POWDERHORN PARK NEIGHBORHOOD ASSOCIATION FINANCIAL STATEMENTS AND 2012
TABLE OF CONTENTS INDEPENDENT ACCOUNTANT'S REVIEW REPORT... 1 FINANCIAL STATEMENTS Statements of Financial Position...2 Statements of Activities...3 Statements of Functional Expenses...4 Statements of Cash Flows...5 Notes to the Financial Statements...6-13 Supplemental Information Schedule of City of Minneapolis Activity 14 Findings and Recommendations.......15-18
MICHAEL S. WILSON, CPA INDEPENDENT ACCOUNTANT'S REVIEW REPORT Board of Directors Powderhorn Park Neighborhood Association 821 E. 35 th Street Minneapolis, MN 55407 Dear PPNA Board of Directors, I have reviewed the accompanying Statements of Financial Position of Powderhorn Park Neighborhood Association as of December 31, 2013 and 2012 and the related Statements of Activities, Functional Expenses and Cash Flows for the years then ended. A review includes primarily applying analytical procedures to management's financial data and making inquiries of management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, I do not express such an opinion. Management is responsible for the preparation and fair presentation of the financial statements in accordance with U.S. generally accepted accounting principles and for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements. My responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those Standards require me to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. I believe the results of our procedures provide a reasonable basis for my report. Based on my review, I are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with U.S. generally accepted accounting principles. My review was made primarily for the purpose of expressing a conclusion that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The supplementary information included in the accompanying Schedule of City Activity is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and I did not become aware of any material modifications that should be made to such information. Minneapolis, Minnesota April 18, 2014
FINANCIAL STATEMENTS
ASSETS POWDERHORN PARK NEIGHBORHOOD ASSOCIATION STATEMENT OF FINANCIAL POSITION AND 2012 Current Assets 2013 2012 Cash and Cash Equivalents $ 101,251 $ 113,850 Accounts Receivable 1,410 299 Pledges receivable 60,000 - Grants and Contracts Receivable 9,960 16,329 Cash held for City of Minneapolis 22,896 Prepaid Expenses 166 - Total Current Assets 195,683 130,478 Property and Equipment Office Equipment 6,563 6,563 Accumulated Depreciation (6,563) (6,563) Total Property and Equipment - - LIABILITIES AND NET ASSETS Total Assets $ 195,683 $ 130,478 Current Liabilities Accounts payable $ 1,692 $ - Wage and payroll liabilities 5,060 - Insurance funds held for the City of Minneapolis 22,896 - Fiscal agent funds 24,262 20,360 Refundable Advance - 10,000 Total Current Liabilities 53,910 30,360 Net Assets Unrestricted 31,773 86,118 Unrestricted- board designated 50,000 - Temporarily Restricted 60,000 14,000 Total Net Assets 141,773 100,118 Total Liabilities and Net Assets $ 195,683 $ 130,478 2 See accountant's report and notes to the financial statements
STATEMENT OF ACTIVITIES FOR THE YEAR ENDING WITH COMPARATIVE TOTALS FOR 2012 Temporarily 2013 2012 Unrestricted Restricted Total Total Support and revenue: Support Government Awards 97,517 $ - $ 97,517 $ 101,145 Public Support 44,927 60,000 104,927 82,937 In-kind contributions - 3,500 3,500 3,500 Net Assets Released from Restrictions 17,500 (17,500) - - Total support 159,944 46,000 205,944 187,582 Revenue Fiscal Sponsor Fees 7,883-7,883 14,495 Special Events 82,620-82,620 77,874 Other Income 1,910-1,910 398 Total Revenue 92,413-92,413 92,766 Total Support and Revenue 252,357 46,000 298,357 280,348 Expenses Program Expenses: Program expenses 215,445-215,445 252,285 Total Program Expenses 215,445-215,445 252,285 Supporting Services: Administration 31,121-31,121 32,971 Fundraising 10,136-10,136 10,474 Total Expenses 256,702-256,702 295,730 Change in Net Assets (4,345) 46,000 41,655 (15,381) Net Assets, Beginning of Year 86,118 14,000 100,118 115,499 Net Assets, End of Year $ 81,773 $ 60,000 $ 141,773 100,118 3 See accountant's report and notes to the financial statements
STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED Program Administration Fundraising Total 2012 Total 7000 Staffing 89,375 18,235 6,387 113,997 78,153 8540 Training - 1,155-1,155 235 7500 Professional services 14,192 2,597 525 17,314 26,838 8000 Operating expenses 1,718 7,938 2,780 12,436 15,651 8200 Occupancy Expenses 6,218 1,196 444 7,858 1,367-9000 Programs, Events & Meetings - Arts on Chicago 2,776 - - 2,776-4th of July Celebration 7,219 - - 7,219 7,358 Anti-Graffiti Grant 4,673 - - 4,673 - Powderhorn 365 3,694 - - 3,694 2,607 Powderhorn Art Fair 53,207 - - 53,207 54,131 Newsletter - English and Spanish 5,206 - - 5,206 6,203 Other Program Expenses 3,667 - - 3,667 7,671 Powderhorn Park Programming 20,000 - - 20,000 15,190 In-kind Expenses 3,500 - - 3,500 3,500 Curb Culture - - - - 5,196 Façade Improvement Grant - - - - 1,630 Grant for Building Elevator - - - - 70,000 Total PPNA Programs, Events & Meetings 103,942 - - 103,942 173,486 Total Expenses $ 215,445 $ 31,121 $ 10,136 $ 256,702 $ 295,730 Percentage of total expenses 84% 12% 4% - - 4 See accountant's report and notes to the financial statements
POWDERHORN PARK STATEMENT OF CASH FLOWS FOR THE YEARS ENDED AND 2012 2013 2012 Cash Flow From Operating Activity Increase (decrease) in net assets $ 41,655 (15,381) Adjustments to reconcile changes in net assets to net cash provided by operating activities (Increase) decrease in accounts receivable (1,111) 454 (Increase) decrease in contracts receivable 6,369 (5,595) (Increase) descrease in pledges receivable (60,000) (Increase) decrease in prepaid expenses (166) 1,300 (Increase) decrease in restricted cash (22,896) (Decrease) Increase in accounts payable and accrued expense 6,752 (753) (Decrease) Increase in unexpended agency funds 3,902 9,512 (Decrease) Increase in funds held for others 22,896 (Decrease) Increase in refundable advances (10,000) 4,560 Total adjustments (54,254) 9,478 Cash Flow From Operating Activity (12,599) (5,903) Increase in Cash and Cash Equivalents (12,599) (5,903) Cash and Cash Equivalents - Beginning of Year 113,850 119,753 Cash and Cash Equivalents - End of Year $ 101,251 113,850 5 See accountant's report and notes to the financial statements
NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Nature of Organization The Powderhorn Park Neighborhood Association (the "Organization") serves the Powderhorn Park neighborhood to sustain a strong community. The Organization works to enhance the quality of life in the neighborhood by facilitating community engagement, embracing a diversity of voices, and fostering economic and community development. PPNA, a 501(c)3 nonprofit organization, was formed in 1980 to strengthen this inner-city, south Minneapolis neighborhood bounded by Lake Street, Cedar Avenue, 38th Street and Chicago Avenue by building connections among the neighborhood s members (residents, property owners, employees and businesses) and working to support their collective efforts to address community concerns. The Organization is led by a 12-person Board of Directors comprised of community members. PPNA is a neighborhood-driven organization and thrive with a diverse group of volunteers and active committee participants. The major programs through which the Organization provides its services are as follows: Community Participation Program (City of Minneapolis Funding) The Community Participation Program (CPP) provides funding to encourage and support participation through Minneapolis neighborhood organizations in the following key areas: (1) identifying and acting on neighborhood priorities; (2) influencing city decisions and priorities; and (3) increasing involvement. Powderhorn Art Fair The Organization brings individuals from all over the country together to enjoy an abundance of creativity and skill that flows through the artists participating in the Powderhorn Art Fair. Proceeds from the Powderhorn Art Fair help fund park programs such as theatre arts, a computer lab, music recording studio, pottery studio and team sports, giving neighborhood residents of all ages a safe environment in which to play, learn and grow. Basis of Accounting The financial statements of the Organization have been prepared on the accrual basis of accounting. The accounting policies of the Organization conform to U.S. Generally Accepted Accounting Principles (GAAP) applicable to nonprofit organizations. 6 See Accompanying Independent Accountant s Review ReportAccompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS Use of Estimates The preparation of financial statements in conformity with U.S. GAPP 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. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Financial Statement Presentation The assets, liabilities, net assets, revenues and expenses of the Organization are reported based upon net asset restrictions and the purposes for which resources are to be spent and the means by which spending activities are controlled. Net asset restrictions are categorized as follows: Unrestricted Accounts for all financial resources which are neither permanently restricted nor temporarily restricted by donor-imposed stipulations. Resources may be used at the discretion of the Board of Directors. The Organization has elected to present temporarily restricted contributions, which are fulfilled in the same period, within unrestricted net assets. Temporarily Restricted Accounts for (a) contributions and other inflows of assets whose use by the Organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations, (b) other asset enhancements and diminishments subject to the same kinds of stipulations and (c) reclassifications to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time or their fulfillment and removal by actions of the Organization pursuant to those stipulations. Permanently Restricted Accounts for all financial resources which include a donor-imposed restriction that stipulates the resources be maintained permanently, but permits the Organization to use or expend part or all of the income derived from the donated assets. The Organization did not have any permanently restricted assets at December 31, 2013. Cash and Cash Equivalents The Organization considers cash in financial institutions and all highly liquid instruments purchased with a maturity of three months or less to be cash and cash equivalents. During the years ended December 31, 2013, the Organization did not pay cash for interest. 7 See Accompanying Independent Accountant s Review ReportAccompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS Accounts Receivable Management reviews the current status of the existing accounts receivable and charges off all accounts, which are determined to be uncollectible. Accordingly, no allowance for bad debts was considered necessary at December 31, 2013. Receivables are considered past due after 30 days and the Organization does not accrue interest on past due accounts receivable balances. Grants and Contracts Receivable Grants and contracts receivable are stated at net realizable value. Bad debts are provided on the reserve method based on historical experience and management's evaluation of outstanding receivables. When all collection efforts have been exhausted, the accounts are written off against the related allowance. At December 31, 2013, an allowance for doubtful accounts had not been provided for since management of the Organization expects all grants and contracts receivable to be collected. Property and Equipment Property and equipment are recorded at cost. Major additions and improvements over $5,000 are capitalized and depreciated, while repairs that do not improve or extend the life of the respective assets are charged as an expense to operations as incurred. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets of 5 to 40 years. Depreciation expense totaled $0 for the year ended December 31, 2013. Contributions The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a 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. The Organization reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. All other contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Grant and Contract Revenue and Expenses Grant and contract revenues and expenses are accounted for on the accrual basis. Revenues from grant awards and contracts are recognized as spent. Expenses are recognized when the related liability is incurred. Grant and contract monies drawn in excess of the related grant and contract expenses are treated as deferred revenue. Grant and contract expenses in excess of the related grant and contract monies drawn are treated as grants and contracts receivable. 8 See Accompanying Independent Accountant s Review ReportAccompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS Functional Allocation of Expenses The costs of providing various programs have been summarized on a functional basis. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Advertising Costs The Organization's policy is to expense advertising costs as they are incurred. Income Taxes The Organization is a private nonprofit corporation, exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Therefore, no income taxes are paid and contributions to the Organization may be tax deductible by the donor. The Organization is also exempt from Minnesota franchise or income tax. Generally, the Organization is no longer subject to examination by tax authorities for years before 2008. Subsequent Events The Company has evaluated subsequent events through April 18, 2014, the date which the financial statements were available to be issued. NOTE 2 - OPERATING LEASES The PPNA leases their office space and copier equipment through operating leases. Lease expense for for the year ended December 31, 2013 was $7,221 for occupancy and $2,545 for the copier. Minimum future lease payments for the leases are as follows for the years ending December 31. Facilities 2014 $ 5,537 Copier 2014 2,220 2015 2,220 2016 2,220 2017 555 Total Minimum Future Rental Payments $ 12,752 NOTE 3 - RETIREMENT PLAN The Organization has a SIMPLE IRA retirement plan and matches employee contributions up to 3 percent of gross salary. Employer contributions were $2,561 and $1,774 for the years ended December 31, 2013 and 2012. 9 See Accompanying Independent Accountant s Review ReportAccompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS NOTE 4 - CONTRACTS RECEIVABLE Contracts receivable consist of unreimbursed expenses on cost reimbursement contracts. The balance at December 31, 2013, was as follows: City of Minneapolis 2013 Anti-Graffiti Micro-Grant (C-36899) $9,960 NOTE 5 - REFUNDABLE ADVANCES Refundable advances consist of amounts received in advance on cost reimbursement contracts. The balance at December 31, 2013, was as follows: $0 NOTE 6 - CONCENTRATION The Organization receives a substantial amount of its support from various forms of government. A reduction in the level of funding from these sources would have a material effect on the Organization's programs and activities. In comparison to other neighborhood organizations, the Organization has more diverse streams of revenue through foundations, earned income, corporate contributions and donations from individuals. NOTE 7 - CONTINGENCIES The state, county and city program activities are subject to financial and compliance regulations, to the extent that any expenditures are disallowed and a liability to the respective grantor could result. NOTE 8 - BOARD DESIGNATED NET ASSETS Board designated net assets at December 31, 2013, as follows: 2014 Park Support Funds $20,000 2013 McKnight Foundation carry over funding 30,000 TOTAL $50,000 10 See accompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS NOTE 9 - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at December 31, 2013, are as follows: Future funding commitments Blue Cross Blue Shield Community Engagement Innovation Funding $25,000 2014 McKnight Foundation $35,000 TOTAL $60,000 NOTE 10 - NET ASSETS RELEASED FROM RESTRICTIONS Net assets released from restrictions by December 31, 2013, are as follows: 2012 McKnight Foundation carry over funding $17,500 NOTE 11 FISCAL SPONSORS The Organization acts as the fiscal sponsor for the following organizations: 15 th Avenue Community Garden (2 Community Gardens) A community garden located in the Powderhorn Park neighborhood operated by volunteers. 38 th and Chicago Business Association The 38 th & Chicago Business Association promotes neighborhood businesses near the intersection of 38 th Street and Chicago Avenue. Art Sled Rally The Art Sled Rally is an annual event put on by South Sixteenth Hijinks - a group of artists and neighborhood residents seeking to enrich the spirit of community life in the community. Carrot Initiative The Carrot Initiative is a local organization seeking to attract a healthy, affordable grocer to the Greater West Powderhorn Community. Paradise Community Garden (2 Community Gardens) A community garden located in the Powderhorn Park neighborhood operated by volunteers. Powderhorn Empty Bowls Powderhorn Empty Bowls works towards ending hunger and food insecurity in the Powderhorn Park neighborhood. 11 See accompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS Central Area Neighborhood Development Organization (Contract ended on March 31, 2013) CANDO is a community driven organization that engages residents, property owners, business owners, and other invested in the Central neighborhood through regular activities, meetings, and events. Activity for Year Ended December 31, 2013 38th & Powderhorn Art Chicago Empty Community Sled Carrot Bus. Assoc. Bowls Gardens (2) Rally Initiative Total Beginning balance $ 4,040 $ 12,255 $ 2,969 $ 916 $ 180 $ 20,360 Receipts 5,386 34,975 500 7,306 8,102 56,269 Amount available 9,426 47,230 3,469 8,222 8,282 76,629 Disbursements 4,782 32,384 1,100 6,640 3,461 48,367 PPNA held funds 4,644 14,795 2,369 1,582 4,821 28,262 Fiscal sponsor fee - 3,447 100 _400-4,000 Unexpended funds $ 4,644 $11,348 $ 2,269 $ 1,182 $ 4,821 $ 24,262 For some fiscal sponsorships, PPNA assesses a fiscal sponsor fee at December 