HUNTERS POINT BOARDING SCHOOL, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT June 30, 2016

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1 CPAs & Financial Consultants HUNTERS POINT BOARDING SCHOOL, INC FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT June 30, Barbara Loop, Suite 106 Rio Rancho, NM Ph: (505) Fax: (505) Info@lecomptepc.com

2 Table of Contents Page Independent Auditor s Report 1 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 4 Statement of Activities 5 Fund Financial Statements Balance Sheet Governmental Funds 6 Reconciliation of the Balance Sheet Governmental Funds to the Statement of Net Position 7 Statement of Revenue, Expenditures, and Changes in Fund Balance - Governmental Funds 8 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds to the Statement of Activities 9 Statement of Net Position 10 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Fund 11 Statement of Cash Flows Proprietary Fund 12 Statement of Fiduciary Assets and Liabilities 13 Notes to Financial Statements 14 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 22 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 24 Schedule of Expenditures of Federal Awards 27 Notes to Schedule of Expenditures of Federal Awards 28 Schedule of Findings and Questioned Costs 29 Corrective Action Plan 41 Summary Schedule of Prior Audit Findings 42

3 REPORT ON AUDIT OF FINANCIAL STATEMENTS

4 CPAs & Financial Consultants INDEPENDENT AUDITOR S REPORT Board of Directors Hunters Point Boarding School, Inc. St. Michaels, AZ 8651 Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Hunter Point Boarding School, Inc. (the School) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School s basic financial statements as listed in the table of contents. 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 opinions 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 Barbara Loop, Suite 106 Rio Rancho, NM Ph: (505) Fax: (505) Info@lecomptepc.com 1

5 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, general fund and the aggregate remaining fund information of the School as of June 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted management s discussion and analysis and budgetary comparison information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statement is not affected by this missing information. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the School s basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis 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, and is also not a required part of the basic financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic 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 are fairly stated in all material respects in relation to the basic financial statements as a whole. 2

6 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 27, 2017, on our consideration of the School 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 the School s internal control over financial reporting and compliance. Craig A. Le Compte, CPA Le Compte, P.C. Rio Rancho, NM March 27,

7 BASIC FINANCIAL STATEMENTS

8 GOVERNMENT-WIDE FINANCIAL STATEMENTS

9 STATEMENT OF NET POSITION JUNE 30, 2016 Primary Governmental School-Wide Activities Assets Current Assets Cash and investments $ 893,901 Due from government 12,079 Total current assets 905,980 Capital assets Buildings and improvements 869,562 Vehicles 144,200 Plant, machinery and equipment 2,580,322 Accumulated depreciation (3,122,902) Total capital assets 471,182 Total assets $ 1,377,162 Liabilities Accounts payable $ 148,712 Accrued payroll and related taxes 85,114 Claims payable 36,136 Compensated absence payable 5,407 Total liabilities 275,369 Net Position Invested in capital assets 471,182 Restricted 174,586 Unrestricted 456,025 Total net position $ 1,101,793 The notes to the financial statements are an integral part of this statement. 4

10 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Function/Programs Net (Expense) Revenue and Changes in Program Revenues Net Position Operating Charges for Grants and School-Wide Expenses Services Contributions Activities Governmental activities Administration $ 972,983 $ 311,781 $ 454,586 $ (206,616) Education 1,734, ,189, ,016 Facilities, operation and maintenance 459, ,269 66,178 Residential 235,473 54,460 - (181,012) Food service 211,717-75,080 (136,637) Transportation 300, ,060 (36,412) Total governmental activities $ 3,913,836 $ 366,713 $ 3,508,642 (38,482) Changes in net position (38,482) Net position, beginning of the year 1,117,725 Prior period adjustment 22,550 Net position, beginning of the year, restated 1,140,275 Net position, end of the year $ 1,101,793 The notes to the financial statements are an integral part of this statement. 5

11 FUND FINANCIAL STATEMENTS

12 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 Assets Total Governmental Funds: General Fund Current assets Cash and investments $ 841,534 Due from government 12,079 Total assets $ 853,613 Liabilities and Fund Balances Current liabilities Accounts payable $ 148,712 Accrued payroll and related taxes 80,445 Total liabilities 229,157 Fund balances Restricted 163,024 Unassigned 461,432 Total fund balances 624,456 Total liabilities and fund balances $ 853,613 The notes to the financial statements are an integral part of this statement. 6

