Lenawee Community Mental Health Authority. Financial Statements September 30, 2016

Transcription

1 Lenawee Community Mental Health Authority Financial Statements

2 Table of Contents Independent Auditor s Report Management s Discussion and Analysis... I - IV Basic Financial Statements Statement of Net Position... 1 Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows... 4 Notes to the Financial Statements Required Supplemental Information Schedule of Employer Contributions Schedule of Changes in Net Pension Liability and Related Ratios Government Auditing Standards Report

3 Adrian, Michigan Independent Auditor s Report Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities, each major fund, and the aggregate remaining fund information of Lenawee Community Mental Health Authority (the CMHSP), a component unit of Lenawee County, Michigan, as of and for the year ended, and the related notes to the financial statements, which collectively comprise the CMHSP s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions 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 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 opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, each major fund, and the aggregate remaining fund information of the CMHSP, a component unit of Lenawee County, Michigan, as of, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in the notes to the financial statements, in 2016, the CMHSP adopted new accounting guidance, GASB Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the schedules for the pension plans, as identified in the table of contents, be presented to

4 supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 16, 2017, on our consideration of the CMHSP 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 CMHSP s internal control over financial reporting and compliance. Sincerely, Roslund, Prestage & Company, P.C. Certified Public Accountants March 16, 2017

5 MANAGEMENT S DISCUSSION AND ANALYSIS

6 LENAWEE COMMUNITY MENTAL HEALTH AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS This section of the Lenawee Community Mental Health Authority (the Authority ) annual financial report presents management s discussion and analysis of financial performance for the year ended. This discussion and analysis is designed to assist the reader in focusing on significant financial issues and activities and to identify significant changes in financial position and results of operations. Please read this section in conjunction with the auditor s report and with the financial statements, notes to financial statements, and supplemental information taken as a whole. The Authority is a member of the Community Mental Health Partnership of Southeast Michigan ( CMHPSM ) and received Medicaid revenue as a subcontractor to provide services and supports. The CMHPSM is the designated Prepaid Inpatient Health Plan (PIHP) for a region consisting of Washtenaw, Lenawee, Livingston and Monroe counties. The Authority subcontracts for Medicaid, Healthy Michigan, and Substance Use Disorder funding through the PIHP while State general fund revenue and other grants and earned contracts continue to be sourced directly from the State of Michigan. The financial information contained in this discussion and analysis is presented in comparison to the prior fiscal year. This will help provide a context for the reader and assist in understanding the financial position of the Authority. FINANCIAL HIGHLIGHTS Operating results show a current loss of $28,264. The current financial position, which is the excess of current assets over current liabilities, was a positive $2,336,042. Unrestricted net position at the end of the year was $571,163. OPERATING HIGHLIGHTS The Authority continues its commitment to the consumers of Lenawee County. Several successful Michigan Department of Community Health (MDCH) site reviews were conducted along with a delegated managed care site review by the PIHP in functions such as credentialing, utilization management, and grievances and appeals. OVERVIEW OF FINANCIAL STATEMENTS Financial statements are provided using the Enterprise Fund Presentation, which is a form of Proprietary Fund. The Proprietary Fund financial statements are designed to provide readers with a broad overview of the organization s finances in a manner similar to a private sector business. Business type activities include services primarily funded through user charges. The Statement of Net Position presents information on all of the Authority s assets and liabilities with the difference between assets and liabilities being reported as net position. Changes in net position serve as a useful indicator in determining whether the financial position is improving or deteriorating. -I-

7 LENAWEE COMMUNITY MENTAL HEALTH AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS The Statement of Revenues, Expenses, and Changes in Net Position presents information showing how net position changed during the fiscal year. Reporting of activities is on an accrual basis meaning that the change in net position is reported as soon as the underlying event giving rise to the change occurs regardless of the timing of the related movement of cash. The Statement of Cash Flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. SUMMARY OF NET POSITION The following summarizes the assets, liabilities and net assets on an agency-wide basis as of and FY2016 FY2015 Change % Change Assets Noncurrent assets $ 563,949 $ 783,456 $ (219,507) -28.0% Other assets 5,244,673 7,261,616 (2,016,943) -27.8% Total assets 5,808,622 8,045,072 (2,236,450) -55.8% Liabilities Long-term liabilities 2,917,442 2,054, , % Other liabilities 2,908,631 5,132,808 (2,224,177) -43.3% Total liabilities 5,826,073 7,187,240 (1,361,167) -1.3% Net position Invested in capital assets, net of related debt 563, ,456 (219,507) -28.0% Restricted for other purposes 141, ,596 4, % Unrestricted 571, , , % Total net position $ 1,276,406 $ 1,299,972 $ (23,566) 25.8% Current financial position $ 2,336,042 $ 2,128,808 $ 207, % NOTE: The financial statements for FY 16 include the reporting of a net pension liability as required by GASB 68. This is not a new liability, but a new way of reporting the information. For further information regarding GASB 68, please refer to Note 10 of the audit report. -II-

