Financial Statements March 31, 2013
Index to Financial Statements March 31, 2013 INDEPENDENT AUDITORS' REPORT 1 Page FINANCIAL STATEMENTS Statement of Financial Position 2 Statement of Changes in Net Assets 3 Statement of Operations 4 Statement of Cash Flow 5 6-13
INDEPENDENT AUDITORS' REPORT To the Members of The Norfolk Hospital Nursing Home We have audited the accompanying financial statements of The Norfolk Hospital Nursing Home, which comprise the statement of financial position as at March 31, 2013 and the statements of operations, changes in net assets and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Public Sector Accounting Standards for Government Not-For-Profit Organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of The Norfolk Hospital Nursing Home as at March 31, 2013 and the results of its operations and its cash flow for the year then ended in accordance with Canadian Public Sector Accounting Standards for Government Not-For-Profit Organizations. Comparative Information Without modifying our opinion, we draw attention to Note 2 to the financial statements which describes that The Norfolk Hospital Nursing Home adopted Canadian Public Sector Accounting Standards for Government Not-For-Profit Organizations on April 1, 2012 with a transition date of April 1, 2011. These standards were applied retrospectively by management to the comparative information in these financial statements, including the statements of financial position as at March 31, 2012 and April 1, 2011 and the statements of operations, changes in net assets and cash flow for the year ended March 31, 2012 and related disclosures. May 27, 2013 Simcoe, Ontario Chartered Accountants Licensed Public Accountants 1
Statement of Changes in Net Assets Net assets - beginning of year $ 697,631 $ 752,159 Excess (deficiency) of revenue over expenses 8,212 (54,528) NET ASSETS - END OF YEAR $ 705,843 $ 697,631 See accompanying notes 3
Statement of Operations REVENUE Ministry of Health Nursing and personal care $ 2,850,889 $ 2,718,397 Program and support 299,347 300,088 Food 223,521 217,473 Accommodation 147,158 145,910 Structural compliance, accreditation and one-time grants 53,826 48,938 3,574,741 3,430,806 Other revenue Resident co-payment 1,456,131 1,429,795 Recoveries and sundry revenue 15,806 15,720 Interest income 7,286 9,348 Amortized capital grant revenue 20,809 28,812 1,500,032 1,483,675 Total revenue 5,074,773 4,914,481 Expenses Nursing and personal care Salaries, wages and benefits 2,902,538 2,856,623 Supplies and other expenses 107,777 89,556 3,010,315 2,946,179 Program and support Salaries, wages and benefits 161,058 209,003 Supplies and other expenses 77,944 40,019 239,002 249,022 Food 243,235 238,466 Accommodation (Note 11) 1,308,927 1,304,044 1,552,162 1,542,510 Financial Interest 50,140 52,354 Amortization of property and equipment 214,942 178,944 265,082 231,298 Total expenses 5,066,561 4,969,009 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES $ 8,212 $ (54,528) See accompanying notes 4
Statement of Cash Flow OPERATING ACTIVITIES Excess (deficiency) of revenue over expenses for the year $ 8,212 $ (54,528) Items not affecting cash: Increase in employee future benefits 4,100 3,300 Amortization of property and equipment 214,942 178,944 Amortization of deferred capital grants (20,809) (28,812) 206,445 98,904 Changes in non-cash working capital: Accounts receivable (10,455) (53,933) Prepaid expenses (181) (383) Accounts payable 60,196 17,107 Deferred income 10,400 33,086 Goods and services tax payable (recoverable) (412) (11,063) Due to Norfolk General Hospital (133,425) 113,288 (73,877) 98,102 Cash flow from operating activities 132,568 197,006 CAPITAL ACTIVITY Purchase of equipment (139,057) (147,473) FINANCING ACTIVITIES Repayment of mortgage payable (29,147) (26,948) Receipt of capital donations and grants 43,390 57,210 Cash flow from financing activities 14,243 30,262 INCREASE IN CASH 7,754 79,795 Cash - beginning of year 846,959 767,164 CASH - END OF YEAR $ 854,713 $ 846,959 See accompanying notes 5
1. PURPOSE OF ORGANIZATION The Norfolk Hospital Nursing Home The Norfolk Hospital Nursing Home is incorporated without share capital under the Corporations Act (Ontario) and provides health care and accommodation to residents of Norfolk County and the surrounding communities. The Nursing Home is exempt from income taxes under the Income Tax Act. 2. FIRST TIME ADOPTION OF PUBLIC SECTOR ACCOUNTING STANDARDS The Public Sector Accounting Board (PSAB) issued new standards for government (public sector) not-for-profit organizations. For years beginning on or after January 1, 2012, government NPOs have a choice of: 1. Public sector accounting standards including PS 4200-4270 for government not-for-profit organizations; or 2. Public sector accounting standards The Nursing Home has chosen to follow