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

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1 The University of North Florida Training and Services Institute, Inc. and Subsidiary Consolidated Financial Statements and Supplementary Information Years Ended June 30, 2016 and 2015

2 The University of North Florida Training and Services Institute, Inc. and Subsidiary Table of Contents Independent Auditors Report... 1 Required Supplementary Information Management s Discussion and Analysis... 3 Basic Financial Statements Consolidated Statements of Net Position Consolidated Statements of Revenues, Expenses and Changes in Net Position Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Supplemental Information Schedule of Expenditures of Federal Awards Note to Schedule of Expenditures of Federal Awards Other Reporting Required by Government Auditing Standards Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs... 36

3 Independent Auditors Report Board of Directors The University of North Florida Training and Services Institute, Inc. and Subsidiary Report on the Financial Statements We have audited the accompanying consolidated financial statements of The University of North Florida Training and Services Institute, Inc. and Subsidiary (the Institute ), a direct support organization and component unit of the University of North Florida, as of and for the years ended June 30, 2016 and 2015, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Institute as of June 30, 2016 and 2015, and the changes in its financial position and, where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. 1

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis on pages 3 through 11 be presented to supplement the basic consolidated financial statements. Such information, although not a part of the basic consolidated financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were performed for the purpose of forming an opinion on the basic consolidated financial statements of the Institute taken as a whole. The accompanying schedule of expenditures of federal awards for the year ended June 30, 2016 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic consolidated financial statements or to the basic consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 15, 2016, on our consideration of the Institute s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Institute s internal control over financial reporting and compliance. Jacksonville, Florida September 15,

5 The University of North Florida Training & Service Institute, Inc. and Subsidiary Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis The University of North Florida Training & Service Institute, Inc. (the Institute) presents its financial statements for the fiscal year ended June 30, 2016, which include for comparative purposes the fiscal year ended June 30, The Institute is a direct support organization and component unit of the University of North Florida (a governmental agency). The Institute s financial statements are presented on an accrual basis and include the recording of depreciation. The statements presentation includes 1) assets and liabilities as current and non-current; 2) revenues and expenses as operating and non-operating; 3) the use of the direct method for statements of cash flows; and 4) management s discussion and analysis (MD&A) of the financial results. The MD&A focuses on current activities, resulting changes and currently known facts to provide the reader with an overall summary of the accompanying financial statements. It should be read in conjunction with the basic financial statements and accompanying notes. The financial statements include the following: 1. Basic financial statements - a. Consolidated Statements of Net Position b. Consolidated Statements of Revenues, Expenses, and Changes in Net Position c. Consolidated Statements of Cash Flows d. Notes to the Consolidated Financial Statements, and 2. Schedule to the financial statements a. Schedule of Expenditures of Federal Awards FINANCIAL HIGHLIGHTS 2016 The Institute of Police Technology and Management (IPTM) was awarded $5,032,548 in grant funds from the Florida Department of Transportation (FDOT), of which $4,434,211 was received in fiscal Four new grants and training of 890 Florida officers in IPTM courses was included. The four new grants programs are described below: Statewide Drug Recognition Expert Call-Out grant facilitates the availability of Drug Recognition Experts (DRE s) around the State by providing overtime pay reimbursement to agencies when certified DRE s are requested to work overtime in assisting with Driving Under the Influence (DUI) investigations. Public Traffic Safety Professionals Training Impaired Driving provides training to Florida officers designed to offer the knowledge necessary to understand the medical principles causing eye behaviors associated with alcohol and drug impairment as well as, prepare them to recognize the signs of marijuana impairment. 3

6 Region IV Law Enforcement Liaison Conference coordinates the 2016 Region IV Law Enforcement Liaison (LEL) Conference to share best practices to build better and more effective programs. DUI Media Survey facilitates and conducts awareness surveys to determine the effectiveness of Florida s impaired driving countermeasures and programs. IPTM partnered with The Miami Foundation, a non-profit organization administered by the Miami-Dade State Attorney s office, to provide five DUI enforcement courses training Miami-Dade law enforcement officers, which netted approximately $69,000 to the bottom line. The Institute continued to improve its retail store, The Cop Shop, by increasing sales instore and at conferences. Sales increased from approximately $16,000 in prior year to approximately $21,000 in fiscal 2016, an increase of approximately $5,000 or 30.8% IPTM Publication sales for fiscal 2016 courses and e-commerce sales totaled approximately $218,000, an increase approximately $28,000 over prior year. Online Training and Instructional Services (OTIS) Training. IPTM continued to make great developments with the OTIS training: 1) new online courses were created with some existing online course content into an independent study format made available 365 days per year, 2) nine new independent study courses were created, and 3) two other courses were converted from an instructor-led format to independent study. The improvements helped to realize increased online training sales to approximately $135,000 in fiscal 2016, an increase of approximately $49,000 or 56.2% over prior year. In fiscal 2016, the remaining two debt agreements related to the ADT building purchase were: 1) First mortgage Lease income of $1.8 million was recorded to recognize the lessee s, LYM TYCI Capital Company, LLC, obligation of principal and interest payments. All payments are current. 2) Note payable the note with the UNF Foundation, Inc. totaled $4.8 million and related interest payable totaled $970,654 at June 30, Institute Investments. The Institute s investments at year end totaled $235,186, a net increase of approximately $5,800. The calculated total return for the year was 0.87%. Net position of $1,428,284 increased in fiscal 2016 by approximately $471,000 or 49.2% over prior year s $957,414. The change in net position is primarily attributed to the increase in net grant activity of approximately $680,000, a decrease in other operations of $370,000, a decrease in non-operating income of approximately $11,000, and in beginning net position over prior year of approximately $172,000. 4

