FOUNDATION, INC. FINANCIAL REPORT June 30, 2013

Transcription

1 FOUNDATION, INC. FINANCIAL REPORT June 30, 2013

2 TABLE OF CONTENTS General Purpose Financial Statements Independent Auditor s Report 1-2 Statements of Financial Position 3 Statements of Activities 4 Statements of Functional Expenses 5 Statements of Cash Flows 6-7 Notes to Financial Statements 8-17 Compliance Reports 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 Awards 23 Notes to Schedule of Expenditures of Federal Awards 24 Schedule of Findings and Questioned Costs 25

3 GENERAL PURPOSE FINANCIAL STATEMENTS

4 McPhillips, LI ansp Certified Public Accountants & Business Advisors INDEPENDENT AUDITOR S REPORT The Board of Trustees Virginia Aquarium & Marine Science Center Foundation, Inc. Virginia Beach, Virginia Report on the Financial Statements We have audited the accompanying financial statements of Virginia Aquarium & Marine Science Center Foundation, Inc. (the Foundation), which comprise the statements of financial position as of June 30, 2013 and 2012, 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 ha 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 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Town Point Center, Suite 1100 I 150 Boush Street I Norfolk, VA I Office I Fax [

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2013 and 2012, 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 Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 7, 2013, on our consideration of the Foundation 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 the Foundation s internal control over financial reporting and compliance. November 7, 2013 Norfolk, Virginia 2

6 STATEMENTS OF FINANCIAL POSITION June 30, 2013 and 2012 Assets Cash and cash equivalents $ 218,097 $ 152,068 Accounts receivable 177, ,770 Grants receivable 202, ,422 Pledges receivable, net 665, ,472 Investments 2,416,998 2,207,741 Collections (Note 2) - - Property and equipment, net 10,883,000 11,536,871 Restricted cash 2,757,369 2,321,028 Other assets 129,763 4,600 TOTAL ASSETS $ 17,450,845 $ 17,601,972 Liabilities and Net Assets Liabilities Accounts payable $ 118,419 $ 313,084 Deferred revenue 211,030 77,126 Note payable 200, ,000 Total Liabilities 529, ,210 Net Assets Unrestricted Net investment in property and equipment 10,883,000 11,536,871 Other 249,303 (76,249) Temporarily restricted 3,787,093 3,349,140 Permanently restricted 2,002,000 2,002,000 Total Net Assets 16,921,396 16,811,762 TOTAL LIABILITIES AND NET ASSETS $ 17,450,845 $ 17,601,972 See Accompanying Notes to Financial Statements 3

7 STATEMENT OF ACTIVITIES For the Years Ended June 30, 2013 and 2012

8 STATEMENTS OF ACTIVITIES For the Years Ended June 30, 2013 and Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, Support and Other Income Grant revenue $ 1,109,493 $ - $ - $ 1,109,493 Contributions Cash 111, , ,989 Noncash 203,531 8, ,117 Education programs 500, ,502 Restaurant income 186, ,615 Photo concessions 202, ,830 Temporary exhibit income 242, ,582 Fundraising events, net - 125, ,907 Memberships 55, ,358 Rental income 62, ,274 Other 2, ,145 Investment income (loss) 3, , ,881 Loss on sale of equipment (50,802) - - (50,802) 2,629, ,759-3,552,891 Net assets released from restrictions 485,806 (485,806) - - Total Revenue, Support and Other Income 3,114, ,953-3,552,891 Operating Expenses Program services Exhibits 1,073, ,073,892 Educational programs 573, ,645 Research and conservation 1,311, ,311,308 General and administrative 291, ,117 Fundraising 169, ,338 Total Operating Expenses 3,419, ,419,300 Change in Net Assets before Collections (304,362) 437, ,591 Collections (23,957) - - (23,957) Change in Net Assets (328,319) 437, ,634 Net Assets, Beginning of Year 11,460,622 3,349,140 2,002,000 16,811,762 NET ASSETS, END OF YEAR $ 11,132,303 $ 3,787,093 $ 2,002,000 $ 16,921,396 See Accompanying Notes to Financial Statements

