Combined Financial Statements with Independent Auditors Report

Transcription

1 Combined Financial Statements with Independent Auditors Report June 30, 2014 and 2013

2 Table of Contents June 30, 2014 and 2013 Independent Auditors Report Financial Statements Combined Statements of Financial Position Combined Statements of Activities...5 Combined Statements of Functional Expenses Combined Statements of Cash Flows...8 Notes to the Combined Financial Statements Supplemental Information Schedule I Combining Statement of Financial Position Schedule II Combining Statement of Activities...19 Schedule III Schedule of Expenses by Contract Single Audit Section Schedule of Expenditures of Federal Awards...23 Notes to Schedule of Expenditures of Federal Awards...24 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs and Summary of Prior Audit Findings...29

3 INDEPENDENT AUDITORS REPORT To the Board of Directors Mountain-Pacific Quality Health Helena, MT We have audited the accompanying combined financial statements of Mountain-Pacific Quality Health ( Mountain-Pacific ) (a nonprofit organization) and affiliates, which comprise the combined statements of financial position as of June 30, 2014 and 2013, and the related combined statements of activities, functional expenses and cash flows for the years 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 combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Mountain-Pacific and affiliates as of June 30, 2014 and 2013, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying combining statement of financial position, combining statement of activities, and schedule of expenses by contract presented on page 17 to 22 and schedule of expenditures of federal awards presented on page 23, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 8, 2015 on our consideration of Mountain Pacific 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 Mountain-Pacific s internal control over financial reporting and compliance. Bozeman, Montana January 8,

5 FINANCIAL STATEMENTS

6 Combined Statements of Financial Position As of June 30, 2014 and 2013 Assets Current Assets Cash and cash equivalents $ 2,491,366 $ 1,626,670 Certificates of deposit, current - 69,981 Contract receivables 2,154,365 2,212,062 Accrued interest receivable Prepaid expenses 199, ,613 Total Current Assets 4,845,418 4,229,426 Property and Equipment Furniture and equipment 1,807,631 1,789,973 Less: Accumulated depreciation (1,589,462) (1,529,057) Net Property and Equipment 218, ,916 Other Assets Employee loans 8,228 4,773 Travel advances 6,546 17,866 Certificates of deposit, noncurrent 1,871,262 2,008,357 Deposits 23,466 23,466 Total Other Assets 1,909,502 2,054,462 Total Assets $ 6,973,089 $ 6,544,804 The Notes to Combined Financial Statements are an integral part of these statements. 3

7 Combined Statements of Financial Position (continued) As of June 30, 2014 and 2013 Liabilities and Net Assets Current Liabilities Accounts payable $ 154,973 $ 234,103 Accrued vacation payable 383, ,566 Accrued payroll and related taxes 309, ,711 Accrued retirement plan contribution 103, ,143 Capital lease, current 27,949 35,196 Total Current Liabilities 979,462 1,048,719 Noncurrent Liabilities Capital lease, noncurrent - 27,949 Total Noncurrent Liabilities - 27,949 Total Liabilities 979,462 1,076,668 Unrestricted Net Assets Undesignated 4,793,627 4,268,136 Designated 1,200,000 1,200,000 Total Unrestricted Net Assets 5,993,627 5,468,136 Total Liabilities and Net Assets $ 6,973,089 $ 6,544,804 The Notes to Combined Financial Statements are an integral part of these statements. 4

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9 Combined Statements Activities For the Years Ended June 30, 2014 and Support and Revenue Contract and grant income $ 13,598,924 $ 14,077,021 Unrealized losses on investments (5,152) (9,024) Interest income 15,298 18,127 Total support and revenue 13,609,070 14,086,124 Expenses Programs 12,938,844 12,971,308 Management and general 144, ,308 Total Expenses 13,083,579 13,186,616 Change in net assets 525, ,508 Net assets, beginning of year 5,468,136 4,568,628 Net assets, end of year $ 5,993,627 $ 5,468,136 The Notes to Combined Financial Statements are an integral part of these statements. 5

