North Texas Behavioral Health Authority

Transcription

1 North Texas Behavioral Health Authority Financial Statements with Compliance Reports and Supplementary Information August 31, 2017

2 Contents Introductory Section List of Principal Officials i. Certificate of Board ii. Financial Section Independent Auditors Report 1 Required Supplementary Information: Management s Discussion and Analysis 4 Basic Financial Statements: Statement of Net Position 7 Statement of Revenues, Expenses and Changes in Net Position 8 Statement of Cash Flows 9 Notes to Basic Financial Statements 10 Supplementary Information: Schedule of Expenditures of Federal and State Awards 16 Notes to Schedule of Expenditures of Federal and State Awards 17 Compliance Reports 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 19 Independent Auditors Report on Compliance for Each Major Federal and State Program and on Internal Control Over Compliance Required by the Uniform Guidance and the State of Texas Single Audit Circular 21

3 Contents Compliance Reports (Continued) Schedule of Findings and Questioned Costs 24 Summary Schedule of Prior Year Findings 27 CMHMRC Supplementary Information (Unaudited) Schedule of Revenues and Expenditures by Source of Funds 28 Reconciliation of Total Revenue to Fourth Quarter Financial Report 29 Reconciliation of Total Expenditures to Fourth Quarter Financial Report 30 Indirect and Administrative Cost Schedule 31 Schedule of Lease and Rental Commitments 32 Schedule of Insurance in Force 33 Schedule of Space Occupied in a State-Owned Facility 34 Schedule of Bonded Employees 35 Schedule of Professional and Consulting Fees 36 Schedule of Legal Services 37

4 Introductory Section

5 List of Principal Officials Board of Trustees Gordon Hikel Judge B. Michael Chitty Tyan Brown Janis Burdett Commissioner Elba Garcia, DDS Charlene Randolph Sherry Sheffield, PhD Lt. Michael Blum Major Todd Calkins Board Chair Board Vice Chair Board Secretary Treasurer Secretary Member Member Member Member Administrative Staff Carol Lucky Britton McNaughton Dr. Patrick Young Dr. Deanna Dial Henson Rogers Elizabeth Goodwin Courtney Clemens Chief Executive Officer Chief Clinical Officer Chief Medical Director Medical Director Chief Information Officer Chief Financial Officer Quality Management Director i

6 CERTIFICATE OF BOARD I, Gordon Hikel, Chairperson of the Board of Trustees of North Texas Behavioral Health Authority, do hereby certify that this accompanying audit report for FY 2017 was reviewed and accepted at a meeting of the Board of Trustees held on the 31st day of May, Chairperson, Board of Trustees May 31, 2018 Date ii

7 Financial Section

8 Independent Auditors Report To the Board of Trustees of North Texas Behavioral Health Authority Report on the Financial Statements We have audited the accompanying financial statements of North Texas Behavioral Health Authority (NTBHA), which comprise the statement of net position as of August 31, 2017, and the related statements of revenues, expenses, and changes in net position 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 U.S. generally accepted accounting principles; 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 U.S. generally accepted auditing standards. 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. Sutton Frost Cary LLP Certified Public Accountants and Consultants Phone Six Flags Drive, Suite 600 Arlington, Texas Fax

9 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NTBHA as of August 31, 2017, and the respective changes in financial position and cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 4 to 6 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 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 U.S. generally accepted auditing standards, 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 an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal and state awards is presented for the purpose of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and the State of Texas Single Audit Circular, 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 U.S. generally accepted auditing standards. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. 2

10 The CMCHMRC supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The CMHMRC supplementary information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 31, 2018 on our consideration of NTBHA 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 NTBHA s internal control over financial reporting and compliance. Arlington, Texas May 31, 2018 A Limited Liability Company 3

