pdc 2011 audited financial statement

PARTNERS FOR DEMOCRATIC CHANGE

Financial Statements

Together with Report of Independent Public Accountants

For the Years Ended September 30, 2011 and 2010

SEPTEMBER 30, 2011 AND 2010

CONTENTS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1

FINANCIAL STATEMENTS

Statements of Financial Position 2

Statements of Activities and Changes in Net Assets 3

Statements of Cash Flows 4

Statements of Functional Expenses 5

Notes to the Financial Statements 7

1776 I Street 9

th Floor Washington, DC 20006 P 202-756-4811 F 202-756-1301

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors

Partners for Democratic Change

We have audited the accompanying statements of financial position of Partners for Democratic

Change (Partners) as of September 30, 2011 and 2010, and the related statements of activities

and changes in net assets, cash flows and functional expenses for the years then ended. These

financial statements are the responsibility of Partners’ management. 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 and the standards applicable to financial audits contained in Government

Auditing Standards, issued by the Comptroller General of 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,

the financial position of Partners as of September 30, 2011 and 2010, and the changes in its net

assets and its cash flows for the years then ended in conformity with accounting principles

generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated

February 10, 2012, on our consideration of Partners’ internal control over financial reporting and

on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant

agreements and other matters. The purpose of that report is to describe the scope of our testing of

internal control over financial reporting and compliance and the results of that testing, and not to

provide an opinion on internal control over financial reporting or on compliance. That report is

an integral part of an audit performed in accordance with Government Auditing Standards and

should be considered in assessing the result of our audit.

Washington, DC

February 10, 2012


Statements of Financial Position

As of September 30, 2011 and 2010

The accompanying notes are an integral part of these financial statements.

2

2011 2010

ASSETS

Cash and cash equivalents 468,209$ 184,725$

Investments, restricted - 78,861

Accounts receivable:

Grants and contracts 561,570 482,539

Pledges - 75,000

Advances to affiliates 346,949 251,674

Prepaid expenses 24,530 15,464

Furniture and equipment, net 5,000 -

Deposits 9,710 5,035

Total Assets 1,415,968$ 1,093,298$

LIABILITIES AND NET ASSETS

Accounts payable and accrued expenses 234,882$ 262,600$

Grant and contract advances 564,166 455,343

Note payable, related party 60,000 60,000

Severance payable 48,973 179,334

Total Liabilities 908,021 957,277

Net Assets

Unrestricted 507,947 61,021

Temporarily restricted - 75,000

Total Net Assets 507,947 136,021

Total Liabilities and Net Assets 1,415,968$ 1,093,298$


Statements of Activities and Changes in Net Assets



3

2011 2010

CHANGE IN UNRESTRICTED NET ASSETS

Revenue and Other Support

Contracts and grants:

Government 4,081,005$ 2,448,752$

Corporate 382,533 458,789

Other 212,258 222,706

Contributions 3,650 11,725

Consulting fees - 1,510

Interest and dividends - 11

Unrealized loss on investments - (1,656)

Other revenue 335 9,092

Net asset released from restrictions 75,000 -

Total Revenue and Other Support 4,754,781 3,150,929

Expenses

Program services 3,329,162 2,363,119

Management and general 978,693 664,155

Total Expenses 4,307,855 3,027,274

Change in Unrestricted Net Assets 446,926 123,655

CHANGE IN TEMPORARILY RESTRICTED NET

ASSETS

Contributions - 75,000

Net assets released from restrictions (75,000) -

Change in Temporarily Restricted Net Assets (75,000) 75,000

Changes in net assets 371,926 198,655

Net assets, beginning of the year 136,021 (62,634)

Net Assets, End of the Year 507,947$ 136,021$


Statements of Cash Flows



4

2011 2010

Cash Flows from Operating Activities

Changes in net assets 371,926$ 198,655$

Adjustments to reconcile changes in net assets to

net cash from operating activities:

Depreciation 1,000 460

Unrealized and realized loss on investments - 1,656

Effect of changes in non-cash operating assets and

liabilities:

