United Way of Greater Cleveland and The Cleveland Community Fund. Combined Financial Statements for the Years Ended June 30, 2018 and 2017

Transcription

1 United Way of Greater Cleveland and The Cleveland Community Fund Combined Financial Statements for the Years Ended June 30, 2018 and 2017

2 United Way of Greater Cleveland and The Cleveland Community Fund Combined Financial Statements For the years ended June 30, 2018 and 2017 Table of Contents Independent Auditor s Report Combined Financial Statements as of and for the years ended June 30, 2018 and 2017: Combined Statements of Financial Position... 3 Combined Statements of Activities and Changes in Net Assets Combined Statements of Allocations, Contributions, and Functional Expenses Combined Statements of Cash Flows Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page

3 Where Relationships Count. Independent Auditor s Report Board of Directors United Way of Greater Cleveland Report on the Combined Financial Statements We have audited the accompanying combined financial statements of United Way of Greater Cleveland and The Cleveland Community Fund (not-for-profit organizations, collectively, the Organization ), which comprise the combined statements of financial position as of June 30, 2018 and 2017, and the related combined statements of activities and changes in net assets, of allocations, contributions, and functional expenses and cash flows for the years then ended, and the related notes to the combined financial statements. Management s Responsibility for the Combined 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 the 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits 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 Organization s 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 Organization 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 combined financial statements.

4 Board of Directors United Way of Greater Cleveland 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 respects, the combined financial position of the Organization as of June 30, 2018 and 2017, 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. Restatement As discussed in Note 14 to the combined financial statements, management restated its June 30, 2017 combined financial statements to reflect the correction of errors related to the recording of contributions and to reflect management s retrospective review of its revenue recognition policy as it related to various government grants and contracts. Accordingly, amounts reported for contributions, program income, receivables, deferred revenues, and beginning and ending net assets have been restated in the fiscal 2017 combined financial statements now presented. Our opinion is not modified with respect to that matter. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 24, 2018 on our consideration of the Organization s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control over financial reporting and compliance. Cleveland, Ohio October 24,

5 Combined Statements of Financial Position Assets Cash and cash equivalents $ 2,591,701 $ 1,733,502 Custodial funds 1,524, ,928 Campaign receivables 15,357,975 17,706,777 Less: allowance for uncollectible campaign receivables (1,070,771) (1,451,300) Net campaign receivables 14,287,204 16,255,477 Accounts receivable: Agencies 802, ,626 Other 666, ,034 Major gifts receivable, net 1,429,188 1,683,385 Marketable securities 22,780,185 26,410,923 Prepaid expenses and other assets 128, ,773 Land, building, and equipment, net 5,619,073 5,944,330 $ 49,829,387 $ 54,087,978 Liabilities and Net Assets Liabilities: Custodial funds $ 1,524,298 $ 532,928 Due to donor-designated agencies 5,721,333 6,536,843 Accounts payable: Agencies 13,670,158 14,138,101 Other 620, ,070 Other liabilities 1,146, ,919 Deferred grants and program income 654, ,110 Pension liability 4,433,614 5,500,107 Total liabilities 27,771,381 28,652,078 Net assets: Unrestricted: Undesignated 9,106,634 3,827,769 Board-designated endowment - 14,990,292 Board-designated operating reserves 8,137,750 - Board-designated strategic initiatives 1,644,000 3,025,000 Total unrestricted 18,888,384 21,843,061 Temporarily restricted 2,919,622 3,342,839 Permanently restricted 250, ,000 Total net assets 22,058,006 25,435,900 $ 49,829,387 $ 54,087,978 The accompanying notes are an integral part of these combined financial statements 3

6 Combined Statement of Activities and Changes in Net Assets For the year ended June 30, 2018 Support, revenues, and gains: Temporarily Permanently Unrestricted Restricted Restricted Total Contributions: Contributions received $ 27,977,207 $ 1,420,819 $ - $ 29,398,026 Less: donor designations (8,281,651) - - (8,281,651) Allowance for uncollectible pledges (378,284) - - (378,284) Contributions released from restriction 1,844,036 (1,844,036) - - Total contributions 21,161,308 (423,217) - 20,738,091 Revenues and gains: Program fees and grants 6,620, ,620,355 Interest and dividend income 375, ,269 Realized and unrealized gains on investment transactions, net 1,675, ,675,521 Rental income and miscellaneous 222, ,364 Total support, revenues, and gains 30,054,817 (423,217) - 29,631,600 Allocations and functional expenses: Funds allocated to agencies 17,598, ,598,109 Functional expenses: Programs 5,312, ,312,221 Community impact and agency relations 2,230, ,230,077 Fundraising 3,988, ,988,237 Management and general 4,728, ,728,100 Total functional expenses 16,258, ,258,635 Total allocations and functional expenses 33,856, ,856,744 Change in net assets before other components of net periodic pension cost and pension-related changes other than net periodic pension cost (3,801,927) (423,217) - (4,225,144) Other components of net periodic pension cost (329,486) - - (329,486) Pension-related changes other than net periodic pension cost 1,176, ,176,736 Change in net assets (2,954,677) (423,217) - (3,377,894) Net assets beginning of year (as restated) 21,843,061 3,342, ,000 25,435,900 Net assets end of year $ 18,888,384 $ 2,919,622 $ 250,000 $ 22,058,006 The accompanying notes are an integral part of these combined financial statements 4