7 2015 The Institute of Police Technology and Management (IPTM) secured a series of seven grants totaled more than $4 million from the Florida Department of Transportation (FDOT) that conducted a number of initiatives built around a few of FDOT s core enforcement campaigns, which include Click It or Ticket and Drive Sober or Get Pulled Over. The funds were used toward the following Initiatives: Florida Law Enforcement Liaison (LEL) Program coordinated the State s highway safety efforts and enforcement campaigns with Florida s 400 law enforcement agencies and facilitated some of the largest agency rewards programs in the eastern United States. IPTM acquired the program s nine employees and its associated events, campaigns and rewards activities. The Florida Law Enforcement Challenge Program recognized and rewarded the best overall traffic safety programs in Florida. The program was designed to facilitate a focus on highway safety and maintain consistent high visibility enforcement coupled with education surrounding Florida s traffic laws. The Challenge focuses on occupant protection, drinking and driving, speeding and other areas of traffic safety. Florida DUI Challenge Program was an annual incentive and rewards initiative managed by the LEL Program. The grant will fund promotional items to market the annual Drive Sober or Get Pulled Over impaired driving enforcement crackdown, and reward items to agencies for their enthusiastic education and enforcement efforts conducted in support of the campaign. Florida Click It or Ticket Challenge Program is an annual incentive and rewards initiative managed by the LEL Program. This grant funded promotional items to market the annual safety belt enforcement mobilization and reward items to agencies for their enthusiastic education and enforcement efforts conducted in support of the campaign. IPTM completed Phase Three of Crash Investigation and Reconstruction Training for the Jamaican Ministry of Transport, which generated approximately $60,000. The Institute has packaged its Jamaican model to offer in the Caribbean and Latin America. In addition, IPTM joined the International Road Federation and presented at their regional Caribbean conference in May 2015, which has led to the formation of an ad hoc committee to work with the island nations to develop this curriculum. IPTM opened the Cop Shop in July The Cop Shop provide the opportunity for students to purchase IPTM merchandise such as textbooks, templates, shirts, hats, mugs and other miscellaneous IPTM products. This additional revenue stream allows marketing through the sale of IPTM merchandise that is worn and used in the law enforcement community. Sales revenue in fiscal 2015 was approximately $16,000. Online training was again a major focus during fiscal Four new training programs were developed and implemented during the fiscal year with an additional five online programs to be completed and implemented in fiscal This will include studio and equipment enhancement, course offerings, Learning Management System (LMS) and audience. In fiscal 2015, revenue from online training programs totaled approximately $86,000, an increase of $26,000 over prior year. 5

8 In fiscal 2015, the UNF TSI Investments, LLC s (the LLC) five year second mortgage was paid in full to Wells Fargo Bank in May The remaining two debt agreements related to the ADT building purchase were: 1) First mortgage Lease income of $1.8 million was recorded to recognize the lessee s, LYM TYCI Capital Company, LLC, obligation of principal and interest payments. All payments are current. 2) Note payable the note with the UNF Foundation, Inc. totaled $4.8 million and related interest payable totaled $807,916 at June 30, Institute Investments. The Institute s investments at year end totaled $229,384, a net decrease of approximately $228,000. An investment withdrawal was made at fiscal year-end of $250,000. The calculated total return for the year was 5.62%. Net position of $957,414 increased in fiscal 2015 by approximately $172,000 or 21.9% over prior year s $785,125. The change in net position represents the net of nonoperating income of approximately $12,000 and the operating gain of approximately $160,000. Statements of Net Position The purpose of the Statement of Net Position is to present the reader with a look at the Institute s financial condition as of the end of the fiscal year. In reading the Statement of Net Position, the reader will be able to determine the Institute s ability to continue operations and how much it owes to vendors, and other lending institutions. It provides a snapshot of the net position and the availability for expenditure by the Institute. The Statements of Net Position are presented as part of the basic financial statements. For the fiscal year ended June 30, 2016, total net position increased by 49.2% or approximately $471,000. The years activity included the following: As of June 30 (In thousands of dollars) Increase (decrease) Change 2014 Increase (decrease) Change Assets Current assets $ 1,057 $ 1,396 $ (339) -24.3% $ 564 $ % Noncurrent assets: Capital assets, net 13,930 14,494 (564) -3.9% 15,058 (564) -3.7% Other % 1,022 (228) -22.3% Total assets $ 15,787 $ 16,684 $ (897) -5.4% $ 16,644 $ % Liabilities: - Current liabilities $ 3,437 $ 3,440 $ (3) -0.1% $ 2,614 $ % Noncurrent liabilities 10,921 12,287 (1,366) -11.1% 13,245 (958) -7.2% Total liabilities 14,358-15,727 (1,369) -8.7% 15,859 (132) -0.8% Net position: - Unrestricted net position (536) (358) (178) 49.7% 112 (470) % Net investment in capital assets 1,965 1, % % Total net position 1, % % Total liabilities and net position $ 15,787 $ 16,684 $ - $ (897) -5.4% $ 16,644 $ % 6

9 Assets Current Assets During fiscal 2016, current assets totaled approximately $1,057,000 a decrease of approximately $340,000, or 24.3%. There were decreases in cash of approximately $118,000, prepaid expenses of approximately $13,000, inventory of approximately $17,000, grants receivable of approximately $250,000 offset by an increase in accounts receivable of approximately $59,000. During fiscal 2015, current assets totaled approximately $1,396,000 an increase of approximately $832,000, or 147.5%. There were increases in cash of approximately $21,000, prepaid expenses of approximately $32,000, inventory of approximately $12,000, grants receivables of approximately $781,000 offset by a decrease in accounts receivable of $14,000. Non-current Assets 2016 Capital assets. At June 30, 2016, the TSI Investments LLC ADT building, net capital asset value totalled $ million. The scheduled depreciation of $564,025 was recorded. Investments. The Institute s investments totalled $235,186 at June 30, 2016, which is an increase of approximately $5,800 or 2.5%, from prior year. Other non-current assets represent the outstanding $565,000 of the $600,000 line of credit the Institute approved for the Duval County Research and Development Authority Capital assets. At June 30, 2015, the TSI Investments LLC ADT building, net capital asset value totalled $ million. The scheduled depreciation of $564,026 was recorded. Investments. The Institute s investments totalled $229,384 at June 30, 2015, which was a decrease of approximately $228,000 or 49.9%, from prior year. This was attributed to $11,935 in net investment appreciation, offset by $250,000 in investment withdrawal. Other non-current assets represent the outstanding $565,000 of the $600,000 line of credit the Institute approved for the Duval County Research and Development Authority. Liabilities Current Liabilities During fiscal 2016, current liabilities decreased approximately $3,000 or 0.10%. The decrease is attributed to the following: 1) increase in the First mortgage current portion of approximately $162,000; 2) increase in interest payable of approximately $157,000 related to the UNF Foundation note payable; 3) increase in salaries payable of approximately 7

