IDEAL ACADEMY PUBLIC CHARTER SCHOOL FINANCIAL STATEMENTS AND SCHEDULES IN ACCORDANCE WITH OMB CIRCULAR A-133. With Reports of Independent Auditors

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1 FINANCIAL STATEMENTS AND SCHEDULES IN ACCORDANCE WITH OMB CIRCULAR A-133 With Reports of Independent Auditors For the Years Ended June 30,2012 and 2011 Walker & Co.. LLP

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS Statements offinancial Position Statements of Activities and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements SUPPLEMENTAL INFORMATION Schedule of Functional Expenses 16 GOVERNMENT REPORTS Schedule ofexpenditures of Federal Awards Notes to Schedule of Expenditures offederal Awards Report of Independent Auditors 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 Report of Independent Auditors on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SCHEDULE OF CURRENT YEAR FINDINGS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS

3 Walker & Co., LLP Assurance, Business and Advisory Sen-ices REPORT OF INDEPENDENT AUDITORS Board of Trustees Ideal Academy Public Charter School We have audited the accompanying statements of financial position of Ideal Academy Public Charter School (the School or Ideal) as of June 30, 2012 and 2011, and the related statements of activities and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the School'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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofldeal Academy Public Charter School as of June 30, 2012 and 2011, and the 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. As discussed in Note 14, the School had significant debt obligations and a working capital deficiency at June 30, In accordance with Government Auditing Standards, we have also issued our report dated July 2, 2013, on our consideration of Ideal's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audits Wisconsin Avenue, NW, 5th Floor, Washington. DC I T F Member AI CPA Private Companies Practice Section & Government Audit Quality Center

4 Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The schedule of functional expenses is presented for the purposes of additional analysis and is not a required part of the financial statements of the School. The schedule of expenditures of federal awards is required by U.S Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the fmancial statements themselves, and other additional procedures in accordance with the auditing standards generally accepted in the United States. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. July 2, 2013

5 STATEMENTS OF FINANCIAL POSITION June 30, ASSETS Current Assets Cash $ 9,126 $ 12,021 Accounts receivable 30,014 20,630 Grants receivable 187, ,149 Pledges receivable 6,000 6,000 Prepaid expenses and other current assets 2,898 1,198 Total current assets 235, ,998 Security deposit 5,460 Long term pledges receivable, net of discount and allowance 15,825 Property and equipment, net 13,312,423 Total Assets $ 13,569,188 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 108,486 Other current liabilities 10,723 Accrued expenses 451,265 Deferred revenue 182,478 Accrued rent and utilities 116,312 Debt obligations, current portion 284,270 Total current liabilities 1,153,534 Debt obligations, net of current portion 11,407,186 Total liabilities 12,560,720 Net Assets Unrestricted 1,008,468 Total Liabilities and Net Assets $ 13,569,188 5,460 15,825 13,758,989 $ 13,983,272 $ 244,355 45, , , , ,545 1,401,934 11,688,703 13,090, ,635 $ 13,983,272 See notes to financial statements

6 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Year ended June 30, Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total REVENUE AND SUPPORT Revenue Per pupil allotments $ 4,070,505 $ $ 4,070,505 $ 5,501,075 $ - $ 5,501,075 Program income 46,689 46, ,147 Fundraising 25,071 25,071 23,222 23,222 Interest income ,695-1,695 Other income 42,462-42,462 78,494 78,494 Total revenue 4,184,878 4,184,878 5,629,633 5,629,633 Support Federal grants 647, , , ,847 Donated goods and services 177, , , ,836 Other contributions 1,512 1,512 19,229 19,229 Net assets released from restrictions - 53,8 16 (53,816) Total support 826, ,118 1,155,728 (53,816) 1,101,912 Total Revenue and Support 5,010,996 5,010,996 6,785,361 (53,816) 6,731,545 EXPENSES Program services 3,75 1,653 3,751,653 5,550,568-5,550,568 Supporting services General and administration 1,1 11,868-1,111,868 1,271,108 1,271,108 Fundraising 31,642 31,642 15,080-15,080 Total supporting services 1,143,5 10 1,143,510 1,286,188 1,286,188 Total Expenses 4,895,163 4,895,163 6,836,756-6,836,756 Changes in Net Assets 115, ,833 (51,395) (53,816) (105,211) NET ASSETS, Beginning of Year 892, , ,030 53, ,846 NET ASSETS, End of Year $ 1,008,468 $ $ 1,008,468 $ 892,635 $ $ 892,635 See notes to financial statements. -4-