7 Combined Statement of Activities and Changes in Net Assets For the year ended June 30, 2017 (as restated) Support, revenues, and gains: Temporarily Permanently Unrestricted Restricted Restricted Total Contributions: Contributions received $ 33,159,379 $ 1,521,819 $ - $ 34,681,198 Less: donor designations (9,408,828) 18,015 - (9,390,813) Allowance for uncollectible pledges (893,090) - - (893,090) Contributions released from restriction 928,477 (928,477) - - Total contributions 23,785, ,357-24,397,295 Revenues and gains: Program fees and grants 6,695, ,695,218 Interest and dividend income 350, ,151 Realized and unrealized gains on investment transactions, net 2,933, ,933,867 Rental income 106, ,533 Total support, revenues, and gains 33,871, ,357-34,483,064 Allocations and functional expenses: Funds allocated to agencies 17,869, ,869,286 Functional expenses: Programs 4,535, ,535,377 Community impact and agency relations 2,646, ,646,652 Fundraising 3,949, ,949,920 Management and general 4,729, ,729,122 Total functional expenses 15,861, ,861,071 Total allocations and functional expenses 33,730, ,730,357 Change in net assets before other components of net periodic pension cost and pension-related changes other than net periodic pension cost 141, , ,707 Other components of net periodic pension cost (860,971) - - (860,971) Pension-related changes other than net periodic pension cost 2,127, ,127,076 Change in net assets 1,407, ,357-2,018,812 Net assets beginning of year 20,435,606 2,731, ,000 23,417,088 Net assets end of year $ 21,843,061 $ 3,342,839 $ 250,000 $ 25,435,900 The accompanying notes are an integral part of these combined financial statements 5

8 Combined Statement of Allocations, Contributions, and Functional Expenses For the year ended June 30, 2018 Community Impact and Management Agency Fund- and Allocations Programs Relations raising General Total Allocations and contributions $ 17,598,109 $ - $ - $ - $ - $ 17,598,109 Salaries - 2,289,432 1,199,305 1,799,168 2,413,036 7,700,941 Employee fringe benefits - 595, , , ,973 1,693,635 Payroll taxes - 173,851 88, , , ,041 Total personnel expenses - 3,058,788 1,533,176 2,363,400 3,034,253 9,989,617 Fees and contract services - 815, , , ,729 2,669,224 Supplies - 29,232 31,930 42,280 77, ,801 Telephone - 189,034 17,658 29,107 29, ,160 Postage and shipping - 2,116 2,964 37,365 26,691 69,136 Occupancy - 272,869 57, ,218 68, ,212 Equipment rental and maintenance - 338,807 70,054 93,441 71, ,782 Printed, promotional, and visual - 53,900 37, ,274 41, ,482 Travel and reimbursable expenses - 29,835 16,234 17,939 10,105 74,113 Conferences, conventions and meetings - 61,646 28,559 99,872 87, ,092 Dues and subscriptions - 9,678 2,496 31,003 31,852 75,029 Insurance 47,189 7,771 22,607 22,108 99,675 Miscellaneous - 64,234 9,548 38, , ,519 Total expenses before depreciation and amortization 17,598,109 4,972,823 2,172,108 3,829,544 4,609,367 33,181,951 Depreciation and amortization - 339,398 57, , , ,793 Total $ 17,598,109 $ 5,312,221 $ 2,230,077 $ 3,988,237 $ 4,728,100 $ 33,856,744 The accompanying notes are an integral part of these combined financial statements 6

