HEART OF THE CITY INCORPORATED Contents Business Directory Auditors Report Statement of Financial Performance Statement of Movements in Equity Statement of Financial Position Notes to the Financial Statements Page 10 HEART OF THE CITY INCORPORATED Business directory Chair: Terry Gould Deputy Chair: ]ason Copus Treasurer: jason Copus Board Members: Gary Langsford Chris Cherry Paddy Stafford?Bush Shane McMahon Sarah Hull Regan Hall Local Board Representatives: Shale Chambers 'Associate Members Appointed to Denise L'Estrange?Corbet - the Board in a Non?Voting Andrew Stringer Capacity: Nature of Business: Promotes Inner City Business Registered Office: Level 2, 26 Lorne Street Auckland Bankers: ASB Bank Limited 138?142 Queen Street Auckland Solicitors: Buddle Findlay PricewaterhouseCoopers Tower 188 Quay Street Auckland Russell McVeagh Vero Centre Level 25, 48 Shortland Street Auckland Auditors: RSM Hayes Audit Level 1, 1 Broadway Newmarket Auckland Accountants: Grant Thornton New Zealand Level 4, Grant Thornton House 152 Fanshawe Street Auckland RSM Hayes Audit PO Box 9588 Newmarket, Auckland 1149 INDEPENDENT REPORT TO THE MEMBERS OF HEART OF THE CITY INCORPORATED We have audited the financial statements Of Heart of the City Incorporated on pages 5 tO 14, which comprise the statement of financial position as at 30 June 2015 and the statement Of financial performance, and statement Of movements in equity for the year then ended, and a summary Of significant accounting policies and other expianatory information. This report is made soleiy to the members, as a body, in accordance with the rules Of Heart Of the City Incorporated. Our audit has been undertaken so that we might state to the members those matters we are required to state to them in an auditor?s report and for no other purpose. TO the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the members as a body, for our work, for this report, or for the Opinions we have formed. Board?s Responsibility for the Financial Statements The board Of Heart of the City incorporated is responsibie for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and applicable Statements Of Standard Accounting Practice and for such internal control as the board determines is necessary to enable the preparation Of financial statements that are free from material misstatement, whether due to fraud or error. Auditor?s Responsibility Our is to express an Opinion on these financiai statements based on our audit. We conducted our audit in accordance with international Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and 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 disciosures in the financial statements. The procedures selected depend on the auditor?sjudgement, inciuding 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 reievant to the entity?s preparation Of financial statements that present fairly the matters to which they relate 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. An audit also includes evaluating the appropriateness Of accounting policies used and the reasonableness Of accounting estimates, as weil 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 qualified audit opinion. Other than in our capacity as auditor we have no relationship with, or interests in, Heart Of the City Incorporated. Basis for Qualified Opinion on Financial Performance The 2014 audit Opinion was qualified by the previous auditors due to uncertainty surrounding the quantification of the extent Of fraudulent activity. Given the circumstances, the previous auditors were unable to determine whether further adjustments and reclassifications to the statement Of financial performance were necessary for the year ended 30 June 2014. Our opinion on the current period?s statement Of financial performance is also modified because Of the possible effect of this matter on the comparability Of the current period's figures and the corresponding figuresREM Hayes Audit is a member Of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network, Each member Of the RSM network is an Independent accounting and consulting ?rm which practices In Its own right. The RSM network Is not itself a separate iegai entity in any Jurisdiction. Quaiified Opinion on Financial Performance In our opinion, except for the possible effects on the corresponding 2014 figures of the matter described in the Basis for Qualified Opinion paragraph, the financial statements on pages 5 to 14 present fairly, in all material respects, the financial performance of Heart of the City Incorporated for the year ended 30 June 2015 in accordance with Financial Reporting Standards and applicable Statements of Standard Accounting Practice. Opinion on Financial Position In our opinion, the financial statements on pages 5 to 14 present fairly, in material respects, the Statement of Financial Position of Heart of