Combined Financial Statements Together With Report of Independent Certified Public Accountants

Transcription

1 Combined Financial Statements Together With Report of Independent Certified Public Accountants DIOCESAN CENTRAL FUNDS OF THE August 31, 2014 and 2013

2 TABLE OF CONTENTS Page Report of Independent Certified Public Accountants 1-2 Combined Financial Statements: Combined Statements of Financial Position as of August 31, 2014 and Combined Statement of Activities for the Year Ended August 31, Combined Statement of Activities for the Year Ended August 31, Combined Statements of Cash Flows for the Years Ended August 31, 2014 and

3 Grant Thornton LLP 757 Third Avenue, 9th Floor New York, NY T F REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Most Reverend Nicholas DiMarzio, Ph.D., D.D. Bishop of Brooklyn: We have audited the accompanying combined financial statements of the Diocesan Central Funds of the R.C. Diocese of Brooklyn, New York ( Diocesan Central Funds ), which comprise the combined statements of financial position as of August 31, 2014 and 2013, and the related combined statements of activities and cash flows for the years then ended, and the related notes to the combined financial statements. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined 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 our audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Diocesan Central Funds preparation and fair presentation of the combined 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 Diocesan Central Funds 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 combined financial statements. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd

4 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 combined financial statements referred to above present fairly, in all material aspects, the combined financial position of the Diocesan Central Funds of the R.C. Diocese of Brooklyn, New York, as of August 31, 2014 and 2013, and the combined 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. New York, New York January 30,

5 Combined Statements of Financial Position As of August 31, 2014 and 2013 ASSETS Cash and cash equivalents $ 3,335,741 $ 2,450,008 Accounts, notes and other receivables, net (Note 5) 8,311,880 5,408,176 Investments, at fair value (Note 3) 8,460,206 12,660,047 Assets held in trust (Note 6) 8,741,450 8,100,701 Other assets - 52,712 Property, furniture and equipment, net (Note 4) 4,388,351 4,641,782 Total assets $ 33,237,628 $ 33,313,426 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 3,298,470 $ 4,869,305 Loan payable (Note 7) 10,000,000 10,000,000 Total liabilities 13,298,470 14,869,305 Contingencies (Note 10) NET ASSETS Unrestricted: Accumulated operating deficit (4,308,753) (4,589,914) Net investment in plant 4,388,351 4,641,782 Total unrestricted 79,598 51,868 Temporarily restricted (Note 9) 11,118,110 10,291,552 Permanently restricted (Notes 6 and 9) 8,741,450 8,100,701 Total net assets 19,939,158 18,444,121 Total liabilities and net assets $ 33,237,628 $ 33,313,426 The accompanying notes are an integral part of these combined statements

6 Combined Statement of Activities For the year ended August 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT Net Diocesan assessments (Note 2) $ 7,680,932 $ - $ - $ 7,680,932 Net Diocesan Annual Catholic Appeal (Note 2) - 10,019,414-10,019,414 Cemetery contribution 1,000, ,000,000 Contributions and bequests 7,886, ,438-8,028,783 Investment return (Note 3) 880, ,609 Trust income (Note 6) - 374, ,261 Service fees and rental income 3,407, ,407,642 Recovery of prior year s reserved receivables (Note 5) 1,569, ,569,251 Grants 3,024, ,024,409 Other 2,202, ,202,868 27,652,056 10,536,113-38,188,169 Net assets released from restrictions (Note 9) 9,709,555 (9,709,555) - - Total revenues, gains and other support 37,361, ,558-38,188,169 EXPENSES Programs: Pastoral education and ministerial services 13,881, ,881,048 Diocesan assistance 9,254, ,254,398 Parishes share of Annual Catholic Appeal 1,757, ,757,942 Supporting services - administration (Note 2) 12,440, ,440,493 Total expenses 37,333, ,333,881 Increase in net assets before net gains on assets held in trust 27, , ,288 Net gains on assets held in trust (Note 6) , ,749 Change in net assets 27, , ,749 1,495,037 Net assets, beginning of year 51,868 10,291,552 8,100,701 18,444,121 Net assets, end of year $ 79,598 $ 11,118,110 $ 8,741,450 $ 19,939,158 The accompanying notes are an integral part of these combined statements