11 Required Supplementary Information Management s Discussion and Analysis

12 Management s Discussion and Analysis The purpose of the Management s Discussion and Analysis (MD&A) is to give the readers an objective and easily readable analysis of the financial activities of North Texas Behavioral Health Authority (NTBHA) for the year ended August 31, Please read the MD&A in conjunction with NTBHA s basic financial statements which follow this section. Financial Highlights NTBHA s total net position was $702,919 and $332,839, as of August 31, 2017 and 2016 respectively (see Table 1). In 2017, total assets were $8,403,193, comprised of cash, accounts receivable, capital assets and other assets with liabilities of $7,700,274 including accounts payable, accrued expenses and unearned grant revenue. Net position increased by $370,080 as a result of increased operating activities stemming from the addition of several new grants. Table 1 Fiscal Years Ended Current assets $ 8,258,955 $ 439,371 Capital assets, net 144, ,448 Total assets $ 8,403,193 $ 556,819 Current liabilities and deferrals $ 7,700,274 $ 223,980 Total liabilities 7,700, ,980 Net postion: Unrestricted - invested in capital assets 144, ,448 Unrestricted 558, ,391 Total net position 702, ,839 Total liabilities and net position $ 8,403,193 $ 556,819 Changes in net position for the years ended August 31, 2017 and 2016 were $370,080 and $169,942, respectively. NTBHA s total revenues in 2017 were $49,908,014 and total expenses were $49,537,934. NTBHA s total revenues in 2016 were $1,950,038 and total expenses were $1,780,096. Effective January 1, 2017, NTBHA entered into a Local Behavioral Health Authority Performance Agreement (Agreement) with the Texas Health and Human Services Commission HHSC. The increase in revenues and expenses compared to prior year stems from this Agreement. See Table 2. 4

13 Management s Discussion and Analysis Table 2 Fiscal Years Ended Revenues: Federal and state $ 45,777,145 $ 1,360,183 County match contributions 2,789, ,000 Other 1,341, ,855 Total revenue 49,908,014 1,950,038 Expenses: Provider payments to subcontractors 44,844,511 - Administration 3,658,040 1,235,992 Professional services 1,035, ,104 Total expenses 49,537,934 1,780,096 Change in net position 370, ,942 Total net position, beginning of year 332, ,897 Total net position, end of year $ 702,919 $ 332,839 Capital Assets NTBHA's net capital assets as of August 31, 2017 and 2016 are as follows: Computer equipment $ 95,667 $ 120,838 Office equipment 13,518 84,496 Furniture and fixtures 78, ,892 Equipment under capital lease - 9, , ,022 Less: Accumulated depreciation (43,045) (201,574) Total capital assets, net $ 144,238 $ 117,448 Financial Statement Overview The financial section of this annual report consists of two parts: management's discussion and analysis and the basic financial statements and the notes to the financial statements. The financial statements provide both long-term and short-term information about NTBHA's overall financial status. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. 5

14 Management s Discussion and Analysis NTBHA's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental units on an accrual basis. Under this basis, revenues are recognized in the period in which they are earned, expenses are recognized in the period in which they are incurred, and depreciation of assets is recognized in the statement of revenues, expenses, and changes in net position. All assets and liabilities associated with the operation of NTBHA are included in the statement of net position. Contacting NTBHA's Financial Management This financial report is designed to provide interested parties with a general overview of NTBHA's finances and to demonstrate NTBHA's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the North Texas Behavioral Health Authority, 9441 LBJ Freeway Suite 350, Dallas, TX

15 Basic Financial Statements

16 Statement of Net Position August 31, 2017 Assets Assets: Cash $ 7,095,453 Accounts receivable 1,119,105 Other receivables 25,560 Prepaid expense 18,837 Capital assets, net 144,238 Total assets $ 8,403,193 Liabilities and Net Position Liabilities: Accounts payable $ 263,012 Accrued expenses 2,656,492 Unearned revenue 4,780,770 Total liabilities 7,700,274 Net position: Unrestricted - invested in capital assets 144,238 Unrestricted 558,681 Total net position 702,919 Total liabilities and net position $ 8,403,193 See notes to basic financial statements. 7

17 Statement of Revenues, Expenses, and Changes in Net Position Year Ended August 31, 2017 Revenue: State programs $ 36,034,504 Federal programs 9,742,641 County match contributions 2,789,804 In-kind match revenue 749,694 Local and other sources 591,371 Total revenue 49,908,014 Expenses: Provider payments 44,844,511 Personnel 2,729,676 Professional and contracted services 1,035,383 Other operating 590,609 Travel 53,284 Supplies 254,962 Depreciation 29,509 Total expenses 49,537,934 Increase in net position 370,080 Total net position, beginning of year 332,839 Total net position, end of year $ 702,919 See notes to basic financial statements. 8