7 STATEMENTS OF CASH FLOWS Year ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ 11 5,833 $ (105,211) Adjustments to reconcile changes in net assets to net cash provided by operating activities Depreciation and amortization 460, ,523 Donated equipment capitalized and recorded as contribution (335,836) Change in accounts receivable (9,384) (20,630) Change in grants receivable (24,293) 97,586 Change in prepaid expenses and other current assets (1,700) 11,112 Change in accounts payable (135,869) 122,500 Change in other current liabilities (34,770) 35,339 Change in accrued expenses (1 36,769) 219,913 Change in deferred revenue 46,283 22,885 Change in accrued rent and utilities 16,615 Net Cash Provided by Operating Activities 279, ,796 NET CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (13,500) (28,714) NET CASH FLOWS FROM FINANCING ACTIVITIES Net change in line of credit (93,000) Payments on debt obligations (268,792) (404,763) Net Cash (Used in) Financing Activities (268,792) (497,763) Change in cash (2,895) (3,681) CASH, Beginning of Year 12,021 15,702 CASH, End of Year $ 9,126 $ 12,021 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 459,937 $ 482,563 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Donated equipment $ $ 335,836 See notes to fmancial statements. - 5-

8 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTEl ORGANIZATION AND NATURE OF OPERATIONS Ideal Academy Public Charter School (the School or Ideal), a District of Columbia (District or DC) not-for-profit entity, was organized in 1999 to provide disadvantaged and at-risk students with a learning environment where they develop and maximize their cognitive, cultural and civic skills, becoming competent contributors to a global society. The School's activities are primarily funded through local appropriations from the Government of the District, and entitlements from federal agencies, pass-through entities and grants and contributions from foundations and other donors. Academics The School' s mission is to ensure that students achieve their maximum potential through a balanced program which emphasizes academic excellence in conjunction with both mental and physical wellness. Ideal's goal is to empower students to excel academically and achieve maximum self-reliance and personal fulfillment. This is accomplished by engaging students in dynamic learning experiences based on proven educational methods, incorporating strong community and parental involvement. There is a collaborative effort to create a safe and caring learning environment that nurtures and empowers students, their parents and the teaching staff. The current program supports pre-school through eighth grade students. Before/Aftercare The philosophy of the Before/Aftercare program is to provide an extension of the excellence in education standard at Ideal. The School provides a safe, caring and fun learning environment while encouraging students' social, physical and academic development. The Before/Aftercare program offers supervision and care to all students whose parents desire participation, for a weekly or daily fee. Daily breakfast is served for Before-care and snacks are served for After-care. NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies utilized in the preparation of the financial statement follows: Basis of accounting The School prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States - 6-

9 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of accounting (continued) (GAAP). In accordance with GAAP, revenues are recognized when earned and expenses and related liabilities are recorded when the obligations are incurred. Revenue from reimbursable government grants is recognized as related expenses are incurred. Basis of presentation The financial statement presentation follows the recommendations of the Financial Accounting Standards Board Accounting Standards Codification (F ASB ASC) No , Presentation of Financial Statements for Not-for-Profit Entities. Under F ASB ASC No , the School is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted, based upon the existence or absence of donor imposed restrictions. The School does not have permanently restricted net assets. Fair value of.financial instruments FASB ASC No , Disclosures of Fair Value of Financial Instruments, requires the School to disclose estimated fair values for its fmancial instruments. Fair value estimates, methods, and assumptions are set forth below for the School's financial instruments. The carrying amounts of cash, grants receivable, other current assets, accounts payable, accrued expenses, and current portion of notes payable approximate fair value because of the relatively short maturity of those instruments. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, gains, expenses and losses during the reporting period. The most significant estimates in these financial statements are pledges receivable, accrued payroll, and other expenses and deferred liabilities. Actual results could differ from those estimates. Cash Cash includes amounts on hand and amounts held at financial institutions. The School maintains its cash balances in federally insured financial institutions

