Independent Auditor s Report and Financial Statements June 30, 2018 and 2017 6
June 30, 2018 and 2017 Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 6 Notes to Financial Statements... 7 Supplementary Information Schedule of Expenditures of Federal Awards... 18 Notes to the Schedule of Expenditures of Federal Awards... 19 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... 20 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance - Independent Auditor s Report... 22 Schedule of Findings and Questioned Costs... 24 Summary Schedule of Prior Audit Findings... 26 7
Independent Auditor s Report Board of Directors Mid-America Arts Alliance Kansas City, Missouri Report on the Financial Statements We have audited the accompanying financial statements of Mid-America Arts Alliance, which comprise the statements of financial position as of June 30, 2018 and 2017, and the related statements of activities and cash flows for the years 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 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 of America. 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. 8
Board of Directors Mid-America Arts Alliance Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mid-America Arts Alliance as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards as required by Title 2 U.S Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the 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, 2018, on our consideration of Mid-America Arts Alliance s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is solely 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 the effectiveness of Mid-America Arts Alliance s 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 Mid-America Arts Alliance s internal control over financial reporting and compliance. Kansas City, Missouri, 2018 9
Statements of Financial Position June 30, 2018 and 2017 Assets 2018 2017 Cash $ 523,248 $ 459,524 Investments 1,060,460 982,981 Grants and other receivables, net 325,488 280,778 Promises to give, current portion 1,001,689 357,858 Prepaid expenses 194,164 189,238 Total current assets 3,105,049 2,270,379 Long-term promises to give, less current portion above, net 1,149,138 - Property and equipment, net of accumulated depreciation; 2018 - $1,506,800, 2017 - $1,349,466 2,672,572 2,804,633 Total assets $ 6,926,759 $ 5,075,012 Liabilities and Net Assets Liabilities Accounts payable $ 151,544 $ 115,153 Accrued expenses 81,557 73,770 Deferred revenue 124,736 97,371 Capital lease payable, current portion 10,095 7,987 Long-term debt, current portion 79,904 76,777 Total current liabilities 447,836 371,058 Capital lease payable, less current portion above 27,020 7,068 Long-term debt, less current portion above 810,482 890,386 Total liabilities 1,285,338 1,268,512 Net Assets Unrestricted 3,057,725 3,055,747 Temporarily restricted 2,583,696 750,753 Total net assets 5,641,421 3,806,500 Total liabilities and net assets $ 6,926,759 $ 5,075,012 10 See Notes to Financial Statements 3
Statement of Activities Year Ended June 30, 2018 Temporarily Unrestricted Restricted Total Revenues, Gains and Other Support Grants and contributions Federal grants $ 2,229,984 $ 2,229,984 Foundation, corporate and individual contributions 373,743 $ 2,683,160 3,056,903 2,603,727 2,683,160 5,286,887 Net assets released from restrictions 850,217 (850,217) - Total grants and contributions 3,453,944 1,832,943 5,286,887 Revenues generated Exhibition and related fees 249,208-249,208 State arts agencies partnership fees 206,000-206,000 Special project income 84,043-84,043 Investment income 87,444-87,444 Other income 17,282-17,282 643,977-643,977 Total revenues, gains and other support 4,097,921 1,832,943 5,930,864 Expenses Program expenses Visual arts and humanities 1,643,418-1,643,418 Performing arts 552,240-552,240 Professional development 893,894-893,894 3,089,552-3,089,552 Supporting services Administrative 801,759-801,759 Fundraising 204,632-204,632 1,006,391-1,006,391 Total expenses 4,095,943-4,095,943 Change in Net Assets 1,978 1,832,943 1,834,921 Net Assets, Beginning of Year 3,055,747 750,753 3,806,500 Net Assets, End of Year $ 3,057,725 $ 2,583,696 $ 5,641,421 11 See Notes to Financial Statements 4
Statement of Activities Year Ended June 30, 2017 Temporarily Unrestricted Restricted Total Revenues, Gains and Other Support Grants and contributions Federal grants $ 1,993,219 $ 1,993,219 Foundation, corporate and individual contributions 210,296 $ 120,472 330,768 2,203,515 120,472 2,323,987 Net assets released from restrictions 1,234,359 (1,234,359) - Total grants and contributions 3,437,874 (1,113,887) 2,323,987 Revenues generated Exhibition and related fees 255,053-255,053 State arts agencies partnership fees 239,891-239,891 Special project income 41,950-41,950 Investment income 115,246-115,246 Other income 80,774-80,774 732,914-732,914 Total revenues, gains and other support 4,170,788 (1,113,887) 3,056,901 Expenses Program expenses Visual arts and humanities 1,579,836-1,579,836 Performing arts 837,231-837,231 Professional development 639,735-639,735 3,056,802-3,056,802 Supporting services Administrative 860,626-860,626 Fundraising 250,986-250,986 1,111,612-1,111,612 Total expenses 4,168,414-4,168,414 Change in Net Assets 2,374 (1,113,887) (1,111,513) Net Assets, Beginning of Year 3,053,373 1,864,640 4,918,013 Net Assets, End of Year $ 3,055,747 $ 750,753 $ 3,806,500 12 See Notes to Financial Statements 5
