FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2015 AND 2014
TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Activities 4 Statements of Functional Expenses 5-6 Statements of Cash Flows 7 Notes to Financial Statements 8-20
STATEMENTS OF FINANCIAL POSITION ASSETS 2015 2014 Current assets Cash and cash equivalents $ 1,136,879 $ 786,886 Investments plus accrued interest - 77,236 Contributions receivable 93,520 153,741 Contributions receivable from Home Office - 10,703 Due from other chapters 617 29,875 Prepaid expenses and other assets 20,121 28,428 Total current assets 1,251,137 1,086,869 Due from Home Office - Charitable remainder trusts 24,385 17,914 Endowment funds plus accrued interest - 86,315 Property and equipment, at cost, net of accumulated depreciation and amortization 26,276 21,455 Interest in Society's pooled investment fund 875,602 905,426 Interest in Society's pooled endowment investment fund 80,040 - Total assets $ 2,257,440 $ 2,117,979 Current liabilities LIABILITIES AND NET ASSETS Remittance due to Home Office $ 72,933 $ - Other payables due to Home Office 2,477 12,443 Due to other chapters 49 - Accounts payable and accrued expenses 312,000 314,272 Deferred revenue 41,772 32,699 Deferred rent liability, current portion 4,743 4,497 Current portion of obligation under capital lease 2,725 - Total current liabilities 436,699 363,911 Long-Term Liabilities Deferred rent liability, long-term portion 6,997 11,739 Obligation under capital lease, less current portion 10,557 - Total long-term liabilities 17,554 11,739 Total liabilities 454,253 375,650 Net assets Unrestricted 1,532,824 1,469,323 Temporarily restricted 186,547 189,190 Permanently restricted 83,816 83,816 Total net assets 1,803,187 1,742,329 Total liabilities and net assets $ 2,257,440 $ 2,117,979 See accompanying notes to financial statements. 3
STATEMENTS OF ACTIVITIES Years Ended 2015 2014 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues Public support Received directly: Special events revenue (includes in-kind contributions of $54,444 for 2015 and $54,941 for 2014) $ 3,763,602 $ - $ - $ 3,763,602 $ 3,718,746 $ - $ - $ 3,718,746 Less benefit to donor costs (487,955) - - (487,955) (518,977) - - (518,977) 3,275,647 - - 3,275,647 3,199,769 - - 3,199,769 Contributions (includes in-kind contributions of $1,814 for 2015 and $0 for 2014) 905,607 130,123-1,035,730 817,189 114,301-931,490 Legacies received by Chapter 48,690 - - 48,690 23,093 - - 23,093 Total public support 4,229,944 130,123-4,360,067 4,040,051 114,301-4,154,352 Other revenue Investment income (loss) (53,104) - - (53,104) 8,027 301-8,328 Miscellaneous income 15,538 - - 15,538 36,349 - - 36,349 Total other revenue (37,566) - - (37,566) 44,376 301-44,677 Net assets released from restrictions 132,766 (132,766) - - 130,051 (130,051) - - Total revenues net of benefit to donor costs 4,325,144 (2,643) - 4,322,501 4,214,478 (15,449) - 4,199,029 Expenses Program services: Research 1,148,065 - - 1,148,065 1,061,625 - - 1,061,625 Society activities - - - - 718,074 - - 718,074 Client programs 650,383 - - 650,383 470,075 - - 470,075 Community programs 399,873 - - 399,873 343,134 - - 343,134 Professional education and training 170,562 - - 170,562 121,311 - - 121,311 Public education 977,619 - - 977,619 639,100 - - 639,100 Total program services 3,346,502 - - 3,346,502 3,353,319 - - 3,353,319 Supporting services: Fund raising 606,070 - - 606,070 561,855 - - 561,855 Management and general 309,071 - - 309,071 227,290 - - 227,290 Total supporting services 915,141 - - 915,141 789,145 - - 789,145 Total expenses 4,261,643 - - 4,261,643 4,142,464 - - 4,142,464 Change in net assets 63,501 (2,643) - 60,858 72,014 (15,449) - 56,565 Net assets, beginning of year 1,469,323 189,190 83,816 1,742,329 1,397,309 204,639 83,816 1,685,764 Net assets, end of year $ 1,532,824 $ 186,547 $ 83,816 $ 1,803,187 $ 1,469,323 $ 189,190 $ 83,816 $ 1,742,329 See accompanying notes to financial statements. 4
