Forgotten Harvest, Inc. (A Non-Profit Organization)

Transcription

1 Financial Statements (and supplemental material) Years Ended June 30, 2012 and 2011 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership, and the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

2 Financial Statements (and supplemental material) Years Ended June 30, 2012 and 2011

3 Contents Independent Auditors Report 3-4 Financial Statements Statements of Financial Position as of June 30, 2012 and Statements of Activities and Changes in Net Assets for the Years Ended June 30, 2012 and Statements of Functional Expenses for the Years Ended June 30, 2012 and Statements of Cash Flows for the Years Ended June 30, 2012 and Notes to Financial Statements 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 with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Supplemental Materials Schedule of Expenditures of Federal Awards for the Year Ended June 30, Notes to Schedule of Expenditures of Federal Awards for the Year Ended June 30, Schedule of Findings and Questioned Costs for the Year Ended June 30,

4 Tel: Fax: West Big Beaver, Suite 1900 Troy, MI Independent Auditors Report To the Board of Directors of Forgotten Harvest, Inc. Oak Park, Michigan We have audited the accompanying statements of financial position of Forgotten Harvest, Inc. (a non-profit organization) as of June 30, 2012 and the related statements of activities and changes in net assets, functional expenses and cash flows for the year 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 audit. The financial statements of Forgotten Harvest, Inc. as of June 30, 2011 were audited by other auditors whose report dated October 27, 2011 expressed an unqualified opinion on those statements. 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 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 Forgotten Harvest s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Forgotten Harvest, Inc. as of June 30, 2012 and the changes in net assets, functional expenses, and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2012, on our consideration of Forgotten Harvest, Inc. s internal control over financial reporting and 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 and should be considered in assessing the results of our audit. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

5 Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Government, and Non-Profit Organizations, 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 audits 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. Troy, Michigan November 21,

6 Financial Statements

7 Statements of Financial Position June 30, Assets Current Assets Cash and cash equivalents $ 2,102,388 $ 1,953,240 Certificates of deposit 1,158,229 1,057,670 Investments 1,081,986 1,289,601 Promises to give, net 1,607,842 1,338,724 Inventory 544, ,809 Prepaid expenses and other assets 78,232 49,111 Total Current Assets 6,573,584 6,093,155 Property and Equipment Land 371, ,700 Land improvements 91,306 91,306 Building and improvements 2,938,360 2,833,973 Delivery equipment 2,567,878 2,232,181 Furnishings and equipment 768, ,913 Total Property and Equipment 6,738,022 6,143,073 Less accumulated depreciation (1,995,467) (1,530,821) Net Property and Equipment 4,742,555 4,612,252 Long-Term Assets Promises to give, net, less current portion 259,832 1,830,780 Note receivable from Forgotten Harvest Canada 65,000 - Beneficial interest in Community Foundation Endowment Fund 102,275 - Total Long-Term Assets 427,107 1,830,780 Total Assets $ 11,743,246 $12,536,187 See accompanying notes to financial statements. 6

8 Statements of Financial Position June 30, Liabilities and Net Assets Current Liabilities Accounts payable $ 186,107 $ 121,892 Accrued compensation 195, ,029 Other accrued expenses 23,608 - Loan payable current portion - 24,556 Deferred revenue 48,400 40,500 Total Current Liabilities 453, ,977 Long-Term Liabilities Loan payable - 98,225 Less current portion - (24,556) Total Long-Term Liabilities - 73,669 Total Liabilities 453, ,646 Net Assets Unrestricted 9,494,990 9,196,034 Temporarily restricted 1,694,349 2,556,073 Permanently restricted 100, ,434 Total Net Assets 11,289,339 12,132,541 Total Liabilities and Net Assets $ 11,743,246 $ 12,536,187 See accompanying notes to financial statements. 7

