Western Carolina University Foundation. Financial Statements For the Year Ended June 30, 2012

Transcription

1 Western Carolina University Foundation Financial Statements For the Year Ended June 30, 2012

2 WESTERN CAROLINA UNIVERSITY FOUNDATION TABLE OF CONTENTS Page(s) Independent Auditors Report Management s Discussion and Analysis Statement of Net Assets 8 Statement of Revenues, Expenses, and Changes in Net Assets 9 Statement of Cash Flows Notes to the Financial Statements

3 BURLESON & EARLEY, P.A. CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS REPORT To the Board of Directors Western Carolina University Foundation Cullowhee, North Carolina We have audited the accompanying basic financial statements of the Western Carolina University Foundation ( the Foundation ), a component unit of Western Carolina University ( the University), as of and for the year ended June 30, 2012, as listed in the table of contents. These financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Western Carolina University Foundation as of June 30, 2012, and the results of its operations and changes in its net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis on pages 2 7 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Burleson & Earley, P.A. Certified Public Accountants October 1, 2012 POST OFFICE BOX 2125 CANDLER, NC SAND HILL ROAD ASHEVILLE, NC TELEPHONE: (828) FAX: (828)

4 Western Carolina University Foundation Management s Discussion and Analysis The following Management s Discussion and Analysis, or MD&A, provides an overview of the financial position and operations of the Western Carolina University Foundation (the Foundation ) for the fiscal year ended June 30, We encourage you to read this MD&A section in conjunction with the audited financial statements and footnotes appearing in the report. Reporting Entity While legally separate, Western Carolina University Foundation, a component unit of Western Carolina University, is reported as if it were part of the University. The Foundation was incorporated in the State of North Carolina on May 5, The Foundation s mission is to promote in various ways the cause of higher education in Western North Carolina through Western Carolina University and to receive capital and operating funds for the support and enhancement of Western Carolina University. Because the directors of the Foundation are elected by the Western Carolina University Board of Trustees and the Foundation s sole purpose is to benefit Western Carolina University, its basic financial statements are blended with those of the University. About the Financial Statements The Foundation s financial report includes three basic financial statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. These basic financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles. These statements establish standards for external financial reporting for public colleges and universities and require that basic financial statements be presented on a consolidated basis to focus on the University as a whole, with resources classified for accounting and reporting purposes into four net asset categories. The Statement of Net Assets includes all assets and liabilities. It is prepared under the accrual basis of accounting, whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service, regardless of when cash is exchanged. The Statement of Revenues, Expenses and Changes in Net Assets presents the revenues earned and expenses incurred during the year. Activities are reported as either operating or non-operating. Significant recurring sources of the Foundation s revenues, including gifts and investment income (loss), are considered non-operating, as defined by GASB Statement No. 35. The utilization of long-lived assets, referred to as Capital Assets, is reflected in the basic financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. 2

5 Financial Highlights The Foundation s financial position remained strong at June 30, 2012 with assets of approximately 24.4 million and liabilities of approximately 476 thousand. Net assets, which represent the residual interest in the Foundation s assets after liabilities are deducted, increased 459,264 in fiscal 2012 to 23.9 million at June 30, The largest increase that affected the net assets was an increase in giving this past year. The Foundation recorded 1,830,230 in noncapital gifts and 840,345 in additions to permanent endowments. The additions to endowments were 840,345, an increase of 63% from the prior year. Awards to students decreased by 9% from the prior year. The Foundation transferred 839,905 to Athletics and 697,133 to the University. Statement of Net Assets The Statement of Net Assets presents the financial position of the Foundation at the end of the fiscal year and includes all assets and liabilities of the Foundation. The difference between total assets and total liabilities (net assets) is one indicator of the current financial condition of the Foundation, while the change in net assets is an indicator of whether the overall financial condition has improved or worsened during the year. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which are stated at historical cost less an allowance for depreciation. A summary of the Foundation s assets, liabilities, and net assets for the years ending June 30, 2012 and 2011 is as follows: 2012 Current assets Noncurrent assets: Endowment and other investments Capital assets, net of accumulated depreciation Total assets 5,031, ,937,492 19,174, ,825 24,418,761 18,808, ,932 23,965,538 Current liabilities Noncurrent liabilities Total liabilities 385,764 89, , ,425 84, ,665 Invested in capital assets, net of related debt Restricted for: Nonexpendable Expendable: Scholarships and departmental Other Unrestricted 212, ,932 12,573,101 11,567,618 10,599, ,720 56,445 10,917, , ,506 Net assets 23,943,137 23,483,873 At June 30, 2012, total Foundation assets were 24.4 million. The Foundation s assets consist primarily of cash and investments totaling 23.8 million at June 30, 2012, as compared to 23.5 million at June 30, Foundation liabilities totaled 475,624 at June 30, 2012, compared to 481,665 at June 30, Deferred revenue was 294,500 at June 30, 2012 and The largest liability of the Foundation other than the deferred revenue at June 30, 2012 is an annuity payable which has a current present value of 180,995. The Foundation s current assets of 5 million were sufficient to cover current liabilities of 385,764. The current ratio is dollars in current assets to every one-dollar in current liabilities. 3