STATEMENT OF FUNCTIONAL EXPENSES Year Ended September 30, 2015 Program Services Supporting Services Professional Total Management Total Client Community Education Public Program Fund and Supporting Benefit to Research Programs Programs and Training Education Services Raising General Services Donor Costs Total Salaries $ - $ 206,559 $ 199,002 $ 80,608 $ 392,966 $ 879,135 $ 230,490 $ 149,881 $ 380,371 $ - $ 1,259,506 Employee benefits - 34,913 33,636 13,625 66,420 148,594 38,958 25,333 64,291-212,885 Payroll taxes - 16,004 15,419 6,246 30,447 68,116 17,859 11,613 29,472-97,588 Total salaries and related expenses - 257,476 248,057 100,479 489,833 1,095,845 287,307 186,827 474,134-1,569,979 Printing and artwork - 1,180 6,186 160 24,424 31,950 37,041 2,182 39,223-71,173 Postage and shipping - 939 3,917 142 27,246 32,244 24,964 149 25,113-57,357 Telephone - 2,651 2,548 1,032 5,031 11,262 2,951 1,919 4,870-16,132 Supplies - 1,002 1,096 221 1,070 3,389 1,147 423 1,570 35,140 40,099 Dues and memberships - 935 2,918 160 779 4,792 984 447 1,431-6,223 Professional and other contract services fees - 43,754 11,201 3,342 16,292 74,589 86,942 6,374 93,316-167,905 Donated public service announcements and adv. - - - - - - 1,420-1,420-1,420 Travel - 6,440 8,302 1,141 5,195 21,078 11,041 2,066 13,107 211,783 245,968 Conferences and meetings - 18,918 616 161 884 20,579 1,563 404 1,967 9,555 32,101 Occupancy - 21,160 20,386 8,258 40,256 90,060 23,612 15,355 38,967 83,665 212,692 Furniture and equipment - 2,758 1,896 768 3,744 9,166 2,196 1,428 3,624-12,790 Insurance (property and casualty) - - - - - - 6,000-6,000-6,000 Funding of other organizations that support MS - - 22 - - 22 - - - - 22 Direct financial assistance - 118,758 - - - 118,758 - - - - 118,758 Awards and prizes - 808 601 26 127 1,562 1,958 137 2,095 91,465 95,122 Interest and miscellaneous expense - 2,495 1,212 491 2,907 7,105 88,048 913 88,961 56,347 152,413 Depreciation and amortization - 1,962 1,890 766 3,732 8,350 2,189 1,422 3,611-11,961 Restricted contributions to Society research investment 150,987 - - - - 150,987 - - - - 150,987 Total expenses before Chapter support of Society activities 150,987 481,236 310,848 117,147 621,520 1,681,738 579,363 220,046 799,409 487,955 2,969,102 Chapter support of Society Initiatives 997,078 169,147 89,025 53,415 356,099 1,664,764 26,707 89,025 115,732-1,780,496 Total expenses $ 1,148,065 $ 650,383 $ 399,873 $ 170,562 $ 977,619 $ 3,346,502 $ 606,070 $ 309,071 $ 915,141 $ 487,955 4,749,598 Less direct benefit to donor costs 487,955 Total expenses as reported on the Statement of Activities $ 4,261,643 See accompanying notes to financial statements. 5
STATEMENT OF FUNCTIONAL EXPENSES Year Ended September 30, 2014 Program Services Supporting Services Professional Total Management Total Society Client Community Education Public Program Fund and Supporting Benefit to Research Activities Programs Programs and Training Education Services Raising General Services Donor Costs Total Salaries $ - $ - $ 213,679 $ 220,274 $ 83,097 $ 404,934 $ 921,984 $ 240,059 $ 156,962 $ 397,021 $ - $ 1,319,005 Employee benefits - - 34,526 35,591 13,427 65,428 148,972 38,788 25,361 64,149-213,121 Payroll taxes - - 16,950 17,473 6,592 32,122 73,137 19,043 12,451 31,494-104,631 Total salaries and related expenses - - 265,155 273,338 103,116 502,484 1,144,093 297,890 194,774 492,664-1,636,757 Printing and artwork - - 1,523 8,265 345 28,686 38,819 33,531 1,033 34,564-73,383 Postage and shipping - - 1,662 4,746 130 27,061 33,599 26,859 265 27,124-60,723 Telephone - - 2,498 2,575 971 4,733 10,777 2,806 1,835 4,641-15,418 Supplies - - 1,394 1,078 331 1,400 4,203 1,995 569 2,564 16,862 23,629 Dues and memberships - - 372 3,035 145 704 4,256 1,011 423 1,434-5,690 Professional and other contract services fees - - 14,836 9,579 2,549 13,035 39,999 58,183 4,840 63,023-103,022 Donated public service announcements and adv. - - - - - - - 3,415-3,415-3,415 Travel - - 6,086 8,503 886 2,265 17,740 17,304 986 18,290 241,049 277,079 Conferences and meetings - - 17,887 240 154 886 19,167 3,948 244 4,192 12,382 35,741 Occupancy - - 21,185 21,838 8,238 40,146 91,407 23,800 15,561 39,361 75,221 205,989 Furniture and equipment - - 4,475 4,613 1,740 8,480 19,308 5,027 3,287 8,314-27,622 Funding of other organizations that support MS - - - 6 - - 6 - - - 6 Direct financial assistance - - 127,049 - - - 127,049 - - - - 127,049 Awards and prizes - - 876 767 989 210 2,842 4,162 231 4,393 90,128 97,363 Miscellaneous expense - - 2,159 1,543 582 3,480 7,764 78,646 1,099 79,745 83,335 170,844 Depreciation and amortization - - 2,918 3,008 1,135 5,530 12,591 3,278 2,143 5,421-18,012 Restricted contributions to Society - research investment 70,000 - - - - - 70,000 - - - - 70,000 Chapter support of Society research investment 991,625 - - - - - 991,625 - - - - 991,625 Total expenses before Chapter support of Society activities 1,061,625-470,075 343,134 121,311 639,100 2,635,245 561,855 227,290 789,145 518,977 3,943,367 Chapter support of Society activities - 718,074 - - - - 718,074 - - - - 718,074 Total expenses $ 1,061,625 $ 718,074 $ 470,075 $ 343,134 $ 121,311 $ 639,100 $ 3,353,319 $ 561,855 $ 227,290 $ 789,145 $ 518,977 4,661,441 Less direct benefit to donor costs 518,977 Total expenses as reported on the Statement of Activities $ 4,142,464 See accompanying notes to financial statements. 6
