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U.S. Department Labor Employment Standard Administration
Office of Labor-Management Standards
Washington, D.C. 20210
April 9, 2007
Mr. Chris Albers
President
Writers Guild of America East, AF1.-C1O
555 West 57th Street
New York, New York 10019
RE: International Compliance Audit Program (I-CAP)
Writers Guild of America East, AFL-CIO
LM File Number 000-298
Dear President Albers:
The Office of Tabor-Management Standards (OLMS) within the Department of
Labor completed a compliance audit of your organization under the Intermtiom1
Compliance Audit Program (I-CAP). The purpose of this audit was to assess
compliance with provisions of the Labor-Management Reporting and Disclosure
Act of 1959 (LMRDA) by the Writers Guild of America, East (WGAE). The I-CAP
team conducted an exit interview in person on November 9,2006 with Gail Lee,
Secretary-Treasurer; Mona Mangan, Executive Director; Uma Sarada,
Administrator; Sofia Ovsyanker, Controller; Eric Greene, outside counsel; and Noah
Rifkin, independent accountant. At that time, and during a follow-up conference
call conducted on April 2,2007, we reviewed the audit findings, including the issues
and problem areas identified during the audit; actions required to correct
deficiencies; and, recommendations to enhance internal controls. This letter
outlines I-CAP audit's civil findings as generally discussed during the exit
interview. This letter does not purport to be an exhaustive list of all possible
problem areas or violations since the compliance audit was limited in scope and
duration.
Officials of your organization were informed at the exit interview that an amended
Labor Organization Annual Report, Form LM-2, for the fiscal year ending March 31,
2006, is required to be submitted within thirty days from the date i f this letter to
correct reporting and other deficiencies. Specific information relating to these
deficiencies is presented below.
Reporting Violation - LMRDA Section 201 (a)
Section 201(a) of the LMRDA requires that every labor organization that amends its
constitution and bylaws file a copy of the revised documents when the union files
its next annual financial report with OLMS.
1. The WGAE's most recent constitution, dated March 23,1998, had not been
filed with OLMS at the start of the audit. Copies of this constitution have
now been filed. A11 future changes to the constitution must be filed with
OLMS with the WG AE's next annual financial report.
Reporting Deficiencies - LMRDA Section 201(b)
Section 201(b) of the LMRDA requires that every labor organization file with OLMS
an annual financial report that accurately discloses the union's financial condition
and operations. Deficiencies were noted on the WGAE Form LM-2 for the fiscal
year ending March 31,2006. The deficiencies identified in this section must be
corrected in an amended Form LM-2 for the reporting period ending March 31,
2006. Further, subsequent Form LM-2 filings must be prepared so as not to contain
these deficiencies.
2. The WGAE answered "No" to Item 17 (Contingent Liabilities). The audit
revealed two contingent liabilities: 1) litigation involving the Writers Guild
of America, West that was still pending as of March 31,2006; and 2) the
employment contract between the WGAE and the Executive Director,
allowing certain servance contingencies. The WGAE is required to answer
"Yes" to Item 17 and describe the contingencies in Item 69 (Additional
Information).
3. The WGAE incorrectly reported $322,960 of cash balances on deposit with
union's broker in Item 26 and Schedule 5 (Investments). The total of all the
union's cash, including certificates of deposit, money market accounts, and
all other cash balances in financial institutions, is reportable in Item 22
(Cash).
4. The Form LM-2 was signed, in both Items 70 and 7l, by an employee of the
organization. The Form LM-2 must be signed by both the president and
treasurer, or corresponding principal officers. A corresponding principal
officer is an officer who performs the duties of the principal executive or
principal financial officer. If a corresponding principal officer s i p the
report, an explanation is required in Item 69.
5. The individual lines (Lines 1 through 24) of Schedule 1 (Accounts Receivable
Aging Schedule) should be used to report individual accounts receivable of
$7 5-.,0- 00 or more that were 90 days or more past due at the end of the reporting
period or that were liquidated reduced or written off during the reporting
period. Any amounts owed to the union in all other accounts receivable
(those less than $5,000) should be aggregated in the line titled, "Totals from
all other accounts receivable." 'The WGAE's reporting in this matter is
deficient in three ways:
a) First, the WGAE reported an aggregate amount ($237,098) of accounts
receivable from numerous members in Line 1 of Schedule 1. Line 1
should only be used to report an individual accounts receivable.
Accounts receivable from members that are individually less than
$5,000 should be aggregated in the line titled, "Totals From all other
accounts receivable."
b) Second, the WGAE did not properly age the accounts receivable from
members. The WGAE reported no amount of these member
receivables as 90 or more days past due. The audit determined that
these balances included receivables that were over 90 days past due.
