THIS POST HAS BEEN SUPERCEDED IN PART BY A MORE DETAILED POST DATED MAY 17, 2005.
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May 13, 2004 Post: Bleeding More Than Red Ink: It's Time for the Milwuakee Public Museum to Come Clean
May 11, 2004 Post: Milwaukee Public Museum, No Theft or Fraud, But....
May 6, 2004 Post: Milwaukee Public Museum: Did the Directors Read Interim Financial Statements?
The Milwaukee Journal-Sentinel ran another article on Saturday discussing the Milwaukee Public Museum and its fiscal problems. See, D. Umhoefer and A. Link, Museum Short of Making Payroll Proposal to Save Institution Scales Back on Research, Trims Staff (May 14, 2004 Print Edition). We detected a different tone in this article. The article reported that discussions with the Museum's lenders on Friday had not produced a solution, but that everybody was committed to working toward a solution. Unfortunately, the article confirmed the deep job cuts. Yet, the animosity of County officials toward the Museum and its leadership seems to have...
| Our Guide, Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer, focuses heavily on the board's role in financial reporting. You should buy a copy of our Guide today. Call us at 773-325-2124 for additional information, or visit our website at http://www.charitygovernance.com. We also do on site training. In June, we will be speaking at two conferences on non-profit governance, including one where will be leading an all-day training session. A significant portion of both of our presentations will focus on financial reporting issues. Give us a call if you want to head off problems. |
dissipated. For example, the May 14 article paraphrases an apparent interview with a county official, stating:
The county and banks are committed to keeping the public-private partnership going, said Steve Mokrohisky, chief of staff to County Executive Scott Walker. The county does not want to see the museum close, nor does the county want to resume operating the facility, he said.
While we can only speculate, if the article is accurate in reflecting the current attitude of County officials, those officials may have come to believe that the Museum is a truly a public-private partnership, meaning that those same officials also realize that it is not in their best interests to see the ship go down on their watch. There certainly was no further discussion in the article of deceit.
We continue to be puzzled by the events. Museum officials have placed lots of blame on the renovation of Milwaukee's major interchange, located just blocks from the Museum. Certainly driving through that stretch of road isn't fun, but we did it Saturday without any trouble getting to the Museum. People can get off the major highways one exit earlier than normal and take city streets--which in our limited experience generally aren't all that congested. If you believe Museum officials, Summerfest officials must be very nervous--Summerfest is Milwaukee's world-renowned music festival that takes place in mid-summer. Its patrons will also have to deal with the major road renovation that Museum officials claim is affecting attendance.
In conjunction with another project we are working on, we decided to take a look at the Museum's financial statements for the last five years. Unfortunately, the Museum does not make its financial statements available on its website--at least we can't find them. To Museum officials' credit, they have started to include the financial statements as an attachment to the Museum's Form 990, a public document available at http://www.guidestar.org. Unfortunately, financial statements for the last two years are the only ones that are available as attachments. Consequently, we used the data from the Form 990 for our analysis.
There are several lessons here. First, charities should put their complete financial statements for at least five years on their websites so that people who want to analyze a charity (like prospective donors and grantmakers) have the complete set of facts. Second, people will use a charity's Form 990 data when the charity doesn't make more complete and transparent information available. Consequently, charities would be well advised to at least include explanatory schedules and attachments to the Form 990 if they choose not to attach complete financial statements. Third, if the Senate Finance Committee is going to introduce Sarbanes-Oxley legislation applicable to charities, it should include a provision requiring audited financial statements (if available) to be included as part of the Form 990 filing.
Now, back to the Milwaukee Public Museum. Below you will find income statements for the last five years that we created based on the Form 990 data. You do not have to be a financial whiz-kid to see that the Museum's board of directors should not have been surprised to find the Museum with a $2.4 million (current estimate) deficit at the end of fiscal year 2004. Over the last five years, the Museum's net surplus (deficit) from operations has been shrinking (increasing). The cause: The Museum's top-line support from the public has declined from $9.2 million for the fiscal year 1999 to $5.3 million for the fiscal year 2003. At the same time, many categories of expenses have been rising. While the Museum's actual financial statements might show slightly different numbers because the classifications and categories may differ a bit, we find it hard to believe that the trends would not also be apparent from a complete set of financial statements. We should note that the $9.2 million number for fiscal year 1999 appears to be unusually high by historic standards--contributions for fiscal year 1998 were $4.2 million. We suspect there was a capital campaign to finance new facilities. Yet that does not change the fact that direct public support is at best flat. One would hope that with new facilities there would be greater interest and reason for the public to support the Museum. Consequently, flat support suggests that the new additions did not have a long-run impact on increasing public interest in the Museum.
