CHAPEL HAVEN, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL REPORT JUNE 30, 2016

Transcription

1 CONSOLIDATED FINANCIAL REPORT JUNE 30, 2016

2 CONSOLIDATED FINANCIAL REPORT JUNE 30, 2016 CONTENTS INDEPENDENT AUDITORS' REPORT 1-2 Page FINANCIAL STATEMENTS Consolidated Statements of Financial Position 3-4 Consolidated Statements of Unrestricted Revenues, Expenses and Other Changes in Unrestricted Net Assets 5 Consolidated Statements of Changes in Net Assets 6 Consolidated Statements of Cash Flows 7-8 Notes to Consolidated Financial Statements 9-18 STATE GOVERNMENTAL REPORTS AND SCHEDULES Schedule of Expenditures of State Awards 19 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards Independent Auditors Report on Compliance for Each Major State Program and on Internal Control Over Compliance Required by the State Single Audit Act Schedule of Findings and Questioned Costs 24

3 CARTER HAYES + ASSOCIATES, P.C. established 1988 CERTIFIED PUBLIC ACCOUNTANTS 1952 WHITNEY AVENUE HAMDEN CONNECTICUT (203) Fax (203) INDEPENDENT AUDITORS' REPORT To the Board of Directors Chapel Haven, Inc. New Haven, Connecticut Report on the Financial Statements We have audited the accompanying consolidated financial statements of Chapel Haven, Inc. (a nonprofit organization) and Subsidiaries which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of unrestricted revenues, expenses, and other changes in unrestricted net assets, changes in net assets and cash flows for the years 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chapel Haven, Inc. and Subsidiaries as of June 30, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of state awards is presented for purposes of additional analysis as required by the State Single Audit Act and is not a required part of the basic consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated December 23, 2016, on our consideration of Chapel Haven, Inc. s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing in considering Chapel Haven, Inc. s internal control over financial reporting and compliance. Carter, Hayes + Associates, P.C. Hamden, Connecticut December 23,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2016 AND 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,434,120 $ 1,957,197 Accounts receivable, net of allowance for doubtful accounts of $6,927 in 2016 and $0 in , ,079 Grant receivable - 120,000 Current portion of unconditional promises to give, net 7,905,642 25,000 Marketable securities 1,037, ,052 Prepaid expenses 486, ,691 Total current assets 18,082,711 3,671,019 PROPERTY, PLANT AND EQUIPMENT Land 1,758,167 1,412,237 Buildings 7,173,490 6,211,663 Building improvements 1,278,467 1,289,567 Furniture and equipment 498, ,626 Vehicles 321, ,854 11,030,410 9,695,947 Less accumulated depreciation and amortization 3,369,352 3,103,644 7,661,058 6,592,303 OTHER ASSETS Cash restricted for property - 424,400 Marketable securities, held for scholarship 300, ,269 Marketable securities, held for endowment 1,909,739 1,837,126 Unconditional promises to give, less current portion, net 12,745,159 25,000 14,955,600 2,575,795 $ 40,699,369 $ 12,839,117 See Notes to Consolidated Financial Statements. 3

6 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 384,215 $ 379,852 Current maturities of long-term debt 41,545 39,661 Tuition received in advance 769,371 1,116,555 Advance deposits 252, ,500 Total current liabilities 1,447,131 1,817,568 LONG TERM DEBT, less current maturities 543, ,236 NET ASSETS Unrestricted Undesignated 5,824,555 5,331,730 Board designated for capital improvement 500,000 - Board designated for the quasi-endowment 675, ,928 7,000,483 6,007,658 Temporarily restricted 28,281,750 1,942,887 Permanently restricted 3,426,649 2,486,768 38,708,882 10,437,313 $ 40,699,369 $ 12,839,117 See Notes to Consolidated Financial Statements. 4

