The Rehabilitation Institute of Kansas City and The Rehabilitation Institute Industries, Inc.

Transcription

1 Independent Auditor s Report and Consolidated Financial Statements

2 Contents Independent Auditor s Report... 1 Consolidated Financial Statements Balance Sheet... 3 Statement of Operations... 4 Statement of Changes in Net Assets... 5 Statement of Cash Flows... 6 Notes to Financial Statements... 7 Other Information Schedule of Revenue and Expenses Extended Employment Workshops Calculation of Workshop Expenses Per Client Per Day... 25

3 Independent Auditor s Report Board of Directors and The Rehabilitation Institute Industries, Inc. Kansas City, Missouri We have audited the accompanying consolidated financial statements of The Rehabilitation Institute of Kansas City (collectively referred to as the Institute), which comprise the consolidated balance sheet as of, and the related consolidated statements of operations, changes in net assets and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the 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. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 opinion.

4 Board of Directors and The Rehabilitation Institute Industries, Inc. Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Institute as of, and the results of its operations, the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 15 to the consolidated financial statements, the reporting entity changed to include Children s Therapeutic Learning Center, Inc. as part of its consolidated financial statements as a result of a merger. Our opinion is not modified with respect to this matter. Other Information Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements as a whole. The other information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Kansas City, Missouri April 27, 2016

5 Consolidated Balance Sheet Assets Current Assets Cash and cash equivalents $ 336,911 Patient accounts receivable, net of allowance; $136,026 1,581,445 Vocational accounts receivable, net of allowance; $27, ,759 Workshop accounts receivable 47,806 Contributions receivable, net of allowance; $33, ,086 Due from affiliate 91,000 Other receivables 228,370 Prepaid expenses and other 129,675 Total current assets 3,402,052 Assets Limited as to Use Internally designated 3,412,394 Externally restricted by donors 3,372,663 Total assets limited as to use 6,785,057 Investments 790,993 Property and Equipment, Net 1,691,992 Contributions Receivable 653,728 Total assets $ 13,323,822 See

6 Liabilities and Net Assets Current Liabilities Accounts payable $ 365,715 Accrued expenses 653,555 Total liabilities 1,019,270 Net Assets Unrestricted Available for general activities 4,493,036 Working capital 400,140 Board-designated quasi endowment fund 2,999,899 Total unrestricted 7,893,075 Temporarily restricted 4,302,486 Permanently restricted 108,991 Total net assets 12,304,552 Total liabilities and net assets $ 13,323,822 3

7 Consolidated Statement of Operations Year Ended Unrestricted Revenues, Gains and Other Support Patient service revenue (net of contractual discounts and allowances) $ 6,110,124 Provision for uncollectible accounts (30,184) Net patient service revenue less provision for uncollectible accounts 6,079,940 Workshop sales 728,633 Vocational services 1,855,959 Government reimbursement sheltered workshop 1,108,860 School district 276,829 Tuition 134,628 Public support United Way 418,344 Grant income 422,646 In-kind rent contribution 490,850 Other 359,126 Net assets released from restrictions used for operations 95,701 Total unrestricted revenues, gains and other support 11,971,516 Expenses and Losses Salaries and wages 7,979,613 Employee benefits 1,430,457 Supplies and other 2,085,332 Purchased services and professional fees 721,906 Depreciation and amortization 241,859 Interest 1,016 Provision for uncollectible accounts 97,809 Total expenses and losses 12,557,992 Operating Loss (586,476) Other Income (Expense) Investment return (10,513) Contributions 781,246 Special event expenses (158,352) Total other income 612,381 Excess of Revenues Over Expenses 25,905 Contributions for acquisition of property and equipment 51,805 Net assets released from restriction used for purchase of property and equipment 66,955 Increase in Unrestricted Net Assets $ 144,665 See 4

8 Consolidated Statement of Changes in Net Assets Year Ended Unrestricted Net Assets Excess of revenues over expenses $ 25,905 Contributions for acquisition of property and equipment 51,805 Net assets released from restriction used for purchase of property and equipment 66,955 Increase in unrestricted net assets 144,665 Temporarily Restricted Net Assets Contributions 1,712,691 Net assets released from restriction (162,656) Increase in temporarily restricted net assets 1,550,035 Permanently Restricted Net Assets Contributions 500 Increase in permanently restricted net assets 500 Increase in Net Assets 1,695,200 Net Assets, Beginning of Year 10,609,352 Net Assets, End of Year $ 12,304,552 See 5