STATEMENTS OF CASH FLOWS Years Ended 2015 2014 Cash flows from operating activities Change in net assets $ 60,858 $ 56,565 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 11,961 18,012 Due from Home Office - Charitable remainder trusts (6,471) (177) Change in interest in Society's pooled investment funds 54,457 (5,426) Changes in operating assets and liabilities: Contributions receivable 60,221 (52,755) Contributions receivable from Home Office 10,703 (10,703) Due from (to) other chapters 29,307 (29,875) Prepaid expenses and other assets 8,307 11,326 Due to Home Office - remittance and other payables 62,967 (239,318) Accounts payable and accrued expenses (2,272) 73,790 Deferred revenue 9,073 (9,906) Deferred rent liability (4,496) (3,267) Net cash provided by (used in) operating activities 294,615 (191,734) Cash flows from investing activities Proceeds from maturities of certificates of deposit 163,551 811,309 Sales of interest in Society's pooled investment funds 138,989 - Purchase of interest in Society's pooled investment funds (243,662) (900,000) Investment earnings in endowment funds - (346) Purchase of property and equipment (2,182) - Net cash provided by (used in) investing activities 56,696 (89,037) Cash flows from financing activities Payments on capital lease obligations (1,318) - Net increase (decrease) in cash and cash equivalents 349,993 (280,771) Cash and cash equivalents, beginning of year 786,886 1,067,657 Cash and cash equivalents, end of year $ 1,136,879 $ 786,886 Noncash investing and financing activities: Purchases of equipment with capital leases $ 14,600 $ - See accompanying notes to financial statements. 7
Note 1 - Organization and significant accounting policies A. Organization The National Multiple Sclerosis Society (the Society or Home Office ) is a not-for-profit voluntary health and welfare agency that mobilizes people and resources to drive research for a cure and to address the challenges of everyone affected by Multiple Sclerosis through a 50- state network of chapters. The National Multiple Sclerosis Society, Wisconsin Chapter (the Chapter) raises funds in the State of Wisconsin to fund cutting-edge research, drive change through advocacy, facilitate professional education, and provide programs and services that help people with MS and their families move their lives forward. B. Net asset classifications Resources for various purposes are classified for accounting and financial reporting purposes into net asset categories established according to their nature and purpose as follows: Unrestricted Net Assets: Unrestricted net assets represent funds which are fully available, at the discretion of management and the Board of Trustees, for the Chapter to utilize in any of its program or supporting services. Unrestricted net assets may be designated for a specified purpose by the Board of Trustees. There were no such designated net assets as of. Temporarily Restricted Net Assets: Temporarily restricted net assets are comprised of funds which are restricted by donors for specific purposes. The restrictions are satisfied either by the passage of time or by actions of the Chapter. Permanently Restricted Net Assets: Permanently restricted net assets include funds with permanent donor-imposed restrictions, which require the net assets to be maintained in perpetuity but permit the Chapter to expend all or part of the income derived from the donated assets. When both restricted and unrestricted resources are available for use, it is the Chapter s policy to use restricted resources first, then unrestricted resources as they are needed. C. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 and expenses during the reporting period. Actual results could differ from those estimates. Functional expenses that are not specifically attributable to program services or supporting services are allocated by management based on various allocation factors. 8
