FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FIRST STEP OF SARASOTA, INC. SARASOTA, FLORIDA JUNE 30, 2009

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT JUNE 30, 2009

2 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT JUNE 30, 2009 TABLE OF CONTENTS Independent Auditors' Report... 1 Financial Statements Statement of Financial Position... 2 Statement of Activities... 3 Statement of Functional Expenses Statement of Cash Flows... 6 Notes to Financial Statements Other Reports 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 Auditors Report on Compliance with Requirements Applicable to Each Major Federal Program and State Project and on Internal Control Over Compliance In Accordance with OMB Circular A-133 and Chapter , Rules of the Auditor General Schedule of Expenditures of Federal Awards and State Financial Assistance...18 Notes to the Schedule of Expenditures of Federal Awards and State Financial Assistance for the Year Ended June 30, 2009, Sarasota, Florida Schedule of Findings and Questioned Costs Federal Awards Programs and State Financial Assistance Projects Supplementary Information Schedule of State Earnings...22 Schedule of Related Party Transaction Adjustments Schedule of Bed-Day Availability Payments...24 Substance Abuse and Mental Health Services Program/Cost Center Actual Expenses and Revenues Schedule Part I Substance Abuse and Mental Health Services Program/Cost Center Actual Expenses and Revenues Schedule Part II

3 INDEPENDENT AUDITORS' REPORT Board of Directors First Step of Sarasota, Inc. Sarasota, Florida We have audited the accompanying statement of financial position of First Step of Sarasota, Inc. (the Corporation), a nonprofit organization, as of June 30, 2009, and the related statements of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized financial information has been derived from the Corporation s 2008 financial statements and, in our report dated September 12, 2008, we expressed an unqualified opinion on those financial statements. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of June 30, 2009, and the changes in its net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated August 28, 2009, on our consideration of the Corporation 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the Corporation taken as a whole. The supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion on it. August 28, 2009 Sarasota, Florida 1

4 STATEMENT OF FINANCIAL POSITION JUNE 30, 2009, WITH COMPARATIVE TOTALS FOR JUNE 30, 2008 ASSETS Current Assets Cash and Cash Equivalents $ 1,434,818 $ 1,435,502 Accounts Receivable 726, ,814 Prepaid Expenses 82,657 76,169 Total Current Assets 2,244,372 2,362,485 Property and Equipment Land 461, ,086 Buildings 4,491,304 4,490,765 Furniture and Equipment 1,177,375 1,106,229 Leasehold Improvements 9,582 7,482 Vehicles 145, ,724 6,285,071 6,211,286 (Accumulated Depreciation) (2,577,239) (2,573,017) Total Property and Equipment Used in Operations 3,707,832 3,638,269 Construction in Process 196, ,164 Building Held for Sale 0 733,651 Total Property and Equipment 3,904,078 4,564,084 Other Assets Cash - Designated 875, ,218 Total Assets 7,023,821 7,214,787 LIABILITIES AND NET ASSETS Current Liabilities Accounts Payable 147, ,303 Accrued Liabilities 361, ,477 Deferred Income 288, ,474 Current Portion of Notes Payable 20,705 19,467 Total Current Liabilities 819, ,721 Other Liabilities Notes Payable (Less Current Portion) 90, ,262 Total Liabilities 909, ,983 Unrestricted Net Assets Operating 5,125,824 5,910,667 Designated 875, ,218 Total Unrestricted Net Assets 6,001,195 6,198,885 Temporarily Restricted Net Assets 113,023 41,919 Total Net Assets 6,114,218 6,240,804 Total Liabilities and Net Assets $ 7,023,821 $ 7,214,787 See accompanying notes. 2

