American Psychological Foundation, Inc. Audited Financial ... · American Psychological Foundation,...

American Psychological Foundation, Inc.

Audited Financial Statements

Years ended December 31, 2012 and 2011with Report of Independent Auditors



Years ended December 31, 2012 and 2011

Contents

Report of Independent Auditors................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................1


Statements of Financial Position ................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................2Statements of Activities................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................3Statements of Cash Flows................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................4Notes to Financial Statements................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................5 - 14

Report of Independent Auditors

Board of DirectorsAmerican Psychological Foundation, Inc.Washington, D.C.

We have audited the accompanying financial statements of American Psychological Foundation, Inc. (theFoundation) which comprise the statements of financial position as of December 31, 2012 and 2011 andthe related statements of activities and cash flows for years then ended and the related notes to thefinancial statements.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; this includesthe design, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud orerror.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity's internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overall presentation ofthe financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of American Psychological Foundation, Inc. as of December 31, 2012 and 2011 and thechanges in its net assets and its cash flows for the years then ended in accordance with accountingprinciples generally accepted in the United States of America.

Falls Church, VirginiaApril 12, 2013


Statements of Financial Position

December 31,2012 2011

AssetsCash and cash equivalents $ 116,194 $ 95,876Investments 15,436,155 14,184,583Contribution receivable, net 521,035 443,353Contribution receivable - Trust 57,637 53,699Other assets 3,945 15,375

Total assets $ 16,134,966 $ 14,792,886

Liabilities and net assetsLiabilities:Accounts payable and accrued liabilities $ 7,501 $ 14,176Grants, awards and scholarships payable 147,320 4,618Accounts payable to APA 75,189 27,835

Total liabilities 230,010 46,629

Net assets:Unrestricted 4,307,748 3,901,630Temporarily restricted 11,054,715 10,306,379Permanently restricted 542,493 538,248Total net assets 15,904,956 14,746,257

Total liabilities and net assets $ 16,134,966 $ 14,792,886

See accompanying notes to the financial statements.

2


Statements of Activities


2012 2011

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total Unrestricted

TemporarilyRestricted

PermanentlyRestricted Total

Revenue and supportContributions $ 342,040 $ 440,256 $ 4,245 $ 786,541 $ 394,761 $ 274,236 $ - $ 668,997Royalties and permissions 91,613 2,477 - 94,090 52,721 3,957 - 56,678Net investment income (loss) 536,487 1,375,369 - 1,911,856 (98,847) (236,685) - (335,532)Net assets released from restrictions 1,069,766 (1,069,766) - - 1,148,471 (1,148,471) - -

Total revenue and support 2,039,906 748,336 4,245 2,792,487 1,497,106 (1,106,963) - 390,143

ExpensesScholarships 359,248 - - 359,248 306,244 - - 306,244Research/other grants 273,786 - - 273,786 244,280 - - 244,280Awards 67,500 - - 67,500 36,450 - - 36,450Lectures 6,500 - - 6,500 8,500 - - 8,500Gold Medal awards 5,284 - - 5,284 5,458 - - 5,458Other programs 3,842 - - 3,842 14,433 - - 14,433Teaching awards 2,000 - - 2,000 3,522 - - 3,522

Total program expenses 718,160 - - 718,160 618,887 - - 618,887

Salaries and benefits 622,362 - - 622,362 532,920 - - 532,920Consulting fees/contractual services 94,075 - - 94,075 91,904 - - 91,904Asset management fees 63,894 - - 63,894 47,023 - - 47,023Supplies and printing 44,189 - - 44,189 41,135 - - 41,135Travel 37,116 - - 37,116 31,402 - - 31,402Miscellaneous 26,484 - - 26,484 22,707 - - 22,707Advancement activities 15,814 - - 15,814 17,175 - - 17,175Meetings and receptions 11,694 - - 11,694 17,795 - - 17,795

Total general and administrative expenses 915,628 - - 915,628 802,061 - - 802,061

Total expenses 1,633,788 - - 1,633,788 1,420,948 - - 1,420,948

Change in net assets 406,118 748,336 4,245 1,158,699 76,158 (1,106,963) - (1,030,805)Net assets, beginning of year 3,901,630 10,306,379 538,248 14,746,257 3,825,472 11,413,342 538,248 15,777,062

