The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.

Transcription

1 Financial Statements with Accompanying Information The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. December 31, 2014 and 2013

2 Financial Statements with Accompanying Information December 31, 2014 and 2013 INDEX INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS PAGE Statements of Financial Position 3-4 Statements of Activities 5-8 Statements of Cash Flows 9-10 Statements of Functional Expenses Notes to Financial Statements ACCOMPANYING INFORMATION Schedule of Expenditures of Federal Awards 35 Notes to Schedule of Expenditures of Federal Awards 36 Schedule of Financial Position Data 37 Schedule of Activities Data 38 Computation of Surplus Cash - Annual 39 Schedule of Changes in Property, Plant and Equipment Accounts 40 Schedule of Reserve for Replacements 41 Schedule of Residual Receipts 42 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 Independent Auditors' Report on Compliance For Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs 47

3 Independent Auditors' Report Board of Directors The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. Fort Wayne, Indiana Report on the Financial Statements We have audited the accompanying financial statements of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. (a nonprofit organization), which comprise the statements of financial position as of December 31, 2014 and 2013, and the related statements of activities, cash flows, and functional expenses for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the 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 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 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 financial statements referred to above present fairly, in all material respects, the financial position of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. as of December 31, 2014 and 2013, 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. 1 PERMISSION TO PUBLISH EXCERPTS FROM THIS REPORT OR REFERENCES THERETO, WITH MENTION OF OUR NAME, IS WITHHELD UNTIL THE FORM AND SUBSTANCE OF SUCH EXCERPTS OR REFERENCES ARE APPROVED BY US.

4 Other Matters Accompanying Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements. Also, the accompanying information for Allen County Group Homes on pages 37-42, as required by the Department of Housing and Urban Development, 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 audit 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 7, 2015, on our consideration of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'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 The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s internal control over financial reporting and compliance. Fort Wayne, Indiana April 7, 2015 BADEN, GAGE & SCHROEDER, LLC 2 PERMISSION TO PUBLISH EXCERPTS FROM THIS REPORT OR REFERENCES THERETO, WITH MENTION OF OUR NAME, IS WITHHELD UNTIL THE FORM AND SUBSTANCE OF SUCH EXCERPTS OR REFERENCES ARE APPROVED BY US.

5 Statement of Financial Position December 31, 2014 HUD General Residential Fund Home Fund Total ASSETS Cash $ 1,017,084 $ 2,692 $ 1,019,776 Client checking - restricted 209, ,953 Accounts receivable, net of allowance of $31, , ,021 Pledges receivable, net of unamortized discount of $4, , ,025 HUD tenant security deposits - 4,331 4,331 Other deposits 6,000 76,713 82,713 Inventory 38,104-38,104 Prepaid expenses and other assets 139, ,064 Investments 1,835,612-1,835,612 Net property and equipment 4,798, ,745 4,992,437 Beneficial interest in assets held by a community foundation 53,102-53,102 Beneficial interest in perpetual trust 104, ,173 TOTAL ASSETS $ 9,131,830 $ 277,481 $ 9,409,311 LIABILITIES AND NET ASSETS LIABILITIES Funds held on behalf of others $ 209,953 $ - $ 209,953 Accounts payable 133,848 9, ,316 Accrued salaries and benefits 813, ,943 Group home Medicaid liability 272, ,500 Long-term debt 116, , ,794 HUD tenant security deposits - 4,331 4,331 Total Liabilities 1,546, ,903 1,878,837 NET ASSETS Unrestricted Board designated 1,212,056-1,212,056 Undesignated 5,151,629 (54,422) 5,097,207 Total unrestricted net assets 6,363,685 (54,422) 6,309,263 Temporarily restricted 626, ,513 Permanently restricted 594, ,698 Total Net Assets 7,584,896 (54,422) 7,530,474 TOTAL LIABILITIES AND NET ASSETS $ 9,131,830 $ 277,481 $ 9,409,311 See Notes to Financial Statements. 3

6 Statement of Financial Position December 31, 2013 HUD General Residential Fund Home Fund Total ASSETS Cash $ 841,827 $ 1,550 $ 843,377 Client checking - restricted 183, ,979 Accounts receivable, net of allowance of $30, , ,252 Pledges receivable, net of unamortized discount of $4, , ,740 HUD tenant security deposits - 4,081 4,081 Other deposits 6,000 96, ,527 Inventory 48,817-48,817 Prepaid expenses and other assets 118, ,737 Investments 1,619,313-1,619,313 Net property and equipment 4,940, ,023 5,135,765 Assets held for sale 31,281-31,281 Cash surrender value of life insurance 10,359-10,359 Beneficial interest in assets held by a community foundation 52,159-52,159 Beneficial interest in perpetual trust 105, ,567 TOTAL ASSETS $ 9,050,773 $ 297,181 $ 9,347,954 LIABILITIES AND NET ASSETS LIABILITIES Funds held on behalf of others $ 183,979 $ - $ 183,979 Accounts payable 304,036 1, ,869 Accrued salaries and benefits 835, ,018 Group home Medicaid liability 347, ,500 Long-term debt 205, , ,498 HUD tenant security deposits - 4,081 4,081 Total Liabilities 1,875, ,091 2,225,945 NET ASSETS Unrestricted Board designated 1,059,646-1,059,646 Undesignated 5,023,618 (52,910) 4,970,708 Total unrestricted net assets 6,083,264 (52,910) 6,030,354 Temporarily restricted 553, ,957 Permanently restricted 537, ,698 Total Net Assets 7,174,919 (52,910) 7,122,009 TOTAL LIABILITIES AND NET ASSETS $ 9,050,773 $ 297,181 $ 9,347,954 See Notes to Financial Statements. 4

7 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Activities Year Ended December 31, 2014 Unrestricted HUD General Residential Total Temporarily Permanently Fund Home Fund Unrestricted Restricted Restricted Total SUPPORT AND REVENUE Group home $ 3,538,273 $ - $ 3,538,273 $ - $ - $ 3,538,273 Medicaid waiver 12,215,642-12,215, ,215,642 Other governmental units 1,252,208-1,252, ,252,208 Program service fees 405, , ,427 Production income 632, , ,887 Grants 139, , , ,401 Contributions 182, ,723 46,143 57, ,866 Other 33,505-33, ,505 HUD subsidy - 110, , ,607 Title XIX Medicaid - 67,714 67, ,714 Special events 164, , ,178 Medicaid vacancies - (1,520) (1,520) - - (1,520) HUD vacancies - (13,216) (13,216) - - (13,216) Investment income 43, ,500 7,817-51,317 Realized and unrealized gains on investments 63,727-63,727 13,837-77,564 Loss on disposal of property and equipment (15,265) - (15,265) - - (15,265) Bad debt expense (6,000) - (6,000) - - (6,000) Gain on Medicaid contingencies and settlement 72,593-72, ,593 Net assets released from restrictions 388, ,042 (388,042) - - TOTAL SUPPORT AND REVENUE 19,111, ,614 19,274,625 72,556 57,000 19,404,181 (Continued) 5