Statements of Cash Flows Years Ended June 30, 2018 and 2017 2018 2017 Operating Activities Change in net assets $ 1,834,921 $ (1,111,513) Items not requiring (providing) operating activities cash flows Depreciation and amortization 200,197 193,835 Net realized and unrealized gains on investments (61,981) (93,120) Contributions received restricted for acquisition of long-lived assets - (51,300) Changes in Grants and other receivables (44,710) 156,749 Change in promises to give (1,792,969) 676,992 Prepaid expenses (4,926) (20,190) Accounts payable and accrued expenses 44,178 (33,987) Deferred revenue 27,365 (13,642) Net cash used in operating activities 202,075 (296,176) Investing Activities Purchase of investments (23,619) (20,972) Proceeds from sale of investments 8,121 7,571 Purchase of property and equipment (36,771) (132,013) Net cash used in investing activities (52,269) (145,414) Financing Activities Proceeds from contributions restricted for capital projects - 51,300 Principal payments on capital lease obligation (9,305) (9,328) Principal payments on long-term debt (76,777) (73,772) Net cash provided by (used in) financing activities (86,082) (31,800) Increase (Decrease) in Cash 63,724 (473,390) Cash, Beginning of Year 459,524 932,914 Cash, End of Year $ 523,248 $ 459,524 Supplemental Cash Flows Information Cash paid for interest $ 37,281 $ 40,290 Capital lease obligation incurred for equipment 31,365-13 See Notes to Financial Statements 6
Notes to Financial Statements June 30, 2018 and 2017 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Mid-America Arts Alliance (M-AAA) is a not-for-profit organization whose mission and principal activities are to strengthen communities and improve lives through extraordinary cultural experiences. M-AAA s revenues and other support are derived principally from contributions and federal and state grants and its activities are conducted principally in six states including Arkansas, Kansas, Missouri, Nebraska, Oklahoma and Texas. Programs include touring exhibitions and related educational activities, grants and funding support for artists and nonprofit organizations and professional development training projects. Major support for M-AAA is provided by federal agencies; participant state arts agencies and leading foundations, corporations and individuals. Exhibition Tours M-AAA is currently touring six exhibits under the NEH program and 21 exhibits under the ExhibitsUSA program. Of these exhibits being currently toured, two will end within six months of the year ended June 30, 2018 and 23 will end beyond one year of the year ended June 30, 2018. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash At June 30, 2018, M-AAA s cash accounts exceeded federally insured limits by approximately $309,000. Investments and Investment Return M-AAA is invested in various pooled investment funds managed by the Greater Kansas City Community Foundation (GKCCF). The pooled investment funds are valued at net asset value which approximates fair value. Investment return includes dividend, interest and realized and unrealized gains and losses. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. 14 7
Notes to Financial Statements June 30, 2018 and 2017 Grants and Other Receivables At June 30, 2018 and 2017, accounts receivable primarily consisted of bookings, grant funding and other receivables. If necessary, M-AAA will record an allowance for doubtful accounts, which is based upon a review of the outstanding receivables, historical collection information and existing economic conditions. Delinquent receivables are written off based on individual credit evaluation and specific circumstances. Promises to Give Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using interest rates applicable to the years in which the promises are received. The discount rate used in valuing unconditional promises to give is 5.5 percent per year. Amortization of the discounts is included in contribution revenue. Prepaid Expenses Prepaid expenses consist primarily of costs to tour exhibits over future multi-year periods which are capitalized when incurred by M-AAA. Property and Equipment It is the policy of M-AAA to capitalize all significant acquisitions of property. Significant is defined by items costing in excess of $1,000. All acquisitions are recorded at cost (or fair market value if contributed) and are depreciated using the straight-line method over estimated lives based on IRS guidelines. No depreciation is recognized on individual works of art that have cultural, aesthetic or historical value worth preserving. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Building Equipment 3-30 years 3-7 years Long-lived Asset Impairment M-AAA evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended June 30, 2018 and 2017. 15 8
