Page 1

418

WEST MICHIGAN ANNUAL CONFERENCE 2013

WEST MICHIGAN CONFERENCE OF THE UNITED METHODIST CHURCH REPORT ON THE FINANCIAL STATEMENTS (with additional information)

YEAR ENDED DECEMBER, 2012

(with comparative totals for the year ended December 31, 2011)


2013

AUDITOR’S REPORT 419

CONTENTS Page Independent auditor’s report .......................................................................................................... 3 - 4 Financial statements Statements of assets, liabilities and net assets - modified cash basis ......................................... 5 Statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis ........................................ 6 Notes to financial statements .................................................................................................. 7 - 25 Supplementary information ............................................................................................................. 26 Combining statements of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis ................................... 27 - 28

2


420

WEST MICHIGAN ANNUAL CONFERENCE 2013


2013

AUDITOR’S REPORT 421

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets - modified cash basis of the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church as of December 31, 2012 and 2011, and its support, revenue and other receipts, expenses other disbursements and changes in net assets - modified cash for the year ended December 31, 2012, in accordance with the basis of accounting as described in Note 1. Other Matters Report on Summarized Comparative Information We have previously audited the Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church’s 2011 financial statements, and our report dated May 29, 2012, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented in the statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis for the year ended December 31, 2011 is consistent, in all material respects, with the audited financial statements from which it has been derived. Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information, as identified in the table of contents, is presented for purposes of additional analysis 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 audits 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 information is fairly stated in all material respects in relation to the financial statements as a whole.

May 21, 2013 4


422

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - MODIFIED CASH BASIS DECEMBER 31, 2012 AND 2011

2012

ASSETS Cash and cash equivalents Investments Receipts in transit Notes and loans receivable Property and equipment - net

$

TOTAL ASSETS

2011

525,189 18,897,036 772,292 620,601 2,483,459

$ 1,251,026 17,612,941 635,840 420,027 2,554,535

$ 23,298,577

$ 22,474,369

$

$

LIABILITIES AND NET ASSETS LIABILITIES: Payroll withholding Assets held on behalf of others

48,317 919,652

71,666 1,047,566

Total liabilities

967,969

1,119,232

NET ASSETS: Unrestricted Temporarily restricted Permanently restricted

21,165,256 1,154,745 10,607

20,231,154 1,113,376 10,607

Total net assets

22,330,608

21,355,137

$ 23,298,577

$ 22,474,369

TOTAL LIABILITIES AND NET ASSETS

See notes to financial statements.

5


2013

AUDITOR’S REPORT 423

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH STATEMENT OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEAR ENDED DECEMBER 31, 2012 (with comparative totals for the year ended December 31, 2011)

Unrestricted SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares Special offerings Investment income Camp registration and rental fees Other income Net assets released from restrictions Total support and revenue Other receipts: CPP holiday refunds Pension billings Insurance billings Total support, revenue and other receipts EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries Health and life insurance Pension and post-employment benefit expense Other employee costs Training and continuing education Travel, meeting and moving expenses Operating and administrative expenses Parsonage and building expenditures World Service Programs and conference benevolence Depreciation and amortization Remittances to General Conference Total expenses Other disbursements: Remittances to Board of Pensions Health and life insurance Total expenses and other disbursements Increase (decrease) in net assets Net assets - beginning of year Net assets - end of year

See notes to financial statements.

$ 5,687,476 238,880 2,162,937 1,145,061 486,251 1,588,550

2012 Temporarily Permanently restricted restricted

2011

61,032 $ 1,368,650 80,334 119,903 (1,588,550)

-

$ 5,748,508 1,607,530 2,243,271 1,145,061 606,154 -

$ 5,737,814 1,827,729 551,851 960,900 654,150 -

11,309,155

41,369

-

11,350,524

9,732,444

459,432 2,103,597 4,222,553

-

-

459,432 2,103,597 4,222,553

476,994 2,113,505 4,069,311

18,094,737

41,369

-

18,136,106

16,392,254

2,109,785 1,934,582 215,370 99,761 53,651 349,877 1,220,670 78,952 895,886 3,100,601 167,999 900,351

-

-

2,109,785 1,934,582 215,370 99,761 53,651 349,877 1,220,670 78,952 895,886 3,100,601 167,999 900,351

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

11,127,485

-

-

11,127,485

11,407,912

2,626,545 3,406,605

-

-

2,626,545 3,406,605

3,674,151 4,039,646

17,160,635

-

-

17,160,635

19,121,709

934,102

41,369

-

975,471

20,231,154

1,113,376

10,607

21,355,137

24,084,592

$ 21,165,256

$ 1,154,745

10,607

$ 22,330,608

$ 21,355,137

6

$

Total

$

(2,729,455)