Net assets, end of year $ 4,307,748 $ 11,054,715 $ 542,493 $ 15,904,956 $ 3,901,630 $ 10,306,379 $ 538,248 $ 14,746,257


3


Statements of Cash Flows

Years ended December 31,2012 2011

Cash flow from operating activitiesChange in net assets $ 1,158,699 $ (1,030,805)Adjustments to reconcile change in net assets to net cash

used in operating activities:Net realized and unrealized (gains) losses on

investments (1,365,371) 801,133Change in allowance for doubtful accounts and

discount to present value (1,031) (2,858)Contributions restricted for long term investment (4,245) -Changes in assets and liabilities:

Contribution receivable - trust (3,938) 4,720Contributions receivable - other (76,651) (18,739)Other assets 11,430 (15,375)Accounts payable and accrued liabilities (6,675) (7,136)Grants, awards and scholarships payable 142,702 (73,542)Accounts payable to APA 47,354 (5,482)

Net cash used in operating activities (97,726) (348,084)

Cash flow from investing activitiesPurchase of investments (4,452,110) (2,264,238)Proceeds from sale of investments 4,565,909 2,238,641Net cash provided by (used in) investing activities 113,799 (25,597)

Cash flows from financing activitiesContributions to be held permanently 4,245 -Net cash provided by financing activities 4,245 -

Net change in cash and cash equivalents 20,318 (373,681)Cash and cash equivalents, beginning of year 95,876 469,557

Cash and cash equivalents, end of year $ 116,194 $ 95,876


4


Notes to Financial Statements


Note A - Organization

The American Psychological Foundation, Inc. (the Foundation) is a nonprofit, philanthropicorganization incorporated in Delaware that provides financial support for innovative research andprograms that enhance the power of psychology to elevate the human condition and advancehuman potential, both now and in generations to come. These activities are funded primarilythrough contributions and investment income. The Foundation is an independent organizationseparately incorporated from the American Psychological Association (APA). APA makes anannual financial contribution to the Foundation and donates human resources, office space,technology and other services. The Foundation’s offices are located in the APA headquartersbuilding.

Note B - Significant Accounting Policies

Basis of AccountingThe Foundation prepares its financial statements on the accrual basis of accounting in accordancewith accounting principles generally accepted in the United States of America (GAAP).Accordingly, revenue is recognized when earned, and expenses are recognized when obligationsare incurred.

Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect certain reported amounts and disclosures. Accordingly,actual results could differ from those estimates.

Subsequent EventsThe Foundation has performed an evaluation of subsequent events through April 12, 2013, whichis the date the financial statements were available to be issued, and has considered any relevantmatters in the preparation of the financial statements and footnotes.

Income Tax StatusThe Foundation is exempt from the payment of income taxes on income other than unrelatedbusiness income under Section 501(c)(3) of the Internal Revenue Code (the Code), and has beendesignated by the Internal Revenue Service as a publicly supported organization under Section509 (a)(l) of the Code. The Foundation is not considered to be a “private foundation” within themeaning of Section 509(a) of the Code. The Foundation does not have any unrelated businessincome. Management has concluded that the Foundation has properly maintained its exemptstatus, and there are no uncertain tax positions through December 31, 2012. As of December 31,2012, the statute of limitations for the three prior tax years remain open with the U.S. federaljurisdiction or the various states and local jurisdictions in which the Foundation files tax returns;there are currently no examinations being conducted.

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Notes to Financial Statements (Continued)

Note B - Significant Accounting Policies (Continued)

Cash and Cash EquivalentsFor financial reporting purposes, the Foundation considers investments with original maturitiesof three months or less to be cash equivalents except cash held by an investment custodian forinvestment purposes. The Federal Deposit Insurance Corporation (FDIC) insures amounts ondeposit with each financial institution up to limits as prescribed by law. The Foundation holdsfunds at various times throughout the year with financial institutions in excess of the FDICinsured amount, however, the Foundation has not experienced any losses in such accounts, andmanagement believes it is not exposed to any significant credit risk on cash and cash equivalents.

Investments and Fair Value MeasurementsInvestments, consisting of equity securities, mutual funds and money market funds, are presentedin the financial statements at fair value based on quoted market prices. Gains and losses arisingfrom the sale, maturity or other disposition of investments are accounted for on a specificidentification basis calculated as of the trade date. Interest, dividends, unrealized and realizedgains and losses are reported as net investment income (loss) on the accompanying statements ofactivities.

