COMMUNITY BRIDGES, INC. (Arizona Nonprofit Corporation)

Transcription

1 2017 COMMUNITY BRIDGES, INC. (Arizona Nonprofit Corporation) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT FOR THE YEARS ENDED SEPTEMBER 30, 2017 AND 2016

2 TABLE OF CONTENTS Pages INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4-5 Consolidated Statements of Functional Expenses 6-7 Consolidated Statements of Cash Flows 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9-24 SUPPLEMENTARY INFORMATION Schedule A Mercy Maricopa Integrated Care 26 Schedule B Cenpatico Integrated Care 27 Schedule C Health Choice Integrated Care 28 Schedule D Center for Hope Grants 29 Schedule E Disregarded Entities 30 Schedule F Grants / Other Schedule G Permanent Housing 33 Schedule H Education / Prevention Programs 34 SINGLE AUDIT SECTION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards Report on Compliance for Each Major Federal Program; Report on Internal Control over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards 43 Schedule of Findings and Questioned Costs 44

3 INDEPENDENT AUDITOR S REPORT The Board of Directors Community Bridges, Inc. Report on Financial Statements We have audited the accompanying consolidated financial statements of Community Bridges, Inc. which comprise the consolidated statement of financial position as of September 30, 2017, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Community Bridges, Inc. as of September 30, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Page 1

4 Adjustments to Prior Period Financial Statements The financial statements of Community Bridges, Inc. as of September 30, 2016, were audited by other auditors whose report dated January 27, 2017, expressed an unmodified opinion on those statements. As discussed in Note A and Note J to the consolidated financial statements, beginning net assets were restated to include Community Bridges Development Foundation. The other auditors reported on the 2016 financial statements before the restatement. As part of our audit of the 2017 consolidated financial statements, we also audited the adjustments described in Note J that were applied to restate the 2016 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2016 financial statements other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2016 financial statements as a whole. Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated 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 consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 22, 2018, on our consideration of Community Bridges, 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 the 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 Community Bridges, Inc. s internal control over financial reporting and compliance. Heinfeld, Meech & Co., P.C. Phoenix, Arizona January 22, 2018 Page 2

5 COMMUNITY BRIDGES, INC. Consolidated Statements of Financial Position September 30, 2017 and Assets: Current Assets Cash & Cash Equivalents $ 14,796,133 $ 9,634,211 Support and fees receivable 2,942,745 1,581,394 Less: Allowances for Doubtful Accounts - - Inventories 521,071 71,900 Prepaid Expenses 746, ,531 Total Current Assets 19,006,113 11,996,036 Fixed Assets Land and Buildings (Note C) 22,274,896 20,287,500 Property & Equipment (Note C) 3,204,089 3,285,311 Accumulated Depreciation (6,567,227) (6,472,726) Total Fixed Assets 18,911,759 17,100,085 Other assets 402, ,880 Total Assets $ 38,319,955 $ 29,248,000 Liabilities and Net Assets: Current liabilities Accounts Payable $ 4,232,263 $ 3,092,133 Accrued Expenses 3,947,010 2,431,068 Deposits Payable 37,185 50,274 Deferred Income 2,977,181 88,658 Current Portion of Capital Leases Payable (Note F) 31, ,382 Current Portion of Notes Payable (Note D) 170, ,600 Current Portion of Bonds Payable (Note D) 145, ,550 Total current liabilities 11,541,356 6,352,664 Long-term Liabilities Capital Lease Payable (Note F) - 31,877 Notes Payable (Note D) 4,431,097 4,598,881 Bonds Payable (Note D) 2,378,113 2,520,928 Total Long-Term Liabilities 6,809,210 7,151,686 Total liabilities 18,350,566 13,504,350 Net Assets Unrestricted 16,652,470 12,000,396 Temporarily Restricted (Note E) 3,316,920 3,743,255 Total Net Assets 19,969,390 15,743,651 Total Liabilities and Net Assets $ 38,319,955 $ 29,248,000 Page 3 The accompanying notes are an integral part of these consolidated financial statements.

