KENTUCKY RIVER FOOTHILLS DEVELOPMENT COUNCIL, INC. Richmond, Kentucky. FINANCIAL STATEMENTS June 30, 2018

Transcription

1 KENTUCKY RIVER FOOTHILLS DEVELOPMENT COUNCIL, INC. Richmond, Kentucky FINANCIAL STATEMENTS June 30, 2018

2 C O N T E N T S Independent Auditors Report Financial Statements Statement of Financial Position... 3 Statement of Activities...4 Statement of Functional Expenses... 5 Statement of Cash Flows... 6 Notes to Financial Statements Supplementary Information Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Prior Year Findings Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Additional Information Independent Auditors Report on Additional Information Schedule of Revenues and Expenses Contract Basis Individual Programs LIHEAP Program Schedules Contract Basis Head Start Administrative Costs Schedule...33 CSBG Budget to Actual Indirect Costs Weatherization Schedules FY Summary of Agency Revenues...38

3 Members American Institute of Certified Public Accountants and Kentucky Society of Certified Public Accountants The Board of Directors Kentucky River Foothills Development Council, Inc. Richmond, Kentucky Report on the Financial Statements INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of Kentucky River Foothills Development Council, Inc. (a nonprofit organization), which comprise the statement of financial position as of June 30, 2018, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kentucky River Foothills Development Council, Inc. as of June 30, 2018, 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. RFH, PLLC 300 West Vine Street, Suite 800 Lexington, Kentucky Phone: Fax: Toll-Free:

4 Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2018, on our consideration of Kentucky River Foothills Development Council, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Kentucky River Foothills Development Council, Inc. s internal control over financial reporting and compliance. RFH, PLLC Lexington, Kentucky December 18,

5 STATEMENT OF FINANCIAL POSITION June 30, 2018 ASSETS Current assets Cash and cash equivalents $ 3,979,656 Prepaid expenses 1,855 Accounts receivable, net of allowance for doubtful accounts of $60, ,858 Related party receivable 330,951 Total current assets 5,303,320 Property and equipment Land 952,909 Property, vehicles, and equipment 9,706,179 Less accumulated depreciation (5,380,368) Net property and equipment 5,278,720 Noncurrent assets Forgivable notes receivable 54,000 Other noncurrent assets 54,834 Total noncurrent assets 108,834 Total assets $ 10,690,874 LIABILITIES AND NET ASSETS Current liabilities Accounts payable $ 642,078 Deferred revenue 26,328 Notes payable (current portion) 422,803 Accrued expenses and other liabilities 346,063 Total current liabilities 1,437,272 Long-Term Liabilities Notes payable (long-term portion) 1,164,189 Forgivable notes payable 1,236,807 Accrued annual leave 441,286 Other long-term liabilities 13,222 Total long-term liabilities 2,855,504 Total liabilities 4,292,776 Net Assets Unrestricted 1,973,867 Temporarily restricted 4,424,231 Total net assets 6,398,098 Total liabilities and net assets $ 10,690,874 The accompanying notes are an integral part of the financial statements. -3-

6 STATEMENT OF ACTIVITIES Temporarily Revenues, Gains, and Other Support Unrestricted Restricted Total Grant revenues $ 1,382,540 $ 17,183,852 $ 18,566,392 Interest income 7,652-7,652 Management fees and other revenues 1,408,615 1,470,687 2,879,302 Fundraising revenue 85,063 22, ,929 Gain on sale of assets 17,646-17,646 In-kind revenue - 2,874,809 2,874,809 Other: Satisfaction of program restrictions 17,916,018 (17,916,018) - Total revenues, gains, and other support 20,817,534 3,636,196 24,453,730 Expenses and Losses Head Start and community action programs 19,080,775-19,080,775 Management and general 1,423,774-1,423,774 Fundraising 26,194-26,194 In-kind expenses - 2,874,809 2,874,809 Total expenses and losses 20,530,743 2,874,809 23,405,552 Change in net assets 286, ,387 1,048,178 Net assets at July 1, ,687,076 3,662,844 5,349,920 Net assets at June 30, 2018 $ 1,973,867 $ 4,424,231 $ 6,398,098 The accompanying notes are an integral part of the financial statements. -4-

