Financial Statements. For the Year Ended December 31, and Report Thereon

Transcription

1 Financial Statements and Report Thereon

2 INDEPENDENT AUDITOR S REPORT To the Board of Directors of the Institute for Policy Studies CONSULTING ACCOUNTING TECHNOLOGY Certified Public Accountants We have audited the accompanying statement of financial position of the Institute for Policy Studies (the Institute) as of December 31, 2009, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Institute s management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Institute s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence to support the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Institute for Policy Studies as of December 31, 2009, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. RAFFA, P.C. Washington, DC November 10, 2010

3 STATEMENT OF FINANCIAL POSITION December 31, 2009 ASSETS Cash and cash equivalents $ 90,781 Contributions and grants receivable, net of allowance for doubtful account of $92, ,959 Prepaid expenses 15,822 Other receivables 8,021 Investments 1,429,085 Deposits 25,956 Artwork 15,900 Property and equipment, net 59,668 TOTAL ASSETS $ 2,305,192 LIABILITIES AND NET ASSETS Liabilities Accounts payable $ 52,930 Accrued payroll expenses 50,882 Annuity liability 49,148 Capital lease obligation 26,220 Deferred rent liability 15,207 TOTAL LIABILITIES 194,387 Net Assets Unrestricted 123,609 Board designated 230,000 Total Unrestricted Net Assets 353,609 Temporarily restricted 1,653,380 Permanently restricted 103,816 TOTAL NET ASSETS 2,110,805 TOTAL LIABILITIES AND NET ASSETS $ 2,305,192 The accompanying notes are an integral part of these financial statements

4 STATEMENT OF ACTIVITIES Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions and grants $ 1,508,538 $ 2,008,682 $ - $ 3,517,220 Investment income 32, , ,074 Seminar and special event income 40, ,746 Royalties and honoraria 24, ,673 Change in value of split-interest agreements (4,777) - - (4,777) Publication income 1, ,682 Other 11, ,153 Net assets released from restrictions: Satisfaction of program restrictions 1,672,027 (1,672,027) - - TOTAL REVENUE AND SUPPORT 3,286, ,467-3,737,771 EXPENSES Program Services: Democracy and Fairness 1,180, ,180,598 Peace and Security 774, ,579 Global Justice 533, ,121 Special Projects 498, ,253 Total Program Services 2,986, ,986,551 Supporting Services: Fundraising 262, ,959 Administrative 201, ,690 Total Supporting Services 464, ,649 TOTAL EXPENSES 3,451, ,451,200 CHANGE IN NET ASSETS (164,896) 451, ,571 NET ASSETS, BEGINNING OF YEAR, AS RESTATED 518,505 1,201, ,816 1,824,234 NET ASSETS, END OF YEAR $ 353,609 $ 1,653,380 $ 103,816 $ 2,110,805 The accompanying notes are an integral part of these financial statements

5 STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 286,571 Adjustments to reconcile change in net assets to net cash used in operating activities: Unrealized gain on investments (106,448) Realized gain on investments (6,952) Depreciation and amortization 14,572 Change in value of split-interest agreement 4,777 Changes in assets and liabilities: Contributions and grants receivable (228,335) Prepaid expenses (272) Other receivables 2,233 Deposits (2,871) Accounts payable (84,488) Accrued payroll expenses (15,006) Annuity liability (10,737) Deferred rent liability (6,966) NET CASH USED IN OPERATING ACTIVITIES (153,922) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (1,269,081) Proceeds from sales and maturities of investments 1,116,301 Purchases of property and equipment (22,523) NET CASH USED IN INVESTING ACTIVITIES (175,303) CASH FLOWS FROM FINANCING ACTIVITIES Payment on capital lease obligation (1,682) NET CASH USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR $ (1,682) (330,907) 421,688 90,781 SUPPLEMENTAL CASH FLOW INFORMATION Noncash investing and financing activities: Capital lease obligation $ 27,902 The accompanying notes are an integral part of these financial statements

