TUCSON URBAN LEAGUE, INC.

Transcription

1 TUCSON URBAN LEAGUE, INC. INDEPENDENT AUDITOR S REPORT AND FINANCIAL STATEMENTS (INCLUDING OMB UNIFORM GUIDANCE SUPPLEMENTAL COMPLIANCE AND INTERNAL CONTROL REPORTS) YEARS ENDED JUNE 30, 2017 AND 2016

2 TUCSON URBAN LEAGUE, INC. TABLE OF CONTENTS Independent Auditor s Report... 1 Audited Financial Statements Statements of Financial Position... 4 Statements of Activities... 5 Statements of Cash Flows... 6 Notes to Financial Statements... 8 Government Auditing Reports Schedule of Expenditures of Federal Awards Note to Schedule of Expenditures of Federal Awards 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 Findings and Questioned Costs Summary Schedule of Prior Audit Findings Additional Reports Provided by Management (unaudited) Management s Response to Auditor s Findings: Summary Schedule of Prior Audit Findings and Corrective Action Plan as of June 30, 2017 Page

3 INDEPENDENT AUDITOR S REPORT Board of Directors Tucson Urban League, Inc. Tucson, Arizona Report on the Financial Statements We have audited the accompanying financial statements of Tucson Urban League, Inc. (a nonprofit organization), which comprise the statements 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. 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. -1-

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tucson Urban League, Inc. 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. Substantial Doubt about Tucson Urban League, Inc. s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that Tucson Urban League, Inc. will continue as a going concern. As discussed in Note 11 to the financial statements, Tucson Urban League, Inc. s significant negative changes to net assets, exclusive of gain on sale of building, raises substantial doubt about its ability to continue as a going concern. Management s evaluation of the events and conditions and management s plans regarding those matters are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter. Report on Summarized Comparative Information We have previously audited Tucson Urban League, Inc. s 2016 financial statements and we expressed an unmodified audit opinion on those audited financial statements in our report dated November 27, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Other Information 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, 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. -2-

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 3, 2018, on our consideration of Tucson Urban League, 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 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 Tucson Urban League, Inc. s internal control over financial reporting and compliance. April 3, 2018 Tucson, Arizona -3-

6 TUCSON URBAN LEAGUE, INC. STATEMENTS OF FINANCIAL POSITION June 30, 2017 and 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 529,808 $ 84,961 Accounts receivable 586, ,742 Other current assets 9,101 9,731 Total current assets 1,125, ,434 PROPERTY AND EQUIPMENT, NET 813,385 1,006,970 Total assets $ 1,939,167 $ 1,552,404 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 1,011,398 $ 865,795 Accrued liabilities 72,115 78,789 Deferred revenues - 14,354 Current portion of capital leases 2,777 12,230 Other current liabilities 2,233 4,139 Current portion of long-term debt 33,074 - Total current liabilities 1,121, ,307 LONG-TERM LIABILITIES Long-term portion capital leases 1,709 3,171 Long-term debt, net of current portion 161,723 - Total long-term liabilities 163,432 3,171 Total liabilities 1,285, ,478 NET ASSETS Unrestricted net assets 598, ,873 Temporarily restricted net assets 56,127 16,053 Total net assets 654, ,926 Total liabilities and net assets $ 1,939,167 $ 1,552,404 The Notes to Financial Statements are an integral part of these statements. -4-

7 TUCSON URBAN LEAGUE, INC. STATEMENTS OF ACTIVITIES For the Year Ended June 30, 2017 (with comparative summarized totals for the year ended June 30, 2016) Temporarily Unrestricted Restricted Total Total REVENUES Grants, contracts and fees $ 3,591,578 $ 70,551 $ 3,662,129 $ 3,766,539 Contributions 215, , ,381 United Way 18,980-18,980 35,473 Client co-payments and fees 42,809-42,809 29,113 Rental income 94,565-94,565 67,125 Other income 23,826-23,826 5,422 Gain on sale of building 309, ,834 - Net assets released from restriction 30,477 (30,477) - - Total revenues 4,327,455 40,074 4,367,529 4,110,053 EXPENSES Salaries and wages 1,212,315-1,212,315 1,204,372 Employee benefits 182, , ,944 Payroll taxes 97,447-97,447 91,681 Program services and education 2,095,812-2,095,812 2,289,441 Professional fees 63,591-63,591 62,292 Occupancy 242, , ,160 Operating and general 392, , ,551 Total expenses 4,287,317-4,287,317 4,404,441 CHANGE IN NET ASSETS 40,138 40,074 80,212 (294,388) NET ASSETS, BEGINNING OF YEAR 557,873 16, , ,314 NET ASSETS, END OF YEAR $ 598,011 $ 56,127 $ 654,138 $ 573,926 The Notes to Financial Statements are an integral part of these statements. -5-

