[Eenc-board] Emailing: Conducting Audits
Sweeney Bob (PFI)
sweenera at brevard.edu
Mon Jan 30 11:45:10 EST 2006
After a fair amount of websearching, I located the following guidelines
that may be most applicable to type of audit that the Board would like
to have conducted on our books / accounting practices once every 3
years. Let me know if you believe that this information can be used to
contact for that service..
Am still looking for succinct definitions of the different types of
financial audits.
Also did this message go thru to you as a Board member listed in the
rtpnet address list, Laura and Deb ? ( Am testing the system. )
Bob
________________________________
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Conducting Audits
Conducting Audits in Small Unions - A Guide for Trustees
Table of Contents
A Message to Trustees
Chapters
1 - Getting Ready
2 - Audit Overview
3 - Disbursements
4 - Receipts
5 - Assets
6 - LMRDA Compliance
7 - Wrapping Up
Figures
1 - Audit Planner
2 - Letter Requesting Access to Financial Records
3 - Financial Questionnaire
4 - Completed Financial Questionnaire
5 - Disbursements Reconciliation Worksheet
6 - Receipts Reconciliation Worksheet
7 - Liquid Assets Inventory
8 - Fixed Assets Inventory
9 - Ending Bank Balance Reconciliation Worksheet
10 - LMRDA Requirements Relating to Union Funds
11 - LMRDA Recordkeeping Requirements
12 - LMRDA Bonding Requirements
13 - Internal Financial Controls
14 - Completed Audit Report
References
Understanding Union Financial Records
Union Financial Definitions
Checklist for Conducting Audits in Small Unions
A Message To Trustees
This Guide features a 10-step audit designed to help Trustees from small
unions carry out their duties. For purposes of this Guide, a small union
is considered to be one with annual receipts of less than $50,000.
Trustees from larger unions with more complex recordkeeping systems may
also find this Guide helpful.
The Office of Labor-Management Standards (OLMS) of the U.S. Department
of Labor's Employment Standards Administration has prepared this Guide
to further the aims of the Labor-Management Reporting and Disclosure Act
of 1959, as amended (LMRDA). More commonly known as the Landrum-Griffin
Act, the LMRDA has several provisions designed to promote the financial
integrity of unions, including those pertaining to financial reporting,
recordkeeping, bonding, and loans. The LMRDA applies to unions which
represent private sector employees and U.S. Postal Service employees.
The Civil Service Reform Act of 1978 (CSRA) has similar provisions which
apply to most unions which represent federal government employees.
Your Role
As an elected or appointed Trustee you will play a key role in making
sure that your union's funds and other assets are properly accounted for
and used solely for the benefit of your union and its members. Few tasks
could be more critical to the well-being of any organization.
Your specific duties and responsibilities may be outlined in your
union's constitution and bylaws or otherwise defined by your parent
body. However, your primary task as a Trustee is to ensure that all
union resources (money/assets) are used for legitimate union purposes as
authorized by your membership in accordance with your constitution and
bylaws. In addition, you should ensure that your union is properly
submitting per capita taxes to its parent body and is complying with
legal requirements for financial reporting, recordkeeping, bonding, and
loans.
What's in this Guide
This Guide is designed to be an easy-to-use reference based on the law
and regulations as well as the knowledge and experience of OLMS staff.
It will take you step by step through the audit process, help you
identify your responsibilities during each step, and provide suggestions
to make your job easier. Most of the seven chapters in the Guide refer
to Figures (such as an audit planner, a financial records request, a
questionnaire, worksheets, and an audit report) relating to the topics
discussed. A fictitious union (Factory Workers Local 888) is used in
several of the Figures to illustrate recommended procedures. A general
overview of the way many unions maintain their financial records, a list
of common financial terms and their meanings, and a four-page Checklist
for Conducting Audits in Small Unions which summarizes the contents of
this Guide are included as References at the end of this publication.
We realize that unions operate differently, using different
constitutions and bylaws and audit procedures, and that Trustees and
audit officials have varying degrees of responsibility. For example,
some unions want a greater day-to-day financial role for Trustees
(requiring that they sign all vouchers or co-sign checks) while others
want only periodic reviews of financial records. Likewise, some unions
have both Trustees and Audit Committees. Therefore, not all information
in this Guide will apply to all unions. You should disregard the parts
of the Guide that do not apply to you and consider the other parts as a
supplement to the practices and procedures specified by your parent
body.
Who Should Use this Guide
This Guide should be used by the union officials responsible for
conducting audits (periodic examinations of local financial records).
The general term "Trustee" is used in this Guide to refer to those
individuals elected or appointed to serve in this capacity, or a similar
capacity, whether for a full term or a specific record examination.
Although the Guide covers the "basics" and is geared primarily to
officials with little or no experience in conducting an audit, it can be
helpful to more experienced officials as well.
How to Use this Guide
Trustees or other audit officials should become familiar with the
contents of this Guide as soon as possible after being elected/selected.
An initial review will provide an overview of the entire audit process
and point out all the steps involved in conducting a meaningful
examination of your union's financial records.
You are not expected to remember all the procedures for conducting an
audit after your first review of this Guide. Instead, before each step
of your audit re-read the applicable chapter to refresh your
understanding of what should be done. Refer to the Guide frequently
during the audit process. Although we have tried to include all
necessary information, the Guide does not specifically address every
situation that may develop. Some record examinations may involve complex
or unusual issues requiring you to seek further assistance.
Seeking Assistance
If you need advice or have questions about your responsibilities or
provisions of your union's constitution and bylaws, you should contact
your union's officers or parent body for help. In addition, OLMS staff
in the field offices referred to at the end of this Guide can answer
your questions about the LMRDA, related regulations, and this Guide.
Getting Started
Now that you are familiar with the purpose and contents of this Guide
and how best to use it, it's time to get started. Read Chapter 1 and
begin preparing for your audit.
Chapter 1: Getting Ready
As you begin an audit of your union's financial records your job as a
Trustee may seem intimidating, particularly if you have never conducted
an audit or are unfamiliar with your union's books and records. However,
if you think of the audit process as a series of separate steps and
understand your responsibilities for each step, the entire process
becomes more manageable. At this early stage preparation is very
important since good planning and organization are key ingredients to
conducting a meaningful audit. This chapter outlines the first steps you
should take to prepare for your audit, including meeting with other
Trustees to determine specific responsibilities, reviewing prior audit
records and results, obtaining certain information from the principal
financial officers of your union, and scheduling important audit
activities.
Determining Responsibilities
The best way to get started is to review your union's constitution and
bylaws to determine your specific responsibilities as a Trustee. At
least one week before the audit you should discuss your roles with the
other Trustees either in person or by telephone and select a chairperson
or team leader if one is not already designated. If none of the Trustees
has ever conducted an audit, you should consider contacting members who
have served as Trustees in prior years to discuss their experiences,
both positive and negative. You may also wish to contact your parent
body, as needed, to seek advice or information about your duties.
Gathering Materials
After determining your general responsibilities, you should obtain and
review the following:
* Any forms, manuals, or handbooks issued by your parent body
which pertain to your duties.
* Your union's most recent constitution and bylaws, especially
those provisions dealing with dues rates, officer salaries and expenses,
lost time policies, officer duties, and procedures for approving the
expenditure of union funds. Each Trustee should have a copy of relevant
sections of these documents to refer to as necessary throughout the
audit.
* Your union's most recent audit report.
* Your union's most recent LM-3 or LM-4 annual financial report
filed with OLMS.
You should also review Figures 1, 2, 3, and 4 which may be adapted for
use in your audit.
Meeting with Principal Officers
Before the audit begins, you and your fellow Trustees should meet with
the principal financial officers of your union to:
* Seek their cooperation and support. Keep in mind that no one
likes to have someone "looking over their shoulder."
* Determine the person you should deal with to obtain access to
the union's financial records and explanations regarding how these
records are maintained. Find out whether any of the union's records are
maintained on a computer. If so, make arrangements to obtain appropriate
printouts of necessary financial information.
* Decide where your examination of records should take place and
what equipment (calculators, photocopier, etc.) will be furnished by the
union. Try to find a quiet place where you are unlikely to be disturbed
and where you will have sufficient space to review the records.
* Determine if and when "lost time" or other union payments will
be made for your work. Recognize that it may be necessary to conduct
some of this work on your "own time" in order to carry out your
responsibilities.
It is important that you obtain this information early in the process
and deal with the principal financial officers "up-front" in order to
avoid any later misunderstandings or problems.
Scheduling the Audit
After talking to the principal financial officers, you should meet as a
group to make some important decisions. First, decide the time frame
(annual, semiannual, quarterly) that your audit will cover. This may be
governed by your parent body constitution or local bylaws.
Next, decide when you want to begin the audit. If you have decided to
review your union's records for an entire year, then you may want to
begin your audit shortly after your union's annual financial report
(LM-3 or LM-4) has been submitted to OLMS. This will ensure that your
audit does not interfere with the ongoing operations of your union. You
could also compare your own findings regarding the finances of your
union with the information on the LM report.
Finally, develop a detailed plan which lists all the important phases of
the audit or you may spend a lot of time and energy and still not get
the job done right. This plan can be used to show your progress as you
work your way through the 10-step audit and to identify specific
responsibilities for each Trustee. A sample audit planner is provided as
Figure 1.
Requesting Records
Your next task will be to create a list of financial records needed for
your 10-step audit and provide this to the principal financial officers
of your union. Otherwise, certain records such as membership meeting
minutes may not be available when needed. A sample letter requesting
financial records is provided as Figure 2. Feel free to modify this
letter to conform with the records used in your union.
Financial records cannot be examined efficiently without some
explanation of how they tie together. If you are not completely familiar
with how your union's financial records are maintained, consider
creating a short questionnaire for the principal financial officers so
that everyone has a common understanding. Figure 3 can be modified for
this purpose. A completed version of this questionnaire is provided as
Figure 4 to illustrate the type of information that should be obtained
including any applicable constitutional provisions.
Two References at the end of this Guide should be reviewed by first-time
Trustees before beginning an audit. Understanding Union Financial
Records provides helpful illustrations of the types of financial records
maintained by many unions and Union Financial Definitions provides easy
to understand explanations of the financial terms used throughout this
Guide. Use these References as needed during the audit.
back to table of contents
Chapter 2: Audit Overview
Small unions may have hundreds of financial transactions every year. It
would take a considerable amount of time to examine each of these
transactions in detail. The next four chapters describe a 10-step audit
which concentrates on reviewing key financial areas and is specifically
designed to save you time, yet still provide for a meaningful,
systematic review of your union's financial books and records. The
10-step audit is not a "traditional" audit, but rather a limited,
focused review of financial records that was developed for use by
Trustees from small unions with little or no financial training or
experience. It is modeled after techniques successfully used by OLMS.
