ATKINSON YOUTH SERVICES, INC. (A California Nonprofit Corporation) Audited Financial Statements. For The Years Ended December 31, 2016 and 2015

Transcription

1 ATKINSON YOUTH SERVICES, INC. (A California Nonprofit Corporation) Audited Financial Statements For The Years Ended December 31, 2016 and 2015

2 Atkinson Youth Services, Inc. (A California Nonprofit Corporation) Table of Contents Independent Auditors' Report 1-3 FINANCIAL STATEMENTS Statement of Financial Position 4 Statement of Activities 5 Statement of Functional Expenses 6-7 Statement of Cash Flow 8 Notes to Financial Statements 9-14 Schedule of Expenditures of Federal Awards 15 Note to Schedule of Expenditures of Federal Awards 16 Report of Internal Control over Financial Reporting and On Compliance and Other Matter Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 22 Schedule of Findings and Questioned Costs Department of Social Services Form SR3 Department of Social Services Form SR4 Department of Social Services Form 12FFA

3 -Accounting Corporation- California Society of Certified Public Accountants To The Board of Directors Atkinson Youth Services Inc. Sacramento, California INDEPENDENT AUDITORS REPORT Report on the Financial Statements We have audited the accompanying financial statements of Atkinson Youth Services Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016 and 2015, and the related financial statements of activities, functional expenses, and cash flows for the years 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 of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 misstatements 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. 100 N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

4 -Accounting Corporation- California Society of Certified Public Accountants We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atkinson Youth Services Inc. as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited the Atkinson Youth Services, Inc. s 2015 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated September 29, In our opinion, the summarized comparative information presented herein as of and for the years ended December 31, 2016 and 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards, as required by Title 2 U.S Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying Department of Social Services Form FCR12FFA, SR3 and SR4 are presented for purposes of additional analysis as required by the State of California Department of Social Services, 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 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 of America. 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 September 22, 2017 on our consideration of Atkinson Youth Services Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, 100 N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

5 -Accounting Corporation- California Society of Certified Public Accountants contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Atkinson Youth Services Inc. s internal control over financial reporting and compliance. Fathy & Associates CPA Accounting Corporation West Covina, CA September 22, N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

6 Atkinson Youth Services, Inc. Statement of Financial Position As of December 31, 2016 (With Comparative Totals for 2015) Assets Cash and cash equivalent $ 29,216 $ 103,859 Accounts receivable 360, ,374 Inventory - 2,200 Prepaid expenses 60,182 50,967 Current assets 449, ,400 Property and equipment, (net of $922,465 and $873,105 1,987,568 2,002,553 of accumulated depreciation respectively) Other assets 51,186 62,286 Total assets $ 2,488,708 $ 2,519,239 Liabilities Accounts payable and accrued expenses 108, ,716 Payroll and related liabilities 221, ,645 Notes payable (current portion) 103, ,994 Total current liabilities 434, ,355 Long term debt (net of current portion) 1,542,577 1,597,403 Total Liabilities 1,977,275 2,079,758 Net assets Unrestricted 511, ,481 Total net assets 511, ,481 Total liabilities and net assets $ 2,488,708 $ 2,519,239 The accompanying notes are an integral part of these financial statements. 4

7 Atkinson Youth Services, Inc. Statement of Activities For Year Ended December 31, 2016 (With Comparative Totals for 2015) Revenues Group homes $ 3,458,508 $ 3,400,350 Foster family homes 256, ,756 School - 50,093 Meals 26,479 23,957 Other 60,528 72,948 Total revenues 3,801,991 3,760,104 Expenses Program service 2,545,790 2,928,071 Supporting services Management and general 1,249, ,725 Total expenses 3,795,537 3,927,796 Increase (Decrease) in net assets 6,454 (167,692) Net assets, beginning of year 439, ,173 Prior Year Adjustment 65,498 Net assets, end of year $ 511,433 $ 439,481 The accompanying notes are an integral part of these financial statements. 5

