The Presbytery of New Covenant, Inc. Financial Statements and Independent Auditors Report for the years ended December 31, 2015 and 2014

Transcription

1 The Presbytery of New Covenant, Inc. Financial Statements and Independent Auditors Report for the years ended December 31, 2015 and 2014

2 Blazek & Vetterling C ERTIFIED P UBLIC A CCOUNTANTS Independent Auditors Report To the General Council of The Presbytery of New Covenant, Inc.: We have audited the accompanying financial statements of The Presbytery of New Covenant, Inc. (the Presbytery), which comprise the statements of financial position as of December 31, 2015 and 2014 and the related statements of activities and of cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements 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 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 our audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Presbytery as of December 31, 2015 and 2014 and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. June 7, Weslayan, Suite 200 Houston, Texas (713) Fax (713)

3 The Presbytery of New Covenant, Inc. Statements of Financial Position as of December 31, 2015 and 2014 ASSETS Cash $ 245,007 $ 624,654 Receivables 45,558 23,182 Investments (Note 2) 2,267,649 2,376,742 Notes receivable (Note 3) 485, ,981 Land and improvements held for sale or lease 655, ,130 Property, net (Note 4) 456, ,685 TOTAL ASSETS $ 4,155,260 $ 4,701,374 LIABILITIES AND NET ASSETS Liabilities: Accounts payable $ 31,017 $ 50,162 Funds held for others 133, ,621 Total liabilities 164, ,783 Commitments and contingencies (Note 5) Net assets: Unrestricted (Note 7) 3,818,503 4,357,063 Temporarily restricted (Note 8) 172,361 68,528 Total net assets 3,990,864 4,425,591 TOTAL LIABILITIES AND NET ASSETS $ 4,155,260 $ 4,701,374 See accompanying notes to financial statements. 2

4 The Presbytery of New Covenant, Inc. Statement of Activities for the year ended December 31, 2015 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL REVENUE: Contributions $ 77,452 $ 308,184 $ 385,636 Contribution support from member churches 917, ,973 Member church separation payments 62,964 62,964 Investment return (loss) (Note 2) (17,174) (17,174) Program income 172, ,503 Other income 27,231 27,231 Total revenue 1,240, ,184 1,549,133 Net assets released from restrictions: Expenditures for program purposes 204,351 (204,351) Total 1,445, ,833 1,549,133 EXPENSES: Program expenses: Congregation and new church development 689, ,724 Education and community outreach 607, ,067 Total program expenses 1,296,791 1,296,791 Management and general 431, ,367 Total expenses 1,728,158 1,728,158 OTHER CHANGES: Professional fees related to property legal disputes (Note 5) (255,702) (255,702) INCREASE (DECREASE) IN NET ASSETS (538,560) 103,833 (434,727) Net assets, beginning of year 4,357,063 68,528 4,425,591 Net assets, end of year $ 3,818,503 $ 172,361 $ 3,990,864 See accompanying notes to financial statements. 3

5 The Presbytery of New Covenant, Inc. Statement of Activities for the year ended December 31, 2014 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL REVENUE: Contributions $ 40,616 $ 178,186 $ 218,802 Contribution support from member churches 1,052,871 1,052,871 Member church separation payments 521, ,460 Gain on sale of land and improvements 789, ,580 Investment return (Note 2) 131, ,176 Program income 114, ,330 Other income 30,469 30,469 Total revenue 2,680, ,186 2,858,688 Net assets released from restrictions: Expenditures for program purposes 278,559 (278,559) Total 2,959,061 (100,373) 2,858,688 EXPENSES: Program expenses: Congregation and new church development 640, ,217 Education and community outreach 542, ,858 Total program expenses 1,183,075 1,183,075 Management and general 396, ,368 Total expenses 1,579,443 1,579,443 OTHER CHANGES: Conveyance of property to a member church (60,000) (60,000) Professional fees related to property legal disputes (Note 5) (676,130) (676,130) INCREASE (DECREASE) IN NET ASSETS 643,488 (100,373) 543,115 Net assets, beginning of year 3,713, ,901 3,882,476 Net assets, end of year $ 4,357,063 $ 68,528 $ 4,425,591 See accompanying notes to financial statements. 4

