FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Audited Financial Statement Year Ended September 30, 2012 Table of Contents Page Independent Auditor's Report 1 - 2 Management Discussion and Analysis (required supplementary information) 3 - 16 Basic Financial Statements Statement of Net Position 17 Statement of Activities 18 Balance Sheet -- Governmental Funds 19 Statement of Revenues, Expenditures, and Changes in Fund Balances -- Governmental Funds 20 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 21 Statement of Net Position Proprietary Funds 22 Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds 23 Statement of Cash Flows -- Proprietary Funds 24 -- 25 Statement of Fiduciary Net Position and Changes in Fiduciary Net Position -- Minors' Trust Fund 26 Notes to Basic Financial Statements 27 - 56 Required Supplementary Information Budgetary Comparison Schedule -- General Fund 57 -- 59 FOREST COUNTY COMMUNITY Crandon, Wisconsin Table of Contents (Continued) Other Supplementary Information Combining Balance Sheet-- Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -- Nonmajor Governmental Funds Combining Balance Sheet -- Nonmajor Governmental Funds -- Capital Projects Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -- Nonmajor Governmental Funds - Capitai Projects Combining Balance Sheet -- Nonmajor Governmental Funds - Federal Award Programs Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -- Nonmajor Governmental Funds -- Federal Award Programs Combining Balance Sheet -- Nonmajor Governmental Funds - State and Local Award Programs Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds -- State and Local Award Programs Combining Statement of Net Position -- Nonmajor Enterprise Funds Combining Statement of Revenues, Expenses, and Changes in Net Position -- Nonmajor Enterprise Funds Combining Statement of Cash Flows -- Nonmajor Enterprise Funds David A. Grotkjn Steven R. Vol: Daniel R. Brophey 5 Joel A-JOYCE Thomas G. Wieland Brian]. Mechenich Michael W. Van Wagenen A - Carrie A. Gindt LL11 Lt} )7 VICX-V PatriCkG.l_10HeI_t Independent Auditors Report To the Members of the Tribal Executive Council Forest County Potawatomi Community Crandon, Wisconsin We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Forest County Potawatomi Community ("Tribe"), as of and for the period ended September 30, 2012, which collectively comprise the Tribe's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Tribe's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Potawatomi Business Development Corporation and Subsidiaries, which statements reflect total assets of $49,753,835 as of September 30, 2012, and total revenues of $41,630,698 of the business-type activities for the period then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Potawatomi Business Development Corporation, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government/luditing 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. Management has not included the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel financial statements. Accounting principles generally accepted in the United States of America require the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel to be presented as major enterprise funds and financial information about the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel to be part of the business--type activities, thus increasing that activity's assets, liabilities, revenues and expenses, and changing its net position. The amount by which this departure would affect the assets, liabilities, net position, revenues and expenses of the business--type activities and the omitted major funds has been excluded for purposes of confidentiality. 1 Reilly, Penner Benton LLP 1233 N. Mayfair Road Suite #302 - Milwaukee, VV1 53226-3255 - In our opinion, because of the omission of the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel, as discussed above, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Tribe as of September 30, 2012, or the changes in financial position or cash flows thereof for the period then ended. In addition, in our opinion, except for the effects of not including the financial information for the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel as part of the business--type activities, as described above, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business--type activities, each major fund and the aggregate remaining fund information of the Tribe as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the period then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2013 on our consideration of Forest County Potawatomi Community's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison information as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with managements responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Forest County Potawatomi Community's financial statements as a whole. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relate 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 audit 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. June 28, 2013 Miiwaukee, Wisconsin I .741/zwt .7717. $414: 34?} Gm/za/a/z, POTAWATOMI (Keeper of the Fire) MANAGEMENT DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of the Forest County Potawatomi Community provides an overview of the Tribe's financial activities for the period ended September 30, 2012. Please read it in conjunction with the financial statements identified in the accompanying table of contents. For confidentiality reasons, the Tribe has elected to exclude certain business activities from these financial statements. This financial report does not include the operations of the Tribe's Potawatomi Bingo Casino in Milwaukee, Wisconsin and the Potawatomi Carter Casino Hotel in Carter, Wisconsin. The net position and activities of these businesses would have an impact on the users' conclusions of the Tribe-wide activities as a whole. The following management discussion and analysis is based upon the financial statements of the Tribe exclusive of these business activities. FINANCIAL HIGHLIGHTS 9 During the year, the Tribe's total net position increased by $33.7 million. Net position of governmental activities increased by $47.1 million and business-type activities decreased by $13.4 million. 9 Expenses of the Tribe's governmental activities were $257.4 million for the year, which included $113.3 million in per capita payments, $52.6 million in health care costs, and $48.3 million for costs associated with the Tribe's gaming activities (which include the cost of the gaming commission and the compact agreements with State and local governments). 9 Business-type activities had revenues of $51.6 million compared with expenses of $53.3 million. Revenues decreased by $4.5 million from last year while expenses also decreased by $4.0 million. Expenses exceed revenues by $570 thousand, compared with $1.6 million in the previous year. These changes were primarily in the gaming operations and in the Business Development Corporation. 9 Business-type activities transferred $12.9 million to governmental activities during the year. 9 General fund revenues were $27.4 million, which was $134 thousand above budget. General fund expenditures were $236.5 million which were $2.7 million below budget. Per capita payments exceed budget by $9.4 million. All other major categories of expense were under budget. Net transfers from other funds (including the Tribe's gaming operations) were $9.4 million greater than budget. 9 As described in the notes to the financial statements, the Tribe reassessed its classification of the Housing Loan fund, which had been previously reported as an enterprise fund. Based upon this reassessment, the Tribe concluded that the Housing Loan fund does not constitute an enterprise fund and would be more appropriately classified as a special revenue fund. This reclassification resulted in a transfer of $16.4 million out of the Housing Loan fund of the non-major enterprise funds and a transfer into the Tribal Housing special revenue fund. 3 FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS 9 On October 1, 2012, the Tribe liquidated the assets of the Wisconsin Potawatomi Housing Authority and transferred them to the new Tribal Housing special revenue fund. This reclassification resulted in a transfer of $5.4 million out of the Housing Authority fund of the non--major enterprise funds and a transfer into the Tribal Housing special revenue fund. FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS THE FINANCIAL STATEMENTS This report consists of a series of financial statements. The first series is the Tribe-wide financial statements. This includes the Statement of Net Position and the Statement of Activities which provide information about the activities of the Tribe as a whole, and presents a long term view of the Tribe's finances. The Tribe--wide statements will be very similar to financial statements you may have seen for private sector companies. The second series of reports are the fund financial statements. For government activities, the fund financial statements tell how government services were financed in the short term, as well as what remains for future spending. Fund financial statements also report the Tribe's operations in more detail than the Tribe-wide statements by providing information about the Tribe's most significant funds. The remaining statements provide financial information on the fiduciary funds for which the Tribe acts solely as a trustee or agent for the benefit of those outside of the government. OVERVIEW OF THE FINANCIAL STATEMENTS The report consists of four parts -- managements discussion and analysis (this section), the basic financial statements, required supplementary information, and an optional section that presents combining statements for nonmajor governmental funds. The basic financial statements include two kinds of statements that present different views of the Tribe. 1. The first two statements are Tribe-wide financial statements that provide both long-term and short-term information about the Tribe's overall financial status. 2. The remaining statements are fund financial statements that focus on an individual part of the Tribe's government, reporting the Tribe's operations in more detail than the Tribe--wide statements. There are three types of funds reported in this year's financial statements. The governmental fund statements tell how government services, like the Health and Wellness Center, were financed in the short term, as well as what remains for future spending. "2 Proprietary fund statements offer short and long--term financial information about the activities the Tribe operates like a business, such as the Convenience Store. "r Fiduciary fund statements provide information about the fiduciary relationships -- like the Minors' and Adult Deferred Per Cap Trust Fund -- in which the Tribe acts solely as trustee for the benefit of others. The assets in fiduciary funds belong to others, not the Tribe. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that provides additional financial and budgetary data. Table 1 summarizes the major features of the Tribe's financial statements, including the portion of the Tribe they cover and the types of information they contain. The remainder of this overview section of managements discussion and analysis explains the structure and contents of each of the statements. FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Major Features of the Tribe-Wide and Fund Financial Statements Tribe-wide Statements (Pages 17 -18) Table 1 Governmental Funds (Pages 19-21) Fund Statements Proprietary Funds (Pages 22 -- 25) Fiduciary Funds (Page 26) What is covered? Entire Tribal government (except fiduciary funds) and the Tribe's component units. All activities of the Tribe that are not proprietary or fiduciary in nature. Activities the Tribe operates as businesses: gaming, farming, retail sales, and loan programs. Funds that belong to others that are managed by the Tribe as trustee or agent. What statements are required in the report'? - Statement ofnet posmon - Statement of activities. - Balance sheet 0 Statement of revenues, expenditures and changes in fund balances. - Statement of net position - Statements of revenues, expenses and changes in net position - Statement of cash flows - Statement of fiduciary net assets - Statement of changesin fiduciary net position. What is different about the accounting basis and measurement focus1 of the statements'? Accrual accounting' and economic resources focus' (Similar to private sector) Modified accrual accounting?' and current financial resources focuss Accrual accounting? and economic resources focus4 (Similar to private sector) Accrual accounting' and economic resources focus (Similar to private sector) What type of assets and liability information is provided in the statement? All assets and liabilities, both financial and capital, and short-term and long--term. Only assets expected to be used up and liabilities that come due during the current year or soon thereafter. No capital assets or long-term debt is included. All assets and liabilities, both financial and capital, and short-term and long--term. All assets and liabilities, both financial and capital, and short-term and long--term; the Tribe's fiduciary funds do not currently contain capital assets. What type of revenue and expenses are reported'? All revenues and expenses during the year, regardless of when cash is received or paid. Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and payment is due during the year or soon thereafter. All revenues and expenses during the year, regardless of when cash is received or paid. All revenues and expenses during the year, regardless of when cash is received or paidBasis of accounting refers to when transactions are recorded. Measurement focus IS a term used to describe which transactions are recorded. 2 Accrual accounting means revenues are recorded they are earned, and expenses are recorded 3 the liability is incurred, regardless if cash has actually been received or paid. Modified accrual accounting is the same as accrual accounting, except revenue is only recognized yv_l1?g it is "measurable and available." Measurable means knowing or being able to estimate the amount. Available means that the revenue is collectible within the current period or within ninety days after year end. Economic resource is a measurement focus that means that a_H assets and liabilities (whether current or long--term) are reported. 5 Current financial resources focus means only current financial assets and liabilities are included on the balance sheet. These statements present sources and uses of available. spendable financial resources during a given period FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Reporting the Tribe as a Whole (Tribe-wide Statements) The accompanying Tribe~wide financial statements include two statements that present financial data for the Tribe as a whole. One of the most important questions asked about the Tribe's finances: "ls the Tribe as a whole better off or worse off as a result of the year's activities?" The Statement of Net Position and the Statement of Activities report information about the Tribe as a whole and about its activities in a way that helps answer this question. These statements include all assets and using the accrual basis of accounting, which is similar to the accounting used by most private--sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Tribe's net position and changes in it. You can think of the Tribe's net position -- the difference between assets and liabilities as one way to measure the Tribe's financial health, or financial position. Over time, increases and decreases in the Tribe's net position are one indicator of whether financial health is improving or deteriorating. In the Statement of Net Position and the Statement of Activities, we divide the Tribe into two kinds of activities: 1. Governmental activities -- Most of the Tribe's basic services are reported here. Revenues received by the Tribe's gaming activities that are transferred to the government finance most of these services. 2. Business-type activities The Tribe operates a number of business enterprises to help cover the cost of all or most of the services it provides. The financial statements for these business activities are reported here. Reporting the Tribe's Major Funds (Fund Statements) The fund financial statements provide detailed information about the Tribe's most significant funds -- not the Tribe as a whoie. Some funds are required to be established by State law or by grant contracts. However, Executive Council establishes many other funds to help it control and manage money for particular purposes, or to show that it is meeting administrative responsibilities in its use of certain grants or other money received for a specific purpose. The Tribe's two kinds of funds -- governmental and proprietary - use different accounting approaches. - Governmental funds -- Most of the Tribe's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other current financial assets that can readily be converted to cash. The government fund statements provide a detailed short--term view of the Tribe's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Tribe's programs. The governmental fund financial statements will be different from the governmental activities listed on the Tribe-wide financial statement discussed above because of differences in the basis of accounting and measurement focus used for each type. We provide information about these differences in a reconciliation after the governmental fund financial statements (see page 21). FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS - Proprietary funds -- When the Tribe charges for the services it provides -- whether to outside customers or members of the Tribe -- these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Tribe-wide financial statements. In fact, the Tribe's enterprise funds (a component of proprietary funds) are the same as the business--type activities we reported in the Tribe--wide statements, only provided in more detail with additional information such as cash flows. We use internal service funds (the other component if proprietary funds) to report activities that provide supplies and services for the Tribe's other programs and activities. Reporting the Tribe's Fiduciary Responsibilities (Fiduciary Fund Statements) The Tribe is an agent for certain assets held for other individuals -- specifically the Minors' and Adult Deferred Per Capita Trust Fund. All of the Tribe's fiduciary activities are reported in a separate Statement of Fiduciary Assets. We exclude these activities from the Tribe's other financial statements because the Tribe cannot use these assets to finance its operations. The Tribe is responsible for ensuring that the assets reported in these funds are used for their intended purpose. FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS TRIBE-WIDE FINANCIAL STATEMENTS A summary of the Tribe-wide statement of net position follows: Table 2 Summary of Net Position As of September 30, 2012 (In Thousand) Governmental Business-Type Activities Activities Total Current and other assets 124,897 41,321 166,218 Capital assets 75,620 13,309 88.929 Total Assets 200,517 54,630 255,147 l_ong--term debt outstanding 670 103 773 Other liabilities 44,383 11,453 55,836 Total Liabilities 45,053 11,556 56,609 Net Position: Net investment in capital assets 75,620 13,309 88,929 Restricted 10,000 - 10,000 Unrestricted 69,844 29,765 99,609 Net Position 155,464 43,074 198,538 As noted earlier, net position may serve over time as a useful indicator of a governments financial position. In the case of the Tribe, assets exceeded liabilities by $198.5 million as of September 30, 2012. Net position does not mean "cash in the bank." Net position includes all assets of the Tribe, including capital assets such as buildings, land and equipment. In fact the largest portion of the Tribe's net position ($88.9 million) is reflected in its investment in capital assets. The Tribe uses these capital assets to provide services to members, customers, and others and consequently these assets are not available for future spending. The remaining balance of unrestricted net position shows a baiance of $99.6 million. The net position of the governmental activities increased by $47.1 million, while the net position of the business--type activities decreased by $13.4 million. As a result, the overall net position of the Tribe increased by $33.7 million A summary ofthe Tribe--wide statement of activities follows: FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Revenues Program Revenues Charges for services Operating grants and contributions Total revenues Expenses Tribal government Health care Housing Per capita payments Gaming commission Compact agreements Donations Other Depreciation not allocated Impairment of goodwill and investment holdings interest on long-term debt Business enterprises Total expenses Net (expense) revenue General revenues and transfers General Revenues Investment income Loss on disposal of capital assets Other income Transfers Net transfers gaming Net transfers other enterprises Total general revenues and transfers Change in net position Beginning net position Ending net position Changes in Net Position For the period ended September 30, 2012 (In Thousands) Governmental Business-Type Activities Activities Total 35,859 51,620 