the City Incorporated as at 30 June 2015. Other Matter The financial statements of Heart of the City Incorporated for the year ended 30 June 2014 were audited by another audit firm who expressed their qualified opinion dated 20 May 2015. Their qualification in respect of financial performance on the 2014 financial statements was for the reasons noted in the Basis for Qualified Opinion above. RSM Hayes Audit 29 October 2015 Auckland - HEART OF THE CITY INCORPORATED Statement of ?nancial performance for the year ended 30 June 2015 Note Income Auckland City Contributions Event and Sundry Income Big Little City Campaign Funding Investment and Other income Net Dividend Received Interest Received Other Income 11 Pro?t on Sale of Fixed Assets Total income 1 2015 2014 4,322,839 4,269,853 - 22,367 673,734 595,966 4,996,573 4,887,986 1,005 990 7,175 1,846 429,484 15,386 437,664 18,222 5,434,237 4,906,208 The accompanying notes form part of these financial statements. HEART OF THE CITY INCORPORATED Statement of ?nancial performance for the year ended 30 June 2015 Note 201 5 201 4 Expenses ACC Levy - 4,453 5,095 Accountancy Fees 14,039 27,660 Advocacy A 23 9,134 270,671 AGM Expenses 1,818 785 Ambassadors 216,561 238,721 Amortisation of Intangible Assets 7 117,354 30,790 Audit Fees Grant Thornton New Zealand Audit 10,866 14,285 Audit Fees Hayes Audit 14,500 a Bank Fees 1,248 287 Committee Expenses 1,150 1,325 Committee \Vages I 450 14,846 Community Donations 1,200 Computer Phone Maintenance 20,273 26,739 Contractor Expenses 254,472 286,91 1 Depreciation 6 94,304 104,578 Education Seminars 370 Events, Sponsorship Advertising 8 1,910,018 3,306,660 Forensic Accounting and Legal Expenses 12 401,861 Forgiveness of Loan 10 4,400 4,400 General Expenses - 15,525 36,505 Insurance 17,203 42,466 Interest 73 22 Legal Fees 11,408 13,251 Loss on Sale of Fixed Assets 9,830 Nlembership Communication 20,122 7,821 Of?ce Services 24,823 28,973 Parking (Staff) 4,835 6,259 Payroll Processing 2,756 3,389 Pedicabs 7,091 Penalties 323 Power 2,996 3,965 Printing, Postage 8: Stationery 11,927 19,149 Prior Period Assets W?ritten Down 2 48,879 Recruitment Expense 84,013 Rent OPEX 118,162 106,417 Salary and \Wages 736,939 903,821 Security 55,306 121,012 The accompanying notes form part of these financial statements. 6 HEART OF THE CITY INCORPORATED Statement of ?nancial performance for the year ended 30 June 2015 Note Expenses (continued) Telephone /Internet Website Management \Where Next App Operational Expenses Total Expenses Net Surplus (Deficit) 2015 2014 13,254 15,938 21,780 25,610 122,350 4 4,629,082 5,677,334 805,155 (771,126) The accompanying notes form part of these financial statements. HEART OF THE CITY INCORPORATED Statement of movements in equity for the year ended 30 June 2015 Equity at 1 July Net Surplus (De?cit) fo: the Year Totai Equity at 30 June The accompanying notes form part of these financial statements. 2015 2014 68,123 839,249 805,155 (771,126) 873,278 68,123 8 I RSM HEART OF THE CITY INCORPORATED Statement of ?nancial position as at 30 June 2015 Note 2015 2014 Equ?y Retained Earnings 873,278 68,123 Current Liabilities Accounts Payable 264,173 1 640,488 Income Received in Advance 223,333 142,372 487,506 782,860 Total Equity 81 Liabilities 1,360,784 850,983 Current Assets Cash 85 Cash Equivalents 408,835 41,919 Short Term Deposits 319,613 57,901 Other Receivables 59,542 107,597 Settlement Receivables 14 1 15,000 Accounts Receivable 54,191 80,210 Ferry Building Suspensory Loan Current 10 4,400 . 4,400 961,581. 292,026 Non Current Assets Property, Plant and Equipment 186,839 330,367 Capital V?Vork in Progress 10,000 - 2 196,839 330,367 Investments Ferry Building Suspensory Loan Non Current 10 30,800 35,200 Intangible Assets Website 134,012 193,390 Trademarks I 5,125 Intangible \Vork in Progress 32,427 7 171,564 193,390 399,203 558,957 1,360,784 850,983 as 10 7 1 Date i i Jasoi :Copus: reas?rer Date The accompanying notes form pan? of these ?nancial statements. HEART OF THE CITY INCORPORATED Notes to the ?nancial statements for the year ended 30 June 2015 1 Statement of Accounting Policies These are the ?nancial statements of Heart of the City Incorporated. Heart of the City Incorporated is? an Incorporated Society established under the Incorporated Societies Act 1908. The ?nancial statements have been prepared in accordance with generally accepted accounting practice. The Society has chosen not to adopt the New Zealand Equivalents to International Financial Reporting Standards The decision not to adopt is consistent with exemption provided by External Reporting Board At. XRB A1 provides a choice to certain qualifying entities to either adopt NZ IFRS or to continue to apply New Zealand Financial Reporting Standards The Society is a qualifying entity on the basis that it is not considered large (less than $20m