6 The Presbytery of New Covenant, Inc. Statements of Cash Flows for the years ended December 31, 2015 and 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Increase (decrease) in net assets $ (434,727) $ 543,115 Adjustments to reconcile changes in net assets to net cash used by operating activities: Net realized and unrealized (gain) loss on investments 152,130 (39,895) Depreciation 41,795 47,446 Property conveyed to member churches 60,000 Gain on sale of land and improvements (789,580) Member church separation payments funded through notes receivable (57,240) (352,000) Changes in operating assets and liabilities: Receivables (22,376) (15,558) Accounts payable (19,145) (6,184) Funds held for others (92,242) 84,647 Net cash used by operating activities (431,805) (468,009) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (123,018) (1,298,376) Proceeds from sale of investments 80,117 40,821 Net change in money market mutual funds held as investments (136) 96,714 Purchases of property (89,302) Collections of notes receivable 110,195 17,200 Loan to member church for building repair (15,000) Proceeds from land and improvements sold 1,480,032 Net cash provided by investing activities 52, ,089 NET DECREASE IN CASH (379,647) (220,920) Cash, beginning of year 624, ,574 Cash, end of year $ 245,007 $ 624,654 See accompanying notes to financial statements. 5

7 The Presbytery of New Covenant, Inc. Notes to Financial Statements for the years ended December 31, 2015 and 2014 NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Presbytery of New Covenant, Inc. (the Presbytery) of the Presbyterian Church U.S.A. is a Texas nonprofit corporation that began operating on July 1, The Presbytery is responsible for overseeing the operations of 96 churches in the State of Texas. Contributions are collected from member churches and distributed to various charitable Presbyteries, programs, and missions. The Presbytery is a member of the Synod of the Sun, which is itself a member of the Presbyterian General Assembly of the Presbyterian Church U.S.A. (General Assembly). Federal income tax status The Presbytery is exempt from federal income tax under 501(c)(3) of the Internal Revenue Code and is classified as a religious organization under 509(a)(1) and 170(b)(1)(A)(i). Investments are reported at fair value. Land and improvements held for sale or lease are reported at the lower of cost or market. Property is reported at cost, if purchased, or at estimated fair value at the date of gift, if donated. Property purchases over $500 are capitalized. Depreciation is calculated on a straight-line basis over estimated useful lives of 30 to 39 years for buildings, 5 to 30 years for improvements and 5 to 10 years for furniture, fixtures, and equipment. Funds held for others The Presbytery holds funds for several related groups, member churches, committees, and organizations. The Presbytery acts as an agent in collecting, holding, and disbursing these funds. These agency funds are included in the Presbytery s investments and as funds held for others. Net asset classification Contributions and the related net assets are classified based on the existence or absence of donor-imposed restrictions, as follows: Unrestricted net assets include those net assets whose use is not restricted by donor-imposed stipulations, even though their use may be limited in other respects, such as by contract or board designation. Temporarily restricted net assets include contributions restricted by the donor for specific purposes or time periods. When a purpose restriction is accomplished or a time restriction ends, temporarily restricted net assets are released to unrestricted net assets. Contributions are recognized as revenue at fair value when an unconditional commitment is received from the donor. Contributions received with donor stipulations that limit their use are classified as restricted support. Conditional contributions are recognized in the same manner when the conditions are substantially met. Contributions of services are recognized when services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically 6

