Gratiot County Community Mental Health Services. Financial Statements September 30, 2016

Transcription

1 Gratiot County Community Mental Health Services Financial Statements September 30, 2016

2 Independent Auditor s Report Gratiot County Community Mental Health Services Table of Contents September 30, 2016 Management s Discussion and Analysis... I-VII Basic Financial Statements: Statement of Net Position... 1 Statement of Revenues, Expenses and Changes in Net Position... 2 Statement of Cash Flows... 3 Notes to the Financial Statements Other Supplemental Information Debt Payment Schedules Government Auditing Standards Report... 17

3 To the members of the Board Gratiot County Community Mental Health Services Alma, Michigan Independent Auditor s Report Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and each major fund of Gratiot County Community Mental Health Services (the CMHSP) as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the CMHSP s basic financial statements as listed in the table of contents. 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. Auditor s Responsibility Our responsibility is to express opinions on these 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 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 auditor s 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 opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and each major fund of the CMHSP, as of September 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in the notes to the financial statements, in 2016, the CMHSP adopted new accounting guidance, GASB Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting

4 Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the CMHSP s basic financial statements. The other supplemental information, as identified in the table of contents, is presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplemental information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplemental information is fairly stated in all material respects in relation to the basic 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 March 1, 2017, on our consideration of the CMHSP 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 CMHSP s internal control over financial reporting and compliance. Sincerely, Roslund, Prestage & Company, P.C. Certified Public Accountants March 1, 2017

5 MANAGEMENT S DISCUSSION AND ANALYSIS

6 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis The management of Gratiot County Community Mental Health Services (GCCMHS) presents the following overview and analysis of the financial activities during the past year. This discussion and analysis is provided to introduce the basic financial statements of the past year and to provide the reader information to help assess whether the financial position has improved or deteriorated as a result of the year s operation. Overview of Financial Statements: The accompanying financial statements are presented as an Enterprise Fund which is a form of Proprietary Fund. This form of presentation utilizes the full accrual basis of accounting and is consistent with the business-type activities engaged by Gratiot County Community Mental Health Services. Enterprise Fund The Enterprise Fund represents the principal operating revenues and expenses of the business operations to provide mental health services. The enterprise fund includes the Mental Health Fund for services provided to residents of Gratiot County through the capitated contracts. Notes to Financial Statements - The Notes to the Financial Statements, which immediately follow the Financial Statements, provide additional and more detailed information that is essential to a full understanding of the data provided in the Financial Statements. I

7 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis Summary of Net Position: The following summarizes the assets, liabilities and net position on an enterprise fund basis as of September 30, 2016 and Summary of Net Position As of September 30, 2016 and Assets Current assets 1,931,859 2,507,315 Restricted assets 274, ,712 Capital assets 2,524,414 2,545,483 Total Assets 4,730,934 5,337,510 Liabilities Current liabilities 1,547,656 1,519,119 Noncurrent liabilities: Long term debt 1,258,793 1,311,333 Compensated absences 237, ,551 Total Liabilities 3,043,915 3,063,003 Net Position Net investment in capital assets 1,213,532 1,183,648 Unrestricted 473,487 1,090,859 Total Net Position 1,687,019 2,274,507 Current assets consist of cash and cash equivalents, accounts receivable, amounts due from others, prepaid expenses and restricted assets. These are available for current operations and to pay current obligations. Current liabilities include accounts payable, accrued payroll, related taxes and benefits, amounts due to others and deferred revenue. Current financial position is defined as the excess of current assets over current liabilities. A positive current financial position is an indicator of financial strength and an increase in current financial position is an indicator of improving financial position. The 2016 current financial position is $658,864, a decrease of $614,044 from the 2015 current financial position. Restricted assets consist of cash, cash equivalents and accrued interest receivable. These assets are restricted for payment of compensated absences and restricted for risk management. II

8 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis The remaining assets restricted for risk management are related to the risk obligations for the state general fund (formula funds) risk contract still maintained directly with the state. At yearend, the balance in this account was $0. Capital assets consist of property and equipment having an estimated useful life of more than one year. These assets are included on the statement of net position at their original book value, net of the accumulated depreciation. Noncurrent liabilities consist of the liability for compensated absences, which includes vested vacation and sick pay obligations. Unrestricted net position at the end of 2016 was $473,487, a decrease of $617,372 from Unrestricted net position was 10% of total assets, down 10% from the prior year. Summary of Activities: The following summarizes the revenues, expenses and excess of revenues over expenses on a government-wide basis for the years ended September 30, 2016 and Summary of Activities As of September 30, 2016 and Revenues Department of Community Health Contract 600, ,104 Charges for services 11,078,026 11,105,590 Grants and earned contracts 310, ,505 County appropriation 200, ,000 Interest income and rents 1,653 1,115 Other revenue 14,603 65,210 Total Revenues 12,205,571 12,297,524 Expenses Personnel costs 5,803,917 5,820,862 Operating costs 6,539,888 6,529,850 Total Expenses 12,343,805 12,350,712 Excess of Revenues over (under) Expenses (138,234) (53,188) Total revenues for the year were $12,205,571, a decrease of $91,953 from the prior year. III

