GOODWILL INDUSTRIES, INC. AND AFFILIATE€¦ · We have audited the accompanying consolidated financial statements of Goodwill Industries, Inc. and affiliate (collectively, Goodwill),

GOODWILL INDUSTRIES, INC.

AND AFFILIATE

Consolidated Financial Statements

DECEMBER 31, 2015

(WITH INDEPENDENT AUDITOR’S REPORTS)

GOODWILL INDUSTRIES, INC. AND AFFILIATE

Table of Contents

Page

Independent Auditor’s Report 1

Consolidated Financial Statements:

Consolidated Statement of Financial Position 3

Consolidated Statement of Activities 4

Consolidated Statement of Program Revenues and Functional Expenses 5

Consolidated Statement of Cash Flows 6

Notes to Consolidated Financial Statements 7

Supplemental Information

Schedule of Expenditures of Federal Awards and Note to Schedule 18

Independent Auditor’s 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 19

Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control

over Compliance Required by the Uniform Guidance 21

Schedule of Findings and Questioned Costs 23

INDEPENDENT AUDITOR’S REPORT

The Board of Trustees

Goodwill Industries, Inc. Omaha, Nebraska:

Report on Financial Statements

We have audited the accompanying consolidated financial statements of Goodwill Industries, Inc. and

affiliate (collectively, Goodwill), which comprise the consolidated statement of financial position as of December 31, 2015, and the related consolidated statements of activities, program revenues and functional

expenses, and cash flows for the year then ended, and the related notes to the consolidated financial

statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the consolidated financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the

assessment of the risks of material misstatement of the consolidated 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 consolidated 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

consolidated financial statements.

2

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of Goodwill Industries, Inc. and affiliate as of

December 31, 2015, and the changes in their net assets, and their cash flows for the year then ended, in accordance with accounting principles generally accepted in the Unites States of America.

Other Matters

Prior Period Adjustment

As part of our audit of the 2015 financial statements, we also audited the adjustment described in Note 13 that was applied to beginning net assets and relates to the 2014 financial statements. In our opinion, such

adjustment is appropriate and has been properly applied.

Supplemental Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as

a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit

Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required

part of the consolidated 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

consolidated financial statements. The information has been subjected to the auditing procedures applied in

the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare

the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated May 12, 2016,

on our consideration of Goodwill’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 internal control over

financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Goodwill’s internal control over financial reporting

and compliance.

Omaha, Nebraska

May 12, 2016

AssetsCurrent assets:

Cash and cash equivalents $ 815,645 Accounts receivable - contracts 924,391 Federal grants receivable 482,641 Prepaid expenses and other assets 718,265 Inventory 1,283,513

Total current assets 4,224,455

Debt issue costs, net 337,232 Investments 3,295,464 Property and equipment, net 39,973,321 Other assets 920,240

Total assets $ 48,750,712

Liabilities and Net AssetsCurrent liabilities:

Accounts payable $ 546,777 Accrued liabilities 1,908,499 Current installments of long-term debt 905,036

Total current liabilities 3,360,312

Long-term debt, excluding current installments 19,471,748 Deferred compensation liability 1,152,752

Total liabilities 23,984,812

Net assets:Unrestricted 24,183,825 Temporarily restricted 489,206 Permanently restricted 92,869

Total net assets 24,765,900

Total liabilities and net assets $ 48,750,712

See accompanying notes to consolidated financial statements.

December 31, 2015


Consolidated Statement of Financial Position

3


Consolidated Statement of Activities

Year ended December 31, 2015

Temporarily PermanentlyUnrestricted restricted restricted Total

Changes in net assets:Revenue and support:

Contributions $ 302,441 350,561 — 653,002 Goods contributed for sale 10,801,689 — — 10,801,689 Retail sales 19,441,279 — — 19,441,279 Cost of goods sold (11,296,160) — — (11,296,160) Salvage 905,639 — — 905,639 Contract services fees 4,996,429 — — 4,996,429 Employment and training fees 4,247,767 — — 4,247,767 Special events revenue 143,495 — — 143,495 Recycling 74,307 — — 74,307 Net investment income 50,975 — — 50,975 Net realized and unrealized losses

on investments (32,698) (5,591) — (38,289) Miscellaneous revenue 23,071 — — 23,071 Net assets released from restriction 99,036 (99,036) — —

Total revenue and support 29,757,270 245,934 — 30,003,204

Expenses:Program services:

Retail sales and salvage 16,190,770 — — 16,190,770 Contract services 4,858,533 — — 4,858,533 Employment and training 4,718,454 — — 4,718,454

