Mr. FLEMING. We are in the process of doing it. Those deadlines have not been reached yet.

Mr. MARKEY. When are those deadlines?

Mr. FLEMING. One of them with respect to accounting principles, the question, for instance, of how you place a value on volunteer services, is May of 1979. The accounting principles are November, as I recall it, of 1979. So it will be this calendar year.

Mr. MARKEY. For example, what kind of personnel do you have working on that accounting problem?

Mr. FLEMING. Mostly contracted personnel. We have a committee made up of all of the constituent groups who would be involved in this, which is to say the stations, the colleges and universities, and so forth, and the Comptroller General as I understand it, general agreement on the principles. We have contracted out with an accounting firm▬▬

Mr. MARKEY. What accounting firm are you using?

Mr. FLEMING. I think we are using Arthur Anderson.

Mr. CARDWELL. Arthur Anderson has been employed to do the volunteer evaluation study. A competitive bidding is now in progress to select a firm to do the accounting principles study. Mr. MARKEY. What was the fee charged by Anderson?

Mr. CARDWELL. I think it was about $30,000.

Mr. MARKEY. In their prospectus, what was it they were going to do to earn that $30,000?

Mr. CARDWELL. I would like to put in the record at this point the protocols that were created and given to them for the work. They were required to review operations of a number of different telecommunications entities of different kinds and characters, to engage in discussions with volunteer organizations and others with experience in volunteerism, and to consult with the American Institute of Certified Public Accountants and others who have the basic accounting interest in the subject to come back to CPB and the steering group with a recommended set of classifications, work classifications to be recognized for valuation purposes, and a recommended method for determining dollar valuations for each such classification.

That will be rendered to us in the form of a report and from there will go to the General Accounting Office in May. [The following material was received for the record:]

VOLUNTEER SERVICES STUDY-SCOPE OF WORK

OBJECTIVES

The objectives of the Volunteer Services Study are:

(1) To develop a uniformly applicable definition of "Personal Services of Volunteers";

(2) To develop criteria and standards for determining what "Personal Services of Volunteers" may be counted as NFFS and how they are to be valued for that purpose;

(3) To develop criteria and standards for determining what donated services other than "Personal Services of Volunteers" may be counted as NFFS and how they are to be valued for that purpose.

CONTRACTOR'S RESPONSIBILITIES

The contractor shall, by not later than April 25, 1979, submit to CPB a draft study which satisfies the objectives of the Volunteer Services Study.

The contractor shall take as an initial point of reference a provisional definition of "Personal Services of Volunteers" developed by CPB. The definition shall be

developed fully by the contractor. The contractor will present the developed definition to the CPB Financial Management Advisory Committee, together with his recommendation as to the specific definition which should be adopted. The Advisory Committee will reach a decision on the definition to be used, and promptly inform the contractor.

The provisional CPB definition of "Personal Services of Volunteers" is: Services performed by an individual of that individual's own free will without financial compensation, or for a lesser compensation than normally would be paid for the individual's services.

This definition contemplates that services of employees which are offered and provided by an employer would not constitute personal services of volunteers. It further contemplates that services offered and provided by an individual in his personal capacity, or in a capacity of a self-employed independent contractor, are normally personal services of volunteers if performed without compensation.

In developing the study, with regard to both "Personal Services of Volunteers" and other donated services, the contractor shall:

(1) Develop criteria for counting and valuing "Personal Services of Volunteers", which are consistent, to the maximum extent practical, with the criteria developed for applicability to other donated services.

(2) Address the degree to which services must assist the station in the conduct of essential functions, operations, or mission, the possibility that a station would be financially unable to pay for such services were they not donated, and other issues related to the relationship between the donated services and the stations operational requirements.

(3) Address the degree of control which must be exercised by the station over the services rendered, including consideration of treatment of services provided in circumstances where close control by the station is not appropriate or possible (e.g., community advisory boards, "Friends" organizations, etc.).

(4) Consider various methodologies for valuing donated services and personal services of volunteers, including: fair market value and methods for determining; comparability with paid employment at the station or in the community; valuation based on national standards and schedules; relative value standards based on station or other appropriate wage rates; and valuation using a flat rate based on a computed average value of all volunteer services.

In developing valuation criteria, the contractor must consider the appropriate treatment of those types of services which are commonly received by and/or unique to public broadcasting entities.

(5) Develop criteria for acceptable means of recording donated and volunteer services and verifying their value for purposes of reporting NFFS.

(6) Take into consideration procedures used by other non-commercial entities for recording and valuing donated services, and laws and regulations which may have applicability to volunteer services, including the Fair Labor Standards Act.

