SKYLINE GILA RIVER SCHOOLS, LLC SINGLE AUDIT REPORTING PACKAGE FOR THE YEAR ENDED JUNE 30, 2017

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1 SINGLE AUDIT REPORTING PACKAGE FOR THE YEAR ENDED JUNE 30, 2017

2 JUNE 30, 2017 TABLE OF CONTENTS REPORT ON AUDIT OF FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT... 1 FINANCIAL STATEMENTS Statement of Financial Position... 3 Statement of Activities... 4 Schedule of Functional Expenses... 5 Statement of Cash Flows... 6 Notes to Financial Statements... 7 SINGLE AUDIT SECTION Independent Auditor's 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 Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Section I- Summary of Auditor's Results Summary Schedule of Prior Audit Findings... 21

3 orenzo,plc Certified Public Accountant Anthony Lorenzo, CPA Member of American Institute of Certified Public Accountants Member of Arizona State Society of Certified Public Accountants " -- - Independent Auditor's Report Board of Directors Skyline Gila River Schools, LLC. Report on the Financial Statements We have audited the accompanying financial statements of Skyline Gila River Schools, LLC. (School), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities, functional expenses, 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 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 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 W Guadalupe Rd., Suite Gilbert, AZ Ph: Fax:

4 Board of Directors Skyline Schools, Inc. Page2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Skyline Gila River Schools, LLC. as of June 30, 2017, 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 of America. Other Matters Other Iriformation 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 (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, on page 18 is presented for purposes of additional analysis 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 March 30, 2018, on our consideration of Skyline Gila River Schools, LLC.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Skyline Gila River Schools, LLC. 's internal control over financial reporting and compliance. Lorenzo, PLC Gilbert, Arizona March 30,

5 STATEMENT OF FINANCIAL POSITION June 30, 2017 ASSETS Current Assets Cash (includes restricted cash of $172,270 - Note 2) Due from federal government Due from state government Due from related parties Prepaid expenses Total Current Assets $ 242,731 99,459 4,522 11, , ,479 Noncurrent Assets Property and equipment (net of accumulated depreciation of $220,732) Total Noncurrent Assets 190, ,181 Total Assets $ 923,660 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable Accrued payroll and benefits Deferred grant revenue Due to Charter School Capital Total Current Liabilities 48,311 80,815 9, , ,706 Total Liabilities 359,706 Net Assets Unrestricted Total Net Assets 563, ,954 Total Liabilities and Net Assets $ 923,660 Page 3 The accompanying notes are an integral part of these financial statements.

6 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Changes in Unrestricted Net Assets Revenues State equalization assistance Classroom site funds Instructional improvement funds Federal grants Other revenue Total umestricted revenues $ 1,045,598 63,652 5,719 1,243, ,762 2,477,600 Expenses Program services Management and general Total expenses 1,925, ,823 2,336,595 Increase in Net Assets 141,005 Net Assets, July 1, ,949 Net Assets, June 30, 2017 $ 563,954 Page4 The accompanying notes are an integral part of these financial statements.

7 SCHEDULE OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2017 Salaries and wages Payroll taxes Employee benefits Purchased services Supplies Occupancy Depreciation Insurance TOTAL Program Services Management and General $ 832,466 81,411 66,214 6,250 54,607 2, , ,907 6,391 3, ,807 37,564 15,500 $ 1,925, ,823 Total $ 913,877 72,464 57, ,131 10, ,807 37,564 15,500 $ 2,336,595 Page 5 The accompanying notes are an integral part of these financial statements.

8 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 Decrease in Cash and Cash Equivalents Cash Flows From Operating Activities: Increase in net assets $ 141,005 Adjustments to reconcile increase in net assets to net cash used for operating activities: Depreciation Increase in due from federal government Decrease in due from state government Decrease in due from related parties Decrease in due from other entities Increase in prepaid expenses Increase in accounts payable Increase in accrued payroll and benefits Increase in deferred grant revenue Net cash used for operating activities 37,564 (64,232) 5,448 15,817 11,801 (284,046) 40,076 17,804 3,908 (74,855) Cash flows from investing activities: Purchases of property and equipment Net cash used for investing activities (98,566) (98,566) Cash flows from financing activities: Payments to Charter School Capital Proceeds from Charter School Capital Net cash provided by financing activities (562,700) 638,500 75,800 Net decrease in cash and cash equivalents (97,621) Cash and cash equivalents, July 1, ,352 Cash and cash equivalents, June 30, 2017 $ 242,731 Page 6 The accompanying notes are an integral part of these financial statements.

