Gamma Phi Beta Sorority, Inc. and Affiliates

Transcription

1 Independent Auditor s Reports and Financial Statements

2 Contents Independent Auditor s Report... 1 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows Independent Auditor s Report on Supplementary Information Supplementary Information Consolidating Supplemental Schedule of Financial Position Consolidating Supplemental Schedule of Activities... 31

3 Independent Auditor s Report International Council Gamma Phi Beta Sorority, Inc. Centennial, Colorado We have audited the accompanying consolidated financial statements of Gamma Phi Beta Sorority, Inc. and Affiliates (the Affiliated Organizations), which comprise the statement of consolidated financial position as of, the related consolidated statements of activities 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 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 from 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 consolidated 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 audit opinion.

4 International Council Gamma Phi Beta Sorority, Inc. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Affiliated Organizations as of and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited the July 31, 2015, consolidated financial statements, and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated April 6, In our opinion, the summarized comparative information presented herein as of and for the year ended July 31, 2015, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Denver, Colorado January 26,

5 Statement of Financial Position (With Summarized Financial Information for July 31, 2015) Assets Cash and cash equivalents $ 3,252,096 $ 3,739,061 Accounts receivable, net of allowance; $43,778 and $39, , ,332 Accrued interest receivable, net 118, ,727 Inventories 28,766 31,300 Prepaid expenses and other 483, ,689 Loans receivable 901, ,362 Contributions receivable, net of unamortized discount and allowance; $20,396 and $20, , ,283 Accrued life insurance receivable 9,995 9,506 Investments 12,731,788 12,935,173 Property and equipment, net of accumulated depreciation; $4,577,425 and $4,504,961 8,111,553 3,663,865 Total assets $ 26,496,277 $ 22,686,298 Liabilities and Net Assets Accounts payable and accrued liabilities $ 1,762,653 $ 382,677 Deferred revenue 43,988 61,835 Deferred rent 176,219 - Amounts held for the benefit of inactive chapters 4,146 7,127 Line of credit (Foundation) 99,640 65,091 Lines of credit and term loan (Sorority) 3,634, ,346 Liability under split-interest agreement 12,283 15,043 Other liabilities 52, ,120 Total liabilities 5,785,664 1,600,239 Net Assets Unrestricted Undesignated 10,716,316 7,662,684 Board-designated 226,617 3,765,942 Total unrestricted net assets 10,942,933 11,428,626 Temporarily restricted 1,151,620 1,392,302 Permanently restricted 8,616,060 8,265,131 Total net assets 20,710,613 21,086,059 Total liabilities and net assets $ 26,496,277 $ 22,686,298 See Notes to Consolidated Financial Statements 3

6 Statement of Activities Year Ended (With Summarized Financial Information for July 31, 2015) Temporarily Permanently Unrestricted Restricted Restricted Total Total Support and Revenue Membership dues $ 3,131,143 $ - $ - $ 3,131,143 $ 2,809,748 Fees 878, , ,549 Contributions 871, , ,561 1,460,433 1,215,974 Contributions for Girls on the Run 390, , ,201 Investment income (loss) (102,922) (51,529) - (154,451) 117,772 Loan interest 57, ,660 57,252 Rental income 1,300, ,300, ,447 International facilities fees 1,378, ,378, ,132 Convention/conferences 873, , ,689 Merchandise sales 1,512, ,512,246 1,605,944 Change in value of split-interest agreement Write-off of contributions receivable (46,056) - - (46,056) (51,116) Insurance fees 821, , ,559 Other income (loss) (15,066) - - (15,066) 25,680 Total support and revenue 11,052, , ,561 11,589,589 9,644,736 Net assets released from restrictions and reclassifications Classification to permanently restricted - (14,368) 14, Net assets released from restrictions 427,157 (427,157) Total support, revenue and reclassifications 11,479,342 (240,682) 350,929 11,589,589 9,644,736 See Notes to Consolidated Financial Statements 4

