Audit requirements for fair share fee agreements.

AUDIT REQUIREMENTS FOR FAIR SHARE FEE AGREEMENTS

In a case affecting labor union auditors, a district court defined the meaning of "verification by an independent auditor" in determining nonunion workers' share of costs for representation by a labor union in collective bargaining procedures. Although, in 1986, the U.S. Supreme Court held collection of such costs was appropriate, it required, without further definition, that the costs be verified by an independent auditor.

In the case at hand, an audit of the financial statements of the Association of Federal, State, County and Municipal Employees (AFSCME) International and local AFSCME Council 13 was performed. However, in calculating chargeable and nonchargeable expenses for nonunion members, the auditors prepared special reports pursuant to Statement on Auditing Standards no. 35, Special Reports.

In reviewing the auditors' work, the court distinguished the verification standards presented in an audit from those presented by a special report. Although an audit of the unions' financial statements was performed, the fact that critical expense information was presented in a special report placed the auditors' work product outside the Supreme Court's requirement of "verification by an independent auditor." Consequently, unions must present further evidence of independent verification by an auditor. (Hohe v. Casey, U.S. District Court, Middle District of Pennsylvania, no. 88-1348)