8 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Activities (Continued) Year Ended December 31, 2014 Unrestricted HUD General Residential Total Temporarily Permanently Fund Home Fund Unrestricted Restricted Restricted Total EXPENSES Community support $ 2,123,022 $ - $ 2,123,022 $ - $ - $ 2,123,022 Rehab and work services 2,613,153-2,613, ,613,153 Residential services 2,817,865-2,817, ,817,865 Supported living and client health and wellness 9,601,428-9,601, ,601,428 HUD residential home fund - 165, , ,126 Total Program Services Expenses 17,155, ,126 17,320, ,320,594 Management and general expenses 1,420,356-1,420, ,420,356 Fundraising expenses 254, , ,766 Total Expenses 18,830, ,126 18,995, ,995,716 CHANGE IN NET ASSETS 280,421 (1,512) 278,909 72,556 57, ,465 NET ASSETS, BEGINNING OF YEAR 6,083,264 (52,910) 6,030, , ,698 7,122,009 NET ASSETS, END OF YEAR $ 6,363,685 $ (54,422) $ 6,309,263 $ 626,513 $ 594,698 $ 7,530,474 See Notes to Financial Statements. 6

9 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Activities Year Ended December 31, 2013 Unrestricted HUD General Residential Total Temporarily Permanently Fund Home Fund Unrestricted Restricted Restricted Total SUPPORT AND REVENUE Group home $ 3,582,022 $ - $ 3,582,022 $ - $ - $ 3,582,022 Medicaid waiver 10,042,100-10,042, ,042,100 Other governmental units 2,811,368-2,811, ,811,368 Program service fees 431, , ,174 Production income 636, , ,697 Grants 101, , , ,400 Contributions 220, , ,370 51, ,674 Consulting 240, , ,261 Other 25,351-25, ,351 HUD subsidy - 59,562 59, ,562 Title XIX Medicaid - 63,475 63, ,475 Special events 168, , ,142 Medicaid vacancies - (584) (584) - - (584) HUD vacancies - (2,730) (2,730) - - (2,730) Investment income 35, ,213 6,679-41,892 Realized and unrealized gains on investments 152, ,895 23, ,187 Gain on disposal of property and equipment 9,922-9, ,922 Bad debt expense (6,000) - (6,000) - - (6,000) Net assets released from restrictions 351, ,271 (336,271) (15,000) - TOTAL SUPPORT AND REVENUE 18,801, ,749 18,921,693 46,220 36,000 19,003,913 (Continued) 7

10 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Activities (Continued) Year Ended December 31, 2013 Unrestricted HUD General Residential Total Temporarily Permanently Fund Home Fund Unrestricted Restricted Restricted Total EXPENSES Community support $ 2,059,370 $ - $ 2,059,370 $ - $ - $ 2,059,370 Rehab and work services 2,660,899-2,660, ,660,899 Residential services 2,749,995-2,749, ,749,995 Supported living and client health and wellness 8,862,809-8,862, ,862,809 HUD residential home fund - 161, , ,130 Total Program Services Expenses 16,333, ,130 16,494, ,494,203 Management and general expenses 1,594,336-1,594, ,594,336 Fundraising expenses 287, , ,806 Total Expenses 18,215, ,130 18,376, ,376,345 CHANGE IN NET ASSETS 586,729 (41,381) 545,348 46,220 36, ,568 NET ASSETS, BEGINNING OF YEAR 5,496,535 (11,529) 5,485, , ,698 6,494,441 NET ASSETS, END OF YEAR $ 6,083,264 $ (52,910) $ 6,030,354 $ 553,957 $ 537,698 $ 7,122,009 See Notes to Financial Statements. 8

11 Statements of Cash Flows Years Ended December 31, 2014 and CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 408,465 $ 627,568 Adjustments to Reconcile Change in Net Assets to Net Cash Provided By Operating Activities: Depreciation 400, ,443 Net realized and unrealized gains on investments (77,564) (176,187) Reinvested interest (38,428) - Bad debt expense 6,000 6,000 Gain on Medicaid contingencies and settlement (72,593) - Contributions of marketable securities investments (100,307) (74,319) (Gain) loss on disposal of property and equipment 15,265 (9,922) (Increase) Decrease in Assets: Accounts receivable 216,231 15,492 Pledges receivable 18,076 (86,000) Other deposits 19,814 58,109 Inventory 10,713 20,000 Prepaid expenses and other assets (20,327) 38,464 Increase (Decrease) in Liabilities: Accounts payable (162,553) (1,312) Accrued salaries and benefits (21,075) 235,635 Group home Medicaid liability (2,407) - Net Cash Provided By Operating Activities 599,891 1,036,971 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (257,883) (578,332) Proceeds from disposal of property and equipment 16,646 10,147 Purchase of investments (605,401) (442,800) Proceeds from sale of investments 605, ,516 Change in cash surrender value of life insurance 10, Change in beneficial interest in assets held by a community foundation (943) (3,307) Change in beneficial interest in perpetual trust 1,394 (8,275) Net Cash Used In Investing Activities (230,427) (434,718) CASH FLOWS FROM FINANCING ACTIVITIES Collections on pledges receivable for long-term purposes (78,361) 90,189 Payments on long-term debt - bond (69,719) (201,360) Payments on long-term debt - notes (44,985) (35,777) Net Cash Used In Financing Activities (193,065) (146,948) NET INCREASE CASH 176, ,305 CASH, BEGINNING OF YEAR 843, ,072 CASH, END OF YEAR $ 1,019,776 $ 843,377 (Continued) 9

12 Statements of Cash Flows (Continued) Years Ended December 31, 2014 and SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 38,541 $ 42,770 NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment with long-term debt $ - $ 147,600 In-kind donations of marketable securities received 100,307 74,319 See Notes to Financial Statements. 10

