Audit Engagement Letter Nonprofits

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					s and Regulations and Policy of the Boy Scouts of America............................................... 4

         The Audit Committee………………………………………………………………………………….….5

         The Audit and the Auditor……………………………………………………………………………....10

         Audit Standards………………………………………………………………………………………….13

         Preparing the Financial Statements…………………………………………………………………...15

             LOCAL COUNCIL GUIDE
         Audit Costs………………………………………………………………………………………………..17

         The Management and Representation

               TO THE 2010 AUDIT
         Letters…………………………………………………………..…………………………………………18



         APPENDIX

         A: Typical Audit Committee Meeting Schedule……………………………………………………….19

         B: Sample Letter of Request for Proposal…………………………………………………………….21

         C: Representative Questions About Audit Scope and Approach…………………………………..25

         D: Sample Letter of Engagement from an Independent Auditor……………………………………26

                   Key Points to Look for in a Letter of Engagement……………………………………………28

         E: Representative Questions for Reviewing the Draft Copy of Annual Financial Statements…..29

         F: Resources Available to the Audit Committee…………………………………………………….. 31

         G: Audit Costs Reduction………………………………………………………………………………..32

         H: Sample Independent Auditor’s Report………………………………………………………………35

         I: Sample Confirmation of Service Letter to Auditor………………………………………………….36

         J: Sample Financial Statements and Notes to the Financial Statements…………………………..39

         K. Sample Local Council Audit Review Record………………………………………………………..40




Local Council Guide to the 2010 Audit                                                         Release date: 10/29/2010
                                           Table of Contents
To the Scout Executive ....................................................................................................1                   2000
    New for 2010 ........................................................................................................................... 1-3
                                                                                                                        Revised August 2008
    Local Council Requirements....................................................................................................... 4
                                                                                                                     Boy Scouts of America
To the Auditor ...................................................................................................................5

Recent Auditing Developments................................................................................... 6-7

Required Financial Statements ................................................................................. 9-10

Accounting Policies
   Fund Accounting....................................................................................................................... 11
   Consolidated Financial Statements ........................................................................................... 12
   National Service Fee ................................................................................................................. 12

Year-End Close ...............................................................................................................13

Contributions ..................................................................................................................17
   Donor Restrictions ............................................................................................................... 18-19
   Split-Interest Agreements…………………………………………………………………19-20

Restricted Income Accounts ....................................................................................................21

Special Events ................................................................................................................22

United Way ......................................................................................................................23

Defined Benefit Plans .....................................................................................................23

Sale of Supplies and Product Sales........................................................................ 24-25

Investments and Investment Income ............................................................................26
    Investment Income and Spending ........................................................................................ 26-28
    FASB ASC 958-205 and Subsections/UPMIFA .................................................................28-30
    FASB ASC 820-10 and Subsections…………………………………………………...… 31-32
    FASB ASC 958-320 and Subsections....................................................................................... 33

Inter-fund Loans and Transfers.....................................................................................34

Deferred Revenues and Expenses ................................................................................34

Net Assets Released From Restriction (Reclass) ........................................................35

Local Council Guide to the 2010 Audit                                                                     Release date: 10/29/2010
Statement of Financial Position .............................................................................. 36-37

Statement of Changes in Net Assets ............................................................................38

Statement of Cash Flows ...............................................................................................39

Statement of Functional Expenses ......................................................................... 39-40

Reports and Subsidiary Ledgers ............................................................................ 41-45

BSA Culture .............................................................................................................. 46-48

Communications
   Management Letter (or SAS 115/Management Letter) ............................................................ 49
   Management Letter Response ................................................................................................... 50
   SAS 114 Letter .......................................................................................................................... 50
   Representation Letter ................................................................................................................ 50
   Audit Committee Meeting Minutes .......................................................................................... 50

Appendix A—Sample Financial Statements
   Statement of Financial Position .............................................................................................. A-2
   Statement of Changes in Net Assets ....................................................................................... A-3
   Statement of Functional Expenses .......................................................................................... A-7
   Statement of Cash Flows ........................................................................................................ A-8
   Employee Time Analysis ........................................................................................................ A-9
   Functional Expense Category Definitions ............................................................................ A-10

Appendix B—Code of Ethics and Sample Notes to Financial Statements
   Code of Ethics ......................................................................................................................... B-1
   Sample Notes to Financial Statements .................................................................................... B-5
   Sample Representation Letter ............................................................................................... B-23
   Sample SAS 114 Letter ......................................................................................................... B-25
   Sample SAS 115 Letter ......................................................................................................... B-27



Thanks to Mr. Lee Klumpp, CPA, Director, BDO Seidman Institute for Nonprofit Excellence, for providing technical
support to the Local Council Guide to the 2010 Audit project.




Local Council Guide to the 2010 Audit                                                                      Release date: 10/29/2010
To the Scout Executive
October 2010

Since 1995, the number of not-for-profit organizations has increased by almost 650,000 to more than 1.9
million in 2008. Charities that are required to file returns with the Internal Revenue Service reported more
than $3.7 trillion in assets and $1.7 trillion in revenues in 2009. Given the pervasiveness of not-for-profit
organizations and the public’s demand for fiscal transparency, accounting and auditing standards have
changed significantly over the years.


Recent Standards to Affect 2010 Financial Statements

    •   FASB Accounting Standards Codification (FASB ASC)—The Financial Accounting Standards
        Board (FASB) has changed the way that generally accepted accounting principles (GAAP) are
        organized and referenced. Rather than continuing to maintain a conglomeration of rules from
        various sources, the FASB decided to consolidate them into a single source of authoritative GAAP
        known as the FASB Accounting Standards Codification. The references to accounting standards
        that you have seen in the past (for example, SFAS No. 117) have changed to a topic-subtopic-
        section-paragraph format (i.e., 958-205-45-3). References to the FASB ASC will be required for
        your council’s 2010 audited financial statements, so it is recommended that you discuss the ASC’s
        effect with your auditors. Plain English references to the ASC in your financial statements are
        allowed and encouraged by the BSA. For example, a fair value footnote might begin: “Under FASB
        ASC 820-10-35-18, the Council is required to use ….” An acceptable alternative would be: “Fair
        value measurement and disclosure information follows:”.*

        * From AICPA White Paper FASB ASC Overview and Recent Developments

    •   Issuance of New Accounting Standards—New accounting standards are now issued by the
        Financial Accounting Standards Board (FASB) through Accounting Standards Updates (ASUs) to
        the FASB Accounting Standards Codification (ASC—see fourth bullet point below). The FASB does
        not consider the updates authoritative on a standalone basis; they become authoritative when
        incorporated into the ASC.

    •   FASB Statement No. 165, Subsequent Events (ASC 855)—This standard was issued in May 2009
        and is effective for fiscal years ending after June 15, 2009. The objective of ASC 855 is to establish
        general standards of accounting for and disclosure of events that occur after the balance sheet
        date (December 31, 20XX for local councils), but before financial statements are issued.
        Previously, this subject has been auditing guidance; however, since questions of when, what, and
        how to make certain accounting entries are more an accounting issue than an auditing issue, the
        FASB has decided to issue an accounting standard. There are no significant changes to current
        practice except a footnote is now required whether or not there are subsequent events.
        Additionally, the standard adds a procedure to show that management has evaluated subsequent
        events.

        ASC 855 also adds the concept of “available to be issued.” This is when the auditor has completed
        the audit report and it is ready to be issued, but not necessarily the date it is actually issued. For
        most local councils, the day the audited financial statements are “available to be issued,” will likely
        coincide with the actual issue date.




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   •   FASB ASC 958-805 (FASB Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions—
       Including an Amendment of FASB Statement No. 142) Including FASB Accounting Standards
       Update (ASU) 2010-07—This standard will only affect local councils that have been party to a
       merger or acquisition (consolidation) of another council after December 15, 2009. ASC 958-
       805 differentiates between a merger and an acquisition of not-for profit entities and prescribes
       accounting methodologies in each case. As this pronouncement applies to only a small group of
       local councils, it will not be discussed in detail here. For more information on ASC 958-805, please
       contact Ken Moran at 972-580-2311 or ken.moran@scouting.org.

   •   The Uniform Prudent Management of Institutional Funds Act (UPMIFA)—By now, many of you
       have heard of UPMIFA and related accounting standard FASB ASC 958-205 and subsections. As
       of August 2010, UPMIFA had been introduced or enacted in all but two of the 50 states,
       Pennsylvania and Florida, and applies to not-for-profit organizations that have donor-restricted
       endowment funds. UPMIFA does not apply to trust funds managed by banks and trust
       companies. If your council’s endowment trust fund substantially conforms to the BSA’s Model
       Form for Special Funds, UPMIFA would not apply to endowments held therein; your state’s trust
       laws would apply. Please consult with your council’s auditors, investment advisers, and legal
       counsel to determine the impact of your state’s version of UPMIFA on your council’s endowment
       funds (see next point).


   •   FASB ASC 958-205 and Subsections (formerly FASB Staff Position No. FAS 117-1)—In 2008, the
       Financial Accounting Standards Board issued Staff Position No. FAS 117-1, Endowments of Not-
       for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the
       Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All
       Endowment Funds. This FASB Staff Position (FSP) provides guidance on the net asset
       classification of donor-restricted endowment funds for a not-for-profit organization that is subject to
       an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006
       (UPMIFA—see previous point), and is effective for fiscal years ending after December 15, 2008.
       UPMIFA is a model act approved by the Uniform Law Commission (ULC; formerly known as the
       National Conference of Commissioners on Uniform State Laws) that serves as a guideline for
       states to use in enacting legislation. This FSP also improves disclosures about an organization’s
       endowment funds (both donor-restricted endowment funds and board-designated endowment
       funds), whether or not the organization is subject to UPMIFA.

       If it is determined that your council is subject to UPMIFA, you will be required to reclassify
       unrestricted net assets associated with the affected endowment fund to temporarily
       restricted net assets (see example and complete discussion on pages 28–30). The
       temporarily restricted net assets would remain temporarily restricted until the council’s board of
       directors appropriated them for expenditure, at which point they would be reclassified to
       unrestricted net assets.

   •   FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes (now FASB ASC
       740-10-25-XX)—Although local councils are generally exempt from income taxes, FIN 48
       addresses the possibility that a not-for-profit organization could lose its exempt status. A council
       could also be overlooking Unrelated Business Taxable Income, which could result in income taxes
       being assessed. For local councils, FIN 48 is effective beginning with calendar year 2009. In a
       nutshell, FIN 48 was designed to bring consistency in practice as to when an accrual for income
       taxes is recorded. That is to say, when deciding whether an income tax accrual is needed, a
       nonprofit can no longer consider the odds of a tax return being audited by a taxing authority.
       Rather, FIN 48 mandates that a nonprofit make the following assumptions when deciding the need
       for an income tax accrual (continued on next page):




Local Council Guide to the 2010 Audit                 Page 2                       Release date: 10/29/2010
        1. All of its income tax and information returns will be examined by the appropriate taxing
           authorities. (A 100 percent chance of audit.)

        2. The examiners will have a thorough knowledge of all the facts and circumstances regarding the
           nonprofit’s tax returns. (The examiners will know everything that you know.)

        After making the above assumptions, nonprofits must then consider the likelihood of additional tax
        being assessed. A liability accrual must be made for taxes and possible penalties and interest with
        a greater than 50 percent chance of being assessed by the authorities.

        For nonprofit organizations, FIN 48 carries with it a special reporting burden. That is, the IRS
        requires a nonprofit to include on its Form 990 a verbatim copy of the FIN 48 accrual
        footnote presented in its audited financial statements. This serves to give the IRS a handy
        “smoking gun” outlining a nonprofit’s weakest tax positions. Plan on addressing FIN 48 with your
        auditors and tax advisers well in advance of year-end close.

    •   IRS Form 990—Although not officially new for 2010, we all have learned that it is never too early to
        start preparing for the 2010 Form 990 or 990-EZ. Use information obtained during the budgeting
        and audit-planning processes to help identify and quantify program service accomplishments.
        Review your council’s 2009 Form 990, Part VI (Governance, Management, and Disclosure),
        Section B, Lines 11 through 15b, for any “no” answers to policy questions. It is not too late for the
        council to adopt and implement these good governance policies. We strongly recommend that you
        review and provide to your tax preparer documentation related to completing the Form 990
        available on the Finance Impact Department (FID) website (link located in MyBSA on the
        Resources page, in the upper left-hand corner). Once you are on the FID home page, click “Fiscal
        Management” (top of page), then “990 Templates.” Be on the lookout for the Local Council Guide to
        the 2010 IRS Form 990 coming in late 2010.

Coming in 2011

As a part of its strategic plan, the BSA will require all local councils to adopt an audit committee charter
prior to the 2011 audit. To assist them in this process, the national office will make available in early 2011 a
document template based on the AICPA’s Audit Committee Charter Matrix (Matrix). The Matrix was
developed in response to the Sarbanes-Oxley Act of 2002 and proposals emanating from the Senate
Finance Committee and elsewhere, calling for stronger and clearer governance in the charitable
community. Be on the lookout for more information regarding this new requirement in the near future.




Local Council Guide to the 2010 Audit                   Page 3                      Release date: 10/29/2010
Post-Audit Fieldwork Requirements

Note: After audit fieldwork is completed, ensure that you and your accounting specialist review any
proposed audit adjustments. If you agree with them, have the accounting specialist make the adjustments
to the general ledger. Print the basic financial statements and any other statements requested by your
auditors. When you receive a draft copy of the audited financial statements, be sure to compare it with your
council’s ScoutNET-generated statements to ensure that they match. Pay particular attention to net assets
and ensure that they agree by amount, classification (i.e., temporarily restricted, permanently restricted,
unrestricted), and fund. The BSA requires the audited financial statements to be in the three-fund format
with prior-year comparative amounts displayed. The next step will be to schedule a meeting with the
council’s audit committee to review and discuss the draft audited financial statements. Your council’s
independent auditors should be present at this meeting. If the audit committee accepts the draft financial
statements, it will recommend them to the executive board. Minutes of the meeting should be taken
contemporaneously and approved, evidenced by signatures of the audit committee chair and the Scout
executive.


There are several items that are due to the national office by June 1, 2011:

            o   One copy of the audited financial statements.
            o   One copy of the audit management representation letter.
            o   One copy of the SAS 114 letter.
            o   One copy of the SAS 115 /management letter.
            o   One copy of the management letter response addressing all advisory comments.
            o   One copy of the signed audit committee meeting minutes recommending that the audited
                financial statements be presented to the executive board for approval.
            o   One copy of IRS Form 990 or 990-EZ and, if filed, the IRS Form 990-T. Note: The due date
                for local councils for Form 990 (also 990-EZ and 990-T) is May 16, 2011. An automatic
                three-month extension to file may be obtained by filing Form 8868 by the due date.
                However, the national office strongly recommends that councils make every effort to file on
                time.



Sections of this Guide marked with       indicate requirements for “BSA-
compliant” audited financial statements. Look for the Local Council Self-Audit
Review Form coming soon to help you ensure you council’s audited financial
statements “make the grade”. Disclosures required under generally accepted
accounting principles are not separately marked as they are automatically included
in BSA standards.

New for 2010: In an effort to reduce costs and the impact on our environment, all of
the above documents will be accepted in portable document format (.pdf). Please
email all required documents to audits.990@scouting.org.


Fiscal Management Team
Finance Impact Department
Council Operations Sector
Boy Scouts of America




Local Council Guide to the 2010 Audit                 Page 4                     Release date: 10/29/2010
To the Auditor

October 2010

This guidebook is designed to help answer some of your questions and minimize confusion over what is
expected when performing an audit of a local council of the Boy Scouts of America. Please review the
previous section, To the Scout Executive, as it contains information you may find useful.

The accounting software and guidance given to local councils are designed to be in full compliance with
current generally accepted accounting principles (GAAP). References in this guide are to the Financial
Accounting Standards Board Accounting Standards Codification (FASB ASC, see page 2); Pre-Codification
GAAP; Auditing Standards Board (ASB) Statements on Auditing Standards (SAS); and the AICPA Audit
and Accounting Guide—Not-For-Profit Entities, March 1, 2010 edition.*


*Note to reader: As the FASB ASC (the Codification) is now the single source of authoritative U.S.
GAAP for nonpublic entities, the AICPA Audit and Accounting Guide—Not-For-Profit Entities is no
longer authoritative in its own right. The incremental accounting guidance contained in the AICPA
guide (deemed level B in the pre-ASC GAAP hierarchy) was included in the Codification under the
appropriate industry or topic. The audit guide does, however, contain many useful examples and
illustrations, references to the Codification where applicable, and remains authoritative with respect
to audit guidance. It is also used by some local council accounting personnel as a desk reference.
For these reasons, the BSA has chosen to reference it in the Local Council Guide to the 2010 Audit.

One of the options selected by the National Council is the presentation of financial information in a multi-
fund format. The required statements must be in a three-fund format with prior-year comparisons.
This is not an optional presentation; it is the required presentation.

We have required each council to create an effective and independent audit committee to advise the
council as it proceeds with each yearly audit. The Scout executive, council treasurer, and audit committee
should schedule a meeting with you prior to the final presentation of the audit to the council executive
board. We hope that you will take full advantage of this key committee to assist in creating the current audit.

Each local council is required to obtain a management letter (or comments included as a part of the SAS
115 letter) from its independent auditors. In this letter, we are looking for suggestions on how the council
can improve its internal controls and any other issues that the auditor may have observed during the audit.
In the event there are no material weaknesses noted during the audit, a letter is required stating such. A
copy of the management letter should be provided to the chair of the audit committee, council president,
council treasurer, and Scout executive.

Prior to the acceptance of the audited financial statements by the executive board, make sure the council
has entered any audit adjustments, generated the statements from ScoutNET, and compared the BSA
statements to the audited financial statements to assure they match. It is entirely appropriate, once
agreement has been reached, for the final audit report package to contain the actual BSA software-
produced statements with the date/time stamps removed and other title adjustments as needed. One
advantage to this presentation would be that financial statement users would see statements formatted just
like those they see each month during the operating year.

Each local council’s audited financial statements must be sent to the national office by June 1 of each year.
In planning your engagement, please keep this deadline in mind. Audited financial statements must be
presented to the local council’s executive board and accepted before June 1.

Fiscal Management Team
Finance Impact Department
Council Operations Sector
Boy Scouts of America
Local Council Guide to the 2010 Audit                  Page 5                      Release date: 10/29/2010
RECENT AUDITING DEVELOPMENTS

In order to make generally accepted auditing standards for nonpublic companies easier to understand and
apply, the AICPA's Auditing Standards Board (ASB) launched the Clarity Project. In addition to reformatting
and reorganizing existing U.S. audit standards, the Clarity Project will converge them with the International
Standards on Auditing (ISAs). When completed, clarified auditing standards will be issued as one SAS that
will supersede all prior SASs. The new audit standards are expected to apply to audits of financial
statements for periods beginning no earlier than December 15, 2010. Therefore, similar to the Financial
Accounting Standards Board (FASB) Codification Project, you can expect an entirely new body of
authoritative U.S. auditing literature for nonpublic companies beginning in 2011.

Statements on Auditing Standards No. 118 through 120, Issue Dates February 2010—These
standards essentially deal with supplementary information and all are effective for periods beginning on or
after December 15, 2010. As such, they will be discussed in more detail in the Local Council Guide to the
2011 Audit.

Statement on Auditing Standards No. 117—Compliance Audits, Issue Date December 2009—This
establishes standards and provides guidance on performing single audits and audits under the U.S.
Department of Housing and Urban Development (HUD) Consolidated Audit Guide for Audits of HUD
Programs, and is therefore outside the scope of this audit guide.

Probably the most visible recent auditing standards to local councils are SASs No. 114 and 115. They
involve written communication to the council’s board of directors, audit committee, and others.

SAS No. 114—The Auditor’s Communication with Those Charged with Governance (supersedes
SAS No. 61, as amended)—This standard relates to communication with those individuals in the
organization charged with governance. In local councils, this would be your audit committee and executive
board of directors. SAS No. 114 adds requirements (to SAS No. 61) to communicate 1) an overview of the
planned scope and timing of the audit*, and 2) representations the auditor is requesting from management.
It also provides additional guidance on the communication process, including the forms and timing of
communication. Significant findings from the audit should be in writing when, in the auditor’s professional
judgment, verbal communication would not be adequate. Other communication may be verbal** or in
writing. SAS No. 114 requires the auditor to determine the appropriate person(s) in the entity’s governance
structure with whom to communicate particular matters. That person may vary depending on the nature of
the matter to be communicated. It also requires the auditor to evaluate the adequacy of the two-way
communication between the auditor and those charged with governance. Other items to be communicated
by the auditor include management’s judgments and accounting estimates, audit adjustments, and
uncorrected misstatements. The SAS 114 letter will also communicate information regarding any new
accounting policies adopted by the council, any disagreements with management, major issues discussed
prior to the audit, and difficulties encountered during the audit.

*Typically spelled out in the engagement letter, which is written communication between the auditor and
local council management clearly stating the terms and conditions of the audit engagement.

**If the auditor chooses to communicate verbally, ensure the communication is well documented in the audit
committee meeting minutes and provided to the National Council.