10 $8,300; 4) decrease in accounts payable and accrued expenses of approximately $378,000; and 5) an increase in deferred revenue of approximately $45,000. During fiscal 2015, current liabilities increased approximately $826,000 or 31.6%. The increase was attributed to the following: 1) decrease in the First mortgage current portion of approximately $204,000; and 2) increase in interest payable of approximately $202,000 related to the UNF Foundation note payable; 3) increase in salaries payable of approximately $34,000; 4) increases in accounts payable and accrued expenses of approximately $639,000; and 5) an increase in deferred revenue of approximately $149,000. The increase in accounts payable includes $482,000 due to UNF for payroll expenses. The second mortgage on the ADT building was paid in full in May Non-current Liabilities During fiscal 2016, non-current liabilities decreased by approximately $1.366 million or 11.1%. The decrease is due to loan repayments and the net of the $1.375 million moved to current liabilities for the First mortgage and the approximately $11,000 increase in vacation and sick leave accrual over prior year. During fiscal 2015, non-current liabilities decreased by approximately $1 million or 7.2%. The decrease was due to loan repayments and the net of the $1.213 million moved to current liabilities for the First mortgage that was offset by an increase of $211,181 in note payable proceeds for the ADT Building debt. The vacation and sick leave accrual increased approximately $43,000 over prior year. Net Position The net position at June 30, 2016, increased to approximately $1,428,284 from approximately $957,000 in prior year or 49.2%. The net position section of the Statement of Net Position provides two classifications: 1. The unrestricted net position details the amounts available to the Institute for any purpose in support of the Institute s mission. 2. Net investment in capital assets reflects the cost of the ADT building, net of depreciation, reduced by the outstanding balance of debt incurred for the purchase of the ADT building. Statement of Revenues, Expenses, and Changes in Net Position The purpose of the statement of revenues, expenses, and changes in net position is to provide the details of the operating and non-operating activity for the fiscal year. This includes the revenues displayed by major source (net of discounts and allowances), expenses, and gains and losses received or expended by the Institute. 8

11 Operating revenues are revenues received from services provided (e.g. training courses, radar testing, grants, and computer software installations) to various customers and constituents of the Institute. Operating expenses are those expenses incurred to produce the operating revenues and are detailed by type, which include course materials, program fees, etc. Net operating income/(loss) represents the amount of operating expenses in exceeds operating expenses and does not include non-operating revenue or expenses. Non-operating revenue is received from sources for which no service is provided by the Institute (e.g. investments). The change in net position is the result of the excess of revenues over expenses, which is also the change in total net position on the Statement of Net Position Years ended June 30 (In thousands of dollars) Increase (decrease) Change 2014 Increase (decrease) Change Operating revenues: Program fees $ 3,351 $ 3,354 $ (3) -0.1% $ 3,307 $ % Lease revenue 1,932 1, % 1, % Grants 4,434 1,975 2, % 416 1, % Book sales % 207 (17) -8.2% Miscellaneous income/admin operations (30) -4.3% % Total operating revenues 10,599 8,020 2, % 6,275 1, % Less operating expenses 10,129 7,860 2, % 6,348 1, % Operating income (loss) % (73) % Non-operating income 1 12 (11) -93.3% 105 (93) -88.6% Change in net position % % Net position, beginning of year % % Net position, end of year $ 1,428 $ 957 $ % $ 785 $ % The statement of revenues, expenses, and changes in net position is on page 13 of the basic financial statements. For fiscal year ended June 30, 2016, the Institute s operations resulted in an increase in net position of approximately $471,000, or 49.2%. The statements highlights are as follows: Operating Revenues and Expenses 2016 Operating revenues increased by approximately $2,579,000 or 32.2%. Increases primarily occurred in grant revenue of approximately $2,459,000, tuition revenue of approximately $17,000, lease revenue of approximately $124,000, tuition online course revenue of approximately $49,000, The Cop Shop sales of approximately $5,000, miscellaneous revenue of approximate $6,000, and book sales of approximately $28,000. These increases were offset by decreases in the 10% cancellation fee of approximately $4,300, refunds by approximately $35,000, contract revenue of approximately $25,000, UNF Financing Corporation allocation of approximately $1,000, UNF Foundation allocation of approximately $27,000, radar testing revenue of approximately $6,400, and commission revenue from Lefta LLC of approximately $6,400. 9

12 During fiscal year 2016, operating expenses increased by approximately $2,269,000 or 28.9%. The increases were in program fees of approximately $360,000, grant equipment of approximately $1,778,000, educational materials of approximately $13,000, and general administrative expenses of approximately $293,000. The increases in expenses were offset by decreases in professional and consulting fees of approximately $36,000, travel expenses of approximately of $41,000, printing, postage and telephone of approximately $5,000 and interest expense of approximately $93, Operating revenues increased by approximately $1,746,000 or 27.8%. Increases primarily occurred in grant revenue of approximately $1,559,000, tuition revenue of approximately $160,000, lease revenue of approximately $52,000, tuition online course revenue of approximately $26,000, The Cop Shop sales of approximately $16,000, UNF Financing Corporation allocation of approximately $58,000, UNF Foundation allocation of approximately $11,000, radar testing revenue of approximately $11,000, commission revenue from Lefta LLC of approximately $8,000, a 10% cancellation fee of approximately $2,000 and miscellaneous revenue of approximate $1,000. These increases were offset by decreases in refunds by approximately $13,000, contract revenue of approximately $132,000, and book sales of approximately $17,000. During fiscal year 2015, operating expenses increased by approximately $1,512,000 or 23.8%. The increases were in program fees of approximately $695,000, professional and consulting fees of approximately $341,000, grant equipment of approximately $342,000, travel expenses of approximately $150,000, and general administrative expenses of approximately $91,000. The increases in expenses were offset by decreases in printing, postage and telephone of approximately $13,000, educational materials of approximately $11,000 and interest expense of approximately $83,000. Non-operating Income and Expenses Non-operating income: Increase (decrease) Change 2014 Increase (decrease) Change Net appreciation of investments $ 1 $ 12 $ (11) -91.7% $ 105 $ (93) -88.6% Total non-operating income $ 1 $ 12 $ (11) -91.7% $ 105 $ (93) -88.6% Years ended June 30 (In thousands of dollars) In fiscal 2016, non-operating income reflected a total return of approximately $5,800 in investment activity less investment management fees of $5,000. In fiscal 2015, non-operating income reflected a total return of approximately $22,000 in investment activity less investment management fees of $10,

