Navy Supply Corps Foundation · stInvestment Advisory Committee Results for 2016 & 2017 1 Qtr...

Foundation Treasurer Report

Captain Bruce E. Maxon, SC, USN (retired)

Navy Supply Corps Foundation

6 May, 2017

Agenda

Treasurer Role and Responsibilities

NSCF Financial Situation

The Big Picture over the last ten years

Investment Advisory Committee Results for 2016 & 2017 1st Qtr

Budget Review

2016 Results & 2017 Status

Financial Audits

Management Response to the 2016 Internal Audit

Schedule for 2017 Internal and External Audits

Chapter Financial Reports

What/So What/Now What

NSCF Treasurer Role &

Responsibilities

Reports to the Board of Directors; Executive Committee Member

Financial Operations: reports preparation to the Board

Corpus: oversees Foundation investment activities

Budget Planning: reviews requirements and submits annual budget

Budget Execution: coordinates with CSO on budget administration

Financial Policy: development and execution, including auditing

Committee Oversight:

• Investment Advisory (Dennis Collins, Chair)

• Finance and Budget (Kurt Williams, Chair)

• Audit (Mike McCleary, Chair)

Other responsibilities as directed by the Foundation Board or Chair

Investment Portfolio over 10 years

$5,824

$4,013

$4,840

$5,430 $5,216

$5,561

$6,093 $5,872

$5,452 $5,583

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

NSCF Investment Fund Ending Balance K$

Sources and Uses of Investment

Funds over last 10 Years

-$500

-$400

-$300

-$200

-$100

$0

$100

$200

$300

$400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deposits and Withdrawals K$

Deposits Scholarships Other Withdrawals

Return on NSCF Investments

over 10 years:

6.74%

-28.17%

25.09%

9.72%

-3.08%

13.98% 16.51%

3.24%

-2.24%

8.14%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ROR over last five years has been 7.71%

IAC Members

Bruce Maxon, MS, CLU (Treasurer, NSCF)

Dennis Collins, MBA, CFP, CIMA, CPWA (Chairman)

Chuck Parker, MBA, PhD (Past Treasurer)

Mike Kalas, MBA, CFP (Past Chairman)

Dan Pionk, MBA, MA (Incoming Chairman)

Craig Doyle, MBA, MA

Pete Eltringham, MBA, MS

Jack Evans (Chief Staff Officer)

John Drerup, MBA, MS

Joe Dunn, MSc, MS

Eric Schuck, MA, PhD

Matt Webster, MBA

Bill Withrow, MBA

Dennis Collins, CFP®, CIMA®, CPWA®

• BS - DePaul University; MBA- University of Denver

• Partner, Chapel & Collins Wealth Management

• Registered Principal, Raymond James Financial Services, Inc.

• 19 years of financial industry experience advising families, foundations and corporate clients

• Commander, Supply Corps, US Navy Reserve

Meet the IAC

Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor

Michael R. Kalas, CFP®, AIF®

• BS – USNA, Annapolis, MD; MBA – Southern Illinois University, Edwardsville, IL

• Owner/President, Potomac Financial Private Client Group, LLC, McLean, VA

• Registered Principal, Commonwealth Financial Network, LLC

• 18 years of financial industry experience advising families, foundations and corporate clients

• Captain (Retired), Supply Corps, US Navy

Peter S. Eltringham • BS – University of South Carolina; MBA- Bryant

University; MS – National Defense University (ICAF)

• Principal, At Turning Point LLC-1 year; Not So Silent Partner,

Nice Legs LLC Wine Distributors; Chair, Fauquier County,

Virginia Transportation – 4 years; Former Vice President, Telos

Corporation - 9 years

• 29 years of USN service - 12 in major command and headquarters staff financial/budget positions


Daniel Pionk

• BS – Ferris State University; MA – U.S. Army War College;

MBA – Regis Jesuit University

• Self-Employed Commodities and Futures Trader

• 25 years risk management and executive management consulting to Manufacturing and Consumer Product corporations

• Captain, Supply Corps, US Navy Reserve

Charles W. Parker, III

• BA – Yale; MBA- University of Chicago; PhD – London

School of Economics

• Senior Consultant, Control Risks, Mexico City, Mexico

• Prior experience as Adjunct Professor of economics, business and international relations and as Client Executive at IBM


John W. Drerup, Jr.

