Providence House, Inc. - provhouse.org House, Inc. ... Independent Auditor’s Report 3-4 ... The...

The report accompanying these financial statements was issued by

BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of

BDO International Limited, a UK company limited by guarantee.

Providence House, Inc.

Financial StatementsYears Ended June 30, 2015 and 2014


Financial StatementsYears Ended June 30, 2015 and 2014


Contents

2

Independent Auditor’s Report 3-4

Financial Statements

Statements of Financial Position 6-7

Statements of Activities 8-9

Statements of Functional Expenses 10-11

Statements of Cash Flows 12

Notes to Financial Statements 13-20

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

3

Independent Auditor’s Report

To the Board of Trustees of


Cleveland, Ohio

We have audited the accompanying financial statements of Providence House, Inc.

(a nonprofit organization), which comprise the statement of financial position as of

June 30, 2015, and the related statements of activities, functional expenses and cash flows

for the year 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 audit.

We conducted our audit in accordance with auditing standards generally accepted in 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’sjudgment, 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 polices 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.

32125 Solon Road Cleveland, OH 44139

Tel: 440-248-8787 Fax: 440-248-0841 www.bdo.com

4

Opinion

In our opinion, the financial statements referred to above present fairly, in all material

respects, the financial position of Providence House, Inc. as of June 30, 2015, and the

changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

The 2014 financial statements of Providence House, Inc. were audited by SS&G, Inc. whose

directors and professional staff joined BDO USA, LLP as of January 1, 2015, and has subsequently ceased operations. SS&G, Inc.’s report dated September 16, 2014 expressed an

unmodified opinion on those statements.

September 16, 2015

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Financial Statements

June 30, 2015 2014

Assets

Cash and cash equivalents 632,094$ 993,283$

Cash, restricted 475,561 292,994

Current portion of unconditional promises to give, net 276,167 249,773

Supplies inventory 280,480 232,009

Grants receivable 30,500 41,180

Prepaid expenses 34,193 53,216

Other receivables - 10,906

Total Current Assets 1,728,995 1,873,361

Property and Equipment

Land and improvements 308,433 269,433

Building and improvements 3,137,660 2,634,373

Equipment 203,917 194,837

Furniture and fixtures 55,036 55,036

3,705,046 3,153,679

Less: accumulated depreciation 994,238 777,603

2,710,808 2,376,076

Construction in progress 589,936 447,079

Net Property and Equipment 3,300,744 2,823,155

Other Assets

Unconditional promises to give, net 270,162 10,000

Total Assets 5,299,901$ 4,706,516$

See accompanying independent auditor's report

and notes to financial statements.


Statements of Financial Position

6

June 30, 2015 2014

Liabilities and Net Assets

Liabilities

Accounts payable 101,993$ 28,364$

Accrued payroll 31,895 37,619

Other accrued expenses 55,152 53,417

Total Liabilities 189,040 119,400

Net Assets

Unrestricted

Undesignated 539,821 1,136,554

Net investment in property and equipment 3,300,744 2,823,155

3,840,565 3,959,709

Temporarily restricted 1,270,296 627,407

Total Net Assets 5,110,861 4,587,116

Total Liabilities and Net Assets 5,299,901$ 4,706,516$



Statements of Financial Position


7

Unrestricted

TemporarilyYear ended June 30, 2015 Undesignated Restricted Total

Public Support and Revenue

Public Support

Contributions and grants 917,202$ 1,069,519$ 1,986,721$

Government funding 246,275 - 246,275

Federated income 164,178 - 164,178

Donated items 203,851 - 203,851

Restricted funds released for current activities 419,896 (419,896) -

Total Public Support 1,951,402 649,623 2,601,025

Revenue

Special event revenue 436,521 - 436,521

Less: direct benefit to donor (167,779) - (167,779)

