Financial Statements September 30, 2016 and 2015 (With Independent Auditors Report Thereon)
Table of Contents Page(s) Management s Discussion and Analysis 1 2 Independent Auditors Report 3 4 Basic Financial Statements: Statements of Net Position 5 Statements of Revenues, Expenses, and Changes in Net Position 6 Statements of Cash Flows 7 Notes to Financial Statements 8 9
Management s Discussion and Analysis September 30, 2016 and 2015 Introduction Alaska Ocean Observing System (AOOS) is one of 11 regional observing systems formed as part of the Integrated Ocean Observing System. AOOS's main mission is to obtain ocean information, data on key coastal and ocean variables, and ensure timely and sustained dissemination and availability of data. The following discussion and analysis provides an overview of the financial position and activities of AOOS as of and for the years ended September 30, 2016 and 2015. This discussion has been prepared by management and should be read in conjunction with the financial statements, including the notes thereto, which follow this section. Using the Financial Statements AOOS s financial report includes three basic financial statements: the statements of net position, the statements of revenues, expenses, and changes in net position, and the statements of cash flows. These statements are prepared in accordance with accounting principles generally accepted in the United States of America and Governmental Accounting Standards Board (GASB) pronouncements. Resources are classified into three net asset categories: unrestricted, restricted, and net investment in capital assets. Summary of Net Position The statement of net position presents the financial position of AOOS at the end of the fiscal year and includes all assets and liabilities of AOOS. Net position represents the difference between total assets and total liabilities. AOOS s assets, liabilities, and net position at September 30, 2016, 2015, and 2014 are summarized as follows: 2016 2015 2014 Assets: Current assets $ 689,923 555,269 622,109 Capital assets 6,860 20,580 Total assets $ 689,923 562,129 642,689 Liabilities: Current liabilities $ 689,923 555,269 622,109 Net position: Net investment in capital assets $ 6,860 20,580 Current assets decreased from September 30, 2014 to September 30, 2015 and increased from September 30, 2015 to September 30, 2016, due primarily to changes in federal grants receivable. In the same periods, current liabilities also changed in the same manner, due primarily to changes in accounts payable. 1 (Continued)
Management s Discussion and Analysis September 30, 2016 and 2015 Capital assets decreased from September 30, 2014 to September 30, 2015 and again from September 30, 2015 to September 30, 2016 due to depreciation. Statement of Revenues, Expenses, and Changes in Net Position The statement of revenues, expenses, and changes in net position presents the results of operations for AOOS as a whole. AOOS s significant recurring source of revenue is from federal grants. AOOS s revenues, expenses, and changes in net position for the years ended September 30, 2016, 2015, and 2014 are summarized as follows: 2016 2015 2014 Operating revenues $ 2,607,693 2,467,616 2,557,137 Operating expenses 2,614,553 2,481,336 2,570,858 Change in net position (6,860) (13,720) (13,721) Net position at beginning of year 6,860 20,580 34,301 Net position at end of year $ 6,860 20,580 Operating revenues and expenses decreased from 2014 to 2015 and increased from 2015 to 2016 due to changes in activity on federal grants. Contacting AOOS s Financial Management This financial report is designed to provide AOOS s management, grantors, and board members with a general overview of AOOS s finances, and to demonstrate its accountability for the money it receives. If you have questions about this report or need additional financial information, contact AOOS s fiscal agent at 301 Railway Avenue, Seward, Alaska, phone 907-224-6300. 2
KPMG LLP Suite 600 701 West Eighth Avenue Anchorage, AK 99501 Independent Auditors Report The Board of Directors Alaska Ocean Observing System: Report on the Financial Statements We have audited the accompanying financial statements of Alaska Ocean Observing System (AOOS), which comprise the statements of net position as of September 30, 2016 and 2015, and the related statements of revenues, expenses, and changes in net position, 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 U.S. generally accepted accounting principles; 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. Auditors 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. 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 auditors 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. Opinion on the Financial Statements In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AOOS as of September 30, 2016 and 2015, and the changes in its financial net position and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.