6 1. Organization and Summary of Significant Accounting Policies Organization The Institute for Policy Studies (the Institute), founded in 1963, is a transnational center for research, education and social invention. The Institute sponsors critical examination of the assumptions and policies that define America s posture on domestic and international issues and offers alternative strategies and visions. Areas of focus include domestic policy, national security, international economics and human rights. A tax-exempt, nonprofit organization that accepts no government funds, the Institute guards the freedom of its scholars to be both critical and creative. The work of the Institute reflects the realization that the social and political problems facing the United States militarism, environmental decay and economic injustice are all part of a larger global context. In an effort to seek alternatives to these problems, in 1973, the Institute established its international program, which addresses the fundamental disparity between the rich and poor people and nations of the world, investigates its causes and develops alternatives for its remedy. The activities of the Institute are funded primarily through contributions and grants from other organizations and foundations. Codification During the year ended December 31, 2009, the Institute adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic , FASB Codification (the Codification). The Codification is the single source of authoritative U.S. generally accepted accounting principles (GAAP). Accordingly, references to GAAP have been updated for the appropriate Codification reference. Basis of Presentation The Institute prepares its financial statements on the accrual basis of accounting. Consequently, revenue is recognized when earned and expenses are recognized when obligations are incurred. Cash and Cash Equivalents Cash and cash equivalents consist of monies held in demand deposit accounts and highly liquid investments with initial maturity dates of three months or less. However, cash equivalents exclude money market funds and other cash held within the investment accounts, which are normally held for a longer period of time

7 1. Organization and Summary of Significant Accounting Policies (continued) Contributions and Grants Receivable Unconditional promises to give 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 risk-free interest rates appropriate for the expected term of the promise to give. Amortization of the discount is included in contributions and grants in the accompanying statement of activities. The Institute uses the allowance method to determine uncollectible contributions and grants receivable. The allowance is based on management s analysis of specific contributions. As a result, it is possible that the Institute s estimate of the carrying amount of contributions and grants receivable could change in the near term. Investments Investments consist of cash and money market funds, corporate fixed income, government securities, and domestic and international equities. Investments in cash and money market funds, corporate fixed income, government securities and domestic and international equities are recorded in the financial statements at fair value. Fair value is 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. Interest, dividends and realized gains or losses are recorded as investment income when earned, net of fees. Fluctuations in the fair market value of the investment portfolio are recorded as unrealized gains or losses. Artwork Artwork consists of donated photographs and sketches and is carried at its recorded value, which is the estimated fair market value at the time of donation. The artwork is not depreciated. Furniture and Equipment and Related Depreciation Furniture and equipment are recorded at cost. Depreciation on furniture and equipment is provided for on a straight-line basis over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or their estimated useful lives. The cost of property and equipment retired or disposed of is removed from the accounts along with the related accumulated depreciation and any gain or loss is reflected in income or expense in the accompanying statement of activities. Major additions are capitalized, while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred

8 1. Organization and Summary of Significant Accounting Policies (continued) Classification of Net Assets The net assets of the Institute are reported as follows: Unrestricted net assets represent the portion of expendable funds that are available for support of the Institute s operations and are not subject to donor-imposed stipulations. The Institute s board-designated net assets were established for the Future Fund, Global Economy, Progressive Challenge and the Senior Scholars Project. Temporarily restricted net assets represent amounts that are subject to donor-imposed restrictions to be used for a particular purpose or within a specific time period. Permanently restricted net assets represent amounts received with donor stipulations that require the gift to be held in perpetuity and the interest used for the purpose designated by the donor. Gift Annuities The Institute has received irrevocable gift annuities from several donors. The donors give the Institute a cash contribution and, in return, the Institute agrees to make payments to the donor for the remaining life of the donor or the donor s designated beneficiary. A liability is recorded in the accompanying statement of financial position at the present value of the expected future payments owed by the Institute under these agreements based on current rates in the Internal Revenue Service s (IRS) actuarial tables for annuities. Actuarial gains or losses resulting from changes in assumptions used to calculate the liability for the present value of future annuity payments are recorded as increases or decreases in the respective net asset class on the accompanying statement of activities. Upon the donor s death, the remaining liability is recognized as revenue. Revenue Recognition The Institute reports gifts of cash and other assets as temporarily restricted support if they are received with donor stipulations that limit the use of donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported on the accompanying statement of activities as net assets released from restrictions. Unrestricted contributions and grants are reported as revenue in the year in which the payments are received and/or unconditional promises are made. Revenue recognized on contributions that have been committed to the Institute but have not been received is reflected as contributions and grants receivable on the accompanying statement of financial position