Support services: — — General and administrative 3,555,307 — — 3,555,307 Fundraising 560,302 — — 560,302

Total expenses 29,883,366 — — 29,883,366

Net increase (decrease)in net assets (126,096) 245,934 — 119,838

Net assets at beginning of year

as previously reported 23,537,712 243,272 92,869 23,873,853

Prior period adjustment 772,209 — — 772,209

Net assets at beginning of year

as restated 24,309,921 243,272 92,869 24,646,062

Net increase (decrease) in net assets (126,096) 245,934 — 119,838

Net assets at end of year $ 24,183,825 489,206 92,869 24,765,900


4


Consolidated Statement of Program Revenues and Functional Expenses


Program servicesRetail Contract services Employment and training Support services

sales and Commercial Other Ability One Federal General and Totalsalvage contracts contracts contracts Total Traditional grants* Total administrative Fundraising 2015

Program revenue $ 19,926,754 225,500 818,074 4,303,177 5,346,751 1,161,544 3,086,223 4,247,767 35,757 796,497 30,353,526 Eliminations — — (350,322) — (350,322) — — — — — (350,322) Transfers — — — — — — 108,996 108,996 (108,996) — —

Total program revenue $ 19,926,754 225,500 467,752 4,303,177 4,996,429 1,161,544 3,195,219 4,356,763 (73,239) 796,497 30,003,204

Functional expenses:Salaries $ 7,414,762 127,976 527,699 1,990,258 2,645,933 592,397 1,581,396 2,173,793 1,684,178 370,201 14,288,867 Payroll taxes 750,589 9,697 53,861 211,422 274,980 63,107 176,737 239,844 123,800 24,563 1,413,776 Employee benefits 1,028,996 24,055 90,026 603,539 717,620 116,746 263,184 379,930 580,771 43,315 2,750,632 Utilities 869,920 10,226 11,765 30,925 52,916 22,777 50,085 72,862 103,372 5,866 1,104,936 Rent 1,245,300 36,598 19,439 9,737 65,774 10,002 21,061 31,063 1,903 — 1,344,040 Maintenance and repairs 1,005,234 769 50,743 343,109 394,621 923 8,821 9,744 40,734 1,236 1,451,569 Vehicles 163,008 742 17,816 5,892 24,450 — 47,437 47,437 6,736 — 241,631 Supplies 750,919 27,723 34,876 566,867 629,466 52,221 122,054 174,275 154,090 9,791 1,718,541 Insurance 172,127 2,042 12,372 43,081 57,495 13,742 42,726 56,468 52,069 8,131 346,290 Public relations 517 — 1,103 — 1,103 — — — 74,177 32,559 108,356 Advertising 319,655 — 1,419 — 1,419 90 — 90 10,675 — 331,839 Travel 35,870 1,541 5,458 10,160 17,159 6,436 28,309 34,745 63,597 16,467 167,838 Professional services 64,919 17 34 12,795 12,846 1,773 142,798 144,571 227,494 16,895 466,725 Student stipends — — — — — 68,496 1,089,058 1,157,554 — 1,478 1,159,032 Postage 109,269 183 575 48 806 274 1,202 1,476 6,959 3,982 122,492 National dues 106,096 1,235 4,860 167,758 173,853 4,495 19,345 23,840 — — 303,789 Depreciation 1,271,275 7,689 19,449 100,220 127,358 25,194 89,774 114,968 255,031 12,954 1,781,586 Interest 466,142 — — — — 1,364 9,168 10,532 51,943 2,645 531,262 Other 416,172 372 3,493 7,191 11,056 6,701 38,561 45,262 117,778 10,219 600,487 Eliminations — — (350,322) — (350,322) — — — — — (350,322)

Total functionalexpenses $ 16,190,770 250,865 504,666 4,103,002 4,858,533 986,738 3,731,716 4,718,454 3,555,307 560,302 29,883,366

* These amounts do not represent allowable federal expenditures.

