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VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS September 30, 2017 and 2016 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) TABLE OF CONTENTS SEPTEMBER 30, 2017 AND 2016 INDEPENDENT AUDITORS’ REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL STATEMENTS: Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to the Financial Statements REQUIRED SUPPLEMENTARY INFORMATION: Schedule of the Share of the Net Pension Liability Schedule of Contributions Notes to the Required Supplementary Information Statement of Revenues and Expenses per Division OTHER SUPPLEMENTARY INFORMATION: INDEPENDENT AUDITORS’ 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 SCHEDULE OF FINDINGS AND RESPONSES 12 13 14-15 16 - 32 34 35 36 38 - 39 41 - 42 43 BDO PUERTO RICO, PSC BDO USVI, LLC BDO 1302 Ponce De Leon Ave. Foothills Professional Building Suite 101 9151 Estate Thomas, Suite 201 _ I IE I TET San Juan, Puerto Rico 00907 St. Thomas, VI 00802 Tel: 787-754-3999 Tel: 340-776-0640 Fax: 787-754-3105 Fax: 340-779-8653 www.bdopr.com www.bdousvi.com INDEPENDENT AUDITORS’ REPORT To the Board of Directors of Virgin Islands Public Broadcasting System: Report on the Financial Statements We have audited the accompanying financial statements of the Virgin Islands Public Broadcasting System (the “System”), a component unit of the Government of the United States Virgin Islands, which comprise the statement of net position as of and for the years ended September 30, 2017 and 2016, and the related statements of revenues, expenses and changes in net position, and cash flows for the years then ended and the related notes to the financial statements, which collectively comprise the System’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. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits 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. BDO, Puerto Rico, PSC, a Puerto Rico Professional Services Corporation, and BDO USVI, LLC, a United States Virgin Island’s limited liability Company, are members of BDO International Limited, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member. IBDO To the Board of Directors of Virgin Islands Public Broadcasting System Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the System, as of September 30, 2017 and 2016, and the respective changes in financial position and cash flows thereof for the fiscal years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As disclosed in Note 10, the System suffered significant losses and damages as a result of the impact of hurricanes Irma and Maria. The System's plans to overcome the losses and damages are disclosed in Note 10. The System's ability to continue as a going concern is dependent on the success of such plans. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 4 through 11, schedule of share of the net pension liability on page 32, schedule of contributions on page 33, and the notes to the required supplementary information on page 34 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 management’s 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. Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the System’s basic financial statements. The statement of revenues and expenses per division on pages 36 and 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The statement of revenues and expenses per division is the responsibility of management of the System and is derived from, and relate directly to, the underlying accounting records used to prepare the basic financial statements. Such 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 basic financial BDO, Puerto Rico, PSC, a Puerto Rico Professional Services Corporation, and BDO USVI, LLC, a United States Virgin Island’s limited liability Company, are members of BDO International Limited, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member. |BDO To the Board of Directors of Virgin Islands Public Broadcasting System Page 3 statements in accordance with auditing standards generally accepted in the United States of America. In our opinion, the statement of revenues and expenses per division is fairly stated in all material respects, in relation to the basic 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 June 20, 2018, on our consideration of the System’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 the System’s internal control over financial reporting and compliance. DO UWs.vt., LEC ertified Public Accountants June 20, 2018 St. Thomas, U.S. Virgin Islands BDO, Puerto Rico, PSC, a Puerto Rico Professional Services Corporation, and BDO USVI, LLC, a United States Virgin Island’s limited liability Company, are members of BDO International Limited, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member. VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 The purpose of the following management’s discussion and analysis of the financial performance and activity of the Virgin Islands Public Broadcasting System (the “System”) is to help the readers understand the basic financial statements of the System for the years ended September 30, 2017 and 2016. This discussion has been prepared by management and should be read in conjunction with the basic financial statements, supplementary information and the notes thereto, which follow this section. Financial Highlights The assets and deferred outflows of the System exceeded liabilities and deferred inflows by $5.2 and $5.8 million as of September 30, 2017 and 2016, respectively. The net position decreased by $595 thousand during the year ended September 30, 2017 and increased by $152 thousand during the year ended September 30, 2016. Reporting Entity The System is a public corporation and an autonomous governmental instrumentality of the Government of the U.S. Virgin Islands (“GVI”). It owns and operates the public television station of the U.S. Virgin Islands with the call letters WTJX-TV, created by Act No. 2364 on November 15, 1968, to provide educational television services in the U.S. Virgin Islands, and to advance the general welfare, cultural development, and awareness of public affairs of the general population. The System is a member of the Public Broadcasting Service (“PBS”), a media foundation that provides grants and services to public and non- commercial stations. Overview of the Financial Statements The System’s financial report includes three financial statements: the Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position, and the Statement of Cash Flows. In addition to the three financial statements, the System has presented the Statement of Revenues and Expenses per Division, Schedule of the Share of the Net Pension Liability and Schedule of Contributions as supplementary information. The financial statements, and supplementary information, are prepared in accordance with accounting principles generally accepted in United States of America. The Statement of Net Position reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position as of September 30, 2017 and 2016. The System’s net position is the difference between (a) assets and deferred outflows of resources, and (b) liabilities and deferred inflows of resources. Over time, the increase or decrease in net position may serve as a useful indicator of whether the financial position of the System is improving or deteriorating. The Statement of Revenues, Expenses and Changes in Net Position presents information showing how the System’s net position changed during the two most recent fiscal years, focusing on operating revenues and expenses, including support provided by grants from the Government of the Virgin Islands and the Corporation for Public Broadcasting (“CPB”). 4 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 The Statement of Cash Flows presents information related to cash inflows and outflows, summarized by operating, financing and investing activities. This Statement indicates the financial viability of the System to meet financial obligations as they occur. Summary of Financial Results Statements of Net Position-Table 1 summarizes the System’s Statements of Net Position as of September 30, 2017, 2016 and 2015. Table 1: Summary of Statements of Net Position (As restated) September 30 September 30 September 30 2017 2016 2015 Unrestricted current assets $ 3,061,455 $ 2,600,439 S$ 2,293,248 Restricted current assets 108,584 251,458 116,112 Capital assets 4,343,383 5,257,778 5,458,036 Total assets $7,513,422 § 8,109,675 § _ 7,867,396. Deferred outflow of resources S 822.677, $ 671,407. § 90,970 Current liabilities $ 238,656 $ 271,353 $ 466,797 Noncurrent liabilities 2,761,810 2,603,909 1,833,798 Total liabilities $3,000,466 $2,875,262. 2,300,595 Deferred inflow of resources S 120,599. $ 95,306 $ Net position: Net investment in capital assets 4,792,512 5,257,778 5,458,036 Restricted 108,584 251,458 116,112 Unrestricted 313,938 301,278 83.623 Total net position S 5,215,034 $ 5.810.514 $5,657,771 For fiscal year 2017, the System’s assets amounted to $7.5 million, of which $2.3 million represented unrestricted cash and cash equivalents, $108 thousand represented cash and cash equivalents restricted in purpose, $39 thousand represented trade and other receivables, $107 thousand was due from the Government of the Virgin Islands, $591 thousand represented prepaid expenses and $4.3 million represented capital assets net of accumulated depreciation. Total current assets increased in fiscal year 2017 by $318 thousand mainly due to increases in cash of $632 thousand offset by a drecrease on due from the Government of the U.S. Virgin Islands (“GVI”) of $240 and a decrease of $83 thousand in prepaid expenses. Total liabilities and deferred inflow of resources amounted to $3.1 million and increased by $125 thousand mainly due to increase in net pension liability of $229 thousand offset by decrease in accounts payable of $62 thousand and decrease in compensated absences of $61 thousand. 