Minnesota Society of Certified Public Accountants Consolidated Financial Statements March 31, 2016 and 2015
Table of Contents Independent Auditor's Report 1 Consolidated Financial Statements Consolidated Statements of Financial Position 4 Consolidated Statements of Activities 5 Consolidated Statements of Functional Expenses 6 Consolidated Statements of Cash Flows 10 Notes to Consolidated Financial Statements 11 Supplementary Information Consolidating Statements of Financial Position 22 Consolidating Statements of Activities 24 Consolidating Statements of Cash Flows 26
Independent Auditor's Report To the Board of Directors Minnesota Society of Certified Public Accountants Minneapolis, Minnesota Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Minnesota Society of Certified Public Accountants (a nonprofit organization), which comprise the consolidated statements of financial position as of March 31, 2016 and 2015, and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended and the related notes to consolidated financial statements. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Society's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Society's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1
Opinion In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Minnesota Society of Certified Public Accountants, as of March 31, 2016 and 2015, 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. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating statements as identified in the table of contents are presented for the purpose of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, such information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Minneapolis, Minnesota June 28, 2016 2
CONSOLIDATED FINANCIAL STATEMENTS 3
Consolidated Statements of Financial Position March 31, 2016 and 2015 2016 2015 Assets Cash and cash equivalents $ 2,730,305 $ 2,575,858 Investments - operating reserve 1,833,172 1,826,626 Investments - intermediate reserve 925,329 902,115 Investments - long-term reserve 1,035,013 1,072,714 Accounts receivable, net 49,030 24,633 Prepaid expenses 251,942 223,939 Property and equipment, net 291,224 222,601 Total assets $ 7,116,015 $ 6,848,486 Liabilities and Net Assets Liabilities Accounts payable $ 66,821 $ 74,773 Accrued compensation and related taxes 202,448 167,852 Accrued pension contribution 125,948 182,582 Accrued scholarship commitment 2,000 2,000 Deferred rent 181,933 110,154 Deferred revenues Membership dues 1,850,829 1,761,182 Future activities 293,949 221,348 Total liabilities 2,723,928 2,519,891 Net assets Unrestricted Board designated - capital expenditures 378,729 400,000 Board designated - long-term reserve 1,035,013 1,072,714 Undesignated 2,978,345 2,855,881 Total net assets 4,392,087 4,328,595 Total liabilities and net assets $ 7,116,015 $ 6,848,486 See notes to consolidated financial statements. 4
Consolidated Statements of Activities Years Ended March 31, 2016 and 2015 2016 2015 Revenue and Gains Education programs $ 4,035,538 $ 3,871,552 Membership dues 2,224,761 2,200,309 Membership programs 143,611 117,268 Publication sales and advertising 132,571 148,336 Professional standards 171,395 143,245 Investment income, net 11,958 65,419 Other 83,073 63,967 Total revenue and gains 6,802,907 6,610,096 Expenses Program expenses Education fund programs - 27,514 Education programs 3,487,357 3,301,867 Membership services 1,050,929 1,023,231 Communications 541,378 579,217 Government relations 248,117 237,501 Professional standards 204,261 182,461 Supporting services Management and general 1,207,373 1,080,106 Total expenses 6,739,415 6,431,897 Change in net assets 63,492 178,199 Net Assets Beginning of year 4,328,595 4,150,396 End of year $ 4,392,087 $ 4,328,595 See notes to consolidated financial statements. 5