424

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting - The books and records of the Council are maintained on the modified cash basis of accounting. Under this method, income is recognized when received and expenses are recorded at the time of payment except for the recognition of certain assets and liabilities related to the timing of local church contributions at year end, reimbursement of health insurance premiums, payroll deductions, investments, property and equipment, notes and loans receivable and assets held on behalf of others in an agency capacity. Additionally, certain amounts held on the Council’s behalf at the General Board of Pensions and Health Benefits (GBOPHB) are not included in these financial statements and related cash flows attributable to local churches are reported as other receipts and disbursements. See Note 8. Financial statement presentation - The statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets - modified cash basis includes certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with the modified cash basis of accounting. Accordingly, such information should be read in conjunction with the Council’s prior-year statement of support, revenue, and other receipts, expenses, other disbursements and changes in net assets - modified cash basis from which the summarized information was derived. The Council is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished) temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. ¾

Unrestricted net assets represent funds available for current operations, support for local churches, various missions, educational programs, and youth summer camps.

¾

Temporarily restricted net assets consist of contributions or earnings which have been restricted by the donor.

¾

Permanently restricted net assets are gift instruments requiring the principal be maintained intact in perpetuity and only the income be used for purposes specified by the donor.

Fund accounting - to facilitate observance of limitations and restrictions placed on the use of available resources, the accounts are maintained in accordance with the principles of fund accounting. Funds are established according to the nature and purpose of resources available to the Council. The assets, liabilities, net assets and financial activity of the Council are recorded in the following self-balancing fund groups: 7


2013

AUDITOR’S REPORT 425

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ¾

Connectional Ministry and Administration fund - resources available for current operations in supervision and administration of the mission and ministry of the West Michigan Annual Conference of the United Methodist Church.

¾

World Service and Conference Benevolence fund - resources available for distribution to the United Methodist denominational programs and the West Michigan Annual Conference of the United Methodist Church program agencies.

¾

Six Lanes and Advanced Specials fund - resources to allow churches direct involvement in the causes promoted by the Council agencies. Member churches select individual causes to fund from a listing prepared by the Council.

¾

Ministerial Education and Black College fund - resources available for providing financial support for the recruitment and education of ordained ministers and to provide financial support to traditionally black colleges related to the Church.

¾

Camping and Outdoor Education fund - resources available for Council retreat centers and camping programs.

¾

Pension and Health Benefits and Life Insurance fund - resources available for support, relief, assistance and pensioning of clergy, lay workers for the various units of the Council and their families.

¾

Plant fund - property and equipment owned and used directly in the operation of the Council.

¾

Loan Program fund - resources used to assist local churches and camps in financing capital expenditures.

¾

New Church Development fund - resources available for new church development.

¾

Other funds - resources for designated purposes related to other programs the Council supports.

Functional allocation of expenses - The costs of the various programs and other activities have been summarized on a functional basis in Note 10. Accordingly, certain costs have been allocated between the programs and supporting services benefited. Cash and cash equivalents includes all highly liquid investments purchased with an original maturity of three months or less.

8


426

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded) Investments are recorded at fair value and consist of various debt and equity securities. Unrealized gains and losses are recorded in the statement of support, revenue and other receipts, expenses, other disbursements and changes in net assets. Investments in money market funds are recorded at cost. Receipts in transit include contributions collected by local ministries during the years ended December 31, 2012 and 2011, but not received by the Council until after year end. Notes and loans receivable consists of outstanding principal for loans the Council provided to local churches to help finance capital expenditures. Property and equipment is capitalized at cost. Donated assets are recorded at fair value at date of donation. Parsonages are recorded at original cost plus the cost of subsequent additions. Depreciation is computed over the estimated useful life of assets using the straight-line method. Additions to property and equipment over $1,000 are capitalized. Cost of maintenance and repairs are charged to expense when incurred. The useful lives adopted for the purpose of computing depreciation are: Parsonages and improvements Camp buildings and equipment Council center furniture and equipment

30 to 40 years 5 to 40 years 5 to 7 years

Assets held on behalf of others includes cash held in an agency capacity. Adoption of new accounting standards - In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU No. 2010-20 requires disclosure of credit quality indicators, past due information and modification of financing receivables. The Conference adopted this standard in 2012 and applied the provisions to all the periods presented. Adoption of the standard did not have a significant impact on the financial statements for the years ended December 31, 2012 and 2011 as disclosed in Note 6.

