Council on Foundations, Inc. and Affiliate. Consolidated Financial Report December 31, 2013

Transcription

1 Council on Foundations, Inc. and Affiliate Consolidated Financial Report December 31, 2013

2 Contents Independent Auditor s Report on the Consolidated Financial Statements 1 Consolidated Financial Statements Consolidated Statements of Financial Position 2 Consolidated Statements of Activities 3 Consolidated Statements of Functional Expenses 4-5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7-17 Independent Auditor s Report on the Supplementary Consolidating Information 18 Supplementary Information Consolidating Statement of Financial Position 19 Consolidating Statement of Activities 20

3 Independent Auditor s Report on the Consolidated Financial Statements To the Board of Directors Council on Foundations, Inc. and Affiliate Arlington, Virginia Report on the Financial Statements We have audited the accompanying consolidated financial statements of Council on Foundations, Inc. and Affiliate (the Council) which comprise the consolidated statements of financial position as of December 31, 2013 and 2012, and the related consolidated statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Council as of December 31, 2013 and 2012, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Blue Bell, Pennsylvania April 28,

4 Consolidated Statements of Financial Position December 31, 2013 and Assets Cash and cash equivalents $ 2,848,481 $ 3,012,182 Investments 10,306,805 11,244,571 Accounts receivable 78,896 9,872 Grants receivable 1,243,656 1,837,160 Prepaid expenses 290, ,394 Deposits 2, ,884 Equipment and leasehold improvements, net 2,010,031 2,720,174 Total assets $ 16,780,938 $ 19,365,237 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses $ 634,795 $ 1,281,108 Deferred membership dues 1,588, ,488 Deferred registration and other fees 4, ,988 Capital lease obligations 66, ,358 Deferred rent and construction allowance 2,389,603 2,687,239 Total liabilities 4,683,703 5,346,181 Commitments and Contingencies (Note 6) Net Assets Unrestricted 8,825,859 10,138,372 Temporarily restricted 3,072,771 3,682,079 Permanently restricted 198, ,605 Total net assets 12,097,235 14,019,056 Total liabilities and net assets $ 16,780,938 $ 19,365,237 See Notes to Consolidated Financial Statements. 2

5 Consolidated Statements of Activities Years Ended December 31, 2013 and Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenue and Support Membership dues and contributions $ 8,686,255 $ 1,116,420 $ - $ 9,802,675 $ 9,930,011 $ 1,377,352 $ - $ 11,307,363 Release from restrictions: Satisfaction of time restrictions 1,377,352 (1,377,352) ,718 (723,718) - - Total membership dues and contributions 10,063,607 (260,932) - 9,802,675 10,653, ,634-11,307,363 Grants and contributions 309,500 1,058,496-1,367, ,688 2,369,070-2,534,758 Conference registrations and exhibit income 2,204, ,204,702 2,555, ,555,188 Accreditation deposits and fees 93, , , ,700 Other 129, , , ,238 Publications 94, , , ,961 Operational investment income 1,234 25,006-26,240 34,530 19,194-53,724 Office rental income 18, ,813 27, ,869 Release from restrictions: Satisfaction of program restrictions 630,202 (630,202) - - 1,756,964 (1,756,964) - - Satisfaction of time restrictions 801,676 (801,676) ,952 (810,952) - - Total revenue and support 14,346,227 (609,308) - 13,736,919 16,475, ,982-16,949,801 Expenses Program services 11,093, ,093,112 11,072, ,072,526 Supporting services 5,652, ,652,414 6,754, ,754,582 Total expenses 16,745, ,745,526 17,827, ,827,108 Change in net assets before non-operating activities (2,399,299) (609,308) - (3,008,607) (1,351,289) 473,982 - (877,307) Non-operating Activities Investment income 1,086, ,086,786 1,408, ,408,680 Change in net assets (1,312,513) (609,308) - (1,921,821) 57, , ,373 Net Assets, beginning 10,138,372 3,682, ,605 14,019,056 10,080,981 3,208, ,605 13,487,683 Net Assets, ending $ 8,825,859 $ 3,072,771 $ 198,605 $ 12,097,235 $ 10,138,372 $ 3,682,079 $ 198,605 $ 14,019,056 See Notes to Consolidated Financial Statements. 3

