COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. PALM DESERT, CALIFORNIA INDEPENDENT AUDITORS' REPORT, FINANCIAL STATEMENTS AND SUPPLEMENTARY

Transcription

1 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. PALM DESERT, CALIFORNIA INDEPENDENT AUDITORS' REPORT, FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION JUNE 30, 2016 AND 2015

2 INDEPENDENT AUDITORS' REPORT Board of Directors College of the Desert Alumni Association, Inc. Palm Desert, California We have audited the accompanying statements of College of the Desert Alumni Association, Inc. (a California non-profit public benefit corporation) which comprise of the related statements of assets, liabilities and net assets modified cash basis as of June 30, 2016 and 2015, and the related statements of revenue, expenses and changes in net assets modified cash basis for the years then ended, and 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 on the basis of accounting described in Note 2; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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. -1-

3 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Qualified Opinion As more fully described in note 11 to the financial statements, the Internal Revenue Service has recently completed its examination of College of the Desert Alumni Association, Inc. that had been ongoing for several years. The Association s financial statements do not include all potential tax liabilities as the Association intends to file a Petition in the United States Tax Court to contest the IRS s determination. We were also unable to obtain written representations from management of the Association for the years ended June 30, 2016 and 2015 due to changes in management. Opinion In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets of College of the Desert Alumni Association, Inc., as of June 30, 2016 and 2015, and its revenue, expenses and changes in its net assets for the years then ended, on the basis of accounting described in Note 2. The accompanying schedules 1 through 5 for the years ended June 30, 2016 and 2015 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, except for the effects of not accruing all potential tax liabilities as discussed in the Basis for Qualified Opinion paragraph, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. September 22, 2016, except note 11, as to which date is January 20,

4 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - MODIFIED CASH BASIS JUNE 30, 2016 AND 2015 ASSETS CURRENT ASSETS Cash - unrestricted $ 615,687 $ 450,073 Certificates of deposit - unrestricted 290, ,572 Total current assets 906, ,645 PROPERTY AND EQUIPMENT Computer equipment 39,393 38,174 Office equipment 7,208 7,208 Furniture and fixtures 64,506 64,506 Vehicles 248, , , ,792 Less accumulated depreciation (327,327) (305,379) Property and equipment, net 32,684 53,413 RESTRICTED AND DESIGNATED ASSETS Cash - 61,756 Certificates of deposit 211, ,898 Investments 1,197,317 1,239,879 Total restricted and designated assets 1,408,956 1,512,533 TOTAL ASSETS $ 2,348,186 $ 2,306,591 LIABILITIES AND NET ASSETS LIABILITIES Income taxes payable $ 793,807 $ 793,807 NET ASSETS Unrestricted net assets 71, Unrestricted net assets - board designated 1,262,498 1,292,533 Permanently restricted net assets 220, ,000 Total net assets 1,554,379 1,512,784 TOTAL LIABILITIES AND NET ASSETS $ 2,348,186 $ 2,306,591 (The accompanying notes are an integral part of these financial statements) -3-

5 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS FOR THE YEARS ENDED JUNE 30, 2016 AND REVENUE Street Fair income $ 1,446,438 $ 1,549,422 Event income - 6,291 Memberships and donations 1,420 2,235 Miscellaneous income ,308 Total revenue 1,448,294 1,669,256 EXPENSES Functional expenses 1,080,787 1,193,971 Event expenses 18,610 66,424 Depreciation expense 21,949 27,761 Total expenses 1,121,346 1,288,156 EXCESS OF REVENUE OVER EXPENSES 326, ,100 OTHER INCOME / EXPENSE Dividends and interest 18,120 17,269 Net realized gain (loss) on investments (15,482) 77,131 Net unrealized gain (loss) on investments (29,866) (78,835) Total other income / (expense) (27,228) 15,565 EXCESS OF REVENUE OVER EXPENSES BEFORE OTHER EXPENSES 299, ,665 OTHER EXPENSES Scholarships and grants 152, ,454 Donations and contributions 105, ,527 Total other expenses 258, ,981 INCREASE (DECREASE) IN NET ASSETS 41,595 (48,316) NET ASSETS AT BEGINNING OF YEAR 1,512,784 1,561,100 NET ASSETS AT END OF YEAR $ 1,554,379 $ 1,512,784 (The accompanying notes are an integral part of these financial statements) -4-

