the-aps.org>committees >finance committees

2007 Finance Committee Report

During the spring meeting of Council, the Finance Committee Chair reported that the Society’s financial condition remains strong through sound management and investment practices and continued success of the journals program.

2006 Budget

The Society employs a consolidated operating budget to manage overall operations. The consolidated budget is comprised of the individual budgets for the various cost centers; these include Publications, Membership and Meetings, Education, Public Affairs, Communications, Marketing, and the Executive, Information Technology, and Business Offices. G&A costs are allocated to other Society offices based on each office’s share of total salary expenses.

For 2006, the year ended with income of $18.10 million (including $1.27 million allocated from the Society’s reserves) and direct expenses of $15.89 million, plus general and administrative (G&A) costs of $2.14 million, for total expenses of $18.03 million. The Society therefore ended the 2006 year with a net surplus of $69,438 (that is, $18.10 income - $18.03 expenses), which was $77,062 under the $146,500 budgeted surplus. 

The Finance Committee reported that barring any significant changes, expenses are projected to grow slightly faster than revenue over the next three years. Using a linear extrapolation model, a surplus of $112,000 is projected for 2008, and deficits of $75,000 and $279,000 are projected for 2009 and 2010, respectively. It is expected that the Society will make adjustments to its revenue and expenses in the next three years in order to avoid the projected 2009 deficit, just as it has when similar predictions were made in recent years. In essence, these projections suggest that the budget process is properly in touch with recent history of the revenue and expense streams of the society. The Society’s journals program is its primary source of income accounting for approximately 80% of all revenue. By a 1995 Council mandate, the journals program is structured to generate a return of 10% annually, which is used to support other society programs. 

2007 Budget

The Council earlier approved a 2007 budget of $18,698,500 in expenses. With revenue budgeted at $18,701,000 (including the 4% investment allocation of $1,329,500 and projected net revenue from Publications of $1,452,500), the budget shows a surplus of $2,500. This 2007 budget is similar overall to that of 2006, effectively another break-even budget. The publications component again comprises around 80% of total income. The journals program is budgeted to generate a return of 10.9%.

Journal Subscription Pricing

The Journals Program, which generates about 80% of the Society’s revenues, is asked each year to budget for a margin of 10%.  In order to meet this mandate, the Publications Committee recommended, and the Finance Committee and Council both agreed, that 2008 subscription prices should be raised by 4.6%. A comparison of 2008 and 2007 domestic institutional prices is shown in the table below, reflecting the above percentage changes:

It is also noted that for 2008, the Finance committee supports the Publications committee recommendation to offer an author-pays publishing option at a cost of $2,000 plus author charges (manuscript handling fees, page charges, reprint fees, and color charges) per paper. This is both to explore the attractiveness of paying full publication cost should open access cause subscriptions to disappear, and to raise author awareness of the financial burden that open access may cause.

Long Term Investments

Our long term investments consist of both unrestricted reserves (about $34 million at the end of 2006) and restricted funds (about $8 million at the end of 2006). They are managed as a single investment pool referred to below as the managed accounts. However, it is only the unrestricted reserves from which 4% is drawn each year for the operating budget.

2006 Audit

As reported to Council in the spring, the Finance Committee received the annual audit from Grant Thornton, LLP.  Grant Thornton audited the Society’s financial statements in accordance with general accepted auditing standards. Grant Thornton rendered an unqualified opinion that the Society’s statements presented fairly, in all material respects, the financial position of the Society at December 31, 2006 and 2005.  In addition, due to the amount of Federal support received, an audit of the Society is required in accordance with Office of Management and Budget (OMB) Circular A-133 Audits of States, Local Governments, and Non-Profit Organizations. The A-133 audit includes certain tests in accordance with Government Auditing Standards. Grant Thornton’s tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards, and the audit report noted no material internal control weaknesses.

Summary

The APS continues to do extremely well financially. The annual operating budget continues to remain balanced. The journals program remains able to generate the 10% margin set by Council. The long term invested accounts are growing steadily in spite of using 4% of reserves annually to support Society programs. The Finance committee has overseen several important changes in the management strategies of the long term investments in the past 12 months, including changing poorly performing managers, hiring managers with specific expertise in fixed income instruments (that reflect about 1/3 of our invested funds), and recently hiring a manager specializing in international equities to potentially increase our reserves growth even more.

Peter D. Wagner, Chair