8 LENAWEE COMMUNITY MENTAL HEALTH AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS Current financial position is defined as the excess of current assets over current liabilities. A positive current financial position is an indicator of financial strength and an increase in current financial position is an indicator of improving financial position. The current financial position was a positive $2,336,042. Restricted net assets refer to the Hendershot Fund and are restricted by the original bequest to be used for prevention activities. Unrestricted net position at the end of the year was $571,163. Unrestricted net assets were 10.9% of current assets, up from 5.2% in the prior year. SUMMARY OF ACTIVITIES The following summarizes the revenue, expenses and change in net assets for the years ended September 30, 2016, and FY2016 FY2015 Change % Change Revenue Medicaid specialty supports and services $ 14,378,109 $ 13,877,924 $ 500, % Healthy Michigan $ 1,207,297 $ 1,118,054 $ 89, % State general fund 403, ,710 $ (534,048) -57.0% Earned revenues, grants and federal program 1,400, ,694 $ 410, % Program service revenue 146, ,091 $ (45,899) -23.9% County appropriation 365, ,686 $ - 0.0% Interest income 97,644 87,085 $ 10, % Other income 53,644 53,347 $ % Total revenue 18,052,270 17,621, , % Expense Personnel expense 4,840,903 4,382, , % Operating expense 13,239,631 13,162,187 77, % Interest expense - 26 (26) % Total expense 18,080,534 17,544, , % Change in net position $ (28,264) $ 76,735 $ (104,999) Excess of revenue over expenses from activities for the current year was ($28,264). This is a decrease of $104,999 from the prior year surplus of $76,735. This is related to the loss on disposal of property recorded in FY 16. Medicaid specialty supports and services revenue represents 79.6% of total revenue and increased $500,185 or 3.6% compared to the prior year. This increase is attributed to an increase in the demand for Medicaid services and increases in overall agency costs. As previously mentioned, the source of Medicaid specialty supports and services revenue is the CMHPSM as the PIHP on a net cost not to exceed contract basis. -III-

9 LENAWEE COMMUNITY MENTAL HEALTH AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS Healthy Michigan which began April 1, 2014 represents 6.7% of total revenue and increased $89,243 or 8.0% compared to the prior year. State general fund revenue (formula funding) represents 2.2% of total revenue and decreased $534,048 or 57.0 % compared to the prior year. This decrease was mainly due to the removal of state hospital funding from the GF authorization. The general fund revenue is established by MDHHS as a part of the legislative appropriation process under the Michigan Mental Health Code and is used to provide supports and services to indigent priority populations. Earned revenues, grants and federal programs revenue include revenue sources for which the use of funds is restricted to a specific purpose. These represent 7.8% of total revenue and increased $410,342 or 41.5% from the prior year. Program service revenue includes charges for services for consumers not covered by Medicaid risk contracts or state general fund. These represent.8% of total revenue and decreased $45,899 or 23.9% from the prior year. This decrease is due to the elimination of the MI Child program. County appropriation revenue, interest income and other income are available to meet state matching fund requirements. These revenue sources constitute 2.9% of revenue and have increased $10,856 or 2.1% from the prior year. Total expenses include all expenses related to the operations of the Authority. The total of $18,080,534 is an increase of $535,678 or 3.1% compared to the prior year. Personnel expense is 26.8% of total expense and increased $458,260 or 10.5%. Operating expense is 73.2% of total expense and increased $77,444 or.6% from the prior year. FUTURE OUTLOOK Once again, the State of Michigan is struggling to balance huge budget deficits. Federal deficits are placing additional pressures on Medicaid funding. The effect of these on future funding for community mental health and specialty supports and services is unknown. Management expects revenue to be flat at best, with an expected increase in the demand for supports and services. Given the potential for a shortfall of both State General Fund and Medicaid funding, the Authority will continue to pursue cost reduction and/or cost containment strategies. As always, questions, comments, and suggestions are welcomed from interested parties and the general public. These can be directed to Lenawee Community Mental Health Authority, Finance Department, 1040 S. Winter St., Suite 1022, Adrian, MI IV-

10 BASIC FINANCIAL STATEMENTS

11 Statement of Net Position Major Fund Non-Major Fund Mental Hendershot Total Enterprise Health Fund Fund Funds Current assets Cash and cash equivalents $ 1,746,363 $ - $ 1,746,363 Investments 2,892, ,894 3,031,879 Accounts receivable, net 42,943-42,943 Due from other governmental units 423, ,755 Prepaid items 138, ,627 Other current assets - restricted - 2,400 2,400 Total current assets 5,244, ,294 5,385,967 Noncurrent assets Capital assets - land 35,000-35,000 Capital assets - depreciable, net 528, ,949 Total noncurrent assets 563, ,949 Deferred outflows of resources Deferred outflow - related to pension 1,152,563-1,152,563 Current liabilities Accounts payable 1,185,970-1,185,970 Accrued wages and other payroll liabilities 131, ,931 Due to other governmental units 1,556,641-1,556,641 Unearned revenue 3,500-3,500 Compensated absences, due within one year 30,589-30,589 Total current liabilities 2,908,631-2,908,631 Noncurrent liabilities Compensated absences, due beyond one year 173, ,336 Net pension liability 2,744,106-2,744,106 Total noncurrent liabilities 2,917,442-2,917,442 Net Position Net investment in capital assets 563, ,949 Restricted for Hendershot Fund - 141, ,294 Unrestricted 571, ,163 Total net position $ 1,135,112 $ 141,294 $ 1,276,406 The notes to the financial statements are an integral part of this statement. 1

12 Operating revenues State funding Lenawee Community Mental Health Authority Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended Major Fund Non-Major Fund Mental Hendershot Total Enterprise Health Fund Fund Funds General fund contract $ 403,662 $ - $ 403,662 MI Child 7,542-7,542 OBRA/PASARR 24,301-24,301 Federal grants OBRA/PASARR 72,902-72,902 County appropriations 365, ,686 Charges for services Medicaid - DHHS contract 14,250,865-14,250,865 Medicaid - Fee for service Medicaid - Child Waiver 47,795-47,795 Medicaid - Autism 79,144-79,144 Healthy Michigan 1,207,297-1,207,297 Substance abuse 1,302,833-1,302,833 Client and third party pay 138, ,650 Other revenues Local match 47,398-47,398 Contributions 3,480-3,480 Other 2,766-2,766 Total operating revenues 17,954,626-17,954,626 Operating expenses Advertising 41,760-41,760 Affiliate transfers 152, ,632 Committee per diem 12,880-12,880 Communications 68,388-68,388 Community hospitals 1,211,399-1,211,399 Computer software 1,085-1,085 Consumer travel 5,107-5,107 Contractual services 10,058,705-10,058,705 Depreciation expense 51,438-51,438 Equipment 13,548-13,548 Employee development 31,023-31,023 Employee travel 104, ,067 Fringe benefits 1,386,441-1,386,441 Insurance 17,239-17,239 Lab Miscellaneous Office space 331, ,508 Operating supplies 35,183-35,183 Pharmacy 7,222-7,222 Printing and binding 16,218-16,218 Psychiatrist 694, ,249 Recruitment 14,770-14,770 Repairs and maintenance 49,592-49,592 Salaries and wages 3,454,462-3,454,462 State facilities 83,104-83,104 Subscriptions and dues 9,513-9,513 Wraparound services 41,005-41,005 Total operating expenditures 17,893,854-17,893,854 Operating income (loss) 60,772-60,772 The notes to the financial statements are an integral part of this statement. 2

