SOUTHWEST CENTER FOR HIV/AIDS, INC.

Transcription

1 FINANCIAL STATEMENTS AND OMB CIRCULAR A-133 SUPPLEMENTARY REPORTS

2 FINANCIAL STATEMENTS AND OMB CIRCULAR A-133 SUPPLEMENTARY REPORTS CONTENTS INDEPENDENT AUDITORS' REPORT 1-2 Page FINANCIAL STATEMENTS Statement of Financial Position 3 Statement of Activities 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 Notes to Financial Statements 7-15 OMB CIRCULAR A-133 SUPPLEMENTARY REPORTS Schedule of Expenditures of Federal Awards 16 Notes to the Schedule of Expenditures of Federal Awards 17 Independent Auditors 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 Auditors Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 22-23

3 INDEPENDENT AUDITORS' REPORT To the Board of Directors of SOUTHWEST CENTER FOR HIV/AIDS, INC. We have audited the accompanying financial statements of Southwest Center for HIV/AIDS, Inc. (the Organization ), which comprise the statement of financial position as of December 31, 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. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 auditors 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.

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5 STATEMENT OF FINANCIAL POSITION December 31, 2013 (with comparative totals at December 31, 2012) A S S E T S CURRENT ASSETS Cash and cash equivalents $ 2,038,744 $ 1,912,604 Grants and other receivables 149, ,048 Pledges receivable 115,558 - Tenant improvement receivable 392,046 - Inventory 9,780 16,985 Prepaid expenses and other current assets 36,177 40,628 TOTAL CURRENT ASSETS 2,741,574 2,269,265 PLEDGES RECEIVABLE, net of current portion 175,652 - TENANT IMPROVEMENT RECEIVABLE, net of current portion 764,963 - PROPERTY AND EQUIPMENT, net 5,660, ,020 ASSETS RESTRICTED TO INVESTMENT IN LONG-TERM PURPOSES Cash 1,215 1,900,289 Construction in progress - 237,185 1,215 2,137,474 TOTAL ASSETS $ 9,343,583 $ 4,542,759 L I A B I L I T I E S A N D N E T A S S E T S CURRENT LIABILITIES Line of credit $ - $ - Accounts payable 912, ,729 Accrued expenses 108, ,594 Deferred revenue Current maturities of capital lease obligations 12,196 26,958 TOTAL CURRENT LIABILITIES 1,032, ,531 CAPITAL LEASE OBLIGATIONS, less current maturities 15,308 48,833 TOTAL LIABILITIES 1,047, ,364 NET ASSETS Unrestricted 7,797,608 1,823,087 Temporarily restricted 498,141 2,397,308 TOTAL NET ASSETS 8,295,749 4,220,395 TOTAL LIABILITIES AND NET ASSETS $ 9,343,583 $ 4,542,759 See Notes to Financial Statements -3-

6 STATEMENT OF ACTIVITIES (with comparative totals for the year ended December 31, 2012) Temporarily Unrestricted Restricted REVENUE AND SUPPORT Contributions: Individuals $ 45,496 $ 291,416 $ 336,912 $ 413,148 Corporations 7, , ,782 28,173 Foundations 416,250 3,955,033 4,371,283 4,000,286 In-kinds 29,436-29,436 14,438 United Way 110, , ,872 Total contributions revenue 609,128 5,036,164 5,645,292 4,602,917 Fundraising events revenue: Individuals 191, , ,005 Corporations 176, , ,563 Foundations ,000 In-kinds 175, , ,940 Total fundraising events revenue 543, , ,508 Less costs of direct donor benefits (253,615) - (253,615) (329,459) Gross profit on fundraising events 290, , ,049 Government contracts and grants 807, , ,952 Clinical trials 348, , ,384 Vitamin and Herb Shoppe sales 23,035-23,035 27,115 Program fees 55,906-55, ,393 Other 97,331-97,331 22,986 Net assets released from restrictions 6,935,331 (6,935,331) - - TOTAL REVENUE AND SUPPORT 9,166,898 (1,899,167) 7,267,731 6,044,796 EXPENSES Program services: Nutrition and wellness 428, , ,403 Education, prevention and outreach 805, , ,920 Behavioral health 309, , ,388 Clinical trials 393, , ,868 Community services 340, ,677 92,323 Total program services 2,277,196-2,277,196 1,954,902 Supporting services: Management and general 413, , ,714 Fundraising 501, , ,394 Total supporting services 915, , ,108 TOTAL EXPENSES 3,192,377-3,192,377 2,637,010 CHANGE IN NET ASSETS 5,974,521 (1,899,167) 4,075,354 3,407,786 NET ASSETS, BEGINNING OF YEAR 1,823,087 2,397,308 4,220, ,609 NET ASSETS, END OF YEAR $ 7,797,608 $ 498,141 $ 8,295,749 $ 4,220,395 See Notes to Financial Statements -4-

