Years ended December 31, 2015 and 2014 with Report of Independent Auditors

Transcription

1 Audited Financial Statements And Related Communications Years ended December 31, 2015 and 2014 with Report of Independent Auditors

2 Audited Financial Statements and Related Communications For the Years ended December 31, 2015 and 2014 Contents Tab Audited Financial Statements 1 Communications with the Board of Trustees 2 Required Communications Letter Internal Control Letter

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4 Audited Financial Statements Years ended December 31, 2015 and 2014 with Report of Independent Auditors

5 Audited Financial Statements Years ended December 31, 2015 and 2014 Contents Report of Independent Auditors...1 Audited Financial Statements Statements of Financial Position...2 Statements of Activities...3 Statements of Functional Expenses Statements of Cash Flows...6 Notes to Financial Statements

6 Report of Independent Auditors Board of Trustees American Psychological Foundation, Inc. Washington, D.C. We have audited the accompanying financial statements of American Psychological Foundation, Inc. (the Foundation) which comprise the statements of financial position as of December 31, 2015 and 2014 and the related statements of activities, functional expenses and 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. Auditor's 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 the 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 auditor's 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 over financial reporting. 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 American Psychological Foundation, Inc. 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. Falls Church, Virginia April 28, 2016

7 Statements of Financial Position December 31, Assets Cash and cash equivalents $ 243,404 $ 611,785 Investments 15,346,701 16,594,983 Contributions receivable, net 542, ,928 Fixed assets, net 2,889 5,056 Other assets 6,897 4,471 Total assets $ 16,142,137 $ 17,790,223 Liabilities and net assets Liabilities: Accounts payable and accrued liabilities $ 32,640 $ 18,311 Grants, awards and scholarships payable 114, ,832 Accounts payable to APA 113, ,214 Total liabilities 260, ,357 Net assets: Unrestricted 4,770,630 5,236,858 Temporarily restricted 11,110,729 12,051,008 Total net assets 15,881,359 17,287,866 Total liabilities and net assets $ 16,142,137 $ 17,790,223 See accompanying notes to the financial statements. 2

8 Statements of Activities Years ended December 31, 2015 and 2014 Temporarily Restricted Permanently Temporarily Restricted Total Unrestricted Restricted Permanently Restricted Unrestricted Total Revenue and support Contributions $ 496,460 $ 795,666 $ - $ 1,292,126 $ 526,324 $ 425,745 $ - $ 952,069 Royalties and permissions 51,291 2,114-53,405 46,265 1,016-47,281 Net investment (loss) income (223,916) (489,085) - (713,001) 121, , ,498 Total revenue 323, , , , ,598-1,404,848 Net assets released from restrictions: Scholarships, lectures and grants 1,248,974 (1,248,974) - - 1,312,653 (1,312,653) - - Total revenue and support 1,572,809 (940,279) - 632,530 2,006,903 (602,055) - 1,404,848 Expenses: Grant expenses: Scholarships and other student funding 203, , , ,474 Grants 526, , , ,064 Lectures, awards and prizes for achievement 32, ,503 78, ,358 Plaques and awards 4, ,559 4, ,763 Operating expenses: Staff costs 821, , , ,592 In-kind donated employee support services 66, ,970 55, ,306 Travel 44, ,957 31, ,744 Office administration 253, , , ,121 Communications and fundraising 70, ,442 69, ,907 Meetings and events 15, ,116 18, ,802 Total expenses 2,039, ,039,037 1,871, ,871,131 Change in net assets (466,228) (940,279) - (1,406,507) 135,772 (602,055) - (466,283) Net assets, beginning of year 5,236,858 12,051,008-17,287,866 5,101,086 12,653,063-17,754,149 Net assets, end of year $ 4,770,630 $ 11,110,729 $ - $ 15,881,359 $ 5,236,858 $ 12,051,008 $ - $ 17,287,866 See accompanying notes to the financial statements. 3