5 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2009, WITH COMPARATIVE TOTALS FOR JUNE 30, 2008 Totals Temporarily Totals Unrestricted Restricted Operating Revenues and Support Awards and Grants $ 3,744,706 $ 65,000 $ 3,809,706 $ 4,205,227 County and Local 2,757, ,757,528 2,646,954 Client Fees 2,165, ,165,231 2,904,547 United Way 5, ,055 25,329 Contributions 60,541 9,264 69,805 86,279 Interest and Investment Income 9, ,806 33,836 Rental Income 77, ,549 34,650 Other Income 124, ,571 88,327 Subtotal 8,944,987 74,264 9,019,251 10,025,149 Net Assets Released from Restrictions 3,160 (3,160) 0 0 Total Operating Revenues and Support 8,948,147 71,104 9,019,251 10,025,149 Operating Expenses Pathways Level 1 888, ,364 1,023,943 Seasons Level 2 430, , ,860 Crossroads Level 3 243, , ,552 Transitions Level 4 319, , ,664 Choices 875, , ,407 Mothers and Infants 505, , ,761 Transitional Living Center ,087 Detoxification 2,250, ,250,682 2,304,957 Outpatient Services 1,743, ,743,163 1,899,713 VIP and SIO 956, ,212 1,000,161 Family Emergency Treatment Center 9, ,309 39,914 Royal Palm 63, ,602 46,533 Administration 1,026, ,026,936 1,201,913 (Total Operating Expenses) (9,313,130) 0 (9,313,130) (10,428,465) Change in Net Assets from Operations (364,983) 71,104 (293,879) (403,316) Other Changes Capital Contribution 31, ,911 1,063,626 Gain on Disposal of Building and Equipment 135, ,382 0 Grant Revenue - SHIP 562, ,000 0 Reduction of Contingent Liability (562,000) 0 (562,000) 0 Total Other Changes 167, ,293 1,063,626 (Decrease) Increase in Net Assets (197,690) 71,104 (126,586) 660,310 Net Assets, Beginning of Year 6,198,885 41,919 6,240,804 5,580,494 Net Assets, End of Year $ 6,001,195 $ 113,023 $ 6,114,218 $ 6,240,804 See accompanying notes. 3

6 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2009, WITH COMPARATIVE TOTALS FOR JUNE 30, Pathways Seasons Crossroads Transitions Mothers Level 1 Level 2 Level 3 Level 4 Choices and Infants Salaries $ 557,934 $ 238,924 $ 136,527 $ 152,828 $ 488,586 $ 292,636 Fringe Benefits 110,291 57,577 30,315 34,396 89,812 60,838 Professional Fees/Service 1, ,130 2,367 Medical Supplies and Equipment 20,771 1, ,960 2,629 Food Supplies 33,012 35,784 20,517 28, ,952 34,984 Operating Supplies 21,375 18,120 8,427 12,186 31,996 13,958 Occupancy Expenses 57,433 49,126 30,654 51,859 69,804 47,011 Depreciation Expense 17,934 15,279 9,299 15,578 29,830 20,842 Travel 14,469 3,535 3,484 3,791 5,911 1,684 Marketing 6,977 4,354 1,169 1,022 4,292 3,593 Subcontractors Special Events 8,836 5,514 1,481 1,294 5,435 17,294 Other Expenses 37, ,229 17,966 6,524 7,765 Subtotals 888, , , , , ,601 Administrative Allocation 150,223 93,753 25,176 22,005 92,408 77,355 (Total Operating Expenses) $ (1,038,587) $ (524,344) $ (268,853) $ (341,766) $ (967,640) $ (582,956) See accompanying notes. 4

7 2009 Transitional Emergency Living Outpatient VIPER/ Treatment Royal Totals Center Detoxification Services SIO Center Palm Administration Totals 2008 $ 0 $ 1,630,863 $ 1,203,612 $ 275,400 $ 4,065 $ 5,354 $ 516,948 $ 5,503,677 $ 5,810, , ,907 52, ,543 1,035,591 1,338, , , , , ,517 32, ,849 97, , ,563 3, , , , ,456 36,341 10, ,794 24, , , , ,644 3,938 4,246 36, , , , ,702 10,312 1, ,297 57, , , ,001 24, ,754 73, , ,123 9,393 5, ,695 68, , , , , ,087 11,896 6, ,147 26, ,301 3, , , , ,250,682 1,743, ,212 9,309 63,602 1,026,936 9,313,130 10,428, , , , ,419 (1,026,936) 0 0 $ 0 $ (2,490,174) $ (1,945,406) $ (1,067,401) $ (9,982) $ (76,021) $ 0 $ (9,313,130) $ (10,428,465) See accompanying notes. 5

