SOUTHERN CALIFORNIA INSTITUTE FOR RESEARCH AND EDUCATION (A Non-Profit Organization)

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE with INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Financial Statements: Independent Auditors Report... 1 Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 Supplemental Schedule: Schedule of Functional Expenses... 14

3 INDEPENDENT AUDITORS REPORT To the Board of Directors Southern California Institute for Research and Education Report on the Financial Statements We have audited the accompanying financial statements of Southern California Institute for Research and Education (a non-profit organization) (the Institute ), which comprise the statement of financial position as of September 30, 2015, and the related statements of activities 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 Institute 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 Institute 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. p f Anton Blvd Suite 1000 Costa Mesa CA kmjpartnerscpa.com p f Ventura Blvd Suite 160 Woodland Hills CA p f Loker Avenue West Suite 101 Carlsbad CA 92010

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern California Institute for Research and Education as of September 30, 2015, and the changes in its net assets and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental schedule of functional expenses for the year ended September 30, 2015 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The 2014 summarized comparative functional expense information has been derived from the Institute s supplemental schedule of functional expenses for the year ended September 30, 2014, and in our report dated February 13, 2015 we expressed an unqualified opinion on the supplemental schedule in relation to the 2014 financial statements as a whole. Report on Summarized Comparative Information We have previously audited the Institute s September 30, 2014 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated February 13, In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2014 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 30, 2016 on our consideration of the Institute 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 the 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 Institute s internal control over financial reporting and compliance. Costa Mesa, California June 30, 2016 KMJ Corbin & Company LLP

5 STATEMENTS OF FINANCIAL POSITION ASSETS September 30, (Summarized) Current assets: Cash and cash equivalents $ 1,966,579 $ 815,084 Short-term investments 2,434,798 2,130,877 Accounts and grants receivable 904, ,207 Total current assets 5,305,954 3,471,168 Long-term investments 1,234,375 2,667,711 Equipment, net 78,561 93,559 LIABILITIES AND NET ASSETS $ 6,618,890 $ 6,232,438 Current liabilities: Accounts payable and accrued expenses $ 370,774 $ 245,175 Deferred revenue 2, ,625 Total current liabilities 373, ,800 Commitments and contingencies Net assets: Unrestricted 5,830,266 5,258,942 Temporarily restricted 415, ,696 Total net assets 6,245,731 5,724,638 $ 6,618,890 $ 6,232,438 See accompanying notes to financial statements 3

6 STATEMENTS OF ACTIVITIES For The Year For The Year Ended September 30, 2015 Ended Temporarily September 30, Unrestricted Restricted Total 2014 (Summarized) Support and revenue: Grants and contributions corporate/private $ 2,460,755 $ 14,538 $ 2,475,293 $ 2,445,861 Grants Federal government 2,013,543-2,013,543 1,771,270 Interagency agreements Interest income 748,812 36, ,812 36, ,653 37,347 Facility contribution in-kind 9,792-9,792 8,743 Unrealized gain (loss) on investments, net Net assets released from restrictions 11,585 64,769 - (64,769) 11,585 - (10,098) - Total support and revenue 5,345,831 (50,231) 5,295,600 4,949,776 Expenses: Program services: Research 3,499,335-3,499,335 3,233,879 Education 48,051-48,051 68,820 Research and development support Supporting services: 377, , ,049 Management, general and administrative 849, , ,563 Total expenses 4,774,507-4,774,507 4,430,311 Change in net assets 571,324 (50,231) 521, ,465 Net assets, beginning of year 5,258, ,696 5,724,638 5,205,173 Net assets, end of year $ 5,830,266 $ 415,465 $ 6,245,731 $ 5,724,638 See accompanying notes to financial statements 4

7 STATEMENTS OF CASH FLOWS For The Years Ended September 30, (Summarized) Cash flows from operating activities: Change in net assets $ 521,093 $ 519,465 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 52,465 87,460 Unrealized (gain) loss on investments, net (11,585) 10,098 Changes in operating assets and liabilities: Accounts and grants receivable (379,370) 76,469 Accounts payable and accrued expenses 97,729 (80,981) Deferred revenue (260,240) (96,625) Net cash provided by operating activities 20, ,886 Cash flows from investing activities: Purchases of investments (992,000) (2,687,000) Maturities of investments 2,133,000 2,187,000 Purchases of equipment (9,597) (30,303) Net cash provided by (used in) investing activities 1,131,403 (530,303) Net change in cash and cash equivalents 1,151,495 (14,417) Cash and cash equivalents, beginning of the year 815, ,501 Cash and cash equivalents, end of the year $ 1,966,579 $ 815,084 Supplemental disclosure of non-cash investing activities: Purchase of equipment included in accounts payable and accrued expenses $ 27,870 $ - See accompanying notes to financial statements 5