9 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Skyline Gila River Schools, LLC (the School) is a single-member Arizona limited liability corporation formed in fiscal year As a single-member LLC, the School is treated as a disregarded entity by the Internal Revenue Service and takes on the income tax status of its member. The School's sole member is Skyline Education, Inc., a related party, which is incorporated as a Not-for-Profit corporation. As a result, the School's financial statements are presented in accordance with the Non-Profit financial reporting standards. The Arizona Charter Schools are intended to provide additional academic choices for parents and students that will improve pupil achievement. Charter school statutes support flexibility and innovation in key areas of operations and organizational structures, including scheduling, curriculum, and instructional methodologies. The more significant accounting policies are described below. A. Basis of Accounting The financial statements of the School have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. B. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board Accounting Standards Codification (F ASB ASC) , Not-for-Profit Entities, Presentation of Financial Statements. Under this codification, the School is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. C. Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. D. Expense Allocation Directly identifiable expenses are charged to program services. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the School. Page7

10 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) E. 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. F. Fair Value Generally accepted accounting principles require disclosure of an estimate of fair value of certain financial instruments. The School's significant financial instruments are cash and other short term assets and liabilities. For these financial instruments, carrying values approximate fair value. G. Donated Equipment and Services Donated equipment is reflected as contributions in the accompanying financial statements at their estimated values at the date of receipt. Donated services are recognized as contributions in accordance with FASB ASC , if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the School. Volunteers provide services throughout the year that are not recognized as contributions in the financial statements since the criteria for recognition are not met. H. Cash and Cash Equivalents For purposes of the Statement of Cash Flows, the School considers all umestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents. I. Concentrations of Credit and Market Risk Financial instruments that potentially expose the School to concentrations of credit and market risk consist primarily of cash equivalents and investments. Cash equivalents are maintained at high-quality financial institutions and credit exposure is limited to any one institution. The School has not experienced any losses on its cash equivalents. The School's investments, if any, do not represent significant concentrations of market risk inasmuch as the School's investment portfolio is adequately diversified among issuers. The School has no investments as of June 30, Page 8

11 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concl'd) J. Inventory Purchases of inventory (supply items or stores for sale or rental) are recorded at the time of purchase as expenditures in the funds from which the purchases were made; and because the amounts on hand at June 30, 2017, were immaterial, they are not included in the statement of financial position. K. Property and Equipment All acquisitions ofland, buildings and improvements with a cost in excess of$5,000 or vehicles, furniture and equipment with a cost in excess of $1,000 and all expenses for repairs, maintenance, renewals, and betterments that materially prolong the useful lives of assets are capitalized. Property and equipment are carried at cost or, if donated, at the approximate fair market value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, ranging from 3 to 25 years. L. Income Tax Status A limited liability company is treated as a partnership for income tax purposes and is not subject to income taxes. The taxable income or loss of the School is included in the income tax returns of its members based upon their percentage of ownership. The sole member of the School is Skyline Education, Inc., a related party (Note 7), which is an Arizona nonprofit corporation. Accordingly, there are no income taxes reflected on the Statement of Financial Position or the Statement of Activities. M. Uncertain Tax Positions The School accounts for uncertain tax positions, if any, in accordance with F ASB Accounting Standards Codification Section 740. In accordance with these professional standards the School recognizes tax positions only to the extent that Management believes it is "more likely than not" that its tax positions will be sustained upon IRS examination. Management believes that it has no uncertain tax positions for the year ended June 30, Page 9 N. Compensated Absences The School's policies provide for granting paid time off. Full-time, exempt personnel earn between five and six days of paid time off during the fiscal year, depending on the employee's full-time equivalency. A maximum of 25 accrued paid days may be carried over at the end of each fiscal year. All accrued paid time off is paid at the employee's daily rate of pay; however, because the accrued amounts at June 30, 2017, were immaterial, they are not included in the Statement of Financial Position.

12 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 2 - CASH AND INVESTMENTS At June 30, 2017, the carrying amount of the School's deposits was $242,731, and the bank balance was $254,663. At June 30, 2017, $252,603 of the bank balance was covered by Federal Depository Insurance and the remaining $2,060 was uninsured and uncollateralized. Restricted Cash - Classroom Site Project - The Arizona Department of Education (ADE) administers and allocates Classroom Site Fund (CSF) funds to the School based on student count and other factors specified by statute. The School must allocate funding from CSF according to the following statutory parameters: 20% of funds used for teacher base salary increases; 40% of funds for performance based compensation increases; 40% for other classroom-related compensation increases. As of June 30, 2017, the School has restricted cash totaling $172,270. The entire $172,270 is unspent CSF monies and is restricted as follows: Base Performance Other Total $ 23, ,936 29,389 $ 172,270 NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consist of the following. Buildings and improvements Furniture and equipment Total property and equipment Less accumulated depreciation and amortization Net property and equipment $ 84, , ,913 (220,732) $ 190,181 Depreciation expense for the fiscal year ended June 30, 2017 was $37,564. Page 10