7 CONSOLIDATED STATEMENTS OF UNRESTRICTED REVENUES, EXPENSES AND OTHER CHANGES IN UNRESTRICTED NET ASSETS YEARS ENDED JUNE 30, 2016 AND 2015 OPERATING REVENUES Tuition $ 3,548,738 $ 4,270,902 Supported living fees 1,999,641 2,046,935 Asperger program 1,488,512 1,428,998 Adult education courses 166, ,753 Café and bookstore revenue 29,655 35,821 Week visitors 13,185 13,867 Miscellaneous income 85,234 49,363 Investment income ,332,060 8,002,776 OPERATING EXPENSES Program services: Life skills 3,901,185 3,799,832 Day programming 1,591,707 1,570,304 Asperger program 1,595,236 1,598,764 Supportive services: Management and general 1,116,979 1,056,854 Fundraising 427, ,887 8,632,461 8,259,641 Changes in unrestricted net assets from operations before other operating support (1,300,401) (256,865) OTHER OPERATING SUPPORT Contributions 752, ,615 Federal and state grants - 40,000 Net assets released from restriction: Restrictions satisfied by payment for operations 576,170 47,045 Changes in unrestricted net assets from operations 28, ,795 OTHER CHANGES Net investment return 39,112 68,171 State grants for capital expenditures - 120,000 Net assets transferred from temporarily restricted 123,130 - Net assets released from restriction: Restrictions satisfied by payment for capital expenditures 802,371 4,220 Increase in unrestricted net assets $ 992,825 $ 369,186 See Notes to Consolidated Financial Statements. 5

8 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED JUNE 30, 2016 AND UNRESTRICTED NET ASSETS Total unrestricted revenue and support $ 8,123,615 $ 8,577,562 Total net assets released from restrictions 1,501,671 51,265 Total unrestricted expenses (8,632,461) (8,259,641) Increase in unrestricted net assets 992, ,186 TEMPORARILY RESTRICTED NET ASSETS Support for campus renovations 11,976,059 - Support for assisted living 11,078,400 - Support for employment program 5,000, ,000 Support for Golf Tournament 41,250 9,500 Support for Bowl-a-thon 30,834 20,119 Support for ASAT 20,000 - Support for recreation 25,793 12,800 Support for Landau memorial 10,750 71,746 Support for Uarts Support for residential scholarship - 21,947 Support for Spencer/Rec - 20,000 Support for senior program - 1,000 Support for Special Olympics Net investment return on Scholarship investments 11,490 19,938 Net investment return on permanent and quasi-endowments 71, ,790 Net assets tranferred to permanently restricted (425,881) - Net assets tranferred to unrestricted (123,130) - Net assets released for capital renovations (802,371) - Net assets released to cover Endowment expenses (1,075) (123) Net assets released from restrictions (575,095) (51,142) Increase in temporarily restricted net assets 26,338, ,998 PERMANENTLY RESTRICTED NET ASSETS Contributions received for the Endowment 11,900 5,000 Contributions received for the Scholarship funds 502,100 3,475 Net assets transferred from temporarily restricted 425,881 - Recovery of uncollectible Endowment pledge - 25,000 Increase in permanently restricted net assets 939,881 33,475 INCREASE IN NET ASSETS 28,271, ,659 NET ASSETS, beginning of year 10,437,313 9,681,654 NET ASSETS, end of year $ 38,708,882 $ 10,437,313 See Notes to Consolidated Financial Statements. 6

9 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets $ 28,271,569 $ 755,659 Adjustments to reconcile increase in net assets to net cash provided by (used in) operating activities: Depreciation 313, ,859 Unrealized gains on investments and dividend reinvestments (123,139) (214,992) Loss on disposal of capital asset 3,182 - Contributions for endowment (11,900) (5,000) Donation of marketable securities (9,505) - Contributions received for capital improvements (8,315,208) - (Increase) decrease in: Accounts receivable 120,765 (148,251) Unconditional promises to give (20,600,801) 25,000 Prepaid expenses (126,294) (222,489) Increase (decrease) in: Accounts payable and accrued expenses 4, ,913 Tuition received in advance (347,184) (218,045) Advance deposits (29,500) (80,459) Net cash provided by (used in) operating activities (850,491) 319,195 CASH FLOWS FROM INVESTING ACTIVITIES Payments for land, buildings and improvements (1,307,756) (228,103) Payments for furniture and vehicles (77,342) (37,170) Net cash used in investing activities (1,385,098) (265,273) CASH FLOWS FROM FINANCING ACTIVITIES Debt payments (38,996) (37,277) Contributions received for capital improvements 8,315,208 - Contributions for endowment 11,900 5,000 Net cash provided by (used in) financing activities 8,288,112 (32,277) 7

