Executive Committee
Southeastern California Conference of Seventh-day Adventists and Subsidiaries
We have audited the accompanying consolidated financial statements of Southeastern California Conference of Seventh-day Adventists and its subsidiaries (the Conference), which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, the related consolidated statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, 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.
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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error.
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 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 Conference’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 Conference’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.
Independent Auditor’s Report
Page 2
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southeastern California Conference of Seventh-day Adventists and its subsidiaries as of December 31, 2020 and 2019, 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.
June 30, 2021
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Year Ended December 31, 2020
See notes to consolidated financial statements.
Year Ended December 31, 2019
See notes to consolidated financial statements.
The Southeastern California Conference of Seventh-day Adventists and subsidiaries (the Conference) was formed by Seventh-day Adventist Church congregations within Imperial, Orange, Riverside, San Bernardino, and San Diego Counties in 1915.
The mission of the Conference is the expansion of God's kingdom through the preaching, teaching, publishing, and living of the everlasting gospel by women and men in the cross-cultural communities of our territory.
The Conference supports the operations of all congregations and schools in its territory and is a member organization of Pacific Union Conference of Seventh-day Adventists. The Conference holds title to all denominational property in its territory and performs certain fiduciary duties. Each congregation elects its own board of directors, in addition to a calculated number of delegates, to represent the congregation in governing the Conference.
Calexico Mission School has a mission to show children Jesus, nurture their love for Him and others, teach them to think, and empower them to serve. The Conference has majority voting rights over Calexico Mission School’s board as well as operational and financial control.
The Conference is a sole member of SECC-ECF, LLC a nonprofit limited liability company formed for the sole purpose of providing funding for the educational facilities of the Conference.
The Conference and subsidiaries are nonprofit corporations exempt from federal income tax as described in Internal Revenue Code §501(c)(3) and, as such, are subject to income taxes only to the extent of unrelated business income.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The accompanying consolidated financial statements include the accounts of the Conference, Calexico Mission School, and SECC-ECF, LLC, as the Conference has both control and an economic interest in each entity. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Conference operates through several organizations with which it is affiliated by reason of economic interest and/or shared membership on the respective governing committees. The financial statements of these organizations are not consolidated with the Conference. Interorganizational transactions carried on in the ordinary course of business are handled through current accounts receivable and payable and are settled on a monthly basis. Other financial transactions involving loans and appropriations are detailed in Notes 11 and 16.
These other organizations are as follows:
General Conference of Seventh-day Adventists (GC): The world headquarters of the Seventh-day Adventist denomination and as such determines the operating and accounting policies to be followed by church institutions.
North American Division of the General Conference of Seventh-day Adventists (NAD): The organization responsible for church activities in North America. NAD determines policies for institutions within North America in accordance with GC policies.
Pacific Union Conference of Seventh-day Adventists (PUC) and Pacific Union Association of Seventhday Adventists (PUA): The organization responsible for church activities in the states of Arizona, California, Hawaii, Nevada, and Utah. PUA determines policies for institutions within the above states in accordance with NAD policies.
Certain reclassifications of amounts previously reported have been made to the accompanying financial statements to maintain consistency between periods presented. The reclassifications have no impact on previously reported net assets.
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net Asset Classification
Net assets, revenues, gains, and losses are classified based on the existence or absence of donor or grantor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows:
Net Assets Without Donor Restrictions – Net assets available for use in general operations and not subject to donor (or certain grantor) restrictions. The governing board has designated, from net assets without donor restrictions, net assets for board-designated funds (Note 13).
Net Assets With Donor Restrictions – Net assets subject to donor-imposed restrictions. Some donor-imposed restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor-imposed restrictions are perpetual in nature, where the donor stipulates that resources be maintained in perpetuity. Donor-imposed restrictions are released when a restriction expires, that is, when the stipulated time has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or both.
The Conference considers all highly liquid financial instruments with original maturities of three months or less, which are neither held for nor restricted by donors for long-term purposes, to be cash equivalents. At December 31, 2020 and 2019, the Conference had restricted cash totaling $1,511,814 and $2,757,872 included in assets held in trust.
