Sanilac County Community Mental Health Authority. Year Ended September 30, Financial Statements

Transcription

1 Sanilac County Community Mental Health Authority Year Ended September 30, 2015 Financial Statements

2 Table of Contents Independent Auditors' Report 1 Management's Discussion and Analysis 4 Basic Financial Statements Statement of Net Position 12 Statement of Revenues, Expenditures and Changes in Net Position 13 Statement of Cash Flows 14 Notes to Financial Statements 16 Required Supplementary Information Sanilac County Employees' Retirement Plan and Trust Schedule of Changes in the Authority's Net Pension Liability and Related Ratios 29 Schedule of the Authority's Net Pension Liability 30 Schedule of Contributions 31 Other Postemployment Benefits Plan Schedule of Funding Progress 32 Schedule of Employer Contributions 32 Internal Control and Compliance 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 34 Page

3 Rehmann Robson 5800 Gratiot Rd. Suite 201 Saginaw, MI Ph: Fx: rehmann.com INDEPENDENT AUDITORS' REPORT Board of Directors Sanilac County Community Mental Health Authority Sandusky, Michigan March 31, 2016 Report on the Financial Statements We have audited the accompanying financial statements of the Sanilac County Community Mental Health Authority (the Authority ), a component unit of Sanilac County, Michigan, as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Independent 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 of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators

4 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 previously present fairly, in all material respects, the financial position of the Authority as of September 30, 2015, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Implementation of GASB Statement No. 68 As described in Note 9, the Authority implemented the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions in the current year. Accordingly, beginning net position of the Authority was restated. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and the schedules for the pension and other postemployment benefits plans, as listed in the table of contents, to 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 auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2016, on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. 2

5 MANAGEMENT'S DISCUSSION AND ANALYSIS 3

6 Management's Discussion and Analysis The financial management of Sanilac County Community Mental Health Authority (the "Authority") has written this management s discussion and analysis. We offer readers of these financial statements this narrative and analysis of the financial activities of the Authority for the fiscal year ended September 30, This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the financial statements as a whole. Financial Highlights Total net position $ 3,274,531 Change in total net position 575,638 Installment debt outstanding 3,656,294 Change in installment debt (178,555) Overview of Financial Statements The Authority s financial statements include the statement of net position and the statement of activities. These provide both long-term and short-term information and present the overall financial status in a manner similar to a private sector business. Information presented in these statements is on the accrual basis of accounting. Longterm assets are capitalized and depreciated. Long-term debt is recorded as a liability. Revenues are recorded when earned and expenses recorded when incurred, without regard to the timing of cash receipts or disbursements. The statement of net position includes all assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of improving or deteriorating financial position. The statement of activities presents information showing how net position changed during the year as a result of operating activity. All changes in net position are reported as soon as the underlying event giving rise to change occurs, regardless of the timing of the related cash flows. The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. 4

7 Management's Discussion and Analysis Summary of Net Position The following summarizes the assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position on an Authority-wide basis as of September 30, 2015 and Governmental Activities Assets Current and other assets $ 3,786,250 $ 4,021,548 Capital assets, net 6,066,429 6,007,307 Total assets 9,852,679 10,028,855 Deferred outflows of resources 944,904 - Liabilities Long-term liabilities 5,209,707 4,267,236 Other liabilities 2,234,274 1,950,790 Total liabilities 7,443,981 6,218,026 Deferred inflows of resources 79,071 - Net position Net investment in capital assets 2,410,135 2,172,458 Unrestricted 864,396 1,638,371 Total net position $ 3,274,531 $ 3,810,829 As noted earlier, net position may serve over time as a useful indicator of an entity s financial position. As shown in the following chart, the Authority s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $3,274,531 at the end of the most recent fiscal year. Net position is separated into two major components: net investment in capital assets (e.g., building, vehicles and equipment), which for the most recent fiscal year amounted to $2,410,135 or 74% of net position and unrestricted net position of $864,396 or 26% of net position. Unrestricted net position may be used to meet the Authority s ongoing obligations to its programs. 5

8 Management's Discussion and Analysis Summary of Activities The following summarizes the revenues, expenses, and changes in net position on an agency-wide basis for the years ended September 30, 2015 and Governmental Activities Revenues State and local $ 809,970 $ 1,336,076 Charges for services 17,320,802 16,676,638 Grants 6,800 57,709 Interest and other revenues 33,122 52,147 Total revenues 18,170,694 18,122,570 Expenses 17,595,056 18,144,106 Change in net position 575,638 (21,536) Net position: Beginning of year 3,810,829 3,832,365 Restatement (1,111,936) - 2,698,893 3,832,365 Net position, end of year $ 3,274,531 $ 3,810,829 When comparing this fiscal year to the previous year, net position has decreased by $536,298. This change is the result of a restatement to implement GASB Statement No. 68, decreasing beginning net position by $1,111,936, offset by a positive change in net position of $575,638 for the year. 6