Consolidated Statement of Functional Expenses Year Ended March 31, 2016 Salaries and Related Taxes and Benefits Salaries 575,785 Program Services General Fund Education Membership Government Programs Services Communications Relations $ $ 414,175 $ 180,833 $ 120,875 Payroll taxes 41,808 30,424 13,186 9,005 Employee benefits 51,326 37,666 16,069 10,847 Retirement plan 35,905 35,483 13,940 11,828 Total salaries and related taxes and benefits 704,824 517,748 224,028 152,555 Expenses Education programs 2,435,829 - - - Grants and scholarships - - - - Recognition dinners - 70,212 - - Corporate CPA programs - 41,831 - - Young professionals programs - 34,047 - - Recruiting and retention - 66,590 - - Footnote publication - - 97,534 - CPA promotional campaign - - 88,834 - Lobbyist - - - 33,000 Technical reviewer fees - - - - Board retreat - - - - Other direct expenses 12,510 109,231 45,199 32,075 Staff development 27,488 21,719 10,462 2,554 Employment fees 1,849 958 - - Rent 76,902 48,185 21,919 9,530 Office supplies 3,314 2,071 978 436 Telephone 7,912 6,535 2,408 788 Insurance 6,580 4,116 1,865 812 Postage 1,849 644 412 1,360 Printing - - 15,468 - Miscellaneous equipment 4,648 1,419 607 274 Equipment rent and maintenance 2,976 1,762 783 361 Web development 14,296 8,934 4,038 1,868 Network maintenance 16,404 9,501 4,316 2,034 Software subscriptions 18,601 13,508 9,685 5,122 Staff business expense 2,335 2,784 2,001 1,846 Professional fees - - - - Bad debts - - 860 - Miscellaneous - 29 - - Credit card processing fees 77,718 35,361 1,952 - Chapters - - - - Contributions 18,000 36,000 - - Taxes - - - - Total expenses before depreciation 3,434,035 1,033,185 533,349 244,615 Depreciation 53,322 17,744 8,029 3,502 Total expenses $ 3,487,357 $ 1,050,929 $ 541,378 $ 248,117 See notes to consolidated financial statements. 6
Program Services Support Services Professional Management Standards Total and General Total March 31, 2015 $ 76,185 $ 1,367,853 $ 703,601 $ 2,071,454 $ 2,015,593 5,605 100,028 51,228 151,256 151,266 6,718 122,626 62,960 185,586 196,236 7,181 104,337 64,629 168,966 184,928 95,689 1,694,844 882,418 2,577,262 2,548,023-2,435,829-2,435,829 2,263,551 - - - - 27,450-70,212-70,212 59,599-41,831-41,831 44,096-34,047-34,047 31,964-66,590-66,590 69,353-97,534-97,534 107,437-88,834-88,834 92,202-33,000-33,000 32,000 68,571 68,571-68,571 57,934 - - 21,974 21,974 24,842 13,266 212,281 27,428 239,709 202,654 3,582 65,805 14,460 80,265 58,899-2,807 22,554 25,361 8,167 9,329 165,865 57,592 223,457 223,673 535 7,334 2,277 9,611 7,102 769 18,412 4,712 23,124 14,226 793 14,166 4,907 19,073 16,006 99 4,364 622 4,986 4,717-15,468-15,468 21,923 565 7,513 1,512 9,025 24,161 622 6,504 2,100 8,604 8,405 1,726 30,862 11,298 42,160 33,643 1,759 34,014 12,863 46,877 95,139 1,996 48,912 12,494 61,406 - - 8,966 16,076 25,042 21,494 - - 86,393 86,393 54,658-860 - 860 3,146-29 35 64 100 1,539 116,570 50 116,620 102,925 - - 690 690 665-54,000-54,000 54,752 - - 3,800 3,800 3,649 200,840 5,446,024 1,186,255 6,632,279 6,318,555 3,421 86,018 21,118 107,136 113,342 $ 204,261 $ 5,532,042 $ 1,207,373 $ 6,739,415 $ 6,431,897 7
Consolidated Statement of Functional Expenses Year Ended March 31, 2015 Salaries and Related Taxes and Benefits Salaries - Program Services General Fund Education Fund Education Membership Programs Programs Services $ $ 577,283 $ 403,590 Payroll taxes - 44,096 30,088 Employee benefits - 56,740 39,352 Retirement plan - 52,949 36,516 Total salaries and related taxes and benefits - 731,068 509,546 Expenses Education programs - 2,263,551 - Grants and scholarships 27,450 - - Recognition dinners - - 59,599 Corporate CPA programs - - 44,096 Young professionals programs - - 31,964 Recruiting and retention - - 69,353 Footnote publication - - - CPA promotional campaign - - - Lobbyist - - - Technical reviewer fees - - - Board retreat - - - Other direct expenses - 10,606 97,307 Staff development - 15,009 18,513 Employment fees - 5,631 1,731 Rent - 69,505 52,647 Office supplies - 2,217 1,669 Telephone - 4,431 3,346 Insurance - 4,975 3,742 Postage 16 1,620 1,339 Printing - - - Miscellaneous equipment - 7,443 5,347 Equipment rent and maintenance - 2,572 2,023 Web development - 10,373 7,623 Network maintenance - 30,226 22,759 Staff business expense - 1,982 1,567 Professional fees - - - Bad debt - 3,016 130 Miscellaneous 48 11 - Credit card processing fees - 67,370 32,323 Chapters - - - Contributions - 19,500 35,252 Taxes - - - Total expenses before depreciation 27,514 3,251,106 1,001,876 Depreciation - 50,761 21,355 Total expenses $ 27,514 $ 3,301,867 $ 1,023,231 See notes to consolidated financial statements. 8
