THE UNITED WAY OF ALLEGHENY COUNTY Financial Statements June 30, 2014 and 2013 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.
Financial Statements June 30, 2014 and 2013 TABLE OF CONTENTS Page Independent Auditor s Report 2 Balance Sheets 3 Statements of Activities and Changes in Net Assets 4-5 Statements of Functional Expenses 6-7 Statements of Cash Flows 8 Notes to the Financial Statements 9-33
Tel: 412-281-2501 Fax: 412-471-1996 www.bdo.com 339 Sixth Avenue, 8th Floor Pittsburgh, PA 15222 Independent Auditor s Report To the Board of Directors The United Way of Allegheny County Pittsburgh, Pennsylvania We have audited the accompanying financial statements of the The United Way of Allegheny County (not-for-profit entity), which comprise the balance sheet as of June 30, 2014, and the related statements of activities and changes in net assets, functional expenses 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. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.
To the Board of Directors Page 2 Auditor s Responsibility (Continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The United Way of Allegheny County as of June 30, 2014, and the changes in its net assets and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matter The consolidated financial statements of The United Way of Allegheny County and Affiliate for the year ended June 30, 2013 were audited by Alpern Rosenthal, whose partners and professional staff joined BDO USA, LLP effective December 16, 2013 and has subsequently ceased operations. Alpern Rosenthal s report dated September 25, 2013 expressed an unmodified opinion on those financial statements. Pittsburgh, Pennsylvania September 24, 2014
Balance Sheets June 30 2014 2013 ASSETS Cash and cash equivalents $ 11,885,076 $ 12,026,925 Pledges receivable - net - Note 3 12,899,623 11,978,590 Other receivables 34,149 126,377 Investments - Note 4 14,913,531 12,819,107 Funds held by others - Note 5 5,182,577 4,792,430 Prepaid expenses and other assets 137,352 146,726 Furniture, equipment and software - net - Note 6 645,199 239,050 Total Assets $ 45,697,507 $ 42,129,205 LIABILITIES AND NET ASSETS Liabilities Distributions payable to agencies $ 9,596,940 $ 10,181,570 Donor designations payable 6,464,342 6,369,797 Accounts payable and accrued liabilities 799,295 721,022 Premiums payable to insurance companies - 341,524 Accrued pension obligation - Note 8 3,411,908 2,975,572 Total Liabilities 20,272,485 20,589,485 Net Assets Unrestricted - Note 10 17,018,064 15,437,527 Temporarily restricted - Note 11 6,430,000 4,471,208 Permanently restricted - Note 11 1,976,958 1,630,985 Total Net Assets 25,425,022 21,539,720 Total Liabilities and Net Assets $ 45,697,507 $ 42,129,205 The accompanying notes are an integral part of these financial statements. Page 3
Statement of Activities and Changes in Net Assets For the Year Ended June 30, 2014 (With Comparative Totals for 2013) Unrestricted Temporarily Restricted Public Support and Revenue Public Support Gross campaigns results $ 29,972,188 $ 3,954,896 Less: Donor designations 13,976,775 - Less: Allowance for uncollectible accounts 895,783 - Net campaigns receipts 15,099,630 3,954,896 Gifts and other contributions 483,816 - Total Public Support 15,583,446 3,954,896 Revenue Service fee revenue 1,474,265 - Interest and investment income (loss) 289,088 (990) Sponsorship and event revenue 307,151 - Net realized and unrealized gain on investments 1,802,425 220,421 Donated services income 687,077 - Grant and other services revenue 280,547 - Change in beneficial interest - 33,678 Net assets released from restrictions 2,249,213 (2,249,213) Total Revenue 7,089,766 (1,996,104) Total Public Support and Revenue 22,673,212 1,958,792 Expenses Program services Gross funds awarded or designated to agencies 24,203,533 - Less: Donor designations 13,976,775 - Net funds awarded or designated to agencies 10,226,758 - Other program services 5,578,825 - Total Program Services 15,805,583 - Total support services 5,189,197 - Total Expenses 20,994,780 - Increase in Net Assets Before Pension Adjustments 1,678,432 1,958,792 Pension changes other than net periodic pension cost (97,895) - Increase in Net Assets 1,580,537 1,958,792 Net Assets - Beginning of year 15,437,527 4,471,208 Net Assets - End of year $ 17,018,064 $ 6,430,000 The accompanying notes are an integral part of these financial statements.