Other Matters U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 1 and 2 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 29, 2017 on our consideration of AOOS 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 to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering AOOS s internal control over financial reporting and compliance. June 29, 2017 4
Statements of Net Position September 30, 2016 and 2015 Assets 2016 2015 Current assets: Accounts receivable federal grants $ 684,788 459,287 Accounts receivable other grants and contracts 5,135 66,767 Other receivables (note 3) 29,215 Total current assets 689,923 555,269 Capital assets equipment, net (note 2) 6,860 Liabilities and Net Position $ 689,923 562,129 Current liabilities: Accounts payable $ 602,437 490,927 Other payable (note 3) 15,911 Accrued expenses 71,575 63,050 Deferred revenue 1,292 Total current liabilities 689,923 555,269 Net position: Net investment in capital assets 6,860 Total net position 6,860 Commitments and contingencies (notes 4 and 5) $ 689,923 562,129 See accompanying notes to financial statements. 5
Statements of Revenues, Expenses, and Changes in Net Position Years ended September 30, 2016 and 2015 2016 2015 Operating revenues: Federal grants $ 2,542,285 2,363,342 Other 65,408 104,274 2,607,693 2,467,616 Operating expenses: Data collection and dissemination 2,484,346 2,339,191 Administrative (note 3) 123,347 128,425 Depreciation 6,860 13,720 Total operating expenses 2,614,553 2,481,336 Change in net position (6,860) (13,720) Net position beginning of year 6,860 20,580 Net position end of year $ 6,860 See accompanying notes to financial statements. 6
Statements of Cash Flows Years ended September 30, 2016 and 2015 2016 2015 Cash flows from operating activities: Receipts from grants and contracts $ 2,442,532 2,556,235 Payments to vendors and subcontractors (2,039,237) (2,233,869) Payments for salaries and benefits (403,295) (322,366) Net change in cash Cash, beginning of year Cash, end of year $ Reconciliation of change in net position to net cash provided by operating activities: Change in net position $ (6,860) (13,720) Adjustments to reconcile change in net position to net cash provided by operating activities: Depreciation 6,860 13,720 Changes in assets and liabilities that provided (used) cash: Accounts receivable (163,869) 95,677 Other receivables 29,215 (29,215) Prepaid expenses 378 Accounts payable 127,421 (74,184) Accrued expenses 8,525 14,402 Deferred revenue (1,292) (7,058) Net cash provided by operating activities $ See accompanying notes to financial statements. 7
Notes to Financial Statements September 30, 2016 and 2015 (1) Organization and Summary of Significant Accounting Policies (a) Organization Alaska Ocean Observing System (AOOS) was formed in 2004 as one of 11 regional observing systems formed as part of the Integrated Ocean Observing System. AOOS is subject to accounting principles generally accepted in the United States of America applicable to state and local governments because a controlling majority of the members of the organization s governing body are appointed by one or more federal or state governments. The Seward Association for the Advancement of Marine Science (SAAMS) acts as a fiscal agent for AOOS and is reimbursed based on actual costs expended. SAAMS holds all cash received by AOOS and makes payments for all amounts owed. AOOS s net cash position is reported as accounts receivable from or accounts payable to SAAMS. (b) Measurement Focus and Basis of Accounting The accounts of AOOS are reported as an enterprise fund, using the flow of economic resources measurement focus. The accounts are maintained on the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of timing of related cash flows. (c) Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of contingent assets and liabilities, and revenue and expense for the reporting period. Actual results could differ from those estimates. (d) Revenues AOOS administers grants that are of a cost-reimbursement type that include provisions for advances and billings for costs incurred. Revenues and receivables of AOOS are recorded when reimbursable expenses are incurred to the extent of the grant or contract amount. Amounts receivable from federal funding agencies include amounts relating to expenses incurred prior to year-end but not billed until after year-end. Advances from federal funding agencies are considered earned when a qualifying expense is incurred. All receipts in excess of expenses for ongoing programs are recorded as deferred revenue. AOOS s principal operating revenue is grants. Grant funds received for the construction or acquisition of capital assets are considered capital contributions. When both restricted and unrestricted resources are available for use, it is AOOS s policy to use restricted resources first, then unrestricted resources as they are needed. (e) Capital Assets Capital assets are carried at original acquisition cost. Depreciation is computed using the straight-line method over their estimated useful lives. 8 (Continued)
Notes to Financial Statements September 30, 2016 and 2015 (f) Income Taxes AOOS is the Alaskan portion of the Integrated Ocean Observing System and as such is not a legal entity subject to federal income taxation. (2) Capital Assets Capital assets activity for the years ended September 30, 2016 and 2015 is as follows: October 1, September 30, 2015 Additions 2016 Equipment $ 68,601 68,601 Accumulated depreciation (61,741) (6,860) (68,601) $ 6,860 (6,860) October 1, September 30, 2014 Additions 2015 Equipment $ 68,601 68,601 Accumulated depreciation (48,021) (13,720) (61,741) $ 20,580 (13,720) 6,860 Capital assets consist entirely of a wave buoy that was placed in service during 2011. (3) Related-Party Transaction Under a memorandum of understanding between SAAMS and AOOS, SAAMS is paid for services provided while acting as the fiscal agent for AOOS. During the years ended September 30, 2016 and 2015, AOOS paid SAAMS $123,347 and $128,425 for those services, respectively. At September 30, 2016 and 2015, AOOS had accounts payables to SAAMS of $15,911 and accounts receivables from SAAMS of $29,215, respectively. (4) Defined Contribution Plan AOOS participates in a qualified defined contribution 401(k) retirement plan. A match on the 401(k) was implemented by AOOS in calendar year 2015. There were $4,675 and $844 of contributions charged to expense for fiscal year 2016 and 2015, respectively. (5) Commitments and Contingencies Amounts received or receivable from federal agencies are subject to audit and adjustment by the grantor agencies. Any disallowed claims, including amounts already collected, could become a liability of AOOS. In management s opinion, the amount that might be disallowed, if any, will not have a material effect on the financial statements. 9
Federal Financial Assistance Reports Year ended September 30, 2016 (With Independent Auditors Reports Thereon)
Table of Contents Page(s) Independent Auditors Report on Compliance for Each Major Program; Report on Internal Control over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 1 2 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 3 4 Schedule of Expenditures of Federal Awards 5 Notes to Schedule of Expenditures of Federal Awards 6 Schedule of Findings and Questioned Costs 7
KPMG LLP Suite 600 701 West Eighth Avenue Anchorage, AK 99501 Independent Auditors Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance The Board of Directors Alaska Ocean Observing System: Report on Compliance for Each Major Federal Program We have audited Alaska Ocean Observing System s (AOOS) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on AOOS s major federal program for the year ended September 30, 2016. AOOS s major federal program is 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. Auditors Responsibility Our responsibility is to express an opinion on compliance for AOOS s major federal program 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 AOOS 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 the major federal program. However, our audit does not provide a legal determination of AOOS s compliance. Opinion on Each Major Federal Program In our opinion, AOOS complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended September 30, 2016. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.
