Everything You Always Wanted to Know About . . . (But Were Afraid to Ask)
Louis E. Rossman, D.M.D.
An organization like the AAE operates through a long series of reactions similar to a neurologic impulse. Once the finger comes in contact with a hot object, although it appears to be instantaneous, the registration in the cortex of that heat occurs though a series of interactions from one neuron to the next. Decisions of the AAE Board of Directors occur in a similar fashion. They happen through due process, involving many committees, discussions and a multitude of individuals in a comparable way to neurons delivering information throughout the body.
My topic this month is the financial status of our Association. Although the title of this message has nothing to do with the content, I thought that it was important to grab your attention in order for you to read through this important summary of your Association’s activities. I am pleased to say that our finances are in good shape. At a meeting in June, the consensus of the Board of Directors is that our finances remain in good order. The June 30, 2008 year-end financial statements show that we came in almost exactly on budget. We will receive a report from our independent auditors this month, and there is no reason to think that anything will be out of the ordinary.
We had a dues increase of 16 percent this year, which is consistent with our history and reflects the rising cost of living (printing, postage, rent, etc.). We last raised dues in 2004, and over the last 25 years, the AAE has raised dues roughly every four years, by an average of 15-20 percent, or three to five percent per year.
I’m pleased to say that members recognize the value that they receive in their AAE membership as we are not experiencing any loss of members as a result of the dues increase.
What sort of benefits result from our dues? The subscription cost for the Journal of Endodontics, the crown jewel of the AAE, is listed at $40, the same amount it has been since 2002. In reality, the subscription should cost at least twice that amount, and this additional expense is subsidized by our dues. The number of pages in our Journal has increased from 800 in 2002 to 1,600 in 2008, and we’ve added more than 100 color pages annually. That’s double the size and value at the same rate as six years ago!
During the last decade, dues have comprised 42-49 percent of AAE annual revenue. In the 2007-2008 budget year it will be about 46 percent, and in the upcoming 2008-2009 budget, about 45 percent. From a business perspective, we are right where we would expect to be and the trends are good. We have reduced expenses in some areas by sunsetting inactive committees, discontinuing some products and services, and using technology to increase efficiency. We’ve kept our office rent low and received credits from the building management to pay for upgrades to our office space.
In determining a dues increase, the Board compared the AAE to the other dental specialties. Last year’s dues for an oral surgeon were $1,050; periodontists paid $793; orthodontists were $745; and prosthodontists paid $632. Our dues are $660, and we would anticipate that they would remain at that level for at least a few years.
Let us examine the 2008-2009 budget, which is up about $975,000 over 2007-2008. Where are the biggest increases? A few expenses are offset by a similar amount of revenue. Most notably, we have a Fall Conference this year, which we did not have last year. Those expenses are projected to be $119,000 with revenue of $142,000, so that item nets a surplus to our budget. There is an expected increase in sponsored events at the annual session, with costs offset by corporate contributions of approximately $200,000. Much of the remaining increases are simply the cost of doing business.
A few other examples of changes in expenses are:
Annual Session $179,000
The Board approved an enthusiastic recommendation from the Annual Session Planning Committee to add a theater-in-the-round and a master clinician program to the 2009 Annual Session, which will step up the quality of the educational experience. The costs associated with these programs, as well as increases in audiovisual, food and beverage, and nonmember speaker costs, required the Board to increase Professional Member registration fees from $575 to $735. This still keeps the cost of our meeting at a much lower rate than other CE opportunities available to members.
Salaries $88,000
This represents about a five percent increase over last year, and is in line with Consumer Price Index increases, and the costs of maintaining an experienced and highly qualified staff at our Headquarters office. The Board closely manages the costs of the office, including the compensation of our executive director, and has seen that these expenses are comparable to similar organizations. The Board adopts a budget with specific line items that are examined at the end of the year to see if the actual expenses are different from the budgeted amounts, and if so, whether there are acceptable reasons. Through this check-and-balance system we can ensure expenses are closely monitored and fall within our limits.
Member Needs Survey $60,000
This was last done in 2002, and actually should have been completed last year, but was deferred at that time due to budget concerns. The Board of Directors, various committees and staff agreed that it is critical to do it this year, so we can gather member opinions on a wide range of topics in order to better serve your needs. I consider this a vital way for the Board to know what members think.
Per Diem $40,000
The daily per diem for member volunteers was raised from $150 to $200 after six years at the same rate. A special committee, consisting of members from the Board of Directors, recommended this increase after studying the Consumer Price Index, the rising cost of travel expenses and comparable organizations’ reimbursements. This covers any member/committee person’s expenses when travelling to an official meeting on behalf of the Association, including transportation, meals and any other incidental expenses. The cost of taking a cab from O’Hare airport alone can use 25 percent of this per diem! Moreover, this per diem payment is generally a taxable event for the recipient.
Honoraria $34,000
The same special committee recommended a raise in officer honoraria for the first time in seven years. Again, the BOD looked at the CPI, increasing travel expenses and other dental specialty organizations’ honoraria when approving this recommendation. This is by no means meant to offset time out of the office; it is merely a partial reimbursement for out-of-pocket expenses related to the responsibilities of being an officer in our organization.
Professional and Public Affairs Committee $26,000
The PPAC requested additional funds to cover increased fees charged to us by the American Dental Association for distributing the ENDODONTICS: Colleagues for Excellence newsletter, a needed update to the AAE exhibit booth that travels to other dental meetings and outreach to dental students on the importance of endodontists as members of the dental team.