8 need to be purchased if not provided by donation. A substantial number of volunteers have contributed significant amounts of time in connection with programs, administration and fundraising for which no amount has been recognized in the financial statements because the services did not meet the criteria for recognition under generally accepted accounting principles. Estimates Management must make estimates and assumptions to prepare financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, the amounts of reported revenue and expenses, and the allocation of expenses among various functions. Actual results could vary from the estimates that were used. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform with the current presentation. NOTE 2 INVESTMENTS AND FAIR VALUE MEASUREMENTS Generally accepted accounting principles require that certain assets and liabilities be reported at fair value and establish a hierarchy that prioritizes inputs used to measure fair value. Fair value is the price 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 three levels of the fair value hierarchy are as follows: Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date. Level 2 Inputs are other than quoted prices included in Level 1, which are either directly observable or can be derived from or corroborated by observable market data at the reporting date. Level 3 Inputs are not observable and are based on the reporting entity s assumptions about the inputs market participants would use in pricing the asset or liability. Assets measured at fair value at December 31, 2015 are as follows: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Pooled investment funds: TPF large-cap equity fund (a) $ 519,618 $ 519,618 TPF fixed-income fund (b) 375, ,600 TPF international equity fund (c) 321, ,791 TPF small-cap equity fund (d) 173, ,435 TPF defensive strategies fund (e) 162, ,869 TPF real estate fund (f) 139, ,210 Large-cap balanced growth mutual fund $ 569, ,856 Money market mutual fund 5,270 5,270 Total investments $ 575,126 $ 1,692,523 $ 0 $ 2,267,649 7

9 Assets measured at fair value at December 31, 2014 are as follows: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Pooled investment funds: TPF large-cap equity fund (a) $ 557,029 $ 557,029 TPF fixed-income fund (b) 392, ,155 TPF international equity fund (c) 326, ,955 TPF small-cap equity fund (d) 196, ,762 TPF defensive strategies fund (e) 169, ,674 TPF real estate fund (f) 127, ,122 Large-cap balanced growth mutual fund $ 601, ,911 Money market mutual fund 5,134 5,134 Total investments $ 607,045 $ 1,769,697 $ 0 $ 2,376,742 Pooled investment funds are the Presbytery s share of a pooled investment portfolio managed by Texas Presbyterian Foundation (TPF). TPF was established as an ecumenical non-profit foundation utilizing a diversified group of fund managers. Withdrawals from the funds may be made on the last business day of the month by written request with one-day notice. The pooled investment funds are not traded on a public exchange and are described as follows: (a) This fund is a broadly diversified portfolio of mostly U. S. and some international stocks that seek to provide opportunities for long-term capital growth, while avoiding speculation and undue risk. (b) This fund is an actively managed diversified bond portfolio with a total return strategy designed to serve as the fixed-income component for most permanent funds. (c) This fund is a broadly diversified portfolio of large, high quality non-u. S. companies and smaller companies in emerging markets that are either ordinary shares traded on securities exchanges around the world or American Depository Receipts traded on U. S. exchanges. (d) This fund is a blended-style portfolio of small U. S. companies allocated among managers with distinct growth, value and core strategies. (e) This fund is a broadly diversified portfolio of funds using investment strategies designed to provide consistent, high risk-adjusted returns (equity-like returns with bond-like risk). (f) This fund is a diversified commingled portfolio of core institutional-quality, income-producing U. S. real estate properties. Valuation methods used for assets measured at fair value are as follows: Pooled investment funds are valued at net asset values provided by the fund managers that hold the investments based upon the fair value of the underlying assets. The Presbytery s investment in these pooled investment funds is calculated based on the percentage of total shares held by the Presbytery, applied to the total net asset value of the fund. Mutual funds are valued at the reported net asset value of shares held by the Presbytery at the reporting date. These valuation methods may produce a fair value that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while the Presbytery believes its valuation methods are appropriate, the use of different methods or assumptions could result in a different fair value measurement at the reporting date. Investments are exposed to various risks such as interest rate, market and credit risks. Because of these risks, it is at least reasonably possible that changes in the values of investment securities will occur in the 8