Unrestricted and restricted funds are pooled together into common investment accounts and netinvestment income (loss) is allocated among unrestricted and temporarily restricted net assetsbased on the ending individual net asset balances as a percentage of total net assets. In 2012 and2011, the net investment income (loss) allocated to the temporarily restricted funds was$1,366,895 and $(236,685), respectively, and is included within net investment income (loss) onthe accompanying statements of activities.

The Foundation's interest in an irrevocable charitable remainder trust, recorded as contributionsreceivable - trust on the statements of financial position, is presented in the financial statementsat fair value. See Note C for further information.

The Foundation’s estimates of fair value are based on the framework established in the fair valuemeasurements and disclosures accounting guidance. The framework is based on the inputs usedin valuation and requires that observable inputs be used in the valuations when available. Thedisclosure of fair value estimates in the fair value accounting guidance includes a hierarchy basedon whether significant valuation inputs are observable. In determining the level of the hierarchyin which the estimate is disclosed, the highest priority is given to unadjusted quoted prices inactive markets and the lowest priority to unobservable inputs that reflect the Foundation'ssignificant market assumptions.

6




Investments and Fair Value Measurements (Continued)The three levels of the hierarchy are as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assetsor liabilities traded in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets orliabilities in active markets, quoted prices for identical or similar assets or liabilities in marketsthat are not active, inputs other than quoted prices that are observable for the asset or liability andmarket-corroborated inputs.

Level 3 – Inputs to the valuation methodology are unobservable for the asset or liability and aresignificant to the fair value measurement.

Market RiskThe Foundation invests in money market funds and professionally managed mutual funds thatcontain various types of marketable securities. Such investments are exposed to various risks,such as fluctuations in fair value and credit risk. Thus, it is at least reasonably possible thatchanges in these risks in the near term could materially affect the amounts reported in thestatements of financial position

Contributions ReceivableUnconditional promises to give are recorded as contributions in the period the promise is made.Contributions receivable that are expected to be collected within one year are reported net of anyestimated uncollectible amounts. Contributions receivable expected to be collected beyond oneyear are discounted to present value using the United States Treasury obligations risk-adjustedrates according to their corresponding terms.

Net AssetsThe Foundation's net assets have been grouped into the following three classes:

Unrestricted - Unrestricted net assets generally result from revenues derived from providingservices and receiving unrestricted contributions, less expenses incurred in providing services,raising contributions and performing administrative functions.

Temporarily restricted - Temporarily restricted net assets generally result from contributions andother inflows of assets whose use by the organization is limited by donor-imposed stipulationsthat either expire by passage of time or can be fulfilled by meeting the purpose of the donation.

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Net Assets (continued)Permanently restricted - Permanently restricted net assets are funds whose use is restricted bydonors to create a permanent endowment. Interest, dividends, and unrealized and realized gainsand losses from investing in income producing assets may be included in any of these net assetclassifications, depending on donor restrictions. Earnings on the permanent endowment fund asof December 31, 2012 and 2011 are available to support the Jacquelin Goldman CongressionalFellowship for postdoctoral psychologists trained in developmental and/or clinical psychology.

EndowmentsThe Foundation reports its endowment funds and related activity in accordance with GAAP. TheEndowments of Not-for-Profit Organizations accounting guidance provides guidance on the netasset classification of donor-restricted endowment funds that are subject to an enacted version ofthe Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). Reference ismade to Note F for disclosures.

Revenue RecognitionThe Foundation's operations are supported primarily by contributions, including bequests.Additional sources include contributions received through a check-off option on the APA duesand dues-exempt statements, the assignment of royalties and a portion of the reprint revenuefrom the sale of certain APA copyrighted publications. The Foundation reports gifts of cash andother assets as restricted revenue if they are received with donor stipulations that limit the use ofthe donated assets. When a donor restriction expires, that is, when a stipulated time restrictionends or a purpose restriction is accomplished, temporarily restricted net assets are released tounrestricted net assets. Wills are recorded as contribution revenue when the probate courtsdeclare the wills valid and the proceeds are measurable.

Grant, Award and Scholarship ExpensesGrant, award and scholarship expenses of the Foundation are recorded in the accompanyingfinancial statements as payables and as expenses at the time that the grant, award or scholarshiphas been both approved by the Board of Trustees and accepted by the recipient.

