THE DONALD R. WATSON FOUNDATION, INC.

Transcription

1 (A Component Unit of the University of North Carolina at Wilmington) FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 AND 2016

2 Table of Contents Page No. Independent Auditor's Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities and Changes in Net Assets 3-4 Statements of Cash Flows 5 Notes to Financial Statements. 6-11

3 Greensboro, NC Raleigh, NC Winston-Salem, NC Certified Public Accountants and Advisors Since 1947 Independent Auditor's Report To the Board of Directors The Donald R. Watson Foundation, Inc. Wilmington, North Carolina We have audited the accompanying financial statements of The Donald R. Watson Foundation, Inc. (the "Foundation") (a North Carolina nonprofit corporation), which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Foundation's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Donald R. Watson Foundation, Inc. as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Greensboro, North Carolina September 5, 2017 Page 1

4 Statements of Financial Position June 30, 2017 and 2016 Assets Cash and cash equivalents $ 13,432 $ 19,510 Investments, net 1,513,014 1,428,930 Total Assets $ 1,526,446 $ 1,448,440 Net Assets Net Assets: Temporarily restricted $ 526,650 $ 448,644 Permanently restricted 999, ,796 Total Net Assets $ 1,526,446 $ 1,448,440 See Notes to Financial Statements Page 2

5 Statement of Activities and Changes in Net Assets Year Ended June 30, 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Interest and dividends $ - $ 77,977 $ - $ 77,977 Realized gain on investments Unrealized gain on investments - 91,033-91,033 Miscellaneous other support 1, ,852 Total revenues, gains and other support 1, , ,050 Net assets released from restrictions 91,239 (91,239) - - Total revenues, gains, other support and net assets released from restrictions 93,044 78, ,050 Expenses: Program services: Scholarships 60, ,081 Contributions 15, ,020 Total program services 75, ,101 Supporting services: Management and general 17, ,943 Total supporting services 17, ,943 Total expenses 93, ,044 Changes in net assets - 78,006-78,006 Net assets, beginning of year - 448, ,796 1,448,440 Net assets, end of year $ - $ 526,650 $ 999,796 $ 1,526,446 See Notes to Financial Statements Page 3

6 Statement of Activities and Changes in Net Assets Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Interest and dividends $ - $ 83,101 $ - $ 83,101 Realized gain on investments - 9,334-9,334 Unrealized loss on investments - (95,336) - (95,336) Miscellaneous other support 1, ,596 Total revenues, gains and other support 1,596 (2,901) - (1,305) Net assets released from restrictions 89,217 (89,217) - - Total revenues, gains, other support and net assets released from restrictions 90,813 (92,118) - (1,305) Expenses: Program services: Scholarships 58, ,684 Contributions 14, ,671 Total program services 73, ,355 Supporting services: Management and general 17, ,458 Total supporting services 17, ,458 Total expenses 90, ,813 Changes in net assets - (92,118) - (92,118) Net assets, beginning of year - 540, ,796 1,540,558 Net assets, end of year $ - $ 448,644 $ 999,796 $ 1,448,440 See Notes to Financial Statements Page 4

7 Statements of Cash Flows Years Ended June 30, 2016 and Cash flows from operating activities: Changes in net assets $ 78,006 $ (92,118) Adjustments to reconcile changes in net assets to net cash used in operating activities: Net realized gains on investments (91,221) (9,334) Net unrealized (gains) losses on investments (77,828) 95,336 Donated services income (1,805) (1,596) Donated services expense 1,805 1,596 Net cash used in operating activities (91,043) (6,116) Cash flows from investing activities: Proceeds from the sales or maturities of investments 120,268 83,191 Purchase of investments (35,303) (82,914) Net cash provided by investing activities 84, Net decrease in cash and cash equivalents (6,078) (5,839) Cash and cash equivalents, beginning 19,510 25,349 Cash and cash equivalents, ending $ 13,432 $ 19,510 See Notes to Financial Statements Page 5

