Hospice of the Valley. Financial Statements. June 30, 2012 (With Comparative Totals for June 30, 2011)

Transcription

1 Hospice of the Valley Financial Statements (With Comparative Totals for June 30, 2011)

2 TABLE OF CONTENTS Page No. Independent Auditor's Report 1 Statements of Financial Position 2 Statement of Activities 3 Statement of Functional Expenses 4 Statements of Cash Flows

3 Armanino LLP Alcosta Boulevard Suite 500 San Ramon, CA main fax amllp.com INDEPENDENT AUDITOR'S REPORT The Board of Directors Hospice of the Valley San Jose, California We have audited the accompanying statement of financial position of Hospice of the Valley ("HOV") as of, and the related statements of activities, functional expenses and cash flows for the year then ended. These financial statements are the responsibilityy of HOV's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative informationn has been derived from HOV's Junee 30, 2011 financial statements audited by the predecessor auditors whose report dated November 4, 2011, expressed an unqualified opinion on those financial statements. 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 financial statements are free of material misstatement. An audit includes considerationn of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenesss of HOV's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hospice of the Valley as of and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Armanin no LLP January 16, 2013

4 Statements of Financial Position (With Comparative Totals for 2011) ASSETS Current assets Cash and cash equivalents $ 340,077 $ 1,381,797 Investments 1,650,634 1,775,909 Patient accounts receivable, net of allowance for doubtful accounts of $102,782 and $106,206 for 2012 and 2011, respectively 1,455,828 1,074,997 Contributions receivable 163, ,131 Prepaid expenses and other current assets 212, ,125 Total current assets 3,822,312 4,553,959 Property and equipment, net 881, ,265 Other assets 27,505 30,145 Total assets $ 4,731,498 $ 5,466,369 LIABILITIES AND NET ASSETS Current liabilities Accounts payable $ 222,947 $ 81,496 Accrued expenses 1,048, ,011 Capital lease obligation, current 15,032 - Total current liabilities 1,286, ,507 Capital lease obligation, long-term 58,252 - Total liabilities 1,345, ,507 Net assets Unrestricted Undesignated 2,387,061 3,565,095 Board designated 24,133 24,133 Invested in equipment and leasehold improvements 881, ,265 Total unrestricted net assets 3,292,875 4,471,493 Temporarily restricted 33,669 3,516 Permanently restricted 59,853 59,853 Total net assets 3,386,397 4,534,862 Total liabilities and net assets $ 4,731,498 $ 5,466,369 The accompanying notes are an integral part of these financial statements

5 Statement of Activities For the Year Ended (With Comparative Totals for 2011) 2012 Temporarily Permanently Unrestricted Restricted Restricted Total 2011 Revenue, gains and other support Net patient service revenue $ 11,319,818 $ - $ - $ 11,319,818 $ 10,615,619 Contributions 911, ,592-1,218, ,225 Special events (net of direct expenses of $117,691 in 2012 and $98,502 for 2011) 170, , ,937 Investment income 64, ,961 61,738 Other income 81, ,859 76,707 12,548, ,592-12,854,912 11,965,226 Net assets released from restrictions 276,439 (276,439) Total revenue, gains and other support 12,824,759 30,153-12,854,912 11,965,226 Expenses Program Hospice related services 11,011, ,011,364 9,590,141 Supporting services General and administration 2,514, ,514,982 2,101,675 Fundraising 477, , ,929 Total supporting services 2,992, ,992,013 2,561,604 Total expenses 14,003, ,003,377 12,151,745 Change in net assets (1,178,618) 30,153 - (1,148,465) (186,519) Net assets, beginning of year 4,471,493 3,516 59,853 4,534,862 4,721,381 Net assets, end of year $ 3,292,875 $ 33,669 $ 59,853 $ 3,386,397 $ 4,534,862 The accompanying notes are an integral part of these financial statements