10 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Grants receivable Grants receivable are stated at net realizable value. On a periodic basis, management evaluates its receivable balances and establishes an allowance for doubtful accounts based on management's analysis of possible bad debts. It is the School's policy to write off uncollectible grants receivable when management determines that such balances will not be collected. Pledges receivable The School received pledges from various donors payable in future periods. As such, contributions to Ideal include gifts received and net change in pledges receivable during the reporting period. The net change in total pledges is recorded as a net increase (decrease) in the statements of activities and changes in net assets. The present value of the future payments, discounted at a rate of 2.54% (the average five year Treasury rate), was recorded as revenue with the unpaid portion recorded as receivable. Property and equipment Property and equipment valued in excess of $1,000 are capitalized and recorded at cost, if purchased, or estimated fair value at the date of gift, if donated. Depreciation expense is recorded using the straight-line method over the following estimated economic lives of: Building and building components Depreciable land improvements Equipment years years 3-7 years Repairs, maintenance and minor replacements are expensed as incurred while major replacements and/or improvements that extend the useful lives of assets are capitalized. Accrued expenses Accrued expenses include accrued payroll and other expenses. These expenses were incurred but not paid as of the date of the financial statements. Deferred revenue The School receives money in advance every fiscal quarter as well as for its summer school programs. Funds received prior to each session are recorded as deferred liabilities and recognized as revenue in the subsequent periods as related costs are incurred

11 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net asset categories Unrestricted net assets are assets not subject to donor-imposed stipulations. Included are expendable resources used to support the School's core programs. Donor-restricted contributions that are received and expended in the same year are classified as unrestricted. All expenses are recorded as reductions to unrestricted net assets. Temporarily restricted net assets are assets subject to donor-imposed stipulations that may or will be met, either by actions of the School and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. Government grants and contracts Ideal receives funding under grants and contracts from the federal government and District of Columbia agencies for direct and indirect program costs. This funding is subject to contractual restrictions, which must be met through incurring qualifying expenses for particular programs. Accordingly, such grants and contracts are considered exchange transactions and are recorded as unrestricted revenue to the extent that related expenses are incurred in compliance with the criteria stipulated in the grant and contract agreements. Grants and contributions Grants and contributions are recorded when awarded or pledged and are classified as unrestricted or temporarily restricted support depending on the existence and/or nature of any donor restrictions. Temporarily restricted grants and contributions on which restrictions are fulfilled in the same period are recorded as unrestricted support in the statements of activities and changes in net assets. Revenues from federal grants are recognized when direct costs associated with the sponsored program are incurred. Donated goods and services As required by FASB ASC No , Accounting for Contributions Received and Contributions Made, donated goods and services include materials and assistance which creates or enhances non-financial assets or requires - 9-

12 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Donated goods and services (continued) specialized skills provided by individuals possessing those skills. Those skills would typically need to be purchased if not provided by donation, and are recorded by the School at fair value as revenue with corresponding expense the period such services are delivered. Allocation of functional expenses The costs of providing the various programs and other activities have been sununarized on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs have been allocated among program and supporting services benefited. General and administrative expenses include supporting expenses not directly identifiable with any other specific function but provide for the overall support and direction of the School. Reclassification Certain amounts in the prior year have been reclassified to conform to the current year presentation. NOTE3 INCOME TAXES The School received a determination letter from the Internal Revenue Service exempting the School from federal income taxes under Section 501 (c)(3) of the Internal Revenue Code (Code) and applicable income tax laws and regulations of the District. The School is classified as other than a private foundation within the meaning of Section 509( a)(l) of the Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements. NOTE4 UNCERTAIN TAX POSITION The School has analyzed its tax positions taken for filings with the Internal Revenue. It believes that its tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on its financial position, statement of activities, or cash flows. The School's tax returns are subject to examination by federal, state and local taxing authorities, generally for three years after they are filed. NOTES GRANTS RECEIVABLE The grants receivable balance represents amounts due from the District government. At June 30, 2012 and 2011, grants receivable balances totaled $187,442 and $163,149, respectively. The School has not recorded an allowance - 10-

