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Accountants' Recommendations

From: Carol Spooner
Date:Tue Mar 5, 200212:30 am
Subject: Pacifica Accountants' Recommendations

from www.pacifica.org

Kimerling, Margulies & Wisdom, Ltd.
370 Lexington Ave. #310
New York, N.Y. 10017

Board of Directors February 9, 2002
Pacifica Foundation
2390 Champlain St. NW
Washington, DC 20007

Dear Members of the Board:

Pursuant to the Abbey, Westernberg, Hollman & Emery, PC letter of January 10, 2002, we have been engaged on a "special project" basis to assist the new board of directors with fully assessing and quickly obtaining control of Pacifica's financial matters". We have interviewed management and accounting staff at the National Office, compiled and analyzed financial information taken from "Solomon" general ledgers and "Great Plains" accounts payable reports, and gathered such other books and records including the proposed budgets for FYE 9/30/01 as we deemed necessary in the circumstances in order to fulfill the purposes of this engagement as described in the January 10th letter. Given that this engagement was limited to two weeks and that all general ledger information was not up-to-date and available (specifically, bank reconciliations and accounts payable have not been fully completed for the period beginning October 1, 2001 to-date), we used our best efforts and the best information available to estimate financial results and financial position. Accordingly, this information is not only unaudited and unadjusted, but rough estimates were often used based on historical monthly expenses, budgets and/or current cash flow management reports. Reported financial information for the period beginning October 1, 2001 and, of course, projected 2002 information should be considered provisional and subject to change significantly. The requested financial reports are enclosed with our qualified compilation letter. This letter is written to provide our comments and recommendations:


Since September 30, 2000, when an annual surplus of $601,270 was reported (see enclosed Statement of Activities by Division FYE Sept. 30, 2000 as audited by T. Curtis & Co.), the Pacifica Foundation (Pacifica) has incurred deficits of ($3,449,719) for FYE Sept. 30, 2001 (see enclosed Statement of Activities per unadjusted trial balance) and roughly ($1,887,035) for the three months ended Dec. 31, 2001 (see enclosed Statement of Activities estimated & unaudited - no trial balance available).

Also, from October 1, 2000 to December 31, 2001 Current Assets decreased by approximately $1,857,117 and Current Liabilities increased by $4,157,463 and consequently Working Capital went from a normal operating positive balance of $1,222,065 on Sept. 30, 2000 to a Working Capital Deficit of ($4,792,515) as of Dec. 31, 2001, a total decrease in operating capital of $6,014,580 in fifteen months!


  1. .. 1.Stop the financial hemorrhaging. The new management has already taken many actions to achieve financial day-to-day stability and to begin to restore a system of financial and administrative controls that had been grossly neglected for over a year. The new Controller has also been quickly effective in re-establishing basic systems and controls and improving the morale and productivity of an accounting department that has suffered through extensive management turnover and systems breakdowns. She is now providing new management with timely weekly and monthly cash flow management reports (see a current copy attached) and taking immediate steps to cut costs and collect revenue. However, prior to new management, Pacifica had incurred Legal and Professional Fees and Expenses of approximately $3,787,798 since October 1, 1999 of which approximately $2,141,157 remained unpaid as of January 25, 2002 (see Schedule of Professional Fees by Firm enclosed).
    1. .. a. Terminate all nonessential services and review all engagement letters, contracts and invoices. Were the engagement letters signed? By an officer? Acting within their capacity and with board approval for major contracts? Were services performed in accordance with contracts? Any conflicts of interest? Self-dealing? Gross negligence involved? Pre-approved hourly rates? Pre-approved nature of services rendered? Detailed time & billing records provided? Any "double billing" due to duplicated efforts, internal conferences, one-tenth or one-quarter hour minimum billing increments applied to uncompleted phone calls, voice mail messages etc.? Were paralegal or clerical services performed and billed at Partner rates? Etc.
    2. .. b.Corporate counsel (or an attorney specializing in bankruptcy or financial workouts) should immediately issue letters disputing any defective contracts or invoices and commence negotiations for settling creditor disputes and responding to or defending against notices of any pending judgments and/or lawsuits.
    3. .. c. Explore the possibility of a prearranged settlement plan with major creditors in advance of a voluntary or involuntary Chapter 11 filing for bankruptcy protection and financial reorganization; Perhaps in conjunction with a national fundraising campaign with the explicit and sole purpose of settling creditors claims at a pre-agreed amount (e.g. 25% or $535,300 for professional firm creditors). Once the settlement amount (probably $750,000 to $1,000,000 including all general unsecured creditors that would have reached a settlement agreement but excluding severance packages) has been achieved, then the campaign can be declared a success, and Chapter 11 will have most likely been avoided. If enough creditors are not willing to settle, then Chapter 11 is probably unavoidable.
    4. .. d.If necessary, file for Chapter 11 Reorganization under the supervision of a Federal bankruptcy court. This will effectively "freeze" all collection action by creditors and allow the new management time to put into place a strong foundation of administrative and financial controls that should allow for a financial recovery period of probably five years. The first year's objective would be to establish financial stability and a breakeven cash flow without payments to the pre-petition, general unsecured creditors. Essential services and monthly operating expenses would be paid currently. With strong administrative and financial controls in place, Pacifica should return to a positive cash flow of probably around $500,000 per year with which to pay creditors in accordance with a settlement to be worked out in court. Once Pacifica's finances are under control and the accounting department is able to issue timely reports, it is likely that the court would allow Pacifica to operate normally as a Debtor-in-Possession. It is imperative that Pacifica consult with a bankruptcy attorney now, even if bankruptcy may be avoidable, to negotiate with creditors and advise management of prudent steps to be taken immediately.

