For the. Walker & Co., LLP

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1 FINANCIAL STATEMENTS AND SCHEDULES IN ACCORDANCE WITH OMB CIRCULARR A-133 For the Years Ended June 30, 2014 and 2013 Walker & Co., LLP Assurance, Business and Advisory Services

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITORS 1 FINANCIAL STATEMENTS Statements of Financial Position 4 Statements of Activities and Changes in Net Assets 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Supplemental Information Schedules of Functional Expenses 19 SINGLE AUDIT Schedule of Expenditures of Federal Awards 21 Notes to Schedule of Expenditures of Federal Awards 22 Report of Independent Auditors 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 23 Report of Independent Auditors on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 28 Summary Schedule of Prior Year Findings 30 Page

3 Walker & Co., LLP Assurance, Business and Advisory Services REPORT OF INDEPENDENT AUDITORS Board of Trustees Community Academy Public Charter School, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Community Academy Public Charter School, Inc., a nonprofit organization, (the School) which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 5101 Wisconsin Avenue, NW, 5 th Floor, Washington, DC T F Member AICPA Private Companies Practice Section & Government Audit Quality Center

4 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Academy Public Charter School, Inc. as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis-of-Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that CAPCS will continue as a going concern. As discussed in Note 14 to the financial statements, the District of Columbia Public Charter School Board revoked CAPCS charter effective June 30, The revocation of CAPCS charter has raised substantial doubt about the School s ability to continue as a going concern. Management s planned action regarding this matter is described in Note 14 and due to the prospective length of an appeal process it is reasonably possible that the operation of the School will continue through June 30, 2015 and thereafter until a process or plan of liquidation commences, if adopted. 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 this matter. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedules of functional expenses are presented for purposes of additional analysis and are not a required part of the financial statements. The schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations, 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

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 26, 2015 on our consideration of Community Academy Public Charter School, 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 Community Academy Public Charter School, Inc. s internal control over financial reporting and compliance. Washington D.C. February 26,

6 STATEMENTS OF FINANCIAL POSITION ASSETS June 30, Current Assets Cash $ 1,919,093 $ 99,736 Cash and cash equivalents, restricted 1,001,247 1,001,247 Grants receivable 789, ,819 Accounts receivable 143, ,818 Employee advances 25,125 18,655 Prepaid expenses and other assets 99,754 60,930 Total current assets 3,977,914 2,347,205 Non-current Assets Property and equipment, net 24,230,997 25,465,667 Deposits 49,433 49,433 Deferred charges, net 2,803,684 2,926,027 Total non-current assets 27,084,114 28,441,127 Total Assets $ 31,062,028 $ 30,788,332 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 1,755,792 $ 1,283,129 Accrued expenses and other liablities 1,754,934 2,251,607 Deferred revenue 415, ,806 Short-term loan - 200,000 Notes payable, current 544, ,999 Total current liabilities 4,471,434 4,617,541 Notes payable, net of current portion 21,980,000 22,525,000 Total Liabilities 26,451,434 27,142,541 NET ASSETS Unrestricted 4,610,594 3,645,791 Total Liabilities and Net Assets $ 31,062,028 $ 30,788,332 See notes to financial statements. -4-

7 STATEMENTS OF ACTIVITIES AND CHANGE IN NET ASSETS Year ended June 30, Unrestricted Unrestricted REVENUE AND SUPPORT Revenue Per pupil allocations $ 24,379,531 $ 23,654,474 Supplemental special needs funds 2,189,202 3,922,954 Federal grants 1,859,726 2,023,899 Food reimbursements (federal) 787, ,192 E-Rate revenue (communication reimbursement) 135, ,619 Other 235, ,117 Total Revenue 29,587,402 30,792,255 Support Private grants and contributions 10, Total Revenue and Support 29,597,571 30,792,755 EXPENSES Program services 22,659,152 27,771,233 Management and general 5,973,616 5,792,325 Total Expenses 28,632,768 33,563,558 CHANGE IN NET ASSETS 964,803 (2,770,803) Net Assets, Beginning of Year 3,645,791 6,416,594 Net Assets, End of Year $ 4,610,594 $ 3,645,791 See notes to financial statements. -5-

