☛ AQHA Continues to hemorrhage $ 12-23-14
AQHA CONTINUES TO HEMORRHAGE MONEY!
CLOSE TO $17.5 MILLION IN REVENUE LOST IN PAST FIVE YEARS;
NET ASSETS DROP CLOSE TO $9.6 MILLION
By Glory Ann Kurtz
Dec. 23, 2014
I always look forward to this time of the year for several reasons: 1) The year is coming to a close and I’m excited about the coming New Year while reflecting on past events of the present year, 2) The futurities are over and I look forward to their results, especially the horses and the exhibitors as well as the sales and 3) the nonprofit horse organizations’ IRS 990’s for the preceding year are posted on http://www.Guidestar.org, that give me the opportunity to analyze the results of a particular nonprofit’s tax return.
One 990 IRS filing I found of particular interest this year is the 2013 IRS 990 tax filing for the American Quarter Horse Association, a Texas 501(c) 5 nonprofit headquartered in Amarillo, Texas, that encompasses the fiscal year beginning Oct. 1, 2012 and ending Sept. 30, 2013. This article will compare the current return with the previous year and compare the last five years’ income and expense totals.
For the record, AQHA is the largest nonprofit breed organization in the world; however, they are also hemorrhaging membership and registration numbers as those categories have lost $864,797 since the previous IRS 990.
REVENUES VS EXPENSES:
While reviewing their 990 IRS tax filing, the most glaring revelation is the organization’s posting of another significant loss of $692,687 for the year ending Sept. 30, 2013, as opposed to a $3,445,679 loss for the year ending Sept. 30, 2012. When this loss is added to the previous four years of losses, they total close to $17.5 million, or specifically $17,484,806 in lost revenue. That’s an average loss of close to $3.5 million per year. The largest loss of over $7 million took place in the 2008 tax return.
I have several questions on the Revenue chart. I ran it by a couple of auditors and tax accountants and one of their first questions was: “What’s the chances of revenue from two separate IRS 990s, being within $22,000 of each other?”
In that same line of questioning, there is a revenue account called “Pension Plan Actuarial” in the amount of $3,710,732 for the most recent 990. One accountant told me that he felt the only way that could be included as a revenue item was if the pension plan was over funded to begin with. Or was it just put there to increase revenue? It’s interesting this is the first time that particular revenue item has been listed on the AQHA tax return, which incidentally was prepared for the first time by a new tax firm, Pamela Alexanderson of Ross Adams LLP, Albuquerque, N.M.
Also, why is “Other Revenue*” not explained and yet it is the largest amount on the return for both years – close to $16.6 million in the most recent return and $14.9 million for the year before? Also Other Expenses is a large amount in the Expenses chart: over $5.4 million ($5,477,348) in the most recent 990. Perhaps the Board of Directors should ask for a forensic audit in order to get into the chart of accounts, as that is the only way for them to see the real picture.
ASSETS VS LIABILITIES:
The tax return ending Sept. 30, 2013, reports total assets for the beginning of the year of $56,223,930 and $50,276,281 at the end of the year or a major loss of close to $6 million in assets just this past year alone. In the past five years, assets have dropped from $66,850,420 listed in the 2008 tax return, which ended on Sept. 30, 2009, down to $50,276,281 at Sept. 30, 2013. That’s a drop of close to $16.6 million, or $16,574,139 in five years.
Total liabilities at the beginning of the year were close to $41 million ($40,977,642) and at Sept. 30, 2013, were $35.1 million ($35,166,755), a difference of or $5.8 million ($5,810,887). At the beginning of the year Net Assets or Fund Balances were $15.2 million ($15,246,288), while at Sept. 30, 2013, the IRS 990 tax filing reported $15.1 million ($15,109,526) in net assets, a drop of $136,762 net assets. In the past five years, Net assets have dropped from over $24.7 million ($24,708,064), down to $15.1 million ($15,109,526), a huge drop of close to $9.6 million ($9,598,538) – very close to $10 million in five years!
