Year Ended June 30, 2013 (With Summarized Comparative Totals for 2012)

Transcription

1 SAN ANDREAS REGIONAL CENTER AUDITED FINANCIAL STATEMENTS, OTHER FINANCIAL INFORMATION AND REPORTS REQUIRED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS AND OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-133 Year Ended June 30, 2013 (With Summarized Comparative Totals for 2012)

2 TABLE OF CONTENTS Independent Auditors Report Financial Statements: Statement of Financial Position... 3 Statement of Activities... 4 Statement of Functional Expenses... 5 Statement of Cash Flows... 6 Notes to Financial Statements Supplementary Financial Information: Schedule of Expenditures of Federal Awards Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings Page

3 INDEPENDENT AUDITORS REPORT Board of Directors San Andreas Regional Center Campbell, California Report on the Financial Statements We have audited the accompanying financial statements of San Andreas Regional Center (the Center), which comprise the statement of financial position as of June 30, 2013, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Board of Directors San Andreas Regional Center Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of San Andreas Regional Center as of June 30, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards, as required by 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. Report on Summarized Comparative Information We have previously audited the Center s 2012 financial statements, and our report dated December 12, 2012, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2012, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 18, 2014, on our consideration of the Center 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 Center s internal control over financial reporting and compliance. San Francisco, California February 18,

5 STATEMENT OF FINANCIAL POSITION June 30, 2013 (With Summarized Comparative Totals for 2012) ASSETS Cash and cash equivalents $ 5,834,330 $ 815,798 Cash and cash equivalents - client trust funds 2,398,617 3,187,714 Cash and cash equivalents held for CPPDD 2,181,135 2,181,135 Contract receivable - State of California 67,374,292 71,208,229 Client trust funds receivable 41,153 31,930 Other receivables 3,117 54,956 Prepaid expenses and deposits 220, ,425 Receivable from Intermediate Care Facilities 2,500,591 3,913,469 CPPDD vendor advances 522, ,365 Deferred costs for accrued vacation and other leave benefits 2,274,827 2,506,556 Total assets $ 83,350,885 $ 84,591,577 LIABILITIES AND NET ASSETS Liabilities: Accounts payable $ 25,530,738 $ 23,889,689 Contract advance - State of California 51,090,330 51,128,119 Payable to Department of Developmental Services 2,025,955 3,855,634 Accrued vacation and other leave benefits 2,274,827 2,506,556 Unexpended client support 2,240,706 3,185,832 Total liabilities 83,162,556 84,565,830 Commitments and contingencies Net assets: Temporarily restricted 188,329 25,747 Total liabilities and net assets $ 83,350,885 $ 84,591,577 See notes to financial statements. 3

6 STATEMENT OF ACTIVITIES Year Ended June 30, 2013 (With Summarized Comparative Totals for 2012) Temporarily Unrestricted Restricted Total Total Revenue and support: Federal awards $ 192,268,760 $ - $ 192,268,760 $ 176,323,187 Grants 106,809, ,809, ,421,795 Donations and other 77, , ,337 97,316 Interest ,493 Net assets released from restrictions 30,718 (30,718) - - Total revenue and support 299,186, , ,349, ,849,791 Expenses: Program services 291,383, ,383, ,578,685 General and administrative 7,803,494-7,803,494 7,292,441 Total expenses 299,186, ,186, ,871,126 Change in net assets - 162, ,582 (21,335) Net assets: Beginning of year - 25,747 25,747 47,082 End of year $ - $ 188,329 $ 188,329 $ 25,747 See notes to financial statements. 4

7 STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2013 (With Summarized Comparative Totals for 2012) 2013 Program General and Services Administrative Total 2012 Salaries and related expenses: Salaries $ 13,260,635 $ 2,161,752 $ 15,422,387 $ 14,664,226 Benefits 4,519,811 1,225,460 5,745,271 5,829,844 Payroll taxes 188,466 30, , ,925 Total salaries and related expenses 17,968,912 3,417,918 21,386,830 20,702,995 Purchase of services: Other purchased services 102,903, ,903,241 93,993,082 Residential care facilities 87,755,713-87,755,713 86,716,749 Day programs 81,658,243-81,658,243 76,314,185 Facility rent - 1,310,021 1,310,021 1,810,186 CPP - Agnews 753, , ,490 General - 784, , ,859 Communication - 396, , ,863 Contract and consultant fee - 352, , ,338 Foster grandparent and senior companion 343, , ,726 Staff travel - 326, , ,081 Legal fees - 295, , ,608 Equipment and facility maintenance - 218, , ,413 ARCA dues - 136, ,499 63,390 Equipment rental - 117, , ,361 Insurance - 101, , ,477 General office expenses - 99,503 99, ,404 Data processing - 66,475 66,475 73,337 Printing - 34,482 34,482 30,238 Accounting fees - 34,000 34,000 49,439 Donations - 30,718 30,718 59,270 Equipment purchases - 29,054 29,054 40,410 Utilities - 18,133 18,133 16,366 Board expenses - 11,646 11,646 15,971 Interest expense - 8,668 8,668 - Security - 8,218 8,218 24,647 Bank charges - 5,370 5,370 37,241 Total expenses $ 291,383,430 $ 7,803,494 $ 299,186,924 $ 282,871,126 See notes to financial statements. 5

