NAPA VALLEY COLLEGE FOUNDATION

NAPA VALLEY COLLEGE FOUNDATION AUDIT REPORT Napa, CA June 30, 2016

TABLE OF CONTENTS FINANCIAL SECTION Independent Auditors Report... 1 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Statement of Functional Expenses... 6 Notes to the Financial Statements... 7

Financial Section

INDEPENDENT AUDITORS REPORT Board of Directors Napa Valley College Foundation Napa, California We have audited the accompanying financial statements of The Napa Valley College Foundation (the Foundation ), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Napa Valley College Foundation as of June 30, 2016, 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. San Diego, California October 24, 2016 2

STATEMENT OF FINANCIAL POSITION 2016 ASSETS Cash and cash equivalents $ 6,320 Accounts receivable 97,736 Investments 7,878,715 Beneficial interest in CCCS endowment 69,262 Total Assets $ 8,052,033 LIABILITIES Accounts payable $ 41,655 Total Liabilities 41,655 NET ASSETS Unrestricted 455,373 Temporarily restricted 1,038,348 Permanently restricted 6,516,657 Total Net Assets 8,010,378 Total Liabilities and Net Assets $ 8,052,033 The notes to financial statements are an integral part of this statement. 3

STATEMENT OF ACTIVITIES Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS, AND OTHER SUPPORT Contributions $ 55,229 $ 104,375 $ 148,517 $ 308,121 Interest - 70,122-70,122 Dividends - 133,854-133,854 Net realized gain (loss) from investments - 317,237-317,237 Net unrealized gain (loss) from investments - (516,440) - (516,440) Endowment fee income (1%) 77,833 - - 77,833 Non-endowment fee income (1%) 1,044 - - 1,044 Net assets released from restriction 481,430 (481,430) - - Total Support and Revenue 615,536 (372,282) 148,517 391,771 EXPENSES Program 308,505 - - 308,505 Management and General 124,403 - - 124,403 Fundraising 8,969 - - 8,969 Total Expenses 441,877 - - 441,877 EXTRAORDINARY ITEMS Net assets transferred to DAS Foundation (See Note 10) 120,045 - - 120,045 Change in Net Assets 53,614 (372,282) 148,517 (170,151) Net Assets - Beginning of Year 401,759 1,410,630 6,368,140 8,180,529 Net Assets - End of Year $ 455,373 $ 1,038,348 $ 6,516,657 $ 8,010,378 The notes to financial statements are an integral part of this statement. 4

STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (170,151) Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Change in: Accounts receivable (84,623) Accounts payable 29,024 Net Cash Provided (Used) by Operating Activities (225,750) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends reinvested, net of fees and adjusted costs (81,557) Net unrealized loss (gain) 205,152 Change in beneficial interest 5,042 Net Cash Provided by Investing Activities 128,637 Net Increase (Decrease) in Cash (97,113) Cash and Cash Equivalents - Beginning of Year 103,433 Cash and Cash Equivalents - End of Year $ 6,320 The notes to financial statements are an integral part of this statement. 5

STATEMENT OF FUNCTIONAL EXPENSES Management Program and General Fundraising Total Scholarships $ 232,629 $ - $ - $ 232,629 Salaries and wages - 16,322-16,322 Insurance - 2,053-2,053 Professional Services - 5,957-5,957 Investment and administrative fees 75,876 92,440-168,316 Advertising 225 4,550 4,775 Other expenses - 7,406 4,419 11,825 Total $ 308,505 $ 124,403 $ 8,969 $ 441,877 The notes to financial statements are an integral part of this statement. 6

NOTES TO FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Napa Valley College Foundation (the Foundation ), a nonprofit public benefit corporation, supports the Napa Valley Community College District (the District ) by fundraising for and administering the payment of student scholarships and support for educational programs at Napa Valley College (the College ). The Foundation s primary source of revenue is grants and contributions from the public. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Basis of Accounting The Foundation s policy is to prepare its financial statements on the accrual basis of accounting, consequently, revenues are recognized when earned rather than when cash is received and certain expenses and purchases of assets are recognized when the obligation is incurred rather than when cash is disbursed. Financial Statement Presentation The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets include all resources available for use by the Board of Directors and management s discretion in carrying out the activities of the Foundation in accordance with its Bylaws. Temporarily or permanently restricted net assets are only expendable for the purpose specified by the donor or through the passage of time. 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. Permanently restricted net assets are generally required to be held by the Foundation in perpetuity while the earnings on those assets are available for use by the Foundation to support its activities. Donors can place restrictions on the earnings from permanently restricted contributions at the time the contributions are made or pledged. Fund accounting is not used in the Foundation s financial statement presentation. 7

NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contributions Contributions that are restricted by the donor are reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the revenue is recognized. All other donor restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the existence or nature of any donor restrictions. Non-cash contributions of goods, materials, and facilities are recorded at the fair value at the date of contribution. Contributed services are recorded at fair value at the date of contribution if they are used to create or enhance a non-financial asset or require specialized skills, are provided by someone possessing those skills, and would have to be purchased by the Foundation if not donated. Income Taxes The Foundation is a 509(a)(1) publicly supported nonprofit organization that is exempt from income taxes under Section 501(a) and 501(c)(3) of the Internal Revenue Code and classified by the Internal Revenue Service as other than a private foundation. The Foundation is also exempt from state franchise or income tax under Section 23701(d) of the California Revenue and Taxation Code. Income that is not related to exempt purposes, less applicable deductions, is subject to federal and state income taxes. The Foundation did not have any net unrelated business income for the year ended June 30, 2016. It is management s belief that the Foundation does not hold any uncertain tax positions that would materially impact the financial statements. Capital Assets The Foundation has not adopted a policy to capitalize asset purchases in conformance with generally accepted accounting principles because the Foundation does not own, nor does it have plans to acquire, property or equipment. The property and equipment used by the Foundation in its operations is owned by the District. Deferred Revenue Deferred revenue arises when potential revenue does not meet the criteria for recognition in the current period and when resources are received by the Foundation prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met or when the Foundation has a legal claim to the resources, the liability for deferred revenue is removed from the statement of financial position and revenue is recognized. 8

NOTES TO FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and Cash Equivalents The Foundation considers cash and cash equivalents to include cash in commercial checking accounts and demand deposits in money market funds that are used for operational purposes. Cash and cash equivalents exclude highly-liquid investments restricted for endowment, which are instead reported as investments. Cash and cash equivalent balances, at times, may be in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000. Investments The Foundation s method of accounting for investments is the fair value method. Fair value is determined by published quotes when they are readily available. Adjustments to fair values are included in the accompanying statement of financial position and statement of activities. Fair Value Measurements The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 9

NOTES TO FINANCIAL STATEMENTS NOTE 2 CASH AND CASH EQUIVALENTS Cash and cash equivalents as of June 30, 2016, consist of cash held in checking and money market accounts totaling $6,320. NOTE 3 ENDOWMENT The Foundation s donor restricted endowment funds as of June 30, 2016, by net asset classification, are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowed scholarships and program funds $ - $ 957,789 $ 6,450,634 $ 7,408,423 Beneficial interest in CCCS endowment - 3,239 66,023 69,262 Total $ - $ 961,028 $ 6,516,657 $ 7,477,685 Endowed Scholarships and Program Funds As of June 30, 2016, the Foundation has accumulated 176 endowed scholarship funds and 22 endowed non-scholarship program support funds (collectively, the Endowment funds ) for the benefit of Napa Valley College, the District, and the students thereof totaling $7,477,685. The Foundation s Board of Directors interprets the Uniform Prudent Management of Institutional Funds Act (UPMIFA), enacted by the State of California in 2009, as requiring the preservation of fair value of the original gift, as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. To date, the Foundation s donors have not placed restrictions on the use of the investment income or net appreciation resulting from the Endowment funds, except in relation to specifying a particular sub-set of students or program that is to be supported via distribution from each named Endowment fund. As a result of the Foundation s interpretation of UPMIFA, the Foundation classifies as permanently restricted net assets: the value of endowed gifts as of the date of the donation and subsequent gifts or reclassifications made by the donor. Investment income and net appreciation is classified as temporarily restricted in conformance with generally accepted accounting principles until such a time as the funds are appropriated for expenditure by the Board of Directors. Net accumulated losses to the endowed corpus are classified under generally accepted accounting principles as unrestricted net losses to be offset by future investment income and appreciation on investments. The Foundation has adopted an investment policy for endowment assets that attempts to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of these endowment assets over the long term. The investment policy establishes an achievable return objective through diversification of asset classes. The Foundation targets a diversified asset allocation that places an emphasis on fixed income and equity-based securities to achieve its longterm return objective within prudent risk parameters. 10

