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DOCUMENT TITLE: Church of Scientology "CST"--Fiscal Year End 1987 Tax Work Planning Memo SUBJECT: Fiscal Year 1987 tax planning for the corporation known as "Church of Spiritual Technology" (CST) PARTIES: CST; Accounting firm Grant Thornton LLP; Gerald Engel, Managing Partner of Grant Thornton; Michael Smith, Manager of Grant Thornton; Sherman Lenske, Stephen Lenske, and Lawrence Heller, Special Directors of CST (not named in document); Lyman Spurlock, President/Director of CST; Nancy O'Meara, Treasurer/Director of CST; Dan Przybylski, Vice President/Director of CST; Leo Johnson, Secretary of CST; Terri Gamboa, Marion Meisler, and George Wilhere, Trustees of CST; Monique Yingling, Legal Counsel of CST BACKGROUND AND NOTES This 11 November 1987 document lists the Officers, Directors and Trustees for CST, while omitting the most powerful people in the organization, the Special Directors. It also identifies Washington, D.C. attorney Monique Yingling as "legal counsel" for CST. Yingling later signs the IRS Closing Agreement with power of attorney (POA) for CST. The accounting firm the document is from is Grant Thornton LLP, a Canadian organization with international offices. The office that this was most likely created in is the office at Suite 800, 18300 Von Karman Avenue, Irvine California 92612. This is the closest office to the Twin Peaks and San Bernardino, California locations of CST mentioned in the document. This is the only known document in which a San Bernardino mailing address is listed for CST: 314 West Fifth St. Suite 1, San Bernardino, CA 92401. Some of the language of this document reflects the false public relations front that CST and IRS have held up to the general and Scientology public that CST is nothing more than some innocuous and low key "archival" operation, designed to hide the fact that IRS's Meade Emory had set CST up specifically to own and control all of Scientology. But of particular interest is the statement in the fifth paragraph that a portion of the storage function of CST is "HIGHLY CONFIDENTIAL" and known only by "a select small goup of scientologists [sic]." The "on Highway 189, one-quarter mile after the junction with Highway 18" location is Twin Peaks, California, not far from Lake Arrowhead in the San Bernardino mountains. GRANT THORNTON November 11, 1987 OFFICE MEMORANDUM To: Gerald Engel, Managing Partner From: Michael Smith - Manager Client: Church of Scientology "CST" Subject: Fiscal Year End 1987 Tax Work Planning Memo GENERAL INTRODUCTION The Church of Spiritual Technology (CST) is the scientology organization whose purpose is to preserve all scientology materials that were written by L. Ron Hubbard (LRH), the founder of the scientology religion. In addition, CST has options from the Religious Technology Center (RTC) on the scientology trademarks. CST has two functions as follows: 1) Recording all original LRH documents to ensure their preservation, and; 2) To store such documents and recordings to preserve them for future generations. A portion of second function discussed above is of a HIGHLY CONFIDENTIAL nature and is only known by a select small group of scientologists (nor is it made known to the general public). DUE TO THE CONFIDENTIALITY OF THE MATTER, IT SHOULD NOT BE DISCUSSED IN GENERAL DURING OUR ENGAGEMENT, ASIDE FROM THE CST OFFICES. CST is located on Highway 189, one-quarter mile after the junction with Highway 18. CST's mailing address is 314 West Fifth St. Suite 1, San Bernardino, CA 92401. Total assets as of April 30, 1986 (fiscal year end) were approximately $24,000,000 with total fiscal 1986 revenue of approximately $3,700,000. PRIMARY CONTACTS Ellen Reynolds - Office of Special Affairs International (213) 667-2578 Nancy O'Meara - CST (213) 669-8465 (Los Angeles) (714) 338-7197 (Local - Twin Peaks, Area) OFFICERS Lyman Spurlock - President/Director Nancy O'Meara - Treasurer/Director Dan Przybylski - Vice President/Director Leo Johnson - Secretary Terri Gamboa - Trustee Marion Meisler - Trustee George Wilhere - Trustee LEGAL COUNSEL Monique Yinglin ZUCKERT, SCOUTT, RASENBERGER AND JOHNSON Brawner Building 888 17th Street N.W. Washington D.C. 20006-3959 202-298-8660 FAX 202-342-0683 PROCEDURES TO BE PERFORMED (handwritten circle-1 PRIMARILY) The entity utilizesund accounting with a single entry system, on a cash basis. (Flow charts are located in the permanent file). Income is (circle-1) derived from (crossed out--a contractual agreement with) Religious Technology Center (RTC) by which CST receives 90% of RTC's licensing fees. Aside from research expenses and the purchase of fixed assets, CST has only modest operating expenses. QUESTIONNAIRE A questionnaire will be completed during an interview with one of the officers of the organization. The questionnaire covers the specific questions normally asked in the 990 tax return as well as other general questions. The officer to be interviewed will be selected by the manager. CASH (Handwritten between accounts and obtain: as well as savings and CD accounts in the U.S. and overseas.) The entity utilizes six checking accounts. Obtain the reconciliation for April 1987 (fiscal year end) and review the reconciliation procedures. Agree the balance per the bank statement to the reconciliation as well as any transfers between accounts. In addition, the entity maintains several time certificates of deposit. Verify their existence at year end [handwritten--by comparing