EDUCATIONAL AND TREATMENT COUNCIL, INC. Lake Charles, Louisiana FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT. Year Ended June 30,2007

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT Year Ended June 30,2007 Under provisions of state law, this report is a pu^ document. Acopy of the report has been submitted to the entity and other appropriate public officials- The report is available for public inspection at the Baton Rouge office of the Legislative Auditor and, where appropriate, at the office of/the parish clerk of court Release Date

2 TABLE OF CONTENTS Independent Auditor's Report 1-2 Financial Statements: Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Statement of Functional Expenses 6 Notes to Financial Statements 7-13 Schedule of Expenditures of Federal Awards 14 Independent Auditors' Report on Compliance and on Internal Control Over Financial Reporting Based On an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to each Major Program and on Internal Controls over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs Page

3 PI i-j Founded in 1978 BROUSSARD & COMPANY CERTIFIED PUBLIC ACCOUNTANTS, LX.C. Board of Directors Educational and Treatment Council, Inc. INDEPENDENT AUDITOR'S REPORT We have audited the accompanying statement of financial position of Educational and Treatment Council, inc., (a non-profit organization) as of June 30, 2007, and the related statement of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 in the first paragraph present fairly, in all material respects, the financial position of Educational and Treatment Council, Inc. as of June 30, 2007, and the changes in its net assets and its 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 January 31,2008, on our consideration of the Organization'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. MOSS BLUFF OFFICE LAKE CHARLES OFFICE SULPHUR OFFICE 695 Sam Houston Jooe* Partway. Suite D One Ukeihore Drive, Suite first Avtnue Lake Charles. Loaislau uke Charles. Louisiana Sulphur. Louisiana Ph: 037) 217-?370 Fax; t.l?7)-m Ph: (337) Fax: tt37) Ph; OT7) Fax:(337)

4 Board of Directors Educational and Treatment Council, Inc. Our audit was performed for the purpose of forming an opinion on the basic financial statements of Educational and Treatment Council, Inc. taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations," 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 basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. January 31,2008

5 Statement of Financial Position As of June 30,2007 ASSETS CURRENT ASSETS Cash and cash equivalents Grant receivable Interest receivables Prepaid expenses Total Current Assets NONCURRENT ASSETS Investments Fixed assets at cost ( net of accumulated depreciation of 712,753) TOTAL ASSETS $ $ Temporarily Unrestricted Restricted Totals 354,931 $ 453,496 3,356 12, , , ,343 1,322,246 2,147,008 $ 189 $ 355, ,496 3,356 12, , , ,343 1,322, $ 2,147,197 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Interest payable Accrued liabilities Deferred revenue Rent Deposits Total Current Liabilities $ 69,980 $ 15,205 67, ,931 3, , $ $ 69,980 15,205 67, ,931 3, ,05! NONCURRENT LIABILITIES Notes payable 510, ,000 TOTAL LIABILITIES 896, ,051 NET ASSETS Unrestricted Temporarily restricted Total Net Assets 1,250,957 1,250, ,250, ,251,146 TOTAL LIABILITIES AND NET ASSETS 2,147, ,147,197 The accompanying notes are an integral part of the financial statements.

6 Statement of Activities As of June 30, 2007 PUBLIC SUPPORT, REVENUES AND OTHER SUPPORT Contributions Donated materials and services Grants and contracts Service taxes Investment income Miscellaneous income Special event (net of direct benefit cost) Insurance proceeds TOTAL PUBLIC SUPPORT, REVENUES AND OTHER SUPPORT EXPENSES AND LOSSES Residential Services Community Program Services TOTAL EXPENSES AND LOSSES CHANGE IN NET ASSETS Unrestricted $ 4,298 35,869 1,859, ,508 47, ,277 78,838 2,509,041 1,327,761 1,145,221 2,472,982 36,059 Temporarily Restricted Total $ - $ 4,298 35,869 1,859, ,508 47, ,277 78,«38 2,509,041 U27J6I 1,145,221 2,472,982 36,059 NET ASSETS AT BEGINNING OF YEAR Prior period adjustment NET ASSETS AT BEGINNING OF YEAR, RESTATED $ 1,458,990 (244,092) 1,214,898 $ S 1,459,179 (244,092) 1,215,087 NET ASSETS AT END OF YEAR 1,250, $ 1,251,146 The accompanying notes are an integral part of the financial statements.

