulations or law to the contrary, losses on the investments of a donor-restricted endowment fund should reduce temporarily restricted net assets to the extent that donor-imposed restrictions on net appreciation of the fund were not met before the loss occurred. Any remaining loss should reduce unrestricted net assets. (See FASB Statement No. 124, page 124, paragraph 65, for more information.)
Effectiveness
Statement No. 124 is effective for annual financial statements issued for fiscal years beginning after December 15, 1995.
Statement Definition
The AICPA defines financial statements as a Statement of Financial Position, a Statement of Changes in Net Assets, a Statement of Cash Flows, a Statement of Functional Expenses, and any other accompanying reports such as the Statement of Operations.
BSA Policy
The Boy Scouts of America local councils issue these statements annually and they must comply with Statement No. 124. In addition, management may produce an incomplete set of these reports in the interim for internal purposes. These may or may not comply with FASB Statement No. 124.
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SAS 99 and Sarbanes-Oxley Act Overview
Definition of Fraud
As a result of recent publicized cases of corporate fraud, Congress and the accounting industry have made significant changes to the regulatory framework over financial reporting. Currently, the federal legislation, Sarbanes-Oxley Act of 2002, has minimal effect on not-for-profit organizations, but it is anticipated that many states will individually adopt provisions of the act in the near future. (California is the first state to do so with SB-1262 affecting California councils.) The act may fundamentally change how audit committees, management, and auditors carry out responsibilities and interact.
The AICPA’s SAS 99 represents the accounting industry’s reaction to corporate fraud and was in effect beginning with the 2003 audit. This standard will significantly broaden the definition of fraud. Fraud can be defined in three broad areas as: Fraud committed against a not-for-profit (also called employee fraud). This includes, but is not limited to: o Purchasing and disbursement schemes o Cash receipt and accounts receivable schemes o Payroll and expense reporting schemes o Vendor fraud Fraud committed by a not-for-profit (also called management fraud). This includes, but is not limited to: o Financial reporting fraud o Fundraising fraud (Example: Overstatement of fundraising income) o Program reporting fraud Fraud committed through a not-for-profit. This includes, but is not limited to: o Fraud committed by an insider against an external party o Utilizing information entrusted to an individual (Example: Identity theft)
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Internal Controls
Code of Ethics
Internal controls that are written, approved, communicated, and monitored are the council’s only defense against fraud. The auditor may ask the Scout executive to sign a document attesting to the effectiveness of the council’s internal controls and the accuracy of financial statements. Additionally, the auditor may request written copies of the internal controls. The Scout executive should anticipate rigorous testing of internal controls during the audit.
The auditor may encourage the council to adopt a code of ethics. See Appendix B for a sample code.
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Product Sales Background
The BSA has consistently reported revenues earned from the sale of Scouting supplies or products as revenues net of cost of goods sold. Paragraph 24 in Statement No. 117 explains that A statement of activities shall report the gross amounts of revenues and expenses. This paragraph has created some concern about the BSA’s procedure for netting sales and cost of goods sold. Although paragraphs 25 and 138 give specific direction to special event income, they are silent on the recording of cost of goods sold.
AICPA Policy
The AICPA Audit and Accounting Guide, Not-for-Profit Organizations, does, however, give guidance in the matter. Paragraphs 13.05 and 13.15 clearly define how cost of goods sold can be reported. They explain: Some expenses, such as cost of goods sold, are recognized simultaneously with revenues that result directly and jointly from the same transactions or other events as the expenses. The way that costs related to sales of goods and services are displayed depends on whether the sales constitute a major or central activity of the organization or a peripheral or incidental activity. For example, a museum that has a store that is a major or central activity should report and display separately the revenues from its sales and the related cost of sales. Cost of sales is permitted to be reported immediately after revenues from sale of merchandise, and may be followed by a descriptive subtotal, or it may be reported with other expenses.
BSA Practice
The sale of goods or products in a Scout council is peripheral to the delivery of the Scouting program. The BSA’s accounting practice of netting the cost of goods sold with sales of goods through the trading post sales, product sales such as popcorn, and trading post sales at camp and other activities, as outlined in the BSA Local Council Accounting Manual, is substantiated by the AICPA Audit and Accounting Guide, Not-for-Profit Organizations.
BSA Policy
Therefore, it will continue to be the policy of the Boy Scouts of America to report receipts from the sale of supplies and products net of cost of goods sold.
Deferred Revenue
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Reporting
Some councils have a substantial amount of deferred revenue and expense. The Boy Scouts of America reports this in the Assets and Liabilities sections of the Statement of Financial Position.
Background
These are revenues and expenses that apply to activity and camping events in the future. It is necessary to segregate this information as the council has a fiduciary responsibility to provide the event as advertised or refund the participants’ money. Deferred revenue and expense are transfer of ownership issues. Not until the council actually owns the income or expense can they claim those funds as current income or expense. It is not earned income until the event is held.
BSA Policy
It is the policy of the Boy Scouts of America that no monies be recorded as income or expense until the event associated with the funds has been held. The practical effect of this policy is that funds from hundreds of events are collected and accounted for before and after the transfer of ownership has taken place.
Investment Revenues Net of Expenses AICPA Policy
Paragraph 8.08 of the AICPA Audit and Accounting Guide, Not-forProfit Organizations, explains: A statement of activities should report the gross amounts of revenues and expenses. It also notes, however, that investment revenues may be reported net of related expenses, such as custodial fees and investment advisory fees, provided that the amount of the expenses is disclosed either in the statement of activities or in notes to financial statements.
BSA Policy
Therefore, the BSA will continue the practice of reporting investment revenues net of related expenses, such as custodial fees and investment advisory fees, with the fees disclosed in the notes.