Public Sector Accounting standards including PS 4200-4270 for government not-for-profit organizations. Effective April 1, 2012, the Nursing Home adopted the requirements of the new accounting framework, Canadian Public Sector Accounting Standards for Not-for-Profit Organizations (PSAB for Government NPOs). These are the Hospital's first financial statements prepared in accordance with this framework and the transitional provisions of Section 2125, First-time Adoption by Government Organizations have been applied. Section 2125 requires retroactive application of the accounting standards with certain elective exemptions and mandatory exceptions. The accounting policies set out in the Summary of Significant Accounting Policies have been applied in preparing the financial statements for the year ended March 31, 2013, the comparative information presented in these financial statements for the year ended March 31, 2012 and in the preparation of an opening PSAB for Government NPOs balance sheet at the date of transition of April 1, 2011. The Nursing Home issued financial statements for the year ended March 31, 2011 using generally accepted accounting principles prescribed by the CICA Handbook - Accounting Part V - Prechangeover Accounting Standards. The adoption of PSAB for Government NPOs resulted in adjustments to the previously reported liabilities, net assets, excess (deficiency) of revenue over expenses and cash flow of the Nursing Home. An explanation of how the transition from prechangeover Canadian GAAP to PSAB for Government NPOs has affected the Nursing Home's financial position, operations, changes in net assets and cash flow is set out in the following notes and tables. The following exemptions and exceptions were used at the date of transition to Canadian public sector accounting standards for government not-for-profit organizations: (continues) 6
2. FIRST TIME ADOPTION OF PUBLIC SECTOR ACCOUNTING STANDARDS (continued) Optional exemptions Actuarial Gains and Losses Pre-changeover GAAP allowed the Nursing Home to only recognize actuarial gains and losses that exceeded certain prescribed amounts ("the corridor approach"). PSAB for Government NPOs requires the amortization of actuarial gains and losses on employee future benefit obligations to be amortized over the estimated average remaining service life of employees. Retroactive application of this approach would require the Nursing Home to split the cumulative actuarial gains and losses from the inception of the plan until the date of transition to PSAB for Government NPOs into a recognized portion and an unrecognized portion. The Nursing Home has elected to recognize all cumulative actuarial gains and losses as the date of transition to PSAB for Government NPOs directly in net assets. Actuarial gains and losses subsequent to the date of transition to PSAB for Government NPOs are accounted for in accordance with PS 3250 - Retirement Benefits. Mandatory exceptions Estimates The estimates previously made by the Nursing Home under pre-changeover Canadian GAAP were not revised for the application of PSAB for Government NPOs except where necessary to reflect any differences in accounting policy or where there was objective evidence that those estimates were in error. As a result the Nursing Home has not used hindsight to revise estimates. Reconciliation of net assets and excess (deficiency) of revenue over expenses In preparing these financial statements, management has amended certain accounting policies previously applied in the pre-changeover Canadian GAAP financial statements to comply with PSAB for Government NPOs. The comparative figures for March 31, 2012 were restated to reflect these adjustments. The following reconciliation and explanatory notes provide a description of the effect of the transition form pre-changeover Canadian GAAP to PSAB for Government NPOs on net assets and excess (deficiency) of revenues over expenses: Statement of Financial Position as at April 1, 2011 - Transition Date PSAB for Pre-changeover Transitional Government Canadian GAAP Adjustment NPOs Employee future benefits $ 53,100 $ (11,700) $ 41,400 Net assets $ 740,459 $ 11,700 $ 752,159 (continues) 7