SAS 115—Communicating Internal Control Related Matters Identified in an Audit (supersedes SAS
No. 112)—Under SAS 112, there are three categories of deficiencies that may be identified during the
external audit of the financial statements: control deficiencies, significant deficiencies, and material
weaknesses. SAS 115 modified the definitions of significant deficiency and material weakness as originally
presented in SAS 112.

A control deficiency exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect misstatements
on a timely basis. An example of a control deficiency is the lack of review and reconciliation of departmental
expenditures (continued on next page).

Local Council Guide to the 2010 Audit                 Page 6                      Release date: 10/29/2010
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.

A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a
reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented,
or detected and corrected on a timely basis.

SAS 112 introduced new definitions of significant deficiency and material weakness that will lower the
threshold for reportable control deficiencies for local councils. The result is likely to be an increase in the
number of reportable findings during the course of the council’s annual financial statement audit. The
materiality of the control deficiency is determined based on what potentially could go wrong, not just on the
amount of actual misstatements.

Probably the most common deficiencies identified by auditors in SAS 115 letters for local councils relate to
auditors preparing various aspects of local council financial statements, including entries to record
investment and fixed asset activity, year-end accruals, and footnotes. Many of these deficiencies are
categorized by auditors as material weaknesses because the local council’s lack of ability to perform these
functions indicates that there is a reasonable possibility that the council’s system of internal controls will not
detect, prevent, or correct a material misstatement in its financial statements. Another common deficiency
noted in smaller councils has to do with a lack of segregation of duties.

Note: The BSA will accept a combination SAS 115/management letter.

In March 2006, the ASB issued eight SASs (No. 104 through No. 111), known as the “risk assessment
standards,” which became effective for audits of financial statements for periods beginning on or after
December 15, 2006. The SASs were the result of research that began in 1999 by those in the accounting
and auditing profession. The purpose of the SASs was to provide extensive guidance concerning the
auditor’s assessment of the risks of material misstatement in a financial statement audit, and the design
and performance of audit procedures whose nature, timing, and extent are responsive to the assessed
risks. Additionally, the SASs established standards and provided guidance on planning and supervision, the
nature of audit evidence, and evaluating whether the audit evidence obtained affords a reasonable basis for
an opinion regarding the financial statements under audit.

SAS No. 104 through No. 111 emphasized the link between understanding the entity, assessing risks, and
designing further audit procedures. The SASs introduced the concept of risk assessment procedures, which
are considered necessary to provide a basis for assessing the risk of material misstatement. Risk
assessment procedures are tests of controls and substantive procedures. Along with further audit
procedures, they provide the audit evidence to support the auditor’s opinion on the financial statements.
According to the SASs, the auditor should perform risk assessment procedures to gather information and
gain an understanding of the entity and its environment, including its internal controls. These procedures
include inquiries, analytical procedures, and inspection and observation. Assessed risks and the basis for
those assessments should be documented; therefore, auditors may no longer default to maximum control
risk without documenting the basis for that assessment. The SASs also required auditors to consider and
document how the risk of material misstatement at the financial statement level affects individual financial
statement assertions, so that auditors may tailor the nature, timing, and extent of their audit procedures to
be responsive to their risk assessment. Your council has probably felt the impact of these standards
manifested by additional time spent by the auditors (and additional fees!) on information gathering and
documentation.




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SAS 99 and the Sarbanes-Oxley Act
   Overview       As a result of recent publicized cases of corporate fraud, Congress and the
                  accounting industry have made significant changes to the regulatory framework over
                  financial reporting. Currently, the federal legislation (Sarbanes-Oxley Act of 2002)
                  has minimal effect on not-for-profit organizations, but it is anticipated that many
                  states will individually adopt provisions of the act in the near future. (California is the
                  first state to do so with SB-1262 affecting California councils.) The act may
                  fundamentally change how audit committees, management, and auditors of not-for-
                  profit entities carry out responsibilities and interact.

 Definition of    The AICPA’s SAS 99 represents the accounting industry’s reaction to corporate
    Fraud         fraud and was in effect beginning with the 2003 audit. This standard significantly
                  broadens the definition of fraud.



                  Fraud can be defined in three broad areas as:

                  o            Fraud committed against a not-for-profit (also called employee fraud).
                                    This includes, but is not limited to:
                                      o Purchasing and disbursement schemes
                                      o Cash receipt and accounts receivable schemes
                                      o Payroll and expense reporting schemes
                                      o Vendor fraud


                  o            Fraud committed by a not-for-profit (also called management fraud).
                                    This includes, but is not limited to:
                                      o Financial reporting fraud
                                      o Fundraising fraud
                                             (Example: overstatement of fundraising income)
                                      o Program reporting fraud


                  o            Fraud committed through a not-for-profit.
                                    This includes but is not limited to:
                                      o Fraud committed by an insider against an external party
                                      o Utilizing information entrusted to an individual
                                             (Example: identity theft)

   Internal       Internal controls that are written, approved, communicated, and monitored are
   Controls       the council’s only defense against fraud. It is important to have your council’s
                  internal control policies and procedures well-documented, as the auditor will
                  use his or her understanding of those controls to develop audit procedures.


Code of Ethics    The auditor may encourage the council to adopt a code of ethics. See Appendix B
                  for a sample code.




Local Council Guide to the 2010 Audit                 Page 8                       Release date: 10/29/2010
Required Financial Statements
Required               The Financial Accounting Standards Board Accounting Standards Codification
Statements             (FASB ASC) includes unique standards relating to general-purpose external
                       financial statements for a not-for-profit entity (formerly established by FASB
                       Statement of Financial Accounting Standards No. 117) in four subtopics as
                       follows:

                           •   FASB ASC 958-205
                           •   FASB ASC 958-210
                           •   FASB ASC 958-225
                           •   FASB ASC 958-230


                       A not-for-profit entity (NFP) should follow the industry-specific guidance and all
                       effective provisions of the FASB ASC unless the specific provision explicitly
                       exempts the NFP, or its subject matter precludes such applicability. FASB ASC
                       958-205-45-5 specifies that a complete set of financial statements should include
                       a Statement of Financial Position, a Statement of Activities (the BSA calls it
                       Changes In Net Assets), a Statement of Cash Flows, accompanying notes to the
                       financial statements, and for voluntary health and welfare organizations, a
                       Statement of Functional Expenses (see also AICPA Audit and Accounting Guide,
                       Not-for-Profit Entities, paragraphs 3.01–3.04).



Statement of           FASB ASC 958-210-45-1 requires that a Statement of Financial Position should
Financial Position     focus on the organization as a whole and should report the amounts of its
                       assets, liabilities, and net assets. Assets and liabilities should be aggregated into
                       reasonably homogeneous groups (see also AICPA Audit and Accounting Guide,
                       Not-for-Profit Entities, paragraphs 3.05–3.11). See Appendix A for a sample
                       report.



Statement of           Paragraphs 1–2 of FASB ASC 958-225-45 require that a Statement of Activities
Changes in Net         (the BSA calls it Changes in Net Assets) should focus on the organization as a
Assets                 whole and should report the amount of the change in net assets for the period.
                       The statement should report the amount of change in permanently restricted net
                       assets, temporarily restricted net assets, unrestricted net assets, and total net
                       assets (see also AICPA Audit and Accounting Guide, Not-for-Profit Entities,
                       paragraphs 3.12–3.20). See Appendix A for a sample report.




Local Council Guide to the 2010 Audit                Page 9                       Release date: 10/29/2010
Statement of Cash      FASB ASC 958-230 describes the unique standards relating to a Statement of
Flows                  Cash Flows of an NFP. The Statement of Cash Flows provides relevant
                       information about an organization’s cash receipts and cash payments during a
                       period. The statement classifies these receipts and payments as resulting from
                       investing, financing, or operating activities. (See also AICPA Audit and
                       Accounting Guide, Not-for Profit Entities, paragraphs 3.22–3.29.) FASB ASC
                       230-10-45-25 discusses two methods that can be used to prepare the Statement
                       of Cash Flows: the direct method and the indirect (or reconciliation) method. As
                       the BSA uses the indirect method in its general ledger software, it requires that
                       the same method be used by local councils in their audited financial statements.
Statement of
Functional             FASB ASC 958-720-05-4 states that to help donors, creditors, and others in
Expenses               assessing a council’s service efforts—including the costs of its services and how
                       it uses resources—a Statement of Activities or notes to financial statements shall
                       provide information about expenses reported by their functional classification
                       such as major classes of program services and supporting activities. (See also
                       AICPA Audit and Accounting Guide, Not-for-Profit Entities, paragraph 3.21). The
                       Statement of Functional Expenses provides this information by aggregating all
                       council expenses (regardless of the fund in which it is recorded) into three
                       functional categories: program service, management and general, and
                       fundraising. Expenses are charged directly to functional categories based on
                       usage codes assigned to general ledger account numbers (the last two digits are
                       discussed later in this guide). If the expense relates to more than one functional
                       category, it is allocated using percentages derived from a local council time study
                       and/or other rational, systematic methodology. The council should review these
                       methods with its auditors. We suggest councils conduct a time study at least
                       every three years. This process should reflect the amount of time that the
                       professional staff members spend on various responsibilities. A sample
                       worksheet for conducting a time study is available in the appendix to this guide.




Local Council Guide to the 2010 Audit               Page 10                     Release date: 10/29/2010
Accounting Policies

Fund Accounting

Background             Paragraph 16.01 of the AICPA Audit and Accounting Guide, Not-for-Profit
                       Entities, indicates that both FASB ASC 958-205-45-3 and the AICPA Guide:

                            “… permit the continued disclosure, for external financial reporting
                            purposes, of disaggregated data classified by fund groups, provided
                            that the information required by generally accepted accounting
                            principles (GAAP) is presented.”


The BSA’s Use of       The BSA has determined that the segregation of assets, liabilities, and net
Three Funds            assets into separate accounting entities associated with specific activities,
                       donor-imposed restrictions, or objectives is a meaningful practice that it
                       chooses to continue. The BSA’s executive board members, staff, and
                       contributors have become accustomed to reading the financial statements in
                       this format. For this and other reasons, the BSA will continue to use three
                       funds to segregate activities. Each statement must also include a total-of-all-
                       funds column.



The Three Funds        The three funds that the BSA accounting system uses are described in
                       Chapter 16 of the AICPA Audit and Accounting Guide, Not-for-Profit Entities.
                       They are:

                                  Operating Fund. This fund is a combination of the Unrestricted
                                   Current Fund (described in paragraphs 16.06 and 16.07) and the
                                   Restricted Current Fund (described in paragraphs 16.08 and
                                   16.09).

                                  Capital Fund. This fund is the same as the Plant (or Land,
                                   Building, and Equipment) Fund (described in paragraphs 16.10
                                   through 16.12).

                                  Endowment Fund. This fund is the same as the Endowment Fund
                                   (described in paragraphs 16.15 through 16.18.)


                       It is a requirement of the National Council of the Boy Scouts of America
                       that local council audits be presented in the three-funds-plus-total-of-all-
BSA Policy             funds format for external financial reporting purposes. The use of an
                       “elimination column” is not an acceptable format. See page 34 for an
                       explanation of the financial statement presentation requirements for
                       inter-fund loans and transfers.

Sample Reports         See Appendix A for samples of the four statements required by the Boy Scouts
                       of America; they are in the prescribed fund accounting format.




Local Council Guide to the 2010 Audit               Page 11                      Release date: 10/29/2010
Consolidated Statements

Overview               Consolidated financial statements are required if the council has control of a
                       second entity (e.g., trust fund, foundation, camp corporation, etc.) through the
                       replacement of board members or financial ownership of the entity (AICPA
                       Audit and Accounting Guide, Not-for-Profit Entities, paragraph 3.57).
                       Therefore, councils with separate foundations or trusts must report on a
                       consolidated basis (ASC 810-10-45-1) with all intercompany balances and
                       transactions eliminated. The use of an eliminations column is not acceptable
                       by the BSA when presenting consolidated financial statements.



National Service and Charter Fees

BSA Practice           Each local council is required to remit annually to the National Council a
                       service fee, which is based on a percentage of salaries expense (professional,
                       para-professional, and office) from two years prior. The fee is used to cover
                       the costs related to providing administrative, technical and other support to
                       local councils, excluding IT-related support. The type of support varies year-to-
                       year and council-by-council. Councils are also required to pay an annual
                       charter fee ($100) to the National Council to continue to operate as local
                       councils of the Boy Scouts of America. The BSA does not include payments to
                       the National Council (an affiliated organization) as expenses to be allocated
                       within the Statement of Functional Expenses. Instead, they are shown as a
                       separate line item on the Statement of Changes in Net Assets after Total
                       functional expenses and before Total expenses (see page A-4).

Accounting             The AICPA Audit and Accounting Guide, Not-for-Profit Entities, is dedicated to
Guidance               expenses, gains, and losses. Paragraph 13.93 (and ASC 958-720-45-26)
                       explains:

                             Payments to affiliated* NFPs should be reported by their functional
                             classification to the extent that is practicable and reasonable to do
                             so and the necessary information is available, even if it is
                             impossible to allocate the entire amount of such payments to
                             functions. Payments to affiliates that cannot be allocated to
                             functions should be treated as a separate supporting service,
                             reported on a statement of activities as a separate line item.

                             *Note: The term “affiliated” does not meet the definition “related”
                             under IRC § 512(b)(13) for purposes of IRS Form 990. In the new
                             2010 IRS Form 990, Payments to affiliates is included in Part IX,
                             Statement of Functional Expenses, and is required to be allocated
                             to the functional categories. This will create a difference between
                             the Boy Scouts system-generated financial statements and the tax
                             return.


BSA Policy             Therefore, the Boy Scouts of America shall continue its policy of not
                       including the national service fee and charter fee expenses as allocated
                       expenses in the Statement of Functional Expenses.




Local Council Guide to the 2010 Audit               Page 12                      Release date: 10/29/2010
Year-End Close

Closing Date           The Boy Scouts of America recommends that councils close their year-
                       end books by January 10, and no later than January 31. Under no
                       circumstances should the books be kept open for bank statements, audit
                       adjustments, etc. You can use audit adjustments at any time during the new
                       fiscal year to make modifications. These transactions will appear in detail with
                       a transaction date of 12/32/xx.



The Closing            The general ledger software, written and updated by the Boy Scouts of
Process                America, is designed to close all income, expense, transfer, reclassification,
                       and prior-period adjustment accounts to the appropriate net asset accounts.
                       This is completed automatically as part of the December month-end closing
                       process. Closing transactions will have a date of 12/36/xx.



                       The result is that all accounts are updated and opened with either zero
                       balances (for revenue and expense accounts) or with a new beginning balance
                       (for statement of financial position accounts) when appropriate. After the year-
                       end close is completed, audit adjustments are still possible.



                       Audit adjustments cannot be made directly to net asset accounts. If
                       adjustments to net asset accounts are required, they should be made
                       using the prior-period adjustment accounts (see General Ledger User’s
                       Guide for an explanation). Entries to these accounts appear at the bottom of
                       the last page of the Statement of Changes in Net Assets under the heading
                       Adjustments to Net Assets (see Appendix A).




Local Council Guide to the 2010 Audit               Page 13                      Release date: 10/29/2010
Year-End Close—Account Closings
Overview: The following tables show account closings at the end of the year by fund. Refer to the
master chart of accounts listing for account descriptions.



FUND 1–OPERATING FUND
Fund 1

These accounts close to ...             This account

4000–9000, 3901–3999, 3161                    3101

3601–3610, 3631, 3632, 3638



3162                                          3102

3171, 3611, 4070, 4011, 4020                  3111

3172, 3612, 4081, 4090                        3112

3174, 3614, 4211, 4250                        3114

3175, 3615, 4311                              3115

3176, 3616, 4411                              3116

3177, 3617, 4511                              3117

3178, 3618, 4711, 4770                        3118

3179, 3619, 4911, 4561                        3119

3180, 3620, 5011, 5511                        3120

3641, 6511, 6541, 6512, 6513, 3191            3141

3642, 6611, 3192, 6661                        3142

3648, 4712, 3198                              3148und 2




Local Council Guide to the 2010 Audit            Page 14                 Release date: 10/29/2010
FUND 2–CAPITAL FUND


These accounts close to …               This account

9500–9536, 3261, 4551                         3201



4000–9499, 3901–3999,

3601–3610, 3631, 3632, 9589, 3262             3202



3271, 4561                                    3211



3612–3620, 4111–6611, 3272,

3641, 3642, 6661, 4020, 4081, 4090            3212



4121, 4321, 4421, 4521, 4921,

3621, 3281, 6671, 3652                        3221




Local Council Guide to the 2010 Audit            Page 15   Release date: 10/29/2010
FUND 3–ENDOWMENT FUND
Fund 3

These accounts close to ...             This account

4001–5999, 3361                               3301



7001–9499, 6301–6499, 6601–6699,

6701–6799, 6801–6899, 6901–6999,

3901–3999, 3601–3699, 3362                    3302



6501–6599, 3363                               3303



4001–5999, 3371                               3311



3372, 6611, 6661                              3312



3373, 3641, 3642, 6512, 6513,

6541, 3612–3620                               3313



4001–5999, 3381                               3321



3382, 6621, 6671                              3322




Local Council Guide to the 2010 Audit            Page 16   Release date: 10/29/2010
Contributions

                       ASC 958-605 and subsections (formerly FASB Statement No. 116, Accounting for
                       Contributions Received and Contributions Made) establish accounting standards
                       for contributions and apply to all entities that receive or make contributions.
                       Generally, contributions received, including unconditional promises to give, are
                       recognized as revenues in the period received at the fair value of the assets or
                       services received or promised, or the fair value of liabilities satisfied. Contributions
                       arising from unconditional promises to give that are expected to be collected within
                       one year of the financial statement date may be measured at their net realizable
                       value. Per FASB ASC 958-605-45-5, contributions of unconditional promises to
                       give with payments due in future periods should be reported as restricted support
                       unless explicit donor stipulations or circumstances surrounding the receipt of the
                       promise make it clear that the donor intended it to be used to support current
                       period activities. By specifying future payment dates, it is reasonable to assume
                       that donors wish to support the activities in each period in which a payment is
                       scheduled. Receipts of unconditional promises to give cash in future years
                       generally increase temporarily restricted net assets. FASB ASC 958-605-30
                       discusses the initial measurement of contributions received at fair value. ASC 820
                       establishes a framework for measuring fair value. Per FASB ASC 958-605-30-6,
                       unconditional promises to give that are expected to be collected in less than one
                       year may be measured at net realizable value because that amount results in a
                       reasonable estimate of fair value.

                       FASB ASC 958-605-55-22 states that the present value of the future cash flows is
                       one valuation technique for measuring the fair value of contributions arising from
                       unconditional promises to give cash. The present value of unconditional promises
                       to give should be measured using a discount rate that is consistent with the
                       principles for present value measurement discussed at FASB ASC 820-10-55-5. In
                       conformity with FASB ASC 835-30-25-11, the discount rate should be determined
                       at the time the pledge is initially recognized and should not be revised
                       subsequently unless the council has elected to measure the promise to give in
                       conformity with the “Fair Value Option” subsections of FASB ASC 825-10.
                       Discounts on contributions receivable that are measured at present value should
                       be amortized between the date the promise to give is initially recognized and the
                       date the cash is received. In conformity with FASB ASC 958-310-35-6, the interest
                       method should be used to amortize the discount. Amortization of the discount
                       results in contribution revenue. Per FASB ASC 958-310-45-1, pledges receivable
                       should be reported net of the discount if measuring the pledge at present value.
                       The discount should be separately disclosed by reporting it as a deduction from
                       pledges receivable either on the face of the statement of financial position or in the
                       notes to the financial statements.

                       Contributions made, including unconditional promises to give, are recognized as
                       expenses in the period made at their fair values. Conditional promises to give,
                       whether received or made, are recognized when they become unconditional; that
                       is, when the conditions are substantially met. This statement requires not-for-profit
                       organizations to distinguish between contributions received that increase
                       permanently restricted net assets, temporarily restricted net assets, and
                       unrestricted net assets. It also requires recognition of the expiration of donor-
                       imposed restrictions in the period in which the restrictions expire.

                       Contributions of services are recognized only if the services received (a) create or
                       enhance nonfinancial assets, or (b) require specialized skills, are provided by
                       individuals possessing those skills, and would typically need to be purchased if not
                       provided by donation. The fair value of contributed services that create or enhance
                       nonfinancial assets should be estimated based on (a) the fair value of the services
                       received, or (b) the fair value of the assets created.


Local Council Guide to the 2010 Audit                Page 17                      Release date: 10/29/2010
Donor Restrictions

Classes of Net         While ASC 958-205 and subsections do not prohibit the use of fund
Assets                 accounting, they do require information about three classes of net assets:

                                  Unrestricted
                                  Temporarily restricted
                                  Permanently restricted


Unrestricted           This class of net assets has no donor restrictions imposed on the contribution
                       and is available for the general use of the council.



Temporarily            A temporarily restricted contribution generally is recognized as support when it
Restricted             is received, and is reclassified from temporarily restricted net assets to
                       unrestricted net assets when the donor’s restriction is satisfied or when the
                       stipulated time has elapsed. Cash received in connection with a campaign to
                       raise funds for renovating a facility would be reported as support, increasing
                       temporarily restricted net assets. When the expenditures for the renovations
                       are incurred, the financial statements would report a reduction in temporarily
                       restricted net assets and an increase in unrestricted net assets.