Permanently 2014 2013 Restricted Total Total $ - $ 33,927,084 $ 33,260,305-13,976,775 13,869,992-895,783 874,635-19,054,526 18,515,678 265,652 749,468 449,010 265,652 19,803,994 18,964,688-1,474,265 1,369,077 2,892 290,990 254,373-307,151 260,010 20,397 2,043,243 1,167,879-687,077 658,129-280,547 311,071 57,032 90,710 33,778 - - - 80,321 5,173,983 4,054,317 345,973 24,977,977 23,019,005-24,203,533 24,158,933-13,976,775 13,869,992-10,226,758 10,288,941-5,578,825 4,915,184-15,805,583 15,204,125-5,189,197 5,093,324-20,994,780 20,297,449 345,973 3,983,197 2,721,556 - (97,895) 700,667 345,973 3,885,302 3,422,223 1,630,985 21,539,720 18,117,497 $ 1,976,958 $ 25,425,022 $ 21,539,720 Page 4
Statement of Activities and Changes in Net Assets For the Year Ended June 30, 2013 Unrestricted Temporarily Restricted Public Support and Revenue Public Support Gross campaigns results $ 31,073,499 $ 2,186,806 Less: Donor designations 13,869,992 - Less: Allowance for uncollectible accounts 874,635 - Net campaigns receipts 16,328,872 2,186,806 Gifts and other contributions 250,540 - Total Public Support 16,579,412 2,186,806 Revenue Service fee revenue 1,369,077 - Interest and investment income (loss) 255,498 (1,125) Sponsorship and event revenue 260,010 - Net realized and unrealized gain on investments 1,009,345 158,534 Donated services income 658,129 - Grant and other services revenue 311,071 - Change in beneficial interest - 14,827 Net assets released from restrictions 2,017,865 (2,017,865) Total Revenue 5,880,995 (1,845,629) Total Public Support and Revenue 22,460,407 341,177 Expenses Program services Gross funds awarded or designated to agencies 24,158,933 - Less: Donor designations 13,869,992 - Net funds awarded or designated to agencies 10,288,941 - Other program services 4,915,184 - Total Program Services 15,204,125 - Total support services 5,093,324 - Total Expenses 20,297,449 - Increase in Net Assets Before Pension Adjustments 2,162,958 341,177 Pension changes other than net periodic pension cost 700,667 - Increase in Net Assets 2,863,625 341,177 Net Assets - Beginning of year 12,573,902 4,130,031 Net Assets - End of year $ 15,437,527 $ 4,471,208 The accompanying notes are an integral part of these financial statements.
Permanently 2013 Restricted Total $ - $ 33,260,305-13,869,992-874,635-18,515,678 198,470 449,010 198,470 18,964,688-1,369,077-254,373-260,010-1,167,879-658,129-311,071 18,951 33,778 - - 18,951 4,054,317 217,421 23,019,005-24,158,933-13,869,992-10,288,941-4,915,184-15,204,125-5,093,324-20,297,449 217,421 2,721,556-700,667 217,421 3,422,223 1,413,564 18,117,497 $ 1,630,985 $ 21,539,720 Page 5
Statement of Functional Expenses For the Year Ended June 30, 2014 Program Services Community Total Volunteer Labor Capacity Program Referrals Services Building Services Funds awarded $ - $ - $ 24,203,533 $ 24,203,533 Less donor designations - - (13,976,775) (13,976,775) Net Funds Awarded - - 10,226,758 10,226,758 Salaries 119,176 106,754 1,163,899 1,389,829 Employee benefits 55,468 54,799 514,758 625,025 Payroll taxes 8,842 7,467 83,883 100,192 Total Salaries and Benefits 183,486 169,020 1,762,540 2,115,046 Professional services 101,027 14,683 2,305,049 2,420,759 Campaign and other literature 10,202 366 3,225 13,793 Meeting and event expense 42,146 1,831 192,357 236,334 Office supplies 1,617 1,298 22,461 25,376 Postage 1,100 1,214 11,112 13,426 Travel 1,509 4,656 30,033 36,198 Staff training 1,553 1,226 45,396 48,175 Insurance 3,060 3,060 29,077 35,197 Occupancy 11,997 11,997 144,208 168,202 Information technology 18,911 13,836 175,572 208,319 Equipment rental and repair 1,419 1,419 13,487 16,325 Subscriptions and memberships 664 529 13,796 14,989 Telephone 1,115 597 9,418 11,130 Depreciation expense 3,271 3,271 31,070 37,612 United Way Worldwide dues 9,023 6,210 121,312 136,545 Miscellaneous expense 639 25,547 15,213 41,399 Total Other Operating Expenses 209,253 91,740 3,162,786 3,463,779 Total Functional Expenses $ 392,739 $ 260,760 $ 15,152,084 $ 15,805,583 The accompanying notes are an integral part of these financial statements.