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Reclassifications Two Methods
When donor restrictions of a temporary nature (either time or purpose) expire, there are two ways that contributions are reclassified. One is by reclassifying revenue, and the other is by reclassifying net assets.
By Revenue
To reclassify contributions by revenue, you simply debit the temporarily restricted contribution account and credit the unrestricted contribution account.
By Net Asset
If, however, a year-end close has occurred since the temporarily restricted contribution was booked, then it is necessary to reclassify this contribution as a net asset. When a temporarily restricted contribution account is processed during the Boy Scouts of America General Ledger year-end close, it becomes a net asset account that is also temporarily restricted. See page 43 of the General Ledger User’s Guide for an outline of the net assets that can be temporarily restricted and the reclassification accounts to be used to reclassify a net asset.
Net Asset Accounts
With the change in accounting rules, the Boy Scouts of America has identified and created net asset accounts that adhere to new accounting standards. Each fund has the potential for unrestricted, temporarily restricted, or permanently restricted net asset accounts. (There is no permanently restricted net asset account for the Operating Fund.) The Boy Scouts of America General Ledger software will not allow any direct adjustments to net asset accounts. This ensures the integrity of net assets. However, if an adjustment is necessary, it may be made using the net asset adjustment accounts provided in the chart of accounts.
.
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Expenses Deferred Expenses Overview
Some councils have a substantial amount of deferred revenue and expense. The Boy Scouts of America reports this in the Assets and Liabilities sections of the Statement of Financial Position. These are revenues and expenses that apply to activity and camping events in the future. It is necessary to segregate this information as the council has a fiduciary responsibility to provide the event as advertised or to refund money to the participants. Deferred revenue and expense are transfer-of-ownership issues. Not until the council actually owns the income or expense can it claim those funds as current income or expense. It is not earned income until the event is held.
BSA Policy
It is the policy of the Boy Scouts of America that no monies be recorded as income or expense until the event for which the funds provide has been held. The practical effect of this policy is that funds from hundreds of events are collected and accounted for before and after the transfer of ownership has taken place.
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Statement of Financial Position Pledge Receivables
The Boy Scouts of America software provides for a series of pledge receivables accounts to account for commitments not yet paid. They are divided into three groups: current pledge receivables, past pledge receivables, and future pledge receivables. In addition, most receivables have an allowance for uncollectible pledges account for most of the different types of campaigns that are conducted by the council.
Process
At the end of the year, it is the job of council management to look at uncollected pledges and determine which pledges are collectible. The total of the uncollectible pledges should be reflected in the allowance for uncollectible pledges account. When there is an allowance for uncollectible account, there should always be a pledge receivable account. The total of all pledges that are outstanding should be reflected in this receivable account, while the allowance account has the value of pledges deemed uncollectible. The difference between the two is the amount that is expected to be collected. At the end of the year, the past pledge receivables should be reduced to zero along with the related allowance account. There should never be a balance in the past receivables account past year-end. When writing these two accounts down to zero, the difference should be shown as expense (Uncollectible Pledge Expense, account 9432) or income (Other Income, account 6931).
Inventories
At the end of the year, the value of the inventory taken, extended, and totaled should be reflected in the inventory accounts. Councils should ask the audit team to verify the method of count and sample counts. There are a series of accounts for saleable inventory (1401–1441) and other accounts for nonsaleable inventory (1451, 1711–1713, and 1731).
Interfund Loans
These accounts are for recording temporary placement of monies in one fund that is owed to another fund. Values on these accounts (1600 series) should not be more than 30 days old. These values should show only in the Asset section of the Statement of Financial Position (AICPA Guide 16.03). The total of these transactions should always equal zero. (FASB Statement No. 117, footnote 8).
Prepaid Expenses
There are a series of prepaid expense accounts to record the value of
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prepaid expenses (1701–1710 and 1722–1728). These accounts should be checked for the value of expenses paid for a future period. Fixed Assets
Each council sets its own capitation policy in regard to fixed assets. We recommend a figure from $500 to $2,000 for a single item. Items that fall below the capitation level are expensed and/or added to the nonsaleable inventory (1711–1713 and 1731). There is a fixed asset register in the software that will keep track of individual fixed assets and the appropriate depreciation. It will write the monthly depreciation expense for each fixed asset.
Accrued Expense
This series of accounts (2100) is set aside for known expenses that have no invoices. Values on these accounts should be fully documented.
Custodial Accounts
Custodial accounts are funds held for affiliated organizations that never become income or expense in the Statement of Change in Net Assets (2300 series). Activities such as the national jamboree or deferred activity income or expense should never be held in these accounts.
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Statement of Change in Net Assets Full Disclosure
Transfers
Net Assets
•
This statement should show all sources of income and should show expenses in a functional format divided among program, management, and fundraising.
•
Contribution income should show relevant provision for uncollectible pledges.
•
Special events contributions should show the amount of direct expense subtracted from the total income.
•
Revenue should show relevant cost of goods sold.
•
This statement should show the reasons for the change in net assets that are reported.
•
The statement should be divided into three sections that appear in this order: unrestricted, temporarily restricted, and permanent changes to net assets. It should also report the total of changes to net assets.
These transactions are permanent movements of assets only between funds. All transfers should have a supporting board resolution. The transfers from each fund (3900 series) should equal zero when added together. The transfer line on the Statement of Change in Net Assets should appear on a line that is between the Beginning Net Assets and Ending Net Assets of each fund. Transfers should NEVER show above the Increase/Decrease in Unrestricted Net Assets line. • • • • •
Each fund should show changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets (funds 2 and 3 only). Each fund should show the beginning net assets for each class of net assets. Each fund should show ending net assets by classification. The adjustments to net assets and transfers appear between the beginning and ending net assets. Transfers are board-approved movements of assets from one fund to another. The Transfer line should always equal zero for the transfer accounts (3900 series).