87,479 9.332 - 9,332 45,191 51,620 96,811 29,479 -- 29,479 52,573 -- 52,573 3,232 - 3,232 113,255 -- 113,255 9,647 -- 9,647 38,672 - 38,672 3,171 -- 3,171 4,599 - 4,599 2,821 - 2,821 -- 2,483 2,483 -- 75 75 -- 50,767 50,767 257,449 53,325 310,774 (212,258) (1,705) (213,963) 2,105 1,231 3,336 (6) - (5) -- (96) (96) 244,427 - 244,427 12,880 -- 259,406 (11,745) 247,661 47,148 (13,450) 33,698 108,316 56,524 164.840 155,464 43,074 198,538 The Tribes total revenues were $96.8 million while the total cost of all programs and services was $310.8 million. Transfers from the Tribe's gaming operations were the largest funding source at $244.4 million. FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Governmental activities. The cost of governmental activities exceeded related program revenues by $212.3 million. Approximately 80% of the cost to provide government services was financed by transfers from the Tribe's gaming operations. The following chart breaks down the Tribe's revenue by major funding source. Figure 1 REVENUES BY SOURCE -- GOVERNMENTAL ACTIVITIES ll] Gaming Transfers Health Care El Other Businesses Grants Contributions I Investment Income Other The largest single governmental cost relates to per capita payments to Tribal members. These per capita payments are financed exclusively from gaming revenues. Under a revenue allocation plan approved by General Council, per capita is calculated at 50% of gaming revenues (net of certain allocated expenses). Per capita payments represented 44% of the cost of governmental activities this past year. The Tribe's expenses associated with gaming operations represented 19% of the cost of governmental activities. These include the cost of the gaming commission and the compact agreements with State and local governments. Health care expenses represented 20% of the total cost of governmental activities. Charges to customers for services paid 65% of the cost of health care. General Tribal government expenses were 12% of the total cost of governmental activities. Part of the cost of providing these services was paid by charges for services and grants and contributions. The following chart will provide a breakdown of the expenses by function for the Tribe's governmental activities. FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Figure 2 EXPENSES BY FUNCTION -- GOVERNMENTAL ACTIVITIES 5.4% Per Capita Health Care 44.0% El Compact Payments El Tribal Government I Gaming Commission All Other 20.4% I I Business-Type Activities. Business-type activities of the Tribe decreased net position by $13.4 million. Operating losses before transfers for the business enterprises totaled $570 thousand. The business--type activities made a net transfer of $12.9 million to Tribal Governmental Activities. The largest contributor to the decrease in net position of the business-type activities was the transfer of the housing loan fund and the Wisconsin Potawatomi Housing Authority to the new Tribal Housing special revenue fund. The Tribe reassessed its classification of the Housing Loan fund, which had been previously reported as an enterprise fund. Based upon this reassessment, the Tribe concluded that the Housing Loan fund does not constitute an enterprise fund and would be more appropriately classified as a special revenue fund. This reclassification resulted in a transfer of $16.4 million out of the Housing Loan fund of the non- major enterprise funds and a transfer into the Tribal Housing special revenue fund. On October 2012, the Tribe liquidated the assets of the Wisconsin Potawatomi Housing Authority and transferred them to the new Tribal Housing special revenue fund. This reclassification resulted in a transfer of $5.4 million out of the Housing Authority fund of the non- major enterprise funds and a transfer into the Tribal Housing special revenue fund. A summary of the Tribe's business activities compared to prior year follows. 12 FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Table 4 Comparative Changes in Net Position Business Activities For periods stated Operating Revenues Sales and charges for services Other revenues Total operating revenues Operating Expenses Cost of sales and services Salaries, wages and administrative Loan reduction program Bad debts Impairment of goodwill and investment holdings Depreciation Total operating expenses Operating income Non-operating revenues (expenses) Loss on disposal of assets Interest expense Investment earnings (loss) Other income Income (loss) before transfers Net transfers (out) Change in net position (In Thousands) Income (loss) before transfers by business activity: Business Development Corporation Forestry, Farm 8 Land Services Convenience Store Carter Convenience Store -- Stone Lake Housing Loan Program Business Loan Program Personal Loan Program Insurance Processing Housing Authority MTS Support Services Net income before transfers FY 2012 FY 2011 Change 51,616 56,074 8 (4,458) 4 33 (29) 51,620 56,107 (4,487) 43,662 43,226 436 6,962 10,632 (3,670) -- 2,494 (2,494) -- 135 (135) 2,483 542 1,941 143 257 (114) 53,250 57,286 (4,036) (1,630) (1,179) (451) - (103) 103 (75) (83) 8 1,231 (304) 1,535 (96) 11 (107) (570) (1,658) 1,088 (12,880) 9,176 (22,056) (13,450) 7,518 (20,968) (783) 8 1,311 (2,094) (265) (238) (27) 627 670 (43) (181) (56) (125) See Note (3,180) 3,180 4 (36) 40 -- (27) 27 39 56 (17) See Note (158) 158 (11) - (11) (570) (1,658) 1,088 Results for FY 2011 include the financial activities of the Housing Loan Program and the Wisconsin Potawatomi Housing Authority which have been combined and reassessed as a Tribal special revenue fund called Tribal Housing. 13 FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS FUND STATEMENTS The Tribe--wide financial statements discussed above are designed to provide information about the overall financial health of the Tribe. Those statements are intended to be very similar in nature to statements provide by private--sector companies. The second part of this financial report is the fund financial statements. The Tribe uses fund accounting to provide proper financial management of the Tribe's resources and to demonstrate compliance with finance-related legal requirements. Fund financial statements are by nature, different from the Tribe--wide financial statements discussed above because of the different focus of fund accounting. The Tribe--wide financial statements are intended to show the net position of the Tribe as a whole, including all assets and liabilities of the Tribe. The purpose of the fund financial statements is to provide information on near--term cash inflow and outflow, and balances of sgendable resources. As a result, fund statements do not include capital assets because they are not spendable resources. Also, fund statements do not include long--term obligations, because they do not require the use of resources in the near- term. Major Governmental Funds. The focus of the Tribe's governmental fund statements is to provide information on near--term cash inflow and outflow, and balances of spendable resources. Such information is useful in assessing the Tribe's finances. In particular, unreserved fund balance may serve as a useful measure of the Tribe's net resources available for spending at the end of the fiscal year. As of September 30, 2012, government funds reported a combined ending fund balance of $77.4 million, an increase of $31.0 million in comparison with the prior year. Of this fund balance, $0.4 million was non--spendable, $10.0 million was restricted, and $36.1 million was assigned to specific projects or programs. Remaining unassigned government fund balance was $30.9 million. The General Fund. The General Fund is the chief operating fund of the Tribe. Total General Fund balance was $56.5 million at the end of the fiscal year. Of this fund balance, $18.4 million is non--spendable, or restricted, committed or assigned for future use by the Tribe leaving $38.1 million of unassigned fund balance. One way to measure the Tribe's financial strength is to look at what percentage of total general fund expenditures could be paid with the unassigned fund balance. At year end the unassigned general fund balance would finance approximately 16% of total general fund expenditures. The Tribe's General Fund balance had an increase of $24.1 million during the fiscal year. Reasons for significant changes in revenues and expenditures of the Tribe's General Fund from the prior year are as follows: - Revenues decreased by $100 thousand below the previous year. Significant changes included an $899 thousand increase in health care revenues, a $339 thousand increase in commercial revenues, and a $1.3 million decrease in other revenues. Overall expenditures increased $3.8 million. Significant changes included a $2.3 million increase in per capita payments and a $1.6 million increase in healthcare expenditures. - Net other financing sources increased by $13.5 million. Significant changes included a $7.4 million increase in transfers from the gaming facilities and a $4.9 million decrease in transfers to the tribes other government funds. 14 FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS Major Enterprise Funds. Remember, the basis of accounting and measurement focus of the Enterprise Fund statements are the same as for the Tribe--wide financial statements. The Tribe's proprietary fund statements provide the same type of information found in the Tribe--wide financial statements, but in more detail. Unrestricted net position of the Enterprise Funds at the end of the fiscal year were $29.8 million. Other factors concerning the financing of this fund have already been addressed in the discussion of the Tribe's business--type activities. GENERAL FUND BUDGET For fiscal 2012, the Tribe failed to obtain the General Council quorum necessary to approve a budget. The Tribe therefore operated under a "Continuation Resolution" budget for fiscal 2012. The continuation resolution allows the Tribe to operate based upon its prior year budget. Major deviations between the final budget of the General Fund and its actual operating results were as follows: - Total actual revenues received were $134 thousand more than budget. Significant contributors to this variance were a $1.0 million shortfall in tax revenues which was offset by insurance reimbursements million above budget). - Total expenditures were below budget by $2.7 million. Only per capita payments were over budget by All other major budget lines were below budget. - Net transfers from other funds (including the Tribe's gaming operations) were $9.4 million above budget. Net transfers from the Tribe's gaming operations were above budget by $16.9 million. Transfers to capital project funds were above budget by $1.5 million and net transfers to the Potawatomi Business Development Corporation were $4.7 million above budget. These deviations did not significantly affect the Tribe's liquidity or ability to provide future government services. 15 FOREST COUNTY POTAWATOMI COMMUNITY MANAGEMENT DISCUSSION AND ANALYSIS CAPITAL ASSETS Table 5 Capital Assets (Net of Depreciation) Governmental Business--type Activities Activities Total Land 33 15,814,786 108,800 15,923,586 Land improvements 679,112 40,049 719,161 Buildings 36,145,848 8,451,970 44,597,818 Machinery and equipment 4,849,757 918,123 5,767,880 Vehicles 637,750 - 637,750 Cultural 682,072 - 682,072 infrastructure 9,224,155 -- 9,224,155 Monuments 78,631 - 78,631 Construction in progress 7,507,965 3,789,796 11,297,761 Total 75,620,076 13,308,738 88,928,814 Additional information on the Tribe's capital assets can be found in the notes to the financial statements. LONG-TERM DEBT The Tribe's outstanding governmental long-term debt was $670 thousand for compensated absences. Long--term debt of the business-type activities is comprised of various long-term notes payable by the Business Development Corporation million). Additional information on the Tribe's long--term debt can be found in the notes to the financial statements. CONTACTING THE FINANCIAL MANAGEMENT This financial report is designed to provide Tribal members, customers, and creditors with a general overview of the Tribe's finances and to show the Tribe's accountability for the money it receives. if you have questions about this report, or need additional information, you can request it from the Treasurer, Forest County Potawatomi Community, PO Box 340, Crandon, Wisconsin 54520. 16 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Net Position September 30, 2012 Governmental Business-Type Activities Activities Assets Current assets: Cash and cash equivalents Unrestricted 81,018,729 16,958,037 97,976,766 Restricted 10,000,000 10,000,000 Investments 19,019,925 994,175 20,014,100 Receivables, net 4,196,134 4,048,718 8,244,852 Receivables from other governments 916,588 916,588 Notes receivable, net 1,734,456 8,910 1,743,366 internal balances 744,773 (744,773) Due from Carter Casino 184,538 218 184,756 Due from Potawatomi Bingo Casino 602,633 602,633 Prepaid and other current assets 413,917 219,380 633,297 Inventories 279,552 279,552 Costs and estimated earnings in excess of billings 2,379,235 2,379,235 Total current assets 118,831,693 24,143,452 142,975,145 Noncurrent assets: Notes receivable, net 6,065,000 118,000 6,183,000 investments in limited partnerships 5,470,782 5,470,782 investment in Four Fires, LLC 1,807,964 1,807,964 investments - other 5,517,275 5,517,275 Cash surrender value otol"ficers' life insurance 199,263 199,263 Other long--term assets 16,097 16,097 Goodwill 4,048,603 4,048,603 Net capital assets 75,620,076 13,308,738 88,928,814 Total noncurrent assets 81,685,076 30,486,722 112,171,798 Total assets 200,516,769 54,630,174 255,146,943 Liabilities Current liabilities: Accounts payable 6,195,635 8,120,083 14,315,718 Deposits 1,145,235 1,145,235 Accrued expenses 35,726,020 1,619,788 37,345,808 Current portion of debt 288,177 288,177 Deferred revenue 1,315,779 628,135 1,943,914 Billings in excess of costs and estimated earnings 796,570 796,570 Total current liabilities 44,382,669 11,452,753 55,835,422 Noncurrent liabilities: Long~term obligations, net of current portion 670,001 103,446 773,447 Total liabilities 45,052,670 11,556,199 56,608,869 Net position Net investment in capita! assets 75,620,076 13,308,738 88,928,814 Restricted 10,000,000 10,000,000 Unrestricted 69,844,023 29,765,237 99,609,260 Total net position 43,073,975 198,538,074 Total liabilities and net position 200,516,769 54,630,174 255,146,943 The accompanying notes to financial statements are an integral part of these statements. 17 Functions.'Programs Government Activities Tribal government Health care Housing Per capita payments Gaming commission Compact agreements Donaflons Other Depreciation not allocated Total governmental activities Business-Type Activities Business Development Corporation Other enterprise funds Total business-type activities Total General Revenues Unrestricted investment income Interest in income ofjoint venture Loss on disposal of capital assets Other Transfers FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Activities Period Ended September 30, 2012 Program Revenues Total general revenues and transfers Change in net position Net position, beginning of year Net position, end of year Sales and Operating Net (Expense) Revenue and Changes in Net Position Charges for Grants and Governmental Business-Type Exgenses Services Contributions Activities Activities "g 29,479,038 1,364,975 9,332,578 (18,781 ,485) 35 (18,781 ,485) 52,573,118 34,320,620 (18,252,498) (18,252,498) 3,231,564 173,204 (3,058,360) (3,058,360) 113,254,880 (113,254,880) (113,254,880) 9,647,002 (9,647,002) (9,647,002) 38,672,306 (38,672,306) 3,171,162 (3,171,162) (3,171,162) 4,599,283 (4,599,283) (4,599,283) 2,820,939 (2,820,939) (2,820,939) 257,449,292 35,858,799 9,332,578 (212,257,915) (212,257,915) 42,477,991 40,559,720 (1,918,271) (1,918,271) 10,847,373 11,060,598 213,225 213,225 53,325,364 51,620,318 (1,705,046) (1 ,705,046) 310,774,656 87,479,117 9,332,578 (212,257,915) (1,705,046) (213,962,961) 2,105,260 843,341 2,948,601 388,014 388.014 (6,102) (6,102) (96,186) (96,186) 257,306,952 (12,880,399) 244,426,553 259,406,110 (11,745,230) 247,660,880 47,148,195 (13,450,276) 33,697,919 108,315,904 56,524,251 164,840,155 155,464,099 43,073,975 198,538,074 The accompanying notes to financial statements are an integral part of these statements. 18 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Balance Sheet Governmental Funds September 30, 2012 Other Total Governmental Governmental General Funds Funds Assets Cash and cash equivalents: Unrestricted 70,083,081 10.935,648 81,018,729 Restricted 10,000,000 10,000,000 Investments 6,110,877 12,909,048 19,019,925 Receivables, net 391,248 11,604,342 11,995,590 Due from Carter Casino 184,538 184,538 Due from Potawatomi Bingo Casino 602,633 602,633 Due from Potavvatomi Business Development Corporation 6,434,478 6,434,478 Receivables from other governments 916,588 916,588 Due from other funds 998,581 218,249 1,216,830 Prepaids and othercurrent assets 298,023 100,194 398,217 Total assets 95,103,459 36,684,069 131,787,528 Liabilities and Fund Balances Liabilities: Accounts payable 3,080,567 3,083,065 6,163,632 Accrued expenses 35,571,232 119,050 35,690,282 Deposits 1,145,235 1,145,235 Due to Potawatomi Business Development Corporation 3,698,118 3,698,118 Due to Renewable Generation, LLC 1,960,975 1,960,975 Due to other funds 773,828 773,828 Deferred revenue 4,930,779 4,930,779 Total liabilities 38,651,799 15,711,050 54.362849 Fund balance (deficit): 298,023 100,194 398,217 Restricted 10,000,000 10,000,000 Assigned 8,053,198 28,060,825 36,114,023 Unassigned 38,100,439 (7,188,000) 30,912,439 Total fund balance (deficit): 56,451,660 20,973,019 77,424,679 Total liabilities and fund balances 95,103,459 36,684,069 131 ,787,528 Amounts reported for governmental activities in the statement of net position are different because: Total Fund Balances - Governmental Funds Capital assets used in governmental activities are not financial resources and, therefore, are not reported 77,424,679 in the funds. 75,620,076 internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the internal service fund are included in governmental activities in the statement of net position. (525,655) Long--term liabilities, including debt payable, accrued interest, compensated absences and deferred loan costs. that are not due and payable in the current period and, therefore, are not reported in the funds. (670,001) Compensated absences Other assets are not available to pay for current period expenditures and, therefore, are deferred in the funds. Net position of governmental activities The accompanying notes to financial statements are an integral part of these statements. 19 3,615,000 155,464,099 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Governmental Funds For the Year Ended September 30, 2012 Statement of Revenues, Expenditures, and Changes in Fund Balances Other Total Governmental Governmental General Funds Funds Revenues Intergovernmental 25,101 9,307,479 9,332,580 Investment earnings 338.253 1,767,006 2,105,259 Other: Third--party medical revenues 6,240,806 6,240,806 Insurance reimbursements 25,357,471 25,357,471 Fines and fees 381,235 381,235 Cigarette excise tax rebates 17,436 17,436 Sales and occupancy tax 109,547 109,547 Rent 366,656 366,656 Other 852,444 173,204 1,025,648 Total revenues 27,448,143 17,488,495 44,936,638 Expenditures Current: General government 22,405,267 7,730,690 30,135,957 Health care 43,472,698 9,100,420 52,573,118 Housing 3,254,120 3,254,120 Per capita payments 113,254,880 113,254,880 Gaming commission 9,647,004 9,647,004 Com pact agreements 38,672,306 -4- 38,672,306 Donations 3,171,162 3,171,162 Education 1,472,161 1,472,161 Utilities 1,302,867 1,302,867 Recreation 1,519,765 1,519,765 Other 304,490 304,490 Capital outlay 1,604,923 11,022,774 12,627,697 Total expenditures 236,523,033 31,412,494 267,935,527 Deficiency of revenues under expenditures (209,074,890) (13,923,999) (222,998,889) Other Financing Sources (Uses) Transfers in 495,343,193 36,025,384 531,368,577 Transfers out (262,121,097) (15,201,301) (277,322,398) Total other financing sources 233,222,096 20,824,083 254,046,179 Net change in fund balances 24,147,206 6,900,084 31,047,290 Fund balance, beginning of year 32,304,454 14,072,935 46,377,389 Fund balance, end of year 56,451,660 20,973,019 77,424,679 The accompanying notes to financial statements are an integral part of these statements. 20 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended September 30, 2012 Net Change in Fund Balances - Governmental Funds 31,047,290 Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported as expenditures in governmental and internal service funds. However, in the statement of activities, the cost of capital assets is allocated over their useful lives as depreciation expense. Capital outlay expenditures - governmental funds 35 12,627,697 Net capital assets transferred from proprietary funds to special revenue fund 3,687,391 Net book value of disposed capital assets (6,102) Depreciation expense (2,820,939) Excess of capital outlay over depreciation expense 13,488,047 Internal service funds are used by management to charge the costs of certain activities to individual funds. The net income of the internal service funds is reported with governmental activities. 