13 Statements of Cash Flows The statements of cash flows show the cash provided and used for operating, and investing activities. Operating activities included funds received for services (from program fees, grants, publications, etc.) and payments related to providing these services (for programs, employees services, and supplies for goods and services). Capital and related financing activities include proceeds from a loan and mortgage and mortgage payments made. Cash flow from investing activities represents funds used to purchase investments, proceeds from sale of investments, and interest and dividends. Economic Outlook The Institute has no knowledge of any current facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year. Management believes the Institute s overall financial position is strong. With detailed monitoring of each account, the Institute has sufficient funds to cover its obligations. Requests for Information This financial report is designed to provide a general overview of the Institute s finances for all those with an interest therein. Questions concerning any of the information provided in this report or requests for additional information may be addressed to: Beverly A. Evans, Director University of North Florida TSI/Foundation Accounting Hicks Hall, Suite UNF Drive Jacksonville, FL (904)

14 The University of North Florida Training and Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF NET POSITION June 30, 2016 and 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 54,357 $ 172,345 Accounts receivable, net 252, ,436 Grants receivable 611, ,618 Prepaid expenses and other assets 107, ,906 Inventory 31,888 48,366 Total current assets 1,056,866 1,395,671 NONCURRENT ASSETS Restricted cash and cash equivalents 1,406 1,406 Investments 233, ,978 Note receivable 565, ,000 Capital assets, net 13,930,036 14,494,061 Total non-current assets 14,730,222 15,288,445 Total assets $ 15,787,088 $ 16,684,116 LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts payable and accrued expenses $ 514,349 $ 892,217 Salaries payable - to UNF 89,288 80,960 Vacation and sick leave accrual 49,563 47,912 Interest payable 1,003, ,551 Deferred revenue 404, ,650 Current portion of long-term debt 1,375,802 1,213,054 Total current liabilities 3,437,198 3,440,344 NONCURRENT LIABILITIES Vacation and sick leave accrual 331, ,640 Long-term debt 10,589,916 11,965,718 Total noncurrent liabilities 10,921,606 12,286,358 Total liabilities 14,358,804 15,726,702 NET POSITION Unrestricted net position (536,032) (357,875) Net investment in capital assets 1,964,316 1,315,289 Total net position 1,428, ,414 Total liabilities and net position $ 15,787,088 $ 16,684,116 The accompanying notes are an integral part of these financial statements. 12

15 The University of North Florida Training Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years ended June 30, 2016 and OPERATING REVENUES Program fees $ 3,351,081 $ 3,353,918 Lease revenue 1,931,751 1,806,703 Grants 4,434,211 1,975,339 Book sales 218, ,198 Miscellaneous income and administrative operations 663, ,225 Total operating revenues 10,599,354 8,020,383 OPERATING EXPENSES Program fees 3,054,128 2,694,079 Consultants' fees 1,531,203 1,567,983 Travel 837, ,277 Grant equipment 2,120, ,512 Printing, postage, and telephone 64,992 69,896 Educational materials 309, ,801 General administrative expenses 785, ,463 Interest expense 861, ,993 Depreciation expense 564, ,025 Total operating expenses 10,129,285 7,860,029 Operating income 470, ,354 NON-OPERATING INCOME Net appreciation in investments ,935 Total non-operating income ,935 Change in net position 470, ,289 Net position, beginning of year 957, ,125 Net position, end of year $ 1,428,284 $ 957,414 The accompanying notes are an integral part of these financial statements. 13

16 The University of North Florida Training and Services Institute, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2016 and Cash flows from operating activities: Received from program fees $ 3,292,392 $ 3,367,891 Received from grant activity 4,684,360 1,193,991 Other operating revenues 2,858,912 2,840,245 Payments to employees for services (3,041,427) (2,644,264) Payments to suppliers for goods and services (5,989,912) (3,018,151) Net cash provided by operating activities 1,804,325 1,739,712 Cash flows from capital and related financing activities: Proceeds from note payable - 211,181 Interest paid on notes payable (704,259) (753,085) Principal payments on notes payable (1,213,054) (1,417,086) Net cash used in financing activities (1,917,313) (1,958,990) Cash flows from investing activities: Proceeds from sale of investments - 566,179 Purchase of investments (5,000) (326,179) Net cash provided by (used in) investing activities (5,000) 240,000 Net increase (decrease) in cash and cash equivalents (117,988) 20,722 Cash and cash equivalents, beginning of year 172, ,623 Cash and cash equivalents, end of year $ 54,357 $ 172,345 Reconciliation of operating income to net cash provided by operating activities: Operating income 470,069 $ 160,354 Adjustments to reconcile operating income to net cash provided by operating activities: Interest expense 861, ,993 Depreciation 564, ,025 Changes in assets and liabilities: Accounts receivable (58,689) 13,973 Grants receivable 250,149 (781,348) Prepaid expenses and other assets 12,879 (31,912) Inventory 16,478 (11,770) Accounts payable and accrued expenses (369,540) 672,463 Vacation and sick leave accrual 12,701 49,815 Deferred revenue 44, ,119 Net cash provided by operating activities $ 1,804,325 $ 1,739,712 The accompanying notes are an integral part of these financial statements. 14

17 The University of North Florida Training and Service Institute, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Reporting entity The University of North Florida Training and Service Institute, Inc. (the Institute) is a notfor-profit entity organized to implement and administer unique educational and training programs at the University of North Florida (the University), and at other selected institutions. The Institute is a direct support organization (DSO) and component unit of the University. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the University of North Florida Training and Service Institute, Inc. and UNF TSI Investments, LLC (the LLC). The LLC was formed in March 2010 by its sole member, the Institute. 3. Basis of accounting The financial statements of the Institute have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recognized when they are incurred. The Institute follows GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Government, GASB Statement 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities, GASB Statement No. 37, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments: Omnibus - an amendment of GASB Statements No. 21 and No. 34, GASB Statement No. 38, Certain Financial Statement Note Disclosures as applicable to proprietary funds, GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and GASB Statement no. 72 Fair Value Measurement. GASB Statements No. 34, 35 and 63 establish standards for external financial reporting which include a statement of net position a statement of revenues, expenses and changes in net position, and a statement of cash flows using the direct method. GASB Statements No. 34, 35 and 63 also include a requirement that management provide a discussion and analysis of the basic financial statements and it requires the classification of net position into two components net investment in capital assets and unrestricted net position. These classifications are defined as follows: Unrestricted net position is expendable for any purpose at the discretion of the Institute. 15

