CHEBOYGAN COUNTY HUMANE SOCIETY AUDITED FINANCIAL STATEMENTS. December 31, 2005

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1 CHEBOYGAN COUNTY HUMANE SOCIETY AUDITED FINANCIAL STATEMENTS December 31, 2005

2 CHEBOYGAN COUNTY HUMANE SOCIETY Mary Talaske Executive Director ELECTED OFFICIALS Cindy Baker President Phyllis Beyer Secretary Rose Barrette Vice President Robert Zimmerman Treasurer

3 T A B L E O F C O N T E N T S Page INDEPENDENT AUDITOR S REPORT... 1 FINANCIAL STATEMENTS: Statement of Financial Position... 2 Statement of Activities... 3 Statement of Functional Expenses... 4 Statement of Cash Flows... 5 NOTES TO FINANCIAL STATEMENTS... 6

4 ANDERSON, TACKMAN & COMPANY, PLC CERTIFIED PUBLIC ACCOUNTANTS KINROSS OFFICE PHILLIP J. WOLF, CPA, PRINCIPAL SUE A. BOWLBY, CPA, PRINCIPAL KENNETH A. TALSMA, CPA, PRINCIPAL DEANNA J. MAYER, CPA MEMBER AICPA DIVISION FOR CPA FIRMS MEMBER MACPA OFFICES IN MICHIGAN & WISCONSIN INDEPENDENT AUDITOR S REPORT Board of Trustees Cheboygan County Humane Society 1536 Hackleburg Road Cheboygan, Michigan We have audited the accompanying statement of financial position of the Cheboygan County Humane Society, (a Michigan non-profit corporation) as of December 31, 2005, and the related statement of activities and cash flows for the year then ended. These financial statements are the responsibility of the Society s management. Our responsibility is to express an opinion on these financial statements based on our audit. Except as explained in the following paragraphs, we conducted our audit 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The Society did not maintain adequate accounting records for the year ended December 31, 2005, and we were unable to apply procedures to determine whether the opening balances in the financial statements as of January 1, 2005, were fairly presented in conformity with accounting principles generally accepted in the United States of America or whether accounting principles have been consistently applied between 2005 and Since the Society did not maintain adequate accounting records, and we were unable to satisfy ourselves about the opening balances in the financial statements as of January 1, 2005, or about the consistent application of accounting principles between 2005 and 2004, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the results of operations and cash flows for the year ended December 31, 2005, or on the consistency of application of accounting principles with the preceding year S. RILEY AVENUE (906) / FAX KINCHELOE, MICHIGAN antack@nmo.net

5 Page 2 In our opinion, the statement of financial position referred to in the first paragraph presents fairly, in all material respects, the financial position of the Cheboygan County Humane Society as of December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. September 15, 2006 Anderson, Tackman & Company, PLC Certified Public Accountants 2

6 Financial Statements

7 Statement of Financial Position As of December 31, 2005 ASSETS: Current Assets: Cash and equivalents (Note F) $ 58,360 Other Assets: Property, equipment and improvements, net (Note G) 13,024 TOTAL ASSETS $ 71,384 LIABILITIES AND NET ASSETS: Current Liabilities: Accrued liabilities $ 1,351 TOTAL LIABILITIES 1,351 Net Assets: Unrestricted 70,033 TOTAL LIABILITIES AND NET ASSETS $ 71,384 See accompanying notes to financial statements. 3

8 Statement of Activities For the Year Ended December 31, 2005 Unrestricted net assets: Support: License fees $ 18,207 Donations 53,289 Special events 23,881 Membership fees 3,572 Local appropriations 130,587 Spay/Neuter fees 4,545 Grants 14,695 Interest and dividends 85 Other 22,120 Charges for services 10,695 Total support 281,676 Expenses: Program services: Shelter 220,283 Spay/Neuter 41,083 Education 200 Supporting services: Management and general 27,681 Fund-raising 6,395 Total expenses 295,642 Changes in Unrestricted Net Assets (13,966) NET ASSETS AT BEGINNING OF YEAR 83,999 NET ASSETS AT END OF YEAR $ 70,033 See accompanying notes to financial statements. 4