2. FIRST TIME ADOPTION OF PUBLIC SECTOR ACCOUNTING STANDARDS (continued) Statement of Financial Position as at March 31, 2012 PSAB for Pre-changeover Transitional Government Canadian GAAP Adjustment NPOs Employee future benefits $ 57,200 $ (12,500) $ 44,700 Net assets $ 685,131 $ 12,500 $ 697,631 Statement of Operations for the year ended March 31, 2012 Nursing and personal care PSAB for Pre-changeover Transitional Government Canadian GAAP Adjustment NPOs Salaries, wages and benefits $ 2,857,383 $ (760) $ 2,856,623 Program and support Salaries, wages and benefits $ 209,043 $ (40) $ 209,003 Excess (deficiency) of revenue over expenses $ (55,328) $ 800 $ (54,528) Statement of Cash Flow for the year ended March 31, 2012 The transition to PSAB for Government NPOs had no impact on the statement of cash flow. The change in excess (deficiency) of revenues over expenses for the year ended March 31, 2012 has been offset by the adjustment in employee future benefits. The transition to PSAB for Government NPOs resulted in the reclassification of cash receipts and outflows relating to acquisition of tangible capital assets from investing activities to capital activities. The capital section of the statement of cash flow did not exist prior to the transition to PSAB for Government NPOs. Explanations for Adjustment to PSAB for Government NPOs Amortization of Actuarial Gains/Losses As discussed in the above paragraph - First Time Adoption of Public Sector Accounting Standards, Optional Exemptions, the Nursing Home has elected to recognize actuarial gains and losses at the date of transition to PSAB for Government NPOs directly in net assets. As a result, there are changes to the related liabilities and a charge to net assets as described in the tables above. (continues) 8
2. FIRST TIME ADOPTION OF PUBLIC SECTOR ACCOUNTING STANDARDS (continued) Discount Rate Used to Calculate Employee Future Benefits PSAB for Government NPOs requires these liabilities to be calculated with a discount rate that is either equal to the Nursing Home's rate of borrowing or the rate of return on the plan assets. Prechangeover GAAP required the discount rate to be equal to the yield on high quality corporate bonds. However, the Nursing Home is using a discount rate prescribed by the Ontario Ministry of Health and Long-Term Care (MOHLTC) due to reporting requirements and industry comparability. The change in the discount rate resulted in changes to the related liabilities and charges to net assets as described in the tables above. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared by management in accordance with Canadian public sector accounting standards for government not-for-profit organizations, including the 4200 series of standards, as issued by the Public Sector Accounting Board. Revenue recognition The Nursing Home follows the deferral method of accounting for contributions which include donations and government grants. Under the Health Insurance Act and Regulations thereto, the Nursing Home is funded primarily by the Province of Ontario in accordance with budget arrangements established by the Ministry of Health and Long Term Care. Operating grants are recorded as revenue in the period to which they relate. Grants approved but not received at the end of an accounting period are accrued. These financial statements reflect agreed arrangements approved by the Ministry with respect to the year ended March 31, 2013. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Revenue from the residents' co-insurance, preferred accommodation, and marketed services is recognized when the service is provided. Externally restricted contributions are recognized as revenue in the year in which the related expenses are recognized. Contributions restricted for the purchase of property and equipment are deferred and amortized into revenue on a straight-line basis, at a rate corresponding with the amortization rate for the related property and equipment. Property and equipment Property and equipment are stated at cost less accumulated amortization. Property and equipment are amortized over their estimated useful lives at the following rates and methods: Buildings 10 to 40 years straight-line method Equipment 3 to 10 years straight-line method (continues) 9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Employee future benefits The Nursing Home offers extended health, dental and life insurance benefits to certain employee groups upon early retirement. The cost of these retirement benefits are actuarially determined using management's best estimate of health care costs, disability recovery rates and discount rates. Adjustments to these costs arising from changes in estimates and experience gains and losses are amortized to income over the estimated average remaining service life of the employee groups on a straight line basis. Measurement uncertainty The preparation of financial statements in conformity with Canadian Public Sector Accounting Standards for Not-for-Profit Organizations requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. In determining estimates of accrued liabilities, the Nursing Home relies on assumptions regarding applicable industry performance and prospects, as well as general business and economic conditions that prevail and are expected to prevail. Actual results could differ from those estimates. Contributed services and materials Volunteers contribute numerous hours to assist the Nursing Home in carrying out certain aspects of its service delivery activities. The fair value of these contributed services is not readily determinable and, as such, is not reflected in these financial statements. Contributed materials are also not recognized in these financial statements. 