10 CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued YEARS ENDED JUNE 30, 2016 AND NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 6,052,523 21,645 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, beginning 2,381,597 2,359,952 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, ending $ 8,434,120 $ 2,381,597 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Operating activities reflect cash paid during the period for: Interest $ 28,742 $ 30,303 See Notes to Consolidated Financial Statements. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Nature of Organization JUNE 30, 2016 Chapel Haven, Inc. and Subsidiaries is a private, non-profit committed to providing a lifelong program of individualized support services for adults with developmental and social disabilities, enabling them to live independent and productive lives. The Organization receives income from fees for services, contributions and investment income and is exempt from federal income taxes under the Internal Revenue Code Section 501(c)(3). During 2008, Chapel Haven Inc. formed Chapel Haven West, Inc., a subsidiary in Arizona to provide independent living services and Chapel Haven Endowment, Inc., a subsidiary in Connecticut to maintain its investment assets. In June 2015, Chapel Haven Inc. formed 25 Emerson Street Holdings, LLC., a single member LLC, to facilitate the purchase of additional real estate. During 2016, Chapel Haven Inc. formed Emerson Street Holdings, LLC and 34 Emersion Street Holdings, LLC, to facilitate the purchase of additional real estate. Consolidation Policy The consolidated financial statements include the accounts of its wholly owned Subsidiaries, Chapel Haven West, Inc., 25 Emerson Street Holdings, LLC, Emerson Street Holdings, LLC, 34 Emerson Street Holdings, LLC., as well as the supporting organization Chapel Haven Endowment, Inc. All significant transactions and balances between the entities have been eliminated in consolidation. Chapel Haven Inc., shares a common board with SAFE Inc., a 501(c)(3), Type III supporting organization. The entity had minimal activity in 2016 and Financial Statement Presentation The consolidated financial statements are presented in accordance with FASB ASC 958. Under FASB ASC 958, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Certain prior year amounts have been reclassified for consistency with current period presentation. The reclassifications had no effect on the reported net assets. Net Asset Categories To ensure the observance of limitations and restrictions on the use of resources available to the Organization, the accounts of the Organization are maintained in the following net asset categories: Unrestricted Net Assets Unrestricted net assets represent available resources other than donor-restricted contributions. Included in unrestricted net assets are grants and contracts, which may be earmarked for special purposes. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Temporarily Restricted Net Assets Temporarily restricted net assets represent contributions that are restricted by the donors either as to purpose or as to time of expenditure. Permanently Restricted Net Assets Permanently restricted net assets represent contributions that are received with the donor restriction that the principal be invested in perpetuity and only the income earned thereon is available for operations. Recognition of Support and Revenue Grants and Contracts Grants and contracts are generally considered to be exchange transactions in which the grantor or contractor requires the performance of specified activities. Entitlement to cost reimbursement grants and contracts is conditioned on the expenditure of funds in accordance with grant restrictions and, therefore, revenue is recognized to the extent of grant expenditures. Entitlement to performance-based grants and contracts is conditioned on the attainment of specific performance goals and, therefore, is recognized to the extent of performance achieved. Grant and contract receipts in excess of revenues recognized are presented as deferred grant support. Contributions Contributions are defined as voluntary, nonreciprocal transfers. Unrestricted and unconditional contributions are recognized as support when received or pledged, if applicable. Contributions are reported as temporarily restricted support if they are received with donor stipulations that limit the use of such assets. When a restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of changes in net assets as net assets released from restrictions. The Organization s policy is to present temporarily restricted net assets received during the year whose restrictions are also met during the current year as unrestricted net assets. Contributions received with donor-imposed conditions are presented as deferred support until such conditions are substantially met, at which time they are recognized as support. The Organization s policy is to recognize the expiration of donor restrictions for contributions of property and equipment or the use of contributions restricted for property and equipment in the year the property and equipment is placed in service. Contributions made for construction activities are recognized in the year construction activities are performed. An exception to this policy is when a grantor places a lien on property or equipment purchased or constructed with grant funds. In this situation, the grant is recognized utilizing the straight-line method over the life of the asset. 