8 TUCSON URBAN LEAGUE, INC. STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2017 and CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 80,212 $ (294,388) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 65,185 70,258 Gain on sale of property and equipment (309,834) - Increase (decrease) in cash resulting from changes in Accounts receivable (136,131) 240,839 Other current assets ,311 Accounts payable 145,603 12,925 Accrued liabilities (6,674) (83,859) Deferred revenue (14,354) (111,714) Other current liabilities (1,906) 1,756 Net cash provided (used) by operating activities (177,269) (122,872) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 457,554 - Purchases of property and equipment (19,320) (17,413) Net cash used by investing activities 438,234 (17,413) The Notes to Financial Statements are an integral part of these statements. -6-

9 TUCSON URBAN LEAGUE, INC. STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2017 and CASH FLOWS FROM FINANCING ACTIVITIES Advances on long-term debt 200,000 - Repayment of long-term debt (5,203) (51,322) Repayment of capital leases (10,915) (10,188) Net cash provided (used) by financing activities 183,882 (61,510) Net increase (decrease) in cash and cash equivalents 444,847 (201,795) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 84, ,756 CASH AND CASH EQUIVALENTS, END OF YEAR $ 529,808 $ 84,961 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 12,511 $ 1,746 The Notes to Financial Statements are an integral part of these statements. -7-

10 TUCSON URBAN LEAGUE, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2017 and ORGANIZATION Nature of Operations Tucson Urban League, Inc. (the Organization ) is a nonprofit organization established in the State of Arizona in As a response to a significantly high unemployment rate among Tucson minorities, the Organization became the 97th affiliate of the National Urban League. The Organization is an interracial, non-partisan community service organization using methods of social work, economics, law, business, and other disciplines to help secure equality for all Americans in every sector of our society. The Organization receives funding from federal funds (pass-through), state and local governmental agencies, other nonprofit organizations, and from private and corporate donors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of support, revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Basis of Accounting The Organization follows accounting standards set by the Financial Accounting Standards Board ( FASB ). The FASB sets the United States generally accepted accounting principles ( GAAP ), which are followed by the Organization in order to ensure the consistent reporting of its financial condition, changes in net assets and cash flows. The financial statements of the Organization have been prepared on the accrual basis of accounting, and accordingly, reflect all significant receivables, payables, and other liabilities. -8-

11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation In accordance with GAAP, the Organization s financial statements are required to be presented according to the presence or absence of donor-imposed restrictions, and are segregated into the following categories: Unrestricted net assets Net assets which are not subject to donor-imposed stipulations, and are available for use in operations. Temporarily restricted net assets Net assets which are subject to donor-imposed stipulations that will be met by the Organization and/or the passage of time. Temporarily restricted net assets received and expended in the same year are classified as unrestricted. Temporarily restricted net assets of $56,127 and $16,053 existed at June 30, 2017 and 2016, respectively. Permanently restricted net assets Permanently restricted net assets represent permanent endowments where it is stipulated by donors that the principal remain in perpetuity and only the income is available as unrestricted or temporarily restricted, as per the endowment agreements. No permanently restricted net assets existed at June 30, 2017 and 2016, respectively. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, available funds on deposit at financial institutions, and highly liquid investments with a maturity of three months or less when purchased. Cash is held in demand accounts at banks and, at times during the year, these cash balances may exceed the federally insured amounts; however, management does not believe they are exposed to significant credit risk with respect to their cash and cash equivalents. Management monitors all such accounts to mitigate risk. Accounts Receivable Accounts receivable consist principally of amounts due, under contractual obligations, from state and local governmental agencies and other nonprofit organizations. Receivables that are deemed uncollectible by management are written off. Any subsequent recoveries of these written off accounts are recorded when received. As of June 30, 2017 and 2016, management considers all accounts receivable fully collectible; therefore, no allowance account was deemed necessary. -9-

