Review Report of Independent Accountants and Financial Statements for. The Roman Catholic Diocese of Orange Revocable Trust

Transcription

1 Review Report of Independent Accountants and Financial Statements for The Roman Catholic Diocese of Orange Revocable Trust June 30, 2013 and 2012

2 CONTENTS PAGE REVIEW REPORT OF INDEPENDENT ACCOUNTANTS... 1 FINANCIAL STATEMENTS Statements of financial position... 2 Statements of trust activity... 3 Statements of cash flows... 4 Notes to financial statements... 5

3 REVIEW REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees The Roman Catholic Diocese of Orange Revocable Trust We have reviewed the accompanying statements of financial position of The Roman Catholic Diocese of Orange Revocable Trust (the Trust ) as of June 30, 2013 and 2012, and the related statements of trust activities and cash flows of the Trust for the years then ended. A review includes primarily applying analytical procedures to management s financial data and making inquiries of Trust management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management is responsible for the preparation of fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. San Diego, California March 11, 2014 Page 1

4 FINANCIAL STATEMENTS

5 STATEMENTS OF FINANCIAL POSITION June 30, 2013 and 2012 June 30, ASSETS Receivables Due from Trustee $ 101,121,660 $ 85,467,393 Loans from parishes and other institutions, net of allowance for doubtful accounts of $518,000 and 607,991 at June 30, 2013 and 2012, respectively 16,306,600 24,279,776 TOTAL ASSETS $ 117,428,260 $ 109,747,169 LIABILITIES AND TRUST NET ASSETS Liabilities Trust accounts $ 117,428,260 $ 109,747,169 Net assets Trust net assets TOTAL LIABILITES AND TRUST NET ASSETS $ 117,428,260 $ 109,747,169 Page 2 See accompanying notes.

6 STATEMENTS OF TRUST ACTIVITY For the Years Ending June 30, 2013 and June 30, 2012 Years Ended June 30, REVENUES Guarantee on deposits $ 684,820 $ 872,938 Interest earned on loans 935,520 1,335,794 1,620,340 2,208,732 EXPENSES Interest paid on deposits (1,840,120) (2,053,265) Bad debt recovery 89,990 14,043 Other expense (76,720) (12,795) Losses (reinvested earnings) on trust accounts 206,510 (156,715) (1,620,340) (2,208,732) Net change in trust accounts $ $ See accompanying notes. Page 3

7 STATEMENTS OF CASH FLOWS For the Years Ending June 30, 2013 and June 30, 2012 Years Ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES Change in trust accounts $ $ Adjustments to reconcile change in trust accounts to net cash from operating activities Losses (reinvested earnings) on trust accounts 206,510 (156,715) Net cash from operating activities 206,510 (156,715) CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in due from Trustee receivables (15,654,267) 8,961,150 Repayments of loans from parishes and other institutions 10,092,476 4,295,574 Issuance of loans to parishes and other institutions (1,093,790) (3,065,424) Increase (decrease) in trust accounts 6,449,071 (10,034,585) Net cash from investing activities (206,510) 156,715 NET CHANGE IN CASH AND CASH EQUIVALENTS CASH, BEGINNING OF YEAR CASH, END OF YEAR $ $ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest $ 1,840,120 $ 2,053,265 Page 4 See accompanying notes.

