ALA 2008 Annual Conference Finance & Audit Committee Report to the Executive Board

2007-2008 EBD# 4.0

Wednesday, July 2

FY 2008 Budget Update, April YTD – 2007-08 EBD #14.12

G. Calloway, Associate Executive Director, Finance, reported to the committee on the eight month results for FY 2008. For the period, total revenues were $36.2 million or $1.4 million (4%) over budget due primarily to the level of grants & awards, which were over budget by $2.3 million. Total expenses were $35.6 million or $663,000 (-2%) over budget. Grants & awards expenses exceeded budget by $2.3 million. Both the General Fund and the Divisions revenues were under budget. For Total ALA, revenues are over expenses by $592,000 as compared to a budgeted net loss of $178,000.

General Fund revenues of $15.9 million for the period were under budget by $285,000 or 2%. Contributing to the shortfall was lower than expected revenue in Publishing, which was under budget by $141,000. Publishing results were less than budget due to the delayed release of the Guide to Reference Books and lower subscription and advertising revenue in Booklist. Management is projecting $300,000 lower year-end revenue in Publishing, as well as lower than budgeted expenses. Net revenue, however, is projected to be $79,000 higher than budget, realizing $1.3 million. General Fund expenses of $17.3 million were under budget by $890,000 or 5%. Dues for the period were $3.7 million, which was $288,000 more than last fiscal year. Membership now totals 68,033, an increase of 2,360 from last year. It was noted that organizational and corporate membership is still a concern. Organizational members and corporate memberships are less than budget.

Division revenues for the period were $11.9 million, which is $495,000 or 4% under budget. The PLA national conference was under budget ($225,000) on its registration totals. Division expenses were $10.2 million and under budget by $706,000 (6%). Additional expenses related to the PLA conference are still being processed.

FY 2009 Budget Approval – 2008-09 EBD #3.1

Members of the committee received, reviewed and discussed the action items forwarded from BARC on the FY 2009 budget. The following actions were taken:

MOTION:
F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 General Fund Budgetary Ceiling of $30,483,643 including a $1,770,556 transfer to offset the Plant Fund net operating expenses.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 Divisions’ Budgetary Ceiling of $24,680,707 including a $214,859 transfer from CHOICE to offset the Plant Fund net operating expenses.

F&A concurs with BARC and recommends to the Executive Board the addition of 2.4 FTEs to the Divisions’ Table of Authorized Positions in FY 2009; .4 FTE in ACRL, one FTE in AASL and one FTE in YALSA. Hiring is subject to accommodating space, IT, etc.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 Round Tables Budgetary Ceiling of $1,110,275.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 Grants and Awards (Restricted Fund) Budgetary Ceiling of $10,848,328.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 Long Term Investment Fund (Endowment Fund) Budgetary Ceiling of $861,325 including $166,396 capital gain to be allocated for funding the ALA Spectrum Initiative and a transfer of $228,073 interest and dividends from the Endowment Fund to the General Fund in accordance with Policy 8.5.1.

F&A concurs with BARC and recommends to the Executive Board approval of the transfers from Division operating fund balances to Long Term Investments: ACRL $100,000, AASL $50,000, RUSA $50,000, LITA $50,000, ALSC $49,000 and YALSA $25,000 with a total transfer to the Long Term Investments of $324,000.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 total ALA Capital Budget of $1,607,585. (CHOICE building project will be presented separately with the financing recommendations.)

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 General Fund Small Division allocation of $92,421.

F&A concurs with BARC and recommends to the Executive Board approval of a 2.5% compensation adjustment to base salary and a .5% individual incentive with a fiscal year impact of $445,000 in FY 2009.

