Pike Place Market Foundation Presentation of the March 31, 2017, - - PowerPoint PPT Presentation

CONFIDENTIAL

Pike Place Market Foundation

Presentation of the March 31, 2017, Audited Financial Statements

Ray Holmdahl, CPA, Partner Veronica Cook, CPA, Senior Manager Amy Hernandez, CPA, Manager

CONFIDENTIAL

• We have a dedicated nonprofit niche.
• We provide services to 350+ nonprofit organizations located in the Pike Place Market, including the PDA, the

Preschool, the Senior Center and Food Bank, and LaSalle. We also audit the Friends of the Waterfront. In addition, we work with numerous foundations: Seattle Police Foundation, Medic One Foundation, Friends of Youth Foundation, Legal Foundation of Washington, King County Bar Foundation, Bellevue Schools Foundation, Foundation for Seattle Colleges, and Employee Community Fund of Boeing.

• We volunteer with more than 40 organizations.
• We serve on the boards or committees at more than 20 organizations.
• We have six staff on the Washington Society of CPA’s Not-for-Profit Committee.

2

Nonprofit Experience

CONFIDENTIAL

• Financial Statement Audit

− Unmodified opinion – this is a “clean” opinion

• Management Letter (none)
• Recommendations

− We would encourage a direct review of general journal entries − Regular communication of Board Designations for financial statement presentation

• Form 990 Tax Return

− We prepare based on information provided by Kay and Lillian − Currently being prepared by us. − Due August 15th – the first extension will be taken. 3

Summary of Deliverables

CONFIDENTIAL

• Our responsibility under generally accepted auditing

standards

• Significant accounting policies (and the quality of

those policies) − Revenue recognition − Temporarily and permanently restricted net assets − Investments at fair value − Grants payable

• Management’s judgments and accounting estimates

− Functional allocation of expenses − Grant payable to PDA

• Audit adjustments

− Grant payable to PDA ($2.9 million)

• Passed adjustments

− Accrued vacation ($23k)

• Disagreements or difficulties with management

(none)

• Independence
• Management representations

Steps left to complete:

• Board approval
• Signed representation letter from management
• Final quality control process (including updating

subsequent events) 4

Required Communications

CONFIDENTIAL

• Started fieldwork on schedule (June 12th)
• No changes to our risk assessments made during planning
• As part of our pre-audit conversation with Nicole, we discussed the following:

− Additional revenues from hoofprint or charm sales (FY18 and beyond) − The Neighborhood Center Grant from WA State − In-kind contributions from the PDA (including Market Commons rent) − The remaining grant payable to the PDA ($2.9 million)

• We also review the current investment allocations and compare those to the investment policy and noted that

they were consistent 5

Initial Pre-Audit Discussion Follow Up

CONFIDENTIAL

6

Trends and Ratios

CONFIDENTIAL

• Working capital represents current assets less current liabilities.
• Working capital decreased due to over $5.5 million that has been distributed to the PDA in 2016 and 2017.

7

• Current ratio represents current assets divided by current liabilities.
• A benchmark for current ratio is 2-3.

Liquidity Ratios

$1,742,994 $2,247,995 $3,709,090 $2,665,716 $2,019,742

$‐ $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000

2013 2014 2015 2016 2017

Working Capital

2013 2014 2015 2016 2017 3.16 3.80 4.91 3.83 1.52 Current Ratio

CONFIDENTIAL

Months' of expenses in working capital is working capital divided by average monthly expenditures. This represents an organizations’ length of time they could continue to operate without changing spending if they were to get no additional revenues (received in cash) in the door after year-end. An ideal range of months’ expenses in working capital for a nonprofit is 3-6 months. In-kind expenditures have been removed from this calculation. 8

Months of Expenses in Working Capital

16.72 20.55 24.21 7.52 4.58

0.00 5.00 10.00 15.00 20.00 25.00 30.00 2013 2014 2015 2016 2017

CONFIDENTIAL

The above charts shows the comparison between "accrual" net income (change in net assets) and "cash" net income (cash flows from operations). 9

Changes in Net Assets & Cash Flows from Operations

$298,502 $755,042 $1,635,898 $(982,145) $(205,791)

$(1,500,000) $(1,000,000) $(500,000) $‐ $500,000 $1,000,000 $1,500,000 $2,000,000 2013 2014 2015 2016 2017

Change in Net Assets

$(32,388) $316,210 $715,152 $89,794 $451,442

$(100,000) $‐ $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 2013 2014 2015 2016 2017