9


2013

AUDITOR’S REPORT 427

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES The Council of Finance and Administration of the West Michigan Annual Conference of the United Methodist Church (the Council) is a Michigan Non-Profit Corporation. The purpose of the Council is to develop and administer a comprehensive and coordinated plan of fiscal and administrative policies, procedures, and management services for the annual conference. The member churches are located in the western half of the Lower Peninsula of Michigan. Using ministry shares and special offerings received from its member churches, the Council contributes to denominational ministries and provides support for various missions, educational programs and summer youth camps. The Council is exempt from income taxes under provisions of Section 501(c)(3) of the Internal Revenue Code. The Council is similarly exempt from the Michigan Tax. The Council is required to disclose significant concentrations of credit risk regardless of the degree of such risk. Financial instruments which potentially subject the organization to concentrations of significant credit risk consist of cash and cash equivalents, and investments. The Council places its cash with FDIC insured financial institutions and thereby limits the amount of credit exposure to any one financial institution. Credit risk with respect to investments is limited due to the wide variety of companies and industries. Although such investments and cash balances may exceed the federally insured limits at certain times during the year and at year-end they are, in the opinion of management, subject to minimal risk. The Council maintains a diversified investment portfolio which is subject to market risk. Investments are disclosed in Notes 3 and 4 and consist largely of amounts invested in various funds by the United Methodist Foundation of Michigan (UMF) as well as the General Board of Pension and Health Benefits of the United Methodist Church (GBOPHB). UMF Pooled Trust Fund - The Fund is available for exclusive investment by the Foundation arising from charitable contributions made through charitable remainder trusts, other charitable trusts, funds operating as charitable trusts, or gift annuity contracts. The primary investment objective of the Fund is to provide for long term capital growth. The Foundation also may consider investments in securities of other United Methodist organizations based primarily upon their religious affiliation and the desire of the Foundation to support their ministry. The Fund seeks to achieve its investment objectives by investing in a diversified portfolio of common stocks, bonds and money market instruments. UMF Stock Fund - The Fund seeks to achieve long-term capital appreciation through investments in stocks and other securities, with primary emphasis on U.S. large capitalization companies and secondary emphasis on global and international equities and on U.S. small and middle capitalization companies. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation.

10


428

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Continued) UMF Bond Fund - The Fund’s primary objective is to achieve a high level of current income, with capital appreciation as a secondary objective, by investing in investment-grade debt securities. The Fund invests in U.S. Treasury and agency securities, preferred shares and other fixed income securities rated as investment grade by a Nationally Recognized Statistical Rating Organization. The Fund is subject to the general investment restrictions and the socially responsible investment criteria as adopted by the UMF Foundation. UMF Money Market Fund - The Fund’s objective is to seek maximum current income consistent with liquidity and the maintenance of a portfolio of high quality short-term money market securities. The Fund attempts to achieve its objective by investing in a diversified portfolio of U.S. dollar denominated money market securities. These securities primarily consist of short term U.S. Government securities, U.S. Government agency securities, and securities issued by U.S. Government sponsored enterprises and U.S. Government instrumentalities, commercial paper and repurchase agreements. GBOPHB Short Term Investment Fund - The Fund seeks to maximize current income consistent with preservation of capital. The Fund is similar to a traditional money market fund and will hold short-term fixed income investments. However, the average maturity of the securities held in the Fund are greater than the average maturity of securities held in the typical money market fund. The performance objective of the Fund is to slightly outperform its performance benchmark, the Bank of America Merrill Lynch 3-Month Treasury Bill Index. GBOPHB Fixed Income Fund - The Fund seeks to earn current income by investing in a broad mix of fixed-income instruments. The performance objective of the Fund is to outperform the performance benchmark (Barclays Capital U.S. Universal Index, excluding Mortgage-Backed Securities) by 0.50% (net of fees) over a market cycle (3 to 5 years). The Fund is primarily composed of a broad range of fixed-income instruments, such as U.S. Treasury and agency securities, foreign government bonds, corporate bonds, mortgage-backed securities and asset-backed securities. GBOPHB Multiple Asset Fund - The Fund seeks to maximize long-term investment returns, including current income and capital appreciation, while reducing short-term risk by investing in a broad mix of investments. The performance objective of the Fund is to outperform the investment returns of its performance benchmark (45% Russell 3000 Index, 20% MSCI ACWI excluding USA IMI, 25% Barclays Capital U.S. Universal Index excluding Mortgage Backed Securities, and 10% Barclays Capital U.S. Government Inflation-Linked Bond Index) by 0.8% on average per year (net of fees) over an extended investment cycle (10 to 20 years). GBOPHB U.S. Equity Fund - The Fund seeks to earn long-term capital appreciation from a broadly diversified portfolio comprised primarily of U.S. listed equities and equity index futures. The performance objective of the Fund is to outperform the investment returns of its performance benchmark, the Russell 3000 Index, over a market cycle (three to five years) by 0.75% on average per year.