9 Statement of Functional Expenses Year ended December 31, 2015 Program Services General and Administrative Fundraising Total Grant expenses Scholarships and other student funding $ 203,400 $ - $ - $ 203,400 Grants 526, ,315 Lectures, awards and prizes for achievement 32, ,503 Plaques and awards 4, ,559 Operating expenses Staff costs: Salaries and benefits 422,191 97, , ,154 Professional development 2, ,683 4,620 In-kind donated employee support services 34,512 8,052 24,406 66,970 Travel: Staff travel 15,609 3,642 11,038 30,289 Trustee travel 5,270 1,229 3,726 10,225 Campaign Leadership Cabinet travel 2, ,619 4,443 Office administration: Office equipment and software 4, ,933 8,048 Office supplies ,791 Asset management fees 43,607 10,173 30,837 84,617 Miscellaneous 3, ,523 6,923 Consultants ,500 Professional services (audit/tax/accounting) 36,681 8,557 25,939 71,177 Bank fees 2, ,639 4,498 Delivery ,026 Depreciation 1, ,167 Overhead charges paid to APA 5,477 1,278 3,873 10,628 In-kind donated legal services 9,225 2,152 6,523 17,900 In-kind donated rent 22,019 5,137 15,571 42,727 Communications and fundraising: Newsletters, annual report and marketing materials 15,601 3,640 11,033 30,274 Fundraising consulting 13,484 3,146 9,535 26,165 Fundraising activities 5,277 1,231 3,731 10,239 Direct mailings 1, ,372 3,764 Meetings and events: Trustee and committee meetings 1, ,401 3,845 Friends of the Foundation reception and gala 5,808 1,355 4,107 11,270 Total expenses $ 1,423,505 $ 152,694 $ 462,838 $ 2,039,037 See accompanying notes to the financial statements. 4

10 Statement of Functional Expenses Year ended December 31, 2014 Program Services General and Administrative Fundraising Total Grant expenses Scholarships and other student funding $ 225,474 $ - $ - $ 225,474 Grants 453, ,064 Lectures, awards and prizes for achievement 78, ,358 Plaques and awards 4, ,763 Operating expenses Staff costs: Salaries and benefits 368,357 74, , ,340 Professional development 2, ,561 4,252 In-kind donated employee support services 29,176 5,832 20,298 55,306 Travel: Staff travel 6,702 1,339 4,662 12,703 Trustee travel 7,422 1,484 5,164 14,070 Campaign Leadership Cabinet travel 2, ,824 4,971 Office administration: Office equipment and software 4, ,426 9,336 Office supplies 1, ,158 3,155 Asset management fees 38,307 7,656 26,650 72,613 Miscellaneous 2, ,954 5,324 Consultants ,500 Professional services (audit/tax/accounting) 40,310 8,057 28,044 76,411 Bank fees 2, ,659 4,520 Delivery Depreciation ,444 Overhead charges paid to APA 4, ,079 8,389 In-kind donated rent 22,586 4,514 15,713 42,813 Communications and fundraising: Newsletters, annual report and marketing materials 12,901 2,578 8,975 24,454 Fundraising consulting 13,770 2,752 9,579 26,101 Fundraising activities 5,226 1,044 3,635 9,905 Direct mailings 4, ,467 9,447 Meetings and events: Trustee and committee meetings 2, ,490 4,059 Friends of the Foundation reception and gala 7,777 1,555 5,411 14,743 Total expenses $ 1,344,270 $ 117,582 $ 409,279 $ 1,871,131 See accompanying notes to the financial statements. 5