9 Management's Discussion and Analysis Revenues - Business-type Activities $16,000,000 $15,795,467 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $519,526 $987,356 $537,979 $250,100 $40,344 $39,922 $ Medicaid State Funds Other Service Fees Sales County Allocation PA 423 Other Revenues Expense - Business-type Activities $7,000,000 $6,480,953 $6,000,000 $5,000,000 $4,743,706 $4,000,000 $3,111,589 $3,000,000 $2,000,000 $1,635,127 $1,000,000 $377,128 $698,363 $548,190 $ 7

10 Management's Discussion and Analysis Financial Analysis During the fiscal year, the Authority replaced five vans and purchased an additional van for a total cost of $127,686. The five vehicles were of high mileage and high maintenance and a new vehicle was needed for the expanding autism services program. The Authority replaced aged and failing computer equipment consisting of three servers and ten switches for a total cost of $73,102. These replacements were needed to ensure the agencies technical capacity and operational efficiency. The Authority replaced the ten year old phone system which was no longer supported by the vendors with a new system, integrated with the agencies servers, for a total cost of $63,052. An AFC Home was purchased by the Authority during the fiscal year for $228,562. This home replaces a deteriorating home which needed extensive repairs and remodeling. The home being replaced will be placed for sale. The new home is located in Sandusky, near the Authority offices. Contracts are held with several corporations and providers who provide staff 24 hours a day in 9 specialized residential homes serving up to 54 individuals. In addition, the Authority has eight private AFC homes providing services to 31 individuals and staffing contracts for 11 individuals in their own homes. Staff, in these homes, make an average of $8.50 per hour. In accordance with Region 10 PIHP direction, the Authority provided a lump sum check to the staff in these homes totaling $111,700. The Authority leases seven group homes in Sanilac County and is responsible for the upkeep and maintenance of these homes. Inspections are conducted annually to assure that the homes are maintained. The Authority made repairs and maintenance to flooring, paint, cabinetry and appliances totaling $75,000. It was anticipated that General Fund dollars would be available this fiscal year and four, $3,000 grants were provided for community initiatives that were linked directly to the prevention of mental health conditions. The Authority also did a one-time $60,000 transfer of General Funds to St. Clair Mental Health, a regional partner, to provide services to indigent populations. A five year contract was negotiated with the employees during the fiscal year which created efficiencies in the On-call program, job bidding and an increase in the number of staff hours needed to obtain benefits. The Authority continued to see an increase in the new Autism program and hired an additional four staff to meet state guidelines that each child is entitled to receive ten to twenty hours a week of direct ABA intervention. 8

11 Management's Discussion and Analysis Capital Assets The Authority had $6,066,429 in capital assets, net of accumulated depreciation, at September 30, This is an increase of $59,122 over the previous year. The Authority purchased building improvements, equipment, and vehicles totaling $502,159 during the current year. The breakdown of capital assets at September 30, 2015, is as follows: Land $ 486,124 $ 486,124 Buildings and improvements 7,632,645 7,394,326 Equipment 783, ,715 Machinery 88,183 88,183 Vehicles 1,044, ,794 10,034,575 9,649,142 Accumulated depreciation (3,968,146) (3,641,835) Capital assets, net $ 6,066,429 $ 6,007,307 Additional information regarding the Authority's capital assets can be found in Note 3 to the financial statements. Long-term Debt At the end of the current fiscal year, the Authority had outstanding loans payable of $3,656,294. The decrease in long-term debt is due to annual principal payments. Installment Debt Loan payable $ 3,656,294 $ 3,834,849 Additional information regarding the Authority's long-term debt can be found in Note 4 to the financial statements. Future Outlook Medicaid is the primary source of funding for the Authority. For fiscal year 2016, it is expected that there will be sufficient Medicaid revenues to meet the needs of the Authority. The Region 10 Prepaid Inpatient Health Plan which provides the Medicaid funding has a fully funded Medicaid Internal Service Fund and is expected to carry forward Medicaid funds from fiscal year 2015 to meet the needs of fiscal year The Authority's budget for fiscal year 2016 will be approximately $580,400 more than fiscal year 2015 actual spending. This increase is due primarily to an increase in Medicaid spending on several additional residential placements and an increase in respite utilization. Looking further to fiscal year 2017, the Region 10 PIHP will have maximized Medicaid revenues and will have started to use the Medicaid Internal Service Fund. Costs are expected to continue to increase in 2017; however, Region 10 PIHP and the Authority have started building budget strategies to meet these expected increases in a period of maximized and declining Medicaid revenues. 9

12 Management's Discussion and Analysis For fiscal year 2016, the Authority is expected to have sufficient State General Funds and other revenues to continue to provide services to those populations without any impact. Contacting the Authority Management This financial report is designed to provide a general overview of the Sanilac County Community Mental Health Authority s finances and to show accountability. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Finance Director, Sanilac County Community Mental Health Authority, 227 E. Sanilac, Sandusky, MI