Program Services Support Services Government Professional Management Communications Relations Standards Total and General Total $ 196,229 $ 119,020 $ 71,104 $ 1,367,226 $ 648,367 $ 2,015,593 14,635 8,795 5,201 102,815 48,451 151,266 19,161 11,497 6,850 133,600 62,636 196,236 17,711 10,590 6,390 124,156 60,772 184,928 247,736 149,902 89,545 1,727,797 820,226 2,548,023 - - - 2,263,551-2,263,551 - - - 27,450-27,450 - - - 59,599-59,599 - - - 44,096-44,096 - - - 31,964-31,964 - - - 69,353-69,353 107,437 - - 107,437-107,437 92,202 - - 92,202-92,202-32,000-32,000-32,000 - - 57,934 57,934-57,934 - - - - 24,842 24,842 36,441 25,443 9,408 179,205 23,449 202,654 11,622 2,054 2,972 50,170 8,729 58,899 805 - - 8,167-8,167 24,689 9,919 9,032 165,792 57,881 223,673 670 466 579 5,601 1,501 7,102 1,571 631 575 10,554 3,672 14,226 1,777 716 645 11,855 4,151 16,006 402 626 101 4,104 613 4,717 21,923 - - 21,923-21,923 3,227 992 1,348 18,357 5,804 24,161 927 370 359 6,251 2,154 8,405 4,024 1,492 1,656 25,168 8,475 33,643 9,536 7,292 3,510 73,323 21,816 95,139 2,276 1,569-7,394 14,100 21,494 - - - - 54,658 54,658 - - - 3,146-3,146 - - - 59 41 100 1,906-1,124 102,723 202 102,925 - - - - 665 665 - - - 54,752-54,752 - - - - 3,649 3,649 569,171 233,472 178,788 5,261,927 1,056,628 6,318,555 10,046 4,029 3,673 89,864 23,478 113,342 $ 579,217 $ 237,501 $ 182,461 $ 5,351,791 $ 1,080,106 $ 6,431,897 9
Consolidated Statements of Cash Flows Years Ended March 31, 2016 and 2015 2016 2015 Cash Flows - Operating Activities Change in net assets $ 63,492 $ 178,199 Adjustments to reconcile change in net assets to net cash flows - operating activities Depreciation 107,136 113,342 Loss on disposal of property and equipment - 1,118 Net unrealized gain on investments 102,190 37,826 Change in operating assets and liabilities Accounts receivable (24,397) (688) Prepaid expenses (28,003) (2,093) Accounts payable (7,952) 14,063 Accrued expenses (22,038) (717,972) Deferred rent (10,139) (4,814) Deferred revenues 162,248 36,310 Total adjustments 279,045 (522,908) Net cash flows - operating activities 342,537 (344,709) Cash Flows - Investing Activities Purchases of investments (3,379,202) (3,383,805) Sale or maturity of investments 3,284,953 3,176,438 Purchases of property and equipment (93,841) (99,714) Proceeds from disposal of property and equipment - 2,565 Net cash flows - investing activities (188,090) (304,516) Net change in cash and cash equivalents 154,447 (649,225) Cash and Cash Equivalents Beginning of year 2,575,858 3,225,083 End of year $ 2,730,305 $ 2,575,858 Supplementary Disclosure of Cash Flow Information Cash paid for income taxes $ 3,149 $ 1,989 Noncash Transactions Property and equipment obtained through deferred rent $ 81,918 $ - See notes to consolidated financial statements. 10
Notes to Consolidated Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Activities The Minnesota Society of Certified Public Accountants (the Society) was incorporated in 1904 under the laws of the State of Minnesota. The mission of the Society is to help members succeed professionally while being mindful of serving the public interest. The Society's operations include educational programs, membership services, communications, government relations, and professional standards. The Society provides educational programs for the benefit of both certified public accountants (CPAs) and the general public. These programs meet continuing professional education (CPE) requirements established by the State of Minnesota in order to hold an active CPA certificate. Educational programs include over 220 seminars serving in excess of 6,000 participants, access to more than 6,000 webinars, sales of self-study products, custom education programs for other organizations, ten or eleven niche educational conferences, and two large conferences. The large conferences are comprised of a Tax Conference and Management and Business Advisors Conference, premier specialty events with over 2,000 paid participants each year. Membership services reach, assist, and involve all segments of the membership, from new CPAs to those in public