9 Combined Statement of Allocations, Contributions, and Functional Expenses For the year ended June 30, 2017 Community Impact and Management Agency Fund- and Allocations Programs Relations raising General Total Allocations and contributions $ 17,869,286 $ - $ - $ - $ - $ 17,869,286 Salaries - 2,074,958 1,281,131 1,871,547 2,383,386 7,611,022 Employee fringe benefits - 446, , , ,757 1,594,243 Payroll taxes - 155, , , , ,019 Total personnel expenses - 2,676,319 1,688,670 2,379,703 3,080,592 9,825,284 Fees and contract services - 705, , , ,735 2,404,091 Supplies - 10,662 31,306 11,062 44,131 97,161 Telephone - 154,258 9,810 9,745 73, ,945 Postage and shipping - 3,816 1,644 22,431 16,021 43,912 Occupancy - 218,174 50,606 80, , ,357 Equipment rental and maintenance - 303,237 92,700 66,050 84, ,388 Printed, promotional, and visual - 38,468 71, ,709 42, ,887 Travel and reimbursable expenses - 16,994 20,010 24,714 28,070 89,788 Conferences, conventions and meetings - 52, , ,378 47, ,376 Dues and subscriptions - 2,509 2,981 37,868 16,692 60,050 Miscellaneous - 113,893 35,613 66, , ,350 Total expenses before depreciation and amortization 17,869,286 4,296,118 2,549,452 3,810,232 4,608,787 33,133,875 Depreciation and amortization - 239,259 97, , , ,482 Total $ 17,869,286 $ 4,535,377 $ 2,646,652 $ 3,949,920 $ 4,729,122 $ 33,730,357 The accompanying notes are an integral part of these combined financial statements 7

10 Combined Statements of Cash Flows For the years ended Cash flows from operating activities: Change in net assets $ (3,377,894) $ 2,018,812 Adjustments to reconcile change in net assets to net cash used by operating activities: Pension-related changes other than net periodic pension cost (1,176,736) (2,127,076) Depreciation and amortization 674, ,482 Provision for uncollectible campaign receivables 378, ,090 Change in discount on pledges receivable (1,053) 70,889 Net realized and unrealized gains on investment transactions (1,675,521) (2,933,867) (Increase) decrease in operating assets: Campaign receivables 1,589,989 1,021,333 Major gifts receivable 255,250 (958,500) Agencies and other receivables (132,222) 165,306 Prepaid expenses and other assets 61,917 66,773 Increase (decrease) in operating liabilities: Due to designated agencies (815,510) (339,525) Accounts payable agencies (467,943) (869,040) Accounts payable other (67,094) (90,786) Other liabilities 655, ,659 Net cash used by operating activities (4,098,524) (1,772,450) Cash flows from investing activities: Purchases of land, building, and equipment (349,536) (540,457) Purchases of marketable securities (11,870,629) (20,071,437) Proceeds from sale of marketable securities 17,176,888 21,335,759 Net cash provided by investing activities 4,956, ,865 Net increase (decrease) in cash and cash equivalents 858,199 (1,048,585) Cash and cash equivalents, beginning of year 1,733,502 2,782,087 Cash and cash equivalents, end of year $ 2,591,701 $ 1,733,502 The accompanying notes are an integral part of these combined financial statements 8

11 Note 1: Summary of Significant Accounting Policies Nature of Activities United Way of Greater Cleveland is a not-for-profit corporation located in Cleveland, Ohio. The United Way of Greater Cleveland serves as a critical community convener, generating and coordinating resources across individual donors, corporations, service providers and government and civic leaders to improve lives and strengthen the community on a meaningful scale. Its primary function is to solicit private and corporate contributions mainly generated in Northeastern Ohio during the United Way of Greater Cleveland s annual fundraising campaign and to allocate the contributions to programs in the Greater Cleveland area. United Way of Greater Cleveland targets not-for-profit organizations focusing on education, health, financial stability, and basic needs. United Way of Greater Cleveland also provides direct services through United Way 211 information, referral and navigator services; administration of certain Cleveland schools wrap around service program; coordination of the allocation of county funds for emergency food; other employment and re-entry programs; centralized agency services such as payroll, accounting and group insurance buying programs for other non-profit organizations and from time to time will act as a fiscal sponsor for other organizations and programs. The combined financial statements include the accounts of United Way of Greater Cleveland, United Way of Geauga County, United Way of Medina County (see Note 2) and The Cleveland Community Fund (collectively, the Organization ), an organization affiliated through common management. Interorganization transactions and accounts have been eliminated upon combination. Basis of Presentation The Organization follows authoritative guidance issued by the Financial Accounting Standards Board (FASB) which established the FASB Accounting Standards Codification (ASC) as the single source of authoritative accounting principles generally accepted in the United States of America. The accompanying combined financial statements have been prepared on the accrual basis of accounting. Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted Net Assets Net assets that are not subject to donor-imposed restrictions. These include net assets designated by the Board of Directors to be set aside to be used for specific purposes over which the Board retains control and may, at its discretion, subsequently be used for other purposes. 9