Note 1 - Organization and significant accounting policies, continued D. Allocation of functional expenses and change in its estimate During the year ended September 30, 2015, the Society modified its approach for determining the estimated functional allocation of Chapter Support of Society Initiatives (also referred to as National Programs Expense), based on recent analysis of the current activities that the expense funds. As a result, the fiscal 2015 amount of Chapter Support of Society Initiatives is allocated among all of the functional categories in the accompanying Statements of Functional Expenses, including a 6.5% allocation to supporting services. In fiscal 2014, the expense was allocated between the research and Society Activities line items within program services. E. Cash and cash equivalents The Chapter considers highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. The Chapter has two money market accounts which are considered cash and cash equivalents. F. Concentration of credit risk The Chapter maintains a bank account and a money market account at one financial institution and another money market account at a different financial institution. Deposits at the Chapter s financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000 per official custodian. The Chapter maintains a portion of its cash and cash equivalents in deposit and money market accounts that at times may exceed federally insured limits. The Chapter has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and investments. The Chapter had $633,925 and $91,652 in uninsured cash and investment balances at, respectively. G. Investments The Chapter s investments in certificates of deposit are reported at the original purchase amount plus accrued interest, which approximates fair value. Certificates of deposit with original maturities greater than three months and remaining maturities less than one year are classified as current assets and totaled $0 and $77,236 as of, respectively. H. Contributions and other receivables Contributions and other receivables consist of accruals of public support expected to be received after year-end that pertained to fundraising events held during the current fiscal year and from amounts and annuities received or held by the Society and to be remitted to the Chapter. Receivables are recorded at net realizable value, net of an allowance for uncollectible amounts. The Chapter believes that the contributions receivable are fully collectible. There are no identifiable concentrations of credit risk related to these receivables. Donated securities are liquidated upon receipt and recorded as contributions at their fair value. 9
Note 1 - Organization and significant accounting policies, continued I. Property and equipment Property and equipment are recorded at cost. Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the assets or the terms of the lease, as appropriate. Expenditures for maintenance and repairs are charged to operations as incurred. The Chapter capitalizes all equipment purchases exceeding $1,000 with useful lives in excess of one year. J. Revenue recognition and deferred revenue Contributions are recorded as revenue when received or promised (pledged) unconditionally, at their fair value. The fair value of long-term contributions receivable are measured based on the present value of future cash flows, with consideration of expectation about possible variations in the amount and/or timing of the cash flows and other specific factors that would be considered by market participants. The fair value measurements also consider donors credit risk. The Chapter recognizes income from legacies and bequests when an unassailable right to the gift has been established by the court and the proceeds are measurable in amount. It is the Chapter s policy to record temporarily restricted contributions received and fulfilled in the same accounting period in the unrestricted net asset class. When a prior year s donor restriction expires, that is, when a time restriction ends or purpose restriction is fulfilled, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the Statements of Activities as net assets released from restrictions. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. All revenue received in advance for special events that are held subsequent to year-end is deferred and recognized in the year of the event. K. Donated goods and services Donated goods and services, including public service announcements and donated advertising, used by the Chapter in programs, special events, and supporting services, are reflected as inkind contributions and expensed in the accompanying financial statements at their estimated fair value at the date of receipt if the services (a) create or enhance nonfinancial assets or (b) require specialized skills performed by individuals with those skills and that would otherwise have been purchased by the Chapter. The Chapter also records the fair value of donated goods as in-kind contributions with a corresponding expense. These amounts were $56,258 and $54,941 for the years ended, respectively. Public service announcements and donated advertising received in the years ended September 30, 2015 and 2014 totaled $1,420 and $3,415, respectively, and are reflected above as donated goods and as fundraising expense in the accompanying Statements of Activities. 10