13 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Functional Expenses Year Ended December 31, 2014 Supported Rehab and Living and HUD Total Management Community Work Residential Client Health Residential Program and Total Support Services Services and Wellness Home Fund Expense General Fundraising Expenses Salaries $ 1,310,515 $ 1,316,464 $ 1,672,079 $ 6,458,686 $ 42,093 $ 10,799,837 $ 781,495 $ 129,206 $ 11,710,538 Retirement plan 8,783 15,949 13,638 44,613-82,983 43,066 3, ,489 Group insurance 120, , , ,841 5,733 1,207, ,609 30,512 1,410,221 Staff development 3,859 1, ,173-18,958 5, ,585 Unemployment compensation 14, ,996-32,799 7,269-40,068 Workers' compensation insurance 35,575 36,752 59, ,611 1, ,229 4, ,993 Payroll taxes 94, , , ,550 3, ,866 54,243 9, ,543 Total salaries and related expenses 1,588,138 1,670,801 2,054,209 7,943,470 52,154 13,308,772 1,068, ,337 14,550,437 Audit and legal expense 7,722 8,338 40,848 38,300 10, ,399 9, ,524 Client wages - 276,784 - (1,332) - 275, ,452 Community grants 11, , ,676 Community training 12,298 47,552 2, , ,784 Consultants 16,800-22, , ,341 56,938 1, ,110 Cost of sales - 127, , ,528 Depreciation 114,671 91,865 49,700 60,846 14, ,739 61,818 7, ,581 Education and training 19,422 6, , ,393 Electronic monitoring ,643-73, ,643 Food 85,887 1, ,121 4, ,210 6, ,054 Fundraising expense ,702 49,702 Household/small office equipment 4,801 2,454 30,902 9,245-47,402 2, ,470 Householder expense , , ,251 Insurance 12,084 12,532 13,683 27,026 4,272 69,597 9, ,084 Interest - - 5,765-30,749 36,514 2,027-38,541 Management fee ,026 12, ,026 Membership dues 11,623 14,735 16,489 55,406-98,253 29,867 1, ,065 Operating expense - 2, , ,275 (Continued) 11

14 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Functional Expenses (Continued) Year Ended December 31, 2014 Supported Rehab and Living and HUD Total Management Community Work Residential Client Health Residential Program and Total Support Services Services and Wellness Home Fund Expense General Fundraising Expenses Other expense $ 3,236 $ 89,339 $ 3,768 $ 14,000 $ - $ 110,343 $ 17,187 $ 2,413 $ 129,943 Postage 2,321 18,112 3,209 10,833-34,475 1,616 1,817 37,908 Printing ,217-1, ,294 4,635 Professional fees 7,973 24,801 11,001 37,518-81,293 4, ,752 Provider assessment , , ,273 Public information 6, ,091-12,114 20,765 3,346 36,225 RLA expense ,174-18, ,174 Rent 26,236 21,706 18, , ,508 14,434 1, ,199 Repair and maintenance 27,953 49,501 26,090 19,234 16, ,131 15, ,646 Respite expense ,770-9, ,770 Security 199 1, ,238-3, ,249 Staff recruitment 3,276 4,025 4,772 41,500-53,573 3, ,211 Subscriptions 4,117 1,634 4,451 7,130-17,332 1, ,936 Supplies 44,468 41,908 36,866 66, ,331 18,043 1, ,386 Technology 1,785 1,935 2,461 8,411-14,592 12, ,783 Telephone 7,391 8,122 14,706 65,837 4, ,701 15,374 1, ,994 Transportation 45,282 18,951 21,520 20, , ,267 Travel 2,707 4,321 6, , ,226 11, ,138 Tuition reimbursement 3,057-1,274 7,089-11, ,420 Utilities 27,844 50,786 40,197 29,460 19, ,595 16,161 3, ,179 Vehicle 23,333 12,578 33,319 14,235-83,465 19, ,032 TOTAL EXPENSES $ 2,123,022 $ 2,613,153 $ 2,817,865 $ 9,601,428 $ 165,126 $ 17,320,594 $ 1,420,356 $ 254,766 $ 18,995,716 See Notes to Financial Statements. 12

15 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Functional Expenses Year Ended December 31, 2013 Supported Rehab and Living and HUD Total Management Community Work Residential Client Health Residential Program and Total Support Services Services and Wellness Home Fund Expense General Fundraising Expenses Salaries $ 1,223,345 $ 1,365,194 $ 1,598,221 $ 5,731,491 $ 41,157 $ 9,959,408 $ 829,576 $ 118,450 $ 10,907,434 Retirement plan 4,001 14,999 12,971 40,656-72,627 53,971 5, ,599 Group insurance 128, , , ,811 6,133 1,174, ,405 45,219 1,410,501 Staff development 2,445 1, ,115-6,003 2, ,688 Unemployment compensation 1,324 4,477 3,424 33,381-42, ,842 Workers' compensation insurance 31,153 34,410 51, ,027 1, ,511 12,044 (566) 318,989 Payroll taxes 86, , , ,380 3, ,934 58,904 8, ,729 Total salaries and related expenses 1,476,821 1,727,082 1,977,846 7,049,861 51,356 12,282,966 1,147, ,453 13,607,782 Audit and legal expense 6,883 7,820 40,741 33,935 8,936 98,315 9, ,527 Client wages - 226,916-3, , ,918 Community grants 30, , ,040 Community training 12,936 57,135 2, , ,614 Consultants 20,400-27, , ,786 69, ,711 Cost of sales - 177, , ,659 Depreciation 120,505 86,719 47,177 46,592 15, ,783 63,970 2, ,443 Education and training 23,776 8, , ,508 Electronic monitoring ,272-93, ,272 Food 106,107 2, ,618 34, ,629 5, ,632 Fundraising expense ,969 82,969 Household/small office equipment 7,609 2,521 28,520 59,909-98,559 3, ,093 Householder expense , , ,447 Insurance 10,287 11,604 12,716 22,210 4,405 61,222 9, ,948 Interest - - 4,454-33,045 37,499 5,271-42,770 Management fee ,353 11, ,353 Membership dues 10,814 15,045 16,332 49,303-91,494 15,881 2, ,498 Operating expense - 4, , ,317 (Continued) Other expense $ 1,280 $ 64,651 $ 4,972 $ 44,708 $ 162 $ 115,773 $ 57,600 $ 2,249 $ 175,622 13

