Colleagues,
Attached is a spreadsheet that I have assembled with data pulled directly
from the monthly financial statements sent to the LNC. I want to show you
what happened with the handling of the 2018 convention revenues. Once you
see that, you'll understand the rationale behind the COC motion to
designate the convention as a "special event" as already defined in our
policy manual. I know this is long, but it's important, and I won't have
time to explain this during the time allotted for the COC report.
Since not all LNC members have accounting/finance backgrounds, let me first
try to summarize a concept that affects how we reflect convention revenues
and expenses on our books. We sell packages and collect a lot of cash for
the convention before the event happens, but if you look at our monthly
financials on p. 5, the Statement of Operations even in May 2018 showed
$0.00 of convention revenues for the year. We hadn't earned the right to
keep those revenues until we performed the service of the convention event
itself. In accounting, the cash we collected before the 2018 convention
increased our cash balance, but it didn't become a "revenue" until the
convention happened. May 2018 financials showed $0.00 of convention
"revenues" even though we had collected $198k of cash already. Then in
June 2018, suddenly $280k of convention revenues appeared on the Statement
of Operations. The accounting matching principle says that we must record
the convention expenses in the same accounting period as we record the
convention revenues, so even though we spent some money for the convention
long before the event, the p. 5 Statement of Operations in May 2018 showed
$0.00 of convention expenses. Then in June 2018, suddenly all the
convention expenses showed up there.
Where were those numbers reflected on the books prior to the convention
event? You have to know where to look, on the balance sheet on p. 10-11 of
our monthly financial statements. Before June 2018, all the cash collected
for the convention accumulated on p. 11 in a category called "Deferred
Convention Revenues". They're not revenues yet, but they will be later.
Before June 2018, all the expenditures made for the convention appear on p.
10 in a category called "Prepaid Convention". Then when the event happened
(it was booked in June 2018), those balance sheet numbers were zeroed out,
and those numbers moved to the Statement of Operations on p. 5 as
"Convention Revenues" and "Convention Expenses".
With that understanding in mind, please take a look at the attached
spreadsheet and watch how our convention cash was handled over time. The
page numbers given in the spreadsheet indicate where you can find the
numbers on our monthly financial statements. Below I will walk you through
it.
I pulled numbers from June 2017 through December 2018. The 2017 numbers
help you see what happened as we collected convention cash in advance.
Row 4 is our total cash balance. That figure INCLUDES the numbers on Rows
5 and 6, which are our restricted cash, reserved for specific purposes due
to constraints set by the donors of those funds..including small amounts
for the building fund and campus organizing efforts.
Row 9 shows those Deferred Convention Revenues, and Row 10 is the Prepaid
Convention expenses we just discussed. Throughout 2017, notice that when
there was an increase in Deferred Convention Revenues (Row 9), it
simultaneously increased the Restricted Funds (Row 5). Each month, the
Restricted Funds went up by the amount of [increase in Deferred Convention
Revenues minus the increase in Prepaid Convention Expenses]. That math was
like clockwork throughout 2017. We were saving the cash for the special
occasion and only spending it for convention purposes.
The segregation of convention cash continued through April 2018. Notice
that month the Restricted Funds actually decreased from $147k in April to
$138k in May. The Deferred Convention Revenues had increased by $22,000
and the Prepaid Convention expenses had only increased by $3k, so the
Restricted Funds should have seen a $19k increase...instead it decreased by
$11k...a $30k swing to the negative. What suddenly changed?
Hold that thought while you look down at rows 14 through 18. I only
included this data for the 2018 calendar year. This section is the
year-to-date profit/loss summary if we exclude the convention
revenues/expenses. It's a look at what was happening with the rest of our
party operations besides the convention. Row 14 is total revenues. Row 15
shows fundraising costs. Rows 16 and 17 show our program expenses, with
the ballot access expense pulled out separately from the other programs.
Row 14 - Row 15 - Row 16 - Row 17 = Row 18 (do we have a cumulative surplus
or deficit for the year?)
Watch that Row 18 over time. Through March 2018 we were positive for the
year, but then in April 2018 we fell negative and the deficit continued to
grow and grow for the rest of the year until we ended up $238k in the hole
by December.
Remember we noticed the convention revenues stopped going into the
Restricted Funds account in May 2018? Row 18 shows that our other party
operations were losing money, were in the hole in April, and then in May we
started taking the convention revenues to make up for the shortfall. We
were no longer saving those piles of cash to pay our convention bills. We
started using them to subsidize regular party operations.
Look at the Row 18 deficit increase from April 2018 to May 2018...a $92k
increase in one month. Now you'll see why I split our program revenues
into two, Rows 16 and 17, so we can see ballot access expenditures
separately. Half of the deficit increase that month is due to a large
ballot access expenditure...but that's only half, with general party
operations causing the other half. More ballot access spending through
July 2018 contributed to a larger Row 18 deficit.
