CATHOLIC FAMILY AND COMMUNITY SERVICES, INC. ROMAN CATHOLIC DIOCESE OF PATERSON

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1 CATHOLIC FAMILY AND COMMUNITY SERVICES, INC. Financial Statements for the Year Ended June 30, 2016 (with Comparative Totals for the Year Ended June 30, 2015)

2 FOR THE YEAR ENDED JUNE 30, 2016 TABLE OF CONTENTS Page Independent Auditors' Report 1-2 Statement of Financial Position 3 Statement of Activities 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 Notes to Financial Statements 7-18 Independent Auditors' 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 for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance and New Jersey OMB, Single Audit Policy for Recipients of Federal Grants, State Grants and State Aid Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings 25 Supplementary Schedules: Schedule of Expenditures of Federal awards Schedule of Expenditures of State financial assistance Notes to the Schedule of Federal Awards and State financial assistance 31-32

3 INDEPENDENT AUDITORS REPORT To the Board of Trustees of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson Report on the Financial Statements We have audited the accompanying financial statements of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson (a nonprofit organization), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

4 Emphasis-of-Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Organization will continue as a going concern. As discussed in Note 16 to the financial statements, the Organization has suffered recurring significant reductions in grant revenues and has a net deficiency in net assets that raise substantial doubt about its ability to continue as a going concern. Additionally, the Organization has insufficient amounts of unrestricted revenues to provide supporting services to activities funded by restricted contributions. Management s plans regarding those matters also are described in Note 16. 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 schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Report on Summarized Comparative Information We have previously audited Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s 2016 financial statements, and our report dated November 23, 2016, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 20, 2017 on our consideration of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson 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 Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s internal control over financial reporting and compliance. Fairfield, New Jersey February 20,

5 STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 AND 2015 ASSETS Cash and cash equivalents $ 492,851 $ 2,044,730 Investments 164, ,597 Accounts receivable 1,953,671 2,201,154 Unconditional promises to give - 120,000 Prepaid expenses - 3,158 Total current assets 2,610,874 4,527,639 SECURITY DEPOSITS 2,500 2,500 PROPERTY, PLANT, AND EQUIPMENT --- NET 756, ,514 TOTAL ASSETS $ 3,369,718 $ 5,464,653 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 1,239,980 $ 883,914 Accrued expenses 634, ,841 Short term borrowings - 200,000 Deferred revenue 7,310 12,338 Total current liabilities 1,881,923 2,025,093 LONG TERM LIABILITIES Construction project payable 367, ,000 Related party payable 1,162,430 1,162,430 Total long term liabilities 1,529,430 1,529,430 TOTAL LIABILITIES $ 3,411,353 $ 3,554,523 Commitments and contingencies NET ASSETS: Unrestricted net assets (92,625) 1,405,481 Temporarily restricted net assets 50, ,649 Total net assets (41,635) 1,910,130 TOTAL $ 3,369,718 $ 5,464,653 See independent auditors' report and notes to the financial statements 3

6 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR JUNE 30, 2015) PUBLIC SUPPORT, REVENUES, AND RECLASSIFICATIONS: Temporarily Unrestricted Restricted Total Net Assets Net Assets Grant revenue $ 20,168,676 $ - $ 20,168,676 $ 21,502,102 Fee for service 1,219,032-1,219,032 2,695,586 Diocesan subsidy 819, , ,546 Non-cash donations 208, , ,586 Contributions 574, , ,610 1,488,842 Fundraising revenue 1,114,763-1,114, ,100 Other income 153, , ,691 Net assets released from restrictions Satisfaction of purpose restrictions 605,038 (605,038) - - Total public support, revenues, and reclassifications 24,863,664 (453,659) 24,410,005 28,002,453 EXPENSES AND LOSSES: Program services: Family and Children Services 13,494,614-13,494,614 14,909,038 Senior Services 1,106,816-1,106,816 1,059,665 Community Support Services 4,678,669-4,678,669 4,554,653 Psychological Services 5,106,326-5,106,326 5,031,978 Other services 282, , ,888 Total program services 24,669,137-24,669,137 25,819,222 Supporting services: Management and general 1,103,508-1,103, ,179 Fundraising 589, , ,202 Total supporting services 1,693,293-1,693,293 1,302,381 Total expenses 26,362,430-26,362,430 27,121,603 Change in net assets before non-operating income (1,498,766) (453,659) (1,952,425) 880,850 NON-OPERATING ACTIVITIES Loss on sale of asset (29,820) - (29,820) 25,000 Investment income 30,480-30,480 26, ,385 CHANGE IN NET ASSETS (1,498,106) (453,659) (1,951,765) 932,235 NET ASSETS, BEGINNING OF YEAR 1,405, ,649 1,910, ,895 NET ASSETS, END OF YEAR $ (92,625) $ 50,990 $ (41,635) $ 1,910,130 See independent auditors' report and notes to the financial statements 4

