Kellogg Community College Foundation. Financial Report May 31, 2017

Transcription

1 Financial Report May 31, 2017

2 Contents Report Letter 1-2 Financial Statements Balance Sheet 3 Statement of Activities and Changes in Net Assets 4 Statement of Cash Flows

3 Independent Auditor's Report To the Board of Directors Kellogg Community College Foundation We have audited the accompanying financial statements of Kellogg Community College Foundation (the "Foundation"), which comprise the balance sheet as of 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 entity 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 entity 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. 1

4 To the Board of Directors Kellogg Community College Foundation Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kellogg Community College Foundation as of and the changes in net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. October 30,

5 Balance Sheet May 31, 2017 May 31, 2016 Assets Cash equivalents $ 2,014,741 $ 1,533,930 Investments (Note 2) 7,388,768 6,849,137 Contributions receivable 55,000 10,000 Total assets $ 9,458,509 $ 8,393,067 Liabilities and Net Assets Liabilities Payable to Kellogg Community College $ 431,308 $ 461,632 Deferred revenue 4,445 - Total liabilities 435, ,632 Net Assets Unrestricted 2,406,085 2,201,156 Temporarily restricted 2,499,738 1,538,030 Permanently restricted 4,116,933 4,192,249 Total net assets 9,022,756 7,931,435 Total liabilities and net assets $ 9,458,509 $ 8,393,067 See. 3

6 Statement of Activities and Changes in Net Assets Temporarily Year Ended May 31, 2017 May 31, 2016 Permanently Temporarily Total Unrestricted Permanently Unrestricted Total Revenue, Gains, and Other Support Contributions $ 56,860 $ 175,311 $ 459,155 $ 691,326 $ 76,569 $ 143,693 $ 156,849 $ 377,111 Contributed services (Note 6) 273, , , ,709 Special event revenue 96, ,512 95, ,687 Dividends and interest 86, , , , , ,953 Net realized and unrealized gain (loss) on investments Net assets released from restrictions for grants and scholarships 289,039 (289,039) ,045 (332,045) , , ,114 (291,233) (711,702) - (1,002,935) Total revenue, gains, and other support 930, , ,155 1,832, ,682 (582,006) 156, ,525 Expenses Grants and scholarships 391, , , ,375 Management and general 178, , , ,986 Fundraising 171, , , ,739 Total expenses 741, , , ,100 Increase (Decrease) in Net Assets - Before transfers 189, , ,155 1,091,321 (219,418) (582,006) 156,849 (644,575) Donor Transfers (Note 5) 15, ,592 (534,471) - (51,733) 45,891 5,842 - Increase (Decrease) in Net Assets 204, ,708 (75,316) 1,091,321 (271,151) (536,115) 162,691 (644,575) Net Assets - Beginning of year 2,201,156 1,538,030 4,192,249 7,931,435 2,472,307 2,074,145 4,029,558 8,576,010 Net Assets - End of year $ 2,406,085 $ 2,499,738 $ 4,116,933 $ 9,022,756 $ 2,201,156 $ 1,538,030 $ 4,192,249 $ 7,931,435 See. 4

7 Statement of Cash Flows Year Ended May 31, 2017 May 31, 2016 Cash Flows from Operating Activities Increase (decrease) in net assets $ 1,091,321 $ (644,575) Adjustments to reconcile increase (decrease) in net assets to net cash from operating activities: Realized and unrealized (gains) losses on investments (460,114) 1,002,935 Contributions restricted for long-term investments (459,155) (160,097) Contribution of corporate bonds (74,063) - Changes in operating assets and liabilities which (used) provided cash: Contributions receivable (45,000) 5,000 Payable to Kellogg Community College (30,324) (126,542) Deferred revenue 4,445 - Net cash provided by operating activities 27,110 76,721 Cash Flows from Investing Activities Purchases of investments (1,142,783) (7,913,659) Proceeds from sales and maturities of investments 1,137,329 9,145,771 Net cash (used in) provided by investing activities (5,454) 1,232,112 Cash Flows from Financing Activities - Proceeds from contributions restricted for long-term investments 459, ,097 Net Increase in Cash Equivalents 480,811 1,468,930 Cash Equivalents - Beginning of year 1,533,930 65,000 Cash Equivalents - End of year $ 2,014,741 $ 1,533,930 See. 5