11


2013

AUDITOR’S REPORT 429

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 2 - ORGANIZATION, RISKS AND UNCERTAINTIES (Concluded) The process of preparing financial statements requires the use of estimates and assumptions regarding certain types of assets, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Tax positions are taken based on interpretation of federal, state and local income tax laws. Management periodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts, including interest and penalties, ultimately due or owed. No amounts have been identified, or recorded, as uncertain tax positions. Federal, state and local tax returns generally remain open for examination by the various taxing authorities for a period of three to four years. The Council evaluates events and transactions that occur after year end for potential recognition or disclosure in the financial statements. As of the auditor’s opinion date, which is the date the financial statements were available to be issued, there were no subsequent events which required recognition or disclosure. NOTE 3 - INVESTMENTS The Council transfers certain amounts to the United Methodist Foundation of Michigan (the Foundation). The Foundation was formed as a nonprofit organization by member churches of the West Michigan Annual Conference and Detroit Annual Conferences. It is governed and monitored by its own independent commission. The Foundation’s primary purpose is to broaden the financial base of member churches by assisting in and receiving planned and deferred gifts, assisting in the set-up and marketing of endowment funds, and the generation of market-level returns on invested monies through the use of investment pools. The Council also transfers funds to the General Board of Pension and Health Benefits (GBOPHB). The GBOPHB is a not-for-profit administrative agency of The United Methodist Church, responsible for the general supervision and administration of investments and benefit services according to the principles of The United Methodist Church.

12


430

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (Continued) Investments at December 31 consist of the following. Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Transportation Retail services Food & beverages Apparel & accessories Preferred stock: Financials Master limited partnerships Money market Pooled funds managed by the Foundation: UMF Pooled Trust Fund UMF Stock Fund UMF Bond Fund UMF Money Market Fund Pooled funds managed by the General Board of Pension and Health Benefits (GBOPHB): Short Term Investment Fund Fixed Income Fund U.S. Equity Fund Multiple Asset Fund

13

2012

$

115,150 94,330 45,491

2011

$

112,200 123,790 4,380

732,039 1,212,450 337,535 1,357,141 880,488 527,032 18,591 542,504 1,806,602 436,489 56,550 155,100 63,837 189,360

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367 -

51,200 357,759 799,116

94,520 236,690 475,673

785,615 240,154 188,232 1,397

761,209 212,247 193,040 6,911

53,742 1,656,774 486,292 5,706,066

455,830 1,512,084 5,945,958

$ 18,897,036

$ 17,612,941


2013

AUDITOR’S REPORT 431

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVESTMENTS (Concluded) Income from cash deposits and investments consist of the following at December 31:

Interest and dividends Interest received from financing Realized gain on sale of investments Change in unrealized appreciation

$

Total investment income

2012 342,766 25,968 1,041,153 833,384

$ 2,243,271

$

$

2011 258,128 13,296 181,427 99,000 551,851

Investment income is net of related investment expenses for the years ended December 31, 2012 and 2011. NOTE 4 - FAIR VALUE MEASUREMENTS Accounting standards establish a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy are described below: Level 1: Quoted prices in active markets for identical securities. Level 2: Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3: Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Council’s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

14


432

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENTS (Continued) The following is a market value summary by the level of the inputs used in evaluating the Council’s assets carried at fair value at December 31. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities.

2012 Description Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Transportation Retail services Food & beverages Apparel & accessories Preferred stock: Financials Master limited partnerships Pooled funds held: UMF Foundation GBOPHB Total investments

Level 1:

$

Level 2:

115,150 94,330 45,491

$

Level 3:

-

$

Total

-

$

115,150 94,330 45,491

732,039 1,212,450 337,535 1,357,141 880,488 527,032 18,591 542,504 1,806,602 436,489 56,550 155,100 63,837 189,360

-

-

732,039 1,212,450 337,535 1,357,141 880,488 527,032 18,591 542,504 1,806,602 436,489 56,550 155,100 63,837 189,360

51,200 357,759

-

-

51,200 357,759

-

-

1,215,398 7,902,874

1,215,398 7,902,874

-

$ 9,118,272

18,097,920

$ 8,979,648

Money market funds at cost

$

799,116

Total

$ 18,897,036 15


2013

AUDITOR’S REPORT 433

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENTS (Continued)

Description Direct investments: Mutual funds: Basic materials Financials Other Common stocks: Basic materials Financials Industrial goods Health care Technology Consumer goods Conglomerates Services REITs Utilities Preferred stock: Financials Master limited partnerships Pooled funds held: UMF Foundation GBOPHB Total investments

Level 1:

$

Level 2:

112,200 123,790 4,380

$

2011

-

$

Level 3:

Total

-

$

112,200 123,790 4,380

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367

-

-

806,050 896,410 396,059 1,092,562 971,969 522,246 16,337 557,838 1,583,571 635,367

94,520 236,690

-

-

94,520 236,690

-

-

1,173,407 7,913,872

1,173,407 7,913,872

-

$ 9,087,279

17,137,268

$ 8,049,989

Money market funds at cost

$

475,673

Total

$ 17,612,941

Investments held at the General Board of Pension and Health Benefits as well as the Foundation include numerous securities that are combined with the investment portfolios of other church organizations. As such, they are considered Level III investments.