6 Consolidated Statement of Functional Expenses Year Ended December 31, 2013 (With Summarized Comparative Totals for 2012) Program Services Supporting Services Management Development Total Member Strategic Government Total and and Supporting Allocated Services Communications Relations Programs Governance Fundraising Services Costs Total Total Salaries $ 1,844,851 $ 263,575 $ 720,841 $ 2,829,267 $ 1,855,968 $ 162,769 $ 2,018,737 $ - $ 4,848,004 $ 7,617,562 Employee benefits and payroll taxes 278,973 37, , , ,813 24, , ,548 1,467,077 2,123, , ,359 3,253,000 2,141, ,771 2,328,552-5,581,552 9,084,639 Consultants and contract services 2,120, , ,834 3,229,320 1,768,818-1,768,818 89,454 5,087,592 2,629,819 Conference expenses 1,941,985 1,761 49,859 1,993,605 3,423-3,423-1,997,028 1,597,604 Occupancy ,588,924 1,588,924 1,549,203 Office expense and supplies 111,547 29,555 69, ,139 51, ,039 36, , ,319 Depreciation and amortization ,533-9, , , ,262 Travel and other meetings 221,020 11,146 38, ,010 95, , , ,786 Printing, production and promotion 148,013 62,885 5, ,601 8,607-8, , ,156 Insurance and maintenance 16,469 1,096 4,718 22,283 82,376-82,376 51, , ,631 Program and committee meetings 38, , ,916 32,879-32, , ,881 Authors and speakers 182,656-7, , , ,639 Scholarships and awards 11,500-27,206 38, ,706 18,628 Bank and investment fees 60, ,445 75,743-75, , ,490 Telephone and internet fees 19,791 1,066 3,758 24,615 89, ,132 1, , ,913 Taxes and registrations 1, ,025 55,517-55,517 3,011 59,553 67,138 Allocated costs 957, , ,503 1,466, ,718 84,214 1,049,932 (2,516,693) - - $ 7,955,014 $ 738,111 $ 2,399,987 $ 11,093,112 $ 5,380,457 $ 271,957 $ 5,652,414 $ - $ 16,745,526 $ 17,827,108 See Notes to Consolidated Financial Statements. 4

7 Consolidated Statement of Functional Expenses Year Ended December 31, 2012 Program Services Supporting Services Management Development Total Member Strategic Government Total and and Supporting Allocated Services Communications Relations Programs Governance Fundraising Services Costs Total Salaries $ 2,691,287 $ 662,286 $ 844,616 $ 4,198,189 $ 3,063,426 $ 355,947 $ 3,419,373 $ - $ 7,617,562 Employee benefits and payroll taxes 517, , , , ,856 66, ,626-1,467,077 3,208, ,152 1,000,866 4,996,640 3,665, ,717 4,087,999-9,084,639 Consultants and contract services 1,107,097 98, ,202 1,601, , ,396 76,790 2,629,819 Conference expenses 1,575,497 1,944 11,649 1,589,090 8,514-8,514-1,597,604 Occupancy ,549,203 1,549,203 Office expense and supplies 133,686 45,453 56, ,027 17, ,863 70, ,319 Depreciation and amortization 9, ,533 30,627-30, , ,262 Travel and other meetings 324,344 3, , ,866 95,726 4,194 99, ,786 Printing, production and promotion 80, ,122 16, ,797 8,997-8,997 2, ,156 Insurance and maintenance 11,910-55,109 67,019 36,030-36,030 81, ,631 Program and committee meetings 165,503 1,230 46, ,372 26, , ,881 Authors and speakers 108,185-11, , ,639 Scholarships and awards 13,628-5,000 18, ,628 Bank and investment fees , ,339 (390) 136,490 Telephone and internet fees 32,827 1,767 5,336 39, ,618 1, ,751 2, ,913 Taxes and registrations 7, ,023 60,040-60, ,138 Allocated costs 932, , ,005 1,452,788 1,065, ,906 1,188,597 (2,641,385) - $ 7,711,936 $ 1,362,250 $ 1,998,340 $ 11,072,526 $ 6,203,338 $ 551,244 $ 6,754,582 $ - $ 17,827,108 See Notes to Consolidated Financial Statements. 5