                       Total of temporarily restricted net assets in each fund should always be a
                       positive number.

                       Although temporarily restricted contributions typically are reported as
                       support that increases temporarily restricted net assets, they may be
                       reported as unrestricted support if the restrictions are met in the same
                       reporting period, the policy is followed consistently, and it is disclosed.



Permanently            Permanently restricted net assets are contributions received with donor-
Restricted             imposed restrictions placed in perpetuity that can never be removed by time or
                       the actions of the council’s executive board. Typically, these are gifts to the
                       council’s Endowment Fund, but may also include gifts of permanently
                       restricted fixed assets, such as land that can never be sold.



Board Designations     Designations are voluntary board-approved segregation of unrestricted net
                       assets for specific purposes, projects, or investments. The local council
                       executive board may approve designations as an aid in planning future
                       expenditures, but designations are not expenses and should not be reported in
                       the Statement of Changes in Net Assets.

                       Because designations are voluntary and may be reversed by the governing
                       board at any time, designated portions of net assets are not considered
                       temporarily or permanently restricted.

                       Designations may be reported as classifications of unrestricted net assets on
                       the Statement of Financial Position or may be disclosed in the notes to the
                       financial statements. However, ASC 958-205 and subsections require them to
                       be reported as a part of the unrestricted class of net assets.


Local Council Guide to the 2010 Audit               Page 18                     Release date: 10/29/2010
Explicit and Implicit   Donor restrictions can be explicit in the gift instrument with specific directions
Restrictions            for use and restrictions, or they can be implicit through the fundraising
                        campaign conducted by the council. For example, if the council is conducting a
                        capital campaign to build a new camp building, any gifts to the campaign would
                        carry a temporary donor restriction for that purpose even though the donor did
                        not specifically declare a restriction in a gifting document. If the council
                        receives a gift to the Endowment Fund, the gift would implicitly carry a
                        permanent donor restriction, because the gift was specifically directed to the
                        Endowment Fund. James E. West and 1910 Society Fellowships are good
                        examples of this.



Split-Interest          Donors to the BSA’s Pooled Income Fund (PIF) and Charitable Gift Annuity
Agreements              (CGA) Programs designate local councils as remainder beneficiaries. During
                        their lifetimes, the donors or others chosen by the donor, receive distributions
                        of income (and sometimes capital gains for a CGA). Upon the death of the
                        donors, the remainder interests in each case transfer to the local council. In
                        both the PIF and CGA programs donors may choose to restrict (temporarily or
                        permanently) the local councils’ use of the remainder assets or give it the
                        immediate right to use its interest without restriction (note: the default language
                        contained in the PIF agreement and the CGA contract indicate that the
                        remainder interests are permanently restricted but both may be modified by the
                        donor). Both programs are administered by the BSA Foundation on behalf of
                        the Boy Scouts of America National Council.

                        The BSA’s Pooled Income Fund is divided into units, and contributions of many
                        donors’ gifts are pooled and invested as a group. The FASB ASC glossary
                        defines a pooled income fund as a trust in which donors are assigned a
                        specific number of units based on the proportion of the fair value of their
                        contributions to the total fair value of the pooled income fund on the date of the
                        donor’s entry into the pooled income fund. The donor (or donor’s designated
                        beneficiary or beneficiaries) is paid the income (defined by the agreement)
                        earned on the donor’s assigned units. Per the PIF agreement, upon the death
                        of the donor, the value of the units is to be transferred to the local council. Per
                        FASB ASC 958-30-25-15 and FASB ASC 958-30-30-10, the assets received
                        from a donor under a pooled income fund agreement should be recognized
                        when received and measured at fair value. The local council should recognize
                        its remainder interest in the assets received as contribution revenue in the
                        period in which the assets are received from the donor and placed in the fund.
                        Contribution revenue should be classified according to FASB ASC 958-30-45-
                        1. A noncurrent asset called a beneficial interest is recorded in the statement
                        of financial position. Each year the assets held in the PIF fund are
                        subsequently measured in conformity with FASB ASC 958-320-35 or FASB
                        ASC 958-325-35. The change in value of the beneficial interest in the fund
                        should be classified (as temporarily restricted, permanently restricted, or
                        unrestricted) depending on the original classification of the contribution
                        revenue. Annually, the BSA Foundation, serving as administrator for the BSA
                        National Council, provides to local councils the fair value of their beneficial
                        interests in the PIF.




Local Council Guide to the 2010 Audit                Page 19                       Release date: 10/29/2010
Split-Interest         The BSA Charitable Gift Annuity is a contract between the BSA National
                       Council and a donor in which the donor contributes assets to the BSA in
Agreements
                       exchange for a promise to pay an amount quarterly to the donor or others
(continued)            chosen by the donor for their lifetimes. The payout amount depends on the
                       age of the beneficiaries. The older the beneficiary, the larger their payment.
                       Payments are guaranteed by the general assets of the Boy Scouts of America.
                       As with the BSA Pooled Income Fund (see above), the council recognizes a
                       beneficial interest in the assets received from the donor. The recognition and
                       measurement principles and presentation and disclosure requirements for
                       beneficial interests in CGA’s are the same as for PIF’s.


                       Note: there are numerous types of split-interest agreements. For information
                       on those not covered in this guide, please contact Ken Moran, Fiscal
                       Management Team, at (972) 580-2311 or ken.moran@scouting.org




Local Council Guide to the 2010 Audit              Page 20                    Release date: 10/29/2010
                           Restricted Contribution Accounts
                  Income Type                 Unrestricted     Temp           Perm
                                                             Restricted     Restricted

Friends of Scouting                             1-4001        1-4011

Capital Campaign                                              2-4111

Special Events                                   4201          4211          3-4221

Legacies and Bequests                            4301          4311          3-4321

Foundations and Trusts                           4401          4411          3-4421

Other Direct Contributions                       4501          4511          3-4521

James E. West                                                                3-4524

1910 Society                                                                 3-4525

Learning for Life                                              4561

United Way                                      1-4701        1-4711

Other Indirect Contributions                     4901          4911           4921

Fees From Government Agencies                    5001          5011




                                Restricted Income Accounts
                  Income Type                 Unrestricted     Temp           Perm
                                                             Restricted     Restricted

Investment Income–Operating                      6501          6511

Investment Income–Capital                        6502          6512

Investment Income–Endowment                      6503          6513          3-6523

Investment Income–Royalties                      6531          6541          3-6551

Gain/Loss on Investments                         6601          6611          3-6621

Unrealized Gain/Loss on Investments              6651          6661          3-6671



Local Council Guide to the 2010 Audit       Page 21              Release date: 10/29/2010
Special Events Reported as Gross Revenues



Background/Accepted    FASB ASC 958-225-45-17 requires the reporting of the gross amounts of
Practices              revenues and expenses from special events and other fundraising activities
                       that are ongoing major or central activities, but it permits (does not require)
                       reporting net amounts if the receipts and related costs result from special
                       events that are peripheral or incidental activities.


BSA Policy             Most special events conducted by councils are peripheral and incidental to the
                       programs of the BSA. However, it will continue to be the practice of the Boy
                       Scouts of America to report, on the face of the Statement of Changes in Net
                       Assets, gross revenues from special events as follows:



                         Special fundraising events - gross                                 XXXX

                         Less cost of direct benefit to participants**                      XXXX

                         Special fundraising events—net                                     XXXX



                       **This line item would include the cost of meals, greens fees, etc. All other
                       costs that do not directly benefit the donor (for example, postage and printing)
                       would be reported as expenses in the Statement of Changes in Net Assets.




Local Council Guide to the 2010 Audit               Page 22                      Release date: 10/29/2010
United Way

Process                Local councils may have two sources of United Way support: allocations from
                       the general pool and donor designations. Upon written notification from a
                       United Way, a pledge receivable and contribution revenue should be recorded
                       for each category of support. A United Way allocation letter may be conditional
                       and, if so, a contribution is not booked until the condition is removed. Also, a
                       United Way may not disburse all of its allocations, so a council may want to
                       establish an allowance for uncollectible United Way pledges based on its
                       experience. The general ledger provides allowance and provision for
                       uncollectible pledges accounts for this purpose, if necessary.




Retirement Plan
Process                The Boy Scouts of America has a defined benefit multiemployer retirement
                       plan, administered by the National Council, that covers eligible employees of
                       the National Council and local councils. For 2010, eligible employees
                       contribute 2 percent of compensation, and the council contributes an additional
                       6.5 percent of compensation to the plan. For 2011 and 2012 the council will
                       contribute to the plan 6.75 percent and 7.0 percent, respectively, of eligible
                       employees’ compensation (see pp. 47-48 for more information on
                       compensation). The employee contribution is projected to remain at 2 percent
                       for 2011 and 2012.

                       A letter is provided annually to the local council from the National Council
                       concerning the retirement plan. A copy of this letter should be provided to your
                       auditor.




Local Council Guide to the 2010 Audit               Page 23                     Release date: 10/29/2010
Revenue


Sale of Supplies and Product Sales

Background             FASB ASC 958-225-45-14 explains that a statement of activities shall report the
                       gross amounts of revenues and expenses.

Accounting             The AICPA Audit and Accounting Guide, Not-for-Profit Entities, does, however,
Guidance               give guidance in the matter. Paragraph 13.25 (ASC 958-720-45-20) defines how
                       cost of goods sold can be reported. It explains in part:


                            The way that costs related to sales of goods and services are
                            displayed depends on whether the sales constitute a major or central
                            activity of the organization or a peripheral or incidental activity. For
                            example, a museum that has a store that is a major or central activity
                            should report and display separately the revenues from its sales and
                            the related cost of sales. Cost of sales is permitted to be reported
                            immediately after revenues from sale of merchandise, and may be
                            followed by a descriptive subtotal, or it may be reported with other
                            expenses.


BSA Practice           Although the sale of goods or products in a council is peripheral to the delivery of
                       the Scouting program, the BSA will continue its practice of reporting, on the face
                       of the Statement of Changes in Net Assets, gross revenues from sales of
                       supplies as follows:



                         Sales of supplies—gross                                          XXXX

                         Less cost of goods sold                                          XXXX

                         Sale of supplies—net                                             XXXX



                       Note to councils with National Scout shops: Your contract with your
                       National Scout shop requires that it remit to you rent based on a
                       percentage of its gross sales. This revenue should never be recorded in
                       Sales of supplies—gross. Councils should instead appropriately record the
                       revenue in the general ledger, account number 1-6903-XXX-90, Income
                       from rents.




Local Council Guide to the 2010 Audit               Page 24                      Release date: 10/29/2010
Sale of Supplies and Product Sales (continued)


                         The BSA will continue to report gross revenues from product sales as follows:

                           Product sales                                                 XXXX

                           Less cost of goods sold                                       XXXX

                           Less commissions paid to units*                               XXXX

                           Product sales—net                                             XXXX



                         A note regarding commissions paid to units: regardless of whether the
                         local council remits a check to the unit, records a credit in the unit
                         custodian account, or allows the unit to retain (from gross sales proceeds
                         collected) its commissions earned, the BSA requires the above
                         presentation on the face of the Statement of Changes in Net Assets (i.e.,
                         the Statement of Activities).



                         *May also read: Less commissions earned and retained by units if
                         appropriate under the circumstances.




  Local Council Guide to the 2010 Audit              Page 25                    Release date: 10/29/2010
Investments and Investment Income

Background             The BSA has historically recorded unrestricted interest and dividends from the
                       Endowment Fund as unrestricted investment income in the Operating Fund.

Investments            Chapter 8 of the AICPA Audit and Accounting Guide, Not-for-Profit Entities, is
                       dedicated to investments. Paragraphs 8.07 and 8.08 explain:

                            Dividend, interest, and other investment income should be reported
                            in the period earned as increases in unrestricted net assets unless
                            the use of the assets is limited by donor-imposed restrictions. Donor-
                            restricted investment income should be reported as an increase in
                            temporarily restricted net assets or permanently restricted net assets
                            depending on the type of restriction.

                            For example, if there are no donor-imposed restrictions on the use of
                            the income, it should be reported as an increase in unrestricted net
                            assets. On the other hand, a donor may stipulate that a gift be
                            invested in perpetuity, with the income to be used to support a
                            specified program. The initial gift creates permanently restricted net
                            assets. Unless the nonprofit organization elects the alternative
                            accounting policy described in paragraph 8.32, the investment
                            income is temporarily restricted for support of the donor-specified
                            program. If the restrictions on the income are met, the statement of
                            activities should report a reclassification from temporarily restricted
                            net assets to unrestricted net assets.

Previous Practice      Since 1974, the Boy Scouts of America has consistently followed the guidance
                       in AICPA not-for-profit industry audit and accounting guides, which have
                       stated:

                            If endowment income is not subject to donor-imposed restriction, it
                            should be credited, as earned, to the appropriate revenue account of
                            the unrestricted fund. (The fund refers to the BSA’s Operating Fund.)

BSA Policy             It is the policy of the Boy Scouts of America that investment income should be
                       recorded as revenue in the fund group that will use it. Investment income from
                       all fund groups should be included as revenue in the Operating Fund unless
                       donor or legal restrictions or board policies or directives dictate otherwise.

                       Given the huge downturns in the financial markets since mid-2008, and the
                       recent enactment of laws governing the management of certain endowment
                       funds, it has become very important to clearly define exactly what constitutes
                       investment income available to support the operating budget (i.e., above the
                       Transfers line). Various interpretations of the definition of investment income
                       have resulted in inconsistencies in practices followed by local councils.

                       The Boy Scouts of America defines investment income available to support the
                       operating budget (i.e., recordable in general ledger accounts 6503 or 6513 in
                       the Operating Fund) as interest, dividends, royalties, certain rents, and other
                       income generated on property held for investment, earned during the current
                       year, net of related expenses (such as investment management fees). The
                       amount of investment income available to support the operating budget (above
                       the Transfers line) may not equate to the amount taken as distributions from
                       the endowment fund based on the local council’s endowment fund spending
                       policy (if applicable).


Local Council Guide to the 2010 Audit               Page 26                      Release date: 10/29/2010
                       Realized gains and losses on endowment fund investments shall be
                       recorded in the Endowment Fund. Note: Realized gains and losses result from
                       the actual sale or other disposition of assets (stocks, bonds, real estate, etc.)
                       held in the Endowment Fund. Net realized gains, i.e., the excess of realized
                       gains over realized losses, may be used to support the operating budget if the
                       net investment income discussed in the preceding paragraph is insufficient to
                       meet the amount required by the council’s endowment spending policy
                       (discussed below). If during the year the total realized losses on all security
                       sales in the portfolio exceeded total realized gains, no amount in addition to
                       the net investment income described above would be available to support the
                       operating budget.

                       Unrealized gains and losses on endowment fund assets represent the
                       cumulative difference between the cost and market values of securities held in
                       the investment portfolio and are always recorded in the Endowment Fund. In
                       no case shall net unrealized gains be recorded as income in the
                       Operating Fund.

                       The actual amount of the annual cash distribution(s) from the council’s
                       endowment fund(s) depends on its board-approved endowment spending
                       policy or, for trust funds, the provisions set forth in the trust instrument. All
                       councils that have endowment funds are encouraged to have such a policy. An
                       example of a typical spending policy follows:

                       The council has a policy of appropriating for distribution each year 4 percent
                       (for example purposes) of its endowment fund’s average fair value over the
                       prior 12 quarters through the calendar year-end preceding the fiscal year in
                       which the distribution is planned. In establishing this policy, the council
                       considered the long-term expected return on its endowment. Accordingly, over
                       the long term, the council expects the current spending policy to allow its
                       endowment to grow at an average of 4 percent annually (for example). This is
                       consistent with the council’s objective to maintain the purchasing power of the
                       endowment assets held in perpetuity or for a specified term, as well as to
                       provide additional real growth through new gifts and investment return.

                       Important note to councils with trust funds—Your council’s spending
                       policy with respect to these funds must follow the requirements set forth
                       in the trust instrument(s). These trusts are governed by your state’s trust
                       laws. Any deviation from these requirements could place your council in
                       jeopardy. If this applies to you, we strongly recommend that you consult
                       legal counsel before adopting a spending policy.

                       The Boy Scouts of America Financially Sustainable Councils Strategic Plan
                       (the Plan) recommends that local council spending policies define a spending
                       rate of between 4 and 5 percent of a benchmark value as described above.
                       Endowment fund spending rates in excess of 7 percent are considered to be
                       imprudent. Depending on the structure of a local council’s endowment fund,
                       state law may define a maximum spending rate above which would create a
                       rebuttable presumption of imprudence. Board-approved spending rates of less
                       than 4 percent may not be adequate to support the operating needs of the
                       council. When the investment committee determines a spending rate (and/or
                       calculates the dollar amount) and the board approves it, trustees or money
                       managers will be directed to issue periodic distributions to the council from the
                       endowment fund(s).

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                       For budgeting purposes, and especially during volatile markets, we suggest
                       that councils and their investment advisers actively re-evaluate estimates of
                       future year market performance in order to formulate the most accurate
                       investment income budget amounts.

                       It is important for the council to reconcile the endowment fund investment
                       statements to the general ledger on a regular basis. Should the
                       reconciliation reveal that cash distributions to the Operating Fund from
                       the endowment fund(s) exceed the amount of investment income earned
                       on the endowment fund(s) (as defined above), the difference would be
                       accounted for as a Transfer. Many councils will receive distributions from
                       their endowment fund investment account(s) directly into the operating
                       checking account via an ACH or wire transfer. Some councils will receive
                       distribution checks from their trustees or money managers. If a point-of-sale
                       system is used to record cash receipts, the check would be receipted to
                       general ledger account number 1-6503-XXX-90 (or 6513 if temporarily
                       restricted), investment income from endowment. A journal entry would be
                       prepared to record a wire transfer using the same investment income account.

Accounting             ASC 958-225-45-14 and paragraph 8.09 of the AICPA Audit and Accounting
Guidance               Guide, Not-for-Profit Entities, explain:

                            A statement of activities should report the gross amounts of revenues
                            and expenses. It also notes, however, that investment revenues may
                            be reported net of related expenses, such as custodial fees and
                            investment advisory fees, provided that the amount of the expenses
                            is disclosed either in the statement of activities or in notes to financial
                            statements.


                       Therefore, the BSA will continue the practice of reporting investment
                       revenues net of related expenses, such as custodial fees and investment
BSA Policy             advisory fees, with the fees disclosed in the notes.



New Standard           FASB ASC 958-205 and subsections (originally FASB Staff Position No. 117-1)
                       provide guidance on the net asset classification of donor-restricted endowment
                       funds for nonprofit organizations subject to a version of the Uniform Prudent
                       Management of Institutional Funds Act of 2006 (UPMIFA) enacted by the state in
                       which the organization operates. UPMIFA does not apply to trust funds
                       managed by banks and trust companies as required by the Rules and
                       Regulations of the Boy Scouts of America for special funds. If your council’s
                       endowment trust fund substantially conforms to the Model Form, UPMIFA
                       would not apply to endowments held therein. The Boy Scouts of America
                       strongly recommends that all local councils consult with their lawyers, trustees,
                       investment advisers, and auditors to determine which of the council’s endowment
                       funds, if any, would be subject to UPMIFA and therefore subject to the provisions
                       of FSP FAS 117-1. The staff position also expands disclosures about an
                       organization’s endowment funds (both donor-restricted and board-designated),
                       regardless of the applicability of UPMIFA (continued on next page).




Local Council Guide to the 2010 Audit                Page 28                       Release date: 10/29/2010
                       If it is determined that your council is subject to UPMIFA, you will be required to
                       reclassify unrestricted net assets associated with the affected endowment fund to
                       temporarily restricted net assets (see the example under Changes in Endowment
                       Net Assets for the Year Ended December 31, 2010, in the following footnote). The
                       temporarily restricted net assets would remain temporarily restricted until the
                       council’s board of directors appropriated them for expenditure, at which point they
                       would be reclassified to unrestricted net assets. Because two states have not yet
                       enacted a version of UPMIFA, and because enacted versions may have different
                       effective dates, a council might apply this FSP before or after the period in which
                       UPMIFA is first effective for that council, as follows:

                       1. If a council initially applies the FSP on or before the effective date of UPMIFA,
                       any net asset reclassification resulting from the initial application of this FSP to
                       donor-restricted endowment funds in existence when UPMIFA is first effective must
                       be presented in that period. Such reclassifications must be reported in a separate
                       line item in the statement of activities.

                       2. If a council initially applies the FSP for financial statements issued for a period
                       after UPMIFA is first effective, any resulting reclassification should be reported in
                       those financial statements in the earliest comparative period presented for which
                       UPMIFA was effective. If the period in which UPMIFA first became effective is not
                       presented, the effects of the reclassification must be reported retrospectively in the
                       earliest period presented.