7 Salaries and wages Payroll taxes and fringe benefits Total Salaries and Related Benefits Statements of Functional Expenses As of June 30,2007 Program Community Program Services $ 699, , ,718 Services Residential Services $ 711, , , Total 1,410, ,428 1,619,365 Advertising Client activities Communications Contractual services Donated services Donated supplies Dues and subscriptions Educational Food Housekeeping supplies Insurance Interest Janitorial services Licenses Miscellaneous Motor vehicle OMH repite activities Persona) client needs/clothing Postage Printing Professional services Public relations Recreational Rent Repairs & maintenance-building and grounds Repairs & maintenance-equipment Supplies Therapeutic supplies Travel and training Utilities 1,501 92,311 16, ,410 17,527 8,058 1, ,447 20,000 8, ,732 12,201 9,167 1, , ,075 2,204 4,809 11,884 1,722 38,268 13,189 1,630 8,383 15,312 18,291 7,606 3,128 1,789-41,656 5,011 46,347 5,000 12, ,393 8,880-11, , ,081 26,872 1,592 5,213 12, ,565 33,047 3, ,694 31, ,701 25,133 11,186 3, ,272 5,358 80,794 25,000 20, ,125 21,081 9,167 11,065 1, , ,081 50,947 3,7% 10,022 24,778 1,813 45,833 46,236 Total before depreciation 1,298,766 1,106,445 2,405,211 Depreciation 28,995 38,776 67,771 TOTAL EXPENSES $ 1,327,761 J 1,145,221 2,472,982 The accompanying notes are an integral part of the financial statements.

8 Statements of Cash Flows For The Year Ended June 30,2007 Cash Flows From Operating Activities: Excess (deficiency) of revenue over expenses Adjustments to reconcile excess of revenues over expenses to net cash provided by operating activities; Depreciation (Increase) decrease in grants receivable (Increase) decrease in prepaid expenses increase (decrease) in accounts payable Increase (decrease) in deferred revenue Increase (decrease) in rent deposits Increase (decrease) in accrued expenses Total Adjustments Net Cash Provided (Used) by Operating Activities Cash Flows From Investing Activities: Unrealized (gain) loss on investments (Increase) decrease in interest receivables Purchase of capital assets Proceeds from sale and maturity of investments Purchase of investments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) In Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year 36,059 67,771 (328,906) 1,615 25,903 7,373 3,147 26,536 (196,561) (160,502) (16,627) (1,191) (31,038) 490,000 (395,000) 46,144 (114,358) 469, ,120 The accompanying notes are an integral part of the financial statements.

9 Notes to Financial Statements June 30,2007 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Activities Educational and Treatment Council, Inc. (ETC) is a nonprofit corporation organized in 1974 under the laws of the State of Louisiana, for the purpose of serving children, adolescents, families, individuals, and communities withm the five-parish area of Southwest Louisiana, through comprehensive counseling services, crisis services, prevention services, community education and residential services for youth. Educational and Treatment Council, Inc. provides prevention and intervention services that address issues affecting at-risk youth and their families. All services are available at no cost to clients. Harbour House, a program of Educational and Treatment Council, Inc., is a 20-bed emergency shelter for children and youth ages 3-17 years old. The shelter serves abused and neglected children, foster children, runaway and homeless youth, status offenders, and other youth in need of a safe place to stay. Harbour House also provides brief respite for children of families in crisis to ensure safety and reduce stress. In addition to short-term residential care, other services provided include education, counseling, assessment, and referral. Established in 1985, Harbour House is licensed by the State of Louisiana as an emergency shelter for children. The average length of stay for residents is 14 days and the maximum length of stay is 105 days. La Maison de Grace, another residential service of ETC, is a transitional living program which provides supervised apartment housing for up to 18 months for homeless youth ages including parenting youth and their children. Services focus on vocational training, job attainment, educational advancement and money management Community-based services of Educational and Treatment Council, Inc. include in-home crisis counseling, child abuse prevention and intervention, home visitation, case management, planned respite, and outpatient substance abuse treatment for juveniles. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Support and Revenue Contributions directly from the public are generally available for unrestricted use unless specifically restricted by the donor. 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 donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires, restricted net assets are reclassified to unrestricted net assets.

