Memorandum for the Board of Trustees March 27, 1994 Subject: Initial Audit Committee Meeting An initial meeting of the ISOC Audit Committee took place on February 9th, at CNRI, following the regularly scheduled ISOC Board Meeting. The Audit Committee, consisting of Trustees Frode Greisen, Michael Roberts and Robert Kahn, and having just been formed at the aforementioned Board meeting, determined to develop a written charge for the Audit Committee for the Audit Committee for presentation to the Board at its next regularly scheduled meeting. Among the tasks to be included are the oversight of all ISOC financial matters including financial controls, auditing and accounting procedures and liaison with the Auditors. It was recognized by the Audit Committee that certain timely actions need to be taken by ISOC given the imminent change in status from the use of CNRI as secretariat to having ISOC operate independent of any secretariat. These are assumed to be the responsibility of the executive director unless stated otherwise and are listed below. 1. Develop a manual describing the internal controls and accounting procedures to be used by ISOC for managing its finances. We recommend that a draft of this manual be made available to the Audit Committee no later than April 30, 1994. In addition, we recommend that an accounting methodology be developed which enables ISOC finances to be accounted for and reported in a consistent way from year to year. 2. Engage the CNRI auditors, Coopers & Lybrand, to prepare the 1993 ISOC financial statements. This selection of auditors was dictated by the fact that the bulk of the 1993 expenses were incurred by CNRI and will already have been scrutinized by Coopers & Lybrand as part of their audit of CNRI; thus the incremental cost to ISOC for 1993 will be minimized by this approach. Coopers and Lybrand should be asked to provide cost estimates to ISOC for conducting a "review" (which is less than a full audit) as well as an "audit" for a subsequent decision by the President. 3. For 1994, the Audit committee will obtain competitive bids for providing the audit function. This action will be deferred until mid-year (or as soon thereafter as both the 1993 financial statements and the internal controls and accounting manual are available for external scrutiny). Following that, The Audit Committee will formulate a view on how and when to proceed with engaging an outside Auditor for fiscal year 1994 and will make its recommendations to the Board. 4. In the meantime, before such a manual has been prepared and reviewed, the Audit Committee recommends that the following interim procedures be adopted by the Board to be followed by ISOC: a. In the absence of a full-time business office manager, the ISOC accountant shall hold all ISOC checks and be personally involved in all transactions that involve the expenditure of funds from the ISOC bank accounts. b. At least two parties shall be involved in all transactions that involve the expenditure of funds from the bank accounts. In particular, and to the extent possible, the requestor of a disbursement should not be the one to sign the check. c. All revenue and expenditures of ISOC shall be properly vouchered. d. Provide quarterly financial updates to the Board of Trustees including at a minimum 1) the then current income statement and balance sheet and 2) fiscal year projections in both cash and accrual form. The projections shall be actual to date and estimates to the end of the year. e. Provide a plan to the Audit Committee by April 30, 1994 for management of cash, limiting bank exposure (i.e. staying within FDIC insurance limits, and investment of current assets) f. If other than IRS guidelines are to be used for depreciation, please let the audit committee know as soon as possible. Else, we will assume the IRS guidelines will be used. g. Expense all items under $1000 and capitalize all long term assets of $1000 or more. h. Operate as near as possible to cash so as to avoid long-term ISOC obligations whenever possible. i. Develop and document reasonable travel policies for all ISOC travel (including employees, officers, trustees, contractors, consultants, etc) and provide to the Audit Committee before the next ISOC Board meeting. j. Develop compensation and fringe benefit guidelines for timely approval by the Board. The guidelines should require that employees be paid at prevailing wages for the job, area and level of experience. k. Obtain Board of Trustees approval for any additional benefits including especially non-cash benefits, if any. Frode Greisen Robert Kahn Michael Roberts