2012 Financials

[408059]

Steve, you might want to have another look at RAAus assets. There is more cash than you can poke a stick at $1.8 million. You could be right about the building being over valued but the Board and the Auditors have just signed off to say it is OK at $1 million. Natfly costs RAAus about $30,000 but gets Revenue of more than that. It is not any sort of a risk to RAAus reserves. The big risk to Reserves is under insurance of stuff ups by the Board and Staff.The target of 10% surplus each year is the wrong target. The right target is more like your idea of a % of total turnover for one year. Current net assets are virtually 100% of annual turnover and in my view is over the top! It means that fees have been too high for years.

Edit : added a bit

AR

 

Thanks for your response. I think our views are not too far apart.

 

As an accountant in the not-for-profit industry, which can be volatile at the best of time, I like to see conservative figures. Board members do not always use business logic and not-for-profit organisations often become dysfunctional and implode. The point I was trying to make, with some over-emphasis I might add, is that the RAA needs reserves and retained earnings. I like to see operating expenses covered but it is not always possible. I am not wedded to any specific amount.

 

There are 2 points with equity (reserves and retained earnings). The equity comprises cash of $1.8m less liabilities together with fixed assets $1m less provisions, fire sale discounts and any overvalue component (ie market price). This result needs to cover new initiatives not covered by income and risk. I agree that the biggest risk is probably insurance. It is what I inferred with an earlier comment. I still hold to the view that Natfly is also a risk. The cost may only be $30k but the risk of a contractual or third party claims not covered by insurance is still there. Claims associated with events always come out of left field. We can only guess at the other risks, which hopefully are covered in a risk management plan, (or am I kidding myself?).

 

Not sure that subscriptions are too high. I long ago formed the idea that the RAA is somewhat like a an Aero club that has grown and policy and procedures have not followed suit. More money needs to have been spend on process and procedures that are core to RAA outputs expected by CASA and members. It is the message that is repeated over and over again through the threads.

 

Cheers

 

Steve

 

Steve

 

 

[408059]

Steve, we have around 1.8m in retained earnings + profit of around 220k + property at around 1m. So now we have around $2m in retained earnings + $1m property and an annual income of around $2.5m...so I just personally think that we are healthy, we are covered for a very bad year so the concept of "We must make profit" could be relaxed a bit now with investing say $100k or $150k back to the membership OR even better would be to invest in some good marketing which, as I said, would increase our income and round it goes...invest say $20-30k in a National Recreational Aviation Week, if that doesn't get 162 new members from around Australia then I will bare my bum in Bourke Street...so 162 x $185 = $30k payback in just the first year (costs aside) which means every year they remain members is pure bonus income (and extra cost recovery)...not to mention the help it would give to all the struggling schools out there...and the flow on to extra aircraft sold etc etc etc...all for such a small investment when we are making $220k profit with ample cash and property reserves.That's just my "business" thinking

 

When I was doing my MBA, a case study we had was on Coca-Cola. Basically when they really got going is when the "Marketing" manager said if you double my budget, I will triple your profits...they did...and he did

Ian

 

If I was Treasurer I would not be in dissagreement with the figures you are throwing around. Just saying that the equity figure is much less in reality and the RAA should be cognitive of the risk environment it is in. That said, I'd prefer to have some money spent on operating and governance systems so the problems mentioned in other threads are not repeated.

 

Picking up on Andy's post, I suspect there are no strategic or business plans or even an audit and risk management committee to oversight risk, audits or any other compliance requirement of CASA. It seems that the focus of RAA management has been purely on producing operational outputs (required by membership) with minimal consideration of how to get there (this is a Board obligation), with limited resources (reflected in the accounts), a couple dissappointing senior staff performances and it has come back to bite the the organisation. The aero club scenario mentioned in my last post.

 

Enough from me.

 

cheers

 

Steve

 

Steve

 

 

[AlfaRomeo]

Steve, I agree we are not too far apart - just a question of how conservative should you be.