• BS – U. S. Naval Academy, MS- University of Florida; MS-Personal Financial Planning, The College for Financial Planning

• Investment Management, The Burney Company, since 2004


Meet the IAC

Bruce Maxon

• BA – USNA, Annapolis, MS – Naval Post Graduate School, CLU – American College

• Treasurer, Navy Supply Corps Foundation

• Interim Dean, Mesa College, School of Business and Computer Science

• CFO of two non-profit corporations

• Captain, Supply Corps, USN (ret)

Joe Dunn

• BA – University of Denver; MS Finance – London Business School; MS – Naval Post Graduate School; Senior Executive Program – Columbia University

• Director, Vendor Governance, Prudential Financial

• Chartered Financial Analyst Candidate


Matt Webster

• BS – Williams College; MBA – Tuck School of Business at Dartmouth

• Senior Investment Analyst, University of California Investment Office

• 10 year of investment experience across private markets including debt and equity

• Lieutenant, Supply Corps, US Navy Reserve

Eric Schuck

• BA – Pacific Lutheran University; MA – University of Montana; PhD – Washington State University

• Professor of Economics at Linfield College

• 18 years experience as a professor. Author of 17 journal articles and two-time Fulbright Specialist grant recipient . Expertise in agricultural and natural resource economics.

• Lieutenant Commander, Supply Corps, US Navy Reserve

Bill Withrow

• BS – University of Colorado; MBA – Harvard University

• Executive Chairman, President and CEO of Pear Track Security Systems, Inc

• Former Mayor and Councilmember, Alameda, CA

• 20+ years experience in financial industry, retiring from Wells Fargo and Company. Chairman of the Robert Lippert Foundation and current Trustee of Peralta Colleges.


Craig P. Doyle

• BA – Arizona State University; MBA – Wharton, University of Pennsylvania; MA - U.S. Army War College

• President, Sequence Media Group

• 32 years of financial industry experience in commercial banking, and consulting to financial institutions on strategy, operations and credit risk management


Guide to Designations CFP® Certified Financial Planner™ AIF® Accredited Investment Fiduciary CIMA® Certified Investment Management Analyst CLU Certified Life Underwriter CPWA® Certified Private Wealth Advisor

IAC Process & Methodology

Monthly Meetings

Strict investment discipline

Guided by NSCF Investment Policy Statement (IPS)

Continually improve metrics to gauge performance and allocation

Periodic evaluation of strategy vis a vis other foundations/institutions

Portfolio Performance vs the IPS Benchmark

Data as of 3/31/2017

*Benchmark Not Assigned During Three Year, Five Year and Since Inception time periods; Bechmark is composed of 5% Citigroup US treasury Bill 3 Month USD, 25% Barclays

Aggregate Bond Index and 70% MSCI ACWI (All Country World Index). Investment Policy Statement signed 9/25/2015

Last Month Year to Date One Year Three Years Five YearsSince Inception

(1/1/09)