7 STATEMENT OF FUNCTIONAL EXPENSES (with comparative totals for the year ended December 31, 2012) Program Services Supporting Services Education, Nutrition Prevention Management and and Behavioral Clinical Community and Wellness Outreach Health Trials Services Total General Fundraising Total Salaries and wages $ 115,435 $ 417,088 $ 178,096 $ 229,092 $ - $ 939,711 $ 223,346 $ 202,322 $ 425,668 $ 1,365,379 $ 1,249,580 Employee related expenses 19,274 72,019 27,814 38, ,917 21,701 26,919 48, , ,956 Consulting 23,722 31,480 57,298 8, , ,511 81, , , , ,759 Materials and supplies 39, ,242 5,116 20,523 12, ,295 16,285 13,337 29, , ,516 Occupancy / rent 14,198 82,608 19,928 29,740 92, ,789 23,421 18,039 41, , ,900 Program / nutritional expenses 53, ,432-68, ,711 57,170 Food supplements / vitamins 138, , , ,110 Mileage and travel ,695 1,364 2, ,899 11,024 2,104 13,128 32,027 30,638 Other operating expenses 12,906 26,790 7,872 36,609 38, ,175 5, , , , ,224 Depreciation and amortization 10,714 29,248 11,630 11,920-63,512 30,524 11,874 42, ,910 29,157 Total expenses $ 428,610 $ 805,170 $ 309,118 $ 393,621 $ 340,677 $ 2,277,196 $ 413,311 $ 501,870 $ 915,181 $ 3,192,377 $ 2,637,010 See Notes to Financial Statements -5-

8 STATEMENT OF CASH FLOWS (with comparative totals for the year ended December 31, 2012) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 4,075,354 $ 3,407,786 Adjustments to reconcile the change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 105,910 29,157 Contributions restricted to investment in long-lived assets (4,807,057) (1,964,786) Loss on disposal of property and equipment 10,854 - Change in discount on pledges receivable 14,423 - Changes in operating assets and liabilities: Decrease (increase) in: Grants and other receivables 149, ,691 Pledges receivable (305,633) 1,533 Inventory 7,205 (8,830) Prepaid expenses and other current assets 4,451 (3,701) Tenant improvement receivable (1,157,009) - Increase (decrease) in: Accounts payable 798,537 (51,439) Accrued expenses (24,530) 93,564 Deferred revenue (250) (43,178) Net cash provided by (used in) operating activities (1,127,966) 1,655,797 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (5,403,738) (55,988) Change in other assets - 21,000 Change in escrow deposits - 55,552 Change in cash restricted to investment in long-term purposes 1,899,074 (2,137,474) Net cash used in investing activities (3,504,664) (2,116,910) CASH FLOWS FROM FINANCING ACTIVITIES Draws on line of credit - 279,050 Payments on line of credit - (279,164) Payments on capital lease obligations (48,287) (14,817) Collections on contributions restricted to investment in long-lived assets 4,807,057 1,964,786 Net cash provided by financing activities 4,758,770 1,949,855 NET CHANGE IN CASH AND CASH EQUIVALENTS 126,140 1,488,742 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,912, ,862 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,038,744 $ 1,912,604 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 4,863 $ 7,343 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Equipment acquired under capital lease $ - $ 39,821 Capital lease incentive $ - $ 21,535 See Notes to Financial Statements -6-