6 Unrestricted Mercy Maricopa Cenpatico HCIC Community Bridges, Inc Consolidated Statement of Activities For the Year Ended September 30, 2017 Other Programs Unrelated MMIC* Cenpatico* HCIC* ABR/PP CFH Grants* Disregarded Entities* Grants/Other* Outpatient - Unscript Permanent Housing* Education/ Prevention* WTP Properties General & Administrative Temporarily Restricted Grand Total Operating Revenue State Funding $ 40,225,580 $ 13,277,561 $ 6,214,287 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 59,717,427 Federal SAPT Funding 5,700,200 1,661, , ,792,839 Federal Grants 189, ,580, ,770,456 Grants - Other ,181-1,315, ,963 1, ,469,752 Rent Income ,427-4,733 2,532, ,556,506 Contributions ,700 42, , ,871 Non-Cash Contributions 356,182-68, ,278 Contribution - Acquisition of WTP , ,204 Fee for Service 1,591,052 10,188,535 1,176, ,799-78,677-37, ,700,276 Other Income ,232-33,876-12,426-13,650 9, , ,584 Prior Year Revenue - 1,061, , ,374,638 Gain/(Loss) on sale of Assets , (730) ,740 Interest , ,956 Subtotal 48,063,078 26,189,657 7,889, , , ,349 3,938,397 50,302 18,697 19, ,372 2,644, ,430,527 Net Assets Released from restriction 242,927 52, ,324-50, (426,336) - Total Operating Revenue 48,306,005 26,241,707 7,889, , , ,349 4,019,721 50,302 68,732 19, ,372 2,644,174 - (426,336) 90,430,527 Expenditures Prevention 44, , ,145 Outpatient 42,016,547 10,142,861 1,368, , , ,918,099 Inpatient 1,746,471 1,198, ,944,922 Clinical - 10,429,373 5,345, , ,181-3,684,461-45, , ,520,419 Admin ,105,056-7,105,056 Other , (270,329) 1,759, ,514,962 Total Expenditures 43,807,033 21,770,685 6,713, , ,181 25,479 3,906, ,789 45, , ,437 1,759,812 7,105,056 86,203,603 Net Revenue over Expenditures 4,498,972 4,471,023 1,175, , , ,859 (117,487) 23,237 (136,517) 67, ,362 (7,105,056) (426,336) 4,226,924 General & Administrative Allocations 4,335,855 2,106, ,549 28, ,858 - (7,111,131) - - Unallocated Clinical Ops ,185-1, Excess (Deficiency) of Revenue over expenses $ 163,117 $ 2,364,883 $ 575,142 $ 298,641 $ - $ 450,870 $ 112,859 $ (117,487) $ 23,237 $ (136,517) $ 28,077 $ 884,362 $ 4,890 $ (426,336) $ 4,225,739 Unrestricted Temporarily Restricted (Note E) Total Assets *Supplemental Schedules Included for: Net Assets at Beginning of Year 7,176,159 3,743,256 10,919,415 Schedule A: Mercy Maricopa Prior Period Adjustment (Note J) 4,824,236 4,824,236 Schedule B: Cenpatico Net Assets at Beginning of Year, as restated 12,000,395 15,743,651 Schedule C: HCIC Restricted Net Asset - Additions (224,305) 224,305 - Schedule D: CFH Grants Restricted Net Asset - Deletions 650,641 (650,641) - Schedule E: Disregarded Entities Excess Revenue over Expenses 4,225,739-4,225,739 Schedule F: Grants / Other Net Assets at End of Year (Note E) $ 16,652,470 $ 3,316,920 $ 19,969,390 Schedule G: Permanent Housing Schedule H: Education / Prevention Page 4 The accompanying notes are an integral part of these consolidated financial statements.

7 Unrestricted Community Bridges, Inc Consolidated Statement of Activities For the Year Ended September 30, 2016 Mercy Maricopa Cenpatico HCIC Other Programs Unrelated MMIC* Cenpatico* HCIC* NAVAJO/AHCCCS ABR/PP Specialty * Prevention * PERM Housing * CFH Grants / Other * Marico Outpatient Outpatient - Unscript Other Properties General & Administrative Temporarily Restricted Grand Total Operating Revenue State Funding $ 36,715,601 $ 5,371,293 $ 4,778,686 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 46,865,579 Federal SAPT Funding 5,955, , , ,761,349 Federal Grants - 14, ,649, , ,078,342 Grants - Other , , , ,028,439 Rent Income ,252 20, ,235, ,274,360 Contributions , , ,620 Non-Cash Contributions 349,896-68, ,992 Fee for Service 220,407 1,913, , , , ,403 44,029 1,037,217 2, ,523,592 Other Income - 1, ,255 - (23,204) , ,219 29, ,201 Prior Year Revenue - 2,547,684-38,115-51,378 12, , ,759,084 Gain/(Loss) on sale of Assets , ,413 Interest Subtotal 43,241,002 10,433,993 5,415, , ,249 2,481, ,922 20, ,395 5,403 72,254 1,428,862 1,268, ,075,620 Net Assets Released from restriction 242,927 52, ,035 81, (426,336) - Total Operating Revenue 43,483,929 10,486,043 5,415, , ,249 2,481, ,922 70, ,719 5,403 72,254 1,428,862 1,268,584 - (426,336) 66,075,620 - Expenditures - Prevention , ,770 Outpatient 8,704,828 2,976, , , , , ,879,707 Clinical 29,092,601 6,570,869 4,081,186 1,021, ,500 2,084,469-73, , (6,033) ,411,147 Admin ,614,697-5,614,697 Other , ,682 Total Expenditures 37,797,429 9,547,184 5,057,700 1,021, ,500 2,493, ,770 73, ,593 11, ,357 (6,033) 975,682 5,614,697 65,094,003 - Net Revenue over Expenditures 5,686, , ,656 (797,064) (124,251) (11,964) (105,848) (3,064) 89,126 (5,997) (729,103) 1,434, ,902 (5,614,697) (426,336) 981, General & Administrative Allocations 3,922,769 1,023, , ,009 89, (5,625,406) - - Unallocated Clinical Ops (782) - (782) - - Excess (Deficiency) of Revenue over expenses $ 1,763,731 $ (84,959) $ (131,710) $ (897,073) $ (213,695) $ (11,964) $ (105,848) $ (3,064) $ 89,126 $ (5,997) $ (729,103) $ 1,434,895 $ 292,902 $ 11,491 $ (426,336) $ 982,399 Unrestricted Temporarily Restricted (Note E) Total Assets Net Assets at Beginning of Year 4,767,425 4,169,592 8,937,017 Restricted Net Asset - Additions Restricted Net Asset - Deletions 426,336 (426,336) - Excess Revenue over Expenses 982, ,399 Transfer to/from Foundation 1,000,000 1,000,000 Net Assets at End of Year (Note E) $ 7,176,159 $ 3,743,256 $ 10,919,415 Page 5 The accompanying notes are an integral part of these consolidated financial statements.

