Resources / Financial Statements /

2019 Financial Statements

Statements of Financial Position

December 31 2019 2018

Assets

Cash and cash equivalents $11,854,651 $13,431,320
Investments, net 574,066,440 472,398,973
Interest and dividends receivable 429,029 353,830
Federal excise tax 914,000 528,000
Other assets 138,022 217,868
Total assets $587,402,142 $486,929,991

Liabilities

Accounts payable and accrued expenses $938,005 $835,125
Grants payable 20,957,088 23,131,334
Deferred federal excise tax 1,969,000 5,244,000
Total liabilities 23,864,093 29,210,459

Net Assets

Net assets without donor restrictions 563,538,049 457,719,532
Total liabilities and net assets $587,402,142 $486,929,991

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

Statements of Activities

December 31 2019 2018

Net Investment Income

Total investment (loss) / income, net of expenses $131,498,741 $(45,223,458)

Expenses

Grants expensed 24,936,993 38,623,243
Program support and management and general (see note 11) 3,357,344 2,980,081
Provision for program-related loans 1,000,000
Loss on disposal of fixed assets 8,586 13,338
Total expenses 28,302,923 42,616,662
Increase / (decrease) in net assets before federal excise taxes 103,195,818 (87,840,120)
Federal excise tax benefit 2,622,699 756,320
Net increase / (decrease) in net assets without donor restrictions 105,818,517 (87,083,800)
Net assets – beginning 457,719,532 544,803,332
Net assets – ending $563,538,049 $457,719,532

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

Statements of Cash Flows

December 31 2019 2018

Cash Flows from Operating Activities

Change in net assets $105,818,517 $(87,083,800)
Adjustments to reconcile change in net assets to net cash used in operating activities:
Depreciation and amortization 38,719 47,289
Provision for program related loans 1,000,000
Net realized and unrealized (gains) / losses on investments (128,832,451) 47,968,884
Loss on disposal of fixed assets 8,586 13,338
Deferred federal excise tax (3,275,000) (1,419,000)
Changes in assets and liabilities:
Receivables (461,199) 299,144
Other assets 66,733 (27,672)
Accounts payable and accrued expenses 102,880 (4,733)
Grants payable (2,174,246) 10,728,826
Net cash used in operating activities (28,707,461) (28,477,724)

Cash Flows from Investing Activities

Proceeds from sale of investments 107,120,858 134,352,665
Purchases of investments (79,955,874) (98,274,010)
Purchase of equipment and improvements (34,192) (20,500)
Net cash provided by investing activities 27,130,792 36,058,155
Net (decrease) / increase in cash and cash equivalents (1,576,669) 7,580,431
Cash and cash equivalents – beginning 13,431,320 5,850,889
Cash and cash equivalents – ending $11,854,651 $13,431,320

Supplemental Disclosure of Cash Flow Information

Cash paid during the year:
Income taxes, excise $1,038,083 $341,800
Interest $ $

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

Notes to Financial Statements — December 31, 2019 and 2018

Note 1
Summary of Significant Accounting Policies

Nature of operations The George Gund Foundation (the Foundation) is a private foundation located in Cleveland, Ohio that makes grants to educational, community service, and philanthropic organizations.

Basis of accounting The Foundation’s financial statements are presented on the accrual basis of accounting. Accordingly, revenues are recorded when earned, and expenses are recognized when incurred.

Basis of presentation The Foundation has adopted ASU 2016-14. Under this provision, the Foundation is required to report information regarding its financial position and activities according to two classes of net assets: net assets without donor restrictions and net assets with donor restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as follows:

Net Assets without Donor Restrictions – Net assets without donor restrictions are available for use at the discretion of the Board of Trustees (the Board) and/or management for general operating purposes. The Board may designate a portion of these net assets for specific purposes, which makes them unavailable for use at management’s discretion.

Net Assets with Donor Restrictions – Net assets with donor restrictions consist of assets whose use is limited by donor-imposed, time and / or purpose restrictions. The Foundation did not have any assets with donor restrictions as of December 31, 2019 and 2018.

Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the 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 cash on deposit with financial institutions and highly liquid investments with maturity dates of three months or less, which are readily convertible into cash.

Investments in fixed maturity securities Investments in fixed maturity securities are classified at the acquisition date and the classification is re-evaluated at each balance sheet date. Trading investments are securities acquired with the intent to sell in the near term and are carried at fair value with changes in fair value reported in earnings. As of December 31, 2019 and 2018, all of the Foundation’s investments in fixed maturity securities were classified as trading.

Investments in equity securities Investments in equity securities are carried at fair value with changes in fair value reported in earnings

Other investments Investments include program-related loans, net of allowance, which are due from various not for-profit organizations, valued at $5,324,058 and $5,550,785 at December 31, 2019 and 2018, respectively. The notes receivable are due at various dates, from 2021 through 2032 and carry interest at rates between 1% and 2%; principal and interest payment arrangements vary by note. There were two unfunded note commitments totaling $1,000,000 as of December 31 2019. There were no unfunded note commitments as of December 31, 2018. The Foundation has an additional mission-related loan due from a not-for-profit organization valued at $414,784 and $520,252 as of December 31, 2019 and 2018, respectively. This investment is secured by a deposit account and matures in 2021.

The Foundation invests in certain alternative investments, which include investments in limited partnerships. Market values represent the Foundation’s pro rata interest in the net assets of each limited partnership as of December 31, 2019 and 2018, as provided by the fund managers. Market values as of December 31, 2019 and 2018 are not based on audited financial information supplied by the general partner or manager of the funds. Audited information is only available annually based on the partnerships’ or funds’ year end. Management reviews monthly valuations provided by the general partner or manager of the funds and assesses the reasonableness of the fair values provided at the interim dates and included in the financial statements. As of December 31, 2019 and 2018, the Foundation had total unfunded capital commitments related to alternative investments of $1,037,500. There was a conditional unfunded capital commitment of $3,250,000 at December 31, 2019 and 2018. Because of the inherent uncertainty of the valuation of alternative investments, the market values reflected in the accompanying financial statements may differ significantly from realizable values.

Allowance for uncollectible accounts Investments in program-related loans are stated at the present value of the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for uncollectible accounts, and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. At December 31, 2019 and 2018, an allowance for uncollectible accounts in the amount of $1,000,000 is netted against investments in notes receivable.

Interest receivable is stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for uncollectible interest, and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. At December 31, 2019 and 2018, management determined that no allowance for uncollectible interest was deemed necessary.

Furniture, equipment, and leasehold improvements Furniture, equipment, and leasehold improvements are stated at cost. Amortization and depreciation is recorded using both straight-line and accelerated methods over the estimated useful lives of the assets. Depreciation and amortization expense amounted to $38,719 and $47,289 for the years ended December 31, 2019 and 2018, respectively.

Fair value measurement – definition and hierarchy The Foundation follows FASB Accounting Standard Codification (ASC) 820-10, Fair Value Measurements. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Foundation uses various valuation approaches, including market, income, and / or cost approaches. FASB ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs, and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Foundation. Unobservable inputs reflect the Foundation’s assumptions used in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels, based on the reliability of inputs, as follows:

  • Level 1 – Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the Foundation has the ability to access.
    • Assets and liabilities utilizing Level 1 inputs include: exchange-traded equity securities that are actively traded.
  • Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
    • Assets and liabilities utilizing Level 2 inputs include: government bonds, corporate bonds, foreign bonds, private equity investments in mutual funds, and program related savings.
  • Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
    • Assets and liabilities utilizing Level 3 inputs include: equity securities that are not actively traded, private equity investments, and program related/other investments held in loans.

Recent accounting pronouncements The Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, as amended, supersedes or replaces nearly all GAAP revenue recognition guidance. These standards establish a new contract and control-based revenue recognition model, change the basis for deciding when revenue is recognized over time or at a point in time, and expand disclosures about revenue. The Foundation has implemented Topic 606 and has adjusted the presentation in these financial statements accordingly.