10 Combined Statement of Functional Expenses For the Year Ended June 30, 2014 QIO Program ONC Program Medicaid Contracts Other Contracts Total Program Management & General 2014 Total Salaries, wages and fringe benefits $ 5,820,371 $ 954,528 $ 3,005,391 $ 116,090 $ 9,896,380 $ 74,022 $ 9,970,402 Travel 368,354 63,072 63,294 2, ,737 23, ,712 Supplies 123,150 4,206 19, ,365 6, ,718 Printing and publications 111, , , ,997 Consultant fees 259,949 53,241 81,378 3, , ,162 Subcontractors 20,165 1,635 6, , ,494 Dues and membership 159,166 11,619 66, ,247 14, ,226 Physician expenses 39,083-3,080-42,163-42,163 Postage 30,326 2,055 12, , ,130 Data processing 130,399 10,916 94,282 1, , ,992 Insurance 38,369 6,468 20,340 5,772 70,949-70,949 Equipment rental 8, , , ,953 Professional services 38,740 6,637 20, ,237 17,064 84,301 Telephone 102,697 16,558 90, , ,092 Maintenance 41,095 3,820 17, , ,483 Occupancy 438,089 13, ,667 1, , ,750 Depreciation 59,938 8,635 27,282 1,007 96,862 1,120 97,982 Personal property taxes ,452-1,452 Board of Director fees 6,315 1,065 3, ,860-10,860 Meetings and conferences 56,814 6,822 4, ,692 1,599 70,291 Other expenses 54,768 10,461 16,521 1,417 83,167 3,303 86,470 $ 7,908,371 $ 1,175,998 $ 3,717,377 $ 137,098 $ 12,938,844 $ 144,735 $ 13,083,579 The Notes to Combined Financial Statements are an integral part of these statements. 6

11 Combined Statement of Functional Expenses For the Year Ended June 30, 2013 QIO Program ONC Program Medicaid Contracts Other Contracts Total Program Management & General 2013 Total Salaries, wages and fringe benefits $ 5,615,550 $ 1,272,553 $ 2,676,047 $ 216,419 $ 9,780,569 $ 106,665 $ 9,887,234 Travel 447,734 86,912 68,478 19, ,177 19, ,978 Supplies 138,655 7,812 20,993 1, ,919 9, ,159 Printing and publications 78, , ,447 Consultant fees 249,575 29,032 75,503 64, , ,124 Subcontractors 56,012 3,176 4,021 8,355 71, ,203 Dues and membership 57,325 4,910 65,220 3, ,258 31, ,209 Physician expenses 40,303-10, ,033-51,033 Postage 37,381 3,353 11, , ,694 Data processing 145,034 20, ,237 3, , ,532 Insurance 36,008 8,342 17,420 5,020 66,790-66,790 Equipment rental 10,379 1,652 3, , ,016 Professional services 25,906 5,717 15,868 2,832 50,323 1,395 51,718 Telephone 111,403 44,501 91,022 2, , ,373 Maintenance 39,334 3,990 13,380 1,127 57,831 1,912 59,743 Occupancy 387,459 25, ,140 1, , ,040 Depreciation 61,519 12,014 26,133 2, ,452 2, ,807 Personal property taxes , , ,139 Board of Director fees 19,757 4,577 9, ,612-34,612 Meetings and conferences 35,973 29,166 5, ,576 17,745 88,321 Other expenses 56,708 14,967 31,224 3, ,921 22, ,444 $ 7,651,517 $ 1,579,391 $ 3,402,447 $ 337,953 $ 12,971,308 $ 215,308 $ 13,186,616 The Notes to Combined Financial Statements are an integral part of these statements. 7

12 Combined Statements of Cash Flows For the Years Ended June 30, 2014 and Cash Flows From Operating Activities Change in net assets $ 525,491 $ 899,508 Adjustments to reconcile change in net assets to net cash from operations: Depreciation 97, ,807 Amortization included in data processing 51,896 51,896 Unrealized investment losses 5,152 9,024 (Increase) decrease in current assets: Contracts receivable 57,697 (619,605) Accrued interest receivable Prepaid expenses 120,926 (62,410) Employee loans (3,455) 2,123 Travel advances 11,320 (13,720) Increase (decrease) in current liabilities: Accounts payable (79,130) 62,313 Accrued vacation expense 33,656 10,366 Accrued payroll and related taxes 5,233 10,815 Accrued retirement plan contribution (21,769) (5,073) Net cash provided by operating activities 805, ,084 Cash Flows From Investing Activities Proceeds from matured certificates of deposit 1,273,536 1,673,213 Purchase of certificates of deposit (1,071,614) (1,681,399) Acquisition of property and equipment (107,129) (125,654) Net cash provided (used) by investing activities 94,793 (133,840) Cash Flows from Financing Activities Principal payments on capital lease (35,196) (32,983) Net cash used by financing activities (35,196) (32,983) Net increase in cash and cash equivalents 864, ,261 Cash and cash equivalents at beginning of year 1,626,670 1,343,409 Cash and cash equivalents at end of year $ 2,491,366 $ 1,626,670 Supplemental Cash Flow Information Cash paid during the year for interest $ 3,072 $ 5,285 The Notes to Combined Financial Statements are an integral part of these statements. 8

