American Library Association Finance & Audit Committee
2007-2008 EBD #4.4
Report to the Executive Board
April 12, 2008
Indirect Cost Study – EBD #4.10
K. Brown led a discussion on the results of the FY 2007 Indirect Cost Study. Work on the 2007 study resulted in a rate of 23.9%. This represents an increase of 5.4% over last year. The new rate will be used in the development of the FY 2009 budget.
Total direct/indirect costs for the year increased by $1.7 million to $18.1 million or 10.2%. This is in line with the increase in total ALA expenses of $3.3 million or 7.7%. The largest increase occurred in General Administration costs ($973,235) related to legal fees ($45,225), organizational support ($167,909) and post retirement benefits ($492,512). Other significant increases occurred in Production Services ($209,443) as less costs were recovered to other units as compared to FY 2006, and building operations ($182,203) related to the Washington Office building.
CHOICE Financing – Preliminary Proposal – EBD #4.20
G. Calloway updated the committee on the progress of the CHOICE property project. It was noted that there was a ground breaking ceremony at the end of March and that the project was moving quickly. The expected completion date has been accelerated from October/November to late July/August. The current terms, as provided by Bank of America, provides a loan facility up to $2.5 million, with a term of seven years, amortized over 25 years. The specific rates of the loan are still being negotiated. The financial covenants that ALA would be required to meet pose no problem, stated G. Calloway. The Board is being asked at this time to approve the Reimbursement Resolution, which will provide G. Calloway and K. Fiels the authority to negotiate financing on ALA’s behalf.
The Finance & Audit Committee recommends to the Executive Board approval of the Reimbursement Resolution pertaining to the purchase and financing of the Liberty Square property located in Middletown, CT.
Final financing arrangements will be provided to the Board prior to the Annual Conference.
A-133 Audit Update
Susan Jones of Ernst & Young met with the committee to brief them on the planned A-133 audit. She noted that an A-133 is a compliance audit and is required on any program that receives government funds of $500,000 or more. This could be for individual programs or an accumulation of multiple programs. A-133 audits are generally done when the financial statement audit is conducted. Due to the work required and staffing on both sides, the A-133 audit is now conducted in the spring. ALA’s has two programs, “We the People” and “Public Programs” which will be audited at a cost of $15,000 each. It was noted that the number of programs that would be audited are determined by Federal guidelines, not the audit firm. The committee was also updated on the new 990 forms. The 990 form is the tax return required to be filed for non-profit organizations. The new form is considered by many in the industry to more onerous with many more schedules to fill out and provide much more information.
FY 2008 Budget Update – EBD #14.9
G. Calloway updated the committee on the status of the FY 2008 budget. Through February 29, 2008 total ALA revenue was $24.0 million compared to the budget of $24.2 million or (-1%). Total ALA expenses were $24.1 million compared to a budget of $25.9 million. The net result was ($300,000) compared to the budget of ($1.0 million). The General Fund had revenues of $12.7 million, which was $105,616 or 1% less than budget of $12.8 million. The shortfall was in three areas – Membership Programs and Services ($95,774), interest income ($63,307) and Communications ($38,339). It was noted that the interest income figure is artificially low lower as the expected monthly interest from the endowment is not currently being reflected. The amount of transferred interest should be approximately $17,000 per month. It was also noted that while regular member dues is exceeding budget but the organizational and corporate member dues continues to show some softness. General Fund expenses were $13.4 million and were under budget by $1.0 million or 7%, primarily in Member Programs and Services ($375,434) and Communications ($263,301).
Division revenue was under budget by $344,000 at $6.7 million as ALSC reported lower than expected revenues across the board ($116,645), particularly in the sale of materials which includes seals. Another significant portion is in the PLA ($91,140) were much of their national conference revenue was reported in March. Total division expenses were $6.5 million or $971,227 (13%) below budget. Conference related expenses for AASL and PLA are still being processed. ACRL was also les than budget by $236,521 (20%) due to open positions and timing issues.
FY 2009 Preliminary Budget – EBD #4.19
R. Hersberger, K. Fiels and G. Calloway provided a summary overview of the Key Assumptions and a summary of financial targets for FY 2009.
