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Start by examining the 2010 and 2011 totals are included in the same report. Operations Effectiveness. Does it appear that the Mayo Clinic management team is operating effectively as a nonprofit organization? Are they controlling operations? Why or why not? What evidence can you use to determine operational effectiveness? Accounting Performance. Discuss the performance of the Mayo Clinics revenue cycle, accounts receivables, cash flow, and inventory. Your analysis should compare the Mayo Clinics performance between 2010 and 2011 to justify your conclusions. Your response should be no more than 1,000 words, incorporate at least four financial concepts from the course and may include a spreadsheet to demonstrate your calculations.
mayo_clinic_2011_financial_statements.pdf

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Mayo Clinic
Consolidated Financial Report
December 31, 2011
Contents
Independent Auditor’s Report on the Financial Statements
1
Financial Statements
Consolidated statements of financial position
2
Consolidated statements of activities
3
Consolidated statements of cash flows
4
Notes to consolidated financial statements
Independent Auditor’s Report on the Supplemental Information
5-40
41
Supplemental Information
Mayo Clinic Florida:
Statements of financial position
Statements of activities
42
43
Independent Auditor’s Report
Board of Trustees
Mayo Clinic
We have audited the accompanying consolidated statements of financial position of Mayo Clinic (Clinic)
as of December 31, 2011 and 2010, and the related consolidated statements of activities and cash flows
for the years then ended. These financial statements are the responsibility of the Clinic’s management.
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. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Clinic’s internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Clinic’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Clinic as of December 31, 2011 and 2010, and the
consolidated changes in its net assets and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Minneapolis, Minnesota
February 16, 2012
1
Mayo Clinic
Consolidated Statements of Financial Position
December 31, 2011 and 2010 (In Millions)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable for medical services, less allowances for
uncollectible accounts of $340.8 in 2011 and $399.1 in 2010
Securities lending collateral (Note 4)
Other receivables (Notes 9 and 14)
Other current assets (Note 14)
Total current assets
$
Investments (Note 3)
Investments Under Securities Lending Agreement (Note 4)
Other Long-Term Assets (Notes 9 and 14)
Property, Plant and Equipment, net (Note 5)
Total assets
2010
2011
$
141.3
$
73.8
1,422.4
68.3
267.6
141.8
2,041.4
1,221.0
64.5
236.9
144.4
1,740.6
4,171.0
3,899.1
66.4
63.9
351.1
385.8
3,499.0
10,128.9
3,489.6
9,579.0
$
Liabilities and Net Assets
Current Liabilities
Accounts payable
Accrued payroll
Deferred revenue
Long-term variable-rate debt (Note 7)
Securities lending payable (Note 4)
Other current liabilities (Notes 13 and 14)
Total current liabilities
$
306.7
421.9
44.8
240.0
68.3
377.6
1,459.3
$
265.5
389.0
36.9
330.0
64.5
549.9
1,635.8
Long-Term Debt (Note 7)
1,631.9
1,360.4
Accrued Pension and Postretirement Benefits, net of current (Note 12)
1,636.7
1,099.3
Other Long-Term Liabilities (Notes 8, 13 and 14)
Total liabilities
671.6
5,399.5
669.7
4,765.2
3,074.8
863.9
790.7
4,729.4
10,128.9
3,225.8
850.8
737.2
4,813.8
9,579.0
Net Assets (Notes 9 and 10)
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
$
See Notes to Consolidated Financial Statements.
2
$
Mayo Clinic
Consolidated Statements of Activities
Years Ended December 31, 2011 and 2010 (In Millions)
Unrestricted
Revenue, gains and other support:
Net medical service revenue
$
Grants and contracts
Investment return allocated to current activities (Note 3)
Contributions available for current activities
Premium revenue
Other (Note 15)
Net assets released from restrictions (Note 9)
Total revenue, gains and other support
7,141.1
368.5
126.6
143.9
108.5
458.3
148.5
8,495.4
Expenses:
Salaries and benefits
Supplies and services
Facilities
Provision for uncollectible accounts
Finance and investment
Total expenses (Note 11)
5,141.3
1,897.5
614.6
159.8
52.3
7,865.5
Income (loss) from current activities
Noncurrent and other items:
Contributions not available for current activities, net
Unallocated investment return, net (Note 3)
Income tax expense (Note 6)
Contribution received from affiliation (Note 17)
Other
Total noncurrent and other items
Increase in net assets before other
changes in net assets
Pension and other postretirement benefit
adjustments (Note 12)
Increase (decrease) in net assets
Net assets at beginning of year
Net assets at end of year
$
Temporarily
Restricted
$
18.0
110.8
(148.5)
(19.7)
2010
2011
Permanently
Restricted
$