10 EDUCATIONAL AND TREATMENT COUNCIL, INC Notes to Financial Statements June 30,2007 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. AH other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires, restricted net assets are ^classified to unrestricted net assets. Contributions of donated noncash assets are recorded at their fair values in the period received. Contributions of donated services that create or enhance nonfinancial assets or that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recorded at their fair values in the period received. Endowment contributions and investments are permanently restricted by the donor. Investment earnings available for distribution are recorded in unrestricted net assets. Investment earnings with donor restrictions are recorded in temporarily or permanently restricted net assets based on the nature of the restrictions. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Grants Receivable Grants receivable at June 30,2007 of $453,496 represents receivables from federal, state and local grants. Concentration of Credit Risks The Council maintains cash accounts at various financial institutions that provided federally insured limits up to $100,000. At June 30,2007, the Council's uninsured cash balances totaled $116,077. Investments Investments are composed of government obligations, mutual funds, and cash equivalents and are carried at fair value. Statement of Cash Flows For the purposes of the Statement of Cash Flows, the Council considers all highly liquid debt investments purchased with a maturity of three months of less to be cash equivalents.

11 Notes to Financial Statements June 30,2007 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income tax status Educational and Treatment Council, Inc. is a nonprofit organization as described under Section 501(c) (3) of the Internal Revenue Code and is exempt from federal and state income taxes. In addition, the organization has been determined by the Internal Revenue Service not to be a private foundation within the meaning of Section 509(a) of the Internal Revenue Code. Property and equipment Property and equipment is stated at cost or fair market value at date of donation for in-kind contributions. Depreciation is provided over the estimated useful lives of the assets using the straightline method. Depreciation amounted to $67,770 for the year ended June 30, 2007, and is calculated on the straight-line method based on the estimated useful lives below: Buildings Furniture, fixtures and equipment Transportation equipment Leasehold improvements 30 years 5-10 years 5 years IS years The Organization follows the practice of capitalizing all property and equipment in excess of $500. Functional Allocation of Expenses Expenses were allocated in the accompanying financial statements to program and supporting service functional expense groups. The methods of allocation were based on several factors such as utilization of office space as well as the Council estimates of the relative proportion of various staff members'time and effort between programming and administrative functions. NOTE B DONATED MATERIALS AND SERVICES included in contributions revenue and program expenses is the estimated value of donated materials and equipment of $11,186 and donated services of $25,133. Donated goods and services were used to enhance program activities and operations. However, a substantial number of volunteers have donated significant amounts of time to the Council's programs services and its rundraising activities which have not been reflected in the financial statements inasmuch no objective basis is available to measure the value of such services.

12 NOTE C CAPITAL ASSETS Notes to Financial Statements June 30,2007 The Capital Asset Activity for the year ended June 30,2007, was as follows: Land Building and Improvement Furniture, Fixtures & Equipment Construction in progress Less accumulated depreciation Beginning Balance S 25,000 1,075, ,620 10,752 1,430, ,982 $ 785,076 Increases Decreases $ - $ 3,600 27,438-31,038 67,771 $ (36,733) $ Ending Balance $ 25,000 1,079, ,058 10,752 1,461, ,753 $ 748,343 NOTE D - INVESTMENTS As of June 30,2007 the cost and market value of investments are as follows: Certificates of deposit US Treasury Strips Total investments Cost $ 297, ,179 $ 543,179 Fair Value $ 295, ,000 $ 573,903 The US Treasury Strips, with a fair market value of $278,000 are designated for the future payment of long-term debt. NOTE E BOARD DESIGNATED UNRESTRICTED NET ASSETS Board designated unrestricted net assets as of June 30, 2006 are funds set aside for future payments of long-term debt and insurance proceeds to repair property and contents damage. NOTE F TEMPORARJLY RESTRICTED NET ASSETS Temporarily restricted net assets as of June 30,2007 are available for the following purposes or periods: Runaway Youth Act Program $189 10