9 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis Charges for services include Medicaid based on a contract with Mid State Health Network for $11,078,026. Grants and earned contracts include revenue sources for which the use of funds is restricted to a specific purpose. These grants and earned contracts represent 2.6% of total revenue and have increased $133,079 from the prior year. County appropriation revenue, interest income, rents, and other local income are available to meet state matching fund requirements. County appropriation revenue was unchanged. Interest income and other local income constitute.2% of revenue and have decreased $50,069 from the prior year. Total expenses for the year were $12,343,805, a decrease of $6,907 from the prior year. Personnel expense is 47.1% of total expense and has decreased $16,945 from the prior year. Operating expense is 53.0% of total expense and has increased $10,038 from the prior year. Notes to Financial Statements: The notes to the financial statements, which immediately follow the financial statements, provide additional and more detailed information that is essential to a full understanding of the data provided in the financial statements. Under the contractual requirements issued by the Michigan Department of Community Mental Health (MDCH), GCCMHS began in FY receiving sub-capitation Medicaid funding directly from Clinton Eaton Ingham (CEI) Community Mental Health. CEI Community Mental Health is the regional Prepaid Inpatient Health Plan (PIHP) responsible for administering mental health and substance abuse services for an eight county affiliation consisting of Clinton, Eaton, Ingham, Ionia, Gratiot, Newaygo, Manistee and Benzie Counties. The affiliation, known as the Community Mental Health Affiliation of Mid-Michigan (CMHAMM), operates under an agreement pursuant to the Intergovernmental Transfer of Functions and Responsibilities Act. The affiliation formed a base for working together to achieve administrative efficiencies and developing effective methodologies in delivering managed mental health services. The sub-capitated arrangement that GCCMHS has with CEI requires CEI to make a monthly payment to each CMH in the affiliation for Medicaid recipients living in their respective counties. This sub-capitated arrangement allows GCCMHS to provide needed mental health services with great flexibility, as long as GCCMHS complies with Medicaid standards and requirements. The state s Medicaid Mental Health and Substance Abuse Waiver renewal in late 2003 reinforced the requirement on CEI to ensure that Medicaid services are available, accessible, and medically necessary to meet the mental health and developmental disability needs of all of the Medicaid enrollees across the eight county regions. This was reinforced through the requirement that the MDCH pay CEI Community Mental Health a single set of Medicaid rates for all of the Medicaid recipients living in the eight counties for which CEI is responsible. IV

10 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis For the 2003/2004 fiscal year the Department of Community Health revised the Medicaid funding distribution based on regional rates. The result was a reduction in Medicaid funding for Gratiot CMH of over 1.5 million dollars. The PIHP allowed its affiliate Boards a two year hold harmless period ending September 30, The funding formula implemented for the 05/06 Fiscal Year involved a chart review analysis to determine Board specific severity factors. Regional rates were multiplied by the severity factor for each population and age group. A new process was implemented for Fiscal Year 06/07 to provide affiliates with additional funding above regional rates to help cover the high costs of Shadow C consumers. Shadow C consumers are severely developmentally disabled consumers who require a higher level of service but were not able to get the higher funding rate from the Habilitation Support Waiver 1915(c) slot due to limited availability. For Fiscal Year 2008, GCCMHS submitted a budget of projected expenditures against revenue via a steady state model to the PIHP. As a result, GCCMHS allocation of Medicaid funds was enhanced 1.1 million as a benefit stabilization amount equal to the deficit of projected expenses against projected revenue from capitation payments based on geographical rates. In addition, a budget reduction plan was implemented mid-year resulting in permanent staff reductions, service delivery reductions and the elimination of some programs. Gratiot CMH used local funds to cover the Medicaid deficit beyond its budget reductions. GCCMHS began Fiscal Year 2009 without an enhanced benefit stabilization allocation from the PIHP. In addition to the permanent budget reductions made during FY 2008, additional program and staffing cuts were needed for Fiscal Year Unspent Medicaid funds from other affiliates were transferred to GCCMHS at year end which increased actual revenues over the budgeted amount. For FY12, many sweeping changes took place at GCCMHS during the course of the fiscal year. A statewide General Fund cut was imposed at the start of the fiscal year and this decreased the General Fund of GCCMHS by $63,035 from the prior year. This had a big impact on the budget as GCCMHS continues to serve more and more General Fund consumers. GCCMHS received additional Medicaid funding from the PIHP in FY12 in an effort to fund Healthcare Integration. GCCMHS currently has several staff members co-located throughout the county in clinics, schools, courthouses, and health departments. In FY13, GCCMHS started the transition to become a member of a new twenty-one county region, thus ending the affiliation knows as the Community Mental Health Affiliation of Mid- Michigan (CMHAMM) as of January 1, The new affiliation is known as the Mid-State Health Network. The affiliation formed a base for working together to achieve administrative efficiencies and developing effective methodologies in delivering managed mental health services. V

