United Way of Santa Barbara County, Inc. (A California Non-Profit Public Benefit Corporation) Financial Statements

Transcription

1 (A California Non-Profit Public Benefit Corporation) Financial Statements (With Independent Auditors Report Thereon)

2 Independent Auditors Report To the Board of Directors Santa Barbara, California We have audited the accompanying financial statements of United Way of Santa Barbara County, Inc. (a nonprofit organization), which comprise the statement of financial position as of, and the related statements of activities, functional expenses, and cash flows for the year 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 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 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 Quarter Horse Trail, Orcutt CA (805) brad@stolteycpa.com 1

3 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 financial statements referred to above present fairly, in all material respects, the financial position of the as of and the changes in net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited United Way of Santa Barbara County s June 30, 2014 financial statements, and our report dated March 6, 2015, expressed a qualified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2014, is consistent, in all material respects, with the audited financial statements, as restated, from which it has been derived. May 6, 2016 Orcutt, California 1330 Quarter Horse Trail, Orcutt CA (805) brad@stolteycpa.com 2

4 (A California Non-Profit Public Benefit Corporation) Statement of Financial Position (With Comparative Totals for June 30, 2014) Operating Fund Property and Equipment Endowment CURRENT ASSETS Cash and cash equivalents $ 542,774 $ - $ - $ 542,774 $ 994,835 Investments (note 3) 973, , ,688 Bequests receivable , ,186 - Pledges receivable, net (note 4) 552, , ,959 Other receivable (note 13) 213, , ,507 Prepaid expenses and other current assets 138, , ,386 Total Current Assets 2,420, ,186 2,589,971 2,715,375 PROPERTY AND EQUIPMENT (notes 2 and 5) Property and equipment - 1,824,722-1,824,722 2,875,563 Less accumulated depreciation - (1,446,135) - (1,446,135) (2,438,713) Total Property and Equipment - 378, , ,850 NON-CURRENT ASSETS Pledges receivable - long term (note 4) 85, ,796 - Cash held in donor advised funds (note 2) 115, , ,917 Investments held in donor advised funds (note 3) 22, ,530 23,502 Endowment cash , , ,379 Endowment investments (note 3) - - 6,465,247 6,465,247 6,577,640 Assets held under charitable gift annuity agreements (note 12) - - 1,069,415 1,069,415 1,200,816 Assets held under pooled income fund (note 12) , , ,250 Assets held under irrevocable split interest agreements (note 12) , , ,526 Interest in irrevocable split interest agreements (note 12) , , ,403 Interest in perpetual trusts (note 12) , , ,598 Total Other Assets 223,668-9,555,742 9,779,410 9,981,031 TOTAL ASSETS $ 2,644,453 $ 378,587 $ 9,724,928 $ 12,747,968 $ 13,133,256 CURRENT LIABILITIES Accounts payable and accrued expenses (note 6) $ 551,866 $ 15,846 $ 144 $ 567,856 $ 494,061 Designations payable 190, , ,170 Agency allocations 150, , ,953 Total Current Liabilities 891,867 15, , ,184 LONG-TERM LIABILITIES Obligations under charitable gift annuity agreements (note 12) , , ,811 Obligations under pooled income fund (note 12) , , ,375 Obligations under irrevocable split interest agreements (note 12) ,092 89,092 89,314 Total Liabilities 891,867 15, ,999 1,626,712 1,781,684 NET ASSETS (notes 7 and 10) Unrestricted: Undesignated 976, ,741-1,338,748 1,806,221 Board designated - - 5,027,803 5,027,803 5,001,444 Temporarily restricted 776,579-1,064,045 1,840,624 1,575,691 Permanently restricted - - 2,914,081 2,914,081 2,968,216 Total Net Assets 1,752, ,741 9,005,929 11,121,256 11,351,572 TOTAL LIABILITIES AND NET ASSETS $ 2,644,453 $ 378,587 $ 9,724,928 $ 12,747,968 $ 13,133,256 SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS 3

