A controversy has been raging at GVR for about six weeks over whether GVR has a cash surplus from 2018 available to distribute to the Initiatives Reserve.
Having had a long career as a chief financial officer, I’ve been trying to offer assistance to the Fiscal Affairs Committee in this quest, but have not been allowed to speak at FAC meetings or work sessions. President Charles Sieck’s piece in GVRNow! further confuses the issue. Therefore, I share my understanding of the accounting concepts with the community to promote widespread understanding.
The controversy revolves around the definitions of Net Assets (per the Statement of Financial Position), Change in Net Assets (per the Statement of Activities) and cash. Neither Net Assets nor the Change in Net Assets represents spendable cash.
Net Assets on the Statement of Financial Position (Balance Sheet in the for-profit world) is the current value of all assets owned by the corporation. An increase in Net Assets is not spendable cash. Compare it to your home. Say you bought your house for $200,000 and now it is worth $230,000. You have a gain of $30,000. Can you spend it? No, not unless you sell your house. In the same way, GVR cannot spend the $494,560 that Net Total Assets increased in 2018.
Change in Net Assets on the Statement of Activities is the nonprofit version of profit or loss, which GVR’s Finance Department has been calling surplus or deficit (probably to avoid confusion with the Statement of Financial Position). This is an indication of operating performance according to particular accounting guidelines (GAAP). GVR did have an operating surplus of $495,163. But this is also not spendable cash.
In order to find out how much cash was actually left over from 2018, you start with the net surplus and add back depreciation, which is required to be included as an expense on the Statement of Activities but does not use any cash, plus the unrealized loss of $254,464 on investments, which also did not use any cash. (Please note, in 2018 this was a loss, not a gain as in previous years.) This brings the cash surplus subtotal to $2,235,568. But this is still not spendable cash.
Now we have to subtract the money that was spent on asset purchases (they use cash but are reported on the Statement of Financial Position, not the Statement of Activities), $1,414,545, and cash that was transferred to the MR&R Reserve during the year, $940,003 (also on the Statement of Financial Position). Now the net cash is a deficit of $118,980. But there is still more to do! This amount includes investment income of $208,659 which must be subtracted because it is from restricted accounts and the income must be allocated to those accounts.
So, the total net cash is a deficit of $327,639.
That means that GVR spent $327,639 more than it received in 2018. Just as David Webster explained to the Fiscal Affairs Committee. And, I suspect, just as Rich Hill explained to a small subset of the Fiscal Affairs Committee.
The answer is: Yes, GVR’s assets increased by $494,560, and yes, GVR had a $495,163 profit in 2018, and yes, GVR overspent its income by $327,639 and no, there is no money available to be allocated to the Initiatives Reserve account.
If the Board continues to talk about moving nonexistent 2018 cash into a reserve account, or spending money to get yet another explanation of basic accounting principles, members are going to start thinking this whole controversy is not so much a matter of not understanding the financial reports, but defamation of the staff and an attempt to weaken GVR’s financial position.
Nina Campfield is a former GVR board director.