WEST MICHIGAN CONFERENCE OF THE UNITED METHODIST CHURCH. YEAR ENDED DECEMBER, 2012 (with comparative totals for the year ended December 31, 2011)

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1 418 WEST MICHIGAN ANNUAL CONFERENCE 2013 WEST MICHIGAN CONFERENCE OF THE UNITED METHODIST CHURCH REPORT ON THE FINANCIAL STATEMENTS (with additional information) YEAR ENDED DECEMBER, 2012 (with comparative totals for the year ended December 31, 2011)

2 2013 AUDITOR S REPORT 419 C O N T E N T S Page Independent auditor s report Financial statements Statements of assets, liabilities and net assets - modified cash basis... 5 Statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis... 6 Notes to financial statements Supplementary information Combining statements of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis

3 420 WEST MICHIGAN ANNUAL CONFERENCE 2013

4 2013 AUDITOR S REPORT 421 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 financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets - modified cash basis of the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church as of December 31, 2012 and 2011, and its support, revenue and other receipts, expenses other disbursements and changes in net assets - modified cash for the year ended December 31, 2012, in accordance with the basis of accounting as described in Note 1. Other Matters Report on Summarized Comparative Information We have previously audited the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church s 2011 financial statements, and our report dated May 29, 2012, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented in the statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis for the year ended December 31, 2011 is consistent, in all material respects, with the audited financial statements from which it has been derived. Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information, as identified in the table of contents, is presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 financial statements as a whole. May 21,

5 422 WEST MICHIGAN ANNUAL CONFERENCE 2013 STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - MODIFIED CASH BASIS DECEMBER 31, 2012 AND 2011 ASSETS Cash and cash equivalents $ 525,189 $ 1,251,026 Investments 18,897,036 17,612,941 Receipts in transit 772, ,840 Notes and loans receivable 620, ,027 Property and equipment - net 2,483,459 2,554,535 TOTAL ASSETS $ 23,298,577 $ 22,474,369 LIABILITIES AND NET ASSETS LIABILITIES: Payroll withholding $ 48,317 $ 71,666 Assets held on behalf of others 919,652 1,047,566 Total liabilities 967,969 1,119,232 NET ASSETS: Unrestricted 21,165,256 20,231,154 Temporarily restricted 1,154,745 1,113,376 Permanently restricted 10,607 10,607 Total net assets 22,330,608 21,355,137 TOTAL LIABILITIES AND NET ASSETS $ 23,298,577 $ 22,474,369 See notes to financial statements. 5

6 2013 AUDITOR S REPORT 423 STATEMENT OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEAR ENDED DECEMBER 31, 2012 (with comparative totals for the year ended December 31, 2011) 2012 Temporarily Permanently Unrestricted restricted restricted Total 2011 SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares $ 5,687,476 $ 61,032 $ - $ 5,748,508 $ 5,737,814 Special offerings 238,880 1,368,650-1,607,530 1,827,729 Investment income 2,162,937 80,334-2,243, ,851 Camp registration and rental fees 1,145, ,145, ,900 Other income 486, , , ,150 Net assets released from restrictions 1,588,550 (1,588,550) Total support and revenue 11,309,155 41,369-11,350,524 9,732,444 Other receipts: CPP holiday refunds 459, , ,994 Pension billings 2,103, ,103,597 2,113,505 Insurance billings 4,222, ,222,553 4,069,311 Total support, revenue and other receipts 18,094,737 41,369-18,136,106 16,392,254 EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries 2,109, ,109,785 2,218,624 Health and life insurance 1,934, ,934,582 2,054,794 Pension and post-employment benefit expense 215, , ,332 Other employee costs 99, , ,275 Training and continuing education 53, ,651 57,628 Travel, meeting and moving expenses 349, , ,045 Operating and administrative expenses 1,220, ,220,670 1,310,116 Parsonage and building expenditures 78, , ,357 World Service 895, , ,799 Programs and conference benevolence 3,100, ,100,601 3,112,672 Depreciation and amortization 167, , ,604 Remittances to General Conference 900, , ,666 Total expenses 11,127, ,127,485 11,407,912 Other disbursements: Remittances to Board of Pensions 2,626, ,626,545 3,674,151 Health and life insurance 3,406, ,406,605 4,039,646 Total expenses and other disbursements 17,160, ,160,635 19,121,709 Increase (decrease) in net assets 934,102 41, ,471 (2,729,455) Net assets - beginning of year 20,231,154 1,113,376 10,607 21,355,137 24,084,592 Net assets - end of year $ 21,165,256 $ 1,154,745 $ 10,607 $ 22,330,608 $ 21,355,137 See notes to financial statements. 6

