KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM FOUNDATION, INC. Draft. FINANCIAL STATEMENTS June 30, 2018 and 2017

Transcription

1 KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM FOUNDATION, INC. FINANCIAL STATEMENTS

2 FINANCIAL STATEMENTS CONTENTS INDEPENDENT AUDITOR S REPORT... 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION... 3 STATEMENTS OF ACTIVITIES... 4 STATEMENTS OF CASH FLOWS... 6 NOTES TO FINANCIAL STATEMENTS... 7

3 INDEPENDENT AUDITOR S REPORT The Board of Directors Kentucky Community and Technical College System Foundation, Inc. Versailles, Kentucky Report on Financial Statements We have audited the accompanying financial statements of the Kentucky Community and Technical College System Foundation, Inc. (Foundation), which comprise the statements of financial position as of, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (Continued) 1.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Kentucky Community and Technical College System Foundation, Inc. as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Crowe LLP Lexington, Kentucky,

5 STATEMENTS OF FINANCIAL POSITION ASSETS Cash $ 768,343 $ 811,009 Contributions receivable 4,272 7,186 Prepaid expenses and other current assets 5,423 3,506 Investments (Note 3) 2,164,401 1,956,841 Property and equipment, net 765 1,261 Total assets $ 2,943,204 $ 2,779,803 LIABILITIES Accrued expenses $ - $ 2,200 NET ASSETS Unrestricted Undesignated 66,339 70,639 Board designated for operations 48,000 48,000 Board designated for endowment 321, , , ,704 Temporarily restricted: Academic programs 676, ,759 Scholarships 799, ,643 Funds restricted for other specific purposes 145, ,833 1,621,406 1,566,235 Permanently restricted 885, ,664 Total net assets 2,943,204 2,777,603 Total liabilities and net assets $ 2,943,204 $ 2,779,803 See accompanying notes to financial statements. 3.

6 STATEMENTS OF ACTIVITIES Year ended June 30, 2018 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions $ 17,230 $ 261,468 $ 65,000 $ 343,698 In-kind contributions 164, ,219 Interest and dividends 1, ,820 Net realized and unrealized gain 50,307 94, ,223 Releases from restrictions 301,213 (301,213) ,789 55,171 65, ,960 EXPENSES Program expenses: Contributions for scholarships 150, ,000 Firefighter Combat Challenge 65, ,095 Other 85, , , ,127 General and administrative 189, , , ,359 Changes in net assets 45,430 55,171 65, ,601 Net assets, beginning of year 390,704 1,566, ,664 2,777,603 Net assets, end of year $ 436,134 $ 1,621,406 $ 885,664 $ 2,943,204 See accompanying notes to financial statements. 4.

7 STATEMENTS OF ACTIVITIES Year ended June 30, 2017 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions $ 4,135 $ 312,053 $ 5,075 $ 321,263 President's gala 77, ,895 In-kind contributions 115, ,859 Interest and dividends 2, ,038 Net realized and unrealized gain 67, , ,930 Releases from restrictions 126,041 (126,041) , ,270 5, ,985 EXPENSES Program expenses: Contributions for scholarships 78, ,500 President's gala 82, ,191 Other 46, , , ,223 General and administrative 137, , , ,043 Changes in net assets 48, ,270 5, ,942 Net assets, beginning of year 342,107 1,255, ,589 2,413,661 Net assets, end of year $ 390,704 $ 1,566,235 $ 820,664 $ 2,777,603 See accompanying notes to financial statements. 5.

8 STATEMENTS OF CASH FLOWS Years ended Cash flows from operating activities Change in net assets $ 165,601 $ 363,942 Adjustments to reconcile change in net assets to net cash used in operating activities: Contributions restricted for long-term investment (65,000) (5,075) Net realized and unrealized gain on investments (145,223) (191,930) Depreciation expense 496 1,906 Changes in operating assets and liabilities: Contributions receivable 2,914 (6,522) Prepaid expenses and other current assets (1,917) 378 Accrued expenses (2,200) (3,248) Net cash from operating activities (45,329) 159,451 Cash flows from investing activities Purchase of investments (65,000) (5,075) Proceeds from sales of investments 2,663 1,559 Net cash used by investing activities (62,337) (3,516) Cash flows from financing activities Proceeds from contributions restricted for long-term investment 65,000 5,075 Net cash from financing activities 65,000 5,075 Net change in cash (42,666) 161,010 Cash, beginning of year 811, ,999 Cash, end of year $ 768,343 $ 811,009 Supplemental disclosure of cash flow information In-kind contributions $ 164,219 $ 115,859 See accompanying notes to financial statements. 6.

