Head Start of Greater Dallas, Inc. Dallas, Texas. Financial Statements and Supplementary Information Year Ended February 28, 2014

Transcription

1 Dallas, Texas Financial Statements and Supplementary Information Year Ended February 28, 2014

2 Financial Statements and Supplementary Information Year Ended February 28, 2014 Table of Contents Independent Auditor s Report... 1 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 6 Supplementary Information Schedule of Program Activity Notes to the Schedule of Program Activity Schedule of Expenditures of Federal, State, and Local Awards and List of Programs Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Independent Auditor s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Schedule of Findings and Questioned Costs... 21

3 Independent Auditor s Report Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas Report on the Financial Statements We have audited the accompanying financial statements of Head Start of Greater Dallas, Inc. (a nonprofit organization), which comprise the statement of financial position as of February 28, 2014, and the related statements of activities and cash flows for the year then ended and the related notes to the financial statements. 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; 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States 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 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. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Head Start of Greater Dallas, Inc. as of February 28, 2014, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States. Other Matters Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Program Activity, Schedules A-1 to A-2, and the Notes to the Schedule of Program Activity, as well as the Schedule of Expenditures of Federal, State, and Local awards and List of Programs, Schedule B, as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and the State of Texas Single Audit Circular (the "Circular"), issued by the Texas Office of the Inspector General, are presented for purposes of additional analysis and are 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 audit 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 financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the information is fairly stated, in all material respects, in relation to the 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 October 8, 2014, on our consideration of Head Start of Greater Dallas, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and on 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 in considering Head Start of Greater Dallas, Inc. s internal control over financial reporting and compliance. Wipfli LLP October 8, 2014 Madison, Wisconsin 2

5 Statement of Financial Position February 28, 2014 Assets Current assets: Cash $ 1,099,521 Grants receivable 181,803 Accounts receivable 17,846 Prepaid expenses 21,662 Total current assets 1,320,832 Long-term assets: Property and equipment, net 12,687,727 Loan origination fees, net 87,836 Total long-term assets 12,775,563 TOTAL ASSETS $ 14,096,395 Liabilities and Net Assets Current liabilities: Current maturities of notes payable $ 5,015,913 Accounts payable 311,914 Accrued expenses 33,417 Accrued payroll 308,302 Grant funds received in advance 1,009,588 Total current liabilities 6,679,134 Long-term liabilities: Notes payable 1,747,769 Total long-term liabilities 1,747,769 Total liabilities 8,426,903 Net assets: Unrestricted 5,323,836 Temporarily restricted 345,656 Total net assets 5,669,492 TOTAL LIABILITIES AND NET ASSETS $ 14,096,395 See accompanying notes to financial statements. 3

6 Statement of Activities Year Ended February 28, 2014 Temporarily Unrestricted Restricted Total Revenue and support: Grant revenue $ 36,669,142 $ 317,821 $ 36,986,963 Other income 68, ,710 Interest income In-kind contributions 5,659, ,659,159 Net assets released from restriction through satisfaction of program restrictions 31,578 ( 31,578) 0 Total revenue and support 42,428, ,243 42,714,971 Expenses: Program activities: Child education 35,292, ,292,009 Food programs 1,589, ,589,894 Community 151, ,153 Discretionary 983, ,865 Total program expenses 38,016, ,016,921 Supportive services: Management and general 4,766, ,766,184 Total expenses 42,783, ,783,105 Change in net assets ( 354,377) 286,243 ( 68,134) Net assets - Beginning of year 5,678,213 59,413 5,737,626 Net assets - End of year $ 5,323,836 $ 345,656 $ 5,669,492 See accompanying notes to financial statements. 4