6 Statement of Revenues, Expenses and Changes in Net Assets The Statement of Revenues, Expenses and Changes in Net Assets represent the Foundation s results of operations. A summary of the Foundation s revenues, expenses and changes in net assets for the years ended June 30, 2012 and 2011 is as follows: 2012 Operating revenues Operating expenses Operating loss Nonoperating revenues (expenses): Gifts and additions Investment income (losses) University support Other Net nonoperating (expenses) revenues Increase in net assets Net assets, beginning of year Net assets, end of year 4 248, ,308 (903,171) (654,231) (698,935) (489,627) 2,670,575 (31,917) (1,537,038) 11,875 1,113,495 2,442,801 2,726,351 (1,252,932) 13,372 3,929, ,264 23,483,873 3,439,965 20,043,908 23,943,137 23,483,873

7 Total operating revenues for the fiscal year 2012 were 248,940 comprised primarily of fundraising revenues. Gifts and net investment income (losses) are classified as non-operating revenues (expenses) under the new reporting model, as defined by GASB Statement No. 35. Noncapital gifts and additions to endowments of 2,670,575 was the largest source of non-operating revenues and represented an increase of 227,774 from fiscal year The following is a graphic illustration of total revenues by source: Total Revenues Noncapital Gifts 63% Additions to Endowments 29% Operating Revenues 8% Operating expenses totaled 903,171 in the fiscal year 2012 and were made up primarily of scholarships totaling 397,843 and services totaling 314,163. In keeping with its purpose of providing support to Western Carolina University, the Foundation transferred a total of 1,537,038 to the University in 2012, including 839,905 of funds designated for support of the University s Athletic Department. These transfers are reported as non-operating expenses on the Statement of Revenues, Expenses, and Changes in Net Assets. Net investment losses resulted from poor returns on investments this past year. The market value effect on the investments was a 146,194 unrealized loss combined with 193,908 in realized losses. These amounts compare to a prior year unrealized gain of 2,169,008 and realized gains of 366,904. The following is a graphic illustration of the breakdown of total expenses (including transfers to the University): Total Expenses University Support 63% Operating Expenses 37% 5

8 Capital Assets Capital Assets The Foundation s investment in capital assets as of June 30, 2012, totals 212,825 (net of accumulated depreciation). These assets include buildings, land, collections, equipment and motor vehicles. Capital Assets, Net of Accumulated Depreciation 2012 Art, literature and artifacts Land Buildings Equipment Motor Vehicles Total 13,000 83,070 79,040 24,102 13, , ,000 83,070 81,780 25,064 17, ,932

