NATIONAL PEST MANAGEMENT ASSOCIATION, INC. AND AFFILIATE

Transcription

1 NATIONAL PEST MANAGEMENT ASSOCIATION, INC. AND AFFILIATE AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2013 AND 2012

2 Table of Contents Page Independent Auditor s Report 1-2 Audited Consolidated Financial Statements Consolidated Statements of Financial Position 3 Consolidated Statements of Activities and Changes in Net Assets 4 Consolidated Statements of Cash Flows

3 Independent Auditor s Report Board of Directors National Pest Management Association, Inc. Fairfax, Virginia We have audited the accompanying Consolidated Financial Statements of National Pest Management Association, Inc. and Affiliate (the Association), which comprise the Consolidated Statements of Financial Position as of June 30, 2013 and 2012, and the related Consolidated Statements of Activities and Changes in Net Assets and Cash Flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Pest Management Association, Inc. and Affiliate as of June 30, 2013 and 2012, and the consolidated changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Correction of Error As discussed in Note 1 to the consolidated financial statements, an error omitting the 457(b) retirement plan from the Association s Statement of Financial Position resulting in the understatement of amounts previously reported for investment assets and the related liability as of June 30, 2012, was discovered by management of the Association during the current year. Accordingly, balances related to the 457(b) investment asset and the related liability have been included in the 2012 financial statements now presented, and an adjustment has beeen made to correct the error. Our opinion is not modified with respect to this matter. Rockville, Maryland,

5 Consolidated Statements of Financial Position June 30, Assets Current assets Cash and cash equivalents $ 359,520 $ 573,446 Accounts receivable - trade 285, ,284 Accounts receivable - related parties ,359 Restricted investments - 457(b) plan 118, ,882 Inventory 139, ,203 Prepaid expenses 334, ,581 Restricted cash 54,746 46,847 Total current assets 1,292,500 1,285,720 Investments 1,123, ,648 Property and equipment, net 3,633,277 3,820,232 Total assets $ 6,048,916 $ 5,776,600 Liabilities and Net Assets Current liabilities Note payable, current portion $ 368,546 $ 8,500 Accounts payable and accrued expenses 165, ,830 Accounts payable - related parties 75,313 21,711 Deferred membership dues 613, ,684 Deferred revenue - convention and conferences 715, ,552 Accrued pension payable 55,278 55,246 Accrued 457(b) plan 118, ,882 Total current liabilities 2,111,357 1,582,405 Deposit - 3,107 Note payable - net of current portion - 368,630 Total long term liabilities - 371,737 Total liabilities 2,111,357 1,853,260 Net assets Unrestricted 3,937,559 3,872,840 Temporarily restricted - 50,500 Total net assets 3,937,559 3,923,340 Total liabilities and net assets $ 6,048,916 $ 5,776,600 The accompanying are an integral part of these financial statements

6 Consolidated Statements of Activities and Changes in Net Assets Years Ended June 30, Support and revenue Membership dues $ 1,762,391 $ 1,771,393 Convention 1,529,120 1,385,116 Sponsorship 587, ,682 Membership services 282, ,517 Conferences 600, ,511 Communications 89, ,015 Investment income 2,516 1,707 Investment unrealized gain (loss) - 457(b) plan 17,514 (8,319) Rental income 41,991 40,737 Contributions 34,318 17,243 Management fees and other income 181, ,681 Release of temporarily restricted net assets 50,500 1,325 Total support and revenue 5,181,070 4,901,608 Expenses Program services: Membership 37,293 24,790 Convention 853, ,806 Membership services 192, ,641 Conferences 680, ,791 Communications 122, ,249 Committees 174, ,002 Technical 21,739 20,115 Government affairs 35,717 31,872 Total program services 2,118,051 2,079,266 Supporting services: General and administrative 2,998,300 3,072,641 Total expenses 5,116,351 5,151,907 Change in unrestricted net assets 64,719 (250,299) Change in temporarily restricted net assets Contributions - 50,500 Net assets released from restrictions (50,500) (1,325) Change in temporarily restricted net assets (50,500) 49,175 Change in net assets 14,219 (201,124) Net assets, beginning of year 3,923,340 4,124,464 Net assets, end of year $ 3,937,559 $ 3,923,340 The accompanying are an integral part of these financial statements