Support Services Total Organizational Support Total Fundraising Administration Services Expenses $ - $ - $ - $ 24,203,533 - - - (13,976,775) - - - 10,226,758 1,270,692 518,557 1,789,249 3,179,078 520,485 199,703 720,188 1,345,213 93,133 35,522 128,655 228,847 1,884,310 753,782 2,638,092 4,753,138 1,194,111 170,985 1,365,096 3,785,855 84,909 563 85,472 99,265 194,990 8,389 203,379 439,713 15,560 7,049 22,609 47,985 17,155 4,231 21,386 34,812 17,339 7,259 24,598 60,796 18,602 6,086 24,688 72,863 30,609 6,278 36,887 72,084 119,972 25,419 145,391 313,593 148,515 125,579 274,094 482,413 14,196 2,912 17,108 33,433 8,761 4,760 13,521 28,510 6,730 3,315 10,045 21,175 32,705 29,433 62,138 99,750 87,863 99,774 187,637 324,182 25,057 31,999 57,056 98,455 2,017,074 534,031 2,551,105 6,014,884 $ 3,901,384 $ 1,287,813 $ 5,189,197 $ 20,994,780 Page 6
Statement of Functional Expenses For the Year Ended June 30, 2013 Program Services Community Total Volunteer Labor Capacity Program Referrals Services Building Services Funds awarded $ - $ - $ 24,158,933 $ 24,158,933 Less donor designations - - (13,869,992) (13,869,992) Net Funds Awarded - - 10,288,941 10,288,941 Salaries 101,617 59,677 1,049,414 1,210,708 Employee benefits 35,387 49,406 356,291 441,084 Payroll taxes 7,562 4,213 80,047 91,822 Total Salaries and Benefits 144,566 113,296 1,485,752 1,743,614 Professional services 254,993 42,877 1,974,746 2,272,616 Campaign and other literature 10,367 540 4,801 15,708 Meeting and event expense 47,175 1,499 65,073 113,747 Office supplies 1,020 921 37,712 39,653 Postage 1,511 1,603 13,385 16,499 Travel 1,329 3,322 15,030 19,681 Staff training 2,389 4,991 41,819 49,199 Insurance 3,755 3,775 30,888 38,418 Occupancy 11,929 12,354 99,114 123,397 Information technology 16,806 16,525 178,340 211,671 Equipment rental and repair 1,270 1,277 10,518 13,065 Subscriptions and memberships 582 467 20,169 21,218 Telephone 1,240 651 8,938 10,829 Depreciation expense 3,076 3,076 24,611 30,763 United Way Worldwide dues 13,428 7,245 107,008 127,681 Miscellaneous expense 1,098 25,122 41,205 67,425 Total Other Operating Expenses 371,968 126,245 2,673,357 3,171,570 Total Functional Expenses $ 516,534 $ 239,541 $ 14,448,050 $ 15,204,125 The accompanying notes are an integral part of these financial statements.
Support Services Total Organizational Support Total Fundraising Administration Services Expenses $ - $ - $ - $ 24,158,933 - - - (13,869,992) - - - 10,288,941 1,259,122 523,226 1,782,348 2,993,056 424,720 189,511 614,231 1,055,315 92,243 36,000 128,243 220,065 1,776,085 748,737 2,524,822 4,268,436 1,090,113 209,426 1,299,539 3,572,155 87,338 1,849 89,187 104,895 267,425 7,740 275,165 388,912 11,274 5,549 16,823 56,476 16,792 5,749 22,541 39,040 11,639 5,444 17,083 36,764 8,349 6,337 14,686 63,885 37,997 10,453 48,450 86,868 123,263 27,730 150,993 274,390 171,502 156,972 328,474 540,145 12,845 2,894 15,739 28,804 5,603 4,440 10,043 31,261 7,686 3,969 11,655 22,484 30,764 29,221 59,985 90,748 84,774 103,900 188,674 316,355 18,281 1,184 19,465 86,890 1,985,645 582,857 2,568,502 5,740,072 $ 3,761,730 $ 1,331,594 $ 5,093,324 $ 20,297,449 Page 7
Statements of Cash Flows For the Years Ended June 30 2014 2013 Cash Provided by (Used for) Operating Activities Increase in net assets $ 3,885,302 $ 3,422,223 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 99,750 90,748 Net appreciation in fair value of investments and charitable trusts (2,387,049) (1,278,099) Changes in Pledges receivable (921,033) (974,027) Other assets 258,341 249,997 Distributions payable to agencies (584,630) (362,033) Donor designations payable 94,545 450,818 Accounts payable and other liabilities 173,085 (543,613) Net Cash Provided by Operating Activities 618,311 1,056,014 Cash Provided by (Used for) Investing Activities Proceeds from sale of investments 3,537,660 4,046,653 Purchase of investments (3,791,921) (4,291,608) Purchase of furniture, equipment and software (505,899) (140,637) Net Cash Used for Investing Activities (760,160) (385,592) Net Increase (Decrease) in Cash and Cash Equivalents (141,849) 670,422 Cash and Cash Equivalents - Beginning of year 12,026,925 11,356,503 Cash and Cash Equivalents - End of year $ 11,885,076 $ 12,026,925 The accompanying notes are an integral part of these financial statements. Page 8
Notes to the Financial Statements Note 1 - Description of Organization The United Way of Allegheny County is a Pennsylvania nonprofit corporation founded April 19, 1974 to improve the quality of people s lives in southwestern Pennsylvania. It is governed by a volunteer Board of Directors and has a membership with both United Way Worldwide and United Way of Pennsylvania (United Way). Our Vision We are the community s fundraiser for health and human services. Our Mission The United Way of Allegheny County is a change agent and efficient community fundraiser. By convening diverse partners and investing in programs and people to advance solutions, United Way creates long-lasting change and helps children and youth succeed, strengthens and supports families by promoting financial stability, ensures the safety and well-being of vulnerable seniors, assists people with disabilities, and provides information and referral sources meeting the basic needs for residents of Southwestern Pennsylvania. Our Principles Brand a network of quality agencies that are eligible to use The United Way of Allegheny County s brand and receive allocations of unrestricted giving. Continuously improve The United Way of Allegheny County s capability as a fundraiser and an allocator of funds. Expand and increase unrestricted giving. Grow annual workplace campaigns. Maintain an overhead percentage in the top decile of charitable fundraisers. The United Way of Allegheny County carries out its purpose through the following programs: Community Impact - The United Way of Allegheny County has adopted the community impact philosophy to investing dollars from our Impact Fund in agencies and programs that align with the four critical needs identified in our on-going Needs Assessments and Investment Strategy Studies. These critical needs are: Helping teens and young adults succeed and reducing risk factors for young children. Page 9
