2005-2006 EBD #4.12
Finance & Audit Committee
Report to the ALA Executive Board
ALA Midwinter Meeting
January 25, 2006
The Finance & Audit Committee discussed several issues, met with the ALA auditors from Ernst & Young, and are forwarding recommendations to the ALA Executive Board for its consideration.
Endowment Trustees Report (EBD#13.1)
Rick Schwieterman and Robert Newlen discussed their report to Council with F&A and stressed the following concepts: asset allocation is very important to the success of the endowment, active portfolio management continues to produce very favorable results, the SRI portfolio has been disappointing compared to the overall portfolio. Ariel is a very conservative fund manager, with a philosophy that consists of “slow but steady.” The trustees talked with the Ariel fund managers at their fall meeting and were impressed by the approach they take to investing. However, it is clear that this particular SRI has not been able to profit by investing in oil, energy, and utility stock during the past several months because the mutual fund realized a loss of -2%, compared to its benchmark of 12.7%. Since inception, the initial $200,000 invested with Ariel has increased to $225,000.
FY 2006 Budget Update (EBD# 14.4) and Indirect Cost Study Assumptions (EBD Info#3)
Greg Calloway reviewed the first quarter financial results and highlighted that total ALA General Fund revenue is 4% less than budget, expenses are 14% less than budget, and total ALA net assets are $6,560,989 or 27% more than a year ago. Staff have recently completed a building replacement cost study and as a result of increased property values, the property insurance premiums will increase a little over $12,000. Even though some hiring has occurred, many staff positions continue to remain unfilled, resulting in salary savings of nearly $700,000.
Discussion was held with respect to ALA unit business and financial plans. Neither Publishing nor Conference Services have financial plans although Publishing has a business plan and Conference Services has an initial business plan.
Membership has increased to 67,241, which is 1,616 more than six months ago.
Keith Brown reported that there are no significant changes proposed in the basic assumptions making up the indirect cost allocated to the ALA units and divisions. Bank fees were reviewed and have resulted in a tenth of a percent decrease in the indirect cost rate, which is set at 21.8% for FY 2006.
Ernst & Young Audit Report (EBD#14.10)
Ken Herlin and Maria Stephan of Ernst & Young met with F&A members and reviewed the year end result for FY 2005. We are very pleased to report that there were no material weaknesses reported for the fiscal year 2005. Auditor’s comments, which F&A would like to note include: issues concerning commingling of grant funds has been addressed by centralizing all grants with ALA’s Development Office, which will implement procedures to inhibit the interchange of funds; timely preparation and review of account reconciliations will be addressed by filling a key supervisor position in accounts payable; and the subscription deferred revenue finding will be addressed by creating a detailed listing of these deferred revenue accounts and the detail listings will be reconciled on a monthly basis. It is important to note that no fraud or illegal acts were found and communications with ALA staff were very favorable. All comments from FY 2004 were satisfactorily addressed by ALA staff. Some items to note include the new addition of long-term debt associated with the Washington Office, the need for tightening of controls regarding the iMIS system, the need for centralization of critical grant documents and better monitoring of grant expenditures, and more frequent account reconciliations. Some of these have to do with internal control; others will be corrected by filling positions that have been vacant for a year or longer.
Controller’s Report (EBD#4.11)
Russ Swedowski, ALA Controller, met with F&A and reviewed the state of financial affairs for the Association for FY 2006. Inventory levels remain stable. The At Your Library products make up the greatest number of items. With the 12th edition in production, The Guide to Reference Books, 11th edition is beginning to close. The 150+ day accounts receivable have considerably decreased due to receipt of large contributions. Cash and investments amount to $16.8 million as compared to $19.4 million a year ago. It is important to note that the decrease is due to accounts receivable and the down payment to on the Washington Office building. During the past fifteen years, the Neuberger Berman bond fund has produced more than $5.5 million in interest income, which is well above interest received from certificates of deposit.