Audit Objectives
The 10-step audit, summarized below, has four primary objectives:
* To ensure that your union's funds and other assets are properly
accounted for and used solely for the benefit of your union and its
members.
* To confirm that your union is complying with legal requirements
for financial reporting, recordkeeping, bonding, and loans.
* To determine whether the internal financial controls of your
union are adequate or need to be improved.
* To ascertain whether your union is complying with the financial
practices and procedures of your parent body.
Audit Design
The 10-step audit focuses on four major areas: disbursements, receipts,
assets, and compliance with the requirements of the Labor-Management
Reporting and Disclosure Act (LMRDA), as outlined below:
* Steps 1 and 2 (Chapter 3) will assist you in determining whether
your union's disbursements have been properly recorded and whether they
were issued for approved, legitimate union purposes.
* Steps 3 and 4 (Chapter 4) will help you determine whether your
union's receipts have been properly recorded and deposited into your
union's bank accounts.
* Steps 5 and 6 (Chapter 5) will aid you in accounting for your
union's assets (cash and equipment) and calculating their approximate
value.
* Steps 7-10 (Chapter 6) will help you determine whether your
union is complying with the LMRDA's requirements for financial
reporting, recordkeeping, bonding, and loans.
10-Step Audit
Step 1 - Trace cancelled checks to the bank statements and
disbursements journal.
Step 2 - Scan the disbursements journal and record unusual
entries.
Step 3 - Trace employer dues checkoffs to the receipts journal
and bank statements.
Step 4 - Confirm that receipts from all other sources have been
properly recorded and deposited.
Step 5 - Identify all bank accounts, verify their ending
balances, and review withdrawals/transfers.
Step 6 - Inventory fixed assets.
Step 7 - Confirm that the LM annual financial report for the
latest completed fiscal year was filed on time.
Step 8 - Determine whether financial records were properly
maintained.
Step 9 - Ensure that all officers and employees who handle funds
are adequately bonded.
Step 10 - Confirm that no officers or employees were loaned more
than $2,000 by your union.
Optional Steps
In addition to these ten audit steps, Chapters 3-5 include eight
optional steps for disbursements, four optional steps for receipts, and
three optional steps for assets. These optional steps were designed to
give you the flexibility to tailor your audit to the specific
circumstances of your union and to make your audit as meaningful as
possible. They are particularly recommended for use by Trustees in
larger unions.
Audit Tips
* Be fair and objective. Don't jump to conclusions before you have
gathered all the facts.
* Don't be afraid to ask for help from your fellow Trustees and
the principal financial officers.
* Be persistent and stay focused. Avoid long interruptions in your
work.
* Make sure that all necessary records are available at the start
of each audit step.
* Consider assigning each person a separate part of the audit. For
example, one Trustee could audit disbursements, while another is
reviewing receipts, and a third is examining assets.
* Work together as a team even if each Trustee has individual
assignments.
* Consider devoting an entire audit to one area, such as
disbursements, if audits are performed frequently (quarterly). Complete
the other steps later in the year.
* Concentrate on the completion of the 10-step audit before
beginning any optional steps or consider limiting optional steps to one
part of the audit, for example, receipts.
* Take notes of the work done, unresolved issues that may require
further work, preliminary findings, and recommendations for
improvements. These notes will help you complete your audit report and
be an invaluable resource for the next audit.
* Don't write or make marks of any kind on the union records
except as noted in this Guide.
* Keep the union's records in an orderly fashion so that they can
be returned the same way.
* Refer often to the four-page Checklist at the end of this Guide
and check the appropriate boxes to ensure that you have properly
completed the 10-step audit.
You will probably issue an audit report to document your work. If your
parent body requires that you submit a standard audit report form that
outlines the financial condition of your union, you should collect
necessary information for this report as you complete the audit steps
described in Chapters 3-6 of this Guide.
back to table of contents
Chapter 3: Disbursements
Like any organization, your union must spend money to operate. Most
unions have a checking account which is used to make disbursements.
Typical disbursements from your union's checking account might include
payments for per capita taxes, hall rentals, office supplies, and lost
time to officers. Members expect that when their union spends money it
will be for legitimate union purposes and that these expenditures will
be properly authorized. Documents, such as your union's constitution,
minutes of meetings, bills, and vouchers, will help you determine why
disbursements were made and whether they were authorized by your
membership in accordance with your constitution and bylaws.
Confirming that established disbursement practices are being followed is
essential to ensuring that your union's funds are being handled
responsibly on behalf of all members. Audit Steps 1 and 2 are designed
to provide a simple but effective method for examining your local's
disbursements. They will assist you in determining whether payments were
for approved, legitimate union business. In addition, they will enable
you to determine if payments were properly recorded in your union's
records, allowing for accurate financial reporting to the members of
your union, your parent body, and various government agencies.
To complete Audit Steps 1 and 2, as well as any optional steps you may
select, you will need the following for the audit period: bank
statements; cancelled checks; disbursements journal (or check stubs if a
journal is not maintained); minutes of membership and Executive Board
meetings; and all documents in support of disbursements such as bills,
invoices, and vouchers. In addition, you will need any financial forms
provided by your parent body. First-time Trustees may want to review the
References "Understanding Union Financial Records" and "Union Financial
Definitions" at the end of this Guide before beginning Audit Steps 1 and
2.
Step 1
Trace Cancelled Checks to the Bank Statements and Disbursements Journal
By completing Audit Step 1 you should be able to confirm the reliability
and completeness of your union's disbursements records.
* Select at least two months in your audit period. Your selection
of months may be made for a variety of reasons, including an unusually
large number of checks written during a specific month or payments for
non-routine items such as convention expenses or a union-sponsored
picnic.
* Obtain the bank statements and all of the corresponding
cancelled checks for the period you have selected. Arrange the cancelled
checks in numerical order. Keep the cancelled checks together with the
bank statements on which they appear.
* Locate the cancelled checks for each of the entries on the bank
statements. Place a check mark, in pencil, on the bank statements for
each cancelled check. Make a list of any check numbers and amounts
appearing on the bank statements for which you cannot find a cancelled
check.
* Compare the amounts on each cancelled check with the
corresponding entries on the bank statements. Make sure that the amounts
on the cancelled checks are the same as on the bank statements. Watch
for amounts which may have been changed after the checks were returned
from the bank.
* Compare the information on these checks with the corresponding
entries in your union's disbursements journal. Make sure that the payee,
the amount, the date, and the purpose on each cancelled check are
properly recorded in the journal. Look for any discrepancies between the
journal entries and the checks. Turn the checks over and examine the
endorsements, making sure they match the payees on the front of the
checks.
If no discrepancies are noted during Audit Step 1, proceed to the next
step. However, if you find any questionable items or have some areas of
concern, refer to "Common Problems and Solutions" and "Significant
Discrepancies" at the end of this chapter.
Step 2
Scan the Disbursements Journal and Record Unusual Entries
By completing Audit Step 2 you should be able to determine whether the
checks issued from your union's bank account were for legitimate union
purposes.
* Review the disbursements journal for the entire audit period.
Look at the type and frequency of your union's disbursements. You will
probably see recurring payments for per capita tax, hall rental, and
officer salaries and expenses. Approval for these disbursements should
be found in the constitution and bylaws or the membership meeting
minutes. Make a list of any entries which appear to be questionable or
out of the ordinary, such as:
* checks for unusually large amounts
* checks for unusual purposes
* large checks to unfamiliar payees
* checks payable to cash
* checks where no purpose is recorded
* checks written out of sequence
* duplicate payments for salaries or expenses to the same
individual
* checks identified as loans (refer to Chapter 6)
* Review the supporting bills, vouchers, invoices, and membership
meeting minutes for all of the checks you have listed. Determine whether
they were for legitimate union purposes and whether they were properly
authorized.
If you find any questionable items or have some areas of concern while
conducting Audit Step 2, refer to "Common Problems and Solutions" and
"Significant Discrepancies" at the end of this chapter.
Optional Steps
As time allows, consider conducting one or more of the following
optional steps or proceed to Audit Step 3. Some of these optional steps
may be required by your parent body.
* Reconcile total disbursements entered in your union's
disbursements records for the audit period with the total charges shown
on your union's bank statements for the audit period. This will further
verify the accuracy of the entries recorded in your union's
disbursements records. Figure 5 shows how to reconcile disbursements.
* List all salary and expense payments to selected union
officials. Review all supporting documents to verify that correct
amounts have been paid.
* Examine selected claims for lost time to verify that appropriate
amounts and purposes have been documented.
* Examine credit card use and payments. Look for personal or
excessive charges and charges without supporting documents.
* Confirm that no checks listed as "void" in the disbursements
journal have been cashed.
* Examine signatures of authorizing officials on checks. Look for
unsigned checks or signatures on checks which appear to be different
from a known signature.
* Review strike fund payments. Confirm that proper documents exist
to support these payments.
* List per capita tax payments to your parent body and ensure that
all required payments were made in a timely manner.
This is not an exhaustive list of optional audit steps. Based on your
union's recordkeeping system and any parent body requirements, you may
choose to review other areas of disbursements.
Common Problems and Solutions
Even the best maintained disbursements records may have some problem
areas. Frequently encountered problems are listed below with suggestions
on how to resolve them:
Problem: Cancelled checks are not available.
Solution: Ask officers to obtain copies from the bank.
Problem: Bank statements indicate checks have been returned for
non-sufficient funds (NSF).
Solution: Determine when the first NSF ("bounced") check was
returned by the bank. Look for delayed deposits during the period. Ask
officers for an explanation of the NSF checks and, if necessary, suggest
that the disbursements records be properly noted.
Problem: The disbursements journal entries do not match the
corresponding information on the bank statements or on the cancelled
checks.
Solution: Determine the reason for the discrepancies. Ask
officers for an explanation, such as failure to reconcile the
disbursements journal with the related monthly bank statements and, if
necessary, suggest that the principal financial officers correct the
records.
Problem: No records to support disbursements exist.
Solution: Review minutes for approval and, if necessary, ask
officers about the payments.
Problem: The union does not maintain a disbursements journal.
Solution: Review check stubs and/or check register.
Significant Discrepancies
The situations listed below may suggest that your union's financial
records are unreliable or that union funds have been misused:
* Basic disbursements records have not been maintained.