7 Statement of Cash Flows Year Ended February 28, 2014 Increase (decrease) in cash: Cash flows from operating activities: Change in net assets ($ 68,134) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 1,065,876 Changes in operating assets and liabilities: Grants receivable 19,992 Accounts receivable 1,318 Prepaid expenses 112,407 Accounts payable ( 126,091) Accrued expenses ( 102,414) Accrued payroll ( 33,219) Grant funds received in advance 116,649 Net cash provided by operating activities 986,384 Cash flows from investing activities: Capital expenditures ( 277,583) Net cash used in investing activities ( 277,583) Cash flows from financing activities: Payments on notes payable ( 2,130,377) Promissory note proceeds 1,890,000 Deferred refinancing fees ( 84,806) Net cash used in financing activities ( 325,183) Change in cash 383,618 Cash - Beginning of year 715,903 Cash - End of year $ 1,099,521 Supplemental schedule of other cash activity: Interest paid and expensed $ 335,346 See accompanying notes to financial statements. 5

8 Notes to Financial Statements Note 1 Summary of Significant Accounting Policies Nature of Operations Head Start of Greater Dallas, Inc. (HSGD) is a not-for-profit corporation organized in 1988 under the laws of the state of Texas. HSGD was formed to perform charitable or educational services, specifically to provide support or relief to the impoverished without regard to the beneficiaries ability to pay. HSGD receives 94% of its support from the U.S. Department of Health and Human Services (DHHS), under an annual grant, to operate the Head Start program in Dallas County. Services provided by HSGD include child development, social, health, nutrition, and special needs services to families enrolled in the Head Start program. HSGD has delegated a portion of the program services to two other nonprofit agencies. HSGD s federal identification number is # Basis of Presentation The basic financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. Classification of Net Assets Net assets and revenue, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of HSGD and changes therein are classified and reported as follows: Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations or where donor-imposed stipulations are met in the year of the contribution. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that may or may not be met, either by actions of HSGD and/or the passage of time. When a restriction expires, temporarily restricted net assets are transferred to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by HSGD. Generally, the donors of these assets permit HSGD to use all or part of the income earned on any related investments for general or specific purposes. Currently, HSGD does not have any permanently restricted net assets. Revenue and Expense Recognition/Grant Funds Received in Advance Contributions are recognized when the donor makes a promise to give to HSGD that is, in substance, unconditional. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and nature of any donor restrictions. When a restriction expires, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statement of activities as released from restrictions. 6

9 Notes to Financial Statements Note 1 Summary of Significant Accounting Policies (Continued) Revenue and Expense Recognition/Grant Funds Received in Advance (Continued) Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Grants are either recorded as contributions or exchange transactions based on criteria contained in the grant award. A. Grant Awards That Are Contributions Grants that qualify as contributions are recorded as invoiced to the funding sources. Revenue is recognized in the accounting period when the related allowable expenses are incurred. Amounts received in excess of expenses are reflected as grant funds received in advance. B. Grant Awards That Are Exchange Transactions Exchange transactions reimburse based on a predetermined rate for services performed. The revenue is recognized in the period the service is performed. In-Kind Contributions HSGD has recorded in-kind contributions for space and professional services in the statement of activities in accordance with financial accounting standards. These accounting standards require that only contributions of services received that create or enhance a nonfinancial asset or require a specialized skill by the individual possessing those skills and would typically need to be purchased if not provided by donation be recorded. The requirements of these financial standards are different than the in-kind requirements of HSGD s grant awards. HSGD received contributions of nonprofessional volunteers, during the year with a value of $3,952,719 for its Head Start program which are not recorded in the statement of activities. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset. HSGD capitalizes equipment purchased with a cost greater than $5,000 and a useful life of more than two years. Leasehold improvements are depreciated over the lease term. Donations of property and equipment are recorded as support at their estimated fair value. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. If there are no donor restrictions regarding how long a donated asset must be maintained, HSGD reports expirations of donor restrictions when the donated assets are placed in service. HSGD reclassifies temporarily restricted net assets to unrestricted net assets at that time. 7

