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HOHE v. CASEY

December 11, 1989

MARY A. HOHE, et al., Plaintiffs
v.
ROBERT P. CASEY, Governor, et al., Defendants



The opinion of the court was delivered by: CALDWELL

WILLIAM W. CALDWELL, UNITED STATES DISTRICT JUDGE

 I. Introduction

 By memorandum and order, dated August 10, 1989, we decided that section 2 of Act No. 84 of 1988, amending the Pennsylvania Administrative Code of 1929, 71 P.S. ยงยง 51-732-506 (Purdon 1962 & Purdon Supp. 1989), and the collective bargaining agreement executed pursuant thereto, were constitutional for the most part under Chicago Teachers Union v. Hudson, 475 U.S. 292, 106 S. Ct. 1066, 89 L. Ed. 2d 232 (1986). Act 84 authorized labor unions representing Commonwealth employees to collect a fair share fee from state workers who were not members of the union for the unions' costs of representing these non-members in collective bargaining. In our memorandum, we noted that the only issue to be resolved was whether, in accordance with Hudson, the major categories of expenses in the August 1988 fair share fee notice had been subjected to "verification by an independent auditor." Hudson, 475 U.S. at 307 n.18, 106 S. Ct. at 1076 n.18, 89 L. Ed. 2d at 247 n.18. A hearing was held for that purpose on September 8, 1989, and the parties also entered into a stipulation. They subsequently briefed the issue and the matter is ready for disposition. *fn1"

 II. Background

 Greater detail on all aspects of this case can be found in our previous memoranda. See 704 F. Supp. 581 (M.D.Pa. 1988) (granting plaintiffs a temporary restraining order against collection of the fee); 695 F. Supp. 814 (M.D.Pa. 1988) (vacating the restraining order and denying plaintiffs' motion for a preliminary injunction), aff'd, 868 F.2d 69 (3d Cir. 1989); 128 F.R.D. 68 (M.D.Pa. 1989) (class action certification). For our purposes it is only necessary to note the following.

 
The accompanying supplementary financial information, appearing at pages 8 and 9, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the examinations of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements, taken as a whole.

 (Joint Exhibit 1).

 The auditors issued the same opinion in connection with the Supplementary Financial Information for AFSCME Council 13 (Joint Exhibit 3).

 In connection with calculating chargeable and non-chargeable expenses, the auditors prepared Special Reports pursuant to SAS No. 35. The Special Report for AFSCME Council 13 was prepared on July 20, 1988, prior to the issuance of the notice. The Special Report for AFSCME International was prepared after the notice was sent to non-members.

 Witnesses at the hearing testified to the significance of these accounting procedures. Professor Martin Benis, a certified public accountant, testified on behalf of the unions. He gave a basic overview of the auditing process. The process includes ten generally accepted auditing standards, composed of three major categories: (1) general standards; (2) standards of field work; and (3) standards of reporting. As highlighted by Professor Benis, the first category deals with the technical proficiency of the auditor and the due care to be exercised in performing the audit. The second category seeks to obtain "sufficient competent evidential matter." (N.T. 12). This would be accomplished "through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination." (See "Generally Accepted Auditing Standards, " defendants' Exhibit 1). The third category contains standards of reporting dealing with the contents of the auditor's report and whether an opinion can or cannot be expressed regarding the financial statements taken as a whole. (defendants' Exhibit 1). When an auditor states that an audit was performed in accordance with generally accepted auditing standards, he is referring to these standards.

 In regard to SAS No. 29, the witness stated that, when the auditor expresses an opinion, the second and third standards of field work apply, *fn2" but these standards do not apply when a special report is prepared pursuant to SAS No. 35. Professor Benis explained that, along with the three general standards, only the first standard of field work applied to SAS No. 35. The second and third standards of field work, as already noted, are part of the process of obtaining "sufficient competent evidential matter." The plaintiff's expert, Dr. David F. Hawkins, confirmed this function of the second and third standards with understandably more emphasis upon their role as "search and verification procedures." (N.T. 74).

 III. Discussion


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