12 Note 1: Summary of Significant Accounting Policies (continued) Basis of Presentation (continued) Temporarily Restricted Net Assets Net assets subject to donor-imposed restrictions that may or will be met, either by actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the combined statements of activities and changes in net assets as net assets released from restrictions. If donor-imposed restrictions are met in the same period as they are imposed, the net assets are reported as unrestricted. Permanently Restricted Net Assets Net assets subject to donor-imposed restrictions that they be maintained by the Organization in perpetuity. Permanently restricted net assets include endowment funds received by United Way of Greater Cleveland for which only the income can be expended. Income received from permanently restricted net assets is available for the designated purpose as specified by the donor. Reclassifications Certain accounts in the prior year combined financial statements have been reclassified for comparative purposes to conform with the presentation in the current year combined financial statements. Functional Allocation of Expenses The costs of providing various programs and related supporting services have been summarized on a functional basis in the combined statements of activities and changes in net assets and of allocations and functional expenses. Accordingly, certain costs have been allocated to the appropriate programs and supporting services. Use of Estimates The preparation of the 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 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. Actual results could differ from those estimates. The allowance for uncollectible campaign receivables has been reviewed by management which reviews factors such as prior collection history, current economic factors, and knowledge of donors who have pledged in evaluating the adequacy of the allowance. It is at least reasonably possible that the estimate for the allowance for uncollectible campaign receivables will change in the near-term. The valuation of the pension liability has been calculated by an outside actuary. Factors and assumptions used by this actuary to calculate the liability are based upon estimates provided by management, and it is at least reasonably possible that the assumptions and estimates used may change in the near-term. 10

13 Note 1: Summary of Significant Accounting Policies (continued) Cash Equivalents The Organization considers all highly liquid debt instruments with original maturities of three months or less (excluding those held in brokerage accounts designated for long-term investment) to be cash equivalents. Custodial Funds Custodial funds are amounts held by United Way of Greater Cleveland that legally belong to unrelated and related entities. Accordingly, these amounts are recorded as both an asset and liability of the Organization. Receivables and Credit Policies Accounts receivable are primarily related to amounts due from not-for-profit agencies for payroll and accounting services provided by the Organization and amounts due from government grants. Accounts receivable are stated at the amount billed to the agency or the amount owed from the governmental entity. Management individually reviews all accounts receivable balances and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. At June 30, 2018 and 2017, management estimated that no allowance for doubtful accounts was required. Contributions and Pledges Receivable Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending upon the existence and/or nature of any donor restrictions. Unconditional promises to give are recorded at their fair market value in the period in which the Organization was notified of the promise. Conditional promises to give are not included in support until such time as the conditions are substantially met. Allowances are provided for uncollectible pledges based upon prior experience, current economic factors, and knowledge of donors and their characteristics. Promises to give are not collateralized. Promises to give that are to be received over a period of time greater than one year are discounted to their fair value assuming their respective payment terms and an appropriate discount rate as of the date the pledge is received. The discount is amortized into contribution revenue over the term of the respective pledge agreement. All campaign receivables are due within one fiscal year. Marketable Securities Investments in marketable securities and all investments in debt securities are reported at their estimated fair values in the combined statements of financial position. Unrealized gains and losses arising during the period are included in unrealized gains (losses) on investment transactions in the accompanying combined statements of activities and changes in net assets. 11

14 Note 1: Summary of Significant Accounting Policies (continued) Land, Building, and Equipment Building and equipment are depreciated utilizing the straight-line method over their estimated useful lives ranging from 3 to 40 years. The Organization capitalizes purchases of land, building, and equipment that exceed $1,000. Land, building, and equipment are stated at cost. Donated Materials and Services Donated items and equipment are not reflected as contributions in the accompanying combined financial statements because they are not material. No amounts have been reported in the combined financial statements for donated services as no objective basis is available to measure the value of such services; however, a substantial number of volunteers have donated significant amounts of their time to the Organization s program services and to its fundraising campaigns. Due to Designated Agencies Contributions received that have been designated for specific recipient agencies are reported as amounts due to designated agencies in the combined statements of financial position and as a reduction of contributions in the combined statements of activities and changes in net assets in the period in which the related contribution is recognized. Allocations Payable The Board of Directors approves all funds allocated to agencies from the fundraising campaigns that are unrestricted. Such allocations to agencies are reported as accounts payable agencies in the accompanying combined statements of financial position. Included in accounts payable agencies are financial commitments made in prior years to particular agencies for programs that have not been disbursed as of June 30, 2018 and The financial commitments were not disbursed because the agencies running the programs either went out of business or did not meet certain requirements set by the Organization. The Organization has determined a liability still exists for the programs that were originally funded. Management determines which agencies will receive the funds to assist in carrying out the previously funded programs. The balance of these commitments was $54,300 and $117,850 as of June 30, 2018 and 2017, respectively. Deferred Grants and Program Income Deferred revenue consists of amounts received by United Way of Greater Cleveland for which a condition associated with a grant has not yet been substantially met or for which funds have been received in advance of services being provided. 12

