Epilepsy Foundation of Texas

Transcription

1 Financial Statements and Single Audit Reports December 31, 2013 and 2012

2 Table Of Contents December 31, 2013 And Independent Auditor s Report 1 Financial Statements Statements of Financial Position 3 Statements of Activities and Changes in Net Assets 4 Statements of Functional Expenses 8 Statements of Cash Flows 10 Notes to the Financial Statements 11 Single Audit Schedule of Expenditures of State Awards 25 Notes to the Schedule of Expenditures of State Awards 26 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 27 Independent Auditor s Report on Compliance for the Major State Program and on Internal Control Over Compliance Required by the OMB Circular A 133 and the State of Texas Single Audit Circular 29 Schedule of Findings and Questioned Costs 31

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors Epilepsy Foundation of Texas Houston, Texas Report on the Financial Statements We have audited the accompanying financial statements of Epilepsy Foundation of Texas (the Foundation), which comprise the statement of financial position as of December 31, 2013, and the related statements of activities and changes in net assets, 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Epilepsy Foundation of Texas as of December 31, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Prior Period Financial Statements The financial statements of Epilepsy Foundation of Texas as of December 31, 2012, were audited by other auditors whose report dated June 17, 2013, expressed an unmodified opinion on those statements. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of state awards, as required by Office of Management and Budget Circular A 133, Audits of States, Local Governments, and Non Profit Organizations, and the State of Texas Single Audit Circular 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 July 2, 2014, on our consideration of Epilepsy Foundation of Texas s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 Epilepsy Foundation of Texas s internal control over financial reporting and compliance. Houston, Texas July 2, 2014

5 Statements of Financial Position December 31, Assets Current assets Cash and cash equivalents $ 201,859 $ 182,379 Grants and contributions receivable 306, ,178 Unconditional promises to give, net 8,300 5,750 Prepaid expenses 24,445 17,762 Total current assets 540, ,069 Furniture and equipment, net Other assets Investments 186, ,775 Cash and cash equivalents, restricted for endowments 42,225 Grants and contributions receivable 10,000 Unconditional promises to give 25,000 6,250 Security deposit 3,619 Total other assets 221, ,869 Total assets $ 761,955 $ 591,072 Liabilities and net assets Current liabilities Accounts payable and accrued liabilities $ 97,977 $ 89,477 Deferred revenue 17,628 43,774 Total liabilities 115, ,251 Net assets Unrestricted Board designated funds 96,024 87,177 Undesignated funds 322, ,920 Temporarily restricted 185, ,499 Permanently restricted 42,225 42,225 Total net assets 646, ,821 Total liabilities and net assets $ 761,955 $ 591,072 See accompanying notes to financial statements. 3

6 Statement of Activities and Changes in Net Assets For the year ended December 31, 2013 Unrestricted Temporarily Restricted Permanently Restricted Total Revenue Public support Contributions $ 104,370 $ 89,615 $ $ 193,985 Fundraising events 1,269,669 30,000 1,299,669 Less: cost of direct benefits to donors (220,433) (220,433) Corporate grants 8,429 8,548 16,977 Foundation grants 28, , ,600 Memorial/trusts 8, ,308 Combined campaigns 30,568 30,568 Total public support 1,229, ,463 1,518,674 Other revenue Governmental agencies 949, ,569 Program fees 4,648 4,648 Interest income ,109 Total other revenue 954, ,326 Total revenue 2,184, ,897 2,474,000 Net assets released from restrictions 229,382 (229,382) Expenses Program services Children's services 338, ,671 Education services 231, ,987 Healthcare transition 53,951 53,951 Get fit services 462, ,536 Patient services 934, ,346 Total program services $ 2,021,491 $ $ $ 2,021,491 See accompanying notes to financial statements. 4

7 Statement of Activities and Changes in Net Assets (Continued) For the year ended December 31, 2013 Unrestricted Temporarily Restricted Permanently Restricted Total Support services Management and general $ 55,232 $ $ $ 55,232 Fundraising 223, ,917 Total support services 279, ,149 Total expenses 2,300,640 2,300,640 Net realized and unrealized gains on investments 8,980 6,189 15,169 Changes in net assets 121,825 66, ,529 Net assets at beginning of year 297, ,499 42, ,821 Net assets at end of year $ 418,922 $ 185,203 $ 42,225 $ 646,350 See accompanying notes to financial statements. 5