8 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009, WITH COMPARATIVE TOTALS FOR JUNE 30, Cash Flows from Operating Activities Increase (Decrease) in Net Assets $ (126,586) $ 660,310 Adjustments to Reconcile Changes in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation 239, ,796 Bad Debt Expense 59,982 71,575 (Gain) Loss on Disposal of Fixed Assets (135,382) 20,439 Capital Contribution (31,911) (1,063,626) Decrease (Increase) in Operating Assets: Accounts Receivable 63, ,089 Prepaid Expenses (6,488) (15,085) Increase (Decrease) in Operating Liabilities: Accounts Payable (1,478) (116,712) Accrued Liabilities (29,479) (41,317) Deferred Income (13,816) (254,528) Net Cash Provided by (Used in) Operating Activities 18,203 (138,059) Cash Flows from Investing Activities Draws on Loan 31,911 1,063,626 Sale of Building Held for Sale 714,750 0 Purchases of Property and Equipment (158,788) (1,202,411) Net Cash Provided by (Used in) Investing Activities 587,873 (138,785) Cash Flows from Financing Activities Payments on Long-term Debt (19,607) (15,968) Net Cash Provided by (Used in) Financing Activities (19,607) (15,968) Net Increase (Decrease) in Cash 586,469 (292,812) Cash and Cash Equivalents, Beginning of Year 1,723,720 2,016,532 Cash and Cash Equivalents, End of Year $ 2,310,189 $ 1,723,720 Classified on the Statement of Financial Condition: Cash and Cash Equivalents $ 1,434,818 $ 1,435,502 Cash - Designated 875, ,218 Cash and Cash Equivalents, End of Year $ 2,310,189 $ 1,723,720 Supplemental Disclosures Interest Paid $ 6,693 $ 6,826 Noncash Investing and Financing Transactions SHIP Grant Revenue $ 562,000 $ 0 Reduction of contingent Liability (562,000) 0 See accompanying notes. 6

9 NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Organization First Step of Sarasota, Inc. (the Corporation) is a not-for-profit corporation whose mission is to treat and prevent alcohol/drug addiction and associated disorders in Sarasota and neighboring counties. The Corporation s major source of revenue is federal, state and local grants. Basis of Accounting The financial statements of the Corporation have been prepared on the accrual basis of accounting. Contributions and Recognition of Donor Restrictions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donorrestricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. Promises to Give Contributions are recognized as support when the donor makes a promise to give that is, in substance, unconditional. Promises to give are recorded at net realizable value if expected to be collected in one year and at a discounted realizable value if expected to be collected in more than one year. Conditional promises to give are recognized as support when the conditions on which they depend are substantially met. There were no promises to give at June 30, 2009 and Accounts Receivable Accounts receivable consists of grant reimbursement requests and client service fees. These receivables are expected to be collected within 30 days and are considered delinquent if they are not. Accounts receivable is reported net of the allowance for doubtful accounts, which is $19,161 and $34,704 at June 30, 2009 and 2008, respectively. Deferred Revenue Grants received prior to performance of the services for which the grant was provided are recognized as revenue at the time the services are performed. Property and Equipment The Corporation capitalizes all expenditures for property and equipment in excess of $1,500. Purchased property and equipment are recorded at cost. Donated property and equipment are carried at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets. Depreciation expense was $239,428 and $253,796 in 2009 and 2008, respectively. 7

10 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Property and Equipment (Concluded) On July 1, 2007, with approval from the Department of Children and Families, the Family Emergency Treatment Center s (FETC) contract was transferred to Manatee Glens, the subcontractor for the Corporation under the program. Shortly thereafter, the building that housed the program was listed for sale, and Manatee Glens agreed to lease the building from the Corporation for a nominal monthly amount until the building was sold. There was no write-down of the building s carrying value because it has been appraised for an amount higher than net book value, although the Corporation suspended depreciation because the building was no longer considered to be used in First Step s operations. During the year ended June 30, 2009, the building was sold for $714,500, net of selling expenses, and the Corporation realized a gain of $137,326 on the sale. The Corporation s Board of Directors has designated that the proceeds from the sale be set aside for the Corporation s capital improvement plan. Financial Statement Presentation The Corporation is required by generally accepted accounting principles to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a complete presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Corporation s financial statements for the year ended June 30, 2008, from which the summarized information was derived. Certain minor reclassifications have been made to the 2008 data to provide more meaningful comparative information. Donated Services The Corporation records donated services as revenues if either, (a) they create or enhance nonfinancial assets, or (b) they require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Income Taxes The Corporation is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. In June 2006, the Financial Accounting Standards Board (FASB) adopted an Interpretation of FASB Statement No. 109, Accounting for Income Taxes. This Interpretation, FIN 48, clarifies the accounting for uncertainty in income taxes in accordance with FASB Statement No. 109 and was originally effective for years beginning after December 15, However, FASB Staff Positions FIN 48-2 and FIN 48-3 have deferred the effective date for most nonpublic companies until years beginning after December 15, For nonpublic entities that have elected to defer adoption of the provisions of FIN 48, the election of that deferral and certain additional disclosures about the entity s accounting policy for evaluating uncertain tax positions must be made. The Corporation has elected to defer the adoption of FIN 48. Further, it is the policy of management to evaluate its tax positions on an ongoing basis and to disclose any such positions it believes would have a material impact on the financial statements and related notes. Management also believes that no such required disclosures currently exist. 8