Other income 31,400 (6,754) 24,646

Interest and dividend income 1,705 20 1,725

Total Revenue 301,847 (6,734) 295,113

Total Public Support and Revenue 2,253,249 642,889 2,896,138

Expenses and Losses

Program services 1,899,650 - 1,899,650

Management and general 184,886 - 184,886

Fundraising 287,857 - 287,857

Total Expenses and Losses 2,372,393 - 2,372,393

Change in Net Assets (119,144) 642,889 523,745

Net Assets, beginning of year 3,959,709 627,407 4,587,116

Net Assets, end of year 3,840,565$ 1,270,296$ 5,110,861$




Statement of Activities

8

Unrestricted

TemporarilyYear ended June 30, 2014 Undesignated Restricted Total

Public Support and Revenue

Public Support

Contributions and grants 949,465$ 182,289$ 1,131,754$

Government funding 209,226 - 209,226

Federated income 40,863 - 40,863

Donated items 180,141 - 180,141

Restricted funds released for current activities 494,142 (494,142) -

Total Public Support 1,873,837 (311,853) 1,561,984

Revenue

Special event revenue 378,276 - 378,276

Less: direct benefit to donor (128,112) - (128,112)

Other income 47,820 - 47,820

Interest and dividend income 1,146 150 1,296

Total Revenue 299,130 150 299,280

Total Public Support and Revenue 2,172,967 (311,703) 1,861,264

Expense and Losses

Program services 1,774,422 - 1,774,422

Management and general 224,111 - 224,111

Fundraising 217,360 - 217,360

Total Expense and Losses 2,215,893 - 2,215,893

Change in Net Assets (42,926) (311,703) (354,629)

Net Assets, beginning of year 4,032,635 909,110 4,941,745

Reclassification of Net Assets (30,000) 30,000 -

Net Assets, end of year 3,959,709$ 627,407$ 4,587,116$



Statement of Activities


9

Year ended June 30, 2015 Program Services

Management

and General Fundraising Total

Salaries and related payroll expenses 1,075,042$ 97,115$ 137,768$ 1,309,925$

Special events - - 167,779 167,779

Printing and other fundraising expenses 21,129 6,355 58,344 85,828

Insurance 40,741 3,683 5,260 49,684

Professional fees 196,794 39,540 35,000 271,334

Utilities and real estate taxes 73,036 6,486 7,969 87,491

Office and miscellaneous 69,643 6,291 8,925 84,859

Interest expense 4,216 - - 4,216

Supplies and food 149,386 - - 149,386

Repairs and maintenance 89,035 8,050 11,494 108,579

Automobile 2,987 1,305 164 4,456

Total Expenses 1,722,009 168,825 432,703 2,323,537

Less: expenses netted with revenues

on the statement of activities - - 167,779 167,779

Total functional expenses before depreciation 1,722,009 168,825 264,924 2,155,758

Depreciation 177,641 16,061 22,933 216,635

Total Functional Expenses 1,899,650$ 184,886$ 287,857$ 2,372,393$



Statement of Functional Expenses


10

Year ended June 30, 2014 Program Services

Management and

General Fundraising Total

Salaries and related payroll expenses 1,072,599$ 120,585$ 114,863$ 1,308,047$

Special events - - 128,112 128,112

Printing and other fundraising expenses 16,861 - 59,025 75,886

Insurance 38,412 4,319 4,114 46,845

Professional fees 121,421 58,885 1,194 181,500

Utilities and real estate taxes 69,016 7,614 5,959 82,589

Office and miscellaneous 60,385 6,789 6,469 73,643

Interest expense 4,600 - - 4,600

Supplies and food 153,501 - - 153,501

Repairs and maintenance 72,678 8,171 7,783 88,632

Automobile 6,161 320 525 7,006

Total Expenses 1,615,634 206,683 328,044 2,150,361

Less: expenses netted with revenues

on the statement of activities - - 128,112 128,112

Total functional expenses before depreciation 1,615,634 206,683 199,932 2,022,249

Depreciation 158,788 17,428 17,428 193,644

Total Functional Expenses 1,774,422$ 224,111$ 217,360$ 2,215,893$



Statement of Functional Expenses


11

Year ended June 30, 2015 2014

Operating Activities

Change in net assets 523,745$ (354,629)$

Adjustment to reconcile change in net assets to cash

from (for) operating activities:

Depreciation 216,635 193,644

Gain on sale of property and equipment - (44,860)

Change in the present value discount on pledges receivable 6,754 (5,658)

Change in allowance for doubtful pledges - (15,943)

Change in supplies inventory (48,471) (19,025)

(Increase) decrease in assets:

Unconditional promises to give (706,060) 35,671

Grants receivable 10,680 (41,180)

Prepaid expenses 19,023 (32,439)

Other receivables 10,906 1,865

(Decrease) increase in liabilities:

Accounts payable (13,374) (4,306)