* Serious discrepancies in the records have been detected which
cannot be easily resolved.
* Missing disbursements records, such as cancelled checks, bills,
or vouchers, are not produced as promised and an adequate explanation is
not provided.
* Alterations have been made on cancelled checks.
* Your union's checking account has a negative balance or
frequently reflects "bounced" checks.
If you detect a serious problem in your union's records or a possible
misuse of union funds, contact your parent body or the nearest OLMS
office for assistance.
Parent Body Requirements
Note any additional audit procedures or standard audit forms relating to
disbursements which your parent body requires you to use:
back to table of contents
Chapter 4: Receipts
Local unions receive most of their money from their members in the form
of dues payments. A common method of paying union dues is through dues
checkoff. In this arrangement the employer periodically withholds the
amount of dues from members' wages and sends the money collected to the
union or its parent body. In other instances, members pay their dues
directly to the union. Generally these payments are deposited into the
union's checking account. Members entrust their dues money to the
responsible union representatives and expect that the funds paid in will
be available for the union to draw upon for authorized union activities.
Ensuring that all of the money received by your union has been deposited
into your union's bank account is a key component to a successful audit.
Audit Steps 3 and 4 will help you trace the receipts of your union into
your union's bank account and verify that receipts from all sources have
been recorded and deposited.
To complete Audit Steps 3 and 4, as well as any optional steps you may
select, you will need the following for the audit period: bank
statements; deposit slips; receipts journal (or other records if a
journal is not maintained); all documents which identify the source of
your union's receipts, such as employer checkoff statements; individual
dues receipts; and member ledger cards. In addition, you will need any
financial forms provided by your parent body. First-time Trustees may
want to review the References "Understanding Union Financial Records"
and "Union Financial Definitions" at the end of this Guide before
beginning Audit Steps 3 and 4.
Step 3
Trace Employer Dues Checkoffs to the Receipts Journal and Bank
Statements
By completing Audit Step 3 you should be able to confirm that employer
checkoff receipts are properly recorded in your union's receipts records
and deposited into your union's bank account.
* Gather all of your union's checkoff receipts records for the
entire period including checkoff statements from your employer or parent
body.
* Compare, for each month in your audit period, the amounts posted
on all the checkoff statements with the corresponding entries in the
union's receipts journal. Look for any discrepancies.
* Select at least two months from your audit period. Trace the
checkoff receipt entries from the journal to related entries on your
union's bank statement. Make a note of any discrepancies.
The following Alternate Step 3 must be substituted for Step 3 above only
if all members' payments to the union (for dues, working dues, fees,
etc.) are made directly to union officers or employees and not through
employer checkoff.
Alternate Step 3
Trace Direct Dues Payments to the Receipts Journal and Bank Statements
By completing Alternate Audit Step 3 you should be able to confirm that
cash and checks for dues paid directly to the union by members are
properly recorded in your union's receipts journal and deposited into
your union's bank account.
* Select five or ten members' names at random and choose at least
two months from your audit period.
* Compare payments shown on individual dues receipts or member
ledger cards for these members to individual entries or combined member
totals in your union's receipts journal.
* Trace the receipt entries from the journal to related entries on
your union's bank statements. Make a note of any discrepancies.
If no discrepancies are noted during Audit Step 3 or Alternate Audit
Step 3, proceed to the next step. However, if you find any questionable
items or have some areas of concern, refer to "Common Problems and
Solutions" and "Significant Discrepancies" at the end of this chapter.
Step 4
Confirm That Receipts from All Other Sources Have Been Properly Recorded
and Deposited
By completing Audit Step 4 you should be able to determine whether
non-dues money coming into your union has been properly recorded in your
union's receipts records and deposited into your union's bank account.
* Review the receipts journal for the entire audit period. Look
for the type and frequency of non-dues money coming into your union,
such as proceeds from:
* the sale of jackets, hats, and other items
* interest or dividends earned on your union's bank
accounts
* checks identified as loan repayments (refer to Chapter
6)
* income from hall rentals
* vending machine receipts or rebates
* union-sponsored raffles
* parent body payments for conventions, strike fund
assistance, or per capita tax rebates
Make sure the amounts and frequency of these entries seem
appropriate.
* Select at least two months from your audit period in which
non-dues receipts were recorded. Trace these receipts from the union's
receipts journal to the corresponding entries on the union's bank
statement. (You may find the bank deposit slips to be helpful if several
receipts were deposited at the same time and only the total amount of
deposit appears on the bank statements.)
If you find any questionable items or have some areas of concern while
conducting Audit Step 4, refer to "Common Problems and Solutions" and
"Significant Discrepancies" at the end of this chapter.
Optional Steps
As time allows, consider conducting one or more of the following
optional steps or proceed to Audit Step 5. Some of these optional steps
may be required by your parent body.
* Reconcile total receipts entered in your union's receipts
records for the audit period with the total deposits shown on your
union's bank statements for the audit period. This will further verify
the accuracy of the entries recorded in your union's receipts records.
Figure 6 shows how to reconcile receipts.
* Review the original initiation fee records for a one or two
month period. Confirm that these fees, which may be paid either through
checkoff from the employer or by direct pay from the member, have been
properly recorded and deposited into your union's bank account.
* Complete Alternate Step 3 if some, but not all dues are
collected directly from members.
* Make a list of any non-dues receipts that appear to be out of
the ordinary, such as recurring receipts that cease for no apparent
reason, receipts from unusual sources, receipts where no source is
identified, and receipts for unusual purposes or amounts. Examine
supporting documents to confirm that all such receipts have been
properly recorded and deposited into your union's bank account.
This is not an exhaustive list of optional steps. Based on your union's
recordkeeping system and any parent body requirements, you may choose to
review other areas of receipts.
Common Problems and Solutions
As with your union's disbursements records, you may have encountered
some difficulties while completing Audit Steps 3 and 4. Even the best
kept receipts records may have some problem areas. Frequently
encountered problems are listed below with suggestions on how to resolve
them:
Problem: Bank records are not available.
Solution: Ask officers to obtain copies from the bank.
Problem: Original checkoff records are not available.
Solution: Ask officers to obtain copies from the employer.
Problem: Other original receipt records are not available.
Solution: Ask officers for an explanation.
Problem:
The receipts journal entries do not match corresponding
information on the bank statements or deposit slips.
Solution: Determine the reason for the discrepancy. Ask officers
for an explanation, such as failure to reconcile the receipts journal
with the related monthly bank statements, and, if necessary, suggest
that the principal financial officers correct the records.
Problem: The entire amount of the checkoff check is not
deposited into your union's primary account.
Solution: Look at the other bank accounts for deposits of the
remainder of these funds. Ask officers for an explanation of the
disposition of these funds.
Significant Discrepancies
As with the review of your union's disbursements records, you might have
reasons to doubt the accuracy of the union's receipts records. The
situations listed below may suggest that your union's financial records
are unreliable or that union funds have been misused:
* Basic receipts records are not maintained.
* Serious discrepancies in the records have been detected which
cannot be easily resolved.
* Missing receipts records, such as employer checkoff statements,
are not produced as promised and an adequate explanation is not
provided.
* Bank deposits are less than monies received for the same period.
* Undue delays occur between receipt dates and bank deposit dates.
* Cash receipts are frequently received but little or no cash is
deposited into the union's bank account.
* Your union's checking account has a negative balance.
If you detect a serious problem in your union's records or a possible
misuse of union funds, contact your parent body or the nearest OLMS
office for assistance.
Parent Body Requirements
Note any additional audit procedures or standard audit forms relating to
receipts which your parent body requires you to use:
back to table of contents
Chapter 5: Assets
When auditing assets, keep in mind that your union not only has money in
its bank accounts, which may be in the form of a checking account, a
savings account, or a certificate of deposit (liquid assets), but it may
also own various types of equipment, such as a computer, a photocopier,
or a file cabinet (fixed assets). The value of these assets must be
included and accounted for during your audit. Both liquid assets and
fixed assets might be overlooked during your audit unless your union
keeps accurate and reliable records. Audit Steps 5 and 6 will help you
identify, account for, and determine the total value of your union's
liquid and fixed assets. By completing these audit steps you will ensure
that your union has an accurate, current inventory of all your union's
liquid and fixed assets, which can easily be updated as the need arises.
To complete Audit Steps 5 and 6, as well as any optional steps you may
select, you will need the bank statements, receipts and disbursements
journals for the audit period (or check stubs if journals are not
maintained), any inventory of fixed assets prepared prior to your audit,
and any forms provided by your parent body.
Step 5
Identify All Bank Accounts, Verify Their Ending Balances, and Review
Withdrawals/Transfers
By completing Audit Step 5 you should be able to identify the bank
accounts maintained by your union during the audit period, determine the
total amount of money in these accounts, and verify that withdrawals
from these accounts were used for legitimate union purposes.
* Make a list of the name, location, type of account, and account
number for each of your union's bank accounts. Determine what happened
to the proceeds from any union accounts closed during the audit period.
Determine whether the initial deposit into any accounts opened during
the audit period can be traced from one of the union's other bank
accounts.
* Prepare a liquid assets inventory, as illustrated in Figure 7,
which shows the ending balances for each of your union's bank accounts.
* Determine that all withdrawals from your union's savings, money
market, or certificate of deposit accounts during the audit period were
used for legitimate union purposes as approved by your membership.
If no discrepancies are noted during Audit Step 5, proceed to the next
step. However, if you find any questionable items or have some areas of
concern, refer to "Common Problems and Solutions" and "Significant
Discrepancies" at the end of this chapter.
Step 6
Inventory Fixed Assets
By completing Audit Step 6 you should be able to identify the fixed
assets owned by your union and verify the location of these assets.
* Determine if your union prepared an inventory of fixed assets
prior to your audit period and, if so, verify the existence of all items
on the list. Confirm that any missing items were properly disposed of as
approved by the membership. Suggest that principal financial officers
add or delete items to update the inventory as appropriate.
* Assist the principal financial officers in creating an inventory
of fixed assets if one was not previously prepared. Use Figure 8 as a
guide and list each item; the approximate date of purchase; either the
original cost, the estimated current value, or the value carried in your
union's books for the asset (cost less depreciation); and the location
of each asset.
If you find any questionable items or have some areas of concern while
conducting Audit Step 6, refer to "Common Problems and Solutions" and
"Significant Discrepancies" at the end of this chapter.
Optional Steps
As time allows, consider conducting one or more of the following
optional steps or proceed to Audit Step 7. Some of these optional steps
may be required by your parent body.