6 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND ORGANIZATION College of the Desert Alumni Association, Inc. (the Association) is a California non-profit public benefit corporation, formed in 1983 and incorporated in 1985, located in Palm Desert, California. The Association's primary purpose is to provide financial support for the College of the Desert in the form of scholarships and direct donations. The Association's largest fundraising event is the Street Fair, held every weekend on the College of the Desert campus. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Basis The Association maintains its accounting records and prepares its financial statements on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Consequently, certain revenues are recognized when received rather than when earned and certain expenses are recognized when cash is disbursed rather than when the obligation is incurred. Basis of Presentation The Association's organizational documents provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Association accounts for its financial resources according to their nature and purpose: Unrestricted Net Assets - This is used to account for the general operating resources of the Association. The Board has designated certain net assets towards scholarships and building projects. Temporarily Restricted Net Assets - This is used to account for assets subject to donor-imposed stipulations that may or will be met, either by actions of the Association and/or the passage of time. There were no temporarily restricted net assets at June 30, 2016 and Permanently Restricted Net Assets This is used to account for assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors of these assets permit the Association to use all or part of the income earned on any related investments for general or specific purposes Property and Equipment The Association's property and equipment are recorded at cost and are depreciated using the straightline method over the estimated useful lives of five to seven years. Income Taxes The College of the Desert Alumni Association, Inc. is a 501(c)(3) organization exempt from income taxes under Internal Revenue Code Section 509(a)(2) and under California Revenue and Taxation Code Section 23701d and operates as a public charity. -5-

7 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes (continued) All income from the Association's activities is currently considered exempt from income taxes. The Internal Revenue Service exempts, by exclusion code, revenue from certain sources. Revenue not subject to these exclusions may be taxable as unrelated business income. Additionally, in that tax laws change from time to time and new case law is continually being developed, currently excluded revenue may become taxable in the future periods. The Alumni s form 990, Return of Organizations Exempt from Income Tax, is subject by examination by the IRS for three years after they were filed. (see note 11) Investments Investments are stated at fair market value and consist of equities, mutual funds and fixed income securities. Realized and unrealized gains and losses on investments are recognized as changes in net assets in the periods in which they occur. Investment income is recognized as revenue in the period received. Use of Estimates Preparation of financial statements on the modified cash basis of accounting requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Concentration of Credit Risk The Association maintains its cash in deposit accounts which, at times, may exceed federally insured limits. The Association has not experienced any significant losses in such accounts. Management of the Association believes it is not exposed to any significant credit risk related to cash. Economic Dependency In as much as the revenue from the Street Fair event is the primary source of revenue for the Association, market factors in the area may impact the Association activities from time to time. Advertising The Association expenses advertising costs as incurred. Advertising expense was $86,216 and $110,992 for the years ended June 30, 2016 and 2015, respectively. 3. BOARD COMMITMENTS In July 1997 the Association entered into a commitment to establish a Scholarship endowment fund of $1 million. This commitment is to be internally funded. The balance of this internally funded endowment was $1,105,045 and $1,133,136 for the years ended June 30, 2016 and 2015, respectively. (See Note 6) In March 2014, the Association entered into a commitment with COD Foundation to support the Changing Lives Campaign. The commitment is for $ 180,000 payable over the next two fiscal years. A payment of $90,000 was paid during each of the years ended June 30, 2016 and 2015 and the commitment has been met in full. -6-

8 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND INVESTMENTS Investments consist of the following at June 30, 2016 and 2015: Market Unrealized 2016 Value Cost Gain (loss) Mutual funds $ 303,528 $ 295,424 $ 8,104 Fixed income securities 102,586 98,453 4,133 Equities 791, ,357 50,846 $ 1,197,317 $ 1,134,234 $ 63,083 Market Unrealized 2015 Value Cost Gain (loss) Mutual funds $ 314,924 $ 297,599 $ 17,325 Fixed income securities 112, ,546 (112) Equities 812, ,901 76,620 $ 1,239,879 $ 1,146,046 $ 93,833 Fair Value Hierarchy The Association applies Generally Accepted Accounting Principles (GAAP) for fair value measurements of financial assets that are recognized or disclosed at fair value in the financial statements on a recurring basis. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows: Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Association has the ability to access at the measurement date. Level 2 Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 Inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. At June 30, 2016 and 2015, all marketable securities are measured at fair value on a recurring basis and were valued at Level 1 inputs (quoted prices in active markets for identical assets). Fair value for marketable securities at June 30, 2016 and 2015, was $1,197,317 and $1,239,879, respectively. -7-