(7) Consult with and obtain the views of parties at interest, including the CPB Financial Management Advisory Committee, other public broadcasting stations as appropriate, and representatives of volunteers and volunteer groups.

Mr. JAMES B. CARDWELL,

ARTHUR ANDERSEN & Co., Washington, D.C., February 13, 1979.

Vice President, Finance and Administration,
Corporation for Public Broadcasting, Washington, D.C.

DEAR MR. CARDWELL: We are pleased to submit our proposal to assist the Corporation for Public Broadcasting (CPB) in its Volunteer Services Study. Our proposal has been developed from our understanding of the objectives of this study obtained from conversations with you and Mr. Ron Davis, a review of a draft protocol describing the study and a review of the Public Telecommunications Act of 1978. We are aware of the importance of the study and of the need for a careful, professional, thoughtful approach.

UNDERSTANDING THE PROBLEM

The Public Telecommunications Act of 1978 requires CPB to undertake a study to determine the manner in which personal services of volunteers should be included in determining the level of non-Federal financial support (NFFS). Since the level of NFFS received by public broadcasting entities determines CPB's annual Congressional appropriation and the resulting distribution to public radio and television stations, the proper identification and quantification of voluntary personal services included in NFFS is critical. The Public Telecommunications Act also requires CPB (in consultation with the Comptroller General and others) to develop uniform ac

counting standards for use by all public telecommunications entities receiving funds from CPB.

CPB has established three objectives of the volunteer services study:

1. To develop a uniformly applicable definition of "personal services of volunteers.'

2. To develop criteria and standards for determining what "personal services of volunteers" may be counted as NFFS and how they are to be valued for that purpose.

3. To develop criteria and standards for determining what donated services other than "personal services of volunteers” may be counted as NFFS and how they are to be valued for that purpose.

We understand that to assist in meet its legislative requirements, CPB intends to establish a Financial Management Advisory Committee (the "Committee"). The Committee will include representatives with varying interests in public broadcasting. CPB has also tentatively adopted a provisional definition of "personal services of volunteers."

OUR APPROACH

We believe the definition and valuation standards for personal services of volunteers as well as for other donated services that are developed from the Volunteer Services Study must meet several criteria:

1. They must be designed to facilitate identification of voluntary personal and donated services and their valuation by individual stations without inordinate or overly complex record keeping.

2. The results must be reasonable and subject to objective evaluation against a set of standards that all concerned parties accept as fair.

3. The amounts must be capable of audit verification.

4. The definitions and valuation standards should be developed with an awareness that they must ultimately be reconciled with the uniform accounting standards to also be developed by CPB.

5. A draft study must be completed by April 25, 1979.

We propose to form a Volunteer Services Study engagement team of members uniquely qualified to assist CPB and the Committee achieve its objectives and satisfy the above criteria.

Engagement partner.-Robert W. Comer. Bob is a member of our firm-wide nonprofit industry program team and also responsible for our Washington office nonprofit practice. He has had extensive experience in the nonprofit area and is the engagement partner responsible for our examination of the financial statements of CPB. Bob will have full responsibility for the timely and successful completion of our work on this project.

Advisory partner.-Timothy J. Racek. Tim is responsible for our firm-wide nonprofit industry program. He is a member of the AICPA Subcommittee on Nonprofit Organizations that recently issued a statement of position on accounting principles and reporting practices for certain nonprofit organizations, including public television and radio stations. Tim is a recognized leader in the accounting for nonprofit institutions and has already participated extensively in seminars sponsored by CPB in which accounting problems of individual stations were discussed. He will bring to this project his broad experience in dealing with the specific issues under examination and will participate in all phases of our work.

An experienced manager and supporting staff will also be assigned to the engagement team.

We propose that the Volunteer Services Study be conducted in three stages: (1) factfinding, (2) preparation of tentative conclusions and recommendations, and (3) preparation of final drafts. As part of each stage, we intend to meet with CPB and the Committee to discuss proposed methodology, findings and recommendations. Outlined below is a summary of the proposed work program.

PHASE I-FACTFINDING (FEBRUARY 12 TO MARCH 9)

1. Review data on volunteer and donated services on file at CPB (survey information), including available external audit department information.

2. Research existing practice and literature including applicable AICPA audit guides, government guildelines, etc.

3. Consider possible implications of Fair Labor Standards Act.

4. Discuss study with representative voluntary action group(s).

5. Meet with Committee to: (a) Discuss objectives, proposed approach and timing;

(b) Identify areas of sensitivity and significance; and (c) Review provisional definition of "personal services of volunteers" and discuss our recommendations.

