CLINICA DE SALUD DEL VALLE DE SALINAS, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

Transcription

1 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION For the Year Ended June 30, 2017

2 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. June 30, 2017 CONTENTS Exhibit Page INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS: Statement of Financial Position A 3 Statement of Activities B 4 Statement of Cash Flows C 5 Statement of Functional Expenses D 6 Notes to Financial Statements 7-16 SUPPLEMENTARY FINANCIAL INFORMATION: Schedule Schedule of Expenditures of Federal Awards REPORT TO MANAGEMENT: 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 the Uniform Guidance Schedule of Findings and Questioned Costs 23

3 INDEPENDENT AUDITOR S REPORT To The Board of Directors Clinica de Salud del Valle de Salinas, Inc. Salinas, California Report on the Financial Statements We have audited the accompanying financial statements of Clinica de Salud del Valle de Salinas, Inc., (a nonprofit organization), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

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5 FINANCIAL STATEMENTS

6 Exhibit A CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Statement of Financial Position June 30, 2017 with Comparative Totals For the Year Ended June 30, 2016 CURRENT ASSETS Cash (Note C) $ 7,725,209 $ 14,971,346 Investments (Note D) 11,811,943 6,003,471 Patient accounts receivable-net (Note E) 2,428,097 2,529,595 Grants receivable (Note F) 53, ,514 Estimated third-party payor receivables 1,535, ,000 Other receivables 35,353 39,190 Deposits & prepaids 56,861 58,933 TOTAL CURRENT ASSETS 23,646,717 24,275,049 PROPERTY AND EQUIPMENT - NET (Note G) 8,542,254 8,192,134 TOTAL ASSETS $ 32,188,971 $ 32,467,183 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 1,023,366 $ 830,056 Accrued expenditures (Note H) 2,305,320 2,352,644 Estimated third-party settlements (Note I) 1,900,000 2,861,602 Advances from grants 389, ,135 Current portion long-term debt (Note J) 185, ,008 TOTAL CURRENT LIABILITIES 5,803,429 6,370,445 TOTAL LONG-TERM DEBT - Less Current Portion (Note J) 3,310,437 3,495,890 TOTAL LIABILITIES 9,113,866 9,866,335 NET ASSETS Unrestricted 23,075,105 22,600,848 TOTAL NET ASSETS 23,075,105 22,600,848 TOTAL LIABILITIES AND NET ASSETS $ 32,188,971 $ 32,467,183 See accompanying notes to financial statements. 3

7 Exhibit B CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Statement of Activities Year Ended June 30, 2017 with Comparative Totals for the Year Ended June 30, 2016 UNRESTRICTED NET ASSETS Support Net patient revenue $ 24,287,964 $ 24,013,172 Grant revenue 7,615,370 6,556,822 Other income 120, ,926 Total Support and Revenues 32,023,834 30,729,920 Expenses Program Services Medical services 12,411,787 10,181,472 Dental services 6,150,487 4,507,866 Community services 583, ,846 Optometry 706, ,671 Supporting Services General and administration 13,127,013 11,307,387 Total Expenses 32,979,187 27,273,242 CHANGE IN NET ASSETS FROM OPERATIONS (955,353) 3,456,678 OTHER CHANGES Investment gain (loss) (Note D) 1,429,610 (199,836) Total Other Changes 1,429,610 (199,836) INCREASE IN UNRESTRICTED NET ASSETS 474,257 3,256,842 NET ASSETS AT BEGINNING OF YEAR 22,600,848 19,344,006 NET ASSETS AT END OF YEAR $ 23,075,105 $ 22,600,848 See accompanying notes to financial statements. 4

