02 – J – 00

Call to Order

02 – J – 01

Minutes of May 9, 2002 Executive Committee Meeting

02 – J – 02

Audit Presentation

Ms. Golden noted that with the exception of Board member Ray Nowicki, the Audit committee consisted of non-Board members in order to promote more independence in the auditing oversight process. Ms. Golden then recognized Allen L. Fetterman, Chair of the Audit Committee, and Lynda G. Feldman of Eisner & Co., LLP, the Society’s auditors, to report on the recently completed audit.

Mr. Fetterman began by commending the contributions of Audit Committee members Ronald Benjamin, Michael L. McNee, Raymond M. Nowicki and John F. Heveron, noting that they collectively brought to the audit process a strong foundation of experience in the not-for-profit sector. He then briefly explained the process by which the committee worked with the Society’s auditors, Eisner & Co., LLP, and management. To encourage full and frank communication, one meeting was conducted in “executive session”; however, Mr. Fetterman noted that nothing emanated from the executive sessions that would not have otherwise been disclosed. He added that there had been a staff reduction at the controller level; however, Ms. Chambers had assured all involved in the audit that the staff reduction would not have any impact on the conduct of the audit.

Mr. Fetterman then noted that at the suggestion of Ray Nowicki, the auditors conducted a test on the Society’s reimbursement policies and found no inherent problems. He then turned the floor over to Ms. Feldman to discuss the audit draft.

Ms. Feldman stated that overall, the Society’s total assets decreased from approximately $7 million to $6.5 million, attributed largely to a decrease in accounts receivables. A member asked what “pre-paid expenses” referred to. Ms. Chambers responded that the category includes such items as certain FAE course expenses, insurance and security deposits. A discussion then ensued with respect to whether security deposits should be listed separately or specifically acknowledged in the heading as “pre-paid expenses and deposits”. After a brief discussion, the committee by consensus agreed that the category should remain as written.

Mr. Aquilino asked whether the audit should reflect “classified balances”. Mr. Fetterman responded that this is a management decision, but added that it is not typical to do so in not-for-profit audits. Ms. Golden reminded members, however, that the financials are published on the website and in The Trusted Professional, where they will be read by members used to seeing classified balances in financial statements. In this respect, Ms. Golden said that it is important to format the information to meet audience expectations. Mr. Aquilino added that interim financials are reported to the Board in this fashion, and should be consistent. The committee agreed by consensus that the audited financials should contain classified balances.

Ms. Golden observed that a $1.2 million budget deficit had been anticipated; however, the audit indicates only a $900,000 deficit, a substantial decrease of $300,000. Ms. Chambers responded that the change was due in large part to the reclassification of a $200,000 reserve for moving expenses, which had previously been included in the deficit. Mr. Fetterman noted that the remaining $100,000 difference resulted from a number of smaller reclassifications or adjustments.

Mr. Fetterman highlighted that the audit opinion is unqualified. He said the audit committee considered the question as to whether to include an explanatory paragraph of concern over losses in FAE and the potential for such losses to continue in the coming years. While an explanatory paragraph was not required under GAAS, he advised members to take note of this concern and continue to look at ways of addressing it.

In addition, Mr. Fetterman recognized that at the end of the fiscal year 2002, the Society realized a substantial collection of cash in the form of 2003 dues payments. He noted that a portion of the cash was used to pay for 2002 expenses, and cautioned that this may have financial implications for the current year.

Mr. Aquilino observed that the decrease in CPA Journal revenue was large. Ms. Barry responded that the decrease was attributable to a decline in advertising income. She added that The CPA Journal was particularly affected by mergers in the software industry because of its reliance on this industry for advertising revenue. She also emphasized that The CPA Journal continues to look at other industries to pursue with respect to advertising dollars.

A discussion then ensued with respect to alternative venues from which to pursue advertising revenue, and it was suggested that software and payroll-services businesses had perhaps been exhausted. Committee members suggested that the staff be more creative in identifying the industries from which advertising is sought, with one member suggesting the luxury car companies as an area to explore for more advertising revenue.

Mr. Grumet noted the staff is quite open to all sources of revenue and further that because of antitrust concerns, the Society’s advertising policy was very broad. Therefore, nearly all advertisements proffered in good faith could not be rejected without good cause.