9 Statements of Activities and Changes in Net Assets Year ended June 30, 2012 Unrestricted Temporarily Restricted Permanently Restricted Total Revenue Contributions $ 3,844,431 $ 203,750 $ - $ 4,048,181 Capital campaign - building Capacity campaign 365, , ,328 Foundations and trusts 459, , ,500 Special events 644, ,633 Third party events 497, ,250 In-kind donations 707, ,840 In-kind donations capacity campaign 196, ,272 Miscellaneous income 43, ,695 Interest and dividend income 51, ,847 Realized and unrealized loss on investments (82,103) - - (82,103) Government grants 38,515 84, ,515 Rental income 13, ,300 Change in beneficial interest in Community Foundation Endowment Fund - 2,275-2,275 Perishable foods 72,939, ,939,009 Total Revenue Before Net Assets Released From Restriction 79,719, ,030-80,394,547 Net Assets Released From Restriction 1,536,754 (1,536,754) - - Total Revenues 81,256,271 (861,724) - 80,394,547 Expenses Program service 77,879, ,879,011 Management and general 656, ,774 Fundraising 2,701, ,701,964 Total Expenses 81,237, ,237,749 Change in Net Assets 18,522 (861,724) - (843,202) Net Assets, beginning of year 9,196,034 2,556, ,434 12,132,541 Reclassification of Board Designated Funds (Note 2) 380,434 - (380,434) - Transfer of Cash to Community Foundation Endowment Fund (100,000) - 100,000 - Net Assets, end of year $ 9,494,990 $ 1,694,349 $ 100,000 $ 11,289,339 See accompanying notes to financial statements. 8

10 Statements of Activities and Changes in Net Assets Year ended June 30, 2011 Unrestricted Temporarily Restricted Permanently Restricted Total Revenue Contributions $ 2,828,932 $ 112,917 $ - $ 2,941,849 Capital campaign - building Capacity campaign 2,403,748 1,021,914-3,425,662 Foundations and trusts 528, , ,164 Special events 562, ,500 Third party events 634, ,992 In-kind donations 780, ,261 In-kind donations capacity campaign 337, , ,643 Miscellaneous income 18, ,600 Interest and dividend income 26,133-4,867 31,000 Realized and unrealized gain (loss) on investments 157,343 - (2,584) 154,759 Government grants 310,493 81, ,833 Rental income 4, ,750 Perishable foods 38,577, ,577,419 Total Revenue Before Net Assets Released From Restriction 47,171,352 1,560,088 2,283 48,733,723 Net Assets Released From Restriction 1,071,974 (1,071,974) - - Total Revenues 48,243, ,114 2,283 48,733,723 Expenses Program service 41,608, ,608,273 Management and general 676, ,409 Fundraising 2,627, ,627,976 Total Expenses 44,912, ,912,658 Change in Net Assets 3,330, ,114 2,283 3,821,065 Net Assets, beginning of year 5,865,366 2,067, ,151 8,311,476 Net Assets, end of year $ 9,196,034 $ 2,556,073 $ 380,434 $ 12,132,541 See accompanying notes to financial statements. 9

11 Statements of Functional Expenses Year ended June 30, 2012 Program Service Management and General Fundraising Total Compensation and Other Related Expenses Salaries $ 1,569,368 $ 377,603 $ 525,494 $ 2,472,465 Retirement benefits 54,993 14,961 17,127 87,081 Medical insurance 172,845 30,412 37, ,679 Payroll tax 123,117 46,052 62, ,923 Total Compensation and Other Related Expenses 1,920, , ,797 3,032,148 Other Functional Expenses Advertising , ,278 Bad debts ,546 28,546 Bank and processing fees ,417 57,447 Conferences and seminars 6,768 52,994 1,116 60,878 Contributions 28, ,820 Delivery equipment Fuel 287, ,774 Insurance 43, ,771 Maintenance 189, ,446 Depreciation 504,610 14,900 15, ,952 Dues and subscriptions 16,137 11,443 1,760 29,340 Fundraising 69, , ,899 In-kind services 379,906 13, , ,739 Insurance general and workers compensation 64, ,496 Mileage reimbursement 13,146 3,674 6,188 23,008 Office expense 20,064 6,031 3,974 30,069 Postage and direct mail - 8, , ,010 Printing 2,893 6,730 53,625 63,248 Professional fees 129,101 30, , ,566 Recruiting 11, ,549 Supplies and maintenance 235,885 25,127 17, ,641 Telephone 33,947 7,394 4,453 45,794 Temporary personnel 118, ,588 Utilities 69,925 5,692 5,692 81,309 Total Other Functional Expenses 2,226, ,746 2,059,167 4,473,168 Distributed Food 73,732, ,732,433 Total Functional Expenses $ 77,879,011 $ 656,774 $ 2,701,964 $ 81,237,749 See accompanying notes to financial statements. 10