7 STATEMENT OF FUNCTIONAL EXPENSES Head Start and Management Community Action and General Fundraising Total Program Services Expenses Expenses In-Kind Expenses Personnel costs $ 12,604,815 $ 1,110,126 $ 6,712 $ - $ 13,721,653 Travel 174,302 11, ,796 Utilities, telephone, and rent 549, , ,681 Supplies, maintenance, and office 1,512, ,253 19,482-1,634,904 Professional costs and contracts 254,190 33, ,790 Interest expense 139, ,761 Other expenses 1,023,316 37, ,060,401 Depreciation 428, ,867 Energy assistance and other services 2,394,342 1, ,395,890 In-kind ,874,809 2,874,809 $ 19,080,775 $ 1,423,774 $ 26,194 $ 2,874,809 $ 23,405,552 The accompanying notes are an integral part of the financial statements. -5-

8 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,048,178 Adjustment to reconcile change in net assets to net cash provided by operating activities: Depreciation 428,867 (Gain) on disposal of fixed assets (17,646) Changes in: Prepaid expenses (1,855) Accounts receivable 350,168 Related party receivable (330,951) Forgivable notes receivable 9,000 Other noncurrent assets (10,025) Accounts payable (326,766) Deferred revenue 18,540 Accrued expenses (142,990) Forgivable notes payable (9,000) Other long-term liabilities 5,175 Net cash provided by (used in) operating activities 1,020,695 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (1,163,918) Proceeds from sales of capital asset 97,528 Net cash provided by (used in) investing activities (1,066,390) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit 320,297 Principal payments on notes payable (127,900) Net cash provided by (used in) financing activities 192,397 NET INCREASE IN CASH AND CASH EQUIVALENTS 146,702 Cash and cash equivalents at beginning of year 3,832,954 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,979,656 Supplemental disclosure of cash flow information: Cash paid for interest $ 137,545 The accompanying notes are an integral part of the financial statements. -6-

9 NOTES TO FINANCIAL STATEMENTS Note A - Nature of Organization and Operations Kentucky River Foothills Development Council, Inc. (the Agency) is a multi-funded community action agency founded to provide social services to the Central Kentucky area. The Agency operates in accordance with provisions of Kentucky State law regarding the establishment of community action agencies. The Agency is funded through a variety of federal, state, and local sources. The Agency is exempt from Federal income tax as organizations described in Section 501(c)(3) of the Internal Revenue Code. Note B - Summary of Significant Accounting Policies 1. Basis of Accounting: The financial statements of the Agency are prepared on the accrual basis of accounting whereby revenues are recognized when earned and expenditures are recognized when incurred in accordance with accounting principles generally accepted in the United States of America (GAAP). The Accounting Standards Codification (ASC) as produced by the Financial Accounting Standards Board (FASB) is the sole source of authoritative GAAP for non-governmental entities. 2. Basis of Presentation: The Agency is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. A description of the three net asset categories: Unrestricted - Net assets that are not subject to donor-imposed stipulations. Temporarily restricted - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Agency and/or the passage of time. Permanently restricted - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Agency. At June 30, 2018, the Agency has no permanently restricted net assets. Support that is restricted by the donor is reported as an increase in temporarily restricted or permanently restricted net assets. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. 3. Accounts Receivable: Accounts receivable consists of grant revenues contracted from various sources and third-party patient receivables for the Healthcare for the Homeless Clinic not yet received as of June 30, While no allowance for doubtful accounts has been provided by the Agency for grant receivables, as management considers all balances to be fully collectible, $60,927 is recorded for the Healthcare for the Homeless Clinic as bad debt allowance. 4. Property and Equipment: Property and equipment items are recorded at cost or fair market value at date of purchase. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets. The organization capitalizes equipment purchases over $5,000 that have a useful life of more than one year. The majority of the Agency's property and equipment items were acquired with temporarily restricted funds. As a result, funding sources have a reversionary interest in those assets purchased with its funds and may have a right to determine the use of any proceeds from the sale of these assets. -7-

