THE NATIONAL SECURITY ARCHIVE FUND INC FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31 2018 AND 2017 WWW MCB-CPA COM THE NATIONAL SECURITY ARCHIVE FUND INC TABLE OF CONTENTS DECEMBER 31 2018 AND 2017 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 214826 MCB 70th LH qxd_Layout 1 12 7 16 4 08 PM Page 2 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 2018 and 2017 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 for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America This includes the design implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error 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 2018 and 2017 and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America Fairfax Virginia November 27 2019 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 2018 AND 2017 2018 2017 ASSETS CURRENT ASSETS Cash and cash equivalents Foundation grants receivable short term - without donor restrictions Foundation grants receivable short term - with donor restrictions Royalties due from co-publishers Other receivables Prepaid expenses $ 2 137 402 1 116 000 122 128 2 159 59 916 $ 1 893 452 100 000 934 000 151 970 6 944 54 097 $ 3 437 605 $ 3 140 463 $ 600 000 12 798 $ 416 000 5 283 $ 612 798 $ 421 283 $ 4 050 403 $ 3 561 746 $ 2 101 15 400 $ 2 251 15 150 $ 17 501 $ 17 401 $ 1 981 953 2 050 949 $ 1 634 727 1 909 618 Total Net Assets $ 4 032 902 $ 3 544 345 TOTAL LIABILITIES AND NET ASSETS $ 4 050 403 $ 3 561 746 Total Current Assets NON-CURRENT ASSETS Foundation grants receivable long term - with donor restrictions net Property plant and equipment net Total Non-Current Assets TOTAL ASSETS LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Total Current Liabilities NET ASSETS Without donor restrictions With donor restrictions 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 2018 With comparative totals for the year ended December 31 2017 Without Donor Restrictions With Donor Restrictions 2018 Total 2017 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 $ 5 165 $ Total Revenue and Other Support $ 3 098 166 $ 141 331 $ 3 239 497 $ 3 116 760 $ 2 404 527 $ - $ 2 404 527 $ 2 452 451 $ 285 278 61 135 $ - $ 285 278 61 135 $ 280 668 60 728 Total Supporting Services $ 346 413 $ - $ 346 413 $ 341 396 Total Expenses $ 2 750 940 $ - $ 2 750 940 $ 2 793 847 $ 347 226 $ 141 331 $ 488 557 $ 322 913 870 500 521 972 1 700 529 15 000 $ 526 860 1 300 000 1 700 529 20 165 $ 1 397 360 1 300 000 521 972 - 18 090 1 404 000 1 143 100 551 570 - EXPENSES Program expenses Supporting services Management and general Fund raising CHANGE IN NET ASSETS NET ASSETS BEGINNING OF YEAR NET ASSETS END OF YEAR 1 634 727 $ 1 981 953 1 909 618 $ 2 050 949 3 544 345 $ 4 032 902 The accompanying notes are an integral part of these financial statements 3 3 221 432 $ 3 544 345 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31 2017 Without Donor Restrictions With Donor Restrictions 2017 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 $ 13 090 $ Total Revenue and Other Support $ 3 600 861 $ $ 2 452 451 $ - $ 2 452 451 $ 280 668 60 728 $ - $ 280 668 60 728 Total Supporting Services $ 341 396 $ - $ 341 396 Total Expenses $ 2 793 847 $ - $ 2 793 847 $ 807 014 $ 484 101 $ 322 913 750 000 100 000 551 570 2 186 201 5 000 $ 654 000 1 043 100 2 186 201 18 090 1 404 000 1 143 100 551 570 - 484 101 $ 3 116 760 EXPENSES Program expenses Supporting services Management and general Fund raising CHANGE IN NET ASSETS NET ASSETS BEGINNING OF YEAR NET ASSETS END OF YEAR 827 713 $ 1 634 727 2 393 719 $ 1 909 618 3 221 432 $ The accompanying notes are an integral part of these financial statements 4 3 544 345 THE NATIONAL SECURITY ARCHIVE FUND INC STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31 2018 With comparative totals for the year ended December 31 2017 Program Management and General Fund Raising 2018 Total 2017 Total EXPENSES Staff salaries Staff benefits and general insurance Books subscriptions directories and dues Computer equipment supplies and services Depreciation and amortization Office equipment supplies and services Professional fees consultants and honoraria Rent document storage and parking Telephone equipment and services Travel meetings and conferences Allocation of supporting services TOTAL EXPENSES $ 1 574 825 $ 658 120 4 235 28 977 3 747 12 126 32 941 76 195 12 478 25 051 24 168 173 000 61 814 80 6 004 2 503 15 650 3 470 2 854 19 903 $ 42 958 13 821 7 84 4 265 $ 1 790 783 733 755 4 315 34 981 3 747 14 636 48 591 79 665 