Financial woes are at the heart of the NRA’s tumult

The National Rifle Association’s 2019 annual convention in Indianapolis drew around 80,000 gun enthusiasts, an arsenal of firearm-accessory vendors and appearances by President Donald Trump and Vice President Mike Pence. It also produced an unusual display of disunity at the top.

The NRA’s now-former President Col. Oliver North lost his job after accusing Wayne LaPierre, the gun group’s long-serving CEO, of financial improprieties. LaPierre countered by accusing North of extortion. The New York attorney general’s office is now investigating the NRA’s finances.

The increasingly complicated and public drama may seem to have come out of nowhere. But it’s actually a culmination of years of financial problems.

As an accounting scholar who researches nonprofit finances, I have seen the crisis at the NRA slowly unfold in its tax filings. From my perspective, some key financial red flags underlie the NRA’s current struggles.

A pattern of deficit spending

At the end of 2017, the assets that the NRA had available to use at its discretion were actually negative, to the tune of US$31.8 million, according to the paperwork they filed with the IRS.

This deep hole came about from years of spending more than they brought in.

Like most accounting experts, I would say that the logical and most responsible reaction to stagnant revenues is to curb spending. But the NRA – whose reputation relies in part on its display of size and strength – found such thrift difficult. While the gun group’s revenue grew only about 0.7% a year over the past decade, NRA expenses grew by an average of 6.4% a year.

And although the organization has historically seen ebbs and flows in its finances, deficit spending has become routine.

Borrowing from unlikely sources

The NRA has been borrowing money to make ends meet amid this deficit spending. Having nearly maxed out its conventional lines of borrowing through banks, it’s also been borrowing from those closer to it.

For example, it has aggressively pushed members to pay upfront for multi-year memberships, effectively borrowing from its member ranks. This strategy comes at a cost, however, by closing off those member dues as sources of future cash. At the end of 2017, the NRA’s obligations to members exceeded $30 million.

It also owes its current and future retirees money – after leaving its pension plan underfunded by $49.7 million in 2017. Reports that it has cut back on those promises by freezing its pension plan point to further resource strain.

Perhaps most striking is the NRA’s stopgap borrowing from its own affiliated charity, the NRA Foundation. Charity spending rules do not allow affiliated charities to simply give the NRA money to cover any expenses, but they can lend it funds. This is precisely what the gun group did in 2017, by borrowing $5 million from its affiliated foundation as a short-term loan that was then extended.

An additional $18.8 million of grants from the charity – representing over 40% of the foundation’s budget – demonstrate the group’s heavy reliance on its affiliate. Since charity rules strictly govern how such funds can be used, the New York attorney general’s office probe will surely scrutinize these cash transfers.