EVERGREEN YOUTH & FAMILY SERVICES, INC. BEMIDJI, MINNESOTA

FINANCIAL STATEMENTS AND

INDEPENDENT AUDITOR'S REPORT DECEMBER 31,1016 AND 2015

EVERGREEN YOUTH & FAMILY SERVICES, INC.

OFFICIAL DIRECTORY

BEMIDJI, MINNESOTA DECEMBER 31,2016 ANl) 2015

TABLE OF CONTENTS

INDEPENDENT AUDITOR'S REPORT

FINANCIAL STATEMENTS:

Statements of Financial Position

Statements of Activities

Statements of Cash Flows

Statements of Functional Expenses

Notes to Financial Statements

1

2-3

4

5

6

7

8-19

Board of Directors:

Chairperson

Vice-Chairperson

Secretary/Treasurer

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

Staff:

Executive Director

EVERGREEN YOUTH & FAMILY SERVICES, INC. BEMIDJI, MINNESOTA

YEAR ENDED DECEMBER 31, 2016

OFFICIAL DIRECTORY (UNAUDITED)

1

Mary Auger

Drew Hildenbrand

·nave Moffett

Beth DeKrey

Tim Faver

Bob Enger

Katherine Houchins

Ayla Koob

Angie Lauderbaugh

Tonya Marden

AI Pederson

Dana Wolff

Barry Yocom

Shad Swanson

Rebecca Schueller

MILLER MCDONALD, INC. Cn1i{ied Publi< ,"lccuuntants

513 Beltrami Avenue P.O. Box 486

Bemidji, MN 56619 (218) 751-6300

Fax (218) 751-0782 www.millermcdonald.com

LNDEPENDENT AUDITOR'S REPORT

To the Board of Directors Evergreen Youth & Family Services, Inc. Bemidji, Minnesota

Report on the Financial Statements

2

We have audited the accompanying financial statements of Evergreen Youth & Family Services, Inc. (a nonprofit organization), which comprise the statements of financial position as of December 31, 2016 and 2015, an<J the related statements of activities, cash flows and functional expenses for the years then ended, and the related notes to the financial statements.

Mlmagement's Responsibilitv {or the Fitum:cial 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 intermd 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 Resptmsibilitv

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 auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting esti~ates 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.

3 OpiniOJt

In otir opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Evergreen Youth & Family Services, Inc. as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Other Matters

Other Information

The official directory on page 1 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not be~n subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it.

Other Reporting Required by Gover11ment Auditing Standards

In accordance with Government Auditing Standards, we have also issued a separate report dated May 31,2017 on our consideration of Evergreen Youth & Family Services, Inc.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the 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 Evergreen Youth & Family Services, Inc.'s internal control over financial reporting and compliance.

Bemidji, Minnesota May 31,2017

4 EVERGREEN YOUTH & FAMILY, SERVICES, INC.

STATEMENTS OF FINANCIAL POSITION DECEMBER 31,2016 AND 2015

2016 2015

Assets Current Assets

Cash and Cash Equivalents $ 118,564 $ 174,568

Investments 67,731 67,381

Program Service Fees Receivable - Net of Allowance 63,448 58,092

Grants Receivable 186,292 152,125

Contributions Receivable, Net of Discounts and Allowances 1,955 2,808

Prepaid Insurance 10,799 6,141

Prepaid Rent 17,839 13,471

Total Current Assets 466,628 474,586

Other Assets Beneficial Interest in Assets Held by Others 15,577 14,757

Property and Equipment, Net of Accumulated Depreciation 194,686 129,119

Total Other Assets 210,263 143,876

Total Assets $ 676,891 $ 618,462

Liabilities and Net Assets Current Liabilities

Accounts Payable $ 12,223 $ 10,304

Accrued Payroll and Payroll Withholdings 23,822 61,079

Accrued Compensated Absences 34,468 30,515

Deferred Revenue 85,096 94,175

Funds Held in Fiscal Agency 6,959 8,893

Total Current Liabilities 162,568 204,966

Net Assets Unrestricted

Invested in Property and Equipment 194,686 129,119

Board Designated 98,724 70,173

Undesignated 188,523 192,548

Temporarily Restricted 16,813 6,899 Permanently Restricted 15,577 14,757

Total Net Assets 514,323 413,496

Total Liabilities and Net Assets $ 676,891 $ 618,462

See Accompanying Notes to Financial Statements.