12 478 27 989 - $ 1 788 516 745 323 3 607 34 482 3 364 15 167 70 365 74 875 12 349 45 799 - $ 2 404 527 285 278 $ 61 135 $ 2 750 940 $ 2 793 847 $ 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 2017 Program Management and General Fund Raising 2017 Total EXPENSES Staff salaries Staff benefits and general insurance Books subscriptions directories and dues Computer equipment supplies and services Depreciation and amortization Office equipment supplies and services Professional fees consultants and honoraria Rent document storage and parking Telephone equipment and services Travel meetings and conferences Allocation of supporting services TOTAL EXPENSES $ 1 578 516 $ 669 849 3 591 26 948 3 364 12 704 54 895 71 515 12 349 42 539 23 819 167 500 61 959 7 534 2 457 15 470 3 360 2 806 19 582 $ 42 500 13 515 16 6 454 4 237 $ 1 788 516 745 323 3 607 34 482 3 364 15 167 70 365 74 875 12 349 45 799 - $ 2 452 451 280 668 $ 60 728 $ 2 793 847 $ 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 2018 AND 2017 2018 2017 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 $ 488 557 $ 322 913 $ 3 747 $ 3 364 266 000 29 842 4 785 5 819 249 400 30 830 6 012 607 100 12 891 Total adjustments $ 233 345 $ 202 424 Net Cash Provided by Operating Activities $ 255 212 $ 525 337 $ 11 262 $ 972 $ 243 950 $ 524 365 CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of equipment INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BEGINNING OF YEAR CASH AND CASH EQUIVALENTS END OF YEAR 1 893 452 $ 2 137 402 There were no non-cash investing or financing activities for the years ended December 31 2018 or 2017 The accompanying notes are an integral part of these financial statements 7 1 369 087 $ 1 893 452 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 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 The Archive was founded in 1985 under the auspices of a multi-program non-profit corporation 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 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 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 statements of functional expenses and statements of cash flows Contributions are recognized as revenue when they are received or unconditionally pledged Net assets and revenues expenses gains and losses are classified based on the existence or absence of donor-imposed restrictions Accordingly net assets of the NSAF and changes therein are classified and reported as follows 8 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 Note 2 Summary of Significant Accounting Policies Continued Net assets without donor restrictions – Net assets that are not subject to donor-imposed restrictions and may be expended for any purpose in performing the primary objectives of the organization These net assets may be used at the discretion of NSAF's management and the Board of Directors Net assets with donor restrictions – Net assets subject to stipulations imposed by donors and grantors Some donor restrictions are temporary in nature those restrictions will be met by actions of NSAF or by the passage of time Other donor restrictions are perpetual in nature whereby the donor has stipulated the funds be maintained in perpetuity The NSAF does not currently hold net assets with perpetual donor restrictions Donor restricted contributions are reported as increases in net assets with donor restrictions When a restriction expires net assets are reclassified from net assets with donor restrictions to net assets without donor restrictions in the statement of activities and changes in net assets 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 2018 and 2017 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 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 9 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 Note 2 Summary of Significant Accounting Policies Continued Revenue Recognition Foundation grants to the NSAF whether with or without donor restrictions 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 2018 or 2017 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 2018 or 2017 Functional allocation of expenses The costs of providing the NSAF’s various programs and supporting services have been summarized on a functional basis in the Statements of Activities and Changes in Net Assets Costs that can be identified with a particular program or support function are charged directly to that program or function Salaries and related costs have been allocated among the programs and supporting services based