    2.. 2.Recruit a Chief Financial Officer/Treasurer.
    Currently a very dedicated member of the Board has volunteered to be the interim Treasurer. However, Pacifica needs to recruit a CFO with, ideally, a banking and financial background, preferably an MBA, and expertise in nonprofit budgeting and controls and with banking, finance and donor or fund-raising contacts. This position should not be filled with a member of the Board. Perhaps a qualified retiree wishing to voluntarily support the Foundation in its time of crisis could be found to serve for a year at a time on a permanent part-time basis of approximately 20 hours per week. Top priorities:

    1. .. a. Budgeting & Controls
      1. .. (1) Establish a Board approved FYE 2002 budget that would address the issue of interdepartmental allocations for "central services and national programming" and provide a basis for station business managers to pay bills against a pre-approved budget and a basis for the Board & CFO to manage the National Office against a pre-approved budget.
      2. .. (2) Assist the Executive Director in managing each department against a monthly budget and provide a monthly report to the Board. This was the critical procedure missing in FYE 9/30/01 when the Foundation exceeded its budget by $3,660,972.
      3. .. (3) Act as a liaison with the Board, Department Managers, Executive Director and the Controller.
      4. .. (4) Help manage relations with creditors by coordinating contacts between creditors, accounts payable, management and corporate counsel.
      5. .. (5) Coordinate between the Board, management and the Controller to help establish controls and procedures (e.g. the Procedures and Policies manual developed by Holloway can be used to formalize basic procedures but needs to be revamped to allow for procedures to be performed at the station level and certain issues may have to be decided by the Board)
    2. .. b.Banking & Finance
      1. .. (1) Explore the refinancing of real estate and prepare a proposal for the Board to consider in order providing additional working capital. Pacifica needs to restore at least $1,000,000 in cash for working capital ASAP.
      2. .. (2) Review banking relationships and consider electronic banking. Pacifica incurred $237,103 in bank charges last year.
      3. .. (3) Improve the check signing policy. The Foundation has developed a policy of using check signature stamps that should be discontinued. (except for disbursements for payrolls, which are, the type best suited for the use of facsimile signatures on an imprest basis). Also consider establishing a threshold for dual signatures on checks.
      4. .. (4) Explore new avenues of fundraising and donor support including long-term gifting, testamentary gifts and endowments.
      5. .. 3.Balance the budget for the twelve months ending December 31, 2002. It is most imperative for the Board, working with the Stations and National Units and in consultation with the Controller, to confront the difficult budgeting issues quickly and make the tough decisions necessary to achieve financial stability within calendar 2002. The current cash projection for 2002 (see enclosed) projects a deficit of ($1,564,681) which represents 14.5% of the total projected operating budget of $10,766,975. We have two suggestions:
        1. .. a. Request revised budgets from all departments reflecting 15% cutbacks; or
        2. .. b.Eliminate PNP ($1,169,093 annual savings, however only $955,038 savings in 2002 due to already incurred expenses and severances); payroll cuts across the board of 10% ($410,000 approx. savings) and require all employees to co-pay for 25% of health and dental benefits ($118,000 savings). Also, the specific control recommendations listed below will gradually reduce various operating costs as implemented.
        3. .. c. There are other critical operational issues outside the scope of this letter which could favorably effect revenues such as the KPFK transmitter and production studio project and other projects at other stations which, if financed and completed effectively and efficiently could provide additional listener support and half of the costs could be covered from matching grants. Perhaps asset based financing or a national fund raising campaign could also be used for this. These steps would also improve affiliate relations, which would also positively affect finances.
        4. .. d.There may also be FCC regulatory compliance issues which should be considered in connection with the recommendations of this letter.
        5. .. 4.Establish a sound system of administrative and financial controls. This was one of the primary causes of the current crisis and no grand financial plan can succeed without a solid foundation of internal controls and procedures.