7 Combined Statement of Activities For the year ended August 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT Net Diocesan assessments (Note 2) $ 7,702,848 $ - $ - $ 7,702,848 Net Diocesan Annual Catholic Appeal (Note 2) - 9,573,782-9,573,782 Cemetery contribution 1,000, ,000,000 Contributions and bequests 4,605, ,054-4,756,558 Investment return (Note 3) 823, ,305 Trust income (Note 6) - 361, ,088 Service fees and rental income 3,110, ,110,824 Recovery of prior year s reserved receivables (Note 5) 1,846, ,846,784 Grants 2,589, ,589,089 Other 1,353, ,353,127 23,031,481 10,085,924-33,117,405 Net assets released from restrictions (Note 9) 10,242,516 (10,242,516) - - Total revenues, gains and other support 33,273,997 (156,592) - 33,117,405 EXPENSES Programs: Pastoral education and ministerial services 13,855, ,855,257 Diocesan assistance 4,844, ,844,918 Parishes share of Annual Catholic Appeal 2,000, ,000,401 Supporting services - administration (Note 2) 12,291, ,291,537 Total expenses 32,992, ,992,113 Increase (decrease) in net assets before net gains on assets held in trust 281,884 (156,592) - 125,292 Net gains on assets held in trust (Note 6) , ,176 Change in net assets 281,884 (156,592) 345, ,468 Net assets, beginning of year (230,016) 10,448,144 7,755,525 17,973,653 Net assets, end of year $ 51,868 $ 10,291,552 $ 8,100,701 $ 18,444,121 The accompanying notes are an integral part of this combined statement

8 Combined Statements of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,495,037 $ 470,468 Adjustment to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 479, ,003 Unrealized/realized gain on investments (663,983) (629,814) Change in allowance for doubtful accounts 4,441,884 (814,940) Gain on assets held in trust (640,749) (345,176) Changes in assets and liabilities: Increase in accounts, notes and other receivables (7,345,588) (819,618) Decrease in other assets 52,712 - (Decrease) Increase in accounts payable and accrued expenses (1,570,835) 2,079,496 Net cash (used in) provided by operating activities (3,751,565) 460,419 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of fixed assets (226,526) (359,561) Proceeds from the sale of investments 6,495,411 1,462,544 Purchases of investments (1,631,587) (1,545,125) Net cash provided by (used in) investing activities 4,637,298 (442,142) Net increase in cash and cash equivalents 885,733 18,277 Cash and cash equivalents, beginning of year 2,450,008 2,431,731 Cash and cash equivalents, end of year $ 3,335,741 $ 2,450,008 The accompanying notes are an integral part of these combined statements

9 1. ORGANIZATION The combined financial statements of Diocesan Central Funds of the Roman Catholic Diocese of Brooklyn, New York (the Diocesan Central Funds ), is an accounting and financial reporting unit which includes the following departments and programs, none of which have separate legal status, but all of which are part of The Roman Catholic Diocese of Brooklyn, New York. Departments and Programs Archives Accounting Office Administrative Services Auxiliary Bishops Bishop s Residence Campus Ministry Clergy Personnel Office Jesus of Nazareth Retreat Center Episcopal Delegate for the Religious Episcopal Vicars Faith Formation Immaculate Conception Center Operations Information Technology Liturgy Office Office of the Chancellor Office of Diaconate Formation Office of the Diocesan Bishop Office of Fiscal Management Office of Human Resources Office of Safe Environment Office of the Vicar General Pastoral Institute Presbyteral Council Secretariat for Catholic Education and Formation Secretariat for Development Secretariat for Financial Administration and the Econome Secretariat for Human and Information Resources Seminary and Residence Superintendent of Schools Tribunal Vocations Office The Roman Catholic Diocese of Brooklyn, New York (the Diocese ), which includes the accounts of the Diocesan Central Funds, is exempt from federal income taxes under provisions of Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision or benefit for federal income tax has been recorded in the accompanying combined financial statements. The Roman Catholic Diocese of Brooklyn, New York has received a favorable determination letter from the Internal Revenue Service indicating that it qualifies for tax-exempt status. It is also exempt from New York income taxes under related State provisions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying combined financial statements have been prepared on the accrual basis. Basis of Presentation Revenues, expenses, gains and losses are classified as unrestricted, temporarily restricted, or permanently restricted based upon the existence or absence of donor-imposed restrictions. Accordingly, the net assets of Diocesan Central Funds and changes therein are classified and reported as follows: Unrestricted - includes net assets that are not subject to donor-imposed restrictions and may be expended for any purposes in accomplishing the primary objectives of the Diocesan Central Funds