8 Consolidated Statements of Cash Flows Years Ended December 31, 2013 and Cash Flows from Operating Activities Change in net assets $ (1,921,821) $ 531,373 Adjustments to reconcile change in net assets to net cash used in operating activities: Bad debt expense - 16,360 Realized and unrealized gains on investments (842,857) (1,098,591) Amortization of deferred rent and construction allowance (178,884) (178,884) Depreciation and amortization 755, ,262 Changes in assets and liabilities: Accounts receivable (69,024) 72,204 Grants receivable 593,504 (1,174,480) Prepaid expenses 82,957 (77,701) Deposits 165,252 48,388 Accounts payable and accrued expenses (646,313) (582,411) Deferred membership dues 627, ,098 Deferred registration and other fees (299,944) (6,446) Deferred accreditation and subscription fees - (9,013) Deferred rent and construction allowance (118,752) (63,211) Net cash used in operating activities (1,852,095) (927,052) Cash Flows from Investing Activities Proceeds from the sale of investments 2,660,168 6,296,117 Purchases of investments (879,545) (3,250,974) Acquisition of equipment - (31,967) Net cash provided by investing activities 1,780,623 3,013,176 Cash Flows from Financing Activities Principal payments on capital lease obligations (92,229) (127,919) Net cash used in financing activities (92,229) (127,919) Net (decrease) increase in cash and cash equivalents (163,701) 1,958,205 Cash and Cash Equivalents, beginning 3,012,182 1,053,977 Cash and Cash Equivalents, ending $ 2,848,481 $ 3,012,182 Supplemental Disclosure of Non-Cash Investing and Financing Activities Equipment acquired under capital lease $ 45,656 $ 91,882 Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 12,908 $ 30,482 See Notes to Consolidated Financial Statements. 6

9 Notes to Consolidated Financial Statements Note 1. Organization and Significant Accounting Policies Organization: The Council on Foundations, Inc. (the Council) is a national nonprofit membership association that provides its members with services and support to help them succeed. The Council emphasizes the value of philanthropy in the lives of people everywhere. The activities of the Council are funded primarily through membership dues from foundations and grant makers. The Council was incorporated in 1957 under the laws of the state of New York as a nonprofit public charity. The Council works to serve the public good by promoting and enhancing responsible and effective philanthropy. The Council provides the opportunity, leadership and tools needed by philanthropic organizations to expand, enhance and sustain their ability to advance the common good. To achieve the Council s mission and vision, three equally important priorities have guided its work during the years ended December 31, 2013 and These priorities embrace the dramatic changes taking place in philanthropy and, at the same time, build on the Council s distinctive competencies in a growing and varied field. Member Services The Council will ensure that foundations are connected to high-quality services across a broad range of needs. To this end, the Council will become both a developer and a go-to source for educational expertise and networking opportunities related to core field-wide issues (e.g., educational expertise that supports the field s ability to achieve standards of strong governance and effectiveness in grant making). Additionally, the Council will seek opportunities to partner with the broader network of philanthropic infrastructure organizations to co-create and deliver high quality, cobranded educational offerings. Strategic Communications The Council helps to increase outreach and communications to members, infrastructure partners, the field, and the media through multiple high-impact communications platforms. The Council will capitalize on 21 st century trends of networking and knowledge management, incorporating innovative uses of technology. This will ensure that foundations are connected to one another (for peer-to-peer learning) and to expert content to address their most pressing needs. Government Relations The Council seeks to become the leading advocacy organization promoting a positive vision for philanthropy, making philanthropy consequential, and conveying to influential public leaders and policy makers a compelling, clear agenda and case for enabling philanthropy. The Council will strive to ensure a positive legislative and regulatory environment for philanthropy, as well as highlight for lawmakers the critical work being done by foundations in communities across the country. These efforts will entail advancing public policies on key issues, including tax policy. The Council is affiliated with the Community Foundations National Standards Board (CFNSB). CFNSB was incorporated in April 2009 under the laws of the Commonwealth of Virginia as a nonprofit public charity that is a supporting organization to the Council under Internal Revenue Code (IRC) Section 509(a)(e). CFNSB was incorporated as a separate entity in order to foster greater independence of the National Standards for U.S. Community Foundations accreditation program. Principles of Consolidation and Basis of Presentation: The consolidated financial statements of the Organization have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Council and its affiliate, CFNSB (collectively referred to as the Organization). All material inter-organizational balances and transactions have been eliminated in consolidation. 7

10 Notes to Consolidated Financial Statements Note 1. Organization and Significant Accounting Policies (Continued) Cash Equivalents: The Council considers money market funds to be cash equivalents, except for the money market funds and cash included in the investment portfolio, which have been classified as investments as these funds are considered to be held for long-term investing purposes. Investments: Investments include mutual funds, exchange-traded funds, equities and money market funds. With the exception of money market funds which are not subject to the provisions of fair value measurements and are reported at cost, these investments are recorded in the consolidated statements of financial position at fair value, as based upon quoted market prices as of December 31, 2013 and Also included in investments as of December 31, 2012 is an investment fund of The Investment Fund for Foundations (TIFF) considered to be an alternative investment fund as the fund is not traded in an established market with published values. Access to participation in this fund is also limited primarily to foundations, endowments, other 501(c)(3) organizations and certain other nonprofit organizations meeting specified accreditation requirements. The investment in TIFF is recorded in the consolidated statements of financial position at estimated fair value utilizing the net asset value provided by the investment fund manager as of December 31, The fund was liquidated in Fair Value of Financial Instruments: In accordance with accounting guidance, the Organization has categorized its applicable financial instruments into a required fair value hierarchy. Accounting guidance defines the fair value of a financial instrument as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lower priority to unobservable inputs (Level 3). If the inputs used to measure the financial statements fall within different levels of the hierarchy, the categorization is based on the lowest input that is significant to the fair value measurements of the instrument. Applicable financial assets and liabilities are categorized based on the inputs to the valuation techniques as follows: Level 1 Level 2 Level 3 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Organization has the ability to access. This classification is applied to any investment of the Organization that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted market price. Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or model inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability, such as quoted prices for similarly structured securities in active markets. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. The inputs into the determination of fair values are based upon the best information in the circumstances and may require significant management judgment or estimates. As of December 31, 2013 and 2012, only the Organization s investments as described in Note 2, were measured at fair value on a recurring basis and subject to the fair value requirements. 8

