meals on wheels for western new york, inc. and related entity · pdf filewestern new york,...

REPORT TO THE BOARD OF DIRECTORS

MEALS ON WHEELS FOR WESTERN NEW YORK, INC. AND RELATED ENTITY

DECEMBER 31, 2016

June 27, 2017 Board of Directors Meals on Wheels for Western New York, Inc. and Related Entity 100 James E. Casey Drive Buffalo, New York 14206 We are pleased to present this report related to our audit of the consolidated financial statements of Meals on Wheels for Western New York, Inc. and Related Entity (the “Organization”) as of and for the year ended December 31, 2016. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for Meals on Wheels for Western New York Inc. and Related Entity’s financial reporting process. This report is intended solely for the information and use of the Board of Directors and management and is not intended to be and should not be used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to Meals on Wheels for Western New York, Inc. and Related Entity.

Contents

Required Communications ....................................................................................................................................... 3 - 5

Summary of Significant Accounting Estimates ......................................................................................................... 6 - 7

Summary of Recorded Audit Adjustments ..................................................................................................................... 8

Exhibit A - Letter Communicating Control Deficiencies in Internal Control Over Financial Reporting .................... 9 - 10

Exhibit B - Certain Written Communications Between Management and Our Firm ..................................................... 11

Engagement Letter

Representation Letter

Required Communications

Generally accepted auditing standards (AU-C 260, The Auditor’s Communication with Those Charged with Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the consolidated financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process.

Area Comments

Our Responsibilities with regard to the Financial Statement Audit

Our responsibilities under auditing standards generally accepted in the United States of America and the standards applicable to financial statement audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, have been described to you in our arrangement letter dated February 8, 2017. Our audit of the consolidated financial statements does not relieve management or those charged with governance of their responsibilities which are also described in that letter.

Overview of the Planned Scope and Timing of the Financial Statement Audit

We have issued a separate communication regarding the planned scope and timing of our audit and have discussed with you our identification of and planned audit response to significant risks of material misstatement.

Accounting Policies and Practices Preferability of Accounting Policies and Practices

Under generally accepted accounting principles, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice.

Adoption of, or Change in, Accounting Policies

Management has the ultimate responsibility for the appropriateness of the accounting policies used by the Organization. The Organization is currently evaluating the impact of the following recently issued accounting pronouncements on its consolidated financial statements:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity is expected to be entitled for those goods or services. The ASU is effective for periods beginning after December 15, 2018 with early adoption permitted.

In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which will improve current net asset classification requirements and the information presented in financial statements and footnotes

Area Comments about a not-for-profit’s liquidity, financial performance, and cash flows. The ASU is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

Significant or Unusual Transactions

We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

Management’s Judgments and Accounting Estimates

Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates in the attached “Summary of Significant Accounting Estimates.”

Basis of Accounting The consolidated financial statements were prepared on assumption that the entity will continue as a going concern.

Audit Adjustments Audit adjustments proposed by us and recorded by the Organization are shown on the attached “Summary of Recorded Audit Adjustments”.

Uncorrected Misstatements We are not aware of any uncorrected misstatements other than misstatements that are clearly trivial.

Disagreements with Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management’s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the consolidated financial statements.

Area Comments

Consultations with Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters.

Significant Issues Discussed with Management

No significant issues arising from the audit were discussed or the subject of correspondence with management.

Significant Difficulties Encountered in Performing the Audit

We did not encounter any significant difficulties in dealing with management during the audit.

Letter Communicating Control Deficiencies in Internal Control Over Financial Reporting

We have separately communicated the control deficiencies in internal control over financial reporting identified during our audit of the consolidated financial statements, and this communication is attached as Exhibit A.

Certain Written Communications Between Management and Our Firm

Copies of certain written communications between our firm and the management of the Organization, including the representation letter provided to us by management, are attached as Exhibit B.

Meals on Wheels for Western New York, Inc. and Related Entity Summary of Significant Accounting Estimates Year Ended December 31, 2016

Accounting estimates are an integral part of the preparation of consolidated financial statements and are based upon management’s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the Organization’s December 31, 2016, consolidated financial statements.

Estimate

Accounting Policy

Management’s Estimation Process

Basis for Our

Conclusions on Reasonableness

of Estimate Building and Equipment Depreciation

Management depreciates building and equipment additions over the estimated useful lives of the assets.

Management has been consistent in applying lives used for each class of asset.

The lives used to estimate depreciation appear reasonable.

Pledges and Accounts Receivable Allowance

Management estimates and establishes an allowance for doubtful accounts based on collection history and current credit conditions.

At year-end, management reviews the pledges, grants and accounts receivable detail and identifies old or questionable receivables and establishes a reserve.

Management’s process to evaluate receivables and establish an allowance appears reasonable.

Present Value of Pledges Receivable

Pledges receivable that are expected to be collected in future years are recorded at the present value of estimated future cash flows.

The discount on pledges receivable to be collected in future years is computed using a risk-adjusted interest rate applicable at the date of the pledge.

Management’s process for discounting pledges receivable expected to be collected is not likely to result in a material misstatement.

Functional Expenditures

Management estimates expenditures by functional class of major program services and supporting activities.

At year-end, management reviews and identifies expenditures attributable to a particular functional category and allocates expenditures that relate to more than one functional category.

The process used by management appears reasonable.

Estimate

Accounting Policy

Management’s Estimation Process

Basis for Our Conclusions on Reasonableness

of Estimate Investments

The Organizations’ investments are valued at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, the Organization follows FASB ASC Topic 820, “Fair Value Measurements,” as it defines fair value and establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels of Level 1, 2, or 3.