11 Statements of Cash Flows Years ended December 31, Cash flow from operating activities Change in net assets $ (1,406,507) $ (466,283) Adjustments to reconcile change in net assets to net cash (used in) provided by operating activities: Net realized and unrealized losses on investments 1,168, ,167 Change in allowance for doubtful accounts and discount to present value 17,061 (1,847) Depreciation expense 2,167 1,444 Changes in assets and liabilities: Contribution receivable - trust - 87,628 Contributions receivable 14, ,213 Other assets (2,426) 5,568 Accounts payable and accrued liabilities 14,329 1,031 Grants, awards and scholarships payable (85,571) 43,587 Accounts payable to APA (170,337) 260,012 Net cash (used in) provided by operating activities (447,784) 368,520 Cash flow from investing activities Purchase of fixed assets - (6,500) Purchase of investments (2,668,444) (2,701,667) Proceeds from sale of investments 2,747,847 2,467,995 Net cash provided by (used in) investing activities 79,403 (240,172) Net change in cash and cash equivalents (368,381) 128,348 Cash and cash equivalents, beginning of year 611, ,437 Cash and cash equivalents, end of year $ 243,404 $ 611,785 See accompanying notes to the financial statements. 6

12 Notes to Financial Statements Years ended December 31, 2015 and 2014 Note A - Organization The American Psychological Foundation, Inc. (the Foundation) is a nonprofit, philanthropic organization incorporated in Delaware that provides financial support for innovative research and programs that enhance the power of psychology to elevate the human condition and advance human potential, both now and in generations to come. These activities are funded primarily through contributions and investment earnings. The Foundation is an independent organization separately incorporated from the American Psychological Association (APA). APA makes an annual financial contribution to the Foundation and donates human resources, office space, technology and other services. The Foundation s offices are located in the APA headquarters building. Note B - Significant Accounting Policies Basis of Accounting The Foundation prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Accordingly, revenue is recognized when earned, and expenses are recognized when obligations are incurred. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent Events The Foundation has performed an evaluation of subsequent events through April 28, 2016, which is the date the financial statements were available to be issued, and has considered any relevant matters in the preparation of the financial statements and footnotes. Income Tax Status The Foundation is exempt from the payment of income taxes on income other than unrelated business income under Section 501(c)(3) of the Internal Revenue Code (the Code) and has been designated by the Internal Revenue Service as a publicly supported organization under Section 509 (a)(1) of the Code. The Foundation is not considered to be a private foundation within the meaning of Section 509(a) of the Code. The Foundation does not have any unrelated business income. Management has concluded that the Foundation has properly maintained its exempt status, and there are no uncertain tax positions as of December 31,

13 Notes to Financial Statements (Continued) Note B - Significant Accounting Policies (Continued) Cash and Cash Equivalents For financial reporting purposes, the Foundation considers investments with original maturities of three months or less to be cash equivalents except cash held by an investment custodian for investment purposes. The Federal Deposit Insurance Corporation (FDIC) insures amounts on deposit with each financial institution up to limits as prescribed by law. The Foundation holds funds at various times throughout the year with financial institutions in excess of the FDIC insured amount, however, the Foundation has not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash and cash equivalents. Investments and Fair Value Measurements Investments, consisting of equity securities, mutual funds and money market funds, are presented in the financial statements at fair value based on quoted market prices. Gains and losses arising from the sale, maturity or other disposition of investments are accounted for on a specific identification basis calculated as of the trade date. Interest, dividends, unrealized and realized gains and losses are reported as net investment (loss) income on the accompanying statements of activities. Unrestricted and restricted funds are pooled together into common investment accounts and net investment (loss) income is allocated among unrestricted and temporarily restricted net assets based on the ending individual net asset balances as a percentage of total net assets. In 2015 and 2014, the net investment (loss) income allocated to the temporarily restricted funds was $(489,085) and $283,837, respectively, and is included within net investment (loss) income on the accompanying statements of activities. The Foundation s estimates of fair value are based on the framework established in the fair value measurements and disclosures accounting guidance. The framework is based on the inputs used in valuation and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance includes a hierarchy based on whether significant valuation inputs are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Foundation's significant market assumptions. The three levels of the hierarchy are as follows: Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets that the Foundation has the ability to access. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for substantially the full period for the asset or liability and market-corroborated inputs. Level 3 Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. 8

