Financial Statements and Report of Independent Certified Public Accountants. University of Nevada, Reno Foundation

Transcription

1 Financial Statements and Report of Independent Certified Public Accountants University of Nevada, Reno Foundation June 30, 2017 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 1 of 56

2 Contents Report of Independent Certified Public Accountants 3 Management s Discussion and Analysis 5 Basic Financial Statements 10 Statement of Net Position 11 Statement of Support and Revenue, Expenses and Changes in Net Position 12 Statement of Cash Flows 13 Notes to Financial Statements 15 Supplemental Information 25 Unrestricted Fund Alumni and University Program Expenses 26 Unrestricted Fund Administrative and Fundraising Expenses 27 Compliance Section 28 Report of Independent Certified Public Accountants on Internal Control over Financial Reporting and on Compliance and Other Matters Required by Government Auditing Standards 29 Page (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 2 of 56

3 Report of Independent Certified Public Accountants Board of Trustees University of Nevada, Reno Foundation Grant Thornton LLP 100 W Liberty Street, Suite 770 Reno, NV T F Report on the financial statements We have audited the accompanying financial statements of the University of Nevada, Reno Foundation (a nonprofit organization) (the Foundation ), which comprise the statements of net position as of June 30, 2017, and the related statements of support, revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 Foundation 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 Foundation s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the net position of the University of Nevada, Reno Foundation as of June 30, 2017, and the changes in its net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 3 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 3 of 56

4 Required supplementary information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 6 through 9, respectively, be presented to supplement the basic financial statements. Such information, although not a required 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. This required supplementary information is the responsibility of management. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America. These limited procedures consisted of inquires 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. Supplementary information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Unrestricted Fund Alumni and University Program Expenses and Unrestricted Fund Administrative and Fundraising Expenses on page 26 and 27, respectively, are presented for purposes of additional analysis and is not a required part of the financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. Report on 2016 summarized comparative information We have previously audited the Foundation s 2015 financial statements (not presented herein), and we expressed an unmodified audit opinion on those audited financial statements in our report dated September 23, In our opinion, the accompanying summarized comparative information as of and for the year ended June 30, 2016 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other reporting required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report, dated September 27, 2017, on our consideration of the Foundation s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Foundation s internal control over financial reporting and compliance. Reno, Nevada September 27, 2017 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 4 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 4 of 56

5 MANAGEMENT S DISCUSSION AND ANALYSIS 5 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 5 of 56

6 University of Nevada, Reno Foundation MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended June 30, 2017 Introduction Management s Discussion and Analysis (MD&A) of the University of Nevada, Reno Foundation s ( the Foundation ) annual financial report provides a comprehensive overview of the financial position at June 30, 2017 and its changes in financial position for the year then ended with fiscal year 2016 data presented for comparative purposes. The intent of this discussion and analysis is to promote a greater understanding of the Foundation s financial activities and position. Management has prepared the basic financial statements and related footnote disclosures along with this MD&A in accordance with generally accepted accounting principles as defined by the Governmental Accounting Standards Board (GASB). This MD&A should be read in conjunction with the accompanying financial statements and footnotes. About the University of Nevada, Reno Foundation The Foundation is the University of Nevada, Reno s (University) fundraising and gift receiving organization. It is a non-profit corporation that advances the mission of the University by pursuing and securing private support to benefit the University s students, faculty, programs and facilities. The Foundation was established in 1981 by the Nevada System of Higher Education ( NSHE ), which is the sole owner of the Foundation. Additionally, the appointment to the Foundation Board of Trustees is the responsibility of the NSHE. As such, the Foundation is considered to be a component of both the University and NSHE. Transactions with the University relate primarily to the disbursement of gift funds to the University and the receipt of support from the University to fund administrative expenses of the Foundation. Alumni and Friends of the University have a generous history in giving to the Foundation year after year and in the 36 years since the Foundation was established, the total contributions to the Foundation have exceeded $465 million dollars. Financial Statements This report consists of a series of financial statements prepared in accordance with GASB principles. One of the most important questions to be asked about the Foundation s finances is whether the Foundation is fulfilling its mission to support the University. The keys to understanding this question are found in the Statement of Net Position; the Statement of Support and Revenue, Expenses and Changes in Net Position; and the Statement of Cash Flows. Details of each statement follow below: Statement of Net Position The Statement of Net Position presents the financial position of the Foundation as of June 30, The net position is the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources. This is an important indicator of the Foundation s financial health. Over time, increases or decreases in net position are one indicator of the improvement or erosion of the Foundation s financial condition when considered in combination with other non-financial information. This statement is presented with four major categories: assets, liabilities, deferred inflows of resources and net position. The assets and liabilities are classified between current and non-current. Total assets increased by $31.4 million during the year ended June 30, 2017, largely due to an increase in fair value of investments. Current assets increased by $37.0 million and non-current assets decreased by $5.7 million and is attributable to the classification of investments. Cash and investments vary between current and long-term categories annually based on the liquidity and maturity of the assets when purchased. The total net position increased by $36.0 million which is a result of revenues in excess of expenses. 6 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 6 of 56