11 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis Financial Comparisons: The fiscal year 2016 final budget adopted by the governing board was $11,939,583 of Revenues and $11,939,583 of Expenses with no change to fund balance. The Actual compared to Budget is presented below. Actual Budget Variance Revenues $12,205,571 $11,939,583 $265,988 Expenses $12,343,805 $11,939,583 $404,222 A comparison of fiscal year 2016 to fiscal year 2015 is presented below Variance Revenue $12,205,571 $12,297,524 ($91,953) Expenses $12,343,805 $12,350,712 $6,907 Revenues over/(under) Expenses ($138,234) ($53,188) ($85,046) Future Outlook: GCCMHS continues to rely heavily on additional Medicaid funding over geographical rates due to the proportionately high number of former State Institutionalized consumers, who meet the severity of need criteria, and were placed in Gratiot County without the needed Habilitation Waiver slots. Efforts are continually being made to secure new waiver slots and restore GCCMHS s Medicaid funding to prior year levels. The State of Michigan continues to struggle to balance huge budget deficits. The State s budget crisis will have a probable negative impact on community mental health general funds budgets. Support and service demand is expected to increase together with inflationary cost pressures. Management has continued to combine positions and evaluate vacant positions to manage rising costs using data based decision making. Programs and services are continually being reviewed for appropriate level of care, program effectiveness, caseload sizes etc. The economic outlook will continue to place significant pressure on our ability to serve and support our constituents. VI

12 Financial Statements for Fiscal Year Ended September 30, 2016 Management s Discussion and Analysis As we conclude FY16, and look forward to FY17 and FY18, uncertainty exists about the future structure of the behavioral health system in the State of Michigan. In Governor Snyder s 2017 budget proposal, Section 298 boilerplate language exists that could potentially replace public mental health organizations with HMO s in the management of the $2.4 billion in Medicaid behavioral health funds. State wide advocacy work commenced in February of 2016 by the boards, CMH s and consumers to have the Section 298 boilerplate language removed from the budget. There is also uncertainty with respect to the new Trump administration. As a part of President Trump s campaign promises, the repeal of the Affordable Care Act could lead to changes or reductions in the Medicaid expansion that took place in Either one of these uncertainties could dramatically affect the funding streams for the PIHP s and local CMH s. At the end of FY16, GCCMHS finalized the purchase of a building located in St. Louis, Michigan. This building, once renovated, will provide GCCMHS with the opportunity to expand our services. We anticipate using this facility for ABA services, as well as, group and individual SUD services. The building will also be setup to eventually to bringing in a physician assistant. The projected completion of this building is July or August VII

13 BASIC FINANCIAL STATEMENTS

14 Assets Current assets Gratiot County Community Mental Health Services Statement of Net Position September 30, 2016 Mental Health Fund Cash and cash equivalents $ 1,094,637 Cash and cash equivalents - restricted 274,661 Accounts receivable, net 105,388 Due from other governmental units 600,245 Prepaid expenses 131,589 Total current assets 2,206,520 Noncurrent assets Capital assets - land 264,439 Capital assets - depreciable, net 2,259,975 Total noncurrent assets 2,524,414 Total assets 4,730,934 Liabilities Current liabilities Accounts payable 595,587 Accrued payroll and related liabilities 70,094 Due to other governmental units 787,980 Compensated absences, due within one year 41,906 Notes payable, due within one year 52,089 Total current liabilities 1,547,656 Noncurrent liabilities Compensated absences, due beyond one year 237,466 Notes payable, due beyond one year 1,258,793 Total noncurrent liabilities 1,496,259 Total liabilities 3,043,915 Net position Net investment in capital assets 1,213,532 Unrestricted 473,487 Total net position $ 1,687,019 The notes to the financial statements are an integral part of this statement. 1

