Monthly Archives: December 2013

The AUS job- Part 8

Now we get to what for me was the most interesting (and strategic) part of my mandate. While taxes were being filed, and frosh reports were being made, I had to come up with a game plan to make sure the AUS did not ever find itself in the same position again, with regards to both taxes and annual audits. Like I’ve said before, the biggest hurdle to getting the audits and taxes done were the externalized departments.

AUS Wars Episode I: The Phantom (financial) Menace

Externalized departments had autonomy without any real responsibility. If they issued a cheque without any receipts to back it up, it would be the AUS’s problem to deal with. Also, problems with record-keeping were usually discovered near the end of the year, at which point it was too late to penalize.

There were two immediate solutions available- either reduce the autonomy they had or to increase their level of responsibility. The first required internalizing their bank account, which meant closing down their bank accounts and moving their funds to the AUS account. The second required the departments getting accredited and becoming completely autonomous of the AUS. In this case, they would need to complete their own audits and file their own taxes.

AUS Wars Episode II: Attack of The (McGill Admin) Clones

In our discussions with the Deputy Provost, the McGill admin did not appear too keen on the second option, as the more ‘radical’ departments were the ones seeking accreditation. Getting legally accredited would allow them to hold strike votes in case of a student protest movement, as they had wanted to do in the previous year against the raise in tuition proposed by the Quebec government. There were only a couple of departments interested in this, and I was all for helping them seek accreditation, if that’s what they wanted.

AUS Wars Episode III: Revenge of The (PSSA) Sith

I had to use whatever tools and leverage I had to get the restructuring implemented as quickly and with as little controversy as possible. I set up separate meeting with the Presidents and VP Finances of each of the affected departments, to break the idea of internalization vs externalization to them. As expected, the smaller and less radical of the departments were willing to internalize with very little contention. This got four of the eight external departments out of the way. Out of the bigger departments, both the ESA and DESA were willing to go along with internalization and the PSA wanted to get accredited. This then left only the PSSA, the biggest department in the Faculty of Arts, wanting to keep things as they were.

The PSSA president said it was duplicitous of me to meet with the departments one-on-one, instead of all together. This, of course, was exactly the point. Meeting one-on-one gave me more leverage. She then asked for a list of the affected departments and set out to arrange a meeting for the departments to discuss the restructuring imitative independently of the AUS. Out of the eight departments affected, only four showed up to the meeting: PSSA, ESA, PSA and DESA. The others had already made their decisions and were committed to them- all except for the ASA, which would wake up a few months down the line and realize it didn’t want to internalize after all.

AUS Wars Episode IV: Return of the (ESA) Jedi

I wasn’t invited to this meeting, so the departments drew up a list of questions to send me by email. Out of the four that attended, the ESA was still okay with internalization, the PSA still wanted accreditation, but DESA now seemed to be on the fence. I was in close contact with the ESA during all this, as I had been in the ESA the year before and knew the President fairly well. They kept me in touch with what was going on throughout.

AUS Wars Episode V: The (AUS) Empire Strikes Back

To be sure, the PSSA had legitimate concerns; it was just that something had to give for the AUS to be financially responsible again. The PSSA started reaching out to the media and other organizations on campus, to see if any other ideas could be brought to the table. I kept up communication with DESA, ESA, and PSA throughout the intervening time-period, to keep them up to date and to get a firm answer from them regarding their position as I wanted the restructuring to be completed as soon as possible. Firm answers form them would’ve also meant less support for the PSSA’s position to keep things as they were.

AUS Wars Episode VI: A New Hope

At this point, I had come up with and discussed a possible third solution with our accountants, who after much convincing, said it was workable. I set up a final meeting, and got the assembled departments together, and let them know that there was an alternative available. Everyone immediately accepted it as the best option, something which allowed the AUS to track departmental finances while allowing the departments to continue operating their bank accounts.

The PSA still wanted to seek accreditation, but everyone else was satisfied with what I had proposed. The departments would now have to input all their revenues and expenses on our accounting software before being allowed to conduct any transactions. They would still be responsible for the paperwork, but the idea was this would help keep their paperwork organized and help identify where mistakes had been made. This was also exactly how the AUS retail store, SNAX, functioned.

Throughout this process, I had to manage keeping the departments happy and keeping the media from blowing this up into a big political debate while accomplishing what I wanted for the AUS.