9 Statement of Functional Expenses For The Year Ended December 31, 2005 Program Services Supporting Services Total Total Program Management Supporting Shelter Spay/Neuter Education Services & General Fundraising Services Totals Salaries & Wages $ 124,073 $ - $ - $ 124,073 $ 23,310 $ - $ 23,310 $ 147,383 Employee Benefits 18, ,067 1,783-1,783 19,850 Total Salaries & Costs 142, ,140 25,093-25, ,233 Advertising 4, ,822-2,046 2,046 6,868 Supplies 18, ,559-1,227 1,227 19,786 Depreciation 2, , ,674 Trash Disposal 1, , ,541 Conferences 4, , ,441 Health Insurance 13, ,974 2,588-2,588 16,562 Cremation Disposal 3, , ,193 Building Insurance 1, , ,316 Rabies Coupons 2, , ,269 Utilities 4, , ,927 Fuel 4, , ,385 Building Maintenance 1, , ,713 Vehicle Maintenance 5, , ,427 Equipment Maintenance 6, , ,134 Postage 1, , ,940 Spay/Neuter Fees - 41,083-41, ,083 Subscriptions ,223 1,223 1,223 Educations Membership Fees Miscellaneous ,685 1,685 2,513 Total Expenses $ 220,283 $ 41,083 $ 200 $ 261,566 $ 27,681 $ 6,395 $ 34,076 $ 295,642 See accompanying notes to financial statements. 5

10 Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities: Changes in unrestricted net assets $ (13,966) Adjustments to reconcile decrease in net assets to net cash provided by operating activities: Depreciation 2,674 Increase (decrease) in: Accrued liabilities 1,351 Total adjustments 3,086 Net cash provided (used) by operating activities (9,941 ) Net decrease in cash and equivalents (9,941 ) CASH AND EQUIVALENTS, BEGINNING OF YEAR 68,301 CASH AND EQUIVALENTS, END OF YEAR $ 58,360 Interest Paid $ - Taxes Paid $ - See accompanying notes to financial statements. 6

11 Notes to Financial Statements

12 Notes to Financial Statements December 31, 2005 NOTE A - DEFINITION OF ENTITY: Cheboygan County Humane Society is a non-profit entity and was incorporated under the laws of the State of Michigan in The purpose of this entity is to promote public interest and concern for the care of lost, abandoned, and misused animals, including but not limited to dogs and cats in Cheboygan and Presque Isle County, Michigan. Additionally our mission is to gather and disseminate information and literature to the general public concerning legislation both federal, state, and local affecting the treatment, care, and welfare of animals; to whenever possible, actively support and promote legislation at all levels of governments in planning, implementing, and maintaining shelter facilities for animals and other projects of a nature likely to benefit animals. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Accounting - The Organization maintains its accounting system on the accrual basis, in accordance with U.S. generally accepted accounting principles. Property and Equipment - The Organization's fixed assets are carried at cost or fair market value, if donated. Maintenance and repairs are charged to expense as incurred. Major renewals or betterments are capitalized. Property, equipment, and improvements are depreciated using the straight-line method over the following estimated useful lives: Building improvements Furniture and equipment 2 to 30 years 2 to 15 years Financial Statement Presentation - The Organization presents its financial statements in conformity with Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. Under SFAS No. 117, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. In addition, the Organization is required to present a statement of cash flows. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Functional Allocation of Expenses - The cost of providing the Organization's various programs and supporting services have been summarized on a functional basis in the statement of activities. Cash and Equivalents - For purposes of the statement of cash flows, the Organization considers all unrestricted cash, certificates of deposit, money markets and other highly liquid investments with initial maturities of three months or less to be cash equivalents. All deposits are recorded at cost. 7