15 Operating revenues State funding Gratiot County Community Mental Health Services Statement of Revenues, Expenses and Changes in Net Position For the Year Ended September 30, 2016 Mental Health Fund General fund contract $ 351,151 Other state funding 249,554 Federal grants OBRA/PASARR 60,425 Contributions - local units County appropriations 200,000 Charges for services Medicaid - DHHS contract 9,016,060 Medicaid - Healthy Michigan 1,113,219 Medicaid - Autism 572,970 Medicaid - Other 375,777 Client and third party pay 173,786 Other contract revenue 76,373 Total operating revenues 12,189,315 Operating expenses Salary and wages 4,248,357 Fringe benefits 1,555,560 Conferences 43,322 Contractual services 4,242,064 Depreciation 207,278 Dues / subscriptions 74,642 Indigent hospitalization 855,837 Institutional cost 62,634 Insurance 122,175 Local match 128,000 Other 46,152 Printing / publishing 9,228 Rental 22,800 Repairs and maintenance 202,154 Respite care 53,761 Small equipment purchases 55,116 Supplies 134,705 Telephone 78,877 Travel and transportation 78,859 Utilities 56,651 Total operating expenses 12,278,172 Operating income (loss) (88,857) Nonoperating revenues (expenses) Interest expense (65,633) Interest income 1,653 Miscellaneous income 14,603 Total non-operating revenues (expenses) (49,377) Change in net position (138,234) Net position, beginning of year 2,274,507 Prior period adjustment (449,254) Net position, end of year $ 1,687,019 The notes to the financial statements are an integral part of this statement. 2

16 Statement of Cash Flows For the Year Ended September 30, 2016 Mental Health Fund Cash flows from operating activities Receipts from the State and other governments $ 11,953,645 Receipts from customers and users 215,083 Payments to suppliers and service providers (6,572,918) Payments to employees for salaries and benefits (5,975,011) Net cash provided (used) by operating activities (379,201) Cash flows from noncapital financing activities Miscellaneous income 14,603 Cash flows from capital and related financing activities Purchase of capital assets (223,089) Loss on disposal of capital assets 36,880 Principal and interest on notes payable (116,586) Net cash flows from capital and related financing activities (302,795) Interest income 1,653 Net increase in cash and cash equivalents (665,740) Cash and cash equivalents, beginning of year 2,035,038 Cash and cash equivalents, end of year $ 1,369,298 Reconciliation of operating income to net cash provided by (used for) operating activities: Operating income (loss) $ (88,857) Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 207,278 (Increase) decrease in accounts receivable (35,076) (Increase) decrease in due from other governmental units 14,489 (Increase) decrease in prepaid expenses (9,458) Increase (decrease) in accounts payable (27,923) Increase (decrease) in accrued payroll and related liabilities (176,877) Increase (decrease) in due to other governmental units (268,560) Increase (decrease) in compensated absences 5,783 Net cash provided (used) by operating activities $ (379,201) The notes to the financial statements are an integral part of this statement. 3

17 NOTES TO THE FINANCIAL STATEMENTS

18 Notes to the Financial Statements September 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Gratiot County Community Mental Health Services (the CMHSP) have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the significant accounting policies used by the CMHSP. Reporting Entity The CMHSP operates under provisions of the Michigan Mental Health Code for the purpose of providing services relating to the mental health and developmental disabilities needs of the residents of Gratiot County. As the community mental health services provider for the County, the CMHSP serves community members by assuring local access, organizing and integrating the provision of services, coordinating care, implementing public policy, ensuring interagency collaboration, and preserving public interest. Financial Statement Presentation Under GASB 34, the CMHSP is considered a special purpose government and has elected to present the basic statements as an Enterprise Fund (a proprietary fund type) which is designed to be self-supporting. Enterprise Funds distinguish operating revenues and expenses from nonoperating items. The principal operating revenues of the CMHSP are charges related to serving its customers (including primarily per member per month capitation and state and county appropriations). Operating expenses for the CMHSP includes cost of services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenues and expenses. All amounts shown are in U.S. dollars. Fund Accounting The accounts of the CMHSP are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, net assets, revenue, and expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The CMHSP reports the following major enterprise fund: Mental Health Fund This fund is used to account for those activities that are financed and operated in a manner similar to private business relating to revenues earned, costs incurred, and/or net income. This fund of the CMHSP accounts for its general operations. Basis of Accounting Basis of accounting refers to when revenue and expenses are recognized in the accounts and reported in the financial statements. The proprietary funds are accounted for using the full accrual basis of accounting. Their revenues are recognized when they are earned, and their expenses are recognized when they are incurred. The proprietary funds are accounted for on a cost of services or economic resources measurement focus. This means that all assets and all liabilities associated with their activity are included on the statement of net position. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The CMHSP s cash and cash equivalents are considered to be cash on hand, money market funds, demand deposits, and certificates of deposit. 4

