The cash-strapped Baltimore Symphony Orchestra announced Monday that a financial audit for its last fiscal year raised doubts that the nonprofit would be able to remain in business for one more year.
The organization’s independent auditor for the fiscal year that ended on Aug. 31, 2018, concluded that "there is substantial uncertainty about the BSO’s ability to continue as a going concern,” the BSO said in a news release.
The BSO did not respond to multiple requests that it provide a full copy of the audit. On Friday, a spokesman for the accounting firm of SC&H Group, which conducted the audit, referred requests for information to the BSO.
To a non-accountant, the wording in the press release might sound tentative. But J.P. Krahel, an associate professor of accounting at Loyola University Maryland, said that the audit’s finding not only is extremely rare but “is as strident as it gets.”
Peter Kjome, the BSO’s president and CEO, wrote in an email that "going concern uncertainty is not necessarily an indication of the future of an organization ... In our view, the audit report does not make it more likely that the BSO may soon have to file for bankruptcy. "
Technically, that is correct, Krahel said. No one can predict the future and companies and nonprofits can and do retreat from the brink. But he said that outcome became less likely after the audit opinion was issued.
Krahel cited a statistic from the May 2004 issue of the CPA Journal, an accounting-focused publication, that said that 47.5% of 202 publicly traded companies that filed for bankruptcy in 2001 previously received an audit opinion that questioned whether they were a going concern.
“Imagine the doctor has given you an MRI and has seen everything that’s going on inside you and he says, ‘I’m not sure you are going to live,’ ” Krahel said. “You could live. But this is not a conversation a doctor has with a healthy patient.”
The BSO said in its news release that the auditors reached their findings "based in part upon concerns the BSO will be unable to meet its contributed revenue and earned revenue forecasts while efforts continue to reach agreement on a new collective bargaining agreement.”
In other words, it may not be able to raise enough money from donations or generate enough revenue from business.
Krahel said that the audit opinion could make it more difficult for the BSO to raise the funds necessary to bolster its $60 million operating endowment, or take out a short-term loan as it attempts to right its finances.
“If I’m a potential donor,” Krahel said, “I’m not going to give or lend money to a company that looks like it’s at death’s door.”
Brian Prechtl, co-chair of the Players Committee, said the union also has requested a copy of the audit but has not yet received it.
“Until we see the auditor’s opinion in writing, it’s hard to look at this as anything other than posturing two days before we’re back at the bargaining table,” Prechtl said.
The symphony’s 75 musicians are embroiled in a labor dispute with the orchestra’s management and have been locked out of Meyerhoff Symphony Hall since June 17. Most performers received their last paycheck for the summer three days earlier. The next contract bargaining session is scheduled for Wednesday.
The musicians oppose a management proposal to shorten the orchestra’s season from 52 weeks to 40 — accompanied by a roughly 20 percent pay cut. Kjome has said that reductions are necessary because the symphony has sustained $16 million in losses during the past decade.
The musicians have been paid for a 52-week season since 1984, and have not been on a schedule of 40-weeks since 1973, according to Michael Lisicky, an oboist for the BSO and author of the book, “The Baltimore Symphony Orchestra: A Century of Sound.”
Kjome wrote in an email that the audit’s findings don’t change management’s plans to welcome the players back to work on Sept. 9 and to pay them the wages they received under their most recent collective bargaining agreement, which expired in January.
But he said the audit opinion “makes it more clear than ever that we must ensure a sustainable business model that helps control costs while expanding revenues. It is vital that we move forward together towards a more stable future.”