8 Statement of Activities and Changes in Net Assets For the year ended December 31, 2012 Unrestricted Temporarily Restricted Permanently Restricted Total Revenue Public support Contributions $ 91,781 $ 48,774 $ $ 140,555 Fundraising events 1,283,073 1,283,073 Less: cost of direct benefits to donors (247,955) (247,955) Corporate grants 34,711 18,400 53,111 Foundation grants 35, , ,150 Memorial/trusts 8,669 8,669 Combined campaigns 25,083 25,083 Total public support 1,230, ,174 1,398,686 Other revenue Governmental agencies 707, ,391 Program fees 9,439 9,439 Interest income 1, ,454 Total other revenue 717, ,284 Total revenue 1,948, ,596 2,116,970 Net assets released from restrictions 147,542 (147,542) Expenses Program services Children's services 379, ,107 Education services 286, ,739 Get fit services 154, ,933 Patient services 895, ,838 Total program services $ 1,716,617 $ $ $ 1,716,617 See accompanying notes to financial statements. 6

9 Statement of Activities and Changes in Net Assets (Continued) For the year ended December 31, 2012 Unrestricted Temporarily Restricted Permanently Restricted Total Support services Management and general $ 79,188 $ $ $ 79,188 Fundraising 245, ,596 Total support services 324, ,784 Total expenses 2,041,401 2,041,401 Net realized and unrealized gains on investments 5,979 2,842 8,821 Changes in net assets 60,494 23,896 84,390 Net assets at beginning of year 236,603 94,603 42, ,431 Net assets at end of year $ 297,097 $ 118,499 $ 42,225 $ 457,821 See accompanying notes to financial statements. 7

10 Statement of Functional Expenses For the year ended December 31, 2013 Children's Services Education Services Program Services Healthcare Transition Get Fit Services Patient Services Subtotal Supporting Services Management and General Fundraising Subtotal Total Foundation functional expenses Salaries $ 66,024 $ 126,755 $ 12,794 $ 123,215 $ 53,971 $ 382,759 $ 31,934 $ 109,843 $ 141,777 $ 524,536 Benefits and payroll expenses 12,483 23,963 2,419 23,293 10,203 72,361 6,038 20,766 26,804 99,165 Total salaries and related expenses 78, ,718 15, ,508 64, ,120 37, , , ,701 Advocacy 1,891 3, ,528 1,546 10, ,146 4,060 15,021 Conferences, convention and meetings 2,031 3, ,791 1,661 11, ,380 4,362 16,139 Contract labor ,050 Dues, subscriptions and advertising Fundraising expenses 33,936 33,936 33,936 Insurance 1,374 2, ,565 1,123 7, ,287 2,952 10,919 Office rent 7,769 14,916 1,505 14,499 6,351 45,040 3,758 12,926 16,684 61,724 Office supplies 2,368 4, ,420 1,936 13,730 1,145 3,940 5,085 18,815 Postage and shipping 812 1, , , ,350 1,743 6,448 Printing and publications 934 1, , , ,554 2,006 7,420 Professional fees 1,726 3, ,222 1,411 10, ,872 3,707 13,715 Program activities 224,481 12,757 11,355 5, , ,677 Rental, repairs and maintenance 4,296 8, ,018 3,512 24,906 2,078 7,148 9,226 34,132 Service charges 6,213 11,928 1,204 11,595 5,079 36,019 3,005 10,337 13,342 49,361 Telephone 3,477 6, ,489 2,842 20,158 1,682 5,786 7,468 27,626 Travel 2,567 4, ,791 2,099 14,884 1,243 4,271 5,514 20,398 Total foundation functional expenses 338, ,890 22, ,367 98, ,384 55, , ,041 1,194,425 Grant functional expenses Salaries 11, , , , ,990 Benefits and payroll expenses 3,098 31,676 83, , ,530 Total salaries and related expenses 14, , , , ,520 Miscellaneous expenses 28,882 28,882 28,882 Office rent 1,958 33,307 35,265 35,265 Office supplies ,007 20,377 32,964 32,964 Patient services 16,442 31, , , ,474 Postage and shipping 21,843 21,843 21,843 Printing and publications 1,977 1,977 1,977 Rental, repairs and maintenance 1,229 1,229 1,229 Telephone 3,141 3,141 3,141 Travel 9,062 19,459 28,521 28,521 Total grant functional expenses 31, , ,918 1,105,816 1,105,816 Depreciation expense Bad debt expense Total expenses $ 338,671 $ 231,987 $ 53,951 $ 462,536 $ 934,346 $ 2,021,491 $ 55,232 $ 223,917 $ 279,149 $ 2,300,640 See accompanying notes to financial statements. 8