19 Notes to the Financial Statements September 30, 2016 Accounts Receivable/Payable Accounts receivable/payable in all funds report amounts that have arisen in the ordinary course of business. Accounts receivable is stated net of allowances for uncollectible amounts, if any. Due from/due to Other Governmental Units Due from/due to other governmental units consist primarily of amounts due from/to the regional entity and the State of Michigan. Inventories The CMHSP does not recognize supplies inventory as an asset. The cost of these supplies is considered immaterial to the financial statements and the quantities are not prone to wide fluctuation from year to year. The costs of such supplies are expensed when purchased. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. The cost of prepaid items is recorded as an expense when consumed rather than when purchased. Capital Assets Capital assets are defined by the CMHSP as individual assets with an initial cost equal to or more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Capital assets of the CMHSP are depreciated using the straight-line method over the following estimated useful lives: Assets Land Years Not Depreciated Buildings and Improvements 5-40 Equipment 3-20 Vehicles 4 The CMHSP reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its fair value. If it is determined that an impairment loss has occurred, the asset is written down to its net realizable value and a related expense is recognized in the current year. Accrued Payroll and Benefits Accrued payroll and benefits relate to salaries and wages earned in September but not paid until October. Unearned Revenue The CMHSP reports unearned revenue when revenue does not meet either the measurable and available criteria for recognition in the current period, or when resources are received by the CMHSP before it has a legal claim to them, such as when grant money is received prior to the incurrence of qualifying expenses. In subsequent periods, when both revenue recognition criteria are met, or when the CMHSP has legal claim to the resources, the liability for unearned revenue is removed and the revenue is recognized. Compensated Absences The CMHSP s policy permits employees to accumulate earned but unused vacation and sick benefits, which are eligible for payment upon separation from the CMHSP s service. The liability for such leave is reported as incurred in the financial statements. The liability for compensated absences includes salary related benefits, where applicable. 5

20 Notes to the Financial Statements September 30, 2016 Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The CMHSP has no items that qualify for reporting in this category. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The CMHSP has no items that qualify for reporting in this category. Long-Term Obligations Long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Net Position Net investment in capital assets This category consists of capital asset balances, net of accumulated depreciation, less outstanding balances of debt related to those assets. Restricted Net position in this category is reported as restricted when constraints placed on net position use is either: - Externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or - Imposed by law through constitutional provisions or enabling legislation. Unrestricted If net position does not meet the criteria for the above categories, it is reported as unrestricted. In addition, the CMHSP will first use restricted resources when an expense is incurred for purposes for which either restricted or unrestricted net position is available. MDHHS Revenue General Fund Revenue The CMHSP provides mental health services on behalf of the Michigan Department of Health and Human Services (MDHHS). Currently, the CMHSP contracts directly with the MDHHS for General Fund revenues to support the services provided for the priority population residing in the County. The CMHSP performs an annual cost settlement of General Funds with MDHHS. Medicaid Revenue Beginning January 2014, Mid-State Health Network assumed the regional entity contract with the MDHHS. The CMHSP contracts to receive Medicaid, Healthy Michigan and Autism revenue through the regional entity. The CMHSP performs an annual cost settlement of capitated funding with the regional entity. NOTE 2 CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and Cash Equivalents Michigan s statutory authority allows governmental entities to invest in the following investments: - Bonds, securities, other obligations and repurchase agreements of the United States, or an agency or instrumentality of the United States. - Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified institution. - Commercial paper rated at the time of purchase within the 2 highest classifications established by not less than 2 standard rating services and that matures not more than 270 days after the date of purchase. - Bankers acceptances of United States banks. - Obligations of the State of Michigan and its political subdivisions that, at the time of purchase are rated as investment grade by at least one standard rating service. - Mutual funds registered under the Investments Company Act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. - External investment pools as authorized by Public Act 20 as amended through December 31,