11 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Summary of Significant Accounting Policies (Concluded) Subsequent Events The Corporation has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through August 28, 2009, the date the financial statements were available to be issued. Cash and Cash Equivalents For the purpose of the statement of cash flows, the Corporation considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Expense Allocation The costs of providing various programs and other activities have been summarized on a functional basis in the statement of activities and in the statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates. Fund-raising Costs The Corporation engages in various fund-raising activities that help fund its main purpose and programs. The total expenses for these fund-raising activities for the years ended June 30, 2009 and 2008, are $73,147 and $26,508, respectively. Note 2 - Cash - Designated Cash - designated consists of money market funds and is presented in the financial statement at fair market value. The Corporation maintains cash in bank deposit accounts which, at times, exceeds federally insured limits. The Corporation has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank deposit accounts. Note 3 - Long-term Debt The Corporation has two notes payable at June 30, One note is payable in monthly installments of $1,990 including interest at 6.34%. The note is secured by the Corporation s property on 18 th Street in Sarasota, Florida, and has a principal balance due of $80,701 and $98,755 at June 30, 2009 and 2008, respectively. The last payment is due April The other loan is payable in monthly installments of $196 including interest at 3.00%, and has a principal balance due of $30,421 and $31,974 at June 30, 2009 and 2008, respectively. This note is payable to a governmental entity for water connection at the 18 th Street location. The government has a lien against the property until the note has been paid. The last payment is due December

12 NOTES TO FINANCIAL STATEMENTS (Continued) Note 3 - Long-term Debt (Concluded) In June 2009, the Corporation signed an open-end revolving $300,000 line of credit. Interest is due monthly at prime. At June 30, 2009, none of the balance was outstanding. In November 2007, the Corporation also signed a mortgage and promissory note payable to Sarasota County (the County) in connection with a grant from the County used for the acquisition of transitional housing residences. The grant/loan proceeds of $1,063,626 were recorded as revenue in 2008 (Other Changes Capital Contributions) and the liability was not established because of the probability that repayment would never be required. In June 2008, the Corporation entered into a contract with the City of Sarasota whereby the contingent liability to the County was reduced by $562,000 and the Corporation became contingently liable to the City in the amount of $562,000 (see Note 7). The future scheduled maturities of long-term debt are as follows: Year Ending June 30, Amount 2010 $ 20, , , , , and After 22,683 Total $ _111,122 Note 4 - Net Assets Unrestricted - Designated The unrestricted net assets - designated represents the fair market value of cash and investments (less liabilities) set aside by the Corporation s board of directors for the Corporation s capital improvement program. Temporarily Restricted Temporarily restricted net assets are related to four activities. The Sandy Seidman fund is a fund that provides financial vouchers to graduates of the Mothers and Infants Program for such items as deposits on housing, utilities and phone service. The Capital Campaign fund is a fund set up to record contributions to the capital campaign for capital improvements. The Community Foundation Grant Fund consists of grant funds received for operations of the Venice location. The Feasibility Study account has been established to fund a study on Older Adult Abuse Issues. Account Sandy Seidman Fund $ 36,773 $ 31,169 Capital Campaign Fund 11,250 10,750 Community Foundation Grant Fund 50,000 0 Feasibility Study 15,000 0 Total $ 113,023 $ 41,919 10