18 Statement of Cash Flows Year Ended August 31, 2017 Cash flows from operating activities: Receipts from State of Texas $ 49,102,103 Receipts from participating counties 2,789,804 Receipts from other sources 1,341,065 Payments to subcontractors (42,837,035) Payments to suppliers for goods and services. (880,245) Payments to employees (2,766,623) Cash provided by operating activities 6,749,069 Cash flows from investing activitiespurchases of capital assets (56,299) Cash flows from financing activitiespayments of capital lease obligation (139) Net increase in cash 6,692,631 Cash at beginning of year 402,822 Cash at end of year $ 7,095,453 Reconciliation of increase in net position to net cash provided by operating activities: Increase in net position $ 370,080 Adjustments to reconcile increase in net position to cash provided by operations: Depreciation expense 29,509 Changes in assets and liabilities: Accounts receivable (1,109,822) Other receivables (25,560) Prepaid expense 8,429 Accounts payable 200,535 Accrued expenses 2,507,312 Unearned revenue 4,768,586 Cash provided by operating activities $ 6,749,069 See notes to basic financial statements. 9

19 1. Nature of Operations North Texas Behavioral Health Authority Notes to Basic Financial Statements North Texas Behavioral Health Authority (NTBHA) is a Texas administrative agency formed by interlocal agreement on October 15, 1998, by and between the following seven counties in North Texas: Dallas, Collin, Hunt, Rockwall, Kaufman, Ellis and Navarro (Participants). The Participants established an eleven-member board of trustees to control the affairs of NTBHA with four members from Dallas, two from Collin and one from each of the other counties. The County Commissioners Court appoints such members. As a quasi-governmental unit, NTBHA is exempt from federal income taxes. Effective January 1, 2017, NTBHA entered into a Local Behavioral Health Authority Performance Agreement (Agreement) with the Texas Health and Human Services Commission HHSC. The agreement was authorized by commissioners courts from six participating counties. NTBHA now covers a six county area (rather than a seven county area, with Collin County moving elsewhere). The Texas Health and Human Services Commission (HHSC) designated NTBHA as the Local Behavioral Health Authority (LBHA) to plan, coordinate, develop policy, allocate resources, supervise, and ensure the provision of community-based mental health and substance use disorder services for qualified indigent residents of the six participating counties. The Agreement terminates on August 31, 2018 unless terminated sooner by HHSC at their sole discretion. The amount received from the Agreement was approximately $44,000,000 during the year end August 31, In evaluating how to define NTBHA, for financial reporting purposes, management has determined that there are no entities over which NTBHA exercises significant influence. Significant influence or accountability is based primarily on operational or financial relationships with NTBHA. Since NTBHA does not exercise significant influence or accountability over other entities, it has no component units. 2. Summary of Significant Accounting Policies The financial statements of NTBHA have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of NTBHA's accounting policies are described below: Measurement Focus, Basis of Accounting and Financial Statement Presentation The accounting policies of NTBHA conform to GAAP as applicable to state and local governmental units as promulgated by the GASB. The financial statements have also been prepared in accordance with the Guidelines for Annual Financial and Compliance Audits of Community MHMR Centers published by HHSC. 10

20 Notes to Basic Financial Statements The operations of NTBHA are accounted for as an enterprise fund on an accrual basis in order to recognize the flow of economic resources. Under this basis, revenues are recognized in the period in which they are earned, expenses are recognized in the period in which they are incurred, depreciation of assets is recognized, and all assets and liabilities associated with the operation of NTBHA are included in the statement of net position. Operating expenses for NTBHA include the costs of operating programs, administrative expenses, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Allocation of Indirect Expenses NTBHA allocates indirect expenses primarily comprised of administrative services to operating functions and programs benefiting from those services. Administrative services include overall management, centralized budgetary formulation and oversight, accounting, financial reporting, payroll, procurement contracting and oversight, investing and cash management, personnel services, and other central administrative services. Allocations are charged to programs based on use of central services determined by various allocation methodologies. Cash NTBHA considers all highly liquid investments with a purchased maturity of three months or less, purchased for use primarily in operations, to be cash equivalents. NTBHA maintains cash balances at various financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2017, NTBHA s uninsured balances totaled $8,468,790. Subsequent to year end, NTBHA obtained pledged collateral for all uninsured cash balances. Accounts Receivable Accounts receivable are recorded at the value of the revenue earned. NTBHA recognizes a provision for doubtful accounts based on an assessment of specific accounts that are no longer estimated to be collectible, typically balances over six months past due. As of August 31, 2017, a provision for doubtful accounts was not considered necessary. Capital Assets Capital assets, which include property, plant and equipment, are reported in the basic financial statements. Capital assets as defined by the government are assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. 11

