American Psychological Foundation, Inc. Audited Financial Statements. Years ended December 31, 2012 and 2011 with Report of Independent Auditors

Transcription

1 Audited Financial Statements Years ended December 31, 2012 and 2011 with Report of Independent Auditors

2 Audited Financial Statements Years ended December 31, 2012 and 2011 Contents Report of Independent Auditors...1 Audited Financial Statements Statements of Financial Position...2 Statements of Activities...3 Statements of Cash Flows...4 Notes to Financial Statements

3 Board of Directors American Psychological Foundation, Inc. Washington, D.C. Report of Independent Auditors We have audited the accompanying financial statements of American Psychological Foundation, Inc. (the Foundation) which comprise the statements of financial position as of December 31, 2012 and 2011 and the related statements of activities and cash flows for years then ended and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Psychological Foundation, Inc. as of December 31, 2012 and 2011 and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Falls Church, Virginia April 12, 2013

4 Statements of Financial Position December 31, Assets Cash and cash equivalents $ 116,194 $ 95,876 Investments 15,436,155 14,184,583 Contribution receivable, net 521, ,353 Contribution receivable - Trust 57,637 53,699 Other assets 3,945 15,375 Total assets $ 16,134,966 $ 14,792,886 Liabilities and net assets Liabilities: Accounts payable and accrued liabilities $ 7,501 $ 14,176 Grants, awards and scholarships payable 147,320 4,618 Accounts payable to APA 75,189 27,835 Total liabilities 230,010 46,629 Net assets: Unrestricted 4,307,748 3,901,630 Temporarily restricted 11,054,715 10,306,379 Permanently restricted 542, ,248 Total net assets 15,904,956 14,746,257 Total liabilities and net assets $ 16,134,966 $ 14,792,886 See accompanying notes to the financial statements. 2

5 Statements of Activities Years ended December 31, 2012 and 2011 Temporarily Restricted Permanently Temporarily Restricted Total Unrestricted Restricted Permanently Restricted Unrestricted Total Revenue and support Contributions $ 342,040 $ 440,256 $ 4,245 $ 786,541 $ 394,761 $ 274,236 $ - $ 668,997 Royalties and permissions 91,613 2,477-94,090 52,721 3,957-56,678 Net investment income (loss) 536,487 1,375,369-1,911,856 (98,847) (236,685) - (335,532) Net assets released from restrictions 1,069,766 (1,069,766) - - 1,148,471 (1,148,471) - - Total revenue and support 2,039, ,336 4,245 2,792,487 1,497,106 (1,106,963) - 390,143 Expenses Scholarships 359, , , ,244 Research/other grants 273, , , ,280 Awards 67, ,500 36, ,450 Lectures 6, ,500 8, ,500 Gold Medal awards 5, ,284 5, ,458 Other programs 3, ,842 14, ,433 Teaching awards 2, ,000 3, ,522 Total program expenses 718, , , ,887 Salaries and benefits 622, , , ,920 Consulting fees/contractual services 94, ,075 91, ,904 Asset management fees 63, ,894 47, ,023 Supplies and printing 44, ,189 41, ,135 Travel 37, ,116 31, ,402 Miscellaneous 26, ,484 22, ,707 Advancement activities 15, ,814 17, ,175 Meetings and receptions 11, ,694 17, ,795 Total general and administrative expenses 915, , , ,061 Total expenses 1,633, ,633,788 1,420, ,420,948 Change in net assets 406, ,336 4,245 1,158,699 76,158 (1,106,963) - (1,030,805) Net assets, beginning of year 3,901,630 10,306, ,248 14,746,257 3,825,472 11,413, ,248 15,777,062 Net assets, end of year $ 4,307,748 $ 11,054,715 $ 542,493 $ 15,904,956 $ 3,901,630 $ 10,306,379 $ 538,248 $ 14,746,257 See accompanying notes to the financial statements. 3

6 Statements of Cash Flows Years ended December 31, Cash flow from operating activities Change in net assets $ 1,158,699 $ (1,030,805) Adjustments to reconcile change in net assets to net cash used in operating activities: Net realized and unrealized (gains) losses on investments (1,365,371) 801,133 Change in allowance for doubtful accounts and discount to present value (1,031) (2,858) Contributions restricted for long term investment (4,245) - Changes in assets and liabilities: Contribution receivable - trust (3,938) 4,720 Contributions receivable - other (76,651) (18,739) Other assets 11,430 (15,375) Accounts payable and accrued liabilities (6,675) (7,136) Grants, awards and scholarships payable 142,702 (73,542) Accounts payable to APA 47,354 (5,482) Net cash used in operating activities (97,726) (348,084) Cash flow from investing activities Purchase of investments (4,452,110) (2,264,238) Proceeds from sale of investments 4,565,909 2,238,641 Net cash provided by (used in) investing activities 113,799 (25,597) Cash flows from financing activities Contributions to be held permanently 4,245 - Net cash provided by financing activities 4,245 - Net change in cash and cash equivalents 20,318 (373,681) Cash and cash equivalents, beginning of year 95, ,557 Cash and cash equivalents, end of year $ 116,194 $ 95,876 See accompanying notes to the financial statements. 4