14 Notes to Financial Statements (Continued) Note B - Significant Accounting Policies (Continued) Market Risk The Foundation invests in money market funds and professionally managed mutual funds that contain various types of marketable securities. Such investments are exposed to various risks, such as fluctuations in fair value and credit risk. Thus, it is at least reasonably possible that changes in these risks in the near term could materially affect the amounts reported in the statements of financial position. Contributions Receivable Unconditional promises to give are recorded as contributions in the period the promise is made. Contributions receivable that are expected to be collected within one year are reported net of any estimated uncollectible amounts. Contributions receivable expected to be collected beyond one year are discounted to present value using the United States Treasury obligations risk-adjusted rates according to their corresponding terms. Net Assets The Foundation's net assets have been grouped into the following three classes: Unrestricted - Unrestricted net assets generally result from revenues derived from providing services and receiving unrestricted contributions, less expenses incurred in providing services, raising contributions and performing administrative functions. Temporarily restricted - Temporarily restricted net assets generally result from contributions and other inflows of assets whose use by the Foundation is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled by meeting the purpose of the donation. Permanently restricted - Permanently restricted net assets are funds whose use is restricted by donors to create a permanent endowment. The Foundation had no permanently restricted net assets for the years ended December 31, 2015 and Revenue Recognition The Foundation's operations are supported primarily by contributions, including realized bequests. Additional sources include contributions received through a check-off option on the APA dues and duesexempt statements, the assignment of royalties and a portion of the reprint revenue from the sale of certain APA copyrighted publications. The Foundation reports gifts of cash and other assets as restricted revenue 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 a purpose restriction is accomplished, temporarily restricted net assets are released to unrestricted net assets. Wills are recorded as contribution revenue when the probate courts declare the wills valid and the proceeds are measurable. In-Kind Contributions In-kind contributions represent non-cash contributions of skilled services or items that produce or enhance a physical asset. Revenues and expenses from in-kind contributions are recognized when the promise to give is received. 9

15 Notes to Financial Statements (Continued) Note B - Significant Accounting Policies (Continued) Grant, Award and Scholarship Expenses Grant, award and scholarship expenses of the Foundation are recorded in the accompanying financial statements as payables and as expenses at the time that the grant, award or scholarship has been both approved by the Board of Trustees and accepted by the recipient. Allocation of Costs The Foundation allocates salaries and benefits to the various programs and supporting services benefited based on the amount of personnel time worked in each area. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. Note C - Contributions Receivable As of December 31, 2015 and 2014, the Foundation has received unconditional promises to give that are due as follows: Less than one year $ 301,357 $ 279,279 One to five years 278, ,711 Subtotal 579, ,990 Less: present value discount (13,498) (15,062) Total contributions receivable 565, ,928 Less: allowance for uncollectible receivables (23,625) (5,000) Contributions receivable, net $ 542,246 $ 573,928 Discount rates ranging from 1.80% to 3.26% were used to determine the present value discount. Note D - Conditional Pledges In addition to funds already received and recognized as revenue by the Foundation, there are approximately $10,000 and $35,000 in conditional pledges outstanding as of December 31, 2015 and 2014, respectively. Conditions related to these pledges have not been met. As such, these pledges are not recorded on the Foundation s financial statements for the years ended December 31, 2015 and