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Promises to Give Unconditional promises to give, that are expected to be collected within one year, are recognized at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using risk-free interest rates applicable to the years in which the promises are expected to be received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. An allowance for doubtful promises to give is determined by a review of the outstanding balances to estimate which promises may not be completed. At June 30, 2016, this allowance for doubtful promises to give amounts to $55,000. Accounts Receivable The accounts receivable arise in the normal course of business. It is the policy of management to review the outstanding accounts receivable at year end, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts. Balances still outstanding after management uses reasonable collection efforts are charged to the allowance for doubtful accounts and credited to accounts receivable. Changes in the allowance for doubtful accounts have not been material to the financial statements. The allowance for doubtful accounts was $6,927 at June 30, Cash Equivalents The Organization considers all highly liquid debt instruments purchased with a maturity of three months or less and all funds deposited with banking institutions (including certificates of deposit) to be cash equivalents. Restricted Cash Restricted cash represents amounts of temporarily restricted net assets held in cash and cash equivalent accounts which are to be expended in subsequent years. Marketable Securities Investments in marketable securities are stated at fair market value. Fair Value Measurements FASB ASC 820 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. FASB ASC 820 establishes and prioritizes three levels of input that may be used to measure fair value. Level 1 Quoted prices in active markets for identical assets or liabilities. The fair market value of marketable securities is based upon quoted prices in active markets. The Organization s index funds are Level 1 investments. 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Organization has no Level 2 fair value measurements. Level 3 Inputs that are generally unobservable and typically reflect management s estimates of assumptions that market participants would use in pricing the asset or liability. The Organization has no Level 3 fair value measurements. Property and Equipment Donated property is stated at fair market value as determined by management at the date contributed. Such donations are reported as unrestricted support unless the donor has restricted the donated assets to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired assets are purchased as instructed by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at that time. Property purchased is recorded at cost. Depreciation expense is computed by the straight-line method over the estimated useful lives of the respective assets. Depreciation expense for the years ended June 30, 2016 and 2015 amounted to $313,161 and $292,859, respectively. Use of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates that were used. Revenue Recognition Revenue received in advance of providing client services is classified as tuition received in advance and advance deposits. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of unrestricted revenues, support, expenses and other changes in unrestricted net assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Taxes Chapel Haven, Inc., a not-for-profit organization operating under Section 501(c)(3) of the Internal Revenue Code, is generally exempt from federal, state and local taxes and, accordingly, no provision for income taxes is recorded in the financial statements. The Organization files tax returns in the United States. The Organization has not taken any tax positions that management believes would result in additional tax liabilities upon examination of the tax returns by a tax jurisdiction. The Organization has no open tax years prior to fiscal The Organization s tax returns are subject to examination, generally for three years after they were filed. 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued The Organization has filed its quadrennial exemption with the City of New Haven to preserve its properties tax exempt status. 2. Concentrations of Credit Risk Due to Temporary Cash Investments and Accounts Receivable Financial instruments that potentially subject the Organization to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. The Organization places its temporary cash investments with substantial financial institutions to limit the amount of credit exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the financial stability of the customers comprising the Organization s revenue base. The Organization maintains cash balances at financial institutions in Connecticut and Arizona, which are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2016, the Organization had uninsured cash balances of approximately $295, Marketable Securities Details of the cost, market value and unrealized appreciation at June 30, 2016 and 2015 are as follows: June 30, 2016 Permanently Unrestricted Restricted Total Index Funds: Cost $ 616,243 $1,362,688 $1,978,931 Unrealized gain 421, ,753 1,269,160 Market value 1,037,650 2,210,441 3,248,091 Less Scholarship fund - ( 300,702) ( 300,702) $1,037,650 $1,909,739 $2,947,389 June 30, 2015 Permanently Index Funds: Unrestricted Restricted Total Cost $585,600 $1,317,241 $1,902,841 Unrealized gain 403, ,154 1,212,606 Market value 989,052 2,126,395 3,115,447 Less Scholarship fund - ( 289,269) ( 289,269) $989,052 $1,837,126 $2,826,178 Marketable securities related to the endowment and scholarship contributions have been segregated as long-term assets. The following schedule summarizes the investment return and its classification in the consolidated statements of unrestricted revenues, expenses and other changes in unrestricted net assets and the statement of changes in net assets for the years ended June 30, 2016 and