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Equipment Property and equipment are stated at cost at the date of acquisition, or in the case of donated property, at fair market value at date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are depreciated over the estimated lives of assets. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is recognized. Depreciation is calculated using the straightline method over the following estimated useful lives of the assets: Buildings and improvements Furniture and equipment Vehicles 15 to 30 years 3 to 10 years 5 years Total depreciation and amortization expense was $65,185 and $70,258 for the years ended June 30, 2017 and 2016, respectively. Acquisitions of property and equipment, and repairs or betterments that materially prolong the useful lives of assets, in excess of $1,500 are capitalized. Routine repairs and maintenance are expensed as incurred. Revenue Recognition Grants and Contracts The Organization recognizes revenue from its government-funded grants and contracts as expenditures are incurred, in accordance with applicable grant agreements and under expenditure-reimbursement contracts. Amounts received under unit rate contracts are earned when services are provided. The Organization records a receivable for any contract revenue earned that exceeds payment received; conversely, grant advances in excess of costs incurred are deferred and recognized as revenue when the related expense is incurred or service is rendered. Contributions Contribution revenue is recognized when the Organization receives notification of an unconditional promise to give. Revenue from conditional promises to give is not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Client Co-Payments and Fees Revenue from client co-payments and fees is recognized when the services are provided by the Organization. Rental Income Rental income is recognized as rents become due and services are provided. Rental receipts received in advance are deferred until earned. -10-

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Contributed Goods and Services The Organization receives in-kind contributions in the form of program and operating supplies and donated facilities space. The Organization recognizes the related revenues and expenses pertaining to inkind contributions in the accompanying financial statements if: (1) the services create or enhance nonfinancial assets, or (2) it is a service that (a) is the type of service that would typically need to be purchased if it had not been contributed, (b) requires specialized skills, and (c) is provided by an individual possessing those specialized skills. In-kind contributions totaled $110,160 and $95,164 during the years ended June 30, 2017 and 2016, respectively, and consisted of donated facilities space. Functional Allocation of Expenses The Organization discloses its expenses on a functional basis between its program and support services. Expenses that can be identified with a special program or support service are allocated directly according to their natural expense classification. Certain contracts allow for costs that would normally be considered indirect. These costs are allocated per the terms of the given contract. Expenses that are common to several functions are allocated by other reasonable methods. See Note 9. Income Taxes No provision for income taxes is included in the accompanying financial statements. The Organization has received a determination letter from the Internal Revenue Service (IRS) that recognizes it as a tax exempt organization under Section 501(c)(3) of the Internal Revenue Code. The federal exemption is recognized by state taxing authorities. The Organization is annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS. In addition, the Organization is subject to income tax on net income that is derived from business activities that are unrelated to their exempt purposes. The Organization has determined that it is not subject to unrelated business income tax for the years ended June 30, 2017 and The Organization believes that it has appropriate support for any tax positions and deductions affecting its annual filing requirements, and accordingly, has not recorded any reserves or related accruals for interest and penalties at June 30, 2017 and 2016 for uncertain income tax positions. Income tax related interest and penalties, if any, are reported in general and administrative expenses when incurred. The accompanying financial statements do not include any interest or penalties related to income taxes. No income tax examinations are currently underway or anticipated. The statute of limitations is three years for federal income tax purposes and four years for the State of Arizona. Advertising Advertising costs are expensed as incurred and included in the statements of activities under Program Services and Expenses. The total amounts of advertising expensed were $1,230 and $3,903 for the years ended June 30, 2017 and 2016, respectively. -11-