16 Notes to Financial Statements (Continued) Note E - Investments and Fair Value Measurements Investments consist of mutual funds, equity securities and money market funds, which are all classified as Level 1 securities in accordance with the GAAP fair value hierarchy, and consist of the following as of December 31: Equity mutual funds: Large cap U.S. equities $ 5,237,446 $ 5,791,469 Small/mid cap U.S. equities 1,738,705 1,947,859 Fixed income mutual funds: Core fixed income 3,521,217 3,603,145 Opportunistic fixed income 1,467,850 1,559,967 Real assets - commodities 379, ,501 International equities 2,793,540 3,120,474 Money market funds 208,847 36,568 Total investments $ 15,346,701 $ 16,594,983 The Foundation's Level 1 securities are valued based on quoted market prices. The Foundation recognizes transfers between levels of the fair value hierarchy at the end of the period in which the events occur causing changes in the availability of fair value inputs. There were no transfers in or out of Level 1 during the years ended December 31, 2015 and Investment (loss) income, net consists of the following for the years ended December 31: Dividends and interest $ 455,878 $ 708,665 Net unrealized and realized (losses) (1,168,879) (303,167) (713,001) 405,498 Investment fees (84,617) (72,613) Investment (loss) income, net $ (797,618) $ 332,885 11

17 Notes to Financial Statements (Continued) Note F - Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at December 31: Scholarships and other student funding $ 5,338,878 $ 6,271,930 Lectures, awards and prizes 445, ,204 Grants 2,699,376 3,681,451 Other 2,627,355 1,579,423 Total temporarily restricted net assets $ 11,110,729 $ 12,051,008 During 2015 and 2014, the following expenses were incurred once the time restrictions and/or purpose of donor-imposed restrictions on contributions were met. Accordingly, the related temporarily restricted net assets were released to unrestricted net assets in the accompanying statements of activities Grant, award and scholarship expenses Prizes and awards $ 18,000 $ 63,000 Lectures 4,500 7,500 Scholarships and fellowships 131, ,482 Grants 399, ,253 Subtotal 553, ,235 Operational expenses and release from time restrictions Salaries and benefits 560, ,338 Asset management fees 58,043 50,829 Consulting/contractual services 17,948 18,271 Other expenses and transfers, net 58, ,980 Subtotal 695, ,418 Total net assets released from restrictions $ 1,248,974 $ 1,312,653 Spending Policy Certain investment (losses) earnings are allocated to temporarily restricted net assets when earned and released from temporarily restricted net assets when used in accordance with donor stipulations. During the years ended December 31, 2015 and 2014, ($489,085) and $283,387 in investment (losses) earnings, respectively, were allocated to temporarily restricted net assets. Note G - Related Party Transactions APA provides shared resources and pays for certain expenses on behalf of the Foundation for which the Foundation reimburses APA. These amounts consist primarily of direct salaries and benefits and other general and administrative expenses of the Foundation. During 2015 and 2014, APA incurred $817,154 and $703,340, respectively, of reimbursable expenses on behalf of the Foundation. In addition, the Foundation receives an annual contribution from APA. The contribution was $100,000 in 2015 and 2014 and is included in contributions in the accompanying statements of activities. 12

18 Notes to Financial Statements (Continued) Note G - Related Party Transactions (Continued) During the years 2015 and 2014, the Foundation received donated employee support services and office space from APA totalling $109,597 and $98,119, respectively. The related revenue is recorded under unrestricted contributions and the related expenses are recorded under operating expenses on the accompanying statements of activities. Additionally, the Foundation received donated legal services of approximately $17,900 and $0 during 2015 and 2014, respectively. As of December 31, 2015 and 2014, the net amount due from the Foundation to APA was $113,877 and $284,214, respectively. The total amount of contributions gifted from Foundation board members represents $25,095 and $87,360 for the years ended December 31, 2015 and 2014, respectively. Contributions receivable from members of the Board of Trustees at December 31, 2015 and 2014 represented 11% and 15%, respectively, of contributions receivable. Note H - Line of Credit During the year ended December 31, 2009, the Foundation obtained a $500,000 revolving line of credit with a local bank for its use to finance short-term working capital needs. The line of credit is renewed annually, and the current line expires June 1, The line of credit is unsecured and has no collateral requirements. Amounts drawn down are due on demand with interest payable monthly. The line of credit has an interest rate equal to the thirty-day LIBOR rate plus 2%, reset monthly, and not less than 3% per annum. There were no funds drawn on the line of credit as of or during the years ended December 31, 2015 and

