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2012

AUDITOR’S REPORT

WEST MICHIGAN CONFERENCE OF THE UNITED METHODIST CHURCH REPORT ON THE FINANCIAL STATEMENTS (with additional information)

YEAR ENDED DECEMBER, 2011 (with comparative totals for the year ended December 31, 2010)

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CONTENTS Page Independent auditors’ report .......................................................................................................... 1 - 2 Financial statements Statements of assets, liabilities and net assets - modified cash basis ......................................... 3 Statements of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis ........................................ 4 Notes to financial statements .................................................................................................. 5 - 22 Supplementary information ............................................................................................................. 23 Combining statements of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis ................................... 24 - 25

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2012

AUDITOR’S REPORT

INDEPENDENT AUDITORS’ REPORT To the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church We have audited the accompanying statements of assets, liabilities and net assets - modified cash basis of the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church as of December 31, 2011 and 2010, and the related statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis for the year ended December 31, 2011. These financial statements are the responsibility of the Council’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information contained in the statements of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis has been derived from the Council’s 2010 financial statements and, in our report dated May 27, 2011, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, the Council’s policy is to prepare its financial statements on the modified cash basis, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets - modified cash basis of the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church as of December 31, 2011 and 2010, and its support, revenue and other receipts, expenses, other disbursements and changes in its net assets - modified cash basis for the year ended December 31, 2011 on the basis of accounting described in Note 1.

1

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Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. Information on pages 24 through 25 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

May 29, 2012

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AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - MODIFIED CASH BASIS DECEMBER 31, 2011 AND 2010

2011

2010

ASSETS Cash and cash equivalents Investments Receipts in transit Notes and loans receivable Property and equipment - net TOTAL ASSETS

$ 1,251,026 17,612,941 635,840 420,027 2,554,535

$

62,040 21,629,970 668,534 414,129 2,392,864

$ 22,474,369

$ 25,167,537

$

$

LIABILITIES AND NET ASSETS LIABILITIES: Payroll withholding Assets held on behalf of others

71,666 1,047,566

85,596 997,349

Total liabilities

1,119,232

1,082,945

NET ASSETS: Unrestricted Temporarily restricted Permanently restricted

20,231,154 1,113,376 10,607

22,918,603 1,155,382 10,607

Total net assets

21,355,137

24,084,592

$ 22,474,369

$ 25,167,537

TOTAL LIABILITIES AND NET ASSETS

See notes to financial statements.

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COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH STATEMENTS OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEAR ENDED DECEMBER 31, 2011 (with comparative totals for the year ended December 31, 2010)

Unrestricted SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares Special offerings Investment income Camp registration and rental fees Other income Net assets released from restrictions Total support and revenue Other receipts: CPP holiday refunds Pension billings Insurance billings Total support, revenue and other receipts EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries Health and life insurance Pension and post-employment benefit expense Other employee costs Training and continuing education Travel, meeting and moving expenses Operating and administrative expenses Parsonage and building expenditures World Service Programs and conference benevolence Depreciation and amortization Remittances to General Conference Total expenses Other disbursements: Remittances to Board of Pensions Health and life insurance Total expenses and other disbursements

$ 5,675,304 341,702 556,686 960,900 526,152 1,713,706 9,774,450 476,994 2,113,505 4,069,311 16,434,260

2011 Temporarily Permanently restricted restricted

$

-

$ 5,737,814 1,827,729 551,851 960,900 654,150 -

$ 5,925,124 2,388,242 2,383,749 1,079,213 612,633 -

(42,006)

-

9,732,444

12,388,961

-

476,994 2,113,505 4,069,311

470,672 2,199,510 3,543,072

-

16,392,254

18,602,215

(42,006)

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

-

-

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

2,295,270 2,046,910 230,607 104,629 52,898 276,989 1,460,408 135,335 968,945 3,639,479 110,905 954,563

11,407,912

-

-

11,407,912

12,276,938

3,674,151 4,039,646

-

-

3,674,151 4,039,646

751,231 4,069,180

-

-

19,121,709

17,097,349

-

(2,729,455)

1,504,866

10,607

24,084,592

22,579,726

10,607

$ 21,355,137

$ 24,084,592

19,121,709 (2,687,449)

Net assets - beginning of year

22,918,603

1,155,382

$ 20,231,154

$ 1,113,376

See notes to financial statements.