7 424 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting - The books and records of the Council are maintained on the modified cash basis of accounting. Under this method, income is recognized when received and expenses are recorded at the time of payment except for the recognition of certain assets and liabilities related to the timing of local church contributions at year end, reimbursement of health insurance premiums, payroll deductions, investments, property and equipment, notes and loans receivable and assets held on behalf of others in an agency capacity. Additionally, certain amounts held on the Council s behalf at the General Board of Pensions and Health Benefits (GBOPHB) are not included in these financial statements and related cash flows attributable to local churches are reported as other receipts and disbursements. See Note 8. Financial statement presentation - The statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis includes certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with the modified cash basis of accounting. Accordingly, such information should be read in conjunction with the Council s prior-year statement of support, revenue, and other receipts, expenses, other disbursements and changes in net assets - modified cash basis from which the summarized information was derived. The Council 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. Donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished) temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Unrestricted net assets represent funds available for current operations, support for local churches, various missions, educational programs, and youth summer camps. Temporarily restricted net assets consist of contributions or earnings which have been restricted by the donor. Permanently restricted net assets are gift instruments requiring the principal be maintained intact in perpetuity and only the income be used for purposes specified by the donor. Fund accounting - to facilitate observance of limitations and restrictions placed on the use of available resources, the accounts are maintained in accordance with the principles of fund accounting. Funds are established according to the nature and purpose of resources available to the Council. The assets, liabilities, net assets and financial activity of the Council are recorded in the following self-balancing fund groups: 7

8 2013 AUDITOR S REPORT 425 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Connectional Ministry and Administration fund - resources available for current operations in supervision and administration of the mission and ministry of the West Michigan Annual Conference of the United Methodist Church. World Service and Conference Benevolence fund - resources available for distribution to the United Methodist denominational programs and the West Michigan Annual Conference of the United Methodist Church program agencies. Six Lanes and Advanced Specials fund - resources to allow churches direct involvement in the causes promoted by the Council agencies. Member churches select individual causes to fund from a listing prepared by the Council. Ministerial Education and Black College fund - resources available for providing financial support for the recruitment and education of ordained ministers and to provide financial support to traditionally black colleges related to the Church. Camping and Outdoor Education fund - resources available for Council retreat centers and camping programs. Pension and Health Benefits and Life Insurance fund - resources available for support, relief, assistance and pensioning of clergy, lay workers for the various units of the Council and their families. Plant fund - property and equipment owned and used directly in the operation of the Council. Loan Program fund - resources used to assist local churches and camps in financing capital expenditures. New Church Development fund - resources available for new church development. Other funds - resources for designated purposes related to other programs the Council supports. Functional allocation of expenses - The costs of the various programs and other activities have been summarized on a functional basis in Note 10. Accordingly, certain costs have been allocated between the programs and supporting services benefited. Cash and cash equivalents includes all highly liquid investments purchased with an original maturity of three months or less. 8

9 426 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded) Investments are recorded at fair value and consist of various debt and equity securities. Unrealized gains and losses are recorded in the statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets. Investments in money market funds are recorded at cost. Receipts in transit include contributions collected by local ministries during the years ended December 31, 2012 and 2011, but not received by the Council until after year end. Notes and loans receivable consists of outstanding principal for loans the Council provided to local churches to help finance capital expenditures. Property and equipment is capitalized at cost. Donated assets are recorded at fair value at date of donation. Parsonages are recorded at original cost plus the cost of subsequent additions. Depreciation is computed over the estimated useful life of assets using the straight-line method. Additions to property and equipment over $1,000 are capitalized. Cost of maintenance and repairs are charged to expense when incurred. The useful lives adopted for the purpose of computing depreciation are: Parsonages and improvements Camp buildings and equipment Council center furniture and equipment 30 to 40 years 5 to 40 years 5 to 7 years Assets held on behalf of others includes cash held in an agency capacity. Adoption of new accounting standards - In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU No requires disclosure of credit quality indicators, past due information and modification of financing receivables. The Conference adopted this standard in 2012 and applied the provisions to all the periods presented. Adoption of the standard did not have a significant impact on the financial statements for the years ended December 31, 2012 and 2011 as disclosed in Note 6. 9

