Second Harvest Food Bank of Northwest North Carolina, Inc.

Transcription

1 Second Harvest Food Bank of Northwest North Carolina, Inc. Audited Financial Statements And Other Information June 30, 2014 and 2013 And For The Years Then Ended

2 SECOND HARVEST FOOD BANK OF NORTHWEST NORTH CAROLINA, INC. TABLE OF CONTENTS Page No. INDEPENDENT AUDITORS REPORT... 1 AUDITED FINANCIAL STATEMENTS Statements of Financial Position... 3 Statements of Activities... 4 Statement of Functional Expenses For The Year Ended June 30, Statement of Functional Expenses For The Year Ended June 30, Statements of Cash Flows... 7 Notes to Financial Statements... 8 OTHER INFORMATION Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance With Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Expenditures of Federal and State Awards Schedule of Findings and Questioned Costs Schedule of Prior Year Audit Findings... 27

3 INDEPENDENT AUDITORS' REPORT To the Board of Directors Second Harvest Food Bank of Northwest North Carolina, Inc. Winston-Salem, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of Second Harvest Food Bank of Northwest North Carolina, Inc. (the Food Bank ), which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities, functional expenses, 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. Auditors 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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. Page 1

4 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 Second Harvest Food Bank of Northwest North Carolina, Inc. as of June 30, 2014 and 2013, 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. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal and state awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 26, 2014, on our consideration of Second Harvest Food Bank of Northwest North Carolina, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Second Harvest Food Bank of Northwest North Carolina, Inc. s internal control over financial reporting and compliance. November 26, 2014 Page 2

5 STATEMENTS OF FINANCIAL POSITION June 30, 2014 and 2013 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,965,977 $ 1,254,032 Accounts receivable, net of allowance for uncollectible accounts of $3,023 and $3,173 in 2014 and , ,612 Other receivables 97,912 21,644 Prepaid expenses 53,620 3,573 Inventory 913,490 1,217,820 3,105,781 2,683,681 PROPERTY AND EQUIPMENT, net 2,458,914 2,691,015 OTHER ASSETS Cash held for acquisition and maintenance of capital assets and other programs 331, ,547 Endowed assets 539, , , ,262 $ 6,434,983 $ 6,223,958 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 119,624 $ 148,315 Deferred revenue 326, , , ,412 NET ASSETS Unrestricted: Board designated 84,653 84,642 Net assets invested in property and equipment 2,458,914 2,691,015 Net assets invested in inventory 913,490 1,217,820 Undesignated 1,725, ,448 Temporarily restricted 713, ,621 Permanently restricted for endowment purposes 92,000 92,000 5,988,668 5,704,546 $ 6,434,983 $ 6,223,958 See accompanying notes Page 3

6 STATEMENTS OF ACTIVITIES Years Ended June 30, 2014 and CHANGES IN UNRESTRICTED NET ASSETS: Support: Donated products received $ 33,881,554 $ 29,837,591 United Way 216, ,909 Triad Community Kitchen (TCK) 236, ,770 Special events 587, ,126 Individuals and other groups 2,741,815 2,154,037 Religious organizations 82,231 62,220 Government grants 500, ,998 Foundations and trusts 209, ,227 Revenues: Handling fees 1,285,116 1,078,691 TCK catering and other income 297, ,191 Interest Miscellaneous revenues 16,485 12,426 40,055,163 35,077,463 Net assets released from restrictions 1,051, ,646 41,106,464 36,016,109 Expenses and losses: Program services 39,665,948 34,087,163 Administrative services 586, ,622 Fundraising 611, ,221 40,863,355 35,230,006 INCREASE IN UNRESTRICTED NET ASSETS 243, ,103 CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Support restricted for: Kids Café 20,000 20,030 Backpack program 677, ,247 Mobile pantry - 74,438 Summer feeding 321, ,853 Unrealized gain on endowed assets 76,650 44,017 Realized gain on endowed assets - 14 Management fees (2,885) (2,310) Interest income on capital campaign assets ,092, ,305 Net assets released from restrictions (1,051,301) (938,646) INCREASE (DECREASE) IN TEMPORARILY RESTRICTED NET ASSETS 41,013 (329,341) INCREASE IN NET ASSETS 284, ,762 NET ASSETS, beginning of year 5,704,546 5,247,784 NET ASSETS, end of year $ 5,988,668 $ 5,704,546 See accompanying notes Page 4