15 Note 1: Summary of Significant Accounting Policies (continued) Program Fees Program fees are amounts earned by United Way of Greater Cleveland for direct services such as 211 information, referral and navigation services, payroll and accounting services provided to not-for-profit agencies, processing fees assessed on donor-designations and amounts received from government and restricted grants. Funds Allocated to Agencies Included in the amounts reported as allocations to agencies in the accompanying combined statements of activities and changes in net assets are payments of dues to certain voluntary trade organizations. These amounts totaled $426,886 and $102,876 for the year ended June 30, 2018, for United Way Worldwide and Ohio United Way, respectively. These amounts totaled $367,729 and $110,319 for the year ended June 30, 2017, for United Way Worldwide and Ohio United Way, respectively. Income Taxes The United Way of Greater Cleveland, United Way of Geauga County, United Way of Medina County and The Cleveland Community Fund are tax-exempt, under Section 501(c)(3) of the Internal Revenue Code of 1986 (IRC). No provision for federal income taxes has been reported in these combined financial statements. In addition, none of these entities has been classified as an organization that is a private foundation within the meaning of Section 509(a) of the IRC. Uncertain income tax positions are evaluated at least annually by management. The Organization classifies interest and penalties related to income tax matters as income tax expense in the accompanying combined financial statements. As of June 30, 2018 and 2017, the Organization has identified no uncertain income tax positions and has incurred no amounts for income tax penalties and interest for the years then ended. Concentrations of Credit Risk Financial instruments which potentially subject the Organization to concentrations of credit risk consist of cash and temporary investments, investment securities, and pledges receivable. The Organization has significant investments in equity and debt securities and is, therefore, subject to concentrations of credit risk. Investments are managed by investment advisors who are overseen by a committee. Though the market value of investments is subject to fluctuations on a year to year basis, the committee believes that the investment policy is prudent for the long-term welfare of the Organization. Concentrations of credit risk with respect to campaign receivables are limited due to the large number of contributors comprising the Organization s contributor base and their dispersion across different industries throughout Northeast Ohio. At various times during the years ended June 30, 2018 and 2017, the Organization s cash in bank balances may have exceeded the federally insured limits. 13

16 Note 1: Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements The FASB issued Accounting Standards Update (ASU) , Not-for-Profit Entities and Health Care Entities Presentation of Financial Statements of Not-for-Profit Entities. This ASU changes the current reporting requirements for nonprofit organizations and their required disclosures. The changes include: (a) requiring the presentation of only two classes of net assets, entitled net assets without donor restriction and net assets with donor restrictions, (b) modifying the presentation and disclosures of underwater endowment funds, (c) requiring the use of the placed in service approach to recognize the releases from restriction for gifts utilized to acquire or construct long-lived assets, (d) requiring that all nonprofits present an analysis of expenses by function and nature in either the statement of activities, a separate statement, or in the notes to the financial statements and to summarize the allocation methodologies utilized to allocate the costs, (e) requiring the disclosure of quantitative and qualitative information regarding liquidity, and (f) modifying other financial statement reporting requirements and disclosures to enhance the usefulness of nonprofit financial statements. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. Management is currently evaluating the impact of this ASU on its combined financial statements. In May 2014, the FASB issued ASU , Revenue from Contracts with Customers, which is a comprehensive new revenue recognition standard that will supersede existing revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods or services. FASB issued ASU that deferred the effective date for the Organization until annual periods beginning after December 15, Earlier adoption is permitted subject to certain limitations. The amendments in this update are required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. Management is currently evaluating the impact of this ASU on its combined financial statements. In February 2016, the FASB issued ASU , Leases. The objective of this ASU is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, Early adoption of this ASU is permitted. Management is currently evaluating the impact of this ASU on its combined financial statements. In November 2016, the FASB issued ASU , Statement of Cash Flows to provide clarity in the requirements for the presentation of restricted cash on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, Early adoption is permitted. Management is currently evaluating the impact of this ASU on its combined financial statements. 14