Note 1 - Organization and significant accounting policies, continued K. Donated goods and services, continued In addition, a number of volunteers have donated significant amounts of their time to the Chapter s program services and supporting services. No amounts have been reflected in the accompanying financial statements for those donated services because they do not meet the criteria for revenue recognition established by ASC Section 958-605 (formerly Statement of Financial Accounting Standards No. 116, Contributions Received and Contributions Made). L. Chapter Support of Society Initiatives (National Programs Expense) The National Programs Expense (NPE) is an allocation charged to chapters that funds a large portion of the Society s budget in areas such as nationwide programs, services, centralized functions and the Society s research investments as well as investments in the Society s unified plan. The Society s budget is determined through an inclusive budget planning process. The Budget Development Advisory Committee provides consensus advice to the CEO and is comprised of members of the Senior Leadership Team, members of the National Board of Directors and regional volunteer liaisons responsible for communicating with volunteer leadership in each region. Revenue tiers with progressively higher percentages are used to determine the NPE allocation amounts. The remittance percentage is subject to adjustment each year to ensure that the Society meets its programmatic goals and that all donor restrictions are honored. For the years ended, the Chapter s NPE under this policy was calculated to be $1,780,496 and $1,709,699, respectively. These amounts are reflected as Chapter Support of Society Initiatives in the accompanying Statements of Functional Expenses. In addition to the allocated amount of NPE for the years ended, the Chapter made additional investments in the Society s research initiatives in the amount of $150,987 and $70,000 for the years ended, respectively, which were earmarked for research. These amounts are reflected in the Research Expense total in the accompanying Statements of Activities. M. Advertising costs Advertising costs are expenses as incurred. Advertising expense was $72,880 and $50,684 in 2015 and 2014, respectively, consisting of $1,420 and $3,415 in donated advertising and public service announcements. N. Subsequent events The Chapter has evaluated events and transactions for potential recognition or disclosure in the financial statements through December 11, 2015, the date on which the financial statements were available to be issued. 11
Note 2 - Income Taxes The Chapter qualifies as a charitable organization as defined by Internal Revenue Code 501(c)(3), and, accordingly, it is exempt from federal income taxes under Internal Revenue Code Section 501(a). Additionally, since the Chapter is publicly supported, contributions made to the Chapter qualify for the maximum charitable contributions deduction under the Internal Revenue Code. The Chapter is also exempt from Wisconsin state income tax. Management analyzed the tax positions taken by the Chapter and concluded that, as of September 30, 2015, there were no uncertain tax positions taken or are expected to be taken. Accordingly, no interest and penalties related to uncertain tax positions have been accrued in the accompanying financial statements. The Chapter is subject to audits by taxing jurisdictions. During the year ended September 30, 2015, the Internal Revenue Service conducted an audit for the fiscal year ended September 30, 2014 and has completed the audit during November 2015 without adjustment. No other audits for any other tax periods are currently in progress. The Chapter's federal tax exempt income tax returns are subject to examination generally for three years after they are filed and its state income tax returns generally for four years after they are filed. Management believes that the Chapter is no longer subject to such audits for years ended on or prior to September 30, 2011. Note 3 - Contributions receivable Contributions receivable are recognized as revenue in the period promised under the appropriate net asset category and are expected to be realized in the following period: 2015 2014 Amounts due in: Less than one year $ 93,520 $ 153,741 Note 4 - Fair Value Measurements The Chapter reports its fair value measures using a three-level hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). 12