    1. .. 4.1Safeguarding Equipment, Computer Networks & Software and Information.
    2. .. a. Install a computer Firewall/VPN or subscribe to an ISP with security services included (e.g. NTT/Verio)
    3. .. b.Take a physical inventory of all equipment and supplies and update annually.
    4. .. c. Adopt a formal policy concerning property additions and disposals
    5. .. d.Prepare a capital expenditures budget for Board approval.

    1. .. 4.2Personnel
      1. .. a. Conduct staff reviews at all levels for qualifications and performance.
      2. .. b.Consider utilizing volunteer staff as appropriate.
      3. .. c. Establish and document procedures relating to employee terminations such as changing of locks and passwords, collection of system and operations documents, and a supervised exit conference.
      4. .. d.Develop and use a checklist of items to be returned by terminated employees (e.g. keys, cards, laptops, cell phones, pagers, credit cards, files and diskettes, etc.)
      1. .. 4.3Accounting Staff: It was apparent that the changes in management, accounting systems, offices, financial instability and computer systems breakdowns has put a strain on the current staff to complete their responsibilities in a timely manner.
        1. .. a.The Accounts Payable supervisor was often involved in solving computer problems since "he knew the computer". There is no IT or MIS staff position within the organization currently, however outside consultants are called repeatedly to solve recurring problems at high hourly rates.
        2. .. b.Hire a computer "techie" staff person (or perhaps get a college intern) and cut way back on outside consultants.
        3. .. c.Also the A/P supervisor is bogged down with completing check requisitions that should be completed prior to submission to his dept. I informed him that since he pays the bills he's "got the power" to no longer tolerate this practice.
        4. .. d.Management should refrain from making system changes or relocating accounting offices until the accounting department has had a chance to catch-up.
        5. .. e.Once the station business managers are all trained and using the new Great Plains accounting software, the load will be lightened on the accounting dept.
      1. .. 4.4Accounting System: The Great Plains software is good, but it has only partially been set-up and not everyone is trained to use it.
        1. .. a.Hire a temporary accountant who already knows Great Plains to train the staff and assist in getting the system fully set-up and up-to-date.
        2. .. b.Maintain only one set of books. Ask Terrance Chang to help train other station business managers on the system. (especially WBAI and KPFT).
        3. .. c.Once the system is being fully utilized, the Controller should manage the department such that Payroll is posted by the 10th.; Cash Receipts & Disbursements are posted and bank accounts reconciled by the 15th ; adjustments made and a trial balance produced by the 30th. Currently, this process is three months behind.