10 near term and that such changes could materially affect the amounts reported in the statement of financial position and statement of activities. Investment return includes earnings on cash and consists of the following: Interest and dividends $ 134,956 $ 91,281 Net realized and unrealized gain (loss) on investments (152,130) 39,895 Total investment return (loss) $ (17,174) $ 131,176 NOTE 3 NOTES RECEIVABLE Notes receivable consist of the following: Notes receivable from member church separation payments are non-interest bearing, are to be repaid in equal installments over three to five years, and are unsecured. $ 315,516 $ 352,000 Notes receivable for sale of church properties bear interest up to 5.25%, are to be repaid in one to seven years, and are collateralized by land. 156, ,981 Note receivable from member church for building repairs bears interest at 1.625%, is to be repaid in equal installments over five years, and is unsecured. 13,475 Total notes receivable $ 485,026 $ 522,981 NOTE 4 PROPERTY Property consists of the following: Land $ 172,540 $ 172,540 Buildings and improvements 776, ,721 Furniture, fixtures, and equipment 192, ,361 Property, at cost 1,141,622 1,141,622 Accumulated depreciation (684,732) (642,937) Property, net $ 456,890 $ 498,685 NOTE 5 COMMITMENTS AND CONTINGENCIES The Presbytery purchases professional and general liability insurance to cover losses that may result from asserted claims, as well as claims from unknown incidents that may be asserted in the future. Management does not expect such losses to have a material adverse effect on the financial position of the Presbytery. The Presbytery guarantees debt of certain member churches. At December 31, 2015, the Presbytery had guaranteed approximately $1,790,000 of such debt. 9

11 NOTE 6 PENSION PLAN The Board of Pensions of the Presbyterian Church U.S.A. (the Board of Pensions) administers a comprehensive benefits program for the members of the Benefits Plan of the Presbyterian Church U.S.A. (the Benefits Plan), as well as programs that provide for financial assistance to eligible members. Eligibility for membership in the Benefits Plan is open to employees of the Presbyterian Church U.S.A. or any board, agency, or local church under jurisdiction of the Presbyterian Church U.S.A. The clergy of the Presbytery participate in the multi-employer, defined benefit plan administered by the Board of Pensions. The Benefits Plan is a church plan and is exempt from the federal income tax and is not subject to the Employee Retirement Income Security Act of 1974 or the Pension Benefit Guaranty Corporation requirements. The Board of Pensions may amend, terminate or modify the terms of the Benefits Plan, including the employer assessment rate, at any time, without notice and for any reason. Should a plan terminate, the Board of Pensions has the authority to distribute assets in accordance with the terms of the respective plan s documents. All pastors serving in called and installed positions, as defined by the Presbyterian Church U.S.A., are mandated to be enrolled. Participating employers pay assessments to the Benefits Plan on behalf of the eligible participants. Assessments for the defined benefit plan are equal to 11% of the clergy s compensation. Assessments are not held in individual accounts, but are invested in a general fund of pooled contributions for all employees participating in the Benefits Plan. The Presbytery recognizes its assessments in the period that the related services are provided by the pastor. During 2015 and 2014, the Presbytery recognized assessments to the Benefits Plan of approximately $171,000 and $188,000, respectively. The funding positions of the defined benefit plan, as reported in the Board of Pensions audited financial statements, are summarized as follows: DECEMBER 31, DECEMBER 31, (000 s) (000 s) Net assets available for pension benefits $ 7,395,416 $ 7,771,385 Less: Actuarial present value of accumulated plan benefit obligations 5,967,523 5,951,089 Surplus $ 1,427,893 $ 1,820,296 Funding percentage 124% 131% NOTE 7 UNRESTRICTED NET ASSETS Unrestricted net assets consist of the following: Undesignated $ 1,737,436 $ 2,221,094 Invested in property 1,112,020 1,153,815 Designated for programs 969, ,154 Total unrestricted net assets $ 3,818,503 $ 4,357,063 10

12 NOTE 8 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: Community outreach $ 104,076 $ 24,767 Congregation and mission development 68,285 43,761 Total temporarily restricted net assets $ 172,361 $ 68,528 NOTE 9 SUBSEQUENT EVENTS The Book of Order of Presbyterian Church U.S.A. (Book of Order) contains a provision stating that all property held by or for a particular member church is held in trust for the use and benefit of the Presbyterian Church U.S.A. This provision is sometimes referred to as the Trust Clause. Subsequent to year end, the Presbytery has settled certain litigation in connection with this matter and granted quit claim deeds to two member churches related to their respective church property in return for monetary payments over five years. Such property was not recorded on the books of the Presbytery and the Presbytery will not report a financial statement loss in connection with the settlement of the litigation. Management has evaluated subsequent events through June 7, 2016, which is the date that the financial statements were available for issuance. As a result of this evaluation, no other events were identified that are required to be disclosed or would have a material impact on reported net assets or changes in net assets. 11