9 2012 Temporarily Permanently Unrestricted Restricted Restricted Total $ 1,481,994 $ - $ - $ 1,481, , ,496 2, , ,630 12, , , , , , , , , , , ,548 57, ,442 44, , ,906 (63,908) - (60,002) ,127, ,200 2,098 3,570, ,332 (457,332) - - 3,584,843 (16,132) 2,098 3,570, , , , ,956 1,770, ,770, , , , ,304 3,573, ,573,848 10,995 (16,132) 2,098 (3,039) (127,069) - - (127,069) (116,074) (16,132) 2,098 (130,108) 11,576,696 3,365,272 1,999,902 16,941,870 $ 11,460,622 $ 3,349,140 $ 2,002,000 $ 16,811,762 4

10 STATEMENTS OF FUNCTIONAL EXPENSES For the Years Ended June 30, 2013 and General Program Services and Exhibits Educational Research Administrative Fundraising Total Bank charges $ 67 $ 3,040 $ 7,670 $ 3,049 $ 577 $ 14,403 Conservation support , ,354 Contractual services 246, , ,150 34,731 49, ,164 Dues and memberships 17,500-2,135 1,345 1,325 22,305 Fuel 853 4,142 16, ,130 Interest expense Labor 114, , ,387 80,372 66,740 1,002,760 Maintenance and repair 9,952 1,834 6,340 8,377-26,503 Meetings ,314 6,478 15,645 33,113 Miscellaneous - 4, ,001 Permits and fees , ,802 Postage and shipping 5, , ,768 14,655 Professional development 25,861 14,213 43,079 5,063 5,583 93,799 Professional services 65,078 30,953 48,711 53, ,870 Rent , ,071 Supplies 48,099 67, ,893 10,593 16, ,333 Telecommunications 4, ,929 7,748-17,433 Travel 22,148 3,485 9,123 6,428 2,591 43,775 Uncollectible pledges ,094 3,094 Volunteer expense ,030 Total expenses before depreciation 560, ,116 1,238, , ,338 2,744,595 Depreciation 512,935 18,529 72,379 70, ,705 Total $ 1,073,892 $ 573,645 $ 1,311,308 $ 291,117 $ 169,338 $ 3,419,300 See Accompanying Notes to Financial Statements

11 2012 General Program Services and Exhibits Educational Research Administrative Fundraising Total $ 226 $ 6,593 $ 465 $ - $ - $ 7,284 2,677-10, ,117 27, , ,654 39,718 33,835 1,077,389 17,735-1,000 2,967 1,700 23,402-2,570 13, , ,930 7,930 83, , ,252 71,699 61, ,982 11,109 1,563 30,478 7,449-50, ,338 5,787 9,335 18, , , ,025 1, , ,399 1,274 2,609 5,494 9,997 2,701 24,234 1,660 2,897 41,489 41,762 30,559 46,652 72, , , ,299 51,257 48, ,505 35, ,304 1, ,535 8,315-16,017 32,709 10,478 45,806 4,485 1,790 95, ,624 37,735 50,359 1,021 1,023 1, , , ,196 1,699, , ,304 2,938, ,626 26,760 71,889 23, ,593 $ 796,110 $ 558,956 $ 1,770,973 $ 287,505 $ 160,304 $ 3,573,848 5

12 STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2013 and Cash Flows From Operating Activities Change in net assets $ 109,634 $ (130,108) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 674, ,593 Provision for uncollectible pledges receivable 3,094 50,359 Donated investments (4,212) (3,045) Donated equipment - (12,064) Realized gain on investments (46,022) (73,487) Unrealized (gain) loss on investments (174,975) 147,475 Loss on sale of equipment 50,802 - Changes in operating assets and liabilities Accounts receivable (20,431) 179,236 Grants receivable 107, ,991 Pledges receivable 243, ,919 Restricted cash (436,341) (915,703) Other assets (125,163) 1,061 Accounts payable (194,665) 135,285 Deferred revenue 133,904 (358,379) Net Cash Provided by Operating Activities 321, ,133 Cash Flows From Investing Activities Purchase of equipment (78,636) (210,226) Proceeds from sale of equipment 7,000 - Purchase of investments (246,211) (536,473) Proceeds from sale of investments 262, ,510 Net Cash Used in Investing Activities (55,684) (203,189) Cash Flows From Financing Activities Net short-term repayments - (300,000) Repayments on long-term note payable (200,000) (200,000) Net Cash Used in Financing Activities (200,000) (500,000) Net Increase in Cash and Cash Equivalents 66,029 (191,056) Cash and Cash Equivalents, Beginning of Year 152, ,124 CASH AND CASH EQUIVALENTS, END OF YEAR $ 218,097 $ 152,068 Continued See Accompanying Notes to Financial Statements 6