10 Notes to Financial Statements Note 1 Summary of Significant Accounting Policies (Continued) Property and Equipment (Continued) Property and equipment purchased with grant funds is owned by HSGD while used in the program for which it was purchased or in other future authorized programs. However, the various funding sources have a reversionary interest in the property and equipment purchased with grant funds. Its disposition, as well as the ownership of any proceeds there from, is subject to funding source regulations. The net book value of the grant-funded property and equipment is $12,510,474. Loan Origination Fees Loan origination fees costs related to long-term debt are amortized over the life of the related debt using the straight-line method. Loan origination fees as of February 28, 2014, were $223,755, with accumulated amortization of $135,919. Amortization expense was $31,167 during 2014, and is included with depreciation and amortization. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Tax Status HSGD is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Uncertain Tax Positions HSGD is required to assess whether it is more likely than not that a tax position will be sustained upon examination on the technical merits of the position assuming the taxing authority has full knowledge of all information. If the tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. HSGD has determined there are no amounts to record as assets or liabilities related to uncertain tax positions. Federal returns for the tax years ended 2010 and thereafter remain subject to examination by the Internal Revenue Service. Subsequent Events Subsequent events have been evaluated through October 8, 2014, which is the date the financial statements were available to be issued. 8

11 Notes to Financial Statements Note 2 Concentration of Credit Risk HSGD maintains cash balances at two banks. Accounts at these banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. HSGD has a collateralization agreement with BBVA Compass Bank. Bank balances in excess of FDIC coverage are collaterally secured by pledged securities. Note 3 Grants Receivable The grants receivable balance represents an amount due from one state funding source in the amount of $181,803. Note 4 Property and Equipment The balance consists of the following: Land $ 1,163,816 Leasehold improvements 2,924,023 Buildings 13,617,273 Equipment 3,831,073 Vehicles 775,348 Total property and equipment 22,311,533 Accumulated depreciation ( 9,623,806) Property and equipment, net $ 12,687,727 Note 5 Leases HSGD is committed under several operating leases related to its centers. Rent expense for these operating leases amounted to $442,962 for the year ended February 28, Future rental commitments under operating leases with terms of greater than one year are as follows: 2015 $ 388, , , , ,512 Thereafter 221,154 Total $ 1,328,863 Note 6 Grant Funds Received in Advance Grant funds received in advance represents grant funding received from a federal funding source for which allowable expenses have not been incurred or program services have not been provided. The revenue will be earned in the period in which the expenses occur or the services are provided. 9

12 Notes to Financial Statements Note 7 Notes Payable Notes payable are as follows: Note payable to BBVA Compass Bank with monthly payments of approximately $4,469 per month, including interest at 4.27%. The note is due October 2014, and is collateralized by real estate. $ 600,453 Note payable to BBVA Compass Bank with monthly payments of approximately $9,889 per month, including interest at 4.27%. The note is due October 2014, and is collateralized by real estate. 1,328,600 Note payable to BBVA Compass Bank with monthly payments of approximately $22,298 per month, including interest at 4.27%. The note is due October 2014, and is collateralized by real estate. 2,995,630 Note payable to Bank of Texas at $1,890,000, with monthly payments of approximately $14,678 per month, including interest at 4.66%. This note is due August 2028, and is collateralized by real estate. 1,838,999 Notes payable 6,763,682 Current maturities ( 5,015,913) Notes payable, net of current maturities $ 1,747,769 Scheduled principal payments on notes payable at February 28, 2014, including current maturities, are summarized as follows: 2015 $ 5,015, , , , ,156 Thereafter 1,336,865 Total $ 6,763,682 Subsequent to year end, the three notes payable with BBVA Compass Bank were extended to mature in February 2015, with the same terms. Certain notes described above are subject to performance and financial covenants. As of February 28, 2014, HSGD received a waiver for the financial covenants from Compass Bank and Bank of Texas. 10