Note 4 - Fair Value Measurements, continued The three levels of the fair value hierarchy that determines fair value are described below: Fair value measurements based on Level 1 inputs: Measurements that are most observable are based on quoted prices of identical instruments obtained from the principal markets in which they are traded. Closing prices are both readily available and representative of fair value. Market transactions occur with sufficient frequency and volume to ensure liquidity. Fair value measurements based on Level 2 inputs: Measurements derived indirectly from observable inputs or from quoted prices from markets that are less liquid are considered Level 2. Measurements may consider inputs that other market participants would use in valuing a portfolio, quoted market prices for similar securities, interest rates, credit risks, and others. Fair value measurements based on Level 3 inputs: Measurements that are least observable are estimated from related market data, determined from sources with little or no market activity for comparable contracts, or are positions with longer durations. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the methodologies used for investments reported at fair value: Certificates of deposit: Valued at cost plus accrued interest, which approximates fair value. Interest in Society s Pooled Investment Funds: Valued at fair value which is estimated as the Chapter s share of the underlying assets held in the Society s pooled investment portfolio. At, the Society s pooled investment portfolio was classified within the FASB fair value hierarchy as 100% Level 1. While principally all of the underlying funds investments are readily marketable, based on quoted fair market values, the Chapter s share of the Society s pooled investment fund cannot be priced on an active exchange, and therefore, the interests in the pooled investment fund are classified as Level 3. The preceding valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Chapter believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used at. 13
Note 4 - Fair Value Measurements, continued The following tables provide the fair value hierarchy of the Chapter s financial assets as of September 30, 2015 and 2014: Investments at fair value as of September 30, 2015 (Level 1) (Level 2) (Level 3) Total Cash and Cash Equivalents* $ 1,136,879 $ - $ - $ 1,136,879 Interest in Society's Pooled Investment Funds - - 955,642 955,642 $ 1,136,879 $ - $ 955,642 $ 2,092,521 Investments at fair value as of September 30, 2014 (Level 1) (Level 2) (Level 3) Total Cash and Cash Equivalents* $ 786,886 $ - $ - $ 786,886 Certificates of Deposit - 163,551-163,551 Interest in Society's Pooled Investment Funds - - 905,426 905,426 $ 786,886 $ 163,551 $ 905,426 $ 1,855,863 * Represents cash and cash equivalents that are interest-bearing and are included in cash and cash equivalents in the accompanying Statements of Financial Position. The table below sets forth a summary of the changes in the fair value of the Chapter s Level 3 financial assets for the year ended : 2015 2014 Fair value, beginning of year $ 905,426 $ - Purchase of investments 243,662 900,000 Sales of investments (138,989) - Interest and dividends 23,332 3,995 Net realized and unrealized gains (losses) (73,533) 2,334 Administrative fees (4,256) (903) Fair value, end of year $ 955,642 $ 905,426 14
Note 5 - Interest in Society s pooled investment fund As required by the implementation of the Society s Reserves Policy, the Chapter transferred $182,727 and $900,000 into the Society s pooled investment fund during years ended September 30, 2015 and 2014, respectively. The Chapter withdrew $78,054 during the year ended September 30, 2015. The Chapter holds a share of the overall portfolio of the Society s pooled investment funds rather than in the individual financial instruments and therefore has the same composition of investments as that of the Society s total pooled investment funds. The Chapter s share of the Society s pooled investment fund amounted to $875,602 and $905,426 as of, which represents 1.3% and 7.2%, respectively, of the Society s total pooled investment fund. The Chapter s share of the Society s pooled endowment investment fund amounted to $80,040 and $0 as of, which represents 1.0% and 0%, respectively, of the Society s total endowment investment fund. Investment net income (loss) allocated from the Society s pooled investment funds totaled ($54,457) and $5,426 for the years ended, respectively, which included interest and dividends of $23,332 and $3,995, net realized/unrealized gains (losses) of ($73,533) and $2,334, respectively, and administration fees of $4,256 and $903, respectively. Note 6 - Endowment funds The Chapter maintains an endowment fund established for scholarship purposes. The