16 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Statement of Functional Expenses (Continued) Year Ended December 31, 2013 Supported Rehab and Living and HUD Total Management Community Work Residential Client Health Residential Program and Total Support Services Services and Wellness Home Fund Expense General Fundraising Expenses Postage 1,765 19,198 2,465 7,560-30,988 1, ,529 Printing ,450-1, ,378 4,797 Professional fees 7,213 24,769 10,189 31,374-73,545 4, ,821 Provider assessment , , ,618 Public information 16,297 1,342-1,793-19,432 49,377 2,916 71,725 RLA expense ,178-12, ,178 Rent 11,697 22,513 43, , ,073 20,644 1, ,057 Repair and maintenance 30,648 39,844 22,698 11,232 12, ,458 12, ,169 Respite expense ,705-21, ,705 Security 205 1, ,196-3, ,244 Staff recruitment 5,898 4,096 4,897 25,023-39,914 9, ,362 Subscriptions 3,192 1,059 5,064 6,050-15,365 1,467-16,832 Supplies 51,287 48,568 34,409 64, ,506 27,511 1, ,485 Technology 1,669 1,905 2,318 6,986-12,878 11, ,597 Telephone 11,144 11,853 17,035 55,739 3,315 99,086 20,759 2, ,351 Transportation 39,517 34,477 20,440 44, , ,141 Travel 2,227 3,314 2, , ,870 12,750 1, ,491 Tuition reimbursement 2, ,637-5, ,246 Utilities 26,743 47,728 38,701 24,558 19, ,362 18,352 4, ,757 Vehicle 19,427 6,884 23,106 11,435-60,852 16,265-77,117 TOTAL EXPENSES $ 2,059,370 $ 2,660,899 $ 2,749,995 $ 8,862,809 $ 161,130 $ 16,494,203 $ 1,594,336 $ 287,806 $ 18,376,345 See Notes to Financial Statements. 14

17 Notes to Financial Statements December 31, 2014 and 2013 Note 1. Organization and Summary of Significant Accounting Policies Organization: The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. ("Organization") is a not-for-profit organization whose mission and activities are to promote the general welfare of people who are mentally and physically challenged by fostering the development of programs on behalf of these individuals, encouraging research and providing consultation and aid to parents associated with the mentally and physically challenged. The Organization's revenue and other support are derived principally from fees for services, contributions, and federal and state grants, and its activities are conducted principally in the Fort Wayne, Indiana area. Allen County Group Homes (HUD project #073-EH010-L8-WHC-IN36-T ) ("Project") is a 24-bed group home for the developmentally challenged in Allen County, Indiana. The project is operated under Section 202 of the National Housing Act and is regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project is subject to Section 8 Housing Assistance Payment agreements with HUD, and a significant portion of the Project's rental income is received from HUD. Basis of Preparation: The financial statements are prepared on an accrual basis of accounting. The Organization reports 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. Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Organization in perpetuity. Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. 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. Cash and Cash Equivalents: For the purpose of the statement of cash flows, the Organization considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents related to uninvested cash are considered part of investments for financial statement purposes. 15

18 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 1. Organization and Summary of Significant Accounting Policies (Continued) Accounts Receivable: Accounts receivable are due from governmental and other significant funding sources and are recorded at their contract amounts adjusted for any charge-offs and the allowance for doubtful accounts. The amount of the allowance is based on management's evaluation of the collectibility of the accounts, including the credit concentrations, trends in historical loss experience, specific impaired accounts receivable, and economic conditions. Pledges Receivable: The Organization recognizes pledges as public support in the year the promise is made. The present value of these estimated future cash flows is recorded as a receivable, net of any allowance for uncollectible pledges. The amount of the allowance is based on management's evaluation of the collectibility of the accounts, including credit concentrations, trends in historical loss experience, specific impaired pledges receivable, and economic conditions. Management has not recorded an allowance for uncollectible pledges because the amount of any allowance is not considered material. Inventory: Inventory is recorded using the lower of cost or market with cost being determined on the basis of first-in, first-out. Investments: Investments in marketable securities are carried at fair value. Investment income includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; realized gains and losses on other investments; and is net of investment expenses. Investment income that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Property and Equipment: Property and equipment is recorded at cost or, if received by donation, at fair value at the date of the gift. Items with a cost or value of $500 or more and a useful life of one year or more are capitalized. Additions and improvements that significantly extend the useful life of an asset are capitalized. Costs incurred for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method based on estimated useful lives, usually from 3 to 39 years, of the related assets. 16

19 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 1. Organization and Summary of Significant Accounting Policies (Continued) Contributions: All contributions of cash and other assets are considered to be available for the general programs of the Organization unless specifically restricted by the donor. The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated asset. When a donor 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. However, if a restriction is fulfilled in the same time period in which the contribution is received, the Organization reports the support as unrestricted. In-Kind Contributions: In addition to receiving cash contributions, the Organization receives in-kind contributions of assets and services from various donors. It is the policy of the Organization to record the estimated fair value of qualified in-kind donations as expenses or capital assets in its financial statements, and similarly increase contribution revenue by a like amount. Gifts of equipment are reported as unrestricted revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. Functional Allocation of Expenses: The costs of providing the program services have been summarized on a functional basis in the statements of activities and functional expenses. Accordingly, certain costs have been allocated among the program services based on employees' time incurred and on resource usage. Income Taxes: The Organization is a publicly supported organizations and is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Therefore, no provision for income taxes is included in these financial statements. The Organization has been classified as an organization that is not a private foundation under Section 509(a) of the Internal Revenue Code. 17

20 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 1. Organization and Summary of Significant Accounting Policies (Continued) Income Taxes (Continued): The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Organization may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Organization and various positions related to the potential sources of income subject to unrelated business income tax (UBIT). The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for the years ended December 31, 2014 and The Organization files tax returns in the U.S. federal jurisdiction and the State of Indiana. The Organization believes it is no longer subject to income tax examinations for years prior to Credit Risk and Concentrations: The Organization maintains its cash in bank deposit accounts which, at various times throughout the year, exceeded federally insured limits. Unemployment Compensation: For unemployment compensation purposes, the Organization has elected to reimburse the State of Indiana for claims made. Such reimbursements are charged to expense as they are paid. Reclassification: Certain amounts previously reported have been reclassified to conform to current year presentation. Subsequent Events: Management of the Organization has evaluated events and transactions for possible recognition or disclosure through April 7, 2015, the date the financial statements were available to be issued. 18

21 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 2. Pledges Receivable Pledges receivable consists of the following at December 31, 2014 and 2013: Due within one year $ 222,475 $ 240,551 Due in one to five years 130,250 51, , ,440 Less discount (at 3.25%) to net present value 4,700 4,700 Net pledges receivable $ 348,025 $ 287,740 Note 3. Investments and Investment Return Investments consist of the following at December 31, 2014 and 2013: Cost Fair Value Cost Fair Value Cash and cash equivalents $ 100,033 $ 100,033 $ 83,557 $ 83,557 Mutual funds 514, , , ,840 Exchange-traded funds 245, , , ,425 Common stocks 419, , , ,082 Corporate bonds 292, , , ,409 $ 1,571,793 $ 1,835,612 $ 1,333,986 $ 1,619,313 Investment income in the statements of activities is reported net of related investment expenses of $12,448 and $11,946 for the years ended December 31, 2014 and 2013, respectively. 19