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Functional ExpensesThe costs of providing the Foundation's various programs and other activities have beensummarized on a functional basis. Accordingly, certain costs have been allocated among theprograms and supporting services based on the estimated amount of time worked on eachprogram or activity or other reasonable basis. Functional expenses are as follows:

2012 2011Program services $ 1,141,744 $ 947,937Management and general 206,209 227,134Fundraising 285,835 245,877Total functional expenses $ 1,633,788 $ 1,420,948

ReclassificationsCertain prior year amounts have been reclassified for comparative purposes to conform to withthe current year presentation.

Note C - Contributions Receivable

As of December 31, 2012 and 2011, the Foundation has received unconditional promises to givethat are due as follows:

2012 2011Less than one year $ 152,244 $ 258,301One to five years 386,598 203,890

Subtotal 538,842 462,191Less: present value discount (13,057) (14,088)Total contributions receivable 525,785 448,103Less: allowance for uncollectible receivables (4,750) (4,750)Contributions receivable, net $ 521,035 $ 443,353

Discount rates ranging from 1.80% to 4.30% were used to determine the present value discount.

Contribution Receivable - TrustIn 2003, the Foundation was named beneficiary of an irrevocable charitable remainder trust (theTrust). Under the trust agreement, a third-party trustee will pay the donor a unitrust amount of6.5% of the net fair market value of the assets of the Trust at the valuation date (as defined). Theunitrust amount will be paid in quarterly installments over the lifetime of the donor. Upon thedeath of the donor, the Foundation will receive the remaining assets of the Trust.

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Note C - Contributions Receivable (Continued)

At December 31, 2012 and 2011, the fair value of the Trust was $57,637 and $53,699,respectively, which was measured at the present value of the future expected benefit using a rateof 1.2% and 1.6%, respectively, and is recorded as contribution receivable - trust on thestatements of financial position. The gains (losses) in market value of the Trust of $3,939 and$(4,720) for the years ended December 31, 2012 and 2011, respectively, are included ininvestment income (loss) in the accompanying statements of activities. This is classified as aLevel 2 asset in accordance with the GAAP fair value hierarchy.

Note D - Conditional Pledges

In addition to funds already received and recognized as revenue by the Foundation, there isapproximately $150,000 in a conditional pledge outstanding as of December 31, 2012.Conditions related to this pledge has not been met. As such, the pledge is not recorded on theFoundation’s financial statements for the year ended December 31, 2012. There were noconditional pledges as of December 31, 2011.

Note E - Investments and Fair Value Measurements

Investments consist of mutual funds, equity securities and money market funds, which are allclassified as Level 1 securities in accordance with the GAAP fair value hierarchy, and consist ofthe following as of December 31:

2012 2011Equity mutual funds:

Large cap U.S. equities $ 4,432,120 $ 3,945,495Small/mid cap U.S. equities 1,437,371 1,254,760International equities 2,206,784 1,970,743

Fixed income mutual funds:Core fixed income 5,070,011 4,750,854Opportunistic fixed income 1,242,798 1,078,930

Real assets - commodities 1,042,240 1,055,732Money market funds 4,831 128,069

Total investments $ 15,436,155 $ 14,184,583

The Foundation's Level 1 securities are valued based on quoted market prices. The Foundationrecognizes transfers between levels of the fair value hierarchy at the end of the period in whichthe events occur causing changes in the availability of fair value inputs. There were no transfersin or out of Level 1 during the years ended December 31, 2012 and 2011.

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Note E - Investments and Fair Value Measurement (Continued)

Investment income (loss), net consists of the following for the years ended December 31, 2012and 2011, respectively:

2012 2011Dividends and interest $ 546,485 $ 465,601Net unrealized and realized gains (losses) 1,365,371 (801,133)Investment fees (63,894) (47,023)

Investment income (loss), net $ 1,847,962 $ (382,555)

Note F - Endowment Fund

The Foundation's endowment consists of a single permanently restricted donor fund. The fundwas established with permanent donor restrictions on the corpus, with the interest earned to beused by the Foundation for Congressional Fellowships. The original gift amount of $538,248was received in 2009.