16


434

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 4 - FAIR VALUE MEASUREMENTS (Concluded) The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Balance January 1, 2011

Funds held at the Foundation

Funds held at the GBOPHB

Total

$ 1,468,826

$ 14,472,808

$ 15,941,634

Total unrealized gains or losses included in earnings

(22,631)

Purchases Proceeds from sale Balance December 31, 2011

127,519

104,888

61,702

1,693,372

1,755,074

(334,490)

(8,379,827)

(8,714,317)

7,913,872

9,087,279

1,173,407

Total unrealized gains or losses included in earnings

75,328

401,821

477,149

Purchases

36,823

6,353,869

6,390,692

Proceeds from sale Balance December 31, 2012

(70,159)

(6,766,688)

(6,836,847)

$ 1,215,399

$ 7,902,874

$ 9,118,273

Funds held at the Foundation

Funds held at the GBOPHB

Total

As of December 31, 2012:

The estimated amount of total gains and losses for the year included in earnings attributable to the change in unrealized gains or losses relating to assets still held at year end. $

17

75,328

$

401,821

$

477,149


2013

AUDITOR’S REPORT 435

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31. Parsonages: District Area Camps: Land Buildings Vehicles Equipment Conference center furniture and equipment District offices furniture, equipment and vehicles Area office furniture and equipment

2012 $

Less accumulated depreciation

1,043,202 218,595

2011 $

1,041,123 218,595

198,000 3,001,298 221,740 182,749 570,235 120,909 32,912

198,000 2,997,449 149,975 175,255 564,798 114,609 32,912

5,589,640 3,106,181

5,492,716 2,938,181

Net property and equipment

$

2,483,459

$

2,554,535

Depreciation and amortization expense

$

167,999

$

123,604

$

80,438 241,032 255,660 291,072 175,000

$

80,438 238,953 255,660 291,072 175,000

District parsonages: Lansing District Superintendent Grand Rapids District Superintendent Grand Traverse Superintendent Heartland District Superintendent Kalamazoo District Superintendent

$

1,043,202

$

1,041,123

Area parsonages: 15160 Duxbury Lane, DeWitt Township Okemos office building

Total district parsonages

$

186,926 31,669

$

186,926 31,669

Total area parsonages

$

218,595

$

218,595

The DeWitt Township parsonage and the Okemos office building are owned jointly with the Detroit Annual Conference. The above amount represents the Council of Finance and Administration of the West Michigan Annual Conference’s share, which approximates forty-two percent of the original cost basis of the property. Land included in the parsonages listed above amounted to approximately $195,000 at December 31, 2012 and 2011.

18


436

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 6 - FINANCING RECEIVABLES Notes and loans receivable consist of the following, as of December 31. Note receivable from the FSU Wesley Foundation, with monthly payments of $414, including interest of 6% maturing May 2015.

2012 $

2011 -

$

3,864

Note receivable from the Washington Heights UMC, with monthly payments of $178, including interest of 7.5% maturing December 2012. Note receivable from the Millville UMC, with monthly payments of $2,153, including interest of 3% maturing December 2020.

-

871

180,882

200,967

Note receivable from the Portage Chapel Hill UMC, with monthly payments of $615, including interest of 4.25% maturing December 2018.

38,522

44,131

Note receivable from the Climax/Scotts UMC, with monthly payments of $845, including interest of 3% maturing June 2019.

59,221

67,449

Note receivable from the Church of All Nations, with monthly payments of $636, including interest of 5% maturing April 2015.

16,786

23,891

Note receivable from the Reading UMC, with monthly payments of $382, including interest of 2.75% maturing December 2021.

31,647

39,710

Note receivable from the Scotts UMC, with monthly payments of $137, including interest of 3% maturing March 2021.

12,233

13,485

Note receivable from the Quincy UMC, with monthly payments of $241, including interest of 3% maturing November 2018.

17,425

25,659

Note receivable from the Valley UMC, with monthly payments of $971, including interest of 3% maturing November 2021.

135,604

-

Note receivable from the Courtland-Oakfield UMC, with monthly payments of $1,402, including interest of 3% maturing November 2021.