9 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies Organization operations Southwest Center for HIV/AIDS, Inc. (the "Organization"), was established to provide its clients with the knowledge, resources, and care necessary to live long and well with HIV. As a coalition created by and for people living with HIV, the Organization provides increased access to timely cutting-edge medical support services, alternative therapies, peer-based education, emotional support, advocacy, and social services. The Organization was founded as the primary provider of early intervention services and serves as the point of first contact for the newly diagnosed or those further along on the disease spectrum who have delayed in accessing services. The Organization provides services to individuals eligible under government programs or under drug therapy testing programs offered through arrangements with pharmaceutical manufacturers. In addition, services are offered to the community through education and prevention programs funded by foundations and other organizations. Other funding for the Organization s operations is provided by individuals and corporations at special events and in response to fundraising campaigns. In June 2011, the City of Phoenix (the City ) purchased a 54,000 square foot facility with a portion of a 2006 voter-approved $3.6 million bond which set aside funds to help nonprofit organizations provide services not offered by the City. In 2012, the City finalized an operating agreement under which the Organization is contracted to occupy and manage the facility in exchange for an annual usage fee. The term of the use agreement extends 25 years from the date of a certificate of occupancy (November 2013). The agreement requires the Organization to occupy and use the premises as a community center from which the operator and other sub-operators may provide prevention, treatment, social services, wellness promotion, research services and other health related services to the population affected by or at risk of HIV/AIDS in a collaborative manner and for no other purpose. In October 2011, the Organization broke ground, in partnership with the City, to renovate the facility. The Organization spent 2012 and 2013 developing the site into a new community health and education center. This community-based, collaborative health center is a one-stop resource for chronic disease prevention, education, mental health, nutrition, health services and wellness, helping those who are at risk for and impacted by HIV/AIDS. The facility was completed in the fall of 2013 and is home to several partner organizations and companies, making it one of the largest HIV/AIDS primary care and support service facilities in Arizona. These partner organizations occupy space within the facility in accordance with sub-operating agreements with the Organization (Note 10). Additionally, in 2013, the City of Phoenix contributed a portion of the remaining bond proceeds of approximately $561,472 to the Organization for renovation of the facility which was recognized as a temporarily restricted contribution. In May 2012, the Organization received a $5 million charitable gift from a family foundation to name the new health facility. The donation consisted of a series of donations for the new facility and program activities, as well as a community matching challenge grant. The family foundation donation included $1.5 million for building improvements to the facility, $1 million for operations and program support for prevention, wellness, community outreach and testing and $1 million for the establishment of a reserve account for programs, operations and facility maintenance and support. For the year ended December 31, 2012, $1.5 million was recognized as a temporarily restricted contribution. The remaining $2 million was recognized as an unrestricted contribution in The family foundation donation also included $1.5 million as part of a community matching incentive challenge, in which the family foundation would match other donations up to an additional $1.5 million. These funds were to be used for comprehensive signage and exterior renovations, as well as additional interior renovations for community spaces, program spaces, and an art gallery lobby. (See Note 5). For the years ended December 31, 2013 and 2012, the family foundation funded approximately $1,264,000 and $250,000, respectively, under the $1.5 million matching contribution as well as additional funding. These amounts were included in temporarily restricted contributions in the accompanying statements of activities. All amounts were released from restriction in