7 University of Nevada, Reno Foundation MANAGEMENT S DISCUSSION AND ANALYSIS - CONTINUED For the year ended June 30, 2017 Statement of Net Position - Continued The following is a comparison of the Statement of Net Position at June 30: Statement of Net Position Assets Current assets $ 260,802,760 $ 223,770,202 Non-current assets 41,130,407 46,809,026 Total assets 301,933, ,579,228 Liabilities Current liabilities 6,554,653 5,358,157 Non-current liabilities 1,978,367 1,952,921 Total liabilities 8,533,020 7,311,078 Deferred inflows of resources 1,074,678 6,968,108 Net position Invested in capital assets 36,321 55,218 Unrestricted Undesignated 6,562,878 6,922,048 Quasi Endowment and other designated funds 6,671,900 7,666,767 Restricted expendable 112,403,975 92,160,579 Restricted expendable endowment 12,757,708 13,236,414 Restricted nonexpendable endowment 153,892, ,259,016 Total net position $ 292,325,469 $ 256,300,042 Total net position was $292.3 million at June 30, 2017, of which $13.2 million is available for the unrestricted purposes of the Foundation. Included in the unrestricted net position are Quasi Endowment and other designated funds of $6.7 million. The Quasi Endowment, which is not a donor designated endowment, is a board directed endowment which the board has set aside for specific designated purposes. The restricted expendable endowment represents the market value of the non-expendable endowment that exceeds its corpus. Although this is considered expendable, the Foundation s policy precludes spending these funds; they will continue to be invested to retain the purchasing power of the endowment for future generations. Statement of Support and Revenue, Expenses and Changes in Net Position The Statement of Support and Revenue, Expenses and Changes in Net Position presents revenues earned and expenses incurred during the year. Activities are reported as either operating or non-operating; with the above mentioned activities reported as operating revenues and expenses and gifts to endowments and investment results as non-operating revenues and expenses. This statement is prepared using the accrual basis of accounting, whereby revenues and receivables are recognized when the service is provided and expenses and liabilities are recognized when incurred, regardless of when the cash is exchanged. 7 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 7 of 56

8 University of Nevada, Reno Foundation MANAGEMENT S DISCUSSION AND ANALYSIS - CONTINUED For the year ended June 30, 2017 Statement of Support and Revenue, Expenses and Changes in Net Position - Continued This statement reflects the results of the Foundation s operations on net position for the years ended June 30, 2017 and The statement is broken down into three categories: Operating Support and Revenue, Operating Expenses and Investment Income. Operating support and revenues include donor contributions for unrestricted and restricted funds, university support, special events and other income. These revenues increased from the prior year by $3.1 million. Investment income increased by $13.8 million, interest and dividends were largely consistent with the prior year. The change in investment income was attributable to realized and unrealized gains (losses) on the sale of assets. Additions to permanent endowments (donations) increased by $4.4 million from the prior year which was a result of the increases in the pledges receivable balances at the fiscal year end. Operating expenses consist of alumni programs, capital projects, university programs, university scholarships, and administrative and fundraising expenses. Operating expenses decreased by $5.7 million for the year ended June 30, 2017 when compared to the prior year. The largest change in expenses was a decrease in capital projects of $10.1 million and an increase in program expenses by $4.6 million. The following is a comparison of the Changes in Net Position for the years ended June 30: Operating support and revenue Donor contributions $ 39,460,997 $ 34,468,550 University support 3,836,039 3,803,714 Special events and other income 1,230,566 3,199,941 Total operating support and revenue 44,527,602 41,472,205 Investment income Interest and dividend income 3,484,262 3,721,803 Realized gain on sale, net 6,372,845 2,313,269 Unrealized gain (loss) 8,267,622 (1,543,190) Management fees earned Foundation 1,096, ,558 Nevada System of Higher Education 723, ,669 Redemption and consultation fees (1,096,667) (1,110,106) Total investment income 18,847,971 5,003,003 Total revenues 63,375,573 46,475,208 Operating expenses Alumni programs 283, ,927 Capital projects 5,739,889 15,818,427 University programs 22,797,573 18,228,721 University scholarships 4,206,877 4,325,101 Administrative 1,897,263 1,999,196 Fundraising 2,740,207 2,619,850 Total operating expenses 37,665,519 43,334,222 Additions to permanent endowments Donor contributions 10,315,373 5,938,286 Change in net position $ 36,025,427 $ 9,079,272 8 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 8 of 56