7 National Pest Management Association, Inc. and Affiliate Consolidated Statements of Cash Flows Years Ended June 30, Cash flows from operating activities Change in net assets $ 14,219 $ (201,124) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 215, ,735 Provision for doubtful accounts (1,650) - Unrealized (gain) loss on restricted investment - 457(b) plan (17,514) 8,319 Loss on disposal of property and equipment 25,200 - Inventory obsolescence 29, ,948 (Increase) decrease in Accounts receivable - trade (104,075) 55,216 Accounts receivable - related parties 39,622 1,246 Inventory (47,734) (63,914) Prepaid expenses (9,944) (27,477) Restricted cash (7,899) (46,847) Increase (decrease) in Accounts payable and accrued expenses 38,778 36,798 Accounts payable - related parties 53,602 (21,742) Deferred membership dues 2, ,385 Deferred revenue - convention and conferences 56,622 (52,614) Deferred others (3,107) - Accrued 457(b) plan 17,514 (8,319) Accrued pension payable 32 7,403 Net cash provided by operating activities 300, ,013 Cash flows from investing activities Purchase of investments (753,420) (113,810) Proceeds from redemption of investments 300, ,123 Purchase of property and equipment (53,383) (120,838) Net cash used by investing activities (505,874) (122,525) Cash flows from financing activities Payments on note payable (8,584) (7,964) Net change in cash and cash equivalents (213,926) 204,524 Cash and cash equivalents, beginning of year 573, ,922 Cash and cash equivalents, end of year $ 359,520 $ 573,446 Supplemental cash flow information Interest paid $ 22,573 $ 23,138 The accompanying are an integral part of these financial statements

8 1. Organization and significant accounting policies National Pest Management Association, Inc. (the Association) was organized to promote improvement of business conditions in the pest control industry and to provide information and services to its members. The Association is located in Fairfax, Virginia; there are approximately forty-seven domestic and eight international chapters who operate independently, but with some chapters voluntarily electing to be Joint State chapters sharing membership with the Association. There are seven different classes of membership, including active members for pest management firms, allied members for suppliers and vendors involved in the industry, and associate members for individuals in a related field to pest management. The Pest Management Foundation, an affiliate of the Association, was organized for the purpose of receiving and administering funds for scientific, literary and educational activities. These activities are designed to encourage and foster research and study and provide scholarships in the field of pest control and allied pursuits in the United States and Canada. Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Association and its subsidiary, the Pest Management Foundation (collectively, the Association). All significant intercompany balances and transactions have been eliminated in consolidation. Basis of presentation: Net assets and revenues are classified based on the existence or absence of donor-imposed restrictions and reported as follows: Unrestricted net assets - net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets net assets subject to donor-imposed stipulations that will be met either by actions of the Association and/or the passage of time. In 2012, the Association collected funds donated by members in support of aid to Haiti after the earthquake disaster. Basis of accounting: The accompanying consolidated financial statements of the Association are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Cash and cash equivalents: For purposes of financial statement presentation, the Association considers all highly liquid debt instruments with initial maturities of ninety days or less to be cash equivalents. The Association maintains cash balances which may exceed federally insured limits. Management does not believe that this results in any significant credit risk

9 Accounts receivable: Accounts receivable consists primarily of amounts due for membership services, advertising and sponsorships, and from related parties for net agency transactions. The face amount of accounts receivable is reduced by an allowance for doubtful accounts. The allowance for doubtful accounts reflects the best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known troubled accounts. All accounts or portions thereof that are deemed to be uncollectible or that require an excessive collection cost are written off to the allowance for doubtful accounts. An allowance for uncollectible accounts of $2,742 and $4,392 was recorded at June 30, 2013 and 2012, respectively. Inventory: Inventory consists of resources and educational publications and is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Restricted cash: Restricted cash consists of funding set aside for expenses related to the Legal Defense Fund for defense against legislative issues involving the pest management members. Investments: Investments consist of a mortgage-backed security and a certificate of deposit which are carried at fair value. Investments also include money market funds that are valued at cost which approximates fair value. Restricted investments: Investments are held by the Association for a 457(b) plan for the prior executive director. No contributions were made in the years ended June 30, 2013 and All investments associated with the plan are considered Level 1. Property and equipment: Property and equipment include a building for the headquarters and office equipment and furniture, and are recorded at the original cost. The building and building improvements are depreciated over twenty-seven and a half years using the straight-line method. Equipment and furniture is depreciated over its useful life of three to ten years using the straight-line method. All fixed asset purchases greater than $500 are capitalized. Revenue recognition: Membership dues and membership services - Membership dues are recognized as revenue over the applicable membership period. Membership dues collected in advance are included in deferred revenue. Membership services are sales of inventory and are recorded as revenue at the time the item is shipped or delivered