13 RECONCILIATION OF THE BALANCE SHEET GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Total governmental fund balances $ 624,456 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds Governmental capital assets $ 3,594,084 Less accumulated depreciation (3,122,902) 471,182 Internal Service Fund is used by management to charge the cost of insurance to the individual funds. The assets and liabilities of the Internal Service Fund are included in the Statement of Net Position 11,562 Compensated absences payable are not due and payable in the current period and, therefore, are not reported in the funds (5,407) Net position of governmental activities $ 1,101,793 The notes to the financial statements are an integral part of this statement. 7

14 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2016 Revenues Total Governmental Funds: General Fund Grants and contracts $ 3,508,642 Charges for services 54,240 Other income 2,121 Total revenues 3,565,003 Expenditures Current Administration 635,977 Education 1,732,662 Facilities, operation and maintenance 423,111 Residential 234,654 Food service 211,717 Transportation 293,262 Capital outlay - Total expenditures 3,531,383 Net change in fund balances 33,620 Fund balances, beginning 568,286 Prior period adjustment 22,550 Fund balances, beginning, restated 590,836 Fund balances, end of year $ 624,456 The notes to the financial statements are an integral part of this statement. 8

15 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Net change in fund balances-governmental funds $ 33,620 Amount reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. In the current period, theses amounts are: Capital outlay $ - Depreciation expense (52,503) (52,503) Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds 7,056 Internal Service Fund is used by management to charge the cost of insurance to the individual funds. The changes in net position of the Internal Service Fund is reported with governmental activities in the Statement of Activities. (26,655) Changes in net position $ (38,482) The notes to the financial statements are an integral part of this statement. 9

16 STATEMENT OF NET POSITION- PROPRIETARY FUNDS JUNE 30, 2016 Governmental Activities: Internal Assets Service Funds Current assets: Cash and investments $ 47,698 Total assets $ 47,698 Liabilities Current liabilities: Claims payable $ 36,136 Total liabilities 36,136 Net Position Restricted 11,562 Total net position $ 11,562 The notes to the financial statements are an integral part of this statement. 10

17 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2016 Governmental Activities: Internal Service Funds Operating revenues Contributions $ 308,855 Total Operating revenues 308,855 Operating expenses Other 3,235 Claims 180,023 Premiums 136,272 Administrative fees 17,476 Total operating expenses 337,006 Operating income (expenses) (28,151) Non-operating revenues (expenses) Investment income 1,496 Total non-operating revenues (expenses) 1,496 Change in net position (26,655) Net position, beginning of year 38,217 Net position, end of year $ 11,562 The notes to the financial statements are an integral part of this statement. 11

18 STATEMENT OF CASH FLOW PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2016 Governmental Activities: Internal Service Funds Cash flows from operating activities: Cash received from contributions $ 308,855 Cash payments to suppliers for goods and services (137,756) Cash payments for claims (180,023) Net cash used by operating activities (8,924) Cash flows from investing activities: Investment income 1,496 Net cash provided by investing activities 1,496 Net decrease in cash and cash equivalents (7,428) Cash and cash equivalents, beginning of year 55,126 Cash and cash equivalents, end of year $ 47,698 Reconciliation of Operating Loss to Net Cash Used by Operating Activities Operating income (expense) $ (28,151) Adjustment to reconcile operating income to net cash provided by operating activities: Changes in assets and liabilities: Increase in claims payable 19,227 Total adjustments 19,227 Net cash used by operating activities $ (8,924) The notes to the financial statements are an integral part of this statement. 12

19 STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES JUNE 30, 2016 Student Activity Fund Assets Cash $ 4,669 Total assets $ 4,669 Liabilities Due to student groups $ 4,669 Total liabilities $ 4,669 The notes to the financial statements are an integral part of this statement. 13

20 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Hunters Point Boarding School, Inc. (School) have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. A. Reporting Entity Hunters Point Boarding School, Inc. in St. Michaels, AZ is a private company categorized under Educational Cooperative Organizations that provides education, transportation, food services, and facilities for Native American children and receives the majority of its funds from the United States Department of Interior, Bureau of Indian Affairs. The School board consists of four members elected by Hunters Point Boarding School Inc. Members. The School is not included in any other government reporting entity as defined by Governmental Accounting Standards No. 14, since the School Board members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. The School has no identified component units The School is exempt from income taxes as a nonprofit corporation under the laws of the Navajo Nation. The School s major operations include education, student transportation, maintenance of school facilities, and food services. B. Government-Wide and Fund Financial Statements The basic financial statements of the School include the government-wide and the fund financial statements. The focus is on the School as a whole in the government-wide financial statements, while reporting additional and detailed information about the School s major activities in fund financial statements. Government-Wide statements The statement of net position and the statement of activities present information about the School overall. The School s activities generally are financed through intergovernmental gran and contract revenues. The statement of activities presents a comparison between direct expenses and program revenues for each function of the School s activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Revenues are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. Net program revenue (expense) is adjusted by general revenues to determine the change in net position for the fiscal year.. 14