5 (A California Non-Profit Public Benefit Corporation) Statement of Activities For The Year Ended (With Comparative Totals for the Year Ended June 30, 2014) Unrestricted Temporarily Restricted Permanently Restricted Total All Funds Operating PUBLIC SUPPORT AND REVENUE PUBLIC SUPPORT Contributions (note 2): Campaign 908,198 Property and Equipment Endowment Operating Endowment Endowment $ $ - $ - $ 638,707 $ - $ - $ 1,546,905 $ 1,671,520 Legacies, bequests and other income 31, ,535 85, , ,240 Total Public Support 939, , , ,929,394 2,272,760 SPECIAL EVENT REVENUE Special events - revenue , , ,740 Less costs of special events (139,067) - - (139,067) (125,933) Net Special Event Revenue , , ,807 OTHER REVENUE Investment income (note 3) (19,831) ,726 18, , ,149 Change in value of split interest agreements ,550-91,550 40,442 Change in value of perpetual trust interests (54,135) (54,135) 59,615 Loss on abandonment of assets (note 5) (17,769) (17,769) - Total Other Revenue (37,600) ,726 18,927 91,550 (54,135) 191, ,206 TOTAL PUBLIC SUPPORT AND REVENUE 901, , ,090 91,550 (54,135) 2,189,933 3,391,773 ASSETS RELEASED FROM RESTRICTION 638, (638,707) Expenses Program 1,901,073 31, ,932,976 1,631,685 Management & general 342,045 5, , ,441 Fundraising 135,018 4, , ,293 Total Expenses 2,378,136 42, ,420,249 2,367,419 CHANGES IN NET ASSETS BEFORE TRANSFERS (837,737) (41,638) 438, ,383 91,550 (54,135) (230,316) 1,024,354 Transfers 441,446 (29,544) (411,902) CHANGES IN NET ASSETS (396,291) (71,182) 26, ,383 91,550 (54,135) (230,316) 1,024,354 NET ASSETS, AS PREVIOUSLY REPORTED ,819,079 PRIOR PERIOD ADJUSTMENT (NOTE 13) ,508,139 NET ASSETS, RESTATED 1,372, ,923 5,001, , ,495 2,968,216 11,351,572 10,327,218 NET ASSETS, ENDING $ 976,007 $ 362,741 $ 5,027,803 $ 776,579 $ 1,064,045 $ 2,914,081 $ 11,121,256 $ 11,351,572 SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS 4

6 (A California Non-Profit Public Benefit Corporation) Statement of Functional Expenses For the Year Ended (With Comparative Totals for the Year Ended June 30, 2014) Program Total Planning and Allocation Education Planning and Research Community Impact Total Program Management and General Fundraising Salaries $ 51,482 $ 435,871 $ 67,520 $ 434,341 $ 989,214 $ 105,854 $ 92,641 $ 1,187,709 $ 1,017,183 Pension (note 6) 14,125 14,125 14,125 55,356 97,731 37,696 13, , ,346 Benefits - other 3,513 29,746 4,608 29,641 67,508 20,875 14, ,761 47,832 Payroll taxes 5,168 43,758 6,778 43,604 99,308 7,322 7, ,961 95,161 Legal ,369-1,369 1,500 Accounting ,500-15,500 15,697 Professional fundraising ,450 5,450 - Investment management fees ,080-80,080 55,911 Professional fees 3,678 17,496 4,259 44,123 69,556 18,896 6,571 95, ,909 Advertising 2,774 18,930 2,673 58,509 82,886 8,829 33, ,459 64,901 Office expense 1,773 16,163 2,653 36,607 57,196 12,743 13,094 83, ,856 Information technology 633 5,934 3,934 11,475 21,976 5,276 5,755 33,007 15,497 Occupancy 1,867 17,885 3,334 13,525 36,611 8,963 8,353 53,927 42,438 Travel 891 8,146 3,505 15,150 27,692 7,043 3,327 38,062 9,537 Meetings and conferences , ,133 59,563 6,537-66,100 19,362 Interest expense ,164 4,463 1, ,048 9,326 Dues 743 5, ,222 13,561 1,588 1,950 17,099 23,179 Insurance ,320 2,320 1,249 1,093 4,662 27,545 Subscriptions ,378 71, ,868 - TOTAL EXPENSES BEFORE ALLOWANCE FOR UNCOLLECTIBLE PLEDGES, ALLOCATIONS TO AGENCIES AND DEPRECIATION 87, , , ,548 1,701, , ,907 2,252,014 1,886,180 Provision for uncollectible pledges (note 14) (73,889) (73,889) 256,753 Allocations to agencies , , , ,744 Depreciation 3,000 3,000 3,000 22,903 31,903 5,212 4,998 42,113 60,742 TOTAL EXPENSES 90, , ,277 1,061,462 1,932, , ,016 2,420,249 2,367,419 SEE AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS 5