10 2013 AUDITOR S REPORT 427 NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES The Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church (the Council) is a Michigan Non-Profit Corporation. The purpose of the Council is to develop and administer a comprehensive and coordinated plan of fiscal and administrative policies, procedures, and management services for the annual conference. The member churches are located in the western half of the Lower Peninsula of Michigan. Using ministry shares and special offerings received from its member churches, the Council contributes to denominational ministries and provides support for various missions, educational programs and summer youth camps. The Council is exempt from income taxes under provisions of Section 501(c)(3) of the Internal Revenue Code. The Council is similarly exempt from the Michigan Tax. The Council is required to disclose significant concentrations of credit risk regardless of the degree of such risk. Financial instruments which potentially subject the organization to concentrations of significant credit risk consist of cash and cash equivalents, and investments. The Council places its cash with FDIC insured financial institutions and thereby limits the amount of credit exposure to any one financial institution. Credit risk with respect to investments is limited due to the wide variety of companies and industries. Although such investments and cash balances may exceed the federally insured limits at certain times during the year and at year-end they are, in the opinion of management, subject to minimal risk. The Council maintains a diversified investment portfolio which is subject to market risk. Investments are disclosed in Notes 3 and 4 and consist largely of amounts invested in various funds by the United Methodist Foundation of Michigan (UMF) as well as the General Board of Pension and Health Benefits of the United Methodist Church (GBOPHB). UMF Pooled Trust Fund - The Fund is available for exclusive investment by the Foundation arising from charitable contributions made through charitable remainder trusts, other charitable trusts, funds operating as charitable trusts, or gift annuity contracts. The primary investment objective of the Fund is to provide for long term capital growth. The Foundation also may consider investments in securities of other United Methodist organizations based primarily upon their religious affiliation and the desire of the Foundation to support their ministry. The Fund seeks to achieve its investment objectives by investing in a diversified portfolio of common stocks, bonds and money market instruments. UMF Stock Fund - The Fund seeks to achieve long-term capital appreciation through investments in stocks and other securities, with primary emphasis on U.S. large capitalization companies and secondary emphasis on global and international equities and on U.S. small and middle capitalization companies. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation. 10

11 428 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Continued) UMF Bond Fund - The Fund s primary objective is to achieve a high level of current income, with capital appreciation as a secondary objective, by investing in investment-grade debt securities. The Fund invests in U.S. Treasury and agency securities, preferred shares and other fixed income securities rated as investment grade by a Nationally Recognized Statistical Rating Organization. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation. UMF Money Market Fund - The Fund s objective is to seek maximum current income consistent with liquidity and the maintenance of a portfolio of high quality short-term money market securities. The Fund attempts to achieve its objective by investing in a diversified portfolio of U.S. dollar denominated money market securities. These securities primarily consist of short term U.S. Government securities, U.S. Government agency securities, and securities issued by U.S. Government sponsored enterprises and U.S. Government instrumentalities, commercial paper and repurchase agreements. GBOPHB Short Term Investment Fund - The Fund seeks to maximize current income consistent with preservation of capital. The Fund is similar to a traditional money market fund and will hold short-term fixed income investments. However, the average maturity of the securities held in the Fund are greater than the average maturity of securities held in the typical money market fund. The performance objective of the Fund is to slightly outperform its performance benchmark, the Bank of America Merrill Lynch 3-Month Treasury Bill Index. GBOPHB Fixed Income Fund - The Fund seeks to earn current income by investing in a broad mix of fixed-income instruments. The performance objective of the Fund is to outperform the performance benchmark (Barclays Capital U.S. Universal Index, excluding Mortgage-Backed Securities) by 0.50% (net of fees) over a market cycle (3 to 5 years). The Fund is primarily composed of a broad range of fixed-income instruments, such as U.S. Treasury and agency securities, foreign government bonds, corporate bonds, mortgage-backed securities and asset-backed securities. GBOPHB Multiple Asset Fund - The Fund seeks to maximize long-term investment returns, including current income and capital appreciation, while reducing short-term risk by investing in a broad mix of investments. The performance objective of the Fund is to outperform the investment returns of its performance benchmark (45% Russell 3000 Index, 20% MSCI ACWI excluding USA IMI, 25% Barclays Capital U.S. Universal Index excluding Mortgage Backed Securities, and 10% Barclays Capital U.S. Government Inflation-Linked Bond Index) by 0.8% on average per year (net of fees) over an extended investment cycle (10 to 20 years). GBOPHB U.S. Equity Fund - The Fund seeks to earn long-term capital appreciation from a broadly diversified portfolio comprised primarily of U.S. listed equities and equity index futures. The performance objective of the Fund is to outperform the investment returns of its performance benchmark, the Russell 3000 Index, over a market cycle (three to five years) by 0.75% on average per year. 11