9 NOTES TO FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF THE ORGANIZATION Kentucky Community and Technical College System Foundation, Inc. (the Foundation) is a Kentucky notfor- profit corporation formed to receive, invest and expend funds for the enhancement and improvement of Kentucky Community and Technical College System (the System). The Foundation's general purpose is to conduct and carry on its work, exclusively for charitable, scientific, literary and educational purposes on behalf of the System. The President of the System is a board member of the Foundation. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting: The Foundation uses the accrual basis of accounting. Revenue is recognized when earned and expenses are recognized when incurred. Use of Estimates: The preparation of financial statements in conformity with the Foundation s basis of accounting requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosed contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes: The Internal Revenue Service has determined that the Foundation is a tax-exempt organization as defined in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on related income. The Foundation is not considered to be a private foundation. Current accounting standards require the Foundation to disclose the amount of potential benefit or obligation to be realized as a result of an examination performed by a taxing authority. For the years ended, management has determined that the Foundation does not have any tax positions that result in any uncertainties regarding the possible impact on the Foundation s financial statements. The Foundation does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months. The Foundation recognizes interest and/or penalties related to income tax matters in income tax expense. The Foundation did not have any amounts accrued for interest and penalties at June, 2018 and Cash: The Foundation considers all liquid investments which have original maturities of three months or less to be cash equivalents. At, cash consisted of business savings and checking accounts. The Foundation maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Foundation has not experienced any losses in such accounts and does not believe that it is exposed to any significant credit risk on cash. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per financial institution. Contributions Receivable: Contributions receivables that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using a discount rate commensurate with the risks involved. Amortization of discounts is included in contribution revenue. (Continued) 7.

10 NOTES TO FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Allowance for Uncollectible Contributions: The allowance for uncollectible contributions is determined by management based upon the Foundation s historical losses, specific circumstances and economic conditions. Management of the Foundation has estimated that no allowance for uncollectible promises to give is necessary for the years ended, respectively. Investment and Investment Return: The Foundation s investments include certificates of deposit and alternative investments including funds of funds. Certificates of deposit are stated at fair value. The fair values of investments are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Investment income and realized and unrealized gains and losses are reflected in the statement of activities. The estimated fair values of the funds of funds are based on net asset valuations provided by an external investment manager. Because these investments are not readily marketable and may be subject to withdrawal restrictions, their estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for such investments existed. Property and Equipment: Property and equipment is recorded at cost if purchased or fair value at date of contribution if contributed. If the donors stipulate how long the assets must be used, the contributions of property and equipment are recorded as restricted support. In the absence of such stipulations, these contributions are recorded as unrestricted support. Depreciation is computed on a straight-line basis over the estimated useful lives of the respective assets. Depreciation expense was $496 and $1,906 for the years ended, respectively. Net Asset Classifications: The preparation of financial statements in conformity with the Foundation s basis of accounting requires that the financial statements report the changes in and total of each of the net asset classes based upon donor restrictions, as applicable. The following classes of net assets are used to reflect donor intent: Unrestricted Net Assets - Net assets for which no donor has imposed a restriction that the assets be used for a specific purpose or held for a certain period of time. Temporarily Restricted Net Assets - Net assets which result from donor-imposed restrictions that will be met by actions of the Foundation, pursuant to those restrictions or that expire by the passage of time. Releases from restrictions for the years ended totaled $301,213 and $126,041, respectively, and primarily relate to scholarships and academic programs. The majority of temporarily restricted funds residing in the academic program area include North American Racing Academy, KMSS-Lean Thinking Initiative, and the Kentucky Coal Academy. Permanently Restricted Net Assets - Net assets which result from donor-imposed restrictions that such assets be maintained permanently but permit the Foundation to pay investment management fees and to expend all or a portion of the income and gains derived from the donated assets. Permanently restricted net assets from which the income can be used consist of endowment funds restricted for scholarships, workforce development, and new economy initiatives. Contributions: Contributions are recorded as they are earned. The gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated asset. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are released to unrestricted net assets. If a restriction is fulfilled in the same time period in which the contribution is received, the contribution is reported as temporarily restricted and released from restriction. (Continued) 8.

11 NOTES TO FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments: Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the Foundation s principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The carrying value of the Foundation s financial instruments, which includes cash, investments, and accrued expenses, approximate fair value. Expense Classification: Expenses have been classified as program services and general and administrative based on the actual direct expenditures and estimated cost allocations based upon time and nature of expenses. Subsequent Events: Management has performed an analysis of the activities and transactions subsequent to June 30, 2018, to determine the need for any adjustments or disclosures to the financial statements for the year ended June 30, Management has performed their analysis through, 2018, the date the financial statements were available to be issued. NOTE 3 - INVESTMENTS Investments as of are summarized as follows: Certificates of deposit $ 388,000 $ 388,000 Bond funds of funds 503, ,748 Equity funds of funds 1,272,420 1,132,093 Total investments $ 2,164,401 $ 1,956,841 NOTE 4 - RELATED PARTY TRANSACTIONS The System provides office space, personnel, computer and other administrative services to the Foundation. All compensation and benefits for the personnel are paid by the System. The estimated value of these services was $164,219 and $115,859 for 2018 and 2017, respectively. The estimated values are computed at an amount agreed to by management of the Foundation and the System representing fair value of the services provided and is included in revenues and in general and administrative expenses in the statements of activities. (Continued) 9.