2010

62,510 $ 1,486,027 (4,835) 127,998 (1,713,706)

Increase (decrease) in net assets Net assets - end of year

Total

4

(42,006) $


2012

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting - The books and records of the Council are maintained on the modified cash basis of accounting. Under this method, income is recognized when received and expenses are recorded at the time of payment except for the recognition of certain assets and liabilities related to the timing of local church contributions at year end, reimbursement of health insurance premiums, payroll deductions, investments, property and equipment, notes and loans receivable and assets held on behalf of others in an agency capacity. Additionally, certain amounts held on the Council’s behalf at the General Board of Pensions and Health Benefits (GBOPHB) are not included in these financial statements and related cash flows attributable to local churches are reported as other receipts and disbursements. See Note 8. Financial statement presentation - The statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis includes certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with the modified cash basis of accounting. Accordingly, such information should be read in conjunction with the Council’s prior-year statement of support, revenue, and other receipts, expenses, other disbursements and changes in net assets - modified cash basis from which the summarized information was derived. The Council is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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. Unrestricted net assets represent funds available for current operations, support for local churches, various missions, educational programs, and youth summer camps. Temporarily restricted net assets consist of contributions or earnings which have been restricted by the donor. Permanently restricted net assets are gift instruments requiring the principal be maintained intact in perpetuity and only the income be used for purposes specified by the donor. Fund accounting - to facilitate observance of limitations and restrictions placed on the use of available resources, the accounts are maintained in accordance with the principles of fund accounting. Funds are established according to the nature and purpose of resources available to the Council. The assets, liabilities, net assets and financial activity of the Council are recorded in the following self-balancing fund groups: 5

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COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Connectional Ministry and Administration fund - resources available for current operations in supervision and administration of the mission and ministry of the West Michigan Annual Conference of the United Methodist Church. World Service and Conference Benevolence fund - resources available for distribution to the United Methodist denominational programs and the West Michigan Annual Conference of the United Methodist Church program agencies. Six Lanes and Advanced Specials fund - resources to allow churches direct involvement in the causes promoted by the Council agencies. Member churches select individual causes to fund from a listing prepared by the Council. Ministerial Education and Black College fund - resources available for providing financial support for the recruitment and education of ordained ministers and to provide financial support to traditionally black colleges related to the Church. Camping and Outdoor Education fund - resources available for Council retreat centers and camping programs. Pension and Health Benefits and Life Insurance fund - resources available for support, relief, assistance and pensioning of clergy, lay workers for the various units of the Council and their families. Plant fund - property and equipment owned and used directly in the operation of the Council. Loan Program fund - resources used to assist local churches and camps in financing capital expenditures. New Church Development fund - resources available for new church development. Other funds - resources for designated purposes related to other programs the Council supports. Functional allocation of expenses - The costs of the various programs and other activities have been summarized on a functional basis in Note 10. Accordingly, certain costs have been allocated between the programs and supporting services benefited. Cash and cash equivalents includes all highly liquid investments purchased with an original maturity of three months or less.

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2012

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AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded) Investments are recorded at fair value and consist of various debt and equity securities. Unrealized gains and losses are recorded in the statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets. Investments in money market funds are recorded at cost. Receipts in transit includes contributions collected by local ministries during the years ended December 31, 2011 and 2010, but not received by the Council until after year end. Notes and loans receivable consists of outstanding principal for loans the Council provided to local churches to help finance capital expenditures. Property and equipment is capitalized at cost. Donated assets are recorded at fair value at date of donation. Parsonages are recorded at original cost plus the cost of subsequent additions. Depreciation is computed over the estimated useful life of assets using the straight-line method. Additions to property and equipment over $1,000 are capitalized. Cost of maintenance and repairs are charged to expense when incurred. The useful lives adopted for the purpose of computing depreciation are: Parsonages and improvements Camp buildings and equipment Council center furniture and equipment

30 to 40 years 5 to 40 years 5 to 7 years

Assets held on behalf of others includes cash held in an agency capacity. Certain amounts reported as of December 31, 2010 were reclassified to conform to the 2011 presentation. NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES The Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church (the Council) is a Michigan Non-Profit Corporation. The purpose of the Council is to develop and administer a comprehensive and coordinated plan of fiscal and administrative policies, procedures, and management services for the annual conference. The member churches are located in the western half of the Lower Peninsula of Michigan. Using ministry shares and special offerings received from its member churches, the Council contributes to denominational ministries and provides support for various missions, educational programs and summer youth camps. The Council is exempt from income taxes under provisions of Section 501(c)(3) of the Internal Revenue Code. The Council is similarly exempt from the Michigan Business Tax.