7 STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2014 Program Administrative Services Services Fundraising Total Personnel: Salaries $ 1,484,689 $ 271,435 $ 240,692 $ 1,996,816 Contract services 163, ,714 Payroll taxes 163,207 20,159 17, ,871 Workers' compensation 71, ,311 Retirement expense 39,167 6,988 4,819 50,974 Health and life insurance premiums 260,810 28,072 23, ,619 Retirement plan administration ,183, , ,753 2,796,555 Facilities: Pest control 6, ,264 Utilities 94,297 12, ,156 Repairs and maintenance 29,392 4,008-33,400 Warehouse supplies/expense 57, ,326 Insurance 10,786 1,471-12,257 Warehouse lease 39,600 5,400-45,000 Security and safety 6, ,406 Other 1, , ,027 26, ,109 Transportation/Products: Donated products distributed 33,118, ,118,798 Licenses 4, ,652 Gas and oil 149, ,180 Repairs and maintenance 166, ,456 Commercial trucking 87, ,393 Insurance 13, ,914 Uniforms 1, ,593 Food drive purchases 436, ,227 SNAP purchases 453, ,528 Food purchase program 589, ,816 Summer feeding program 363, ,411 Kids Café 9, ,797 Backpack program 676, ,647 Triad Community Kitchen 365, ,615 School pantry Summer food service program ("SFSP") 36, ,926 Disposal fees 86, ,605 36,560, ,560,849 See accompanying notes

8 Program Administrative Services Services Fundraising Total Office: Telephone 7,198 6,986 6,986 21,170 Office supplies/expense 22,790 35,364 20,432 78,586 Postage 8,433 8,433-16,866 Professional fees 3,666 32,990-36,656 Other 24,374 47,067 12,607 84,048 66, ,840 40, ,326 Other Administrative: Public relations 16,154-35,956 52,110 Fundraising , ,325 Advertising 41, ,564 Interest expense Subscriptions and publications Hunger study 5, ,300 Board operations 1, ,112 Agency capacity building 160, ,122 Other 33,105 12,244-45, ,357 12, , ,588 Training/Development and Mileage: National 6,260 2,199-8,459 Regional and state Workshops 17,140 2,118-19,258 Mileage 24,008 1,847 4,925 30,780 47,793 6,172 4,941 58,906 Memberships: Feeding America 18, ,614 State Association 25, ,425 Other 9, ,144 53, ,183 Total expenses before depreciation 39,414, , ,210 40,528,515 Depreciation 251,130 83, ,840 $ 39,665,948 $ 586,197 $ 611,210 $ 40,863,355 Page 5

9 STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2013 Program Administrative Services Services Fundraising Total Personnel: Salaries $ 1,445,023 $ 262,180 $ 248,133 $ 1,955,336 Contract services 108, ,091 Payroll taxes 129,490 19,244 17, ,587 Workers' compensation 39, ,050 Retirement expense 37,885 6,849 4,036 48,770 Health and life insurance premiums 244,698 25,375 24, ,806 2,004, , ,755 2,612,640 Facilities: Pest control 6, ,906 Utilities 91,697 12, ,201 Repairs and maintenance 22,678 3,093-25,771 Warehouse supplies/expense 46, ,973 Insurance 10,603 1,446-12,049 Warehouse lease 39,600 5,400-45,000 Other 3, , ,638 23, ,500 Transportation/Products: Donated products distributed 28,523, ,523,174 Licenses 5, ,927 Gas and oil 155, ,306 Repairs and maintenance 109, ,419 Commercial trucking 57, ,038 Insurance 14, ,166 Uniforms 2, ,711 Food drive purchases 76, ,400 SNAP purchases 449, ,155 Food purchase program 544, ,923 Summer feeding program 143, ,151 Kids Café 44, ,397 Backpack program 601, ,212 Triad Community Kitchen 356, ,448 Mobile pantry 148, ,867 Summer food service program 23, ,342 Disposal fees 79, ,408 31,335, ,335,044 See accompanying notes