10 NOTES TO FINANCIAL STATEMENTS Note B - Summary of Significant Accounting Policies (Continued) 4. Property and Equipment (Continued): Land, buildings, and equipment consisted of the following at June 30, 2018: Nondepreciable Land $ 952,909 Depreciable Buildings and improvements, vehicles, and equipment 9,706,179 Total Property and Equipment $ 10,659, Functional Expenses: The cost of providing various programs and supporting services have been reported on a functional basis in the statement of activities and the statement of functional expenses. Separate expenditure categories and ledgers are maintained by the Agency to account for operations of each individual program, all of which are included in the accompanying financial statements. Expenses are charged directly to program or management accounts based on specific information. 6. Cash and Cash Equivalents: For purposes of the statement of cash flows, the Agency considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 7. Donated Services and Materials: The Agency receives donated materials and donated services from a variety of unpaid volunteers. Various grants received by Kentucky River Foothills Development Council, Inc. require matching in-kind donations. All matching requirements were met by the Agency. In-kind match consisted of volunteer time recorded at rates ordinarily paid for similar work and materials recorded at market value. The majority of in-kind match consisted of services for the Head Start Program. The amount of in-kind donations for all programs for the year ended June 30, 2018 was $2,874,809. It was not practical to separate in-kind from services as opposed to in-kind from materials. 8. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. This will affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. 9. Income Taxes: The Agency is exempt from Federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code. However, the Agency is subject to income taxes on certain unrelated business income. The Agency must recognize the tax benefit associated with tax positions taken for tax return purposes when it is more likely than not the position will be sustained. The Agency does not believe there are any material uncertain tax positions and, accordingly, they have not recognized any liability for unrecognized tax benefits or possible related interest or penalties. The Agency is no longer subject to U.S. federal income tax examinations by tax authorities for years before

11 NOTES TO FINANCIAL STATEMENTS Note B - Summary of Significant Accounting Policies (Continued) 10. Subsequent Events: Subsequent events for the Agency have been considered through the date of the Independent Auditors Report which represents the date the financial statements were available to be issued. Subsequent events past this date, as they pertain to the year ended June 30, 2018, have not been evaluated by the Agency. Note C - Endowment Fund During the fiscal year ended June 30, 2000, an endowment fund was established with the Blue Grass Community Foundation with funds contributed by Kentucky River Foothills Development Council, Inc. Under the terms of the fund agreement, the Blue Grass Community Foundation has variance power and is the legal owner of the fund. The net assets of this fund are not reflected in the accompanying financial statements. Kentucky River Foothills Development Council, Inc. is the beneficiary of the fund and receives distributions of income. As of June 30, 2018, the total market value of the fund was $32,777. Note D - Indirect Cost Rate The U.S. Department of Health and Human Services has approved an indirect cost allocation plan for Kentucky River Foothills Development Council, Inc. The approved provisional rate is 15.7% of salaries. Note E - Concentrations of Credit Risk The Agency maintains cash and cash equivalents in local banks which may, at times, exceed the FDIC limits. At June 30, 2018, the Agency s deposits and investments were fully covered by federal depository insurance or by collateral held by custodial banks in the Agency s name. Note F - Concentrations Revenues from programs comprising more than 10% of the Agency's funding sources are as follows: Head Start $ 8,902,590 Transportation $ 2,357,328 Note G - County Employees Retirement System Plan The Agency is a participating employer of the County Employees' Retirement System (CERS). Under the provisions of Kentucky Revised Statute , the Board of Trustees of Kentucky Retirement Systems administers the CERS. The plan issues publicly available financial statements which may be downloaded from the Kentucky Retirement Systems website. Plan Description - CERS is a cost-sharing multiple-employer defined benefit pension plan that covers substantially all regular full-time members employed in positions of each participating county, city, and school board, and any additional eligible local agencies electing to participate in the System. The plan provides for retirement, disability, and death benefits to plan members. The insurance trust provides health insurance or other postemployment benefits (OPEB). Benefits may be extended to beneficiaries of plan members under certain circumstances. Cost-of-living (COLA) adjustments are provided at the discretion of state legislature. -9-