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COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Continued) The Council is required to disclose significant concentrations of credit risk regardless of the degree of such risk. Financial instruments which potentially subject the organization to concentrations of significant credit risk consist of cash and cash equivalents, and investments. The Council places its cash with FDIC insured financial institutions and thereby limits the amount of credit exposure to any one financial institution. Credit risk with respect to investments is limited due to the wide variety of companies and industries. Although such investments and cash balances may exceed the federally insured limits at certain times during the year and at year-end they are, in the opinion of management, subject to minimal risk. The Council maintains a diversified investment portfolio which is subject to market risk. Investments are disclosed in Notes 3 and 4 and consist largely of amounts invested in various funds by the United Methodist Foundation of Michigan (UMF) as well as the General Board of Pension and Health Benefits of the United Methodist Church (GBOPHB). UMF Pooled Trust Fund - The Fund is available for exclusive investment by the Foundation arising from charitable contributions made through charitable remainder trusts, other charitable trusts, funds operating as charitable trusts, or gift annuity contracts. The primary investment objective of the Fund is to provide for long term capital growth. The Foundation also may consider investments in securities of other United Methodist organizations based primarily upon their religious affiliation and the desire of the Foundation to support their ministry. The Fund seeks to achieve its investment objectives by investing in a diversified portfolio of common stocks, bonds and money market instruments. UMF Stock Fund - The Fund seeks to achieve long-term capital appreciation through investments in stocks and other securities, with primary emphasis on U.S. large capitalization companies and secondary emphasis on global and international equities and on U.S. small and middle capitalization companies. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation. UMF Bond Fund - The Fund’s primary objective is to achieve a high level of current income, with capital appreciation as a secondary objective, by investing in investment-grade debt securities. The Fund invests in U.S. Treasury and agency securities, preferred shares and other fixed income securities rated as investment grade by a Nationally Recognized Statistical Rating Organization. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation. UMF Money Market Fund - The Fund’s objective is to seek maximum current income consistent with liquidity and the maintenance of a portfolio of high quality short-term money market securities. The Fund attempts to achieve its objective by investing in a diversified portfolio of U.S. dollar denominated money market securities. These securities primarily consist of short term U.S. Government securities, U.S. Government agency securities, and securities issued by U.S. Government sponsored enterprises and U.S. Government instrumentalities, commercial paper and repurchase agreements.

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2012

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Concluded) GBOPHB Short Term Investment Fund - The Fund seeks to maximize current income consistent with preservation of capital. The Fund is similar to a traditional money market fund and will hold short-term fixed income investments. However, the average maturity of the securities held in the Fund are greater than the average maturity of securities held in the typical money market fund. The performance objective of the Fund is to slightly outperform its performance benchmark, the Bank of America Merrill Lynch 3-Month Treasury Bill Index. GBOPHB Fixed Income Fund - The Fund seeks to earn current income by investing in a broad mix of fixed-income instruments. The performance objective of the Fund is to outperform the performance benchmark (Barclays Capital U.S. Universal Index, excluding Mortgage-Backed Securities) by 0.50% (net of fees) over a market cycle (3 to 5 years). The Fund is primarily composed of a broad range of fixed-income instruments, such as U.S. Treasury and agency securities, foreign government bonds, corporate bonds, mortgage-backed securities and asset-backed securities. GBOPHB Multiple Asset Fund - The Fund seeks to maximize long-term investment returns, including current income and capital appreciation, while reducing short-term risk by investing in a broad mix of investments. The performance objective of the Fund is to outperform the investment returns of its performance benchmark (45% Russell 3000 Index, 20% MSCI ACWI excluding USA IMI, 25% Barclays Capital U.S. Universal Index excluding Mortgage Backed Securities, and 10% Barclays Capital U.S. Government Inflation-Linked Bond Index) by 0.8% on average per year (net of fees) over an extended investment cycle (10 to 20 years). The process of preparing financial statements requires the use of estimates and assumptions regarding certain types of assets, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Tax positions are taken based on interpretation of federal, state and local income tax laws. Management periodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts, including interest and penalties, ultimately due or owed. No amounts have been identified, or recorded, as uncertain tax positions. Federal, state and local tax returns generally remain open for examination by the various taxing authorities for a period of three to four years. The Council evaluates events and transactions that occur after year end for potential recognition or disclosure in the financial statements. As of the auditors’ opinion date, which is the date the financial statements were available to be issued, there were no subsequent events which required recognition or disclosure.