ACTION ITEM:
F&A recommends to the ALA Executive Board that they accept the audit as revised and presented by Ernst & Young.
Motion carried.
BARC Report (EBD#3.3)
F&A received the BARC report from Patty Wong, BARC chair. Highlights include: 1) composition of BARC and the addition of Divisional representatives. COO has received the proposal and will be moving forward with it at ALA Council III, 2) Conference Services proposed an idea that the Scholarship Bash would be used for Katrina Relief as opposed to the monies donated to the scholarship fund to support the Spectrum Scholarships and the other 3-4 scholarships that are funded by the Scholarship Bash. BARC recommended that the dollar amount normally donated to the scholarships still be donated to the scholarship fund because the intent was for scholarships and anything above would be donated to the Katrina Relief Fund, 3) use of some of the ALAhead to 2010 funds to establish a R&D fund and the need for ALA staff to work on a financial plan for R&D funding, 4) apportionment of $180,000 from FY2005 year end net revenues among some of the strategic plan initiatives, 5) update of ALA Finances 101 workshop held on Friday, which was not a good time, and the idea to market it differently and to stress the new name to ALA Finances 101, and 6) the ACRL/CHOICE property.
ACTION ITEM:
F&A recommends that the ALA Executive Board designate that all net proceeds from the 2006 Scholarship Bash over that needed for scholarships be designated as a one-time addition to the Hurricane Relief Fund and that a detailed financial report be given to the Executive Board at the Fall 2006 meeting prior to distribution of funds.
Motion carried.
ACRL/CHOICE Property Purchase (EBD#4.17)
ACTION ITEM:
F&A concurs with BARC and recommends that the ALA Executive Board authorize the expenditure of up to $25,000 from ACRL/CHOICE net assets to conduct an architectural feasibility study of the Acheson House property for the use of ACRL/CHOICE.
Motion carried.
Whistleblower Policy (EBD#4.1rev)
Recognizing the importance of Sarbannes Oxley, F&A recommends the fore-mentioned document to be adopted by the ALA Executive Board, with procedures to be at the purview of ALA administration.
ACTION ITEM:
F&A recommends that the ALA Executive Board adopt the Whistleblower Statement as reflected in EBD #4.16 revised and dated January 24, 2006.
Motion carried.
F&A Charge (EBD#4.15rev)
In keeping with the spirit of Sarbannes Oxley and its recommended operating practices, F&A recommends a change to the F&A charge to incorporate more specified responsibilities ties with the independent auditors of the Association.
ACTION ITEM:
F&A recommends that the ALA Executive Board adopt the revised charge of F&A as presented in EBD #4.15 revised.
Motion carried.
Working Capital Accounts (EBD#4.14)
At its fall meeting, F&A discussed the cash asset allocations and asked ALA staff to investigate alternatives. ALA staff worked with Raj Bhatia, ALA’s Merrill Lynch investment manager and brought a proposal to F&A.
ACTION ITEM:
F&A recommends that the ALA Executive Board affirm the transfer of $1 million from Neuberger Short Term Account #1 to MLIM Limited Maturity (EBD #4.14).
Motion carried.
CIPA and CDA Loan Payoffs
F&A reviewed the year end (final audited) close and discussed the transfer of cash to the long term investment fund to payoff the CIPA and CDA loans.
ACTION ITEM:
F&A recommends that the ALA Executive Board, as has been ALA Operating Practice, approve the cash transfer of $241,723 to retire the CIPA/CDA debt during August, 2006.
Motion carried.
F&A thanks ALA Finance Staff, in particular Greg Calloway, Keith Brown, Elaine Klimek, Sandy Lee, and Russ Swedowski, for keeping a watchful eye on the Association’s finances during the past year and working with ALA staff to enable us to have a very successful year.
Respectfully submitted,
Michael Golrick
Janet Swan Hill
Patricia Smith
Patricia (Patty) Wong
Teri Switzer, Chair
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