Treasurer’s Report: 2006 Fiscal Year July 1, 2005 - June 30, 2006Robert Cherny, OAH Treasurer |
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In my fourth report as treasurer, the news is once again mixed—we ended Fiscal Year 2006 (FY06) with an unanticipated deficit, but the finance committee and the board has worked with the executive director and staff to identify the sources of the problem and develop appropriate remedies. It may be helpful to understand OAH’s budget process. The first draft of the annual budget is prepared by the executive director and staff. During my tenure, the treasurer has visited Bloomington to review that draft with the executive director, assistant director (and previously deputy director), JAH editor, and business managers for the OAH and JAH offices. The draft, with whatever revisions came during that review, goes to the finance committee, which includes the president, past president, and president-elect as voting members, and the executive director, JAH editor, treasurer, and a cochair of the Leadership Advisory Council as nonvoting members. The version approved by the finance committee then goes to the board for action during the annual meeting. The budget is for the fiscal year that begins July 1. After the beginning of each new fiscal year, an accounting firm, recently the CPA firm of BKD LLP (http://www.bkd.com/), reviews our books and procedures and prepares a report usually referred to as the audit. The board reviews the audit during its fall meeting in October, reviews a report from the treasurer, and approves any necessary revisions in the budget. My report is drawn in part from the annual accountants’ report and in part from summaries of revenue and expenditures prepared by the executive office. The accountants’ report indicates total assets at the end of the FY06 of $2,390,198, as compared to $2,227,457 the year before. Revenue and Expenditures Total revenue was up from $2,818,037 to $3,415,488. Figure 1 indicates revenue by type.
Our largest source of income continues to be dues, which totaled $1,008,187, up from $978,690 last year; as a proportion of the total, however, dues have fallen from 35 percent to 30 percent. The next largest continues to be contributions, grants, and contracts, which increased from $576,002 to $957,841, and from 20 percent to 28 percent of the total; much of that increase was in restricted contributions and grants that cannot be applied directly or immediately to on-going operations. All other sources of revenue have changed very little proportionately since last year. In-kind revenue consists of support provided by Indiana University (IU), which does not charge for two of the three houses used by OAH as its offices and which provides some salaries and administrative services for the Journal of American History. Total expenditures were down from $3,289,888 in FY05 to $3,210,178 in FY06. The major categories of expenditures are shown in Figure 2.
The biggest proportional changes in expenditures are a reduction in the cost of meetings, reflecting primarily the unusual costs associated with moving the annual meeting in FY05, and increases in JAH expenditures and collaborative projects (the latter of which is related directly to increased revenue for collaborative projects). The Bottom Line The accountants’ reports show the following revenue and expenses for the past four fiscal years (Table 1).
The FY05 deficit of nearly $472,000 resulted primarily from unanticipated expenses involved in moving the annual meeting from San Francisco to San José, unanticipated office operations, and failure to realize projected revenues. The “surplus” of $205,310 noted above for FY06 includes more than that amount of temporary restricted revenues, i.e., funds not available for on-going operations. Thus, at the end of FY06, we faced an unanticipated debt of about $179,000 owed to IU, something not reflected in the accountants’ summary of revenue and expenses, but noted in the report itself. Investments OAH assets consist primarily of investments. In general, our investments have done better this past year, partly as a result of moving them to the IU Foundation and partly because of a favorable stock market. The accountants’ report shows net assets for the Endowment Fund, the Fund for American History, the Prize Fund, and the new Second Century Initiative (Table 2).