18 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 3. Basis of accounting (continued) Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any debt that is attributable to those assets. As provided by GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Institute has elected to adopt Financial Accounting Standards Board statements that do not conflict with GASB. 4. Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 5. Income taxes The Institute is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code; accordingly, the accompanying financial statements do not reflect a provision or liability for federal and state income taxes. The Institute has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, 2016 and Fiscal years ending on or after June 30, 2013 remain subject to examination by federal and state tax authorities. 6. Investments Investments are stated at fair value based on quoted market prices. The Institute intends to hold its investments for the long term. However, the needs of the organization may require the sale of a portion of these assets on a short-term basis, subject to the approval of the Investment Committee. 7. Capital Assets Purchased or constructed additions to capital assets are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are as follows: Building 25 years Interest costs incurred on borrowed funds will be expensed as incurred for capital additions not related to construction. 16

19 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 8. Revenue recognition The Institute receives payments for certain program services and instruction. Program fees are deemed to be earned and reported as revenue when the related courses of instruction or services are provided. Such amounts received but not yet earned are reported as deferred revenue. 9. Grants Grant revenue is awarded, but not received by the Institute until the funds are used for the designated purpose and a request for reimbursement is filed with the State of Florida. The Institute records revenue from grants when the funds are entitled to be received from the grantor for the reimbursement claims. 10. Cash and cash equivalents For the purposes of the statements of cash flows, the Institute considers all unrestricted, highly liquid investments with an initial maturity of three months or less to be cash equivalents. 11. Accounts receivable Accounts receivable represent the amounts billed for courses and contracts that remain unpaid at year-end. The allowance for doubtful accounts is based on an evaluation of the periodic aging of accounts receivable. Bad debt expense was $0 and $0 for the years ended June 30, 2016 and At June 30, 2016 and 2015, accounts receivable is reported net of an allowance for uncollectible accounts of $2,860 and $7,036, respectively. 12. Inventory Inventory consisting primarily of books and computer software is stated at cost on a firstin, first-out (FIFO) basis. 13. Vacation and sick leave accrual Employees earn the right to be compensated during absences for annual leave (vacation) and sick leave pursuant to Section 6C of the Florida Administrative Code. Employees earn annual and sick leave based on their years of service. For annual leave, however, a maximum of 352 hours can be carried forward from one year to the next or paid upon termination for administrative and professional (A&P) employees and 240 hours can be carried forward from one year to the next or paid upon termination for University support personnel services (USPS) employees. Additionally, employees who have completed at least ten years of service are eligible to receive payment for one fourth of their accrued sick leave hours, upon termination, not to exceed 480 hours. Vacation pay and sick leave payments are expensed as earned by the employee. The following table is a rollforward of activity by year related to the vacation pay and sick leave accrual: 17

20 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Accrued Compensated Absences as of June 30, Beginning Balance $ 368,552 $ 318,737 Increases 28,786 69,964 Decreases (16,084) (20,149) Ending Balance $ 381,254 $ 368,552 Accrued compensated absence liability due within one year is estimated at $49,563 and $47,912 as of June 30, 2016 and 2015, respectively. 14. Contributions to police departments for grant equipment and other items The Institute of Police Technology Management (IPTM) unit receives grants to conduct law enforcement training, grant equipment contributions and consultant services. The total cost associated with grant work performed or purchased in 2016 and 2015 was $3,738,679 and $1,479,165, respectively. 15. Operating income or loss Operating revenues and expenses for a proprietary fund are those that result from providing services and producing and delivering goods and or services. Also included are all revenues and expenses not related to capital and related financing, non-capital financing, or investing activities. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Interest and dividends, unrealized gain or loss on investments, and contributions to related parties are considered non-operating. When both restricted and unrestricted resources are available for use, the Institute s policy is to use restricted resources first, then unrestricted resources as needed. 16. New accounting standards The Institute implemented GASB Statement No. 72, Fair Value Measurement and Application ( GASB 72 ) effective July 1, GASB 72 establishes the accounting and financial reporting issues related to fair value measurements of investments. The fair value is the unit price that would be received to sell an asset or liability. The fair value hierarchy is determined using valuation techniques that measure fair value into three levels. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs are observable for an asset or liabilities, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. There was no change to the current or prior period financial statements as a result of adopting GASB 72. NOTE B - CASH, CASH EQUIVALENTS AND INVESTMENTS Investment decisions are made by the Investment Committee of the Institute s Board of Directors and approved by the Board. All deposits and investments are held at the financial institutions in the name of the Institute. 18

21 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Cash and cash equivalents As of June 30, 2016, cash and cash equivalents include bank demand accounts and money market funds subject to immediate withdrawal. It is the Institute s policy that cash equivalent securities shall be limited to the following: (1) the money market or short term investment fund provided by the fund custodian; (2) direct obligations of the United States Government with a maturity of one year or less; (3) commercial paper with a maturity of 270 days or less that is rated A-1 or higher by Standard & Poor's or P-1 or higher by Moody s; and (4) bankers acceptances issued by the largest 50 banks in the United States (in terms of total assets). The Institute does not have a formal deposit policy for custodial credit risk with regard to cash deposits in banks but adheres to the requirements of FS 280. Custodial credit risk - deposits. Custodial credit risk for deposits is the risk that, in the event of a depository financial institution s failure, the Institute s deposits may not be returned to it. At June, 30, 2016 and 2015, the Institute s cash deposits with a bank were $54,357 and $172,345, respectively. All of the Institute s cash deposits were insured by the Federal Deposit Insurance Corporation (FDIC). Thus, the Institute s cash deposits are not considered exposed to custodial credit risk. The Institute s investments in money market funds are amounts invested to meet regular operations and are included in the investments disclosures below. Investments The Institute s investment policy requires equity securities be limited to (1) investments in publicly traded securities on a major stock exchange or NASDAQ; (2) no more than 7% of the market value of an investment manager s equity portfolio may be invested in the shares of a single corporate issuer; and (3) investment in the shares of companies that have been publicly traded for less than one year are limited to no more than 5% of the market value of the total equity portfolio. For fixed income securities, the investment policy limits investments to (1) securities rated A or higher by Moody s or Standard & Poor s rating services; (2) no more than 10% of the market value of the total portfolio shall be invested in the securities of any single corporate issuer; (3) investments in Collateralized Mortgage Obligations (CMOs) that consist of GNMAs, FNMAs, and FHLMCs, with no more than 20% of the market value of the portfolio in these types of issues and shall be restricted to those issues that are currently paying interest, receiving principal pay-downs and do not contain leverage; (4) investments in securities issued by foreign governments or corporations shall not exceed 25% of the total portfolio and (5) no limit on investments in securities issued directly by the United States Government or any agency or instrumentality thereof. The Institute s policy prohibits investments in interest only or principal only CMOs, interest rate swaps, precious metals, limited partnerships of any kind, real estate, venture capital, futures contracts or options contracts in individually managed portfolios. Trading on margin and short selling are also prohibited. The Institute does not have a formal policy on limiting the duration of mid-term and long-term investments. 19