13 Notes to Financial Statements Note 8 Delegate Expenses HSGD delegated a portion of the Head Start program for the year ended February 28, 2014, to two other nonprofit agencies. The expenditures of these agencies have been included in the accompanying statement of activities and total $4,381,749. Other independent auditors audited those agencies. Delegate expenses for the year ended February 28, 2014, were as follows: Salaries and employee benefits $ 3,510,358 Payroll taxes 238,554 Professional fees and contract services 23,965 Local travel 13,900 Occupancy 121,006 Telecommunications 23,400 Utilities 121,000 Office supplies 43,083 Program supplies 61,162 Food 14,675 Equipment and equipment rental 33,705 Repairs and maintenance 134,750 Insurance 37,141 Conferences 3,650 Other expenses 1,400 Total expenses $ 4,381,749 Note 9 Retirement Plan HSGD has a defined contribution retirement plan authorized under Section 403(b) of the Internal Revenue Code. The plan covers all employees of HSGD. HSGD matches the lesser of 50% of the employees contributions up to 6% or 3% of salary following the completion of one year of service, in which the employee works 1,000 hours within that 12-month period. Employer contributions charged to expense for the year ended February 28, 2014, were $173,289. Note 10 Commitments and Contingencies HSGD participates in a number of federally assisted and state grant programs. These programs are subject to program compliance audits by the grantors and their representatives. Any disallowed costs may constitute a liability of HSGD. HSGD is also required to match 25% of the grant funds received from the Head Start program with local resources. HSGD believes that it is in substantial compliance with all grant requirements, including those related to matching and disallowed costs, and any noncompliance, if any, would not be significant. 11

14 Notes to Financial Statements Note 11 Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Buckeye Trail Commons Head Start /Early Head Start Center $ 265,000 Dual Language Program 19,828 Science Technology Engineering & Math (STEM) Program 20,000 Other 40,828 Total $ 345,656 12

15 Supplementary Information

16 Schedule A-1 Schedule of Program Activity Year Ended February 28, 2014 REVENUE AND SUPPORT FEDERAL PROGRAMS Department of Agriculture Department of Health and Human Services Child Care Child Care Food Program Food Program Head Start Early Total TX TX Program Head Start Federal Total 12/13 13/14 Subtotal 06CH0382/25 06CH0382/25 Subtotal Programs (1) (2) (3) (4) Grant revenue $ 36,986,963 $ 940,488 $ 848,731 $ 1,789,219 $ 31,430,246 $ 3,305,998 $ 34,736,244 $ 36,525,463 Other income 68, Interest income In-kind contributions 5,659, ,600,876 1,011,002 9,611,878 9,611,878 Total Revenue 42,714, , ,731 1,789,219 40,031,122 4,317,000 44,348,122 46,137,341 EXPENSES Salaries and employee benefits 21,861, , , ,540 18,647,329 2,356,821 21,004,150 21,846,690 Payroll taxes 1,394,064 35,349 25,015 60,364 1,180, ,754 1,333,656 1,394,020 Professional fees and contract services 2,492, ,554,220 22,871 2,577,091 2,577,091 Rent and storage 490, ,129 79, , ,046 Mortgage principal , , ,296 Utilities 498, ,893 73, , ,874 Telecommunications 526, ,121 48, , ,316 Local travel 78, ,019 8,048 78,067 78,067 Food 1,161, , , , ,779 22, ,586 1,159,213 Program expenses 695, , , , ,560 Office supplies 450, ,915 75, , ,553 Minor equipment and equipment rental 462, ,688 3, , , , ,573 Capitalized expenses ,779 57, , ,068 Repairs and maintenance 639, ,905 67, , ,844 Vehicle expenses 57, , ,042 57,042 Insurance 125, , , ,750 Interest 335, , , ,346 Out of town travel 79, ,185 12,163 79,348 79,348 Printing and publications 16, , ,949 16,949 Conference and membership fees 126, ,994 24, , ,140 Depreciation and amortization 1,065, Other expenses 184, ,228 1, , ,928 Delegate expenses 4,381, ,381, ,381,749 4,381,749 In-kind expenses 5,659, ,600,876 1,011,002 9,611,878 9,611,878 Total Expenses 42,783, , ,731 1,789,219 40,031,122 4,317,000 44,348,122 46,137,341 Change in Net Assets ( 68,134) Net assets - Beginning of year 5,737, NET ASSETS - END OF YEAR $ 5,669,492 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditor's Report. 13