8 STATEMENTS OF CASH FLOWS Year ended June, CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 964,803 $ (2,770,803) Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation and amortization 1,633,336 1,739,227 Loss on disposal - 1,260 Bad debt expense - 234,104 Change in grants receivable 32, ,600 Change in accounts receivable 201,751 (91,947) Change in employee advances (6,470) (6,470) Change in prepaid expenses and other assets (38,824) 44,971 Change in accounts payable 472, ,499 Change in accrued expenses and other liabilities (496,673) (38,595) Change in deferred revenue 52,903 (96,705) Net Cash Provided by (Used in) Operating Activities 2,815,680 (452,859) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (276,323) (33,388) CASH FLOWS FROM FINANCING ACTIVITIES Repayments on notes payable (520,000) (1,945,612) Proceeds from short-term loan - 200,000 Payment on short-term loan (200,000) - Net Cash Used in Financing Activities (720,000) (1,745,612) TOTAL CHANGE IN CASH 1,819,357 (2,231,859) Cash, Beginning of Year 1,100,983 3,332,842 Cash, End of Year $ 2,920,340 $ 1,100,983 SUPPLEMENTARY CASH FLOW INFORMATION Interest paid $ 1,136,384 $ 1,248,518 See notes to financial statements. -6-

9 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS Community Academy Public Charter School, Inc. (CAPCS or the School) was established in the District of Columbia (District) in 1998 to operate a network of public charter schools pursuant to subtitle B of the District of Columbia School Reform Act of The District of Columbia Public Charter School Board (the Board) has oversight responsibility and chartering authority of all charter schools in the District of Columbia. The School s activities are primarily funded by local appropriations of the District of Columbia Office of State Superintendent of Education (OSSE) which has local fiscal and federal compliance oversight of public charter schools. Program services Academics The School has a mission to create a child and family-centered communitylearning environment that offers world-class pre-school through secondary education. The model developed for the School is designed to reverse the negative outcomes facing many urban children and their families. This is accomplished by engaging children in powerful learning experiences based on world-class educational methods and standards, providing strong community and parental involvement, and fostering an energetic and highly motivated staff that respects the abilities and potential of each child to achieve. The entire school community works cooperatively to create a safe and caring learning environment that nurtures and empowers its students, their parents and the teaching staff. The current program supports pre-school through eighth grade. Kids House The School s students have an opportunity to fill their after-school hours with fun and engaging educational opportunities offered in the supportive and structured environment of Kids House. The Kids House program, available to parents for a modest fee, includes homework time, teacher-assisted tutoring, a hot meal, and creative activities taken from the multidiscipline Kids Kit curriculum. These activities allow children to investigate their own community, learn about other countries and cultures, explore the planets, help protect our Earth, and consider the qualities and skills needed to be a homegrown hero like a firefighter or a police officer. Kids House kids may also learn martial arts or receive instruction in gardening, dance, music or art. Field trips are offered to children enrolled in Kids House on days when the School is closed for staff development

10 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS (Continued) Food Service Meals are provided throughout the day, starting with breakfast. Lunch is provided to all students desiring to participate. A snack and dinner are available for students participating in the Kids House program. The Food Service program is currently contracted out except for labor. Students not entitled to free or reduced meals pay a small fee. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies utilized in the preparation of the financial statements is as follows: Basis of accounting The accompanying financial statements of CAPCS are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (GAAP). In accordance with GAAP, revenue and support are recognized when earned and expenses and related liabilities are recorded when the obligations are incurred. Revenue from federal government grants is recognized as related expenses are incurred. Basis of presentation The School s accompanying financial statement presentation follows not-forprofit guidelines under accounting principles generally accepted in the United States of America including Not-for-Profit Entities - Presentation of Financial Statements (FASB ASC ). Under FASB ASC , the School is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted net assets based on the existence or absence of donorimposed restrictions. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates

11 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of estimates (continued) Estimates are used for, among other balances, accrued expenses, development costs, deferred revenue and useful lives for depreciation. Cash and cash equivalents The School considers all cash in banks and other short-term investments with original maturities of less than 90 days to be cash and cash equivalents. The School has restricted cash and cash equivalents in accordance with applicable bond documents for the purpose of renovating a building. Grants and accounts receivable Grants and accounts receivable are recorded at their net realizable value. The School records an allowance for doubtful accounts equal to estimated losses that will be incurred in the collection of receivables. The estimated losses are based on historical collection experience and the review of the current status of existing receivables. Revenue recognition Revenue from per pupil allocations and supplemental special needs funds is recognized during the School s operating cycle, which starts in August and ends in July. Revenue is received in four equal quarterly installments beginning in mid-july for the upcoming school year. Contributions are recorded when pledged and classified as unrestricted or temporarily restricted support depending on the existence and/or nature of any donor restrictions. Temporarily restricted contributions and grants whose restrictions are fulfilled in the same period are recorded as unrestricted support in the statements of activities and change in net assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and change in net assets as net assets released from restrictions. Property and equipment Property and equipment valued in excess of $500 are capitalized and recorded at cost, if purchased, or estimated fair market value as of the date of gift, if donated. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets which range from 5 to 30 years

12 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and equipment (continued) Repairs, maintenance and minor replacements are expensed as incurred while major replacements and/or improvements that extend the useful lives of assets are capitalized. Fair value of financial instruments FASB ASC No , Disclosures of Fair Value of Financial Instruments, requires the School to disclose estimated fair values of its financial instruments. Fair value estimates, methods, and assumptions are set forth below for CAPCS financial instruments. The carrying amounts of cash, accrued expenses, and the current portion of bonds payable approximate fair value because of the relatively short maturity of those instruments. Bonds payable Bonds payable represents long-term obligations based on formal written agreements and specific interest rates. The School makes quarterly payments, consisting of the principal and interest. Principal payments are recorded as reductions to the bonds payable balance, while interest payments are recorded as expense in the statements of activities and changes in net assets. The portion of the total principal scheduled to be paid within one year is classified as a current liability. Net assets Unrestricted net assets are assets and contributions that are not restricted by donors or for which restrictions have expired. Temporarily restricted net assets are those whose uses by the School have been limited by donors primarily for a specific time period or purpose. When a donor restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets. If a donor restriction is met in the same reporting period in which the contribution is received, the contribution (to the extent that the restrictions have been met) is reported as unrestricted net assets. Permanently restricted net assets are those that are restricted by donors to be maintained by the School in perpetuity. There were no temporarily or permanently restricted net assets as of June 30, 2014 and

13 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Federal and charter school funding The School receives a student allocation from the District of Columbia as well as Federal funding to cover the cost of academic expenses. The student allocation is on a per pupil basis and includes the academic year funding, special education funding and a facilities allotment. The School recognizes this funding in the year in which the school term is conducted. Funding received in advance of the school term is recorded as deferred revenue in the accompanying statements of financial position. Functional allocation of expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and change in net assets. Accordingly, certain costs have been allocated among the programs and supporting services that benefit from those costs. Management and general expenses include those expenses that are not directly identified with any other specific function but provide for the overall support and direction of the School. Reclassification Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTE 3 INCOME TAXES The School has a determination letter from the Internal Revenue Service exempting it from federal income taxes under Section 501(c) (3) of the Internal Revenue Code (the Code) and applicable income tax laws and regulations of the District of Columbia. The School is classified as other than a private foundation within the meaning of Section 509(a) (1) of the Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements. NOTE 4 UNCERTAIN TAX POSITION In accordance with FASB ASC 740, Income Taxes, unrelated business income, if any, may be subject to income tax. CAPCS has analyzed its tax positions taken for filings with the Internal Revenue Service and the District of Columbia. CAPCS paid no taxes on unrelated business income in the years ended June 30, 2014 and