13 NOTES TO THE COMBINED FINANCIAL STATEMENTS

14 Notes to the Combined Financial Statements June 30, 2014 and Summary of Significant Accounting Policies Organization Mountain-Pacific was incorporated on April 25, 1973, by action of the Montana Medical Association House of Delegates, to serve as a state-wide organization for medical quality assurance and peer review activities in Montana. In May 1975, Mountain-Pacific became the Professional Standards Review Organization (PSRO) for Montana as a result of public law Under the auspices of the Department of Health and Human Services (DHHS), Mountain- Pacific was a fully operational PSRO and implemented certain programs which involved local practicing physicians in the ongoing review and evaluation of health care services paid for under the Medicare program. On July 1, 1984, the PSRO program was replaced by a Professional Review Organization (PRO) program. Mountain-Pacific was awarded the PRO designation for both Montana and Wyoming and the corporate name was changed to Montana-Wyoming Foundation for Medical Care. In March of 2003, the name of the PRO program was changed to the Quality Improvement Organization (QIO) program. With the addition of the Hawaii PRO contract in 1996, the Corporation changed its name to the Mountain-Pacific Quality Health Foundation. The Alaska QIO contract was awarded to Mountain-Pacific in November During fiscal 2007, Mountain-Pacific began doing business as Mountain-Pacific Quality Health. On January 5, 2005, a new corporation was formed, Mountain-Pacific Quality Health Foundation-Hawaii to acquire in-state status, providing a non-competitive bid process for the QIO contract in that state. Assets were transferred to this corporation on April 1, Subsequently, the Centers for Medicare and Medicaid Services (CMS), the agency who administers the QIO program, instructed all activities to be operated out of one corporation. All assets in the Hawaii corporation were transferred back to Mountain-Pacific Quality Health Foundation and the Hawaii corporation was inactivated. However, efforts were continued to reach an agreement with CMS. In December 2007, CMS agreed to novate the Hawaii QIO contract to the Hawaii corporation. The novation assignment was effective July 1, The Hawaii corporation was re-activated and the asset base was re-established. In 2007, two new corporations were formed, Mountain-Pacific Quality Health Foundation- Wyoming and Mountain-Pacific Quality Health Foundation-Alaska to acquire in-state status, providing a non-competitive bid process for the QIO contracts in those states. Mountain-Pacific transferred assets to Wyoming and Alaska effective July 1, Each state corporation holds the QIO contract for that state. Quality Health Services, Inc. (QHS) was incorporated on October 13, 2011 by action of the Mountain-Pacific Quality Health Board of Directors. This organization was established as part of a mitigation plan to work around CMS conflict of interest provisions that came into effect with the 10th Scope of Work in August of An independent Board of Directors governs QHS. 9

15 Notes to the Combined Financial Statements June 30, 2014 and Summary of Significant Accounting Policies (continued) Organization (continued) Health Technology Services, LLC (HTS) was incorporated on February 21, Mountain- Pacific is the sole member of the limited liability corporation. This organization was established to replace QHS as part of a mitigation plan to work around CMS conflict of interest provisions. An independent group of managers govern HTS. Principles of Combination Mountain-Pacific completed its organizational restructuring efforts to acquire in-state status in Montana, Wyoming, Hawaii, and Alaska. This structure allows a non-competitive bid process for the QIO contract in each state. Mountain-Pacific-MT transferred certain assets to Mountain- Pacific-HI, Mountain Pacific-WY, and Mountain-Pacific-AK effective July 1, The activities of the Mountain-Pacific-HI, Mountain-Pacific-WY, Mountain Pacific-AK, Quality Health Services, Inc., and Health Technology Services, LLC are combined with those of Mountain-Pacific-MT. All significant inter-company transactions are eliminated from the consolidated financial statements as described in the Affiliated Party Transactions disclosure. Affiliated Party Transactions In June 2012 Mountain-Pacific loaned QHS $200,000 to provide operating capital. The terms of the promissory agreement provide for annual payments equal to 10 percent of QHS s annual net profit. Loan interest accrues at the rate of 2.72 percent per annum. This loan obligation is eliminated from the consolidated Statement of Financial Position. Management and administrative support services are shared among the six affiliated organizations. The costs associated with providing these services are recognized monthly. The revenue, expense, accounts receivable and accounts payable recorded to recognize these transactions are eliminated from the consolidated financial statements. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statement period. Actual amounts could differ from these estimates. 10