9 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND CERTIFICATES OF DEPOSIT Certificates of deposit at June 30, 2016 and 2015 consisted of the following: Unrestricted, matures October 2016 $ 290,859 $ 290,572 Iantorno Scholarship, matures March , ,898 Total $ 502,498 $ 501, NET ASSETS Net assets at June 30, 2016 and 2015 consisted of the following: Unrestricted net assets $ 71,881 $ 251 Unrestricted net assets, Board designated Scholarship funds Scholarship endowment funds 1,105,045 1,133,136 Nordland 14,950 15,849 Emergency / Building Funds 142, ,548 1,262,498 1,292,533 Permanently restricted net assets Iantorno 200, ,000 Nordland 20,000 20, , ,000 $ 1,554,379 $ 1,512, EMPLOYEE SIMPLE RETIREMENT PLAN The Association has a simple retirement account plan covering eligible employees. Contributions are made by the Association equal to 10% of eligible employees salaries. During the years ended June 30, 2016 and 2015, the Association contributed $19,507 and $26,740, respectively. 8. STREET FAIR INCOME The components of Street Fair income for the years ended June 30, 2016 and 2015 were as follows: Street Fair income regular $ 1,230,974 $ 1,342,027 Street Fair income City of Palm Desert portion 34,414 31,290 Street Fair income other 23,686 24,653 Standby income 134, ,314 Standby insurance income net of expense 1,966 2,184 Tent set up 16,142 15,067-8-

10 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND STREET FAIR INCOME (continued) Late payment income 3,050 4,105 Returned check fee income Clean up charge income 3,885 1,301 Refunds (2,586) (4,744) Total Street Fair Income $ 1,446,438 $ 1,549, BROKER FEES Dividend and interest income are shown net of broker fees on the Statements of Revenue, Expenses and Changes in Net Assets. These fees were $18,458 and $19,279 for 2016 and 2015, respectively. 10. SUPPORT PAID TO COLLEGE OF THE DESERT The components of scholarships, grants, donations and contributions, and event expenses for the years ended June 30, 2016 and 2015 were as follows: Scholarships, Grants, Donations and Contributions Alumni grants $ 2,527 $ - Campus improvements - 6,375 COD clubs COD events 10,455 13,491 College work study 135, ,000 Employee recognition 7,184 10,308 Foundation 90,000 90,000 Pathways scholarship mentoring - 25,000 Pathways club 7,852 6,607 Pathways student scholarships/ged - 125,000 Student scholarships Unspecified and other 5,107 32, , ,981 Event Expenses Reunion and other events 10,935 20,125 Graduation 7,675 7,693 Hall of fame - 38,606 18,610 66,424 Less event income - (6,291)) Net event expenses 18,610 60,133 Total Scholarships, Donations, Contributions and Net Event Expenses $ 276,735 $ 505,114-9-

11 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND CONTINGENCY The Internal Revenue Service (the IRS ) has completed its examination of the Association that had been ongoing for several years. The IRS has concluded that revenue derived from rents paid by vendors that do business at the Street Fair constitutes income from an unrelated trade or business that is taxable to the Association under section 513(a) of the Internal Revenue Code of 1986 (the Code ) and do not constitute rents from real property described in section 512(b)(3) of the Code. The IRS has issued a Form 4089, Notice of Deficiency-Waiver, dated November 17, 2016 increasing the Association s tax liability for fiscal years ended June 30, 2008, 2009 and 2010 by $294,923, $249,102 and $249,782, respectively. The Association has included the $793,807 of combined federal tax liabilities for these three tax years in the accompanying Statements of Assets, Liabilities and Net Assets. However, there have been no additional estimates on potential liabilities recorded for any related state tax liabilities for these same years, or any potential federal and state tax liabilities for any subsequent years. The Association intends to file a Petition in the United States Tax Court to contest the IRS s determination. 12. SUBSEQUENT EVENTS The Association evaluated all potential subsequent events as of September 22, 2016 when the financial statements were authorized and available to be issued. No subsequent events or transactions were identified after June 30, 2016 or as of September 22, 2016 that require additional disclosure to the financial statements, other than the item noted in note 11 above. -10-