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Summarized Prior Year Information The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with GAAP. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended June 30, 2016, from which the summarized information is derived. Recent Accounting Pronouncements Revenue Recognition In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No , Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance will be effective for the Organization s year ending June 30, The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Organization has not yet determined which application method it will use or the potential effects on the new standard on the financial statement, if any. Leases In February 2016, the Financial Accounting Standards Board issued ASU No , Leases (Topic 842), which will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either financing or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the consolidated balance sheet. Lessor accounting under the new standard will remain similar to lessor accounting under current GAAP. The reporting of lease-related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Organization s year ending June 30, 2021 and will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The effect of applying the new lease guidance on the financial statements has not yet been determined. -12-

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Non-Profit Organizations In August 2016, the Financial Accounting Standards Board issued ASU , Not-for-Profit Entities (Topic 958), which will change how not-for-profit organizations will report and present certain items in their financial statements. The new guidance will take effect for the year ending June 30, The significant changes are: o Simplification of net asset presentation net assets will now be presented in two classes, Net assets with donor restrictions, and Net assets without donor restrictions. o All not-for-profit organizations will be required to present expenses in their natural classification (advertising, payroll, rent, etc.) and by function (program, general and administrative, and fund raising). o Enhanced disclosure requirements related to presenting liquidity information, and simplification of existing disclosure requirements related to investment returns and long lived assets purchased with donor-restricted funds. The Organization has not yet determined the effect of applying the new standard on the financial statements. 3. PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation at June 30, 2017 and 2016 consist of the following: Land $ 185,685 $ 185,685 Buildings and improvements 2,113,581 2,358,627 Furniture and equipment 1,098,742 1,079,422 Total 3,398,008 3,623,734 Less accumulated depreciation (2,584,623) (2,616,764) Net property and equipment $ 813,385 $ 1,006,970 On June 15, 2017, the Organization sold a building located in Tucson, Arizona that had been used for one of the programs the Organization operated. The sale price of the building was $500,000, and the Organization recognized a gain on the sale of the building of $309,

16 4. LEASED ASSETS The Organization leases certain equipment under non-cancellable long-term leases, which have been recorded as capitalized leases. The capitalized leased assets are included in depreciable capital assets and consist of the following at June 30: Office equipment $ 43,757 $ 43,757 Less accumulated amortization (40,767) (39,387) Net book value of leased assets $ 2,990 $ 4,370 Minimum future lease payments under capital leases as of are as follows at June 30: $ - $ 12, ,865 5, ,488 1, Total minimum lease payments 4,601 19,238 Less amount representing interest (ranging from 2.74% to %) (115) (3,837) Present value of net minimum lease payments 4,486 15,401 Less current portion (2,777) (12,230) Long-term capital lease obligation $ 1,709 $ 3,

17 5. LONG-TERM DEBT Long-term debt as of June 30 is summarized as follows: Note payable to an LLC with interest payments at 9.5% due monthly for the initial 6 months, followed by monthly payments of $4,200 through April $ 194,797 $ - Less current portion of long-term debt (33,074) - Total long-term debt $ 161,723 $ - Minimum payments on long-term debt as of June 30, 2017 are as follows: 2018 $ 33, , , , ,179 Total $ 194, PENSION PLAN The Organization maintains a defined contribution pension plan (the Plan ), which covers substantially all of its employees. Employees are fully vested in the Plan after five years of service at the Organization. The Organization contributes 2% of the employee s gross salary to the Plan. In addition, the Organization is required to match employee contributions up to 3%. The Organization s contributions under the Plan totaled $32,209 and $37,316 for the years ended June 30, 2017 and 2016, respectively. 7. CONCENTRATION OF CREDIT RISK The Organization derives the majority of its revenues and support from governmental grants for various programs. At times, grants for particular programs may constitute a concentration as defined by the accounting standards. In addition, the Organization s receivables primarily consist of uncollateralized amounts due from federal, state and local governments. These receivables are amounts due to the Organization under expenditure reimbursement and fee for service contracts. -15-

