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CBS Town Hall Transcript
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Dear Congregation Beth Sholom Community,

Because some of you were unable to attend the Town Hall convened by the CBS Board on Sunday, February 28, I am writing today to supply you with a transcript of my remarks (see below).

Two weeks from today, on Friday, April 1, the Board will provide you with an update on the work we have carried out since the Town Hall. In that email, we will also announce a regular communications schedule.

Shabbat shalom,
Scott Horwitz, President

SUMMARY OF
CBS BOARD PRESIDENT SCOTT HORWITZ’S REMARKS 
CONGREGATION BETH SHOLOM TOWN HALL
FEBRUARY 28, 2016


TABLE OF CONTENTS


INTRODUCTION

What we  hope to do is provide the congregation with as complete an update as we can on the synagogue’s financial situation. This information is based on the work that we have done since the end of December. We will walk you through what happened, the steps we have taken since we learned of the issues about 6 weeks ago, and what we will be doing on a short- and medium-term basis – as well as continuing to work toward our long-term health and vibrancy. Finally, we will also talk about what you can do to help us in our efforts.

We want to supply you with as much information as we have and that we can currently share. What you will hear today is the most current information we have – but it is still not complete. We continue to work to determine the details of what happened, as well as working on day-to-day issues moving forward.

We also will be respectful of everyone involved – Staff, the Board, Congregants – and we will focus on facts. There are, I’m sure, many questions that we all have about “why” things happened. When there are facts enough to address those questions, we will do so – however, we won’t be speculating outside of what we know.

After you have an understanding of where we are, I hope that you will work with us as we move forward together to keep Beth Sholom a strong, enduring community.

CBS GOVERNANCE & ADMINISTRATIVE PROCEDURES

Budgets should be approved by the Board in May for the following Fiscal year (July 1 – June 30). The Budget process begins with the Executive Director and the Finance Director, is then reviewed/edited in consultation with the Finance Committee, and finally brought to the Board for approval.

Once a budget is approved, the Finance Committee is to receive monthly reporting on both revenues and expenses from the Finance Director. The Chair of the Finance committee then summarizes that information at the monthly Board Meeting.

In order for the Board to be aware of significant expenditures outside of the Budget, any proposed expenditures over $5,000 require formal approval by the Board. There is also a synagogue policy that requires 2 signatures on any check over $5,000. This is an internal control, as the bank does not review checks to determine if those 2 signatures are in place.

The Funds that are available to the Synagogue have 3 general designations:
  • Operating Funds – which are funds that are to be utilized for day-to-day operations of the synagogue (membership dues, Kol Nidre appeal, tuitions, general donations, rental revenues, etc.). There is a specific account at the Bank designated for those funds.
  • Board Designated Funds – funds to be used for a purpose with Board Approval. These funds sit in an investment account at the bank.
  • Restricted Funds – Endowment funds, not to be spent. These funds sit in the same account as the Board Designated funds.

CHRONOLOGY OF EVENTS: 12/14-PRESENT


DECEMBER 2014
  • Finance Committee is informed of projected annual budget deficit of $500K to $600K.
  • Executive Director and Finance Director are tasked with identifying and implementing budget changes.
 
FEBRUARY 2015
  • Transfers start being made between Board Designated accounts and Operating Accounts without authorization – we are investigating precisely how these transfers were made.
 
MARCH 2015
  • Board is informed of budget deficit issues and recognizes that our level of deficit spending by the end of the fiscal year (June 30, 2015) would be in the range of $200K to $300K.
 
MAY 2015
  • Board approves the 2015-2016 Budget (July 1, 2015 – June 30, 2016) which showed a projected surplus of $200K with scheduled fundraising efforts.
 
JUNE 2015
  • By this time, the total amount of unauthorized transfers between Board Designated accounts and Operating Accounts (of which the Board was not yet aware) totals approximately $300K.
 
