Auditor criticizes NCC's financial management Management letter cites 'material weaknesses' By Parker T. Williamson The Layman Online Friday, November 12, 1999 CLEVELAND – An independent auditor says the National Council of Churches has disclosed "reportable conditions rising to the level of material weaknesses." A glossary of terms used to prepare candidates for CPA exams defines material weakness as "A condition in which internal controls do not reduce to a relatively low level the risk that material errors or fraud may occur and not be detected in a timely period by employees in the normal course of performing assigned functions." Public disclosure of the auditor's management letter added more controversy to the financial crisis that has dampened the council's 50th anniversary celebration. Joan Brown Campbell Even Joan Brown Campbell, outgoing general secretary of the National Council of Churches, devoted most of her departure speech to a litany of reasons for the council's financial condition. "We're like an aging city with a crumbling infrastructure," she said. "The infrastructure is sadly in need of repair, and it is not cheap to repair it." This council's General Assembly has been peppered with concerns over a budget shortfall of $3,987,000, which was identified in the transition team's Nov. 11 report. There have been late-night private sessions over the independent auditor's management letter that accompanied the NCC's combined financial statements. The letter says that "communication and staff compliance" are primary issues in the auditor's findings. 'Reportable conditions … material weaknesses' In an Oct. 29 report to the NCC Administration and Finance Committee, Cheryl Wade, chair of the Audit and Review Subcommittee, said that during her committee's discussions with the independent auditor, the auditor described problems identified in their management letter as "reportable conditions rising to the level of material weaknesses." Among the irregularities listed were: Certain material transactions were not recorded in the books of accounts due to the failure of the program offices to submit the necessary input documents or the lack of proper coordination between the various program offices and the Department of Financial Services. Transactions were not properly monitored and reviewed before these [were] entered into the accounting system, resulting in erroneous recording in the general ledger. The accounting records maintained at the Council's New York office were not reconciled with the financial records and reports submitted by satellite/field offices. The cash account balances in the control accounting unit were not reconciled with the cash balances in the sub-accounting units. Certain deficiencies were noted in the payroll and personnel management system such as the inclusion in the ADP master file of the names of employees who were already terminated during the year, inadequate documentation to back up the identification and salary increases of employees, and lack of required signatures on the authorization for personnel action forms. Uncorrected irregularities The management letter also cited the fact that issues cited by the auditors in 1996 and 1997 remained "uncorrected in 1998." These irregularities include: advances that were made without sufficient documentation. undocumented American Express charges. certain policies and procedures to be presented in the 1999 meetings of the Administration and Finance Committee related to the Ecumenical Trust were not available for review. delays in the preparation of bank reconciliation statements continued. 'Weaknesses' in federal fund management The NCC handles millions of dollars in federal funds, much of it through the relief work of Church World Service and "justice ministries" activities in the National Ministries Unit. The use of these federal dollars obliges the NCC to undergo an OMB Circular A-133 audit. Here again, auditors have found reportable conditions "rising to the level of a material weakness." The NCC's Audit and Review Subcommittee has issued a warning to the Council that: "A reportable condition rising to the level of a material weakness is one that urgently needs addressing, rather than a situation for which improvements may be suggested but not mandated." Cited irregularities include: Controls that prevent and detect incorrect changes or additions to the existing chart of accounts were inadequate. Disbursements were not properly approved nor adequately documented. The audit trail for recording cash receipts transactions was not apparent, and supervisory controls on the processing of cash receipts were not strictly enforced. The functional allocation of expenses, including allocation of indirect costs, are not adequately supported. Program staff criticized The Audit and Review Subcommittee report clearly lays responsibility for the financial situation on the NCC staff: "The Audit and Review Subcommittee, in its discussion with the auditors, found it necessary to note that the preponderance of these findings are not primarily related to software systems, or difficulties within the Department of Financial Services. Primarily, they relate to the lack of communication between programmatic staff and accounting staff, as well as to the capability of program staff to oversee certain financial issues within their purview. Imagination over efficiency In her speech to the General Assembly, Campbell brushed aside growing criticism of NCC staff's management of funds given to the organization by foundations, government agencies and member denominations. (The Presbyterian Church (USA) gave an estimated $1.5 million to the NCC in 1998.) She answered criticisms by going on the offensive. Arguing that the NCC's advocacy programs are more important than management details, she declared, "You are right that I value courage and imagination more than caution and efficiency. I said yes to things that others say no to, and I got us in deep water." But there was no contrition in that admission. "Success is not measured in dollars raised, spent and saved," she declared. "We need to be reinfused with the vision … Unity is a worthy struggle. We need to say to ourselves that struggle is not a sign of weakness or a failure of leadership … Our deficit is not in dollars but in our failure to see in one another the moral force that ends poverty as we know it and that challenges racism." Sinking Ships Campbell noted that more than 90 percent of the NCC's funding comes from seven denominations. "If it were not for them, we would not exist," she said. She noted that these mainline denominations are themselves in trouble, and she reminded the council of her oft-quoted statement: "When they get a cold, we get pneumonia." In an ironic twist, Campbell attributed the decline and waning influence of mainline denominations to their attachment to the NCC. It is their support for the ecumenical movement that has gotten them in trouble with their people, she said. But then she noted that losing one's life in order to find it "is good theology."

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