Navy Supply Corps Foundation · 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD INCOME...

Foundation Treasurer Report

Captain Bruce E. Maxon, SC, USN (retired)

Navy Supply Corps Foundation

11 Nov, 2017

Agenda

Treasurer Role and Responsibilities

NSCF Financial Situation

The Big Picture over the last decade

Investment Advisory Committee

Investment Results

Responses to tasking

Budget Review

2017 Status and 2018 Plans

Financial Audits

2017 Internal Audit

2018 External Audit

Chapter Financial Reports

What/So What/Now What

NSCF Treasurer Role &

Responsibilities

Reports to the Board of Directors; Executive Committee Member

Financial Operations: reports preparation to the Board

Corpus: oversees Foundation investment activities

Budget Planning: reviews requirements and submits annual budget

Budget Execution: coordinates with CSO on budget administration

Financial Policy: development and execution, including auditing

Committee Oversight:

• Investment Advisory (Dan Pionk, Chair)

• Finance and Budget (Vacant Chair)

• Audit (Mike McCleary, Chair)

Annual review of the Business Continuity Plan

Other responsibilities as directed by the Foundation Board or Chair

Investment Portfolio over

11 years (K$) thru 10/17

$5,824

$4,013

$4,840

$5,331 $5,117

$5,462

$5,993 $5,772

$5,353 $5,544

$6,066

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

NSCF Investment Fund Ending Balance K$

Sources and Uses of Investment

Funds over last 11 Years

-$500

-$400

-$300

-$200

-$100

$0

$100

$200

$300

$400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Deposits and Withdrawals K$

Deposits Scholarships Other Withdrawals

IAC Members

Bruce Maxon, MS, CLU (Treasurer, NSCF)

Dan Pionk, MBA, MA (Chairman)

Dennis Collins, MBA, CFP, CIMA, CPWA (Past Chairman)

Mike Kalas, MBA, CFP (Past Chairman)

Craig Doyle, MBA, MA

John Drerup, MBA, MS

Joe Dunn, MSc, MS

Pete Eltringham, MBA, MS

Jack Evans (Chief Staff Officer)

Chuck Parker, MBA, PhD (Past Treasurer)

Eric Schuck, MA, PhD

Matt Webster, MBA

Bill Withrow, MBA

6

Dennis Collins, CFP®, CIMA®, CPWA®

• BS - DePaul University; MBA- University of Denver

• Partner, Chapel & Collins Wealth Management

• Registered Principal, Raymond James Financial Services, Inc.

• 19 years of financial industry experience advising families, foundations and corporate clients

• Commander, Supply Corps, US Navy Reserve

Meet the IAC

Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor

Michael R. Kalas, CFP®, AIF®

• BS – USNA, Annapolis, MD; MBA – Southern Illinois University, Edwardsville, IL

• Owner/President, Potomac Financial Private Client Group, LLC, McLean, VA

• Registered Principal, Commonwealth Financial Network, LLC

• 18 years of financial industry experience advising families, foundations and corporate clients

• Captain (Retired), Supply Corps, US Navy

Peter S. Eltringham • BS – University of South Carolina; MBA- Bryant University; MS –

National Defense University (ICE)

• Principal, At Turning Point LLC-4 years; Fauquier County,

Virginia Transportation Committee – 10 years; Representative,

Salve to Wine Imports – 1 year; Former Vice President, Telos

Corporation - 9 years; Former Managing Partner, Nice Legs

LLC Wine Distributors – 11 years

• 29 years of SUN service - 12 in major command and

headquarters staff financial/budget positions


Daniel Pionk

• BS – Ferris State University; MA – U.S. Army War College;

MBA – Regis Jesuit University

• Commodities and Futures Trader

• 25 years risk management and executive management consulting to Manufacturing and Consumer Product corporations

• Captain, Supply Corps, US Navy Reserve

Charles W. Parker, III

• BA – Yale; MBA- University of Chicago; PhD – London

School of Economics

• Senior Consultant, Control Risks, Mexico City, Mexico

• Prior experience as Adjunct Professor of economics, business and international relations and as Client Executive at IBM


John W. Drerup, Jr.

