THE NATIONAL SECURITY ARCHIVE FUND INC FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31 2016 AND 2015 WWW MCB-CPA COM THE NATIONAL SECURITY ARCHIVE FUND INC TABLE OF CONTENTS DECEMBER 31 2016 AND 2015 Independent Auditors’ Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities and Changes in Net Assets 3-4 Statements of Functional Expenses 5-6 Statements of Cash Flows Notes to Financial Statements 7 8-13 Independent Auditors' Report The Board of Directors The National Security Archive Fund Inc Washington DC We have audited the accompanying financial statements of The National Security Archive Fund Inc which comprise the statements of financial position as of December 31 2016 and 2015 and the related statements of activities and changes in net assets functional expenses and cash flows for the years then ended and the related notes to the financial statements Management's Responsibility Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America This includes the design implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits We conducted our audits in accordance with auditing standards generally accepted in the United States of America Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements The procedures selected depend on the auditors' 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 auditors consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control Accordingly we express no such opinion An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management as well as evaluating the overall presentation of the financial statements We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Opinion In our opinion the financial statements referred to above present fairly in all material respects the financial position of The National Security Archive Fund Inc as of December 31 2016 and 2015 and the changes in its net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America Fairfax Virginia November 6 2017 1 12500 Fair Lakes Circle • Suite 260 • Fairfax Virginia 22033 P 703 218 3600 • www mcb-cpa com • F 703 218 1808 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENTS OF FINANCIAL POSITION DECEMBER 31 2016 AND 2015 2016 2015 ASSETS CURRENT ASSETS Cash and cash equivalents Foundation grants receivable short term - unrestricted Foundation grants receivable short term - restricted Royalties due from co-publishers Other receivables Prepaid expenses Total Current Assets $ 1 369 087 1 392 500 121 140 932 53 490 $ 1 334 110 250 000 1 252 500 134 959 923 56 755 $ 2 937 149 $ 3 029 247 NON-CURRENT ASSETS Foundation grants receivable long term - restricted net Property plant and equipment net Total Non-Current Assets 306 900 7 675 500 500 6 828 $ 314 575 $ 507 328 $ 3 251 724 $ 3 536 575 $ 15 792 14 500 $ 5 489 14 000 $ 30 292 $ 19 489 $ 827 713 2 393 719 $ 1 319 014 2 198 072 Total Net Assets $ 3 221 432 $ 3 517 086 TOTAL LIABILITIES AND NET ASSETS $ 3 251 724 $ 3 536 575 TOTAL ASSETS LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Total Current Liabilities NET ASSETS Unrestricted Temporarily restricted The accompanying notes are an integral part of these financial statements 2 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31 2016 With comparative totals for the year ended December 31 2015 Temporarily Restricted Unrestricted 2016 Total 2015 Total REVENUE AND OTHER SUPPORT Gifts from individuals Grants from foundations Received in the current year Receivable in future years net of discount Royalties honoraria and sale of materials Net assets released from restriction $ 4 900 $ Total Revenue and Other Support $ 2 359 412 $ 195 647 $ 2 555 059 $ 3 092 050 $ 2 510 546 $ - $ 2 510 546 $ 2 846 476 $ 277 957 62 210 $ - $ 277 957 62 210 $ 277 328 61 602 Total Supporting Services $ 340 167 $ - $ 340 167 $ 338 930 Total Expenses $ 2 850 713 $ - $ 2 850 713 $ 3 185 406 70 000 465 759 1 818 753 500 $ 815 000 1 198 900 1 818 753 5 400 $ 885 000 1 198 900 465 759 - 16 120 756 000 1 768 000 551 930 - EXPENSES Program expenses Supporting services Management and general Fund raising NON-RECURRING CHARGES Contribution of CNSS to Center for American Progress - TOTAL EXPENSES AND NON-RECURRING CHARGES $ CHANGE IN NET ASSETS $ NET ASSETS BEGINNING OF YEAR NET ASSETS END OF YEAR 2 850 713 - $ - $ 491 301 $ 195 647 $ 1 319 014 $ - 827 713 2 198 072 $ 2 393 719 2 850 713 425 887 $ 3 611 293 295 654 $ 519 243 3 517 086 $ 3 221 432 The accompanying notes are an integral part of these financial statements 3 4 036 329 $ 3 517 086 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31 2015 Temporarily Restricted Unrestricted 2015 Total REVENUE AND OTHER SUPPORT Gifts from individuals Grants from foundations Received in the current year Receivable in future years net of discount Royalties honoraria and sale of materials Net assets released from restriction $ 3 020 $ Total Revenue and Other Support $ 2 302 328 $ 789 722 $ 3 092 050 $ 2 846 476 $ - $ 2 846 476 $ 277 328 61 602 $ - $ 277 328 61 602 Total Supporting Services $ 338 930 $ - $ 338 930 Total Expenses $ 3 185 406 $ - $ 3 185 406 85 000 15 000 551 930 1 647 378 13 100 $ 671 000 1 753 000 1 647 378 16 120 756 000 1 768 000 551 930 - EXPENSES Program expenses Supporting services Management and general Fund raising NON-RECURRING CHARGES Contribution of CNSS to Center for American Progress - TOTAL EXPENSES AND NON-RECURRING