Accrued payroll (5,724) 4,572

Other accrued expenses 1,735 983

Net cash from (for) operating activities 15,849 (281,305)

Investing Activities

Proceeds from sale of land - 1,339,497

Proceeds from sale of investments - 159,975

Purchases of property and equipment (607,221) (551,701)

Net cash (for) from investing activities (607,221) 947,771

Financing Activities

Proceeds from payment of capital pledges 412,750 331,434

Net cash from financing activities 412,750 331,434

Net (Decrease) Increase in Cash and Cash Equivalents (178,622) 997,900

Cash and Cash Equivalents, beginning of the year 1,286,277 288,377

Cash and Cash Equivalents, end of the year 1,107,655$ 1,286,277$

Purchases of Property and Equipment Included in Accounts Payable 87,003$ -$

Transfer of Construction in Progress into Property and Equipment 3,616$ -$



Statements of Cash Flows


12


Notes To Financial Statements

See accompanying independent auditor’s report.

13

1. Organization Background

Providence House, Inc. (the Organization), an Ohio nonprofit corporation, was formed in 1981 for

the purpose of providing emergency shelter and residential care on a short-term basis for children

in crisis situations which place them at risk for abuse and neglect. The Organization’s programs

currently support a range of services to children and their families including 24/7 residential

childcare for children 0-10 years old in placements lasting up to 60 days (90 days in special circumstances), child and family case management services, educational and visitation programs

for children and parents, trauma services and therapies, and a 6-month Aftercare Program with a

focus on child protection, abuse/neglect prevention, and family preservation. This is the first

such facility, and one of only two currently operating in the State of Ohio, licensed under

AM.Sub.S.B.258 with subsequent modifications through S.B.242 and Ohio Revised Code 5101:2-5 and 5101:2-9. Revenue is principally received from private donations from foundations, corporations, individuals and government grants.

2. Summary of Significant Accounting Policies

Basis of Accounting

The Organization's financial statements have been prepared as recommended by the American

Institute of Certified Public Accountants’ (AICPA) Audit and Accounting Guide for Not-for-Profit Organizations. The AICPA Audit and Accounting Guide includes the requirements of Financial

Accounting Standards Board (FASB) Codification, Financial Statements of Not-for-Profit Organizations (the Codification). Under the Codification, the Organization is required to report

information regarding its financial position and activities according to three classes of net assets:

unrestricted, temporarily restricted, and permanently restricted.

Unrestricted Net AssetsNet assets not restricted by donors. This category includes net assets available for the

Organization’s operating purposes and designated by the Board for specific purposes.

Temporarily Restricted Net AssetsNet assets limited by donor-imposed restrictions that either expire by the passage of time or

can be fulfilled and removed by actions of the Organization pursuant to the stipulations.

Permanently Restricted Net Assets

Net assets subject to donor imposed stipulations that neither expire with the passage of time nor be fulfilled or removed by actions of the Organization, unless otherwise provided by law.

As of June 30, 2015 and 2014, there were no permanently restricted net assets.




14

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 certain reported amounts. Accordingly, actual results could differ from

those estimates.

Cash and Cash Equivalents

The Organization considers all unrestricted highly liquid investments with an initial maturity of

three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short maturities of these financial instruments.

Management internally designates certain cash balances held for future purposes as Cash,

restricted on the accompanying statements of financial position.

Concentrations of Risk

Financial instruments that potentially subject the Organization to concentrations of credit risk

consist primarily of cash and cash equivalents, and receivables. Cash accounts are insured by the Federal Deposit Insurance Corporation and cash balances may exceed the insured amount from

time to time. As of June 30, 2015, two (2) individuals comprised 71% of the grants and net pledges receivable; and as of June 30, 2014, two organizations comprised 78% of the grants and net pledges

receivable. As of June 30, 2015, one (1) individual comprised 17% of the total public support and

revenue. The Organization had no other significant concentrations of credit risk as of June 30, 2015 and 2014.

Revenue Recognition on Government Grants

The Organization recognizes revenue related to fees for service government grants as the related services are performed or expenses are incurred.

Promises to Give

Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give are recognized as pledges receivable and a related

contribution when made. Pledges spanning over multiple periods are discounted at an adjusted risk-

free rate of 2.5%.

