Dutchess Community College Foundation, Inc. Financial Statements. August 31, 2011 and 2010

Transcription

1 Financial Statements August 31, 2011 and 2010

2 Independent Auditors Report Board of Directors Dutchess Community College Foundation, Inc. We have audited the accompanying statements of financial position of the Dutchess Community College Foundation, Inc. (the Foundation ) as of August 31, 2011 and 2010 and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Dutchess Community College Foundation, Inc. at August 31, 2011 and 2010 and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. New Windsor, New York December 19, Hudson Valley Avenue, New Windsor, NY Tel: Fax:

3 Statement of Financial Position August 31, ASSETS Cash and cash equivalents $ 276,653 $ 274,687 Investments 6,710,284 5,695,539 Pledges receivable, net 38,050 24,538 Other assets 33,527 39,833 $ 7,058,514 $ 6,034,597 LIABILITIES AND NET ASSETS (DEFICIENCY) Liabilities Accounts payable and accrued expenses 69,670 41,979 Deferred revenue 18,545 21,605 Total Liabilities 88,215 63,584 Net Assets (Deficiency) Unrestricted 141,045 (168,847) Temporarily restricted 1,771,425 1,659,375 Permanently restricted 5,057,829 4,480,485 Total Net Assets 6,970,299 5,971,013 $ 7,058,514 $ 6,034,597 See notes to financial statements 2

4 Statement of Activities Year Ended August 31, 2011 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions and gifts $ 231,771 $ 236,891 $ 500,479 $ 969,141 Non-cash contributions 18, ,460 In-kind support 302, ,808 Investment return 51, , ,387 Special events, net of expenses of $157, , ,796 Other 2, ,629 Net assets released from restrictions Restrictions satisfied 431,507 (431,507) - - Donor re-designation - (76,865) 76,865 - Total Revenue and Support 1,148, , ,344 2,037,221 EXPENSES Education grants 388, ,697 Other program costs 153, ,861 Management and general 299, ,645 Fundraising 195, ,732 Total Expenses 1,037, ,037,935 Change in Net Assets 110, , , ,286 NET ASSETS (DEFICIENCY) Beginning of year (168,847) 1,659,375 4,480,485 5,971,013 NYPMIFA reclassification 199,058 (199,058) - - End of year $ 141,045 $ 1,771,425 $ 5,057,829 $ 6,970,299 See notes to financial statements 3

5 Statement of Activities Year Ended August 31, 2010 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions and gifts $ 235,525 $ 258,528 $ 83,667 $ 577,720 Non-cash contributions 1, ,942 In-kind support 354, ,698 Investment return 119, , ,764 Special events, net of expenses of $139,590 86, ,048 Net assets released from restrictions 326,798 (326,798) - - Total Revenue and Support $ 1,124,640 $ 236,865 $ 83,667 $ 1,445,172 EXPENSES Education grants 400, ,163 Equipment grants 3, ,038 Other program costs 206, ,850 Management and general 368, , Fundraising 229, ,736 Total Expenses 1,208, ,208,453 Change in Net Assets (83,813) 236,865 83, ,719 NET ASSETS (DEFICIENCY) Beginning of year (85,034) 1,422,510 4,396,818 5,734,294 End of year $ (168,847) $ 1,659,375 $ 4,480,485 $ 5,971,013 See notes to financial statements 4

6 Statements of Cash Flows Years Ended August 31, CASH FLOWS FROM OPERATING ACTIVITIES Cash received from contributors, events and other $ 714,221 $ 853,126 Cash paid for scholarships and grants (378,444) (437,521) Cash paid to suppliers (610,703) (648,054) Net Cash from Operating Activities (274,926) (232,449) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (634,610) (180,979) Cash received from interest and dividends 152, ,919 Proceeds from sale of investments 258, ,893 Net Cash from Investing Activities (223,587) 126,833 CASH FLOWS FROM FINANCING ACTIVITIES Endowment contributions 500,479 83,667 Net Change in Cash and Cash Equivalents 1,966 (21,949) CASH AND CASH EQUIVALENTS Beginning of year 274, ,636 End of year $ 276,653 $ 274,687 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH FROM OPERATING ACTIVITIES Cash flows from operating activities Change in net assets $ 999,286 $ 236,719 Adjustments to reconcile change in net assets to net cash from operating activities Realized and unrealized gains on investments (504,953) (300,511) Interest and dividends (152,796) (145,919) Contributions restricted for long-term purposes (500,479) (83,667) Provision for uncollectible pledges 3,874 (11,532) Donated stock (133,409) (101,808) Changes in operating assets and liabilities Pledges receivable (17,386) 234,652 Other assets 6,306 (28,375) Accounts payable and accrued expenses 27,691 (42,208) Deferred revenue (3,060) 10,200 Net Cash from Operating Activities $ (274,926) $ (232,449) See notes to financial statements 5