17 Schedule A-2 Schedule of Program Activity Year Ended February 28, 2014 STATE AND LOCAL PROGRAMS DISCRETIONARY REVENUE AND SUPPORT Math & Early Learning Hobitzelle Sturgis Trust Total Science Mentor Coaches Stemmons Harold Simmons Fossil Partners Von Ahnen State and Curriculum Program Rees-Jones Meadows TI Cyber Grant Family Trust Local GAAP TOTAL Pilot Jeanie Laube Center Buckeye Dual Language STEM Program Programs Adjustments PROGRAMS Corporate (5) (6) (7) (8) (9) (10) (11) (12) Grant revenue $ 0 $ 0 $ 150,000 $ 265,000 $ 26,500 $ 20,000 $ 461,500 $ 0 $ 36,986,963 $ 0 Other income ,710 Interest income In-kind contributions ( 3,952,719) 5,659,159 0 Total Revenue , ,000 26,500 20, ,500 ( 3,952,719) 42,646,122 68,849 EXPENSES Salaries and employee benefits 7,774 5, , ,860,121 1,060 Payroll taxes ,394, Professional fees and contract services ( 84,806) 2,492, Rent and storage ,046 0 Mortgage principal ( 300,296) ( 0) 0 Utilities ,874 0 Telecommunications ,316 0 Local travel ,067 0 Food ,159,213 2,616 Program expenses , ,672 ( 2,645) 679,587 15,604 Office supplies ,553 8,219 Minor equipment and equipment rental ,573 1,026 Capitalized expenses , ,000 ( 272,068) 0 0 Repairs and maintenance ( 3,570) 638,274 1,141 Vehicle expenses , Insurance ( 13,044) 125,706 0 Interest ,346 0 Out of town travel ,348 0 Printing and publications ,949 0 Conference and membership fees ( 2,403) 118,737 7,517 Depreciation and amortization ,065,876 Other expenses ,928 3,731 Delegate expenses ,381,749 0 In-kind expenses ( 3,952,719) 5,659,159 0 Total Expenses 7,774 5, , , ,103 ( 4,631,551) 41,675,893 1,107,212 Change in Net Assets ( 7,774) ( 5,657) 0 265,000 19,828 20, , , ,229 ( 1,038,363) Net assets - Beginning of year 7,774 5, ,431 7,938,221 7,951,652 ( 2,214,026) NET ASSETS - END OF YEAR $ 0 $ 0 $ 0 $ 265,000 $ 19,828 $ 20,000 $ 304,828 $ 8,617,053 $ 8,921,881 ($ 3,252,389) See Independent Auditor's Report. 14

18 Notes to the Schedule of Program Activity Note 1 Head Start Nonfederal Matching Requirement The Head Start program funded by DHHS requires that the program receive a nonfederal share equal to 25% of total Head Start expenses. HSGD uses the following Head Start expenditures paid for from its nonfederal programs to fulfill its matching requirements as follows: In-kind $ 9,611,878 Math & Science Curriculum Pilot (A-2) 7,774 Early Learning Mentor Coaches (A-2) 5,657 Jeanie B. Laube Early Head Start Center (A-2) 150,000 Dual Language Program (A-2) 6,672 Total match $ 9,781,981 See Independent Auditor s Report. 15