 

What RA-Aus lacks is as you put it a long term view of where we want to be in, say, 5 or 10 years time. It also lacks some 21st Century information technology. Make that not some but a lot. Office systems are heavily manual and prone to error - fancy that? We don't have the modern communication capability that is desperately needed but not welcomed by a Board hell bent on confidentiality or, in plain English, secrecy. Stupid thing is despite all the secrecy, as soon as aircraft started to be grounded everybody began to understand just how bad things had gotten behind the great walls of Fyshwick. And who doesn't learn more on Rec Flying than from the RA-Aus website?

 

 

[pbugg]

Hey guys, the "I'm only a volunteer" is an excuse you can use only once and a sentence before "I hereby resign" . It is an admission you have the best intentions (hopefully) but no F...... ability.

 

Clearly most of the board including all of the Exec are out of their depth and should respectfully admit their ambitions did not match their abilities and leave a gap for those more able.

 

An analogy I have used recently for the RAA problems at the highest level is if I have a big opinion of my abilities, but if someone needed open heart surgery and I was the only one who came forward and said I had the ability (which I don't) they would die, regardless of my best intentions.

 

It's time for a change and members with ability please to come to front and center. We need you.

 

cheers

 

Peter

 

 

[coljones]

The liquid assets after all liabilities is about $1.5 million against an annual expenditure of $2.3 million. This should produce a soft landing against a need to sell the building given that there will still be some income. Given that the building is largely unencumbered RAA would be in a good position to borrow against the assets. (or indeed invest the cash in other equities to generate an income stream to forestall the impact of inflation)

 

The board was asked at the 2011 AGM about the adequacy of the amount of assets and its composition (too much, too little) and they agreed to review it - that was a couple of treasurers ago. The only move in that direction was a statement by the current treasurer positing that a good figure was to have a profit of around 10% for a reserve.

 

There appears to be no business case from the board for that 10% profit target nor is there a business case for any asset levels or mixes.

 

Col

 

 

[cooperplace]

AR

 

Not sure that subscriptions are too high. I long ago formed the idea that the RAA is somewhat like a an Aero club that has grown and policy and procedures have not followed suit. More money needs to have been spend on process and procedures that are core to RAA outputs expected by CASA and members. It is the message that is repeated over and over again through the threads.

 

Cheers

 

Steve

 

Steve

I totally agree.

 

Peter

 

 

[turboplanner]

The liquid assets after all liabilities is about $1.5 million against an annual expenditure of $2.3 million. This should produce a soft landing against a need to sell the building given that there will still be some income.Col

A single public liability case with a fatality could leave out of pockets of more than $2 million if not adequately covered by insurance Col, so there's not point in whistling past the graveyard.

 

There's been no response to my post about spelling out what Insurance policies are held, what the cover amounts are, what policy the Sting crash case is being claimed against and why.

 

 

[Guest Andys@coffs]

Tubs

 

No one is answering because I dont think there is anyone who truely understands other than the broker Rob Viney. Rob explained that the portfolio consists of about 8 seperate policy products, but didnt detail what they were, or the instance and/or total limits that apply to individual products per renewal period. Its my view that that lack of knowledge is why the majority of insurance questions at the AGM were answered by the broker and not the board.

 

Its why questions were asked about the procurement processes used and the processes intended to be used for future insurance. Its one of our highest non labour costs and that is most appropriate given the strategic importance of the portfolio in ensuring our continuing survival. In my opinion the responses provided to the member asking those questions was unacceptable. Within the business I work for, considering the annual cost of the portfolio, no approval to purchase would be provided given the apparent lack of diligence and an inability to show competition/market testing has taken place.

 

But you know that!

 

Andy

 

 

[turboplanner]

So Andy, as a slow learner, let's see if I understand what happened at the AGM.

 

• When The Members, who own the Association asked the Broker they pay (stay with me)
   
   
  
• The Broker, who receives the funds - the Members' money didn't detail what the policies were, or what the limits are
   
   
  
• The board members who represent the members and who should have jumped up at this.....remained silent
   
   
  
• The members have been told that on one current case alone the insurance cover is almost exhausted
   
   
  
• The members as of this date, considerably after the AGM are still not aware of their (yours, you the member's, your house and assets) exposure
   
   
  

 

 

They just want to go flying for short by maybe not for long.

 

Good luck you guys

 

 

[Guest Andys@coffs]

Turbs

 

Thats pretty much it, except that there is a superflous "almost" in the 4th bullet point.