13 Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended Major Fund Non-Major Fund Mental Hendershot Total Enterprise Health Fund Fund Funds Non-operating revenues (expenses) Investment income $ 97,644 $ 4,698 $ 102,342 Loss on disposal of property (186,680) - (186,680) Non-operating income (loss) (89,036) 4,698 (84,338) Net income (28,264) 4,698 (23,566) Net position, beginning of year 1,163, ,596 1,299,972 Net position, end of year $ 1,135,112 $ 141,294 $ 1,276,406 The notes to the financial statements are an integral part of this statement. 3

14 Statement of Cash Flows For the Year Ended Major Fund Non-Major Fund Mental Hendershot Total Enterprise Health Fund Fund Funds Cash flows from operating activities Receipts from the State and other governments $ 14,970,893 $ - $ 14,970,893 Receipts from customers 224, ,079 Payments to employees (4,789,300) - (4,789,300) Payments to suppliers (12,782,208) - (12,782,208) Net cash provided (used) by operating activities (2,376,536) - (2,376,536) Cash Flows from capital and related activities Acquisition of capital assets (18,611) - (18,611) Net cash provided (used) in capital and related act. (18,611) - (18,611) Cash flows from investment activities Investment income 97,644 4, ,342 Net proceeds from sale (purchase) of investments (90,669) (4,698) (95,367) Net cash used by investment activities 6,975-6,975 Net increase in cash and cash equivalents (2,388,172) - (2,388,172) Cash and cash equivalents, beginning of year 4,134,535-4,134,535 Cash and cash equivalents, end of year $ 1,746,363 $ - $ 1,746,363 Reconciliation of operating income to net cash provided by (used for) operating activities: Operating income (loss) $ 60,772 $ - $ 60,772 Depreciation 51,438-51,438 Changes in assets and liabilities: Receivables 31,785-31,785 Due from governments (315,988) - (315,988) Prepaid and other assets 3,643-3,643 Deferred outflow - related to pension (847,019) - (847,019) Accounts payable 215, ,662 Due to governments (2,476,451) - (2,476,451) Accrued and other liabilities 41,998-41,998 Unearned revenue 1,000-1,000 Net pension liability 856, ,624 Net cash provided (used) by operating activities $ (2,376,536) $ - $ (2,376,536) The notes to the financial statements are an integral part of this statement. 4

15 NOTES TO THE FINANCIAL STATEMENTS

16 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Lenawee Community Mental Health Authority (the CMHSP) have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the significant accounting policies used by the CMHSP. Reporting Entity The CMHSP operates under provisions of the Michigan Mental Health Code for the purpose of providing services relating to the mental health, developmental disabilities, and substance abuse needs of the residents of Lenawee County. As the community mental health services provider for the County, the CMHSP serves community members by assuring local access, organizing and integrating the provision of services, coordinating care, implementing public policy, ensuring interagency collaboration, and preserving public interest. The CMHSP is reported as a component unit of the County and is discretely presented in the financial statements of the County. Financial Statement Presentation Under GASB 34, the CMHSP is considered a special purpose government and has elected to present the basic statements as an Enterprise Fund (a type of proprietary fund) which is designed to be self-supporting. Enterprise Funds distinguish operating revenues and expenses from nonoperating items. The principal operating revenues of the CMHSP are charges related to serving its customers (including primarily per member per month capitation and state and county appropriations). Operating expenses for the CMHSP includes cost of services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenues and expenses including investment income and interest expense. As a general rule, the effect of interfund activity has been eliminated when presenting total proprietary fund activity. All amounts shown are in U.S. dollars. Fund Accounting The accounts of the CMHSP are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenue, and expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The CMHSP reports the following major enterprise fund: Mental Health Fund This fund is used to account for those activities that are financed and operated in a manner similar to private business relating to revenues earned, costs incurred, and/or net income. This fund of the CMHSP accounts for its general operations. In addition, the CMHSP reports the following non-major enterprise fund: Hendershot Fund - This fund is restricted (by the original bequest) to be used for prevention activities to the residents of Lenawee County. Basis of Accounting and Measurement Focus Basis of accounting refers to when revenue and expenses are recognized in the accounts and reported in the financial statements. The proprietary funds are accounted for using the full accrual basis of accounting. Their revenues are recognized when they are earned, and their expenses are recognized when they are incurred. The proprietary funds are accounted for on a cost of services or economic resources measurement focus. This means that all assets and all liabilities associated with their activity are included on the statement of net position. 5

17 Notes to the Financial Statements Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The CMHSP s cash and cash equivalents are considered to be cash on hand, money market funds, demand deposits, and certificates of deposit. Investments Investments for the CMHSP are reported at fair value (generally based on quoted market prices). Accounts Receivable/Payable Accounts receivable/payable in all funds report amounts that have arisen in the ordinary course of business. Accounts receivable is stated net of allowances for uncollectible amounts, if any. Due from/due to Other Governmental Units Due from/due to other governmental units consist primarily of amounts due from/to the regional entity and the State of Michigan. Inventories The CMHSP does not recognize supplies inventory as an asset. The cost of these supplies is considered immaterial to the financial statements and the quantities are not prone to wide fluctuation from year to year. The costs of such supplies are expensed when purchased. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. The cost of prepaid items is recorded as an expense when consumed rather than when purchased. Capital Assets Capital assets are defined by the CMHSP as individual assets with an initial cost equal to or more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Capital assets of the CMHSP are depreciated using the straight-line method over the following estimated useful lives: Assets Land Years Not Depreciated Buildings and improvements Leasehold improvements Furniture, fixtures, and equipment 5-7 Office equipment 5-7 Vehicles 3 The CMHSP reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its fair value. If it is determined that an impairment loss has occurred, the asset is written down to its net realizable value and a related expense is recognized in the current year. 6

18 Notes to the Financial Statements Accrued Payroll and Benefits Accrued payroll and benefits relate to salaries and wages earned in September but not paid until October. Unearned Revenue The CMHSP reports unearned revenue when revenue does not meet either the measurable and available criteria for recognition in the current period, or when resources are received by the CMHSP before it has a legal claim to them, such as when grant money is received prior to the incurrence of qualifying expenses. In subsequent periods, when both revenue recognition criteria are met, or when the CMHSP has legal claim to the resources, the liability for unearned revenue is removed and the revenue is recognized. Compensated Absences The CMHSP s policy permits employees to accumulate earned but unused vacation and sick benefits, which are eligible for payment upon separation from the CMHSP s service. The liability for such leave is reported as incurred in the financial statements. The liability for compensated absences includes salary related benefits, where applicable. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The CMHSP has one item that qualifies for reporting in this category which relates to pensions (see note 10). In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The CMHSP has no items that qualify for reporting in this category. Net Position Net investment in capital assets This category consists of capital asset balances, net of accumulated depreciation, less outstanding balances of debt related to those assets. Restricted Net position in this category is reported as restricted when constraints placed on net position use is either: - Externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or - Imposed by law through constitutional provisions or enabling legislation. Unrestricted If net position does not meet the criteria for the above categories, it is reported as unrestricted. In addition, the CMHSP will first use restricted resources when an expense is incurred for purposes for which either restricted or unrestricted net position is available. MDHHS Revenue General Fund Revenue The CMHSP provides mental health services on behalf of the Michigan Department of Health and Human Services (MDHHS). Currently, the CMHSP contracts directly with the MDHHS for General Fund revenues to support the services provided for the priority population residing in the County. The CMHSP performs an annual cost settlement of General Funds with MDHHS. Medicaid Revenue Beginning January 2014, Community Mental Health Partnership of Southeast Michigan (CMHPSM) assumed the regional entity contract with the MDHHS. The CMHSP contracts to receive Medicaid, Healthy Michigan, Autism and other revenues through the regional entity. The CMHSP performs an annual cost settlement of capitated funding with the regional entity. 7

19 Notes to the Financial Statements NOTE 2 CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and Cash Equivalents Michigan s statutory authority allows governmental entities to invest in the following investments: - Bonds, securities, other obligations and repurchase agreements of the United States, or an agency or instrumentality of the United States. - Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified institution. - Commercial paper rated at the time of purchase within the 2 highest classifications established by not less than 2 standard rating services and that matures not more than 270 days after the date of purchase. - Bankers acceptances of United States banks. - Obligations of the State of Michigan and its political subdivisions that, at the time of purchase are rated as investment grade by at least one standard rating service. - Mutual funds registered under the Investments Company Act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. - External investment pools as authorized by Public Act 20 as amended through December 31, At September 30 th the carrying amount of the CMHSP s cash and cash equivalents are as follows: Description Amount Petty Cash 350 Checking, Money Market, & Liquid Asset Accounts 1,746,013 Total 1,746,363 Interest Rate Risk State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk State law limits investments to specific government securities, certificates of deposits and bank accounts with qualified financial institutions, commercial paper with specific maximum maturities and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds and qualified external investment pools as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on investment credit. The ratings for each investment are identified above for investments held at year-end. Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the CMHSP s deposits may not be returned. State law does not require and the CMHSP does not have a policy for deposit custodial credit risk. As of year-end $1,496,013 of the CMHSP s bank balance of $1,746,013 was exposed to custodial credit risk because it was uninsured and uncollateralized. Deposits which exceed FDIC insurance coverage limits are held at local banks. The CMHSP believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all bank deposits. As a result, the CMHSP evaluates each financial institution with which it deposits funds and assesses the level of risk at each institution. Only those institutions with an acceptable estimated risk level are used as depositories. Concentration of Credit Risk State law limits allowable investments but does not limit concentration of credit risk as identified in the summary of significant accounting policies. The CMHSP s investment policy does not have specific limits in excess of state law on concentration of credit risk. 8

20 Notes to the Financial Statements Investments As of September 30 th, the CMHSP had the following investments: Investments Amount U.S. agencies 1,394,163 Municipal bonds 1,113,613 Bond Mutual Funds 134,873 Money markets 151,414 CDs held in investment account 98,922 Total 2,892,985 Investment Type Rating Amount U.S. agencies: Fed Farm Cr Bk AAA 103,978 Fed Home Ln Bk AAA 107,129 Fed Home Ln Bk AAA 102,256 Fed Home Ln Mtg AAA 102,642 Fed Home Ln Mtg AAA 102,354 Fed Home Ln Mtg AAA 51,323 Fed Nat Mtg Assoc AAA 152,472 Fed Nat Mtg Assoc AAA 102,280 Fed Nat Mtg Assoc AAA 101,341 Fed Nat Mtg Assoc AAA 154,749 Fed Home Ln Mtg AAA 157,956 Tennessee Valley Auth AAA 155,683 Total U.S. agencies: 1,394,163 Municipal bonds: Alma MI Pub SDR AA1 137,758 Almont MI CS GO AA- 26,032 Bloomfield Twp MI GO AAA 56,005 Clarkston MI CS GO AA1 100,757 Fruitport MI Cmnty SDR AA1 26,251 Grand Haven MI GO AA 26,624 Grand Rapids MI BA GO AA2 111,159 Kalamazoo MI SDR AA- 71,266 Michigan Fin Auth Edu AA2 25,023 Michigan State GO AA1 109,936 Milan MI Area Sch SD AA1 139,226 Univ of MI Rev AAA 223,182 Van Buren MI PS GO AA1 43,921 Van Buren MI PS AA1 16,473 Total municipal bonds: 1,113,613 9

21 Notes to the Financial Statements Investments - Hendershot As of September 30 th, the CMHSP had the following restricted investments: Investments - restricted Amount U.S. agencies 50,982 Municipal bonds 55,938 Bond Mutual Funds 11,994 Money markets 5,308 CDs held in investment account 14,672 Total 138,894 Investment Type Rating Amount U.S. agencies: Fed Home Ln Mtg AAA 25,412 Fed Nat Mtg Assoc. AAA 25,570 Total U.S. agencies: 50,982 Municipal bonds: Bridgman MI Pub SDR AA1 28,093 Milan MI Area Sch SD AA1 27,845 Total municipal bonds: 55,938 Investments State statutes authorize the CMHSP to invest in obligations and certain repurchase agreements of the United States Treasury and related governmental agencies, commercial paper, banker s acceptances of the United States banks, obligations of the State of Michigan or any of its political subdivisions, and mutual funds composed entirely of the above investments. See above for a listing of the CMHSP s investments. The CMHSP s investment policy complies with the state statutes and has no additional investment policies that would limit its investment choices. Interest Rate Risk Investments Under state statutes, investment in commercial paper is limited to maturities of not more than 270 days after the date of purchase. The CMHSP s investment policy does not place any further limitations on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Investments Years Total U.S. Agencies 767, ,166-1,394,163 Municipal Bonds 639, ,542-1,113,613 Investments Hendershot Total 1,407,068 1,100,708-2,507,776 Years Total U.S. Agencies 50, ,982 Municipal Bonds 27,845 28,093-55,938 Total 78,827 28, ,920 10

22 Notes to the Financial Statements Custodial Credit Risk Investments Custodial credit risk is the risk that, in the event of a failure of the counterparty, the CMHSP will not be able to recover the value of its investments that are in the possession of an outside party. The CMHSP requires all security transactions, including collateral for repurchase agreements, to be made on a cash basis or a delivery vs. payment basis. Securities may be held by a third party custodian and must be evidenced by safekeeping receipts. The CMHSP does not have any additional policies for custodial credit risk over investments. Credit Risk - Investments State statutes limit investments in commercial paper to be rated at the time of purchase within the three highest classifications established by not less than two standard rating services. Investments in obligations of the State of Michigan or its political subdivisions must be rated as investment grade by not less than one rating service. Investments in bonds, obligations, or repurchase agreements must be made with the U.S. Treasury and banker s acceptances with United States banks. The CMHSP s investment policy limits investments to be made with prudent judgment as to the safety of the invested capital and probable outcome of income. Concentration of Credit Risk - Investments The CMHSP s investment policy places no limit on the amount it may invest in any one issuer. At September 30 th, concentrations in securities of any one issuer greater than 5% of investment fair value were as follows: Investments Investment Type Issuer % of Portfolio Bond Fed Home Ln Bk 8.40% Bond Fed Home Ln Mtg 16.60% Bond Fed Nat Mtg Assoc 20.51% Bond Tennessee Valley Auth 6.31% Bond Alma MI Pub SDR 5.10% Bond Milan MI Area Sch SD 5.76% Bond Univ of MI Rev 9.30% Investments Hendershot Investment Type Issuer % of Portfolio Bond Fed Home Ln Mtg 18.15% Bond Fed Nat Mtg Assoc % Bond Bridgman MI Pub SDR 19.87% Bond Milan MI Area Sch SD 20.41% Fair Value of Investments The CMHSP measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows: Level 1: Quoted prices for identical investments in active markets; Level 2: Observable inputs other than quoted market prices; and, Level 3: Unobservable inputs. 11

23 Notes to the Financial Statements At year-end, the CMHSP had the following recurring fair value measurements. Investments Debt Securities Value as of Fair Value Measurements Using Description Sept 30 th Level 1 Level 2 Level 3 U.S. Agencies 1,394,163 1,394, Municipal/Public Bonds 1,113,613 1,113, Bond Mutual Funds 134, , Total debt securities 2,642,649 2,642, Investments Hendershot Debt Securities Value as of Fair Value Measurements Using Description Sept 30 th Level 1 Level 2 Level 3 U.S. Agencies 50,982 50, Municipal/Public Bonds 55,938 55, Bond Mutual Funds 11,994 11, Total debt securities 118, , NOTE 3 ACCOUNTS RECEIVABLE Accounts receivable, net of allowances as of September 30 th consists of the following: Description Amount Accounts receivable, gross 226,943 Less: allowance for doubtful accounts (184,000) Accounts receivable, net 42,943 NOTE 4 - DUE FROM OTHER GOVERNMENTAL UNITS Due from other governmental units as of September 30 th consists of the following: Description Amount Due from other agencies 84,793 Due from affiliate 305,216 Due from State - grants & earned contracts 17,859 Due from local government 15,887 Total 423,755 12

24 Notes to the Financial Statements NOTE 5 - PREPAID EXPENSES Prepaid expenses as of September 30 th represent payments for the following expenses that will benefit future periods: Description Amount MI Municipal League 10,529 Prepaid rent expense 25,032 Blue Cross Blue Shield 62,178 Other prepaid expenses 40,888 Total 138,627 NOTE 6 - CAPITAL ASSETS A summary of changes in capital assets is as follows: Description Capital assets: Beginning Balance Increases Decreases Ending Balance Land 221,680 - (186,680) 35,000 Buildings and Improvements 717, ,665 Leasehold improvements 229, ,391 Furniture, Fixtures, and Equipment 90, ,204 Office equipment 541,058 18,611 (121,393) 438,276 Vehicles 32,446 - (32,446) - Subtotals 1,832,444 18,611 (340,519) 1,510,536 Accumulated Depreciation: Buildings and Improvements (311,909) (23,922) - (335,831) Leasehold improvements (154,202) (15,292) - (169,494) Furniture, Fixtures, and Equipment (68,163) (2,264) - (70,427) Office equipment (482,269) (9,958) 121,393 (370,834) Vehicles (32,446) - 32,446 - Subtotals (1,048,989) (51,438) 153,839 (946,586) Totals 783,455 (32,825) (186,680) 563,949 NOTE 7 - DUE TO OTHER GOVERNMENTAL UNITS Due to other governmental units as of September 30 th consists of the following: Description Amount Department of Health and Human Services 19,173 Community Mental Health Partnership of Southeast Michigan 1,504,873 Inpatient State Facilities 22,344 Due to other agencies 10,251 Total 1,556,641 13

25 Notes to the Financial Statements NOTE 8 - UNEARNED REVENUE The amount reported as unearned revenue represents revenues received in advance of the period earned as follows: Description Amount E-Race Stigma 3,500 NOTE 9 - LONG-TERM LIABILITIES The changes in the long-term liabilities are as follows: Description Beginning Balance Additions Reductions Ending Balance Due within one year Due beyond one year Compensated abs. 196,412 36,975 (29,462) 203,925 30, ,336 NOTE 10 RETIREMENT AND OTHER POST EMPLOYMENT BENEFIT PLANS Defined Contribution Retirement Plan Plan Description Effective October 1, 2009, Lenawee Community Mental Health Authority established a money purchase pension plan. The assets of the plan were held in trust for the exclusive benefit of the participants (employees) and their beneficiaries. Mass Mutual acts as the custodian for the plan and holds the custodial account for the beneficiaries of this plan. The assets may not be diverted to any other use. The Administrators are agents of the employer for purposes of providing direction to the custodian of the custodial account from time to time for the investment of the funds held in the account, transfer of assets to or from the account and all other matters. Plan balances and activities are not reflected in the CMHSP s financial statements. Plan provisions are established or amended by Board resolution. Eligibility All employees are considered to be Eligible Employees except for the following ineligible classes of Employees: (a) employees whose employment is governed by a collective bargaining agreement in which retirement benefits were the subject of good faith bargaining; and (b) Non-union employees scheduled to work less than 1,000 Hours per Plan year. Contributions Employer contributions will match employee contributions up to 5.5% of each eligible Participant s compensation. Normal Retirement Age & Vesting Normal Retirement age as defined by the plan is 62 years of age. Early retirement age as defined by the plan is 55 years of age and at least 7 years of service. Match contributions are 100% vested after 7 or more years of service. Forfeitures Match contributions for employees that do not reach 7 years of service are forfeited. Forfeitures of discretionary contributions are first used to pay administrative expenses and remaining funds are reallocated as an employer contribution. For the year ended September 30 th, employer contributions (reduced by $23,355 in forfeitures) amounted to $48,927. The outstanding liability to the plan at year-end was $2,768 Defined Benefit Pension Plan Summary of Significant Accounting Policies - Pensions 14

26 Notes to the Financial Statements For purposes of measuring the Net Pension Liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Lenawee Community Mental Health Authority Pension Plan and additions to/deductions from fiduciary net position have been determined on the same basis as they are reported. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. General Information about the Pension Plan Plan Description The CMHSP s defined benefit pension plan provides certain retirement, disability and death benefits to plan members and their beneficiaries. The Plan is a single employer pension plan established on January 1, Lenawee Community Mental Health Authority is the Plan Administrator. Summary of Plan Provision and Benefits Provided The CMHSP s plan offer the following benefits: - Participation: Each Employee employed by the County in a position normally requiring 1,000 hours or more per year is eligible to join the plan. Participation begins on the January 1 or July 1 following completion of one year of service. Participation was frozen as of 9/30/09. - Service: The period of an Employee s employment with the Employer, as determined by the Employer's personnel records - Vesting Service: All years of Service during which the Employee completes 1,000 hours of service - Benefit Service: All years of Service during which the Employee completes 1,000 hours of service and makes the required employee contributions - Normal Retirement Date: The earlier of age 62 and 8 years of service or the age at which a participant's age plus service equals 85 - Early Retirement Date: Any Participant who has attained age 55 and completed 10 years of Benefit Service may elect early retirement on the first day of any calendar month following the termination of Service. - Disability Retirement Date: No disability benefits are payable - Average Monthly Earnings: The average of Monthly Earnings in the period of 5 consecutive years with respect to which such sum is the greatest. - Normal Retirement Benefit: 2.0% of average monthly earnings times all years of benefit service. - Termination Benefit: A Participant who has at least eight years of Vesting Service has a nonforfeitable right to 100% of his or her Accrued Benefit. Benefit is payable at Normal Retirement Date. - Early Retirement Benefit: The accrued benefit reduced 1/15 for the first five years, and 1/30 for the next five years for each year the Retirement Date precedes the Normal Retirement Date. - Normal Form: Single: Modified Cash Refund; Married: Qualified 50% Joint and Survivor Annuity - Optional Forms: Joint and Survivor Annuity, Life Annuity with 120 monthly payments guaranteed, Life Annuity - Death Benefits: - Pre-retirement: If the Participant is not vested, no death benefits are payable. If the participant is vested, then the death benefit is 50% of the amount that would have been payable to the Participant under the 50% Joint and Survivor option. - Post-Retirement: None except as provided by the annuity form elected. 15

27 Notes to the Financial Statements - Employee Contributions: 2.5% of pay (picked up by the Employer under IRC 414(h)(2)). The employee contributions increased to 5.0% effective May, Employees Covered By Benefit Terms As of the January 1, 2016 Valuation date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 25 Inactive employees entitled to but not yet receiving benefits 33 Active employees 42 Total 100 The CMHSP s Defined Benefit plan is closed to new hired employees. All new eligible employees participate in the Defined Contribution plan. Contributions The CMHSP is required to contribute amounts at least equal to the actuarially determined rate. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The CMHSP has established that its covered employees must contribute 5.0% of their compensation. Each year the CMHSP is required to contribute an amount to the Plan which is actuarially determined. The amount of the contribution may vary from year to year, depending on, for example, participant turnover, benefit payments, and investment gains or losses of the Plan. Net Pension Liability The CMHSP s Net Pension Liability was measured as of December 31, 2015, and the total pension liability used to calculate the Net Pension Liability was determined by an annual actuarial valuation as of that date. Actuarial Assumptions The total pension liability in the annual actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: - Interest: 7.50% for 2015 to 7.00% for Preretirement Mortality: RP-2000 Mortality Tables for Non-Annuitants, Fully Generational With Scale AA - Postretirement Mortality: RP-2000 Mortality Tables for Annuitants, Fully Generational With Scale AA - Assumed Retirement: Plan Normal Retirement Age - Termination: Termination Table T-5 from the Actuary's Handbook with a 5- year setback for females - Incidence of Disability: None - Salary Scale: 0% for 6 years and 2.5% thereafter - Marriage: It is assumed that 80% of participants are married and that a male is 3 years older than his female spouse. - Expenses: Interest rate is assumed to be net of plan expenses. - Optional Forms: Liabilities include no load to account for the value of optional annuity forms. - Actuarial Cost Method: Individual Entry Age Normal - Asset Valuation Method: The Actuarial value of Assets are determined using the Five-Year Average Appreciation method. 16

28 Notes to the Financial Statements Although no specific price inflation assumptions are needed for the valuation, the long-term wage inflation assumption would be consistent with the price inflation. The actuarial assumptions used in the valuation were based on the results of the most recent actuarial experience study conducted. The long-term expected rate of return on pension plan investments was determined using a model method in which the best estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Asset Class Long-Term Expected Real Rate of Return Premier Money Market 5.00% Large Cap Equity 8.48% Premier Core Bond 10.00% Mid Cap Equity 10.11% MM S&P 500 Index 10.00% Small Cap Equity 12.08% Pre Inflat-Prot and Incm 7.00% REITS 10.12% Sel Overseas 7.00% International Equity 9.00% Real Estate 5.00% Emerging Market Equity 16.12% Premier High Yield 3.00% Commodities 9.22% Comstock 7.00% Intermediate Term Bonds 1.94% Emerging Markets 4.00% Short Term Bonds 1.21% Sycamore Sm Co Oppty 3.00% High Yield Bonds 6.24% Capital Appreciation 6.00% TIPS 2.09% Bond Index 10.00% Stable Value 3.12% MM MSCI AEFE Intl Indx 8.00% Sel Sm Cap Val Eq 2.00% MM S&P Mid Cap Index 7.00% Guaranteed Interest Account 0.00% Equity Growth 6.00% Discount Rate The discount rate used to measure the total pension liability was 6.7% for The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 17

29 Notes to the Financial Statements Changes in Net Pension Liability Changes in net pension liability Calculating the Net Pension Liability Total pension liability (a) Increase (decrease) plan fiduciary net position (b) Net pension liability (a) (b) Balances at 12/31/14 14,378,771 12,491,289 1,887,482 Changes for the year Service cost 105, ,946 Interest on total pension liability 957, ,153 Changes in benefits Difference between expected and actual experience Changes in assumptions Employer contributions - 215,824 (215,824) Employee contributions - 105,772 (105,772) Net investment income - (119,965) 119,965 Benefit payments, including employee refunds (397,936) (397,936) Administrative expense - (26,704) 26,704 Other changes (31,548) - (31,548) Net changes 633,615 (223,009) 856,624 Balances as of 12/31/15 15,012,386 12,268,280 2,744,106 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Net Pension Liability of the CMHSP, calculated using the discount rate of 6.7%, as well as what the CMHSP s Net Pension Liability would be using a discount rate that is 1 percentage point lower (5.7%) or 1 percentage point higher (7.7%) than the current rate. 1% Decrease 5.7% Current Discount Rate 6.7% 1% Increase 7.7% Net Pension Liability at 12/31/15 2,744,106 2,744,106 2,744,106 Change in Net Pension Liability (NPL) 1,699,278 - (1,426,151) Calculated Net Pension Liability 4,443,384 2,744,106 1,317,955 Pension Expense, Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended, the CMHSP recognized pension expense of $256,009. The CMHSP reported deferred outflows and inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences in Experience - - Differences in Assumptions - - Excess (Deficit) Investment Returns 920,114 - Contributions Subsequent to 12/31/15* 232,449 - Totals 1,152,563 - *The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the Net Pension Liability for the year ending September 30, 18

30 Notes to the Financial Statements Amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in the pension expense as follows: Plan year ended: NOTE 11 - OPERATING LEASES Amount , , , ,590 Total 1,152,563 The CMHSP has entered into various operating leases for the use of real and personal property. Operating leases do not give rise to property rights or lease obligations, and therefore, the results of the lease agreements are not reflected in the financial statements. Lease expense for the fiscal year was approximately $462,908. The future minimum lease obligations as of September 30th, were as follows: NOTE 12 - RISK MANAGEMENT Year Ending September 30 th Amount , , , , ,160 The CMHSP is exposed to various risks of loss related to property loss, torts, errors and omissions and employee injuries (worker s compensation), as well as medical benefits provided to employees. The CMHSP has purchased commercial insurance from independent insurance providers. Settled claims for the commercial insurance have not exceeded the amount of coverage in any of the past three years. There was no reduction in coverage obtained through commercial insurance during the past year. NOTE 13 RELATED PARTY TRANSACTIONS The County is deemed a related party by management due to the fact that the County is statutorily required to provide local funding to the CMHSP. The County owns the land and the building in which the CMHSP conducts its operations. The CMHSP paid $296,707 during the year in rent to the county. NOTE 14 CONTINGENT LIABILITIES Under the terms of various federal and state grants and regulatory requirements, the CMHSP is subject to periodic audits of its agreements, as well as a cost settlement process under the full management contract with the regional entity and the state. Such audits could lead to questioned costs and/or requests for reimbursement to the grantor or regulatory agencies. Cost settlement adjustments, if any, as a result of compliance audits are recorded in the year that the settlement is finalized. The amount of expenses which may be disallowed, if any, cannot be determined at this time, although the CMHSP expects such amounts, if any, to be immaterial. 19

31 NOTE 15 ECONOMIC DEPENDENCE Lenawee Community Mental Health Authority Notes to the Financial Statements The CMHSP receives over 90% of its revenues from the State of Michigan either directly from MDHHS or indirectly through the CMHSP s regional entity. 20

32 REQUIRED SUPPLEMENTAL INFORMATION

33 Defined Benefit Pension Plan - Required Supplemental Information Schedule of Employer Contributions Fiscal Year Fiscal Year Ending Ending Sept 30, 2015 Sept 30, 2016 Actuarial Determined Contributions $ 215,824 $ 325,734 Contributions in relation to the actuarially determined contribution 215, ,734 Contribution deficiency (excess) - - Covered Employee Payroll $ 2,175,389 $ 2,116,365 Contributions as a Percentage of Covered Employee Payroll 10% 15% Notes to Schedule of Contributions Actuarial cost method Individual Entry Age Normal Amortization method 15-year amortization of unfunded liability Remaining amortization period 15 years Asset valuation method Five-Year Average Appreciation method Salary increases 0% for 6 years and 2.5% thereafter Investment rate of return 7.50% for 2015 to 7.00% for 2016 Retirement age Plan Normal Retirement Age Pre-retirement mortality RP-2000 Mortality Tables for Non-Annuitants, Fully Generational With Scale AA Post-retirement mortality RP-2000 Mortality Tables for Annuitants, Fully Generational With Scale AA The notes to the financial statements are an integral part of this statement. 21

34 Defined Benefit Pension Plan - Required Supplemental Information Schedule of Changes in Net Pension Liability and Related Ratios Plan Year Plan Year Ended Ended Jan 1, 2015 Jan 1, 2016 Total Pension Liability (TPL) Service Cost 105, ,946 Interest 899, ,153 Changes of Benefit Terms - - Difference between expected & actual experience - - Changes in assumptions - - Benefit payments including employee refunds (342,296) (397,936) Other 166,744 (31,548) Net Change in Total Pension Liability 830, ,615 Total Pension Liability beginning 13,548,542 14,378,771 Total Pension Liability ending 14,378,771 15,012,386 Plan Fiduciary Net Position Contributions - employer 300, ,824 Contributions - employee 109, ,772 Net investment income 661,568 (119,965) Benefit payments including employee refunds (342,296) (397,936) Administrative expense (24,950) (26,704) Net Change in Plan Fiduciary Net Position 704,230 (223,009) Plan Fiduciary Net Position beginning 11,787,059 12,491,289 Plan Fiduciary Net Position ending 12,491,289 12,268,280 Employer Net Pension Liability 1,887,482 2,744,106 Plan Fiduciary Net Position as a percentage of the TPL 87% 82% Covered Employee Payroll (from GASB 68 actuarial page) 2,175,389 $ 2,116,365 Employer's Net Pension Liability as a percentage of covered employee payroll 87% 130% Notes to Schedule: The amounts presented for each fiscal year were determined as of January 1 of the preceding year. GASB 68 was implemented in fiscal year This schedule is being built prospectively. Ultimately, 10 years of data will be presented. The notes to the financial statements are an integral part of this statement. 22

35 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 Lenawee Community Mental Health Authority Adrian, Michigan We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities, each major fund, and the aggregate remaining fund information of Lenawee Community Mental Health Authority (the CMHSP), a component unit of Lenawee County, Michigan, as of and for the year ended, and the related notes to the financial statements, which collectively comprise the CMHSP s basic financial statements, and have issued our report thereon dated March 16, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the CMHSP s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the CMHSP s internal control. Accordingly, we do not express an opinion on the effectiveness of the CMHSP 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. We did identify certain deficiencies in internal control, described as item in the accompanying Schedule of Findings and Responses that we consider to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether the CMHSP 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 entity s internal control or on 23

36 compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Sincerely, Roslund, Prestage & Company, P.C. March 16,

37 Schedule of Findings and Responses September 30, 2015 Finding Finding considered a significant deficiency Statement on Auditing Standards #112 titled Communicating Internal Control Related Matters Identified in an Audit (issued May 2006), requires us to communicate in writing when a client requires assistance to prepare the financial statements and related footnotes required in the annual audit report in accordance with accounting principles generally accepted in the United States of America. The staff of the Authority does understand all information included in the annual financial statements; however, we assist in preparing the financial statements and related footnotes. We do not recommend any changes to this situation at this time and communicate this as required by professional standards. Client Response We are aware of this deficiency and believe it is not cost beneficial in our situation to develop this expertise. We will continue to use our external auditors for this technical assistance. We would expect this situation to be ongoing in future years. 25

38 Financial Statements