11 Statement of Functional Expenses For the year ended December 31, 2012 Children's Services Program Services Education Services Get Fit Services Patient Services Subtotal Supporting Services Management and General Fundraising Subtotal Total Foundation functional expenses Salaries $ 96,945 $ 156,864 $ 11,323 $ 71,991 $ 337,123 $ 47,220 $ 131,200 $ 178,420 $ 515,543 Benefits and payroll expenses 16,274 26,331 1,924 12,085 56,614 7,928 22,024 29,952 86,566 Total salaries and related expenses 113, ,195 13,247 84, ,737 55, , , ,109 Advocacy 772 1, , ,045 1,422 4,716 Conferences, convention and meetings 4,718 7,634 4,274 3,504 20,130 2,298 6,385 8,683 28,813 Contract labor , ,585 Dues, subscriptions and advertising Fundraising expense 25,580 25,580 25,580 Insurance 1,169 1,891 1, , ,582 2,150 7,137 Office rent 10,404 16,834 9,424 7,726 44,388 5,068 14,080 19,148 63,536 Office supplies 5,034 8,145 3,738 16,917 2,452 6,811 9,263 26,180 Postage and shipping 1,600 2,589 1,449 1,188 6, ,165 2,944 9,770 Printing and publications 1,905 3,082 1,725 1,414 8, ,578 3,506 11,632 Professional fees 2,553 4,131 2,312 1,896 10,892 1,243 3,455 4,698 15,590 Program activities 216,532 23, , , ,091 Rental, repairs and maintenance 3,488 5,643 2,590 11,721 1,700 4,721 6,421 18,142 Service charges 8,094 13,096 5,890 6,010 33,090 3,942 10,954 14,896 47,986 Telephone 4,692 7,592 4,250 3,484 20,018 2,285 6,351 8,636 28,654 Travel 4,396 7,114 1,539 3,265 16,314 2,142 5,949 8,091 24,405 Total foundation functional expenses 378, ,550 46, , ,291 79, , ,568 1,159,859 Grant functional expenses Salaries 76, , , ,856 Benefits and payroll expenses 12,815 56,355 69,170 69,170 Total salaries and related expenses 89, , , ,026 Miscellaneous expenses 20,530 20,530 20,530 Office rent 32,573 32,573 32,573 Office supplies 5,351 19,615 24,966 24,966 Client/Patient services 7, , , ,068 Postage and shipping 21,597 21,597 21,597 Printing and publications 2,147 2,147 2,147 Rental, repairs and maintenance 3,808 1,424 5,232 5,232 Telephone 3,930 3,930 3,930 Travel 2,442 20,316 22,758 22,758 Total grant functional expenses 108, , , ,827 Depreciation expense Bad debt expense Total expenses $ 379,107 $ 286,739 $ 154,933 $ 895,838 $ 1,716,617 $ 79,188 $ 245,596 $ 324,784 $ 2,041,401 See accompanying notes to financial statements. 9

12 Statements of Cash Flows For the years ended December 31, Operating activities Changes in net assets $ 188,529 $ 84,390 Adjustments to reconcile changes in net assets to net cash provided by operating activities Net realized and unrealized gains on investments (15,169) (8,821) Bad debt expense Depreciation Changes in operating assets and liabilities Grants and contributions receivable (112,137) (55,059) Security deposit 3,619 (370) Unconditional promises to give (21,584) 5,178 Prepaid expenses (6,683) (11,571) Accounts payable and accrued liabilities 8,500 28,565 Deferred revenue (26,146) (17,748) Net cash provided by operating activities 19,328 25,279 Investing activities Proceeds from sales of investments 1, Purchase of investments (43,211) (1,152) Net cash used in investing activities (42,073) (218) Net change in cash and cash equivalents (22,745) 25,061 Cash and cash equivalents at beginning of year 224, ,543 Cash and cash equivalents at end of year $ 201,859 $ 224,604 Noncash investing activities Retirement of fully depreciated equipment $ 3,384 $ 18,215 See accompanying notes to financial statements. 10