 

Its actually not that black and white we did talk about some policy types in seperate questions where I asked questions about coverage for the board members and Don discussed "Normal negligence" and "Gross Negligence" with Middo/Viney and the result that teh first was covered (pressumably within undisclosed event and policy period limits) and the 2nd wasnt (for the board) but at no stage was there a disclosure of the portfolio makeup, but then neither was that exact question asked..... My recollection of the questioning was that an answer to a question asked was provided but no one went out of there way to provide anything more than was asked, it certainly wasnt intended to be an educational process, and to me because of that was indeed educational!

 

Andy

 

 

[turboplanner]

The other 12,999 exclamation posts of shock after your post seem to be missing Andy.

 

 

[68volksy]

Is it just me, or is there a discrepency between the stated revenue and the cash flow from operating activities?I'm not an accountant, but it seems to me the cash flow receipts shouldn't exceed the revenue figure, because you know, thats revenue.

 

Any accountants care to educate me?

Hi sain,

 

The cash flow receipts are the total cash that the organisation took in. Some of this cash would have been payments in advance - say if the membership period of each member doesn't run 1 July to 30 June or some members pay several years in advance or even if grants received are to be expended over several years. All these things are adjusted for in the "Revenue" figure. Basically anything in advance is moved to a liability account as the funds have not yet been earned or they are liable to be refunded should they be called upon. This is all then taken up as revenue in the year it relates to. That's a basic possibility - hope it helps.

 

I'm always on at the not-for-profits that we audit to be aware of building up cash reserves as this is not their purpose. Many of them are run by volunteer boards the same as RA-Aus and if anyone on the board has any financial background it will be either in small business or large corporate (both of whom are focussed on profit). Running a not-for-profit takes a very particular mindset. The ones that are run well accumulate surpluses only for a very specific purpose. Why RA-Aus needs $1.8million in cash is beyond me. That's pretty much 12 months operating without a cent coming in the door! Also very concerned at the $200k surplus that was generated in both 2011 and 2012 - especially when the administration function has been lacking capacity. Wouldn't be concerned about the building valuation at all as there are no liabilities attached to it (very few liabilities in total actually). If it all goes belly up the building can be sold for whatever - there are $450,000 in reserves which are most likely 100% attributable to past write-ups of the building valuation anyway so the accounts could comfortably show the building at $650,000 without a cent disappearing from the bank account.

 

It's a bloody good-looking set of accounts for a small not-for-profit in my view. I'd push to start formulating ideas to get the cash reserves down now though before someone comes up with some hair-brained scheme that blows the lot on something that none of us really wanted...

 

There's no point RA-Aus trying to self-insure as it's too damn small to even consider it. If the insurance cover doesn't come through then we all simply walk away and try again. The government spends plenty of money on funds for plaintiff's that can't get paid because they send the defendant bankrupt. Just get that cash reserve spent on something we all want before anything happens!

 

 

[Guest airsick]

Hi sain,The cash flow receipts are the total cash that the organisation took in. Some of this cash would have been payments in advance - say if the membership period of each member doesn't run 1 July to 30 June or some members pay several years in advance or even if grants received are to be expended over several years. All these things are adjusted for in the "Revenue" figure. Basically anything in advance is moved to a liability account as the funds have not yet been earned or they are liable to be refunded should they be called upon. This is all then taken up as revenue in the year it relates to. That's a basic possibility - hope it helps.

 

...

 

Also very concerned at the $200k surplus that was generated in both 2011 and 2012 - especially when the administration function has been lacking capacity.

I trimmed your post so mine wasn't so huge!

 

I agree with your first point but I can't see anywhere that they allow for the prepayment of memberships and regos. There's nothing on the liability side of the ledger that allows for unearned revenue, prepayments of memberships, or anything similar. It seems to me that they simply recognise the payment as revenue as soon as it is received.

 

On your second point about the $200k how's this for an idea. Look at the salary for the CEO/GM position and adjust it such that we attract someone with the required talent. $90k a year is not going to get someone of the right calibre in this position, you've got to be looking at $150k minimum or you're simply asking for more trouble.

 

That's my opinion anyway...

 

 

[turboplanner]

It's a bloody good-looking set of accounts for a small not-for-profit in my view.

