Kellogg Community College Foundation
Financial Report
May 31, 2015
Kellogg Community College Foundation
Contents
Report Letter
1-2
Financial Statements
Balance Sheet
3
Statement of Activities and Changes in Net Assets
4
Statement of Cash Flows
5
Notes to Financial Statements
6-15
Independent Auditor's Report
To the Board of Directors
Kellogg Community College Foundation
We have audited the accompanying financial statements of Kellogg Community College
Foundation (the "Foundation"), which comprise the balance sheet as of May 31, 2015 and 2014
and the related statements of activities and changes in net assets 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.
Auditor’s 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 audits 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.
1
To the Board of Directors
Kellogg Community College Foundation
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of Kellogg Community College Foundation as of May 31, 2015 and 2014
and the changes in net assets and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
November 6, 2015
2
Kellogg Community College Foundation
Balance Sheet
May 31, 2015
Assets
Cash equivalents
Investments (Note 2)
Contributions receivable
Total assets
May 31, 2014
$
65,000
9,084,184
15,000
$
264,252
8,732,125
48,032
$
9,164,184
$
9,044,409
$
588,174
-
$
573,125
20,405
Liabilities and Net Assets
Liabilities
Payable to Kellogg Community College
Deferred revenue
Total liabilities
Net Assets
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
$
Total liabilities and net assets
See Notes to Financial Statements.
3
588,174
593,530
2,472,307
2,074,145
4,029,558
2,636,725
2,128,448
3,685,706
8,576,010
8,450,879
9,164,184
$
9,044,409
Kellogg Community College Foundation
Statement of Activities and Changes in Net Assets
Year Ended
May 31, 2015
Temporarily
Permanently
Restricted
Restricted
Unrestricted
Revenue, Gains, and Other Support
Contributions
Special event revenue
Dividends and interest
Net realized and unrealized (losses) gains on
investments
Net assets released from restrictions for grants
and scholarships
Total revenue, gains, and other
support
Expenses
Grants and scholarships
Management and general
Fundraising
Total expenses
(Decrease) Increase in Net Assets - Before
transfers
Donor Transfers (Note 5)
(Decrease) Increase in Net Assets
Net Assets - Beginning of year
Net Assets - End of year
See Notes to Financial Statements.
$
49,958 $
89,708
182,202
(116,372)
107,014 $
422,678
(273,113)
270,599
(270,599)
476,095
(14,020)
298,915
298,915
Total
$
May 31, 2014
Temporarily
Permanently
Restricted
Restricted
Unrestricted
455,887 $
89,708
604,880
(389,485)
51,632
88,963
86,042
164,554
$
88,970
180,049
329,034
-
243,717
(243,717)
760,990
634,908
354,336
$
126,554
126,554
Total
$
267,156
88,963
266,091
493,588
1,115,798
575,205
5,367
55,287
-
-
575,205
5,367
55,287
547,400
70,494
-
-
547,400
70,494
635,859
-
-
635,859
617,894
-
-
617,894
125,131
17,014
354,336
126,554
4,104
(16,186)
12,082
(159,764)
(14,020)
298,915
(4,654)
(40,283)
44,937
(164,418)
(54,303)
343,852
125,131
21,118
338,150
138,636
497,904
-
497,904
-
2,636,725
2,128,448
3,685,706
8,450,879
2,615,607
1,790,298
3,547,070
7,952,975
$ 2,472,307
$ 2,074,145
$ 4,029,558
$ 8,576,010
$ 2,636,725
$ 2,128,448
$ 3,685,706
$ 8,450,879
4
Kellogg Community College Foundation
Statement of Cash Flows
Year Ended
May 31, 2015
May 31, 2014
Cash Flows from Operating Activities
Increase in net assets
Adjustments to reconcile increase in net assets to net cash
from operating activities:
Realized and unrealized losses (gains) on investments
Contributions restricted for long-term investments
Changes in operating assets and liabilities which
provided (used) cash:
Contributions receivable
Payable to Kellogg Community College
Deferred revenue
$
Net cash provided by operating
activities
Cash Flows from Investing Activities
Purchases of investments
Proceeds from sales and maturities of investments
Net cash used in investing activities
Cash Flows from Financing Activities - Proceeds from
contributions restricted for long-term investments
(Decrease) Increase in Cash Equivalents
Cash Equivalents - Beginning of year
$
Cash Equivalents - End of year
See Notes to Financial Statements.