See accompanying notes to consolidated financial statements

5


Consolidated Statement of Cash Flows


Cash flows from operating activities:

Net increase in net assets $ 119,838

Adjustments to reconcile net increase in net assets to net cashprovided by operating activities:

Depreciation and amortization 1,800,495 Other 59,984

Decrease (increase) in:Accounts receivable - contracts (234,242) Federal grants receivable (237,013) Prepaid expenses and other assets (203,265) Inventory (25,655)

Increase (decrease) in:Accounts payable (121,263) Accrued liabilities 380,482 Deferred compensation liability 189,965

Net cash provided by operating activities 1,729,326

Cash flows from investing activities:Purchases of property and equipment (504,426) Proceeds from sale of property and equipment 10,900 Proceeds from sale of investment securities 153,996 Purchases of investment securities (123,213)

Net cash used in investing activities (462,743)

Cash flows from financing activities:Payment of obligations under long-term debt (883,300)

Net increase in cash and cash equivalents 383,283

Cash and cash equivalents at beginning of year 432,362

Cash and cash equivalents at end of year $ 815,645

Supplemental disclosure of cash flow information:

Cash paid during the year for interest $ 531,262


6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

7

(1) Summary of Significant Accounting Policies

(a) Organization and Basis of Presentation

Goodwill Industries, Inc. (Goodwill Industries) was incorporated on November 17, 1933 as a nonprofit corporation with the primary purpose of providing education, employment, training,

rehabilitation, and opportunities for personal growth to people with vocational disadvantages. On

February 16, 2000, Goodwill Specialty Services, Inc. (GSSI) was organized, under Section 501(c)(3) of the Internal Revenue Code of 1986, for the primary purpose of providing employment and

training services previously provided by Goodwill Industries. Goodwill Industries and GSSI operate

under common management and control and share operating and economic resources. Consequently,

the accompanying consolidated financial statements include the consolidated financial position, changes in net assets, and cash flows of Goodwill Industries and GSSI (collectively and hereafter,

Goodwill). All significant intercompany accounts and transactions have been eliminated in the


Goodwill’s primary activities include the following programs:

Ability One Contracts – Under the auspices of Ability One, Goodwill provides custodial

services for the Edward Zorinsky Federal Building in Omaha; Offutt Air Force Base and the StratCom Headquarters Building near Bellevue; and the Robert Denney Federal Building in

Lincoln. Goodwill also provides mail scanning and delivery and base locator services at Offutt

Air Force Base, grounds maintenance at the Department of Veterans Affairs Omaha and Grand Island campuses, and laundry services for Veterans Affairs Omaha and Des Moines

campuses. The Javits-Wagner-O’Day Act requires that, agency wide, 75% of direct labor be

performed by persons with severe disabilities. These workers are paid a percentage of the prevailing community wage for their services commensurate with their measured productivity.

GSSI is the provider of services delivered under the auspices of Ability One.

Employment and Training – Traditional Career Development services include Situational

Assessment and Work Experience, which serve students in special education programs in the public school systems. Through a combination of work and classroom activities, students are

prepared for the transition from school to work.

The Adult Career Services program is funded by a Workforce Investment grant and assists

those unemployed and underemployed in obtaining self-supporting employment. This is

accomplished by offering personalized services that address educational and employment goals that will lead to a job and increased retention at that job.

Partnership for Youth Development is funded by a Workforce Investment grant and provides

employment services to low-income youth aged 16–21. Participants in this program receive job training, support, and career exploration, eventually leading to full-time employment.



DECEMBER 31, 2015

8

Retail Operations (Stores and Salvage) – Goodwill operates 17 retail stores open to the public

– 10 in Omaha and one each in Council Bluffs, Iowa, and Fremont, Blair, Bellevue, and Gretna, Nebraska. There are also two stores in Papillion. There were no new stores opened

in 2015. The general public donates clothing, furniture, and household goods to Goodwill, and

Goodwill employees sort, price, and distribute this merchandise for sale in the retail stores. Merchandise that does not sell within a reasonable time in the stores, other than the Goodwill

WearHouse, is transferred to the Goodwill WearHouse store where it is offered for sale at a

specified price per pound. Whenever possible, goods determined not to be saleable in the Goodwill stores are “salvaged” and sold to third parties, who either ship and sell the goods to

third-world or other markets or recycle them for their component textile, metal, or other

recyclable materials. Profits generated from the sale of donated goods are used to help cover

expenses associated with Goodwill’s various employment and training programs.

(b) Basis of Presentation

The accompanying consolidated financial statements of Goodwill, which are presented on the accrual basis of accounting, have been prepared to focus on Goodwill as a whole and to present

balances and transactions according to the existence or absence of donor-imposed restrictions. This

has been accomplished by classification of net assets and transactions into three classes of net assets:

permanently restricted, temporarily restricted, and unrestricted.

(c) Net Asset Classifications

Net assets and revenue, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and the changes therein are classified as

follows:

Unrestricted Net Assets – Net assets and contributions not subject to donor-imposed

stipulations.