12 Statements of Functional Expenses Year ended June 30, 2011 Program Service Management and General Fundraising Total Compensation and Other Related Expenses Salaries $ 1,261,171 $ 447,512 $ 325,464 $ 2,034,147 Retirement benefits 42,833 15,199 11,053 69,085 Medical insurance 110,377 39,166 28, ,028 Payroll tax 117,644 41,745 30, ,748 Total Compensation and Other Related Expenses 1,532, , ,361 2,471,008 Other Functional Expenses Advertising , ,176 Bad debts - - 9,720 9,720 Bank fees ,094 43,094 Conferences and seminars 15,323 34,942 9,530 59,795 Contributions 18, ,709 Delivery equipment Fuel 205, ,395 Insurance 37, ,290 Maintenance 155, ,587 Depreciation 439,602 10,439 10, ,479 Dues and subscriptions 12,284 3,197 1,347 16,828 Fundraising 65, , ,958 In-kind services 74,657 17, , ,261 Insurance general and workers compensation 66, ,748 Mileage reimbursement 8,377 6,952 4,823 20,152 Office expense 13,590 3,441 2,244 19,275 Postage and direct mail - 6, , ,916 Printing 10,586 7,843 77,766 96,195 Professional fees 14,252 19, , ,943 Recruiting 6, ,507 Supplies and maintenance 100,803 10,741 5, ,097 Telephone 30,090 7,952 6,023 44,065 Utilities 52,647 3,590 3,589 59,826 Total Other Functional Expenses 1,327, ,787 2,232,615 3,693,016 Distributed Food 38,748, ,748,634 Total Functional Expenses $ 41,608,273 $ 676,409 $ 2,627,976 $ 44,912,658 See accompanying notes to financial statements. 11

13 Statements of Cash Flows Year ended June 30, Operating Activities Change in net assets $ (843,202) $ 3,821,065 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation and amortization 534, ,479 Realized and unrealized (gain) loss on investments 82,103 (154,759) Change in beneficial interest in Community Foundation Endowment Fund (2,275) - Gain on sale of property and equipment (15,000) (2,800) Changes in operating assets and liabilities provided by (used in) cash Inventory (140,098) (226,307) Promises to give 1,301,830 (2,621,145) Prepaid expense and other assets (29,121) 10,836 Accounts payable 64,215 (281,066) Accrued compensation 52,763 29,176 Other accrued expenses 23,608 - Deferred revenue 7,900 (11,000) Net cash provided by operating activities 1,037,675 1,024,479 Investing Activities Capital expenditures (665,255) (1,619,804) Proceeds from the sale of property and equipment 15,000 2,800 Purchase of investments (27,993) (809,677) Proceeds from the sale of investments 153, ,785 Net purchases of certificates of deposit (100,559) (505,281) Transfer of cash to Community Foundation Endowment Fund (100,000) - Issuance of note receivable (65,000) - Net cash used in investing activities (790,302) (2,711,177 ) Financing Activities Borrowings on long-term debt - 98,225 Payments on long-term debt (98,225) - Net cash provided by (used in) financing activities (98,225) 98,225 Net Increase (Decrease) in Cash and Cash Equivalents 149,148 (1,588,473 ) Cash and Cash Equivalents, beginning of year 1,953,240 3,541,713 Cash and Cash Equivalents, end of year $ 2,102,388 $ 1,953,240 See accompanying notes to financial statements. 12