7 1. Organization and Taxation Dutchess Community College Foundation, Inc. (the "Foundation") was established to raise funds to provide scholarships and support for important initiatives that will have a significant and measurable impact on students, faculty and staff of Dutchess Community College. The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and has been classified by the Internal Revenue Service as an organization that is not a private foundation as defined under Section 509(a)(1) of the Internal Revenue Code. 2. Summary of Significant Accounting Policies Use of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Financial Statement Presentation Net assets, revenue, and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as unrestricted, temporarily restricted and permanently restricted net assets. Revenue Recognition Direct public support and donations are recognized when the donor makes a promise to give that is, in substance, unconditional. Named scholarship contributions received in advance of the related award date are deferred. Contributions are recorded as temporarily restricted net assets and revenue and support if they are received with donor imposed stipulations that limit their use. Donor restrictions expire by either the passage of stipulated time or the accomplishment of the stated purpose. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Temporarily restricted contributions that are received and expended in the same period are considered unrestricted. 6

8 2. Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) Permanently restricted contributions are those funds whose use is limited by donor imposed restrictions that neither expire by the passage of time nor can be fulfilled or otherwise removed by actions of the Board of Directors. Generally, the donors of these assets permit the Foundation to use a fixed percentage of the increase in market value of the related investments for scholarship or other specific purposes, subject to the provisions of the Foundation s spending plan. The Foundation established the minimum level of funding to establish an endowment at $10,000. Fair Value of Financial Instruments The Foundation follows Financial Accounting Standards Board ( FASB ) guidance on Fair Value Measurements which defines fair value and establishes a fair value hierarchy organized into three levels based upon input assumptions used in pricing assets. Level 1 inputs have the highest reliability and are related to assets with unadjusted quoted prices in active markets. Level 2 inputs relate to assets with other than quoted prices in active markets which may include quoted prices for similar assets or liabilities or other inputs which can be corroborated by observable market data. Level 3 inputs are unobservable inputs and are used to the extent that observable inputs do not exist. The value of the Foundation s investments by input level are included in Note 3 to the financial statements. Cash and Cash Equivalents The Foundation considers all highly liquid debt instruments with a maturity of three months or less, at the time of purchase, to be cash and cash equivalents. Pledges Receivable Pledges receivable are recorded when the contribution is received, or in the case of unconditional promises to give, when the promise is made. An estimate of uncollectible promises has been made and included as an offset to pledges receivable. All unconditional pledges receivable greater than one year are recorded at their estimated realizable value on a discounted basis. The discount is recognized as a reduction in contribution income and is amortized over the duration of the pledges. 7

9 2. Summary of Significant Accounting Policies (continued) Investments Valuation Investments are measured at fair value. The fair value of alternative investments has been estimated using the Net Asset Value ( NAV ) as reported by the management of the respective alternative investment fund. FASB guidance provides for the use of NAV as a Practical Expedient for estimating fair value of alternative investments. NAV reported by each alternative investment fund is used as a practical expedient to estimate the fair value of the Foundation s interest therein and their classification within Level 2 or 3 is based on the Foundation s ability to redeem its interest in the near term. Investment Income Recognition Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses are included in the determination of change in net assets. Investment gains and losses, both realized and unrealized, are reported in the statement of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. The Foundation has a policy of pooling its funds for investment purposes. Investment income is allocated to the individual funds comprising unrestricted, temporarily restricted and permanently restricted net assets based upon each respective fund s share of the investment pool. Endowment On September 17, 2010, New York State adopted the Uniform Prudent Management of Institutional Funds Act ( NYMIFA ). NYPMIFA includes provisions that differ from previous law, including the elimination of the historic dollar value rule with respect to endowment spending (except with respect to any endowment fund for which the historic dollar value rule has been expressly elected by the donor), establishment of new standards governing the expenditure and modification of restrictions on endowment funds, and revision of the prudence standard for the management and investment of endowment funds. The adoption of NYPMIFA in 2011 resulted in the reclassification within donor-restricted endowment funds of $199,058 from temporarily restricted net assets to unrestricted net assets. Non-Cash Contributions Non-cash contributions including investments are recorded as contributions at their estimated fair values at the date of donation. 8

