FINANCIAL STATEMENTS AND INDEPENDENT … AUDITOR’S REPORT ... 2014 2013 Board Board Unrestricted...

MINNESOTA LITERACY COUNCIL, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT For The Years Ended June 30, 2014 and 2013

- This page intentionally left blank -

MINNESOTA LITERACY COUNCIL, INC.TABLE OF CONTENTS

PageNumber

Independent Auditor's Report 1

Statements of Financial Position Statement 1 4

Statements of Activities Statement 2 5

Statements of Functional Expenses Statement 3 6

Statements of Cash Flows Statement 4 7

Notes to Financial Statements 9

FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors Minnesota Literacy Council, Inc. Saint Paul, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Minnesota Literacy Council (a nonprofit organization), which comprise the statements of financial position as of June 30, 2014 and 2013 and the related statements of activities, functional expenses 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 the financial statements that are free from material misstatement, whether due to error or fraud. 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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.

1

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 Minnesota Literacy Council, 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. Other Reporting Required by Governmental Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 9, 2014 on our consideration of Minnesota Literacy Council’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Minnesota Literacy Council’s internal control over financial reporting and compliance.

REDPATH AND COMPANY, LTD. September 9, 2014

2

FINANCIAL STATEMENTS

3

MINNESOTA LITERACY COUNCIL, INC.STATEMENTS OF FINANCIAL POSITION Statement 1June 30, 2014 and 2013

2014 2013Assets:

Current assets:Cash and cash equivalents $831,318 $425,557Accounts receivable 1,956 23,667Pledges receivable, current portion 51,829 62,860Grants receivable 539,259 849,038Prepaid expenses 19,922 20,124

Total current assets 1,444,284 1,381,246

Fixed assets, net 10,651 21,221Software license, net 88,978 177,956Pledges receivable, net 20,676 37,361Beneficial interest in assets held by Community Foundation 719,977 642,392

Total assets $2,284,566 $2,260,176

Liabilities and net assets:Current liabilities:

Accounts payable $71,445 $60,536Accrued expenses 102,693 152,980Fiscal agency obligation 50,477 19,188Deferred revenue 108,682 95,873

Total current liabilities 333,297 328,577

Net assets:Unrestricted net assets:

Undesignated 267,899 168,221Board designated for programming, infrastructure and reserve 550,000 550,000Board designated for endowment permanently held by Community Foundation 719,977 642,392

Total unrestricted net assets 1,537,876 1,360,613Temporarily restricted net assets 413,393 570,986

Total net assets 1,951,269 1,931,599

Total liabilities and net assets $2,284,566 $2,260,176

The accompanying notes are an integral part of these financial statements.4

MIN

NE

SO

TA

LIT

ER

AC

Y C

OU

NC

IL, I

NC

.S

TA

TE

ME

NT

S O

F A

CT

IVIT

IES

Sta

tem

ent

2F

or T

he Y

ears

End

ed J

une

30, 2

014

and

2013

2014

2013

Boa

rdB

oard

Unr

estr

icte

dD

esig

nate

d fo

rT

empo

rari

lyU

nres

tric

ted

Des

igna

ted

for

Tem

pora

rily

Oth

erE

ndow

men

tR

estr

icte

dT

otal

Oth

erE

ndow

men

tR

estr

icte

dT

otal

Con

trib

utio

ns a

nd o

ther

sup

port

:C

orpo

rati

on/f

ound

atio

n gr

ants

$47,

289

$

-

$338

,594

$385

,883

$211

,997

$

-

$213

,885

$425

,882

Con

trib

utio

ns12

8,19

5

-

24

,561

152,

756

173,

074

495,

841

51,6

7972

0,59

4In

-kin

d co

ntri

buti

ons

11,2

00

-

-

11

,200

81,1

51

-

-

81

,151

Mem

bers

hips

-

-

4,15

04,

150

-

-

4,05

04,

050

Tot

al c

ontr

ibut

ions

and

oth

er s

uppo

rt18

6,68

40

367,

305

553,

989

466,

222

495,

841

269,

614

1,23

1,67

7G

over

nmen

t gra

nts:

