GLOBAL DEVELOPMENT INCUBATOR, INC.

Transcription

1 GLOBAL DEVELOPMENT INCUBATOR, INC. Financial Statements (With Summarized Financial Information for the Year Ended December 31, 2016) and Report Thereon Reports Required in Accordance with the Uniform Guidance

2 TABLE OF CONTENTS Independent Auditor s Report Financial Statements Page Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Notes to Financial Statements Supplemental Information Schedule of Functional Expenses Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs

3

4

5 STATEMENT OF FINANCIAL POSITION December 31, 2017 (With Summarized Financial Information as of December 31, 2016) ASSETS Cash and cash equivalents $ 1,735,358 $ 1,291,297 Restricted cash 1,931,549 - Accounts receivable, net 459, ,915 Grants and contributions receivable 377, ,118 Prepaid expenses 2,219 35,912 Property and equipment, net - 2,801 TOTAL ASSETS $ 4,505,671 $ 2,320,043 LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses $ 789,231 $ 540,846 Deferred revenue 620, ,439 Funds held on behalf of others 1,931,549 - TOTAL LIABILITIES 3,341,473 1,116,285 Net Assets Unrestricted 561, ,085 Temporarily restricted 602, ,673 TOTAL NET ASSETS 1,164,198 1,203,758 TOTAL LIABILITIES AND NET ASSETS $ 4,505,671 $ 2,320,043 The accompanying notes are an integral part of these financial statements

6 STATEMENT OF ACTIVITIES (With Summarized Financial Information for the Year Ended December 31, 2016) Temporarily Unrestricted Restricted Total Total REVENUE AND SUPPORT Grants and contributions $ 1,613,955 $ 1,689,337 $ 3,303,292 $ 5,201,976 Program services 3,021,845-3,021,845 2,090,283 Donated services 218, , ,576 Interest income 1,404-1,404 1,658 Net assets released from purpose restrictions 2,041,518 (2,041,518) - - TOTAL REVENUE AND SUPPORT 6,897,168 (352,181) 6,544,987 7,506,493 EXPENSES Program Services: AgEnterprise 2,979,829-2,979,829 5,366,225 Beyond Health 1,315,892-1,315,892 1,968,337 Impact Escalated 1,172,058-1,172, ,299 Development Frontier 876, , ,830 Total Program Services 6,344,705-6,344,705 8,964,691 Supporting Services: General and administrative 239, , ,720 Fundraising ,721 Total Supporting Services 239, , ,441 TOTAL EXPENSES 6,584,547-6,584,547 9,396,132 CHANGE IN NET ASSETS 312,621 (352,181) (39,560) (1,889,639) NET ASSETS, BEGINNING OF YEAR 249, ,673 1,203,758 3,093,397 NET ASSETS, END OF YEAR $ 561,706 $ 602,492 $ 1,164,198 $ 1,203,758 The accompanying notes are an integral part of these financial statements

7 STATEMENT OF CASH FLOWS (With Summarized Financial Information for the Year Ended December 31, 2016) Increase (Decrease) in Cash and Cash Equivalents CASH FLOW FROM OPERATING ACTIVITIES Change in net assets $ (39,560) $ (1,889,639) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 2,801 1,120 Provision for bad debt expense 9,406 - Changes in assets and liabilities: Accounts receivable 263,033 (444,388) Grants and contributions receivable (118,951) 28,870 Prepaid expenses 33,693 (32,977) Accounts payable and accrued expenses 248,385 68,051 Deferred revenue 45,254 (110,287) Funds held on behalf of others 1,931,549 - NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,375,610 (2,379,250) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,375,610 (2,379,250) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,291,297 3,670,547 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,666,907 $ 1,291,297 SUPPLEMENTAL INFORMATION Reconciliation of cash and cash equivalents Cash and cash equivalents $ 1,735,358 $ 1,291,297 Restricted cash 1,931,549 - $ 3,666,907 $ 1,291,297 The accompanying notes are an integral part of these financial statements