8 STATEMENT OF CASH FLOWS Year Ended June 30, 2013 (With Summarized Comparative Totals for 2012) Cash flows from operating activities: Change in net assets $ 162,582 $ (21,335) Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: (Increase) decrease in assets: Contract receivable - State of California 3,833,937 (21,330,462) Client trust funds receivable (9,223) (21,718) Other receivables 51,839 27,835 Prepaid expenses and deposits (51,033) 47,303 Increase (decrease) in liabilities: Accounts payable 1,641, ,752 Payable to Department of Developmental Services (416,801) (45,336) Unexpended client support (945,126) 1,011,108 Net cash provided (used) by operating activities 4,267,224 (19,624,853) Cash flows from financing activities: Proceeds from contract advance 70,050,267 64,743,477 Payment of contract advance (70,088,056) (56,782,219) Proceeds from line of credit 16,000,000 - Repayments on line of credit (16,000,000) - Net cash provided (used) by financing activities (37,789) 7,961,258 Net increase (decrease) in cash and cash equivalents 4,229,435 (11,663,595) Cash and cash equivalents: Beginning of year 6,184,647 17,848,242 End of year $ 10,414,082 $ 6,184,647 Cash and cash equivalents $ 5,834,330 $ 815,798 Cash and cash equivalents - client trust funds 2,398,617 3,187,714 Cash and cash equivalents held for CPPDD 2,181,135 2,181,135 $ 10,414,082 $ 6,184,647 See notes to financial statements. 6

9 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Purpose and Organization Organization San Andreas Regional Center (the Center) is a nonprofit corporation chartered by the State of California. The Center was organized in accordance with the provisions of the Lanterman Developmental Disabilities Services Act (the Lanterman Act) of the Welfare and Institutions Code of the State of California. In accordance with the Lanterman Act, the Center administers programs for persons with developmental disabilities and their families, which include diagnosis, counseling, educational services, and dissemination of information on developmental disabilities to the public. The Center is one of 21 regional centers within the State of California system and serves Santa Clara, Santa Cruz, Monterey, and San Benito Counties. Governance The Lanterman Act includes governance provisions regarding the composition of the Board of Directors (the Board). The Lanterman Act states that the Board shall be comprised of individuals with demonstrated interest in, or knowledge of, developmental disabilities, and other relevant characteristics, and requires that a minimum of 50 percent of the governing Board be persons with developmental disabilities or their parents or legal guardians; and that no less than 25 percent of the members of the governing Board shall be persons with developmental disabilities. In addition, a member of a required advisory committee composed of persons representing the various categories of providers from which the Center purchases client services, shall serve as a member of the Board. To comply with the Lanterman Act, the Board of Directors includes persons with developmental disabilities, or their parents or legal guardians, who receive services from the Center and a client service provider of the Center. Mission Statement The Center s mission statement is as follows: People first through service, advocacy, respect, and choice. A vision for leadership in service and advocacy for individuals with developmental disabilities. State of California Contract The Center operates under an annual cost-reimbursement contract with the State of California Department of Developmental Services (DDS) under the Lanterman Act. Maximum expenditures under the contract are limited to the contract amount plus interest earned. The Center is required to have DDS approval for certain expenses. The Center is required to maintain accounting records in accordance with the Regional Center Fiscal Manual issued by DDS. In the event of termination or nonrenewal of the contract, the State of California maintains the right to assume control of the Center s operation and the obligation of its liabilities. 7