8 Exhibit C CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Statement of Cash Flows Year Ended June 30, 2017 with Comparative Totals for the Year Ended June 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets $ 474,257 $ 3,256,842 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 652, ,989 Loss on disposal of capital assets - 14,137 Unrealized (gain) loss on investments (1,271,311) 326,915 (Increase) decrease in operating assets Patient accounts receivable 101,498 (659,844) Grants receivable 518, ,132 Prepaid expenses and deposits 2,072 (55,890) Estimated third-party payor receivable (1,435,681) (100,000) Other receivables 3,837 55,841 Increase (decrease) in operating liabilities Accounts payable 193,311 (654,696) Accrued expenditures (333,813) 305,936 Estimated third-party settlements (675,114) 75,114 Advances from grants 238,162 45,209 NET CASH PROVIDED BY OPERATING ACTIVITIES (1,531,058) 3,372,685 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,002,903) (1,550,099) Transfer to investments (4,537,161) (513,147) NET CASH USED IN INVESTING ACTIVITIES (5,540,064) (2,063,246) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - 1,625,074 Payments of long-term debt (175,015) (139,601) NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (175,015) 1,485,473 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,246,137) 2,794,912 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,971,346 12,176,434 CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,725,209 $ 14,971,346 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid $ 200,460 $ 173,295 See accompanying notes to financial statements. 5

9 Exhibit D CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Statement of Functional Expenses Year ended June 30, 2017 with Comparative Totals for the Year Ended June 30, 2016 Community Sub- General & Total Total Medical Dental Service Optometry Total Administration Employee Compensation $ 6,725,809 $ 3,929,423 $ 411,074 $ 444,194 $ 11,510,500 $ 4,508,782 $ 16,019,282 $ 14,447,099 Fringe Benefits 1,731,338 1,076,843 87, ,226 3,016,060 1,057,824 4,073,884 3,774,156 Total Employee Compensation 8,457,147 5,006, , ,420 14,526,560 5,566,606 20,093,166 18,221,255 and Fringe Benefits Program Services Consulting & Professional Fees 2,590,392 71,933 6,955-2,669,280 1,539,733 4,209,013 1,428,637 Consumable Supplies 904, ,841 4, ,260 1,565, ,226 1,795,995 1,544,614 Laboratory 25,292 85,511-21, , , , ,030 Pharmaceuticals 2, ,330-2,330 1,868 Insurance , ,426 81,882 Occupancy 69,515 91,150 1,585 1, , , , ,218 Telephone 2,298 1,628 4,073-7, ,120 1,003,119 1,040,568 Repairs & Maintenance 162,101 56,554 3,323 3, ,788 1,031,463 1,257, ,262 Travel & Conferances 13,683 6,034 7,233-26, , , ,459 Printing and Publications 14,465 2,836 1, , , , ,382 Equipment & Software 32, ,468 22,861 1, , ,594 1,164,253 1,086,395 Interest , , ,295 Other Expenses 8,227 4,544 17,233-30,004 1,069,226 1,099, ,388 Total Expenses Before Depreciation 12,282,502 6,054, , ,861 19,612,373 12,714,032 32,326,405 26,743,253 Depreciation & Amortization 129,285 95,722 14, , , , ,989 Total Expenses $ 12,411,787 $ 6,150,487 $ 583,039 $ 706,861 $ 19,852,174 $ 13,127,013 $ 32,979,187 $ 27,273,242 See accompanying notes to financial statements 6

10 NOTES TO FINANCIAL STATEMENTS

11 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE A. NATURE OF ACTIVITIES Clinica de Salud del Valle de Salinas, Inc. ( the Clinic ) is a Non-Profit Corporation supported by federal, state, local grants, and revenues from operations. The Clinic s activities consist of providing quality medical, counseling, and preventive health education services to the low-income and under served populations of Eastern Monterey County. The Clinic operates eleven primary health care facilities located in Salinas, Greenfield, Soledad, Castroville, Pajaro, Chualar, Gonzales, and King City, plus a mobile clinic serving the local homeless population. The Board of Directors governs all of the operations and programs of the Clinic. The Clinic s mission is to provide comprehensive health care to men, women, and children with an emphasis on farmworker families and the agricultural community. The U.S. Department of Health and Human Services provides substantial support to the Center. The Center is obligated under the terms of this support to comply with specified conditions and program requirements. NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The Clinic prepares its financial statements in accordance with generally accepted accounting principles, which involves the application of accrual accounting. Consequently, revenue and gains are recognized when earned, and expenses and losses are recognized when incurred. Basis of Presentation The Clinic is required to report information regarding its financial position and activities according to three classes of net assets; unrestricted net assets, temporarily restricted net assets, and permanent net assets. The Clinic had no temporarily restricted net assets and no permanently restricted net assets at June 30, Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the Statement of Cash Flows, the Clinic considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. 7

