AAOS Bulletin - October, 2006

Treasurer’s Report: Fiscal year 2005

The financial affairs of the American Academy of Orthopaedic Surgeons and its parallel organization, the American Association of Orthopaedic Surgeons, are managed and supervised by the AAOS Finance Committee. The specific duties of the AAOS Finance Committee include:

  • Manage the financial affairs of the AAOS consistent with the AAOS Strategic Plan, including consideration of unity and diversity with the organization
  • Prepare annual budgets—operating, capital, and product development
  • Monitor financial performance of the organization
  • Review new programs and business plans for compliance with the strategic plan, availability of resources for funding, demand for the project, financial projections, and metrics for evaluation
  • Monitor AAOS investments
  • Audit AAOS finances
  • Identify AAOS programs not meeting goals (in conjunction with the Leadership Review Group)
  • Participate in the AAOS Compensation Committee
  • Participate in the AAOS Retirement Savings Committee

The Members of the AAOS Finance Committee in 2006 include the treasurer, William L. Healy, MD; the immediate past president, Stuart L. Weinstein, MD; and the second past president, Robert W. Bucholz, MD. During 2006, the Finance Committee has six scheduled meetings. The presidential line, the chief executive officer, and the chief financial officer all participate in Finance Committee meetings. All members of the Board of Directors are invited to participate by teleconference or in person in Finance Committee meetings.

Finance department
The finance department is responsible for processing—and protecting—the inflow and outflow of the financial resources of our organization. In basic terms, the department is responsible for accounting activities, which include accounts receivable, accounts payable, and bookkeeping; and finance activities, which include budgeting, day-to-day management of our investments, and ensuring we have adequate insurance as an organization. The finance department is managed by the chief financial officer.

Chief Financial Officer
The AAOS is fortunate to have Richard Stewart serve as our chief financial officer. Mr. Stewart has extensive experience in accounting and financial management in both health care and association industries. Since Rich joined AAOS in 2004, he has improved our budgeting process, streamlined our business processes, enhanced our financial compliance programs, and served the Academy as chief financial officer during a period in which our assets grew from $66 million in 2003 to $84 million as of July 2006.

The Treasurer, in association with the Finance Committee and the chief financial officer, is responsible for the oversight and management of all funds, securities, and assets of the AAOS. The Treasurer serves as chairman of the Finance Committee. During 2004-2006, Edward A. Toriello, MD, served as treasurer of the AAOS and as chairman of the Finance Committee.

2005 was a good year for AAOS
Total net assets (basically, the net worth of our organization) grew $6.6 million, from $57.2 million to $63.6 million at the end of 2005. Operating income for the year was $3.3 million, compared to $1.3 million of operating income in 2004. Our long-term investment portfolio grew by $2.7 million (more on this below); our contributions grew by $400,000.

Combined Balance Sheet
Total assets of $81.4 million at year-end 2005 represented an increase of $7 million from year-end 2004, and resulted from the operating income and investment gains for the year. Liabilities increased approximately $500,000, mainly due to year-end timing issues of certain expenses such as payroll.

The AAOS long-term investment portfolio ended 2005 valued at $40.7 million, compared to $38 million at the end of 2004. The investment fund gained $2.7 million for the year; this gain can be compared to a $3.8 million gain in 2004.

The purpose of the investment fund is twofold. First, it provides a ready source of funds to keep the organization operating for a limited time in cases of extreme emergency. Hurricane Katrina’s devastation of the Gulf Coast late last summer dramatically underscored the need to have access to liquid funds. Second, the investment fund is used to fund large projects and acquire large capital assets not included in the operating budget.

The Board has set a target limit on the entire portfolio, and as of December 31, 2005, this limit was approximately $41.1 million. The Finance Committee reviews the status of the portfolio monthly to ensure that it is within the target range. As of December 31, 2005, it was at 99 percent of its target balance.

Combined Statement of Operations
Total operating revenue for 2005 was $46.8 million, a $2.4 million increase over 2004. The increase is mainly attributed to:

  • The release of Orthopaedic Knowledge Update—OKU—8th Edition
  • ($1 million)
  • Additional classified advertising and grants for the Journal of the AAOS ($330,000)
  • Increased exam revenue, mainly due to OKU 8 ($310,000)
  • An increase in dues revenues associated with a greater-than-anticipated number of international members as well as the creation of new member categories for osteopaths ($270,000)
  • Improved cash management ($266,000)

Total operating expenses, on the other hand, increased only slightly—from $43 million in 2004 to $43.6 million in 2005. Costs related to the production of OKU 8 and increased exams constitute the main reason for this small increase.

2007 Budget
Development of the 2007 budget is in process. The AAOS Strategic Plan requires the Board to “adopt an annual balanced budget”—i.e., our anticipated expenditures in 2007 should not exceed or be less than our anticipated revenue. While we have experienced significant financial success over the past three years, the Finance Committee and the Board will again rigorously examine where we plan on spending our resources to ensure that what we plan to do in 2007 is consistent with our strategic plan and your needs.

AAOS Financial Dashboard
During 2006, a one page “financial dashboard” was developed for monitoring the financial performance of the organization. On the opposite page please notice the AAOS financial dashboard for August 2006. This document is available to all AAOS Fellows who wish to learn more about AAOS finances.

The AAOS has a strong team of professionals and volunteers who manage the financial affairs of the Academy and the Association. In 2006, the financial picture of AAOS, as noted on the “financial dashboard,” is very bright. At this time we have sufficient resources to support the education and advocacy missions of the Academy and the Association. However, we understand that economic cycles can rise and fall. The goal of the treasurer’s office, the AAOS Finance Committee, and the finance department is to manage the financial affairs of the organization to support the mission of the American Academy of Orthopaedic Surgeons. We promise to preserve and protect the financial future of your Academy.

If our Chief Financial Officer Rich Stewart or I can be of assistance to any fellow at any time, please contact us through the Academy offices.

Respectfully submitted

William L. Healy, MD
AAOS Treasurer

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