10 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) State of California Contract (Continued) Under the terms of these contracts, funded expenditures are not to exceed $296,473,073, $282,972,669, and $283,287,907 for the 2012/13, 2011/12, and 2010/11 contract years, respectively, and are subject to budget amendments. As of June 30, 2013, actual net expenditures under the 2012/13, 2011/12 and 2010/11 contracts were $295,272,188, $283,404,960 and $279,770,634, respectively. The 2011/12 purchase of service contract is over budget by $432,291. The Center has not been notified that they are a deficit center and management believes that this deficit will be funded through additional amendments from funds available within the State of California system. Basis of Accounting The Center prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which involves the application of accrual accounting; consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. Classification of Net Assets U.S. GAAP requires that the Center report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Accordingly, the net assets of the Center are classified and reported as described below: Unrestricted: Those net assets and activities which represent expendable funds for operations related to the DDS contract. Temporarily Restricted: Those net assets and activities which are donor-restricted for (a) support of specific operating activities; or (b) use in a specified future period. Permanently Restricted: Those net assets and activities which are permanently donor-restricted for holdings of (a) assets donated with stipulations that they be used for a specified purpose, be preserved, and not be sold; or (b) assets donated with stipulations that they be invested to provide a permanent source of income. As of June 30, 2013 and for the year then ended, the Center did not have any permanently restricted net assets or activities. 8

11 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Classification of Net Assets (Continued) Unrestricted Net Assets The unrestricted net asset group is comprised of the following: Operating Fund: These accounts are used to record primary activities of the Center which are carried out under the DDS contract. These accounts also record the activities of the Community Placement Plan and federally-funded programs. Client Trust Fund: The Center serves as representative payee for a portion of its clients. In this fiduciary capacity, it receives social security benefits and other sources of income and makes payments on behalf of certain developmentally disabled clients who are deemed unable to administer the funds themselves. Client trust transactions are not considered revenue or expenses of the Center. The cash that is received and outstanding receivables, net of interfund liabilities, are reported as assets and a liability, net assets held for others, until it is distributed. Temporarily Restricted Net Assets The Donation Fund is used to record solicited and unsolicited support received by the Center for the benefit of its clients. Funds are used to provide financial support to developmentally disabled individuals for whom funds are not available through the regional center system or are categorically not within the funding policies of the Center. Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Center considers all financial instruments with a maturity of three months or less when purchased to be cash equivalents. Contract and Other Receivables The majority of the Center s receivables represent or relate to the cost-reimbursement contract with the DDS. Management believes that the receivables are fully collectible and, therefore, has not provided an allowance for doubtful accounts. 9

12 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) State Equipment Pursuant to the terms of the DDS contract, equipment purchases become the property of the State of California and, accordingly, are charged as expenses when incurred. The Center is required to track acquisitions of furniture and equipment with a cost value in excess of $5,000 and with an estimated useful life beyond one year. For the year ended June 30, 2013, equipment purchases totaled $8,268. The aggregated tracked state equipment at June 30, 2013 totaled $355,862. Accrued Vacation and Other Leave Benefits The Center has accrued a liability for vacation and other leave benefits earned. However, such benefits are reimbursed under the DDS contract only when actually paid. The Center has also recorded deferred costs for accrued vacation and other leave benefits to reflect the future reimbursement of such benefit payments. Revenue Recognition Revenue is recognized in the year the claim is filed with DDS. Depending on the date of service, claims are classified and charged to the appropriate contract as follows: Current year Prior year Second prior year Contributions The Center recognizes all contributions in the year of receipt, regardless of compliance with restrictions. Contributions without donor-imposed restrictions are reported as unrestricted support. Contributions with donor-imposed restrictions are reported as temporarily restricted or permanently restricted support, depending upon the type of restriction. The satisfaction of a donor-imposed restriction on a contribution is recognized in the period in which the restriction expires. This occurs by increasing one class of net assets and decreasing another in the statement of activities. These transactions are reported as net assets released from restrictions and are reported separately from other transactions. 10

13 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Federal Grants The Center is a sub-recipient to DDS with regard to the following grants: U.S. Department of Health and Human Services The Medicaid Waiver grant provides funding for a broad range of medical assistance, which includes home and community based services, to certain persons of need as authorized by Title XIX of the Social Security Act of This grant also funds Targeted Case Management. U.S. Department of Education The Special Education - Grants for Infants and Families with Disabilities provides funding for early intervention services for infants and toddlers, through age 3, as authorized by Public Law Corporation for National and Community Service The Foster Grandparent Program grant provides funding to qualified agencies for the dual purpose of engaging persons 60 or older, with limited incomes, in volunteer services, to meet critical community needs by providing person-to-person service to children with special needs, as authorized by the Domestic Volunteer Services Act of Income Taxes The Center is a qualified organization exempt from federal income taxes under 501(c)(3) of the Internal Revenue Code (IRC) and state franchise taxes under 23701d of the California Revenue and Taxation Code. Accordingly, it is exempt from federal and California income taxes and is not liable for federal unemployment taxes. The Center has adopted the accounting standard on accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return and requires the affirmative evaluation that is more-likely-than-not, based on the technical merits of a tax position, that an organization is entitled to economic benefits resulting from tax positions taken in income tax returns. For tax-exempt entities, favorable tax status itself is deemed to be an uncertainty, as events could potentially occur to jeopardize their tax-exempt status. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The Center s evaluation on June 30, 2013 revealed no tax positions that would have a material impact on the financial statements. The 2009 through 2012 tax years remain subject to examination by the Internal Revenue Service. In addition, the 2008 through 2012 tax years remain subject to examination by the California Franchise Tax Board. The Center does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the financial statements. 11