12 2013 AUDITOR S REPORT 429 NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Concluded) The process of preparing financial statements requires the use of estimates and assumptions regarding certain types of assets, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Tax positions are taken based on interpretation of federal, state and local income tax laws. Management periodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts, including interest and penalties, ultimately due or owed. No amounts have been identified, or recorded, as uncertain tax positions. Federal, state and local tax returns generally remain open for examination by the various taxing authorities for a period of three to four years. The Council evaluates events and transactions that occur after year end for potential recognition or disclosure in the financial statements. As of the auditor s opinion date, which is the date the financial statements were available to be issued, there were no subsequent events which required recognition or disclosure. NOTE 3 - INVESTMENTS The Council transfers certain amounts to the United Methodist Foundation of Michigan (the Foundation). The Foundation was formed as a nonprofit organization by member churches of the West Michigan Annual Conference and Detroit Annual Conferences. It is governed and monitored by its own independent commission. The Foundation s primary purpose is to broaden the financial base of member churches by assisting in and receiving planned and deferred gifts, assisting in the set-up and marketing of endowment funds, and the generation of market-level returns on invested monies through the use of investment pools. The Council also transfers funds to the General Board of Pension and Health Benefits (GBOPHB). The GBOPHB is a not-for-profit administrative agency of The United Methodist Church, responsible for the general supervision and administration of investments and benefit services according to the principles of The United Methodist Church. 12

13 430 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 3 - INVESTMENTS (Continued) Investments at December 31 consist of the following Direct investments: Mutual funds: Basic materials $ 115,150 $ 112,200 Financials 94, ,790 Other 45,491 4,380 Common stocks: Basic materials 732, ,050 Financials 1,212, ,410 Industrial goods 337, ,059 Health care 1,357,141 1,092,562 Technology 880, ,969 Consumer goods 527, ,246 Conglomerates 18,591 16,337 Services 542, ,838 REITs 1,806,602 1,583,571 Utilities 436, ,367 Transportation 56,550 - Retail services 155,100 - Food & beverages 63,837 - Apparel & accessories 189,360 - Preferred stock: Financials 51,200 94,520 Master limited partnerships 357, ,690 Money market 799, ,673 Pooled funds managed by the Foundation: UMF Pooled Trust Fund 785, ,209 UMF Stock Fund 240, ,247 UMF Bond Fund 188, ,040 UMF Money Market Fund 1,397 6,911 Pooled funds managed by the General Board of Pension and Health Benefits (GBOPHB): Short Term Investment Fund 53, ,830 Fixed Income Fund 1,656,774 1,512,084 U.S. Equity Fund 486,292 - Multiple Asset Fund 5,706,066 5,945,958 $ 18,897,036 $ 17,612,941 13

14 2013 AUDITOR S REPORT 431 NOTE 3 - INVESTMENTS (Concluded) Income from cash deposits and investments consist of the following at December 31: Interest and dividends $ 342,766 $ 258,128 Interest received from financing 25,968 13,296 Realized gain on sale of investments 1,041, ,427 Change in unrealized appreciation 833,384 99,000 Total investment income $ 2,243,271 $ 551,851 Investment income is net of related investment expenses for the years ended December 31, 2012 and NOTE 4 - FAIR VALUE MEASUREMENTS Accounting standards establish a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy are described below: Level 1: Quoted prices in active markets for identical securities. Level 2: Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3: Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Council s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available. 14

15 432 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 4 - FAIR VALUE MEASUREMENTS (Continued) The following is a market value summary by the level of the inputs used in evaluating the Council s assets carried at fair value at December 31. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities Description Level 1: Level 2: Level 3: Total Direct investments: Mutual funds: Basic materials $ 115,150 $ - $ - $ 115,150 Financials 94, ,330 Other 45, ,491 Common stocks: Basic materials 732, ,039 Financials 1,212, ,212,450 Industrial goods 337, ,535 Health care 1,357, ,357,141 Technology 880, ,488 Consumer goods 527, ,032 Conglomerates 18, ,591 Services 542, ,504 REITs 1,806, ,806,602 Utilities 436, ,489 Transportation 56, ,550 Retail services 155, ,100 Food & beverages 63, ,837 Apparel & accessories 189, ,360 Preferred stock: Financials 51, ,200 Master limited partnerships 357, ,759 Pooled funds held: UMF Foundation - - 1,215,398 1,215,398 GBOPHB - - 7,902,874 7,902,874 Total investments $ 8,979,648 $ - $ 9,118,272 18,097,920 Money market funds at cost 799,116 Total $ 18,897,036 15