7 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR 2015) Family and Children Services Senior Services Community Support Services Program Services Psychological Services Other Services Total Supporting Services Total Management & General Fundraising Personnel costs: Salaries and wages $ 6,828,877 $ 668,227 $ 1,285,220 $ 2,966,271 $ 91,846 $ 11,840,441 $ 447,554 $ 176,992 $ 12,464,987 $ 13,175,785 Fringe benefits 2,286, , , ,985 50,830 3,635, ,296 75,198 3,830,205 3,826,644 Payroll taxes 496,853 48,233 94, ,178 6, ,294 27,919 9, , ,146 Total personnel costs 9,612, ,908 1,742,036 3,982, ,974 16,344, , ,099 17,201,314 17,953,575 Advertising and recruitment 7,906 2,908 16,180 10,320-37,314 1,885-39,199 40,819 Consultants 1,510,670 11,071 70,531 23,923-1,616,195 9,551 2,310 1,628,056 1,518,265 Contributions , ,902 22,000 42, , ,688 Debt Services 203, , , ,112 Direct client assistance 42, ,969, ,976-2,232,473 5,500-2,237,973 2,191,629 Dues and Subscriptions 1, ,947 1,605 2,427 8,443 37,657-46,100 10,252 Equipment 67,288 5,385 18,955 47,149 1, ,496 17, , ,290 Information Technology 40, , ,167 37,267 In-Kind expense, Secretariat - 19,140 25,575 21,285-66, , , ,586 Insurance 66,313 3,867 11,645 31, , , ,403 Interest ,761-14,761 13,538 Licenses, permits and fees 5, , , ,528 13,525 16,803 Maintenance and repairs 201,769 29,368 50, , ,246 85,776 1, , ,144 Miscellaneous 471 8,712 9,375 2,004 10,476 31,038 6, ,350 50,693 NJ Child Assault Prevention Project (CAP) Expenses ,931 96, ,931 84,661 Occupancy 564,115 6,000 1,800 20, , , , ,533 Printing, Postage and Reproduction 20,767 7,219 9,590 10, ,627 5,817 2,858 56,302 60,241 Professional Fees 145,704 4,860 10,865 52, ,307-1, , ,401 Seminars, conferences and Trainings 4,950 1,733 8,543 12,569-27,795 3,174 1,631 32,600 22,158 Supplies 641,584 36,682 74,783 81, ,497 33,507 4, , ,125 Utilities 278,814 32,036 60, ,310 4, ,745 77,228 2, , ,332 Vehicles 45,248 57,546 93,392 57,145 16, ,732 16,199 2, , ,223 Total expenses before depreciation 13,460,781 1,085,688 4,661,885 5,080, ,712 24,571,819 1,076, ,785 26,237,690 27,044,738 Depreciation 33,833 21,128 16,784 25,573-97,318 27, ,740 76,865 Total expenses $ 13,494,614 $ 1,106,816 $ 4,678,669 $ 5,106,326 $ 282,712 $ 24,669,137 $ 1,103,508 $ 589,785 $ 26,362,430 $ 27,121,603 See independent auditors' report and notes to the financial statements 5