13 STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2013 and 2012 Continued Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ - $ 7,930 Supplemental Schedule of Non-Cash Investing and Financing Activities Donated investments $ 4,212 $ 3,045 Donated equipment $ - $ 12,064 See Accompanying Notes to Financial Statements 7

14 NOTES TO FINANCIAL STATEMENTS NOTE 1 - NATURE OF ORGANIZATION The Virginia Aquarium & Marine Science Center Foundation, Inc. (the Foundation ) is a non-stock, nonprofit corporation. The mission of the Foundation is to inspire conservation of the marine environment through education, research and sustainable practices. The Foundation is supported primarily through educational programs and public support. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Basis of Presentation The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a temporary restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and presented as Net assets released from restrictions in the accompanying statements of activities. Cash and Cash Equivalents For purposes of the statements of financial position and cash flows, cash and cash equivalents are defined as demand deposits, certificate of deposits and all highly liquid debt instruments purchased with an original maturity of three months or less, other than those maintained as a part of investment portfolios. Accounts and Grants Receivable Management considers the need for an allowance for uncollectible accounts and grants receivable based on its review of receivables and historical collection experience. The Foundation writes off receivables as a charge to the allowance, when in their estimation, it is probable the receivable is worthless. Accounts and grants receivable are considered past due if payments are not received by the due date stated on the billing statement. Past due accounts are not charged a monthly finance charge. Management considers all accounts to be collectible and, accordingly, has not provided an allowance for uncollectible accounts. Pledges Receivable Pledges receivable represent unconditional promises to give and are recorded at net realizable value. Promises to give to be received after one year are discounted at an appropriate discount rate commensurate with the risks involved. An allowance for uncollectible pledges receivable is provided based upon management s judgment. Conditional promises to give are not included as support until the conditions are substantially met. Investments The Foundation s investments are carried at their fair value in the statements of financial position. Changes in fair value are included in the change in net assets in the statements of activities. 8

15 NOTES TO FINANCIAL STATEMENTS Collections In accordance with industry practice, the Foundation s collections of marine animals are not capitalized and recognized as assets in the statements of financial position. The Foundation holds its collections for public exhibition, education and research rather than for financial gain. It protects, cares for, preserves and keeps its collections unencumbered. Additionally, it is impracticable to attempt to assign values to the collection because the animals have certain attributes, such as species, sex, age, breeding potential, and relationship to others in the ecosystem that make it difficult to determine an objective basis for valuation. The cost of collection items purchased by the Foundation is reported in the accompanying statements of activities as collections. Contributed collection items are not reflected in the financial statements. Property and Equipment Property and equipment are recorded at cost if purchased and at estimated fair value if donated. Asset purchases of $2,000 or more are capitalized, while maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed currently. Depreciation is calculated using the straight-line method based on the following useful lives: Asset Category Exhibits Leasehold improvements Office furniture and equipment Vehicles Vessels Useful Life 3-39 Years Years 3-7 Years 5-7 Years 5-20 Years Deferred Revenue Deferred revenue includes event deposits, program fees, and grant awards received in advance and will be recognized as revenue when the event occurs or the grant expenses are incurred. Expense Allocation The costs of providing various programs and other activities have been summarized on a functional basis in the statements of activities and of functional expenses. Accordingly, certain costs have been allocated between program services, general and administrative, and fundraising. Volunteers A substantial number of unpaid volunteers have made significant contributions of their time and talent to further the mission of the Foundation. The value of these contributed services is not reported in these financial statements since it is not susceptible to objective measurement or valuation, and because the criteria for recognition of such volunteer effort have not been satisfied. Income Taxes The Foundation is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code, except on net income, if any, resulting from unrelated business taxable income. However, the Foundation is required to file income tax returns. Tax years before 2009 are no longer subject to federal or state income tax examinations. Management continually evaluates tax positions reflected in the Foundation s tax filings and does not believe that any material uncertain tax positions exist. Subsequent Events The Foundation has evaluated subsequent events through November 7, 2013, the date which the financial statements were available to be issued. 9