accounting, industry, government, and education. Membership services provide professional resources, products, and services to Society members. Communications programs use a variety of vehicles to advocate for the profession and provide information about the profession to Society membership and the general public. The Society's primary publications are the Footnote, which is published nine times per year, and seven E-newsletters. Government relations activities foster working relationships with regulatory bodies, legislators, and the public, providing advocacy for the certified public accounting profession in Minnesota and for state tax policy issues. Professional standards activities provide administration of peer reviews for CPA firms and professional ethics oversight of members to maintain the highest possible self-regulating quality standards. The Society formerly had an Education Fund, organized as a separate charitable division of the Society. As of March 31, 2015, the Education Fund had distributed all of its assets in establishment of endowment funds at 16 Minnesota colleges and universities to generate scholarships for the benefit of accounting students. During the year ended March 31, 2016, the Education Fund was terminated. 11
Notes to Consolidated Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Consolidation The consolidated financial statements include the combined operations of the Society and all related entities in which the Society has an economic interest and control. Those related entities include five regional chapters of the Society (two of which are dormant as of March 31, 2016 and 2015). Interrelated receivables, payables, revenues, and expenses have been eliminated. A separate organization, the Minnesota Society of Certified Public Accountants Public Affairs Committee (PAC) is not included in these consolidated financial statements because the Society does not have control with respect to the PAC. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the Unites States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Net Assets The Society does not accept charitable contributions. Accordingly, net assets of the Society are reported as unrestricted. Unrestricted net assets represent resources over which the Board of Directors (the Board) has discretionary control. Designated amounts represent net assets which the Board has set aside for a particular purpose. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities and functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with an initial maturity of three months or less, excluding investments held as part of reserves. Cash equivalents are stated at cost, which approximates fair value. Investments Investments are recorded at fair value in the consolidated statements of financial position using quoted market prices. Net realized and unrealized gains and losses, as well as investment revenue from dividends and interest, are reflected in the consolidated statements of activities as changes in unrestricted net assets. Realized gains and losses are determined using the specific identification method. 12
Notes to Consolidated Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Receivables and Allowance for Doubtful Accounts Accounts receivable are unsecured and are substantially all from Society members. The Society's policy is to present accounts receivable in the consolidated statements of financial position net of estimated uncollectible amounts. The estimated uncollectible amount was $6,000 at March 31, 2016 and 2015, based on management's judgment about the likelihood of collection of individual receivables. Receivables are considered past due after 60 days and are written off after all collection efforts have been exhausted. Property and Equipment Property and equipment are recorded at cost and are depreciated or amortized using the straight-line method based on estimated useful lives as follows: Leasehold improvements Office furniture and equipment Website redesign Lesser of estimated useful life or remaining term of related lease 3 to 10 years 5 years The Society follows the practice of capitalizing all expenditures for property and equipment