16 Notes to the Combined Financial Statements June 30, 2014 and Summary of Significant Accounting Policies (continued) Basis of Presentation The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America ( GAAP ), as codified by the Financial Accounting Standards Board. Classification of Net Assets Mountain-Pacific reports information regarding its financial position and activities according to three classes: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. All of Mountain-Pacific s activities are reported in the unrestricted net asset class. The Board has designated $1.2 million of unrestricted net assets to a reserve fund for the years ended June 30, 2014 and 2013, respectively. Cash and Cash Equivalents Cash and cash equivalents consist of all checking, savings and money market accounts and certificates of deposit with an original maturity of less than three months. Cash and cash equivalents consist of the following as of June 30: Cash in savings, checking and money market accounts $ 400,154 $ 303,327 Repurchase agreements 2,091,212 1,323,343 $ 2,491,366 $ 1,626,670 Cash in savings, checking accounts and money market accounts exceed the Federally Insured (FDIC) limits by $1,121,379 at June 30, 2014 and $596,358 at June 30, Cash in money market accounts exceed the Securities Investor Protection Corporation (SIPC) insurance limit by $78,867 as of June 30, 2014 and did not exceed the SIPC insurance limit at June 30, The repurchase agreements are collateralized by U.S. Treasury Securities but are not FDIC insured. Investments Certificates of deposit with an original maturity of more than three months but less than twelve months are considered short-term or current investments. Certificates of deposit with an original maturity of twelve months or more are considered long-term or noncurrent. Certificates of deposits exceed the Securities Investor Protection Corporation (SIPC) insurance limit by $1,621,263 and $1,491,620 as of June 30, 2014 and 2013, respectively. 11

17 Notes to the Combined Financial Statements June 30, 2014 and Summary of Significant Accounting Policies (continued) Contract Receivables Management believes all contract receivables to be fully collectible, as the majority of the receivables are collected within 30 to 45 days after they have been billed. Accordingly, no allowance for doubtful accounts has been recorded. The Federal QIO and Office of the National Coordinator for Health Information Technology (ONC) contracts comprise 71 and 80 percent of receivables as of June 30, 2014 and 2013, respectively. Property and Equipment Mountain-Pacific uses equipment acquired under the QIO contracts at a cost of $364,861 and $359,292 as reported to CMS at June 30, 2014 and 2013, respectively. Title to this equipment is maintained by the United States Department of Health and Human Services, which must approve of dispositions. Some of the equipment used under the current QIO contracts is provided to Mountain-Pacific by the CMS. All other furniture and equipment with an initial cost of $1,000 or more are recorded at cost. Prior to July 1, 2011, sensitive items such as PDA s and computers with an initial cost of $250 or more were recorded at cost. Property and equipment items are depreciated on a straight-line basis over their estimated useful service lives of three to eight years. Mountain-Pacific capitalizes the costs incurred to develop internal-use software once management determines the software will be feasible for use generally over a period exceeding one year. Costs are capitalized up to the period management determines the project is substantially complete and ready for its intended use. Once implemented, internally developed software is amortized on a straight-line basis over five years. Amortization expense was $51,896 for the years ended June 30, 2014 and Reclassification Certain reclassifications have been made to the 2013 financial statement presentation to correspond to the current year s format. Net assets and changes in net assets are unchanged due to these reclassifications. Prepaid Expenses Mountain-Pacific records expenses when incurred, therefore reports prepayments of expenses as a current asset. Prepaid expenses are mainly comprised of insurance, membership dues, and rental and software expenses. For the years ended June 30, 2014 and 2013, prepaid expenses were $199,687 and $320,613, respectively. 12

18 Notes to the Combined Financial Statements June 30, 2014 and Summary of Significant Accounting Policies (continued) Accrued Vacation Pay Mountain-Pacific employees accrue personal leave/vacation time on a pay period basis. The accrual level varies by employee based upon the number of hours worked and years of service. Full-time and part-time employees may carryover up to 80 hours and 50 hours, respectively, of unused leave from one year to the next. Exceptions to this limit are subject to the Chief Executive Officer s approval. An employee is compensated at termination for unused leave hours at his or her current rate of pay. Employees also earn sick leave time on a pay period basis. Sick leave time is accrued at the rate of.0384 hours per hour worked, up to a defined limit based on the state of employment. An employee is not compensated at termination for unused sick leave hours. Income Taxes With the exception of QHS and HTS, Mountain-Pacific and its affiliated corporations are nonprofit organizations exempt from federal and state income tax under the provisions of the Internal Revenue Code, Section 501(c)(6). Generally, Mountain-Pacific is not subject to examination by federal or state tax authorities for years before Applications for 501(c)(3) status were approved by the Internal Revenue Service (IRS) for Mountain-Pacific Quality Health Foundation Alaska and Mountain-Pacific Quality Health Foundation in August and September 2014, respectively. Applications for the same tax status were approved for Mountain-Pacific Quality Health Foundation Hawaii and Mountain-Pacific Quality Health Foundation Wyoming in November Subsequent Events Management has evaluated subsequent events through January 8, 2015, the date which the financial statements were available for issue. 13

