PENNSYLVANIA eHEALTH PARTNERSHIP AUTHORITY
[44 Pa.B. 8070]
[Saturday, December 27, 2014]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pennsylvania eHealth Partnership Authority
We have audited the accompanying financial statements of the business-type activities of the PENNSYLVANIA eHEALTH PARTNERSHIP AUTHORITY (''The Authority''), a component unit of the Commonwealth of Pennsylvania, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Authority as of June 30, 2014, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Adoption of Governmental Accounting Standards Board Statements
As discussed in Note 1 to the financial statements, during the year ending June 30, 2014, The Authority adopted the provisions of Governmental Accounting Standards Board's Statement No. 65, ''Items Previously Reported as Assets and Liabilities'', Statement No. 66, ''Technical Corrections—2012—An Amendment of GASB Statements No. 10 and No. 62'', Statement No. 67, ''Financial Reporting for Pension Plans—an amendment of GASB Statement No. 25'', and Statement No. 70 ''Accounting and Financial Reporting for Nonexchange Financial Guarantees''. Our opinion is not modified with respect to these matters.
Omission of Management's Discussion and Analysis
Management has omitted the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the basic financial statements is not affected by this missing information.
ZELENKOFSKE AXELROD LLC
October 1, 2014
STATEMENT OF NET POSITION
JUNE 30, 2014
ASSETS Investments $ 2,222,219 Interest Receivable 303 Due from Primary Government 2,000,007 Grants Receivable 8,567,280 Other Asset 131
TOTAL ASSETS 12,789,940
LIABILITIES Current Liabilities: Accounts Payable 144,624 Due to Primary Government 8,566,764 Other Liabilities 2,619 Noncurrent Liabilities: Compensated Absences 51,476
TOTAL LIABILITIES 8,765,483
NET POSITION Restricted 4,024,457
TOTAL NET POSITION $ 4,024,457
The accompanying notes are an integral part of the financial statements.
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2014
Operating Revenues Grantee Contributions $ 464,500 Contributions: PA eHealth Collaborative 1,539,669 Commonwealth 2,000,000 Intergovernmental Revenue 8,477,741
TOTAL OPERATING REVENUES 12,481,910
Operating Expenses Personnel 913,929 Operations 9,347,116
TOTAL OPERATING EXPENSES 10,261,045
OPERATING INCOME 2,220,865
Nonoperating Revenues Interest income 3,623
NONOPERATING REVENUES 3,623
Increase in Net Position 2,224,488 NET POSITION, Beginning of Year 1,799,969
NET POSITION, End of Year $ 4,024,457
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014
Cash Flows from Operating Activities: Cash receipts from contributions $ 4,004,169 Cash receipts from intergovernmental revenues 11,963 Cash paid for personnel services (890,602) Cash paid for operating expenses (2,768,064)
Net cash provided by operating activities 357,466
Cash Flows from Investing Activities: Net investment activity (361,032) Interest on investments 3,566
Net cash used in investing activities (357,466) Change in cash — Cash, Beginning of Year — Cash, End of Year $ —
Reconciliation of Operating Income to Cash Flows Provided by Operating Activities: Operating Income $ 2,220,865 Adjustments to reconcile operating income to net cash provided by operating activities: Effects of changes in operating assets and liabilities: Grants receivable (8,465,778) Accounts payable 144,471 Other Assets (131) Due to primary government 6,432,093 Compensated absences 23,327 Other Liabilities 2,619
Net cash provided by operating activities $ 357,466 ______ ______
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2014
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Pennsylvania eHealth Partnership Authority (the ''Authority'') was established by Act 121 of 2012 (effective July 5, 2012), as an independent agency of the Commonwealth of Pennsylvania (the ''Commonwealth''). The Authority took over the work of its predecessor, the PA eHealth Collaborative, a separate fund of the Commonwealth. The purpose of the Authority is to improve healthcare delivery and healthcare outcomes in Pennsylvania by providing, as appropriate, leadership and strategic direction for public and private, federally-funded and state-funded investments in health information technology (HIT) initiatives, including health information exchange (HIE) capabilities and other related HIT initiatives.
