USING FINANCIAL STATEMENTS TOGETHER WITH IRS FORM 990 TO UNDERSTAND YOUR POTENTIAL GRANTEES

Transcription

1 USING FINANCIAL STATEMENTS TOGETHER WITH IRS FORM 990 TO UNDERSTAND YOUR POTENTIAL GRANTEES Presented by: Regina A. Rodriguez, CPA Senior Manager Not-for-Profit Services EisnerAmper LLP April 12, 2012

2 Table of Contents Information provided by Financial Statements Information provided by Form 990 Red Flags and Analysis Ratio Calculations 1

3 SAMPLE FINANCIAL STATEMENTS 2

4 SAMPLE FORM 990 3

5 Which Document When? FINANCIAL STATEMENTS VS TAX RETURN 4

6 INFORMATION PROVIDED BY THE FINANCIALS Assurance of fairly presented balances Financial health - good for ratio analysis Explanations in the notes Related Parties Details about donor restrictions / concentrations In-kind donations Cashflow Details about investments Details of endowment 5

7 INFORMAITON PROVIDED BY THE TAX RETURN Governance Details about compensation for certain individuals Finer detail of expenses Use category of expenses for ratio analysis Transactions with interested parties Related Parties Transactions in foreign countries Detail about specific special events Professional fundraiser Comparative data for certain years Composition of Board 6

8 GAAP VS TAX 7

9 GAAP vs TAX RECONCILING THE FINANCIAL STATEMENTS AND FORM 990 Donated Services Unrealized gain/loss on investments Gross vs. Net reporting Special events Fiscal-year versus Calendar Year Compensation Functional expenses Prior year adjustments SCHEDULE D Related Parties 8

10 RED FLAGS AND ANALYSIS 9

11 Analysis of Sample Financial Statements Opinion page: Amounts reported are free from material misstatement Significant subsequent events are disclosed up to April 4, 2012 Balances reported include only the activity of the Organization, i.e. no consolidation Financial statements are prepared in accordance with Generally Accepted Accounting Principles ( GAAP ) 10

12 INDEPENDENT AUDITORS' REPORT Board of Directors Exempt Organization New York, New York We have audited the accompanying statements of financial position of Exempt Organization (the "Organization") as of December 31, 2011 and 2010, and the related statements of activities, functional expenses, and cash flows for the years then ended. These financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the financial position of Exempt Organization as of December 31, 2011 and 2010, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. New York, New York April 4,

13 Analysis of Sample Financial Statements Statement of Financial Position: Identification of major assets, liabilities and net assets Classification of net assets Balance Sheet ratios: Current ratio = [The Organization s liquid assets exceed its current liabilities (due in 12 months or less) by 10:1 Debt ratio = 16.60% [16.6% of the Organization s assets are leveraged by debt] 12

14 December 31, ASSETS Cash and cash equivalents $ 1,953,000 $ 2,193,000 Investments 10,250,000 10,108,000 Pledges receivable, net 3,108,000 3,207,000 Grants receivable 1,175, ,000 Prepaid expenses and other current assets 37,000 55,000 Inventory 34,000 31,000 Property and equipment, net 5,729,000 4,761,000 Security deposits 3,000 3,000 $ 22,289,000 $ 21,301,000 LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 671,000 $ 569,000 Deferred revenue 301, ,000 Accrued vacation 231, ,000 Annuities payable 150, ,000 Accrued pension liability 650, ,000 Bonds payable 3,700,000 4,000,000 Total liabilities 5,703,000 5,857,000 Commitments and contingency (Note M) Net assets: Unrestricted: Operating fund 6,996,000 6,649,000 Board-designated fund 325, ,000 Total unrestricted 7,321,000 6,950,000 Temporarily restricted 2,491,000 2,494,000 Permanently restricted 6,774,000 6,000,000 Total net assets 16,586,000 15,444,000 $ 22,289,000 $ 21,301,000 13

15 CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months Current Assets: Cash and cash equivalents 1,953,000 Investments 10,250,000 Pledges due in 1 year 1,827,000 * Grants receivable 1,175,000 Prepaid expenses and other 37,000 Total current assets 15,242,000 *See footnote C Current liabilities: Accounts payable & accured expenses 671,000 Deferred revenue 301,000 Accrued vacation 231,000 Bonds due in 1 year 300,000 * Total current liabilities 1,503,000 *See footnote F = 15,242,000 1,503,000 14