9 University of Nevada, Reno Foundation MANAGEMENT S DISCUSSION AND ANALYSIS - CONTINUED For the year ended June 30, 2017 Statement of Cash Flows The Statement of Cash Flows details how cash has increased or decreased during the year ended June 30, Its primary purpose is to provide relevant information about the sources and uses of cash during a given period. The information provided in this statement should help financial report users assess the Foundation s ability to generate future net cash flows, its ability to meet its obligations as they come due, and its need for external funding. It also provides insight into the reasons for the difference between operating income and associated cash receipts and payments; and the effects on the Foundation s financial position of its cash and its non-cash investing, capital, and related financing transactions during the year. The net cash and cash equivalents increased slightly by $1.8 million to $27.7 million as reflected below. The following is a comparison of the Statement of Cash Flows for the years ended June 30: Net cash used in operating activities $ (3,735,381) $ (12,675,127) Net cash provided by non-capital financing activities 10,347,085 5,726,865 Cash flows used in capital and related financing activities (3,009,260) (1,112,097) Cash flows used in investing activities (1,824,941) (4,220,603) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,777,503 (12,280,962) Cash and cash equivalents, beginning of year 25,908,263 38,189,225 Cash and cash equivalents, end of year $ 27,685,766 $ 25,908,263 Economic Outlook The Foundation s primary sources of revenue are donor contributions, university support and investment income. A trend that continues in our fundraising efforts is donor s preference to give charitable gifts to the restricted and endowment funds rather than to the unrestricted funds that are directed to assist in funding the special projects and the operations of the Foundation. The Foundation Board of Trustees has created the Silver and Blue Society which contributed over $1.7 million dollars since 2004 to fund special Foundation projects. At the end of the fiscal year, the participation by the Foundation Board of Trustees stood at 100%. At the end of June 30, 2017 the University has raised more than $270 million dollars during the silent phase of a capital campaign. By the fall of 2017 we anticipate raising at least 60% of our goal of $300 million and beginning the public phase of the campaign which will run until December 31, The campaign includes many projects and buildings that will transform the campus and improve the quality of education we provide. The Foundation is actively engaged with the University leadership and Development staff in promoting philanthropy and advocating for the University of Nevada, Reno. 9 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 9 of 56