16 2013 AUDITOR S REPORT 433 NOTE 4 - FAIR VALUE MEASUREMENTS (Continued) 2011 Description Level 1: Level 2: Level 3: Total Direct investments: Mutual funds: Basic materials $ 112,200 $ - $ - $ 112,200 Financials 123, ,790 Other 4, ,380 Common stocks: Basic materials 806, ,050 Financials 896, ,410 Industrial goods 396, ,059 Health care 1,092, ,092,562 Technology 971, ,969 Consumer goods 522, ,246 Conglomerates 16, ,337 Services 557, ,838 REITs 1,583, ,583,571 Utilities 635, ,367 Preferred stock: Financials 94, ,520 Master limited partnerships 236, ,690 Pooled funds held: UMF Foundation - - 1,173,407 1,173,407 GBOPHB - - 7,913,872 7,913,872 Total investments $ 8,049,989 $ - $ 9,087,279 17,137,268 Money market funds at cost 475,673 Total $ 17,612,941 Investments held at the General Board of Pension and Health Benefits as well as the Foundation include numerous securities that are combined with the investment portfolios of other church organizations. As such, they are considered Level III investments. 16

17 434 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 4 - FAIR VALUE MEASUREMENTS (Concluded) The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Funds held at the Foundation Funds held at the GBOPHB Total Balance January 1, 2011 $ 1,468,826 $ 14,472,808 $ 15,941,634 Total unrealized gains or losses included in earnings (22,631) 127, ,888 Purchases 61,702 1,693,372 1,755,074 Proceeds from sale (334,490) (8,379,827) (8,714,317) Balance December 31, ,173,407 7,913,872 9,087,279 Total unrealized gains or losses included in earnings 75, , ,149 Purchases 36,823 6,353,869 6,390,692 Proceeds from sale (70,159) (6,766,688) (6,836,847) Balance December 31, 2012 $ 1,215,399 $ 7,902,874 $ 9,118,273 As of December 31, 2012: Funds held at the Foundation Funds held at the GBOPHB Total The estimated amount of total gains and losses for the year included in earnings attributable to the change in unrealized gains or losses relating to assets still held at year end. $ 75,328 $ 401,821 $ 477,149 17

18 2013 AUDITOR S REPORT 435 NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following at December Parsonages: District $ 1,043,202 $ 1,041,123 Area 218, ,595 Camps: Land 198, ,000 Buildings 3,001,298 2,997,449 Vehicles 221, ,975 Equipment 182, ,255 Conference center furniture and equipment 570, ,798 District offices furniture, equipment and vehicles 120, ,609 Area office furniture and equipment 32,912 32,912 5,589,640 5,492,716 Less accumulated depreciation 3,106,181 2,938,181 Net property and equipment $ 2,483,459 $ 2,554,535 Depreciation and amortization expense $ 167,999 $ 123,604 District parsonages: Lansing District Superintendent $ 80,438 $ 80,438 Grand Rapids District Superintendent 241, ,953 Grand Traverse Superintendent 255, ,660 Heartland District Superintendent 291, ,072 Kalamazoo District Superintendent 175, ,000 Total district parsonages $ 1,043,202 $ 1,041,123 Area parsonages: Duxbury Lane, DeWitt Township $ 186,926 $ 186,926 Okemos office building 31,669 31,669 Total area parsonages $ 218,595 $ 218,595 The DeWitt Township parsonage and the Okemos office building are owned jointly with the Detroit Annual Conference. The above amount represents the Council of Finance and Administration of the West Michigan Annual Conference s share, which approximates forty-two percent of the original cost basis of the property. Land included in the parsonages listed above amounted to approximately $195,000 at December 31, 2012 and

