03– C – 00
Call to Order

03 – C – 1
Minutes of November 19, 2002 Meeting

Mr. Hoops asked Board members if they had any changes to the minutes of the June 4, 2002 conference call. It was noted that the meeting date in the caption and the body of the minutes-approval section should be corrected. Also, the attendance should reflect that Mr. Peare was present. Upon motion by Ms. Napoleon-Hudson, which was seconded by Mr. Berlant, the minutes were unanimously approved as corrected.

03 – C – 2
President’s Report

a. Legislative Update

Mr. Hoops noted that the legislative matters were discussed at the training session the preceding day. He said that a bullet-point description of the Senate bill would be prepared and distributed to the leadership. Mr. McCoy, chair of the Legislative Task Force, said that the description would include comments on how each of the provisions would impact various areas of practice. He noted that during the next legislative period, we would be working to advance the identical “same as” bill in the Assembly.

b. Meeting with Chancellor Bennett

Mr. Hoops described the meeting held with the chancellor, which included Messrs. Kearney, McCoy, Grumet and O’Leary on June 24. Following the meeting, the regents postponed the pending regulations then under consideration.

c. Internal Audit

Mr. Hoops asked Mr. Nowicki to summarize the Executive Committee’s discussions on internal control. Mr. Nowicki noted that the Executive Committee was developing a list of suggestions to enhance the Society’s internal control, including the hiring of a certified fraud examiner, additional training for staff, and conducting of a review internal auditing procedures.

d. AICPA Governance Task Force

Mr. Hoops provided background for the governance task force on which he serves. The task force was formed after the Massachusetts society asked for a review of the role of AICPA Council and the New York society asked for a broader governance review. The task force submitted a preliminary report to the AICPA Board which had met the previous week. As of the Society’s Leadership Conference, Mr. Hoops said the task force had not received the AICPA Board’s response.

One board member asked if the report would have addressed concerns raised by the recent announcement that the AICPA’s chief staff officer had received an estimated 22% raise during a year that the AICPA’s Internet portal subsidiary lost millions of dollars. Mr. Hoops indicated that the report did not touch on that issue.

e. Peer Review and Ethics Task Force Update

Mr. Hoops asked Mr. Kearney to report on the activities of the task force, which was chaired by former Society President Brian Caswell. Mr. Kearney said the task force had held three conference calls of about an hour each on a weekly basis beginning in early June. He noted that the task force intended to submit its report in time for the next Board meeting.

f. Recent Society comments

Mr. Hoops reported that the Society had submitted the following four sets of comments:

• Comments on Internal Revenue Service K-1 Matching Program, the principal drafters of which were Leon M. Metzger, Robert L. Goldstein, and Gerard I. Borod, submitted by the Tax Division Oversight Committee.
• Comments on the AICPA Professional Ethics Executive Committee Exposure Draft “Omnibus Proposal of Professional Ethics Division Interpretations and Rulings”, the principal drafters of which were Rona L. Cherno, Richard Isserman, and Kevin Bandoian, submitted by the Professional Ethics Committee.
• Comments on Tax Simplification, the principal drafters of which were former Society President Alan E. Weiner, M. David Bahr, Sheldon Barasch, Arthur Bloom, Joseph L. Charles, Alan Dlugash, I. Jay Safier, and Harold K. Weibusch, submitted by the Tax Division Oversight Committee.
• Comments to the Auditing Standards Board on “Exposure Draft of Seven Statements on Auditing Standards Related to Audit Risk”, the principal drafters of which were Neal Hitzig, Bruce Nearon, Julian Jacoby, and Fred Goldstein, submitted by the Auditing Standards and Procedures Committee.

Mr. Hoops commended the authors and submitting committees for their excellent work.

Mr. Colson spoke on the changes in the current environment regarding the issuance of pronouncements in the accounting and auditing area. He noted that PCAOB Chairman William J. McDonough was currently set to speak at the SEC Conference on September 9, 2003.

Mr. Bloom asked about efforts to expedite comments in the tax area. Mr. Hoops recognized Mr. Stephen Valenti, chair of the Tax Division Oversight Committee, who reviewed changes he had initiated to expedite tax comments.

g. Bylaws Update

Mr. Hoops asked Mr. Woehlke to review the current status of the pending bylaws revision. Mr. Woehlke reported that after the Board had “initiated” the bylaw changes, that is, approved them for submission to the membership, on April 23, the Society had ninety days to send out proxy ballots, count the responses, and conduct a special membership meeting to make the vote official. He said that the bylaw amendments were reprinted in the June issue of The Trusted Professional and proxy/ballots were mailed with the newspaper to all CPA members. In addition, in mid-June an email had been sent to all CPA members for whom the Society had email addresses. Mr. Hoops set the date for the special members’ meeting as July 21. The cutoff date for the ballot was July 11. He added that as of midday, Friday July 11, the ballot tabulator had reported that 1,969 ballots had been received, which was in line with recent votes conducted by the Society.