In the next post, I will go over what I had wanted done with the third option- what my ideal outcome would have been.

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The AUS job- Part 7

Before I go into the AUS restructuring that took place in my year, let me talk a little bit about some of the other things I was doing at the same time.

Frosh or nothing

Over the summer, one of the biggest challenges faced by the incoming executive each year is organizing Frosh. Although it is chiefly the VP Events responsibility, any other exec who are staying behind in the summer are supposed to help out too. The VP Events, along with the Frosh co-ordinators, work on everything from the logistics to sponsorship and communication over the summer to make sure that incoming freshmen have a safe and memorable start to their college years. Frosh also sets the mark for how the new AUS executive will be seen for the rest of the year- get it wrong and you spend the year under its shadow, get it right and it lends credibility to the competence of your executive team.

A good frosh is a safe frosh

It is very important to emphasise the word ‘safe’ here. Safety was our primary concern when organizing Frosh. Frosh usually involves a lot of alcohol consumption for people who may never have had alcohol before, and so managing people who do not yet know their limits and are in a new city is of the utmost importance. We were also trying to shift the culture of Frosh from being alcohol-centric to more about getting to know Montreal and meeting new people in a comfortable environment, but such change takes time.

Frosh and finance usually don’t go well together

As VP Finance, I was responsible for providing financial planning and support and for approving the Frosh budget. I also helped out with getting sponsorships, but the majority of that work was handled by the Frosh sponsorship coordinators. Financially, AUS frosh had seen many controversies over the previous few years, with the theft of $12,000 in 2011-12 and a $35,000 loss in 2009-10, so I had to make sure that frosh finances were completely airtight in my year.

Stress test

The one week period before the start of frosh was incredibly stressful. For the last three days of registration, I had difficulty sleeping as we were looking at $40,000 dollar loss if registrations had not picked up significantly. I also had to deal with constantly thinking about the thousands of dollars flowing from the registration table to the AUS office being lost to theft, as had happened in the year before. When registration ended and I deposited all our frosh funds at the bank, then only could I relax a little.

I still had to go through frosh itself, making sure that everything was running smoothly and helping out where possible. Beach day was terrible, as it almost always is, with no organization for the bus lineup and thousands of students waiting to go back home. Beach day is organized by SSMU so the onus was on them, however we inevitably ended up helping organize the departure along with some MUS coordinators and the SSMU president.

Early taste of success

AUS frosh our year was considered an overall success. The few problems we did have were mostly things completely out of our control, and the response and level-headedness shown by the frosh coordinators was all we could have asked for. The hats we provided with the Frosh kits were a brilliant idea, and have since become almost a cultural phenomenon in the college-student demographic in Montreal. Overall, frosh our year was a resounding success, people loved the hats, the boat cruise was re-introduced, and we had alternative all-age events for every single night.

Financially speaking, frosh turned out to be incredibly successful too, much to my surprise. I had been expecting a small profit of $3000 to $5000, but after all the revenue had come in and all payments had been made, we ended up with a net profit of $17,000. This was a nice break from years past, where frosh had always marked the start of a financially turbulent year for the AUS. So not only were we able to provide a great experience to incoming Arts freshmen, we also managed to make a nice profit out of it for the AUS.

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The AUS job- Part 6

Tax Filings

With our student fees released, I could finally pay back the multitudes of people we owed money to. This took much more time than I had anticipated. I was then able to turn my attention towards getting those of our funds frozen by Revenu Quebec released.

This required getting up-to-date on all our tax filings, as the AUS had been tax-delinquent since 2008. Although most of the important filings had been done already, there were a few which were holding us back, mostly involving the small retail operation the AUS runs called SNAX.

These tax filings were taken care of by our accountants, and I was relegated to a support role which required digging up old documents and trying to re-construct missing financial history. This article goes into a bit of the history which led to our funds being frozen by the Quebec government. I was interviewed for this right around the time we had made our final submission to Revenu Quebec and were expecting our funds to be released in 30-60 days.

This article is a follow-up to the previous one. The exact amount held back by Revenu Quebec was indeterminate and depended on how much they assessed the AUS owed in charges for delinquency and the like. I was expecting we would get back $100,000 but we ended up receiving $114,000. This amount was immediately transferred to our savings account, which had been hurting over the last few years (as discussed in the articles).

