INTRODUCTION
According to the AACP Bylaws, the Finance Committee is charged with advising the Executive Vice President (EVP) in preparing the annual budget of the Association for review and approval by the Board of Directors.
The Committee met via conference call on February 8, 2006 and again on June 21, 2006 to review the financial statements for the period ended June 30, 2005 and the audit process, the statement of revenues and expenses for the year-to-date, updated PharmCAS projections, cash flows, sales tax exemption for Association purchases, electronic job board, managed reserves, and staffing/space issues relative to program growth. The committee also firmed up the budget proposal for 2006/2007 and reviewed general projections through 2009/2010.
RESULTS OF OPERATIONS FOR 2004/2005
The result of operations for 2004/2005 yielded excess revenues of $352,082. Unrestricted net assets were $1,119,529 as of June 30, 2005. In accordance with Association policy, the complete audited financial statements have been published in the American Journal of Pharmaceutical Education (AJPE) and summary information was distributed to the House of Delegates (Tables 1 and 2).
STATUS OF THE 2005/2006 BUDGET
The Committee reviewed the financial data for the first 11 months of the 2005/2006 fiscal year and projections by the EVP for the balance of the year. This review resulted in an estimated year-end surplus of $294,058; the approved budget projected a surplus of $279,500.
Regular institutional dues remained at $21,000 and the total number of regular institutional members was 89. There were 3 associate institutional members. The Commonwealth of Virginia recently relaxed eligibility requirements for organizations interested in exemption from sales tax on goods. The Association applied for and has been granted exemption from paying sales tax on tangible goods purchased in the state.
COMMITTEE ACTIVITIES
Accounting System/Audit.
The independent audit covering the fiscal year ending June 30, 2005 was completed during mid November 2005. Completion of audits prior to the October Board meetings remains an objective.
PharmCAS.
The Association committed drawing up to $500,000 from managed reserves (managed externally by Smith Barney (SB)) for the PharmCAS project to be returned to managed reserves when available. $450,000 was drawn from managed reserves. To date $175,000 has been returned to managed reserves from operating funds leaving a balance of $275,000 due to managed reserves. Projected cash flows within the operating account for 2006/2007 appear sufficient to return the balance due ($275,000) to managed reserves. The Committee supports transferring the balance to managed reserves during the first quarter of 2006/2007.
The Association entered into a formal agreement with Liaison International, Inc. (Liaison) during May 2002 to provide development and operating services for the PharmCAS project on a vendor-client basis. PharmCAS went live during May 2003 for the class entering Fall 2004. The first cycle was completed during May 2004 with approximately 13,500 applicants submitting 43,000 applications. The second cycle resulted in approximately 14,500 applicants submitting 47,500 applications. The third cycle recently completed resulted in approximately 14,500 applicants submitting 56,500 applications or about 3.8 designations per applicant.
The Association has a balance of $344,444 in development costs due to Liaison over the next two years and reimburses Liaison for their PharmCAS operating costs at a predetermined rate per application. The Association also compensates Liaison through a license fee, paid quarterly, based on the number of participating schools with a built-in cap. Application fees are determined by the Association and managed in an Association owned bank account.
Cash Flow.
PharmCAS operations continue to yield positive cash flows. The cumulative effect of recent positive cash flows and an arrangement whereby license fees and development cost payments due to the PharmCAS vendor are now paid directly from PharmCAS funds have resulted in healthier cash flow levels.
During recent years the Association has met short-term cash flow needs by borrowing against its managed reserves. These proceeds represent a margin loan at the prime rate (currently 6.2%) rather than an actual draw down of funds from reserves and were paid off by the end of each fiscal year. The Association also had access to a revolving line of credit at the prime rate with our primary bank. Cash flow levels during 2005/2006 did not necessitate any borrowing. Projections suggest any borrowing to meet short term cash flow needs during 2006/2007 will be quite limited if at all. Due to fees associated with maintaining the line of credit with our bank and no anticipated plans for use the line has been discontinued. The margin loan option remains in place.
Managed Reserves.
The Association's managed reserves are administered by our consultant Smith Barney. Overall the Association's managed reserves total approximately $1,280,000 of which 83% is invested in equities (up to 100% permitted per our Investment Guidelines). Actual performance after fees for calendar year 2005 was just over 7.7% and −1% for the first six months of calendar year 2006. Performance after fees since inception (1989) is 9.5%.
Growth of Operations.
The Association is charged with meeting the current and future needs of the membership in connection with the Strategic Plan. Meeting the goals within the plan include taking on additional programs and expanding general operations. Some potential programs lend themselves to outsourcing with limited staffing implications. In such cases outsourcing is given high consideration. Many programs are simply not good candidates for outsourcing and are more effectively managed internally. Staffing models while more specifically quantified on an annual basis do project a net increase in staff of approximately 1.5 FTE per year over the next few years.
The Board directed staff to pursue options to address space needs with efforts focused on a continued ownership position. Our current headquarters building (4000sf) was purchased in 1986 for $893,000. Our current note on the mortgage is at 5 ¼% with a balance of $190,000. Estimates for market value of our building are around $1,500,000.
Staff has been working with the Alexandria Economic Development Partnership and the commercial real estate firm Grubb & Ellis to provide analysis, report on available opportunities, and to make efforts to create opportunities for the purchase of additional or replacement space. Several potential properties have been explored including one for which a formal Letter of Intent to purchase was submitted but not accepted. Indications are that while the market for purchase of office space is unusually tight, due in large to competition with residential development, solid opportunities will likely be uncovered soon.