9 Consolidated Statement of Cash Flows Year Ended Operating Activities Change in net assets $ 1,695,200 Items not requiring (providing) operating cash flow Depreciation and amortization 241,859 Net realized and unrealized loss on investments 102,227 Contributions for acquisition of property and equipment (1,558,031) Changes in Patient, vocational, workshop, contribution and other accounts receivable, net (171,443) Prepaid expenses and other 7,035 Accounts payable 43,487 Accrued expenses 76,284 Net cash provided by operating activities 436,618 Investing Activities Purchase of investments (3,880,469) Proceeds from disposition of investments 2,577,587 Purchase of property and equipment (161,151) Net cash used in investing activities (1,464,033) Financing Activities Contributions for acquisition of property and equipment 654,031 Net cash provided by financing activities 654,031 Decrease in Cash and Cash Equivalents (373,384) Cash and Cash Equivalents, Beginning of Year 710,295 Cash and Cash Equivalents, End of Year $ 336,911 Supplemental Cash Flows Information Interest paid $ 1,016 Capital asset acquisitions included in accounts payable 30,802 See 6

10 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Principles of Consolidation The accompanying consolidated financial statements include the accounts of The Rehabilitation Institute of Kansas City (collectively referred to as the Institute), both of which are Missouri nonprofit corporations. Consolidated financial statements are presented as is the sole member of The Rehabilitation Institute Industries, Inc. and the organizations have the same Board of Directors. All significant intercompany accounts and transactions have been eliminated in consolidation. provides outpatient rehabilitation services and operates a vocational center for the purposes of rehabilitating persons with physical disabilities. The Rehabilitation Institute Industries, Inc. operates a sheltered workshop program to provide employment opportunities to persons with physical disabilities. Effective January 1, 2015, and as further discussed in Note 15, the Institute and Children s Therapeutic Learning Center, Inc. (CTLC) merged into a new organization, and CTLC was subsequently dissolved. CTLC provided therapeutic and educational services for children with disabilities in an environment that fosters their independence and celebrates their successes. The overriding goal is to prepare children with disabilities to succeed in their next educational environments and beyond. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Institute considers all liquid investments, other than those limited as to use, with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted primarily of money market accounts with brokers. At, the Institute s cash accounts exceeded federally insured limits by approximately $906,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Investment return includes dividend and interest income and realized and unrealized gains and losses on investments carried at fair value. 7

11 Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the consolidated statement of operations and changes in net assets as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Assets Limited as to Use Assets limited as to use include (1) assets restricted by donors and (2) assets set aside by the Board of Directors for various designated projects and future capital improvements over which the Board retains control and may at its discretion subsequently use for other purposes. Patient Accounts Receivable Accounts receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of accounts receivable, the Institute analyzes its past history and identifies trends for each of its major payer sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for uncollectible accounts. Management regularly reviews data about these major payer sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts. For receivables associated with services provided to patients who have third-party coverage, the Institute analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for uncollectible accounts, if necessary (for example, for expected uncollectible deductibles and copayments on accounts for which the third-party payer has not yet paid, or for payers who are known to be having financial difficulties that make the realization of amounts due unlikely). For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Institute records a significant provision for uncollectible accounts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between the standard rates (or the discounted rates if negotiated or provided by policy) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for doubtful accounts. The Institute s allowance for doubtful accounts for self-pay patients was 65% of self-pay accounts receivable at. Property and Equipment Property and equipment acquisitions are recorded at cost and are depreciated using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the lease term or their respective estimated useful lives. 8

12 The estimated useful lives for each major depreciable classification of property and equipment are as follows: Leasehold improvements Equipment 20 years 3-10 years Donations of property and equipment are reported at fair value as an increase in unrestricted net assets unless use of the assets is restricted by the donor. Monetary gifts that must be used to acquire property and equipment are reported as restricted support. The expiration of such restrictions is reported as an increase in unrestricted net assets when the donated asset is placed in service. Long-lived Asset Impairment The Institute evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimate future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the year ended. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Institute has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Institute in perpetuity. Net Patient Service Revenue The Institute has agreements with third-party payers that provide for payments to the Institute at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and includes estimated retroactive revenue adjustments. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods as adjustments become known. Charity Care The Institute provides care without charge or at amounts less than its established rates to patients meeting certain criteria under its charity care policy. Because the Institute does not pursue collection of amounts determined to qualify as charity care, these amounts are not reported as net patient service revenue. The costs of charity care provided were approximately $108,000 in The cost of charity care is estimated by applying the ratio of cost to gross charges to the gross uncompensated charges. 9

