HIRED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT. For The Years Ended June 30, 2016 and 2015

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT For The Years Ended June 30, 2016 and 2015

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3 TABLE OF CONTENTS Reference Page Numbers Independent Auditor's Report 1 Management Discussion and Analysis 3 FINANCIAL STATEMENTS Statements of Financial Position Statement 1 10 Statements of Activities Statement 2 11 Statements of Functional Expenses Statement 3 12 Statements of Cash Flows Statement 4 14 Notes to Financial Statements 15

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5 INDEPENDENT AUDITOR'S REPORT To the Board of Directors HIRED Minneapolis, Minnesota We have audited the accompanying financial statements of HIRED (a nonprofit organization) which comprise the statements of financial position as of June 30, 2016 and 2015, and the related 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 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 the 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 the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion White Bear Parkway, St. Paul, MN,

6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of HIRED as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information The Management Discussion and Analysis is presented for purposes of additional analysis and is not a required part of the financial statements. The Management Discussion and Analysis has not been subjected to the auditing procedures applied in the audits of the financial statements, and accordingly, we express no opinion on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 6, 2016 on our consideration of HIRED s internal control over financial reporting and on our tests of 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 the 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 HIRED s internal control over financial reporting and compliance. REDPATH AND COMPANY, LTD. St. Paul, Minnesota October 6,

7 Management Discussion & Analysis Fiscal Year 2016 and 2015 Purpose HIRED s management has prepared this analysis of HIRED s financial position to accompany our fiscal year 2016 and 2015 audited financial statements. It is our intention to provide readers with the context for the statements and information about the economic, political, and industry trends that affected our operations and financial outcomes for this year and will affect us in the future. About HIRED HIRED is a Minnesota nonprofit corporation established in Our mission is to provide personalized and innovative work solutions. We accomplish our mission by providing employment and related programs to at-risk youth, low-income adults, dislocated workers, ex-offenders and individuals making the transition from welfare to work. Despite decreases in government funding in fiscal year 2016, HIRED served more than 8,100 people and 62% were non-white. During the year, HIRED s operations remained strong. In June 2016, HIRED had approximately 120 full-time equivalent (FTE) staff members, down from 135 in June Staff worked at 18 locations throughout Dakota, Hennepin and Ramsey Counties. HIRED continued to operate programs for dislocated workers including those for workers laid off in fiscal year 2016 from Astora Women s Health and Assurant Health as well as workers laid off in fiscal year 2015 from MoneyGram, Cargill, MakeMusic, Hartford Funds, General Mills and Prudential Financial. HIRED also assists hundreds of workers who are laid off individually from companies throughout the Twin Cities area. Services for families transitioning from public assistance expanded when HIRED was selected by Hennepin County to provide Sanction Resolution Services to 270 individuals who have lost their Minnesota Family Investment Program (MFIP) cash benefit because of non-compliance. The goal for each person is to move out of sanction and again receive full cash benefits and program services that will move them to employment. In fiscal year 2016 the Minnesota Department of Employment and Economic Development contracted with HIRED to provide Career Navigator services to 120 adults receiving benefits from the Supplemental Nutrition and Assistance Program. The long standing collaboration of HIRED, Hennepin Technical College and ten local manufacturing companies received grants from the Minnesota Jobs Skills Partnership to provide workplace readiness, skills training and job placement to 84 individuals. Training will prepare them for jobs in metalforming and CNC machining. Carlson and the Carlson Family Foundation provided financial support to Normandale Community College and HIRED to establish a Hospitality Career Pathways Program to equip students with the critical industry specific skills required by the region s hospitality employers. 3