* Reconcile the ending balances for each union bank account. This
will establish the amount of the ending cash in banks for the audit
period. Figure 9 shows how to calculate this amount.
* Inspect the contents of any union owned safe or safe deposit
box. Determine if any assets such as certificates of deposit, stock
certificates, or old passbooks are missing, or if any assets not
previously identified are found. Confirm union ownership of these
assets.
* Review signature cards for union bank accounts. Confirm that
only current officers are signatories on your union's accounts. Suggest
that principal officers have any outdated signature cards removed.
This is not an exhaustive list of optional steps. Based on your union's
recordkeeping system and any parent body requirements, you may choose to
review other areas of your union's assets.
Because small unions typically do not incur significant liabilities
(debts), the 10-step audit does not address this area. However, if your
union has significant liabilities such as delinquent taxes or unpaid
bills, you may want to review them as time permits.
Common Problems and Solutions
You may encounter some obstacles as you inventory your union's assets.
These may range from poor recordkeeping to a question on how best to
record the value of an asset. Two frequently encountered problems are
listed below with suggestions on how to resolve them:
Problem: Bank statements are not available.
Solution: Ask officers to obtain copies from the bank.
Problem: The entire amount of a withdrawal from the union's
savings account is not deposited into your union's checking account.
Solution: Look at the other bank accounts for the deposit of the
remainder of these funds. Ask officers for an explanation of what
happened to these funds.
Significant Discrepancies
It is easy to lose track of a fixed asset, or sometimes even a bank
account, if accurate records are not maintained. The situations listed
below may suggest that your union's financial records are unreliable or
that union funds or assets have been misused:
* A union bank account was closed or a withdrawal was made from an
existing account with no indication of what happened to the money.
* Unexplained differences exist between a previous inventory of
fixed assets and your current inventory of fixed assets, such as a
missing computer or photocopier.
* Missing records, such as savings passbooks or stock
certificates, are not produced as promised and an adequate explanation
is not provided.
* Assets such as stocks, bonds, and bank accounts are held in the
name of individuals instead of the union.
If you detect a serious problem in your union's records or a possible
misuse of union funds or assets, contact your parent body or the nearest
OLMS office for assistance.
Parent Body Requirements
Note any additional audit procedures or standard audit forms relating to
assets which your parent body requires you to use:
back to table of contents
Chapter 6: LMRDA Compliance
In 1959, Congress passed the Labor-Management Reporting and Disclosure
Act, as amended (LMRDA). The LMRDA has at least ten provisions designed
to promote the financial integrity of unions which are outlined in
Figure 10. Four of these provisions will require special attention
during the course of your audit. Essentially, they require that unions
file annual financial reports with OLMS, maintain records that are
sufficient to clarify or support the information shown on these reports,
secure adequate bonding to provide protection against losses due to
fraudulent or dishonest actions, and restrict the amounts of loans made
to officers and employees. Audit Steps 7 through 10 will help you
determine whether your union is complying with the LMRDA's requirements
for financial reporting, recordkeeping, bonding, and loans.
Step 7
Confirm That the LM Annual Financial Report for the Latest Completed
Fiscal Year Was Filed on Time
The LMRDA requires unions to submit an annual financial report (an LM
report) to OLMS within 90 days after the end of their fiscal year.
Unions with annual receipts more than $200,000 must file an LM-2 report.
Unions with annual receipts less than $200,000 may file a shorter LM-3
report. Unions with annual receipts less than $10,000 may file an
abbreviated LM-4 report.
* Locate your union's LM report for the latest completed fiscal
year.
* If the LM report was filed but your union did not keep a copy,
contact the nearest OLMS office to obtain a copy of the report.
Determine whether this report was filed on time, and if not, remind the
principal financial officers that it must be filed on time in the
future.
* If the LM report for the latest completed fiscal year was not
filed, advise the principal financial officers to complete and submit
the report to OLMS as soon as possible or contact OLMS for assistance.
Step 8
Determine Whether Financial Records Were Properly Maintained
The LMRDA requires unions to keep financial records for five years after
the applicable LM reports are filed which are sufficient to clarify or
verify the information shown on these reports, as explained in Figure
11.
* Make a list of any significant financial records which you
identified (during Audit Steps 1-6) that were not maintained by your
union, such as employer checkoff statements, bank statements, bills,
vouchers, and invoices. Advise the principal officers of your union that
these records must be maintained for a period of at least five years, as
required by the LMRDA.
Step 9
Ensure That All Officers and Employees Who Handle Funds Are Adequately
Bonded
The LMRDA requires that all unions with property and annual receipts
greater than $5,000 secure a bond for at least 10% of the receipts and
assets handled by union officers and employees during the prior fiscal
year to ensure against losses resulting from fraudulent or dishonest
acts. If bonding is required, your union should have a bonding
certificate, or other proof of bonding, which indicates the total amount
recoverable if a loss of union funds occurs. Many parent bodies obtain
coverage for their affiliate unions.
* Verify that your union is covered by a current bond.
* Confirm that the amount of the bonding coverage is at least 10%
of the receipts and assets handled during the prior fiscal year. You may
use Figure 12 to calculate the approximate amount of coverage required
by the LMRDA. If your union does not have a bond or the bond coverage is
not adequate, you should suggest that the principal financial officer
contact your parent body for assistance. In addition, OLMS can provide
the names of companies on the U.S. Treasury Department list of approved
bonding companies.
Step 10
Confirm That No Officers or Employees Were Loaned More than $2,000 by
Your Union
The LMRDA places certain restrictions on the type and amount of loans
that can be made by a union. The law provides that loans made to a union
officer or union employee may not exceed $2,000 in total indebtedness at
any time, and all loans must be reported on the appropriate LM report.
Your parent organization may also have restrictions or prohibitions
regarding loans.
* Verify that any loans made by your union to officers and
employees did not exceed $2,000 in total indebtedness at any time. If
any loan exceeded this amount, advise the principal officers that this
is prohibited by the LMRDA and appropriate repayments should be sought.
Parent Body Requirements
Note any additional audit procedures or standard audit forms relating to
financial reporting, recordkeeping, bonding, and loans which your parent
body requires you to use:
back to table of contents
Chapter 7: Wrapping Up
By now you have spent a lot of time and energy examining your union's
books and records to complete your 10-step audit. Your fellow members
and your parent body will be very interested in what you found. But
first you must review your findings, resolve any loose ends, decide how
to document your work, and report your findings. In many respects,
wrapping up is the most important part of your audit.
Taking Stock
Until now, you and the other Trustees may have been looking at your
union's receipts, disbursements, and assets on an individual basis
rather than as a group. Now you must get together to:
* Review and organize your audit materials.
* Confirm that the 10-step audit and any selected optional steps
have been completed.
* Determine whether changes are needed to comply with LMRDA
requirements for financial reporting, recordkeeping, bonding, and loans.
* Make a list of any internal financial control weaknesses (for
example, officers signing blank checks) or "problem areas" (for example,
late or incomplete payment of per capita taxes, failure to record
receipts and disbursements on forms provided by the parent body, etc.)
and recommendations for improvements. For further information about
internal financial controls see Figure 13.
* Decide the best way to handle any unresolved issues.
Meeting with Principal Officers
Unless significant discrepancies have been detected in the union's
records and parent body or other assistance has been requested to help
resolve these issues, you should meet with the principal financial
officers of your union to discuss your preliminary findings, resolve any
remaining concerns, and recommend changes to improve compliance with
LMRDA requirements and adherence with sound internal financial controls
and with parent body financial practices and procedures.
Reporting Your Findings
At this point, your union's members and parent body probably want to
know what the general financial condition of your organization is,
whether your audit disclosed any problems and, if so, how they were
resolved. If your union has standard forms to document your work and
report your findings to the membership, fill them out. Otherwise, you
may want to review the sample audit report shown as Figure 14 which can
be modified to better suit your situation.
Completion of the 10-step audit allows you to make some broad statements
about the financial books and records of your union. For example, if no
significant problems for the audit period were uncovered, you can say
your audit indicates:
* The union's disbursements were accurately reflected in the
records and made for legitimate purposes.
* The union's receipts were accurately reflected in the records
and deposited to your union's bank accounts.
* The union's assets were properly accounted for.
* The union appears to be complying with the LMRDA's provisions
for financial reporting, recordkeeping, bonding, and loans.
* The union appears to be using good internal financial controls
to safeguard its assets.
* The union appears to be complying with the financial practices
and procedures of your parent body.
Any additional findings or recommendations can be incorporated in your
report as shown in Figure 14. If the 10-step audit has verified the
accuracy of your union's books and records it should also be relatively
easy to create a balance sheet like that found in this figure to report
the general financial condition of your union.
Once you have decided what to say and how to say it, you should probably
select a spokesperson to respond to any questions. Your audit report
should then be submitted to your Executive Board, membership, and parent
body, as applicable. Copies of your report could also be posted on union
bulletin boards or cited in your union's newsletter.
A Final Word from OLMS
Now that you have completed your audit, we would like to say "thanks."
In your role as a Trustee, you have helped to ensure that your union's
funds and other assets are safeguarded and expended appropriately for
the benefit of your union and its members.
As a final step, you should place a copy of your audit report and all
related work papers, notes, etc., in a folder for use by your union's
Trustees when the next audit is conducted. Be sure to include a copy of
this publication which we hope you found helpful in fulfilling your
important responsibilities as a Trustee.
back to table of contents
Figures
Figure 1:
Audit Planner
Date Completed
Activity
Chairperson selected. (Chapter 1)
Constitution/bylaws and other governing documents reviewed.
(Chapter 1)
Latest audit report and LM annual financial report reviewed.