14 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 4 UNCERTAIN TAX POSITION (Continued) Generally accepted accounting principles require the recognition, measurement, classification, and disclosure in the financial statements of uncertain tax positions taken or expected to be taken in the organization s tax returns. Management has determined that CAPCS does not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the School s tax returns will not be challenged by the taxing authorities and that CAPCS will not be subject to additional tax, penalties, and interest as a result of such challenge. Generally, the School s tax returns for the tax years 2014, 2013, 2012 and 2011 are subject to examination by federal and state taxing authorities generally for three years from the date of filing. NOTE 5 GRANTS AND ACCOUNTS RECEIVABLE At June 30, 2014 and 2013, the School considered all grants and accounts receivable to be fully collectible. Accordingly, the School recorded no allowance for doubtful accounts as of either of those dates. NOTE 6 PROPERTY AND EQUIPMENT As of June 30, 2014 and 2013, property and equipment consisted of the following: Leasehold improvements $ 3,232,701 $ 3,232,701 Building 29,423,139 29,187,357 Furniture and fixtures 1,053,144 1,034,788 Equipment 1,832,958 1,811,019 Total 35,541,942 35,265,865 Less: accumulated depreciation (11,310,945) (9,800,198) Property and equipment, net $ 24,230,997 $ 25,465,667 Depreciation expense for the years ended June 30, 2014 and 2013, was $1,510,993 and $1,598,573, respectively. During the 2013 fiscal year, CAPCS disposed of property and equipment costing $1,800 with an accumulated depreciation of $540. The disposal resulted in a recorded loss of $1,260. NOTE 7 DEFERRED CHARGES Costs incurred in connection with the issuance of $25 million Revenue Bonds (Community Academy Public Charter School, Inc. Issue), Series 2007 by the Government of the District of Columbia and a loan of $3 million by Eagle Bank

15 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 7 DEFERRED CHARGES (Continued) to finance the acquisition and renovation of the historic Armstrong School building (located at 100 P Street Northwest in Washington, D.C.), are capitalized and amortized using the effective interest method. These capitalized costs as of June 30, 2014 and 2013, consisted of the following: Costs $ 3,754,862 $ 3,754,862 Less: Accumulated amortization (951,178) (828,835) Deferred charges, net $ 2,803,684 $ 2,926,027 Amortization expense was $122,343 and $140,654 for each of the years ended June 30, 2014 and NOTE 8 SHORT-TERM LOAN In October 2012 the School obtained a loan facility with a maximum principal amount of $1,000,000 and a 6.5% interest rate. The loan agreement stipulates that the School request advances and re-advances in writing. All advances are subject to the approval of the lender and will have a maximum term of twelve months. At June 30, 2013, the short-term loan balance was $200,000. The School repaid the loan during fiscal NOTE 9 BOND AND NOTES PAYABLE On May 1, 2007, the School signed a note with the District for the issuance of $25 million in Revenue Bonds (Community Academy Public Charter School, Inc. Issue), Series 2007 to finance the acquisition and renovation of the historic Armstrong School building located at 100 P Street, Northwest in Washington, D.C. The building is used for classrooms and administrative offices. The note required the School to make a deposit to restricted accounts for the periodic payment of bond interest and the retirement of bond principal. The bonds are secured by land, building, and certain revenues. The term of this bond is for thirty years at an interest rate of 4.5% per annum on $4,200,000, 4.75% per annum on $7,930,000, and 4.875% on $12,870,000. The note matures on May 1, As of June 30, 2014 and 2013, the principal balance was $22,524,999 and $23,044,999, respectively. The School had $1,001,247 in restricted cash and cash equivalents at June 30, 2014 and The School is subject to compliance with a minimum debt service coverage ratio of 1.25 to 1. CAPCS has been notified by the bond insurer of an assertion that the School is in default of certain covenants involving certification of this debt

16 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 9 BOND AND NOTES PAYABLE (Continued) coverage and compliance with a mechanism for payments of bondholder principal and interest. CAPCS has responded to the insurer that it has cured these defaults and is in compliance with those covenants cited by the insurer. A summary of outstanding bond and notes payable balances follows: Original principal balances Outstanding principal balances at June 30, District of Columbia $ 25,000,000 $ 22,524,999 $ 23,044,999 Less: Current Portion (544,999) (519,999) Long Term Portion $ 21,980,000 $ 22,525,000 Future principal payments on the above notes are as follows: Fiscal year ending June 30, Principal 2015 $ 545, , , , ,000 Thereafter 19,500,000 Total $ 22,525,000 NOTE 10 CONCENTRATIONS OF CREDIT RISK Revenue The School receives approximately 90% of its annual revenue from the District under a 15-year charter agreement. Under the charter agreement, the Board will review the School once every five years, beginning on the date the charter was granted or the renewal date, to determine whether the charter should be revoked for material violations of laws and the terms of its charter agreement or if the School fails to meet the goals and student academic achievement expectations. In 2014, the PCSB initiated proceedings of revocation of the School s charter (see Note 14)