31, 2013. The contributions and expenses of the fiscal sponsors are not included in the PPNA Financial Statements. NOTE 12 INSURANCE FINANCIAL MANAGEMENT AND ADMINISTRATOR In 2013, the Organization signed contracts with the City of Minneapolis to serve as an insurance administrator. In this role, the Organization contracts for Directors and Officers insurance policy (C- 36610) and holds an umbrella Comprehensive General Liabiltiy (CGL) (C-36175) policy on behalf neighborhood organizations identified by and with the City of Minneapolis Neighborhood and Community Relations Department (NCR). PPNA reviews and pays vendor invoices, and collects and retains CGL premiums from selected neighborhood associations; and directs inquiries regarding the policy to NCR or the agent. 12 See accompanying Independent Accountant's Review Report
NOTES TO THE FINANCIAL STATEMENTS NOTE 12 INSURANCE FINANCIAL MANAGEMENT AND ADMINISTRATOR The Organization collected $42,045 from the NCR Department and disbursed $38,208 towards the insurance policies. The administrative fee of $3,802 is the only amount recognized in the financial statements in other income. The $38,208 of pass-through funding is not included in the financial statements. Additionally, the Organization invoiced and collected CGL premiums (policy years 2012 and 2013) from selected neighborhood associations. PPNA retained $22,896 which is included in the financial statements as restricted cash. 13 See accompanying Independent Accountant's Review Report
STATEMENT OF MINNEAPOLIS ACTIVITY FOR THE YEAR ENDED Income 4540 Government Contracts 80,012.68 17,504.00 97,516.68 Total Income 80,012.68 17,504.00 97,516.68 Expense 7000 Staffing 7205 Wages 7210 Executive Director - Salary 23,455.01 774.00 24,229.01 7220 Community Organizer - Salary 13,197.17 8,978.93 22,176.10 7550 Project Staff 1,686.00 0.00 1,686.00 Total 7205 Wages 38,338.18 9,752.93 48,091.11 7225 Benefits 7230 Simple IRA Program 1,329.12 311.62 1,640.74 7240 Health & Dental Insurance 6,759.43 1,037.38 7,796.81 8540 Training - Staff 430.00 0.00 430.00 Total 7225 Benefits 8,518.55 1,349.00 9,867.55 7245 Payroll taxes and fees 7250 Payroll Taxes 7,133.13 984.07 8,117.20 7270 Payroll Expenses 0.00 0.00 0.00 7260 Payroll Service Fees 562.98 0.00 562.98 Total 7245 Payroll taxes and fees 7,696.11 984.07 8,680.18 Total 7000 Staffing 54,552.84 12,086.00 66,638.84 7500 Professional Services 7510 Professional Fees-Grant Writer 525.00 0.00 525.00 7520 Professional Fees - Bookkeeper 7,193.00 0.00 7,193.00 Total 7500 Professional Services 7,718.00 0.00 7,718.00 8000 Other Operating Expenses 8110 Office Supplies & Materials 683.79 0.00 683.79 8129 Telecommunications 8130 Office Phones 892.57 0.00 892.57 8131 Mobile Phones 551.77 0.00 551.77 8132 Telecommunication - Website 74.00 0.00 74.00 Total 8129 Telecommunications 1,518.34 0.00 1,518.34 8140 Postage & Delivery 92.00 0.00 92.00 8170 Printing & Copying 110.33 0.00 110.33 8260 Equipment - Copier 2,133.26 0.00 2,133.26 8500 Banking & QuickBooks Fees 324.80 0.00 324.80 8520 Insurance - Liability 803.45 0.00 803.45 8530 Subscriptions & Memberships 125.00 0.00 125.00 8560 Professional Fees - IT/Website 425.00 0.00 425.00 8570 Marketing 184.81 0.00 184.81 8590 Parking/Mileage/Travel 109.00 0.00 109.00 Total 8000 Other Operating Expenses 6,509.78 0.00 6,509.78 8200 Occupancy Expenses 8210 Occupancy - Rent 4,101.83 745.00 4,846.83 8230 Occupancy - Janitorial Services 261.00 0.00 261.00 Total 8200 Occupancy Expenses 4,362.83 745.00 5,107.83 9000 Program Expenses 8190 English Newsletter 3,693.51 0.00 3,693.51 8191 Spanish Newsletter 515.53 0.00 515.53 9100 General Program Exps 897.19 4,673.00 5,570.19 9110 Board Events 1,763.00 0.00 1,763.00 Total 9000 Program Expenses 6,869.23 4,673.00 11,542.23 Total Expense 80,012.68 17,504.00 97,516.68 Net Ordinary Income 0.00 0.00 0.00 0.00 0.00 0.00 14
SCHEDULE OF FINDINGS AND RECOMMENDATIONS FINDINGS & RECOMMENDATIONS - PREVIOUS ITEM UNRESOLVED FROM 2012 Separation of Duties in the Accounting Function Due to the limited number of office personnel within the Organization, segregation of the accounting functions necessary to ensure adequate internal control is not possible. This is not unusual for operations the size of PPNA; however, the board should be aware of this condition and realize that the concentration of duties and responsibilities in a limited number of individuals is not ideal for strong internal controls. Client Response PPNA recognizes its small size limits the ability to have the maximum amount of internal controls. However the board and management