13 BASIC FINANCIAL STATEMENTS 11

14 Statement of Net Position September 30, 2015 Assets Current assets: Cash and cash equivalents $ 2,589,943 Accounts receivable 636,269 Due from State 2,350 Due from other governmental units 62,525 Inventory 263,626 Prepaids 231,537 Total current assets 3,786,250 Noncurrent assets: Capital assets not being depreciated 486,124 Capital assets, being depreciated, net 5,580,305 Total noncurrent assets 6,066,429 Total assets 9,852,679 Deferred outflows of resources Deferred pension amounts 944,904 Liabilities Current liabilities: Accounts payable 965,266 Due to state 60,219 Due to other governmental units 9,832 Accrued payroll and benefits 938,701 Unearned revenue 22,569 Current portion of long-term debt 237,687 Total current liabilities 2,234,274 Noncurrent liabilities: Long-term debt, net of current portion 3,817,302 Net pension liability 1,349,077 Net other postemployment benefits obligation 43,328 Total noncurrent liabilities 5,209,707 Total liabilities 7,443,981 Deferred inflows of resources Deferred pension amounts 79,071 Net position Net investment in capital assets 2,410,135 Unrestricted 864,396 Total net position $ 3,274,531 The accompanying notes are an integral part of these financial statements. 12

15 Statement of Revenues, Expenditures and Changes in Net Position For the Year Ended September 30, 2015 Operating revenues State allocation $ 519,526 P.A. 423 funds 40,344 Charges for services: Medicaid 15,795,467 Sales 537,979 Other 987,356 County appropriation 250,100 Other grants 6,800 Total operating revenues 18,137,572 Operating expenses Wages and fringe benefits 6,480,953 Contracted services 3,111,589 Operating 1,635,127 Residential 4,743,706 Inpatient 698,363 Facilities 377,128 Depreciation 443,037 Total operating expenses 17,489,903 Operating income 647,669 Nonoperating revenues/(expenses) Interest income 3,141 Rent 18,844 Other revenue 11,137 Interest expense (105,153) Total nonoperating expenses (72,031) Change in net position 575,638 Net position, beginning of year, as restated 2,698,893 Net position, end of year $ 3,274,531 The accompanying notes are an integral part of these financial statements. 13

16 Statement of Cash Flows For the Year Ended September 30, 2015 Cash flows from operating activities Cash received from customers $ 17,911,992 Cash payments to employees (6,403,789) Cash payments to suppliers for goods and services (11,299,053) Net cash provided by operating activities 209,150 Cash flows from noncapital financing activities Other non-operating receipts 29,981 Cash flows from capital and related financing activities Purchase of capital assets (502,159) Principal paid on long-term debt (178,555) Interest paid on long-term debt (105,153) Net cash used in capital and related financing activities (785,867) Cash flows from investing activities Investment income received 3,141 Net change in cash and cash equivalents (543,595) Cash and cash equivalents, beginning of year 3,133,538 Cash and cash equivalents, end of year $ 2,589,943 Reconciliation of operating income to net cash provided by operating activities Operating income $ 647,669 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 443,037 Changes in operating assets and liabilities: Accounts receivable (200,224) Due from state (2,350) Inventory (14,362) Prepaids (91,361) Accounts payable 222,808 Due to state 2,786 Due to other governmental units (853,725) Accrued payroll and benefits 739,548 Unearned revenue (23,006) Accrued compensated absences (33,692) Net other postemployment benefits obligation 714 Change in net pension liability and deferred amounts (628,692) Net cash provided by operating activities $ 209,150 The accompanying notes are an integral part of these financial statements. 14

17 NOTES TO FINANCIAL STATEMENTS 15

18 Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Sanilac County Community Mental Health Authority (the Authority ), a Community Mental Health Authority established under Section 205 of the Michigan Mental Health Code, have been prepared in conformity with generally accepted accounting principles ( GAAP ) as applied to governmental units. The Government Accounting Standards Board ( GASB ) is the accepted standardssetting body for establishing governmental accounting and financial reporting principles. The more significant of the accounting policies of the Authority are described below. Reporting Entity As indicated above, the Authority is a Community Mental Health Authority, serving the mental health needs of Sanilac County residents. The Authority is a component unit of Sanilac County, Michigan (the County ). Basis of Presentation The operations of the Authority are accounted for as an enterprise fund (a proprietary fund type) which is designed to be self-supporting. Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, a net income is appropriate for capital maintenance, accountability, public policy, management control, or other purposes. The enterprise fund is the Authority's only fund. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Authority are received under contractual arrangements with Medicaid, Medicare and Michigan Blue Cross/Blue Shield programs, whereby the Authority is subject to redetermination upon audit by the applicable agency. An estimated provision is made for possible adjustments that may result from such reviews and any differences between the amounts accrued and amounts settled are recorded in operations in the period of settlement. Operating expenses include the cost of providing mental health services. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Authority s policy to use restricted resources first, then unrestricted resources as they are needed. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Equity Deposits and Investments The Authority s cash and cash equivalents consist of deposits in checking accounts, other demand accounts and amounts deposited in a pooled liquid asset account. 16