The Organization uses the allowance method to determine uncollectible unconditional promises to give. The allowance is based on prior experience and management’s analysis of specific promises

made. In the opinion of management, no allowance was necessary at June 30, 2015 and 2014.




15

Unconditional promises to give are comprised of the following:

June 30, 2015 2014

Receivable in less than one year $ 276,167 $ 249,773

Receivable in one to five years 276,916 10,000

Total unconditional promises to give 553,083 259,773

Less: allowance for present value adjustment 6,754 -

Unconditional promises to give, net $ 546,329 $ 259,773

Supplies Inventory

The Organization receives a significant portion of its supplies via donated items. Supplies

inventory represents the unused portion of these supplies as of June 30, 2015 and 2014. The Organization estimates the fair value of contributed supplies based on external pricing data to

determine an estimated value.

Grants Receivable

Grants receivable represents reimbursable grants from the State of Ohio for use in the

Organization’s activities.

Land Available for Sale

On May 17, 2013, the Organization entered into an agreement with St. Ignatius High School of

Cleveland (St. Ignatius) in which the Organization agreed to sell approximately 1.0069 acres of

land bounded by West 32nd Street on the West, Keene Court on the North, West 31st Street on the

East, and various residential parcels on the South. The purchase price was set at $1,350,000. The purchase was paid in two tranches, the first tranche of $1,000,000 was paid on September 9,

2013, and the second tranche of $350,000 was paid on September 13, 2013. During the prior fiscal

year, the Organization recognized a gain on sale in the amount of $59,890 which is included in

other income on the statement of activities.




16

Property and Equipment

The Organization records property and equipment, including construction in progress, at cost for

purchased items and at fair market value for donated items. The policy of the Organization is generally to capitalize assets over $2,500 in value and with a useful life greater than one year.

Property and equipment are depreciated using the straight-line method over the estimated useful

lives of the related assets. Estimated lives for building and improvements, equipment, and furniture

and fixtures range from five to thirty-one and one half years.

Fully depreciated property and equipment costs of $322,865 were written off during the year ended

June 30, 2014. No property and equipment was written off during the year ended June 30, 2015.

Special Event Revenue

Special event revenue primarily consists of gross proceeds from various events held by the

Organization. The Organization also received support from special events that are sponsored by

other independent organizations. Net support from these independently sponsored events is reported on the statement of activities.

Donated Items and Services

The fair market value of certain donated items and services represent rents for facility, various

supplies and food, repairs, and capital items, which have been recorded as revenue and have either been capitalized or expensed in the statement of activities.

A number of volunteers have donated time to the Organization’s program services and fundraising

campaigns. While an individual must attend several hours of training before volunteering for certain

program services, these services do not meet the criteria for recognition as contributed services

since the volunteers are not required to have advanced educational degrees or credentials. The Organization benefitted from more than 5,811 (unaudited) volunteer hours in the year ended June

30, 2015, representing a dollar value of approximately $131,038 in volunteer services for the

representative fiscal year based on the 2014 Bureau of Labor Statistics Dollar Value of a Volunteer

Hour.

Functional Allocation of Expenses

The costs of providing the Organization’s various programs and supporting services have been

summarized on a functional basis in the statement of activities. Expenses are generally charged to

the specific program for which they are incurred; in some cases, however, certain common costs are

allocated among the programs and supporting services benefited.




17

Evaluation of Subsequent Events

The Organization has evaluated subsequent events through September 16, 2015, the date which

the financial statements were available to be issued, and has determined that no further

adjustments or additional disclosures are necessary.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current

year presentation with no impact on previously reported net assets.

3. Revolving Line of Credit

The Organization has a revolving line of credit with a bank which will expire in May 2016. The Organization can draw from this line as needed, in an amount not to exceed $400,000. Interest is

payable monthly and is equal to the prime rate (3.25% at June 30, 2015 and 2014). The line is

secured by the Organization’s assets, except for real property. The Organization had no borrowings outstanding as of June 30, 2015 and 2014.

4. Pension Plan

The Organization sponsors a Simple IRA that covers employees that are 21 years old and have at

least one year of service. The amount of pension expense was $18,871 and $16,621 for the years ended June 30, 2015 and 2014, respectively.

5. Forgivable Mortgages and Loan

During the year ended June 30, 2013, Providence House received a forgivable mortgage from the

Ohio Department of Mental Health and Addiction Services, now known as the Ohio Department of Mental Health and Addiction Services (OMHAS), and a forgivable loan from the City of Cleveland (the

City).

