The bylaws of the AAOS direct the Finance Committee to "manage, supervise, and control the financial affairs" of the organization. As your treasurer, I serve as chair of the Finance Committee; immediate past president, and William J. Maloney, MD, first vice-president, are the other voting members of the committee. Other participants in Finance Committee meetings include Gerald R. Williams Jr, MD, AAOS president; David A Halsey, MD, second vice-president; Karen L. Hackett, FACHE, CAE, chief executive officer; Richard J. Stewart, chief operating officer/chief financial officer; and Tina D. Slager, director of finance. All members of the Board of Directors are invited to participate in all Finance Committee meetings either in person or via teleconference.

2015—A mixed year financially
The economy was very volatile in 2015 and the long-term investment portfolio lost $206,000 during the year. The operations of AAOS also resulted in a net loss of $1.2 million but this was $263,000 better than the budget.

Total net assets (basically, the net worth of our organization) decreased $1.3 million, from $109.4 million at the end of 2014 to $108.1 million at the end of 2015. Net assets include Ortho Properties LLC (OPLLC), which was established to finance, construct, and operate the new headquarters building. OPLLC is a joint venture between AAOS (which owns about 70 percent) and our equity partners—the Arthroscopy Association of North American (AANA), the American Orthopaedic Society for Sports Medicine (AOSSM), the American Association of Hip and Knee Surgeons (AAHKS), and the Orthopaedic Learning Center (OLC). Liabilities increased $2.0 million, mainly due to year-end timing issues related to the Annual Meeting.

Combined statement of operations
Total operating revenue for 2015 was $60.1 million, which was $3.5 million less than in 2014. The reduction was mainly attributed to less revenue recognized in 2015 than in 2014 from the Capital Campaign for the new headquarters building.

Although operating revenue was down, total operating expenses also decreased by $3.2 million—from $64.5 million in 2014 to $61.4 million in 2015. The expenses in 2014 included costs related to the move to the new headquarters building, which was completed in December 2014; therefore no additional expenses were incurred in 2015 related to the move.

2015 audit
CliftonLarsonAllen, LLP, continued to serve as our outside financial auditors, and we experienced a very smooth and successful audit. Once again, the AAOS received a "clean" audit opinion that the financial statements were presented fairly in all material aspects. There were no serious concerns or management comments. It is always reassuring to get such a report from an outside auditor.

2016 projected results
The 2016 operating loss is currently projected to be better than budget by $691,000 by year end. This is mainly due to better results from the 2016 Annual Meeting, increased sales of examination products, and reduced expenses in several program areas.

Investments
Although recent market volatility led to overall losses of $206,000 for AAOS in 2015, investment gains of $3.8 million have been recorded through September 2016. Whether this positive move will continue through year-end is unknown but we do expect the volatility to continue. However, over the past year we have shifted most of these funds to high performing index funds, thus achieving performance at lower fees.

In 2015, the Academy Fund, which was established in 2007 to support orthopaedic medical education and broadened in 2011 to encompass other Academy activities, was down $50,000, resulting in a year-end balance of $10.9 million. The Association Fund, which was created in 2008 to help fund our advocacy efforts and expanded in 2011 to support the Professional Compliance Program and other Association activities, lost $116,000 for the year, ending with a year-end balance of $8.1 million. Through September, both funds have returns of more than 5 percent for 2016. Both these funds are managed by Morgan Stanley. These funds are also being shifted to index funds.

Financial transparency
To help maintain and improve the financial transparency of the AAOS, the Finance Committee and staff took the following actions this year:

• Issued the AAOS monthly financial dashboard, which provides year-to-date financial results and trends at a glance in a convenient one-page format. (The dashboard is available to any AAOS member upon request.)
• Held a webinar to educate new Board members on various aspects of AAOS finances.
• Made quarterly updates to the 18-month rolling forecast introduced in 2012 and designed to improve forecasting capabilities. Rolling forecasting enables us to focus the budgeting processes on looking forward rather than looking back. Each update shows progress toward obtaining more reliable information in a timely manner.
• Revised the Long-Term (5-year) Financial Plan to encompass the years 2017–2021. This plan helps the Board understand the longer-term implications of today's financial decisions and helps control spending.
• Provided key financial information not only to the Board but also to the leaders of the various councils, cabinets, and committees on a regular basis to improve budget transparency. Because the financial stewardship of the AAOS rests with all volunteers and not just the Board, it is important that these leaders be kept abreast of the impact of their activities as a whole. Reaction from these volunteer leaders has been very positive, and the Board recognizes and greatly appreciates all of their hard work and positive contributions to the AAOS.

Fiduciary responsibilities
Your Board of Directors takes its fiduciary responsibilities seriously. The Board continues to lead by example and critically examines its spending at every meeting. The Board has been under budget for the last 11 years and should be significantly under budget for this year as well.

The AAOS Leadership Review Group, chaired by Dr. Maloney, who is joined by Drs. Halsey and Teuscher, and me, reviews key programs with the help of staff on an ongoing basis. There is a continual need to prune ineffective or outdated programs and projects so that the AAOS can fund higher-priority activities. Over the past 8 years, these efforts have reduced or eliminated 43 activities, resulting in net savings of almost $2.5 million annually.

These savings, coupled with other efforts to reduce costs and enhance revenue, have enabled the AAOS to add more than a dozen major new programs over time —such as the Professional Compliance Program, guidelines/appropriate use criteria/performance measures, and orthopaedic research funding. Combined spending on these relatively new activities now exceeds $21 million.

Challenges ahead
We continue to be involved in several legal actions related to the Professional Compliance Program, and although we have received recent favorable court decisions, it is likely that we will see more litigation in the near future. Your Board remains committed to vigorously defending this program as well as to funding new programs, such as quality and technology initiatives, which are vital to our future. To do so, the Board is committed to reducing spending where appropriate and raising revenue where possible.

Even with these steps, however, our Long-Range Plan for 2017–2021 suggests that maintaining the financial health of the organization will represent an ongoing challenge for the Finance Committee and Board of Directors for the foreseeable future. We promise that we will maintain our diligence to ensure that we can continue to bring you the programs, products, and services that you have asked for and deserve and that make the AAOS the gold standard for medical associations.

Conclusion
As I complete my first year as Treasurer, I want to thank you for having given me the opportunity to serve in this role. I would also like to extend my thanks to Dr. Williams and my fellow Board members who work tirelessly on behalf of all of us, especially in these challenging times. I offer a special thanks to the Academy's talented executive and financial staff, particularly Rich Stewart and Tina Slager, for their efforts in managing the AAOS finances on a day-to-day basis.

If I can be of assistance to any fellow or member of the Academy, please contact me through the Academy offices.

M. Bradford Henley, MD, MBA, is the current treasurer of the AAOS.