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Statement of Cash Flows Requirements
The Statement of Cash Flows should be in a comparative format and should show all funds.
Statement of Functional Expenses Overview
The Statement of Functional Expenses should be presented in a functional format showing program, management, fundraising, and supporting services. It should display the amount of expense in each of these categories. Councils utilize the functional usage codes to indicate the type of expenditure made and the group to which it belongs. For those expenses that cover more than one usage code, the software uses the 99 usage code (unallocated). This amount is split by a time study conducted by the council. The results of this allocation are added to the previously allocated expenses to create the total expense number by functional category.
Time Study
The BSA has consistently recommended to its local councils that they utilize a time study to determine the distribution of unallocated expenses for preparation of the Statement of Functional Expenses. The BSA’s Local Council Accounting Manual outlines the procedures to be used for the time study.
AICPA Policy
Chapter 13 of the AICPA Audit and Accounting Guide, Not-for-Profit Organizations, is dedicated to expenses, gains, and losses. Paragraph 13.42 explains: Some expenses are directly related to, and can be assigned to, a single major program or service or a single supporting activity. Other expenses are related to more than one program or supporting activity, or to a combination of programs and supporting services. These expenses should be allocated among the appropriate functions. Examples include salaries of persons who perform more than one kind of service and the rental of a building used for various programs and activities.
Paragraph 13.44 explains, If direct identification (that is, assignment) is impossible or impracticable, an allocation is appropriate.
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Paragraph 13.46 explains: An organization should evaluate its expense allocation methods periodically. The evaluation may include, for example, a review of time records or activity reports of key personnel, the use of space, and the consumption of supplies and postage. The expense allocation methods should be reviewed by management and revised when necessary to reflect significant changes in the nature or level of the organization’s current activities. Example
AICPA Statement of Position 78-10, appendix B, provides the following example of a method that ordinarily results in a reasonable allocation of an organization’s multiple function expenses: Periodic time and expense records may be kept by employees who spend time on more than one function as a basis for allocating salaries and related costs. The records should indicate the nature of the activities in which the employee is involved. If the functions do not vary significantly from period to period, the preparation of time reports for selected test periods during the year might be sufficient.
BSA Policy
Therefore, the BSA will continue its recommendation to local councils to conduct a time study at least every three years, unless there are significant changes in activities, for the preparation of the Statement of Functional Expenses, which is required of all voluntary health and welfare organizations.
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Reports and Subsidiary Ledgers Audit Adjustments Introduction
You can enter an audit adjustment into the General Ledger software anytime after the year-end close process is completed. We do not allow direct adjustments to the net asset accounts, because adjustments should be made to the account that is being changed, not the net asset account into which it flows. The council can also export the Working Trial Balance report as a convenience to the auditing staff. The auditing staff should then give the council feedback about specific changes and adjustments that were made to each account.
Adjustment Dates
Audit adjustments are entered into the system using a system-generated prior-year date of December 32. Year-end close adjustments are automatically recorded and are issued a prior-year date of December 36. This enables the software to make a distinction between December transactions, audit adjustments, and year-end close transactions. Audit adjustments are represented on all printed statements, while year-end close transactions are not. However, the General Ledger or Posted Detail Listing will indicate the effect of the year-end close on a given account.
Print Statements
Once audit adjustments have been entered, the four audit-required statements should be reprinted. These statements should be in complete agreement with the audited financial statements.
Closing the Year
It is not necessary, nor recommended, to keep the prior fiscal year’s books open until the audit adjustments are prepared. On the contrary, the fiscal year should be closed as soon as possible in order to begin accounting transactions for the new fiscal year. Audit adjustments can be entered for the prior fiscal year at any time up until the close of the new fiscal year.
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Statements and Reports Available to the Auditor Background
The accounting software used by most councils is maintained by the National Council of the Boy Scouts of America and provides management, the governing board, and auditors with many reports useful in conducting an audit. A few of these reports are discussed below.
General Ledger Report
The General Ledger Report is the official record of transactions for the council. It shows transaction information from the various journals in other BSA software programs. When journals are posted, two sets of files are created for each transaction: summary records and detail records. The General Ledger receives these files from the following journals: Accounts Payable Journal from the Accounts Payable software Cash Disbursements Journal from the Accounts Payable software Contributions Journal from the Fundraising software Cash Receipts Journal from the Fundraising software Cash Receipts Journal from the General Ledger software General Journals from the General Ledger software Payroll Journal from the Payroll software Membership Expense from the PAS software The General Ledger Report can be printed either monthly or for the complete fiscal year. It can be printed for the current year or the prior fiscal year.
Trial Balance
The Trial Balance can be printed for one fund or all three funds. It is available for any month in either the current fiscal year or the prior fiscal year. On the last page of the trial balance, one of the following messages may be printed to indicate a problem that may need to be corrected: One or more funds are out of balance. Transfers are out of balance. Interfund loans are out of balance. Invalid cost center being used in an account number. Invalid usage code being used in an account number. Invalid base account number.
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Working Trial Balance
The Working Trial Balance can be printed for one or all funds and is available for any month in either the current or prior fiscal year. It can be printed in wide format (11 inches by 14 inches) or narrow format (8 1/2 inches by 11 inches). This report can also be provided to the auditor as a comma-delimited file.
Posted Detail Listing
This report lists each account number in the same sequence as they are listed on the trial balance under the following columns: Prior period balance Current period balance Transactions (debits/credits)
Chart of Accounts
The report lists all accounts currently selected for use by the council.
Cost Center Listing
This report lists all cost centers currently used by the council. Cost centers used for camps, activities, and special events that require a deferred or nondeferred status are identified with the date of the activity. On this date, the deferred income/expenses will be converted to nondeferred income/expenses. They are also used to create reports for managing an aspect of the council.