12 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Refundable Advances The Clinic records grant awards accounted for as exchange transactions as refundable advances until related services are performed, at which time they are recognized as revenue. Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Fair values for investments are determined by reference to quoted market prices and other relevant information generated by market transactions (all level 1 measurements). 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. Property and Equipment Expenditures for property and equipment are stated at cost. The Clinic capitalizes all expenditures for property and equipment in excess of $5,000. Donated assets are recorded at their estimated fair market values at the date of donation. Depreciation of buildings and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis. Property acquired with federal grant supported funds is considered to be owned by the Clinic while used in the program for which it was purchased or in other authorized programs. However, the federal government has a reversionary interest in the property equal to the federal share of the grant which acquisition cost of the property was charged. Net Patient Service Revenue Patients service revenue is recorded at the Clinic s established rates. Sliding fee scale adjustments, contractual allowances and bad debt expenses are deducted to arrive at net patient service revenue. Revenue under third-party payor agreement is subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of the settlement. 8

13 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Patient Service Revenue (Continued) Deductions from patient service revenue related to sliding fee scale adjustments, provision for uncollectible accounts and contractual allowance aggregated to approximately $13,979,889 for the year ended June 30, Allowances and Adjustments to Patient Fees Allowances for doubtful accounts are recorded in the clinic s financial statements as a reduction to revenue from patient fees. The allowance is based on historical collection rates. Revenue from patient fees are also adjusted by discounts provided to patients who are eligible to receive discounted services based on the patient s ability to pay, in accordance with the Clinic s approved sliding fee scale. In addition, revenues from patient fees are adjusted when the clinic is not reimbursed for services provided to patients who are covered by Medi-Cal, Medicare, Family Planning, and CHDP. Personal Time Off The Clinic permits its employees to accumulate personal time off (PTO), subject to a company policy maximum, over their working careers and redeem accumulated personal time off in cash upon termination of employment. The estimated amount of accrued PTO at June 30, 2017 is $845,300. Leases Leases that in substance transfer all of the benefits and risks equivalent to ownership of the property are classified as capital leases. The related assets and liabilities are recorded at amounts equal to the lesser of the present value of minimum lease payments or the fair value of the leased property at the beginning of the respective lease terms. Generally, such assets are amortized over their economic lives. Interest expense relating to these lease liabilities is recorded using the effective interest method over the term of the leases. All other leases are classified as operating leases and related rentals and are charged as an expense when incurred. 9

14 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments The following methods and assumptions were used by the Clinic in estimating the fair values of its financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Investments: Fair values, which are the amounts reported in the balance sheet, are based on quoted market prices, if available, or estimated using quoted market prices for similar securities. Accounts payable and accrued expenses: The carrying amount reported in the balance sheet for accounts payable and accrued expenses approximates its fair value. Estimated third-party payor settlements: The carrying amount reported in the balance sheet for estimated third-party settlements approximates its fair value. Long-term debt: The fair value of the Clinic s long-term debt approximated the exit cost. Income Taxes The Clinic is a private nonprofit corporation that is exempt from income taxes under section 501(c) (3) of the Internal Revenue Service and section (d) of the State of California Revenue and Taxation Code. Accordingly, no provision for income taxes on the excess of revenues over expenses is included in the accompanying financial statements. The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the guidance, the Clinic may recognize the tax benefit from an uncertain tax position only it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical marks of the position. Examples of tax positions include the tax-exempt status of the Clinic and various positions related to the potential sources of unrelated business taxable income (UBIT). The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for fiscal year