8 Community Bridges, Inc. Consolidated Statement of Functional Expenses For the Year Ended September 30, 2017 RBHA PROGRAMS Unrelated Expenditures MMIC Total Cenpatico Total HCIC Total ABR/PP CFH Grants Disregarded Entities Grants/Other Outpatient Unscript Permanent Housing Prevention WTP Properties General & Administrative Other/Unrelated Total Grand Total Salaries $ 24,869,040 $ 12,530,964 $ 3,982,994 $ 184,551 $ 122,246 $ 159 $ 1,844,362 $ 63,648 $ 1, , ,379 $ $ 4,524,055 $ 7,039,647 $ 48,422,645 ERE 4,880,424 2,367, ,806 39,961 22, ,129 16, ,102 29, ,260 1,317,548 9,341,521 Professional & Outside 7,128,809 1,155, ,336 25, , ,068 55, ,195 54, , ,544 9,086,918 Interest Expense 602 2,512 2, ,961 4, , ,399 Medical Supplies 959, ,120 64,927 4,618 27,756 2, ,299 6,904 45,873 1,419,691 Insurance 277, ,072 60, ,871 36, ,194 3,018 33,390 86, , ,839 Repairs & Maintenance 467, ,950 98,329 10,055 2,989 34,182 3,199 9,539 9, ,042 49, ,162 1,331,092 Supplies 152,657 78,929 30,990 1, , , ,266 74, ,516 Equipment 439, ,346 89,201 7,800 3,972 8, ,406 1,229 12, , ,120 1,103,842 Occupancy 2,494,911 2,164, ,197 20,102 (42,007) 1,091,957 17,405 20, , , ,384 1,891,627 7,141,412 Telephone 447, , ,038 3, ,053 3,942 9,112 1,370 4, , ,344 1,200,344 Travel 149, , , , ,118 48, , ,751 Equipment Leases 490,272 1,025, ,774 1, ,788 1,715 3, , ,002 2,148,124 Training & Conferences 164,312 80,069 30, , ,841 1,458 57,964 77, ,978 Licenses 562, , ,464 2, , ,884 23,872 1,160,846 Miscellaneous & Other 114,730 85,575 92,522 2,110 50,521 61,449 (1,050) 250 7, ,910 63, , ,213 Client Housing Total Expense before Depreciation 43,598,456 21,682,240 6,660, , ,181 20,416 3,906, ,008 45, , ,039 1,131,463 7,020,903 13,185,158 85,126,130 Depreciation 208,577 88,445 53,707 5,063 2,781 6, ,349 84, ,743 1,077,472 Total Operating Expenditures 43,807,033 21,770,685 6,713, , ,181 25,479 3,906, ,789 45, , ,436 1,759,812 7,105,056 13,911,901 86,203,603 Clinical Ops Allocation Transfers to Foundation Total Expenditures $ 43,807,033 $ 21,770,685 $ 6,713,984 $ 303,661 $ 147,181 $ 25,479 $ 3,906,862 $ 167,789 $ 45,495 $ 156,130 $ 294,436 $ 1,759,812 $ 7,105,056 $ 13,911,901 $ 86,203,603 Page 6 The accompanying notes are an integral part of these consolidated financial statements.