Gov

ernm

ent g

rant

s2,

779,

455

-

-

2,77

9,45

52,

928,

038

-

177,

956

3,10

5,99

4P

ass-

thro

ugh

gove

rnm

ent g

rant

s8,

679

-

-

8,67

937

,321

-

-

37,3

21T

otal

gov

ernm

ent g

rant

s2,

788,

134

00

2,78

8,13

42,

965,

359

017

7,95

63,

143,

315

Oth

er r

even

ue:

Spe

cial

eve

nts

8,26

5

-

-

8,

265

9,97

0

-

-

9,

970

Pro

gram

ser

vice

fee

s an

d ot

her

647,

238

-

-

647,

238

499,

767

-

-

499,

767

End

owm

ent d

istr

ibut

ions

and

inte

rest

28,1

24

-

-

28

,124

28,1

47

-

-

28

,147

Tot

al o

ther

rev

enue

683,

627

00

683,

627

537,

884

00

537,

884

Net

ass

ets

rele

ased

fro

m r

estr

icti

ons

524,

898

-

(524

,898

)

-

32

3,77

5

-

(3

23,7

75)

-

Tot

al r

even

ues

4,18

3,34

30

(157

,593

)4,

025,

750

4,29

3,24

049

5,84

112

3,79

54,

912,

876

Exp

ense

s:P

rogr

am s

ervi

ces

3,39

0,70

8

-

-

3,

390,

708

3,50

3,58

5

-

-

3,

503,

585

Man

agem

ent a

nd g

ener

al45

2,75

1

-

-

45

2,75

144

5,04

6

-

-

44

5,04

6F

undr

aisi

ng24

0,20

6

-

-

24

0,20

625

2,00

3

-

-

25

2,00

3T

otal

exp

ense

s4,

083,

665

0 0

4,08

3,66

5 4,

200,

634

0 0

4,20

0,63

4

Cha

nge

in n

et a

sset

s be

fore

unr

eali

zed

gain

99,6

78

-

(1

57,5

93)

(57,

915)

92,6

0649

5,84

112

3,79

571

2,24

2U

nrea

lize

d ga

in in

ben

efic

ial i

nter

est

-

77,5

85

-

77

,585

-

31,1

22

-

31

,122

Cha

nge

in n

et a

sset

s99

,678

77,5

85(1

57,5

93)

19,6

7092

,606

526,

963

123,

795

743,

364

Net

ass

ets

- be

ginn

ing

of y

ear

718,

221

642,

392

570,

986

1,93

1,59

962

5,61

511

5,42

944

7,19

11,

188,

235

Net

ass

ets

- en

d of

yea

r$8

17,8

99$7

19,9

77$4

13,3

93$1

,951

,269

$718

,221

$642

,392

$570

,986

$1,9

31,5

99

Unr

estr

icte

dU

nres

tric

ted

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

ese

fina

ncia

l sta

tem

ents

.

5

MINNESOTA LITERACY COUNCIL, INC.STATEMENTS OF FUNCTIONAL EXPENSES Statement 3For The Years Ended June 30, 2014 and 2013

Program ManagementService and General Fundraising Total

Salaries $1,347,798 $313,158 $149,657 $1,810,613Employee benefits and payroll taxes 344,427 61,036 35,422 440,885

Total salaries and related expenses 1,692,225 374,194 185,079 2,251,498

AmeriCorps allowances, benefits and taxes 533,507 - - 533,507Occupancy 262,421 29,756 12,873 305,050Professional services 518,794 26,697 7,295 552,786Recruitment/staff development 27,214 2,487 1,954 31,655Travel/meetings 36,791 4,164 543 41,498Training 39,086 104 16,769 55,959Supplies and equipment 148,410 9,932 3,386 161,728Printing/postage 16,437 3,022 11,098 30,557Depreciation 95,944 2,395 1,209 99,548In-kind expense 11,200 - - 11,200Pass-through expense 8,679 - - 8,679

Total expenses $3,390,708 $452,751 $240,206 $4,083,665

Program ManagementService and General Fundraising Total

Salaries $1,351,193 $239,527 $148,610 $1,739,330Employee benefits and payroll taxes 331,315 73,671 35,894 440,880

