Columnist Lee Schafer provides short takes on economic incentives and choices, business strategy and performance, market moves, what business leaders are saying and doing and other topics that pique his interest.

Audit as Partisan Act?

Posted by: Lee Schafer Updated: December 7, 2012 - 3:24 PM

The auditors have been dragged into the contentious dispute between the Minnesota Orchestra’s management and its musicians. The musicians, who have been locked out since Oct. 1, are casting the annual audit as some sort of partisan act, in league with management.

 

The orchestra this week released financial results from its August 2012 fiscal year that included a $5.97 million deficit. That caused the musicians to say they "cannot and will not trust any audit directed by the same management and board leadership that stated that they would consult a PR firm on 'which deficit to report,'" an allusion to the board’s deliberations one year over how much to tap endowment funds to cover expenses.
 
The musicians may have legitimate gripes about management of the orchestra, but complaining about the accuracy of the numbers isn’t one of them.
 
To state the obvious, management and the board do not “direct” an audit.
 
The auditor directs the audit.
 
The 2012 audit was performed by LarsonAllen LLP, a firm that vaulted into the top 10 firms nationally thanks to a merger.
 
The orchestra’s financial statements are the responsibility of management, and what an auditor does is test the validity of those statements, looking for errors and misstatements.
 
The orchestra financially really isn’t that complex.  LarsonAllen’s rawest auditing intern would certainly catch anything that involved moving money inappropriately between endowment and operating accounts, which is about the only thing I can think of that anyone would question.
 
And if the Minnesota Orchestra is like nonprofits I have served, LarsonAllen would also be heavily involved in reviewing the Form 990, a kind of federal tax return that is also publicly available.
 
There’s a better chance of winning the Powerball jackpot than there is of someday finding out the orchestra’s 2012 financial statements were materially incorrect.
 
It’s unclear how suggesting otherwise can possibly help the musicians union, once talks resume with management or in the public relations battle now underway. 
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