10 Convention, sponsorship, and conference revenue - Sponsorship, conferences revenue and participant registration fees collected prior to the events are deferred and recognized in the period when the event takes place. Communications - Communications are subscriptions that are allocated to revenue on a monthly basis over the term of the subscription. Amounts collected in advance are included in deferred revenue. Publication revenue is recognized when the publication is shipped. Rental income The Association rents a portion of its office building to third parties. Rental income is recognized ratably over the term of the lease. Contributions - The Association recognizes all unconditional contributions as income in the period received or pledged. Unconditional contributions are reported as unrestricted, temporarily restricted or permanently restricted depending on the absence or existence of donor stipulations that limit the use of the contributions. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Management fees and other income The Association earns a management fee for administrative services provided to other associations with related missions. Prior period restatement: The 457(b) investment assets and the related liability (Note 6) were omitted in error from the 2012 consolidated financial statements. Subsequently, the Association determined that these balances should be reflected on the Consolidated Statements of Financial Position and the plan s activity included on the Consolidated Statements of Activities and Changes in Net Assets. To correct this accounting error, $100,882 has been added as a restricted investment at June 30, A liability in the amount of $100,882 has also been added. A loss on investments in the amount of $(8,319) for the year ended June 30, 2012 has been included along with a corresponding adjustment of $8,319 to salary expense. There was no impact to net assets at June 30, 2012 due to this restatement

11 Use of accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Functional expenses: The costs of providing the programs have been summarized on a functional basis in the Statements of Activities and Changes in Net Assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income taxes: The Association operates as a not-for-profit organization and has been recognized as tax exempt under Section 501(c)(6) of the Internal Revenue Code. The Foundation operates under Section 501(c)(3) of the Internal Revenue Code, and is classified as a public charity. The Association evaluates uncertainty in income tax positions taken or expected to be taken on a tax return based on a more-likely-than-not recognition standard. If that threshold is met, the tax position is then measured at the largest amount that is greater than 50% likely of being realized upon ultimate settlement and is recognized in the Association s financial statements. As of June 30, 2013 and 2012, there were no accruals for uncertain tax positions. If applicable, the Association records interest and penalties as a component of income tax expense. Tax years from June 30, 2010 through the current year remain open for examination by federal and state tax authorities. Subsequent events: Management has evaluated subsequent events for disclosure in these financial statements through, 2013, which was the date the financial statements were available to be issued. 2. Investments Investments are presented in the financial statements at fair market value. The following is a summary of the investments as of June 30: Investments Money market funds $ 1,123,139 $ 558,537 Certificate of deposit - 112,111 Total investments $ 1,123,139 $ 670,

12 Restricted investments 457(b) plan Mutual funds $ 118,396 $ 100,882 Total restricted investments 457(b) plan $ 118,396 $ 100,882 Investment income consisted of the following for the years ended June 30: Interest and dividends $ 2,515 $ 1,707 Unrealized gain (loss) 17,514 (8,319) Total $ 20,029 $ (6,612) 3. Fair value The Association values certain investments at fair value in accordance with a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3. Unobservable inputs in which there is little or no market data, which require the entity to develop its own assumptions. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement

13 The fair value is as follows at June 30: 2013 Total Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Identical Observable Assets Inputs (Level 1) (Level 2) Money market funds $ 1,123,139 $ 1,123,139 $ - Mutual funds 118, ,396 - Total $ 1,241,535 $ 1,241,535 $ Total Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Identical Observable Assets Inputs (Level 1) (Level 2) Certificate of deposit $ 112,111 $ - $ 112,111 Money market 558, ,537 - Mutual funds 100, ,882 - Total $ 771,530 $ 659,419 $ 112,111 Level 2 value for the certificate of deposit was estimated based on inputs including current interest rates for similar maturities. The money market funds are valued at cost