8 NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Organization The Global Development Incubator, Inc. (GDI) was organized in November 2005 in the state of New York as a not-for-profit corporation pursuant to Section 501(c)(3) of the Internal Revenue Code (the IRC). GDI was created to advance and scale transformative perspectives in social impact. GDI takes a growth engineering approach to the creation and expansion of select ideas, organizations and initiatives that address urgent global problems. GDI is funded mainly through federal and nonfederal grants and contracts, and donor contributions. Basis of Accounting The financial statements of GDI have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Consequently, revenue is recognized when earned and expenses are recognized when the obligation is incurred. Cash and Cash Equivalents Cash and cash equivalents include demand deposits, money market accounts and all highly liquid investments with initial maturities of three months or less. Cash is held in separate accounts if deemed necessary by funding sources. Restricted Cash Restricted cash represents cash which is held in trust in accordance with the GDI s social impact bond agreement (see Note 2). Receivables Accounts receivable and grants and contributions receivable are stated at net realizable value. Accounts receivable are shown net of an allowance for doubtful accounts of $9,406 as of December 31, Property and Equipment and Accumulated Depreciation Property and equipment are recorded at cost. Depreciation on property and equipment, which primarily consists of computer equipment, is provided for on a straight-line basis over the estimated useful lives of the assets, which are three years. The cost of property and equipment retired or disposed of is removed from the accounts along with the related accumulated depreciation, and any gain or loss is reflected in the accompanying statement of activities. All additions in excess of $4,000 are capitalized while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Depreciation expense totaled $2,801 and accumulated depreciation totaled $5,041 as of and for the year ended December 31, Continued - 6 -

9 NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies (continued) Classification of Net Assets The net assets of GDI are reported as follows: Unrestricted net assets represent the portion of expendable funds that are available for support of GDI s operations. Temporarily restricted net assets represent amounts that are specifically restricted by donors or grantors for various purposes. Revenue Recognition GDI recognizes all unconditional contributed support in the period in which the commitment is made. Grants and contributions are considered unrestricted revenue and support and available for general operations unless specifically restricted by the donor. GDI reports grants of cash and other assets as temporarily restricted revenue and support if they are received with donor stipulations that limit the use of the donated assets to a particular purpose. When the stipulated purpose of the restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statement of activities as net assets released from restrictions. Revenue recognized on grants and contributions that have been committed to GDI, but have not been received, is reflected as grants and contributions receivable in the accompanying statement of financial position. Program service revenue is recognized as costs are incurred on the basis of direct costs plus allowable indirect expenses. Revenue recognized on contracts for which billings have not been presented to or collected from the donor or awarding agency is included in accounts receivable in the accompanying statement of financial position. Amounts received in advance that were not spent as of year-end are included in deferred revenue in the accompanying statement of financial position. Donated Services In-kind contributions are recognized as revenue and support and expenses in the accompanying statement of activities at their estimated fair value as provided by the donor, at the date of receipt. In-kind contributions consist of donated professional services. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the accompanying statement of activities. Accordingly, certain costs have been allocated proportionately among the programs and supporting services to which they relate on the basis of direct labor costs. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Continued - 7 -