(Chapter 1)
Initial meeting with principal financial officers to make
arrangements for audit held. (Chapter 1)
Time frames for audit determined. (Chapter 1)
Principal financial officers notified of audit starting date and
records needed. (Chapter 1)
Financial Questionnaire prepared if necessary. (Chapter 1)
Disbursements reviewed. (Chapter 3)
Receipts reviewed. (Chapter 4)
Assets examined. (Chapter 5)
Latest LM annual financial reporting confirmed. (Chapter 6)
Recordkeeping reviewed. (Chapter 6)
Bonding coverage confirmed. (Chapter 6)
Loan analysis completed. (Chapter 6)
Audit Report completed. (Chapter 7)
Audit Report to parent body and membership submitted. (Chapter
7)
back to table of contents
Figure 2:
Letter Requesting Access to Financial Records
January 10, 2001
Treasurer Richard Roe
Factory Workers, Local 888
2210 Elm Street
West Falls, VA 21521
Dear Mr. Roe:
As you know, the Trustees plan to start our quarterly audit of Local
888's financial books and records on Saturday, January 20, 2001 at the
union hall at 8:00 a.m. Please make available the latest Trustee Audit
Report, the latest LM annual financial report, and the following records
for the period October 1, 2000 - December 31, 2000:
Recording Secretary's Minutes Book
Receipts Journal
Bank Deposit Slips
Disbursements Journal
Savings Account Passbook
Certificates of Deposit
Checking Account Bank Statements
Cancelled Checks
Check Stubs
Vouchers
Receipts
Invoices
Member Ledger Cards
Dues Checkoff Statements
Fixed Assets Inventory
If we need any additional records or information, we will let you know.
Your cooperation is greatly appreciated.
Sincerely,
John Smith
Trustee
back to table of contents
Figure 3:
Financial Questionnaire
1. What sources of receipts does the union have?
Yes
No
Dues/initiation fees by checkoff
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Dues/initiation fees paid directly by members
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Member assessments (building corporation, death benefit, etc.)
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Interest (savings, certificates of deposit, etc.)
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Rent
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Other Receipts:
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
2. How is this money recorded in the union's financial records?
3. Who is responsible for making these entries in the union's financial
records?
4. What kinds of receipts records are maintained?
Yes
No
Employer Checkoff Statements
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Individual Receipts
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Member Ledger Cards
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Receipts Journal
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Deposit Slips
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Check Stubs
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Bank Statements
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Passbook
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Other Receipts Records:
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
5. Where is the union's money kept on deposit?
Type of Account
Bank Account Number
Checking Account
Savings Account
Certificate of Deposit
Money Market
Other:
6. Does the union have any investments such as stocks or bonds? If so,
list.
7. Does the union have an inventory of fixed assets showing date of
purchase and cost?
8. Does the union have a safe or safe deposit box? If so, specify
location/contents.
9. Are all disbursements made by check?
10. What kinds of disbursements records are maintained?
Yes
No
Check Stubs
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Cancelled Checks
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Bank Statements
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Passbook
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Withdrawal Slips
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Disbursements Journal
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Vouchers
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Payroll Records
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Bills/Invoices
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Other Disbursements Records:
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
11. How are disbursements approved, made, and recorded in the union's
financial records?
12. Did any special situations occur (salary increases, convention
expenses, financial support from parent body, office break-in and
related insurance claims, etc.) during the audit period?
________________________________
Key Constitutional Provisions
Officer Duties:
Officer Entitlements:
Spending Authorization:
Other:
back to table of contents
Figure 4:
Completed Financial Questionnaire
Factory Workers Local 888
1. What sources of receipts does the union have?
Yes
No
Dues/initiation fees by checkoff
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Dues/initiation fees paid directly by members
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Member assessments (building corporation, death benefit, etc.)
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
Interest (savings, certificates of deposit, etc.)
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Rent
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
Other Receipts:
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
2. How is this money recorded in the union's financial records?
Individual receipts are issued for all money received
except checkoffs. Copies of receipts are maintained in bound books. All
receipts (including bank interest) are recorded once a week in receipts
journal. At end of month all receipts deposited to checking account.
3. Who is responsible for making these entries in the union's financial
records?
Treasurer Richard Roe
4. What kinds of receipts records are maintained?
Yes
No
Employer Checkoff Statements
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Individual Receipts
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Member Ledger Cards
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
Receipts Journal
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Deposit Slips
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Check Stubs
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Bank Statements
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Passbook
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Other Receipts Records:
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
5. Where is the union's money kept on deposit?
Type of Account
Bank Account Number
Checking Account
Savings Account
Certificate of Deposit
Money Market
Other:
National City
National City
First Federal
None
None 2215607
2215608
1607126
None
None
6. Does the union have any investments such as stocks or bonds? If so,
list.
Six shares of employer stock so we get company reports.
7. Does the union have an inventory of fixed assets showing date of
purchase and cost?
Yes. Copy obtained. No changes during audit period.
8. Does the union have a safe or safe deposit box? If so, specify
location/contents.
No. Important papers locked in Treasurer's desk. Cash
receipts also locked in Treasurer's desk until deposited.
9. Are all disbursements made by check?
Yes. We never make disbursements from undeposited cash.
We do not have a petty cash fund.
10. What kinds of disbursements records are maintained?
Yes
No
Check Stubs
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Cancelled Checks
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Bank Statements
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Passbook
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Savings Withdrawal Slips
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Disbursements Journal
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Vouchers
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Payroll Records
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
Bills/Invoices
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Other Disbursements Records:
O<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
X<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_x.JPG>
11. How are disbursements approved, made, and recorded in the union's
financial records?
All checks are recorded sequentially in the
disbursements journal and on the check stubs. President and Treasurer
must sign all checks. All disbursements for month read to members for
approval at monthly membership meetings. All bills/invoices kept in
separate folders and marked to show check number/date paid.
12. Did any special situations occur (salary increases, convention
expenses, financial support from parent body, office break-in and
related insurance claims, etc.) during the audit period?
Officer salaries increased in November. See bylaw change
approved by International in October. In December the International
began sending per capita rebate (from surplus in their accounts). See
entries in receipts journal and related correspondence kept in monthly
receipts folders.
________________________________
Key Constitutional Provisions
Officer Duties: Article 40, Section 1-12 -- The President shall sign all
vouchers and countersign all checks issued by Treasurer. Recording
Secretary will sign all vouchers and keep minutes of meetings. Treasurer
will receive all income, issue receipts, make deposits, write checks,
maintain a property inventory, and prepare monthly financial report for
membership meetings. The Trustees shall audit the records quarterly
using forms provided by the International. They will confirm that all
funds are deposited and that the financial officers are bonded. They
will issue a report to the local with a copy to the International. If
inaccuracies appear the General Secretary Treasurer has the authority to
conduct an audit and, if necessary, schedule a hearing.
Officer Entitlements: Article 50, 51 -- Lost time will be paid only when
official union business requires that a member forfeit salary from his
employer. Travelers are entitled to reimbursement for the actual cost of
lodging and transportation and a meal allowance of $30/day. Officers are
entitled to salaries specified in the local bylaws.
Spending Authorization: Article 46 -- All disbursements must be approved
by the membership.
Other: Article 6, 48 -- Per capita taxes will be paid on the fifteenth
of each month. The International will provide bonding coverage for all
local officers and employees who handle funds.
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Figure 5:
Disbursements Reconciliation Worksheet
Factory Workers Local 888
Audit Period Ending 12/31/00
Disbursements Disbursements
Month Per Union(1) Per Bank(2)
October $2,397.22 $2,614.82
November 2,056.19 2,731.53
December 3,199.32 2,680.32
Total $7,652.73 $8,026.67
(3)Plus Service Charges +88.20 N/A
(4)Less Outstanding Checks
at Beginning of Audit Period N/A -312.09
Plus Service Charges + 88.20 N/A
(4)Less Outstanding Checks
at Beginning of Audit Period N/A -312.09
(5) Plus Outstanding Checks
at End of Audit Period N/A +526.35
Less Transfers N/A -500.00
(7)Adjusted Total $7,740.93 $7,740.93
________________________________
Notes
(1) If your union maintains check stubs rather than a journal, you will
have to add the amounts posted on each check stub for the month to
arrive at the total monthly disbursements.
(2) This amount will generally be shown on the first page of the monthly
bank statement.
(3) Normally, monthly service charges and fees for check printing,
"bounced" checks, etc., will be included in the total disbursements per
bank. If your union records do not include these charges, add the total
amount for your audit period to the total "Disbursements per Union."
(4) Checks are considered to be outstanding when they are written during
a designated period but do not clear the bank until a later period. Like
service charges, an adjustment must be made for outstanding checks. To
adjust for outstanding checks at the beginning of the period you will
have to subtract the total amount of outstanding checks from the total
"Disbursements per Bank."
(5) To adjust for outstanding checks at the end of the period, you will
have to add the total amount of outstanding checks to the total
"Disbursements per Bank."
(6) Funds transferred from one of your union's accounts into another of
your union's accounts are not considered to be union disbursements and
should not be included in the calculation of total disbursements. The
bank statement will reflect the amount of the transfer as a
disbursement. To adjust for a transfer of funds, subtract the amount of
the transfer from the total "Disbursements per Bank."
(7) The adjusted totals posted in each column should agree. If
significant discrepancies are detected, double-check the accuracy of the
amounts posted in your union's disbursements records. If you have not
done so already, use an adding machine tape to confirm the totals.
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Figure 6:
Receipts Reconciliation Worksheet
Factory Workers Local 888
Audit Period Ending 12/31/00
Receipts Receipts
Month Per Union(1) Per Bank(2)
October $2,796.50 $2,938.55
November 2,566.80 2,832.45
December 2,724.35 2,602.25
Total $8,087.65 $8,373.25
(3)Plus Interest +37.60 N/A
(4)Less Outstanding Checks
at Beginning of Audit Period N/A -398.00
(5)Plus Outstanding Deposits
at End of Audit Perios N/A +650.00
Less Transfers N/A -500.00
(7)Adjusted Total $8,125.25 $8,125.25
________________________________
Notes
(1) If your union maintains check stubs rather than a journal, you will
have to add the amounts posted as receipts on each check stub for the
month to arrive at the total monthly receipts.
(2) This amount will generally be shown on the first page of the monthly
bank statement.
(3) The bank will frequently include interest in the total receipts per
bank. If your union records do not include interest, add the total
amount for your audit period to the total "Receipts per Union."
(4) Outstanding deposits (also called deposits in transit) are deposits
made to the bank and entered in the union records during a designated
period which do not appear on the bank statement until a subsequent
period. Like interest, an adjustment must be made for outstanding
deposits. To adjust for outstanding deposits at the beginning of the
period, you will have to subtract the total amount of the outstanding
deposits from the total "Receipts per Bank."
(5) To adjust for outstanding deposits at the end of the period you will
have to add the total amount of the outstanding deposits to the total
"Receipts per Bank."
(6) Funds transferred from one of your union's accounts into another of
your union's accounts are not considered to be union receipts and should
not be included in the calculation of total receipts. The bank statement
will reflect the amount of the transfer as a deposit. To adjust for a
transfer of funds, subtract the amount of the transfer from the total
"Receipts per Bank."