are aware of risks and have implemented controls to mitigate these risks. FINDINGS & RECOMMENDATIONS - 2013 13-1 FISCAL AGENT PPNA supports creative projects from residents which benefit the neighborhood. These relationships have been described as fiscal sponsor agreements. However a fiscal sponsor agreement is not accurate because PPNA s goal is not to collect tax deductible contributions on behalf of the projects. Based on discussions with legal counsel, management determined that PPNA is willing to serve as a fiscal agent for these projects but not a fiscal sponsor. As a result of this decision, I recommend the following steps be taken by PPNA. PPNA should evaluate each partnership to determine the project is consistent with PPNA tax exempt activities. PPNA should rewrite agreements to identify the role played by PPNA is a fiscal agent, not fiscal sponsor. PPNA should encourage all partners to become incorporated entities at the state level. PPNA should explain to each partner that any donations collected by PPNA are not tax deductible. Client Response PPNA agrees with the recommendations of legal counsel and the auditor. PPNA will take steps to implement the recommendations. 13-2 UNEMPLOYMENT INSURANCE RATE INCREASE In prior years, PPNA provided fiscal sponsorship to another neighborhood organization - Central Area Neighborhood Development Organization (CANDO). The agreement included paying former CANDO staff under PPNA s employment identification number. Since 2011, two former CANDO staff filed for unemployment insurance and PPNA was assessed over $10,000 of unemployment insurance costs. The unemployment insurance will be paid over the next four years. PPNA should attempt to recover funds by working with Neighborhood and Community Relations staff. 15 See accompanying Independent Accountant's Review Report
SCHEDULE OF FINDINGS AND RECOMMENDATIONS Client Response PPNA agrees with this recommendation and does not feel the increase in unemployment insurance costs is the responsibility of this Organization. PPNA will seek to recoup the unemployment assessment with the assistance of the NCR Department. FINDINGS & RECOMMENDATIONS - PREVIOUS ITEMS RESOLVED FROM 2012 12-1 Cash Receipts The Organization relied on the contract bookkeeper to deposit checks. We recommend PPNA notify the City of Minneapolis that PPNA would like to have direct deposits through an ACH system. This will limit some exposure to paper checks getting lost or stolen. If paper checks are still used, the checks should be stamped, For deposit only to PPNA immediately when received and entered into a check log by a PPNA employee. We also recommend deposits are made by a PPNA employee to ensure checks are deposited timely. Client Response In 2013, PPNA hired a new skilled contract accountant. PPNA enrolled in the City of Minneapolis direct payment system. However, PPNA continues to receive and process paper checks and cash from other funding sources on a monthly basis. PPNA adjusted its Accounting Procedures document to direct the responsibility of opening mail, logging checks and stamping For Deposit Only to one employee. The Executive Director made the deposits. Both employees log incoming checks/cash and then emails the separate logs to the accountant at the end of each month for reconciliation. 12-2 Bank Reconciliations We noted the monthly bank statement reconciliations are prepared by the contract bookkeeper; however, PPNA did not conduct an independent review of the reconciliation. During the review procedures, we noted the bank balance was not reconciled to the financial statement balance during the month of December, 2013. While the difference was small, errors in bank reconciliations are a significant internal control weakness. Therefore, we recommend the bank statements are received unopened by the Executive Director before they are used to perform the bank reconciliation by the contract bookkeeper. The Executive Director will review and sign off on each bank statement. Afterwards the bank reconciliation should be reviewed to determine the amounts are accurate by the Executive Director. Client Response In 2013, PPNA hired a new skilled contract accountant and improved the bank reconciliation process. The Executive Director receives bank statements unopened. The accountant is responsible for preparing the bank reconciliation. The Executive Director reviews and signs off on each bank statement and bank reconciliation. During 2013, there were no adjustments required to the bank reconciliations after this process was adopted. 16 See accompanying Independent Accountant's Review Report
