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Treasurer Report

Posted By Peter Monge (U of Southern California) , Wednesday, September 9, 2020

Proposed Budget, FY21 (October 1, 2020 – September 31, 2021)

The proposed budget is included with the other financial material that has been provided to you. Once it is approved, it will be posted on the ICA website (behind our firewall) so that all ICA members have access to it.

The budget has four financial columns with titles at the top:

Approved Budget for FY2019

Audited Actual Expenses for FY 2019 Approved Budget for FY 2020 (this year) Proposed budget for FY 2021 (2020 - 2021)

 

This enables you to compare the last two years’ budgets with the proposed budget for next fiscal year. Our budget is audited every year, which means that an outside licensed auditing firm has examined our books and fiscal resources and certified that we have handled our money in ways that meet professional accounting standards. By comparing the 2019 approved and actual columns, you can see how closely we adhered to budgeted amounts.

Notice that the Totals and Subtotals are at the top of the columns and the separate subsections within the columns. This may be different than what you are accustomed to seeing in a budget, but it makes it easier to see what the subsections are as well as the totals and subtotals. In the final column Laura and I have highlighted in green any proposed FY21 number that is either smaller or larger than that same line item in the FY20 budget (this year’s budget). So, in column 4, the proposed budget, remember that a green number is different from last year’s amount and a black number is the same as last year. We have also added in the final column of the budget some notes and/or comments on why the number has changed to help you understand our reasoning behind the change.

The “Section” totals are in Bold for budgeted income, expense, and Net Income.

The proposed Total Income for next year is $2,915,381 compared to $2,662,181 for this year.

The proposed Total Expenses for next year are $2,334,750 compared to $2,409,947 for this year.

The proposed Net Income (Total income minus total expenses) for FY21 is $474,176 compared to $208,234 for FY20 (this year).


This proposed budget comes to you as a motion requesting that you approve it as our operating budget for FY21.

Finances in the Context of the COVID-19 Pandemic

Planning the annual ICA conference involves a huge amount of work on the part of many people, as all of you who are a part of it know so well. It also involves the investment of a considerable amount of money, specifically for things like renting conference centers, paying for the opening and closing ceremonies, and renting audio-visual equipment and staff. For the Gold Coast conference we had nearly half a million dollars in contracted services. When we made the decision to substitute the virtual conference for the physical one, the people to whom we owed those funds demanded that we pay them the money despite the fact that we would not be receiving any of the services. Laura declined to pay, proposing instead that we postpone the conference until 2024 our next uncommitted year for a conference. After considerable negotiations, Laura was able to get all of the entities in Gold Coast to agree to this arrangement, to keep the deposits we had made for the 2020 conference and to wait for the major remaining payments until 2024. This is a huge financial achievement for us and is one of the reasons why our finances are not as desperate as they would otherwise be.

As you well know, the Executive Committee approved a 25% conference registration fee refund for those who were attending the virtual conference. That was a loss of approximately $175,000 of our budgeted conference registration amount of $700,000, a sizable loss of income. It is worth noting, as well, that the income for the 2020 conference was already going to be lower than it would be for a European or North American location, and we had budgeted for that, but while all is not yet said and done, it is likely that the attendance numbers will be further depressed by the conversion to virtual. When we made the decision to go virtual for the safety and health of our attendees, staff, and leadership, many members had not yet registered. Whereas our attendance in Prague and Washington, DC was above the 3,500 mark, we had anticipated a net of 2,700 or so attendees for Australia which will now likely end up around 2,100 total attendees virtually.

Laura and the EC recognized that converting the 2020 conference to virtual-only, while necessary, was likely to provide a financial hardship to many of our members, especially students, tier 2 and 3 members, and clinical and part time faculty who might not be able to receive reimbursement from their universities for unused but unrefundable airfare and visa expenses. So, we started the ICA Hardship Fund and invited members and universities to donate. The response was overwhelming. To date we have raised approximately $70,000. In early May our staff will be soliciting requests from members for this financial assistance via an online application form, and we will be distributing the funds after the close of the 2020 virtual conference (as with the physical conference, we do ensure that you attend the event prior to issuing reimbursement). This money is not included in the FY21 proposed budget because it was raised in FY20 and will be distributed within the FY20 budget year.

Review of Long Term Investment Accounts

It will come as no surprise to anyone that the world financial markets have been in deep trouble over the past four months. Many stock markets around the globe have lost considerable value since the beginning of the year. For example, roughly a month ago the Standard and Poor’s 500 Index had lost 33.8% of its value and the Dow Jones Industrial Average had lost 36%.

The primary function of the long term account is as a safety net, specifically, one year of funds to cover operating expenses in an emergency. If a year ever qualified as potentially needing emergency funds, this is it. As you can see from the total expense number listed for FY20 (Line 188), our operating expense for this year was $2,407,947. So, we do not have a year’s operating funds but we do have about 2/3 of that amount. Had Laura not been so successful in negotiating carrying over our obligations in Gold Coast to 2024, we might well have had to use a half million dollars to cover those costs.

Our long term investment account balance is $1,633,413 as of March 31. For the first quarter of 2020 (our second fiscal year quarter) our funds posted “a -.13.89 return” (that is, a loss), which compared to the S&P and The Dow Jones indexes is quite good. More important, however, is that we have not touched these funds so we have not realized any financial loss to date in this account. And, on a positive note, over the last month our long term fund had gained back about another 5% which means we now have paper losses in this fund of under 10%. Of course, there is a lot of volatility ahead and we do not know what the markets will do, but that is where we are as of April 30.