21 Notes to Basic Financial Statements 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. Property, plant and equipment are depreciated using the straight line method over the following useful lives: Asset Description Life Compensation for Future Absences Computer equipment 3 Office equipment 5-7 Equipment under capital lease 5 Furniture and fixtures 7 Leasehold improvements Lesser of useful life or lease term NTBHA s employees are granted vacation and sick leave based on years of service. Vacation days are allowed to accrue up to hours depending upon length of service; additional hours may be accrued from year to year with approval. In the event of termination or resignation, an employee is paid for unused vacation. Sick leave may accrue up to 80 hours per year; however, unused sick leave is not paid upon termination or resignation. Unearned Revenue Unearned revenue represents assets recognized before revenue recognition criteria have been satisfied. Net Position NTBHA s net position is divided into three components: Net investment in capital assets - consist of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets plus deferred outflows of resources less deferred inflows of resources related to those assets. Restricted net position - consist of assets that are restricted by NTBHA's creditors (for example, through debt covenants), by the state enabling legislation (through restrictions on shared revenues), by grantors (both federal and state), and by other contributors. Unrestricted - all other net position is reported in this category. 12

22 Notes to Basic Financial Statements Revenue Recognition Grant revenue is recognized as contract terms are fulfilled. Cost reimbursement contracts are recognized as revenue when the allowable costs are incurred. Fees for contract services are recognized as revenue when the contracted services are performed. Use of Restricted Resources When an expense is incurred that can be paid using either restricted or unrestricted resources (net position), NTBHA's policy is to first apply the expense toward restricted resources and then toward unrestricted resources. Income Taxes NTBHA is an instrumentality of the State of Texas. As such, income earned in the exercise of its essential government functions is exempt from state or federal income taxes. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Examples of management's use of estimates and assumptions include, but are not limited to, depreciable lives of property and equipment and allocation of expenses to grants. Risk Management In conjunction with its normal operations, NTBHA is exposed to various risks of loss related to the damage or destruction of its assets, tort/liability claims, errors and omissions claims and professional liability claims. As a result of these exposures, NTBHA carries insurance with private insurers under an all risks policy at a cost that is considered to be economically justifiable. There were no settlements during the year ended August 31, Concentrations During the year ended August 31, 2017, NTBHA received 92% of total revenue from grants and contracts funded through HHSC. It is reasonably possible that at some time these grants could cease, or funding could be reduced, which would have a severe impact on NTBHA. However, NTBHA does not expect these grants will be lost in the near future. 13

23 Notes to Basic Financial Statements 3. Capital Assets The following schedule summarizes capital assets of NTBHA as of August 31, 2017: Balance at September 1, 2016 Additions Retirements Balance at August 31, 2017 Computer equipment $ 120,838 $ 56,300 $ (81,471) $ 95,667 Office equipment 84,496 - (70,978) 13,518 Furniture and fixtures 103,892 - (25,794) 78,098 Equipment under capital lease 9,796 - (9,796) - Less: accumulated depreciation (201,574) (29,511) 188,040 (43,045) Total $ 117,448 $ 26,789 $ - $ 144,238 Depreciation expense for the year ended August 31, 2017 was $29, Lease Commitment NTBHA has a noncancelable operating lease agreement for its corporate office space expiring September NTBHA's total rental expense for the year ended August 31, 2017 was $137,235. The future minimum lease payments are as follows for the years ended August 31: 5. Contingencies 2018 $ 157, , , , ,160 NTBHA is funded by contracts that are subject to review and audit by grantor agencies. These contracts have certain compliance requirements and if audits, by the grantor agencies disclose any areas of substantial noncompliance, NTBHA may be required to refund any disallowed costs. Management believes NTBHA has complied with applicable requirements. 6. Employee Benefit Plan NTBHA has a voluntary retirement plan available to eligible full-time employees. Employees may make contributions, subject to certain limitations, on a pre-tax basis. NTBHA matches up to 14