17 Note 1: Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) In June 2018, the FASB issued ASU , Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made to assist entities in evaluating whether transactions should be accounted for as contributions (nonreciprocal) or as exchange transactions subject to the guidance issued under ASU This ASU gives further guidance related to when a contribution is deemed to be conditional such that recognition of revenue should be delayed until conditions are substantially met. This ASU is effective for fiscal years beginning after December 15, 2018 for recipients of funds and for fiscal years beginning after December 15, 2019 for resource providers. Early adoption is permitted. Management is currently evaluating the impact of this ASU on its combined financial statements. Subsequent Events In preparing these combined financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through October 24, 2018, the date the combined financial statements were available to be issued. Note 2: Partnership Agreement On August 19, 2015, the Organization and United Way of Medina County ( UW-Medina ) entered into a collaborative agreement where UW-Medina would transfer all campaign related and normal operating activities to the Organization. The primary reason for the collaborative agreement is to improve the efficiency of providing health and human services to the Medina County community. On July 21, 2017, effective July 1, 2017, the Organization and UW-Medina entered into a partnership agreement that incorporates the terms of the August 19, 2015 collaborative agreement and memorializes the understanding and obligations into a binding agreement. UW-Medina transferred substantially all of its other assets to the Organization for the purpose of a restricted fund that supports UW-Medina programs and services. Total assets transferred consisted of cash and cash equivalents of $725,535. In addition, the Organization canceled the previous amounts of $180,949 due to the Organization from UW-Medina. The agreement has an initial term of three years and automatically renews for successive additional three-year terms unless either party gives notice of intent not to renew at least 9 months prior to the expiration of the then current term. The Organization processes all normal operating activities for UW-Medina. The Organization s Board of Directors has control over UW-Medina s campaign and normal operating activities, however, oversight of these activities remains with the UW-Medina Board of Directors. 15

18 Note 3: Major Gifts Receivable, net The major gifts receivable were discounted to their estimated fair value assuming their respective terms and discount rate (4.00%). The major gifts receivable are scheduled to be collected as follows: 2018 Payable in less than one year $ 195,850 Payable in one to five years 825,750 Payable in more than five years 1,030,000 2,051,600 Less: discounts to fair value (622,412) Net major gifts receivable $ 1,429,188 Note 4: Marketable Securities At June 30, 2018 and 2017, marketable securities (except for the fixed annuity) are reported at fair value and consisted of the following: Cash and cash equivalents $ 353,509 $ 953,260 Certificates of deposit 105, ,232 Common stock 15,537 - Mutual funds 8,610,290 5,424,918 Common collective funds 6,277,372 12,314,266 Fixed annuity 66, ,653 Alternative investment hedge funds 4,274,617 3,880,077 Limited partnerships 1,359,312 1,075,129 Held at community foundation 2,429,730 2,380,388 23,492,663 26,410,923 Less: marketable securities included in custodial funds on the combined statements of financial position (712,478) - Total $ 22,780,185 $ 26,410,923 16

19 Note 5: Fair Value Measurements In accordance with the Fair Value Measurements topic of the FASB ASC, the Organization uses a threelevel fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 values are based on 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; and Level 3 inputs are unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own valuation assumptions. These inputs reflect management s judgment about the assumptions that a market participant would use in pricing the asset and liability and are based on the best available information, which has been internally developed. The Organization s Level 3 investments are valued based upon information obtained from the community foundation that manages the investments. The investments held at the community foundation are classified as Level 3 due to the significance of Level 2 and Level 3 underlying securities within these pooled investments (e.g., fixed-income, private equity, hedged equity). The Organization s investments in common collective trusts are based upon the net asset value (NAV) of the common collective funds in which they are invested as reported by the investment company. Such values are derived from the value of the underlying investments, which are generally actively traded securities. The hedge funds are measured based on the net asset value per share or unit as of June 30, 2018 and Management performs due diligence on the valuation techniques used by the investment company to ensure that they are in accordance with the applicable accounting standards. Valuation of the Organization s interest in its limited partnership approximates fair market value and is based on the beginning of year value of the Organization s interest in the partnership plus actual contributions and current year allocated income (realized and unrealized gains and losses) less actual distributions and allocated expenses. As this is an investment in unregistered securities, the Organization may experience a lack of liquidity in the event it elects to dispose of its interest prior to the partnership s termination and final distribution. Investments held by the partnership are portfolio funds focusing on long/short equity or eventdriven investment strategies, equity and balance sheet arbitrage, special situations investing, or other nontraditional investment disciplines. For investments that are not publicly traded, the general partner estimates the fair market value based on factors such as using comparable market transactions or by calculating the net present value of estimated future cash flows, adjusted for liquidity, credit, or other market factors. Because of the inherent uncertainty of the valuations, those estimated fair values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. 17