Total
$
7,141.1
368.5
144.6
254.7
108.5
458.3
8,475.7
Unrestricted
$
6,735.7
344.6
104.5
69.4
108.6
451.6
151.8
7,966.2


5,141.3
1,897.5
614.6
159.8
52.3
7,865.5
4,911.8
1,725.0
590.7
160.1
39.1
7,426.7
629.9
(19.7)

610.2
(11.2)
(28.5)
(22.9)
16.2
0.4
(46.0)
13.3
19.5
32.8
53.5
53.5
583.9
13.1
(734.9)
(151.0)
13.1
3,225.8
3,074.8
$
850.8
863.9
See Notes to Consolidated Financial Statements.
3
$
18.3
109.3
(151.8)
(24.2)
Permanently
Restricted
$

Total
$
6,735.7
344.6
122.8
178.7
108.6
451.6
7,942.0


4,911.8
1,725.0
590.7
160.1
39.1
7,426.7
539.5
(24.2)

515.3
55.6
(9.0)
(22.9)
16.2
0.4
40.3
(14.1)
196.4
(22.3)
1.3
161.3
(6.5)
78.1
71.6
44.6
44.6
24.0
274.5
(22.3)
1.3
277.5
53.5
650.5
700.8
47.4
44.6
792.8
53.5
(734.9)
(84.4)
(250.0)
450.8
47.4
44.6
(250.0)
542.8
737.2
790.7
$
Temporarily
Restricted
$
4,813.8
4,729.4
$
2,775.0
3,225.8
$
803.4
850.8
$
692.6
737.2
$
4,271.0
4,813.8
Mayo Clinic
Consolidated Statements of Cash Flows
Years Ended December 31, 2011 and 2010 (In Millions)
2010
2011
Cash Flows From Current Activities
Increase (decrease) in net assets
Adjustments to reconcile changes in net assets to net cash provided
by current activities:
Depreciation and amortization
Provision for uncollectible accounts
Net realized and unrealized gain on investments
Restricted gifts, bequests and other
Net change in accounts receivable and other current assets and
liabilities, net of effects from affiliation
Change in deferred tax asset
Pension and other postretirement benefits adjustments
Net change in other long-term assets and liabilities
Net cash provided by current activities
$
(84.4)
$
542.8
401.2
159.8
(48.1)
(53.5)
395.4
160.1
(316.2)
(44.6)
(265.5)
4.6
296.6
45.4
456.1
(249.0)
27.3
(35.8)
95.1
575.1
Cash Flows From Investing Activities
Purchase of property, plant and equipment
Purchases of investments
Sales and maturities of investments
Proceeds from affiliation
Net cash used in investing activities
(410.6)
(470.9)
244.6
1.1
(635.8)
(373.1)
(1,991.0)
1,773.0
(591.1)
Cash Flows From Financing Activities
Restricted gifts, bequests and other
Borrowings on long-term debt
Payment of long-term debt
Net cash provided by financing activities
65.7
725.0
(543.5)
247.2
62.8
130.0
(144.0)
48.8
67.5
32.8
Net increase in cash and cash equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
$
See Notes to Consolidated Financial Statements.
4
73.8
141.3
$
41.0
73.8
Mayo Clinic
Notes to Consolidated Financial Statements (In Millions)
Note 1.
Organization and Summary of Significant Accounting Policies
Organization: Mayo Clinic (Clinic) and its Arizona, Florida, Iowa, Minnesota and Wisconsin affiliates
provide comprehensive medical care and education in clinical medicine and medical sciences and
conduct extensive programs in medical research. The Clinic and its affiliates also provide hospital and
outpatient services, and at each major location, the clinical practice is closely integrated with advanced
education and research programs. The Clinic and most of its subsidiaries have been determined to
qualify as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (Code) and as
a public charity under Section 509(a)(2) of the Code.
Basis of presentation: Included in the Clinic’s consolidated financial statements are all of its wholly
owned or wholly controlled subsidiaries, which include both tax-exempt and taxable entities. All significant
intercompany transactions have been eliminated in consolidation. In addition, these statements follow
generally accepted accounting principles applicable to the not-for-profit industry as described in the
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958.
New accounting pronouncements: In May 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs, which changes the wording used to describe many of the requirements in U.S. GAAP for
measuring fair value and disclosing information about fair value measurements, and clarifies the
application of existing fair value measurement requirements. The update is effective during interim and
annual periods beginning on or after January 1, 2012, for the Clinic. Adoption of this update will not have
a material effect on the Clinic’s consolidated financial statements.
In July 2011, the FASB issued ASU No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal
Government by Health Insurers, which requires the liability for the fee be estimated and recorded once
the entity provides qualifying health insurance with a corresponding deferred cost that is amortized to
expense using a straight-line method of allocation, unless another method is better. The update is