7 (A California Non-Profit Public Benefit Corporation) Statement of Cash Flows For the Year Ended (With Comparative Totals for the Year Ended June 30, 2014) CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ (230,316) $ 1,024,354 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 42,113 59,916 Unrealized and realized (gain) loss on investments 54,114 (750,679) Loss on disposal of fixed assets 17,769 - Decrease (increase) in pledges receivable (227,748) 117,043 (Increase) in bequests receivable (169,186) - (increase) in prepaid expenses (7,859) (80,959) (Decrease) in split interest interests and obligations (37,415) (580,907) Increase (decrease) in accounts payable and other current liabilities 84,673 (67,013) NET CASH FROM OPERATING ACTIVITIES (473,855) (278,245) CASH FLOWS FROM INVESTING ACTIVITIES (Purchase)/Proceeds of securities, net 51,591 64,490 Change in cash held for endowment purposes (64,753) 463,995 Change in donor advised funds cash 36,575 (90,863) Purchase of property and equipment (1,619) (85,545) NET CASH FROM INVESTING ACTIVITIES 21, ,077 NET INCREASE IN CASH AND CASH EQUIVALENTS (452,061) 73,832 BEGINNING CASH AND CASH EQUIVALENTS 994, ,003 ENDING CASH AND CASH EQUIVALENTS $ 542,774 $ 994,835 SEE AUDITOR'S REPORT AND NOTES TO FINANCIAL STATEMENTS 6

8 (1) Organization United Way of Santa Barbara County Inc. (the Organization ), is a California non-profit public benefit corporation that solicits contributions from business and individuals during its annual fund raising campaign and through a variety of other fund raising activities. The Organization has served the local community since its local founding in 1923 and, through its Power of Partnership programs and initiatives; it improves the lives of children, families and seniors by connecting and empowering resources. The Organization is not merely a fundraising agent, but rather acts as a unifying and multiplying force. Through funding, volunteer development, and leveraging dozens of local non-profit and public sector agencies, and directing its own unique multi-agency initiatives, the Organization seeks to create lasting, meaningful solutions rather than short-lived approaches to community problems. Most of the pledges received originate from individuals, companies and foundations in south Santa Barbara County. Grant recipient agencies, partners, initiatives and other non-profit organizations present annual or other periodic requests for funds. After reviewing requests, volunteers and staff prepare recommendations for grant funding to the Board of Directors (the Board ) of the Organization. (2) Summary of Significant Accounting Policies Basis of Accounting The Organization follows the accrual method of accounting. It is the Organization s policy to recognize revenue when earned and to record expenses when incurred. Financial Statement Presentation The Organization reports its financial statements in accordance with ASC 958 (formerly Statement of Financial Accounting Standards Board (SFAS) No. 117, Financial Statements of Non-Profit Organizations). Under ASC 958, the Organization is required to report information regarding its financial position and activities according to three classes based on the existence and nature of donor imposed restrictions on net assets: Unrestricted net assets generally result from unrestricted contributions and investment income less expenses incurred in providing services, fund-raising and other administrative expenses. Temporarily restricted net assets are classified as such based on donor stipulations that they be used in a later period. Permanently restricted net assets are classified as such based on donor-imposed restrictions prohibiting the Organization from using the asset. Any interest, dividends and unrealized gains or losses recognized on such assets are either reported as an increase to permanently restricted net assets, temporarily restricted net assets or unrestricted net assets in conformance with any donor imposed restrictions. 7