7 Statement of Activities (continued) Year Ended (With Summarized Financial Information for July 31, 2015) Temporarily Permanently Unrestricted Restricted Restricted Total Total Expenses Program services Alumnae, collegiate and housing 4,080, ,080,667 2,872,055 Convention/conferences 1,113, ,113, ,921 Communications 791, , ,941 National Panhellenic Conference 81, ,087 82,246 Cost of merchandise sales 512, , ,675 Philanthropy 74, , ,077 Distributions to Girls on the Run 405, , ,201 Financial aid 205, , ,048 Educational and leadership development 1,123, ,123, ,763 Public relations 40, ,081 44,700 Total program expenses 8,428, ,428,874 6,220,627 Supporting services Direct benefit to donors ,200 General administration 2,186, ,186,320 2,494,116 Development 1,349, ,349,841 1,289,972 Total supporting services expenses 3,536, ,536,161 3,786,288 Total expenses 11,965, ,965,035 10,006,915 Change in Net Assets (485,693) (240,682) 350,929 (375,446) (362,179) Net Assets, Beginning of Year 11,428,626 1,392,302 8,265,131 21,086,059 21,448,238 Net Assets, End of Year $ 10,942,933 $ 1,151,620 $ 8,616,060 $ 20,710,613 $ 21,086,059 See Notes to Consolidated Financial Statements 5

8 Statement of Cash Flows Year Ended (With Summarized Financial Information for 2015) Operating Activities Change in net assets $ (375,446) $ (362,179) Items not requiring (providing) cash Depreciation 471, ,846 Gifts of investments (108,907) (136,802) Provision for uncollectible receivables (718) 93,126 Contributions restricted for long-term purposes (336,561) - Change in value of split-interest agreement - (905) Net realized and unrealized loss on investments 440, ,283 Loss on disposal of property and equipment 11,887 - Changes in Accounts receivable (47,038) (78,197) Accrued interest receivable (440) (4,165) Accrued life insurance receivable (489) (905) Prepaid expenses and other (94,124) (38,071) Inventories 2,534 6,432 Contributions receivable 69, ,810 Accounts payable and accrued liabilities 1,379,976 7,400 Payments under split-interest agreement (2,760) (1,855) Deferred revenue (17,847) 56,211 Deferred rent expense 176,219 - Other liabilities (48,503) (711,479) Amounts held for the benefit of chapters (2,981) 876 Net cash provided by (used in) operating activities 1,516,409 (276,574) Investing Activities Proceeds from sale of investments 231, ,049 Purchases of investments (360,000) (393,804) Principal payments on loans receivable 86, ,181 Advances on loans receivable (68,128) (60,000) Purchase of property and equipment (4,931,019) (970,072) Net cash used in investing activities (5,041,256) (1,017,646) See Notes to Consolidated Financial Statements 6

9 Statement of Cash Flows (continued) Year Ended (With Summarized Financial Information for 2015) Financing Activities Proceeds from contributions restricted for long-term investment 336,561 - Proceeds on line of credit 43,800 65,091 Principal payments on line of credit (9,251) - Proceeds from long-term debt 2,906,224 - Payments of long-term debt (239,452) (136,299) Net cash provided by (used in) financing activities 3,037,882 (71,208) Decrease in Cash (486,965) (1,365,428) Cash, Beginning of Year 3,739,061 5,104,489 Cash, End of Year $ 3,252,096 $ 3,739,061 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 69,323 $ 39,633 See Notes to Consolidated Financial Statements 7