Getting our student fees released and finally being up-to-date on our tax filings were immensely important. Failure in either of these would probably have meant the AUS filing for bankruptcy. It may seem negligent for an organization to get to the point where it has to cover years of ground in financial reporting over a few months, but understanding what caused the AUS to come so close to bankruptcy was critical in making sure this didn’t happen again.

To prevent the AUS going down the same path in the future, it was clear the AUS needed to be restructured, at least as the very first step. I will cover this restructuring in the next post.

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Back from finals!

I haven’t posted anything for the last few weeks as I was busy with finals. Now that I’m (almost) done, I will have a lot more time on hand to do (and read!) interesting things which I can then write about.

This semester was my last at McGill and it feels a bit strange to think that I’m done with my undergrad. As I hadn’t done any elective courses over the previous three years, I had completed all my degree requirements but still had a few credits left over to do with as I pleased. I picked a few upper-year courses in Philosophy and Computer Science, and although I probably should’ve picked courses which would have been better for my GPA, I couldn’t turn these courses down.

Algorithm Design 

The COMP course on algorithm design I have done this semester has been the most interesting computer science course I have done so far. It dealt with graph theory, network flows, and dynamic programming. To illustrate, here is a sample problem on network flows:

As a response to natural disasters, we want an algorithm to assign ‘n’ injured people to k hospitals. There is an unlimited supply of ambulances, but everybody should be transported to a hospital within a 30 minute drive of their current location. Finally, in order to balance the load, every hospital should  receive at most ‘n/k’ people. Describe a polynomial time algorithm to accept as input an ‘nxk’ array of driving times which will decide if a balanced assignment of people to hospitals is possible, and provide an assignment of each patient to each hospital.

Network flow solutions and algorithms find particular application in matching problems (as the one above), so I’m thinking one application could be in Auction Theory or perhaps in market micro-structure design. I will have to read more into both these categories to see if and how network flow algorithms are applied. I also read a paper a while back which used network flow analysis to determine the spread of a liquidity crunch across financial institutions. Interesting stuff.

Dynamic Programming

Dynamic programming was, for me, the most difficult to get my head around. Both network flow and dynamic programming problems remind me of the types of problems you would see in a math puzzle book, just made more formalized and mathematical. As an example, here is a dynamic programming problem:

“Consider a 2-D map with a horizontal river passing through its center. There are ‘n’ cities on the southern bank with x-coordinates a(1) … a(n) and ‘n’ cities on the northern bank with x-coordinates b(1) … b(n). You want to connect as many north-south pairs of cities as possible with bridges such that no two bridges cross. When connecting cities, you can only connect city ‘i’ on the northern bank to city ‘i’ on the southern bank. Write an algorithm which gives the best possible pairs of cities to connect such that no bridges overlap.

The problems associated with both network flows and dynamic programming look deceptively simple. Once you start working on them you realize their complexity and after you have been working on them for a while, they become simple again. You begin to reduce new problems you encounter to old ones you’ve already seen and structure their solutions accordingly. For example, the one above can be reduced to something called the ‘Longest Integer Sequence’ problem and the solution can be obtained fairly easily after that.

Applications

Applications in finance? Glad you asked!

The key fact about dynamic programming is that it provides global solutions (as opposed to local solutions) for multi-variable decision making problems. This means that, unlike greedy algorithms, it doesn’t get stuck in local maximums. Thus we can be reasonably certain that the solution we obtain is the ‘best’ one.

One interesting paper I found is this one from Cornell, which explains the use of dynamic programming for portfolio optimization where the drift in market prices from state to state is modeled by an unobserved Markov chain. Information on the state of the Markov chain is obtained by both stock prices and signals at random discrete time points (which model ‘expert opinion’ in the market). These signals model expert opinion by helping gauge what the stock price will be by revealing the state of the Markov chain. Using dynamic programming, we can determine an optimal portfolio allocation under these conditions.

This is another paper from the International Journal of Business and Management .The problem here is kind of a simplified version of the one above. We basically have many asset classes with known returns across a known time period. Our problem is to determine the optimal allocations across the different time periods. This is more of a backward-facing problem and a purely theoretical exercise but useful nonetheless in understanding how dynamic programming could be applied to asset allocation.

I also found these slides very useful in understanding the application of dynamic programming to asset allocation, minimization of execution costs, and option pricing.

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