19 436 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 6 - FINANCING RECEIVABLES Notes and loans receivable consist of the following, as of December Note receivable from the FSU Wesley Foundation, with monthly payments of $414, including interest of 6% maturing May $ - $ 3,864 Note receivable from the Washington Heights UMC, with monthly payments of $178, including interest of 7.5% maturing December Note receivable from the Millville UMC, with monthly payments of $2,153, including interest of 3% maturing December , ,967 Note receivable from the Portage Chapel Hill UMC, with monthly payments of $615, including interest of 4.25% maturing December ,522 44,131 Note receivable from the Climax/Scotts UMC, with monthly payments of $845, including interest of 3% maturing June ,221 67,449 Note receivable from the Church of All Nations, with monthly payments of $636, including interest of 5% maturing April ,786 23,891 Note receivable from the Reading UMC, with monthly payments of $382, including interest of 2.75% maturing December ,647 39,710 Note receivable from the Scotts UMC, with monthly payments of $137, including interest of 3% maturing March ,233 13,485 Note receivable from the Quincy UMC, with monthly payments of $241, including interest of 3% maturing November ,425 25,659 Note receivable from the Valley UMC, with monthly payments of $971, including interest of 3% maturing November ,604 - Note receivable from the Courtland-Oakfield UMC, with monthly payments of $1,402, including interest of 3% maturing November ,281 - $ 620,601 $ 420,027 19

20 2013 AUDITOR S REPORT 437 NOTE 6 - FINANCING RECEIVABLES (Concluded) Maturities of financing receivables at December 31 are as follows: Years ending December 31, 2013 $ 69, , , , ,132 Thereafter 271,184 $ 620,601 Notes receivable are carried at unpaid principal balances, less an allowance for doubtful collection. Management periodically evaluates the adequacy of the allowance based on past experience and potential adverse situations that may affect the borrower s ability to repay. It is management s policy to write off a loan only when they are deemed permanently uncollectible. As of December 31, 2012 and 2011, management believes that no allowance is necessary. The classification of notes receivable regarding age and interest accrual status at December 31 are as follows: Principal Interest Total Principal Interest Total Current $ 620,601 $ - $ 620,601 $ 420,027 $ - $ 420,027 Past due: days days days Total past due Total financing receivables $ 620,601 $ - $ 620,601 $ 420,027 $ - $ 420,027 Past due interest has not been accrued under the modified cash basis of accounting. 20

21 438 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 7 - LEASES The Michigan Area Headquarters (the Headquarters), supported jointly by the Council of Finance and Administration of the West Michigan Annual Conference and the Detroit Annual Conference, leased office space in The Headquarters pays rent expense from its budget, but the Council of Finance and Administration of the West Michigan Annual Conference, Detroit Annual Conference and the Headquarters are jointly responsible for the lease. The lease expires in July The base monthly lease rate is $6,500 with annual escalation for cost of living. NOTE 8 - PENSION AND OTHER POST-EMPLOYMENT BENEFITS From 1982 through 2006, the Council contributed to the Ministerial Pension Plan (MPP Annuities) that was administered by the GBOPHB to fund clergy retirement benefits. The GBOPHB has taken the position that the Council is responsible for funding any shortfall in benefits. The Council s portion of the total estimated actuarial liability based on the most recent actuarial calculation as of January 1, 2012 was projected to be approximately $36,721,553 in The Council s expected contribution for 2013 and 2014 was $0. The Council participates in a voluntary multi-employer defined contribution pension plan that covers substantially all Council lay and clergy employees. The Council contributes between 9 and 12 percent of each participant s annual wages. Contributions made by the Council approximated $86,000 for each of the years ended December 31, 2012 and Additionally, the Council participates in a defined benefit pension plan that is frozen (Pre-1982 Plan). The Plan is administered by the GBOPHB. The Council s plan assets exceeded the estimated actuarial plan liability based on the most recent actuarial calculation as of January 1, 2012 by $1,908,071 or 105% in Effective January 1, 2007, the General Conference adopted the Clergy Retirement Security Program (CRSP-DB). This program is an amendment and restatement of the previous clergy pension program. Regular ccontributions made by the Council approximated $467,000 and $485,000 for the years ended December 31, 2012 and 2011, respectively. The Council was also required to make additional contributions of $1,909,487 and $2,909,932 for the years ended December 31, 2012 and 2011, respectively. The Council s expected contribution based on the most recent actuarial calculation as of January 1, 2011 was projected to be $1,903,954 for The Council s expected contribution based on the most recent actuarial calculation as of January 1, 2012 was projected to be $1,410,002 for The Council s policy is to fund the majority of costs of qualified retirees (clergy and lay employees) health care coverage. Such costs are expensed when paid and amounted to approximately $1,037,000 and $1,156,000 for the years ended December 31, 2012 and 2011, respectively. The projected unfunded post-employment medical benefits liability, based on the most recent actuarial calculation dated May 7, 2013 was projected to be $6,927,000 as of December 31,

