AACNAACN

Finance & Audit BasicsFinance & Audit Basics

FY2011 Board LaunchFY2011 Board Launch

FiduciaryFiduciary

A person to whom property or power is A person to whom property or power is entrusted for the benefit of another.entrusted for the benefit of another.

Fulfilling Your Fiduciary DutyFulfilling Your Fiduciary Duty

Hire competent staff (CEO)Hire competent staff (CEO) Establish Financial PoliciesEstablish Financial Policies Approve Annual BudgetApprove Annual Budget Monitor results & ask questionsMonitor results & ask questions Engage Independent AuditorsEngage Independent Auditors Insure against risksInsure against risks

What You Need to KnowWhat You Need to Know

Board’s Role in StaffingBoard’s Role in Staffing Financial StatementsFinancial Statements BudgetBudget Audit EngagementAudit Engagement Financial PoliciesFinancial Policies Insurance PoliciesInsurance Policies

““(There is a) fundamental duty of (There is a) fundamental duty of each member of a board to each member of a board to understand the business of the understand the business of the company upon whose board they sit.”company upon whose board they sit.”

New York v. Grasso, NY Supreme Court 10/18/2006.New York v. Grasso, NY Supreme Court 10/18/2006.

Board’s Role in StaffingBoard’s Role in Staffing

CEOCEO Board hires, reviews and approves Board hires, reviews and approves

compensationcompensation Required by State LawRequired by State Law

CEO Compensation and Evaluation CEO Compensation and Evaluation CommitteeCommittee AACN Officers and Immediate Past PresidentAACN Officers and Immediate Past President

12-month Contract - renewable12-month Contract - renewable November 1 thru October 31November 1 thru October 31

IRS Regulations on Compensation IRS Regulations on Compensation (Intermediate Sanctions)(Intermediate Sanctions)

Board’s Role in StaffingBoard’s Role in Staffing

CFOCFO New State LawNew State Law Board (Compensation Committee) must Board (Compensation Committee) must

review and approve CFO’s review and approve CFO’s compensation when hired or when compensation when hired or when compensation is modified unless the compensation is modified unless the modification extends to substantially all modification extends to substantially all employees.employees.

Board’s Role in StaffingBoard’s Role in Staffing

Board approves overall salary costs, Board approves overall salary costs, increases, # of staff through the budget increases, # of staff through the budget processprocess

Board approves budget for employee benefits Board approves budget for employee benefits and determines contribution rate (7.5%) for and determines contribution rate (7.5%) for defined contribution plan (403(b))defined contribution plan (403(b))

CEO accountable for individual salaries, CEO accountable for individual salaries, staffing, hiring & firing, benefit plans and staffing, hiring & firing, benefit plans and providersproviders

Finance Organization ChartFinance Organization ChartBoard of Directors

CEOWanda Johansson

CFOMike Willett

ControllerMike Wulf

Purchasing/Mail & Fulfillment

Conan Scally

Exhibit & E-Learning Sales

Sr. AccountantJane Corbett

Payroll/Chapter AccountingBrian Cushman

Accounts PayableJorge Colon Colon

Accounts ReceivableCharity Hewitt

Executive AssistantDebbie Departie

Facilities

MISSIONVISION

VALUESETHIC OF

CARE

STRATEGIC PLANBalanced Scorecard

(3-5 Years)

OPERATING PLAN/BUDGETFinancials/Dashboards

(12-18 Months)

RESPONSIBILITIES AND OUTCOMES

CUSTOMER INPUTStrategic Market Research

SurveyCustomer Complaints

Focus GroupsCustomer Satisfaction Surveys

Volunteers

CRITICAL ISSUES•Nursing Shortage & Workplace Environment•Evolution of Technology•RelevanceENVIRONMENTAL TRENDS

AACN’s Strategic ProcessAACN’s Strategic Process

Measuring PerformanceMeasuring Performance

Balanced Scorecard Balanced Scorecard 3 – 5 year strategic goals3 – 5 year strategic goals

DashboardDashboard Annual operating goalsAnnual operating goals Department/Product DashboardsDepartment/Product Dashboards

FinancialFinancial

www.aacn.org

Balanced ScorecardKey Success Factor Measure Goal Current

We provide resources, education and products that are affordable, relevant, convenient and drive change in the practice of nursing.