13 Notes to the Financial Statements NOTE 1 ORGANIZATION AND NATURE OF ACTIVITIES The Epilepsy Foundation of Texas (the Foundation ) was originally organized on March 28, The Foundation is an affiliate of the Epilepsy Foundation National Office and works to ensure that people with seizures are able to participate in all life experiences, and to prevent, control and cure epilepsy through research, education, advocacy, and services. Key services include camping and recreational programs, education, information and referral, health transition and get fit services, and medical services. The Foundation provides services in the 102 counties of eastern Texas and offers clinics in Beaumont, Houston, Grapevine, Lufkin, Fort Worth and Galveston. On January 1, 2011, Epilepsy Foundation of Texas expanded its service area to include an additional 79 counties in west and northwest Texas, encompassing the Amarillo, Lubbock, El Paso, and Midland/Odessa areas. The medical clinics are funded by the Department of State Health Services (Texas) (see Note 10). The Foundation, with offices in Houston, Dallas, Amarillo and Lubbock, is supported primarily through donor contributions, special events and corporate, state and foundation grants. Recent awards from the Epilepsy Foundation National Office include Affiliate of the Year, Executive Director of the Year, Volunteer of the Year, and Employee of the Year. The Foundation has achieved the Standard of Excellence from Epilepsy Foundation National Office. This achievement means the Foundation no longer has to pay affiliate dues to the national office. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES Financial Statement Presentation The Foundation s financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Cash Equivalents For the purposes of the statements of cash flows, the Foundation considers all unrestricted highly liquid investments with initial maturities of three months or less to be cash equivalents. Grants and Contributions Receivable and Unconditional Promises to Give Grants and contributions receivable and unconditional promises to give are recorded when the Foundation receives notification of the grant, contribution or promise to give. Amounts that are expected to be collected within one year are recorded at net realizable value. Amounts that are expected to be collected in future years are discounted to estimate the present value of future cash flows, if material. 11

14 Notes to the Financial Statements NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Grants and Contributions Receivable and Unconditional Promises to Give (Continued) As of December 31, 2013 and 2012, an allowance of $1,700 and $1,950, respectively, was established for all promises to give which were considered uncollectible. Management considers all grants and contributions receivable at December 31, 2013 and 2012 to be collectible; therefore, no allowance is considered necessary for these receivables. Investments Investments in marketable securities and alternative assets are recorded at fair value. Investment return includes interest, dividends, and realized and unrealized gains or losses. Investment return is reported in the statements of activities and changes in net assets as an increase in unrestricted net assets unless the use of the income is limited by donor imposed restrictions. Investment return whose use is restricted by the donor is reported as an increase in temporarily restricted net assets until expended in accordance with the donor imposed restrictions. Furniture and Equipment Furniture and equipment are recorded at cost or, in the case of donated assets, the estimated fair value at the date of the gift. The Foundation capitalizes all expenses for furniture and equipment in excess of $5,000. Depreciation of the furniture and equipment is based on the straight line method over three to seven years. Depreciation expense totaled $115 for each of the years ended December 31, 2013 and Routine maintenance, repair, renewal and replacement costs are charged against operations in the year incurred. Expenditures, which materially increase values or extend useful lives of property and equipment, are capitalized. Deferred Revenue Deferred revenue represents pre sale tickets to special events or contributions raised for the benefit of fundraising events set to occur in a future period. Deferred revenue is recognized as revenue in the year the special event or fundraising event is held. Contributions The Foundation s contributions are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. 12