8 Notes to Financial Statements NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Donald R. Watson Foundation, Inc. (the "Foundation"), was organized on February 23, 1994 as a North Carolina non-profit corporation whose purpose is to support charitable, religious, scientific and educational institutions located in the State of North Carolina provided that each supported organization is tax exempt and eligible to receive charitable donations. The organizations supported by the Foundation are the University of North Carolina at Wilmington (emphasis on merit scholarships), Duke University (emphasis on medical research), and St. John's Episcopal Church in Wilmington, NC. Funding may be provided for other similar educational, medical research, religious or charitable organizations at the discretion of the Board of Directors. The Foundation is entirely funded by earnings on the endowment funds of $999,796 that were donated at the inception of the Foundation. Although legally separate from the University of North Carolina at Wilmington (the "University"), the Foundation is considered a component unit of the University because the University's governing board appoints a majority of the Foundation's Board of Directors. Therefore, the Foundation s financial statements are blended with those of the University. A summary of the Foundation's significant accounting policies follows: Basis of Accounting The Foundation uses the accrual basis of accounting; therefore, revenues are recognized when earned and expenses are recognized when incurred. This basis of accounting conforms to accounting principles generally accepted in the United States of America. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in Accounting Standards Codification (ASC) Topic , Not-for-profit Entities - Presentation of Financial Statements. Under ASC Topic , the Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Net assets are defined as follows: Unrestricted - Unrestricted net assets include resources which are available for the support of the Foundation's operating activities. Temporarily restricted - Temporarily restricted net assets include resources that have been donated to the Foundation subject to restrictions as defined by the donor. Temporarily restricted net assets are available to be used for contributions to the supported organizations and to meet operating expenses of the Foundation. Permanently restricted - Net assets subject to donor-imposed stipulations or interpretation of applicable law that they be maintained permanently by the Foundation. Generally, the donors of these assets or applicable law permit the Foundation to use the income earned on any related investments for specific purposes. Page 6

9 Notes to Financial Statements NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition The Foundation follows ASC Topic , Revenue Recognition. In accordance with ASC , contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donorrestricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. Income Tax Status The Foundation is a not-for-profit organization that is exempt from income taxes from activities directly related to its exempt purpose under Section 501(c)(3) of the Internal Revenue Code. The Foundation has also been classified as an entity that is not a private foundation within the meaning of Section 509(a) and qualifies for deductible contributions as provided in Section 170(b)(1)(A)(iv). It is the Foundation's policy to evaluate all tax positions to identify any that may be considered uncertain. All identified material tax positions are assessed and measured by a more-likely-than-not threshold to determine if the tax position is uncertain and what, if any, the effect of the uncertain tax position may have on the financial statements. No material uncertain tax positions were identified for 2017 or Cash and Cash Equivalents For purposes of reporting cash flows, the Foundation considers cash and cash equivalents to include cash on hand, amounts held by banks, certificates of deposit with a maturity date of six months or less, and investments in shares of money market funds. Investments The Foundation reports marketable securities in accordance with Financial Accounting Standards Board ASC Topic , Not-for-Profit Entities - Investments - Debt and Equity Securities. ASC requires investments in equity securities with readily determinable fair values and all investments in debt securities to be measured at fair value at the statement of financial position date. The fair value of the Foundation's investments is disclosed in Note 3 - Fair Value Measurements. Gains and losses on investments are reported in the statements of activities and changes in net assets as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations. The Foundation reports gains and losses on investments restricted for scholarships and grants in the statements of activities and changes in net assets as increases or decreases in temporarily restricted net assets. The stated fair value of investments at June 30, 2017 and 2016 was $1,513,014 and $1,428,930, respectively. Page 7

10 Notes to Financial Statements NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Contributions Contributions are recognized as revenues in the period received. Contributions of assets other than cash are recorded at their estimated fair value at the date of the gift. Subsequent Events Management has evaluated events and transactions for potential recognition or disclosure through September 5, 2017, which is the date the financial statements were available to be issued. NOTE 2 - CONCENTRATION OF CREDIT RISK Cash is on deposit with the North Carolina State Treasurer and is pooled with state agencies and similar institutions in the State Treasurer's short-term investment fund (STIF). These monies are invested in accordance with G.S and as required by law are "readily convertible into cash". All investments of the fund are held either by the Department of State Treasurer or its agent in the State's name. Any cash not invested by the fund is either covered by the Federal Deposit Insurance Corporation or, pursuant to 20 NCAC 7, is collateralized to secure all deposits in excess of the federal depository insurance coverage of $250,000. Money market funds held by brokerage firms are secured by the Securities Investor Protection Corporation ("SIPC"). The SIPC insures the assets held in member institutions up to $500,000 (including $250,000 for cash). The brokerage firm also insures its accounts with an additional insurance policy for coverage beyond the SIPC limits. This additional insurance covers any losses above the SIPC limit up to a firm aggregate limit of $1 billion (including $1.9 million for cash per client). NOTE 3 - FAIR VALUE MEASUREMENTS Investments are recorded at fair value as required by FASB ASC , Fair Value Measurements and Disclosures. ASC provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). Page 8

