BY MATTHEW STANDER
T he
of t h Week Within the last ten years AKC has established two new Reserve Funds-One an Operating Reserve the other an Endowment Reserve. The monies accumulated between the two funds is in excess of $50 million with the Endowment Reserve having a goal of $100 million dollars itself. What are the significances of these Reserves and is the Fancy cognisant of what is truly happening at AKC financially? James Stevens BACKGROUND ON ESTABLISHING AKC’S RESERVES: AKC currently has two reserve balances established – an operating reserve and an endowment reserve. The establishment of an operating reserve was recommended by AKC’s previous auditors, Ernst & Young, over 10 years ago. Their recommendation was for this reserve balance to amount to 50% of AKC’s annual operating expenses. It took several years to attain this recommended balance. AKC’s current auditors, KPMG, concur that 22 Dog News
it’s appropriate and fiscally prudent for a not-for-profit organization to maintain such a reserve balance. AKC’s Board of Directors approved the establishment of an endowment reserve in 2005. The minutes of the Board’s meeting approving such a reserve indicated this will “provide for the enhanced financial stability of the organization. It would be structured so that the fund’s investment returns are available to meet AKC’s operating expenses, while the principal is reserved for designated purposes and to meet unforeseen contingencies.” Given the difficult economic climate we face today and AKC’s declining revenues, we are very fortunate to have these reserves balances to provide essential financial stability for the organization. REPORTING OF AKC’S FINANCIAL RESULTS: AKC’s current financial results are reported regularly on its website as follows: • Monthly financial results are reviewed with AKC’s Board at each Board meeting and appear in the minutes of the Board meeting. • Each quarter the details of the current financial results are reviewed at the delegates’ meeting and appear in the minutes of these meetings. GENERAL OBSERVATIONS: The AKC did not have the benefit of our current reserve balances if one goes back more than 10 years ago. Therefore, the AKC’s financial position is considerably stronger today with the addition of these reserves. In fact, our balance sheet is stronger than it has ever been. This puts
the organization in a much more favorable position to deal with the potential of unforeseen contingencies, etc. Secondly, the AKC’s current financial results are always readily available as public information on AKC’s website in the minutes of the Board and delegates’ meetings. Charles Garvin The establishing and funding of the AKC reserve funds was a wonderful accomplishment and a great example of the wisdom and foresight of David Merriam, Ron Menaker, and the AKC Boards of the last decade. The prudent financial management of Jim Stevens and the wise investment counsel of Ed Michaelson have also played a significant role. This occurred in the era of the meltdown of the new AKC registration computer system and when both litter and dog registrations had already started to decline. However, revenues were still good, alternative revenues were taking hold, and the stock market was doing well, so funding these reserves was feasible. The goal was to permit AKC to weather the storms of possible business reversals, or, for example, to survive the catastrophe of a data system failure. In the ideal world, the Endowment Reserve would spin off enough investment earnings to continuously underwrite the essential operations of AKC in perpetuity, permitting our earned revenue to fund all the worthwhile ongoing programs AKC provides. The reserves have done a very good job of providing financial stability for AKC,
consistent with our position as the world’s leading dog registry. Ironically, the reserves may have also insulated many in the fancy from the stark realities and potential adverse consequences of AKC’s declining registration and revenues. Simply put, without those reserves, AKC would be in big trouble. It is a difficult balancing act to discuss the difficult financial status of AKC without causing excessive pessimism. Similarly, AKC management and the Board need to balance their willingness to try new approaches in the face of this financial crisis without abandoning the policies and traditions that have made us successful for 125 years. Robert D. Smith As I understand it, these funds were established as a prudent measure to insure that, in case of a disaster, AKC would have sufficient funds to carry it through such an occurrence. In light of what the Canadian Kennel Club has experienced lately, the decision to create and grow these funds appears to have been a very wise one, indeed. As to the second part of your question, no, I do not believe the Fancy is aware of the seriousness of AKC’s financial situation and the need to stop the decline in registrations and, if possible, increase registrations in the future. The Board and staff cannot accomplish this alone; it will take the support and efforts of the entire Fancy to turn this situation around. •