The Conference records investment purchases at cost, or if donated, at fair value on the date of donation. Thereafter, investments are reported at their fair values in the statements of financial position. Net investment return/(loss) is reported in the statements of activities and consists of interest and dividend income, realized and unrealized capital gains and losses, less external investment expenses. Investments in the Pacific Union Income Fund are measured at net asset value.
Accounts receivable consists of noninterest-bearing amounts due primarily from related affiliates as part of the Conference support of operations. To determine the allowance for uncollectible accounts, the Conference considers such factors as historical trends for collections, knowledge of financial stability of debtors, and a review of subsequent collections, to establish the allowance for doubtful accounts. Accounts receivable are written off when deemed uncollectible.
Notes and loans receivable consist of amounts due primarily from related affiliates and are reported at their net realizable value. To determine the allowance for uncollectible accounts, the Conference considers such factors as historical trends for collections, knowledge of financial stability of debtors, and a review of subsequent collections, to establish the allowance for doubtful accounts. Notes receivable are written off when deemed uncollectible.
The Conference acts as trustee for various revocable and irrevocable trusts. These trusts are governed by the respective trust agreements, which generally provide for either an income stream or a future distribution of cash or other assets to the Conference, in whole, or in part, for a specified period or upon the occurrence of a specific event, respectively. If a trust is revocable, or if the maker of the trust reserves the right to replace the Conference as the beneficiary of the trust, the Conference records the assets placed in trust at fair value, with an equal and offsetting liability until such time that the Conference receives distributions from the trust in accordance with its terms. If the trust is irrevocable, the trust assets are recorded at fair value, and a related liability for future payments to be made to the specified beneficiaries is recorded at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the liability. The excess of contributed assets over the trust liability is recorded as a contribution with donor restrictions until such amount is received via trust distribution or is expended in satisfaction of the donor-restricted purpose stipulated by the trust agreement, or both, if any. At that time, net assets with donorimposed time or purpose restrictions are released to net assets without restrictions, and net assets with donor restrictions that are perpetual in nature are transferred to the endowment. In subsequent years, the liability for future trust payments to the donor is reduced by payments made to the donor and is adjusted to reflect changes in the fair value of the liability at the end of the year. Upon termination of the trust, the remaining liability is removed and recognized as income. The discount rates used for the years ended December 31, 2020 and 2019 ranged from 4.5% to 6%.
Under charitable gift annuity contracts, the Conference receives immediate and unrestricted title to contributed assets and agrees to make recurring payments over the stipulated period. The Conference pays periodic annuity payments to donors ranging from 4.6% to 11.3%. Contributed assets are recorded at fair value on the date of receipt. The related liability for future payments to be made to the specified beneficiaries is recorded at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the liability. The excess of contributed assets over the annuity liability is recorded as a contribution without donor restrictions. In subsequent years, the liability for future annuity payments is reduced by payments made to the specified beneficiaries and is adjusted to reflect amortization of the discount and changes in actuarial assumptions at the end of the year. The Conference maintains an annuity reserve in accordance with California Insurance Code Sections 11520–11524. The discount rates used for the years ended December 31, 2020 and 2019 ranged from 4.5% to 6%. The annuities assets totaled $2,294,468 and $1,695,056 at December 31, 2020 and 2019, respectively. The annuities liabilities totaled $1,279,552 and $1,040,330 at December 31, 2020 and 2019, respectively.
Real estate, property, and equipment are recorded at cost when purchased or fair value at date of donation for items in excess of $3,000 which also have a useful life in excess of one year, except as noted below. Capitalized costs include labor, materials, and indirect charges for such items as engineering, supervision, and transportation. The Conference follows the policy of capitalizing interest as a component of property and equipment constructed for its own use. Depreciation expense is calculated using the straight–line method over the estimated useful lives of the assets which range from 3 to 75 years. Donated capital improvements are capitalized when they exceed $20,000. Major remodels that do not add square footage are not recognized as a donated asset until the project is completed. Construction of new facilities and capital improvements that add square footage are recorded as construction-in-progress annually as the project progresses. The Conference holds legal title to the real properties used by the Conference, congregations, schools, and academies. The book value of these properties is included in these consolidated financial statements.
U.S. GAAP requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may no longer be appropriate. The Conference assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. There were no impairment losses recognized in the years ended December 31, 2020 and 2019.