14 Notes to Financial Statements 1. Nature of Activities Forgotten Harvest, Inc. ( the Organization ) is a non-profit organization, incorporated in the State of Michigan for the purpose of providing hunger relief to the Metropolitan Detroit area through a prepared and perishable surplus food program. The Organization collects prepared, perishable and non-perishable surplus food from various health-department approved establishments and transports that food to soup kitchens, pantries and shelters in the tri-county area. 2. Summary of Significant Accounting Policies Basis of Accounting The books and records of the Organization are maintained on an accrual method of accounting. Reclassifications Certain amounts from the prior year have been reclassified to conform with the current year presentation. During the year ended June 30, 2012, the Organization reclassified certain Board designated net assets totaling $380,434 from Permanently Restricted Net Assets to Unrestricted Net Assets. Financial Accounting Standards Board ( FASB ) guidance related to classification of net assets states that Board designated funds, absent donor restrictions are to be classified as unrestricted. See Notes 6 and 8 for a discussion of the Organization s Board designated and Permanently Restricted Net Assets. Cash and Cash Equivalents The Organization considers all short-term investments with an original maturity of three months or less to be cash equivalents. Money market accounts included in cash and cash equivalents are recorded at cost which approximates fair value. Certificates of Deposit The Organization classifies its certificates of deposits as current assets since they can be redeemed at any time prior to maturity. The Organization s certificates of deposits held as of June 30, 2012 expire at various dates through March The certificates of deposits are recorded at cost which approximates fair value. 13

15 Notes to Financial Statements Concentrations of Credit Risk Financial instruments which potentially subject the Organization to concentrations of credit risk consist of cash, cash equivalents, certificates of deposit, and promises to give. The Organization places its cash, cash equivalents and certificates of deposit with high credit qualified institutions. At times, the amount of cash and cash equivalents may be in excess of the respective institutions insurance limits. The Organization has not experienced any losses in such accounts, and management believes the Organization is not exposed to any unusual credit risk on cash, cash equivalents and certificates of deposit. All of the Organization s non-interest bearing cash balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010 to December 31, Under the program, there is no limit to the amount of insurance for eligible accounts. With respect to promises to give, the Organization monitors credit exposure on a continuing basis. The Organization also records an allowance for doubtful accounts based on amounts believed to be uncollectible. Revisions to the allowance may be required if actual collections differ significantly from estimated collections. These revisions could have a material effect on the statement of activities in the period in which such changes occur. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The allowance for doubtful accounts was $11,653 and $10,400 at June 30, 2012 and 2011, respectively. Investments The investments of the Organization, which are comprised of exchange-traded funds, are reported at fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Realized gains or losses are determined by the average cost method. Unrealized gains or losses represent the difference between the current fair value and the cost of the investments. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses, interest income, and dividend income are all included in the Statements of Activities and Changes in Net Assets. 14