10 Temporarily Restricted - includes net assets that are subject to donor-imposed restrictions that will be met either by actions of Diocesan Central Funds or the passage of time. Permanently Restricted - includes net assets that are subject to donor-imposed restrictions that they be maintained permanently by Diocesan Central Funds. Generally, the donors of these assets permit Diocesan Central Funds to use all or part of the income and gains earned on related investments for general or specific purposes (Note 6). When time restrictions and/or donor-imposed restrictions are met, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the combined statement of activities as net assets released from restrictions. For those temporarily restricted gifts whose restrictions are met within the same fiscal year, the Diocesan Central Funds initially records them within temporarily restricted net assets and then releases them from restrictions. Certain assets and liabilities of the Diocesan Central Funds are segregated to maintain accountability or reflect separate legal status. Cash Equivalents Diocesan Central Funds considers all highly liquid instruments with an original maturity of three months or less from the date of the purchase to be cash equivalents, with the exception of cash and short-term investments managed by Diocesan Central Funds investment managers for long-term investment purposes. At August 31, 2014 and 2013, all cash and cash equivalents were categorized as Level 1. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are recorded at fair value with income, gains and losses included in the accompanying combined statements of activities. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Diocesan Central Funds using available market information and appropriate methodologies; however, considerable judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates presented herein may not necessarily be indicative of the amounts that the Diocesan Central Funds will realize in a market exchange. Certain of these financial instruments expose the Diocesan Central Funds to market and credit risk and, at times, may be concentrated with certain counterparties or groups of counterparties. The carrying value of accounts, notes and other receivables, and accounts payable and accrued expenses approximate fair value due to the short term maturity of these financial instruments. The following methods and assumptions were used to estimate the fair value of certain other accounts presented in the combined statements of financial position: Cash and cash equivalents - Cash and cash equivalents consist principally of investments in shortterm, interest-bearing instruments and are carried at cost plus accrued interest, which approximates fair value

11 Investments and assets held in trust Investments, including assets held in trust are recorded at fair value based principally upon quoted market prices. Loan payable The carrying amount of loan payable approximates market due to variable interest rates that reflect current economic conditions. Fair Value Measurements The Diocesan Central Funds adopted the Fair Value Measurements Standards for all financial and nonfinancial instruments that are measured and reported at fair value on a recurring basis. These Standards define fair value and establish a framework for measuring fair value within a hierarchy based on inputs used to measure fair value and expand related disclosure thereof. Among other things, these Standards define fair value as the price that would be received when selling an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction at the measurement date and, categorize the inputs used to measure fair value. The Diocesan Central Funds uses the Net Asset Value ( NAV ) per share, or its equivalent to determine the fair value as of the measurement date of all the underlying investments which: (a) do not have a readily determinable fair value and (b) prepare their investees financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from value independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the transparency of inputs as follows: Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the measurement date. A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market. Level 2 - Pricing inputs other than quoted prices in active markets, which were either directly or indirectly observable as of the measurement date. The nature of these securities include investments for which quoted prices are available but traded less frequently and investments that are fair valued using other similar securities, the parameters of which can be directly observed. Also included in Level 2 are investments measured using a NAV per share, or its equivalent, that may be redeemed at NAV at the date of the combined statement of financial position, or in the near term, which the Diocesan Central Funds has determined to be within 90 days. Level 3 - Securities that had little to no pricing observability as of the measurement date. These securities are measured using management s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation. Also included in Level 3 are investments measured using a NAV per share, or its equivalent, that can never be redeemed at the NAV or for which redemption at NAV is uncertain due to lockup periods or other investment restrictions