Grants and contracts receivable (79,031) (335,466)

Pledges receivable 75,000 (55,000)

Advances to affiliates (95,275) (227,778)

Prepaid expenses (9,066) (3,969)

Accounts payable and accrued expenses (27,718) 138,064

Grant and contract advances 108,823 156,509

Severance payable (51,500) (17,625)

Deposit (4,675) -

Net Cash Flow from Operating Activities 289,484 (144,494)

Cash Flows from Investing Activities

Purchase of Equipment (6,000) -

Net change in cash and cash equivalents 283,484 (144,494)

Cash and cash equivalents, beginning of year 184,725 329,219

Cash and Cash Equivalents, End of Year 468,209$ 184,725$

Supplemental Cash Flow Disclosure

Cash paid for interest 527$ -$

Non-cash transfer of investment to severance payable 78,861$ -$


Statement of Functional Expenses

For the Year Ended September 30, 2011, with Comparative Totals for 2010

The accompanying notes are an integral part of this financial statement.

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Salaries and related expenses 1,789,144$ 365,891$ 2,155,035$ 1,419,080$

Communications 25,439 36,620 62,059 36,448

Rent 59,992 203,567 263,559 138,946

Professional fees 28,475 124,006 152,481 129,050

Travel 350,667 53,054 403,721 553,702

Consulting 464,221 81,830 546,051 406,670

Meetings 19,112 5,848 24,960 14,304

Supplies 14,614 13,819 28,433 60,742

Printing and copying 11,922 852 12,774 21,124

Publications and materials - 248 248 17,328

Training 456,646 15,516 472,162 79,534

Small equipment 15,109 28,342 43,451 49,641

Program expenses 83,520 - 83,520 55,202

Other 10,301 45,173 55,474 42,643

Total Before Depreciation and Interest 3,329,162 974,766 4,303,928 3,024,414

Depreciation - 1,000 1,000 460

Interest - 2,927 2,927 2,400

Total Expenses 3,329,162$ 978,693$ 4,307,855$ 3,027,274$

2011

Program

General and

Administrative Total 2010 Total


Statement of Functional Expenses

For the Year Ended September 30, 2010

The accompanying notes are an integral part of this financial statement.

6

Salaries and related expenses 1,083,977$ 335,103$ 1,419,080$

Communications 21,616 14,832 36,448

Rent 69,714 69,232 138,946

Professional fees 13,960 115,090 129,050

Travel 523,537 30,165 553,702

Consulting 364,952 41,718 406,670

Meetings 10,529 3,775 14,304

Supplies 43,345 17,397 60,742

Printing and copying 19,456 1,668 21,124

Publications and materials 17,309 19 17,328

Training 78,313 1,221 79,534

Small equipment 47,622 2,019 49,641

Program expenses 55,022 180 55,202

Other 13,767 28,876 42,643

Total Before Depreciation and Interest 2,363,119 661,295 3,024,414

Depreciation - 460 460

Interest - 2,400 2,400

Total Expenses 2,363,119$ 664,155$ 3,027,274$

General and

AdministrativeProgram Total


Notes to the Financial Statements

September 30, 2011 and 2010

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1. BACKGROUND OF ORGANIZATION

Partners for Democratic Change (Partners) is a non-profit corporation established on

February 18, 1988, which operates offices in Washington, DC. Partners is an international

organization committed to building sustainable local capacity to advance civil society and a

culture of change and conflict-management worldwide. Partners accomplishes its mission

directly and in partnership with Partners for Democratic Change International Centers (the

Centers) located in Albania, Argentina, Bulgaria, Columbia, The Czech Republic, Georgia,

Hungary, Jordan, Kosovo, Lithuania, Mexico, Peru, Poland, Romania, Senegal, Serbia,

Slovakia and Yemen through various programs.

