GOODWILL INDUSTRIES OF CENTRAL TEXAS

Transcription

1 CONSOLIDATED FINANCIAL REPORT DECEMBER 31, 2013

2 C O N T E N T S Page INDEPENDENT AUDITOR S REPORT... 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Consolidated Statement of Functional Expenses... 5 Consolidated Statement of Cash Flows... 6 Notes to Consolidated Financial Statements... 7 FEDERAL AWARDS INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings... 30

3 INDEPENDENT AUDITOR S REPORT Board of Directors Goodwill Industries of Central Texas Report on the Financial Statements We have audited the accompanying consolidated financial statements of Goodwill Industries of Central Texas (GICT), a nonprofit organization, which comprise the consolidated statement of financial position as of December 31, 2013, and the related consolidated statements of activities, functional expenses, 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 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 of 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 audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 9311 SAN PEDRO AVENUE, SUITE 1400, SAN ANTONIO, TX P: F:

4 Board of Directors Goodwill Industries of Central Texas Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GICT as of December 31, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the 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 consolidated financial statements or to the 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 information is fairly stated, in all material respects, in relation to the consolidated financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 29, 2014, on our consideration of GICT s internal control over financial reporting on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering GICT s internal control over financial reporting and compliance. Prior Period Financial Statements The financial statements of GICT as of December 31, 2012 and for the year then ended, were audited by other auditors whose report dated May 17, 2013, expressed an unmodified opinion on those statements. The summarized comparative information presented herein as of and for the year ended December 31, 2012, is consistent, in all material respects, with the audited financial statements from which it has been derived. WEAVER AND TIDWELL, L.L.P. San Antonio, Texas April 29, 2014

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2013 (WITH COMPARATIVE TOTALS FOR DECEMBER 31, 2012) Memo Only ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,246,741 $ 3,969,200 Receivables, net of allowance for doubtful accounts of $124,936 4,030,784 3,853,158 Inventory 550, ,748 Other current assets 935, ,159 Total current assets 8,763,157 9,268,265 Investments 504, ,696 Debt Issuance Costs 133, ,657 Other Long-Term Assets 272, ,917 Property and Equipment, net 49,085,364 44,500,243 TOTAL ASSETS $ 58,759,451 $ 54,568,778 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 1,985,828 $ 1,751,593 Accrued liabilities 4,108,909 3,597,806 Current portion of long-term debt 2,220,854 1,922,755 Total current liabilities 8,315,591 7,272,154 LONG-TERM LIABILITIES Other long-term liabilities 273, ,917 Interest rate swap 144, ,173 Long-term debt, net of current portion 18,695,420 18,369,120 Total long-term liabilities 19,113,358 19,083,210 TOTAL LIABILITIES 27,428,949 26,355,364 NET ASSETS Unrestricted: Undesignated 30,615,294 27,705,441 Board designated funds 504, ,696 31,119,607 28,046,137 Temporarily restricted 210, ,277 TOTAL NET ASSETS 31,330,502 28,213,414 TOTAL LIABILITIES AND NET ASSETS $ 58,759,451 $ 54,568,778 The Notes to Consolidated Financial Statements are an integral part of this statement. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2013 (WITH COMPARATIVE TOTALS FOR DECEMBER 31, 2012) Unrestricted 2013 Temporarily Restricted Total Memo Only 2012 REVENUE Assisted employment - retail, net of cost of goods sold of $4,531,650 $ 42,947,099 $ - $ 42,947,099 $ 38,345,010 Goodwill Temporary Services 10,014,966-10,014,966 8,964,618 Assisted employment - industrial 6,335,978-6,335,978 6,037,827 Contributed goods 3,369,940-3,369,940 4,189,792 Grants 4,305,967-4,305,967 4,050,585 Evaluation and training 505, , ,977 Contributions 634, , , ,713 United Way 4,905-4,905 50,968 Other 344, , ,849 Gain (Loss) on swap transactions 258, ,920 (378,685) Satisfaction of program restrictions 301,118 (301,118) - - Total revenue 69,023,124 43,618 69,066,742 63,089,654 EXPENSES Program: Assisted employment - retail 32,219,724-32,219,724 29,475,340 Temporary employment services 9,655,591-9,655,591 8,506,605 Assisted employment - industrial 5,854,386-5,854,386 4,645,553 Evaluation and training 8,774,923-8,774,923 8,078,955 Total program 56,504,624-56,504,624 50,706,453 Management and general 8,713,452-8,713,452 6,898,668 Fundraising 731, , ,443 Total expenses 65,949,654-65,949,654 58,417,564 CHANGE IN NET ASSETS 3,073,470 43,618 3,117,088 4,672,090 NET ASSETS, beginning of year 28,046, ,277 28,213,414 23,541,324 NET ASSETS, end of year $ 31,119,607 $ 210,895 $ 31,330,502 $ 28,213,414 The Notes to Consolidated Financial Statements are an integral part of this statement. 4