128,281 $

19

620,601

$

420,027


2013

AUDITOR’S REPORT 437

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 6 - FINANCING RECEIVABLES (Concluded) Maturities of financing receivables at December 31 are as follows:

Years ending December 31, 2013 2014 2015 2016 2017 Thereafter

$

69,832 72,166 69,329 68,958 69,132 271,184

$

620,601

Notes receivable are carried at unpaid principal balances, less an allowance for doubtful collection. Management periodically evaluates the adequacy of the allowance based on past experience and potential adverse situations that may affect the borrower’s ability to repay. It is management’s policy to write off a loan only when they are deemed permanently uncollectible. As of December 31, 2012 and 2011, management believes that no allowance is necessary. The classification of notes receivable regarding age and interest accrual status at December 31 are as follows:

2012 Current Past due: 30-59 days 60-89 days • 90 days Total past due Total financing receivables

2011

Principal

Interest

$ 620,601

$

Total

Principal

Interest

-

$ 620,601

$ 420,027

$

-

-

-

-

-

$ 620,601

$

$ 420,027

-

-

-

-

-

-

-

$ 620,601

$ 420,027

-

$ 420,027

$

Past due interest has not been accrued under the modified cash basis of accounting.

20

Total

-


438

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 7 - LEASES The Michigan Area Headquarters (the Headquarters), supported jointly by the Council of Finance and Administration of the West Michigan Annual Conference and the Detroit Annual Conference, leased office space in 2000. The Headquarters pays rent expense from its budget, but the Council of Finance and Administration of the West Michigan Annual Conference, Detroit Annual Conference and the Headquarters are jointly responsible for the lease. The lease expires in July 2014. The base monthly lease rate is $6,500 with annual escalation for cost of living. NOTE 8 - PENSION AND OTHER POST-EMPLOYMENT BENEFITS From 1982 through 2006, the Council contributed to the Ministerial Pension Plan (MPP Annuities) that was administered by the GBOPHB to fund clergy retirement benefits. The GBOPHB has taken the position that the Council is responsible for funding any shortfall in benefits. The Council’s portion of the total estimated actuarial liability based on the most recent actuarial calculation as of January 1, 2012 was projected to be approximately $36,721,553 in 2014. The Council’s expected contribution for 2013 and 2014 was $0. The Council participates in a voluntary multi-employer defined contribution pension plan that covers substantially all Council lay and clergy employees. The Council contributes between 9 and 12 percent of each participant’s annual wages. Contributions made by the Council approximated $86,000 for each of the years ended December 31, 2012 and 2011. Additionally, the Council participates in a defined benefit pension plan that is frozen (Pre-1982 Plan). The Plan is administered by the GBOPHB. The Council’s plan assets exceeded the estimated actuarial plan liability based on the most recent actuarial calculation as of January 1, 2012 by $1,908,071 or 105% in 2014. Effective January 1, 2007, the General Conference adopted the Clergy Retirement Security Program (CRSP-DB). This program is an amendment and restatement of the previous clergy pension program. Regular ccontributions made by the Council approximated $467,000 and $485,000 for the years ended December 31, 2012 and 2011, respectively. The Council was also required to make additional contributions of $1,909,487 and $2,909,932 for the years ended December 31, 2012 and 2011, respectively. The Council’s expected contribution based on the most recent actuarial calculation as of January 1, 2011 was projected to be $1,903,954 for 2013. The Council’s expected contribution based on the most recent actuarial calculation as of January 1, 2012 was projected to be $1,410,002 for 2014. The Council’s policy is to fund the majority of costs of qualified retirees’ (clergy and lay employees) health care coverage. Such costs are expensed when paid and amounted to approximately $1,037,000 and $1,156,000 for the years ended December 31, 2012 and 2011, respectively. The projected unfunded post-employment medical benefits liability, based on the most recent actuarial calculation dated May 7, 2013 was projected to be $6,927,000 as of December 31, 2013. 21


2013

AUDITOR’S REPORT 439

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 9 - RELATED PARTY TRANSACTIONS The Council conducts essentially all transactions, other than purchases of goods and services and sales of certain property, with affiliated congregations. Certain administrative expenses are reimbursed by related organizations. The Council also processes payroll transactions for affiliated organizations at no charge. The value of these services has not been determined but is not considered significant to the financial statements. NOTE 10 - FUNCTIONAL ALLOCATION OF EXPENSES The functional allocation of the Council’s expenses as they relate to programs and management and general are listed below.

