TREASURER'S REPORT Mahadevappa Mahesh, PhD, Baltimore, MD

As I pass the mid-way term as your Treasurer, I want to share (in my 10th column) information about the type of budget and the budget process that AAPM undertakes each year. As committee members are gearing up for the Annual Meeting, many are also beginning to develop budget requests for their corresponding committee activities for the following year. AAPM budget process starts with requests from various committees, submitted through their chairs to their respective councils, and eventually tabulated by the Finance staff for preparation of a tentative budget. The contingent budget is submitted to AAPM Finance Committee to finalize the eventual budget.

The Finance Committee is chaired by the Treasurer and includes voting and non-voting members as well as AAPM staff members. Non-voting members include all the council chairs and committee members and is supported by AAPM staff (Executive Director and Director of Finance). AAPM Finance Committee meets in mid-October to review and generate the following year's budget that is then presented to the Board of Directors for approval. AAPM's budget is historically a deficit budget based on the explanation outlined below. In addition, reasons for having a deficit and other budget types are discussed below.

Why a Deficit Budget?

One of the key components of sound fiscal planning is an organization's operating budget. The budget facilitates planning and control in an organization by detailing the planned revenues and expenses of an organization for the year. The budget also serves as an effective evaluation tool as management monitors its actual progress during the course of the year against budgeted plans.

Once a budget is complete, there are different approaches to budgeting. Three types of budget are:

1. Balanced Budget
   Budgeted Revenues = Budgeted Expenses
   In a balanced budget scenario, budgeted revenues equal budgeted expenses. Therefore, from a budgeting perspective, no change is planned in Net Assets for the year. Some organizations, based on their operating guidelines, are required to have a balanced budget. While other organizations use a balanced budget approach as it is very "mission friendly". All mission related revenue is spent on mission expenditures without building up reserves nor dipping into operating reserves.
2. Surplus Budget
   Budgeted Revenues > Budgeted Expenses
   In a surplus budget scenario, budgeted revenues exceed budgeted expenses. The surplus creates an increase in Net Assets and is often used by organizations seeking to build its reserves.
3. Deficit Budget
   Budgeted Expenses > Budgeted Revenues
   In a deficit budget scenario, budgeted expenses exceed budgeted revenues. When an organization operates on a budget deficit it must dip into its reserves or use credit to cover expenditures not covered by revenues. Therefore, operating in a budget deficit is not a long-term strategy. However,it can effectively be used in the short-term to address a short-term reduction in revenue while still meeting mission objectives, expending funds under a grant where the revenue was recognized in a previous period and to address a specific plan of increased costs to achieve certain mission objectives.

On an annual basis, AAPM prepares a deficit budget. However, AAPM is in a very unique situation in that it does not prepare a deficit budget for the reasons previously outlined. Infact, AAPM prepares a deficit budget with the express intent of achieving a break-even status where actual expenses equal revenue at year-end(as is demonstrated by the final AAPM financial statements over the past years).

Included in AAPM annual budget are many programs and initiatives. As a volunteer-driven organization, AAPM relies upon the efforts of its volunteers to achieve its mission objectives. If not for the deficit budget, many of the programs/activities proposed by AAPM volunteers could not be accommodated. Frequently, for a variety of circumstances, some of these planned initiatives are not completed and as a result, funds allocated towards the project are not spent.

AAPM budgeted deficit is not merely a shot-in-the-dark. AAPM's Finance Department has prepared a statistical model that analyzes historical data of AAPM's budgeted revenues and expenses vs. actual revenues and expenses. Based upon historical differences between the budgeted vs. actual results from operations, the model identifies a targeted deficit that will allow AAPM to break-even for the year. The targeted deficit is modified to take into consideration the loan covenants financed the building purchase through the bank.

The goal of AAPM budget deficit is to budget for as large of a deficit as possible in order to maximize mission expenditures, achieving mission objectives while still being fiscally conservative.This meets both organizational fiscal objectives and the loan covenants established by the bank that has financed the Headquarters.

For the reasons listed above, AAPM generates a deficit budget for the operational activities of the organization. If you have any questions related to this column please feel free to reach out to me by email, Twitter, or call me at 410-955-5115. I would like to thank Robert A. McKoy, AAPM Director of Finance, for his contribution of the subject matter to this column.

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