The Conference recognizes revenue from fees and services performed when the performance obligations of transferring the products and providing the services are met. Sales of inventory are recognized at the time of purchase. Tithes and offerings are recognized when received by each congregation. Rental income is recognized as earned.
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 substantially met.
The costs of program and supporting services activities have been summarized on a functional basis in the statement of activities. The consolidated statements of functional expenses present the natural classification detail of expenses by function. Accordingly, certain costs have been allocated among the programs and supporting services benefited. These expenses include, but are not limited to, depreciation and amortization, information technology, and facilities operations and maintenance. These expenses have been allocated using a variety of cost allocation techniques such as square footage and estimates of time and effort.
The Conference is a religious not-for-profit organization and is exempt from federal income taxes under the provisions of Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code.
The financial statement effects of a tax position taken or expected to be taken are recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. As of December 31, 2020 and 2019, the Conference had no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Conference is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In June 2020, the FASB issued ASU 2020-05 which defers the effective date of ASU 2016-02 making it effective for years beginning after December 15, 2021, and for interim reporting periods within years beginning after December 15, 2022. The adoption of ASU 2016-02 is not expected to have a material impact on the financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which contains practical expedients for reference rate reform related activities that affect debt, leases, derivatives and other contracts. The ASU applies to all entities that have contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The expedients and exceptions offered do not apply to contract modifications and hedging relationships established after December 31, 2022, and hedging relationships existing as of December 31, 2022 will be an exception. The amendments are effective for all entities from March 12, 2020 to December 31, 2022. Management continues to evaluate the impact of the guidance and may apply elections as applicable as changes in the market occur.
In September 2020, the FASB issued ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, which requires a not-for-profit entity to present contributed nonfinancial assets in the statement of activities as a line item that is separate from contributions of cash or other financial assets. ASU 2020-07 also requires additional qualitative and quantitative disclosures about contributed nonfinancial assets received, disaggregated by category. This ASU is effective for the Conference beginning on January 1, 2022. Management is currently evaluating the impact of this new guidance on its financial statements.
The following table reflects the Conference's financial assets available within one year of December 31, 2020 and 2019, reduced by amounts not available for general expenditure. Financial assets are considered unavailable when illiquid or not convertible to cash within one year.
The Conference has a policy to structure its financial assets to be available as its general expenditures, liabilities and other obligations come due. The Conference also has an unused $1,000,000 line of credit, which it could draw upon in the event of an unanticipated liquidity need. The Conference does not intend to spend from board designated funds, but these could be drawn upon through board resolution. As part of the Conference's liquidity management plan, it invests funds in excess of the amount needed for the next 90 days in the Pacific Union Income Fund.
U.S. GAAP defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. In addition to defining fair value, U.S. GAAP expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 – Include other inputs that are directly or indirectly observable in the marketplace
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, which is the Conference’s policy. For the years ended December 31, 2020 and 2019, the application of valuation techniques applied to similar assets and liabilities has been consistent.
The following is a description of the valuation methodologies used for instruments measured at fair value:
The basis of fair value for money market funds investment funds differs depending on the investment. For certain investments, market value is based on quoted market prices.
The basis of fair value for equity investment funds differs depending on the investment. For certain investments, market value is based on quoted market prices.
The basis of fair value for fixed income securities differs depending on the investment. For certain investments, market value is based on bond yield curves, credit ratings and leverage of each closed-end fund, and market yields for bonds and commercial paper.
As a practical expedient, fair value for investments in Pacific Union Income Fund is measured using the net asset value (NAV) of the shares in the fund as provided by the trust. The investment may be redeemed at any time without advance notice.
The interest rate swap agreement is valued using a third party’s proprietary discounted cash flow model, which considers past, present, and future assumptions regarding interest rates and market conditions to estimate the fair value of the agreement. This is classified within Level 2.
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 Conference 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. Investments held at Level 1 fair value or NAV as a practical expedient as of December 31, consisted of the following:
Accounts receivable consisted of the following at December 31.
Noncurrent accounts receivable at December 31, 2020 and 2019 amounted to $1,631,812 and $1,068,467, which are due in the next one to five years.