11 Notes to Consolidated Financial Statements Note 1. Organization and Significant Accounting Policies (Continued) Equipment and Leasehold Improvements: Equipment and leasehold improvements are stated at cost. Depreciation is principally provided on a straight-line basis over the estimated useful lives of the respective assets, which range from three to ten years. Leasehold improvements are amortized over the shorter of the lease period or useful lives of the improvements. Maintenance and repairs are charged to expense when incurred; major improvements in excess of $5,000 are capitalized. Upon the retirement or disposal of assets, the accounts are relieved of the cost and accumulated depreciation with any resulting gain or loss included in revenue or expense. Net Assets: The net assets of the Organization are reported as follows: Unrestricted net assets represent the portion of expendable funds that are available for support of the Organization s operations or that have been designated by the Board for a particular purpose. Temporarily restricted net assets represent amounts specifically restricted by donors for various purposes or future periods. Permanently restricted net assets represent endowment funds of the Organization. Revenue Recognition: Dues: Membership dues are recognized as revenue in the period to which the dues related, limited to the value of the actual benefits received. Accordingly, dues paid by members in advance of the period to which they pertain are reflected in the consolidated financial statements as deferred membership dues. Membership dues paid in excess of the actual benefits received are considered a contribution and are recorded as unrestricted revenue if received in the year to which the dues pertain. Membership dues paid in excess of the actual benefits received are recognized as temporarily restricted revenue if collected in advance of the year to which the dues pertain. The implied time restriction is met in the year the member intends the dues to be available to the Organization. Grants and Contributions: The Organization reports gifts of cash and other assets as temporarily restricted if they are received with donor stipulations that limit the use of the donated asset. 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 consolidated statements of activities as net assets released from restrictions. Unrestricted contributions are reported as revenue in the year in which payments are received and/or unconditional promises are made. Conference Registrations and Exhibit Income: Conference registrations and exhibit fees are recognized in the year in which the conference takes place. Revenue from these activities received in advance of the conference is reported as deferred registration and other fees in the consolidated statements of financial position. Publications: Publication revenue is recorded when the publication is shipped and is reported net of any discounts in the consolidated statements of activities. Accreditation Deposits and Fees: Deposits received from community foundations at the time the foundation indicates an intent to initiate the certification or recertification process are recognized when received, as such deposits are nonrefundable to the community foundations but will be applied to the certification process. Accreditation fees are recognized as revenue upon performance of the certification or recertification services. Functional Allocation of Expenses: The costs of providing the various programs and other activities have been summarized on a functional basis in the consolidated statements of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services based upon various methods deemed to justify the benefits received by those programs and supporting services. 9

12 Notes to Consolidated Financial Statements Note 1. Organization and Significant Accounting Policies (Continued) Estimates: The preparation of consolidated 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. These include depreciation, allocation of membership dues received in advance and functional allocation of expenses. Accordingly, actual results could differ from those estimates. Non-Operating Activities: The Organization considers the investment income from its cash and cash equivalents and one specific investment fund to be operating in nature. Additionally, all allocable investment income treated as temporarily restricted in accordance with donor specifications is considered to be operating in nature. All other investment returns are considered to be non-operating in nature. Income Taxes: The Council and CFNSB are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (IRC). In addition, the Council and CFNSB qualify for charitable contribution deductions and have been classified as an organization that is not a private foundation. Income which is not related to exempt purposes, less applicable deductions, is subject to federal and state corporate income taxes. The Council follows the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Council may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also addresses de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. Management evaluated the Council s and CFNSB s tax positions and concluded that the Council and CFNSB had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. For the years ended December 31, 2013 and 2012, no provision for income taxes was made for the Council or for CFNSB, as neither organization had any significant net unrelated business income and did not identify any uncertain tax positions requiring recognition or disclosure in the consolidated financial statements. The Council and CFNSB file income tax returns in the U.S. federal and Virginia jurisdictions. Generally, the Council and CFNSB are no longer subject to income tax examinations by the U.S. federal, state or local tax authorities for years before Reclassifications: Certain items in the 2012 financial statements have been reclassified to conform to the 2013 financial statement presentation. The reclassifications had no effect on the previously reported change in net assets, or net assets. Subsequent Events: Management has evaluated subsequent events through April 28, 2014, which is the date the consolidated financial statements were available to be issued and has determined that no material events warrant inclusion or disclosure in the consolidated financial statements as of December 31,