19 Schedule B Schedule of Expenditures of Federal, State, and Local Awards and List of Programs Year Ended February 28, 2014 Federal Grantor/ CFDA Funding Source/ Federal Program Title Number Pass-Through Entity Program Year Expenditures DEPARTMENT OF AGRICULTURE ( 1) Child Care Food Program Texas Health and Human 10/01/12-09/30/13 $ 940,488 TX /13 Services Commission ( 2) Child Care Food Program Texas Health and Human 10/01/13-09/30/14 848,731 TX /14 Services Commission Total Federal Expenditures CFDA ,789,219 DEPARTMENT OF HEALTH AND HUMAN SERVICES ( 3) Head Start Program 06CH0382/ U.S. Department of Health and 03/01/13-02/28/14 31,430,246 (includes delegate expenses of $4,381,749) Human Services ( 4) Early Head Start U.S. Department of Health and 03/01/13-02/28/14 3,305,998 06CH0382/25 Human Services Total Federal Expenditures CFDA ,736,244 TOTAL FEDERAL EXPENDITURES $ 36,525,463 Other STATE AND LOCAL PROGRAMS Expenditures ( 5) Math & Science Curriculum Pilot CitiGroup, ExxonMobil, Greater 03/01/12-05/31/13 $ 7,774 Texas Foundation, & TI Foundation ( 6) Early Learning Mentor Coaches Program Rees-Jones Foundation 12/21/11-04/30/13 5, ( 7) Jeanie B. Laube Early Head Start Hobilitzelle Foundation, Stemmons 03/01/13-02/28/14 150,000 Foundation, & Rees-Jones Foundation ( 8) Buckeye Trail Commons Head Start Meadows Foundation, Simmons 0 Foundation, & Sturgis Trust ( 9) Dual Language Program Fossil Partners and TI Cyber Grant 6,672 TOTAL STATE AND LOCAL EXPENDITURES $ 170,103 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ADJUSTMENTS ( 11) GAAP Adjustments N/A 03/01/13-02/28/14 ($ 4,631,551) DISCRETIONARY ACTIVITY ( 12) Corporate N/A 03/01/13-02/28/14 $ 1,107,212 Notes to Schedule of Expenditures of Federal, State, and Local Awards and List of Programs Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of Head Start of Greater Dallas, Inc. under programs of the federal government for the year ended February 28, The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of Head Start of Greater Dallas, Inc., it is not intended to and does not present the financial position, changes in net assets or cash flows of Head Start of Greater Dallas, Inc. Note 2 - Summary of Significant Accounting Policies 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. Pass-through entity identifying numbers are presented where available. See Independent Auditor's Report. 16

20 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas We have audited, in accordance with the 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, the financial statements of Head Start of Greater Dallas, Inc., which comprise the statement of financial position as of February 28, 2014, and the related statements of activities and cash flows for the year ended February 28, 2014, and the related notes to the financial statements, and have issued our report thereon dated October 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Head Start of Greater Dallas, Inc.'s internal control over financial reporting ( internal control ) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitation, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify a deficiency in internal control that we consider to be a significant deficiency, which is described in the accompanying schedule of findings and questioned costs as item

21 Compliance and Other Matters As part of obtaining reasonable assurance about whether Head Start of Greater Dallas, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Responses to Findings Head Start of Greater Dallas, Inc. s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Head Start of Greater Dallas, Inc. s response was not subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing on internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Head Start of Greater Dallas, Inc. s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Head Start of Greater Dallas, Inc. s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Wipfli LLP October 8, 2014 Madison, Wisconsin 18

22 Independent Auditor s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Board of Directors Head Start of Greater Dallas, Inc. Dallas, Texas Report on Compliance for Each Major Federal Program We have audited Head Start of Greater Dallas, Inc. s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement and the State of Texas Single Audit Circular that could have a direct and material effect on its major federal program for the year ended February 28, Head Start of Greater Dallas, Inc. s major federal program is identified in the summary of audit results section of the accompanying schedule of findings and questioned costs. Management s Responsibility for Compliance Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for Head Start of Greater Dallas, Inc. s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and the State of Texas Single Audit Circular. Those standards, OMB Circular A-133 and the Circular, 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 Head Start of Greater Dallas, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination on Head Start of Greater Dallas, Inc. s compliance. Opinion In our opinion, Head Start of Greater Dallas, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended February 28,

