The Federation of American Hospitals saw its net income plummet in 2006, as expenses grew more rapidly than revenue because an accounting review uncovered some costs that were not being accrued properly.
The incorrect accruals were discovered when the federations new auditing firm conducted a top-to-bottom review of its financial accounts, said Jeff Micklos, senior vice president of business operations and general counsel. Properly accruing these expenses explains most of the drop in the federations net income, which was $248,047, down 42.6% from 2005, Micklos said. Revenue increased 7.9%, to $9.5 million, mostly thanks to a 7% boost in membership dues, which totaled nearly $7.5 million.
Total expenses, however, rose 10.5%, to $9.2 million. The biggest percentage increases came in accounting fees, which quadrupled to $193,917; pension contributions, which nearly tripled to $575,458; and research, which also nearly tripled to $307,738. The lobby groups legislative expenses increased just 1.4% to $836,225. The accounting review fueled the increase in accounting fees, Micklos said. The federation also was active in generating research on quality measures and the financial effects of changes in DRGs in 2006, he said.
Chip Kahn, president of the federation, was paid a salary of $875,000 in 2006, up 6.9% compared with 2005. His expense account totaled $57,725 for the year. Kahn also received deferred compensation of $41,312 and other benefit plan contributions of $25,600, a total of $66,912. The second-highest paid executive at the federation was Steve Speil, senior vice president and chief financial officer, who was paid a salary of $282,600, or a 12.1% increase from 2005, and received benefits worth $29,463.
A supplement to the Form 990 detailed adjustments that were made to the federations accounts for accruals for deferred compensation for Kahn in 2004 and 2005. Those adjustments amounted to $500,000 in 2004 and $252,874 in 2005, accounting for more than half of nearly $1.2 million in adjustments to prior periods made in 2006. The remainder of the adjustments were much smaller individually and came in a variety of accounts, Micklos said.
The Internal Revenue Service allows these prior-year adjustments to be made in the most recent Form 990 without restating prior-year financial statements, Micklos said.