15 Notes to the Financial Statements NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contributions (Continued) Support that is restricted by the donor and is to be used in future periods or for specific purposes is reported as an increase in temporarily restricted or permanently restricted net assets. When a restriction expires, temporarily restricted net assets are released to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. Donated Assets The Foundation recognizes donated assets received, including contributions and gifts of furniture and equipment, as revenue at fair value when an unconditional commitment from the donor is received. The related expense is recorded as the item is used or when the service is provided. No donated assets were recognized for the years ended December 31, 2013 and Donated Services Contributed professional services are recognized if the services received (a) create or enhance long lived assets or (b) require specialized skills, are provided by individuals possessing those services, and would typically be purchased if not provided by donation. A number of unpaid volunteers have made significant contributions of their time to help the Foundation in a variety of program activities, office and clerical functions and fundraising events. The fair value of this contributed time has not been determined and is not reflected in the accompanying financial statements because the services do not meet the criteria for revenue recognition under generally accepted accounting principles. Income Tax The Foundation is a not for profit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Therefore, no provision for federal income tax has been made in these financial statements. The Foundation accounts for uncertain tax positions, when it is more likely than not, that such an asset or a liability will be realized. As of December 31, 2013, management believes there were no uncertain tax positions. 13

16 Notes to the Financial Statements NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs of the Foundation s clinics, and Houston and Dallas/Fort Worth operations, as reflected in the statements of functional expenses, have been allocated among the programs and supporting services benefited. Use of Estimates The Foundation uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Estimates that have the most impact on financial position and results of operations primarily relate to the collectability of grants and contributions receivable and unconditional promises to give, fair value of investments, and the allocation of expenses among functional areas. Management believes these estimates and assumptions provide a reasonable basis for the fair presentation of the financial statements. Fair Value Considerations The Foundation uses fair value to measure financial and certain nonfinancial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy established and prioritized fair value measurements into three levels based on the nature of the inputs. The hierarchy gives the highest priority to inputs based on market data from independent sources (observable inputs Level 1) and the lowest priority to a reporting entity s internal assumptions based upon the best information available when external market data is limited or unavailable (unobservable inputs Level 3). The fair value option allows entities to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value that are not otherwise required to be measured at fair value. If an organization elects the fair value option for an eligible item, changes in that item s fair value in subsequent reporting periods must be recognized in current earnings. The Foundation did not elect the fair value option for the measurement of any eligible assets or liabilities. 14

17 Notes to the Financial Statements NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Considerations (Continued) The Foundation s financial instruments (primarily cash and cash equivalents, receivables, investments and payables) are carried in the financial statements at amounts that reasonably approximate fair value. Reclassifications Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. The reclassification had no effect on changes in net assets. Subsequent Events The Foundation has evaluated subsequent events through the date the financial statements were available for issuance on July 2, No matters were identified affecting the accompanying financial statements that have not already been disclosed elsewhere in these financial statements. NOTE 3 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Foundation to concentrations of credit risk consist principally of cash. The Foundation places cash in a financial institution or in working capital management accounts with a financial services firm. The cash balances in the financial institution and in the working capital management accounts did not exceed the federally insured limit for the years ended December 31, 2013 and Funds received through government grants are a significant source of revenue upon which the Foundation depends to carry out its operations. A decrease in such funding would have a direct effect on program services provided by the Foundation. 15

18 Notes to the Financial Statements NOTE 4 GRANTS AND CONTRIBUTIONS RECEIVABLE Grants and contributions receivable consist of the following: December 31, Contributions receivable $ 42,569 $ 51,905 Federal and state grants 241, ,273 Epilepsy foundation national office 31,756 28,000 Grants and contributions receivable $ 316,315 $ 204,178 NOTE 5 PROMISES TO GIVE Unconditional promises to give are as follows: December 31, Receivable in less than one year $ 10,000 $ 7,700 Receivable in one to five years 25,000 6,250 Total unconditional promises to give 35,000 13,950 Allowance for uncollectible promises (1,700) (1,950) Net unconditional promises to give $ 33,300 $ 12,000 NOTE 6 FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three tier fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 16