Click for Revenues, Expenses>>
SALARIES AND PAYCHECKS:
Another interesting set of numerical values is represented in the salaries being paid to the upper management of AQHA whose posting this type of unprecedented loss on their watch:
1) Executive Vice President Don Treadway’s salary totals $371,639, which is actually $230 less than the year before;
2) Treasurer Trent Taylor’s total salary is $239,744, $18,456 less than the year before (however the takeaway came from the loss of a bonus and benefits, as his base salary was increased $14,370);
3) Tom Pereschino, Executive Director of Competition and Breed Integrity, was receiving a salary of $181,187, which includes a $7,873 bonus, and is a $25,440 increase from the prior year.
However, the biggest increase in salary went to 4) William “Alex” Ross, Director of Judges, who was receiving a $246,285 salary, which included a $9,308 bonus, and is a whopping $55,201 increase from the prior year, and
5) Attorney Chad Pierce’s salary is $239,849 down from $244,578 in the prior year, due to the loss of a bonus.
Total upper management salaries totaled close to $1.3 million ($1,278,704), down $113,839 from the prior year. However, the increase in current salaries ate up most of the $171,065 that was paid to Billie Smith in the prior year, rather than saving the money. Smith was not replaced and is currently the Executive Director of the American Paint Horse Association.
Total salaries paid out in the Sept. 30 IRS 990 were close to $15.6 million ($15,587,041), down $1.5 million from the previous year’s $17.5 million ($17,546,036). In the 2012 IRS 990, salaries were 34 percent of total functional expenses, while in 2013, salaries were 32 percent of functional expenses.
Eight (8) AQHA employees are being paid over $100,000 a year and also include Karen Latta, Executive Director of Marketing, $134,069; Patricia Carter, Executive Director of Shows, $121,561 and Richard Buck, Executive Director of Racing, $120,561, for a total of $1,654,895, averaging $206,862 for each of the eight employees.
Click for highest-compensated employees>>
The reader should bear in mind the above salary designations are only representative of the dispersing of cash to the individuals on an annual basis as per individual salary agreements and included on the IRS 990 filing. However, this financial information doesn’t reflect the total “other related costs,” per employee that the AQHA is sustaining which are factored into the total employee expense category such as health insurance or life insurance paid for by the AQHA, pension or 401k expenses paid for by the AQHA, car expenses, if they are using a company car, etc.
Also in Schedule L of the 990, you will see a loan to Don Treadway in the amount of $159,680 for a split dollar Life Insurance agreement, with a $47,904 balance due. This type of insurance is a way to help an employee purchase life insurance, split the cost between the employee and the company, and also have a tax advantage for the employee. At the death of the employee, the employer will receive all the premiums they have paid. However, the IRS recently announced changes in the taxation of split-dollar plans and according to tax articles, these changes cast doubt on the future utility of some of these arrangements and create a risk of potentially disastrous tax consequences for participants in certain existing arrangements.
Click for link to split-dollar life insurance>>
Click for additional article>>
Total compensation of all other employees for the current 990, was close to $15.6 million ($15,587,041), over $1.5 million less than the year before ($17,516,393). Yet they added 10 more employees, for a total of 379 from 369 the year before. By reading the above listing of the “highest-compensated” employees, you can easily see they didn’t take the money away at that level.
Also, the current AQHA IRS 990 shows independent contractor payments of $148,588 for cleaning services, $121,765 in addition legal fees above the salary of Chad Pierce and $104,630 in audit and tax services, totaling $374,983.
Also getting paychecks, but the money is not included in the compensation part of the IRS 990, were a number of directors, including the new President Johnny Trotter, who received $29,432 for the use of cattle for the AQHA World Show. A total of 35 directors received $243,120, averaging $6,946.29 each.
Other directors have children, or even themselves, who are receiving scholarships, grants and internships. And 10 directors have family or business relationships with others on the board, and in one case, both. (See link to IRS 990s on the end of this article.)
However, in my opinion the most interesting of the payouts listed on the 2012 IRS 990 tax filing for the AQHA is the money paid to AQHA former Executive Director Bill Brewer of $90,000. He also received $45,000 in the prior year. It looks like he got a raise too?