12 NOTES TO FINANCIAL STATEMENTS Note G - County Employees Retirement System Plan (Continued) Contributions - For the year ended June 30, 2018, plan members were required to contribute 5.00% of wages for non-hazardous job classifications. Employees hired after September 1, 2008 were required to contribute an additional 1% to cover the cost of medical insurance that is provided through CERS. Participating employers were required to contribute at an actuarially determined rate. Per Kentucky Revised Statute Section (33), normal contribution and past service contribution rates shall be determined by the Board on the basis of an annual valuation last proceeding the July 1 of a new biennium. The Board may amend contribution rates as of the first day of July of the second year of a biennium, if it is determined on the basis of a subsequent actuarial valuation that amended contribution rates are necessary to satisfy requirements determined in accordance with actuarial basis adopted by the Board. For the year ended June 30, 2018, participating employers contributed 19.18% (14.48% to the pension fund and 4.7% to the insurance fund) of each employee s wages, which is equal to the actuarially determined rate set by the Board. Administrative costs of Kentucky Retirement System are financed through employer contributions and investment earnings. Plan members who began participating on, or after, January 1, 2014, were required to contribute to the Cash Balance Plan. The Cash Balance Plan is known as a hybrid plan because it has characteristics of both a defined benefit plan and a defined contribution plan. Members in the plan contribute a set percentage of their salary each month to their own account. Plan members contribute 5.00% of wages to their own account and 1% to the health insurance fund. The employer contribution rate is set annually by the Board based on an actuarial valuation. The employer contributes a set percentage of each member s salary. Each month, when employer contributions are received, an employer pay credit is deposited to the member s account. For non-hazardous members, their account is credited with a 4% employer pay credit. The employer pay credit represents a portion of the employer contribution. The Agency contributed $1,434,986, or 100% of the required contribution. The contribution was allocated $1,083,347 to the CERS pension fund and $351,639 to the CERS insurance fund. Benefits - CERS provides retirement, health insurance, death and disability benefits to Plan employees and beneficiaries. Employees are vested in the plan after five years' service. For retirement purposes, employees are grouped into three tiers based on hire date: Tier 1 Participation date Before September 1, 2008 Unreduced retirement 27 years service or 65 years old Reduced retirement At least 5 years service and 55 years old or 25 years service and any age Tier 2 Participation date September 1, December 31, 2013 Unreduced retirement At least 5 years service and 65 years old or age 57+ with sum of service years plus age equal 87+ Reduced retirement At least 10 years service and 60 years old Tier 3 Participation date After December 31, 2013 Unreduced retirement At least 5 years service and 65 years old or age 57+ with sum of service years plus age equal 87+ Reduced retirement Not available -10-

13 NOTES TO FINANCIAL STATEMENTS Note G - County Employees Retirement System Plan (Continued) For OPEB purposes, employees are grouped into three tiers based on hire date: Tier 1 Participation date Before July 1, 2003 Insurance eligibility 10 years of service credit required Benefit Set percentage of single coverage health insurance based on service credit accrued at retirement Tier 1 Participation date Before September 1, 2008 but after July 1, 2003 Insurance eligibility 10 years of service credit required Benefit Set dollar amount based on service credit accrued, increased annually Tier 2 Participation date After September 1, 2008 and before December 31, 2013 Insurance eligibility 15 years of service credit required Benefit Set dollar amount based on service credit accrued, increased annually Tier 3 Participation date After December 31, 2013 Insurance eligibility 15 years of service credit required Benefit Set dollar amount based on service credit accrued, increased annually Cost of living adjustments are provided at the discretion of the General Assembly. Retirement is based on a factor of the number of years service and hire date multiplied by the average of the highest five years earnings. Reduced benefits are based on factors of both of these components. Participating employees become eligible to receive the health insurance benefit after at least 180 months of service. Death benefits are provided for both death after retirement and death prior to retirement. Death benefits after retirement are $5,000 in lump sum. Five years service is required for death benefits prior to retirement and the employee must have suffered a duty-related death. The decedent s beneficiary will receive the higher of the normal death benefit and $10,000 plus 25% of the decedent s monthly final rate of pay and any dependent child will receive 10% of the decedent s monthly final rate of pay up to 40% for all dependent children. Five years service is required for nonservice-related disability benefits. Pension Liabilities - At June 30, 2018, the Agency estimates that its total unfunded liability would be approximately $15,960,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Agency s proportion of the net pension liability was based on a projection of the Agency s long-term share of contributions to the pension plan relative to the projected contributions of all participating entities, actuarially determined. At June 30, 2018, the Agency s proportion was.273 percent, which was an increase of.004% from its proportion as of June 30, The liability is not recorded on the Agency s financial statements. OPEB Liabilities - At June 30, 2018, the Agency estimates that the total unfunded liability would be approximately $5,482,000 based upon its proportionate share of the total OPEB liability. The net OPEB liability was measured as of June 30, 2017, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of that date. The Agency s portion of the net OPEB liability was based on the projection of the Agency s long-term share of contributions to the OPEB plan relative to the projected contributions of all participating entities, actuarially determined. At June 30, 2018, the Agency s proportion was.273 percent. The liability is not recorded on the Agency s financial statements. -11-

