Update from the SSA Executive Committee
Since Chairman Black-Nixon’s letter to you 6 days ago, much has transpired, and as expected, SSA leadership has received many questions from members. All letters and phone calls could not be personally returned, as we have been greatly preoccupied dealing with the immediate situation at hand. While much is still being uncovered, we have made substantial daily progress. The Executive Committee felt the best way to communicate at this point was to collate many of the questions raised over the past days, and provide you with our best answers:
In general, how are SSA finances handled and monitored?
It is the responsibility of the Executive Director (ED) to monitor the day-to-day operations of the staff. Upon beginning his tenure with SSA, the Chief Financial and Administrative Officer (CFAO) reported directly to the Board. In May of 2005, the policy was clarified such that he reported directly to the ED, with a conditional reporting responsibility to the board. The Treasurer (a volunteer SSA Director) and his other Budget and Finance Committee members monitor the financial health of the organization based on monthly and year-end financial statements prepared by the CFAO, which are also reviewed by the ED. Both the ED and CFAO respond to questions and concerns the Treasurer and Budget and Finance committee members may have about those statements. It is the responsibility of all Board members to review monthly and yearly financial statements.
Who verifies the validity of the financial statements generated by the CFAO?
While the Executive Director, the Budget and Finance Committee and the Board as a whole review the financial reports; there is no internal verification that the financial reports are valid.
Why didn’t the Association's Treasurer or Executive Director take necessary steps to ensure that federal and state income tax returns were filed in a timely fashion?
It is the responsibility of the ED to sign tax returns, and assure they are filed in a timely fashion. In this case, the ED was aware of the failure to file for much of the time he was employed by the SSA (approximately three years). He neither secured their filing, nor notified the Board of Directors (including the Treasurer) of the delinquency until July 31, 2006. The ED has taken full responsibility for his actions in this regard.
If the ED has taken responsibility for not making sure the tax returns were filed, and not notifying the Board of such until recently, why is he still employed by the SSA?
The Executive Committee is carefully considering what action to take regarding the ED. In making this decision, consideration must be given to the seriousness of the situation, his role in it, the necessity to manage the SSA in the near term, and other factors.
Why didn’t the Chairman of the Board, Executive Committee, Treasurer, and/or Directors verify that tax returns had actually been filed and that any taxes due were actually paid?
It is impractical and inappropriate for Board members to micromanage the SSA by contacting individual vendors (including the IRS) to verify they have actually been paid. It is the responsibility of the ED to monitor SSA operations at this level. We cannot speak to why the ED did not carry out this responsibility.
Had our CPA firm prepared SSA tax returns in the past? When did the CPA firm recognize that some SSA tax returns were delinquent, and what did they do about it?
Prior to the period in question, our CPA firm had generated SSA’s tax returns for many years, from information provided by our office. Our accountants were aware of the tax return delinquency beginning when the “stub” 2002 tax return became due (a change in the SSA fiscal year caused this “stub” period). The principal of our CPA firm attempted multiple times over the ensuing 3+ year period to obtain the data from our CFAO required to complete the returns. Our accountant reported this lack of reporting by the CFAO multiple times to our ED. Additionally, we just learned that the tax return prepared by our accountants for the period January 1, to September 30, 2002 (the “non stub” portion of 2002) was delivered to the CFAO years ago, but he never mailed it to the IRS.
What progress has been made toward filing the delinquent tax returns? Will penalties be assessed?
Tax returns from 2002 to 2004 have been completed, and will be mailed to the IRS today. We expect the 2005 return to be mailed within the next week. The IRS and state may levy penalties for late filing, which we hope to mitigate.
What about the unpaid Federal and State withholding taxes that now represent a huge liability to the SSA? Did our financial reports indicate that withholding taxes had actually been paid?
Yes. Profit and loss statements created by the CFAO reflected the expense for payroll taxes. But some of those taxes were not forwarded to the IRS and state. This being the case, the balance sheets should have shown outstanding liability for those unpaid taxes. Not having these liabilities visible on the balance sheet implied the taxes had been paid.
Who prepares the budget? Who approves the budget? Were annual tax liabilities not budgeted?
Each year the budget is prepared by the CFAO and ED. It is reviewed by the Directors on the Budget and Finance Committee, the Executive Committee and the Board as a whole, and is then finally approved by the Board. All yearly budgets included appropriate expenses for payroll taxes.
If withholding taxes that were supposed to have gone to state and federal authorities were never sent, SSA should still have that money. Where is it?