8 Additional programs initiated in fiscal year 2016 include: Youth Directions which provides educational and employment support to youth in foster care and homeless youth; a Culinary Skills training program in partnership with Adult Options in Education ; and Office Pro in partnership with Saint Paul College. HIRED continues to offer training programs for in demand jobs including: manufacturing, health care, construction, customer service and transportation. Financial Position 1,800,000 1,600,000 Net Assets 1,400,000 1,200,000 1,000, , ,000 HIRED ended 2016 with $1,426,409 in net assets, an increase of $11,457 (0.8%) from 2015; this follows an increase in net assets of $50,987 in (See Figure 1). Temporarily restricted net assets decreased $94,592 (21%) from $448,371 in 2015 to $353,779 in This decrease was the result of restricted donations received and recorded in 2015 while the expenses associated with these donations occurred in Unrestricted net assets increased $106,049 from $966,581 in 2015 to $1,072,630 in Total assets, and total liabilities and net assets at June 30 were $2,032,845 and $2,329,101 in 2016 and 2015, respectively. This was a decrease of $296,256 (12%). HIRED held its ninth annual Job Summit in May The event resulted in additional unrestricted multi-year pledges in 2016 of $5,900 compared to $32,500 in Current contributions receivable decreased $26,919 (12%) to $192,696 in 2016 from $219,615 in Non-current contributions decreased $10,844 (37%) from $28,763 in 2015 to $17,919 in In 2010, HIRED opted to pay unemployment benefit claims in lieu of unemployment taxes to the State of Minnesota; this option is available to certain non-profit organizations. HIRED also joined the Unemployment Services Trust, which allows HIRED to set aside funds for the anticipated unemployment benefit liabilities. The estimated reserve in excess of liabilities and management expenses was $196,223 at June 30, 2016, an increase of $48,031 from $148,192 at June 30,

9 s total liabilities decreased $307,714 (33%) from $914,149 in 2015 to $606,435 in Current liabilities decreased $312,763 (36%) from $859,100 in 2015 to $546,337 in This decrease in current liabilities includes a decrease in employment related liabilities of $44,366 from Accounts payable decreased $268,397 (63%) from $425,944 in 2015 to $157,547 in This decrease resulted from fewer client related expenses occurring at year end in 2016 than in 2015 and the timing of year end payments to vendors. Non-current liabilities increased $5,049 (9%) from $55,049 in 2015 to $60,098 in 2016 resulting from contributions to the annuity contract made during the year. There is an offsetting asset to the Annuity contract liability. Financial Activities Total revenue in 2016 was $11,981,341, a decrease of $467,940 (3%) from $12,449,281 in This decrease was driven by a decrease in government contract revenues of $302,657 from $11,442,522 in 2015 to $11,139,865 in Additionally, there was also a decrease in contributions of $156,642 from $984,619 in 2015 to $827,977 in There was also a decrease in other revenue of $8,641. Unrestricted contribution revenue increased to $198,337 in 2016 from $170,434 in Included in this variance was a decrease in in-kind contributions of $2,901 from $12,404 in 2015 to $9,503 in With the exclusion of the in-kind contribution decrease, unrestricted contributions increased $30,804. A large unrestricted grant of $55,000 is included in this increase. HIRED s Job Summit will continue to be an important component of HIRED s strategic plan to increase individual unrestricted giving to support operations, broaden HIRED s donor base, and gain greater recognition within the community. 11.5% 1.7% Figure 2 Expenses by Activity Program Services 86.8% Management and General Operating Fundraising HIRED s total expenses decreased $428,410 from $12,398,294 in 2015 to $11,969,884 in Program services expenses made up 86.8% of expenditures in 2016 and 87.3% 2015, and decreased $435,534 (4%) to $10,392,810. This change was primarily due to a decrease in government funds available for staffing and client supported work wages and taxes as well as training and support services. Program services expenses relate directly to HIRED s mission and include individual employment counseling, training, support services, job development (which serves clients and employers), and program operating costs (space, supplies, postage, mileage, etc). Management and general operating expenses of $1,379,818 in 2016 decreased $479 from $1,380,297 in Management and General operating expenses comprised 11.5% and 11.1% of all expenses in 2016 and 2015, respectively. (See figure 2). Such expenses include administration, accounting, marketing and communications, information technology, and human resources. These percentages are well 5

