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NATIONAL LEGAL AND POLICY CENTER
YEARS ENDED DECEMBER 31, 2415 AND 2014

NATIONAL LEGAL AND POLICY CENTER
FINANCIAL REPORT
YEARS ENDED DECEMBER 31, 2A1'5 AND 2014

CONTENTS

Pagq
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS

1

FINANCIAL STATEMENTS
StatemEnts of Financia! Position

z,

Statements of Activities and Changes in Net Assets

3

Statements of Cash Flows

4

Notes to Financial Statements

5-11

THOMpSO}{
*f###BOT_TEXT###quot;
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GRaEI{spoi\T

INDEPENOENT AUDITORS' REPORT
To the Board of Directors
National Legal and Policy Center
Falls Church Virginia

Repod on the Financial Statements
We have audited the accompanying flnancial statements of National Legal and Policy Center. lvhich comprise
the statements of frnancial positron as of December 3'1 , 2A15 and 2014, and the related statements of activities
and changes in net assets 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 tlrese financial statements in
accordance rvith accounting principles generally accepted in the United States of America, this includes the
design implementatron, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from nraterial misstatement, whether due to fraud or error.

Auditors' Responsibility
Our responsibiiity 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 invo{ves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. Ttre procedures selected depend on the auditors' judgment, including the assessmeni
of the risks of material rnisstatement of the financial statements, whether due to fraud or error. ln 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 desrgn audit procedures that are appropriate in the
circumstances, but nol for the purpose of expressing an opinion on the effectiveness of the entrty s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of signiftcant 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
ln our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of National Legal and Policy Center as of December 31,2015 and 2014, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the united states of America

Fairfax, Vtrginia
Novernber 16.2016

mf"**y

NATIONAL LEGAL AND POLICY CENTER
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2015 AND 2014

2015

2014

ASSETS

$

Cash and cash equivalents
lnvestments, at fair value
Assets under spllt-interest agreements
Prepaid expenses and olher
Property and equipment, nel

$

73,744

87,210
314,016
183,469
35,976

194,505

143,202
17,445
403,655

TotalAssets

4.14,207

$

832,551

$

1,034,979

$

29,249

$

37,933

LIABILITIES AND NET ASSETS

Liabilities
Accounts payable
Credit card payable and other
Liabilities under split-inlerest agreements

7,823

89,59L

76,502

Total Liabilities
Net Assets
Unrestricted net assets

Temporarily restricted net assets

,

.

105,751

135,353

710,799

870,552
28,q73

16,001

726,800

Total Net Assets

Total Llabllities and Net Assets

932,551

The Notes to FinancialStatements are an integral part of these statements.
2

.

,

$

899,525

1,034,878

NATIONAL LEGAL AND POLICY CENTER
STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2015 AND 2014

Temporarily
Restricted

Unrestricted

Support and Revenue
Contributions

$

$

1,203,142

Total

2014
Temporarily
Restricted

Unrestricted

5,687 $ 1.208,829 $ 1,204,688 $

5,818

Total

$

1,210,506

Expenses
Program services
Govemment lntegrity Proiect
Corporate ntegrity Projec{
Organized Labor Accountability Projecl
Legal Services Accountability Project

326.343
392,696
255.360

326,343
392,696

I

255,360

Total Program Services

194.559

974,399

848,014

848,014

208,137
157,395

208,137
157,395

222,326

p2,326

155,721

155,721

365,532 -

378.U7

378,O47

1,U6,O61

1,226,061

.

365,532

Total Supporl Services

1,339,931
(131.102)

1,339,931

5,687

(136,789)

Operating (Loss) lncome

23,7ffi

404,150
225.539
194.559
23,766

22s,539

974,399

Support services
Fundraising
Managemenl and general

Total Program and Support Services

404,150

(21,373)

5,818

(1s,55s)

Other Revenue and Expenses

(41,623)

27,812

(9,235)

18,577

(12.9721

(172,72s1

6.439

(3,417)

3,022

870,552

28.973

899,525

710,799 $

16,001

(11,310)
(17,013)
(22,S64)

Net Assets, beginning of year

$

The Notes to Financial Statements are an integral part of these statements.