14 NOTES TO FINANCIAL STATEMENTS Note G - County Employees Retirement System Plan (Continued) Actuarial Assumptions - The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.30% Salary increases 3.05%, average, including inflation Investment rate of return 6.25%, net of Plan investment expense, including inflation Healthcare trend Pre-65: Initial trend starting at 7.25% at January 1, 2019 and gradually decreasing to an ultimate trend rate of 4.05% over a period of 13 years. Post-65: Initial trend starting at 5.10% at January 1, 2019, and gradually decreasing to an ultimate trend rate of 4.05% over a period of 11 years. Mortality rates were based on the RP-2000 Combined Mortality Table projected with Scale BB to 2013 (multiplied by 50% for males and 30% for females). For healthy retired members and beneficiaries, the mortality table used is the RP-2000 Combined Mortality Table projected with Scale BB to 2013 (set back 1 year for females). For disabled members, the RP Combined Disabled Mortality Table projected with Scale BB to 2013 (set back 4 years for males) is used for the period after disability retirement. The actuarial assumptions used in the June 30, 2017 valuation were based on the results of an actuarial experience study for the period July 1, June 30, The long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years. Several factors are considered in evaluating the long-term rate of return assumptions including long-term historical data, estimates inherent in current market data, and a lognormal distribution analysis in which best-estimate ranges of expected future real rates of return (expected return, net of investment expense and inflation) were developed by the investment consultant for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and then adding expected inflation. The capital market assumptions developed by the investment consultant are intended for use over a 10-year horizon and may not be useful in setting the long-term rate of return for funding pension plans which covers a longer time frame. The assumption is intended to be a long-term assumption and is not expected to change absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in the market that alters expected returns in future years. The target allocation and best estimates of nominal real rates of return for each major asset class are summarized in the following table: Long-term Nominal Asset Class Target Allocation Real Rate of Return U.S. Equity 26.5% 9.56% Non-U.S. Equity 26.5% 2.84% Fixed Income 12.0% 6.53% Real Return 8.0% 3.68% Real Estate 5.0% 8.99% Absolute return 10.0% 3.89% Private Equity 10.0% 9.74% Cash Equivalent 2% 2.69% Total 100% -12-

15 NOTES TO FINANCIAL STATEMENTS Note G - County Employees Retirement System Plan (Continued) Pension Discount Rate - The discount rate used to measure the total pension liability was 6.25 percent. The projection of cash flows used to determine the discount rate assumed that local employers would contribute the actuarially determined contribution rate of projected compensation over the remaining 26- year amortization period of the unfunded actuarial accrued liability. The actuarial determined contribution rate is adjusted to reflect the phase in of anticipated gains on actuarial value of assets over the first four years of the projection period. The discount rate does not use a municipal bond rate. OPEB Discount Rate - The discount rate used to measure the total OPEB liability was 5.84%. The projection of cash flows used to determine the discount rate assumed that local employers would contribute the actuarially determined contribution rate of projected compensation over the remaining 26- year amortization period of the unfunded actuarial accrued liability. The discount rate determination used an expected rate of return of 6.25%, and a municipal bond rate of 3.56%, as reported in Fidelity Index s 20 Year Municipal GO AA Index as of June 30, However, the cost associated with an implicit employer subsidy was not included in the calculation of the System s actuarial determined contributions, and any cost associated with the implicit subsidy will not be paid out of the System s trusts. Therefore, the municipal bond rate was applied to future expected benefit payments associated with the implicit subsidy. Total Pension Plan Assets, Liabilities and Funded Status - The plan s total pension liability was approximately $12,540,545,000 and fiduciary net position was $6,687,237,000 resulting in a net pension liability of $5,853,308,000. Therefore, the Plan s net position as a percentage of the total pension liability was 55.5%. Total OPEB Plan Assets, Liabilities and Funded Status - The plan s total OPEB liability was approximately $4,222,878,000 and fiduciary net position was $2,212,536,000 resulting in a net OPEB liability of $2,010,342,000. Therefore, the Plan s net position as a percentage of the total OPEB liability was 52.4%. Note H - Operating Leases The Agency leases equipment, office space, and classroom space at several locations. Total rental expense under all leases was $288,979. The future amounts of the lease commitments under non-cancelable operating leases are as follows: June 30 Amount 2019 $ 45, , , , ,476 Thereafter 131,463 Total $ 258,