Excuse me for this relevance but I thought Bill Brewer retired long ago, so why is the AQHA still paying him? Trotter on the other hand is a self-professed millionaire who owns a large feed lot for cattle, a million-dollar Quarter Horse racing business and is listed on the Internet as being on the board of directors for several Texas banks.
Certainly, there must be a plausible answer for Trotter, the current President of the AQHA and future Texas Cowboy Hall of Fame inductee being paid for renting cattle to the AQHA for the World Show for the three past consecutive years and posted on AQHA IRS 990 filings. I wonder exactly what the reason is? Are there no other cattle producers to get bids from in the state of Texas or aren’t they asking for bids?
Since AQHA is allegedly under an immediate reconstruction period and is soliciting member suggestions for improvement in the organization, perhaps there should be a ban on paying Executive Committee members occupying a non-paying position. Enumeration for services rendered should be high on the priority change list and this type of service should be put out for bids. This is a viable suggestion, if for no other reason than to create an atmosphere of non-corruption, preferential treatment and favoritism among the “good ole boys,” discrimination of others in the industry as well as members or outsiders who would appreciate this infusion of cash in a down economy.
In the corporate world it’s important to create a business atmosphere free of impressions or inferences of this type. There are a lot of reasons to limit the time an individual may serve in a position of authority with an equine nonprofit but incidents of this type should certainly rate high on the list. An individual serving in the capacity of an Executive Committee Member for as long as some have at the AQHA is purely ridiculous.
AQHA says they have term limits; however, when their terms are up, the same directors and Executive Committee members are “voted” back in. Those same individuals coming back year after year brings dissension to the rank and file and is counter productive to good management and the intended goal of making a better organization that should have changes at all levels.
The incredulous anomaly of this tax return is that the same individuals causing this enormous revenue loss in the first place are still running the organization! Individuals, who have retired and announced their retirement, are incredibly still being paid by the organization! Individuals’ salaries that normally are reduced during a down period in an organization are not only making more money but are receiving bonuses to boot. Unless I’m mistaken this sounds like the 6 o’clock news and Wall Street, where the business executives were rewarded with bonuses for losing millions of dollars and nearly bringing our economy to a collapse.
Still another interesting loss is recorded in the organization’s investment section of publicly traded securities and other securities. A $40.6 million ($40,668,850) investment at the beginning of the year was reduced to $38.7 million ($38,773,111) at the end of the year – losing close to $1.9 million ($1,895,739). Or how about a “Partnership Investment having a $173,298 loss in the IRS990 for Sept. 30, 2012 and a $358,294 loss for Sept. 30, 2013 for a total loss of over a half of a million dollars ($531,592) in a single year? What kind of investment is this when they are using members’ money?
This tax return also showed a close to $6 million loss in total association assets this year, beginning the year with assets of $56.2 million ($56,223,930) and ending with $50.2 million ($50,276,281). They also reduced their liabilities, but not enough to cover the loss in assets: close to $41 million ($40,977,642) at the beginning of the year and $35.1 million ($35,166,755) at the end of the year, a reduction of over $5.8 million ($5,810,887).
I thought that the object of investing money was to make a “positive” revenue return and to invest soundly and safely, not in risky investments like partnerships or the stock market (public securities)! I would hope Mr. Trotter’s banks aren’t losing this amount of cash while he’s on their board of directors!
Click for 5-year chart>>
Economics 101 teaches us this is the branch of knowledge concerned with the production, consumption and transfer of wealth. These are simply the basic principles of business and it doesn’t take an individual boasting a college diploma to figure it out. Business economics is comprised of two simple mathematical principles: cash in and cash out. The cash in is called revenue and the cash out is called expenses. If your cash out, or the negative side, is greater than your cash in, or positive side, you adjust accordingly until your negative side is returned to a positive side.
In the real business world, this is referred to as an adjustment in revenue or simply cash versus expenses. Revenue adjustments are made by a reduction of salaries or the elimination of bonuses for upper management, reduction in overhead expenses or expenditures, or a reduction in the workforce. The IRS 990 for the AQHA shows none of these adjustments happening.