(18,659)

___- _
(18.6s9)

(159,753)

Change in Net Assets

Net Assets, end of year

(14)
16,658

(2,890)

Total Other Revenue and Expenses

3,294
7,874

8,249
(2,890)
(2e.e6e)
(17,013)

8,249

lnvestment revenue
Change in value of assets under split-interest agreements
Change in value of liabilities under split-interest agreements
Realized and unrealized gains and losses on investrnents

3,29N
7,O74
(9,235)

864,113

_g___226,99q_ _g__qzgEl?_

(e,249t
16,658

$

32,390

896,503

28,973 $

899,525

NATIONAL LEGAL AND POLICY CENTER
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015 AND 2014

2015

2014

Cash Flows from Operatlng Actlvlties
Change in net assets
Noncash items included in change in net assets
Depreciation and amortization
Contributions received under split-interest agreements
Change in value of assets under split-interest agreements
Change in value of liabilities under split-interest agreements
Realized and unrealized gains and losses on investments
Contribution of investments not immediately converted into cash

$

3,022
15,344
(5,818)

(5,687)
2,890
2g,969

(7,874)

(12,353)

9,249
(16,658)
(11,942)

19,531

(13,907)

(8,684)
(7,823)

24,239

17,013

1,460

(124,503)

Net Cash Used by Operating Activities

Cash Flows from lnvestlng Actlvltles
Withdrawal from assets held under split-interest agreements
Assets contributed under splihinterest agreements
Proceeds from sale of investments
Payments for the purchase of investments
Payments for the purchase of property and equipment

(2,886)

47,377
(10,000)

23,300
(10,000)

234,974
(120,123)

(2,316)

(3,814)
148,414

Net Cash Provided by lnvesting Activities

Cash Flows from Flnanclng Activltles
Proceeds from esta blish ment of split-interest agreements
Payments to beneficiaries of split-interest agreements
Net Cash Used by Financing Activities
Net Decrease ln Cash and Cash Equivalents

Cash and Cash Equivalents, beglnnlng of year

$

The Notes to Financial Statements are an integral part of these statements.
4

$

14,366

(lncrease) Decrease in
Prepaid expenses and other
lncrease (Decrease) in
Accounts payable
Credit card payable and other

Cash and Cash Equlvalents, end of year

(172,725)

-

10,984

10,000

10,000

(47,377)

(2,3,300)

(37,377)

(13,?OO)

(13,466)

(5,202)

87,210

92,112

73,744

_9___q7'319_

NATIONAL LEGAL AND POLICY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

1.

NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Activities

The National Legal and Policy Center (the Center) was organized as a nonstock, nonprofit
corporation within the District of Columbia in 1991. The Center was founded to promote public
service ethics and accountability in government through the advocacy of the 10-point "Code of Ethics

for Government Service" passed by the Senate in 1958. This Code of Ethics, which is widely
distributed by the Center, is the focal point for the Center's activities.

The Center engages in nonpartisan study, analysis and research for the general public on issues
relating primarily to ethics and accountability. The results of these activities are documented by the
Center and made available to the general public through quarterly and biweekly newsletters, reports,
letters, the Internet, conferences, and other means of communication. The Center publicizes, on a
nonpartisan basis, corruption, abuses, and the misappropriation of funds to educate and,
consequently, motivate the general public and the government to exert pressure and sanctions
against unethical behavior and the misuse of funds.
The Center is supported primarily through donor contributions and grants.
The major programs of the Genter are as follows:
Government lntegritv Proiect-(GlP)

This project focuses on the accountability and ethics of government bureaucracies and
emptoyeis. The Center investigates and exposes to the governmen-t and the general public
unetni6at or illegal practices of government agenoies, public officials, and government
employees, as well as organizations and individuals that impact the governmental process.
Coroorate lnteority Proiect (ClP)

This project promotes integrity in corporate governance, including honesty and fair p_lay in
relationsirips with shareholders, employees, business partners and customers. The Center
exposes and publicizes the influence of corrupt corporate executives on public officials and
Political sYstems'
O

roan ized Labor Accou

n

ta bil

ity

P

roieqt-.lLO-LAP)

This project focuses on the accountability of labor unions and their corrupting- influence on
government officials. The Center investigates and exposes to the general public the political
Ibuses of labor unions and the unethical and criminal behavior of labor union leaders.
Legal Services AccountabiliW Proiect (LSAP)

This project focuses on the accountability of the legal service groups.that are funded !y tne
government for the purpose of providing civil legal assistance to th-e poor. The Center
investigates the actual use of these funds and exposes to government officials and the general
public discrePancies and abuses.