7 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2013 Assisted Employment Retail Program Services Temporary Employment Services Assisted Employment Industrial Evaluation and Training Support Services Management and General Fundraising Total Wages $ 14,969,895 $ 8,193,715 $ 3,323,960 $ 5,066,980 $ 3,762,673 $ 367,523 $ 35,684,746 Payroll Taxes 1,135, , , , ,250 25,466 2,689,041 Employee Benefits 2,240, , , , ,115 47,280 4,761,825 Professional Fees 521,616 13,732 35, , ,524 79,006 1,662,187 Supplies 1,148,807 13, ,041 93, ,357 36,666 2,036,986 Telephone & Internet 319,007 8,258 35, , ,757 3, ,568 Repair and Maintenance 609,300 8,917 38, , ,728 10, ,194 Postage and Freight 748,844 13, ,750 2,287 25,387 7,086 1,059,318 Rents 4,805,466 12, , , ,759 18,286 5,604,989 Utility and Trash 1,261, , ,753-1,579,793 Printing and Publications 32,405 1, ,739 29,003 21,910 86,727 Recruitment and Advertising 935,529 34,437 1,220 8,005 9,540 2, ,750 Transportation 461,901 1,398 95,314 79,893 27,379 7, ,655 Travel, Convention, Meetings 8,251 5,953 5,923 46,883 81,421 10, ,210 Commissions and Fees 316, , , ,031,965 Membership Dues 7,018 2,426 1,071 7, ,800 2, ,641 Interest Expense 93,126-16, , ,793 Depreciation 1,628,121 25,410 73, , ,558 7,617 2,815,577 Insurance 538,979 80,193 75,012 32, ,419 1, ,056 Assistance & Training 358 2, , ,515 Other Miscellaneous 436,994 2,219 62, , ,394 81,426 1,150,118 $ 32,219,724 $ 9,655,591 $ 5,854,386 $ 8,774,923 $ 8,713,452 $ 731,578 $ 65,949,654 The Notes to Consolidated Financial Statements are an integral part of this statement. 5