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Year ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Dividends and interest income $21,677 $ 6,239 $ 45,836 $ 73,752 Net unrealized gains 17,955 5,251 25,633 48,839 Total return on investments 39,632 11,490 71, ,591 Investment return segregated for current operations Investment return in excess of amounts for current operations $39,112 $11,490 $ 71,469 $122,071 Year ended June 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Dividends and interest income $19,724 $ 5,729 $ 36,611 $ 62,064 Net unrealized gains 48,584 14,209 90, ,972 Total return on investments 68,308 19, , ,036 Investment return segregated for current operations Investment return in excess of amounts for current operations $68,171 $19,938 $126,790 $214,899 The Organization segregates dividend and interest income from unrestricted investments for use in unrestricted activities. Net realized and unrealized gains and losses and interest and dividend income earned on scholarship investments and the permanent endowment are temporarily restricted until authorized for use. 4. Promises to Give Unconditional promises to give to the Organization at June 30, 2016 are as follows: Receivable in less than one year $ 7,905,643 One to five years 13,430,558 Thereafter 150,250 21,486,451 Present value discount (780,650) Allowance for uncollectible pledges (55,000) Total unconditional promises to give $20,650,801 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. Restrictions on Net Assets Temporarily restricted net assets consisted of the following at June 30, 2016: Capital renovations $11,012,054 Assisted Living 10,599,896 Employment 5,001,266 Permanent endowment earnings 1,058,919 Endowment scholarships earnings 164,670 Senior programs 133,976 Poole scholarship 103,735 Various contributions to provide for recreational activities for clients 60,970 Golf tournament 21,500 Education program 20,600 Landau memorial 82,496 Furniture 20,000 Residential scholarships 1,668 Endowment Investment and Spending Policies $28,281,750 The Organization s endowments consist of both donor-restricted endowment funds (permanently restricted net assets) and funds designated by the Board of Directors to function as an endowment. As required by generally accepted accounting principles, net assets associated with endowment funds, including board designated funds, are classified and reported based on the existence or absence of donor-imposed restrictions. In February 2000, the Board of Directors approved the establishment of a permanent endowment with annual earnings to be reinvested until the endowment reaches $500,000. In 2008, the Board of Directors voted to increase the amount to $1,000,000. In 2009, the Board of Directors voted to increase the amount to $1,500,000 for its Permanent endowment fund and $1,000,000 for the board designated endowment fund. Spending of the scholarship endowment is determined by the board so as to maintain the historical dollar amount of donations in perpetuity. In 2015, the board voted to allow up to 3% of the permanent endowment ending balance at June 30 th each year to made available to be transferred to Chapel Haven Inc. for spending. The funds must be spent within three fiscal years of the approval date. Total historical donor-restricted donations to the endowment as of June 30, 2016 and 2015 were approximately $2,749,000 and $2,313,000, respectively. In addition, the Organization has two scholarship endowments which must be maintained in perpetuity. Total historical scholarship endowment donor-restricted contributions as of June 30, 2016 and 2015 were approximately $674,000 and $174,000, respectively. In addition, the Organization has a quasi-endowment fund comprised of board designated amounts. Total historical board designated donations as of June 30, 2016 and 2015 were approximately $676,000 and are recorded as board designated unrestricted net assets. The Board of Directors has interpreted the State of Connecticut s Uniform Prudent Management of Institutional Funds Act (CTUPMIFA) as requiring the preservation of the fair value of the original gift as of the date of the donor restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of donor restricted contributions to the permanent endowment fund and the permanent scholarship fund, (b) the original value of any subsequent donor restricted 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued contributions to the permanent endowment and permanent scholarship funds, (c) earnings on the permanent endowment and permanent scholarship funds up until the funds reached the Board designated amount of $1,500,000 for the permanent endowment fund and as determined by the board for the permanent scholarship fund. The remaining portion of the donor restricted endowment fund and earnings in excess of the board requirements that are not classified in permanently restricted net assets are classified as temporarily restricted net assets until those amounts are approved for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by the CTUPMIFA. In accordance with CTUPMIFA, the organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund 2. The purpose of the Organization and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Organization 7. The investment policies of the Organization The Organization has adopted investment and spending policies for endowment assets that attempt to provide continued funding for the Organizations programs while maintaining the purchasing power of the endowment assets. Endowment assets include those assets of donorrestricted funds the Organization must hold in perpetuity. The Organizations spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through both capital appreciation and current yield. 6. Line of Credit At June 30, 2016, the Organization had available a line of credit from First Niagara Bank in the amount of $500,000 which is secured by substantially all of the business assets of the Organization. There were no outstanding amounts on the line of credit at June 30, No interest expense was incurred for years ended June 30, 2016 and Long-Term Debt In January 2008, the Organization borrowed $787,500 from Wells Fargo Bank for the purchase of 1701 North Park Avenue, Tucson, Arizona, which is used for the Chapel Haven West program. The mortgage is secured by the property at a fixed interest rate of 6.86%. The maturity date on this loan was January In August 2012, the note was refinanced without penalty at an interest rate of 4.65%. Payments are due monthly in the amount of $5,635 which includes principal and interest. The loan matures in July Interest expense included in operating expense for years ended June 30, 2016 and 2015 was $28,585 and $30,303, respectively. Aggregate maturities required on long-term debt at June 30, 2016 are as follows: 2017 $ 41, ,356 $584,901 16