The WGAE must properly age these accounts receivable in Columns C
and D of Schedule I.
c) Third, the audit determined that on March 31,2006, the union reduced
its accounts receivable by $38,309 by moving that amount into an
allowance for doubtful accounts. In accordance with Form LM-2
instructions, the union reported its net accounts receivable in Schedule
1. However, the union did not disclose its allowance for doubtful
accounts in Item 69 (Additional Information). In further compliance
with Form LM-2 instructions, when accounts receivable are carried on
the union's books at net (gross accounts receivable less the allowance
for doubtful accounts), the union should report the aIlowance for
doubtful accounts in Item 69.
6. The WGAE did not report an " E next to the name o fin
Column A on Schedule 2 (Loans Receivable). The LM-2 instructions require
the union to report an "0(officer)o r " E (employee) after the name ofeach
officer or employee listed,
7. Schedule 2 included amounts owed to the WGAE for an "erroneous
overpayment' of payroll taxes and an "advance" to the Industry Health
Fund. These amounts owed are not properly classified as loans and should
be reported in Schedule 7 (Other Assets).
8. The WGAE did not report any withholding or deductions on Line 9 (Less
Deductions) of Schedule 12 (Disbursements to Employees). The union must
report the total amount of all withheld taxes and other deductions on Line 9
and then report the difference of Line 9 from Line 8 (Total Employee
Disbursements) on Line 10 (Net Disbursements).
9. The WGAE entered "Office" as the position of n
Column B of Schedule 12. This description does not adequately identify the
position held. A more descriptive position must be reported.
10. Membership categories reported on Schedule 13 (Membership Status) were
not further defined in Item 69 (Additional Information). The Form LM-2
instructions require a definition of each membership category including a
description of the members and an indication of whether the members pay
full dues.
11. The audit revealed that refund receipts of $497.67 and $914.25 were "netted"
against general ledger disbursement accounts 4500, legal expenses, and 4830,
hotel expenses, respectively. The Form LM-2 instructions prohibit "netting."
All cash flowing in and out of the labor organization must be reported on the
Form LM-2. These refund receipt amounts are reportable in Schedule 14
(Other Receipts).
12. Many of the itemization pages for Schedule 15 (Representational Activities),
and Schedule 19 (Union Administration) contain inadequate descriptions of
the itemized disbursement purpose in Column C. Inadequate descriptions of
the itemized disbursement purpose include: "Legal Counsel" and "Union
Activities." The LM-2 instructions require sufficient detail to identify the
purpose of these disbursements.
13. Many of the itemization pages for Schedule 19 (Union Administration)
contain inadequate descriptions of the business type in Column B.
Inadequate business type descriptions include: "Vendor," "Union Function,"
"Awards Ceremony," and "Processing." The LM-2 instructions require more
descriptive classifications for business types.
14. The WGAE did not include all major disbursements in itemization pages for
Schedules 15 through 19 as required. The LM-2 instructions define a "major"
disbursement as: 1) any individual disbursement of $5,000 or more; or 2) total
disbursements to any single entity or individual that aggregate to $5,000 or
more during the reporting period. The audit revealed major disbursements
to nine separate entities that were not included in itemization pages for
Schedules 15/18, and 19. These major disbursements must be included on
either existing or new itemization pages.
15. Schedule 19 (Union Administration) included non-itemized disbursements to
Intra-Boro Acres for taxi services incurred by WGAE officers and employees.
These amounts must be reported next to the names of the officers or
employees who incurred those expenses in Schedules 11 (All Officers and
Disbursements to Officers) or Schedule 12 (Disbursements to Employees), as
appropriate.
16. Schedule 20 (Benefits) included disbursements of $6,234 to Geller Group, Ltd.
and $3,700 to Employee Security, Inc, for administrative fees. These
disbursements are neither direct nor indirect disbursements for benefits and
are instead reportable on Schedule 18 (General Overhead). Also,
disbursements to Geller Group, Ltd. are reportable in an itemization page for
Schedule 18. inadequate record keeping - LMRDA Section 206
Pursuant to Section 206 of the LMRDA, every person required to file any report
under LMRDA Title I1 shall maintain records on the matters reported which will
provide in sufficient detail the necessary information from which the reports filed
may be verified, explained, or clarified and checked for accuracy and completeness.
All required records must be maintained for at least five years following the date
the report is filed. Records over five years must be retained if they are necessary to
verify reports filed within the last five years, for example, to verify current financial
activities of the union, such as meeting minutes that note approval for officer salary
increases. There were instances noted during this audit where the WGAE did not
comply with the recordkeeping requirements of Section 206. During the exit
interview, WGAE officials were informed that adequate records necessary to
document all financial transactions, regardless of the amount, must be maintained
for a minimum of five years.
17. WGAE officers and employees failed to maintain adequate documentation
for reimbursed expenses and expenses charged to union credit cards.