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20 American Psychological Foundation, Inc Audit Required Communications

21 April 28, 2016 Board of Trustees American Psychological Foundation Washington, D.C. We have audited the financial statements of the American Psychological Foundation (the Foundation) as of and for the year ended December 31, 2015 and have issued our report thereon dated April 28, The auditor is responsible for forming and expressing an opinion about whether the financial statements, that have been prepared by management with the oversight of those charged with governance, are presented fairly in all material respects, in conformity with accounting principles generally accepted in the United States of America (GAAP). The auditor is also responsible for communicating significant matters related to the financial statement audit that are, in the auditor s professional judgment, relevant to the responsibilities of those charged with governance in overseeing the financial reporting process. Auditing standards generally accepted in the United States of America do not require the auditor to design procedures for the purpose of identifying other matters to communicate with those charged with governance. In accordance with our professional standards we would like to share the following: Significant Accounting Policies and Their Application Management is responsible for the selection and use of appropriate accounting policies. As is the case with most organizations, the Foundation has available alternative accounting principles from which to choose. The significant accounting policies followed by the Foundation are described in Note B to the financial statements. The accounting policies selected and applied by the Foundation are appropriate under the circumstances and are consistent with those used by other not-for-profit organizations. During 2015, the Foundation adopted Accounting Standards Update (ASU) Services Received from the Personnel of an Affiliate. As a result of this implementation, the Foundation recognized in-kind contributions of donated office space and employee support services from an affiliated organization. This implementation also added additional disclosure to Note G to the financial statements. The application of existing policies was not changed during the year ended December 31,

22 Significant Accounting Policies and Their Application (continued) Management s Judgments and Accounting Estimates We noted no transactions entered into by the Foundation during the year for which there is lack of authoritative guidance or consensus. We noted no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based upon management s current judgments. The financial statements contain the following significant estimates: Allowance for doubtful accounts and discounts on contributions receivable Functional expense allocation In-kind contributions We reviewed management s judgments relating to these areas and found them to be reasonable. Related Party Relationships and Transactions An objective of the audit is to obtain an understanding of such matters sufficient to be able to recognize fraud risk factors that are relevant to the identification and assessment of the risks of material misstatement due to fraud and conclude whether the financial statements, insofar as they are affected by those relationships and transactions, achieve fair presentation. Another objective of the audit is to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for and disclosed in the financial statements. Note G of the financial statements includes the disclosure of significant related party transactions. Significant Difficulties Performing the Audit Management Representations and Uncorrected Adjustments No significant difficulties were encountered in performing the audit. We have requested certain representations from management that are included in the management representation letter, which is included as an exhibit to this document. We are aware of one uncorrected adjustment which reduced salary expenses for the year ending December 31, 2015 for a prior year supplemental compensation payment that was not properly accrued as of December 31, This entry would have decreased ending net assets as of December 31, 2014 by ($26,150) and increased ending net assets as of December 31, 2015 by $26,150, for a net effect of $0 on total net assets. 3