10 below the 30% maximum suggested by the Charities Review Council. Fundraising expenses increased $7,603 (4%) from $189,653 in 2015 to $197,256 in Fundraising was 1.7% and 1.5% of all expenses in 2016 and 2015, respectively. Figure 3 Functional Expenses 3.5% 8.8% 5.7% 6.3% 4.9% 48.2% Salaries and wages Participant services Fringe benefits Space costs Payroll taxes 22.6% Consulting and contract services Other Functional Expenses (See Figure 3) Salaries and wages, HIRED s largest expense, was $5,761,568 and $5,956,824 in 2016 and 2015, respectively. The majority of HIRED s staff provide direct services to our clients. Salaries and wages reflect a decrease of $195,256 (3%). Of this decrease $224,618 relates to a decrease in direct service staff due to a reduction in government funding partially offset by increases of $21,474 and $7,889 in Management and Fundraising, respectively. Payroll taxes decreased to $422,048 from $544,069 in 2015, a decrease of $122,021 (22%). This decrease corresponds to the decrease in payroll, no unemployment expensed, and an adjustment to the Unemployment Trust account. Fringe benefits decreased $15,534 (2%) to $738,350 from $753,884 in Medical and dental costs decreased $6,839 as the result of a decrease in staff and retirement costs increased $8,634 due to an increase in eligible staff. HIRED continues to contribute 3% of salary for eligible staff. Participant services decreased $169,399 (5%) in Participant services were $2,715,447 and $2,884,846 in 2016 and 2015, respectively. This decrease was driven by decreases in client supported work, training and support services allowed in our contracts. Space costs increased $69,414 (11%), $682,542 and $613,128 in 2016 and 2015, respectively. This increase resulted from an increase in rent at the Brooklyn Park Workforce Center as well as small rent increases at other locations. Consulting and contract services expense increased $69,989 (7%) from $989,163 in 2015 to 1,059,153 in The largest portion of this expense is for payments to our subcontractors on the Hennepin County MFIP Northwest Hub contract of $939,352 and $835,559 in 2016 and 2015, respectively. 6

11 Small equipment expense decreased $51,665 (62%) from $83,223 in 2015 to $31,558 in This decrease related to a grant received in 2015 to update the computers in our Griggs location resource room for client job search and training that did not occur in Looking Forward Demand for HIRED s services remains high among disadvantaged youth, adults living in poverty, families transitioning from public assistance and dislocated workers who must now find new jobs or prepare for completely new careers. Demand by local employers for qualified workers continues to grow. To meet this demand, HIRED will partner with employers to design programs to meet their hiring needs. And we will forge collaborations with local unions. In 2016, HIRED made progress during the second year of a three-year strategic plan for fiscal years ; most notably by exceeding our goal for unrestricted contributions, in expanding our program initiatives, developing new partnerships with post-secondary schools, improving overall organizational effectiveness and working with a broadly based collaborative to advocate for more state funding for proven career pathways programs for the people most in need in our community. Key challenges in fiscal year 2017 are: decreased funding from the federal government for the Workforce Innovation and Opportunity Act programs in Minnesota, expansion of our donor base, and the development of new business lines. Nevertheless HIRED with forty- eight years of successful experience in designing and managing workforce development programs is well-positioned to respond to these challenges, seize opportunities to move in new directions, and continue to respond to community needs. 7

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13 FINANCIAL STATEMENTS 9

14 STATEMENTS OF FINANCIAL POSITION Statement 1 June 30, 2016 and 2015 Assets: Current assets: Cash $205,470 $160,827 Contracts receivable - billed 1,196,988 1,541,736 Contracts receivable-unbilled 8,766 - Contribution receivable - current 192, ,615 Card inventory 99,570 52,787 Prepaid expenses 49, ,345 Total current assets 1,752,612 2,086,310 Property and equipment: Office equipment and leasehold improvements 455, ,674 Less: accumulated depreciation and amortization (449,682) (444,887) Total property and equipment 5,992 10,787 Noncurrent assets: Unemployment trust 196, ,192 Contributions receivable - noncurrent 17,919 28,763 Annuity contract 60,098 55,049 Total noncurrent assets 274, ,004 Total assets $2,032,844 $2,329,101 Liabilities and Net Assets: Current liabilities: Accounts payable $157,547 $425,944 Accrued payroll, vacation and related taxes 388, ,156 Total current liabilities 546, ,100 Noncurrent liabilities: Annuity contract 60,098 55,049 Total noncurrent liabilities 60,098 55,049 Total liabilities 606, ,149 Net assets: Unrestricted 1,072, ,581 Temporarily restricted 353, ,371 Total net assets 1,426,409 1,414,952 Total liabilities and net assets $2,032,844 $2,329,101 The accompanying notes are an integral part of these financial statements. 10