7 Notes to Financial Statements Years ended December 31, 2012 and 2011 Note A - Organization The American Psychological Foundation, Inc. (the Foundation) is a nonprofit, philanthropic organization incorporated in Delaware that provides financial support for innovative research and programs that enhance the power of psychology to elevate the human condition and advance human potential, both now and in generations to come. These activities are funded primarily through contributions and investment income. The Foundation is an independent organization separately incorporated from the American Psychological Association (APA). APA makes an annual financial contribution to the Foundation and donates human resources, office space, technology and other services. The Foundation s offices are located in the APA headquarters building. Note B - Significant Accounting Policies Basis of Accounting The Foundation prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Accordingly, revenue is recognized when earned, and expenses are recognized when obligations are incurred. 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. Subsequent Events The Foundation has performed an evaluation of subsequent events through April 12, 2013, which is the date the financial statements were available to be issued, and has considered any relevant matters in the preparation of the financial statements and footnotes. Income Tax Status The Foundation is exempt from the payment of income taxes on income other than unrelated business income under Section 501(c)(3) of the Internal Revenue Code (the Code), and has been designated by the Internal Revenue Service as a publicly supported organization under Section 509 (a)(l) of the Code. The Foundation is not considered to be a private foundation within the meaning of Section 509(a) of the Code. The Foundation does not have any unrelated business income. Management has concluded that the Foundation has properly maintained its exempt status, and there are no uncertain tax positions through December 31, As of December 31, 2012, the statute of limitations for the three prior tax years remain open with the U.S. federal jurisdiction or the various states and local jurisdictions in which the Foundation files tax returns; there are currently no examinations being conducted. 5

8 Note B - Significant Accounting Policies (Continued) Cash and Cash Equivalents For financial reporting purposes, the Foundation considers investments with original maturities of three months or less to be cash equivalents except cash held by an investment custodian for investment purposes. The Federal Deposit Insurance Corporation (FDIC) insures amounts on deposit with each financial institution up to limits as prescribed by law. The Foundation holds funds at various times throughout the year with financial institutions in excess of the FDIC insured amount, however, the Foundation has not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash and cash equivalents. Investments and Fair Value Measurements Investments, consisting of equity securities, mutual funds and money market funds, are presented in the financial statements at fair value based on quoted market prices. Gains and losses arising from the sale, maturity or other disposition of investments are accounted for on a specific identification basis calculated as of the trade date. Interest, dividends, unrealized and realized gains and losses are reported as net investment income (loss) on the accompanying statements of activities. Unrestricted and restricted funds are pooled together into common investment accounts and net investment income (loss) is allocated among unrestricted and temporarily restricted net assets based on the ending individual net asset balances as a percentage of total net assets. In 2012 and 2011, the net investment income (loss) allocated to the temporarily restricted funds was $1,366,895 and $(236,685), respectively, and is included within net investment income (loss) on the accompanying statements of activities. The Foundation's interest in an irrevocable charitable remainder trust, recorded as contributions receivable - trust on the statements of financial position, is presented in the financial statements at fair value. See Note C for further information. The Foundation s estimates of fair value are based on the framework established in the fair value measurements and disclosures accounting guidance. The framework is based on the inputs used in valuation and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance includes a hierarchy based on whether significant valuation inputs are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Foundation's significant market assumptions. 6

9 Note B - Significant Accounting Policies (Continued) Investments and Fair Value Measurements (Continued) The three levels of the hierarchy are as follows: Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. Level 3 Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Market Risk The Foundation invests in money market funds and professionally managed mutual funds that contain various types of marketable securities. Such investments are exposed to various risks, such as fluctuations in fair value and credit risk. Thus, it is at least reasonably possible that changes in these risks in the near term could materially affect the amounts reported in the statements of financial position Contributions Receivable Unconditional promises to give are recorded as contributions in the period the promise is made. Contributions receivable that are expected to be collected within one year are reported net of any estimated uncollectible amounts. Contributions receivable expected to be collected beyond one year are discounted to present value using the United States Treasury obligations risk-adjusted rates according to their corresponding terms. Net Assets The Foundation's net assets have been grouped into the following three classes: Unrestricted - Unrestricted net assets generally result from revenues derived from providing services and receiving unrestricted contributions, less expenses incurred in providing services, raising contributions and performing administrative functions. Temporarily restricted - Temporarily restricted net assets generally result from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled by meeting the purpose of the donation. 7