revenue and $10111 total assets). Heart of the City Incorporated has adopted all available differential reporting exemptions. Measurement System The measurement system adopted is that of historical cost. Particular Accounting Policies The following is a summary of the significant accounting policies adopted by Heart of the City Incorporated in the preparation of these financial statements. Property, Piant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is recognised in the Statement of financial performance to write off the cost of an item of property, plant equipment, less any residual value, over its expected useful life, at the rates listed below. Gains and losses on disposal of property, plant and equipment are taken into account in determining the financial performance for the year. Rate Method 16% 67% DV 16% 60% DV 11.Office Equipment Computer Equipment Fittings and Furniture Promotional Assets Depreciation methods, USCful lives and residual values are reviewed at each reporting date. Operating Leases Leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are charged as an expense in the periods in which they are incurred. Accounts Receivable Accounts receivable are valued at anticipated realisahle value. An estimate is made for doubtful debts based on a review of all outstanding amounts at year end. Bad debts are written off during the period in which they are identi?ed. Investments Investments are stated at cost. 10 HEART OF THE CITY INCORPORATED Notes to the ?nancial statements for the year ended 30 June 2015 Goods and Services Tax Financial information in these accounts is recorded exclusive of GST with the exception of receivabies and payables, which include GST. GST payable or receivable at balance date is included in the appropriate category in the Statement of Financial Position. Intangibles The website and app are accounted for using the cost model whereby capitalised costs are amortised on a diminishing value basis over their estimated useful life, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the asset which it relates. Other expenditure is recognised in profit or loss when incurred. The trademarks are recognised at cost and are not amortised as they are not considered to have a finite useful life. Rate Method Web site Where Next App 50% DV Accounts Payable Trade and other payables represent liabilities for goods and services provided to Heart of the City Incorporated prior to the end of the financial year which are unpaid. The amounts are unsecured. Cash and Cash Equivalents Cash and cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Revenue Revenue shown in the Statement of Financial Performance comprises the amounts received and receivable by way of grants and sponsorship. Investment income Interest is accounted for as earned. Income Received in Advance Income received in advance relates to campaign income received where there are unful?lled obligations for Heart of the City Incorporated to provide services in the future. These are recorded as revenue as the obligations are fulfilled. Tax From 1 July 1999 the entity was exempt from income tax under section CW 40(1) of the Income Tax Act 2007. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year. The Financial Reporting Act 2013 2013?) applies to any reporting periods beginning on or after 1 April 2014 and entities can no longer report under NZ FRS for accounting periods beginning on or after 1 April 2015. As Heart of the City Incorporated does not have a statutory obligation to prepare general purpose financial statements, it has the option to either elect to prepare Special Purpose Financial Statements or General Purpose Financial Statements. As at the date the financial statements were approved for issue, management has not made any decision as to which approach it will take. HEART OF THE CITY INCORPORATED Notes to the ?nancial statements for the year ended 30 June 2015 2 Property Plant and Equipment Year Ended 30 June 2015 Cost Accum Depn Book Value Office Equipment 18,300 11,917 6,3 83 Computer Equipment 52,178 37,826 14,352 Of?ce Fittings Furniture 122,582 74,161 48,421 Promotional Assets 523,387 405,705 117,682 716,448 529,609 186,839 Capitat Work in Progress MFP Banners 10,000 10,000 726,448 529,609 196,839 Year Ended 30 June 2014 Of?ce Equipment 31,168 22,362 8,806 Computer Equipment 67,450 51,975 15,475 Office Fit?ngs Furniture 130,288 73,812 56,476 Promotional Assets 999,781 750,170 249,611 1,228,687 898,320 330,367 A review was undertaken of the asset schedule during the year which resulted in impairment or additional depreciation adjustments to some assets, primarily of a promotional nature. The net effect of these changes has been recorded in the Statement of Financiai Performance as Prior Period Assets \Written Down. 3 Related Parties The society has conducted transactions with related