                       The sample footnote disclosure (see pages B-12 through B-14) assumes that the
                       local council is subject to an enacted version of UPMIFA. Please note that the
                       sample disclosure will need to be modified to reflect each council’s unique
                       situation. If the council is not subject to UPMIFA, the disclosure would be
                       essentially the same as shown here, only without the state UPMIFA references and
                       reclassification of net assets shown under the heading Changes in Endowment Net
                       Assets for the Year Ended December 31, 2010. In the sample footnote disclosure,
                       the local council’s board of directors interpreted its state’s enacted version of
                       UPMIFA as requiring the preservation of the fair value of the original gift as of
                       the gift date of the donor-restricted endowment funds absent explicit donor
                       stipulations to the contrary.

                        If the local council’s board of directors interprets its state’s enacted version of
                       UPMIFA as requiring the maintenance of purchasing power for donor-restricted
                       endowment funds, then the council would periodically adjust the amount in
                       permanently restricted net assets to reflect that interpretation. Under those
                       circumstances, the council would use the inflation (deflation) index (or indices) that
                       it deems most relevant for adjusting the permanently restricted net assets of the
                       funds (for example, the Consumer Price Index [CPI] or the Higher Education Price
                       Index [HEPI]). If the council in this example were subject to an enacted version of
                       UPMIFA that its governing board interpreted as requiring the council to maintain
                       the purchasing power of its donor-restricted endowment funds, the Interpretation of
                       Relevant Law paragraph in the example disclosure could be modified to read as
                       follows (continued on next page):




.

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Note X. Endowment

Interpretation of Relevant Law

The board of directors of the council has interpreted the [NAME OF STATE] Prudent Management of
Institutional Funds Act (the Act) as requiring the preservation of the purchasing power (real value) of the
donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this
interpretation, the council classifies as permanently restricted net assets: (1) the original value of gifts
donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent
endowment, (3) accumulations to the permanent endowment made in accordance with the direction of the
applicable donor gift instrument at the time the accumulation is added to the fund, and (4) the portion of
investment return added to the permanent endowment to maintain its purchasing power. For purposes of
determining that portion, each year the council adjusts permanently restricted net assets by the change in
the Consumer Price Index (CPI) for that year. If the endowment assets earn investment returns beyond the
amount necessary to maintain the endowment assets’ real value, that excess is available for appropriation
and, therefore, classified as temporarily restricted net assets until appropriated by the board for
expenditure. In accordance with the Act, the council considers the following factors in making a
determination to appropriate or accumulate donor-restricted endowment funds:

(1) The duration and preservation of the fund
(2) The purposes of the council and the donor-restricted endowment
(3) General economic conditions
(4) The possible effect of inflation and deflation
(5) The expected total return from income and the appreciation of investments
(6) Other resources of the council
(7) The investment policies of the council

Note: If your council’s state has adopted UPMIFA, we highly recommend that you consult with your
council’s lawyers, investment advisers, independent auditors, and others to assess the impact of UPMIFA
and this pronouncement on the council’s financial statements and operations. Remember that the
requirements under ASC 958-205 (FSP FAS 117-1) extend to the year in which UPMIFA was effective in
your state so prior-year amounts shown in your comparative financial statements may be affected. If you
have questions regarding this or other audit and accounting matters, please contact Ken Moran of the
Fiscal Management Team at ken.moran@scouting.org or 972-580-2311.




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Accounting Standard ASC 820-10 and subsections were originally issued on September 15, 2006, as
                    Statement of Financial Accounting Standards No. 157, Fair Value
                    Measurement (FAS 157). The new standard applies whenever other standards
                    require (or permit) assets or liabilities to be measured at fair value. FASB states
                    FAS 157 “does not expand the use of fair value in any new circumstances.”


                       How FAS 157 (ASC 820-10 and subsections) Changes Current Practice
                       FAS 157 changed previous practice by:

                       o   Defining fair value: “Fair value is the price that would be received to sell an
                           asset or paid to transfer a liability in an orderly transaction between market
                           participants at the measurement date.” This is particularly important when local
                           councils receive noncash property such as equipment or real estate, or
                           contributed services for the construction of fixed assets (for example, at
                           summer camp as the result of a capital campaign). Donor restrictions on the
                           use of noncash property can significantly affect its fair value. For example, a
                           donated parcel of land restricted for a particular use with the restriction legally
                           incorporated into the deed (i.e., the restriction would transfer to a third party if
                           sold) would have a very limited market and limited market value. A donated
                           piece of equipment restricted for a specific use but with no restriction on the
                           use of proceeds if sold could be valued using a “highest and best use”
                           premise. FAS 157 will also affect councils involved in split-interest agreements.
                       o   Requiring certain methods to be used to measure fair value—measured as a
                           market-based measurement, not an entity-specific measurement—based on
                           assumptions market participants would make in pricing the asset or liability.
                           FAS 157 establishes a three-level hierarchy for measuring fair value, described
                           further below.
                       o   Expanding disclosures about fair value measurements.


                       Three-Level Hierarchy
                       Entities are to use inputs for measuring fair value according to the three-level
                       hierarchy established in FAS 157. The three levels for measuring fair value are:

                       Level 1

                       o   Level 1 inputs are quoted prices (unadjusted) in active markets for identical
                           assets or liabilities that the reporting entity has the ability to access at the
                           measurement date. Publicly traded securities at major exchanges would fit into
                           this category.


                       Level 2

                       o   Level 2 inputs are inputs other than quoted prices included within Level 1 that
                           have observable inputs for the asset or liability, either directly or indirectly.
                           Level 2 inputs include:

                            a. Quoted prices for similar assets or liabilities in active markets;

                            b. Quoted prices for identical or similar assets or liabilities in markets that are
                            not active; that is, markets in which there are few transactions for the asset or
                            liability, the prices are not current, or price quotations vary substantially either
                            over time or among market makers (continued on next page)



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                            (for example, some brokered markets), or in which little information is released
                            publicly (for example, a principal-to-principal market);

                            c. Inputs other than quoted prices that are observable for the asset or liability
                            (for example, interest rates and yield curves observable at commonly quoted
                            intervals, volatilities, prepayment speeds, loss severities, credit risks, and
                            default rates);

                            d. Inputs that are derived principally from or corroborated by observable
                            market data by correlation or other means (market-corroborated inputs).

                            A Level 2 example would be a plain vanilla fixed-for-floating interest-rate
                            swap, where its components are observable data points like the London
                            Interbank Offered Rate (LIBOR).

                       Level 3

                       o   Level 3 inputs are unobservable inputs for the asset or liability.
                       o   Unobservable inputs shall be used to measure fair value to the extent that
                           observable inputs are not available, thereby allowing for situations in which
                           there is little, if any, market activity for the asset or liability on the measurement
                           date.
                       o   However, the fair value measurement objective remains the same; that is, an
                           exit price from the perspective of a market participant that holds the asset or
                           owes the liability.

                       o   Therefore, unobservable inputs shall reflect the reporting entity’s own
                           assumptions about the assumptions that market participants would use in
                           pricing the asset or liability (including assumptions about risk).

                       o   Unobservable inputs shall be developed based on the best information
                           available in the circumstances, which might include the reporting entity’s own
                           data.

                       o   In developing unobservable inputs, the reporting entity need not undertake all
                           possible efforts to obtain information about market participant assumptions.

                       o   However, the reporting entity shall not ignore information about market
                           participant assumptions that is reasonably available without undue cost and
                           effort. Therefore, the reporting entity’s own data used to develop unobservable
                           inputs shall be adjusted if information is reasonably available without undue
                           cost and effort that indicates that market participants would use different
                           assumptions.

                            A Level 3 example might be a beneficial interest in a perpetual trust.


                       Effective Date and Transition
                       ASC 820-10 and subsections are effective for financial statements issued for fiscal
                       years beginning after November 15, 2007, and with the exception of certain
                       nonfinancial assets and liabilities, for which the effective date is for fiscal years
                       beginning after November 15, 2008.




Local Council Guide to the 2010 Audit                Page 32                       Release date: 10/29/2010
Accounting                     In November 1995, the Financial Accounting Standards Board (FASB)
Standard                       issued Statement No. 124, Accounting for Certain Investments
                               Held by Not-for-Profit Organizations (now known as FASB ASC
                               958-320 and subsections), which requires the following:

                                  Investments in equity securities with readily determinable fair
                                   values and all investments in debt securities should be reported at
                                   fair value with gains and losses included in the Statement of
                                   Changes in Net Assets.

                                  Certain disclosures must be made about all investments held by
                                   not-for-profit organizations and the return on those investments.
                                   This is normally covered in the notes section of the council’s audit.
                                   (See FASB ASC 958-320-50 for more information.)

                                  In the absence of donor stipulations or law to the contrary, losses
                                   on the investments of a donor-restricted endowment fund should
                                   reduce temporarily restricted net assets to the extent that donor-
                                   imposed restrictions on net appreciation of the fund were not met
                                   before the loss occurred. Any remaining loss should reduce
                                   unrestricted net assets. (See AICPA Audit and Accounting Guide,
                                   Not-for-Profit Entities, paragraph 8.29 for more information.)

                                  Note: Any local council audited financial statements
                                   displaying a deficit balance in temporarily restricted net
                                   assets are not in compliance with GAAP or BSA standards.




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Inter-fund Loans
  Inter-fund loans are to be recorded on a single line in the asset section of the Statement of Financial
  Position. The total of all three funds should be zero (FASB ASC 958-210-45-2). See the sample
  Statement of Financial Position in Appendix A of this guide.



Transfers
  Transfers between funds should be recorded in the Statement of Changes in Net Assets between
  beginning net assets and ending net assets. See the sample Statement of Changes in Net Assets in
  Appendix A of this guide.




Net Assets
  The council’s net assets by fund and by restriction in ScoutNET must match the audited financial
  statements.



Deferred Revenues and Expenses

Reporting              Some councils have substantial amounts of deferred expenses and revenues
                       recorded in their financial statements. Generally Accepted Accounting
                       Principles and the Boy Scouts of America require these items to be shown in
                       the assets and liabilities sections, respectively, of the Statement of Financial
                       Position.

Background             Deferred revenues and expenses are council cash receipts and
                       disbursements, respectively, that relate to activities, special events, and
                       camping events that are scheduled to occur in a future year. It is necessary to
                       segregate this information as the council has a fiduciary responsibility to
                       provide the events as advertised or refund the participants’ money. When the
                       council conducts the activity or event, it may then recognize the cash receipts
                       as revenue and the related cash disbursements as expenses in the Statement
                       of Changes in Net Assets.




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Net Assets Released From Restriction

Two Methods            A council may choose to “release” temporarily restricted contribution revenue
                       (for example, restricted as to time) ratably during the accounting year by
                       moving a portion of the revenue from a temporarily restricted income account
                       to an unrestricted income account as time passes.



By Revenue             If a council records a temporarily restricted contribution (restricted for time; for
                       example, United Way Allocations) for which some (or all) of the restriction will
                       expire during the current year, it may release the temporary restriction by
                       simply debiting the temporarily restricted contribution revenue account and
                       crediting the unrestricted contribution account.



By Net Asset           If, however, a year-end close has occurred since the temporarily restricted
                       contribution was booked, then it is necessary to release the net assets
                       generated from this contribution. When a temporarily restricted contribution
                       account is processed during the Boy Scouts of America general ledger year-
                       end close, the revenue account closes to a net asset account that is also
                       temporarily restricted. See the General Ledger User’s Guide for an outline of
                       the net assets that can be temporarily restricted and the reclassification
                       accounts to be used to release from restriction a net asset.



Net Asset Accounts     The Capital and Endowment Funds may contain unrestricted, temporarily
                       restricted, and permanently restricted net asset accounts. The Operating Fund
                       may only contain unrestricted and temporarily restricted net asset accounts.



                       The Boy Scouts of America general ledger software will not allow any
                       direct audit adjustments to net asset accounts. This ensures the integrity
                       of net asset accounts. However, if an adjustment is necessary, it may be
                       made using the net asset adjustment accounts provided in the chart of
                       accounts, which will display the requested adjustment on December
                       statements, and the final adjustments will occur in the year-end close
                       procedure.



.




Local Council Guide to the 2010 Audit                Page 35                       Release date: 10/29/2010
Statement of Financial Position

Pledges Receivable     The Boy Scouts of America software provides for a series of pledges
                       receivable accounts to account for commitments not yet paid. They are divided
                       into three groups: current pledges receivable, past pledges receivable, and
                       future pledges receivable.

                       In addition, most receivables have related allowance for uncollectible pledges
                       account for most of the different types of campaigns that are conducted by the
                       council.

Process                At the end of the year, it is the job of council management to look at
                       uncollected pledges and determine which pledges are collectible. The total of
                       the uncollectible pledges should be reflected in the allowance for uncollectible
                       pledges account. Typically, the allowance for uncollectible pledges is
                       calculated based on management’s estimate of the percentage of total pledges
                       received during the year that it expects not to collect. This estimate is based
                       on management’s experience with similar fundraising campaigns in prior years.
                       By examining the list of uncollected pledges at year-end, management may
                       identify donors who have honored their pledges in prior years, but for some
                       reason have not paid their pledges by the end of the year. This will afford
                       management the opportunity to follow up with donors and further determine the
                       collectability of the council’s pledges receivable. When there is an allowance
                       for uncollectible pledges account, there should always be a pledges receivable
                       account. The total of all pledges that are outstanding should be reflected in this
                       receivable account, while the allowance account has the value of pledges
                       deemed uncollectible. The difference between the two is the amount that is
                       expected to be collected.

                       At or before the end of the year, the past pledges receivable should be
                       reduced to zero, along with the related allowance account. In the Operating
                       Fund, there should never be a balance in the past pledges receivable
                       account(s) after year-end. When writing these two accounts down to zero, the
                       difference should be shown as expense (uncollectible pledge expense,
                       account 9432) or income (FOS prior year, account 4002, or other income,
                       account 6931).

Inventories            At the end of the year, the value of the inventory taken, extended, and totaled
                       should be reflected in the inventory accounts. Councils should ask the audit
                       team to verify the method of count and sample counts. There are a series of
                       accounts for saleable inventory (1401–1441) and other accounts for non-
                       saleable inventory (1451, 1711–1713, and 1731).

Inter-fund Loans       These accounts (1600 series) are for recording short-term loans from one fund
                       to another. These values should show only in the assets section of the
                       Statement of Financial Position (AICPA Guide, 16.03). The total of these
                       transactions should always equal zero (ASC 958-210-45).

Prepaid Expenses       There are a number of prepaid expense accounts available for recording cash
                       disbursements and accounts payable transactions related to future period
                       events or activities. These accounts (1701–1710 and 1722–1728) are shown in
                       the current assets section of the Statement of Financial Position.




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Fixed Assets           Fixed assets and related depreciation expense are typically recorded in the
                       council’s Capital Fund. Each council sets its own capitalization policy with
                       respect to fixed assets. We recommend a figure from $1,000 to $2,500 for a
                       single item. Items that fall below the capitalization level are expensed. There is
                       a fixed asset register in the software that will keep track of individual fixed
                       assets and their related accumulated depreciation. The Fixed Assets Register
                       generates monthly depreciation expense entries, which are distributed and
                       posted to the general ledger.

Accrued Expenses       This series of accounts (2100) is set aside for known expenses that have no
                       invoices. Values on these accounts should be fully documented.

Custodian              Custodian accounts are typically used to record funds held for affiliated
Accounts               organizations, such as units and the Order of the Arrow (2300 series).
                       Receipts and disbursements for activities and special events (such as the
                       national jamboree) should never be recorded in these accounts.




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Statement of Changes in Net Assets

Full Disclosure            •   This statement should show all sources of income and expenses in a
                               functional format divided among program, management, and
                               fundraising.

                           •   Contribution income should show relevant provision for uncollectible
                               pledges.

                           •   Special-events contributions should show the amount of direct
                               expense subtracted from the total income.

                           •   Revenue should show relevant cost of goods sold and commissions
                               paid.

                           •   The statement should be divided into three sections that appear in this
                               order: unrestricted, temporarily restricted, and permanent changes to
                               net assets. It should also report the total of changes to net assets.


                       Transfers are movements of unrestricted net assets between funds. All
                       transfers should have a supporting board resolution. The transfers from each
Transfers              fund (3900 series) should equal zero when added together. The transfer line
                       on the Statement of Change in Net Assets should appear on a line that is
                       between the beginning net assets and ending net assets of each fund (see
                       example in Appendix A).

                       Transfers should NEVER show above the increase/decrease in unrestricted
                       net assets line.



Net Assets                 •   Each fund should show changes in unrestricted net assets, changes in
                               temporarily restricted net assets, and changes in permanently
                               restricted net assets.

                           •   Each fund should show the beginning net assets for each class of net
                               assets.

                           •   Each fund should show ending net assets by classification.

                           •   The adjustments to net assets and transfers appear between the
                               beginning and ending net assets.

                           •   Transfers are board-approved movements of assets from one fund to
                               another. The transfer line should always equal zero for the transfer
                               accounts (3900 series; see example in Appendix A).




Local Council Guide to the 2010 Audit              Page 38                     Release date: 10/29/2010
Statement of Cash Flows

Requirements           The Statement of Cash Flows should be in a comparative format and should
                       show all funds. The BSA uses the indirect method. Per ASC 230-10-45-14,
                       receipts from contributions and investment income that by donor stipulation are
                       restricted for the purposes of acquiring, constructing, or improving property,
                       plant, equipment, or other long-lived assets or establishing or increasing a
                       permanent endowment or term endowment are cash inflows from financing
                       activities. An adjustment to reconcile the change in net assets to net cash
                       provided (or used) by operating activities would be required for these items.
                       Per ASC 230-10-50, noncash investing and financing activities and interest
                       and taxes paid are required to be disclosed.


Statement of Functional Expenses

Overview               The Statement of Functional Expenses should be presented in a functional
                       format showing program, management, fundraising, and supporting services. It
                       should display the amount of expense in each of these categories. These
                       expenses should reflect expenses from all three funds with the single
                       exception of those paid to the National Council for charter and service fees.

                       Councils utilize the functional usage codes to indicate the type of expenditure
                       made and the group to which it belongs:

                           •   20, 21, and 25 for pure program
                           •   70 and 75 for fundraising
                           •   50 for pure management

                       For those expenses that cover more than one function, the software uses the
                       99 code (unallocated). This amount is split by percentages determined by a
                       time study conducted by the council. The results of this allocation are added to
                       the previously allocated expenses to create the total expense by functional
                       category.

Time Study             The BSA has consistently recommended to its local councils that they utilize a
                       time study to determine the distribution of unallocated expenses for
                       preparation of the Statement of Functional Expenses. The BSA’s Local Council
                       Accounting Manual outlines the procedures to be used for the time study.

                       Chapter 13 of the AICPA Audit and Accounting Guide, Not-for-Profit Entities, is
                       dedicated to expenses, gains, and losses. Paragraph 13.45 explains:

                       Some expenses are directly related to, and can be assigned to, a single
                       major program or service or a single supporting activity. Other expenses
                       are related to more than one program or supporting activity, or to a
                       combination of programs and supporting services. These expenses
                       should be allocated among the appropriate functions. Examples include
                       salaries of persons who perform more than one kind of service and the
                       rental of a building used for various programs and supporting activities
                       (continued on next page).




Local Council Guide to the 2010 Audit               Page 39                     Release date: 10/29/2010
                       Paragraph 13.46 states that:

                       Direct identification of specific expense (also referred to as “assigning
                       expenses”) is the preferable method of charging expenses to various functions.
                       If an expense can be specifically identified with a program or supporting
                       service, it should be assigned to that function. For example, travel costs
                       incurred in connection with a program activity should be assigned to that
                       program.

                       Paragraph 13.47 explains:

                       If direct identification (that is, assignment) is impossible or impracticable, an
                       allocation is appropriate. The techniques used to allocate are common to all
                       entities, for-profit and not-for-profit (NFP) organization alike. A reasonable
                       allocation of expenses among an NFP’s functions may be made on a variety of
                       bases. Objective methods of allocating expenses are preferable to subjective
                       methods. The allocation may be based on related financial or nonfinancial
                       data.

                       Paragraph 13.51 explains:

                       An organization should evaluate its expense allocation methods
                       periodically. The evaluation may include, for example, a review of time
                       records or activity reports of key personnel, the use of space, and the
                       consumption of supplies and postage. The expense allocation methods
                       should be reviewed by management and revised when necessary to
                       reflect significant changes in the nature or level of the organization’s
                       current activities.


BSA Policy             Therefore, the BSA will continue its recommendation to local councils to
                       conduct a time study at least every three years—unless there are
                       significant changes in activities—for the preparation of the Statement of
                       Functional Expenses, which is required of all voluntary health and
                       welfare organizations.




Local Council Guide to the 2010 Audit               Page 40                     Release date: 10/29/2010
Reports and Subsidiary Ledgers

Audit Adjustments

Introduction           Audit adjustments can be recorded in the general ledger anytime after the
                       year-end close process is completed. The Boy Scouts of America does not
                       allow direct adjustments to the net asset accounts. There are separate
                       accounts used to adjust net assets (i.e., for error corrections) known as
                       prior period adjustment accounts. Entries to these accounts appear at the
                       bottom of the last page of the Statement of Changes in Net Assets under the
                       heading Adjustments to Net Assets (see Appendix A-6).



Adjustment Dates       Audit adjustments are entered into the system using a system-generated prior-
                       year date of December 32. Year-end close adjustments are automatically
                       recorded and are issued a prior-year date of December 36. This enables the
                       software to make a distinction between December transactions, audit
                       adjustments, and year-end close transactions. Audit adjustments are
                       represented on all printed statements, while year-end close transactions are
                       not. However, the general ledger or posted detail listing will indicate the effect
                       of the year-end close on a given account.