15 STATEMENTS OF ACTIVITIES Statement 2 For the Years Ended June 30, 2016 and Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Support and revenue: Governmental grants and contracts $11,139,865 $ - $11,139,865 $11,442,522 $ - $11,442,522 Contributions 198, , , , , ,619 Other 13,499-13,499 22,140-22,140 Net assets released from restrictions: Satisfaction of program restrictions 724,232 (724,232) - 780,583 (780,583) - Total support and revenue 12,075,933 (94,592) 11,981,341 12,415,679 33,602 12,449,281 Expenses: Program services - employment services and training 10,392,810-10,392,810 10,828,344-10,828,344 Supporting services: Management and general 1,379,818-1,379,818 1,380,297-1,380,297 Fundraising 197, , , ,653 Total expenses 11,969, ,969,884 12,398, ,398,294 Change in net assets 106,049 (94,592) 11,457 17,385 33,602 50,987 Net assets - beginning of year 966, ,371 1,414, , ,769 1,363,965 Net assets - end of year $1,072,630 $353,779 $1,426,409 $966,581 $448,371 $1,414,952 The accompanying notes are an integral part of these financial statements. 11

16 STATEMENTS OF FUNCTIONAL EXPENSES Statement 3 For the Years Ended June 30, 2016 and 2015 Page 1 of Program Services - Employment Services and Management Training and General Fundraising Total Expenses: Participant services $2,715,447 $ - $ - $2,715,447 Salaries and wages 4,716, , ,158 5,761,568 Space costs 616,789 58,599 7, ,542 Payroll taxes 342,242 69,876 9, ,048 Supplies 84,840 8,832 2,612 96,284 Fringe benefits 633,328 93,197 11, ,350 Telephone and networking 109,004 13,176 1, ,314 Depreciation and amortization - 4,795-4,795 Equipment rent and maintenance 43,037 16, ,228 Small equipment 25,656 5, ,558 Travel 52, ,264 Postage 26,307 2, ,197 Audit and tax services - 39,035-39,035 Insurance 24,359 8, ,171 Payroll processing - 21,214-21,214 Consulting and contract services 996,759 56,406 5,988 1,059,153 Meeting and conferences 2,623 3,152 23,362 29,137 Other 3,628 55,071 10,880 69,579 Total expenses $10,392,810 $1,379,818 $197,256 $11,969,884 The accompanying notes are an integral part of these financial statements. 12

17 STATEMENTS OF FUNCTIONAL EXPENSES Statement 3 For the Years Ended June 30, 2016 and 2015 Page 2 of Program Services - Employment Services and Management Training and General Fundraising Total Expenses: Participant services $2,884,846 $ - $ - $2,884,846 Salaries and wages 4,940, , ,268 5,956,824 Space costs 542,474 62,571 8, ,128 Payroll taxes 454,291 78,987 10, ,069 Supplies 102,332 14,576 2, ,132 Fringe benefits 648,528 93,107 12, ,884 Telephone and networking 102,011 14,755 1, ,827 Depreciation and amortization - 15,112-15,112 Equipment rent and maintenance 42,306 9, ,440 Small equipment 75,107 8,116-83,223 Travel 61, ,076 Postage 31,752 2, ,691 Audit and tax services - 31,640-31,640 Insurance 24,076 7, ,451 Payroll processing - 19,660-19,660 Consulting and contract services 911,854 72,604 4, ,163 Meeting and conferences 4,616 6,115 18,387 29,118 Other 2,028 40,548 16,434 59,010 Total expenses $10,828,344 $1,380,297 $189,653 $12,398,294 The accompanying notes are an integral part of these financial statements. 13