Method of Accounting
The financial statements are prepared on the accrual basis of accounting.

The Center reports the amounts for each of three classes of net assets - unrestricted net assets,
temporarily restricted net assets, and permanently restricted net assets - based on the existence or
absence of donor-imposed restrictions.

NATIONAL LEGAL AND POLICY GENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Method of Accounting (continued)

The Center reports noncash gifts as.unrestricted support unless explicit donor stipulations specify
how the donated assets must be used.
9ifts of long-lived.assets with expticit restriciions th, affiifi
how the assets are to be used and gifts of cash or other assets thdt must be used 6 #q;ir;
long-lived assets are reported as restricted support. Absent explicit donor stipulations aUout how
long those long-lived assets must be maintained, the Center reports expirations of donor restrictioni
when the donated. or acquired long-lived assets are acquired or plaied in service. Temporarily
restricted contributions, whose restrictions are met in the same reporting period as the contribirtion ii
received, are reported as unrestricted support.
Gifts of stocks and securities are valued at their estimated fair market value on the date they are
received.

Cash and Cash Equivalents
The Center maintains its cash balances in various financial institutions which, at times, may exceed
federally insured limits of $250,000. The Center has not experienced any losses from such
accounts.

lnvestments
lnvestments are accounted for at fair market value with realized and unrealized gains and losses
reported in the statements of activities and changes in net assets. Purchases and sales of securities
are recorded on a trade-date basis,
Donated securities or other assets that have no donor-imposed restrictions and that are immediately
converted into cash are recorded as cash flows from operating activities in the accompanying
statements of cash flows. During 2015, the Center did not receive any donated securities that were
immediately converted into cash. During 2014, the Center received approximately $60,000 in
donated securities that were immediately converted into cash.

Property and Equipment
Property and equipment is recorded at

cost. The related depreciation is computed using the

straight-line method and is based on the following estimated useful lives:
Building
Machinery and equipment

39 years
5 - 7 years

When property or equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the respective accounts with the resulting gain or loss reflected in
earnings. Expenditures for maintenance, repairs, and improvements that do not materially extend
the useful lives of property and equipment are charged to earnings when incurred,
Split-lnterest Agreements
The Center is the beneficiary of a number of split-interest agreements with donors. The Center may
control donated assets and shares with the donor or the donor's designee income generated from
those assets until such time as stated in the agreement, at which time the remaining assets are
generally for the Center's unrestricted use.

NAT]ONAL LEGAL AND POLICY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

1.

NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Split-lnterest Ag reements (continued)
The Center records the assets of the agreements (at fair value) if the assets are controlled and
invested by tfe Center. The Center records contribution revenue at the date the agreement ii
established after recording a liability for the present value of the estimated future paymenls expected
to be made to the beneficiaries. Adjustments to the annuity liabilities to reflect amortization of the
discount and revaluation of expected future payments to beneficiaries based on changes in actuarial
assumptions are made annually and recognized as a change in valuation of split-interest

agreements.

The discount rate used in valuing split-interest agreement liabilities ranged from 1,4 percent to
4.2 percent for the years ending December 31, 2015 and2014.