10 BASIC FINANCIAL STATEMENTS 10 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 10 of 56

11 ASSETS Unrestricted Restricted Endowment Total Total CURRENT ASSETS Cash and cash equivalents $ 9,663,289 $ 15,548,645 $ 2,473,832 $ 27,685,766 $ 25,908,263 Investments 3,278,181 46,606, ,438, ,322, ,865,670 Due from University of Nevada 226,575 23, , ,356 Due from endowment fund ,107,342 Other current assets 277,530 5,643,305 3,494 5,924,329 11,400,678 Current portion of pledges receivable, net - 11,539,715 1,072,200 12,611,915 9,231,724 Current portion of notes receivable 7, ,675 20,169 Total current assets 13,453,250 79,361, ,988, ,802, ,770,202 NON-CURRENT ASSETS Investments - 14,919,006-14,919,006 28,953,370 Pledges receivable, net - 20,944,485 2,478 20,946,963 13,720,777 Notes receivable ,879 Real property held for the University of Nevada 308,500 2,208,877 45,900 2,563,277 1,446,765 Residual interest in irrevocable trusts - 774,506 1,397,043 2,171,549 2,141,370 Other assets 181, , , ,647 Equipment, at cost, less accumulated depreciation of $141,323 36, ,321 55,218 Total non-current assets 526,506 39,158,480 1,445,421 41,130,407 46,809,026 Total assets $ 13,979,756 $ 118,519,958 $ 169,433,453 $ 301,933,167 $ 270,579,228 LIABILITIES, DEFERRED INFLOWS AND NET POSITION University of Nevada, Reno Foundation STATEMENT OF NET POSITION June 30, 2017 (With comparative totals as of June 30, 2016) CURRENT LIABILITIES Due to University of Nevada $ 125,411 $ 3,164,036 $ - $ 3,289,447 $ 2,837,542 Due to UNLV Foundation - 270, , ,308 - Due to AAUN Endowment 278, ,830 - Due to unrestricted fund ,107,342 Funds held in custody for others - 2,400,074-2,400,074 - Accounts payable 4,744-6,250 10, ,273 Total current liabilities 408,985 5,834, ,337 6,554,653 5,358,157 NON-CURRENT LIABILITIES Accrued compensation 263, , ,972 Unearned revenue 36, ,652 1,397,043 1,714,895 1,740,949 Total non-current liabilities 299, ,652 1,397,043 1,978,367 1,952,921 Total liabilities 708,657 6,115,983 1,708,380 8,533,020 7,311,078 DEFERRED INFLOWS OF RESOURCES Endowment pledge and bequest donations, net - - 1,074,678 1,074,678 6,968,108 NET POSITION Invested in capital assets 36, ,321 55,218 Unrestricted 13,234, ,234,778 14,588,815 Restricted - expendable - 112,403,975 12,757, ,161, ,396,993 Restricted - nonexpendable ,892, ,892, ,259,016 Total net position $ 13,271,099 $ 112,403,975 $ 166,650,395 $ 292,325,469 $ 256,300,042 The accompanying notes are an integral part of this statement. 11 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 11 of 56

12 University of Nevada, Reno Foundation STATEMENT OF SUPPORT AND REVENUE, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, 2017 (With comparative totals for the year ended June 30, 2016) Unrestricted Restricted Endowment Total Total Operating support and revenue Donor contributions $ 400,994 $ 39,060,003 $ - $ 39,460,997 $ 34,468,550 University support 3,836, ,836,039 3,803,714 Special events and other income 190,959 1,039,607-1,230,566 3,199,941 Total operating support and revenue 4,427,992 40,099,610-44,527,602 41,472,205 Operating expenses Program expenses Alumni programs 283, , ,927 Capital projects 4,900 5,734,989-5,739,889 15,818,427 University programs 187,984 22,609,589-22,797,573 18,228,721 University scholarships - 4,206,877-4,206,877 4,325,101 Total program expenses 476,594 32,551,455-33,028,049 38,715,176 Administrative and fundraising expenses Administrative 1,897, ,897,263 1,999,196 Fundraising 2,740, ,740,207 2,619,850 Total administrative and fundraising expenses 4,637, ,637,470 4,619,046 Total operating expenses 5,114,064 32,551,455-37,665,519 43,334,222 OPERATING INCOME (LOSS) (686,072) 7,548,155-6,862,083 (1,862,017) Investment income 2,601,244 3,246,910 12,999,817 18,847,971 5,003,003 Additions to permanent endowments Donor contributions ,315,373 10,315,373 5,938,286 Transfers between funds Distribution of expendable endowment - 6,872,370 (6,872,370) - - Other (3,288,106) 2,575, , Total transfers between funds (3,288,106) 9,448,331 (6,160,225) - - CHANGE IN NET POSITION (1,372,934) 20,243,396 17,154,965 36,025,427 9,079,272 Net position at beginning of year 14,644,033 92,160, ,495, ,300, ,220,770 Net position at end of year $ 13,271,099 $ 112,403,975 $ 166,650,395 $ 292,325,469 $ 256,300,042 The accompanying notes are an integral part of this statement. 12 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 12 of 56