17 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 10 CONCENTRATIONS OF CREDIT RISK (Continued) Cash The School has concentrated its credit risk for cash by maintaining deposits in banks that at times exceed the federally insured limit of $250,000. The maximum potential loss that could have resulted from this concentration was $1,881,447 and $178,442 as June 30, 2014 and 2013, respectively. Management does not anticipate any risk of loss from this concentration. NOTE 11 RETIREMENT PLANS The School s employees have retirement plan participation as follows: 401k Plan All full-time employees who have reached the age of 21 and have been employed for more than 90 days are eligible to participate in a tax-deferred retirement plan (the Plan). The Plan is a tax shelter annuity under Internal Revenue Code Section 401(k) and is administered by a life insurance company. The School s matching contribution to the plan totaled $127,057 and $155,688 for the years ended June 30, 2014 and 2013, respectively. Teachers Pension Plan Charter school legislation does not require the School to contribute a portion of eligible teachers salary into the District of Columbia Public Charter School Pension Plan. Eligibility for contribution to this Plan is based upon an approved leave of absence certification from District of Columbia Public Schools. The leave of absence is granted for DCPS teachers who chose to take unpaid leave and teach in charter schools. As of June 30, 2014 and 2013, there were no teachers who were granted certifications, and therefore, no accrued expenses for teachers pension costs are presented in the accompanying financial statements. NOTE 12 COMMITMENTS AND CONTINGENCIES Grants The School receives financial assistance from Federal agencies through the District government in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit. Any disallowed claims resulting from such audits could become a liability of the School. The School s administration believes such disallowance, if any, would be immaterial

18 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 12 COMMITMENTS AND CONTINGENCIES (Continued) Operating leases Benjamin and Gladys Amos Elementary Campus (Amos 1) The School s facilities are located at 1300 Allison Street N.W. in Washington, DC on premises that are occupied under a lease with the DCPS. The lease expired in June 2013 and the School is currently operating on a month-to-month arrangement which calls for monthly rent of $14,270, as well as, utilities, maintenance and renovation costs. Ernest Bunn and Helene Amos Early Childhood Campus (Amos2) The School leases a building located at 33 Riggs Road, Northeast that houses preschool through kindergarten early childhood programs under a month-to-month lease arrangement requiring the School to pay monthly rent of $14,667 Administrative Headquarters In March 2001, the School entered into a lease agreement with the Government of the District of Columbia to rent a building located at 1351 Nicholson Street, Northwest for a monthly rent of $2,291. Under the terms of this 15-year lease, the School may make improvements to the premises at its own cost upon receipt of approval of the plans and specifications for the improvements from the District. The lease also provides for a credit against rent for amounts spent on the approved improvements until the credit is liquidated. Under the lease agreement improvements were made to the building and eight modules added beside it during The monthly lease on these modules is $8,940. There were no improvement credits remaining as of June 30, 2014 and Wilson and Odessa Butler Campus The School operated a campus located at 5 Thomas Circle, Northwest under a nine-year lease which expired on June 30, The lease term required the School to pay monthly rent of $18,703 plus the cost of its proportionate share of utilities and maintenance. This lease was not renewed and, for fiscal 2014, the School moved the students to the Armstrong building facility (Amos 5) owned by CAPCS. Total rent expense for the years ended June 30, 2014 and 2013 was $375,935 and $786,594, respectively