13 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTES GRANTS RECEIVABLE (Continued) for doubtful accounts based on management's determination that those amounts are fully collectible. NOTE6 PLEDGES RECEIVABLE During fiscal year 2009, the School received pledges from various donors payable over a five year period. Pledges receivable are reported net of an allowance for uncollectibility and an adjustment for net present value. Expected collection of pledges at June 30 is as follows: Less than one year One to five years Less: Discount Less: Allowance for uncollectibility Pledges receivable, net Less: Current portion $ 6,000 24,000 30,000 (2,175) (6,000) 21,825 (6,000) $ 15,825 $ 6,000 24,000 30,000 (2,175) (6,000) 21,825 (6,000) $ 15,825 NOTE7 PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30: 2012 Building and improvements $ 13,750,462 Land 858,280 Equipment 1,150,433 Textbooks 108,870 Furniture and fixtures 135,046 Vehicles 70,119 16,073,210 Less: Accumulated depreciation (2,760,787} Property and equipment, net $ 13,312,423 $ $ ,736, ,280 1,150, , ,046 70,119 16,059,710 {2,300, 721} 13,758,989 Depreciation expense for the fiscal years ended June 30, 2012 and 2011, was $460,066 and $458,523, respectively. The School received donated computers valued at $59,415 and $335,836 in fiscal years 2012 and The equipment received in fiscal2012 was not capitalized

14 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTES ACCRUED EXPENSES Accrued expenses consisted ofthe following at June 30: Salaries $ 120,303 $ 308,611 Payroll taxes 126, ,591 Accrued interest and penalty 78,142 22,070 Administrative fees 72,904 55,958 Other expenses 53,050 30,804 Total $ 451,265 $ 588,034 NOTE9 DONATED EQUIPMENT AND SERVICES The fair value of donated equipment and services is recorded as support with an offsetting expense or asset capitalization in accordance with FASB ASC No Donated goods and services consisted of the following at June 30: Special education teacher services Equipment $ 118,000 $ 59,415 $ 177,415 $ 132, , ,836 NOTE 10 OPERATING LEASE Ideal's upper school operations were conducted at premises leased on a month to month basis with monthly payments of$12,879 plus incremental costs of$3,737. Rent expense totaled $154,548 for the fiscal year ended June 30, At the end of fiscal 2011, Ideal ceased its upper school operations. Ideal did not have any operating lease expense for fiscal2012. NOTE 11 RETIREMENT PLAN All full-time employees who are twenty-one years and older and are employed for more than thirty days are eligible to participate in a retirement plan (the Plan). The Plan is a tax-deferred annuity plan under Section 403(b) of the Code and is administered by a retirement planning company. During fiscal years 2012 and 2011, the School was not required to make and did not make any contributions to the Plan