upon the proportion of these costs applicable to each program Other costs have been allocated to program expenses and supporting services based upon management’s best estimates 10 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 Note 2 Summary of Significant Accounting Policies Concluded New Accounting Pronouncement On August 18 2016 the Financial Accounting Standards Board FASB issued ASU 2016-14 Not-for-Profit Entities Topic 958 – Presentation of Financial Statements of Not-for-Profit Entities The update makes several changes to current FASB reporting requirements that address the complexity and understandability of net asset classification deficiencies in information about liquidity and availability of resources and the lack of consistency in the type of information provided about expenses and investment return The NSAF has adjusted the presentation of these statements accordingly Note 3 Availability and Liquidity The following represent the NSAF’s financial assets at December 31 2018 Cash and cash equivalents Accounts receivable net Total financial assets $2 137 402 1 840 287 $3 977 689 Less amounts not available to be used within one year Net assets with donor restrictions expiring after December 31 2019 Financial assets available to meet general and restricted program expenditures over the next twelve months 681 468 $3 296 221 The NSAF is substantially supported by restricted contributions Because a donor’s restriction requires resources to be used in a particular manner or in a future period NSAF must maintain sufficient resources to meet those responsibilities to its donors Thus financial assets may not be available for general expenditure within one year As part of NSAF’s liquidity management it has a policy to structure its financial assets to be available as its general expenditures liabilities and other obligations come due Note 4 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 $172 975 and $168 167 for the years ended December 31 2018 and 2017 Note 5 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 11 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 Note 5 Commitments Concluded 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 2018 totaled $25 251 payable during 2019 through 2023 Rent expense under the lease agreements for the years ended December 31 2018 and 2017 totaled $7 764 and $6 435 respectively Note 6 Foundation Grants Receivable As of December 31 2018 and 2017 the NSAF held the following multi-year grant commitments Grants receivable Less discount Less current portion $ Net Grants Receivable long term $ 2018 1 716 000 $ 1 116 000 2017 1 450 000 1 034 000 600 000 $ 416 000 The anticipated collections of the grants receivable based upon the stated payment terms are as follows Year Ending December 31 2019 2020 2021 Note 7 $ 1 116 000 300 000 300 000 $ 1 716 000 Property Plant and Equipment As of December 31 2018 and 2017 property plant and equipment consisted of the following Leasehold improvements Computer office equipment and customized software 2018 181 824 $ 186 834 2017 181 824 175 572 $ 368 658 $ 355 860 357 396 352 113 $ 12 798 $ 5 283 $ Accumulated depreciation and amortization Depreciation and amortization expense was $3 747 and $3 364 for the years ended December 31 2018 and 2017 12 THE NATIONAL SECURITY ARCHIVE FUND INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31 2018 AND 2017 Note 8 Composition of Net Assets with Donor Restrictions As of December 31 2018 and 2017 the NSAF held net assets with donor restrictions 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 $ $ 2018 212 992 $ 2017 62 160 1 450 481 35 883 7 990 298 194 45 409 - 1 326 097 331 883 7 990 15 837 18 857 146 794 2 050 949 $ 1 909 618 Net assets with donor restrictions were released from restriction for the following purposes during the years ended December 31 2018 and 2017 Latin America Programs U S -Russia Relations and Nuclear Weapons Policy Programs Freedom of Information Law Programs United States Cyber Security Program Broadly-based Human Rights Programs Publications Communications Programs $ 820 616 297 860 217 643 48 448 146 794 $ Note 9 2018 169 168 $ 1 700 529 $ 2017 255 028 953 722 288 950 259 743 106 312 322 446 2 186 201 Subsequent Events The NSAF has performed an evaluation of subsequent events through November 27 2019 which is the date the financial statements were available to be issued noting no event that requires recognition or disclosure in the financial statements as of December 31 2018 13