endowment fund includes a donor-restricted endowment fund and had previously included a fund designated by the Board of Trustees to function as an endowment. Net assets associated with endowment funds, including board-designated funds to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. During the year ended September 30, 2014, the board-designated fund was released from restriction based on direction from the board. The endowment investment consisted of a certificate of deposit and the cost, which approximated fair value, was $86,315 as of September 30, 2014. During the year ended September 30, 2015, the certificate of deposit was liquidated and $83,816 of the original endowment was transferred into the society s pooled endowment investment fund. The amount of the endowment investment included in the pooled endowment investment fund was $80,040 as of September 30, 2015. Interpretation of relevant law The Chapter has interpreted the State of Wisconsin and Uniform Prudent Management of Institutional Funds Act (UPMIFA) laws as requiring the preservation of the fair value of the original gifts as of the gift date to the donor-restricted endowment fund absent explicit donor stipulations to the contrary. As a result of this interpretation, the Chapter classifies and has reported as permanently restricted net assets (1) the original value of gifts donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent endowment, and (3) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is characterized as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard for expenditure prescribed by UPMIFA. 15
Note 6 - Endowment funds, continued In accordance with UPMIFA, the Chapter considers the following factors in making a determination to appropriate or calculate donor-restricted endowment funds: 1. The duration and preservation of the fund 2. The general purposes of the organization and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and appreciation of investments 6. Other resources of the Chapter 7. The investment policies of the Chapter Return objectives and risk parameters The Chapter s endowment fund consists of assets that must be held in perpetuity or for specified time periods stipulated by the donors. The Chapter maintains investment and spending policies for its endowment assets aimed at providing predictable and steady support for the Society s research, programmatic and administrative activities. Under this policy, the endowment assets are invested in a manner intended to preserve their value consistent with such donor stipulations, minimize the effect of high economic volatility and/or low investment return and provide funding for the programs specified by the donors. Endowment investment spending policy For all Endowment Funds that have a value greater than their original gift, the spending rate (stated as a percentage) will be reviewed by the Investment Committee of the Society s Board of Directors and established on an annual basis. The annual spending rate on Endowed Funds held by the Chapter may range from a minimum of 0% to a maximum of 7%. The Investment Committee will inform the Chief Financial Officers of the spending rate which will be incorporated into the budget review and approval process. In establishing the spending rate, the Investment Committee shall rely on the three-year rolling average market value (12 quarters) of the Endowment Fund assets calculated as of six-months prior to the fiscal year commencement date. The balance in the endowment investment funds consists of the following net asset classifications as of September 30, 2015: 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (3,776) $ - $ 83,816 $ 80,040 Total endowment funds $ (3,776) $ - $ 83,816 $ 80,040 16
Note 6 - Endowment funds, continued The balance in the endowment investment funds consists of the following net asset classifications as of September 30, 2014: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 2,499 $ 83,816 $ 86,315 Total endowment funds $ - $ 2,499 $ 83,816 $ 86,315 The following schedules summarize the changes in the endowment investment funds by net asset class for the years ended : 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment investments, October 1, 2014 $ - $ 2,499 $ 83,816 $ 86,315 Investment loss (3,776) - - (3,776) Appropriations for expenditure - (2,499) - (2,499) Endowment investments, September 30, 2015 $ (3,776) $ - $ 83,816 $ 80,040 2014 Unrestricted - Temporarily Permanently Designated Restricted Restricted Total Endowment investments, October 1, 2013 $ 76,967 $ 2,198 $ 83,816 $ 162,981 Investment income 45 301-346 Release from designation (77,012) - - (77,012) Endowment investments, September 30, 2014 $ - $ 2,499 $ 83,816 $ 86,315 17