10 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies (continued) In 2013, the family foundation contributed $1 million to match the pledge offered by the family foundation in accordance with the 2012 donation and $2 million for the continuing operation of the Organization and construction of the new facility. For the year ended December 31, 2013, $2.6 million was recognized as a temporarily restricted contribution. The remaining $400,000 was recognized as an unrestricted contribution. In 2014, the family foundation made an additional commitment to support the Organization. The family foundation pledged to give the Organization $1 million for the continuing operation of the Organization. The Organization s new facility also provides women s health services, which was funded through a $400,000 donation received in 2010 for that purpose. Approximately $250,000 was used to renovate the new building and to provide women s services and $150,000 was used to pay for specific programming for women s services. During the years ended December 31, 2013 and 2012, $194,927 and $161,080, respectively, has been released from restriction, as services have been provided. The Organization completed the renovations and improvements to the center, which totaled approximately $7.6 million, in the fall of The renovations and improvements were funded entirely through donor contributions. The significant accounting policies followed by the Organization are as follows: Basis of presentation The accompanying financial statement presentation follows Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) , Not-for-Profit Organizations - Presentation of Financial Statements. Under FASB ASC , the Organization 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. Prior-year summarized information The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended December 31, 2012, from which the summarized information was derived. Management s use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, support and expenses during the reporting periods. Actual results could differ from these estimates. Cash and cash equivalents Cash includes cash and, at times, cash equivalents which consist of highly liquid financial instruments purchased with an original maturity of three months or less. Deposits at each institution are insured in limited amounts by the Federal Deposit Insurance Company (FDIC). Grants and other receivables The Organization bills Maricopa County, Arizona and other governmental agencies for its performance under various contracts. All billings unpaid as of year-end are recorded as grants receivable. The Organization has also entered into a number of clinical research agreements with various pharmaceutical manufacturers. The Organization enrolls a number of patients into a pharmaceutical study and performs research activities and tests under specific protocols. The pharmaceutical manufacturer or sponsor provides most of the clinical supplies necessary to perform the services under the study. -8-

11 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies (continued) Grants and other receivables are stated at the amount management expects to collect under the terms of the grants and contract agreements. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance, if needed, based on its assessment of the current status of individual contracts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to grants and other receivables. At December 31, 2013 and 2012, grants and other receivables are considered by management to be fully collectible and, accordingly, an allowance for uncollectible accounts has not been provided. Promises to give Unconditional promises to give (pledges) that are to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are initially recorded at the fair value of their estimated future cash flows as of the date of the promise to give through the use of a present value discount technique. In periods subsequent to initial recognition, unconditional promises to give are reported at the amount management expects to collect and are discounted over the collection period using the same discount rate as determined at the time of initial recognition. The discount rate determined at the initial recognition of the unconditional promise to give is based upon management's assessment of many factors, including when the receivable is expected to be collected, the creditworthiness of the other parties, the Organization's past collection experience and its policies concerning the enforcement of promises to give, expectations about possible variations in the amount or timing, or both, of the cash flows, and other factors concerning the receivable's collectability. Amortization of the discounts is included in support from contributions. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Inventory Inventory consists principally of vitamin and herb inventory maintained as part of the Organization s obligation for services provided under government contracts. These inventories are stated at the lower of cost, determined using the FIFO (first-in, first-out) method, or market. Revenue from the sale of vitamin and herb inventory is recognized when the products are delivered to the customer, which is typically at the point of sale. Property and equipment Property and equipment is valued at cost. Donated property and equipment is recorded at the estimated fair value at the date of donation. Generally, property and equipment in excess of $1,000 is capitalized. Maintenance and repairs are charged to operations when incurred. When property and equipment is sold or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved, and any gain or loss is included in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. For purposes of computing depreciation, the general range of estimated useful lives is as follows: Furniture and equipment Improvements 3-7 years 25 years Impairment of long-lived assets The Organization accounts for long-lived assets in accordance with the provisions of FASB ASC 360, Property, Plant, and Equipment. FASB ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment charges were recorded for 2013 or