9 Economic Factors That Will Affect the Future Giving USA FoundationTM has reported that total estimated charitable giving rose 4 percent to 298 billion in calendar year 2011, up from a revised estimate of 287 billion for In spite of the increase, charities still face an uncertain future. According to the Center on Philanthropy, charitable giving increases in the last two years represent the second slowest recovery following any recession since After adjusting for a one-time large estate gift in FY 2011, fundraising at Western Carolina University in FY 2012 reflected the national trend of modest increase in support at 1%. A trend that continues in University fundraising is donor preference for restricted, rather than unrestricted, gifts. Management anticipates continuation of this trend, typical of higher education experiences nationally, thereby presenting potential challenges in meeting the needs of future operations. While the latest valuation of the investment pool on June 30, 2012 will result in a significant increase in the amount of financial support of Western Carolina University students for FY , volatility in the financial markets and its resulting effects on the University s endowment will continue to challenge the University s ability to provide the level of scholarship support necessary to recruit and retain the best students possible. Management believes that successful initiatives in building the University s fundraising infrastructure, in producing exceptional ancillary materials for use by professional staff and volunteer leaders, and in enhancing the University s ability to evaluate and tap the giving potential of its alumni and other donor prospects, will position the Foundation to continue growing its fundraising capacity. The Office of Development was recently realigned within the University s organizational structure to report directly to the Chancellor. This move highlights the Chancellor s interest in being more directly involved in fundraising and underscores to internal and external constituencies the importance of increasing the level of private support of the University. The Office of Development is working with colleagues at UNC system institutions, along with General Administration, to explore and develop a shared services model to capitalize on efficiencies and group purchasing discounts where possible for external fundraising support services. The Office of Development has recently launched the Madison Society, a donor recognition and stewardship program designed to encourage continued and increased gift support of university programs. The Office of Development continues to explore opportunities to collaborate with Alumni Affairs to partner with alumni leaders at the local level in selected markets in order to strengthen fundraising capacity. Alumni Affairs is expanding outreach efforts through the establishment of alumni clubs in select locations with significant WCU alumni representation. The Office of Advancement Research, through its own resources and a collaborative initiative with the University of North Carolina system, is continuously updating the Western alumni database and evaluating alumni and selective donor prospects for giving potential. The best rated prospects are researched leading to solicitation strategies specific to each prospect. Evaluations and profiles of college alumni are shared with the respective colleges to be incorporated into their fundraising plans. The Foundation Board of Directors continues to expand involvement in fundraising programs. Members are hosting regional events in their homes or communities to further strengthen the connection between the University and key constituents that will ultimately lead to increased private support. Members are also taking a more active role in personally identifying and contacting potential benefactors of the University. The Foundation Board will continue its long-term investment strategy designed to maximize investment returns and funding availability. 7

10 Western Carolina University Foundation Statement of Net Assets June 30, 2012 (with comparative totals for June 30, 2011) 2012 Assets Current assets: Cash and cash equivalents Restricted cash and cash equivalents Restricted short-term investments Accounts receivable Pledges receivable Prepaid expenses Total current assets Noncurrent assets: Restricted cash and cash equivalents Endowment investments Restricted investments Other investments Pledges receivable Capital assets, net of accumulated depreciation Total noncurrent assets Total assets Liabilities Current liabilities: Accounts payable Deferred revenue Current portion of annuity payable Total current liabilities Noncurrent liabilities Long-term debt Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Restricted for: Nonexpendable Expendable: Scholarships and departmental Other Unrestricted Total net assets 292,778 4,470, ,508 17, ,767 5,031, ,018 4,448,569 69,389 35,618 55,237 90,661 4,937,492 90,517 17,929, ,235 17, , ,825 19,387,373 24,418, ,294 17,700, ,263 17,500 42, ,932 19,028,046 23,965, ,500 91, ,764 16, ,500 86, ,425 89,860 89, ,624 84,240 84, , , ,932 12,573,101 11,567,618 10,599, ,720 56,445 23,943,137 10,917, , ,506 23,483,873 The accompanying notes are an integral part of these basic financial statements. 8

11 Western Carolina University Foundation Statement of Revenues, Expenses and Changes in Net Assets For the Year Ended June 30, 2012 (with comparative totals for June 30, 2011) 2012 Revenues Operating revenues Total operating revenue Expenses Operating expenses Scholarships Salaries Employee benefit Services Supplies and materials Depreciation Total operating expenses Operating loss Nonoperating revenues (expenses) Noncapital gifts Investment income, net of investment income (expense) 64,486 and 70,879 Other nonoperating revenue Other nonoperating expense Net nonoperating revenues Income before other revenues, expenses and losses Additions to endowments Special items: Transfer to the University Transfer to Athletics Increase in net assets Net Assets Net assets-beginning of year Net assets-end of year 248, , , , ,843 30,132 1, , ,050 7, , ,761 24,530 1, ,841 50,495 9, ,935 (654,231) (489,627) 1,830,230 1,926,821 (31,917) 12,156 (281) 1,810,188 2,726,351 17,268 (3,896) 4,666,544 1,155,957 4,176, , ,980 (697,133) (839,905) (470,219) (782,713) 459,264 3,439,965 23,483,873 20,043,908 23,943,137 23,483,873 The accompanying notes are an integral part of these basic financial statements. 9

