Ensuring Financial Security in Times of Emergency

As we move about our daily lives in at Singapore American School (SAS), we are fortunate to feel quite safe and secure. Recent events in Ukraine, however, remind us that we cannot take this stability for granted. Unexpected political, financial, or natural problems can happen anywhere, and the school must be ready to respond to them.

Over the past several years, Singapore American School has undertaken risk-assessment initiatives to better ensure our financial stability in the event of a disaster at the school, in the region, or worldwide.

Following various disruptive events faced by international schools in Egypt, Tunisia, Japan, and Indonesia, SAS felt it prudent to examine the financial implications of similar events here. We focused on three types of emergencies: a fire affecting the usability of a section of campus, a terrorist attack, and a financial downturn caused by worldwide market disruptions or by a regional event like the SARS virus of 2003.

The first two events would result in major facilities rebuilding and possible relocation of students and staff; all three events would likely result in lower student re-enrollment and perhaps a fall in the value of school reserves.

The administration identified four areas crucial to the school’s long-term financial survival and recovery in the event of a catastrophe. The first such area is our financial policies regarding tuition payments and withdrawal refunds. In 2009, the deadline for tuition payments for company-sponsored students was moved up to June 1. Previously, students were billed per semester, and closer to the start of each semester.

This change benefits the school in two ways. First, it allows us to more accurately determine which students are committed to returning, so that we can start school in August at full capacity and keep tuition increases as low as possible. Second, because most students’ fees are paid in full by this earlier deadline, it gives the school significant working capital to invest. The interest on this investment supports the school’s annual expenses and, in the event of sudden need, it would give us sufficient working capital to quickly respond to an emergency. Our tuition refund policy also helps to shield the school from financial crisis in the event of an emergency.

The second area of importance when considering a financial emergency is our insurance coverage. In response to our review, we revised our insurance policies to better support ongoing operations in case of fire or terrorism. SAS is currently insured against damage and destruction to the property, as well as against the loss of fees and extra expenses resulting from any interruption of operations. Our property and terrorism insurances would pay for the replacement cost of damaged facilities and a significant amount of lost fees and extra expenses. The extra expenses referred to could include the costs of readying an alternative facility to use on a short-term basis, and moving necessary items to it.

As a third line of defense against unforeseen emergencies, SAS maintains two lines-of-credit that can be drawn upon under a two-year repayment scheme. If our working capital were exhausted, these would be the next resources we would use to maintain the functioning of the school.

Finally, the school has accumulated and invested an amount equal to six months of operating reserves. These reserves are intended to be available to supplement or repay the lines-of-credit. It is assumed that a terrorist attack or a financial downturn could result in a decline in the reserve’s market value, so quickly liquidizing our assets, which include Singapore-specific and global investments, would be an unattractive option. This is why we would prefer to first use our lines-of-credit to cover our immediate needs.

After taking steps to define and strengthen these four areas, the administration was asked by the school board’s finance and facilities committee to evaluate the robustness of the school’s financial situation in the event of a catastrophe. Last spring we completed a model that evaluated the school’s finances for six situations considered most likely. To our pleasure, the model showed that the steps we had taken would ensure that the school could continue functioning in the short term and for three years following an event.

The SAS School Board periodically revisits our financial contingency plans, to keep them up to date and to take into account Singapore’s current security situation. We will also periodically undertake modeled “stress tests” like the one just mentioned, to make sure that we are as well protected from sudden misfortune as possible.

William Scarborough, CPA is Assistant Superintendent of Finance and Business Operations at Singapore American School.

A version of this piece originally appeared in the series “Finance at SAS,” coauthored by William Scarborough and Cara D’Avanzo as a means of providing information to parents about the financial decisions and procedures followed by the school’s administration.

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