22 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Investments consist of the following at June 30, 2016 and 2015: Investment Type Equity mutual funds $ 146,701 $ 70,180 Fixed income mutual funds 87, ,798 Total $ 233,780 $ 227,978 Credit risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The credit ratings of the Institute s debt securities, external investment pools, money market funds, bond mutual funds, and other pooled investments of fixed income are as follows: Quality Rating at June 30, 2016 Investment Type Fair Value AA - A Unrated Equity mutual funds $ 146,701 $ - $ 146,701 Fixed income mutual funds 87,079 87,079 - Total $ 233,780 $ 87,079 $ 146,701 Quality Rating at June 30, 2015 Investment Type Fair Value AA - A Unrated Equity mutual funds $ 70,180 $ - $ 70,180 Fixed income mutual funds 157, ,798 - Total $ 227,978 $ 157,798 $ 70,180 Interest rate risk. Interest rate risk is the risk that changes in the interest rates will adversely affect the fair value of an investment. The Institute s policy for managing its exposure to fair value loss occurring from increasing interest rates is through using the specific identification method and maintaining diversification of its investments so as to minimize the impact of downturns in the market as stated above. NOTE C - FAIR VALUE MEASUREMENTS The Institute has provided additional information about fair value measurements which is based on the assumptions that market participants would use when pricing an asset or liability. A fair value hierarchy was established that prioritizes the information used to develop these assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Institute has the ability to access at the measurement date; 20

23 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Level 2 Level 3 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Inputs that are unobservable. Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The Institute uses the market approach valuation technique to value its investments. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs. Following is a description of the valuation methodologies use for assets measured at fair value. Level 1 Fair Value Measurements The fair value of the mutual funds is based on quoted net asset values of the shares held by the Institute at year-end. The following tables present the investments carried on the consolidated statement of net position by level within the valuation hierarchy as of June 30, 2016 and Fair Value as of June 30, 2016 Level 1 Level 2 Level 3 Total Equity mutual funds $ 146,701 $ - $ - $ 146,701 Fixed income mutual funds 87, ,079 Total $ 233,780 $ - $ - $ 233,780 Fair Value as of June 30, 2015 Level 1 Level 2 Level 3 Total Equity mutual funds $ 70,180 $ - $ - $ 70,180 Fixed income mutual funds 157, ,798 Total $ 227,798 $ - $ - $ 227,978 NOTE D CAPITAL ASSETS UNF TSI Investments, LLC (the LLC) is a wholly-owned Florida limited liability company formed in March 2010, for which the Institute is the LLC s sole member. In May 2010, the LLC purchased approximately 7.71 acres of land adjacent to UNF and the ADT Building located in Duval County, Florida for $17,408,190. The building is depreciated based on a 25 year estimated useful life using the straight-line method. During fiscal year 2016 and 2015, depreciation expense of $564,026 was recorded. 21

24 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Capital asset activity for the year ended June 30, 2016 was as follows: Capital assets, net Beginning balance Increases Decreases Transfers Ending Balance Land - ADT $ 3,307,556 $ - $ - $ - $ 3,307,556 Building - ADT 14,100, ,100,634 17,408, ,408,190 Less accumulated depreciation for: Building - ADT 2,914, , ,478,154 Capital assets, net $ 14,494,061 $ 564,025 $ - $ - $ 13,930,036 Capital asset activity for the year ended June 30, 2015 was as follows: Beginning balance Increases Decreases Transfers Ending Balance Land - ADT $ 3,307,556 $ - $ - $ - $ 3,307,556 Building - ADT 14,100, ,100,634 17,408, ,408,190 Less accumulated depreciation for: Building - ADT 2,350, , ,914,129 Capital assets, net $ 15,058,086 $ 564,025 $ - $ - $ 14,494,061 NOTE E LONG-TERM DEBT In May 2010, the UNF TSI Investments, LLC (the LLC ) executed the following three agreements to purchase the ADT building: 1) First Mortgage Debt the LLC assumed the $12,514,143 debt from Wells Fargo Bank Northwest, National Association (f/k/a First Security Bank), as Trustee of the Legg Mason Mortgage Capital Corporation Lease-Backed Commercial Mortgage Pass- Through Trust, Series 2000-CT-5 and LYM TYCI Capital Company, LLC (TYCO) secured by an existing first priority mortgage upon the Property. Principal and interest of $152,075 was due monthly through September, 2015 and principal and interest of $156,637 is due monthly through September Each October, monthly payments increase 3% through the maturity date of September The debt was executed at a fixed interest rate of 8.3% per annum. 22

25 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued 2) UNF Foundation, Inc. and UNF Training & Services, Inc. and UNF TSI Investments, LLC entered into a Memorandum of Understanding (MOU). The MOU includes a) loan funding to the LLC in an amount not to exceed $4,800,000; b) terms for the loan: interest will accrue at the rate of 4.50% per annum, and the principal and all accrued interest on the loan will be payable in full on or in part at any time prior to its due date in eleven years (May 2021); c) no additional encumbrances or loans may be entered into to afford any party a security interest in or otherwise pledge, collateralize or encumber the ADT Property; and d) no TSI funding of capital projects for as long as any portion of the loan or interest thereon remains unpaid, and TSI will not advance, loan or contribute to UNF or a UNF-related entity any sum for the purpose of funding a UNF capital project. A summary of changes in long-term debt activity for the year ended June 30, 2016 is as follows: Beginning balance Additions Reductions Ending balance Amounts due within one year First Mortgage $ 8,378,772 $ - $ (1,213,054) $ 7,165,718 $ 1,375,802 Note payable - UNF Foundation 4,800, ,800,000 - Total $ 13,178,772 $ - $ (1,213,054) $ 11,965,718 $ 1,375,802 Principal repayments on long-term debt for the next five years and thereafter are as follows: NOTE F - NOTE RECEIVABLE Year Ended June 30, 2017 $ 1,375, ,554, ,750, ,964, ,321,048 Total $ 11,965,718 The Duval County Research and Development Authority has an approved line of credit up to $600,000 with the Institute. The non-interest bearing promissory note was approved by the Institute s Board at its May 2010 meeting. Payment to the Institute will occur upon the sale of First Coast Technology Park land. The amount outstanding at years ended at June 30, 2016 and 2015 was $565,000, respectively. There are no formal repayment terms of the note receivable; therefore, it has been recorded as a non-current asset. 23