6 Statement of Functional Expenses For the Year Ended (With Comparative Totals for 2011) 2012 Management Program and Fund 2011 Services General Raising Total Total Salaries $ 6,509,323 $ 1,223,508 $ 272,825 $ 8,005,656 $ 6,972,507 Employee benefits 946, ,044 28,475 1,118, ,659 Payroll taxes 518,118 97,838 21, , ,583 Total salaries and benefits 7,974,053 1,464, ,860 9,761,303 8,384,749 Professional fees 256, ,076 44, , ,999 Supplies 19,286 92,631 3, ,270 83,921 Telephone 139,690 29,106 7, , ,539 Utilities 57,722 9,909 3,222 70,853 66,943 Postage and shipping 4,588 4,807 3,576 12,971 18,197 Occupancy 461,499 89,692 29, , ,386 Rental and maintenance of equipment 34, ,216 29,246 Printing and publications 31,543 59,820 4,635 95, ,978 Mileage reimbursement and travel 203,059 2,332 1, , ,050 Conferences and training 25,585 80,387 2, , ,825 Patient/client care equipment and services 1,470, ,470,920 1,340,928 Membership dues and licenses 16,726 5, ,925 20,088 Insurance 53,067 8,296 2,698 64,061 59,298 Advertising 16,169 64, ,904 53,525 Bad debts 36, ,000 68,778 Miscellaneous 28,321 61,291 41, ,089 77,604 Depreciation 182,319 29,736 9, , ,691 Total expenses $ 11,011,364 $ 2,514,982 $ 477,031 $ 14,003,377 $ 12,151,745 The accompanying notes are an integral part of these financial statements

7 Statements of Cash Flows For the Year Ended (With Comparative Totals for 2011) Cash flows from operating activities Change in net assets $ (1,148,465) $ (186,519) Adjustments to reconcile change in net assets to net cash used in operating activities Depreciation 221, ,691 Realized and unrealized (gain) loss on investments (792) 15,346 Change in operating assets and liabilities Accounts receivable, net (336,700) (177,593) Prepaid expenses and other current assets (98,648) (31,652) Other assets 2,640 - Accounts payable 141,451 (145,442) Accrued expenses 198, ,073 Net cash used in operating activities (1,019,931) (247,096) Cash flows from investing activities Purchases of investments (405,953) (1,490,178) Sales of investments 532, ,152 Acquisition of property and equipment (138,102) (91,781) Net cash used in investing activities (12,035) (768,807) Cash flows from financing activities Payments on capital lease obligation (9,754) - Net decrease in cash and cash equivalents (1,041,720) (1,015,903) Cash and cash equivalents beginning of year 1,381,797 2,397,700 Cash and cash equivalents end of year $ 340,077 $ 1,381,797 The accompanying notes are an integral part of these financial statements

8 1. Organization Nature of organization Hospice of the Valley ("HOV") is a nonprofit organization that provides compassionate palliative, hospice, and grief care services to individuals facing serious illness in Santa Clara County. This includes a broad set of medical, spiritual, psychological, social, educational, bereavement, and advocacy services to insure individual dignity, choice, and quality of life. HOV's primary sources of support and revenue are fees for services provided including Medicare and Medi-Cal, and contributions. 2. Summary of Significant Accounting Policies Basis of presentation The financial statements of HOV have been prepared on the accrual basis of accounting. HOV reports its activities within three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets as follows: Unrestricted net assets represent net assets over which the Board of Directors has discretionary control in carrying out the operations of the organization. Under this category, HOV maintains an operating fund, an equipment fund and net assets designated by the Board for specific purposes. Temporarily restricted net assets represent net assets subject to donor-imposed stipulations. These stipulations may expire with time or may be satisfied by the actions of HOV according to the intention of the donor. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Permanently restricted net assets are subject to donor-imposed stipulations that they be held in perpetuity Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Upon expiration of temporary restrictions (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) net assets are released as transfers between the applicable classes of net assets

9 2. Summary of Significant Accounting Policies (continued) Contributions and contributions receivable Unconditional promises to give cash and other assets to HOV are reported at fair value at the date the promise is received. Conditional promises to give are reported at fair value at the date the condition is substantially met. Contributions are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discount on these amounts is computed using risk adjusted market interest rates applicable to the years in which the promises are expected to be received. Amortization of the discount is recorded as contribution revenue in accordance with donor imposed restrictions, if any, on the contributions. Contributions receivable of $163,000 as of are all expected to be collected within the subsequent year. An allowance for uncollectible contributions receivable is established based upon management's judgment including such factors as prior collection history, aging statistics of contributions, and the nature of the receivable. At, management has determined that no allowance for uncollectible contributions was required. Donated equipment and other donated goods are recorded at their estimated fair market value as of the date of the donation. Contributed services, which require a specialized skill and which HOV would have paid for if not donated, are recorded at the estimated fair market value at the time the services are rendered. HOV also receives donated services that do not require specific expertise but which are nonetheless central to HOV's operations. The estimated value of these services amounted to $390,156 for the year ending, and is not reflected in the accompanying statement of activities. Cash and cash equivalents HOV places its cash and cash equivalents with high credit quality institutions. Periodically, such investments may be in excess of federally insured limits. HOV considers all highly liquid investments with original maturities of three months or less to be cash equivalents unless otherwise restricted or designated. 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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates

10 2. Summary of Significant Accounting Policies (continued) Investments Investments are recorded at fair value as determined primarily by quoted market prices in active markets. Unrealized gains and losses are included in the change in net assets. Investment income and gains restricted by a donor are reported as increases in unrestricted net assets if the restrictions are met (either by passage of time or by use) in the reporting period in which the income and gains are recognized. HOV 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 changes could materially affect the Organization's account balances and the amounts reported in the statement of financial position. Fair value measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. HOV determines the fair values of its assets and liabilities based on a fair value hierarchy that includes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that HOV has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The following methods and assumptions were used to estimate the fair value of financial instruments recorded on a recurring basis: (a) Investments (Level 1). Securities traded on security exchanges are valued at closing market prices, or net asset value for mutual funds, on the date of business closest to June 30. All of HOV's investments have been determined to be Level 1 investments as of. Property and equipment Property and equipment purchased by HOV is recorded at cost. Depreciation is computed on the straight-line basis over the estimated useful lives of the respective assets, which range from 3 to 20 years. HOV capitalizes all property and equipment that has a minimum cost of $1,000 and an estimated useful life beyond one year. Leasehold improvements are recorded at cost and depreciated using the straight-line method over the shorter of their lease term or their expected useful life

11 2. Summary of Significant Accounting Policies (continued) Net patient service revenue Net patient service revenues are reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered. HOV is reimbursed for services provided to patients under certain programs administered by governmental agencies. Revenues from Medicare and Medi-Cal programs accounted for approximately 87% and 4% of HOV's net patient service revenue in Laws and regulations governing the Medicare and Medi-Cal programs are complex and subject to interpretation. HOV believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action, including fines, penalties, and exclusion for the Medicare and Medi-Cal programs. Patient accounts receivable HOV's patient accounts receivables consist of amounts owed by various governmental agencies, insurance companies and private patients. HOV manages the receivables by regularly reviewing its accounts and contracts and by providing appropriate reserves for contractual allowances and uncollectible amounts, based upon historical and expected net collections from each major payor source. Significant concentrations of net patient accounts receivables reside in receivables from Medicare of 82% and Medi-Cal of 13% as of. Management believes there is minimal credit risk associated with receivables from government programs. Patient accounts receivable are reported in the financial statements at their expected realizable amounts and adjusted for an allowance for doubtful accounts. Bad debts are provided for using the reserve method and are calculated based on historical trends and specific account information. Accounts are written off to the bad debt allowance from receivables when confirmation is received that an account has been determined to be uncollectible. At, HOV estimates that a reserve for doubtful accounts of $102,782 is necessary for its outstanding receivables. Charity care HOV provides care to patients who meet criteria under its charity care policy without charge or at amounts less than its established rates. These amounts are not reported as revenue since HOV does not pursue collection of amounts determined to qualify as charity care. The cost of charity care provided is based upon total direct and indirect costs allocated to total patient days to derive an estimated cost per day. For the year ended, the estimated cost associated with charity care provided was $110,

12 2. Summary of Significant Accounting Policies (continued) Comparative totals The financial statements include certain 2011summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with HOV's financial statements for the year ended June 30, 2011, from which the summarized information was derived. Reclassifications Certain 2011 balances have been reclassified to conform to the 2012 financial statement presentation. Functional allocation of expenses Costs of providing HOV's programs and other activities have been accumulated into separate groupings as either direct or indirect costs. Indirect or shared costs are allocated to the programs and supporting services by a method that measures the relative degree of benefit, primarily by effort spent on each activity and by employee headcount. Income taxes HOV has obtained determination letters from the Internal Revenue Service and the California Franchise Tax Board that HOV qualifies under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Tax Code. Accordingly, the primary operations of HOV are currently considered exempt from federal income and state franchise taxes. HOV has evaluated its current tax positions and has concluded that as of, and has determined it does not have any uncertain tax positions for which a reserve would be necessary. HOV files U.S. federal, and U.S. state information returns. For U.S. state information returns, HOV is generally no longer subject to tax examinations for years prior to For U.S. federal information returns, HOV is generally no longer subject to tax examination for years prior to