• BS – U. S. Naval Academy, MS- University of Florida; MS-Personal Financial Planning, The College for Financial Planning

• Investment Management, The Burney Company, since 2004


7

Meet the IAC

Bruce Maxon

• BA – USNA, Annapolis, MS – Naval Post Graduate School, CLU – American College

• Treasurer, Navy Supply Corps Foundation

• Interim Dean, Mesa College, School of Business and Computer Science

• CFO of two non-profit corporations

• Captain, Supply Corps, SUN (ret)

Joe Dunn

• BA – University of Denver; MS Finance – London Business School; MS – Naval Post Graduate School; Senior Executive Program – Columbia University

• Director, Vendor Governance, Prudential Financial

• Chartered Financial Analyst Candidate


Matt Webster

• BS – Williams College; MBA – Tuck School of Business at Dartmouth

• Investment Officer, University of California Investment Office

• 10 year of investment experience across private markets including debt and equity

• Lieutenant, Supply Corps, US Navy Reserve

Eric Schuck

• BA – Pacific Lutheran University; MA – University of Montana; PhD – Washington State University

• Professor of Economics at Linfield College

• 18 years experience as a professor. Author of 17 journal articles and two-time Fulbright Specialist grant recipient . Expertise in agricultural and natural resource economics.

• Lieutenant Commander, Supply Corps, US Navy Reserve

Bill Withrow

• BS – University of Colorado; MBA – Harvard University

• Executive Chairman, President and CEO of Pear Track Security Systems, Inc

• Former Mayor and Councilmember, Alameda, CA

• 20+ years experience in financial industry, retiring from Wells Fargo and Company. Chairman of the Robert Lippert Foundation and current Trustee of Peralta Colleges.


Craig P. Doyle

• BA – Arizona State University; MBA – Wharton, University of Pennsylvania; MA - U.S. Army War College

• President, Sequence Media Group

• 32 years of financial industry experience in commercial banking, and consulting to financial institutions on strategy, operations and credit risk management


Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor

8

IAC Process & Methodology

Monthly Meetings

Strict investment discipline

Guided by NSCF Investment Policy Statement (IPS)

Continually improve metrics to gauge performance and allocation

Periodic evaluation of strategy vis a vis other foundations/institutions

9

Portfolio Performance vs the IPS Benchmark

10

Data as of 10/31/2017

*Benchmark Not Assigned During Three Year, Five Year and Since Inception time periods; Bechmark is composed of 5% Citigroup US treasury Bill 3 Month USD, 25% Barclays Aggregate

Bond Index and 70% MSCI ACWI (All Country World Index). Investment Policy Statement signed 9/25/2015

Last Month Year to Date One Year Three Years Five YearsSince Inception

(1/1/09)

Portfolio 1.08 13.56 17.74 6.13 8.14 9.21

IPS Benchmark 1.47 14.38 16.08 6.26 8.12 9.57

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Ret

urn

Portfolio Performance vs. Benchmark

Portfolio vs Target Allocation

11

Cash & Cash Alternatives 214,049$ 3.5% 303,306$ 5.0% 89,257$ -1.5%

Fixed Income 1,358,727$ 22.4% 1,516,529$ 25.0% 157,802$ -2.6%

Large Cap US Equity 1,784,247$ 29.4% 1,698,513$ 28.0% (85,735)$ 1.4%

Mid/Sm Cap US Equity 1,118,490$ 18.4% 970,579$ 16.0% (147,912)$ 2.4%

Non-US Equity 1,324,330$ 21.8% 1,273,884$ 21.0% (50,445)$ 0.8%

Alternatives 266,273$ 4.4% 303,306$ 5.0% 37,033$ -0.6%

TOTAL 6,066,116$ 100% 6,066,116$ 100%

+/- 5%

+/- 3%

+/- 5%

+/- 5%

Current Target Variance Permitted Var.