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) B. Government-Wide and Fund Financial Statements (Cont d) Fund Financial Statements The fund financial statements provide information about the School s funds. The emphasis of the fund financial statements is on major funds, each displayed in a separate column. The School has one governmental fund, the general fund. The fund revenues are composed of federal and state grant and contract fund. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government- Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. As a general rule, the effect of internal activity has been eliminated from the government-wide financial statements; however, the effects of inter-fund services provided and used between functions are reported as expenses and program revenues at amounts approximating their external exchange value. Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or shortly thereafter to pay off the liabilities of the current period. For this purpose, the School considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Compensated absences are recorded only when payment is due. The School s activities are financed primarily through federal grants. The government-wide statement of activities reflects the expenses of programs and functions (administration, facilities, education, etc.) reduced by directly associated revenues (charges for services, operating grants and contribution) to arrive at the net revenue or expense for each program and function. Net program revenue (expense) is then adjusted for general revenues to determine the change in net position for the year. When both restricted and unrestricted resources are available for use, it is the School s policy to use restricted resources first, then unrestricted resources as they are needed. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Fiduciary funds are reported by fund type. 15

22 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Cont d) The School reports the following major governmental fund: General Fund The General Fund is the School s primary operating fund. It accounts for all resources used to finance School maintenance and operation except those required to be accounted for in other funds. The School utilizes only the General Fund. Additionally, the School reports the following fund types: Proprietary Fund The Proprietary Fund is an Internal Service Fund that accounts for activities related to the School s self-insurance program. Fiduciary Fund The Fiduciary Fund is an Agency Fund which accounts for resources held by the School on behalf of others. This fund type includes student s activities and accounts for monies raised by students to finance student clubs and organizations and held by the School as an agent. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the School s internal service funds are charges for health and welfare benefits. Operating expenses for internal service funds include costs of goods and services and administrative expenses. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The agency fund is custodial in nature and does not have a measurement focus and is reported using the accrual basis of accounting. The agency fund is reported by fund type. D. Budgetary Data Budgets are submitted with original requests for grants through the approval of the School s Board of Directors. Modifications are made to these budgets as funding levels are changed or as program requirements change. These budgets represent the financial plan of the School and often the budget period does not coincide with the School s fiscal year. In addition, the individual grant budgets are not aggregated to create a budget for the grants fund. However, budgetary supplemental information to the basic financial statements for the year ended June 30, 2016 was omitted by management. 16

23 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) E. Capital Assets Capital assets, which include building and improvements, furniture, plant, machinery and equipment, and vehicles are reported in the school-wide (Government-wide) financial statements. Capital assets are defined by the School as assets with an initial, individual cost in excess of $5,000 and an estimated useful life of more than one year. Such assets are recorded at historical cost, or estimated historical cost if actual historical cost is not available. Donated capital assets are recorded at the estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. Capital assets are depreciated using the straight-line method over the following estimated lives: Buildings and Improvements Plant, machinery and equipment Vehicles years 3 20 years 3 20 years F. Compensated Absences The School s employee vacation and sick leave policies generally provide for granting vacation and sick leave with pay. Accrued sick leave is earned by all full-time employees at a rate of four to eight hours per pay period based on years of employment. In the event of termination, employees are not compensated for unused sick leave. Accrued vacation leave is earned by all full-time employees at a rate of two to five hours per pay period based on years of employment. Unused vacation leave is paid upon termination of employment. Employees will vest in their unused accumulated vacation leave upon one full year of service. A liability for these amounts is reported in governmental funds only if they are matured, for example, as a result of employee leave, resignations and retirements. G. Estimates The preparation of the basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. NOTE 2 FUND BALANCE CLASSIFICATIONS Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on the use of those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are non-spendable, restricted, committed, assigned, and unassigned fund balance classifications. 17