19 Notes to the Combined Financial Statements June 30, 2014 and Contract Receivables At June 30, 2014 and 2013, contract receivables consisted of the following: United States Department of Health and Human Services $ 1,531,129 $ 1,777,038 Montana Department of Public Health and Human Services 608, ,539 Other 14, , Concentrations $ 2,154,364 $ 2,212,062 Approximately 59 percent, 30 percent, and 8 percent of Mountain-Pacific s revenue was earned under the QIO, Montana Department of Health and Human Services, and the ONC contracts, respectively, during the year ended June 30, Approximately 56 percent, 25 percent, and 17 percent of Mountain-Pacific s revenue was earned under the QIO, Montana Department of Health and Human Services, and the ONC contracts, respectively, during the year ended June 30, Lease Commitments Mountain-Pacific leases office space in various locations under separate operating leases as follows: Helena, Montana: The amended lease expires July 31, The monthly rent was $21,859 and $21,430 for the lease years beginning August 2013 and August 2012, respectively. The amended lease set the monthly rent beginning August 1, 2014 at $21,804. The lease terms call for an annual increase in the monthly rental rate of two percent. Honolulu, Hawaii: The amended lease expires July 31, The monthly rent was set at $14,420 effective July 1, An adjustment to the monthly rent is currently under negotiation. Anchorage, Alaska: The amended lease expires July 31, The monthly rent changed from $7,000 to $7,210 effective August 1, The lease terms call for an annual increase in the rental rate on August 1st of each subsequent year equal to the change in the Consumer Price Index or three percent, whichever is greater. Casper, Wyoming: The amended lease expires on August 31, The monthly rent changed from $1,420 to $1,067 effective September 15, The lease terms call for an annual increase in the monthly rental rate of three percent on September 1 of each subsequent year. 14

20 Notes to the Combined Financial Statements June 30, 2014 and Lease Commitments (continued) Mountain-Pacific signed new lease agreements shortly after June 30, 2014; the minimum rental commitments under these operating leases for the next four years are as follows: 2015 $ 534, , , ,482 $ 2,184,664 The aggregate rent expense under the operating leases was $555,475 and $520,165 for the years ended June 30, 2014 and 2013, respectively. 5. Capital Lease and Note Payable Mountain-Pacific entered into a lease/finance agreement in March 2012 with De Lage Landen Financial Services. The agreement included the leasing of data processing hardware and software over a three-year period, with a $1 buy-out provision at the end of the term. The fair value of the hardware and software at the lease inception was $47,745 and $11,547, respectively. The hardware depreciation expense was $15,915 and the software amortization was $3,849 in 2014 and The accumulated depreciation on the hardware was $35,808 and $19,894 at June 30, 2014 and 2013, respectively. The accumulated amortization on the software was $8,661 and $4,811 at June 30, 2014 and 2013, respectively. The agreement also provided for the financing of related maintenance fees. The fair value of the maintenance fees at the inception of the agreement was $44,752. The principal portion of the monthly payments represents a data processing expense. The imputed interest necessary to reduce the net minimum lease payments to present value is considered immaterial. The following schedule reflects the minimum future principal/capital lease payments due through the final payment in March 2015: Maintenance Lease Total Total principal payments $ 11,189 $ 16,760 $ 27, Retirement Plan Mountain-Pacific provides a 401 (k) and profit sharing plan for its employees. For the years ended June 30, 2014 and 2013, Mountain-Pacific contributed 9 percent of employee earnings to the Plan. Retirement Plan contributions were $704,208 and $694,029 for the years ended June 30, 2014 and 2013, respectively. All Mountain-Pacific employees are covered by the Plan. 15