16 Notes to Financial Statements Promises to Give Promises to give are recognized as contribution revenue in the period that the promise is received by the Organization unless there is a condition placed on the promise to give whereby the Organization recognizes the revenue when the condition is met. Promises to give are recorded at net realizable value if expected to be collected in one year and at fair value (discount rate used was 0.72% and 1.76% as of June 30, 2012 and 2011, respectively) if expected to be collected in more than one year. Promises to give at June 30 are as follows: Gross Unconditional Promises to Give $ 1,882,195 $ 3,244,756 Allowance for Uncollectible Promises to Give (11,653) (10,400) 1,870,542 3,234,356 Less: discounts to net present value (2,868) (64,852) Net Unconditional Promises to Give $ 1,867,674 $ 3,169,504 Amounts Due In Less than one year $ 1,607,842 $ 1,338,724 One to four years 259,832 1,830,780 Total Promises to Give $ 1,867,674 $ 3,169,504 The Organization uses the allowance method to determine uncollectible promises to give. The allowance is based on management s analysis of specific promises made. Inventory Donated food on hand as of June 30, 2012 and 2011 was $544,907 and $404,809, respectively. Ending inventories are determining using the FIFO method and are based upon a value per pound established by KPMG, LLP and published by Feeding America. Property and Equipment Purchased property and equipment are carried at cost. Donated property and equipment are carried at the approximate fair value at the date of donation. Property and equipment are depreciated over their estimated lives as follows, using the straight-line method: Land improvements Building and improvements Delivery equipment Furnishings and equipment 15 years 5 40 years 5 7 years 5-10 years 15

17 Notes to Financial Statements Total depreciation expense for the years ended June 30, 2012 and 2011 was $534,952 and $460,479, respectively. Expenditures for maintenance and repairs are charged to expenses as incurred. The Organization reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such property may not be recoverable. There were no impairment losses recognized for the years ended June 30, 2012 and Deferred Revenue and Prepaid Expense The Organization holds two major fundraising events during the year. This involves the receipt of sponsorship income and reserving facilities in advance of the event. Income and expenses that relate to events that will not take place until the next fiscal year are recorded as deferred revenue and prepaid expenses and recognized when the event takes place. Recognition of Donor Restrictions The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor 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 and Changes in Net Assets as net assets released from restrictions. Restricted support in which the donor stipulations are met in the same year are reported as unrestricted net assets. Donated Food Monetary value for the donated food is based upon a value per pound established by KPMG, LLP and published by Feeding America, a nationally recognized food donation charity. A summary of donated food is as follows: Year ended June 30, Total Pounds Price Per Pound Total Value ,939,162 $ 1.66 $ 72,939, ,239, ,577,419 Contributions and In-Kind Donations The Organization accounts for contributions received and contributions made by corporations, foundations, trusts and government agencies at estimated fair value. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. In-kind donations are recorded as revenues and expenses at their estimated fair value. 16

18 Notes to Financial Statements Income Taxes The Organization is exempt from federal income and unemployment taxes under Section 501(c) 3 of the Internal Revenue Code. The Organization considers this exemption from income taxes to be a significant tax position. The Organization has evaluated and determined that there is no taxable unrelated business income. The Organization believes that it has appropriate support for any tax position taken and, as such, has determined that no additional disclosures of uncertain tax matters are required. Contributions made to the Organization are deductible by the donor as provided by the Internal Revenue Code. Expense Allocation The costs of providing various programs and other activities have been summarized on a functional basis in the Statements of Activities and Changes in Net Assets and in the Schedule of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. 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 at the date of the financial statements and the reported amount of revenues and expenses during the report period. Actual results could differ from those estimates. Fair Value of Financial Instruments For certain of the Organizations financial instruments, including cash and cash equivalents, shortterm investments, promises to give, other receivables, accounts payable and other accrued expenses, the carrying amounts approximate fair value due to their short maturity. 3. Fair Value Measurements The Organization s investments are stated at fair value. Investments held in the exchange-traded funds are valued at quoted market prices, which represent the net asset value of shares held by the Organization at year end. A summary of investments is as follows: June 30, Cost Fair Value Carrying Value 2012 $ 1,056,561 $ 1,081,986 $ 1,081, ,152,960 1,289,601 1,289,601 17