9 Fair Value of Financial Instruments The estimated fair values of the Organization s short-term financial instruments, including cash, cash equivalents, and accounts payables arising in the ordinary course of business, approximate their individual carrying amounts due to the relatively short period of time between their origination and expected realization. The fair value of the marketable securities is based on quoted market rates. Investments Under generally accepted accounting principles, investments in marketable securities with readily determinable fair values and alternative investments are valued at their estimated fair values in the statement of financial position. Unrealized gains and losses for the year ended, are included in the change in net assets in the accompanying statement of activities. Pledges Receivable Pledges receivable are unconditional promises to give that are recognized as contributions when the promise is received. Pledges receivable that are expected to be collected in less than one year are reported at net realizable value. Pledges receivable that are expected to be collected in more than one year are recorded at fair value at the date of promise. That fair value is computed using a present value technique applied to anticipated cash flows. Amortization of the resulting discount is recognized as additional contribution revenue. The allowance for uncollectible contributions receivable is determined based on management s evaluation of the collectability of individual promises. Promises that remain uncollected more than one year after their due dates are written off unless the donors indicate that payment is merely postponed. Property and Equipment Land, building and equipment are recorded at cost or, if donated, at the fair value at the time of the donation. Such donations are reported as unrestricted support unless the donor has restricted the donated assets to a specified purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at that time. Building and equipment are depreciated using the straight-line method over the respective estimated useful lives, which range from three to twenty years. Long lived assets are capitalized if the cost is $1,000 or greater and have an estimated useful life of 1 year or greater. Donated Materials and Services Various agencies, volunteers, business firms and others contribute substantial amounts of materials and services toward the fulfillment of projects initiated by the Organization. To the extent that contributions of materials are made under the control of the Organization, are objectively measurable, and represent program or support expenditures which would otherwise be incurred by the Organization s personnel, they are reflected in both contribution revenue and the appropriate expense category in the accompanying financial statements. For the year ended, donated materials totaled $106,202. 8

10 In addition, a substantial number of volunteers have donated significant amounts of time to the Organization s program services and to its fundraising campaigns. However, no value has been assigned and no amount has been recorded in the financial statements because no objective basis is available to measure the value of such services. Contributions All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. However, if a restriction is fulfilled in the same time period in which the contribution is received, the Organization reports the support as unrestricted. Donor-Advised Funds The Organization is a sponsoring organization for two donor advised funds. Each fund is composed of contributions made by individual donors. Once the donor makes the contribution, the Organization has legal control over the contributed funds. However, the donor retains the advisory privileges with respect to the distribution of funds and the investment of the assets. Agency Allocations Agency allocations are made and recorded in the year in which the related pledges for contributions are received and the grants approved. Functional Expenses The Organization allocates its expenses on a functional basis among its various programs and support services. Expenses that can be identified with a specific program and support service are allocated directly according to their natural expenditure classification. Other expenses that are common to several functions are allocated based on estimated direct labor hours. The Organization at times conducts its fundraising activities in conjunction with its other activities. In these cases joint costs have been allocated between fundraising and management and general expenses or program expense in accordance with standards for accounting for costs of activities that include fundraising. Additionally, advertising costs are expensed as incurred. Cash and Cash Equivalents For purposes of the statement of cash flows, the Organization considers all short-term investments with an original maturity of three months or less to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates made by management include establishment of a reserve for doubtful contributions receivable, allocation of functional expenses and estimated useful lives of fixed assets. 9