16 NOTES TO FINANCIAL STATEMENTS Note I - Temporarily Restricted Net Assets Temporarily restricted net assets, as of June 30, 2018, consist of unspent program funds, including nongrant funds, whose restrictions will be met in the future when authorized expenditures have been made. The following amounts do not represent the total net assets of any program. Temporarily restricted net assets include: Note J - Notes Payable Aging program $ 85,658 Agency 1,888,811 ASAP program 25,840 Housing 1,040,780 FEMA 10,633 Transportation 290,233 Head Start 483,662 Healthcare for the Homeless 598,614 Total $ 4,424,231 Notes payable at June 30, 2018 consist of the following: Current Noncurrent Variable rate note, due 2020, secured by real estate. $ 6,306 $ 125, % fixed rate note, secured by real estate. Refinance during the year ended June 30, Final payment due March , ,872 1% loan, secured by real estate. Final payment due July , ,346 Demand variable interest rate note, interest due quarterly, unsecured, matures June Revolving line of credit with original principal sum of $888,634, interest due monthly, 5.5% line of credit, starting August 2016, matures July ,951-5% loan, secured by real estate, final payment due May , ,167 $ 422,803 $1,164,189 The maturities of the notes payable of $1,586,992 for the year ending June 30, 2018 are as follows: June 30 Amount 2019 $ 422, , , , ,956 Thereafter 775,127 Total $ 1,586,

17 NOTES TO FINANCIAL STATEMENTS Note J - Notes Payable (Continued) Kentucky River Foothills Development Council, Inc. has an available $250,000 line-of-credit with PNC Bank. The line has no funds drawn on it at June 30, 2018 and has not been utilized in the past. Kentucky River Foothills Development Council, Inc. also extended their demand variable interest rate note due July 2018 until July 2019 subsequent to year end. Note K - Forgivable Notes Receivable Kentucky River Foothills Development Council, Inc. holds seven forgivable notes receivable totaling $54,000 for homes sold under their Homebuyer's program. The notes are forgiven by $1,000 annually per home owner for a maximum of 20 years, as long as the owner remains at the purchased residence. Note L - Forgivable Notes Payable Kentucky Housing Corporation (KHC) issued notes to the Agency during 1997 for construction of residential property for income qualified individuals under the rent-to-own program (see Note K). The notes are forgiven annually by $1,000 per home owner and by proceeds from sale of homes. The entire principal amount will be forgiven by KHC on January 1, 2018, with the stipulation that the Agency is not in default under the terms and conditions of the notes. If the Agency were to default, interest would accrue at 12% on the unamortized balance. The balance of this note at June 30, 2018 is $54,000. KHC issued a note to the Agency during 2012 for construction of Estill Fourplex property for income qualified individuals to lease, pursuant to its Specialized Housing Program and the Act. The note will be forgiven annually beginning in the eleventh year equal to 10% of the original principal amount for the following ten years. The balance of this note at June 30, 2018 is $140,741. KHC issued an agreement to the Agency during 2015 for construction of Holly Street Housing for income qualified individuals to lease, pursuant to HOME funding. The note will be forgiven July As of June 30, 2018, the accumulated balance of this note is $492,066. KHC issued an agreement to the Agency during 2015 for construction of Holly Street Housing for income qualified individuals to lease, pursuant to AHTF. The note will be forgiven July As of June 30, 2018, the accumulated balance of this note is $300,000. On December 14, 2016, the Agency entered into an agreement with FAHE (Federation of Appalachian Housing Enterprises) to purchase property on 103 Lewis Street, Berea, KY, as part of a project involving the EPA Brownfield Grant Project, which was awarded to the Agency on September 21, During the life of the project, the Agency will carry out community involvement activities to encourage redevelopment of the site such that the future reuse of the property will create/retain jobs and does not pose a threat to human health and the environment. The note, to FAHE, will be forgiven September 2020, or earlier at completion of the project. As of June 30, 2018, the accumulated balance of this note is $250,