Analysis of various provisions of this standard resulted in no significant changes in the way the Foundation recognizes revenue, and therefore no changes to the previously issued audited financial statements were required on a retrospective basis. The presentation and disclosures of revenue have been enhanced in accordance with the standard.

In January 2016, the FASB issued ASU No. 2016-01 entitled “Financial Instruments – Overall (Subtopic 825-10)”. As of January 1, 2019, the Foundation adopted ASU No. 2016-01, which changes the accounting for certain equity investments, financial liabilities under the fair value option, and presentation and disclosure requirements for financial instruments. This standard was adopted prospectively and did not have a material impact on the Foundation’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02 entitled “Leases (Topic 842),” which may change the Foundation’s statement of financial position by adding lease-related assets and liabilities. This may affect compliance with contractual agreements. This new standard is effective for the Foundation for annual reporting periods beginning after December 15, 2020, with early adoption permitted. Management has not yet determined whether this new standard will have a material effect on its financial statements.

In August 2018, the FASB issued ASU 2018-13 entitled “Fair Value Measurement, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU intends to improve the effectiveness of disclosures in the notes to the financial statements by modifying disclosure requirements for fair value measurements. This new standard is effective for the Foundation for annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management has not yet determined whether this new standard will have a material effect on its financial statements.

The Foundation has determined that all other recently issued accounting pronouncements will not have a material impact on the Foundation’s financial statements or do not apply to its operations.

Note 2
Investments

Market values of investments were as follows at December 31:

2019 2018
Fixed income securities $19,893,604 $17,102,762
Common stocks and alternative investments 554,172,836 455,296,211
Total $574,066,440 $472,398,973

Market values of investments are based on December 31, 2019 and 2018 published quotations, except that estimates are used when quotations are not available. Fixed income securities consist of U.S. government securities, U.S. government guaranteed securities, corporate securities, and charitable reserve funds. Common stocks and alternative investments consist principally of U.S. and international equity securities, program and mission-related investments, and investments in limited partnerships.

Published market quotations do not necessarily represent realizable values, particularly where sizable holdings of a company’s stock exist, as in the case of the Foundation’s holding of the Kellogg Company common stock.

Note 3
Fair Value Disclosure and Measurement

The Foundation’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC 820-10. See Note 1 for a discussion of the Foundation’s policies regarding this hierarchy.

The following fair value hierarchy tables present information about the Foundation’s assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using
December 31, 2019 (Level 1)  (Level 2) (Level 3) Balance

Corporate stock

Consumer goods $117,893,001 $ $ $117,893,001
Financial 21,023,176 21,023,176
Services 20,594,379 20,594,379
Industrial goods 6,139,668 6,139,668
Basic materials 10,371,208 10,371,208
Technology 26,520,961 26,520,961
Healthcare 8,161,452 8,161,452
Retail 1,828,655 1,828,655
Closely-held 100 100

Preferred stock

Preferred stock 129,550 129,550

Bonds

Corporate 3,630,219 3,630,219
United States Treasury and Agency 15,627,825 15,627,825
State and municipal 635,560 635,560

Limited partnerships

Limited partnerships 253,165,314 82,580,689 335,746,003

Other investments

Program-related savings 25,841 25,841
Program-related loans, net of allowance 5,324,058 5,324,058
Mission-related investment 414,784 414,784
Total fair value assets $212,532,500 $273,214,309 $88,319,631 $574,066,440
Fair Value Measurements at Reporting Date Using
December 31, 2018 (Level 1) (Level 2) (Level 3) Balance

Corporate stock

Consumer goods $102,129,818 $ $ $102,129,818
Financial 20,440,020 20,440,020
Services 9,882,785 9,882,785
Industrial goods 9,582,467 9,582,467
Basic materials 8,056,997 8,056,997
Technology 17,737,867 17,737,867
Healthcare 4,424,622 4,424,622
Media 2,424,273 2,424,273
Closely-held 100 100

Preferred stock

Preferred stock 115,300 115,300

Bonds

Corporate 2,609,208 2,609,208
United States Treasury and Agency 4,596,954 4,596,954
State and municipal 1,117,065 1,117,065

Limited partnerships

Limited partnerships 206,831,822 67,573,692 274,405,514

Other investments

Program-related savings 25,411 25,411
Program-related loans, net of allowance 5,550,785 5,550,785
Mission-related investment 520,252 520,252

Charitable reserve fund (a)

Charitable reserve fund (a) 8,779,535
Total fair value assets $174,678,849 $215,295,760 $73,644,829 $472,398,973

(a) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position.