16 NOTES TO FINANCIAL STATEMENTS NOTE 3 RELATED PARTY TRANSACTIONS The Aquarium that houses the Foundation s exhibits is owned, operated and maintained by the City of Virginia Beach (the City). On June 25, 2012, the Foundation renewed its agreement with the City. The initial term of the agreement is for five years effective June 2012 through June 2017 and is automatically extended for five-year terms, subject to a 90 day notice by either party to terminate. The following summarizes the material terms of this agreement: The Foundation owns all the animals and permanent exhibits located in the Aquarium which have been funded by the Foundation. The City provides the Foundation with office space in the Aquarium, use of office equipment and City personnel for administrative and accounting services. These amounts are included as both non-cash contribution income and professional services expense in the statements of activities and totaled $84,259 for the years ended June 30, 2013 and 2012, respectively. The City agrees to insure and maintain exhibits designed, fabricated and installed in the Aquarium by the Foundation. The Foundation operates the Aquarium s Stranding Program which is housed in a building leased by the City and is known as the Marine Animal Care Center. The Foundation pays the City 35% of the cost of the lease plus utilities. Rent expense includes $56,357 and $52,203 for the years ended June 30, 2013 and 2012, respectively, inclusive of utilities related to this arrangement. The Foundation reimburses the City for the cost of the salaries paid by the City to City employees who operate certain programs at the Aquarium on behalf of the Foundation. These amounts totaled $950,548 and $937,128 for the years ended June 30, 2013 and 2012 and are included in labor in the statements of activities. The Foundation pays to the City 25% of gross revenues and 100% of IMAX movie revenues received by the Foundation as a result of the use of the Aquarium facilities by third parties for private functions arranged by the Foundation. These amounts are recorded as a liability to the City and are not recorded as revenue in the statement of activities. All amounts were paid to the City related to these transactions at June 30, 2013 and The City sells both admissions tickets and memberships through its admissions desk. Temporary exhibit charges are paid to the Foundation and totaled $242,582 and $250,493 for the years ended June 30, 2013 and 2012, respectively. Any amounts in excess of general admissions for philanthropic memberships are paid to the Foundation and totaled $55,358 and $57,442 for the years ended June 30, 2013 and 2012, respectively. 10

17 NOTES TO FINANCIAL STATEMENTS The Foundation is responsible for the operation of the restaurant for the provision of food services throughout the Aquarium. The Foundation retains all revenues from the operation of the restaurant. The Foundation leases this facility to an independent restaurant operator which is renewable on a month-to-month basis. The Foundation receives monthly payments based on varying commission rates. The Aquarium Stores in the Aquarium are operated and maintained by the City and the City retains all revenues received from their operations. The Foundation has a noninterest bearing note with the City of Virginia Beach (See Note 9). The Foundation pays money to a company that is partnered by board members of the Foundation for boat tours. The amount paid to the company for the years ended June 30, 2013 and 2012 was $67,684 and $52,878, respectively. NOTE 4 RESTRICTED CASH Cash is restricted for expenses related to exhibit improvements, exhibits and program expenses of the Foundation. For the years ended June 30, 2013 and 2012 restricted cash was $2,757,369 and $2,321,028, respectively. NOTE 5 PLEDGES RECEIVABLE Pledges receivable at June 30, 2013 and 2012 consists of the following: Receivable in less than one year $ 106,725 $ 229,583 Receivable in 1 5 years 306, ,876 Receivable in more than 5 years 695, ,000 Total pledges receivable 1,107,741 1,417,459 Less discounts to net present value (ranging from 3.20% %) (407,527) (456,962) Less allowance for doubtful accounts (34,270) (48,025) Total pledges receivable, net $ 665,944 $ 912,472 11