Occupancy $39,000
We acquired an additional 2,000 square feet for our Headquarters on January 1, 2008. After receiving 10 months of free rent on that space, we start paying rent on that additional space, as well an annual increase in the rent on the original 8,000 square feet.
With all of these items and many more, you may be curious about the process for creating our budget and who is involved. Again, there are multiple layers and they each go to an individual line item or “neuron.” The first layer involves the 200 members who serve on 26 AAE committees looking at their current budget, considering what is needed for the next year and submitting their requests. Headquarters staff compiles these submissions, and prepares estimates of the revenue and expense items that are not assigned to a committee (e.g., rent and office operations, etc.). Projections are obtained from the AAE financial advisors as to interest/dividend income.
The second layer was improved seven years ago, with the Executive Committee reviewing a draft budget at its January meeting. Previously, a draft was not seen until close to the annual session and only by the full Board. Now, a draft budget is first presented to the treasurer around late December, who then has a few weeks to work on it and bring a draft budget to the Executive Committee in late January. The six members of the Executive Committee typically spend the majority of our two-day meeting discussing items that relate to the proposed budget—should we propose a public awareness campaign? Do we want to recommend a new online CE service for members? How much should we allocate for print vs. electronic communications?
The Executive Committee then votes on a recommended budget, which is sent to full AAE Board about two weeks prior to the annual session for review. We then devote a good portion of our two-day annual meeting to discussing budget matters. No money can be spent unless it is in the budget or is separately approved by the Board of Directors.
Let me provide you with an example—the AAE has discussed distance learning opportunities for its members over the past several years. In 2006, a six-member special committee was appointed to conduct a knowledge-based examination of what role the AAE should have in distance learning. That committee spent six months investigating all possible choices (including doing nothing), and identifying the pros and cons of each choice. A background paper summarizing their work was presented to the Board of Directors at the 2006 Interim Meeting, and the Board spent three hours discussing it and selected what we felt were the best choices. We then incorporated those choices into the AAE Strategic Plan and asked a new committee to make it happen. The eight-member Distance Learning Committee and an e-learning consultant then spent nine months investigating all the issues, conducting an environmental scan, issuing a request for proposal, interviewing companies and developing a business model for the Association. Their work was presented in an 11-page report to the Board members, who then spent about an hour discussing the proposal for implementing a new distance learning service before voting to allocate $68,000 toward this new member service in next year’s budget.
As you can see, items end up in our budget as a result of responsible and dedicated volunteer members initiating, investigating, evaluating and making an informed decision. We are a member-driven organization and also a knowledge-driven one.
Once the budget is approved, authorized expenditures are subject to a review process that has many checks and balances. First, is the staff review process. No payment is made without at least three staff members reviewing and approving the payment. Payments are checked for accuracy and authorization, matched to a bill and coded to a numbered account in the budget. Checks then go through a member of the accounting department, who makes sure that there is adequate backup to justify the expense, that the account code is correct and that there is money available in that line item. The executive director also reviews every payment before signing a check.
Second, is the member review process. The treasurer reviews every disbursement once or twice per month directly with the accounting staff. The treasurer has access to all bank statements, the check register and all other financial documents, as well as the bank personnel and the auditors. The full Board of Directors then sees the financial statements on a monthly basis with notes from the treasurer and staff. These statements show the approved budget, by line item, with the amount allocated to be spent for the year, as well as the amount actually spent out of that line item to date.
The third step in the review process is an independent audit, which is performed annually. A firm, selected by the Board of Directors, conducts the annual audit. Our current auditor is Legacy Professionals, a top firm in Chicago, who specializes in auditing associations. The firm sends two to three accountants, who spend a week auditing the AAE financial transactions. They look closely at the systems used by the Association, and examine a random sample of individual transactions. I am proud to report that the AAE has received clean audits for each of the last five years and there is no indication that this year will be any different. In addition to making sure that the finances are accurate, the auditors let the Board know that the system of checks and balances used by the AAE meet the generally accepted accounting standards.
Having served as treasurer just a few years ago and having participated in the budget process for the last five years, I believe I speak for the Executive Committee in saying that our financial statements are easier to read, available sooner and show that checks and balances are in place. Our Headquarters staff answers every question we have, whether about finances or other issues that may arise in the course of doing the business of the organization. Every financial transaction is transparent to the Board of Directors. At each step of the process, members decide how our money is spent. The Board has complete confidence in our dedicated executive director and the outstanding staff that we have serving us in Chicago.
The Board of Directors has identified a number of ways to enhance fiscal self-evaluation, and we expect to implement several of these over the next year. They include: reconfiguring a staff position to be a Chief Financial Officer who will be a C.P.A.; conducting a RFP process for a new independent auditor; considering the formation of a standing budget and finance committee; and investigating an organizational audit of the AAE by a consultant, such as the American Society of Association Executives.
Each action in our organization occurs in concert with many reactions just like our nervous system. I am confident that I can look any member in the eye and state that the Association’s finances are transparent, thoughtful and independently verified. You can be assured that your Board of Directors is diligently fulfilling its legal responsibility to exercise good business judgment in overseeing our finances. That may be more than you ever wanted to know about . . . but you should never be afraid to ask.