22 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 4. Property and Equipment Property and equipment consists of the following at December 31, 2014: HUD General Residential Fund Home Fund Total Land $ 958,434 $ 52,348 $ 1,010,782 Land improvements 296,187 36, ,312 Buildings 6,854, ,484 7,554,125 Vehicles 313,135 3, ,114 Computer equipment 637, ,998 Furniture & fixtures 444,754 58, ,825 Equipment 448,226 14, ,764 9,953, ,545 10,817,920 Less: Accumulated depreciation 5,154, ,800 5,825,483 $ 4,798,692 $ 193,745 $ 4,992,437 Property and equipment consists of the following at December 31, 2013: HUD General Residential Fund Home Fund Total Land $ 958,434 $ 52,348 $ 1,010,782 Land improvements 296,187 36, ,312 Buildings 6,796, ,376 7,485,213 Vehicles 313,631 3, ,610 Computer equipment 724, ,318 Furniture & fixtures 442,421 58, ,392 Equipment 406,608 12, ,875 9,938, ,066 10,790,502 Less: Accumulated depreciation 4,997, ,043 5,654,737 $ 4,940,742 $ 195,023 $ 5,135,765 Depreciation expense for the years ended December 31, 2014 and 2013, was $400,581 and $383,443, respectively. 20

23 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 5. Beneficial Interest in Assets Held by a Community Foundation The Community Foundation of Greater Fort Wayne Inc. (Community Foundation) holds funds in the Organization's name totaling $53,102 and $52,159 at December 31, 2014 and 2013, respectively. These are the result of an agreement whereby the Organization has transferred assets, without variance power, to the Community Foundation and has specified itself as the beneficiary of the assets. The Organization may draw up to eight percent of the value of the assets each year, but may only obtain a return of the full value of the assets upon consent of the Community Foundation. These assets are being accounted for as investments and are classified as "Beneficial interest in assets held by a community foundation" in the Statement of Financial Position. Additionally, the Community Foundation holds investment assets, with a value of $34,505 and $33,843 at December 31, 2014 and 2013, respectively, for the benefit of the Organization for which it has retained variance power. These investments are not recorded as assets of the Organization. Note 6. Beneficial Interest in Perpetual Trust The Organization is the beneficiary under a charitable remainder trust administered by third party trustees. Under the terms of the trust, the Organization has the irrevocable right to receive income earned by the trust's assets each year in perpetuity. The Organization's interest in the trust is valued at the Organization's share of the fair value of the underlying net assets. The original contribution of $92,019 is classified as permanently restricted net assets. Distributions received from the trust are recorded as unrestricted income. The change in fair value is recorded in unrestricted net assets as a gain or loss on investments. The estimated fair value of the Organization's beneficial interest in perpetual trust is $104,173 and $105,567 at December 31, 2014 and 2013, respectively. Note 7. Fair Value Measurements Fair value measurements are based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, and are determined by either the principal market or the most advantageous market. The fair value measurements framework establishes a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 measurements having the highest priority and Level 3 measurements having the lowest priority. Level 1: Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market that the Organization has the ability to access at the measurement date. 21

24 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 7. Fair Value Measurements (Continued) Level 2: Level 3: Fair value is based on quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Fair value is based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable in the market. The asset's or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation techniques and inputs used for each major class of assets measured at fair value. There have been no changes in the methodologies used at December 31, 2014 and Cash and cash equivalents: Cash is valued at cost. Cash equivalents are valued at their closing price at year end, reported in the active market in which the cash equivalents are traded. Mutual funds: Valued at the net asset value (NAV) of shares held at year end. Exchange-traded funds: Valued at the closing price at year end, reported in the active market in which the funds are traded. Common stocks: Valued at the closing price at year end, reported in the active market in which the stocks are traded. Corporate bonds: Valued based on yields currently available on comparable securities of issuers with similar credit ratings. Beneficial interest in assets held by a community foundation: Valued based on the underlying investments held by and reported to the Organization by the Community Foundation. Beneficial interest in perpetual trust: Valued at the Organization's share of the fair value of the underlying net assets. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth by level, within the fair value hierarchy, the Organization's investments measured at fair value on a recurring basis as of December 31, 2014 and

25 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 7. Fair Value Measurements (Continued) Assets at Fair Value as of December 31, 2014 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 100,033 $ - $ - $ 100,033 Mutual funds Bank loan 53, ,868 Diversified emerging markets 24, ,071 Foreign large blend 95, ,924 Intermediate term bond 80, ,727 Long/short equity 9, ,996 Mid-cap growth 25, ,400 Mid-cap value 17, ,488 Nontraditional bond 53, ,117 Real estate 47, ,672 Small growth 35, ,454 World bond 54, ,511 World stock 48, ,738 Total mutual funds 546, ,966 Exchange-traded funds Diversified emerging markets 28, ,694 Foreign large blend 51, ,653 Inflation protected bond 15, ,681 Large growth 72, ,317 Large value 81, ,674 Mid-cap growth 24, ,706 Mid-cap value 29, ,504 Small value 10, ,575 Total exchange-traded funds 314, ,804 Common stocks Consumer discretionary 89, ,541 Consumer staples 52, ,655 Energy 34, ,921 Financial 107, ,064 Healthcare 87, ,353 Industrial 63, ,063 Information technology 99, ,206 Materials 17, ,887 Telecommunication services 6, ,549 Utilities 10, ,021 Total common stocks 568, ,260 Corporate bonds - rated 305, ,549 Beneficial interest in assets held by a community foundation ,102 53,102 Beneficial interest in perpetual trust , ,173 Total assets at fair value $ 1,835,612 $ - $ 157,275 $ 1,992,887 23