12 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies (continued) Tenant improvement receivable In accordance with the sub-operating agreements, certain partner organizations and companies occupy space within the community health education center. Additionally, the Organization was required to fund a total of $1,458,844 of tenant improvements related to these partner organizations. These tenant improvements were made in In accordance with the agreements, $250,000 was reimbursed in 2013 by a partner organization and an additional $208,844 is due and outstanding from a partner organization at December 31, 2013 and is included in tenant improvement receivable in the accompanying statement of financial position. The remaining $1 million will be paid to the Organization through future use fees. In accordance with FASB ASC 840, Leases, the Organization is required to amortize the total tenant improvements on a straight-line basis over the life of the agreement. As a result, the $1 million tenant improvement is deferred as tenant improvement receivable and will be amortized against use fee income, which is included in other revenue and support in the accompanying statement of activities, over the life of the agreement. At December 31, 2013 the total amount of unamortized tenant improvement receivable was $1,157,009. Contributions The Organization accounts for contributions in accordance with FASB ASC , Notfor-Profit Organizations - Revenue Recognition. In accordance with FASB ASC , contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Fundraising events revenue The Organization conducts fundraising events in which a portion of the gross proceeds paid by the participant represents payment for the direct cost of the benefits received by the participant at the event. Unless a verifiable, objective means exists to demonstrate otherwise, the fair value of meals and entertainment provided at fundraising events is measured at the actual cost to the Organization. The direct costs of the fundraising events, which ultimately benefit the donor rather than the Organization, are recorded as costs of direct donor benefits in the accompanying statement of activities. Donated materials and services Donated materials and services are reflected in the accompanying financial statements at their estimated fair value at the date of donation. For the years ended December 31, 2013 and 2012, the Organization recorded $175,583 and $124,940 of donated materials, respectively, included in fundraising events revenue, as the donations were specifically for the fundraising events. Donated services are recognized as contributions in accordance with FASB ASC , if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased. For the years ended December 31, 2013 and 2012, the Organization recorded $29,436 and $14,438, respectively, of donated services. For 2013 and 2012, these donated services consisted primarily of legal and architectural services related to consulting for the new facility discussed above. No amounts were capitalized in 2013 and In addition, the Organization utilizes and depends on the services of a substantial number of volunteers to perform a variety of tasks that assist the Organization with specific programs, administrative functions, and fundraising activities. The value of this contributed time is not reflected in these financial statements since the services did not require specialized skills and it was not susceptible to objective measurement or valuation. However, volunteers provided an estimated 4,208 and 3,925 hours during the years ended December 31, 2013 and 2012, respectively. -10-

13 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies (continued) Revenue recognition The Organization recognizes amounts received from grants and contracts as earned when services are rendered under unit of service and/or cost reimbursement contracts. Funding sources may, at their discretion, request reimbursement for expenses or return of funds, or both, as a result of noncompliance by the Organization with the terms of the grant or contract. Pharmaceutical company clinical trial revenue is recognized at the time the services are provided. Fees received prior to the performance of services are deferred until the period in which the services are actually performed. Functional allocation of expenses The cost of providing the Organization s various programs and other activities has been summarized on a functional basis in the accompanying statement of activities. Certain costs have been allocated among the programs and supporting services benefited based on an analysis of time and expenses. Advertising costs Advertising costs are charged to operations when incurred. Advertising expense charged to operations was approximately $15,800 for 2013 and $4,100 for Fair value measurements FASB ASC 820, Fair Value Measurements, establishes a common definition for fair value to be applied to accounting principles generally accepted in the United States of America requiring use of fair value, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. FASB ASC 820 also establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values by requiring that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Level 2: Level 3: Unadjusted quoted market prices in active markets for identical assets or liabilities. Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Unobservable inputs for the asset or liability. The Organization currently has no financial instruments subject to fair value. Income tax status The Organization qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (the Code ), and accordingly, there is no provision for income taxes. In addition, the Organization qualifies for the charitable contribution deduction under Section 170 of the Code and has been classified as an organization that is not a private foundation. Income determined to be unrelated business taxable income (UBTI) would be taxable. The Organization evaluates its uncertain tax positions, if any, on a continual basis through review of its policies and procedures, review of its regular tax filings, and discussions with outside experts. At December 31, 2013 and 2012, management believes the Organization did not have any uncertain tax positions. The Organization s federal Exempt Organization Business Income Tax Return (Form 990) for 2010, 2011 and 2012 is subject to examination by the IRS, generally for the three years after it was filed. As of the date of this report, the 2013 return had not yet been filed. -11-