22 2013 AUDITOR S REPORT 439 NOTE 9 - RELATED PARTY TRANSACTIONS The Council conducts essentially all transactions, other than purchases of goods and services and sales of certain property, with affiliated congregations. Certain administrative expenses are reimbursed by related organizations. The Council also processes payroll transactions for affiliated organizations at no charge. The value of these services has not been determined but is not considered significant to the financial statements. NOTE 10 - FUNCTIONAL ALLOCATION OF EXPENSES The functional allocation of the Council s expenses as they relate to programs and management and general are listed below Programs: Connectional Ministry and Administration $ 2,376,126 $ 2,231,856 World Service and Conference Benevolence 2,326,578 2,334,932 Six Lanes and Advanced Specials 1,424,403 1,553,438 Ministerial Education and Black College fund 404, ,908 Camping and Outdoor Education 759, ,786 Pension and Health Benefits and Life Insurance fund 1,518,768 1,642,049 New Church Development 398, ,319 Other funds 47,495 35,874 Total programs 9,256,336 9,492,162 Management and general 1,871,149 1,915,750 $ 11,127,485 $ 11,407,912 Fundraising has not been segregated on the basis of immateriality. 22

23 440 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 11 - RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes New Church Investment fund - restricted for development of new churches $ 24,271 $ 1,904 Camp endowment - restricted for the upkeep and running of camps 774, ,788 Special Offerings - contributions designated by local churches 187, ,131 Ministerial training - designated for the training of clergy 167, ,553 $ 1,154,745 $ 1,113,376 Net assets amounting to $1,588,550 and $1,713,706 were released from restrictions during the years ended December 31, 2012 and 2011, respectively, by incurring expenses satisfying their restricted purposes. Permanently restricted net assets are available for the following purposes Permanent endowment - restricted for world service $ 10,607 $ 10,607 23

24 2013 AUDITOR S REPORT 441 NOTE 12 - ENDOWMENTS Endowments consist of funds established for a variety of purposes and may include both donorrestricted funds and funds internally designated to function as endowments. Restrictions are both permanent and temporary and assets associated with endowment funds are classified and reported based on the existence or absence of these restrictions. The Council has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as permitting the preservation of the historical value of the original gift of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, when directed by the gift instrument, the Council classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until the restricted purpose has been accomplished. The Council 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 purposes 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 Council. The Council s investment and spending practices for endowment assets attempt to provide a predictable stream of funding to programs supported while seeking to maintain the purchasing power of the endowment assets. Investment earnings from donor-restricted endowment funds are classified as unrestricted income absent explicit donor stipulations to the contrary. In the event that the fair value of donor-restricted endowment funds falls below the level required to be maintained in perpetuity, the resulting deficiency is recorded as a reduction of unrestricted net assets. 24

25 442 WEST MICHIGAN ANNUAL CONFERENCE 2013 NOTE 12 - ENDOWMENTS (Concluded) Changes in endowment net assets are as follows. Temporarily restricted Permanently restricted Total Endowment net assets January 1, 2011 $ 812,285 $ 10,607 $ 822,892 Investment return: Investment income 21,635-21,635 Net depreciation (realized and unrealized) (34,395) - (34,395) Total investment return (12,760) - (12,760) Contributions Approved for expenditure (48,737) - (48,737) Endowment net assets December 31, ,788 10, ,395 Investment return: Investment income 24,230-24,230 Net appreciation (realized and unrealized) 44,829-44,829 Total investment return 69,059-69,059 Approved for expenditure (45,047) - (45,047) Endowment net assets December 31, 2012 $ 774,800 $ 10,607 $ 785,407 NOTE 13 - CONTINGENCIES From time to time the Council is involved in various legal proceedings that have arisen in the ordinary course of business. Management does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on the Council s financial position or future results of operations. Effective September 1, 2009 the Council became primarily self-insured, up to certain limits, for health claims through Professional Benefits Services. The plan includes all participating Council employees as well as affiliated congregation clergy. The Council has purchased stop-loss insurance, which will reimburse the Council for individual policies that exceed $75,000 annually. Claims are expensed as paid. The total claims expense under the program was approximately $3,700,000 and $4,200,000 for Council employees for the years ended December 31, 2012 and 2011, respectively. The Council is reimbursed for stop loss premiums and claims paid for affiliates covered under the Plan. The total amount of claims incurred but not reported attributable to the Council has not been determined, however, claims incurred in December estimated in the amount of $198,620 were paid in