AUGUST 2015
  • Finance Committee Chair begins making repeated requests to the Finance Director and the Executive Director for financial reports to review. He was told by the Finance Director and the Executive Director that a change to a new database system, along with turnover in the Bookkeeper position was causing many errors in billing, invoicing, and payment postings. The Finance Director reported that this was leading to a diversion of her attention from the overdue financial reports and resulted in invalid numbers in the system, so that reports would not be indicative of the true nature of the financial situation.
  • Transfers continue being made between Board Designated accounts and Operating Accounts without authorization and without Board knowledge. Documentation demonstrates that our Executive Director instructed the bank to make those transfers and that our Finance Director was aware of those transfers.
 
SEPTEMBER 2015 – NOVEMBER 2015
  • Finance Committee Chair continues making requests to the Finance Director and the Executive Director for financial reports to review.
  • Transfers continue being made between Board Designated accounts and Operating Accounts without authorization and without Board knowledge. Total unauthorized transfers for this fiscal year now equal approximately $500K. Includes $450K that Board had specifically designated to be paid toward the $5 million dollar building loan.
 
DECEMBER 2015
  • Finance Director indicates to Finance Committee Chair and the Board President that the current fiscal year is showing a $700K expense budget overrun and an immediate cash flow problem.
  • No mention is made of any previous transfers from the Board Designated Accounts.
  • Finance Director, Executive Director, Finance Committee Chair, and Board President attempt to rework budget for second half of year to deal with expense overruns.
 
JANUARY 2016
  • Finance Director produces report of balances of all Board Designated Accounts. Report shows large depletion in those accounts and makes apparent that unauthorized transfers have been made.
Our investigation indicates that Restricted Funds were not accessed.

WHAT WENT WRONG?


We know that some important procedures weren't followed and that adequate oversight was lacking.

First, there were revenue shortfalls that were being covered by board designated funds without Board approval. Membership dues, CBS Family Preschool tuition, and other donations were below projected numbers. In addition, the move to a new database system caused Membership and Tuition statements to go out later than usual and invoicing was hampered as a result.

Second, expenses were well over budget. These expenses generally fell into 3 categories. 
  • Expenses related to approved programs or operations, but that simply went far over budget. An example is the 3rd Friday Musical Kabbalat Shabbat service series; these services were budgeted for, but the amount paid for those services was significantly above the budgeted allotment.
  • Unbudgeted staffing costs. This ranged from salaries that were outside of the approved budgeted amounts to contract employees that were never budgeted for.
  • Significant expenses not related directly to Synagogue programming. For example, the annual travel budget was exceeded in just the first half of the year by $40,000. We are reviewing every invoice and credit card transaction to determine if any expenses were not related to synagogue business.
Synagogue and Board procedures were not followed for most, if not all of these expenditures. Significant contracts were signed without Board request and approval. Expenses were incurred above the $5,000 limit without Board request and approval. And to cover these overages, the Executive Director made significant fund transfers through the bank without Board request and approval. 

The Finance Committee and other Board members made repeated requests for detailed financial information. Admittedly, we were not suspicious enough to demand receipt of this information.

WHAT HAPPENED NEXT?


As soon as we became aware of the unauthorized transfers on January 11:

The Board:
  • Began developing strategy for expense cuts and prioritizing accounts payable.
  • Contacted the Federation to explain the situation and get advice and support.
  • As part of those initial discussions, the Federation identified Larry Schlenoff as a resource to help advise us on how to move forward and to help us navigate the Federation’s support network.
  • Board members called in favors to engage one of the foremost employment lawyers in the city and we discussed the ramifications of personnel issues.
  • We placed our Executive Director on unpaid leave and suspended the contract of our Director of Finance.
  • We drafted and sent an initial communications to the Congregation – which we all agree was cryptic at best, but at that point we had no other information other than the knowledge that money had been transferred. We informed the staff of the communication before it went out to the Congregation.
  • Missy Mastel – a congregant, CPA and certified forensic accountant – offered, pro bono, to handle the finance and bookkeeping efforts and to begin the forensic audit and the Board agreed to take her up on her offer.
  • The Ratner Family accelerated an extremely generous pledge made last year. Other Board Members followed suit with their pledges, sponsored kiddushes, made additional donations, etc.
  • We made the difficult decisions to implement personnel reductions effective January 29, 2016. On that same day the Executive Director resigned.
  • We met with the bank holding our loan to inform them of the situation and agreed to keep them up to date on our situation while they held the terms of the loan unchanged.