Print Statements       Once audit adjustments have been entered, the four BSA system-
                       generated statements should be reprinted. These statements should be
                       in complete agreement with the audited financial statements.



Closing the Year       It is not necessary, or recommended, to keep the prior fiscal year’s
                       books open until the audit adjustments are prepared. On the contrary, the
                       fiscal year should be closed as soon as possible in order to begin accounting
                       transactions for the new fiscal year. Audit adjustments can be entered for the
                       prior fiscal year at any time up until the close of the new fiscal year.




Local Council Guide to the 2010 Audit               Page 41                      Release date: 10/29/2010
Statements and Reports Available to the Auditor


Background             The accounting software used by councils is maintained by the National Council
                       of the Boy Scouts of America and provides management, the governing board,
                       and auditors with many reports useful in conducting an audit. A few of these
                       reports are discussed below. Note: all reports listed here may be provided to
                       your auditor electronically.



General Ledger         The General Ledger (GL) Report is the official record of transactions for the
Report                 council. It shows transaction information from the various journals in other BSA
                       software programs. When journals are posted, two sets of files are created for
                       each transaction: summary records and detail records. The general ledger
                       receives these files from the following journals:

                                   Accounts payable journal from the accounts payable software

                                   Cash disbursements journal from the accounts payable software

                                   Contributions journal from the PAS fundraising software

                                   Cash receipts journal from the PAS fundraising software (if
                                    applicable)

                                   Cash receipts journal from the general ledger software

                                   General journals from the general ledger software

                                   Payroll journal from the payroll software

                                   Trading Post journal from the point-of-sale software

                                   Membership journal from the PAS membership software


                       The General Ledger Report can be printed either monthly or for the complete
                       fiscal year. It can be printed for the current year or the prior fiscal year.



Trial Balance           The trial balance can be printed for one fund or all three funds. It is available for
                        any month in either the current fiscal year or the prior fiscal year. On the last
                        page of the trial balance, one of the following messages may be printed to
                        indicate a problem that may need to be corrected:

                                    One or more funds are out of balance.

                                    Transfers are out of balance.

                                    Inter-fund loans are out of balance.

                                    Invalid cost center being used in an account number.

                                    Invalid usage code being used in an account number.

                                    Invalid base account number.


Local Council Guide to the 2010 Audit                Page 42                       Release date: 10/29/2010
Working Trial          The working trial balance can be printed for one or all funds and is available for
Balance                any month in either the current or prior fiscal year. It can be printed in wide
                       format (11 inches by 14 inches) or narrow format (8½ inches by 11 inches).
                       This report can also be provided to the auditor as a comma-delimited file.



Posted Detail          This exportable report lists all transactions recorded in a GL account number
Listing                (or range of GL account numbers) in a month or range of months. The report
                       is in a four-column format arranged as follows:

                           1. Beginning balance

                           2. Debits

                           3. Credits

                           4. Ending balance


Chart of Accounts      This report lists all accounts currently selected for use by the council.



Cost Center Listing    This report lists all cost centers currently used by the council. Cost centers
                       used for camps, activities, and special events that require a deferred or non-
                       deferred status are identified with the date of the activity. On this date, the
                       deferred income/expenses will be converted to non-deferred income/expenses.
                       They are also used to create reports for managing an aspect of the council. It
                       is recommended the date of the activity should not be December 31, 200X.



SAS 70                 The National Council is required to have an SAS 70 audit each year. A SAS 70
                       audit or service auditor’s examination signifies that a service organization has
                       been through an in-depth audit of its control activities, which generally include
                       controls over information technology and related processes. The National
                       Council must demonstrate that it has adequate controls and safeguards when
                       it hosts and/or processes data belonging to the local council. Should your
                       auditor request a copy of the SAS 70 report, please contact Richard Harper at
                       the BSA national office at (972) 580-2266 or richard.harper@scouting.org.



Fixed Assets           The general ledger software has a complete fixed assets register module that
Register               tracks all fixed assets and monthly depreciations. Reports available from this
                       module include:

                                  Fixed assets list

                                  Disposed assets list

                                  Fixed assets change log

                                  Assets master listing

                                  Detailed assets schedule

Local Council Guide to the 2010 Audit                  Page 43                    Release date: 10/29/2010
Insurance Register     The general ledger software has a complete insurance register module that
                       tracks insurance policies over multiple fiscal years. Reports available include:

                                  Listing of insurance policies

                                  Insurance history

                                  Insurance change log



Fundraising            If the council is using the fundraising software supported by the national office,
                       fundraising reports should be printed immediately after all pledges and
                       payments for the current fiscal year have been entered into the system.
                       Pledges and payments received in the council office or postmarked by
                       December 31 shall be counted in that fiscal year’s transactions. The
                       fundraising software can be used to record transactions for a prior or future
                       period in the appropriate general ledger account. Other special features of the
                       fundraising software include:



                              Allowance for uncollectible pledges. Pledges are reduced to net
                               realizable value by establishing allowance and provision accounts for
                               eight types of fundraising campaigns. All other campaigns do not have
                               the allowance/provision accounts feature. These six campaigns are:

                                           Other Direct

                                           Friends of Scouting

                                           Project sales

                                           Capital

                                           Special fundraising events

                                           Legacies and Bequests

                                           United Ways

                                           Endowment


                              Collectible vs. uncollectible pledges. At the end of the year, it is the
                               responsibility of management to create a list of collectible and
                               uncollectible pledges based on management’s judgment and
                               experience. Two reports are available for this purpose:

                                       Collectible Pledges Report

                                       Uncollectible Pledges Report




Local Council Guide to the 2010 Audit                 Page 44                     Release date: 10/29/2010
Accounts Payable       The accounts payable software functions as a subsidiary ledger to the general
                       ledger and maintains detailed accounting of accounts payable transactions.
                       Reports available from accounts payable that may be useful during the audit
                       include:

                              Open Payables by Date Report. This report lists unpaid invoices as of
                               a specified date.

                              Payables Aging Report. This report should be printed as part of the
                               year-end close process; it shows the age of all open payables as of
                               December 31.

                              Vendor History Check Register. This report lists all checks issued to a
                               vendor within a specified date range. It can show invoice detail.

                              Vendor History Report. This report is available for a single vendor or
                               range of vendors over a specified date range and lists all history with
                               those vendors.

                              Alphabetic Vendor List. This is a list of all vendors in alphabetical
                               order.


Payroll                As of December 31, 2010 local councils that were previously using the BSA
                       Payroll software will have transitioned to an outside service provider, IOI Pay,
                       to handle their payroll and payroll tax needs.* The IOI Pay software interfaces
                       with and updates the BSA general ledger automatically. Reports from IOI Pay
                       that may be useful during the audit include:

                              Payroll Reconciliation Tax, direct deposit, checks, vendor check, and
                               banking information.

                              Current Check Listing Check number, department, employee SSN,
                               employee name, check amount.

                              Payroll Register Employee information, description of earnings,
                               deductions, taxes withheld, and check number.

                              Deduction Register Employee ID, employee name, current amount
                               withheld, YTD amount, arrears balance.

                              Combined Register Employee information, current period, month-to-
                               date, quarter-to-date, year-to-date.

                              Quarterly Reports and Annual Reports Forms 941 and worksheets,
                               Forms W-2 and W-3.

                       * As of the date of printing of this guidebook.


SellWise Point-of-     If the council utilizes SellWise point-of-sale software, then the Inventory
Sale                   Valuation Report will show the value of the store inventory. The supporting
                       detail for this report is a custom report showing all inventory items, balance on
                       hand, price, current cost, average cost, department, and the calculated total
                       values based on cost and average cost, where the balance-on-hand is greater.




Local Council Guide to the 2010 Audit                Page 45                      Release date: 10/29/2010
Culture
Overview          It is important that the auditor understand the culture of the Boy Scouts of America.
                  The culture of the Boy Scouts of America includes the following elements:

The National           The mission of the Boy Scouts of America is to prepare young people to make
Council                  ethical and moral choices over their lifetimes by instilling in them the values
                         of the Scout Oath and Scout Law.

                       The headquarters is in Irving, Texas.

                       The National Council develops the programs of the Boy Scouts of America.

                       The Boy Scouts of America includes a subsidiary corporation to administer
                         Learning for Life.

                       The National Council is divided into four regions:

                              Northeast Region

                              Southern Region

                              Central Region

                              Western Region

                       Regions are divided into Areas. Program support is delivered to the local
                         councils in each Area.

Local Council            There are approximately 300 local councils.
Governance
                         The local council is chartered by the National Council to deliver the program
                          of the Boy Scouts of America and administer the Learning for Life program.

                         Each local council is incorporated as a not-for-profit corporation in the state
                          in which it is located. Articles of incorporation and bylaws are filed with the
                          state.

                         Each local council is recognized by the Internal Revenue Service as a
                          501(c)(3) organization covered under a group exemption by the National
                          Council.

                         A local council may subdivide into service areas, districts, and sub-districts.
                          These subdivisions are administrative groupings created to carry out the
                          mission of the council.

                         Voting members

                          Local community organizations are chartered by the local council to utilize
                          the Scouting program. Each organization is required to appoint a
                          representative. This representative and the members-at-large are the voting
                          members of each council.




Local Council Guide to the 2010 Audit               Page 46                      Release date: 10/29/2010
Governance               Annual meeting
(continued)
                          Each council will conduct an annual business meeting to elect an executive
                          board, receive an annual report, and conduct other business. Each council
                          may appoint members of the executive board to serve as members of an
                          executive committee.

                         Scout executive

                          The Scout executive has received a professional commission from the Boy
                          Scouts of America and serves as the chief executive officer of the
                          corporation and secretary to the executive board. The Scout executive is
                          accountable to the executive board through the council president.

                         Professional performance and compensation

                          The Boy Scouts of America utilizes the Performance and Development
                          System (PDS). PDS is both a professional development program and a self-
                          initiated, automated tool. Each employee sets his or her own goals and
                          completes self-evaluations of his or her performance during the year. The
                          goals are reviewed, revised and approved through the management chain.
                          For Scout executives, goals and performance evaluations are coordinated
                          through their area director to their council president. All PDS goals are linked
                          to the national and local council strategic plans through the goal setting
                          process. PDS has several types of goals: a job essential function required
                          for all employees to ensure basic responsibilities are completed; a people
                          management goal is required for all managers to develop their employees;
                          all employees have an additional three to five performance goals that move
                          the council forward. Competencies, which are standards of behavior, and
                          professional development activities are also included for each employee in
                          the PDS program. The PDS cycle begins late in the calendar year with goal
                          setting for the upcoming year and includes quarterly informal, but
                          documented reviews, and a final annual review after the close of the year. All
                          performance and development records are retained in the PDS tool and
                          accessible to managers and Human Resources in support of our internal
                          personnel system for promotions, mobility, and succession planning.

                          The compensation program for commissioned and certified professionals is
                          based on generic job profiles that provide a clear career path, consistent job
                          responsibilities and experiences, and mobility across councils. Each job
                          profile is valued against current labor market values for similar jobs. Jobs of
                          similar value are placed within the broad salary grades to provide
                          professional hierarchies in program, youth serving, development and council
                          management jobs. To ensure that the jobs reflect local labor markets, each
                          council location is placed in a geographical salary range. Geographical
                          salary ranges can vary from -7.5 percent to +20 percent, depending on the
                          cost of labor and the council location. The cost of labor for each location is
                          reviewed every three years and changes are communicated to councils.
                          Generic jobs are valued to the market and differentiated by local cost of
                          labor to ensure that councils are competitive in their local markets.




Local Council Guide to the 2010 Audit               Page 47                      Release date: 10/29/2010
Governance                Compensation is tied to performance. Salary increases are based on the
(continued)               performance rating and contribution of each individual. Performance
                          increases include annual salary increases, promotion increases for moves to
                          a higher grade job, and development increases for milestones and increased
                          responsibility within the same grade. Managers use their own discretion
                          (within budget constraints) to grant increases that reward and recognize
                          performance. Managers distinguish performance by providing high
                          performers with higher increases, average performers with average
                          increases, and poor performers with little or no increase. To assist councils
                          in establishing increase budgets, a labor market increase projection is
                          provided with the benefits bulletin each September for the upcoming year.

                          Scout executive compensation, benefits, and perquisites are governed under
                          IRS code regarding not-for-profit organizations. For this reason, all salary,
                          benefits, and perquisites increases and changes must be authorized and
                          approved in writing by the council president. All documentation must be
                          retained as part of the board documents for the council.

                                 Business expense reimbursement

                                  The monthly business expenses for the Scout executive are to be
                                  approved by the council president or designee.

Program           The program of the Boy Scouts of America contains the following types of
Delivery          membership:

                         Cub Scouts—Boys in first through fifth grades.

                         Boy Scouts—Boys 11 through 18 years of age.

                         Venturing—Young men and women 14, or 13 with completion of the eighth
                          grade, through 20 years of age.

                  The program of Learning for Life contains the following types of participation:

                         Exploring—Coed career-based program for youth 14 through 20 years of
                          age.

                         Groups—Classroom-based program with character-building curriculum for
                          boys and girls in kindergarten through 12th grade.

                  Many councils own property for conducting a camping program. Not all camping
                  programs are conducted on council-owned property.

                         Boy Scout summer camps are usually conducted on council-owned property.

                         Cub Scout day camps may be conducted in a variety of locations.




Local Council Guide to the 2010 Audit               Page 48                      Release date: 10/29/2010
The Management Letter
Letter                 Generally accepted auditing standards require auditors to communicate
Requirements           reportable control deficiencies they identify during the audit (SAS 115). There
                       is no audit requirement to communicate “management points,” that is,
                       observations and suggestions regarding the organization’s activities that go
                       beyond internal control-related matters. Such comments may deal with
                       operational or administrative efficiencies and other items of perceived benefit
                       to the organization. Authoritative literature contains very little discussion about
                       and no required format for, or illustrations of, management letters.

                       However, Statement of Auditing Standards No. 115 notes that auditors
                       are not precluded from communicating to a client on a variety of matters.

Format                 The flexibility of not having a fixed format for a management letter is a major
                       advantage to the auditor. This allows the auditor to design a format to meet the
                       individual needs of the local council. The specific objectives and purpose of the
                       management letter will vary based on individual audits, but the general
                       objectives are to improve communications between auditor and the council,
                       and to add value to the audit.



BSA Policy             It is a requirement of the National Council, Boy Scouts of America, that
                       the audits of local councils include a management letter for use by
                       management and officers of the corporation. The BSA will accept a
                       combination SAS 115/management letter. A sample letter can be found in
                       the appendix to this guide.




Local Council Guide to the 2010 Audit                Page 49                      Release date: 10/29/2010
Management Letter Response
A written response, addressing each of the advisory comments of the management letter, is required to be
submitted to the national office. This is required even if there were no advisory comments in the
management letter. This document should be drafted by the audit committee, council treasurer, and Scout
executive. The response to the management letter should be presented to the executive board and
approved.




SAS 114 Letter
SAS No. 114—The Auditor’s Communication with Those Charged with Governance (supersedes
SAS No. 61, as amended) is required:


This standard relates to communication with those individuals in the organization charged with governance.
In local councils, this would be your audit committee and executive board of directors. SAS No. 114 adds
requirements (to SAS No. 61) to communicate: 1) an overview of the planned scope and timing of the audit
(often outlined in the engagement letter, see page 6), and 2) representations the auditor is requesting from
management. It also provides additional guidance on the communication process, including the forms and
timing of communication. Significant findings from the audit should be in writing when, in the auditor’s
professional judgment, oral communication would not be adequate. Other communications may be oral or
in writing. SAS No. 114 requires the auditor to determine the appropriate people in the entity’s governance
structure with whom to communicate particular matters. That person may vary depending on the nature of
the matter to be communicated. It also requires the auditor to evaluate the adequacy of the two-way
communication between the auditor and those charged with governance. Other items to be communicated
by the auditor include management’s judgments and accounting estimates, audit adjustments, and
uncorrected misstatements. The SAS 114 letter will also communicate information regarding any new
accounting policies adopted by the council, any disagreements with management, major issues discussed
prior to the audit, and difficulties encountered during the audit. A sample letter can be found in the appendix
to this guide. A copy of the SAS 114 letter is required to be submitted to the national office.



Representation Letter
A copy of the representation letter from the council management to the auditing firm indicating full
disclosure is required to be submitted to the national office.




Minutes of the Audit Committee
The council audit committee should meet with the auditor prior to the presentation of the audit to the
executive board for approval. Beginning with the 2007 audit, a copy of the minutes of the audit committee
are required to be submitted to the national office. The minutes must list those in attendance, those absent,
actions taken, and have the signature of the audit committee chairman and Scout executive.




Local Council Guide to the 2010 Audit                 Page 50                      Release date: 10/29/2010
Appendix A—Statement Formats


Statement Samples          Samples of the following statements are included in this section. The
                           attached financial statements represent actual BSA system-generated
                           financial statements and are presented to illustrate the BSA’s requirements
                           regarding financial statement presentation. Note: Some amounts
                           presented in the following financial statements may contain small rounding
                           errors. It is expected that your council’s audited financial statements will be
                           free of any such errors. Due to space constraints, abbreviations have been
                           used in the following statements for certain headings and line-items.
                           Complete descriptions should be used in your council’s audited financial
                           statements.

                           •   Statement of Financial Position

                           •   Statement of Changes in Net Assets

                           •   Statement of Functional Expenses

                           •   Statement of Cash Flows

                           •   Employee Time Analysis




Local Council Guide to the 2010 Audit               Page A-1                   Release date: 10/29/2010
                                                                                   Nation's Best Council
                                                                              Statements of Financial Position
                                                                               December 31, 2010 and 2009

                                       Operating Fund                     Capital Fund               Endowment Fund                     Total All Funds
Assets                               2010         2009             2010            2009           2010             2009          2010            2009
Current Assets
Cash                                $989,318      $980,880         $51,207          $90,511     $462,161          $351,700     $1,502,686      $1,423,091
Short Term Investments                591,344      745,160                                                                        591,344          745,160
Accounts and Notes Rcvbl               82,354           81,917                                                                     82,354           81,917
Pledges Receivable                    321,407      488,615           26,156           27,746         1,667           11,440       349,230          527,801
Inventories                           205,138      200,672                                                                        205,138          200,672
Interfund Loans                        10,000                       (10,000)                                                             0                  0
Deferred Activity Expenses             43,578           40,608                                                                     43,578           40,608
Defered Camping Expenses                1,000             980                                                                       1,000                 980
Defered Special Event Exp.              1,000            1,020                                                                      1,000            1,020
Prepaid Expense                       173,252      171,753                                                                        173,252          171,753
Other Current Assets                    3,000            1,000                                                                      3,000            1,000
Total Current Assets                2,421,391     2,712,605          67,363          118,257      463,828           363,140     2,952,582        3,194,002

Land, Building, and Equip.                                        8,361,882        8,535,192                                    8,361,882        8,535,192
Long-Term Investments                   7,000            7,000       78,962          112,385     6,559,666        6,306,235     6,645,628        6,425,620
Total Noncurrent Assets                 7,000            7,000    8,440,844        8,647,577     6,559,666        6,306,235    15,007,510       14,960,812

Total Assets                       $2,428,391   $2,719,605       $8,508,207      $8,765,834    $7,023,494        $6,669,375   $17,960,092     $18,154,814
Liabilities and Net Assets
Current Liabilities
Accounts Payable                    $263,997      $668,963          $1,250          $10,780                                     $265,247           679,743
Accrued Expenses                                          100                                                                                             100
Payroll Taxes Withheld                 15,604            7,263                                                                     15,604            7,263
Custodian Accounts                    232,109      172,273                                                                        232,109          172,273
Short-term Notes Payable                5,000                                                                                       5,000
Deferred Activity Income              114,586      110,175                                                                        114,586          110,175
Deferred Camp Income                   50,549           58,254                                                                     50,549           58,254
Deferred Special Event Income          10,000           15,000                                                                     10,000           15,000
Other Current Liabilities              12,854           13,021                                                                     12,854           13,021
Total Current Liabilities             704,699     1,045,049           1,250           10,780                                      705,949        1,055,829
Long-Term Indebtedness                                               21,165           23,860                                       21,165           23,860
Total Noncurrent Liabilities                                         21,165           23,860                                       21,165           23,860

Total Liabilities                     704,699     1,045,049          22,415           34,640                                      727,114        1,079,689
Net Assets
Unrestricted Net Assets             1,331,641     1,291,367       8,364,886        8,588,733      328,053            44,412    10,024,580        9,924,513
Temp. Restricted Net Assets           392,051      383,189          120,906          142,460       10,000            10,000       522,957          535,649
Perm. Restricted Net Assets                                                                      6,685,441        6,614,963     6,685,441        6,614,963
Total Net Assets                    1,723,692     1,674,556       8,485,792        8,731,193     7,023,494        6,669,375    17,232,978       17,075,125

Total Liabilities and Net Assets   $2,428,391   $2,719,605       $8,508,207      $8,765,833    $7,023,494        $6,669,375   $17,960,092     $18,154,814