8 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 3,117,088 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,830,769 Bad debt (49,605) Net loss on disposal of fixed assets (33,047) Change in fair value of interest rate swaps (258,921) Unrealized loss on investment (63,617) Change in assets and liabilities: Receivables (128,021) Inventory 27,401 Other assets (67,126) Other long term assets 38,077 Accounts payable and accrued expenses 745,338 Deferred revenue (37,231) Net cash provided by operating activities 6,121,105 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (7,416,963) Proceeds from the sale of fixed assets 49,000 Purchase of investments (100,000) Net cash used by investing activities (7,467,963) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of debt 2,593,546 Principal payment on debt (1,969,147) Net cash provided by financing activities 624,399 NET DECREASE IN CASH AND CASH EQUIVALENTS (722,459) CASH AND CASH EQUIVALENTS, beginning of year 3,969,200 CASH AND CASH EQUIVALENTS, end of year $ 3,246,741 SUPPLEMENTAL INFORMATION Cash paid for interest $ 540,096 The Notes to Consolidated Financial Statements are an integral part of this statement. 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION Goodwill Industries of Central Texas (GICT) is a corporation organized under the Nonprofit Corporation Act of the State of Texas. These consolidated financial statements include the accounts of Goodwill and its supporting organization, Goodwill Temporary Services, Inc., dba GSG (GSG) and Blue Solutions, which is a controlled corporation. GICT receives grants and contracts from governmental programs to conduct various training programs. GICT also operates retail stores that sell materials donated by the public, and performs work-related services through contracts with various entities in the Central Texas area. GSG is a nonprofit corporation organized for the purpose of providing training and employment for people who are disabled or economically disadvantaged through temporary employment and contracts with various entities in the Central Texas area. Blue Solutions is a nonprofit corporation organized for the purpose of providing employment for disabled and severely handicapped persons under and pursuant to contracts with the United States government and others. Programs consist of: Assisted employment retail: The collection process and sale of donations. Program provides employment and training, outside placement and community service restitution, diversion of waste from landfills, and increasing environmental awareness within Goodwill. Goodwill temporary staffing services: Program provides employment through temporary jobs for people with disabilities or other barriers to employment. Assisted employment industrial: Program provides employment and training for disabled or disadvantaged persons. Evaluation and training: Program provides identification of work skills and aptitude, instruction in good work habits, employer relationships and methods of locating jobs, skills training and job placement. 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statement Presentation GICT reports information regarding its financial position and activities according to three classes of net assets; unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. GICT currently has no permanently restricted net assets. Unrestricted Net Assets Unrestricted net assets result from operating revenues, unrestricted contributions, unrestricted dividend and interest income, less expenses incurred in operations to raise contributions and for administrative functions. Temporarily Restricted Net Assets Support that is restricted by the donor is recorded as an increase in temporarily restricted net assets. When a restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets. Basis of Accounting GICT uses the accrual basis method of accounting. Contracts and grants are recorded as revenue when the funds are considered earned. Cost reimbursement contracts are recorded as revenue when the costs are incurred and contributions are recorded as support when the funds are awarded. Deferred revenue is recorded when grant funds are received prior to incurrence of costs on cost reimbursement contracts. Expenses are recognized when incurred. Consolidation As discussed in Note 1, these financial statements are consolidated to include the activities of the subsidiary entities. All intercompany balances have been eliminated for consolidation purposes. Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles 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. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Cash Equivalents Cash equivalents consist of short-term, highly liquid investments that are readily convertible to cash. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of office supplies, supplies used in performing contracts, and purchased or donated items for resale in the retail stores. Receivables GICT accounts for its accounts receivable based on contract terms. Receivables are considered past due based on contractual terms. GICT provides for uncollectible accounts receivable and pledges receivable through the allowance method of accounting. Under this method, a provision for uncollectible accounts is charged to expense and the allowance account is increased based on past collection history and management s evaluation of accounts receivable. All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the account. Grants receivable are considered 100 percent collectible. Investments Investments in marketable securities with readily determinable fair values are reported at fair value. Investments in equity and debt securities are reported at cost if fair value is not practical to estimate. Unrealized gains and losses are included in the change of net assets. Donated Materials Donated materials received by GICT from the public are recognized as contributions at the time of receipt at estimated fair value, and are included as inventory in the accompanying consolidated statement of financial position. Costs related to bringing donated materials to a salable condition are included in expenses as incurred, and the proceeds from the sale of such materials are recognized as revenue when sold. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. Temporarily restricted contributions are reported as temporarily restricted support and are then reclassified to unrestricted net assets upon satisfaction of the restriction or expiration of the time restriction. Property and Equipment Property and equipment acquisitions of items costing greater than $1,000 and with more than one year useful service life are capitalized at cost, or estimated fair value for donated assets. Assets purchased to which grant funders retain title are capitalized when the cost of the individual assets purchased exceeds $5,000 and useful service life exceeds one year. Proceeds from the sale of property and equipment are considered income to the funding source that originally purchased the asset. Depreciation is computed under the straight-line method and is based on the asset s estimated useful lives as follows: Furniture and equipment Building Transportation equipment 3 to 10 years 30 to 50 years 3 to 7 years Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Derivative Instruments GICT recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at their fair value. Changes in the fair value are reported in the statement of activities. GICT s derivative instruments consist of interest rate swaps. Income Taxes GICT and subsidiaries are exempt from income taxes under IRS Code Section 501(c)(3). Therefore, no provision has been made for Federal income taxes in the accompanying consolidated financial statements. 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Uncertain Tax Positions GICT and subsidiaries follow the accounting guidance related to uncertain tax positions. Using that guidance, tax provisions initially need to be recognized in the financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. As of December 31, 2013, GICT and subsidiaries have no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. GICT and subsidiaries tax years 2010 to 2013 remain subject to examination for federal tax purposes. Collections Collections, acquired through purchases and contributions since GICT s inception of the Environmental Business Services Computer Museum, are not recognized as assets on the statement of financial position. Purchases of collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired or as temporarily or permanently restricted assets if the assets used to purchase the items are restricted by donors. Contributed collection items are not reflected on the financial statements. Proceeds from de-accessions or insurance recoveries are reflected as increases in the appropriate net asset classes. Comparative Totals The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with GICT s financial statements for the year ended December 31, 2012, from which the summarized information was derived. 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. RECEIVABLES Accounts receivables at December 31, 2013, are categorized as follows: Accounts receivable $ 3,308,586 Grants receivable 385,690 Contributions receivable 261,559 Other receivables 199,885 Allowance for doubtful accounts (124,936) $ 4,030,784 Contributions receivable at December 31, 2013, are due as follows: Less than one year $ 16,350 One year to five years 265, ,201 Less: Allowance for uncollectible contributions receivable (8,533) Unamortized discount at.0325 (12,109) $ 261,559 NOTE 4. COMPENSATED ABSENCES GICT provides its employees with leave time based on the personnel policy. Unused leave time is paid to employees who are eligible for rehire upon termination based on their current rate of pay. At December 31, 2013, GICT has accrued approximately $1,077,000 in leave time. This amount is included in accrued liabilities in the consolidated financial statements. 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. INVESTMENTS Investments consist of mutual fund investments with Edward Jones Investments and are categorized as follows: Mutual Funds: Equities $ 349,941 Fixed income 149,991 Cash and money market 4,381 Total $ 504,313 Net investment income is summarized as follows: Interest and dividends $ 12,394 NOTE 6. BOARD-DESIGNATED FUNDS GICT s board-designated funds consist of one fund established for operations. Board-designated net assets composition type by fund as of December 31, 2013: Unrestricted Temporarily Restricted Total Board-designated fund $ 504,313 $ - $ 504,313 Changes in board-designated net assets for the year ended December 31, 2013: Unrestricted Temporarily Restricted Total Board-designated net assets, beginning of year $ 340,696 $ - $ 340,696 Investment 100, ,000 Fees (5,574) - (5,574) Investment returns/(losses) 69,190-69,190 Board-designated net assets, end of year $ 504,313 $ - $ 504,313 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. BOARD-DESIGNATED FUNDS CONTINUED GICT has elected to have the board-designated funds managed and held by Edward Jones Investments. Funds are invested in accordance with GICT s investment policies and objectives. To accomplish the organization s investment objectives, based on its time horizon, risk tolerances, performance expectations, and asset class preferences, Edward Jones Investments created a portfolio specific to GICT. The Investment Manager is authorized to utilize portfolios with the following strategic asset allocations: Asset Class Lower Limit Strategic Allocation Upper Limit Equities 45% 65% 75% Large Cap 25% 30% 45% Small and Mid Cap 15% 20% 25% International 10% 15% 20% Fixed Income 20% 30% 40% Cash and Equivalents 0% 5% 10% Investments at December 31, 2013 by asset class are as follows: Asset Class Equities 69.4% Large Cap 30.1% Small and Mid Cap 15.1% International 24.2% Fixed Income 29.7% Cash and Equivalents 0.9% Spending of board-designated funds and earnings are to be authorized at the discretion of the Board of Directors. 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. LEASES GICT is obligated under various lease agreements for space and equipment. Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and reward of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of GICT at their fair value at the inception of the lease, or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation. Finance charges are charged directly to expense. Assets held under capital leases are included in property, plant, and equipment, and depreciation and impairment losses are recognized. In addition to the foregoing minimum rentals, one operating lease requires the payment of additional rents based upon a percentage of gross sales. Total expense for operating leases in 2013 was approximately $4,507,000. The following is a schedule of future minimum lease payments for all leases as of December 31, 2013: Operating Leases 2014 $ 4,859, ,538, ,549, ,710, ,703,732 Thereafter 12,102,827 $ 30,464,374 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. PROPERTY AND EQUIPMENT Beginning Balance 2013 Additions Deletions Ending Balance 2013 Building improvements $ 10,687,356 $ 2,434,140 $ (281,270) 12,840,226 Buildings 27,539,946 1,973,724-29,513,670 Furniture and equipment 9,107,482 1,661,002 (962,314) 9,806,170 Land 10,327, ,185-10,838,535 Vehicles 1,074, ,148 (86,597) 1,743,444 GTS equipment 272,582 50,555 (4,133) 319,004 GTS vehicles 153,687 31, ,896 Blue Solutions Equipment 38, ,474 Accumulated Depreciation (14,701,527) (2,815,577) 1,318,049 (16,199,055) $ 44,500,243 $ 4,601,386 $ (16,265) $ 49,085,364 Total depreciation and amortization expense for the year ended December 31, 2013 was $2,830,