15 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes (Continued) The Clinic files it s Form 990 in the U.S. federal jurisdiction and the office of the state s attorney general for the State of California. The Clinic is generally no longer subject to examination by the Internal Revenue Service for years before NOTE C. CASH Cash consists of the following: Cash on hand $ 17,157 Cash in bank operating accounts 6,394,026 Cash in bank payroll account 939,511 Cash in bank money market account 374,515 $ 7,725,209 NOTE D. INVESTMENTS The Clinic s investments at June 30, 2017 consists of the following securities recorded at fair value: Fair Market Value Corporate Bonds $ 3,624,231 Equities-Stock 6,097,164 Equities-Mutual Funds 2,039,730 Real Estate Investment Trust 50,818 Total Investments $ 11,811,943 The following schedule summarizes the investment return and its classification in the statement of activities for the year ended June 30, 2017: Unrealized gain on marketable securities $ 1,271,311 Realized loss on marketable securities (62,398) Interest income 220,697 Total unrestricted investment income (loss) $ 1,429,610 Expenses related to investment revenues, including custodial fees and investment advisory fees, amounted to $66,350 for the year ended June 30, 2017, and are reported as a decrease in unrestricted net assets on the Statement of Activities. 11

16 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE E. PATIENT ACCOUNTS RECEIVABLE The patient receivable balance is composed of the following: Medi-Cal $ 3,294,137 Medicare 2,148,187 Private Insurance 331,565 CHDP 18,888 Central Coast Alliance for Health 478,766 Family Planning 156,554 Total before allowance for doubtful accounts 6,428,097 Less: Allowance for doubtful accounts (4,000,000) Net Patient Accounts Receivable $ 2,428,097 NOTE F. GRANTS AND CONTRACTS RECEIVABLE The grants receivable balance is composed of the following: The Regents of the University of California-Exposures and Health of Farmworker Children in California (CHAMACOS) $ 49,959 Other 3,614 $ 53,573 NOTE G. PROPERTY AND EQUIPMENT A summary of the property and equipment is as follows: Construction in progress $ 118,482 Land 1,215,657 Building and improvements 7,898,806 Furniture and fixtures 147,000 Medical and dental equipment 3,016,005 Office equipment 2,142,368 Transportation equipment 155,174 Leasehold improvements 297,194 14,990,686 Less: Accumulated depreciation (6,448,432) Total Property and Equipment $ 8,542,254 12

17 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE H. ACCRUED EXPENDITURES Accrued expenditures at June 30, 2017, consist of the following: Employee paid time off (PTO) $ 845,300 Accrued payroll & fringe benefits 1,333,125 Other accruals 126,895 Total Accrued Expenditures $ 2,305,320 NOTE I. ESTIMATED THIRD-PARTY PAYOR SETTLEMENTS During the year ended June 30, 2017, the balance in this account was adjusted to reflect tentative settlements proposed by the Department of Health Services on FQHC Medi-Cal PPS reports filed by the Clinic for prior years and estimated liability for the current year. The estimated balance due to the Medi-Cal Program as of June 30, 2017 is $1,900,000. NOTE J. LONG-TERM DEBT Long-term debt at June 30, 2017, is summarized as follows: Note payable to Capital Impact Partners dated December 31, 2014 for $3,810,500. Note bears interest at the higher of 5.5% or the Five-Year U.S. Treasury rate plus 4%, requires monthly payments of $31,290, and matures on December 1, $ 3,495,883 Total Long-Term Debt 3,495,883 Less: Current Portion (185,446) Net Long-Term Debt $ 3,310,437 Long-term debt repayments due in each of the next five fiscal years are: 2018 $ 185, , , , ,246 Thereafter $ 2,453,857 Total $ 3,495,883 13