253,954 Certain revenues which do not provide current financial resources and are deferred in the governmental funds, but are recognized in the statement of activities. Increase in deferred revenues 2,360,000 Some items reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Decrease in compensated absences 21,461 Net compensated absences transferred from proprietary funds to special revenue fund (22,557) (1,096) Change in net position of governmental activities The accompanying notes to financial statements are an integral part of these statements. 21 47,148,195 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Net Position Proprietary Funds September 30, 2012 Enterprise Funds Business Development Other Internal Corporation Enterprise Service and Subsidiaries Funds Total 6 Assets Current assets: Cash and cash equivalents Unrestricted 15,930,065 1,027,972 3 16,958,037 33 lnvestments 994,175 994,175 -- - Receivables, net 3,361,160 687,558 4,048,718 - Notes receivable, net 8,910 8,910 -- Due from Carter Casino 218 218 -- Due from other funds 3,899,000 1,989,426 5,888,426 inventories 25,257 254,295 279,552 Prepaid expenses and other assets 216,705 2,675 219,380 15,700 Costs and estimated earnings in excess of billings 2,379,235 2,379,235 Total current assets 26,805,597 3,971,054 30,776,651 15,700 Noncurrent assets: Notes receivable. net 118,000 118,000 -- lnvestrnents in limited partnerships 5,470,782 5,470,782 investment in Four Fires, LLC 1,807,964 1,807,964 lnvestments - other 5,517,275 5,517,275 -- Split dollar life insurance 199,263 199,263 - Other long--term assets 16,097 16,097 -- Goodwill 4,048,603 4,048,603 Net capital assets 5,888,254 7,420,484 13,308,738 Total noncurrent assets 22,948,238 7,538,484 30,486,722 Total assets 49,753,835 11,509,538 8 61,263,373 5 15,700 Lia Current liabilities: Accounts payable 8 5,948,997 2,171,086 5 8,120,083 32,003 Accrued expenses 1,552,808 66,980 1,619,788 35,738 Current portion of debt 288,177 288,177 Due to Potawatorni Business Development Corporation 4,760 4,760 2,161 Due to Forest County Potawatomi Community 6,628,439 6,628,439 Due to other funds 471,453 Deferred revenue 628,135 626,135 Billings in excess of costs and estimated earnings 796,570 796,570 Total current liabilities 15,843,126 2,242,826 18,085,952 541,355 Long-term debt, net of current portion 103,446 103.446 Total liabilities 15,946,572 2,242,826 18,189,398 541,355 Net Position Invested in capital assets 5,888,254 7,420,484 13,308,738 Unrestricted 27,919,009 1,846,228 29,765,237 (525,855) Total net position 33,807,263 9,266,712 43,073,975 (525,655) Total liabilities and net position 3 49,753,835 11,509,538 61,263,373 6 15,700 The accompanying notes to financial statements are an integral part of these statements. 22 FOREST COUNTY POTAWATOMI COMMUNITY Crandon. Wisconsin Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Period Ended September 30, 2012 Enterprise Funds Business Development Other Internal Corporation Enterprise Service and Subsidiaries Funds Total Fund Operating Revenues Sales and charges for services 40,559,720 11,056,160 51,615,880 Other 4,438 4,438 6,959,944 Total operating revenues 40,559,720 11,060,598 51,620,318 6,959,944 Operating Expenses Cost of sales and services 34,351,664 9,310,564 43,662,228 Salaries, wages, and administrative 5,567,967 1,393,988 6,961,955 6,705,990 impairment of goodwill and investment holdings 2,483,135 2,483,135 Depreciation 142,821 142,821 Total operating expenses 42,402,766 10,847,373 53,250,139 6,705,990 Operating income (loss) (1,843,046) 213,225 (1,629,821) 253,954 Nonoperating Revenues (Expenses) interest in income of Four Fires, LLC 388,014 388,014 Other income (expense) (96,186) (96,186) Interest expense (75,225) (75,225) lnvestment earnings 843,341 843,341 Income (loss) before transfers (783,102) 213,225 (569,877) 253,954 Transfers Transfers in 5,000,000 4,519,236 9,519,236 Transfers out (523,065) (21,876,570) (22,399,635) Change in net position 3,693,833 (17,144,109) (13,450,276) 253,954 Net position, beginning of year 30,113,430 26,410,821 56,524,251 (779,609) Net position, end of year 33,807,263 9,266,712 43,073,975 (525,655) The accompanying notes to financial statements are an integral part of these statements. 23 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Cash Flows Proprietary Funds For the Period Ended September 30, 2012 Enterprise Funds Business Development Other Internal Corporation Enterprise Service and Subsidiaries Funds Titei_l flJ_n_d Cash Flows from Operating Activities Receipts from customers 38,668,612 7,620,682 46,289,294 Payments to suppliers (22,076,551) (5,972,553) (28,049,104) (4,464,881) Payments to employees (14,443,827) (1,075,818) (15,519,645) (2,495,063) internal service activity -- receipts from other funds 6,959.944 Other receipts 23,571 814 24,385 - - Net cash provided by operating activities 2,171,805 573,125 2,744,930 Cash Flows from Non-Capital Financing Activities Net advances on lines of credit 5,000,000 5,000,000 Principal payments on long-term debt (19,887) (19,887) Interest expense (72,744) (72,744) Transfers -- net 5,000,000 3,999,672 8,999,672 Net cash provided by noncapital financing activities 9,907,369 3,999,672 13,907,041 Cash Flows from Capital and Related Financing Activities Distributions to stockholders (523,065) (523,065) Purchases of capital assets (5,040,153) (4,086,008) (9,126,161) Proceeds from disposal of capital assets 23,150 23,150 Net cash used by capital and related financing activities (5,540,068) (4,086,008) (9,626,076) Cash Flows from Investing Activities Settlement for limited partnership investment 376,910 376,910 Purchase of investments (5,015,490) (5,015,490) Notes receivable collections 225,894 225,894 Investment earnings 1,179,553 1,179,553 Other earnings (96,186) (96,186) Net cash used by investing activities (3,329,319) (3,329,319) Net increase in cash and cash equivalents 3,209,787 486,789 3,696,576 Cash and cash equivalents balance, beginning of year 12,720,278 541,183 13,261,461 Cash and cash equivalents balance, end of year 15,930,065 1,027,972 16,958,037 The accompanying notes to financial statements are an integral part of these statements. 24 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Cash Flows Proprietary Funds For the Period Ended September 30, 2012 Enterprise Funds Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense Loss on disposal of property and equipment Change in split dollar life insurance impairment of goodwill, investment holdings and property Provision for uncollectible accounts and bad debt expense Change in assets and liabilities: Receivables, net Inventories Prepaid expenses and other current assets Costs and estimated earnings in excess of billings Accounts payable Due to other funds Deferred revenue Billings in excess of costs and estimated earnings Accrued expenses Net cash provided by operating activities 35 Non-Cash Capital and Financing Related Activities Transfer of interest in limited partnership investment to marketable securities Business Development Other Internal Corporation Enterprise Service and Subsidiaries Funds Total Fund (1,843,046) 213,225 (1,629,821) 253,954 255,172 142,821 397,993 15,523 15,523 20,154 20,154 2,588,135 2,588,135 10,000 10,000 (2,839,390) (120,895) (2,960,285) 17 3,471 350,163 353,634 (62,860) (2,675) (65,535) (8642) 599,303 599,303 3,825,792 1,907,009 5,732,801 15,031 (1,934,664) (1,934,664) (267,886) 47,304 47,304 270,761 270,761 (718,514) 18,141 (700,373) 7,526 2,171,805 573,125 2,744,930 73,000 73,000 The accompanying notes to financial statements are an integral part of these statements. 25 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Statement of Fiduciary Net Position Minors' and Adult Deferred Per Cap Trust Fund September 30, 2012 Assets Current assets: Cash and equivalents Investments Receivables Total assets Liabilities Current liabilities: Distributions payable Net Position Held in trust for minors and adults Total liabilites and net position Statement of Changes in Fiduciary Net Position Minors' and Adult Deferred Per Cap Trust Fund For the Year Ended September 30, 2012 Additions Contributions from Tribe Realized and unrealized investment gains Total additions Deductions Distributions Expenses Total deductions Change in net position held in trust Net position, beginning of year Net position, end of year 18,803,707 498,878,685 355,003 518,037,395 258,633 517,778,762 518,037,395 37,475,189 74,197,618 111,672,807 29,139,163 1,256,808 30,395,971 81,276,836 436,501,926 517,778,762 The accompanying notes to financial statements are an integral part of these statements. 26 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies Forest County Potawatomi Community ("Tribe") is a federally recognized lndian tribe located in Wisconsin, composed of approximately 1,400 individual members. The reservation consists of approximately 11,600 acres of land held in trust by the United States government for the benefit of the Tribe. Within certain restrictions imposed by the United States government, the Tribe has jurisdiction over activities occurring on the reservation and has rights to economic and other benefits resulting from the use of the reservation property and resources. The Tribe is governed by an elected Executive Council (''Council''). it operates under a constitution that was approved by the United States government on February 6, 1937. The lndian Reorganization Act of 1934 and subsequent federal legislation govern the relationship between the Tribe and the United States government. In accordance with its Constitution, the Tribe enacts laws through resolutions of the Council. The financial activities of the Tribe and its enterprises are confidential. The accompanying financial statements and related notes are to be distributed only based on authorization from Council or its designee. Information related to federal grants and contracts required by the U.S. Office of Management and Budget Circular A-1 33 is public information and is available on request from the Tribal Treasurer. Financial statements of the Tribe conform with generally accepted accounting principles applicable to government units. GAAP includes all relevant Governmental Accounting Standards Board pronouncements. In the Tribe--wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Board pronouncements and Accounting Principles Board opinions issued on or before November 30, 1989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. For enterprise funds, GASB Statement Nos. 20 and 34 provide the Tribe the option of electing to apply FASB pronouncements issued after November 30, 1989. The Tribe has elected not to apply those pronouncements. A. Financial Reporting Entity The reporting entity for the Tribe consists of the primary government, organizations for which the primary government is financially accountable, and other organizations for which the nature and significance of their relationship with the primary government are such that their exclusion would cause the reporting entity's financial statements to be misleading or incomplete. A legally separate organization should be reported as a component unit if the elected officials of the primary government are financially accountable to the organization. The primary government is financially accountable if it appoints a voting majority of the organizations governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to or burdens on the primary government. The primary government may be financially accountable if an organization is fiscally dependent on the primary government. A legally separate, tax-exempt organization should be reported as a component unit of a reporting entity if all of the following criteria are met: (1) the economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents; (2) the primary government is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization; (3) the economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to othenivise access, are significant to that primary government. 27 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) A. Financial Reporting Entity (continued) Based on these criteria, the following entities were identified and considered in the determination of the reporting entity: - Potawatomi Business Development Corporation and Subsidiaries is an enterprise fund of the Tribe, which operates the Tribe's business development activities. Potawatomi Carter Casino Hotel is an enterprise fund of the Tribe, which operates the Tribe's gaming operation in Carter, Wisconsin. - Potawatomi Bingo Casino is an enterprise fund of the Tribe, which operates the Tribe's gaming operation in Milwaukee, Wisconsin. The Tribe has elected to omit Potawatomi Carter Casino Hotel and Potawatomi Bingo Casino enterprise funds from the accompanying financial statement presentation for confidentiality purposes. These funds should be included in the reporting entity and accordingly, the accompanying financial statements are not intended to be presented in accordance with accounting principles generally accepted in the United States of America. B. Basis of Presentation Tribe--wide Financial Statements The statement of net position and statement of activities display information about the reporting government as a whole. They include all funds of the reporting entity. The statements distinguish between governmental and business--type activities. Governmental activities generally are financed through transfers from business- type activities, intergovernmental revenues, and other nonexchange revenues. Business--type activities are financed in whole or in part by revenues earned in transactions with external parties. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase. use or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. investment income and other items not properly included among program revenues are reported instead as general revenues. 28 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) B. Basis of Presentation (continued) Fund Financial Statements Financial statements of the reporting entity are organized into funds each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self--balancing accounts, which constitute its assets, liabilities, net position/fund equity. ievenues and expenditures/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. Separate financial statements are provided for governmental funds and proprietary funds (enterprise funds and internal service funds). Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. An emphasis is placed on major funds within the governmental and enterprise categories. A fund is considered major if it is the primary operating fund of the Tribe or meets the following criteria: a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. c. Any other fund that the Tribe considers to be major. The Tribe reports the following major funds: Governmental Funds General Fund The General Fund is the primary operating fund of the Tribe and is always classified as a major fund. it is used to account for all activities except those legally or administratively required to be accounted for in otherfunds. Proprietary Funds Potawatomi Business Development Corporation and Subsidiaries Potawatomi Business Development Corporation and Subsidiaries is a component unit of the Tribe. PBDC is a holding company owning subsidiaries engaged in a number of diverse business activities, including providing professional services under government and commercial contracts, information technology, property management and passive investing. 29 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) 8. Basis of Presentation (continued) Fund Financial Statements (continued) The Tribe reports the following nonmajor funds: Governmental Funds Special Revenue Funds Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The Special Revenue Funds include the Tribe's federal award programs and the Tribe's state and local award programs. These funds account for the expenditure of grant funds. The Health and Wellness Center Fund ("Center") is a special revenue fund used to account for the specific revenue sources that are used in the operation of the Center. Tribal Housing is a special revenue fund used to account for housing programs and loans for tribal members. Capital Project Funds The Capital Project Funds are used to account for and report financial resources that are restricted, committed or assigned for the acquisition or construction of specific capital projects. The Tribe reports Capital Project Funds for Milwaukee and Carter Casino projects, Wgema Campus projects, Forest County projects, land acquisition, and the Milwaukee Hotel project. The projects are financed with transfers made from the General Fund or proceeds of long--term debt. Proprietary Funds Enterprise Funds The Tribe maintains funds for operations of the Forestry, Farm and Land Services, Convenience Stores, Business Loans, Renewable Generation, Insurance Processing, and MTS Support Services. Internal Service Funds The Tribe reports an internal service fund which is used to accumulate indirect costs which are charged to the Tribe's various programs. Fiduciary Funds (not included in Tribe--wide statements) Private-Purpose Trust Fund The reporting entity includes one Private-Purpose Trust Fund for the Minors' and Adult Deferred Per Cap Trust Fund, which accounts for the per--capita payments to minors and deferred per--capita payments to adults. 30 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) C. Measurement Focus and Basis of Accounting Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. Measurement Focus On the Tribe-wide statement of net position and the statement of activities, both governmental and business- type activities are presented using the economic resources measurement focus as defined in item b. below. In the fund financial statements, the "current financial resources" measurement focus or the "economic resources" measurement focus is used as appropriate: a. All governmental funds utilize a "current financial resources" measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. b. The proprietary funds and the private-purpose trust fund utilize an "economic resources" measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net position. As a general rule, the effect of interfund activity has been eliminated from the Tribe--wide financial statements. Exceptions to this general rule are charges between the governments functions. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. internally dedicated resources are reported as general revenues rather than as program revenues. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services, and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Tribe's enterprise and internal service funds are charges to customers for services. Operating expenses for enterprise and internal service funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Tribe's policy to use restricted resources first, then unrestricted resources, as they are needed. 31 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) C. Measurement Focus and Basis of Accounting (continued) Basis of Accounting in the Tribe--wide statement of net position and statement of activities, both governmental and business--type activities are presented using the accrual basis of accounting. Accordingly, all of the Tribe's assets, deferred outflows or resources, liabilities, and deferred inflows of resources, including capital assets and long--term liabilities, are included in the accompanying statement of net position. The statement of activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange--like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the balance sheets. The statement of revenues, expenditures, and changes in fund balances present increases (revenues and other financing sources) and decreases (expenditures and other financing sources) in net current assets. Under the modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within ninety days after year--end. Ninety days is used for all revenues other than government grant contracts, as the Tribe considers ninety days to be a reasonable period when considering availability. One hundred eighty days is used for government grant contracts due to delays in receiving government reimbursements on those contracts. Using one hundred eighty days minimizes the likelihood that the Federal, State and Local award funds will unnecessarily reflect deficit fund balances. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for principal and interest on long--term debt and expenditures related to compensated absences and claims and judgments, which are recorded when due. All proprietary funds utilize the accrual basis of accounting. Accordingly, all assets, deferred outflows of resources, liabilities (whether current or not), and deferred inflows of resources are included on the statement of net position. The statement of revenues, expenses, and changes in fund net position presents increases (revenues) and decreases (expenses) in total position. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used, regardless of the timing of related cash flows. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. D. Assets, Liabilities, and Equity Cash and Investments For the purpose of the statement of net position and the proprietary fund statement of cash flows, "cash and cash equivalents" include all demand and savings accounts, and certificates of deposit or short--term investments with an original maturity of three months or less when purchased. Primary government investments are carried at fair value. Fair value is based on quoted market price. 