9 Community Bridges, Inc. Consolidated Statement of Functional Expenses For the Year Ended September 30, 2016 RBHA PROGRAMS Other Programs Unrelated Expenditures Mercy Maricopa Total Cenpatico Total HCIC Total NAVAJO ABR/PP Speciality Programs Prevention PERM Housing CFH/Grants Other Marico Outpatient Outpatient Unscript Other Properties General & Administrative Other/Unrelated Total Grand Total Salaries $ 20,776,799 $ 5,585,315 $ 2,985,561 $ 672,665 $ 624,067 $ 1,311,065 $ 148,595 $ $ 363,827 $ $ 259,831 $ $ 3,377,904 $ 6,757,954 $ 36,105,629 ERE 3,975,305 1,076, , , , ,139 22,025 75,571 50, ,742 1,222,827 6,866,082 Professional & Outside 7,693, , ,459 42,123 20,303 80,368 18,634 1,821 3,360 5, ,636 35, , ,930 9,681,684 Interest Expense 10,224 4,735 5, ,685 12, , ,229 Medical Supplies 1,364, , ,884 57,316 53,607 58,817 1,685 65,074 1,343 10,492 (28,850) 7,400 (4,203) 222,680 2,132,246 Insurance 236,970 77,807 49,067 8,534 3,256 31,221 2,279 2,699 2,074 6,382 83, , ,237 Repairs & Maintenance 227, ,532 42,966 6,564 7,063 3, ,208 32,906 4, ,466 10, , ,801 Supplies 100,566 34,151 14,946 4,322 1,813 4,779 1, , ,449 75, ,485 Equipment 278,678 60,398 55,631 7,240 2,682 16, ,910 55,680 86, ,372 Occupancy 1,371, , ,050 33,527 21, , ,814 50,025 59, , ,231 1,020,191 3,285,302 Telephone 485, , ,993 26,849 16,849 28,037 2,259 8,280 1,284 24,917 7, , ,529 1,163,623 Travel 206, ,820 57,616 13, , ,997 36, , ,800 Equipment Leases 451, , ,489 13,957 3, ,810 2,301 1,502 7, , ,466 1,085,479 Training & Conferences 165,467 42,680 28,046 5, ,472 2, ,309 69, ,858 Miscellaneous & Other 146,019 66,328 44,443 6,582 4,582 54,970 12,283 1, ,151 58,067 22,817 16, , , ,597 Client Housing Total Expense before Depreciation 37,489,320 9,411,011 4,963,328 1,021, ,123 2,493, ,770 41, ,593 11, ,960 (6,033) 691,570 5,189,284 11,933,766 63,797,424 Depreciation 308, ,173 94,372 6,377 31,625 10, , , ,925 1,296,579 Total Operating Expenditures 37,797,429 9,547,184 5,057,700 1,021, ,500 2,493, ,770 73, ,593 11, ,357 (6,033) 975,682 5,614,697 12,691,691 65,094,003 Clinical Ops Allocation Transfers to Foundation Total Expenditures $ 37,797,429 $ 9,547,184 $ 5,057,700 $ 1,021,851 $ 896,500 $ 2,493,765 $ 212,770 $ 73,110 $ 596,593 $ 11,399 $ 801,357 $ (6,033) $ 975,682 $ 5,614,697 $ 12,691,691 $ 65,094,003 Page 7 The accompanying notes are an integral part of these consolidated financial statements.

10 COMMUNITY BRIDGES, INC. Consolidated Statements of Cash Flows For the Fiscal Years Ended September 30, 2017 and Cash flows from operating activities: Net Revenue over Expenditures $ 4,225,739 $ 1,982,399 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,356,602 1,235,898 (Increase) decrease in support & fees receivable (1,361,351) 592,689 (Increase) decrease in prepaid expenses (35,138) (229,366) (Increase) decrease in inventories (449,171) (16,003) Increase (decrease) in accounts payable 1,140,634 (367,098) Increase (decrease) in accrued liabilities 1,515,942 (148,363) (Gain)Loss from sale of assets (12,741) (108,413) Deposits and other assets (115,217) (48,477) Increase (decrease) in deposits payable (13,089) 17,506 Deferred Revenue 2,896,659 (477,483) Total adjustments 4,923, ,890 Net cash provided (used) by operating activities 9,148,869 2,433,288 Cash flows from investing activities: Cash payments for Investments (146,122) 100,000 Cash payments for the purchase of property (3,169,793) (5,220,611) Proceeds from sale of asset(s) 14, ,094 Net cash provided (used) by investing activities (3,301,657) (4,951,517) Cash flows from financing activities: Principal payments on long-term and short-term debt (1,076,256) (477,001) Principal borrowed for purchase of property - 4,000,000 Principal payments on leases (170,382) (165,870) Proceeds from loan 561,347 - Net cash provided (used) by financing activities (685,291) 3,357,129 Net increase (decrease) in cash and equivalents 5,161, ,901 Cash and equivalents at beginning of year, as restated 9,634,211 8,795,310 Cash and equivalents at end of year $ 14,796,133 $ 9,634,211 Supplemental disclosures of cash flow information: Cash paid during the year for interest expense $ 317,399 $ 240,229 Cash paid during the year for income tax expense $ 50,431 $ 11,118 Page 8 The accompanying notes are an integral part of these consolidated financial statements.