14 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentrations of Risk Credit Risk Financial instruments, which potentially subject the Center to a concentration of credit risk, principally consist of cash and cash equivalents, contract receivable, and other receivables. The Center invests cash in money market accounts, which may at times, exceed the federally-insured limit. Through its contract with DDS, the Center is reimbursed for its expenses. The ability of DDS to honor its obligations and to continue funding, is dependent upon the overall economic well-being of the State of California. Although the State of California is experiencing budgetary issues, the Center has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk. Labor Force Union employees account for 86% of the Center s total labor costs. The current collective bargaining agreement expired on December 31, 2013 and is currently in the process of being renegotiated. The Center has not experienced any disruptions in its service due to this concentration. Functional Allocation of Expenses The costs of providing the various programs and activities have been summarized on a functional basis in the statement of activities and functional expenses by major programs. Accordingly, salaries and benefits have been allocated among the programs and supporting services benefited based on job categories. Defined Benefit Pension Plan On August 1, 1996, the Center adopted a defined benefit pension plan covering all employees by becoming a member of California Public Employees Retirement System (CalPERS). CalPERS has characteristics of a multiemployer plan. Consistent with regional center and nonprofit industry reporting trends, the Center does not account for the funded status of this Plan. However, the actuarial information is disclosed in the financial statements. The Center must have the actuarial report coinciding with the Center s year end, and include certain plan related disclosures in its financial statements. Currently, the actuarial report is one year in arrears. This lag in reporting is not in conformity with U.S. GAAP; however, this departure and the omitted disclosures are not material to the financial statements. The delay is due to the fact that there is a two-year lag between the valuation date and the contribution fiscal year. This lag is necessary due to the amount of time needed to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year. 12

15 NOTES TO FINANCIAL STATEMENTS June 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Comparative Financial Information The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. GAAP. Accordingly, such information should be read in conjunction with the Center s financial statements as of and for the year ended June 30, 2012, from which the summarized information was derived. Reclassifications Certain amounts in the 2012 financial statements have been reclassified to conform to the 2013 presentation. These reclassifications have no effect on previously reported net assets or change in net assets. 2. CASH - CLIENT TRUST FUNDS AND UNEXPENDED CLIENT SUPPORT The Center functions as the custodian for the receipt of certain governmental payments and resulting disbursements made on behalf of a portion of the Center s clients. The following is a summary of operating cash activity for the year ended June 30, 2013: Support: Social Security and other client support $ 25,254,335 Disbursements: Living out of home $ 16,490,377 Other disbursements 8,763,958 $ 25,254, CONTRACT RECEIVABLE - STATE OF CALIFORNIA Contract receivable (payable) consists of the following at June 30, 2013: Current year $ 65,537,586 Prior year 996,085 Second prior year 854,581 Third and prior years (13,960) $ 67,374,292 During the year ended June 30, 2013, the Center received a return of funds from certain vendors related to vendor audits conducted by the Center. As of July 2013, the Center has repaid those funds to the DDS. 13