23 Other Matters Report on Internal Control Over Compliance The management of Head Start of Greater Dallas, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Head Start of Greater Dallas, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance in accordance with OMB Circular A-133 and the Circular, 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 Head Start of Greater Dallas, Inc. s internal control over compliance. A deficiency in internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and, therefore material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified a certain deficiency in internal control over compliance that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item Head Start of Greater Dallas, Inc. s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Head Start of Greater Dallas, Inc. s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133 and the Circular. Accordingly, this report is not suitable for any other purpose. Wipfli LLP October 8, 2014 Madison, Wisconsin 20

24 Schedule of Findings and Questioned Costs A. Summary of Auditor s Results 1. The auditor s report expresses an unmodified opinion on the financial statements of Head Start of Greater Dallas, Inc. 2. There was one significant deficiency relating to the audit of the financial statements as reported in the Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters. The deficiency was not considered to be a material weakness. 3. No instances of noncompliance material to the financial statements of Head Start of Greater Dallas, Inc. were disclosed during the audit. 4. One significant deficiency relating to the audit of the major federal and major state award programs as reported in the Independent Auditor s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance. The deficiency was not considered to be a material weakness. 5. The auditor s report on compliance for the major federal award programs for Head Start of Greater Dallas, Inc. expresses an unmodified opinion. 6. There was one audit finding relative to the major federal award program for Head Start of Greater Dallas, Inc. 7. The program tested as a major federal program was the U.S. Department of Health and Human Services cluster, CFDA # Head Start. 8. The threshold for distinguishing Types A and B programs was $1,095, Head Start of Greater Dallas, Inc. was determined to be a low-risk auditee. 21

25 Schedule of Findings and Questioned Costs B. Findings Financial Statements Audit Finding: IN-KIND RECONCILIATION ( ) Condition During the fiscal year, Head Start of Greater Dallas, Inc. performed an internal review of activity that was reported as in-kind and removed amounts relating to in-kind volunteer take home activity from its internal database. HSGD had already reported the in-kind volunteer take home activity in its general ledger and did not to perform a reconciliation between the general ledger and the internal database to identify the variances between the two systems, as a result the in-kind was overstated by $265,983. An entry was made during fieldwork to correct the overstatement. Criteria OMB Circular A-110, 2CFR, Subpart C, Sec (b)(1), requires that the grant recipient have a financial system that provides for accurate, current, and complete disclosure of the financial results of each federally-sponsored project or program. Effect As a result of not performing a reconciliation, a significant deficiency in internal controls exists. Recommendation We recommend Head Start of Greater Dallas, Inc. review their internal controls to ensure this significant reconciliation is performed by an appropriate member of management. Management Response HSGD discontinued the inclusion of volunteer in-kind take home activity related to curriculum towards meeting the agency s matching requirement during fiscal year The agency reviews in-kind amounts each month to verify that amounts can be counted prior to recording as nonfederal match. HSGD will implement an additional reconciliation process at the end of the fiscal year to compare monthly and annual amounts recorded in the general ledger to amounts recorded in HSEIS, our volunteer in-kind tracking system. These review and reconciliation processes will enable HSGD to provide accurate, current and complete disclosure of the financial results of our volunteer in-kind activity to comply with OMB Circular A-110, 2 CFR, Subpart C, Sec (b)(1). 22