18 NOTES TO FINANCIAL STATEMENTS NOTE 6 INVESTMENTS Investments at June 30, 2013 and 2012 consist of the following: Cost Market Value Cumulative Unrealized Gain (Loss) Cost Market Value Cumulative Unrealized Gain (Loss) Real estate $ 10,000 $ 10,000 $ - $ 10,000 $ 10,000 $ - Money market funds 29,802 29,802-77,847 77,847 - Mutual funds Fixed income 332, ,047 (5,049) 322, ,413 (5,991) Alternative investments 529, ,229 50, , ,225 15,362 International 445, , , , ,047 52,411 U.S. small cap 167, , , , ,569 81,583 U.S. large to mid cap 415, , , , , ,981 Total investments $ 1,930,124 $ 2,416,998 $ 486,874 $ 1,905,395 $ 2,207,741 $ 302,346 Investment income (loss) in the following net asset categories in the statements of activities for the years ended June 30, 2013 and 2012 consist of the following: Unrestricted net assets Interest and dividends $ 3,343 $ 3,906 Temporarily restricted net assets Interest and dividends 63,177 27,483 Realized gain on sale of investments 46,022 73,487 Financial service fees (15,636) (17,403) Unrealized gain (loss) on investments 174,975 (147,475) 268,538 (63,908) Total investment income (loss) $ 271,881 $ (60,002) NOTE 7 FAIR VALUE MEASUREMENTS The Foundation s investments are valued using a fair value hierarchy. The three levels of fair value hierarchy for recurring fair value measurements are prioritized based on the inputs to valuation techniques used to measure fair value and are as follows: 12

19 NOTES TO FINANCIAL STATEMENTS Level 1 quoted prices in active markets for identical assets. Level 2 observable inputs that include quoted market prices for similar assets; quoted market prices that are not in an active market; or other inputs that are observable and can be corroborated by observable market data for substantially the full term of the assets. Level 3 unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. The following tables present the Foundation s investments at fair value on a recurring basis for each hierarchy level at June 30, 2013: Level 1 Level 2 Level 3 Total Real estate $ - $ 10,000 $ - $ 10,000 Money market funds 29, ,802 Mutual funds Fixed income 327, ,047 Alternative investments 580, ,229 International 551, ,063 U.S. small cap 278, ,969 U.S. large to mid cap 639, ,888 Total investments $ 2,406,998 $ 10,000 $ - $ 2,416,998 The following tables present the Foundation s investments at fair value on a recurring basis for each hierarchy level at June 30, 2012: Level 1 Level 2 Level 3 Total Real estate $ - $ 10,000 $ - $ 10,000 Money market funds 77, ,847 Mutual funds Fixed income 316, ,413 Alternative investments 507, ,225 International 503, ,047 U.S. small cap 232, ,569 U.S. large to mid cap 560, ,640 Total investments $ 2,197,741 $ 10,000 $ - $ 2,207,741 Real estate is valued at the property tax assessment as reported by the taxing county in which the property is located. Money market funds and mutual funds are valued at the closing price reported by the active market in which the individual securities are traded. 13

20 NOTES TO FINANCIAL STATEMENTS NOTE 8 PROPERTY AND EQUIPMENT Property and equipment at June 30, 2013 and 2012 consist of the following: Exhibits $ 15,208,887 $ 16,557,179 Leasehold improvements 109, ,227 Office furniture and equipment 202, ,820 Vehicles 206, ,453 Vessels 565, ,150 Works of art 150, ,000 Total 16,441,871 18,098,829 Less accumulated depreciation (5,558,871) (6,561,958) Property and equipment, net $ 10,883,000 $ 11,536,871 NOTE 9 - NOTES PAYABLE Note Payable The note payable at June 30, 2013 and 2012 is summarized as follows: Description City of Virginia Beach Uncollateralized, noninterest bearing note payable for the architectural, engineering, and construction costs associated with the renovation of the Foundation s original exhibit gallery, $200,000 annual payments, maturing in January 2014 $ 200,000 $ 400,000 Less current portion (200,000) (200,000) Total long-term note payable $ - $ 200,000 Future maturity of the note payable for the fiscal year ending June 30, 2014 is $200,