Partners builds new local institutions that respond to the diverse change and conflict

management needs of its constituents and improves the skills of existing institutions across

all sectors. It helps communities resolve local issues by introducing conflict management

processes and establishing conflict resolution services within communities that strengthen

relationships among diverse populations. Partners also works to integrate change and

conflict management processes into evolving legal systems by promoting new legislation that

legitimizes and sanctions mediation and citizen participation processes and utilizes

participatory methods to implement effective policies and advance democratic change.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying financial statements of Partners is presented on the accrual basis of

accounting in accordance with accounting principles generally accepted in the United States

of America.

Use of Estimates

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 as of the date of the financial statements, and the reported

amounts of revenue and expenses during the reporting period. Actual results could differ

from those estimates.

Cash and Cash Equivalents

Cash consists of amounts on hand and on demand deposits with banks or other financial

institutions. Cash equivalents represent short-term, highly liquid investments with original

maturities of three months or less. Cash equivalents as of September 30, 2010, consisted of

money market and overnight investment accounts. There are no cash equivalents as of

September 30, 2011.




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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments, Restricted

Investments consist of amounts held to satisfy a future severance compensation liability.

Investments are recorded at market value. They consisted of money market funds held by

Transamerica as of September 30, 2010. These investments were board designated to fund

the severance compensation liability. Partners no longer held the investments as of

September 30, 2011. See Footnote 6 for further discussion of this liability.

Grants and Contracts Receivable

Grants and contracts receivable consist of billed and unbilled amounts due for expenditures

incurred in excess of payments received under cost reimbursement grants and billings for

services rendered in excess of payments received under consulting and other service

contracts. The amount of unbilled receivables as of September 30, 2011 and 2010, was

$165,629 and $279,936, respectively.

Partners periodically evaluates its outstanding receivables for collectability and records an

allowance. There is no allowance for doubtful accounts as of September 30, 2011 and 2010,

as management believes the balances were fully collectible.

Pledges Receivable

Partners records pledges from various corporations and records amounts due at the time of

the pledge. All pledges were deemed collectible within one year as of September 30, 2010.

There were no pledges receivable as of September 30, 2011.

Advances to Affiliates

Advances to affiliates relate to cash advances made by Partners to the Centers for program

expenses, net of the actual program expenses incurred by the Centers through year-end.

Partners had $346,949 and $251,674, in advances to affiliates as of September 30, 2011 and

2010.

Furniture and Equipment

Furniture and equipment purchased for greater than $5,000 are recorded at cost or the

estimated fair value for donated property. Depreciation on furniture and equipment is

calculated on a straight-line basis over their estimated useful lives of 3 to 5 years.




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Grant and Contract Advances

Grant and contract advances consist of payments advanced in excess of billed and unbilled

expenditures under its grants.

Severance Payable

The severance payable represents the present value of the unfunded liability under a deferred

compensation agreement with an ex-president of Partners.

Net Assets

Unrestricted net assets are assets and contributions that are not restricted by donors or for

which restrictions have expired.

Temporarily restricted net assets are those whose use by Partners has been limited by donors

primarily for a specific time period or purpose. When a donor restriction is met, temporarily

restricted net assets are reclassified to unrestricted net assets. If a donor restriction is met in

the same reporting period in which the contribution is received, the contribution (to the

extent that the restrictions have been met) is reported as unrestricted net assets. The

temporarily restricted net assets as of September 30, 2010, relates to a time restricted grant.

There were no temporarily restricted net assets as of September 30, 2011.

Permanently restricted net assets are those that are restricted by donors to be maintained by

the Center in perpetuity. There were no permanently restricted net assets as of September 30,

2011 and 2010.

Restricted and Unrestricted Support and Revenue

Grant and contributions received are recorded as unrestricted, temporarily or permanently

restricted support, depending on the existence and/or nature of any donor-imposed

restrictions. Donor-restricted support is reported as an increase in temporarily restricted net

assets, depending on the nature of the restriction.

Gifts of cash and other assets are reported as restricted support if they are received with

donor stipulations that limit the use of the donated assets. When a donor restriction expires,

that is, when some stipulated time restriction ends or purpose of the restriction is

accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and

reported in the statements of activities and changes in net assets as net assets released from

restrictions.