10 Note B - Significant Accounting Policies (Continued) Net Assets (continued) Permanently restricted - Permanently restricted net assets are funds whose use is restricted by donors to create a permanent endowment. Interest, dividends, and unrealized and realized gains and losses from investing in income producing assets may be included in any of these net asset classifications, depending on donor restrictions. Earnings on the permanent endowment fund as of December 31, 2012 and 2011 are available to support the Jacquelin Goldman Congressional Fellowship for postdoctoral psychologists trained in developmental and/or clinical psychology. Endowments The Foundation reports its endowment funds and related activity in accordance with GAAP. The Endowments of Not-for-Profit Organizations accounting guidance provides guidance on the net asset classification of donor-restricted endowment funds that are subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). Reference is made to Note F for disclosures. Revenue Recognition The Foundation's operations are supported primarily by contributions, including bequests. Additional sources include contributions received through a check-off option on the APA dues and dues-exempt statements, the assignment of royalties and a portion of the reprint revenue from the sale of certain APA copyrighted publications. The Foundation reports gifts of cash and other assets as restricted revenue if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is accomplished, temporarily restricted net assets are released to unrestricted net assets. Wills are recorded as contribution revenue when the probate courts declare the wills valid and the proceeds are measurable. Grant, Award and Scholarship Expenses Grant, award and scholarship expenses of the Foundation are recorded in the accompanying financial statements as payables and as expenses at the time that the grant, award or scholarship has been both approved by the Board of Trustees and accepted by the recipient. 8

11 Note B - Significant Accounting Policies (Continued) Functional Expenses The costs of providing the Foundation's various programs and other activities have been summarized on a functional basis. Accordingly, certain costs have been allocated among the programs and supporting services based on the estimated amount of time worked on each program or activity or other reasonable basis. Functional expenses are as follows: Program services $ 1,141,744 $ 947,937 Management and general 206, ,134 Fundraising 285, ,877 Total functional expenses $ 1,633,788 $ 1,420,948 Reclassifications Certain prior year amounts have been reclassified for comparative purposes to conform to with the current year presentation. Note C - Contributions Receivable As of December 31, 2012 and 2011, the Foundation has received unconditional promises to give that are due as follows: Less than one year $ 152,244 $ 258,301 One to five years 386, ,890 Subtotal 538, ,191 Less: present value discount (13,057) (14,088) Total contributions receivable 525, ,103 Less: allowance for uncollectible receivables (4,750) (4,750) Contributions receivable, net $ 521,035 $ 443,353 Discount rates ranging from 1.80% to 4.30% were used to determine the present value discount. Contribution Receivable - Trust In 2003, the Foundation was named beneficiary of an irrevocable charitable remainder trust (the Trust). Under the trust agreement, a third-party trustee will pay the donor a unitrust amount of 6.5% of the net fair market value of the assets of the Trust at the valuation date (as defined). The unitrust amount will be paid in quarterly installments over the lifetime of the donor. Upon the death of the donor, the Foundation will receive the remaining assets of the Trust. 9

12 Note C - Contributions Receivable (Continued) At December 31, 2012 and 2011, the fair value of the Trust was $57,637 and $53,699, respectively, which was measured at the present value of the future expected benefit using a rate of 1.2% and 1.6%, respectively, and is recorded as contribution receivable - trust on the statements of financial position. The gains (losses) in market value of the Trust of $3,939 and $(4,720) for the years ended December 31, 2012 and 2011, respectively, are included in investment income (loss) in the accompanying statements of activities. This is classified as a Level 2 asset in accordance with the GAAP fair value hierarchy. Note D - Conditional Pledges In addition to funds already received and recognized as revenue by the Foundation, there is approximately $150,000 in a conditional pledge outstanding as of December 31, Conditions related to this pledge has not been met. As such, the pledge is not recorded on the Foundation s financial statements for the year ended December 31, There were no conditional pledges as of December 31, Note E - Investments and Fair Value Measurements Investments consist of mutual funds, equity securities and money market funds, which are all classified as Level 1 securities in accordance with the GAAP fair value hierarchy, and consist of the following as of December 31: Equity mutual funds: Large cap U.S. equities $ 4,432,120 $ 3,945,495 Small/mid cap U.S. equities 1,437,371 1,254,760 International equities 2,206,784 1,970,743 Fixed income mutual funds: Core fixed income 5,070,011 4,750,854 Opportunistic fixed income 1,242,798 1,078,930 Real assets - commodities 1,042,240 1,055,732 Money market funds 4, ,069 Total investments $ 15,436,155 $ 14,184,583 The Foundation's Level 1 securities are valued based on quoted market prices. The Foundation recognizes transfers between levels of the fair value hierarchy at the end of the period in which the events occur causing changes in the availability of fair value inputs. There were no transfers in or out of Level 1 during the years ended December 31, 2012 and