11 Income Tax Status The Organization is exempt from taxes on income under Internal Revenue Code section 501(c)(3) and California Revenue and Taxation Code Section 23701(d), though it would be subject to tax on income unrelated to its exempt purposes (unless that income is otherwise excluded by the IRC). The tax years ending 2012, 2013, and 2014 are still open to audit for both federal and state purposes. Contributions to the organization are tax deductible to donors under Section 170 of the IRC. The organization is not classified as a private foundation. (3) Investments The Organization s investments at consist of the following: Investments held for short-term use: Open ended mutual funds $ 149,577 Exchange traded funds 13,337 U.S. government obligations 197,608 Common stock 612,826 Total short term investments 973,348 Investments held in donor-advised funds: Open ended mutual funds 22,530 Endowment Investments: Open ended mutual funds 291,210 Corporate bonds 320,301 Exchange traded funds 417,157 U.S. government obligations 404,230 Municipal bonds 188,602 Alternative investments 1,880,487 Common stock 2,963,260 Total endowment investments 6,465,247 Total investments $ 7,461,125 The composition of the investment income reported in the statement of activities is as follows: Interest and dividend income $ 181,600 Realized gains 165,131 Unrealized losses (174,434) Total investment income $ 172,297 10

12 (4) Pledges Receivable Pledges receivable at are expected be collected as follows: Current Long-Term Less than 1 year $ 708,861 $ - 1 year to 5 years - 95,000 More than 5 years - 3, ,861 98,000 Less: Allowance for uncollectible Pledges receivable (155,950) - (5) Property and Equipment Unamortized discount, at rate of 5% - (12,204) A summary of land, building and equipment is as follows: Land $ 218,000 Building 1,337,843 Furniture and fixtures 95,068 Computer hardware and software 92,004 Vehicles 81,807 1,824,722 Less accumulated depreciation (1,446,135) Net property and equipment $ 378,587 $ 552,911 $ 85,796 During the year ended June 30, 2105 the Organization concluded an inventory of fixed assets which resulted in the Organization removing fixed assets with a cost of $1,056,963 and a related accumulated depreciation of $1,039,194. The Organization has reported a loss on abandonment of fixed assets of $17,769 on the statement of activities. (6) Pension Plan The Organization has both a qualified employer defined contribution pension plan (the Plan ) and a 403(b) plan ( 403b ) for its employees. Full-time employees are eligible to participate in both plans after one year of service (minimum 1000 hours) unless an employee was employed for at least one year within the past three years with a non-profit providing health and/or human services, in which case that employee may participate in the plan on the first day of the month following date of hire. Contributions equal to 8% of wages are made to the Plan monthly by the Organization for the benefit of enrolled employees. In accordance with an amendment to the Plan rules effective July 1, 2014, contributions equal to 15% of wages are made to the Plan for the benefit of employees with 30 years or more of service. Early in 2015 Management identified certain shortages in contributions from that total $223,356. That amount will be paid into the Plan for the benefit of certain current and 11