5
125,131
$
497,904
389,485
(298,915)
(493,588)
(126,554)
33,032
15,049
(20,405)
(33,227)
421,569
20,405
243,377
286,509
(9,013,609)
8,272,065
(2,120,754)
1,854,733
(741,544)
(266,021)
298,915
126,554
(199,252)
147,042
264,252
117,210
65,000
$
264,252
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 1 - Nature of Business and Significant Accounting Policies
Kellogg Community College Foundation (the "Foundation"), located in Battle Creek,
Michigan, was formed in 1998 to solicit, collect, and invest donations made for the
promotion of educational activities at, and on behalf of, Kellogg Community College (the
"College"). The College paid expenses on behalf of the Foundation of approximately
$220,000 and $230,000 for the years ended May 31, 2015 and 2014, respectively. The
Foundation and the College have a written agreement in which the College will cover
the administrative expenses of the Foundation and those expenses are considered
expenses of the College. As such, the Foundation does not record the expenses paid by
the College.
Basis of Accounting - The accompanying financial statements have been prepared on
the accrual basis of accounting. For external financial reporting purposes, the
Foundation presents its financial statements by net asset classifications. The Foundation's
significant accounting policies are described below.
Use of 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 of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents - The Foundation considers all highly liquid investments purchased
with a maturity date of three months or less to be cash equivalents.
Contributions - Contributions, including unconditional promises to give in the future,
are measured at fair value and reported as revenue when received. The fair value of
unconditional promises to give in the future is based on the present value of future cash
flows.
Contributions with donor-imposed time or purpose restrictions are reported as
restricted support. All other contributions are reported as unrestricted support. When a
donor 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.
Investments - Investments are carried at fair market value, using quoted market prices.
The realized gain or loss on the sale of investments is determined by specific
identification of the securities sold.
6
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 1 - Nature of Business and Significant Accounting Policies
(Continued)
The Foundation invests in various investment securities. 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 such
changes could materially affect the amounts reported in the balance sheet.
Deferred Revenue - The Foundation received a grant from an organization to support
certain academic programs. The grant stipulates the use of funds for a specific purpose
over a certain time period and are to be returned if the conditions are not met or not
spent in a certain time period. As such, the grant has been treated as deferred revenue.
Classification of Net Assets - The Foundation reports information regarding its
financial position and activities according to three classes of net assets:
 Unrestricted net assets are not restricted by donors or the donor-imposed
restrictions have expired.
 Temporarily restricted net assets contain donor-imposed restrictions that permit the
Foundation to use or expend the assets as specified. 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 when the
restrictions are satisfied either by the passage of time or by actions of the
Foundation. However, if a restriction is fulfilled in the same time period in which the
contribution is received, the Foundation reports the support as unrestricted.
Temporarily restricted net assets consist of the following as of May 31:
2015
Earnings on endowed programs and scholarships
Specific programs and scholarships
Total temporarily restricted net assets
2014
$
1,160,187 $
913,958
1,194,167
934,281
$
2,074,145 $
2,128,448
Net assets released from restrictions during the years ended May 31, 2015 and 2014
were primarily for scholarships, foundation expenses, and distributions to others.
7
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 1 - Nature of Business and Significant Accounting Policies
(Continued)
 Permanently restricted net assets contain donor-imposed restrictions that stipulate
that the resources be maintained permanently, but permit the Foundation to use or
expend part or all of the income derived from the donated assets for specified
purposes. Investment earnings available for distribution are recorded in temporarily
or unrestricted net assets.
Permanently restricted net assets consist of the following as of May 31:
2015
Endowed programs and scholarships
$
4,029,558 $
2014
3,685,706
Tax Status - The Foundation is exempt from federal income taxes under Section
501(c)(3) of the United States Internal Revenue Code. Accordingly, it is exempt from
income and excise taxes that apply to certain nonprofit organizations.