All gifts are unrestricted except for those govemed by states that require segregation of

the

contributed assets of the donor, which are classified as temporarily restricted. Where applicable, the
required state statutory reserve is maintained for the agreements,
Fair Value

FinancialAccounting Standards Board (FASB) Accounting Standards Codiflcation (ASC) Topic 820,

Fair Value Measurements and Disc/osures, provides a framework for measuring fair value, That
framework provides a fiair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. Fair value focuses on the price that would be received to sell the asset or paid to
transfer the liability regardless of whether an obseruable liquid market price existed (an exit price),
The hierarchy gives the highest priori$ to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described
below:

Level 1 - inputs to the valuation methodology are based upon unadjusted quoted prices for identical
assets or liabilities in active markets that the Center has the ability to access.
Level 2 - inputs to the valuation methodology include: quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liabili$, and market-conoborated

inputs. lf the asset or liability has a specified (contractual) term, the Level 2 input must be

observable for substantially the full term of the asset or liability.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value
measurement. Level 3 assets and liabilities measured at fair value are based on one or more of
three valuation techniques (market, cost, or income approach). The market approach evaluates
prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities. The cost approach evaluates the amount that would be required to
replace the service capacity of an asset (i.e., replacement cost). The income approach uses
techniques that convert future amounts to a single present amount based on market expectations
(including present value techniques, option-pricing models, and lattice models).
The asset's or liability's fair value measurement level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement. Valuation techniques used
need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following describes the valuation methodologies used for assets measured at fair value. There
have been no changes in the methodologies used at December 31, 2015 and2014,
7

NATIONAL LEGAL AND POLICY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

1. NATURE OF ACTIVITIES

AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value (continued)

EquiU Secunfles; Certain common stocks are valued at the closing price reported in the active
rnarket in which the individual securities are traded.
Mutual Funds: Valued at the net asset value (NAV) of shares held by the Center at year end.

Assefs under Sp/it-lnferest Agreaments: The fair value of mutual funds and money market funds
held under split-interest agreements are valued at the NAV of shares held at year end,
The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values, Furthermore, while the Center believes its
valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.

lncome Tax Status
The Center is a nonprofit organization exempt from Federal income tax under Section 501(c)(3) of
the lnternal Revenue Code. The Center qualifies for the charitable contribution deduction under
Section 170(bX1XA) and has been classified as an organization other than a private foundation,

The Center has no uncertain tax positions that qualify for either recognition or disclosure in the
financial statements and no interest and penalties have been recorded in the accompanying financial
statements related to uncertain tax positions.
The Center files an informational income tax return for Federal reporting purposes. The Center is
not currently under audit by any income tax jurisdictions.

Concentrations
For the years ended December 31, 2015 and2014, the Center received approximately $125,000,
equaling 10 percent of its contributions, from one entity.

Functional Allocation of Expenses

The costs of providing the various programs and other activities have been summarized on a
functional basis in the statements of activities and changes in net assets. Accordingly, direct
program costs have been allocated among the programs and supporting services benefited based
on specific identification. lndirect costs have been allocated based on labor hours.

Financlal Statement Estlmates
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 the reported amounts of revenue and expenses during the
reporting period. Actual results could vary from the estimates that were used.

NATIONAL LEGAL AND POLICY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

1. NATURE

OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclasslflcation
Certain items in the 2014 financial statements have been reclassified to conform to the 2015
nancial statement presentation,

fi

Subsequent Events
The date to which events occurring after December 31 ,2015, the date of the most recent statement
of financial position, have been evaluated for possible adjustment to the financial statements or
disclosure is November 16, 2016, which is the date on which the financial statements were available
to be issued.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following at December 31:

2015
lnterest bearing checking account
Money market accounts

$

$

71,290

2,454

_$

$

73J44

2014
50,241

36,969
87,210

PROPERW AND EQUIPMENT
Property and equipment consists of the following at December 31:

2015

Building
Equipment
Totals
Less: Accum ulated dePreciation

$ 515,270 $
46,557
561,827
(210,502)
351,325

Land

Propefi and equipment, net

4.