24 Notes to Basic Financial Statements 3% of the employee s salary. During the year ended August 31, 2017, NTBHA contributed approximately $13,300 to the plan. 7. Subsequent Events Subsequent events were evaluated through May 31, 2018, which is the date the financial statements were available to be issued. 15

25 Supplementary Information

26 Schedule of Expenditures of Federal and State Awards Year Ended August 31, 2017 Federal or State Grantor/Pass-through Grantor Program Title CFDA # Grant Number Expenditures Federal awards: U.S. Department of Health and Human Services Texas Department of Health and Human Services Commission Block Grants for Prevention and Treatment of Substance Abuse $ 214, ,339, , , , , , ,310 5,711,451 Temporary Assistance for Needy Families ,186,328 TANF Transfer to Title XX Block Grant ,626,667 Social Services Block Grant ,993 Opioid STR ,810 Total U.S. Department of Health and Human Services 10,878,249 U.S. Department of Homeland Security Crisis Counseling FEMA-4332-DR-TX 7,087 Total expenditures of federal awards 10,885,336 State awards: Texas Department of Health and Human Services Commission Local Mental Health Authority n/a ,771,364 Texas Department of State Health Services NorthSTAR Program n/a ,244 Under the NorthSTAR Transition Funds Grant Program n/a A 1,500,000 Mental Health First Aid Program n/a C 10,090 Mental Health First Aid Program n/a ,180 Military VETERANS Peer Network n/a ,192 Total Texas Department of State Health Services 1,846,706 Total expenditures of state awards 33,618,070 Total expenditures of federal and state awards $ 44,503,406 See notes to schedule of expenditures of federal and state awards. 16

27 Notes to Schedule of Expenditures of Federal and State Awards 1. Basis of Presentation The accompanying schedule of expenditures of federal and state awards (Schedule) includes the federal and state grant activity of North Texas Behavioral Health Authority (NTBHA). The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the State of Texas Single Audit Circular. Because the Schedule presents only a selected portion of the operations of NTBHA, it is not intended to and does not present the net position, changes in net position, or cash flows of NTBHA. Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance and the State of Texas Single Audit Circular, wherein certain types of expenditures are not allowable or are limited as to reimbursement. NTBHA has not elected to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance, but rather the rates established directly with the respective state agency. 2. State Financial Assistance Guidelines State financial assistance is subject to the Texas Health and Human Services Commission s (HHSC) Guidelines for Annual Financial and Compliance Audits of Community MHMR Centers. Such guidelines are consistent with those required under Title 2, U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), the State of Texas Uniform Grant Management Standards, and Government Auditing Standards, issued by the Comptroller General of the Unites States. 3. Relationship to Basic Financial Statements Certain state and federal programs have been excluded from the Schedule. Federal revenues earned and received from the Centers for Medicare and Medicaid Services (CMS) and passed through HHSC for the HHSC Healthcare Transformation and Quality Improvement Program 1115 demonstration waiver are excluded from the federal awards section of the Schedule. In addition, certain state contracts have been excluded from the state awards section of the Schedule by specific request of the funding agency. These contracts are with the Texas Correctional Office on the Offenders with Medical or Mental Impairments (TCOOMMI) which is passed through the Texas Department of Criminal Justice. The state and federal monies excluded from the Schedule are not considered financial assistance as defined by the Uniform Guidance. 17

28 Notes to Schedule of Expenditures of Federal and State Awards State and federal revenues in NTBHA s basic financial statements also differ from the accompanying schedule due to classifications based on the passed through entity. A reconciliation of the SEFA to the audited financial statements is as follows: Federal and state expenditures per schedule $ 44,503,406 TCOOMI 1,261, Transformation Waiver 6,600 Other state expenditures 5,478 Federal and state programs per basic financial statements $ 45,777,145 18

29 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 Trustees of North Texas Behavioral Health Authority We have audited, in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of North Texas Behavioral Health Authority (NTBHA) which comprise the statement of net position as of August 31, 2017, and the related statements of revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the basic financial statements, and have issued our report thereon dated May 31, Internal Control over Financial Reporting In planning and performing our audit of the basic financial statements, we considered NTBHA 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 basic financial statements, but not for the purpose of expressing an opinion on the effectiveness of NTBHA s internal control. Accordingly, we do not express an opinion on the effectiveness of NTBHA 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 basic 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be a material weakness ( ). 19