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. DEBT GICT s long-term debt consists of the following as of December 31, 2013: Loan payable to Compass Mortgage Corporation in scheduled monthly principal installments, plus interest at 65% of LIBOR plus.75% per annum, collateralized by land and building with a carrying value of $20,710,564, due December $ 20,260,252 Capital lease financing with Mail Finance, Inc. for the purchase of mail room equipment. Interest and repair and maintenace are expensed monthly as paid. Effective interest rate on the obligation is 5% with a 48 month term. 32,276 Capital Lease with Marlin for the purchase of mail room equipment. Interest and repair and maintenance are expensed monthly as paid. Interest rate is 28% with a 60 month term. 43,502 Capital Leases with Ryder for fleet vehicles. Interest and repair and maintenance are expense monthly as paid. Interest rates are %. Terms range from 12 months to 120 months. 580,244 $ 20,916,274 Current portion $ 2,220,854 Long-term 18,695,420 $ 20,916,274 Debt maturities: 2014 $ 2,220, ,234, ,279, ,309, ,491,081 Thereafter 9,380,345 $ 20,916,274 Interest expense for the year was approximately $420,

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. DEBT CONTINUED GICT s loan agreement with the Compass Mortgage Corporation includes various covenants, including: 1. Audited financial statements due within 180 days of the close of each fiscal year. 2. Quarterly financial statements within 45 days of each quarter. 3. Budget within 30 days after the start of each fiscal year. 4. Proper maintenance of properties. 5. Maintain a minimum tangible net worth of at least $8,200,000, tested quarterly. 6. Maintain as of the end of each fiscal quarter, a ratio of indebtedness to tangible net worth of not greater than 2.0 to Obtaining written consent of the lender to pledge or mortgage any of its assets. 8. Not create, incur, permit or assume any indebtedness, other than (a) indebtedness to Compass Bank, (b) indebtedness outstanding on the closing date which has been disclosed to and approved by the bank in writing and (c) indebtedness in an aggregate amount not to exceed $1,000,000. GICT is in substantial compliance with the above covenants. NOTE 10. DEFINED CONTRIBUTION PLAN GICT offers a 403(b) tax deferred retirement plan. All employees are eligible to participate on their first day of employment. For employees that are 21 years of age or older, GICT will match 50% of an employee s contributions up to 6% of their salary deferral after an employee has been employed for one year and worked 1,000 hours as of January 1 or July 1. Any employee contributions made toward the retirement plan are 100% vested. Participating employees vest employer contributions at 20% per year of service, reaching 100% after five years. Pension expense for the year ended December 31, 2013 was approximately $297,000. NOTE 11. INTEREST RATE SWAP GICT uses interest rate swaps as part of its interest rate management strategy. GICT entered into no-hedge interest rate swap transactions to effectively convert variable rate loans to a fixed rate of 1.833%. The interest rate swap, which expires December 2022, is recorded on the consolidated statement of financial position at fair value. Changes in fair value of the interest rate swap are recognized in earnings. The fair value of the interest rate swap was a net liability of $144,252 on December 31, 2013 and is recorded as a liability on the Consolidated Statement of Financial Position. 18