13 NOTES TO FINANCIAL STATEMENTS (Continued) Note 5 - Pension Plan The Corporation provides a noncontributory tax-deferred annuity plan for all eligible employees. During the year ended June 30, 2008, the Corporation contributed 8% of the base salary per pay period. For the period July 1, 2008 to December 31, 2008, the contribution rate decreased to 5% of the base salary per pay period. Beginning January 1, 2009, the Corporation discontinued contributions to the plan. Pension expense was $60,597 and $294,433 for 2009 and 2008, respectively. The Corporation s policy is to fund pension costs as they are incurred. Note 6 - Revenue from the State of Florida Requiring Match The Corporation received revenue from the State of Florida under contracts with the Department of Children and Families in two different geographic districts. The contracts require a 25% local match for certain services. The Corporation incurred and funded allowable program costs in excess of the required match. Note 7 - Commitments and Contingencies Operating Leases The Corporation leases office space in Sarasota, Bradenton, Venice, and Arcadia, Florida. The Arcadia lease is on a month-to-month basis. The other leases are on longer terms. Future minimum lease payments on operating leases are as follows: Year Total 2010 $ 148, , , Total rent expense charged to operations was $234,465 and $261,493 during the years ended June 30, 2009 and 2008, respectively. Contingent Liabilities In November 2007, the Corporation entered into a contract (the Contract) with Sarasota County whereby the Corporation received a 0% interest, twenty-year term loan of $1,150,000 to purchase and renovate the Royal Palms apartment building for sober transitional and/or low income housing. A total of $1,094,952 was drawn on the loan during 2008 and 2009, and due to time limits specified in the contract, no additional funds are available. The loan is evidenced by a promissory note (the County Note) and secured by a mortgage on the building. Under terms of the Contract, the units in the building are required to be maintained as sober transitional and/or low income housing residences for twenty years. The remaining balance of the County Note will be forgiven at maturity (January 30, 2027), if the terms of the Contract are met. Furthermore, the obligation is reduced by $57,500 each year of the Contract, and the Corporation will be obligated to repay the remaining balance prior to maturity, only in the event of an uncured failure of performance by the Corporation. 11

14 NOTES TO FINANCIAL STATEMENTS (Continued) Note 7 - Commitments and Contingencies (Concluded) Contingent Liabilities (Concluded) In June 2009, the Corporation entered into an agreement (the Agreement) with the City of Sarasota whereby the City provided the Corporation with a loan from the State Housing Initiatives Partnership Program (SHIP) in the amount of $562,000 to develop affordable housing for persons with substance dependency. Under the Agreement, the City used the loan proceeds to pay down a corresponding amount of the County Note discussed above. The specific amount of the pay-down and the new terms of the Sarasota County Contract have not been determined as of June 30, The loan is evidenced by a promissory note (the City Note) and secured by a mortgage on the same Royal Palms apartment building. The City Note bears interest at the rate of 0% per annum and is due and payable on the sale of the property or when the property is no longer used to house persons in accordance with the Agreement, whichever occurs first. Similar to the County Note, the City Note will be forgiven at the end of twenty years (June 30, 2029) if the Corporation enters into an agreement to continue using the property(s) to house individuals with substance abuse disability or the proceeds of the sale of the property to benefit individuals with substance abuse disabilities. The Corporation intends to comply with the terms of the Contract and Agreement for the full twenty years, and therefore does not consider the repayment of the County Note or City Note, or any portion thereof, to be probable. Accordingly, no liability has been recorded on the accompanying financial statements for either note. For the year ended June 30, 2009, $562,000 of SHIP funds has been recognized as a revenue (other changes) with a like amount recognized as an expense (other changes) in the statement of activities Contingent Liability with Sarasota County * $ 532,952 $ 1,063,626 Contingent Liability with City of Sarasota 562,000 0 Total Contingent Liability $ 1,094,952 $ 1,063,626 * Balance at June 30, 2009 estimated Note 8 - Related Parties The Corporation receives funding from a grantor agency in which an officer of the Corporation is a Board member. Total funding from the grantor agency for the year ended June 30, 2009, is $2,134,255, including accounts receivable of $230,861. Total funding for the year ended June 30, 2008, is $2,282,827, including accounts receivable of $265,739. Note 9 - Correction Statement of Cash Flows Certain corrections were made to the 2008 statement of cash flows which affected the cash and cash equivalents balance brought forward to Following is a schedule of the changes to beginning cash and cash equivalents: 12

15 NOTES TO FINANCIAL STATEMENTS (Concluded) Note 9 - Correction Statement of Cash Flows (Concluded) Cash and Cash Equivalents, Beginning of Year: As Originally Reported $ 1,270,276 $ 1,628,275 Reclassify Cash - Designated 288, ,257 Adjust Cash and Accrued Liabilities 165,226 0 As Corrected $ 1,723,720 $ 2,016,532 Cash designated balances on the statement of financial position had been excluded from cash and cash equivalents on the statement of cash flows in error. In addition, certain accrued liabilities at June 30, 2008, had been deducted from cash even though they were not paid until after that date. 13

16 OTHER REPORTS

17 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 First Step of Sarasota, Inc. Sarasota, Florida We have audited the financial statements of First Step of Sarasota, Inc. (the Corporation), a nonprofit organization, as of and for the year ended June 30, 2009, and have issued our report thereon dated August 28, 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Corporation s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Corporation s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Corporation s internal control over financial reporting. 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 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. Our consideration of the internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 14