5 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT?’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 For fiscal year 2016, the System’s assets amounted to $8.1 million, of which $1.5 million represented unrestricted cash and cash equivalents, $251 thousand represented cash and cash equivalents restricted in purpose, $30 thousand represented trade and other receivables, $347 thousand was due from the GVI, $674 thousand represented prepaid expenses and $5.3 million represented capital assets net of accumulated depreciation. Total current assets increased in fiscal year 2016 by $443 thousand mainly due to an increase in restricted cash of $135 thousand as a result of paying a larger portion of the PBS dues from unrestricted cash, and unrestricted cash of $403 thousand as a result of allotment from the GVI of $181 thousand offset by a decrease in fiscal year 2015 in unrestricted cash of $120 thousand used to purchase equipment for WTJX-FM. Total liabilities amounted to $2.9 million and increased by $575 thousand mainly due to a decrease in accounts payable of $195 thousand together with an increase of $771 thousand in net pension liability. Statements of Revenues, Expenses and Changes in Net Position-Table 2 summarizes the activities of the System as of September 30, 2017 and 2016. Table 2: Summary of Statements of Revenues, Expenses and Changes in Net Position September September September 2017 2016 2015 Operating revenues $ 1,369,400 $ 1,672,901 S$ 1,975,329 Operating expenses (5,129,315) 5,470,840 (5,229,865) Loss from operations (3,759,915) (3,797,939) (3,254,536) Non-operating revenues Non-capital appropriations from Government of the U.S. Virgin Islands 3,671,044 3,950,000 2,264 Insurance proceeds on non-hurricane related claims 47,164 - - Interest income 1,624 682 2,264 Loss before loss on impairment of capital assets (40,083) 152,743 (3,252,272) Loss on impairment of capital assets (555,397) : 3,769,633 Change in net position $ (595.480) $ 152,743. $ 517,361 Net position - beginning of year (as restated for 2016) $ 5,810,514 $ 5,657,771 $§ 4,021,251 Prior period adjustments : : 1,119,159 Net position - end of year S 5.215.034 $ 5,810,514 $ 5,657,771 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT?’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 For fiscal year 2017 operating revenues of $1.4 million reflect contributions from the Corporation for Public Broadcasting of $1.0 million, tower space rental income of $ 111 thousand, underwriting revenue of $99 thousand, fundraising revenue of $73 thousand, advertising revenue of $6 thousand, membership subscriptions and other donations of $51 thousand, and other revenue of $11 thousand. Operating revenues decreased by $303 thousand from the previous year mainly due to a decrease in contribution from the Corporation for Public Broadcasting revenue's of $77 thousand and decrease in other contributions of $226 thousand. For fiscal year 2017, operating expenses of $5.1 million reflect general administration expenses of $1.6 million, programming expenses of $3.0 million, fundraising expenses of $11 thousand and depreciation expense of $449 thousand. Operating expenses decreased by $342 thousand, mainly due to decrease in program services, depreciation and fundraising expenses of approximately $383 thousand, offset by an increase in management and general expenses of approximately $41 thousand. For fiscal year 2016, operating revenues of $1.6 million reflect contributions from the Corporation for Public Broadcasting and others of $1.4 million, tower space rental income of $110 thousand, underwriting revenue of $108 thousand, fundraising revenue of $44 thousand, advertising revenue of $8 thousand, membership subscriptions and other donations of $22 thousand, and other revenue of $22 thousand. Operating revenues increased by $94 thousand from the previous year mainly due to an increase in underwriting revenue of $62 thousand and an increase in fundraising revenue of $15 thousand. For fiscal year 2016, operating expenses of $5.5 million reflect general administration expenses of $4.1 million, programming expenses of $936 thousand, depreciation expense of $474 thousand, and bad debt expense of $5 thousand. Operating expenses increased by $247 thousand, mainly due to an increase in general administration expenses of $273, an increase in programming expenses of $8 thousand, and an increase in bad debt expense of $5 thousand, together with a decrease of $40 thousand in depreciation expense. Grant Revenues Grant Revenues: Table 3 summarizes grant revenues received through allotments from the Government of the Virgin Islands, grants from the Corporation for Public Broadcasting, and other grant revenue. VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT?’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 Table 3: Summary of Grant Revenues September September September 2017 2016 2015 Non capital appropriations from Government of the Virgin Islands S$ 3,671,044 S 3,950,000 $ 3,769,633 Grant revenues - Corporation for Public Broadcasting 1,012,650 1,089,499 1,064,289 Grant revenues - USDA Rural Utilities Service - 225,000 525,000 Grant revenues - Public Finance Authority - 40,950 95,550 Grant revenues - Other 7,000 3,500 65.489 Total grant revenues 4,690,694 5,308,949 5,519,961 Operating revenues 349.750 313,952 227,265 Total revenues $_5,040.444 $ 5.622.901 $ 5,747,226 Grants as a percentage of operating revenue 93.1% 94.4% 96.0 % Capital Assets The System’s capital assets include land, buildings, building improvements and equipment. Capital asset additions during the fiscal years ended September 30, 2017 and 2016 amounted to $90 thousand and $274 thousand, respectively. During September 2017 hurricanes Irma and Maria made landfall in the Virgin Islands affecting the System’s assets and operations. As a consequence, the System had a loss on damaged building infrastructure, equipment and other assets with historical cost of $3,288,115 and net book value of $555,397. Refer to page 10 for additional information. VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 Summary of Capital Assets-Table 4 summarizes the System’s capital assets as of September 30, 2017 and 2016: Table 4: Summary of Capital Assets September September 2017 2016 Land $ 1,284,996 $ 1,284,996 Production and broadcasting equipment 6,539,678 8,106,508 Buildings and improvements 2,907,509 3,592,242 Other 1,568,252 2,514,672 Total capital assets 12,300,435 15,498,418 Less: Accumulated depreciation 7,957,052 10,240,640 Net capital assets $4,343,383) $5,257,778 Note 5 to the financial statements provides detailed information regarding the capital assets of the System as of September 30, 2017 and 2016. Budgetary Analysis The System prepares an annual executive budget subject to approval by the Governor and the Legislature of the Virgin Islands. Following is a summary of the budget and actual results for the fiscal years ended September 30, 2017 and 2016: 2017 Budget 2017 Actual Variance Total revenues $ 5,502,170 $ 4,683,694 $ (818,476) Total operating expenses (5,502,170) (4,576,919) 925,251 Non-budgeted revenues - 356,750 356,750 Non-budgeted expenditures : (552,396) (552,396) Operating income (loss) S - § (88.871) $ (88.871) The decrease in GVI and CPB support is mainly due to the GVI’s reduced funding of $356 thousand. Insufficient GVI revenue collections and natural disasters contributed to an allotment reduction and withholding of the September 2017 allotment. CPB revenue decreased by $77 thousand. Non-budgeted revenues consists of underwriting revenue of $99 thousand, tower space rental revenue of $111 thousand, fundraising revenue of $73 thousand and other revenues of $74 thousand. The decrease in operating expenses of $925 thousand is mainly due to decreases in salaries and related expenses of $663 thousand, electricity expenses of $107 thousand, advertising and promotion expenses of $155 thousand. Non-budgeted expenses consist of depreciation expense of $449 thousand and pension expense of $103 thousand. VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT?’