Subject: Progress Report on Financial Inspection

From: Hongguang Zhou <[email-masked]>
Date: Fri, 19 Nov 1993 01:35:32 -0500 (EST)

Status: For Immediate Release

Progress Report

To:    IFCSS Council
Cc:    IFCSS HQ
	IFCSS Supervisory Committee

From: IFCSS Council Financial Inspection Team
	Qi Bing, Liu Chen, Bai Yan and Zhou Hongguang (signed)

Prepared by Zhou Hongguang

Date:  November 14, 1993

Subject: Site Inspection of IFCSS HQ Financial Situations

I. Objective

To report the progress on the implementation of the Council 
Resolution on Financial Inspection of IFCSS HQ.

To give a partial but actual picture of the IFCSS HQ financial 
operation.

II. Brief Process

2.1 Parties involved:
The Council Inspection Team(IT): Qi Bing, Liu Chen, Bai Yan (Guest 
Consultant to the Inspection Team) and Zhou Hongguang; Council 
Member Chen Dong as an observer.
The HQ: Lin Changshen, Shi Heping, Jiang Zuihong, Geng Xiao.

2.2 Time and Place: November 6-7, 1993; The IFCSS HQ in 
Washington, DC.

2.3 November 6, Saturday, 1993
Because the HQ insisted that Bai Yan, the guest consultant to the 
Council Finance Inspection Team, would not allowed to see the 
financial records of IFCSS, the IT,  temporarily charged by Qi 
Bing for Zhou Hongguang who was unable to appeared at the HQ,  
could not start inspection work until intervention by some Council 
and SVC members. IT was only able to asked general questions about 
the financial reports, CSPA informatin Center, Insurance Return 
and NED.

2.4 November 7, Sunday, 1993
At the beginning, Zhou Hongguang on behalf of IT announced two 
rules to govern this day's inspection work and HQ agreed. One is 
non-conclusive. In case there is a dispute, IT will not argue with 
HQ and will put it in record. Another is that Minutes of Meeting 
will be taken. The meeting between the IT and HQ started in a good 
mood. However, Lin Changshen again blocked the inspection work by 
not allowing Bai Yan to review some financial records. After Zhou 
Hongguang read the Article 11 of the Financial Regulations to him, 
Lin Changshen insisted his position and still disagreed. IT 
reviewed the expenditure of CSPA Information Center and the 
revenue and expenditure except miscellaneous of the 5th Congress.
However when IT was leaving leaving, Jiang Zuihong still hadn't found
invoices for Miscellaneous Expenses for 5th Congress to explain about
$4,800 difference.

III. Accessibility of Financial Statements

The financial statements of IFCSS are NOT confindential documentation; 
they are public information under Maryland General Corporation 
Law under which IFCSS is registered and operates. Like other not-for-profit
organizations, IFCSS is required by  law to made its annual financial
statements open for public scrutiny. IFCSS is accountable to those who
furnish resources and receive services. However, the names of June 4th
victims can be treated as exceptional. 

IV. Impression

The accounting and budgeting format adopted by the IFCSS is 
commonly called as line-item, which is oriented toward control of 
objects of expenditure. This format does not effectively identify 
what has actually happened in the services furnished by the IFCSS 
to the Chinese Students and Scholars (CSS) community. 
Additionally, this format does not provide genuine information on 
how the budgeted programs/functions are executed as planned. 

The specific problems with the IFCSS "Financial Statements" are 
listed in the Appendix.

V. Conclusion

The general purpose financial statements referred to above does 
NOT present fairly, in most material respects, the financial 
position of the IFCSS, as of September 30, 1993, and the results 
of its operations, and the changes in financial position of the 
IFCSS' budget for the entire fiscal period of 1993-1994 in 
conformity with the Generally Accepted Accounting Principles(GAAP).

VI. Recommendation

6.1 The Council Finance Committee keeps overseeing the HQ financial 
operation and the Inspection Team continue to complete the 
inspection. 

6.3 The IFCSS Financial Statements must be prepared in accordance 
with the General Accepted Accounting Principles (GAAP) and the 
Treasurer at HQ is required to perform her duty in conformity of 
GAAP.

6.2 As a legal requirement, the IFCSS' budget must be balanced on 
a year-to-year basis. The Executive Office of the IFCSS must see 
to it that each expenditure must stay within the limit of budget.

VII. Appendix
                               
1. The financial statements for the above mentioned two fiscal 
periods of time are incomplete. Cash Flow Statements are not 
prepared to reflect available working capitals.

2. No financial statements are made for the restricted accounts--
June 4th, CSPA, Insurance, and NED for Fiscal Year 1992-93. 
Therefore, the primary users of the financial statements, namely 
the Council, donors, and investors, have no way of knowing the 
financial situation affected by those accounts and the changes in 
the accounts themselves.

3. Common and necessary categories of both Operating Statements 
(also called Income Statement) and Balance Sheets are omitted to 
the extent of mis-presenting the entire financial situation of the 
IFCSS. For instance, Operating Statements miss Beginning Fund 
Balance; Balance Sheets miss Noncurrent Assets.

4. In the accounts presented in the financial statements, Ending 
Fund Balances of the previous fiscal period do not match with 
Beginning Fund Balances of the following time period. This does 
not accord with the time-period assumption of accounting.

5. The annual information return with the IRS for "unrelated 
business income" on the Form 990 is inadequate in support of the 
IFCSS tax-exempt status. Since the IFCSS, Foundation Account and 
the IFCSS, Inc. Account are different respectively for not-for-
profit and for-profit activities, "unrelated business income" 
should be file under Form 990-T.

6. Residual equity transfers of such program accounts as CSS, 5th 
Congress, CSPA, and Flood Relief are not reported in the financial 
statements, thus distorting spendable financial resources.

7. Capital outlays (assets purchased at and above $500) are not 
reported as a reduction of financial resources in the Operating 
Statements. Nor are the depreciation expenses reported.

8. The cash amount in the financial statements are reported while 
the bank reconciliation is not conducted, thus generating 
incorrect cash balance. A bank reconciliation must be made 
immediately after each bank statement is received.

9. Some financial data are not verifiable due to a lack of 
availability of evidence, i.e., original invoices and receipts. 
This leads to the difficulty of ascertaining the validity of 
accounting transactions and balances reasonable doubt.

10. Miscellaneous items (revenues and expenses) are overstated to 
create unnecessary uncertainty for financial forecasting. 
Miscellaneous items can be further grouped according to ordinary 
categories.

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Acknowledgments: 
The Council Finance Team would like to thank the concern and 
support from the general public. We owe a special thanks Mr. Bai 
Yan, from Texas Tech Univeristy, for his dedication to financial 
wellbeing of IFCSS, his expertise, professionalism and generous 
volunteerism. 

IT thanks Council Member Liu Chen for his unhesitatedly acceptence of
invitation to join IT and hard yet tough work.
 
Aslo another special thanks goes to the annonous IFCSS activists for their
continuous care and dedication for IFCSS operation and valuable
consultation. 

IT wants to thank Geng Xiao for his never ceased assistance to and support
for the Council Financial inspection. IT also wish thank Zhang Qingsong for
his kind assistance for IT. 

IT thanks Council Member Chen Dong for his volunteer obersvation
of the cooperation form HQ is acknowledged.
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