CHARGES $ CHANGE IN NET ASSETS $ NET ASSETS BEGINNING OF YEAR NET ASSETS END OF YEAR 3 185 406 425 887 $ 425 887 $ 3 611 293 883 078 $ 363 835 $ 519 243 2 202 092 $ 425 887 1 319 014 1 834 237 $ 2 198 072 4 036 329 $ The accompanying notes are an integral part of these financial statements 4 3 517 086 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31 2016 With comparative totals for the year ended December 31 2015 Program Management and General Fund Raising 2016 Total 2015 Total EXPENSES Staff salaries Staff benefits and insurance Books subscriptions directories and dues Computer equipment supplies and services Depreciation and amortization Office equipment supplies and services Postage Printing and publications Professional fees consultants and honoraria Rent document storage and parking Telephone equipment and services Travel meetings and conferences Allocation of supporting services TOTAL EXPENSES $ 1 626 563 $ 650 247 7 100 18 597 3 961 12 693 349 92 87 032 68 786 13 900 44 958 23 732 167 500 59 312 7 405 3 065 135 14 750 3 354 3 044 19 392 $ 42 500 12 885 48 1 320 1 117 4 340 $ 1 836 563 722 444 7 100 26 002 3 961 15 806 484 92 103 102 72 140 13 900 49 119 - $ 2 027 061 734 548 5 754 32 710 30 694 22 628 416 2 317 142 908 93 990 16 903 75 477 - $ 2 510 546 277 957 $ 62 210 $ 2 850 713 $ 3 185 406 $ The accompanying notes are an integral part of these financial statements 5 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31 2015 Program Management and General Fund Raising 2015 Total EXPENSES Staff salaries Staff benefits and insurance Books subscriptions directories and dues Computer equipment supplies and services Depreciation and amortization Office equipment supplies and services Postage Printing and publications Professional fees consultants and honoraria Rent document storage and parking Telephone equipment and services Travel meetings and conferences Allocation of supporting services TOTAL EXPENSES $ 1 817 061 $ 663 501 5 754 24 884 30 694 19 378 270 2 317 128 248 90 666 16 903 70 446 23 646 167 500 58 768 7 826 3 156 146 14 000 3 324 3 260 19 348 $ 42 500 12 279 94 660 1 771 4 298 $ 2 027 061 734 548 5 754 32 710 30 694 22 628 416 2 317 142 908 93 990 16 903 75 477 - $ 2 846 476 277 328 $ 61 602 $ 3 185 406 $ The accompanying notes are an integral part of these financial statements 6 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2016 AND 2015 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided by used in operating activities Depreciation and amortization Increase Decrease In Foundation grants receivable Royalties due from co-publishers Other receivables Prepaid expenses Decrease Increase In Accounts payable and accrued expenses $ 295 654 $ 519 243 $ 3 961 $ 30 694 303 600 13 819 9 3 265 642 500 67 874 8 457 10 803 4 142 Total adjustments $ 335 439 $ 556 531 Net Cash Provided by Used in Operating Activities $ 39 785 $ 1 075 774 $ 4 808 $ $ 34 977 $ 1 075 774 1 334 110 2 409 884 CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of equipment INCREASE DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BEGINNING OF YEAR CASH AND CASH EQUIVALENTS END OF YEAR $ 1 369 087 There were no non-cash investing or financing activities for the years ended December 31 2016 or 2015 The accompanying notes are an integral part of these financial statements 7 $ - 1 334 110 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 1 Organization and Nature of Activities The National Security Archive Fund Inc the NSAF is a District of Columbia non-profit corporation Since July 1 1999 the NSAF has been the corporate base for the National Security Archive the Archive From January 1 2000 through October 31 2015 it was also the corporate base for the Center for National Security Studies the CNSS as of November 1 2015 the activities and assets of the CNSS were transferred to another non-profit corporation the Center for American Progress Note 8 The Archive was founded in 1985 to collect analyze and publish unclassified and declassified documents bearing upon U S foreign policy and related topics in international affairs Its published collections of documents are used by the students and faculty of colleges and universities in the U S and abroad and by journalists researchers and non-governmental organizations throughout the world It also undertakes research projects and conferences to facilitate the study and open discussion of world events and trends The CNSS was founded in 1973 to conduct programs addressing the relationship between civil liberties and measures undertaken to protect national security The CNSS’s operations were located in the Washington DC office of the Open Society Institute from 2002 until its staff’s relocation to the offices of the Center for American Progress Since 1995 the Archive has been located in the Gelman Library at The George Washington University GWU in Washington DC Although the Archive and GWU are separate legal entities the Archive provides many materials and services to GWU students and faculty including direct access to Archive document collections research-assistant positions and internships for GWU students assistance in the use of the U S Freedom of Information Act in scholarly research and participation in frequent collaborative activities including seminars conferences and research projects and receives access to various