12 Western Carolina University Foundation Statement of Cash Flows For the Year Ended June 30, 2012 (with comparative totals for June 30, 2011) 2012 Cash flows from Operating Activities Received from participants Payments to employees and fringe benefits Payments to vendors and suppliers Payments for scholarships and fellowships Net cash used by operating activities Cash Flows from Noncapital Financing Activities Additions to permanent endowments Noncapital gifts University support Athletic support Other receipts Net cash provided by noncapital financing activities 248,940 (32,067) (446,168) (397,843) (627,138) 840,345 1,528,963 (606,475) (839,905) 11, ,862 Cash Flows from Capital and Related Financing Activities Proceeds from sale of capital assets Net cash provided by capital financing activities 209,308 (26,255) (180,117) (440,761) (437,825) 515,980 1,589,773 (473,434) (782,713) 13, ,978 - Cash Flows from Investing Activities Proceeds from sales and maturities of investments Interest on investments Purchase of investments and related fees Net cash used by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents- beginning of the year Cash and cash equivalents - end of year ,484 4,484 2,478, ,325 (2,920,962) (247,483) 5,028, ,139 (6,484,251) (827,484) 60,241 4,793,881 4,854,122 (397,847) 5,191,728 4,793,881 The accompanying notes are an integral part of these basic financial statements. 10

13 2012 Reconciliation of Net Operating Revenues (Expenses) to Net Cash Used by Operating Activities: Operating loss Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense Noncash contributed expenses Changes in assets and liabilities: Accounts payable & accrued liabilities Net cash used by operating activities 2011 (654,231) 7,048 36,796 (489,627) 9,583 29,444 (16,751) (627,138) 12,775 (437,825) Assets acquired through a gift 73, ,707 Change in fair value of investments (146,194) 2,169,093 Reinvested earnings 64,486 57,280 Loss on disposal of assets 59 1, ,778 4,470, ,018 4,448,569 Noncash Investing, Noncapital, Capital and Financing Activities: Reconciliation of Cash and Cash Equivalent Balances: Current Assets: Cash and cash equivalents Restricted cash and cash equivalents Noncurrent Assets Total Cash and Cash Equivalent Balances 90,517 4,854, ,294 4,793,881

14 WESTERN CAROLINA UNIVERSITY FOUNDATION Notes to Financial Statements For the Year Ended June 30, Summary of Significant Accounting Policies A. Principles Used in Determining the Scope of Entity for Financial Reporting - The Western Carolina University Foundation ( Foundation ), a component unit of Western Carolina University, is a non-profit corporation organized to promote the growth, progress and general welfare of Western Carolina University through administration of gifts for such purposes. The University s governing board appoints a voting majority of the Foundation s board. The Foundation is governed by a 32member board, consisting of 4 ex officio directors and 28 appointed directors. The Foundation s purpose is to aid, support, and promote teaching, research and service in the various educational, scientific, scholarly, professional, artistic and creative endeavors of the University. Because the directors of the Foundation are appointed by the members of the Western Carolina University Board of Trustees and the Foundation s sole purpose is to benefit the University, its basic financial statements have been blended with those of the University. The operations of the Foundation represent a financial benefit to the University. B. Basis of Presentation - The accompanying basic financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). Pursuant to the provisions of GASB Statement No. 34, Basic Financial Statements--and Management s Discussion and Analysis--for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements--and Management s Discussion and Analysis--For Public Colleges and Universities, the full scope of the Foundation s activities is considered to be a single business-type activity (BTA) and accordingly, is reported within a single column in the basic financial statements. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Foundation does not apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless the GASB amends its pronouncements to specifically adopt FASB pronouncements issued after that date. C. Basis of Accounting - The basic financial statements of the Foundation have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. Nonexchange transactions, in which the Foundation receives (or gives) value without directly giving (or receiving) equal value in exchange, includes donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met, if probable of collection. D. Cash and Cash Equivalents - This classification includes petty cash, cash on deposit with private bank accounts, cash on deposit with fiscal agents, and deposits held by the State Treasurer in the Short-Term Investment Fund. The Short-Term Investment Fund maintained by the State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty. E. Restricted Cash Restricted cash represents assets whose use is restricted by external parties or by law through constitutional provisions. 11