16 DEBT RATIO = TOTAL DEBT TOTAL ASSETS THE DEBT RATIO CALCULATES WHAT PERCENTAGE OF AN ORGANIZATION'S ASSETS ARE LEVERAGED 16.60% = 3,700,000 22,289,000 15

17 Analysis of Sample Financial Statements Statement of Activity: Identification of major revenue streams Identification of possible concentrations of revenue streams Functional expense totals Statement of Activity Ratios: Program Service Ratio = 86.33% Fundraising Ratio = 5.72% General & Admin Ratio = 7.95% Cost of Fundraising =

18 Year Ended Temporarily Permanently December 31, Unrestricted Restricted Restricted Total 2010 Operating support and revenue: Support: Government grants $ 2,519,000 $ 2,519,000 $ 2,685,000 Contributions 2,853,000 $ 578,000 $ 774,000 4,205,000 3,483,000 Direct mail campaigns 1,293,000 1,293,000 1,462,000 Special events (net of direct benefit to donors of $280,000 and $145,000 in 2011 and 2010, respectively) 1,295,000 1,295, ,000 Donated services and materials 688, , ,000 Total support 8,648, , ,000 10,000,000 9,287,000 Revenue: Catalog sales 206, , ,000 Change in value of split-interest agreements 30,000 30,000 15,000 Investment income allocated for operations 55,000 25,000 80,000 50,000 Other income 101, , ,000 Total revenue 392,000 25, , ,000 Support and revenue before net assets released from restrictions 9,040, , ,000 10,417,000 9,579,000 Net assets released from restrictions: satisfaction of program and time restrictions 626,000 (626,000) 0 0 Total support and revenue 9,666,000 (23,000) 774,000 10,417,000 9,579,000 Expenses: Program services: Program 1 3,101,000 3,101,000 2,849,000 Program 2 2,338,000 2,338,000 2,442,000 Program 3 2,534,000 2,534,000 2,269,000 Total program services 7,973,000 7,973,000 7,560,000 Supporting services: Management and general 734, , ,000 Fund-raising 528, , ,000 Total supporting services 1,262,000 1,262,000 1,238,000 Total operating expenses 9,235,000 9,235,000 8,798,000 Change in net assets from operations 431,000 (23,000) 774,000 1,182, ,000 Change in net assets from non-operating activities Investment results, net of allocation to operations 30,000 20,000 50,000 21,000 Pension-related charges other than periodic costs (90,000) (90,000) (200,000) Change in net assets 371,000 (3,000) 774,000 1,142, ,000 Net assets - beginning of the year 6,950,000 2,494,000 6,000,000 15,444,000 14,842,000 Net assets - end of the year $ 7,321,000 $ 2,491,000 $ 6,774,000 $ 16,586,000 $ 15,444,000 17

19 EXPENSE RATIOS PROGRAM SERVICE RATIO = 86.33% = PROGRAM EXPENSE TOTAL EXPENSE 7,973,000 9,235,000 Prior Year: 85.93% FUNDRAISING RATIO = FUNDRAISING EXPENSE TOTAL EXPENSE 5.72% Prior Year: 6.13% = 528,000 9,235,000 COST OF FUNDRAISING = FUNDRAISING EXPENSE TOTAL CONTRIBUTIONS 0.08 = 528, Prior Year:

20 Analysis of Sample Financial Statements Statement of Functional Expenses: Identification of major expenses by natural categories Variance analysis [comparison of current year balances to prior year balances] 19

21 $ Change % Change Salaries $ 2,852,000 $ 2,410,000 $ 442, % Employee benefits and payroll taxes 1,210,000 1,105, , % Donated materials 146, ,000 6, % Professional fundraising fees 60,000 55,000 5, % Professional fees 897, , , % Program supplies 2,496,000 2,895,000 (399,000) % Occupancy 466, ,000 (15,000) -3.12% Telephone 81,000 80,000 1, % Office expenses and supplies 33,000 23,000 10, % Equipment repair and maintenance 173, ,000 8, % Insurance 72,000 72, % Conferences and related costs 55,000 52,000 3, % Marketing and promotion 19,000 23,000 (4,000) % Printing and publications 100,000 99,000 1, % Direct mail and other fund-raising 69,000 54,000 15, % Postage and shipping 37,000 43,000 (6,000) % Depreciation expense 390, ,000 10, % Interest expense 70,000 72,000 (2,000) -2.78% Miscellaneous 9,000 4,000 5, % Total expenses $ 9,235,000 $ 8,798,000 $ 437, % 20