18 STATEMENTS OF CASH FLOWS Statement 4 For the Years Ended June 30, 2016 and Cash flows from operating activities: Increase in net assets $11,457 $50,987 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 4,795 15,112 Changes in assets and liabilities: Receivables 373,745 (534,587) Annuity contract (5,049) (5,302) Unemployment trust (48,031) 34,970 Prepaid expenses 62,223 (43,586) Card inventory (46,783) (35,834) Accounts payable and accrued liabilities (307,714) 185,602 Deferred revenue - (4,066) Net cash provided by (used in) operating activities 44,643 (336,704) Cash flows from financing activities: Purchase of equipment - (14,382) Net cash used in financing activities 0 (14,382) Increase (decrease) in cash 44,643 (351,086) Cash - beginning of year 160, ,913 Cash - end of year $205,470 $160,827 Supplemental disclosure of cash flow information: Interest paid $ - $ - The accompanying notes are an integral part of these financial statements. 14

19 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 Note 1 SUMMARY OF ACCOUNTING POLICIES A. NATURE OF ACTIVITIES HIRED (the Organization) provides employment assistance to those suffering from economic injury. Funded primarily through contracts from federal and state sources, the Organization s specific goals are determined by the objectives and restrictions of the individual contracts and program operations. The Organization s core programs include: MFIP Through one-to-one counseling, job-skills training workshops and internship opportunities, the Organization helps MFIP families make the transition from public assistance to employment. In addition to helping our clients secure long-term sustainable employment, we help them overcome language barriers, unstable housing situations, mental health challenges, and other issues that would prevent them from finding or keeping jobs. DISLOCATED WORKERS The Organization helps dislocated workers regain their footing after layoffs through reemployment and retraining assistance. Our clients learn new skills, polish old skills, and find careers in a wide range of industries, including manufacturing, technology, financial services, healthcare, telecommunications and travel. ADULTS The Organization provides low-income adults looking for work or advancement with career counseling, labor market information, training assistance, and job-search skills. YOUTH The Organization s youth services are designed to encourage completion of high school and postsecondary training, and to assist with the development of work habits and career-building skills. Other programs help low-income youth and youth in foster care prepare to live independently through a personalized approach to career development, leadership activities, mentoring, volunteer and paid internships, service-learning, and work. SECTOR INITIATIVES The Organization operates five sector training programs: M-Powered bio-technology, healthcare, transportation, customer service, and green jobs. The objective of each initiative is to improve the employability and earnings of low-wage workers by meeting the workforce needs of the local marketplace. ICIS LLC ICIS, LLC, a wholly owned subsidiary of HIRED, was established on July 13, 2012 and is a disregarded entity for the purposes of the IRS. ICIS, LLC had no financial activity or year-end balances for fiscal years 2016 or

20 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 B. BASIS OF PRESENTATION Net assets, revenues, expenses, gains, and losses of the Organization are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets net assets that are not subject to donor-imposed restrictions. Temporarily restricted net assets net assets subject to donor-imposed restrictions that may or will be met either by actions of the Organization and/or the passage of time. C. BASIS OF ACCOUNTING Support and revenue and expenses are recorded on the accrual basis of accounting. Revenues from cost reimbursement governmental contract are recognized as costs are incurred. Governmental contract expenditures in excess of the related contract monies received result in the recording of governmental contracts receivable. Revenues from other sources including performance-based contracts are recognized when the performance measures are achieved. The Organization receives funds per enrollment for a portion of performance-based contracts, and these revenues are recognized when the specific event occurs. Expenses are recognized when the related liability is incurred. D. CONTRIBUTIONS RECEIVED Contributions received are measured at fair value and reported as an increase in net assets. The Organization reports gifts of cash and other assets as temporarily restricted support if they are received with donor stipulations that limit their use. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Pledges are restricted when made and released from restriction in the year funds are received. E. CONTRIBUTED PROPERTY AND EQUIPMENT Contributed property and equipment is recorded at fair value at the date of donation. If a donor stipulates how or how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support. 16

