25924109: RI Treasurer’s Report to the Sydney Convention
- Jun 13, 2014RI Treasurer’s Report to the Sydney Convention
Andy Smallwood, Treasurer 2013 - 14
I would like to thank you for the opportunity to serve as Rotary International’s treasurer for fiscal 2014. It is my duty under our bylaws to provide you with a report on our finances.
In the past, the Treasurer’s Report was in a written format and posted to Rotary’s website during the convention. This year, I am pleased to walk you through the state of Rotary’s finances in person.
This topic is of utmost importance to me as I strongly believe that sound financial practices are essential to the successful operation of any organization. So let’s start with how Rotary’s finances work.
RI has three sources of revenue, and our primary source is dues. Fiscal 2014’s dues revenue was budgeted at $64 million US dollars. Our second source of revenue is investment income, which was budgeted at $6 million dollars for fiscal 2014. These two sources really fund the general operating expenses of Rotary International – the programs and services that are made available to all Rotarians. While there are always risks in the markets that can prevent consistent growth in our investments, each of us can help achieve growth in our membership, which is key to achieving Rotary’s financial sustainability.
RI’s third source of revenue is services and other activities. These are designed to be self-funded. For example, registration revenue for this beautiful convention covers the expenses of running the convention; subscription revenue for The Rotarian magazine covers the direct expenses of putting together the magazine. These services and other activities are all designed to break even.
What happens if there are losses in these self-funded activities or our operations? Well, we have reserves that act as a type of guarantee. For example, we set up a specific reserve for the convention, in case convention revenue did not cover the convention expenses. There is also a specific investment reserve in the event of a shortfall in investment earnings.
Then there is our main reserve, called the General Surplus Fund, which helps secure RI’s long-term financial security. We are required by our bylaws to maintain this reserve at a minimum level equal to 85 percent of the highest annual expenses during the preceding three years. This 85 percent benchmark excludes costs for the convention, Council on Legislation, and our strategic initiatives. Amounts in excess of the reserve’s minimum level provide flexibility for your Board of Directors when developing operating budgets for future years. Recently, the Board has made use of part of this surplus to fund Rotary’s strategic initiatives as an investment in Rotary’s future.
Who sets and plans Rotary’s finances? Starting in the second quarter of each fiscal year, staff members throughout the Secretariat create zero-based budgets for the following fiscal year. Zero-based budgeting means they build their budgets from the ground up, having to justify every request for spending and requiring all areas to control costs. After several months of fine-tuning, the overall budget is given to the Finance Committee for detailed reviews, challenges, and changes. The Finance Committee is made up of two Board members and four other financially knowledgeable Rotarians who serve three-year staggered terms. Members of the committee spend substantial time meeting with the heads of departments and getting updates from the Investment Committee and our finance professionals. Ultimately, the Finance Committee recommends a balanced budget to the Board.
For budgeting purposes, the Finance Committee must make several key assumptions, such as the growth in our investment returns and the impact inflation will have on expenses. The most impactful assumption relates to the number of Rotarians we will have in the coming year.
Throughout each year, various finance professionals — both internal and from outside of RI — look over and monitor our financial results. RI’s finance staff compiles monthly financial reports, which are sent to the Board of Directors, The Rotary Foundation Trustees, as well as the Finance and Audit Committees. At the end of each fiscal year, the financials are audited by an outside firm. The global accounting firm Grant Thornton has audited Rotary’s financials since 2011, and I am proud to say that Rotary has consistently received clean audit opinions. We also strive for transparency by posting our financial results on Rotary’s website and making the financial information available to the general public.
So how does fiscal 2014 look so far? Overall, fiscal 2014 will be another year of financial stability. We have had some difficulty achieving our anticipated membership numbers, so dues revenues are projected to be under budget by about $700,000, which is 1 percent less than budgeted. But any shortfall in dues is more than covered by our strong investment returns so far this year. And our services and other activities remain on target to break even.
Most of the strategic initiatives that were begun in fiscal 2012 will be implemented by the end of 2014, and we remain hopeful that the initiatives will yield positive results for years to come. As we continue to strengthen Rotary’s public image and awareness, we must work hard to support our clubs and reach for sustainable membership growth.
Although membership has been relatively steady at around 1.2 million members for the past 15 years, the number of clubs and districts has increased, along with the services and programs provided, thereby increasing our overhead costs. In other words, our services and expenses have gone up but our primary revenue base has remained the same. While the Council on Legislation approved a one dollar increase in dues in fiscal years 2015 and 2016 (which is an increase of about 2 percent), our dues revenue is simply not structured to keep pace with an average inflation rate of 3 percent. Therefore, membership growth is vital to the future of Rotary.
None of us can control inflation rates or global investment markets, but I want to emphasize that membership growth is an area in which each of us do have control. We must ensure that we stay relevant in order to attract and retain good members. We must continuously explore new ways to spread the word about Rotary and to strengthen and grow our membership base – to grow our Rotary community - so that we may all continue to perform the good work that Rotary does throughout the world while remaining financially secure.
Source: Rotary International