22 Analysis of Sample Financial Statements Statement of Cash flows: Cash flow from operating, investing and financing activity Identification of trends in usage and sources of cash 21

23 Year Ended December 31, Cash flows from operating activities: Change in net assets $ 1,142,000 $ 602,000 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization expense 390, ,000 Realized and unrealized gains on investments (42,000) (11,000) Contributions restricted for permanent endowment (774,000) (500,000 Bad debt expense 12,000 9,000 Donated equities (704,000) (800,000) Changes in: Pledges receivable 87,000 71,000 Grants receivable (232,000) 55,000 Prepaid expenses and other current assets 18,000 19,000 Inventory (3,000) (2,000) Accounts payable and accrued expenses 102, ,000 Deferred revenue 11,000 14,000 Accrued vacation 3,000 5,000 Annuities payable 25,000 35,000 Accrued pension liability 5,000 7,000 Net cash provided by operating activities 40,000 17,000 Cash flows from investing activities: Purchases of investments (2,696,000) (2,749,000) Proceeds from sales of investments 3,300,000 2,643,000 Purchases of property and equipment (1,358,000) (120,000 Net cash used in investing activities (754,000) (226,000 Cash flows from financing activities: Repayments of bonds (300,000) (285,000 Contributions restricted for permanent endowment 774, ,000 Net cash provided by financing activities 474, ,000 Net change in cash and cash equivalents (240,000) 6,000 Cash and cash equivalents - January 1 2,193,000 2,187,000 Cash and cash equivalents - December 31 $ 1,953,000 $ 2,193,000 Supplemental information: Interest paid $ 84,000 $ 85,000 Donated services $ 542,000 $ 674,000 Donated supplies $ 146,000 $ 140,000 22

24 Analysis of Sample Financial Statements Footnote disclosures: State of incorporation, year of incorporation Mission and program descriptions Summary of accounting policies Detailed information of major account balances Source of information or support for items of question Subsequent events, commitments and related party information 23

25 NOTE A - THE ORGANIZATION AND ITS SIGNIFICANT ACCOUNTING POLICIES [1] Organization: Exempt Organization (the Organization") is a not-for-profit entity formed in the State of New York in 1983 that seeks to improve the health and well-being of people living with serious illnesses. Services are provided free-of-charge in all five boroughs of New York City. The Organization is exempt from federal income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code and from state and local taxes under comparable laws. [2] Financial reporting: Basis of accounting: The accompanying financial statements of the Organization have been prepared using the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America as applicable to not-for-profit organizations. NOTE B - INVESTMENTS At each fiscal year-end, investments were composed of the following: December 31, Fair Fair Cost Value Cost Value Cash and short-term investments $ 2,250,000 $ 2,250,000 $ 2,278,000 $ 2,278,000 Government obligations 495, , , ,000 Equities 5,005,000 5,000,000 5,367,000 5,540,000 Multi-strategy hedge funds 1,700,000 1,800,000 1,250,000 1,330,000 Limited partnerships 600, , , ,000 Investment income for each fiscal year consisted of the following: $10,050,000 $10,250,000 $ 9,750,000 $10,108,000 Year Ended December 31, Interest and dividend income, net $ 188,000 $ 140,000 Net realized gains (losses) 100,000 (151,000) Net unrealized (losses) gains (158,000) 82,000 Net return on investments 130,000 71,000 Investment return allocated for operations (80,000) (50,000) Investment return in excess of amounts allocated for operations $ 50,000 $ 21,000 24