(7) The adjusted totals posted in each column should agree. If
significant discrepancies are detected, double-check the accuracy of the
amounts posted in your union's receipts records. If you have not done so
already, use an adding machine tape to confirm the totals.
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Figure 7:
Liquid Assets Inventory
Factory Workers Local 888
Audit Period Ending 12/31/00
Calculation of Ending Cash in Banks - All Accounts
Account No. 1
Name of Account General Fund
Location of Account National City
Type of Account Checking Account
Account Number 2215607
Balance per Bank Statement $1,378.11
Balance per Bank Statement $1,378.11
Account No. 2
Name of Account General Fund
Location of Account National City
Type of Account Savings Account
Account Number 2215608
Balance per Bank Statement $2,510.50
Account No. 3
Name of Account General Fund
Location of Account First Federal
Type of Account Certificate of Deposit
Account Number 1607126
Balance per Bank Statement $1,500.00
Total Ending Balance $5388.61
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Figure 8:
Fixed Assets Inventory
Factory Workers Local 888
Audit Period Ending 12/31/00
Purchase Cost or Current
Item Location Date Value
1.Filling Cabinet Office 1/7/75 $150.00
2.Typewriter Recording Secretary's Home 8/16/95 $250.00
3.Desk Office 1/7/75 $241.00
4.Chairs(4) Office 11/5/91 $295.00
5.Photocopier Office 2/12/94 $300.00
Total $1,195.00
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Figure 9:
Ending Bank Balance Reconciliation Worksheet
Factory Workers Local 888
Audit Period Ending 121/31/00
General Fund Checking
National City #2215607
Ending Balance Per Bank: $1,378.11
Plus Outstanding Deposits: Christmas Raffle +650.00
$2,028.11
Less Outstanding Checks: 1701 50.10
1704 450.00
1709 26.25
-526.35
Adjusted Bank Balance: $1,501.76*
*This amount should agree with the figures shown in the union records.
If significant discrepancies are detected, double-check the figures and,
if necessary, seek an explanation from the principal financial officers.
back to table of contents
Figure 10:
LMRDA Requirements Relating to Union Funds
The Labor-Management Reporting and Disclosure Act of 1959, as amended
(LMRDA), establishes a number of requirements relating to the handling
and reporting of union funds:
Reports - Unions must file annual financial reports with the Office of
Labor-Management Standards (OLMS) on one of three forms depending on the
reporting union's total annual receipts. Unions with $200,000 or more in
receipts and those in trusteeship must file the Form LM-2. Unions with
less than $200,000 in total annual receipts which are not in trusteeship
may file the shorter Form LM-3 and unions with less than $10,000 in
total annual receipts which are not in trusteeship may file the
abbreviated Form LM-4. The reports are public information and are
available from OLMS for any person to examine or purchase copies.
Records - Unions must retain the records necessary to verify the annual
financial reports (Form LM-2/3/4) for at least five years after the
reports are filed and must permit members to examine the records for
just cause.
Bonding - In unions with more than $5,000 in property and annual
receipts, officers and employees who handle union funds or property must
be bonded to provide protection against losses by acts of fraud or
dishonesty on their part.
Fiduciary Responsibility - Union officers have a duty to manage the
funds and property of the union solely for the benefit of the union and
its members in accordance with the union's constitution and bylaws.
Embezzlement - A union officer or employee who steals or otherwise
misappropriates union funds or other assets commits a federal crime
punishable by a fine and/or imprisonment.
Loans - A union may not have outstanding loans to any one officer or
employee at any time that in total exceed $2,000.
Fines - A union may not pay the fine of any officer or employee
convicted of any willful violation of the LMRDA.
Elections - Union funds or other assets may not be used to promote the
candidacy of any candidate in an election of union officers.
Trusteeships - If a union is in trusteeship, no funds of the union can
be transferred to its parent body other than the normal per capita tax
and assessments payable by subordinate bodies not in trusteeship.
Office Holding/Employment Prohibition - Persons convicted of certain
crimes may not hold union office or employment for up to 13 years after
conviction or after the end of imprisonment.
If you have any questions about the LMRDA, contact the nearest OLMS
office for assistance.
back to table of contents
Figure 11:
LMRDA Recordkeeping Requirements
Section 206 of the Labor-Management Reporting and Disclosure Act of
1959, as amended (LMRDA), outlines the general recordkeeping
requirements for unions. The Office of Labor-Management Standards (OLMS)
finds that about thirty-five percent of the unions audited by OLMS
failed to maintain adequate records. The overwhelming majority of these
violations were unintentional; the responsible union officials often did
not understand what specific records had to be kept for the required
five-year period. However, because of the wide diversity of
recordkeeping systems used by international and national unions and
their affiliates, it is not possible for OLMS to precisely define what
records must be maintained by every union.
As a general rule, all types of records used in the normal course of
doing business must be maintained by unions for five years. This
includes such financial records as receipts and disbursements journals,
cancelled checks and check stubs, bank statements, dues collection
receipts, per capita tax reports, vendor invoices, and payroll records.
OLMS has found that, for the most part, unions do maintain these types
of basic financial records but often fail to keep other records which
help explain or clarify financial transactions such as:
* credit card slips and itemized receipts for each credit card
charge
* member ledger cards for former members
* the union's copy of bank deposit slips
* bank debit and credit memos
* vouchers for union expenditures
* internal union financial reports and statements
* minutes of all membership and Executive Board meetings
* accountant's work papers and other internal worksheets used to
prepare financial statements
All types of financial records and other related records that clarify or
verify financial transactions must be maintained for five years after
the applicable LM reports are filed. If the principal financial officers
or Trustees have any questions about recordkeeping responsibilities, the
union records in question should be retained or advice from the nearest
OLMS field office should be sought.
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Figure 12:
LMRDA Bonding Requirements
Section 502(a) of the Labor-Management Reporting and Disclosure Act of
1959, as amended (LMRDA), establishes bonding requirements for certain
union officers and employees. Every union covered by the LMRDA is
subject to these bonding requirements except for unions whose property
and annual receipts do not exceed $5,000 in value.
Essentially the law provides that any person who "handles" union funds
or property must be bonded for at least 10% of the funds handled during
the union's preceding fiscal year up to a maximum of $500,000. An
individual is considered to be "handling" funds or other property of a
union if the union could suffer a loss if the individual performed
his/her duties fraudulently or dishonestly. Handling funds is not
limited to physical contact with money but is based on various factors.
For example, a person who receives dues, fees, etc., from members
clearly handles union funds. Also, however, any officer or employee who
has authority to sign checks or make withdrawals from a savings account
is handling union funds even if he/she has no physical contact with the
funds. Individuals who typically handle funds include union officers
(both elected and non-elected), employees such as business agents,
trustees, key administrative and professional staff, and clerical
personnel. The required bond must be obtained from a company on the U.S.
Treasury Department list of approved bonding companies.
An easy way to compute the approximate amount of bonding coverage
required using information from your union records or from your union's
most recently completed LM report follows:
Cash on hand and on deposit at the start of the year
$ ____________
Plus total receipts for the year
+ ____________
Equals total funds handled
= ____________
Multiply by 10%
X _____.10____
Equals amount of coverage required
= $ ____________
If you have any questions about the bonding requirements or their
application to your union, contact the nearest OLMS office and request
copies of an explanatory pamphlet, "Bonding Requirements Under the LMRDA
and CSRA," which includes a checklist to more accurately calculate the
amount of coverage required by the LMRDA. Copies of the LMRDA bonding
regulations, 29 CFR Part 453, are also available from OLMS.
back to table of contents
Figure 13:
Internal Financial Controls
Section 501 of the LMRDA outlines the general fiduciary responsibilities
for officers and employees of unions. Union officials occupy positions
of trust and therefore must ensure that the union's funds and other
assets are used solely for the benefit of the union and its members.
Unfortunately, if a union or other organization does not have an
adequate system of internal financial controls, some individuals may use
or be tempted to use some of the organization's funds for their own
purposes or become careless and mix the organization's money with their
own.
To prevent, or at least deter, the misuse or embezzlement of their
funds, most organizations including corporations, banks, international
unions, etc., establish internal controls over the handling of their
finances. Adequate and effective internal controls require a separation
of functions and responsibilities among a number of individuals who are
actively involved in handling the union's finances and who provide a
system of "checks and balances" over each other's activities. An
entirely adequate system of internal controls is not always possible in
small unions which employ no more than one full-time or part-time
officer or employee to handle the union's financial affairs and cannot
afford the services of an independent accountant. However, some
effective internal controls can usually be established even in one-
person operations. For example, union executive boards or other
governing bodies should consider taking the following actions to
safeguard union funds by requiring that:
* the union's financial officer issue pre-numbered receipts to
members for all money collected from them and maintain records showing
the dues payment status of each member.
* the union's financial officer make regular, frequent deposits of
dues and other union funds to the union's bank account.
* the union's financial officer maintain receipts and
disbursements journals (or similar records) to record all monies
received and spent by the union.
* there are constitutional provisions or membership or executive
board meeting authorizations for the level of salary, allowances, and
expenses, if any, to which the union's officers are entitled.
* prior authorization be obtained for large or unusual financial
transactions.
* signature stamps not be used on checks and that checks be signed
only after they are completely filled out and the cosigner knows the
purpose and legitimacy of each transaction.
* all checks drawn on the union's bank account have a second
signature.
* the financial officer give a report of the union's finances at
each membership or executive board meeting.
* Trustees or Audit Committees conduct periodic audits and provide
reports to the membership.
Although establishment of internal financial controls will not
absolutely prevent misuse or embezzlement of union funds, internal
controls such as those listed above will deter most individuals from
misusing union funds. Trustees and other union officers who have further
questions about internal financial controls should seek the advice of
their parent body or the nearest OLMS field office.
back to table of contents
Figure 14:
Completed Audit Report
Factory Workers Local 888
Period: 10/1/00 - 12/31/00
On 2/3/01 the undersigned Trustees completed an examination of the books
and records and certify that to the best of our knowledge the
information in this report is true and correct:
Primary Findings
1. Disbursements were accurately reflected in the union's records
and issued for legitimate purposes.
2. Receipts were accurately reflected in the union's records and
deposited to the union's bank accounts.
3. Assets (cash and equipment) were properly accounted for.
4. The union appears to be complying with the Labor-Management
Reporting and Disclosure Act's provisions for financial reporting,
recordkeeping, bonding, and loans with the following exceptions:
Checkoff statements for the period were not initially available.
Copies were obtained from the employer and the Treasurer has promised to
retain future copies received.