13 Contributions Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows technique. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Gifts received with donor stipulations are reported as either temporarily or permanently restricted support. When a donor restriction expires, that is, when a time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified and reported as an increase in unrestricted net assets. Donor-restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions. Conditional contributions are reported as liabilities until the condition is eliminated or the contributed assets are returned to the donor. Professional Liability Claims The Institute recognizes an accrual for claim liabilities based on estimated ultimate losses and costs associated with settling claims and a receivable to reflect the estimated insurance recoveries, if any. Professional liability claims are described more fully in Note 8. Government Grants Support funded by grants is recognized as the Institute performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Contributed Rent The Institute operates a sheltered workshop at 1020 East 12 th Street in a building owned by Empowering Individuals Through Advocacy and Support (EITAS). EITAS charges the Institute a nominal rate for the lease of this space. In addition, EITAS provides for the repairs and maintenance of this building. The estimated value of the contributed rent was approximately $90,000 for the year ended. Repairs and maintenance expense for the building paid by EITAS was $6,061 for the year ended. Income Tax Status are notfor-profit organizations as described in Section 501(c)(3) of the Internal Revenue Code, and are exempt from income taxes on related income under Section 501(a) of the Code and a similar provision of state law. However, the Institute is subject to federal income tax on any unrelated business taxable income. The Institute files tax returns in the U.S. federal jurisdiction. 10

14 Excess of Revenues Over Expenses The consolidated statement of operations includes excess of revenues over expenses. Changes in unrestricted net assets which are excluded from excess of revenues over expenses, consistent with industry practice, include unrealized gains and losses on investments other than trading securities, permanent transfers to and from affiliates for other than goods and services and contributions of long-lived assets (including assets acquired using contributions which by donor restriction were to be used for the purpose of acquiring such assets). Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. Note 2: Net Patient Service Revenue The Institute recognizes patient service revenue associated with services provided to patients who have third-party payer coverage on the basis of contractual rates for the services rendered. For uninsured patients that do not qualify for charity care, the Institute recognizes revenue on the basis of its standard rates for services provided. On the basis of historical experience, a significant portion of the Institute s uninsured patients will be unable or unwilling to pay for the services provided. Thus, the Institute records a significant provision for uncollectible accounts related to uninsured patients in the period the services are provided. This provision for uncollectible accounts is presented on the consolidated statement of operations as a component of net patient service revenue. The Institute has agreements with third-party payers that provide for payments to the Institute at amounts different from its established rates. These payment arrangements include: Medicare and Medicaid. All outpatient services rendered to Medicare and Medicaid program beneficiaries are paid at prospectively determined rates based on fee schedules. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change materially in the near term. The Institute has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Institute under these agreements includes prospectively determined rates per discharge, discounts from established charges and prospectively determined daily rates. 11

15 Patient service revenue, net of contractual allowances and discounts (but before the provision for uncollectible accounts), recognized in the year ended was approximately: Medicare $ 404,050 Medicaid 444,782 Other third-party payers 5,057,019 Patients 204,273 $ 6,110,124 Note 3: Concentration of Credit Risk The Institute grants credit without collateral to its patients, most of who are area residents and are insured under third-party payer agreements. The mix of net receivables from patients and thirdparty payers at is: Medicare 12% Medicaid 26% Other third-party payers 52% Patients 10% 100% Substantially all of the vocational accounts receivable are due from the State of Missouri. 12

16 Note 4: Property and Equipment Property and equipment at consisted of the following: Land $ 547,959 Equipment 1,930,065 Leasehold improvements 2,677,361 Construction in process 273,869 5,429,254 Less accumulated depreciation and amortization 3,737,262 $ 1,691,992 Note 5: Investments and Investment Return Assets Limited as to Use Assets limited as to use, at December 31, include: Internally designated for various designated projects and future capital improvements Money market mutual funds $ 12,355 Investments 3,400,039 $ 3,412,394 Externally restricted by donors Cash and cash equivalents $ 460,936 Investments 2,911,727 $ 3,372,663 13