13 University of Nevada, Reno Foundation STATEMENT OF CASH FLOWS Year ended June 30, 2017 (With comparative totals for the year ended June 30, 2016) Unrestricted Restricted Endowment Total Total Cash flows from operating activities: Donor contributions $ 450,999 $ 25,814,371 $ - $ 26,265,370 $ 26,834,036 University support 3,816, ,816,031 3,610,434 Special events and other income 190,959 1,039,607-1,230,566 3,199,941 Cash paid to University of Nevada (248,676) (30,157,669) - (30,406,345) (42,038,038) Cash paid to employees for services (3,575,337) - - (3,575,337) (3,505,537) Cash paid to suppliers (1,065,666) - - (1,065,666) (775,963) Net cash used in operating activities (431,690) (3,303,691) - (3,735,381) (12,675,127) Cash flows from non-capital financing activities: Additions to permanent endowments ,347,085 10,347,085 5,726,865 Transfer between funds (1,180,764) 9,448,331 (8,267,567) - - Net cash provided by (used in) non-capital financing activities (1,180,764) 9,448,331 2,079,518 10,347,085 5,726,865 Cash flows from capital and related financing activities: Purchase of equipment (17,276) - - (17,276) (19,732) Purchase of buildings - (2,991,984) - (2,991,984) (1,092,365) Net cash used in capital and related financing activities (17,276) (2,991,984) - (3,009,260) (1,112,097) Cash flows from investing activities: Investment income 2,379, ,961 1,589,938 4,207,505 6,544,476 Proceeds from sale of investments 2,821,474 5,009,371 20,917,997 28,748,842 10,735,000 Purchase of investments (28,852) (12,663,188) (22,113,621) (34,805,661) (21,524,342) Principal payments received on notes receivable 24, ,373 24,263 Net cash provided by (used in) investing activities 5,196,601 (7,415,856) 394,314 (1,824,941) (4,220,603) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,566,871 (4,263,200) 2,473,832 1,777,503 (12,280,962) Cash and cash equivalents, beginning of year 6,096,418 19,811,845-25,908,263 38,189,225 Cash and cash equivalents, end of year $ 9,663,289 $ 15,548,645 $ 2,473,832 $ 27,685,766 $ 25,908, (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 13 of 56

14 University of Nevada, Reno Foundation STATEMENT OF CASH FLOWS - CONTINUED Year ended June 30, 2017 (With comparative totals for the year ended June 30, 2016) Unrestricted Restricted Endowment Total Total Reconciliation of operating income (loss) to net cash used in operating activities: Operating income (loss) $ (686,072) $ 7,548,155 $ - $ 6,862,083 $ (1,862,017) Adjustments to reconcile operating income (loss) to net cash used in operating activities: Depreciation 36, ,173 39,914 Gifts of stocks and bonds - (4,421,703) - (4,421,703) (3,150,334) Gifts of funds held in trust for others (received) - (50,344) - (50,344) 426,275 Gift of property to University of Nevada - 1,875,472-1,875,472 - Changes in: Other current assets (20,008) 472, ,858 (6,303,270) Pledges receivable - (11,485,380) - (11,485,380) 1,451,471 Other assets (29,025) (13,644) - (42,669) (95,526) Due to (from) University of Nevada 224, ,135-1,000,956 (3,483,075) Accounts payable (10,679) (397,833) - (408,512) 393,158 Funds held in custody for others - 2,400,074-2,400,074 - Unearned revenue 53,100 (7,489) - 45,611 (91,723) Net cash used in operating activities $ (431,690) $ (3,303,691) $ - $ (3,735,381) $ (12,675,127) - Non-cash investing activity: Increase in cash surrender value of life insurance $ - $ - $ - $ - $ 13,340 The accompanying notes are an integral part of this statement. 14 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 14 of 56