10 NOTES TO FINANCIAL STATEMENTS 2. Social Impact Bond During 2017, GDI entered in to an agreement with three parties to act as a trustee of funds in relation to a unified project between the parties. As part of the agreement, GDI is responsible for disbursing funds to the grantees that the other parties agree upon, but has no input in the decision. GDI does not recognize revenue or expense related to these disbursement transactions, but is entitled to a management fee and interest income on the funds held in trust. GDI received $2,314,235 and disbursed $322,561 of the trustee funds, and recognized a management fee of $60,125, for the year ended December 31, The funds held in the trust as of December 31, 2017 totaled $1,931,549, and are included in restricted cash and funds held on behalf of others on the accompanying statement of financial position. 3. Temporarily Restricted Net Assets Temporarily restricted net assets, which include outstanding grants and restricted support received, are available for the following programs or purposes as of December 31, 2017: AgEnterprise $ 317,308 Development Frontier 142,044 Beyond Health 71,924 Impact Escalated 71,216 Total Temporarily Restricted Net Assets $ 602, Commitments Concentration of Credit Risk Financial instruments, which potentially subject GDI to concentration of credit risk, consist principally of cash balances maintained at various creditworthy financial institutions. While the amount at a given bank at times exceeds the amount guaranteed by federal agencies and, therefore, bears some risk, GDI has not experienced, nor does it anticipate, any losses on its funds. At December 31, 2017, the amount in excess of the Federal Deposit Insurance Corporation insured limit of $250,000 per depositor per institution was approximately $3,405,000. Major Funders For the year ended December 31, 2017, GDI recognized $3,625,167, or 55% of total revenue and support, directly from five funders. As of December 31, 2017, GDI was owed $261,450, or 31% of total receivables, by two funders. Continued - 8 -

11 NOTES TO FINANCIAL STATEMENTS 4. Commitments (continued) Operating Lease GDI entered into a lease agreement for office space in Washington, D.C., which commenced on September 1, 2013, and will expire upon mutual agreement between GDI and the landlord with one month s advance notice. The lease agreement calls for base monthly rental payments of $5,000, subject to no annual rent escalations. GDI also rents desk spaces in an office location in New York City, New York, for a monthly amount of $975 per desk. Rent expense totaled $136,003 for the year ended December 31, Provisional Indirect Cost Rates Billings under cost-reimbursable government contracts and grants are calculated using provisional rates that permit recovery of indirect costs. These rates are subject to audit by the United States Agency for International Development (USAID), GDI s grant awarding agency. The audit results in the negotiation and determination of the final indirect cost rates, which may create a liability for indirect cost recovery for amounts billed in excess of the actual rates, or may allow for additional billings for unbilled indirect costs. USAID has yet to audit the cost and indirect cost rate for the year ended December 31, Management believes that cost disallowances, if any, arising from USAID s audit will, not have a material effect on GDI s financial position as of December 31, 2017, or results of its operations for the year then ended. Office of Management and Budget Uniform Guidance GDI has instructed its independent auditors to audit its applicable federal programs for the year ended December 31, 2017, in compliance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance), issued by the U.S. Office of Management and Budget (OMB). Until such audit is reviewed and accepted by the contracting or granting agencies, there exists a contingent liability to refund any amounts received in excess of allowable costs. Management believes that any matters arising from the reviews by the federal or state agencies of the independent auditor s reports for the year ended December 31, 2017, will not have a material effect on GDI s financial position as of December 31, 2017, or its results of operations for the year then ended. 5. Income Taxes GDI qualifies as a tax-exempt organization under Section 501(c)(3) of the IRC. As such, GDI is taxed only on its net unrelated business income. No provision for income taxes is required for the year ended December 31, 2017, as there was no net unrelated business income. GDI was established as a private operating foundation; however, effective January 1, 2013, the U.S. Internal Revenue Service (the IRS) acknowledged and notified GDI that it would be treated as a public charity as described under IRC Sections 509(a)(1) and 170(b)(1)(A)(Vi) for a probationary period of 60 months to end on December 31, During this time, GDI will be filing a form 990-PF under its probationary status apart from the last year when they are allowed to file form 990. GDI will be required to establish its qualification for meeting the definition of a public charity to the IRS s satisfaction within 90 days after the end of the probationary period. Continued - 9 -