13 prior employees along with interest accrued at the US Treasury prime rate (see related note 13). The liability has been reported as accrued expense in the accompanying statement of financial position. Employees enrolled in the 403b contribute to their retirement plan by way of salary deferral. The Organization matches 50% of employee salary reduction contributions up to a maximum salary reduction contribution of 9% of employees wages (employer match maximum of 4.5% of employees wages). The Organization has a non-qualified 457(b) Eligible Deferred Compensation Plan. Two employees have participated in this plan since its establishment in 2002; one of which retired in Pension expense for the year ended and 2014 are as follows: (7) Restrictions of Net Assets (b) retirement employer match $ 27,717 $ 23,536 Pension plan employer contributions 108,878 62, (b) employer contributions 10,976 21,713 Other administrative costs 1,325 - Total $ 148,896 $ 107,346 Permanently restricted net assets consist of endowment fund assets to be held indefinitely based on donor restrictions. The income from the endowment fund assets can be used to support the Organization s general activities. Temporarily restricted net assets consist exclusively of assets subject to donor restrictions for use in future periods. The assets become available at the discretion of the donor. (8) Trust Funds The Organization is the income beneficiary of certain trusts of which it is not the custodian of the funds. Since the Organization has only an income interest, the assets of these funds are not included in the accompanying financial statements. (9) Summarized Financial Information for 2014 The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended June 30, 2014, from which the summarized information was derived. Certain comparative 2014 amounts have been reclassified to conform to 2015 presentation. (10) Endowment The Organization s endowment has been established for a variety of program purposes. Its endowment consists of board designated and donor-restricted endowment funds. As required by generally accepted accounting principles (GAAP), net assets associated with endowment funds, including funds 12

14 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 Organization has interpreted the State Prudent Management of Institutional Funds Act (SPMIFA) 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 Organization 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 organization in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the organization considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the Organization and the donor-restricted endowment fund (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 organization (7) The investment policies of the organization. Endowment net asset composition by type of fund as of : Temporarily Permanently Unrestricted Restricted Restricted Total Board designated endowment funds $ 5,027,803 $ - $ - $ 5,027,803 Donor restricted endowment funds - 1,064,045 2,914,081 3,978,126 Total $ 5,027,803 $ 1,064,045 $ 2,914,081 $ 9005,929 13

15 Changes in Endowment Net Assets for the Fiscal Year Ended are as follows: Unrestricted Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year $ 5,001,444 $ 972,495 $ 2,968,216 $ 8,942,155 Investment income 172,726 91,550 (54,135) 210,141 Contributions 265, ,535 Appropriation of endowment assets for expenditure (411,902) - - (411,902) Endowment net assets, ending of year $ 5,027,803 $ 1,064,045 $ 2,914,081 $ 9,005,929 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or SPMIFA requires the Organization to retain as a fund of perpetual duration. At there were no funds with deficiencies. Return Objectives and Risk Parameters The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, The Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places a greater emphasis on common stocks and equity mutual fund investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The Organization s investment committee will set spending rate equal to a target of up to 5% of the endowment s average three year portfolio value at the Organization s fiscal year end. (11) Assets Valued at Fair Value The Financial Accounting Standard Board s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the 14

16 information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. Assets carried at fair value include the following as of : Mutual funds which include domestic funds and international funds with a market value of $463,317at. Corporate bonds consisting exclusively of domestic corporations with a market value of $320,301 at. Government securities issued by the U.S. Treasury with a market value of $601,838 at June 30, Exchange traded funds comprise of index funds which are actively traded on open markets and values are based on the quoted market prices for identical assets. Total market value for exchange traded funds at was $430,494. Municipal bonds traded on open markets and values are based on the quoted market prices for identical assets. Total market value for municipal bonds at was $188,602. Common stock of domestic and international corporations which are traded on open markets and values are based on the quoted market prices for identical assets. Total market value for common stock at was $3,576,086. Alternative investments include various hedge funds which are not traded on open markets. The estimated fair market value is based on the observable value of the underlying assets of the hedge funds as reported by the hedge fund managers. At the estimated fair market value of alternative funds is estimated to be $1,880,487. In determining the appropriate levels, the Organization performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. 15