8 Atkinson Youth Services, Inc Statement of Functional Expenses For The Year Ended December 31, 2016 (With Comparative Totals for 2015) Group Homes Foster Family Total Total Expenses Program Management and General Program Management and General Program Services Management and General Total Total Administrative contracts $ - $ 37,676 $ - $ 2,836 $ - $ 40,512 $ 40,512 39,693 Advertising 347 1,727 2, ,726 1,857 4,583 9,327 Bank charges , ,824 10,991 15,105 Payroll processing fees - 17,163-1,292-18,455 18,455 18,589 Building maintenance 22,940 21,577-1,624 22,940 23,201 46,141 48,473 Clothing expenses 9, ,515-9,515 10,304 Conference meetings 400 1, ,846 2,246 2,552 Depreciation - 45,906-3,455-49,361 49,361 47,437 Dues and subscriptions 7,335 4, ,335 4,829 12,164 22,761 Employee benefits 185,963 61,988 13,997 4, ,960 66, , ,134 Parents payments , , , ,517 Employee administration - 7, ,513 8,513 - Food expenses 96,225 2, ,225 2,922 99,147 97,524 Insurance 73, , , ,074 86,191 Interest - 80,490-6,058-86,548 86,548 57,757 The accompanying notes are an integral part of these financial statements. 6

9 Atkinson Youth Services, Inc Statement of Functional Expenses For The Year Ended December 31, 2016 (With Comparative Totals for 2015) Expenses Program Group Homes Foster Family Total Total Management and General Program Management and General Program Services Management and General Total Total Kitchen supplies 12, ,823 1,005 13,828 17,556 Miscellaneous , ,945 12,364 35,298 Office supplies 6,804 9, ,132 10,714 17,846 19,496 Child related expenses 56,443 1, ,463 1,935 58,398 56,779 Payroll tax expense 133,011 44,595 10,011 3, ,022 47, , ,892 Personal items 6, ,049-6,049 6,491 Postage and delivery 27 1, ,458 1,494 1,489 Property and taxes (5,796) (26,486) - (1,994) (5,796) (28,480) (34,276) 17,713 Equipment lease - 8, ,013 9,013 5,567 Rent 37,400 22,642-1,704 37,400 24,346 61,746 83,423 Salaries 1,394, ,845 63,887 51,999 1,458, ,844 2,201,207 2,220,060 School supplies 642 Telephone 13,302 19,959 1,381 1,502 14,683 21,461 36,144 37,696 Utilities 47,915 29,643-2,231 47,915 31,874 79,789 78,146 Automobile expense 46,169 12,208 2, ,504 13,127 61,631 74,813 Workers compensation 122,646 40,882 9,231 3, ,877 43, , ,360 Sales tax ,574 Hospitality ,124 Loan fee ,400 Refinancing expense ,913 Total Expenses $ 2,268,060 $ 1,162,265 $ 277,728 $ 87,484 $ 2,545,788 $ 1,249,749 $ 3,795,537 3,927,796 The accompanying notes are an integral part of these financial statements. 7

10 Atkinson Youth Services, Inc Statement of Cash Flows For Year Ended December 31, 2016 (With Comparative Totals For 2015) Cash flows from operating activities Increase (Decrease) in net assets $ 6,454 $ (167,692) Adjustments to reconcile increase in net assets to net cash provided by operating activities: Prior year adjustment 65,498 - Depreciation 49,361 47,437 (Increase) decrease in: Accounts receivable (63,182) 13,797 Inventory 2,200 2,900 Prepaid expenses (9,215) (4,867) Other assets 11, Increase (decrease) in: Accounts payable and accrued expenses (4,929) (29,424) Payroll and related liabilities (44,662) 18,898 Net cash provided by (used in) operating activities 12,625 (118,796) Cash flows from investing activities Purchase of property and equipment (34,376) - Net cash used in investing activities (34,376) - Cash flows from financing activities Increase in notes payable - 72,184 Paydown on mortgage payable (52,892) Net cash (used in) provided by financing activities (52,892) 72,184 Net decrease in cash (74,643) (46,612) Cash and cash equivalents at beginning of period 103, ,471 Cash and cash equivalents, end of period $ 29,216 $ 103,859 Supplemental disclosure: Interest paid 86,548 57,757 The accompanying notes are an integral part of these financial statements. 8

