TC Custodial Accounts June 2014

What Happened We were asked by two different TCs to supply the AIAA tax ID for purposes of receiving funds from outside agents Request came to the attention of our auditors Sparked a complete review of the TC accounts/structure/purpose 2

Overview of the problem There are 60 TC custodial accounts Non-interest bearing Varying stages of activity  Reimburse travel to various people  STEM and paper awards  Plaques, flowers, gifts, shirts etc…  Sometimes funded from ops money  Donated honoraria  One TC charges dues 3

Custodial Review Review of the TC accounts to scope activities Review revealed revenue and expense activities that should have been reported through the Institute’s financials, such as:  Sponsorship  Workshop & Short Course Revenue  Honoraria & Royalty Donations  Individual Donations  Awards 4

Auditor Recommendation Because TCs represent AIAA in their activities, the associated revenue and expenses should be included in the operations of the Institute and reported in AIAA’s consolidated financial statements AIAA is not in violation of any tax laws (to date) although our financial statements are inaccurate Sections are not included in operations because they have their own Tax ID/charters/by-laws per the AIAA by-laws  Technical, Program, and Standing Committees do not (per the by-laws) 5

Forward Plan Short term: working with auditors to come up with acceptable solution for FY14 Long term: consulted with President/President-elect for following steps  Staff finish studying problem and make recommendations to President for comment  Recommendations go to Executive Committee for comment  Recommendations go to TAC Exec for comment  Recommendations go to Board for vote 6

By laws (sections) Each Section has a fiduciary responsibility to the Institute to ensure that the Section finances are properly managed and tracked on a periodic basis in accordance with the accounting and reporting practices determined by AIAA’s Finance Committee. After the end of the fiscal year, the Section Treasurer shall support a financial audit performed by an independent Audit Committee, composed of no less than three Section Member volunteers, who are appointed by the Section Chair. Each Section shall submit its annual budget for the AIAA Constitution and Bylaws August 2013 current fiscal year as well as its financial audit and annual report for the prior year to its Director- Regional on or before the first day of September in each year. The Director- Regional, after approving such budget (either as submitted or as revised), and receiving such annual report, shall allocate to the Section the rebate sum. Sections may not charge dues. Student Branches may charge local dues. Incidental voluntary collections for social and technical activities are permitted. 7

By-Laws (Sections- continued) Each Section and Student Branch shall be responsible for its own acts, contracts, debts, and other obligations and undertakings unless the Institute, by duly constituted action of its Board, agrees to undertake or assume responsibility therefore prior to the time the action is taken or the obligation is incurred. Each Section and Student Branch may open and maintain a bank account in a reliable banking or other financial institution for the convenient disbursement of expenses incident to its organizational purposes and functions in accordance with its own Charter and Bylaws and those of the Institute. In no event, however, shall any Section or Student Branch incur any indebtedness, enter into any contract or understanding, assume any obligations, or make any expenditures, the effect of which would be to create, at any time, an obligation the total amount of which exceeds un-obligated funds on hand by $500. Where such possibility exists, the Section Chairperson shall inform all parties to the understanding or agreement concerned, in writing, of these limitations, both as to the allowable debt limit of the Section and as to the limited responsibility of the Institute. 8

By-laws (Technical Committees) 5.5 The Technical Committees shall be established by the President with the approval of the Board on the recommendation of the Vice President-Technical Activities and by the Technical Activities Committee. The Board may abolish or consolidate Committees and redefine the scope of any Committee so appointed. Technical Committees shall be established to cover the major areas of professional interests of the Institute. The functions of the Committees shall be to assist the Institute in developing programs for meetings and other technical communications in specialized areas of professional interest and to provide the Institute with authoritative opinion on specialized subjects in their prescribed areas of concern. Committees shall be responsible for the scope, organization, and technical content of the meetings within their specific areas of competence. (Good as is) 5.10 The fiscal year of the Institute shall end on September 30. Each AIAA committee shall be responsible to ensure that any finances allocated to the committee are properly managed and tracked on a periodic basis in accordance with the accounting and reporting practices determined by AIAA’s Finance Committee. Each committee shall submit an accounting of its finances within 30 days after fiscal year-end. 9

TC Handbook states:  “Any Committee may choose to have their funds held at AIAA Headquarters. AIAA Headquarters holds the funds in a specially designated custodial account. Headquarters handles all the tax issues, accounting, paperwork, etc.”  “Committees do not get credited with interest on their funds. They also do not get charged any administrative or handling fees.” Custodial account activities have been excluded from AIAA Financial Statements. Not possible in the future. 10

By-Laws comparison/analysis Sections specifically granted fiduciary duty-resulted in each section getting a Tax ID. Limitations on amount of funds which can be obligated. Sections have reporting requirements Technical committees have no designated fiduciary duties- no Tax ID nor authority granted to “be responsible for its own acts, contracts, debts, and other obligations and undertakings”.  The by-laws are silent on the ability of TCs wrt financial matters- only stating that the committees work with their allocated amounts  TC handbook does not align with by-laws (or anything really) Required to report on their “allocated” amounts within 30 days of end of fiscal year We’ve likely been in violation of our own by-laws for decades wrt how the Technical Community has been operating financially 11

Moving Forward- short term All custodial accounts will be included as operations audits/tax documentation  Set up as its own category in this context Requires some staff work to establish necessary reporting structures Exact process to be used still in development 12

Moving Forward – Long Term Draw parallels where possible from Section areas of the by-laws and apply to committees For auditing purposes Awards and scholarships created to be managed out of accounts in the Foundation.  Foundation mechanisms set up to support this type of activity purposefully  Keeps “colors of money” easily traced for auditors/tax purposes 13

Moving Forward – Long Term- By-Law Change Needed Proposed Section 5.10: The fiscal year of the Institute shall end on September 30. Each AIAA committee shall be responsible to ensure that any finances allocated to the committee are properly managed and tracked on a periodic basis in accordance with the accounting and reporting practices determined by AIAA’s Finance Committee. Each committee shall submit an accounting of its finances within 30 days after fiscal year-end. Committees may not charge dues. Incidental voluntary collections for social and technical activities are permitted. In no event, however, shall any Committee, or Corporate Officer on their behalf, incur any indebtedness, enter into any contract or understanding, assume any obligations, or make any expenditures, the effect of which would be to create, at any time, an obligation the total amount of which exceeds un-obligated funds on hand by $500. Where such possibility exists, the representative Corporate Officer shall inform all parties to the understanding or agreement concerned, in writing, of these limitations, both as to the allowable debt limit of the Committee and as to the limited responsibility of the Institute. 14

Advantages of this Approach TC and Section guidelines aligned  Consistency across Institute TC activities aligned with By-Laws  TC activities minimally impacted  We adhere to our own rules Appropriate accounting mechanisms in place for audits  Ensures AIAA meets laws and financial requirements 15