15 F. Investments - This classification includes long-term fixed income investments, equity investments, mutual funds, money market funds, limited partnerships, real estate, and other asset holdings by the Foundation. Investments generally are reported at fair value, as determined by quoted market prices or estimated amounts determined by management if quoted prices are not available. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments. The net increase (decrease) in the fair value of investments is recognized as a component of investment income. Money market funds, real estate not held by a governmental external investment pool and other asset holdings are reported at cost, if purchased or at fair value or appraised value at date of gift, if donated. Endowment investments include the principal amount of gifts and bequests that, according to donor restrictions, must be held in perpetuity or for a specific period of time, along with any accumulated investment earnings on such accounts. Further, endowment investments also include amounts internally designated by the Foundation for investments in an endowment capacity (i.e. quasi-endowments), along with any accumulated investment earnings on such accounts. G. Receivables - Accounts receivable consist of donor matching gifts from their employers. Interest receivable consists of interest accrued on investments. Pledges that are expected to be collected and available for expenditure, that are both verifiable and measurable, are reported on the accompanying basic financial statements as part of accounts receivable. H. Collections - All collections are recorded at cost or, if received as a donation, at the fair market value on the date received. I. Capital Assets - Capital assets are stated at cost at date of acquisition or fair value at date of donation in the case of gifts. The Foundation capitalizes assets that have a value or cost in excess of 5,000 at the date of acquisition and an expected useful life of one or more years. Depreciation is computed using the straight-line and/or units of output method over the estimated useful lives of the assets generally 7 to 15 years for motor vehicles and 25 to 50 years for buildings, and 15 years for equipment. The Hayes artifact collection is capitalized at fair value at the date of donation. This collection is considered inexhaustible and is therefore not depreciated. J. Income Taxes - The Foundation, as a charitable organization, is exempt from normal federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provisions for income taxes have been made in the financial statements. Continuance of their exemption is subject to compliance with regulations and review of activities by taxing authorities. The Organization is not aware of any transactions that would affect its tax-exempt status. K. Non-Current Long-Term Liabilities - Non-current long-term liabilities include principal amounts of a charitable gift annuity that will not be paid within the next fiscal year. L. Net Assets - The Foundation s net assets are classified as follows: Invested in Capital Assets, Net of Related Debt - This represents the Foundation s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. 12

16 Restricted Net Assets--Nonexpendable - Nonexpendable restricted net assets include endowments and similar type assets whose use is limited by donors or other outside sources and as a condition of the gift, the principal is to be maintained in perpetuity. Restricted Net Assets--Expendable - Expendable restricted net assets include resources in which the Foundation is legally or contractually obligated to spend the resources in accordance with restrictions imposed by external parties. Unrestricted Net Assets - Unrestricted net assets include resources derived from unrestricted gifts and interest income. Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based with the departmental management system in place at the Foundation. M. Revenue and Expense Recognition - The Foundation classifies its revenues and expenses as operating or nonoperating in the accompanying Statement of Revenues, Expenses, and Changes in Net Assets. Operating activities are those that are necessary and essential to the mission of the Foundation. Operating revenues include all commissions, sponsorships, sales of goods, and registration fees collected for Foundation events. Operating expenses are all expense transactions incurred other than those related to capital and noncapital financing or investing activities defined by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Revenues from nonexchange transactions that represent gifts to the Foundation, as well as investment income, are considered nonoperating since these are investing, capital or noncapital financing activities. Revenues received for capital financing activities, as well as related expenses, are considered neither operating nor nonoperating activities and are presented after non-operating activities on the accompanying statement of revenues, expenses, and changes in net assets. 2. N. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from those estimates. O. Date of Management s Review - Subsequent events have been evaluated through October 1, 2012, which is the date the financial statements were available to be issued. Deposits and Investments Deposits - All the deposits of the Foundation are insured or collateralized by using the Pooling Method. Under the Pooling Method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer s agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the Foundation, these deposits are considered to be held by the Foundation s agents in their names. The amount of the pledged collateral is based on the approved averaging method for non-interest bearing deposits and the actual current balance for the interest bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the Foundation or the escrow agent. Because of the inability to measure the exact amount of collateral pledged for the Foundation under the Pooling Method, the potential exists for under-collateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method. The Foundation has no policy regarding custodial credit risk for deposits. 13