19 8. Pension Plan CHAPEL HAVEN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued The Organization maintains a 403(B) TDA and defined contribution plan. The defined Contribution plan is for all employees who have attained age 21 and completed two years of service. Contributions under the plan are made in the amount of 4% of qualified employee earnings. Total contributions under this plan were $163,851 and $158,128 for the years ended June 30, 2016 and 2015, respectively. The plan s year end is December 31. An audit for the plan year ended December 31, 2015 was conducted and a Form 5500 has been filed by the Organization. 9. Community Foundation for Greater New Haven In 1984, a donation was made to the Community Foundation of Greater New Haven to create the Chapel Haven Graduate Fund. The purpose of this fund is to help provide job counseling, daily living, and recreational support services for graduates of Chapel Haven, Inc. For the years ended June 30, 2016 and 2015, Chapel Haven, Inc. received $8,503 and $8,059, respectively, from the Chapel Haven Graduate Fund. 10. Subsidiary Transactions In fiscal 2013, Chapel Haven Endowment, Inc. refinanced $725,0000 of previous loans to Chapel Haven, Inc. at a lower rate of 2.34% to be re-paid in quarterly installments of $14,389, including interest, beginning in January In August 2012, Chapel Haven Endowment, Inc. made a loan to Chapel Haven, Inc. in the amount of $259,000 at an interest rate of 2.23% to be re-paid in quarterly installments of $5,091, including interest, beginning in December The loan was used to purchase property at 53 Emerson Street, New Haven, Connecticut. This loan was repaid in fiscal year In May 2013, Chapel Haven Endowment Inc. made a loan to Chapel Haven, Inc. in the amount of $300,000 at an interest rate of 2.6% to be re-paid in quarterly installments of $6,054, including interest, beginning in September The loan was used to purchase property at 39 Emerson Street, New Haven, Connecticut. This loan was repaid in fiscal year In August 2015 Chapel Haven Endowment Inc. made a loan to Chapel Haven, Inc. in the amount of $500,000 with interest of.48% to be repaid in full in August In February 2016 Chapel Haven Endowment Inc. made a loan to Chapel Haven, Inc. in the amount of $84,750 to be repaid in quarterly installments of $1,706, including interest, beginning in June The proceeds of this loan were used to purchase property at 34 Emerson St, New Haven, Connecticut. In August 2015 Chapel Haven Endowment Inc. made a loan to 25 Emerson Street Holdings, LLC. in the amount of $340,000 at an interest rate of 2.6% to be repaid in quarterly installments of $6,849, including interest, beginning in December The loan was used to purchase property at 25 Emerson Street, New Haven, Connecticut. The balance at June 30, 2016 on the above loans from Chapel Haven Endowment, Inc. to Chapel Haven, Inc. and 25 Emerson Street Holdings, LLC. amounted to $1,175,000. Interest paid to Chapel Haven Endowment, Inc. on the above loans amounted to $21,310 and $18,582, respectively, for the years ending June 30, 2016 and The loans and the interest have been eliminated in the consolidated financial statements. 17

