MFI RECOVERY CENTER. Consolidated Financial Statements And Supplementary Information With Independent Auditors Report

Transcription

1 Consolidated Financial Statements And Supplementary Information With Independent Auditors Report For the Years Ended June 30, 2016 and 2015

2 TABLE OF CONTENTS Independent Auditors Report 1 Financial Statements Consolidated Statements of Financial Position 3 Consolidated Statements of Activities and Changes in Net Assets 4 Consolidated Statements of Functional Expenses 5 Consolidated Statements of Cash Flows 9 Notes to Consolidated Financial Statements 10 Supplementary Information Schedule of Expenditures of Federal Awards 16 Other Independent Auditors Reports 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 17 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance in Accordance by the Uniform Guidance 18 Schedule of Findings and Questioned Costs 20 Summary Schedule of Prior Year Audit Findings 22 Page

3 Independent Auditors Report Board of Directors MFI Recovery Center Riverside, California Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of MFI Recovery Center (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these 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 from 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 auditors 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 auditors consider internal controls 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. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MFI Recovery Center as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America

4 Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the 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 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 as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 15, 2017, on our consideration of MFI Recovery Center s internal control over financial reporting and on 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 Standards in considering MFI Recovery Center s internal control over financial reporting and compliance. Riverside, California February 15, 2017 CHRISTENSON & DE GOOD Certified Public Accountants - 2 -

5 Consolidated Statements of Financial Position June 30, ASSETS Current assets Cash $2,150,145 $2,795,981 Accounts receivable net of allowance 1,928,904 1,083,313 Grant receivable United Way 45,500 Prepaid expenses 72,985 67,076 Total current assets 4,152,034 3,991,870 Property and equipment, net 2,314,794 2,348,101 Other assets Deposits 16,255 6,255 Loan fees, net 2,863 Beneficial interest in assets held by others 295, ,861 Total other assets 311, ,979 Total assets $6,778,506 $6,655,950 LIABILITIES AND NET ASSETS Current liabilities Accounts payable $ 171,028 $ 119,885 Accrued expenses 325, ,063 Current portion of capital leases payable 9,866 6,131 Current portion notes payable 5, ,124 Total current liabilities 511, ,203 Long-term liabilities Deposits 4,200 Capital leases payable, less current portion 7,899 17,765 Notes payable, less current portion 21,544 Total long-term liabilities 29,443 21,965 Total liabilities 541, ,168 Net assets Unrestricted 6,237,263 6,094,282 Temporarily restricted 45,500 Total net assets 6,237,263 6,139,782 Total liabilities and net assets $6,778,506 $6,655,950 The accompanying notes are an integral part of these consolidated financial statements

6 Consolidated Statements of Activities and Changes in Net Assets For the Years Ended June 30, UNRESTRICTED NET ASSETS Support and revenues Riverside County contracts $4,370,880 $3,885,445 Grants from agencies 610, ,824 Client fees 2,644,240 2,443,318 Change in value of beneficial interest in assets held by others (11,438) 6,861 Contributions 6,502 12,643 Interest 5,754 5,435 Rental income net 8,092 (11,052) Miscellaneous 7,236 15,446 Total support and revenues 7,641,729 6,810,920 Net assets released from restrictions 45,500 45,998 Total support and revenues and reclassifications 7,687,229 6,856,918 Expenses and losses Program services 6,703,733 5,629,750 Management and general 840, ,879 Total expenses and losses 7,544,248 6,465,629 Increase in unrestricted net assets 142, ,289 Temporarily restricted net assets Contributions 42,000 Net assets released from restrictions (45,500) (45,998) Decrease in temporarily restricted net assets (45,500) (3,998) Increase in net assets $ 97,481 $ 387,291 Net assets Balance, beginning of year $6,139,782 $5,752,491 Increase in net assets 97, ,291 Balance, end of year $6,237,263 $6,139,782 The accompanying notes are an integral part of these consolidated financial statements