9 1. Organization and Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) Conditional promises to give are not recognized as support until the conditions are substantially met. Contribution revenue from charitable gift annuities is recognized at the date the agreement is established, net of the liability recorded for the present value of the estimated future payments to be made to the respective donors and/or other beneficiaries. The present value of payments to beneficiaries of charitable gift annuities is calculated using discount rates, which represent the risk-free rates in existence at the date of the gift. Gains or losses resulting from changes in assumptions used to calculate the discount are recorded as increases or decreases in the respective net asset class on the accompanying statement of activities. Functional Allocation of Expenses The cost of providing the various programs and other activities has been summarized on a functional basis in the accompanying statement of activities. Accordingly, certain indirect costs have been allocated among the programs and supporting services benefited based on management s estimate of shared costs. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. Contributions and Grants Receivable As of December 31, 2009, the Institute s contributions and grants receivable of $659,959 are due from foundations and individual donors and are expected to be collected within one year

10 3. Investments As of December 31, 2009, the Institute s investments at fair value were as follows: Cash and money market funds $ 308,025 Government securities 668,803 Equity securities 422,177 Corporate fixed income 30,080 Total $ 1,429,085 Investment earnings consisted of the following for the year ended December 31, 2009: Unrealized gains $ 106,448 Interest and dividends 33,674 Realized gains 6,952 Total $ 147, Fair Value of Financial Instruments The Institute adopted the provisions of ASC Topic 820, Fair Value Measurements, for financial assets and liabilities measured on a recurring basis. The ASC defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and requires disclosures about fair value measurements. The ASC emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and, therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the ASC established a fair value hierarchy based upon the transparency of the inputs to the valuation of an asset or liability. These inputs may be observable, whereby market participant assumptions are developed based on market data obtained from independent sources, and unobservable, whereby assumptions about market participant assumptions are developed by the reporting entity based on the best information available in the circumstances. The three levels of fair value hierarchy are described as follows: Level 1 Inputs based on unadjusted, quoted market prices in active markets for identical assets or liabilities accessible at the measurement date. Level 2 Inputs 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, such as quoted prices for similar assets or liabilities in active markets

11 4. Fair Value of Financial Instruments (continued) Level 3 Unobservable inputs for the asset or liability including the reporting entity s own assumptions in determining the fair value measurement. The following table summarizes the Institute s investments, which are measured at fair value on recurring basis as of December 31, 2009, aggregated by type and the fair value hierarchy level within which those measurements were made. Quoted Prices in Active Markets for Significant Identical Other Significant Assets/ Observable Unobservable Total Liabilities Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Investments: Cash and money market funds $ 308,025 $ 308,025 $ - $ - Government securities 668, , Equity securities 422, , Corporate fixed income 30,080-30,080 - Artwork 15, ,900 Total $ 1,444,985 $ 1,399,005 $ 30,080 $ 15,900 The Institute used the following methods and significant assumptions to estimate fair value for assets recorded at fair value. Cash and money market funds Cash and money market funds reflect amounts that approximate fair value due to the short-term maturity of these instruments. Government securities and equity securities Are measured using quoted market prices for identical assets in active markets. Corporate fixed income Securities with fixed maturities, other than U.S. Treasury securities, that generally do not trade on a daily basis. The fair value estimates of such fixed-maturity investments are based on observable market information, rather than market quotes. Accordingly, the estimates of fair value for such fixed-maturity investments as provided by a pricing service are included in the amount disclosed in Level 2 of the hierarchy