Note 7 - Due from Home Office - Charitable remainder trusts The Chapter is the beneficiary of a number of charitable gift annuities or split-interest agreements with donors, whereby the Society s home office controls and invests the donated assets and shares with the donor or the donor s designee income generated from these assets until such time as stated in the agreement (usually upon the death of the donor or the donor s designee). The values of the Chapter split-interest agreements were $24,385 and $17,914 as of September 30, 2015 and 2014, respectively. Income derived from changes in the value of these split-interest agreements for the years ended were $6,471 and $177, respectively. Note 8 - Property and equipment At, property and equipment consisted of the following: 2015 2014 Furniture and fixtures $ 56,914 $ 56,914 Equipment 15,752 - Computers 104,291 107,236 Telephone equipment 38,645 38,645 Leasehold improvements 2,211 1,181 217,813 203,976 Less accumulated depreciation and amortization 191,537 182,521 $ 26,276 $ 21,455 Note 9 - Leases Operating Leases The Chapter has an operating lease agreement covering its office facilities which is effective through November 30, 2017. The Chapter pays a scheduled base monthly rent for its office and warehouse space which is inclusive of all common area maintenance and real estate taxes. Lease expense on the Chapter's office space is recognized on the straight-line basis over the term of the lease. The difference between the cumulative lease payments and the expense amount recorded is recognized as deferred rent payments on the Statements of Financial Position. The Chapter has recorded a deferred rent liability of $11,740 and $16,236 at, respectively. Total lease expense on all operating leases for the years ended was $114,897 and $120,891, respectively. 18
Note 9 - Leases, continued The future minimum annual rental commitments under this non-cancellable operating lease as of September 30, 2015 are as follows: Year Ending September 30, 2016 $ 111,288 2017 112,508 2018 18,792 Total minimum lease payments $ 242,588 Capital Leases The Chapter leases certain equipment under an arrangement classified as a capital lease. Future minimum lease payments under the capital lease agreement as of September 30, 2015 were as follows: Year Ending September 30, 2016 $ 3,264 2017 3,264 2018 3,264 2019 3,264 2020 1,632 Total minimum lease payments $ 14,688 Less: Amount representing interest (1,406) Present value of future minimum lease payments $ 13,282 Property and equipment includes equipment recorded under capital leases of $14,600 at September 30, 2015, less accumulated amortization of $1,460. Note 10 - Contributions restricted for local use During the fiscal years ended the Chapter received contributions of $224,979 and $226,512, respectively, which were restricted by the donors to be used solely for local Chapter services and sponsorship for special events. These restricted contributions were tested as part of our independent audit procedures and were in compliance with the restricted gift policy of the Society. 19
Note 11 - Temporarily restricted net assets Temporarily restricted net assets are available for specific client programs. Their use is limited by donor-imposed stipulations that either expire with the passage of time or the fulfillment of specific obligations. As of, the temporarily restricted net assets are restricted for the following reasons: 2015 2014 Family and youth programs and services $ 83,257 $ 97,847 Financial assistance 103,290 73,619 Fellowship restricted - 15,225 Scholarship endowment fund - 2,499 $ 186,547 $ 189,190 The temporarily restricted scholarship endowment fund represented investment income earned on the permanently restricted endowment funds that are available for scholarships but are not yet appropriated for this purpose. Note 12 - Employee 403b benefit plan The Chapter has a defined contribution retirement plan for eligible employees who have completed six months of service. Contributions are based on a percentage of compensation as approved by the Board of Trustees. Contributions for the years ended were 6% of gross annual salary. In accordance with the Plan s provisions, contributions required in any given year are offset by forfeitures of unvested Chapter contributions for terminated participants. The participants account balances vest twenty percent each year over a five-year period. The Chapter contributions charged to expense totaled $59,892 and $59,938, for the years ended September 30, 2015 and 2014, respectively. 20