21 Notes to the Combined Financial Statements June 30, 2014 and Contingency Federal Contracts Contracts with the Federal Government provide that both provisional and incurred indirect cost rates are subject to approval by the cognizant federal agency. Incurred cost rates have been approved for the fiscal year ended June 30, Provisional indirect rates for fringe benefits and other indirect expenses have been approved for fiscal years 2014 and These rates will be subject to review and adjustment by Mountain-Pacific s federal audit agency. Management is of the opinion that the indirect cost rates used to allocate costs to specific contracts as reflected herein will be approved by the contracting federal agency without material adjustments. 8. Pending Litigation and Claims Mountain-Pacific is involved in various legal actions and claims in the ordinary course of business. A claim was filed prior to June 30, Mountain-Pacific s liability for this claim was limited to its $25,000 insurance deductible. This liability is not reflected in the financial statements as of June 30, The claim was settled and the expense is reported in the statements for the period ending June 30, It is the opinion of management, based upon legal counsel, that the probability of any pending litigation or claims resulting in a material effect on Mountain-Pacific s financial position is remote. 9. New QIN-QIO Contract and Task Order Mountain-Pacific was awarded a single Indefinite Delivery/Indefinite Quantity umbrella contract by the Centers of Medicare & Medicaid Services (CMS) in July This contract qualified Mountain-Pacific to receive individual task orders from CMS to provide services supporting CMS s aims of better health care, better health, and lower healthcare costs for all Medicare beneficiaries. Mountain-Pacific was awarded four task orders under this contract in July. Under the task orders, Mountain-Pacific will provide health care quality improvement services in the states of Montana, Alaska, Hawaii, and Wyoming. The task orders are effective from July 2014 to July 2019 and were awarded for the following amounts Montana $6,969,084; Alaska $7,208,920; Hawaii $12,650,068; and Wyoming $5,771,

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23 SUPPLEMENTAL INFORMATION

24 Schedule I - Combining Statement of Financial Position As of June 30, 2014 Assets Montana Corp Wyoming Corp Hawaii Corp Alaska Corp Quality Health Services, Inc. Health Technology Services, LLC Eliminating Adjustments Combined Balances Current Assets Cash and cash equivalents $ 911,726 $ 341,157 $ 698,417 $ 331,044 $ 200,000 $ 9,022 $ - $ 2,491,366 Contract receivables 1,017, , , ,124-5,120 (14,470) 2,154,365 Intercompany receivable 5,406, (5,406,879) - Prepaid expenses 150,517 6,427 32,970 9, ,687 Total Current Assets 7,486, ,191 1,331, , ,000 14,142 (5,421,349) 4,845,418 Property and Equipment, at cost Furniture and equipment 1,546,704 40, ,961 62, ,807,631 Less: Accumulated depreciation (1,379,925) (30,083) (132,346) (47,108) (1,589,462) Net Property and Equipment 166,779 10,037 25,615 15, ,169 Other Assets Employee loans 7, ,228 Travel advances ,055 1, ,546 Certificates of deposit, noncurrent 1,871, ,871,262 Loan receivable, noncurrent 200, (200,000) - Deposits 18, , ,466 Total Other Assets 2,097, ,438 6, (200,000) 1,909,502 Total Assets $ 9,750,723 $ 717,817 $ 1,361,114 $ 550,642 $ 200,000 $ 14,142 $ (5,621,349) $ 6,973,089 See Independent Auditors Report. 17

25 Schedule I - Combining Statement of Financial Position (continued) As of June 30, 2014 Liabilities and Net Assets Montana Corp Wyoming Corp Hawaii Corp Alaska Corp Quality Health Services, Inc. Health Technology Services, LLC Eliminating Adjustments Combined Balances Current Liabilities Accounts payable $ 64,308 $ 32,195 $ 49,102 $ 9,368 $ - $ - $ - $ 154,973 Accrued vacation pay 278,292 24,897 49,153 30, ,222 Accrued payroll and related taxes 199,781 25,229 58,258 26, ,944 Accrued retirement plan contribution 68,334 8,233 18,295 8, ,374 Capital lease, current 27, ,949 Intercompany payable - 1,970,674 2,132,157 1,266,316 47,862 4,340 (5,421,349) - Total Current Liabilities 638,664 2,061,228 2,306,965 1,341,752 47,862 4,340 (5,421,349) 979,462 Noncurrent Liabilities Note payable, noncurrent ,000 - (200,000) - Total Noncurrent Liabilities ,000 - (200,000) - Total Liabilities 638,664 2,061,228 2,306,965 1,341, ,862 4,340 (5,621,349) 979,462 Unrestricted Net Assets Undesignated 7,912,059 (1,343,411) (945,851) (791,110) (47,862) 9,802-4,793,627 Designated 1,200, ,200,000 Total Unrestricted 9,112,059 (1,343,411) (945,851) (791,110) (47,862) 9,802-5,993,627 $ 9,750,723 $ 717,817 $ 1,361,114 $ 550,642 $ 200,000 $ 14,142 $ (5,621,349) $ 6,973,089 See Independent Auditors Report. 18