Mr. Hoops recognized former President Stuart Kessler, who stated his disagreement with a number of the bylaw revisions and his belief that the ballot should be designed differently and that bylaw amendments should be accompanied by arguments pro and con.

Mr. Hoops reviewed the process by which the bylaws were initiated and recognized Ms. Sharon Fierstein, chair of the Bylaws Revision Task Force, who reviewed the task force’s rationale concerning the items, with which Mr. Kessler took issue.

h. Strategic Planning

Mr. Hoops noted that information on the implementation of the strategic plan is now incorporated into the financial information included with the Board agenda.

i. COAP Update

Mr. Hoops asked Mr. Grumet to report on COAP. Mr. Grumet said that programs had been conducted at LeMoyne College for the first time this year in addition to Long Island University and Westchester Community College for the second year running as well as the long-running programs conducted at Pace University and Hofstra University. He added that Keyspan had offered to host an event for COAP participants.

Mr. Grumet anticipated that the Society would no longer subsidize the residential aspects of the programs located at Pace and Hofstra, noting that this would free up resources to expand the program to new locations. Also, LIU had offered to begin a residential program with the residential costs to be picked up by the university.

h. FAE Update

Ms. Golden reported on her plans for the year. She reviewed FAE’s corporate purpose and intended to continue to reach out to members in industry, an initiative begun by former President Sokolski. She expressed her intention to expand FAE’s current programs, perhaps by adding an effort to educate school board members on how to read audited financial statements and by submitting a grant request to the PCAOB grant request.

03 – C – 3
President-Elect’s Report on the 2004 Leadership Conference Site

Mr. Kearney reported that he was exploring a return to the Sagamore on Lake George, but that this was in very early stages.

03 – C – 4
Report of the Vice Presents for Chapters

The Board was referred to the written report from Vice Presidents Napoleon-Hudson and Nowicki included with their agenda materials.

03 – C – 5
Reports of the Treasurer and Audit Committee Chair

a) Financial Statements

Mr. Hoops asked Mr. Bloom, the Treasurer, and Ms. Chambers, the director of finance, to report on the current financial position of the Society. Mr. Bloom noted that the financials show a $1.1 million improvement in cash over the preceding year. He said that the entire deficit generated in the preceding year had been recovered.

Mr. Bloom reported that combined NYSSCPA and FAE income for the period ending May 31, 2003 was $1,246,805 (unaudited), as compared to ($898,376) in 2002. In this respect, income was $677,423 ahead of budget. Cash and equivalents stood at $3,901,580 as opposed to $2,784,842 in the previous year.

The board discussed several variances from budget.

Mr. Sohr moved to accept the Treasurer’s report. Ms. Dwyer seconded. Following discussion, it was unanimously approved.

b) Update on Current Audit and Request for Proposals for new Auditor

Mr. Stephen Langowski, chair of the Audit Committee, joined the meeting via conference phone. Ms. Chambers noted that field work on the pending audit was expected to be completed that week.

Mr. Langowski noted that the bylaws require auditor rotation after four years. The current auditor, EISNER, was in their fourth year. A request for proposals had been sent out and to date there had been forty-two responses.

The auditors were expected discuss a draft financial statement with the Executive Committee at their August meeting.

Mr. Langowski commended staff on their level of preparedness for the present audit.

03 – C – 6
Executive Director’s Report

a. Society Staffing Update

This matter was deferred.

b. NYSSCPA Library

This matter was deferred

Mr. Hoops asked former Society President Steven Baum, chair of the Real Estate Task Force, to report on the status of the search for new office space. Mr. Baum reminded the Board that the Society’s current lease expires in October, 2004. He then introduced Mr. Leon Manoff of GVA Williams, the real estate agent engaged by the Board in 2002 to find office space for the Society. Mr. Manoff reported on the various aspects of the search for new office space.

• The space required by the Society and FAE totals approximately 32,500 rentable square feet
• Williams had explored unbundling classroom space from the Society’s other office space needs. They had looked into the possibility of renting classroom space from educational organizations. This was rejected because the organizations were unable to commit to space sufficiently in advance of the date the space was needed. Also the per-square-foot cost of this space was prohibitive.
• Originally, the area being explored was between 34th and 45th Street and between Park Avenue and 7th Avenue. This area was later expanded to 23rd Street.

