News Column

A Peek Inside a Public Organization

July/August 2002, HISPANIC BUSINESS Magazine

Joel Russell

A financial analysis of the USHCC finds questionable controls and accountability.

"Most associations view themselves as publicly accountable," say Amy Lerner and Audrey Newton, accountants and columnists with the American Society of Association Executives. But at the United States Hispanic Chamber of Commerce (USHCC), a minimalist approach to financial accountability has become business as usual, raising questions about the chamber’s controls even as the organization moves into competitive commercial enterprises.

By law, a nonprofit 501c(6) organization such as the USHCC must provide its Form 990 – the tax-exempt equivalent of a tax return – to the public upon request. Hispanic Business requested and received the USHCC’s Form 990 for the last four years, but a request for more detailed annual audit statements was denied. Unlike many nonprofit organizations, the USHCC does not publish an annual financial report for its members and donors. Only board members review financial documents, and as reported earlier, USHCC directors sign strict non-disclosure agreements as a prerequisite to board service (see "Advocate or Competitor?" January/February).

A financial analysis by Hispanic Business of the USHCC’s 990 forms turns up several trends. During the four-year span, income for the USHCC rose from $2.7 million to $4.9 million, a jump of 86 percent, but expenses grew even faster (see table). Factors contributing to the cost increases include consulting services (up $760,000), staff salaries (up $454,000), travel (up $260,000), rent (up $119,000), and salary of the CEO (up $60,000).

To make up the difference between income and expense, the organization’s assets have decreased year over year. In 1997, the year before George Herrera became CEO, the USHCC had $222,000 on hand; by 2000, that figure stood at $40,000 – an 82 percent reduction in four years. The fact that cash balances continue to decrease while payables have increased indicates "a significant lack of financial control within the organization," according to one accountant who analyzed the documents for Hispanic Business. "The unrestricted fund having a negative $620,000 balance [to cover the income shortfall] indicates cash-flow problems and overextension of financial resources."

At the same time, the USHCC has attempted to increase revenue from advertising, even if it means expanding into commercial activities such as television broadcasting and magazine publishing. Over the last four years, income from USHCC events has increased $1.5 million, while the "television advertising" category has grown from zero in 1997 to $674,000 in 2000.

Those dollars come from Hispanics Today, the syndicated television show co-produced by the chamber and Trans World International. Production expenses for the show are not reported in the USHCC’s Form 990, so it remains unknown to the public if Hispanics Today makes a profit or not.

Hispanics Today combines national sponsors, whose ads are shipped with the show, with open time slots for local ads supplied by the individual stations that air the program. Although Hispanics Today airs on Sunday or Saturday mornings in most markets – with half the stations scheduling it at 6:30 a.m. or earlier on the weekends – the show has landed sponsors such as America Online, Coca-Cola, and Chevrolet. The piecemeal airtimes of syndication mean Hispanics Today doesn’t produce definitive ratings to justify its audience by the same standards as commercial television. And the strategy of fund-raising through competition against commercial television broadcasters raises concerns similar to those leveled against the USHCC for its magazine publishing venture Hispanic Trends (see "Advocate or Competitor?" January/February).

The USHCC financial record clearly shows the impact of the organization’s leadership. Former CEO Jose Niño left the chamber in March 1998, timing his exit to coincide with the chamber’s fiscal year (April to March). With his departure and replacement by CEO George Herrera, the chamber’s cash flow switched from positive to negative (see table).

From a boardroom perspective, the year 1998 corresponds approximately to the chairmanship of Colorado entrepreneur Ronald Montoya and 1999 to the term of Texan Massey Villarreal. The improved finances of 2000 occurred under the watch of Arizona’s Ray Arvizu, CEO of Arvizu Advertising, who is again running for the chairmanship at this month’s USHCC board meeting. Since the chamber’s financial filing for 2001 was not available at press time, the numbers reflect only the first few months of Elizabeth Lisboa-Farrow’s two-year term as chairwoman.

To provide a comparison and benchmark for the USHCC’s financial condition, Hispanic Business obtained the Form 990s for the Latin Business Association (LBA), the Hispanic chamber of commerce in Los Angeles. Like the USHCC, the LBA has a volunteer board, a hired staff, and several profit-making events, such as the Latino Business Expo and an annual dinner. So far, the LBA has not engaged in for-profit joint ventures.

From 1998 to 2000, the LBA increased its revenue more than $354,000, while total expenditures increased only $247,000 (see table). As a result, the LBA changed from a money-losing to a solvent organization. Revenue increases came from events ($237,000), a newsletter ($83,000), and membership sales ($18,000).

Like the USHCC, the LBA provided Hispanic Business with the minimum documentation required under law, and it shares financial details only with its board. At the USHCC, however, that policy may be changing. Ms. Lerner and Ms. Newton, the columnists with the American Society of Association Executives, assert that corporate accounting scandals have awakened stakeholders to the need for disclosure in the nonprofit sector, increasing the need for transparent audit committees in a post-Enron world. Currently, the board has a proposal to reorganize its Budget & Finance committee to oversee the chamber’s money-making partnerships and venture capital fund. According to Tom Stahl, the chamber’s attorney, the USHCC plans to open its books soon. In an e-mail to Hispanic Business, Mr. Stahl said the organization "will be accountable to its members and intends to publish its financials in this year’s annual convention magazine." Mr. Stahl’s comments indicate that dues-paying members, sponsors, and others who would like to know how the USHCC gets and spends its money will receive that information at the organization’s convention, scheduled October 16–19 in Los Angeles.

USHCC Finances



Year


Revenues


Operating Expenses


Other Expenses


Surplus/Deficit


1997


$2,663,790


$1,921,257


$582,485


+$160,048


1998


$2,426,508


$1,981,606


$642,839


–$197,937


1999


$3,376,626


$1,985,197


$2,191,273


–$799,844


2000


$4,945,320


$2,848,949


$2,229,708


–$133,337


Change


+85.6%


+48.3%


+282.8%


–183.3%


Source: United States Hispanic Chamber of Commerce 990 Forms.



LBA Finances



Year


Revenues


Operating Expenses


Other Expenses


Surplus/Deficit


1998


$664,067


$394,652


$353,954


–$84,539


1999


$744,316


$650,518


$220,953


–$127,155


2000


$1,018,459


$754,711


$240,690


+$23,058


Change


+53.4%


+91.2%


–32.0%


+127.3%


Source: Latin Business Association 990 Forms.

© 2002 Hispanic Business Inc. Reprinting, copying, or transmitting all or part of this information requires written permission.



Documents related to this story2000 USHCC Tax Form 9901999 USHCC Tax Form 9901998 LBA Tax Form 9901999 LBA Tax Form 9902000 LBA Tax Form 990



Source: HISPANIC BUISINESS Magazine


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