20 Note 5: Fair Value Measurements (continued) Financial assets consisted of the following at June 30, 2018 and 2017: June 30, Level 1 Level 2 Level Mutual funds: Fixed income: Bank loan $ 930,525 $ - $ - $ 930,525 Bond fund 498, ,571 Equities: International 2,149, ,149,849 Multi-alternative 304, ,707 Large-cap index 3,456, ,456,519 Mid-cap index 507, ,313 Small-cap index 762, ,806 Cash and cash equivalents 353, ,509 Common stock 15, ,537 Fixed annuity - 66,562-66,562 Certificates of deposit - 105, ,734 Held at community foundation - - 2,429,730 2,429,730 $ 8,979,336 $ 172,296 $ 2,429,730 11,581,362 Investments measured at NAV * 11,911,301 23,492,663 Less: marketable securities included in custodial funds on the combined statements of financial position (712,478) Total investments $ 22,780,185 18

21 Note 5: Fair Value Measurements (continued) June 30, Level 1 Level 2 Level Mutual funds: Fixed income: Bank loan $ 934,818 $ - $ - $ 934,818 Bond fund 862, ,955 Equities: International 1,876, ,876,548 Multi-alternative 310, ,122 Mid-cap index 606, ,425 Small-cap index 834, ,050 Cash and cash equivalents 953, ,260 Fixed annuity - 129, ,653 Certificates of deposit - 253, ,232 Held at community foundation - - 2,380,388 2,380,388 $ 6,378,178 $ 382,885 $ 2,380,388 9,141,451 Investments measured at NAV * 17,269,472 Total investments $ 26,410,923 * In accordance with the Fair Value Measurement topic of the FASB ASC, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the line items presented in the combined statements of financial position. The table below sets forth a summary of the changes in the fair value of the Organization s Level 3 assets for the years ended June 30, 2018 and 2017: Held at community foundation Balance, June 30, 2016 $ 2,201,022 Administrative fees (16,696) Distributions (119,072) Unrealized gains 315,134 Balance, June 30, ,380,388 Administrative fees (16,724) Distributions (127,057) Unrealized gains 193,123 Balance, June 30, 2018 $ 2,429,730 19

22 Note 5: Fair Value Measurements (continued) The following table summarizes investments for which fair value is measured using net asset value per share as a practical expedient as of June 30, 2018 and 2017, respectively: Fair Value Redemption Frequency Redemption Investment (if currently eligible) Notice Period Hedge funds: Gotham enhanced long fund $ 2,233,140 $ 2,000,000 Daily n/a Private advisor stable value master fund 25, ,104 Suspended under liquidation n/a Two sigma active extension U.S. all cap equity cayman fund, ltd. 2,016,441 1,742,973 Monthly 30 days Total hedge funds 4,274,617 3,880,077 Limited partnerships: GLAS funds SPC limited partnership 1,128,406 1,075,129 Daily n/a Golub capital partners international 11 limited partnership 230,906 - Daily n/a Total limited partnerships 1,359,312 1,075,129 Common/collective funds: KT index 500 fund - 6,063,934 Daily n/a Charitable mid-cap fund 1,016, ,705 Daily n/a Charitable international equity fund 2,381,209 2,075,326 Daily n/a Charitable income fund 1,866,783 2,269,227 Daily n/a Charitable intermediate fund 1,012, ,074 Daily n/a Total common/collective funds 6,277,372 12,314,266 Total investments at NAV $ 11,911,301 $ 17,269,472 Note 6: Retirement Plans United Way of Greater Cleveland has a defined benefit pension plan covering substantially all employees who were hired prior to December 31, Benefits are generally based on years of service and final average salary. It is the policy of United Way of Greater Cleveland to fund, at a minimum, the actuarially determined required minimum funding level. The measurement date of the plan is June 30. Participation in the plan was frozen effective December 31, In accordance with the Compensation-Retirement Benefits topic of the FASB ASC, the Organization recognizes the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its combined statements of financial position. 20

23 Note 6: Retirement Plans (continued) The following presents the funded status and amounts included in pension liability in the combined statements of financial position at June 30: Fair value of plan assets at June 30 $ 8,508,090 $ 8,696,448 Benefit obligation at June 30 (12,941,704) (14,196,555) Funded status $ (4,433,614) $ (5,500,107) Accrued benefit cost recognized in the combined statements of financial position $ 4,433,614 $ 5,500,107 Reclassifications to net periodic benefit cost of amounts previously recognized as changes in unrestricted net assets but not included in net periodic benefit cost when they arose were as follows for the year ended June 30: Net loss $ 329,486 $ 860,971 Included in employee fringe benefits on the combined statements of allocations, contributions and functional expenses is $180,757 and $137,239 in pension service cost for the years ended June 30, 2018 and 2017, respectively. The following are included in other components of periodic pension costs on the accompanying combined statements of activities and changes in net assets as of June 30: Interest cost $ 473,937 $ 494,622 Expected return on plan assets (611,664) (666,844) Recognized net actuarial loss 467, ,654 Settlements - 232,539 $ 329,486 $ 860,971 21

