In February the Board of Directors received the presentation of the annual audit report from Gallagher, Flynn and Company. The role of the various parties is always discussed during the audit presentation, as is an overview of the process. An important part of the audit presentation is a report to the Board of Directors on the auditors’ findings. This year, the auditors identified no material weaknesses or significant deficiencies, and offered a “clean” opinion on the core financial statements.
After the formal part of the presentation was over, the auditors then review the financial statements and any issues that may impact them. This year the obvious significant operational issue was the Hanover store renovation and the effect it had on capital expenditures, debt, and profitability. Although the loss in sales versus the previous year was very large at the Hanover store, the auditors explained they had information that indicated the losses were much less than expected by conventional retailers for remodels of a similar scope.
The audit always provides the Board with interesting analysis and insights, and this year was no exception. In addition to reviewing operations, the audit also covers the tax implications of operations. This year, one item the auditors addressed was related to member sales. They pointed out that, as a cooperative, our organization receives tax benefits on earning from sales to members. They noted that in Subchapter T of the Internal Revenue Code, “A cooperative can pay out excess earning to the shareholders prior to calculating taxable income, based on the income generated from those owners’ business dealings with the co-op.”
In a related discussion about the tax benefits enjoyed by cooperatives, it was noted that the percentage of member/shoppers was down slightly last year. Some theorized that members who were making small purchases might not be using their Co-op number, or might not be using a number if they think there is no benefit in using it if there is unlikely to be a patronage dividend. It was clear from the presentation that increased percentage of member purchases had tax benefits for the Co-op. There are also clear benefits for members in using their Co-op number for purchases. Using the number helps to accrue purchases toward a potential patronage refund, it allows the Co-op to identify you if you have purchased a product recalled by a manufacturer, and it can help make the Co-op stronger by reducing tax liabilities in those times when the Co-op can declare a patronage refund.