Programs: Connectional Ministry and Administration World Service and Conference Benevolence Six Lanes and Advanced Specials Ministerial Education and Black College fund Camping and Outdoor Education Pension and Health Benefits and Life Insurance fund New Church Development Other funds

2012

2011

$ 2,376,126 2,326,578 1,424,403 404,032 759,978 1,518,768 398,956 47,495

$ 2,231,856 2,334,932 1,553,438 407,908 790,786 1,642,049 495,319 35,874

9,256,336

9,492,162

Total programs Management and general

1,871,149

1,915,750

$ 11,127,485

$ 11,407,912

Fundraising has not been segregated on the basis of immateriality.

22


440

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 11 - RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes.

2012 New Church Investment fund - restricted for development of new churches Camp endowment - restricted for the upkeep and running of camps Special Offerings - contributions designated by local churches Ministerial training - designated for the training of clergy

$

24,271

2011 $

1,904

774,800 187,994 167,680

750,788 195,131 165,553

$ 1,154,745

$ 1,113,376

Net assets amounting to $1,588,550 and $1,713,706 were released from restrictions during the years ended December 31, 2012 and 2011, respectively, by incurring expenses satisfying their restricted purposes. Permanently restricted net assets are available for the following purposes. 2012 Permanent endowment - restricted for world service

23

$

10,607

2011 $

10,607


2013

AUDITOR’S REPORT 441

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 12 - ENDOWMENTS Endowments consist of funds established for a variety of purposes and may include both donorrestricted funds and funds internally designated to function as endowments. Restrictions are both permanent and temporary and assets associated with endowment funds are classified and reported based on the existence or absence of these restrictions. The Council has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as permitting the preservation of the historical value of the original gift of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, when directed by the gift instrument, the Council classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until the restricted purpose has been accomplished. The Council considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds. 1. 2. 3. 4. 5. 6. 7.

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 the appreciation of investments. Other resources of the organization The investment policies of the Council.

The Council’s investment and spending practices for endowment assets attempt to provide a predictable stream of funding to programs supported while seeking to maintain the purchasing power of the endowment assets. Investment earnings from donor-restricted endowment funds are classified as unrestricted income absent explicit donor stipulations to the contrary. In the event that the fair value of donor-restricted endowment funds falls below the level required to be maintained in perpetuity, the resulting deficiency is recorded as a reduction of unrestricted net assets.

24


442

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO FINANCIAL STATEMENTS NOTE 12 - ENDOWMENTS (Concluded) Changes in endowment net assets are as follows.

Endowment net assets January 1, 2011

Temporarily restricted

Permanently restricted

$

$

Investment return: Investment income Net depreciation (realized and unrealized)

812,285

10,607

Total $

822,892

21,635 (34,395)

-

21,635 (34,395)

(12,760)

-

(12,760)

Contributions Approved for expenditure

(48,737)

-

(48,737)

Endowment net assets December 31, 2011

750,788

10,607

761,395

24,230 44,829

-

24,230 44,829

Total investment return

Investment return: Investment income Net appreciation (realized and unrealized) Total investment return Approved for expenditure Endowment net assets December 31, 2012

$

69,059

-

69,059

(45,047)

-

(45,047)

774,800

$

10,607

$

785,407

NOTE 13 - CONTINGENCIES From time to time the Council is involved in various legal proceedings that have arisen in the ordinary course of business. Management does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on the Council’s financial position or future results of operations. Effective September 1, 2009 the Council became primarily self-insured, up to certain limits, for health claims through Professional Benefits Services. The plan includes all participating Council employees as well as affiliated congregation clergy. The Council has purchased stop-loss insurance, which will reimburse the Council for individual policies that exceed $75,000 annually. Claims are expensed as paid. The total claims expense under the program was approximately $3,700,000 and $4,200,000 for Council employees for the years ended December 31, 2012 and 2011, respectively. The Council is reimbursed for stop loss premiums and claims paid for affiliates covered under the Plan. The total amount of claims incurred but not reported attributable to the Council has not been determined, however, claims incurred in December estimated in the amount of $198,620 were paid in 2013.

25


2013

AUDITOR’S REPORT 443

SUPPLEMENTARY INFORMATION

26


444

WEST MICHIGAN ANNUAL CONFERENCE 2013

COUNCIL OF FINANCE AND ADMINISTRATION OF THE WEST MICHIGAN ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH COMBINING STATEMENT OF SUPPORT, REVENUE AND OTHER RECEIPTS, EXPENSES, OTHER DISBURSEMENTS AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS YEARS ENDED DECEMBER 31, 2012 (with comparative totals for the year ended December 31, 2011)

SUPPORT, REVENUE AND OTHER RECEIPTS: Support and revenue: Ministry shares Special offerings Investment income Camp registration and rental fees Other income Net assets released from restrictions