23 Audit Adjustments The Foundation recorded the following adjustments as a result of our audit: Adjustment to increase allowance for doubtful pledges receivable. This adjustment decreased ending net assets by approximately ($20,000). Adjustments to record in-kind contributions for donated office space, legal services and employee support services for the years ending December 31, 2015 and 2014 totaling $127,597 and $98,119, respectively. These adjustments had no impact on ending net assets. Disagreements with Management, Including Matters Discussed and Resolved We are required to report any disagreements with management, whether or not satisfactorily resolved, about matters that individually or in the aggregate could be significant to the Foundation s financial statements or the auditor s report. There were no disagreements with management. Management s Consultations with Other Accountants Significant Issues Discussed or Subject to Correspondence with Management Financial Statements Included in a Client-Prepared Document Independence We are not aware of any consultations with other accountants regarding accounting or auditing issues with the exception of the engagement of Clifton Larson Allen to provide outsourced accounting services. Additionally, our engagement to perform the audit was not conditioned upon our willingness to allow certain accounting treatments. The following significant issues were discussed or subject to correspondence with management: Adoption of ASU Services Received from Personnel of an Affiliate: We discussed the adoption of this ASU with your management team. The Foundation adopted this standard during 2015 and accordingly recorded an adjustment to account for in-kind contributions received in 2014 and Executive Director s supplemental compensation see internal control communications letter. We are required to and have read the information contained in any client-prepared documents outside of the financial statements to determine if such information is materially consistent with the audited financial statements. We are not aware of any clientprepared document that will contain the audited financial statements. We are independent with respect to the Foundation in accordance with the applicable independence rules. 4

24 This letter is intended solely for the information and use of the Board of Trustees and management and is not intended and should not be used by anyone other than those specified parties. We appreciate the cooperation and courtesies extended to us by the Foundation s personnel. Please do not hesitate to contact us if you would like clarification on these or any other matters. Falls Church, Virginia April 28,

25 April 28, 2016 Johnson Lambert LLP 3110 Fairview Park Drive, Suite 800 Falls Church, VA Attn: Paul Preziotti This representation letter is provided in connection with your audit of the financial statements of the American Psychological Foundation, Inc. ( the Foundation ) as of and for the years ended December 31, 2015 and 2014 for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position, activities, functional expenses and cash flows of the Foundation in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. We confirm that, to the best of our knowledge and belief, as of the date of this letter, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves: Financial Statements We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated October 6, 2015, for the preparation and fair presentation of the financial statements in accordance with U.S. GAAP. We acknowledge our responsibility for the design, implementation, and maintenance of internal controls and programs relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

26 We acknowledge our responsibility to ensure that the Foundation s operations are conducted in accordance with the provisions of laws and regulations, including compliance with the provisions of laws and regulations that determine the reported amounts in the Foundation s financial statements. We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable. All liabilities resulting from retirement obligations, deferred compensation agreements, and severance packages have been recorded in the financial statements and disclosed in the notes to the financial statements. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP. All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. The effects of an unrecorded adjustment is immaterial to the financial statements as a whole. We are aware of one unrecorded adjustment to reduce supplemental compensation for the year ending December 31, 2015 based on a prior year supplemental compensation payment that was not properly accrued in the Foundation s financial statements as of December 31, This entry would have decreased ending net assets as of December 31, 2014 by ($26,150) and increased ending net assets as of December 31, 2015 by $26,150, resulting in no impact on total net assets as of December 31, We do not believe the omission of this item will mislead a reasonable user of the financial statements. The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with U.S. GAAP. Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances, line of credit, or similar arrangements have been properly disclosed. The Foundation has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

27 Guarantees, whether written or oral, under which the Foundation is contingently liable have been properly reported or disclosed in the financial statements. Material concentrations known to management have been properly disclosed in accordance with U.S. GAAP. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. The methods and significant assumptions as disclosed in the financial statements were used to determine fair values of financial instruments and result in a measure of fair value appropriate for financial statement measurement and disclosure purposes. The categorization of the Foundation s investments into the hierarchical levels as defined by ASC 820, Fair Value Measurements, is based on the lowest level of significant input to the securities valuation. In regards to the fact that your firm assisted us by drafting the financial statements, including appropriate disclosures required by U.S. GAAP, we have: o Made all management decisions and performed all management functions. o Designated an individual, Idalia Ramos, who possesses suitable skill, knowledge or experience to oversee the services. o Evaluated the adequacy and results of the draft preparation by reviewing and accepting the financial statements as complete and accurate. o Accepted responsibility for the financial statements. The Foundation has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. The Foundation has complied with all aspects of contractual and debt covenant agreements that would have a material effect on the financial statements in the event of noncompliance. The Foundation is an exempt organization under 501(c)(3) of the Internal Revenue Code. Any activities that we are aware that would jeopardize the organization s tax exempt status and all activities subject to tax on unrelated business income or excise tax or other tax have been disclosed to you. All required filings with tax authorities are up to date. We have not been informed of any tax reviews by federal or state taxing authorities. There is no tax position considered to be uncertain if it was to undergo an inspection by the IRS or state authorities. We have complied with all donor restriction on contributions and net assets. Our allocation of investment income is in compliance with donor restriction.