13 Notes to Consolidated Financial Statements Note 2. Investments Investments consist of the following at December 31, 2013 and 2012: Fixed-income mutual funds $ 2,962,649 $ 3,009,894 Exchange-traded funds 2,307,113 1,525,542 Equity mutual funds 2,050,003 3,811,024 Equities 1,710,854 1,849,218 Multi-asset mutual funds 1,214,708 - TIFF multi-asset mutual fund - 949,220 Money market funds 61,478 99,673 $ 10,306,805 $ 11,244,571 The Council internally classifies its investments into the following categories: Long-term reserve fund $ 10,075,114 $ 10,903,232 Scrivner award fund 231, ,684 Short-term reserve fund 1 134,655 $ 10,306,805 $ 11,244,571 The long-term reserve fund is Board-designated and represents funds set aside by the Board of Directors to be used by the Council in the event of a significant shortfall in revenue. Since 1997, the Board of Directors has also designated that all investment earnings of the long-term reserve be considered Boarddesignated funds. The Organization does not consider its Board-designated Fund to be a quasiendowment fund. Therefore, this fund is not subject to additional disclosure requirements of endowments and quasi-endowments. The Scrivner award fund is a special endowment account, as described in Note 5. The short-term reserve fund includes grant revenue for specifically funded projects, funds designated by the Board for special program initiatives and current operations revenue in excess of current anticipated disbursements. Investment income is summarized as follows: Realized and unrealized gains on investments $ 842,857 $ 1,098,591 Interest and dividend income 270, ,813 1,113,026 1,462,404 Less investment income, net - operating (26,240) (53,724) Investment income - non-operating $ 1,086,786 $ 1,408,680 11

14 Notes to Consolidated Financial Statements Note 3. Grants Receivable Grants receivable at December 31, 2013 and 2012 include unrestricted contributions from member organizations which are due to be received as follows: Within one year $ 735,000 $ 852,000 One to five years 525,000 1,000,000 Less present value discount (16,344) (14,840) $ 1,243,656 $ 1,837,160 Note 4. Equipment and Leasehold Improvements Equipment and leasehold improvements as of December 31, 2013 and 2012: Furniture and equipment, including software $ 3,107,124 $ 2,987,662 Leasehold improvements 2,815,704 2,815,704 Website development 28, ,060 Computer and equipment under capital leases 572, ,248 6,524,332 6,478,674 Less accumulated depreciation and amortization (4,514,301) (3,758,500) $ 2,010,031 $ 2,720,174 Note 5. Net Assets Temporarily Restricted: Temporarily restricted net assets are available for the following programs and time periods as of December 31, 2013 and 2012 as follows: Dues support of future activities $ 1,116,420 $ 1,377,352 General operations time restricted for ,676 General operations time restricted for , ,053 General operations time restricted for , ,107 Other grant-funded projects 198, ,675 Government relations 109,045 47,134 Community foundation services philanthropy fund 74,860 34,297 Inclusiveness initiative - 50 Fellowship grant - 96,757 Atlantic Philanthropies - 4,978 $ 3,072,771 $ 3,682,079 Permanently Restricted: Permanently restricted funds of $198,605 as of December 31, 2013 and 2012 represent the Council s endowment corpus for its Robert W. Scrivner Award and remain inviolate so long as the Council shall continue to exist. Earnings on these funds are considered temporarily restricted; as such earnings may be used only for the Scrivner Award project. The unspent balance of such accumulated earnings is included in other grant-funded projects of temporarily restricted net assets. 12

