B03-11

B O A R D D O C U M E N T

TO: Board of Directors

FROM: Lynn K. Smith

DATE: December 17, 2002

RE: Fiscal Year vs. Governance Year

Background information: At the October 2002 Board meeting, the following motion was approved: A03-20. Staff will prepare a “B” document for the 2003 Winter meeting that examines making the governance year and the fiscal year match.

Currently, the Association’s governance year and its fiscal year are not the same. The governance year runs from 7/1 – 6/30 while the fiscal year runs from 1/1 – 12/31. This has created several challenges for the Association, its units, and its leaders. In an effort to simplify the governance of the Association, it is recommended that these two years be brought into alignment.

The question then becomes, which year should be moved? There are pro’s and con’s to both sides, and a summary of each follows:

Moving the Governance Year to Match the Fiscal Year:

This could be accomplished very easily by making the terms of officers of the Association (both at the Association level and the unit level) run from 1/1 – 12/31.

Pro’s to this approach:

• The Mid-Year Financial Report could be eliminated as one Treasurer would be in office for the entire year.
• One board would be responsible for a full budget year. Currently the board responsible for the budget year changes halfway through the year.
• Years would be in alignment.

Con’s to this approach:

• A by-laws amendment might be required.
• The terms of officers in the year of transition would have to be extended to 1 ½ years or shortened to 6 months.

Moving the Fiscal Year to Match the Governance Year:

There is nothing prohibiting this change in current laws or IRS regulations. While there is nothing prohibiting this change, it would require considerable efforts to move the fiscal year.

Pro’s to this approach:

• Does not require by-laws amendment.
• Years would be in alignment.

Con’s to this approach:

• Would require IRS notification which could invoke further scrutiny of the Association.
• Given the proximity to the annual conference, it is unlikely that all related bills would be received by 6/30, making an accurate year-end close rather difficult.
• All conference-related billings, especially chapter and division bill-backs, cannot be invoiced by 6/30 as all bills are not yet received. This makes having an accurate year-end close difficult.
• Additional audit fees would be incurred based on additional testing required to confirm accuracy of year-end numbers due to aforementioned challenges.
• Not recommended by independent accounting firm because of the high likelihood of inaccurate year-end information based on proximity of year-end to the largest cash flow generator of the year and the aforementioned challenges.
• Budget would have to be produced for the January Board Meeting. It is difficult to budget for the coming year, when the largest profit-making event of the current year has not yet occurred. Much of the year’s cash flow is generated from conference. Without knowing how much cash the conference generated it would be extremely difficult to budget how much we could spend in the first half of the year if the year began on 7/1.
• Key conference and accounting personnel would need to take time to prepare the annual budget at a time when all energies should be going into producing the largest money making event of the Association’s year.
• Units would not be able to produce accurate reports as all income and expense from the conference would not yet have been finalized.
• All units would have to have their year-end financial reports in within 30 days or it would prevent the closing of the books for the audit. Traditionally, this does not occur.
• Allotments paid to the units would change to June 30^th which is typically a lower count than the December 31^st numbers, thus reducing the income to the units.

The above represents the perspective of the staff and the Finance Committee. It is now time to elicit the units’ perspective. To that end, the Finance Committee will be making a presentation to the unit leadership at the January 2003 meeting. In addition to the presentation, there will be a roundtable discussion at the Leadership Summit as well as an exchange at the cabinets. Further discussion will be obtained from the leaders after the winter meeting but prior to the June meeting in order to prepare any specific recommendations.