21 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 F. CONTRIBUTED SERVICES AND MATERIALS Contributed professional services are recognized if the services received (a) create or enhance longlived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Contributions of tangible assets are recognized at fair market value when received. G. CONTRACTS RECEIVABLE Contracts receivable relate primarily to governmental contracts. Credit is also granted to local businesses and organizations as part of certain program services. An allowance is provided for accounts when payment is more than 180 days past due and it is likely that an account is uncollectible. The Organization s policy is to write off an uncollectible government account when the agency confirms that the invoice has been disallowed. H. CONTRIBUTIONS RECEIVABLE (PROMISES TO GIVE) Unconditional promises to give greater than or equal to $1,000 per year are recognized in the period the promises are made. Promises to give less than $1,000 per year are recognized as contributions when the cash is received. Pledges receivable are discounted at present value (based on the average rate of 1, 2, and 3 year treasuries during the year). The allowance for doubtful accounts has been set at 5%. An additional allowance for doubtful contributions is given if management determines that it is likely that a pledge is uncollectible. A pledge is written off when management determines that it will no longer attempt to collect the pledge. I. INVENTORY Inventory consists of prepaid gas cards, gift cards, and bus passes for client support. Inventory is valued at cost on a first-in, first-out basis. J. PROPERTY AND EQUIPMENT The Organization capitalizes property and equipment acquisitions in excess of $5,000. Property and equipment acquired are capitalized and carried at cost, if purchased, or at fair market value on date of donation, if donated. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives of between three to eight years using the straightline method. Property and equipment acquired with governmental contracts, which remain the property of the Organization upon termination of the contracts, are capitalized and carried at cost. Property and equipment acquired with governmental contracts, which revert to the funding government upon termination of the program, are treated as expenses for the year in which the liability is incurred. As such, depreciation is not provided. Title to these assets remains with the government funder. 17

22 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 K. INCOME TAXES The Internal Revenue Service, in a letter dated August 2, 1991, has determined that the Organization is exempt from federal income tax under Section 501(a) of the Internal Revenue Code, as a public charity as described in Section 501(c)(3). Similar exemptions exist under Minnesota statutes. A tax expense or benefit from an uncertain income tax position (including tax-exempt status) may be recognized only when it is more likely than not that the position will be sustained upon examination by taxing authorities. Management believes the Organization has no uncertain income tax positions that would result in an accrual, expense or benefit under the more likely than not standard. L. ACCRUED VACATION PAY Employees accrue vacation time throughout the year and the maximum total accrual allowed per employee is equivalent to one year s accrual of vacation time. Most employees vacation pay is reimbursable through various governmental contracts. M. FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing program services and other activities have been summarized on a functional basis in the accompanying financial statements. Accordingly, certain expenses have been allocated among the programs and supporting services that received benefit. N. USE OF ESTIMATES In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes at June 30: Multi-year pledges-employment services and training $60,733 $74,941 Expansion of sector initiatives 136, ,779 Youth employment and training purposes 127,877 88,828 Adult 29,065 65,823 Total $353,779 $448,371 18

23 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 Note 3 CONTRIBUTIONS RECEIVABLE Contributions receivable consist of the following at June 30: Contribution payments due in less than 1 year $194,812 $221,870 Contribution payments due in 1-5 years 19,050 30,650 Total contributions receivable 213, ,520 Present value discount (178) (354) Allowance for doubtful accounts (3,069) (3,788) Net contributions receivable $210,615 $248,378 The discount rate used was.58% and.64% for 2016 and 2015, respectively. Note 4 LINE OF CREDIT The Organization has $150,000 available under a revolving line of credit agreement with Wells Fargo Bank, which expires on December 19, The interest rate is the higher of 5% or 1.0% over the bank s prime rate. The rate at June 30, 2016 was 5%. The line of credit is collateralized by the assets of the Organization. Borrowings are due on demand. During 2016 and 2015 respectively, the Organization paid $0 and $0 in interest expense due to usage of the line of credit. There were no amounts outstanding under this line of credit as of June 30, 2016 and Note 5 PROPERTY AND EQUIPMENT The Organization owns the following at June 30: Office equipment and furniture $320,802 $320,802 Leased equipment 122, ,712 Leasehold improvements 12,160 12, , ,674 Less accumulated depreciation and amortization (449,682) (444,887) Net fixed assets $5,992 $10,787 19