6. Conduct six field visits to include large and small television and radio licensees; including a large producing station: Licensee operated by a college or university; licensee operated by a state or local government; and an independent licensee. The objectives of the field visits will be to determine: (a) the types of volunteer and donated services received by the stations; (b) current methods of identifying, reporting and accounting for volunteer and donated services, including the types of records; and (c) perceived definition and valuation problems at station level.

PHASE II-PREPARE TENTATIVE CONCLUSIONS AND RECOMMENDATIONS (MARCH 12 TO MARCH 30)

7. Determine the need for additional field visits and factfinding.

8. Develop definitions and valuation methodologies. Draft preliminary conclusions and recommendations.

9. Meet with Committee to discuss initial draft.

10. Expose initial draft to selected individuals and organizations.

PHASE III-PREPARE FINAL DRAFT (APRIL 2 TO APRIL 20)

11. Revise draft.

12. Meet with Committee to discuss revised draft, additional comments. 13. Revise draft and issue final draft.

FEES

Our fees will be based on the time spent on the engagement at our established billing rates, plus out-of-pocket expenses for travel, lodging, etc. While it is difficult to estimate the time required for this assignment, in part because the number of field visits required may differ from the estimate, we antiticpate that our fees and expenses will approximate $40,000 (see attachment). We will advise you promptly when and if it appears that we will exceed our estimate. If less time than estimated is required, we will, of course, bill the lower amount.

We appreciate the opportunity to be considered for this important project and will be pleased to answer any additional questions you may have.

Very truly yours,

ARTHUR ANDERSEN & Co.

CORPORATION FOR PUBLIC BROADCASTING-VOLUNTEER SERVICES STUDY, FEE ESTIMATE

DEAR MR. COMER: This is to officially inform you that the Corporation for Public Broadcasting has approved your proposal dated February 13, 1979. CPB requests that you initiate action to fulfill the objectives, as described, in accordance with the terms, conditions, and milestones detailed therein.

It is understood that the total costs of this project on the part of Arthur Andersen & Company shall not exceed $40,000.00.

Mr. Ronald L. Davis is the designated CPB project officer. All matters regarding this project should be directed to his attention.

Sincerely yours,

JAMES B. CARDWELL,

Vice President.

Mr. MARKEY. And you are using Arthur Anderson for the establishment of the uniform accounting practices as well?

Mr. CARDWELL. No. In that case at this very moment we are considering about seven different proposals. I must say that they are among the two most responsive proposals that we have under consideration. We will make that decision probably this week, and the award of the contract will probably occur next week. That work will be completed by next November.

Mr. MARKEY. That is November of 1979?

Mr. CARDWEll. Yes.

Mr. MARKEY. I don't have any other questions, Mr. Chairman. Mr. LUKEN. May I interject at this point?

Mr. VAN DEERLIN. Mr. Luken.

Mr. LUKEN. Mr. Fleming, you will be spared the full wrath of my questioning since I wasn't here for your presentation, but I would like to pursue one point that the gentleman from Colorado was pursuing which intrigues me. How do you define an independent? How does that work out? You indicated by your answer that it is a problem for you, for those who are entrusted with the business of interpreting independent production.

Could you explain a little bit about that to us, how it works out? Mr. FLEMING. I should start out by telling you that my own knowledge in this area is far from complete. I came to the place in January and this is somewhat new to me, but let me tell you the way I understand it. The complaints from independent producers, particularly, are a very wideranging group. The technology of making something, the moving picture, for instance, these days is such that with a radio or tape recorder, almost literally anybody can envision himself as an independent producer. He gets an idea, goes out and makes a film, goes out and records something, and would like to make a show of this.

It ranges all the way from the most unsophisticated to the very sophisticated independent producer who really has a very substantial business in this. If it is a person who has a very substantial business and simply classifies as an independent-

Mr. LUKEN. Could you cite some instances here?

Mr. FLEMING. I don't know that I could name them for you, but there are major independent producers who are called independent because they are not affiliated with any station, for instance. They do not themselves broadcast anything. They simply produce programs, but they are large. Their business would run into several million dollars, obviously, and they are well-equipped and have a permanent staff and so forth.

It ranges all the way from there to the tiny little person who really doesn't have much of any staff who, if the idea seems to be a good one, can rent facilities and hire people temporarily and so forth. That whole group gets included in something called independent producers. Their needs are quite different.

Mr. LUKEN. Would you have trouble similar to that of the IRS in determining who was an independent contractor for someone else?