CLINICAS DEL CAMINO REAL, INC. AND SUBSIDIARIES. Consolidated Financial Statements And Supplementary Financial Information

Transcription

1 Consolidated Financial Statements And Supplementary Financial Information For the Year Ended June 30, 2017

2 Table of Contents Year Ended June 30, 2017 Exhibit Page Independent Auditor s Report 1-2 Financial Statements: Consolidated Statement of Financial Position A 3 Consolidated Statement of Activities B 4 Consolidated Statement of Cash Flows C 5 Consolidated Statement of Functional Expenses D 6 Notes to the Consolidated Financial Statements 7-21 Supplementary Financial Information: Schedule Page Schedule of Expenditures of Federal Awards 1 22 Reports to Management: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance And Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Cost 27

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors Clinicas Del Camino Real, Inc. and Subsidiaries Ventura, California Report on the Financial Statements We have audited the accompanying consolidated financial statements of Clinicas Del Camino Real, Inc. and Subsidiaries (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2017, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. The financial statements of AmericasHealth Plan, Inc., and MedPartners MSO, Inc. (the Subsidiaries) were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4

5 FINANCIAL STATEMENTS

6 Exhibit A Consolidated Statement of Financial Position June 30, 2017 with Comparative Totals For the Year Ended June 30, 2016 Assets: Current Assets Cash and cash equivalents $ 41,023,777 $ 33,055,694 Patient accounts receivable-net (Note C) 4,295,705 3,846,092 Grants receivable (Note D) 11,205,681 10,397,373 Estimated third-party payor receivable 3,677,918 3,268,460 Other receivables 2,180,741 4,455,217 Prepaid expenses 467, ,519 Other current assets 70,535 70,535 Total Current Assets 62,922,140 55,683,890 Investments (Note E) 6,509,013 2,708,570 Deferred Tax Asset 230,548 40,499 Restricted Cash 311, ,549 Property and Equipment - Net (Note F) 38,222,099 34,320,430 45,273,609 37,380,048 TOTAL ASSETS $ 108,195,749 $ 93,063,938 Liabilities and Net Assets: Current Liabilities Accounts payable $ 807,492 $ 681,770 Accrued liabilities (Note I) 10,328,687 6,417,901 Estimated third-party payor liabilities (Note G) 944,061 2,763,632 Other liabilities 143, ,040 Current portion of long-term debt (Note J) 993, ,973 Total Current Liabilities 13,216,955 11,188,316 Long-Term Debt (Note J) 23,683,194 20,124,632 Total Liabilities 36,900,149 31,312,948 Net Assets Unrestricted 60,505,283 51,299,273 Temporarily restricted (Note L) 10,790,317 10,451,717 Total Net Assets 71,295,600 61,750,990 TOTAL LIABILITIES AND NET ASSETS $ 108,195,749 $ 93,063,938 See accompanying notes to the consolidated financial statements. 3

7 Exhibit B Consolidated Statement of Activities Year Ended June 30, 2017 with Comparative Totals For the Year Ended June 30, 2016 Unrestricted Net Assets: Operating Revenues, Gains, and Other Support: Net patient revenue $ 78,636,948 $ 85,981,368 Grant revenue 4,786,319 7,525,132 Other income 4,059,462 3,797,791 Total Public Support and Revenues 87,482,729 97,304,291 Net assets released from restrictions (Note L) Restrictions Satisfied by Provision of Services 10,451,717 7,583,567 Total Public Support, Revenues and Reclassifications $ 97,934,446 $ 104,887,858 Expenses: Program Services Medical services 42,615,998 35,993,088 Dental 10,720,995 9,642,096 Educational and social services 3,470,557 3,021,397 Other health services 5,098,612 4,189,673 Total Program Service Expenses 61,906,162 52,846,254 Supporting Services: Management and general 26,990,502 21,916,510 Total Expenses 88,896,664 74,762,764 Change in Net Assets from Operations 9,037,782 30,125,094 Other Changes Net assets released from restrictions (Note L) Investment income (Note E) 168, ,304 Total Other Changes 168, ,304 Increase in Unrestricted Net Assets 9,206,010 30,240,398 Temporarily Restricted Net Assets: Federal, state and local grants 10,790,317 10,451,717 Net assets released from restrictions (Note L) (10,451,717) (7,583,567) Change in Temporarily Restricted Net Assets 338,600 2,868,150 Change in Net Assets 9,544,610 33,108,548 Net Assets at Beginning of Year 61,750,990 28,642,442 NET ASSETS AT END OF YEAR $ 71,295,600 $ 61,750,990 See accompanying notes to the consolidated financial statements. 4

