Audit Reveals Pre-Merger AFTRA Was Plagued With Financial Issues (Exclusive)
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.
According to sources, the audit reports also said that multiple accounting entries – so-called “manual journal entries” – that the auditors examined were found to be without supporting documentation. In addition, when locals made manual journal entries, there was no review by national financial executives. Nor was there evidence of any review or approval at all, except with respect to entries by the Los Angeles local.
A source also told THR that not all of AFTRA’s bank accounts were interest bearing, and that four separate accounts were maintained in one instance that, if consolidated, would have avoided bank fees.
The source also said that AFTRA didn’t code expenses properly in its accounting system. That made it difficult to determine, for instance, the cost of AFTRA’s biannual convention: the estimate ranged from $800,000 to $950,000, with no further precision possible.
Application of dues money to member accounts was also error-prone, sources said the audit reports disclosed. In addition, there were problems with accounting for payments in transit from locals to the national office.
Another area of auditors’ concern, according to sources, was vacation records. In several instances examined at both the national and local levels, employee vacation-day balances at the beginning of one year didn’t match the balances for those employees at the end of the preceding year. Also, the national office didn’t maintain vacation records for most locals (the exceptions were a few small locals). There was no review or approval of vacation days, and vacation data were often prepared by an affected employee.
In other words, in some cases, people were self-approving and self-reporting their own exercise of vacation privileges. In addition, a source pointed out that vacation days can sometimes be cashed out, and that discrepancies in vacation day accounting were thus equivalent to monetary discrepancies.
Another, even more directly monetary issue was that if employees borrowed against their 401(k) retirement accounts, their repayments of such loans were not always tracked.
The pre-merger due diligence report identified various AFTRA governance issues, said sources: the union had no conflict of interest policy and no whistleblower policy, federal tax forms (Form 990) were prepared by outside CPAs and reviewed only by the national director of finance, and were not provided to the national board before filing. Federal labor forms (LM-2) were filed at the national level, but under federal regulations should have been filed by locals in light of their financial autonomy. Various errors on the Form 990s led the due diligence auditors to question whether AFTRA fully understood the forms.
A source said that AFTRA sometimes failed to use outside counsel to review employment contracts for local executives. Sources also said that the auditors found that personnel files were not always complete and up to date.
IT issues were identified as well: AFTRA didn’t document its monitoring of firewall use, didn’t use all password features available in its systems and didn’t track configuration changes to financial software.
AFTRA also suffered from bugs of the natural kind. According to one source, a single physical office in New York had two separate exterminator contracts – one entered into by the national staff and the other by the New York local. Even when it came to cockroaches, it seems, the local and national offices couldn’t agree on a single solution.
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