28 Information Provided We have provided you with: o Access to all information, of which we are aware that is relevant to the preparation and fair presentation of the financial statements such as records, documentation and other matters; o Additional information that you have requested from us for the purpose of the audit; and o Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. All transactions have been recorded in the accounting records and are reflected in the financial statements. We have disclosed to you the results of our risk assessment as to how and where the financial statements may be materially misstated as a result of fraud. We have no knowledge of any fraud or suspected fraud that affects the entity and involves: o Management; o Employees who have significant roles in internal control; or o Others when the fraud could have a material effect on the financial statements. We have no knowledge of any allegations of fraud, or suspected fraud, affecting the entity s financial statements communicated by employees, former employees, analysts, regulators or others. We have disclosed to you all known instances of non compliance or suspected noncompliance with laws and regulations whose effects should be considered when preparing financial statements. There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting that could have a material effect on the financial statements. The balance, if any, on our line of credit with SunTrust is structured as a demand credit facility and as such the maturity date is on demand. We have informed you of the matter affecting the American Psychological Association with respect to the information published in the New York Times on July 10, We do not believe this matter represents any direct legal risk to the Foundation and accordingly,

29 the chance of any losses to the Foundation is remote and thus no accrual or disclosure is required in the financial statements. We are not aware of any pending or threatened litigation and claims whose effects should be considered when preparing the financial statements, including the matter discussed above. We have disclosed to you the identity of the entity s related parties and all the related party relationships and transactions of which we are aware. We have provided you information concerning monetary related party transactions and amounts receivable or payable from related parties, including support for any assertion that a transaction with a related party was conducted on terms equivalent to those prevailing in an arms length transaction. American Psychological Association and members of the Board of Trustees are the related parties with whom we have had material transactions with during Elisabeth R. Straus Executive Vice President/Executive Director Idalia Ramos Deputy Director

30 Internal Control Letter Board of Trustees American Psychological Foundation, Inc. Washington, D.C. In planning and performing our audit of the financial statements of American Psychological Foundation, Inc. (the Foundation) as of and for the year ended December 31, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered its internal control over financial reporting (internal control) 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 our opinion on the effectiveness of the Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. During the course of our audit work, we had the opportunity to observe the operations in some detail. We submit the following comment to you, which is not considered to be a material weakness, with the hope that it assists you in improving internal control: Payroll Supplemental Compensation Accrual During our current year audit, we noted that the Executive Vice President/Executive Director's 2014 supplemental compensation had not been accrued in fiscal year 2014 when it was earned and approved. This compensation was instead reflected in 2015 when it was paid. We noted that the supplemental compensation for 2015 had been correctly accrued as of December 31, As a result, the supplemental compensation for both 2014 and 2015 are reported in the Foundation's 2015 financial statements. Based on discussions with management, we recommend the Foundation request APA to identify the accrued supplemental compensation as a separate line item on the Foundation s year-end invoice. This will provide sufficient detail for the Foundation to evaluate and properly record future supplemental compensation.

31 This communication is intended solely for the information and use of the Board of Trustees, management, and others within the organization and is not intended to be and should not be used by anyone other than these specified parties. Falls Church, Virginia April 28,