Customers as a % of the Universe (500,000 Nurses per 2004 RN Population Study)

25% by 2012

GfK Survey #14 - AACN has the information and tools needed for best patient care

73% in top 2 boxes

by FY14

Customer Satisfaction Overall

Increase “Loyal

Advocates” to 33% by

FY14

Membership Churn Rate 13% by FY13

www.aacn.org

Balanced Scorecard

Key Success Factor Measure Goal Current

AACN has systems in place to ensure organizational and personal learning that support and sustain organizational excellence.

Employee Opinion Survey Overall Satisfaction 4 or higher on 5pt scale

Maintain 80%

Satisfied

California Award for Performance Excellence(Gold Level Award scoring band)

70-85%In 2009

www.aacn.org

Balanced Scorecard

Key Success Factor Measure Goal Current

We have the financial strength to support our mission, vision and values.

Sustained Operating Revenue Growth

5% Avg. Annual

Growth

Understanding Financial Understanding Financial StatementsStatements

Two Primary Statements:Two Primary Statements: Statement of Financial Position (Balance Statement of Financial Position (Balance

Sheet)Sheet) Statement of Activities (Income Statement)Statement of Activities (Income Statement)

Statement of Financial PositionStatement of Financial Position

Financial “snapshot” at a moment in timeFinancial “snapshot” at a moment in time AssetsAssets

Economic resources now or in the futureEconomic resources now or in the future

LiabilitiesLiabilities Obligations, in $$ or services, now or in the Obligations, in $$ or services, now or in the

futurefuture

Net Assets (net worth; reserves)Net Assets (net worth; reserves) Total Assets minus Total LiabilitiesTotal Assets minus Total Liabilities

Key Terms/ConceptsKey Terms/Concepts Accrual vs. Cash Basis AccountingAccrual vs. Cash Basis Accounting

Revenue recognized when earned, not necessarily Revenue recognized when earned, not necessarily when received.when received.

Expenses recognized when incurred, not necessarily Expenses recognized when incurred, not necessarily when paid.when paid.

Accrual = GAAPAccrual = GAAP Net of DepreciationNet of Depreciation Inter-Company Receivables and PayablesInter-Company Receivables and Payables Accounting for InvestmentsAccounting for Investments

Including Investment in The InnoVision GroupIncluding Investment in The InnoVision Group Deferred RevenueDeferred Revenue

Member Dues; ECCO; SubscriptionsMember Dues; ECCO; Subscriptions

Statement of ActivitiesStatement of Activities

Financial activity over a period of time.Financial activity over a period of time. Reported by functional areaReported by functional area ““Operating” vs. “Non-operating” itemsOperating” vs. “Non-operating” items Corporate Allocation of General & Corporate Allocation of General &

Administrative (G&A) expensesAdministrative (G&A) expenses Customer Service, Executive, HR, Information Customer Service, Executive, HR, Information

Technology, Overhead, FinanceTechnology, Overhead, Finance

Budgets, Variances, and ForecastsBudgets, Variances, and Forecasts

What to look forWhat to look for in the Financial Statements in the Financial Statements

Does AACN have sufficient reserves?Does AACN have sufficient reserves? Compare Net Assets to annual expenditures.Compare Net Assets to annual expenditures.

Can AACN meet its financial obligations?Can AACN meet its financial obligations? Compare liabilities to liquid assets.Compare liabilities to liquid assets.

Is there enough cash to operate?Is there enough cash to operate? Compare cash to monthly expenses.Compare cash to monthly expenses.

Are key sources of revenue rising or Are key sources of revenue rising or falling? falling?