12 Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by the entity. The Diocesan Central Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Diocesan Central Funds perceived risk of that instrument. Property, Furniture and Equipment Buildings and improvements were recorded at cost and include a property owned by the Diocese that was utilized by various Diocesan entities (Note 4). Contributed property and equipment, if any, is recorded based upon the fair value at date of donation. Depreciation is computed using the straight-line method over the estimated service lives of the related assets (50 years for buildings; 25 years for building improvements; 15 years for leasehold improvements; 10 years for furniture; and 5 years for equipment). Depreciation is taken on assets in the year of acquisition, using the half-year convention. Net Diocesan Assessments and Net Annual Catholic Appeal Net assessments on parishes are reported net of allowances, which totaled $128,804 and $283,041 for the years ended August 31, 2014 and 2013, respectively. The gross proceeds from the Annual Catholic Appeal are shown as an increase to Temporarily Restricted Net Assets, which will be used to fund Diocesan Central Funds operations in fiscal The amount presented on the combined statements of activities is based on an estimate of the total pledges to be received less amounts paid or to be paid to parishes which exceed their goal. For the years ended August 31, 2014 and 2013, the actual and estimated future payments to parishes totaled $1,757,942 and $2,000,401, respectively. Contributions Contributions, which include unconditional promises to give, are recognized as revenues in the period received at the net present value of the amounts expected to be collected. Unconditional promises to give that are expected to be received after one year are discounted using a risk-adjusted rate applicable to the years in which the promises were received. Amortization of the discount is recorded as contribution revenue. Conditional promises to give are recognized as revenue when the conditions are substantially met

13 Revenues from legacies and bequests are recognized when such gifts become unconditional promises to give. This generally occurs upon the completion of probate and approval of the court having jurisdiction over the estate. Functional Allocation of Expenses The costs of providing the various programs and other activities of Diocesan Central Funds have been summarized on a functional basis in the accompanying combined statements of activities and, only reflect the direct costs of the respective programs. Fundraising expenses totaling $953,009 and $885,505, for the years ended August 31, 2014 and 2013, respectively, were included within supporting services in the accompanying combined statements of activities. Concentration of Credit Risk Financial instruments that potentially subject the Diocesan Central Funds to concentrations of credit and market risk consist principally of cash and cash equivalents and investments on deposit with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation ( FDIC ) limit. Management does not believe that a significant risk of loss due to the failure of a financial institution the Diocesan Central Funds utilizes is likely. Income Taxes The Diocesan Central Funds follows ASC , which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. These requirements provide that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more-likely-than-not to be sustained if the position were to be challenged by a taxing authority. The assessment of a tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. The Diocesan Central Funds is exempt from federal income taxation by virtue of being covered under the Diocese, which is exempt under Section 501(c)(3) of the Internal Revenue Code. Nevertheless, the Diocesan Central Funds may be subject to tax on income unrelated to its exempt purpose, unless that income is otherwise excluded by the Code. Management has determined that there are no material uncertain tax positions within the accompanying combined financial statements. Accounting Estimates The preparation of combined 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 the disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant management estimates and assumptions relate to the determination of allowances for doubtful accounts and loans receivable, determination of fair value of investments and other financial instruments, provision for unrecorded liabilities, and useful lives of fixed assets. Actual results could differ from those estimates

14 3. INVESTMENTS, AT FAIR VALUE Investments, at fair value, as of August 31, 2014 and 2013, consisted of the following: 2014 Level 1 Level 2 Level 3 Total Money market funds - cash equivalents $ 124,235 $ - $ - $ 124,235 Mutual Funds 632, ,246 Equity securities 1,634, ,634,701 U.S government obligations 904, ,460 Compostela Fund: Guaranteed rate investments - 5,164,564-5,164,564 $ 3,295,642 $ 5,164,564 $ - $ 8,460, Level 1 Level 2 Level 3 Total Money market funds - cash equivalents $ 126,459 $ - $ - $ 126,459 Mutual Funds 586, ,456 Equity securities 1,379, ,379,372 U.S government obligations 900, ,285 Compostela Fund: Equity securities - 2,481,967-2,481,967 Fixed income securities - 496, ,870 Guaranteed rate investments - 6,688,638-6,688,638 $ 2,992,572 $ 9,667,475 $ - $ 12,660,047 Investments valued at NAV or its equivalent as of August 31, 2014, consisted of the following: Redemption Unfunded Frequency Redemption Fair Value Commitments (if Currently Eligible) Notice Period Compostela Fund: Guaranteed rate investments $ 5,164,564 N/A Unlimited Liquid $ 5,164,