Note 1 - Description of Organization (Continued) Supporting vulnerable seniors. Empowering adults with disabilities. Assisting financially struggling adults and families. Community Capacity Building The programs also focus on the community level to develop partnerships and projects that involve agencies, foundations and public leaders in finding model solutions. The United Way of Allegheny County has transitioned to an open agency application process and provides training and consultation regarding how agencies can measure their outcomes and results. Other tasks include: Reporting and assessments of agency results Management of special funds such as the Flexible Fund and Maurice Falk Fund Development and management of special projects such as the Earned Income Tax Credit (EITC) campaign Educating donors and community leaders about issues and needs, and agency services and impact achieved Volunteer Referrals - Assists individuals who are searching for volunteer opportunities. Specific tasks include recruiting volunteers and providing training to prepare them to assist with projects such as Be a Middle School Mentor, Days of Caring, and Earned Income Tax Credit support. Information and Referral - The United Way of Allegheny County serves as the southwestern Pennsylvania 211 regional center and leader. 211 is a nationally recognized, easy to remember phone number that connects people seeking assistance with local health and human service resources. Page 10
Note 1 - Description of Organization (Continued) Through the Union Community Activist Network, trained labor union volunteers provide information to co-workers seeking help and refer them to appropriate human services resources in the community. Union counseling is conducted under the auspices of the Pennsylvania AFL-CIO and central labor councils in cooperation with their local United Way. This ten-week training program strengthens the union member s understanding of the value of the union, public policy, community services and the value of the United Way partnership. Effective July 1, 2013, The United Way of Allegheny County transferred its sole membership of Health Alliance for Nonprofits (Health Alliance) to the Pennsylvania Association of Nonprofit Organizations. Health Alliance sponsored competitively priced group health insurance programs and other insurance products for purchase by The United Way of Allegheny County and other not-for-profit agencies within Pennsylvania. Health Alliance, through its insurance broker, negotiated the terms and prices of the various insurance products; however, the actual insurance contracts and resulting risks were between each participating agency and the insurance or managed care company. Health Alliance earned a commission on insurance contracts placed with participating agencies. In addition, Health Alliance collected the related insurance premiums from such participating agencies and remited the related payments to the respective insurance provider, net of Health Alliance s fees and the fees of the insurance broker. The June 30, 2013 financial statements include the consolidated financial position and results of the activities of The United Way of Allegheny County and Health Alliance. All significant intercompany accounts as of June 30, 2013 and transactions for the year ended June 30, 2013 were eliminated in consolidation (Note 14). Note 2 - Summary of Significant Accounting Policies A. Basis of Accounting The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under the accrual basis of accounting, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred. B. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions 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. Page 11
Note 2 - Summary of Significant Accounting Policies (Continued) C. Cash and Cash Equivalents The United Way of Allegheny County considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The majority of cash and cash equivalents are maintained at two national financial institutions. Account balances at June 30, 2014 and 2013 exceeded the Federal Deposit Insurance Corporation (FDIC) limit. The United Way of Allegheny County believes it has placed these temporary cash investments with high credit quality financial institutions and does not believe it is exposed to any significant credit risk on its cash and cash equivalents. D. Pledges and Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted public support depending on the existence or nature of any donor restrictions. Public support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions. Pledges receivable are stated at the amount management expects to collect from outstanding balances. Management provides for estimated probable uncollectible amounts through a charge to public support and a credit to a valuation allowance based on its analyses of historical collection rates and the condition of the general economy as a whole. The provision for uncollectible accounts is applied to gross campaign pledges including donor designations. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to pledges receivable. E. Investments and Investment Risk The United Way of Allegheny County has investments that consist of unrestricted assets that are not immediately needed for operations. These investments consist of fixed income and equity mutual funds, which are reported at fair value based on direct marketbased prices. Those investments received as gifts or donations are recorded at their fair value on the date received. Page 12
