From @ubvm.cc.buffalo.edu:owner-china-nt@UGA.CC.UGA.EDU Tue Nov 23 00:47:41 1993 Reply-To: ccf-editor@ifcss.org Sender: China-Net Subject: CCF #9320, Nov 23: "Progress Report on IFCSS Financial Inspection" Comments: To: china-nt@uga.cc.uga.edu To: Multiple recipients of list CHINA-NT ==+==+==+== C h i n e s e C o m m u n i t y F o r u m ==+==+==+=== Tuesday, November 23, 1993 (Issue No. 9320) Special Edition: Progress Report on IFCSS Financial Inspection +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+= Chinese Community Forum (CCF) is a journal published on China-Net. CCF is dedicated to the discussion and debate on the issues related to the Chinese community. The opinions expressed here do not necessarily represent the views of the Editorial Board of CCF. Contributions to the discussions and suggestions of new topics are very much appreciated. +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+= Table of Contents Author | # of Lines ============================================================================ Progress Report on IFCSS Financial Inspection Summary: Site Inspection of IFCSS HQ Financial Situations........... 155 Report I: Opinion Report of Financial Statement Audit................. 41 Report II: An Evaluation of the IFCSS' Financial/Budgetary System...... 135 Report III: Seven More Items for Treasurer's Duties..................... 23 Date: November 14, 1993 Status: For Immediate Release 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 (From: Zhou Hongguang Nov-18-93) (Source: IFCSSVC ) ===========***==========***==========**==========***==========***=========== Summary: Site Inspection of IFCSS HQ Financial Situations........... 155 ---------------------------------------------------------------------------- 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 Changsheng, 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 information 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 Changsheng 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 Changsheng 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 confidential 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 filed 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. 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 University, for his dedication to financial wellbeing of IFCSS, his expertise, professionalism and generous volunteerism. IT thanks Council Member Liu Chen for his unhesitatedly acceptance of invitation to join IT and hard yet tough work. Als another special thanks goes to the anonymous 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 observation of the cooperation form HQ is acknowledged. ===========***==========***==========**==========***==========***=========== Dear Colleagues and CSS: The following is Part I of Inspection Report on the site-examination of the IFCSS HQ financial operation, prepared by Mr. Yan Bai, the guest consultant to the Council Financial Inspection Team. The Progress Report from the Inspection Team is mainly based on it. Thank you for your attention. Zhou Hongguang Coordinator Council Financial Inspection ---------------------------------------------------------------------------- Report I: Opinion Report of Financial Statement Audit................. 41 ---------------------------------------------------------------------------- From: Bai Yan OPINION REPORT OF FINANCIAL STATEMENT AUDIT 11/11/93 We have audited the general purpose financial statements for Fiscal Year 1992-93 and Fiscal Year 1993-94 (1st Quarter) of the IFCSS, as of September 30, 1993. These financial statements are the responsibility of the Executive Office of the IFCSS. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examing, on an on-site inspection basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Executive Office of the IFCSS, as well as evaluating the overall general purpose financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, 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 generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. Our concrete comments with regard to both combining and individual fund and account and the financial statements as a whole are appended as evidential matter and as recommendations for further operating improvement. Financial Inspection Team, Council of the IFCSS Appendix (See "VII. Appendix" in the previous section - Editor) ---------------------------------------------------------------------------- Report II: An Evaluation of the IFCSS' Financial/Budgetary System...... 135 ---------------------------------------------------------------------------- From: Bai Yan AN EVALUATION OF THE IFCSS' FINANCIAL/BUDGETARY SYSTEM 11/13/93 As a result of field inspection and observation at the Headquarter of the IFCSS, this evaluation summarizes the preliminary findings on the structure and operations of the IFCSS' financial, accounting, and budgetary activities. Despite the great achievements in financial management, this evaluation focuses on the shortcomings that potentially hold back the IFCSS' managerial progress toward efficiency and effectiveness. To this end, the preliminary findings are stated in the form of suggestions and recommendations. This evaluation should not be considered as a complete summary of the IFCSS' entire fiscal operation, though it is intent on providing a realistic picture as comprehensive as possible. Indeed, there is no way such a complete evaluation could be attempted at this time given the short duration of on-site inspection and the shortage of detailed information. A. Program Accounting and Budgeting The accounting and budgeting format adopted by the IFCSS is commonly called as line-item, which is oriented toward control of objects of expenditure. Although, the line-item format facilitates control of expenditures according to kinds of supplies and services purchased, 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. In view of this, program accounting and budgeting is recommended wherein expenditures are based primarily on programs of work such as CSPA and 5th Congress. Once programs are identified, specific account should be established to account for its administration, including acquisitions, processing, and personnel. Any residual fund balance, whether surplus or deficit, of programs should then be tied with the IFCSS' general fund for operation. Considering the nature of limited life-span of many programs, the IFCSS' revenues should be allocated in accordance with the objectives of various defined programs rather than be lumped indiscriminately for general operation. B. Balanced Budget 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. To