10 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations The reporting entity referred to as the Affiliated Organizations includes the accounts of three organizations, Gamma Phi Beta Sorority, Inc. (the Sorority), Gamma Phi Beta Facilities Management Company, LLC (FMC) and Gamma Phi Beta Foundation (the Foundation). Consolidated financial statements are based upon the assumption that they present the financial positions and results of operations as a single entity. All significant intercompany transactions have been eliminated. The Sorority is a nonprofit corporation organized for educational, charitable, and social purposes. The Sorority is organized under Section 501(c)(7) of the Internal Revenue Code. Its functions consist primarily of developing the highest type of womanhood through education, social life, and service to country and humanity, distributing a Sorority magazine and other printed material, and maintaining an International Headquarters for general administration. The Sorority is governed by an elected International Council. The majority of the Sorority s support and revenue is derived from membership dues and fees, as well as from merchandise sold to members and investment income. The FMC is a limited liability company organized in the state of Delaware. A Board of Managers carries out the responsibilities of the FMC, which primarily functions to provide safe and inviting facilities by providing related services and support to members and to hold and/or operate housing assets for collegiate chapters. The Foundation is a nonprofit corporation that exists principally to provide educational and other opportunities for selected members/students and others, through endowments, in the form of fellowships, scholarships, and awards and to provide philanthropic contributions for the operation of programs for non-members in the United States and in Canada. The Foundation is organized under Section 501(c)(3) of the Internal Revenue Code. In addition, the Foundation provides funding to the Sorority for educational and leadership development. The majority of the Foundation s support and revenue is derived from contributions and investment income. Principles of Consolidation The Sorority is the sole member of the FMC and wholly owns and controls the FMC, including the appointment of the FMC Chairwoman and Board of Managers. The Foundation s board is composed of voting members of the Sorority s International Council and the voting members of the Foundation s Board of Trustees. The Sorority s International Council approves potential candidates for the Foundation s Board of Trustees. Additionally, the Foundation exists to support the Sorority, and the Foundation holds significant resources that must be used for the purpose of the Sorority and an economic interest exists. The accounts of the Sorority, FMC and the Foundation have been included in these consolidated statements. All significant intercompany accounts and transactions have been eliminated in consolidation. 8

11 Description of Program and Supporting Activities The Affiliated Organizations activities include the following programs and supporting services: Alumnae Chapter and Collegiate Chapters Support for alumnae groups includes regional support, alumnae group programming, and International Headquarters staff support. Support for collegiate chapters includes college leadership consultant training and visits, regional volunteer visits and investigative trips, and International Headquarters staff support. Support includes assisting chapters in maintaining financial accountability through regional volunteer visits, producing and distributing educational materials and publications, and development of new membership programs and benefits. Convention and Conferences The convention is held biennially for the purpose of transacting Sorority business, electing officers and providing a means of interaction among collegiate and alumnae members. Leadership development meetings and Regional Leadership Conferences involve collegiate and alumnae members and include workshops on leadership skills as well as the philosophy, history, values, and goals of the Sorority. Communications Communications with members regarding programs are achieved through The Crescent magazine, the web site, other publications, and direct contact. National Panhellenic Conference (NPC) These activities support presentation and avocation at the NPC, a conference established for the mutual benefit and support of member fraternal organizations. Building Strong Girls The Foundation supports the fundraising efforts of the Sorority s collegiate and alumnae chapters who give to the Sorority s philanthropic focus, Building Strong Girls. The Foundation grants fund donations to the Sorority s national nonprofit partners as well as local nonprofits that align with the Sorority s philanthropic focus and mission to provide experiences and resources that build spiritual, mental, and social resiliency in girls. Financial Aid Based on scholastic achievement, financial need and commitment to the community and the Sorority, the Foundation provides scholarships to young women for undergraduate study, fellowships for graduate study and grants in aid for women in crisis to stay in school and achieve their scholastic goals. 9