GWU facilities including office space and telephone services information-technology equipment and support university library on-campus parking and athletic facilities participation in the services of the Washington Research Library Consortium and advice and assistance from GWU faculty in the formulation and undertaking of Archive research projects The services and opportunities GWU and the Archive provide each other are significant and mutually beneficial including many intangible elements Where appropriate the fair value of the services provided and received is reflected in the NSAF’s financial statements Note 2 Summary of Significant Accounting Policies Basis of Accounting The accompanying financial statements of the NSAF have been prepared on the accrual basis which conforms to accounting principles generally accepted in the United States of America 8 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 2 Summary of Significant Accounting Policies Continued Basis of Presentation The NSAF follows Accounting Standards Codification Topic 958 Not-for-Profit Entities FASB ASC 958 FASB ASC 958 specifies that financial statements provided by not-for-profit organizations include statements of financial position statements of activities and statements of cash flows FASB ASC 958 further provides that net assets be classified as unrestricted temporarily restricted or permanently restricted based on the existence or absence of donorimposed restrictions However the NSAF does not currently hold permanently restricted net assets The NSAF’s net assets have been grouped into the following two classes Unrestricted net assets – Unrestricted net assets represent resources that are not restricted either temporarily or permanently by donor-imposed stipulations They are available for support of all organizational operations and services Temporarily Restricted net assets – Temporarily restricted net assets represent contributions and other inflows of assets whose use is limited by donor-imposed stipulations These restrictions are temporary in that they expire either by the passage of time or by the fulfillment of certain actions of the NSAF pursuant to those stipulations When the time period restriction is met or the specific purpose is attained temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restriction Management Estimates and Uncertainties The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid bank accounts At December 31 2016 and 2015 the NSAF’s cash and cash equivalents were held by one bank The balance on deposit at times may exceed the amount insured by federal agencies The NSAF does not believe that as a result of this concentration it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships Grants Receivable The NSAF accounts for grants and contributions under FASB ASC 958 which requires the NSAF to record a receivable to reflect the promises of donors to make future grants Under Accounting Standards Codification Topic 820 Fair Value Measurement FASB ASC 820 grants receivable are initially recorded at fair value and are discounted to their net present value using an appropriate market rate 9 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 2 Summary of Significant Accounting Policies Concluded Property Plant and Equipment and Depreciation Property plant and equipment are recorded at cost at the date of purchase or fair market value at the date of donation Acquisitions greater than $1 000 of property and equipment are capitalized Computer and office equipment are depreciated using the straight-line method over their estimated useful lives of five years Leasehold improvements are amortized using the straight-line method over the shorter of the estimated lives of the assets or the remaining life of the lease Revenue Recognition Foundation grants to the NSAF whether restricted or unrestricted are recorded as revenue when committed by the grantors Unconditional promises to give that are expected to be collected in future years are recorded at the present value of the amounts expected to be collected based on a market rate of return Royalties due to the NSAF from co-publishers are recorded as revenue in the periods in which they are earned from the sale of publications or subscriptions Income Taxes The NSAF is exempt from federal and state income taxes under Section 501 c 3 of the Internal Revenue Code and the applicable state income tax regulations except for taxes on unrelated business income Because the NSAF had no unrelated business income for the years ended December 31 2016 or 2015 no provision for income taxes has been made in the accompanying financial statements FASB ASC 740 Income Taxes prescribes a model for how an entity should recognize measure present and disclose in its financial statements uncertain tax positions that the entity has taken or expects to take on a tax return FASB ASC 740 requires an entity to recognize the benefit of tax positions when it is “more likely than not” that the provision will be sustainable based on the merits of the position taken by an entity The NSAF has analyzed its tax positions and has concluded that no liability should be recorded related to any uncertain tax positions The NSAF is not aware of any tax positions that it believes will change materially in the next twelve months If this position changes the NSAF will assess the