13 Notes to Financial Statements June 30,2007 NOTE G CONCENTRATIONS For the year ended June 30, 2007, the Council received 69% of its funding from federal and state grants. The operations of the Council are subject to the administrative directives, rules and regulations of federal and state regulatory agencies. Such administrative directives, rules and regulations are subject to change by legislative acts or administrative changes. Such changes may occur with little notice or inadequate funding to pay the related cost, including additional administrative burden, to comply with a change. NOTE H COMMITMENTS AND CONTINGENCIES On September 24, 2005, the Council's property sustained damage as a result of Hurricane Rita. As of June 30, 2007, insurance proceeds of $429,663 have been received. Repairs to the property are on going. The Council estimates the cost of repairs to be in excess of the proceeds, but expects to receive additional funding through insurance litigation and disaster grants (NOTE O). NOTE I RETIREMENT COMMITMENTS All employees of the Council are members of the Federal Social Security System. The Program contributes 7.65% of gross salaries up to appropriate statutory limits to that system. The Federal Social Security System administers the plan and pays benefits. NOTE J TAX-DEFERRED ANNUITY PLAN The Organization participated in a tax-deferred annuity plan qualified under Section 403(b) of the Internal Revenue Code, The plan covers full-time and thirty-two hour part-time employees who have complete three months of service. The Organization contributes for each eligible participant in an amount determined by the employee. Employees who have completed one year of service are eligible for the employer match contribution. On January 1, 2002, the Board of Directors adopted an employer contribution of 25% of an employee's contributions not to exceed 5% of the employee's annual salary. Employees may make contributions to the plan up the maximum allowed by the Internal Revenue Code if they wish. Plan expenses were $768 for the year ended June 30,

14 NOTE K SICK AND VACATION PAY Notes to Financial Statements June 30,2007 The first six months of employment are considered a probationary period during which time sick leave accrues at one day per month worked. Any days missed during this period are treated as noncompensatory leave. Upon completion of the probationary period, vacation leave begins accruing at one day per month worked. Termination of service with the Council during this period results in forfeiture of all accrued sick and vacation leave. After the probationary period, full time employees begin accruing sick ieave at the rate of one day per month. This accrual of sick leave shall continue until the employee has accrued a maximum of 30 days sick leave. After this maximum has been achieved, no further sick leave shall be accrued until the balance is reduced below 30 days. Any employee terminating agency service shall not be compensated in any form for any unused accrued sick leave. Therefore, no liability has been accrued for these benefits. After the probationary period, full time employees begin accruing annual leave at the rate of one day per month up to twelve (12) days annual leave each year of employment. After three years of service the annual leave increases one day for each additional year of service up to a maximum of twenty (20) days per year. Any unused annual leave at June 30 th of each year shall be reduced to zero unless carryover is authorized by the Board. The dollar value of accrued leave at June 30,2007 was $8,722. NOTE L LONG-TERM DEBT ETC's Long-term debt at consist of the following as of June 30,2007. Small Business Administration, payments beginning April 7,2007, interest 4.75% per annum, secured by a building $ 10,000 Note payable to Brown Foundation, Inc. due November 11, 2018, plus interest payable annually at 5%, secured by a building $ 500,000 On April 7, 2006, the U.S. Small Business Administration (SBA) authorized a loan to ETC in the amount of $55,800. Interest will accrue at the rate of 4.75% per annum, with installment payments of $309 monthly beginning twelve months from the date of the promissory note. The balance of principal and interest will be payable 30 years from the date of the promissory note. ETC must submit to SBA evidence of SBA's recorded lien position prior to the disbursement of loan funds in excess of $10,000. A requirement of the Brown Foundation note is that a sinking fund must be established by year Annual payments are payable into the sinking fund for years 2002 through 2017 in a sum sufficient to insure, when the final payment becomes due, the sinking fund will be able to repay the entire principal sum due. An investment designated by the Board as the sinking fund with a balance of $278,000, at June 30, 2007 has been made to pay off this debt at maturity (see Note E). The investment is a zero coupon bond set to mature for $500,000 at November 8,2018 and to fully pay the long-term debt. There are no future sinking fund or debt service funding requirements. 12