19 Notes to the Financial Statements NOTE 6 FAIR VALUE MEASUREMENTS (CONTINUED) The three levels of inputs that may be used to measure fair value are as follows: Level 1: Level 2: Level 3: Quoted market prices in active markets for identical assets or liabilities. Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable, but derived principally from, or corroborated by, observable market data. Unobservable inputs that are supported by little or no market activity. The Foundation holds certain investments with the Greater Houston Community Foundation to be held for the exclusive benefit of the Foundation. The Foundation retains all rights to these funds and pays an administrative fee each quarter. Level 1 investments consist of equity securities, fixed income securities, real assets, and a money market accounts. Level 2 and Level 3 investments consist of certain equity securities and alternative investment vehicles such as, private equity funds, real estate funds, venture capital funds, commodity funds and funds of funds. The fair value of Level 2 equity securities is determined by the investment custodians based on recent sales in the open market of similar investments. The fair value of Level 2 and Level 3 alternative assets is determined by the mangers of the various investment vehicles using fair values of underlying assets, estimates of future earnings and other factors. All investments are included in the accompanying statements of financial position as investments. Investments are exposed to various risks such as interest rate risk, market and credit risks. Because of these risks, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the statements of financial position and the statements of activities and changes in net assets. The Foundation s Level 3 investments have been valued using unadjusted third party transactions and quotations, unadjusted historical third party information, or the unadjusted net asset value of the investments in private investment companies. No unobservable inputs internally developed by management have been applied to these investments. 17

20 Notes to the Financial Statements NOTE 6 FAIR VALUE MEASUREMENTS (CONTINUED) The value of assets measured at fair value on a recurring basis is as follows: Quoted Market Prices in Active Markets December 31, 2013 Equity securities Domestic equity 43,487 Other Observable Inputs Unobservable Inputs (Level 1) (Level 2) (Level 3) Total $ $ 20,894 $ $ 64,381 Foreign equity 10,734 10,734 Alternative investments Fund of funds 3,089 3,878 4,369 11,336 Long short funds 73 18,763 18,836 Real assets 4,563 3,993 8,556 Fixed income securities Government bonds 23,179 23,179 Corporate bonds 24,265 24,265 Asset backed 17,661 4,019 21,680 Money market investments 3,050 3,050 $ 130,101 $ 47,554 $ 8,362 $ 186,017 December 31, 2012 Equity securities Domestic equity $ 20,481 $ 9,840 $ $ 30,321 Foreign equity 9,763 9,763 Alternative investments Fund of funds 2,420 3,039 3,423 8,882 Long short funds 57 14,701 14,758 Real assets 5,676 4,966 10,642 Fixed income securities Government bonds 12,805 12,805 Corporate bonds 13,405 13,405 Asset backed 9,756 2,220 11,976 Money market investments 16,223 16,223 $ 90,586 $ 29,800 $ 8,389 $ 128,775 18

21 Notes to the Financial Statements NOTE 6 FAIR VALUE MEASUREMENTS (CONTINUED) Assets measured at fair value using significant unobservable inputs (Level 3) Funds of Funds Real Assets Balance at December 31, 2011 $ 4,584 $ 2,594 Total gains (losses) included in change in net assets (1,161) 2,372 Balance at December 31, ,423 4,966 Total gains (losses) included in change in net assets 946 (973) Balance at December 31, 2013 $ 4,369 $ 3,993 The following summarizes the investment return in the statements of activities and changes in net assets: Years ended December 31, Interest income $ 1,109 $ 1,454 Net realized and unrealized gain 15,169 8,821 Investment return, net $ 16,278 $ 10,275 NOTE 7 LINE OF CREDIT The Foundation has a credit facility with maximum unsecured borrowings up to $75,000. Interest on any borrowings is payable to the bank at the current prime rate established by the Wall Street Journal plus 0.50 percentage points over the index. The line of credit matured on January 30, 2014 and was renewed at that time through January 29, Under the renewed line of credit, interest on any borrowings is payable to the bank at the current prime rate as published by the Wall Street Journal plus 0.50 percentage points over the index. At December 31, 2013 and 2012, there were no outstanding borrowings on the line of credit. No amounts were borrowed on the line of credit during the years ended December 31, 2013 and

22 Notes to the Financial Statements NOTE 8 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: December 31, Education programs $ $ 33,000 Camp Spike N Wave 61,948 17,400 Various programs 30,000 10,000 United Way 24,487 14,501 For periods after December 31 21,000 2,000 Accumulated undistributed earnings on endowment funds 47,768 41,598 $ 185,203 $ 118,499 NOTE 9 ENDOWMENTS Interpretation of Relevant Law The Foundation is subject to the Texas Uniform Prudent Management of Institutional Funds Act (the Act). The Carlisle Norwood Endowment Fund Trustees of the Foundation have interpreted the Act as requiring the preservation of the fair value of the original gift as of the gift date of the donor restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment; (b) the original value of subsequent gifts donated to the permanent endowment; and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by the Act. In accordance with the Act, the Foundation considers the following factors in making the determination to appropriate or accumulate donor restricted endowment funds: Duration and preservation of the funds Purposes of the Foundation and the donor restricted endowment fund General economic conditions Possible effect of inflation and deflation Expected total return from income and the appreciation of investments Other resources of the Foundation Investment policies of the Endowment Fund 20