Note 2 - Summary of Significant Accounting Policies (Continued) E. Investments and Investment Risk (Continued) Gains and losses on investments, including unrealized gains and losses, are reported as increases or decreases in unrestricted investment income. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that these changes could affect the amounts reported in the balance sheet. There is no concentration of the investments in any particular security or industry segment. F. Funds Held by Others - Community Foundation Funds held by others consist of unrestricted - board designated and undesignated, temporarily restricted and permanently restricted assets transferred by The United Way of Allegheny County to a community foundation for the creation of various endowment funds which benefit The United Way of Allegheny County but are managed by the community foundation. The United Way of Allegheny County is to be the sole beneficiary of any distributions from these endowment funds. Funds held by the community foundation are pooled with other organizations funds and invested in diversified portfolios of marketable equity and fixed income securities, as well as limited marketability investments, including private equities and absolute return investments. These amounts are reported at fair value as determined by the community foundation. Gains and losses on funds held by others, including unrealized gains and losses, are reported as increases or decreases in unrestricted investment income unless the use of the investment income is limited by donor-imposed restrictions or law (Notes 9 and 11). G. Funds Held by Others - Charitable Trusts The United Way of Allegheny County is a beneficiary of several income trusts held by third parties. It has an irrevocable right to receive its portion, designated by the trust agreements, of the income from the trusts assets. The United Way of Allegheny County has valued its portion of the trusts based on its pro-rata share of the fair value of the assets held in each trust. The use of the income received from the trusts has not been restricted by the donors. Unrealized gains and losses are classified as increases or decreases in temporarily or permanently restricted net assets, based upon the terms of the trust agreements (Notes 9 and 11). The fair value of the charitable trusts are estimated as the present value of expected future cash inflows. Page 13
Note 2 - Summary of Significant Accounting Policies (Continued) H. Fair Value Measurements The United Way of Allegheny County applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The United Way of Allegheny County defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, The United Way of Allegheny County considers the principal or most advantageous market in which they would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. The United Way of Allegheny County applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Observable inputs such as quoted prices in active markets for identical investments that the United Way of Allegheny County has the ability to access. Level 2 - Inputs include: a. Quoted prices for similar assets or liabilities in active markets; b. Quoted prices for identical or similar assets or liabilities in inactive markets; c. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; d. Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 - Unobservable inputs in which there is little or no market activity for the asset or liability, which require the reporting entity to develop its own estimates and assumptions relating to the pricing of the asset or liability including assumptions regarding risk. The asset s 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. The valuation techniques are used to maximize the use of observable inputs and minimize the use of unobservable inputs. Page 14
Note 2 - Summary of Significant Accounting Policies (Continued) H. Fair Value Measurements (Continued) The fair value measurements of The United Way of Allegheny County s investments and funds held by others are disclosed in Notes 4 and 5. The United Way of Allegheny County s other financial instruments consist primarily of cash and cash equivalents and pledges receivable, all of which are stated at cost, which approximates fair value. I. Furniture, Equipment and Software Furniture, equipment and software are recorded at cost. The United Way of Allegheny County s policy is to capitalize property and equipment purchases greater than $1,000 with a useful life greater than one year. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. One half year of depreciation is recorded in the year of acquisition and one half year in the year of disposal or the final year of useful life. Maintenance and repairs which are not considered to extend the useful lives of assets are charged to operations as incurred. Expenditures for additions and improvements are capitalized. Upon sale or retirement, the cost of assets and related allowances are removed from the accounts and any resulting gains or losses are included in income (expense) for the period. J. Distributions Payable to Agencies The United Way of Allegheny County records distributions payable to agencies upon approval by its Board of Directors and notification to the agencies. Distributions payable to agencies represent amounts that are due to these agencies during the course of the ensuing fiscal year. K. Donor Designations Payable Donor designations payable represent amounts payable to other United Ways and agencies as stipulated by the individual donors. The amounts are recorded as a pledge receivable and liability in the balance sheet. Such amounts are included in gross campaign results and gross funds designated to agencies on the statements of activities. These amounts are subtracted to arrive at the net public support and net expenses. Page 15