24 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 Note 6 CONTRIBUTED EQUIPMENT AND SERVICES Professional services with an estimated value of $0 and $2,825 were contributed in 2016 and 2015, respectively. These services were received for printing and marketing services. In 2016, there were contributions of $9,503 that included tickets, vouchers, clothing, software and supplies. In 2015, there were contributions of $9,579 that included furniture, equipment, vouchers, gift cards, and gift certificates. Tickets, vouchers, clothing, gift cards, and gift certificates are distributed to the people enrolled in the Organization s programs. Note 7 COMMITMENTS AND CONTINGENCIES PROGRAM COMPLIANCE Federal and state contracts are subject to financial and compliance regulation. To the extent that any expenditure is disallowed, a liability to the respective funding government could result. Note 8 LEASED FACILITIES AND EQUIPMENT The Organization leases certain office facilities at several locations with options to renew. Leases resulting in ninety-eight percent of lease payments include provisions for termination should government funding become unavailable. The Organization had operating leases for certain office equipment at several locations as well. Under current agreements, the minimum future lease commitments for the Organization are as follows: Year ending June 30, Office Space Equipment Total 2017 $399,442 $67,700 $467, ,626 46, , ,684 13, , , , , ,435 Thereafter 1,067,555-1,067,555 Total $2,705,812 $128,375 $2,834,187 Space lease cost for the Organization was $677,886 and $608,149 in 2016 and 2015, respectively. Equipment lease costs were $56,076 and $48,945 in 2016 and 2015, respectively. 20

25 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 Note 9 EMPLOYEE BENEFIT PLANS The Organization sponsors a 401(k) plan for the benefit of all employees who meet certain service requirements. Contributions to the plan are made by the Organization and are equal to 3% and 3% of the participants compensation in 2016 and 2015, respectively. Total Organization contributions to the plan were $146,840 and $138,206 in 2016 and 2015, respectively. The Organization has a deferred compensation annuity contract for key employees under Section 457(b) of the Internal Revenue Code. The Organization s contributions to the deferred compensation plan were $3,418 and $3,442 for 2016 and 2015, respectively. The plan is funded by an annuity contract held by the Organization. The deferred compensation asset and liability amounted to $60,098 and $55,049 at June 30, 2016 and 2015, respectively. Note 10 CONCENTRATIONS SIGNIFICANT CONCENTRATIONS OF SUPPORT AND REVENUE The Organization provides services primarily within the Twin Cities metropolitan area. In 2016, eighty-eight percent of the Organization s contract revenues for services provided are primarily from five local and state government agencies: Ramsey, Hennepin, and Dakota Counties, the City of Minneapolis and the State of Minnesota. In 2015, eighty-six percent of contract revenues were provided by these agencies. SIGNIFICANT CONCENTRATIONS OF RISK ARISING FROM CASH DEPOSITS IN EXCESS OF INSURED LIMITS The Organization s cash is maintained at one institution. Bank balances from time-to-time may exceed federally insured limits. The Organization has not experienced any losses in such accounts in the past. Note 11 FAIR VALUE MEASUREMENTS Under GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price ) in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy categorized into three levels based on the inputs used. Generally, the three levels are as follows: Level 1 Quoted prices in active markets for identical assets. Level 2 Significant other observable inputs. Level 3 Significant unobservable inputs. Assets and liabilities that are measured at fair value on a recurring basis are as follows: Level Annuity contract $60,098 $55,049 The annuity contract is valued using the fair value of the underlying investments. 21

26 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 Note 12 UNEMPLOYMENT TRUST The Organization pays actual Minnesota Unemployment claims via the Unemployment Services Trust in lieu of paying unemployment taxes directly to the State of Minnesota. The Organization s unemployment trust balance per contract would be fully refunded to the Organization upon payment of all outstanding unemployment claims. The balance of the unemployment trust is based on the amount contributed net of HIRED s prorated share of income and expenses incurred by the trust and actual unemployment claims paid. The reserve balance at June 30, 2016 and 2015 was $196,223 and $148,192, respectively. The unemployment claims liability was $4,076 and $3,065 at June 30, 2016 and 2015, respectively. Note 13 SUBSEQUENT EVENTS Management has evaluated subsequent events through October 6, 2016, the date that this report was available to be issued, and concluded that there are no subsequent events that require disclosure. 22