in excess of $2,000. Repairs and maintenance are charged to expense as incurred. Renewals and improvements which extend the useful life of assets are capitalized and depreciated over future periods. Revenue Recognition Continuing professional education course fees and meeting and conference admission charges are recognized as revenue in the period in which the event occurs. Membership dues are recognized as revenue ratably over the annual membership period. Advertising revenue is recognized when the ad is published. Contributed Services Contributions of services are recognized for services that create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would ordinarily be purchased if not provided by donation. Contributed services, including promises to give, that do not meet these criteria are not recognized. The Society receives a substantial amount of services donated by volunteers. The value of this donated time has not been reflected in the consolidated financial statements since it does not meet the standards for recording. 13
Notes to Consolidated Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements Under generally accepted accounting principles, 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. The accounting standards establish a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows: Level 1 Observable inputs such as quoted prices in active markets for identical assets; Level 2 Inputs other than quoted prices in active markets that are observable either directly or indirectly; and, Level 3 Unobservable inputs where there is little or no market data which require the reporting entity to develop its own assumption. The Society uses observable market data, when available, in making fair value measurements. Fair value measurements are classified according to the lowest level input that is significant to the valuation. The Society holds certain assets that are required to be measured at fair value on a recurring basis as displayed in Note 3. Advertising Costs The Society's policy is to expense advertising costs as they are incurred, except for event related advertising, which is expensed when the event takes place. Advertising capitalized at March 31, 2016 and 2015, was $18,572 and $3,076, respectively. During 2016 and 2015, the Society incurred advertising costs totaling $299,301 and $303,998, respectively. These expenses were incurred for marketing of continuing professional education programs, and for promotion of the CPA profession. Tax Status The Society is exempt from income taxes under Section 501(c)(6) of the Internal Revenue Code. The Society also qualifies as a tax-exempt organization under applicable statutes of the State of Minnesota. The Society generates unrelated business income from its monthly publication and other advertising, from unqualified sponsorships, and from subrental of training space within its facility. Income tax expense was $3,800 and $3,649 for 2016 and 2015, respectively. The Society reviews income tax positions taken or expected to be taken in income tax returns to determine if there are any income tax uncertainties. This includes positions that the entity is exempt from income taxes or not subject to income taxes on unrelated business income. The Society recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities. The Society has identified no significant income tax uncertainties. 14
Notes to Consolidated Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Tax Status (Continued) The Society's Education Fund was exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable statutes of the State of Minnesota. A final return was filed for the Education Fund in 2015. Subsequent Events The Society has evaluated subsequent events through June 28, 2016, the date which the consolidated financial statements were available to be issued. NOTE 2 INVESTMENTS Investments are classified in the statements of financial position: 2016 2015 Operating reserve Cash and cash equivalents $ 4,165 $ 92,419 Certificates of deposit 1,829,007 1,734,207 Total operating reserve $ 1,833,172 $ 1,826,626 Intermediate reserve Cash and cash equivalents $ 29,050 $ 14,870 Equity mutual funds 469,423 450,090 Bonds 426,856 437,155 Total intermediate reserves $ 925,329 $ 902,115 Long-term reserve Cash and cash equivalents $ 11,710 $ 5,213 Equity mutual funds 479,876 651,461 Equity exchange traded fund 215,512 112,666 Fixed income mutual funds 198,053 186,597 Balanced mutual funds 129,862 116,777 Total long-term reserve $ 1,035,013 $ 1,072,714 2016 2015 Cash and cash equivalents in investments at cost $ 44,925 $ 112,502 Investments at fair value 3,748,589 3,688,953 Total investments $ 3,793,514 $ 3,801,455 15
