BRANCH COUNTY COMMUNITY FOUNDATION, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT YEAR ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS FINANCIAL STATEMENTS PAGE NUMBER Independent Auditors Report 1-2 Statement of Financial Position 3 Statement of Activities and Changes in Net Assets 4 Statement of Cash Flows 5 Notes to Financial Statements 6 12
To the Board of Directors Branch County Community Foundation Coldwater, Michigan INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of Branch County Community Foundation (a Michigan nonprofit organization) which comprise the statement of financial position as of September 30, 2014, and the related 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 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 audit. We conducted our audit 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 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. 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. 1 2 1 N o r t h M a i n S t r e e t, A d r i a n, M i c h i g a n 4 9 2 2 1 ( 5 1 7 ) 2 6 5-6 1 5 4 F A X : ( 5 1 7 ) 2 6 5-2 5 7 2 1 M E M B E R S : A. I. C. P. A. and M. A. C. P. A.
Page 2 To the Board of Directors Branch County Community Foundation Coldwater, Michigan Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Branch County Community Foundation as of September 30, 2014, and the changes in its net position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Robertson, Eaton & Owen, P.C. Adrian, Michigan December 31, 2014 2
STATEMENT OF FINANCIAL POSITION 2014 ASSETS: Current Assets: Cash $ 269,069 Non-Endowed Investments 172,705 Investment Pool - Endowed 5,494,275 Accounts receivable - Prepaid expenses 1,980 Furniture and fixtures 55,651 Less: accumulated depreciation (11,355) LIABILITIES AND NET ASSETS: Total assets $ 5,982,325 Liabilities: Accrued expenses $ 26,053 Funds held in agency capacity 97,890 Total liabilities 123,943 Net assets: Unrestricted 3,558,501 Temporarily restricted 2,299,881 Total net assets 5,858,382 Total liabilities and net assets $ 5,982,325 The notes to the financial statements are an integral part of this statement. 3
STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Temporarily Unrestricted Restricted Total Revenues and other support: Contributions $ 365,528 $ 11,319 $ 376,847 Interest and dividends 94,562 60,901 155,463 NPO services 88-88 Miscellaneous 170-170 Realized gains/(losses) 94,197 58,238 152,435 Unrealized gains/(losses) 144,098 95,010 239,108 Net assets released from restriction: (Satisfaction of donor restriction) (16,106) 16,106 - Total revenues and other support 682,537 241,574 924,111 Expenses: Program services: 259,425 132,795 392,220 General and administrative 58,299-58,299 Fund-raising 64,625-64,625 Total expenses 382,349 132,795 515,144 Change in net assets 300,188 108,779 408,967 Net Assets beginning of year 3,258,313 2,191,102 5,449,415 Net Assets at end of year $ 3,558,501 $ 2,299,881 $ 5,858,382 The notes to the financial statements are an integral part of this statement. 4
STATEMENT OF CASH FLOWS 2014 Cash flows from operating activities: Change in net assets $ 408,967 Adjustments to reconcile increase in net assets to cash provided by operating activities Depreciation 6,070 Net unrealized (gain) on investments (243,206) Net realized (gain) on sale of investments (154,974) (Increase) decrease in: Accounts receivable 1,912 Prepaid expense (1,980) (Increase) decrease in: Funds held in Agency (6,423) Accrued expenses 11,083 Net cash provided (used) by operating activities 21,449 Cash flows from investing activities: Net purchase and proceeds of investments 28,339 Net cash provided (used) by investing activites 28,339 Net change in cash and cash equivalents 49,788 Cash and cash equivalents - beginning 219,281 Cash and cash equivalents - ending 269,069 The notes to the financial statements are an integral part of this statement. 5
NOTES TO THE FINANCIAL STATEMENTS NOTE A SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Branch County Community Foundation, Inc. is a public foundation established to aggregate funds created by individuals, families and corporations to benefit programs and services primarily for people in the Branch County, Michigan area. Financial Statement Presentation The financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Accounting Standards Codification FASB ASC 958-210. Under FASB ASC 958-210, the Foundation is required to report information regarding its financial position and activities according to the following three classes of net assets: Unrestricted Net Assets This portion of net assets is available for general operations and is not subject to any donor-imposed restrictions. Revenue earned from program services, unrestricted gifts, and investment income available for general operations and all operations expenses are reported as changes in unrestricted net assets. Temporarily Restricted Net Assets This portion of net assets is limited to use as specified by donor-imposed restrictions. When donor restrictions expire or the nature and purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets released from restrictions. Permanently Restricted Net Assets This portion of net assets is limited to donorimposed restrictions that require the gift to be maintained in perpetuity. Income not subject to donor restriction is recorded as unrestricted investment income. The Foundation does not have any permanently restricted net assets. Basis of Accounting The financial statements have been prepared on the accrual basis. Cash and Cash equivalents For the purposes of the statements of cash flows, management considers all liquid investments with an original maturity date of three months or less to be