19 Notes to Financial Statements Statutory Authority Michigan law authorizes the Authority to deposit and invest in: Bonds, securities, other obligations and repurchase agreements of the United States, or an agency or instrumentality of the United States. Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified institution. Commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and that matures not more than 270 days after the date of purchase. Obligations of the State of Michigan and its political subdivisions that, at the time of purchase are rated as investment grade by at least one standard rating service. Mutual funds registered under the investments company act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. External investment pools as authorized by Public Act 20 as amended through December 31, Accounts Receivable Client accounts receivable and revenue are recorded when client services are performed. receivable consist primarily of amounts due from Region 10 for Prepaid Inpatient Health Plan. Amounts Inventory The Authority values inventory at cost using the first-in, first-out ( FIFO ) method of accounting. The inventory consists of supplies and materials used in certain activities related to the developmental disabilities programs. The costs of expendable supplies used in other programs are recorded as expenditures when purchased. Prepaids Payments made to vendors for services that will benefit periods beyond September 30, 2015, are recorded as prepaids in the accompanying statement of net position. Capital Assets Capital assets, which include land, buildings, machinery, equipment and vehicles are reported in the statement of net position. Capital assets are defined by the Authority as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. 17

20 Notes to Financial Statements The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Capital assets of the Authority are depreciated using the straight-line method over the following estimated useful lives: Asset Years Deferred Outflows of Resources Unearned Revenue Deferred Inflows of Resources Compensated Absences Buildings and improvements Equipment 4-10 Machinery 5-12 Vehicles 4-10 In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Authority's deferred outflows of resources are related to the net pension liability. Unearned revenue consists of amounts received prior to the delivery of goods/service or expenditure of allowable costs. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to one or more future periods and so will not be recognized as an inflow of resources (revenue) until that time. Employees earn between 10 and 25 days of vacation and 12 days of sick time each year. Employees are allowed to carryover 30 days (225 hours) of vacation time from year-to-year. At retirement, employees will be paid 100% of the hours times their current pay rate. Employees are also allowed to carryover up to 75 days (562.5 hours) of sick time from year-to-year. Per the union contract, employees hired prior to October 1, 2011, are paid for 100% for up to 225 hours (30 days) and are paid 50% for hours between to (31 to 75 days). Any sick hours in excess of (75 days) are not paid by the Authority to the employee. Employees hired after October 1, 2011 are not eligible for sick payouts at termination. 18

21 Notes to Financial Statements Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the plan fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. DEPOSIT RISK Custodial Credit Risk Deposits. Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned. State law does not require and the Authority does not have a policy for deposit custodial credit risk. All of the Authority's cash and cash equivalents are held in depository accounts. As of year-end, $2,332,587 of the Authority s bank balance of $2,787,359 was uninsured. 3. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2015, was as follows: Beginning Ending Balance Additions Disposals Balance Capital assets not being depreciated: Land $ 486,124 $ - $ - $ 486,124 Capital assets being depreciated: Buildings and improvements 7,394, ,319-7,632,645 Equipment 763, ,154 (116,726) 783,143 Machinery 88, ,183 Vehicles 916, ,686-1,044,480 Total capital assets being depreciated 9,163, ,159 (116,726) 9,548,451 Accumulated depreciation: Buildings and improvements (2,111,439) (363,846) - (2,475,285) Equipment (624,239) (61,086) 116,726 (568,599) Machinery (88,183) - - (88,183) Vehicles (817,974) (18,105) - (836,079) Total accumulated depreciation (3,641,835) (443,037) 116,726 (3,968,146) Total capital assets being depreciated, net 5,521,183 59,122-5,580,305 Total capital assets, net $ 6,007,307 $ 59,122 $ - $ 6,066,429 Unallocated depreciation expense for the year ended September 30, 2015 was $443,

22 Notes to Financial Statements 4. LONG-TERM DEBT Outstanding debt for the Authority includes a loan with an original issuance amount of $4,590,874, collateralized by all capital assets of the Authority, for the new administrative building. This loan was refinanced subsequent to year end (Note 10); therefore, it has been presented in accordance with the terms of the amended loan agreement. The loan requires 59 monthly payments of $24,134 including interest charged at 2.55% with a balloon payment due on December 29, Long-term obligations for the year ended September 30, 2015, were as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Loan payable $ 3,834,849 $ - $ (178,555) $ 3,656,294 $ 197,817 Compensated absences 432, ,405 (567,097) 398,695 39,870 $ 4,267,236 $ 533,405 $ (745,652) $ 4,054,989 $ 237,687 Annual debt service requirements to maturity for the loan payable are as follows: 5. NET INVESTMENT IN CAPITAL ASSETS Year Ended September 30, Principal Interest Total 2016 $ 197,817 $ 101,802 $ 299, ,821 85, , ,080 80, , ,474 75, , ,007 69, , ,611,095 16,519 2,627,614 $ 3,656,294 $ 429,373 $ 4,085,667 The composition of net investment in capital assets as of September 30, 2015, was as follows: Governmental Activities Capital assets: Capital assets, not being depreciated $ 486,124 Capital assets, being depreciated 5,580,305 Less related debt: Loan payable (3,656,294) $ 2,410,135 20