32 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) D. Assets, and Equity (continued) Cash and Investments (continued) Potawatomi Business Development Corporation and Subsidiaries PBDC's investment in marketable equity securities are classified as available-for--sale and reported at fair value with net unrealized losses of $1,079,148 as of September 30, 2012. PBDC's investment in a joint venture is recorded under the equity method of accounting. PBDC utilizes the equity method of accounting with respect to investments where it exercises significant influence, but not control, over the operating and financial policies of the investee, generally 20-50% ownership. In applying the equity method, the investments are recorded at cost and subsequently increased or decreased by PBDC's proportionate share of the net earnings or losses of the investee. Any purchase price greater than the proportionate share of net assets associated with these purchases are included and recorded in the investment holding as embedded goodwill. Dividends or other equity distributions are recorded as a reduction of the investment. investments in limited partnerships are recorded at cost as there is no readily determinable fair value, and the PBDC has no ability to influence the operating and financial policies of the investee because of its limited ownership, generally less than 20%. PBDC's realized gains and losses from investments are credited or charged to operations. The cost of the investments sold is determined using the specific identification method. Dividend income is recognized on the ex--dividend date and interest income is recognized on an accrual basis. PBDC's investments with fair values below their cost are monitored by management for impairment that is deemed to be other than temporary. PBDC reduces the cost of any investments deemed to be other than temporarily impaired to the fair value and realizes the corresponding loss in the period the impairment is identified. Factors considered in judging whether an impairment is other than temporary include: the financial condition and business prospects of the issuer, the length of time that fair value has been less than cost. the relative amount of the decline and PBDC's ability to hold the investment until the fair value recovers. During the period ended September 30, 2012, management determined that several investments were other than temporarily impaired and charged $1,001,172 in impairment losses to operations. PBDC has a certificate of deposit with Laona State Bank in the amount of $512,454 as of September 30, 2012, with a maturity date of July 2014 and an interest rate of 2.10%. The certificate of deposit is classified as investment - other on the statement of net position. During 2012, PBDC invested in an account with Morgan Stanley Smith Barney. The account maintains an investment in a highly liquid mutual fund. The purpose of the account is to provide collateral to Travelers insurance, PBDC's surety bonding provider. As of September 30, 2012, there was $5,004,821 in the account. PBDC has no surety bonds outstanding as of September 30, 2012. The investment account is classified as a noncurrent investment -- other on the statement of net position to match the term of the collateralized policy. 33 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, and Equity (continued) Receivables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" the current portion of interfund loans) or "advances to/from other funds" the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government- wide financial statements as "internal balances." Management analyzes the periodic aging of accounts receivable, historical collection trends, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the Tribe-wide statements, receivables consist of all revenues earned at year--end and not yet received. Major receivable balances for the governmental activities include patient and third-party amounts due for medical services and intergovernmental grants. Business--type activities report business loans as their major receivables. In the fund financial statements, material receivables in governmental funds include revenue accruals, such as patient and third--party amounts due for medical services, housing loan receivables, and grants and other similar intergovernmental revenues, since they are usually both measurable and available. Governmental fund revenues collectible but which are not available are deferred in the fund financial statements in accordance with the modified accrual basis of accounting, but not deferred in the Tribe--wide financial statements in accordance with the accrual basis of accounting. Proprietary fund material receivables consist of all revenues earned at year--end and not yet received. Business loans, trade receivables and cigarette tax receivables comprise the majority of proprietary fund receivables. Inventories The Carter and Stone Lake Convenience Stores own inventory for resale, which is valued at the lower of cost or market value, using the first--in, first--out method. PBDC's inventories of supplies, raw materials and purchased finished goods are valued at the lower of cost using the first--in, first--out method or market. Work in process includes the cost of materials, labor, and overhead. Capital Assets The accounting treatment over property, plant, and equipment (capital assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the Tribe-wide or fund financial statements. Tribe-wide Financial Statements In the Tribe--wide financial statements, capital assets are valued at historical cost or estimated historical cost if actual is unavailable, except for donated fixed assets, which are recorded at their estimated fair value at the date of donation. Major expenditures for property and equipment are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. 34 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, and Equity (continued) Capital Assets (continued) Tribe-wide Financial Statements (continued) Depreciation of ail exhaustible capital assets is recorded as an allocated expense in the statement of activities, with accumulated depreciation reflected in the statement of net position. Depreciation is provided over the assets' estimated useful lives using the straight--|ine method of depreciation. The range of estimated useful lives by type of asset is as follows: Buildings 15-50 years improvements 10-50 years Machinery and equipment 3-20 years Surveillance equipment 5 years Utility system 25-50 years Infrastructure 25-50 years Housing units available for the mutual help home ownership program of the Housing fund are included in capital assets and are depreciated over their useful lives. The original basis of the housing unit is recorded at the lower of actual construction costs or market. At the renter's option, the unit may be conveyed to the renter at the expiration of the agreement. The total net book value of homes as of September 30, 2012 that could potentially be conveyed is approximately $735,000. Due to the fact that this potential liability is contingent on the renter's request for conveyance, and the infrequency of conveyance requests from eligible renters in a historical context, no liability has been recorded. Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for in the same manner as in the Tribe--wide statements. Goodwill Goodwill represents the difference between the purchase cost and the fair value of the net assets acquired in business acquisitions. Goodwill is tested for impairment using a variety of methods at least annually and impairments, if any, are charged to operations. The key assumption used in the testing is an estimate of discounted future cash flows. In estimating future cash flows, PBDC incorporates current market information as well as historical factors. Management determined that the remaining portion of the goodwill recorded for the purchase of One Prospect was impaired and charged $1,481,963 in impairment losses to operations during the year ended September 30, 2012. Impairment of Long-Lived Assets The Tribe reviews long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment losses, if any, are recognized where the estimated discounted future cash flows from the use of the asset are less than the carrying amount of that asset. 35 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, and Equity (continued) Collections The Tribe has collections of art, historical treasures, and statuary that are not capitalized as they meet all of the waiver requirements which are: (1) the collections are held solely for public exhibition. (2) the collections are protected, preserved and cared for, and (3) should any items be sold, the proceeds are used only to acquire other items for the collections. The Tribe's sculptures, paintings, murals, and other works of art are displayed on community property and in buildings throughout the community. The Tribe's historical artifacts are displayed in a museum and other buildings throughout the community. Restricted Assets Restricted assets include cash and investments that are legally restricted as to their use. Unbilled Receivables Costs and estimated earnings in excess of billings include billed and unbilled receivables. Unbilled receivables represent the balance of recoverable costs and accrued profit, comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable as of the balance sheet date. Long-Term Obligations The accounting treatment of long-term obligations depends on whether the assets, if any, are used in governmental fund operations or proprietary fund operations and whether they are reported in the Tribe-wide or fund financial statements. All long-term debts to be repaid from governmental and business-type resources are reported as liabilities in the Tribe-wide statements. The long-term obligations consist of notes payable, lines of credit and accrued compensated absences. Long--term obligations for governmental funds are not reported as a liability in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal and interest reported as expenditures. The accounting for proprietary funds is the same in the fund statements as it is in the Tribeswide statements. The Tribe's policies regarding annual leave permit employees to accumulate earned but unused annual leave. The liability for this compensated absence is recorded as a long-term obligation in the Tribe~wide statements. The current portion of this debt is estimated based on historical trends. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available financial resources, while the proprietary funds report the liability as it is incurred. 36 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, and Equity (continued) Equity Classifications Tribe-wide Financial Statements Equity is classified as net position and displayed in three components: 31. Net investment in capital assets -- Consists of capital assets including restricted investments, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net position -- Consists of net position with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted net position-- All other net position that does not meet the definition of "restricted" or "net investment in capital assets". Fund Financial Statements Governmental fund equity is classified as fund balance. GASB establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The initial distinction that is made is identifying amounts that are considered nonspendable. Fund balance is further classified as restricted, committed, assigned and unassigned. The Tribe's fund balance classification policies and procedures are as follows: 8. Nonspendabie -- Amounts that cannot be spent because they are either not in spendable form (ie convertible into cash) or legally required to be maintained intact. Restricted -- Either externally imposed or imposed by law through constitutional provisions or enabling legislation. Committed -- Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the Tribe's General Council. Assigned -- Amounts that are constrained by the "tribes intent to be used for specific purposes, but are neither restricted nor committed. Unassigned -- The residual classification for the General Fund (fund balance that has not been restricted, committed, or assigned to specific purposes within the General Fund), and deficit fund balances within other funds. Proprietary fund equity is classified in the same manner as in the Tribe-wide statements. 37 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) E. Revenues, Expenditures, and Expenses Operating Revenues and Expenses Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services. it also includes all revenue and expenses not related to capital and related financing, non--capitai financing, or investing activities. Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, written contract and sales terms are complete, and payment is reasonably assured. Revenues are reported net of discounts and allowances. PBDC enters into several types of contracts, including firm fixed price, cost-plus fixed fee, time and materials, and cost--pius award fees. The revenues from firm fixed price contracts are recognized on the percentage of completion method generally earned based on the relationship of costs incurred to total anticipated costs. Revenues from cost--plus fixed fee and cost--p|us award fees contracts are recognized on the basis of costs incurred during the period plus the fee earned. Revenues on time-and--materials contracts are recognized based on costs of materials incurred plus labor hours incurred at uniform billing rates. Contract costs include all direct material, labor, subcontract labor, and certain indirect costs. Administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recognized in the period such losses are determined. Changes in job performance, conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period they are determined. Revenues recognized in excess of amounts billed are classified as current assets as Costs and Estimated Earnings in Excess of Billings. Billings in excess of revenues are classified under current liabilities as Billings in Excess of Costs and Estimated Earnings. Contract retentions are included in accounts receivable. Revenues from sales of goods acquired for resale are recognized on the passage of title to the customer, which generally coincides with customer pick--up, product delivery or acceptance. Amounts billed or collected in excess or advance of services being provided are recorded as deferred revenue. Revenues from information technology service agreements are recognized pro--rata over the course of the agreements. Distributions to Shareholder PBDC is required to make annual distributions of net profits, as defined in the PBDC charter. PBDC records dividends to the Tribe upon declaration and approval of such dividends by its Board of Directors. Dividends of $523,065 were declared and paid during the year ended September 30, 2012. 38 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) E. Revenues, Expenditures, and Expenses (continued) Expenditures/Expenses In the Tribe--wide financial statements, expenses are classified by function for both governmental and business~type activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds -- By Character: - Current (further classified by function) Debt Service - Capital Outlay Proprietary Fund -- By Operating and Nonoperating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses relating to use of economic resources. Shipping and handling of PBDC charged to customers have been included in net sales. Shipping and handling costs incurred by PBDC have been included in cost of goods sold. Advertising costs of PBDC are charged to operations when incurred. Advertising expense was approximately $459,000 for the period ended September 30, 2012. lnterfund Transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the statement of activities. all interfund transfers between individual governmental funds have been eliminated. F. Federal and State income Taxes PBDC was chartered under the Tribal Constitution of the Tribe on August 24, 2002. PBDC has all of the privileges and immunities of the Tribe which consist of sovereign immunity and certain tax immunities. As such, a provision for federal corporate income taxes has not been included in these financial statements. There are certain states in which PBDC is required to pay state income taxes. PBDC uses the liability method in accounting for state income taxes. Deferred tax assets and are recorded for temporary differences between the tax basis of the assets and and their amounts reported in the consolidated financial statements, using statutory tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. State income tax expense is recorded in operating expenses. 39 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 1. Summary of Significant Accounting Policies (continued) G. Accounting for Uncertainty in Income Taxes PBDC recognizes the tax effects from uncertain tax positions in the financial statements only if the positions are more likely than not to be sustained upon examination by a tax authority based solely on the technical merits of the positions. PBDC currently has a liability for uncertain tax positions of approximately $151,000 classified in accrued expenses relating to possible future tax liabilities for state income taxes. It is PBDC's policy to recognize interest and penalties related to unrecognized tax benefits in income tax expense. With few exceptions, PBDC is no longer subject to state or local income tax examinations by tax authorities for the years before 2008. PBDC is not currently under examination by any taxing jurisdiction. H. Subsequent Events The Tribe has evaluated subsequent events for possible recognition or disclosure through the date the financial statements were available to be distributed (June 28, 2013). The following events occurred subsequent to year end: - in October 2012, PBDC entered into a Loan Agreement with NOB, FSB a federally-chartered savings bank, to finance the construction of a wholesale data center in Milwaukee, Wisconsin. The initial loan is a $17,000,000, 18 month, interest only construction loan. The construction loan is collateralized by a $17,000,000 Bureau of lndian Affairs, Department of interior lndian loan guarantee, a $10,000,000 cash deposit by the Tribe, the sole stockholder of PBDC, and a $7,000,000 guarantee of PBDC. Interest is calculated at a rate equal to 3% on the first $10,000,000 borrowed and at a rate equal to the higher of the bank's prime rate plus 2% or 5.75% for any borrowings over $10,000,000. Upon completion of the 18-month construction loan term, or earlier if certain covenants are obtained, the Company can convert the construction loan into a permanent loan. The permanent loan will be collateralized by the same collateral that exists for the construction loan, in addition to, a leasehold mortgage of the data center and the assignment of all revenues of the data center. The permanent loan will be a 10-year loan with a fixed interest rate for 5 years equal to the higher of 5.75% or the U.S. Treasury Rate on the permanent loan advance date, plus The interest rate will be adjusted at the end of the first 5 years to be the higher of 5.75% or the US. Treasury on the permanent loan adjustment date, plus The permanent loan is subject to prepayment penalties and the meeting of certain covenants. 