cash equivalents, which includes money market accounts. Equipment All acquisitions of equipment in excess of $500 and all computer systems with a unit cost of $1,000 or more are capitalized. Donated office equipment is recorded at fair market value on the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Useful lives are seven to ten years for office equipment and ten years for computer equipment. Cost of repairs and maintenance are expanded when incurred. Administrative Fees The Foundation charges a management fee to each fund to support the cost of its administrative operating budget. This fee varies by type of fund, but on average, varies between one and two and a half percent of the average fund balance. For the year ended September 30, 2014 the Foundation generated $98,373 in administrative fees. Income Taxes The Organization is a non-profit corporation exempt from Federal income taxes under regulation 501(c) (3) of the Internal Revenue Code, except on net income derived from unrelated business activities. The Organization has determined no unrelated business activity exists for the year ended September 30, 2014. The Organization believes that it has appropriate support for any tax position taken, and as such, does not have any uncertain tax positions that are material to the financial statements. 6
NOTES TO THE FINANCIAL STATEMENTS NOTE A SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes (Continued) Current accounting standards require the Organization to address the determination of whether tax benefits claimed, or expected to be claimed, on a tax return should be recorded in the financial statements. Under this guidance, the Organization may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Example of tax positions include the tax-exempt status of the Organization, and various positions related to the potential sources of unrelated business taxable income. The tax benefits that could be recognized in the financial statements from such positions would be measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also addresses de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. At September 30, 2014, there were no unrecognized tax benefits identified or recorded as liabilities. The Organization files Form 990 and the related State of Michigan returns, which remain subject to examination by the Internal Revenue Service for the three most recent years. Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Subsequent Events The Organization evaluates events and transactions that occur after year end for potential recognition or disclosure in the financial statements. These subsequent events have been considered through the auditor s opinion date. Recognition of Contribution and Other Revenue For financial statement purposes the Organization distinguishes between contributions of unrestricted assets, temporarily restricted assets and permanently restricted assets. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Investment earnings available for distribution are recorded in unrestricted net assets. Investment earnings with donor restrictions are recorded in temporarily or permanently restricted net assets based on the nature of their restrictions. Contributions of noncash assets are recorded at fair market value as unrestricted net assets in the period received unless donor restrictions specify how the contribution is to be used. NOTE B CASH AND CASH EQUIVALENTS At September 30, 2014, the carrying amount of the Foundation s cash was $269,069 and the bank balance was $270,727. The differences between the balances are the result of deposits in transit and checks issued by the Foundation but not yet presented for payment. The risk of exposure of the cash may be summarized as follows: Insured $ 37,294 Uninsured 233,433 Total Cash $ 270,727 7
NOTES TO THE FINANCIAL STATEMENTS NOTE B CASH AND CASH EQUIVALENTS (Continued) Investment return is as follows as summarized in the statement of activities for the year ended September 30, 2014. NOTE C EQUIPMENT Dividend and interest income $ 155,463 Net realized and unrealized gains (loss) $ 391,543 Depreciation included in the increase (decrease) in net assets for the year ended September 30, 2014 amounted to $6,070. Depreciation has been recorded on the straight line method. The principal categories of equipment may be summarized as follows: NOTE D FAIR VALUE MEASUREMENTS Equipment: $ 55,651 Less: Accumulated depreciation (11,355) Undepreciated cost $ 44,296 Fair value is 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, the Foundation has the ability to access. Level 2 inputs are those that are observable for the asset or liability, either directly or indirectly. Level 3 - are unobservable inputs for the asset or liability and rely on management s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The Foundation values all assets at level 1 (Mutual Funds, Corporate Stock and Corporate Bonds). All assets are valued at unadjusted quoted market prices of shares held by the Foundation at September 30, 2014. 8