23 Notes to Financial Statements 6. RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and injuries to employees. During the year ended September 30, 2015, the Authority carried commercial insurance to cover all risks of losses. The Authority pays premiums to Sanilac County for workers compensation coverage. Sanilac County purchases workers compensation coverage for all County and Authority employees through the Michigan Association of Counties. The Authority had no settled claims resulting from these risks that exceeded their commercial coverage in any of the past three fiscal years. 7. DEFINED BENEFIT PENSION PLAN General Information About the Plan Plan Description. The Authority contributes to the Sanilac County Employees' Retirement Plan and Trust, a single employer defined benefit public employee retirement system ( PERS ) that acts as a common investment and administrative agent for both Sanilac County and the Sanilac County Community Mental Health Authority. The amounts reported by the Authority relate only to the Authority's portion of the County-wide plan. The PERS is considered part of Sanilac County s financial reporting entity and is included in the County s primary government financial statements as a pension trust fund. The plan is administered by the Sanilac County Retirement Board. A copy of that report may be obtained by writing to the Sanilac County Board of Commissioners Office, 60 West Sanilac, Sandusky, MI, 48471, or by calling (810) Benefits Provided. Pension benefits are calculated as total service multiplied by a range from 2% to 2.5% of final average compensation. Participants are considered to be fully vested in the plan after 8 years. Normal retirement age is 60. There is no early retirement option offered. Members are not required to make any contributions. Employees Covered by Benefit Terms. At December 31, 2014, plan membership consisted of the following: Inactive employees or beneficiaries currently receiving benefits 43 Inactive employees entitled to but not yet receiving benefits 25 Active employees 96 Total membership 164 Contributions. The Authority is required to contribute at an actuarially determined rate; the current rate is 11.96% of annual covered payroll. Employees are currently not required to contribute to the Plan. The contribution requirements and benefit provisions of the plan members and the Authority are established and may be amended by the Sanilac County Retirement Board. Net Pension Liability. The Authority's net pension liability was measured as of December 31, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. 21

24 Notes to Financial Statements Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.75% per year Salary increases 4.25% to 7.95% including inflation Investment rate of return 7.25% Retirement age Experience-based table of rates that are specific to the type of eligibility Mortality 1994 Group Annuity Mortality Table (set forward one year for males) The actuarial assumptions used in the December 31, 2014 valuation were based on the results of an actuarial experience study that was performed based on the five-year period ending December 31, A subsequent experience study was performed in The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are 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 by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Expected Money- Weighted Rate of Return Fixed income 30.00% 1.15% 0.35% Large cap value 22.00% 5.68% 1.25% Large cap growth 18.00% 5.68% 1.02% Mid cap growth 13.50% 6.50% 0.88% International 11.50% 6.46% 0.74% Alternative investments 5.00% 8.75% 0.44% % Inflation 2.75% Risk adjustments -0.18% Investment rate of return 7.25% 22

25 Notes to Financial Statements Discount Rate. The discount rate used to measure the total pension liability is 7.25% for The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in the Authority's Net Pension Liability The components of the changes in the Authority's net pension liability are summarized as follows: Authority's Total Pension Liability (a) Authority's Portion of the Plan Fiduciary Net Position (b) Authority's Net Pension Liability (a)-(b) Balances at December 31, 2013 $ 9,079,735 $ 7,648,770 $ 1,430,965 Changes for the year: Service cost 262, ,556 Interest 651, ,392 Employer contributions - 303,659 (303,659) Net appreciation in the fair market value of investments - 469,596 (469,596) Interest and dividends - 179,926 (179,926) Benefit payments, including refunds of employee contributions (586,550) (586,550) - Administrative expense - (495) 495 Other changes 133, ,096 (43,150) Net changes 461, ,232 (81,888) Balances at December 31, 2014 $ 9,541,079 $ 8,192,002 $ 1,349,077 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the Authority, calculated using the discount rate of 7.25%, as well as what the Authority s net pension liability would be if it were calculated using a discount rate that is 1% lower (6.25%) or 1% higher (8.25%) than the current rate: 1% Decrease (6.25%) Current Discount Rate (7.25%) 1% Increase (8.25%) Authority's net pension liability $ 2,556,238 $ 1,349,077 $ 332,201 Pension Plan Fiduciary Net Position. Detailed information about the pension plan s fiduciary net position is available in the separately issued Plan financial statements. 23

26 Notes to Financial Statements Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2015, the Authority recognized pension expense of $300,841. The Authority reported pension related deferred outflows of resources and deferred inflows of resources from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Net Deferred Outflows (Inflows) of Resources Net difference between projected and actual earnings on pension plan investments $ - $ 79,071 $ (79,071) Contributions subsequent to the measurement date 944, ,904 Total $ 944,904 $ 79,071 $ 865,833 The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending September 30, Other amounts reported as pension-related deferred outflows of resources and deferred inflows of resources will be recognized in pension expense as follows: Year Ended September 30, Amount 2016 $ (19,768) 2017 (19,768) 2018 (19,768) 2019 (19,767) Total $ (79,071) Payable to the Pension Plan. At September 30, 2015, the Authority reported a payable of $720,374 for the outstanding amount of contributions to the pension plan required for the year ended September 30, OTHER POSTEMPLOYMENT BENEFITS Plan Description In addition to the retirement benefits described in Note 7, the Authority provides other postemployment benefits, payment in lieu of health insurance benefits (the Plan ), to certain retirees. In accordance with the Authority s Directors' contract, eligible retirees receive a payment in lieu of healthcare benefits of $10,000, based on 25 years of service, for a period of six years following retirement from the Authority. As of September 30, 2014, the date of the most recent valuation, the closed Plan covered six members (five active plan members, and one retiree receiving benefits). 24