8 NOTES TO FINANCIAL STATEMENTS NOTE 1 ORGANIZATION AND ACTIVITIES The Southern California Institute for Research and Education (the Institute ) is a non-profit California public benefit corporation incorporated in 1989 and founded for the purpose of facilitating medical research and education at the Veterans Administration Health Care System in Long Beach, California (the Medical Center ). NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Institute and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. These assets are available to support the Institute s activities and operations at the discretion of the Board of Directors. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Institute and/or the passage of time. The balance of temporarily restricted net assets is available for purposes described in Note 5. Permanently restricted net assets Net assets subject to donor-imposed stipulations that the corpus be maintained permanently by the Institute. The donors of these assets permit the Institute to use all or part of the income or gains earned on related investments for general (unrestricted) or specific (temporarily restricted) purposes. The Institute had no permanently restricted net assets as of September 30, Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on the net assets (i.e., the donor-stipulated purpose 6

9 NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements made by management include, but are not limited to, the valuation and recoverability of investments, the collectibility of accounts and grants receivable, the recoverability of longlived assets, the valuation of in-kind contributions of goods and services and the allocation of expenses between program services and supporting services. Actual results could differ from those estimates. Grants and Contributions To ensure the limitations placed on the expenditure of grant funds and contributions, the Institute tracks the activity for each grant award or other funding source. Although each funding source has specific limitations that require separate accountability, all grant funding and other revenue sources support common research activities. Accordingly, for financial reporting purposes, expenses relating to grant awards and other support and revenue are combined and reported as a single activity for the Institute having a common purpose and goal. A substantial portion of the Institute s support is derived from grant awards and other contributions, which are restricted to a specific program or project support. Such amounts are considered earned when the funds are expended for the intended purpose and, if unconditional, reported as temporarily restricted support and revenue when received. Unconditional awards to the Institute that are unrestricted are recognized at fair value when the donor makes an unconditional promise to give to the Institute. All receivables were collected subsequent to September 30, 2015 and At September 30, 2015 and 2014, the Institute has two private research grantors that accounted for 23% and 25%, respectively, of the Institute s outstanding accounts and grants receivable balance. 7

10 NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Institute has several direct and pass-through governmental grants from one grantor that accounted for 37% and 20% of the Institute s outstanding accounts and grants receivable balance at September 30, 2015 and 2014, respectively. For the years ended September 30, 2015 and 2014, these grants accounted for 29% and 27% of total support and revenue, respectively. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include operating cash held in banks and money market funds with an original maturity of ninety days or less. Concentration of Credit Risk The Institute maintains cash balances at several financial institutions. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation ( FDIC ), which provides basic deposit coverage with limits up to $250,000 per owner. As of September 30, 2015 and 2014, the Institute had approximately $1,237,000 and $36,000, respectively, in excess of the FDIC insured amounts. Management believes that it has invested in high credit quality institutions for which the Institute has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to these accounts. Investments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal market, or in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Current accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs in priority that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities; Level 2 - Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves, credit risks, and default rates) or other inputs that are 8

11 NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued principally derived from or corroborated by observable market data by correlation or by other means; and Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of September 30, 2015 and 2014, investments consist of fixed income accounts which invest solely in certificates of deposit with remaining maturities of approximately 5 days to 3 years with interest rates ranging from 0.45% to 1.50% and 0.40% to 4.85%, respectively. These investments are carried at amortized cost which approximates fair market value and are classified within Level 2 of the valuation hierarchy (see above). Net appreciation and depreciation in the fair value of investments, which consists of the realized and unrealized gains (losses) on those investments, is shown in the statements of activities. Government Grants The Institute receives a portion of its support under governmental grants which are subject to governmental audit. Management believes that no material adjustments of costs reflected in the accompanying financial statements will result from subsequent audits, if any, by governmental agencies. All such grant agreements involving the Institute are for fixed terms. There can be no assurances that the Institute will be able to obtain future grant agreements as deemed necessary by management. The loss of some of the current grants or the inability to obtain future grants could have an adverse effect on the Institute s financial position and results of activities. Management believes that they will be able to continue obtaining appropriate agreements to fund future operations based on their historical ability to obtain new grant agreements and based on their relationships with awarding agencies. Equipment Equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets which range from three to five years. 9

12 NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Management of the Institute assesses the recoverability of equipment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable by determining whether the carrying amount of such assets over their remaining lives can be recovered through projected undiscounted cash flows. The amount of impairment, if any, is measured based on fair value and is shown in the statements of activities in the period in which such impairment is determined by management. To date, management has not identified any impairment of equipment. Contributed Goods and Services Contributions of services are recognized in the financial statements if the services enhance or create non-financial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The Institute received donated office space and furniture and equipment from the Medical Center. Management has estimated that the fair market value of this annual donation is $9,792 and $8,743 for the years ended September 30, 2015 and 2014, respectively (see Note 6). This amount has been reflected as in-kind revenue and facility expense in the accompanying statements of activities and schedule of functional expenses, respectively. Deferred Revenue Deferred revenue is recorded for government cost-reimbursement grant funds received in advance of expenditures and is recognized as government grant revenue in the accompanying statements of activities upon expenditure by the Institute. Designated Net Assets As of September 30, 2015 and 2014, the Institute has designated $3,940,381 and $3,395,955, respectively, of unrestricted net assets for use by specific principal investigators for medical research. 10