17 Investments Investments, at December 31, include: Cash and cash equivalents $ 300,000 Certificates of deposit 5,771 Money market mutual funds 1,006,628 Common stock 2,042,932 Equity mutual funds U.S. large cap funds 725,990 Other 1,252,733 Fixed income mutual funds 916,293 Exchange-traded funds 158,740 Hedge mutual funds 59,271 Corporate bonds 652,477 $ 7,120,835 Total investments are reflected in the consolidated balance sheet as follows: Cash and cash equivalents $ 5,721 Internally designated for various designated projects and future capital improvements 3,412,394 Externally restricted by donors 2,911,727 Investments 790,993 $ 7,120,835 Total investment return is comprised of the following: Interest and dividend income $ 91,714 Net realized gains 130,407 Net unrealized losses (232,634) $ (10,513) 14

18 Note 6: Contributions Receivable Contributions receivable consisted of the following at December 31: Temporarily Restricted Due within one year $ 397,000 Due in one to five years 711,000 1,108,000 Less Allowance for uncollectible contributions (33,244) Unamortized discount at 2% (35,942) $ 1,038,814 Note 7: Conditional Gifts The Institute has received the following conditional promises to give at December 31 that are not recognized in the consolidated financial statements: A $1 million conditional promise to give upon raising $9 million for the Rebuilding Lives: Restoring Hope Capital Campaign. A $500,000 conditional promise to give upon raising $10.1 million for the Rebuilding Lives: Restoring Hope Capital Campaign by July 15, Note 8: Professional Liability Claims The Institute purchases medical malpractice insurance under a claims-made policy. Under such a policy, only claims made and reported to the insurer during the policy term, regardless of when the incidents giving rise to the claims occurred, are covered. The Institute also purchases excess umbrella liability coverage, which provides additional coverage above the basic policy limits up to the amount specified in the umbrella policy. Based upon the Institute s claims experience, no accrual has been made for the Institute s estimated medical malpractice costs as of. It is reasonably possible that this estimate could change materially in the near term. 15

19 Note 9: Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are available for the following purposes or periods: Building improvements and purchase of equipment $ 3,558,167 Emergency cash reserve fund 360,037 Other programs 384,282 $ 4,302,486 Permanently restricted net assets are restricted to: Investments to be held in perpetuity, the income is unrestricted $ 108,991 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors: Building improvements and purchase of equipment $ 66,955 Other programs 95,701 $ 162,656 Note 10: Endowment The Institute s endowment consists of several donor-restricted funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Institute s governing body has interpreted the State of Missouri Prudent Management of Institutional Funds Act (SPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Institute classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Institute in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Institute considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 16

20 1. Duration and preservation of the fund 2. Purposes of the Institute and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Institute 7. Investment policies of the Institute The composition of net assets by type of endowment fund at was: Unrestricted Permanently Restricted Total Donor-restricted $ - $ 108,991 $ 108,991 Board-designated 2,999,899-2,999,899 Total endowment funds $ 2,999,899 $ 108,991 $ 3,108,890 Changes in endowment net assets for the year ended were: Unrestricted Permanently Restricted Total Endowment net assets, beginning of year $ 3,112,426 $ 108,491 $ 3,220,917 Investment return Investment income 58,173-58,173 Net depreciation (10,166) - (10,166) Total investment return 48,007-48,007 Contributions 3, ,755 Appropriation of endowment assets for expenditure (163,789) - (163,789) Endowment net assets, end of year $ 2,999,899 $ 108,991 $ 3,108,890 17

21 Amounts of donor-restricted endowment funds classified as permanently restricted net assets at consisted of: Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulation or SPMIFA $ 108,991 The Institute has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Institute must hold in perpetuity, as well as those of board-designated endowment funds. The Institute expects its endowment funds to provide an average rate of return of approximately 7-8% annually over time. Actual returns in any given year may vary from this amount. To satisfy its long-term rate of return objectives, the Institute relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Institute targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Institute has a policy (the spending policy) of appropriating for expenditure each year 5% of its board-designated endowment fund s three year rolling average balance. In establishing this policy, the Institute considered the long-term expected return on its endowment. This is consistent with the Institute s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. The Institute s endowment assets include those assets of donor-restricted endowment funds that must be held in perpetuity. The Institute invests the donor-restricted endowments in low risk assets such as FDIC-insured bank deposits and money market mutual funds to maintain the corpus amounts. As there are no donor restrictions on earnings from these assets, all income earned on the endowments is spent on operations as it is earned. 18