Portfolio 0.97 5.00 13.60 4.14 6.81 8.86

IPS Benchmark 0.85 5.02 10.50 4.35 6.56 9.01

0

2

4

6

8

10

12

14

16

Ret

urn

Portfolio Performance vs. Benchmark

Portfolio vs Target Allocation

Cash & Cash Alternatives 336,892$ 5.7% 295,868$ 5.0% (41,024)$ 0.7%

Fixed Income 1,316,528$ 22.2% 1,479,342$ 25.0% 162,814$ -2.8%

Large Cap US Equity 1,770,539$ 29.9% 1,656,863$ 28.0% (113,676)$ 1.9%

Mid/Sm Cap US Equity 1,062,752$ 18.0% 946,779$ 16.0% (115,973)$ 2.0%

Non-US Equity 1,168,474$ 19.7% 1,242,647$ 21.0% 74,173$ -1.3%

Alternatives 262,182$ 4.4% 295,868$ 5.0% 33,686$ -0.6%

TOTAL 5,917,369$ 100% 5,917,369$ 100%

+/- 5%

+/- 3%

+/- 5%

+/- 5%

Current Target Variance Permitted Var.

+/- 3%

+/- 5%

7%

21%

30%

18%

19%

5%

Current Portfolio Allocation

Cash & Cash Alternatives

Fixed Income

Large Cap US Equity

Mid/Sm Cap US Equity

Non-US Equity

Alternatives

5%

25%

28%

16%

21%

5%

IPS Target Allocation

Portfolio Change In Value

Actions Taken Since Last Board Meeting

Monthly Conference calls/web conferences

Rebalanced portfolio to be aligned with investment policy statement Asset

Allocation Model

Cash Flows

Approximately $156,000 contributed to portfolio by stock donations and

cash since the last Board Meeting in November 2016. This includes

$3,950 in Dec 2016 and $152,068 in the first quarter 2017.

Our CSO, Jack Evans has alerted the IAC that he will need $280,000 in

July for Scholarships.