26 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 7. Fair Value Measurements (Continued) Assets at Fair Value as of December 31, 2013 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 83,557 $ - $ - $ 83,557 Mutual funds Bank loan 46, ,737 Foreign large blend 63, ,199 Intermediate term bond 88, ,785 Mid-cap growth 33, ,568 Mid-cap value 18, ,235 Real estate 32, ,944 Small growth 55, ,052 World bond 14, ,820 World stock 60, ,500 Total mutual funds 413, ,840 Exchange-traded funds Diversified emerging markets 29, ,497 Foreign large blend 56, ,964 Inflation protected bond 20, ,332 Mid-cap growth 22, ,354 Mid-cap value 32, ,855 Small value 15, ,423 Total exchange-traded funds 177, ,425 Common stocks Consumer discretionary 92, ,309 Consumer staples 56, ,615 Energy 59, ,874 Financial 122, ,860 Healthcare 90, ,942 Industrial 83, ,049 Information technology 88, ,019 Materials 15, ,407 Telecommunication services 8, ,845 Utilities 11, ,162 Total common stocks 629, ,082 Corporate bonds - rated 315, ,409 Beneficial interest in assets held by a community foundation ,159 52,159 Beneficial interest in perpetual trust , ,567 Total assets at fair value $ 1,619,313 $ - $ 157,726 $ 1,777,039 24

27 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 7. Fair Value Measurements (Continued) The table below presents information about the changes in Level 3 assets, which are measured at fair value on a recurring basis using significant unobservable inputs: Beneficial Interest in: Assets Held by a Community Perpetual Foundation Trust Balance, January 1, 2013 $ 48,852 $ 97,292 Net realized and unrealized gains 5,262 13,394 Interest and dividends 2,211 - Distributions (3,908) (5,119) Fees (258) - Balance, December 31, , ,567 Net realized and unrealized gains (losses) (511) 3,869 Interest and dividends 1,746 - Distributions - (5,263) Fees (292) - Balance, December 31, 2014 $ 53,102 $ 104,173 Gains and losses (realized and unrealized) included in changes in net assets are reported in the statements of activities. Note 8. Long-Term Debt Long-term debt consists of the following at December 31, 2014 and 2013: Mortgage note payable to a commercial bank in monthly installments of $2,056 including interest at 4.48%, due May 1, 2020, secured by residential facilities. $ 116,690 $ 135,602 Mortgage note payable to HUD in monthly installments of $4,735, with interest at 9.25%, due in November 2022, secured by HUD project residential facilities. 318, ,177 25

28 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 8. Long-Term Debt (Continued) Bond payable to Indiana Healthcare Facility Finance Authority, assigned to Old National Bank, in variable monthly interest payments which are calculated weekly (2.69% at December 31, 2013) and annual principal payments; paid off during $ - $ 69,719 $ 434,794 $ 549,498 Under the terms of the mortgage note payable to HUD, the Project is required to maintain certain escrow deposits and reserve accounts for replacements and residual receipts. It is also subject, under the terms of the mortgage, to restrictions on acquisition, use, and disposition of the mortgaged property and revenues derived therefrom. Maturities of long-term debt for the five years ending after December 31, 2014, and in the aggregate, are as follows: 2015 $ 48, , , , ,055 Thereafter 152,907 $ 434,794 Interest expense for the years ended December 31, 2014 and 2013, was $38,541 and $42,770, respectively. Note 9. Line of Credit The Organization has a line of credit agreement with a bank that provides for a maximum borrowing of $1,500,000, with interest at the daily LIBOR rate plus 1.45% (1.56% at December 31, 2014). The line is collateralized by all accounts and investments held at the respective bank, and matures July 31, There was no outstanding balance at December 31, 2014 and

29 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 10. Net Assets Temporarily restricted net assets are restricted as follows at December 31, 2014 and 2013: Board designated endowment receivables $ 92,725 $ 187,440 Programming 78, ,450 Endowment - unappropriated earnings 121, ,956 Assistive technology award program 5,762 5,046 Capital improvements 55,435 43,910 Medical cost relief fund 3,519 6,574 Sue Schmidt recreation program 5,732 4,259 Adopt-a-Family 2,630 1,322 Time restriction - operating support 260,000 - $ 626,513 $ 553,957 Permanently restricted net assets are restricted as follows at December 31, 2014 and 2013: Investment in perpetuity, the income of which is expendable to support any activity of the Organization $ 240,579 $ 240,579 Recreation endowment 131, ,100 Beneficial interest in perpetual trust 92,019 92,019 Ballroom Dance endowment 10,000 10,000 Adopt a Family endowment 25,000 25,000 Music endowment 96,000 46,000 $ 594,698 $ 537,698 Net assets were released from temporary restrictions during the years ended December 31, 2014 and 2013, as follows: Time restrictions expired $ 134,222 $ 90,189 Satisfaction of purchase requirements 36,410 40,000 Satisfaction of program requirements 217, ,082 $ 388,042 $ 336,271 27

30 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 10. Net Assets (Continued) Net assets were released from permanent restrictions as follows: Uncollectible endowment gift $ - $ 15,000 Note 11. State and Local Revenue State and local revenue received during the years ended December 31, 2014 and 2013, was as follows: State of Indiana: Title XIX Medicaid $ 2,803,174 $ 2,839,980 Medicaid day program 463, ,661 Medicaid waiver 12,215,642 10,042,100 Northwest clients' transition 111,116 1,132,530 DFC supervision 64,827 50,447 Caregiver support 6,388 14,001 Residential services 3,192 4,365 Medicaid waiver transition 40, ,550 Court appointed ward of state - - State community support 1,023 2,578 Parent and child connection 195, ,765 Choice Total State Revenue 15,905,054 15,262,264 Allen County: Property tax assessments 746, ,154 Total State and Local Revenue $ 16,651,735 $ 16,066,418 28

31 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 12. Endowment The Organization has currently invested its donor-restricted and board designated endowment funds in cash and an investment account with a mixture of equities, fixed income, and cash and cash equivalents. The endowments have been established to meet the potential current and future needs of the Organization and to support the recreation, ballroom, adopt-a-family, and music programs. As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of UPMIFA: The Board of Directors of the Organization has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift 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 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 at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, 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 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 Organization Return Objectives and Risk Parameters: The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Organization must hold in perpetuity or for a donor-specified period(s) as well as board designated funds. 29

32 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 12. Endowment (Continued) Strategies Employed for Achieving Objectives: To satisfy its long-term rate-of-return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its longterm return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy: The Finance and Outcomes Committee shall determine, in conjunction with President/Chief Executive Officer and Chief Financial Officer during the annual budgeting approval process, the target goals for investment income use and goals for the Board Restricted Fund and report those to the Investment Committee. The annual budget should include a percentage determination of cash transfer, based on a three year average of beginning year fund balance. Requests for additional cash transfers over and above the budgeted percentage will require a formal written request to the Finance and Outcomes Committee for approval. The special requests should be limited to emergency situations, new program development costs, or dollars to support programs core to the mission that cannot attract other funding sources. Endowment net asset composition by type of fund at December 31, 2014 and 2013, was: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 121,845 $ 502,679 $ 624,524 Board designated endowment funds 1,212, ,212,056 Total endowment net assets $ 1,212,056 $ 121,845 $ 502,679 $ 1,836, Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 115,956 $ 445,679 $ 561,635 Board-designated endowment funds 1,059, ,059,646 Total endowment net assets $ 1,059,646 $ 115,956 $ 445,679 $ 1,621,281 30