22 Note 11: Functional Expenses The Institute provides health care and vocational rehabilitation services to persons with physical disabilities within its geographic location. Expenses related to providing these services are as follows: Health care and vocational rehabilitation services $ 9,712,113 General and administrative 2,845,879 $ 12,557,992 Note 12: Operating Leases Noncancellable operating leases for office space are renewed annually and require the Institute to pay all executory costs (property taxes, maintenance and insurance). Rental expense for all operating leases was $790,070 for the year ended. Note 13: Pension Plan The Institute established a defined-contribution pension plan covering substantially all of The Rehabilitation Institute of Kansas City (RIKC) employees effective July 1, The Board of Directors annually determines the amount, if any, of the Institute s contributions to the plan. Pension expense was $42,458 for Note 14: Related Party Transactions The Institute and The Rehabilitation Institute Foundation (Foundation) are related parties. The Institute authorizes the Foundation to solicit contributions on its behalf. In the absence of donor restrictions, the Foundation s Board of Directors has discretionary control over the amounts, timing and recipient of any distributions. The Foundation s contributions to the Institute during the year ended was $4,500 and is reported in the Institute s consolidated financial statements as other income unrestricted contributions and temporarily restricted contributions. At, $91,000 of the committed support was outstanding. The Foundation has also agreed to lease its building to the Institute at a nominal rate through 2089, provided the Institute continues to use the property in accordance with terms specified in the lease agreement, which includes using the property to further the mission for which it was formed. As a result of the agreement, the Institute recorded rent expense of $490,850 and a corresponding amount as an in-kind contribution from the Foundation within unrestricted revenues, gains and other support in

23 The Institute and Children s Center Campus (CCC) are related parties. CCC owns and leases the facility used by the Institute to provide therapeutic and educational services for children with disabilities. The lease term is for twenty years, with ten options for five year renewal periods. In lieu of rent, the Institute pays 40% of the operating expenses of the building. Annual payments are determined each year. Total expense related to this agreement was $244,557 for the year ended. Note 15: Merger The Institute was formed on January 1, 2015, as the result of a merger between two existing notfor-profit entities, the Institute and the Children s Therapeutic Learning Center, Inc. (CTLC). Both of these entities shared the common mission of providing therapeutic services to people with disabilities. Through their merger, the organizations seek to further their common mission by (a) improving the nature and depth of services provided to people with disabilities in the service area and (b) achieving economies of scale and other synergies through integrating their services. The merger has been accounted for using the carryover method where by the beginning assets, liabilities and net assets of the Institute are based on their carrying amounts in the separate consolidated financial statements of the Institute and CTLC as of the merger date. The following table reflects the amounts recognized as of the merger date for each major class of assets and liabilities and each class of net assets: CTLC Institute Total Assets Cash and cash equivalents $ 37,576 $ 672,719 $ 710,295 Patient receivables, net of allowance 219,488 1,223,476 1,442,964 Other receivables - 787, ,663 Contributions receivable 4, , ,124 Due from affiliate - 91,000 91,000 Prepaid expenses and other assets 34, , ,710 Assets limited as to use - Internally designated 3,462,528 12,354 3,474,882 Assets limited as to use - Externally designated 32,338 2,585,027 2,617,365 Investments 5, , ,148 Property and equipment, net 617,911 1,123,987 1,741,898 Total assets $ 4,414,092 $ 7,063,957 $ 11,478,049 Liabilities Accounts payable $ 17,187 $ 274,239 $ 291,426 Accrued expenses 84, , ,271 Total liabilities 101, , ,697 Net Assets Unrestricted 4,245,603 3,502,807 7,748,410 Temporarily restricted 34,357 2,718,094 2,752,451 Permanently restricted 32,338 76, ,491 Total net assets 4,312,298 6,297,054 10,609,352 Total liabilities and net assets $ 4,414,092 $ 7,063,957 $ 11,478,049 20