18 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE K. CASH RISK CONCENTRATION Cash The Clinic maintains checking and savings accounts for operations with several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Cash held in investment brokerage accounts is not insured. At June 30, 2017, the Clinic s uninsured cash balances totaled $7,402,242. Investments The Clinic maintains an investment account with a local securities brokerage firm. The clinic s investments held by the firm are insured up to $500,000 by the SPIC in the event of brokerage firm failure. At June 30, 2017, the Clinic s uninsured investment balance was $11,686,458. NOTE L. THIRD PARTY RATE ADJUSTMENTS AND REVENUE Revenue from the Medi-Cal and Medicare programs accounted for approximately 83 percent and 4 percent of the Clinic s patient revenue for the year ended June 30, Laws and regulations governing the Medi-Cal and Medicare programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The 2017 net patient service revenue increased approximately $281,888 due to prior year retroactive adjustment in excess of amounts previously booked. NOTE M. RETIREMENT PLAN AND TRUST The Clinic adopted a 403 (b) Pension Plan which is in accordance with sections 401 through 417 of the Internal Revenue Code, as amended by the Tax Reform Act of 1986 beginning July 1, Under the provisions of the plan, all employees are immediately eligible to make salary reduction contributions, and participants are fully vested upon entry to the plan. The Clinic makes a discretionary contribution for all eligible participants, subject to Internal Revenue Service restrictions for highly compensated employees. To be eligible for the contribution, a participant must be at least 18 years of age, be employed at least six months in any calendar year, completed 1,000 hours of service, and not be a physician or dentist. The Clinic currently matches 50% of each dollar contributed. The Clinic reserves the right to change the amount of the discretionary contribution at any time. The contribution expense for the period ending June 30, 2017 is $82,

19 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE M. RETIREMENT PLAN AND TRUST (Continued) On June 1, 2014 the Clinic established a deferred compensation plan under the Internal Revenue Code Section 457(b). The plan is available for highly compensated employees of the Clinic as determined by its Board of Directors. Contributions to the plan are made in accordance with the plan agreement. Contributions to the plan were $190,351 for the year ended June 30, NOTE N. COMMITMENTS AND CONTINGENCIES Program Funding: Continuing program funding is contingent upon the availability of funds from federal and state sources, as well as project performance. The funds are awarded on a yearly basis upon receipt and approval of program applications. Operating Leases: The Clinic rents certain property, office space, and equipment under noncancelable operating lease agreements expiring on various dates through Total rental expenses for those leases was $308,097 for the year ended June 30, The future minimum annual property, office, and equipment lease payments for years ending June 30 are as follows: , , , , ,006 FQHC Third-Party Reimbursements The Clinic, as a federally qualified center that is reimbursed on a cost basis for services provided to Medicare and Medi-Cal patients. Under these programs the Clinic is required to file cost reports and annual reconciliations at the end of the fiscal year. The purpose of these reports and annual reconciliations is to determine the cost of providing services to Medicare and Medi-Cal beneficiaries and to reconcile interim payments received during the year with the costs reported in the cost reports and actual PPS rates. The cost reports and annual reconciliations are subject to review and audit by the Medicare financial intermediary and the Medi- Cal program administrators. Any differences between the interim payments and final audited cost reports and annual reconciliations are recorded in the year final settlements reports are issued. 15

20 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Notes to Financial Statements June 30, 2017 NOTE N. COMMITMENTS AND CONTINGENCIES (Continued) Claim and Litigation The Clinic is subject to various claims and litigation. In the opinion of management, the outcome of such matters will not have a material effect on the financial position of the corporation. NOTE O. CONCENTRATION OF CREDIT RISK The Clinic grants credit without collateral to it s patients, most of whom are local residents and are insured under third-party payor agreements. The mix of receivables from patients and third-party payors at June 30, 2017 is as follows: Medi-Cal 51% CHDP 0% Medicare 33% Private insurance 5% CCAH 8% Family Planning 3% 100% NOTE P. FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing the various programs and activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. NOTE Q. PRIOR YEAR SUMMARIZED INFORMATION The financial statements include certain prior year summarized comparative information in total but not by net assets 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 the Organization s financial statements for the year ended June 30, 2016, from which the summarized information was derived. NOTE R. EVALUATION OF SUBSEQUENT EVENTS For the year ended June 30, 2017, the Clinic has evaluated subsequent events for potential recognition and disclosure through December 2, 2017, the date of financial statement issuance. 16