18 8. COMMITMENTS AND CONTINGENCIES The Organization is periodically involved in legal proceedings of a nature considered normal to its business operations. The aggregate effect of any legal action would not, in management s opinion, have a materially adverse effect on the Organization s financial position or results of operations. 9. FUNCTIONAL EXPENSES Functional expenses consist of the following as of June 30: Program services and education $ 3,468,866 $ 3,694,087 General and administration 760, ,600 Fundraising 57,532 50,754 Total $ 4,287,317 $ 4,404, RENT INCOME The Organization rents office space to various nonprofit and governmental entities under non-cancelable leases with varying terms and expiration dates. Gross rental income was $94,565 and $67,124 for the years ended June 30, 2017 and 2016, respectively. Future minimum rentals to be received at contracted rates under these lease agreements as of June 30, 2017 follow: Year Ending June 30, 2018 $ 47, ,554 Total $ 52, FUTURE OPERATIONS AND CONCENTRATION OF SUPPORT During the year ended June 30, 2017, the Organization had a net surplus of revenues over expenses. However, without the gain associated with the sale of a building during the year, the Organization would have experienced a net loss of revenues over expenses of $229,622 for the year ended June 30, The Organization s expenses exceeded its revenues in each of the five previous years. At June 30, 2017 and 2016, the Organization still reflected positive unrestricted net assets. If continued operating deficits occur, however, it may affect the Organization s ability to provide its intended programs and continue as a going concern. -16-

19 11. FUTURE OPERATIONS AND CONCENTRATION OF SUPPORT Support from the State of Arizona and other City and County agencies is significant and represents approximately 58% and 22%, respectively, of the overall revenue of the Organization for the year ended June 30, As of July 1, 2017, Tucson Urban League, Inc. ceased participation in the LIHEAP utility assistance program that was being passed through the State of Arizona. The Organization did obtain a services contract with Pima County to continue to provide case management services for the program. While the Organization continues to receive support from these agencies, the operation is focusing on fundraising, donor development, and acquisition of new grants to supplement its existing revenue sources. The Organization has taken steps to reduce its expenses and improve its cash flows. Additional opportunities to reduce expenses are also being evaluated and employed as part of the ongoing efforts to achieve positive operating results. 12. SUBSEQUENT EVENTS Management evaluated subsequent events through April 3, 2018, which is the date on which the financial statements were available to be issued. Tucson Urban League, Inc. sold the Desert House after June 30, 2017, realizing a gain on sale of approximately $28,000. Subsequent to June 30, 2017, Tucson Urban League, Inc. obtained a bridge-loan from a not-for-profit organization for total available funds of $260,000. The loan carries interest at 9.5%, and calls for interestonly payments for the first six months, then $5,936 payments of principal and interest for 54 months. Subsequent to June 30, 2017, the Arizona Department of Economic Security (DES) started an audit of the Low-Income Home Energy Program Utility Assistance Program, which included federal funds passed through DES. The audit has not been completed as of the date of these financial statements. After June 30, 2017, Tucson Urban League, Inc. was awarded several new grants totaling approximately $400,000 in support of various programs. -17-

20 GOVERNMENT AUDITING REPORTS

21 TUCSON URBAN LEAGUE, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2017 Federal Grantor/Pass-Through Pass-Through Entity Federal CFDA Federal Funds Grantor/Program Title Identifying Number Number Expended U.S. Department of Housing and Urban Development Passed through National Urban League: HUD Housing Counseling $ 12,449 Passed through Pima County County Emergency Home Repair - CDBG CT-CO ,409 Passed through City of Tucson: City Emergency Home Repair - CDBG ,545 CDBG - Entitlement Grants Cluster (14.218, , and ) 106,954 U.S. Department of Labor Passed through Pima County: WIA/WIOA Adult Program CTCS ,730 WIA/WIOA Adult Program CTCS ,651 WIA/WIOA Youth Activities - Out of School Youth CTCS ,707 WIA/WIOA Youth Activities - In School Summer CTCS ,428 WIA/WIOA Youth Activities - Out of School Youth CTCS ,346 WIA/WIOA Youth Activities - Work Investment CTCS ,201 WIA/WIOA Cluster (17.258, , and ) 368,063 Passed through Pima County: Reentry Employment Opportunities CT-CS ,142 U.S. Department of Energy Passed through the State of Arizona: Weatherization Assistance for Low-Income Persons ,581 U.S. Environmental Protection Agency Environmental Workforce Development and Job Training ,