Our acting Finance Director, Missy Mastel:
  • Created a plan to use our existing funds and expected January to June revenue to cover as much of our reduced expenses as possible through the end of June.
  • Is leading the effort to review all of the transactions, payments, invoices, etc. during the period in question and at a later date perhaps into earlier periods as well.
  • Has put into place new office/staff expense procedures. The goal there is to match up expenses with budget items before the purchase is made so that everyone in the office knows how the spending affects the budget. 

Our Finance Committee Chair has been working with the Bank to revise our bank access and transfer authority procedures. The Finance Committee has also: 
  • Informed our insurers about the fiscal irregularities and we have a claim open with them as we gather data regarding the expenses in our investigation. There is no guarantee our insurance will cover this, but it is being pursued as an option.
  • Informed VISA that we will be reviewing credit card transactions over the last 90 days and they have a process for recouping transactions that are outside of normal business activity. Again, no guarantees, but we are pursuing the option. We are keeping open every option as we continue to investigate the details. Nothing is off the table.
Finally, with the Federation’s support, we have identified a group of people outside the Synagogue to serve on an Audit committee that will guide us both in building better controls and in scheduling our financial reviews, both internally and for the bank.

WHAT NOW?

  • We want and need more grass-roots driven ideas – Achshav Yisrael and the CBS Parents Book Club come to mind – and not necessarily those relying solely on staff to drive those ideas for engagement.
  • With Purim coming, we have committed to combining the traditional Megillah reading congregational event with our Preschool carnival/fundraiser. Megillah Gras will be a community-wide fundraiser for all of our educational needs and will include the USY teens, the preschoolers, Shabbat school families, and hopefully the entire community.
  • We were honored to receive an anonymous donation to fund a scaled-down version of the 3rd Friday series through March and we hope to build on the successful Shabbat dinner that we had after the our 3rd Friday service this past Shabbat. We hope to continue find more supporters for this innovative new service.
  • The Board and I are also on a mission to have all of the kiddushes after Shabbat morning services sponsored by congregants in celebration of events, memory of loved ones, or just because. We are getting closer to our goal of having every Shabbat kiddush sponsored through June, but there are still openings and we hope to reach our goal. The Congregational kiddushes as well as the kiddushes for the Shabbat School children can both be sponsored, and joint sponsorships also help us to reach our goals.
Additionally, although we were unable to pay down the $5 million loan by another $450,000 or negotiate some sort of extension of the terms with the bank past May 2018, we are now actively pursuing a three-pronged approach.
  • We will continue to make our case to the congregation -- and the community at large -- that the Beth Sholom synagogue building is a unique community asset and one worthy of sustaining for the vitality of Bay Area Judaism. Our Unite+Ignite Campaign may be retooled in the coming months, but our commitment to long-term financial security will continue.
  • Other than the rentals of the building that we currently have, we will be reviewing other ways to leverage the building as an asset that could help us to pay down the debt.
  • We have started discussions with the other Conservative synagogues (and some of the Orthodox ones as well) as to how we can gain critical mass in San Francisco. Again, this was a process that began before our current situation. We are not the only synagogue that is struggling with membership count, and there may be ways to pool our resources such that our community is less splintered and more united.

FINAL THOUGHTS


The loss of our financial reserves is a major blow. We are all still reeling from this discovery and contemplating everything that we the Board could have done differently. However, those financial reserves would never have been the answer to our long-term issues.

Our more important task – and the one that we are more excited about than ever - is to design and implement a vision for our future that is sustainable not just for the next year, 5 years, or 10 years. This will require us to be open to new ideas and to be a positive force for change that may be uncomfortable at first.

It was mentioned at Aidan Swan’s Bar Mitzvah (February 27) – if participating in and celebrating as a community the teachings, davening, and leining of our next generation of Jewish leaders does not make us understand how vital and important our synagogue community is – then nothing will. It is our firm belief that, as a community, as a family, we will be able to meet this challenge as a vibrant and enduring community that will be relevant in the lives of our members and the Jewish Community of San Francisco.
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