14 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (1) Organization operations and summary of significant accounting policies (continued) Recent accounting pronouncement In October 2012, the FASB issued ASU No , Statement of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows, which requires not-for-profit entities to classify cash receipts from the sale of donated financial assets as cash flows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes, in which case those cash receipts should be classified as cash flows from financing activities. ASU is effective for fiscal years beginning after June 15, 2013, with early adoption permitted. The amendments of this ASU are applied prospectively, with early adoption permitted if the not-for-profit s financial statements for the early adoption period have not yet been made available for issuance. Retrospective application to all prior periods presented is permitted, but not required. The adoption of ASU No is not expected to have a significant impact on the Organization s financial statements. Reclassifications Certain amounts on the statement of activities have been reclassified in the 2012 financial statements to conform to the presentation of the 2013 financial statements. The reclassifications did not have an effect on total expenses or change in net assets. Certain expenses totaling approximately $92,000 were reclassified from management and general to community services to better reflect the nature of the activities within the account groupings. Subsequent events The Organization has evaluated subsequent events through July 31, 2014 which is the date the financial statements were available to be issued. (2) Grants and other receivables Grants and other receivables consist of: Grants from State and County agencies $ 116,245 $ 123,050 Due from pharmaceutical manufacturers 22, ,463 Other 10,926 21,535 Grants and other receivables $ 149,269 $ 299,048 (3) Pledges receivable Pledges receivables consist of the following promises to give: Receivable in less than one year $ 115,558 $ - Receivable in two to five years 190,075 - Total contributions receivable 305,633 - Discount to present value (14,423) - Net contributions receivable $ 291,210 $ - The estimated cash flows for contributions receivable are discounted over the collection period using a discount rate as determined by management of 2.17%. Pledges receivable are stated at the amount management expects to collect. Management provides for uncollectible pledges through a charge to earnings and a credit to the allowance for uncollectible pledges based on its assessment of the current status of individual pledges. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for uncollectible pledges and a credit to pledges receivable. At December 31, 2013, management determined pledges receivable to be fully collectible and an allowance for uncollectible pledges was not considered necessary. At December 31, 2013, pledges receivable from board members totaled $93,

15 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (4) Property and equipment Property and equipment consists of: Stated at cost or donated value: Furniture and equipment $ 599,272 $ 311,307 Improvements 5,218, ,788 Total cost or donated value 5,817, ,095 Accumulated depreciation and amortization (157,637) (278,075) Property and equipment, net $ 5,660,179 $ 136,020 Depreciation and amortization expense charged to operations was $105,910 and $29,157 for the years ended December 31, 2013 and 2012, respectively. The Organization has entered into capital lease agreements for copiers. The cost of the assets held under capital lease agreements totaled $39,821 and $68,044 at December 31, 2013 and 2012, respectively. Accumulated amortization on assets held under capital lease agreements totaled $13,274 and $15,495 at December 31, 2013 and 2012, respectively. (5) Assets restricted to investment in long-term purposes In May 2012, the Organization began a fundraising campaign with a goal of raising $16.1 million, inclusive of amounts provided by the City of Phoenix. Of the $16.1 million, $3.6 million was provided by the City of Phoenix through the proceeds of a bond issued by the City of Phoenix to purchase and fund a portion of the renovation of a facility which will serve as the new home of the Organization. The City of Phoenix has entered into an operating agreement with the Organization (for 25 years at a fee equal to the value of services provided at the facility, which must equal at least $144,200 per year) upon completion and receipt of the certificate of occupancy. The fundraising campaign proceeds are also able to be used to renovate and outfit the facility, to establish an operating cash reserve and to fund additional programming. Through December 31, 2013, in addition to the $3.6 million in voter approved bond funds, the Organization has raised approximately $10.1 million under the fundraising campaign. In 2013, the fundraising campaign was completed and the assets were utilized to renovate and outfit the new facility. Assets restricted to investment in long-term purposes at December 31 consist of the following: Cash $ 1,215 $ 1,900,289 Construction in progress - 237,185 $ 1,215 $ 2,137,474 (6) Line of credit The Organization opened a line of credit with a bank in November The line bears interest at 6.75% and automatically renews. The maximum amount of the line is $100,000. Total interest expense incurred for the line of credit for the years ended December 31, 2013 and 2012 was $666 and $3,409, respectively. -13-