10


Functional Allocation of Expenses

The costs of providing the various programs and other activities have been summarized on a

functional basis in the accompanying statements of activities and changes in net assets.

Accordingly, certain costs have been allocated among the program and supporting services

that benefit from those costs. Management and general expenses include those expenses that

are not directly identified with any other specific program but provide for the overall support

and direction of Partners.

Federal Income Tax Status

Partners is a not-for-profit organization exempt from Federal income taxes under Section

501(c) (3) of the Internal Revenue Code (IRC) and is recognized as such by the Internal

Revenue Service.

Fair Value Measurement

Financial Accounting Standards Board Accounting Standards Codification (FASB ASC)

Topic 820, Fair Value Measurements and Disclosures, establishes a framework for

measuring fair value. That framework provides a fair value hierarchy that prioritizes the

inputs to valuation techniques used to measure fair value. The hierarchy gives the highest

priority 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 Topic 820 are described below:

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical

assets or liabilities in active markets that the entity 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 inactive

markets;

• Inputs other than quoted prices that are observable for the asset or

liability; and

• Inputs that are derived principally from or corroborated by observable

market data by correlation or other means.

If 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.




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Fair Value Measurement (continued)

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.

Financial instruments consist of investments, receivables, payables and debt. The carrying

value of Partners’ financial instruments in the accompanying statements of financial position

approximated their respective estimated fair values as of September 30, 2011 and 2010. Fair

values are estimated based on current market rates or liquidation value.

Subsequent Events

Partners evaluated the accompanying financial statements for subsequent events and

transactions through February 10, 2012, the date these financial statements were available for

issue and have determined that, other than the event noted below, no material subsequent

events have occurred that would affect the information presented in the accompanying

financial statements or require additional disclosure.

Partners has several major programs in Yemen, a country which is undergoing significant

political instability and conflict. The turmoil has delayed and hindered Partners’ ability to

execute its programs. Partners is currently working with its funders to devise new programming

schedules and activities that can achieve realistic goals taking into consideration the current

political crisis.

Reclassification

Certain amounts from 2010 were reclassified to conform to 2011 presentation.

3. INVESTMENTS

The following is a description of the valuation methodologies used for investments measured

at fair value as of September 30, 2010. There was no investments as of September 30, 2011.

Mutual fund: Valued on the underlying investments of the fund as valued by the fund’s

management.

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 Partners 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.




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3. INVESTMENTS (continued)

The following table sets forth by level, the fair value hierarchy of the Partners’ investments at

fair value as of September 30, 2010:

Level 1 Level 2 Level 3 Total

Mutual fund -$ 78,861$ -$ 78,861$

Cost Unrealized Gain Unrealized Loss Market Value

Mutual fund 65,228$ 13,633$ -$ 78,861$

2010

2010

The activity related to the investments was an unrealized loss of $1,656 for the year ended

September 30, 2010. There is no unrealized gain or loss for the year ended September 30,

2011.

4. PROPERTY AND EQUIPMENT

As of September 30, 2011 and 2010, property and equipment consist of the following:

2011 2010

Estimated

Useful Lives

Furniture and equipment $ 55,211 $ 49,211 3-5 years

Less: accumulated depreciation 50,211 49,211

Property and equipment, net $ 5,000 $ -

Depreciation expense for the years ended September 30, 2011 and 2010, was $1,000 and

$460, respectively.

5. Note PAYABLE

In November 2006, Partners entered into a note payable with a board member for $200,000,

which accrues interest at 4% per annum. The board member forgave $100,000 and $40,000

of the note during the years ended September 30, 2007 and 2009, respectively. Partners

recorded $2,400, as accrued interest expense related to this note during the years ended

September 30, 2011 and 2010. The remaining $60,000, plus accrued interest outstanding as

of September 30, 2011, is payable on or before December 15, 2012.