effective January 1, 2014, for the Clinic, which is when the fee becomes initially effective. The Clinic is
assessing the impact of the implementation of ASU 2011-06 on its consolidated financial statements.
Also in July 2011, the FASB issued ASU No. 2011-07, Health Care Entities (Topic 954): Presentation and
Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts
for Certain Health Care Entities, which requires certain health care entities to change the presentation of
their statement of operations by reclassifying the provision for bad debts associated with patient service
revenue from an operating expense to a deduction from patient service revenue (net of contractual
allowances and discounts). Additionally, those health care entities are required to provide enhanced
disclosures about their policies for recognizing and assessing bad debts, disclosures of patient service
revenue, and qualitative and quantitative information about changes in the allowance for doubtful
accounts. The update is effective for fiscal years and interim periods beginning on or after January 1,
2012, for the Clinic. The presentation of the provision for bad debts will be applied retrospectively to all
prior periods presented, and the disclosure requirements will be provided for the period of adoption and
subsequent reporting periods. Adoption of this update will not have a material effect on the Clinic’s
consolidated financial statements.
Use of estimates: The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements. Estimates also affect the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
5
Mayo Clinic
Notes to Consolidated Financial Statements (In Millions)
Note 1.
Organization and Summary of Significant Accounting Policies (Continued)
Cash and cash equivalents: Cash and cash equivalents include currency on hand, demand deposits
with banks or other financial institutions, and short-term investments with maturities of three months or
less from the date of purchase, which are not managed by the Clinic’s investment managers.
Accounts receivable for medical services: Accounts receivable for medical services are stated at net
realizable value. The Clinic estimates the allowances for uncollectible accounts based on historic writeoffs and the aging of the accounts. Accounts are written off when collection efforts have been exhausted.
Inventories: Inventories, consisting primarily of medical supplies and pharmaceuticals, are stated at the
lower of cost or market, determined using the first-in, first-out method.
Investments: Investments in equity and debt securities, including alternative investments, are recorded
at fair value (Note 3). Realized gains and losses are calculated based on the average cost method.
Investment income or loss (including realized and unrealized gains and losses on investments, interest
and dividends) are included in the consolidated statements of activities.
The investments in alternative investments may individually expose the Clinic to securities lending, short
sales, and trading in futures and forward contract options and other derivative products. The Clinic’s risk
is limited to the investment’s carrying value.
It is the Clinic’s intent to maintain a long-term investment portfolio to support research, education and
other activities. Accordingly, the total investment return is shown in the consolidated statements of
activities in two segments. The investment return allocated to current activities is determined by a
formula, which involves allocating 5 percent of a three-year moving average of investment returns related
to endowments and additionally entails the matching of financing costs for the assets required for
operations. Management believes this return is approximately equal to the real return that the Clinic
expects to earn on its investments over the long term. The unallocated investment return, included in
noncurrent and other items in the consolidated statements of activities, represents the difference between
the total investment return and the amount allocated to current activities.
Property, plant and equipment: Property, plant and equipment are carried at cost less accumulated
depreciation. Plant and equipment are depreciated over estimated useful lives ranging from three to
50 years using the straight-line method. Depreciation expense is reflected in facilities expense and was
$401.2 and $395.4 in 2011 and 2010, respectively, and includes amortization of assets recorded under
capital leases.
Costs associated with the development and installation of internal-use software are accounted for in
accordance with the Intangibles—Goodwill and Other, Internal Use Software subtopic of the FASB ASC.