F&A forward the Preliminary FY 2009 Budget proposal (EBD #4.19) to the Executive Board to approve.
Controller’s Report – EBD #4.7
R. Swedowski presented his report to the committee.
Inventory Levels-ALA Editions and Products & Promotions- Inventory levels at February 29, 2008, are as follows; ALA Editions $635,162, and Products and Promotions (Graphics) $658,533. The ALA Editions inventory reflects a $36,000 valuation (down from $39,000 at February 28, 2007) for Guide to Reference Books, 11th Edition. The 12th edition is in production. The largest item in the inventory for Products and Promotions at February 28, 2008 was $63,000 of Read products, a total of 32 different items.
As of February 28, 2008 the excess and obsolete inventory reserves, reflect the following balances, ALA Editions ($292,000) and Products and Promotions ($151,000). In FY 2007, ALA Editions destroyed $43,000 in excess and obsolete inventory and Graphics destroyed $47,000. All destroyed product is charged against the respective inventory reserves for excess and obsolete products. In FY 2008, ALA Editions and has not destroyed any excess and obsolete inventory, while Graphics destroyed $4,500. Additions to the reserve through February are $15,000 for ALA Editions and $18,000 for Graphics.
Credit and Collections- At February 29, 2008, trade accounts receivable were $2,224,812 as compared to $2,704,264 at February 28, 2007. The 150+ day aging bucket at February 29, 2008 contained $196,714 of receivables as compared to $437,511 at February 28, 2007. Only $6,353 of the FY 2008 150+ day balance is at PBD. The large balance is a result of a large volume of conference exhibitor billings for the annual conference in Anaheim, CA.
Unrelated Business Income Tax (UBIT)- The preparation of the final UBIT worksheets and the actual tax returns commenced in mid-March, and as of this date the 990 is 75% completed. The due date for Form 990 has been extended to April 15, 2008. The due date for Form 990T used for reporting unrelated business income tax was previously extended to June 15, 2008, and will include the taxation of the proceeds for periodical advertising income. No estimated payments for FY 2007 were made to the Internal Revenue Service and the Illinois Department of Revenue since the prior year returns had overpayments totaling $55,545 that were applied to the returns currently being prepared.
Cash Management and Bond Fund- Total cash and short-term investments at February 29, 2008 amounted to $23,598,305 as compared to $18,965,164 a year ago. Year-to-date interest income is $357,377, which is $63,307 less than the budget of $420,684 and $26,446 more than last year.
The Neuberger Berman bond fund investment balance is $12,836,398 at February 29, 2008 as compared to $12,006,721 at February 28, 2007. This investment has produced over $6,726,000 in interest income since December 1991 and the yield has been well above the yield from certificates of deposit. With regard to risk of principal, the account finished FY 2007 with a realized/unrealized gain of $91,695 and is currently reflecting a gain of $380,057 for FY 2008. At February 29, 2008 the cumulative (computed since December, 1991) net realized/unrealized gain is $4,395.
RFP and Auditor Selection Process – EBD #4.22
G. Calloway reviewed an outline i.e. timetable for the preparation of an RFP and possible auditor selection. Ernst & Young has been the ALA auditor for approximately 12 years. In that time span, there have been 4 different audit partners, which has provided a fresh perspective on a regular basis. All the committee members felt that it was good business practice to regularly solicit RFP bids. The committee members agreed to the timetable. As such, management will prepare an RFP to be reviewed and approved at the 2009 Midwinter Meeting. The RFP will then be issued in February 2009 to a list of desirable candidates with replies due by March 2009. The candidate list will likely include all the major and a number of mid-tier firms for a total of approximately ten. Final candidates will be interviewed in April 2009 with a selection made during the spring meeting.
Endowment Trustee Selection
The committee met in a Closed Session to discuss the candidate applications. The committee will discuss their findings with the Executive Board in a Closed Session on Friday.
F&A would like to thank the ALA financial staff, including Greg Calloway, Keith Brown, Sandy Lee, Russ Swedowski and Elaine Klimek for their continued hard work and support on behalf of the committee.
Rod Hersberger, Treasurer
Marilyn Hinshaw, BARC Chair
Patricia Smith (absent)