The Commonwealth of Pennsylvania, Governor's Office of Health Care Reform/Office of the Budget received a federal award of $17,140,446 (Award #90HT0015/01). The project and budget period of this award was February 8, 2010 through February 7, 2014. This funding was provided under the American Recovery and Reinvestment Act of 2009, Title XIII—Health Information Technology, Subtitle B-Incentives for the Use of Health Information Technology, Section 3013, State Grants to Promote Health Information Technology.
With the establishment of the Authority, the remaining federal award was reallocated from the Commonwealth to the Authority. The issue date of the Notice of Award was September 18, 2014, effective for expenses incurred from August 1, 2013 through October 17, 2014. The amount of the Notice of Award was $8,836,739.
The Authority's operations are administered by a board of directors consisting of fifteen members including the following: the Secretary of Health or a designee; the Secretary of Public Welfare, or a designee; seven members are appointed by the Governor; three members are appointed by the President pro tempore of the Senate, in consultation with the Majority and Minority Leaders of the Senate; and three members are appointed by theSpeaker of the House of Representatives, in consultation with the Majority and the Minority Leaders of the House of Representatives.
The Authority is a component unit of the Commonwealth reporting entity due to the Commonwealth's ability to impose its will on the Authority. The Authority is presented as an enterprise fund on the accrual basis of accounting.
B. Measurement Focus and Basis of Accounting
The Authority follows Generally Accepted Accounting Principles (GAAP). GAAP allows specialized accounting for government entities, which is governed by pronouncements set by the Government Accounting Standards Board (GASB).
The Authority is considered a special-purpose government since it is engaged solely in business-type activities under GASB Statement No. 34. The Authority's financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Under the accrual basis of accounting revenues are recorded when earned and expenses are recorded when they have been incurred. The statements are intended to report the Authority as an economic unit that includes all measurable assets and liabilities, financial and capital, of the institution.
All activities of the Authority are accounted for within a single proprietary (enterprise) fund. A proprietary fund is used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination or revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, account ability, or other purpose.
The Authority follows the Government Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis. Within the Statements of Revenues, Expenses and Changes in Net Position, Statement No. 34 requires operating income and expenses to be separated from non-operating income in order to show net operating income. Operating income and expenses are defined as those activities directly related to the Authority's primary business of providing employment through economic development lending. Non-operating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from non-exchange transactions, such as investment income/loss.
When an expense is incurred for purposes for which both restricted and unrestricted net positions are available, the Authority's policy is to apply restricted net position first, then unrestricted net position as they are needed.
C. Net Position
Restricted Net Position—This category presents external restrictions imposed by creditors, grantors, contributors or laws and regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.
The Authority values its investments at fair value. The fair value of the Authority's investments are based upon values provided by external investment managers and quoted market prices.
E. Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
F. Statement of Cash Flows
The Authority considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.
G. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority did not have an item that qualifies for reporting in this category.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority did not have an item that qualifies for reporting in this category.
H. Adoption of Governmental Accounting Standards Board Statements
In March 2012, the GASB issued Statement No. 65, ''Items Previously Reported as Assets and Liabilities''. The adoption of this statement had no effect on the previous reported amounts.
In March 2012, the GASB issued Statement No. 66, ''Technical Corrections—2012—An Amendment of GASB Statements No. 10 and No. 62''. The adoption of this statement had no effect on the previous reported amounts.
In June 2012, the GASB issued Statement No. 67, ''Financial Reporting for Pension Plans—an amendment of GASB Statement No. 25''. The adoption of this statement had no effect on the previous reported amounts.
In April 2013, the GASB issued Statement No. 70 ''Accounting and Financial Reporting for Nonexchange Financial Guarantees''. The adoption of this statement had no effect on the previous reported amounts.
I. Pending Changes in Accounting Principles
In June 2012, the GASB issued Statement No. 68, ''Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27''. The Authority is required to adopt statement No. 68 for its fiscal year 2015 financial statements.
In January 2013, the GASB issued Statement No. 69, ''Government Combinations and Disposals of Government Operations''. The Authority is required to adopt Statement No. 69 for its fiscal year 2015 financial statements.