18 NOTES TO FINANCIAL STATEMENTS Note M Related Party Transactions Eastern Scholar House On November 9, 2015, the Agency formed Eastern Scholar House, LLLP (the Partnership). The Agency served as the general partner for the Partnership and the Agency s Executive Director was the limited partner. The purpose of the Partnership is to develop affordable multi-family rental housing and related child care facilities in Richmond, Kentucky. During the year ended June 30, 2016, the general partner of the Partnership had changed to ESH, GP, LLC, a limited liability company controlled by the Agency, and the limited partner of the Partnership became Ohio Equity Fund for Housing Limited Partnership XXVI, replacing the Agency s Executive Director in the partnership. As of June 30, 2018, the Agency had a receivable from the Partnership of approximately $330,951. This related party receivable is related to drawdowns on the line of credit made on behalf of the Partnership. Pursuant to the Eastern Scholar House development agreement, the Agency made interest payments of approximately $48,300 on behalf of the Partnership and received a development fee of approximately $22,500. Note N Subsequent Events Loss of Head Start Program On October 19, 2018, the Agency was notified by the Office of Head Start that its bid had not been selected as the recipient for the fiscal year 2019 Head Start Grant. The Agency received approximately $8,633,000 in Head Start grant funding during the year ended June 30, The Agency will administer the Head Start program through December 31, The Agency is currently analyzing the impact of the loss of the Head Start program on its operations, revenues and assets. Accounting Standards Implementation For the year ending June 30, 2019, the Agency will be required to implement the Financial Accounting Standards Board Accounting Standards Update (ASU) , Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities. The ASU changes the net asset classification requirements and modifies the information presented in the financial statements and notes about a not-for-profit entity s liquidity, financial performance and cash flows. The Agency is currently analyzing the impact of its implementation of ASU

19 SUPPLEMENTARY INFORMATION

20 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Pass Passed Total CFDA Through/Award Through to Federal Number Number Subrecipients Expenditures U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Direct programs HEAD START CLUSTER Head Start N/A $ - $ 8,632,986 Total - 8,632,986 Health Care for the Homeless N/A - 171,459 Health Care for the Homeless N/A - 1,285,170 Total - 1,456,629 Passed Thru Gateway Community Action Partnership New Pathways for Fathers & Families N/A - 266,099 Passed Thru Commonwealth of Kentucky CHFS Promoting Safe and Stable Families ,867 Promoting Safe and Stable Families ,115 Promoting Safe and Stable Families ,003 Total - 250,985 Community-Based Child Abuse Prevention Grants ,006 Community-Based Child Abuse Prevention Grants ,389 Community-Based Child Abuse Prevention Grants ,817 Total - 371,212 CSBG CLUSTER Community Services Block Grant ,777 Passed Thru Bluegrass Area Development District AGING CLUSTER Aging Title B N/A - 111,009 Special Programs for the Aging, Title III, Part C, Nutrition Services N/A - 104,213 Total aging cluster - 215,222 Aging Title D N/A - 5,183 Passed Thru CAK Low Income Energy Assistance (LIHEAP) ,357,882 Weatherization LH ,244 Total - 1,531,126 Total U.S. Department of Health and Human Services $ - $ 13,144,219 U.S. DEPARTMENT OF TRANSPORTATION Passed through Commonwealth of Kentucky Transportation Cabinet Formula Grants for Other Than Urbanized Areas A $ - $ 143,350 Formula Grants for Other Than Urbanized Areas O ,425 Formula Grants for Other Than Urbanized Areas O ,825 Formula Grants for Other Than Urbanized Areas O ,116 Formula Grants for Other Than Urbanized Areas O ,882 Formula Grants for Other Than Urbanized Areas R ,000 Total - 1,026,598 Enhanced Mobility of Seniors and Individuals with Disabilities C ,068 Bus and Bus Facilities Formula Program C ,873 Bus and Bus Facilities Formula Program C ,064 Total - 287,937 Total U.S. Department of Transportation $ - $ 1,355,