8 Note 1 - Nature of Business and Significant Accounting Policies Kellogg Community College Foundation (the "Foundation"), located in Battle Creek, Michigan, was formed in 1998 to solicit, collect, and invest donations made for the promotion of educational activities at, and on behalf of, Kellogg Community College (the "College"). Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting. For external financial reporting purposes, the Foundation presents its financial statements by net asset classifications. The Foundation's significant accounting policies are described below. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents - The Foundation considers all highly liquid investments purchased with a maturity date of three months or less to be cash equivalents. Contributions - Contributions, including unconditional promises to give in the future, are measured at fair value and reported as revenue when received. The fair value of unconditional promises to give in the future is based on the present value of future cash flows. Contributions with donor-imposed time or purpose restrictions are reported as restricted support. All other contributions are reported as unrestricted support. When a donor 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 statement of activities and changes in net assets as net assets released from restrictions. Investments - Investments are carried at fair market value, using quoted market prices. The realized gain or loss on the sale of investments is determined by specific identification of the securities sold. The Foundation invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the balance sheet. 6

9 Note 1 - Nature of Business and Significant Accounting Policies (Continued) Classification of Net Assets - The Foundation reports information regarding its financial position and activities according to three classes of net assets: Unrestricted net assets are not restricted by donors or the donor-imposed restrictions have expired. Temporarily restricted net assets contain donor-imposed restrictions that permit the Foundation to use or expend the assets as specified. Temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions when the restrictions are satisfied either by the passage of time or by actions of the Foundation. However, if a restriction is fulfilled in the same time period in which the contribution is received, the Foundation reports the support as unrestricted. Temporarily restricted net assets consist of the following as of May 31: Earnings on endowed programs and scholarships $ 1,418,201 $ 657,167 Specific programs and scholarships 1,081, ,863 Total temporarily restricted net assets $ 2,499,738 $ 1,538,030 Net assets released from restrictions during the years ended were primarily for scholarships, foundation expenses, and distributions to others. Permanently restricted net assets contain donor-imposed restrictions that stipulate that the resources be maintained permanently, but permit the Foundation to use or expend part or all of the income derived from the donated assets for specified purposes. Investment earnings available for distribution are recorded in temporarily or unrestricted net assets. Permanently restricted net assets consist of the following as of May 31: Endowed programs and scholarships $ 4,116,933 $ 4,192,249 Tax Status - The Foundation is exempt from federal income taxes under Section 501(c)(3) of the United States Internal Revenue Code. Accordingly, it is exempt from income and excise taxes that apply to certain nonprofit organizations. Special Event Revenue and Expense - The Foundation holds an annual golf outing in which all of the net earnings are unrestricted. All direct expenses related to the event are shown at gross costs within total expenses. 7

10 Note 1 - Nature of Business and Significant Accounting Policies (Continued) Scholarships and Grants - Scholarship awards are given to students meeting certain criteria established by the financial aid office of the College and by the board of directors. Grants are applied for and awarded for special projects that are initiated by the faculty of Kellogg Community College and are also based on certain criteria established by the board. The total amount to be awarded is determined by the board prior to each academic year. Contributions Receivable - The Foundation's contributions receivable are comprised primarily of amounts due from donors that were received shortly after year end. Functional Basis Expense Allocation - The costs of providing programs are reported on a functional basis. Costs are allocated between the various programs on an actual basis, where available, or based upon reasonable methods. Although methods of allocation used are considered appropriate, other methods could be used that would produce different amounts. Subsequent Events - The financial statements and related disclosures include evaluation of events up through and including October 30, 2017, which is the date the financial statements were available to be issued. Upcoming Accounting Changes - The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, in August ASU No requires significant changes to the financial reporting model of organizations that follow FASB not-for-profit rules, including moving from three classes of net assets down to two classes: net assets with donor restrictions and net assets without donor restrictions. The ASU will also require changes in the way certain information is aggregated and reported by the Foundation, including required disclosures about the liquidity and availability of resources. The new standard is effective for the Foundation s year ending May 31, 2019 and thereafter and must be applied on a retrospective basis. The Foundation is currently evaluating the impact this standard will have on the financial statements. 8