By the same token revenue adjustments can also be seen as a positive, especially with an increase in cash revenue such as an increase in show revenue, sound investments, membership dues, etc. Whatever the case, running a multi-million dollar operation is simply, in most cases, the application of common sense and balancing real cash and expenses. The object of the game is not in how much revenue you make, but in how much you keep!
Trimming the fat out of a business organization and maintaining stability by using sound business principles and common sense as the compass to guide the ship to prosperity is more conducive to effective management than losing millions of dollars annually to mismanagement of the organization by the powers-that-be which can, if left unchecked, lead to gloom and doom. One fact of reality is the present powers-that-be aren’t cutting the mustard as business managers!
I would suggest, a sound business principle is to run your business on established revenue availability or influx of cash instead of hypothetical projections based on risky or unsound business adventures that lead to the unsound business principle of spending your money before you get it – or on the accrual accounting method, such as the AQHA uses.
Basically, the accrual method is defined as accumulating or receiving (payments or benefits) prior to when the actual amount is received by the organization. Simply stated, it’s a hypothetical projection of “counting your chickens before they hatch.” In other words, if you’re expecting 10 chickens, and you borrow money or an intended sale value plus interest as operating capital and you only hatch five chickens, then the chickens not hatched become a loss. Perhaps the better of the two accounting principles, or the cash basis, should be used. That would provide a truer picture of the revenue operating, stability and cash loss of the AQHA.
Another interesting benefit of my research involves a piece in the recent AQHA publication Americas Horse titled “AQHA’s Strategy,” written by retiring AQHA Executive Vice President, Don Treadway. The first paragraph is the one that really caught my eye with Mr. Treadway’s article beginning with, “When you head out on a trip, chances are you use a map – or GPS system these days – to tell you how to get you where your going. Without that guidance, you have a pretty good chance of getting lost or not taking the most direct route to your destination.
“In business, if you don’t have a good map – a strategic business plan – to guide your decisions, your business may not grow and you won’t be able to serve your customers. We’ve had a strategic operating plan in place for many years”.
Click for AQHA Strategy article>>
I certainly agree with this stated business philosophy but has the AQHA lost its GPS guidance system or is their present business strategy in need of a good tweaking to bring the nonprofit back into a profitability status including a change in the present regime? I would like the AQHA powers-that-be explain the relevance and practical application of their existing business philosophy, as its being applied, which has recorded an annual loss in the millions of dollars over the past years including their latest IRS 990 tax filing contributing a loss of $692,687 to this already staggering figure.
Perhaps a better business approach would be to develop a legitimate business matrix conducive to sound money-making and money-keeping business principles instead of their established money-making and money-losing business philosophy and history. After all, the object of a sound business matrix is one that adheres to its business motto or “Mission Statement”, provides goods and services at a fair price, caters to its clients or in this case its members, makes a lot of money in the process, keeps a lot of money in the end and provides a financially stable organization for the present as well as future generations instead of “hemorrhaging money with each IRS 990 tax filing” until the cash cow is depleted.
My most important question is when an organization posts a revenue generation capability of $48.5 million and spends $49.2 million during the year, which creates a sustained loss of $692,687, exactly where did all this money go and who benefits the most from an enormous dispensary of cash?
My next question is: are the navigators of this ship, who have been at the helm for decades, really qualified to steer the ship or has their incompetence been overshadowed by an influx of more money than they can mismanage?
My final questions are: how long can the AQHA operate in this manner and when is real change on the horizon?
Click for AQHA 990 – Sept, 2012>>
Click for AQHA 990 Sept 2013
FROM THE EDITOR:
EVERYONE IS WELCOME TO LEAVE A COMMENT, GOOD OR BAD FOLLOWING ARTICLES. HOWEVER, YOU MUST LEAVE YOUR NAME AND A WORKING E-MAIL ADDRESS, ESPECIALLY IF YOU MAKE PERSONAL ATTACKS ON INDIVIDUALS, OR YOUR COMMENT WILL BE REMOVED.