19 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 12 COMMITMENTS AND CONTINGENCIES (Continued) Future minimum lease payments for remaining non-cancelable lease terms in excess of one year are as follows: Fiscal years ending June 30, Amount 2015 $ 134, , ,079 Total $ 370,623 NOTE 13 MANAGEMENT SERVICES AGREEMENT CAPCS management agreement with Community Action Partners Charter School Management (CAPCSM), its charter management company, was renewed in June The agreement stipulated that the management company s fee shall be 10% of the School s gross annual revenue. The new agreement, which was due to expire on August 8, 2028, was discontinued on October 27, 2014, pursuant to a court order (see Note 14). The management company provided various executive oversight, academic curriculum development and administrative services to the School during the years ended June 30, 2014 and CAPCSM received total management fee payments of $2,100,000 and $2,372,970 in fiscal years 2014 and 2013 for these services. NOTE 14 SUBSEQUENT EVENTS In preparing these financial statements, CAPCS has evaluated events and transactions through February 26, 2015, the date the financial statements were available to be issued, for potential recognition or disclosure in the financial statements for the year ended June 30, Management Services Agreement On June 2, 2014, the District of Columbia through its Office of Attorney General (OAG) filed a lawsuit against the management company that resulted in the court granting OAG's motion for a preliminary injunction on October 27, The injunction halted further payments from CAPCS to CAPCSM effective November 30, Consequently, the management company is no longer managing the operations of the School

20 NOTES TO FINANCIAL STATEMENTS June 30, 2014 and 2013 NOTE 14 SUBSEQUENT EVENTS (Continued) Litigation On January 26, 2015, a former employee filed a lawsuit against CAPCS alleging several breaches of contractual commitments and employment discrimination and is demanding $263,000 in damages. The School intends to vigorously defend against these claims. Management believes that the likelihood of an unfavorable outcome is reasonably possible but not probable and the outcome of this matter is not expected to have a material impact on the financial statements. Status of Bond Obligation ACA Financial Guaranty Corporation (ACA), the bond insurer, in a January 30, 2015 letter to the District of Columbia Public Charter School Board (PCSB) set forth possible consequences of a CAPCS charter revocation (see below), asserted its bond agreement rights and proposed alternatives to avoid potential default on the bonds that included a plan for continuing a segment of operations through transition to a successor operator to ensure continuing repayment of the bonds. In the event of default under the loan agreement, as of June 30, 2015 the bonds could be immediately due and payable which could have a material adverse effect on CAPCS' financial position. Revocation of Charter On December 15, 2014, the PCSB initiated procedures to revoke the charter of CAPCS pursuant to its authority under the D.C. School Reform Act (SRA). The School s Board made a presentation at an informal public hearing to the PCSB on January 27, 2015 to refute its findings and the basis for CAPCS' charter revocation. On February 19, 2015, PCSB revoked CAPCS s charter effective June 30, CAPCS is appealing the revocation in the D.C. Superior Court and is exerting its rights and available remedies under D.C. law and regulations

21 SUPPLEMENTAL INFORMATION

22 SCHEDULE OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2014 with Comparative Totals for Management Programs and Total Total Services Administration Expenses Expenses Expenses Personnel, Salaries and Benefits Salaries $ 11,304,087 $ 1,393,893 $ 12,697,980 $ 16,061,359 Employee benefits 1,851, ,749 2,073,090 1,927,212 Payroll taxes 989, ,671 1,099,848 1,382,719 Professional development 381,449 13, ,591 1,097,338 Recruitment 8, , ,439 64,979 Total personnel, salaries and benefits 14,534,452 1,867,496 16,401,948 20,533,607 Direct Student Costs Supplies, materials, snacks 526, , ,534 Fieldwork and other transportation 186, , ,863 Contracted student services 1,811,114-1,811,114 1,841,088 Textbooks 175, ,157 33,359 Student assessments ,958 Student food service program 808, , ,142 Other student costs 51,499-51, ,178 Total direct student cost 3,559,465-3,559,465 3,621,122 Occupancy Expense Rent 239, , , ,594 Maintenance and repairs 242,492 28, , ,165 Utilities and garbage removal 740,984 48, , ,579 Contracted building services 1,102,725 52,043 1,154, ,304 Janitorial supplies 36,066-36, ,142 Interest - 1,136,384 1,136,384 1,145,477 Depreciation - facilities 1,510,993-1,510,993 1,598,573 Total occupancy expense 3,873,215 1,402,045 5,275,260 5,272,834 Office Expense Office supplies 26,142 20,267 46,409 85,697 Equipment rent and maintenance 130,801 15, , ,603 Telecommunications 7, , , ,595 Postage 5,561 7,573 13,134 20,242 Printing and copying 57, ,128 80,223 Total office expense 226, , , ,360

