In a community presentation on February 26, St. Andrews Task Force volunteer Patty Seybold presented the case for retaining St. Andrews Hospital as a critical access hospital and for changing its governance structure to provide more community control. 

Included in Seybold's presentation was a data table that showed a significantly different financial history for St. Andrews Hospital than has been provided by Lincoln County Healthcare. 

Although Seybold reported that St. Andrews Hospital experienced an average net gain of over $550K annually between 2001 and 2011, data from Lincoln County Healthcare’s audited financial statements for the same period show total losses of $2,107,104, an average annual loss of $590,196 (Table 1). 

How can data derived from the same organization yield such radically different results?

Seybold’s financial analysis relied on IRS Form 990 data from Guidestar, an online source for nonprofit information. 

Seybold said she used these data because they were a matter of public record and she was not aware that audited financial statements were provided to the task force last fall (available at the Boothbay Town Office).

IRS Form 990 allows government and public scrutiny of nonprofits to ensure they operate in compliance with their public charity status. A nonprofit must operate for the benefit of the general public, cannot distribute profits to shareholders, and economic gains must only be used to meet the needs of the organization. 

In Form 990, a nonprofit reports on its finances, as well as its mission, governance, management policies, compensation of top employees, public support and its benefits to the community. 

Audited financial statements provide data on operations, changes in net assets and cash flows and are prepared and certified by an independent certified public accountant. The auditors determine whether information presented by an organization fairly represents its financial position and conforms to generally accepted accounting principles. 

According Lincoln County Healthcare Chief Financial Officer Wayne Printy, banks and other financial entities rely on audited financial statements, not Form 990s, in making financial decisions, such as debt financing.

Under its FAQ section, Guidestar notes that financial information from Form 990s has its limits. Relevant to Seybold’s use, as noted in the FAQ, Form 990 does not distinguish between gifts that are restricted by donors and those that are not. 

“The Form 990 is not meant to speak to an operation’s viability or sustainability,” Printy said. “Its purpose is compliance. Form 990s don’t tell the true story as do financial statements prepared under generally accepted accounting principles.”

In the case of St. Andrews Hospital, restricted donations (such as the $6.5 million raised for hospital renovations and expansion completed in 2004) are not defined separately in the Form 990. Restricted donations cannot be used to offset operating losses but can only be used for their intended purposes, Printy said.

As an example, Table 2 reconciles some of the differences between St. Andrews Hospital Form 990 and audited financial statements for fiscal years 2001 and 2002. 

For both years, Form 990 shows donations to St. Andrews that exceed $2 million, but the audited statements show that most of those dollars’ use was restricted. Because of the donor restrictions, these gifts cannot be used to offset operating losses and simply added to the year’s revenue, Printy said. 

“Restricted gifts and donations are not in the income statement anywhere in generally accepted accounting principles; they show up in the change in net assets. What’s she’s doing is taking an item that comes from capital campaigns, which are rare and for a very specific purpose, and adding it to the revenue,” Printy said.

“Capital campaigns raised money that was spent on improving the infrastructure of the hospital at that time,” CEO Jim Donovan said, “It’s not like that money was available for any other purpose. The way it’s portrayed here (by Seybold), it’s mixing all the funds as if they are all in the same pot.”

In an email on Friday, March 8, Seybold wrote that she had not yet had time to review the audited financial statements in detail but she is unconvinced by Donovan’s explanation. 

“He is basically hiding behind different accounting treatments for capital investments and unrestricted vs. restricted assets and depreciation. The numbers that they should be reporting are the net/net – double bottom line – the gains or losses including contributions. The numbers they report on their St. Andrews Annual Report only reports operating/gains/losses,” Seybold wrote.

Paul Lang, Director of Health Administration Programs at the Indiana University School of Medicine and a former Chief Financial Officer with Noble, Inc., reviewed Seybold’s Form 990 data, summary information from the audited financial statements and read the contrasting financial viewpoints expressed in letters to the editor by Seybold and Donovan.  

“It lands with the CEO. He’s absolutely, totally, right on course. Generally accepted accounting principles say you have to recognize as revenue the temporarily or permanently restricted donations but they are not part of the operating fund,” Lang said.

What does Lang conclude from the financial data? 

“They’re still operating overall at a material deficit. From a management standpoint, we should only be looking at operations because that will include the revenue and expense of why we are in business and it will include any temporarily restricted donations for which the responsibilities have been met. Even if they put in the unrestricted contributions, overall, they’re still losing a boatload,” Lang said.

“It’s pretty straight up. It’s unfortunate, it’s not unusual, but that’s where it is,” Lang concluded.

Sue Mello can be reached at 207-844-4629 or sumello@boothbayregister.com.