15 Investments valued at NAV or its equivalent as of August 31, 2013, consisted of the following: Redemption Unfunded Frequency Redemption Fair Value Commitments (if currently eligible) Notice Period Compostela Fund: Equity securities $ 2,481,967 N/A Once a month 0-30 days Fixed income securities 496,870 N/A Once a month 0-30 days Guaranteed rate investments 6,688,638 N/A Unlimited Liquid $ 9,667,475 Investment return for the years ended August 31, 2014, and 2013 was comprised of the following: Operating Fund: Interest and dividends $ 216,626 $ 193,491 Unrealized and realized appreciation 663, , , ,305 Less: Investment managers and advisors fees (25,241) (43,220) $ 855,368 $ 780, PROPERTY, FURNITURE AND EQUIPMENT, NET Fixed assets at August 31, 2014, and 2013 consisted of the following: Buildings and improvements $ 4,851,618 $ 4,566,772 Furniture and equipment 15,539,007 15,597,327 20,390,625 20,164,099 Less: accumulated depreciation (16,002,274) (15,522,317) $ 4,388,351 $ 4,641,782 Depreciation expense for the years ended August 31, 2014 and 2013 totaled $479,957 and $520,003, respectively. 5. ACCOUNTS AND OTHER RECEIVABLES, NET Diocesan Central Funds provides advances to parishes and other Diocesan organizations that are in financial need. The advances do not have specific repayment terms, but management expects repayment when the parish or other Diocesan organization has financial resources available. Because of the

16 uncertainty surrounding collection, management provides a reserve for doubtful accounts generally equal to the amount advanced. Diocesan Central Funds also has accounts receivable from parishes, schools and other organizations for Diocesan assessments and other charges. Reserves are generally provided for 100% of outstanding assessment balances. Due to the circumstances and unpredictability surrounding recoveries of previously reserved receivables, such recoveries, if any, are recognized as revenue in the year that they are received. Accounts, notes and other receivables at August 31, 2014 and 2013, consisted of the following: 2014 Reserve Gross for Doubtful Net Receivables Receivables Receivables Accounts receivable $ 3,252,985 $ (3,124,181) $ 128,804 Due from Diocesan organizations 14,075,132 (13,696,951) 378,181 Due from Annual Catholic Appeal 1,414,288-1,414,288 Other 7,410,574 (1,019,967) 6,390,607 $ 26,152,979 $ (17,841,099) $ 8,311, Reserve Gross for Doubtful Net Receivables Receivables Receivables Accounts receivable $ 3,219,515 $ (2,936,474) $ 283,041 Due from Diocesan organizations 8,941,773 (8,466,873) 474,900 Due from Annual Catholic Appeal 1,555,682-1,555,682 Other 5,090,421 (1,995,868) 3,094,553 $ 18,807,391 $ (13,399,215) $ 5,408,