11 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 1-BUSINESS ORGANIZATION AND ACTIVITY Nature of the Organization Atkinson Youth Services, Inc. is a California non-profit corporation established in The Organization program includes: Foster Family Placement Services Group Homes The objectives of the Organization are: To provide quality homes in the form of licensed group homes or certified therapeutic foster homes for children who have need of family care. To provide an independent living skills program for children emancipating out of foster care. To provide training and services for families needing and requesting such in order to reunify or preserve the family unit. Funding Sources The Organization is primarily funded through grants from governmental agencies. NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Financial Statements Presentation The organization adopted Accounting Standards Codification (ASC) No , Financial Statement of non-for-profit organization. Under ASC , the Organization is required to report presentation of the amounts for each of the three classes of net assets permanently restricted, temporarily restricted and unrestricted in the statement of financial position and the amounts of change in each of those classes of net assets in the statement of activities. In addition, the organization is required to present statement of cash flows. Contribution and allocations, the uses of which are not restricted by donor or grantors, are recorded in the unrestricted fund Cash and Cash Equivalents The Organization has defined cash and cash equivalents as cash in banks and certificates of deposit with an original maturity of three months or less. 9

12 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contributions, Pledges and Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the nature of any donor restrictions. Conditional contributions are recorded as support in the period the conditions are met. Pledges to future contributions are recorded as receivables and reported at their estimated realizable value. Concentration of Credit Risk The Organization places its cash and cash equivalent with high-credit, quality financial institutions. As of December 31, 2016 such accounts did not exceed the Federal Deposit Insurance Corporation limit. The primary receivable balance outstanding as of December 31, 2016 consists of money owed by governmental agencies for earned fees from contract program. Concentration of credit risks with respect to those receivable is very limited. Property and Equipment Property and equipment are recorded at cost when purchased. Donated equipment is recorded at its estimated fair market value on the date received. Depreciation on all property equipment is computed on the straight-line method over the economic useful life of each asset. Useful lives are as follows: Furniture and Fixture Buildings Vans and Buses 5 Years 31.5 and 27.5 Years 7 Years Maintenance and repair costs are expensed as they are incurred while renewals and improvements of a significant nature are capitalized. Property and equipment are capitalized if the cost of an asset is greater than or equal to one thousand dollars and the useful life is greater than one year. The capitalization policy was changed in FY 15 from five thousand to one thousand dollars to more adequately suit the company s expenditures. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the results of operations. Functional Expenses Expenses are charged to each program based on direct expenditures incurred. Expenditures not directly chargeable to a program are charged to supporting services. Income Taxes Under Section 501 (c) (3) of the Internal Revenue Code, the Organization is exempt from income taxes, and the California Revenue and Taxation Code Section 23701d. 10

13 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Comparative Totals The financial statements include certain prior-year summarized comparative information. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Atkinson Youth Services, Inc. financial statements for the year ended December 31, 2016 and 2015, from which the summarized information was derived. NOTE 3-PROPERTY AND EQUIPMENT Property and equipment at December 31, 2016 and 2015 consisted of the following: Building and improvements (including land of $1,003,144) $ 2,200,666 $ 2,194,434 Furniture and equipment 271, ,341 Transportation equipment 437, ,883 Total 2,910,033 2,875,658 Less: accumulated depreciation 922, ,105 Net, property and equipment $ 1,987,568 $ 2,002,553 Depreciation expense for the years ended December 31, 2016 and 2015 was $49,361 and $47,437 respectively. NOTE.4-ACCOUNTS RECEIVABLE As of December 31, 2016 and 2015 accounts receivable balances are the following: Accounts receivable $ 360,556 $ 297,374 11