8 Exhibit C Consolidated Statement of Cash Flows Year Ended June 30, 2017 with Comparative Totals For the Year Ended June 30, 2016 Cash Flows From Operating Activities: Increase in net assets $ 9,544,610 $ 33,108,548 Adjustments to reconcile change in net cash provided (used) for operating activities Depreciation 2,504,566 2,312,299 Unrealized gains on investments (83,589) (92,121) Increase in deferred tax asset (190,049) (19,348) (Increase) decrease in operating assets Patient accounts receivable (449,316) (1,030,529) Grants receivable (808,308) (2,791,976) Estimated third-party payor receivable (409,458) (2,158,114) Other receivable 2,274,476 (2,497,873) Prepaid expenses 122,736 29,648 Other current assets - 5,535 Increase (decrease) in operating liabilities Accounts payable 125,721 (924,348) Accrued expenditures 3,910,787 (5,491,109) Estimated third-party payor liabilities (1,819,571) (77,001) Other liabilities (471,665) 420,500 Net Cash Provided By Operating Activities 14,250,940 20,794,111 Cash Flows From Investing Activities: Transfers from deferred compensation accounts - 4,586,037 Transfer to investment accounts (3,716,854) (2,616,449) Transfers to restricted cash (1,400) (2,555) Purchase of property and equipment (2,236,585) (5,577,952) Net Cash (Used) By Investing Activities (5,954,839) (3,610,919) Cash Flows From Financing Activities: Prinicpal payments on long-term debt (828,018) (2,086,482) Proceeds of long-term borrowings 500,000 2,328,000 Net Cash Provided (Used) By Financing Activities (328,018) 241,518 Net Increase In Cash And Cash Equivalents 7,968,083 17,424,710 Cash And Cash Equivalents - Beginning Of Year 33,055,694 15,630,984 CASH AND CASH EQUIVALENTS - END OF YEAR $ 41,023,777 $ 33,055,694 Supplemental Disclosure of Cash Flow Information: Interest paid $ 943,105 $ 837,112 Supplemental Disclosure of Noncash Investing and Financing Activities: Property, vehicles & equipment purchased and financed $ 4,169,947 $ 3,394,834 See accompanying notes to the consolidated financial statements. 5

9 Exhibit D Consolidated Statement of Functional Expenses Year Ended June 30, 2017 with Comparative Totals For the Year Ended June 30, 2016 Program Services Educational Other Supporting Medical Dental & Social Health & General Total Total Services Services Services Services Services Expenses Expenses Salaries $ 19,962,057 $ 6,397,675 $ 2,356,316 $ 3,132,643 $ 11,233,640 $ 43,082,331 $ 37,608,787 Fringe Benefits 4,722,347 1,663, , ,816 4,809,614 12,581,432 10,107,549 Total Salaries & Fringe Benefits 24,684,404 8,061,088 3,063,558 3,811,459 16,043,254 55,663,763 47,716,336 Consultants/ Contractual Services 11,755, ,396 3,636 8,111 4,910,896 16,999,492 11,932,917 Dues & Memberships 282,934 24, , , , ,165 Education 101,832 39,250 14,143 9, , , ,748 Equipment Lease & Rental 203,381 57,096 10,206 27, , ,086 1,105,979 Insurance-General Liability , , , ,950 Insurance-Malpractice 40,557 20,798-13,056-74,411 67,906 Insurance-Reinsurance 126, , ,384 Interest Expense 376,545 92,470 51,683 91, , , ,111 Postage 30,718 1, ,691 74,712 67,019 Printing & Duplication 119,752 5,725 7,017 3, , , ,963 Promotion 543, ,042 54, ,345 2, , ,685 Publications & Subscriptions 3, ,475 8,998 17,563 Recruitment 168,738 27, ,328 37, , ,726 Rent 214,590-18, , , , ,704 Repairs & Maint-Auto 1,724 13,011 11,873-38,321 64,929 64,637 Repairs & Maint-Building 29,542 19,564-2, , , ,350 Security Services , ,679 96,613 Supplies-Dental - 1,108, ,108,942 1,008,540 Supplies-Information Technology 51,509 4,263 2, , , ,196 Supplies-Janitorial ,536 87,659 92,099 Supplies-Laboratory 130, , ,231 Supplies-Medical 517,876 76, ,390 7, , ,121 Supplies-Office 226,076 35,766 15,458 28, , , ,777 Supplies-Optical , , ,438 Supplies-Pharmacy 1,616, ,616,307 1,623,838 Supplies-X Ray 4, , Taxes & License 458,835 9,806 1, , , ,181 Telephone 396,667 3,245 6,138 3, , , ,463 Travel 90,528 33,129 11,897 10, , , ,146 Utilities 252,053 53,187 27,920 55, , , ,349 Miscellaneous 92, ,516 2,430 11, , , ,011 Total Expenses Before Depreciation 42,521,250 10,350,356 3,465,847 5,012,403 25,042,242 86,392,098 72,450,465 Depreciation 94, ,639 4,710 86,209 1,948,260 2,504,566 2,312,299 Total Expenses $ 42,615,998 $ 10,720,995 $ 3,470,557 $ 5,098,612 $ 26,990,502 $ 88,896,664 $ 74,762,764 See accompanying notes to the consolidated financial statements. 6