+/- 3%

+/- 5%

7%

21%

30%

18%

19%

5%

Current Portfolio Allocation

Cash & Cash Alternatives

Fixed Income

Large Cap US Equity

Mid/Sm Cap US Equity

Non-US Equity

Alternatives

5%

25%

28%

16%

21%

5%

IPS Target Allocation

Contributions

• 2/13/17: $45,000

• 2/22/17: $50,114.24

• 2/28/17: $6,954.01

• 4/21/2017: $50,000

Withdrawals

• 6/12/2017: $50,000 Schwab

Govt Money Fund (Operating

Expenses)

• 7/24/2017: $280,000 Schwab

Govt Money Fund

(Scholarships)

• 8/30/2017: $45,000 Schwab

Govt Money Fund (Cruise)

Contributions &Withdrawals (YTD)

12

Portfolio Change In Value

13

Actions Taken Since Last Board Meeting

Monthly Conference Calls

Rebalanced portfolio in accordance with Asset Target Allocation Model

Portfolio Bond Review and Assessment

Investment Policy Statement (IPS) Review

14

IPS Review Process

Historical Perspective

- Internal ROR

- Deposits/Withdrawals

- Budget

Asset Target Allocation

Benchmark Component

Active vs Passive Fund Management

Overall Investment Policy Statement

15

Asset Target Allocation

Portfolio Asset Class Target Weight

Cash & Equivalents 5% (+/-3%)

Fixed Income / Bonds 25% (+/-5%)

Domestic Large-Cap Equity 28% (+/-5%)

Domestic Small-Cap and/or Mid-Cap Equity 16% (+/-3%)

International Equity 21% (+/-5%)

Alternatives 5% (+/-5%)

16

Recommend keeping existing Asset Target Allocation:

Asset mix normally generates high long-term returns but can be volatile

Portfolio has very normal exposure to all market sectors

The Portfolio is spread evenly across the market and includes a good mix of

small, medium, and large companies

Benchmark Component

17

Benchmark Component Benchmark

Weight

Citigroup US Treasury Bill 3 Month USD 5%

Barclays Aggregate Bond Index 25%

MSCI ACWI (All Country World Index) 70%

Recommend keeping existing Benchmark Component:

Current Benchmark provides a blended yardstick, big picture view, and

consistent measurement

Recommend studying an alternate benchmark by Asset Class based on

Asset Class Target Weight Percentages….as a potential for an additional

yardstick for measuring basic performance

Alternate Benchmark Component Study

18

Recommended Notional Alternate Benchmark Component….based on Asset

Class and Target Weightings:

Vanguard Cash & Equivalents Index performance X 5%

Vanguard Fixed Income/Bond Index performance X 25%

Vanguard Large Cap Domestic Index performance X 28%

Vanguard Small-Cap + Mid Cap performance X 16%

Vanguard International Equity Index performance X 21%

Vanguard Alternatives Index performance X 5%


19

0

2

4

6

8

10

12

14

16

Active Funds Passive Funds

16

5

76% Active Funds

24% Passive Funds

Current Portfolio Allocation (Funds/Holdings):


20

Recommend IPS consider both Active and Passive investments in the

Foundation’s Portfolio….No recommendation on target weightings

Historically, active funds have had a better chance at outperformance in less

efficient markets (i.e. emerging markets, small caps, etc.)

Passive funds seem best suited for the most efficient asset classes (i.e.

large cap US stocks, maybe large cap international)