16 NOTES TO FINANCIAL STATEMENTS June 30, INTERMEDIATE CARE FACILITIES - STATE PLAN AMENDMENT During the year ended June 30, 2011, various legislative changes were made to the California Welfare and Institutions Code retroactive to July 1, 2007, making Intermediate Care Facility (ICF) providers responsible for providing day treatment and transportation services; and ultimately, making such services eligible for reimbursement under California s Home and Community Based Services Program, which is funded by the Medicaid Waiver grant (Medicaid). Previously, such services provided to the residents were not reimbursable by Medicaid because the funds were not directly billed and received by the ICFs. The legislative changes allow for the DDS to bill these services to Medicaid and capture federal funds. During the years ended June 30, 2012 and 2011, the DDS directed the Center to prepare billings for these services on behalf of the ICFs for the period from July 1, 2009 to June 30, 2011 and July 1, 2007 to June 30, 2009, respectively. The billings included a 5.5% Quality Assurance fee for the State Department of Health Care Services (DHCS), a 1.5% administrative fee for the ICFs and a 1.5% administration fee for the Center. During the years ended June 30, 2012 and 2011, the DDS advanced the amounts billed to the ICFs. The ICFs were directed to remit to the Center the amount billed less its administration fee and the Quality Assurance fee, which it must remit to DHCS. After the Center receives the net payment from the ICFs, the Center was directed to remit the amount to the DDS, net of its administration fee. The DDS has instituted protocols should the ICFs not remit the net amounts due to the Center. Effective July 1, 2012, the DDS directed the Center to prepare billings for these services on behalf of the ICFs and submit a separate state claim report for these services in addition to paying the ICF directly for their services. The Center was directed to reduce the amount of their regular state claim to the DDS by the dollar amount of these services. Reimbursement for these services will be received from the ICFs. The DDS advances the amount according to the state claim to the ICFs. The ICFs are then required to pass on the payments received, as well as the Center s administrative fee to the Center within 30 days of receipt of funds from the State Controller s Office. 14

17 NOTES TO FINANCIAL STATEMENTS June 30, INTERMEDIATE CARE FACILITIES - STATE PLAN AMENDMENT (CONTINUED) The Center s activities related to the above funding were as follows as of June 30, 2013: Beginning balance $ 3,913,469 Total billed due from vendors 1,412,256 Amounts remitted by vendors (1,796,930) Write off of uncollectible balances (1,028,204) Total receivable from ICF $ 2,500,591 Beginning balance $ 3,855,634 Amount remitted by Center to DDS (801,475) Write off of uncollectible balances (1,028,204) Total payable to DDS $ 2,025,955 Deferred administrative fee $ 29, LINE OF CREDIT In July 2012, the Center obtained a revolving $13 million line of credit with Comerica Bank, secured by the Center s assets, to fund current operating needs. Interest under the line of credit was charged at the minimum of the LIBOR rate plus 2.50% or the prime rate plus 2.00% if the LIBOR rate was undeterminable, with a maturity date of September 30, In July 2012, the Center borrowed $6,000,000 on the line of credit. The borrowing was paid in full in July In June 2013, the Center obtained a revolving $25 million line of credit with Comerica Bank, secured by the Center s assets, to fund current operating needs. Interest under the line of credit was charged at the minimum of the LIBOR rate plus 2.50% or the prime rate plus 2.00% if the LIBOR rate was undeterminable. In June 2013, the Center borrowed $10,000,000 on the line of credit. The borrowing was paid in full in June The line of credit expired on September 20, 2013 and was not renewed. 6. CONTRACT ADVANCE The contract advance balance represents monies DDS advances to the Center at the beginning of each fiscal year to provide interest-free working capital. DDS uses its discretion in determining the balance on a month-to-month basis. If DDS so chooses, the advance can be paid by offsetting claim reimbursements partially or in full. 15

18 NOTES TO FINANCIAL STATEMENTS June 30, EMPLOYEE BENEFIT PLANS Health Insurance Effective January 1, 2006, the Center committed itself to paying 100% of health insurance payments for employees and annuitants in accordance with the current collective bargaining agreement. FASB ASC 715, Compensation-Retirement Benefits, requires that postretirement benefits be accrued during the years that the employee renders the necessary service, at the expected cost of providing those benefits to an employee. Due to this information not being readily available and the excessive cost of obtaining it, the Center has not made the accrual. Had these amounts been accrued, the Center would have recognized a corresponding amount of income resulting in no change to the net asset balance. For the year ended June 30, 2013, $411,468 of health insurance premiums was paid on behalf of retired employees. Defined Benefit Pension Plan On August 1, 1996, the Center adopted a defined benefit pension plan covering all employees by becoming a member of CalPERS. All employees are, immediately upon hire, enrolled in the pension plan. The Center contributed % of the employees gross salary to CalPERS during the year ended June 30, Employees contribute 8% of their gross salary to CalPERS. Participants are fully vested at all times. For the year ended June 30, 2013, $2,630,811 was paid to CalPERS. The Public Employees Retirement Law (Part 3 of the California Government Code, et seq.) establishes benefit provisions for CalPERS. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California The unfunded liability as of June 30, 2012, the most current actuarial valuation, is as follows: Present value of projected benefits $ 81,089,957 Less present value of future: Employer normal costs (9,339,203) Employee contributions (9,440,214) Entry age normal accrued liability 62,310,540 Actuarial value of assets (55,133,839) Unfunded liability $ 7,176,701 16