Management has described the valuation techniques used for valuing investments at fair value in the consolidated financial statement footnotes. Additionally, management has broken out the investment into Level 1, 2, or 3 based on valuation hierarchy.

Management’s process to evaluate fair value and establish the fair value hierarchy for its investments appears reasonable.

Meals on Wheels for Western New York, Inc. and Related Entity

Summary of Recorded Audit Adjustments Year Ended December 31, 2016

Effect - Increase (Decrease)

Description Assets Liabilities Equity Revenue Expense

Entry to true up minor net asset roll forward difference.

$ - $ - $ (88) $ - $ (88)

Entry to write off supplies improperly included as property plant and equipment.

(246) - - - 246

Entry to adjust classification of $217,422 in Foundation net assets.

- - - - -

Entry to record previously omitted grant revenue and reclass amount to temporarily restricted net assets.

35,000 - - 35,000 -

Entry to book current year disposals in the amount of $19,116.

- - - - -

Entry to reclassify realized and unrealized gains on investments in the amount of $9,882.

- - - - -

Entry to adjust short-term and long-term pledges receivable in the amount of $62,973.

- - - - -

Entry to reclassify contributions out of congregate revenues in the amount of $502,329.

- - - - -

Total Pretax Effect - - 34,842 $ 35,000 $ 158

Balance Sheet Effect (Pretax) $ 34,754 $ - $ 34,754

Exhibit A - Letter Communicating Control Deficiencies in Internal Control Over Financial Reporting To Management and Board of Directors of Meals on Wheels for Western New York, Inc. and Related Entity In planning and performing our audit of the consolidated financial statements of Meals on Wheels for Western New York, Inc. and Related Entity (the Organization) as of and for the year ended December 31, 2016, in accordance with auditing standards generally accepted in the United States of America, we considered the Organization’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization’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 deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Organization’s consolidated 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. Certain deficiencies in internal control that have been previously communicated to you, in writing, by us or by others within your organization are not repeated herein. Following are descriptions of other identified deficiencies in internal control that we determined did not constitute significant deficiencies or material weaknesses: Multiyear Pledges Receivable Pledges receivable expected to be collected in future years are recorded at the present value of estimated future cash flows. The related discounts should be computed using a risk-adjusted interest rate applicable to the date of the pledge. During our audit, we noted that management did not adjust the period used in the calculation to coincide with the remaining years for each pledge. This treatment is not in accordance with ASC 958 but the calculated variance was determined to be immaterial to the consolidated financial statements. We recommend that the Organization ensure their practice is in accordance with the accepted accounting policy related to pledges receivable.

Contribution Revenue Unconditional promises to give are required to be recorded in the period the pledge is received, which does not necessarily correlate with the period the payment is received. During our audit, we noted an instance whereby a $35,000 pledge was received by the Organization, but was never recognized as contribution revenue. Although no cash was actually received prior to year-end December 31, 2016, all valid pledges to donate to the Organization should be recorded as revenue in the period in which the pledge is made. We recommend the Organization implement a procedure to reconcile the promises to give, the development office pledge documentation and the recording of revenue to ensure all revenue earned by the Organization is recognized within the proper period. Medicaid Billing Processes During our audit, we noted that the amount of Medicaid activity continues to increase for the Organization. Due to the complex and detailed billing requirements regarding Medicaid billing, there were amounts identified during the year that were determined to be uncollectible. As a government program, Medicaid claims must follow specific coding processes in order to bill for reimbursement. We recommend that the Organization consult with a revenue recognition specialist who can provide additional insight into the Medicaid process and help establish best practices for the Organization in order to maximize revenue collections. Service Agreements The Organization has a significant amount of service agreements in place with various Organizations throughout WNY. During our review of the executed agreements currently in place, instances were identified in which an agreement was not renewed in a timely manner and a new service line was created and no new agreement or amendment was created at that time to outline the terms. Due to the volume of activity, we recommend the Organization implement a process to ensure that all current agreements are reviewed in order to monitor that current and valid agreements are in place for all required service arrangements. Adherence to Investment Policies During our audit, we noted certain discrepancies between the year end investment balance allocation and the established investment policies adopted by the Board. We noted at December 31, 2016, the Organization’s investment allocation consisted of 82% equities compared to the investment policy’s allocation guideline of an upper limit of 80% total equities. The purpose of the adoption of an investment policy is to set forth the overall investment philosophy of the Organization as decided by its governing board. The policy should be the guiding rule and it should be followed and monitored for compliance. We suggest the Organization take steps to ensure that a quarterly monitoring of the investment mix is in line with the policy. A copy of the investment policy should be provided to the investment manager and reviewed at each meeting with the investment committee. An investment policy is a very effective means of protecting the assets of the Organization, and we suggest that a procedure be implemented and ensure it is monitored by the investment committee. Cyber Security The Organization currently does not have a technology vulnerability management and penetration testing program to protect itself from cybersecurity threats. New vulnerabilities and new attacker exploits are identified almost daily, leaving the Organization susceptible to attack. In addition, hardware and software vendors are releasing security upgrades on a routine basis which can be difficult for IT departments to keep current on, a testing program helps assure the proper security is in place. Periodic internal and external vulnerability and penetration testing should be performed at least annually to identify potential vulnerabilities and improve the security of your network, or whenever a significant change is made to the IT environment that could increase the potential to be compromised. This communication is intended solely for the information and use of management and Board of Directors and is not intended to be, and should not be, used by anyone other than these specified parties.

Buffalo, NY June 27, 2017

Exhibit B - Certain Written Communications Between Management and Our Firm

Engagement Letter - see attached Representation Letter - see attached

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