Expert: Consuelo Herrera, International Accountant and Fraud Examiner - 7/15/2009

Question
I am trying to Design a test for Member dues.  They are actually called "check-off" dues as they are paid to a union.  The companies withold the dues and give a lump sum to the union.  They do not provide payroll information.  What kind  of testing would you suggest to prove the "check -off" dues.  We do have access to applications, but not actual payroll amounts of union members.

Thanks in advance

Answer
Dear Mark,

Thank you for contacting me.

I have seen organization matching members' dues similar to the situation you described. For example, if a member fee is $10, a company would match that amount by issuing a check for $10 times the number of active members. In a 100-member union, the lump sum would be $2,000. Although organizations do not provide payroll information they do provide a list of members and their contributions as well as the amount matched.

To test the accuracy of those amounts I would send positive or negative confirmations to a sample of members and cross reference the results to the a sample a list provided by the dept in charge of issuing the check for the lump sum.

Please see below an example of Audit Tests performed by a membership based organization:


ABC Audit Test Guidelines for Club/Membership Sales

The following guidelines have been developed to address the audit risks specific to both deductible and non-deductible club/membership sales.

1) Subscriber Initiated Documents

a. Accompanied by “Proof of Payment”: When the consumer is required to complete a form to start the subscription, and the form is accompanied by a “proof of payment” annotation completed by the club organization, the ABC auditor will accept this document as verification of order and payment.
b. Not Accompanied by “Proof of Payment”: When the consumer is required to complete a form to start the subscription, but no “proof of payment” is submitted, the auditor may execute “negative” confirmations on selected samples to verify qualification.
(Examples of satisfactory “proof of payment” include, but are not limited to, membership registration forms with payment information such as credit card payment record or copy of check)

Supplemental test of cash may occur to confirm accuracy of payment information being provided by club organization.

2) Internet or Telephone Orders

a. Executed by a club having no financial interest in the publication. When the consumer deals directly with the club, through their internet site or telephone center, the auditor will accept statements from responsible management. These statements must verify the program details and attest to the volume of subscriptions/club memberships sold through the program. The auditor may supplement this process with either negative or positive confirmations.
b. Executed by a club in which the publisher or his/her subscription selling agent has financial interest in the club’s organization. The auditor will conduct negative or positive confirmations depending on specifics of the program.
c. Executed by publishers or agents. When the customer deals directly with the publisher or with subscription selling agents, the auditor will conduct positive confirmations to verify the transactions.
Negative Confirmation Process

In a “negative” confirmation, a sample of subscribers is contacted to verify the execution of the program. Subscribers will be asked to reply only if the details of the program, as understood by the ABC auditor, are incorrect. Negative confirmation test results are considered “discovery” by ABC and could lead to an expanded review of program documentation.

Prior to initiating negative confirmation, the ABC auditor will work with the publisher in the design of the communication and the plan to contact the subscribers.


Positive Confirmation Process

Positive confirmation tests require that a sample of subscribers confirm that the information requested by the ABC auditor is correct. In the event the subscriber indicates the information is incorrect, or does not respond, these sample names are considered “no good.” Of course, the publisher will have an opportunity to contact these subscribers to have the “no good” status of their subscriptions reversed.

Prior to initiating positive confirmation, the ABC auditor will work with the publisher in the design of the communication and the plan to contact the subscribers.

ABC stands ready to help publishers, at all stages of the process, understand rules, documentation requirements and the audit process. Please contact the ABC publisher relations staff as soon as possible to assure that your proposed program qualifies under ABC rules and will be audited smoothly and efficiently.


Finally, I would suggest that you work the testing process with the payroll dept. They may help you with the means to verify the accuracy of the check off dues paid to the union.

Hope it helps.

I wish you success in your endeavors.


Sincerely,



Consuelo Herrera, CAMS, CFE