Investors in passively managed funds generally have a standard set of

expectations - they will get the market return less a fee

Actively managed funds may offer better protection against losses in bear

markets relative to passively managed funds

Other Recommendations – Budget Draw

21

Recommend a maximum rate of 4% of budget draw from the corpus based

on the 10 year average of net Deposits and Withdrawals

Not a change to the Investment Policy Statement

Consideration for Treasurer and By Laws to inform IAC on Budget

expectations relative to the Foundation’s Portfolio

Provides a linkage of the Budget to the Foundation’s Portfolio

Budget: 2017 Year-T0-Date 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD

INCOME

CONTRIBUTIONS $312,500 $358,579 $405,000 $311,780

Income From Regalia Sales $0 $681 $1,200 $163

TOTAL INCOME $312,500 $359,260 $406,200 $311,943

EXPENSES

PROGRAM EXPENSES

Scholarship Program $284,000 $266,357 $291,000 $273,798

Recognition Program $15,000 $6,598 $15,000 $8,742

Communications Program $99,000 $64,575 $144,000 $75,794

Chapter Development $35,000 $28,460 $40,000 $15,355

Heritage Legacy $22,000 $11,849 $71,000 $14,053

Transition Committee $5,000 $0

2016 River Cruise Momentos $1,458 $0 $0

Humanitarian Aid $2,500 $0 $2,500 $1,500

FAST $3,500 $0 $3,500 $0

TOTAL PROGRAM EXPENSES $478,000 $379,297 $572,000 $389,241

TOTAL OPERATING EXPENSE $229,700 $228,697 $312,480 $174,035

TOTAL EXPENSES $707,700 $607,993 $884,480 $563,275

NET INCOME -$395,200 -$248,733 -$478,280 -$251,332

CORPUS TRANSFER

@4.5% of average corpus valueRestricted (Scholarships) $171,600 $141,589 $125,000 $120,000

Unrestricted (Scholarships) $171,600 $116,296 $125,000 $130,000

Unrestricted Memorial Scholarships $35,000 $30,000

Unrestricted Operating Expenses $0 $95,000

Unrestricted (Plan Implementation) $0 $0 $229,000 $0

$343,200 $257,885 $514,000 $375,000

NET (Income + Corpus Thansfers - Expenses) $123,668

Internal Audit Overall Assessment

by Dan Foster • Satisfactory

– Small number of transactions

– Oversight is generally provided

• Key areas for improvement

– Update and simplify polices

– Document key procedures

– Create an organized cycle for oversight and review

Financial Operations Policy

Statement (FOPS) inconsistency

• Summary:

– FOPS includes policies, procedures and audit steps, some of which have elements

that either were not fully implemented or differed from actual operations.

– Budget and Finance Committee (BFC) Chair position vacant. Therefore, guidance

and/or oversight not provided.

– From previous audit, policies for Credit Card Management and Insurance still not

developed.

– Internal audits procedures should not be in a policy document.

• Recommendations:

– Appoint a BFC Chair to oversee CSO development of procedures to carry out

Board approved policies.

– Develop policies for Credit Card Management, Insurance and the handling of

Donations.

– Separate auditing procedures from the FOPS and Audit Committee develop broad

scope of internal audit areas for upcoming audit.

Procedures need development

and/or compliance as follows: • To carry out existing policies, the CSO, in support of the BFC Chair needs to draft

procedures in the following areas:

– Establishing budget guidelines

– Clearly identifying the reason for accounting entry reconciliation

– Establishing SOPs for paying bills or reconciling Foundation credit cards

– Identifying the requirement on blank checks that a second signer is required on all

checks over $5,000

• When policies and/or procedures exist, they need to be complied with or receive a

documented exception or modification for the following:

– Performing due diligence on vendors

– Obtaining the required number of competitive bids when contracting for major

expenditures, e.g. the SC History book or river cruise

– Obtaining bids on personal service contracts when the cumulative expenditure

exceeds policy levels.

– Securing Board approval when large payments are not specifically called out in

Board minutes such as the NSCF office lease

– Obtaining legal review for contracts in excess of policy limitations, e.g. the Cruise

– Requiring review of travel by audit committee for travel claims over $1,000.

Donations

Summary

1. Financial statements and current year budgets are not publicly disclosed.

2. The importance of unrestricted donations has not been emphasized.

3. No policy exists for donations over a certain threshold to determine donor intent.

Recommendations

1. Work with the webmaster to publish the audited foundation financial statements, current year budgets, and a link to tax filings on the foundation website.