15 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The University of Nevada, Reno Foundation (the Foundation ) is a non-profit corporation. The Foundation s mission is to serve as an innovative, flexible and efficient organization to facilitate the solicitation and management of gifts, grants, bequests and other revenues for the benefit of the University of Nevada ( University ) or any organizations that are affiliated with the University of Nevada and are exempt from Federal income taxation. The Foundation is considered to be a component unit and will be included in the basic financial statements of the University and the Nevada System of Higher Education ( NSHE ). A summary of the Foundation s significant accounting policies applied in the preparation of the accompanying financial statements follows. 1. Financial Reporting The financial statements of the Foundation have been prepared in accordance with generally accepted accounting principles ( GAAP ) as applied to governmental units. The Governmental Accounting Standards Board ( GASB ) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. Since the Foundation s funds are considered to be enterprise funds for financial reporting purposes, the Foundation follows the accrual basis of accounting, wherein revenues are recorded as earned and expenses are recorded as incurred. In order to ensure observance of limitations and restrictions placed on the use of resources available to the Foundation, its accounts are maintained in accordance with the principles of fund accounting. Resources for various purposes are classified for accounting and reporting purposes into funds established according to their nature and purpose. Separate accounts are maintained for each fund. Accordingly, all financial transactions have been recorded and reported by fund group as follows: Unrestricted Fund - Represents funds that are not restricted and are available for the general operations and programs of the Foundation. Restricted Fund - Represents funds that are restricted by the donor and may only be utilized in accordance with purposes established by such donors. These funds are primarily restricted for scholarships, capital projects and university programs. Endowment Fund - Represents funds that are subject to restrictions of gift instruments requiring that the principal be invested and only the income be utilized for their established purposes. Endowment income is primarily restricted for scholarships and university programs. Because endowment investment funds include funds derived originally from permanently restricted gifts, the management of these funds is subject to Nevada law (NRS ), The Uniform Prudent Management of Institutional Funds. The Board of Trustees has a separate Investment Committee that reviews the performance and makes recommendations on the investments. 15 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 15 of 56

16 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 1. Financial Reporting - Continued The Foundation has adopted an investment policy that establishes an annual spendable objective, which is to provide funds for operating and capital expenses, and is calculated as 5.25% of the average market value of assets over the 12-quarter period ending on June 30 th of each previous year. Earnings in excess of 5.25% are reinvested into the corpus and are reported as Restricted Expendable on the Statement of Net Position. The spending objective is to be met through the use of interest, dividends, and, to the extent appropriate, accumulated capital gains and corpus. As of June 30, 2017, the Foundation has calculated the current spending objective and has distributed the funds, which are reported as a transfer between the restricted and endowment funds on the Statement of Support and Revenue, Expenses and Changes in Net Position. The Foundation s policy is to withhold distributions of income on endowments that are 10% or more under their historic gift value. 2. Recognition of Support and Revenue Donations, gifts and pledges received are recognized as income when all eligibility requirements are met, provided that the promise is verifiable, the resources are measurable and the collection is probable. For pledges received for endowed support, the revenue is deferred until payment is received. Pledges receivable are recorded at net present value using the appropriate discount rate. Pledges are examined on an annual basis to determine their collectability based upon the Foundation s collection history; an allowance is recorded for amounts where collection is uncertain. Donations, gifts and pledges received are recorded as unrestricted, restricted or endowed support depending on the existence and/or nature of any donor restrictions. 3. Cash and Cash Equivalents The Foundation considers all highly liquid short-term interest bearing investments purchased with an original maturity of three months or less and money market funds to be cash equivalents. Cash from all accounts are pooled for investment purposes. 4. Investments Investments in equity and debt securities with readily determinable fair values are stated at fair value. In such cases, fair value is determined based on quoted market prices. Investments that do not have readily available market values are stated at fair value as reported by the Foundation s Investment Manager. These investments include a diverse range of investment vehicles ( commingled funds ), including private equity, real estate and commodity funds. The valuation of these investments is based on the most recent value provided by the Investment Manager, with a June 30 as of date for most investments and a March 31 as of date for private equity and limited partnerships. To evaluate the overall reasonableness of the valuation and resulting carrying value, management obtains and considers the audited financial statements of such investments. Management believes this method provides a reasonable estimate of fair value. However, the recorded value may differ from the market value had a readily available market existed for such investments, and those differences could be material. Investments are stated at fair value, and realized and unrealized gains and losses are reflected in the Statement of Support and Revenue, Expenses and Changes in Net Position. The cost of investments sold is based on the average cost and/or first-in, first-out basis of all the shares of each investment held at the time of sale. Dividend and interest income are recognized when earned. 16 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 16 of 56