7 Consolidated Statements of Functional Expenses For the Year Ended June 30, 2016 Program Services Out- Day Mental Residential Patient Treatment Prevention Health Salaries $1,479,102 $1,221,083 $153,594 $197,166 $313,256 Payroll taxes & benefits 392, ,110 42,535 45,880 81,842 Advertising 1, Automobile 38,975 3, Client treatment 172,737 61,688 13, ,856 Depreciation & amortization 77,581 28,274 14,403 2,172 7,433 Equipment 43,352 14,199 1,888 5,499 3,424 Food purchases 180,235 33, ,992 1,050 Insurance general 10,262 3, ,121 Interest 2,463 1, Occupancy 179, ,251 13,543 10,803 24,341 Office expense 97,900 68,793 7,348 8,942 16,086 Printing 3,694 5, ,115 Professional & legal 163, ,385 15,084 38,751 49,690 Marketing 24,407 51,663 1,232 11,368 2,733 Staff training 7,952 6, ,633 1,489 Supplies 114,501 28,922 3,627 5,794 6,051 Telephone 31,954 22,680 2,875 4,074 6,316 Travel & mileage 13,704 8, , Utilities 178,675 25,701 6,049 9,097 7,000 Bad debts 16,676 8,392 1,997 Total expenses $3,231,289 $2,195,336 $281,897 $368,263 $626,948 The accompanying notes are an integral part of these consolidated financial statements

8 Total Management Program & Services General Total $3,364,201 $403,360 $3,767, , ,541 1,003,481 2,855 1,954 4,809 44,067 10,293 54, , , ,863 28, ,452 68,362 13,704 82, ,525 4, ,625 16,658 6,834 23,492 5, , ,678 38, , ,069 37, ,319 11,164 1,788 12, ,105 58, ,491 91,403 34, ,424 35,157 17,007 52, ,895 21, ,566 67,899 24,639 92,538 27,333 2,144 29, ,522 16, ,932 27,065 3,500 30,565 $6,703,733 $840,515 $7,544,248 The accompanying notes are an integral part of these consolidated financial statements

9 Consolidated Statements of Functional Expenses For the Year Ended June 30, 2015 Program Services Out- Day Mental Residential Patient Treatment Prevention Health Salaries $1,383,924 $ 861,985 $130,586 $228,901 $244,445 Payroll taxes & benefits 374, ,908 34,721 69,743 60,620 Advertising Automobile 34,740 3, , Client treatment 165,053 43,256 8,741 2, ,684 Depreciation & amortization 97,233 26,898 13,714 3,120 6,960 Equipment 28,013 14,598 2,618 1,504 4,246 Food purchases 135,338 18, , Insurance general 9,952 3, ,100 Interest 10,698 3,600 1, Occupancy 106,334 83,163 14,662 14,991 24,117 Office expense 109,881 61,397 8,312 12,817 16,899 Printing 977 1, Professional & legal 106, ,457 14,096 40,639 28,553 Marketing 7,676 4, ,719 1,144 Staff training 7,430 3, ,242 1,256 Supplies 90,899 27,333 4,005 5,270 6,832 Telephone 25,817 14,105 1,923 4,150 3,653 Travel & mileage 7,342 8, ,330 1,337 Utilities 172,233 25,497 7,559 7,212 6,110 Bad debts 14,990 (4,288) Total expenses $2,890,537 $1,546,012 $246,265 $411,796 $535,140 The accompanying notes are an integral part of these consolidated financial statements

10 Total Management Program & Services General Total $2,849,841 $363,101 $3,212, , , ,313 1, ,272 41,910 15,768 57, , , ,925 6, ,350 50,979 10,267 61, ,234 4, ,326 16,067 10,651 26,718 17,416 1,832 19, ,267 13, , ,306 31, ,881 3, , , , ,262 15,140 94, ,671 21,300 25,064 46, ,339 23, ,559 49,648 11,673 61,321 22,799 2,320 25, ,611 7, ,041 10,702 10,702 $5,629,750 $835,879 $6,465,

11 Consolidated Statements of Cash Flows For the Years Ended June 30, Cash flows from operating activities Increase in net assets $ 97,481 $ 387,291 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation and amortization 162, ,470 Bad debts 30,565 10,702 (Increase) decrease in: Accounts receivable (876,156) 213,448 Grant receivable United Way 45,500 3,998 Prepaid expenses (5,909) (30,092) Deposits (10,000) 1,569 Beneficial interest in assets held by others 11,438 (6,861) Increase (decrease) in: Accounts payable 51,143 10,279 Accrued liabilities 95,050 34,435 Deposits (4,200) Net cash provided by (used in) operating activities (402,729) 816,239 Cash flows from investing activities Investment in beneficial interest in assets held by others (300,000) Purchase of equipment and improvements (126,189) (78,672) Net cash used in investing activities (126,189) (378,672) Cash flows from financing activities Proceeds from notes payable 30,169 Principal payments on capital leases payable (6,131) (4,784) Principal payments on notes payable (140,956) (294,157) Net cash used in financing activities (116,918) (298,941) Net increase (decrease) in cash (645,836) 138,626 Cash Balance, beginning of year 2,795,981 2,657,355 Balance, end of year $2,150,145 $2,795,981 Supplementary disclosure Cash paid for interest $5,345 $19,248 Copier purchased through capital lease $6,518 The accompanying notes are an integral part of these consolidated financial statements