A discussion followed with respect to the Society’s advertising credit policy. Ms. Barry noted that the industry standard is for new clients to pay up-front, while returning clients pay after an ad has run and they receive a tear sheet of the ad. Regarding classified advertising, the Society requires that all advertisers pay up-front, often by credit card, so that revenue is realized more immediately.

Ms. Feldman directed members’ attention to notes J, Volunteer Services, and L, Deficit in Unrestricted Net Assets, both of which are new notes to the audited financials. She said that although the notes are not required by either GAAS or GAAP, the auditors felt it was important to include them. Note L indicates to members how the Society has taken affirmative steps to address the deficit. In addition, under note J, volunteers provided a substantial amount of educational and other support services to Society members and the public at large, including the assistance offered to individuals and their businesses affected by the terrorist attacks last September.

With respect to note L, Ms. Chambers advised members that information concerning how FAE would be attempting to address its own budget deficit in the coming year was omitted from the draft, but would be included in a later draft. She then summarized the steps FAE had been taking, including increased course attendance, a new refund policy, increased POP program acceptance, as compared with the previous unpopular VIP program, and no significant increase in course material prices resulting from aggressive negotiations with vendors.

Ms. Golden expressed reservations regarding the inclusion of any specific dollar amounts in note L and opened the floor for members to discuss the issue. One member stated that the inclusion of specific numbers in note L might lend an increased level of credibility and openness to the report. In the ensuing discussion, however, several members said that the inclusion of specific dollar amounts was not necessary to make this point. After a brief discussion, the committee agreed by consensus to retain note L, including the yet-to-be-included paragraph on FAE, but to omit any specific monetary amounts.

Ms. Feldman then discussed the management letter. The auditors’ first consideration concerned the comparison of interim financial information to budgeted data. Ms. Feldman noted that after looking at interim financials and comparing them to the interim budget reports, the auditors found some inconsistencies between the two formats. The auditors, therefore, recommended that the Society review its budgeting process to assure that budgets are in sync with interim financials.

The second consideration concerned what the auditors found to be a lack of precision in accounting for missing or skipped checks. Ms. Chambers responded that there had been a problem with the checking component of the AM4 system, which created erroneous check sequencing with non-AM4 checking-writing software; however, the problem has now been resolved.

Mr. Hoops asked if the auditors were satisfied with internal controls, and Ms. Feldman responded that the auditors found no problem in that regard. She noted all controls are working adequately, and nothing came to light that would improve controls that are currently in place.

Consideration three concerned Chapter bank reconciliations. Mr. Fetterman observed that some reconciliations from the Chapters were not ready for review in a timely manner, and that the Chapters should treat the task as if it were a client in the observance of deadlines. Ms. Chambers acknowledged that there had been slippage in the process, but added that the Society had not previously asked for bank reconciliations from the Chapters. One member suggested that respective Chapter allocations should be withheld until all reconciliations are submitted. Mr. Grumet suggested that because this is a new requirement, the problem should be worked out first before funds are withheld. Ms. Chambers noted that she personally checks bank statements each month against the Chapter ledger balance. One member suggested that the banks send out duplicate statements. Ms. Chambers explained that original statements are received by her office and faxed to the Chapters.

Consideration four concerned disaster recovery. Mr. Fetterman said that disaster recovery considerations are not as compelling as the year’s operating results. One member stressed that, nevertheless, it is important to think about the issue, even if a disaster recovery plan is not mandated. Mr. Fetterman agreed that a plan is not a reportable condition, but is included in the report for informational purposes only.

Consideration five concerned a conflict-of-interest policy. Ms. Golden noted that counsel James Woehlke had drafted a policy and the Executive Committee subsequently designated Larry Keiser to review it and report back to the committee at a later time. She noted that the committee also asked Mr. Woehlke to provide examples of actual policies, as opposed to model policies.

One member asked if the auditors had reviewed the allocations methodology. Mr. Fetterman noted that they had reviewed it in great detail. He added that SAS 61 disclosures were good.

02 – J – 03

Financial Statements as of July 31, 2002

Mr. Aquilino reported on the Society’s Financial Statements as of July 31, 2002. He reviewed the reduction in expenses. One member observed that there appeared to be a substantial reduction in just two months from June to July. Ms. Chambers responded that June expenses are typically low because it is the end of the fiscal year when business slows down. She added, however, that expenses would pick up in the ensuing months.

A member noted that there appeared to be a decrease in staff expense. Mr. Grumet responded that this is attributed to staff cuts and the fact that several vacated positions have remained unfilled.