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COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS The Council transfers certain amounts to the United Methodist Foundation of Michigan (the Foundation). The Foundation was formed as a nonprofit organization by member churches of the West Michigan Annual Conference and Detroit Annual Conferences. It is governed and monitored by its own independent commission. The Foundation’s primary purpose is to broaden the financial base of member churches by assisting in and receiving planned and deferred gifts, assisting in the set-up and marketing of endowment funds, and the generation of market-level returns on invested monies through the use of investment pools. The Council also transfers funds to the General Board of Pension and Health Benefits (GBOPHB). The GBOPHB is a not-for-profit administrative agency of The United Methodist Church, responsible for the general supervision and administration of investments and benefit services according to the principles of The United Methodist Church.

10


2012

435

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (Continued) Investments at December 31 consist of the following.

2011 Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Preferred stock: Financials Master limited partnerships Money market Pooled funds managed by the Foundation: UMF Pooled Trust Fund UMF Stock Fund UMF Bond Fund UMF Money Market Fund Pooled funds managed by the General Board of Pension and Health Benefits (GBOPHB): Short Term Investment Fund Fixed Income Fund Multiple Asset Fund

11

$

112,200 123,790 4,380

2010

$

109,900 130,985 5,920

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367

488,399 398,069 309,775 568,720 795,553 348,487 67,175 566,427 1,488,299 351,007

94,520 236,690 475,673

59,620

761,209 212,247 193,040 6,911

823,467 405,079 238,205 2,075

455,830 1,512,084 5,945,958

1,731,091 3,318,314 9,423,403

$ 17,612,941

$ 21,629,970


436

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (Concluded) Income from cash deposits and investments consist of the following at December 31:

Interest and dividends Interest received from financing Realized gain (loss) on sale of investments Change in unrealized appreciation

$

Total - investment income

$

2011 258,128 13,296 181,427 99,000 551,851

$

2010 226,634 9,318 28,263 2,119,534

$ 2,383,749

Investment income is net of related investment expenses for the years ended December 31, 2011 and 2010. NOTE 4 - FAIR VALUE MEASUREMENTS Accounting standards establish a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy are described below: Level 1: Quoted prices in active markets for identical securities. Level 2: Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3: Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Council’s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

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2012

437

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENTS (Continued) The following is a market value summary by the level of the inputs used in evaluating the Council’s assets carried at value at December 31. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities.

2011 Description Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Preferred stock: Financials Master limited partnerships Pooled funds held: UMF Foundation GBOPHB Total investments

Level 1:

$

Level 2:

112,200 123,790 4,380

$

Level 3:

-

$

Total

-

$

112,200 123,790 4,380

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367

-

-

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367

94,520 236,690

-

-

94,520 236,690

-

-

1,173,407 7,913,872

1,173,407 7,913,872

-

$ 9,087,279

17,137,268

$ 8,049,989

Money market funds at cost

$

475,673

Total

$ 17,612,941

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438

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENTS (Continued)

2010 Description Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Pooled funds held: UMF Foundation GBOPHB Total investments

Level 1:

$

Level 2:

109,900 130,985 5,920

$

Level 3:

-

$

Total

-

$

109,900 130,985 5,920

488,399 398,069 309,775 568,720 795,553 348,487 67,175 566,427 1,488,299 351,007

-

-

488,399 398,069 309,775 568,720 795,553 348,487 67,175 566,427 1,488,299 351,007

-

-

1,468,826 14,472,808

1,468,826 14,472,808

-

$ 15,941,634

21,570,350

$ 5,628,716

Money market funds at cost

$

59,620

Total

$ 21,629,970

Investments held at the General Board of Pension and Health Benefits as well as the Foundation include numerous securities that are combined with the investment portfolios of other church organizations. As such, they are considered Level III investments.