Accounting principles generally accepted in the United States of America require
management to evaluate tax positions taken by the Foundation and recognize a tax
liability if the Foundation has taken an uncertain position that more likely than not would
not be sustained upon examination by the IRS or other applicable taxing authorities.
Management has analyzed the tax positions taken by the Foundation and has concluded
that as of May 31, 2015 and 2014, there are no uncertain positions taken or expected to
be taken that would require recognition of a liability or disclosure in the financial
statements. The Foundation is subject to routine audits by taxing jurisdictions; however,
there are currently no audits for any tax periods in progress. Management believes it is
no longer subject to income tax examinations for years prior to May 31, 2012.
Special Event Revenue and Expense - The Foundation holds an annual golf outing in
which all of the net earnings are unrestricted. All direct expenses related to the event
are shown at gross costs within total expenses.
Scholarships and Grants - Scholarship awards are given to students meeting certain
criteria established by the financial aid office of the College and by the board of
directors. Grants are applied for and awarded for special projects that are initiated by
the faculty of Kellogg Community College and are also based on certain criteria
established by the board. The total amount to be awarded is determined by the board
prior to each academic year.
Contributions Receivable - The Foundation's contributions receivable are comprised
primarily of amounts due from donors that were received shortly after year end.
8
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 1 - Nature of Business and Significant Accounting Policies
(Continued)
Functional Basis Expense Allocation - The costs of providing programs are reported
on a functional basis. Costs are allocated between the various programs on an actual
basis, where available, or based upon reasonable methods. Although methods of
allocation used are considered appropriate, other methods could be used that would
produce different amounts.
Subsequent Events - The financial statements and related disclosures include
evaluation of events up through and including November 6, 2015, which is the date the
financial statements were available to be issued.
Concentration of Credit Risk - The Foundation maintains cash equivalents invested in
an uninsured money market account with a local broker.
9
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 2 - Investments
Investments consisted of the following at May 31:
2015
Amortized
Cost
Fair Value
American Balanced Fund
American Capital Income Builder
Fund
BlackRock Equity Dividend Fund
BlackRock Funds II Strategic
Income Opportunities Fund
BlackRock Global Allocation Fund
Ivy Funds Asset Strategy Fund
Legg Mason Western Asset
Intermediate Term
PIMCO All Asset Fund
Wells Fargo Advantage Index
Asset Allocation
Sunamerica Focused Dividend
Strategy Fund
Putnam Capital Spectrum Fund
Putnam Diversified Income Trust
Fund
Clearbridge Aggressive Growth
Fund
Janus Contrarian Fund
Janus Global Life Sciences Fund
Oakmark Select Fund
Dodge & Cox Balanced Fund
Eaton Vance Dividend Builder
Fund
FPA Crescent Fund Institutional
Federated Prudent Bear Fund
SPDR S&P 500 ETF Trust
Total investments
$
-
$
-
2014
Amortized
Cost
Fair Value
$
530,467 $
786,402
-
-
1,110,997
422,626
1,366,503
574,827
-
-
870,949
1,686,925
1,047,967
907,978
2,050,880
1,353,803
-
-
490,399
1,148,537
474,645
1,217,087
1,002,623
998,702
-
-
502,659
1,000,000
504,701
968,230
-
-
1,229,487
1,175,874
-
-
500,000
500,000
500,000
500,000
1,518,813
506,513
472,618
538,368
497,839
1,514,654
-
-
512,792
800,000
250
600,052
508,667
798,136
244
599,638
-
-
$ 9,166,676 $ 9,084,184 $ 7,308,867 $ 8,732,125
10
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 3 - Fair Value Measurements
Accounting standards require certain assets and liabilities be reported at fair value in the
financial statements and provide a framework for establishing that fair value. The
framework for determining fair value is based on a hierarchy that prioritizes the inputs
and valuation techniques used to measure fair value.