Temporarily Restricted Net Assets – Net assets and contributions subject to donor-imposed

stipulations that may or will be met by actions of Goodwill and/or the passage of time. After

the donor-imposed time or purpose restriction is satisfied, temporarily restricted net assets are

reclassified to unrestricted net assets and reported in the consolidated statements of activities

as net assets released from restrictions.

Permanently Restricted Net Assets – Net assets and contributions subject to donor-imposed

stipulations that they be maintained permanently by Goodwill. Generally, the donors of these

assets permit Goodwill to use all or part of the income earned on related investments for

general or specific purposes.

Revenue is reported as an increase in unrestricted net assets unless use of the related assets is limited

by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in

unrestricted net assets unless their use is restricted by donor stipulation or by law. When a donor

restriction expires, that is, when a stipulated time restriction ends or purpose restriction is

accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions.



DECEMBER 31, 2015

9

(d) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and in banks, certificates of deposit, and all highly

liquid investment securities with a maturity date of three months or less at their time of purchase.

(e) Inventory

Inventory consists of donated items and goods purchased for resale. Management estimates the fair

value of donated items using a gross margin method. Goods purchased for resale are reported at the lower of cost, using the first in, first out method, or net realizable value.

(f) Debt Issue Costs

Debt issue costs are recognized on a straight-line basis over the life of the related debt, which does not differ materially from the effective-interest method.

(g) Investments Investments are carried at fair value. The fair values of investments are measured using market

prices at the reporting date multiplied by the quantity held. Investment income or loss (including

realized and unrealized gains and losses on investments, interest, and dividends) is included as an

increase or decrease to unrestricted net assets unless the income or loss is restricted by donor or law. If income is designated by a donor, it is recognized in the appropriate net asset classification.

Goodwill invests in securities exposed to interest rate, market and credit risks. Accordingly, it is at least reasonably possible that changes in the values of investment securities will occur in the near

term and such changes could materially affect the amounts reported in the statement of net assets.

(h) Property and Equipment

Property and equipment are recorded at cost at the date of acquisition or at fair value at date of

donation. Depreciation is based on the estimated useful lives of the assets (ranging from 3 to

39 years) and is computed using the straight-line method.

(i) Contributions

Contributions, including unconditional promises to give due in future periods, are recognized as revenue in the reporting period received.

Contributions received with donor-imposed restrictions that are met in the same year as the contribution is received are reported initially as revenue of the temporarily restricted net asset class,

and a reclassification to unrestricted net assets is made to reflect the expiration of such restrictions.

Contributions of property and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenue of the unrestricted net asset class. Contributions of assets

other than cash are recorded at their estimated fair value at the date received. Contributions of cash

or other assets to be used to acquire property and equipment are reported as revenue of the temporarily restricted net asset class; the restrictions are considered to be released at the time of

acquisition of such long-lived assets.

Goodwill has estimated the fair value of goods and materials contributed for resale and recognized contribution revenue of $10,801,689 during 2015. Revenue from the sale of these items is reported

in the unrestricted net asset class at the time of sale.



DECEMBER 31, 2015

10

(j) Contract Service Fee Revenue Contract service fee revenue and receivables are recognized as services are performed and are

considered fully collectible by Goodwill management.

(k) Federal Grant Revenue

Federal grant revenue and receivables are recognized when eligibility requirements have been met,

which is primarily when expenditures are incurred and are considered fully collectible by Goodwill management.

(l) Functional Expense Allocation

The costs of providing the various programs and other activities of Goodwill have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have

been allocated among the programs and supporting services benefited.

(m) Federal Income Tax Status

Goodwill Industries, Inc. and GSSI are recognized as not-for-profit corporations as described in

Section 501(c)(3) of the Internal Revenue Code and are exempt from federal income taxes pursuant

to Section 501(a) of the Internal Revenue Code.

Goodwill accounts for uncertainties in accounting for income tax assets and liabilities using the

guidance included in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes. There are no uncertainties that are reflected in the


(n) Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S. generally

accepted accounting principles requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during

the reporting period. Actual results may differ from those estimates.