18 Board of Directors First Step of Sarasota, Inc. Sarasota, Florida 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 (Concluded) Compliance and Other Matters As part of obtaining reasonable assurance about whether the Corporation s financial statements are free of 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. This report is intended for the information and use of the Finance Committee of First Step of Sarasota, Inc., management, the Board of Directors, and federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. August 28, 2009 Sarasota, Florida 15

19 Board of Directors First Step of Sarasota, Inc. Sarasota, Florida INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR FEDERAL PROGRAM AND STATE PROJECT AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND CHAPTER , RULES OF THE AUDITOR GENERAL Compliance We have audited the compliance of First Step of Sarasota, Inc. (the Corporation), a nonprofit organization, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133, Compliance Supplement, and the requirements described in the Florida Department of Financial Services, State Projects Compliance Supplement, that are applicable to each of its major federal programs and state projects for the year ended June 30, The Corporation s major federal programs and state projects are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs and state projects is the responsibility of the Corporation s management. Our responsibility is to express an opinion on the Corporation s compliance based on our audit. 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; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and Chapter , Rules of the Auditor General. Those standards, OMB Circular A-133 and Chapter , Rules of the Auditor General, 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 or state project occurred. An audit includes examining, on a test basis, evidence about the Corporation 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. Our audit does not provide a legal determination of the Corporation s compliance with those requirements. In our opinion, the Corporation complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs and state projects for the year ended June 30,

20 Board of Directors First Step of Sarasota, Inc. Sarasota, Florida INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR FEDERAL PROGRAM AND STATE PROJECT AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND CHAPTER , RULES OF THE AUDITOR GENERAL (Concluded) Internal Control Over Compliance The management of the Corporation is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs and state projects. In planning and performing our audit, we considered the Corporation s internal control over compliance with requirements that could have a direct and material effect on a major federal program or state project in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, 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 Corporation s internal control over compliance. 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 noncompliance with a type of compliance requirement of a federal program or state project on a timely basis. A material weakness is a deficiency, or combination of significant deficiencies, in internal control, such that there is a reasonable possibility that a material noncompliance with a type of compliance requirement of a federal program or state project will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards and State Financial Assistance We have audited the financial statements of the Corporation as of and for the year ended June 30, 2009, and have issued our report thereon dated August 28, Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by OMB Circular A-133 and the Rules of the Auditor General, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion is fairly stated, in all material respects, in relation to the financial statements taken as a whole. This report is intended for the information and use of the Finance Committee of First Step of Sarasota, Inc., management, the Board of Directors, and federal and state awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. August 28, 2009 Sarasota, Florida 17

21 CFDA Grantor or Federal/ State CSFA Pass-through State Matching Federal or State Grantor/Pass-through Grantor/Program Title Number Number Expenditures Funds Federal Awards U.S. Department of Health and Human Services Passed Through Florida Department of Children and Families: Block Grants for Prevention and Treatment of Substance Abuse* HD013 $ 92,068 $ 0 Block Grants for Community Mental Health Services QH9IR 124,192 0 Projects for Assistance in Transition from Homelessness (PATH) QH9IR 66,564 0 Passed Through Sarasota Partnership for Children's Mental Health Comprehensive Community Mental Health Services for Children with Serious Emotional Disturbances n/a 78,681 0 Passed Through Central Florida Behavioral Health Network: Block Grants for Prevention and Treatment of Substance Abuse* CF ,104 56,837 Temporary Assistance for Needy Families CF ,679 37,951 Passed Through Florida Department of Transportation Passed Through the Twelfth Judicial Circuit Court Passed Through Sarasota County, Florida Community Services Block Grant n/a 49,118 0 Total Federal Awards $ 1,395,406 $ 94,788 State Financial Assistance Florida Department of Corrections Direct Programs: Substance Abuse: Residential C2176 $ 140,422 Choices DO ,001 Outpatient C , ,922 Florida Department of Children and Families Direct Programs: Adult Community Mental Health Community Support Services QH9IR 281,899 Adult Substance Abuse Treatment and Aftercare Services* HD013 74,146 Passed Through Central Florida Behavioral Health Network: Substance Abuse Prevention Services for Adults* CF ,656 Adult Substance Abuse Treatment and Aftercare Services* CF ,035 Community Substance Abuse Special Projects CF ,239 Child and Adult Substance Abuse Special Projects* CF ,239 1,381,214 Florida Housing Finance Corporation Passed Through the City of Sarasota, Florida State Housing Initiatives Partnership Program* n/a 562,000 Total State Financial Assistance $ 2,753,136 * Denotes Major Program/Project SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30, 2009 Notes The programs do not utilize subrecipients. There were no federal awards expended in noncash assistance. 18

