Financial Rescue … JCC to get help with current and long-term debt
At its combined meeting on Jan. 21, Jewish Federation and United Jewish Foundation board members approved a $950,000 disbursement to the Jewish Community Center of Metropolitan Detroit to keep it operational through mid-February.
Another more significant cash infusion is expected to follow soon to deal with the Center’s long-term legacy debt of several million dollars.
On Dec. 6, the JCC and Federation leaderships were shocked to learn the Center’s controller had produced inaccurate financial reports that apparently overstated revenues and understated liabilities.
The controller was fired within hours after disclosing what she had done. Immediately afterward, a Federation/Foundation Task Force, organized two years ago to help sort out the Center’s long-term financial problems, engaged Plymouth-based Financial One, specialists in accounting for nonprofits, to act as the JCC’s emergency financial adviser.
In essence, Financial One will serve temporarily as the JCC’s chief financial officer (CFO) and assume responsibility for the Center’s accounting functions. Within the next few months, the firm will reconstruct the JCC’s financial picture over the past three years.
“Preliminary findings indicate that there has been negligence, a significant lack of internal controls and that the financial condition of the JCC has been misrepresented,” reads a Task Force report prepared for the Jan. 21 meeting.
Attorney Stewart C.W. Weiner, lay leader of the Task Force, said, “The controller was doing her job and was probably dealing with issues that may have been over her head in terms of the types of reporting she had to do for the board. With the pressures of not only being a controller but also being responsible for paying bills, communicating with vendors, reporting to the board, management and so forth … she started preparing inaccurate reports that the board and management and Federation relied on.”
A year ago, strong recommendations were made by the Task Force for the JCC to hire a CFO, and funds were made available to the Center in January 2013 — $150,000 for each of two years. But a CFO was not hired. Weiner said he does not know why hiring did not take place.
Brian D. Siegel, immediate past JCC president and chair of the JCC executive committee, however, said the Center was waiting for final recommendations from a consulting firm hired to review the JCC’s financial and accounting systems to ascertain appropriate skills for the CFO.
“The consultant presented findings in the late summer, and a search began and was in process when the discoveries about the inaccurate financial reporting were made,” Siegel said. “The search remains open and is actively being pursued.”
A forensic accounting investigation is being done by independent auditing firm Grant Thornton LLP to determine if there were illegalities. Monies earmarked for the Center’s CFO position will pay for the audit and investigation.
“The JCC has annual audits,” Weiner said. “In prior audits, everything matched up. The audit for 2012 matched that year’s numbers — 2013 seems to be a recent aberration.”
Siegel said, “The JCC board, executive director and its auditors acted on the assumption that the information provided to them was accurate until concern
arose that financial irregularities had occurred …”
Although Federation and Center officials have expressed confidence in JCC Executive Director Mark Lit, saying he has kept the budgets in relative line and the legacy debt stable during his eight-year tenure, they have begun implementing a professional leadership succession plan for the Center.
The JCC is an independent organization with its own board, but like most local Jewish agencies, it does receive annual allocations from the Federation. Since 2011, the allocation has remained fairly constant at about $1.6 million. The JCC’s 2013-2014 annual budget is $13.2 million — $1 million more than the previous fiscal year.
For at least 20 years, the JCC has carried legacy debt. Preliminary estimates of the current total JCC debt (short- and long-term) place it around $8 million, though Weiner thinks it could be less.
At various times, Federation has made recommendations to reduce the debt, with the last major effort being in 2009.
“That was when the economy crashed and the whole world changed,” said Scott Kaufman, Federation CEO. “Our needs went up in places like Jewish Family Service. Our campaign had its worst hit in years. We put our fundraising efforts into the urgent needs fund. We needed to keep people in their homes. It’s taken a few years to get out from under all that.”
JCC Here To Stay
Despite these financial woes, the JCC is not in danger of closing. The Jan. 21 Task Force report states that emphatically.
“The JCC is vibrant,” Weiner said. “It’s business as usual. It’s recognized that the JCC performs vital services and benefits the community at large in its two facilities that are the second largest in North America. We’re very proud of the programming the JCC performs for our community.”
“The JCC is considered one of the finest centers of its kind in the world,” he said. “The JCC won four awards to be given out at the upcoming Biennial JCC Convention. At the same time, we recognize that historical and significant financial issues have to be addressed in a fashion that will allow this legacy to continue.”
Will the debt mean increased dues for the JCC’s 10,000-plus members?
“As we have diligently benchmarked all of our pricing against competitors, and because the JCC operates in a highly competitive marketplace, it seems unlikely the current financial situation will result in a material change in costs for members,” Siegel said.
The JCC, with buildings in West Bloomfield and Oak Park, reports it attracts 1,000 visitors a day. Each building has its own flavor, but similarities include health clubs, swimming pools, day camps and kosher restaurants.
The JCC in West Bloomfield also houses Frankel Jewish Academy, the Berman Theater for the Performing Arts and several agency offices.
No existing JCC programs will be cut, but because of the long-term debt, the Task Force recommends a careful look at any new programs proposed to make sure they will be viable financially.
“No one is panicking; things happen and you just handle them,” said Florine Mark, JCC president since June 2013. “We will work through this. You just go forward, making the JCC as fabulous as it is. We have the best JCC in the nation — a jewel. With Federation and the Foundation behind us, how can we lose?”
As of this month, Federation and Foundation have already advanced all Campaign allocations and other grants approved for the JCC through May 31.