Notes to Financial Statements June 30, 2018 and 2017 Deferred Revenue Revenue from fees for exhibition bookings is deferred and recognized over the periods to which the fees relate. Unrestricted Net Assets All contributions and grants are considered to be available for unrestricted use unless specifically restricted by the donor. Temporarily Restricted Net Assets Temporarily restricted net assets are those whose use by M-AAA has been limited by donors to a specific time period or purpose. Items that affect this category of net assets are restricted contributions and grants. These amounts are reclassified to unrestricted net assets when such restrictions are met or have expired. Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Government Grants Support funded by grants is recognized as M-AAA performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Revenue Recognition Exhibition and related fee revenue is recorded for each venue as of the opening date of the exhibition or program. State arts agencies partnership fees are recorded in the fiscal year to which they relate. All contribution revenue is recognized in the year the contribution is received. All grant revenue is recognized as services are performed and reimbursement is requested. Income Taxes M-AAA is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, M-AAA is subject to federal income tax on any unrelated business taxable income. M-AAA is not subject to state income taxes. 16 9
Notes to Financial Statements June 30, 2018 and 2017 Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the statements of activities. Certain costs have been allocated among the program, administrative and fundraising categories. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period end date. Note 2: Grant Commitments M-AAA receives its grant support through periodic claims filed with the respective funding sources, not to exceed a limit specified in the funding agreement. Since the financial statements of M-AAA are prepared on the accrual basis, all earned portions of the grants not yet received as of June 30, 2018 have been recorded as receivables. Following are the grant commitments that extend beyond June 30, 2018. Grant Earned as of Grant Term Amount June 30, 2018 Funding Available National Endowment for the Humanities $2,500,000 over 3 years $ 2,500,000 $ 2,427,899 $ 72,101 Note 3: Grants and Other Receivables Grants and other receivables consisted of the following: 2018 2017 Due within one year $ 323,712 $ 279,503 Due in one to five years 7,776 7,275 331,488 286,778 Less allowance for doubtful accounts (6,000) (6,000) $ 325,488 $ 280,778 17 10
Notes to Financial Statements June 30, 2018 and 2017 Note 4: Promises to Give Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using interest rates applicable to the years in which the promises are received. The discount rate used in valuing unconditional promises to give is 5.5 percent per year. Amortization of the discounts is included in contribution revenue. Unconditional promises to give consist primarily of restricted gifts for the integrated campaign. 2018 2017 Due within one year $ 1,001,689 $ 357,858 Due in one to five years 1,216,019-2,217,708 357,858 Less unamortized discount (66,881) - $ 2,150,827 $ 357,858 Note 5: Investments and Investment Return Investments at June 30, 2018 and 2017 consisted of the pooled investment fund held at the Greater Kansas City Community Foundation (GKCCF) with a fair value of $1,060,460 and $982,981, respectively. M-AAA has selected a long-term asset allocation option for the pooled investment fund at GKCCF where the underlying holdings of the fund consists of a 70 percent allocation into equity securities and a 30 percent allocation into fixed income securities. Investment return is comprised of the following: 2018 2017 Interest and dividend income $ 25,463 $ 22,126 Net realized and unrealized gains 61,981 93,120 $ 87,444 $ 115,246 18 11
Notes to Financial Statements June 30, 2018 and 2017 Investments at Fair Value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Quoted prices in active markets for identical assets or liabilities Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities The following table presents the fair value measurements of assets recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2018 and 2017: Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) June 30, 2018 Pooled investment fund $ 1,060,460 $ - $ 1,060,460 $ - June 30, 2017 Pooled investment fund $ 982,981 $ - $ 982,981 $ - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2018. M-AAA did not have securities classified as Level 3. 19 12
Notes to Financial Statements June 30, 2018 and 2017 Note 6: Property and Equipment Property and equipment at June 30 consists of: 2018 2017 Land $ 207,020 $ 207,020 Buildings 3,224,590 3,217,395 Equipment and furnishings 698,164 680,086 Artwork 49,598 49,598 4,179,372 4,154,099 Less accumulated depreciation 1,506,800 1,349,466 $ 2,672,572 $ 2,804,633 Note 7: Capital Lease Payable M-AAA leases office equipment under capital leases, which have various expirations through June 2023. 2018 2017 Capital lease obligations $ 37,115 $ 15,055 Less current maturities (10,095) (7,987) $ 27,020 $ 7,068 20 13