6 1-.:VERGREEN \'OUTII & FAMILY SERV I ' ES, I

STATEMENTS OF CASH FLOWS

YEARS ENDED OF. EMBER 31,2016 NO 2015

INCREAS~: (UECREI\SE) INC

Cash Flows from Ol!erating Activities 2016 2015

Increase (Decrease) in Net Assets $ 100,827 $ 152,256

Adjustments to Reconcile Change in Net Assets to

Net Cash Provided by (Used in) Operating Activities:

Depreciation 26,755 26,961

(Gain) Loss on Disposal of Fixed Assets (8,957) 3,723

Contributed Materials and Labor- Capitalized (2,194)

(Increase) Decrease in Value of Beneficial Interest in Assets Held by Others (820) 131

(Increase) Decrease in Operating Assets:

Program Service Fees Receivable (5,356) (4,488)

Grants Receivable (34,167) 22,086

Contributions Receivable 853 (680)

Prepaid Insurance (4,658) (117)

Prepaid Rent (4,368) 930

Increase (Decrease) in Operating Liabilities:

Accounts Payable 1,919 (10,198)

Accrued Payroll and Payroll Withholding (37,259) (742)

Accrued Compensated Absences 3,953 (1,909)

Accrued Interest (143)

Deferred Revenue (9,079) 52,947

Fiscal Agent I Escrow Accounts (1,934) (651)

Net Cash Provided by (Used in) Operating Activities 27,709 237,912

Cash Ji'lows from Inves ting clivi tics

Cash Paid for Acquisition of Property and Equipment (92,320) (66,451)

Cash Received from Sale of Propet·ty and Equipment 8,957

Purchase of Investments (350) (247)

Net Cash Provided by (Used in) Investing Activities (83,713) (66,698)

Cnslt Flows from Financing Acl-ivitie.

Line of Credit Advances 136,000

Line of Credit Principal Payments (187,123)

Net Cash Provided by (Used in) Financing Activities (51,123)

Nei Increase (Occt·casc) itl ash nntl Casb Ectui nlents (56,004) 120,091

174,568 54,477

·aJ>h and Cash Ec,uivalcnts, End or Year $ 118,564 $ 174,568

ash Flow lnrormation Cash Paid for Interest $ J50 $ 1,301

See Accompanying Notes to Financial Statements.

EVERGREEN YOUTH & FAMILY SERVICES, INC.

STATEMENTS OF FUNCTIONAL EXPENSES YEARS ENDED DECEMBER 31,2016 AND 2015

2016 2015

Program Management Program Management

Services and General Fundraising Total Services and General Fundraising Total

Personnel Expense:

Salaries $ 875,720 $ 117,538 $ 75,270 $ I ,068,528 $ 819,996 $ 115,289 $ 83,707 $ 1,018,992

Employee Benefits and Payroll Taxes 225,824 30.293 19,277 275,394 232,488 31.573 22,962 287,023

Total Personnel Expense 1,101,544 147,831 94,547 1,343,922 1,052,484 146.862 106,669 1,306,015