10 Program Administrative Services Services Fundraising Total Office: Telephone 6,294 6,109 6,109 18,512 Office supplies/expense 15,748 24,438 14,120 54,306 Postage 9,669 9,668-19,337 Professional fees 3,576 29,916-33,492 Other 24,445 47,203 12,643 84,291 59, ,335 32, ,939 Other Administrative: Public relations 16,682-37,130 53,812 Fundraising , ,240 Advertising 33, ,261 Interest expense - 2,925-2,925 Subscriptions and publications Board operations 11, ,630 Bad debt 1, ,457 Hunger studies Other 36,782 13,605-50,387 99,812 16, , ,980 Training/Development and Mileage: National 11,321 3,977-15,298 Workshops 14,297 1,767-16,064 Mileage 24,809 1,908 5,089 31,806 50,427 7,652 5,089 63,168 Memberships: Feeding America 15, ,312 State Association 25, ,354 Other 7, ,223 47, ,889 Total expenses before depreciation 33,818, , ,221 34,872,160 Depreciation 268,385 89, ,846 $ 34,087,163 $ 568,622 $ 574,221 $ 35,230,006 Page 6

11 STATEMENTS OF CASH FLOWS Years Ended June 30, 2014 and CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets $ 284,122 $ 456,762 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Net (increase) decrease in donated inventory 304,330 (717,600) Depreciation 334, ,846 Gain on the sale of property and equipment - (7,934) Unrealized gain on endowed assets (76,650) (44,017) Realized loss on endowed assets reinvested 4,331 3,315 (Increase) decrease in: Accounts receivable 111,830 (96,075) Other receivables (76,268) 5,307 Prepaid expenses (50,047) (2,739) Increase (decrease) in: Accounts payable and accrued expenses (28,691) (39) Deferred revenue (44,406) 198,647 NET CASH PROVIDED BY OPERATING ACTIVITES 763, ,473 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (102,739) (119,009) Proceeds from the sale of property and equipment - 12,359 Cash held for acquisition and maintenance of capital assets and other programs 51, ,374 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (51,446) 325,724 NET INCREASE IN CASH 711, ,197 CASH AND CASH EQUIVALENTS, beginning of year 1,254, ,835 CASH AND CASH EQUIVALENTS, end of year $ 1,965,977 $ 1,254,032 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for interest $ 286 $ 2,925 See accompanying notes Page 7

12 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE A - NATURE OF BUSINESS Second Harvest Food Bank of Northwest North Carolina, Inc. (the "Food Bank") is a nonprofit organization established to collect, warehouse, and distribute salvageable food and non-food products to area agencies and religious organizations which serve and feed the hungry. NOTE B - SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The Food Bank's financial statements are presented on the accrual basis of accounting. Financial Statement Presentation Classification of Net Assets Net assets of the Food Bank are classified as unrestricted, temporarily restricted or permanently restricted. Support Unrestricted net assets consist of assets, net of liabilities, related to the Food Bank's regular activities, which are available at the discretion of the Board of Directors to carry out the mission of the Food Bank. Temporarily restricted net assets represent those amounts which are donor restricted for specific purposes. A donor's restriction is met when a stipulated time restriction ends or a special purpose restriction is accomplished. Temporarily restricted net assets received and consumed in the same period are reflected in unrestricted operating activities. Temporarily restricted net assets are transferred to unrestricted net assets as the net assets are released from restrictions. Permanently restricted net assets result from contributions from donors who place restrictions on the use of the funds, which mandate that the principal be invested in perpetuity. The principal is reported as a permanently restricted net asset. Earnings, gains and losses on permanently restricted net assets are classified as unrestricted unless specifically restricted by the donor or by applicable state law. The Food Bank accounts for support received as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. Contributions classified as temporarily restricted support are reclassified to unrestricted support upon expiration of any restrictions. Earnings on temporarily restricted assets are classified as temporarily restricted support. Additionally, the Food Bank receives in-kind support from various donors. The Food Bank received $110,000 in grocery store gift cards for the year ended June 30, There was no in-kind support received for the year ended June 30, Page 8