30 Board of Trustees North Texas Behavioral Health Authority Compliance and Other Matters As part of obtaining reasonable assurance about whether NTBHA s basic 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 basic 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. NTBHA s Response to Finding NTBHA s response to the finding identified in our audit is described in the accompanying schedule of findings and questions costs. NTBHA s response was not subjected the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. 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 NTBHA s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering NTBHA s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Arlington, Texas May 31, 2018 A Limited Liability Partnership 20

31 Independent Auditors Report on Compliance for Each Major Federal and State Program and on Internal Control over Compliance Required by the Uniform Guidance and the State of Texas Single Audit Circular The Board of Trustees of North Texas Behavioral Health Authority Report on Compliance for Each Major Federal and State Program We have audited North Texas Behavioral Health Authority s (NTBHA) compliance with the types of compliance requirements described in the OMB Compliance Supplement and the State of Texas Single Audit Circular that could have a direct and material effect on each of NTBHA s major federal and state programs for the year ended August 31, NTBHA s major federal and state programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the federal and state statutes, regulations, and the terms and conditions of its federal and state awards applicable to its federal and state programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of NTBHA s major federal and state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with U.S. generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the State of Texas Single Audit Circular. Those standards, the Uniform Guidance and the State of Texas Single Audit Circular require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal or state program occurred. An audit includes examining, on a test basis, evidence about NTBHA s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal and state program. However, our audit does not provide a legal determination of NTBHA s compliance. 21

32 Board of Trustees North Texas Behavioral Health Authority Opinion on Each Major Federal and State Program In our opinion, NTBHA complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal and state programs for the year ended August 31, Report on Internal Control over Compliance Management of NTBHA is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered NTBHA s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal and state program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal and state program and to test and report on internal control over compliance in accordance with the Uniform Guidance and the State of Texas Single Audit Circular, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of NTBHA s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal and state program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal and state program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal and state program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 22

33 Board of Trustees North Texas Behavioral Health Authority The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Uniform Guidance and the State of Texas Single Audit Circular. Accordingly, this report is not suitable for any other purpose. A Limited Liability Partnership Arlington, Texas May 31,

34 Schedule of Findings and Questioned Costs Year Ended August 31, 2017 Section I Summary of Auditors Results Financial Statements: Type of auditors report issued: Unmodified Internal control over financial reporting: Material weaknesses identified? X yes no Significant deficiencies identified? _ yes X none reported Noncompliance material to financial statements noted? _ yes X no Federal and State Awards: Internal control over major federal and state programs: Material weaknesses identified? _ yes X no Significant deficiencies identified? _ yes X none reported Type of auditors report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a) or State of Texas Single Audit Circular? _yes X no Identification of major federal and state programs: Major federal programs: CFDA Block Grants for Prevention and Treatment of Substance Abuse CFDA Block Grants for Community Mental Health Services CFDA Temporary Assistance for Needy Families (TANF) State Programs Major state program: Local Mental Health Authority Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? _ yes X no 24

35 Schedule of Findings and Questioned Costs Year Ended August 31, 2017 Section II Financial Statement Findings Finding No : Balance sheet account reconciliations material weakness Criteria or specific requirement: NTBHA is responsible for presenting basic financial statements that are fairly stated in accordance with U.S. generally accepted accounting principles. Condition: The operating bank account, accrued expenses, and due to/due from accounts were not properly reconciled at year end. Cause: NTBHA experienced several issues with the implementation of new accounting software and changes to internal accounting processes, procedures and reporting. These issues resulted in significant delays in proper reconciliations of certain year-end balance sheet accounts. Effect: Management updated these reconciliations resulting in journal entries and delays to the original audit timeline. The effect of the entries decreased assets by $2,557,273, decreased liabilities by $2,419,396, and increased net income by $137,877. Recommendation: We recommend that management follow their policy of reconciling and reviewing detailed accounts to the general ledger in a timely manner. Views of responsible officials: The accounting staff responsible for preparing the 2017 audit, experienced unanticipated delays due to the accounting and recordkeeping of the external CPA. This CPA was responsible for the organization s accounting and financial reporting from September 1, 2016 through December 31, This CPA did not record the FY2016 audit adjusting entries in the accounting system for FY2016. Therefore, current accounting staff had to reconcile the beginning balances to the prior year audit report, trace the transactions to the underlying source documents provided by the external CPA during this timeframe, and assure that they were recorded correctly in the new accounting system. In addition to these unanticipated accounting delays, staff also experienced significant problems with the accounting and financial reporting software system that had been implemented in January Upon review of the system in May 2017, it was determined that the current system was inadequately designed and implemented and would not support NTBHA and its growing business. A second accounting system had to be designed, implemented, and all transactions had to be recorded and entered into the correct accounts and accounting periods in the new system. Due to these circumstances, balance sheet reconciliations were unable to be prepared prior to the commencement of the 2017 audit. The Finance Department has implemented a monthly reconciliation process and review of all balance sheet accounts and has ensured these reconciliations are completed monthly. These internal control processes reasonably ensure all reconciliations are complete as of year-end. 25