F&A concurs with BARC and recommends to the Executive Board approval of the FY 2009 Total ALA Budgetary Ceiling as follows:

Total Budgetary Ceiling Recommendation
Budget Line Recommended Budgetary Ceiling Amount
General Fund $30,483,643
Division Fund 24,680,707
Round Tables 1,110,275
Grants & Awards 10,848,328
Long Term Investment 861,325
TOTAL $ 67,984,278

Endowment Trustees Report – 2007-08 EBD #13.3

Robert Newlen, Senior Endowment Trustee, highlighted the committee’s report that he is expected to deliver on Sunday during the Information Session. He noted that through 5-31-08 the value of the endowment was $30.2 million a decline of $667,000 or -1.7%, which is the same as its benchmark. It was noted that, while there was a loss in the portfolio, the results were significantly better than the general market which was down -9.4%. As expected, most of the portfolio managers suffered during the period. Two exceptions were the fixed income manager, Pimco, and the REIT manager, Heitman, who returned 9.0% and 2.0% respectively. Due to the asset allocation which over-weighted fixed income at 34% of the portfolio, the negative results of the general market was minimized.

R. Newlen also discussed the results of an asset allocation modeling study requested of ALA’s investment advisor Merrill Lynch. There were two general findings of the study; 1) Future returns will be lower and risk will be higher; 2) The portfolio will benefit from the use of alternative investments. As a result, the Trustees began steps to understand alternative investments with a view to eventually employing some alternative investments. The first step will be to schedule some time with the Executive Board at their fall meeting with ALA’s investment advisor, Raj Bhatia of Merrill Lynch, to provide background on the nature of alternative investments.

Finally, the committee was notified of the new YALSA endowment fund. This fund is designed to support specifically identified programs for leadership development initiatives such as scholarships, fellowships, awards, mentoring programs, leadership institutes and workshop grants. As a result, the following action was taken:

Motion:
F&A recommends to the Executive Board the establishment of the YALSA “Leadership” endowment.

Controller’s Report – 2008-09 EBD #4.4

Russ Swedowski, ALA Controller, met with the committee to present his quarterly report.

A-133 Audit – 2008-09 EBD #4.0

R. Swedowski reported to the committee that the A-133 audit, which covers federal grants, was completed and received on 6-11-08. This is a compliance and controls audit. The Association received an unqualified opinion, the best possible opinion, with no material weaknesses or questionable costs. The following action was taken:

Motion:
The Finance & Audit Committee recommends to the Executive Board to accept the OMB A-133 report covering the audit of Federal Awards.

It was also revealed that the there is a planning session scheduled for the end of July for the 2008 audit. The final audit is expected to be completed in the final week of November or early December.

Cash Flow Analysis – 2008-09 EBD #4.1

R. Swedowski, ALA Controller, and K. Brown, Sr. Financial Analyst, discussed with the committee a staff recommendation to transfer up to $3.0 million from the ALA operating account into the ALA working capital account. The operating account handles the Association’s day to day activities, while the working capital account via three intermediate bond funds is longer in duration for a higher return. It was noted that interest income is a vital revenue source for the Association. Additionally, as interest rates have fallen due the Federal Reserve’s efforts to avert a recession, so has the amount that is being earned. They reviewed with the committee the pattern of cash receipts and disbursements in the operating account for each of the last three years. The net results illustrated that ALA has a strong and growing cash position. The same was true for the working capital account. It was pointed out that ALA needed to maintain a certain level of funds at the bank to cover bank related service charges. Further analysis illustrated that staff could transfer up to $3.0 million and meet its daily obligations, as well as its bank balance requirements to cover bank service charges. Staff explained that there was a differential between what the Association could earn in its working capital account compared to its operating account. There exists an average differential of 110 basis points or 1.1%. By transferring the excess funds of $1.0 - $3.0 million from the operating account to the working capital account, the Association can earn an additional $11,000 - $33,000. After further discussion the committee took the following action:

Motion:
The Finance & Audit Committee recommends that the Executive Board approve the transfer of $2.0 million from the ALA Operating Cash Account into the ALA Working Capital Account.