17 At June 30, 2012, the amount shown on the Statement of Net Assets as cash and cash equivalents includes 4,652,100 which represents the Foundation s equity position in the State Treasurer s Short-Term Investment Fund. The Short-Term Investment Fund (a portfolio within the State Treasurer s Investment Pool, an external investment pool that is not registered with the Securities and Exchange Commission and does not have a credit rating) had a weighted average maturity of 1.5 years as of June 30, Assets and shares of the Short-Term Investment Fund are valued at amortized cost, which approximates fair value. Deposits and investment risks associated with the State Treasurer s Investment Pool (which includes the State Treasurer s Short-Term Investment Fund) are included in the State of North Carolina s Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page and clicking on Reports, or by calling the State Controller s Financial Reporting Section at (919) The Foundation s deposits not with the State Treasurer had a carrying amount of 200,522 and a bank balance of 222,830. Custodial credit risk is the risk that, in the event of a bank failure, the Foundation s deposits may not be returned. The Foundation does not have a deposit policy for custodial credit risk. As of June 30, 2012, none of the Foundation s bank balance was exposed to custodial credit risk. At June 30, 2012, the Foundation s petty cash fund totaled 1,500. Investments The Foundation maintains an investment pool for its various funds in order to improve investment management and performance. Investments of the Foundation are subject to and restricted by G.S. 36E Uniform Prudent Management of Institutional Funds Act (UPMIFA) and any requirements placed on them by contract or donor agreements. Investments of various funds may be pooled unless prohibited by statute or by terms of the gift or contract. The Foundation utilizes an investment pool to manage investments and distribute investment income. Investments are subject to the following risks: Interest Rate Risk: Interest rate risk is the risk the Foundation may face should interest rate variances affect the fair value of investments. The Foundation does not have a formal policy that addresses interest rate risk. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Foundation does not have a formal policy that addresses credit risk. Long-Term Investment Pool - This is an internal investment pool that is utilized for the investment of the endowed and restricted funds. Fund ownership is measured using the unit value method. Under this method, each participating fund s investment balance is determined on a market value basis. The Foundation invests available cash into the investment pool. Shares are purchased in the investment pool at the beginning market value. Shares can be withdrawn from the investment pool at market value. Actual income earned, including realized gains or losses on the sale of investments, is allocated to the investment pool based upon the number of shares held at the beginning of each quarter. This allocation results in additional shares distributed to each individual fund invested within the pool. During 2012, the Foundation pool recognized realized net losses of 193,908. Unrealized gains or losses associated with the fluctuation in the fair value of investments are recorded in each individual fund as an asset to either increase or decrease the individual fund cost basis in the investment pool. The investment strategy, including the selection of investment managers, is based on the directives of the Foundation s Investment Board. 14