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 2016 Budget __2016 Actual Variance Total revenues $ 5,189,499 § 5,039,499 S$ (150,000) Total operating expenses (5,189,499) (4,711,121) 478,378 Non-budgeted revenues - 583,402 583,402 Non-budgeted expenditures : (759.719) (759,719) Operating income § - § 152,061, $ 152,061 The decrease in GV! and CPB support in 2016 is mainly due to a decrease in the GVI’s funding of $150 thousand. Non-budgeted revenues consists of additional grants received amounting to $269 thousand, underwriting revenue of $108 thousand, tower space rental revenue of $110 thousand, and other revenue of $55 thousand. The decrease in operating expenses of $478 thousand is mainly due to decreases in salaries and related expenses of $358 thousand, electricity expenses of $101 thousand, and supplies expense of $19 thousand. Significant Currently-Known Facts Budgetary Appropriations The ability of the System to continue as a going concern and providing public television services is dependent on grant allotments and other funds received from the Government of the Virgin Islands and the Corporation for Public Broadcasting. Hurricanes Irma and Maria During September 2017, hurricanes Irma and Maria made landfall in the Virgin Islands affecting the System’s assets and operations. In particular, the main office and television studio located at Haypiece Hill on the island of St. Thomas were totally destroyed, including severe damages to communication towers, equipment and vehicles. To overcome the damages, the System received a $30,000 emergency grant from CPB. In addition, as of September 30, 2017, the System was in the process of interacting with the United States Department of Homeland Security Federal Emergency Management Agency (“FEMA”). At the date of this report the Station has two approved FEMA’s project worksheets for damaged bulding and equipment amounting to $24,571 and $46,134, respectively. During January 2018, the Station received vehicles insurance proceeds amounting to $11,514. On June 13, 2018, the Station received notification from the VI Government of an initial allocation of insurance proceeds in the amount of $792,461. FEMA is still in the process of completing the overall evaluation of damages and the applicable recovery programs. FEMA will deduct the insurance proceeds from the total awards to the station. Hurricanes related impact to the future System’s operations includes a 9% reduction in the fiscal year 2018 appropriation from the VI Government and increases in insurance premiums. 10 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) MANAGEMENT?’S DISCUSSION AND ANALYSIS (UNAUDITED) YEARS ENDED SEPTEMBER 30, 2017 AND 2016 FCC Repack Project During fiscal year 2016-2017, the System was included in the Federal Communications Commission (“FCC”) Repack Project. The project consists of certain realignment on the broadcasting frequency by which WTJX would change its broadcasting from channel 44 to channel 36, pursuant to a Transition Plan and Budget approved by the FCC (the “Plan”). As part of the Plan, the FCC will provide all the funding, which is estimated at $3.5 million, for the building of new tower and the purchase of new transmitters and underlying equipment. The deadline for completion of the project is April 2019. As of the date of issuing these financial statements, the System has paid approximately $44,000 for engineering and design services, which should be reimbursed by the FCC. WTJX also signed agreements with vendors for new antenna and transmitter for $173,000; and has also awarded a bid for the tower work in the amount of $1,076,000. Contacting the Corporation This financial report is designed to provide a general overview of the System’s finances. If you have any questions about this report, or need additional information, contact the System at: Virgin Islands Public Broadcasting System - WTJX, P. O. Box 7879, Charlotte Amalie, St. Thomas, U.S. Virgin Islands 00801. 11 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENTS OF NET POSITION SEPTEMBER 30, 2017 AND 2016 2017 2016 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,324,195 $ 1,549,160 Accounts and other receivable 38,989 30,020 Due from the Government of the U.S. Virgin Islands 107,202 346,805 Prepaid expenses 591,069 674,454 Restricted cash 108,584 251,458 Total current assets 3,170,039 2,851,897 NONCURRENT ASSETS - Capital assets, net of accumulated depreciation 4,343,383 5,257,778 Total assets $7,513,422, § 8.109.675 DEFERRED OUTFLOW OF RESOURCES - Deferred amounts related to pension $ 822.677, $ 671,407 LIABILITIES CURRENT LIABILITIES: Accounts payable $ 76,436 §$ 138,226 Accrued liabilities 103,599 101,655 Unearned revenue 34,785 18,020 Compensated absences - current portion 23,836 13,452 Total current liabilities 238,656 271,353 NONCURRENT LIABILITIES: Compensated absences 209,659 281,001 Net pension liability 2,552,151 2,322,908 Total liabilities $3,000,466 $2,875,262. DEFERRED INFLOW OF RESOURCES - Deferred amounts related to pension 120,599 § 95,306 NET POSITION: Net investment in capital assets § 4,792,512 §$ 5,257,778 Restricted 108,584 251,458 Unrestricted 313,938 301,278 Total net position $ 5,215,034 $ 5,810,514 The accompanying notes are an integral part of these financial statements. 12 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED SEPTEMBER 30, 2017 AND 2016 2017 2016 OPERATING REVENUES: Grants from Corporation for Public Broadcasting and others S 1,019,650 §$ 1,358,949 Tower space rental 110,739 110,030 Underwriting 98,852 107,995 Fundraising 72,825 44,009 Advertising 5,919 7,550 Membership subscriptions and other donations 50,622 21,883 Other operating revenue 10,793 22,485 Total operating revenues 1,369,400 1,672,901 OPERATING EXPENSES: Program services 3,028,499 3,370,654 Management and general 1,640,037 1,598,286 Fundraising 11,649 22,416 Depreciation 449,130 474,209 Bad debt expense - 5,275 Total operating expenses 5,129,315 5,470,840 LOSS FROM OPERATIONS (3,759,915) (3,797,939) NON-OPERATING REVENUES & EXPENSES Non-capital appropriations from Government of the U.S. Virgin Islands 3,671,044 3,950,000 Interest income 1,624 682 Insurance recoveries on non-hurricane related claims 47,164 - (LOSS)/ INCOME BEFORE EXTRAORDINARY ITEM (40.083) 152.743 EXTRAORDINARY ITEM Loss on impairment of capital assets (555,397) (DECREASE)/ INCREASE IN NET POSITION (595,480) 152,743 NET POSITION, at beginning of year - as restated for 2016 5,810,514 4,538,612 PRIOR PERIOD ADJUSTMENT - 1,119,159 NET POSITION, at end of year $ 5.215.034 $ 5,810,514 The accompanying notes are an integral part of these financial statements. 13 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2017 AND 2016 2017 2016 CASH FLOWS USED IN OPERATING ACTIVITIES: Receipts from grants, customers and others $ 1,625,327 $ 1,812,218 Payments to suppliers and employees (4,622,866) (4,950,755) Net cash used in operating activities (2,997,539) (3.138.537) CASH FLOWS PROVIDED BY NON-CAPITAL FINANCING ACTIVITIES - Non-capital appropriations from primary government 3,671,044 3,950,000 Insurance recoveries on non-hurricane related claims 47,164 : Net cash provided by non-capital financing activities 3,718,208 3,950,000 CASH FLOWS PROVIDED BY INVESTING ACTIVITIES - Interest received on cash and cash equivalents 1,624 682. CASH FLOWS USED IN CAPITAL AND RELATED FINANCING ACTIVITIES - Purchase of capital assets (90,132) (273,951) NET INCREASE IN CASH AND CASH EQUIVALENTS 632,161 538,194 CASH AND CASH EQUIVALENTS, at beginning of year 1,800,618 1.262.424 CASH AND CASH EQUIVALENTS, at end of year S 2,432,779, $ 1,800,618 CASH AND CASH EQUIVALENTS INCLUDE: Unrestricted cash and cash equivalents $ 2,324,195 § 1,549,160 Restricted cash and cash equivalents 108.584 251,458 Total cash and cash equivalents 3 2,432,779 § 1,800,618 RECONCILIATION TO NET CASH USED IN OPERATING ACTIVITIES: Loss from operation $ (3,759,915) $ (3,797,939) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 449,130 474,209 Change in assets and liabilities: Accounts and other receivable (8,968) 303,959 Due from the Government of the U.S. Virgin Islands 239,607 (259,948) Prepaid expenses 83,380 51,646 Accounts payable (61,790) (225,713) Accrued liabilities 1,944 7,985 Unearned revenue 16,765 8,832 Compensated absences (60,958) 12,922 Deferred outflows of resources (151,270) (580,437) Deferred inflows of resources 25,293 95,306 Net pension liability 229.243 770,641 Total adjustments 762,376 659.402 Net cash used in operating activities $ (2,997,539) § (3,138,537) Continues The accompanying notes are an integral part of these financial statements. 14 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENTS OF CASH FLOWS _ FOR THE YEARS ENDED SEPTEMBER 30, 2017 AND 2016 Continued Non-cash transactions disclsoures: SUPPLEMENTARY DISCLOSURES OF CASH FLOWS INFORMATION - Salaries paid by the Government of Virgin Islands in the form of grant $ 2,269,304 $ 2,309, 166 Donated services S 9.939 §$ 3,860 Impairment of capital assets: Cost $ 3,288,115 §$ Accumulated depreiation $ 2,732,718 $ The accompanying notes are an integral part of these financial statements. 15 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 1. REPORTING ENTITY The Virgin Islands Public Broadcasting System (the “System”) was created by Act No. 2364 on November 15, 1968, to provide educational television services in the United States Virgin Islands, and to advance the general welfare, cultural development, and awareness of public affairs of the general population. In December 2014, the System expanded operations to include a public education radio station, WTJX-FM. The radio station promotes educational, general welfare and cultural programming including National Public Radio programming. On July 30, 2015 but effective November 2015, the Legislature of the Virgin Islands through Act 774 officially changed the name of the Virgin Islands Public Television System to the Virgin Islands Public Broadcasting System. The System was formed as a public corporation, and is an autonomous component unit of the Government of the U.S. Virgin Islands (the “GVI”) and, therefore, the financial statements of the System are not intended to present fairly the financial position and results of operations of the GVI. Only the accounts of the System are included in the reporting entity. The System’s Board of Directors consists of the Commissioner of the Department of Education, the Chairman of the Board of Education, the President of the University of the Virgin Islands, the Director of the Office of Management and Budget, three members appointed by the President of the Legislature, and four other members appointed by the Governor. The call letters of the System are WTJX, and it is a member of the Public Broadcasting Service (“PBS”), a media foundation that provides programs and services to public and non-commercial television stations. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The System prepares its financial statements in conformity with accounting principles generally accepted in the United States of America for governmental enterprise funds as prescribed by the Government Accounting Standards Board (“GASB”). The financial statements of the System have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. Basic Financial Statements - Standards for external financial reporting require that resources be classified for accounting and reporting purposes into net position categories and to report the change in net position. Net position is the residual of all other elements presented in the statements of net position. It is the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources and consists of the following categories: 16 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 Net Investment in Capital Assets - This category of net position consists of capital assets, net of accumulated depreciation, reduced by any outstanding balances of mortgages or notes attributable to the acquisition, construction or improvement of those assets. Restricted Component of Net Position - This category consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Unrestricted Component of Net Position - This category consists of the net amount of the assets, deferred outflows of resources, liabilities and deferred inflows of resources that are not included in the determination of net investment in capital assets, or the restricted component of net position. The System distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from services provided in connection with the System’s community and education based television system. The principal revenues of the System are grants, including grants from the Government of the U.S. Virgin Islands and grants from the Corporation for Public Broadcasting (“CPB”), underwriting, fundraising, tower space rental and advertising. Operating expenses mainly include programming services, management and general expenses, and depreciation. When both restricted and unrestricted resources are available for use, it is the System’s policy to use restricted resources first, and then unrestricted resources as they are needed. Cash and Cash Equivalents - All deposits of the System are made in board-designated official depositories. The System may designate, as an official depository, any bank or savings association whose principal office is located in the United States Virgin Islands. Also, the System may establish time deposit accounts such as certificates of deposits. The System’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The System receives periodic cash allotments from the CPB, which are held in a separate bank account and are reported as restricted cash and cash equivalents. Under Virgin Islands law, government public funds are required to be deposited into accounts that are collateralized by security bond collateral that is satisfactory to the Commissioner of Finance. As of September 30, 2017, cash and cash equivalents held at banks were fully collateralized. Accounts and Other Receivable - All trade and grant receivables are reported as assets of the System. These accounts receivable mainly consist of underwriting, grants and rent from tower space. 17 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 Allowance for Doubtful Accounts - The allowance for doubtful accounts is an amount that management believes will be adequate to absorb possible losses on existing accounts receivable that may become uncollectible based on evaluations of collectability of accounts receivable and prior credit loss experience. Because of uncertainties inherent in the estimation process, management’s estimate of credit losses inherent in the existing accounts receivable and related allowance may change in the future. Balance of the allowance for doubtful accounts as September 30, 2017 and 2016 amounted to $0. Prepaid Expenses - Certain cash outlays to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the statement of net position and are expensed as the items are used or the expense is realized. These prepaid expenses mainly consist of unamortized PBS dues, memberships and insurance. Capital Assets - Capital assets, which include property, plant, and equipment assets, are reported in the financial statements at the time of acquisition or donation. Acquired capital assets are reported at cost at the date of purchase or construction, and donated assets are reported at acquisition value at the date of donation. Only assets with an initial, individual cost, or fair market value, of more than $5,000 are capitalized. The costs of normal maintenance and repairs that do not add to the value of the assets, or materially extend the life of assets are not capitalized. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. Capital assets are depreciated using the straight-line method by groups or classes over the following expected service lives: Years Production and broadcasting equipment 5-7 Buildings and improvements 5-40 Other 5-15 When capital assets are retired, the cost and related accumulated depreciation is removed from the accounts and any gain or loss is recognized as non-operating revenue or expense. Accounting standards require management to disclose and report the impairment of capital assets, and any related insurance recoveries. The organization periodically evaluates whether there has been an impairment of capital assets. As a result of this calculation,an impairment loss amounting to $555,397 was recognized for the year ended September 30, 2017, related to the aftermath of the hurricanes Irma and Maria. No impairement was deemed required to be recognized for the year ended September 30, 2016. 18 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 Compensated Absences - Employees are eligible under personnel policies established by the Government of the Virgin Islands to accrue annual leave (up to 480 hours) if not used during the fiscal year. Unpaid annual leave is accrued as a liability of the System, as well as the System’s share of related social security taxes and retirement system contributions, if the compensated absence is attributable to past service and it is probable that the System will compensate the employee for the benefits. The amount of compensated absences is computed using salary rates in effect at September 30th. As of September 30, 2017 and 2016, the System reported accrued compensated absences amounting to $233,495 and $294,453, respectively. Pension Plan - The Employees’ Retirement System of the government (the “GERS”) is the administrator of a cost-sharing multiple-employer, defined benefit pension plan (the “plan”) established as of October 1, 1959 by the Government to provide retirement, death, and disability benefits to its employees, and includes employees of judicial, executive and legislative branches of government and outside agencies. The plan covers all employees of the Government except employees compensated on a contract, fee basis, casual, per diem or provisional and part-time employees who work less than 20 hours per week. Persons over the age of 55 may opt out of the plan by providing formal notification to the plan. Vesting of benefits occurs after 10 years of service. Benefits may be extended to beneficiaries of plan members. Other Post-Employment Benefits (“OPEB”) - All employees who are eligible for service retirement with GERS are eligible for certain other post-employment benefits (“OPEB”) including retiree health care, dental and life insurance benefits under Title 3, Chapter 25, Subchapter Vill of the Virgin Islands Code. These benefits are provided in accordance with Virgin Islands law as part of a cost-sharing, multiple employer defined benefit OPEB plan, in which all component units of the primary government participate and contribute. All employees of the System who retire from government service after attaining age 55 with at least 30 years of service are eligible for benefits. Participants in the plan may elect coverage for their spouses and dependent children. Participants are required to contribute 35% of medical, prescription and dental premiums. The plan is a non-funded pay-as-you-go plan, and expenditures are paid by the GVI as they become due. Deferred Outflows of Resources - |n addition to assets, the statement of net position reports a separate section of deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense) until that time. The deferred amounts related to pension consists of the unamortized portion of the net difference between projected and actual earnings on pension plan investments, changes in assumptions and other differences between expected and actual experience. Deferred Inflows of Resources - |n addition to liabilities and net position, the statement of net position reports a separate section of deferred inflows of resources. Deferred inflows of resources represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that 19 