(2) Investments

The composition of investments at December 31, 2015 is as follows:

Corporate debt securities $ 194,292 Mutual funds 3,101,172

Total investments $ 3,295,464

Investment income or loss is comprised of the following for the year ended December 31, 2015:

Interest and dividends $ 50,975 Net realized and unrealized losses (38,289)

Net investment income $ 12,686



DECEMBER 31, 2015

11

(3) Property and Equipment A summary of property and equipment at December 31, 2015 is shown below:

Land $ 8,071,673 Buildings and improvements 36,714,530 Office furniture, fixtures, and equipment 6,401,223 Store fixtures and equipment 1,973,683 Transportation equipment 1,137,950

Total property and equipment 54,299,059

Less accumulated depreciation 14,325,738

Net property and equipment $ 39,973,321

(4) Lease Commitments

Goodwill occupies certain facilities under long-term operating leases, which expire at various dates

through 2022. Rent expense, which includes common area maintenance, taxes and other charges in

accordance with the leases, approximated $1,107,000 in 2015. Future minimum rental payments under non-cancelable operating leases at December 31, 2015 are as follows:

Year ending December 31:

2016 $ 805,346 2017 801,659 2018 818,091 2019 821,635 2020 713,255 Thereafter 420,769

(5) Long-Term Debt

A summary of long-term debt at December 31, 2015 is shown below:

City of Crescent, Iowa Revenue Bonds Series 2004 due in monthly installmentsof $9,564 including interest (2.75% at December 31, 2015) through January2025. Interest is adjusted annually per the agreement. $ 921,519

Tax exempt note payable due in monthly installments of principal and interestof $108,455 at a fixed interest rate of 2.51% through October 2024 at whichtime the interest rate will reset as stated in the agreement and remain fixedthrough maturity in September 2034. 19,455,265

Long-term debt 20,376,784

Less current maturities (905,036)

Long-term debt, excluding current maturities $ 19,471,748



DECEMBER 31, 2015

12

Goodwill’s notes payable are secured by real property.

Following is a schedule of debt maturity requirements following December 31, 2015:

2016 $ 905,036 2017 929,901 2018 954,039 2019 978,803 2020 1,003,079 Thereafter 15,605,926

$ 20,376,784

Goodwill renewed a one-year promissory note for a $1,000,000 line of credit, which expires July 1, 2016. The note is secured by inventory, accounts receivable, and equipment and bears interest at the base rate

minus 0.50%. As of December 31, 2015, the interest rate is 3.75% and the unpaid balance is $0. There

is $1,000,000 available for additional borrowings as of December 31, 2015

The debt agreements contain financial covenants, which Goodwill was in compliance with, or had obtained

a waiver of the restriction, at December 31, 2015.

(6) Fair Value Measurements

Goodwill uses the fair value measurement to record fair value adjustments to certain assets and liabilities

and to determine fair value disclosures. Additionally, from time to time, Goodwill may be required to

record other assets at fair value on a nonrecurring basis. In accordance with FASB ASC Topic 820, Fair Value Measurement and Disclosures, fair value should be measured at the exit price, which is the price to

sell an asset or transfer a liability. The exit price may or may not equal the transaction price and the exit

price objective applies regardless of the intent or ability to sell the asset or transfer the liability at the measurement date. Nonperformance risk, including an issuer’s credit standing, is considered when

measuring liabilities at fair value.

Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following

three categories:

Level 1 – Unadjusted quoted prices available in active markets that are accessible at the

measurement date for identical unrestricted assets or liabilities. This level primarily consists of

financial instruments such as exchange-traded securities and listed derivatives.

Level 2 – Pricing inputs include quoted prices for identical or similar assets and liabilities in active

markets, quoted prices for identical or similar assets or liabilities in markets that are not active,

inputs other than quoted prices that are observable for the asset or liability, and inputs that are

derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective

sources. These inputs reflect management’s best estimate of fair value using its own assumptions

about the assumptions a market participant would use in pricing the asset or liability.



DECEMBER 31, 2015

13

The following table illustrates Goodwill’s fair value measurements as of December 31, 2015: Level 1 Level 2 Level 3 Total

Investments:Money market investments $ 10,177 — — 10,177 Corporate debt securities — 194,292 — 194,292 Fixed income mutual funds:

Vanguard Inter-term Bond Index 765,561 — — 765,561 Vanguard Short-term Bond Index 382,458 — — 382,458 Other 61,707 — — 61,707

Equity mutual funds:Vanguard Total International Stock 167,265 — — 167,265 Vanguard Total Stock Market Index 1,764,004 — — 1,764,004

Total $ 3,151,172 194,292 — 3,345,464

Transfers between Level 1 and Level 2 of the Fair Value Hierarchy

Goodwill did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31, 2015.

Valuation Technique for Level 2 Investments

Corporate debt securities were valued using prices obtained from independent quotation bureaus that use computerized valuation formulas.

(7) Retirement Plans and Deferred Compensation Goodwill sponsors a defined contribution benefit plan established under Section 403(b)(7) of the Internal

Revenue Code, which covers all employees of Goodwill. Total contributions amounted to $111,592 for the

year ended December 31, 2015.