23 Notes to the Financial Statements NOTE 9 ENDOWMENTS (CONTINUTED).. Return Objectives and Risk Parameters The Epilepsy Foundation of Texas s Carlisle Norwood Endowment ( Endowment ) and Board Designated Endowment are with the Greater Houston Community Foundation and a financial institution. It was the Board of Directors objective not to be involved in the day to day investing of funds and to rely on the expertise of the Greater Houston Community Foundation and their investment policy, objectives and guidelines. Under this policy, the endowment assets are invested in a manner to provide long term growth of the assets for future needs without exposure to undue risk. Strategies Employed for Achieving Objectives To satisfy its long term growth objectives, the Foundation 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 Endowment fund consists of contributions to the Foundation designated by the donors of the fund and Board designated unrestricted funds plus appreciation and income. The Foundation targets an asset allocation that will achieve its long term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The objective of the Endowment is to sustain the Foundation in the future so the current policy is to build the Endowment until it reaches a point when income could be used to support the programs of the Foundation. Temporarily restricted earnings on Endowment funds may be invaded for specific purposes only by a two thirds majority vote of the Board of Directors. Permanently restricted contributions were contributed to the Foundation with no purpose restriction. In previous years, the Board has designated excess cash reserves for future growth. All earnings have been designated by the Board until the Board releases the designation. The following tables describe the Foundation s endowment net asset composition by type of fund and the changes in endowment net assets as of and for the years ended December 31, 2013 and

24 Notes to the Financial Statements NOTE 9 ENDOWMENTS (CONTINUTED) Endowment net asset composition by type of fund: December 31, Board designated endowment funds Unrestricted net assets $ 96,024 $ 87,177 Donor restricted endowment funds Temporarily restricted 47,768 41,598 Permanently restricted 42,225 42,225 $ 186,017 $ 171,000 Changes in endowment net assets for the years ended December 31, 2013 and 2012: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets, January 1, 2012 $ 81,101 $ 38,635 $ 42,225 $ 161,961 Investment return Investment income ,152 Net appreciation (realized and unrealized) 5,979 2,842 8,821 Total investment return 6,709 3,264 9,973 Other changes fees paid (633) (301) (934) Endowment net assets, December 31, 2012 $ 87,177 $ 41,598 $ 42,225 $ 171,000 Investment return Investment income Net appreciation (realized and unrealized) 8,980 6,189 15,169 Total investment return 9,532 6,623 16,155 Other changes fees paid (685) (453) (1,138) Endowment net assets, December 31, 2013 $ 96,024 $ 47,768 $ 42,225 $ 186,017 22

25 Notes to the Financial Statements NOTE 10 DEPARTMENT OF STATE HEALTH SERVICES (TEXAS) The Foundation entered into a contract with the Texas Department of State Health Services (DSHS) to fund its medical clinics. The contract provides that the state reimburse allowable expenses of the program up to the contract amount. Revenue provided by DSHS under this program totaled $698,248 and $596,398 for the years ended December 31, 2013 and 2012, respectively. This contract has been renewed through August 31, NOTE 11 SPECIAL EVENTS Support and costs of direct benefits to donors related to special events for the years ended December 31, 2013 and 2012 totaled: Costs of Direct Support Benefits to Donors Fundraising events Golf tournament $ $ 10,298 $ $ 3,714 Dinner events 628, , , ,249 Summer strolls/5k 640, ,680 69,314 66,218 Motorcycle 15,000 Marathon 30,004 2,965 Polo match 125,976 58,774 $ 1,299,669 $ 1,283,073 $ 220,433 $ 247,955 In accordance with accounting standards, the costs of direct benefits to donors are reported as a direct reduction from fundraising events revenue. 23