The following table provides a reconciliation of changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2019:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Limited Partnerships Other Investments Common Stock Total
Beginning balance – January 1, 2019 $67,573,692 $6,071,037 $100 $73,644,829
Total gains or losses (realized / unrealized) included in changes in net assets 15,538,987 15,538,987
Sales proceeds (531,990) (332,195) (864,185)
Ending balance – December 31, 2019 $82,580,689 $5,738,842 $100 $88,319,631
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $15,253,857 $ $ $15,253,857

The following table provides a reconciliation of changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2018:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Limited Partnerships Other Investments Common Stock Total
Beginning balance – January 1, 2018 $88,081,198 $8,832,360 $100 $96,913,658
Total gains or losses (realized / unrealized) included in changes in net assets (19,058,398) (19,058,398)
Allowance for bad debt (1,000,000) (1,000,000)
Sales proceeds (1,449,108) (1,761,323) (3,210,431)
Ending balance – December 31, 2018 $67,573,692 $6,071,037 $100 $73,644,829
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $(19,707,612) $ $ $(19,707,612)

The following table represents the Foundation’s Level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, and the ranges of values for those inputs at December 31, 2019 and 2018:

Instrument 2019 Fair Value Valuation Technique Unobservable Inputs (UI) Range (Weighted Average)
Closely held stock $100 Recent sales Recent sales
Program-related loans $5,324,058 Discounted cash flows Applicable interest and term; Recovery probability 0% – 100% (16%)
Mission-related loan $414,784 Discounted cash flows Applicable interest and term; Recovery probability
Instrument 2018 Fair Value Prinicipal Valuation Technique Unobservable Inputs Range of (Weighted Average)
Closely held stock $100 Recent sales Recent sales
Program-related loans $5,550,785 Discounted cash flows Applicable interest and term; Recovery probability 0% – 100% (15%)
Mission-related loan $520,252 Discounted cash flows Applicable interest and term; Recovery probability

At December 31, 2019, the Foundation’s limited partnerships are subject to withdrawal restrictions as follows:

Limited Partnerships
Available for redemption:
Monthly $329,398,762
Subject to distribution 6,347,241
Total $335,746,003

Investments that are available for redemption may be redeemed by the Foundation generally with 15- to 30-day advance notice on a monthly basis, subject to the terms of the investment agreement.

Investments subject to distribution cannot be redeemed by the Foundation, but rather will be distributed by the limited partnership upon the liquidation of the underlying assets of the partnership. Distributions are generally expected, but not guaranteed, over the next five years.

The investment objective for limited partnerships is long-term capital appreciation in excess of what is available in the public markets. Private equity funds generally hold illiquid debt and equity securities of public and / or privately held companies. This asset class includes venture capital, buyout, and distressed funds.

Gains and losses (realized and unrealized) from Level 3 investments included in changes in net assets include net realized investment gains of $285,130 and $649,214 for the periods ended December 31, 2019 and 2018, respectively, and net unrealized investment gains / (losses) of $15,253,857 and ($19,707,612) for the periods ended December 31, 2019 and 2018, respectively.

At December 31, 2018, the Foundation’s charitable reserve fund was not subject to withdrawal restrictions. The fund held mostly fixed income investments and was measured at fair value using the net asset value per unit as a practical expedient. This fund closed in 2019 and the balance was transferred to a new account.

Note 4
Credit Concentration

Aside from its holdings in the Kellogg Company, the Foundation’s portfolio of investments is highly diversified; however, at December 31, 2019 and 2018, 17% and 18% of the total market value of securities, and approximately 66% and 69%, respectively, of dividend income in each year are attributable to ownership of Kellogg Company stock.