21 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Pass Passed Total CFDA Through/Award Through to Federal Number Number Subrecipients Expenditures U.S. DEPARTMENT OF ENERGY Passed Thru CAK Weatherization Assistance for Low-Income Persons WX $ - $ 142,449 Total U.S. Department of Energy $ - $ 142,449 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Passed Thru Kentucky Housing Corporation Estill Fourplex Operating KY0105L $ - $ 17,019 Permanent Supportive Housing - Powell Duplex KY0105L ,577 Total - 35,596 Tenant Based Rental Assistance TB ,543 HOME HOUSING HB ,096 Total - 427,639 Passed Thru City of Richmond CDBG (Community Development Block Grant) N/A - 190,000 Total U.S. Department of Housing and Urban Development $ - $ 653,235 U.S. DEPARTMENT OF AGRICULTURE Passed Through Kentucky Department of Education Child Care Food Program - Head Start $ - $ 269,603 Child Care Food Program - RCC ,324 Adult Day Food Service ,725 Total U.S. Department of Agriculture $ - $ 328,652 U.S. DEPARTMENT OF HOMELAND SECURITY Direct programs Emergency Food and Shelter National Board Program N/A $ - $ 5,941 Total U.S. Department of Homeland Security $ - $ 5,941 U.S. DEPARTMENT OF VETERANS AFFAIRS Direct Programs Supportive Services for Veterans Families NA $ - $ 1,041,147 Total U.S. Department of Veterans Affairs $ - $ 1,041,147 U.S. DEPARTMENT OF ENVIRONMENTAL PROTECTION AGENCY Direct Programs Brownfields Assessment and Cleanup Cooperative Agreements NA $ - $ 16,402 Total U.S. Department of Environmental Protection Agency $ - $ 16,402 APPALACHIAN REGIONAL COMMISSION Direct Programs Appalachian Regional Development NA $ - $ 3,633 Total Appalachian Regional Commission $ - $ 3,633 Total Expenditures of Federal Awards $ - $ 16,691,

22 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note A Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of Kentucky River Foothills Development Council, Inc. and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in, or used in the preparation of, the basic financial statements may differ from those numbers. Note B Indirect Cost Rates Kentucky River Foothills Council, Inc. did not elect to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. -19-

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. SUMMARY OF AUDITORS RESULTS Financial Statements: Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weaknesses identified Yes X No Significant deficiencies identified that are not considered to be material weaknesses Yes X None reported Noncompliance material to financial statements noted Yes X No Federal Awards: Internal control over major programs: Material weaknesses identified Yes X No Significant deficiencies identified that are not considered to be material weaknesses Yes X None reported Type of auditors report issued on compliance for major programs: Unmodified for all major programs. Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Yes X No Major Programs: CFDA Number Name of Federal Program or Cluster Head Start Child and Adult Care Food Program (CACFP) , , Aging Cluster Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as a low-risk auditee? X Yes No II. III. IV. FINDINGS RELATED TO FINANCIAL STATEMENTS NONE FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS NONE PRIOR AUDIT FINDINGS NONE -20-

24 SCHEDULE OF PRIOR YEAR FINDINGS There are no prior audit findings to report. -21-

25 Members American Institute of Certified Public Accountants and Kentucky Society of Certified Public Accountants INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Board of Directors Kentucky River Foothills Development Council, Inc. Richmond, Kentucky 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 Kentucky River Foothills Development Council, Inc. (a nonprofit organization), which comprise the statement of financial position as of June 30, 2018 and the related statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated December 18, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Kentucky River Foothills Development Council, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Kentucky River Foothills Development Council, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Kentucky River Foothills Development Council, Inc. 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 Kentucky River Foothills Development Council, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. RFH, PLLC 300 West Vine Street, Suite 800 Lexington, Kentucky Phone: Fax: Toll-Free:

26 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. RFH, PLLC Lexington, Kentucky December 18,