to bank statements. (illegible) The reconciliations at (illegible) to (illegible) (represent?) annual proof.] FIXED ASSETS During fiscal 1987, CST made significant renovations to its Twin Peaks location (Mile High) as well as making significant expenditures on a document storage facility. Documentation should be reviewd and copies retained for our workpapers on these transactions (if deemed necessary). [handwritten 32?? - 322? (illegible)] Other fixed asset additions will be judgementally reviewed depending on significance of activity. (handwritten--not considered significant) LIABILITIES At April 30, 1986, CST had no major liabilities. (handwritten--No Liab At 4/30/87) REVENUE All revenue is recorded on income invoices and deposited on (handwritten at least) a weekly basis. Deposits are made in full with no cash retained. Revenue summaries are maintained on a monthly basis. Judgmentally select two months for detail testing as follows: (handwritten 6?00-6040) a. Foot quarterly and agree to annual summary. b. Invoices are grouped by income category and in numerical sequence. Foot category batches and agree to the monthly summary. Review numerical sequence batch for continuance of sequence, verify to invoice number log, and the prior month's ending and next month's beginning invoice numbers. (If this cannot be done then foot the numerical sequence batches and agree total to the total of the category batches.) (handwritten to left of previous para--footing? par? format?) c. Scan individual invoices for proper category classification and relationship to entity's tax-exempt status. d. Agree quarterly revenue to the "Gross Monies Banked" schedules. Trace the quarter's deposits from this schedule to the bank statement. Any other deposits noted on the bank statements and not on the schedule should be further investigated. e. Select and summarize the 5 largest dollar categories and agree the total to the annual summary. f. Agree annual summary to (P/L crossed out, to I/E) working papers and combining schedule. g. Agree (P/L to I/E) working papers to 990 tax return. h. Agree RTC donations received during the quarter (90% of RTC licensing fees) to appropriate documentation. (handwritten illegible done on Annual Basis) CST received rental income from two leases maintained on two of the land parcels. The income is for grazing rights leased to ranchers until the land is put to its ultimate Scientology purpose of preserving scientology archives for future generations as discussed earlier. As this is passive income and no acquisition indebtedness was incurred, it has been determined during the prior years that it is NOT unrelated business income. DISBURSEMENTS 1. All disbursements are recorded on disbursement vouchers. Vouchers are grouped first by bank account number and sub- grouped by expense category. Disbursements are summarized on a (handwritten monthly +) quarterly basis by checking account. Judgmentally select two months for detail testing as follows: (handwritten 6100-614?0) a. Foot quarterly summary and agree to annual summary. b. Foot category batches and agree to monthly summary. Review numerical sequence batch for continuance of sequence, verify to disbursement number log, and to the prior month's ending and the next month's beginning voucher numbers. (if this cannot be done then foot the numerical sequence batches and agree the total to the total of category batches.) (handwritten in left margin of previous para--Footing Performing?) c. Scan individual vouchers for proper category classification and relationship to entity's tax-exempt status. d. Select and summarize the 5 largest dollar categories and agree to the annual summary. e. Agree annual summary to (P/L to I/E) working papers. f. Agre (P/L to I/E) working papers to 990 tax return. g. Obtain a sample of a voucher for workpaper retention. 2. We will also trace a sample of expenditures to the original source documents. The sample size will be determined by the manager based on the number of checks utilized by the entity during the year. The samples will be randomly selected and judgmentally selected per review of the check register. The following procedures will be applied to the sample: a. Agree to disbursement voucher. b. Agree to purchase order. c. Agree to vendor invoice or other supporting documentation. d. Agree signature to authorized signatory. e. Agree endorsement to payee. f. Review for reasonableness of expense category. 3. Obtain copies of quarterly payroll returns #941E and agree total annual amount reported to the total annual salary expense being reported on the 990 tax return. (handwritten 6200) GRANT THORNTON WORKPAPER TERMINOLOGY Throughout these tax preparation supporting documents and schedules various words are used such as: traced, agreed, vouched, observed, reviewed and tested. In using these words and others, we do not imply that the procedures applied are a part of an audit. No audit is intended by or will result from the work performed. The objective of the procedure is to familiarize ourselves with the operations of the organization, not to enable us to render any opinion or give limited assurance thereon. MS:pp (handwritten ADDITION TO REVENUE PROCEDURES For transfers within the CST accounts, agree to deposit on bank statement of CST & to withdrawal on the transferring accounts bank statement for all transfers for the months selected for revenue testing 6012 + 60illegible) |
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