impact of any such matters on its financial position and results of operations Grantees and Indemnifications The NSAF may enter into service agreements with service providers in which it agrees to indemnify the service provider against certain losses and liabilities arising from the service provider’s performance under the agreement Generally such indemnification obligations do not apply in situations in which the service provider is grossly negligent engages in willful misconduct or acts in bad faith The NSAF is not aware of any liability under such service agreements for the years ended December 31 2016 or 2015 10 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 3 Defined Contribution Retirement Plan In April 2002 the NSAF established a defined-contribution retirement plan for its employees under Section 403 b of the Internal Revenue Code All non-temporary employees may make contributions to accounts under the plan on a pre-tax basis subject to the maximums provided by law In cases in which employees who are at least 21 years of age and who have been employed by the NSAF for at least two years without a break in service contribute five percent or more of their salaries the NSAF makes contributions to their retirement accounts established under the plan equal to ten percent of their salaries The NSAF’s contributions to employees’ accounts under the plan totaled $166 644 and $194 577 for the years ended December 31 2016 and 2015 Note 4 Commitments Under the terms of a license agreement the NSAF pays GWU $50 000 a year for office space and certain related facilities and services The agreement which commenced in January 1995 runs in automatically renewable five-year periods and is cancelable upon nine months’ notice by either party The NSAF leases office equipment from commercial suppliers under non-cancelable leases future gross minimum annual rental payments to be paid under these leases as of December 31 2016 totaled $13 455 payable during 2017 through 2018 Rent expense under the lease agreements for the years ended December 31 2016 and 2015 totaled $7 020 in each year Note 5 Foundation Grants Receivable As of December 31 2016 and 2015 the NSAF held the following multi-year grant commitments Grants receivable Less discount Less current portion $ Net Grants Receivable long term $ 2016 1 702 500 $ 3 100 1 392 500 2015 2 015 000 12 000 1 502 500 306 900 $ 500 500 The anticipated collections of the grants receivable based upon the stated payment terms are as follows Year Ending December 31 2017 2018 $ 1 392 500 310 000 $ 1 702 500 Grants receivable due in more than one year are recognized at fair value using present value techniques and a discount rate of approximately 1% 11 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 6 Property Plant and Equipment As of December 31 2016 and 2015 property plant and equipment consisted of the following Leasehold improvements Computer and office equipment 2016 181 824 $ 174 600 2015 181 824 169 792 $ 356 424 $ 348 749 351 616 344 788 $ 7 675 $ 6 828 $ Accumulated depreciation and amortization Depreciation and amortization expense was $3 961 and $30 694 for the years ended December 31 2016 and 2015 Note 7 Composition of Temporarily Restricted Net Assets As of December 31 2016 and 2015 the NSAF held temporarily restricted net assets for the following purposes Latin America Programs U S -Russia Relations and Nuclear Weapons Policy Programs Freedom of Information Law Programs United States Freedom of Information Law Programs International Cyber Security Program Broadly-based Human Rights Programs Publications Communications Programs $ $ 2016 289 187 $ 2015 11 332 1 256 719 190 833 7 990 129 580 50 170 469 240 1 238 000 513 333 7 990 371 435 55 982 - 2 393 719 $ 2 198 072 Temporarily restricted net assets were released from restriction for the following purposes during the years ended December 31 2016 and 2015 Latin America Programs $ U S -Russia Relations and Nuclear Weapons Policy Programs Freedom of Information Law Programs United States Freedom of Information Law Programs International Cyber Security Program Broadly-based Human Rights Programs Smith Bagley Research Center current year’s amortization Publications Communications Programs Center for National Security Studies $ 12 2016 197 144 $ 670 181 372 500 241 855 106 313 230 760 1 818 753 $ 2015 138 816 616 553 350 667 12 150 128 565 107 118 22 500 271 009 1 647 378 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2016 AND 2015 Note 8 Transfer of the CNSS to the Center for American Progress At November 1 2015 the Center for National Security Studies a program of the NSAF until this date was combined with a similar project of the Center for American Progress the CAP a Section 501 c 3 organization with the joint project to operate as a division of the CAP Unexpended grants and contributions totaling $425 887 restricted by donors for general support of the CNSS and held in the accounts of the NSAF at October 31 2015 were by action of the Board of Directors of the NSAF transferred to the CAP for support of the new joint project Note 9 Subsequent Events The NSAF has performed an evaluation of subsequent events through November 6 2017 which is the date the financial statements were available to be issued noting no event that affects the financial statements as of December 31 2016 13