The bank statement and cancelled checks for October 2000 were
not available. Copies were obtained from the bank and placed with other
records.
Original bills for the Christmas party were not retained. The
Treasurer said he will tell the committee chairman to keep and turn over
all Christmas party bills next year.
Our LM-3 report for fiscal year ending 12/31/99 was timely
submitted to OLMS. The Treasurer is working on our LM-3 report for
fiscal year ending 12/31/00 and will file it before the March 31, 2001
deadline.
5. The union appears to be using good internal financial controls
with the following exception:
The President has been pre-signing checks. He has agreed to sign
them only after they have been fully completed.
6. The union appears to be complying with the financial practices
and procedures of our parent body with the following exceptions:
Per capita tax payments were usually submitted 1-2 months late.
The Treasurer has promised to submit them on time in the future.
We have not been using all the forms (receipts, vouchers,
journals) required by our parent body. New forms have been ordered and
will be used in the future.
Financial Condition Statement
Cash Balance (Last Audit Report) $5,004.29
Plus: Total Receipts
Less: Total Disbursements $8,125.25
$7,740.93
Cash Balance (This Audit Report) $5,388.61
Members at End of Period
201
Attachments
1. Fixed Assets Inventory
2. Ending Bank Balance Reconciliation Worksheet
Signatures
John Smith 2/8/01
Mary Brown 2/8/01
Frank Miller 2/8/01
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References
Understanding Union Financial Records
Unions receive money, deposit it into bank accounts, and spend it for a
variety of reasons. The LMRDA requires that records of every union
financial transaction be maintained and that summaries of these
transactions be reflected on the Labor Organization Annual Report (LM-2,
LM-3, or LM-4). Typical receipts, disbursements, assets, and liabilities
records maintained by Factory Workers Local 888, a fictitious union, are
described below.
Receipts
Unions obtain their funds chiefly from dues paid by union members. Other
sources may include fees, assessments, interest, and dividends. All
funds going into a union are referred to as "receipts." Receipts records
generally consist of dues checkoff statements and individual dues
receipts issued to members who pay their dues directly to the union. The
checkoff statement which is sent by the employer along with the dues
check should be retained in your union records. A typical checkoff
statement and check are illustrated below:
{Check off
Statement}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_img1
.jpg>
{Dues
Check}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_img2.jpg
>
In this checkoff statement you will notice that dues were not deducted
for Benjamin Barnhart for the month of June. He must pay his dues
directly to the union's Treasurer.
When dues are paid directly to the union, the member is usually given an
individual dues receipt. The original receipt should be given to the
dues paying member. A duplicate (carbon copy) of the receipt should be
kept in a bound book and retained in your union's receipts records. An
individual dues receipt for Benjamin Barnhart is illustrated below:
{Individual Dues
Receipt}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p2i1.j
pg>
All receipts should be posted in your union's financial records
(receipts journal, checkbook register, and/or check stubs). To keep
track of receipts, many unions rely on a receipts journal. Note that the
checkoff check from Johnson Controls and the direct dues payment from
Benjamin Barnhart are posted in the illustration below:
{Receipts
Journal}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p2i2.j
pg>
Once receipts are recorded in your union's financial records, a bank
deposit slip like that shown below should be prepared and a duplicate
retained by your union. Note that this deposit slip only shows the total
amount of the checks and cash recorded in the receipts journal above.
{Bank Deposit
Slip}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p2i3.jpg>
All deposits will be reflected on your union's monthly bank statements.
In the following illustration, you will see a deposit made on July 10,
2000 in the amount of $2,920.85. The union financial records explaining
this deposit consist of the receipts journal, duplicate deposit slip,
direct pay receipt, and checkoff statement.
{Bank
Statement}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p3i1
.jpg>
Disbursements
Unions spend money for a variety of reasons like per capita tax
payments, lost wages, expenses, office supplies, or postage. Prior to
disbursing money, many unions require that a voucher be completed.
Frequently other documents such as bills and invoices supporting the
claim are stapled to the voucher. An example of a voucher is shown
below:
{Voucher}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p3i2.
jpg>
The following check is payable to Walter Smith, who has submitted the
voucher shown above, for payment of lost time. Smith is the payee on the
check illustrated below. The check is signed (or approved) by President
Joe Abel and Treasurer Richard Roe. They are the signatories of this
check. When this check is negotiated, Walter Smith will sign his name on
the back of the check showing that he received the proceeds from this
check. His signature is referred to as an endorsement and he is
considered to be the endorser. After a check is charged to the union's
account, the cancelled checks for the month are generally returned to
the union along with the monthly bank statement. The amount of the check
will be posted on the bank statement and on the bottom right-hand corner
of the check as shown below. The check stub, to the left of the check,
provides additional information (lost time hours) about this
transaction.
{Check Stub and Cancelled
Check}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p4i1.jpg
>
A record of every check the union issues must be maintained. The
checkbook register and/or check stubs often function as a disbursements
journal, or a listing of all checks written. Some unions also keep a
separate disbursements journal so that they can allocate similar kinds
of disbursements into separate columns. This makes it easier to
calculate how much money is being spent for similar purposes. An example
of a disbursements journal page is shown below. Note that the check to
Walter Smith is shown in this illustration:
{Disbursements
Journal}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p4i2.j
pg>
All cancelled checks will be reflected on your monthly bank statements.
These statements will generally identify the check numbers and the
amounts of the checks which were charged against your union's account
during the month. In the following illustration, check number 1607 to
Walter Smith for $118.27 was negotiated and charged against the union's
account on July 14, 2000. The voucher (and any attached documents),
check stub, disbursements journal, and cancelled check all explain (or
support) the disbursements shown on these bank statements. Many unions
require that all disbursements be approved by their members. In these
instances, the membership meeting minutes may provide further details
regarding the purpose of these disbursements.
{Bank
Statement}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p5i1
.jpg>
Assets
Unions retain both liquid (cash, or easily convertible to cash) and
fixed (furniture, computers, etc.) assets. The assets of most concern in
an audit are liquid assets, which most often are in the form of checking
and savings accounts, certificates of deposit, cash, and sometimes stock
in the employer company. An illustration of a passbook savings account
follows:
{Passbook Savings
Account}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p5i2.j
pg>
A statement savings account may also be maintained. Periodic statements
(monthly, quarterly or semi-annually) will be sent from the bank and
reflect the transactions during the period.
Another common form of savings for a union is a certificate of deposit
(CD). Unlike a passbook savings account, the money in the CD cannot be
easily withdrawn for a designated time period without payment of a
penalty. Interest is paid by the bank on the CD and may be deposited to
the union's checking or savings account or deposited into the
certificate. These terms should be specified on the CD or clarified with
your union officers. In the illustration below, the certificate of
deposit specifies that the interest on this CD will be applied to the CD
when it matures on August 6, 2001.
{Certificate of
Deposit}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p6i1.j
pg>
Some unions own stock for investment purposes or buy stock in the
company that employs their members so they can get financial statements
about their employer. The stock certificate will generally identify the
number of shares of stock held by the union. In the illustration below,
Factory Workers Local 888 is the owner of six shares of stock in Johnson
Controls Incorporated.
{Stock
Certificate}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p6
i2.jpg>
Unions also retain fixed assets like buildings, automobiles, computer
equipment, and furniture. In addition to inventories of fixed assets
showing their original cost, estimated current value, or book value,
unions should also retain various documents showing ownership of these
assets, such as property deeds, mortgage payment statements, car titles,
and equipment warranties. These documents should be kept in a secure
place, such as a safe deposit box at the union's bank.
Liabilities
Any bill owed by a union but not yet paid is considered to be a
liability. Liabilities might include an electric bill which has not been
paid, taxes payable to the IRS, mortgage payments, or any other
financial obligation. Another example of a liability would be per capita
taxes owed to your parent body. In the monthly per capita tax report
shown below, Factory Workers Local 888 is submitting a late payment (in
September 2000) for its June 2000 per capita taxes.
{Per Capita Tax
Report}<http://www.dol.gov/esa/regs/compliance/olms/smunion/ref1_p7.jpg>
Some parent bodies require that their affiliates use prescribed forms to
record their receipts, disbursements, assets, and liabilities. If you
have any questions concerning the types of records which are required by
your parent body, you should review your constitution or contact your
parent body for assistance.
back to table of contents
Union Financial Definitions
A
accounting - A system of recording and conveying information about an
individual or organization in financial terms.
asset - Anything of value owned by the union such as cash, furniture,
etc.
audit - A systematic examination of financial books and records
involving analyses, tests, and confirmations to determine their
accuracy, completeness, and compliance with established standards.
authorization - An established process in which purchases and/or other
disbursements are approved by union officers or members.
B
bank balance - The amount of money in a bank account on a particular
date as recorded by the financial institution on bank statements.
bank statement - A statement sent by the bank to a checking account
customer, such as a union, showing deposits, checks cleared, service
charges, interest earned, and ending balances for a specified period,
usually one month.
bond - Insurance protecting an organization, such as a union, against
financial loss through fraud or dishonesty.
book balance - The amount of money in a bank account on a particular
date as recorded by the union in its financial records.
book value - The amount shown in the union's records for a particular
asset, normally the cost of the asset less accumulated depreciation.
C
cancelled check - An original check which has cleared through the bank.
cash - Money, negotiable checks, certificates of deposit, and balances
in savings and checking accounts.
cash reconciliation - A comparison of the union's account balances with
the records of the bank (bank statement), listing differences to bring
the balances into agreement.
certificate of deposit - A certificate from a bank stating that a
customer, such as a union, has a specified sum on deposit which will
earn a specific rate of interest for a specific period of time.
checkoff - The authorized withholding of dues, fees, or other
assessments from union members' wages by an employer for transmittal to
the union.
check stub - The part of a check or receipt retained as a record of
payment.
credit memo - An internal memorandum used by banks to increase the fund
balance in an account containing a brief explanation of why the account
was increased. A duplicate copy of the memorandum is forwarded to the
customer with the regular bank statement.
D
debit memo - An internal memorandum used by banks to decrease the fund
balance in an account containing a brief explanation of why the account
was decreased. A duplicate copy of the memorandum is forwarded to the
customer with the regular bank statement.
deposit slip - A bank document prepared by the account holder, such as a
union, that reflects the amount deposited into an account.
depreciation - A systematic process by which the original cost of a long
term asset, such as a building, is reduced and carried on the union's
books at a lesser figure. (See book value)
direct pay - Payments of dues or other fees made directly to the union
by members by cash or check (as opposed to payments received indirectly
through a checkoff arrangement with the employer).
disbursements - Money paid out by the union.
disbursements journal - A chronological list of all union payments made
in which the date, check number, amount, payee, and purpose are
recorded.
disbursements reconciliation - A comparison of the union's disbursement
records with the records of the bank (bank statements), listing
differences to bring the balances into agreement.
dues - A periodic payment to a union by members which establishes them
as members in good standing. The amount is generally included in the
bylaws and constitution and is approved by a secret ballot vote of the
membership.