33 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 12. Endowment (Continued) Changes in endowment net assets for the years ended December 31, 2014 and 2013, were: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 1,059,646 $ 115,956 $ 445,679 $ 1,621,281 Investment return: Interest and dividends 46,323 7,817-54,140 Realized gain 92,380 15, ,968 Unrealized loss (18,199) (3,071) - (21,270) Fees (10,401) (1,755) - (12,156) Total investment return 110,103 18, ,682 Contributions and grants 42,307-57,000 99,307 Appropriation for expenditure - (12,690) - (12,690) Endowment net assets, end of year $ 1,212,056 $ 121,845 $ 502,679 $ 1,836, Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 1,027,661 $ 95,282 $ 409,679 $ 1,532,622 Investment return: Interest and dividends 36,290 6,679-42,969 Realized gain 68,776 11,584-80,360 Unrealized gain 77,022 11,708-88,730 Fees (10,145) (1,542) - (11,687) Total investment return 171,943 28, ,372 Contributions and grants 20,042-51,000 71,042 Appropriation for expenditure (160,000) (7,755) - (167,755) Uncollectible endowment pledge - - (15,000) (15,000) Endowment net assets, end of year $ 1,059,646 $ 115,956 $ 445,679 $ 1,621,281 31

34 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 12. Endowment (Continued) Description of Amounts Classified as Temporarily Restricted Net Assets and Permanently Restricted Net Assets (Endowment only): Temporarily Restricted Net Assets The portion of perpetual endowment funds subject to a time restriction under UPMIFA $ 121,845 $ 115,956 Permanently Restricted Net Assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA $ 502,679 $ 445,679 Note 13. In-Kind Contributions Donated assets, services, supplies, and other expenses have been included in the financial statements at fair market value as contributions in-kind and are reflected as follows: Community support $ 9,851 $ 12,958 Rehab and work services 2,514 6,946 Residential services Supported living and client health and wellness 15,239 3,808 Management and general 595 5,640 Fundraising 39,666 41,301 $ 67,965 $ 70,661 32

35 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 14. Operating Leases The Organization leases certain equipment, vehicles, facility space and apartments under operating leases which expire in various years through Total rent expense was $197,199 and $300,057 for the years ended December 31, 2014 and 2013, respectively. Minimum future rental payments under existing and subsequently renewed noncancellable operating leases, having initial or remaining terms in excess of one year at December 31, 2014 are as follows: 2015 $ 141, , , , ,683 Thereafter 146,642 $ 586,154 Note 15. Employee Benefit Plan The Organization has a defined contribution plan (the "Plan") under Section 403(b) of the Internal Revenue Code. The Plan covers all full-time employees, who are 21 years of age, have one year of service, and complete 1,000 hours of service within the Plan year. For the years ended December 31, 2014 and 2013, the employer match was 50% of employee contributions not to exceed 3% of the employee's regular wages. Additionally, the Organization may make a discretionary contribution. Participants are 100% vested after three years. The Organization incurred expenses, related to the Plan, in the amount of $129,489 and $131,599 for the years ended December 31, 2014 and 2013, respectively. Note 16. Credit Risk and Concentrations and Contingencies The Organization has significant investments in stocks, bonds, and mutual funds and is, therefore, subject to credit risk. Investments are made by investment managers engaged by the Organization. Although the fair value of investments is subject to fluctuation on a year-to-year basis, management believes the investment policy is prudent for the long-term welfare of the Organization and its beneficiaries. The Organization receives substantial support from federal and state government agencies. A significant reduction in the level of this support, if it were to occur, may have an effect on the Organization's future programs and activities. 33

36 Notes to Financial Statements (Continued) December 31, 2014 and 2013 Note 16. Credit Risk and Concentrations and Contingencies (Continued) The Organization provides various services to clients under agreements with third-party payors which provide for compensation to the Organization at established cost reimbursement methodologies and established rates from the State and Federal Governments for Medicaid Waiver services. Per client rates are set prospectively from actual cost information submitted on annual cost reports. At December 31, 2014 and 2013, the cost reports for Indiana Medicaid Title XIX Group Home program for the years 2001 and 2000 remain open due to rates being currently under appeal. The cost reports for July 1994, October 1995, October 1997, and October 1998 also have open appeals per the State of Indiana; however, rate adjustments to date have not been reflective of those years. Medicaid Waiver rates are set by the State of Indiana. Then budgets are set for each client using a combination of assessment scores and case manager evaluation tools. Medicaid Waiver has not performed an audit of service billing for all clients to date. The Organization has received preliminary results from the audits conducted on Medicaid Group Home cost reports but not individual client audits on Medicaid Waiver services. The Organization has chosen to estimate a liability of $272,500 and $347,500 at December 31, 2014 and 2013, respectively, for Group Home retroactive adjustments, additional provider tax liabilities, and other Medicaid Waiver program refunds that encompass the audits under appeal, as well as any future adjustment that could occur for past years. Because of uncertainties inherent in the estimation process, management's estimate of Medicaid adjustments and the corresponding group home Medicaid liability may change in the near term. However, the amount of the change that is reasonably possible cannot be estimated. In the normal course of business, the Organization is subject to potential claims. If and when such claims occur, it is the Organizations' practice to defend these claims as they arise. 34

37 EASTER SEALS ARC OF NORTHEAST INDIANA, INC. Schedule of Expenditures of Federal Awards Year Ended December 31, 2014 Federal Agency or Federal Federal Grantor/Pass-Through CFDA Pass-Through Award Grantor/Program Title Number Number Expended U.S. Department of Housing and Urban Development: Section 202, Mortgage Assistance N/A $ 318,104 Section 8, Housing Assistance Payment Program N/A 110,607 U.S. Department of Health and Human Services: Pass-through from Indiana Family and Social Services Administration, Division of Family Resources: Social Services Block Grant H U.S. Department of Agriculture: Pass-through from Indiana Department of Education: Child Care and Adult Care Food Program (08) ,835 National Endowment for the Arts Arts Midwest 5,464 See Notes to Schedule of Expenditures of Federal Awards. $ 513,782 35