19 NOTES TO FINANCIAL STATEMENTS June 30, EMPLOYEE BENEFIT PLANS (CONTINUED) Defined Benefit Pension Plan (Continued) A reconciliation of the actuarial value of assets over the prior year is as follows: Beginning balance - June 30, 2011 $ 50,624,038 Receivables for service buybacks as of June 30, 2011 (39,052) Actuarial value of assets as of June 30, ,584,986 Contributions: Employer 2,019,978 Employee 1,383,437 Benefit payments to retirees and beneficiaries (1,974,614) Refunds (74,885) Investment return 3,826,934 Transfers in/out and miscellaneous adjustments (631,997) Ending balance - June 30, 2012 $ 55,133,839 The significant actuarial assumptions as of June 30, 2012 are as follows: Long-term inflation rate 2.75% Payroll growth 3.00% Expected long-term rate of return 7.50% The contributions expected to be paid to the plan during the next fiscal year are $2,214,494. The asset allocation as of June 30, 2012, is as follows: Current Target Asset Class Allocation Allocation Equities 48.30% 50.00% Fixed income 18.20% 17.00% Private equity 14.50% 14.00% Real estate 10.60% 11.00% Short-term investments 3.20% 4.00% Inflation assets 3.00% 4.00% Absolute Return Strategy 2.20% 0.00% % % 17

20 NOTES TO FINANCIAL STATEMENTS June 30, EMPLOYEE BENEFIT PLANS (CONTINUED) Defined Benefit Pension Plan (Continued) The starting point and most important element of CalPERS return on investment is the asset allocation or diversification among stocks, bonds, cash and other investments. Asset allocation is not an asset-only or liability-only decision. All factors, including liabilities, benefit payments, operating expenses, and employer and member contributions are taken into account in determining the appropriate asset allocation mix. The goal is to maximize returns at a prudent level of risk which presents an ever-changing balancing act between market volatility and long-term goals. CalPERS follows a strategic asset allocation policy that identifies the percentage of funds to be invested in each asset class. The asset allocation of assets shown above reflects the values of the Public Employees Retirement Fund (PERF) in its entirety as of June 30, The assets for the Center are part of the PERF and are invested accordingly. For the year ending June 30, 2014, the actuarial computed employer and employee contribution rates will be % and 8.00%, respectively. 8. OPERATING LEASES The Center leases office space and various equipment and furniture in Campbell, Salinas, Gilroy, and Watsonville, California. All leases are operating leases and contain rent escalation clauses based on changes in the Consumer Price Index or contract stipulated annual rate entincreases. Rent expense for the year ended June 30, 2013 was $1,310,021. The following is a schedule of minimum lease commitments for the years ending June 30: 2014 $ 1,423, ,426, ,423, ,239, ,099 $ 5,557, COMMUNITY PROGRAM FOR PERSONS WITH DEVELOPMENTAL DISABILITIES Background In March 2006, the Bay Area Housing Plan (BAHP) was developed by the Center, Golden Gate Regional Center, Inc. (GGRC), and Regional Center of the East Bay, Inc. (RCEB), working in collaboration under the Bay Area Unified Plan (collectively, the Regional Centers). 18

21 NOTES TO FINANCIAL STATEMENTS June 30, COMMUNITY PROGRAM FOR PERSONS WITH DEVELOPMENTAL DISABILITIES (CONTINUED) Background (Continued) The BAHP was established to provide affordable, community based housing for people with developmental disabilities in the San Francisco Bay Area, through a Housing Development Agreement among the Regional Centers and a master developer (the Agreement). The BAHP meets the requirements to provide housing to people with developmental disabilities under AB 2100, as codified in Welfare and Institutions Code The initial beneficiaries of the BAHP were the residents of the Agnews Developmental Center (Agnews) in San Jose as they were transitioned to community housing from Agnews due to its scheduled closure. The BAHP established the strategy and timeline for the acquisition, construction, and financing for the completion of homes for these residents. All of the residents have been successfully transitioned out of Agnews. The Regional Centers determined, in their discretion, the types, amounts, and locations of these residences. A total of 60 properties were purchased and developed by the master developer. For the purpose of managing the Regional Centers responsibilities under the Agreement, the Regional Centers formed a Steering Committee, which is comprised of the three Executive Directors of the Regional Centers. The Steering Committee has the authority to administer the Agreement and bind the Regional Centers to the terms and conditions of the Agreement. The Steering Committee makes all decisions by consensus where possible, but may also act by a majority vote. Notwithstanding the foregoing, if the action to be taken by the Steering Committee concerns a specific property located within a Regional Center s catchment area, the Executive Director for that Regional Center must vote in favor of such action for it to be binding on the Steering Committee. Three nonprofit organizations (NPO s) acquired fee title to the properties from the master developer. The NPO s were: Bay Area Housing Corporation (BAHC), which acquired 32 residences in the Center s catchment area. Housing Consortium of the East Bay (HCEB), which acquired 15 residences in RCEB s catchment area. West Bay Housing Corporation (WBHC), which acquired 13 residences in GGRC s catchment area. Subsequently, the NPO s conveyed their ownership interests in the residences to three single member limited liability companies (LLCs), each owned by its respective NPO. The LLCs are as follows: Casa Milagro LLC, owner of 32 residences (from BAHC) Inclusive Communities East Bay, LLC, owner of 15 residences (from HCEB) A Home for Life, LLC, owner of 13 residences (from WBHC) 19