E
endorser - One to whom ownership of a negotiable document, such as a
check, is transferred by endorsement.
endorsement - Signature appearing on the back of a union check as
evidence of the legal transfer of ownership, especially in return for
cash or credit indicated on its face.
F
fiduciary duty - The requirement in law that union officers hold and
manage union funds only for legitimate union purposes.
financial officer - The union's constitutional officer whose
responsibilities include the handling of union receipts, disbursements,
and assets.
financial records - All records relating to the receipt, management, and
disbursement of union funds. These include, but are not limited to,
receipts records, minutes of meetings in which financial decisions are
made, bank statements, expense vouchers, cancelled checks, debit
memoranda, receipts and disbursements journals, etc.
fixed assets - Those assets acquired for use by the union with no
intention of selling them until their usefulness is diminished, such as
land, buildings, office equipment, furniture, etc.
I
interest - Money earned on union bank accounts or investments or the
charge or cost for using money, frequently expressed as a rate per
period, usually one year, called the interest rate.
invoice - A detailed list of goods purchased by a union or services
rendered to a union with an account of all costs.
L
liability- An obligation or a debt.
liquid asset - Cash, or assets that can be easily converted to cash,
such as savings accounts and certificates of deposit.
lost time - Time spent by an individual, away from his/her regular job,
on union business.
lost time payment - Reimbursement for wages lost while conducting union
business.
M
member ledger cards - Individual collection records for union members
which contain all of the pertinent information concerning a member's
dues, fees, and assessment payments to the union.
N
negotiate - To transfer ownership of a financial instrument (like a
check) to another (such as a bank) in return for a thing of value
(usually cash).
non-sufficient funds (NSF) - A situation where the balance in an account
is not sufficient to cover the amount of checks written on the account.
Such checks are commonly referred to as "bounced" checks.
O
outstanding checks - Checks written by the union which have not yet been
deducted from the union's checking account balance by the bank.
outstanding deposits - Deposits that have been recorded by a union but
have not yet been received (and recorded) by the bank. Also called
"deposits in transit."
P
payee - A person to whom money is paid.
per capita tax - A per member assessment, usually by a parent body, that
unions must remit periodically.
R
receipt - A document which the union provides to confirm that money has
been collected or which a vendor provides to confirm that goods or
services have been provided to the union.
receipts - Can refer to documents cited above or money received by a
union.
receipts journal - A chronological listing of union receipts including
the date, amount, source, and purpose of each receipt.
receipts reconciliation - A comparison of the union's receipts records
with the records of the bank (bank statement), listing differences to
bring the balances into agreement.
reconcile - A method of calculating the correct amount of cash in a bank
account by taking the opening balance of the account, adding any
receipts, deducting any disbursements (not including outstanding
checks), and comparing the result with the bank statement ending
balance.
S
signatory - The individual authorized by the union to sign checks.
signature cards - Cards signed at the bank, for a specific account, with
the signatures of those authorized to make transactions on the account.
supporting documents - Checkoff lists, bills, invoices, and other
documents maintained by the union to verify the accuracy of the entries
made in the union records and deposits and withdrawals made on the
union's accounts.
T
trace - To follow a receipt of a payment (to the union) to an entry in
the union's receipts journal and then from these entries to a related
deposit slip and corresponding entry on the union's bank statement; or
to follow a union disbursement from authorization of expenditure through
the invoice, bill, check stub or other record into the union's
disbursements journal and then from the journal to the related cancelled
check and corresponding entry on the union's bank statement.
transfer of funds - The movement of cash between accounts held by the
union. Such transactions do not represent receipts or disbursements, as
the union neither receives nor disburses cash.
V
void check - A union check made invalid because of a mistake made in its
preparation.
voucher - A union claim form for reimbursement of expenses, mileage,
lost time, etc., which documents the date, amount, and purpose of the
payment owed to the preparer of the voucher.
W
withdrawal slip - Bank document prepared by the account holder, such as
a union, that reflects the amount withdrawn from an account.
back to table of contents
Checklist for Conducting Audits in Small Unions
This checklist has been developed by the Office of Labor-Management
Standards (OLMS) to help Trustees and other persons with financial
responsibilities in small unions (annual receipts less than $50,000)
audit the financial records of their unions and ensure compliance with
certain requirements of the Labor-Management Reporting and Disclosure
Act of 1959, as amended (LMRDA). This checklist features a 10-step audit
that concentrates on reviewing key financial areas and is specifically
designed to save time, yet still provide for a meaningful, systematic
review of financial books and records. The 10-step audit is not a
"traditional" audit but rather a limited, focused review that was
developed for Trustees from small unions with little or no financial
training or experience. It is modeled after techniques successfully used
by OLMS. The 10-step audit should help Trustees carry out their primary
responsibility to ensure that union funds and other assets are properly
accounted for and used solely for the benefit of their union and its
members.
Planning
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Meet with the other Trustees or audit officials to discuss general
responsibilities, assign duties, and select a team leader.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Review any forms, manuals, and handbooks created by your parent body
which outline your duties and responsibilities, including any required
standard audit report forms. Also review your union's constitution and
bylaws, especially those provisions dealing with dues rates, officer
salaries and expenses, lost time policies, officer duties, and spending
approval procedures.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Obtain and review your union's most recent audit report and LM-3 or LM-4
annual financial report.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Meet with the principal financial officers of your union to seek their
cooperation and support. Find out if any special situations occurred
(salary increases, convention, supplemental financial support from
parent body, office break-in and related insurance claims, etc.) during
the audit period.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Determine the person you should deal with to obtain access to necessary
financial records and explanations on how these records are maintained.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Select an audit period, develop a general timetable for completion of
your work, and confirm that all necessary financial records (including
Executive Board and membership meeting minutes) will be available.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Contact your union's parent body or one of the OLMS offices listed on
the last page of this pamphlet if questions arise about any phase of
your audit.
10-Step Audit
Disbursements - Steps 1 & 2
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Trace cancelled checks to the bank statements and disbursements journal.
Locate all cancelled checks for at least two months in
your audit period and confirm that the amounts of each check match the
amounts for the corresponding entries on your union's bank statements.
Compare these checks with the corresponding entries in the disbursements
journal. Confirm that the payee, date, and purpose are properly recorded
in the disbursements journal.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Scan the disbursements journal and record unusual entries.
Examine your union's disbursements journal for the
entire audit period and make a list of any disbursements that appear to
be unusual or out of the ordinary. Review the supporting bills,
vouchers, invoices, and membership meeting minutes for all of these
disbursements and confirm that they were made for legitimate union
purposes, as approved by the membership.
Receipts - Steps 3 & 4
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Trace employer dues checkoffs to the receipts journal and bank
statements.
Locate all checkoff statements for the period and
confirm that each checkoff check is recorded in your union's receipts
journal. Select at least two months and confirm that the amounts
recorded in the receipts journal match corresponding entries on your
union's bank statements. Alternatively, if all dues are received
directly from members, conduct similar procedures to make sure that this
dues money was properly recorded and deposited.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Confirm that receipts from all other sources have been properly recorded
and deposited.
Locate all original receipts for at least two months and
confirm that all non-dues checkoff income (interest, rent, refunds)
cited on these records matches corresponding entries in the receipts
journal. Trace these entries from the journal to corresponding entries
on your union's bank statements.
Assets - Steps 5 & 6
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Identify all bank accounts, verify their ending balances, and review
withdrawals/ transfers.
Locate all bank statements for the audit period. If any
bank accounts were closed during the period find out what happened to
the proceeds from these accounts. Make a list of all active bank
accounts at the end of your audit period. Record the ending balances for
each bank account as shown on your union's bank statements. Add together
these figures to calculate the total liquid assets at the end of the
audit period. Determine that all withdrawals during the audit period
from savings accounts, money market accounts, or certificates of deposit
were used for legitimate union purposes, as approved by the membership.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Inventory fixed assets.
Prepare an updated inventory of your union's fixed
assets such as a computer, a photocopier, or a filing cabinet by
determining whether any assets previously held were disposed of during
the audit period and whether any assets were acquired during the audit
period. Create a list showing all fixed assets at the end of the audit
period; either their original cost, estimated current value, or value as
carried in your union's books; and their location.
While completing Steps 1 - 6 you may well encounter difficulties
understanding your union's records or the necessary records to complete
the steps may not be immediately available. If this occurs, you should
talk to the principal financial officers to resolve these concerns.
However, you may also encounter significant problem areas such as
altered checks, falsified records, missing assets, or a possible misuse
of funds. If this occurs, you should contact your parent body or the
nearest OLMS office for assistance.
LMRDA Compliance - Steps 7 - 10
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Confirm that the LM annual financial report for the latest completed
fiscal year was filed on time.
Locate your union's LM-3 or LM-4 annual financial report
for the latest completed fiscal year and confirm that it was filed on
time (within 90 days after the end of your union's fiscal year) with
OLMS. If not, advise the principal financial officers to complete and
submit it to OLMS as soon as possible.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Determine whether financial records were properly maintained.
Verify that the records maintained by your union are
sufficient to clarify or verify the information shown on your union's
LM-3 or LM-4 annual financial reports. If not, advise the principal
financial officers that these records must be maintained for at least 5
years after these reports are filed.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Ensure that all officers and employees who handle funds are adequately
bonded.
Confirm that all officers or employees (in unions with
property and annual receipts greater than $5,000) who handle funds are
bonded for at least 10% of the funds handled during the previous year to
ensure against losses due to fraudulent or dishonest acts. If not,
suggest that the principal financial officer contact your parent body or
OLMS for assistance.
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Confirm that no officers or employees were loaned more than $2,000 by
your union.
Determine whether your union made any loans to its
officers or employees during the audit period or had any such loans
outstanding during the audit period. If any loan exceeded $2,000 at any
time, advise the principal financial officers that this is prohibited by
the LMRDA and that appropriate repayments should be sought.
Audit Report
<http://www.dol.gov/esa/regs/compliance/olms/smunion/fig4_blnk.JPG>
Meet with the other Trustees to discuss the