Financial Statements For the Years Ended June 30, 2014 and 2013
Table of Contents Page Independent Auditors Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities 3 Statements of Cash Flows 4 Notes to Financial Statements 5 9
Independent Auditors' Report To the Board of Directors of Massachusetts Correctional Legal Services, Inc. d/b/a Prisoners Legal Services We have audited the accompanying financial statements of the Massachusetts Correctional Legal Services, Inc. d/b/a Prisoners Legal Services (a nonprofit organization) (the "Organization"), which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities and cash flows for the years 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. Auditors' Responsibility Our responsibility is to express an opinion on these 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 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Massachusetts Correctional Legal Services, Inc. d/b/a Prisoners Legal Services as of June 30, 2014 and 2013, 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. October 27, 2014
Statements of Financial Position June 30 2014 2013 Assets Current assets Cash and cash equivalents $ 531,919 $ 474,900 Short-term investments 203,084 203,003 Grants receivable 4,482 29,139 Attorneys fees receivable 200,000 Prepaid expenses and other current assets 11,857 23,544 Total current assets 751,342 930,586 Other assets Restricted cash 6,791 32,421 Property and equipment net 17,200 20,290 Total other assets 23,991 52,711 Total assets $ 775,333 $ 983,297 Liabilities and Net Assets Current liabilities Accounts payable and accrued expenses $ 152,163 $ 173,592 Deferred income 30,667 30,667 Total current liabilities 182,830 204,259 Long-term liabilities Deferred rent 47,317 51,335 Total liabilities 230,147 255,594 Commitments and contingencies Unrestricted net assets 545,186 727,703 Total liabilities and net assets $ 775,333 $ 983,297 See notes to financial statements 2
Statements of Activities Year Ended June 30 2014 2013 Revenue and other support Grant and contract revenue $ 1,370,024 $ 1,200,165 Public donations 76,772 39,943 Other income 25,000 27,920 Attorney fee income 15,250 386,235 Interest income 154 171 Total revenue and other support 1,487,200 1,654,434 Operating expenses Salaries and wages 1,045,628 992,589 Payroll taxes and fringe benefits 250,066 229,037 Service contracts 137,978 125,833 Rents, taxes and utilities 102,252 85,924 Office expense 29,487 26,266 Profit sharing expense 26,141 48,260 Telephone 14,873 16,033 Fundraising 14,831 11,939 Dues and subscriptions 8,730 8,527 Professional liability insurance 7,447 10,620 Postage 6,769 5,263 Insurance 6,393 8,915 Equipment rental 4,056 7,240 Travel 3,906 4,556 Depreciation 3,090 2,877 Continuing education 3,007 1,935 Repairs and maintenance 2,958 5,715 Miscellaneous 2,105 4,421 Total operating expenses 1,669,717 1,595,950 Change in unrestricted net assets (182,517) 58,484 Total net assets beginning of year 727,703 669,219 Total net assets end of year $ 545,186 $ 727,703 See notes to financial statements 3
Statements of Cash Flows Year Ended June 30 2014 2013 Operating activities Change in net assets $ (182,517) $ 58,484 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 3,090 2,877 Changes in operating assets and liabilities Grants receivable 24,657 471 Attorneys fees receivable 200,000 97,023 Prepaid expenses and other current assets 11,687 (11,199) Accounts payable and accrued expenses (21,429) 9,522 Deferred income 5,000 Deferred rent (4,018) (2,031) Net cash provided by operating activities 31,470 160,147 Investing activities Change in restricted cash 25,630 (31,849) Purchase of short-term investments (81) (135) Net cash provided (used) by investing activities 25,549 (31,984) Net change in cash 57,019 128,163 Cash and cash equivalents beginning of year 474,900 346,737 Cash and cash equivalents end of year $ 531,919 $ 474,900 See notes to financial statements 4
Notes to Financial Statements Note 1 Organization and purpose Massachusetts Correctional Legal Services, Inc. d/b/a Prisoners' Legal Services (the "Organization") is a Massachusetts nonprofit organization whose purpose is to promote and protect the civil rights of prisoners in Massachusetts correctional facilities. The Organization advocates and litigates on behalf of incarcerated persons accused or convicted of crimes. The Organization also works with policy makers and legislators concerning constituent matters and with civil rights and criminal defense attorneys, prisoners families and members of impacted communities. The Organization is involved in improving related social, correctional, parole and re-entry practices in Massachusetts. The Organization derives the majority of its revenue through grant and contract revenue. The Organization operates out of a facility located in Boston, Massachusetts. The Organization considers all expenditures made in connection with its stated purpose to be a single unrestricted program. Note 2 Summary of significant accounting policies Basis of accounting The Organization prepares its financial statements on the accrual basis of accounting. Consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. Classification and reporting of net assets Under generally accepted accounting principles for not-for-profit organizations, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, which represents the expendable resources that are available for operations at management s discretion; temporarily restricted net assets, which represents resources restricted by donors as to purpose or by the passage of time; and permanently restricted net assets, which represents resources whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization. The Organization presently has no temporarily or permanently restricted net assets. Functional allocation of expenses The costs of providing the Organization s various programs and supporting services has been summarized on a functional basis. Accordingly, certain costs have been allocated among the program and supporting activities benefited. Cash and cash equivalents For purposes of reporting cash flows, the Organization considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Short-term investments The Organization has a 6-month and 12-month certificate of deposit with a banking institution. The certificates of deposits are recorded at cost. 5