12 Educational and Leadership Development The Foundation is building tomorrow s leaders by making grants for educational and leadership training to build self-esteem, confidence, and life skills in women. The Foundation also makes grants to collegiate chapters and house corporations to support the educational portion of chapter housing. The Sorority develops and provides leadership, scholastic and philanthropic training and education programs to collegiate and alumnae members. Facilities Services The FMC mission is to ensure safe, inviting Gamma Phi Beta facilities. As an extension of that mission, the FMC provides services to Affiliated House Corporations of associated chapters of the Sorority that include member billing, collections, vendor payments and tax and payroll administration. The Affiliated Organizations also provide financial assistance to collegiate chapters in the area of chapter housing. The FMC also holds and operates related housing assets and is working to expand its reach to associated chapters. As of the end of 2016, the FMC has various holdings and leasing arrangements, including the following: Land acquired in 2016 at the University of Florida Substantial construction in progress related to remodeling of the existing FMC owned property at the University of Michigan (Beta chapter) Land held at Stephen F. Austin, with no current active chapter (formerly Epsilon Rho chapter) Homes owned and leased to Affiliated House Corporations at University of California, Santa Barbara (Delta Psi chapter) and Eastern Washington (Zeta Alpha chapter) Other owned properties or furnishings at a variety of institutions for associated chapters where rental and other income is collected from residents and managed through the FMC The FMC also leases properties at six campuses for associated chapters that are managed by FMC similar to owned properties for local chapter residents. From time to time, the FMC has the opportunity to lease housing from other organizations who no longer have active chapter presences or may lease FMC owned property to other organizations when no associated chapter of the Sorority is currently active. Development These activities encompass membership development by the Sorority, which includes the extension of Gamma Phi Beta through new collegiate and alumnae chapters as well as recruitment activities. It also includes donor cultivation and fundraising by the Foundation to provide resources for financial aid to members, the Sorority s leadership programs and international philanthropy. 10

13 General Administration The Affiliated Organizations provide overall direction, general bookkeeping, business management, general public relations, and more. 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 revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Affiliated Organizations consider all money market accounts and investments purchased with original maturities of three months or less to be cash equivalents. At, the Affiliated Organizations cash demand deposits exceeded federally insured limits by approximately $2,263,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statement of activities as unrestricted, temporarily restricted, or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. The Foundation maintains pooled investment accounts for its endowments. Investment income and realized and unrealized gains and losses from securities in the pooled investment accounts are allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investment accounts, as adjusted for additions to or deductions from those accounts. Accounts Receivable Accounts receivable are stated at the amount billed to customers plus any accrued and unpaid interest. The Affiliated Organizations provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. 11

14 Property and Equipment Property and equipment are stated at cost less accumulated depreciation, or if donated, at the fair value at the time of transfer less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Furniture and equipment Computer hardware and software Building and improvements 5 10 years 3 5 years years Expenditures for maintenance, repairs, or minor replacements are charged to operations, and expenditures for major replacements or betterments that exceed $1,000 are capitalized. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Affiliated Organizations has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Foundation in perpetuity. The Foundation s policy specifies a minimum threshold of $25,000, which must be met by donors in order to set up an endowment fund. Endowment funds less than $25,000 will be considered temporarily restricted. When the endowment fund balance reaches $25,000, the fund will be transferred to permanently restricted net assets. During the year ended, $14,368 was transferred to permanently restricted net assets from temporarily restricted net assets as a result of an additional contribution of $16,427, resulting in the endowment funds meeting the $25,000 threshold. Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor 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. Gifts and investment income that are originally restricted by the donor and for which the restriction is met in the same time period are recorded as temporarily restricted and then released from restriction. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows technique. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. 12

15 Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. Contributed Services Contributions of services are recognized as revenue at their estimated fair value only when the services received create or enhance nonfinancial assets or require specialized skills possessed by the individuals providing the service, and the service would typically need to be purchased if not donated. A significant portion of the Affiliated Organizations functions, which are conducted by volunteers, is not reflected in the accompanying financial statements since the volunteers time does not meet the criteria for recognition. Through the use of volunteers, the Affiliated Organizations are able to provide more services than financial resources would otherwise allow. Life Loyal Alumnae Dues In fiscal year 2016, the Sorority introduced a new dues program called Life Loyal which allows alumnae to make a one-time dues contribution of $299 instead of smaller, annual dues payments. A limited amount of future expenses for direct mail and magazine costs are expected to be incurred, therefore the Sorority recognizes all of the Life Loyal dues as they are collected with no deferral. Inventory Pricing Inventories, which consist of finished goods, are stated at cost and are accounted for on the first-in first-out basis. Deferred Revenue Revenue from royalty agreements is deferred and recognized over the periods to which the agreements relate. Income Taxes The Affiliated Organizations are exempt from income taxes under various sections of the Internal Revenue Code and similar provisions of state law. However, the Affiliated Organizations are subject to federal income tax on any unrelated business taxable income. The Affiliated Organizations file tax returns in the U.S. federal jurisdiction. With a few exceptions, the Affiliated Organizations are no longer subject to U.S. federal examinations by tax authorities for years before