2. Draft for the Chairman’s approval a summary of current year operations to be included on the website. This summary should emphasize the importance of unrestricted donations.

3. Draft a policy, for the Chairman’s approval, that dictates when a donor/executor will be contacted to ensure the intent of the donation is understood.

New Accounting Guidance and

Asset Accounts

Summary

1. New accounting guidance for not-for-profits will eliminate the

classification of temporarily restricted assets.

- Asset classes will only be restricted and unrestricted

2. The Foundation uses only one checking account and one

investment account for all classes of restriction.

Recommendations

1. Work with The Foundation accounting firm to implement the new

2018 accounting guidance for not-for-profits.

2. Consider a separate checking account for restricted assets and

pay restricted payments from that account.

Open items from prior years’ audits

Summary

1. The recommendation to obtain employee fraud insurance was not implemented.

2. Procedures for The Foundation credit card were not implemented.

3. Documentation from board meetings related to financial transaction would benefit from continued improvement.

Recommendations

1. Submit bids and coverage options for fraud insurance for approval by the board.

2. Draft credit card policies and CSO document credit card procedures in the Financial Operations Policy Statement.

3. Work together to better reflect financial transactions and approvals in the minutes.

Chapter Operations

Summary

1. There was no evidence the current Chapter Operations Manual was adopted or approved.

2. The reporting from the chapters was not available for review at the administrative office.

3. A summary of Financial Reports from the last Board meeting did not agree with the official end of the year totals for Chapter donations.

Recommendations

1. The board review and specifically approve and adopt the new Chapter Operations Manual.

2. Track and report on chapter financial operations.

3. Jack and I have reconciled the two reports and found some that should applied to the previous calendar year or that were received by NSCF but not recorded in the Chapter Financial Reports.

Results of the External Audit by Patat and

Turner, P.C.

• To be handed out at the Board meeting

Chapter Financial Report Status

& rationale for report submission

• All but 6 of our 36 chapters submitted their 2016 Financial Reports.

• FY 2017 Chapter Financial Reports are due by the end of January

2018.

• By reviewing these reports NSCF is complying with their fiduciary

responsibilities to avoid the risk of losing our 501(c)3 tax exempt

status.

– The report format is provided in Attachment C of the NSCF

Chapter Operations Guide as template 1.

Business Continuity Plan agenda

by Chuck Parker

Business Continuity Management Definition and Process

Business Continuity Plan Elements: (see document)

• Scope: NSCF Critical Business Processes

• Role and Responsibilities: CSO, BCP Team, Treasurer, Chair

• Risk Assessment: with Risk Mitigation measures

• Key Documentation and Incident Notification

• Required Actions:

- Annual BCP Walkthrough (BCP Team, completed Oct 2017)

- Hard Copy Digitation and Backup (CSO, early 2018)

- Continued improvement of BCP in preps for annual Board Meeting

- Annually reviewed and signed by CSO and Treasurer

Definition and Process

Business Continuity Management (BCM) is a holistic management process

that identifies potential threats to an organization and the impacts to business

operations those threats, if realized, might cause, and which provides a framework

for building organizational resilience with the capability of an effective response that

safeguards the interests of its key stakeholders, reputation, brand and value-

creating activities. (Source: ISO 22301:2012)

BCM Process: The business continuity management lifecycle usually includes a

series of steps:

Risk assessment

Business impact analysis (BIA)

Plan development

Documentation

Testing

Maintenance

NSCF Critical Business Processes

Financial and Legal: including donations, ongoing operations, taxes,

501(c)3 reporting and associated transactions;

Chapter and Scholarship Operations: including Chapter contributions

and event support, and scholarship application and disbursement support;

Information Management: of NSCF and Chapter data, including

Leadership, Member Lists, Vendor/Supplier and Donor information;

Communications: including NSCF website, The Oakleaf, and others;

Investment Advisory Committee: and associated accounts and

transaction support;

Seasonal Operations: including Events, Scholarship Board, Board of

Directors and Chapter President Meetings.