The following tables present information about the Foundation’s assets measured at fair
value on a recurring basis at May 31, 2015 and 2014 and the valuation techniques used
by the Foundation to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets
for identical assets that the Foundation has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either
directly or indirectly. These Level 2 inputs include quoted prices for similar assets in
active markets and other inputs such as interest rates and yield curves that are
observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations in
which there is little, if any, market activity for the related asset.
In instances whereby inputs used to measure fair value fall into different levels in the
above fair value hierarchy, fair value measurements in their entirety are categorized
based on the lowest level input that is significant to the valuation. The Foundation’s
assessment of the significance of particular inputs to these fair value measurements
requires judgment and considers factors specific to each asset.
The Foundation's policy is to recognize transfers between levels of the fair value
heirarchy as of the end of the reporting period. For the years ended May 31, 2015 and
2014, there were no transfers between levels of the fair value hierarchy.
Assets Measured at Fair Value on a Recurring Basis at May 31, 2015
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Investments Mutual funds - Equity
$
Mutual funds - Fixed income
Mutual funds - Balanced
Exchange traded funds - Index
fund
Total assets
$
3,028,706
2,144,104
3,311,736
Significant
Other
Observable
Inputs
(Level 2)
$
599,638
9,084,184
11
-
Significant
Unobservable
Inputs
(Level 3)
$
$
-
-
Balance at
May 31, 2015
$
$
-
3,028,706
2,144,104
3,311,736
599,638
$
9,084,184
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 3 - Fair Value Measurements (Continued)
Assets Measured at Fair Value on a Recurring Basis at May 31, 2014
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Investments - Publicly traded
mutual funds:
Fixed income - Domestic
Fixed income - Global
Balanced - Global
Equity - Global
Total assets
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance at
May 31, 2014
$
474,645
2,125,065
5,557,588
574,827
$
-
$
-
$
474,645
2,125,065
5,557,588
574,827
$
8,732,125
$
-
$
-
$
8,732,125
Note 4 - Donor-restricted and Board-designated Endowments
The Foundation’s net assets include donor-restricted and board-designated endowment
funds. Net assets associated with these funds are classified and reported based on the
existence or absence of donor- or board-imposed restrictions.
Interpretation of Relevant Law
The board of directors of the Foundation has interpreted the Uniform Prudent
Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the
fair value of the original gift as of the gift date of the donor-restricted funds absent
explicit donor stipulations to the contrary. As a result of this interpretation, the
Foundation classifies as permanently restricted net assets (a) the original value of gifts
donated to the permanent endowment, (b) the original value of subsequent gifts to the
permanent endowment, and (c) accumulations to the permanent endowment made in
accordance with the direction of the applicable donor gift instrument at the time the
accumulation is added to the fund. The remaining portion of the donor-restricted funds
that is not classified in permanently restricted net assets is classified as temporarily
restricted until it is appropriated for expenditure by the Foundation. In accordance with
UPMIFA, the Foundation exercises the standard of ordinary business care and prudence
when determining the amount of earnings and gains to appropriate for expenditure or
to accumulate within the endowment fund. The Foundation considers the following
factors in exercising this standard of care:
(1)
(2)
(3)
(4)
(5)
(6)
The long-term and short-term needs of the Foundation in carrying out its purpose
The present and anticipated financial requirements of the Foundation
General economic conditions
The expected total return from income and the appreciation of investments
Other resources of the Foundation
The investment policies of the Foundation
12
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 4 - Donor-restricted and Board-designated Endowments
(Continued)
Endowment Net Asset Composition by Type of Fund as of May 31, 2015
Unrestricted
Donor-restricted endowment
$
funds
(3,216) $
Temporarily
Restricted
1,160,187 $
Permanently
Restricted
4,029,558 $
Total
5,186,529
Changes in Endowment Net Assets for the Fiscal Year Ended May 31, 2015
Unrestricted
Endowment net assets Beginning of year
$
Investment return:
Investment income
Net depreciation
(realized and unrealized)
Total investment
return
Contributions