26 NOTE B - INVESTMENTS At each fiscal year-end, investments were composed of the following: December 31, Fair Fair Cost Value Cost Value Cash and short-term investments $ 2,250,000 $ 2,250,000 $ 2,278,000 $ 2,278,000 Government obligations 495, , , ,000 Equities 5,005,000 5,000,000 5,367,000 5,540,000 Multi-strategy hedge funds 1,700,000 1,800,000 1,250,000 1,330,000 Limited partnerships 600, , , ,000 Investment income for each fiscal year consisted of the following: $10,050,000 $10,250,000 $ 9,750,000 $10,108,000 Year Ended December 31, Interest and dividend income, net $ 188,000 $ 140,000 Net realized gains (losses) 100,000 (151,000) Net unrealized (losses) gains (158,000) 82,000 Net return on investments 130,000 71,000 Investment return allocated for operations (80,000) (50,000) Investment return in excess of amounts allocated for operations $ 50,000 $ 21,000 The following table lists investments in other investment companies by major category: December 31, 2011 Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Multi-strategy hedge funds: $ 1,800,000 $ 750,000 Semi-annual 95 days Limited Partnerships 350,000 Monthly 1 6 days 350,000 Quarterly 60 days $ 2,500,000 $ 750,000 25

27 NOTE C - PLEDGES RECEIVABLE Contributions and other gifts promised to the Organization as of December 31, 2011 and 2010, but not yet collected as of those dates, have been recorded as pledges receivable. Outstanding pledges are expected to be collected as follows: December 31, Less than one year $ 1,827,000 $ 1,795,000 One to five years 1,200,000 1,300,000 More than five years 369, ,000 3,396,000 3,485,000 Reduction of pledges due in excess of one year to present value at 5.00% (96,000) (98,000) 3,300,000 3,387,000 Less estimated uncollectible amounts (192,000) (180,000) $ 3,108,000 $ 3,207,000 NOTE D - GRANTS RECEIVABLE Grants receivable are amounts due to the Organization under the terms of various reimbursable cost agreements signed with governmental and other agencies. The amounts due as receivable from these grants have been used to support program services. At each fiscal year-end, grants receivable consisted of the following: December 31, Federal Agency A $ 676,000 $ 479,000 Federal Agency B 245, ,000 NYS Agency A 144, ,000 NYS Agency B 88,000 42,000 NYS Agency C 22,000 Other 8,000 $1,175,000 $ 943,000 It is the opinion of management that no provision for uncollectible grants is necessary. 26

28 NOTE M - COMMITMENTS AND CONTINGENCY [1] The Organization is obligated under various non-cancelable operating leases for office equipment expiring through June As of December 31, 2011, minimum future lease payments under the lease agreements are: Amount 2012 $ 450, , , ,000 $ 1,715,000 Rent expense for each of the years ended December 31, 2011 and 2010 was approximately $440,000 and $430, 000, respectively. [2] Effective December 31, 2009, the Organization entered into a five-year employment agreement with its Executive Director. NOTE M - COMMITMENTS AND CONTINGENCY (CONTINUED) [3] Government-supported projects are subject to audit by the applicable government granting agencies. At December 31, 2011 and 2010, there were no material obligations outstanding as the result of such audits, and management believes that unaudited projects will not result in any material obligations. [4] The Organization is a defendant in various lawsuits that have arisen during the normal course of its operations. Management does not expect the ultimate resolution of these actions to have a material adverse effect on the Organization s financial position. NOTE N RELATED-PARTY TRANSACTIONS [1] The Organization and Exempt Organization #2 have interrelated financial transactions, primarily in the form of shared services. During the year, the Organization paid $175,000 to Exempt Organization #2 for these services. The criteria for consolidation are not present. [2] The Organization is related to a 501(c)(4) advocacy organization through some shared board members although the criteria for consolidation are not present. The advocacy organization furthers, through public policy deliberations and legislative actions, treatments for people living with serious illness. During the year ended December 31, 2011, the Organization paid approximately $85,000 for professional services and printing expenses to the advocacy organization. [3] During fiscal-years 2011 and 2010, the Organization incurred legal expenses of $25,000 and $22,000, respectively, for services rendered by a law firm which has a partner whose spouse is a member of the Board of Directors. 27

29 Analysis of Sample Form 990 Core Form: Organizational Snapshot Checklist of Required Schedules Table of Content Governance Financial Information if no financial statement is provided Electronically filed forms, signature page now on a different form (Form 8453-EO) 28

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35 Analysis of Sample Form 990 Supplemental Schedules: Public Support and Contributions Schedule A and B Compensation Schedule J Interested Persons and Related Parties Schedules L and R Grants Schedules F and I Financial Information Schedule D Additional Disclosures regarding policies Schedule O 34

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