Annual Audit and a Look at LLLI Finances
Rosemary Gordon and Sharon Matuszek
LLLI Board of Directors
From: LEAVEN, Vol. 43 No. 1, January-February-March 2007, pp. 18-19.
Each year, the La Leche League International Board of Directors commissions an independent audit of the financial operations of the LLLI office in Schaumburg, Illinois, USA. The audit provides the Board with a financial snapshot of the organization that can be compared with previous audits to gauge whether we are progressing towards the goal of being a financially healthy organization.
The annual audit for the fiscal year April 1, 2005 to March 31, 2006 was conducted by Mann.Weitz & Associates, LLLC, Certified Public Accountants, based in Deerfield, Illinois, USA. The audited financial statements were presented to and accepted by the LLLI Board of Directors at the October 2006 Board meeting.
What did the audit tell us? LLLI once again ended the fiscal year with a deficit (negative change in net assets) -- this time of $186,321. Combined with the deficit of $151,929 in the 2004-05 fiscal year, this means that over the last two years the costs incurred in operating the LLLI office and providing services has exceeded the amount of money received from memberships, donations, sales, registrations, etc. by more than $338,000. Unfortunately this is taking us away from being financially healthy.
Looking more closely at the Statement of Activities, we can see that our expenses far exceeded our revenue in a number of areas. One of the factors in the 2005 audit was loss incurred at the International Conference held in Washington, DC, which had expenses of $796,418 compared with revenue of $647,546 -- resulting in a loss of $148,872. Additional losses were incurred by workshops and seminars (i.e., the Lactation Specialist Seminars and Physicians' Seminar), which incurred a loss of $63,155, and the Peer Counselor Program also had a loss of $57,030, which was only partially mitigated by the release of $25,000 from restricted funds dedicated to this program.
Although the cost of supporting services (i.e., management and operations) was considerably down for the year, due largely to staff reductions, this was not enough to offset other increased expenses, and revenues were substantially lower than anticipated.
At first glance, the Statement of Financial Position (balance sheet) seems to show a more positive picture because LLLI Total Liabilities and Net Assets have increased slightly to $2,653,546. However, $835,116 was temporarily restricted and another $10,000 was permanently restricted to the purposes for which they were donated. The bulk of the temporarily restricted funds is available only for the Information System Project. We were left with unrestricted assets of only $1,024,985 and of this figure $929,650 reflects the estimated value of property and equipment. A more accurate analysis is that on March 31, 2006 LLLI had only $95,335 in unrestricted net assets, compared with $235,260 in 2005.
The Statement of Financial Position shows that at the end of the fiscal year, LLLI owed vendors $412,663, while those who made purchases from LLLI owed us only $156,136.
Although inventory is listed as an asset, it is in fact not good that inventory for the fiscal year increased by around $70,000, especially after efforts had been made in the previous year to reduce it. Inventory requires regular and relatively quick turnovers, and having considerable assets tied up in old or unsaleable stock is not good business practice.
However, an audit does not tell the full story of an organization's financial health. If we look back over a longer period, we find that four of the last five years have ended in deficits. The only year in recent times where there was an increase in net assets was 2003-2004. In that year we made substantial gains by selling stocks that had been donated a number of years before and we did not have to pay the salary of an Executive Director. With these once only situations removed, the downward trend is still a factor in LLLI finances.
Although the loss incurred at the International Conference held in Washington, DC was significant and clearly troubling, it was not the only factor in our current financial crisis. There has been a slow but steady decline in memberships, numbers of Leaders, and numbers of Groups for many years, while the expenses of running this business continue to rise with inflation. In fact, during most of this current fiscal year these day-to-day expenses have been more than the revenues received from memberships, sales, contributions, and royalties.
There is value in the programs that have been funded by the LLLI budget, but it has been clear to the Board of Directors that dramatic changes need to be made to the LLLI business operations to enable the organization to survive. Our limited resources need to be focused where they can best promote and support the mission of LLLI. The Strategic Planning process has looked at La Leche League International programs and services with a focus on fulfilling the mission of LLLI (see also "Strategic Planning for the Future of LLL" in LEAVEN, Oct-Nov-Dec 2006, Volume 42, Number 4).
Steps are being taken by the Executive Leadership Team to reduce expenses and to work more effectively. Some services have been outsourced, some programs will be changed, some programs will no longer be funded by LLLI, and some may be discontinued.
The office building on Meacham Road in Schaumburg, IL, USA has been sold. The money received from the sale of the building has been used to purchase a smaller, more efficient office building, has paid the Accounts Payable (various bills that LLLI has incurred and must pay), and the remainder is being held as reserve. Each year, our advisors -- members of the Management Advisory Council and auditors -- have recommended the establishment of a reserve. We have now been able follow their recommendation and have a small nest egg. If changes are not made to reverse the income to expense ration, this nest egg will soon disappear.
The real estate sale has given a bit of breathing room, but has not solved our underlying problem. Our revenues are not sufficient to meet our expenses. Times of crisis can be a gift. We have the opportunity and the need to try new ways of working, managing our business, and using the new technologies now available. We know some business practices that we have used no longer serve LLLI as well as they once did. The difficult decisions made today will help launch LLL for the next 50 years. Hopefully, the business model launched this year will be examined and adapted in coming years as our culture and technologies continue to change.
Questions about the audited financial statements or the work of the Audit Committee may be directed to Rosemary Gordon, Chair of the Audit Committee, at RGordon at llli dot org.
Questions about the finances of LLLI may be sent to Sharon Matuszek, Treasurer and Chair of the Finance Committee, at SMatuszek at llli dot org.
Note: The chart of LLLI Financial Information that accompanies this article can be found on the Community Network in the library of LLLI Publications Discussion. (See LEAVEN, 2007, Jan-Feb-Mar LV, p. 19.)