12 NOTES TO FINANCIAL STATEMENTS NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS The accounting basis followed by the Foundation establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1: Inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Inputs include significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs include significant unobservable inputs that reflect a reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The fair value of the certificates of deposit are based on similar investments over the same period at specific rates. The valuations of the level 2 investments are determined using the market or income approach. (Level 2 inputs) For fund of funds for which there is no active market, the Foundation uses the net asset value (NAV) using the market approach, with additional analysis performed by management; as such investments have significant unobservable valuation inputs. Due to current market conditions as well as the limited trading of these investments, the fair value of alternative investments is highly sensitive to assumption changes and market value volatility. The funds held by the Foundation have the ability to be redeemed at the funds NAV on a monthly basis with notification given 5 days prior to month end. Fair value measurements as of June 30, 2018 are as follows: Funds valued Level 1 Level 2 Level 3 at NAV Certificates of deposit $ - $ 388,000 $ - $ - Funds of funds: Bond funds ,981 Equity funds ,272,420 Total $ - $ 388,000 $ - $ 1,776,401 (Continued) 10.

13 NOTES TO FINANCIAL STATEMENTS NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Fair value measurements as of June 30, 2017 are as follows: Funds valued Level 1 Level 2 Level 3 at NAV Certificates of deposit $ - $ 388,000 $ - $ - Funds of funds: Bond funds ,748 Equity funds ,132,093 Total $ - $ 388,000 $ - $ 1,568,841 NOTE 6 - ENDOWMENT COMPOSITION The Foundation's endowment consists of nine individual funds established for a variety of purposes. The endowment includes both donor-restricted funds and funds designated by the Board of Directors to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. Interpretation of Relevant Law: The Board of Directors of the Foundation has interpreted the Kentucky Prudent Management of Institutional Funds Act (KPMIFA) 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 Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence described by KPMIFA. In accordance with KPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donor-restricted endowment funds, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of the Foundation, and (7) the Foundation's investment policies. Investment Return Objectives, Risk Parameters and Strategies: The Foundation has adopted investment and spending policies, approved by the Board of Directors, for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment funds. Accordingly, the investment process seeks to achieve an after-cost total real rate of return, including investment income as well as capital appreciation, which exceeds the price and yield results of the S&P 500 while assuming a moderate level of investment risk. Endowment assets are invested in a well-diversified asset mix, which includes equity and debt securities. Actual returns in any given year may vary from this amount. Investment risk is measured in terms of the total endowment fund; investment assets and allocation between asset classes and strategies are managed to not expose the fund to unacceptable levels of risk. (Continued) 11.

14 NOTES TO FINANCIAL STATEMENTS NOTE 6 - ENDOWMENT COMPOSITION (Continued) Spending Policy: The Board of Directors establishes a spending policy rate for distributions of endowment each fiscal year. Distributions of earnings from endowment to support expenditures are expected to be equal to or less than actual real returns, therefore achieving the financial objective of preserving the value of the endowment assets and related revenue stream over time. Expenditures are supported first from current income (interest and dividends) and, as appropriate, from capital gains. Within these parameters, the amount of the disbursements shall be determined annually by the Foundation's Board of Directors, who may also elect to take no distribution in any given year. Funds with Deficiencies: From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level the donor requires the Foundation to retain as a fund of perpetual duration. There were no such deficiencies as of. Endowment net asset composition by type of fund as of June 30, 2018 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 568,942 $ 885,664 $ 1,454,606 Board designated endowment funds 321, ,795 Total assets $ 321,795 $ 568,942 $ 885,664 $ 1,776,401 Endowment net asset composition by type of fund as of June 30, 2017 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 476,112 $ 820,664 $ 1,296,776 Board designated endowment funds 272, ,065 Total assets $ 272,065 $ 476,112 $ 820,664 $ 1,568,841 (Continued) 12.

15 NOTES TO FINANCIAL STATEMENTS NOTE 6 - ENDOWMENT COMPOSITION (Continued) Changes in endowment net assets as of June 30, 2018 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 272,065 $ 476,112 $ 820,664 $ 1,568,841 Contributions ,000 65,000 Net realized and unrealized gain 50,307 94, ,223 Amounts appropriated for expenditure (577) (2,086) - (2,663) Endowment net assets, end of year $ 321,795 $ 568,942 $ 885,664 $ 1,776,401 Changes in endowment net assets as of June 30, 2017 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 204,943 $ 352,863 $ 815,589 $ 1,373,395 Contributions - - 5,075 5,075 Net realized and unrealized gain 67, , ,930 Amounts appropriated for expenditure (550) (1,009) - (1,559) Endowment net assets, end of year $ 272,065 $ 476,112 $ 820,664 $ 1,568,