Notes to Financial Statements June 30, 2018 and 2017 The following is a schedule by year of future minimum payments required under the leases together with their present value as of June 30, 2018. Years Ending June 30, 2019 $ 12,506 2020 10,046 2021 7,586 2022 7,586 2023 5,660 Total minimum lease payments 43,384 Less amount representing interest 6,269 Present value of minimum lease payments $ 37,115 Property and equipment acquired with a capital lease cost of $52,827 and $43,182 and had accumulated depreciation of $16,071 and $28,871 at June 30, 2018 and 2017, respectively. Note 8: Long-term Debt 2018 2017 Note payable, bank (A) $ 890,386 $ 967,163 Less current maturities (79,904) (76,777) $ 810,482 $ 890,386 (A) At June 30, 2018 and 2017, M-AAA had a fixed rate loan with a rate of 3.944 percent secured by real estate with monthly principal and interest payments of $9,505 until a final balloon payment of $789,257 and all remaining principal due upon maturity in January 2020. 21 14
Notes to Financial Statements June 30, 2018 and 2017 The scheduled maturities of the debt are included below: Years Ending June 30, 2019 $ 79,904 2020 810,482 Total $ 890,386 Interest expense incurred and paid totaled $37,281 and $40,290 for the years ended June 30, 2018 and 2017, respectively. Note 9: Net Assets Temporarily Restricted Net Assets Temporarily restricted net assets at June 30 are available for the following purposes or periods: 2018 2017 Artistic Inc. $ 320,000 $ 100,000 Artistic innovations 12,502 100,000 Artistic 360 532,883 - ENGAGE: Kansas City 59,977 4,628 ENGAGE: Houston 1,582,793 493,956 Exhibition USA 75,000 - Creativity connects - 46,826 Technology improvements - 546 Other 541 4,797 $ 2,583,696 $ 750,753 22 15
Notes to Financial Statements June 30, 2018 and 2017 Temporarily Restricted Net Assets Released from Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. 2018 2017 Artistic Inc. $ 100,000 $ 100,000 Artistic innovations 87,500 100,000 Artistic 360 68,319 - ENGAGE: Kansas City 19,653 5,372 ENGAGE: Houston 513,084 423,398 Exhibition USA - 75,000 Creativity connects 46,826 404,474 Technology improvements - 112,913 Other 14,835 13,202 $ 850,217 $ 1,234,359 Note 10: Retirement Savings Plan M-AAA sponsors a defined contribution retirement plan covering substantially all of its employees. Effective January 1, 2018, the Plan was amended to increase the contribution percentage from 3.5 to 6 percent of gross compensation for all eligible employees plus a discretionary contribution of 4 percent of gross compensation to employees who contribute to the plan. During the years ended June 30, 2018 and 2017, no discretionary contributions were made; therefore, 6 percent of gross compensation was contributed to the plan for all eligible employees. During the years ended June 30, 2018 and 2017, contributions to the plan charged to operations were $50,449 and $45,279, respectively. Note 11: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Federal Grants Federal grants accounted for 38 percent and 65 percent of M-AAA s revenue for the years ended June 30, 2018 and 2017, respectively. Additionally, Federal grants accounted for 54 percent and 46 percent of M-AAA s grants receivables as of June 30, 2018 and 2017, respectively. 23 16
Notes to Financial Statements June 30, 2018 and 2017 Investments M-AAA invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying statements of financial position. Depreciation Significant estimates used in determining depreciation expense are described in Note 1. Note 12: Subsequent Events M-AAA has evaluated subsequent events through, 2018, which is the date the financial statements were available to be issued. 24 17
Supplementary Information 25
Schedule of Expenditures of Federal Awards Year Ended June 30, 2018 Federal Grantor/Pass-Through Grantor/Program or Cluster Title Federal CFDA Number Pass-Through Entity Identifying Number Passed Through to Subrecipients Total Federal Expenditures National Endowment for the Arts/Promotion of the Arts Partnership Agreements National Endowment for the Humanities/Promotion of the Humanities 45.025 $ 352,007 $ 1,268,717 45.164-961,267 Total Expenditure of Federal Awards $ 352,007 $ 2,229,984 26 The accompanying notes are an integral part of this Schedule. 18
Notes to the Schedule of Expenditures of Federal Awards Year Ended June 30, 2018 Notes to Schedule 1. The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Mid-America Arts Alliance under programs of the federal government for the year ended June 30, 2018. 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 Mid-America Arts Alliance, it is not intended to and does not present the financial position, changes in net assets or cash flows of Mid-America Arts Alliance. 2. 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. Negative amounts shown on the Schedule, if any, represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Mid-America Arts Alliance has elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 27 19