15 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE 12 DEBT OBLIGATIONS Debt obligations consisted of the following at June 30: Series 2007 revenue bonds; principal amount totaling $10,600,000 issued by the District of Columbia on January 22, 2008, proceeds loaned by a financial institution to the School to purchase a building; Repayment on the loan was interest-only for the first year. The required monthly payments of $57,067 commenced on January 1, Loan matures m December 2031 and 1s secured by a mortgage lien on the building. The effective interest rate was 4.13%. District of Columbia through its Office of Public Charter School Financing and Support (OPCSFS); $2,000,000 loan to assist School in the purchase of its building; annual interest at 4%; payments due in quarterly interest-only payments of $20,000 beginning January 13, 2007 through October 13, 2011 with balloon payment of principal and unpaid interest due. Obligation is secured by second lien on the School's building. The payment and maturity date of the loan was subsequently modified (see Note 15). Total debt obligations Less: current maturities Debt obligations, net of current portion 2012 $ 9,691,456 2,000,000 11,691,456 (284,270) $ 11,407, $ 9,960, ,000 11,960,248 (271,545) $ 11,668,703 Interest on debt obligations totaled $516,009 and $501,207 for the fiscal years ended June 30,2012 and 2011, respectively. The School is subject to compliance with certain debt covenants including a minimum debt service coverage ratio (DSCR) of 1.2 to 1. At June 30, 2011, the School failed to meet the DSCR and was in violation of the covenant. The $2 million loan was subsequently modified and the terms renegotiated, therefore, current and non-current debt reflects the repayment schedule of the modified loan (see Note 15)

16 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 201 I NOTE 12 DEBT OBLIGATIONS (Continued) Future maturities of debt obligations are as follows as of June 30: 2013 $ 284, , , , ,641 Thereafter 9,579,553 $ 11,691,456 The fair value of the debt approximates the carrying value based upon terms and rates Ideal could obtain for obligations of a similar nature. NOTE 13 CONCENTRATION OF RISK The School receives a substantial amount of its annual support and revenue from the District government based on its fifteen-year charter agreement with the District of Columbia Public Charter School Board (DCPCSB). Reduction of this source of support would have a significant negative impact on the School's programs and activities. NOTE 14 MANAGEMENT'S PLAN TO MEET ITS DEBT OBLIGATIONS As discussed in Note 12, the School's debt obligations, at June 30, 2012, totaled $11,691,456. Also, its current liabilities exceeded current assets by $918,054. Ideal is obligated to make monthly payments of $57,067 on a $10,600,000 bank loan and maintain debt covenants that include a debt service coverage ratio of at least 1.2 to 1 (see note 12). The School has made all required interest payments on its loan with OPCSFS through April 30, Ideal has also made all payments of principal and interest on its bond obligation through June 1, Ideal has eliminated the cost of non-essential services and continues to seek funding to complete the build-out of unfinished space while it continues to focus on increasing student enrollment. The School is also focused on raising additional funds through both public and private sectors to meet its cost of operations and debt service requirements

17 NOTES TO FINANCIAL STATEMENTS June 30, 2012 and 2011 NOTE 14 MANAGEMENT'S PLAN TO MEET ITS DEBT OBLIGATIONS (Continued) At the end of fiscal 2011, Ideal closed the school's upper campus (high school) and consequently did not renew its operating lease. The school is continuing elementary and middle school and is planning to increase its enrollment each year to achieve its maximum enrollment of 450 students by The school has implemented reductions in personnel costs, employed energy-saving strategies, and reduced non-essential costs. These cost reductions combined with projected increases in number of students enrolled are designed to enable the school to continue the servicing of its restructured debt and maintenance of related covenants. There is no assurance that the School will be able to successfully achieve this plan or meet its future financial obligations. NOTE 15 SUBSEQUENT EVENTS In preparing these financial statements, the School has evaluated events and transactions through July 2, 2013, the date the financial statements were available to be issued, for potential recognition or disclosure in the financial statements for the year ended June 30, Ideal modified its $2,000,000 loan on January 17, The modification extended the maturity date of the loan to 5 years from the date of modification. Loan payments will be amortized over ten years and repaid quarterly in interest only payments for the first year and, thereafter, in quarterly principal and interest payments until maturity. At maturity, the School will be obligated to pay the entire balance of unpaid principal and interest