Report on Internal Control Over Compliance Management of AOOS 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 AOOS s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the 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 AOOS s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. 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. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of AOOS as of and for the year ended September 30, 2016, and have issued our report thereon dated June 29, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. June 29, 2017 2
KPMG LLP Suite 600 701 West Eighth Avenue Anchorage, AK 99501 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Directors Alaska Ocean Observing System: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Alaska Ocean Observing System (AOOS), which comprise the statement of net position as of September 30, 2016, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated June 29, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered AOOS 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 AOOS s internal control. Accordingly, we do not express an opinion on the effectiveness of AOOS 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 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether AOOS 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. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 3
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 AOOS s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering AOOS s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. June 29, 2017 4
Schedule of Expenditures of Federal Awards Year ended September 30, 2016 Catalog of federal domestic assistance Grant Subrecipient Federal Federal grantor/pass-through grantor program title number number expenditures expenditures Department of Commerce: National Oceanic and Atmospheric Administration: National Ocean Service: Alaska Regional Coastal and Ocean Observing System 11.012 NA11NOS0120020 $ 1,130,881 2,269,197 Implementation and Development of Regional Coastal Ocean Observing System: Alaska Ocean Observing System 2016-2021 11.012 NA16NOS0120027 85,014 170,680 Passed through the University of Washington: Turning the Headlights on High : Improving an Ocean Acidification Observation System in Support of Pacific Coast 22,912 Shellfish Growers 11.012 UWSC8632 49,230 Passed through the University of Alaska Fairbanks: Real-time Sensor System for Detecting Freeze Up on the Arctic Shelves 11.012 UAF 15-0071 5,576 1,238,808 2,494,683 Department of the Interior: U.S. Fish and Wildlife Service: Passed through National Fish and Wildlife Foundation: Cook Inlet Beluga Ecosystem Data Portal Development 15.663 0801-14-045926 40,973 47,602 Total federal awards $ 1,279,781 2,542,285 See accompanying notes to schedule of expenditures of federal awards. 5
Notes to Schedule of Expenditures of Federal Awards Year ended September 30, 2016 (1) General The accompanying schedule of expenditures of federal awards (the schedule) includes the federal award activity of the Alaska Ocean Observing System (AOOS) under programs of the federal government for the year ended September 30, 2016. 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). Federal awards received directly from federal agencies as well as federal awards passed through other organizations are included on the schedule. Because the schedule presents only a selected portion of the operations of AOOS, it is not intended to and does not present the financial position, changes in net position, or cash flows of AOOS. (2) Basis of Accounting The schedule of federal awards is presented using the accrual basis of accounting, which is described in note 1 to AOOS s financial statements. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-Profit Organizations, or the cost principles contained in Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (3) Loan Programs AOOS has not entered into any federal loan programs. (4) Cost Rate AOOS has not elected to use the de minimis 10% indirect cost rate. 6
Schedule of Findings and Questioned Costs Year ended September 30, 2016 (1) Summary of Auditors Results Financial Statements Type of auditors report issued on whether the financial statements were prepared in accordance with generally accepted accounting principles: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified not considered to be material weakness(es)? Yes X None reported Noncompliance material to the financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified not considered to be material weakness(es)? Yes X_ None reported Type of auditors report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 200.516(a)? yes X no Identification of Major Programs CFDA number Name of federal program 11.012 U.S. Department of Commerce, National Oceanic and Atmospheric Administration Alaska Regional Coastal and Ocean Observing System Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? x yes no (2) There were no reportable findings related to the financial statements reported in accordance with Government Auditing Standards. (3) There were no reportable findings and no questioned costs relating to federal awards. 7