The Conference finances activities on behalf of its affiliated organizations. The payment terms are consistent with the corresponding debt. At December 31, 2020 and 2019, notes receivable consisted of:
Real estate and plant assets at December 31, 2020 and 2019, includes capitalized assets held and used by the Conference as well as its affiliates. The Conference also holds title to real estate for the use of certain affiliated organizations, including congregations, schools, and academies.
Real estate and plant assets, categorized by use, consisted of the following as of December 31, 2020:
Real estate and plant assets, categorized by use, consisted of the following as of December 31, 2019:
The use of buildings and improvements constructed by academies, totaling $31,036,829, financed with the proceeds of Colorado Education and Cultural Facilities Authority-Series 2009 tax-exempt bonds is legally restricted to prohibit the use of the property primarily for religious worship or sectarian instruction.
The Conference was granted a $5,930,230 loan under the Paycheck Protection Program (PPP) administered by a Small Business Administration (SBA) approved partner. The loan is uncollateralized and is fully guaranteed by the federal government. The Conference is eligible for loan forgiveness of up to 100% of the loan, upon meeting certain requirements. The Conference has initially recorded the loan as a grant advance and will record the forgiveness in accordance with guidance for conditional contributions when there is no longer a measurable performance or other barrier and a right to return of the PPP loan or when such conditions are explicitly waived. Proceeds from the loan are eligible for forgiveness if the Conference maintains employment levels during its 24-week covered period and uses the funds for certain payroll, rent, and utility expenses. The Conference has stated those conditions have been met and has applied for forgiveness. No contribution revenue has been recorded for the year ended December 31, 2020. The Conference request of forgiveness was fully approved and balance was remitted to the bank by SBA June 16, 2021.
The Conference has a $6,000,000 line of credit with a bank, secured by its accounts and deposits with the bank. Borrowings under the line bear interest equal to the Daily LIBOR plus 1.25% (1.59% and 3.25% at December 31, 2020 and 2019, respectively). The line matures on January 31, 2022. The agreement requires the Conference to comply with certain financial and non-financial covenants.
In addition to debt acquired for Conference operations, the Conference also obtains or guarantees debt on behalf of affiliated congregations, schools, and academies.
At December 31, 2020 and 2019, notes payable consisted of the following:
Conference notes payable
Lender 2 - note 1; due March 1, 2024; Variable annual principal payments; effective March 1, 2019 and through maturity fixed interest rate at 4.08%; balloon payment due at maturity; secured by real property and ten assignments of rent.
Lender 3 - note 1; due May 4, 2021; payable in monthly installments of $11,759 including variable interest at 4.325% at December 31, 2020 and 2019; balloon payment due at maturity; secured by real property. (1)
Lender 2 - note 2; due September 1, 2021 payable in monthly installments of $17,980, plus interest at 2.48%; secured by all deposits and accounts maintained with Bank of America; and is subject to covenants under the Bank of America letter of
Lender 2 - note 3; due February 1, 2023 payable in monthly installments of $13,190, plus interest at 3.94%; secured by all deposits and accounts maintained with Bank of America; and is subject to covenants under the Bank of America letter of
Lender 4 - note 1; due December 1, 2021; payable in monthly installments of $5,200 including interest at 6%; balloon payment due at maturity; secured by real property. (1)
Lender 5 - note 1; due January 1, 2025; payable in variable monthly installments that range from $2,097 to $3,308 including interest at 5.149%; balloon payment due at maturity; secured by equipment. (1) (3)
Lender 1 - note 1; due April 21, 2025; payable in monthly installments of $27,976 including interest at 3.75%; balloon payment due at maturity; secured by real property; includes three assignments of rents.
Lender 4 - note 2; due December 1, 2027; payable in monthly installments of $10,575 including interest at 6.875%; balloon payment due at maturity; secured by real property; includes one assignment
as additional security.
Lender 1 - note 2; due June 18, 2029; payable in monthly installments of $9,776 including interest at 5.25%; secured by real property.
Lender 4 - note 3; due June 1, 2030; payable in monthly installments of $575.10 including interest at 6%; balloon payment due at maturity; secured by real property; includes one assignment of rents as additional security.
Lender 6 - note 1; due February 1, 2035; payable in monthly installments of $2,369 including interest at 5.375%; secured by real property.
Notes payable guaranteed by the Conference
Lender 7 - Church and School Fund Loans; maturity dates vary; variable interest rate at 4%; secured by real property; includes assignments of rents for additional security.