Notes to Consolidated Financial Statements NOTE 2 INVESTMENTS (CONTINUED) Investment income is summarized in the statements of activities: 2016 2015 Interest and dividend income $ 114,148 $ 103,245 Net unrealized loss (102,190) (37,826) Investment income, net $ 11,958 $ 65,419 NOTE 3 FAIR VALUE MEASUREMENTS Following is a description of the valuation methodologies used for assets measured at fair value. There were no changes in the valuation techniques during 2016 and 2015. Mutual funds and exchange traded funds The fair value of mutual funds and exchange traded funds is based on quoted market prices. Bonds The fair value of bonds were obtained from independent quotation services whose appraisals are based on closing prices, bid-ask quotations, or other factors. Certificates of deposits - The fair value of certificates of deposits is measured at cost, which approximates fair value. Fair values of assets measured on a recurring basis are as follows: Level 1 Level 2 Level 3 Total March 31, 2016 Mutual funds and exchange traded funds $ 1,492,726 $ - $ - $ 1,492,726 Bonds 426,856 - - 426,856 Certificates of deposit - 1,829,007-1,829,007 Total $ 1,919,582 $ 1,829,007 $ - $ 3,748,589 16
Notes to Consolidated Financial Statements NOTE 3 FAIR VALUE MEASUREMENTS (CONTINUED) Fair values of assets measured on a recurring basis are as follows (Continued): Level 1 Level 2 Level 3 Total March 31, 2015 Mutual funds and exchange traded funds $ 1,517,591 $ - $ - $ 1,517,591 Bonds 437,155 - - 437,155 Certificates of deposit - 1,734,207-1,734,207 Total $ 1,954,746 $ 1,734,207 $ - $ 3,688,953 NOTE 4 PROPERTY AND EQUIPMENT 2016 2015 Office equipment $ 360,586 $ 316,353 Furniture and fixtures 238,709 233,944 Leasehold improvements 396,642 303,926 Website redesign 173,414 173,414 1,169,351 1,027,637 Less accumulated depreciation (878,127) (805,036) Property and equipment, net $ 291,224 $ 222,601 Depreciation and amortization expense for 2016 and 2015, totaled $107,136 and $113,342, respectively. NOTE 5 BOARD DESIGNATED AND RESTRICTED NET ASSETS Capital Expenditures The Society's Board has designated $378,729 of investments held in its operating reserves for future major capital expenditures. Long-Term Reserves The Society's Board has designated certain portions of its investment portfolios as displayed in Note 2 for long-term strategic initiatives of the Society. 17
Notes to Consolidated Financial Statements NOTE 6 RETIREMENT PLAN The Society has a defined contribution retirement plan covering all employees who meet certain minimum eligibility requirements. Eligible employees are allowed to make deferral contributions. In addition, the Plan allows for discretionary employer contributions, both matching and profit-sharing. For 2016 and 2015, the Society made total contributions of $168,966 and $184,928, respectively. For 2016, the contribution consisted of matching contributions of $52,858, calculated as 50% of employee contributions up to 6% of eligible compensation, and profit-sharing contributions of $125,226, based on 7% of eligible compensation, net of forfeitures applied of $9,118. For 2015, the contribution consisted of matching contributions of $53,546 calculated as 100% of employee contributions up to 3% of eligible compensation, and profitsharing contributions of $129,036, based on 7% of eligible compensation, and a corrective contribution of $2,346. NOTE 7 LEASE COMMITMENT The Society leases its office and classroom space in Bloomington, Minnesota. The lease expires in March 2022 and requires minimum monthly payments of $15,690, with base rent increases occurring every year. In addition to base rent, the Society is required to pay its pro-rata share of operating expenses of the building. The lease grants one five-year option to extend the lease term. Minimum monthly payments under the lease commitments are scheduled as follows: 2017 $ 188,275 2018 194,009 2019 2020 2021 199,743 205,751 211,895 Thereafter 218,311 Total minimum future rental payments $ 1,217,984 Rent expense for 2016 and 2015 totaled $358,229 and $356,425, respectively, including rent allocated directly to education programs in the amount of $132,869 and $132,752. In 2016, the lessor provided $81,918 toward tenant improvements to the leased space as provided for in the lease agreement. 18
