Earlier this year it became clear that Special Olympics Oregon was struggling through a long-term financial crisis. Britt Carlson Oase, the organization’s chief executive officer, told The Oregonian that its financial condition had worsened in 2017, but it wouldn’t know how much worse until the Independent Auditor’s Report for the year was completed.
That report by CPA Richard Winkel is finally in. Now we now know how bad things really were in 2017.
According to Winkel’s report, Special Olympics Oregon’s revenues in 2017 totaled $6,8 million, down $1 million from 2016. Meanwhile, 2017 expenses totaled $8.1 million, about level with 2016. That left the organization with total net assets deficit of $417,196, substantially less than its total net assets of $944,000 at the end of 2016.
One sign of the organization’s problems in 2017 was a decline in contributions. During the year ended December 31, 2017 the organization received $618,610 in contributions from direct marketing, down from $870,838 in 2016. Total contributions were also down, slipping from $2,534,178 in 2016 to $2,203,519 in 2017.
Another indicator of trouble is the situation with its line of credit. According to Winkel’s 2017 report, Special Olympics Oregon maintains a line of credit for up to $1,000,000, secured by all of the organization’s assets and bearing interest at 3.5%. The line was extended to mature on April 20, 2018. At December 31, 2017, $1,000,000 was outstanding.
The agreement with the bank requires that the organization maintain a minimum tangible net worth (interpreted by the bank to mean total net asset balances) of not less than $1,000,000, measured annually. The agreement also requires that, for 30 consecutive days during the calendar year, the aggregate principal advances outstanding under the note should not exceed $500,000.
As of and for the year ended December 31, 2017, the organization was not in compliance with either covenant. In September 2018, the short term note payable was renegotiated with the lender forgiving $500,000 and the remaining balance refinanced through a short term note with a private lender that has not been disclosed. The short-term note is payable at the earlier of December 2019 or on demand. The note bears interest at 2.195% per annum and is unsecured. Interest is payable at maturity.
Then there’s the “going concern” requirement. The management of non-profits are required to assess whether there are conditions or events that raise substantial doubt about the organization’s ability to continue as a going concern within one year after the financial statements are issued.
Winkel’s reportsaid that the 2017 financial statements reported a decrease in unrestricted net assets of $886,142 and a decrease in total net assets of $1,361,493. That followed decreases in net assets in 2016, 2015 and 2014. As a result, the organization’s cumulative unrestricted net assets deficit has increased from ($1,304,800) at December 31, 2016 to ($2,190,942) at December 31, 2017.
In addition, during 2017, outstanding trade payables grew by $325,601 and the line of credit increased by $348,768. At December 31, 2017, current liabilities exceeded current assets by $1,619,913. All of these factors affect the organization’s liquidity, the 2017 report said.
“The Organization’s ability to continue as a going concern is dependent on many factors, including successful efforts to raise additional contributions and grants and successful cost reduction plans,” the report concluded.
Steps Special Olympics Oregon is taking to address the “going concern” issue include: new management; dramatic cost reductions, including staff downsizing; moving to donated office space; and pausing the Summer and Fall 2018 and Winter 2019 State Games.
Margaret Hunt, CEO of the nonprofit from 2003 to May of this year, portrayed the organization’s current troubles as part of the normal ebb and flow of a typical nonprofit’s finances. “There are always ups and downs in the nonprofit world,” she told The Oregonian.
Financial reports make clear, however, that Special Olympics of Oregon has been in trouble for years and that 2017 continued the trend.
Will 2018 be an improvement? Can the organization dig itself out of this mess? A lot of kids and parents are staying tuned.