15 Notes to Financial Statements June 30,2007 NOTE M - OPERATING LEASE COMMITMENT The Council leases office space for its Resource Center under a month to month lease operating under the same terms of the original lease which expires August 31, The Council also leases an apartment complex for its transitional living program under a month to month lease. Rental expenses under these two operating leases as of June 30,2007, were $26,872 and $24,075 respectively. NOTE N JUVENILE SERVICES TAX On May 5, 1984, the property owners of Calcasieu Parish passed the Juvenile Detention, Probation and Services Tax. The Juvenile Services tax was approved by voters for 2.4 mills for a ten year period. The Calcasieu Parish Policy Jury shall pay as soon as ad valorem taxes are received by the Calcasieu Parish Police Jury a sum equal to the stated contract amount. For and in consideration of the payment of the foregoing lease sums, Educational and Treatment Council, Inc. shall provide juvenile services without further cost to the Court of the Calcasieu Parish Police Jury for emergency shelter to children as described in the purpose above. The Juvenile Services Tax was renewed by parish voters in 1994 and Amounts paid under the contract for the year ended June 30,2007 was $457,862. NOTE 0 SUBSEQUENT EVENTS In September 2006, ETC filed a petition for damages naming its insurance provider of property insurance defendant. The petition claim is for damages incurred due to failure of the defendant to pay dwelling coverage, personal property coverage, adequate loss of use, and contents. Since receiving notice of the lawsuit, the insurance provider has assigned a new adjuster for the claim. As of June 30, 2007, the claim for statutory penalties and attorneys' fees was still pending. The amount of recovery is unknown at this time. ETC has been assigned a FEMA representative to review the Council's losses and eligibility for disaster grants, however, the amount will not be determmable until the insurance proceeds have been determined. NOTE P PRIOR PERIOD ADJUSTMENTS Net assets at the beginning of the year have been adjusted to correct errors made in prior years. The errors had no effect on net income for the year ended June 30, The adjustments were to deferred revenue and accrued liabilities. 13

16 Educational and Treatment Council, Inc. Schedule of Expenditures of Federal Awards Year Ended June 30, 2007 Program Title CFDA Number Grant Number Program Program Expenses U.S. Department of Health and Human Services: Direct programs: Basic Center Program for Runaway & Homeless Youth Transitional Living Program for Homeless Youth Passed through Louisiana Department of Health and Hospitals - Office of Mental Health G G /29/09 02/28/09 06/30/09 $55, , ,952 Office of Mental Health - Hurricane Recovery Passed through Louisiana Department of Social Services - OCD Title IV-B & /30/07 08/31/08 115, ,633 United States Department of Agriculture: Passed through Louisiana Department of Education: National School Lunch Program NA 16,038 United States Department of Housing and Urban Development: Passed through Louisiana Department of Social Services and City of Lake Charles: Emergency Shelter Grants Program /30/07 9,000 United States Department of Justice: Passed through Calcasicu Parish Police Jury Basis of Presentation NA 12/31/08 29,482 Total federal assistance 1.442,694 The accompanying schedule of expenditures of federal awards includes the federal grant activity of Educational and Treatment Council, Inc., and is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Certain costs have been allocated to the federal program in accordance with OMB Circular A-122, Cost Principles for Non-Profit Organizations. The amounts presented in this schedule do not differ from amounts presented in, or used in the preparation of the financial statements.

17 BROUSSARD & COMPANY CERTIFIED PUBLIC ACCOUNTANTS, L.L.C. Founfodin 1978 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDJTING STANDARDS Board of Directors Educational and Treatment Council, Inc. We have audited the financial statements of Educational and Treatment Council, Inc. as of and for the year ended June 30,2007, and have issued our report thereon dated January 31,2008. 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 Genera! of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Educational and Treatment Council, Inc.'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 die Educational and Treatment Council, Inc.'s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control over financial reporting. Our consideration of the internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify ail deficiencies in the internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the organization's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of the organization's financial statements that is more than inconsequential will not be prevented or detected by the organization's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the organization's internal control. MOSS BLUFF OFFICE LAKE CHARLES OFFICE SULPHUR OFFICE 695 Sam Houston Jones Partway, Suite D One Lakeihore Drive, Suite First Avenue Uke Clwrtes. Louisiana Lake Chariei, Louisiuu Sulphur, Louisiana Ph: (337) 217-W70 Fax: W7i Ph: (337> Fax: (337) Ph: (337) Fw: (337)

18 Board of Directors Educational and Treatment Council, Inc. Page 2 Our consideration of internal control over financial reporting 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 and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items and to be material weaknesses. Compliance As part of obtaining reasonable assurance about whether Educational and Treatment Council, Inc.'s, financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, 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 that are required to be reported under Government Auditing Standards as item This report is intended for the information of the management, the Legislative Auditor of the State of Louisiana, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. January 31,2008