Total salaries and related expenses 1,682,508 313,198 184,504 2,180,210

AmeriCorps allowances, benefits and taxes 676,001 - - 676,001Occupancy 252,043 27,128 13,035 292,206Professional services 498,859 67,737 7,490 574,086Recruitment/staff development 20,763 7,675 2,355 30,793Travel/meetings 38,437 7,988 526 46,951Training 37,484 603 23,115 61,202Supplies and equipment 145,569 13,244 4,988 163,801Printing/postage 17,354 3,466 13,800 34,620Depreciation 14,346 4,007 2,190 20,543In-kind expense 81,151 - - 81,151Pass-through expense 39,070 - - 39,070

Total expenses $3,503,585 $445,046 $252,003 $4,200,634

2014

2013


MINNESOTA LITERACY COUNCIL, INC.STATEMENTS OF CASH FLOWS Statement 4For The Years Ended June 30, 2014 and 2013

2014 2013Cash flows from operating activities:

Change in net assets $19,670 $743,364Adjustments to reconcile change in net assets to net cash provided by operating activities:

Depreciation 99,548 20,543Unrealized gain on beneficial interest (77,585) (31,122)

Change in assets and liabilities:Accounts receivable 21,711 (9,868)Pledges receivable 27,716 5,149Grants receivable 309,779 (363,831)Prepaid expenses 202 336Accounts payable 10,909 (15,422)Accrued expenses (50,287) 47,789Fiscal agency obligation 31,289 (8,067)Deferred revenue 12,809 (10,289)

Net cash provided by operating activities 405,761 378,582

Cash flows from investing activities:Purchase of software license - (177,956)Transfer to board designated endowment with Community Foundation - (495,841)

Net cash used in investing activities 0 (673,797)

Net increase (decrease) in cash and cash equivalents 405,761 (295,215)

Cash and cash equivalents at beginning of year 425,557 720,772

Cash and cash equivalents at end of year $831,318 $425,557



8

MINNESOTA LITERACY COUNCIL, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. NATURE OF OPERATIONS The Minnesota Literacy Council, Inc. (MLC) is a nonprofit corporation dedicated to improving literacy across Minnesota. MLC’s mission is to share the power of learning through education, community building and advocacy. To achieve its mission, MLC: Helps adults become self-sufficient citizens through improved literacy. Helps at-risk children and families gain literacy skills to increase school success. Strengthens communities by raising awareness of literacy services, encouraging volunteerism and

sharing best practices with programs statewide. MLC operates programs for adults, children and families and provides training and technical assistance to community programs around Minnesota: Adults in the Twin Cities attend free classes at five MLC Learning Centers in Minneapolis and St.

Paul to build English and work-readiness skills and prepare for the GED test. The Adult Literacy Hotline refers thousands of Minnesotans to nearly 400 literacy programs across the state.

Children and families gain the tools they need to develop successful young learners. The Early

Literacy and Families program inspires parents to be their children’s first and most important teacher. National service members help children improve their reading fluency through the Summer Reads program.

Literacy programs in Minnesota are strengthened through MLC’s training and advisory support

for Adult Basic Education, educational technology and volunteer management. MLC trains more than 2,500 volunteers as literacy tutors and teachers each year. Across the state, national service members provide capacity-building support to literacy programs through MLC’s VISTA (Volunteers in Service to America) program.

Most of MLC’s revenue is from governmental grants. These grants vary from year-to-year based on how many people are participating in the programs funded by these grants.

B. BASIS OF PRESENTATION MLC reports information regarding its financial position and activities according to three classes of net assets as follows:

Unrestricted – Those resources that are not subject to donor-imposed restrictions. Designated amounts represent those revenues that the board has set aside for a particular purpose. Temporarily Restricted – Those resources subject to donor imposed restrictions, which will be satisfied by actions of MLC or the passage of time. Permanently Restricted – Those resources subject to donor imposed restrictions that they be maintained permanently.

9


C. CASH AND CASH EQUIVALENTS

MLC considers all investments with an original maturity of three months or less to be cash and cash equivalents. Cash equivalents includes money market mutual funds that are valued at cost which approximates fair value.