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 time. The deferred amounts related to pension consists of the unamortized portion of the net difference between projected and actual earnings on pension plan investments, changes in assumptions and other differences between expected and actual experience. Revenue Recognition - The System distinguishes operating revenues and expenses from non-operating items. Revenues associated with the Contributions from Corporation for Public Broadcasting are recorded as operating revenues when cash is received. Expenses related to the program services, and management and general expenses are recorded as operating expenses. Non-operating revenues consist principally of non-capital appropriations from government of the US Virgin islands. These appropriations are recorded as non-operating revenues when the government informs the System. Operating Revenues and Expenses - Operating revenues and expenses generally result from providing services in connection with the System’s principal ongoing operations, mainly the production of educational and cultural programs. The System also recognizes grants received as operating revenue. Operating expenses for the System include cost of services, administrative expenses, and depreciation on capital assets. Use of Estimates in the Preparation of Financial Statements - 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 reported amounts of assets, deferred inflows, liabilities, deferred outflows and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. CASH AND CASH EQUIVALENTS The System maintains unrestricted cash and cash equivalents including: (i) allotments from the Government of the Virgin Islands, (ii) Special Productions including underwriting, donations, and other fundraising activities, (iii) Emergency Maintenance funded from rental income of an up-link television broadcasting tower located in St. Thomas, (iv) Certificate of Deposit held as a reserve and (v) a petty cash account. Restricted cash consist of CPB funding restricted for the use of CPB television productions broadcasted in the Virgin Islands. 20 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 As of September 30, 2017 and 2016, cash and cash equivalents consisted of the following deposits in banks and certificate of deposit: September 30, September 30, 2017 2016 Restricted - Corporation for Public Broadcasting S 108,584 § 251,458 Unrestricted: Government of the U.S. Virgin Islands 1,278,480 760,610 Special productions 313,625 187,052 Emergency maintanence 405,708 276,765 Petty cash 925 900 Certificate of deposit 325,457, _—s323,.833. Unrestricted cash and cash equivalents 2,324,195 1,549,160 Total cash and cash equivalents $2,432,779, $_ 1,800,618 Concentration of Credit Risk - The System utilizes one financial institution located in the United States Virgin Islands. Credit Risk - Depository balances are fully collateralized with collateral satisfactory to the U.S.V.1 Commissioner of Finance. 4, ACCOUNTS AND OTHER RECEIVABLES Accounts and other receivables at September 30, 2017 and 2016, consisted of the following: September 30, September 30, 2017 2016 Underwriting $ 17,377 $ 14,669 Rent 8,406 - Fundraising 365 1,700 Advertisement 3,470 2,600 Employees 3,179 4,672 Other 6.192 6,379 S 38.989 S$ 30.020. As of September 30, 2017 and 2016, the System had an outstanding receivable due from the GVI, a related party, amounting to $107,202 and $346,805, to cover operating expenditures. 21 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 5. CAPITAL ASSETS Capital assets at September 30, 2017 and 2016, are comprised of the following: Non-depreciable assets: Land Depreciable assets: Production and broadcasting equipment Buildings and improvements Other Total depreciable assets Less: accumulated depreciation Total depreciable assets, net Total capital assets, net Non-depreciable assets: Land Depreciable assets: Production and broadcasting equipment Buildings and improvements Other Total depreciable assets Less: accumulated depreciation Total depreciable assets, net Total capital assets, net Balance at Balance at September 30, 2016 Additions Disposals September 30, 2017 $ 4.284.996 $ $ 1,284,996 8,106,508 90,132 (1,656,964) 6,539,676 3,592,242 - (684,732) 2,907,510 2,514,672 : (946.419) 1,568,253 14,213,422 90,132 (3,288,115) 11,015,439 10,240,640. 449,130 (2,732,718) 7,957,052 3,972,782 (358,998) (555,397) 3,058,387 3 5,257,778, § 338,998) (555,397) $ 4,343,383 Balance at Balance at September 30, 2015 Additions Disposals September 30, 2016 $ 1,284,996 § $ 1.284.996 7,873,508 233,000 8,106,508 3,592,242 : 3,592,242 2,473,724 40,954 : 2.514.672 13,939,471 273,951 14,213,422 9.766.434 474,209 10,240.640 4,173,040 (200,258) : 3,972,782 3 5,458,036 § (200,258) S 5,257,778 Depreciation expense for the years ended September 30, 2017 and 2016 amounted to $449,130 and $474,209, respectively. During September 2017, hurricanes Irma and Maria made landfall in the Virgin Islands affecting the System’s assets and operations. In particular, the main office and television studio located at Haypiece Hill on the island of St. Thomas was totally destroyed, including severe damages to communication towers, equipment and vehicles. As a consequence, the System had a loss of damaged building infrastructure, equipment and other assets with historical cost of $3,288,115 and net book value of $555,397. 22 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 During September 2017 the System received a $30,000 emergency grant from CPB. As of September 30, 2017, the System was in the process of interacting with the United States Department of Homeland Security Federal Emergency Management Agency (“FEMA”). At the date of this report the Station has two approved FEMA’s project worksheets for damaged bulding and equipment amounting to $24,571 and $46,134, respectively. During January 2018, the Station received vehicles insurance proceeds amounting to $11,514. On June 13, 2018, the Station received notification from the VI Government of an initial allocation of insurance proceeds in the amount of $792,461. FEMA will deduct the insurance proceeds from their award to the station. The System is making all necessary efforts to recover losses, however final amount to be received is uncertain. During the year ended September 30, 2016, the System completed the reconciliation of its capital assets subsidiaries. Such reconciliation resulted in a net increase of $3,382,771 to the capital assets, and net increase of $795,439 to the accumulated depreciation. Therefore, the capital assets balance disclosed in the 2015 financial statements was restated. 6. PROGRAMMING DUES The System is a member station of the Public Broadcasting Services of the U.S. (“PBS”). PBS offers programming designed to expand the minds of children, documentaries, non- commercial news programs, and programs designed to expose listeners to music, theatre, dance and art. Dues for the member year of July 1, 2017 through June 30, 2018 amounted to $750,686, paid as of September 30, 2017. Unamortized portion amounting to $553,407 in 2017 is included as part of prepaid expenses in the accompanying statement of net position. Programming expense for the fiscal year ended September 30, 2017 amounted to $3,028,499. Dues for the member year of July 1, 2016 through June 30, 2017 amounted to $738,276, paid as of September 30, 2016. Unamortized portion amounting to $553,407 in 2016 is included as part of prepaid expenses in the accompanying statement of net position. Programming expense for the fiscal year ending September 30, 2016 amounted to $935,933. 7. NON CAPITAL APPROPRIATIONS AND GRANTS REVENUE The System receives two main sources of revenues: (i) non capital appropriations from the Government of the U.S. Virgin Islands to pay salaries and related expenses and operating expenditures, and (ii) grants from the Corporation for Public Broadcasting (“CPB”) to provide funding for the System’s member dues to the Public Broadcasting Service, salaries and related benefits and operating expenses. 23 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 During the fiscal year ended September 30, 2015, the System received a USDA Rural Digital Grant award in the amount of $750,000 of which $225,000 and $525,000 were utilized during the fiscal years ended September 30, 2015 and 2016, respectively. During the fiscal year ended September 30, 2015, the System was also appropriated a capital grant of $136,500 from the Public Finance Authority for the purchase of equipment of which $95,550 and $40,950 were received and utilized during the fiscal years ended September 30, 2015 and 2016, respectively. No other awards were granted during the fiscal year ended September 30, 2017. For the fiscal years ended September 30, 2017 and 2016, the System received the following grant revenue from these organizations: September 30, September 30, 2017 2016 Government of the Virgin Islands $ 3,671,044 § 3,950,000 Corporation for Public Broadcasting 1,012,650 1,089,499 USDA Rural Utilities Service - 225,000 Public Finance Authority - Capital Grant 40,950 Other 7,000 3,500 $___ 4,690,694. $ 5.308.949 Hurricanes related impact to the future System’s operations includes a 9% reduction in the fiscal year 2018 appropriation from the VI Government and increases in insurance premiums. During the years ended September 30, 2017 and 2016, the GVI supported $2,269,304 and $2,309,166 in salary and related costs through its appropriations to the System. 