19 Notes to Financial Statements Accounting guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Basis of Fair Value Measurement Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 - Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of observable inputs. The following table sets forth by level within the fair value hierarchy the Organization s assets recorded at fair value, as of June 30, 2012 and Assets Recorded at Fair Value as of June 30, 2012 Level 1 Level 2 Level 3 Total Mutual Funds Inflation protected $ 214,106 $ - $ - $ 214,106 Commodity 52, ,044 Common Stock International large cap 410, ,540 Domestic large cap 405, ,296 Total Investments $ 1,081,986 $ - $ - $ 1,081,986 Beneficial Interest in Community Foundation Endowment Fund $ - $ 102,275 $ - $ 102,275 Inventory Donated Food - 544, ,907 18

20 Notes to Financial Statements Assets Recorded at Fair Value as of June 30, 2011 Level 1 Level 2 Level 3 Total Mutual Funds Inflation protected $ 243,647 $ - $ - $ 243,647 Commodity 80, ,948 Common Stock International large cap 483, ,730 Domestic large cap 481, ,276 Total Investments $ 1,289,601 $ - $ - $ 1,289,601 Inventory Donated Food $ - $ 404,809 $ - $ 404, Line-of-Credit The Organization has a $250,000 line-of-credit with Huntington National Bank with an interest rate of 3.25%. The line-of-credit is collateralized by the assets of the Organization. There was no outstanding balance as of June 30, 2012 and Loan Payable As of June 30, 2011, there was a loan payable of $98,225 to Feeding America for purchase of a truck for the mobile pantry program. The Organization repaid the loan in December As such, the loan is no longer outstanding as of June 30, The loan was not scheduled to bear any interest until Board Designated Funds During the year ended June 30, 2011, the Organization s Board of Directors designated a portion of unrestricted net assets to be set aside for the purpose of supporting the Organization s ongoing operations. As described in Note 2, as of June 30, 2011, the funds totaling $380,434 were included in Permanently Restricted Net Assets but were reclassified to Unrestricted Net Assets during the year ended June 30, Board designated funds within Unrestricted Net Assets were $254,511 at June 30,

21 Notes to Financial Statements 7. Temporarily Restricted Net Assets Temporarily Restricted Net Assets are net assets subject to donor-imposed stipulations that can be fulfilled by actions pursuant to those stipulations or that expire by passage of time. Temporarily Restricted Net Assets consist of the following as of June 30: Building maintenance $ 975,043 $ 989,609 Capacity campaign 456,667 1,134,985 Contributions time restrictions 260, ,479 Community Foundation Endowment earnings 2, Permanently Restricted Net Assets $ 1,694,349 $ 2,556,073 Permanently Restricted Net Assets are net assets subject to donor-imposed stipulations that are maintained permanently by the Organization. Permanently Restricted Net Assets as of June 30, 2012 of $100,000 consist of the Organization s original beneficial interest in the Community Foundation Endowment Fund. Earnings on the original investment are classified as Temporarily Restricted. See Note 14 for additional details. See also Notes 2 and 6 related to the reclassification of Board designated funds recorded in Permanently Restricted Net Assets at June 30, In-Kind Donations Donated advertising, office supplies and various services are reflected in the financial statements as In-Kind Donations and Expenses at their estimated values. A summary of In-Kind Donations for the years ended June 30, is as follows: Advertising $ 123,000 $ 239,016 Electronics and software - 19,000 Equipment and supplies 458,287 31,365 Fundraiser auction items 28,427 38,377 Miscellaneous ,700 Office furniture and supplies 5, Professional services 5,500 25,235 Senior aid - 10,048 Special event food and miscellaneous items 71,498 24,020 Sporting event tickets 84, ,000 Training - 2,750 Transportation equipment 126, ,572 Transportation equipment (not yet received) - 113,071 $ 904,112 $ 1,230,904