13 Note E - Investments and Fair Value Measurement (Continued) Investment income (loss), net consists of the following for the years ended December 31, 2012 and 2011, respectively: Dividends and interest $ 546,485 $ 465,601 Net unrealized and realized gains (losses) 1,365,371 (801,133) Investment fees (63,894) (47,023) Investment income (loss), net $ 1,847,962 $ (382,555) Note F - Endowment Fund The Foundation's endowment consists of a single permanently restricted donor fund. The fund was established with permanent donor restrictions on the corpus, with the interest earned to be used by the Foundation for Congressional Fellowships. The original gift amount of $538,248 was received in Interpretation of Relevant Law The Board of Trustees of the Foundation has interpreted UPMIFA as requiring the 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 the donor-restricted endowment fund that is not classified as 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 UPMIFA. In accordance with UPMIFA, the Foundation considers the preservation of the fund, the purposes of the donor-restricted endowment fund and the investment policies of the Foundation in making a determination to appropriate or accumulate donor-restricted endowment funds. Earnings from the endowment fund totaled $19,353 and $16,506 for the years ended December 31, 2012 and 2011, respectively, and have been recorded as increases in temporarily restricted net assets. No funds have been appropriated from the endowment fund in either 2012 or

14 Note F - Endowment Fund (Continued) Return Objectives, Risk Parameters and Strategies Employed The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to the program supported by its endowment while protecting the principal balance. The objective of the permanently restricted assets is the preservation of capital. To achieve the return objectives within the risk parameters, the Foundation has elected to invest in a diversified portfolio that includes equities, equity and fixed income mutual funds, and money market funds. From time to time, the fair value of assets associated with the donor-restricted endowment fund may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. There were no such deficiencies as of December 31, 2012 or Spending Policy The earnings are temporarily restricted when earned and released from restricted funds when used in accordance with donor stipulations. Note G - Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at December 31: Scholarships, awards, grants and other program expenses $ 10,951,214 $ 10,176,699 Time restrictions 49,683 95,215 Accumulated earnings from endowment available for Congressional Fellowships 53,818 34,465 Total temporarily restricted net assets $ 11,054,715 $ 10,306,379 12

15 Note G - Temporarily Restricted Net Assets (Continued) During 2012 and 2011, the following expenses were incurred once the time restrictions and/or purpose of donor-imposed restrictions on contributions were met. Accordingly, the related temporarily restricted net assets were released to unrestricted net assets in the accompanying statements of activities. Grant, award and scholarship expenses Prizes and awards $ 65,581 $ 35,450 Lectures 6,500 8,500 Scholarships and fellowships 142, ,244 Grants 169, ,193 Subtotal 384, ,387 Operational expenses and release from time restrictions Salaries and benefits 442, ,859 Asset management fees 45,454 33,694 Consulting/contractual services 18,100 15,588 Other expenses and transfers, net 179, ,943 Subtotal 685, ,084 Total net assets released from restrictions $ 1,069,766 $ 1,148,471 Note H - Related Party Transactions APA provides shared resources and pays for certain expenses on behalf of the Foundation for which the Foundation reimburses APA. These amounts consist primarily of direct salaries and benefits and other general and administrative expenses of the Foundation. During 2012 and 2011, APA incurred $622,362 and $532,920, respectively, of reimbursable expenses on behalf of the Foundation. In addition, the Foundation receives an annual contribution from APA. The contribution was $100,000 in 2012 and 2011 and is included in contributions in the accompanying statements of activities. In 2012 and 2011, the Foundation used office space provided by APA at no charge. As of December 31, 2012 and 2011, the net amount due from the Foundation to APA was $75,189 and $27,835, respectively. 13

16 Note I - Line of Credit During the year ended December 31, 2009, the Foundation obtained a $500,000 revolving line of credit with a local bank for its use to finance short-term working capital needs. The line of credit is renewed annually and the current line expires June 1, The line of credit is unsecured and has no collateral requirements. Amounts drawn down are due on demand with interest payable monthly. The line of credit has an interest rate equal to the thirty-day LIBOR rate plus 2%, reset monthly, and not less than 3% per annum. There were no funds drawn on the line of credit as of or during the years ended December 31, 2012 and