38 Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2014 Note 1. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s Federal awards program and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, "Audits of States, Local Governments and Non-Profit Organizations". Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Note 2. Risk-Based Audit Approach The dollar threshold used to distinguish between Type A and Type B programs is $300,000. The Organization qualifies as a low-risk auditee. 36

39 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Schedule of Financial Position Data December 31, 2014 ASSETS CURRENT ASSETS 1120 Cash - operations $ 2, T Total Current Assets 2,692 RESTRICTED DEPOSITS 1191 Tenant security deposits 4, Replacement reserve 70, Residual receipts reserve 6, T Total Restricted Deposits 81,044 PROPERTY, PLANT AND EQUIPMENT 1410 Land 52, Land improvements 36, Buildings 699, Furniture for project/tenant use 58, Maintenance equipment 14, Motor vehicles 3, T Total Property, Plant and Equipment 864, LESS: Accumulated depreciation 670, N NET PROPERTY, PLANT AND EQUIPMENT 193, T TOTAL ASSETS $ 277,481 LIABILITIES AND NET ASSETS CURRENT LIABILITIES 2110 Accounts payable - operations $ 9, Mortgage payable - first mortgage (short-term) 28, T Total Current Liabilities 38,059 LONG-TERM LIABILITIES 2191 Tenant/patient deposits held in trust (contra) 4, Mortgage payable - first mortgage 289, T Total Long-Term Liabilities 293, T TOTAL LIABILITIES 331,903 NET ASSETS 3131 Unrestricted (54,422) 3130 Total Net Assets (54,422) 2033T TOTAL LIABILITIES AND NET ASSETS $ 277,481 See Independent Auditors' Report on Page 1. 37

40 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Schedule of Activities Data Year Ended December 31, 2014 REVENUE RENTAL 5120 Tenant assistance payments $ 137,230 Reduced by: Reserve account withdrawals (26,623) 5190 Miscellaneous rent revenue (Medicaid) 67, T Total Rent Revenue 178, T LESS: Vacancies 14, N NET RENTAL REVENUE 163, T TOTAL OTHER REVENUE T TOTAL REVENUE 163,614 EXPENSES ADMINISTRATIVE EXPENSES 6310 Office salaries 14, Manager or superintendent salaries 9, Audit expense 10, Miscellaneous administrative expenses 12, T Total Administrative Expense 47,605 UTILITIES EXPENSES 6450 Electricity 8, Water 2, Gas 4, Sewer 3, T Total Utilities Expense 19,308 OPERATING AND MAINTENANCE EXPENSES 6510 Payroll 17, Miscellaneous operating and maintenance expense 25, T Total Operating and Maintenance Expense 42,746 TAXES AND INSURANCE 6711 Payroll taxes (project's share) 3, Workers' compensation 1, Health insurance and other employee benefits 5, T Total Taxes and Insurance 10,061 FINANCIAL EXPENSES 6820 Interest on mortgage payable 30, T Total Financial Expense 30, T TOTAL COST OF OPERATIONS BEFORE DEPRECIATION 150, T PROFIT BEFORE DEPRECIATION 13, Depreciation expense 14, N NET LOSS $ (1,512) See Independent Auditors' Report on Page 1. 38

41 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Computation of Surplus Cash - Annual Year Ended December 31, 2014 CASH Cash - operations $ 2,692 Tenant security deposits 4,331 Total Cash 7,023 CURRENT OBLIGATIONS Accounts payable - 30 days 9,468 Accrued mortgage interest payable 2,455 Tenant security deposits liability 4,331 Total Current Obligations 16,254 CASH DEFICIENCY $ (9,231) See Independent Auditors' Report on Page 1. 39

42 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Schedule of Changes in Property, Plant and Equipment Accounts Year Ended December 31, 2014 Beginning Ending Balance Balance January 1, December 31, 2014 Additions Disposals 2014 Land $ 52,348 $ - $ - $ 52,348 Land improvements 36, ,125 Buildings 688,376 11, ,484 Furniture for project/tenant use 58,971 - (900) 58,071 Maintenance equipment 12,267 2,271-14,538 Motor vehicles 3, ,979 TOTAL COST 852,066 13,379 (900) 864,545 Accumulated depreciation 657,043 14,657 (900) 670,800 NET BOOK VALUE $ 195,023 $ (1,278) $ - $ 193,745 See Independent Auditors' Report on Page 1. 40

43 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Schedule of Reserve for Replacements Year Ended December 31, 2014 BALANCE, January 1, 2014 $ 63,905 Monthly deposits 6,780 Interest earned 27 BALANCE, December 31, 2014 $ 70,712 See Independent Auditors' Report on Page 1. 41

44 Allen County Group Homes - HUD Project # 073-EH010-L8-WHC-IN36-T Schedule of Residual Receipts Year Ended December 31, 2014 BALANCE, January 1, 2014 $ 32,622 Interest earned 2 Authorized withdrawals (26,623) BALANCE, December 31, 2014 $ 6,001 See Independent Auditors' Report on Page 1. 42

45 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 Board of Directors The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. Fort Wayne, Indiana 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 financial statements of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2014, and the related statements of activities, cash flows, and functional expenses for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated April 7, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization'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 The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s 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 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. 43 PERMISSION TO PUBLISH EXCERPTS FROM THIS REPORT OR REFERENCES THERETO, WITH MENTION OF OUR NAME, IS WITHHELD UNTIL THE FORM AND SUBSTANCE OF SUCH EXCERPTS OR REFERENCES ARE APPROVED BY US.

46 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 organization'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 organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fort Wayne, Indiana April 7, 2015 BADEN, GAGE & SCHROEDER, LLC 44 PERMISSION TO PUBLISH EXCERPTS FROM THIS REPORT OR REFERENCES THERETO, WITH MENTION OF OUR NAME, IS WITHHELD UNTIL THE FORM AND SUBSTANCE OF SUCH EXCERPTS OR REFERENCES ARE APPROVED BY US.

47 Independent Auditors' Report on Compliance For Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 Board of Directors The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. Fort Wayne, Indiana Report on Compliance for Each Major Federal Program We have audited The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s (a nonprofit organization) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s major federal programs for the year ended December 31, The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'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 The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc.'s compliance. Opinion on Each Major Federal Program In our opinion, The Arc of Northeast Indiana, Inc. d/b/a Easter Seals Arc of Northeast Indiana, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, PERMISSION TO PUBLISH EXCERPTS FROM THIS REPORT OR REFERENCES THERETO, WITH MENTION OF OUR NAME, IS WITHHELD UNTIL THE FORM AND SUBSTANCE OF SUCH EXCERPTS OR REFERENCES ARE APPROVED BY US.