What to look for in theWhat to look for in the Financial Statements (cont’d) Financial Statements (cont’d)

Are we operating at a gain or a loss? Are we operating at a gain or a loss? (what’s the bottom-line?)(what’s the bottom-line?)

Are there specific areas of expense that Are there specific areas of expense that are rising faster than their source of are rising faster than their source of income?income?

Are there significant variances from Are there significant variances from budget? Why?budget? Why?

What has changed from prior periods? What has changed from prior periods? Why?Why?

Financial Reporting ScheduleFinancial Reporting Schedule

Monthly Financial Statements prepared for Monthly Financial Statements prepared for internal use.internal use.

Quarterly “Controller’s Report” with Quarterly “Controller’s Report” with explanations of variances (coincides with explanations of variances (coincides with Board Meetings). Plus dashboard reportBoard Meetings). Plus dashboard report

Annual “Benchmark Report” (November Annual “Benchmark Report” (November Board Meeting)Board Meeting)

BudgetBudget

Translation of the Operating Plan into $$$Translation of the Operating Plan into $$$ Zero-basedZero-based Variances & ForecastsVariances & Forecasts

““Over & Under” not the same as “Good & Over & Under” not the same as “Good & Bad”Bad”

Budget PhilosophyBudget Philosophy ““Not-for-profit” is a tax status– not a strategy!Not-for-profit” is a tax status– not a strategy! No profit = No MissionNo profit = No Mission Budget is a plan, not a straight-jacket!Budget is a plan, not a straight-jacket!

Budget ScheduleBudget Schedule

Fiscal Year = July 1 to June 30Fiscal Year = July 1 to June 30 NovemberNovember

Board reaffirms core purpose, envisioned future, and Board reaffirms core purpose, envisioned future, and core values.core values.

Board approves 18 month Operating Plan– Board approves 18 month Operating Plan– establishing direction for remainder of current fiscal establishing direction for remainder of current fiscal year and next fiscal year.year and next fiscal year.

December – FebruaryDecember – February National Office Staff prepares budget based on National Office Staff prepares budget based on

approved Operating Plan.approved Operating Plan. AprilApril

Board approves next fiscal year budget.Board approves next fiscal year budget.

Diversified Sources ofDiversified Sources ofOperating RevenueOperating Revenue

FY11 Budget

Member Dues27%

E-LearningLicensing

6%

Advertising8%

Other13%

NTI Exhibits 14%

NTI Registrations18%

E-Learning SeatFees 9%

Catalog5%

Diversified Sources ofDiversified Sources ofOperating RevenueOperating Revenue

(1

FY11 Budget

Adult CCRN75%

Pediatric5%

Neonatal1%

CCNS1%

PCCN13%

ACNPC0%

CSC/CMC2%

NurseManager

0%

Other3%

Audit EngagementAudit Engagement

Auditors attest to the accuracy of the financial Auditors attest to the accuracy of the financial statementsstatements

AACN Audit required by State LawAACN Audit required by State Law Auditors are engaged by, and report to, the Auditors are engaged by, and report to, the

Board of Directors through the Audit CommitteeBoard of Directors through the Audit Committee Audit Committee required by State LawAudit Committee required by State Law AACN Treasurer & President-elect with AACN AACN Treasurer & President-elect with AACN

Certification Corporation Secretary/Treasurer & Chair-Certification Corporation Secretary/Treasurer & Chair-electelect

AACN Past Treasurer for continuityAACN Past Treasurer for continuity AACN’s Audit Report now a public documentAACN’s Audit Report now a public document

Audit EngagementAudit Engagement

Auditors use GAAS to obtain reasonable Auditors use GAAS to obtain reasonable assurance that statements are free from assurance that statements are free from material misstatement.material misstatement.

Auditors test evidence and assess Auditors test evidence and assess accounting principles that are used.accounting principles that are used.

Financial Statements are the responsibility Financial Statements are the responsibility of management.of management.