17 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 5. Depreciation Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. 6. Income Taxes The Foundation is a nonprofit corporation, exempt from income tax under Internal Revenue Code Section 501(c)(3), qualified for the charitable contribution deduction. Accordingly, no liability for Federal income taxes has been provided in the Foundation s financial statements. 7. Donated Assets and Services Donated assets are reflected as contributions in the accompanying statements at their acquisition value at the date of receipt. No amount for donated services has been reflected in the Foundation s financial statements, since no objective basis is available to measure the value of such services. Nevertheless, a substantial number of volunteers have donated significant amounts of their time to the Foundation s program services and its fundraising efforts. 8. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates made by management include the amount of net pledges receivable, the amount of expendable endowment income, and the fair value of investments. 9. Comparative Information The basic financial statements and the notes to the financial statements include certain prior-year summarized comparative information in total, but not by fund. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Foundation s basic financial statements for the year ended June 30, 2016 from which the summarized information was derived. 10. Recent Accounting Guidance In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. This Statement addresses accounting and financial reporting issues for irrevocable split-interest agreements. Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments. This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. GASB 81 is effective for fiscal years beginning after December 15, 2016 and should be applied retroactively. The anticipated impact of this pronouncement is uncertain at this time. 17 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 17 of 56

18 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE B - CASH AND INVESTMENTS Cash and cash equivalents consist of the following as of June 30: Cash $ 3,084,870 $ 2,133,191 Money market funds 23,001,146 23,775,072 Treasury Bill 1,599,750 - The fair value of investments consists of the following as of June 30: $ 27,685,766 $ 25,908, Equity investments $ 1,005,893 $ 779,257 Commingled funds 192,052, ,478,948 Certificates of deposit 13,737,785 12,064,112 Corporate bonds 6,488,128 - U.S. Government securities 15,957,099 15,496,723 $ 229,241,898 $ 203,819,040 At June 30, 2017, the Foundation s investments had the following maturities: Investment Maturities (in years) Fair Value Less than Equity investments $ 1,005,893 $ 1,005,893 $ - $ - Commingled funds 192,052, ,052, Certificates of deposit 13,737,785 5,710,223 8,027,562 - Corporate bonds 6,488,128-6,488,128 - U.S. Government securities 15,957,099 15,553, ,316 - $ 229,241,898 $ 214,322,892 $ 14,919,006 $ - 18 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 18 of 56

19 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE B - CASH AND INVESTMENTS - Continued Investments are recorded in the following funds at June 30: Unrestricted Fund $ 3,278,181 $ 5,849,165 Restricted Fund 61,525,211 46,440,742 Endowment Fund 164,438, ,529,133 $ 229,241,898 $ 203,819,040 The cumulative net appreciation of investments is as follows for the years ended June 30: Unrestricted Fund $ 800,664 $ 980,527 Restricted Fund 4,850,682 1,967,892 Endowment Fund 18,322,400 13,236,414 $ 23,973,746 $ 16,184,833 The Foundation s investment policy for cash and cash equivalents is to exercise sufficient due diligence to minimize investing cash and cash equivalents in instruments that will lack liquidity. The Foundation, through its Investment Managers, considers the cash and cash equivalents to consist of two discrete pools of funds: a short term pool and an intermediate term pool. The short-term pool shall be funded in an amount sufficient to meet the expected daily cash requirements of the Foundation. The goals of the investments are to maintain the principal in the account while maximizing the return on the investments. The short-term pool is staggered in 30, 60 and 90 day investments. Appropriate types of investments are money market funds, certificates of deposit, commercial paper, U.S. Treasury bills and notes, mortgage backed securities (U.S. Government) and internal loans to the University secured by a promissory note with an appropriate interest rate. The intermediate term pool is invested in fixed income securities generally having an average maturity of three years or less in order to take advantage of higher yields. It is the policy of the investment program to invest according to an asset allocation strategy that is designed to meet the goals of the Endowment Investment Objective. The strategy will be based on a number of factors, including: The projected spending needs; The maintenance of sufficient liquidity to meet spending payments; Historical and expected long-term capital market risk and return behaviors; and The relationship between current and projected assets of the Endowment and its spending requirements. 19 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 19 of 56