NOTES TO FINANCIAL STATEMENTS NOTE 3 ENDOWMENT (continued) The Foundation s spending policy is to disburse an amount equal to the annual distribution rate of the fair values of each of the individual Endowment fund s assets as valued at December 31 and determined by the Foundation s Investment and Finance Committee. Such funds that have not reached permanent endowment status, which is set at a minimum corpus of $10,000, will not be distributed until such time as the corpus exceeds the specified minimum value. The change in the Foundation s Endowment funds balance by net asset classification during the year ended June 30, 2016 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Balance - July 1, 2015 $ - $ 1,337,241 $ 6,302,866 $ 7,640,107 Contributions received - 104,375 147,768 252,143 Net investment appreciation - (45,995) - (45,995) Appropriated for expenditure - (437,832) - (437,832) Balance - June 30, 2016 $ - $ 957,789 $ 6,450,634 $ 7,408,423 Beneficial interest in CCCS Endowment In May 2008, the California Community Colleges Scholarship Endowment (the CCCS Endowment ) was launched via a gift of $25 million from The Bernard Osher Foundation (the Osher Foundation ) to the Foundation for California Community Colleges (the FCCC ). The FCCC and California s community colleges were challenged with raising an additional $50 million through June 2011, for which the Osher Foundation agreed to provide a 50 percent match of up to $25 million. The purpose of the CCCS Endowment is to provide scholarships for students in California s community college system. Based on the terms of the agreement between the Osher Foundation and the FCCC, funds contributed to the CCCS Endowment by the Osher Foundation are permanently restricted assets of the FCCC. The agreement between the FCCC and the Foundation indicated that contributions raised by the Foundation are irrevocable transfers to the FCCC; however, the Foundation has an irrevocable beneficial interest in the balance of these funds because they are contributed for the specific benefit of students at Napa Valley College. As of June 30, 2016, the portion of the CCCS Endowment contributed to the Napa Valley College Foundation and the accumulated earnings are valued at $69,262 (see Note 4). 11

NOTES TO FINANCIAL STATEMENTS NOTE 3 ENDOWMENT (continued) The Foundation s Board of Directors interprets the Uniform Prudent Management of Institutional Funds Act (UPMIFA), enacted by the State of California in 2009, as requiring the preservation of fair value of the original gift, as of the date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. In relation to the CCCS Endowment, this interpretation extends to the earnings on the fund, less distributions for scholarships made in conformance with the aforementioned agreements as determined by the FCCC. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the value of endowed gifts as of the date of the donation, and (b) the earnings on (a) less allowable distributions and fees. Investment income or losses are recognized each year, net of distributions received. Distributions made from the Osher Foundation s contributions to the CCCS Endowment are recognized as temporarily restricted investment income in the period received. The change in the Foundation s beneficial interest in the CCCS Endowment by net asset classification during the year ended June 30, 2016 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Balance - July 1, 2015 $ - $ 9,030 $ 65,274 $ 74,304 Net investment earnings - (1,791) 749 (1,042) Appropriated for expenditure - (4,000) - (4,000) Balance - June 30, 2016 $ - $ 3,239 $ 66,023 $ 69,262 NOTE 4 FAIR VALUE MEASUREMENT Fair value of assets measured on a recurring basis at June 30, 2016 is as follows: Carrying Value Fair Value Level 1 Level 2 Level 3 Investments Cash and money market funds $ 254,045 $ 254,045 $ - $ - $ - Equity securities 5,600,717 5,600,717 5,600,717 - - Corporate securities 933,683 933,683 933,683 - - Government securities 1,090,270 1,090,270 1,090,270 - - Total investments 7,878,715 7,878,715 7,624,670 - - Beneficial interest in CCCS endowment 69,262 69,262 - - 69,262 $ 7,947,977 $ 7,947,977 $ 7,624,670 $ - $ 69,262 12