17 Fair Value Measurements at are summarized as follows: Quoted Prices Significant In Active Markets Other Significant For Observable Unobservable Identical Assets Inputs Inputs Mutual funds $ 463,317 $ - $ - Corporate bonds 320, Government securities 601, Municipal bonds 188,602 Exchange traded funds 430, Common stock 3,576, Interest in split interest Agreements - - 1,064,045 Interest in perpetual trusts ,463 Alternative investments - 1,880,487 - Totals $ 5,580,638 $ 1,880,487 $ 1,788,364 Changes in fair value measurement using significant observable inputs are summarized as follows: Alternative Investments Beginning balance, market value $ 1,693,986 Total gains included in changes in net assets 186,501 Ending balance, market value $ 1,880,487 Changes in fair value measurement using significant unobservable inputs are summarized as follows: Interest in Split Interest Agreements Interest in Perpetual Trusts Beginning balance, market value $ 972,495 $ 778,598 Total gains (losses) included in changes in net assets 91,550 (54,135) Ending balance, market value $ 1,064,405 $ 724,463 (12) Split-Interest Agreements and Deferred Funds A split-interest agreement is a contribution that results in the sharing of legal rights to certain assets by the nonprofit and the donor. The Organization records such split-interest agreements held in charitable remainder trusts, charitable gifts annuities, and pooled income funds as follows: Charitable Gift Annuities Charitable gift annuity donors have contributed assets to the Organization in exchange for a promise by the Organization to pay a fixed benefit for a specified period of time to the donor or to individuals 16

18 or organizations designated by the donor. Under the terms of the agreements, no trust exists, as the assets received are held by the Organization, and the liability is an obligation of the Organization. The Organization records new gifts at the fair market value of the assets, less the present value of the estimated future payments to the named beneficiaries. The present value of the estimated payments is calculated using an IRS discount rate in effect at the time of the contract. Subsequent changes in the value from prior year are recorded using the fair value of the assets less the present value of the payments expected to be made to the beneficiaries. A discount rate of 5% is used to determine the change in value. The change in value is recorded in the Statement of Activities under changes in value of charitable remainder trusts. The total fair market value of the 6 charitable gift annuities was $1,069,415 with a corresponding value liability of $360,814 at. Pooled Income Funds Pooled Income Fund donors have contributed assets to the Organization in exchange for a net income payout for a specified period of time. Under the terms of the agreements, no trust exists, as the assets are held by the Organization. The fair market value of the assets is recorded in the Organization s Statement of Financial Position and a corresponding liability is recorded for the present value of the future payments to the named beneficiaries. Subsequent changes in the value from prior year are recorded using the fair value of the assets less the present value of the payments expected to be made to the beneficiaries. The change in value is recorded in the Statement of Activities under changes in value of charitable remainder trusts. The fair market value of the pooled income funds at June 30, 2015, was $320,603 with a corresponding present value liability of $268,949. Charitable Remainder Trusts The Organization is named as an irrevocable remainder beneficiary of charitable trusts, which have been established by donors to provide income, generally for life, to designated beneficiaries. The Organization is also the irrevocable remainder beneficiary of seven life insurance policies. At the end of the term, or upon death of the income beneficiaries, assets remaining in the trust will be transferred to the Organization. Each year, beneficiaries receive a percentage of the trust s fair market value, generally limited to net income or net income with make-up provisions. If the Organization is the trustee, the fair market value of the trust is recorded in the Organization s statement of financial position. A corresponding liability is recorded for the present value of the future payments as specified in the trust agreement using a discounted rate of 5%. A contribution is recorded for the difference between the two amounts. The fair market value of the one trust in which the Organization was named the trustee was $102,750 with a corresponding payment liability for future payments of $89,092 at. If the Organization is not the named trustee and does not exercise control over the assets, contribution revenue and assets are recognized using the fair value of the assets less the present value of the liabilities of the trust. Changes in the fair value of the assets less the present value of the liabilities are recognized in the Statement of Activities under changes in value of charitable remainder trust. At June 30, 2015 the present value of these trusts where the Organization is not the trustee was $290,132 including the life insurance policies. Perpetual Income Trusts Interest The Organization is named as an income beneficiary of two perpetual trust, the corpus of which is not controlled by the management of the Organization. Under these arrangements, the Organization has the irrevocable right to receive income earned on the underlying assets held in perpetuity. 17