20 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE B - CASH AND INVESTMENTS - Continued This policy provides for diversification of assets in an effort to maximize the investment return and manage the risk of the Endowment consistent with market conditions. Asset allocation modeling identifies asset classes the Endowment will use and the percentage each class represents in the total fund. Due to the fluctuation of market values, positioning within a specified range is acceptable and constitutes compliance with the policy. It is anticipated that an extended period of time may be required to fully implement the asset allocation policy, and that periodic revisions will occur. Investment Program Strategy As a result of the above process, the Board has adopted the following asset allocation targets and ranges, exclusive of amounts transferred to the Endowment s operating account: Asset Allocation Targets and Ranges Min Wt. Target Wt. Max Wt. Investment Risk Factors Equities 30% 40% 50% Global Equities 25% 30% 35% Private Markets 5% 10% 15% Fixed Income 32% 40% 48% Core US Fixed Income 12% 15% 18% High Yield Fixed Income 10% 15% 20% Alternative Debt 5% 10% 15% Alternatives 12% 20% 28% Real Estate 0% 10% 15% Real Assets 7% 10% 13% Cash 0% 0% 5% There are many factors that can affect the fair value of investments. Some factors, such as credit risk and concentrations of credit risk may affect fixed income securities, which are particularly sensitive to credit risks and changes in interest rates. The Investment Committee meets quarterly to review the investments and has policies regarding acceptable levels of risk. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of an organization s investment in a single issuer. The Foundation restricts investment of cash and cash equivalents and investments to financial institutions with high credit standing, and the Foundation currently purchases certificates of deposit of less than $250,000 per bank or institution. Commercial paper is limited to a maximum of 10% of the total cash and cash equivalents available. The Foundation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents and investments. 20 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 20 of 56

21 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE B - CASH AND INVESTMENTS - Continued Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. None of the investments held by the Foundation are rated by a nationally recognized statistical rating organization. Fixed income securities or obligations of the U.S. Government are not considered to have credit risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Foundation s investment policy limits the maturities of U.S. Treasury instruments and certificates of deposit to no more than 90 days unless the rate justifies the return and the current liquidity requirements are met. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. Foreign investments are monitored by the Investment Manager, and the Foundation has policies in place to address foreign currency risk. Custodial Credit Risk Deposits In the case of deposits, this is the risk that in the event of a bank failure, the Foundation s deposits exceed FDIC limits and as a result may not be insured and returned to the Foundation. All cash deposits are primarily on deposit with two financial institutions and several investment companies. The Foundation does not have a deposit policy for custodial credit risk. As of June 30, 2017, the Foundation s bank balances totaled $25,513,016. Of this balance, $1,250,000 was covered by depository insurance and/or collateralized and $18,121,844 is held by State Street Government Securities and subject to their investment policies. The remaining $6,141,172 was uninsured and uncollateralized and, as a result, was subject to custodial credit risk at June 30, Custodial Credit Risk Investments For an investment, this is the risk that, in the event of the failure of the counterparty, the Foundation will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Investments consist primarily of commingled funds. Debt and equity securities other than open-end mutual funds are uncollateralized. Redemption Notice Certain commingled investments classified as current have notice requirements before the investment can be redeemed; these requirements range from 1-30 days. Other commingled investments have set dates upon which they can be redeemed; these investments have been classified as long-term based on these dates. Commitments As of June 30, 2017, the Foundation has commitments to acquire approximately $14.7 million in commingled funds. 21 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 21 of 56

22 University of Nevada, Reno Foundation NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2017 NOTE C - FAIR VALUE MEASUREMENTS The Foundation has valued their investments based on the following level of inputs: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange market. Level 2 Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs which are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes agency mortgage-backed debt securities and derivative contracts. Level 3 Unobservable inputs that are supported by little or no market activities and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes private equity, real estate and commingled investments where independent pricing information was not able to be obtained for a significant portion of the underlying assets. Net asset value ( NAV ) - The amount of net assets attributable to each unit outstanding at the close of the period. The assets or liabilities fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value: Commingled funds Valued at NAV or at quoted prices if traded in active markets. Residual interest in irrevocable trust Assets held in commingled funds are valued at NAV. Assets held in trust represents the Foundation s beneficial interest in real estate, where fair value is estimated based on appraised value. Equity investments, certificates of deposit and U.S. Government securities Valued at the closing price reported on the active market on which the security is traded, if available. The methods described above may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 22 (UNR FOUNDATION 12/01/17) Ref. UNR-4a(1), Page 22 of 56