Appropriation of endowment
assets for expenditure
Donor transfers
Endowment net assets End of year
Permanently
Restricted
1,194,167 $
-
355,883
-
355,883
540
(231,019)
-
(230,479)
540
124,864
-
125,404
-
3,685,706 $
Total
(3,756) $
-
$
Temporarily
Restricted
4,876,117
298,915
298,915
(187,612)
73,705
-
(187,612)
28,768
44,937
(3,216) $
1,160,187 $
4,029,558 $
5,186,529
Endowment Net Asset Composition by Type of Fund as of May 31, 2014
Unrestricted
Donor-restricted endowment
$
funds
(3,756) $
13
Temporarily
Restricted
1,194,167 $
Permanently
Restricted
3,685,706 $
Total
4,876,117
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 4 - Donor-restricted and Board-designated Endowments
(Continued)
Changes in Endowment Net Assets for the Fiscal Year Ended May 31, 2014
Unrestricted
Endowment net assets Beginning of year
$
Investment return:
Investment income
Net appreciation
(realized and unrealized)
Total investment
return
Contributions
Appropriation of endowment
assets for expenditure
Donor transfers
Endowment net assets End of year
(6,321) $
-
909,999 $
Permanently
Restricted
3,547,070 $
Total
4,450,748
149,639
-
149,639
2,565
272,062
-
274,627
2,565
421,701
-
424,266
-
$
Temporarily
Restricted
-
126,554
126,554
(161,991)
36,540
-
(161,991)
24,458
12,082
(3,756) $
1,194,167 $
3,685,706 $
4,876,117
Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor-restricted
endowment funds may fall below the level that the donor or UPMIFA requires the
Foundation to retain as a fund of perpetual duration. At May 31, 2015 and 2014, the
Foundation had endowment funds with $3,216 and $3,756 in deficiencies of this nature
that are reported in unrestricted net assets as of May 31, 2015 and 2014, respectively.
These deficiencies resulted from unfavorable market fluctuations that occurred shortly
after the investment of new permanently restricted contributions and continued
appropriation for certain programs that was deemed prudent by the board of directors.
Return Objectives and Risk Parameters
The Foundation has adopted investment and spending policies for investments that
attempt to provide a predictable stream of funding to support its programs while
seeking to maintain the purchasing power of the investment assets. Investments include
those assets of donor-restricted funds that the Foundation must hold in perpetuity or
for a donor-specified period. Under this policy, as approved by the board of directors,
the endowment assets are invested in a manner that is intended to produce results that
exceed the price and yield results of the S&P 500 Index while assuming a moderate level
of investment risk.
14
Kellogg Community College Foundation
Notes to Financial Statements
May 31, 2015 and 2014
Note 4 - Donor-restricted and Board-designated Endowments
(Continued)
Strategies Employed for Achieving Objectives
To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return
strategy in which investment returns are achieved through both capital appreciation
(realized and unrealized) and current yield (interest and dividends). The Foundation
targets a diversified asset allocation that places a greater emphasis on equity-based
investments to achieve its long-term return objectives within prudent risk constraints.
Spending Policy and How the Investment Objectives Relate to Spending Policy
The Foundation has an annual distribution policy of 4 to 6 percent of its unrestricted net
assets' average fair value over the prior 12 quarters through the calendar year end
preceding the fiscal year in which the distribution is planned and other distributions as
per the restrictions of its donors. In establishing this policy, the Foundation considered
the long-term expected return on its portfolio.
Note 5 - Donor Transfers
During 2015 and 2014, the Foundation received correspondence and clarifying
documentation from donors releasing amounts recorded as permanently restricted in
prior years or creating endowments from previous gifts. The amounts have been
reclassified appropriately given the updated documentation received from the client
related to the time or purpose restriction, or the lack thereof.
Note 6 - Upcoming Accounting Pronouncement
In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update 2013-06, Not-for-Profit Entities: Services Received from Personnel of an
Affiliate. The standard provides guidance on how to account for contributed personnel
services from an affiliate. The standard clarifies that all contributed services received
from an affiliate that directly benefit the recipient not-for-profit should be recognized.
The standard will be effective for annual periods beginning after June 15, 2014. The
Foundation is currently evaluating the impact this standard will have on the financial
statements when adopted, during the May 31, 2016 fiscal year.
15