13 NOTES TO FINANCIAL STATEMENTS NOTE 3 INCOME TAXES The Institute is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the Revenue and Taxation Code of the State of California. Accordingly, no provision has been made for federal or state income taxes. The Institute is subject, however, to Federal and California income taxes on unrelated business income as stipulated in Internal Revenue Code Section 511 and Regulation Section During the years ended September 30, 2015 and 2014, the Institute had no unrelated business income. The Institute annually evaluates tax positions as part of the preparation of its exempt tax return. This process includes an analysis of whether tax positions the Institute takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under current accounting guidance. The Institute believes its tax positions are appropriate based on current facts and circumstances. The Institute s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At September 30, 2015, the Institute did not have any unrecognized tax benefits. The Institute is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before NOTE 4 EQUIPMENT At September 30, 2015 and 2014, equipment consisted of the following: Computer equipment $ 20,753 $ 18,054 Research equipment 586, ,710 Office equipment 164, , , ,458 Less accumulated depreciation (693,364) (640,899) $ 78,561 $ 93,559 11

14 NOTES TO FINANCIAL STATEMENTS NOTE 5 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of September 30: Program services restricted for education and research grants for various investigators $ 415,465 $ 465,696 Temporarily restricted net assets released consist of $64,769 of program services restricted for education and research grants for various investigators during the year ended September 30, NOTE 6 RELATED PARTY TRANSACTIONS The Institute is related to the Medical Center as directors for the Institute also serve as directors for the Medical Center. In connection with certain research activities, the Institute provides services to the Medical Center under a cost-reimbursement arrangement. For the years ended September 30, 2015 and 2014, the Institute incurred total costs of $748,812 and $696,653, respectively, under this arrangement, which were recorded as interagency agreements revenue in the accompanying statements of activities. As of September 30, 2015 and 2014, amounts totaling $127,835 and $101,910, respectively, were due from the Medical Center for services performed under the cost-reimbursement arrangement and are included in accounts and grants receivable in the accompanying statements of financial position. In addition, the Institute received an in-kind contribution of rent of $9,792 and $8,743 for the use of the furniture, equipment, and office space it occupies from the Medical Center for the years ended September 30, 2015 and 2014, respectively (see Note 2). NOTE 7 RETIREMENT PLAN The Institute sponsors a salary reduction retirement plan that covers all employees who are at least 21 years old. Employees may contribute up to $17,500 per year for 2015 and The Institute made no employer contributions to the plan during the years ended September 30, 2015 and

15 NOTES TO FINANCIAL STATEMENTS NOTE 8 COMMITMENTS AND CONTINGENCIES The Institute has made certain indemnities and guarantees under which it may be required to make payments to a guaranteed or indemnified party in relation to certain transactions. The Institute indemnifies its directors, officers, employees and agents to the maximum extent permitted under the laws of the State of California. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Institute could be obligated to make. Historically, the Institute has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying statements of financial position. NOTE 9 SUBSEQUENT EVENTS The Institute evaluated subsequent events after the statement of financial position date of September 30, 2015 through June 30, 2016, the date the financial statements were issued. There were no events requiring financial statement disclosure that took place between these dates. 13

16 SCHEDULE OF FUNCTIONAL EXPENSES Research Education For The Year Ended September 30, 2015 Program Services Research and Development Support Total Program Services Supporting Services Management, General and Administrative Total For The Year Ended September 30, 2014 (Summarized) Personnel $ 1,978,029 $ 152 $ 107,430 $ 2,085,611 $ 606,203 $ 2,691,814 $ 2,604,887 Subrecipient awards and service agreements 403, , , ,226 Professional fees and interagency agreements 665,655 26, , , , , ,063 Supplies and clinical study costs 367, , ,889 31, , ,165 Maintenance and repairs 10, ,309-11,309 12,124 Facility contribution-in-kind ,792 9,792 8,743 Telecommunications 5,794-1,656 7, ,904 7,254 Printing, publications and postage 15, ,862 2,679 18,541 18,473 Advertising ,090 Travel 38,081 7,545 31,780 77,406 7,897 85,303 76,258 Conferences and meetings 9,500 12,353 22,191 44,044 11,069 55,113 37,681 Staff development and training ,176 Insurance ,555 11,555 10,413 Dues and subscriptions 3, ,038 13,568 12,464 26,032 26,511 Licenses, permits, taxes, fees and fines ,310 1,841 1,287 Depreciation ,465 52,465-52,465 87,460 Miscellaneous $ 3,499,335 $ 48,051 $ 377,253 $ 3,924,639 $ 849,868 $ 4,774,507 $ 4,430,311 14