Auditor’s Communication with Auditor’s Communication with Board of DirectorsBoard of Directors

Audit ReportAudit Report SAS 61 LetterSAS 61 Letter

Responsibilities of the PartiesResponsibilities of the Parties Significant accounting policiesSignificant accounting policies Disagreements and Difficulties disclosedDisagreements and Difficulties disclosed

Management LetterManagement Letter Opportunities for improvement in internal Opportunities for improvement in internal

controls and policies/procedurescontrols and policies/procedures

Auditor’s ReportAuditor’s Report

Unqualified or “clean” opinionUnqualified or “clean” opinion “…“…financial statements present fairly”financial statements present fairly”

Qualified opinionQualified opinion “…“…except for…”except for…”

Disclaimer of opinionDisclaimer of opinion Adverse opinionAdverse opinion

Statements materially misstated or misleadingStatements materially misstated or misleading

Audit CommitteeAudit Committee

Single committee with representation from Single committee with representation from CertCorp and AACN.CertCorp and AACN.

AssistsAssists the Boards in oversight of audit the Boards in oversight of audit and internal controls.and internal controls.

Authority to investigate and/or engage Authority to investigate and/or engage legal counsel or consultants.legal counsel or consultants.

Meets at least twice per year.Meets at least twice per year. Executive session with AuditorExecutive session with Auditor

Whistleblower PolicyWhistleblower Policy

Required by Sarbanes-OxleyRequired by Sarbanes-Oxley Mechanism for staff to report fraudulent or Mechanism for staff to report fraudulent or

dishonest conduct without recriminationdishonest conduct without recrimination Report Escalation:Report Escalation:

Manager > HR > CEO > Board of DirectorsManager > HR > CEO > Board of Directors

Suspicion of financial mismanagement to Suspicion of financial mismanagement to be reported to Audit Committee through be reported to Audit Committee through the AACN Treasurerthe AACN Treasurer

Accounting Policies & ProceduresAccounting Policies & Procedures

Internal Controls - Segregation of DutiesInternal Controls - Segregation of Duties Purchase Order system utilized – outside of Purchase Order system utilized – outside of

accountingaccounting A/P Clerk prepares checks for payment, but may not A/P Clerk prepares checks for payment, but may not

authorize or approve payments or sign checks.authorize or approve payments or sign checks. Cash Receipts Dept. endorses and batches checks Cash Receipts Dept. endorses and batches checks

and forms. Deposits checks after CSD processes.and forms. Deposits checks after CSD processes. Customer Service Dept. processes checks and forms.Customer Service Dept. processes checks and forms. Bank reconciliation performed by Senior Accountant Bank reconciliation performed by Senior Accountant

who is not a check signer, does not prepare checks who is not a check signer, does not prepare checks for payment or process cash receipts (checks for payment or process cash receipts (checks received for services).received for services).

Accounting Policies & ProceduresAccounting Policies & Procedures

Internal Controls – AuthorizationInternal Controls – Authorization Ability to authorize payment varies by amount Ability to authorize payment varies by amount

and position.and position. Purchase Order required for most payments.Purchase Order required for most payments. Expense reports must be approved by Expense reports must be approved by

“superior”. (Exception: CFO approves CEO’s “superior”. (Exception: CFO approves CEO’s expense reports)expense reports)

Two signatures required for checks over Two signatures required for checks over $5,000.$5,000.

AACN’s Reserve PolicyAACN’s Reserve Policy

Sustaining Fund – 50% of Operating Sustaining Fund – 50% of Operating Expenses.Expenses.

Infrastructure Fund - $300,000 per year Infrastructure Fund - $300,000 per year until $2 million balance.until $2 million balance.

Business Development Fund - $100,000 Business Development Fund - $100,000 per year until $500,000 balance.per year until $500,000 balance.