36 Schedule of Findings and Questioned Costs Year Ended August 31, 2017 In addition, the CFO has hired additional qualified accounting personnel to assist with the increased growth. All staff have received training on the new accounting software. Section III Federal and State Award Findings and Questioned Costs None reported. 26

37 Finding No North Texas Behavioral Health Authority Summary Schedule of Prior Year Findings Year Ended August 31, 2017 Criteria: NTBHA s recording and monitoring of accounts receivable and deferred revenue were not adequate during the year ended August 31, Condition: Cash receipts and revenue transactions were routinely applied to the incorrect programs in these accounts, resulting in numerous reclassifying journal entries between accounts receivable, revenue and deferred revenue. Cause: NTBHA needs to strengthen internal controls to ensure the accuracy of the financial statements in accordance with GAAP Current status: NTBHA has completed the corrective action plan required as a result of the prior year audit. Finding No Criteria: Filing of reports with the Texas Department of State Health Services was not performed timely during the year ended August 31, Condition: One instance of a late filing of the Summary of Activities Report and three instances of late filings of the Financial Status Report. Cause: NTBHA needs to strengthen internal controls to ensure the filing of compliance reports in a timely manner. Current status: NTBHA has completed the corrective action plan required as a result of the prior year audit. 27

38 CMHMRC SUPPLEMENTARY INFORMATION (UNAUDITED)

39 Schedule of Revenues and Expenditures by Source of Funds Year Ended August 31, 2017 Fund Source CARE Report III Crisis, Transitional Excess Total Total Mental Total Mental and Intensive Community Other Revenues over Revenue Health Adult Health C & A Ongoing Services Hospital Services Expenditures Objects of expense: Salaries $ 2,095,469 $ 27,056 $ 10,093 $ 310 $ - $ 2,058,010 $ - Employee benefits 495,285 4,896 1, ,507 - Professional and consultant services 36,888,219 15,771,900 6,662,508 2,292,714 5,296,598 6,864,499 - Training and travel 51,975 1, ,500 - Pharmaceutical expense (Medication and script fee) 9,170,730 9,065, , Pharmaceutical expense (PAP only) 392, , Other operating expense 867, ,506 42,715 1, ,831 - Total expenditures $ 49,961,351 $ 25,377,951 $ 6,823,042 $ 2,294,413 $ 5,296,598 $ 10,169,347 $ - Method of Finance: General revenue - DSHS $ 22,329,684 $ 16,304,335 $ 6,025,349 $ - $ - $ - $ - Crisis services - general 1,797, ,797, Crisis services - outpatient competency restoration 288, , Crisis services - psychiatric emergency service centers 145, , Project private beds 5,545, ,545, Community hospitals 43, ,018 - Title XX - Social Services Block Grant 350, , Mental Health Block Grant 2,077,013 1,530, , TANF 2,626,667 1,970, , Other federal funds 4,578, ,578,653 - Medicaid 1115 Transformation Waiver 48, ,340 - Department of State Health Services - aubstance Abuse 1,132, ,132,347 - Texas Correctional Office on Offenders with Medical or Mental Impairments 1,261, ,261,660 - Other state funds 1,816, ,816,706 - Required local match 2,901,557 2,901, Additional local funds 3,017,586 1,292, ,751 70,382 1,454,426 - Total Expended Sources $ 49,961,351 $ 24,349,343 $ 7,228,598 $ 2,432,618 $ 5,615,642 $ 10,335,150 $ - 28