The forgivable mortgage from OMHAS bears no interest, is secured by real estate, and need not

be repaid as long as the Organization uses the property for the provision of approved mental

health services for at least 30 years. The mortgage is forgiven on a monthly basis, through the

maturity date which is March, 2042. If the Organization defaults under the terms of the

agreement, the balance remaining to be forgiven is immediately due and payable. The balance of the note still to be forgiven was approximately $178,400 and $184,000 at June 30, 2015 and

2014, respectively.




18

The forgivable loan from the City of Cleveland bears interest at 6% annually, and matures on November 1, 2017. Principal payments on the loan are deferred and payable on the maturity

date; however, the Organization will be released from the obligation to repay the loan and the

related accrued interest once the City receives written confirmation from the Director of

Economic Development that certain terms and conditions, as defined, have been met. To date,

the Organization has met these terms. The balance on the loan, plus accrued interest, was approximately $78,800 and $74,600 at June 30, 2015 and 2014, respectively.

During the year ended June 30, 2015, Providence House received a forgivable mortgage from OMHASnot to exceed $191,640. The forgivable mortgage from OMHAS bears no interest, is secured by real

estate, and need not be repaid as long as the Organization uses the property for the provision of

approved mental health services for at least 30 years. The mortgage is forgiven on a monthly basis

beginning in the month in which the project is used for mental health services. The proceeds from the mortgage are to be used towards additional capital improvements for Leo’s House. Providence

house can request up to 90% of the funds before the project is completed by submitting the appropriate documentation for the project expenditures and the remaining 10% upon completion, as

defined. As of June 30, 2015, Providence House had not submitted any requests for reimbursement

nor received any proceeds from the forgivable mortgage.

6. Net Assets

Temporarily Restricted

Temporarily restricted net assets have donor restrictions for time and/or purpose and are as

follows:

June 30, 2015 2014

Case Western Reserve University study $ - $ 30,000

Forgivable mortgage and loan 248,407 254,334CARF accreditation, training and certification 17,523 -

Staffing and consultants 22,377 -

Charles Bowlus Charities 10,365 -

Capital improvements 5,309 -Elisabeth’s House: Prentiss Wellness Nursery 405,602 66,151

Medical services 306 1,138

Miscellaneous 12,297 10,666

Outdoor equipment 240 240

Unconditional promises to give, net 546,329 259,773Technology upgrades 1,541 5,105

$ 1,270,296 $ 627,407




19

Net assets were released from temporarily restricted funds as follows:

June 30, 2015 2014

Amortization of forgivable loan $ 5,927 $ 6,666

Charles Bowlus Charities 6,270 -

Capital improvements 19,691 -

Elisabeth’s House: Prentiss Wellness Nursery 9,323 4,047

CARF accreditation 8,363 507Medical services 1,332 2,087

Other 11,113 23,447

Staffing and consultants 13,123 508

Promises to give 305,190 441,504Case Western Reserve University study 30,000 856

Technology upgrades 9,564 14,520

$ 419,896 $ 494,142

7. Operating Leases

The Organization leases copiers and security services under non-cancellable operating lease agreements. Expenses for non-cancellable operating leases and contract services totaled $25,467

and $22,822 for the years June 30, 2015 and 2014, respectively. The following is a schedule of future minimum lease payments required under these agreements as of June 30, 2014:

Years ended June 30, Amount

2016

201720182019

$ 6,189

6,1896,1892,063

Thereafter -

$ 20,630

8. Income Taxes

The Internal Revenue Service has ruled that the Organization qualifies under Section 501(c)(3) of the

Internal Revenue Code and is, therefore, not subject to tax under present federal income tax laws.

The Organization has not been classified as a private foundation within the meaning of Section 509(a).




20

The Organization’s income tax filings are subject to audit by various taxing authorities. The Organization’s open audit periods are 2012 through the current year. In evaluating the

Organization’s activities, management believes its position of tax-exempt status is appropriate

based on current facts and circumstances. Management has assessed that there are no activities

unrelated to the purpose of the Organization and therefore no tax is to be recognized.

It is the policy of the Organization to include in management and general expenses penalties and

interest assessed by income taxing authorities. There were no penalties or interest from taxing

authorities included in management and general expenses for the years ended June 30, 2015 and

2014.

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