13 3. Investments All of the following investments are classified as Level 1 investments. The fair market value of investments as of June 30 is as follows: Mutual Funds PIMCO Short-Term Class A Fund $ 201,994 PIMCO Total Return Class A Fund 323,588 PIMCO Real Return Class A Fund 271,998 Templeton Global Bond Class A Fund 150,402 Vanguard GNMA Admiral Fund 325,728 Sentinel Government Sec. Class A Fund 243,241 Sentinel Short Maturity Govt. Class A Fund 133,683 $1,650,634 Composition of investment income Realized and unrealized gains (losses) $ 1,838 Interest and dividends 74,784 Management fees (11,661) Total $64, Property and Equipment Property and equipment consisted of the following at : Office furniture and equipment $1,056,549 Leasehold improvements 534,057 Sub-total 1,590,606 Less: accumulated depreciation (708,925) Net $ 881,681 Total depreciation expense for the years ended was $221,

14 5. Commitments and Contingencies Operating leases HOV leases its facility under a non-cancellable lease agreement. The original lease expires on May 31, 2016 with an option to extend the lease for two additional five year periods. HOV signed a third amendment to this lease in May 2012 and extended the lease through May In October 2012, HOV entered into a non-cancellable lease for future additional space to operate a palliative care center. The new lease begins upon occupancy, which is expected to be in mid-2013, is for a five year term, and has one five year extension option. The minimum annual lease payments for the two facility leases above are as follows: Fiscal Year Ended June 30 Capital lease Minimum Lease Payment 2013 $ 355, , , , ,525 Thereafter 822,739 $2,909,392 HOV is obligated under a capitalized lease agreement for a copier that requires monthly payments. The future payments under this capital lease are as follows: 2013 $17, , , , ,024 Total minimum lease payments 78,760 Less interest (5,476) Total principal payments 73,284 Less current portion (15,032) Long-term capital lease obligation $58,

15 5. Commitments and Contingencies (continued) Claims-made coverage HOV is covered for professional liability insurance on a claims-made basis. For the year ending per incident coverage was $5,000,000, with a general aggregate maximum coverage of $5,000,000. Management estimates that insurance coverage is adequate to cover any potential claims related to current or past operations. Should the claims-made policy not be renewed or replaced with equivalent insurance, claims based on occurrences during its term, but reported subsequently, will be uninsured. Litigation HOV is involved in litigation and regulatory investigations arising in the normal course of business. After consultation with legal counsel, management will establish accruals for any material estimated losses deemed probable. At, management believes that any matters will be resolved without any material adverse effect on the organization's future financial position or results of operations. 6. Board Designated Net Assets Board designated net assets consist of unrestricted funds received from donors which will be designated for future use in accordance with a board-approved purpose. 7. Temporarily Restricted Net Assets At temporarily restricted net assets were restricted for the following purposes: Palliative Care Center equipment $25,000 Pet Companions Program 5,000 Other program purposes 3,669 $33, Retirement Plan The Organization maintains a 403(b) retirement plan for all eligible employees. Employees are allowed to contribute the maximum amount set by law. There is no matching employer contribution. The Organization also maintains a 457(b) retirement plan for its senior executive personnel. Eligible employees are allowed to contribute the maximum amount set by law, with a 100% matching employer contribution. Total employer contributions made by HOV under this retirement plan were $42,819 for the year ended

16 9. Subsequent Events HOV has evaluated subsequent events through January 16, 2013, the date the financial statements were available to be issued. In October 2012, HOV entered into a lease agreement for future additional space to operate a palliative care center. The lease commencement date has not been finalized, however the lease commitments disclosed in Footnote 5 are based upon an estimated lease start date of July No subsequent events, other than the event described above, have occurred that would have a material impact on the presentation of the HOV's financial statements. 10. Endowment Hospice of the Valley's endowment consists of one individual donor-restricted endowment established to provide a perpetual source of funds to support end of life care for terminally ill individuals living in Santa Clara County, California. As required by Generally Accepted Accounting Principles (GAAP), net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments (if any), are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of relevant law The Board of Directors of Hospice of the Valley has interpreted the California version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the 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, Hospice of the Valley 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 the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by the California version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA)

17 10. Endowment (continued) In accordance with the California version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the organization and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the organization (7) The investment policies of the organization Funds with deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or California version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) requires the Organization to retain as a fund of perpetual duration. There were no such deficiencies as of. Return objectives and risk parameters Hospice of the Valley has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets consist of those assets of donor-restricted funds that the organization must hold in perpetuity. Strategies employed for achieving objectives To satisfy its long-term rate-of-return objectives, Hospice of the Valley generally relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends)

18 10. Endowment (continued) Spending policy and how the investment objectives relate to spending policy Hospice of the Valley has a policy of spending its endowment fund earnings in the year they earned. Changes in endowment net assets for the fiscal year ended : Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ - $ - $59,853 $59,853 Interest income Appropriation for expenditure - (142) - (142) Endowment net assets, end of year $ - $ - $59,853 $59,