Reports Required for the Audit The Four Required Audit Statements
The BSA software system is capable of producing all four required statements in fully compliant format. These statements are available for any fiscal period in the current year or last year. The statements are:
Statement of Financial Position Statement of Changes in Net Assets (Statement of Activity) Statement of Cash Flows Statement of Functional Expenses
The Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 117 (Financial Statements of Notfor-Profit Organizations) establishes standards for general-purpose external financial statements prepared by not-for-profit organizations. It specifies that a complete set of financial statements should include a Statement of Financial Position, a Statement of Activities, a Statement of Cash Flows, accompanying notes to the financial statements, and for voluntary health and welfare organizations, a Statement of Functional Expense.
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Statement of Financial Position
The Statement of Financial Position should focus on the organization as a whole and should report the amounts of its assets, liabilities, and net assets. Assets and liabilities should be aggregated into reasonably homogeneous groups (AICPA Audit and Accounting Guide, Not-forProfit Organizations, paragraph 3.03). See appendix A for a sample report.
Statement of Activities
The Statement of Activities (the BSA calls it the Statement of Change in Net Assets) should focus on the organization as a whole and should report the amount of the change in net assets for the period. The statement should report the amounts of the changes in permanently restricted net assets, temporarily restricted net assets, unrestricted net assets, and total net assets (AICPA Audit and Accounting Guide, Notfor-Profit Organizations, paragraph 3.08). See appendix A for a sample report.
Statement of Cash Flows
The Statement of Cash Flows provides relevant information about the organization’s cash receipts and cash payments during a period; the statement classifies these receipts and payments as resulting from investing, financing, or operating activities (AICPA Audit and Accounting Guide, Not-for-Profit Organizations, paragraph 3.15). See appendix A for a sample report.
Statement of Functional Expenses
The Statement of Functional Expenses provides relevant information about the council and its operations for all funds. It should delineate all expenses for all three funds and should divide the expenses into program, management and general, and fundraising areas. Expenses are classified as invoices and are processed into one of the three above categories. Or, if the expense relates to more than one functional purpose, it is classified as unallocated. All unallocated expenses are split and added to the existing functional expense by a time study. The time study is valid for three years, unless there is a substantial turnover of professional personnel. The time study is conducted among professional personnel only once each quarter for two weeks and then averaged for the whole year. See appendix A for a sample report.
Fixed Asset Register
The General Ledger software has a complete fixed-asset register module that tracks all fixed assets and monthly depreciations. Reports available from this module include: Fixed Assets List Disposed Assets List Fixed Assets Change Log Assets Master Listing Detailed Assets Schedule
Insurance Register
The General Ledger software has a complete insurance register module
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that tracks insurance policies over multiple fiscal years. Reports available include: Listing of Insurance Policies Insurance History Insurance Change Log Fundraising
If the council is using the Fundraising software supported by the national office, fundraising reports should be printed immediately after all pledges and payments for the current fiscal year have been entered into the system. Pledges and payments received in the council office or postmarked by December 31 shall be counted in that fiscal year’s transactions. The Fundraising software can be used to record transactions for a prior or future period in the appropriate general ledger account. Other special features of the Fundraising software include:
Accounts Payable
Discounting for uncollectible pledges. Pledges are discounted by establishing allowance and provision accounts for six types of fundraising campaigns. All other campaigns do not have the allowance/provision accounts feature. These six campaigns are: Friends of Scouting Project sales Capital Special fundraising events United Ways Endowment Collectible vs. uncollectible pledges. At the end of the year, it is the responsibility of management to create a list of collectible and uncollectible pledges based on management’s judgment and experience. Two reports are available for this purpose: Collectible Pledges Report Uncollectible Pledges Report
The Accounts Payable software functions as a subsidiary ledger to the general ledger and maintains detailed accounting of accounts payable transactions. Reports available from Accounts Payable that may be useful during the audit include:
Open Payables by Date Report. This report lists unpaid invoices as of a specified date. Payables Aging Report. This report should be printed as part of the year-end close process; it shows the age of all open payables as of December 31.
Vendor History Check Register. This report lists all checks issued to a vendor within a specified date range. It can show
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invoice detail. Vendor History Report. This report is available for a single vendor or range of vendors over a specified date range and lists all history with those vendors. Alphabetic Vendor List. This is a list of all vendors in alphabetical order.
Payroll
The Payroll option in the Personnel software also functions as a subsidiary ledger to the general ledger and maintains detailed accounting of payroll transactions. Reports that may be useful during the audit must be printed prior to closing the fiscal year in Payroll. They are: Payroll History Report. This report lists earnings and deductions by individual, by pay date, and by check number for all employees. Year-End Report. This report lists employee totals by quarter with year-end totals on the last page. Quarterly Reports. These reports are printed at the end of each quarter and show the amount of taxes that the individual and the council must pay. They are used to produce quarterly tax reports.
CAM III POS
If the council utilizes the CAM III Point of Sale software, then the Inventory Valuation Report (or the Sales Analysis/Balance On-Hand Report) will provide the value of store inventory. This report is printed at the close of business at the end of the year. Once the physical inventory has been taken, the actual stock-on-hand numbers are reentered as inventory adjustments, and a new report is printed. This new report shows the inventory extension of stock on hand multiplied by the perpetual average price, which results in inventory on hand.
SellWise
If the council utilizes SellWise point-of-sale software, then the Inventory Valuation Report will show the value of the store inventory. The supporting detail for this report is a custom report showing all inventory items, balanceon-hand, price, current cost, average cost, department, and the calculated total values based on cost and average cost, where the balance-on-hand is greater.