Interpretation of Relevant LawThe Board of Trustees of the Foundation has interpreted UPMIFA as requiring the preservationof the fair value of the original gift as of the gift date of the donor-restricted endowment fundsabsent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundationclassifies as permanently restricted net assets (a) the original value of gifts donated to thepermanent endowment, (b) the original value of subsequent gifts to the permanent endowmentand (c) accumulations to the permanent endowment made in accordance with the direction of theapplicable donor gift instrument at the time the accumulation is added to the fund. The remainingportion of the donor-restricted endowment fund that is not classified as permanently restricted netassets is classified as temporarily restricted net assets until those amounts are appropriated forexpenditure by the Foundation in a manner consistent with the standard of prudence prescribedby UPMIFA. In accordance with UPMIFA, the Foundation considers the preservation of thefund, the purposes of the donor-restricted endowment fund and the investment policies of theFoundation in making a determination to appropriate or accumulate donor-restricted endowmentfunds.

Earnings from the endowment fund totaled $19,353 and $16,506 for the years ended December31, 2012 and 2011, respectively, and have been recorded as increases in temporarily restricted netassets. No funds have been appropriated from the endowment fund in either 2012 or 2011.

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Note F - Endowment Fund (Continued)

Return Objectives, Risk Parameters and Strategies EmployedThe Foundation has adopted investment and spending policies for endowment assets that attemptto provide a predictable stream of funding to the program supported by its endowment whileprotecting the principal balance. The objective of the permanently restricted assets is thepreservation of capital. To achieve the return objectives within the risk parameters, theFoundation has elected to invest in a diversified portfolio that includes equities, equity and fixedincome mutual funds, and money market funds. From time to time, the fair value of assetsassociated with the donor-restricted endowment fund may fall below the level that the donor orUPMIFA requires the Foundation to retain as a fund of perpetual duration. There were no suchdeficiencies as of December 31, 2012 or 2011.

Spending PolicyThe earnings are temporarily restricted when earned and released from restricted funds whenused in accordance with donor stipulations.

Note G - Temporarily Restricted Net Assets

Temporarily restricted net assets consist of the following at December 31:

2012 2011Scholarships, awards, grants and other program expenses $ 10,951,214 $ 10,176,699Time restrictions 49,683 95,215Accumulated earnings from endowment available for

Congressional Fellowships 53,818 34,465

Total temporarily restricted net assets $ 11,054,715 $ 10,306,379

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Note G - Temporarily Restricted Net Assets (Continued)

During 2012 and 2011, the following expenses were incurred once the time restrictions and/orpurpose of donor-imposed restrictions on contributions were met. Accordingly, the relatedtemporarily restricted net assets were released to unrestricted net assets in the accompanyingstatements of activities.

2012 2011Grant, award and scholarship expenses

Prizes and awards $ 65,581 $ 35,450Lectures 6,500 8,500Scholarships and fellowships 142,248 296,244Grants 169,822 158,193

Subtotal 384,151 498,387Operational expenses and release from time restrictions

Salaries and benefits 442,748 381,859Asset management fees 45,454 33,694Consulting/contractual services 18,100 15,588Other expenses and transfers, net 179,313 218,943

Subtotal 685,615 650,084

Total net assets released from restrictions $ 1,069,766 $ 1,148,471

Note H - Related Party Transactions

APA provides shared resources and pays for certain expenses on behalf of the Foundation forwhich the Foundation reimburses APA. These amounts consist primarily of direct salaries andbenefits and other general and administrative expenses of the Foundation. During 2012 and 2011,APA incurred $622,362 and $532,920, respectively, of reimbursable expenses on behalf of theFoundation. In addition, the Foundation receives an annual contribution from APA. Thecontribution was $100,000 in 2012 and 2011 and is included in contributions in theaccompanying statements of activities. In 2012 and 2011, the Foundation used office spaceprovided by APA at no charge.

As of December 31, 2012 and 2011, the net amount due from the Foundation to APA was$75,189 and $27,835, respectively.

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Note I - Line of Credit

During the year ended December 31, 2009, the Foundation obtained a $500,000 revolving line ofcredit with a local bank for its use to finance short-term working capital needs. The line of creditis renewed annually and the current line expires June 1, 2013. The line of credit is unsecured andhas no collateral requirements. Amounts drawn down are due on demand with interest payablemonthly. The line of credit has an interest rate equal to the thirty-day LIBOR rate plus 2%, resetmonthly, and not less than 3% per annum. There were no funds drawn on the line of credit as ofor during the years ended December 31, 2012 and 2011.

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