In the meantime, look back at May 2018 to June 2018 in the Row 5 Restricted
Funds. That amount drops from $138k all the way down to just the $1,805.41
which is a balance for campus organizing only. When the convention
expenses came due, all that other convention cash came out of the
Restricted Funds, is now only reflected in the Total Cash in Row 4, and it
should now be used to pay the convention bills (mostly the Hyatt hotel).
Is that what happened?
Row 7 shows our Accounts Payable. See the huge jump from June 2018 to July
2018? That's the convention expenses coming onto our books. The matching
principle says that large figure should have been booked in June rather
than July, but perhaps the file I have for June was an early draft and this
was fixed in a later draft? Regardless, all that pile of convention cash
we had been saving should have been available to pay that big pile of
expenses in Row 7. But we didn't use it for that. Row 7 was whittled down
a bit through the fall, but not paid off with the pile of cash. Why? Row
18 shows that other party operations were still bleeding money, and we held
onto the convention cash to float the massive losses in other party
operations.
Were those losses caused by ballot access drives? Nope!!! Notice that the
ballot access expenses in Row 17 did not increase a penny after July 2018.
That does not explain the ever-increasing deficit through December 2018.
Lauren was working her tail off to give us fundraising that exceeded prior
years (Yay!)...but the rest of the story was that we were spending it so
much faster than we were taking it in.
All that spending was authorized because the LNC had adopted a deficit
budget. It authorized the spending, even though we didn't have revenues to
cover the spending. When we ran out of other cash, we took from the
convention cash pile and used the convention hotel bill like a credit
card...we'll just pay it over time.
It's important to understand that even with a balanced budget, this deficit
could still grow this year. If the actual revenues don't measure up to
budgeted expectations, the spending is still authorized up to the budgeted
amount.
One way to put a stop to over-spending is to cut up the credit cards and
run out of cash. We've run out of cash already. It's time to cut up the
credit cards by saying that the convention funds cannot be used in this way
again in the future. We complain about the government's deficit spending,
but that's exactly what we're doing. We have not stopped the bleeding yet.
You might think that we're on our way to digging out of the hole just
because we've heard that in January our Accounts Payable (Row 7) has come
way down. We took all the funds received from our two bequests in January
and threw it into the hole. That makes temporary progress, but this
problem will come back if we keep over-spending. Our payroll has
temporarily decreased while we're short a permanent ED, but it will return
to higher levels when we hire that person.
We're starting to bring in cash that should again be set aside for the 2020
convention expenses. The COC is running a theme contest which has brought
in some revenue. We've told our donors that those funds will help pay for
the 2020 convention. But look what has happened to that cash...
See Row 9, in which the Deferred Convention Revenues were zeroed out for
June, July, and August. Then boom, in September $1000 came in for the 2020
convention...and it was added to the Restricted Funds in Row 5. Another
increase in October was also added to Restricted Funds. We started setting
those funds aside to hold for payment of 2020 convention bills. Now look
at November. The Restricted Funds suddenly dropped back down to that $1805
figure we saw there before which is just the campus organizing balance.
Where did the convention cash go?
The cash we're taking in NOW for the 2020 convention has been pulled back
out of the Restricted Funds, and we're spending it now. In December, the
Deferred Convention Revenues jumped to $10k, but it did not get added to
Restricted Funds. We're not saving it up. We're spending it, and our
total cash balance (Row 1) including the $10k of 2020 convention cash is
only $13k at the end of December.
The COC has raised some 2020 convention cash, and we are ready NOW to make
a $6,000 expenditure on a convention app for the 2020 delegates. We could
start building app content now. But we have no cash to spend because the
funds already raised by the COC have been raided. We have no lock box, Al
Gore. We want to start selling packages before long, but will that cash be
raided also?
The motion from the COC is to designate the convention as a special event,
which means those funds cannot be raided for other purposes. The funds
would have to be set aside until the convention bills have been paid.
After that, any excess can be used for general party operations.
If we don't stop this overspending problem now, we're going to find
ourselves in worse shape when the 2020 convention bills come due and we
also need to spend money on ballot access for our presidential ticket.
We should be coming out of 2019 with a SURPLUS in the bank so we have a war
chest for 2020 ballot access, and we are not on a path to achieve that.
The deficit spending continues. The raiding of the convention cash
continues.
This problem was well underway before our interim ED stepped into the role,
and she is spread thin doing two jobs at once. I hope the time I took to
piece together this data and this message is helpful for both the LNC and
for our interim ED to visualize how we got into this position and what it
will take to address it.
This motion from the COC is just a fiscally responsible way to manage our
assets to prevent this from happening over and over in the future...and to
allow the COC to move ahead towards selling packages without worrying about
the cash being diverted.
-Alicia