16 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (7) Capital lease obligations The Organization leases equipment under a noncancellable capital lease agreement. The lease expires in February 2016 and bears interest at 6.75%. The future minimum lease payments and capital lease obligations under these capital leases as of December 31, 2013 are as follows: Years Ending December 31, 2014 $ 13, , ,280 Total future minimum lease payments 29,640 Less amounts representing interest (2,136) Present value of minimum lease obligations 27,504 Less current portion (12,196) Non-current portion $ 15,308 For the years ended December 31, 2013 and 2012, the interest expense incurred for the capital lease was $4,197 and $3,934, respectively. (8) Temporarily restricted net assets Temporarily restricted net assets consist of: Pledges receivable $ 291,210 $ - Domestic violence - 22,239 Group counseling 158, ,595 Clinical research 15,654 20,000 Capital campaign - 2,137,474 Other 32,940 - $ 498,141 $ 2,397,308 Net assets released from restriction for 2013 and 2012 are comprised primarily of amounts expended for the Organization s domestic violence program, group counseling program and funds spent under the capital campaign. (9) Lease commitment The Organization leased its former building and certain storage space under an operating lease agreement which expired in December 2011 and was renewed through September The lease was not subsequently renewed, as the Organization moved into the community health education center in the fall of Rent expense was $140,024 for 2013 and $162,140 for

17 NOTES TO FINANCIAL STATEMENTS (with comparative totals for the year ended December 31, 2012) (10) Sub-operating agreements During 2013, the Organization entered into sub-operating agreements for part of the community health education center with unaffiliated organizations. Under the agreements the partner organizations will pay the Organization a monthly use fee through Minimum future use receipts under the sub-operating agreements are as follows: Years Ending December 31, 2014 $ 248, , , , ,957 Total future minimum lease payments $ 1,176,625 Total use income under these arrangements for the years ended 2013 and 2012 was approximately $67,267 and $0, respectively which is included in other revenue and support in the accompanying statement of activities. (11) Profit sharing plan The Organization participates in a 401(k) retirement plan for its employees who meet specified age and service requirements. The Organization makes its employees aware of the plan, withholds voluntary contributions from paychecks on a pretax basis and remits the contributions to an independent trustee. Employer contributions are made annually at the discretion of the Board of Directors. There were no employer contributions for the years ended December 31, 2013 and Effective April 1, 2014, the Organization will match up to 50% of the contributions of participants who elect to defer at least 2% of their annual compensation to the plan up to a maximum of 1% of the participants total annual compensation. (12) Concentrations of credit risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist of cash deposits in banks and receivables. The Organization places its cash deposits with quality financial institutions. From time to time throughout the year, the Organization s cash balance may exceed the amount of Federal Deposit Insurance Corporation (FDIC) insurance coverage. At December 31, 2013 and 2012, certain balances exceeded the amount of the FDIC insurance coverage. The Organization continues to depend on grants and contracts to provide the source of funds necessary to operate. Each year, the Organization competes with other agencies for funding; its continued accomplishment of the programs and objectives does not guarantee continued support from the same funding sources. For the years ended December 31, 2013 and 2012, one family foundation contributed approximately 83% and 75% of total contribution revenue, respectively. -15-