14 4. Property and equipment Property and equipment consisted of the following at June 30: Land $ 609,948 $ 609,948 Furniture and equipment 887, ,381 Building 3,463,404 3,463,404 Building improvements 93,213 87,032 Total 5,053,947 5,025,765 Less: Accumulated depreciation (1,420,670) (1,205,533) Net $ 3,633,277 $ 3,820,232 Depreciation expense for the years ended June 30, 2013 and 2012 was $215,137 and $213,735, respectively. 5. Note payable and line of credit The Association has a note payable secured by the building. The note payable is a five-year balloon mortgage due on May 22, 2014, at which time the Association will either pay the balance in its entirety or refinance the remaining balance. The note has an interest rate of 5.99%, with payments calculated on a 30-year amortization schedule. The Association is subject to financial and non-financial covenants under the note. The Association was in default due to the financial ratio covenant as of June 30, The bank waived the default for one period ending June 30, Scheduled maturities of the Association s note payable are as follows: Year Ending June 30, Amount 2014 $ 368,546 Total $ 368,546 The Association paid total interest of $22,573 and $23,138 for the years ended June 30, 2013 and 2012, respectively. In addition, the Association had a line of credit with a limit of $100,000 with no balance outstanding at June 30, The line carried a variable interest rate based on WSJ Prime with a floor of 4.00% and expired on May 31,

15 6. Retirement plan The Association has a defined contribution plan, covering substantially all employees. In addition to employee deferral contributions, employer contributions are made at the discretion of the Executive Compensation Committee. Pension expense was $51,787 and $82,848 for the years ended June 30, 2013 and 2012, respectively. The Association has a 457(b) non-qualified deferred compensation agreement with the former executive director who left the Association in September The agreement had called for payments to be set aside each year up to $10,000 and these amounts plus earnings (losses) thereon would accumulate in an account to be paid out at some point after his separation from service. At June 30, 2013 and 2012, $118,396 and $100,882, respectively, were recorded as assets and liabilities for this arrangement. At June 30, 2013, arrangements are being made for distribution of the account. 7. Related parties and agency transactions The Professional Pest Management Alliance (PPMA) is a 501(c)(6) organization that receives administrative support from the Association. For the years ended June 30, 2013 and 2012, the Association collected $176,445 and $62,768 in revenue on behalf of PPMA, and paid $295,367 and $280,964 in expenses on behalf of PPMA. The Association received $150,220 and $215,043 in reimbursements from PPMA during the years ended June 30, 2013 and The Association charges a $50,000 administrative management fee per year to PPMA. At June 30, 2013, PPMA had a credit balance of $731. At June 30, 2012, PPMA owed a balance of $30,566 for the excess of expenses over revenues and reimbursements to the Association; the receivable is classified as accounts receivable - related party on the Consolidated Statements of Financial Position. The Association also provides administrative support to the Foundation for Professional Pest Management, Inc. (Quality Pro), a 501(c)(6) organization which promotes qualified pest management professionals. For the years ended June 30, 2013 and 2012, the Association collected $75,307 and $34,509 in application fee revenue on behalf of Quality Pro, and paid $105,061 and $15,110 in expenses on behalf of Quality Pro. The Association received $38,080 and $60,000 in reimbursements from Quality Pro during the years ended June 30, 2013 and 2012, respectively. The Association charged an administrative fee of $75,000 for the years ended June 30, 2013 and 2012, respectively. At June 30, 2013 and 2012, Quality Pro owed a balance of $1,468 and $9,793 for the excess of expenses over revenues and reimbursements to the Association; the receivable is classified as accounts receivable - related party on the Consolidated Statements of Financial Position

16 The Association processes membership dues for various Joint State chapters, and reimburses the state chapters accordingly. For the years ended June 30, 2013 and 2012, the Association owed $75,313 and $21,711, respectively, to various Joint State chapters. The payable is classified as accounts payable related party on the Consolidated Statements of Financial Position