D. CONTRIBUTIONS AND PROMISES TO GIVE Contributions, including unconditional promises to give, are recorded as unrestricted or temporarily restricted support, depending on the existence and/or nature of any donor restrictions. 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 as net assets released from restrictions. In 2013, MLC received a grant from the Department of Education to purchase a two year license for instructional software. The amount received for reimbursement of expenditures is considered grant revenue and is reported as temporarily restricted. The temporarily restricted net assets are released from the restrictions as the software license is amortized and are reclassified to unrestricted net assets and reported as net assets released from restrictions. Promises to give are measured at present value of estimated future cash flows. Long-term promises to give receivables are discounted using the federal mid-term Applicable Federal Rates (AFR). MLC uses the allowance method to determine uncollectible unconditional promises receivable. The allowance is based on prior year’s experience and management’s analysis of specific promises made. Contributions receivable are presented net of allowances for bad debts of $5,952 and $9,478 for the years June 30, 2014 and 2013, respectively.

E. ACCOUNTS RECEIVABLE AND GRANTS RECEIVABLE Accounts receivable and grants receivable are primarily from corporations and government agencies. All accounts receivable and grants receivable are deemed to be collectible within one year. Accordingly, no allowance is recorded.

F. FIXED ASSETS Expenditures for fixed assets are stated at cost less accumulated depreciation. MLC capitalizes all additions and improvements over $5,000. Donated assets are valued at their estimated fair values on the date of contribution. Depreciation is calculated on the straight-line method over the estimated useful lives of between two to five years. Software license is amortized over the license term. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is expensed as incurred.

10


G. AGENCY OBLIGATIONS

MLC was the fiscal sponsor for Literacy Minnesota for several years. As of 7/1/10, that agency became a 501(c)(3) organization and changed the name to Literacy Action Network (LAN). MLC continues to maintain LAN’s assets and provides bookkeeping services. MLC held $50,477 and $19,188 of assets for LAN at June 30, 2014 and 2013, respectively.

H. DEFERRED REVENUE

Deferred revenue consists of VISTA cost share payments and Adult Basic Education workshop fees paid in advance.

I. BENEFICIAL INTEREST IN ASSETS HELD BY COMMUNITY FOUNDATION

On January 1, 1999, MLC established an endowment with the St. Paul Foundation (the Community Foundation). Investment earnings from this endowment can be used to increase the endowment or to help fund future literacy programs. Although the funds used to establish the endowment were Board designated, MLC granted variance power to the Community Foundation and thus relinquished all control over the assets. MLC is only entitled to annual income based on the Community Foundation’s spending policy and the Community Foundation can change this policy at any time. Based on current generally accepted accounting principles, the endowment is classified as unrestricted. Net realized and unrealized gains (losses) related to the endowment are reported as changes in Board designated unrestricted net assets. Distributions received from the Community Foundation are accounted for as revenue in unrestricted net assets since income can be used to fund daily operations.

J. FUNCTIONAL ALLOCATION OF EXPENSES

The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefitted. Salaries and related expenses are based on time records. Expenses, other than salaries and related expenses, which are not directly identifiable by program or support service are allocated based on analyses performed by MLC’s management.

K. DONATED SERVICES AND USE OF SPACE Donations of goods and other noncash assets are recorded at the estimated fair value on the date received. Contributed services, which require special skill that MLC would have paid for if not donated, are recorded at their estimated fair value when the services are rendered.

11


L. USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

M. INCOME TAX STATUS MLC has a tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and, accordingly, is not subject to income taxes except federal and state income taxes on any unrelated business income (UBI). MLC has not had any material UBI activities. MLC’s tax years 2011-2013 are open to examination by regulatory authorities. GAAP provides that a tax expense or benefit from an uncertain income tax position (including tax-exempt status) may be recognized only when it is more likely than not that the position will be sustained upon examination by taxing authorities. Management believes MLC has no uncertain income tax positions that would result in an accrual, expense or benefit under the more likely than not standard.