We also note a very disturbing set of numbers. The retail operation (presumably the museum shop) has operated at a loss during each of the last three years. This might be justifiable if the loss was calculated after deduction for depreciation and employee salaries, but as we read the Form 990 information, these losses are attributable to selling goods below cost. The most recent Form 990 for the Milwaukee Historical Society shows $18,963 in retail revenue and $5,461 as cost of goods sold. The Milwaukee Art Museum's most recent Form 990 shows $2.3 million in retail revenue and $1.2 million as cost of goods sold. We reviewed the most recent Form 990 for a number of natural history museums, and they all turned a profit. For example, the Cincinnati Museum Center had retail revenue of $943,477 and a cost of goods sold of $469,453--this entity appears to include other types of museums. The American Museum of Natural History in New York City turned a whopping $4.0 profit on $7.8 million of retail sales. The Cleveland Museum of Natural History had $437,480 of retail revenue and $204,825 of cost of goods sold. The Science Museum of Minnesota had $1.38 million of retail sales and $948,464 cost of goods sold. The Houston Museum of Natural Science had just over $200,000 of gross profit on just over $2.0 million of retail sales.
We are also curious why rental activities have shown losses for the last five years. Is this rental of the Museum facilities for social and corporate occassions? If so, why are private persons being allowed to use the Museum for private events on a subsidized basis? Is the Museum making up the difference in food and beverage sales. It might be that Museum officials are trying to minimize any UBIT, or that the contributions from related food and beverage sales make up for what would then be described as a loss leader. This is an area where more complete financial statements would be helpful.
Here are the financials we generated from the Museum's Form 990s--Click here for a copy of the Museum's Form 990 for 2003, the latest one available:
| 2003 | 2002 | 2001 | 2000 | 1999 | ||||||
| INCOME STATEMENT | ||||||||||
| Direct Public Support | 5,321,733 | 5,398,605 | 6,085,873 | 6,425,028 | 9,246,936 | |||||
| Indirect Public Support | 106,663 | 537,610 | 235,019 | 379,348 | 507,870 | |||||
| Government Contributions | 4,300,000 | 4,300,000 | 4,300,000 | 4,300,000 | 4,300,000 | |||||
| DIRECT, INDIRECT, GOVERNMENT | 9,728,396 | 10,236,215 | 10,620,892 | 11,104,376 | 14,054,806 | |||||
| Admissions | 2,635,489 | 2,367,337 | 2,597,331 | 1,913,334 | 846,895 | |||||
| Programs | 178,192 | 397,847 | 499,000 | 145,446 | 89,115 | |||||
| PROGRAM SERVICES | 2,813,681 | 2,765,184 | 3,096,331 | 2,058,780 | 936,010 | |||||
| Gross Rents | 131,272 | 203,178 | 325,691 | 234,990 | 192,073 | |||||
| Less Rental Expenses | 257,337 | 309,771 | 515,453 | 241,377 | 235,263 | |||||
| NET RENTAL INCOME | (126,065) | (106,593) | (189,762) | (6,387) | (43,190) | |||||
| Gross Sales--Inventory | 2,047,894 | 1,937,048 | 1,656,164 | 1,529,679 | 1,122,059 | |||||
| Cost of Good Solds | 2,442,998 | 2,340,479 | 1,911,878 | 1,499,318 | 1,054,885 | |||||
| NET INCOME FROM GIFT SHOP | (395,104) | (403,431) | (255,714) | 30,361 | 67,174 | |||||
| INVESTMENT INCOME | 34,113 | 278,221 | 304,873 | 46,216 | 107,554 | |||||
| Catering/Beverage | 658,230 | 1,055,234 | 1,276,694 | 1,100,797 | 1,038,629 | |||||
| Civic Theatre Corp | - | - | - | 87,369 | (24,053) | |||||
| Miscellaneous | 67,066 | - | 23,858 | 67,011 | 78,614 | |||||
| Restaurant/Vending | 1,193,729 | 794,120 | 960,781 | 828,409 | 738,390 | |||||
| OTHER REVENUE | 1,919,025 | 1,849,354 | 2,261,333 | 2,083,586 | 1,831,580 | |||||
| TOTAL REVENUE | 13,974,046 | 14,618,950 | 15,837,953 | 15,316,932 | 16,953,934 | |||||
| Officer Director Compensation | - | - | - | - | - | |||||
| Other Salaries | 3,875,610 | 3,630,192 | 3,201,802 | 3,474,999 | 3,159,157 | |||||
| Employee Benefits | 1,491,974 | 1,525,464 | 1,046,596 | 1,151,029 | 1,523,774 | |||||