Discussion

Action Item for Fall 2017 Board Meeting

- Review, research, validate the Investment Policy Statement

- Review the benchmark components, asset class target weightings

- Assess active funds management vs. passive funds management

allocations strategies

- Recommend appropriate targets for active vs. passive funds

management allocations

- Brief results of the research and propose revisions to the Investment

Policy Statement

Budget: How did we do in 2016

2015 Budget 2016 Budget 31 Dec 2016 YTD

INCOME

CONTRIBUTIONS

Individuals Donations 260,000.00 225,000.00 272,993.49

Other Contributions 130,000.00 87,500.00 85,585.76

390,000.00 312,500.00 358,579.25

CORPUS INCOME 300,000.00 343,200.00 257,885.00

REGALIA SALES Income From Regalia Sales 900.00 0.00 681.10

TOTAL INCOME 690,900.00 658,700.00 617,145.35

EXPENSES

PROGRAM EXPENSES

Scholarship Program 300,000.00 284,000.00 266,356.78

Recognition Program 20,000.00 15,000.00 6,597.79

Communications Program 120,000.00 99,000.00 64,575.41

Chapter Development 25,000.00 35,000.00 28,459.93

Heritage Legacy 22,000.00 22,000.00 21,000.80

Transition Committee

2016 River Cruise Momentos 1,458.00

Humanitarian Aid 2,500.00 2,500.00 0.00

FAST 3,500.00 0.00

TOTAL PROGRAM EXPENSES 489,500.00 478,000.00 388,448.71

Development Committee

OPERATING EXPENSES 195,750.00 230,700.00 228,696.65

TOTAL EXPENSES 685,250.00 708,700.00 617,145.36

NET INCOME 5,650.00$ (50,000.00)$ (0.01)$

2017 Budget and YTD 31 Dec 2016 YTD 2017 Budget

31 March 2017

YTD

INCOME

CONTRIBUTIONS

Individual donations 272,993.49 250,000.00 120,924.40

Other Contributions 85,585.76 155,000.00 3,235.50

CORPUS TRANSFER 257,885.00 479,000.00 2,500.00

REGALIA SALES Income From Regalia Sales 681.10 1,200.00 10.19

TOTAL INCOME 617,145.35 885,200.00 126,670.09

EXPENSES

PROGRAM EXPENSES

Scholarship Program 266,356.78 291,000.00 280.25

Recognition Program 6,597.79 15,000.00 260.36

Communications Program 64,575.41 144,000.00 15,657.10

Chapter Development 28,459.93 40,000.00 3,737.50

Heritage Legacy 11,848.80 71,000.00 929.88

Transition Committee 5,000.00 0.00

2016 River Cruise Momentos 1,458.00 0.00 0.00

Humanitarian Aid 0.00 2,500.00 1,500.00

FAST 0.00 3,500.00 0.00

TOTAL PROGRAM EXPENSES 379,296.71 572,000.00 22,365.09

Development Committee 80,600.00 8,503.48

TOTAL OPERATING EXPENSE 228,696.65 231,879.95 60,359.50

TOTAL EXPENSES 607,993.36 884,479.95 91,228.07

NET INCOME 9,151.99$ 720.05$ 35,442.02$

2017 Capital Investment Projects

History Book 31 March 2017 YTD

Beginning Inventory Value 240,734.54

Shipping Expenses 0.00

Storage 929.88

Total 241,664.42

Sales 250.00

Donated Books 9,250.00

Books Consigned to Chapters 0.00

Total 9,500.00

Ending Value 232,164.42

Results of the Internal Audit by

Jim Shultz, CPA, CIA

• August 2016 Audit Rating: Satisfactory

• Prior Audit Rating: Satisfactory

• Conclusions: – Internal Control over finance & accounting is

satisfactory.

– 6 Recommendations to improve internal controls, operating policies and procedures.

– 9 best practices recommendations offered to strengthen controls, documentation, processes or procedures.

• For 2017 – Internal review will be performed in summer 2017.

Management Response to

Recommendations

1. Obtain appropriate insurance coverage to protect Foundation assets. Application for $1

million submitted to Hartford. Cost $1,200.

2. Amend Financial Ops Policy to required annual review of insurance needs. Add the following

paragraph to the Financial Operations Policy Statement IV.2)I as it covers the subjects

covered in the Annual Internal Audit. “Insurance. 1. Assess Foundation Insurance needs and

comment on the scope and adequacy of insurance coverage at the Annual Fall Meeting.”

3. Develop plans to recruit reservists and retirees to replace outgoing active duty personnel on

Chapter Boards. In updated Chapter Ops Manual.

4. Develop and Identify venues to improve recruitment. Oakleaf, web site and other on line

venues now used for this purpose.

5. Publish guidance to dispel fears of involvement in Chapter events. In new Chapter Ops

Manual as Ethics Guidance.

6. Consider using a company instead of a single person to provide web services. Using SC

spouses to provide website services has been determined to be a better option and is now in

effect.

Management Response to Best

Practice Recommendations.

1. Review & Update Strategic Plan. Done

2. Address Fund Raising Concerns. Done

3. Establish IAC Investment Goals. Equal or better than the IAC Benchmarks as a goal.

4. Discontinue classifying Corpus transfers as revenue. Done

5. Establish a requirement for annual policy review. As a precursor to the Annual Review, the

Executive Board will review for adequacy the Financial Operations Policy Statement and the

Investment Policy Statement and comment on their sufficiency at the Annual Board Meeting.

Add this requirement to each of these policies.

6. Establish guidance for Chapter donations to NSCF and other charities so that all donations

aligned to NSCF mission. Done

7. Amend Financial Ops Policies and guidance to address CSO staff credit card management.

Include a statement to the Financial Operations Policy Statement by the Annual Board

Meeting.

8. Develop CSO Continuity policies and prospective individuals. In process.

9. Document Board decisions cited in audit report. Done

Results of the External Audit by Patat and

Turner, P.C.

• The NSCF Financial Statements for the period ending

on 12/31/15 and 2014 and the related statements of

activities and cash flows for 2015 present fairly, in all

material respects, the financial position of the Navy

Supply Corps Foundation for the relevant period and

the changes in its net assets and its cash flows for the

period ending 12/31/15 are in accordance with

accounting principles generally accepted in the

United States of America.