Notes to Financial Statements Attorneys fees receivable The Organization receives attorney fees when cases are settled or decided in the Organization s favor. Attorney fees are recorded when cases are settled and determinable. Property and equipment Property and equipment is recorded at estimated fair market value if donated or at cost if purchased. Expenditures for maintenance and repairs are charged to operations as incurred. Major additions to property and equipment are capitalized, and depreciated on a straight-line basis over their estimated useful lives as follows: furniture and equipment 5-7 years and leasehold improvements life of lease. Revenue recognition Revenues from grants are recorded based upon the terms of the specific grant. Revenues from settlement income and attorney fees are recorded when cases are settled and fees are determinable. Contributions Contributions are recognized when the donor makes a promise to give that is, in substance, unconditional. Conditional promises to give are recognized when the conditions on which they depend have been substantially met. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. 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. Income taxes The Internal Revenue Service has determined that the Organization qualifies as an exempt organization under Internal Revenue Code Section 501(c)(3). In addition, the Organization qualifies for the charitable contribution deduction under Section 170 (b)(1)(a) and has been classified as an organization that is not a private foundation under Section 509(a)(2). The Income Taxes topic of the FASB Accounting Standards Codification prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management of the Organization has evaluated its tax positions and does not believe that any material uncertain tax positions exist. The Organization s policy is to record interest expense and penalties, if any, in other expenses. For years ended June 30, 2014 and 2013, there was no interest and penalties expense recorded. Generally, tax years beginning in 2010 are subject to examination by taxing authorities including the Internal Revenue Service and the Commonwealth of Massachusetts. Concentration of credit risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist of cash balances that at times exceed federally insured limits. The Organization manages this risk by maintaining its deposits with credit worthy financial institutions and management believes it is not exposed to any significant credit risk on its cash balances. 6
Notes to Financial Statements Accounting 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 that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Note 3 Restricted cash The Organization has classified as restricted certain cash that is not available for use in its operations. When cases are settled or are won, the Organization receives funds that belong to the client and must place those funds in a trust account separate from its own money. The Organization holds these funds in Interest on Lawyers Trust Accounts ("IOLTA"). Note 4 Property and equipment net Property and equipment consists of the following: June 30 2014 2013 Furniture and equipment $ 109,728 $ 109,728 Leasehold improvements 12,800 12,800 122,528 122,528 Accumulated depreciation (105,328) (102,238) Property and equipment net $ 17,200 $ 20,290 Note 5 Grants and contract revenue Grant and contract revenue consists of the following at June 30: 2014 % 2013 % Supreme Judicial Court $ 1,129,584 82.45 $ 981,810 81.80 Mass. Legal Assistance Corp. 126,440 9.23 104,355 8.70 Mass. Bar Foundation Chronic & Infectious Disease 39,000 2.85 39,000 3.25 Mass. Bar Foundation Prison Brutality & Civil Rights 25,000 1.82 25,000 2.08 Shaw Foundation 20,000 1.47 15,000 1.25 Boston Bar Foundation Infectious Disease Advocacy 15,000 1.09 17,500 1.46 Boston Bar Foundation Brutality & Civil Rights 15,000 1.09 17,500 1.46 $ 1,370,024 100.00 $ 1,200,165 100.00 7
Notes to Financial Statements Note 6 Line of credit The Organization has a $100,000 line of credit, which bears interest at a rate of 2.25% above the bank s prime rate (5.5% at June 30, 2014 and 2013). The line of credit is secured by one certificate of deposit with the lender. The account had no outstanding balance as of June 30, 2014 and 2013. The Organization has an irrevocable standby letter of credit with a bank at June 30, 2014 in the amount of $16,045. The letter of credit is required for the security deposit related to the office space that the Organization is occupying. The letter of credit is secured by a certificate of deposit with the lender. Note 7 Functional allocation of expenses The costs of providing the Organization's program related and supporting services are summarized on a functional basis as follows: June 30 2014 2013 Program services $ 1,241,997 $ 1,244,549 Administrative 223,847 225,634 Fundraising 203,873 125,767 Note 8 Retirement plan $ 1,669,717 $ 1,595,950 The Organization sponsors a defined contribution 401(k) plan for substantially all employees. The Organization elected not to make employer matching contributions for the years ended June 30, 2014 and 2013. In addition, there was a profit sharing contribution of $26,141 and $48,260 approved by the employer on behalf of the employees for 2014 and 2013, respectively. Note 9 Commitments Lease obligations The Organization leases office space in Boston, Massachusetts. This agreement provides for minimum monthly rental payments through expiration in April 2019. The Organization is also responsible for related utilities and real estate taxes. During the years ended June 30, 2014 and 2013, total rent expense incurred by the Organization under the lease agreement amounted to $102,252 and $85,924, respectively. Future minimum rental payments due under the lease are as follows: Year Ending June 30 Amount 2015 $ 97,768 2016 99,756 2017 101,745 2018 103,733 2019 87,825 8
Notes to Financial Statements Funding requirements The Organization receives a portion of its funding from the Massachusetts Legal Assistance Corporation ("MLAC"). If funding is terminated before the expected expiration date of the annual funding period, the Organization is required to follow MLAC's directions with respect to the use or disposition of net assets, records, and any equipment, supplies or property purchased with MLAC funds. Note 10 Subsequent events The Organization has evaluated all subsequent events and transactions through October 27, 2014, the date the financial statements were available to be issued. There were no events or transactions that occurred that would require recognition or disclosure in the financial statements. 9