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Culture Overview
The National Council
It is important that the auditor understand the culture of the Boy Scouts of America. The culture of the Boy Scouts of America includes the following elements:
Local Council
The mission of the Boy Scouts of America is to prepare young people to make ethical and moral choices over their lifetimes by instilling in them the values of the Scout Oath and Law. The headquarters is located in Irving, Texas. The National Council develops the programs of the Boy Scouts of America. Boy Scouts of America includes a subsidiary corporation to administer Learning for Life. The National Council is divided into four regions: Northeast Region—Jamesburg, New Jersey Southern Region—Kennesaw, Georgia Central Region—Naperville, Illinois Western Region—Tempe, Arizona Regions are divided into areas. Program support is delivered to the local councils in each area.
There are 308 local councils. The local council is chartered by the National Council to deliver the program of the Boy Scouts of America and administer the Learning for Life program. Each local council is incorporated as a not-for-profit corporation in the state in which it is located. Articles of incorporation and bylaws are filed with the state. Each local council is recognized by the Internal Revenue Service as a 501(c)3 organization. A local council may subdivide into service areas, districts, and subdistricts. These subdivisions are administrative subdivisions created to carry out the mission of the council.
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Governance
Voting members Local community organizations are chartered by the local council to utilize the Scouting program. Each organization is required to appoint a representative. This representative and the members at large are the voting members of each council. Annual meeting Each council will conduct an annual business meeting to elect an executive board, receive an annual report, and conduct other business. Each council may appoint members of the executive board to serve as members of an executive committee. Scout executive The Scout executive has received a professional commission from the Boy Scouts of America and serves as the chief executive officer of the corporation and secretary to the executive board. The Scout executive is accountable to the executive board through the council president. Professional performance and compensation The Boy Scouts of America utilizes the Operational Management System for performance evaluation. Based on the position description and the classification of each position, critical achievements are identified from the many responsibilities. It is customary for the area director to advise the council president on specific critical achievements for the Scout executive. These critical achievements, usually eight to 10, are items that may be objectively measured and reviewed at interim periods during the year. At the conclusion of the year, the performance review for the Scout executive is usually conducted by the area director and reviewed by the council president. The National Council provides a salary chart that includes a range of salaries for various positions. Salary increases are based on a consistent and equitable formulated system. The council compensation committee is charged with making salary recommendations within the guidelines based on the result of the performance review. The council president approves the salary for the Scout executive by signature. Business Expense Reimbursement The monthly business expenses for the Scout executive are approved by the council president or designee.
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Program Delivery
The program of the Boy Scouts of America contains the following types of membership: Cub Scouts—Boys in first through fifth grades. Boy Scouts—Boys 11 through 18 years of age. Venturing—Young men and women 14 through 20 years of age. The program of Learning for Life contains the following types of membership: Exploring—Coed career-based program for youth 14 through 20 years of age. Groups—Classroom-based program with character-building curriculum for boys and girls in grades K through 12. Many councils own property for conducting a camping program. Not all camping programs are conducted on council-owned property. Boy Scout summer camps are usually conducted on council-owned property. Cub Scout day camps may be conducted in a variety of locations.
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The Management Letter Letter Requirements
Format
Management Points
Generally accepted auditing standards require auditors to communicate reportable conditions in internal control that they become aware of during the audit. There is no accounting industry requirement to communicate “management points,” that is, observations and suggestions regarding the organization’s activities that go beyond internal control-related matters. Such comments may deal with operational or administrative efficiencies and other items of perceived benefit to the organization. Authoritative literature contains very little discussion about and no required format for, or illustrations of, management letters. However, Statement of Accounting Standards No. 60 at AU 325.19 notes that auditors are not precluded from communicating to a client on a variety of matters. The flexibility of no fixed format for a management letter is a major advantage to the auditor. This allows the auditor to design a format to meet the individual needs of the local council. The specific objectives and purpose of the management letter will vary based on individual audits, but the general objectives are to improve communications between auditor and the council and to add value to the audit. Many auditors follow the practice of issuing management letters as an additional opportunity for service to their clients and to demonstrate to a client their knowledge of and interest in the client’s organization and operations. If auditors approach the audit alert for possible management points, they should be able to offer the additional service at little or no additional cost. Management points can be documented using the Reportable Control Condition and Management Point Development Worksheet. Management points are matters other than reportable conditions and may include the following:
BSA Policy
Weaknesses in accounting practices and controls that are not significant Weaknesses and inefficiencies in controls unrelated to financial data Operational inefficiencies, such as inefficient inventory management policies or procedures Opportunities to increase revenues by using assets more effectively, such as by investment of idle cash Suggestions for increasing personnel motivation or performance Comments about data processing hardware or software The National Council, Boy Scouts of America, requires that the audits of local councils include a management letter for use by management and officers of the corporation.