Review of Short Term Investment Accounts

The short term account contains operating funds and investment funds. Since our bank account makes almost no money at all, we use this account to generate income on whatever cash we have at hand and don’t need immediately. Early last year on the basis of a recommendation from ICA’s financial advisor, we rebalanced this portfolio into a conservative mix of funds highly likely to provide a reasonable interest return. This strategy paid off. On January 1, 2020 we had

$1,097,450 in this account. The balance on March 31 was $1,096,974, a loss of “-0.25 return” for the first quarter. And, again, in the good news department, our advisor has indicated that this number is no longer negative and has returned to the positive side so we are again making money on this account.

Investment Policies

ICA has a policy of investing in Socially Responsible Funds. This means that companies that engage in products or processes that are considered financially or socially irresponsible, like firearms, tobacco, fossil fuels, etc., are excluded. Last year our investment advisor discovered a new Vanguard Socially Responsible Fund, and we have been steadily transferring funds into this account. We now have more than 2/3 of our investments in these funds. Ironically, most socially responsible funds charge a large premium for their product, which makes it difficult to make money on the funds, which is what investing is all about. Interestingly, this fund charges .15 basis points per share, which provides us the kinds of funds we want to invest in and make money!

ICA has an overall investment policy which stipulates investment goals and strategies. Largely, this is focused on conservative investment principles and tries to minimize our losses while providing investment income. Our current policy was written many years ago and is rather out of date with how markets work in the digital age. Laura, our investment advisor Matthew Lanham (Royal Bank of Canada), and I have met several times to discuss, revise and update the policy. We are close to a finished draft, but when the pandemic hit, the final revision got put on the back burner. We will return to it this summer and will get it out to the board for review and approval.

Other Financial Matters

Several years ago the Board voted to establish a goal of converting all of our publications to Open Access status. At its mid-year meeting the Executive Committee voted to commit $20,000 to convert JCMC to Open Access, pending approval of the Board.

As many of you know, our long-time tenant Starbucks broke its lease with us (and paid a cancellation fee). Laura found a replacement tenant in terms of an upscale tea shop. Shortly after the tenant moved in, the Mayor of Washington, DC closed all the restaurants in response to the global pandemic. The new tenant had no customers or way to generate funds. Laura worked out an arrangement whereby the tenant would pay half the rent and could use the money in escrow from the security deposit they provided until the government lifted the lock down. Then, they will repay the borrowed money from the security deposit over time. So, what looked like a potentially major financial loss by losing the tenant (in excess of $100,000) has been averted at least for now. And, it was the right thing to do for the new tenant who had no control over these events.

Our regional conferences have been very successful. We have one planned this year for South Africa, which we hope we will be able to hold. With the global pandemic, no one knows at this point. We have budgeted $15,000 for that event.

Those of you who attended 2018 ICA Conference in Prague will remember that we all paid a Value Add Tax, some to all of which we could recover after we left the country. ICA paid VAT as well, in fact, in excess of $100,000. Despite our best effort to get the entirety of our refund, including hiring a firm to intercede on our behalf, we have been unsuccessful in recovering the last US $57,000 or so. We are told that the government works slowly and mysteriously in the Czech Republic, and that enough time has not passed to consider this a final result, but we are not optimistic. Our auditors are recommending that if we do not get these funds soon we charge them off to bad debt. We are hoping not to have to do that.

It might come as a surprise that we have had a fairly large increase in Lifetime Memberships. Last year we received $58,000 in new Life Membership funds. Our auditors are recommending that we transfer this money to Designated Funds to sequester them for a fixed number of years and apportion the funds to our income stream on a yearly basis. That is good fiscal practice and we are beginning that process with our accountants.

Good News on Funding

As ICA is headquartered in the United States, it is eligible for certain benefits under recent legislation passed by the US Congress as a response to the global COVID-19 pandemic.


Immediately upon the application portals opening, Laura completed the onerous paperwork to apply for both an Economic Injury Grant of up to US $10,000, as well as for the Paycheck Protection Program. The Paycheck Protection Program (PPP), established by the CARES Act, is implemented by the Small Business Administration with support from the Department of the Treasury. This program provides small businesses with funds to pay up to eight weeks of payroll costs including benefits (funds can also be used to pay interest on mortgages, rent, and utilities). The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. As of the first week of May 2020, we have had no answer about the $10,000 Economic Injury Grant, but I am delighted to report that Laura's application for the PPP was approved, and ICA has already received a deposit of US $140,000. This "loan" will be forgiven if ICA passes certain tests in the next 6 months, including not having laid off any staff. This does not negate the impact of decreased revenue from the conference, but it certainly helps our bottom line and will allow us to move forward into FY21 with less damage than we would otherwise. This money plus the mitigation of penalties from Laura's negotiations to move the Gold Coast meeting forward to 2024 will help ICA emerge from this global pandemic and financial crisis largely unscathed.

The Bottom Line

 

Overall, given the pandemic that has swept the globe over the past six months, the economic chaos that has hit many associations and businesses in most countries around the world, and especially our decision to substitute our virtual conference for our physical conference in Australia, our finances are remarkably healthy. We could have been in far worse shape. But our reserve accounts have held up well during the declines in the markets. We have largely avoided the loss of a half million dollars in contracts to venders in Gold Coast by transferring them to 2024. And, we are predicting a profitable conference in Denver next year and a stable budget. Although things could change in the coming months, at least as of 1 May, ICA is a financially strong organization and well able to continue to do all the things that we do as scholars and teachers and as the premier communication association in the world.

Tags:  September 2020 

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