13 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Promises to Give Unconditional promises to give are recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Endowment Investment and Spending Policies The Food Bank has adopted investment and spending policies for its endowed asset that attempt to provide a predictable stream of funding to the Food Bank in support of programs and services provided by the Food Bank. To satisfy its long-term rate-of-return objectives, the Food Bank relies on a total return strategy in which investment returns are achieved through both capital appreciation and current yield. The Food Bank s endowment is held by the Winston-Salem Foundation that targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve the Food Bank s long-term objectives while taking into account prudent risk parameters. Cash and Cash Equivalents The Food Bank considers all unrestricted, liquid financial instruments with an original maturity of three months or less to be cash equivalents. Cash that has been restricted for specific purposes, by donors or designated for specific purposes by the board of directors, is classified as a noncurrent asset and is not a part of cash and cash equivalents for purposes of the statement of cash flows. Accounts Receivable Accounts receivable are uncollateralized obligations of customers that are stated at the amount billed and are due within 30 days. The carrying amount of accounts receivable is reduced by accounts considered uncollectible. Management individually reviews all accounts receivable aged in excess of 30 days from invoice date and, based on assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Investments The Food Bank records its investments in marketable securities at fair value. Advertising The Food Bank follows the policy of charging the costs of advertising to expense as incurred. Advertising costs were $41,564 and $33,261 for the years ended June 30, 2014 and 2013, respectively. Page 9

14 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment Significant long-lived assets and improvements are stated at cost except for donated equipment, which is stated at fair value at the date of the gift. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific 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, the Food Bank reports expirations of donor restrictions when the donated assets are placed in service. The Food Bank reclassifies temporarily restricted net assets to unrestricted net assets at that time. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Depreciation of property and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis. Valuation of Donated Products Donated food products on hand at year end are valued based on the national wholesale value of one pound of food as determined by the most recent study performed by Feeding America (the national food bank network, formerly America s Second Harvest). Donations and distributions of products are recorded at the weighted average wholesale value in effect during the year. Effective May 1, 2011, Feeding America amended its policy regarding the collection of product. The Food Bank may now include poundage that was directly picked up or collected by its partner agencies in its valuation of donated products. 10,762,379 and 9,225,579 pounds were directly collected for the years ended June 30, 2014 and 2013, respectively. The Food Bank had 486,811 and 655,243 pounds of donated food products on hand as of June 30, 2014 and 2013, respectively. These food items were valued at approximately $1.72 and $1.69 per pound, respectively. Donated Services The Food Bank recognizes revenue from donated services which create or enhance nonfinancial assets or require specialized skills. The recognized value of these services is based on rates commensurate with the type of services performed. Additionally, the Food Bank receives a significant amount of skilled contributed time, which does not meet the recognition criteria. Accordingly, the value of this contributed time has not been determined and is not reflected in the accompanying financial statements. For the years ended June 30, 2014 and 2013, management estimates that volunteers donated approximately 37,000 and 36,000 hours, respectively, to the Food Bank. No amounts have been recorded in the financial statements with respect to these contributed services. Page 10