| Supplies | 3,111,536 | 3,432,380 | 3,186,953 | 2,404,693 | 2,301,189 | |||||
| Travel | 148,004 | 98,803 | 104,786 | 62,509 | 117,900 | |||||
| Interest | 50,372 | 40,819 | 37,926 | 114,759 | 96,083 | |||||
| Depreciation | 990,704 | 814,322 | 841,562 | 678,793 | 423,271 | |||||
| Other | 2,385,358 | 2,495,258 | 2,072,771 | 1,112,356 | 1,569,105 | |||||
| Program Expenses | 12,053,558 | 12,037,238 | 10,492,396 | 8,999,138 | 9,190,479 | |||||
| Officer Director Compensation | 159,007 | 189,655 | 182,538 | 153,846 | 155,092 | |||||
| Other Salaries | 870,777 | 307,510 | 728,731 | 645,455 | 621,334 | |||||
| Employee Benefits | 450,353 | 353,135 | 255,788 | 134,177 | 91,382 | |||||
| Supplies | 23,444 | 23,699 | 23,946 | 17,481 | 35,693 | |||||
| Travel | 9,015 | 57,299 | 30,244 | 10,994 | 10,789 | |||||
| Interest | 640,965 | 670,599 | 412,873 | - | 233,025 | |||||
| Depreciation | - | - | - | - | - | |||||
| Other | 464,888 | 437,835 | 461,424 | 492,320 | 411,819 | |||||
| Management Expenses | 2,618,449 | 2,039,732 | 2,095,544 | 1,454,273 | 1,559,134 | |||||
| Officer Director Compensation | - | - | - | - | - | |||||
| Other Salaries | 434,541 | 358,328 | 464,332 | 412,090 | 424,411 | |||||
| Employee Benefits | 170,011 | 169,231 | 187,880 | 115,944 | 116,381 | |||||
| Supplies | 243,042 | 189,467 | 335,899 | 239,395 | 214,722 | |||||
| Travel | 4,294 | 3,218 | 6,689 | 6,981 | 4,248 | |||||
| Interest | - | - | - | - | - | |||||
| Depreciation | - | - | - | - | - | |||||
| Other | 454,682 | 412,097 | 470,289 | 602,983 | 287,875 | |||||
| Fundraising Expenses | 1,306,570 | 1,132,341 | 1,465,089 | 1,377,393 | 1,047,637 | |||||
| TOTAL EXPENSES | 15,978,577 | 15,209,311 | 14,053,029 | 11,830,804 | 11,797,250 | |||||
| EXCESS (DEFICIT) | (2,004,531) | (590,361) | 1,784,924 | 3,486,128 | 5,156,684 |
Why undertake such a technical analysis? We continue to focus on the two questions we first raised when this story broke two weeks ago: Was the 2004 deficit a surprise and should it have been a surprise? You don't need to be a CPA to see the basic trends in the above table of financial information. Consequently, we must once again ask: Where was the board of directors and what transpired during board meetings? Moreover, similar questions should also be asked about County officials. Were they really surprised? Surely, in the course of calculating the new subsidy, they examined financial information and trends.
We did compare the Form 990 data for 2003 against the financial statements attached to that Form 990. Somewhat to our surprise, the data was relatively consistent. Where there were differences, we were generally able to reconcile the two sets of data. We do note that the financial statement presentation is on a consolidated basis, with two related entities (Friends of the Milwaukee Public Museum and the Milwaukee Public Museum Endowment Fund) included as part of the Museum. These two affiliates had relatively little impact on the financial statements. As a cost saving measure, the Museum might want to consider merging the entities into itself if that is legally possible. Obviously, there may be considerations that we are unaware of for keeping the entities separate.
A couple of other observations. When we visited the Museum on Saturday we parked in the County parking garage at a cost of $8.00. That money appears to go to the County. We would be curious to know how much of the revenue from that garage is derived from people visiting the Museum. We are also curious whether the value of that revenue stream is taken into account when calculating the "net" subsidy the County provides to the Museum.
We would also be curious to know Museum attendance levels over the last five years.
Our next post on this topic will include a financial ratio analysis.
If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2005, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. For additional information call 773-325-2124HE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