12 NOTES TO FINANCIAL STATEMENTS 5. Income Taxes (continued) GDI follows the authoritative guidance relating to accounting for uncertainty in income taxes included in Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes. GDI performed an evaluation of uncertainty in income taxes for the year ended December 31, 2017, and determined that there are no matters that would require recognition in the financial statements or that may have any effect on its tax-exempt status. As of December 31, 2017, the statute of limitations for fiscal years 2014 through 2016 remains open with the U.S. federal jurisdiction or the various states and local jurisdictions in which GDI files tax returns. GDI is not currently under audit by the IRS for the year ended December 31, It is GDI s policy to recognize interest and penalties related to uncertainty in income taxes. As of December 31, 2017, GDI had no accruals for interest and/or penalties. 6. Prior Year Summarized Financial Information The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with GAAP. Accordingly, such information should be read in conjunction with GDI s financial statements for the year ended December 31, 2016, from which the summarized information was derived. 7. Reclassifications Certain 2016 amounts have been reclassified for comparative purposes to conform to the 2017 presentation. 8. Subsequent Events In preparing these financial statements, GDI has evaluated events and transactions for potential recognition or disclosure through June 20, 2018, the date the financial statements were available to be issued. There were no subsequent events that require recognition or disclosure in the financial statements

13 SUPPLEMENTAL INFORMATION

14 SCHEDULE OF FUNCTIONAL EXPENSES (With Summarized Financial Information for the Year Ended December 31, 2016) Program Services Support Services Total Beyond Impact Development Program General and AgEnterprise Health Escalated Frontier Services Administrative Total Total Consultants $ 1,424,932 $ 928,730 $ 549,791 $ 433,812 $ 3,337,265 $ - $ 3,337,265 $ 6,478,828 Salaries and wages 796, , , ,573 1,494, ,065 1,797,037 1,590,148 Employee benefits and payroll taxes 291,797 62, ,251 82, ,186 81, , ,916 Travel and entertainment 124,541 41,569 50,570 40, ,359 40, , ,389 Donated services , , ,576 Rent , , ,200 Professional services ,500 1, , ,681 89,469 Telecommunications and technology 9, ,778 1,143 13,184 11,111 24,295 19,418 Miscellaneous 2, , ,722 24,548 30,270 16,188 Overhead allocation 330, , ,546 92, ,517 (685,517) - - TOTAL EXPENSES $ 2,979,829 $ 1,315,892 $ 1,172,058 $ 876,926 $ 6,344,705 $ 239,842 $ 6,584,547 $ 9,396,

15

16

17

18

19 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Grantor/Pass-Through Grantor/Program or Cluster Title Federal Pass-Through Passed Total CFDA Entity Identifying Through to Federal Number Number Subrecipients Expenditures U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT Foreign Assistance for Program Overseas N/A $ - $ 1,031,667 Pass-through from John Hopkins University Foreign Assistance for Program Overseas AID-OAA-A , ,605 Pass-through from World Cocoa Foundation Foreign Assistance for Program Overseas AID-OAA-A ,975 Total CFDA for U.S. Agency for International Development 316,115 1,471,247 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 316,115 $ 1,471,247 See accompanying notes to this schedule

20 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 1. Summary of Significant Accounting Policies Basis of Accounting The accompanying schedule of expenditures of federal awards is presented on the accrual basis of accounting. Consequently, amounts are recorded as expenditures when the obligations are incurred. Cost Principles Federal expenditures were recognized following the cost principles contained in Title 2, U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). GDI has not elected to use the 10% de minimis indirect cost rate as allowed under the Uniform Guidance as GDI already has a negotiated indirect cost rate with the federal government. 2. Reconciliation of the Schedule of Expenditures of Federal Awards to the Statement of Activities Expenditures per schedule of expenditures of federal awards $ 1,471,247 Plus: Nonfederal grants and contributions 1,832,045 Grants and contributions per the Statement of Activities $ 3,303,

21 SCHEDULE OF FINDINGS AND QUESTIONED COSTS A. SUMMARY OF AUDITOR S RESULTS Financial Statements Type of auditor s report issued: X Unmodified Qualified Internal control over financial reporting: Adverse Material weakness(es) identified? Yes X No Disclaimer Significant deficiency(ies) identified? X Yes None Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Type of auditor s report issued on compliance for major programs: X Unmodified Qualified Internal control over major programs: Adverse Material weakness(es) identified? Yes X No Disclaimer Significant deficiency(ies) identified? Yes X None Reported Any audit findings disclosed that are required to be reported in accordance with 2 CFR, (a)? Yes X No Identification of Major Programs: CFDA Number Program Title Foreign Assistance for Programs Overseas Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as a low-risk auditee? Yes X No Continued