Lender 7 - Income Fund Loans; maturity dates vary; variable interest rate at 4.75%; secured by real property; includes assignments of rents for additional security.
(1) The note was incurred on behalf of and is offset by a note receivable from a congregation, school or academy within the Conference.
(2) Related party. See Note 16.
(3) The note reflects the Conference and the congregation, school, or academy as parties to the note.
At December 31, bonds payable consisted of the following:
California Municipal Finance Authority – tax exempt revenue bonds Series 2013; effective March 1, 2019, and through maturity fixed interest rate at 3.30%; annual principal payments beginning June 1, 2025 and maturing June 1, 2038; secured by real property; includes assignments of rents for additional security.
Future maturities of long-term debt and related party obligations at December 31, 2020 were as follows:
Bond and Loan agreements with lender 2 as of December 31, 2020 and 2019, contain covenants pertaining to debt balances and liquidity.
The Conference's governing board through specific action has created self-imposed limits on net assets without donor restrictions. The board has earmarked the following for designated purposes as of December 31. These net assets can be drawn upon with board approval.
At December 31, net assets with donor restrictions consist of the following:
Subject to expenditure for specified purpose
Subject to passage of time
Subject to restrictions in perpetuity
Net assets with donor restrictions were released for the following purposes or periods:
The Conference participates in a noncontributory multi-employer defined benefit retirement plan known as the Seventh-day Adventist Retirement Plan for North America (DB Plan). The DB Plan is administered by the General Conference of Seventh-day Adventists in Silver Spring, Maryland and is exempt from the Employee Retirement Income Security Act of 1974 as a plan of a churchrelated agency. The DB Plan was frozen effective January 1, 2000. At this time, a new defined contribution plan was put in place for all new employees and non-vested employees. The Conference contributed $4,806,209 and $4,820,811 to the DB Plan for the years ended December 31, 2020 and 2019, respectively, for general retirement benefits. The Conference portion of the total contributions made to the DB Plan each year were less than 5%. The DB Plans funded status as of December 31, 2019 and 2018, was less than 65%.
The Conference also participates in the Health Care Assistance Plan for Participants in the Seventh-day Adventist Retirement Plan of the North American Division (HC Plan) on behalf of retired employees participating in the Defined Benefit Plan. This plan provides primarily healthcare benefits which supplement Medicare benefits. The extent of these benefits is based on years of service and the beneficiary’s monthly contribution. The Conference contributed $1,721,295 and $1,670,168 for the years ended December 31, 2020 and 2019, to this plan, and does not consider the plan to be significant.
The Conference participates in a defined contribution retirement plan known as “The Adventist Retirement Plan” (DC Plan). The DC Plan, which covers substantially all employees of the Conference, is administered by the General Conference of Seventh-day Adventists in Silver Spring, Maryland and is exempt from the Employee Retirement Income Security Act of 1974 as a plan of a church-related agency. Employees can contribute up to the maximum amounts allowed by current tax laws and the Conference will match according to maximum amounts approved on the Adventist retirement policy and tax laws. The Conference contributed $2,194,018 and $2,293,365 under the basic requirements and $1,247,130 and $1,249,463 as employer matching to the Defined Contribution Plan for the years ended December 31, 2020 and 2019, respectively.
The Conference is self-insured for dental, vision, and wellness programs in the plan years ended June 30, 2020 and 2019. The Conference expended $245,092 and $259,971 during the years ended December 31, 2020 and 2019, respectively.
The Conference participates in a Worker’s Compensation Self-Insurance Pool (the Plan) that is coordinated by the PUC. PUC is considered to be a “fully participating member” of the Plan and is not required to arrange for a security deposit or surety bond. The Plan calculates an annual assessment which is billed to each organization for their prorated portion of the assessment. The amount of the annual contributions to the Plan, including contributions for affiliated organizations, are calculated based on prior year’s claims, and totaled $474,222 and $679,260 for the years ended December 31, 2020 and 2019, respectively.