11 Notes to Financial Statements NOTE 3 - FAIR VALUE MEASUREMENTS (Continued) The three levels of the fair value hierarchy are described below: Level 1 - Quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 - Level 3 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or Unobservable inputs that are supported by little or no market activity and that reflect the Foundation's own assumptions about market participants prices. The following table sets forth by level, within the fair value hierarchy, the Foundation's investments at fair value as of June 30, 2017 and 2016: Fair Value Measurements at June 30, 2017 Total Fair Value Level 1 Level 2 Level 3 Cash and cash equivalents $ 591 $ 591 $ - $ - Mutual funds: International funds 458, , Commodity funds 23,001 23, Real estate funds 59,019 59, Equity funds 574, , Fixed income funds: Bond funds 397, , Total $ 1,513,014 $ 1,513,014 $ - $ - Fair Value Measurements at June 30, 2016 Total Fair Value Level 1 Level 2 Level 3 Mutual funds: International funds $ 429,373 $ 429,373 $ - $ - Commodity funds 24,787 24, Real estate funds 60,179 60, Equity funds 505, , Fixed income funds: Bond funds 409, , Total $ 1,428,930 $ 1,428,930 $ - $ - At June 30, 2017 and 2016, the net unrealized gains and market values of investments were as follows: Aggregate fair value $ 1,513,014 $ 1,428,930 Aggregate amortized cost 1,384,266 1,391,215 Net unrealized gain $ 128,748 $ 37,715 Page 9

12 Notes to Financial Statements NOTE 3 - FAIR VALUE MEASUREMENTS (Continued) For the years ended June 30, 2017 and 2016, the change in investments carried at market value was a net unrealized gain of $91,033 and a net unrealized loss of $95,336, respectively. For the years ended June 30, 2017 and 2016, brokerage fees included in management and general expenses were $9,863 and $9,836, respectively. NOTE 4 - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for scholarships and related management and general expenses of the Foundation. Temporarily restricted net assets of $526,650 and $448,644 were available at June 30, 2017 and 2016, respectively. NOTE 5 - ENDOWMENT FUND The Foundation's endowment consists of one fund established to provide contributions to the University of North Carolina at Wilmington (emphasis on merit scholarships), Duke University (emphasis on medical research), and St. John's Episcopal Church. Funding may be provided for other similar educational, medical research, religious, or charitable organizations at the discretion of the Board of Directors. As required by generally accepted accounting principles, net assets associated with the endowment fund are classified and reported based on the existence or absence of donor restrictions. The Foundation's Board of Directors interprets the North Carolina enacted version of the Uniform Prudent Management of Institutional Funds Act ("NCUPMIFA") as requiring the presentation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. They classify as permanently restricted net assets the original value of the gift donated to the permanent endowment, including any subsequent gifts and any accumulations to donor-restricted endowments made in accordance with the direction of applicable gift instruments. The remaining portion of the endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated by the Foundation in a manner consistent with standard of prudence prescribed by NCUPMIFA. The Foundation considers the following when making determination to appropriate endowment funds: Duration and preservation of the endowment fund. The purpose of the Foundation and the endowment fund. General economic conditions. Possible effect of inflation or deflation. Expected total return from the investment activity. Other resources of the nonprofit. The Foundation's investment policy. Page 10

13 Notes to Financial Statements NOTE 5 - ENDOWMENT FUND (Continued) The Foundation's investment policy calls for a well diversified mix of investments consisting of approximately 70% equity and 30% debt securities. The Foundation's spending policy calculates the average market value of the investment fund as of September 30 for the preceding five years and appropriates a 5% spending amount to be distributed as follows: 80% to the University of North Carolina at Wilmington, 10% to Duke University (for emphasis on medical research), and 10% to St. John's Episcopal Church. The Board reviews and votes on the proposed distribution at the annual meeting in December. During the years ended June 30, 2017 and 2016, the Board voted to award a total of $75,101 and $73,355, respectively, from the temporarily restricted fund for scholarships and contributions. The following schedule summarizes the endowment fund activity: Permanently Restricted Temporarily Restricted Investments Investments Cash Total Balance, June 30, 2015 $ 999,796 $ 510,820 $ 29,942 $ 1,540,558 Interest and other income, gross - 82, ,101 Realized and unrealized losses - (86,002) - (86,002) Released from restrictions - (78,598) (10,619) (89,217) Balance, June 30, , ,134 19,510 1,448,440 Interest and other income, gross - 77, ,025 Realized and unrealized losses - 91,220-91,220 Released from restrictions - (84,964) (6,275) (91,239) Balance, June 30, 2017 $ 999,796 $ 513,218 $ 13,432 $ 1,526,446 NOTE 6 - RELATED PARTY TRANSACTIONS The University of North Carolina at Wilmington (the "University") is affiliated with The Donald R. Watson Foundation, Inc. During the years ended June 30, 2017 and 2016, the University provided facilities and support staff to the Foundation without charge. During the years ended June 30, 2017 and 2016, revenues and expense of $1,805 and $1,596, respectively, were recorded for these donated services. The following schedule summarizes the Foundation's expenses associated with related party scholarships for the years ended June 30, 2017 and 2016: Scholarships $ 60,081 $ 58,684 Page 11

14 Time and Costs for the Audit Year Ended June 30, 2016 The Donald R. Watson Foundation, Inc.'s audit was conducted in approximately 40 hours at a total cost of $6,000.