Cash Flows from Operations

CONFIDENTIAL

Functional expenses represent the allocation of expenses according to their purpose. This information helps third parties determine how effectively the nonprofit is fulfilling its mission and using its resources. Note that the MarketFront Campaign significantly impacted the percentages of other expenditures. 10

Functional Expenses

2013 2014 2015 2016 2017 Programs Supported 52% 44% 45% 25% 20% MarketFront Campaign 59% 66% Fundraising-Special Events 30% 34% 13% 9% 7% Other Fundraising 11% 16% 36% 4% 4% Total Fundraising 41% 50% 49% 13% 11% Administrative 7% 6% 6% 3% 3%

CONFIDENTIAL

Grant Expenditures – by grant

11

$370,000 $258,310 $205,000 $85,000 $26,000 $53,102 $116,780

2017

$371,675 $262,772 $206,395 $80,000 $22,500 $34,123 $91,666

2016

Pike Market Medical Clinic Pike Market Senior Center Pike Market Child Care and Preschool Downtown Food Bank Heritage House Safety Net Other

$370,856 $255,500 $205,3 66 $80,000 $25,000 $43,505 $‐

2015

$312,168 $241,876 $183,916 $70,000 $21,000 $13,146 $2,489

2014

$295,120 $225,423 $184,770 $65,000 $16,000 $8,934 $25,000

2013

CONFIDENTIAL

Grant Expenditures – in total

12

$‐ $‐ $1,030,111 $1,114,192 $1,069,131 $990,227 $847,602 $820,247 $‐ $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 2017 2016 2015 2014 2013 Total Total (without PDA)

CONFIDENTIAL

13

Comparative Statements of Financial Position

ASSETS 2013 2014 2015 2016 2017 Current Assets Cash and cash equivalents 286,126 $ 398,171 $ 563,363 $ 358,723 $ 577,048 $ Designated cash and cash equivalents - MarketFront 216,434 602,998 168,945 2,169,504 Investments, unrestricted 2,188,642 2,313,500 2,491,126 2,416,175 2,576,502 Pledges receivable - MarketFront 32,250 877,029 483,485 452,201 Pledge receivable - use of facilities 22,624 22,624 22,624 22,624 16,968 Pledges receivable - other 52,243 56,622 93,970 148,084 85,663 Prepaid expenses and other current assets 1,988 10,957 6,235 8,991 1,615 Total current assets 2,551,623 3,050,558 4,657,345 3,607,027 5,879,501 Long-Term Assets Pledges receivable - MarketFront, net of current portion 30,166 85,222 42,986 30,211 Pledge receivable - use of facilities, net of current portion 84,840 62,216 39,592 16,968 Endowment investments 962,403 1,204,902 1,340,129 1,317,515 1,523,360 Investments, held as collateral 496,000 496,000 496,000 496,000 496,000 Property and equipment, net 7,144 155,847 419,928 Total long-term assets 1,543,243 1,793,284 1,968,087 2,029,316 2,469,499 Total assets 4,094,866 $ 4,843,842 $ 6,625,432 $ 5,636,343 $ 8,349,000 $ LIABILITIES AND NET ASSETS Current Liabilities Grants payable - PDA

• $
• $
• $
• $

2,890,000 $ Accounts payable - PDA 26,881 29,265 45,050 44,881 69,686 Grants payable to agencies 728,000 735,000 820,000 827,500 861,000 Accounts payable - other 21,498 26,798 58,205 60,080 13,223 Unearned special event revenue 32,250 11,500 25,000 8,850 25,850 Total current liabilities 808,629 802,563 948,255 941,311 3,859,759 Net Assets Unrestricted 2,009,037 2,533,087 2,689,962 3,033,525 2,825,675 Temporarily restricted 487,771 718,763 2,147,786 822,078 824,137 Permanently restricted 789,429 789,429 839,429 839,429 839,429 Total net assets 3,286,237 4,041,279 5,677,177 4,695,032 4,489,241 Total liabilities and net assets 4,094,866 $ 4,843,842 $ 6,625,432 $ 5,636,343 $ 8,349,000 $