Volksy, I'll repeat again - Try the sequence 2008, 2009, 2010,2011,2012

 

Remember the so-called urgent need to jack the membership fees up? That amounted to about $220,000 of Members (your) money.

 

Why was this required?

 

It beggars believe that Members are not interested enough to check things out.

 

 

[68volksy]

Turbz - I do check things out each year and have been very happy with the progress. I think the jacking up of the fees was very knee-jerk and not necessarily very well researched. As is usually the case in these situations it might have gone a little too far. However it has allowed room for increasing the wage pool through more staff or higher paid (in so much as this equates to more competent) staff. I still strongly believe this is an administrative organisation and the staff should have very strong administration backgrounds. I don't see any need for a highly paid CEO. In my view a few competent administrators would cost around the $60-95k mark in the Canberra market. If they moved the office to Goulburn we could get the job done for considerably less!

 

Airsick - i looked at the accounts a little more closely and it would appear that the difference between revenue for the year and total cash receipts is most likely attributable to the corresponding decrease in the debtors balance (the other side to the possibility i mentioned above). Basically an amount would have been collected in cash this year that was taken up as revenue last year. Cashflows are a complicated bugger of a thing to get right with all the variables however the science behind them is not that difficult to get your head around. Although that's an accountant talking ...

 

 

[Guest airsick]

Airsick - i looked at the accounts a little more closely and it would appear that the difference between revenue for the year and total cash receipts is most likely attributable to the corresponding decrease in the debtors balance (the other side to the possibility i mentioned above). Basically an amount would have been collected in cash this year that was taken up as revenue last year. Cashflows are a complicated bugger of a thing to get right with all the variables however the science behind them is not that difficult to get your head around. Although that's an accountant talking ...

I considered this too, however, membership and rego is not processed until the payment is made (my understanding anyway) which means the service is not provided until the payment is made. Thus there should be (for this part of the accounts anyway) a direct correspondence between cash flow and revenue. It would be a couple of days in processing time at worst.

 

Think about it this way. If you crashed your plane and your payment hadn't been made for membership and/or rego what do you think the argument from RA-Aus would be? Unless you had a receipt confirming payment in your hot little hands I'd bet the house they'd say that your membership/rego wasn't valid.

 

In short, I don't see a good reason for any significant departure of the numbers here.

 

 

[68volksy]

There should only in the most rarest of circumstances be a direct correlation between revenue and cash inflows. The decrease in debtors almost matching the difference between cash inflows and revenues (and their relationship in the calculation of both revenue and the cashflow statement) would lead me to thinking they are related.

 

The cash inflow for the year will vary from the revenue figure due to any change in the debtors balance and changes in some provisions and accruals. The fact that the organisation takes up a debtors balance means straight away that cash inflows will not match revenue for any given year unless debtors remain static (which they generally do not). The targeted question would be more along the lines of what makes up the debtors balance and why the change this year? The organisation could have been taking up a debtor and when any registration or membership fell due and have now stopped this process? Can't tell anything for sure though without talking to the person who prepared the accounts. Funny having no debtors this year however the amount is largely immaterial.

 

 

[Guest airsick]

I see what you're getting at. I didn't read the debtors line like that but thinking about it, I'm not sure what other debtors they would have...

 

 

[Admin]

Remember the debacle of the 2 year membership and what they tried to do regarding the 2nd year monies

 

 

[68volksy]

2 year membership payments should have shown up as "Income in Advance" or as another liability account in some way to be brought to account as the income was earned. The debtors figure shouldn't relate to this unless it was very weird such as a 2 year membership payable in annual installments...

 

 

[Guest Andys@coffs]

Remember the debacle of the 2 year membership and what they tried to do regarding the 2nd year monies

Yeah I remember speaking to SR about that he was treasurer who found the issue and as I understood it back then a multi year payment was recognised as revenue all in the year it was taken. SR identified as we know that this was wrong and that prepayments for future years would be recognized as a prepayment for those who had balances still to be used, and then I think they shut down the ability to prepay into future years which may well explain the lack of a prepayments balance on the other side of the ledger...

 

In which case the point I made about having to consider prepayemnts may well be mute.....in any event the Delta between revenue and expected revenue still exists, I cant see that we would offer a credit faciltiy to membership renewals..... or if we do, its selective cause Ive never been offered "Buy now pay later!"