19 Since the Organization is a beneficiary of this stream of income in perpetuity, the Organization s share of the fair market value of the trusts investments is recorded as an asset, with a fair market value of $724,463 at. Any change in subsequent years in the fair market value of the Organization s shares of the trust investments is recorded in the Statements of Activities as a change in value of interests in perpetual trusts. (13) Prior Period Adjustment During the year ended the Organization became aware of the following which have resulted in adjustments to net assets as reported at June 30, Defined Benefit Pension Plan Assets In 1978 the Organization discontinued a defined benefit pension plan. During the following years all participants received full benefits with the retirement plan maintaining funds representing forfeitures. During the year ended the Organization learned the value of the assets held at the plan was $213,507. The Organization requested the funds be distributed and the plan administrator has determined the funds are rightfully owned by the Organization. Accordingly, the Organization has recorded a receivable at for $213,507. As the receivable existed at June 30, 2013 the Organization has increased beginning net assets for the approximate value of the receivable. Defined Contribution Pension Plan In 1982 the Organization began offering employees a defined contribution pension plan. The amount of the employer contribution was to be based on the total compensation of the employee. In calculating the contribution the Organization failed to include bonuses and overtime pay earned by the employees. The Organization has conducted a research project to quantify the amount of the underfunded pension liability related to the defined contribution pension plan. Management estimates the amount of underfunded liability including accrued interest to be as follows: June 30, 2013 June 30, 2014 Contribution liability $221,091 $ 223,356 $223,356 Interest liability 135, , ,715 $356,404 $ 365,370 $ 372,071 Allocations Payable During the year ended the Organization discovered the amount of accrued allocations payable included amounts for exchange transactions the Organization intended to enter into as well as anticipated program funding. As the amounts do not meet the definition of promises to give the amount should not have been allocations payable. As a result the Organization has made an adjustment to increase beginning net assets and decrease beginning allocations payable Split Interest Agreements and Beneficial Interests in Perpetual Trusts Prior to the year ended the Organization had reported beneficial interests in split interest agreements and perpetual trusts as deferred revenue. Generally accepted accounting principles require the estimated fair value of beneficial interest be recorded as revenue in the year of receipt. Generally 18

20 accepted accounting principles also require the beneficial interest be adjusted annually and the changes reported as revenue. Financial Impact of the Prior Period Adjustments Management has made prior period adjustments to the earliest period presented in the accompanying financial statements. The impact of those adjustment is as follows: Net assets as previously reported as of June 30, 2013 $ 8,819,079 Defined benefit pension receivable 213,507 Defined contribution pension plan underfunded liability (356,404) Interest in split interest agreements and perpetual trusts 1,651,036 Net Assets at June 30, 2013 restated $ 10,327,218 Changes in net assets for the year ended June 30, 2014 was impacted as follows: Change in net assets for year ended June 30, 2014 as previously reported $ 352,584 Change in value of beneficial interest in split interest agreements 40,442 Change in value of beneficial interest in perpetual trusts 59,615 Interest expense related to underfunded pension liability (8,966) Allocations expense 580,679 Change in net assets for year ended June 30, 2014 as restated $1,024,354 (14) Change in Accounting Estimate In the year ended, due to stabilized economic conditions and improved pledge receivable collections, the Organization changed its estimate of the allowance for doubtful pledges receivable. The result of this change in estimate resulted in a decrease of the reserve compared to the year ended June 30, 2014 by approximately $151,000. The change in accounting estimate was accounted for in the year of implementation and resulted in a negative provision for uncollectible pledges expense being reported in the Statement of Functional Expenses. (15) Subsequent Events Management has evaluated subsequent events through May 6, 2016, which is the date the financial statements were available to be issued. Management has determined that no subsequent event requiring disclosure or significantly impacting disclosure occurred. 19