21 Notes to the Financial Statements September 30, 2016 At September 30 th the carrying amount of the CMHSP s cash and cash equivalents are as follows: Description Amount Petty Cash 100 Checking, Money Market, & Liquid Asset Accounts 1,094,537 Certificates of Deposit 274,661 Totals 1,369,298 A reconciliation of deposits as shown above follows: Cash and Cash Equivalents 1,094,637 Cash and Cash Equivalents Restricted 274,661 Totals 1,369,298 Restricted Cash and Cash Equivalents The CMHSP has charged to MDHHS for the vested portion of compensated absences as of September 30 th. The CMHSP holds, in a separate bank account, funds restricted for the payment of the compensated absences as they come due. Interest Rate Risk State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk State law limits investments to specific government securities, certificates of deposits and bank accounts with qualified financial institutions, commercial paper with specific maximum maturities and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds and qualified external investment pools as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on investment credit. The ratings for each investment are identified above for investments held at year-end. Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the CMHSP s deposits may not be returned. State law does not require and the CMHSP does not have a policy for deposit custodial credit risk. As of year-end $951,181 of the CMHSP s bank balance of $1,451,181 was exposed to custodial credit risk because it was uninsured and uncollateralized. Concentration of Credit Risk State law limits allowable investments but does not limit concentration of credit risk as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on concentration of credit risk. All investments held at year-end are reported above. 7

22 Notes to the Financial Statements September 30, 2016 NOTE 3 - DUE FROM OTHER GOVERNMENTAL UNITS Due from other governmental units as of September 30 th consists of the following: Description Amount State of Michigan Department of Health and Human Services 10,840 Gratiot County 56,614 Mid State Health Network 531,465 Community Mental Health Authority of Clinton, Eaton and Ingham Counties 1,326 Totals 600,245 NOTE 4 - PREPAID EXPENSES Prepaid expenses as of September 30 th represent payments for the following expenses that will benefit future periods: Description Amount Health Insurance 101,892 Life/Disability Insurance 5,272 Postage 4,972 Other 19,453 Totals 131,589 NOTE 5 - CAPITAL ASSETS A summary of changes in capital assets is as follows: Capital assets: Description Beginning Balance Increases Decreases Reclassification Ending Balance Land 264, ,439 Buildings and Improvements 3,068,141 68, ,315 3,248,921 Buildings Const. in Process 54,291 58,024 - (112,315) - Equipment 247,058 - (36,880) 19, ,859 Equipment Const. in Process 19,681 96,600 - (19,681) 96,600 Equipment Capital Lease 77, ,540 Vehicles 618,679 - (16,356) - 602,323 Subtotal 4,349, ,089 (53,236) - 4,519,682 Accumulated Depreciation: Buildings and Improvements (986,625) (141,457) - - (1,128,082) Equipment (209,547) (7,830) - - (217,377) Equipment Capital Lease (38,040) (19,385) - - (57,425) Vehicles (570,134) (38,606) 16,356 - (592,384) Subtotal (1,804,346) (207,278) 16,356 - (1,995,268) Totals 2,545,483 15,811 (36,880) - 2,524,414 8

23 NOTE 6 - DUE TO OTHER GOVERNMENTAL UNITS Gratiot County Community Mental Health Services Notes to the Financial Statements September 30, 2016 Due to other governmental units as of September 30 th consists of the following: Description Amount State of Michigan Department of Health and Human Services 34,013 Community Mental Health Authority of Clinton, Eaton and Ingham Counties 31,439 Mid-State Health Network 722,528 Totals 787,980 NOTE 7 - LONG-TERM LIABILITIES The changes in the long-term liabilities are as follows: Description Beginning Balance Additions Reductions Ending Balance Due within one year Due after one year Building Loan ,489 - (2,180) 92,309 (2,415) 89,894 Building Loan ,036 - (2,536) 101,500 (2,720) 98,780 Building Loan ,036 - (2,535) 101,501 (2,721) 98,780 Construction Loan 844,011 - (19,530) 824,481 (20,750) 803,731 Building Loan ,763 - (3,902) 171,861 (4,253) 167,608 Capital Lease ,500 - (20,270) 19,230 (19,230) - Subtotal 1,361,835 - (50,953) 1,310,882 (52,089) 1,258,793 Compensated Absences 273,589 46,821 (41,038) 279,372 (41,906) 237,466 Total 1,635,424 46,821 (91,991) 1,590,254 (93,995) 1,496,259 The annual payments of principal and interest on the above long-term liabilities are shown in the back of this report. NOTE 8 - CAPITAL LEASES The CMHSP entered into a lease agreement as lessee for financing the acquisition of copiers valued at $77,540. The copiers have a 5 year estimated useful life. This year, $19,385 was included in depreciation expense. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of future minimum lease payments as of the inception date. The future minimum lease obligations and the net present value of these minimum lease payments as of September 30th, were as follows: Year Ending September 30 Amount ,230 Present value of minimum lease payments 19,230 NOTE 9 RETIREMENT AND OTHER POST EMPLOYMENT BENEFIT PLANS Defined Compensation Retirement Plan 401(a) Plan Description The CMHSP offers all employees a retirement plan created in accordance with the Internal Revenue Code, section 401(a). The assets of the plan were held in trust for the exclusive benefit of the participants (employees) and their beneficiaries. VALIC Financial Advisors, Inc. acts as the custodian for the plan and holds the custodial account for the beneficiaries of this Section 401(a) plan. 9