22 TUCSON URBAN LEAGUE, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2017 Federal Grantor/Pass-Through Pass-Through Entity Federal CFDA Federal Funds Grantor/Program Title Identifying Number Number Expended U.S. Department of Health and Human Services Administration on Aging Passed through Pima Council on Aging: Special Programs for the Aging - Nutrition ,596 Nutrition Services Incentive Program ,640 Aging Cluster (93.044, and ) 106,236 Administration for Children and Families Passed through Pima County: TANF Admin Case Management CT ,000 TANF Vouchers - 49 CT ,616 TANF Cluster ( and ) 38,616 Passed through the State of Arizona: SEC-URRD-LIHEAP (DES) ADES * 1,726,350 Weatherization LIHEAP * 285,060 2,011,410 Passed through Pima County: Community Services Block Grant - 99 CT ,616 Passed through State of Arizona: DES - Quinto - Child Care and Development BG SX ,478 Passed through Pima County: Affordable Care Act (ACA) Health Profession Opportunity Grants CTCS ,509 Total $ 2,819,926 * Denotes major program -19-

23 TUCSON URBAN LEAGUE, INC. NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of the Organization and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Because the Schedule presents only a selected portion of the operations of the Organization, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Organization. 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 the Uniform Guidance and/or OMB Circular A- 122, Cost Principles for Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 3. INDIRECT COST RATE The Organization has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. -20-

24 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 Tucson Urban League, Inc. Tucson, Arizona We have audited 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, the financial statements of the Tucson Urban League, Inc. (the Organization ) (a nonprofit organization), which comprise the statement of financial position as of June 30, 2017, 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 April 3, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Organization 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 the Organization 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. 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as item that we consider to be a material weakness. -21-

25 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization 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 an instance of noncompliance or other matter that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item Tucson Urban League, Inc. s Response to Findings Tucson Urban League, Inc. s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization s response was not subjected to the auditing 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 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. April 3, 2018 Tucson, Arizona -22-

26 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Directors Tucson Urban League, Inc. Tucson, Arizona Report on Compliance for Each Major Federal Program We have audited Tucson Urban League, Inc. s (the Organization ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Organization s major federal programs for the year ended June 30, The Organization 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 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 each of the Organization 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 Organization 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 the Organization s compliance. -23-

27 Basis for Qualified Opinion on Low-Income Home Energy Assistance Program As described in the accompanying schedule of findings and questioned costs, Tucson Urban League, Inc. did not comply with the requirement regarding CFDA Low Income Home Energy Assistance Program as described in finding number for Cash Management. Compliance with such requirements is necessary, in our opinion, for Tucson Urban League, Inc. to comply with the requirements applicable to that program. Qualified Opinion on Low Income Home Energy Assistance Program In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, Tucson Urban League, Inc. complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on Low Income Home Energy Assistance Program for the year ended June 30, Other Matters The Organization s response to the noncompliance and internal control finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of the Organization 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 Organization 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 for each major 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 the Organization 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. -24-

28 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 have not been identified. We identified a certain deficiency in internal control over compliance as described as item in the accompanying schedule of findings and questioned costs that we consider to be a material weakness. The Organization s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization 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 the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. April 3, 2018 Tucson, Arizona -25-

29 TUCSON URBAN LEAGUE, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2017 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified not considered to be material weaknesses? Noncompliance material to financial statements noted? Unmodified Yes None noted Yes Federal Awards Internal control over major programs: Material weaknesses identified? Significant deficiencies identified not considered to be material weaknesses? Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? Yes None noted Qualified Yes Identification of major programs: CFDA Number Name of Federal Program Low-Income Home Energy Assistance (LIHEAP) Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee under the Uniform Guidance? Yes -26-