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11 NOTE A: NATURE OF ACTIVITIES CLINICAS DEL CAMINO REAL, INC. Notes to the Consolidated Financial Statements June 30, 2017 Clinicas Del Camino Real, Inc. (the Organization), is a Non-Profit Corporation supported by federal, state and local grants, private foundations grants, and revenues from operations. Organization activities consist of providing quality medical and supportive services to the population of Ventura County. The Organization operates thirteen primary health care facilities located in the cities of Simi Valley, Moorpark, Ventura, Oxnard, Fillmore, Newbury Park, Santa Paula, and Ojai. One Board of Directors governs all of the operations and programs of Clinicas Del Camino Real, Inc. Their underlying philosophy and objective is to provide high quality comprehensive health services to the people of the area, regardless of income. NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Information The consolidated financial statements for the year ended June 30, 2017 are prepared in accordance with accounting principles generally accepted in the United States of America, which require the Organization to make estimates and assumptions regarding the valuations of certain financial instruments, contractual allowance levels, the outcome of litigation, and other matters that affect the consolidated financial statements and related disclosures. The Organization believes that the estimates utilized in the preparation of the consolidated financial statements are prudent and reasonable. Actual results could differ materially from these estimates. The Organization is required to report information regarding its consolidated financial position and activities according to three classes of net assets; unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Organization has no permanently restricted net assets. Basis of Accounting The Organization prepares its consolidated financial statements in accordance with generally accepted accounting principles, which involves the application of accrual accounting. Consequently, revenue and gains are recognized when earned, and expenses and losses are recognized when incurred. Consolidated Financial Statements The consolidated financial statements include the accounts of the Organization and its wholly owned subsidiary, AmericasHealth Plan, Inc. and MedPartners MSO, Inc. All material intra-entity transactions have been eliminated. Cash and Cash Equivalents For purpose of the consolidated statement of cash flows, the Organization considers all unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents. 7

12 Notes to the Consolidated Financial Statements June 30, 2017 NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Results of Operations The Organization has defined a measure of operations that considers all revenues and expenses to be related to operations, except capital grants and contributions, which are included in the category called other changes. Patient Revenue Patient Service Revenue is recorded at the Clinic s established rates. Sliding fee scale adjustments, provision for uncollectible accounts and contractual allowances are deducted to arrive at net patient service revenue. Patient service revenue also includes capitated fees received from its managed care contracts. Revenue under third-party payor agreement is subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of the settlement. Deductions from patient service revenue related to sliding fee scale adjustments, provision for uncollectible accounts and contractual allowance aggregated to approximately $7,706,072 for the year ended June 30, Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Fair values for investments are determined by reference to quoted market prices and other relevant information generated by market transactions (all level 1 measurements). Unrealized gains and losses are included in the change in net assets. Investments income and gains restricted by donors are reported as increases in unrestricted net assets if the restrictions are met (either a stipulated time period ends or a purpose restriction is accomplished) in the reporting period which the income and gains are recognized. Grants and Contributions Contributions received from granting agencies are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any grantor restrictions. 8