8 STATEMENT OF CASH FLOWS YEARS ENDED JUNE 30, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ (1,951,765) $ 932,235 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation expense 124,740 76,865 Gain (loss) on sale of assets (29,820) 25,000 Realized gain (loss) on investments 20,189 26,849 Unrealized gain (loss) on investments (4,859) (2,067) (Increase) decrease in operating assets Accounts receivable 247, ,650 Unconditional promises to give 120,000 (120,000) Prepaid expenses 3,158 18,381 Security deposits - - Increase (decrease) in operating liabilities Accounts payable 356,066 (667,915) Accrued expenses (294,208) 113,324 Short term borrowings (200,000) - Deferred revenue (5,028) 5,028 Related party payable - - Net cash (used in) provided by operating activities (1,614,044) 643,350 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (101,357) (80,333) Proceeds from sale of property and equipment 184,607 31,497 Purchase of securities (41,085) (62,149) Proceeds from sales of securities 20,000 27,584 Net cash used in investing activities 62,165 (83,401) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,551,879) 559,949 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,044,730 1,484,781 CASH AND CASH EQUIVALENTS, END OF YEAR $ 492,851 $ 2,044,730 See independent auditors' report and the notes to the financial statements 6

9 NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND NATURE OF ACTIVITIES Catholic Family and Community Services ( CFCS ) a not-for-profit organization (the Organization ) is a community-based organization that was established to perform charitable work on behalf of the Roman Catholic Diocese of Paterson. CFCS provides social services for the needs of individuals, couples and families living in the Roman Catholic Diocese of Paterson, including children, adolescents, adults and elderly persons, with a preferential option for serving the poor. The Organization offers the following programs: Family and Children Services: the Organization provides services in children s homes, in community residential settings and institutions aimed at preventing child abuse and neglect, family reunification and/ or independent living. Senior Services: the Organization provides outreach services to seniors, consisting of adult day care, assisted transportation, meals on wheels and other case management; information and referral services are also provided. Community Support: the Organization provides a variety of outreach services to those who require but cannot afford basic necessities, such as food, shelter, clothing, education and emergency assistance. Psychological Services: the Organization provides treatment related services to both youth at risk; adolescents and adult populations. Other Services: Outreach and educational services consistent with the Organization s mission are available to the needy. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting --- The financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Basis of Presentation --- The Organization presents its financial statements in accordance with the American Institute of Certified Public Accountants Audit and Accounting Guide, Nonprofit Organizations, and Government Auditing Standards and Single Audits, and other pronouncements applicable to not-for-profit organizations. The Organization follows guidance provided by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). ASC Paragraphs (a) through (d) establishes standards for external financial reporting by not-for-profit organizations and requires that resources be classified for accounting and reporting purposes into three net asset categories according to externally (donor) imposed restrictions; unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. ASC Paragraphs through 7, Contributions Received, requires that unconditional promises to give be recorded as receivables and revenue and requires the organization to distinguish between contributions received for each net asset category in accordance with donor imposed restrictions. Accordingly, net assets of the Organization and changes therein would be classified and reported as follows: 7

10 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. This represents the portion of expendable funds available to support the Organization s programs and activities. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Organization had $50,990 and $504,649 in temporarily restricted net assets for the years ending June 30, 2016 and 2015, respectively. Permanently restricted net assets - Net assets subject to donor-imposed restrictions stipulate that they be maintained permanently by the Organization. Generally, the donors of these assets permit the Organization to use all or part of the income earned on any related investments for general or specific purposes. There were no permanently restricted net assets in 2016 and Fair Value (Hierarchy) of Financial Instruments --- The Organization measures fair value of its assets and liabilities as defined by FASB ASC Topic 820, Fair Value Measurement and Disclosure. This ASC Topic defines fair value, establishes a framework for measuring fair value, establishes a three-level fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The three fair value hierarchy levels are defined as follows: Level 1 Inputs are quotes prices (unadjusted) in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. Level 2 Inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability. Level 3 Inputs are unobservable inputs for the assets and liabilities. Unobservable inputs shall be used to measure fair value to the extent that the observable inputs are not available. Unobservable inputs shall be developed based on the best information available in the circumstances, which might include the reporting entity s own data. Unless otherwise noted, the fair values of financial instruments approximate their carrying values. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 8