N. RECLASSIFICATIONS Certain reclassifications were made to prior year amounts to conform to current year presentation.

Note 2 FIXED ASSETS The following is a summary of fixed assets as of June 30:

2014 2013

Equipment $152,240 $287,714Leasehold improvements 13,956 15,654

Gross fixed assets 166,196 303,368Less accumulated depreciation (155,545) (282,147)

Net fixed assets $10,651 $21,221

12


The following is a summary of the software license as of June 30:

2014 2013

Software license $177,956 $177,956Less accumulated amortization (88,978) -

Net software license $88,978 $177,956

Depreciation expense, including amortization of software license, was $99,548 and $20,543 for the years ended June 30, 2014 and 2013, respectively. Note 3 PLEDGES RECEIVABLE

Collection of pledges receivable is expected as follows:

2014 2013

Due in one year $51,829 $62,860Due in two to five years 27,098 47,774

Total 78,927 110,634Less - allowance (5,952) (9,478)Less - discount (470) (935)

Total $72,505 $100,221

Note 4 OPERATING LEASES MLC has operating leases for various locations for its programs. There are also various month-to-month leases that have not been included in the future minimum lease payments. Future minimum lease payments are as follows:

2015 $189,8652016 57,6982017 5,0002018 5,0002019 2,500

Total future minimum lease payments $260,063

Rent expenses for 2014 and 2013 were $251,916 and $238,430, respectively.

13


Note 5 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of the following:

2014 2013Restricted as to purpose:

Adult Basic Education $195,597 $164,277AmeriCorps - Summer Reads 17 3,657Family Literacy 25,328 12,500Health Literacy Partnership 20,345 18,392Kraemer Memorial Education Grant Fund 29,453 29,302L3 St. Paul Library - 101,500Full Circle Pub - Musser Fdtn - 26,041

Restricted as to time:General operating 53,676 37,361Software license 88,977 177,956

Total temporarily restricted $413,393 $570,986

Note 6 NET ASSETS RELEASED FROM RESTRICTIONS Net assets released from restrictions consist of the following:

2014 2013Program restrictions satisfied:

Adult Basic Education $58,809 $6,427AmeriCorps - Summer Reads 13,657 11,955Family Literacy 40,402 55,566Health Literacy Partnership 2,197 1,780Kraemer Memorial Education Grant Fund - 1,908Learner Web - 30,000Conference 824 1,000L3 St. Paul Library 146,909 97,135Full Circle Pub - Musser Fdtn 16,041 3,959Journeys and Routes 5,000 -

Time restriction satisfied:General operating 152,081 109,045Software License 88,978 - Family Literacy - 5,000

Total net assets released from restrictions $524,898 $323,775

14


Note 7 BOARD DESIGNATED UNRESTRICTED NET ASSETS As of June 30, 2014 and 2013, the Board of Directors had designated $550,000 to use when appropriate and as needed for adult and children’s programming initiatives, infrastructure and a contingency operating reserve. Note 8 ENDOWMENT On January 1, 1999, MLC established an endowment with the St. Paul Foundation (the Community Foundation). At that time, the Board granted variance power to the Foundation, so MLC has no control over the endowment or its spending policy. The value of the endowment fund as of June 30, 2014 and 2013 was $719,977 and $642,392, respectively. The endowment is recorded on the Statements of Financial Position as Beneficial Interest in Assets Held by Community Foundation and Board Designated Unrestricted Net Assets. Endowment Investment and Spending Policies Since the Community Foundation has variance power over the endowment, MLC must defer to the investment and spending policies adopted by the Community Foundation. The Community Foundation has adopted investment and spending policies for endowment assets that seek to provide a predictable stream of funding to programs supported by its endowment while maintaining the purchasing power of the endowment assets. The Community Foundation has adopted an investment strategy that invests in domestic equities, international equities, private capital, fixed income, real assets and absolute return strategies. Diversification by asset class, investment style, investment manager, etc. is employed to avoid undue risk concentration and enhance total return. The primary performance objective is to achieve an annualized total rate of return that is equal to or greater than 5.50% plus inflation over long periods of time. The Community Foundation’s current spending policy is to distribute an amount equal to 5.25% of a moving four-year average but not less than 4.50% or greater than 6.00% of current market value. The composition of endowment net assets by fund type as of June 30, 2014 and 2013 is as follows:

2014 2013

Board-designated endowment funds $719,977 $642,392

Unrestricted

15


Change in endowment net assets for the years ending June 30, 2014 and 2013, respectively, is as follows:

2014 2013

Endowment net assets - beginning of year $642,392 $115,429Contributions - 495,841

Investment return:Interest and dividends 10,592 9,063Net unrealized appreciation 101,122 54,636Admin fees and investment expense (6,405) (4,830)