21 NOTES TO FINANCIAL STATEMENTS NOTE 10 RESTRICTED NET ASSETS Restricted net assets at June 30, 2013 and 2012 are available for the following purposes: Temporarily restricted Renovation project $ 2,330,195 $ 2,268,844 Exhibits and program expenses 1,456,898 1,080,296 Total temporarily restricted assets 3,787,093 3,349,140 Permanently restricted Program and supporting services 2,002,000 2,002,000 Total restricted net assets $ 5,789,093 $ 5,351,140 Net assets of the Foundation for the years ended June 30, 2013 and 2012 were released from donor restrictions by satisfying the purposes or time restrictions specified by donors as follows: Renovation project $ - $ 43,800 Exhibits and program expenses 485, ,532 Net assets released from restrictions $ 485,806 $ 457,332 NOTE 11 ENDOWMENTS The Foundation s endowment consists of five individual donor-restricted funds held with the Foundation for the purpose of attracting other donors who wish to support the work of the Foundation in perpetuity through gifts to the endowment. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Governing Board s Interpretation of Law The Board of Trustees has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. 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 to the permanent endowment, and (c) accumulations to the permanent endowment, if any, made in accordance with the direction of the applicable donor gift instrument. 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 accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: 15

22 NOTES TO FINANCIAL STATEMENTS (1) The duration and preservation of the fund; (2) The purpose of the Foundation in relation to the purpose of a restricted endowment fund; (3) General economic conditions; (4) The possible effect of inflation and deflation; (5) The expected total return from income and appreciation of investments; (6) Other resources of the Foundation; (7) The investment policies of the Foundation. Investment Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to maintain the purchasing power of current assets, maximize return with a reasonable and prudent level of risk and to minimize the costs of administering and managing the assets. Under these policies, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that achieve long-term real rate of return of assets of not less than 5% after inflation. To satisfy its longterm rate-of-return 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 Foundation shall review and rebalance the assets no less than quarterly. The Foundation targets a diversified asset allocation that places a greater emphasis on liquid securities, securities that can be sold quickly and efficiently with minimal impact of market price. Spending Policy The distribution policy of the Foundation is to annually distribute up to the distribution percentage of the three year average market value of the endowment. The distribution percentage will be computed as the three year average annual fiscal year return of total income less the three year average Consumer Price Index (CPI). The distribution percentage will have a minimum floor of 2.5% and a maximum of 5%. If in any one year, the full spending rate is not expended, the unspent portion carries forward and is added to subsequent year s spending rate. Endowment net asset composition by type of fund at June 30, 2013 and 2012 is as follows: 2013 Unrestricted Temporarily Restricted Permanently Restricted Total Donor-restricted $ - $ 404,998 $ 2,002,000 $ 2,406,998 Total endowment funds $ - $ 404,998 $ 2,002,000 $ 2,406, Unrestricted Temporarily Restricted Permanently Restricted Total Donor-restricted $ - $ 245,741 $ 2,002,000 $ 2,247,741 Total endowment funds $ - $ 245,741 $ 2,002,000 $ 2,247,741 16

23 NOTES TO FINANCIAL STATEMENTS Changes in endowment net assets for the years ended June 30, 2013 and 2012 is as follows: Unrestricted Temporarily Restricted Permanently Restricted Total Balance, June 30, 2011 $ - $ 448,721 $ 1,999,902 $ 2,448,623 Contributions - - 2,098 2,098 Investment loss - (63,908) - (63,908) Expenditures - (139,072) - (139,072) Balance, June 30, ,741 2,002,000 2,247,741 Investment income - 268, ,538 Expenditures - (109,281) - (109,281) Balance, June 30, 2013 $ - $ 404,998 $ 2,002,000 $ 2,406,998 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. There were no deficiencies of this nature as of June 30, 2013 and NOTE 12 CONCENTRATIONS At various times during the years presented, the Foundation may have had on deposit with a single financial institution more than $250,000, which is the basic limit currently insured by the Federal Deposit Insurance Corporation (FDIC). Investments are subject to market risk which is dependent on the future changes in market prices of the various investments held. NOTE 13 CONTINGENCIES Federal programs in which the Foundation participates were audited in accordance with Government Auditing Standards and Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Pursuant to the provisions of the above, certain major programs were tested for compliance with applicable grant requirements. While no matters of noncompliance were disclosed by audit, the Federal government may subject grant programs to additional compliance tests which could result in disallowed expenditures. NOTE 14 RECLASSIFICATIONS Certain amounts in the 2012 financial statements have been reclassified to conform with the current year financial statement presentation. These reclassifications had no effect on financial position or operating results as previously reported. 17