12 Notes to Consolidated Financial Statements 1. Organization MFI Recovery Center (the Center) is a nonprofit organization providing drug rehabilitation and prevention services. The Center operates four state licensed residential facilities and provides treatment, education, counseling and prevention services in a women s day treatment facility, recovery homes and two outreach centers. The Center receives a substantial portion of its funding from contracts with the Riverside County Department of Mental Health. Credit risk for accounts and grants receivable are concentrated because a substantial portion for the balances are due from local governments and agencies located in the same geographic region. Friends of My Family, a nonprofit organization, was created to hold and lease property to the Center (pursuant to OMB rules) and to fund an endowment to benefit the mission of the Center. 2. Summary of Significant Accounting Policies The preparation of these financial statements requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Management also determines the accounting policies to be used in the preparation of financial statements. A description of the significant accounting policies employed in the preparation of these financial statements follows: Consolidation The consolidated financial statements include the accounts of MFI Recovery Center and Friends of My Family. Friends of My Family is consolidated since the Center has both an economic interest in Friends of My Family and control of the organization through a majority voting interest in its governing board. All material intra-entity transactions have been eliminated. Financial Statement Presentation The assets, liabilities and net assets of the Center are reported in the following net asset groups: Unrestricted net assets include resources that are not temporarily or permanently restricted by the donor and are available for operations of the Center without limitation. Temporarily restricted net assets include those resources whose use is restricted by donor-imposed criteria that either expire with the passage of time or by actions of the Center. Accounts Receivable Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts. The Center provides for losses on accounts receivable using the allowance method. The allowance is based on experience and other circumstances, which may affect the ability of the Center to collect the unpaid balances. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is the Center s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected

13 Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies (Continued) Property and Equipment Property and equipment are valued at cost if purchased or at fair market value at the date of receipt if donated, and capitalized if valued at or over $5,000. Depreciation has been computed on a straight-line basis over the useful lives of the assets, as follows: Building and improvements Furniture and equipment Computer systems 7-30 years 5-7 years 5 years Contributions and Grants The Center reports contributions and grants as increases in unrestricted, temporarily restricted, or permanently restricted net assets, depending on the existence and/or nature of any donor restrictions. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Grants and donations with purpose restrictions that are accomplished during the same year they are received are reported as unrestricted net assets. Cost-reimbursement grants are considered conditional and the revenue is not recognized until the costs are incurred. Cash The Center has cash in financial institutions which is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 at each institution. At various times throughout the year, the Center may have cash balances at financial institutions which exceed the FDIC insurance limit. Management reviews the financial conditions of these financial institutions on a periodic basis and does not believe this concentration of cash results in a high level of risk for the Center. Income Taxes The Center and Friends of My Family, nonprofit California corporations, are exempt from income taxes under the Internal Revenue Code Section 501(c)(3) and the California Revenue and Taxation Code Section 23701(d) and are classified as other than a private foundation. However, the Center is subject to unrelated business income tax on net rental income related to commercial tenants. For the years ended June 30, 2016 and 2015 this activity did not incur any unrelated business taxable income; therefore, there was no provision for income taxes. As of June 30, 2016, management believes the Center and Friends of My Family have no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax returns for both entities are subject to examination by the Internal Revenue Service and the California Franchise Tax Board for three and four years, respectively, after the returns are filed. Functional Expenses Direct expenses are charged directly to the functional area to which they relate. Shared expenses are allocated based on the estimates of management among the programs and supporting services benefited. Reclassifications Certain reclassifications have been made to the 2015 financial statement information to conform to the current year presentation. These reclassifications had no effect on the net assets balances for