30 TUCSON URBAN LEAGUE, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2017 Section II - Financial Statement Findings Finding Number Internal Controls over Cash Management (Material Weakness) Statement of Condition: Criteria: Cause: Effect: During our testing of compliance with the cash management requirements of the LIHEAP Utility Assistance Grant (LIHEAP) (CFDA ) United States Department of Health and Human Services (HHS) funds passed through the State of Arizona Department of Economic Security (DES), we noted that funds received through DES for payment of LIHEAP expenditures incurred by Tucson Urban League, Inc. were used to cover operating expenses. This is a repeat finding from the prior year ( ). There is a material weakness in internal controls over cash flows in that funds received to reimburse the Organization for costs related to a federal program were diverted to cover other cash flow needs. Funds to reimburse the Organization for direct costs related to the LIHEAP program should be used to cover the cash flow needs for that program. Tucson Urban League, Inc. continued to experience cash flow issues that resulted in the Organization diverting federal funds related to this program to cover other cash flow needs. The delayed payment of an already past-due utility bill being paid on behalf of a LIHEAP participant may result in the utility company shutting off service to the participant. Recommendation: A short-term solution for the cash management issue would be for Tucson Urban League, Inc. to investigate and obtain a revolving line-of-credit that would allow Tucson Urban League, Inc. to draw on the line to submit payments on the utility bills, then repay the line upon receipt of funds from DES. -27-

31 TUCSON URBAN LEAGUE, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2017 Recommendation : In the long-term, Tucson Urban League, Inc. should review all of the existing programs in operation and consider how to cover the costs of programs in which the program receipts do not cover the program costs. Each program must be self-reliant. Views of Responsible Officials and Planned Corrective Actions: See attached corrective action plan. Section III - Federal Award Findings and Questioned Costs Finding Number Internal Controls over Cash Management Low-Income Home Energy Assistance, CFDA , ADES , July 1, 2016 through June 30, 2017 (Material Weakness). Statement of Condition: During our testing of internal controls over cash management for the LIHEAP Utility Assistance Grant (LIHEAP) (CFDA ) United States Department of Health and Human Services (HHS) funds passed through the State of Arizona Department of Economic Security (DES), we noted the following instances of noncompliance with the internal controls over cash management related to LIHEAP. We tested two payments for each month from July 2016 to April 2017 submitted to various utilities on behalf of individuals qualified for the LIHEAP program. Tucson Urban League, Inc. usually received payment from DES within fifteen to thirty days after submission of the invoice to DES. Tucson Urban League, Inc. then took an average of 83 days after receipt of the funds from DES to submit payments to the utilities. o The shortest period was 20 days after receipt of the funds. o The longest period was 168 days after receipt of the funds. Questioned Costs: None noted. -28-

32 TUCSON URBAN LEAGUE, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2017 Criteria: Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states that: Non-Federal entities must minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for direct program or project costs and the proportionate share of allowable indirect costs, whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means (2 CFR section (b)). Cause: Effect: Tucson Urban League, Inc. has had several years of net losses from operations, and has been experiencing cash flow difficulties. Management has been overriding internal controls related to cash management in using federal funds to cover other cash flow needs. The delayed payments of the utility bills being paid on behalf of the LIHEAP participant may result in either HHS or DES ending the LIHEAP contract with Tucson Urban League, Inc. Recommendation: A short-term solution for the cash management issue would be for Tucson Urban League, Inc. to investigate and obtain a revolving line-of-credit that would allow Tucson Urban League, Inc. to draw on the line to submit payments on the utility bills, then repay the line upon receipt of funds from DES. In the long-term, Tucson Urban League, Inc. should review all of the existing programs in operation, and consider how to cover the costs of programs in which the program receipts do not cover the program costs. Each program must be self-reliant. Views of Responsible Officials and Planned Corrective Actions: See attached corrective action plan. -29-

33 TUCSON URBAN LEAGUE, INC. SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS For the Year Ended June 30, 2017 Section II Financial Statement Findings Finding Number Using Federal Funds to Cover Cash Flow Shortages Repeated and Modified Section II Federal Award Findings and Questioned Costs Finding Number Cash Management Repeated and Modified -30-

34 Management s Response to Auditor s Findings: Summary Schedule of Prior Audit Findings and Corrective Action Plan June 30, 2017 Prepared by Management of TUCSON URBAN LEAGUE, INC.