One member stated that the statements were presented in a way that made it difficult to relate the cash flow sheet to the balance sheet. Ms. Golden suggested that the statements should identify “actual cash”, instead of including cash equivalents such as mutual funds. It was suggested to instead place cash equivalents under a category “investment activity”.

02 – J – 04

President’s Report

a. Status of Presidential Appointments

Ms. Golden announced the following appointments to the finance committee:

David A. Lifson, Chairman, William Aiken, Frank J. Aquilino, Spencer L. Barback, David Evangelista, Jeffrey R. Hoops, Nancy A. Kirby

In addition, Ms. Golden noted that she had appointed a Task Force on Public Accountability consisting of the following persons:

Vincent Love, Chairman, Allen L. Fetterman, Brian A. Caswell, Dan L. Goldwasser, Douglas R. Carmichael, George Foundotos, Marilyn Pendergast, Nancy Newman-Limata, Paul R. Brown, Robert Shallish, Robert Sohr, Rona L. Cherno

Lastly, Ms. Golden noted that Mr. Keiser would head a committee to review the language of certain policies.

b. Legislative Update

It was reported that the legislature was not in session.

c. Report on Leadership Conference

No report was given.

d. Recent Society Comments

Ms. Golden commended the following committees on their efforts in drafting the recent Society comments noted:

• The Professional Ethics Committee for their “Comments on AICPA PEEC Exposure Draft: Omnibus Proposal of professional Ethics Division Interpretations and Rulings”
• The Financial Accounting Standards Committee for their “Comments on FASB Exposure Draft, Amendment of Statement 133 on Derivative Instruments and Hedging Activity” and “Comments on FASB Exposure Draft of a Proposed Interpretation, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”
• The Auditing Standards and Procedures Committee for their “Comments on Exposure Draft on the Proposed Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit” and “Comments on ASB Exposure Draft, Proposed Statement on Auditing Standards, Amendment to Statement on Auditing Standards No. 50, Reports on the Application of Accounting Principles”

All these comments are available on the Society website.

e. Dinner with Barry Melancon on September 24, 2002

Ms. Golden reminded members of the scheduled dinner with Barry Melancon, AICPA President and CEO and encouraged all members to attend.

f. Media Training

Ms. Golden stated that the media training session conducted on August 15 was extremely worthwhile and encouraged all members to participate in the next session scheduled for September 24.

g. Insurance Update

Members were referred to the handout for the insurance update.

h. PAC Update

There was no PAC update.

02 – J – 05

Executive Director’s Report

a. Membership Database

Mr. Grumet referred the Executive Committee to the materials accompanying the agenda regarding the membership database.

b. Dissemination of Recruitment Materials to Chapters

Mr. Grumet referred the Executive Committee to the materials accompanying the agenda regarding the dissemination of recruitment materials to chapters.

c. Trade Show

Mr. Grumet indicated that the Trade Show held at the Hilton was a success.

d. Report on Committees

Mr. Grumet indicated that the number of members participating in committee service is up substantially.

e. Update on FAE Registration

Mr. Grumet indicated that the registration of summer FAE events is up substantially.

02 – J– 06

Strategic Planning

Ms. Lapidus updated the Executive Committee on the strategic plan. She noted that copies of the plan had been distributed to all invitees of the leadership conference. Several persons commented on the plan. Ms. Lapidus added that a number of leaders including Frank Aquilino, Andy Cohen, Nancy Newman-Limata, Joanne Golden and Tom Riley participated in a conference call during which they discussed and edited the strategic plan in great detail.

Ms. Golden expressed concern that the strategic plan needed to benefit from more membership input. She noted that the upcoming Chapter visitations, which were attended by over 2,000 members last year, might provide a good opportunity to solicit membership input on the plan. As a result, she suggested that the Executive Committee defer the adoption of the plan until a future Board meeting, to solicit more member input.

The Executive Committee then reviewed the plan line by line, discussing the issues presented and suggesting amendments. Because of time constraints, however, the committee agreed by consensus to defer the full review and revision of the plan until all members of the committee have had a chance to review the plan independently. The committee agreed to have all committee-member comments sent to Alan Schmelkin by September 3, 2002, so that a new draft could be sent out in advance of the September Board meeting.

02 – J – 07

Use of Membership Database

G. William Hatfield joined the committee by telephone to present the recommendation and request of the Professional Liability Insurance Committee to release the Society’s membership database to CAMICO Mutual Insurance Company, the Society’s exclusively endorsed provider of professional liability insurance. Mr. Hatfield stated that the release of the database would expedite membership marketing and decrease the administrative burden on Society staff with respect to such marketing initiatives.