Other Expenses

\dvertising and Printing 8,303 970 626 9,899 5,421 813 542 6,776

Conference and Event Expense 33,055 33,055 44,548 - 44,548

Depreciation 24,347 2,408 - 26,755 24,535 2,426 26,961

Direct Expense to Youth 54,788 54,788 58,973 58,973

Dues and :\lemberships 3,831 401 223 4,455 3,366 352 196 3,914

Food and Commodities 26,979 - - 26,979 23,014 23,014

Insurance 37,924 4,966 2,257 45,147 31,455 4,119 1,872 37,446

Interest 150 - - ISO 1,158 - - 1,158

Licenses and Permits 5,389 - 5,389 3,347 3,347

Meals and Meeting - 4,522 - 4,522 - 3,194 - 3,194

l>liscellaneous 143 - 143 163 163

Postage 464 451 451 1,366 735 713 713 2,161

Contractual Sen·ices 50,204 14,665 1,873 66,742 49,039 16,924 2,445 68,408

Rent (Occupancy) 36,246 4,746 2,157 43,149 33,535 4,392 1,996 39,923

Repairs and Maintenance 6,359 - - 6,359 5,435 5,435

Small Equipment 1,659 - 1,659 2,283 2,283

Subsidized Youth Rent 196,842 - 196,842 187,713 187,713

Supplies 39,828 5,215 2,371 47,414 31,071 4,069 1,850 36,990

Telephone 10,718 1,403 638 12,759 9,100 I, 191 542 10,833

Training 7,866 1,030 468 9,364 10,081 1,186 593 11,860

Travel 20,866 1,098 21,964 22,057 3,590 - 25,647

l 'tilitics 16,090 2,107 958 19,155 16,923 2,216 1,007 20,146

'outh Rccreatiou 1,864 1,864 1,614 - - 1,61-1

ln-h:ind and Donated Services 20.o75 1,700 11,387 33,162 24,110 1;750 6,409 32,269

Bad Dehts 5,682 5,682 1,091 1,091

Total Other Expenses 609.672 -15.682 23,409 678,763 590,767 46,935 18,165 655,867

Total Exnenses $ 1.711.216 $ 193,513 $ 117,956 $ 2,022,685 $ 1,643,251 $ 193,797 $ 124,834 $ 1,961,882

See Accompanying Notes to Financial Statements. -.1

EVERGREEN YOUTH & FAMILY SERVICES, INC.

1. Nature of Organization

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

8

Established in 1977, Evergreen Youth & Family Services, Inc. ("The Organization") is a community based organization committed to strengthening youth and preserving families with an emphasis on those living in northern Minnesota. The organization provides a continuum of emergency/crisis shelter, transitional housing for homeless youth and young adults, family reunification counseling, alcohol and drug prevention support and education, crime victim services, independent living skills, pregnancy and STI/STD prevention, suicide prevention education and training for schools and community groups, and community-based services to homeless, runaway, and high risk children, teens, and families. The majority of ·our youth and families live in the Greater Bemidji area, which is largely rural. All of Evergreen's services are free to youth and families.

The Organization is a multi-program community organization with approximately forty full and part­time staff. The organization operates three major programs providing comprehensive services in two different sites to fourteen counties in northern Minnesota. The sites are the Evergreen Shelter Program and Evergreen Youth Services. The organization's focus is youth safety (emergency shelter, street outreach to homeless and runaway youth), helping youth and young parents successfully transition to adulthood (transitional housing, and independent living skills), mental health services, and family reunification and support (family support services, parent education and coaching).

The Organization's services help keep youth safe, strengthen families, and prepare teens for independence and adulthood. The Organization shelters children who are runaways, homeless, or in personal or family crisis; provides food, clothing, and support to street-identified homeless and runaway youths; houses homeless young parents and single homeless teens; provides skills groups for teens to teach skills for self-sufficiency including employment readiness, budgeting and financial planning, sexual responsibility, communication skills, and tenant rights and responsibilities; trains students and other community members in suicide prevention and awareness. The Organization operates a youth drop-in center which is open forty hours per week. This center serves homeless and high-risk youth and young adults with on-site meals, emergency food bags, hygiene items, clothing, baby formula and diapers, shelter and housing referrals, and provides safe, supportive adult guidance to youth.

The Organization is a regional trainer on youth and family issues. Annually, the agency sponsors a conference for parents and youth-serving professionals, which draws individuals from across northern Minnesota. The Organization's annual conference focuses on both prevention and intervention, including topics such as parenting, youth suicide prevention, youth toxic solvent abuse, youth alcohol and drug use, teen dating relationships, fetal alcohol spectrum disorder, youth cultural identity, and youth mental health issues. The organization also offers a Fall Retreat to Support Professional Well­Being for Professionals and Personal Caregivers.