22 Notes to Financial Statements 10. Employee Benefit Plan On May 1, 1996, the Organization adopted a Simplified Employee Pension Plan for all employees who meet the eligibility requirements set forth in the Plan. Effective February 1, 2004, the Organization rolled the Simplified Pension Plan into a 401(k) Profit Sharing Plan. Under the provisions of the Plan, eligible employees may defer a portion of their salary and the Organization will make contributions on behalf of each eligible employee based on the Plan s guidelines. The Organization s contribution to the Plan for the years ended June 30, 2012 and 2011 was $87,081 and $69,085, respectively. 11. Federal Financial Assistance The Organization has received federal funds from the Emergency Food and Shelter Program and Nutrition Supplemental Assistance Program and local funds from the City of Detroit Block Grant Program for food distribution. The Organization has also received USDA food for distribution. See the Schedule of Expenditures of Federal Awards for details. 12. Collaboration Agreement with PIC Safety, Inc. The Organization is continuing its collaboration agreement with PIC Safety, Inc. in the interest of expanding food distribution to the community. PIC Safety, Inc. is a for-profit organization that specializes in food safety training and compliance. Under the collaboration agreement, the Organization provides use of its facilities, transportation and other services to PIC Safety, Inc. without charge. These contributions are reflected in the accompanying financial statements at their estimated fair value. For the years ended June 30, 2012 and 2011, facility use was $13,300 and $4,750, respectively, and transportation and other services was $15,520 and $13,959, respectively. 13. Capacity Campaign The Organization has a capacity campaign goal of $11,000,000 which is being used to fund capital expenditures and operating costs associated with the increased expansion of the Organization over a three year period ending June 30, As of June 30, 2012, the Organization has received pledges of $4,013,857 of which $2,478,310 has been collected. Additionally, the Organization has received in-kind donations valued at $646,915. Through June 30, 2011, the Organization had received pledges of $3,490,509 of which $962,986 had been collected. In-kind donations received through June 30, 2011 totaled $450,643. The Organization classifies contributions to the Capacity Campaign as temporarily restricted if the donor stipulation has not been met or the donor s time restriction has not expired. 21

23 Notes to Financial Statements 14. Beneficial Interest in Community Foundation Endowment Fund The Organization entered into an agreement with the Community Foundation for Southeast Michigan ( CFSEM ) to establish an endowment fund. The fund was created with the proceeds from an unrestricted contribution of $100,000 that the Organization had received in a prior year. In accordance with FASB Accounting Standards Codification ( ASC ) , Transfer of Assets to a Non-Profit or Charitable Trust That Raises or Holds Contributions for Others, this portion of the fund, known as the reciprocal portion, has been recorded as an investment on the books of the Organization, even though CFSEM may have variance power (i.e. ability to control who the beneficiary will be upon the occurrence of events which include, but are not limited to, the dissolution of Forgotten Harvest, Inc. over the asset. In addition to the reciprocal transfer made by the Organization, third party donors have also made contributions to the fund for the benefit of the Organization. CFSEM maintains explicit variance power over any third party gifts and the earnings thereon. As a result, in accordance with FASB ASC Topic 958, this amount is not recorded as an asset of the Organization. Fund investments are determined by the trustee of CFSEM and earnings are available for distribution to the Organization for operations at the discretion of CFSEM. The market value of the contributed portion of the fund (contributions from third party donors plus net earnings) has been calculated by CFSEM and is shown below as amount allocable to the contributed amount of the fund. As of June 30, 2012, the endowment fund s balance is as follows: Amount Allocable to the Reciprocal Transfer Amount Amount Allocable to the Contributed Amount of the Fund Total Market Value, June 30, 2011 $ - $ - $ - Contributions 100,000 1, ,160 Change in investment 2, ,819 Fees (491) (4) (495) Market Value, June 30, 2012 $ 102,275 $ 1,209 $ 103, Related Party Transactions During 2012, the Organization assisted in establishing a Canadian non-profit organization named Forgotten Harvest Canada. By helping to establish Forgotten Harvest Canada, both entities expect to receive increased food donations from Canadian growers. Forgotten Harvest Canada employs a similar business model to Forgotten Harvest, Inc. with a mission to relieve poverty. The Organization and Forgotten Harvest Canada are independent entities with separate Boards of Directors. The Organization loaned Forgotten Harvest Canada $50,000 in May Further, the Organization transferred a truck to the Canadian sister company valued at $15,000. Both amounts are payable on demand. 22