24 COMPLIANCE REPORTS

25 McPhillips Certified Public Accountants & Business Advisors 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 GO VERNMENT AUDITING STANDARDS The Board of Trustees Virginia Aquarium & Marine Science Center Foundation, Inc. Virginia Beach, Virginia 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 Virginia Aquarium & Marine Science Center Foundation, Inc. (the Foundation), which comprise the statement of financial position as of June 30, 2013, 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 7, 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 conta ol 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 contto1 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 materia 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. Town Point Center, Suite1100 I 150 Boush Street I Norfolk, VA I Office I Fax I 18

26 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Norfolk, Virginia November 7,

27 McPhillips Certified Public Accountants & Business Advisors INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 The Board of Trustees Virginia Aquarium & Marine Science Center Foundation, Inc. Virginia Beach, Virginia Report on Compliance for Each Major Federal Program We have audited Virginia Aquarium & Marine Science Center Foundation, Inc. s (the Foundation) 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 the Foundation s major federal program for the year ended June 30, The Foundation s major federal 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, conta acts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for the Foundation s major federal 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; 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 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 each major federal program. However, our audit does not provide a legal determination of the Foundation s compliance. Opinion on Each Major Federal Program In our opinion, the Foundation complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Town Point Center, Suite 1100 I 150 Boush Street I Norfolk, VA I Office I Fax I 20

28 Report on Internal Control Over Compliance Management of the Foundation 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 Foundation's internal control over compliance with the types of requirements that could have a direct and material effect on a 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 Foundation 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. Schedule of Expenditures of Federal Awards We have audited the financial statements of Virginia Aquarium & Marine Science Center Foundation, Inc. as of and for the year ended June 30, 2013, and have issued our report thereon dated November 7, 2013, which contained an unmodified opinion on those financial statements. 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 awards is presented for purposes of additional analysis as required by OMB Circular A-133, 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. 21

29 Purpose of this Report 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. Norfolk, Virginia November 7,

30 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2013 Federal Grantor/ Pass-through Grantor/Program Title Federal Agency CFDA Pass- Federal Number Number Expenditures U.S. Department of Commerce National Oceanic and Atmospheric Administration (NOAA) Unallied Science Program (Section 6) $ 672,896 National Oceanic and Atmospheric Administration (NOAA) Marine Mammal Data Program ,940 National Oceanic and Atmospheric Administration (NOAA) ,082 Coastal Zone Management Program Other Federal Programs 11.UNK 70,323 Total U.S. Department of Commerce 1,034,241 National Science Foundation Biological Sciences ,655 Education and Human Resources ,414 Total National Science Foundation 56,069 U.S. Environmental Protection Agency Office of Solid Waste and Emergency Response Restaurant Composting Pilot Program ,614 U.S. Department of Energy Other Federal Programs 81.UNK 3,900 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 1,098,824 See Notes to Schedule of Expenditures of Federal Awards 23

31 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2013 NOTE 1 - BASIS OF PRESENTATION The preceding schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of Virginia Aquarium & Marine Science Center Foundation, Inc., under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of the Foundation, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Foundation. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. NOTE 3 MATCHING COSTS Matching costs, the Foundation s share of certain program costs, are not included in the reported expenditures. 24

32 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2013 Section I Summary of Auditor s Results Financial Statements An unmodified opinion was issued on the financial statements. Internal control over financial reporting: No material weaknesses were identified. No significant deficiencies were reported. No noncompliance material to the financial statements was noted. Federal Awards An unmodified opinion was issued on compliance for major programs. Internal control over the major program: No material weaknesses were identified. No significant deficiencies were reported. No findings required to be reported in accordance with Section 510(a) of OMB Circular A-133 were noted during the audit. Major program is: CFDA Number National Oceanic and Atmospheric Administration (NOAA) Unallied Science Program (Section 6) The dollar threshold used to distinguish between Type A and Type B programs is $300,000. The auditee does not qualify as a low-risk auditee. Section II Financial Statement Findings None noted Section III Federal Award Findings and Questioned Costs None noted 25