12 4. Fair Value of Financial Instruments (continued) Artwork Is measured at the original cost plus any appreciation in value. As of December 31, 2009, a roll forward of the fair value measurements using unobservable inputs was as follows: Fair value, December 31, 2008 $ 15,900 Additions/change in fair value - Fair value, December 31, 2009 $ 15, Temporarily Restricted As of December 31, 2009, purpose-restricted net assets are available for the following purposes: Newman Fellowship $ 727,946 General Support Time Restricted 260,000 Global Economy 154,844 Foreign Policy in Focus 80,000 Raskin Freedom Fund 78,180 Split This Rock 69,511 SEEN 66,667 Preserving the Planet 55,109 Inequality/Common Good 25,000 Communications 20,000 NAFTA 20,000 Progressive Challenge 20,000 Mandate for Change 17,726 Break the Chain 16,667 Freedom Network Training 13,019 Drug Policy 19,989 Wilson Lecture Series 5,169 Other 3,553 Total $ 1,653,

13 6. Endowment Funds The Board of Directors of the Institute has interpreted the District of Columbia 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 Institute 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 Institute in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Institute considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund. The purposes of the Institute and the donor-restricted endowment fund. General economic conditions. The possible effect of inflation and deflation. The expected total return from income and the appreciation of investments. Other resources of the Institute. The investment policies of the Institute. As of December 31, 2009, the Institute s endowment had the following net asset composition: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted $ - $ 5,169 $ 103,816 $ 108,

14 6. Endowment Funds (continued) For the year ended December 31, 2009, the endowment funds had the following activity: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ (4,698) $ - $ 103,816 $ 99,118 Investment return: Investment income - 2,259-2,259 Net depreciation (realized and unrealized) - 7,608-7,608 Total investment return - 9,867-9,867 Transfers of endowment earnings 4,698 (4,698) - - Endowment net assets, end of year $ - $ 5,169 $ 103,816 $ 108,985 Investment Objectives and Risk Parameters The Institute has adopted investment policies for endowment assets that attempt to be consistent with their mission and work. The investment policy of the Institute prohibits investing in defense contractors, producers of nuclear weapons or nuclear power, firms that pay their CEOs more than 400 times the wage of the average worker, fossil fuel firms, Wal-Mart and other firms that fail to pay a living wage, firms involved in the privatization of water, firms destroying forests or fisheries, tobacco firms, agribusiness firms, and firms that have collaborated with dictatorships in countries like Burma and Nigeria. The Institute seeks affirmative investments in corporations practicing sustainable development, exemplary labor practices and other principles consistent with their mission and values. These include local, unionized, and lending institutions with strong compliance with the Community Reinvestment Act. Spending Policy The investment income generated each year from the endowment fund is restricted by the donor for the Wilson Lecture Series

15 7. Annuity Liability The Institute is a beneficiary of several charitable gift annuity trusts. Under the terms of the agreements, the Institute is obligated to pay fixed annual amounts ranging from $300 to $5,500 to the original donor as long as the annuitants (or joint annuitants) are living. At December 31, 2009, the liability of $49,148 was calculated using actuarial tables based on the annuitant s (or joint annuitant s) life, of which $10,725 is expected to be payable during Risk and Commitments Concentration of Cash The Institute s cash is held in accounts at various financial institutions. Although the amount at a given bank, at times, exceeds the amount guaranteed by the Federal Deposit Insurance Corporation (FDIC) and, therefore, bears some risk, the Institute has neither experienced nor anticipates any losses on its funds. As of December 31, 2009, the amount in excess of the FDIC insured limit was approximately $58,000. Operating Leases The Institute has entered into a noncancellable operating lease agreement for office space that expires on January 31, Under the terms of the lease, base rent is subject to annual increases of 3% over the previous year s adjusted rent. Under accounting principles generally accepted in the United States of America, all fixed-rent increases are recognized on a straightline basis over the term of the lease. Total rent expense was $238,393 for the year ended December 31, Future minimum lease payments required under this operating lease are as follows: For the Years Ending December 31, 2010 $ 230, ,604 Total $ 250,276 Capital Lease Obligations The Institute leases office equipment under a long-term capital lease agreement that expires in August The capital lease asset is included in property and equipment at a cost of $27,902 and accumulated amortization of $1,860 as of December 31,