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 2 FUND BALANCE CLASSIFICATIONS (Cont d) Non-spendable. The non-spendable fund balance classification includes amounts that cannot be spent because they are not in spendable form, or legally or contractually required to be maintained intact. Restricted. Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or is imposed by law through constitutional provisions or enabling legislation. Committed. The committed fund balance classification includes amounts that can be used only for the specific purposes imposed by formal action of the Board of Directors. Those committed amounts cannot be used for any other purpose unless the Board of Directors removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. The School does not have formal policies or procedures for the utilization of committed fund balance. Accordingly, no committed fund balance amounts are reported. Assigned. Amounts in the assigned fund balance classification are intended to be used by the School for specific purposes but do not meet the criteria to be classified as restricted or committed. In the General Fund, assigned amounts represent intended uses established by the Board of Directors or a management official delegated by a formal Board of Directors action. The School does not have formal policies or procedures for the utilization of assigned fund balance. Accordingly, no assigned fund balance amounts are reported. Unassigned. Unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not contained in the other classifications. The School applies restricted resources first when outlays are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. The table below provides detail of the major components of the School s fund balance classifications at year end. General Fund Fund Balances: Restricted $ 163,024 Unassigned 461,432 Total fund balances $ 624,456 18

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 CASH AND CASH EQUIVALENTS At June 30, 2016, cash and cash equivalents consisted of the following: Carrying Amount Bank Balance Deposits $ 893,901 $ 1,032,815 Total $ 893,901 $ 1,032,815 Custodial Credit Risk Deposits Custodial credit risk is the risk that, in the event of a bank failure, the School s deposits may not be returned to it. The School does not have a formal deposit policy for custodial credit risk. As of June 30, 2016, the carrying amount of the School s deposits was $893,901 and the bank balance was $1,032,815. Of the bank balance, $250,000 was covered by Federal depository insurance, $47,698 was held by the self-insurance pool, and the remaining $735,117 of the School s deposits were covered by collateral held by the pledging financial institution in the School s name. NOTE 4 CAPITAL ASSETS A summary of capital asset activity for the year ended June 30, 2016 is as follows: Beginning Ending Governmental Activities Balance Additions Deletions Transfers Balance Capital assets being depreciated: Buildings and improvements $ 869,562 $ - $ - $ - $ 869,562 Vehicles 144, ,200 Plant, machinery & equipment 2,580, ,580,322 Total capital assets being depreciated 3,594, ,594,084 Less accumulated depreciation for: Buildings and improvements 859, ,014 Vehicles 92,528 7, ,738 Plant, machinery & equipment 2,118,305 44, ,163,150 Total accumulated depreciation 3,070,399 52, ,122,902 Total capital assets being depreciated, net $ 523,685 $ (52,503) $ - $ - $ 471,182 Depreciation expense was charged to governmental functions as follows: Education $ 8,461 Facilities, operation & maintenance 36,013 Residential 819 Transportation 7,210 Total depreciation expense-governmental activities $ 52,503 19

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 5 CHANGES IN LONG-TERM LIABILITIES Long-term liability activities for the current fiscal year are as follows: Beginning Net Ending Due Within Balance Change Balance One Year Governmental activities: Compensated absence payable $ 12,463 $ (7,056) $ 5,407 $ 5,407 Governmental activity long-term liabilities $ 12,463 $ (7,056) $ 5,407 $ 5,407 NOTE 6 CONTINGENT LIABILITIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures/expenses that may be disallowed by the grantor cannot be determined at this time, although the School expects such amounts, if any, to be immaterial. NOTE 7 ECONOMIC DEPENDENCY The School s revenue sources are based primarily on federal financial assistance subject to availability of funds and the School s compliance with federal rules and regulations. NOTE 8 RISK MANAGEMENT The School is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The School carries commercial insurance for all risks of loss, including property and liability, and workers compensation insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. The School established an Employee Benefit Fund (an Internal Service Fund) to account for and finance its uninsured risks of loss related to employee health claims. Under this program, the Fund provides coverage for up to a maximum of $25,000 for each claim, not to exceed an annual aggregate of $1,000,000. The Fund purchases commercial insurance for claims in excess of this coverage. Settled claims have not exceeded this coverage in any of the past three fiscal years. 20

27 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 8 RISK MANAGEMENT (Cont d) Liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly, claims are revaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and number of pay-outs), and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. Changes in the balances of claims liabilities during the past two years are as follows. Claims Payable Current Year Claims Beginning of Claims and Changes Claims Payable at Employee Benefits Year in Estimates Payments End of Year $ 16,909 $ 199,250 $ 180,023 $ 36, $ 10,648 $ 113,167 $ 106,906 $ 16,909 The School s contribution to the Plan are included in the expenditure reported in the Statement of Revenue, Expenditure and Changes in fund Balances- Government Funds in the accompanying financial statements. NOTE 9 PRIOR PERIOD ADJUSTMENTS Management made prior period adjustments to the cash balances. The adjustment to the fund balance/net position increased the balance by $22,550. NOTE 10 SUBSEQUENT EVENTS Management has evaluated subsequent events through March 27, 2017, the date on which the financial statements were available to be issued. 21