In November 2013, the GASB issued Statement No. 71 ''Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68''. The Authority is required to adopt Statement No. 71 for its fiscal year 2015 financial statements.
The Authority has not yet performed analysis to determine the impact of these statements.
NOTE 2: DEPOSIT AND INVESTMENT RISK
The Commonwealth's fiscal code, as amended, authorizes the Authority to invest in obligations of the U.S. government and government-sponsored agencies and instrumentalities; certificates of deposits, fully insured or collateralized; certain commercial paper and repurchase agreements; highly rated bank promissory notes or investment funds or trusts; and ''prudent man'' investments as determined by the Authority's depository (i.e. Commonwealth Treasury Department).
All of the Authority's investments are invested in the Common Investment Pool of the Commonwealth which is managed by the Commonwealth's Treasury Department (the Treasury Department).
The deposit and investment policies of the Treasury Department are governed by Sections: 301, 301.1 and 505 of the Pennsylvania Fiscal Code (Act of 1929 P. L. 343), and Section 321.1 of the Pennsylvania Administrative Code (Act of 1929 P. L. 177. No. 175).
Treasury deposits must be held in insured depositories approved by the Board of Finance and Revenue and must be fully collateralized. The Fiscal Code grants the Treasury Department the authority to invest in any deposits and investments subject. This authority is subject, however, to the exercise of that degree of judgment and care under the circumstances then prevailing which persons of prudence, discretion and intelligence who are familiar with such matters exercise in the management of their own affairs not in regard to speculation but in regard to the permanent disposition of the funds considering the probable income to be derived therefrom as well as the probable safety of their capital. Treasury Department deposits and investments may include equity securities and mutual funds.
As of June 30, 2014, the Treasury Department manages the Commonwealth Investment Program (CIP). Treasury is required to exercise careful judgment in determining those investments that are appropriate for each Commonwealth fund based upon distinct investment criteria such as income needs, cash flow requirements, investment time horizons, and risk tolerance. All investments are made in accordance with the statutory authority described in the preceding paragraph. The CIP investment pool structure invests in both equity securities and fixed income securities to achieve the investment objectives of the funds of the Commonwealth Investment Program. Asset allocation targets among cash, equity securities, fixed income securities and alternative are established in order to meet these overall objectives.
Treasury has created two separate Pools within the Commonwealth Investment Program, each with its own distinct investment strategies, goals, and holdings that reflect the differing needs of Commonwealth funds for income, cash flows, and investment risk tolerance. A highly liquid vehicle, Pool 99, consists of short-term fixed income and cash and provides a high degree of liquidity and security but only modest returns. A less liquid vehicle, Pool 198, allows for investment in assets that offer potentially higher returns with commensurate risk.
As of June 30, 2014, the Authority's investments held in the Commonwealth Investment Pool was $2,222,219.
NOTE 3: RETIREMENT BENEFITS
Act 121 of 2012, section 303 states that the Authority shall ''employ individuals as necessary to carry out the purposes of the Act; individuals employed by the Authority shall be considered employees of the Commonwealth for the purposes of 71 PA.C.S. Pt. XXV.''
As such, all employees of the Authority participate in the Commonwealth of Pennsylvania State Employees' Retirement System (SERS), a cost-sharing multiple-employer public employee retirement system that was established under the provisions of Public Law 858, No. 331. It is a defined benefit plan that is funded through a combination of employee contributions, employer contributions and investment earnings. Membership in SERS is mandatory for all Authority employees which provides retirement, death, and disability benefits.
Article II of the Pennsylvania Constitution provides the General Assembly the authority to establish or amend benefit provisions. Act 2001-9, signed into law on May 17, 2001, established Class AA membership whereby, generally, annual full retirement benefits for electing active members is 2.5% of the member's highest three-year average salary (final average salary) multiplied by years of service. Authority employees hired after June 30, 2001, but before January 1, 2011, are Class AA members. Members hired on or before June 30, 2001 had the option, but were not required, to elect Class AA membership.
Those members not electing Class AA membership are considered Class A. The general annual benefit for full retirement for Class A members is 2% of the member's final average salary multiplied by years of service. Retirement benefits for Class A and AA employees vest after five years of credited service. Class A and AA employees who retire at age 60 with three years of service or with 35 years of service if under age 60 are entitled to an unreduced annual retirement benefit.