2. Stewardship, Compliance, and Accountability By its nature as a government unit, the Tribe is subject to various federal, state, and local laws and contractual regulations. An analysis of the Tribe's compliance with significant laws and regulations and demonstration of its stewardship over Tribal resources follows. A. Fund Accounting Requirements The Tribe complies with all federal, state, and local laws and regulations requiring the use of separate funds. The legally required funds used by the Tribe include the following: Fund Reguired By Various Federal, State, and Local Assistance Funds Federal and State Laws Minors and Adult Deferred Per Cap Trust Fund Trust lndenture 40 FOREST COUNTY COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts The following notes present detail information to support the amounts reported in the basic financial statements for assets, liabilities, equity, revenues, and expenditures/expenses. A. Cash and Investments Cash and investments are reported in the financial statements as follows: Statement of Net Position: Cash and Cash Equivalents: Unrestricted 97,976,766 Restricted 10,000,000 Investments: Investments 20,014,100 Investments in limited partnerships 5,470,782 investment in Four Fires, LLC 1,807,964 Other investments 5,517,275 Statement of Fiduciary Net Position: Cash and cash equivalents 18,803,707 Investments 498,878,685 Total cash and investments 658,469,279 Cash and investments are summarized by type and reporting unit as follows: Potawatomi Business Development Corporation Tribal and Government Subsidiaries 3>_tg_l Cash on hand 3,150 3,150 Deposits 110,847,258 15,930,065 126,777,323 Certificate ofdeposits 512,454 512,454 Corporate obligations 65,516,813 65,516,813 Domestic equities 116,051,911 994,175 117,046,086 Foreign equities 9,779,523 9,779,523 Foreign obligations 10,498,417 10,498,417 Government issues 84,781,091 84,781,091 Mortgage backed securities 643 643 Municipal issues 414,272 414,272 Equity mutual funds 167,297,193 5,004,821 172,302,014 Balanced mutual funds 1,139,159 1,139,159 Fixed income mutual funds 62,419,588 62,419,588 Investments in limited partnerships 5,470,782 5,470,782 Investment in Four Fires, LLC 1,807,964 1,807,964 Totals 628,749,018 29,720,261 658,469,279 41 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction C|asseslAccounts (continued) A. Cash and Investments (continued) Tribal Government Custodial Credit Risk for Deposits Custodiai credit risk for deposits is the risk that in the event of the failure of a depository financial institution, the Tribe will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Tribe does not have a formal policy addressing this type of deposit risk. As of September 30, 2012, the carrying value of the Tribal government deposits was $110,850,408, as compared to bank balances of $109,879,150. Of the bank baiances, $32,281,062 was covered by federal depository insurance, $331,355 was insured by national credit union administration, $7,788,371 was insured by the banks and $69,478,362 was uninsured and uncollateralized. Investment Policy The Tribe has adopted a formal investment policy for funds held as Tribal government funds, which identify investment objectives, guidelines and collateral requirements. The guidelines of the policy specify objectives for daily liquidity, short-term liquidity and intermediate liquidity. Custodial Credit Risk for Investments Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the Tribe will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. The Tribe's investment policy describes collateral requirements to minimize this risk. Credit Risk Credit risk is the risk that, an issuer or other counterparty to an investment will not fulfill its obligations to the Tribe. The Tribe's investment policy states that credit risk will be minimized by limiting investments to issues of (or backed by) the US. Government, its agencies or instrumentalities, and issues of states, municipalities and corporations subject to specific guidelines, and by diversifying investments so that potential losses on individual securities of a single issuer will be minimized. Credit quality distribution for investments, with credit exposure as a percentage of total investments, are approximately as follows at year end: Investment Rating Percentage 62and lower 6% The Tribe's investment policy has a maximum limit for investments with a rating of BB and lower of 12%. 42 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) A. Cash and investments (continued) Tribal Government (continued) Interest Rate Risk Interest rate risk is the risk that, changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The Tribe's policy addresses this type of investment risk by investing operating funds primarily in cash equivalents, short--term investments and money market mutual funds or similar investment pools. Information about the exposure of the Tribe's debt type investments to this risk, using the segmented time distribution model is as follows: Investment Maturities (in Years) Le_s? Type of Than 6 -10 Over 10 investments Fair Value 1 Year 1 -- 5 Years Years Years US government securities 3 84,781,091 5,704,349 27,001,148 8,816,832 43,258,782 Corporate obligations 85,516,813 1,985,289 19,165,268 24,505,244 19,861,012 Mortgage backed securities 643 643 Fixed income mutual funds 83,558,748 83,558,748 Foreign obligations 10,498,417 712,087 4,610,380 3,871,694 1,304,278 Municipal issues 414,272 1,813 412,659 Total 224,769,984 :5 8,403,338 114,335,524 37,608,429 84,424,693 43 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) B. Receivables Receivables of the governmental activities consist of receivables from other governments, Health and Wellness Center medical billings, tribal member loans and miscellaneous other receivables. Accounts receivable of the business--type activities consists of tribal member loans and other customer accounts receivable. Receivables detail at September 30, 2012, is as follows: Business- Governmental type Due After Activities Activities Total 9/30/13 Accounts receivable 5,313,134 4,058,718 8 9,371,852 Allowance for uncollectible accounts (1,117,000) (10,000) (1,127,000) Reoeivables from other governments 918,588 918,588 Notes receivable Tribal housing 28,899,998 28,899,998 24,985,540 Business 818,910 818,910 810,000 Allowance for uncollectible notes (2,887,385) (492,000) (3,159,385) (3,159,385) Allowance for principal reduction (18,233,155) (18,233,155) (18,233,155) Net receivables 12,912,178 4,175,828 17,087,808 8,183,000 The Tribe operates several loan programs. Below is a summary of the characteristics of each program. Tribal Housing Tribal members who qualify receive funding to purchase existing homes, construct new homes, or refinance existing mortgages. Eligible recipients may live on or off the Reservation. Loans issued under this program are non--interest bearing. Another significant aspect of the housing loan program is a feature where 75% of the original loan amount is not required to be repaid under the "principal reduction" provisions of the program. At the time a loan is issued, the Tribe recognizes an expense equal to 75% of the original loan balance of the loan reduction portion of the program. The remaining 25% of the original loan is amortized over a 15-year term with payments due Tenant accounts receivable are stated at the amount management expects to collect from balances outstanding at the end of the fiscal year. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Revolving loan program notes receivabie are recorded at the amount of unpaid principal. The loans are non- interest bearing. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. As of June 30, 2007, all new loans issued are to be repaid through withholdings from Tribal per capita payments. 44 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) B. Receivables (continued) Business Loan Program The business loan program was established in 1992 to assist with financing Tribal member--owned businesses. These loans bear interest at rates between 4% and 5% per annum. C. Capital Assets Capital asset activity for the year ended September 30, 2012 was as follows: Governmental activities: Capital assets, not being depreciated: Land Construction in progress Monuments Total capital assets, not being depreciated Capital assets, being depreciated: Land improvements Buildings Machinery and equipment Vehicles Cultural infrastructure Total capital assets, being depreciated Less accumulated depreciation: Land improvements Buildings Machinery and equipment Vehicles Cultural Infrastructure Total accumulated depreciation Total capital assets, being depreciated, net Governmental activities capital assets, net 45 62,132,032 9,806,755 3,687,391 Balance Balance 10/1/11 Additions Transfers Disposals 9/30/12 15,100,291 708,660 5,834 $15,814,785 3,592,446 4,736,798 (817,040) (4,239) 7,507,965 78,631 78,631 18,771,368 5,445,458 (811,206) (4,239) 23,401,381 1,692,448 63,192 1,755,640 33,640,452 5,937,013 5,832,600 45,410,065 12,043,339 776,369 219,550 13,039,258 2,183,132 248,324 61,099 (29,852) 2,462,703 1,307,593 1,307,593 21,806,866 157,340 59,067 22,023,273 72,673,830 7,182,238 6,172,316 (29,852) 85,998,532 995,042 81,483 1,076,525 6,768,558 841,698 1,653,840 9,264,096 7,096,396 1,089,344 3,896 8,189,636 1,620,136 216,817 15,983 (27,989) 1,824,947 560,722 64,796 625,518 12,272,312 526,803 12,799,115 29,313,166 2,820,941 1,673,719 (27,989) 33,779,837 43,360,664 4,361,297 4,498,597 (1,863) 52,218,695 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) C. Capital Assets (continued) Business-type activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Land improvements Buildings Machinery and equipment Total capital assets being depreciated Less accumulated depreciation: Total capital assets being depreciated, net Business-type activities capital assets, net Notes to Financial Statements Depreciation expense was charged to business--type activities as follows: Potawatomi Business Development Corporation and Subsidiaries Carter Convenience Store Stone Lake Convenience Store Farm, Forestry and Land Services Total depreciation expense 48 Balance Balance 10/1/11 Additions Transfers Disposals 9130/12 114,834 (5,834) 108,800 3,789,798 3,789,798 114,834 3,789,798 (5,834) 3,898,598 455,487 (54,387) (85,198) 315,902 9,177,284 5,093,443 (5,227,241) (105,000) 8,938,488 3,494,528 242,923 (73,849) (598,059) 3,085,741 13,127,277 5,338,388 (5,355,277) (788,257) 12,320,109 4,830,279 397,993 (1,873,720) (844,585) 2,909,987 8,298,998 4,938,373 (3,881,557) (143,872) 9,410,142 8,411,832 8,728,189 (3,887,391) (143,872) $13,308,738 255,172 38,898 55,854 50,489 397,993 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction ClasseslAccounts (continued) D. Long-Term Obligations The following is a summary of changes in long-term obligations for the year ended September 30, 2012: Balance Balance Due Within 10/1/11 Additions Deductions 9/30/12 One Year Governmental Activities: Compensated absences 668,908 1,395,923 8 (1,394,830)$ 670,001 Business-type Activities: Potawatomi Business Development Corp 411,510 (19,887) 391,623 288,177 Potawatomi Business Development Corporation and Subsidiaries Borrowing consists of the following at September 30, 2012: One Prospect -- Various notes payable to banks with due dates ranging from January 2013 to September 2014 with interest rates ranging from 5.50% to 6.00%, secured by the assets financed. 391,623 Less: Current Portion (288,177) Long--Term Portion 103,446 Principal requirements on borrowings for years ending after September 30, 2012 are as follows: 2012 288,177 2013 103,446 Total 391,623 E. Other Obligations The Tribe has entered into an agreement for a line of credit in the amount of $10,000,000 secured by a savings account. The outstanding principal balance is due at maturity on November 1, 2012. interest on this line of credit is equal to the interest earned on the savings account plus There is no balance outstanding as of September 30, 2012. Potawatomi Business Development Corporation and Subsidiaries In November 2010, PBDC entered into a line of credit agreement with the Tribe. In February 2012, the line of credit was amended. The amended line of credit is for $6,000,000 and bears interest equal to the earnings generated on the Company's investment account heid by Morgan Stanley Smith Barney (effective rate of 0.20% at September 30, 2012). The line of credit expires in September 2015. There was $6,000,000 of borrowings outstanding on the line of credit as of September 30, 2012. 47 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction C|asseslAccounts (continued) E. Other Obligations (continued) Potawatomi Business Development Corporation and Subsidiaries (continued) Advancia Corporation Advancia Corporation (a Potawatomi Business Development Corporation subsidiary) has a $3,000,000 line of credit agreement with JP Morgan Chase Bank, NA (subject to a borrowing base related to accounts receivable). The line of credit agreement bears interest at 30 day UBOR plus 3.25% and expires September 30, 2013. Borrowings are collateralized by substantially all assets of Advancia Corporation and a guarantee of Potawatomi Capital Company. There are no borrowings outstanding under this line of credit agreement at September 30, 2012. One Prospect Technologies LLC One Prospect (a Potawatomi Business Development Corporation subsidiary) has a $750,000 revolving line of credit agreement with Laona State Bank. The agreement bears interest at 5.0% and expires in August 2014. The revolving line of credit is secured by substantially all assets of One Prospect and a guarantee of PBDC. There were no borrowings outstanding on this line of credit at September 30, 2012. F. interfund Transactions and Balances Internal Balances (Due to (from) other funds) Balances due to and from other funds include interfund accounts receivable or payable for goods or services received or provided. interfund balances are the result of timing differences and are settled on a basis. 48 Receivable Fund Payable Fund Amount General Fund Other governmental funds 527,128 General Fund Business Development Corporation 6,434,478 General Fund Internal Service Fund 471,453 Other governmental funds Other governmental funds 24,288 Other governmental funds Business Development Corporation 193,961 Business Development Corporation Other governmental funds 3,892,079 Business Development Corporation Other enterprise funds 4,760 Business Development Corporation Internal Service Fund 2,161 Other enterprise funds Other governmental funds 1,989,426 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) F. lnterfund Transactions and Balances (continued) Transfers Transfers out Business Development Corporation Other enterprise funds Other governmental funds General Fund General Fund General Fund Other governmental funds Other enterprise funds Other governmental funds Transfers In General Fund General Fund General Fund Other governmental funds Business Development Corporation Other enterprise funds Other enterprise funds Other governmental funds Other governmental funds Total transfers within fiscal year ended September 30, 2012 Transfers do not balance due to reconciling items as demonstrated beiow: Transfers per Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Transfers per Statement of Revenues, Expenses and Changes in Fund Net Position of Proprietary Funds Total transfers per financial statements Transfer of capital assets to Potavvatomi Bingo Casino recorded as current expenditures in the fund financial statements and as a transfer in the government-wide statements Transfer of capital assets to Renewable Generation LLC recorded as current expenditures in the fund financial statements and as a transfer in the proprietary statements Net capital assets transferred from proprietary funds to special revenue fund Net compensated absences transferred from proprietary funds to special revenue fund Transfers related to excluded funds: Potawatomi Bingo Casino Potawatomi Carter Casino Hotel Total transfers per above 49 Transfers In 9,519,236 540,887,813 (467,993,132) (23,092,802) 53,466,713 523,065 48,283 3,685,911 17,464,556 5,000,000 1,493,311 3,025,925 21,828,287 397,375 53,466,713 Transfers Out 531,368,577 (277,322,398) (22,399,635) (299,722,033) (38,750) (365,311) 3,687,391 (22,557) 227,140,098 19,519,283 (53,466,713) FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction C|asseslAccounts (continued) F. lnterfund Transactions and Balances (continued) These transfers were made for the following purposes: - Transfers to the General Fund from the Business Development Corporation were made in relation to distributions made for dividends declared. - Transfers to the General Fund from the other enterprise funds represent a net operating transfer to provide funding for Tribal operations. - Transfers to the General Fund from other governmental funds represent a net operating transfer to the Tribe for unspent funds. - Transfers to the other governmental funds from the General Fund were made to subsidize other governmental fund expenditures. - Transfers to the Business Development Corporation from the General Fund were made to provide additional capital to the corporation. Transfers to the other enterprise funds from the General Fund were made to subsidize other proprietary fund expenses. - Transfers to the other enterprise funds from the other governmental funds were made to subsidize other proprietary fund expenses. - Transfers to other governmental funds from other enterprise funds represent the reclassification of Housing Authority and Housing Loan proprietary funds to Tribal Housing special revenue fund. - Transfers between other governmental funds represent the transfer of housing loans made from federal award programs to the Tribal Housing fund which accounts for the collection of those loans, as well as to reallocate resources between other governmental programs. G. Deficit Fund BalancelNet Position The internal Service Fund has a deficit in net position of $525,655 as of September 30, 2012. This deficit will be recovered in future years through increases in the Tribe's indirect cost rate and transfers from the General Fund. Two capital projects funds, the Milwaukee Capital Projects fund and the Milwaukee Hotel Project fund, had deficit fund balances as of September 30, 2012 of $1 ,922,007 and $5,259,992, respectively. These deficits will be recovered in future years through either transfers from other funds, or by the issuance of debt. 50 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 3. Detail Notes on Transaction Classes/Accounts (continued) H. Fund Balance Detail related to governmental fund balances is as follows: General Fund: Nonspendablez 401 (K) forfeiture 339 Prepaid expenditures 297,684 Subtotal 298,023 Restricted: Cash collateral 10,000,000 Assigned: Contingency Reserve 8,053,198 Unassigned 38,100,439 Total General Fund 56,451,660 Other Governmental Funds: Nonspendable: Grant funds prepaid expenditures 6,001 Health and Wellness Center prepaid expenditures 88,555 Tribal Housing prepaid expenditures 5,638 Subtotal 100,194 Assigned: Health and Wellness Center 67,423 Housing 20,936,373 Capital projects 7,057,029 Subtotal 28,060,825 Unassigned: Grant funds (6,001) Capital projects (7,181,999) Subtotal - (7,188,000) Total other governmentalfunds 20,973,019 51 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 4. Other Notes A. Employee Pension and Other Benefit Plans Forest County Potawatomi Plan and Deferred Compensation Plan The Tribe has adopted a qualified 401(k) plan covering substantially all employees who have attained the age of 18 and completed one year of service. The plan allows participants to make contributions by salary reduction up to the maximum allowable limit of Internal Revenue Code Section 401(k), 404, and 415. The Tribe may make matching contributions up to a discretionary percentage of a participants compensation. The Tribe may also make discretionary profit sharing contributions. Employees vest immediately in their contribution and vest in the Tribe's contribution to the plan over a six--year period of service. Effective January 1, 2004, the Tribe adopted a nonqualified deferred compensation plan for designated full- time management or highly compensated employees. The terms of the plan allow participants to deter a portion of their compensation, and the Tribe may match a portion of the deferrals as determined by the Tribe. The assets of this plan remain subject to the claims of creditors of the Tribe. The Tribe's contribution to the plans for the year ended September 30, 2012 was $365,434. Potawatomi Business Development Corporation and Subsidiaries In February 2011, the PBDC Retirement Plan was merged into the Tribe's Retirement Pian. At the completion of the merger, the PBDC Retirement Plan ceased to exist. The Tribe's Retirement Plan is sponsored by the Tribe, the sole stockholder of PBDC. PBDC matches a percentage of eligible employees' contributions and participants vest in PBDC's matching contributions after certain requirements are achieved. PBDC's contributions to the retirement plans for the period ended September 30, 2012 was approximately $235,000. Health Benefit Plan In November 1992, the Tribe established a self--funded health benefit plan for its employees. The Tribe is responsible for administrative fees. The plan is accounted for in the General Fund of the Tribe. Liabilities of the fund are reported when it is probable that an expense has occurred and the amount of the expense can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency, and amount of payments and other economic and social factors. As part of the health care coverage of the plan, the Tribe purchases stop-loss coverage that pays claims in excess of $300,000 per individual as provided by the plan administrators. At September 30, 2012, the Tribe has reported a liability of $2,447,902, which represents reported and unreported health claims which were incurred on or before September 30, 2012 but were not paid by the Tribe as of that date. Changes in the claims liability amount in 2012 and 2011 were as follows: Beginning Claims and End of of Fiscal Changes in Claim Fiscal Estimates Payments Lear 2011 1,956,887 17,136,750 (16,493,095) 2,600,542 2012 2,600,542 16,171,873 (16,324,513) 2,447,902 52 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 4. Other Notes B. Risk Management The Tribe is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors, and omissions; injuries to employees; and natural disasters. The Tribe maintains commercial insurance covering risks of loss. Management believes such coverage is sufficient to preclude any significant uninsured losses to the Tribe. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. There have been no significant reductions in insurance coverage for any risk of loss during the year. C. Leases PBDC leases office facilities from unrelated third parties with lease terms ranging from one year to five years. PBDC also leases office equipment and furniture with lease terms ranging from three years to five years. Total lease expenses were approximately $488,000 for the year ended September 30, 2012. Future minimum lease rentals on the long--term leases as of September 30 are as follows: 1-e_a_r Amount 2013 395,000 2014 80,000 2015 45,000 2018 7,000 Total 527,000 D. Contingencies and Commitments Litigation From time to time, the Tribe becomes party to claims and legal proceedings. Although the outcome of such matters cannot be forecasted with certainty, it is the opinion of management that the likelihood is remote that any such claims or proceedings will have a material adverse effect on the Tribe's financial position. Grant Programs The Tribe participates in a number of federally--assisted and state--assisted grant programs. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund and other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material effect on any of the financial statements of the individual fund types included herein or on the overall financial position of Forest County Potawatomi Community at September 30, 2012. PBDC Contract Contingencies Contract costs, including indirect costs, are subject to audit and adjustment through negotiation by the Defense Contract Audit Agency. Historically, such adjustments have been minimal. No amounts have been accrued in the accompanying financial statement for such adjustments, as management does not expect any significant adjustments. 53 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 4. Other Notes (continued) D. Contingencies and Commitments (continued) Construction Contracts In July, 2012, the Tribe began a two year construction project for a hotel located next to the Potawatorni Bingo Casino in Milwaukee, Wisconsin. The total cost of the project is $150 million and it is expected to be completed in September 2014. The Tribe is constructing a renewable energy generation facility in Milwaukee, Wisconsin. The total project cost for this facility is $22 million and it is expected to be completed in November, 2013. The total contract commitments for these projects are as follows: Expenditures Contract through Remaining Project Amounts September Contract Project Budget to Date 30, 2012 Balances Milwaukee Hotel $150,000,000 $110,805,000 $7,784,824 $103,020,178 Renewable Energy Generation 21,883,983 18,584,833 1,911,454 18,873,179 Totals $171,883,983 $129,389,833 $9,898,278 $119,893,355 E. Economic Dependency - Gaming Operations The Tribe owns and operates gaming establishments as described in Note 1. income from the operations is transferred to the Tribe's General Fund on a regular basis to finance General Fund operations as well as many other activities. Approximately 82% of the Tribe's governmental activities total revenues and other financing sources are derived from gaming operations. The operations of the Casinos are subject to the Indian Gaming Regulatory Act of 1988 which established the National Indian Gaming Commission the agency with primary responsibility for regulating Indian gaming. The has been delegated authority to issue regulations governing tribal gaming activities, approve tribal ordinances for regulating gaming, approve gaming management agreements, and conduct investigations. In addition to IGRA, the gaming activities conducted by the Tribe are subject to, and dependent upon, other federal, state, and tribal laws and regulations. Any changes to such applicable laws or regulations could have a significant impact on the gaming conducted by the Tribe. On December 3, 1998, the Tribe and the State of Wisconsin amended and renewed the Tribal State Gaming Compact, "Forest County Potawatomi Community of Wisconsin/State of Wisconsin Gaming Compact of 1992" ("Compact") which sets forth the terms and conditions under which certain Class games, as defined in the IGRA, may be conducted on Tribal lands, including those occupied by the Casinos. The Compact was later amended on February 19, 2003, April 4, 2003, May 30,2003 and March 31, 2010. On October 4, 2005, the Tribe executed a 2005 amendment to the agreement. The amendment provides for expansion of gaming operations by the Tribe. The amendment also includes provisions for the Tribe to make annual payments to the State of Wisconsin ("State") each year during the duration of the Compact. These expenditures are paid by the Tribe and financed by transfers from the Casinos. The 2005 amendment establishes a duration period with an initial term of 25 years, modifies the dispute resolution and sovereign immunity provisions, and includes a procedure for last and best arbitration. 54 FOREST COUNTY COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 4. Other Notes (continued) E. Economic Dependency - Gaming Operations (continued) Pursuant to the Compact agreement, the Tribe is obligated to pay the State, on each June 30, 6.5% of the Casino's ciass Ill net win for the current and all subsequent periods going forward. Net wins outside of the Milwaukee facility result in payments of 3% of annual net win between $0 and $20 million, 5% of annual net win between $20 and $50 million. If the annual net win exceeds $50 million, the Tribe and the State shall negotiate, in good faith, to reach an agreement on the payment percentages that would be applicable to wins greater than $50 million. The first $375,000 of this payment is made to Forest County or another local government, with the balance paid to the State. F. Customer Concentrations PBDC frequently enters into contracts and performs services for the Tribe, the sole stockholder of PBDC. Revenue derived from contracts with and services provided to the Tribe amounted to approximately $13,063,000 for the period ended September 30, 2012 and were approximately 32% of total PBDC revenues for year ended September 30, 2012. As of September 30, 2012, accounts receivable from and accounts payable to the Tribe amounted to approximately $3,899,000 and $628,000, respectively. PBDC sales as of September 30, 2012 include sales to one unrelated customer that accounts for 14% of total PBDC sales. Accounts receivable for this customer accounted for 13% of outstanding receivables as of September 30, 2012. G. Related-Party Transactions Tribe Due to the nature and structure of the tribe, there is a vast amount of activity that is considered to be related- party transactions. These transactions relate to activity transacted with any member of the Tribe, which includes Council members and also employees who are also members of the Tribe. For this reason, no attempt has been made to quantify the amount of the transactions. The most common, but not all inclusive, transactions that occur in the normal course of business consist of: - Housing or business loans receivable - Per capita payables - Revenue from sales of materials - Employee payroll expenses - Per capita payments - Contractual payments for services provided Potawatomi Business Development Corporation and Subsidiaries PBDC participates in transactions with the controlled investment companies related to various operating functions. These transactions were incurred in the normal course of operations and are for the purpose of gaining cost efficiencies related to common business functions such as technology, service delivery brokerage for government contracts and advertising. 55 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Notes to Financial Statements September 30, 2012 4. Other Notes (continued) H. Excess of Expenditures Over Appropriations Certain departments within the following major funds incurred expenditures in excess of appropriations in the following amounts for the year ended September 30, 2012: General Fund: Per Capita Payments 9,391,117 1. Change in Fund Classification During the year ended September 30, 2012, the Tribe reassessed its classification of the Housing Loans fund, which had previously been reported as an enterprise fund. The most significant activity in the this fund is the housing loan program, which has a feature in which 75% of the original loan amount is not required to be repaid under the "principal reduction" provisions of this program. Based upon this "principal reduction" feature, the Tribe has concluded that the Housing Loans fund does not constitute an enterprise fund and would be more appropriately classified as a special revenue fund. This reclassification is being shown on the financial statements as a transfer out of the Housing Loans fund of the nonmajor enterprise funds and a transfer into the Housing fund of the special revenue funds. The transfers will not balance because the governmental funds utilize a "current financial resources" measurement focus while the proprietary funds utilize an "economic resources" measurement focus. Due to this, net capital assets and long-term liabilities are being shown as a transfer out of the proprietary funds, but not as a transfer into the governmental funds. J. New Accounting Pronouncements The Governmental Accounting Standards Board has approved GASB Statement No. 65 -- Items Previously Reported as Assets and Liabilities. The standard reclassifies certain items that were previously reported as assets and liabilities as deferred outflows of resources, deferred inflows of resources, or current- period outflows and inflows. This pronouncement is effective for financial statements covering periods beginning after December 15, 2012. 56 REQUIRED SUPPLEMENTARY INFORMATION FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Required Supplementary Information Budgetary Comparison Schedule - General Fund For the Year Ended September 30, 2012 Budgeted Amount Actual Variance with Original FM Amounts Final Budget Revenues Intergovernmentalrevenues -- grants 15,000 15,000 25,101 10,101 Fines and forfeitures Court penalties and costs 18,892 18,892 Health insurance fines and fees 336,000 360,098 362,343 2,245 336,000 360,098 381,235 21,137 Public charges for services Advertising 410 410 Graphic arts 18,725 18,725 19,135 19,135 Commercial Revenues Rent 415,868 415,868 366,656 (49,212) Sales 30,874 30,874 Investment earnings 200,000 338,253 138,253 Cigarette excise tax rebates 20,000 20,000 17,436 (2,564) Taxes 1,167,100 1,167,100 109,547 (1,057,553) Postage charges 2,795 2,795 1,602,968 1,802,968 865,561 (937,407) Other Revenues Donations 6,000 6,000 7,632 1,632 Miscellaneous 595,750 613,485 792,008 178,523 Health insurance 20,556,849 20,556,849 20,309,561 (247,288) insurance reimbursements 3,923,599 3,959,599 5,047,910 1,088,311 25,082,198 25,135,933 26,157,111 1,021,178 Total revenues 27,036,166 27,313,999 27,448,143 134,144 57 See Independent Auditor's Report FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Required Supplementary information Budgetary Comparison Schedule - General Fund For the Year Ended September 30, 2012 Budgeted Amount Actual Variance with Original Amounts Final Budget Expenditures Current: General Government: General government 2,678,231 3,523,596 2,541,702 981,894 Consultants 3,311,000 3,311,000 3,345,473 (34,473) Energy and carbon initiative 100,000 1,526,100 321,726 1,204,374 Tribal member services 191,500 191,500 127,765 63,735 Economic support 451,720 464,823 184,524 280,299 Community health 204,258 229,280 226,429 2,851 Foundation office 276,881 283,201 277,219 5,982 Attorney General 6,805,346 5,065,778 5,365,244 (299,466) Domestic violence 115,609 14,561 8,537 6,024 Tribal court 467,994 408,919 304,119 104,800 Child support matching 93,516 182,153 138,853 43,300 Emergency management 216,598 217,749 98,747 119,002 ICW department 518,462 555,158 324,504 230,654 Elderly 1,317,994 1,492,798 1,319,852 172,946 Veterans post 24,000 24,000 15,225 8,775 Ordinance department 236,283 239,674 138,159 101,515 Finance committee 109,575 111,251 10,778 100,473 Finance department 1,014,627 1,020,144 150,510 869,634 Grants administration 127,722 131,738 108,464 23,274 Investment committee 33,500 33,500 9,344 24,156 Housing committee 6,000 6,000 4,963 1,037 Land use committee 63,680 67,467 24,309 43,158 Planning 165,932 170,668 160,589 10,079 Tribal vehicle expense 426,783 442,518 311,927 130,591 Enrollment 143,276 150,142 87,377 62,765 Security 459,515 475,037 436,515 38,522 Indirect costs not funded by other programs 40,000 29,078 10,922 Maintenance 799,919 824,567 644,405 180,162 Property and liability insurance 375,000 375,000 291,884 83,116 Wide area network 1,730,495 1,930,495 1,542,058 388,437 Geographic information services 109,977 117,868 79,799 38,069 Tribal natural resources 564,693 594,242 554,379 39,863 Water resources 135,272 116,571 104,047 12,524 Air quality assessment 192,523 195,829 111,159 84,670 Campbellsport 48,080 48,080 8,008 40,072 Rising Sun Child Care Center 183,695 223,639 165,538 58,101 Child Day Care 125,343 135,425 92,650 42,775 Newspaperfcommunicatioris 750,104 763,443 608,634 154,809 Real estate management 1,596,548 1,596,548 1,109,334 487,214 Tax commission 49,479 49,479 49,479 Other 2,245,347 1,426,947 1,021,440 405,507 28,466,477 28,776,888 22,405,267 6,371,621 Healthcare 44,389,016 44,547,645 43,472,698 1,074,947 See independent Auditor's Report 58 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Required Supplementary Information Budgetary Comparison Schedule - General Fund For the Year Ended September 30, 2012 Budgeted Amount Actual Variance with Original Final Amounts Final Budget Per Capita Payments EB 103,863,763 103,863,763 113,254,880 (9,391,117) Gaming Commission 11,227,567 11,230,647 9,647,004 1,583,643 Compact Agreements 40,175,000 40,175,000 38,672,306 1,502,694 Donations 3,137,949 3,182,949 3,171,162 11,787 Educafion GTE--GA-NES Preschool 626,943 659,014 596,799 62,215 Education 1,099,637 1,146,050 875,362 270,688 1,726,580 1,805,064 1,472,161 332,903 Utilities Water and sewer utility 1,198,803 1,240,556 814,839 425,717 Water and sewer projects 320,956 320,956 109,117 211,839 Solid waste 405,469 418,877 378,911 39,966 1,925,228 1,980,389 1,302,867 677,522 Recreation Recreation department 567,408 579,426 450,419 129,007 Pow-Wows 358,200 358,200 331,212 26,988 Language and culture 247,679 272,215 230,688 41,527 Historicalfculture 585,973 597,769 381,085 216,684 Walking four direction 251,045 254,537 126,361 128,176 2,010,305 2,062,147 1,519,765 542,382 Capital Outlay 1,604,923 1,604,923 1,604,923 Total expenditures 238,526,808 239,229,415 236,523,033 2,706,382 Deficiency of revenues under expenditures (211,490,642) (211,915,416) (209,074,890) (2,840,526) Other Financing Sources (Uses) Transfers in 478,732,929 478,974,463 495,343,193 16,368,730 Transfers out (255,361,087) (255.177,847) (262,121,097) (6,943,250) Total other financing sources (uses) 223,371,842 223,796,616 233,222,096 9,425,480 Net change in fund balances 11,881,200 11,881,200 24,147,206 12,266,006 Fund balances, beginning of year 32,304,454 56,451,660 Fund balances, end of year See independent Auditors Report 59 OTHER SUPPLEMENTARY INFORMATION Assets Cash and cash equivalents investments Receivables, net Receivables from other governments Due from other funds Prepaid expenses Total assets Liabilities and Fund Balances Liabilities: Accounts payable Accrued expenses Deposits Due to Potawatomi Business Development Corporation Due to Renewable Generation, LLC Due to other funds Deferred revenue Total liabilities Fund Balance: Nonspendable Assigned Unassigned Total fund balances Total liabilities and fund balances FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Balance Sheet Nonmajor Governmental Funds September 30, 2012 Special Revenue Funds See Independent Auditor's Report 60 State, Local, Total Federal and Other Health and Capital Nonmajor Award Award Wellness Tribal Projects Governmental Programs Programs Center Housing Total Funds Funds 1,445,738 66,476 1,433,866 2,946,080 7,989,568 10,935,648 12,909,048 12,909,048 12,909,048 3,764,418 7,799,456 11,563,874 40,468 11,604,342 728,590 187,998 916,588 916.588 218,249 218.249 218.249 5,501 500 88,555 5,638 100,194 100.194 2,179,829 254,974 4,071,222 22,148,008 5 28,654,033 55 8,030,036 36,684,069 284,402 25,763 230,227 40,360 580,752 2.502.313 3,083,065 28,631 70,017 20,402 119,050 119,050 1,145,235 1,145,235 1,145,235 6,400 6,400 3,691,718 3,698,118 1,960,975 1,960,975 611,645 162,183 773,828 773,828 1,248,751 67,028 3,615,000 4,930,779 4,930,779 2,179,829 254,974 3,915,244 1,205,997 7,556,044 8,155,006 15,711,050 5,501 500 88,555 5,638 100,194 100,194 67,423 20,936,373 21,003,796 7,057,029 28.060.825 (5,501) (500) (6,001) (7,181,999) (7,188,000) 155,978 20,942,011 21,097,989 (124,970) 20,973,019 2,179,829 254,974 4,071,222 22,148,008 28,654,033 8,030,036 36,684,069 FOREST COUNTY POTAWATOMI COMMUNITY Crandon. Wisconsin Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended September 30, 2012 Special Revenue Funds Revenues Intergovernmental Third--party medical revenues Investment earnings Other Total revenues Expenditures Current: Tribal government Health care Housing Other Capital outlay Total expenditures Excess (Deficiency) of revenues over (under) expenditures Other Financing Sources (Uses) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balance, beginning of year Fund balance (deficit), end of year State, Local, Total Federal and Other Health and Capital Nonmajor Award Award Wellness Tribal Projects Governmental Programs Programs Center Housing Total Funds Funds 8,480,312 827,167 9,307,479 9,307,479 8,240,806 6.240.806 6.240.806 1,767,006 1,767,006 1.767.006 173,204 173,204 173,204 8,480,312 827,167 6,240,806 1,940,210 17,488,495 17.488495 6,921,991 808,699 7.730.690 7,730,690 9.100.420 9.100.420 9.100.420 3,254,120 3,254,120 3.254.120 304.490 304,490 1,487,047 18,468 40,513 44,869 1,590,897 9,431,877 11,022,774 8,409,038 827,167 9,140,933 3,298,989 21,676,127 9,736,367 31,412,494 71,274 (2,900,127) (1,358,779) (4,187,632) (9,736,367) (13.923.999) 1,287,930 22,300,790 23,588,720 12.436664 36.025384 (71,274) (71,274) (15,130,027) (15,201,301) (71,274) 1,287,930 22,300,790 23,517,446 (2,693,363) 20,824,083 (1,612,197) 20,942,011 19,329,814 (12.429,730) 6.900.084 1,768,175 1,768,175 12,304,760 14,072,935 155,978 20,942,011 21,097,989 (124,970) 20,973,019 See Independent Auditors Report 61 Assets Cash and investments Receivables. net Total assets Liabilities and Fund Balances Liabilities: Accounts payable Due to Potawatomi Business Development Corporation Due to Renewable Generation. LLC Total liabilities Fund balances (deficit): Assigned Unassigned Total fund balances Total liabilities and fund balances FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Balance Sheet Nonmajor Governmental Funds - Capital Projects September 30. 2012 Wgema Milwaukee Carter Forest Campus Capital Casino County Land Milwaukee Projects Proiects Expansion Projects Acguisition Hotel Total 3,245,724 3.018.864 1,724,980 - 7.989.568 38.968 1,500 -- 40,468 3.245.724 38,968 3.018.864 1,726,480 8.030.036 370,244 171,044 8.080 1.952.945 2.502.313 48,073 336,598 3.307.047 3.691.718 1.960.975 1.960.975 418.317 1,960,975 507.642 8.080 5.259.992 8.155.006 2,827,407 2.511.222 1.718.400 7.057.029 (1,922,007) (5,259,992) (7.181,999) 2,827,407 (1,922,007) 2,511,222 1,718,400 (5,259,992) (124,970) 3,245,724 38,968 3,018,864 8 1.726.480 - 8,030,036 See Independent Auditor's Report 62 Expenditures Capital outlay Other Total expenditures Deficiency of revenues under expenditures Other Financing Sources (Uses) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balance, beginning of year Fund balance (deficit), end of year FOREST COUNTY POTAWATONH COMMUNITY Crandon, Wisconsin Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds - Capital Projects For the Year Ended September 30, 2012 Wgema Milwaukee Carter Forest Campus Capital Casino County Land Milwaukee Projects Prdects Expansion Proiects Acguisition Hotel Total 6,495,272 2,227,945 708,660 -- -- 9,431,877 (2,391) (9,221) 83,493 232,609 304,490 6,492,881 2,218,724 792,153 232,609 9,736,367 (6,492,881) (2,218,724) (792,153) (232609) (9,736,367) 4,310,008 1,282,548 18,603 1,136,374 2.510.553 3,178,578 (215,301) (3,204,555) (18,603) (3,485,607) (8,205,961) (15,130,027) 4,094,707 (1,922,007) (2,349,233) 2,510,553 (5,027,383) (2,693,363) (2,398,174) (1,922,007) (4,567,957) 1,718,400 (5_259,992) (12,429.730) 5,225,581 7,079,179 12,304,760 2,827,407 (1,922,007) 2,511,222 1,718,400 (5,259,992) (124,970) See Independent Auditor's Report 63 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Balance Sheet Nonrnajor Governmental Funds - Federal Award Programs September 30. 