              Local Council Guide to the 2010 Audit                       Page A-2                          Release date: 10/29/2010
                                                                             Nation's Best Council, Inc.
                                                                       Statements of Changes in Net Assets
                                                                     Years Ended December 31, 2010 and 2009

Changes in Unrestricted Net Assets        Operating Fund              Capital Fund          Endowment Fund          Total All Funds
Support and Revenue                      2010           2009        2010       2009         2010         2009     2010          2009
Friends of Scouting - Gross             $1,244,296    $1,341,336                                                $1,244,296    $1,341,336
Less Provision for Uncollectible           (84,119)      (86,707)                                                  (84,119)      (86,707)
Net Friends of Scouting                  1,160,177     1,254,629                                                 1,160,177     1,254,629
Capital Campaign                                                    32,257      13,615                             32,257         13,615
Special Events - Gross                    935,493      1,446,276                                                  935,493      1,446,276
Less Cost of Direct Benefit               (169,558)     (282,953)                                                 (169,558)     (282,953)
Net Special Events                        765,935      1,163,323                                                  765,935      1,163,323
Foundations and Trusts                    213,150          88,730                                                 213,150         88,730
Other Direct Support                      101,001          29,400                1,500                            101,001         30,900
Total Direct Support                     2,240,263     2,536,082    32,257      15,115                           2,272,520     2,551,197

Indirect Support
United Ways                               244,355       318,874                                                   244,355       318,874
Total Indirect Support                    244,355       318,874                                                   244,355       318,874

Revenue
Sale of Supplies - Gross                  975,000       900,000                                                   975,000       900,000
Less Cost of Goods Sold                   (633,750)     (585,000)                                                 (633,750)     (585,000)
Net Sale of Supplies                      341,250       315,000                                                   341,250       315,000
Product Sales - Gross                    1,532,038     1,419,453                                                 1,532,038     1,419,453
Less Cost of Goods Sold                   (653,061)     (610,017)                                                 (653,061)     (610,017)
Less Commissions Paid to Units            (459,611)     (425,700)                                                 (459,611)     (425,700)
Net Product Sales                         419,366       383,736                                                   419,366       383,736
Investment Income                         291,591       303,677                                                   291,591       303,677
Gain or Loss on Investments                     520                 (33,423)     2,129       275,422              242,519             2,129
Camping Revenue                          1,173,326     1,207,779                                                 1,173,326     1,207,779
Activity Revenue                          397,588       340,251                                                   397,588       340,251
Other Revenue                             204,037       212,041      1,150                                        205,187       212,041
Total Revenue                            2,827,678     2,762,484    (32,273)     2,129       275,422             3,070,827     2,764,613

Net Assets Released From Restrictions
Reclass Friends of Scouting                59,602          60,591                                                  59,602         60,591
Reclass Capital Campaign                                            21,554                                         21,554
Reclass Special Events                     24,065          23,950                                                  24,065         23,950
Reclass Foundations                                        15,000                                                                 15,000
Reclass United Way                        299,556       299,567                                                   299,556       299,567
Total Reclassification of Net Assets      383,223       399,108     21,554                                        404,777       399,108

Total Support and Revenue                5,695,519     6,016,548    21,538      17,244       275,422             5,992,479     6,033,792




            Local Council Guide to the 2010 Audit                   Page A-3                    Release date: 10/29/2010
                                                                                 Nation's Best Council, Inc.
                                                                    Statements of Changes in Net Assets (continued)
                                                                       Years Ended December 31, 2010 and 2009


Changes in Unrestricted Net Assets        Operating Fund                 Capital Fund               Endowment Fund         Total All Funds
Expenses                               2010          2009              2010          2009          2010        2009      2010          2009
Program Services                       4,786,001     4,869,689         213,816      504,906                             4,999,817    5,374,595
Support Services
 Management and General                 461,753        469,758          20,626        48,706                             482,379       518,464
 Fundraising                            334,736        340,816          14,964        35,337                             349,700       376,153
Total Supporting Services               796,489        810,573          35,590        84,043                             832,079       894,616
Total Functional Expenses              5,582,490     5,680,262         249,406      588,949                             5,831,896    6,269,211


Charter and National Service Fee         60,516            60,267                                                         60,516        60,267


Total Expenses                         5,643,006     5,740,529         249,406      588,949                             5,892,412    6,329,478


Inc (Dec) in Unrestricted Net Assets     52,513        276,019        (227,868) (571,705)           275,422              100,067      (295,686)




           Local Council Guide to the 2010 Audit                    Page A-4                          Release date: 10/29/2010
                                                                              Nation's Best Council, Inc.
                                                                  Statements of Changes in Net Assets (continued)
                                                                     Years Ended December 31, 2010 and 2009


Changes in Temp.Restricted Net Assets     Operating Fund              Capital Fund              Endowment Fund        Total All Funds
Direct Support                            2010         2009        2010          2009          2010         2009     2010         2009
Friends of Scouting - Gross                22,604      55,802                                                         22,604      55,802
Less Provision for Uncollectible
Net Friends of Scouting                    22,604      55,802                                                         22,604      55,802
Special Events - Gross                     40,233                                                                     40,233
Less Cost of Direct Benefit
Net Special Events                         40,233                                                                     40,233
Foundations and Trusts                     34,250                                                                     34,250
Other Direct Support                                                              22,192                                          22,192
Total Direct Support                       97,087      55,802                     22,192                              97,087      77,994


Indirect Support
United Ways                               294,998     299,567                                                        294,998     299,567
Total Indirect Support                    294,998     299,567                                                        294,998     299,567



Net Assets Released From Restrictions
Reclass Friends of Scouting                (59,602)    (60,591)                                                      (59,602)     (60,591)
Reclass Capital Campaign                                           (21,554)                                          (21,554)
Reclass Special Events                     (24,065)    (23,950)                                                      (24,065)     (23,950)
Reclass Foundations                                    (15,000)                                                                   (15,000)
Reclass United Way                        (299,556)   (299,567)                                                     (299,556)   (299,567)
Total Reclassification of Net Assets      (383,223)   (399,108)    (21,554)                                         (404,777)   (399,108)


Total Support and Revenue                    8,862     (43,739)    (21,554)       22,192                             (12,692)     (21,547)


Inc (Dec) in Temp. Res. Net Assets           8,862     (43,739)    (21,554)       22,192                             (12,692)     (21,547)




            Local Council Guide to the 2010 Audit                 Page A-5                        Release date: 10/29/2010
                                                                                Nation's Best Council, Inc.
                                                                   Statements of Changes in Net Assets (continued)
                                                                         Years Ended December 31, 2010 and 2009

                                         Operating Fund              Capital Fund                Endowment Fund                  Total All Funds
Changes in Perm. Restr. Net Assets     2010          2009         2010           2009           2010            2009          2010            2009
Direct Support
Other Direct Support                                                                              70,478        125,015         70,478         125,015
Total Direct Support                                                                              70,478        125,015         70,478         125,015

Indirect Support
Total Indirect Support

Revenue
Gain or Loss on Investments                                                                                     120,052                        120,052
Total Revenue                                                                                                   120,052                        120,052

Net Assets Released From Restr
Ttl Reclassification of Net Assets

Total Support and Revenue                                                                         70,478        245,067         70,478         245,067

Inc (Dec) in Perm. Res. Net Assets                                                                70,478        245,067         70,478         245,067

Inc (Dec) in Total Net Assets           61,375       232,280      (249,422)      (549,513)       345,900        245,067        157,853         (72,166)

Net Assets, Beg. of Year
Unrestricted Net Assets               1,291,367      978,988     8,588,733      9,160,439         44,412         90,772       9,924,513     10,230,199
Temp. Restricted Net Assets            383,189       426,927      142,460        120,268          10,000                       535,648         547,195
Perm. Restricted Net Assets                                                                    6,614,963       6,369,896      6,614,963      6,369,896
Total Net Assets, Beg. of Year        1,674,556     1,405,915    8,731,193      9,280,707      6,669,375       6,460,668     17,075,124     17,147,290

Transfers                               (12,239)      36,360         4,020                         8,219         (36,360)

Adjustments to Net Assets
Unrestricted Adjustments                                                                                         (10,000)                      (10,000)
Temp. Restricted Adjustments                                                                                     10,000                            10,000
Perm. Restricted Adjustments
Total Adjustments to Net Assets

Net Assets, End of Year
Unrestricted Net Assets               1,331,641     1,291,367    8,364,885      8,588,734        328,053         44,412      10,024,579      9,924,513
Temp. Restricted Net Assets            392,051       383,188      120,906        142,460          10,000         10,000        522,957         535,648
Perm. Restricted Net Assets                                                                    6,685,441       6,614,963      6,685,441      6,614,963
Total Net Assets, End of Year        $1,723,692    $1,674,555   $8,485,791    $8,731,194      $7,023,494      $6,669,375    $17,232,977    $17,075,124




            Local Council Guide to the 2010 Audit                    Page A-6                          Release date: 10/29/2010
                                                                               Nation’s Best Council, Inc.
                                                                           Statement of Functional Expenses
                                                                     Year Ended December 31, 2010 with 2009 totals
                                                                                       Funds 1 Thru 3
                                          Program       Management       Fundraising              Support                 Total Expenses
Expenses                                   Service       & General                                Services
                                            2010           2010             2010                    2010                2010             2009
Salaries                                 $2,317,454      $218,137        $109,069                $327,206            $2,644,660    $2,723,538
Employee Benefits                          369,274        37,447           18,723                  56,170             425,444        423,492
Payroll Taxes                              210,632        20,396           10,198                  30,594             241,226        265,712
Employee Related Expenses                   8,590          1,011            505                    1,516               10,106        15,175
Total Employee Compensation               2,905,950       276,991         138,495                 415,486            3,321,436      3,427,917


Other Expenses
Professional Fees                          15,000         123,061                                 123,061             138,061        126,590
Supplies                                   519,440         2,565           5,018                   7,583              527,023        498,362
Telephone                                  50,350          3,867           1,934                   5,801               56,151        75,510
Postage and Shipping                       26,274          2,359           15,430                  17,789              44,063        51,049
Occupancy                                  448,564        10,718           20,586                  31,304             479,868        468,111
Rent and Maintenance of Equipment          114,959         8,569           17,188                  25,757             140,716        125,675
Printing and Publications                  45,632          1,869           32,984                  34,853              80,485        99,790
Travel                                     185,988        10,465           5,409                   15,874             201,862        223,969
Conferences and Meetings                   137,816         4,085           7,459                   11,544             149,360        168,788
Specific Asst. to Individuals              85,260                                                                      85,260        30,130
Recognition Awards                         47,645          3,238           29,811                  33,049              80,694        86,572
Interest Expense                            1,893          223              111                     334                2,227
Insurance                                  157,905         6,681           3,391                   10,072             167,977        185,728
Other Expenses                             50,288          3,470           59,774                  63,244             113,532        118,168
Total Other Expenses                      1,887,014       181,170         199,095                 380,265            2,267,279      2,258,442


Expenses Before Depreciation                4,792,964        458,161         337,590                    795,751        5,588,715         5,686,359


Depreciation of Buildings/Equipment          205,852          24,218           12,109                    36,327          242,179          582,852
Loss on disposal of fixed assets               1,000                                                                       1,000


Total Functional Expenses                 $4,999,816       $482,379        $349,699                 $832,078          $5,831,894    $6,269,211


Functional Expense Percentages                85.73%             8.27%         6.00%                                           100.00%




            Local Council Guide to the 2010 Audit                   Page A-7                       Release date: 10/29/2010
                                                                                   Nation's Best Council, Inc.
                                                                                   Statements of Cash Flows
                                                                           Years Ended December 31, 2010 and 2009

                                             Operating Fund               Capital Fund            Endowment Fund               Total All Funds
                                           2010         2009           2010         2009        2010          2009          2010           2009
Increase (Decrease) Total Net Assets        $61,375    $232,280       ($249,422) ($549,513)      $345,900     $245,067      $157,853       ($72,166)
Adjustments to reconcile inc (dec) in
net assets to net cash from oper. activ.
Depreciation                                                           242,179     582,852                                   242,179        582,852
Loss on disposal of fixed assets                                          1,000                                                 1,000
Net real. and unreal. (G) or L on inv.         (520)                    33,423       (2,129)     (275,422)     (120,051)     (242,519)     (122,180)
Contrib. restr.for L-T investment                                                                 (70,447)     (125,018)      (70,447)     (125,018)
Bad debts                                    36,847       3,750                                                               36,847             3,750
Transfers                                   (12,239)     36,360           4,020                     8,219       (36,360)
Accounts Receivable                            (437)     27,024                                                                  (437)       27,024
Pledges Receivable                          167,208      (52,935)       11,590      38,299          9,773                    188,571        (14,636)
Inventory                                    (4,466)     (10,201)                                                              (4,466)      (10,201)
Interfund loans                             (10,000)                    10,000                                                      0
Prepaid Expenses                             (4,470)      1,654                                                                (4,470)           1,654
Other Current Assets                         (2,000)                                                                           (2,000)
Accounts Payable                           (404,966)    386,248          (9,530)     (8,186)                                 (414,496)      378,062
Accrued Expenses                               (100)          100                                                                (100)            100
Payroll Taxes                                 8,341      (16,584)                                                               8,341       (16,584)
Custodial Accounts                           59,837      48,406                                                               59,837         48,406
Deferred Income                              (8,294)     18,077                                                                (8,294)       18,077
Other Current Liabilities                      (167)          (872)                                                              (167)           (872)
Total Adjustments                          (175,426)    441,027        292,682     610,836       (327,877)     (281,429)     (210,621)      770,434

Net Cash Flows from Operating Activ.       (114,051)    673,307         43,260      61,323         18,023       (36,362)      (52,768)      698,268
Cash Flows from Investing Activities
Purchase of fixed assets                                                (79,869)   (155,556)                                  (79,869)     (155,556)
Proceeds form sale of investments           556,263    1,186,779       257,933     326,114     14,035,246    18,521,669    14,849,442    20,034,562
Purchase of investments                    (433,774) (1,518,799)       (257,933)   (326,114)   (13,902,824) (18,368,597) (14,594,531) (20,213,510)
Change in restricted cash                                                                        (110,461)     (115,144)     (110,461)     (115,144)

Net Cash Flows from Investing Activ.        122,489    (332,020)        (79,869)   (155,556)       21,961       37,928        64,581       (449,648)

Cash Flows from Financing Activities
Proceeds from notes payable                                                         23,860                                                   23,860
Principal payments on notes pbl.                                         (2,695)                                               (2,695)
Proceeds from contributions restr.
for investment in endowment                                                                        70,477      113,578        70,477        113,578

Net Cash Flows form Financing Activ.                                     (2,695)    23,860         70,477      113,578        67,782        137,438

Net Increase (Decrease) in Cash               8,438     341,287         (39,304)    (70,373)      110,461      115,144        79,595        386,058

Cash at Beginning of Year                   980,880     639,593         90,511     160,884        351,700      236,556      1,423,090     1,037,032
Cash at End of Year                        $989,318    $980,880        $51,207     $90,511       $462,161     $351,700     $1,502,685    $1,423,090




            Local Council Guide to the 2010 Audit                        Page A-8                      Release date: 10/29/2010
Employee Time Analysis

Use this worksheet to allocate a council employee’s time to the categories listed. See the guidelines on the
next page. Also see the Local Council Accounting Manual for more information on time analysis.

Employee ______________________________________________________________

Instructions

    1.   This time study covers the two-week period indicated below.
    2.   Use the definitions on the next page as guidelines.
    3.   Exclude absences due to illness, holidays, vacations, etc.
    4.   Report time in each category to the nearest half hour.
    5.   Total the hours across by day and down by column heading.

         Day           Date        Program         Management           Fundraising        Total

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

Totals



Local Council Guide to the 2010 Audit                Page A-9                  Release date: 10/29/2010
Functional Expense Category Definitions
Use the following descriptions to determine the proper allocation of your time.

Program Services        Services to chartered organizations, units, volunteer leaders, camping (year-round
                        and summer), activities, leadership training, recruiting, organizing new units and
                        conservation of established ones, health and safety, advancement, unit money-
                        earning projects, district committee meetings, roundtables, community relations,
                        meetings and training related to the program and field service in general, and direct
                        supervision of the above.



Management              Only the following items are included as management activities:

                               •   Non-program executive direction, meeting on overall council
                                   management and personnel administration

                               •   Accounting, auditing, budgeting, legal services, and administrative
                                   reporting (annual reports, announcements of board meetings, etc.)

                               •   Office management, purchasing, maintenance of membership records


                        Any time that the Scout executive or other professional spends on supervising
                        camps, activities, and other program services should be categorized as program
                        services.



Fundraising             Only time spent on the following should be categorized as fundraising:

                               •   Participation in and direction of an FOS or capital campaign, recruitment
                                   and training of workers for same, processing of prospect lists, etc.

                               •   Solicitation of grants, project sales, or bequests

                               •   Participation in and direction of publicity for fundraising and meetings
                                   with prospective contributors




Local Council Guide to the 2010 Audit                Page A-10                    Release date: 10/29/2010
Appendix B—Code of Ethics


Overview          The executive board should formally adopt a code of ethics with which all board
                  members, staff, and volunteers are familiar and to which they adhere. The following
                  Statement of Values and Code of Ethics was developed and provided by the
                  Independent Sector (a not-for-profit organization of which the BSA is a member) as
                  an encouragement to all not-for-profit organizations to set aside time in their board
                  meetings to discuss in detail all aspects of an ethical code. It may be used as a
                  model in your council.



Statement of      Below is the Statement of Values for councils of the Boy Scouts of America.
Values


                  The values of this council include:

                  Commitment to the public good.
                  Accountability to the public.
                  Commitment beyond the law.
                  Respect for the worth and dignity of individuals.
                  Inclusiveness and social justice.
                  Respect for pluralism and diversity.
                  Transparency, integrity, and honesty.
                  Responsible stewardship of resources, and commitment to excellence and to
                  maintaining the public trust.


                  All staff, board members, and volunteers of the council act with honesty, integrity,
                  and openness in all their dealings as representatives of the council. The council
                  promotes a working environment that values respect, fairness, and integrity.



Council           The council has a clearly stated mission and purpose, approved by the executive
Mission           board, in pursuit of the public good. All of its programs support that mission, and all
                  who work for or on behalf of the council understand and are loyal to that mission and
                  purpose. The mission is responsive to the constituency and communities served by
                  the council and of value to the society at large.




Local Council Guide to the 2010 Audit                   B-1                               Release date: 10/29/2010
Governing         The organization has an active governing body that is responsible for setting the
Body              mission and strategic direction of the council, and for the oversight of the finances,
                  operations, and policies of the council. The governing body:

                      Ensures that its board members have the requisite skills and experience to
                       carry out their duties, and that all members understand and fulfill their
                       governance duties acting for the benefit of the organization and its public
                       purpose.

                      Has a conflict-of-interest policy that ensures that any conflicts of interest or the
                       appearance thereof are avoided or appropriately managed through disclosure
                       or other means.

                      Is responsible for hiring, firing, and regular review of the performance of the
                       Scout executive, and ensures that the compensation of the Scout executive is
                       reasonable and appropriate.

                      Ensures that the council conducts all transactions and dealings with integrity
                       and honesty.

                      Ensures that the council promotes working relationships with board members,
                       staff, volunteers, and program beneficiaries that are based on mutual respect,
                       fairness, and openness.

                      Ensures that the council is fair and inclusive in its hiring and promotion policies
                       and practices for all board, staff, and volunteer positions.

                      Ensures that policies of the council are in writing, clearly articulated, and
                       officially adopted.

                      Ensures that the resources of the council are responsibly and prudently
                       managed.

                      Ensures that the council has the capacity to carry out its programs effectively.

                  The council is knowledgeable of and complies with all laws, regulations, and
                  applicable international conventions.




Local Council Guide to the 2010 Audit                   B-2                                  Release date: 10/29/2010
Fund              The council manages its funds responsibly and prudently with the following
Management        considerations:

                     It spends a reasonable percentage of its annual budget on programs in
                      pursuance of its mission.

                     It spends an adequate amount on administrative expenses to ensure effective
                      accounting systems, internal controls, competent staff, and other expenditures
                      critical to professional management.

                     The council compensates staff reasonably and appropriately.

                     It spends a reasonable percentage of its annual budget on fundraising costs,
                      recognizing the variety of factors that affect fundraising costs.

                     The council does not accumulate operating funds excessively.

                     The council prudently draws from endowment funds consistent with donor intent
                      and to support the public purpose of the council.

                     The council ensures that all spending practices and policies are fair,
                      reasonable, and appropriate to fulfill the mission of the council.

                     All financial reports are factually accurate and complete in all material respects.


Public            The council provides comprehensive and timely information to the public, the media,
Information       and all stakeholders, and is responsive in a timely manner to reasonable requests for
                  information. All information about the council will fully and honestly reflect the
                  policies and practices of the council. Basic information about the council, such as the
                  Form 990 and audited financial statements, will be posted on the council’s website or
                  otherwise be made available to the public. All solicitation materials accurately
                  represent the council’s policies and practices and will reflect the dignity of program
                  beneficiaries. All financial, organizational, and program reports will be complete and
                  accurate in all material respects.