26 Schedule II - Combining Statement of Activities For the Year Ended June 30, 2014 Montana Corp Wyoming Corp Hawaii Corp Alaska Corp Quality Health Services, Inc. Health Technology Services, LLC Eliminating Adjustments Combined Balances Support and Revenue Contract and grant income $ 7,049,320 $ 1,584,630 $ 3,429,186 $ 1,458,136 $ 18,444 $ 59,208 $ - $ 13,598,924 Intercompany revenue 1,057,703 13,356 54,231 3, (1,128,485) - Unrealized investment losses (5,152) (5,152) Interest income 14, ,298 Total unrestricted revenues 8,116,794 1,598,080 3,483,609 1,461,420 18,444 59,208 (1,128,485) 13,609,070 Expenses Programs 6,577,389 1,901,312 3,689,301 1,818,357 31,424 49,546 (1,128,485) 12,938,844 Management and general 76,217 16,211 34,321 17, ,735 Total Expenses 6,653,606 1,917,523 3,723,622 1,835,483 31,424 50,406 (1,128,485) 13,083,579 Change in unrestricted net assets 1,463,188 (319,443) (240,013) (374,063) (12,980) 8, ,491 Net assets, beginning of year 7,648,871 (1,023,968) (705,838) (417,047) (34,882) 1,000-5,468,136 Net assets, end of year $ 9,112,059 $ (1,343,411) $ (945,851) $ (791,110) $ (47,862) $ 9,802 $ - $ 5,993,627 See Independent Auditors Report. 19

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28 Schedule III - Schedule of Expenses by Contract For the Year Ended June 30, 2014 QIO Contracts ONC Montana Wyoming Hawaii Alaska Total QIO Montana/ Wyoming HTS Total ONC Program Salaries, wages and fringe benefits $ 1,143,183 $ 1,152,464 $ 2,352,787 $ 1,171,937 $ 5,820,371 $ 954,528 $ 954,528 Travel 61,195 80, ,907 56, ,354 63,072 63,072 Supplies 14,889 37,560 48,082 22, ,150 4,206 4,206 Printing and publications 11,047 28,584 64,858 6, , Consultant fees 82,409 70,291 91,853 15, ,949 53,241 53,241 Subcontractors 19, ,165 1,635 1,635 Dues and membership 20,466 23,177 94,958 20, ,166 11,619 11,619 Physician expenses 8,708 4,350 19,275 6,750 39, Postage 4,839 8,510 11,511 5,466 30,326 2,055 2,055 Data processing 15,509 13,215 86,946 14, ,399 10,916 10,916 Insurance 7,530 7,389 15,644 7,806 38,369 6,468 6,468 Equipment rental 1,053 1,478 2,535 3,240 8, Professional services 8,017 7,024 16,306 7,393 38,740 6,637 6,637 Telephone 18,967 30,105 34,726 18, ,697 16,558 16,558 Maintenance 8,308 5,624 14,669 12,494 41,095 3,820 3,820 Occupancy 59,597 36, , , ,089 13,118 13,118 Depreciation 11,107 9,642 23,738 15,451 59,938 8,635 8,635 Personal property taxes Board of Directors fees 1,239 1,216 2,575 1,285 6,315 1,065 1,065 Meetings and conferences 19,386 16,179 12,378 8,871 56,814 6,822 6,822 Other expenses 12,653 12,230 18,174 11,711 54,768 10,461 10,461 $ 1,530,161 $ 1,546,490 $ 3,316,766 $ 1,514,954 $ 7,908,371 $ 1,175,998 $ 1,175,998 See Independent Auditors Report. 20