15 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Functional Expenses The costs of the Food Bank's programs and supporting services have been reported on a functional basis. This basis provides for the allocation of certain costs between program and supporting services based on estimates made by management. Income Tax Status The Food Bank is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, and is also exempt from North Carolina income tax. Therefore, no provision has been made for federal or state income taxes in the accompanying financial statements. The Food Bank has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, Fiscal years ending on or after June 30, 2011 remain subject to examination by federal and state tax authorities. Deferred Revenue Under the accrual basis of accounting the Food Bank recognizes revenue when goods or services are provided. Any funding received for goods or services that have yet to be provided is included as a liability under deferred revenue. Deferred revenue consisted of $281,541 and $292,287 related to the backpack program and $45,150 and $78,810 related to the golf tournament and various other programs as of June 30, 2014 and 2013, respectively. Concentrations Financial instruments that potentially subject the Food Bank to concentrations of credit risk consist principally of cash and accounts receivable. The Food Bank has cash deposited in a single financial institution in excess of the federally insured limit of $250,000. The Food Bank grants credit to participating agencies and religious organizations located in northwestern North Carolina. The Food Bank received approximately 1% of its donated food products directly or indirectly from Feeding America for the years ended June 30, 2014 and Management s 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 the reported amounts of assets and liabilities, the disclosure of 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. Page 11

16 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements Fair value as defined under generally accepted accounting principles is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Food Bank utilizes market data or assumptions that market participants would use in pricing the asset or liability (Note I). Subsequent events The Food Bank evaluated the effect subsequent events would have on the financial statements through November 26, 2014, which is the date the financial statements were available to be issued. NOTE C - ENDOWED ASSETS Endowed assets: Cost $ 374,123 $ 374,111 Accumulated unrealized gains 164,911 92,604 Fair value $ 539,034 $ 466,715 NOTE D - PROPERTY AND EQUIPMENT Land and land improvements $ 135,657 $ 135,657 Building and improvements 2,530,639 2,509,475 Warehouse equipment 1,834,073 1,752,497 Vehicles 773, ,436 Software 133, ,512 Office furniture and equipment 428, ,383 5,835,700 5,732,960 Accumulated depreciation (3,376,786) (3,041,945) $ 2,458,914 $ 2,691,015 NOTE E - LINE OF CREDIT The Food Bank has a line of credit with a bank with maximum borrowings of up to $250,000. The line bears interest at the bank s prime rate subject to a floor of 3.25% and will mature on February 5, There was no balance outstanding on this line of credit as of June 30, 2014 or Page 12

17 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE F - BOARD DESIGNATED UNRESTRICTED NET ASSETS Unrestricted net assets have been designated by the board of directors for the following purposes: Vehicle replacement $ 24,336 $ 24,333 Capital asset maintenance 60,317 60,309 $ 84,653 $ 84,642 NOTE G - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: Earnings on permanently restricted endowment $ 447,034 $ 374,715 Capital improvement 182, ,385 Backpack program Kids Café 49,595 39,393 Mobile Pantry program 7,100 7,100 Summer Feeding program 27,136 69,028 $ 713,634 $ 672,621 Temporarily restricted net assets released from restrictions are represented as follows: Backpack program $ 676,647 $ 601,212 Kids Café 9,797 44,397 Summer Feeding program 363, ,151 Mobile Pantry program - 148,867 Endowment accounts (transfer from unrestricted) 1,446 1,019 $ 1,051,301 $ 938,646 Page 13

18 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE H - RETIREMENT PLAN The Food Bank has established a defined contribution retirement plan for the benefit of its employees. Under the plan, which is administered by a national insurance company, a 2% contribution and a 1% discretionary contribution is made by the Food Bank to the account of each individual employee based on annual compensation levels. An employee is eligible to participate in the plan in the quarter following their hire date but they must complete one year of service and 1,000 hours to receive discretionary contributions from the Food Bank. The Food Bank s contributions to the plan amounted to $50,974 and $48,770 for the years ended June 30, 2014 and 2013, respectively. NOTE I - FAIR VALUE OF ASSETS AND LIABILITIES Fair value as defined under generally accepted accounting principles is an exit price, representing 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. Generally accepted accounting principles establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3: Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Food Bank s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. Assets and Liabilities Measured at Fair Value on a Recurring Basis Prices for certain cash equivalents, such as money market mutual funds, and investment securities which are readily available in the active markets in which those securities are traded, are categorized as Level 1. The following tables set forth by level within the fair value hierarchy the Food Bank s financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2014 and Page 14