10 2. Summary of Significant Accounting Policies (continued) In-kind Support The Foundation uses office space and equipment provided by Dutchess Community College. In-kind contribution expense is not recorded for rent or equipment because management believes recording in-kind rent and equipment would be misleading as the sole purpose of the Foundation is to operate for the benefit of the College. Personnel costs for Dutchess Community College employees who provide services to the Foundation have been recognized in the financial statements. The Foundation receives, without charge, the services of various volunteers. The value of those services is not recognized in the accompanying financial statements because it does not meet the criteria for recognition. Advertising The Foundation expenses advertising costs as incurred. Advertising costs for the years ended August 31, 2011 and 2010 were $12,240 and $5,474. Allocation of Expenses The costs of providing programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programmatic and supporting services benefited. Such allocations are determined by management. Artwork The Foundation has a collection of artwork that is on public display at Dutchess Community College. The Foundation has adopted a policy in which the collection of artwork is not capitalized. The purchase or donation of artwork is not recognized as an asset. Purchases of artwork are a reduction to net assets in the period when purchased. Proceeds from sales or insurance recoveries are recorded as increases in net assets when received. There was no donated artwork received, proceeds from sales or insurance recoveries during the years ended August 31, 2011 and Accounting for Uncertainty in Income Taxes The Foundation recognizes the effects of tax positions only when they are more likely than not to be sustained. Management has determined that the Foundation had no uncertain tax positions that would require financial statement recognition. The Foundation is no longer subject to audits by the applicable taxing jurisdictions for periods prior to August 31,

11 2. Summary of Significant Accounting Policies (continued) Subsequent Events Evaluation by Management Management has evaluated subsequent events for disclosure and recognition in the financial statements through the date that the financial statements were available to be issued, which date is December 19, Endowment, Investments and Investment Return Interpretation of Law Consistent with its interpretation of NYPMIFA, the Foundation classified as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by NYPMIFA. Return Objectives and Risk Parameters The Foundation maintains various donor-restricted funds whose purpose is to provide long term support for its charitable programs. Endowment funds are maintained in the Common Fund ( Crossfund Investments ). The Common Fund is a non-profit membership consortium devoted exclusively to providing public and private colleges, universities and independent schools with investment management services for their endowment and operating funds. In classifying such funds for financial statement purposes as either permanently restricted, temporarily restricted or unrestricted net assets, the Board of Directors look to the explicit directions of the donor where applicable and the provisions of the laws of the State of New York. The Board has determined that, absent donor stipulations to the contrary, the provisions of New York State law do not impose either a permanent or temporary restriction on the income or capital appreciation derived from the original gift. The Foundation also has other investments in equity and fixed income securities which include a portfolio containing mutual funds, fixed income investments and money market funds that supports two $75,000 donor-endowed scholarship funds. Pursuant to an agreement with the donors, the amounts contributed are maintained in a portfolio at a donor-designated financial institution. The market value of the first portfolio at August 31, 2011 and 2010 was $69,251 and $66,175. During the year ended August 31, 2011, a second donor-endowed scholarship fund was established which market value was $62,266 at August 31,