13 Notes to the Consolidated Financial Statements June 30, 2017 NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Grants and Contributions (Continued) Support that is restricted by the grantor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other grantor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Property and Equipment Expenditures for property and equipment are stated at cost. The Organization capitalizes all expenditures for property and equipment in excess of $5,000. Donated assets are recorded at their estimated fair market values at the date of donation. Depreciation of buildings and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis. Property acquired with federal grant supported funds is considered to be owned by the Organization while used in the program for which it was purchased or in other authorized programs. However, the federal government has a reversionary interest in the property equal to the federal share of the grant which acquisition cost of the property was charged. Allowances and Adjustments to Patient Fees Allowances for doubtful accounts are recorded in the Organization s financial statements as a reduction to revenue from patient fees. The allowance is based on historical collection rates. Revenue from patient fees are also adjusted by discounts provided to patients who are eligible to receive discounted services based on the patient s ability to pay, in accordance with the Organization s approved sliding fee scale. In addition, revenues from patient fees are adjusted when the Organization is not reimbursed for services provided to patients who are covered by Medi-Cal, Medicare, Family Planning, and CHDP. Vacation Pay The Organization permits its employees to accumulate vacation leave over their working careers and to redeem vacation time in cash upon termination of employment. The estimated amount of unpaid vacation at June 30, 2017 was $1,991,491. 9

14 Notes to the Consolidated Financial Statements June 30, 2017 NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases Leases that in substance transfer all of the benefits and risks equivalent to ownership of the property are classified as capital leases. The related assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased property at the beginning of the respective leased terms. Generally, such assets are amortized over their economic lives. Interest expense relating to the lease liabilities is recorded using the effective interest method over the terms of the leases. All other leases are classified as operating leases and related rentals and are charged as an expense when incurred. Third-Party Payor Settlements The Organization provides patient care services under the FQHC Medicare and Medi-Cal programs. These programs provide for current payment on a provisional basis, subject to adjustment after submission of cost reports and audits by the respective contracting agencies. The Organization s policy is to estimate and record such adjustments in the year in which the services are rendered and to reflect any differences between such estimates and ultimate settlements when additional data becomes available or the amount of settlement is known. Fair Value of Financial Instruments The following methods and assumptions were used by the Organization in estimating the fair values of its financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Investments: Fair values, which are the amounts reported in the balance sheet, are based on quoted market prices, if available, or estimated using quoted market prices for similar securities. Accounts payable and accrued expenses: The carrying amount reported in the balance sheet for accounts payable and accrued expenses approximates its fair value. Estimated third-party payor settlements: The carrying amount reported in the balance sheet for estimated third-party settlements approximates its fair value. Long-term debt: The fair value of the Organization s long-term debt approximated the exit cost. 10

15 Notes to the Consolidated Financial Statements June 30, 2017 NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Organization is a private nonprofit corporation that is exempt from income taxes under section 501(c) (3) of the Internal Revenue Service and section (d) of the State of California Revenue and Taxation Code. Accordingly, no provision for income taxes on the excess of revenues over expenses is included in the accompanying financial statements. The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the guidance, the Organization may recognize the tax benefit from an uncertain tax position only it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical marks of the position. Examples of tax positions include the taxexempt status of the Organization and various positions related to the potential sources of unrelated business taxable income (UBIT). The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for fiscal year The Organization s forms 990, Return of Organization Exempt From Income Tax, for the year ending 2014, 2015 and 2016 are subject to examination by the IRS, generally for three years after they were filed. NOTE C: PATIENT ACCOUNTS RECEIVABLE The patient accounts receivable balance as of June 30, 2017, is comprised of the following: Private pay $ 186,280 Medi-Cal 4,523,120 Medicare 799,885 Insurance 526,689 Other Third Party 124,549 Total before allowance for doubtful accounts 6,160,523 Less allowance for doubtful accounts (1,864,818) Net Patient Accounts Receivable $ 4,295,705 11