27 Notes to Financial Statements Funding Policy The required contribution is based on projected pay-as-you go financing requirements. For the year ended September 30, 2015, the Authority contributed $10,000 to the Plan. There are no contributions required by the Plan participants. Annual OPEB Cost and Net OPEB Obligation The Authority s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The Authority has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement No. 45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Authority s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the Authority s net OPEB obligation: Annual required contribution $ 11,956 Interest on net OPEB obligation 426 Adjustment to annual required contribution (1,668) Net OPEB cost (expense) 10,714 Contributions made (10,000) Increase in net OPEB obligation 714 Net OPEB obligation, beginning of year 42,614 Net OPEB obligation, end of year $ 43,328 The Plan s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past three fiscal years was as follows: Funded Status and Funding Progress Three Year Trend Information Annual Percentage Net Fiscal Year OPEB Cost of AOC OPEB Ending (AOC) Contributed Obligation 9/30/13 $ 18,099 55% $ 41,465 9/30/14 11,149 90% 42,614 9/30/15 10,714 93% 43,328 As of September 30, 2014, the date of the most recent valuation, the actuarial accrued liability for benefits was $152,596, all of which was unfunded. The covered payroll (annual payroll of the active employees covered by the Plan) was $362,255 and the ratio of the UAAL to the covered payroll was 42.1% percent. 25

28 Notes to Financial Statements The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment and mortality. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits calculations. Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the Plan as understood by the employer and Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following simplifying assumptions were made: Retirement age for active employees Based on the historical average retirement age for the covered group, active plan members were assumed to retire at age 62. Mortality Life expectancies were based on mortality tables from the National Center for Health Statistics. The 2006 United States Life Tables for Males and for Females were used. Turnover Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for assigning active members a probability of remaining employed until the assumed retirement age and for developing an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid. Healthcare cost trend rate As healthcare costs do not affect the actual amount of the benefit to the employee, a rate of 0% percent was used. Benefit payment 2015 benefit payment of $10,000 for retirees were used as the basis for calculation of the present value of total benefits to be paid. Inflation rate The expected long-term inflation assumption of 3.3% percent was based on projected changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds for an intermediate growth scenario. Based on the historical and expected returns of the Authority's short-term investment portfolio, a discount rate of 1.0% percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at September 30, 2015, was 26 years. 26

29 Notes to Financial Statements The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. 9. RESTATEMENT The Authority adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. As a result of this change, the Authority's beginning net position was decreased by $1,111, SUBSEQUENT EVENTS The Authority's note payable identified in Note 4 was amended and restated on December 29, 2015, in the amount of $3,606,696 with an interest rate of 2.55%. Payment terms include 59 regular monthly payments of principal and interest of $24,134 (starting January 29, 2016) and one irregular last monthly payment of all principal and interest then due. 11. CHANGE IN FINANCIAL REPORTING PRESENTATION In fiscal year 2015, the Authority changed its financial reporting presentation from a governmental fund to an enterprise fund, which did not result in any impact on the beginning balances presented in these financial statements. 27

30 REQUIRED SUPPLEMENTARY INFORMATION 28

31 Required Supplementary Information Sanilac County Employees' Retirement Plan and Trust Schedule of Changes in Net Pension Liability and Related Ratios Year Ended September 30, 2015 Authority's total pension liability Service cost $ 262,556 Interest 651,392 Other 133,946 Benefit payments, including refunds of employee contributions (586,550) Net change in the Authority's total pension liability 461,344 Authority's total pension liability, beginning of year 9,079,735 Authority's total pension liability, end of year 9,541,079 Authority's Portion of the Plan fiduciary net position Employer contributions 303,659 Net appreciation in the fair market value of investments 469,596 Interest and dividends 179,926 Benefit payments, including refunds of employee contributions (586,550) Administrative expense (495) Other changes 177,096 Net change in the Authority's portion of the plan fiduciary net position 543,232 Authority's portion of the plan fiduciary net position, beginning of year 7,648,770 Authority's portion of the plan fiduciary net position, end of year 8,192,002 Authority's net pension liability $ 1,349,077 Authority's portion of the plan fiduciary net position as a percentage of total pension liability 85.9% Covered-employee payroll $ 4,888,516 Authority's net pension liability as a percentage of covered-employee payroll 27.60% Note: GASB 67 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 29