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2012

439

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENT (Concluded) The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Balance January 1, 2010

Funds held at the Foundation

Funds held at the GBOPHB

Total

$ 1,604,769

$ 12,461,989

$ 14,066,758

86,107

1,465,654

1,551,761

159,235

1,503,392

Total unrealized gains or losses included in earnings Purchases Proceeds from sale Balance December 31, 2010

(381,285) 1,468,826

Total unrealized gains or losses included in earnings

61,702

Proceeds from sale Balance December 31, 2011

(1,339,512)

14,472,808

(22,631)

Purchases

1,662,627

(958,227)

(334,490)

15,941,634

127,519

104,888

1,693,372

1,755,074

(8,379,827)

(8,714,317)

$ 1,173,407

$ 7,913,872

$ 9,087,279

Funds held at the Foundation

Funds held at the GBOPHB

Total

As of December 31, 2011:

The estimated amount of total gains and losses for the year included in earnings attributable to the change in unrealized gains or losses relating to assets still held at year end. $

15

(22,631)

$

127,519

$

104,888


440

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31.

2011 Parsonages: District Area Camps: Land Buildings Vehicles Equipment Conference center furniture and equipment District offices furniture and equipment Area office furniture and equipment Work in process

$ 1,041,123 218,595

Less accumulated depreciation

2010 $

777,582 211,546

198,000 2,997,449 149,975 175,255 564,798 114,609 32,912 -

198,000 2,846,084 149,975 164,572 537,157 111,601 32,912 178,012

5,492,716 2,938,181

5,207,441 2,814,577

Net property and equipment

$ 2,554,535

$ 2,392,864

Depreciation and amortization expense

$

$

123,604 2011

District parsonages: Lansing District Superintendent Grand Rapids District Superintendent Grand Traverse Superintendent Heartland District Superintendent Kalamazoo District Superintendent

$

Total district parsonages Area parsonages: 15160 Duxbury Lane, DeWitt Township Okemos office building Total area parsonages

16

110,905 2010

80,438 238,953 255,660 291,072 175,000

$

80,438 237,000 284,644 175,500

$ 1,041,123

$

777,582

$

186,926 31,669

$

179,877 31,669

$

218,595

$

211,546


2012

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 5 - PROPERTY AND EQUIPMENT (Concluded) The DeWitt Township parsonage and the Okemos office building are owned jointly with the Detroit Annual Conference. The above amount represents the Council of Finance and Administration of the West Michigan Annual Conference’s share, which approximates forty-two percent of the original cost basis of the property. Land included in the parsonages listed above amounted to approximately $195,000 and $155,000 at December 31, 2011 and 2010, respectively. Work in process at December 31, 2010 primarily consists of costs accumulated for improvements to the Albright and Lakeview camps. These improvements were placed into service during 2011.

17

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2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 6 - NOTES AND LOANS RECEIVABLE Notes and loans receivable consist of the following, as of December 31. 2011 Note receivable from the FSU Wesley Foundation, with monthly payments of $414, including interest of 6% maturing May 2015.

$

2010

3,864

$

13,329

Note receivable from the Belding UMC, with monthly payments of $111, including interest of 6% repaid in 2011.

-

954

Note receivable from the Washington Heights UMC, with monthly payments of $178, including interest of 7.5% maturing December 2012.

871

2,217

Note receivable from the Millville UMC, with monthly payments of $2,153, including interest of 3% maturing December 2020.

200,967

223,000

Note receivable from the Portage Chapel Hill UMC, with monthly payments of $615, including interest of 4.25% maturing December 2018.

44,131

49,506

Note receivable from the Bellevue UMC, with monthly payments of $689, including interest of 5% repaid in 2011.

-

20,099

Note receivable from the Climax/Scotts UMC, with monthly payments of $845, including interest of 3% maturing June 2019.

67,449

75,839

Note receivable from the Church of All Nations, with monthly payments of $636, including interest of 5% maturing April 2015.