11 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE A ORGANIZATION Community Bridges, Inc. (CBI) was incorporated as a private non-profit, 501(c)(3) organization in 1982 and has a 31 year history of providing comprehensive, medically integrated behavioral health programs which include prevention, education and treatment services using cutting edge, nationally recognized treatment models throughout Arizona. CBI is one of the largest statewide providers offering fully integrated medical and behavioral health care in 14 communities in Maricopa, Pinal, Gila, Yuma, Navajo, Apache and Cochise Counties by providing a continuum of care that begins with prevention and continues for individuals and families through treatment and recovery. During the past four years, CBI has transformed recovery of those we serve holistically and more effectively, by delivering direct physician and nurse practitioner services, both on site in Maricopa County, and through telemed to each of our service locations throughout Arizona. CBI operates 29 programs throughout Arizona that are all licensed by the Arizona Department of Health Services Division of Behavioral Health. Our prevention and clinical programs are accredited by the Commission on Accreditation of Rehabilitation Facilities (CARF). Principles of Consolidation These consolidated financial statements include the activities of CBI and the following entities (collectively referred to as CBI): Community Bridges Development Foundation a private, nonprofit, 501(c)(3) organization established in 2004 for the purpose of providing support to CBI. A total of thirteen sole-member LLCs have been established to house the assets and/or operations at each site owned by CBI. CBI Benefits LLC a sole-member LLC established to account for the assets related to benefit management of CBI. Inspired Ink LLC a sole-member LLC established to account for assets related to goods sold to CBI. Women s Transition Project, Inc. On January 1, 2017 CBI acquired the Women s Transition Project, Inc. a nonprofit 501(c)(3) organization in Bisbee, Arizona that provided temporary housing, substance abuse treatment and basic needs to Cochise County women. On this date, all assets reverted to CBI and CBI became the sole member of the Women s Transition Project, Inc. The value of acquired assets exceeded liabilities by a total of $340,205 and the amount has been reported as contribution revenue on the Statement of Activities. The consolidated financial statements as presented for the year ended September 30, 2016 did not include the activity of Community Bridges Development Foundation. Refer to Note J for information regarding the prior period adjustments to include this entity. All significant inter-organization balances and transactions have been eliminated in consolidation. Page 9

12 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CBI prepares its consolidated financial statements in accordance with generally accepted accounting principles (GAAP) promulgated in the United States of America for Not for Profit Organizations. CBI has a September 30 Fiscal Year End to coordinate with the Arizona Department of Health Services (ADHS). The significant accounting and reporting policies used by CBI are described below to enhance the usefulness and understandability of the financial statements. Net assets The financial statements report net assets and changes in net assets in three classes that are based upon the existence or absence of restrictions on use that are placed by its donors, as follows: Unrestricted net assets are resources available to support operations. The only limits on the use of unrestricted net assets are the broad limits resulting for the nature of CBI, the environment in which it operates, the purposes specified in its corporate documents and its application for tax-exempt status, and any limits resulting from contractual agreements with creditors and others that are initiated in the course of its operations. Temporarily restricted net assets are resources that are restricted by a donor for use for a particular purpose or in a particular future period. CBI s unspent contributions are classified in this class if the donor limited their use. When a donor s restriction is satisfied, either by using the resources in the manner specified by the donor or by the passage of time, the expiration of the restriction is reported in the consolidated financial statements by reclassifying the net assets from temporarily restricted to unrestricted net assets. Net assets restricted for acquisition of buildings or equipment (or less commonly, the contribution of those assets directly) are reported as temporarily restricted until the specified asset is placed in service by CBI, unless the donor provides more specific directions about the period of its use. Permanently restricted net assets are resources whose use by CBI is limited by donorimposed restrictions that neither expires by being used in accordance with a donor s restriction nor by the passage of time. All revenues and net gains are reported as increases in unrestricted net assets in the statement of activities unless the use of the related resources is subject to temporary or permanent donor restrictions. All expenses and net losses are reported as decreases in unrestricted net assets. Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting Page 10

13 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued period and the reported amounts of assets and liabilities at the date of the financial statements. On an ongoing basis, CBI s management evaluates the estimates and assumptions based upon historical experience and various other factors and circumstances. CBI s management believes that the estimates and assumptions are reasonable in the circumstances; however, the actual results could differ from those estimates. Cash Equivalents and Short-term Investments Cash and cash equivalents consist primarily of cash on hand, operating bank accounts, money market accounts, commercial paper with original maturities of 90 days or less, and Certificates of Deposit with maturities of one year or less. Certificates of Deposit are reported at cost plus accrued interest which approximates fair value. Accounts Receivable CBI carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, CBI evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. CBI s policy is not to accrue interest on accounts receivable. Accounts are written off as uncollectible at the time management determines that collection is unlikely. Property and Equipment Property and equipment are recorded at cost. Contributed assets are recorded at their fair market value at date of donation. Assets are depreciated over their useful lives using the straight-line method. The cost and accumulated depreciation of assets retired, or otherwise disposed of, are eliminated from the appropriate accounts and gains or losses from such disposal, if any, are included in income. Maintenance and repairs are charged to operating expenses as incurred. Costs of renewal and betterments which materially extend the useful lives of the assets or increase their value are capitalized. Accounting for contributions Contributions, including unconditional promises to give, are recorded when received. All contributions are reported as increases in unrestricted net assets unless use of the contributed asset is specifically restricted by the donor. Amounts received that are restricted by the donor to use in future periods or for specific purposes are reported as increases in either temporarily restricted or permanently restricted net assets, consistent with the nature of the restriction. Unconditional promises with payments due in future years have an implied restriction to be used in the year the payment is due, and therefore are reported as temporarily restricted until the payment is due unless the contribution is clearly intended to support activities of the current fiscal year or is received with permanent restrictions. Conditional promises, such as matching grants, are not recognized until they become unconditional, that is, until all conditions are substantially met. Page 11