18 SUPPLEMENTAL INFORMATION

19 IDEAL AC AD EMY PUBLIC CHARTER SCHOOL SCHEDULE OF FUNCTIONAL EXPENSES For the Year ended June 30,2012 with Comparative Totals for 2011 Year ended June 30, 2012 Program Services Supporting Services General and Academics Administration Fundraising Grand Total Personnel salaries and benefits Salaries $ Employee benefits Payroll taxes Professional development Total personnel, salaries and benefits 2,156, , ,851 50,845 2,495,199 $ 309, 196 $ 14,042 30, ,376 - $ 2,465, , ,918 50,916 2,848,5~ $ 4,044, , , ,834 4,606,904 Direct Student Costs Educational supplies and material Student assessment materials Donated equipment and professional services Contracted instructional Transportation Total direct student costs 6,781 28, , ,776 4, ,256 6,781 28, , ,776 4, ,256 11,062 1, , , ,349 Occupancy Expenses Maintenance and repairs Rent Utilities Building supplies/materials Contracted building services Total occupancy expenses 18, ,849 11,587 7, , , ,019 18, ,501 12,167 8, ,079 22, , ,997 7,594 11, ,427 See notes to financial statemen ts. -16-

20 SCHEDULE OF FUNCTIONAL EXPENSES For the Year Ended June 30,2012 with Comparative Totals for 2011 Year ended June 30, 2012 Program Services Supporting Services General and Grand Academics Administration Fundraising Total 2011 Office Expenses Office supplies and materials 7, ,427 6,947 Office equipment rental and maintenance 33,994 13,366 47,360 29,022 Telephone/telecommunications 25,583 2,423-28,006 22,906 Professional fees 4,532 45,749 50,281 20,923 Printing and copying ,402 Postage and shipping 235 3,680 3,915 2,962 Computer and related 2,5 11 2,511 3,054 Memberships and subscriptions ,112 Other office expense 8,329 8,329 34,984 Total office expenses 74,660 75, , ,312 General Expenses Insurance 98,578-98, ,849 Food service/catering 212,849 2, , ,431 Interest expense 68, , , ,633 Administration fee - 16,946 16,946 27,765 Depreciation 351, , , ,523 Fees and licenses Other general expense 21,939 1,895 31,642 55,476 50,448 Total general expenses 654, ,240 31,642 1,362,360 1,387,764 Total Expense $ 3,751,653 $ 1,111,868 $ 31,642 $ 4,895,163 $ 6,836,756 See notes to financial statements. -17-

21 GOVERNMENT REPORTS

22 SCHEDULE OF EXPENDITURES OF FEDERAL A WARDS Year Ended June 30,2012 Gr Pass-through Federal Grantor/Pass-Through CFDA Entity Identifying an_t_o_r!p_r_o~w~a_m or_c_i_u_st_e_r_t_itl_e N_u_m be r Number Federal Expenditures U.S. Department of Education: Pass-through programs from District of Columbia Public Schools Title I Part A Cluster Title I, Part A Title I, Part A - ARRA Total Title I Part A Cluster Title II, Part A Title IV, Part A A $ 274,793 71, ,282 43, ,195 Teacher's Compensation Race to the Top Incentive Grant- ARRA 84.XXX ,500 61,383 73,883 Total U.S. Department of Education 464,078 U.S. Department of Agriculture: Pass-through programs from District of Columbia Public Schools, Division of Food and Nutrition Services National School Lunch Prowam Total Expenditures of Federal Awards ,113 $ ==6=4=7 '=1 =91= The accompanying notes are an intewal part of this schedule

23 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2012 NOTEl BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of Ideal Academy Public Charter School (the School) under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The Schedule presents only a select portion of the School's operation and therefore, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the School. NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Pass-through entity identifying numbers are presented where available. NOTE3 FEDERAL PROGRAMS The following is a description of the federal programs for the year ended June 30, 201 2: Title I Part A: Grants to Local Education Agencies (CFDA 84.0JOA) and Grants to Local Education Agencies, Recove1y Act (CFDA ) The objective of this program is to facilitate the improvement of teaching and learning for children residing in areas with high concentrations of low-income families at risk of not meeting challenging academic standards. Title 11 Part A: Improving Teacher Quality State Grant (CFDA ) The objective of the Improving Teacher Quality State Grants program in Title II, Part A of the "Elementary and Secondary Education Act" (ESEA) of 1965, as amended by the "No Child Left Behind Act of 2001" (NCLB) (Pub. L. No ), is to provide funds to State Educational Agencies (SEAs), Local Educational Agencies (LEAs), State Agencies for Higher Education (SAHEs), and partnerships comprised of Institutions of Higher Education (IHEs), high-need LEAs and other such entities to increase the academic achievement of all students by helping schools and school districts to: (1) improve teacher and principal - 19-