23,891

29,185

Note receivable from the Reading UMC, with monthly payments of $382, including interest of 2.75% maturing December 2021.

39,710

-

Note receivable from the Scotts UMC, with monthly payments of $137, including interest of 3% maturing March 2021.

13,485

-

Note receivable from the Quincy UMC, with monthly payments of $241, including interest of 3% maturing November 2018.

25,659 $

420,027

$

414,129

NOTE 7 - LEASES The Michigan Area Headquarters (the Headquarters), supported jointly by the Council of Finance and Administration of the West Michigan Annual Conference and the Detroit Annual Conference, leased office space in 2000. The Headquarters pays rent expense from its budget, but the Council of Finance and Administration of the West Michigan Annual Conference, Detroit Annual Conference and the Headquarters are jointly responsible for the lease. The lease expires in July 2014. The base monthly lease rate is $6,500 with annual escalation for cost of living. 18


2012

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 8 - PENSION AND OTHER POST-EMPLOYMENT BENEFITS The Council participates in a multi-employer defined contribution pension plan that covers substantially all Council lay and clergy employees. The Council contributes between 9 and 12 percent of each participant’s annual wages. Contributions made by the Council approximated $86,000 and $81,000 for the years ended December 31, 2011 and 2010, respectively. Additionally, the Council participates in a defined benefit pension plan that is frozen (Pre-1982 Plan). The Plan is administered by the GBOPHB. The Council’s plan assets exceeded the estimated actuarial plan liability based on the most recent actuarial calculation as of January 1, 2011 by $5,438,943 or 113% in 2013. Effective January 1, 2007, the General Conference adopted the Clergy Retirement Security Program (CRSP-DB). This program is an amendment and restatement of the previous clergy pension program. Contributions made by the Council approximated $485,000 and $445,000 for the years ended December 31, 2011 and 2010, respectively. The Council’s expected contribution based on the most recent actuarial calculation as of January 1, 2011 was projected to be $1,909,500 for 2012 and was not available for 2013. From 1982 through 2006, the Council contributed to the Ministerial Pension Plan (MPP Annuities) that was administered by the GBOPHB to fund clergy retirement benefits. The GBOPHB has taken the position that the Council is responsible for funding any shortfall in benefits. The Council’s portion of the total estimated actuarial liability based on the most recent actuarial calculation as of January 1, 2011 was projected to be approximately $31,623,317 in 2013. Total plan assets were approximately 112% of the estimated plan funding liability. The Council’s expected contribution for 2012 was $0 and was not available for 2013. The Council’s policy is to fund the majority of costs of qualified retirees’ (clergy and lay employees) health care coverage. Such costs are expensed when paid and amounted to approximately $1,156,000 and $1,202,000 for the years ended December 31, 2011 and 2010, respectively. The projected unfunded post-employment medical benefits liability, based on the most recent actuarial calculation dated December 31, 2011, was approximately $16,242,000. NOTE 9 - RELATED PARTY TRANSACTIONS The Council conducts essentially all transactions, other than purchases of goods and services and sales of certain property, with affiliated congregations. Certain administrative expenses are reimbursed by related organizations. The Council also processes payroll transactions for affiliated organizations at no charge. The value of these services has not been determined but is not considered significant to the financial statements.

19

443


444

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 10 - FUNCTIONAL ALLOCATION OF EXPENSES The functional allocation of the Council’s expenses as they relate to programs and management and general are listed below.

2011

2010

$ 2,231,856 2,334,932 1,553,438 407,908 790,786 1,642,049 495,319 35,874

$ 2,206,972 2,347,172 2,008,704 457,660 911,427 1,682,585 570,783 55,100

Total programs

9,492,162

10,240,403

Management and general

1,915,750

2,036,535

$ 11,407,912

$ 12,276,938

Programs: Connectional Ministry and Administration World Service and Conference Benevolence Six Lanes and Advanced Specials Ministerial Education and Black College fund Camping and Outdoor Education Pension and Health Benefits and Life Insurance fund New Church Development Other funds

Fundraising has not been segregated on the basis of immateriality. NOTE 11 - RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes.

