Discussion on Financial Operations - Non-U.S. Conferences

NPSS Advisory Committee Meeting1 March 2014

S. StilesC. KrajcsikT. Lynch

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Purpose of Presentation

Discussion of International Banking– Where IEEE is in setting international banking for conferences

– Gather NPSS thoughts on how IEEE should proceed

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Agenda

Introduction

Credit Card Processing / Registration Systems

Concentration Banking & Merchant Account Lending Program

Integrated System Concept– Local Currency CB/MALP

– Local Currency CB

Foreign Exchange Exposure

Tax / Legal / Accounting / IT / Bank Partner(s)

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Introduction

Sponsors / co-sponsors of conferences outside the U.S. face decisions / challenges when thinking about the financial services/ arrangements they will require for their conference.

Registration:– Collect in local currency, or US dollars?

– If registration is collected in local currency, a local currency bank account will be required…how do you open one?

– Can IEEE’s local Geo Units or in-country co-sponsors provide banking services?

– How does IEEE’s current banking services / platform work when collecting registration in US dollar vs. local currency?

FX Exposure: if collection is in US dollars, how can impact be minimized?

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Credit Card Processing / Registration Systems

Collecting advance registration payments from conference attendees is largely done on-line through web-based systems.

Generally conferences have a strong desire for their registration system to integrate seamlessly into the conference’s bank account.

The Conference Treasurer has to reconcile the registration revenue collected via credit card to the receipts in the conference’s bank account….unless delegated to a service provider / event management company.

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IEEE’s Concentration Banking / Merchant Account Lending Program

Has been available since January 2013

Currently available to any conference processing in US dollars, however it requires a Concentration Banking (CB) account.

Conference is given a unique ID number from IEEE Treasury that “plugs into” the conference’s registration system…this ensures the transaction activity is properly identified & credited.

Gross deposits are made daily into the Conferences CB account

– One deposit for MasterCard/Visa/Discover receipts

– A separate deposit for AMEX receipts

Flat 2.9% is charged on all deposits…this is what IEEE pays to its credit card processor; there are no other usage fees.

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MALP - Process Map

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Sample CB statement with MALP

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IEEE’s Concentration Banking / Merchant Account Lending Program

But how does the Conference make payments in local currency when it is required to do so?

For smaller (<$5K per transaction) payments, the Conference can use a CB Card (MasterCard) that draws against the Conference’s CB account...for larger obligations (i.e. final hotel bill…arguably the largest exposure), the Conference can direct IEEE to make payment via wire transfer in the local currency at the current exchange rate.

Yes, the currency exchange rate could have (most likely) fluctuated since the hotel obligation was incurred. In this arrangement the Conference would enjoy the financial benefit if the exchange rate moved in IEEE’s favor, and suffer the financial impact (i.e. need more US dollars from its CB account if it moved against IEEE).

There are approximately 185 Conferences currently utilizing this approach.

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Banking considerations Local Currency CB / MALPConference Operating requirements

Deposits

– Local branch services (deposits/cash deposit/withdrawals)

– Electronic funds transfer

*Assumes no check deposits

Payments

– Online/Electronic access for electronic funds transfer

– CB Card- credit card payments

*Assumes no check deposits

Online access to account activity/statements

Data file transmission of all activity

Utilize HOP/MID/TID model for breakdown/tracking of all individual conference activity

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Banking considerationsLocal Currency CB / MALPIEEE Operating requirements

Need to determine the legal entity under which to open the account

– Account could potentially be opened under one of IEEE’s for profit companies

Country in which the account is opened

– Euro has multiple countries available for bank account

– Is local bank in each country required?

Tax considerations

– For profit or not for profit

– VAT

Accounting considerations

– FX Exposure

– Conference closing process

IT support

– Need IT to create infrastructure for non US CB accounts

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Local Currency CB / MALP

Similar to what exists today for processing in USD

– Credit card receipts process seamlessly in CB account

Receipts

– Collection of fees for attendance, sponsorship and vendor fees to conferences

– Funding for Loans

– VAT refunds

Disbursements

– Payments to hotels and other third parties for conference venue and food and services

– Payments to speakers at meetings/conferences

– Payments to volunteers to reimburse for expenses for travel, etc.

– VAT payments(electronic transfer)

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Local Currency CB Account/MALP

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Local Currency CB Account

An account would be opened to allow conferences to make payments in local currency– Provides ability to make payments in local currency...locally with a

CB card or wire transfer through IEEE Treasury

There is no integrated merchant processing associated with this scenario– Merchant account could be in USD and receipts deposited into a

USD CB account.

– If third party provided a merchant account, registration could be deposited into the local currency account

– Accounting and reporting process would need to be developed and supported

– Funding for local account would be made from USD account on an aggregate basis.

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Local Currency CB

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Foreign Exchange considerations

Is it absolutely necessary to operate in local currency?– Can registrations be collected in USD?

– Can vendors be paid in US dollars or with a CB Card?

When is local currency needed?– To make deposits (e.g. hotel)?

– On site to handle walk in registration?

– At end for final vendor payments?

Will there be another IEEE conference in this country (i.e. currency) in the next few years?– Most likely yes in some cases…the current surplus could be used

as seed money for other conference(s).

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Registration Fee considerations

Where is the majority of the attendees coming from?– If the majority of the attendees is from the US, then why not

collect registrations in US dollars?

– When a conference states the registration fee in local currency, an attendee coming from US will most likely incur a FX conversion fee when his / her credit card company processes the transaction.

– Similarly….any attendee who pays the registration fee via credit card denominated in a currency other than the one in which the conference’s fee is based, will most likely have to pay an FX conversion, or exchange fee, on the transaction.

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Comm Soc

Registrations are collected in US dollars into the conference’s USD CB account using MALP and MCM.

Vendor payments are made from the CB account in either US dollars or local currency, depending on how the contract is written.

Exhibitor and grant payments may be in local currency– This gives conference ‘seed money’ for payments that must be

made in local currency into a local account

– These local accounts are typically the local section or chapter account

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Hypothetical Conference Cash Flow

US ($000’s)Year 1 Year 2 Year 3 Total

ReceiptsConference Loan $50 $0 $0 $50Attendee registration $0 $100 $100Exhibit registration $0 $75 $25 $100Total $50 $75 $125 $250

PaymentsHotel Deposit $50 $0 $0 $50Hotel final payment $0 $0 $100 $100Food deposit $0 $25 $0 $25Loan repayment $50 $50Misc. local obligations $0 $0 $15 $15Total $50 $25 $165 $240

Net $10

This could be $110 or $90

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VAT and other tax considerations

Collecting registrations in USD in the US via MALP won’t preclude a conference from VAT or indirect tax

Working with a local non-profit in country may reduce VAT for a conference if the local non-profit is willing to handle the VAT compliance on the conference’s behalf– Arranged via MOU with IEEE International LLC

– Conference responsible for finding a University or other non-profit partner

If a VAT exempt entity assumes the compliance role for the conference, VAT on revenue will not need to be charged and paid but VAT on expenses will still need to be paid and not recovered

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Take aways

We appreciate this opportunity to strategize as we need to understand the user requirements as we develop a program

Need to develop country profiles– One size doesn’t fit all

Banking/tax/registration requirements are different per country

We are in discussion with several banking/processing partners about possible solutions for processing outside the U.S.