14 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their net realizable value, using risk-free interest rates applicable to the years in which the promises are to be received. Federal program amounts that are passed through State programs and the States Regional Behavioral Health Associations are included in the Statement of Activities as State Funding. Gifts-in-kind contributions CBI reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. Donated use of facilities is reported as contributions and as expenses at the estimated fair value of similar space for rent under similar conditions. CBI reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, CBI reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Gifts of long-lived assets with restrictions over a set period of time that specify how the assets are to be used are reported as unrestricted when the donated or acquired assets are placed in service or when CBI determines that the likelihood of failing to meet the donor restrictions is remote or highly improbable. Inventory CBI has adopted a Just-In-Time inventory strategy for supplies and receives inventory as needed. CBI maintains a small amount of inventory for uniforms, computer equipment and regular recurring procurement purchases; $30,425, $117,316, and $373,330 are the balance for uniforms, computer equipment and procurement inventory, respectively, as of September 30, Inventory of uniforms is valued at average cost and inventory of computer equipment and recurring procurements are valued at actual cost. Grant revenue Grant revenue is recognized when the qualifying costs are incurred for cost reimbursement grants or contracts or when a unit of service is provided for performance grants. Grant revenue from federal agencies is subject to independent audit under the Office of Management and Budget and reviewed by grantor agencies. The review could result in the disallowance of expenditures under the terms of the grant or reductions of future grant Page 12

15 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued funds. Based on prior experience, CBI s management believes that costs ultimately disallowed, if any, would not materially affect the financial position of CBI. Expense recognition and allocation The cost of providing the CBI s programs and other activities is summarized on a functional basis in the statement of activities and statement of functional expenses. Expenses that can be identified with a specific program or support service are charged directly to that program or support service. Costs common to multiple functions have been allocated among the various functions benefited. General and administrative expenses include those costs that are not directly identifiable with any specific program, but which provide for the overall support and direction of CBI. Tax Status CBI and Community Bridges Development Foundation have received determination letters from the Internal Revenue Service dated June 6, 2012 and November 9, 2004, respectively exempting them from federal income taxation under Section 501(c)(3) of the Internal Revenue Code, though it is subject to tax on income unrelated to its exempt purposes (unless that income is otherwise excluded by the Code). Contributions to CBI and Community Bridges Development Foundation are tax exempt to donors under section 170 of the Code and neither entity is classified as a private foundation. Women s Transition Project, Inc. also has received a determination letter from the Internal Revenue Service exempting them from federal income taxation under Section 501(c)(3) of the Internal Revenue Code. Management of Community Bridges, Inc. plans to legally dissolve the Women s Transition Project, Inc., so in future years, this entity will remain a program of Community Bridges, Inc. rather than a separate legal entity. For tax purposes, all of the LLCs are disregarded entities and are treated as a program of CBI. The tax years beginning 2014, 2015 and 2016 are still open to audit for both federal and state purposes. CBI rents suites in their Pennington and Avondale buildings that incur unrelated business income tax. The income tax expense for unrelated business income for the year ended September 30, 2016 was $11,118 and $4,994 for Federal and State tax, respectively. The estimate of income tax expense for the year ended September 30, 2017 is $50,431 for Federal tax and $11,899 for Arizona tax. Management has evaluated the tax positions taken or expected to be taken, if any, on its exempt organization filings, and the likelihood that upon examination those positions would be sustained. Based on the results of this evaluation, management believes there are no uncertain tax positions. Page 13

16 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Employee Paid Time Off Employee paid time off (PTO) (i.e. vacation time) is accrued every pay period for all full time employees. PTO is vested during the first six years of employment. Upon termination, any unused accrued vacation time will be paid according to the vesting schedule. No accrued PTO will be paid out in the first two years of employment. 10% will be paid out in the third year of employment, 20% in the fourth year, 30% in the fifth year and 40% in the sixth and consecutive years. Defined Contribution Plan Community Bridges, Inc. makes a safe harbor matching contribution to employee s 401(k) accounts based on their contributions. The amount of the company matching contribution will equal 100% of the first 4% contributed by the employee to the Plan. CBI has contributed $727,185 and $632,625 during the fiscal years 2017 and 2016, respectively. NOTE C PROPERTY AND EQUIPMENT Property and equipment include the following major classes of assets at September 30, 2017 and 2016: Land $ 3,934,686 $ 3,051,040 Buildings 12,008,882 11,820,674 Building and leasehold 6,331,328 5,415,785 improvements Construction in Progress 720,844 0 Vehicles 143, ,970 Furniture and equipment 2,339,324 3,172,341 25,478,985 23,572,810 Less: Accumulated Depreciation (6,567,227) (6,472,726) Total $ 18,911,758 $ 17,100,085 Depreciation expense for the year ended September 30, 2017, and the year ended September 30, 2016 was $2,395,646 and $1,235,898, respectively, which includes amortization expense for capital leases. The buildings for Center for Hope, the Nursery, Payson, Globe, Mesa-Cicero, and the two Ingram locations are restricted for certain use designated by the funding source. The Center for Hope and Globe are restricted for 20 years, Payson is restricted for 25 years and the two Ingram locations, Mesa-Cicero, Avondale and East Valley improvements are restricted for 15 years. CBI has completed construction of a 1,100 square foot Nursery at the Center for Hope campus and it is restricted for 5 years. Page 14