Act 120, signed into law on November 23, 2010, established Class A-3 and Class A-4 memberships. Effective January 1, 2011, all new members to SERS must elect one of these new membership classes. New members who elect Class A-3 will accrue benefits at 2% of their final average salary multiplied by years of service. Those members choosing Class A-4 will accrue benefits at 2.5% of their final average salary multiplied by years of service. Under Act 120, retirement benefits for Class A-3 and A-4 vest after ten years of credited service. Class A-3 and A-4 members who retire at age 65 with three years of service or when the member's age (last birthday) plus his/her completed years of credit service total at least 92 (Rule of 92) are entitled to an unreduced annual retirement benefit.
Covered Class A, Class AA, Class A-3 and A-4 employees are required by statute to contribute to SERS at a rate of 5%, 6.25%, 6.25% and 9.3% respectively, of their gross pay. Employees' contributions are recorded in individually identified accounts, which are also credited with interest, calculated quarterly to yield 4% per annum, as mandated by statute. Accumulated employee contributions and credited interest vest immediately and are returned to the employee upon termination of service if the employee is not eligible for other benefits.
Participating agency contributions, including those for the Authority, are also mandated by statute and are based upon an actuarially determined percentage of gross pay that is necessary to provide SERS with assets sufficient to meet the benefits to be paid to SERS members.
A copy of SERS's annual financial statements can be obtained by writing to: State Employees' Retirement System, 30 North Third Street, P.O. Box 1147, Harrisburg, Pennsylvania 17108-1147. Additional information about SERS, including its CAFR and actuarial valuation reports, are available at www.sers.state.pa.us.
NOTE 4: RELATED PARTY
The Authority entered into an Interagency Agreement with the Commonwealth, through the Commonwealth Office of Administration to provide administrative and operational support services for the Authority. The Authority owns no capital assets; the employees performing service for the Authority are Commonwealth employees. As such, under the Interagency Agreement, the Authority reimburses the Commonwealth for services rendered by Commonwealth employees to the Authority. For the fiscal year ended June 30, 2014, the services provided by the Commonwealth to the Authority are recorded as Personnel Services totaled $913,929. As of June 30, 2014, the Authority owed the Commonwealth $8,566,764 for personnel and operating expenditures incurred and paid for by the Commonwealth.
NOTE 5: CONTINGENCIES
In the normal course of business, there may be various claims and suits pending against the Authority and its appointed officials. Management is of the opinion that these matters, if any, will not have a material adverse effect on the Authority's financial position at June 30, 2014.
Formal commitment of federal funding by the Department of Health and Human Services was made to the Commonwealth in a grant agreement dated February 8, 2010. As the Authority has become a separate reporting entity, the Authority applied for the reallocation of the remaining grant funds from the Commonwealth to the Authority. As of June 30, 2014, the Authority recognized a receivable and intergovernmental revenue from the Department of Health and Human Services in the amounts of $8,567,280 and $8,477,741, respectively. The Authority also receives a significant amount of operating revenue from contributions, primarily in matching funds under previous grant agreements. For fiscal year ending June 30, 2014, the Authority received $464,500 in contributions from grant participants. Reduction of, or loss of, these funding sources could have a significant effect on the Authority's operations.
NOTE 6: PROGRAM OPERATIONS
The program operation expenses consist of the following:
P3N Costs $ 4,855,355 Staff Augmentation 508,555 Federal Payments to For Profit Entities 2,053,628 Other Program Operations 1,929,578 $ 9,347,116 __________ __________
NOTE 7: COMMONWEALTH APPROPRIATION
For fiscal year 2013-2014, the Commonwealth of Pennsylvania approved a $2.2 million appropriation from the Commonwealth to the PA eHealth Partnership Authority. Due to revised revenue estimates by the Commonwealth, the appropriation was amended to $2 million which is reflected in the Commonwealth contribution line on the financial statements.
DAVID F. SIMON,
[Pa.B. Doc. No. 14-2705. Filed for public inspection December 26, 2014, 9:00 a.m.]
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