13 Notes to Financial Statements December 31, 2005 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Contributed Services - At events held throughout the year, individuals volunteer their time and perform a variety of tasks that assist the Organization. The Organization receives less than 50 hours per year for these events. During the year ended December 31, 2005, the value of contributed services meeting the requirements for recognition in the financial statements was not material and has not been recorded. Advertising The Organization expenses advertising costs as they are incurred and advertising communication costs the first time advertising takes place. Total advertising expense for the year ended December 31, 2005, was $6,868. NOTE C - MAJOR SOURCE OF FUNDS: The Organization contracts annually with the County of Cheboygan, Michigan for substantial financial support. Support for the current fiscal year amounted to $105,137. It is anticipated that this funding will continue in future years. NOTE D - INCOME TAXES: Cheboygan County Humane Society is a non-profit corporation exempt from income taxes under Internal Revenue Code Section 501(c)(3); therefore no income taxes are accrued nor is a provision computed in the accompanying statements. Although the Organization was granted income tax exemption by the Internal Revenue Service, such exemption does not apply to "unrelated business taxable income". Such income includes investment income received from sources other than directly from the membership. NOTE E - CONTINGENCIES: The Organization receives significant financial assistance from local governments. The disbursement of funds from the various programs generally requires compliance with terms and conditions specified in the applicable contract agreements and subject to examination by the grantor agency. Any disallowed claims from such examination could become a liability. It is the opinion of management that any such disallowed claims will not have a material effect on the financial statements. NOTE F - CASH AND EQUIVALENTS: The financial position accounts and types of cash items are presented below: Financial Position Account Amount Cash Items Amount Cash and equivalents $ 58,360 Savings and Checking $ 33,360 Certificate of Deposits 25,000 $ 58,360 $ 58,360 8

14 Notes to Financial Statements December 31, 2005 NOTE F - CASH AND EQUIVALENTS: (Continued) At December 31, 2005, the carrying amount of Cheboygan County Humane Society's deposits was $58,360 and the bank balance was $59,621. Of the bank balance, approximately 100% was covered by insurance provided by the Federal Depository Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC). NOTE G - PROPERTY, EQUIPMENT, AND IMPROVEMENTS: A summary of property, equipment, and improvements is as follows: 01/01/05 Additions Deletions 12/31/05 Building & Improvements $ 3,983 $ - $ - $ 3,983 Equipment 17, ,555 Total 21, ,538 Less: Accumulated depreciation (5,840 ) (2,674 ) - (8,514 ) Net Property, Equipment and Improvements $ 15,698 $ (2,674) $ - $ 13,024 NOTE I - EMPLOYEE RETIREMENT AND BENEFIT PLAN: Each January the Society contributes to each full-time employee s Individual Retirement Account (IRA). The amount is based on the number of years of service and increases $100 per year up to the IRS maximum amount ($14,000 for 2005). During 2005, there were 3 full-time employees and the total contribution was $7,300. NOTE J - CONCENTRATION OF CREDIT RISK: The Organization s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. The Organization placed its cash with high credit quality institutions. At times, balances may be in excess of the FDIC insurance limit. 9

15 ANDERSON, TACKMAN & COMPANY, PLC CERTIFIED PUBLIC ACCOUNTANTS KINROSS OFFICE PHILLIP J. WOLF, CPA, PRINCIPAL SUE A. BOWLBY, CPA, PRINCIPAL KENNETH A. TALSMA, CPA, PRINCIPAL DEANNA J. MAYER, CPA MEMBER AICPA DIVISION FOR CPA FIRMS MEMBER MACPA OFFICES IN MICHIGAN & WISCONSIN REPORT TO MANAGEMENT Board of Trustees Cheboygan County Humane Society Cheboygan, Michigan We have audited the financial statements of Cheboygan County Humane Society for the year ended December 31, 2005, and have issued our reports thereon dated September 15, Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards Our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with U.S. generally accepted accounting principles. Because an audit is designed to provide reasonable, but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. As part of our audit, we considered the internal control structure of Cheboygan County Humane Society. Management has the responsibility for adopting sound accounting policies, for maintaining an adequate and effective system of accounts, for safeguarding assets and for maintaining the structure of the internal control system to help assure the proper recording of transactions. Our consideration of the system of internal control was solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control structure. In planning and performing our audit of the financial statements, we considered its internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control. However, we noted certain matters involving the internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect the organization s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements S. RILEY AVENUE (906) / FAX KINCHELOE, MICHIGAN antack@nmo.net

16 Page 2 A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of internal control would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weakness as defined above. In addition, because of inherent limitations of internal control, errors or fraud may occur and not be detected by such controls. However, we noted the following reportable conditions that we believe to be material weaknesses: Lack of Segregation of Duties Lack of a General Ledger We also noted the following reportable conditions that are not believed to be material weaknesses: Lack of Bank Reconciliations Significant Accounting Policies Management is responsible for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of the accounting policies and their application. The significant accounting policies used by Cheboygan County Humane Society are described in Note B to the financial statements. We noted no transactions entered into by Cheboygan County Humane Society during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Our conclusions regarding the reasonableness of the estimates are based on reviewing and testing the historical data provided by management. Audit Adjustments For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the Organization s financial reporting process (that is, cause future financial statements to be materially misstated). In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the Organization, either individually or in the aggregate, indicate matters that could have a significant effect on the Organization s financial process.