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 Board of Directors Mid-America Arts Alliance Kansas City, Missouri We have audited, 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, the financial statements of Mid-America Arts Alliance (M-AAA), which comprise the statement of financial position as of June 30, 2018, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered M-AAA 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 M-AAA s internal control. Accordingly, we do not express an opinion on the effectiveness of M-AAA 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. 20 28
Board of Directors Mid-America Arts Alliance Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the M-AAA s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the 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. Kansas City, Missouri, 2018 29 21
Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditor s Report Board of Directors Mid-America Arts Alliance Kansas City, Missouri Report on Compliance for Each Major Federal Program We have audited Mid-America Arts Alliance s (M-AAA) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of M-AAA s major federal programs for the year ended June 30, 2018. M-AAA 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 federal statutes, regulations and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of M-AAA 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 M-AAA 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 M-AAA s compliance. 22 30
Board of Directors Mid-America Arts Alliance Page 2 Opinion on Each Major Federal Program In our opinion, M-AAA 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, 2018. Report on Internal Control Over Compliance Management of M-AAA 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 M-AAA 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 M-AAA 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 a 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. Kansas City, Missouri, 2018 31 23
Schedule of Findings and Questioned Costs Year Ended June 30, 2018 Summary of Auditor s Results Financial Statements 1. The type of report the auditor issued on whether the financial statements audited were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) was: Unmodified Qualified Adverse Disclaimer 2. The independent auditor s report on internal control over financial reporting disclosed: Significant deficiency(ies)? Yes None reported Material weakness(es)? Yes No 3. Noncompliance considered material to the financial statements Yes No was disclosed by the audit? Federal Awards 4. The independent auditor s report on internal control over compliance for major federal awards programs disclosed: Significant deficiency(ies)? Yes None reported Material weakness(es)? Yes No 5. The opinions expressed in the independent auditor s report on compliance for major federal awards were: National Endowment for the Arts: Unmodified Qualified Adverse Disclaimer National Endowment for the Humanities: Unmodified Qualified Adverse Disclaimer 6. The audit disclosed findings required to be reported by 2 CFR 200.516(a)? Yes No 7. M-AAA s major programs were: Cluster/Program National Endowment for the Arts 45.025 National Endowment for the Humanities 45.164 8. The threshold used to distinguish between Type A and Type B programs was $750,000. 9. M-AAA qualified as a low-risk auditee? Yes No CFDA Number 32 24
Schedule of Findings and Questioned Costs (Continued) Year Ended June 30, 2018 Findings Required to be Reported by Government Auditing Standards Reference Number Finding No matters are reportable. Findings Required to be Reported by Uniform Guidance Reference Number Finding No matters are reportable. 33 25
Summary Schedule of Prior Audit Findings Year Ended June 30, 2018 Reference Number Summary of Finding Status 2017-001 National Endowment for the Arts Promotion of the Arts Partnership Agreements 45.025 Promotion of the Arts Program: Years 2016-2017 Corrected Criteria or Specific Requirement 2 CFR 200.331 requires M- AAA s management to be responsible for establishing and maintaining effective internal control over and compliance with subrecipient monitoring requirements. Condition M-AAA has awarded grants to subrecipients under the National Endowment for the Arts grant and performed limited oversight of the subrecipient agreements. Questioned Costs None noted. Context Out of a population of 45 subrecipient grants, five grant agreements were tested to ensure M-AAA was properly monitoring the subrecipients. Our sampling methodology was not, and was not intended to be statistically valid. During testing of the five subrecipients reviewed, none had the proper compliance monitoring and oversight related the federal grant requirements. Effect Based on the testing completed, M-AAA does not have sufficient procedures in place related to assessing risk and performing oversight related to the funding provided to the subrecipients. Cause A control is not in place to ensure the grant compliance requirements are being met according to the grant partnership agreement and federal requirements. 34 26 30