19 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE I - FAIR VALUE OF ASSETS AND LIABILITIES (CONTINUED) Assets at Fair Value as of June 30, 2014 Quoted Prices in Active Markets Significant Other Significant For Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Assets: Equity securities $ 536,339 $ - $ - Hedge funds - - 2,695 Assets at Fair Value as of June 30, 2013 Quoted Prices in Active Markets Significant Other Significant For Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Assets: Equity securities $ 463,915 $ - $ - Hedge funds - - 2,800 The Food Bank has $2,297,231 and $1,636,579 in cash and cash equivalents as of June 30, 2014 and 2013, respectively, which are not classified as a Level. The determination of fair value above incorporates various factors including the credit standing of the counterparties involved and the impact of credit enhancements. The following table illustrates the activity of Level 3 assets from June 30, 2012 to June 30, 2014: Fair value at June 30, 2012 $ 2,982 Gains - realized - Gains - unrealized 264 Sales (446) Fair value at June 30, ,800 Gains - realized - Gains - unrealized 383 Sales (488) Fair value at June 30, 2014 $ 2,695 Page 15

20 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE J - ENDOWMENT The Food Bank s endowment consists of one individual fund established for various purposes in accordance with donor restrictions. As required by generally accepted accounting principles (GAAP), 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 donorimposed restrictions. Interpretation of Relevant Law On March 19, 2009, North Carolina enacted its version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA); which in the absence of explicit donor restrictions, allows spending of the corpus of certain donor-restricted and board-designated endowments, so long as it is necessary for the continuing operation of the entity and is managed in a responsible and prudent manner. However, it is the Food Bank s policy to maintain any original corpus that was permanently restricted by the donor and to recognize any other donor restrictions related to endowment gifts, such as restrictions on earnings. As a result, the Food Bank classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment. The investment returns and any appreciation or depreciation of the endowment assets are classified as temporarily restricted net assets. Endowment Net Asset Composition by Type of Fund as of June 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 447,034 $ 92,000 $ 539,034 Total Funds $ - $ 447,034 $ 92,000 $ 539,034 Endowment Net Asset Composition by Type of Fund as of June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 374,715 $ 92,000 $ 466,715 Total Funds $ - $ 374,715 $ 92,000 $ 466,715 Page 16

21 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE J - ENDOWMENT (CONTINUED) Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ - $ 374,715 $ 92,000 $ 466,715 Investment Return: Investment realized loss - (4,331) - (4,331) Net appreciation (realized and unrealized) - 76,650-76,650 Total investment return - 72,319-72,319 Contributions Appropriation of endowment assets Other changes: Transfers to create endowment funds Total Funds $ - $ 447,034 $ 92,000 $ 539,034 Page 17

22 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE J - ENDOWMENT (CONTINUED) Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net Assets, beginning of year $ - $ 334,013 $ 92,000 $ 426,013 Investment Return: Investment income - (3,315) - (3,315) Net appreciation (realized and unrealized) - 44,017-44,017 Total investment return - 40,702-40,702 Contributions Appropriation of endowment assets Other changes: Transfers to create endowment funds Total Funds $ - $ 374,715 $ 92,000 $ 466,715 Funds with Deficiencies From time to time, the fair market value of assets associated with individual donor restricted endowment funds may fall below the level that the donor requires the Food Bank to retain as a fund of perpetual duration. There were no such deficiencies as of June 30, 2014 and Return Objectives and Risk Parameters The Food Bank has adopted investment policies for the long term endowment assets that attempt to provide an acceptable level of earnings while seeking to maintain the corpus of the endowment assets. Under this policy, as approved by the Board of Directors, the endowment portfolio is invested with a growth and income style of investing with the intent of maintaining the buying power of the original investment. Because market timing has historically impaired the ability of portfolios to perform over a long period, the funds deemed long term investments are invested within the guideline ranges at all times. Page 18