The Organization works in partnership with other community service providers. The staff of The Organization are active participants on community-wide task forces and committees that address homelessness, teen health, youth sexual exploitation and trafficking, youth alcohol and drug use prevention, children's mental health, suicide prevention, affordable housing, community human service resources, youth leadership, and the local Bike and Skate Park.

EVERGREEN YOUTH & FAMJLY SERVI ES,INC. NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016AND 2015

2. Summary of Signilicant Accounting Policies

9

Basis of Presentation- The Organization's financial statements are presented using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net assets, revenues, and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the organization and changes therein are classified and reported as follows:

Unrestricted - This class of net assets includes resources over which the Board of Directors has discretionary control. · Designated amounts within this class represent net assets that the Board has set aside for a particular purpose.

Temporarily Restricted - This class of net assets includes resources whose use by the Organization is limited by donor restrictions related to a time period or specified purpose.

j>e.rmanently Restricted - This class of net assets includes resources which have been restricted by the donor for endowment purposes, whereby the principal is invested and maintained in perpetuity, while the investment income is available to support the operations of the Organization or specified purposes.

Cash and Cash Equivalents -For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and in banks, money market funds and other investments purchased with a maturity of three months or less. The Organization maintains cash in bank deposit and checking accounts which, at times, may exceed federally insured limits. However, no losses have been experienced in such accounts.

Investments - Investments consist of a certificate of deposit with a maturity of twelve months. The certificate is reported at cost which approximates fair value.

Contr·ibutions Receivable- Unconditional promises to give to the Organization that are expected to be collected within one year are reported at their net realizable value. Unconditional promises to give that are expected to be collected beyond one year are recorded at the present value of estimated future cash flows using the federal blended discount rate. In years subsequent to the initial present value calculations, amortization of the discounts is recorded as contribution revenue. An allowance for uncollectible amounts is recorded based on management's expectation of collectability (Note 6).

Prope1ty and Equipment - Property and equipment are recorded at cost if purchased or at estimated fair value if acquired by donation. The Organization capitalizes expenditures for property and equipment with a cost or value in excess of $500. Depreciation is computed using the straight-line basis over estimated useful lives as follows:

Accumulated Depreciation

2016 2015

Buildings 25-40 Years $ 264,139 $ 260,350

Land Improvements 15-20 Years 4,396 4,024

Furniture and Equipment 5-12 Years 142,827 170,132

$411,362 $434,506

EVERGREEN YOUTH & FAMILY SERVICES, INC. NOTES TO FINANCIAL STATEMENTS

DE EMBER 31,2016 AND 2015

2. Summarv of Significant Accounting Policies (Continued)

10

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.

Bencficiallntcresl ln Assets Held by Others- The Organization established an endowment fund that is held by the Northwest Minnesota Foundation ("the Foundation"). The charitable fmid was funded by certain contributions to the Organization. The estimated fair value of the fund has been recognized by the Organization as a Beneficial Interest in Assets Held by Others. The amount of the principal originally contributed to the fund is classified as permanently restricted based on donor intent.

Annual adjustments to the fair values of reported amounts are recognized as increases or decreases in the Beneficial Interest in Assets Held by Others. Distributions from the fund are reported as decreases in Beneficial Interest in Assets Held by Others.

Revenue Recognition - Contributions, including unconditional promises to give, are recognized as unrestricted, temporarily restricted or permanently restricted revenue, depending on the existence and nature of any donor restrictions.

Donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a stipulated time restriction ends or a 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. Contribution revenue and investment income that is donor-restricted as to purpose or timing of use is recognized as unrestricted revenue if the specified restriction is met in the same period as the revenue is reported.

In-Kind Contributions - Contributed services, materials and facilities are recorded as in-kind contributions at their estimated fair values. Contributed services are recorded only if the services create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.