14 Notes to Consolidated Financial Statements 3. Accounts Receivable Accounts receivable are comprised of the following at June 30: Governmental contracts and grants $1,184,527 $ 527,962 Insurance, private pay clients and other grants 803, ,961 Miscellaneous 18,521 14,912 Less: allowance for doubtful accounts (77,618) (41,522) Total accounts receivable $1,928,904 $1,083,313 The allowance for doubtful accounts has been established to estimate uncollectible receivables from private pay clients and co-pay clients from both private and county clients. 4. Beneficial Interest in Assets Held by Others During the year Friends of My Family transferred cash held to a fund held by The Community Foundation ( Foundation ) based on an agreement with the Foundation. The agreement specified that the Foundation is to distribute the net income and principal of the fund to Friends of My Family as needed to be used for its charitable and tax-exempt purposes. The Foundation has variance power to modify restrictions on distributions if such restrictions are not consistent with the needs of the community served. The Center has recognized $295,423 and $306,861 as a beneficial interest in assets held by others in the statement of financial position at June 30, 2016 and Fair values of assets held by the Foundation approximate current market value and are as follows at June 30, Fair Value Level 2 Fair Value Level 2 Investments $295,423 $295,423 $306,861 $306,861 Level 2 Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: 1. Quoted prices for similar assets or liabilities in active markets; 2. Quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly (for example, a principal to principal market); 3. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates); 4. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs)

15 Notes to Consolidated Financial Statements 5. Property and Equipment Property and equipment is comprised of the following at: June 30, Land $ 750,289 $ 750,289 Land improvements 434, ,782 Buildings and leasehold improvements 3,914,571 3,821,089 Furniture and equipment 276, ,354 Vehicles 261, ,419 5,637,122 5,510,933 Less accumulated depreciation 3,322,328 3,162,832 Net property and equipment $2,314,794 $2,348, Capital Leases Payable The Center leases several copiers with a total cost of $32,437 included in property and equipment, net on the statement of financial position. Accumulated amortization related to the copiers amounted to $18,588 at June 30, The lease agreements call for monthly payments of $671 and $151, which includes principal and interest, maturing in May 2018 and November 2019, respectively. Amortization expense for the leased copiers is reported with depreciation on the statements of functional expenses and totaled $6,487 and $6,053 for the years ended June 30, 2016 and Future minimum lease payments are as follows for the year ending June 30, 2017 $ 9, , , ,632 Less amount representing interest (3,867) Present value of minimum lease payments $17, Notes Payable Notes payable at June 30, 2016 consisted of one automotive loan dated December 31, Principal and interest are payable in monthly installments of $539, maturing December 31, The note bears an interest rate of 2.75 percent and is secured by a 2016 Honda Pilot with a net book value of $29,636 at June 30, The following are the maturities of notes payable for the year ending June 30, 2017 $ 5, , , , ,181 Total $27,

16 7. Notes Payable (Continued) Notes to Consolidated Financial Statements Notes payable at June 30, 2015 consisted of $138,124 reported in the current liability section of the statement of financial position. The balance included only one note to Liberty Bank dated September 21, 2001 which was secured by various properties. The note was paid in full during the year ended June 30, Thrift Plan Effective July 1, 1997, the Center established a Thrift Plan (the Plan ) under section 403(b) of the Internal Revenue Code for the exclusive benefit of the Center s employees. All employees are eligible under this plan. Each participant may elect to contribute a percentage of annual compensation within certain minimum and maximum amounts. Employer contributions are made on behalf of each participant who has completed one year of eligible service. The employer makes contributions to the Plan equal to 3% of all participants compensation and a 2% match of any participants contributions. The Center incurred costs of $108,348 and $84,877 under the Plan for the years ended June 30, 2016 and Accrued Vacation It is the Center s policy to permit employees to accumulate earned but unused vacation, which will be paid to employees upon separation from service. A liability of $149,843 and $110,347 has been included in accrued expenses at June 30, 2016 and 2015, respectively. 10. Commitments The Center signed an agreement with CORE Solutions in October Based on the agreement, CORE Solutions provides the following to the Center: electronic health record software implementation, services and project management, and licensing through a hosting arrangement. The software implementation and services and project management portion of the agreement totaled $147,530 which is expected to be completed and in use by June 30, The licensing commitment is $56,700 annually through October Years two through seven licensing fees are subject to yearly price adjustments not to exceed the sum of the Average Annual Consumer Price Index for All Urban Customers (CPI-U) over the contract period. During the years ended June 30, 2016 and 2015, the Center incurred software implementation fees totaling $30,843 and $55,000, respectively, and annual licensing fees totaling $56,700 and $47,800, respectively. The Center signed agreements with TelePacific Communications in April 2016 for seven locations. Based on the agreements, Telepacific Communications will provide the Center with all telecommunication services needed, including equipment, at these locations. The term of the noncancelable agreements is three years ending March The monthly charges per the agreements total $9,357 plus applicable federal, state and local charges. During the year ended June 30, 2016, the Center incurred telephone expenses totaling $27,054 related to these agreements. Future minimum payment obligations for these commitments are as follows for the year ended June 30, 2017 $168, , , , ,700 Thereafter 18,900 Total $611,