12 SUPPLEMENTARY INFORMATION

13 Schedule 1 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. SCHEDULES OF FUNCTIONAL AND EVENT EXPENSES - MODIFIED CASH BASIS FOR THE YEARS ENDED JUNE 30, 2016 AND FUNCTIONAL EXPENSES Accounting and audit $ 39,664 $ 29,613 Advertising and promotion 92, ,342 Bus passes 47,726 45,390 Consulting and outside services ,805 Dues and subscriptions 3,254 3,397 Entertainment 9,409 7,952 Environmental health department fees 13,062 8,597 Equipment and grounds expense 23,801 32,304 Insurance 25,654 24,886 Legal 76,333 86,371 License fees 33,800 31,290 Meeting and conferences 2,207 8,621 Miscellaneous 24,349 26,787 Office expense and supplies 16,904 21,400 Outside services 39,604 49,489 Printing and postage 13,059 18,704 Rent 42,000 42,000 Salaries and benefits 572, ,821 Telephone 2,512 5,418 Trash 2,198 1,784 Total functional expenses $ 1,080,787 $ 1,193,971 EVENT EXPENSES Graduation $ 7,675 $ 7,693 Hall of fame - 38,606 Reunion and other events 10,935 20,125 Total event expenses $ 18,610 $ 66,

14 Schedule 2 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. SCHEDULES OF FUNCTIONAL AND EVENT EXPENSES BUDGET AND ACTUAL - MODIFIED CASH BASIS FOR THE YEAR ENDED JUNE 30, 2016 Variance Favorable Budget Actual (Unfavorable) FUNCTIONAL EXPENSES Accounting $ 40,000 $ 39,664 $ 336 Advertising and promotion 92,400 92, Bus passes 45,000 47,726 (2,726) Consulting and outside services 1, Contingency Dues and subscriptions 3,300 3, Entertainment 13,600 9,409 4,191 Environmental health department fees 12,100 13,062 (962) Equipment and grounds expense 35,666 23,801 11,865 Insurance 25,000 25,654 (654) Legal 148,000 76,333 71,667 License fees 37,700 33,800 3,900 Meeting and conferences 4,000 2,207 1,793 Miscellaneous 31,250 24,349 6,901 Office expense and supplies 21,000 16,904 4,096 Outside services 44,505 39,604 4,901 Printing and postage 19,750 13,059 6,691 Rent 42,000 42,000 - Salaries and benefits 596, ,449 23,746 Telephone 4,000 2,512 1,488 Trash 2,000 2,198 (198) Total functional expenses $ 1,218,466 $ 1,080,787 $ 137,679 EVENT EXPENSES Graduation $ 7,000 $ 7,675 $ (675) Hall of fame 6,000-6,000 Reunion and other events 16,000 10,935 5,065 Total event expenses $ 29,000 $ 18,610 $ 10,

15 Schedule 3 COLLEGE OF THE DESERT ALUMNI ASSOCIATION, INC. Variance Favorable Budget Actual (Unfavorable) REVENUE Street Fair income $ 1,537,500 $ 1,446,438 $ (91,062) Event income 6,000 - (6,000) Memberships and donations 1,000 1, Miscellaneous income Total revenues 1,544,500 1,448,294 (96,206) EXPENSES Functional expenses 1,218,466 1,080, ,679 Event expenses 29,000 18,610 10,390 Depreciation 28,000 21,949 6,051 Total expenses 1,275,466 1,121, ,120 EXCESS OF REVENUE OVER EXPENSES 269, ,948 57,914 OTHER INCOME/EXPENSE Dividends and interest 14,900 18,120 3,220 Net realized and unrealized gain (loss) on investments - (45,348) (45,348) Total other income / (expense) 14,900 (27,228) (42,128) EXCESS OF REVENUE OVER SCHEDULE OF REVENUE AND EXPENSES BUDGET AND ACTUAL - MODIFIED CASH BASIS FOR THE YEAR ENDED JUNE 30, 2016 EXPENSES BEFORE OTHER EXPENSES 283, ,720 15,786 OTHER EXPENSES Scholarships and grants 158, ,563 5,537 Donations and contributions 261, , ,938 Total other expenses 419, , ,475 INCREASE (DECREASE) IN NET ASSETS $ (135,666) $ 41,595 $ 177,

16 Schedule 4 Street Fair Revenue 1,750,000 1,700,000 $1,732,128 $1,725,761 1,650,000 $1,663,294 Dollars 1,600,000 1,550,000 $1,549,422 1,500,000 1,450,000 $1,446,438 1,400, Year -14-

17 Schedule 5 Support Paid to College of the Desert 600, ,000 $505,114 $516,866 Dollars 400, , ,000 $258,125 $276,735 $444,981 $478,397 *$264,346 *$328,601 $350,297 $418, ,000 0 $18,610 $60,133 $38,469 $64,255 $68, Year Event Expenses, net of Event Income Scholarships, Grants, Donations and Contributions Total *These amounts for 2013 are net of $73,687 for return of prior donations and contributions. -15-