22 NOTES TO FINANCIAL STATEMENTS June 30, COMMUNITY PROGRAM FOR PERSONS WITH DEVELOPMENTAL DISABILITIES (CONTINUED) Background (Continued) The LLCs lease such properties to the Regional Centers service providers under 60 long-term operating leases. The service providers operate the properties for the benefit of consumers who receive service fees from the Regional Centers. The leases will terminate on the 17th anniversary of their commencement dates or 18 months after the date that the applicable LLC, landlord, fully repays the current lender s permanent financing (discussed below). All of the 60 properties are encumbered by Lease Assurance Covenants, Conditions and Restrictions and a Memorandum of Agreement and Lease which provide, among other things, that the use of each property shall be solely for the benefit of qualified individuals with developmental disabilities in perpetuity, in compliance with the requirements in Welfare and Institutions Code The master developer borrowed funds from Bank of America to acquire and develop the 60 properties. California Housing Finance Agency (CalHFA) then lent funds to the LLCs to refinance the Bank of America loans. CalHFA s loans remained in effect until February 18, 2011, when they were paid off through the bond financing discussed below. Bond Financing In December 2010, the California Health and Human Services Agency (CHHSA) and DDS provided their approval for the LLCs to obtain bond financing to refinance the CalHFA loans. In the refinance plan and thereafter, the BAHP is referred to as the Community Placement Plan for Individuals with Developmental Disabilities (CPPDD). In the refinance plan dated February 1, 2011, the California Health Facilities Finance Agency (CHFFA) agreed to loan $76,970,000 to the LLCs through the issuance of insured revenue bonds. The Office of Statewide Health Planning and Development (OSHPD) provided loan insurance for the bonds. The bonds were issued as: $44,725,000 Series 2011A due at various dates, with interest rates ranging from 4.00% up to 6.25%, with the longest term bonds due on February 1, $32,245,000 Taxable Series 2011B due at various dates, with interest rates ranging from 3.30% up to 8.00%, with the longest term bonds due on February 1, The trustee of the bonds is Deutsche Bank National Trust Company (Bond Trustee). In February 2011, CHFFA issued the bonds to investors and lent the proceeds from the sale of the bonds to the LLCs. The loans from CHFFA to each LLC repaid the CalHFA loans in full and also covered one year of required debt reserves and other costs and expenses related to the issuance of the bonds. The responsibility for repayment of the loans for these bonds has been divided among the LLCs. The Loan Agreements call for monthly payments by each LLC. Each loan is secured by, among other things, deeds of trust on the residences and a pledge of the LLCs gross revenues. 20

