Audit Reveals Pre-Merger AFTRA Was Plagued With Financial Issues (Exclusive)

4:21 AM PST 09/09/2013 by Jonathan Handel
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Thousands of non-paying members on the books, accounting errors and omissions and "boxes and boxes" of expired studio residuals checks — for the first time, THR unveils the union's lack of financial controls, which took over a year to rectify.

Another source of AFTRA’s problems was the fact that residuals processing was handled by individual locals, not the union’s national office. According to a source, dilatory processing sometimes resulted in “boxes and boxes of checks that weren’t being sent out.” Those checks would sometimes go stale – which a source said was particularly a problem at the New York local – and have to be returned.

Another problem at the New York local, identified by auditors, was that the “claims payable residuals account” did not properly document to whom payments were owed. Thus, if AFTRA NY brought a claim against an employer for residuals owed, and received a lump sum award or settlement, the local might not be able to properly allocate how to pay the affected members.

According to one of the audit reports, performed by PricewaterhouseCoopers after the merger, boxes of checks payable to members whom AFTRA couldn’t locate were sometimes returned to the payor by the New York local with no cover letter or explanation as to what was being returned, and why. (PwC were SAG’s auditors and are now SAG-AFTRA’s.)

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At one point, AFTRA gave up on finding residuals recipients from 1985 that it couldn’t locate, and therefore recognized (i.e., deemed) the corresponding funds to be income to the union. Perhaps in light of the long time period that had elapsed, or because the policy issue was outside the scope of the audit, the auditors didn’t appear to criticize AFTRA’s decision to recognize the funds as income – but they did note the fact that this was done without any apparent management approval.

According to sources, the pre-merger due diligence report examined audit reports that had been prepared for AFTRA for the preceding several years. It found that the audit report for fiscal year 2009 noted many control deficiencies. The FY2011 report noted many of the same deficiencies, meaning that over the course of two years AFTRA had failed to correct the identified issues.

In addition, AFTRA’s auditor, now part of the national firm BDO, didn’t note any issues in the report for FY2010, reasoning (according to a source) that no remarks were necessary since the issues remained the same as in FY2009. A source expressed surprise at the auditor’s decision to ignore the issues for a year – as well as at AFTRA’s failure to remedy deficiencies that recurred over a period of at least three years.

Sources emphasized to THR that over the 15 months following merger, SAG-AFTRA had corrected all of the AFTRA deficiencies and that this was reflected in a PwC audit report covering the period May 1, 2012, to April 30, 2013. That report listed one remaining issue, said a source, who added that by the time the report was presented to the union’s national board in July 2013, that issue too had been resolved. In contrast, the report a year earlier, which was presented to the union’s board in October 2012, disclosed numerous AFTRA-related issues, as did a due diligence report prepared for SAG by the Calibre CPA group before merger.

On both occasions, board members were permitted to read the reports during the board meeting, but were not permitted to retain copies. The documents were numbered to ensure that none went missing.

Several reported deficiencies related to AFTRA’s checking accounts. For instance, a checking account maintained by the New York local appropriately required two signatures on all checks, but one executive had access to two different signature stamps, making the two-signature requirement essentially meaningless.

According to sources, AFTRA repeatedly failed to reconcile its bank account records with statements received from banks, resulting in errors being caught late or not at all, and in numerous unrecorded transactions and audit adjustments. Bounced checks from members were not timely accounted for because of what a source said the auditors termed “miscommunication” between the finance and membership departments.

In addition, an AFTRA local had at least one bank account that wasn’t reflected on the local’s accounting records at all.

Also, in some cases, the person who entered accounting records was the same person who checked bank statements and/or reviewed backup documentation. Such a lack of “segregation of duties” is a significant control deficiency that in some instances amounted to what auditors called a “material weakness,” the more severe of two types of control deficiencies.

Other failures to segregate duties included: new employees were added to the rolls and subsequently payrolled by the same person; one executive in AFTRA’s New York local performed multiple accounts payable functions without review by a supervisor; and AFTRA’s national director of finance made numerous manual entries in the accounting system.

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