• External Audit for period ending 12/31/16 will occur in

Fall of 2017.

Chapter Financial Report Status

& rationale for report submission

• All but 6 of our 36 chapters have submitted their 2016 Financial Reports.

• By reviewing these reports NSCF is complying with their fiduciary responsibilities to

avoid the risk of losing our 501(c)3 tax exempt status.

• 501(c)3 IRS tax code allows tax exempt status to non-profits organizations complying

with certain provisions:

– May not participate in any political or lobbying activity.

– Activities, donations and income must be focused on the purpose of the

Foundation as originally reported to the IRS.

– May not sell property of the organization to a board member for less than the fair

market value, nor may a member receive free services from the nonprofit that

others pay for.

– May not have substantial, unrelated business income.

– When holding a charitable event, must ensure attendees know what portion of

price of attendance is tax exempt.

2016 Chapter Financial Snapshot pg 1 of 2

# Chapter As of Date 12/31/16 Total Equity Revenue Expenses

Net Income

Donations to NSCF

Donations to Others

Chapter Size

1 Bay Area 12/31/2016 $1,475 $0 $60 -$60 $0 $0 111

2 Boston 12/31/2016 $1,206 $2,844 $2,821 $23 $0 $600 48

3 Colorado Rockies

4 Detroit

5 Djibouti

6 Great Lakes 12/31/2016 $0 $0 $0 $0 $2,450 $0 20

7 Great Salt Lakes 12/31/2016 $4,216 $8,491 $4,275 $4,216 $0 $0 ?

8 Groton New London 12/31/2016 $0 $0 $0 $0 $0 $0 35

9 Gulf Coast 12/31/2016 $0 $0 $0 $0 $0 $0 2

10 Hampton Roads 12/31/2016 $6,673 $42,193 $53,886 -$11,692 $0 $200 226

11 Hawaii 12/31/2016 $9,553 $17,106 $19,318 -$2,211 $5,000 $0 161

12 Iberian Peninsula

13 Indiana Crossroads 12/31/2016 $831 $0 $0 $0 $0 $0 11

14 Italy

15 Kansas 12/31/2016 $0 $0 $0 $0 $0 $0 7

16 Korea 12/31/2016 $0 $0 $0 $0 $0 $0 10

17 Jacksonville 12/31/2016 $436 $0 $0 $0 $0 $0 132

18 Japan 12/31/2016 $9,854 $24,148 $22,303 $1,845 $0 $0 98

19 Mechanicsburg 12/31/2016 $2,981 $25,775 $26,251 -$477 $8,000 $5,250 165

2016 Chapter Financial Snapshot pg 2 of 2

# Chapter As of Date

12/31/16 Total Equity Revenue Expenses

Net Income

Donations to NSCF

Donations to Others

Chapter Size

20 Memphis 12/31/2016 $1,155 $0 $0 $0 $0 $0 ?

21 Monterey 12/31/2016 $4,169 $12,613 -$13,662 -$477 $0 $0 ?

22 Newport 12/31/2016 $22 $14,600 $14,729 -$129 $0 $0 120

23 North East Georgia 12/31/2016 $0 $0 $0 $0 $0 $0 38

24 Northwest 12/31/2016 $976 $0 $0 $0 $0 $0 141

25 Ohio 12/31/2016 $299 $280 $0 $280 $0 $0 16

26 Patuxent River 12/31/2016 $1,466 $18,155 $21,014 -$2,858 $2,595 $5,000 65

27 Philadelphia 12/31/2016 $20,994 $61,651 $62,976 -$1,325 $0 $1,000 60

28 San Diego 12/31/2016 $13,162 $31,660 $44,688 -$13,029 $15,000 $0 690

29 Sasebo 12/31/2016 $0 $0 $0 $0 $0 $0 15

30 Sigonella 12/31/2016 $2,002 $5,298 $4,725 $573 $0 $0 14

31 St Louis 12/31/2016 $897 $1,640 $2,166 -$526 $0 $0 24

32 Southwest Asia

33 Tampa Bay 12/31/2016 $1,086 $1,294 $220 $1,074 $0 $0 36