11 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Use of 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 those estimates. Cash and cash equivalents --- For purposes of the statement of cash flows, the Organization considers all unrestricted cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Accounts receivable --- Accounts receivable are stated at the amounts management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to expense and a credit to a valuation allowable based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. Accounts receivable as of June 30, 2016 and 2015 are from governmental agencies and therefore, no allowance for doubtful accounts has been provided. Investments --- Investments in equity and fixed income securities are measured through fair values based on market prices in the statement of financial position. Investment income or loss (including realized gains and losses on investments, interest and dividends) is included in nonoperating income in the accompanying statement of activities. Investments, in general, are exposed to various risks such as interest rate, credit, and overall market volatility. As such, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. Property and Equipment --- Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Depreciation is provided based upon the actual number of months in use during the year the costs are capitalized. The Organization s policy is to capitalize fixed assets with a purchase price of $5,000 or more and a useful life of one year or more. Expenditures for maintenance, repairs and renewals of minor items are charged to earnings as incurred. Major renewal and improvements are capitalized. The Organization uses the following estimated useful lives: Asset Class Furniture and fixtures Leasehold improvements Buildings Vehicles Equipment Years

12 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Impairment of Long-lived assets --- The Organization continually evaluates whether current events or circumstances warrant adjustments to the carrying value or estimated useful lives of fixed assets in accordance with the provisions of ASC , Impairment or Disposals of Long-Lived Assets. Revenue and support recognition --- Contributions, including unconditional promises to give, are recorded as received. All contributions are available for unrestricted use unless specifically restricted by the donor. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their net realizable value, using interest rates consistent with unsecured individual credit rates applicable to the years in which the promises are to be received. The Organization accounts for fundraising and grant revenue in the statement of activities to the extent that expenses have been incurred for the purpose specified by the grantor or customer during the period. In applying this concept, the legal and contractual requirements of each individual program are used as guidance. All amounts not expended in accordance with the grant are recorded as a liability in the financial statements as the Organization does not maintain any equity in the grant. Additionally, funds received in advance of their proper usage are accounted for as deferred revenue in the statement of financial position. Grants --- Grants in the unrestricted funds result primarily from government sources. The grants are considered to be exchange transactions and accordingly revenue from cost-reimbursement grants are recognized as costs are incurred and projected losses are provided in their entirety at the time of determination. Donated Services --- Individuals volunteer their time and perform a variety of tasks that assist the Organization, but these services do not meet the criteria for recognition under U.S. generally accepted accounting principles. Total Columns --- The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the June 30, 2015 financial statements from which the summarized information was derived. Functional Allocation of Expenses --- Expenses are charged to each program based on direct expenditures incurred. Any program expenditures not directly chargeable are allocated to programs based on units of service and support costs are allocated to programs based on methods considered by management to be reasonable. Program expenses are those related to Family and Children, Senior Services, Community Support, Psychological and Other program services. Management and general relate to administrative expenses related to those programs. Fundraising includes direct costs of special events based on methods considered by management to be reasonable. 10

13 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Advertising --- The Organization expenses production costs of advertising the first time the advertising takes place. Total advertising expenses at June 30, 2016 and 2015 amounted to $15,491 and $7,636, respectively. Income taxes --- The Organization is a not-for-profit organization described under Section 501(c)(3) of the Internal Revenue Code ( I.R.C. ) and is therefore exempt from federal income taxes under Section 501(a) of the I.R.C. The Organization is also exempt under Title 15 of the State of New Jersey Corporations and Associations Not for Profit Act. Accordingly, no provision for Federal or State income taxes has been presented in the accompanying financial statements. The Organization is exempt from filing a charitable registration in the State of New Jersey. The Organization adheres to FASB ASC Topic 740, Income Taxes, which provides guidance and clarification on accounting for uncertainty in income taxes recognized in the Organization s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, disclosure and transition. For the years ended June 30, 2016 and 2015, the Organization has no material uncertain tax positions to be accounted for in the financial statements. Annually, the Organization is required to file an informational return with the Internal Revenue Service. Management has stated that all tax returns have been filed. The Organization is no longer subject to tax examinations for United States federal income taxes before the year ended June 30, Management evaluation --- Management has evaluated subsequent events through February 20, 2017, the date on which the financial statements were available to be issued and have determined that except as detailed in Note 17, there are no material events requiring disclosure. 3. CONCENTRATIONS OF CREDIT RISK Arising from cash deposits in excess of insured limits --- The Organization maintains various cash accounts in New Jersey. During the year, cash balances in any one financial institution may exceed federally insured limits of $250,000. Management does not believe that the risk of failure of the financial institution is material. Funding dependence --- In 2016 and 2015, approximately 80% of the funding for the Organization came from government assistance. This funding is dependent upon monies from federal, state, and county social services programs and accordingly, there is no guarantee that such funding will continue. In addition, net asset balances are dependent upon approval of disbursed monies by granting agencies. 11