Documentation was inadequate in two ways:
a) The WGAE did not always maintain a receipt or bill to document
expenses. The receipts that the union did maintain, such as for meal
expenses, were not always itemized. Itemized receipts provided by
restaurants to officers and employees must be maintained by the
union. These itemized receipts are necessary to determine if such
disbursements are for union business purposes.
b) Also, WGAE records for meal expenses sometimes included no
explanation of union business conducted and no identification of the
persons incurring the meal expense. In order to comply with LMRDA
Title 11, union records pertaining to meal expenses must include
written explanations of union business conducted and the full names
and titles of all persons incurring the restaurant charges.
Inadequate Bonding - LMRDA Section 502.
Section 502 of the LMRDA requires that every person who handles funds or other
property of the union shall be bonded for no less than ten percent of the total funds
handled by those individuals or their predecessors during the preceding fiscal year,
but in no case more than $500,000. The audit disclosed a violation of LMRDA
Section 502.
18. Two employees who handle member receipts were bonded for $100,000. The
audit determined that the amount of member receipts handled by these
employees requires that they must be bonded for $500,000. The I-CAP team
verified that the additional bonding coverage was obtained during the audit.
The WGAE should regularly review bond limits applicable to its employees
to ensure full compliance with Section 502.
Office Holding Prohibitions - LMRDA Section 504
Section 504 of the LMRDA prohibits persons convicted of certain offenses from
holding labor organization office or employment for a period of me in years from
the date of conviction or release from prison, whichever is later. It is also a violation
of Section 504 for another person to willfully and knowingly hire, retain, employ or
otherwise place the barred person in a prohibited capacity.
19. The WGAE does not conduct criminal background checks of officers or
employees to ensure that they do not hold office or employment in violation
of LMRDA Section 504. The I-CAP team emphasized the importance of
verifying background information to ensure compliance with Section 504,
and recommends that the WGAE establish a system for determining whether
officers and employees have disqualifying criminal records.
Internal Controls
Adequate internal financial controls are essential to prevent the misuse of union
funds and to support the financial responsibility and other obligations under Title I1
and Title V of the LMRDA. Title V of the LMRDA stipulates, among other things,
the fiduciary responsibility of officers of labor organizations. As a general rule,
weaknesses in financial controls can lead to violations of Section 501 of the LMRDA.
20. The WGAE does not have a clear policy regarding the types of expenses
officers and employees may claim for reimbursement nor the types of
expenses that may be charged to union credit cards. The WGAE expense
policy is a confusing compilation of various memoranda and personnel
instructions dating back to 1984. To improve internal controls and prevent
financial abuse, the I-CAP team recommends that a clear expense policy be
established and expressed in one consolidated document.
21. Checks received by the WGAE for deposit are secured in a safe but are not
stamped "For Deposit Only." The I-CAP team recommends that all un deposited
checks be stamped when received to properly control and secure
these assets.
22. The Controller records and processes most financial transactions for the
WGAE and also reconciles the union's bank accounts. It is recommended
that bank reconciliations be reviewed by another official of the union to
improve controls and safeguarding of these assets.
23. The Controller processes most disbursements and checks for the WGAE and
also distributes signed checks to payees. It is recommended that an
employee who has no access to the financial records receive all signed checks
from the signers and distribute them to the appropriate payees.
24. WGAE does not routinely have an officer sign union checks with an original
signature or review supporting documentation for disbursements.
Currently, the Executive Director and/or the Administrator review
disbursement documents and sign union checks. To strengthen the internal
controls, to facilitate the fiduciary responsibility of the officers, and to ensure
that all union funds are being used only for union purposes, the I-CAP team
recommends that at least one WGAE officer routinely review supporting
documentation and sign union checks with an original signature. Also, the ICAP
team recommends that an officer's approval for payment be recorded
by initialing and dating the disbursement documents.
25. The WGAE does not have a formal investment policy defining its objectives
for invested funds. It is recommended that a formal, written policy be
established to memorialize the union's investment objectives and policies.
26. The WGAE does not have a detailed inventory of furniture, equipment, and
other assets that identifies all assets on hand. It is recommended that a
physical inventory be conducted and record to verify assets on hand and
better safeguard these assets.
27. The audit revealed four WGAE checks totaling $1,521.10 dating back to
August 2004 that are still identified as outstanding on recent bank
reconciliations. It is recommended that outstanding checks be periodically
reviewed for re-issue or voiding.
As discussed during the exit interview, the WGAE will submit, within thirty days
from the date of this letter, an amended Form LM-2 for the fiscal year ending March
31, 2006 and a response letter to this closing letter. The response letter will identify
the corrective actions implemented by the WGAE based on the results of the
compliance audit. A11 subsequent Form LM-2 filings must also be prepared so as
not to contain the deficiencies outlined in this letter. We will schedule an on-site
follow-up in approximately six months to review corrective actions taken, to discuss
the amended Form LM-2 filed by the WGAE, and to continue cooperative efforts to
prevent and correct LMRDA deficiencies.
Please accept my appreciation for the cooperation and courtesy extended by your
staff during this compliance it. If you have questions, please do not hesitate to
call me.
Sincerely,
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Stephen J. Willertz, Acting Chief
Division of International Union Audits
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