29 Schedule III - Schedule of Expenses by Contract (continued) For the Year Ended June 30, 2014 Drug Prior Authorization Acute Care Medicaid Contracts Long-term Care Due Care Transportation DME Personal Assist Services Total Medicaid Salaries, wages and fringe benefits $ 540,136 $ 118,650 $ 386,383 $ 574,665 $ 510,619 $ 130,362 $ 744,576 $ 3,005,391 Travel 5,583 1,232 5,939 9,045 5,458 1,349 34,688 63,294 Supplies 3, ,337 4,479 4, ,850 19,509 Printing and publications , ,372 Consultant fees 2, ,568 13,964 2, ,625 81,378 Subcontractors , ,794 6,085 Dues and membership 1, ,037 58,347 1, ,098 66,749 Physician expenses , ,080 Postage 1,157 1, ,968 4, ,808 12,269 Data processing 7,441 1,769 5,814 8,043 7,662 1,865 61,688 94,282 Insurance 3, ,642 3,868 3, ,917 20,340 Equipment rental ,655 Professional services 3, ,679 4,004 3, ,218 20,906 Telephone 12,563 1,516 15,000 3,297 32,314 1,530 24,515 90,735 Maintenance 2, ,505 3,060 3, ,977 17,144 Occupancy 23,888 6,638 30,072 23,484 45,924 7,522 22, ,667 Depreciation 4,580 1,018 3,413 5,291 4,682 1,108 7,190 27,282 Personal property taxes Board of Directors fees ,349 Meetings and conferences , ,939 Other expenses 2, ,995 3,255 2, ,677 16,521 $ 617,593 $ 137,506 $ 463,078 $ 722,418 $ 638,979 $ 149,393 $ 988,410 $ 3,717,377 See Independent Auditors Report. 21

30 Schedule III - Schedule of Expenses by Contract (continued) For the Year Ended June 30, 2014 Other Contracts QHS/HTS Total Salaries, wages and fringe benefits $ 57,330 $ 58,760 $ 9,896,380 Travel 584 1, ,737 Supplies ,365 Printing and publications ,949 Consultant fees 212 3, ,795 Subcontractors ,034 Dues and membership ,247 Physician expenses ,163 Postage ,107 Data processing ,946 Insurance 402 5,370 70,949 Equipment rental ,902 Professional services ,237 Telephone ,872 Maintenance ,484 Occupancy 1, ,644 Depreciation ,862 Personal property taxes 9 8 1,452 Board of Directors fees ,860 Meetings and conferences ,692 Other expenses 247 1,170 83,167 $ 62,999 $ 74,099 $ 12,938,844 See Independent Auditors Report. 22

31 SINGLE AUDIT SECTION

32 Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2014 CFDA # Contract Number Expenditures U.S. Department of Health and Human Services: Centers for Medicare and Medicaid Services: * Montana QIO, 10th Scope MT10C $1,530,164 * Wyoming QIO, 10th Scope WY10C 1,546,496 * Hawaii QIO, 10th Scope HI10C 3,316,765 * Alaska QIO, 10th Scope AK10C 1,514,953 Total Centers for Medicare and Medicaid Services 7,908,378 Office of the National Coordinator for Health Information Technology: ARRA - Health Information Technology Extension Program - MT/WY RC0063/01 1,019,248 Total Office of the National Coordinator for Health Information Technology 1,019,248 Total U.S. Department of Health and Human Services $ 8,927,626 * Denotes major program See Independent Auditors Report The accompanying notes are an integral part of this schedule. 23

33 Notes to Schedule of Expenditures of Federal Awards For the Year Ended June 30, Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant and contract activity of Mountain-Pacific and is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. 2. Health Information Technology Extension Program The cooperative agreement with the Office of the National Coordinator for Health Information Technology requires a 10 percent non-federal match. The agreement also stipulates that Federal funding of activities supporting the implementation of electronic medical record keeping systems by Critical Access Hospitals and Priority Primary Care Physicians is based upon the achievement of defined goals and capped by the amount of actual expenditures incurred. The amounts reported on the Schedule of Expenditures of Federal Awards represents only the Federal share of funds expended. 24

34 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Mountain-Pacific Quality Health 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 Mountain-Pacific Quality Health (a nonprofit organization) ( Mountain-Pacific ), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Mountain- Pacific s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Mountain-Pacific s internal control. Accordingly, we do not express an opinion on the effectiveness of the Mountain-Pacific 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. 25

35 Compliance and Other Matters As part of obtaining reasonable assurance about whether Mountain-Pacific s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Bozeman, Montana January 8,

36 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board of Directors of Mountain-Pacific Quality Health Report on Compliance for Each Major Federal Program We have audited Mountain-Pacific Quality Health s ( Mountain-Pacific ) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Mountain-Pacific s major federal programs for the year ended June 30, Mountain-Pacific s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Mountain-Pacific s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 program occurred. An audit includes examining, on a test basis, evidence about Mountain-Pacific 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 program. However, our audit does not provide a legal determination of Mountain- Pacific s compliance. Opinion on Each Major Federal Program In our opinion, Mountain-Pacific 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 programs for the year ended June 30,

37 Report on Internal Control Over Compliance Management of Mountain-Pacific 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 Mountain-Pacific s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal 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 program and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 Mountain-Pacific 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 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 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 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. 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Bozeman, Montana January 8,