better supervise spending under the ceiling, a statement of budget-to-actual comparisons must be prepared by the Executive Office of the IFCSS for all accounts and funds that have annual appropriated budgets. For this purpose, financial statements must be prepared for fiscal year rather than calendar year. One confusing event that obscures the line of financial obligation is the IFCSS' Annual Conference (Congress). This means that the expenses for each Annual Conference (Congress) must be realized for the year-period covered by previous budget. Payments for any accrued liabilities of Annual Conference should be therefore considered as obligation of the last fiscal year. C. Accessibility of Financial Statements Whatever organization has a responsibility to others for its actions and the consequences of these actions is accountable to them. The organization is accountable to those who furnish resources and receive services. In this sense, financial statements must be made available to users--donors, investors, the Council, and the members of the IFCSS and CSS. There is no withholding of the above said information that can be justified from reasonable request. Like other not-for-profit organizations, the annual financial statements are made open for public scrutiny in many forms. One feasible way for the IFCSS in terms of low cost and convenience is to store these documents at FTP site. Please be adviced that financial statements are not secret documentations; they are public information. In the same token, accountability encompasses accounting stewardship, which refers to the sufficient or full disclosure of revenue resources, administration of resources and the execution of plans for conserving and consuming them. The afore-said users must have access to knowing where money comes from and where it goes. The names of June 4th victims can be treated as exceptional. D. Separation of Nonprofit Account and Profit Account The IFCSS' general fund is composed of two distinct accounts--IFCSS, Foundation for nonprofit purpose and IFCSS, Inc. for profit seeking purpose. Right now these two accounts are combined and filed together under one tax form (Form 990). The problem of this practice is the failure of providing distinct information on each activity as separate entity. Furthermore, it constitutes a potential challenge from IRS. It is suggested that these two accounts be separated and recorded as distinct operations for totally different purposes. This separation is also helpful to the IFCSS' identity and functions--Democracy and Services. Synthesizing the foregoing, a combined comprehensive financial statements are desirable at the year-end, which not only delineates separate accounts but provides a whole picture of entire operation of the IFCSS. E. Establishment of Vouchers System Adherence to certain procedural details is a guarantee of accountability in substance. A voucher is nothing but a documentary record of a formal financial transaction. To ensure a responsible accounting system, receipt voucher system and payment voucher system are recommended. Receipt Voucher: Receipt voucher should be prenumbered consecutively and written for every incoming item of receipt. It is advisable to record on the receipt voucher not only the name of the person whose account should be credited but also the name of the person making the payment. The receipt should bear the signature of the person receiving the money. Checks should be endorsed upon receipt. Payment Voucher: Accounting for disbursements starts with proper authoriza- tion for all disbursements. In the case of payments on budget appropriation, the authorization is through action taken by the Council of the IFCSS. Authorization procedures for purchases should be set up and placed in the control of designated persons. A purchase order form is an effective means of controlling purchases. The invoice for payment must be certified. Paid invoices and statements must be date stamped, preferably by a perforating stamp, to minimize possibilities of duplicate payments. Payment should be made only against original invoices or statements. F. Executive Oversight The executive system established to monitor and review financial/accounting activities has been ineffective and spotty. The oversight process lacks standardization' and relies primarily on self-reporting by the treasurer, as opposed to taking initiatives to make inquiries. It is strongly suggested that the President and Vice President of the IFCSS should be familiar with the financial/accounting procedures (not necessarily all the details) and see to it that the IFCSS' financial situation is healthy at any point of time. To foster an effective communication between the treasurer and the President and Vice President, the treasurer should be obliged to keep them informed with the detailed information plus professional judgments. ---------------------------------------------------------------------------- Report III: Seven More Items for Treasurer's Duties..................... 23 ---------------------------------------------------------------------------- From: Bai Yan SEVEN MORE ITEMS FOR TREASURER'S DUTIES 1. The treasurer must see that all financial events are recorded in an appropriate manner. 2. The treasurer must ensure that accurate and meaningful financial statements are prepared reflecting clearly what has happened during a given period. 3. The treasurer is responsible for safeguarding the assets of the IFCSS through appropriate controls. 4. The treasurer is responsible for the prudent management of financial assets. This means, among other things, that excess cash is judiciously invested to ensure optimal financial return. 5. The treasurer must be able to anticipate financial problems of the IFCSS. A major tool in this regard is a carefully prepared budget. 6. The treasurer must ensure that an independent audit is conducted and that full consideration is given to the auditor's recommendations. 7. The treasurer must do all the above in accordance with the spirit and the letter of the law of the land. +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=++ + Executive Editor: Shusheng Luan Executive Moderator: Tong Shen + +--------------------------------------------------------------------------+ + For subscription: mail "SUB CHINA-NT Your-First-Name Your-Last-Name" + + to LISTSERV@UGA (bitnet) or listserv@uga.cc.uga.edu (internet) + + For back issues of CCF: + + anonymous ftp to cnd.org[132.249.229.100]:pub/community/CCF + + For contribution and inquiry: mail to ccf-editor@ifcss.org + +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=++