17 Page 3 Disagreement with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether significant or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Consultation with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Society s financial statements or a determination of the type of auditor's opinion to be expressed on those statements, our professional standards require the consulting accountant to advise us as to determine the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management prior to retention as the Cheboygan County Humane Society s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit. We did have difficulty obtaining proper support documentation for some transactions and general ledger information. Comments and Recommendations Segregation of Duties In our assessment of the internal control structure of the Organization, we noted that bookkeeping duties are handled by one, sometimes two individuals, including accounts receivable, accounts payable, reconciling, and depositing funds. To maintain a strong internal control system in an organization, one employee should not have responsibility for all phases of a transaction. This increases the risk that errors, omissions, and irregularities will occur and not be detected in a timely manner. Due to the small size of the Organization s staff, we are aware that it is not possible to segregate all duties. However, as the Organization experiences growth or as responsibilities are shifted or added, segregation of duties should be a goal of management. Computer System The records of the Organization are hand written. We recommend the Organization purchase accounting software (i.e. QuickBooks) to establish and maintain a general ledger. This will allow for better controls, improved tracking of revenues and expenses, and accurate bank reconciliations. It will also allow the Organization to know at any point in time what their current financial position is.

18 Page 4 Policies During several discussions with the Director, we found the Organization does not have written policies for accounting procedures and a disaster recovery plan. It is recommended the Organization prepare and adopt written policies for accounting procedures and a disaster recovery plan. A minimum capitalization policy of recording items over $500 (or other dollar threshold established by the Board) should be considered to reduce the number if items depreciated each year. This would reduce time dedicated to this area with minimal affect on operating income. The Organization does not currently have a credit card policy. It is recommended a credit card policy be adopted outlining who is authorized to use the card, and for what and when it can be used. The Organization has no conflict of interest policy or a competitive bid policy in place. These policies ensure related parties abstain from voting on related issues and allow for competitive pricing on contracts the Organization enters into. Payroll During our testing of the payroll system, several weaknesses were noted including: no authorized pay rates, no current Form W-4 s on file, no Michigan New Hire Form, incomplete or missing Form I-9. While it was noted the Board approves a percentage wage increase each year, we recommend the Board acknowledge current rates and then approve a percentage increase each year. It is also recommended the required documentation be maintained in employee s personnel files. It was also noted that two employees are paid with a check and currency. We highly recommend employees only be paid with a check. This not only allows the Organization to track payroll payments, but reduces risk of theft exposure. Disbursements During our testing of disbursements, it was noted that some bills are paid for with currency. The Organization does not have a petty cash fund. In order to ensure proper recording of monies coming in and going out, it is recommended if the Organization is going to pay for supplies/items with currency, that a petty cash fund be established. Checks It was noted that someone other than the Executive Director signs checks utilizing the Directors name. Although the Director gave the individual permission to sign her name, it is recommended this practice be eliminated. If a check is needed for immediate payment to avoid late fees or to receive a discount another individual should be added as an authorized signer in emergency situations.

19 Page 5 Checks It was noted that checks are not always properly defaced when they are voided. It is recommended when a check is voided that it be properly defaced with the word VOID written across the check and the signature line be cut out. Bank Reconciliations There were no formal bank reconciliations performed during the year. We recommend bank reconciliations be performed monthly and documented in writing or utilization of accounting software. Bank Deposits Bank deposit slips do not list sufficient detail of checks or cash. We recommend checks be listed separately on the deposit slips (line are provided for this detail) and a separate list be kept at the Shelter of the currency deposited. This will allow for improved tracking of deposits and give the Shelter detail in case any problems arise with reconciling the bank accounts. Conclusion We would like to express our appreciation, as well as that of our staff, for the excellent cooperation we received while performing the audit. If we can be of assistance in implementing any of the above recommendations, please contact us. This information is intended solely for the use of the Board, and other oversight agencies and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, September 15, 2006 Anderson, Tackman & Company, PLC Certified Public Accountants