2012 Department Department of Health Environmental of the and Human Protection Other Interior Services Agency Departments Total Assets Cash and cash equivalents 432,376 '.13 885,352 5 5 128.010 5 1,445,738 Receivabies from other governments 23.125 219,871 106,248 379,346 728,590 Prepaid expenses 2.409 3.092 5,501 Total assets 5 457.910 1,108,315 5 106.248 507,356 2.179.829 Liabilities and Fund Balances Liabilities: Accounts payable 15,637 110,635 8 38.208 55 119,922 284,402 Accrued expenses 28.631 28,631 Due to Potawatomi Business Development Corporation 6.400 6400 Due to other funds 16,344 139,827 68,040 387.434 611,645 Deferred revenue 425.929 822,822 1.248.751 Total liabilities 457,910 1,108,315 106,248 507,356 2,179,829 Fund Balances: Nonspendable 2.409 3,092 5,501 Unassigned (2.409) (3,092) (5,501) Total fund balances Total liabilities and fund balances 457.910 1.108.315 106,248 507,356 2,179,829 See independent Auditor's Report 64 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds - Federal Awards Program For the Year Ended September 30, 2012 Department of Health Environmental Department and Human Protection Other of the Interior Services Agency Departments Total Revenues Intergovernmental - grants 615.966 5,063,278 495,766 2,305,302 8,480,312 Expenditures Current Personnel services: Salaries 236,954 1,987,379 166,042 328,854 2,719,229 Fringe benefits 71,237 572,288 47,681 98,355 789,561 Administrative costs: Travel 4,512 64,037 12,282 6,466 87,297 Meetings and conferences 11,199 11,199 Utilities and telephone 750 8,593 1,115 44,383 54,841 Training 775 11,031 11,806 Supplies 24,563 85,267 20,792 35,445 166,067 Contractual services: Hospital and medical 346,646 346,646 Day care services 29,349 29,349 Other 58,277 593,080 30,757 399,510 1,081,624 Other costs: Indirect costs 81,808 739,290 62,258 65,827 949,183 Education assistance 4,995 4,995 Food and provisions 40,834 742 41,576 Other 118,085 435,940 74,593 628,618 Capital Outlay 14,010 138,345 154,839 1,179,853 1,487,047 Total expenditures 615,966 5,063,278 495,766 2,234,028 8,409,038 Other Financing Sources (Uses) Transfers out (71,274) (71 ,274) Net change in fund balances Fund deficit, beginning of year Fund deficit, end of year 95 -- See Independent Auditor's Report 65 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Balance Sheet Nonmajor Governmental Funds State and Local Award Programs September 30, 2012 State Local Programs Programs Total Assets Cash and cash equivalents 18,923 47,553 66,476 Receivables from other governments 144,415 43,583 187,998 Prepaid expenses 500 500 Total assets 163,338 91,636 3 254,974 Liabilities and Fund Balances Liabilities: Accounts payable 9,091 16,672 25,763 Due to other funds 135,522 26,661 162,183 Deferred revenue 18,725 48,303 67,028 Total liabilities 163,338 91,636 254,974 Fund Balances: Nonspendable 500 500 Unassigned (500) (500) Total fund balances Total liabilities and fund balances 163,338 91,636 254,974 See Independent Auditor's Report 66 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds- State and Local Award Programs For the Year Ended September 30, 2012 State Local Programs Programs Total Revenues Intergovernmental -- grants 702,119 125,048 827,167 Expenditures Current: Personnel services: Salaries and wages 262,074 32,541 294,615 Fringe benefits 78,470 7,861 &%6,331 Administrative costs: Travel 18,081 2,910 20,991 Utilities and telephone 1,460 1,491 2,951 Training 6,455 669 7,124 Supplies 118,899 11,616 130,515 Contractual services: Other 98,649 38,748 137,397 Others costs: indirect costs 92,653 11,712 104,365 Food and provisions 24,240 300 24,540 Other 1,138 (1,268) (130) Capital Outlay 18,468 18,468 Total expenditures 702,119 125,048 827,167 Net change in fund balances Fund balances, beginning of year Fund balances, end of year See independent Auditor's Report 67 Assets Current assets: Cash and cash equivalents: Unrestricted Receivables, net Notes receivable, net Due from Carter Casino Due from other funds Inventories Prepaid expenses Total current assets Noncurrent assets: Notes receivable, net Net capital assets Total noncurrent assets Total assets Liabilities Current tiabilitiesz Accounts payable Accrued expenses Due to Potawatomi Business Development Corporation Total current liabilities Net Position Invested in capital assets Unrestricted Total net position Total liabilities and net position FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Statement of Net Position Nonmajor Enterprise Funds September 30, 2012 Enterprise Funds See Independent Auditor's Report 68 Forestry, Carter Stone Lake Farm and Convenience Convenience Housing Business Renew-abze Insurance Housing MTS Support Land Services Store Store Loans Loans Generation. LLC Processinu Authority Services Total 653,497 5 374,475 35 3 1,027,972 508,126 168,959 10,473 687,558 8.910 8,910 218 .-- 213 2,912 25,539 .-- 1,960,975 1_9ag_425 136.890 117.405 254.295 2.675 2,575 1,301,643 686,378 8,910 1,960,975 13,148 3,971,054 118.000 118,000 731,578 475,535 2,423,575 3,789,796 7,420,484 731,578 475,535 2,423,575 118,000 3,789,796 7,538,484 731,578 55 1,777,178 3,109,953 126,910 5,750,771 3 13,148 11,509,538 23.837 35 123.639 60,723 3 1,960,975 3 1.912 2,171,086 13.887 28.892 24,201 56,930 4,750 4,750 42,484 152,531 84,924 1,960,975 1,912 2,242,826 731,578 475,535 2,423,575 3,789,796 7,420,484 (42,484) 1,149,112 601,454 126,910 11,236 1,846,228 689,094 1,624,647 3,025,029 126,910 3,789,796 11,236 -- 9,266,712 731,578 1,777,178 3,109,953 126,910 5,750,771 13,148 5. FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Combining Statement of Revenues, Expenses, and Changes in Net Position Nonmajor Enterprise Funds For the Period Ended September 30, 2012 Enterprise Funds Forestry, Carter Stone Lake Farm and Convenience Convenience Housing Business Renewable Insurance Housing MTS Support Land Services Store Store Loans Loans Generation. LLC Processing Authority Services Total Operating Revenues Sales and charges for services 55 31.067 5 7,233,132 35 3,680,175 6 111,786 11,055,150 Other (576) 503 4.811 4,438 Total operating revenues 31.06? 7,232,456 3,680,678 4,611 111.786 11,080,598 Operating Expenses Cost of sales and services 5.992.750 3.317.814 9,310,564 Salaries, wages, and administrative 245,708 575,652 488,486 72,423 11.719 1,393,988 Depreciation 50.469 35.698 55.554 142,821 Total operating expenses 296,177 6,605,100 3,861,954 -- 72,423 11,719 10,847,373 Operating income [1055] (265,110) 627,356 (181,276) 4,611 39,363 (11.719) 213,225 Other Financing Sources {Uses} Transfers in 388,583 105,555 223,583 3,789,796 11,719 4,519,235 Transfers out (16,440,936) (13,200) (35,083) (5,387,351) (21.876,570) Change in net position 123,473 732,911 42,307 (18,440,936) (8,589) 3,789,796 4,280 (5,387,351) (17,144,109) Net position, beginning of year 585,621 891,736 2,982,722 16,440,936 135,499 6,956 5,387,351 26,410,821 Net position. end of year 689,094 1,624,647 8 3,025,029 5 126,910 5 3,789,796 11,236 5 5 9,266,712 See independent Auditor's Report 69 FOREST COUNTY POTAWATOMI COMMUNITY Crandon. Wisconsin Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Period Ended September 30, 2012 Enterprise Funds Forestry, Carter Stone Lake Farm and Convenience Convenience Housing Business Renewable Insurance Housing MTS Support 1__.gnd Services Store Store Loans Loans Generation, LLC Processing Authpfii Services Cash Flows Frorn Operating Activities Receipts from customers 31,067 7.060.192 407,012 13,200 100,211 st; 5 7520532 Payments to suppliers (61,147) (5,992,584) 129,119 (36,222) (11,719) (5972553) Payments to employees (180,365) (466,400) (391,147) -- (37,906) (1,075,818) Other receipts 478 336 814 Net cash provided (used) by operating activities (210,445) 601,686 145,320 13,200 35,083 (11,719) 5?3,125 Cash Flows From Noncapital Financing Activities Transfers in (out) 388,583 105,555 223,583 (36,480) (13,200) 3,789,798 (35,083) (434,801) 11.719 3,999,672 Cash Flows From Capital and Related Financing Activities Purchases of capital assets (178,138) (103,074) (15,000) (3,789,796) (4_035_008} Net increase (decrease) in cash and equivalents 604.167 353,903 (36,480) (434,801) 486,789 Cash and Cash Equivalents Beginning of Year 49,330 20,572 36,480 434,801 541.153 Cash and Cash Equivalents End of Year 39 653,497 374.475 8 1,027,972 Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating incometlossl 5 (265,110) 627,356 (181,276) 4,811 39,363 8 (11,719) 5 213.225 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense 50.469 36.698 55.654 142821 Change in assets and liabilities: Receivables, net (171,394) 44,484 8.589 (2.574) (120,895) Inventories '1 29.845 220.318 350_163 Prepaid expenses and other current assets (2,675) (2575) Accounts pavable (2,056) (67,361) 14,482 1,960,975 969 Due to other funds 4,760 45,112 (23,561) (1,960,975) (1_934_554} Accrued expenses 1.492 1.430 15.219 18,141 Net cash provided (used) by operating activities 5 (210,445) 8 601,586 145.320 13,200 35,083 5 (11,719) 5 573,125 See Independent Auditor's Report 70 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Year Ended September 30 , 2012 Table of Contents Pagels) Schedule of Expenditures of Federal , State and Loca l Awards Notes to the Schedule of Expenditures of Federal, State and Local Awards 1- 7 8 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards and the State Single Audit Guidelines 9 - 10 Independent Auditor's Report on Compliance with Requirements That Could Have A Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and the State Single Audit Guidelines 11 - 12 Schedule of Prior Yea r Audit Findings Schedule of Findings and Questioned Costs 13 14 - 17 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Expenditures of Federal, State and Local Awards Year Ended September 30, 2012 Awarding Agency Pass Through Agency Award Description U.S. Department of Agriculture Direct Programs : Plant & Animal Disease, Pest Control, Animal Care Rural Business Enterprise - ARRA CFOA Number State 10 Number CARS Profile Number 10.025 10.783 Grant Period 6130111 - 61 29112 9/25/08 - 9130/12 Subtota l U.S. Department of Agriculture - Direct Programs Supplemental Nutrition Assistance Program Clus ter: Passed Through Wisconsin Department of Health Services Tribal Income Maintenance Tribal Income Ma intenance Food Stamp Employment and Training Food Stamp Employment and Training Food Stamp Employment and Training Food Stamp Employment and Training $ 7,561 28?97 $ 3,971 13,631 State Exoenditures $ Local Expenditures $ Total Expenditures $ 3,97 1 13,631 435.66106 435 .66107 435 .66108 66321 66322 66105 66106 66 107 66108 - 9130/12 9/30/12 9/30/12 9/30/12 9/30/12 9130/12 Total U.S. Department of Agricu lture 14.867 7 /1/10 - 6 /30/12 1 17,602 21,004 20,941 20 ,941 320 341 175 319 105 453 267 27 453 266 27 319 105 906 533 54 26 ,520 10/1.'11 10/1/" 10/ 1!11 10/1/11 10/1i11 10/1i11 17,602 22 ,112 746 22,858 62,878 10.561 10.561 10.561 10.561 10.561 10.561 36 ,358 Subtotal Supplemental Nutrition Assistance Program Cluster U.S. Department of Housing and Urban Development Di rect Prog ram: Indian Housing Block Cluster Federal Exoen.ditures ill!!2l!lll 39,714 746 40,460 314 ,291 307, 232 2,947 1,733 307 ,232 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Expenditures of Federal, State and Local Awards Year Ended September 30, 2012 Awarding Agency Pass Through Agency Award Description U.S. Department of the Interior Direct Programs : Other Aid to Tribal Government Consolidated Tribal Government/Education Consolidated Tribal Government/Education Consolidated Tribal Government/Education Consolidated Tribal GovernmenVEducation Indian Self-Determination Contract Support Indian Self-Determination Contract Support Indian Commun ity Fire Protection Road Maintenance - Indian Roads Road Maintenance - Indian Roads Wild Urban Intr Forest Management Forest Management Forest Management Integrated Resource Management Program Tribal Management Tribal Management and Development Circle of Flight Circle of Flight Environmental Management - Indian Programs Indian Social Services - Welfare Assistance Indian Education - Higher Education Grant Program India n Child Welfare Renewable Energy Project Tribal Wildlife National Park Service CFDA Number 15 .020 15.020 15.020 15.020 15 .020 15.024 15.024 15.03 1 15.033 15.033 15.035 15 .035 15.035 15,035 15,039 15 .039 15.039 15.039 15.039 15.041 15.11 3 15.114 15.144 15.423 15.639 15.904 State 10 Number CARS Profile Number 6130111 - 9130113 9121111 - 9130/1 3 3131108 - 9/30/12 5127199 - 9/30/12 1/1196 - 9/30/12 2128109 - 9130/12 9/12112 - 9/30l14 9/ 16111 • 9/30113 2/18111 - 9/30/13 3/4/08 - 9/30/12 9130/10 - 9/30/ 13 12126/05 - 9/30/12 2120109 - 9/30/12 9/9/12 - 9/30/14 9/301 - 9/30/12 09 $ 21 ,893 $ 158,721 63,762 46 ,81 5 5 ,655 32,089 88,828 7 ,61 4 28,682 15,967 76,007 36,262 34,630 52,495 36,208 15,000 4,000 97,612 67,500 168 30,292 62,559 76. 885 1 197.079 60,577 Federal Expenditures 21 ,893 100,806 4,995 State Expenditures $ Local Expenditures S Total Expenditures • 21,893 100,806 4,995 16.608 16.587 16.806 10/l il1 - 9130/14 10/30110 - 9/30/13 711/09 - 3/30/13 Total U.S. Department of Justice 2 32,089 85,837 7,614 17,223 12,428 4 7,501 22,738 52,495 33,004 22,738 52,495 33,004 4 ,000 46, 125 23,093 168 14,7 50 4,000 46,1 25 23,093 168 14,750 61,502 1 27,704 18,965 61,502 1 27 ,704 18,965 634.931 634,931 164,948 151,546 210.908 80,156 146,961 72,009 80,156 146,961 72 ,009 527,402 8/9/12 - 9130/14 7/22109 - 9/30/12 8/9/'2 - 9/30f14 8/30/04 - 9/30/12 7/15111 - 9/30/13 10/1 /04 - 9130112 6ll6.'10 - 9130112 10/30/10 - 9/30/12 10/1i11 - 10/1/14 10/11 - 9130/13 11 32,089 85,837 7,6 14 17,223 12,428 47,501 1.317,301 4/17!06 - 9/30/12 Total U.S. Department of the Interior U. S. Department of Justice Direct Programs: Tribal Court Assistance Violence Against Women - Serv Victim Office Violence Against Women - ARRA Grant Amount Period 299,126 299 ,126 FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Schedule of Expenditures of Federal, State and Local Award s Year Ended September 30, 2012 Awa rding Agency Pass Through Agency Award Description CFDA Number State 10 Number U.S. Department of Transportation Highway Planning and Construction Clus ter: Passed Thro ug h U.S Department of the Interior - Bureau of Indian Affair s Ind!an Reservation Roads Transportat!on Plann!ng 20.205 Blackwell Subdivision Project 20.205 Engineering and Construction - ARRA 20.205 CARS Profile Number 9/8108 - 9/30/12 8/24/09 -1 213 1/ 12 2/18110 - 9/30/12 Total U.S. Department of Transportatio n U.S. Environmental Protect ion Agency Direct Programs: NCRS High Tunnel NCRS Equip 2012 NRCS Equip 2010 NRCS Equip 2008 NRCS Equip 2009 NRCS Equip 2011 NCRS First Trail Performance Partnership Grant $ 82,769 1,056,633 51,438 Federal Expenditures $ 74,814 31,968 51438 State Expend itures $ Local Expenditures $ Total Expend itures $ 74 ,814 31,968 51,438 1,190,840 81 .0B7 81 .087 81 .087 81 .128 1f31.'10 - 1f31/13 6/1/10 - 8/31/12 9/30/11 -12131/12 12/14.'09 -12/13/12 Total U.S. Department of Energy 3 158,220 6,709 17,225 51,467 6,375 12,968 98,160 6,748 422.904 6 ,653 6,653 49 ,908 1,337 11 ,961 42,705 49 ,908 1,337 " ,961 42 ,705 383,202 383 ,202 495,766 495,766 1,B03,126 1,179,853 143,378 26,006 272,354 1,179,853 43,336 18,800 272 ,354 1,179,853 43 ,336 18,800 3,152,363 3/9/ 12 - 12/31 / 13 3/9f'1 - 12131{14 2 3/22/10-12/31/13 2/1/0B - 12/31f13 7/11 !11 - 9/30f13 3/B/11 - 9/30/14 5/1B/12 -12131/14 4 /1/11 - 3/3 1/13 158,220 622.556 66.473 66.473 66.473 66.473 66.473 66.473 66.473 66.605 Total U.S. Environmenta l Protectio n Agency U.S. Department of Energy Direct Programs: Renewable Energy Implementation - ARRA Wunder Hall Energy Efficience PCC H Energy Efficiency & Conservation Block Grant - ARRA Grant Amount Period 1,514,343 1,514 ,343 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Sc hedule of Ex penditures of Federal, State and Local Award s Year Ended September 30,2012 Awarding Agency Pass Through Agency Award Description U.S. Department of Hea lth and Human Services Direct Programs: Special Programs for the Aging - Elderly Nutrition (2012) Special Programs for the Aging - Elderly Nutrition (2013) Native American Caregiver Support (2012) Native American Caregiver Support (2013) Families at Risk Substance Abuse Mental Health Service Admin Indian Health Services Indian Health Services - Altemative Care Indian Health Services - Sanitation Special Diabetes Program for Indians (2012) Special Diabetes Program for Indians (2013) Indian Health Services Summer Youth (2012) Indian Health Services Summer Youth (2013) Affordable Care Act - Medicare Improvement Title IV-8 Subpart 2 - Promoting Safe and Stable Families Child Support Enforcement Child Support MTS Grant Native Employment Works Grant (2012) Native Employment Works Grant (2013) Title IV-B Subpart 1 - Child Welfare Services CFDA Number State 1 0 Nu mber CARS Prof ile Number 411/11 - 3/31/12 4/1112 - 3/31/13 4/1/11 - 3/31/12 4/1/12-3/31/13 9130/11 - 9/29/12 7/1/12 - 6/30/ 13 10/1104 - 9130/12 711 /06 - 9/30112 3/24111 - 9/30/ 12 6/ 1/1 1 - 5/30/12 6/1 /1 2 - 5/30/13 8/1/11 -7131/12 8/1/12 - 7/31/13 9130/10 - 9/29/12 10/1/09 - 9/30/12 1011111 - 9130/12 10/11 111 - 9130/ 13 7/1/1 1 - 6/30/ 12 7/1/1 2 - 6/30/ 13 10/1/11-9/30/ 12 93.047 93 .047 93.054 93 .054 93 .086 93.243 93.210 93.210 93.210 93.237 93.237 93.443 93.443 93 .518 93 .556 93 .563 93.563 93.594 93.594 93.645 $ 73,620 $ 81,940 20,120 20,040 125,000 280 ,000 3.978,089 264 ,767 23,036 135,203 119,070 109,236 36,782 1,000 13,017 529,159 644,523 13,165 13,360 6,211 Federat Ex penditures 42,293 52,075 17,946 10,393 105,076 Local Expend itu res State Expend itures $ $ Total Expend it ures $ 42 ,293 52 ,075 17,946 10,393 105,076 3,173,462 264,767 14,674 80,324 41 ,197 48,481 17,921 3,173,462 264,767 14,674 80,324 41 ,197 48 ,481 17,921 93.043 93.043 93.069 93.069 65596 65596 93.283 65505 93,507 93.767 93.926 93.926 93.940 93.959 93.959 93.958 93.994 6551 1 66325 435.65300 65540 65300 65050 65057 65561 Subtotal Passed Through Wisconsin Department of Health Services 4 771 13,017 486,141 514 ,158 11 ,408 2,940 5.776 4,902,820 4,902 ,820 232 461 232 461 232 461 25,617 25,617 5,152 10,000 5,416 91 ,000 91 ,000 7,500 54 ,083 7,267 8,830 18,526 23,579 4,197 5,152 9,999 5,400 67 ,096 31,156 7,190 16,848 7,217 7,990 16,526 23,579 4,197 5,152 350,701 1/1/11 -12/31/11 1/1/12 -12131112 9/ 1/11 -7131 / 12 8/ 12112 - 6130/13 10/1/11-9/30/12 111 / 12 - 9130/ 12 10/1/11 - 9130112 6/1/11 - 5/31/13 6/1/12 - 5/31/12 10/1111 - 9/30/12 10/1111 - 9/30/12 10/1111 - 9/30/12 10/1 /11 - 9130/12 10/1/11 - 9130/12 771 13,017 486,141 514,158 11,406 2,940 5,776 6,467 ,358 SUbtotal U.S. Department of Health and Human Services - Direct Programs Passed Throug h Wisconsin Department of Hea lth Services Elderly Transportation Title 111-0 (2011) Elderly Transportation Title 111-0 (2012) Bioterrorism Preparedness (2012) Bioterrorism Preparedness (2013) WI Well Women HeR Infrastructure Tribal Income Maintenance Honor Our Children 2 (2012) Honor Our Children 2 (2013) HIV/Aids Prevention Family Services AODA Native American Treatment Program Community Mental Health MC H Perinatal Health Grant Amount Period 205,043 9,999 25 ,676 25,676 5,400 67,096 31,156 7,190 42,524 7,217 7,990 16,526 230.7 19 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Ex penditures of Federal , State and Local Awards Year Ended September 30,20 12 Awarding Agency Pass Through Agency Award Description CFDA Number State ID Number CARS Profile Number Passed Throug h Wisconsin Depa rtment of W orkforce Development Promoting Safe and Stable Families 93.556 93.645 Child Welfare 10/11111 - 9/30/12 10/1 1fll- 9/30f12 Subtotal Passed Through Wisconsin Department of Workfo rce Development Passed Through Great Lakes Inter-Tribal Council , Inc. Strategic Prevention Community Based Doula 32,882 14,797 $ 19,889 8,950 State Expenditures $ Local Expenditures $ Total Expenditures $ 19,889 8,950 28,839 29, 156 30,000 29,156 30,000 29 ,156 30.000 59,156 59,156 59 ,156 457,536 293,038 4/1/10 - 3/31/12 8,630 8,630 8,630 1/1/1 1 -1 2/31111 1/1/12 - 12/31/12 1/1/11 - 12/31111 1/1/12 - 1213 1/12 1/1/11 -12/31/11 1/1/12 -12/31/12 9/30/11 - 9/30/12 8,527 17,084 3,696 6,975 4,104 7,830 4,902 8,527 17,084 1,489 1,747 2,052 3,255 4.863 8,527 17,084 2,978 3,493 4,104 6,509 4.863 53,11 8 39,017 8.541 47,558 61,748 93.243 93.926 28 ,839 47,647 8,541 56,188 10/1/11 - 9130/12 3,447 3,447 3,447 10/1 (11 - 9/30/12 180,004 106,724 106,724 1Ofl/11 - 9(30(12 26,305 15,911 15,911 10/1 /10 - 9/30/12 9130/11 - 9/30/12 Subtotal U.S. Department of Health and Human Services - Pass Thro ug h Programs 93.053 Pass Through Greater Wisconsin Agency on Ag ing Resources, Inc. Elderly Transportation Title IlI-B (2011 ) 93.044 93.044 Elderly Transportation Title IlI-B (2012) Elderly Transportation III-C-1 (2011 ) 93.045 Elderly Transportation III-C-1 (20 12) 93.045 Elderly Transportation III-C-2 (20 11) 93.045 Elderly Transportation III-C-2 (20 12) 93.045 Nutri tion Services Incentive Program 93.053 435.56035 435.56035 435.56036 435.56036 Subtotal Passed Thro ugh Greater Wiscons in Agency on Aging Resources, Inc. Subtotal Aging Cluster Immunization Clus ter: Passed through Wisco nsin Depa rtment of Healt h and Family Services Immunization 93.268 Temporary A ssistance for Needy Families (" TANF") Cluster: U.S. Department of Health and Human Services Direct Program: Temporary Assistance to Needy Families $ Federal Expenditures 47 ,679 Subtotal Passed Through Great Lakes Inter-Tribal Council, Inc. Aging Cluster: U.S. Department of Health and Human Services Direct Program : Special Programs for the Aging - Elderly Food Grant Amount Period 93.558 Community Service Block Grant Clus ter: Passed through Wisconsin Department of Workfo rce Development 93.569 Community Service Block Grants 65550 5 25,676 1,489 1,746 2,052 3,254 318,714 FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Schedule of Expenditu res of Federal, State and Local Awards Year Ended September 30, 20 12 Awarding Agency Pass Through Agency Award Description Child Care and Development Fund ("CCDF") Cluster: U.S. Department of Health and Human Services Direct Program : Child Care and Development Block Grant CCDF Bas ic Grant CFDA Number State 1 0 Number CARS Profile Number 93 .575 93 .596 10/1/1 1 - 9/30/12 10/1 /11-9/30/12 Passed Through Wisconsin Department of Children and Fam ilies Child Care Administralion 93.596 10/1/1 0 - 9130/ 12 29,702 23,443 $ $ Tota l Expenditures $ 29,702 23,443 99.329 86,414 86,414 32,220 31 ,154 16,110 31 ,060 16 ,109 32 ,219 31 ,060 63,374 47.170 16.109 63.279 7.379 ,101 5,503,171 50,326 5 ,553,497 10/1/11 - 9/30/12 10/1/1 1 - 9/30/12 460 t 2,61 9 13,079 4 60 12,619 13,079 Not Available 10/1/t 1 - 9130/12 16,460 14,669 14,669 435.56033 435.56033 435.65401 435.65510 435.65557 435.66320 435.66129 1/1f11-12131/11 1/1/12 - 12131/12 1 O/t /tl - 9/30/12 10/1/11 - 9/30/12 1011/11-9/30/12 10/1/11 - 9/30/12 10/1111 - 9/30/12 152 322 64,781 9,189 2,050 40,380 152 322 64,781 9 ,131 2,013 40,259 152 322 64,781 9 ,131 2,013 40 ,259 11 7,124 116,658 116,658 90 ,425 54,696 54,696 65402 66324 10/1/ 11 - 9130/ 12 1011/11 - 9130/12 Total U.S. Department of Health and Human Services 97 .042 97.042 