26 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued NOTE G - PENSIONS All employees of the Institute are eligible to be covered by the State of Florida, Florida Retirement System, which is a cost sharing multiple-employer defined benefit pension plan. Pension benefits vest for employees who have completed at least eight years of creditable service. Effective July 1, 2011, employees are assessed a 3% of salary mandatory retirement contribution on a bi-weekly basis. Benefits may be received upon 30 years of service, death or disability, or at retirement age of 62. Reduced benefits may be received prior to age 62 for vested employees with terminated employment. The Institute makes contributions to the plan in accordance with rates determined by Chapter 121 of the Florida Statutes. The retirement plan is funded by employer contributions at a rate of 10.26% and 10.37% of the gross pay for regular employees for 2016 and 2015 respectively. The Pension Plan issues a publicly available financial report that includes financial statements, ten-year historical trend information and other required supplementary information. That report may be obtained by writing to the: State of Florida Division of Retirement Department of Management Services P.O. Box 9000 Tallahassee, Florida Faculty members and A&P employees can also elect to participate in an optional retirement program (ORP), a defined contribution pension plan. This program provides full and immediate vesting of all contributions. The Institute contributes a percentage of earnings and the participants can also contribute up to 10.69% of salary in various investment options. There are no age or length of service requirements to participate in the ORP. Annuity income at retirement is based on the investment value and the type of annuity selected. During the years ended June 30, 2016 and 2015, total pension costs were $161,944 and $157,903, respectively. Such amounts are included in program fees in the accompanying statements of revenues, expenses, and changes in net position. The Institute s liability for any unfunded pension benefit obligation is limited to the payment of the required contribution at the rates established by law on future payrolls of the Institute. The Institute, at June 30, 2016 and 2015, was current in its payments to the Florida Retirement System. The Deferred Retirement Optional Program (DROP) is a program under which an eligible member of the Florida Retirement System may elect to participate, deferring receipt of retirement benefits while continuing employment with a Florida Retirement System employer. The deferred monthly benefit accrues on behalf of the participant, plus interest compounded monthly for the specified period of the DROP participation. Upon termination of employment, the participant receives the total DROP benefits and begins to receive previously determined retirement benefits. 24

27 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued NOTE H - RELATED PARTY TRANSACTIONS 1. The University provides, as in-kind contributions to the Institute, support services such as office and classroom space, furnishings and fiscal management at no cost. Annually, the Institute s Board of Directors decides what amount, if any, will be remitted to the University as a contribution for faculty development. There was no payment to the University in fiscal 2016 and The Institute makes contributions to the University for equipment purchases, excluding vehicles. The University maintains title to all such equipment purchases with the Institute having use of all equipment without further charges. Contributions to the University for equipment purchases were $0 and $4,339 for the years ended June 30, 2016 and 2015, respectively. 3. The University provides campus mail, telephone, and other such services to the Institute. Charges for the above services were $14,908 and $14,521 for each of the years ended June 30, 2016 and 2015, and are included in printing, postage and telephone in the accompanying financial statements. 4. The University of North Florida Foundation, Inc. (Foundation) advances funds to the Institute for reimbursement of Foundation operating costs paid by the Institute. Advances for the above costs were $537,311 and $538,000 for the years ended June 30, 2016 and 2015, respectively. NOTE I - RISK MANAGEMENT The Institute has purchased general liability, automobile, errors and omissions and international insurance policies, each with a coverage of $1,000,000 per occurrence, to reduce the exposure of potential claims associated with selected course activities. The Institute has these commercial insurance policies to cover wrongful acts occurring in the normal course of business. The policy requires a $5,000 deductible for each loss. Substantially all other insurable risks, which include automobile, general liability, and workers compensation insurance, are covered under the State of Florida s self-insurance fund. Settled claims resulting from the risks described above have not exceeded the insurance coverage during the previous three years. NOTE J CONCENTRATIONS Grants receivable and revenues as of and for the years ended June 30, 2016 and 2015 were derived entirely from the State of Florida. Lease revenue for the years ended June 30, 2016 and 2015 was derived entirely from one tenant. NOTE K SEGMENT INFORMATION The Institute s consolidated financial statements for fiscal years 2016 and 2015 include the accounts of the University of North Florida Training and Service Institute, Inc. and UNF TSI Investments, LLC (the LLC). 25

28 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Summary financial information for each entity is presented below as of and for the year ended June 30, 2016 and Condensed Statement of Net Position As of June 30, 2016 The University of North Florida Training & Service Institute, Inc. UNF TSI Investments, LLC Total Current assets $ 952,441 $ 104,425 $ 1,056,866 Non-current assets 800,186 13,930,036 14,730,222 Total assets $ 1,752,627 $ 14,034,461 $ 15,787,088 Liabilities: Current liabilities $ 1,057,700 $ 2,379,498 $ 3,437,198 Non-current liabilities 331,690 10,589,916 10,921,606 Total liabilities 1,389,390 12,969,414 14,358,804 Net assets Unrestricted net position 363,239 (899,271) (536,032) Net investment in capital assets - 1,964,316 1,964,316 Total net position 363,239 1,065,045 1,428,284 Total liabilities and net position $ 1,752,629 $ 14,034,459 $ 15,787,088 Condensed Statement of Net Position As of June 30, 2015 The University of North Florida Training & Service Institute, Inc. UNF TSI Investments, LLC Total Current assets $ 1,357,036 $ 38,635 $ 1,395,671 Non-current assets 794,384 14,494,061 15,288,445 Total assets $ 2,151,420 $ 14,532,696 $ 16,684,116 Liabilities: Current liabilities $ 1,380,739 $ 2,059,605 $ 3,440,344 Non-current liabilities 320,640 11,965,718 12,286,358 Total liabilities 1,701,379 14,025,323 15,726,702 Net assets Unrestricted net position 450,041 (807,916) (357,875) Net investment in capital assets - 1,315,289 1,315,289 Total net position 450, , ,414 Total liabilities and net position $ 2,151,420 $ 14,532,696 $ 16,684,116 26