Notes to Consolidated Financial Statements NOTE 8 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Society to concentrations of credit risk consist principally of cash, short-term investments, marketable securities, and other investments. Substantially all the Society's operating reserves are placed in certificates of deposits that do not exceed federally insured limits. The Society's cash and cash equivalents used in operations is placed with a high-quality financial institution where balances periodically exceed federal insured limits. Other cash and cash equivalents are placed with various financial institutions in amounts that do not exceed federally insured limits. 19
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SUPPLEMENTARY INFORMATION 21
Consolidating Statement of Financial Position March 31, 2016 General Fund Chapters Total Assets Cash and cash equivalents $ 2,674,979 $ 55,326 $ 2,730,305 Investments - operating reserve 1,833,172-1,833,172 Investments - intermediate reserve 925,329-925,329 Investments - long-term reserve 1,035,013-1,035,013 Accounts receivable, net 49,030-49,030 Prepaid expenses 251,942-251,942 Property and equipment, net 291,224-291,224 Total assets $ 7,060,689 $ 55,326 $ 7,116,015 Liabilities and Net Assets Liabilities Accounts payable $ 66,821 $ - $ 66,821 Accrued compensation and related taxes 202,448-202,448 Accrued pension contribution 125,948-125,948 Accrued scholarship commitment - 2,000 2,000 Deferred rent 181,933-181,933 Deferred revenues Membership dues 1,850,829-1,850,829 Future activities 293,949-293,949 Total liabilities 2,721,928 2,000 2,723,928 Net assets Unrestricted Board designated - capital expenditures 378,729-378,729 Board designated - long-term reserve 1,035,013-1,035,013 Undesignated 2,925,019 53,326 2,978,345 Total net assets 4,338,761 53,326 4,392,087 Total liabilities and net assets $ 7,060,689 $ 55,326 $ 7,116,015 22
Consolidating Statement of Financial Position March 31, 2015 Education General Fund Fund Chapters Total Assets Cash and cash equivalents $ 2,520,828 $ - $ 55,030 $ 2,575,858 Investments - operating reserve 1,826,626 - - 1,826,626 Investments - intermediate reserve 902,115 - - 902,115 Investments - long-term reserve 1,072,714 - - 1,072,714 Accounts receivable, net 24,633 - - 24,633 Prepaid expenses 223,939 - - 223,939 Property and equipment, net 222,601 - - 222,601 Total assets $ 6,793,456 $ - $ 55,030 $ 6,848,486 Liabilities and Net Assets Liabilities Accounts payable $ 74,773 $ - $ - $ 74,773 Accrued compensation and related taxes 167,852 - - 167,852 Accrued pension contribution 182,582 - - 182,582 Accrued scholarship commitment - - 2,000 2,000 Deferred rent 110,154 - - 110,154 Deferred revenues Membership dues 1,761,182 - - 1,761,182 Future activities 221,348 - - 221,348 Total liabilities 2,517,891-2,000 2,519,891 Net assets Unrestricted Board designated - capital expenditures 400,000 - - 400,000 Board designated - long-term reserve 1,072,714 - - 1,072,714 Undesignated 2,802,851-53,030 2,855,881 Total net assets 4,275,565-53,030 4,328,595 Total liabilities and net assets $ 6,793,456 $ - $ 55,030 $ 6,848,486 23