32 Required Supplementary Information Sanilac County Employees' Retirement Plan and Trust Schedule of the Net Pension Liability Fiscal Year Ended September 30, Authority's Total Pension Liability Authority's Portion of the Plan Net Position Authority's Net Pension Liability Authority's Portion of the Plan Net Position as Percentage of the Authority's Total Pension Liability Covered- Employee Payroll Authority's Net Pension Liability as Percentage of Covered Payroll 2015 $ 9,541,079 $ 8,192,002 $ 1,349, % $ 4,888, % The amounts presented for each fiscal year were determined as of December 31 of the preceding year. Note: GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 30

33 Required Supplementary Information Sanilac County Employees' Retirement Plan and Trust Schedule of Contributions Fiscal Year Ending September 30, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered- Employee Payroll Contributions as Percentage of Covered- Employee Payroll 2015 $ 1,057,763 $ 1,057,763 $ - $ 4,393, % Note: GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Notes to Schedule of Contributions Valuation date Actuarially determined contribution rates are calculated as of December 31, which is 18 months prior to the beginning of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Level percent of payroll, closed Remaining amortization period 20 years Asset valuation method 5-year smooth market Inflation 2.75% Salary increases 4.25% to 7.95% including inflation Investment rate of return 7.25% Retirement age Mortality Experience-based table of rates that are specific to the type of eligibility 1994 Group Annuity Mortality Table (set-forward one year for males) 31

34 Other Postemployment Benefits Plan Schedule of Funding Progress Actuarial Actuarial Accrued Excess as a Valuation Actuarial Liability Unfunded Percentage Date Value of (AAL) (Overfunded) Funded Covered of Covered September 30, Assets Entry Age AAL Ratio Payroll Payroll 2011 $ - $ 271,998 $ 271, % $ 341, % , , % 362, % Schedule of Employer Contributions Annual Year Ended Required Percentage September 30, Contribution Contributed 2013 $ 18, % , % , % A plan of this size is not required to be valued each year. Additional years of data will be included in future years as revised valuations are necessary. 32

35 INTERNAL CONTROL AND COMPLIANCE 33

36 Rehmann Robson 5800 Gratiot Rd. Suite 201 Saginaw, MI Ph: Fx: rehmann.com INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Directors Sanilac County Community Mental Health Authority Sandusky, Michigan March 31, 2016 We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Sanilac County Community Mental Health Authority (the Authority ), a component unit of Sanilac County, Michigan, as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements, and have issued our report thereon dated March 31, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority'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. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 34

37 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. 35

38 Rehmann Robson 5800 Gratiot Rd. Suite 201 Saginaw, MI Ph: Fx: rehmann.com INDEPENDENT AUDITORS COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE March 31, 2016 To the Board of Directors Sanilac County Community Mental Health Authority Sandusky, Michigan We have audited the financial statements of the Sanilac County Community Mental Health Authority (the Authority ), a component unit of Sanilac County, as of and for the year ended September 30, 2015, and have issued our report thereon dated March 31, Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated October 12, 2015, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, as part of our audit, we considered the internal control of the Authority solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. We have provided our findings regarding internal control over financial reporting and compliance noted during our audit in a separate letter to you dated March 31, In addition, we noted certain other matters which are included in Attachment A to this letter. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on December 14, Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators

39 To the Board of Directors Sanilac County Community Mental Health Authority March 31, 2016 Page 2 Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm has complied with all relevant ethical requirements regarding independence. Qualitative Aspects of the Authority s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the Authority is included in Note 1 to the financial statements. As described in Note 9 to the financial statements, the Authority changed accounting policies related to accounting for pension plans by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 68, Accounting and Financial Reporting for Pensions. The cumulative effect of the accounting change as of the beginning of the year is reported in the Statement of Revenues, Expenses and Changes in Net Position. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management s current judgments. The most sensitive accounting estimates affecting the financial statements were: Management s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future. Management s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks. The assumptions used in the actuarial valuations of the pension and other postemployment benefits plans are based on historical trends and industry standards. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units.

40 To the Board of Directors Sanilac County Community Mental Health Authority March 31, 2016 Page 3 Significant Difficulties Encountered During the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. We did not identify any misstatements during our audit. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the Authority s financial statements or the auditors report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in Attachment C to this letter. Management s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the Authority, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Authority s auditors. Upcoming Changes in Accounting Standards Generally accepted accounting principles (GAAP) are continually changing in order to promote the usability and enhance the applicability of information included in external financial reporting. While it would not be practical to include an in-depth discussion of every upcoming change in professional standards, Attachment B to this letter contains a brief overview of recent pronouncements of the Governmental Accounting Standards Board (GASB) and their related effective dates. Management is

41 To the Board of Directors Sanilac County Community Mental Health Authority March 31, 2016 Page 4 Governmental Accounting Standards Board (GASB) and their related effective dates. Management is responsible for reviewing these standards, determining their applicability, and implementing them in future accounting periods. This information is intended solely for the use of the governing body and management of the Sanilac County Community Mental Health Authority and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours,