“The JCC has cycles where they are strong in cash and where they are short in cash,” Weiner said. “This is before the camp season, before JCC Maccabi, before the times of the year when revenue starts coming in. Federation regularly advances allocations to agencies depending on special circumstances.”
Still, it is expected the JCC will come back to the Federation/Foundation combined board after mid-February to request additional funds to see it through May 31, the end of its fiscal year.
That request could be about $3 million, the Task Force report said. Weiner, however, said the amount might be less due to additional sources of funding, as well as the corrected reports Financial One is currently working on and other factors. A Financial Oversight Committee soon will be appointed from Federation/Foundation leadership to direct the JCC’s financial function, including the activities of Financial One and Grant Thornton.
Aside from its annual allocation, money going to the JCC has not and will not come from Federation Annual Campaign dollars, Weiner and Kaufman said.
“It will come from the United Jewish Foundation [Federation’s banking arm] general fund only if other sources cannot be used,” Weiner said. “We believe other sources of revenue will be available to fund some of this shortfall.”
Kaufman agreed. “There are numbers of community supporters and philanthropists, many of whom have a specific passion for the JCC, who are interested in helping,” he said, adding that many other sources of revenue also will be explored.
Looking at JCC expense and revenue charts from the JCC’s 2012-2013 annual report, it’s clear that compensation and benefits as well as facilities’ costs consume much of the JCC’s revenue — 77 percent.
Though the JCC claims bragging rights in North America on the size of its West Bloomfield building at 321,000 square feet, there is a financial price to pay for its vastness. For example, financial reports show that projected utilities costs for January through May are $92,000 each month.
Additionally, because the JCC frequently delayed payments to vendors because of its cash flow problems, late fees likely have accrued on some accounts.
“It’s an expensive building to operate, but it generates a great deal of activity,” Weiner said. “Drive by the Oak Park and West Bloomfield campuses and the parking lots are full night and day.”
In recent years, the JCC in West Bloomfield was expanded with the addition of Berman Center for the Performing Arts, a 600-seat theater. This addition enhanced the JCC and serves the Jewish community and beyond, but is not yet a significant revenue generator.
The Berman Center surely has potential to produce income, but is still in a learning curve, Weiner said. Kaufman says donor support is allowing it to break even now.
Like the JCC in West Bloomfield, the Jimmy Prentis Morris JCC in Oak Park is not a money-making venture, Weiner said.
“It services the Oak Park community very well,” he said. “It is vibrant, but it is also part of this process. There are great opportunities in Oak Park because our youth are moving in that area. We see that as a potentially wonderful place to expand and grow once we get everything analyzed and evaluated.”
Salaries are 56 percent of the JCC budget. The JCC employs 341 full- and part-time staff.
“As part of a deep dive into all aspects of the operation, [salaries] are an area that will be looked at very carefully,” Kaufman said. “But they are in line with the industry.”
On The Horizon
Weiner understands the challenges facing the JCC, but he also sees the positives in the process.
“This presents an opportunity for the JCC to self-evaluate,” he said. “It’s an opportunity to make it a stronger organization.”
The Task Force report concurred, stating, “The agency cannot continue with its current business model. The Federation and Foundation are committed to making those necessary changes that create a sustainable, world-class, 21st-century JCC.”
Siegel said, “The JCC has been and will continue to be very open-minded to new ideas that will advance its mission. The mission and relevance of the JCC to our Jewish community is more compelling than ever.”
So, what can Jewish community members expect next?
“A restructuring element will take place over the next six months,” Kaufman said. “We will come out of that with a model that is sustainable and has the best business practices and is affordable.
“It will be a collaborative effort among community professionals and lay leaders, national figures amongst the JCC, Federation and Foundation. This is a community that works together. That’s a great strength of our community.”
Though Kaufman said legacy debt is common in the JCC world, the top executive at the Jewish Community Center Association (JCCA) in New York says “there is no typical debt” for JCCs.
“It has happened before and each situation was handled differently,” said Allan Finkelstein, president and CEO of the JCCA, a continental umbrella organization for the JCC movement.
“I’ve had several experiences with challenges in communities and with federations; the Detroit Federation is handling this in the most positive, community-minded, supportive way from the beginning.
“The initial assumption has been that this is an important institution. They might be upset, but the goal is to make it a strong, impactful institution with community support,” Finkelstein said.
“Several things need to be solved: the debt; every program has to be of the best quality and financially sensible; and you have to make sure all internal systems make sense and that there’s accountability up and down.
“Detroit is a great fundraising community,” he said. “The Federation wants to solve [this] once and for all. The JCC is doing great things; if it is free of debt, it can keep doing that … and be in good position both long and short term.”
Another positive element on the horizon is that Detroit will be a host of the JCC Maccabi Games and ArtsFest this summer.
“Maccabi is an international event; we are fully staffed, and it will be part of the solution,” Kaufman said.
“Historically, Maccabi has been a great enhancement to the budget. Because the economy in Michigan is improving, we expect that it will be better than normal, which will help mitigate the problem at large. We’re an experienced community at doing Maccabi, and I expect this to be the greatest Maccabi we’ve ever thrown.”
Siegel agreed. “In August … we will be opening our hearts and homes to over 2,000 Jewish participants and 2,000 additional family and friends from throughout the world [for Maccabi],” he said.
“These games will bring positive national attention to our JCC and the extraordinary Jewish community that we are so proud to be a part of.”
Senior Copy Editor David Sachs and Managing Editor Jackie Headapohl contributed to this report. Look for more stories about the JCC situation in future issues of the JN.