24 Note 6: Retirement Plans (continued) Amount recognized in changes in net assets but not yet included in net periodic benefit cost are as follows for the year ended June 30: Net gain $ 1,176,736 $ 2,127,076 The accumulated net loss at June 30, 2018 is $2,962,100 and the estimated net loss for the defined benefit pension plan that will be amortized into periodic benefit cost over the next fiscal year (ending June 30, 2019) is approximately $310,000. The accumulated benefit obligation of the pension plan is $12,941,704 and $14,196,555 at June 30, 2018 and 2017, respectively Weighted-average actuarial assumptions used to determine net periodic benefit cost for the year ended June 30: Discount rate 3.50% 3.25% Expected return on plan assets 7.50% 8.00% Rate of compensation increase N/A N/A Weighted-average actuarial assumptions used to determine benefit obligations as of June 30: Discount rate 4.00% 3.50% Rate of compensation increase N/A N/A Benefit cost recognized in combined statements of activities and changes in net assets $ 510,243 $ 998,210 Benefits paid (including settlements) $ 1,038,680 $ 1,317,246 The mortality table used by the Organization for the years ended June 30, 2018 and 2017 was the RP 2014 Mortality Tables regressed to 2007 using the MP 2014 projection scale and then projected forward generationally using a modification of the MP 2014 scale. The following table shows the amounts United Way of Greater Cleveland contributed to its pension plan during the years ended June 30, 2018 and 2017 and the expected contributions for the fiscal year ending June 30, 2019: Employer Contributions: 2017 $ 325, , (expected) 378,000 22

25 Note 6: Retirement Plans (continued) The expected contribution to the plan represents an actuarial estimate of future assumed payments based on historic retirement, payment patterns, and statutory requirements. Actual amounts paid could differ from this estimate. Employees of the plan who have achieved age 55 and are 30 years vested in the plan are eligible for early retirement at a reduced benefit. Certain employees are also eligible for a lump-sum distribution of their retirement benefits. The following table shows the benefits expected to be paid in each of the next five fiscal years ending June 30 and the aggregate to be paid for the subsequent five years assuming normal retirement age. Actual future benefit payments could differ from the estimate based on the election of the employees. Estimated Future Benefit Payments: 2019 $ 1,440, , , , , ,576,019 The investment objective of the pension plan is to assure the timely payment of promised benefits at a minimum cost consistent with prudent standards of investment, the adequacy of the plan s funding, and the age of the work force. The pension plan utilizes a diversified investment portfolio and seeks to earn returns consistent with a reasonable level of risk. The long-term expected return on plan assets is based upon the plan s investment allocation and anticipated returns for specific investment classes. As long-term asset allocation is recognized as the primary determinant of performance, United Way of Greater Cleveland generally utilizes the following asset allocation targets to achieve its plan investment objectives: 65% equity securities and 35% fixed-income instruments (which can include debt securities, real estate investments, alternative investments, and government securities). Allocations are reviewed periodically and adjusted as necessary. The market values of pension plan assets are compared periodically to the value of plan benefit obligations. The future value of assets, as calculated based on the expected long-term rate of return, are also compared to expected future plan benefit distributions and contributions to determine the sufficiency of expected plan funding levels. Investment asset allocations are revised as appropriate. 23

26 Note 6: Retirement Plans (continued) The fair value of the pension plan investment assets, and their level within the fair value hierarchy described in Note 5, were as follows at June 30, 2018 and 2017 (see Note 5 for a description of how the fair value of assets are determined): June 30, Level 1 Level 2 Level Mutual funds: Fixed-income: Bank loan $ 365,554 $ - $ - $ 365,554 World bond 277, ,989 Equities: International 1,196, ,196,164 Multi-alternative 562, ,352 Large-cap index 2,661, ,661,414 Mid-cap index 689, ,193 Small-cap index 350, ,310 $ 6,102,976 $ - $ - 6,102,976 Investments measured at NAV * 2,139,813 Total investments $ 8,242,789 At June 30, 2018, the Organization also had $265,301 of cash and cash equivalents within its pension plan assets. June 30, Level 1 Level 2 Level Mutual funds: Fixed-income: Bank loan $ 367,240 $ - $ - $ 367,240 World bond 294, ,955 Equities: International 1,137, ,137,060 Multi-alternative 731, ,320 Large-cap index 211, ,736 Mid-cap index 606, ,135 Small-cap index 300, ,738 $ 3,649,184 $ - $ - 3,649,184 Investments measured at NAV * 4,873,519 Total investments $ 8,522,703 At June 30, 2017, the Organization also had $173,745 of cash and cash equivalents within its pension plan assets. 24