SNG completes audit of 2006 finances

Recommendations lead to organizational changes

Less than a year after Seward Neighborhood Group (SNG) found itself in a serious financial crisis, the community organization celebrated its survival last month at Matthews Park.

For SNG’s May 28 meeting, volunteers, board members and neighbors came together for a potluck to recognize those who kept the organization afloat through some of its darkest days.

The May get-together took place just weeks after an audit of 2006 financial recordes and subsequent report were completed by Certified Public Accountant Mike Wilson, who was hired by Minneapolis Neighborhood Revitalization Program (NRP) to conduct an independent audit after news of the financial collapse surfaced. Wilson discussed his report with the board in late April, with several NRP staff, including Director Bob Miller, in attendance.

“It was very valuable in confirming everything we had an idea of [in the months after the collapse],” SNG Board President Sheldon Mains said of the report.

Mains said the audit was especially important in terms of providing a firm dollar figure of what is owed to NRP for the unauthorized use of NRP housing funds over an eight-year period beginning in the late 1990s. SNG is required to maintain housing funds in a separate bank account, but there is evidence that $139,548 was used for general operating expenses over that time.

According to a statement in the audit from SNG’s finance committee, “Much of this money was most likely used for purposes which would have been funded if plan modifications had been filed.”

Terms of repayment negotiations between SNG and NRP were not available at press time, but Mains told The Bridge in late May that he and Miller had reached a verbal agreement earlier in the month. Mains said he didn’t want to release details until a written agreement had been signed, but that SNG’s goal is to restart the housing program in 2009.

Also included in the audit report are these recommendations from the auditor and responses drafted by SNG’s finance committee. The recommendations in the audit report, and the SNG Finance Committee’s responses, include:

• Improvement of internal controls. Acknowledging that it can be difficult in a small office, the audit states that “concentration of duties and responsibilities in a limited number of individuals is not desirable from an accounting point of view.”
In response, SNG said it has revised financial procedures “to provide appropriate segregation of accounting duties during the time that SNG is operating without administrative staff.” SNG reinstated a policy requiring that all disbursements be signed-off by the treasurer and another member of the executive committee. Also, a non-board member with an accounting background was recruited to serve on the finance committee.

• Financial information altered. In several cases, states the audit, the executive director “provided financial information to the board of directors that differed from the financial information provided by the bookkeeper.”

In the past, the bookkeeper exported a monthly report from the accounting software Quicken to an Excel spreadsheet, which was then sent to the executive director, a method that “did not provide appropriate checks,” states SNG. Now, financial reports will be prepared directly from the software Quickbooks for Non-profits and then sent to the board treasurer and the staff member designated to handle finances.

• Reimbursement contracts. “SNG has been negligent in properly recognizing revenue on government awards in the past,” states the audit, adding that if the organization can consistently allocate expenses from cost-reimbursement contracts, its ability to recognize additional revenue will be improved.

SNG acknowledged the need to improve its accounting. Accounting software was upgraded and the organization recently switched from a cash-based accounting system to accrual.

• Donations, assets not recorded. Some donations were not recorded in a cash receipt journal, and a fixed-asset log was not maintained in the past. SNG has begun using a cash receipt journal and has created a fixed-asset log that will include the purchase of any asset valued at more than $1,000.

• Employee timesheets. SNG did not require employees to complete itemized timesheets when paid on a salary basis, a major issue, according to the audit, because employee salaries were the organization’s largest expense. SNG’s new policy is not to authorize payment to a salaried employee without a completed timesheet. For contractors, an itemized invoice can be substituted for a timesheet.

• Conflict of interest in hiring. The audit also addressed an apparent conflict of interest when, in 2006, the spouse of SNG’s then-board chair was hired for a permanent staff position, to assist the executive director, despite of the fact that another longtime SNG staff member’s hours were being cut. Although the new hire had worked for SNG part-time in the past, the new position was not advertised and “no other applications were sought.”

The SNG Finance Committee stated that the executive director and Personnel Committee were responsible for the hiring, but no personnel committee records are available. The issues of hiring without board approval and the conflict of interest were both raised at SNG’s Jan. 25, 2006 board meeting.

Discussing the audit with the board back in April, NRP’s Miller emphasized the board’s fiduciary responsibilities, saying their lack of oversight could not be discounted when examining how the financial predicament transpired. Miller pointed out that, during the peak of the crisis, the SNG board did have a treasurer that should have been a link between the board and the executive director. “That is part of your responsibility,” he said to the board.

Miller also credited the board, acknowledged two people in particular — former SNG Board President Jean Johnstad and Board Member Kevin Brown — for their contributions to the neighborhood organization in the past year. “Without her,” Miller said, referring to Johnstad specifically, “you wouldn’t be in business today.”

An audit of 2007 is expected to begin within the next month, Mains said. Like the previous audit, this one will also be conducted by Wilson, which is good, said Mains, “because he already knows what we’ve been through.”

last revised: June 6, 2008