14 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND INVESTMENTS Investments stated at fair value on June 30, 2016 and 2015, consist of the following: Fixed Income $ 26,765 $ 25,715 Equities 137, ,882 Total $ 164,352 $ 158,597 The cost basis and estimated fair value of investments held as available for sale by the Organization at June 30, 2016, are as follows: Cost Gross unrealized holdings gains Gross unrealized holdings losses Estimated fair value Fixed Income $ 26,375 $ 546 $ 156 $ 26,765 Equities 91,536 54,568 8, ,587 Total $ 117,911 $ 55,114 $ 8,673 $ 164,352 The cost basis and estimated fair value of investments held as available for sale by the Organization at June 30, 2015, are as follows: Cost Gross unrealized holdings gains Gross unrealized holdings losses Estimated fair value Fixed Income $ 25,887 $ 902 $ 1,074 $ 25,715 Equities 97,855 68,504 33, ,882 Total $ 123,742 $ 69,406 $ 34,551 $ 158,597 The composition of investment returns included in unrestricted net assets in the statements of operations and changes in unrestricted net assets for the years ended June 30, 2016 and 2015 is as follows: Interest income $ 15,150 $ 3,331 Net realized gains (losses) on investments 20,189 26,849 Investment fees - (1,728) Change in net unrealized gains/ (losses) (4,859) (2,067) Total $ 30,480 $ 26,385 12

15 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND INVESTMENTS (CONT.) In evaluating unrealized losses for other-than-temporary impairment, management considers the severity of the unrealized loss for the individual securities. All unrealized losses were less than one year, and there were no investments that experienced declines in value that management believes are other than temporary in nature. 5. FAIR VALUE OF FINANCIAL INSTRUMENTS The asset s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs. The following table presents the Organization s financial assets which are measured and recorded at fair value on a recurring basis: June 30, 2016 Fair value Level 1 Available for sale securities Fixed Income: International $ 3,013 $ 3,013 Government 9,201 9,201 Intermediate-term bonds 14,552 14,552 Equities International 15,365 15,365 Large cap 47,080 47,080 Small-mid cap 21,885 21,885 Common stock 53,256 53,256 Total $ 164,352 $ 164,352 June 30, 2015 Fair value Level 1 Available for sale securities Fixed Income: International $ 2,721 $ 2,721 Government 9,106 9,106 Intermediate-term bonds 13,888 13,888 Equities International 16,536 16,536 Large cap 47,137 47,137 Small-mid cap 24,018 24,018 Common stock 45,191 45,191 Total $ 158,597 $ 158,597 13