16 Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the statement of activities. Certain costs have been allocated among the program, management and general and fundraising categories based on the salary allocation method and other methods. Prior Year Summarized 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 generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Affiliated Organizations financial statements for the year ended July 31, 2015, from which the summarized information was derived. Note 2: Contributions Receivable Contributions receivable consisted of the following: Due within one year $ 289,295 Due in one to five years 287,302 Due in more than five years 135, ,397 Less: Allowance for uncollectible accounts and unamortized discount (20,396) $ 692,001 14

17 Note 3: Investments and Investment Return Investments at, consisted of the following: Money market funds $ 2,667,750 Mutual funds Fixed income 428,130 Energy reserves 48,444 Foreign bonds 398,384 U.S. government 156,683 Foreign stocks 2,231,782 High yield securities 197,481 Large cap stocks 2,092,619 Mid cap stocks 1,157,012 Precious metals 192,834 Small cap stocks 538,329 Real estate 254,965 Other 218,226 Corporate bonds 2,149,149 Total investments $ 12,731,788 Total investment return for the year ended, is composed of the following: Interest and dividend income $ 361,238 Net realized and unrealized gains (losses) (440,881) Less investment fees (74,808) $ (154,451) Note 4: Loans Receivable Loans receivable consist primarily of unsecured loans and some mortgages on chapter housing. Loans receivable are charged to an allowance, when in the judgment of management, they are determined uncollectible (generally based on the term of the loan). Interest income is recognized as revenue as it is earned. Interest rates on loans originating in 1978 through 2015 range from 4.50% to 7.00%. The loans mature over fiscal years ranging from 2017 through

18 Note 5: Local Facilities Fees In fiscal year 2016, the Sorority bylaws were amended (Article X, Section 6) regarding the local facilities fee that is paid by all new members and initiates of collegiate chapters. The fee is determined annually by the Affiliated House Corporation (AHC) or the FMC and should be managed by the FMC if no AHC exists. Fees collected are designated by the board by virtue of the bylaws for future use for the maintenance and development of chapter facilities. In 2016, $57,560 of current year fees were collected and an additional $169,057 of fees previously held by chapters was transferred to the FMC and recorded as revenue. Note 6: Amounts Held for the Benefit of Inactive Chapters The Sorority s bylaws state that if a chapter, Affiliated House Corporation or trust is dissolved, liquidated or ceases to exist for any reason, then all funds and property of such chapter, house corporation or trust shall be transferred to the Sorority, unless the chapter or house corporation reactivates within a specified period of time (five years for chapters and 10 years for Affiliated House Corporations). If the chapter or Affiliated House Corporation is reactivated within the specified time period, the fair value of the original property will be returned to the reactivated chapter or AHC. The following represents the detail of this account as of : Holding Period Chapter or House Expires in Year Corporation Date Closed Ending July 31 Amount Delta Epsilon Chapter May $ 3,157 Other Chapters Various Various 989 $ 4,146 16