 

Andy

 

 

[turboplanner]

Volksy, not each, the progression.

 

If you've checked each year, do you know where every dollar* of expenditure went?

 

* just a figure of speech, some costs are consolidated headings, but it would be quite reasonable to know what every $2000, $5000,$10000,$50000 etc was spent on wouldn't it?

 

....and for each of those items it would be reasonable to be able to trace who authorised the expenditure and for what reason.

 

 

[408059]

Read a few of the posts since last night. Could continue the debate on the figures but it will not add much value to the discussion. Suffice to say that the RAA does not have $2.5m or $1.8m or anything like these figures available but it does have some monies for new initiatives.

 

How much you may ask? Well that depends upon the direction the Board wants to take and its risk tolerance. A small charity might be prepared to sail close to the wind, run down its reserves and operate at levels where income meets expenditure. If they run out of cash then they ask Mrs. Brown to bake a few cakes and run a street stall. I would hope the RAA has a more conservative view. They are, for all intents and purposes, the peak entity for recreational flyers, be they pilots of ultralights, light aircraft, trikes, or refugees from GA etc. It would seem that the role of the RAA is about:-

 

1) Promoting recreation flying

 

2) Safety;

 

3) Establishing and maintaining administrative systems to conduct flying operations

 

4) Standard and policy setting for operations and aircraft maintenance

 

5) Oversight of operations and aircraft maintenance

 

6) Advocating for its members (eg CTA access, aircraft weight restrictions etc) and

 

7) Providing member services

 

Please do not get caught up with what I have or have not included in the list. The point is that the role of the RAA is important, under a commonwealth delegation, and the stewardship of monies should ideally warrant a degree of risk aversion. The RAA has people’s safety and lives at stake.

 

This then begs the role of the Board in all this. As I see it, the Board is responsible for setting the strategic direction, setting the culture of the organization (including risk tolerance) and monitoring outcomes and performance. I am reasonably confident in saying that the Board may still consider itself in charge of an aero club. The last I saw, staff numbers where around 18 or so and with a turnover in the $millions. The RAA isn’t no Aero Club.

 

Since there is no published strategic Plan I suspect there is none. Given the administrative hiccups we’ve seen this year I suggest the culture is loose. That is not to say that management and staff are not trying their hardest to provide a good service to members but that administration systems are loose and/or immature, which has come back to bite them. Finally, where’s the Board monitoring of outcome and performance? Do they have an internal audit process to tell them how robust their administrative processes and controls are? Do they look at risk including legal claims, insurance risks, poor CASA audit performance and the withdrawal of delegations, membership satisfaction, contract risk etc. The RAA is not a big organization but the Board needs to look at least at some of these, even if only informally.

 

I suspect The RAA has grown without regards to its governance. It has focussed on operationational outputs at the cost of looking forward and monitoring performance. Money has come in, surpluses have been earned and they have been ignorant of the need to improve their systems to match the increase in membership and associated accountability or simply been unable to do anything about it because of the pressure of workload. There needs to be a circuit breaker. Whether a consultant is brought in or staff employed or both it doesn’t matter because it is the outcome that counts. I suggest this is where money should be spent.

 

Then we must turn our attention to the structure of the board but this question has been addressed in other threads.

 

Cheers

 

Steve

 

 

[coljones]

A single public liability case with a fatality could leave out of pockets of more than $2 million if not adequately covered by insurance Col, so there's not point in whistling past the graveyard.There's been no response to my post about spelling out what Insurance policies are held, what the cover amounts are, what policy the Sting crash case is being claimed against and why.

The board has not attempted to justify the surpluses or the accumulated liquid assets in terms of its adequacy or otherwise. Implicit in your response is that you don't know either - I don't and neither does the membership who keep paying the build the surpluses and liquid assets while we suffer from, what looks like, very ordinary performances from the board and management. The board hasn't even attempted to put the loose cash into an '"Oh s**t" reserve in the accounts against a rainy day.

 

Cheers

 

Col

 

 

[AlfaRomeo]

Why guess, why not just ask the Master of the Treasury, that noted financier, Eugene Reid? The President said you could and should.