19 BROUSSARD & COMPANY CERTIFIED PUBLIC ACCOUNTANTS, L.L.C Founded in 197$ REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Directors Educational and Treatment Council, Inc. Compliance We have audited the compliance of Educational and Treatment Council, Inc. with the types of compliance requirements described in the "U.S. Office of Management and Budget (OMB) Circular A-J 33 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, Educational and Treatment Inc.'s major federal programs are identified in the summary of auditor's 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 is the responsibility of Educational and Treatment Council, Inc.'s management Our responsibility is to express an opinion on Educational and Treatment Council, Inc.'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; 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 Educational and Treatment Council, Inc.'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 Educational and Treatment Council, Inc.'s compliance with those requirements. In our opinion, Educational and Treatment Council, Inc. complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30,2007. MOSS BLUFF OFFICE LAKE CHARLES OFFICE SULPHUR OFFICE 695 Sam Houston Jonc> Parkway. Suite D One Lakeshore Drive. Suilc Fim Avenue Lake Charles, l-ou.siaru Lak* Charles, Louisiana Sulphur, Louisiana Ph:.337) Fax: (337) Ph: (337) (1 Fax; (337) Ph: f337) Fax: (337)

20 Board of Directors Educational and Treatment Council, Inc. Page 2 Internal Control Over Compliance The management of Educational and Treatment Council, Inc. is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Educational and Treatment Council, Inc.'s internal control over compliance with the requirements that could have a direct and material effect on a major federal program 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 Educational and Treatment Council, Inc.'s internal control over compliance. A control deficiency in an entity's internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of 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. This report is intended solely for the information of the audit committee, management, 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. However, this report is a matter of public record and its distribution is not limited. January 31,2008

21 SUMMARY OF AUDITOR'S RESULTS 1. The auditor's report expresses an unqualified opinion on the financial statements of Educational and Treatment Council, Inc. 2. Instances of material weaknesses to the financial statements are reported as items 07-1 and One instance of noncompliance material to the financial statements was reported as item No significant deficiencies or material weaknesses were reported during the audit of the major federal award programs. 5. The auditor's report on compliance for major federal award programs for Educational and Treatment Council, Inc. expresses an unqualified opinion on all major federal programs. 6. The audit disclosed no audit findings relating to major programs. 7. The programs tested as major programs included: U. S. Department of Health and Human Services Transitional Living Program for Homeless Youth CFDA U. S. Department of Health and Human Services Office of Mental Health CFDA U. S. Department of Health and Human Services Basic Center Program for Runaway & Homeless Youth CFDA The threshold for distinguishing Types A and B programs was $500, Educational and Treatment Council, Inc. was determined to be a low-risk auditee. PRIOR YEAR FINDINGS No findings were noted in prior year.

22 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, Reconcialrions Condition: Criteria: Effect: Recommendation: Response: The organization has not reconciled the financial statements to supporting records in a timely manner. Specifically, checking accounts, accounts receivable, and accounts payable, were not reconciled until after year end. Effective internal control requires that all checking accounts, accounts payable and accounts receivable be reconciled from detailed supporting records to the financial statements. Material errors could have occurred and not detected due to the above condition. The Organization should reconcile all checking accounts, accounts receivable and accounts payable records on a monthly basis. The Organization will contract the services of an accounting firm to assist in the reconciliation of the above financial statement information Financial Statement Reporting Condition: Recommendation: Response: The Organization relies on the auditing firm to assist in the preparation of external financial statements and related disclosures. Under U. S. generally accepted auditing standards, we cannot be considered part of the Organization's internal control structure and because of limitations of the accounting staff, the design of the Organization's internal control structure does not otherwise include procedures to prevent or detect a material misstatement in the external financial statements. The Organization should contract or employ the appropriate personnel to assist in the preparation of external financial statements. The Organization will consider the cost effectiveness of the above recommendation.

23 07*3 - Late Filing of Audit Report Condition: The June 30,2007 financial statements were not filed with the Legislative Auditor's office by December 31,2007. Criteria: Response: State law requires that audited financial statements be filed with the Legislative Auditor by six months after year end. The audit firm that had performed the engagement for the prior year withdrew from the current year's engagement. Management will closely monitor this reporting requirement in future years to prevent reoccurrence.