19 Note 7: Property and Equipment Property and equipment at July 31 consists of the following: Building and improvements $ 1,595,471 Sisterhood plaza 125,979 Land - Sorority 2,362,788 Chapter houses 5,168,723 Equipment and furniture 714,144 IT network 581,908 10,549,013 Less accumulated depreciation and amortization (4,577,425) 5,971,588 Construction in progress 2,139,965 Net property and equipment $ 8,111,553 Note 8: Liability Under Split-interest Agreement During the year ended July 31, 2000, the Foundation received equities with a fair value of $41,250 under a charity gift annuity agreement. The agreement requires future quarterly payments to the donor under a joint annuity agreement based upon an annuity rate of 6.7% of the initial fair market value of the equities, or $690 per quarter. The Foundation had recorded a liability at, of $12,283, which represents the present value of the future annuity obligations. The liability has been determined using a discount rate of 7.2% and the applicable mortality tables. Note 9: Line of Credit (Foundation) The Foundation has a $250,000 line of credit expiring in At, there was $99,640 borrowed against this line. The Foundation requested additional borrowings of $49,500 in July 2016, however, these funds were not received by the Foundation until August 2016, therefore these borrowings are not reflected in the liability. Interest varies with the bank s prime rate, which was 3.25% on, and is payable monthly. 17

20 Note 10: Lines of Credit and Term Loan (Sorority) Term loan (A) $ 378,081 Line of credit (B) 750,000 Line of credit (C) 2,500,000 Other 6,037 3,634,118 Less current maturities (802,952) $ 2,831,166 (A) Term loan, monthly principal and interest payments of $5,040 with interest at 3.75%, balance due September Secured by a deposit account. (B) (C) Line of credit, monthly interest payments of all accrued unpaid interest, with interest at 0.25% under the prime rate as published in the Wall Street Journal, which was 3.25% at, principal balance and all unpaid interest due May Secured by investments. Line of credit, monthly interest payments of all accrued unpaid interest, with interest at 0.25% under the prime rate as published in the Wall Street Journal, which was 3.25% at, principal balance and all unpaid interest due November Secured by real estate and investments. Aggregate annual maturities of long-term debt at : 2017 $ 802, , ,782,437 $ 3,634,118 18

21 Note 11: Net Assets Board-designated Net Assets The governing board of the FMC has designated a portion of the unrestricted net assets as follows for the year ended : Local facilities fees $ 226,617 Temporarily Restricted Net Assets Temporarily restricted net assets at July 31 are available for the following purposes or periods: Philanthropy $ 28,319 Financial aid 175,899 Leadership 416,559 General endowment 530,843 $ 1,151,620 Permanently Restricted Net Assets Permanently restricted net assets at July 31 are restricted to the following: Philanthropy $ 116,475 Financial aid 4,668,762 Leadership 3,391,935 General endowment 438,888 $ 8,616,060 Net Assets Released from Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. Purpose restrictions accomplished Philanthropy $ 6,819 Financial aid 149,767 Leadership 180,935 General endowment 89,636 $ 427,157 19

22 Note 12: Endowment The Foundation s Endowment Fund is established by action of the Foundation Board of Trustees (the Board) to be maintained in perpetuity. The Foundation s endowment consists of approximately 135 individual funds established for a variety of purposes. The Endowment Fund may include both donor-restricted endowment funds as well as funds designated by the Board to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Board has interpreted the State of Colorado Prudent Management of Institutional Funds Act (UPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies 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 donor-restricted endowment funds 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 UPMIFA. In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the Foundation and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Foundation 7. Investment policies of the Foundation 20

23 The composition of net assets by type of endowment fund at July 31: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 96,556 $ 8,616,060 $ 8,712,616 Board-designated endowment funds 101, ,586 Total endowment funds $ 101,586 $ 96,556 $ 8,616,060 $ 8,814,202 Changes in endowment net assets for the year ended July 31: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 284,222 $ 328,233 $ 8,265,131 $ 8,877,586 Investment return Investment income - 225, ,153 Net depreciation (182,636) (278,140) - (460,776) Total investment return (182,636) (52,987) - (235,623) Contributions , ,561 Expenditures - (164,322) - (164,322) Transfer to endowment - (14,368) 14,368 - Endowment net assets, end of year $ 101,586 $ 96,556 $ 8,616,060 $ 8,814,202 Amounts of donor-restricted endowment funds classified as permanently restricted and temporarily restricted net assets at, consisted of the following: Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulations $ 8,616,060 Temporarily restricted net assets - portion of perpetual endowment funds subject to a time restriction with purpose restrictions $ 96,556 21