34 Twin Cities 12/31/2016 $0 $0 $0 $0 $0 $0 25

35 Ventura County 12/31/2016 $485 $1,980 $1,855 $125 $0 $0 25

36 Washington DC 12/31/2016 $16,532 $93,617 $72,297 $21,320 $6,500 $0 250

Totals $100,474 $363,345 $339,921 -$3,328 $37,095 $14,500 2,545

What/So What/Now What • What?

– Deposits to the Investment portfolio have decreased and withdrawals have increased in

2016, but are meeting 2017 projections in 2017.

– IAC has followed Board approved investment target objectives.

– IAC investment performance has met the needs of the Foundation in the past.

– 2016 Budget Income was lower and expenses were higher than projections.

– 2017 Budget is aligned with the Strategic Plan.

– Internal Audit Reports report are satisfactory and management is responding to Internal

Report recommendations.

– Chapter Financial Reports have been received from 30 of 36 chapters with some

questionable donations to non-NSCF charities.

• So What? – We need to continue to receive income to ensure we can meet Strategic Planning Budget

targets or adjust expenditures as the year progresses.

– Our financial records are being properly maintained.

– Chapter Reports need to be reviewed to ensure we maintain our 501(c)3 tax exempt status.

• Now What? – Encourage all NSCF members to participate in the ongoing fund raising appeal.

– Each Committee Chairman is to carry out their 2017 budget and Strategic Plan.

– Follow-thru on Audit recommendations.

– Encourage Chapters to submit Financial Reports per the guidance.

Back-Up Slides

• Investment Portfolio Holdings

Portfolio Holdings

-

VANGUARD S&P 500 ETF - - $167,671

-

$246,278

-

-

-

-

VANGUARD INTERMEDIATE TERM INVESTMENT GRADE FUND INV

PIMCO INCOME D - $141,716

-

- -

-

-

-

-

- -

AlternativesM id/S m Cap US

E quity

-

-

-

-

- -

-

$278,693

-

-

Asset DescriptionCash & Cash

AlternativesFixed Income

Large Cap US

E quityNon-US E quity

- -

T. ROWE PRICE SPECTRUM INCOME FUND - $168,713 - -

LOOMIS SAYLES BOND FUND R - $194,268

--

-

-

$114,048

-

-

-

$77,314

PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND - -

-

-

-

-

-

-

PIMCO COMMODITY REAL RETURN STRAT INSTL - - -

LITMAN GREGORY MASTERS INTERNATIONAL FUND

-$307,575-

-

- $666,536

-VANGUARD FTSE ALL-WORLD EX-US ETF

-

-VANGUARD SELECTED VALUE FUND - -

- $372,316

ISHARES S&P 500 GROWTH -

--

$336,892 - - - --

- - - - -

- - - - $184,868-

CASH

$221,880

GLENMEDE SMALL CAP EQTY -

$204,537VANGUARD SMALL CAP ETF

VANGUARD REIT

-

VANGUARD WINDSOR II FUND INV

$187,371

-

$364,999

-

-

-

-

DODGE & COX INTERNATIONAL STOCK -

-

$305,845

-

-

-

-

-

-

-

- -

VANGUARD SHORT TERM INVESTMENT GRADE FUND INV - $332,254

AMERICAN CENTURY INTERNATIONAL GROWTH - -

$202,130 -

WESTERN ASSET TOAL RETURN UNCONSTRAINED - $277,447 - -

- -

$564,016

HARBOR INTERNATIONAL FUND INSTL -

- -

DODGE & COX STOCK FUND -

Navy Supply Corps Foundation · stInvestment Advisory Committee Results for 2016 & 2017 1 Qtr...

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