2011 New Church Investment fund - restricted for development of new churches Camp endowment - restricted for the upkeep and running of camps Special Offerings - contributions designated by local churches Ministerial training - designated for the training of clergy

$

1,904

2010 $

1,929

750,788 195,131 165,553

812,285 206,918 134,250

$ 1,113,376

$ 1,155,382

Net assets amounting to $1,713,706 and $2,183,161 were released from restrictions during the years ended December 31, 2011 and 2010, respectively, by incurring expenses satisfying their restricted purposes. 20


2012

445

AUDITOR’S REPORT

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 11 - RESTRICTED NET ASSETS (Concluded) Permanently restricted net assets are available for the following purposes.

2011 Permanent endowment - restricted

$

10,607

2010 $

10,607

NOTE 12 - ENDOWMENTS Endowments consist of funds established for a variety of purposes and may include both donorrestricted funds and funds internally designated to function as endowments. Restrictions are both permanent and temporary and assets associated with endowment funds are classified and reported based on the existence or absence of these restrictions. The Council has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as permitting the preservation of the historical value of the original gift of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, when directed by the gift instrument, the Council 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. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until the restricted purpose has been accomplished. The Council considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds. 1. 2. 3. 4. 5. 6. 7.

The duration and preservation of the fund. The purposes of the organization and the donor-restricted endowment fund. General economic conditions. The possible effect of inflation and deflation. The expected total return from income and the appreciation of investments. Other resources of the organization The investment policies of the Council.

The Council’s investment and spending practices for endowment assets attempt to provide a predictable stream of funding to programs supported while seeking to maintain the purchasing power of the endowment assets. Investment earnings from donor-restricted endowment funds are classified as unrestricted income absent explicit donor stipulations to the contrary. In the event that the fair value of donor-restricted endowment funds falls below the level required to be maintained in perpetuity, the resulting deficiency is recorded as a reduction of unrestricted net assets. 21


446

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 12 – ENDOWMENTS (Concluded) Changes in endowment net assets are as follows.

Endowment net assets January 1, 2010

Temporarily restricted

Permanently restricted

$

$

Investment return: Investment income Net appreciation (realized and unrealized) Total investment return

779,928

10,607

Total $

790,535

22,337 53,416

-

22,337 53,416

75,753

-

75,753

Contributions Approved for expenditure

3,400 (46,796)

-

3,400 (46,796)

Endowment net assets December 31, 2010

812,285

Investment return: Investment income Net appreciation (realized and unrealized)

21,635 (34,395)

-

21,635 (34,395)

(12,760)

-

(12,760)

(48,737)

-

Total investment return Approved for expenditure Endowment net assets December 31, 2011

$

750,788

10,607

$

10,607

822,892

(48,737) $

761,395

NOTE 13 - CONTINGENCIES From time to time the Council is involved in various legal proceedings that have arisen in the ordinary course of business. Management does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on the Council’s financial position or future results of operations. Effective September 1, 2009 the Council became primarily self-insured, up to certain limits, for health claims through Professional Benefits Services. The plan includes all participating Council employees as well as affiliated congregation clergy. The Council has purchased stop-loss insurance, which will reimburse the Council for individual policies that exceed $75,000 annually. Claims are expensed as paid. The total claims expense under the program was approximately $4,200,000 and $4,202,000 for Council employees for the years ended December 31, 2011 and 2010, respectively. The Council is reimbursed for stop loss premiums and claims paid for affiliates covered under the Plan. The total amount of claims incurred but not reported attributable to the Council has not been determined, however, claims incurred in December estimated in the amount of $214,438 were paid in 2012.

22


2012

AUDITOR’S REPORT

SUPPLEMENTARY INFORMATION

23

447


448

2012

WEST MICHIGAN ANNUAL CONFERENCE

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH COMBINING STATEMENT OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEARS ENDED DECEMBER 31, 2011 (with comparative totals for the year ended December 31, 2010)

SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares Special offerings Investment income Camp registration and rental fees Other income Net assets released from restrictions