23 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE J - ENDOWMENT (CONTINUED) Strategies Employed for Achieving Objectives The Food Bank s strategy is to maximize the total return of the endowment funds consistent with prudent levels of risk by preserving and protecting the purchasing power of the endowment assets and earning a total return for each fund appropriate to each fund s duration, liquidity needs and risk tolerance. The total return should achieve, at a minimum, a positive annual rate of return. NOTE K - OPERATING LEASE During 2012 the Food Bank leased a new building for additional warehouse space under an operating lease agreement. Monthly lease payments are $3,833. The lease agreement expires in June 2016 and contains a two-year renewal option. Future minimum annual rental payments due under the lease as of June 30, 2014 are as follows: 2015 $ 46, ,000 $ 92,000 Total rent expense under this lease agreement was $45,000 for fiscal year Page 19

24 OTHER INFORMATION

25 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To The Board of Directors Second Harvest Food Bank of Northwest North Carolina, Inc. Winston-Salem, North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Second Harvest Food Bank of Northwest North Carolina, Inc. (the Food Bank ), which comprise the statement of financial position as of and for the year ended June 30, 2014, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated November 26, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Food Bank s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Food Bank s internal control. Accordingly, we do not express an opinion on the effectiveness of the Food Bank s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Food Bank s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Page 20

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Food Bank s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. November 26, 2014 Page 21

27 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board of Directors Second Harvest Food Bank of Northwest North Carolina, Inc. Winston-Salem, North Carolina Report on Compliance for Each Major Federal Program We have audited Second Harvest Food Bank of Northwest North Carolina, Inc. s (the "Food Bank") compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Food Bank s major federal programs for the year ended June 30, The Food Bank s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Food Bank s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Food Bank s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Food Bank s compliance. Page 22

28 Opinion on Each Major Federal Program In our opinion, the Food Bank complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of the Food Bank is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Food Bank s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Food Bank s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. November 26, 2014 Page 23

29 SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS June 30, 2014 Federal Awards: State/ Federal Pass-through CFDA Grantor s Grant Expenditures Grantor/Program Title Number Number Receipts Federal State Cash Programs: Emergency Food Assistance - Cluster U.S. Department of Agriculture (pass-through from N.C. Department of Agriculture) Emergency Food Assistance Program (Administrative costs) $ 175,336 $ 175,336 $ - Emergency Food Assistance Program (Food Commodities) ,106,736 3,145,878 - Total U.S. Department of Agriculture 3,282,072 3,321,214 - State Awards: Cash Assistance: N.C. Department of Health and Human Services Division of Social Services State Nutritional Assistance Program N/A , ,001 N.C. Department of Health and Human Services Division of Public Health Summer Food Service Program N/A ,687-33,687 Food and Nutrition Services Outreach N/A ,384-9,946 Total Federal and State Awards $ 3,853,144 $ 3,321,214 $ 543,634 Note: The information on this schedule has been prepared on the cash basis of accounting. Therefore, receipts are recognized when received rather than when earned, and expenditures are recognized when paid rather than when obligations are incurred. Some amounts presented in this schedule may differ from amounts presented in the financial statements. Page 24

30 SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2014 Section I - Summary of Auditors' Results Financial Statements: Type of auditors report issued: unmodified Internal control over financial reporting: Material weaknesses identified? yes X no Significant deficiencies identified yes X none reported Noncompliance material to financial statements noted? yes X no Federal Awards: Internal control over major programs: Material weaknesses identified? yes X no Significant deficiencies identified that are not considered to be material weaknesses yes X none reported Type of auditors' report issued on compliance for major programs: unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A- 133? yes X no Identification of major programs: CFDA Number Name of Federal Program Emergency Food Assistance Program (Food Commodities) Dollar threshold used to distinguish between type A and type B programs: $ 300,000 Auditee qualifies as a low-risk auditee? X yes no Page 25

31 SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2014 Section II - Financial Statement Findings None reported. Section III - Federal Award Findings and Questioned Costs None reported. Page 26

32 SCHEDULE OF PRIOR YEAR AUDIT FINDINGS June 30, 2014 Section II - Financial Statement Findings None reported. Section III - Federal Award Findings and Questioned Costs None reported. Page 27