26 Schedule of Findings and Questioned Costs C. Findings and Questioned Costs - Major Federal Award Program Audit Finding: CASH MANAGEMENT ( ) Questioned Costs: None Program Affected: Head Start Program CFDA #93.600, Grant #06CH0382/25, Grant period March 1, 2013 through February 28, Condition HSGD drew down cash in excess of expenses incurred during the grant period ended February 28, Criteria OMB Circular A-110, subpart C, 2 CFR Part (a) and (g) requires that, Payment methods shall minimize the time elapsing between the transfer of funds from the United States Treasury and the issuance or redemption of checks, warrants, or payment by other means by the recipients. In addition, the HHS Grants Policy Statement states that,... Federal funds advanced to the recipient should be fully disbursed (checks written, signed, and issued to the payees) by the close of business the next work day after receipt of the funds. Effect As a result of not maintaining proper internal controls surrounding the cash management process, a significant deficiency in internal control over the cash management compliance requirement exists. Recommendation We recommend Head Start of Greater Dallas, Inc. implement procedures to minimize the time between drawing down cash and the payment of the expenses. 23

27 Schedule of Findings and Questioned Costs C. Findings and Questioned Costs - Major Federal Award Program Audit (Continued) Management Response HSGD reviews funds drawn down, received and paid each month to identify amounts which represent use of HHS funds. Funds are transferred from non-federal cash sources to reimburse our operating account on a monthly basis. Cash draws are based on disbursements, either checks written, signed and issued or wire transfers approved, to limit excess cash on hand during the month and at fiscal year-end. Our cash management process will be modified to ensure that appropriate management staff performs the monthly review of cash receipts/payments to ensure that expenses are matched to the proper funding source and all reimbursements are made in a timely manner. We will evaluate the effectiveness of our internal control of in-kind reporting and cash management systems to ensure that an appropriate member of management is involved in each process to review transactions and monitor compliance with policies and procedures. Name of Contact Person Responsible for Corrective Action: Ms. Joan A. Cox Anticipated Completion Date: February 2015 D. Prior Year Findings Finding: INTERNAL CONTROL OVER COMPLIANCE WITH IN-KIND REGULATIONS ( ) Questioned Costs: None Program Affected: Head Start Program CFDA #93.600, Grant #06CH0382/24, Grant period March 1, 2012 through February 28, Condition During the audit, there were several instances where Head Start of Greater Dallas, Inc. was unable to provide records from its system for Wipfli s review and verification of in-kind volunteer take home activity time and activities performed that benefitted the program. 24

28 Schedule of Findings and Questioned Costs D. Prior Year Findings (Continued) Criteria DHHS s Regulation 45 CFR Section 74.23: Effect a. To be accepted, all cost sharing or matching contributions, including cash and third party in-kind, shall meet all of the following criteria: 1. Are verifiable from the recipient s records. 3. Are necessary and reasonable for proper and efficient accomplishment of project or program objectives. 4. Are allowable under the applicable cost principles. 7. Conform to other provisions of this Circular, as applicable. As a result of our inability to verify the in-kind information for various centers a significant deficiency exists in internal control over the recording of in-kind. Amounts related to in-kind volunteer take home activity have not been included in the in-kind amounts reported in the financial statements. Head Start of Greater Dallas, Inc. has adequate in-kind to meet the required match amount. Management Response HSGD has discontinued the inclusion of volunteer in-kind take-home activity related to curriculum toward meeting the agency s matching requirement. The agency will continue to review and verify volunteer in-kind activity to ensure that in-kind counted complies with Department of Health and Human Services Regulation 45 CFR Section 74:23 which requires that it: is verifiable from recipient s records is necessary and reasonable for proper and efficient accomplishment of project or program objectives is allowable under the applicable cost principles conforms to other provisions of this Circular, as applicable We will continue to review and evaluate the effectiveness of these system modifications and related procedures to determine the risk of misstatement. Status of Prior Year Finding HSGD has discontinued the inclusion of volunteer in-kind take-home activity related to curriculum toward meeting the agency s matching requirement. 25