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Appendix A—Statement Formats Statement Samples
Samples of the following statements are included in this section. • • • •
Statement of Financial Position Statement of Changes in Net Assets Statement of Functional Expenses Statement of Cash Flows
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Appendix A Nation's Best Council Statement of Financial Position December 31, 2005, with Comparatives for 2004
Operating Fund
Capital Fund
Endowment Fund
Total All Funds
2005
2004
2005
2004
2005
2004
2005
2004
Cash Short-Term Investments Accounts and Notes Receivable Pledges Receivable Inventories Deferred Activity Expenses Deferred Camp Expenses Deferred Special Events Expenses Prepaid Expenses Total Current Assets Land, Building and Equipment Long-Term Investments Total Noncurrent Assets
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
Total Assets LIABILITIES CURRENT LIABILITIES Accounts Payable Accrued Expenses Payroll Taxes Withheld Custodial Accounts Deferred Activity Income Deferred Camp Income Deferred Special Event Income Other Current Liabilities Total Current Liabilities Long-Term Indebtedness Other Noncurrent Liabilities Total Noncurrent Liabilities
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX XXX X,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
X,XXX XXX XXX XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
XX,XXX X,XXX X,XXX X,XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX
X,XXX
X,XXX
X,XXX
X,XXX
X,XXX
XX,XXX X,XXX X,XXX X,XXX X,XXX X,XXX X,XXX X,XXX XX,XXX X,XXX XXX X,XXX
ASSETS CURRENT ASSETS
XXX,XXX XXX,XXX
X,XXX
Total Liabilities NET ASSETS Unrestricted Net Assets Temporarily Restricted Net Assets Permanently Restricted Net Assets Total Net Assets
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX.XXX
X,XXX X,XXX X,XXX XX,XXX
X,XXX X,XXX X,XXX XX,XXX
TOTAL LIABILITIES & NET ASSETS
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
XXX,XXX
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Appendix A Changes in Unrestricted Net Assets
Nation's Best Council STATEMENT OF CHANGES IN NET ASSETS DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 Operating Fund Capital Fund Endowment Fund
Support and Revenue Direct Support Friends of Scouting Gross Less Provision for Uncollectibles Net Friends of Scouting Special Fundraising Events Gross Less Cost of Net Benefits Net Special Fundraising Events Foundations & Trusts Other Direct Support Total Direct Support
XXX,XXX XX,XXX X,XXX XXX,XXX XX,XXX XX,XXX X,XXX XXX XXX,XXX
Indirect Support United Ways Fees from Government Agencies Total Indirect Support Revenues Sale of Supplies - Gross Less Cost of Goods Sold Net Sales of Supplies Product Sales - Gross Less Cost of Goods Sold Net Product Sales Investment Income Gain or Loss on Investments Camping Revenue Activity Revenue Other Revenue Total Revenue
Total All Funds 2005 2004
XXX,XXX XX,XXX X,XXX XXX,XXX XX,XXX XX,XXX X,XXX XXX XXX,XXX
XXX,XXX XX,XXX X,XXX XXX,XXX XX,XXX XX,XXX XX,XXX XXX XXX,XXX
XXX,XXX X,XXX XXX,XXX
XXX,XXX X,XXX XXX,XXX
XXX,XXX X,XXX XXX,XXX
XX,XXX XX,XXX X,XXX XXX,XXX XXX,XXX XXX,XXX XX,XXX X,XXX XX,XXX XX,XXX XXX,XXX X,XXX
XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX X,XXX XX,XXX
XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX X,XXX XX,XXX
X,XXX
X,XXX XXX XXX
XX
X,XXX
XXX X,XXX
XXX X,XXX
XXX,XXX X,XXX
X,XXX
XXX,XXX
X,XXX
XXX,XXX
XXX,XXX
Net Assets Released from Restrictions Reclass Friends of Scouting Reclass Capital Campaign Reclass Foundations Reclass United Ways Total Reclassification of Net Assets
X,XXX XX,XXX XXX,XXX
Total Support and Revenue
XXX,XXX
X,XXX
X,XXX
XXX,XXX
XXX,XXX
Expenses Program Services Support Services Management & General Fundraising Total Supporting Services
XXX,XXX XXX,XXX XXX,XXX XXX,XXX XXX,XXX
XX,XXX XX,XXX XX,XXX XX,XXX XX,XXX
XXX XXX XXX XXX XXX
XXX,XXX XXX,XXX XXX,XXX XXX,XXX XXX,XXX
XXX,XXX XXX,XXX XXX,XXX XXX,XXX XXX,XXX
X,XXX
X,XXX
XXX,XXX XX,XXX
XXX,XXX XX,XXX
Charter and National Service Fee Total Expenses Inc (Dec) in Unrestricted Net Assets
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XX,XXX
X,XXX XXX,XXX XX,XXX
XX,XXX XX,XXX
A-3
X,XXX XXX
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Appendix A Nation's Best Council STATEMENT OF CHANGES IN NET ASSETS DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 (Continued, page 2) Changes in Temporarily Restricted Net Assets
Operating Fund
Capital Fund
Endowment Fund 2005
Direct Support Friends of Scouting Capital Campaign Other Direct Support Total Direct Support
X.XXX
Indirect Support United Ways Total Indirect Support
XX,XXX XX,XXX
X.XXX XX,XXX XX,XXX
XX,XXX XX,XXX
Total All Funds 2004
X,XXX XX,XXX XX,XXX XX,XXX
X,XXX XX,XXX X.XXX XX,XXX
XX,XXX XX,XXX
XX,XXX XX,XXX
Revenue Total Revenue Net Assets Released from Restrictions Reclass Friends of Scouting Reclass Capital Campaign Reclass Foundations Reclass United Ways Total Reclassification of Net Assets Total Support and Revenue Inc (Dec) in Temp. Res. Net Assets Changes in Permanently Restricted Net Assets Direct Support Legacies and Bequests Foundations and Trusts Other Direct Support Total Direct Support
X.XXX XX,XXX X.XXX X.XXX X.XXX
X.XXX XX,XXX X.XXX
XX,XXX
XX,XXX
X.XXX XX,XXX
XX,XXX
XX,XXX
XXX,XXX
XX,XXX
X.XXX
XX,XXX
XX,XXX
X.XXX
X.XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX X.XXX
X.XXX
XX,XXX
X.XXX
XX,XXX
X.XXX
XX,XXX
Indirect Support Total Indirect Support
XXX
XXX
Revenue Gain or Loss on Investments Total Revenue
XXX XXX
XXX XXX
X.XXX X.XXX
XX,XXX
XX,XXX
Net Assets Released from Restrictions Total Reclassifications of Net Assets Total Support and Revenue