NOTES TO THE FINANCIAL STATEMENTS NOTE D FAIR VALUE MEASUREMENTS (Continued) The following table summarized by level, the Foundations assets at fair value: Level 1 Level 2 Level 3 Total Mutual funds $ 3,700,795 $ - $ - $ 3,700,795 Corporate stocks 1,965,955 - - 1,965,955 Corporate bonds 230 - - 230 NOTE E AGENCY ACTIVITY Total $ 5,666,980 $ - $ - $ 5,666,980 The Foundation maintains variance power and legal ownership of Agency Endowment Funds and as such reports the funds as assets of the Foundation. However, in accordance with ASC 958-605-25-24, a liability, representing the amount of contributions made to the agency endowments, has been established for the fair value of the fund, which is generally equivalent to the present value of future payments expected to be made to the organization. Agency activity by the Foundation for the year ended September 30, 2014 follows: NOTE F ENDOWMENT Total 2014 Agency liability beginning of year $ 91,467 REVENUES: Contributions - Interest and dividends 2,665 Other fees and fundraising income - Realized gains/(losses) 2,539 Unrealized gains/(losses) 4,098 Total revenues 9,302 EXPENSES: Grants - Scholarships - General and administrative 2,879 Total expenses 2,879 Net change 6,423 Agency liability end of year $ 97,890 The Foundation consists of approximately 131 individual funds, of which eleven are agency funds and thirty-three are non-endowed, established for a variety of purposes. Its endowment includes both unrestricted and donor-restricted endowment funds. As required by Generally Accepted Accounting Principles, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The State of Michigan adopted Uniform Prudent Management of Institutional Funds Act (UPMIFA), effective for years ending December 15, 2008. The Foundation s Board of Trustees had determined that the majority of the Foundation s net assets meet the definition of endowment funds under UPMIFA. 9
NOTES TO THE FINANCIAL STATEMENTS NOTE F ENDOWMENT (Continued) In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate endowment funds: a. The duration and preservation of the fund b. The purposes of the Foundation, the nature of the endowment fund, and donor restrictions c. General economic conditions d. The possible effect of inflation and deflation e. The expected total return from income and the appreciation of investments f. Other resources of the organization g. The investment policies of the organization The Foundation s agreements with donors include a variance provision, giving the Board of Directors the power to vary the use of endowed funds if a restriction becomes, in effect, unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the area served by the Foundation. Based on these provisions, most contributions received by the Foundation are reported as unrestricted support. Any gift received that is not established in accordance with the aforementioned are subject to UPMIFA and are classified as either temporarily or permanently restricted assets. Investment Policy The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets; the Foundation s spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through diversification of endowment assets. The current long-term objective is to return 9%, net of investment fees. 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 though both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation to achieve its long-term objectives within prudent risk parameters. Spending Policy The spending policy calculates the amount of money annually distributed from the Foundation s various endowment funds, for grant making, scholarships and administration. The current spending policy is based on the previous twenty quarters moving average balance of the market value of the endowment ending September 30 th, with a 0-5% payout amount. Accordingly, over the long-term, the Foundation expects current spending policy to allow its endowment assets to grow at an average rate of 4% annually. This is consistent with the Foundation s objective to maintain the purchasing power of endowment assets as well as to provide additional growth through new gifts and investment return. 10
NOTES TO THE FINANCIAL STATEMENTS NOTE F ENDOWMENT (Continued) Changes in endowment net assets for the year ended September 30, 2014: Unrestricted Temporarily Restricted Total Net Assets beginning of year $ 2,519,515 $ 2,196,459 $ 4,715,974 Transfer out: Coldwater Sunrise Rotary Foundation (159,947) - (159,947) Contributions 260,136 11,319 271,455 Interfund non gifts/revenue - - - Interest and dividends 71,182 63,566 134,748 Realized gains 70,366 60,778 131,144 Unrealized gains (losses) 102,951 99,108 202,059 Interfund non gifts/expense (154) (22,912) (23,066) Special events (6,728) (38) (6,766) Amounts appropriated for expenditures (158,504) (112,725) (271,229) Change in net assets 179,302 99,096 278,398 Net Assets end of year $ 2,698,817 $ 2,295,555 $ 4,994,372 Endowment net asset composition by type of fund as of September 30, 2014: Unrestricted Temporarily Restricted Total Endowment funds Donor advised $ 822,084 $ 64,567 $ 886,651 Designated 809,713 221,512 1,031,225 Field of interest 319,711 975,894 1,295,605 Scholarship 686,416 1,033,582 1,719,998 Agency (3rd Party) 60,893-60,893 $ 2,698,817 $ 2,295,555 $ 4,994,372 Unrestricted Temporarily Restricted Total Endowment funds $ 2,698,817 $ 2,295,555 $ 4,994,372 Non-endowed funds 284,133 4,326 288,459 Board designated - Quasi Endowments 575,551-575,551 Total Net Assets End of year $ 3,558,501 $ 2,299,881 $ 5,858,382 Investment returns (dividends, capital gains, real and unrealized gains, etc.) from special project fund investments are absorbed by the operating fund pursuant to such agreements in lieu of the Foundation charging these funds administrative fees. 11
NOTES TO THE FINANCIAL STATEMENTS NOTE G DONATED OCCUPANCY The Foundation recognizes revenue and expense for certain contributed occupancy at fair market rental value $8,343. NOTE H PURPOSE FOR TEMPORARILY RESTRICTED ASSETS Temporarily restricted net assets are available for the following purposes: For the arts $ 27,909 Needs of women and children 36,658 Enhancement of school programs 182,429 Enhancement of library programs 13,589 Church programming 25,494 Needs of children only 14,198 Community youth programs 912,135 Scholarships 1,033,582 Healthy youth/seniors 53,821 Public safety 66 $ 2,299,881 12