24 Notes to the Financial Statements September 30, 2016 The assets may not be diverted to any other use. The administrators are agents of the employer for purposes of providing direction to the custodian of the custodial account from time to time for the investment of the funds held in the account, transfer of assets to or from the account and all other matters. Plan balances and activities are not reflected in the CMHSP s financial statements. Plan provisions are established or amended by Board resolution. This plan is funded by employer and employee contributions. Eligibility All employees that are eligible for benefits are eligible to participate in the plan. Contributions Pre-tax employee deferrals and catch up contributions are allowed (up to maximum allowed by law). Participants may modify their elections each October 1st and April 1 st. Contributions must be deposited every payroll period. Rollovers are allowed from all participants. Employees contribute a mandatory 6.2% of wages to the plan. The employer will also contribute a Money Purchase contribution of 6.2% of wages. Additionally, employees may be entitled to share in a discretionary profit sharing contribution made by the employer. For the 2016 year, this discretionary contribution totaled 6% of compensation. Normal Retirement Age & Vesting Retirement age as defined by the plan is 65 years of age. All contributions are 100% vested immediately. Forfeitures Employee contributions and the employer Money Purchase contributions are 100% vested. The vesting schedule for the employer discretionary profit sharing contributions are as follows: 0% for the first 2 years of service, 50% after 3 years of service, 75% after 4 years of service, and 100% after 5 years of service. For the year ended September 30, 2016, employee contributions amounted to $272,028. Employer Money Purchase contributions amounted to $272,112 and employer discretionary profit sharing contributions amounted to $257,220. NOTE 10 - OPERATING LEASES The CMHSP has entered into an operating lease for the use of real and personal property. Operating leases do not give rise to property rights or lease obligations, and therefore, the results of the lease agreements are not reflected in the financial statements. Lease expense for the fiscal year was approximately $20,400. The remaining terms of this agreement is as follows: NOTE 11 - RISK MANAGEMENT Year Ending September 30 Amount ,100 The CMHSP is exposed to various risks of loss related to property loss, torts, errors and omissions and employee injuries (worker s compensation), as well as medical benefits provided to employees. The CMHSP has purchased commercial insurance from independent insurance providers. Settled claims for the commercial insurance have not exceeded the amount of coverage in any of the past three years. There was no reduction in coverage obtained through commercial insurance during the past year. NOTE 12 CONTINGENT LIABILITIES Under the terms of various federal and state grants and regulatory requirements, the CMHSP is subject to periodic audits of its agreements, as well as a cost settlement process under the full management contract with regional entity and the state. Such audits could lead to questioned costs and/or requests for reimbursement to the grantor or regulatory agencies. Cost settlement adjustments as a result of compliance audit(s) are recorded in the year 10

25 Notes to the Financial Statements September 30, 2016 that the settlement is finalized. The amount, if any, of expenses which may be disallowed cannot be determined at this time, although the CMHSP expects such amounts, if any, to be immaterial. Prior cost settlements with MDHHS may be outstanding as of year-end. NOTE 13 ECONOMIC DEPENDENCE The CMHSP receives over 90% of its revenues from the State of Michigan either directly from MDHHS or indirectly through the CMHSP s regional entity. NOTE 14 PRIOR PERIOD ADJUSTMENT The prior period adjustment in these financial statements consists of the following items: Description Amount FY 2014 compliance audit adjustments (597,738) FY 2015 compliance audit adjustments 95,471 FY th quarter DHIP payment 14,677 FY 2016 Mid-State Health Network adjustment for Autism 38,336 Total (449,254) 11