11 Note 2 - Investments Investments consisted of the following at May 31: Amortized Cost Amortized Fair Value Cost Fair Value Putnam Absolute Return 500 Fund $ 350,788 $ 376,324 $ 350,788 $ 358,516 Wells Fargo Advantage Index Asset Allocation 1,083,610 1,120,091 1,064,305 1,017,476 Sunamerica Focused Dividend Strategy Fund , ,737 Putnam Diversified Income Trust Fund 1,353,328 1,231,009 1,287,244 1,114,175 Oakmark Select Fund 526, , , ,054 Comstock RES INC SR 74,063 89, Dodge & Cox Balanced Fund 1,707,928 1,747,011 1,603,571 1,490,233 Eaton Vance Dividend Builder Fund 588, , , ,285 FPA Crescent Fund Institutional 886, , , ,477 Federated Prudent Bear Fund 440, , Gabelli ABC Fund Advisor 408, , SPDR S&P 500 ETF Trust , ,946 Total investments $ 7,420,054 $ 7,388,768 $ 7,359,612 $ 6,849,137 Note 3 - Fair Value Measurements Accounting standards require certain assets and liabilities be reported at fair value in the financial statements and provide a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value. The following tables present information about the Foundation s assets measured at fair value on a recurring basis at and the valuation techniques used by the Foundation to determine those fair values. In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Foundation has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, including inputs that are available in situations in which there is little, if any, market activity for the related asset. 9

12 Note 3 - Fair Value Measurements (Continued) In instances whereby inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Foundation s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset. The Foundation's policy is to recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. For the years ended May 31, 2017 and 2016, there were no transfers between levels of the fair value hierarchy. Assets Measured at Fair Value on a Recurring Basis at May 31, 2017 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at May 31, 2017 Investments: Mutual funds - Equity $ 1,540,003 $ - $ - $ 1,540,003 Mutual funds - Fixed income 1,231, ,231,008 Mutual funds - Balanced 4,527, ,527,943 Corporate bonds - 89,814-89,814 Total assets $ 7,298,954 $ 89,814 $ - $ 7,388,768 Assets Measured at Fair Value on a Recurring Basis at May 31, 2016 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at May 31, 2016 Investments: Mutual funds - Equity $ 1,488,076 $ - $ - $ 1,488,076 Mutual funds - Fixed Income 1,114, ,114,175 Mutual funds - Balanced 3,650, ,650,940 Exchange traded funds - Index fund 595, ,946 Total assets $ 6,849,137 $ - $ - $ 6,849,137 10

13 Note 4 - Donor-restricted Endowments The Foundation s net assets include donor-restricted endowment funds. Net assets associated with these funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The board of directors of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted funds that is not classified in permanently restricted net assets is classified as temporarily restricted until it is appropriated for expenditure by the Foundation. In accordance with UPMIFA, the Foundation exercises the standard of ordinary business care and prudence when determining the amount of earnings and gains to appropriate for expenditure or to accumulate within the endowment fund. The Foundation considers the following factors in exercising this standard of care: (1) The long-term and short-term needs of the Foundation in carrying out its purpose (2) The present and anticipated financial requirements of the Foundation (3) General economic conditions (4) The expected total return from income and the appreciation of investments (5) Other resources of the Foundation (6) The investment policies of the Foundation Endowment Net Asset Composition by Type of Fund as of May 31, 2017 Unrestricted Temporarily Permanently Donor-restricted endowment funds $ (19,641) $ 1,418,201 $ 4,116,933 $ 5,515,493 Total 11