Goodwill also sponsors a government savings plan established under Section 401(a) of the Internal

Revenue Code, which covers federal contract employees only. Total contributions amounted to $447,191

for the year ended December 31, 2015.

Goodwill maintains two deferred compensation plans established under Sections 457(b) and 457(f) of the

Internal Revenue Code, which covers ten key employees. Total discretionary Goodwill contributions amounted to $96,144 for the year ended December 31, 2015. The balance of deferred compensation under

the plans was $1,152,752 as of December 31, 2015. To assist in funding benefits under these plans,

Goodwill has purchased certain other assets including company owned life insurance policies on covered

employees. As of December 31, 2015, the net cash surrender values on the company owned life insurance policies were $920,240. The assets and related liability are included in the accompanying consolidated

statement of financial position in other assets and deferred compensation liability.



DECEMBER 31, 2015

14

(8) Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following as of December 31, 2015:

Purpose

YouthBuild $ 296,900

Outreach manager 45,000

Other 3,607

Endowment 143,699

$ 489,206

(9) Endowment

The Nebraska Uniform Prudent Management of Institutional Funds Act (NUPMIFA). NUPMIFA sets

guidelines to be considered when managing and investing donor-restricted endowment funds.

Goodwill’s endowment fund consists of donor-restricted endowment funds. The restriction requires that

the resources be maintained permanently, but permit the use of income derived from the assets. Goodwill

does not maintain any board-designated endowment funds. As required by U.S. generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the

board of trustees to function as endowments, are classified and reported based on the existence or absence

of donor-imposed restrictions.

NUPMIFA requires the preservation of the fair value of the original gift as of the gift date of the

donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, Goodwill

classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations

to the permanent endowment made in accordance with the direction of the applicable donor gift instrument

at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily

restricted net assets until those amounts are appropriated for expenditure by Goodwill in a manner

consistent with the standard of prudence prescribed by NUPMIFA. In accordance with NUPMIFA, Goodwill considers the following factors in making a determination to appropriate or accumulate

donor-restricted endowment funds:

(1) The duration and preservation of the fund

(2) The purposes of Goodwill and the donor-restricted endowment fund (3) General economic conditions

(4) The possible effect of inflation and deflation

(5) The expected total return from income and the appreciation of investments (6) Other resources of Goodwill

(7) The investment policies of Goodwill

The following sets forth Goodwill’s endowment by type of fund as of December 31, 2015:



DECEMBER 31, 2015

15

Temporarily Permanentlyrestricted restricted Total

Donor-restricted endowment funds $ 143,699 92,869 236,568

Total funds $ 143,699 92,869 236,568

Changes in Endowment Net Assets


Temporarily Permanentlyrestricted restricted Total

Endowment net assets, beginning of year $ 162,641 92,869 255,510 Appropriations (13,351) — (13,351) Investment loss (5,591) — (5,591)

Endowment net assets, end of year $ 143,699 92,869 236,568

(a) Return Objectives and Risk Parameters

Goodwill has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain

the purchasing power of the endowment assets. Endowment assets include those assets of

donor-restricted funds that Goodwill must hold in perpetuity or for donor-specified periods. Endowment assets are invested in a manner that is intended to produce results that exceed the price

and yield result of the S&P 500 index while assuming a moderate level of investment risk.

(b) Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, Goodwill relies on a total return strategy in which

investment returns are achieved through both capital appreciation (realized and unrealized) and

current yield (interest and dividends). Goodwill targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within

prudent risk constraints.

(c) Appropriation Policy and How the Investment Objectives Relate to Appropriation Policy

The spending policy for endowed funds is determined by the board of trustees and the amount of

appropriation is set on an annual basis. In establishing this policy, Goodwill considers the long-term

expected return on its endowment. Accordingly, over the long term, Goodwill is generally focusing on finding securities that demonstrate the ability for above-average price appreciation and earnings

momentum. This is consistent with Goodwill’s objective to maintain the purchasing power of the

endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return.



DECEMBER 31, 2015

16

(10) Reconciliation of Functional Expenses Goodwill has presented cost of goods sold immediately after the related retail sales in revenue and support

on the Consolidated Statement of Activities as permitted in FASB ASC 958-720-45-21.

The following schedule reconciles functional expenses per the Consolidated Statement of Activities and

the Consolidated Statement of Program Revenues and Functional Expenses to actual total retail sales and

salvage program expenses.

