LCMS Convention Proceedings St. Louis, Missouri — 1995, Page 162

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162 a _ LATE REPORTS AND.OVERTURES

bers and will request members of all other boards, commis-

sions, and committees to adopt a similar policy.

Task Force Recommendation 2

. . That.a change of external audit firm be made by the
Synod (FINANCIAL AUDITS, p. 3)

The Board does not concur with this recommendation.
The Task Force concluded “that proper accounting and
audit policies, procedures, and controls have been estab-
lished and implemented by the Synod” and “that audits are
conducted in accordance with accepted auditing standards
and appear to reflect a true representation of the financial
condition of the entities which comprise the Synod.” The
Task Force further states that its recommendation “in no
way reflects upon the work and reputation of the current
auditing firm, nor does it suggest that problems exist.” The
Board believes that while a change in auditors may have a
settling effect with some in Synod, it would raise concerns
in the minds of many others. Experience in the commercial
world shows that changing auditors suggests there is some-
thing wrong and the entity is “opinion shopping” for an au-
ditor who will support its Position or is dissatisfied with the
services rendered by the external auditor. The Board be-
lieves, and the Task Force concluded, neither in this case.
Furthermore, the American Institute of Certified Public Ac-
countants in its Statement of Position Regarding Manda-
tory Rotation of Audit Firms of Publicly Held Companies
concludes “that there is no credible evidence that a re-
quirement (to rotate auditors) would improve the quality of
audits. To the contrary, the institute believes mandatory
audit firm rotating would not be in the public interest. For
one thing, it would dramatically increase costs for firms,
clients and the public. In addition, it would increase the
likelihood of poor audits by depriving auditors of a most
valued tool: experience with a client and the comprehensive
knowledge of its business and operations.” The AICPA fur-
ther states that “audits are strengthened by institutional
continuity. It is a significant benefit to be well acquainted
with a client’s business, operations and controls. Experi-
ence has shown that allegations of audit failure occur much
more frequently when a firm is in its first couple of years as
a company’s auditors” and that “audit committees are in
the best position to evaluate the desirability of changing
auditors.” The Board believes these comments from the
AICPA on rotating auditors support a decision not to
change auditors. The Board also questions to what degree
Financial concerns and questions have “disturbed the
Syned” in view of the convention delegates affirming in Res.
4-07 the Synod’s accounting procedures and fiscal opera-
tions by a 95% vote.

Task Force Recommendation 3

That current areas of concern or sensitivity be addressed
with the new audit firm (FINANCIAL AUDITS, p. 4)

The Task Force Report has been shared with the Synod’s
present auditors, Ernst & Young. The Board encourages
the Task Force to clearly identify other areas of concern or
sensitivity and share them with the Board of Directors
Audit Committee and Ernst & Young.

Task Force Recommendation 4.

That consistent fiscal year-ends and reporting formats
for the synodical entities be accomplished (FINANCIAL
AUDITS, p. 4) a ,

The Board concurs with consistent year-ends and re-
porting formats where practical. The Board has considered
consistent fiscal years in the past and concluded that it-was
practical for LCMS, Inc., LCEF and the Foundation to
change to a June 30 fiscal year, the same as that of the col-
leges, universities, and seminaries, The Board. would also
support CPH changing fiscal years, if the CPH board deems
it appropriate. The Board concluded that it is best for the
Worker Benefit Plans to remain on a calendar year basis,
since that is when its cost/benefit structure is set and since
it primarily relates to congregations, most of whom are on a
calendar year basis. It is not desirable for Districts to have
a June 30 fiscal year because most congregations operate
on a calendar year and Districts generally have adopted fis-
cal years ending in January or February to reflect the flow
of funds from congregations. The Board would support a
common date for Districts agreed to by the District busi-
ness managers. However, the Board can only encourage
uniformity, since under Bylaw 4.91 each District Board of
Directors is vested with the general management and su-
pervision of the District’s business and legal affairs and
with adopting appropriate policies and procedures related
thereto.

The Board took the leadership several years ago in de-
veloping a common format for District financial statements
and another common format for colleges, universities, and
seminaries, While the schools follow the format, not all Dis-
tricts do. Annually the Internal Audit Department updates
the District business managers on the accounting require-
ments of the American Institute of Certified Public Ac-
countants and the Financial Accounting Standards Board,
provides the CPA firms and business managers with a sam-
ple audit report and encourages the use of a common for-
mat. Presently only one District does not have an annual
audit. Several others have reviews or compilations which
are substantially less in scope than an audit performed in
accordance with generally accepted auditing standards,
Some Districts also are not complying with accounting and
reporting requirements as outlined in the AICPA Statement
of Position 78-10 and the Audit Guide for Not-for-Profit Or-
&anizations. The Board through the Internal Auditing and
Accounting Departments and the synodical Vice-Presi-
dent—Finance/Treasurer continues to urge and recommend
compliance.

Common formats are not practical for entities other than
schools and Districts due to their diverse activities and the
laws governing the respective entities. For example, the for-
mat required for LCEF registration with state securities
agencies is different than that required for the Foundation
or Worker Benefit Plans which are governed by “trust”
laws. However, since 1983 combined financial statements
have been prepared annually and reflect as much common-
ality as possible.

Task Force Recommendation &

That fee estimates obtained from outside auditors in-
clude the cost of having the internal audit function per-
formed by the outside auditor (FINANCIAL AUDITS, p. 4)