Note 5
Grants

Grants are expensed upon approval by the Board of Trustees, payable upon the performance of specified conditions, and paid when the specified conditions are satisfied. Grants approved in 2018 included a $10 million commitment to the Say Yes to Education Cleveland Scholarship Fund (Say Yes) payable over five years. In 2019, $4.5 million was disbursed to Say Yes pursuant to this commitment.

Discretionary grants in amounts up to $10,000 and cumulative for the year up to $700,000 and $780,000 for the years ended December 31, 2019 and 2018, respectively, are recommended by the program officers and approved by the executive director. These discretionary grants are expensed upon approval and ratified by the Board of Trustees at the following board meeting. Grants that are cancelled or in excess of needed amounts are included as a reduction of grant expense in the year they are cancelled or returned.

Note 6
Leases

The Foundation occupies office space in the Landmark Office Towers. The lease was renewed in March of 2018, and was effective January 1, 2019. This renewal extended the lease through December 31, 2023. There is a renewal option for an additional period. Rental expense for the years ended December 31, 2019 and 2018 amounted to $153,025 and $151,059, respectively.

The future minimum lease commitments under leases with terms in excess of one year are as follows:

2020 $139,368
2021 143,496
2022 147,849
2023 150,775
$581,488

Note 7
Net Assets

Net assets include two board-designated funds (principal and income), both of which consist entirely of net assets without donor restrictions. The principal fund consists of investments in securities and receives the realized and unrealized gains or losses on those assets. The income fund receives interest and dividends on the principal fund investments, which are used for grants and administrative expenses. The statements of financial position included the following income fund accounts:

2019 2018
Cash $6,487,726 $6,707,913
Receivables 1,343,029 881,830
Other assets 49,475 103,029
Due to principal fund (4,690,109) (4,376,352)
Accounts payable (938,005) (835,125)
Grants payable (20,957,088) (23,131,334)
Deferred federal excise tax 7,000 7,000
$(18,697,972) $(20,643,039)

The following is a summary of the changes in total net assets:

2019 2018
Income fund $1,945,067 $(5,938,725)
Principal fund 103,873,450 (81,145,075)
Increase (decrease) in net assets 105,818,517 (87,083,800)
Net assets – beginning 457,719,532 544,803,332
Net assets – ending $563,538,049 $457,719,532

The change in individual funds includes transfers by the Foundation of $28,180,601 and $27,378,262 in 2019 and 2018, respectively, from the principal fund to the income fund.

Note 8
Revenue and Support Recognition

The Foundation’s revenue and support recognition policies are as follows:

Contributions are recognized when cash, securities or other assets; an unconditional promise to give; or a notification of a beneficial interest is received. Conditional promises to give – that is, those with a measurable performance or other barrier and a right of return – are not recognized until the conditions on which they depend have been met. The Foundation received no contributions for the years ended December 31, 2019 and 2018.

Note 9
Employee Benefit Plan

The Foundation has an employee’s tax-sheltered annuity plan for all eligible employees. Such a plan is intended to comply with the requirements of Section 403(b) of the Internal Revenue Code (IRC). Employer contributions are required at 9% of the participant’s compensation up to the social security wage base for the year, and 14.7% of the participant’s compensation in excess of this wage base, with a limit of $280,000 and $275,000 of compensation for the years ended December 31, 2019 and 2018, respectively. Employer contributions to the plan for the years ended December 31, 2019 and 2018 amounted to $135,494 and $136,807, respectively. Participants are also permitted to make salary reduction contributions to the plan.

Note 10
Excise Taxes

The Foundation is exempt from federal income taxes under Section 501(c)(3) of the IRC, but is subject to a 2% (1% if certain criteria are met) federal excise tax on net investment income, including net realized gains, as defined by the IRC through tax year 2019. On December 20, 2019, the Further Consolidated Appropriations Act was signed into law. Among other provisions, the Act changed the excise tax rate to a flat 1.39% for tax years beginning after the date of the law. The change in tax rate decreased the deferred tax liability by approximately $866,000.