CONFIDENTIAL

14

Comparative Statement of Activities

2013 2014 2015 2016 2017 Support and revenue Contributions - other 610,083 $ 728,808 $ 912,453 $ 738,843 $ 1,243,391 $ Bequests 485,750 45,552 450,000 69,922 Special events - revenue 644,801 827,266 873,823 790,025 806,819 Special events - direct benefit to donors (101,163) (219,631) (115,485) (144,000) In-kind services and contributions 339,494 208,773 620,946 243,705 252,203 Total support and revenue 1,594,378 2,149,434 2,233,143 2,107,088 2,228,335 Expenses Salaries, benefits, and payroll taxes 229,081 241,940 312,129 340,331 404,572 Grants to agencies and individuals 820,247 847,602 1,030,111 3,469,131 4,604,192 Campaign expenses 20,215 159,115 143,320 74,600 Printing and design 40,758 45,753 53,084 53,126 72,219 Purchased services 6,586 25,707 286,477 53,485 55,178 Taxes, licenses, and fees 26,085 21,402 26,492 38,399 52,168 Other 524,188 736,156 745,679 666,660 845,658 Total expenses 1,646,945 1,938,775 2,613,087 4,764,452 6,108,587 Change in net assets before net investment income and MarketFront activity (52,567) 210,659 (379,944) (2,657,364) (3,880,252) Net Investment Income (Loss) 351,069 457,547 261,153 (121,148) 502,427 MarketFront Contributions 86,836 1,754,689 1,796,367 3,172,034 MarketFront Expenses (2,880,899) (4,102,649) Change in net assets 298,502 755,042 1,635,898 (982,145) (205,791) Net Assets, beginning of year 2,987,735 3,286,237 4,041,279 5,677,177 4,695,032 Net Assets, end of year 3,286,237 $ 4,041,279 $ 5,677,177 $ 4,695,032 $ 4,489,241 $

CONFIDENTIAL

15

Changes on the Horizon

CONFIDENTIAL

• New Accounting Standards Update was passed in August 2016 (ASU 2016-14)
• Effective for years beginning after December 15, 2017, (FY2019), but early application is permitted.
• There are six main provisions:

1. Reducing net asset classes from three to two 2. Statement of activities to require the presentation of change in the two classes of net assets 3. If presenting the direct method cash flow statement, an indirect reconciliation is no longer required (use of indirect or direct method still optional) 4. Enhanced disclosures of the following:

• Board designations and appropriations
• How restricted net assets affect the use of resources, if any
• Qualitative and quantitative information that communicates how the NPO manages its liquid resources to

meet cash needs for the following year

• Expenses will be required to be presented in both natural classifications and functional classifications in one

location, and methodology used to allocate costs among functional classifications

• Underwater endowment funds to be classified within net assets with donor restrictions, rather than
• unrestricted. Also, additional disclosures on underwater funds concerning appropriations, fair value of

funds and original gift amounts 5. Capital campaign restricted donations released to unrestricted when asset is placed in service, rather than as assets are purchased 6. Investment return will be required to be netted with external and direct internal investment expenses, but no longer require disclosure of these expenses

16

Financial Statement of NFPs

CONFIDENTIAL

• New Accounting Standards Update was passed in February 2016 (ASU 2016-02)
• Effective for fiscal years beginning after December 15, 2019, (FY2021), but early application is permitted
• All leases will be recorded on the balance sheet as a “right-of- use” asset and lease liability

− If the lease is less than 12 months, an accounting policy may be elected to not recognize lease assets and liabilities

• Two types of leases

− For both types, the liability = the present value of the lease payments − Financing leases (these are similar to the “old” capital leases)

• Interest expense will be separately recorded from the amortization of the lease asset
• Payments of lease liability are financing activities on the statement of cash flows, interest payments

are operating activities − Operating leases

• Lease cost is recognized as one expense and is done on a straight-line basis
• Classify all activity as operating activities on the statement of cash flows

17

Leases

CONFIDENTIAL

18

Conclusion

CONFIDENTIAL

• Values: Integrity. Respect. Commitment. Expertise.
• Mission: To be an agile firm that is a valued asset to our clients all year round –

anticipating needs, understanding their businesses, and providing the expertise and insight to help achieve goals.

• One office in downtown Seattle with more than 190 employees
• Firm resources are split “almost equally in half” between audit and tax services, and a

significant amount of our audit services are provided to nonprofit entities. 19

Industries Automotive Construction Financial Services Hospitality Life Sciences Nonprofit Professional Services Real Estate Schools Technology Value Added Services Estate, Gift, & Trust Litigation Support Mergers & Acquisitions State & Local Tax Strategic Tax Valuation Wealth Services

About Peterson Sullivan

CONFIDENTIAL

• Thanks to the entire Market team for being cooperative throughout the audit process and providing

information timely!

• We thank you again for your business and are always available throughout the year if you have any questions.

20

Ray Holmdahl, CPA Partner rayh@pscpa.com 206.382.7707 Veronica Cook, CPA Senior Manager vcook@pscpa.com 206.382.7790

Questions or Comments

Amy Hernandez, CPA Manager ahernandez@pscpa.com 206.971.8462