24 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the Foundation is required to retain as a fund of perpetual duration pursuant to donor stipulation or UPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. As of, such deficiencies amounted to $0. The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Foundation must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the Foundation s policies, endowment assets are invested with a long-term strategy with a balanced portfolio of equity and fixed income assets. The Foundation expects its endowment funds to provide an average rate of return of approximately 8% to 10% annually over time, reduced by inflation, management fees, and the Foundation administrative fee. Actual returns in any given year may vary from this amount. To satisfy its long-term rate of return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Foundation has a policy (the spending policy) that went into effect on August 1, 2011, of appropriating for expenditure each year 4% of the five-year rolling average of the net asset value of each eligible endowment fund calculated as of July 31 of the prior fiscal year. An endowment that is less than its permanently restricted principal value, as of July 31 of the prior fiscal year, shall not be eligible for granting unless reviewed by the Executive Committee and presented and approved by the Board of Trustees. In establishing this policy, the Foundation considered the long-term expected return on its endowment. Accordingly, over the long-term, the Foundation expects the current spending policy to allow its endowment to grow at an average of 8% to 10% annually. This is consistent with the Foundation s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. 22

25 Note 13: Related-party Transactions The nature of the relationship of the Affiliated Organizations and the more significant transactions are as follows: Nature of Relationship The Governing Board of the Sorority appoints the Chairwoman of the Foundation and approves candidates for the Foundation s Board of Trustees. Authority to change the Foundation bylaws is granted to the members of the Foundation, which include the Foundation Trustees and the Sorority s governing board. The Sorority has the authority to appoint and remove the FMC Chairwoman and members of the Board of Managers of the FMC and the Sorority is the sole member of the FMC. Foundation Memorandum of Understanding Pursuant to a February 28, 1991, agreement between the Sorority and the Foundation the Foundation initially contributed $250,000 toward the international headquarters construction. This agreement addresses the Foundation s proportionate usage of the international headquarters and its desire to acquire certain rights to this usage. The $250,000 contribution represents the Foundation s 21% initial use percentage applied to the estimated total cost of the property. This guarantees the Foundation exclusive occupancy and use of certain portions of the building and shared occupancy of those portions identified as jointly utilized with the Sorority. The Foundation will not be required to pay rent for these occupancy and use privileges. In the event of a sale of the property or conversion to non-sorority use, the Foundation is entitled to the applicable Foundation contribution percentage of the net proceeds or net income derived from the property. On January 18, 2005, a Memorandum of Understanding was agreed to by the Sorority and the Foundation to revise the use percentage to 27%. All other terms described above remained unchanged. As of, amounts under this building occupancy agreement, and subsequent building improvements, have been capitalized at a cost of $330,327 and are being amortized using the straight-line method over 10 to 31.5 years. FMC Memorandum of Understanding. Since August 1, 2014, the FMC operates under a memorandum of understanding (MOU) with the Sorority governing occupancy and use of shared space in the International Headquarters facility in Centennial, Colorado along with arrangements for Sorority staff and services use and certain other shared activities including capital expenditures, insurance and member data. Per the MOU, investments held in the combined account are allocated 44% to the Sorority and 56% to FMC with gains and losses allocated pro rata. 23

