[Lnc-business] designating convention as a special event

[Caryn Ann Harlos]

Thank you Ms Mattson for this. I’ll revirw over the next few days.  I am
totally of one mind with you on this.

On Wed, Mar 6, 2019 at 2:16 AM Alicia Mattson via Lnc-business <
lnc-business at hq.lp.org> wrote:

> 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
>
-- 

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