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 11. Subsequent Events Management has evaluated subsequent events through December 23, 2016, the date which the consolidated financial statements were available for issue and has determined that no events have occurred that would impact the consolidated financial statements. 18

21 CHAPEL HAVEN, INC. SCHEDULE OF EXPENDITURES OF STATE AWARDS YEAR ENDED JUNE 30, 2016 State Grant Program State Grantor/Program Title CORE-CT Number Expenditures State of Connecticut Department of Development Services Employment Opportunities DDS and Day Services $329,047 Community Residential Program DDS ,630 Notes to Schedule Total state financial assistance $693,677 The accompanying Schedule of Expenditures of State Awards includes state grant activity of the Chapel Haven, Inc. under programs of the State of Connecticut for the fiscal year ended June 30, The State of Connecticut Department of Developmental Services has awards to Chapel Haven, Inc. through grants and other authorizations in accordance with the General Statutes of the State of Connecticut. These awards fund the Organization s REACH program which provides employment, life skills and supported living guidance. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Chapel Haven, Inc. conform to generally accepted accounting principles as applicable to not-for-profit agencies. The information in the Schedule of Expenditures of State Awards is presented based upon regulations established by the State of Connecticut, Office of Policy and Management. Basis of Accounting The expenditures reported on the Schedule of Expenditures of State Awards are reported on the accrual basis of accounting. In accordance with Section of the Regulations to the State Single Audit Act, certain grants are not dependent on expenditure activity, and accordingly, are considered to be expended in the fiscal year of receipt. These grant program receipts are reflected in the expenditures column of the Schedule of Expenditures of State Awards. 2. SUBRECIPIENTS Chapel Haven, Inc. has not passed through any awards to subrecipients. 19

22 CARTER HAYES + ASSOCIATES, P.C. established 1988 CERTIFIED PUBLIC ACCOUNTANTS 1952 WHITNEY AVENUE HAMDEN CONNECTICUT (203) Fax (203) INDEPENDENT AUDITORS 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 To the Board of Directors Chapel Haven, Inc. New Haven, Connecticut We have audited, 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 consolidated financial statements of the Chapel Haven, Inc. and Subsidiaries, which comprise the consolidated statement of financial position as of June 30, 2016 and the related consolidated statements unrestricted revenues, expenses and other changes in unrestricted net assets, changes in net assets, and cash flows for the year ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated December 23, Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered Chapel Haven, Inc. and Subsidiaries 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 the Chapel Haven, Inc. and Subsidiaries internal control. Accordingly, we do not express an opinion on the effectiveness of the Chapel Haven, Inc. and Subsidiaries 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 combination of deficiencies in internal control, such that there a reasonable possibility that a material misstatement of the entity s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or 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 the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting 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. 20

23 Compliance and Other Matters As part of obtaining reasonable assurance about whether Chapel Haven, Inc. and Subsidiaries consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of Chapel Haven, Inc. and Subsidiaries internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Chapel Haven, Inc. and Subsidiaries internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Carter, Hayes + Associates, P.C. Hamden, Connecticut December 23,

24 CARTER HAYES + ASSOCIATES, P.C. established 1988 CERTIFIED PUBLIC ACCOUNTANTS 1952 WHITNEY AVENUE HAMDEN CONNECTICUT (203) Fax (203) INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR STATE PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE STATE SINGLE AUDIT ACT To the Board of Directors Chapel Haven, Inc. New Haven, Connecticut Report on Compliance for Each Major State Program We have audited Chapel Haven, Inc. s compliance with the types of compliance requirements described in the Office of Policy and Management Compliance Supplement that could have a direct and material effect on each of Chapel Haven, Inc. s major state programs for the year ended June 30, Chapel Haven, Inc. s major state programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its state programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Chapel Haven, Inc. s major state 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 State Single Audit Act (C.G.S. Sections to 4-236). Those standards and the State Single Audit Act 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 state program occurred. An audit includes examining, on a test basis, evidence about Chapel Haven, 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 state program. However, our audit does not provide a legal determination of Chapel Haven, Inc. s compliance. Opinion on Each Major State Program In our opinion, Chapel Haven, 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 state programs for the year ended June 30,

25 Report on Internal Control over Compliance Management of Chapel Haven, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Chapel Haven, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major state program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major state program and to test and report on internal control over compliance in accordance with the State Single Audit Act, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Chapel Haven, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a state program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a state program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a state program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the State Single Audit Act. Accordingly, this report is not suitable for any other purpose. Carter, Hayes + Associates, P.C. Hamden, Connecticut December 23,

26 CHAPEL HAVEN, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016 I. SUMMARY OF AUDITOR S RESULTS Financial Statements Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: unmodified Internal control over financial reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X none reported Noncompliance material to financial statements noted? yes X no State Awards Internal control over major state programs: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X none reported Type of auditor s report issued on compliance for major state programs: unmodified Any findings disclosed that are required to be reported in accordance with Section of the regulations to the State Single Audit Act? yes X no Dollar threshold used to distinguish between Type A and Type B programs: $200,000 The following schedule reflects the major programs included in the audit: State Grantor State Grant Program and CORE-CT Program Number Expenditures State of Connecticut Department of Development Services Employment Opportunities and Day Services DDS $364,629 Community Residential Program DDS $329,047 24