parties as follows: Party Relationship Gary Langsford Board Member Sarah Hull Board Member Denise L'EstrangewCorbet Board Member ]ohn Courtney Former Board Member Alex Swney Chief Executive Transaction Landlord (Part Owner), Funding paid to related party Funding paid to related party, Partnership fee receivedfrom related party Honorarium Partnership fee received from related party Contractor Services Provided Via AGS Services Limited Total rent paid to the 26 Lorne Street Limited where Gary Langsford (Board Member) is a part owner was $118,612 (2014: $106,111 7). Gary Langsford was also a board member of NZ Contemporary Arts Trust which received $23,000 for Art \Week from Heart of the City Incorporated during the year. 12 "am RSM HEART OF THE CITY INCORPORATED Notes to the ?nancial statements for the year ended 30 June 2015 3 Related Parties (continued) Sarah Hull is an employee of Britomart Association Company which paid a partnership fee of $25,000 during the year. Britomart Association Company also paid $1,100 to Heart of the City Incorporated for the production of an installation related to the \?Vinter Campaign. This amount was outstanding as at 30 June 2015. Alex Swney was dismissed from Heart of the City Incorporated as at 2 October 2014. He was subsequently convicted for misappropriation of funds from Heart of the City Incorporated. No related party debts have been written off or forgiven during the year (2014'. 8N0). 4 Contingent Liabilities There are no contingent liabilities at year end (2014: ?Nil). 5 Capital Commitments There are no capital commitments at year end (2014: $Nil). 6 Operating Expenses include the following: 2015 2014 Depreciation Office Equipment 1,707 2,532 Depreciation Computer Equipment 8,755 13,129 Depreciation Office Fittings Furniture 8,481 9,943 Depreciation Promotional Assets 75,361 78,974 94,304 104,578 7 intangible Assets 2015 2014 9.5 \Vebsite and Where Next App at Cost 542,137 493,494 Less Accumulated Amortisation (408,122 (300,104) \Vebsite and \Where Next App 134,021 193,390 Trademarks 5,125 \?Vhere Next App Work in Progress 32,427 171,564 193,390 Amortisation of Intangible Assets relates to the W?ebsite, \?Vhere Next App, and related assets. The signi?cant increase is due to the assets brought into the register in 2014 and 2015 which total $221,909 and were amortised at 50% from 1 July 2014. Of the total amortisation $102,625 relates to these assets. 8 Events, Sponsorship and Advertising Expenditure cuts were made to these areas given the need to manage costs prudently while the fraud was investigated. 13 HEART OF THE CITY INCORPORATED Notes to the ?nancial statements for the year ended 30 June 2015 9 Lease Commitments Lease commitments from non?cancellable operating leases at balance date are: 2015 2014 :5 Current . 111,372 198,948 Non?Current 67,217 513,951 178,589 712,899 10 Ferry Building Partnership Suspensory Loan There is a suspensory loan to the Ferry Building Partnership for the amount of $35,200. This loan is being forgiven in ten equal instalments of $4,400 upon each anniversary of the initial payment. If the Ferry Building Partnership for any reason is not able to meet the terms of the agreement, the remaining loan balance will be payable to Heart of the City Incorporated. 11 Other Income 2015 2014 Insurance Claims 55,568 Recovery of Misappropriated Funds 373,916 429,484 - 12 Forensic Accounting and Legal Expenses Forensic work has been carried out by McGrathNicol and Russell McVeagh in relation to the ongoing proceedings against: the former CEO. 13 Potential Fraud in 2015 Financial Year As part of the investigation carried out, McGrathNicol identified potentially fraudulent payments for the year ended 30 June 2015 which total approximately $96,000. 14 Events After Balance Date and Contingent Assets Legal Proceedings Prior to year end, Heart of the City Incorporated launched civil proceedings against its former Chief Executive as a result of an investigation into his actions by an independent forensic accountant. This inciuded claims against two trusts which were alleged to have received Heart of the City Incorporated funds taken improperly by its former Chief Executive Alex Swney. As at 30 June 2015, $258,916 had been received and a further $115,000 was due at that date in respect of these claims, which was subsequently received. 1 In addition, a contingent asset existed at balance date relating to claims that had not yet been settled, with an uncertain amount of recovery. Subsequent to balance date Heart of the City Incorporated reached a final settlement in respect of its claims against these trusts and a further $326,000 was recovered from the trusts, which wili be recorded as income in the subsequent financial year. As at the date the financial statements were authorised for issue further civii proceedings were ongoing. 14 [mm RSM