26 OTHER SUPPLEMENTAL INFORMATION

27 Debt Payment Schedule For the Year Ended September 30, 2016 Principal Interest Total 2012 Building Loan - South Main ($100,529) Fiscal year ending September 30, % $ 2,415 $ 4,993 $ 7, % 2,547 4,861 7, % 2,689 4,719 7, % 2,841 4,567 7, % 3,007 4,401 7, % 3,160 4,248 7, % 3,220 4,188 7, % 3,397 4,011 7, % 3,633 3,775 7, % 3,755 3,653 7, % 4,093 3,315 7, % 4,343 3,065 7, % 4,593 2,815 7, % 4,896 2,512 7, % 5,196 2,212 7, % 5,517 1,891 7, % 5,863 1,545 7, % 6,224 1,184 7, % 6, , % 7, , % 7, ,590 Total 92,309 63, , Building Loan - Arcada ($110,000) Fiscal year ending September 30, % 2,720 4,956 7, % 2,858 4,818 7, % 3,003 4,673 7, % 3,142 4,534 7, % 3,313 4,363 7, % 3,481 4,195 7, % 3,488 4,483 7, % 3,515 4,752 8, % 3,749 4,518 8, % 3,983 4,284 8, % 4,232 4,035 8, % 4,486 3,781 8, % 4,777 3,490 8, % 5,077 3,190 8, % 5,394 2,873 8, % 5,724 2,543 8, % 6,090 2,177 8, % 6,470 1,797 8, % 6,875 1,392 8, % 7, , % 7, , % 4,058 4,235 8,293 Total 101,500 76, ,058 The notes to the financial statements are an integral part of this statement. 12

28 Debt Payment Schedule (continued) For the Year Ended September 30, 2016 Principal Interest Total 2013 Building Loan - Krystal ($110,000) Fiscal year ending September 30, % $ 2,721 $ 4,956 $ 7, % 2,858 4,818 7, % 3,003 4,673 7, % 3,142 4,534 7, % 3,313 4,363 7, % 3,481 4,195 7, % 3,488 4,483 7, % 3,515 4,752 8, % 3,749 4,518 8, % 3,983 4,284 8, % 4,232 4,035 8, % 4,486 3,781 8, % 4,777 3,490 8, % 5,077 3,190 8, % 5,394 2,873 8, % 5,724 2,543 8, % 6,090 2,177 8, % 6,470 1,797 8, % 6,875 1,392 8, % 7, , % 7, , % 4,058 4,235 8,293 Total 101,501 76, ,059 The notes to the financial statements are an integral part of this statement. 13

29 Debt Payment Schedule (continued) For the Year Ended September 30, 2016 Principal Interest Total 2013 Building Loan - Admin Construction ($875,000) Fiscal year ending September 30, % $ 20,750 $ 40,282 $ 61, % 21,799 39,233 61, % 22,902 38,130 61, % 23,955 37,077 61, % 25,271 35,761 61, % 26,548 34,484 61, % 27,598 36,311 63, % 28,741 39,196 67, % 30,650 37,287 67, % 32,568 35,369 67, % 34,604 33,333 67, % 36,681 31,256 67, % 39,064 28,873 67, % 41,508 26,429 67, % 44,105 23,832 67, % 46,804 21,133 67, % 49,792 18,145 67, % 52,906 15,031 67, % 56,217 11,720 67, % 59,709 8,228 67, % 63,469 4,468 67, % 38, ,629 Total 824, ,367 1,420,848 The notes to the financial statements are an integral part of this statement. 14

30 Debt Payment Schedule (continued) For the Year Ended September 30, 2016 Principal Interest Total 2014 Building Loan - Riverside ($179,500) Fiscal year ending September 30, % $ 4,253 $ 8,271 $ 12, % 4,465 8,059 12, % 4,688 7,836 12, % 4,921 7,603 12, % 5,167 7,357 12, % 5,424 7,100 12, % 5,695 6,829 12, % 5,979 6,545 12, % 7,261 6,226 13, % 7,623 5,864 13, % 8,004 5,483 13, % 8,403 5,084 13, % 8,821 4,666 13, % 9,261 4,226 13, % 9,723 3,764 13, % 10,208 3,279 13, % 10,717 2,770 13, % 11,251 2,236 13, % 11,812 1,675 13, % 12,401 1,086 13, % 13, , % 2,765-2,765 Total 171, , , Capital Lease - Copiers ($77,540) Fiscal year ending September 30, ,230-19,230 Total 19,230-19,230 The notes to the financial statements are an integral part of this statement. 15

31 Debt Payment Schedule - Summary For the Year Ended September 30, 2016 Principal Interest Total Fiscal year ending September 30, 2017 $ 52,089 $ 63,458 $ 115, ,527 61,789 96, ,285 60,031 96, ,001 58,315 96, ,071 56,245 96, , , , , , , , , , ,035 15, ,528 Total $ 1,310,882 $ 919,351 $ 2,230,233 The notes to the financial statements are an integral part of this statement. 16

32 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the members of the Board Gratiot County Community Mental Health Services Alma, Michigan 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 business-type activities and each major fund of Gratiot County Community Mental Health Services (the CMHSP), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the CMHSP s basic financial statements, and have issued our report thereon dated March 1, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the CMHSP 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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the CMHSP s internal control. Accordingly, we do not express an opinion on the effectiveness of the CMHSP 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 CMHSP 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. 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Roslund, Prestage & Company, P.C. March 1,