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X.XXX
XX,XXX
A-4
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Appendix A Nation's Best Council STATEMENT OF CHANGES IN NET ASSETS DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 (Continued, page 3) Operating Fund Net Assets, Beginning of Year Unrestricted Net Assets Temporarily Restricted Net Assets Permanently Restricted Net Assets Total Net Assets, Beginning of Year Transfers Adjustments to Net Assets Net Assets, End of Period Unrestricted Net Assets Temporarily Restricted Net Assets Permanently Restricted Net Assets Total Net Assets, End of Period
Scout Executive’s Guide to the 2005 Audit
Capital Fund
Endowment Fund
X,XXX XX,XXX
XXX,XXX XX,XXX
XX,XXX
XXX,XXX
XX,XXX XX,XXX XXX,XXX XXX,XXX
(XX,XXX)
XX,XXX
XXX
X,XXX
Total All Funds 2005 2004 XXX,XXX XX,XXX X,XXX XXX,XXX
X,XXX X,XXX XXX X,XXX
X,XXX
X,XXX XXX
XXX,XXX XXX
X,XXX
XXX,XXX
A-5
XXX XXX XXX,XXX XXX,XXX
XXX,XXX X,XXX XXX,XXX XXX,XXX
XXX,XXX X,XXX XXX,XXX XXX,XXX
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Appendix A Nation's Best Council STATEMENT OF FUNCTIONAL EXPENSES DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 Expenses
Program Services
Management & General
Fundraising
Support Services
Total Expenses 2005
2004
Employee Compensation Salaries Employee Benefits Payroll Taxes Employee-Related Expense Total Employee Compensation
XX,XXX X,XXX XXX XXX XX,XXX
X,XXX X,XXX XXX XXX X,XXX
X,XXX X,XXX XXX XXX X,XXX
XXX,XXX X,XXX XXX XXX X,XXX
XXX,XXX XX,XXX XX,XXX X,XXX XXX,XXX
XXX,XXX XX,XXX XX,XXX X,XXX XXX,XXX
Other Expenses Professional Fees Supplies Telephone Postage and Shipping Occupancy Rent and Maintenance of Equipment Printing and Publications Travel Conferences and Meetings Specific Assistance to Individuals Recognition Awards Interest Expense Insurance Other Expense Total Other Expense
XX,XXX X,XXX X,XXX X,XXX X,XXX XXX XXX XXX XXX XXX XXX X,XXX XXX XX,XXX
X,XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
X,XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX X,XXX
X,XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX X,XXX
X,XXX XX,XXX XX,XXX X,XXX X,XXX XX,XXX X,XXX XX,XXX X,XXX X,XXX X,XXX XXX XX,XXX XX,XXX XXX,XXX
X,XXX XX,XXX XX,XXX X,XXX X,XXX XX,XXX X,XXX XX,XXX X,XXX X,XXX X,XXX X,XXX XX,XXX XX,XXX XXX,XXX
Expenses Before Depreciation
XX,XXX
X,XXX
X,XXX
X,XXX
XXX,XXX
XXX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
XX,XXX
X,XXX
X,XXX
X,XXX
XXX,XXX
XXX,XXX
Depreciation of Buildings/Equipment Total Functional Expense
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Appendix A Nation's Best Council STATEMENT OF CASH FLOWS DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 Operating Fund
Capital Fund
Endowment Fund
Total All Funds 2005
2004
Cash Flow from Operations
Inc (Dec) Total Net Assets Adjustments to Net Assets to Reconcile Cash Flows Accounts Receivable Pledges Receivable Inventory Deferred Expense - Activities Deferred Expense - Camp Deferred Expense - Special Fundraising Events Deferred Expense - Other Prepaid Expense Accounts Payable Accrued Expense Payroll Taxes Custodial Accounts Deferred Income - Activities Deferred Income - Camp Deferred Income - Special Fundraising Events Deferred Income - Other Other Current Liabilities Prior-Period Adjustments Deferred Status Change Transfers Depreciation Deferred Status Change
XX,XXX
(XX,XXX)
(X,XXX)
(XX,XXX)
XX,XXX
XX,XXX X,XXX (X,XXX)
(XX,XXX) X,XXX
X,XXX X,XXX
(X,XXX) X,XXX (X,XXX) XX,XXX
(X,XXX) X,XXX (X,XXX) (XX) XX,XXX
(XX) (XX,XXX) (XX) (XXX) XX,XXX XX,XXX XX,XXX X,XXX X,XXX (XXX) XXX
(XX) (XX,XXX) (XX) (XXX) XX,XXX XX,XXX XX,XXX XXX XXX (XXX) XXX
XX,XXX (X,XXX)
XX,XXX (X,XXX)
XX,XXX XX,XXX (XX) (XX,XXX) (XX) (XXX) XX,XXX XX,XXX XX,XXX X,XXX X,XXX (XXX) (XX,XXX) (X,XXX) (XX,XXX)
XXX
XXX
XX,XXX
XXX
XX,XXX XX,XXX
XXX
(X,XXX)
Total Adjustments
(XX,XXX)
XX,XXX
X,XXX
XX,XXX
XX,XXX
Net Cash Flows from Operations
(XX,XXX)
XX,XXX
(X,XXX)
XX,XXX
XX,XXX
(XX,XXX) X,XXX X,XXX (XX,XXX) X,XXX
(XX,XXX)
X,XXX X,XXX (X,XXX) X,XXX (X,XXX)
(XX,XXX)
XX,XXX
Cash Flows from Investing Activities Investments - Fixed Assets Short-Term Investment Purchases Short-Term Investment Sales Long-Term Investment Purchases Long-Term Investment Sales Net Cash Flows from Investments
Scout Executive’s Guide to the 2005 Audit
(XX,XXX) XXX XXX
(XX,XXX)
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Appendix A Nation's Best Council STATEMENT OF CASH FLOWS DECEMBER 31, 2005, WITH COMPARATIVE TOTALS FOR 2004 (Continued, page 2) Operating Fund
Capital Fund
Endowment Fund
Total All Funds 2005
Cash Flows from Borrowing Short-Term Notes Borrowing Short-Term Notes Payments Long-Term Notes Borrowing Long-Term Notes Payments
X,XXX (X,XXX) X,XXX
Net Cash Flows from Borrowing Net Inc (Dec) in Cash Flows
2004
X,XXX (XX,XXX)
X,XXX
(XX,XXX) X,XXX
(XX,XXX)
(XX,XXX)
X,XXX
X,XXX
(XX,XXX)
(XX,XXX)
Cash at the Beginning of the Year
XXX,XXX
X,XXX
XXX,XXX
XXX,XXX
Cash at the End of the Period
XXX,XXX
(XX,XXX)
XXX,XXX
XXX,XXX
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Appendix B—Code of Ethics Overview
The executive board should formally adopt a code of ethics with which all board members, staff, and volunteers are familiar and to which they adhere. The following Statement of Values and Code of Ethics was developed and provided by the Independent Sector (a not-for-profit organization of which BSA is a member) as an encouragement to all not-for-profit organizations to set aside time in their board meetings to discuss in detail all aspects of an ethical code. It may be used as a model in your council.