28 SINGLE AUDIT SECTION

29 CPAs & Financial Consultants 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 Hunters Point Boarding School, Inc. St. Michaels AZ 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 the governmental activities, each major fund and the aggregate remaining fund information of the Hunter Point Boarding School, Inc. (the School) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School s basic financial statements and have issued our report thereon dated March 27, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the School 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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School s internal control. Accordingly, we do not express an opinion on the effectiveness of the School s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph 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 were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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. We consider the deficiencies described in the accompanying schedule of findings and questioned costs to be material weaknesses and 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. We consider the deficiencies described in the accompany schedule of findings and questioned costs to be significant deficiencies Barbara Loop, Suite 106 Rio Rancho, NM Ph: (505) Fax: (505) Info@lecomptepc.com 22

30 Compliance and Other Matters As part of obtaining reasonable assurance about whether the School 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. The School s Response to Findings The School s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The School 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Craig A. Le Compte, CPA Le Compte, P.C. Rio Rancho, NM March 27,

31 CPAs & Financial Consultants INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Members of the Board of Directors Hunters Point Boarding School, Inc. St. Michaels, AZ Report on Compliance for Each Major Federal Program We have audited Hunters Point Boarding School, Inc.(the School) 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 the School 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 Responsibility Management is responsible for compliance with the requirements of 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 the School 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 the School s compliance Barbara Loop, Suite 106 Rio Rancho, NM Ph: (505) Fax: (505) Info@lecomptepc.com 24

32 Opinion on Each Major Federal Program In our opinion, the School 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 June 30, Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items and Our opinion on each major federal program is not modified with respect to these matters. The School s response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The School 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 School 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 the School s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identity all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies. 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. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items and to be material weaknesses. 25

33 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. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items and to be significant deficiencies. The School s responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The School s responses were not subjected to the audit procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. 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. Craig A. Le Compte, CPA Le Compte, P.C. Rio Rancho, NM March 27,

34 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 Federal Pass-Through Federal Grantor/Pass-Through CFDA Entity Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. Department of Agriculture Pass Through State of Arizona Child Nutrition Cluster: School Breakfast Program $ 44,110 National School Lunch Program ,028 Total U.S. Department of Agriculture $ 137,138 U.S. Department of Interior -Bureau of Indian Education Indian School Equalization Program $ 1,501,762 Indian School_Student Transportation ,262 Administrative Cost Grants for Indian Schools ,618 Indian Education Facilities, Operations, and Maintenance ,820 Total U.S. Department of Interior $ 2,685,462 U.S. Department of Education Title VII Bilingual Education $ 42,718 Pass Through U.S. Department of Interior- Bureau of Indian Education Title I Grants Cluster: Title I A15AV ,415 Special Education_Grants to States A15AV ,254 Education for Homeless Children and Youth A15AV ,051 Teacher Quality Partnership Grants A15AV ,270 Rural Education A15AV ,698 Total U.S. Department of Education $ 589,406 Total Expenditures of Federal Awards $ 3,412,006 See accompanying notes to this schedule. 27

35 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal wards (the Schedule) includes the federal award activity of the Hunters Point Boarding School, Inc. 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 the School, it is not intended to and does not present the financial position, changes in net position or cash flows of the School. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the modified 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. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. The School has elected to not use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. NOTE 3 CATALOGUE OF FEDERAL DOMESTIC ASSISTANCE (CFDA) NUMBERS The program titles and CFDA numbers were obtained from the federal or pass-through grantor or the 2016 Catalog of Federal Domestic Assistance. NOTE 4 RECONCILIATION OF SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS TO FINANCIAL STATEMENTS The following is a reconciliation of the expenditures reported on the schedule of expenditures of federal awards to the expenditures reported in the Statement of Revenues, Expenditures and Changes in Fund Balance included in accompanying financial statements: Expenditures according to schedule of expenditures of federal awards $ 3,412,006 Expenditures funded by non-federal source 19,377 Total expenditures on financial statements $ 3,531,383 28

36 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 SECTION I SUMMARY OF AUDITOR S RESULTS Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weakness (es) identified? X Yes No Significant deficiency(ies) identified? X Yes None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness (es) identified? X Yes No Significant deficiency(ies) identified? X Yes None reported Type of auditors report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? X Yes No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster Indian School Equalization Program Dollar Threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes X No 29