15 Notes to Consolidated Financial Statements Note 5. Net Assets (Continued) Endowments: The Council had the following endowment-related activities for the years ended December 31, 2013 and 2012: Temporarily Restricted Permanently Restricted Endowment net assets, January 1, 2012 $ 60,324 $ 198,605 Investment returns: Interest and dividends Net appreciation (realized/unrealized) 18,944 - Total investment returns 19,194 - Contributions - - Amounts appropriated for expenditures (10,721) - Endowment net assets, December 31, , ,605 Investment returns: Interest and dividends 6,996 - Net appreciation (realized/unrealized) 18,010 - Total investment returns 25,006 - Contributions - - Amounts appropriated for expenditures (10,632) - Endowment net assets, December 31, 2013 $ 83,171 $ 198,605 Interpretation of Relevant Law: The Board of Directors of the Council 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 endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Council 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. Investment returns on permanently restricted endowments are classified in accordance with donor specifications. When no specifications are outlined by the donor, investment earnings on the permanently restricted net assets arising from earnings thereon are classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Council in a manner consistent with the standard of prudence prescribed by UPMIFA. Return Objectives and Risk Parameters: The Council has adopted investment and spending policies for its endowment fund that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Council must hold in perpetuity. Under this policy, as approved by the Board of Directors, the objective is the preservation of capital. The assets must be invested with the care, skill and diligence that a prudent person acting in this capacity would undertake. Over a three-to-five year period, the Council strives to achieve an average annual return of 5%, after fees. 13

16 Notes to Consolidated Financial Statements Note 5. Net Assets (Continued) Endowments (Continued): Strategies Employed for Achieving Objectives: To satisfy its long-term rate-of-return objectives, the Council 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). As a result, the Council has elected to adopt a well-diversified asset allocation consisting of equity and fixed-income securities. The Council s current asset allocation for its permanently restricted endowment fund targets a composition of between 40% and 60% in equities, between 5% and 20% in real assets, between 10% and 35% in opportunistic assets and between 10% and 40% in fixed income securities. Spending Policy: In accordance with donor instructions, earnings on the permanently restricted endowment are considered temporarily restricted; as such earnings may only be used for the program purpose specified by the donors the Scrivner Award project. Note 6. Commitments and Contingencies Operating Lease: On March 7, 2007, the Council entered into a noncancelable operating lease for its headquarters in Crystal City, Virginia. The lease is for the period June 1, 2007 through April 30, The lease contains one renewal option, which allows the Council to renew for a period of five additional years. The lease provides for eleven months of free rent and contains a fixed escalation clause for increases in the annual minimum rent of 2.5% per annum, except for the sixth year, which is based on an increase of $1.50 per rentable square foot. Additionally, under the terms of this lease, the Council received from the landlord an allowance of $2,131,705 for leasehold improvements as an incentive to enter into the lease agreement. Accounting guidance requires that all fixed rent increases, less any rental abatements, and all lease incentives, be recognized on a straight-line basis over the term of the lease. The difference between this rent expense and the required lease payments is reflected as deferred rent and construction allowance in the consolidated statements of financial position. As of December 31, 2013, total future minimum lease payments under this lease are as follows: Years Ending December 31, 2014 $ 1,811, ,857, ,903, ,951, ,000,127 Thereafter 672,157 $ 10,196,062 Rent expense under this lease for the years ended December 31, 2013 and 2012, including pass through costs, was $1,588,924 and $1,549,203, respectively, and is included in occupancy expense in the consolidated statements of functional expenses. Letter of Credit: The Council has caused to be issued a standby letter of credit with a bank in the amount of $129,847, which expires on April 30, The standby letter of credit serves as security for the Council s deposit on its office space lease. 14

17 Notes to Consolidated Financial Statements Note 6. Commitments and Contingencies (Continued) Contractual Commitments: The Council has entered into various letters of agreement for hotel accommodations for its planned conferences through April In the event the Council were to cancel these reservations or fail to use a specified percentage of the total space reserved, the Council would be required to pay liquidated damages based upon the date the hotel was notified of the cancellation or reduction in requested rooms, as well as the hotel s ability to fill the resulting vacancies. Management of the Council does not believe that any of these commitments will result in a loss due to liquidated damages. Accordingly, no amount for this potential liability has been reflected in the consolidated financial statements. Concentration of Credit Risk: The Organization maintains its cash and cash equivalents with a financial institution where the aggregate balance at times may exceed the Federal Deposit Insurance Corporation ( FDIC ) insured limit. From December 31, 2010 through December 31, 2012, non-interest bearing accounts at FDIC insured institutions were fully insured with no limit on the balance. Interest bearing accounts and since January 1, 2013, non-interest bearing accounts, are subject to a $250,000 limit per depositor per bank. The amount held by the Organization in excess of the FDIC limit was $2,598,481 and $1,976,501 as of December 31, 2013 and 2012, respectively. The Organization monitors the creditworthiness of this institution and has not experienced, nor does it anticipate, any loss of funds. Note 7. Retirement Plans Defined Contribution Plan: The Council offers a defined contribution plan under Section 403(b) of the Internal Revenue Code (IRC). Under the plan, effective December 31, 1981 and amended January 1, 2002, eligible employees may elect to contribute up to the federal tax limitation. As approved by the Board of Directors, the employer contribution was 5% of eligible employees earnings for the years ended December 31, 2013 and Employer contributions are subject to the following vesting requirements: Completed Years of Service Percent Vested 1 0% 2 33% 3 67% 4 100% During 2013, the Council s 403(b) Plan administrators completed an analysis of employer contribution vesting (vesting sweep) and determined that approximately $251,000 in unvested contributions related to employee terminations be refunded to the Council. This amount was offset by contribution expense in 2013 of $105,000. Net contribution recovery for the 403(b) plan for the year ended December 31, 2013 was approximately $146,000. Contribution expense for the 403(b) plan for the year ended December 31, 2012 was approximately $247,000. Supplemental Executive Retirement Plan: Pursuant to Section 457(b) of the IRC, the Council offers its executives or highly compensated employees an opportunity to defer compensation to supplement such employees retirement benefits under the employer s Employee Retirement Income Security Act ( ERISA ) qualified retirement plan. Employees are fully vested when plan contributions are made. Under the 457(b) plan, the Council may contribute up to 15% of a participant s earnings, reduced by any contribution made on behalf of the participant under the 403(b) plan. There were no employer contributions made to this plan during the years ended December 31, 2013 and 2012, respectively. 15