21 SUPPLEMENTARY FINANCIAL INFORMATION

22 Schedule 1 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Schedule of Expenditures of Federal Awards For the period July 1, 2016 through June 30, 2017 Federal Pass-through Name of Federal Agency / Passthrough CFDA Entity Identifying Program Name Grantor Number Number Expenditures U.S. Department of Health and Human Services Health Center Cluster: Consolidated Health Centers (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, Public Housing Primary Care, and School Based N/A N/A $ 1,443,888 Health Centers) Affordable Care Act (ACA) Grants for New and Expanded Services Under the Health Centers Program N/A N/A 5,353,939 TRAUS-NIH Research Support 6,797,827 The Regeants of the University of California ,657 Environmental Health Environmental Health Drug Abuse and Addiction Research Programs The Regeants of the University of California ,276 The Regeants of the University of California ,112 95,388 The Regeants of the University of California ,261 Total U.S. Department of Health and Human Services 221,649 U.S. Environmenal Protection Agency Science to Achieve Results (STAR) Research Program The Regeants of the University of California ,371 Total U.S. Environmental Protection Agency 39,371 Total Expenditures of Federal Awards $ 7,097,504 17

23 Schedule 1 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Schedule of Expenditures of Federal Awards For the period July 1, 2016 through June 30, 2017 Notes to Schedule of Expenditures of Federal Awards Note A Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal activity of Clinica de Salud del Valle de Salinas, Inc. under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of Clinica de Salud del Valle de Salinas, Inc. it is not intended to and does not present the financial position, changes in net assets, or cash flows of Clinica de Salud del Valle de Salinas, Inc. Note B Summary of Significant Accounting Policies (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Clinica de Salud del Valle de Salinas, Inc. has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. 18

24 REPORT TO MANAGEMENT

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 To The Board of Directors Clinica de Salud del Valle de Salinas, Inc. Salinas, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Clinica de Salud del Valle de Salinas, Inc., (a nonprofit organization), which comprise of the statement of financial position as of June 30, 2017, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated December 2, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Clinica de Salud del Valle de Salinas, Inc. 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 financial statements, but not for the purpose of expressing an opinion on the effectiveness of Clinica de Salud del Valle de Salinas, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the Clinica de Salud del Valle de Salinas, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 19

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27 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To The Board of Directors Clinica de Salud del Valle de Salinas, Inc. Salinas, California Report on Compliance for Each Major Federal Program We have audited Clinica de Salud del Valle de Salinas, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Clinica de Salud del Valle de Salinas, Inc. s major federal programs for the year ended June 30, Clinica de Salud del Valle de Salinas, Inc. 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 Clinica de Salud del Valle de Salinas, Inc. 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 the audit requirements of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan an perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct an material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Clinica de Salud del Valle de Salinas, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that 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 Clinica de Salud del Valle de Salinas, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Clinica de Salud del Valle de Salinas, Inc. 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 June 30,

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29 CLINICA DE SALUD DEL VALLE DE SALINAS, INC. Schedule of Findings and Questioned Costs Year Ended June 30, 2017 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X None Reported Noncompliance material to financial statements noted? Yes X None Reported Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X None Reported Type of auditor s report issued on compliance for Major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance, Section (a)? Yes X No Identification of Major Programs: & U.S. Department of Health and Human Services Health Center Cluster Dollar threshold used to distinguish between Type A and Type B Programs: $750,000 Auditee qualified as low-risk auditee? X Yes No Section II Financial Statement Findings None Section III Federal Award Findings and Questioned Costs None 23