17 6. ASSETS HELD IN TRUST Diocesan Central Funds is the co-beneficiary of the income from the Christopher Edward Connell Trust Fund (the Connell Trust Fund ). Income from the Connell Trust Fund is divided equally between the Archbishopric of New York and the Roman Catholic Diocese of Brooklyn, New York. A portion of the income is to be used to maintain a limited number of scholarships. The remainder is available for other religious, charitable and educational purposes. The corpus of the Connell Trust Fund is administered by JPMorgan Chase Bank, as trustee. Diocesan Central Funds has the right to receive its share of income earned on the trust assets in perpetuity, but is not entitled to the assets held in trust. Diocesan Central Funds share of the trust has been estimated to be equivalent to one-half of the fair value of the assets in the trust, or $8,112,806 and $7,541,931 at August 31, 2014 and 2013, respectively, and is reported as assets held in trust and permanently restricted net assets in the accompanying combined financial statements. Changes in the fair value of the assets held in trust are reported as permanently restricted gains or losses. Annual distributions from the trust are reported as temporarily restricted support. The Roman Catholic Bishop of the Diocese of Brooklyn is the income beneficiary of the Arthur F. Knauth Educational Fund established under Article 6 of the will of Blanche A. Knauth, dated November 1, 1966 in the amount of $100,000. Income from the trust, for which JPMorgan Chase Bank is the sole trustee, is to be expended by the Bishop to defray the cost of educating worthy young Roman Catholic American men of limited means in institutions of higher learning which shall offer a course of study designed to prepare such young men for admission, after graduation from any such institution, into a seminary devoted to training persons for Holy Orders. The Bishop has the right to the income earned on the trust assets in perpetuity, but is not entitled to the assets held in trust. The corpus of this trust was $628,644 and $558,770 at August 31, 2014 and 2013, respectively. 7. LOAN PAYABLE Effective December 4, 2008, the Diocesan Central Funds entered into a note payable agreement with Peter Turner Insurance Company ( Peter Turner ), a related party of the Roman Catholic Diocese of Brooklyn, New York. The note is payable on demand and bears interest at the 2-Year Treasury Note rate as published in the Wall Street Journal, adjusted on a quarterly basis. At August 31, 2014 and 2013, the outstanding principal balance of this note totaled $10,000,000. Interest payable, which is included within accounts payable and accrued expenses in the accompanying combined statements of financial position, was $67,469 and $26,383, in fiscal 2014 and 2013, respectively. 8. EMPLOYEE PENSION PLAN Employees of the departments and programs comprising the Diocesan Central Funds participate in the Roman Catholic Diocese of Brooklyn Pension Plan ( the Plan ), a noncontributory defined benefit pension plan covering substantially lay employees. The Plan was established as a Church Plan, exempt from compliance with the Employee Retirement Income Security Act ( ERISA ) and, operates as a non-erisa multi-employer plan that is not subject to the reporting requirements of ASC 715. The Plan is a career average plan covering eligible employees and conducts an actuarial valuation annually as of January 1st. Using an assumed a rate of return of 6%, the Plan was approximately 73% funded based on the actuarial present value of the accumulated plan benefits as of January 1, For the years ended August 31, 2014 and 2013, total pension expense for the entities and programs included in the accompanying combined statements was $343,296 and $465,886, respectively. It is Diocesan policy to provide for pension costs

18 Because the Plan includes lay employees of various Diocesan organizations, information is not available as to the vested and non-vested earned benefits and Plan assets for only those employees of the Diocesan Central Funds. 9. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted net assets at August 31, 2014 and 2013, were available for the following purposes: Pastoral: Annual Catholic Appeal $ 8,261,471 $ 7,576,655 House of Discernment 114, ,185 Local campaign for human development 430, ,747 Local communications 605, ,079 Cathechumenium of Our Lady of Pilar 32,000 32,000 9,444,000 8,670,666 Education 1,674,110 1,620,886 Total $ 11,118,110 $ 10,291,552 Net assets released from donor restrictions during the years ended August 31, 2014 and 2013, by the passage of time or incurring expenses satisfying the restricted purposes were as follows: Pastoral: Education $ 697 $ - Local campaign for human development - 1,192 Annual Catholic Appeal Parish credits 1,757,942 2,000,401 Annual Catholic Appeal 7,576,655 8,000,000 9,335,294 10,001,593 Education 374, ,923 $ 9,709,555 $ 10,242,516 At August 31, 2013, permanently restricted net assets consisted of Diocesan Central Funds share of the Connell Trust Fund and the Arthur F. Knauth Educational Fund, the income of which is principally expendable to support scholarships and Diocesan Central Funds activities (Note 6). 10. CONTINGENCIES The Roman Catholic Diocese of Brooklyn, New York is involved in various claims and legal actions arising in the ordinary course of operations, which are administered by Peter Turner. The Diocesan Central Funds is contingently liable for losses should Peter Turner or other insurance carriers be unable to cover insurable claims. The potential exposure, if any, resulting from such claims could not be reasonably estimated at August 31,

19 11. SUBSEQUENT EVENTS The Diocesan Central Funds evaluated its August 31, 2014 combined financial statements for subsequent events through January 30, 2015, the date these combined financial statements were available to be issued. Other than the matter referred to below, the Diocesan Central Funds is not aware of any subsequent events which would require recognition or disclosure in the accompanying combined financial statements. On September 1, 2014, Bishop Ford Regional Catholic High School (the High School ) ceased operations as a Roman Catholic high school. As stipulated by the High School s reverter clause, all rights, title, and interest in the property reverted to the Roman Catholic Diocese of Brooklyn, New York on such date. Based upon an independent appraisal dated June 14, 2013, as updated through November 20, 2014, the property had an estimated market value of approximately $38,000,000. In addition, the Diocesan Central Funds has funded certain costs associated with the wind down of the High School