65401 655 10 65557 66320 66129 Total Wisconsin Department of Health Services Wisconsin Department of Workforce Development Tribal Family Services Tribal Block Grant $ Local Expenditures 33 .269 Subtotal Medicaid Cluster Wisconsi n Department of Healt h and Family Services Senior Community Services (20 l l) Senior Community Services (2012) Tribal Medical Relief Block Grant Cooperative American Indian Health Diabetes Prevention Tribal Income Maintenance Funeral and Cemetery 36,557 28,853 State Expenditures 33,269 Medicaid Cluster: Passed through Wiscons in Department of Health and Family Services Medicaid Eligibility Outreach 93.778 435.65402 Tribal Income Maintenance 93.778 Wisconsin Department of Children & Families DCF - Kinship Care $ Federa l Expenditures 33,919 Subtotal CCDF Cluster U.S. Department of Homeland Security Passed Through Wisconsin Department of Military Affairs Wisconsin Emergency Management Emergency Management Performance Grant - Redistribution Emergency Management Performance Grant Total U.S. Department of Homeland Sec urity Grant Amount Period 435.65300 1011/11-9/30/12 6 460 12,619 13,079 ~ FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Expenditures of Federal, State and local Awards Year Ended September 30, 2012 Awarding Agency Pass Through Agency Award Description Wisconsin Department of Justice Law Enforcement (2011) Law Enforcement (2012) CFDA Number State ID Number CARS Profile Number 455.22700 455.22700 Grant Amount Period 1/1/ 11 - 12131 /11 1/1/12 -12/31/12 $ Tota l Wisconsin Department of Justice Wisconsin Department of Natu ral Resources DNR Recycl ing Grant Wisconsin Department of Transportation Elderly Transportation 12,310 12,453 Federal Expenditures $ l ocal Expenditures State Expenditures $ 6,155 10.753 $ Total Expenditures $ 6,155 10.153 24,763 16,908 16,908 370.66500 1/ 1/12 - 12131 /12 11 ,072 11 ,072 11 ,072 Not Available 1/1112 - 1213 1/12 45,000 8,061 8.061 Bureau of Indian Affairs Trust Fund - Sale of Timber from FCP Tribal Lands Not Available 10/1/11 - 9130/12 76 .044 23,004 23,004 Great l akes Inter-Tribal Counci l, Inc. Senior Medicare Patrol Rural Infant Health WI Native American Tobacco Network Not Available Not Available Not Avai lable 6/30/06 - 9/30/12 10/1 / 11 - 9130/12 10/1/11 - 9/30/12 1,166 6,000 3,405 1,166 8,000 1,046 1,166 8,000 1,046 12,571 10,212 10,212 69 ,692 15,051 15,051 Total Great l akes Inter-Tribal Council, Inc. Aging & Disability Resource Center of the Northwoods Aging Disabilities Resources Not Available Aspirus Health Foundation Kids Comm Move Not Available 03/30/12 - 09/30/13 9.000 750 750 Greater Wiscons in Agency on Aging Resources, Inc. Pharmaceutical Assistance Program Not Available 1,000 1,000 1.000 Wisconsin Focus on Energy Focus on Energy Efficiency Focus on Energy Efficiency Not Available 10/27/11 -1213 1/12 Not Available 2/3/11 - 6 /30/ 12 250,000 65,494 15,227 15,227 315,494 15,227 15,227 91 ,560 23 ,521 23 ,521 1/ 11/11 -12131 /13 711/11 - 6130/12 Total Wisconsin Focus on Energy WE Energies Solar Power System Not Available 3/18/ 11 - 3/17/12 Total Awards $ 7 15,460,016 $ 8,965,582 $ 273.136 $ 88.765 S 9,327,483 FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Notes to the Schedule of Expenditures of Federal, State and Local Awards September 30 , 2012 1. General The accompanying schedule of expenditures of federal , state and local awards represents the activity of all federal , state and local awards for the year ended September 30 , 2012. All federal , state and local awards received directly from the federal , state and local agencies as well as federal , state and local awards passed through other government agencies are included in the schedule for the year ended September 30 , 2012. 2. Basis of Accounting The accompanying schedule of federal and state awards is presented using the modified accrual basis of accounting ; whereby, revenues are recognized when earned and expenses are recorded as liabilities when incurred . Forest County Potawatomi Community applies all Governmental Accounting Standards Board pronouncements in accounting and reporting. 3. Cognizant Agency The U.S. Department of Health and Human Services has been designated the federal cognizant agency. 8 Steven R. Volz Daniel R. Brophey Thomas G. Wieland Michael W. Van Wagenen David A. Grotkin Joel A. Joyce Brian J. Mechenich Carrie A. Gindt Patrick G. Hoffert Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards and the State Single Audit Guidelines Tribal Legislature Forest County Potawatomi Community Crandon, Wisconsin We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Forest County Potawatomi Community as of and for the period ended September 30, 2012, which collectively comprise Forest County Potawatomi Community’s basic financial statements and have issued our report thereon dated June 28, 2013. We did not audit the financial statements of the Potawatomi Business Development Corporation activities for the year ended September 30, 2012 which is presented as a business-type activity of the Tribe for the period ended September 30, 2012. Those statements were audited by other auditors whose report has been furnished to us, and our opinion insofar as it relates to the amounts reported for the Potawatomi Business Development Corporation, is based solely on the report of the other auditors. Management has not included the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel financial statements. Accounting principles generally accepted in the United States of America require the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel to be presented as major enterprise funds and financial information about the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel to be part of the business-type activities, thus increasing that activity’s assets, liabilities, revenues and expenses, and changing its net assets. The amount by which this departure would affect the assets, liabilities, net assets, revenues and expenses of the business-type activities and the omitted major funds has been excluded for purposes of confidentiality. In our opinion, because of the omission of the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel, as discussed above, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Tribe as of September 30, 2012, or the changes in financial position or cash flows thereof for the period then ended. In addition, in our opinion, except for the effects of not including the financial information for the Potawatomi Bingo Casino and the Potawatomi Carter Casino Hotel as part of the business-type activities, as described above, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the Tribe as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the period then ended in conformity with accounting principles generally accepted in the United States of America. We conducted our audit 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 and the State Single Audit Guidelines, issued by the Wisconsin Department of Administration. 9 o Reilly, Penner & Benton LLP 1233 N. Mayfair Road Suite #302 • Milwaukee, WI 53226-3255 • 414-271-7800 www.rpb.biz Internal Control Over Financial Reporting Management of Forest County Polawatomi Community is responsible for establishing and maintaining effeclive internal control over financial reporting . In planning and performing our audit, we considered Forest County Potawatomi Community's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Forest County Potawatomi Community's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Forest County Potawatomi Community's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Forest County Potawatomi Community's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements , noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain other matters that we have reported to management of Forest County Potawatomi Community in a separate letter dated June 28, 2013. This report is intended for the information and used of the Tribal Legislature, management and federal and state awarding agencies and pass-through entities and is not intended and should not be used by anyone other than these specified parties. June 28, 2013 Milwaukee, Wisconsin 10 Steven R. Volz Daniel R. Brophey Thomas G. Wieland Michael W. Van Wagenen David A. Grotkin Joel A. Joyce Brian J. Mechenich Carrie A. Gindt Patrick G. Hoffert Independent Auditor’s Report on Compliance with Requirements That Could Have A Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and the State Single Audit Guidelines Tribal Legislature Forest County Potawatomi Community Crandon, Wisconsin Compliance We have audited Forest County Potawatomi Community’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement and the State Single Audit Guidelines, issued by the Wisconsin Department of Administration, that could have a direct and material effect on each of its major federal and state programs for the year ended September 30, 2012. Forest County Potawatomi Community’s major federal and state programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal and state programs is the responsibility of Forest County Potawatomi Community’s management. Our responsibility is to express an opinion on Forest County Potawatomi Community’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audit of States, Local Governments, and Nonprofit Organizations and State Single Audit Guidelines, issued by the Wisconsin Department of Administration. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal or state program occurred. An audit includes examining, on a test basis, evidence about Forest County Potawatomi Community’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Forest County Potawatomi Community’s compliance with those requirements. In our opinion, Forest County Potawatomi Community complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal and state programs for the year ended September 30, 2012. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2012-01 and 201202. 11 o Reilly, Penner & Benton LLP 1233 N. Mayfair Road Suite #302 • Milwaukee, WI 53226-3255 • 414-271-7800 www.rpb.biz Internal Control Over Compliance Management of Forest County Potawatomi Community is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations , contracts and grants applicable to federal and state programs. In planning and performing our audit, we considered Forest County Potawatomi Community's internal control over compliance with requirements that could have a direct and material effect on a major federal or state program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Forest County Potawatomi Community's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees , in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented , or detected and corrected , on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal, State and Local Awards We have audited the financial statements of the governmental activities , the business-type activities, each major fund, and the aggregate remaining fund information of Forest County Potawatomi Community ("Tribe"), as of and for the period ended September 30,2012, which collectively comprise the Tribe's basic financial statements , and have issued our report thereon dated June 28 , 2013 , which contained an unqualified opinion on the governmental activities and the aggregate remaining fund information and an adverse opinion on the business-type activities and major enterprise funds . Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise Forest County Potawatomi Community's basic financial statements . The schedule of expenditures of federal , state and local awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and is not a required part of the basic 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 audit of the basic 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 statement 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 schedule of expenditures of federal , state and local awards referred to above presents fairly, in all material respects, the expenditures of federal , state and local awards in conformity with accounting principles generally accepted in the United States of America. Forest County Potawatomi Community's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Forest County Potawatomi Community's responses and , accordingly, we express no opinion on the responses. This report is intended solely forthe information and use of the Tribal Legislature, management, and federal, state and local awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. June 28 , 2013 Milwaukee, Wisconsin 12 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Prior Year Audit Findings Year Ended September 30, 2012 Finding 2011-01 Prior Period Adjustment Condition: Based on management's review and reconciliation of account balances of the Wisconsin Potawatomi Housing Authority's deferred revenue balances , it was determined that the balances were misstated and a prior period adjustment was necessary. Criteria: The necessity of a prior period adjustment is indicative that internal controls may be inadequate to ensure the proper recording of all of the Tribe's financial transactions in accordance with generally accepted accounting principles . Effect: Management of the Tribe made an adjustment of the net assets of the Wisconsin Potawatomi Housing Authority as of July 1, 2011 . Questioned Costs: None Recommendation: The Tribe should implement additional internal control procedures to ensure the accuracy of financial statement amounts. Management's Response: Upon dissolution ofthe Wisconsin Potawatomi Housing Authority ("WPHA"), the internal office of the Tribe assumed the financial management of the WPHA However, prior to July 1, 2011 the WPHA had their own financial reporting responsibilities. The office of tribal government noted errors in reporting while reviewing financial records, specifically in relation to deferred revenues of the WPHA and recognized the necessity for a prior period adjustment to the July 1, 2011 net asset balance of the WPHA The Tribal government has implemented procedures to continue to monitor the financial reporting of the WPHA to ensure that financial statements of the WPHA are properly reported in accordance with generally accepted accounting principles. Status: This was not a finding in the current year. 13 FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Schedule of Findings and Questioned Costs Year Ended September 30, 2012 A. Summary of Auditors Results Financial Statements Adverse 1. Type of audilor's report issued: 2. Internal control over financial reporting : A. Material weakness(es) identified? No B. Significant deficiencies identified that are not considered to be material weakness(es)? No 3. Noncompliance material to financial statements? No Federal Awards 4. Internal control over major programs: A. Material weakness(es) identified? No B. Significant deficiencies identified that are not considered to be material weakness(es)? No 5. Type of auditor's report issued on compliance for major programs: 6. Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Unqualified Yes 7. Identification of major programs: CFDA Number(s) 14.867 66.605 81.087 93.210 93.563 Name of Federal Program or Cluster Indian Housing Block Grant Performance Partnership Grants Renewable Energy Research & Development Indian Health Services Child Support Enforcement 8. Dollar threshold used to distinguish between type A and type B programs 9. Auditee qualified as low-risk auditee? $300,000 Yes 14 FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Schedule of Findings and Questioned Costs Year Ended September 30 , 2012 A. Summary of Auditors Results (continued) State Awards 10. Internal control over major programs : A Material weakness(es) identified? No B. Significant deficiencies identified that are not considered to be material weakness(es)? 11. Type of auditor's report issued on compliance for major programs: No Unqualified 12. Any audit findings disclosed that are required to be reported in State Single Audit Guidelines? 13. Identification of major state programs: CFDA Number Name of State Program or Cluster 435.66320 Income Maintenance State Reimbursement 435.65401 Tribal Medical Relief Block Grant 15 No FOREST COUNTY POTAWATOMI COMMUNITY Crandon , Wisconsin Schedule of Findings and Questioned Costs Year Ended September 30 , 2012 B. Financial Statement Findings No matters noted C. Federal and State Award Findings and Questioned Costs 2012-01 Department: Department of Housing and Urban Development, Environmental Protection Agency and Department of Health and Human Services Program Name: Indian Housing Block Grants, Performance Partnership Grant. Tribal Self Governance and Child Support Enforcement Federal #: 14.867, 66 .605 , and 93 .563, respectively Criteria: OMB Circular A-87 states an employee who works, in whole or in part, on a federal program or cost objective must document their time and effort spent working on each federal program or cost objective. An employee who works solely on a single cost objective must furnish a semi-annual certification that he/she has been engaged solely in activities that support the single cost objective. An employee who works on multiple activities or cost objectives must complete a personnel activity report which demonstrates the amount of actual time spent working on the federal grant objectives , on at least a monthly basis . Condition: The Tribe was unable to provide sufficient time and effort reporting documentation for any employees who were funded by the Indian Housing Block Grant. Tribal Self-Governance or Child Support Enforcement grants. The Tribe furnished time and effort reporting for the Performance Partnership grant. however we noted one instance where there was no time and effort documentation completed by an employee. Cause: The Tribe was unaware of the compliance requirement requiring their employees to certify their hours. Effect: Without adequate time and effort documentation , federal grantors cannot be assured salaries and wages charged to their programs are accurate and valid. This could jeopardize future federal funding. Questioned Costs: None Recommendation: We recommend the Tribe implement a process to track employees' time and effort worked on federal programs. An employee who works solely on a single cost objective must furnish a semi-annual certification that he/she has been engaged solely in activities that support the single cost objective . An employee who works on multiple activities or cost objectives must complete a personnel activity report which demonstrates the amount of actual time spent working on the federal grant objectives, on at least a monthly basis . Management's Response : The Tribe has developed new internal accounting controls to address the issues in the finding . Employees who work solely on a single cost objective are now required to complete certifications oftheir time. Employees who work on multiple activities, where there is no time study or an agreed upon allocation with the granting agency does not exist, will be required to document their activity through the time clock system each week. 16 FOREST COUNTY POTAWATOMI COMMUNITY Crandon, Wisconsin Schedule of Findings and Questioned Costs Year Ended September 30 , 2012 C. Federal and State Award Findings and Questioned Costs (continued) 2012·02 Department: Environmental Protection Agency Program Name: Performance Partnership Grant Federal #: 66.605 Criteria: Office of Management and Budget Circular A·87 states the cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, holidays, court leave, military leave and other similar benefits are allowable if the costs are equitably allocated to all related activities, including federal awards. Condition: The Tribe claimed federal reimbursement for employee leave time that did not comply with federal OMB Circular. In our sample , we noted 14 instances from our sample of 25 payroll records in which holiday, vacation and sick pay was not properly allocated between the federal grant and the other cost objectives the employee works on. Instead , the federal grant was charged for the entire amount. Cause: The Tribe did not manually adjust the cost objective the paid leave was charged to. Instead, the computer system defaulted the leave time to be charged to the federal grant in full. Effect: Unallowable costs were charged to the federal grant which could jeopardize future federal funding. Questioned Costs: Excused leave time improperly charged to the grant totaled $5 ,243 , as calculated based on the discrepancies noted during the review of time cards. Time cards examined approximated 8% of total personnel costs charged to the grant. Recommendation: We recommend the Tribe implement a process to properly allocate excused leave time to each of the employee's cost objectives. Management's Response: The Performance Partnership Grant #66 .605 has a fiscal year different from the Tribe's . The grant year ended March 31,2013. The Tribe has corrected the error in its final report to the granting agency and the costs have not been charged to the grant. The finding is based upon an error in the payroll system where an employee who works on multiple activities was improperly assigned to the grant as his default payroll code. The Tribe has corrected this classification to prevent such an error. In addition , the Tribe has instituted internal accounting controls to verify time charged to each grant through the time clock entry system and now allocates excused leave time accordingly. 17