21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. COMMITMENTS GICT has a deferred compensation agreement with an employee subject to IRS Code 457(f). Under the terms of the agreement, GICT will contribute $30,000 annually to the account maintained for the benefit of the employee less any amounts contributed annually to the 457(b) Eligible Deferred Compensation Plan. The employee shall be entitled to the 457(f) account benefit upon: a) Deferred vesting date defined as age 63 b) Disability c) Death d) Termination of employment for any reason other than reasonable cause as defined by the Plan GICT also has a 457(b) Eligible Deferred Compensation Plan (Plan). Annual contributions are made by GICT in accordance with the Plan. Ownership of the assets remains the sole property of GICT until such time as employee is eligible and withdraws the funds. GICT at any time may terminate the agreement and cease contributions to the Plan. Both the 457(f) and 457(b) are subject to the claims of general creditors. The value of this deferred compensation agreement and Plan are included in Other Long- Term assets and Accrued Liabilities for $272,840. NOTE 13. FAIR VALUE DISCLOSURES Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Investments $ 504,313 $ 504,313 $ 504,313 Other long-term assets 272, ,840 $ 272,840 Long-term debt 18,695,420 18,695,420 18,695,420 Other long-term liabilities 273, , ,686 Interest rate swap (144,252) (144,252) (144,252) Contributed goods 3,369,940 3,369,940 19

22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. FAIR VALUE DISCLOSURES CONTINUED The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Long-term receivables: The carrying amount is a reasonable estimate of fair value, based on expected dates of collection and prevailing market conditions. Long-term debt: Based on the borrowing rates currently available to GICT for bank loans with similar terms and maturities. Other long-term liabilities: Based on the fair value of related assets from the 457(b) and 457(f) deferred compensation plans. Interest rate swaps: The carrying value is the fair value as determined by BBVA Compass Bank. Contributed goods: Based on the fair value of similar inventory items. NOTE 14. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of: Restricted for Youth Programs $ 45,707 Restricted for Future Building 9,000 Restricted for Evaluation and Training Programs 139,251 Restricted for Community Education 16,937 Total Temporarily Restricted Net Assets $ 210,895 NOTE 15. COLLECTIONS GICT s Computer Museum collection is made up of computers and computer related equipment of historical significance acquired through donation. The collection is held for educational, research and curatorial purposes. Each item is cataloged, preserved, cared for, and activities verifying their existence and assessment of their condition and historical significance are continually performed. 20

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. CONCENTRATIONS Amounts held in financial institutions occasionally are in excess of the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation limits. GICT deposits its cash with high quality financial institutions, and management believes GICT is not exposed to significant credit risk on those amounts. Approximately 47% of receivables are due from various agencies of the State of Texas, 22% from agencies of the Federal Government, and 31% from various other sources. NOTE 17. SUBSEQUENT EVENTS GICT has evaluated subsequent events as of April 29, 2014, the date the financial statements were available to be issued. Subsequent to year end, GICT has entered into the following: GICT has been awarded a charter for an adult high school from the State Board of Education. The school will be open in August of 2014 and GICT has committed an initial startup investment of $1,100,000 to this program. GICT has made a commitment to purchase property on South Lamar to be used to update a store and parking. The cash outlay for this purchase will be approximately $1,000,000 and will be financed with a loan from BBVA Compass. NOTE 18. ADVERTISING COSTS Advertising costs are expense as incurred. Advertising costs for the year ended December 31, 2013 were approximately $991,

24 FEDERAL AWARDS

25 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Directors Goodwill Industries of Central Texas We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of Goodwill Industries of Central Texas (GICT) which comprise the consolidated statement of financial position as of December 31, 2013, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated April 29, Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered GICT s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of GICT S internal control. Accordingly, we do not express an opinion on the effectiveness of GICT s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as Finding that we consider to be a significant deficiency. AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 9311 SAN PEDRO AVENUE, SUITE 1400, SAN ANTONIO, TX P: F:

26 Goodwill Industries of Central Texas Compliance and Other Matters As part of obtaining reasonable assurance about whether GICT s consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. GICT s Response to Findings GICT s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. GICT s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. WEAVER AND TIDWELL, L.L.P. San Antonio, Texas April 29,

27 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 Board of Directors Goodwill Industries of Central Texas Report on Compliance for Each Major Federal Program We have audited Goodwill Industries of Central Texas (GICT) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of GICT s major federal programs for the year ended December 31, GICT s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of GICT s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about GICT s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of GICT s compliance. Opinion on Each Major Federal Program In our opinion, GICT complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 9311 SAN PEDRO AVENUE, SUITE 1400, SAN ANTONIO, TX P: F:

28 Goodwill Industries of Central Texas Report on Internal Control Over Compliance Management of GICT is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered GICT s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of GICT s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. WEAVER AND TIDWELL, L.L.P. San Antonio, Texas April 29,

29 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2013 Federal Grantor/Pass-through Grantor/ Program Title Federal CDFA# Pass-through Entity Identifying Number Expenditures U.S. Department of Labor: Passed Through Texas Workforce Commission and Capital Area Workforce Development Board WIA Title I Youth * WIAY14211 $ 361,221 WIA Title I Youth * WIAY ,231,463 1,592,684 Direct Funding: RISE PE A-48 88,237 Total U.S. Department of Labor 1,680,921 U.S. Department of Health and Human Services - The Office of Family Assistance - Direct Funding: Responsible Fatherhood FK0005/02 487,553 Responsible Fatherhood FK0005/03 194,392 Total U.S. Department of Health and Human Services 681,945 U.S. Department of Justice - Direct Funding: Second Chance CY-BX ,765 Total U.S. Department of Justice 109,765 U.S. Department of Housing and Urban Development Passed Through Housing Authority of City of Austin CDBG/HACA HACA-09P ,315 Total U.S. Department of Housing and Urban Development 101,315 Total expenditures of federal awards $ 2,573,946 * Includes $83,513 in funds passed-through to other entities. The Notes to Schedule of Expenditures of Federal Awards are an integral part of this statement. 26

30 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2013 NOTE 1. BASIS OF PRESENTATION The schedule of expenditures of federal and state awards (the Schedule) includes the grant activity of GICT under programs of the federal government for the year ended December 31, The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Nonprofit Organization, wherein certain types of expenditures are not allowable or are limited reimbursement. B. Pass-through entity identifying numbers are presented where available. 27

31 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2013 I. Summary of the Auditor's Results: Financial Statements a. An unmodified opinion was issued on the consolidated financial statements. b. Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered a material weakness? X Yes None reported c. Noncompliance material to the consolidated financial statements noted. Yes X No Major Programs d. Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered a material weakness? Yes X None reported e. An unmodified opinion was issued on compliance for major programs. f. Any audit findings disclosed that were required to be reported under Section 510(a) or OMB Circular A-133. Yes X No g. Identification of major programs: WIA Title I Youth h. The dollar threshold used to distinguish between Type A and Type B programs. $300,000 i. Auditee qualified as a low-risk auditee. X Yes No 28

32 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2013 II. Findings Relating to the Financial Statements Which Are Required To Be Reported in Accordance with Generally Accepted Government Auditing Standards. Finding Improve Controls over Payroll Type: Internal control finding. Criteria: Internal controls over payroll are necessary to help ensure that only authorized charges for time worked are recorded in the Organization s general ledger. Condition: Duties between those who enter new employees into the payroll system and those who process payroll for payment are not properly segregated. Context: During our walk-through of controls over payroll, we noted certain employees, including those who process payroll, had the ability to enter new employees into the payroll system. The duties of entering new employees and processing payroll are considered incompatible and should be segregated. Cause: Improper design of controls over payroll. Effect: There is an increased risk that unauthorized payroll charges could be incurred by the Organization and recorded in the general ledger. Recommendation: The Organization should improve controls over payroll by properly segregating duties so that the same person cannot enter new employees into the system and process payroll for payment. Management Response: The ability to enter new employees is a security control in Ultipro, the payroll processing software. Security controls are managed by the Chief Financial Officer and the Corporate Compliance Officer. It appears that during a recent update to the software, during migration to a web hosted format, this control was deleted. This control has been set back up and payroll personnel do not have the ability to add or change employee information. Human Resources will run a report in Ultipro pulling from the audit tables to determine if payroll staff has entered any new employees. III. Findings and Questioned Costs for Federal Awards Including Audit Findings as Described in I.f Above None 29