Grants and Contributions -The Organization receives grants through the U.S. Department of Health and Human Services, U.S. Department of Housing and Urban Development and various Minnesota agencies including the Department of Human Services, Department of Public Safety, Department of Health, Housing Finance Agency, and Department of Education. In addition, The Organization receives funding from local sources, such as the United Way of Bemidji Area and Beltrami Area Service Collaborative. Donations are received from companies, private foundations, churches and individuals.

P1·ogntru Service Fees- Program service fees are revenues received under contract from area counties, tribes and nonprofits for youth services provided, including shelter room and board, counseling, support and skill training groups, family crisis intervention and parenting support. For the years ended December 31, 2016 and 2015 program service fees comprised approximately 20% and 19% of the Organization's funding, respectively.

EVERGREEN YOUTH & FAMILY SERVICES, INC. NOTES TO FINAN lAL STATEMENTS

DECEMBER 31,2016 AND 2015

2. Summary of Significant Accounting Polkics (Continued)

11

Insurance Billings - Insurance billings revenue is reported at the estimated net realizable amounts from third-party payers and others for services rendered. Revenue under third-party payer agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party payer settlements arc provided in the period the services are rendered. Variances between estimated amounts and final settlements are reported in operations in the year of settlement.

Income Tax Status - The Organization is an organization exempt from income tax under Section 501(c)(3) of the Internal Revenue Code. The Organization is subject to a tax on income from any unrelated business activity.

The Organization follows the recognition requirements for uncertain income tax positions as required by generally accepted accounting principles, with no cumulative effect adjustment required. Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely-than-not be sustained upon filing with the Internal Revenue Service and all state jurisdictions where it operates. The Organization believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Organization's financial condition, results of operations or cash flows. Accordingly, the Organization has not recorded any reserves, or related accruals for interest and penalties for uncertain income tax positions at December 31, 2016 and 2015.

The Organization is subject to routine audits by taxing jurisdiction; however, there are currently no audits for any tax periods in progress. The Organization's policy is to classify income tax related interest and penalties in interest expense and other expenses, respectively.

liunctional Expenses -Expenses are classified on a direct allocation basis, except for certain expenses allocated among the program and supporting service categories based upon the estimated time expended by staff in those categories.

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 the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Advertising -Advertising costs are expensed in the period incurred. Advertising expenses for the years ended December 31, 2016 and 2015 were $9,899 and $6,776, respectively.

Reclassifications- Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 presentation. Such reclassifications had no effect on net income and net assets as previously reported.

Date of Manag ment Review - Management has evaluated the effects of subsequent events through May 31, 2017, the date that the financial statements were available to be issued.

EVERGREEN YOUTH & FAMlL ' '•RVJ ES, INC. NOTES TO FINANCIAL STATEMENTS

DECEMBER 31,2016 AND 2015

3. Program Service Fees Receivable

12

Program service fees receivable from various counties, tribes and nonprofits at December 31, 2016 and 2015, was $63,448 and $58,092 respectively, net of allowance. The allowance for uncollectible accounts is estimated and recorded based on management's judgement and experience. The allowance for uncollectible accounts on December 31, 2016 and 2015 is $4,624 and 7,239, respectively.

4. Investments

Investments at December 31, 2016 and 2015 are as follows:

Cost Certificates of Deposit $ 67,731

2016

Fair Value $ 67,731

Cost $ 67,381

2015

Fair Value

$ 67,381

Investments are reported at cost, which approximates fair value and are considered a Level 2 measurement (Note 8).

5. Grants Receivable

Grants receivable at December 31, 2016 and 2015 are as follows:

2016 2015 U.S. Department of Housing and Urban Development $ 14,253 $ 8,859 U.S. Department of Health and Human Set·vices:

Shelter Basic Center 1,443 5,357 Street Outreach Program 1,432 3,641

Minnesota Department of Human Services:

Healthy Tnmsitions 34,543 25,871 Minnesota Department of Education:

Nutrition Progt·am 852 620 Minnesota Housing Finance Agency:

Young Families Pilot 5,141 8,145 Minnesota Department of Public Safety:

Justice and Community Grant YIP 12,570 4,718 Cl"ime Victim Services - VOCA 32,451 Ct·ime Victim Services- Other 3,106 Title II 11,052 9,268 Byrne Jag 30,491

Minnesota Department of Health: Suicide Prevention 4,065 8,417 PREP 16,318 16,660

Minnesota Office of Economic Opportunity:

Transitional Housing Progn1m 9,946 3,994

Homeless Youth ACT 31,378 7,609 Heltt·ami County SELF 899 1,707 Hi-County Community Action Pt·ognlm 6,843 9,487 Beltrami At·ca Set·vicc Collabonttive 7,281

Totals $ 186,292 $ 152,125

EVERGREEN YOUTH & FAMILY SERVICES, INC.

6. Contributions Receivable

NOTES TO FINANCIAL STATEMENTS DEC I!:MUER 3 I, 2016 AND 2015

Contributions Receivable at December 31, 2016 and 2015, are as follows:

2016

Receivables Due in Less Than One Year $ 1,955

13

2015

$ 2,808

As noted in Note 2, unconditional promises to give that are expected to be collected beyond one year are recorded at the present value of estimated future cash flows net of allowance for uncollectible accounts. All contributions are due in less than one year and management has determined that all are collectible.

7. Property and Equipment

Property and equipment as of December 31, 2016 and 2015, consists of the following:

2016 2015

Land $ 18,430 $ 18,430

Land Improvements 8,385 5,550

Buildings 320,627 319,286

Furniture and Equipment 258,606 220,359

Total Property and Equipment 606,048 563,625

Less: Accumulated Depreciation 411,362 434,506

Total Property and Equipment, Net $ 194,686 $ 129,119

8. Fair Value of Financial Instruments

Certain financial instruments are required to be measured annually at fair value. Accounting standards provide for a three-tier fair value hierarchy determined by the inputs used in measuring fair value as follows:

• Levell: Observable inputs such as quoted prices in active markets for identical assets • Level 2: Observable inputs such as quoted prices in active markets for similar assets or other

significant observable inputs • Level 3: Significant unobservable inputs

EVERGREEN YOUTH & FAMILY SERVICES, INC. NOTES TO FINANCIAL STATEMENTS

DECEMBER 31,2016 AND 2015

8. Fair Value of Financiallnstmmer} s (Continued)

14

The fair values of beneficial interests in assets held by others have been measured in accordance with Level 3 inputs and are based upon estimates provided by the Northwest Minnesota Foundation, in the absence of readily determined values. Such values may differ significantly from the values that would have been used had a ready market existed for the interest, and the difference could be material. The fair value of the beneficial interest in assets held by the Northwest Minnesota Foundation for the benefit of the Organization at December 31,2016 and 2015, totaled $15,577 and $14,757, respectively.

Changes in the fair values of the Organization's Level 3 assets consisted of the following for the years ended December 31:

2016 2015

Balance, Beginning of Year $ 14,757 $ 14,888

Investment Gains (Loss), Net of Fees 820 (131)

Contributions

Balance, End of Year $ 15,577 $ 14,757

9. Distributions from Beneficial Lntet·est in Assets Held by Others

The agreement governing the administration of the funds indicate that the Foundation's Board of Directors has the power to modify the beneficiary, the purpose and the timing of the distributions if the distributions become unnecessary, the Organization becomes incapable of fulfilling the purpose of the distributions or the distributions become inconsistent with the Foundation's investment policies or the charitable needs served by the Foundation.

As indicated in Note 2, the assets of the funds have been reflected as Beneficial Interest in Assets Held by Others on the Organization's Statements of Financial Position because the funds have been placed with the Foundation by the Organization. As the fund was created by contributions made to the Organization, the Board and management fully expect the Organization to continue to be the beneficiary of the fund in the future.

Distribution provisions as described in the fund agreement provide that generally only earnings of the endowment component of the fund shall be available to support activities within the stated purpose of the Fund. The Foundation's annual payout distribution allows for up to 5% distribution for the support of the activities of the Organization within the stated purpose of the fund. For the years ended December 31, 2016 and 2015, distributions were $-0- .