26 As required in the MOU, the document was updated on August 1, 2016 (biennium review) and the changes were limited to adjustments in applicable expenses and personnel. The Sorority and FMC also have an operating agreement defining the formation, capitalization, governance and duties among other matters of the FMC, most recently amended and restated effective July 25, Other Significant Transactions Foundation operating expenses, including personnel, office, and facility-related expenses of approximately $208,767 were paid by the Sorority and were reimbursed by the Foundation for the year ended. The Foundation granted $108,579 for educational and leadership training purposes to the Sorority during the year ended. As of, the Sorority s net receivable from the Foundation amounted to $165,934. This receivable is eliminated in the consolidated presentation of these financials. During the year ended, the Sorority used the services of a travel agency that is partly owned by a member of the International Council. Payments to the travel agency amounted to $33,655. Additionally, during the year ended, the Sorority used the services of a printing company owned by the spouse of a member of management. Payments to the printing company totaled $7,302. No amounts were owed to the related parties as of. Related-party Contributions Contributions totaling approximately $70,694 were received from Board members of the Foundation, Sorority and FMC during the year ended. Note 14: Rental Income The Sorority owns three chapter houses and has negotiated operating leases on these houses with non-cancellable terms. The Delta Psi Chapter house is leased for $8,000 per month with an additional $400 per month set aside as a reserve for significant repairs and maintenance to the related affiliated house corporation. The Zeta Alpha Chapter house is leased for $5,600 per month to the related affiliated house corporation. The Sorority also has a lease with Delta Delta Delta for a suite at the University of Miami, Florida with a monthly lease payment of $

27 Note 15: Operating Leases and Lease Guarantor Relationship Noncancellable operating leases for chapter houses expire in various years through These leases generally contain renewal options for periods of five years and require the FMC to pay all executory costs (property taxes, maintenance and insurance). Future minimum lease payments under operating leases are: 2017 $ 686, , , , ,400 Later years 2,491,200 Total minimum lease payments $ 5,320,451 Rental expense for all operating leases was $709,899 for the year ended. The Sorority also agreed to serve as guarantor on the lease associated with the house corporation of a chapter in Missouri. No amounts have been recorded for this potential liability and the lease extends through June 30, Annual rentals over the 15-year lease term average approximately $245,000. Note 16: Pension Plans The Affiliated Organizations participate in a professional employer organization sponsored defined contribution retirement plan (the Plan) covering substantially all employees. The employer matches 100% of each employee s contribution to the Plan up to 4% of the respective employee s salary. Pension expense was $65,104 for the year ended. 25

28 Note 17: Allocation of Joint Costs The Foundation conducted activities that included requests for contributions, as well as program, management and general components. Those activities included direct mail campaigns, the annual report, and other publications. The costs of conducting those activities included a total of $35,730 in joint costs, which are not specifically attributable to particular components of the activities. These joint costs were allocated as follows: Philanthropy $ 156 Financial aid 1,595 Leadership 151 Convention 1,809 Campaign 4,969 Total program costs 8,680 General administration 21,303 Development 5,747 $ 35,730 Note 18: Disclosures About Fair Value of Assets and Liabilities ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities 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 that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities 26

29 Recurring Measurements The following table presents the fair value measurements of assets and liabilities recognized in the accompanying statement of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at : Fair Value Measurements Using Quoted Prices in Active Significant Significant Markets for Other Unobserv- Identical Observable able Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) Money market funds $ 2,667,750 $ 2,667,750 $ - $ - Mutual funds Fixed income 428, , Energy reserves 48,444 48, Foreign bonds 398, , U.S. government 156, , Foreign stocks 2,231,782 2,231, High yield securities 197, , Large cap stocks 2,092,619 2,092, Mid cap stocks 1,157,012 1,157, Precious metals 192, , Small cap stocks 538, , Real estate 254, , Other 218, , Corporate bonds 2,149,149 2,149, Total investments $ 12,731,788 $ 12,731,788 $ - $ - Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statement of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended. 27

30 Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include equities and mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include corporate bonds, U.S. government obligations and mortgage-backed securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Affiliated Organizations did not have any Level 3 securities as of. Note 19: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Litigation The Affiliated Organizations are subject to lawsuits that arise primarily in the ordinary course of their activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the Affiliated Organizations. Events could occur that would change this estimate materially in the near term. Investments The Affiliated Organizations invest in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying statement of financial position. Note 20: Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. 28