In 2020 and 2019, the Conference used a combination of insurance and self-insurance mechanisms to provide for potential liabilities for employee healthcare benefits. Liabilities associated with the risks that are retained by the Conference are not discounted and are estimated, in part, by considering historical claims. The estimated accrual for these liabilities could be affected if future occurrences and claims differ from these assumptions and historical trends. For the years ended December 31, 2020 and 2019, the self-insurance liability for estimated benefits incurred but not reported, which is specific to employee healthcare benefits, was $273,628 and $215,411, respectively, and is included in accrued wages and benefits in the consolidated statements of financial position.
The Conference is associated with various Seventh-day Adventst organizations. The following represents assets and liabilities held with related parties at December 31:
Reflected in the consolidated statement of activities is the following related party activity for the years ended December 31, 2020 and 2019:
Within accounts receivable balance at December 31, 2020 and 2019, there is one congregation that represents more than 10 percent of the total balance and that accounts for more than 10 percent of annual gross tithe revenue. Additionally, there are two academies which each represent more than 10 percent of the total notes receivable balance at December 31, 2020 and 2019.
Tithe percentages passed on represents the portion of tithe revenue received by the Conference which is allocable to affiliated organizations in accordance with policy. Subsidies represent amounts received in support of Conference operations or specific education or evangelism projects. Payroll, benefits, and other expense reimbursements represents those costs incurred by the Conference for which the affiliates are responsible for reimbursing the Conference. Under the guidelines of the Seventh-day Adventist denomination, churches, schools, and academies are not to own real property. As such, acquired or constructed plant assets by affiliates are donated to the local conference and are included in donated plant assets. In turn, the Conference allows the affiliates to use the property at no cost. Appropriations represents amounts paid to affiliates for operations or other support; whereas, rental income appropriations represent the amount of rental income for use of Conference-owned property from which the Conference allows the affiliate to collect from third parties and retain. The Conference provides faculty and administration personnel for the schools and academies, as well as ministerial and administrative staff for affiliate churches within its territories. Of the total payroll and related benefit expenses, the affiliate may be responsible for a portion of the associated personnel costs.
Notes payable held by the PUC are as follows:
2019 Loans received by affiliate schools and academies from PUC, guaranteed with Conference fixed assets
The Conference has guaranteed these notes until repaid by the schools and academies as detailed in Note 10. In the event the schools or academies default on repayment, the Conference would be required to repay the remaining debt balance. The Conference and the affiliated entity have a corresponding promissory note agreement.
On September 1, 1986, the Conference entered into an agreement with Loma Linda University, a Seventh-day Adventist university, for the Conference to lease land from Loma Linda University for a nominal amount, which is in turn sublet to the Loma Linda University Church, an affiliated congregation, for a nominal value, to be used by the congregation as a children’s center. The lease expires on August 31, 2085.
The financial data provided for the affiliate schools and academies which have not been consolidated as explained in Note 1, is as follows:
Net deficits are primarily a result of all real property used by the schools being owned and recorded by the Conference, while many schools and academies have recorded the associated debt.
As reflected in Note 11, the Conference guarantees certain notes payable of affiliate churches and schools. The Conference’s maximum credit risk associated with these notes payable guarantees totaled $48,063,000 and $43,668,298 at December 31, 2020 and 2019, respectively. To date, the affiliate churches have fulfilled their obligations as specified in the agreements. Additionally, various claims and litigation involving the Conference are currently outstanding. However, management of the Conference believes, based on consultation with legal counsel, that the ultimate resolution of these matters will not have a material effect on the Conference’s financial position.
The Conference manages deposit concentration risk by placing cash, money market accounts, and certificates of deposit with financial institutions believed to be creditworthy. At times, amounts on deposit may exceed insured limits or include uninsured investments in money market mutual funds. To date, the Conference has not experienced losses in any of these accounts. Credit risk associated with accounts and notes receivable is considered to be limited due to high historical collection rates and because substantial portions of the outstanding amounts are due from affiliates and others who are supportive of the Conference’s mission.
Investments are made by diversified investment managers whose performance is monitored by the investment committee of the Board of Directors. Although the fair values of investments are subject to fluctuation on a year-to-year basis, management and the investment committee believe the investment policies and guidelines are prudent for the long-term welfare of the Conference.
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Organization operates.
In the preparation of these consolidated financial statements, the Conference considered subsequent events through June 30, 2021 which is the date these consolidated financial statements were available for issuance.
The Conference received notice on June 16, 2021 that the PPP loan (Note 9) was forgiven in full.