26 2013 AUDITOR S REPORT 443 SUPPLEMENTARY INFORMATION 26

27 444 WEST MICHIGAN ANNUAL CONFERENCE 2013 COMBINING STATEMENT OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEARS ENDED DECEMBER 31, 2012 (with comparative totals for the year ended December 31, 2011) Connectional Ministry and Administration fund World Service and Conference Benevolence fund Six Lanes and Advance Specials fund Ministerial Education and Black College fund Camping and Outdoor Education fund Pension and Health Benefits and Life Insurance fund SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares $ 2,563,733 $ 2,351,489 $ - $ 404,032 $ - $ 47,932 Special offerings Investment income 186,548 4, ,328 1,944,104 Camp registration and rental fees 160,617 17, ,769 - Other income 160,854 60, ,572 27,207 Net assets released from restrictions - 61,358 1,424,403-53,197 - Total support and revenue 3,071,752 2,495,611 1,424, ,032 1,138,866 2,019,243 Other receipts: CPP holiday refunds ,432 Pension billings ,103,597 Insurance billings 7, ,215,093 Total support, revenue and other receipts 3,079,212 2,495,611 1,424, ,032 1,138,866 8,797,365 EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries 1,033, , ,447 - Health and life insurance 235,372 99, ,960 1,516,287 Pension and post-employment benefit expense 136,849 35, ,689 - Other employee costs 35,330 22, ,160 2,481 Training and continuing education 8,644 4, ,198 - Travel, meeting and moving expenses 277,923 44, ,246 6,746 Operating and administrative expenses 560,780 68, , ,078 Parsonage and building expenditures 45, ,430 - World Service - 895, Programs and conference benevolence 536, ,969 1,290,806 62, ,722 - Depreciation and amortization Remittances to General Conference 398,737 26, , , Total expenses 3,268,995 2,444,776 1,424, ,032 1,112,508 1,702,592 Other disbursements: Remittances to Board of Pensions ,626,545 Health and life insurance ,406,605 Total expenses and other disbursements 3,268,995 2,444,776 1,424, ,032 1,112,508 7,735,742 Increase (decrease) in net assets before transfers (189,783) 50, ,358 1,061,623 Transfers 97,225 (49,777) - - (63,033) (105,179) Increase (decrease) in net assets (92,558) 1, (36,675) 956,444 Net assets - beginning of year 556,841 72, (408,482) 15,999,516 Net assets - end of year $ 464,283 $ 73,077 $ - $ - $ (445,157) $ 16,955,

28 2013 AUDITOR S REPORT Plant fund Loan Program fund New Church Development fund Other Funds Total unrestricted Temporarily restricted Permanently restricted Totals 2011 $ - $ - $ 320,290 $ - $ 5,687,476 $ 61,032 $ - $ 5,748,508 $ 5,737, , ,880 1,368,650-1,607,530 1,827,729-25, ,162,937 80,334-2,243, , ,145, ,145, , ,053 31, , , , , ,035 1,588,550 (1,588,550) , ,801 80,479 11,309,155 41,369-11,350,524 9,732, , , , ,103, ,103,597 2,113, ,222, ,222,553 4,069,311-25, ,801 80,479 18,094,737 41,369-18,136,106 16,392, ,311 23,940 2,109, ,109,785 2,218, ,892 7,743 1,934, ,934,582 2,054, ,388 1, , , , ,804 1,775 99, , , ,769 23,176 53, ,651 57, ,237 8, , , ,045-1,686 80,948 16,865 1,220, ,220,670 1,310, , , , , , , ,561 12,467 3,100, ,100,601 3,112, , , , , , , , ,999 1, ,910 95,584 11,127, ,127,485 11,407, ,626, ,626,545 3,674, ,406, ,406,605 4,039, ,999 1, ,910 95,584 17,160, ,160,635 19,121,709 (167,999) 24, ,891 (15,105) 934,102 41, ,471 (2,729,455) 96,924 - (5,000) 28, (71,075) 24, ,891 13, ,102 41, ,471 (2,729,455) 2,554,535 1,335,629 82,555 38,541 20,231,154 1,113,376 10,607 21,355,137 24,084,592 $ 2,483,460 $ 1,359,911 $ 221,446 $ 52,276 $ 21,165,256 $ 1,154,745 $ 10,607 $ 22,330,608 $ 21,355,137 28