Program           The council regularly reviews program effectiveness and has mechanisms to
Effectiveness     incorporate lessons learned into future programs. The council is committed to
                  improving program and organizational effectiveness, and develops mechanisms to
                  promote learning from its activities and the field. The council is responsive to
                  changes in its field of activity and is responsive to the needs of its constituencies.



Staff Makeup      The council has a policy of promoting inclusiveness, and its staff, board, and
                  volunteers reflect diversity in order to enrich its programmatic effectiveness. The
                  council takes meaningful steps to promote inclusiveness in its hiring, retention,
                  promotion, board recruitment, and constituencies served within the policies of the
                  Boy Scouts of America.



Local Council Guide to the 2010 Audit                  B-3                                 Release date: 10/29/2010
Raising Funds     The council is truthful in its solicitation materials. The council respects the privacy
                  concerns of individual donors and expends funds consistent with donor intent. The
                  council discloses important and relevant information to potential donors. In raising
                  funds from the public, the council will respect the rights of donors, as follows:

                      To be informed of the council’s mission, the way resources will be used, and the
                       capacity to use donations effectively for their intended purposes.

                      To be informed of the identity of those serving on the council’s executive board
                       and to expect the board to exercise prudent judgment in its stewardship
                       responsibilities.

                      To have access to the council’s most recent financial reports.

                      To be assured their gifts will be used for the purposes for which they were
                       given.

                      To receive appropriate acknowledgement and recognition.

                      To be assured that information about their donations is handled with respect
                       and with confidentiality to the extent provided by the law.

                      To expect that all relationships with individuals representing organizations of
                       interest to the donor will be professional in nature.

                      To be informed whether those seeking donations are volunteers, employees of
                       the council, or hired solicitors.

                      To have the opportunity for their names to be deleted from mailing lists.

                      To feel free to ask questions when making a donation and to receive prompt,
                       truthful, and forthright answers.




Local Council Guide to the 2010 Audit                  B-4                                  Release date: 10/29/2010
Sample Notes to the Financial Statements
    Note: Most of the following sample disclosures will apply to all local councils. Some will not. Please ensure that
    your council’s footnote disclosures are clearly representative of its unique financial situation.

                        LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                          December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Nature of Organization

                The Local Council, Boy Scouts of America (the “Council”) operates in XXXXXXX, Texas,
including the counties of XXXXX, XXXX, XXXXXXX, and XXXXXXXXX XXXXX. The Council has five
camping facilities. The Trust Fund was established for the benefit of the Council. The Council is a not-for-profit
organization devoted to promoting, within the territory covered by the charter from time to time granted it by the Boy
Scouts of America and in accordance with the congressional program, the ability of boys, young men, and women to
do things for themselves and others, training them in Scoutcraft, and teaching them patriotism, courage, and self-
reliance. The Council also prepares them to make ethical choices over their lifetimes and achieve their full potential
using the methods which are now in common use by the Boy Scouts of America.

                The Council’s programs are classified as follows:

                Tiger Cubs—One-year, family-oriented program for a group of teams, each consisting of a first-
grade (or 7-year-old) boy and an adult partner (usually a parent). A tiger cub den is part of the Cub Scout pack.

                  Cub Scouts—Family- and community-centered approach to learning citizenship, compassion, and
courage through service projects, ceremonies, games, and other activities promoting character development and
physical fitness.

               Boy Scouting—With the Scout Oath and Scout Law as guides, and the support of parents and
religious and neighborhood organizations, Scouts develop an awareness and appreciation of their role in their
community and become well-rounded young men through the advancement of the program. Scouts progress in rank
through achievements, gain additional knowledge and responsibilities, and earn merit badges that introduce a lifelong
hobby or a rewarding career.

                Varsity Scouting—Program for young men ages 14–17 that provides options for those who are
looking for rugged high adventure or challenging sporting activities and still want to be a part of a Scouting program
that offers the advancement opportunities and values of the Boy Scouts of America. There are five fields of
emphasis, including advancement, high-adventure sports, personal development, service, and special programs and
events.

                 Venturing—Provides experiences to help young men and women, ages 14—or 13 with completion of
the eighth grade—through 20, become mature, responsible, caring adults. Young teens learn leadership skills and
participate in challenging outdoor activities, including having access to Boy Scout camping properties, a recognition
program, and Youth Protection training.




Local Council Guide to the 2010 Audit                   B-5                                 Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                           December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  Learning for Life—Program to enable young people to become responsible individuals by teaching
positive character traits, career development, leadership, and life skills so they can make ethical choices and achieve
their full potential.

                The Council’s website address is         ____________________________.

        Principles of Consolidation

                 The Council has voting control over and an economic interest in the Trust Fund, which results in the
accounts of the Trust Fund being consolidated with those of the Council in the accompanying consolidated financial
statements. All intercompany balances and transactions have been eliminated in the consolidation. The Council and
the Trust Fund are hereinafter collectively referred to as the “Organization.”

        Fund Accounting

                 To ensure observance of limitations and restrictions placed on the use of available resources, the
accounts of the Organization are maintained in accordance with the principles of fund accounting. Under such
principles, resources for various purposes are classified for accounting and reporting purposes into funds that are in
accordance with specified activities or objectives.

                The Organization also prepares financial statements in accordance with FASB Accounting Standards
Codification (ASC) 958-205 and subsections. Under ASC 958-205, the Organization is required to report information
regarding its financial position and activities according to three classes of net assets: unrestricted net assets,
temporarily restricted net assets, and permanently restricted net assets. In addition, the Organization is required to
present a statement of cash flows.

        Contributions

                 Pledges receivable for contributions are recognized upon notification of a donor’s unconditional
promise to give to the Organization. An allowance for uncollectible promises to give is recorded based on an analysis
of collection histories and on reviews of the credit worthiness of major donors. Contributions that are restricted by
the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the
contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or
permanently restricted net assets, depending on the nature of the restrictions. When a donor restriction expires, that
is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are
reclassified to unrestricted net assets and are reported in the consolidated statement of changes in net assets as assets
released from restrictions.




Local Council Guide to the 2010 Audit                   B-6                                 Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                           December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Donated Materials and Services

                 Donated land, buildings, equipment, investments, and other noncash donations are recorded as
contributions at their fair market value at their date of donation. The Organization reports the donations as
unrestricted support, unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-
lived assets with explicit restrictions that specify how the assets must be used, and gifts of cash or other assets that
must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about
how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when
the donated or acquired long-lived assets are placed in service.

                Donated services that do not require specialized skills or enhance nonfinancial assets are not
recorded in the accompanying consolidated financial statements because no objective basis is available to measure
the value of such services. A substantial number of volunteers have donated significant amounts of their time to the
Organization’s program services and its fundraising campaigns, the value of which is not recorded in the
accompanying consolidated financial statements.

        Advertising

                Advertising costs are charged to operations in the period in which the advertisement is placed.
Advertising for 2010 and 2009 amounted to approximately $XXX and $XXX, respectively. Advertising costs for
2010 include a contribution totaling approximately $XXX for advertising services performed for the Organization.

        Investments

                  Investments consist primarily of assets invested in marketable equity and debt securities, alternative
investments, commodities, and money-market accounts. The Organization accounts for investments in accordance
with FASB ASC 958-320 and subsections. This standard requires that investments in equity securities with readily
determinable fair values and all investments in debt securities be measured at fair value in the consolidated Statement
of Financial Position. Fair value of marketable equity and debt securities is based on quoted market prices.
Alternative investments are stated at the fair value of their underlying assets and allocated to the investors in
proportion to the investor’s ownership percentage. The realized and unrealized gain or loss on investments is
reflected in the consolidated Statement of Changes in Net Assets.

                 Investments are exposed to various risks such as significant world events, interest rate, credit, and
overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably
possible that changes in the fair value of investments will occur in the near term and that such changes could
materially affect the amounts reported in the consolidated Statement of Financial Position.




Local Council Guide to the 2010 Audit                   B-7                                 Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Investment Policy

                 The Organization’s investment policy intends for the Organization to invest in assets that would
produce results exceeding the investment’s purchase price and incur a significant yield of return, while assuming a
moderate level of investment risk. The Organization expects its Endowment Fund, over time, to provide a reasonable
rate of return. To satisfy the long-term rate-of-return objective, the Organization relies on a total return strategy in
which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield
(interest and dividends). The Organization targets a diversified asset allocation that places a greater emphasis on
marketable equity and debt securities and money-market accounts to achieve its long-term return objectives within
prudent risk constraints.

        Spending Policy

                 On September 11, 2003, the board of directors (through the executive committee) approved an
endowment spending policy. The policy defines the total funds available from the Endowment Fund in a given year
(the distributable income) as up to 5 percent of the Endowment Fund’s average market value over the preceding three
years. The Endowment Fund is to have returns greater than the proposed distribution plus management and trustee
fees. If the market value of the Endowment Fund falls to or below the amount of the fund’s donor restricted gifts,
then the spending policy will be amended in accordance with the guidelines not to exceed the actual earnings of the
fund. The executive committee (subject to the board of directors’ approval) may amend this spending policy.

        Accounts Receivable

                Accounts receivable are recorded primarily for product sales stated at estimated realizable value. An
allowance for doubtful accounts is based on an analysis of expected collection rates determined from experience. No
allowance for doubtful accounts was considered necessary as of December 31, 2010, and 2009.

      Inter-fund Loans

                The inter-fund loans at December 31, 2010, result from the Operating Fund making advances of
surplus cash funds to the Capital Fund for operating purposes. In March 2011, the amounts due from the Capital
Fund were relieved by the Operating Fund.




Local Council Guide to the 2010 Audit                   B-8                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                         December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Inventory

                Inventory consists of Scouting and other items available for resale and is stated at the lower of cost
or market. Cost is determined using the average method.

      Land, Buildings, and Equipment

                 Land, buildings, and equipment acquired prior to January 1, 1973, are stated at appraised values as
established by officials of the Organization. Land, buildings, and equipment purchased subsequent to January 1,
1973, are recorded at cost. Donated land, buildings, and equipment are recorded at the approximate fair market value
of the asset on the date of donation. Improvements or betterments of a permanent nature are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. The costs of assets retired or otherwise disposed of,
and the related accumulated depreciation, are eliminated from the accounts in the year of disposal. Gains or losses
resulting from property disposals are credited or charged to operations currently. Land, buildings, and equipment are
depreciated using the straight-line method over the estimated useful lives of the assets.

                Construction-in-progress represents costs incurred on the construction of assets that have not been
completed or placed in service as of the end of the year.

        Estimates

                The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes that these estimates and assumptions provide
a reasonable basis for the fair presentation of the consolidated financial statements.

        Functional Allocation of Expenses

                The costs of providing the various programs and supporting services have been summarized on a
functional basis in the consolidated statement of functional expenses. Costs that are not directly associated with
providing specific services have been allocated based upon the relative time spent by employees of the Organization
providing those services. In accordance with the policy of the National Council of the Boy Scouts of America (the
“National Council”), the payment of the charter fee to the National Council is not allocated as a functional expense.




Local Council Guide to the 2010 Audit                  B-9                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Income Taxes

               The Organization is a not-for-profit organization that is exempt from income taxes under Section
501(c)(3) of the Internal Revenue Code and comparable state law as a charitable organization, whereby only
unrelated business income, as defined by Section 509(a)(1) of the Code is subject to federal income tax. The
Organization currently has no unrelated business income. Accordingly, no provision for income taxes has been
recorded.

        Recent Accounting Pronouncements

                 New accounting standards are now issued by the Financial Accounting Standards Board (FASB)
through Accounting Standards Updates (ASU’s) to the FASB Accounting Standards Codification (ASC). The FASB
does not consider the updates authoritative on a standalone basis; they become authoritative when incorporated into
the ASC. The ASU’s will be in a six-digit, two-segment format (20YY-XX) where YY is the year issued and XX is
the sequential number of each update. So, ASU 2011-01 would be the first update issued in 2011, and so forth.

                  FASB Statement No. 165, Subsequent Events (ASC 855)—This standard was issued in May 2009 and
is effective for fiscal years ending after June 15, 2009. The objective of ASC 855 is to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are
issued. Previously, this subject has been auditing guidance; however, since questions of when, what, and how to
make certain accounting entries are more an accounting issue than an auditing issue, the FASB has decided to issue
an accounting standard. There are no significant changes to current practice, except a footnote is now required
whether or not there are subsequent events. Additionally, the standard adds a procedure to show that management
has evaluated subsequent events. ASC 855 also adds the concept of “available to be issued.” This is when the auditor
has completed the audit report and it is ready to be issued, but not necessarily the date it is actually issued.

                In June 2009, The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 168, FASB Accounting Standards Codification (ASC) and the Hierarchy of Generally
Accepted Accounting Principles: A Replacement of FASB Statement No. 162. On July 1, 2009, The Hierarchy of
Generally Accepted Accounting Principles was rendered irrelevant, and the FASB ASC became the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. On the effective date of this statement, the ASC will supersede all then-existing non-SEC
accounting and reporting standards, effective for financial statements issued for interim and annual periods ending
after September 15, 2009.

                 The Organization adopted the provisions of FASB ASC 740-10-25 (formerly FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes [“FIN 48”]) on January 1, 2009. Under FIN 48, an organization
must recognize the tax benefit associated with tax taken for tax return purposes when it is more likely than not the
position will be sustained. The implementation of FIN 48 had no impact on the Organization’s financial statements.
The Organization does not believe there are any material uncertain tax positions and, accordingly, it will not
recognize any liability for unrecognized tax benefits. No interest or penalties were (continued on next page)



Local Council Guide to the 2010 Audit                  B-10                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

accrued as of January 1, 2009, as a result of the adoption of FIN 48. For the year ended December 31, 2010, there
were no interest or penalties recorded or included in its consolidated financial statements.

                In accordance with FASB ASC 958-205 and subsections (formerly FASB Staff Position No. 117-1
[“FAS 117-1”], Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All
Endowment Funds), the Organization has determined it is subject to the Uniform Prudent Management of
Institutional Funds Act of 2006, which requires the Organization to classify a portion of a donor-restricted
endowment fund of perpetual duration as permanently restricted net assets, unless stated otherwise in the gift
instrument by the donor. These gift instruments are donor-restricted assets until appropriated for expenditure by the
Organization. ASC 958-205 is retroactively applied to all years presented in the accompanying consolidated financial
statements.

        Reclassifications

                Certain reclassifications have been made to the 2009 summarized financial statement information to
conform to the current year presentation. These reclassifications had no effect on the increase in net assets for 2009.




Local Council Guide to the 2010 Audit                  B-11                                Release date: 10/29/2010
                     LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                           December 31, 2010, and 2009
NOTE 2—ENDOWMENT FUND

                 The Organization’s Endowment Fund includes donor-restricted endowment funds. As required by
accounting principles generally accepted in the United States, net assets associated with endowment funds are
classified and reported based on the existence or absence of donor-imposed restrictions. Unrestricted net assets,
identified by the Organization’s board of directors to be used for future investment and growth, are included in
unrestricted net assets—board designated.

The Organization has interpreted the State Prudent Management of Institutional Funds Act (“SPMIFA”) as requiring
the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds
absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as
permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment, (b) the original
value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in
accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the
fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted
net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the
Organization in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with
SPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate
donor-restricted endowment funds:



      (1)   The duration and preservation of the fund
      (2)   The purposes of the Organization and the donor-restricted endowment fund
      (3)   General economic conditions
      (4)   The possible effect of inflation and deflation
      (5)   The expected total return from income and the appreciation of investments
      (6)   Other resources of the Organization
      (7)   The investment policies of the Organization




Local Council Guide to the 2010 Audit                   B-12                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                              December 31, 2010, and 2009
NOTE 2—ENDOWMENT FUND (CONTINUED)

       Changes in the endowment net assets (deficit) for the years ended December 31, 2010, and 2009 are as
follows:

                             Unrestricted—   Unrestricted—
                              Non-Board         Board         Temporarily   Permanently
                              Designated      Designated       Restricted    Restricted         Total

Endowment Fund
net assets,
December 31, 2008             $     XXX           $ XXX       $     XXX          $ XXX              $ XXX

Net asset
reclassification based
on change in law                    XXX             XXX             XXX           XXX                XXX


Endowment Fund, after
reclassification                    XXX             XXX             XXX           XXX                XXX
Investment return                   XXX             XXX             XXX           XXX                XXX
Contributions                       XXX             XXX             XXX           XXX                XXX
Other revenue                       XXX             XXX             XXX           XXX                XXX
Appropriation of
endowment assets
for expenditure               $     XXX       $     XXX       $     XXX     $     XXX       $        XXX
Endowment Fund
net assets,
December 31, 2009                   XXX             XXX             XXX           XXX                XXX
Investment return                   XXX             XXX             XXX           XXX                XXX
Contributions                       XXX             XXX             XXX           XXX                XXX
Appropriation of
endowment assets
for expenditure                     XXX             XXX             XXX           XXX                XXX

Endowment Fund
net assets (deficit),
December 31, 2010        $          XXX       $     XXX       $     XXX         $ XXX           $    XXX




Local Council Guide to the 2010 Audit                  B-13                               Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 2—ENDOWMENT FUND (CONTINUED)

         From time to time, the fair value of assets associated with individual donor restricted endowment funds may
fall below the level the donor or SPMIFA requires the Organization to retain as permanently restricted. Deficiencies
of this nature result from unfavorable market fluctuations and would be included in unrestricted net assets. As of
December 31, 2010, total deficiencies are $XXX. There were no deficiencies at December 31, 2009.

NOTE 3—NET ASSETS AND RESTRICTIONS

         Substantially all of the restrictions on net assets at the end of 2010 are related to funds raised through the
ongoing capital and endowment campaigns to help prepare the Organization for future Scouting needs, charitable
trusts of which the Organization is a beneficiary, and United Way Services funding for the next year.


Temporarily restricted net assets are available for the following purposes at December 31, 2010, and 2009:

                                                                                2010              2009

            Endowment funds subject to a time restriction
            by explicit donor stipulation or by SPMIFA:

                  With purpose restrictions:    gift                        $       XXX       $      XXX
                  With purpose restrictions: Other                                  XXX              XXX
            Capital campaign                                                        XXX              XXX
            United Way                                                              XXX              XXX
            General operations                                                      XXX              XXX

                                                                                $   XXX           $ XXX

Permanently restricted net assets consist of the following at December 31, 2010, and 2009:

                                                                                2010              2009

            Permanently restricted endowment gifts required
            to be retained either by explicit donor stipulations
            or by SPMIFA:
                  General endowments                                            $ XXX             $ XXX
                  Charitable lead and remainder trusts (see Note 8)               XXX               XXX
                  Cash surrender value of life insurance                          XXX               XXX

                                                                                $ XXX             $ XXX




Local Council Guide to the 2010 Audit                  B-14                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 4—NET ASSETS RELEASED FROM RESTRICTIONS

         Net assets were released from donor restrictions during 2010 and 2009 by incurring expenses satisfying the
restricted purposes or by the occurrence of other events specified by donors. Net assets released were donated by the
following:

                                                                                2010             2009

            Capital campaign                                                $     XXX            $ XXX
            United Way                                                            XXX              XXX
            Friends of Scouting                                                   XXX              XXX
            Foundations                                                           XXX              XXX
            Camperships                                                           XXX              XXX
            Other direct contributions                                            XXX              XXX

                                                                                $ XXX            $ XXX


NOTE 5—PLEDGES RECEIVABLE

        Pledges receivable at December 31, 2010, and 2009 consist of the following:

                                                                                2010             2009

            United Way                                                      $     XXX        $     XXX
            Friends of Scouting                                                   XXX              XXX
            Foundations                                                           XXX              XXX
            Other unrestricted promises                                           XXX              XXX
            Restricted to capital campaign                                        XXX              XXX
            Restricted to Endowment Fund                                          XXX              XXX
            Less: Discount for timing of cash flows                               XXX              XXX
            Subtotal                                                              XXX              XXX
            Less: Allowance for uncollectible pledges receivable                  XXX              XXX

                                                                                $ XXX            $ XXX
            Pledges receivable, due in:
                  Less than one year                                            $ XXX            $ XXX
                  One to five years                                               XXX              XXX

                                                                                $ XXX            $ XXX




Local Council Guide to the 2010 Audit                 B-15                               Release date: 10/29/2010
                   LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                        December 31, 2010, and 2009
NOTE 5—PLEDGES RECEIVABLE (CONTINUED)

       Allocations from United Way of $XXX and $XXX (designated for general operating purposes for the first
three months of 2010 and 2009, respectively) have been recorded in the consolidated financial statements since the
amounts were pledged in 2010 and 2009, respectively. The Organization has been notified of an additional allocation
from United Way in 2011 of approximately $XXX. The revenue from the additional allocation will be recorded in
2011 when the firm commitment is received.