18 Notes to Consolidated Financial Statements Note 8. Related Party The Council is related to the Forum of Regional Associations of Grantmakers (the Forum), a nonprofit organization as defined under Section 501(c)(3). During the years ended December 31, 2013 and 2012, the Council appointed one member to the Forum s Board of Directors and the Forum appointed one member to the Council s Board of Directors. In December 2008, the organizations entered into a service agreement and a sublease agreement which was renewed through December 2012 after which it became a month-to-month agreement. Under the terms of the service agreement, the Council provided the Forum with office furniture and equipment, human resource administrative support, and finance and accounting support. Under the terms of both agreements, the Council billed the Forum $39,357 and $54,280 for the years ended December 31, 2013 and 2012, respectively, of which $1,645 and $0 was owed to the Council as of December 31, 2013 and 2012, respectively. These amounts are included in accounts receivable in the consolidated statements of financial position. Note 9. Fair Value Measurements The tables below present the balances of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy: 2013 Total Level 1 Level 2 Level 3 Equity mutual funds Foreign equity $ 1,035,251 $ 1,035,251 $ - $ - Large cap equity 529, , Small/mid cap value equity 485, , ,050,003 2,050, Fixed-income mutual funds Domestic 2,263,470 2,263, Global 699, , ,962,649 2,962, Equities Large cap 1,250,049 1,250, Foreign equity 460, , ,710,854 1,710, Exchange-traded funds Domestic 917, , Foreign 722, , Real assets 666, , ,307,113 2,307, Multi-asset mutual funds Balanced 777, , Managed futures 414, , Alternatives 22,702 22, ,214,708 1,214, $ 10,245,327 $ 10,245,327 $ - $ - 16

19 Notes to Consolidated Financial Statements Note 9. Fair Value Measurements (Continued) 2012 Total Level 1 Level 2 Level 3 Equity mutual funds Foreign equity $ 1,962,433 $ 1,962,433 $ - $ - Large cap equity 1,406,282 1,406, Small/mid cap value equity 442, , ,811,024 3,811, Fixed-income mutual funds Short duration 134, , Domestic 2,312,516 2,312, Global 562, , ,009,894 3,009, Equities Large cap 1,717,893 1,717, Foreign equity 114, , Real assets 16,896 16, ,849,218 1,849, Exchange-traded funds Real assets 776, , Foreign 688, , Domestic 60,329 60, ,525,542 1,525, TIFF multi-asset mutual fund 949, ,220 - $ 11,144,898 $ 10,195,678 $ 949,220 $ - The TIFF multi-asset mutual fund (alternative investment fund) was liquidated during This fund included long and short positions in common stock, U.S. and foreign corporate and government fixedincome securities, forward and futures contracts, commodities, repurchase agreements, and other derivatives. Pooled investment funds were held under multiple investment managers and were measured based on the valuations provided by Fund Managers and valuation experts that determined the unit value based upon the net asset value ( NAV ) published daily by the fund. The estimated value for the alternative investment fund was based upon historical cost, appraisals, obtainable prices for similar assets, or other estimates. Funds could be redeemed at any time directly through TIFF. As of December 31, 2012, the alternative investment fund held by the Organization had no specified redemption restrictions. The Organization had no unfunded commitments to this fund as of December 31, There was no change in valuation techniques used to measure fair value of the assets. At December 31, 2013 and 2012, the Organization did not have any financial instruments that are recorded at fair value on a non-recurring basis. 17