16 Notes to the Consolidated Financial Statements June 30, 2017 NOTE D: GRANTS AND CONTRACTS RECEIVABLE The grants and contracts receivable balance as of June 30, 2017, is comprised of the following: U.S. Dept. of Health and Human Services - Migrant Health Initiative $ 10,675,228 Children & Families First Commission of Ventura County - Dental Health Initiative 108,008 Ventura County - Impact Program 22,945 DHS - Meaningful Use 399,500 Total Grants and Contracts Receivable $ 11,205,681 NOTE E: INVESTMENTS The Clinic s investments at June 30, 2017 consists of the following securities recorded at fair value: Fair Market Value Exchange Traded Funds 4,098,227 Equities-Mutual Funds 2,410,786 Total Investments 6,509,013 The following schedule summarizes the investment return and its classification in the statement of activities for the year ended June 30, 2017: Capital Gain 3,281 Unrealized gain on marketable securities 83,589 Dividends 81,304 Interest 54 Total unrestricted investment income 168,228 Expenses relating to investment revenues, including custodial fees and investment advisory fees, amounted to $41,176 for the year ended June 30, 2017 and have been netted against investment revenues in the accompanying Statement of Activities. 12

17 NOTE F: PROPERTY AND EQUIPMENT CLINICAS DEL CAMINO REAL, INC. Notes to the Consolidated Financial Statements June 30, 2017 The net property and equipment balance as of June 30, 2017, is comprised of the following: Buildings & Land $ 46,761,496 Computers 3,744,029 Medical Equipment 4,669,177 Office Equipment 760,954 Facility Equipment 812,272 Vehicles 1,210,590 Furniture & Fixtures 186,774 Leasehold Improvements 6,595,466 Construction-in-Progress 88,118 64,828,876 Less accumulated depreciation (26,606,777) Net Property and Equipment $ 38,222,099 Depreciation expense for the twelve months ended June 30, 2017 $ 2,504,566 NOTE G: ESTIMATED THIRD-PARTY PAYOR LIABILITIES During the year ended June 30, 2017, the balance in this account was adjusted to reflect tentative settlements proposed by the Department of Health Services on FQHC Medi-Cal PPS reports filed by the Clinic for prior years and estimated liability for the current year. The estimated balance due to the Medi-Cal Programs of June 30, 2017 is $944,061. NOTE H: LINE OF CREDIT The Organization has a $5,000,000 revolving unsecured line of credit, of which $5,000,000 was unused at June 30, Bank advances on the line of credit are payable on demand and carry an interest rate of 3.25%. 13

18 Notes to the Consolidated Financial Statements June 30, 2017 NOTE I: ACCRUED LIABILITIES The accrued liability balance of $10,328,687 is comprised of the following at June 30, 2017: Accrued Salary Expense 1,253,331 Accrued Payroll Taxes 733,644 Pension Plan 1,988,667 GHI Payable 899,414 Accrued Vacation Pay 1,991,491 Unpaid CMC Claims 1,227,954 Unpaid AHP Claims 2,180,216 Other Liabilities 53,970 Total Accrued Liabilities $10,328,687 NOTE J: LONG-TERM LIABILITIES Long-term liabilities at June 30, 2017 are summarized as follows: Mortgages and Notes Payable Mortgage payable to Community West Bank dated July 29, 2014 payable in monthly installments of $41,639. This loan is secured by real property located in Ventura County, CA. This loan is due August 2, 2039 and bears interest at 4.50%. 6,935,063 Mortgage payable to Community West Bank dated July 29, 2014 payable in monthly installments of $8,398. This loan is secured by real property located in Ventura County, CA. This loan is due August 2, 2039 and bears interest of 4.50%. 1,398,685 Mortgage payable to Community West Bank dated July 29, 2014 payable in monthly installments of $4,272. This loan is secured by real property located in Ventura County, CA. This loan is due August 2, 2039 and bears interest rate of 4.50%. 711,458 Mortgage payable to Community West Bank dated July 29, 2014 payable in monthly installments of $3,958. This loan is secured by real property located in Ventura County, CA. This loan is due August 2, 2039 and bears interest at 4.50%. 659,240 Mortgage payable to Community West Bank dated July 29, 2014 payable in monthly installments of $14,738. This loan is secured by real property located in Ventura County, CA. This loan is due August 2, 2039 and bears interest at 4.50%. 2,454,428 14