10. Endowment Composition and lunges to Endowment Net Assets

The Organization's endowment consists of a fund at the Northwest Minnesota Foundation established for the ongoing support of the Organization. The endowment is comprised of donor-restricted endowment funds. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

EVERGREEN YOUTH & FAMJLY 'ERVJCES, IN NOTES TO FIN ANClAL STATEMENTS

DECEMBER 31, 2016 AND 2015

10. Endowment Composition and Changes to Endowment Net Assets (Continued)

Interpretation of Relevant Law

15

Endowment funds are regulated by the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") as enacted by the State of Minnesota, effective August 1, 2008. The Board of Directors of the Organization has interpreted UPMIF A as requiring the preservation of the original gift of donor­restricted endowment funds absent explicit donor stipulations to the contrary. The original gift is valued at fair value on the date of the gift. As a result of this interpretation, the Organization classifies as permanently restricted net assets the original value of the gifts donated to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net asset is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIF A.

In accordance with UPMIF A, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

• The duration and preservation of the fund • The purposes of the Organization and the donor-restricted endowment fund • General economic conditions • The possible effect of inflation and deflation • The expected total return from income and appreciation of investments • Other resources of the Organization • The investment policies of the Organization

Return Objectives and Risk Parameters

The Organization is subject to the investment policy of the Foundation, as defined in the fund agreement for the charitable fund held by the Foundation for the Organization's benefit. As defined by the Foundation, the underlying investment objectives of these policies are as follows:

1. Preserve the real purchasing power of the restricted assets while seeking to maximize the amount available to meet the charitable needs within the community.

2. Seek to earn the most effective rate of return possible. 3. Earn the highest possible return given the established risk tolerance.

Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, the Organization relies on the Foundation's total return strategy, in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.

EVERGREEN YOUTH & FAMILY SERVJCES, lNC. NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

10. Endowment Composition and Changes to Endowment Net Assets (Continued)

Spending Policy and the Relationship of the Investment Objectives to the Spending Policy

16

The Organization's spending policy mirrors the distribution policy of the Northwest Minnesota Foundation. The Foundation's policy appropriates for distribution each year an amount equal to 5% of the market value of the fund, as determined annually at March 31'1 using a 12 trailing quarter valuation. In establishing this policy, the Foundation considered the long-term expected return on its endowment. Accordingly, over the long term, the Foundation expects the current spending policy to allow the endowment to grow at a rate that is consistent with the Foundation's objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return.

Endowment net assets consisted of a donor-restricted fund held at the Northwest Minnesota Foundation. Changes in endowed net assets for the years ended December 31, 2016 and 2015 were as follows:

Endowed Net Assets- Beginning of Year

Investment Return: Investment Income (Loss)

Interest and Dividends, Net

Endowed Net Assets- End of Year

11. Line of Credit

2016 $ 14,757

695

125

$ 15,577

2015 $ 14,888

(264)

133

$ 14,757

The Organization has a $150,000 line of credit with a local bank. The stated interest rate at December 31, 2016 was 4.75%. There are no required monthly principal and interest payments. Any amounts outstanding are due at maturity on July 11, 2019. The outstanding balances were $-0- and $-O­at December 31, 2016 and 2015, respectively.

12. Deferred Revenue

EVERGREEN YOUTH & FAI\IITL Y SERVl ES, lN NOTES TO FINANCIAL STATEMENTS

DECEMBER 31,2016 AND 2015

17

Deferred revenue consists of funds held by the Organization that have not been earned due to timing differences between receipt and expenditure. Deferred revenue at December 31, 2016 and 2015 consisted of the following:

2016 2015

Open Your Heart Foundation $ 3,297 $ 5,850

Bremer Foundation 31,956 30,717 New York Life- Grief Grant 43,824 50,000

George Foundation 6,608

Walmart Foundation 6,019

Other 1,000 Totals $ 85,096 $ 94,175

13. 3rd Party Insurance Billings

Insurance billings are reported net of adjustments and discounts. A reconciliation of gross insurance billings to insurance billings- net, for the years ended December 31, 2016 and 2015, are as follows:

Gross Billings

Adjustments and Discounts: Contractual Adjustments Charity Care I Discounts Total Adjustments and Discounts

Net 3rd Party Insurance Billings

14. Temporarily Restrict d Net Assets

2016 $ 66,819

(17 ,852) (9,216)

(27,068)

$ 39,751

2015 $ 22,534

(5,881) (4,037) (9,918)

$ 12,616

Temporarily restricted net assets at December 31, 2016 and 2015 are available for the following purposes or periods:

Purpose Restriction: 2016 2015

Suicide Prevention $ 15,096 $ 1,762

Kinship Program 2,087

Bemidji Youth Advisory 1,333

Skate and Bike Park Association 1,717 1,717

Totals $ 16,813 $ 6,899

EVERGREEN YOUTH & FAMILY SERVICES, INC. NOTES TO FINANCIAL STATEMENTS

DE EMBER 31,2016 AND 2015

15. In-Kind Contributions

Contributed services, materials and facilities were received as follows:

Program: Contract Services I Labor $

Program Facilities Software Food Conference Speaker Other

Management and General: Accounting Services Consulting Services

Fund raising: Contractual Services (Other) Contractual Services (Radio Advertising)

Totals $

2016

2,500

803

12,977

3,150

645

1,200

500

1,325

10,062

33,162

18

2015

$ 7,603

2,400

2,510

7,797

4,800

1,192

1,000

750

1,000

5,409

$ 34,461

The Organization also benefits from numerous hours of contributed services provided by volunteers, who do not meet the criteria for recognition in the financial statements.

16. Operating Leases

In December 2012 the Organization moved its Youth Services Site and Youth Drop-In Center to 610 Patriot Drive NW, a new location in Bemidji, Minnesota. In accordance with the most current commercial lease agreement, the lease went into effect July 1, 2016 and will continue for three years, with an option for an additional three years, and will require monthly payments of $3,398 with annual increases of 1.5%.

The Organization leased property at 610 Patriot Drive NW in Bemidji, Minnesota for youth supportive housing. In accordance with the most current residential master lease agreement, the lease went into effect July 1, 2016, and will continue for three years with monthly payments of $3,334. There will be an option for the Organization to extend the lease for an additional three years in the amount equal to an increase of 1% over the preceding lease amount or the Consumer Price Index (CPI), whichever is lower.

In 2015, the property being leased was sold and a new agreement was signed with the new owners. The terms of the lease remained unchanged.

In November of 2016 the Organization signed a 60 month operating lease agreement for a Xerox copy machine, which did not go into effect until December of 2016 when it was installed. According to the lease agreement, the minimum payments are $223 per month with additional meter charges over this amount. The payments are due the following month.

Rent expense for the years ended December 31, 2016 and 2015 was $43,149 and $39,923, respectively.

EVERGREEN YOUTH & l•'AMlLY SERVJ .E ', l NC. NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

16. Operating Leases (Continued)

Future minimum lease payments under the lease agreements are as follows:

Year Ended December 31, Equipment Facilities

2017 $ 2,674 $ 84,170

2018 2,674 84,786

2019 2,674 85,613 2020 2,674 86,450 .

2021 2,675 87,095

2022 42,373 Totals $ 13,371 $ 470,487

17. F.mployee Benefit Plan

19

Total

$ 86,844

87,460

88,287

89,124

89,770

42,373 $ 483,858

The Organization sponsors a salary reduction contribution plan pursuant to Section 403(b) of the Internal Revenue Code, covering substantially all eligible employees. Employees are eligible on the first day of the month after thirty days of full time employment. Under the plan, employees contribute a specified percentage of their salary, or a fixed dollar amount, to the plan. The plan does not provide for any employer contributions.

18. Commitments and Contingencies

The Organization participates in numerous State and Federal grant programs, which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the Organization has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collection of any related receivable at December 31, 2016 may be impaired. In the opinion of the Organization, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying combined financial statements for such contingencies.