23 SCHEDULE OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2014 with Comparative Totals for Management Programs and Total Total Services Administration Expenses Expenses General Expense Insurance 65,042 32,187 97,229 88,673 Accounting, auditing and payroll 78, , , ,913 Legal fees 1,198 69,709 70, ,026 Consulting fees 8,499-8,499 22,497 Management fees - 2,100,000 2,100,000 2,372,970 Other professional and fundraising fees ,907 Board oversight fees 131, , ,327 Dues, fees, licenses, and fines 106,266 32, , ,499 Travel 13,437 2,480 15,917 54,946 Bad debt expense ,404 Other general expenses 60,952 22,727 83,679 12,819 Depreciation - Amortization - 122, , ,654 Total general expense 465,112 2,493,516 2,958,628 3,576,635 Total Expenses $ 22,659,152 $ 5,973,616 $ 28,632,768 $ 33,563,558 See notes to financial statements. -20-

24 SINGLE AUDIT

25 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2014 Federal Pass Through Federal CFDA Entity Identifying Award Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. Department of Education: Pass-through programs from the District of Columbia State Education office Title I Grants to Local Educational Agencies $ 859,596 District of Columbia School Incentive Program ,263 Education State Fiscal Stabilization Fund ( SFSF) -Race-to-the-Top ,631 Education Research, Development and Dissemination ,392 Career and Technical Education- Basic Grants to States ,871 Special Education Grants to States ,937 Total U.S. Department of Education 1,795,690 U.S. Department of Agriculture: Pass-through programs from the District of Columbia State Education office School Breakfast Program A Unknown 227,658 National School Lunch Program A Unknown 580,992 Total Child Nutrition Cluster 808,650 Total Expenditures of Federal Awards $ 2,604,

26 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2014 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Community Academy Public Charter School, Inc. (CAPCS or the School) and is presented on the accrual basis of accounting described in Note 2 to the School s basic financial statements. The information in this schedule is presented in accordance with OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the School, it is not intended to and does not present the financial position, changes in net assets, or cash flows of CAPCS. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Pass-through entity identifying numbers are presented where available. NOTE 3 FEDERAL GRANTS The following are descriptions of the major federal programs for the year ended June 30, 2014: Title I Part A Cluster: Grants to Local Education Agencies (CFDA A) and Grants to Local Education Agencies, Recovery Act (CFDA ) The objective of this program is to facilitate the improvement of teaching and learning for children residing in areas with high concentrations of children from low-income families at risk of not meeting challenging academic standards. Public Charter Schools Teacher Compensation Grant (CFDA 84.XXX) The purpose of the Public Charter Schools Teacher Compensation Grant is to help individual charter schools, also referred to as charter local education agencies (LEAs), recruit and retain high-quality teachers in the increasingly competitive market in the District of Columbia

27 Walker & Co., LLP Assurance, Business and Advisory Services 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 Board of Trustees Community Academy Public Charter School, Inc. 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 Community Academy Public Charter School, Inc. (the School) (a nonprofit organization), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated February 26, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Community Academy Public Charter School, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Community Academy Public Charter School, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the School s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s 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 Wisconsin Avenue, NW, 5 th Floor, Washington, DC T F Member AICPA Private Companies Practice Section & Government Audit Quality Center

28 Our consideration of the 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 were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Community Academy Public Charter School, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters 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 Community Academy Public Charter School, Inc. s Response to Findings Community Academy Public Charter School, Inc. s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Community Academy Public Charter School, Inc. 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. We noted certain other matters that we reported to management of the School in a separate letter dated February 26, 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 School s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Washington, D.C. February 26,

29 Walker & Co., LLP Assurance, Business and Advisory Services REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 Independent Auditor s Report Board of Trustees Community Academy Public Charter School, Inc. Report on Compliance for Each Major Federal Program We have audited Community Academy Public Charter School, Inc. s (the School) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Community Academy Public Charter School, Inc. s major federal program for the year ended June 30, Community Academy Public Charter School, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with 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 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 Wisconsin Avenue, NW, 5 th Floor, Washington, DC T F Member AICPA Private Companies Practice Section & Government Audit Quality Center

30 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. Opinion on the Major Federal Program In our opinion, Community Academy Public Charter School, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Report on Internal Control over Compliance Management of Community Academy Public Charter School, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered 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 OMB Circular A-133, 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. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified