The University of North Florida Training and Services Institute, Inc. and Subsidiary. Consolidated Financial Statements and Supplementary Information

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1 The University of North Florida Training and Services Institute, Inc. and Subsidiary Consolidated Financial Statements and Supplementary Information Years Ended June 30, 2017 and 2016

2 The University of North Florida Training and Services Institute, Inc. and Subsidiary Table of Contents Independent Auditors Report... 1 Required Supplementary Information Management s Discussion and Analysis... 3 Basic Financial Statements Consolidated Statements of Net Position Consolidated Statements of Revenues, Expenses and Changes in Net Position Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Supplementary Information Schedule of Expenditures of Federal Awards Note to Schedule of Expenditures of Federal Awards Other Reporting Required by Government Auditing Standards 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 the Uniform Guidance Schedule of Findings and Questioned Costs... 39

3 Independent Auditors Report Board of Directors The University of North Florida Training and Services Institute, Inc. and Subsidiary Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of The University of North Florida Training and Services Institute, Inc. and Subsidiary (the Institute ), a direct support organization and component unit of the University of North Florida, as of and for the years ended June 30, 2017 and 2016, and the related notes to the consolidated financial statements, which collectively comprise the Institute s basic financial statements as listed in the table of contents. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Institute as of June 30, 2017 and 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. 1

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis on pages 3 through 11 be presented to supplement the basic consolidated financial statements. Such information, although not a part of the basic consolidated 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 consolidated 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 consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated 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 Information Our audits were performed for the purpose of forming an opinion on the consolidated financial statements that collectively comprise the Institute s basic consolidated financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic consolidated financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic consolidated financial statements or to the basic consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 14, 2017, on our consideration of the Institute s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 Institute s internal control over financial reporting and compliance. Jacksonville, Florida September 14,

5 The University of North Florida Training & Service Institute, Inc. and Subsidiary Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis The University of North Florida Training & Service Institute, Inc. (the Institute) presents its financial statements for the fiscal year ended June 30, 2017 which include for comparative purposes the fiscal year ended June 30, The Institute is a direct support organization and component unit of the University of North Florida (a governmental agency). The Institute s financial statements are presented on an accrual basis and include the recording of depreciation. The statements presentation includes 1) assets and liabilities as current and non-current; 2) revenues and expenses as operating and non-operating; 3) the use of the direct method for statements of cash flows; and 4) management s discussion and analysis (MD&A) of the financial results. The MD&A focuses on current activities, resulting changes and currently known facts to provide the reader with an overall summary of the accompanying financial statements. It should be read in conjunction with the basic financial statements and accompanying notes. The financial statements include the following: 1. Basic financial statements - a. Consolidated Statements of Net Position b. Consolidated Statements of Revenues, Expenses, and Changes in Net Position c. Consolidated Statements of Cash Flows d. Notes to the Consolidated Financial Statements, and 2. Schedule to the financial statements a. Schedule of Expenditures of Federal Awards FINANCIAL HIGHLIGHTS 2017 The Institute of Police Technology and Management (IPTM) was awarded 14 grant projects that totaled $3.499 million from the Florida Department of Transportation, of which $3.809 million was received in fiscal This included three new grants and training of 987 Florida officers in IPTM courses. The three new grant programs are described below: Drug Recognition Expert (DRE) Instructor grant funded training for 30 new DRE Instructors throughout Florida. Drug Recognition Expert Florida Highway Patrol Training provided funds to train and certify 75 Troopers from the Florida Highway Patrol as Drug Recognition Experts. Motorcycle Awareness Survey facilitated a statewide awareness survey to measure the effectiveness of Florida s motorcycle safety program. 3

6 In fiscal 2017, IPTM conducted over 300 training courses and trained 7,000 students. IPTM programs were held in 30 states and 1 foreign country. IPTM developed and implemented a three year strategic plan to manage growth and improvement. The plan has allowed IPTM management to establish a baseline and conduct a profit/loss analysis for training programs. Implementation of the plan has resulted in pricing changes, new training formats, new partnerships and individualized plans for training units to increase profitability and student enrollment. The plan is separated into seven focus areas representing core business functions and embraces the realities of today s training market and prepares IPTM for Training the Next Generation of Law Enforcement. Marketing. IPTM completed a comprehensive visual identity standard review, which included an updated logo and newly designed website. A Marketing Coordinator was hired to develop and implement a comprehensive marketing plan to include online, social media and print media strategies. Online Training. The biggest challenge to continued growth in online training are technology and infrastructure. IPTM has completed the studio capital improvement project. This included: space expansion, soundproofing, professional multimedia production equipment, lighting and cameras. Online training sales revenue is approximately $193,000 in fiscal 2017, an increase of approximately $58,000 over prior year. IPTM conducted two new conferences. The first ever Leadership Summit was conducted in Orlando: The Summit had 92 attendees, tuition revenue of $46,760 and $2,890 in vendor and sponsorship revenue. The Institute combined two of its largest conferences from Special Problems in Traffic Crash Reconstruction and the Symposium on Impaired Driving Enforcement to a four day information packed learning experience titled The Symposium on Traffic Safety. The Symposium focused on emerging technology and innovative solutions used in crash reconstruction, DUI enforcement and highway safety: The Symposium had 374 attendees, tuition revenue of $151,127 and $72,865 in vendor and sponsorship revenue. In fiscal 2017, the two debt agreements related to the ADT building purchase were: 1) First mortgage Lease income of $1.9 million was recorded to recognize the lessee s, LYM TYCI Capital Company, LLC, obligation of principal and interest payments. All payments are current. 2) Note payable - the note with the UNF Foundation, Inc. totaled $4.7 million and related interest payable totaled $951,176 at June 30, Institute Investments. The Institute s investments at year end totaled $262,099 net increase of approximately $28,000. The calculated total return for the year was 12.11% Net position of $2.327 million increased in fiscal 2017 by approximately $899,000 or 62.9% over prior year s $1.428 million. The change in net position represents the net decrease in assets of approximately $698,000 due to an increase in cash at year end of approximately $162,000, a decrease in grants receivable of approximately $311,000 and annual depreciation expense of approximately $564,000, which was offset by a net decrease in liabilities of approximately $1.597 million in debt. 4

7 2016 The Institute of Police Technology and Management (IPTM) was awarded $5.033 million in grant funds from the Florida Department of Transportation (FDOT), of which $4.434 million was received in fiscal Four new grants and training of 890 Florida officers in IPTM courses was included. The four new grants programs are described below: Statewide Drug Recognition Expert Call-Out grant facilitates the availability of Drug Recognition Experts (DRE s) around the State by providing overtime pay reimbursement to agencies when certified DRE s are requested to work overtime in assisting with Driving Under the Influence (DUI) investigations. Public Traffic Safety Professionals Training Impaired Driving provides training to Florida officers designed to offer the knowledge necessary to understand the medical principles causing eye behaviors associated with alcohol and drug impairment as well as, prepare them to recognize the signs of marijuana impairment. Region IV Law Enforcement Liaison Conference coordinated the 2016 Region IV Law Enforcement Liaison (LEL) Conference to share best practices to build better and more effective programs. DUI Media Survey facilitated and conducted awareness surveys to determine the effectiveness of Florida s impaired driving countermeasures and programs. IPTM partnered with The Miami Foundation, a non-profit organization administered by the Miami-Dade State Attorney s office, to provide five DUI enforcement courses training Miami-Dade law enforcement officers, which netted approximately $69,000 to the bottom line. The Institute continued to improve its retail store, The Cop Shop, by increasing sales instore and at conferences. Sales increased from approximately $16,000 in prior year to approximately $21,000 in fiscal 2016, an increase of approximately $5,000 or 30.8% IPTM Publication sales for fiscal 2016 courses and e-commerce sales totaled approximately $218,000, an increase approximately $28,000 over prior year. Online Training and Instructional Services (OTIS) Training. IPTM continued to make great development with the OTIS training: 1) new online courses were created with some existing online course content into an independent study format made available 365 days per year, 2) nine new independent study courses were created, and 3) two other courses were converted from an instructor-led format to independent study. The improvements helped to realize increased online training sales to approximately $135,000 in fiscal 2016, an increase of approximately $49,000 or 56.2% over prior year. In fiscal 2016, the remaining two debt agreements related to the ADT building purchase were: 5

8 1) First mortgage Lease income of $1.8 million was recorded to recognize the lessee s, LYM TYCI Capital Company, LLC, obligation of principal and interest payments. All payments are current. 2) Note payable - the note with the UNF Foundation, Inc. totaled $4.8 million and related interest payable totaled $970,654 at June 30, Institute Investments. The Institute s investments at year end totaled $235,186 a net increase of approximately $5,800. The calculated total return for the year was 0.87%. Net position of $1.428 million increased in fiscal 2016 by approximately $472,000 or 49.3% over prior year. The change in net position is the result of a net increase in assets primarily due to grant activity of approximately $2.459 million was offset by the operational expenses of approximately $2.269 million and a decrease of approximately $11,000 in non-operating income. Statements of Net Position The purpose of the Statement of Net Position is to present the reader with a look at the Institute s financial condition as of the end of the fiscal year. In reading the Statement of Net Position, the reader will be able to determine the Institute s ability to continue operations and how much it owes to vendors, and other lending institutions. It provides a snapshot of the net position and the availability for expenditure by the Institute. The Statements of Net Position are presented as part of the basic financial statements. For the fiscal year ended June 30, 2017, total net position increased by 62.9% or approximately $899,000. The years activity included the following: 6

9 Assets Current Assets During fiscal 2017, current assets totaled approximately $894,000, a decrease of approximately $163,000 or 15.4%. The decrease represents the net of decreases in accounts receivable of approximately $41,000, grants receivable of approximately $311,000 offset by an increase in cash of approximately $162,000, prepaid expenses of approximately $7,000 and inventory of approximately $20,000. During fiscal 2016, current assets totaled approximately $1.057 million, a decrease of approximately $340,000 or 24.3%. The decreases were in cash of approximately $118,000, prepaid expenses of approximately $13,000, inventory of approximately $17,000, grants receivable of approximately $250,000 was offset by an increase in accounts receivable of approximately $59,000. Non-current Assets 2017 Capital assets. At June 30, 2017, the TSI Investments LLC ADT building, net capital asset value totalled $ million. The scheduled depreciation of $564,025 was recorded. Investments. The Institute s investments totalled $262,099 at June 30, 2017, which is an increase of approximately $28,000 or 12.02%, from prior year. 7

10 Other non-current assets represents the outstanding $565,000 of the $600,000 line of credit the Institute approved for the Duval County Research and Development Authority Capital assets. At June 30, 2016, the TSI Investments LLC ADT building, net capital asset value totalled $ million. The scheduled depreciation of $564,025 was recorded. Investments. The Institute s investments totalled $233,780 at June 30, 2016, which is an increase of approximately $6,000 or 2.5%, from prior year. Other non-current assets outstanding was $565,000 of the $600,000 line of credit the Institute approved for the Duval County Research and Development Authority. Liabilities Current Liabilities During fiscal 2017, current liabilities increased approximately $29,000 or 0.9%. The increase is attributed to 1) an increase in the First mortgage current portion of approximately $179,000; 2) a decrease in interest payable of approximately $26,000 related to the notes payable; 3) an increase in salaries payable of approximately $11,000; 4) a decrease in accounts payable and accrued expenses of approximately $88,000; and 5) a decrease in deferred revenue of approximately $45,000. During fiscal 2016, current liabilities decreased approximately $3,000 or 0.1%. The decrease was attributed to 1) an increase in the first mortgage current portion of approximately $162,000; 2) an increase in interest payable of approximately $157,000 related to the UNF Foundation note payable; 3) an increase in salaries payable of approximately $8,300; 4) a decrease in accounts payable and accrued expenses of approximately $378,000; and 5) an increase in deferred revenue of approximately $45,000. Non-current Liabilities During fiscal 2017, non-current liabilities decreased by approximately $1.627 million or 14.9%. The decrease is due to loan repayments and the net of the $1.554 million moved to current liabilities for the first mortgage and the approximately $6,000 decrease in vacation and sick leave accrual over prior year. During fiscal 2016, non-current liabilities decreased by approximately $1.366 million or 11.1%. The decrease was due to loan repayments and the net of the approximately $1.376 million moved to current liabilities for the First mortgage and the approximately $11,000 increase in vacation and sick leave accrual over prior year. 8

11 Net Position The net position at June 30, 2017, increased to approximately $2.327 million from approximately $1.428 million in prior year or 63.0%. The net position section of the Statement of Net Position provides two classifications: 1. The unrestricted net position details the amounts available to the Institute for any purpose in support of the Institute s mission. 2. Net investment in capital assets reflects the cost of the ADT building, net of depreciation, reduced by the outstanding balance of debt incurred for the purchase of the ADT building. Statement of Revenues, Expenses, and Changes in Net Position The purpose of the statement of revenues, expenses, and changes in net position is to provide the details of the operating and non-operating activity for the fiscal year. This includes the revenues displayed by major source (net of discounts and allowances), expenses, and gains and losses received or expended by the Institute. Operating revenues are revenues received from services provided (e.g. training courses, radar testing, grants, and computer software installations) to various customers and constituents of the Institute. Operating expenses are those expenses incurred to produce the operating revenues and are detailed by type, which include course materials, program fees, etc. Net operating income/(loss) represents the amount of operating expenses in exceeds operating expenses and does not include non-operating revenue or expenses. Non-operating revenue is received from sources for which no service is provided by the Institute (e.g. investments). The change in net position is the result of the excess of revenues over expenses, which is also the change in total net position on the Statement of Net Position. 9

12 The statement of revenues, expenses, and changes in net position is on page 13 of the basic financial statements. For fiscal year ended June 30, 2017, the Institute s operations resulted in an increase in net position of approximately $899,000, or 62.9%. The statements highlights are as follows: Operating Revenues and Expenses 2017 Operating revenues decreased by approximately $982,000 or 9.3%. Decreases primarily occurred in grant revenue of approximately $935,000, contract revenue of approximately $10,000, lease revenue of approximately $6,000, and radar testing of approximately $30,000, UNF Financing Corporation allocation of approximately $15,000, UNF Foundation allocation of approximately $77,000, the Cop Shop sales of approximately $8,000 and book sales of approximately $33,000. These decreases were offset by increases in tuition revenue by approximately $48,000, on-line tuition revenue of approximately $58,000 and the 10% cancellation fee of approximately $3,000. During fiscal year 2017, operating expenses decreased by approximately $1.386 million or 13.7%. The decreases are in program fees of approximately $119,000, grant equipment of approximately $638,000, educational materials of approximately $44,000, consultants fees of approximately $73,000, travel expenses of approximately of $179,000, interest expense of approximately $110,000 and general administrative expenses of approximately $228,000. The decreases in expenses were offset by an increase in printing, postage and telephone of approximately $4, Operating revenues increased by approximately $2.579 million or 32.2%. Increases primarily occurred in grant revenue of approximately $2.459 million, tuition revenue of approximately $17,000, lease revenue of approximately $124,000, tuition online course revenue of approximately $49,000, The Cop Shop sales of approximately $5,000, miscellaneous revenue of approximate $6,000, and book sales of approximately $28,000. These increases were offset by decreases in the 10% cancellation fee of approximately $4,000, refunds by approximately $35,000, contract revenue of approximately $25,000, UNF Financing Corporation allocation of approximately $1,000, UNF Foundation allocation of approximately $27,000, radar testing revenue of approximately $6,000, and commission revenue from Lefta LLC of approximately $6,000. During fiscal year 2016, operating expenses increased by approximately $2.269 million or 28.9%. The increases were in program fees of approximately $360,000, grant equipment of approximately $1.778 million, educational materials of approximately $13,000, and general administrative expenses of approximately $293,000. The increases in expenses were offset by decreases in consultants fees of approximately $36,000, travel expenses of approximately of $41,000, printing, postage and telephone of approximately $5,000 and interest expense of approximately $93,

13 Non-operating income: Years ended June 30 (In thousands of dollars) Increase (decrease) Change 2015 Increase (decrease) Change Net appreciation of investments $ 24 $ 1 $ % $ 12 $ (11) -91.7% Total non-operating income $ 24 $ 1 $ % $ 12 $ (11) -91.7% Non-operating Income and Expenses 2017 In fiscal 2017, non-operating income reflected a total return of approximately $27,000 in investment activity less investment management fees of $4, In fiscal 2016, non-operating income reflected a total return of approximately $6,000 in investment activity less investment management fees of $5,000. Statements of Cash Flows The statements of cash flows show the cash provided and used for operating, and investing activities. Operating activities included funds received for services (from program fees, grants, publications, etc.) and payments related to providing these services (for programs, employees services, and supplies for goods and services). Capital and related financing activities include proceeds from a loan and mortgage and mortgage payments made. Cash flow from investing activities represents funds used to purchase investments, proceeds from sale of investments, and interest and dividends. Economic Outlook The Institute has no knowledge of any current facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year. Management believes the Institute s overall financial position is strong. With detailed monitoring of each account, the Institute has sufficient funds to cover its obligations. 11

14 Requests for Information This financial report is designed to provide a general overview of the Institute s finances for all those with an interest therein. Questions concerning any of the information provided in this report or requests for additional information may be addressed to: Beverly A. Evans, Director University of North Florida TSI/Foundation Accounting Hicks Hall, Suite UNF Drive Jacksonville, FL (904)

15 The University of North Florida Training and Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF NET POSITION June 30, 2017 and 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 215,872 $ 54,357 Accounts receivable, net 211, ,125 Grants receivable 300, ,469 Prepaid expenses and other assets 114, ,027 Inventory 52,250 31,888 Total current assets 894,175 1,056,866 NONCURRENT ASSETS Restricted cash and cash equivalents 1,411 1,406 Investments 262, ,780 Note receivable 565, ,000 Capital assets, net 13,366,011 13,930,036 Total non-current assets 14,194,521 14,730,222 Total assets $ 15,088,696 $ 15,787,088 LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts payable and accrued expenses $ 426,119 $ 514,349 Salaries payable - to UNF 100,649 89,288 Vacation and sick leave accrual 48,602 49,563 Interest payable 977,874 1,003,696 Deferred revenue 359, ,500 Current portion of long-term debt 1,554,328 1,375,802 Total current liabilities 3,466,652 3,437,198 NONCURRENT LIABILITIES Vacation and sick leave accrual 325, ,690 Long-term debt 8,969,588 10,589,916 Total noncurrent liabilities 9,294,849 10,921,606 Total liabilities 12,761,501 14,358,804 NET POSITION Unrestricted net position (514,900) (536,032) Net investment in capital assets 2,842,095 1,964,316 Total net position 2,327,195 1,428,284 Total liabilities and net position $ 15,088,696 $ 15,787,088 The accompanying notes are an integral part of these financial statements. 13

16 The University of North Florida Training and Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years ended June 30, 2017 and OPERATING REVENUES Program fees $ 3,444,969 $ 3,351,081 Lease revenue 1,925,073 1,931,751 Grants 3,498,542 4,434,211 Book sales 185, ,375 Miscellaneous income and administrative operations 563, ,936 Total operating revenues 9,617,527 10,599,354 OPERATING EXPENSES Program fees 2,934,932 3,054,128 Consultants fees 1,458,508 1,531,203 Travel 659, ,949 Grant equipment 1,482,346 2,120,321 Printing, postage, and telephone 69,181 64,992 Educational materials 265, ,273 General administrative expenses 557, ,991 Interest expense 751, ,403 Depreciation expense 564, ,025 Total operating expenses 8,743,189 10,129,285 Operating income 874, ,069 NON-OPERATING INCOME Net appreciation in investments 24, Total non-operating income 24, Change in net position 898, ,870 Net position, beginning of year 1,428, ,414 Net position, end of year $ 2,327,195 $ 1,428,284 The accompanying notes are an integral part of these financial statements. 14

17 The University of North Florida Training and Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2017 and Cash flows from operating activities: Received from program fees $ 3,485,746 $ 3,292,392 Received from grant activity 3,809,360 4,684,360 Other operating revenues 2,628,596 2,858,912 Payments to employees for services (2,942,322) (3,041,427) Payments to suppliers for goods and services (4,596,674) (5,989,912) Net cash provided by operating activities 2,384,706 1,804,325 Cash flows from capital and related financing activities: Interest paid on notes payable (777,637) (704,259) Principal payments on notes payable (1,441,802) (1,213,054) Net cash used in financing activities (2,219,439) (1,917,313) Cash flows from investing activities: Interest and dividends 5 - Purchase of investments (3,757) (5,000) Net cash used in investing activities (3,752) (5,000) Net increase (decrease) in cash and cash equivalents 161,515 (117,988) Cash and cash equivalents, beginning of year 54, ,345 Cash and cash equivalents, end of year $ 215,872 $ 54,357 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 874,338 $ 470,069 Adjustments to reconcile operating income to net cash provided by operating activities: Interest expense 751, ,403 Depreciation 564, ,025 Changes in assets and liabilities: Accounts receivable 40,775 (58,689) Grants receivable 310, ,149 Prepaid expenses and other assets (7,025) 12,879 Inventory (20,362) 16,478 Accounts payable and accrued expenses (76,869) (369,540) Vacation and sick leave accrual (7,390) 12,701 Deferred revenue (45,420) 44,850 Net cash provided by operating activities $ 2,384,706 $ 1,804,325 The accompanying notes are an integral part of these financial statements. 15

18 The University of North Florida Training and Service Institute, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2017 and 2016 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Reporting entity The University of North Florida Training and Service Institute, Inc. (the Institute) is a notfor-profit entity organized to implement and administer unique educational and training programs at the University of North Florida (the University), and at other selected institutions. The Institute is a direct support organization (DSO) and component unit of the University. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the University of North Florida Training and Service Institute, Inc. and UNF TSI Investments, LLC (the LLC). The LLC was formed in March 2010 by its sole member, the Institute. 3. Basis of accounting The financial statements of the Institute have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recognized when they are incurred. The Institute follows GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Government, GASB Statement 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities, GASB Statement No. 37, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments: Omnibus - an amendment of GASB Statements No. 21 and No. 34, GASB Statement No. 38, Certain Financial Statement Note Disclosures as applicable to proprietary funds, GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and GASB Statement no. 72 Fair Value Measurement. GASB Statements No. 34, 35 and 63 establish standards for external financial reporting which include a statement of net position a statement of revenues, expenses and changes in net position, and a statement of cash flows using the direct method. GASB Statements No. 34, 35 and 63 also include a requirement that management provide a discussion and analysis of the basic financial statements and it requires the classification of net position into two components net investment in capital assets and unrestricted net position. These classifications are defined as follows: Unrestricted net position is expendable for any purpose at the discretion of the Institute. 16

19 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 3. Basis of accounting (continued) Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any debt that is attributable to those assets. As provided by GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Institute has elected to adopt Financial Accounting Standards Board statements that do not conflict with GASB. GASB Statement No. 72, Fair Value Measurement and Application ( GASB 72 ). GASB 72 The Financing Corporation has adopted the accounting and financial reporting issues related to fair value measurements of investments. The fair value is the unit price that would be received to sell an asset or liability. The fair value hierarchy is determined using valuation techniques that measure fair value into three levels. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs are observable for an asset or liabilities, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. 4. Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 5. Income taxes The Institute is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code; accordingly, the accompanying financial statements do not reflect a provision or liability for federal and state income taxes. The Institute has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, 2017 and Fiscal years ending on or after June 30, 2014 remain subject to examination by federal and state tax authorities. 6. Investments Investments are stated at fair value based on quoted market prices. The Institute intends to hold its investments for the long term. However, the needs of the organization may require the sale of a portion of these assets on a short-term basis, subject to the approval of the Investment Committee. 17

20 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 7. Capital Assets Purchased or constructed additions to capital assets are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are as follows: Building 25 years Interest costs incurred on borrowed funds will be expensed as incurred for capital additions not related to construction. 8. Revenue recognition The Institute receives payments for certain program services and instruction. Program fees are deemed to be earned and reported as revenue when the related courses of instruction or services are provided. Such amounts received but not yet earned are reported as deferred revenue. 9. Grants Grant revenue is awarded, but not received by the Institute until the funds are used for the designated purpose and a request for reimbursement is filed with the State of Florida. The Institute records revenue from grants when the funds are entitled to be received from the grantor for the reimbursement claims. 10. Cash and cash equivalents For the purposes of the statements of cash flows, the Institute considers all unrestricted, highly liquid investments with an initial maturity of three months or less to be cash equivalents. 11. Accounts receivable Accounts receivable represent the amounts billed for courses and contracts that remain unpaid at year-end. The allowance for doubtful accounts is based on an evaluation of the periodic aging of accounts receivable. Bad debt expense was $3,280 and $0 for the years ended June 30, 2017 and At June 30, 2017 and 2016, accounts receivable is reported net of an allowance for uncollectible accounts of $5,898 and $2,860, respectively. 12. Inventory Inventory consisting primarily of books and computer software is stated at cost on a firstin, first-out (FIFO) basis. 18

21 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 13. Vacation and sick leave accrual Employees earn the right to be compensated during absences for annual leave (vacation) and sick leave pursuant to Section 6C of the Florida Administrative Code. Employees earn annual and sick leave based on their years of service. For annual leave, however, a maximum of 352 hours can be carried forward from one year to the next or paid upon termination for administrative and professional (A&P) employees and 240 hours can be carried forward from one year to the next or paid upon termination for University support personnel services (USPS) employees. Additionally, employees who have completed at least ten years of service are eligible to receive payment for one fourth of their accrued sick leave hours, upon termination, not to exceed 480 hours. Vacation pay and sick leave payments are expensed as earned by the employee. The following table is a rollforward of activity by year related to the vacation pay and sick leave accrual: Accrued compensated absence liability due within one year is estimated at $48,602 and $49,563 as of June 30, 2017 and 2016, respectively. 14. Contributions to police departments for grant equipment and other items The Institute of Police Technology Management (IPTM) unit receives grants to conduct law enforcement training, grant equipment contributions and consultant services. The total cost associated with grant work performed or purchased in 2017 and 2016 was $2,873,024 and $3,738,679, respectively. 15. Operating income or loss Operating revenues and expenses for a proprietary fund are those that result from providing services and producing and delivering goods and or services. Also included are all revenues and expenses not related to capital and related financing, non-capital financing, or investing activities. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Interest and dividends, unrealized gain or loss on investments, and contributions to related parties are considered non-operating. When both restricted and unrestricted resources are available for use, the Institute s policy is to use restricted resources first, then unrestricted resources as needed. 19

22 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 16. New accounting standards The Institute implemented GASB Statement No. 72, Fair Value Measurement and Application ( GASB 72 ) effective July 1, GASB 72 establishes the accounting and financial reporting issues related to fair value measurements of investments. The fair value is the unit price that would be received to sell an asset or liability. The fair value hierarchy is determined using valuation techniques that measure fair value into three levels. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs are observable for an asset or liabilities, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. There was no change to the current or prior period financial statements as a result of adopting GASB 72. NOTE B - CASH, CASH EQUIVALENTS AND INVESTMENTS Investment decisions are made by the Investment Committee of the Institute s Board of Directors and approved by the Board. All deposits and investments are held at the financial institutions in the name of the Institute. Cash and cash equivalents As of June 30, 2017, cash and cash equivalents include bank demand accounts and money market funds subject to immediate withdrawal. It is the Institute s policy that cash equivalent securities shall be limited to the following: (1) the money market or short term investment fund provided by the fund custodian; (2) direct obligations of the United States Government with a maturity of one year or less; (3) commercial paper with a maturity of 270 days or less that is rated A-1 or higher by Standard & Poor's or P-1 or higher by Moody s; and (4) bankers acceptances issued by the largest 50 banks in the United States (in terms of total assets). The Institute does not have a formal deposit policy for custodial credit risk with regard to cash deposits in banks but adheres to the requirements of FS 280. Custodial credit risk - deposits. Custodial credit risk for deposits is the risk that, in the event of a depository financial institution s failure, the Institute s deposits may not be returned to it. At June, 30, 2017 and 2016, the Institute s cash deposits with a bank were $215,872 and $54,357, respectively. All of the Institute s cash deposits were insured by the Federal Deposit Insurance Corporation (FDIC). Thus, the Institute s cash deposits are not considered exposed to custodial credit risk. The Institute s investments in money market funds are amounts invested to meet regular operations and are included in the investments disclosures below. 20

23 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Investments The Institute s investment policy requires equity securities be limited to (1) investments in publicly traded securities on a major stock exchange or NASDAQ; (2) no more than 7% of the market value of an investment manager s equity portfolio may be invested in the shares of a single corporate issuer; and (3) investment in the shares of companies that have been publicly traded for less than one year are limited to no more than 5% of the market value of the total equity portfolio. For fixed income securities, the investment policy limits investments to (1) securities rated A or higher by Moody s or Standard & Poor s rating services; (2) no more than 10% of the market value of the total portfolio shall be invested in the securities of any single corporate issuer; (3) investments in Collateralized Mortgage Obligations (CMOs) that consist of GNMAs, FNMAs, and FHLMCs, with no more than 20% of the market value of the portfolio in these types of issues and shall be restricted to those issues that are currently paying interest, receiving principal pay-downs and do not contain leverage; (4) investments in securities issued by foreign governments or corporations shall not exceed 25% of the total portfolio and (5) no limit on investments in securities issued directly by the United States Government or any agency or instrumentality thereof. The Institute s policy prohibits investments in interest only or principal only CMOs, interest rate swaps, precious metals, limited partnerships of any kind, real estate, venture capital, futures contracts or options contracts in individually managed portfolios. Trading on margin and short selling are also prohibited. The Institute does not have a formal policy on limiting the duration of mid-term and long-term investments. Investments consist of the following at June 30, 2017 and 2016: Investment Type Equity mutual funds $ 199,997 $ 146,701 Fixed income mutual funds 62,102 87,079 Total $ 262,099 $ 233,780 Credit risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The credit ratings of the Institute s debt securities, external investment pools, money market funds, bond mutual funds, and other pooled investments of fixed income are as follows: 21

24 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Quality Rating at June 30, 2017 Investment Type Fair Value AA - A Unrated Equity mutual funds $ 199,997 $ - $ 199,997 Fixed income mutual funds 62,102 62,102 - Total $ 262,099 $ 62,102 $ 199,997 Quality Rating at June 30, 2016 Investment Type Fair Value AA - A Unrated Equity mutual funds $ 146,701 $ - $ 146,701 Fixed income mutual funds 87,079 87,079 - Total $ 233,780 $ 87,079 $ 146,701 Interest rate risk. Interest rate risk is the risk that changes in the interest rates will adversely affect the fair value of an investment. The Institute s policy for managing its exposure to fair value loss occurring from increasing interest rates is through using the specific identification method and maintaining diversification of its investments so as to minimize the impact of downturns in the market as stated above. NOTE C - FAIR VALUE MEASUREMENTS The Institute has provided additional information about fair value measurements which is based on the assumptions that market participants would use when pricing an asset or liability. A fair value hierarchy was established that prioritizes the information used to develop these assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 Level 2 Level 3 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Institute has the ability to access at the measurement date; Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Inputs that are unobservable. Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The Institute uses the market approach valuation technique to value its investments. 22

25 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs. Following is a description of the valuation methodologies use for assets measured at fair value. Level 1 Fair Value Measurements The fair value of the mutual funds is based on quoted net asset values of the shares held by the Institute at year-end. The following tables present the investments carried on the consolidated statement of net position by level within the valuation hierarchy as of June 30, 2017 and Fair Value as of June 30, 2017 Level 1 Level 2 Level 3 Total Equity mutual funds $ 199,997 $ - $ - $ 199,997 Fixed income mutual funds 62, ,102 Total $ 262,099 $ - $ - $ 262,099 Fair Value as of June 30, 2016 Level 1 Level 2 Level 3 Total Equity mutual funds $ 146,701 $ - $ - $ 146,701 Fixed income mutual funds 87, ,079 Total $ 233,780 $ - $ - $ 233,780 NOTE D CAPITAL ASSETS UNF TSI Investments, LLC (the LLC) is a wholly-owned Florida limited liability company formed in March 2010, for which the Institute is the LLC s sole member. In May 2010, the LLC purchased approximately 7.71 acres of land adjacent to UNF and the ADT Building located in Duval County, Florida for $17,408,190. The building is depreciated based on a 25 year estimated useful life using the straight-line method. During fiscal year 2017 and 2016, depreciation expense of $564,025 was recorded. 23