Retail Salesand Salvage

As presented on Statements $ 16,190,770

Adjustment for presentation of cost of goods sold 11,296,160

Total Functional Expenses $ 27,486,930

(11) Commitments and Contingencies

(a) Federal Programs

Goodwill participates in federal programs that are subject to review and audit by the grantor agency. Entitlement to these resources is generally conditional upon compliance with the terms and

conditions of grant agreements and applicable federal regulations, including the expenditure of

resources for allowable purposes. Any disallowance resulting from a federal audit may become a liability of Goodwill. Management of Goodwill is currently unaware of a circumstance by which it

would be subject to a liability.

(b) Claims and Legal Actions

Goodwill is involved in various claims and legal actions arising in the ordinary course of business.

In the opinion of management, the ultimate disposition of these maters will not have a material

adverse effect on Goodwill’s consolidated financial position, results of operations, or liquidity.

(c) Health Insurance

Beginning January 1, 2015, Goodwill moved its medical and prescription drug insurance plan to a fully self-insured plan. Per employee claims up to $40,000 are fully self-insured. Claims above that

amount are covered by a stop loss reinsurance policy. Goodwill’s aggregate exposure for all claims

in 2015 is capped at $1,244,000 of which $1,027,000 was recognized as of December 31, 2015. The plan is funded by employee and employer contributions. Losses from asserted claims and losses

attributable to incident that may have occurred, but have not yet been identified, are accrued based

on estimates that incorporate past experience and other considerations, including the nature of each

claim or incident. At December 31, 2015 the estimated liability was $225,000 and is included in accrued liabilities.

(12) Concentrations Goodwill regularly maintains cash balances in excess of FDIC limits.

Approximately 59% of accounts receivable - contracts are from three customers and substantially all of

federal grants receivable are from two grantors at December 31, 2015.



DECEMBER 31, 2015

17

(13) Prior Period Adjustment During 2015, Goodwill management determined they had not properly measured or reported the fair value

of goods and materials contributed for resale and accordingly changed their methodology for calculating

contributed inventory. The 2014 financial statements have not been restated. An adjustment was made to beginning net assets of $772,209 to reflect the corrected balance of contributed inventory and unrestricted

net assets from the prior period.

(14) Subsequent Events

Goodwill performed an evaluation of subsequent events through May 12, 2016, the date on which the

consolidated financial statements were available to be issued. In January 2016, Goodwill was informed

their Federal Workforce Investment Act contract was not renewed. Expense reimbursements during 2015 attributable to this contract were $2,198,253. No additional material events requiring disclosure were

noted.

FEDERAL GRANTOR Pass-through ExpendituresPass-through Grantor CFDA Entity Federal toProgram or cluster title number Identifying # expenditures Subrecipients

U.S. DEPARTMENT OF LABOR:Youthbuild 17.274 Not applicable $ 274,037

Heartland Workforce Solutions:Workforce Investment Act (WIA) – Cluster:

WIA Adult Program 17.258 1,168,896 WIA Youth Activities 17.259 907,496 WIA Dislocated Worker Formula Grant 17.278 121,861

Total WIA – Cluster 2,198,253

Total U.S. Department of Labor 2,472,290

CORPORATION FOR NATIONAL AND COMMUNITY SERVICE: ServeNebraska - the Nebraska Volunteer Service Commission

Americorps 94.006* 13AFHNE0010001 84,598

DEPARTMENT OF HEALTH AND HUMAN SERVICESState of Nebraska

Temporary Assistance for Needy Families (Hire NE Program) 93.558 61715 04 536,121 163,568

Total expenditures of federal awards $ 3,093,009 $ 163,568

* American Recovery and Reinvestment Act

Notes to Schedule of Federal AwardsThe above Schedule of Federal Awards includes the Federal grant activity of Goodwill and is presented on the accrual basis ofaccounting. This information is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR)Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).Goodwill did not elect to use the 10% de minimis indirect cost rate.

Expenses are subject to audit by the U.S. Government and in the opinion of management, disallowed costs, if any, will not have a material effect on the consoldiated financial position of Goodwill or its federal programs.


Supplemental Schedule of Expenditures of Federal Awards


01-201302-2013

18

Independent Auditor’s 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


Goodwill Industries, Inc.:

We have audited, in accordance with the 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, the financial statements of Goodwill Industries,

Inc. and affiliate (Goodwill), which comprise the consolidated statement of financial position as of

December 31, 2015, and the related statements of activities, program revenues and functional expenses,

and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated May 12, 2016.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered Goodwill’s internal control

over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose

of expressing an opinion on the effectiveness of Goodwill’s internal control. Accordingly, we do not

express an opinion on the effectiveness of Goodwill’s internal control.