14 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 5-NOTES PAYABLE As of December 31, 2016 and 2015, notes payable consisted of the following: % Note payable to Clearinghouse Community Development Financial Institution. The Note due on December 1, The note is secured by real property, payable in monthly installments of $1, $184,391 $189,000 6% Note payable to Clearinghouse Community Development Financial Institution. The note is secured by real property and due December 1, The monthly installment is $1, , , % Note payable to Nissan of Sacramento. The note is secured by two vehicles and due July 28, The monthly installment for two vehicles is $ ,144 - Note payable to the Executive Director, unsecured with no interest, due on demand (see Note 7). 26,000 35,200 6% Note payable to Clearinghouse Community Development Financial Institution. The note is secured by real property and due on December 1, The monthly payment installment is $1, , , % Note payable to Wells Fargo Bank to be paid by August 15, 2033 with monthly payment of approximately $6, including $3,750 applied to principal. 718, ,286 6% Note payable to Clearinghouse Community Development Financial Institution. The note is secured by real property due on December 1, The monthly installment is $2, , ,800 Total $1,646,505 $1,699,397 12

15 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 5-NOTES PAYABLE (CONTINUED) Schedule of maturities on notes payable at December 31, 2016 are as follows: Year Ending December 31, 2017 $ 103, , , ,489 Thereafter 1,284,456 Total $ 1,646,505 NOTE 6-COMMITMENTS AND CONTINGENCIES Leases The Organization has entered into one operating lease agreement expiring on 7/31/2021 and one month-to-month rental agreement for the two group homes. Schedule of future lease obligation is as follows: Year ending December 31, 2017 $ 28, , , ,285 $ 116,783 For the years ended December 31, 2016 and 2015, rent expense charged to operation was $61,746 and $83,423 respectively. NOTE 7-RELATED PARTY TRANSACTIONS The Organization borrows funds from the Executive Director at no interest, the note is payable on demand. As of December 31, 2016 the balance due to the Executive Director on the note is $26,000 (see Note 5). NOTE 8-DISCONTINUED OPERATION The Specialized Schooling which provide a quality non-public school for those children needing special educational services was discontinued last June The assets were donated to Atkinson Academy, a related party. Atkinson Academy is a registered non-profit school. No gain or loss was recognized from the discontinued operation. 13

16 Atkinson Youth Services, Inc. Notes To Financial Statements For Year Ended December 31, 2016 NOTE 9-CONTRACTS The Organization grants and contracts are subject to inspection and audit by the appropriate governmental funding agencies. The purpose is to determine whether the program funds were used in accordance with their respective guidelines and regulations. The potential exists for disallowance of previously funded program costs. The ultimate liability, if any, which may result from these government audits cannot be reasonably estimated and accordingly, the Organization has no provisions for the possible disallowance of program costs on its financial statement. NOTE 10-PRIOR YEAR ADJUSTMENT The net effect of the prior year adjustment is the increase to the Accounts Receivable by $34,050, increase to the Cash and Cash Equivalent by $12,756 and decrease of Accounts Payable and Accrued Expenses by $18,692. The adjustment resulted in increase to Net Assets by $65,498. NOTE 11-SUBSEQUENT EVENTS The Organization has evaluated events subsequent to December 31, 2016 to assess the need for potential recognition or disclosure in the financial statements. Such events were evaluated through September 22, 2017, the date the financial statements were available to be issued. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition or additional disclosure in the financial statements. 14