Connectional Ministry and Administration fund

World Service and Conference Benevolence fund

2011 Ministerial Camping and Outdoor Six Lanes and Education Advance and Black Education Specials fund College fund fund

Pension and Health Benefits and Life Insurance fund

$ 2,500,882 26,569 166,056 147,892 -

$

$

$

Total support and revenue

2,393,546 14,037 32,958 8,506 51,737

1,553,438

$

407,908 -

$

1,421 761,145 230,309 60,096

46,122 501,369 32,434 -

2,841,399

2,500,784

1,553,438

407,908

1,052,971

579,925

-

-

-

-

-

476,994 2,113,505 4,069,311

Total support, revenue and other receipts

2,841,399

2,500,784

1,553,438

407,908

1,052,971

7,239,735

EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries Health and life insurance Pension and post-employment benefit expense Other employee costs Training and continuing education Travel, meeting and moving expenses Operating and administrative expenses Parsonage and building expenditures World Service Programs and conference benevolence Depreciation and amortization Remittances to General Conference

1,003,041 230,020 127,720 31,112 6,247 242,110 593,629 36,204 480,538 359,425

492,108 85,824 34,408 19,230 5,737 39,670 49,760 928,799 748,513 26,050

1,417,499 135,939

72,656 335,252

358,410 28,608 10,481 38,665 488 599 356,879 95,153 354,622 -

1,635,246 6,285 2,439 136,352 518 -

3,110,046

2,430,099

1,553,438

407,908

1,243,905

1,780,840

-

-

-

-

-

3,674,151 4,039,646

3,110,046

2,430,099

1,553,438

407,908

1,243,905

Other receipts: CPP holiday refunds Pension billings Insurance billings

Total expenses Other disbursements: Remittances to Board of Pensions Health and life insurance Total expenses and other disbursements

9,494,637

Increase (decrease) in net assets before transfers

(268,647)

70,685

-

-

(190,934)

Transfers

(189,320)

(83,697)

-

-

291,183

(96,168)

Increase (decrease) in net assets

(457,967)

(13,012)

-

-

100,249

(2,351,070)

Net assets - beginning of year Net assets - end of year

1,014,808 $

556,841

24

85,031 $

72,019

$

-

$

(2,254,902)

-

(508,731)

18,350,586

-

$ (408,482) $

15,999,516


2012

449

AUDITOR’S REPORT

2011

Plant fund

$

-

Loan Program fund

New Church Development fund

$

$

13,296 -

Total unrestricted

Other Funds

326,846 $ 341,702 (6) 81,596 4,840

741 25,415 43,595

$

Temporarily restricted

5,675,304 341,702 556,686 960,900 526,152 1,713,706

$

Permanently restricted

Totals

$

2010

62,510 $ 1,486,027 (4,835) 127,998 (1,713,706)

-

5,737,814 1,827,729 551,851 960,900 654,150 -

$

5,925,124 2,388,242 2,383,749 1,079,213 612,633 -

(42,006)

-

9,732,444

12,388,961

-

476,994 2,113,505 4,069,311

470,672 2,199,510 3,543,072

-

16,392,254

18,602,215

-

13,296

754,978

69,751

9,774,450

-

-

-

-

476,994 2,113,505 4,069,311

-

13,296

754,978

69,751

16,434,260

123,604 -

-

346,368 60,792 47,110 3,618 14,761 7,476 157,162 37,431 -

18,697 14,304 613 1,365 30,395 751 16,334 895 -

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

-

-

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

2,295,270 2,046,910 230,607 104,629 52,898 276,989 1,460,408 135,335 968,945 3,639,479 110,905 954,563

123,604

-

674,718

83,354

11,407,912

-

-

11,407,912

12,276,938

-

-

-

-

3,674,151 4,039,646

-

-

3,674,151 4,039,646

751,231 4,069,180

-

19,121,709

17,097,349

-

(2,729,455)

1,504,866

-

674,718

83,354

19,121,709

(123,604)

123,604

13,296

80,260

(13,603)

(2,687,449)

285,275

(250,000)

22,223

20,504

161,671

(236,704)

102,483

6,901

2,392,864

1,572,333

$ 2,554,535

$ 1,335,629

(19,928) $

82,555

$

(2,687,449)

(42,006)

(42,006) (42,006)

31,640

22,918,603

1,155,382

38,541

$ 20,231,154

$ 1,113,376

25

$

(2,729,455)

1,504,866

10,607

24,084,592

22,579,726

10,607

$ 21,355,137

$ 24,084,592


450

WEST MICHIGAN ANNUAL CONFERENCE

2012


Auditor's Report