19 Notes to the Consolidated Financial Statements June 30, 2017 NOTE J: LONG-TERM LIABILITIES (Continued) Mortgage payable to Community West Bank dated October 23, 2015 payable in monthly installments of $13,043. This loan is secured by real property located in Ventura County, CA. This loan is due November 2, 2025 and bears interest rate of 4.50%. 2,230,300 Mortgage payable to Pacific Premier Bank dated March 11, 2016 payable in monthly installments of $13,226. This loan is secured by real property located in Ventura County, CA. This loan is due November 11, 2030 and bears interest rate of 3.25%. 2,605,542 Notes payable to Ally Bank dated April 3, 2015 payable in monthly installments of $1,488. These notes are secured by vehicles. These notes are due April 18, 2019 and bears interest at 4.69%. 31,309 Notes payable to Toyota Financial Services dated August 30, 2012 payable in monthly installments of $864. These notes are secured by vehicles. These notes are due July 30, 2017 and bears interest rate at 5.00%. 952 Note payable to TD Auto Finance dated February 10, 2016 payable in monthly installments of $1,022. This note is secured by vehicles. This note is due February 26, 2019 and bears interest rate at 1.90%. 20,101 Mortgage payable to Community West Bank dated July 31, 2014 payable in monthly installments of $19,387. This loan is secured by property at 1424 Madera Road, Simi Valley, CA. This loan is due June 2, 2033 and bears interest at 4.50%. 2,635,194 Note payable to Ford Motor Credit dated September 6, Note requires monthly payments of $418 and bears no interest. Final payment is due September 6, ,236 Note payable to Ford Motor Credit dated September 6, Note requires monthly payments of $411 and bears no interest. Final payment is due September 6, ,609 Note payable to Ford Motor Credit dated September 6, Note requires monthly payments of $541 and bears no interest. Final payment is due September 6, ,972 Note payable to Pacific Premier Bank dated November 15, Not is payable in monthly installments of $20,021, bears interest at 3.25%, and the final payment is due November 15, Note is secured by real property located in Ventura County, CA. 4,023,393 15

20 Notes to the Consolidated Financial Statements June 30, 2017 NOTE J: LONG-TERM LIABILITIES (Continued) Note payable to Pacific Premier Bank dated November 15, Note requires monthly payments of $9,107, bears interest at 3.5%, and the final payment is due November 15, Note is secured by real property located in Ventura County, CA. 476,989 Total Long-term Mortgages and Notes Payable 24,252,471 Less: Current Portion (862,944) Net Long-term Mortgages and Notes Payable $ 23,389,527 Long-term Mortgages and Notes Payable repayments due in each of the next five fiscal years are: Fiscal Year 2018 $ 862,944 Fiscal Year ,314 Fiscal Year ,488 Fiscal Year ,865 Fiscal Year ,810 Thereafter 19,846,050 Total Long-term Mortgages and Notes Payable $ 24,252,471 Obligations Under Capital Leases Capital lease agreement with Bank of the West dated July 23, 2015 to finance the purchase of office furniture and dental equipment. Lease requires monthly payments of $12,399 and bears interest at 5.04%. Term of the lease is to July ,063 Total Capital Lease Obligations 424,063 Less: Current Portion (130,396) Net Capital Lease Obligations $293,667 The following summarized future minimum lease payments under capital leases together with the net present value of the net minimum lease payments for the next five fiscal years: Present Value Fiscal Minimum Lease of minimum Year Payments Lease Payments , , , , , , ,399 12,345 $ 458,763 $ 424,063 16

21 Notes to the Consolidated Financial Statements June 30, 2017 NOTE J: LONG-TERM LIABILITIES (Continued) Summary of Long-Term Debt Total Notes and Loans Payable $ 24,252,471 Total Obligation under Capital Leases 424,063 24,676,534 Less: Current Portion (993,340) Net Long-Term Debt $ 23,683,194 NOTE K: THIRD PARTY RATE ADJUSTMENTS AND REVENUE Revenue from the Medi-Cal and Medicare programs accounted for approximately 55 percent and 1 percent of the Clinic s patient revenue for the year ended June 30, Laws and regulations governing the Medi-Cal and Medicare programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The 2017 net patient service revenue increased approximately $2,606,839 due to prior year retroactive adjustment in amounts previously booked. NOTE L: TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes at June 30, 2017: U.S. Dept. of Health and Human Services - Health Center Cluster $ 10,675,228 First Five Ventura County - Health Center Cluster 112,339 Blue Shield Foundation 2,750 Total Temporarily Restricted Net Assets $ 10,790,317 Net assets were released from donor restrictions by incurring expenses satisfying the purpose or time restrictions specified by donors as follows: U.S. Dept. of Health and Human Services - Health Center Cluster $ 10,368,384 The California Endowment 83,333 Total Release from Temporarily Restricted Net Assets $ 10,451,717 17