24 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2012 NOTE3 FEDERAL PROGRAMS (Continued) Title II Part A: Improving Teacher Quality State Grant (CFDA ) (continued) quality (including hiring teachers to reduce class size) and (2) ensure that all teachers are highly qualified. Title IV Part A: Safe and Drug Free Schools and Communities (CFDA ) The objective of the Safe and Drug-Free School and Communities program authorized by the "Safe and Drug-Free Schools and Communities Act" contained in Title IV of the ESEA, is to support programs that prevent violence in and around schools and by strengthening programs that prevent the illegal use of alcohol, tobacco, and drugs, involve parents, and are coordinated with related federal, state, and community efforts and resources. State Fiscal Stabilization Fund (SFSF) - Teachers ' Compensation Grant (CFDA 84.XXX) The purpose of the Public Charter Schools Teacher Compensation Grant is to help individual charter schools recruit and retain high-quality teachers in the increasingly competitive market in the District of Columbia. Compensation may be provided in the form of bonuses, stipends, salary increases, professional development, or other in-kind compensation. State Fiscal Stabilization Fund (SFSF) - Race-to-the-Top Incentive Grants, Recovery Act (CFDA ) The objectives of Race to the Top are to encourage and reward States that are: creating the conditions for education innovation and reform; achieving significant improvement in student outcomes, including making substantial gains in student achievement, closing achievement gaps, improving high school graduation rates and ensuring student preparation for success in college careers; and implementing ambitious plans in the four assurance areas. Child Nutrition Cluster: School Brealifast Program (CFDA ) and National School Lunch Program (CFDA ) The objectives of the child nutrition cluster programs are to: (1) assist States in administering food services that provide healthy, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer recreation programs; and (2) encourage the domestic consumption of nutritious agricultural commodities. -20-

25 Walker & Co., LLP Assurance. Business and Advisory Sen: ic-es REPORT OF INDEPENDENT AUDITORS 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 Board oftrustees Ideal Academy Public Charter School We have audited the financial statements of Ideal Academy Public Charter School (the School or Ideal) as of and for the years ended June 30, 2012 and 2011, and have issued our report thereon dated July 2, We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained m Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the School is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Ideal Academy Public Charter School's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Ideal Academy Public Charter School's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the School's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. We did not identify any deficiencies in internal control over financial reporting that we consider to be a material weakness, as described above. 510 I Wisconsin Avenue, NW, 5th Floor, Washington, DC I T F :! Member AI CPA Private Companies Practice Section & Government Audit Quality Center

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether the School's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audits and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under government Auditing Standards. We noted certain other matters that we reported to management of the School in a separate letter dated July 2, This report is intended solely for the infonnation and use of management, the Board of Trustees, the District of Columbia Public Charter School Board, the Government of the District of Columbia, federal awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. Washington, D.C July 2,

27 Wa l k~r & Co.. LLP Assurance, Business and Advisory Services REPORT OF INDEPENDENT AUDITORS ON COMPLIANCE WITH REQIDREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board oftrustees Ideal Academy Public Charter School Compliance We have audited the compliance of Ideal Academy Public Charter School (Ideal or the School) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each ofldeal's major federal programs for the year ended June 30, The School's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the School's management. Our responsibility is to express an opinion on the School's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Ideal's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Ideal Academy Public Charter School's compliance with those requirements. In our opinion, Ideal Academy Public Charter School complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, However, the results of our auditing procedures disclosed an instance of non-compliance with those requirements that is required to be reported in accordance with OMB Circular A-133 and which is described in the accompanying schedule of findings and questioned costs as item Wisconsin Avenue, NW, 5th Floor, Washington, DC 20016! T F Member AI CPA Private Companies Practice Section & Government Audit Quality Center