Scholarship Fund – funded by donations; Scholarship Fund – funded by donations; $2 million goal$2 million goal

InvestmentsInvestments

AACN’s investment portfolio totals more AACN’s investment portfolio totals more than $50 millionthan $50 million

CertCorp’s investment portfolio totals more CertCorp’s investment portfolio totals more than $10 millionthan $10 million

Investment PolicyInvestment Policy

Asset AllocationAsset Allocation Investment StandardsInvestment Standards Manager StandardsManager Standards Performance ObjectivesPerformance Objectives ResponsibilitiesResponsibilities

Asset AllocationAsset Allocation

Stocks– No more than 60%Stocks– No more than 60% Bonds– No more than 70%Bonds– No more than 70% Cash– No more than 80%Cash– No more than 80% Target Mix– 45% Stock, 45% Bond, 10% Target Mix– 45% Stock, 45% Bond, 10%

CashCash 5% limit on any individual security5% limit on any individual security

Investment StandardsInvestment Standards

Stocks– Publicly Traded; Focus on Large Stocks– Publicly Traded; Focus on Large Companies- max 20% in companies Companies- max 20% in companies smaller than $2 billion.smaller than $2 billion.

Bonds– Focus on high rating– max 10% Bonds– Focus on high rating– max 10% “high yield”.“high yield”.

Cash Equivalents– Highest RatingCash Equivalents– Highest Rating

Manager StandardsManager Standards

At least $100 million in managed assets.At least $100 million in managed assets. Manager experience 10 years +Manager experience 10 years + Firm experience 5 years +Firm experience 5 years +

Performance ObjectivesPerformance Objectives

Consumer Price Index plus 4%Consumer Price Index plus 4% Managers better than averageManagers better than average Total Return 2%>S&P 500, Lehman Bros. Total Return 2%>S&P 500, Lehman Bros.

Aggregate Bond Index, 3-month T-bill rateAggregate Bond Index, 3-month T-bill rate

Investment ResponsibilitiesInvestment Responsibilities

Board of Directors:Board of Directors: Sets Investment PolicySets Investment Policy Reviews Investment PerformanceReviews Investment Performance

Staff:Staff: Selects Investment ManagersSelects Investment Managers Allocates Funds per PolicyAllocates Funds per Policy Monitors Investment PerformanceMonitors Investment Performance Reports to Board of DirectorsReports to Board of Directors

Investment PhilosophyInvestment Philosophy

DiversificationDiversification Style RepresentationStyle Representation

Growth/Value; Large/Small; InternationalGrowth/Value; Large/Small; International

DisciplineDiscipline Rebalance Portfolio AnnuallyRebalance Portfolio Annually

Changing Market LeadershipChanging Market Leadership1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Small Value 29.5%