SCHEDULE OF FINDINGS AND RECOMMENDATIONS 12-3 Accrual Accounting The Organization reports financial statements on a cash basis. The cash basis is a reliable way to communicate the cash position of the Organization. However, we noted the Executive Director spends a considerable amount of time and effort recasting the financial statements into a more useful and relevant format. We recommend PPNA consider the value of preparing financial statements on the accrual basis of accounting to provide a better understanding of the financial position of the Organization. Client Response In 2013, PPNA hired a new skilled contract accountant. As a result, the accountant prepares monthly financial statements on an accrual basis for presentation to the board. The financial position of PPNA is known on a month-to-month basis and extensively reviewed by the Executive Director and Board Treasurer. 12-4 Compliance Testing During testing of cash disbursements, we tested 25 transactions representing a sample of expenditures during the year. We found that all transactions were processed accurately and filed with evidence of the transaction being approved and supporting detail such as invoices available. No exceptions were noted in a test of transactions in 2013. Client Response PPNA is pleased to learn there were no exceptions noted in the processing of transactions during the past two audit periods (2012 and 2013). 12-5 Competitive Bids Process The Organization does not have a policy in place outlining its competitive bidding process before awarding contracts. At present, the Organization may hire contractors without first obtaining competitive bids from several suppliers. This may increase the risk that the Organization does not obtain the best price or quality. It also may provide an opportunity for a dishonest employee to receive kickbacks. To reduce these risks, we recommend that a policy be established requiring competitive bids from at least two suppliers for purchases over a specified dollar amount. The Organization should compare the bids and recommend one based on factors such as cost, quality, delivery, customer support, etc. Client Response In 2013, the board reviewed and approved a Procurement and Independent Contractors policy. The policy was followed in contract negotiations with outside consultants in 2013. 12-6 Fixed Assets PPNA has a high threshold for capitalizing fixed assets in their financial records. All fixed assets such as computers should be marked and identified as property of PPNA and maintained by a responsible official. The risk of unauthorized possession of a computer is reduced by clearly identify the asset as property of PPNA. 17 See accompanying Independent Accountant's Review Report
SCHEDULE OF FINDINGS AND RECOMMENDATIONS Client Response In 2013, PPNA marked and identified all PPNA property. In addition, all fixed assets are identified on a fixed asset list that is maintained in the office and in electronic form in the event of property loss. 12-7 Financial Reporting The financial reporting in 2012 included a significant amount of inconsistencies. Similar transactions were posted to different accounts, and 20 adjusting entries were needed to prepare the financial statements. In addition, the accounting reflected a mix of cash basis and accrual entries that were difficult to organize in a generally accepted format. We noted through inquiry the Executive Director spent a considerable amount of time each month adjusting the financial statements for internal and external use. In addition, the accounting process did not completely request reimbursement from the City of Minneapolis. We encourage PPNA review their reimbursement requests to ensure all eligible and allowable expenses are submitted for reimbursement. We recommend the PPNA investigate ways to improve their financial reporting so more relevant financial statements can be produced on a timely basis. Client Response In 2013, PPNA hired a new skilled contract accountant. Since the arrival of the new accountant the financial reporting of PPNA has improved in all aspects. The monthly financial statements include accurate actual to budget comparisons. Monthly financial statements include accurate measures of operating performance and the financial position of PPNA. In addition, the accountant has provided training to the board on how to read and use the financial statements. The board is pleased with the new reporting format and asks informed questions on a regular basis. 18 See accompanying Independent Accountant's Review Report