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. A

significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe

than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this

section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may

exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies

in internal control that we consider to be material weaknesses. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as 2015-001 that

we consider to be a significant deficiency.

20

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Goodwill’s financial statements are free from

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.

Goodwill’s Response to Findings

Goodwill’s response to findings identified in our audit is described in the accompanying schedule of

findings and questioned costs. Goodwill’s response was not subject to the auditing procedures applied in

the audit of the financial statements and, accordingly, we express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance

and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal

control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,

this communication is not suitable for any other purpose.

Omaha, Nebraska

May 12, 2016

Independent Auditor’s Report on Compliance for Each

Major Program and Report on Internal Control

over Compliance Required by the Uniform Guidance


Goodwill Industries, Inc.:

Report on Compliance for Each Major Federal Program

We have audited Goodwill Industries, Inc. and affiliate’s (Goodwill) compliance with the types of

compliance requirements described in the OMB Compliance Supplement that could have a direct and

material effect on Goodwill’s major federal program for the year ended December 31, 2015. Goodwill’s major federal program is identified in the summary of auditor’s results section of the accompanying

schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for Goodwill’s major federal program based on

our audit of the types of compliance requirements referred to above. 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 the audit requirements of Title 2 U.S. Code of Federal

Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for

Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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

program occurred. An audit includes examining, on a test basis, evidence about the Goodwill’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 on compliance for the major federal

program. However, our audit does not provide a legal determination of Goodwill's compliance.

22

Opinion on Each Major Federal Program

In our opinion, Goodwill complied, in all material respects, with the types of compliance requirements

referred to above that could have a direct and material effect on its major federal program for the year

ended December 31, 2015.

Report on Internal Control Over Compliance

Management of Goodwill is responsible for establishing and maintaining effective internal control over

compliance with the types of compliance requirements referred to above. In planning and performing our

audit of compliance, we considered Goodwill’s internal control over compliance with the types of requirements that could have a direct and material effect on its major federal program to determine the

auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on

compliance for its major federal program and to test and report on internal control over compliance in

accordance with the Uniform Guidance, 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 Goodwill’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. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over

compliance with a type of compliance requirement of a federal program that is less severe than a material

weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

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 material weaknesses or significant deficiencies. We did not identify any

deficiencies in internal control over compliance that we consider to be material weaknesses. However,

material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing

of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Omaha, Nebraska May 12, 2016


Schedule of Findings and Questioned Costs


23

(1) Summary of Auditors’ Results

(a) The type of report issued on the consolidated financial statements: Unmodified Opinion

(b) Significant deficiencies in internal control over financial reporting: One

(c) No material weaknesses in internal control over financial reporting were reported.

(d) Noncompliance, which is material to the consolidated financial statements: None

(e) No significant deficiencies in internal control over major programs were reported.

(f) No material weaknesses in internal control over major programs were reported.

(g) The type of report issued on compliance for major programs: Unmodified Opinion

(h) Audit finding, which is required to be reported under 2 CFR Section 200.516(a): None

(i) Major programs:

WIA – Cluster:

WIA Youth Activities (CFDA #17.259)

WIA Adult Program (CFDA #17.258)

WIA Dislocated Worker Formula Grant (CFDA #17.278)

(j) Dollar threshold used to distinguish between Type A and Type B programs: $750,000

(k) Auditee qualified as a low-risk auditee: Yes

(2) Findings Related to the Consolidated Financial Statements Reported in Accordance with

Government Auditing Standards

2015-001 Valuation and Reporting of Goods and Materials Contributed for Resale

Criteria: Internal control procedures should provide reasonable assurance of Goodwill’s

ability to report financial data reliably in accordance with accounting principles generally

accepted in the United States of America (GAAP).

Condition: Goodwill management did not value and report goods and materials

contributed for resale in accordance with GAAP.

Cause: Management was not aware of the requirements and prior independent auditors

did not inform them of the applicable standards.

Effect: Goodwill’s financial statements were not in accordance with GAAP.

Response: Management agrees with the finding and has corrected the error in the current

financial statements. In addition, policies and procedures have been put in place to insure

the error does not reoccur.


Schedule of Findings and Questioned Costs


24

(3) Findings and Questioned Costs Relating to Federal Awards

None

Documents

GOODWILL INDUSTRIES, INC. AND AFFILIATE€¦ · We have audited the accompanying consolidated financial statements of Goodwill Industries, Inc. and affiliate (collectively, Goodwill),