17 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE C PROPERTY AND EQUIPMENT - continued CBI s capital purchases and capitalization threshold policy states that purchases comprised of furniture, fixtures, equipment, software, leasehold improvements, etc. that meet both of the following criteria; (1) a useful life of more than one year, and (2) individually costs more than $5,000 will be capitalized. NOTE D NOTES AND BOND PAYABLE Below is a schedule of principal payments for the long term debt obligations. Year Ended Year Ended Sept 30, 2017 Sept 30, $ - $ 520, , , , , , ,863 Thereafter 5,935,492 6,193,349 Total $ 7,125,049 $ 7,639,958 Long term debt obligations with terms, maturity dates and outstanding principal balances are as follows: Sept 2017 Sept 2016 Debt Obligation #1: Industrial Development Authority of the County of Pinal, Series 2011, dated May 20, Monthly installments at 3.99% interest for 20 years. Payments began July 1, Debt Obligation #2: Wells Fargo 60 month balloon loan starting September 19, Monthly payments of $4, at 3.85% interest for 5 years beginning October 1, Debt Obligation #3: Wells Fargo 48 month Promissory Note dated July 5, Monthly payments of $21, at 2.68% interest for 4 years beginning August 15, $2,523,153 $2,660, , ,782 Page 15

18 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE D NOTES AND BOND PAYABLE continued Debt Obligation #4: Wells Fargo 60 month 4.25% balloon loan starting February 5, 2014; 59 monthly payments of $1, began April 1, 2014 and one final payment of $218, due March 1, Debt Obligation #5: Wells Fargo 10 year balloon loan starting March 30, Monthly payments of $25, at 4.35% interest for 10 years beginning May 1, Debt Obligation #6: Wells Fargo 15 year note dated June 13, Monthly payments of $4, at 4.60% beginning August 1, , ,390 3,811,901 3,942, ,100-7,125,049 7,639,958 Less: Current portion (315,840) (520,149) Total $ 6,809,209 $ 7,119,809 Debt Obligation #1: CBI entered into a financing agreement with Wells Fargo Bank, National Association where Wells Fargo Bank holds a tax-exempt Bank Qualified Direct Placement Bond in the amount of $4,000,000. The purpose of the loan was to refinance two existing taxable loans as well as provide the financing for the acquisition of a new facility. The goal is to minimize the impact on CBI by utilizing tax exempt financing structure. As part of the financing, CBI has executed a Continuing Covenant Agreement dated May 1, 2011 with Wells Fargo Bank, National Association relating to the $4,000,000 Industrial Development Authority of the County of Pinal Health Facility Bonds (Community Bridges Projects) Series 2011 that describes CBI s obligations, representations and warranties, covenants, events of default and indemnifications. The Pennington building along with two other buildings [Casa Grande and East Valley/AZ Bridge to Recovery/Center for Hope] were originally on this note but the two other buildings [Casa Grande and East Valley/AZ Bridge to Recovery/Center for Hope] were removed from the Bond in The Bond is currently collateralized by the Pennington building. Page 16

19 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE D NOTES AND BOND PAYABLE - continued Debt Obligation #2: In October 2012, $675,000 of the above bond was refinanced by a Wells Fargo Bank loan to allow for rental of vacant space at the Pennington Building to for-profit entities that resulted in a reduced monthly bond payment of $4,292.64, from $24, to $19, This will satisfy the five percent (5%) rule that states that only five percent (5%) of the proceeds of a tax-exempt bond issue can be used to acquire property that is not occupied by a 501(c)(3) nonprofit entity. The balloon loan came due in October of 2017 and was refinanced (see debt obligation #6). Debt Obligation #3: A $993, month, 2.68% Wells Fargo Bank Promissory Note maturing July 15, 2017 was signed. The purpose of the note was to finance the purchase of internal-use computer software. This note was paid in full in July of Debt Obligation #4: A $262,500 Promissory Note dated February 5, 2014 refinanced by Wells Fargo Bank was used to purchase an office building that serves as the headquarters for the Aspire program. This is a five year balloon loan at 4.25% with a final balloon payment of $218, due on March 1, The loan is collateralized by the building purchased. Debt Obligation #5: In March of 2016, a $4,000,000 Wells Fargo Bank loan was signed to purchase a building used to service the West Valley programs. The ten year balloon loan is amortized over 10 years at the rate of 4.35%. Monthly payments are $25, with a final payment due on May 1, 2026 of $2,427,517. The loan is collateralized by the building purchased. Debt Obligation #6: In October of 2017, the balloon loan (see debt obligation #2) became due and was refinanced with a Wells Fargo note dated June 13, A $561, % 15 year note began on August 1, Monthly payments are $4, with a final payment in July of The note is collateralized by the Pennington building. Page 17