18 OMB CIRCULAR A-133 SUPPLEMENTARY REPORTS

19 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Pass-through CFDA Entity Identifying Federal Federal Grantor / Pass-Through Agency / Program Number Number Expenditures U.S. Department of Health and Human Services Passed through Maricopa County Department of Public Health Services: HIV Emergency Relief Project Grant - Title 1; Behavioral Health C $ 11,217 HIV Emergency Relief Project Grant - Title 1; Behavioral Health ,633 HIV Emergency Relief Project Grant - Title 1; Nutrition C ,294 HIV Emergency Relief Project Grant - Title 1; Nutrition ,008 HIV Emergency Relief Project Grant - Title 1; Targeted Outreach/Early Intervention ,292 Subtotal CFDA ,444 Passed through Maricopa Integrated Health System: Grants to Provide Outpatient Early Intervention Services with Respect to HIV Disease C ,184 Coordinated Services and Access to Research for Women, Infants, Children, and Youth C ,171 Passed through Maricopa County Department of Public Health Services: Teenage Pregnancy Prevention H 550 Passed through Health Resources & Services Administration: Health Care and Other Facilities C76HF ,579 Passed through Arizona Department of Health Services: HIV Prevention Activities / ,242 Total U.S. Department of Health and Human Services 806,170 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 806,170 See Independent Auditors' Report See Accompanying Notes to the Schedule of Expenditures of Federal Awards -16-

20 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (1) Basis of presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) includes the federal grant activity of Southwest Center for HIV/AIDS, Inc. under programs of the federal government for the year ended December 31, The information in this Schedule is presented in accordance with the requirements of Office of Management and Budget (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 Southwest Center for HIV/AIDS, Inc., it is not intended to and does not present the financial position, changes in net assets or cash flows of Southwest Center for HIV/AIDS, Inc. Southwest Center for HIV/AIDS, Inc. did not provide federal awards to sub-recipients during the year ended December 31, (2) Summary of significant accounting policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following 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. (3) Catalog of Federal Domestic Assistance (CFDA) numbers The program titles and CFDA numbers were obtained from the 2013 Catalog of Federal Domestic Assistance. -17-

21 INDEPENDENT AUDITORS 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 of SOUTHWEST CENTER FOR HIV/AIDS, INC. 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 Southwest Center for HIV/AIDS, Inc. (the Organization ), which comprise the statement of financial position as of December 31, 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 July 31, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Southwest Center for HIV/AIDS, Inc. 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 Southwest Center for HIV/AIDS, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Southwest Center for HIV/AIDS, Inc. 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. -18-

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23 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Directors of SOUTHWEST CENTER FOR HIV/AIDS, INC. Report on Compliance for Each Major Federal Program We have audited Southwest Center for HIV/AIDS, Inc. s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Southwest Center for HIV/AIDS, Inc. s major federal programs for the year ended December 31, Southwest Center for HIV/AIDS, Inc. s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Southwest Center for HIV/AIDS, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Southwest Center for HIV/AIDS, Inc. 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 Southwest Center for HIV/AIDS, Inc. s compliance. Opinion on Major Federal Program In our opinion, Southwest Center for HIV/AIDS, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31,

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25 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section I Summary of Auditors Results Financial Statements Type of Auditors Report Issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? Yes X None reported Type of Auditor s Report Issued on Compliance for Major Programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A-133? Yes X No Identification of major programs: CFDA Number Name of Federal Program or Cluster HIV Emergency Relief Project Grant Title Health Care and Other Facilities Dollar threshold used to distinguish between type A and type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes X No -22-