NOTE 6—INVESTMENTS

       Investments at December 31, 2010, and 2009 are comprised of the following:

                                                        2010                          2009
                                                                Fair                              Fair
                                             Cost              Value          Cost               Value

Corporate common and preferred stocks    $      XXX        $      XXX     $      XXX      $         XXX
Corporate and other bonds                       XXX               XXX            XXX                XXX
U.S. government obligations                     XXX               XXX            XXX                XXX
Commodities                                     XXX               XXX            XXX                XXX
Hedge funds                                     XXX               XXX            XXX                XXX
Money market                                    XXX               XXX            XXX                XXX

                                             $ XXX             $ XXX          $ XXX              $ XXX

The following schedule summarizes the investment return in the consolidated statement of changes in net assets for
the years ended December 31, 2010, and 2009:

                                                                              2010               2009

           Interest and dividend income                                   $     XXX        $        XXX
           Net realized and unrealized gains (losses)                           XXX                 XXX

                                                                              $ XXX              $ XXX

         The above investment return is classified in the 2010 and 2009 consolidated statement of changes in net
assets as follows:
                                                                           2010             2009

           Unrestricted                                                       $ XXX          $      XXX
           Temporarily restricted                                               XXX                 XXX

                                                                              $ XXX              $ XXX



Local Council Guide to the 2010 Audit                   B-16                            Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                           December 31, 2010, and 2009
NOTE 6—INVESTMENTS (CONTINUED)

        Income from interest and dividends on investments and realized and unrealized gains and losses on the sales
of investments (“Investment Income, Gains, and Losses”) are recorded initially in the Endowment Fund.
Distributions of Investment Income, Gains, and Losses from the Endowment Fund are recorded as income by the
Operating and Capital Funds in the period in which the distributions are made in accordance with the Council’s
spending policy (Note 1). For 2010 and 2009, investment expenses were $XXX and $XXX and are included in
professional fees in the consolidated statement of functional expenses.

NOTE 7—SUMMARY OF FAIR VALUE EXPOSURE

         In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”)—now
referred to as ASC 820-10 and subsections—effective for fiscal years beginning after November 15, 2007. SFAS 157
clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and
requires additional disclosure about the use of fair value measurements in an effort to make the measurement of fair
value more consistent and comparable. The Organization has adopted SFAS 157, effective January 1, 2008, for its
financial assets and liabilities measured on a recurring and nonrecurring basis. In February 2008, the FASB issued
FSP 157-2, which delayed the effective date of SFAS 157 by one year for nonfinancial assets and liabilities.

SFAS 157 defines fair value as the amount that would be received from the sale of an asset or paid for the transfer of
a liability in an orderly transaction between market participants, i.e. an exit price. To estimate an exit price, a three-
tier hierarchy is used to prioritize the inputs:

      Level 1: Quoted prices in active markets for identical securities.

      Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates,
               prepayment spreads, credit risk, etc.).

      Level 3: Significant unobservable inputs (including the Organization’s own assumptions in determining the
               fair value of investments).

        The inputs and methodology used for valuing the Organization’s financial assets and liabilities are not
indicators of the risks associated with those instruments.

         The following table provides fair value measurement information for financial assets and liabilities measured
at fair value on a recurring basis as of December 31, 2010:

                                                                              Investments
                        Description                                           in Securities

      Level 1: Quoted prices                                                     $   XXX
      Level 2: Other significant observable inputs                                   XXX
      Level 3: Significant unobservable inputs                                       XXX

             Total fair value                                                    $ XXX




Local Council Guide to the 2010 Audit                   B-17                                  Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                            December 31, 2010, and 2009
NOTE 7—SUMMARY OF FAIR VALUE EXPOSURE (CONTINUED)

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table
above:

        Level 1: Fair Value Measurements

                Investments in Securities

                       The fair value of the Organization’s investments in marketable equity and debt securities is
based on quoted market prices.

        Level 3: Fair Value Measurements

                Investments in Securities

                         The fair value of the Organization’s alternative investments has been established utilizing
the net asset value of the fund allocated to the Organization’s percentage ownership in the fund. These estimates are
compared to the Organization’s counterparty values for reasonableness.

        The following table reconciles the Organization’s assets and liabilities classified as Level 3 measurements
during the year ended December 31, 2010:

            Balance, December 31, 2009                                                       $      XXX
            Purchases, issuances, and settlements                                                   XXX
            Net realized and unrealized losses included in earnings                                 XXX

            Balance, December 31, 2010                                                       $      XXX

            Net unrealized losses during 2009 on Level 3 securities
            held at December 31, 2010                                                            $ XXX


        At December 31, 2010, assets measured at fair value on a nonrecurring basis are comprised of noncurrent
pledges receivable totaling $XXX. Fair value of noncurrent pledges receivable is based on observable inputs, which
make up a Level 1 asset. The fair value is estimated by discounting expected cash inflows to their present value. The
discount rate used is the Organization’s incremental borrowing rate at its fiscal year-end.




Local Council Guide to the 2010 Audit                 B-18                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 8—SPLIT-INTEREST AGREEMENTS

         During 1999, a donor established a trust with a local bank naming the Organization as the lead beneficiary of
a charitable lead annuity trust. Under terms of the split-interest agreement, the Organization is to receive $XXX
annually beginning in 2000 into its permanently restricted endowment fund for 10 years. The trust terminated at the
end of 10 years in 2010, and the remaining trust assets were distributed to others. Due to the termination of the trust,
the original present value of the future benefits expected to be received by the Organization for $XXX is included in
general endowments in permanently restricted net assets at December 31, 2010.

         Another donor established a trust in 1999 with a bank naming the Organization as a partial recipient of a
charitable remainder unitrust. Under terms of this split-interest agreement, the Organization is to receive 50 percent
of the trust’s assets upon the death of the donor into its permanently restricted endowment fund. Based on the donor’s
life expectancy and a 6 percent rate of return, the present value of the future benefits expected to be received by the
Organization is estimated to be approximately $XXX at December 31, 2010, and 2009.

         The Organization received a $XXX qualified charitable gift annuity commitment from a donor. Under terms
of the split-interest agreement, the Organization will receive $XXX annually, beginning in 2007, into its permanently
restricted endowment fund for five years. In return, the Organization will make annual payments to the donor in
accordance with the agreement. Payments began in 2008. The payments and agreement will terminate upon the death
of the donor. Based on the donor’s life expectancy and a 9 percent rate of return, the present value of the future
benefits expected to be paid to the donor is estimated to be approximately $XXX and $XXX at December 31, 2010,
and 2009, respectively, and is included in the Endowment Fund’s accounts payable in the consolidated statement of
financial position.

         These split-interest agreements are included in permanently restricted net assets. During 2010, there were no
significant changes in the present values of these split-interest agreements.

NOTE 9—LAND, BUILDINGS, AND EQUIPMENT

        Land, buildings, and equipment at December 31, 2010, and 2009 consist of the following:

                                                       Useful Lives             2010              2009

      Land                                                                      $ XXX             $ XXX
      Building, structures, and land improvements         5-30 years              XXX               XXX
      Furniture, fixtures, and equipment                  2-10 years              XXX               XXX
      Construction in progress                                                    XXX               XXX
                                                                                  XXX               XXX
      Less: Accumulated depreciation                                              XXX               XXX

                                                                                $ XXX             $ XXX




Local Council Guide to the 2010 Audit                  B-19                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                          December 31, 2010, and 2009
NOTE 10—LINE OF CREDIT

         In December 2008, the Council entered into a $XXX line of credit agreement with a bank. The line includes
interest payable quarterly at prime less 1 percent, principal due in September 2011. At December 31, 2010, and 2009,
there was no outstanding balance on the line.

NOTE 11—CREDIT RISK

        Financial instruments that potentially subject the Organization to credit risk consist principally of cash at
financial institutions and investments. At times, the balances in cash accounts may be in excess of FDIC insurance
limits. Management continuously monitors the Organization’s balances at financial institutions and invests excess
operating cash in short-term investments.

NOTE 12—EMPLOYEE BENEFIT PLANS

        Retirement Plan

                The National Council has a qualified defined benefit multiemployer contributory retirement plan (the
“Plan”) administered at the national office that covers employees of the National Council and local councils,
including the     local area council. The Plan covers all employees who have completed one year of service and who
have agreed to make contributions. Eligible employees contribute 2 percent of compensation, and the council
contributes an additional 6.5 percent to the plan. Pension expense (excluding the contributions made by employees)
was approximately $XXX and $XXX in 2010 and 2009, respectively, and covered current service cost.

As the Plan is a multi-employer plan, and the individual information for each employer is not available. The actuarial
information for the multi-employer plan as of February 1, 2010, indicates that it is in compliance with ERISA
regulations regarding funding. The assumed rate of return used in determining actuarial present values of
accumulated benefits was 7.75 percent. The actuarial information stated that there was a change from the prior year
in actuarial assumptions, cost method, treatment of actuarial gains and losses, and amortization of past or prior
service cost. In 2010, the unit credit method, as required under the Pension Protection Act of 2006, is used in the
actuarial valuation; amortization of gains and losses is over seven years; and the amortization of past or prior service
cost is seven years. The actuarial valuation includes all Plan amendments as of February 1, 2010.

        Thrift Plan

                The Organization has established a Thrift Plan covering substantially all of the employees of the
Organization. Participants in the Thrift Plan may elect to make voluntary before-tax contributions based on a
percentage of their pay, subject to certain limitations set forth in the Internal Revenue Code of 1986, as amended.
The Council has elected to match employee contributions to the Thrift Plan up to 50 percent of contributions from
each participant, limited to 3 percent of each employee’s gross pay. The Organization contributed approximately
$XXX and $XXX, respectively, to the Thrift Plan in 2010 and 2009, respectively.




Local Council Guide to the 2010 Audit                  B-20                                Release date: 10/29/2010
                    LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                         December 31, 2010, and 2009
NOTE 12—EMPLOYEE BENEFIT PLANS (CONTINUED)

Healthcare Plan

                 The Organization’s employees participate in a healthcare plan provided by the National Council. The
Organization pays a portion of the cost for the employees, and the employees pay the remaining portion and the cost
for any of their dependents participating in the plan. During the year ended December 31, 2010, and 2009, the
Organization remitted approximately $XXX and $XXX, respectively, on behalf of its employees to the National
Council related to the healthcare plan.

NOTE 13—SCOUT SHOP (If your council has a National Scout Shop)

        The National Council operates a Scout shop within the XXXXXX area. The National Council manages the
Scout shop and pays the Organization an 8 percent commission on gross sales up to $XXX, and 13 percent on sales
in excess of $XXX. The commissions earned (before expenses) by the Organization during 2010 and 2009 amounted
to approximately $XXX and $XXX, respectively, which are included in other revenue in the consolidated statement
of changes in net assets.

NOTE 14—LEASE COMMITMENTS

         The Organization accounts for the lease of office equipment and a Scout shop as operating leases. Total
rental expense amounted to approximately $XXX and $XXX in 2010 and 2009. These leases will expire on various
dates through 2012. The following is a schedule of future minimum lease payments under these leases:

                  For the Year Ending December 31:
                        2011                                                  $    XXX
                        2012                                                       XXX

                                                                                  $ XXX

NOTE 15—RELATED PARTY TRANSACTIONS

         An Organization officer is employed as president of a local bank where the Organization maintains
significant account balances. As of December 31, 2010, and 2009, total Organization deposits with the bank were
$X,XXX,XXX and $X,XXX,XXX, respectively.

NOTE 16— PRIOR PERIOD INFORMATION

         The consolidated financial statements include certain prior-year summarized comparative information in
total. Such information does not include sufficient detail to constitute a presentation in conformity with accounting
principles generally accepted in the United States. Accordingly, such information should be read in conjunction with
the Organization’s consolidated financial statements for the year ended December 31, 2009, from which the
summarized information was derived.




Local Council Guide to the 2010 Audit                 B-21                                Release date: 10/29/2010
                   LOCAL COUNCIL INC., BOY SCOUTS OF AMERICA
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                        December 31, 2010, and 2009


NOTE 17— SUBSEQUENT EVENTS

    These consolidated financial statements considered subsequent events through May 19, 2011, the date the
financial statements were available to be issued.




Local Council Guide to the 2010 Audit             B-22                            Release date: 10/29/2010
   SAMPLE REPRESENTATION LETTER

   Type on Council Letterhead



   Date



   Auditing Firm
   Address
   City, State, Zip

   We are providing this letter in connection with your audit of the Statement of Financial Position of the ____________ Council,
   Boy Scouts of America, as of December 31, 20XX, and the related statements of changes in net assets, functional expenses,
   and cash flows for the year then ended for the purpose of expressing an opinion as to whether the financial statements
   present fairly, in all material respects, the financial position, changes in net assets, functional expenses, and cash flows of the
   __________ Council, Boy Scouts of America in conformity with U.S. generally accepted accounting principles. We confirm
   that we are responsible for the fair presentation in the financial statements of financial position, changes in net assets,
   functional expense, and cash flows in conformity with generally accepted accounting principles. We are also responsible for
   adoption of sound accounting policies, establishing and maintaining effective internal control, and preventing and detecting
   fraud.

   Certain representations in this letter are described as being limited to matters that are material. Items are considered material
   if they involve an omission or misstatement of accounting information that in light of surrounding circumstances, makes it
   probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission
   or misstatement. An omission or misstatement that is monetarily small could be considered material as a result of qualitative
   factors.

   We confirm to the best of our knowledge and belief, as of ____________, the following representation made to you during
   your audit:
       1. The financial statements referred to above are fairly presented in conformity with U.S. generally accepted accounting
           principles, and include all assets and liabilities under the organization’s control.
       2. We have made available to you all:
                 a. Financial records and related data
                 b. Minutes of the meetings of the audit committee, executive board, and executive committee or summaries of
                       actions of recent meetings for which minutes have not yet been prepared.
       3. There has been no communication from regulatory agencies concerning noncompliance with or deficiencies in
           financial reporting practices.
       4. There are no material transactions that have not been properly recorded in the accounting records underlying the
           financial statements.
       5. We believe the effects of the financial misstatements summarized in the attached schedule are immaterial, both
           individually and in aggregate, to the financial statements taken as a whole.
       6. We acknowledge our responsibility for the design and implementation of programs and controls to prevent and
           detect fraud.
       7. We have no knowledge of any fraud or suspected fraud affecting the organization involving:
                 a. Management
                 b. Employees who have significant roles in internal control, or
                 c. Others where the fraud could have a material effect on the financial statements.
       8. We have no knowledge of any allegations of fraud or suspected fraud affecting the organization received in
           communications from employees, former employees, grantors, regulators, or others.
       9. The organization has no plans or intentions that may materially affect the carrying value or classification of assets,
           liabilities, or net asset balances.
       10. The following, if any, have been properly recorded or disclosed in the financial statements:
                 a. Related party transactions, including revenues, expenses, loans, transfers, leasing arrangements, and
                       guarantees, and amounts receivable from or payable to related parties.

Local Council Guide to the 2010 Audit                        B-23                                     Release date: 10/29/2010
   SAMPLE REPRESENTATION LETTER (continued)

                 b.    Guarantees, whether written or oral, under which the organization is contingently liable.
                 c.    All accounting estimates that could be material to the financial statements, including the key factors and
                       significant assumptions underlying those estimates, and we believe the estimates are reasonable in the
                       circumstances.
       11.   There are no estimates that may be subject to a material change in the near term that have not been properly
             disclosed in the financial statements. We understand that near term means the period within one year of the date of
             the financial statements. In addition, we have no knowledge of concentrations existing at the date of the financial
             statements that make the organization vulnerable to the risk of severe impact that have not been properly disclosed
             in the financial statements.
       12.   We are responsible for compliance with the laws, regulations, and provision of contracts and grant agreements
             applicable to us; we have identified and disclosed to you all laws, regulations, and provisions of contracts and grant
             agreements that we believe have a direct and material effect on the determination of financial statement amounts or
             other financial data significant to the audit objectives.
       13.   ____________Council, Boy Scouts of America, is an exempt organization under section 501(c)(3) of the Internal
             Revenue Code. Any activities, of which we are aware that would jeopardize the organization’s tax-exempt status,
             and all activities subject to tax on unrelated business income or excise or other tax, have been disclosed to you. All
             required filings with authorities are up-to-date.
       14.   Except as disclosed in the financial statements there are no:
                  a. Violations or possible violations of laws and regulations and provisions of contracts and grant agreements
                       whose effects should be considered for disclosure in the financial statements, as a basis for recording a
                       loss contingency, or for reporting on noncompliance.
                  b. Pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are
                       required to be accrued or disclosed in the financial statements in accordance with FASB ASC 450-20-60 (or
                       which would affect federal award programs); we have not consulted a lawyer concerning litigation, claims,
                       or assessments.
                  c. Other liabilities, or gains or loss contingencies that are required to be accrued or disclosed by Statement of
                       Financial Accounting Standards No. 5.
                  d. Designations of net assets disclosed to you that were not properly authorized and approved, or
                       reclassifications of net assets that have not been properly reflected in the financial statements.
       15.   The organization has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets,
             nor has any asset been pledged.
       16.   We have complied with all restrictions on resources (including donor restrictions) and all aspects of contractual and
             grant agreements that would have a material effect on the financial statements in the event of noncompliance. This
             includes complying with donor requirements to maintain a specific asset composition necessary to satisfy their
             restrictions.
       17.   The organization deems the assets recorded that are due to prior agreements with existing trusts are fully collectible
             and have not allowed for this amount as of year-end.




   ____________________                                        _________________
   Scout executive                                             Accounting specialist




Local Council Guide to the 2010 Audit                       B-24                                    Release date: 10/29/2010
SAMPLE SAS 114 LETTER
May 19, 2011

Members of the Audit Committee
Nation’s Best Council Inc.
Boy Scouts of America
123 Main Street
Anytown, USA 12345

Dear Committee Members:

We have audited the financial statements of the Nation’s Best Council, Boy Scouts of America (the Council), for the
year ended December 31, 2010, and have issued our report thereon dated May 19, 2011. Professional standards
require that we provide you with the foIIowing information related to our audit.

Our Responsibility Under U.S. Generally Accepted Auditing Standards

As stated in our engagement letter dated November 12, 2010, our responsibility, as described by professional
standards, is to express an opinion about whether the financial statements prepared by management with your
oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting
principles. Our audit of the financial statements does not relieve you or management of your responsibilities.

Planned Scope and Timing of the Audit

We performed the audit according to the planned scope and timing previously communicated to you in our
engagement letter dated November 12, 2010.

Significant Audit Findings

Qualitative Aspects of Accounting Practices

Management is responsible for the selection and use of appropriate accounting policies. The significant accounting
policies used by the Council are described in Note 1 to the financial statements. No new accounting policies were
adopted, and the application of existing policies was not changed during the year ended December 31, 2009. We
noted no transactions entered into by the Council during the year for which there is a lack of authoritative guidance or
consensus. There are no significant transactions that have been recognized in the financial statements in a different
period than when the transaction occurred.

Difficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and completing our audit.

Corrected and Uncorrected Misstatements

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other
than those that are trivial, and communicate them to the appropriate level of management. Management has
corrected all such misstatements. The following material misstatements detected as a result of audit procedures
were corrected by management:

1. Accumulated depreciation on property and equipment in the Capital Fund was corrected.

2. The amount of the transfer between the Endowment Fund and the Operating Fund was corrected.




Local Council Guide to the 2010 Audit                  B-25                                 Release date: 10/29/2010
SAMPLE SAS 114 LETTER (continued)

Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a financial accounting,
reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of
our audit.

Management Representations

We have requested certain representations from management that are included in the management representation
letter dated May 19, 2011.

Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters,
similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting
principle to the Organization's financial statements or a determination of the type of auditor's opinion that may be
expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.

Other Audit Findings or Issues

We generally discuss a variety of matters, including the application of accounting principles and auditing standards,
with management each year prior to retention as the Organization's auditors. However, these discussions occurred in
the normal course of our professional relationship, and our responses were not a condition to our retention.

This information is intended solely for the use of the board of directors and management of Nation’s Best Council
Inc., Boy Scouts of America, and is not intended to be and should not be used by anyone other than these specified
parties.

Very truly yours,


Nation’s Best Auditors
Certified Public Accountants




Local Council Guide to the 2010 Audit                   B-26                                Release date: 10/29/2010
SAMPLE SAS 115 LETTER


May 19, 2011



To the Board of Directors
Nation’s Best Council Inc.
Boy Scouts of America



In planning and performing our audit of the financial statements of Nation’s Best Council Inc., Boy Scouts of America,
as of and for the year ended December 31, 2010, in accordance with auditing standards generally accepted in the
United States, we considered the internal control of Nation’s Best Council Inc., Boy Scouts of America, over financial
reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion
on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Council's
internal control. Accordingly, we do not express an opinion on the effectiveness of the Council's internal control.

A control deficiency exists when the design or operation of a control does not allow management or employees, in
the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A
significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the
Council's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally
accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Council's
financial statements that is more than inconsequential will not be prevented or detected by the Council's internal
control.

A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than
a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the
Council's internal control.

Our consideration of internal control was for the limited purpose described in the first paragraph and would not
necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.
We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above.

However, we identified the following deficiency in internal controls that we consider to be a significant deficiency:

Investments: Management is not reconciling investments on a periodic basis. Investment income and the fair market
value of investments are not correctly stated in the monthly financial statements. Management should reconcile and
adjust the investment accounts and related income no less than quarterly.

This communication is intended solely for the information and use of management, board of directors, and others
within the Council, and is not intended to be and should not be used by anyone other than these specified parties.



Very truly yours,

ABC CPAs, LLC




Local Council Guide to the 2010 Audit                    B-27                                 Release date: 10/29/2010

				
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