The current strategy is to continue efforts to identify a purchase opportunity in our target area recognizing that if efforts are unsuccessful during the next six months we will likely need to explore leasing overflow space and/or broadening the parameters of our search beyond our target area. The Committee and Board stand ready to review proposals as soon as possible.
Funding of additional staff ultimately has more of an impact on the association's budget than the acquisition of additional space. Although helpful to have a commitment in principal to overall staffing plans, from a budgetary perspective additions to staff may to some extent be managed year to year.
PROPOSED 2006/2007 BUDGET
The members of the Committee reviewed the proposed budget for 2006/2007 as submitted by the EVP (Table 3). The proposed budget includes projections for all revenue items and estimates for all expenditure items. Given below is a summary of the major elements of the proposed 2006/2007 budget as approved by the Finance Committee and recommended for adoption by the Board.
Budgeted revenues for 2006/2007 are projected to be $7,719,000 (including PharmCAS activity). The number of regular institutional members is budgeted to increase to 92 schools. Budgeted revenue for admission tests (PCAT) was increased based on recent activity. Registration fee revenue is budgeted to increase with the addition of two institutes and increased attendance at the Annual Meeting in San Diego. Grant revenue is projected to decrease as the Academic Leadership Fellows Program (ALFP) transitions from grant and registration fee support to registration fee support only. Grant support for the New Investigators Program (NIP) is budgeted to increase to $130,000. Revenue for advertisement sales (NEWS ads) is budgeted to increase based on recent activity. PharmCAS revenue is budgeted to increase as a result of a slight fee structure adjustment for applicants submitting more than three applications.
Budgeted expenditures for 2006/2007 are estimated to be $7,326,000 leaving a surplus of $393,000. Meeting expense is budgeted to increase to support two additional institutes and a larger annual meeting attendance. Grant expense for the NIP will increase accordingly. $40,000 has been budgeted for space related costs such as the lease of overflow space, legal consultation, and engineering/design review. PharmCAS expenses are budgeted just below current levels based on slightly lower operating costs.
The Committee reviewed two new expenditure items proposed for 2006/07. The first is a sponsorship opportunity related to the APhA Pathways Career Evaluation Program. A $15,000 contribution per year for two years allows AACP to be the sole academic program sponsor and to work with APhA on research related to career choices of faculty and academic administrators. This electronic career evaluation resource is available to all schools and colleges at no charge with APhA providing facilitator training in conjunction with national meetings.
The Pharmacy Quality Alliance (PQA) was established by CMS and the Association of Health Insurance Plans in April 2006 as a coalition of stakeholder organizations that aim to identify valid and appropriate measures of quality related to medication use and pharmacy program administration. Organizations can join based on their profit/not-for-profit status and budget size. Dues for joining the Alliance, which permits participation on work groups and at PQA meetings, would be $7,500 in 2006 for AACP.
The Committee recommended both items be included in the 2006/2007 budget.
FUTURE BUDGET PROJECTIONS
The Committee reviewed budget projections for a four-year period making conservative projections on revenue and indexing salaries and other expenses annually. The Board and Staff are committed to proposing and delivering balanced operating budgets and have now fully recovered the Association's investment in the development of PharmCAS.
Budget projections for future years show excess revenues of $175,900 for 2007/2008, excess revenues of $82,096 for 2008/2009, and excess expenses of ($176,434) for 2009/2010. The Association is committed to meeting the current and future needs of the membership in connection with the Strategic Plan and doing so while operating in a fiscally responsible manner. The Board conducts strategic exercises on program priorities. Staff continually strives for efficient staffing configurations and opportunities for controlling expense lines. Program and staff growth along with the traditional effects of inflation on expense lines must be balanced by increasing revenue streams. The Committee and Board regularly challenge Staff to reasonably maximize existing revenue lines and to pursue new lines consistent with our mission. While acknowledging the Association is clearly a membership based organization and that dues represent a core revenue, the Board encourages thorough consideration of existing and new non-dues lines for enhanced revenues before relying on dues.
Grant support for meetings has dwindled placing greater pressure to scale back meeting costs and/or increase registration fees. The last institutional dues increase went into effect as of July 2002 and a future increase must be part of budget discussions.
DISSEMINATION OF FINANCIAL INFORMATION
It is the committee's goal to provide complete and comprehensive financial information to the membership. In addition to this report and accompanying budget information, the audited financial statements are published in the American Journal of Pharmaceutical Education on an annual basis.
The Committee reaffirms its desire to keep the membership informed. Your observations and suggestions are welcome, and may be sent directly to the Chair of the Committee or the EVP. This report and its accompanying budget are being forwarded to the Board of Directors for its review and approval; the House of Delegates receives this report for its information.
Table 1.
Statement of Revenues and Expenses (for the 11 months ending May 31, 2006)
*The accounting (FASB 124) requires realized AND UNREALIZED gains and losses be reported
Due to the uncertainty of future market conditions, AACP will continue to refrain from incorporating such real and “paper” gains or losses into the operating budget
Table 2.
Backup for Proposed AACP Annual Budget 2006/2007
Table 3.
American Association of Colleges of Pharmacy Budgeting Worksheet, Fiscal Years Ending June 30, 2006/2007/2008/2009/2010
*The accounting regulation (FASB 124) requires both realized AND UNREALIZED gains and losses be reported
Due to the uncertainty of future market conditions, AACP refrains from incorporating such real and “paper” gains or losses into the operating budget