16 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND UNCONDITIONAL PROMISES TO GIVE Total unconditional promises to give amounted to $0 and $120,000 at June 30, 2016 and 2015, respectively. All amounts are due are receivable in less then one year and are due from the Diocese of Paterson in relation to outstanding amounts from the Partners in Faith contributions. Management believes all amounts to be receivable and accordingly, no discount or allowance has been recognized. 7. PROPERTY, PLANT, AND EQUIPMENT A summary of the Organization s assets at year end are as follows: Land $ 78,548 $ 78,548 Buildings 791,068 1,383,529 Building improvements 525, ,765 Leasehold improvements 205, ,479 Transportation equipment 754, ,775 Equipment, furniture and fixtures 307, ,262 Total fixed assets 2,662,326 2,606,358 Less: accumulated depreciation 1,905,982 2,671,844 Total $ 756,344 $ 934,514 The total depreciation expense charged to operations for the years ended June 30, 2016 and 2015 were $124,740 and $76,865, respectively. 8. COMMITMENTS AND CONTINGENCIES Commitments --- The Organization has numerous monthly and annual lease agreements for facilities in which they operate their various programs. Contingencies --- At June 30, 2016, the Organization had a positive balance in the temporarily restricted net asset fund of $50,990 and a negative balance in the unrestricted net asset fund of ($9,491). Noncompliance with donor imposed restrictions could lead to a loss of revenue in the amount of $9, LINE OF CREDIT On October 3, 2011, the Organization established a line of credit agreement with JPMorgan Chase Bank, to borrow up to $200,000 to support cash flow. The unpaid balance accrues interest at a variable rate equal to the bank s prime rate plus 2.5%. The note is secured by interest in all of the business assets of the Organization. At June 30, 2016 the amount of the line was repaid in full. At June 30, 2015 the total line of $200,000 was drawn. There is no date of maturity on the line. Interest expense incurred related to the line amounted to $14,761 and $13,538 for the years ended June 30, 2016 and 2015, respectively. 14

17 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND LONG-TERM DEBT The Organization is in dispute with the Diocese of Paterson regarding payments applied to outstanding long-term debt. The Diocese is currently taking action to collect interest on the principal amount of the debt, where no contract or letter of agreement exists on the matter. Longterm debt consists of non-interest-bearing, long term liabilities due to the Roman Catholic Diocese of Paterson of $1,162,430 at June 30, 2016 and 2015, respectively. 11. MARKET VULNERABILITY The activities of the Organization are subject to the administrative directives, rules and regulations of federal, state, and local regulatory agencies including the U.S. Department of Housing and Urban Development, New Jersey State Department of Education, and Passaic and Sussex counties. Such administrative directives, rules and regulations are subject to an administrative change mandated by the said government agency. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 12. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: Partners in Faith $ - $ 394,983 Food Pantry - 50,000 Fix-it Program, Vehicle - 31,000 Community support services 13,152 18,666 School Back-Pack Program - 10,000 Unmet needs 37,838 - Total net assets available for use $ 50,990 $ 504,649 Net assets were released from donor restrictions by incurring expenses satisfying the purpose restrictions specified by donors as follows: School Back-Pack Program $ 10,000 $ 14,144 Partners in Faith 394, ,287 Community support services 5,514 7,934 Fix-it Program, Vehicle 31,000 Food Pantry 50,000 Friendship Corner I 10,000 Catholic Foundation 103,541 Total net assets released $ 605,038 $ 263,365 15

18 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND PENSION PLAN The Diocese of Paterson has a non-contributory defined benefit pension plan which covers all full-time lay employees. Under this plan the employer s contributions are made by the Diocese, Diocesan High Organization or other Diocesan organizations and parishes which employ covered plan members. Upon retirement at age 65, participants receive a pension plan of 1.25% of their average earnings for the highest three years in the plan, multiplied by their years of participation in the plan, enrollment in the American Association of Retired Persons Medicare Supplemental Health Insurance Program and certain specified death benefits. The policy of the Diocese is to fund accrued pension expense, including amortization of past service cost over 30 years. The Organization contributed $824,848 and $866,595 to the Diocese for its share of the lay employee s pension plan expense for the years ended June 30, 2016 and 2015, respectively. Due to the nature of the plan described above, it is not practical to determine the extent to which the assets of the plan cover the actuarially computed value of vested benefits for the specific entities included in the plan. In addition, because the plan is managed by the Diocese of Paterson, CFCS it is not subject to full disclosure requirements. 14. FRINGE BENEFITS The Organization s fringe benefit package is offered to all full-time employees who are regularly scheduled to work at least thirty (30) hours per week. These benefits include medical insurance, dental insurance, life insurance, long-term disability, unemployment, and workmen s compensation. The Organization incurred expenses related to these benefits in 2016 and 2015 of $3,005,357 and $2,960,049, respectively. 15. RELATED PARTY TRANSACTIONS The Roman Catholic Diocese of Paterson (the Diocese ): 1. The employee benefits package and casualty insurance is purchased through the Diocese. 2. As described in Note 10, the Organization has long-term debt due to the diocese. 3. The Organization reported a diocesan subsidy for 2016 and 2015 of $1,028,408 and $1,026,132 respectively. A component of the subsidy is the fair market rental value for the free use of program and administrative facilities of $208,586, reported as non-cash donations on the Statement of Activities. 16