52,330
.5-40e655-

w

2014
515,270
55,777
571,047

(209,170)
361,877
52,330

INVESTMENTS

Net unrealized (losses) gains in the fair value of investments totaled (37,058) and $20,774-for the
years ended December gt, ZOtS and 2014, respectively. Realized gains (losses) totaled $20,045
ind ($4,1 16) for the years ended December 31 , 2015 and 2Q14, respectivoly, The Center received
contributed itock witir a fair value of $12,353 and$72,075 during the years ended December 31,
2015 and 2014, resPectivelY'

NATIONAL LEGAL AND POLICY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

FAIR VALUE MEASUREMENTS

The following tables present the Center's assets

and liabilities measured

at fair value at

December 31 on a recurring basis:
2015
Level

Fair Value

Level 2

1

Level 3

FinancialAssels
lnveslments

$

Equity Securities
Assets Under Split-lnteresl Agreemenls
Mutual Funds - Large Cap Equity
Mutual Funds - Mid Cap Equity
Mutual Funds - SmallCap Equity
Mutual Funds - lntemational Equity
MutualFunds - lncome and Bond Funds
Money Market Funds
Savings Accounts

194,505

$

194,505

50,195

50,195

5,771

5,771

5,906
15,373
49,506
9,562

5,906
15,373

49,506
9,562
6,88e

6,889

,.143,202
Total FinancialAssets

143.202

337,797-

_9_$7,707- _$

Financial Liabilities
Liabilities Under Split-lnterest Agreements

$ 76,502 $

$-

$-

$-$-

76,502

2014
Fair Value

Level

1

Level 2

Level 3

FinancialAssets
lnvestments
Equity Securities
Mutual Funds - lncome

$ 229,72'.1 $

84,295
314,016

Assets Under Split-lnterest Agreements
Mutual Funds - Large Cap Equity
Mutual Funds - Mid Cap Equity
Mutual Funds - SmallCap Equity
Mutual Funds - lntemational Equity
Mutual Funds - lncome and Bond Funds
Money Market Funds
Savings Accounls

Tolal FinancialAssets

69,977
8,462
7,0a2
20,622
69,965
.9,885
183,469

229,721

84,295
314,016

69,977
8,462
7,042
20,622
69,965
6,685
183,469

-S-191,.189- -i--1e?r485-

10

*!-----:- -$-- - -

NATIONAL LEGAL AND POLICY CENTER
NOTES TO F]NANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014

5.

FAIR VALUE MEASUREMENTS (continued)

Equity securities consist primarily of common stocks of large U,S. corporations, Based on its
analysis of the nature and risks of these equity securities, the Center has determined that presentint
them as a single class is appropriate.
We evaluated the signiflcance of transfers between the levels based upon the nature of the financial

instrument and size of the transfer relative to the total investments. For the years ending
December 31, 2015 and 2014, there were no transfers in or out of Levels 1 , 2 or 3.

The Center invests in various investment securities, lnvestment securities are exposed to various
risks such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the value of the investment
securities will occur in the near term and such changes could materially affect the Center,s
investments and the amounts reported in the statements of financial position and the statements of
activities and changes in net assets.
SPLIT-INTEREST AGREEMENTS
Contributions for split-interest agreements were as follows for the years ended December 31:

ffi

nrestricted contributions
Tem porarily restricted contributions
U

$
7.

2015

5,697
5,687 $

2014
5,919
5,919

TAX.DEFERRED ANNUITY PLAN

The Center has a taxdeferred annuity plan (the Plan) qualified under Section 403(bX7) of the
lnternal Revenue Code. The Plan covers full-time employees of the Center. Employees may make
contributions to the Plan up to the maximum allowed by the lnternal Revenue Code. The Center
made a discretionary contribution at year end equal to 100 percent of employee deferrals.
Contributions to the Plan by the Center for the years ended December 31, 2015 and 2014 were
$50,400 and $48,400, respectively.

L

GoNTRTBUTTON FROM NORTHERN VtRGtNtA LAW SCHOOL (NVLS)
During 2009, the Center received a contribution of a note receivable of approximately $291,000 from

the Northern Virginia Law School. As of December 31, 2015 and 2014, the Center established a
100 percent valuation allowance on the note.
9.

LIFE INSURANCE
The Center owns term life insurance policies on the lives of the President and Chairman, where the
Center is the beneficiary. The face values of the policies range from $1,000,000 for the Chairman to
$2,500,000 for the President.

10.

SUBSEQUENT EVENT
During 2016, the Center opened a $476,000 line of credit, which is secured by the Center's office
building. The line of credit accrues interest at the Wall Street Journal Prime rate plus 0.25 percent
payable monthly. The line matures on February 28,2018. The agreement requires the Center to
meet certain debt covenants.
11