New Accounting Pronouncements- A process has started to identify new accounting pronouncements that may affect the Association. This involves reviewing newsletters from a variety of sources such as accounting firms, benefit organizations and other professional organizations. In addition, reviews of various web sites will also be conducted to help identify sources of on-line information that can provide easy access to accounting related issues. One site that is very helpful is the Internal Revenue Service web site. This project is still in the planning stage and will be a long-term effort.

CHOICE Financing Recommendations – 2007-08 EBD #4.23

The committee members discussed the proposed financing for the property/building currently under construction in the Liberty Square office space. Aspects of the financing include the following:

The estimated purchase price is $1,850,000 for approximately 7,635 square feet of commercial office space. There is expected to be an additional cost of $700,000 for furniture, equipment and renovations. The total credit facility is up to $2.5 million. In consultations with attorney Richard Newman of Arent Fox, three financial institutions were considered for financing the credit facility – Webster Financial Corporation, United Bank and Bank of America. After much discussion and careful consideration, Bank of America was recommended. Additionally, it was also decided that a floating rate financing option was preferred to a fixed rate option. The rate will be based off of the monthly LIBOR (London Interbank Offer Rate) + 225 basis points.
After further discussion the following action was taken:

Motion:
F&A recommends to the Executive Board approval of the Bank of America proposal for financing of the CHOICE Building, contingent on the approval of the ACRL Executive Board.
                         
Information Related Tax Forms (990)- On an annual basis the Association is required to file Form 990, Return Of Organization Exempt From Income Tax. The 990 serves as a source of information about the Association and is available to the public for inspection. On December 20, 2007 the IRS released a new version of the 990 that significantly changes the amount and format of information that is reported compared to the current Form 990. The following questions, which are found on Part VI, page 6 of the 990, will require further discussion at upcoming meetings.

  • Did the organization contemporaneously document the meetings held or written actions undertaken during the year by the following:
    1. the governing body?
    2. each committee with authority to act on behalf of the governing body?
  • Does the organization have local chapters, branches, or affiliates?
    If “Yes,” does the organization have written policies and procedures governing the activities of such chapters, affiliates, and branches to ensure their operations are consistent with those of the organization?
  • Was a copy of the Form 990 provided to the organization’s governing body before it was filed?

All organizations must describe in Schedule O the process, if any, the organization uses to review the Form 990.

Credit and Collections- At April 30, 2008, trade accounts receivable were $2,049,084 as compared to $2,564,069 at April 30, 2007. The 150+ day aging as of April 30, 2008 included $174,607 of receivables as compared to $315,651 at April 30, 2007. The decrease is a result of collection of conference exhibits billings and an increase in collection activity against bookstores by PBD and in iMIS (advertising billings) by Association staff. The PBD 150+ receivable balance is $10,421 while the iMIS 150+ balance is $164,186.

Inventory Levels-ALA Editions and Products & Promotions- Inventory levels at April 30, 2007, are as follows; ALA Editions $654,513, and Products and Promotions (Graphics) $663,719. The ALA Editions inventory reflects a $35,000 valuation (down from $38,000 at April 30, 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 April 30, 2008 was $74,000 of Read products, a total of 41 different items. Inventory levels are reasonable and showing some reduction.

As of April 30, 2008 the excess and obsolete inventory reserves, reflect the following balances, ALA Editions ($153,000) and Products and Promotions ($156,000). In FY 2008, Graphics destroyed $4,514 an ALA Editions destroyed $142,412 of product deemed excess or obsolete. All destroyed product is charged against the respective inventory reserves for excess and obsolete products. In FY 2007, destruction totaled $46,930 for Graphics and $42,714 for ALA Editions. Additions to the reserve through April are $19,000 for ALA Editions and $22,000 for Graphics.

Appreciation

We continue to be well served by Greg Calloway, Keith Brown, Russ Swedowski and Elaine Klimek of the ALA financial staff. They have been very dependable, reliable and thorough in assisting the Finance and Audit Committee in our financial oversight responsibilities.


Respectfully submitted:
Rod Hersberger, Treasurer
Marilyn Hinshaw, BARC Chair
Larry Romans
Patricia Smith
Roberta Stevens