22 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30, 2009 Note 1 - General The accounting policies and presentation of the accompanying schedule of expenditures of federal awards and state financial assistance of First Step of Sarasota, Florida (the Corporation) have been designed to conform with generally accepted accounting principles applicable to governmental units, including the reporting and compliance requirements of the Single Audit Act of 1984, the Single Audit Act Amendments of 1996, U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (federal awards), the Florida Single Audit Act, and Chapter , Rules of the Auditor General of the State of Florida. All federal awards and state financial assistance received directly from federal or state agencies, as well as federal awards and state financial assistance passed through other governmental agencies, are included in the schedule. Note 2 - Basis of Accounting The accompanying schedule of expenditures of federal awards and state financial assistance is presented using the accrual basis of accounting. Note 3 - Contingencies Grant monies received and disbursed by the Corporation are for specific purposes and are subject to review by grantor agencies. Such audits may result in requests for reimbursement due to disallowance of expenditures. Based on prior experience, the Corporation does not believe that such disallowances, if any, would have a material effect on the financial position of the Corporation. 19

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FEDERAL AWARDS PROGRAMS AND STATE FINANCIAL ASSISTANCE PROJECTS FOR THE YEAR ENDED JUNE 30, 2009 Part A - Summary of Audit Results I. The independent auditors report expresses an unqualified opinion on the financial statements of First Step of Sarasota, Inc. II. III. IV. No material weaknesses in internal control over financial reporting were disclosed during the audit of the financial statements of First Step of Sarasota, Inc. No instances of noncompliance material to the financial statements of First Step of Sarasota, Inc. were disclosed during the audit. No material weaknesses were disclosed during the audit of internal control over major federal programs and state projects for the federal or Florida Single Audits. V. The independent auditors report on compliance with requirements applicable to each major federal program and state project for First Step of Sarasota, Inc. expresses an unqualified opinion on compliance. VI. The audit disclosed no findings required to be reported related to Federal programs under Section 510(a) of OMB Circular A-133, nor did our audit disclose any findings related to State projects required to be disclosed under Chapter , Rules of the Auditor General. VII. The programs/projects tested as major programs/projects included the following: Federal Programs U.S. Department of Homeland Security, Passed Through Florida Department of Children and Families, Including Amounts Passed Through Central Florida Behavioral Health Network: Block Grants for Prevention and Treatment of Substance Abuse, CFDA Number State Projects Florida Department of Children and Families, Including Amounts Passed Through Central Florida Behavioral Health Network: Adult Substance Abuse Treatment and Aftercare Services, CFSA Number Florida Department of Children and Families, Passed Through Central Florida Behavioral Health Network: Substance Abuse and Prevention Services for Adults, CFSA Number Child and Adult Substance Abuse Special Projects, CFSA Number Florida Housing Finance Corporation, Passed Through the City of Sarasota, Florida: State Housing Initiatives Partnership Program, CFSA Number

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FEDERAL AWARDS PROGRAMS AND STATE FINANCIAL ASSISTANCE PROJECTS FOR THE YEAR ENDED JUNE 30, 2009 (Concluded) Part A - Summary of Audit Results (Concluded) VIII. The threshold for distinguishing Types A and B programs/projects was $300,000 for major federal award programs and $300,000 for major state projects. IX. First Step of Sarasota, Inc. was determined to be a low-risk auditee pursuant to OMB Circular A-133. Part B - Findings Financial Statement Audit None Part C - Findings and Questioned Costs Major Federal Award Programs None Part D - Findings and Questioned Costs Major State Financial Assistance Projects None Part E - Other Issues No summary schedule of prior audit findings is required because there were no prior audit findings related to federal programs or state projects. No corrective action plan is required because there were no findings required to be reported under the Federal or Florida Single Audit Acts. Part F - Management Letter No management letter was issued because there were no findings required to be reported in the management letter. 21

25 SUPPLEMENTARY INFORMATION

26 SCHEDULE OF STATE EARNINGS FOR THE YEAR ENDED JUNE 30, Total Expenditures $ 9,875, (Less Other State and Federal Funds) $ (4,347,417) 3. (Less Nonmatch SAMH Funds) $ (2,727,696) 4. (Less Unallowable Costs per 65E-14, F.A.C.) $ (59,982) 5. Total Allowable Expenditures $ 2,740, Maximum Available Earnings $ 2,055, Amount of State Funds Requiring Match $ 1,453, Amount Due to Department $ 0 22