20 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE E TEMPORARILY RESTRICTED NET ASSETS Following is a summary of the temporarily restricted net assets held at Sept 30, 2017: Grantor Restriction Sept 2017 City of Mesa Ingram four-plex housing $ 239,860 and improvements City of Mesa 108 Ingram four-plex 251,361 housing and improvements City of Mesa Cicero housing and 259,305 improvements Various City Governments New Building Construction 1,151,099 Federal Home Loan Bank New Building Construction 240,000 H.U.D. New Building Construction 400,400 Maricopa County New Building Construction 87,500 Piper Trust New Building Construction 280,000 Pulliam Trust New Building Construction 225,000 State Housing Fund New Building Construction 500,000 Cenpatico Payson Buildings 600,000 Cenpatico Globe Building 520,500 Donation Globe Land 40,500 Magellan Avondale Level III 480,903 Magellan Javelina Level III 1,000,000 Donations Center for Hope Nursery 81,620 City of Mesa Center for Hope Nursery 325,000 AZ Dept of Housing WTP Bisbee House 224,305 Subtotal 6,907,352 Released from restriction Prior year (2,939,792) Released from restriction Current year (650,641) Total $ 3,316,920 There are no permanently restricted net assets. Page 18

21 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE F LEASE COMMITMENTS Operating leases: CBI leases buildings, vehicles and office equipment. On the following pages is a schedule of the minimum lease payments required under the leases as of September 30, 2017 and 2016: Operating Leases Operating Leases Sept 2017 Sept $ 0 $ 1,967, ,198,830 1,662, ,156,412 1,267, ,301, , ,086, , ,754, Thereafter 1,127,240 0 Total lease payments $ 13,624,636 $ 5,623,418 The total lease expense incurred for equipment during the years ended September 30, 2017 and September 30, 2016 was $1,194,861 and $339,842, respectively. The total lease expense incurred for rent of buildings and storage space under operating leases was $4,115,399 and $1,887,303, respectively and the total lease expense for vehicles was $1,021,420 and $813,738, respectively. Beginning in July 2003, the City of Phoenix allowed the use of a facility to Community Bridges, Inc., at no cost, to be used in providing substance abuse/dependency counseling and rehabilitation services for those in need in that area. The estimated value of this donation for the years ending September 30, 2017 and September 30, 2016 was $166,600 and $166,600 respectively. The Northern Arizona Regional Behavioral Health Association (NARBHA) allowed CBI the use of a facility in Holbrook and Winslow, Arizona in April 2009 at no cost to be used in providing services to those in need. The estimated value of this donation for the years ended September 30, 2017 and September 30, 2016 was $32,256 and $32,256 for the Holbrook facility and $35,840 and $35,840 for Winslow, respectively. In December 2011, CBI entered into a lease agreement with Maricopa County, a political subdivision of the State of Arizona, for a facility in Mesa, Arizona to provide services to those in need. CBI will pay $10 annually and the estimated value of this donation for the years ended September 30, 2017 and September 30, 2016 was $169,121 and $166,382, respectively. Page 19

22 COMMUNITY BRIDGES, INC. Notes to Consolidated Financial Statements For the Years Ended September 30, 2017 and September 30, 2016 NOTE F LEASE COMMITMENTS continued Capital lease commitments: Capital leases are for office equipment and vehicles with payment periods over three years. Sept 2017 Sept 2016 Office Equipment $ 31,877 $ 202,259 Vehicles - - Total Capital Lease Commitment 31, ,259 Current portion (31,877) (170,382) Long term lease commitment $ 0 $ 31,877 Below is a schedule of the minimum lease payments required under the capital leases: Year Ended Year Ended Sept 30, 2017 Sept 30, $ - $ , ,877 31, Thereafter - - Total $ 31,877 $ 202,259 NOTE G CONCENTRATION OF CREDIT RISK CBI places its cash and equivalents in a Wells Fargo account and on occasion exceeds the Federal Deposit Insurance Corporation (FDIC) limits for protection. Community Bridges, Inc. has accepted this risk since Wells Fargo is a high quality credit financial institution. NOTE H ECONOMIC DEPENDENCY During the fiscal year ended September 30, 2017, CBI received 94.5% of its support from government and other grants and contracts, with 86.0% of the total support and revenue received through the three Regional Behavioral Health Associations in Arizona. A significant reduction in the level of support from these sources may have a material effect on CBI s continuing operations. Page 20