26 Notes to the Financial Statements NOTE 12 RELATED PARTY TRANSACTIONS The Foundation has an affiliation with the National Epilepsy Foundation. The Foundation receives grants from the national office. During 2013 and 2012, the Foundation was awarded $116,183 and $45,000, of which $31,756 and $28,000 were due from the national office at December 31, 2013 and 2012, respectively. The Foundation paid no fees to the national office for the years ended December 31, 2013 and NOTE 13 OPERATING LEASES The Foundation leases office space and equipment in Houston under operating leases expiring in various years through Future minimum rental payments for the noncancellable leases are as follows: Year Ending December 31, 2014 $ 144, , , , ,458 $ 714,549 Rental expense totaled $96,989 and $96,109 for the years ended December 31, 2013 and 2012, respectively. NOTE 14 DEFINED CONTRIBUTION PLAN The Foundation maintains a 401(k) profit sharing plan under Section 401(a) of the Internal Revenue Code. Under the plan, eligible employees may contribute up to eighty five percent of their salary but not to exceed the legal limit. The Foundation match is equal to one hundred percent of employee contributions up to three percent of participant compensation. Foundation contributions totaled $23,250 and $17,996 for the years ended December 31, 2013 and 2012, respectively. 24

27 Single Audit

28 Schedule of Expenditures of State Awards Grantor/Pass Through Grantor/Program Title Federal CFDA Number Pass through Grantor's I.D. Number Grant Period Program or Award Amount 2013 Expenditures* State awards Texas Department of State Health Services Direct funding CHS Epilepsy Services NA /31/12 to 08/31/13 $ 623,496 $ 438,479 Direct funding CHS Epilepsy services NA /01/13 to 08/31/14 840, ,769 Total Texas Department of State Health Services 1,463, ,248 Total state awards $ 1,463,958 $ 685,248 *Expenditures presented in this schedule are for the calendar year ended December 31, 2013 and not the entire grant period. See Independent Auditor s Report and Accompanying Notes to the Schedule of Expenditures of State Awards 25

29 Notes to the Schedule of Expenditures of State Awards NOTE 1 BASIS FOR PRESENTATION The accompanying schedule of expenditures of state awards includes the state grant activity of Epilepsy Foundation of Texas and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A 133, Audits of State, Local Governments, and Non Profit Foundation and the State of Texas Single Audit Circular. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. NOTE 2 STATE ASSISTANCE RECONCILIATION Grants included in statement of activities and changes in net assets $ 949,569 Reconciling items 2012 advance of state grant funds utilized in , advance of state grant funds (50,400) Federal grant funds not subject to state single audit (251,321) $ 685,248 NOTE 3 INSURANCE COVERAGE The following schedule summarizes the amount of insurance coverage in effect per policy for the year ended December 31, 2013: Policy Accident $ 50,000 Commercial 2,000,000 Crime 100,000 Directors and officers 1,000,000 Professional 2,000,000 Workers compensation 1,000,000 $ 6,150,000 26

30 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 Epilepsy Foundation of Texas Houston, Texas 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 Epilepsy Foundation of Texas, a Texas non profit Foundation (the Foundation ), which comprise the statement of financial position as of December 31, 2013, and the related statements of activities and changes in net assets, 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 July 2, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Foundation 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 Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation 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 entity'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 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.

31 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Foundation s financial statements are free from 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 Foundation'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 Foundation's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Houston, Texas July 2, 2014

32 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR THE MAJOR STATE PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A 133 AND THE STATE OF TEXAS SINGLE AUDIT CIRCULAR To the Board of Directors Epilepsy Foundation of Texas Houston, Texas Report on Compliance for the Major State Program We have audited Epilepsy Foundation of Texas s (the Foundation ) compliance with the types of compliance requirements described in the OMB Circular A 133 Compliance Supplement and the State of Texas Single Audit Circular that could have a direct and material effect on the Foundation s major state program for the year ended December 31, The Foundation s major state program is 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 state program. Auditor s Responsibility Our responsibility is to express an opinion on compliance on the Foundation s major state program 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; OMB Circular A 133, Audits of States, Local Governments, and Non Profit Foundations; and the State of Texas Single Audit Circular. Those standards, OMB Circular A 133, and the State of Texas Single Audit Circular 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 the major state program occurred. An audit includes examining, on a test basis, evidence about the Foundation 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 the major state program. However, our audit does not provide a legal determination of the Foundation s compliance.