8. TOWER SPACE RENTAL The System leases certain tower facilities to tenants under the terms requiring the payment of minimum annual rentals. Future income under the annual minimum rentals under noncancelable operating leases in effect at September 30, 2017, are as follows: Year Ending september 30, __ Amount __ 2018 s) 59,808 2019 61,602 2020 49,539 2021 32,036 2022 32,997 Thereafter 33,987 $ 269,969 Tower space rental income for the years ended September 30, 2017 and 2016 amounted to $110,739 and $110,030, respectively. 24 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 9. 10. 11. COMMITMENTS AND CONTINGENCIES The System derives most of its operating revenue from appropriations provided by the local Government and the Corporation for Public Broadcasting. The continuing operation of the System is dependent on a continuation of grants for sustainable operations. The Government of the Virgin Islands Division of Property and Procurement provides casualty insurance on System assets under a blanket insurance policy covering both the primary Government and certain autonomous agencies. UNCERTAINTY During September 2017, Hurricanes Irma and Maria hit the U.S. Virgin Islands causing enormous losses and devastation. The System suffered damages to equipment and property with historical cost of approximately $3,288,115 and net book value of $555,397. The System’s headquarter and its main broadcasting facility were severely damaged and will remain closed for an indefinite period. The Board of Directors, the System’s Management and the Government of USVI have developed the following plans to bring the System to normal operations as feaseable as possible: 1. The System filed and settled insurance claims for $11,514 to cover damages to vehicles 2. Receipt of $30,000 emergency grant from CPB 3 Potential allocation of $792,461 from the insurance settlement under negotiations by the Central US Virgin Islands Government A. Partial awards from FEMA amounting to $70,705 5. Ongoing claim to FEMA for awards to cover a significant portion of the remaining losses 6. Deployment of the approved FCC Repack Project disclosed in Note 5 7. Commitment from the GVI to maintain the budgetary appropriation for the next fiscal year in similar levels as in fiscal years 2016 and 2017 The System's ability to continue as a going concern is dependent on the success of the above mentioned plans and on the ability to perform the funding requirements upon FEMA grant’s approval. NET PENSION LIABILITY Plan Description The Employees’ Retirement System of the Government of the U.S. Virgin Islands (GERS) Pension Plan (the “Plan”) is a cost-sharing multi-employer defined benefit pension plan. The Plan was established on October 1, 1959 by the Government of the U.S. Virgin Islands 25 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 (the “Government” or “Employer”) to provide pension benefits to its employees, and includes Judicial, Executive, Legislative Branches and outside agencies. Separately issued financial statements for the Plan are available from GERS Office located at: Government Employees’ Retirement System 3438 Kronprindsens Gade Saint Thomas, U.S. Virgin Islands 00802 Eligilibilty The Plan covers all employees of the Government of the U.S. Virgin Islands except casual, provisional, or any part time employee who does not regularly work at least 20 hours per week. The plan also covers employees whose services are compensated on a contractual fee or per diem basis who work exclusively for the Government at least 40 hours per week. Employees are classified as Tier | and Tier Il. Tier | employees were hired on or before September 30, 2005 and Tier Il employees were hired on or after October 1, 2005. Tier 1 members with age over 55 years may opt out of the Plan by providing formal notification to the plan. Tier 2 members cannot opt out of the plan. The Plan provides retirement, death, and disability benefits to Plan members. Benefits may be extended to beneficiaries of plan members. Retirement Regular employees are eligible for a full-service retirement annuity when they have completed 30 years of credited service or have attained the age of 60 with at least 10 years of credited service. Members who are considered “safety employees”, as defined in the V.I. Code, are eligible for full retirement benefits when they have earned at least 20 years of government service or have reached the age of 55 with at least 10 years of credited service. Regular employees who have attained the age of 50 with at least 10 years of credited service can elect to retire early with a reduced benefit. Senators and members of the Legislature may receive a retirement annuity when they have attained the age of 50 and upon the completion of 6 years of credited service as a member of the Legislature. The Early Retirement Act as subsequently amended in 1995, allows a member who has a combined aggregate number of years of service plus number of years of age equal to at least 75 years as of the date of the legislation to retire without reduction of annuity. Members who have attained the age of 50 with at least 10 years, but less than 30 years, of service may add an additional three years to their age for this computation. Members with 30 years of service or members who can retire without penalty under the Code shall have their average compensation increased by 4 percentage points. 26 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 The monthly annuity benefit payment is determined by applying a stipulated benefit ratio to the member’s average compensation. Average compensation for Tier | members is determined by averaging the five highest years of salary the member earned within the last ten years of service, subject to the maximum salary limitation in effect during such service. Average compensation for Tier Il members is determined by averaging the most recent five years of service, subject to the maximum salary limitations in effect during the service. The maximum annual salary that can be used in this computation is $65,000, except for senators and judges, whose annual salary is used. During the fiscal year ended September 30, 2016, the System implemented Governmental Accounting Standard Board Statement 68, “Accounting and Financial Reporting for Pensions” (GASB 68), as ammended by Statement No. 71, “Pension Transition for Contributions Made Subsequent to the Measurement Date”. This standard requires the System to report its allocable share of net pension liability related to the Government’s defined benefit pension plan, to report pension expense based on actuarial computations, to report deferred outflows of resources, and to restate opening net position for the liability as of September 30, 2016. Funding and Contribution Policy Contributions to GERS are established by the Board of Trustees of GERS. Contribution rates to the retirement plan for regular employees vary based on classification as Tier | or Tier Il. The GVI’s employer contribution for Tier | and Tier Il employees is 20.5% of the member’s annual salary, effective on January 1, 2015. Employee contribution rates effective on January 1, 2017 are as follows: Tier | Tier Il Regular Employees 11% 11.5% Public Safety Employees 13% 13.625% Legislature 12% 14% Judges 14% 15% Employee contribution rates effective on January 1, 2016 were 10% for all emplyees. Both the Plan and the System have a September fiscal year end. GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined time frames. For this report, the following time frames were used: Valuation Date: October 01, 2016 Measurement Date: September 30, 2016 Measurement Period: October 01, 2015 to September 30, 2016 The pension liability reported in the System’s financial statements is with regards to the payroll funded by sources other than government appropriations since the pension liability for all the employees paid by the GVI is accounted for at the GVI’s financial 27 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 statements. The System’s proportionate share of employer contributions recognized by GERS from the payroll funded by sources other than government appropriations was $40,181 or .0552% and $39,988 or 0.0571% as of September 30, 2017 and 2016, respectively. Additional Information Regarding the Pension Plan GERS is a blended component unit of the primary Government and issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Employees’ Retirement System of the Government of the Virgin Islands, 3438 Kronprindsens Gade, Saint Thomas, U.S. Virgin Islands 00802. Following is a summary of the information provided by GERS regarding the implementation of GASBS 68 for the System: Allocation Percentage Methodology and Changes in Assumptions - GASB Statement No.68, Accounting and Financial Reporting for Pensions, requires participating employers in the Plan to recognize their proportionate share of collective net pension liability, collective deferred outflows of resources, collective deferred inflows of resources, and collective pension expense excluding that attributable to employer-paid contributions. The assumptions used to calculate the employer allocations percentages presented in the Schedule of Employer Allocations and applied to amounts presented in the Schedule of Pension Amounts by Employer represent the average of each employer’s contributions during the period October 1, 2013 through September 30, 2016. Employer contributions to the Plan are recognized when due pursuant to legal requirements. Employer contributions are determined by the Board of Trustees. Net Pension Liability - The components of the System’s net pension liability, as estimated by GERS, was as follows for the years ended September 30, 2017 and September 30, 2016, respectively: System’s GERS System’s Estimated Pension Net Pension Allocable Pension Liability Liability Percentage Liability September 30, 2017 4,626 ,602,268 0.0552. % § 2,552,151 System’s GERS System’s Estimated Pension Net Pension Allocable Pension Liability Liability Percentage Liability September 30, 2016 S_4,071,660,837 0.0571.