13 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 4 - FACTORING OF RECEIVABLES The School has an agreement with a financing institution, whereby the School has the option to receive an advance against its future monthly State Equalization payment(s). The fees for the factoring are based on an annual fee and a service charge for each advance. As of June 30, 2016, there was an outstanding balance of$145,000 due to Charter School Capital. For the fiscal year ended June 30, 2017, the School received advances totaling $638,500 and fees totaled $27,512, and the School repaid $562,700. As of June 30, 2017, there was an outstanding balance of $220,800 due to Charter School Capital. NOTE 5 - COMPLIANCE The School's compliance with certain laws and regulations is subject to review by the State of Arizona, Office of the Auditor General, and the Arizona State Board for Charter Schools. Although such reviews could result in a reduction of state equalization assistance, in the opinion of the School's management, any required reductions are not expected to be significant. NOTE 6 - CONCENTRATIONS The School receives a substantial amount of its support from federal grants and the state government agencies of Arizona. If federal granting agencies, or the State and its agencies, significantly reduced the level of support provided to the School it would have a material effect on the School's operations. Management is aware of the concentration and its potential impact. If any reduction did occur, management would take action as appropriate to limit the effect on its programs. NOTE 7 - CONTINGENT LIABILITIES The School is contingently liable for claims and judgments resulting from lawsuits incidental to the normal operation of a school. In the opinion of the School's management, the School's insurance coverage is adequate to cover claims relating to normal operations and decisions that might adversely impact the School would not have a material effect on the financial statements. Accordingly, no provision for possible losses is reflected in the financial statements. Page 11

14 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 8-RELATED PARTY TRANSACTIONS The School is related to Skyline Education, Inc. (SEI), Skyline Schools, Inc. (SS), AZ Compass Schools, Inc. (AZC), Vector School District, Inc. (VEC), South Valley Academy, Inc. (SVA), South Phoenix Academy, Inc. (SP A), and Education Works, Inc. (EWI) through common board membership. As of and for the year ended June 30, 2017, the School had engaged in the following related party transactions: The School receives various services from SEI including accounting and business services, transportation services, special education services, curriculum development services, and IT services. As of June 30, 2016, the School had prepaid $91,003 to SEI for these services. Expenses for these services totaled $654,601 for the fiscal year ended June 30, 2017, and the School paid $563,598. No payable balance for these services existed at June 30, The School also reimburses SEI for the School's share of property and casualty, health insurance and other employee benefits and for other miscellaneous purchases which SEI makes on behalf of the School. Insurance and reimbursable expenses totaled $129,031 and $17,322, respectively, for the fiscal year ended June 30, 2017, which is equal to the amounts paid by the School. No payable balance for these items existed at June 30, The School also paid some fiscal year 2018 services to SEI totaling $375,049, which is included in prepaid expenses at June 30, The School receives food service administration services from SS. Expenses for food service administration totaled $12,000 for the fiscal year ended June 30, 2017, which is equal to the amount paid by the School. As of June 30, 2016, SS owed the School $4,139 for SS's share of software licenses, which is equal to the amount received by the School during the fiscal year ended June 30, No receivable balance existed at June 30, 2017 As of June 30, 2016, AZC owed the School $3,725 for AZC's share of software licenses, and the full balance is included in due from related party at June 30, As of June 30, 2016, VEC owed the School $5,832 for VEC's share of software licenses, which is equal to the amount received by the School during the fiscal year ended June 30, No receivable balance existed at June 30, 2017 As ofjune 30, 2016, SVA owed the School $5,820 for SVA's share of software licenses, which is equal to the amount received by the School during the fiscal year ended June 30, No receivable balance existed at June 30, 2017 As ofjune 30, 2016, SPA owed the School $7,993 for SP A's share of software licenses, and the full balance is included in due from related party at June 30, Page 12

15 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 NOTE 8-RELATED PARTY TRANSACTIONS (Concl'd) The effect of the preceding paragraphs is a balance of $11,718 in due from related party and $375,049 in prepaid expenses at June 30, The School received special education services from EWI. Expenses for special education services totaled $73,000 for the fiscal year ended June 30, 2017, which was equal to the amount paid by the School. NOTE 9 -SUBSEQUENT EVENTS Management has evaluated subsequent events through March 30, 2018 and that date corresponds with the date the financial statements were available to be issued. Page 13

