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Combined Financial Analysis of the National Council, Learning for Life and the National BSA Foundation

January 25, 2006

I have completed the review of the finances for the BSA National Council by studying the 47-pageIRS Form 990 filed in 2003 and posted on Guide Star. The review clears up some of the confusion raised by the review of the finances for Learning for Life and the National BSA Foundation. It also raises new issues. It turns out that you cannot review any oneof theseindependently. As part of the preparation for filing the various 990's, the BSA hired an independent accounting firm to conduct an audit. This firm obviously concluded that the only reliable audit would include all three organizations. This is probably the best approach since all three share the same building and overlapping groups of the same staff members. In "round figures," the firm found revenue for 2003 to be $189M; expenses were $109M. Thus the composite "BSA" was profitable to the tune of $80M in 2003. Not bad for a non-profit organization...a 42% return on revenue. At this point I will assert that the profitability was largely due to L4L. With 1.55M youth enrolled, L4L would generate $15.5M in registration fees and roughly $15.5M in prorated license fees. If the teachers spent a mere $31.60/student on purchased L4L supplies during the year, the total revenuewould equal $80M.

The accounting firm was forced to audit the individual organizations in an attempt to reconcile their statedrevenue and expense figures against the audited figures. As if this weren't bad enough, the BSA used a "difference method" to attempt to reconcile the numbers. In other words, to account for the National Council, they subtracted the audited total for L4L plus the BSA Foundation from the audit for the overall organization. They then attempted to adjust the result to explain the difference. This all sounds like "smoke and mirrors" to me...definitely not sound accounting. In the case of the National Council, they explained the difference ($127M) as "unrealized income from investments." How convenient. I don't know how "unrealized income" is supposed to show up on an audit. The real question here is,"Why would the IRS let them get away with such gimmicks?"

Summing up the revenue quoted for the three organizations on their 990's, one gets, in "round figures," $115M. The overall stated expenses are $165M. Overall, the BSA showed a net loss of $50M in 2003. The overall audit showedrevenue of $189 and expenses of $109M. Relative to the audit, the BSA understated its revenue by $74M and overstated its expenses by $56M. Some of the overstated expenses might be ascribed to duplications in accounting for overlapping charges such as rent and salaries. I can't explain the understatement of revenue without invoking two sets of books. Maybe the various councils failed to forward income from some of the L4L accounts to national, although they did so "on paper."

Observations & Recommendations

The finances of the National Council BSA, Learning for Life and the National BSA Foundation are hopelessly commingled. One piece of evidence is the fact that L4L lists $0 for "membership dues and assessments" when we know for a fact that this should be at least $15.5M. On the other hand, National Council lists $114.4M for membership dues and assessments, more than can possibly be accounted for my members and adult leaders in the Traditional Program. Since this is the case, all three organizations should be treated as divisions of the same organization. Two of the three should be denied the right to be treated as separate corporations.

National Council has deliberately understated its revenue and overstated its expenses to appear to be a "slightly unsuccessful non-profit." It's easier to explain being slightly unsuccessful than it is to explain being profitable. Non-profit corporations are not supposed to make money, they're supposed to break even.

Learning for Life has deliberately understated its revenue. If we were to believe their Form 990 for 2003, they brought in only $9M while spending $8.3M. That's a 6.7% return on revenue. Not bad for a non-profit organization. That won't cause any bells to go off with the IRS. If truth, we know that they probably brought in around $80M. If they only spent $8.3M, that corresponds to a89.5% return on revenue. That would definitely cause alarm at the IRS.

A similar argument can be raised about the BSA Foundation. If we are to believe their Form 990 for 2003, they only brought in $.45M while they spent $.42M. That's an awfully modest level of both collection and dispersion for a charitable foundation. It won't raise any alarms at the IRS, but I certainly wonder if there isn't anything else going on, now that I see what's happening in the National Council and in L4L.

Why hasn't the IRS caught all this? There may be several answers. First of all, they may be doing a "first page analysis." By this I mean that they are only looking at stated revenue and expenses on the first page of Form 990. None of the three organizations looks too unusual from a "first page" perspective. Second, the IRS may not be looking at all three 990's at the same time. It was only when I did this that I saw that something was amiss. Third, the IRS may have the "national treasure" opinion of the BSA. Obviously, the BSA "can't do anything wrong." Therefore, just look at page one of their 990's and give them the stamp of approval.

Someone with a tax accounting background needs to look at all this and raise the "accountant-type questions" that need to be put to the BSA.

Scouting for All Researcher




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