Note 2 - Summary of Significant Accounting Policies (Continued) L. Employer s Accounting for Defined Benefit Pension and Other Postretirement Plans The United Way of Allegheny County recognizes the funded status of its defined benefit pension plans as assets or liabilities on its balance sheets. Changes in the funded status are recognized through the statement of activities and changes in net assets in the year in which the changes occur. Plan assets and benefit obligations are measured as of June 30, 2014 and 2013. M. Endowment Funds The United Way of Allegheny County follows the accounting pronouncement that provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The pronouncement requires certain disclosures applicable to all nonprofit organizations that have endowments, even if the organization is not yet subject to a version of UPMIFA. See Note 9. N. Donated Services Donated materials and services meeting the requirements of accounting principles generally accepted in the United States of America are reflected as contributions at their estimated values at the date of receipt. The United Way of Allegheny County receives certain donated professional services. Values are assigned to such services based on rates commensurate with the type of services performed. The fair value of these donations, which mainly consists of advertising for its annual campaign, is included in the accompanying financial statements as both revenue and expense. This activity principally occurs in the fall of the calendar year. Donated services revenue and expense totaled approximately $687,000 for the year ended June 30, 2014 and $658,000 for 2013. O. Expense Allocation The costs of providing the various programs and other activities of The United Way of Allegheny County are presented on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and support services benefited. Salary and benefit expenses and marketing department expenses have been allocated based on time studies. Outside professional service expenses are allocated based on the nature of the service provided. The annual membership fee paid to United Way Worldwide is allocated based on total expenses. All other expense allocations to program and support services are based on the number of full-time employees. Page 16
Note 2 - Summary of Significant Accounting Policies (Continued) P. United Way Worldwide Cost Deduction Standards The expenses associated with processing donor designated pledges are recovered by an assessment for both fundraising and management and general fees based on actual historical costs in accordance with the United Way Worldwide Membership Standards as outlined in their publication titled United Way Worldwide Cost Deduction Requirements for Membership Standard M. Q. Federal Income Taxes The United Way of Allegheny County, under Code Section 501(c)(3), and Health Alliance, under Code Section 501(c)(4), are exempt from Federal income taxes under the Internal Revenue Code of 1986 (the Code) and have been classified as non-private foundations under Section 509(a)(1) of the Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements. Accounting principles generally accepted in the United States of America require the United Way of Allegheny County s management to evaluate tax positions taken by the United Way of Allegheny County and recognize a tax liability (asset) if The United Way of Allegheny County has taken an uncertain position that more likely than not would not be sustained upon examination by a taxing authority. Management has analyzed the tax positions taken by The United Way of Allegheny County and has concluded that, as of June 30, 2014, there are no uncertain tax positions taken or expected to be taken. The United Way of Allegheny County is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes The United Way of Allegheny County is no longer subject to income tax examinations for years prior to 2010. R. Reclassification Certain reclassifications have been made to the 2013 financial statements to conform with the 2014 presentation. S. Subsequent Events Management and the audit committee of the Board of Directors evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through September 24, 2014, the day the financial statements were approved and authorized for issue. Page 17
Note 3 - Pledges Receivable Pledges receivable consist of the following as of June 30: 2014 2013 2016 Campaign $ 30,859 $ - 2015 Campaign 530,858-2014 Campaign 661,973 100,000 2013 Campaign 12,584,297 271,795 2012 Campaign - 12,478,914 2011 Campaign - 10,000 Campaign pledges - gross 13,807,987 12,860,709 Less: Allowance for uncollectible accounts ( 908,364) ( 882,119) Campaign pledges - net $12,899,623 $11,978,590 The above pledges receivable are all, with the exception of the 2015 and 2016 Campaign pledge receivables, anticipated to be collected within the next year. The 2015 and 2016 Campaign pledge receivables are anticipated to be collected within one to five years. Page 18
Note 4 - Investments Investments consist of the following as of June 30: 2014 2013 Fair Fair Cost Value Cost Value Mutual funds Fixed income funds $ 6,308,625 $ 6,564,351 $ 6,164,998 $ 6,253,781 Equity funds Domestic 2,696,315 3,994,219 2,394,095 3,118,478 International 1,616,266 1,897,297 1,494,206 1,589,200 Equity securities Energy 172,991 223,160 173,939 194,247 Materials 56,453 68,951 50,870 48,857 Industrial 130,787 194,083 116,396 143,865 Consumer discretionary 212,719 288,494 176,529 213,058 Consumer staples 166,909 197,497 162,362 184,016 Healthcare 259,357 302,009 104,390 124,908 Financials 250,211 320,176 188,766 245,057 Information technology 249,412 379,633 235,506 275,892 Telecommunications 18,650 22,080 27,354 31,409 Utilities 40,674 54,221 38,433 45,030 International 288,375 407,360 239,860 273,458 Exchange traded funds Commodities - - 115,001 77,851 $12,467,744 $14,913,531 $11,682,705 $12,819,107 At June 30, 2014, The United Way of Allegheny County s investments are measured at fair value as determined by quoted prices in active markets (Level 1 - significant observable inputs). Page 19
Note 5 - Funds Held by Others Funds held by others are recorded at fair value and consist of the following as of June 30: 2014 2013 Funds held by others Charitable trusts $ 987,091 $ 896,380 Community foundation 4,195,486 3,896,050 $5,182,577 $4,792,430 The composition of funds held by others consists of the following as of June 30: 2014 2013 Investments held by charitable trusts Donor-restricted - Note 11 Permanently restricted $ 642,532 $ 585,500 Temporarily restricted 344,559 310,880 $ 987,091 $ 896,380 Investments held by community foundation Donor-restricted Permanently restricted $ 821,446 $ 820,188 Temporarily restricted 1,498,489 1,355,615 2,319,935 2,175,803 Unrestricted Undesignated ( 16,890) ( 34,758) Board designated 1,892,441 1,755,005 $4,195,486 $3,896,050 Page 20