16 INTERNAL CONTROL AND COMPLIANCE, AND SINGLE AUDIT SECTION

17 orenzo,plc Certified Public Accountant Anthony Lorenzo, CPA Member of American Institute of Certified Public Accountants Member of Arizona State Society of Certified Public Accountants Independent Auditor's 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 Board of Directors Skyline Gila River Schools, LLC 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 Skyline Gila River Schools, LLC (School), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 30, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Skyline Gila River Schools, LLC '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 fmancial statements, but not for the purpose of expressing an opinion on the effectiveness of Skyline Gila River Schools, LLC's internal control. Accordingly, we do not express an opinion on the effectiveness of the School'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 fmancial 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 wealmess, 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 wealmesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material wealmesses. However, material wealmesses may exist that have not been identified W. Guadalupe Rd., Suite Gilbert, AZ Ph: Fax:

18 Board of Directors Skyline Gila River Schools, LLC Page2 Compliance and Other Matters As part of obtaining reasonable assurance about whether Skyline Gila River Schools, LLC'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 School'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 School's internal control and compliance. Accordingly, this cornrnunication is not suitable for any other purpose. Lorenzo, PLC Gilbert, Arizona March 30,

19 orenzo,plc Certified Public Accountant Anthony Lorenzo, CPA Member of American Institute of Certified Public Accountants Memba of Arizona State Society of Certified Public Accountants Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Board of Directors Skyline Gila River Schools, LLC Report on Compliance for Each Major Federal Program We have audited Skyline Gila River Schools, LLC's (School) compliance with the types of compliance requirements described in the 0MB Compliance Supplement that could have a direct and material effect on each of Skyline Gila River Schools, LLC's major federal programs for the year ended June 30, The School'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 ResponsibiHty 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 Skyline Gila River Schools, LLC'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 the School'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 each major federal program. However, our audit does not provide a legal determination of Skyline Gila River Schools, LLC's compliance. Opinion on Each Major Federal Program In our opinion, Skyline Gila River Schools, LLC, 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 June 30, W. Guadalupe Rd., Suite Gilbert, AZ Ph: Fax:

20 Board of Directors Skyline Gila River Schools, LLC Page2 Report on Internal Control Over Compliance Management of Skyline Gila River Schools, LLC 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 the School'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 internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Skyline Gila River Schools, LLC's internal control over compliance. A deficiency in internal control over compliance exists when the desi gn or operation of a control over compliance does not allow management or employees, in the normal course of performing their assi gn ed 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 desi gn ed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify 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. Lorenzo, PLC Gilbert, Arizona March 30,

21 SCHEDULE OF EXPENDITURES OF FEDERAL AW ARDS JUNE 30, 2017 Federal Grantor/Pass-Through Grantor/Program Title U.S. Department of Education CFDA Number Pass-Through Grantor's Number Expenditures Direct Programs: Impact Aid Rural Education Indian Education-Grants to Local Educational Agencies * N/A S358A S060A ,563 21,056 30,317 Passed through the Arizona Department of Education: Special Education-Grants to States Improving Teacher Quality State Grants Title I Grants to Local Educational Agencies School Improvement Grants FESCBG A 30,160 17FT1Tll A FT1TTl A 54,078 17CATSSG ,639 16FSISPF B 5,_87_2 Total U.S. Department of Education Total Expenditures of Federal Awards 1,121,469 $ 1,121,469 * Denotes a major program See accompanying notes to schedule 18

22 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AW ARDS JUNE 30, 2017 NOTE 1- BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Skyline Gila River Schools, LLC 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 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 Skyline Gila River Schools, LLC, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Skyline Gila River Schools, LLC. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies for the schedule of expenditures of federal awards are as follows: 1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 2) Skyline Gila River Schools, LLC has not elected to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance in 2 CFR NOTE 3 - CATALOG OF FEDERAL DOMESTIC ASSISTANCE (CFDA) NUMBER The program titles and CFDA numbers were obtained from the federal or pass-through grantor, the 2017 Catalog of Federal Domestic Assistance, or the CFDA.gov website. 19

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2017 FINANCIAL STATEMENTS Type of auditor's report issued: Unmodified Were significant deficiencies disclosed by the audit of the financial statements? NO Is any significant deficiency in internal control a material weaknesses? NO Any noncompliance which is material to the financial statements? NO FEDERAL AW ARDS Were significant deficiencies in internal control over major programs disclosed by the audit of the financial statements? NO Is any significant deficiency reported for any major program a material weaknesses? NO Type of auditor's report issued: Unmodified Any audit findings disclosed which are required to be reported under the Uniform Guidance? NO Major program: Program Impact Aid CFDA# Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Low risk auditee? YES 20

24 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS JUNE 30, 2017 We have reviewed the prior report dated March 31, 2017, and the School had no findings of noncompliance or internal control deficiencies to take corrective action on. 21