23 NOTES TO FINANCIAL STATEMENTS June 30, COMMUNITY PROGRAM FOR PERSONS WITH DEVELOPMENTAL DISABILITIES (CONTINUED) Bond Financing (Continued) CHFFA, the DDS, the Regional Centers, and the LLCs all agreed that the LLCs would obtain insurance for the payment of the Bonds from the OSHPD S Cal-Mortgage Loan Insurance Division. As partial consideration for the bond insurance, the Regional Centers and the LLCs entered into a Regulatory Agreement with CHFFA and OSHPD that contains financial and reporting covenants, payment obligations, and use restrictions consistent with the Welfare and Institutions Code As further consideration for the bond insurance, the Regional Centers and the LLCs agreed to the following: 1) The Regional Centers executed a Lender Lease Assurance Agreement, whereby they unconditionally agreed, jointly and severally, to pay the rent and other obligations, of all service providers under all leases should the service providers fail to meet such obligations. (This is relevant, since the LLCs rely on the receipt of such rent to repay the bond financing.) 2) The Regional Centers agreed to maintain a liquidity operating fund in three separate accounts (one for each Regional Center), in the aggregate sum of $5,000,000. CHFFA and OSHPD have the right to draw on the liquidity operating fund to cure any defaults by the LLCs under the loan documents. Subject to such right, the Regional Centers use of these funds are unrestricted; however, each Regional Center must replenish any withdrawal from its liquidity operating fund necessary to maintain the required initial balance within twelve months from the date of such withdrawal. The Center s share of the liquidity operating fund is $2,180,606. The remaining share of the fund is funded by GGRC in the amount of $1,020,082 and RCEB in the amount of $1,799,312. 3) Both the Regional Centers and the LLCs agreed to indemnify CHFFA and OSHPD for any post foreclosure transfer environmental losses. The Regional Centers remit payments to each service provider for the services they provide to the consumers residing in the properties. The service providers then use such funds and other funds available to them to cover their costs, including their rent under the leases. Under each lease, the applicable service provider is responsible for paying both the monthly base rent (which is equal to the monthly debt service payable to the Bond trustee) and additional charges as defined in the lease, including property taxes (if applicable), insurance and a replacement reserve (which is a minimum of $2,400 a year for each property). The LLCs, in turn, use the rents they receive under the leases to repay the CHFFA loans. In order to make all of the debt service payments equal, one additional smooth out payment was required to be made to the Bond Trustee. The Regional Centers made these payments via advances to their service providers, which were then forwarded to the Bond Trustee. The service providers will repay these receivables to the Center at the end of the bond financing term, via applicable offsets that the Center will apply against funds it owes to the service providers under the Service Provider Agreements. At June 30, 2013, CPPDD vendor advances totaled $163,235. Due to the timing of the bond financing, one additional debt service payment was required to be made to the Bond Trustee. The Regional Centers made these payments via advances to their service providers, which were then forwarded to the Bond Trustee. The service providers will repay these receivables to the Center at the end of the bond financing term, via applicable offsets that the Center will apply against funds it owes to the service providers under the Service Provider Agreements. At June 30, 2013, debt service CPPDD vendor advances totaled $359,

24 NOTES TO FINANCIAL STATEMENTS June 30, COMMITMENTS AND CONTINGENCIES Litigation The Center is currently a defendant in several litigious actions, in addition to threats of litigation arising out of the normal course of operations. The Center s management believes it has adequate defenses and insurance coverage for these actions and, thus, has made no provision in the financial statements for any costs relating to the potential settlement of such claims. These matters have been referred to the Center s attorneys and/or insurance carriers. In management s opinion, a material unfavorable outcome is remote. Funding The majority of the Center s funding is provided under annual grants and contracts with federal and California agencies. If a significant reduction in the level of funding provided by these governmental agencies were to occur, it may have an effect on the Center s programs and activities. The Center s contract with DDS provides funding for services under the Lanterman Act. In the event that the operations of the Center result in a deficit position at the end of the contract year, DDS may reallocate surplus funds within the State of California system to supplement the Center s funding. Should a system-wide deficit occur, DDS is required to report to the Governor of California and the appropriate fiscal committee of the State Legislature and recommend actions to secure additional funds or reduce expenditures. The DDS recommendations are subsequently reviewed by the Governor and the Legislature and a decision is made with regard to specific actions, including the possible suspension of the entitlement. The Center s revenue, which is derived from restricted funding provided by government grants and contracts, is subject to audit by the governmental agencies. In accordance with the terms of the DDS contract, an audit may be performed by an authorized DDS representative. Should such an audit disclose any unallowable costs, the Center may be liable to the State of California for reimbursement of such costs. In the opinion of the Center s management, the effect of any disallowed costs would be immaterial to the financial statements as of June 30, 2013, and for the year then ended. 11. SUBSEQUENT EVENTS The Center has evaluated all subsequent events through February 18, 2014, the date the financial statements were available to be issued. 22

25 SUPPLEMENTARY FINANCIAL INFORMATION Year Ended June 30, 2013

26 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2013 Federal Grantor/ Pass-Through Grantor / Program or Cluster Title Federal CFDA Number Agency or Pass-Through Number Federal Disbursements/ Expenditures Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services passed-through the State of California Department of Developmental Services: Medical Assistance Program (Medicaid; Title XIX) HD $ 184,145,369 * Targeted Case Management HD ,230,479 * Office of Special Education and Rehabilitative Services of the U.S. Department of Education passed-through the State of California Department of Developmental Services: Early Intervention Services: 190,375,848 Special Education - Grants for Infants and Families HD ,803,562 Corporation for National and Community Service passed-through the State of California Department of Developmental Services: Foster Grandparent Program HD ,350 * Major program $ 192,268,760 Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Center and is presented on the accrual basis of accounting. The information in 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. 24