Note 5 - Funds Held by Others (Continued) Investments held at the community foundation, as noted in the summary of significant accounting policies (Note 2F), are pooled with other organizations funds and invested in diversified portfolios of marketable equity and fixed income securities, as well as limited marketability investments, including private equities and absolute return investments. A substantial portion of the underlying assets at the community foundation is measured at fair value using Level 1 and 2 inputs. The United Way of Allegheny County s ownership in such investments is represented by an undivided interest in investment portfolios managed by the community foundation, not in the underlying assets themselves. The fair market value of The United Way of Allegheny County s interests have been determined using the net asset value (NAV) and is used for expedience purposes. The NAV is based on the value of the underlying assets owned by the funds, minus their liabilities, and then divided by the number of interests outstanding. The undivided interests in these portfolios are not themselves publically traded. The United Way of Allegheny County follows the redemption requirements stipulated by the donor and by the spending policy of the foundation. The United Way of Allegheny County cannot transfer the funds to another foundation at any time. As a result of the withdrawal limitations, the investments are reported as Level 3 measurements. The following table sets forth by level, within the fair value hierarchy, The United Way of Allegheny County s funds held by others as of June 30, 2014: Level 1 Level 2 Level 3 Total Funds held by others Charitable trusts $ 863,451 $ - $ 123,640 $ 987,091 Community foundation - - 4,195,486 4,195,486 Total $ 863,451 $ - $4,319,126 $5,182,577 The following table sets forth by level, within the fair value hierarchy, The United Way of Allegheny County s funds held by others as of June 30, 2013: Level 1 Level 2 Level 3 Total Funds held by others Charitable trusts $ 776,928 $ 4,518 $ 114,934 $ 896,380 Community foundation - - 3,896,050 3,896,050 Total $ 776,928 $ 4,518 $4,010,984 $4,792,430 Page 21
Note 5 - Funds Held by Others (Continued) The changes in Level 3 investments measured at fair value on a recurring basis are summarized as follows: Charitable Trusts Community Foundation Beginning balance at July 1, 2012 $ 109,943 $3,718,390 Earnings and net appreciation 4,991 376,225 Contributions - 1,878 Commissions and fees - ( 47,201) Distributions - ( 153,242) Ending balance at June 30, 2013 114,934 3,896,050 Earnings and net appreciation 8,706 510,742 Contributions - 2,366 Commissions and fees - ( 54,568) Distributions - ( 159,104) Ending balance at June 30, 2014 $ 123,640 $4,195,486 Note 6 - Furniture, Equipment and Software Furniture, equipment and software consist of the following as of June 30: 2014 2013 Leasehold improvements $ 72,242 $ - Furniture and equipment 506,951 348,682 Software 793,517 518,129 1,372,710 866,811 Less: Accumulated depreciation 727,511 627,761 $ 645,199 $ 239,050 Page 22
Note 7 - Line of Credit The United Way of Allegheny County has a $750,000 annually renewable revolving credit line with PNC Bank at an interest rate of prime (3¼% at June 30, 2014) that expires in July 2015. At June 30, 2014 and 2013, there were no outstanding borrowings. Note 8 - Retirement Plans The United Way of Allegheny County sponsors both a defined contribution 403(b) plan (403(b) Plan) and a qualified noncontributory defined benefit pension plan (Pension Plan) covering substantially all of its employees. Employees may elect to defer pre-tax contributions up to specified limits into the 403(b) Plan. Each 403(b) plan year, The United Way of Allegheny County makes a 100% matching contribution to the 403(b) Plan up to 4% of a participating employee s salary. The United Way of Allegheny County s aggregate contributions to the 403(b) Plan approximated $93,000 for the year ended June 30, 2014 and $83,000 for the year ended June 30, 2013. The Pension Plan provides for benefits to be paid to eligible employees at retirement based upon years of service and the employee s compensation levels during the last five years of employment prior to the normal retirement date. The United Way of Allegheny County s funding policy is to contribute annually an amount based on actuarially determined deposit amounts in accordance with the minimum funding requirements prescribed by the Employee Retirement Income Security Act of 1974, as amended. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Pension plan assets are invested in insurance company pooled separate accounts, bank common and collective trust funds and U.S. Government obligations. The following table sets forth the funded status as of June 30: 2014 2013 Projected benefit obligation ($9,242,537) ($8,726,932) Fair value of pension plan assets 5,830,629 5,751,360 Underfunded status at June 30 ($3,411,908) ($2,975,572) Accrued pension obligation recognized in the balance sheets ($3,411,908) ($2,975,572) Page 23
Note 8 - Retirement Plans (Continued) The following table sets forth the reconciliation of items not yet reflected in net periodic pension cost and recognized in the statements of activities and changes in net assets: Reclassified as Amounts June 30, Net Periodic Arising During June 30, 2013 Pension Cost Fiscal Year 2014 Net prior service cost or (credit) ($ 40,228) ($ 10,872) $ - ($ 29,356) Net loss 2,587,663 269,154 ( 356,177) 2,674,686 $2,547,435 $ 258,282 ($ 356,177) $2,645,330 Unrestricted net assets have been reduced by net actuarial loss of $97,895 for the year ended June 30, 2014 and increased by net actuarial gains of $700,667 for the year ended June 30, 2013. The unrecognized net loss and prior service cost that is expected to be recognized as a component of the 2014 net periodic pension cost is $296,683. Other information concerning the Pension Plan for the years ended June 30 is as follows: 2014 2013 Net periodic pension cost $ 804,057 $ 559,915 Benefits paid (including expenses of $68,276 in 2014 and $71,109 in 2013) $1,176,118 $ 437,346 Elective contributions made to the Pension Plan were $466,000 in 2014 and $400,000 in 2013. The United Way of Allegheny County intends to continue the plan and to make contributions in amounts which equal or exceed the minimum funding requirements of ERISA. The actual minimum funding requirement for future periods will be determined at each anniversary date. Page 24