% $ 2,322,908 28 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 The collective total pension liability for September 30, 2016 was determined by an actuarial valuation as of October 1, 2016. The System’s proportion of the net pension liability was determined based on the change in assumptions to a three-year average of employer contributions to the pension plan, relative to the contributions of all participating reporting units, as actuarially determined. As of September 30, 2017, the System's proportion decreased 0.0019% from its proportion as of September 30, 2016. Deferred Outflows and Inflows of Resources - In computing the net pension liability, consideration was given to economic and demographic factors which may cause differences between expected and actual results, and deferred outflows and inflows of resources to be amortized to future periods. For the year ended September 30, 2017, the System recognized $285,510 of pension expense, inclusive of amortization of deferred outflows of pension related items. Following is a schedule of deferred outflows and deferred inflows computed by GERS to be allocated to the System in the computation of net pension liability: Deferred Deferred September 30, 2017 Outflows Inflows Difference between expected and actual experience $ 80,297 $ - Net difference between projected and actual investment earnings on pension plan investments 30,708 2,953 Changes in assumptions 526,475 - Changes in proportion and differences between contributions and proportionate share of contributions 132,348 117,646 Contributions made after measurement date 52,849 : Total deferred outflows and inflows of resources § 822.677, $ 120,599 29 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 For the year ended September 30, 2016, the System recognized $285,510 of pension expense, inclusive of amortization of deferred outflows of pension related items. Following is a schedule of deferred outflows and deferred inflows computed by GERS to be allocated to the System in the computation of net pension liability: Deferred Deferred September 30, 2016 Outflows Inflows Difference between expected and actual experience $ 58,977 $ - Net difference between projected and actual investment earnings on pension plan investments 43,368 - Changes in assumptions 430,683 - Changes in proportion and differences between contributions and proportionate share of contributions 161,122 (95,306) Amortization of deferred outflows of resources for the year (22,743) Total deferred outflows and inflows of resources S 671,407 $ (95,306) The cumulative amounts of collective net deferred outflows of resources and deferred inflows of resources reported as of September 30, 2017, will be recognized in pension expense as follows: Future Amortization of Deferred Net Outflows/Inflows System GERS Deferred Deferred Outflows/ Outflows/Inflo Year Ending September 30, Inflows Ws 2018 § 285,451,641 $ 174,225 2019 285,451,641 174,225 2020 224,589,177 137,078 2021 209,615,460 127,938 2022 72,589,081 44,306 Thereafter 72,589,081 44,306 Total net deferred outflows/inflows of resources $1,150,286,081 $ 702,078 30 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 Actuarial Assumptions: Actuarial Assumptions used in the computation of pension liability and deferred outflows of resources were as follows: Inflation: 2.50% Salary increases: 3.25% including inflation Discount rate: 3.20% net of pension plan investment expense, including inflation. Mortality rates: For healthy lives were based on 110% of the RP-2014 Blue Collar Healthy Annuitant and Employee Mortality Tables with generational projection from 2015 using Scale MP- 2015. For disabled lives were based on 125% of the RP-2014 Disabled Retiree Mortality Table with generational projection from 2015 using Scale MP-2015. Funding method: Entry Age Normal Cost Method determined as a level percent of salary funding method. Investment Rate of Return: The long-term expected rate of return of 7.0% on pension plan investments was determined using the building-block method in which best-estimate ranges of expected future real rates of returns (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of the measurement date of September 30, 2016 are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return Domestic equity 29 % 6.59 % International equity 12 % 8.29 % Fixed income 27 % 1.59 % Cash 2 % 0.99 % Alternatives 30 % 5.50 % Total asset class 100 % 31 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 AND 2016 12. Discount Rate - The discount rate used to measure total pension liability was 3.20% as of September 30, 2016. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate, including the future increases in the employee contribution rates legislated. Using the above assumptions, GERS fiduciary net position is not projected to be available to make all projected future benefit payments to current plan members. The plan has used a long-term expected rate of return on pension plan investments of 7.0%, applied to all periods of projected benefit payments that are covered by projected assets. For periods where projected future benefit payments are not covered by projected assets, the yield on a 20-year AA Municipal Bond Index was applied. As of September 30, 2016, that rate was 3.06%. The following table presents the System’s net pension liability under the assumptions of an increase or decrease of 1.00% in the Plan’s discount rate. Current 1% Decrease Discount Rate 1% Increase Allocable Share for the System (2.20%) (3.20%) (4.20%) Net pension liability $ 2,984,504 $ 2,552,151 $ 2,197,457 SUBSEQUENT EVENTS At the date of this report the Station has two approved FEMA’s project worksheets for damaged bulding and equipment caused by hurricanes Irma and Maria amounting to $24,571 and $46,134, respectively. During January 2018, the Station received vehicles insurance proceeds amounting to $11,514. On June 13, 2018, the Station received notification from the VI Government of an initial allocation of insurance proceeds in the amount of $792,461. FEMA is still in the process of completing the overall evaluation of damages and the applicable recovery programs. FEMA will deduct the insurance proceeds from the total awards to the station. Hurricanes related impact to the future System’s operations includes a 9% reduction in the fiscal year 2018 appropriation from the VI Government and increases in insurance premiums. For purposes of these financial statements, subsequent events have been evaluated through June 20, 2018, which is the date that financial statements were available to be issued. There are no additional material subsequent events that require further disclosures in the System’s financial statements. 32 REQUIRED SUPPLEMENTARY INFORMATION VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) SCHEDULE OF THE SHARE OF THE NET PENSION LIABILITY SEPTEMBER 30, 2017 2017 2016 2015 System’s proportion of the net pension liability 0.0552 % 0.0571 % 0.0503 % System’s proportionate share of the net pension liability § 2,552,151 $ 2,322,908 $ 1,552,267 System’s covered-employee payroll ) 203,149 $ 203,050 $ 186,176 System’s proportionate share of the net pension liability as a percentage of its covered-employee payroll 0.08 % 0.09 % 0.12 % Plan fiduciary net position as percentage of the total pension liability 16.54 % 19.58 % 27.26 % *The amounts presented for each fiscal year are as of the measurement date September 30, 2016, 2015 and 2014. This schedule is intended to show a 10 year trend. Information for years before 2015, are not available. Additional years will be reported as they become available. 34 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) SCHEDULE OF CONTRIBUTIONS SEPTEMBER 30, 2017 2017 2016 2015 2014 Actuarially required contributions § 136,431 S$ 114,251 $ 95,427 $ 96,739 Contributions in relation to the actuarially required contributions 40,208 41,276 34,354 34,146 Contribution deficiency/ (excess) 96,223 72,975 61,073 62,593 Covered-employee payroll 203,149 203,050 186,176 213,748 Contributions as a percentage of covered-employee payroll 19.79 % 20.33 % 18.45 % 16.91 % *The amounts presented for the fiscal year noted. This schedule is intended to show a 10 year trend. Information for years before 2014, is not available. 35 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2017 AND 2016 Valuation Date: October 01, 2016 Measurement Date: September 30, 2016 Actuarially determined contribution rates are calculated as of September 30, 2016, one year prior to the end of the fiscal year in which contributions are reported, and applied to all periods included in the measurement. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry Age Normal Cost Method determined as a level percent of salary. Amortization method Level dollar, closed group. Remaining amortization period 20 years open amortization Asset valuation method Market value Inflation 2.50% Salary increases 3.25% including inflation Discount rate 3.20%, net of pension plan investment expense, including inflation Retirement age 65 for inactive vested participants Mortality rates For healthy lives were based on 110% of the RP-2014 Blue Collar Healthy Annuitant and Employee Mortality Tables with generational projection from 2015 using Scale MP-2015. For disabled lives were based on 125% of the RP-2014 Disabled Retiree Mortality Table with generational projection from 2015 using Scale MP-2015. 36 SUPPLEMENTARY INFORMATION VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENT OF REVENUES AND EXPENSES PER DIVISION FOR THE YEAR ENDED SEPTEMBER 30, 2017 WTJX-TV WITJX-FM Total Operating revenues: Grants $ 1,019,650 $ - $ 1,019,650 Tower space rental 110,739 - 110,739 Underwriting 73,845 25,007 98,852 Fundraising 72,825 - 72,825 Advertising 5,919 - 5,919 Membership subscriptions and other donations 9,202 41,420 50,622 Other operating revenues 10.793 : 40.793 Total operating revenues 1,302,973 66,427 1.369.400 Non-operating revenues- Interest income 1,624 - 1,624 Insurance proceeds 47.164 - 47,164 Total Non-operating revenues 48.788 - 48.788 Contributions from Government of the U.S. Virgin Islands 3.671.044 : 3,671,044 Total revenues S___ 5,022,805, § 66,427, $ 5,042,068 Operating expenses: Program services: Salaries $ 1,568,681 $ 41,381 §$ 1,610,062 Program acquisition 717,387 33,299 750,686 Payroll taxes and contributions - - - Annual leave accrual (60,960) - (60,960) Employee benefits 527,579 8,495 536,074 Equipment rental and maintenance 20,428 - 20,428 Professional fees - - - Utilities 76,829 - 76,829 Travel 32,634 - 32,634 Supplies and other 7,781 - 7,781 Production 50,796 - 50,796 Advertising - - - Small equipment 3,450 - 3,450 Professional development/training - - - Commission - 719 719 Total program services 2.944.605 83,894 3,028,499 Management and general: Salaries 347,635 - 347,635 Employee benefits 202,158 - 202,158 Depreciation 449,130 - 449,130 Payroll taxes and contributions 144,054 3,166 147,220 Annual leave accrual - - - Utilities 201,303 - 201,303 38 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) STATEMENT OF REVENUES AND EXPENSES PER DIVISION FOR THE YEAR ENDED SEPTEMBER 30, 2017 WTJX-TV WTJX-EM Total Professional fees 183,909 2,390 186,299 Production 33,190 214 33,404 Repairs and maintenance 81,912 : 81,912 Insurance 100,542 100,542 Subscriptions and memberships 2,485 - 2,485 Professional development/training 15,273 . 15,273 Supplies and other 177,727 4,155 181,882 Program acquisition - 9,620 9,620 Automobile 38,551 - 38,551 Security 24,302 - 24,302 Printing and publications 432 432 Equipment rental and maintenance 2,183 2,183 Smail equipment 24,081 24,081 Postage and freight 5,497 - 5,497 Advertising 23,225 1,230 24,455 Computer supplies 10,803 10.803 Total management and general 2,068,392, 20,775 2,089,167 Fundraising expense 11,649 11,649 Total operating expenses $9,024,646 § 104.669, $5,129,315 39 OTHER SUPPLEMENTARY INFORMATION BDO PUERTO RICO, PSC BDO USVI, LLC BDO 1302 Ponce De Leon Ave. Foothills Professional Building Suite 101 9151 Estate Thomas, Suite 201 Sa San Juan, Puerto Rico 00907 St. Thomas, VI 00802 Tel: 787-754-3999 Tel: 340-776-0640 Fax: 787-754-3105 Fax: 340-779-8653 www.bdopr.com www.bdousvi.com INDEPENDENT AUDITORS’ 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 To the Board of Directors Virgin Islands Public Broadcasting System: 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 the Virgin Islands Public Broadcasting System (the “System”), which comprise the statement of net position as of September 30, 2017, and the related statements of revenues, expenses and changes in net position, and cash flows for the year then ended and the related notes to the financial statements, which collectively comprise the System’s basic financial statements, and have issued our report thereon dated June 20, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the System’s internal controls over financial reporting 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 the System’s internal control. Accordingly, we do not express an opinion on the effectiveness of the System’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph 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. However, as described in the accompanying schedule of findings and responses, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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 reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We considered no deficiencies to be material weaknesses. 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. We consider the following deficiencies described in the accompanying Schedule of Findings and Responses to be significant deficiencies: Finding 2017-001 through Finding 2017-003. BDO, Puerto Rico, PSC, a Puerto Rico Professional Services Corporation, and BDO USVI, LLC, a United States Virgin Island’s limited liability Company, are members of BDO International Limited, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member. |BDO To the Board of Directors Virgin Islands Public Broadcasting System Page 2 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. However, as described in the accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal control that we consider to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether the System’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 did not disclose instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Virgin Islands Public Broadcasting System’s Responses to Findings The System’s responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Responses. The System’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. 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 results of that testing, and not to provide an opinion on the effectiveness of the System’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 System’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. DO, wsu.t, Lec Certified Public Accountants June 20, 2018 St. Thomas, U.S. Virgin Islands BDO, Puerto Rico, PSC, a Puerto Rico Professional Services Corporation, and BDO USVI, LLC, a United States Virgin Island’s limited liability Company, are members of BDO International Limited, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member. VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) SCHEDULE OF FINDINGS AND RESPONSES SEPTEMBER 30, 2017 Internal Control Over Financial Reporting - Significant Deficiencies Finding 2017-001: (prevails from prior year, refer to Finding 2016-002): The System has entered into certain lease transactions for tower space. We noted that one tower rental lessee did not have a current contract agreement. We recommend that the System enter into written contract agreements for all tower rental arrangements. Management Response 2017-001: Management is contemplating the impact that signing agreement renewals will have on the System and the lessees in compliance with the FCC mandate to upgrade and/or build new towers. This would require the towers to have vendors’ equipment removed for a period of time. Responsible persons: Chief Executive Officer and Executive Assistant Target Implementation Date: October 1, 2018 Finding 2017-002: (prevails from prior year, refer to Finding 2016-006): The Director of Business Affairs has administrator rights in the accounting system which allows security access to perform all functions. Also, the Senior Accountant is responsible for adding new employees and inactivating terminated employees, as well as changes in to the employee's pay rate in the payroll system. In order to ensure adequate control over the System's information systems, proper segregation of duties is necessary. Therefore, we recommend that information technology personnel be in charge of administrator rights in the accounting system. Further, Human Resources personnel should be responsible for adding and inactivating separated employees, as well as updating employee's pay rate information. Management Response 2017-002: Management is currently working on removing the administrative rights protocol for the Director of Business Affairs. The Human Resources Director was granted a profile to access the SAGE 100 ERP payroll module but was not notified that she had said access. She will now be responsible for adding and inactivating terminated employees, as well as updating employees’ pay rate information. Responsible person: Assistant Director of Business Affairs Target Implementation Date: July 31, 2018 Finding 2017-003: Certain expense reimbursements for the System's CEO were approved and authorized by the CEO, after being requested and verified by other two authorized officers. Expense reimbursements to the System's CEO should be approved by a designated Board Member before disbursement. 43 VIRGIN ISLANDS PUBLIC BROADCASTING SYSTEM (A Component Unit of the Government of the United States Virgin Islands) SCHEDULE OF FINDINGS AND RESPONSES SEPTEMBER 30, 2017 Management Response 2017-003: Management is currently developing a reimbursement policy to address this matter. In the interim, the CEO has implemented the procedure that reimbursements to the CEO be approved and authorized by the Chairman of the Board, along with the verification of the two other staff verifying officers, none of which will be the CEO. Responsible persons: Human Resources Director and Board of Directors Target Implementation Date: September 30, 2018 44