22 SCHEDULE OF FINDINGS AND QUESTIONED COSTS B. FINDINGS FINANCIAL STATEMENT AUDIT Finding No : Revenue Recognition Significant Deficiency in Internal Control Condition and Context: GDI receives many grants from different funders. Many of these grants have unique contract terms which impact the revenue recognition treatment under generally accepted accounting principles. Revenue recognition adjustments were proposed to correct the revenue and associated net asset balances for several grants as part of our audit process. Further, accounts receivable and deferred revenue were adjusted to properly reflect receivables when earned, and deferred revenue when cash is received in advance of being earned. Sampling was used for the purpose of testing selections, but the errors noted above are not based on a statistically valid sample. Criteria: Cause: Effect: Repeat Finding: Recommendation: Depending on the facts and circumstances of each grant or contribution, revenue is recognized as a contribution (an unreciprocated transfer of an asset from a donor to an organization) or an exchange transaction (a transfer of an asset from a donor to an organization in exchange for a benefit). Although there may be exceptions, foundation grants and individual contributions donated to fund an organization s new or existing programs are typically treated as contributions and recognized as revenue and support upon being committed (unless significant conditions exist to receive the funding; then they are recognized as revenue and support upon the conditions being satisfied). There was employee turnover within the GDI finance department which resulted in misinterpretation of revenue recognition for certain grants. Revenue and net assets were reported in correctly and several adjustments were proposed and accepted by management to correctly reflect the balances as of year-end. No We recommend that GDI review all grants and agreements in accordance with generally accepted accounting principle guidance to ensure revenue is recorded appropriately in the correct period as well as classified in the correct category based on donor designated purpose or time restriction. Continued

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS B. FINDINGS FINANCIAL STATEMENT AUDIT (CONTINUED) Finding No : Revenue Recognition Significant Deficiency in Internal Control (continued) View of Responsible Officials and Planned Corrective Action: Due to the receipt of several highly unique agreements and a change in leadership of the finance department during 2017, there were a few instances where revenue recognition did not conform to audit standards. The Director of Finance will lead a process to develop more robust month end procedures in this area, ensuring revenue is reviewed and recorded in accordance with GAAP. Additional schedules will be considered to track this information more efficiently throughout the year. C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT None required to be reported

24 1401 K St. NW, Suite 900, Washington, D.C Global Development Incubator Update to Corrective Action Plan December 31, 2016 Finding No Recommendation: We recommend that GDI establish a sub-recipient agreement with its sub-recipient to establish the responsibilities of both parties to ensure the grant funding is being spent in accordance with federal regulations at set forth in the Uniform Guidance. Corrective Action Plan Update: During 2017 GDI established a sub-recipient agreement which has been implemented for subaward activities with third party organizations. Submitted by: Elizabeth VanDerWoude Director of Finance Global Development Incubator

25 1401 K St. NW, Suite 900, Washington, D.C Global Development Incubator Corrective Action Plan December 31, 2017 Cognizant or Oversight Agency for Audit: United States Agency for International Development Global Development Incubator, Inc. (GDI) respectfully submits the following corrective action plan for the year ended December 31, Finding No Recommendation: We recommend that GDI review all grants and agreements in accordance with generally accepted accounting principle guidance to ensure revenue is recorded appropriately in the correct period as well as classified in the correct category based on donor designated purpose or time restriction. Corrective Action Planned: GDI will establish new procedures to catalogue and review all grant agreements to ensure that revenue is recorded in the correct category and period of activity. In addition, staff will receive additional guidance and/or training to ensure familiarity with relevant accounting principles. Anticipated Completion: August 31, 2018 Responsible Person: Elizabeth VanDerWoude Director of Finance Global Development Incubator, Inc. Submitted by: Elizabeth VanDerWoude Director of Finance Global Development Incubator