Accordingly, internal-use software costs are expensed or capitalized according to the provisions of the
accounting standard.
Asset retirement obligations: The Clinic accounts for the estimated cost of legal obligations associated
with long-lived asset retirements in accordance with the Asset Retirement and Environmental Obligations
topic of the FASB ASC. The asset retirement liability, recorded in other long-term liabilities, is accreted to
the present value of the estimated future costs of these obligations at the end of each period.
6
Mayo Clinic
Notes to Consolidated Financial Statements (In Millions)
Note 1.
Organization and Summary of Significant Accounting Policies (Continued)
Net assets: Resources are classified for reporting purposes into three net asset categories (unrestricted,
temporarily restricted and permanently restricted) according to the absence or existence of donorimposed restrictions. Temporarily restricted net assets are those assets, including contributions and
accumulated investment returns, whose use has been limited by donors to specific purposes or time
periods. Permanently restricted net assets are those for which donors require the principal of the gifts to
be maintained in perpetuity and provide a permanent source of income.
Net medical service revenue: The Clinic has agreements with third-party payors that provide for
payments to the Clinic at amounts different from its established rates. Payment arrangements include
prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem rates.
Net medical service revenue is reported at the estimated net amounts due from patients and third-party
payors for services rendered.
Grants and contracts: Reciprocal grants and contracts revenue is recognized when the expenses have
been incurred for the purpose specified by the grantor or in accordance with the terms of the agreement.
Payments received in advance are reported as deferred revenue. Grant and contract amounts due to the
Clinic are included in other receivables.
Premium revenue: Premium revenue represents capitated health premiums received by a managedcare subsidiary from third-party payors and is recognized as revenue in the period in which enrollees are
entitled to health care services.
Charity and uncompensated care: The Clinic provides health care services to patients who meet
certain criteria under its Charity Care Policy without charge or at amounts less than established rates.
Since the Clinic does not pursue collection of these amounts, they are not reported as revenue. The
estimated cost of providing these services was $61.9 and $64.4 in 2011 and 2010, respectively,
calculated by multiplying the ratio of cost to gross charges for the Clinic by the gross uncompensated
charges associated with providing care to charity patients. In addition to the charges related to the direct
patient care provided under the Clinic’s Charity Care Policy, the Clinic has programs offered to benefit the
broader community and other governmental reimbursement programs. The Clinic also participates in
various state Medicaid programs for indigent patients. The estimated cost of providing services related to
Medicaid programs totaled $260.4 and $215.5 in 2011 and 2010, respectively.
Contributions: The Clinic classifies unrestricted contributions and temporarily restricted contributions
that are available for current activities as revenue, based on the lack of specific donor restriction or the
presence of donor restrictions and the ability of the Clinic to meet those restrictions within the fiscal year.
Permanently restricted contributions and temporarily restricted contributions that are not available for
current activities are classified in noncurrent and other items in the consolidated statements of activities.
Development expenses of $41.0 and $38.2 are allocated between current ($33.2 and $32.8) and
noncurrent ($7.8 and $5.4) activities in 2011 and 2010, respectively. The current portion is recorded in
expenses, and the noncurrent portion is netted against unrestricted contributions in the consolidated
statements of activities. Unconditional promises to give are reported at fair value at the time of the pledge.
An allowance for uncollectible pledges receivable is estimated based on a combination of historical
experience and specific identification. Conditional promises to give are recognized at fair value when the
conditions on which they depend are substantially met or the probability that the condition will not be met
is remote.
The Clinic does not imply a time restriction that expires over the …
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