16 8. Risk and Commitments (continued) Capital Lease Obligations (continued) The future minimum lease payments required under the capital lease are as follows as of December 31, 2009: For the Years Ending December 31, 2010 $ 6, , , , ,136 Total future minimum lease payments 28,952 Less: Amount representing interest (2,732) Total $ 26, Endowment for the Raskin Freedom Fund On April 30, 2007, the HKH Foundation awarded the Institute an endowment gift of $1,000,000 for the Raskin Freedom Fund. The gift is conditional upon the Institute s satisfaction of a two-to-one matching requirement and is to be released in increments of $100,000 upon demonstration by the Institute of the receipt of $200,000 in other support for the endowment. The Institute has until 2011 to raise the matching funds. As of December 31, 2009, the Institute had not recorded any revenue from the award, since it has not satisfied the minimum matching requirement. 10. Pension Plan The Institute sponsors a 403(b) tax-deferred annuity plan for its employees. Employees are eligible to participate in the plan immediately upon commencement of employment. Participating employees may contribute a portion of their income on a tax-deferred basis and the Institute matches 100% of the employee elective deferrals up to a maximum of 4% of each employee s compensation after the employee has completed two years of service. Employees are fully vested in the plan at the time of enrollment. Pension expense was $33,673 for the year ended December 31,

17 11. Income Taxes The Institute is exempt from the payment of taxes under Section 501(c)(3) of the Internal Revenue Code on income other than net unrelated business income. No provision for income taxes is required as of and for the year ended December 31, 2009, as the Institute had no unrelated business income. Effective January 1, 2009, the Institute adopted the authoritative guidance relating to accounting for uncertainty in income taxes included in ASC Topic 740, Income Taxes. These provisions provide consistent guidance for the accounting for uncertainty in income taxes recognized in an entity s financial statements and prescribe a threshold of more likely than not for recognition and derecognition of tax positions taken or expected to be taken in a tax return. The Institute performed an evaluation of uncertain tax positions for the year ended December 31, 2009, and determined that there were no matters that would require recognition in the financial statements or that may have any effect on its tax-exempt status. For the year ended December 31, 2009, the statute of limitations for tax years 2006 through 2008 remains open with the U.S. federal jurisdiction or the various states and local jurisdictions in which the Institute files tax returns. 12. Prior Period Adjustment During the year ended December 31, 2009, the Institute restated its net asset balance as of December 31, 2008, to correct for a misstatement in the classification of net assets between temporarily restricted and unrestricted due to an error in recording a multi-year grant and investment earnings related to the grant and calculating and reporting the releases from restrictions in prior years. Additional revenue of $185,060 should have been recorded as temporarily restricted for the Newman Fellowship, and $36,508 should have been released in prior years based upon satisfaction of the program restrictions that occurred. While there was no effect from this restatement on total net assets as of December 31, 2008, or the change in net assets for 2008 as previously reported, the adjustment increased temporarily restricted net assets and decreased unrestricted net assets by $148,552 as of December 31, Subsequent Event In preparing these financial statements, the Institute has evaluated events and transactions for potential recognition or disclosure through November 10, 2010, the date the financial statements were available to be issued. There were no subsequent events that require recognition of, or disclosure in, the financial statements