Net 105,309 58,869

Appropriation of endowment assets for expenditure (27,724) (27,747)

Endowment net assets - end of year $719,977 $642,392

Unrestricted

Note 9 FAIR VALUE OF ASSETS AND LIABILITIES MLC has determined the fair value of certain assets and liabilities in accordance with provisions of generally accepted accounting principles (GAAP), which provides a framework for measuring fair value under GAAP. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Level 1 inputs consist of quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability. Level 3 inputs are unobservable inputs related to the asset or liability. MLC uses Level 1 inputs to determine the fair value of all assets and liabilities with the exception of the endowment held at a community foundation and promises to give. Level 3 inputs are used to determine the fair value of the endowment held at a community foundation. Although the fair value of the endowment is reported on a quarterly basis by the community foundation, shares in the investment pool are not traded on the open market. Thus the Level 3 input classification.

16


Assets and liabilities measured at fair value on a recurring basis at June 30, 2014 and 2013, respectively, are as follows:

2014 2013

Beneficial interest in assets held byCommunity Foundation $719,977 $642,392

Level 3

The fair value of the beneficial interest in assets held by the Community Foundation is provided through quarterly statements by the Community Foundation and shares in the Community Foundation investment pool are not traded on the open market. Fair value of promises to give is determined based upon future cash flows. Following is a reconciliation of activity for assets measured at fair value on a recurring basis based upon significant unobservable (level 3) information:

2014 2013

Balance, beginning of year $642,392 $115,429

Funds tranferred in - 495,841Net change in fair value 105,309 58,869

Distributions (27,724) (27,747)

Balance, end of year $719,977 $642,392

Note 10 RETIREMENT PLAN MLC offers a 401(k) plan for employees meeting certain eligibility requirements. Contributions to the plan are currently equal to the employee’s deferrals up to 3% of the employee’s compensation. Contributions during the year ending June 30, 2014 and 2013 were $34,642 and $29,208, respectively.

17


Note 11 DONATED SERVICES AND USE OF SPACE MLC records in-kind contributions at fair value at the date of the donation, if measurable. In-kind contributions include the following:

2014 2013

BTOP technology services $ - $69,951Rent for Rondo learning center 11,200 11,200

Total $11,200 $81,151

MLC also received at least 20,000 hours of volunteer time that did not meet the criteria for recognition in each of the fiscal years ended June 30, 2014 and 2013. Note 12 SOFTWARE RIGHTS During 2004, MLC acquired the rights to software used to fulfill the Minnesota Department of Education’s Adult Basic Education (ABE) reporting requirements. Rights to the software were transferred from another ABE organization in accordance with an agreement between the two organizations and the Minnesota Department of Education. An asset value has not been recorded for financial statement purposes because no fair value existed at the time of transfer and no cost accrued to MLC upon acquiring the rights. Note 13 JOINT COSTS Newsletter total costs of $2,925 were incurred during the year ended June 30, 2014 with $1,463 attributable to fundraising, $1,462 attributable to administration and $0 attributable to programs. Newsletter total costs of $2,363 were incurred during the year ended June 30, 2013 with $1,182 attributable to fundraising, $1,181 attributable to administration and $0 attributable to programs. Note 14 CONTINGENCIES The continuation of funding from federal and other sources is contingent upon availability of funds and project performance. The funds are awarded annually based either upon receipt and approval of a program application or upon completion of a performance review. In addition, expenditures made under federal grants are subject to review and audit by the grantor agencies. Management believes that any liability for reimbursement, which may arise as a result of these audits, is not material.

18


Note 15 CONCENTRATION OF CREDIT RISK Bank balances from time-to-time may exceed federally insured limits. MLC has not experienced any losses in such accounts in the past. Note 16 SUBSEQUENT EVENTS Management has evaluated subsequent events through September 9, 2014 the date the report was available to be issued, and concluded that there are no subsequent events that require disclosure.

19


20

FINANCIAL STATEMENTS AND INDEPENDENT … AUDITOR’S REPORT ... 2014 2013 Board Board Unrestricted...

Documents

Transcript of FINANCIAL STATEMENTS AND INDEPENDENT … AUDITOR’S REPORT ... 2014 2013 Board Board Unrestricted...