Consolidating Statement of Activities Year Ended March 31, 2016 General Fund Chapters Eliminations Total Revenue and Gains Education programs $ 4,035,538 $ - $ - $ 4,035,538 Membership dues 2,224,761 21,105 (21,105) 2,224,761 Membership programs 143,611 - - 143,611 Publication sales and advertising 132,571 - - 132,571 Professional standards 171,395 - - 171,395 Investment income, net 11,944 14-11,958 Other 83,073 - - 83,073 Total revenue and gains 6,802,893 21,119 (21,105) 6,802,907 Expenses Program expenses Education programs 3,469,357 18,000-3,487,357 Membership services 1,069,901 2,133 (21,105) 1,050,929 Communications 541,378 - - 541,378 Government relations 248,117 - - 248,117 Professional standards 204,261 - - 204,261 Supporting services Management and general 1,206,683 690-1,207,373 Total expenses 6,739,697 20,823 (21,105) 6,739,415 Change in net assets 63,196 296-63,492 Net Assets Beginning of year 4,275,565 53,030-4,328,595 End of year $ 4,338,761 $ 53,326 $ - $ 4,392,087 24
Consolidating Statement of Activities Year Ended March 31, 2015 Education General Fund Fund Chapters Eliminations Total Revenue and Gains Education programs $ 3,871,552 $ - $ - $ - $ 3,871,552 Membership dues 2,200,309-20,805 (20,805) 2,200,309 Membership programs 117,268 - - - 117,268 Publication sales and advertising 148,336 - - - 148,336 Professional standards 143,245 - - - 143,245 Investment income, net 65,311 65 43-65,419 Other 63,917 26,988 - (26,938) 63,967 Total revenue and gains 6,609,938 27,053 20,848 (47,743) 6,610,096 Expenses Program expenses Education programs 3,282,367 27,514 19,500-3,329,381 Membership services 1,066,976-3,998 (47,743) 1,023,231 Communications 579,217 - - - 579,217 Government relations 237,501 - - - 237,501 Professional standards 182,461 - - - 182,461 Supporting services - - - Management and general 1,079,146 295 665-1,080,106 Total expenses 6,427,668 27,809 24,163 (47,743) 6,431,897 Change in net assets 182,270 (756) (3,315) - 178,199 Net Assets Beginning of year 4,093,295 756 56,345-4,150,396 End of year $ 4,275,565 $ - $ 53,030 $ - $ 4,328,595 25
Consolidating Statement of Cash Flows Year Ended March 31, 2016 General Fund Chapters Total Cash Flows - Operating Activities Change in net assets $ 63,196 $ 296 $ 63,492 Adjustments to reconcile change in net assets to net cash flows - operating activities Depreciation 107,136-107,136 Loss on disposal of property and equipment - - - Net unrealized loss on investments 102,190-102,190 Change in operating assets and liabilities Accounts receivable (24,397) - (24,397) Prepaid expenses (28,003) - (28,003) Accounts payable (7,952) - (7,952) Accrued expenses (22,038) - (22,038) Deferred rent (10,139) - (10,139) Deferred revenues 162,248-162,248 Total adjustments 279,045-279,045 Net cash flows - operating activities 342,241 296 342,537 Cash Flows - Investing Activities Purchases of investments (3,379,202) - (3,379,202) Sale or maturity of investments 3,284,953-3,284,953 Purchases of property and equipment (93,841) - (93,841) Net cash flows - investing activities (188,090) - (188,090) Net change in cash and cash equivalents 154,151 296 154,447 Cash and Cash Equivalents Beginning of year 2,520,828 55,030 2,575,858 End of year $ 2,674,979 $ 55,326 $ 2,730,305 26
Consolidating Statement of Cash Flows Year Ended March 31, 2015 General Fund Education Fund Chapters Total Cash Flows - Operating Activities Change in net assets $ 182,270 $ (756) $ (3,315) $ 178,199 Adjustments to reconcile change in net assets to net cash flows - operating activities Depreciation 113,342 - - 113,342 Loss on disposal of property and equipment 1,118 - - 1,118 Net unrealized loss on investments 37,826 - - 37,826 Change in operating assets and liabilities Accounts receivable (688) - - (688) Prepaid expenses (2,093) - - (2,093) Accounts payable 14,063 - - 14,063 Accrued expenses 2,728 (713,700) (7,000) (717,972) Deferred rent (4,814) - - (4,814) Deferred revenues 36,310 - - 36,310 Total adjustments 197,792 (713,700) (7,000) (522,908) Net cash flows - operating activities 380,062 (714,456) (10,315) (344,709) Cash Flows - Investing Activities Purchases of investments (3,383,805) - - (3,383,805) Sale or maturity of investments 3,176,438 - - 3,176,438 Purchases of property and equipment (99,714) - - (99,714) Proceeds from disposal of property and equipment 2,565 - - 2,565 Net cash flows - investing activities (304,516) - - (307,081) Net change in cash and cash equivalents 75,546 (714,456) (10,315) (651,790) Cash and Cash Equivalents Beginning of year 2,445,282 714,456 65,345 3,225,083 End of year $ 2,520,828 $ - $ 55,030 $ 2,573,293 27