Connectional Ministry and Administration fund

World Service and Conference Benevolence fund

2012 Ministerial Camping and Six Lanes and Education Outdoor Advance and Black Education Specials fund College fund fund

Pension and Health Benefits and Life Insurance fund

$ 2,563,733 186,548 160,617 160,854 -

$

$

$

Total support and revenue

2,351,489 4,968 17,542 60,254 61,358

1,424,403

$

404,032 -

$

1,328 966,769 117,572 53,197

47,932 1,944,104 27,207 -

3,071,752

2,495,611

1,424,403

404,032

1,138,866

2,019,243

7,460

-

-

-

-

459,432 2,103,597 4,215,093

Total support, revenue and other receipts

3,079,212

2,495,611

1,424,403

404,032

1,138,866

8,797,365

EXPENSES AND OTHER DISBURSEMENTS: Expenses: Salaries Health and life insurance Pension and post-employment benefit expense Other employee costs Training and continuing education Travel, meeting and moving expenses Operating and administrative expenses Parsonage and building expenditures World Service Programs and conference benevolence Depreciation and amortization Remittances to General Conference

1,033,310 235,372 136,849 35,330 8,644 277,923 560,780 45,522 536,528 398,737

517,777 99,328 35,874 22,211 4,864 44,677 68,657 895,886 728,969 26,533

1,290,806 133,597

62,548 341,484

298,447 30,960 10,689 34,160 2,198 2,246 314,656 33,430 385,722 -

1,516,287 2,481 6,746 177,078 -

3,268,995

2,444,776

1,424,403

404,032

1,112,508

1,702,592

-

-

-

-

-

2,626,545 3,406,605

3,268,995

Other receipts: CPP holiday refunds Pension billings Insurance billings

Total expenses Other disbursements: Remittances to Board of Pensions Health and life insurance Total expenses and other disbursements

2,444,776

1,424,403

404,032

1,112,508

7,735,742

(189,783)

50,835

-

-

26,358

1,061,623

97,225

(49,777)

-

-

(63,033)

Increase (decrease) in net assets

(92,558)

1,058

-

-

(36,675)

956,444

Net assets - beginning of year

556,841

72,019

-

-

(408,482)

15,999,516

-

$ (445,157)

Increase (decrease) in net assets before transfers Transfers

Net assets - end of year

$

464,283

$

27

73,077

$

-

$

(105,179)

$

16,955,960


2013

AUDITOR’S REPORT 445

2012

Plant fund

$

-

Loan Program fund

New Church Development fund

Other Funds

$

$

$

25,968 -

320,290 238,880 21 89,053 557

133 31,311 49,035

Total unrestricted

$

5,687,476 238,880 2,162,937 1,145,061 486,251 1,588,550

Temporarily restricted

Permanently restricted

$

$

61,032 1,368,650 80,334 119,903 (1,588,550)

-

Totals

$

2011

5,748,508 1,607,530 2,243,271 1,145,061 606,154 -

$

5,737,814 1,827,729 551,851 960,900 654,150 -

-

25,968

648,801

80,479

11,309,155

41,369

-

11,350,524

9,732,444

-

-

-

-

459,432 2,103,597 4,222,553

-

-

459,432 2,103,597 4,222,553

476,994 2,113,505 4,069,311

-

25,968

648,801

80,479

18,094,737

41,369

-

18,136,106

16,392,254

167,999 -

1,686 -

236,311 44,892 30,388 3,804 14,769 10,237 80,948 83,561 -

23,940 7,743 1,570 1,775 23,176 8,048 16,865 12,467 -

2,109,785 1,934,582 215,370 99,761 53,651 349,877 1,220,670 78,952 895,886 3,100,601 167,999 900,351

-

-

2,109,785 1,934,582 215,370 99,761 53,651 349,877 1,220,670 78,952 895,886 3,100,601 167,999 900,351

2,218,624 2,054,794 220,332 100,275 57,628 293,045 1,310,116 131,357 928,799 3,112,672 123,604 856,666

167,999

1,686

504,910

95,584

11,127,485

-

-

11,127,485

11,407,912

-

-

-

-

2,626,545 3,406,605

-

-

2,626,545 3,406,605

3,674,151 4,039,646

17,160,635

-

-

17,160,635

19,121,709

934,102

41,369

-

975,471

28,840

-

-

-

-

13,735

934,102

41,369

-

975,471

167,999

1,686

504,910

95,584

(167,999)

24,282

143,891

(15,105)

96,924 (71,075)

-

(5,000)

24,282

2,554,535

1,335,629

$ 2,483,460

$ 1,359,911

138,891 82,555 $

221,446

$

38,541

20,231,154

1,113,376

52,276

$ 21,165,256

$ 1,154,745

28

$

(2,729,455) (2,729,455)

10,607

21,355,137

24,084,592

10,607

$ 22,330,608

$ 21,355,137

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