NOTES TO FINANCIAL STATEMENTS NOTE 4 FAIR VALUE MEASURMENT (continued) Investments The Foundation classifies cash and money market fund balances held in brokerage accounts as investments. Cash held in banks is not subject to valuation. Cash equivalents approximate fair value because of the short maturity of those investments. The Foundation classifies its equity, corporate, and government securities as trading securities. The fair values of which are determined based on quoted market prices. Beneficial interest in CCCS Endowment The Foundation classifies its agreement with the FCCC as an irrevocable split interest agreement and the CCCS Endowment as a perpetual trust held by an unrelated third party. The Foundation s beneficial interest in the CCCS Endowment is required to be measured on a recurring basis at fair value. Generally accepted accounting principles indicate that the fair value of the beneficial interest can be approximated by the fair value of the portion of the CCCS Endowment upon which the Foundation has an irrevocable beneficial interest, unless specific circumstances indicate otherwise. The Foundation s Board of Directors believes that no such circumstances exist. The Foundation s beneficial interest in the CCCS Endowment is classified as measured via Level 3 inputs within the fair value hierarchy because even though that measurement is based on the unadjusted fair value of assets held at the FCCC, the Foundation will never receive those assets nor have the ability to direct the FCCC to redeem them. NOTE 5 RESTRICTED NET ASSETS Temporarily Restricted Net Assets Temporarily restricted net assets at June 30, 2016 consist of Non-endowed scholarship funds and Endowment earnings available for expenditure of $77,320 and $961,028, respectively. The total temporarily restricted balance was $1,038,348, a decrease of 26.4% over the prior year balance of $1,410,630. Permanently Restricted Net Assets Permanently restricted net assets at June 30, 2016 total $6,516,657, an increase of 2.3% over the prior year balance of $6,368,140 (see Note 3). 13

NOTES TO FINANCIAL STATEMENTS NOTE 6 DONATED MATERIALS AND SERVICES The District contributes to the Foundation by providing facilities and equipment (see Note 1) and by paying the personnel costs of the Foundation s paid staff in exchange for a negotiated support fee. During the year ended June 30, 2016, the Foundation paid $40,000 for administrative support. The Foundation has not recognized a non-cash donation from the District during the year. The Foundation and the District have not determined the remaining costs of Foundation operation that are not reimbursed via the administrative support fee. NOTE 7 RELATED PARTIES As described in Note 1, the Foundation is a supporting organization of the District; therefore, transactions between the Foundation and the District, District personnel, students at the College, and programs of the College, are expected. Per the Foundation s Bylaws, the College President is responsible for Foundation operations and District and College personnel serve in ex-officio and voting capacities on the Foundation s Board. During the year ended June 30, 2016, the Foundation indirectly supported the District by providing scholarships to students of the College, paying programmatic expenditures, and/or reimbursing District personnel and departments for programmatic costs. The Foundation s support totaled $372,629, of which $140,000 consisted of non-cash contributions from various donors. The Foundation was further supported by the involvement of College and District personnel in the Foundation s events and programs. The total amount of these contributions has not been segregated from the non-district affiliated contributions. Additionally, one board members of the Foundation is a current employee of the banking institutions the Foundation uses for its operational checking accounts. NOTE 8 COMMITMENTS No commitments that warrant disclosure were identified. NOTE 9 SUBSEQUENT EVENTS The Foundation management evaluated subsequent events from June 30, 2016 through October 24, 2016, the date the financial statements were issued. The District concluded that no subsequent events have occurred that would require recognition or disclosure in the financial statements. NOTE 10 EXTRAORDINARY ITEMS During the fiscal year ending June 30, 2014, the Napa Valley College District Auxiliary Services Foundation ( DAS ) was established to promote and assist the programs of the Napa Valley Community College District. During fiscal year 2015-16, the Foundation transferred $120,045 in non-scholarship and non-endowed funds to DAS. 14