22 Notes to the Consolidated Financial Statements June 30, 2017 NOTE M: RELATED PARTY TRANSACTIONS The Organization wholly owns two for profit corporations, AmericasHealth Plan, Inc., and MedPartners MSO, Inc. For the year ended June 30, 2017, the Organization and AmericasHealth Plan paid $259,795 and $51,627, respectively, to MedPartners MSO, Inc. for administrative services, and AmericasHealth Plan paid the Organization $296,309 for patient services. In May 2016, AmericasHealth Plan (Borrower) entered into a subordinated unsecured revolving line of credit loan agreement (Agreement) with the Organization (Lender) in the amount of $650,000. The note bears an interest rate of 3.5%, with the outstanding loan balance and any accrued interest due on December 31, At the end of the scheduled term, the parties shall be deemed to have agreed to extend the Agreement for successive terms of one (1) calendar year unless Lender or Borrower delivers to the other party a notice that it is not extending the Agreement at least thirty (30) calendar days prior to the end of the scheduled term. For the year ended June 30, 2017, AmericasHealth Plan paid the Organization $3,307 in interest on the outstanding loan balance of $433,335. NOTE N: FUNCTIONAL ALLOCATION OF EXPENSES The cost of providing the various programs and activities has been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. NOTE O: PENSION PLAN The Organization has a pension plan that covers all eligible full-time employees. The Organization is not required to make annual contributions to the plan. The Organization made a contribution of $1,948,121 to the plan for the year ended June 30, NOTE P: CASH RISK CONCENTRATION Cash The Organization maintains checking and savings accounts for operations with several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Cash held in investment brokerage accounts is not insured. At June 30, 2017, the Organization s uninsured cash balances totaled $39,425,

23 Notes to the Consolidated Financial Statements June 30, 2017 NOTE P: CASH RISK CONCENTRATION (Continued) Investments The Organization maintains an investment account with a local securities brokerage firm. The Organization s investments held by the firm are insured up to $500,000 by the SPIC in the event of brokerage firm failure. At June 30, 2017, the Organization s uninsured investment balance was $7,717,494. NOTE Q: CONCENTRATION OF CREDIT RISK The Clinic grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. The mix of receivables from patients and third-party payors at June 30, 2017 is as follows: Private Pay 4% Medi-Cal 73% Medicare 13% Insurance 8% CHDP & Other Third Party 2% NOTE R: CONTINGENCIES 100% Claims and Litigation The Organization is subject to various claims and litigation. In the opinion of management, the outcome of such matters will not have a material effect on the financial position of the Organization. Program Funding Continuing program funding is contingent upon availability of funds from federal and state sources and project performance. The funds are awarded on a yearly basis upon receipt and approval of program applications. Grantor Restrictions Financial awards from federal, state and local government entities in the form of grants are subject to special audits. Such audits could result in claims against the Organization for disallowed costs or noncompliance with grantor restrictions. No provision can be made for any potential liabilities that may arise from such audits since no indication of noncompliance has been noted by management. 19