Risk Assessment and Mitigation

The highest impact risks incident to NSCF operations, and associated

mitigation treatment, in approximate descending order are below.

Data: Loss or theft of key systems, financial data, donor lists, etc.;

Staff: Resignation of CSO or Assistant;

Fraud: Fraudulent activities and associated operational and reputational

impact, including Chapters;

Accommodation: Office damage or destruction, including natural

disaster, loss of utility services, water damage, loss of hard data and paper

records; and,

Contractor: Dependencies and associated failure of service (i.e. Target

Systems, which hosts the Foundation website and email servers).

(Mitigation measures for each risk area are detailed in the signed BCP.)

What/So What/Now What • What?

– After a five year downturn in donations to the Investment Portfolio, there was in 2017 a marked

increase in passing donations to the Foundation Investment portfolio.

– IAC has followed Board approved investment target objectives and met NSCF needs.

– Budget are aligned with the Strategic Plan and income and expenses are meeting projections.

– Internal Audit Reports report are satisfactory and we are responding to recommendations.

– Chapter Financial Reports were received from 31 of 36 chapters in 2016 and the 2017 reports

are to be submitted in January 2018.

• So What? – We need to continue to receive donations to ensure we can meet Strategic Planning Budget

targets or adjust expenditures as the year progresses.

– Our financial records are being properly maintained.

– The Financial Operations Policy Statement needs update

– Chapter Reports will continued to be reviewed to comply with our 501(c)3 tax exempt status.

• Now What? – Encourage all NSCF members to participate in the ongoing fund raising appeal.

– Each Committee Chairman is to carry out their 2017 budget and Strategic Plan.

– Follow-thru on Audit recommendations and submit updated FOPS by next Board meeting.

– Encourage Chapters to submit Financial Reports per the guidance.

Back-Up

• List of Mutual Funds in the NSCF Schwab

portfolio as of 31 Oct 2017

• 2017 Capital Investment Projects

• Uses of NSCF resources & potential

losses

• Recurring audit reviews

• %01(C)3 IRS tax code mandates

List of Funds in NSCF Schwab

portfolio as of 31 Oct 2017

2017 Capital Investment Projects

CAPITAL INVESTMENT PROJECTS

History Book 2016 31 Oct 2017 YTD

Beginning Inventory Value 278,203.79 240,734.54

Shipping Expenses 4747.57. 509.48 NSCS

Storage 1,633.18 3,253.60

Total 284,584.54 244,497.62

Sales 25,800.00 750.00

Donated Books 10,000.00 9,250.00 NSCS

Books Consigned to Chapters 8,050.00 0.00

Total 43,850.00 10,000.00

Ending Value 240,734.54 234,497.62

2018 Oakleaf River Cruise Reimbursable Dow n Payment -112,356.00

2018 River Cruise Donations Donations Received 10,400.00

Uses of foundation resources with

potential losses

Summary

1. Funding items like the history book and cruises create a possible

negative outcome for which The Foundation is liable, and that

have the potential to lose money.

Recommendation

1. Adopt a policy for taking on future liabilities that includes analysis

to be performed to determine potential losses for The Foundation.

Recurring reviews

Summary

• Financial operations oversight is provided by the various people.

and functions above are not coordinated as part of the overall

internal control environment.

Recommendation

• Work together to identify control points for revised policies and new

procedures. They will develop review steps and present them to the

audit committee for approval.

501(c)3 IRS tax code mandates

501(c)3 IRS tax code allows tax exempt status to non-profits organizations complying

with certain provisions:

• May not participate in any political or lobbying activity.

• Activities, donations and income must be focused on the purpose of the

Foundation as originally reported to the IRS.

• May not sell property of the organization to a board member for less than the fair

market value, nor may a member receive free services from the nonprofit that

others pay for.

• May not have substantial, unrelated business income.

• When holding a charitable event, must ensure attendees know what portion of

price of attendance is tax exempt.

Navy Supply Corps Foundation · 2016 Budget 31 Dec 2016 YTD 2017 Budget 31 Oct 2017 YTD INCOME...

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