Mr. Hatfield then gave a brief summary of the Society’s relationship with CAMICO. He reminded committee members that because of CAMICO’s strong attributes, including financial stability and a proven commitment to the CPA profession, the Society exclusively endorsed CAMICO as the provider of members’ professional liability insurance over two years ago. He added that CAMICO is committed to the Society, as evidenced by, among other things, its provision of complimentary ethics CPE to members in conjunction with the officer Chapter visitations.

In response to a member inquiry, Ms. Barry gave a brief overview of the process by which a marketing piece is approved and ultimately mailed to the membership. She noted that once all copy approvals and requisite signatures have been obtained, the marketing materials and a Society-generated mailing list are sent to a third-party mailing house located in New York which facilitates the mailing. She added that CAMICO, located in California, prints and sends materials such as brochures and other mailing enclosures to the third-party mailing house in New York and later reimburses the Society for the expenses incurred in generating the mailing.

Ms. Golden noted that there is no specific policy with regard to the use of mailing lists per se; however, the Society has generally frowned upon the release of the list to any party including its affinity partners, opting instead to use third-party mail houses who execute confidentiality and limited use agreements in order to conduct affinity partners’ direct mail campaigns. Ms. Golden stressed the importance of never losing control of the Society’s membership lists, which might be susceptible to abuse if the Society increases access to it. It was noted that some members are very sensitive to the receipt of unsolicited marketing paraphernalia and it is important to respect such member sensitivities. A member then suggested that if the current arrangement creates timeliness issues, then perhaps a third-party mail and production company located in California could be used to expedite the process.

A member cautioned against the potential for data manipulation of the list, which could raise ownership issues in the event that an affinity relationship runs its course or is terminated.

Another member noted, however, that the Society website essentially provides access to the entire membership list by way of individual queries from the homepage. Ms. Barry responded that although one can look up individual members, it is more difficult to obtain a complete membership listing without “drilling down” several layers. Mr. Grumet added that it had come to management’s attention that a recruiter had indeed been accessing membership lists in this fashion, but has since been notified in writing by the Society to “cease and desist.” Mr. Grumet noted that members were given the opportunity to “opt out” of the inclusion of their names and addresses in the website’s search function, and were also apprised of the Society’s privacy policy with respect to it. A committee member recommended that the privacy policy be republished in The Trusted Professional.

Ms. Golden observed that no committee members appeared to support authorizing the release of the membership list, and, therefore, a motion was not necessary. There being no objection, Ms. Golden declared that the current practice with respect to the release of the mailing list should continue to be applied.

02 – J – 08

Revised Contract Approval Policy

At its preceding meeting the Executive Committee had acted to revise the contract approval policy and directed that the revised draft be resubmitted for final approval. Mr. Nelson made a motion, seconded by Mr. Aquilino, to approve the contract approval policy included as Attachment A. There being no objection, the motion passed unanimously.

02 – J – 09

Membership Report

A. Young CPA Forum

The committee discussed the venue for the Young CPA Forum. After the discussion, Mr. Love moved and Mr. Nelson seconded a motion to hold the next CPA Forum in the Suffolk Chapter, and to hold the following forum in the Rockland Chapter. There being no objection, the motion passed unanimously.

B. Approval of Membership Report

Mr. Grumet presented the membership report, which included 313 new members (including 126 new associate members), 26 reinstatements, 24 deaths, 116 resignations, and 1 ethics-related termination. These changes reflected a total membership of 29,796 as of August 21, 2002. Mr. Aquilino moved and Ms. Doran seconded a motion to approve the Membership Report. There being no objection, the motion passed unanimously.

02 – J – 10

Executive Session

The Executive Committee entered into executive session. Following the executive session, Mr. Love made the following motion, seconded by Mr. Hoops:

RESOLVED, that the Executive Director succession plan is hereby rescinded. RESOLVED, FURTHER, that the Society shall continue to maintain key person insurance coverage in the amount of $200,000 on the life of the Executive Director.

The committee unanimously approved the motion.

Also, following the executive session the Executive Committee upon motion duly made and seconded unanimously voted to recommend to the Board of Directors that Eisner, LLP be reappointed to audit the financial statements of the Society and related entities.

02 – J – 11

Adjournment