27 SCHEDULE OF RELATED PARTY TRANSACTION ADJUSTMENTS FOR THE YEAR ENDED JUNE 30, 2009 SCHEDULE N/A NO RELATED PARTY TRANSACTIONS 23

28 SCHEDULE OF BED-DAY AVAILABILITY PAYMENTS FOR THE YEAR ENDED JUNE 30, 2009 Total Units of Service Paid for by 3rd State Contracted Total Units of Service Party Contracts, Local Government or Other State Maximum No. of Units Eligible for Payment by Department Amount Paid for Services by the Department Maximum Amount Value of Units in Column F Amount Owed to Department (G-H or $0, Whichever is Greater) Program Cost Center Rate Provided Agencies (D-E) (F x C) A B C D E F G H I Adult SA Substance Abuse Detox $ ,950 6,202 4,748 $ 348,432 $ 1,141,134 $ 0 Total Amount Owed to Department $ 0 24

29 SUBSTANCE ABUSE AND MENTAL HEATH SERVICES PROGRAM/COST CENTER ACTUAL EXPENSES AND REVENUES SCHEDULE FOR THE YEAR ENDED JUNE 30, 2009 Page 1 of 4 Agency: First Step of Sarasota, Inc. Date Prepared: August 28, 2009 Budget Period: From 7/1/08 to 6/30/09 Part I: Actual Funding Sources and Revenues State Designated SAMH Cost Centers State Funded SAMH Cost Centers Program 1 Crisis Crisis Support Funding Sources and Revenues Case Residential Support Emergency A Management Intervention Prevention Detox Level 2 Emergency Group IA. State SAMH Funding (1) Suncoast District $ 0 $ 32,303 $ 0 $ 0 $ 406,091 $ 0 $ 0 (2) District , (3) Central Florida Behavioral Network 45, , , , , ,400 15,000 Total State SAMH Funding 45, , , , , ,400 15,000 IB. Other Government Funding (1) Other State Agency Funding (2) Medicaid (3) Local Government ,258, (4) Federal Grants and Contracts , (5) In-kind from Local Government Only Total Other Government Funding ,298 1,258, IC. All Other Revenues (1) 1st and 2nd Party Payments , (2) 3rd Party Payments (except Medicare) , (3) Contributions, Donations and Grants , (4) Other/UW/YMCA , (5) In-kind ,375 1, (6) Contracts Total All Other Revenues ,375 1, ,955 50, TOTAL FUNDING $ 45,723 $ 277,354 $ 188,127 $ 1,839,037 $ 895,271 $ 222,400 $ 15,000 25

30 SUBSTANCE ABUSE AND MENTAL HEATH SERVICES PROGRAM/COST CENTER ACTUAL EXPENSES AND REVENUES SCHEDULE FOR THE YEAR ENDED JUNE 30, 2009 (Continued) Page 2 of 4 Agency: First Step of Sarasota, Inc. Part I: Actual Funding Sources and Revenues (Continued) State Designated SAMH Cost Centers State Funded SAMH Cost Centers Program 1 Crisis Support Level 2 Funding Sources and Revenues Emergency Residential Outpatient Outpatient Outpatient Mothers A Individual Level 3 Outreach Individual Assessments Group and Infants IA. State SAMH Funding (1) Suncoast District $ 0 $ 0 $ 34,261 $ 0 $ 0 $ 0 $ 0 (2) District (3) Central Florida Behavioral Network 20,000 40,870 62,587 35,043 21,600 47, ,369 Total State SAMH Funding 20,000 40,870 96,848 35,043 21,600 47, ,369 IB. Other Government Funding (1) Other State Agency Funding 0 143, ,999 24,397 0 (2) Medicaid (3) Local Government ,491 13,703 87,022 71,693 (4) Federal Grants and Contracts , ,086 0 (5) In-kind from Local Government Only Total Other Government Funding 0 143, ,818 28, ,505 71,693 IC. All Other Revenues (1) 1st and 2nd Party Payments 0 13, , ,970 0 (2) 3rd Party Payments (except Medicare) (3) Contributions, Donations and Grants ,134 (4) Other/UW/YMCA 0 10, (5) In-kind ,050 1,050 2,050 0 (6) Contracts Total All Other Revenues 0 23, ,640 1, ,020 30,134 TOTAL FUNDING $ 20,000 $ 208,130 $ 97,698 $ 182,501 $ 51,352 $ 348,506 $ 376,196 26