Note 8 - Retirement Plans (Continued) The assumptions used to determine the value of the projected benefit obligation, actuarial present value of accumulated plan benefits, fair value of pension plan assets and pension expense for the years ended June 30 are as follows: 2014 2013 Assumption (expressed in terms of an annual percentage) Discount rate 3.90% 4.30% Expected long-term rate of return on plan assets 7.50% 7.50% Rate of increase in compensation levels 4% 4% The United Way of Allegheny County s expected rate of return on pension plan assets is determined by the pension plan assets historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. The United Way of Allegheny County s asset allocations by asset category as of June 30 are as follows: 2014 2013 Equity 48.4% 49.0% Fixed income 46.8% 44.8% General account 4.8% 6.2% Subject to the operating policies of the insurance company, The United Way of Allegheny County s investment strategy with respect to the funds held by the insurance company is to allocate approximately 50% of contributions to equity investments and 50% to fixed investments. The fair value of the plan investments by asset class consist of the following as of June 30: 2014 2013 Mutual funds - fixed income $1,368,572 $1,297,571 Pooled separate account - fixed income 1,357,825 1,276,307 Pooled separate account - equities 2,821,380 2,822,944 Unallocated insurance contracts - general account 282,852 354,538 $5,830,629 $5,751,360 Page 25
Note 8 - Retirement Plans (Continued) Mutual funds are public investment vehicles valued using the net asset value (NAV) provided by the administrator of the fund on the last day of the Pension Plan s year end, June 30. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and classified within Level 1 of the fair value hierarchy. Mutual of America (MOA) is the Pension Plan s actuary and insurance carrier. Investments in pooled separate accounts are valued by MOA at the NAV of the underlying investment assets. The separate account invested assets are subject to market value on a daily basis. The Pension Plan s proportionate share of each pooled separate account s investment income is credited in accordance with the revaluation of the units of participation and is included in the allocation of fund investment activity. The pooled separate accounts are classified within Level 2 of the fair value hierarchy. Investment in an unallocated insurance contract is valued at contract value as determined in accordance with the contract with MOA, who guarantees a fixed interest rate. Contract value represents contributions made under the contract, plus investment income earned less withdrawals. Contract value approximates fair value. The insurance contract is classified within Level 2 of the fair value hierarchy. The approximate benefit payments expected to be paid are as follows: Year Ending June 30 Amount 2015 $1,287,000 2016 $ 230,000 2017 $1,199,000 2018 $ 474,000 2019 $ 687,000 2020-2024 $2,213,000 Page 26
Note 9 - Endowment Funds The United Way of Allegheny County s endowment funds consist of nine individual funds established for a variety of purposes. Six of the nine individual funds are investments with the community foundation (Note 5). The endowment funds include both donor-restricted funds and funds designated by The United Way of Allegheny County s Board of Directors to function as endowments (board designated endowment funds). Net assets associated with endowment funds are classified based on the existence or absence of donor-imposed restrictions as required by generally accepted accounting principles. The composition of net assets by type of endowment fund at June 30, 2014 was as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds - Note 11 ($ 16,889) $1,647,515 $1,334,426 $2,965,052 Board designated endowment funds - Note 10 1,892,441 - - 1,892,441 Total endowment funds $1,875,552 $1,647,515 $1,334,426 $4,857,493 The composition of net assets by type of endowment fund at June 30, 2013 was as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds - Note 11 ($ 34,758) $1,503,506 $1,045,485 $2,514,233 Board designated endowment funds - Note 10 1,755,005 - - 1,755,005 Total endowment funds $1,720,247 $1,503,506 $1,045,485 $4,269,238 Page 27
Note 9 - Endowment Funds (Continued) Changes in endowment net assets for the years ended June 30, 2014 and 2013 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Balance - July 1, 2012 $1,625,417 $1,431,464 $ 847,015 $3,903,896 Contributions 901-198,470 199,371 Fees ( 20,253) ( 24,863) - ( 45,116) Net appreciation 190,743 182,272-373,015 Appropriation of endowment funds ( 76,561) ( 85,367) - ( 161,928) Balance - June 30, 2013 1,720,247 1,503,506 1,045,485 4,269,238 Contributions 1,108-265,652 266,760 Fees ( 27,896) ( 26,671) - ( 54,567) Net appreciation 263,650 246,103 23,289 533,042 Appropriation of endowment funds ( 81,557) ( 75,423) - ( 156,980) Balance - June 30, 2014 $1,875,552 $1,647,515 $1,334,426 $4,857,493 From time to time, the fair value of assets associated with donor-restricted endowment funds may fall below the level The United Way of Allegheny County is required to retain by donor stipulation or by law. The amount of the deficiency was $16,889 as of June 30, 2014 and $34,758 for 2013. In accordance with accounting principles generally accepted in the United States of America, these deficiencies have been properly accounted for and reported in unrestricted net assets as of June 30, 2014 and 2013. Page 28