8 NOTES TO FINANCIAL STATEMENTS NOTE 1 ORGANIZATION The Roman Catholic Diocese of Orange Revocable Trust was established and commenced financial operations in June 2011 as the Roman Catholic Diocese of Orange Revocable Trust ( Trust ) to safely invest and earn a prudent return for the savings and restricted funds belonging to the Roman Catholic parishes and schools organized under California law as unincorporated, nonprofit associations and the Roman Catholic charitable corporations located within the Diocese of Orange (collectively, the Trustors ). The Roman Catholic charitable organizations include those nonprofit corporations organized under the laws of the state of California in which the Roman Catholic Bishop of Orange has a governance role. Each Trustor that has placed its funds with the Trust has entered into a master agreement with the Trust ( Trust Agreement ). The Trust holds all assets as an agent for the Trustors. The Trust invests and distributes the assets in accordance with the provisions of the Trust Agreement. The duties of the Roman Catholic Bishop of Orange, a California corporation sole, and its incumbent and chief executive officer, the Bishop of Orange ( Trustee ), duly appointed pursuant to canon law of the Roman Catholic Church, are specifically set forth in the Trust Agreement and are carried out by the Trustee. Under the terms of the Trust Agreement, property transferred by an individual Trustor to the Trust is designated as a "share of the Trust for the Trustor s benefit. The Trust may be revoked in whole or in part and, upon revocation, the Trustee shall deliver to the Trustor all, or the designated portion of, its property of such share together. If the Trust Agreement is revoked with respect to all, or a major portion of the assets held as a share, the Trust shall be entitled to retain sufficient assets to reasonably secure payment of liabilities incurred by the Trust in the administration of such share, unless the individual Trustor indemnifies the Trust against any loss or expense. NOTE 2 SUMMARY OF ACCOUNTING POLICIES The accounting policies of the Trust conform to generally accepted accounting principles applicable to not for profit organizations. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows. Accrual basis The financial statements of the Trust have been prepared on the accrual basis of accounting. Tax exempt status The Trust is a grantor type trust. Accordingly, no tax provision has been recorded in the financial statements. The Trust had no unrecognized tax benefits at June 30, 2013 and 2012, and had no uncertain tax positions. The Trust is not required to file an exempt organization return in the U.S. federal jurisdiction or with the state of California. Fiduciary accounting and trust liability The financial statements include only those funds of the Trustors. All the administrative costs of the Trust are absorbed by the Trustors. Because all activities of the Trust are agency transactions, no transactions in the statements of trust activity affect the net assets of the Trust. Instead, the statement of trust activity presents the assets held by the Trust and a related trust liability. All activity of the Trust is considered unrestricted. Use of estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of credit risk Concentrations of credit risk exist with respect to receivables since generally all are due from parishes and other institutions located within the Roman Catholic Diocese of Orange. Receivables Due from Trustee As of June 30, 2013 and 2012, the assets owned by the Trust were not transferred to the Trust, but instead have been retained by the Trustee and managed on behalf and for the benefit of the Trust. These assets include the investable funds and other comingled amounts that are part of the overall investment portfolio managed by the Trustee. The share of invested funds owned by the Trust are accounted for by the recording of equal amounts as a Due From Trustee Receivable and a Due To Trust Payable on the books of the Trust and Trustee, respectively. Page 5