17 Atkinson Youth Services, Inc Schedule of Expenditures of Federal Awards For Year Ended December 31, 2016 Federal Grantor / Pass-Through Grantor / Program Title U.S. Department of Health and Human Services Federal CFDA Number Program Identifying Number Federal Award Expenditures Non-Federal Award Expenditures Total Federal and Non- Federal Expenditures Pass through from the State of California Foster Care Title IV-E ,615,399 1,842,958 3,458,357 Foster Care Title IV-E , , ,476 U.S. Department of Agriculture Pass through from the State of California National School Lunch Program ,165-14,165 National School Breakfast Program ,314-12,314 Note: BASIS OF PRESENTATION The schedule of expenditures of federal wards includes the federal award activity of Atkinson Youth Services, Inc. under programs of the federal government for the year ended December 31, The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 15

18 Atkinson Youth Services, Inc Note to Schedule of Expenditures of Federal Awards For Year Ended December 31, 2016 NOTE 1-BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of Atkinson Youth Services, Inc., under programs of the federal government for the year ended December 31, The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of Atkinson Youth Services, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Atkinson Youth Services, Inc. 16

19 -Accounting Corporation- California Society of Certified Public Accountants REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To The Board of Directors Atkinson Youth Services, Inc. Sacramento, CA We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Atkinson Youth Services, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016 and the related financial statements of activities, and cash flows for the year then ended, and the related notes to financial statements, and have issued our report thereon dated September 22, 2017 Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Atkinson Youth Services, Inc. s internal control over financial reporting to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Atkinson Youth Services, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 100 N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

20 -Accounting Corporation- California Society of Certified Public Accountants 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 limitations, 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether Atkinson Youth Services, 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fathy & Associates CPA Accounting Corporation West Covina, CA September 22, N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

21 -Accounting Corporation- California Society of Certified Public Accountants REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To The Board of Directors Atkinson Youth Services, Inc. Sacramento, CA Report on Compliance for Each Major Federal Program We have audited Atkinson Youth Services, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Atkinson Youth Services, Inc. s major federal programs for the year ended December 31, Atkinson Youth Services, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Atkinson Youth Services, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Atkinson Youth Services, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 100 N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

22 -Accounting Corporation- California Society of Certified Public Accountants We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Atkinson Youth Services, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Atkinson Youth Services, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Internal Control over Compliance Management of Atkinson Youth Services, 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 audits of compliance, we considered Atkinson Youth Services, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of Atkinson Youth Services, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or 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. We did not identify 100 N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

23 -Accounting Corporation- California Society of Certified Public Accountants any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Fathy & Associates CPA Accounting Corporation West Covina, CA September 22, N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

24 -Accounting Corporation- California Society of Certified Public Accountants REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE To The Board of Directors Atkinson Youth Services, Inc. Sacramento, CA We have audited the financial statements of the Organization as of and for the year ended December 31, 2016, and have issued our report thereon dated September 22, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) 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 auditing procedures applied in the audit of the financial statements and certain procedures, including comparing and reconciling such information directly to the underlying accounts 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 of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. Fathy & Associates CPA Accounting Corporation West Covina, CA September 22, N. Citrus St. #325 West Covina, CA Tel (626) Fax (626)

25 Atkinson Youth Services, Inc. Schedule of Findings and Questioned Costs For The Year Ended December 31, 2016 SECTION I - SUMMARY OF AUDITORS' RESULT Financial Statements Type of auditors' report issued Unmodified Internal control over financial reporting Material weakness(es) identified? Yes No Significant deficiencies identified that are not considered to be material weakness(es) Yes No reported Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs Major weakness(es) identified? Yes No Significant deficiencies identified that are not considered to be material weakness(es) Yes No Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A- 133? Yes No Major programs CFDA Number(s) Name of Federal Program or Cluster U.S. Department of Health and Human Services Foster Care Title IV-E Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes No 23

26 SECTION II - FINANCIAL STATEMENTS FINDINGS None - Federal contracts / grants Atkinson Youth Services, Inc. Schedule of Findings and Questioned Costs For The Year Ended December 31, 2016 SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None - Federal contracts / grant 24