April 23, 2015 § Leave a comment
Councilmember, Town of Herndon
The article titled, (click right) “Now is the time to change Friday Night Live! (FNL) Policies” caused some controversy about FNL’s profits, charitable contributions, expenses, revenues and sponsorship income. This controversy arose largely because the data contained in the Pro Forma statements (prepared by FNL) did not match the data given in the financial statements and tax-returns prepared by the Dulles Regional Chamber of Commerce.
The 2011 Town policy requires FNL to submit, among other things, the following documents about its operations:
- A budget detailing how the requested funds will be used
- Midyear and end of the year financial operating report,
- Year-to-date profit and loss statement, and
- Year-to-date balance sheet
Had it submitted the required information, most of the controversy surrounding FNL operations would have been avoided. The discrepancies are discussed in the following sections.
Discrepancy # 1. FNL’s Profits
Even in the face of high actual profits in 2012, 2013 and 2014, the Pro Forma statements repeatedly projected low profits. For instance, in 2012, while the tax return shows an income of $84,597, the Pro Forma statement projected an income of only $22,517.
Grant Tax Return Pro Forma
Application Income Income
2014 $82,492 $30,717
2013 $79,796 $33,167
2012 $84,597 $22,517
The repeated low projections of income called into question the validity of every piece of data in the Pro Forma statements.
Discrepancy #2. Charitable Contributions
The 2012 and 2013 Pro Forma statements suggest that FNL was planning to give $21,500 in charitable contributions every year. The tax return, on the other hand, suggests that the Chamber gave only $5,948 in charitable contributions. The Chamber made no charitable contributions, according to its 2013 tax return.
Grant Contribution Contribution Difference
Application Tax Return Pro Forma
2013 $0 $21,500 $21,500
2012 $5,948 $21,500 $15,352
After the publication of the article, Laura Price, the FNL representative, sent a list of checks written to the Herndon Optimist, Herndon Boosters, and other non-profits to me. The checks indicated that the FNL had contributed considerably more money than that suggested by the tax returns. I asked Ms. Price and Mr. Downer for an explanation of the discrepancy stated above. So far, no one has provided any explanation. Perhaps, the contributions did not qualify as charitable contributions under the IRS regulations.
Discrepancy #3. Total Expenses
FNL has overestimated its expenses year after year even in the face of significantly different actual expenses. As shown below, FNL overestimated its expenses by $34,743 in 2013 and $24,012 in 2012.
Grant Tax Return Pro Forma Difference
Application Expenses Expenses
2013 $158,440 $193,183 $34,743
2012 $153,688 $177.700 $24,012
Likewise, it underestimated its revenues by significant amounts as well. The overestimation of expenses and underestimation of revenues resulted in lowering the estimates of FNL’s Pro Forma profits. In my view, it is not sufficient to assert that Pro Forma results were conservative projections. Appropriate explanations have to be given for deviations from the norm. Further, Pro Forma statements shouldn’t have been submitted in the first place, because the Town’s 2011 policy requires the submission of more reliable documents.
Discrepancy #4. Sponsorship Income
The Chamber lists the sponsorship information as a separate line item in its year-end (12/31) Statements of Activity. This means, the Chamber lists the sponsorship income not by individual programs, but as a single combined figure for all programs. The data suggests that the Chamber receives total sponsorship income of about $80,000 and that this sum is not included in the FNL revenues.
FNL’s Pro Forma statements, on the other hand, list sponsorship income in its statement of revenues. One of the implications of this listing is that the Chamber’s total sponsorship income is about $140,000 as shown below.
Grant Sponsorship Income Sponsorship Income
Application (12/31 Statements) Implied by Pro Forma
Year (Major Sponsors Only) Statements
2013 $66,086 $141,086
2012 $74,525 $132,525
There is nothing in the Chamber’s tax returns to support the conclusion that the Chamber receives about $140,000 in sponsorship income. However, if this conclusion were true, that is, if the chamber receives about $140,000 in sponsorships, then it would imply that FNL’s earns only about $10,000 in operating profits every year – a very unlikely outcome. On the other hand, if this conclusion were false, then it would imply that FNL’s operating revenues are in the $225,000 – $250,000 range and not in the $135,000 – $142,000 as suggested by the Pro Forma Statement. Further, if the conclusion were false, then it would imply that FNL earns total profits of about $160,000 every year.
These controversies cannot be resolved reasonably until the Chamber and FNL submit accurate and verifiable information on FNL’s operations to the Town.