24 Notes to Financial Statements Additionally, the Organization provided in-kind contributions of transportation and management services to Forgotten Harvest Canada during 2012 in the amount of $7, Subsequent Events Management has evaluated subsequent events through November 21, 2012, the date on which the financial statements were available to be issued. 23

25 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 Forgotten Harvest, Inc. We have audited the financial statements of Forgotten Harvest, Inc. ( the Organization ), as of and for the year ended June 30, 2012, and have issued our report thereon dated November 21, 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 the Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Organization is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Organization s internal control over financial reporting as a basis for designing our auditing procedures 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 Organization s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control over financial reporting. 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 Organization s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulation, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 24

26 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 This report is intended solely for the information and use of management, the Audit Committee, others within the Organization, the Board of Directors, and federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. Troy, Michigan November 21,

27 Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 To the Board of Directors of Forgotten Harvest, Inc. Compliance We have audited Forgotten Harvest, Inc. s ( the Organization ) 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 Forgotten Harvest, Inc. s major federal programs for the year ended June 30, Forgotten Harvest, Inc. s major federal programs are identified in the summary of auditors results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Forgotten Harvest, Inc. s management. Our responsibility is to express an opinion on Forgotten Harvest, Inc. s compliance based on our audit. 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 Forgotten Harvest, 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. Our audit does not provide a legal determination on Forgotten Harvest, Inc. s compliance with those requirements. In our opinion, Forgotten Harvest, Inc. complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance Management of Forgotten Harvest, Inc. is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Forgotten Harvest, Inc. s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Forgotten Harvest, Inc. s internal control over compliance. 26

28 Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the Audit Committee, others within the Organization, the Board of Directors, and federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. Troy, Michigan November 21,

29 Supplemental Materials

30 Schedule of Expenditures of Federal Awards Federal Grantor/Pass-Through Grantor/Program or Cluster Title Federal CFDA Number Pass- Through Entity Identifying Number Federal Expenditures U.S. Department of Homeland Security Passed through United Way Emergency Food and Shelter National Board Program $ 72,141 U.S. Department of Housing and Urban Development Passed through City of Detroit Community Development Block Grant ,466 U.S. Department of Agriculture Passed through Food Bank Council of Michigan Passed through Gleaner s Food Bank Emergency Food Assistance Program Food Commodities ,008,573 Passed through Food Bank Council of Michigan Supplemental Nutrition Assistance Program (SNAP) ,991 Total Expenditures of Federal Awards $ 1,188,171 29

31 Notes to 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 Forgotten Harvest, Inc. under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of Forgotten Harvest, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Forgotten Harvest, Inc. 2. Summary of Significant Accounting Policies a) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A- 122, Cost Principles for Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. b) Pass-through entity identifying numbers are presented where available. 3. Food Commodities Nonmonetary assistance is reported based on the commodities received and disbursed. The value per pound is established by KPMG, LLP and published by Feeding America, a nationally recognized food donation charity. 30

32 Schedule of Findings and Questioned Costs Section I: Summary of Auditor s Results Financial Statements Type of auditors report issued: Qualified X Unqualified Internal control over financial reporting: Material weakness identified? yes X no Significant deficiency identified? yes X no Noncompliance material to financial statements noted? yes X no Federal Awards Type of auditors report issued on compliance with major programs? Qualified X Unqualified Internal control over major programs: Material weakness identified? yes X no Significant deficiency identified? yes X no Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section 501(a)? yes X no Identification of Major Programs CFDA Number Name of Federal Program Emergency Food Assistance Program (Food Commodities) Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low-risk auditee? yes X no Section II: Financial Statement Findings There were no findings. Section III: Federal Awards Findings and Questioned Costs There were no findings or questioned costs. 31

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