Of the eleven specific locations that initially appeared to be able to accommodate the Society’s needs, and were actually studied in depth, the rental costs ranged from $11 million to $13 million. In the end, Williams recommended the space currently occupied by the American Institute of Chemical Engineers (“AIChE”) at 3 park Avenue, the benefits of which were the following:

• Lowest rent.
• Little build-out cost – $500,000, which would be returned to the Society in reduced rent over the first two years. This amounted to a savings of as much as $1 million.
• Location had a number of associations currently resident.
• Particular floors under consideration already had an internal staircase.
• The space could be configured to handle events as large as 150 participants, enabling FAE to bring approximately 20 conferences in house.

Board members raised the following points:

• How accessible was the location? Mr. Schmelkin noted that the office was one block from a subway stop and on an east-west bus route from Penn Station.
• What was the loss factor and add on factor for the building? Mr. Manoff responded that the facility had a total add on of 30% with a 23% loss factor, which was competitive.
• How would the rent reductions work? The engineering association that was the current tenant had agreed to refund the $500,000 build-out via rent reductions over the first two years.
• How convenient was parking? Mr. Schmelkin noted that there were several parking facilities in the neighborhood, most of which were less costly than the facilities near the Society’s current location.
• One director, noting that the sub-lease term ended in ten years, asked if there were any provision for rental beyond that time. Mr. Manoff indicated that the landlord had not indicated any willingness to rent directly to the Society for an additional five years.
• Why was it suggested that the Society consider changing its banking relationship with the Bank of New York (“BNY”) to Fleet Bank to accommodate the move. Mr. Baum noted that BNY had been approached to provide a loan to handle the build-out and the security deposit and declined to extend credit. Fleet Bank was approached and offered to continue the Society’s current $500,000 line of credit at prime, provide a $1,000,000 irrevocable standby letter of credit to serve as the security deposit, and extend a $500,000 loan at prime for the build-out.
• To whom would the rent be paid? Mr. Baum indicated that rent would be paid directly to AIChE. Mr. Baum added that the arrangement would be contingent upon receiving a nondisturbance agreement from the landlord. Mr. Baum noted that there would be no duplication of rent because the Society would continue to pay rent to the current landlord; the new sublessor would continue to pay its rent during the overlap period of the Society’s current lease.
• What are the floors to be occupied? The 18th and part of the 19th floors.
• What are the escalations? Real estate taxes and the porter’s wage escalation. Mr. Baum noted that this was porters’ wages without fringe benefits, which was about as favorable as one could get.
• How are utilities handled? Utilities are submetered. So the Society’s direct share of utilities would be directly paid to the landlord.
• How does the rental expense compare to the current arrangement? $980,000 currently as opposed to $1,072,500. Mr. Baum added that when the task force began its efforts, the rental market was expected to be softer than it turned out to be. The current landlord was looking for a rental increase from approximately 30/sq ft to 43/sq ft for the first 5 years and then 45/sq ft beyond.
• Was there any consideration to placing the back office operation outside New York City? Mr. Schmelkin noted that the Board had set the geographic search parameters a year earlier with the result that locations outside New York City were not considered. Mr. Grumet added that while rent could be saved by locating the back office space outside New York City, this would be at great cost to efficiency.
• How would the rent increase under the proposal? There was a bump in the base rent of $1 per square foot after year 5.
• What was the wiring in the proposed space? Mr. Schmelkin noted that the wiring was very up to date, T-1 and T-3 lines, white boards in conference room space, etc.

Following this briefing, Ms. Dwyer made the following resolution, which was seconded by Mr. Berlant:

WHEREAS, the lease at the present location of the New York State Society of CPAs (“NYSSCPA”) is due to expire in October, 2004; and

WHEREAS, beginning with 2001-2002 fiscal year, the NYSSCPA Board of Directors (the “Board”) restricted $200,000 annually to serve as a reserve to be used to pay expenses related to a potential relocation of the NYSSCPA’s offices (“Relocation Reserve”); and

WHEREAS, former NYSSCPA President Nancy Newman-Limata appointed a Real Estate Task Force (“Task Force”), chaired by former Society President Steven Baum and including Robert Demmett, Neville Grusd, Alan Hoffman, Jeffrey Hoops, Don Kiame, Elliot Lesser and Robert Reitman, to explore the issues associated with renewal of a lease at the NYSSCPA’s present location and a move to a location; and

WHEREAS, the Task Force, in cooperation with GVA Williams, the real estate broker engaged by the Board in July 2002 to assist in locating space for the Society, has explored the numerous issues associated with continuing at the Society’s present location and moving to a new location; and

WHEREAS, the Task Force recommends that the Society relocate to 3 Park Avenue in the space currently occupied by the American Institute of Chemical Engineers (“AIChE”), (the “New Location”); and

WHEREAS, a move to the New Location, would entail providing the landlord with a $1 million security deposit, incurring approximately $500,000 of build-out costs and additional incidental expenditures, including legal fees, moving expenses, architect’s fees, and the acquisition of some additional furniture and fixtures.