12 3. Endowment, Investments and Investment Return (continued) Return Objectives and Risk Parameters (continued) The Foundation utilizes a total return investment approach with its asset allocation diversified over multiple asset classes and sub classes. The overall investment objective of the Foundation s donor-restricted endowment funds and donor-endowed scholarship funds (collectively, the Endowment ) is to provide the greatest level of support for academic programs and scholarships of the Foundation consistent with the preservation of purchasing power of the Endowment. To balance the current and future needs for academic programs and scholarships, the Foundation seeks to maintain or enhance the real (inflation-adjusted) purchasing power of the Endowment, net of payments pursuant to the spending policy described below. This objective leads to an equity-oriented investment strategy, which in turn implies that the total market value and amount available to support the Foundation s operations will likely fluctuate from year to year. The investment performance objective is to attain, over a majority of market cycles, an absolute rate of return, net of fees, of at least 5% per annum. Spending Rate Methods The Foundation has adopted a policy of annually expending amounts from its invested funds maintained as Endowment funds to support academic programs and scholarships at a fixed 5% of the endowed scholarship balance as of the end of the previous fiscal year. Discretion of the Board may be exercised to allocate funds below or in excess of the 5% rate should long-term economic conditions warrant the allocation. In addition, with the approval of its Board of Directors, the Foundation has used Board designated quasiendowment funds for academic purposes. If permanently restricted endowment funds have experienced losses below the permanently restricted amount of such funds due to market fluctuations, generally accepted accounting principles require that such excess losses be absorbed by the unrestricted net assets of the Foundation and that future gains be allocated to unrestricted net assets until such losses have been restored. The aggregate, cumulative amount of such losses absorbed by the unrestricted net assets at August 31, 2010 was $197,791. During the year ended August 31, 2010, $149,388 of Endowment funds were restored and new losses on other funds were recognized of $48,403, resulting in a net restoration of $100,985 which is classified within capital appreciation. As of August 31, 2011, the Foundation had no donor-restricted endowment funds below historic cost value. During the year ended August 31, 2011, $48,403 was restored. During 2011, several of the Foundation s funds established for endowment met the $10,000 minimum level of funding which resulted in a transfer of assets of $76,865 from temporarily restricted net assets to permanently restricted net assets which amount has been reported as donor re-designation in the statement of activities. 11

13 3. Endowment, Investments and Investment Return (continued) The following is a reconciliation of the activity in the endowment funds during the year ended August 31, 2011: Temporarily Permanently Unrestricted Restricted Restricted Total Balance, September 1, 2010 $ 208,877 $ 363,561 $ 4,480,485 $ 5,052,923 Contributions - 2, , ,711 Investment income, net 5,092 35,198-40,290 Capital appreciation 20, , ,307 Donor re-designation ,865 76,865 Appropriation for scholarships and other expenses (3,000) (122,169) - (125,169) Balance, August 31, 2011 $ 231,155 $ 751,498 $ 5,039,274 $ 6,021,927 Comprised of the Following: Donor restricted funds $ - $ 751,498 $ 5,039,274 $ 5,790,772 Board designated funds 231, ,155 Total Endowment Investments $ 6,021,927 The following is a reconciliation of the activity in the endowment funds during the year ended August 31, 2010: Temporarily Permanently Unrestricted Restricted Restricted Total Balance, September 1, 2009 $ 93,951 $ 209,859 $ 4,396,818 $ 4,700,628 Contributions 3,063 12,325 83,667 99,055 Investment income, net 4, , ,104 Capital appreciation 112, , ,378 Appropriation for scholarships and other expenses (5,414) (74,828) - (80,242) Balance, August 31, 2010 $ 208,877 $ 363,561 $ 4,480,485 $ 5,052,923 Comprised of the Following: Donor restricted funds $ - $ 363,561 $ 4,480,485 $ 4,844,046 Board designated funds 208, ,877 Total Endowment Investments $ 5,052,923 12