29 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Condensed Statement of Revenues, Expenses, and Changes in Net Position For the year ended June 30, 2016 The University of North Florida Training & Service Institute, Inc. UNF TSI Investments, LLC Total Operating revenue and transfers $ 8,667,603 $ 1,931,751 $ 10,599,354 Operating expenses and transfers 8,701,357 1,427,928 10,129,285 Operating income (loss) (33,754) 503, ,069 Non-operating Income Change in net position (32,953) 503, ,870 Net position, beginning of year 450, , ,414 Net position, end of year $ 417,088 $ 1,011,196 $ 1,428,284 Condensed Statement of Revenues, Expenses, and Changes in Net Position The University of North Florida Training & Service UNF TSI Institute, Inc. Investments, LLC For the year ended June 30, 2015 Total Operating revenue and transfers $ 6,063,700 $ 1,956,683 $ 8,020,383 Operating expenses and transfers 6,338,409 1,521,620 7,860,029 Operating income (loss) (274,709) 435, ,354 Non-operating income 11,935-11,935 Change in net position (262,774) 435, ,289 Net position, beginning of year 712,815 72, ,125 Net position, end of year $ 450,041 $ 507,373 $ 957,414 27

30 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued Condensed Statement of Cash Flows For the year ended June 30, 2016 The University of North Florida Training & Service Institute, Inc. UNF TSI Investments, LLC Total Net cash provided by (used in): Operating activities $ 1,804,325 $ - $ 1,804,325 Capital and related financing activities (704,259) (1,213,054) (1,917,313) Investing activities (5,000) - (5,000) 1,095,066 (1,213,054) (117,988) Cash and cash equivalents, beginning of year 5,909,019 (5,736,674) 172,345 Cash and cash equivalents, end of year $ 7,004,085 $ (6,949,728) $ 54,357 Condensed Statement of Cash Flows For the year ended June 30, 2015 The University of North Florida Training & Service Institute, Inc. UNF TSI Investments, LLC Total Net cash provided by (used in): Operating activities $ 1,739,712 $ - $ 1,739,712 Capital and related financing activities (753,085) (1,205,905) (1,958,990) Investing activities 240, ,000 1,226,627 (1,205,905) 20,722 Cash and cash equivalents, beginning of year 4,682,392 (4,530,769) 151,623 Cash and cash equivalents, end of year $ 5,909,019 $ (5,736,674) $ 172,345 28

31 The University of North Florida Training and Service Institute, Inc. Notes to the Consolidated Financial Statements, Continued NOTE L OPERATING LEASES The Institute leases the ADT building to a tenant under an operating lease with an expiration date extending to September, Future minimum rents under non-cancelable operating leases as of June 30, 2015 are as follows: NOTE M SUBSEQUENT EVENTS Fiscal Year Ended June 30, 2017 $ 1,921, ,979, ,038, ,100, ,891 Total $ 8,569,574 The Institute has evaluated the effect subsequent events would have on the consolidated financial statements through September 15, 2016, which is the date the consolidated financial statements were available to be issued. The Institute noted no subsequent events requiring disclosure. 29

32 SUPPLEMENTAL INFORMATION

33 Schedule of Expenditures of Federal Awards For the year ending June 30, 2016 Federal CFDA Pass through program from federal department of transportation Number Grant Number Grant Amount Federal Expenditures State of Community Highway Safety Cluster: State of Florida Department of Transportation The University of North Florida Training & Services Institute, Inc. and Subsidiary Florida DUI Challenge AL $ 55, $ - Drug Evaluation and Classification Program AL , , Florida 2015 Impaired Driving Assessment AL , Florida DUI Challenge K , , Statewide Radio Impaired Driving HVE Support M5PEM , , DUI (Driving Under Influence) Media Survey M5PEM , Drug Recognition Expert (DRE) Training M5TR , , Public Traffic Safety Professional Training-Impaired Driving M5TR , , Statewide Safety Belt/Public Opinion Survey M2X , , Florida Click It or Ticket Challenge M2X , , Statewide Drug Recognition Expert Call-Out M5X , , Florida DUI Challenge M5X ,000, , Florida's Click Statewide It or Ticket Seat Challenge Belt Survey & Click It or Ticket Public OP , , Opinion/Attitude Survey OP , , Florida Law Enforcement Liason Program PT ,200, , Florida Law Enforcement Challenge PT ,025, , Motorcycle Unit Challenge PT , , Comprehensive Traffic Crash Training & Workshops PT , , Public Traffic Safety Professionals Training - Travel Safety PT , , Florida Law Enforcement Liason Program PT ,100, , Florida Law Enforcement Challenge PT ,115, , Florida Motor Unit Challenge PT , , Region IV Law Enforcement Liason Conference PT , , $ 9,960, $ 4,434, Reconciled to cash received from Department of Transportation during the year: Total amounts expended $ 4,434, Less net change in grants receivable in financial statements (250,148.90) Total cash received from Department of Transportation $ 4,684,

34 The University of North Florida Training and Service Institute, Inc. and Subsidiary NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2016 NOTE A - BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the Institute and is presented on the accrual basis of accounting. 31

35 OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS

36 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors The University of North Florida Training and Services Institute, Inc. and Subsidiary We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in the Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of The University of North Florida Training and Services Institute, Inc. and Subsidiary (a nonprofit organization) (the Institute ) as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements and have issued our report thereon dated September 15, Internal Control over Financial Reporting In planning and performing our audits of the financial statements, we considered the Institute s internal control over financial reporting (internal control) to determine the auditing 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 the Institute s internal control. Accordingly, we do not express an opinion on the effectiveness of the Institute 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 consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency, or a combination of deficiencies, in internal control that is less severe than material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was limited for the 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Institute s consolidated financial statements are free of 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 audits, 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. 32

37 Purpose of the 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Jacksonville, Florida September 15,

38 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Board of Directors The University of North Florida Training and Services Institute, Inc. and Subsidiary Report on Compliance for Each Major Federal Program We have audited UNF Training and Services Institute, Inc. and Subsidiary s (the Institute ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Institute s major federal programs for the year ended June 30, The Institute s major federal programs are identified in the summary of auditors 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 the Institute 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 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 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 the Institute 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 the Institute s compliance. Opinion on Each Major Federal Program In our opinion, the Institute 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,

39 Report on Internal Control over Compliance Management of the Institute 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 the Institute 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 the Uniform Guidance, 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 the Institute 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 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 the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Jacksonville, Florida September 15,