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6. POSTRETIREMENT BENEFIT PLAN

Partners provides a deferred compensation benefit plan for an ex-president. This deferred

compensation plan provides an annual severance benefit to the ex-president in the amount of

one month of his annual salary until he retires or terminates employment with Partners. The

officer retired in June 2010. This severance liability is funded by Partners through (1)

discretionary contributions to an Internal Revenue Code Section 403(b) supplemental plan,

(2) 8.33% of the officer’s eligible compensation to a 457 plan, and (3) discretionary

contributions to an informal investment account plus any accrued interest earnings on the

above three plans. Partners did not contribute to the supplemental 403(b) plan during the

years ended September 30, 2011 and 2010. Partners contributed $15,500 to the 457 plan

during the year ended September 30, 2010. There was no contribution to the 457 plan during

year ended September 30, 2011. Partners did not make any contributions to the informal

investment account during the years ended September 30, 2011 and 2010.

The informal investment account is recorded at fair market value of $78,861 as investments,

restricted account in the accompanying statements of financial position as of September 30,

2010. The informal investment account was transferred to pay the severance payable during

the year ended September 30, 2011, and there is no investment balance for the Partners as of

September 30, 2011. The gross unfunded liability as of September 30, 2011 and 2010, is

$48,973 and $179,334. This liability is accrued on the accompanying statements of financial

position.

7. DEFINED CONTRIBUTION PENSION PLAN

Partners has a defined contribution 403(b) Plan (the Plan) covering all permanent

employees. Under the Plan, Partners makes discretionary contributions based on a percentage

of the annual salary of covered employees. During the years ended September 30, 2011 and

2010, Partners did not make contributions to the Plan.

8. SUPPORT, REVENUE AND CONCENTRATIONS

During the years ended September 30, 2011 and 2010, Partners received support in excess of

10% of its total support and revenue from the following organizations:

2011 2010

American Embassy, Sana’a Yemen 28% 33%

Embassy of the Kingdom of Netherlands 4 12

General Electric Foundation 7 13

USAID 30 7

A significant reduction in the level of any of the support from these organizations could

adversely affect the level and quality of programs and activities of Partners.




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9. COMMITMENTS AND CONTINGENCIES

Leases

Partners rented an office facility in Washington, DC pursuant to a non-cancelable operating

lease, which expired on December 30, 2010. There is no future minimum obligation under

this lease as of September 30, 2011.

Partners entered into a new lease agreement for an office facility in Washington, DC. The

new agreement commenced on January 1, 2011 and expires on December 31, 2015. The

future minimum principal payments are as follows:

Year Ending September, Amount

2012 $ 116,520

2013 116,520

2014 116,520

2015 116,520

2016 29,130

Total $ 495,210

Rent expense for the office lease for the years ended September 30, 2011 and 2010, was

$152,651 and $123,075, respectively.

Grants

Partners receives grant support that is subject to audit or review by grantor agencies.

Management believes that Partners has complied with all aspects of the grant and contract

provisions and that disallowed costs, if any, would be immaterial to the financial position of

Partners as of September 30, 2011 and 2010.

Partners charges certain indirect costs to U.S. Government agencies based on its final and

provisional negotiated indirect cost rates. Partners is obligated to pay (or in certain

circumstances may collect) the difference between indirect costs charged and collected based

on its provisional and final rates. On September 8, 2009, the United States Agency for

International Development (USAID) approved final negotiated indirect cost rates effective

for the period September 30, 2006, through September 30, 2007, and provisional negotiated

indirect cost rates beginning October 1, 2007. There was no material difference between the

final negotiated indirect cost rates approved by USAID and the provisional negotiated

indirect cost rates used by Partners during the period September 30, 2006, through September

30, 2007. The management of Partners believes that any obligation of Partners to return

excess indirect costs charged to U.S. Government agencies because of differences between

the provisional and final negotiated indirect cost rates applicable to the year ended September

30, 2011 and 2010, would be immaterial to its financial position.

pdc 2011 audited financial statement

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