14 3. Endowment, Investments and Investment Return (continued) The following are major categories of investments measured at fair value at August 31, 2011: Total Level 1 Level 2 Equities Domestic equity $ 26,688 $ 26,688 $ - Money market funds - Domestic equity 60,079 60,079 - Fixed income 44,750 44,750 - Alternative investments 6,499,597-6,499,597 U.S. Government securities 21,285-21,285 Total Investments at Fair Value 6,652,399 $ 131,517 $ 6,520,882 Cash equivalents 57,885 Total Investments $ 6,710,284 The following are major categories of investments measured at fair value at August 31, 2010: Total Level 1 Level 2 Equities $ 58,643 $ 32,118 $ 26,525 Alternative investments 5,571,414-5,571,414 U.S. Government securities 57,899 57,899 - Total Investments at Fair Value 5,687,956 $ 90,017 $ 5,597,939 Cash equivalents 7,583 Total Investments $ 5,695,539 Investment return consists of the following for the years ended August 31: Interest and dividends $ 152,796 $ 145,919 Realized losses (1,391) (1,173) Unrealized gains 506, ,684 Investment fees (23,362) (21,666) $ 634,387 $ 424,764 13

15 3. Endowment, Investments and Investment Return (continued) Information regarding alternative investments valued using the practical expedient at August 31, 2011 is as follows: Unfunded Redemption Frequency Redemption Fair Value Commitments (If Currently Eligible) Notice Period Common Trust funds Multi-Strategy Equity Fund (see "a" below) $ 3,748,648 $ - Monthly 5 days Multi-Strategy Bond Fund (see "b" below) 2,750,949 - Monthly 5 days $ 6,499,597 $ - a) This category is comprised of a fund of funds which invests in a variety of equity oriented strategies which pursue long/short equity, event driven and other investment strategies. b) This category is comprised of a fund of funds which invests in a broad variety of fixed income oriented strategies, including but not limited to core fixed income, global, credit and opportunistic strategies. Investments Risks and Uncertainties Alternative Investments consist of non-traditional, not readily marketable investments, some of which may be structured as offshore limited partnerships, venture capital funds, hedge funds, private equity funds and common trust funds. The underlying investments of such funds, whether invested in stock or other securities, are generally not currently traded in a public market and typically are subject to restrictions on resale. Values determined by investment managers and general partners of underlying securities that are thinly traded or not traded in an active market may be based on historical cost, appraisals, a review of the investees financial results, financial condition and prospects, together with comparisons to similar companies for which quoted market prices are available or other estimates that require varying degrees of judgment. Investments are carried at fair value. Because of the inherent uncertainty of valuations, the estimated fair values may differ significantly from the values that would have been used had a ready market for such investments existed or had such investments been liquidated, and those differences could be material. At August 31, 2011 and 2010, two individual investments represented 97% and 98% of total investments. 14

16 4. Pledges Receivable, Net Pledges receivable, net consists of the following at August 31: Due in one year $ 44,796 $ 24,410 Due in one to five years - 3,000 44,796 27,410 Less allowance for uncollectible pledges (6,746) (2,872) Net Pledges Receivable $ 38,050 $ 24, Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes at August 31: Scholarships $ 1,158,787 $ 1,271,782 Grants 3,077 36,984 Other programs 609, ,609 Total $ 1,771,425 $ 1,659,375 Temporarily restricted net assets were released from restriction for the following purposes at August 31: Scholarships $ 335,197 $ 163,296 Grants 78, ,868 Endowed Chairs 10,487 7,500 Other programs 84,110 37,134 Total $ 508,372 $ 326,798 15

17 7. Permanently Restricted Net Assets Permanently restricted net assets consist of amounts received which are permanently endowed to support the following at August 31: Scholarships $ 3,047,296 $ 2,481,883 Endowed Chairs 200, ,733 Other programs 1,810,300 1,798,869 Total $ 5,057,829 $ 4,480, Functional Expenses The Foundation s expenses by functional classification are as follows at August 31: Program Services $ 542,558 $ 610,051 Management and general 299, ,666 Fundraising 195, , In-Kind Support $ 1,037,935 $ 1,208,453 In-kind support was provided by the Dutchess Community College and is included within revenue and expenses for the years ended August 31, as follows: Program Services $ 25,736 $ 24,608 Management and general 112, ,804 Fundraising 164, ,286 Total Expenses $ 302,808 $ 354, Concentrations of Credit Risk Financial instruments that potentially subject the Foundation to concentrations of credit risk consist principally of cash accounts in financial institutions, alternative investments and receivables which are expected to be collected in the normal course of business. Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in investments in the near term would materially affect the amounts reported in these financial statements. 16