Statement of Values
Below is the Statement of Values for councils of the Boy Scouts of America. The values of this council include: Commitment to the public good. Accountability to the public. Commitment beyond the law. Respect for the worth and dignity of individuals. Inclusiveness and social justice. Respect for pluralism and diversity. Transparency, integrity, and honesty. Responsible stewardship of resources and commitment to excellence and to maintaining the public trust. All staff, board members, and volunteers of the council act with honesty, integrity and openness in all their dealings as representatives of the council. The council promotes a working environment that values respect, fairness, and integrity.
Council Mission
The council has a clearly stated mission and purpose, approved by the executive board, in pursuit of the public good. All of its programs support that mission and all who work for or on behalf of the council understand and are loyal to that mission and purpose. The mission is responsive to the constituency and communities served by the council and of value to the society at large.
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Governing Body
The organization has an active governing body that is responsible for setting the mission and strategic direction of the council and for the oversight of the finances, operations, and policies of the council. The governing body: Ensures that its board members have the requisite skills and experience to carry out their duties, and that all members understand and fulfill their governance duties acting for the benefit of the organization and its public purpose. Has a conflict-of-interest policy that ensures that any conflicts of interest or the appearance thereof are avoided or appropriately managed through disclosure or other means. Is responsible for hiring, firing, and regular review of the performance of the Scout executive, and ensures that the compensation of the Scout executive is reasonable and appropriate. Ensures that the council conducts all transactions and dealings with integrity and honesty. Ensures that the council promotes working relationships with board members, staff, volunteers, and program beneficiaries that are based on mutual respect, fairness, and openness. Ensures that the council is fair and inclusive in its hiring and promotion policies and practices for all board, staff, and volunteer positions. Ensures that policies of the council are in writing, clearly articulated, and officially adopted. Ensures that the resources of the council are responsibly and prudently managed. Ensures that the council has the capacity to carry out its programs effectively. The council is knowledgeable of and complies with all laws, regulations, and applicable international conventions.
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Fund Management
The council manages its funds responsibly and prudently with the following considerations: It spends a reasonable percentage of its annual budget on programs in pursuance of its mission. It spends an adequate amount on administrative expenses to ensure effective accounting systems, internal controls, competent staff, and other expenditures critical to professional management. The council compensates staff reasonably and appropriately. It spends a reasonable percentage of its annual budget on fundraising costs, recognizing the variety of factors that affect fundraising costs. The council does not accumulate operating funds excessively. The council prudently draws from endowment funds consistent with donor intent and to support the public purpose of the council. The council ensures that all spending practices and policies are fair, reasonable, and appropriate to fulfill the mission of the council. All financial reports are factually accurate and complete in all material respect.
Public Information
The council provides comprehensive and timely information to the public, the media, and all stakeholders and is responsive in a timely manner to reasonable requests for information. All information about the council will fully and honestly reflect the policies and practices of the council. Basic informational data about the council, such as the Form 990 and audited financial statements will be posted on the council’s Web site or otherwise available to the public. All solicitation materials accurately represent the council’s policies and practices and will reflect the dignity of program beneficiaries. All financial, organizational, and program reports will be complete and accurate in all material respects.
Program Effectiveness
The council regularly reviews program effectiveness and has mechanisms to incorporate lessons learned into future programs. The council is committed to improving program and organizational effectiveness and develops mechanisms to promote learning from its activities and the field. The council is responsive to changes in its field of activity and is responsive to the needs of its constituencies.
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Staff Makeup
The council has a policy of promoting inclusiveness, and its staff, board, and volunteers reflect diversity in order to enrich its programmatic effectiveness. The council takes meaningful steps to promote inclusiveness in its hiring, retention, promotion, board recruitment, and constituencies served within the policies of the Boy Scouts of America.
Raising Funds
The council is truthful in its solicitation materials. The council respects the privacy concerns of individual donors and expends funds consistent with donor intent. The council discloses important and relevant information to potential donors. In raising funds from the public, the council will respect the rights of donors, as follows: To be informed of the mission of the council, the way the resources will be used, and their capacity to use donations effectively for their intended purposes. To be informed of the identity of those serving on the council’s executive board and to expect the board to exercise prudent judgment in its stewardship responsibilities. To have access to the council’s most recent financial reports. To be assured their gifts will be used for the purposes for which they were given. To receive appropriate acknowledgement and recognition. To be assured that information about their donations is handled with respect and with confidentiality to the extent provided by the law. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature. To be informed whether those seeking donations are volunteers, employees of the council, or hired solicitors. To have the opportunity for their names to be deleted from mailing lists. To feel free to ask questions when making a donation and to receive prompt, truthful, and forthright answers.
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