28 Internal Control Over Compliance Management of Ideal is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Ideal Academy Public Charter School's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Ideal Academy Public Charter School's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the Board oftrustees, the District of Columbia Public Charter School Board, the Government of the District of Columbia, federal awarding agencies, and pass-through entities and is not intended to be, and should not be, used by anyone other than these parties. Washington, D.C. July 2,

29 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30,2012 Section I- Summary of Auditors' Results Financial Statements Type of auditors' report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? Unqualified No No No Federal Awards Internal control over major program: Material weaknesses identified? Significant deficiencies identified that are not considered to be material weaknesses Type of auditors' report issued on compliance for the major program: Any audit findings disclosed that are required to be reported in accordance with section 51 O(a) of Circular A-133? No No Unqualified Yes Identification of major program: CFDANo and and Dollar threshold used to distinguish between type A and type B programs: Auditee qualified as low-risk auditee? Name of Federal Program or Cluster Title I, Part A Cluster Child Nutrition Cluster $300,000 No - 25-

30 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2012 Section II - Findings - Financial Statement Audit None Section II- Findings and Questioned Costs- Major Federal Award Programs Audit Compliance Finding - Reporting Condition Ideal Academy Public Charter School's audited financial statements for the year ended June 30, 2011 was not submitted to the Federal Audit Clearing House within nine months of the end of the fiscal year. Cause The School did not perform year end reconciliations and analysis in a timely manner to enable a timely start of the 2011 audit and the Board of Trustees' delay in approving the audit resulted in the School's audited financial statements and notes being issued after the deadline for submission of the data collection form to the Federal Audit Clearing House. Criteria OMB Circular A-133:_.320 Report submission requires that the single audit be submitted by the earlier date of thirty days after the receipt of the auditor's report or nine months after the end of the audit period. Result Ideal was not incompliance with the reporting requirements of the Office of Management and Budget for non-profit, state and local government agencies. Recommendation We recommend that the School start and complete subsequent audits within nine months after the end of the School's fiscal year to ensure the timely submission of its single audit report to the Federal Audit Clearing House. Corrective action plan Ideal Academy Public Charter School concurs with the auditor's finding and will start and complete subsequent audits within nine months after the end of the School's fiscal year. -26-

31 SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS Year Ended June 30, 2012 Finding Number Financial statement finding: Year-end account balances were not properly reviewed and analyzed Type of Finding: Material weakness Condition The year-end account balances were not properly reviewed or analyzed resulting in 20 journal entries proposed during the audit. The effect of these entries resulted in changes in net assets of $464,297 thereby reducing net assets of $359,086 to a net deficit of $105,211. The School did not have proper controls in place for review of applications for eligibility determination and verification of income tests to determine if students were properly receiving free, reduced or paid lunches. Recommendation We recommend that the School analyze and reconcile its books (i.e., asset, liability and certain revenue and expense accounts). Management should perform a final year-end reconciliation and analysis prior to commencement of the audit. Management Response and Corrective Action Plan We agree with the auditors' comments, and the following action is taken to improve the situation. The assistant business manager with the supervision of the business manager will take appropriate actions to record necessary adjustments and accruals belonging to the asset, liability and certain revenue and expense accounts. We will take immediate action to resolve errors or discrepancies noted during the reconciliation process and follow up to ensure that errors are corrected. We will perform a final year-end reconciliation and analysis prior to commencement of the audit with the treasurer of the board. Current Year Status Resolved Finding Number Financial Statement Audit Type of Finding: Reportable Compliance Condition Condition The accounts receivable and payable sub-ledgers did not agree to the general ledger balances Recommendation The School should analyze and reconcile its books (i.e., asset, liability and certain revenue and expense accounts) to ensure that its general ledger control account balances for accounts receivable and payable agree with the detail balances in the sub-ledger and that these balances are reconciled monthly and are accurately reported. Management should perform a final year-end reconciliation and analysis pnor to commencement of the audit