      1. .. 4.5Accounting Procedures: Please refer to the Holloway P & P manual for an overall description of basic procedures, however, their procedures assumed all centralized accounting functions, so these procedures will need to be broken down between Dept. or Station procedures vs. National Office procedures. However, the following areas are in need of improvement:
        1. .. a. CASH & AMEX CARD
        1. .. 1.Have management open and review bank statements.
        2. .. 2.Review cancelled checks for irregular endorsements.
        3. .. 3.Reconcile bank accounts on a timely basis.
        4. .. 4.Controller to review, approve, initial and file bank reconciliations.
        5. .. 5.Controller to review, initial, and date payroll register before checks are disbursed.
        6. .. 6.Discontinue the corporate American Express card and establish a travel reimbursement policy.
        7. .. 7.Controller to review procedures for making deposits at each department and at bank lock boxes.
        8. .. 8.Controller to review station procedures for collecting pledges receivable.


    1. .. 1.Improve A/P recording and payment practices.
    2. .. 2.Key invoices upon receipt by the station business manager or the A/P supervisor at the national office.
    3. .. 3.Establish a regular payment process, e.g. invoices must be keyed prior to preparation of Ck. Req. which must be submitted by Monday for payment on Friday.
    4. .. 4.Enter disputed invoices into A/P.
    5. .. 5.Transfer 9/30/01 A/P balances from Solomon to Great Plains
    6. .. 6.Reconcile A/P detail to the G/L.
    7. .. 7.Reconcile vendor statements to A/P ledger.
    8. .. 8.Print timely aged A/P trial balance.


  1. .. 1. Centralize purchasing to achieve quantity discounts on supplies.
  2. .. 2. Purchase office supplies and equipment online. The Foundation would set-up a purchasing site linked to one or more distributor' s internet sites. Employees placing orders could log on, view products, fill out an electronic order form and click send. Orders could be batched for discounts. Purchasing agents are available by phone for advice. Some sites offer deep discounts on a core list of items most frequently ordered. The Controller can input spending limits by individual or dept. and can access, review, modify or cancel orders before distribution. The distributor usually provides Training and set-up. We would be pleased to provide the Foundation with references for distributors.
  1. .. 1. We would be happy to assist you in preparing the reconciliations and adjusting entries needed on a monthly basis.
  2. .. 2. We also encourage you to consult us on financial management and accounting systems and procedures throughout the year.
  3. .. 3. Monthly budget vs. actual reports should be submitted to the Board with any large discrepancies investigated and explained so that any necessary corrective action can be taken and to help the Board make informed decisions based on timely information. Please feel free to contact us should you have any questions or wish further assistance with these recommendations.


Ross Wisdom, CPA


From: mitchelcohen
Date: Tue Mar 5, 2002 7:27 pm
Subject: Accountants' Report

Thank you, Lyn, for forwarding this very interesting report. Please also consider the following:

The hijackers contracted with law firms, pr firms, etc. not in their own name as individuals but in the name of the "corporation" -- Pacifica. After going through the accountants' suggestions (making sure the contracts were signed properly by authorized persons, etc.), request copies of EVERYTHING -- all emails, internal messages, discussions, meeting NOTES, etc. -- pertaining to the handling of the Pacifica cases from those firms.

This would include many items that the hijackers, and possibly the firms themselves, might find embarrassing, unethical and possibly illegal. (I am especially thinking of strategy sessions with Epstein, Becker and Green, for example.) These are rightly the property of Pacifica, as Pacifica -- not Utrice Leid -- was the client.

In those documents we would find grounds for cancelling severance packages.

We would also find exactly what the creditors did for their contracts.

If any documents are found to have been shredded (good possibility), that should be grounds for cancelling the remainder of all contracts.

We might also be able to claim, legally, that the services provided do not match up to serving the interests of Pacifica, and so those contracts should be cancelled for failure to actually work in the interest of Pacifica and for other reasons.

Also, John Murdock -- as both an ILLEGAL member of the Board of Directors, and as an associate(?) at Epstein, Becker, and Green represents at BEST unethical behavior and possibly criminal behavior that should void these contracts. We should fight for REPAYMENT of all contracts paid out thus far under the hijackers.

If they FAIL to provide all documents, we should file for repayment. If they PROVIDE all documents, we should expose the sabotage that would be evidenced in those reports and stop all payments (and demand repayment).

Either way, we must make this demand to have copies of ALL documents.

I urge the iPNB to take this up as one facet of strategy in saving our network.

- Mitchel Cohen [ NYC ]

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