24 NOTE R: CONTINGENCIES (Continued) Loss Contingency CLINICAS DEL CAMINO REAL, INC. Notes to the Consolidated Financial Statements June 30, 2017 The Department of Health and Human Services Office of Inspector General (OIG) is currently investigating the payment of Medi-Cal funds by the Ventura County Medi-Cal Managed Cared Commission (Gold Coast Health Plan) to various health providers for services provided under the Medicaid Adult Expansion Program. The Clinic received $9,817,767 from Gold Coast Health Plan for its participation in this program. OIG has not filed a complaint against the Clinic but has issued a Subpoena Duces Tecum. Legal counsel believes that there is a reasonable possibility that Gold Coast Health Plan may be required to return some or all of the payments made to health providers under this program. In the event that repayment is required, the Clinic liability will be limited to the amount received from Gold Coast Health Plan. FQHC Third-Party Reimbursements The Organization is a federally qualified center that is reimbursed on a cost basis for services provided to Medicare and Medi-Cal patients. Under these programs the Organization is required to file cost reports and annual reconciliations at the end of the fiscal year. The purpose of these reports and annual reconciliations is to determine the cost of providing services to Medicare and Medi-Cal beneficiaries and to reconcile interim payments received during the year with the costs reported in the cost reports and actual PPS rates. The cost reports and annual reconciliations are subject to review and audit by the Medicare financial intermediary and the Medi-Cal program administrators. Any differences between the interim payments and final audited cost reports and annual reconciliations are recorded in the year final settlements reports are issued. Operating Leases The Organization is obligated under various operating leases for the business office, clinic facilities and equipment. Such leases have initial remaining non-cancelable terms in excess of one year at June 30, 2017, and require the following future minimum rental payments: 2018 $ 225, , , ,969 Total Minimum Future Rentals $ 579,529 The company incurred $227,794 of rental expenses under operating leases during

25 Notes to the Consolidated Financial Statements June 30, 2017 NOTE S: PRIOR YEAR SUMMARIZED INFORMATION The financial statements include certain prior-year summarized comparative information in total but not by net assets class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended June 30, 2016, for which the summarized information was derived. NOTE T: PRIOR PERIOD RESTATEMENT For the year ended June 30, 2016, prior year other receivables and other liabilities were restated to eliminate intercompany receivables and liabilities by $572,677. The financial statement effect of this restatement reduces reported June 30, 2016 other receivables, current assets, and total assets by $572,677, and reduces reported other liabilities, current liabilities, total liabilities, and total liabilities and net assets by $572,677. NOTE U: EVALUATION OF SUBSEQUENT EVENTS For the year ended June 30, 2017, the Organization has evaluated subsequent events for potential recognition and disclosure through November 15, 2017 the date of financial statement issuance. 21

26 SUPPLEMENTARY FINANCIAL INFORMATION

27 Schedule of Expenditures of Federal Awards Year Ended June 30, 2017 Program Name Pass through Grantor Federal CFDA Number Expenditures U.S. Department of Health and Human Services Health Centers Cluster: Consolidated Health Centers (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, Public Housing Primary Care, and School Based Health Centers) N/A $ 3,631,585 Affordable Care Act (ACA) Grants for New and Expanded Services under the Health Centers Program N/A ,513,418 Total U.S. Department of Health and Human Services 14,145,003 Total Expenditures of Federal Awards $ 14,145,003 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note A Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal grant activity of Clinicas Del Camino Real, Inc. under programs of the federal government for the year ended June 30, The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operation of Clinicas Del Camino Real, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Clinicas Del Camino Real, Inc. Note B Expenditures (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Clinicas Del Camino Real, Inc. has elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 22

28 REPORT TO MANAGEMENT

29 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTORL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Clinicas Del Camino Real, Inc. Ventura, California We have audited, in accordance with the 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, the consolidated financial statements of Clinicas Del Camino Real, Inc. (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2017, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated November 15, We conducted our audit 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. The financial statements of AmericasHealth Plan, Inc. and MedPartners MSO, Inc. were not audited in accordance with Government Auditing Standards and accordingly this report does not include reporting on internal control over financial reporting on instances of reportable noncompliance associated with AmericasHealth Plan, Inc. and MedPartners MSO, Inc. Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered Clinicas Del Camino Real, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of Clinicas Del Camino Real, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the Clinicas Del Camino Real, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 23

30

31 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors Clinicas Del Camino Real, Inc. Ventura, California Report on Compliance for Each Major Federal Program We have audited Clinicas Del Camino Real, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Clinicas Del Camino Real, Inc. s major federal programs for the year ended June 30, Clinicas Del Camino Real, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Clinicas Del Camino Real, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Clinicas Del Camino Real, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Clinicas Del Camino Real, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Clinicas Del Camino Real, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,

32

33 Schedule of Findings and Questioned Costs Year Ended June 30, 2017 Section I Summary of Auditor s Results Financial Statements Type of audit s report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X No Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X No Type of auditor s report issued on compliance for major Programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance, Section (a)? Yes X No Identification of Major Programs: & U.S. Department of Health and Human Services Health Center Cluster Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? X Yes No Section II Financial Statement Findings None Section III Federal Award Findings and Questioned Costs None 27