24 Note 16: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities Recurring Measurements The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheet measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at : Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Money market mutual funds $ 1,006,628 $ 1,006,628 $ - $ - Common stock 2,042,932 2,042, Equity mutual funds U.S. large cap funds 725, , Other 1,252,733 1,252, Fixed income mutual funds 916, , Exchange-traded funds 158, , Hedge mutual funds 59,271 59, Corporate bonds 652, ,477 - $ 6,815,064 $ 6,162,587 $ 652,477 $ - 21

25 Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended. Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Note 17: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Allowance for Net Patient Service Revenue Adjustments Estimates of allowances for adjustments included in net patient service revenue are described in Notes 1 and 2. Contributions Revenue Approximately 38% of all contributions revenue was received from two donors in Contributions Receivable Approximately 79% of all contributions receivable were outstanding from two donors in Investments The Institute invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying consolidated balance sheet. 22

26 Note 18: Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act (PPACA) will substantially reform the United States health care system. The legislation impacts multiple aspects of the health care system, including many provisions that change payments from Medicare, Medicaid and insurance companies. Starting in 2014, the legislation requires the establishment of health insurance exchanges, which will provide individuals without employer-provided health care coverage the opportunity to purchase insurance. It is anticipated that some employers currently offering insurance to employees will opt to have employees seek insurance coverage through the insurance exchanges. It is possible the reimbursement rates paid by insurers participating in the insurance exchanges may be substantially different than rates paid under current health insurance products. Another significant component of the PPACA is the expansion of the Medicaid program to a wide range of newly eligible individuals. In anticipation of this expansion, payments under certain existing programs, such as Medicare disproportionate share, will be substantially decreased. Each state s participation in an expanded Medicaid program is optional. The state of Missouri has currently indicated it will not expand the Medicaid program, which may result in revenues from newly covered individuals not offsetting the Institute s reduced revenue from other Medicare/Medicaid programs. The PPACA is extremely complex and may be difficult for the federal government and each state to implement. While the overall impact of the PPACA cannot currently be estimated, it is possible it will have a negative impact on the Institute s net patient service revenue. In addition, it is possible the Institute will experience payment delays and other operational challenges during PPACA s implementation. Note 19: Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the consolidated financial statements were available to be issued. The Institute entered into a new lease with escalating annual payments that range from $55,000 to $65,000 through The lease contains two five-year renewal options and requires the Institute to pay its proportionate share of property taxes, maintenance and insurance. 23

27 Other Information

28 Schedule of Revenue and Expenses Extended Employment Workshops Year Ended Revenue Workshop (contract only) sales $ 774,043 Governmental Reimbursement: Missouri Senate Bill #52 560,301 Jackson County Proposition #1 385,046 Platte County Board of Services 97,344 Developmental Disabilities Resource Board 10,542 MARC Grant 5,487 United Way 31,100 Total revenue 1,863,863 Expenses Salaries - staff 503,317 Wages - workshops 361,217 Employee health and welfare 82,868 Payroll taxes 64,087 Insurance 10,062 Supplies 10,888 Cost of sales 129,097 Professional fees 47,062 Postage 64,297 Repairs and maintenance 51,160 Rent 2,100 Utilities 28,480 Telephone 10,768 Travel and automobile expense 14,121 General and administrative 404,033 Depreciation of facilities and equipment 57,223 Miscellaneous 2,109 Total expenses 1,842,889 Excess of revenue over expenses $ 20,974 24

29 Calculation of Workshop Expenses Per Client Per Day Year Ended Workshop Operations Cost Salaries - staff $ 503,317 Wages - workshops 361,217 Employee health and welfare 82,868 Payroll taxes 64,087 Insurance 10,062 Supplies 10,888 Cost of sales 129,097 Professional fees 47,062 Postage 64,297 Repairs and maintenance 51,160 Rent 2,100 Utilities 28,480 Telephone 10,768 Travel and automobile expense 14,121 General and administrative 404,033 Depreciation of facilities and equipment 57,223 Miscellaneous 2,109 Total cost 1,842,889 Less cost of sales 129,097 Adjusted workshop operations cost 1,713,792 Total workshop client days (6 hour days) 34,394 Workshop expenses per client per day $