Over the past two years there has been a quiet revolution in the way that AAPG's Tulsa headquarters manages its finances and evaluates its activities.
While I have been extremely busy getting ready for an
[PFItemLinkShortcode|id:39010|type:standard|anchorText:extended tour|cssClass:asshref|title:Visits Eight Nations|PFItemLinkShortcode] of Central and Eastern Europe and the Middle East (in addition to my regular load as AAPG president), I asked AAPG Treasurer Clint Moore to explain more about these important changes and how they will improve our ability to better serve our membership.
So, imitating the immortal Ed McMahon of the old Johnny Carson "Tonight Show," heeeeeeeeere's Clint!
As an AAPG member, you might ask, "How do AAPG's finances impact me?"
The answer is simple: "As AAPG becomes financially stronger (and more efficient), it can provide more services that benefit all members."
As I've served as AAPG treasurer for the past 17 months it has become clear that every program, every service, every function of this great organization has a monetary value associated with it. Especially in a non-profit organization, the collection and spending of every single dollar matters!
So for any conscientious treasurer, "the buck stops here."
How many "bucks" stop here? This year, AAPG will collect and expend a $13 million budget, while managing $14 million in our accumulated savings investment fund.
Also, over $30 million in the AAPG Foundation and over $10 million accumulated in the AAPG pension fund are overseen separately from AAPG by their respective managements.
Within the 2005-06 AAPG annual budget:
- Convention revenues generate $4.6 MM.
- Membership dues generate
$1.8 MM.
- Education generates $1.5 MM.
- Advertising (EXPLORER et al) generates $1.3 MM.
- Publication sales generate $.9 MM.
Together, the above represents about 80 percent of the revenue side of the budget.
On the expense side, 58 great employees' salaries and benefits cost over $5 MM; conventions operations are $2.8 MM; and BULLETIN costs are $1 MM. The remaining third of the expense side of the budget is spent on a myriad of essential operations expenses, such as office overhead, IT, accounting, legal, insurance, postage, etc.
Before my 2004-05 year as treasurer began, I reviewed the previous budget. Then, I decided to reach back to my business school days, to propose and apply "Zero-based Budgeting" (Zero-based Budgeting, Phyrr, 1973, published by Wiley Publishing) to the annual AAPG budget process so we could give everyone a clearer picture of the cost vs. benefit of every program and every committee. ZBB requires every manager to analyze every program and service-budget request in terms of:
- A detailed purpose of the expenditure.
- How many members does it directly impact, and which groups.
- How does it fulfill AAPG's Strategic Plan.
- What impact would occur if the request were cut by 50, 75 or even 100 percent.
No yearly inflation-adjusted budget rollover is to be accepted in the future without this full review.
Thus, beginning last February, the entire HQ leadership team underwent the daunting "ZBB" process, with the final budget and ZBB analysis presented to the new Executive Committee on July 1. This was followed by a weekend-long meeting in late July, where the Executive Committee and staff completed a re-evaluation of the critically important program and committee structure, and reorganized it from both a structural and management standpoint. As a result, every manager, committee chair and department head knows exactly the costs vs. benefits of their program, and thereby can lead and manage more effectively.
Clearly, this level of detail and analysis would not have been possible were it not for the critical authorization by Past President Steve Sonnenberg's Executive Committee in FY 2003-04, of our new iMIS/Great Plains Financial Accounting and Management Information software, with initial rollout of the system and the beginning of the implementation starting just nine days after I took office. Unlike our former mainframe-based custom-built software system, this friendly, modern PC-based system, with its more flexible analysis and report-generating capability, produces much greater analytical detail on a real-time basis and thus gives us much improved tracking and understanding of our intricate finances.
The more detailed information of this new system also allowed us to address an age-old problem within AAPG -- the "overhead allocation" that historically had been applied to our income-generating programs and services. Recognizing that past overhead allocations had been too broad as well as misapplied only to revenue-producing products and services, HQ management and the outside auditors could now better identify "real" overhead (especially occupancy costs), and more accurately apply them to the specific cost centers, thereby altering the burden of overhead on those cost centers. Thus, we now have a much more accurate method of overhead cost allocation, which has resulted in a fairer burden of overhead on all programs and services. For example, our education offerings now cost less because the overhead is lower. Generally, you now can be more confident that the costs associated with your favorite AAPG products or services are more accurate, which should result in better management practices to control costs and price our services more fairly.
Another major financial challenge that we've faced has been addressing our growing employee pension expense, primarily caused by poor stock-market performance these past few years, which impacted the reserves backing the pension plan. Federal pension laws required AAPG -- and numerous other employers -- to make up the resulting shortfall in unfunded value, which had rose millions of dollars since 2000. Since our employees are a precious resource (second only to our members), and their pension plan is a very important benefit to many of them, we wanted to be both fair and cost-effective. So, over the FY 2002-04 period, we made a $2 MM infusion to the pension-fund, bringing it into compliance with the liabilities, with the funds ultimately coming from our $14 MM in accumulated savings investment funds. We've also lowered the pension-formula multipliers, altering the plan benefits, which will result in returning the annual pension expense to more historic levels. This should place the plan on a more sound financial basis for years to come.
Inevitably, Sarbanes-Oxley-styled laws probably will be enacted for non-profit organizations like AAPG, which will present new financial challenges to future leadership. In anticipation of that day, we established an AAPG Audit Committee, composed of three officers -- president-elect, vice president and treasurer -- to work closely with AAPG's independent outside auditors, who will begin a review of our financial processes and procedures in anticipation of the day when such regulations are applied to AAPG.
Just as immediate past President Pat Gratton during his term instituted more extensive continuity between the president, president-elect and all candidates for president-elect, President Pete Rose began an analogous process in which the sitting treasurer begins to inform and train the future candidates for treasurer, one of whom will succeed him/her. So I have met with and communicated with both candidates, Randi Martinsen and Bill Morgan, since last June, and we will be working even more closely together during the last half of FY 2005-06.
It has been an exciting experience to serve as your treasurer these past 17 months. We've addressed and found solutions to many significant and long-standing financial issues that have challenged AAPG for years, and I'm confident that the Association is now well prepared as we face an uncertain financial world in the years ahead. AAPG members also can be confident that their Association is positioned to steward its resources effectively in the coming years for their benefit.
I want to thank presidents Pat Gratton, Pete Rose and their respective Executive Committees for their commitment and support in addressing all the financial issues facing the Association. Rick Fritz, David Lange, Bryan Haws, auditor Paul Hartog and the entire HQ leadership team have embraced these many reforms enthusiastically, for which I am deeply grateful. It has been a great team effort by everyone.
Finally, I also want to thank the membership for giving me the opportunity to be your treasurer, and thus be in a position to help "make it happen." I will conclude my service as AAPG treasurer next July with a great sense of satisfaction. Thank you for the opportunity to serve!
Rose's Recommended Reading:
Measuring America: How an Untamed Wilderness Shaped the United States and Fulfilled the Promise of Democracy, by Andro Linklater, Walker Publishing Co. (2002). A well-written description of how the U.S. land surveying system was created, beginning in 1785 in Ohio Territory, and how its westward extension throughout the American frontier in the 19th century facilitated a potent and revolutionary idea -- that land might be widely owned and traded, thus laying a key foundation of free-market economics in America and providing the basis for widespread land ownership among the American populace.
Read it, you'll like it!