NOW, THEREFORE, BE IT RESOLVED, that the Board approves the Task Force’s Report and the recommendation to lease the space currently occupied by the AIChE at 3 Park Avenue, New York City, New York. RESOLVED, FURTHER, the Board authorizes and directs that the following actions be taken:

1. The Executive Director shall negotiate a $1,000,000 irrevocable letter of credit satisfactory to the landlord at the New Location to serve as a security deposit.

2. The Executive Director shall negotiate a loan in the amount of $500,000 with the proceeds to be used to build-out classroom and office space at the New Location.

3. The Executive Director may, as part of the aforementioned negotiations, transfer the Society’s banking accounts from the Bank of New York to a new bank, if, in his discretion, such transfer would facilitate the receipt of such letter of credit and loan.

4. The Task Force shall identify and the Executive Director shall engage a real estate attorney qualified to represent the Society in the relocation.

5. The Executive Director, in consultation with the Task Force, shall negotiate and once negotiated, the officers shall enter into a lease or sublease to occupy the New Location.

6. The Executive Director shall hire a moving company to transport to the New Location the property of the Society in his discretion deemed to be of continued use to the NYSSCPA.

7. The Executive Director and other NYSSCPA employees designated by the Executive Director shall apply funds from the Relocation Reserve to pay the following expenditures related to the relocation:

• Architect’s fees and expenses
• Lawyer’s fees and expenses
• Mover’s charges
• Acquisition of additional furniture and fixtures deemed necessary by the Executive Director

8. The executive director is empowered to sell current furniture deemed in his discretion to be unnecessary for use at the New Location.

9. The officers and the Executive Director shall execute and deliver any and all documents necessary to carry out these resolutions.

RESOLVED, FURTHER, that the Board commends the Task Force on its excellent work to date.

Mr. Pape reviewed the format of the report listing new members. He then presented the Membership Report dated July 15, which included 177 new members (including 62 new associate members), 15 reinstatements, 14 deaths, and 25 resignations. These changes reflected a total membership of 29,834 as of July 15, 2003.

Mr. Schlegel moved, and Mr. Sohr seconded, that the membership report be approved. Following discussion, the resolution was unanimously approved.

Mr. Hoops opened the floor to discuss any issues of interest to the Board. He recognized Mr. Westcott, who made the following resolution, which was seconded by Mr. Sypolt:

RESOLVED, that the Society communicate to the AICPA Board the recommendation that Mr. Barry Melancon should be asked to resign his position as AICPA President and CEO.

Mr. Hoops noted the recent press information regarding a substantial raise that Mr. Melancon had received at a time that one of the AICPA’s key initiatives, CPA2Biz was suffering significant financial setbacks, and another, the global credential initiative was soundly defeated by the membership. Mr. Hoops suggested that members of the AICPA Board be invited to a future Society Board event to explain their compensation decision. Mr. Hoops recognized Mr. Charles, a former Society Secretary and current member of the AICPA’s ruling Council. Mr. Charles related some of his experiences as a Council member and suggested that Mr. Hoops’ suggested alternative was a wise approach to take.

One Board member noted that Mr. Melancon did not set his own salary. Another Director expressed a preference for such an invitation, noting that it was not a time to issue ultimatums.

Mr. Kessler was recognized and related his observations about Mr. Melancon’s work ethic and dedication. He advised that it would be best to work through the Council mechanism.

Another Director granted Mr. Melancon’s work ethic but stated his belief that Mr. Melancon had lost credibility with the organization’s membership, the media, and the public.

Ms. Dwyer moved to postpone consideration of the pending question until the September 24 meeting of the Board. Mr. Peare seconded. Following additional discussion, the motion to postpone carried, with Messrs. Westcott, Ellis, and Sypolt voting to oppose.

By consensus, Mr. Hoops was directed to extend an invitation to the AICPA Chairman to discuss the matter. In addition, Mr. Hoops appointed Messrs. Kearney and Riley to informally gather the views of individual Board members and communicate these views to the entire Board.