Cheese & Dairy’s board of directors hired an auditor and shared the results with the patrons in a Feb. 14, 1963 “Board Information” message. The auditors found numerous bookkeeping errors. Eight of the directors spent their own money to copy and mail the information. The entire letter is provided below.
“February 14, 1963
To members of Tillamook Cheese and Dairy Association:
CHEESE FACTORY LOSS
Our auditing firm has found the reason for part of the high fat loss in our cheese factory. When the twenty pound squares that we make are turned over to the Tillamook County Creamery Association, we receive payment for them only to the weight of 20-1/4 pounds. The auditing firm weighed samples from various lots of twenty pound squares from T. C. C. A. inventory and found that all were heavier than 20-1/4 pounds. Six T. C. & D. A. directors, at different times, also weighed samples and found that almost all were heavier than 20-1/4 pounds. The average overweight amounted to at least ½ pound per square. On our annual make of approximately 112,000 twenty pound squares in 1962, this ½ pound per square would equal 56,000 pounds of cheese, or approximately 18,500 pounds of butterfat.
Since the Tillamook County Creamery Association sells the squares by their full weight, the Creamery Association gains from Tillamook Cheese and Dairy the overweight amount. We are paid 38-1/2 cents per pound up to 20-1/4 pounds. The Tillamook County Creamery Association receives approximately 50 cents per pound on the full weight. Therefore, the Tillamook County Creamery Association gains approximately 25 cents on every twenty pound square that is overweight a half pound. If all the 112,000 twenty pound squares follow the pattern of the random sampling, this would amount to $28,000.00 gained from Tillamook Cheese and Dairy Association.
Tillamook Cheese and Dairy Association is the only factory that makes twenty pound squares. Several factories make forty pound squares and the Tillamook County Creamery Association pays the factories for them on their full weight.
JOINT USE FACILITIES
In the course of their audit for Tillamook Cheese and Dairy Association, Olson and Glerup have encountered difficulties in obtaining information from the Tillamook County Creamery Association officers concerning the facilities used jointly by both cooperatives. The by-laws of our association state that charges for joint use facilities shall be handled “in accordance with such agreement as may be in existence from time to time between the cooperative and the Tillamook County Creamery Association.” The auditors were unable to locate any written agreement and were told by offices of the Tillamook County Creamery Association that several methods of allocation have been used.
At this time, our auditors have studied the first of many items that appear on the records as joint use facilities. Mr. Dixon told Mr. Glerup that the allocation of charges for watershed and water system was based on an estimate of water usage. The charge for water during the ear should be in the same ration, according to Mr. Dixon. Information from the records show that during the period from April 1961 through March 1962, T. C. & D. A. was charged for the use of 34% of the water. In the March 31, 1962 Creamery Association audit the joint use allocation for watershed and water system showed capital required of T. C. & D. A. was 60% of the depreciated cost.
It would appear from the information obtained from Mr. Dixon and the Tillamook County Creamery Association records that we were required to furnish more than our fair share of capital by an amount of $55,837.67 on this one item.
BENEFITS FROM AUDITING
It is very apparent to us that we are receiving great benefits from the work being done for Tillamook Cheese & Dairy Association by our auditors.
Now that we are aware of the loss occurring from the overweight of twenty pound squares, our cheesemakers will make every effort to keep the weight of the squares from exceeding 20-1/4 pounds, so that we will be paid for all cheese turned over to the Creamery Association.
Butterfat losses in the Grade A operations that were pointed out earlier by the auditors have already been partially corrected. These problems will need the continued attention of the Board. The Directors have been alerted to the fact that we must have accounting for the product as well as for the dollars.
The annual audit of T. C. & D. A has not been completed because the books of the association were not closed until after January 30, 1963. Much work remains to be done in the area of the joint use facilities. The allocation of these joint use facilities affects the equity of each producer and determines an amount which must be withheld each month from the milk checks.
DECLARATORY JUDGMENT SUIT
The Circuit Court denied the Tillamook County Creamery Association’s request for a demurrer in the Declaratory Judgment Suit and again instructed attorneys for Tillamook County Creamery Association to file an answer to the suit. Although the filing of the demurrer has delayed the settling of the issue, we are hopeful that the question will be decided soon on its merits. When both sides of the controversy are heard by a competent and impartial third party and a decision rendered, we will all know the exact rights of each cooperative.
MILK SALES
According to a notice from Carnation dated January 25, 1963, the price paid to us by Carnation for Class 1 bottle and can milk has been dropped to $5.80.
We recently received an order from Alpenrose for two additional tankers of milk each week, an average increase of about 7,000 pounds per day. We learned that these tankers displaced milk formerly supplied by Portland Independent Milk Producers, rather than coming from increased sales by Alpenrose. However, Portland Independent Milk Producers have been assured by Alpenrose that the amounts purchased from them will be re-adjusted so that their total shipments will equal the amount specified in Alpenrose’s agreement with Portland Independent Milk Producers.
The question in our minds is this – What adjustments will Alpenrose make in their pool in order to return to Portland Independents the milk sales that were given to Tillamook at this particular time?
From eight of your directors,
Joe Beeler Vern Lucas
Glenn Johnston George Milne
John Landolt Ralph Redberg
Hans Leuthold Arnold Waldron
(Mimeographed and mailed at our own expense.)”