18 The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2012, for the Long-Term Investment Pool. Interest rate risk is defined by GASB Statement No. 40 as the risk a government may face should interest rate variances affect the fair value of investments. Long-Term Investment Pool Investment Maturities (in Years) Investment Type Fair Value Less than 1 year Money Market Mutual Funds 106, ,474 Other Securities: Equity Mutual Funds Investments in Real Estate Private Equity Limited Partnerships Total 7,773,417 8,822, ,933 17,604,268 At June 30, 2012, investments in the Long-Term Investment Pool with a credit risk had a fair value of 106,474. The credit quality rating of the money market mutual funds was AAAm as rated by Standard & Poor s. Concentration of Credit Risk: The Foundation places no limit on the amount the Board may invest in any one issuer. More than 5% of the long-term investment pool investments are in the following funds: Fund Name UNC Investment Fund Aberdeen Emerging Markets Vanguard Growth Index Vanguard Value Index Percent Invested 44.43% 5.80% 5.26% 5.27% UNC Investment Fund, LLC - At June 30, 2012, the Foundation s investments include 7,773,417 which represents the University s equity position in the UNC Investment Fund, LLC (UNC Investment Fund). The UNC Investment Fund is an external investment pool that is not registered with the Securities and Exchange Commission and does not have a credit rating. Asset and ownership interests of the UNC Investment Fund are determined on a market unit valuation basis each month. Investment risks associated with the UNC Investment Fund are included in audited financial statements of the UNC Investment Fund, LLC which may be obtained from the UNC Management Company, Inc., 1400 Environ Way, Chapel Hill, NC

19 Non-Pooled Investments - The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2012, for the Foundation s non-pooled investments. Interest rate risk is defined by GASB Statement No. 40 as the risk a government may face should interest rate variances affect the fair value of investments. Non-Pooled Investments Investment Type Money Market Mutual Funds Other Securities: Other Mutual Funds Investments in Real Estate Domestic Stocks Other Total Fair Value 4,034 Investment Maturities (in Years) Less than 1 year 4,034 1,234,594 93,800 41,508 1,800 1,375,736 At June 30, 2012, the Foundation s non-pooled investments with credit risk had a fair value of 4,034. The credit quality rating of the money market mutual funds was AAAm rated by Standard & Poor s. Total Investments The following table presents the fair value of the total investments at June 30, 2012: Investment Type Fair Value Money Market Mutual Funds 110,508 Other securities: UNC Investment Fund Other Mutual Funds Investments in Real Estate Limited Partnerships Domestic Stocks Other Total 7,773,417 10,057,038 93, ,933 41,508 1,800 18,980,004 The following schedule summarizes investment return and its classification in the Statement of Revenues, Expenses and Changes in Net Assets for the year ended June 30, 2012: Interest Realized gains (losses) Unrealized gains (losses) 308,185 (193,908) (146,194) (31,917) 16

20 Reconciliation of Deposits and Investments - A reconciliation of deposits and investments for the Foundation as of June 30, 2012, is as follows: Cash on hand Amount of deposits with private financial institutions Investments with the State Treasurer Investments in the UNC Investment Fund Long-term investment pool Non-pooled investments 1, ,522 4,652,100 7,773,417 9,831,340 1,375,247 Total Deposits and Investments 23,834, ,778 4,470,827 Deposits Current: Cash and cash equivalents Restricted cash and cash equivalents Noncurrent: Restricted cash and cash equivalents Total Deposits 3. 90,517 4,854,122 Investments Current: Restricted short-term investments Noncurrent: Endowment investments Restricted investments Other investments Total Investments 17,929, ,235 17,500 18,980,004 Total Deposits and Investments 23,834, ,508 Endowment Investments Investments of the Foundation s endowment funds are pooled, unless required to be separately invested by the donor. If a donor has not provided specific instructions, State law permits the Board of Directors to authorize for expenditure the net appreciation, realized and unrealized, of the investments of the endowment funds. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), authorized by the North Carolina General Assembly on March 19, 2009, the Board may also appropriate expenditures from eligible nonexpendable balances if deemed prudent and necessary to meet program outcomes and for which such spending is not specifically prohibited by the donor agreements. However, a majority of the Foundation s endowment donor agreements prohibit spending of nonexpendable balances and therefore the related nonexpendable balances are not eligible for expenditure. During the year, the Board did not appropriate expenditures from eligible funds. Investment return of the Foundation s endowment funds is predicated on the total return concept (yield plus appreciation). The current spending policy for the Foundation s pooled endowment funds provides 5% of a three-year moving average of market values as of June 30. The Foundation Board annually reviews the spending policy and makes adjustments accordingly. At June 30, 2012, endowment net assets of 7,025,799 were available to be spent and restricted to specific purposes. During the current year, the Foundation incurred investment losses that exceeded the related endowment s available income and net appreciation. These losses resulted in a reduction to the 17