17 11. Temporarily Restricted Net Assets Notes to Consolidated Financial Statements Temporarily restricted net assets consisted of the following at June 30: United Way $ $45,500 Net assets that were released from donor restrictions during the year ended June 30, consisted of the following: United Way $45,500 $45, Contingencies Amounts received or receivable from grantor agencies are subject to audit and adjustment by those grantor agencies, principally the County of Riverside. Any disallowed claims including amounts already collected may constitute a liability of the Center. The amount of expenses, which may be disallowed by the grantor, is not determinable although the Center expects such amounts, if any, to be immaterial. 13. Subsequent Events The Center has evaluated events occurring between July 1, 2016 and February 15, 2017 the date the financial statements were available to be issued, for the possible effects on these financial statements

18 SUPPLEMENTARY INFORMATION

19 Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2016 Federal Grantor/ Federal Pass-Through Grantor/ CFDA Federal Program Title Number Expenditures U. S. Department of Health and Human Services: Substance Abuse and Mental Health Services Administration: Passed-through from Riverside County Department of Mental Health Alcohol and Drug Abuse and Mental Health Services Block Grant Prevention and Treatment of Substance Abuse $1,540,688 Drug-Free Communities Support Program Grants ,686 Total expenditures of federal awards $1,628, Basis of Presentation Notes to the Schedule of Expenditures of Federal Awards The above schedule of expenditures of federal awards (the Schedule) includes the federal award activity of MFI Recovery Center (Center) 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 operations of the Center, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Center. 2. Summary of Significant Accounting Policies (A) 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. (B) The Center did not elect to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. Indirect expenses are allocated based on a two-step process: (1) the allocation to programs is based on the ratio of payroll hours per program to total payroll hours and (2) the allocation to funding sources within the program is based on the ratio of units of service per funding source to total units of service per program

20 OTHER INDEPENDENT AUDITORS REPORTS

21 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 MFI Recovery Center Riverside, 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 MFI Recovery Center (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2016, 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 February 15, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered MFI Recovery Center 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 MFI Recovery Center s internal control. Accordingly, we do not express an opinion on the effectiveness of the Center 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether MFI Recovery Center s consolidated financial statements are free from 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 or other matters 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 results of that testing, and not to provide an opinion on the effectiveness of the Center s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Center s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Riverside, California February 15, 2017 CHRISTENSON & DE GOOD Certified Public Accountants

22 Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance To the Board of Directors MFI Recovery Center Riverside, California Report on Compliance for Each Major Federal Program We have audited MFI Recovery Center 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 MFI Recovery Center s major federal programs for the year ended June 30, MFI Recovery Center s major federal 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 federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of MFI Recovery Center 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 MFI Recovery Center 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 MFI Recovery Center s compliance. Opinion on Each Major Federal Program In our opinion, MFI Recovery Center 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, Report on Internal Control over Compliance Management of MFI Recovery Center 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 MFI Recovery Center s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, 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 MFI Recovery Center 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 federal 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 federal program will not be prevented, or detected and corrected, on a timely basis. A

23 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 federal 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 Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Riverside, California February 15, 2017 CHRISTENSON & DE GOOD Certified Public Accountants

24 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2016 Section I - Summary of Independent Auditors Results Financial Statements Type of independent auditors report issued: Unmodified opinion Internal control over financial reporting: Material weaknesses identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weaknesses identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Type of auditors report issued on compliance for each major program: Unmodified opinion Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Yes X No Identification of major program: CFDA Number(s) Name of Federal Program or Cluster U.S. Department of Health and Human Services Passed through from Riverside County Department of Mental Health Alcohol and Drug Abuse and Mental Health Services Block Grant-Prevention and Treatment of Substance Abuse Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? X Yes No

25 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2016 Section II Findings - Financial Statement Audit There are no matters to report. Section III Findings and Questioned Costs Major Federal Award Program Audit There are no matters to report

26 Summary Schedule of Prior Year Audit Findings For the Year Ended June 30, 2016 Section II Findings - Financial Statement Audit There are no matters to report. Section III Findings and Questioned Costs Major Federal Award Program Audit There are no matters to report