Deferred federal excise taxes are provided on the unrealized appreciation or depreciation of investments and interest, and dividend income and certain expenses being reported for financial statement purposes in different periods than for tax purposes.

Current excise taxes were provided at 1% (qualified for reduced excise tax rate) for 2019 and 2018; deferred excise taxes were provided at 1.39% for 2019 and 2% for 2018. The current and deferred portions of the excise tax provision (benefit) were $652,301 and ($3,275,000) respectively, for a total net benefit of ($2,622,699) in 2019. The current and deferred portions of the excise tax provision (benefit) were $662,680 and ($1,419,000) respectively, for a total net benefit of ($756,320) in 2018.

The Foundation follows the provisions of FASB ASC 740-10, Income Taxes, which provides guidance on the recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition issues. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the accompanying financial statements.

Accrued interest relating to uncertain tax positions would be recorded as a component of interest expense, and penalties relating to uncertain tax positions would be recorded as a component of general and administrative expenses.

Note 11
Functional Expenses

The table below presents expenses by both their nature and function for the year ending December 31, 2019:

Grants Program Support Management and General Program Support and Management and General Totals
Salaries and benefits $ $1,747,662 $367,993 $2,115,655
Grants to other organizations 24,936,993
Office and occupancy 318,455 67,737 386,192
Services and professional fees 240,790 376,790 617,580
Travel, meetings, other 158,951 40,247 199,198
Depreciation and amortization 31,928 6,791 38,719
$24,936,993 $2,497,786 $859,558 $3,357,344

The table below presents expenses by both their nature and function for the year ending December 31, 2018:

Grants Program Support Management and General Program Support and Management and General Totals
Salaries and benefits $ $1,690,270 $359,534 $2,049,804
Grants to other organizations 38,623,243
Office and occupancy 266,686 56,726 323,412
Services and professional fees 49,661 313,777 363,438
Travel, meetings, other 147,580 48,558 196,138
Depreciation and amortization 38,995 8,294 47,289
$38,623,243 $2,193,192 $786,889 $2,980,081

Expenses are recorded as attributable to either grant support or administrative functions wherever possible; however, the financial statements report certain categories of expenses that are attributable to more than one function. Therefore, these expenses require allocation on a reasonable basis that is consistently applied. The allocations above are primarily based on management’s estimates of percentage of staffing costs attributable by function.

Note 12
Liquidity and Funds Available

As part of its liquidity management, the Foundation structures its financial assets to be available as its grants and general expenditures come due. The Foundation has a goal to maintain approximately $20 million in cash and liquid short-term investments on hand to cover normal operating expenses for a one-year period. To achieve this, the Foundation forecasts its future cash flows and monitors its liquidity on at least a monthly basis.

At December 31, 2019, the Foundation has approximately $475,685,000 of financial assets available to meet cash needs for general expenditures within one year of the statement of financial position date, which assets consist of cash and cash equivalents of $11,855,000, interest and dividends receivable of $429,000, and investments of $463,401,000. These financial assets are not subject to donor or other contractual restrictions that make them unavailable for general expenditures within one year.

Note 13
Subsequent Events

The Foundation has evaluated subsequent events from the statement of financial position date through June 2, 2020.

In February 2020, the Board of Trustees approved a total of $5,000,000 in commitments for two program related loans.

In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The impact of the pandemic continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Foundation’s financial condition, liquidity, and future operations. While the Foundation expects the decline in investment values to be temporary, the duration of these uncertainties and related financial impact cannot be reasonably estimated at this time.

In March 2020, the Foundation joined with other philanthropic partners to announce the Greater Cleveland COVID-19 Rapid Response Fund to provide flexible resources to local organizations affected by the pandemic.

Independent Auditor’s Report

To the Board of Trustees, The George Gund Foundation

Report on the Financial Statements We have audited the accompanying financial statements of The George Gund Foundation (an Ohio private foundation), which comprise the statements of financial position as of December 31, 2019 and 2018, and the related statements of activities 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 auditor considers 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 George Gund Foundation as of December 31, 2019 and 2018, 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.

Certified Public Accountants
Cleveland, Ohio
June 2, 2020