21 specific nonexpendable endowment balance. At June 30, 2012 the amount of investment losses reported against the nonexpendable endowment balances were 25, Donated Services and Facilities The value of donated volunteer services and facilities is not reflected in the accompanying basic financial statements, since there is no objective basis available by which to measure the value of such services and facilities. 5. Receivables Receivables at June 30, 2012 were as follows: Gross Receivables Allowance for Doubtful Accounts Net Receivables 17, , , ,535 Current receivables: Accounts - matching gifts Pledges Total current receivables 17, , ,147 62,872 62,872 Noncurrent receivables: Pledges 230,054 15,519 Unconditional promises to give, less an appropriate reserve, are recorded at their estimated value. Amounts due beyond one year are recorded at the present value of the estimated future cash flows, discounted at a rate of.70%. The balance of unconditional promises to give at June 30, 2012, consists of the following: Less than one year One to five years Total uncollected promises to give Less: allowance for uncollectible promises Less: unamortized discounts to net present value , , ,065 (78,391) (19,372) 354,302

22 6. Capital Assets A summary of changes in the capital assets is presented as follows: Balance Balance June 30, 2011 Increases Decreases June 30, 2012 Capital assets, non-depreciable: Art, literature and artifacts Land Totals Capital assets, depreciable: Buildings Equipment Motor vehicles Totals Less: accumulated depreciation/ amortization for Buildings Equipment Motor vehicles Totals Total capital assets, depreciable, net Capital assets, net 7. 13,000 83,070 96, ,000 51,117 3,856 17,016 71,989 2, ,403 7,048 2, , ,897 28,920 34, ,851 3, ,862-13,000 83,070 96, ,897 28,920 34, ,851 2,941 50,857 4,820 20,419 76,096 (7,048) ,755 (7,048) ,825 Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at June 30, 2012, were as follows: Accounts payable Deferred Revenues Deferred revenues of 294,500 result from contributions received before eligibility requirements have been met. 9. Charitable Gift Annuity Split Interest Agreement The Foundation has entered into charitable gift annuity agreements with various donors. Under the terms of the agreements, the donors contributed assets to the Foundation and in return receive a guaranteed fixed income for life. The Foundation recognizes contribution revenue in the year of the gift for the difference between the fair value of the assets received and the annuity liability. Annuity liabilities are recorded for the required life annuity payments at the present value of expected cash payments discounted using current interest rates and actuarial assumptions for those annuities that have not been reinsured. The annuity obligations are adjusted each year for changes in the life expectancy of the beneficiaries and are reduced either as payments are made to the donor or as annuities are reinsured. The present value of future payment liabilities of charitable gift annuities is 180,995 at June 30,

23 10. Long-Term Liabilities Changes in Long-Term Liabilities - A summary of changes in the long-term liabilities is presented as follows: Balance July 1, 2011 Annuities payable 170,285 Additions Reductions 114, ,353 Balance Current June 30, 2012 Portion 180,995 91, Risk Management The University is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These exposures to loss are handled via a combination of methods, including participation in state-administered insurance programs, purchase of commercial insurance and self-retention of certain risks. There have been no significant reductions in insurance coverage from the previous year and settled claims have not exceeded coverage in any of the past three fiscal years. The risk of tort claims of up to 1,000,000 per claimant is retained under the authority of the State Tort Claims Act. In addition, the State provides excess public officers and employees liability insurance up to 10,000,000 per occurrence and 25,000,000 aggregate via contract with a private insurance company. The University pays the premium, based on a composite rate, directly to the private insurer. All Foundation-owned vehicles are covered by liability insurance through a private insurance company and handled by the North Carolina Department of Insurance. The liability limits for losses occurring in state are 1,000,000 per claim and 10,000,000 per occurrence. The Foundation pays premiums to the Department of Insurance for the coverage. The Foundation is protected for losses from employee dishonesty and computer fraud. This coverage is with a private insurance company and is handled by the North Carolina Department of Insurance. The University is charged a premium by the private insurance company. Coverage limit is 5,000,000 per occurrence. The private insurance company pays 90% of each loss less a 75,000 deductible. The University also carries 1,000,000 liability insurance for the Directors and Officers of the Foundation Board. This insurance coverage is through a private insurance company. 20