Large Growth35.9%

Large Growth-0.3%

Small Growth 51.2%

Small Value 29.2%

Int'l33.0%

Int'l8.1%

Large Value38.4%

Large Growth23.1%

Large Value35.2%

Large Growth38.7%

Mid Growth 51.3%

Small Value 22.80%

Small Value 14.02%

Int'l28.6%

S&P 50031.7%

S&P 500-3.2%

Mid Growth 47.0%

Mid Value 21.68%

Small Value 23.9%

Large Growth

2.7%

S&P 50037.6%

S&P 50022.9%

Mid Value 34.4%

S&P 50028.8%

Small Growth 43.1%

Mid Value 19.19%

Mid Value 2.33%

Mid Value 24.6%

Mid Growth 31.5%

Mid Growth -

5.1%

Small Value 41.7%

Large Value13.8%

Large Value18.1%

S&P 5001.3%

Large Growth37.2%

Large Value21.6%

S&P 50033.4%

Int'l20.3%

Large Growth33.2%

Large Value7.02%

Large Value-5.59%

Large Value23.2%

Large Value 25.2%

Large Value-8.1%

Large Growth41.2%

Mid Growth

8.7%

Mid Value 15.6%

Small Value -1.6%

Mid Value 34.9%

Small Value 21.4%

Small Value 31.8%

Mid Growth 17.9%

Int'l27.3%

S&P 500-9.11%

Small Growth-9.22%

Small Growth 20.4%

Mid Value 22.7%

Mid Value -16.1%

Mid Value 37.9%

Small Growth

7.8%

Small Growth 13.4%

Large Value-2.0%

Mid Growth 34.0%

Mid Value 20.3%

Large Growth30.5%

Large Value15.6%

S&P 50021%

Mid Growth-11.75%

S&P 500-11.88%

S&P 50016.6%

Small Growth 20.2%

Small Growth -

17.4%

S&P 50030.5%

S&P 5007.6%

Mid Growth 11.2%

Mid Value -2.1%

Small Growth 31.0%

Mid Growth 17.5%

Mid Growth 22.5%

Mid Value 5.1%

Large Value7.4%

Int'l-13.95%

Mid Growth-20.16%

Mid Growth 12.9%

Small Value 12.4%

Small Value -21.8%

Large Value24.6%

Large Growth

5.0%

S&P 50010.1%

Mid Growth -

2.2%

Small Value 25.8%

Small Growth 11.3%

Small Growth 13.0%

Small Growth

1.2%

Mid Value -0.1%

Large Growth-22.43%

Large Growth-20.42%

Large Growth11.3%

Int'l10.8%

Int'l-23.2%

Int'l12.5%

Int'l-11.8%

Large Growth

2.9%

Small Growth -

2.4%

Int'l11.6%

Int'l6.4%

Int'l2.1%

Small Value -6.5%

Small Value -1.5%

Small Growth-22.44%

Int'l-21.21%

Equity ManagersEquity Managers    RISK TARGET

STYLE MANAGER LEVEL ALLOCATION

Large Cap Value Blackrock 6 12.5%

Large Cap Value MFS Institutional Advisors 5 12.5%

Large Cap Value Eaton Vance 6 12.5%

Large Cap Growth Janus 7 12.5%

Large Cap Growth Columbus 7 12.5%

Large Cap Growth Neuberger Berman 6 12.5%

Small Cap Growth Eagle 7 5%

Small Cap Value NWQ (Northwest Quadrant) 7 5%

International Value NWQ (Northwest Quadrant) 7 7.5%

International Value Neuberger Berman 7 7.5%

Fixed Income ManagersFixed Income Managers    RISK TARGET

STYLE MANAGER LEVEL ALLOCATION

Fixed Income Blackrock Multi Strategy Core 2 30%

Fixed Income PIMCO Total Return 2 30%

Fixed Income PIMCO Real Return 3 30%

Short-term Merrill Lynch Local Advisor 10%

InsuranceInsurance

Insurance Broker: Barney & Barney LLCInsurance Broker: Barney & Barney LLC AACN maintains a broad array of insurance AACN maintains a broad array of insurance

products to protect the Board and the businessproducts to protect the Board and the business Directors & Officers Liability CoverageDirectors & Officers Liability Coverage Package policy– includes auto, building, employee Package policy– includes auto, building, employee

dishonestydishonesty General LiabilityGeneral Liability Workers’ CompensationWorkers’ Compensation Umbrella – Excess LiabilityUmbrella – Excess Liability Professional Liability/Errors & OmissionsProfessional Liability/Errors & Omissions Event Cancellation InsuranceEvent Cancellation Insurance

LegalLegal

General Business/AssociationGeneral Business/Association Deborah Ashford-- Hogan Lovell, Deborah Ashford-- Hogan Lovell,

Washington DC Washington DC Personnel LawPersonnel Law

Bob Kane-- Stradling, Yocca, Carlson & Bob Kane-- Stradling, Yocca, Carlson & Rauth, Newport Beach, CARauth, Newport Beach, CA

TrademarkTrademark Morland Fischer– Law Offices of Morland Morland Fischer– Law Offices of Morland

Fischer, Irvine, CAFischer, Irvine, CA