News & Notices
Treasurer's Report 2000-1
I would like to discuss the financial situation of the
Union and present some highlights, which seem of importance for the
future. In anticipation of the change in our activities from a commission
to a project driven organization the outcome in financial terms is unclear
in terms of project volume and rate of expenses. I have therefore asked
the Divisions to split their Budgets (25 % for administration and 75
% for projects). We will be watching expenses very closely over the
next few years in order to understand the change of the operation in
financial terms. The next years will prove if our hopes were justified
from the operational view and if the needs are financially feasible.
It is in our opinion of highest importance that our activities and our
expenses are in line with our strategies.
The discussion that follows is based on the audited Financial
Statements for the years 1998-2001 provided by our auditors, Batchelor,
Tillery & Roberts, LLP. These reports are available on the IUPAC web
site here > Download Auditor's Report [pdf
file - 506K]
Review of Accounts
The Table below summarizes the revenues and expenses of the Union for
the two most recent biennia, 1998-9 and 2000-1. The financial results
are presented for biennia rather than for the individual years due to
the difference in expenses during a General Assembly year as compared
to a year without General Assembly. The net assets of the Union increased
dramatically during the 1998-9 biennium, mainly due to the increase
in value of our investment portfolio. Over the course of the 2000-1
biennium, the value of our portfolio decreased, most dramatically during
2001. However, our portfolio losses have been modest due to the conservative
investment strategy of the Finance Committee. I will have more to say
on the subject below.
Statement of Activities
Revenues
The financial resources of the Union come from three major sources,
National Subscriptions paid by the National Adhering Organizations,
income from publications, mainly Pure and Applied Chemistry,
and investment income. The revenue from the Affiliate Membership Program
is offset by the cost of providing subscriptions to Chemistry International
to the Affiliates. Total support decreased from 1998-9 to 2000-1
due to the decrease in grants and contributions. This item is highly
variable and reflects the success of IUPAC bodies in obtaining funding
from outside organizations such as ICSU, UNESCO, and others. Net publications
income increased from biennium to biennium in the face of a declining
subscriber base for PAC and a policy of keeping the subscription rate
for PAC fixed at the 1999 level in 2000 and 2001. This is due to the
one time cost savings provided by changing to self-publishing PAC
in 2000. The probability that publications income will decrease in the
future is high and the Union must plan for a decreased reliance on this
source of income. The major change on the revenue side of the ledger
is the change in investment income from a gain of USD 671 052 to a loss
of USD 72 030. However, this still gives a net increase in the value
of the Union's assets over the four-year period of USD 660 890.
Expenses
The increase in total expenses from one biennium to the next is mainly
due to an increase in activity. A large part of the increased activity
is due to the introduction of the project system during the past biennium
and its operation in parallel with the commission system. This has led
to projects being funded that would not have been funded in the commission
system, which has meant increased expenditures. Another component of
the increase is the growth of the Secretariat staff from two at the
beginning of 1998 to five at the end of 2001. The transition from the
Oxford Secretariat to the Research Triangle Park Secretariat went through
a low point in staff as functions were defined and the role of the Secretariat
was reevaluated. The Secretariat has been asked to play an increased
role in support of the work of the Divisions and Standing Committees
and in new developments such as the IUPAC web site and the project approval
system. The biennium 2000-1 also saw a number of ad hoc Committees established
to develop strategic plans for special areas of activity, such as nomenclature,
education, industry/IUPAC relations, and Chemistry International.
Reserves
The ability to increase the activity of the Union so dramatically over
the course of the past two biennia is due to a number of circumstances,
not least of which were the reforms in the Union's financial structure
made in the previous four years. These included regular increases in
National Subscriptions based on an agreed formula and the control of
expenses so that the Union's reserves could be rebuilt. The role of
the Reserve Fund is one that deserves further explanation.
The main purpose of the Reserve Fund is to cushion the
effect of changes in revenue or expenses from biennium to biennium.
Thus, the Officers were able to proceed with the introduction of the
project system in parallel with the commission system because the Union's
reserves would cover any temporary shortfalls of revenue. The Reserve
Fund also provides current income that reduces the need for increases
in National Subscriptions. The Reserve fund is made up of three separate
Funds, as defined below:
Biennium Operating Reserve Fund
This fund contains an amount of money equal to the currently approved
biennium budget minus the operating funds for publications. It is the
prime financial protection for the Union in the event of a severe worldwide
economic downturn.
General Assembly Special Fund
This fund is used to supplement the expense of holding General Assembly
meetings in locations where the costs are considerably more expensive
than the norm. General Assembly meetings such as the recently held one
in Brisbane, Australia and the upcoming 2005 General Assembly in Beijing,
China will draw on this fund.
IUPAC Endowment Fund
This is treated as an "endowment fund", that is, only the interest earned
on the principal in this fund will be used for special projects of a
broad nature that enhance the stature of the Union. For example, the
recently established IUPAC Prize for Young Chemists is supported by
the proceeds from this fund. Other projects approved by the Executive
Committee and the Finance Committee may be supported by this fund. The
aggregate of the three funds is managed as a single long-term portfolio
according the IUPAC Investment Policy and the guidelines contained therein.
Investments
The worldwide investment market in the past year continued its downward
trend from the preceding year when it started down after a number of
years of high growth. Over the course of the year, the equity markets
all lost value as monitored using the Morgan Stanley Composite Indices:
the World Index lost 18 % of its value; the North American Index lost
14 %; the European Index lost 22 % and the Pacific Index lost 27 %.
It was not a good year for long-term investments.
The IUPAC portfolio decreased in value over this past
year by only 2.5 %. In the light of the decreases in the equity indices
this past year, our portfolio performed quite well.
The roughly 50 % of our portfolio which is in fixed income
instruments such as bonds provided us with an excellent cushion during
this "bear market". The Finance Committee's decision to move in this
direction several years ago helped our performance picture again this
year.
Closing Comments
By watching our expense side and reevaluating our activities in terms
of acceptance to the outside, we can ensure our most important income,
the National Subscriptions. Other revenues such as publications and
the interest on our reserves have seen and will continue to see some
difficulties.
Our financial situation is still good but clouds are not
far away. A strong income base is necessary to support activities that
are in line with the IUPAC strategic plan.
The work of the Treasurer was only possible with the great
help of the Executive Director and the Finance Committee. I am always
open for good thoughts and inputs on our finances.
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