4. PROPERTY AND EQUIPMENT Cost Accumulated Net book Net book amortization value value Land $ 52,800 $ - $ 52,800 $ 52,800 Buildings 2,634,147 2,078,074 556,073 551,052 Equipment 1,170,752 974,519 196,233 277,140 $ 3,857,699 $ 3,052,593 $ 805,106 $ 880,992 5. TRUST FUND The trust fund is comprised of residents' personal money to provide convenience for those residents who need to have funds maintained in a safe place and readily available for use in the nursing home. Money in the trust fund may be used to pay for facility-related transactions approved by the resident or an authorized representative. 10
6. DUE TO NORFOLK GENERAL HOSPITAL The Norfolk Hospital Nursing Home The Norfolk Hospital Nursing Home purchases items such as meals, utilities, housekeeping and administrative services from Norfolk General Hospital at fair market value under normal trade terms. The total of these purchased services for the year amounted to $1,191,989 (2012 - $1,187,139). In addition, the Hospital makes all payments associated with the Nursing Home's capital and operating costs, and then recovers all of these payments from the Nursing Home. As at March 31, 2013 the Nursing Home owes the Hospital $92,905 (2012 - $226,330). 7. MORTGAGE PAYABLE Canada Mortgage and Housing Corporation mortgage bearing interest at 8% per annum, repayable in monthly blended payments of $6,623. The loan matures on June 1, 2025 and is secured by land and building. $ 623,573 $ 652,720 Amount payable within one year (31,525) (29,147) $ 592,048 $ 623,573 Principal repayment terms are approximately: 2014 $ 31,525 2015 34,098 2016 36,880 2017 39,890 2018 43,145 Thereafter 438,035 $ 623,573 8. DEFERRED CAPITAL GRANTS AND DONATIONS Deferred capital grants and donations represent the unamortized capital contributions received for the purchase of equipment. The amortization of capital contributions is recorded as revenue in the statement of operations. The changes in the deferred contributions balance for the period are as follows: Balance - beginning of year $ 103,717 $ 75,319 Contributions during the year 43,390 57,210 Amortization for the year (20,810) (28,812) $ 126,297 $ 103,717 11
9. EMPLOYEE FUTURE BENEFITS The Norfolk Hospital Nursing Home The Nursing Home provides extended health, dental and life insurance benefits to certain employee groups upon early retirement. The Nursing Home recognizes these benefits as they are earned during the employee's tenure of service. The accrued benefit liability is determined by an independent actuary, the actuarial valuation was performed April 2013 and includes the value of the liability as at March 31, 2013 and March 31, 2012. 10. NET ASSETS Externally restricted Canada Mortgage and Housing Corporation (C.M.H.C.) contributed $151,520 to The Norfolk Hospital Nursing Home. This amount is forgivable upon the Nursing Home building being used as a nursing home until the due date of the C.M.H.C. mortgage of June 1, 2025. Invested in property and equipment The net amount invested in property and equipment is represented as follows: Net book value of property and equipment $ 805,106 $ 880,992 Mortgage payable (623,573) (652,720) Deferred capital grants and donations (126,297) (103,717) $ 55,236 $ 124,555 11. ACCOMMODATION EXPENSES Accommodation expenses are comprised of the following: Nutrition and food services $ 401,234 $ 401,267 Plant operations and utilities 315,102 321,183 Housekeeping 233,454 236,741 Laundry 140,251 143,884 General office and administration 71,704 57,295 Salaries, wages and benefits 88,194 85,044 Finance and payroll services 58,988 58,630 $ 1,308,927 $ 1,304,044 12. PENSION BENEFITS Substantially all of the employees of the Nursing Home are eligible to be members of the Hospitals of Ontario Pension Plan (H.O.O.P.P.) which is a multi-employer average pay contributory pension plan. Employer contributions made to the plan during the year amounted to $169,044 (2012 - $167,814). These amounts are included in staff benefits expense on the statement of operations. 12
13. FINANCIAL INSTRUMENTS The Norfolk Hospital Nursing Home Financial instruments consist of cash, accounts receivable, trust funds, amounts due to Norfolk General Hospital, accounts payable and mortgage payable. Excluding the mortgage payable, these financial instruments are all short term in nature and as such, their carrying value approximates fair value. The mortgage payable is at a prevailing market interest rate and as such, its carrying value approximates fair value. 14. COMPARATIVE FIGURES Some of the comparative figures have been reclassified to conform to the current year's presentation. 13