14 Note 4 - Donor-restricted Endowments (Continued) Changes in Endowment Net Assets for the Fiscal Year Ended May 31, 2017 Unrestricted Temporarily Permanently Total Endowment net assets - Beginning of year $ (43,384) $ 657,167 $ 4,192,249 $ 4,806,032 Investment return: Investment income - 187, ,883 Net appreciation (realized and unrealized) 23, , ,757 Total investment return 23, , ,640 Contributions , ,155 Appropriation of endowment assets for expenditure - (219,455) - (219,455) Donor transfers - 518,592 (534,471) (15,879) Endowment net assets - End of year $ (19,641) $ 1,418,201 $ 4,116,933 $ 5,515,493 Endowment Net Asset Composition by Type of Fund as of May 31, 2016 Unrestricted Temporarily Permanently Total Donor-restricted endowment funds $ (43,384) $ 657,167 $ 4,192,249 $ 4,806,032 Changes in Endowment Net Assets for the Fiscal Year Ended May 31, 2016 Unrestricted Temporarily Permanently Total Endowment net assets - Beginning of year $ (3,216) $ 1,160,187 $ 4,029,558 $ 5,186,529 Investment return (loss): Investment income - 268, ,774 Net depreciation (realized and unrealized) (40,168) (602,441) - (642,609) Total investment loss (40,168) (333,667) - (373,835) Contributions , ,849 Appropriation of endowment assets for expenditure - (241,388) - (241,388) Donor transfers - 72,035 5,842 77,877 Endowment net assets - End of year $ (43,384) $ 657,167 $ 4,192,249 $ 4,806,032 12

15 Note 4 - Donor-restricted Endowments (Continued) Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. At, the Foundation had endowment funds with $19,641 and $43,384 in deficiencies of this nature that are reported in unrestricted net assets as of, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the board of directors. Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for investments that attempt to provide a predictable stream of funding to support its programs while seeking to maintain the purchasing power of the investment assets. Investments include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period. Under this policy, as approved by the board of directors, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 Index while assuming a moderate level of investment risk. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation has an annual distribution policy of 4 to 6 percent of its unrestricted net assets' average fair value over the prior 12 quarters through the calendar year end preceding the fiscal year in which the distribution is planned and other distributions as per the restrictions of its donors. In establishing this policy, the Foundation considered the long-term expected return on its portfolio. 13

16 Note 5 - Donor Transfers During 2017 and 2016, the Foundation received correspondence and clarifying documentation from donors releasing amounts recorded as permanently restricted in prior years or creating endowments from previous gifts. The amounts have been reclassified appropriately given the updated documentation received from the donor related to the time or purpose restriction, or the lack thereof. Note 6 - Contributed Services The following is a description of transactions between the Foundation and Kellogg Community College (the "College"). In April 2013, the FASB issued Accounting Standards Update (ASU) No , Notfor-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate. The standard provides guidance on how to account for contributed personnel services from an affiliate. The standard clarifies that all contributed services received from an affiliate that directly benefit the recipient not-for-profit should be recognized. For the year ended May 31, 2016, the College and Foundation adopted ASU No As a result, the Foundation recognizes the value of the services provided by the College (primarily salaries). The services are included on the statement of activities and changes in net assets as contributed services revenue of $235,709 and the corresponding management and general expenses of $141,425 and fundraising expense of $94,284 as of May 31, For the year ended May 31, 2017, the services are included on the statement of activities and changes in net assets as contributed services revenue of $273,952 and the corresponding management and general expenses of $164,371 and fundraising expense of $109,581 as of May 31,