The funds are no longer in SSA bank accounts. The money either went towards other SSA expenses, or was misappropriated. Our accountant is currently conducting a “forensic” financial investigation to resolve this question, and detect any fraud that may have occurred. Results will be known very shortly, and passed on to the membership.
Your first letter reported that the CFAO claimed his reason for making a unilateral decision not to pay withholding taxes was because of "...a lack of available cash on hand..." Does the Executive Committee believe this?
No. This is why a thorough investigation is underway.
Why was the CFAO placed on "paid administrative leave," and not immediately dismissed when this situation came to light?
We were advised to do so by our attorney, while all evidence relating to his actions was being investigated and evaluated. The CFAO was terminated on September 5, 2006.
If fraudulent activity by an SSA employee is detected, will the SSA take action?
The Society will vigorously pursue all legal means available to secure repayment of any misappropriated funds, and punish any offender.
SSA Bylaws require a yearly audit. When was this last accomplished?
Our accountants accomplished the last audit on October 31, 2002.
Why has an audit (or outside financial review) not been done since 2002?
The SSA hired its first CFAO during 2002. In retrospect, this may have led to a false sense of security on the part of the Board. Over the ensuing years, the Board decided not to spend funds on audits, instead allocating money on other tasks felt necessary to grow the Society. In retrospect, this was obviously “penny wise, and pound foolish.” A full audit by an outside party is planned.
What actions have been taken to prevent such a situation from occurring again?
An outside consultant is now reviewing internal office controls for cash processing. Additionally, controls to insure that financial statements are accurate and that regulatory reports are filed in a timely fashion will be instituted. We have contracted with an outside payroll service to handle this segment of payables . A ll SSA financial policies and procedures will be reviewed to ensure that appropriate checks, balances and internal controls are in place to prevent a recurrence of such problems. The bylaw requirements regarding audits will be followed. Additionally, the Executive Committee is actively pursuing several SSA members with financial experience, but who have never been part of Society leadership, to oversee all of its activities as we attempt to bring these problems to the best resolution possible, and protect the Society in the future.
How will this situation affect the SSA?
The SSA has always struggled financially. A task force is being formed to evaluate what significant and far-reaching operational changes are needed to completely transform the SSA into a viable business, able to repay the funds that will likely have to be borrowed to deal with the withholding tax issue.
The SSA will pay all taxes due, and will make efforts to mitigate, to the greatest extent possible, penalties and interest that might be levied by the Internal Revenue Service and State of New Mexico.
How can I help?
By continuing to support the SSA. As facts become completely known and plans are developed to deal with this crisis, SSA leadership will continue to keep the membership informed, by posting information on the SSA website and in eNews.
Lastly, we would like to address the most important question:
Just who is responsible for putting the SSA in such a terrible position?
The short answer is that Chairman Black-Nixon takes responsibility, since she happens to currently be the Chairman of the Board, and “The buck stops…”
The long answer is that our hired management failed us, and although all volunteer Directors were well meaning, they all share in the blame. The root cause of leadership’s failure to uncover the problem until now was the complete absence of outside financial reviews or audits since 2002. Between 2003 and the present, the SSA has had one Chief Financial and Administrative Officer, one Executive Director, two Directors who served as Treasurers, three Directors who were Chairmen of the Board, ten Directors who served as Vice Chairmen (making up the Executive Committees) and forty-three different Directors. To varying degrees and for various reasons, we have all let the SSA membership down.
The SSA is an unusual organization, in that volunteer Directors, while not having it as a responsibility, frequently are involved in the day-to-day operations of the Society. We depend on Directors with differing skills and take advantage of this specialization in choosing what tasks and roles each Director is given – and some Directors are willing and/or able to do much more than others.
The most important thing now is what happens to our SSA going forward. The current Executive Committee, consisting of Chairman Dianne Black-Nixon, First Vice Chair Jim Skydell, as well as Vice Chairs Doug Easton and John Volkober, ably assisted by Secretary Dean Carswell, collectively feels our knowledge of the Society places us in the best position to make a major contribution to fixing this problem. But we also feel that individuals independent of the Executive Committee and Board should be intimately involved in this process.
Once the Society emerges from this awful situation, our intent is to tender resignations in respect of our leadership positions, hoping that new, qualified individuals will assume these roles.
Further communication from the Executive Committee will occur whenever new information becomes available, almost certainly within the next week, and possibly in the next few days.
C. Dianne Black-Nixon, Chairman of the Board
Jim Skydell, First Vice Chair
Doug Easton, Vice Chair
John Volkober, Vice Chair
Dean Carswell, Secretary