20 Independent Auditor s Report on the Supplementary Consolidating Information To the Board of Directors Council on Foundations, Inc. Arlington, Virginia We have audited the consolidated financial statements of the Council on Foundations, Inc. and Affiliate (the Council) as of and for the years ended December 31, 2013 and 2012, and have issued our report thereon, dated April 28, 2014, which contained an unmodified opinion on those consolidated financial statements. Our audits were performed for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating information is presented for purposes of additional analysis rather than present the financial position and activities of the individual entities and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Blue Bell, Pennsylvania April 28,

21 Consolidating Statement of Financial Position December 31, 2013 (With Summarized Comparative Totals for 2012) The Council CFNSB Eliminations Total Total Assets Cash and cash equivalents $ 2,698,542 $ 149,939 $ - $ 2,848,481 $ 3,012,182 Investments 10,306, ,306,805 11,244,571 Accounts receivable 101, (22,938) 78,896 9,872 Grants receivable 1,243, ,243,656 1,837,160 Prepaid expenses 290, , ,394 Deposits 2, , ,884 Equipment and leasehold Improvements, net 2,003,278 6,753-2,010,031 2,720,174 Total assets $ 16,646,384 $ 157,492 $ (22,938) $ 16,780,938 $ 19,365,237 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses 623,195 $ 34,538 $ (22,938) $ 634,795 $ 1,281,108 Deferred membership dues 1,588, ,588, ,488 Deferred registration and other fees 4, , ,988 Capital lease obligations 66, , ,358 Deferred rent and construction allowance 2,389, ,389,603 2,687,239 Total liabilities 4,672,103 34,538 (22,938) 4,683,703 5,346,181 Net Assets Unrestricted 8,702, ,954-8,825,859 10,138,372 Temporarily restricted 3,072, ,072,771 3,682,079 Permanently restricted 198, , ,605 Total net assets 11,974, ,954-12,097,235 14,019,056 Total liabilities and assets $ 16,646,384 $ 157,492 $ (22,938) $ 16,780,938 $ 19,365,237 19

22 Consolidating Statement of Activities Year Ended December 31, 2013 (With Summarized Comparative Totals for 2012) 2013 The Council CFNSB Temporarily Permanently Temporarily 2012 Unrestricted Restricted Restricted Total Unrestricted Restricted Total Total Eliminations Total Total Revenue and Support Membership dues and contributions $ 8,686,255 $ 1,116,420 $ - $ 9,802,675 $ - $ - $ - $ 9,802,675 $ - $ 9,802,675 $ 11,307,363 Release from restrictions: Satisfaction of time restrictions 1,377,352 (1,377,352) Total membership dues and contributions 10,063,607 (260,932) - 9,802, ,802,675-9,802,675 11,307,363 Grants and contributions 309,500 1,058,496-1,367, ,367,996-1,367,996 2,534,758 Conference registrations and exhibit income 2,204, ,204, ,204,702-2,204,702 2,555,188 Accreditation deposits and fees ,030-93,030 93,030-93, ,700 Other 220, , ,091 (90,825) 129, ,238 Publications 94, , ,197-94, ,961 Operational investment income 1,234 25,006-26, ,240-26,240 53,724 Office rental income 18, , ,813-18,813 27,869 Release from restrictions: Satisfaction of program restrictions 630,202 (630,202) Satisfaction of time restrictions 801,676 (801,676) Total revenue and support 14,344,022 (609,308) - 13,734,714 93,030-93,030 13,827,744 (90,825) 13,736,919 16,949,801 Expenses Program services 11,093, ,093, ,093,112-11,093,112 11,072,526 Supporting services 5,617, ,617, , ,047 5,743,239 (90,825) 5,652,414 6,754,582 Total expenses 16,710, ,710, , ,047 16,836,351 (90,825) 16,745,526 17,827,108 Change in net assets before non-operating activities (2,366,282) (609,308) - (2,975,590) (33,017) - (33,017) (3,008,607) - (3,008,607) (877,307) Non-operating Activities Investment income 1,086, ,086, ,086,786-1,086,786 1,408,680 Change in net assets (1,279,496) (609,308) (1,888,804) (33,017) - (33,017) (1,921,821) - (1,921,821) 531,373 Net Assets Beginning 9,982,401 3,682, ,605 13,863, , ,971 14,019,056-14,019,056 13,487,683 Ending $ 8,702,905 $ 3,072,771 $ 198,605 $ 11,974,281 $ 122,954 $ - $ 122,954 $ 12,097,235 $ - $ 12,097,235 $ 14,019,056 20