Revenue from the Fund for American History is earmarked for particular projects within the overall OAH budget, while revenue from the Prize Fund is used solely for prizes and awards. The Second Century Initiative Fund is also restricted; it was created initially in the hopes of securing an NEH matching grant for community college outreach, but we did not receive the grant. The Endowment Fund is not restricted in this way, and the decline in the value of that fund in FY05 came from using it to pay off most of the FY05 deficit. The decline in the Endowment Fund in FY06 resulted from using that fund to pay off the final costs of moving the annual meeting in FY05. Audit Recommendations Previous accountants’ reports have recommended changes in procedures for bookkeeping and handling cash, all of which have been implemented. Of these, one of the most significant was conversion to the accrual approach to bookkeeping. Last year’s accountants’ report recommended that all bookkeeping be converted to the accrual approach and that there be monthly reports to the Finance Committee and quarterly comparisons of budgeted expenditures and actual expenditures. This has been done—members of the finance committee can now view monthly summaries online. With this year’s accountants’ report, we have also implemented a change in the way that in-kind support from IU appears in our bookkeeping; previously in-kind support appeared only in the annual accountants’ reports, but now it appears in all our summaries. Postmortem on Fiscal Year 2006 Last year I suggested that there was reason for guarded optimism in FY06 because we had recently moved our investments to IU Foundation, advertising revenues are up, membership was up, development efforts enjoyed increasing contributions, and we anticipated no more unusual expenses like those in 2005. In retrospect, I was too optimistic. To be certain, our investments have done much better this past year and membership has continued to increase. Yet we ended FY06 with a debt of $179,259 owed to IU. The services provided by IU take place throughout our fiscal year, but OAH’s income is concentrated at certain times of the year. As a consequence, it has long been the practice to run a debt with IU that has usually been extinguished by the end of the fiscal year. In both FY05 and FY06, however, we ended the year with a debt. In FY05, the debt was paid by dipping into FY06 revenues. In FY06, the debt was too large to deal with in that way, but IU has been willing to carry us in the expectation that we shall balance our account during FY07. We began FY06 by reducing our revenues by about $30,000 to pay the debt to IU from FY05. We overestimated FY06 revenues by $142,213, of which $139,127 can be attributed to our failure to realize projected membership revenue. We exceeded our budgeted expenditures by $8,429. These three items total $180,642—slightly more than the year-end debt to IU. In both recent fiscal years, actual revenues fell short of projected revenues. In FY05, we reduced expenditures significantly, but not enough to avoid a deficit. In FY06, expenditures slightly exceeded projections, and, combined with the shortfall in projected revenues, produced a deficit of $117,413. This does not appear in the accountants’ summary of revenue and expenditures primarily because that summary of revenue includes contributions and grants that cannot be used to meet ongoing expenditures. One source of the deficit in both fiscal years was a shortfall in projected revenues from individual and institutional memberships (Table 3).
The Outlook for Fiscal Year 2007 The finance committee and the board have been deeply concerned by this financial situation, and have worked with the executive director and staff to remedy it. At the annual spring meeting, the board adopted a budget for FY07 that reduces several expenditures. Among other savings, the FY07 budget:
It was the intention of the board that these reductions in expenditures would permit OAH to begin to repay the endowment fund for the funds taken from it to cover the FY05 shortfall; the intent was to repay those funds over five years. In June, when we learned that OAH had not received the NEH grant for the Second Century fundraising initiative, we reduced the number of community college workshops in FY07 from two to one. When the finance committee and board learned of the end-of-FY06 debt to IU, they approved an increase in institutional membership fees, to take effect in January 2007. At its annual fall meeting, the board discussed the finances of the organization in depth and at length. As a result, the board approved several additional measures intended to put the organization on a more solid financial footing:
Since the fall board meeting, the finance committee has met via a conference call to approve a proposal for a new dues structure, to be presented to the membership in the spring. The finance committee also approved a plan to rotate accounting firms periodically and began discussing the endowment fund. We are, frankly, uncertain that these measures will balance our books by the end of FY07. If not, we shall need to go into the endowment fund once again at the end of the fiscal year to balance our account with IU. We all recognize that this situation cannot continue. However, there are hopeful signs six months into the fiscal year—contributions are up, our investments continue to perform well (thanks to the bullish stock market and to the IU fund managers), and membership is stable.
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