42 Attachment A - Comments and Recommendations For the September 30, 2015 Audit During our audit, we became aware of certain other matters that are opportunities for strengthening internal control and/or improving operating efficiency. This memorandum summarizes our comments and recommendations regarding those matters. Our consideration of the Authority's internal control over financial reporting is described in our report, dated March 31, 2016, issued in accordance with Government Auditing Standards. This memorandum does not affect that report or our report dated March 31, 2016, on the financial statements of the Sanilac County Community Mental Health Authority. Documentation of Review of Journal Entries We noted five of ten journal entries selected for testing did not include documentation that an independent review was being performed. In order to strengthen internal controls around the independent review of journal entries, we recommend all journal entries be reviewed and that the individual reviewing the journal entries, initial and date each entry to provide documentation of appropriate segregation of duties. A-1

43 Attachment B Upcoming Changes in Accounting Standards / Regulations For the September 30, 2015 Audit The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released recently and may be applicable to the Authority in the near future. We encourage management to review the following information and determine which standard(s) may be applicable to the Authority. For the complete text of these and other GASB standards, visit and click on the Standards & Guidance tab. If you have questions regarding the applicability, timing, or implementation approach for any of these standards, please contact your audit team. GASB 72 Fair Value Measurement and Application Effective 06/15/2016 (your FY 2016) This standard defines "fair value" as the price that would be received to sell an asset in an orderly transaction between market participants (an "exit price"). Fair value measurement is currently applied principally to investments, which GASB 72 does not change. However, it does introduce specific methods for measuring fair value when a market price is not readily available, and establishes a 3-level hierarchy of fair value that is disclosed in the footnotes, based on the presence or absence of observable market inputs. GASB 73 Pensions and Related Assets Not Within the Scope of GASB 68 Effective 06/15/2016 (your FY 2016) This standard addresses accounting and financial reporting for pensions that were not covered by GASB Statement No. 68, because the plan assets are not held in trust. Essentially, it applies the same treatment as GASB 68, but reflects the total pension liability and plan assets separately, rather than a net pension liability. We do not expect this standard to have any significant effect on the Authority. GASB 74 Postemployment Benefit Plans Other than Pension Plans Effective 06/15/2017 (your FY 2017) This standard requires the calculation of a net other postemployment benefit (OPEB) liability based on an actuarial valuation of retiree healthcare and similar benefits administered by an OPEB trust. It mirrors the new accounting and financial reporting requirements of GASB 67 for pension plans. GASB 75 Postemployment Benefits Other than Pensions Effective 06/15/2018 (your FY 2018) This standard builds on the requirements of GASB 74 by requiring employers that provide other postemployment benefits (OPEB) to recognize a net OPEB liability on their statements of net position. It mirrors the new accounting and financial reporting requirements of GASB 68 for pension benefits. GASB 76 The Hierarchy of GAAP for State and Local Governments Effective 06/15/2016 (your FY 2016) This standard clarifies the source of "generally accepted accounting principles" (GAAP) for governments. Authoritative sources of GAAP now include (1) GASB pronouncements, (2) GASB implementation guides, and (3) AICPA literature specifically cleared by the GASB. This standard does not change existing GAAP. B-1

44 Attachment B Upcoming Changes in Accounting Standards / Regulations For the September 30, 2015 Audit GASB 77 Tax Abatement Disclosures Effective 12/15/2016 (your FY 2017) This standard requires governments to disclose certain information about tax abatement agreements made to foster economic development or otherwise benefit the government or its citizens. Required disclosures include a brief description of the arrangement, the gross dollar amount of taxes abated in the current period, and any additional commitments made by the government as part of the agreement. GASB 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Effective 12/15/2016 (your FY 2017) This standard is an amendment to GASB 68, and provides guidance to governments that participate in nongovernmental cost-sharing pension plans. We do not expect this standard to have any significant effect on the Authority. GASB 79 Certain External Investment Pools and Pool Participants Effective 06/15/2016 (your FY 2016) This standard essentially extends the guidance previously available to governments investing in 2a7-like external investment pools to carry investments at amortized cost, as an approximation of fair value. The SEC amended Rule 2a7 in 2014, so the GASB replicated its prior provisions in this statement. We do not expect this standard to have any significant effect on the Authority. 2 CFR 200 Uniform Guidance for Federal Awards Cost Principles Effective 12/26/2014; Single Audit Requirements Effective 12/26/2015 (your FY 2016) The Office of Management and Budget (OMB) has consolidated seven separate circulars (including administrative requirements, cost principles, and audit requirements) into a single federal regulation. The new Uniform Guidance covers all aspects of federal grants from pre-award through the single audit. While much of the guidance was simply reorganized and recodified, there were also several substantive changes to the single audit thresholds. A single audit will now only be required if total expenditures of federal awards exceed $750,000 (up from $500,000). The OMB also made revisions to the list of compliance requirements tested in a single audit. In addition, the Uniform Guidance now explicitly requires grant recipients to have sound internal controls (which should be consistent with the COSO framework), and documented procedures for grant administration. Written procedures are required for payments (cash draws), procurement (including conflicts of interest), allowability of costs, compensation, and travel costs. Rehmann is available to assist grant recipients in developing/documenting these policies and procedures in compliance with the new requirements. B-2

45 Attachment C Management Representations For the September 30, 2015 Audit The following pages contain the written representations that we requested from management. C-1

46

47

48