9 NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF ACCOUNTING POLICIES (CONTINUED) Receivables loans from parishes and other institutions Receivables represent loans made to parishes and Roman Catholic institutions in the Diocese of Orange. Such loans represent an invested portion of funds held in the Trust under authority granted in the trust agreement. The loans are interest bearing at 4.75%, are generally held without collateral, and are due on demand. However, most institutions make regular payments. Generally loans are not considered past due or delinquent. The loans are accounted for at the gross amount loaned, less amounts collected and less an allowance for doubtful collection. The Trust Agreement makes such loans as a method of asset investment for the trustors. Allowance for doubtful accounts The Trust provides an allowance for receivables it believes it may not collect in full. The Trust regularly evaluates the collectability of its receivables. As of June 30, 2013 and 2012, receivables had a gross book value of $16,824,600 and $24,887,767, respectively, and an allowance for doubtful accounts of $518,000 and $607,991, respectively. It is reasonably possible that the Trust s estimate of the allowance for doubtful accounts will change significantly, with the result that the carrying amount of the receivables may be materially changed in the near term. Guaranteed return on deposits The Trustee computes an amount of guaranteed return with respect to the average daily value of a share during the calendar quarter for which such guaranteed return is computed, and may be changed by the Trustee as often as it deems appropriate to reflect economic conditions of the Diocese, the state of California, or the United States in general and other relevant considerations. The guaranteed return shall be expressed as a percentage (e. g., 2.5%, 4%, and so forth). The Trustee advises each Trustor of the guaranteed return percentage on a periodic basis. In regard to shares attributed to parish and school endowment funds, the Trustee shall credit to the investment portion of such share an amount equal to the investment return properly allocable to such investment portion as determined by the Trustee. Any net income (not to exceed the Guaranteed Return) not distributed to each Trustor shall be accumulated and added to the principal of the deposit portion of the appropriate share, provided that any net income of the Trust neither so distributed nor so accumulated (that is, any such net income in excess of the Guaranteed Return), shall be distributed to the Roman Catholic Bishop of Orange. Except as otherwise specifically provided in the Trust Agreement, the determination of all matters with respect to what is principal and income of the Trust estate and the apportionment and allocation of receipts and expenses between trust accounts may be (but is not required to be) governed by the provisions of the California Revised Uniform Principal and Income Act. Recent accounting pronouncements In April 2013, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update ( ASU ) , Not for Profit Entities (Topic 958): Services Received from Personnel of an Affiliate. ASU specifies the guidance that not for profit entities apply for recognizing and measuring services received from personnel of an affiliate. The provisions of ASU will be effective for annual periods beginning after June 15, 2014 and permit early adoption. The Trust is currently evaluating the impact of this ASU on its financial statements. Subsequent events Subsequent events are events or transactions that occur after the statement of financial position date but before the financial statements are issued. The Trust recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the statement of financial position, including the estimates inherent in the process of preparing the financial statements. The Trust s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the statement of financial position but arose after the statement of financial position date and before the financial statements are available to be issued. Subsequent events which require disclosure are disclosed in Note 5. The Trust has evaluated subsequent events through March 11, 2014, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2012 financial statements to conform to the 2013 presentation. These reclassifications had no impact on net assets balances and were presentation in nature only. Page 6

10 NOTES TO FINANCIAL STATEMENTS NOTE 3 LOANS FROM PARISHES AND OTHER INSTITUTIONS At June 30, 2013, loan maturities ranged from June 1, 2014 through June 30, At June 30, 2013, the Trust had the following amounts due from various parishes and schools: Years ended June 30: 2014 $ 74, , ,969, , ,067,696 Thereafter 12,317,378 16,824,600 Less: allowance for doubtful accounts $ (518,000) 16,306,600 At June 30, 2013 and 2012, there were two loans outstanding that represented 56% of total loans due and three loans outstanding that represented 53% of total loans due, respectively. NOTE 4 RELATED PARTY TRANSACTIONS The transactions between the Trust and the Trustors reflected in the accompanying financial statements are considered relatedparty transactions and are subject to the provisions of the Trust Agreement (see Note 1). The Trust is provided substantially all of its operating services, such as salaries and administrative expenses, directly by the Administrative Offices of the Roman Catholic Bishop of Orange. These services are not reflected in the financial statements as the amounts are not considered material. Direct costs, such as investment fees and accounting fees, are expenses of the Trust and offset accumulated net assets, which are periodically allocated proportionately to each of the trustors. These expenses are included in other expense in the statements of trust activities and were $19,503 and $12,795 for the years ended June 30, 2013 and 2012, respectively. NOTE 5 SUBSEQUENT EVENT On October 1, 2013, the Trust entered into an uncollateralized credit facility to loan up to $4,000,000 to the Christ Catholic Cathedral Corporation. The Bishop is the sole member of both the Administrative Office of the Roman Catholic Bishop of Orange (Note 4) and Christ Catholic Cathedral Corporation. The loan accrues interest at a rate of 2.75 percent and is payable monthly. Principal is due on September 30, As of the report date, Christ Catholic Cathedral Corporation has drawn $1,709,049. Page 7