19 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND RELATED PARTY TRANSACTIONS (CONT.) Catholic Charities Agencies in the Diocese of Paterson ( Catholic Charities ): 1. Catholic Charities agencies in the Diocese of Paterson consist of Department for Persons with Disabilities, Catholic Family and Community Services, Inc., Straight and Narrow, Inc., and Migrant Ministry. All agencies share common board members. 2. The Organization shares in donations collected for Catholic Charites agencies in the Diocese of Paterson. Catholic Family and Community Services, collects all donations for joint fundraising activities and distributes them based on donor restriction and need to the various agencies. The Organization reduces the amount of donations by an administrative charge for managing the monies. 16. GOING CONCERN There is a substantial doubt about the Organization s ability to continue as a going concern within one year after the financial statements have been issued. During the year the Organization lost a substantial grant. As a result, management evaluated personnel costs related to the grant and have reduced the workforce at the Organization. Additionally, the Private School for Students with Disabilities had a severe drop in enrollment. During the year, management evaluated the program and discontinued its operations, effectively closing the school s doors on June 30, SUBSEQUENT EVENTS Retirement plan --- Beginning July 1, 2016, the Diocese froze the pension plan described in Note 13, for new employees, but will continue to fund the plan for those enrolled. Effective July 1, 2016 employees who work for the Organization can participate in a contributory, defined contribution plan based on their employment status (full time or qualifying part time employee), eligibility status (one year as defined by the Plan), age and participation in the pension plan as detailed below. Matching contributions are discretionary and are based on relevant factors at the time of the match. Matching contributions listed below are estimates for the 2016 plan year. For all scenarios described, employees must contribute to the plan via salary deferral to receive the employer matching contribution. Employer fixed contributions and transition contributions are credited to participant accounts even if employees do not make contributions to the plan. With the exception of Scenario #6 as described below, the maximum employer matching contribution employees may receive is 3% of gross earnings. 17

20 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND SUBSEQUENT EVENTS (CONT.) Age + years in pension plan Plan Benefits Scenario #1 18+ Plan Benefits Employer Matching Contribution of 50% of the first 6% of contributions made to the Retirement Savings Plan. Scenario #2 Less than 60 Employer Fixed Contribution of 1% of employee gross earnings plus Employer Matching Contribution of 50% of the first 4% of contributions made to the Retirement Savings Plan Scenario #3 60 to 69 Employer Fixed Contribution of 1% of employee gross earnings plus Employer Transition Credit of 1% of employee gross earnings plus Employer Matching Contribution of 50% the first 4% of contributions made to the Retirement Savings Plan Scenario #4 70 to 79 Employer Fixed Contribution of 1% of employee gross earnings plus Employer Transition Credit of 1.5% of employee gross earnings plus Employer Matching Contribution of 50% of the first 4% of contributions made to the Retirement Savings Plan Scenario #5 80+ Employer Fixed Contribution of 1% of employee gross earnings plus Employer Transition Credit of 2% of employee gross earnings plus Employer Matching Contribution of 50% of the first 4% of contributions made to the Retirement Savings Plan Scenario #6 55+ and at least 15 + years in the pension plan as of June 30, 2016 In addition to the Employer Contributions shown in Scenarios #4 or #5 above, employees are eligible for an additional Grandfather Credit of 3% of their gross earnings. 18

21 INDEPENDENT AUDITORS 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 To the Board of Trustees of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson 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 Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson (a nonprofit organization), which comprise the statement of financial position as of June 30, 2016, 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 20, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson 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 Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s internal control. Accordingly, we do not express an opinion on the effectiveness of the Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. 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. 19

22 Compliance and Other Matters As part of obtaining reasonable assurance about whether Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fairfield, New Jersey February 20,

23 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE AND NEW JERSEY OMB, SINGLE AUDIT POLICY FOR RECIPIENTS OF FEDERAL GRANTS, STATE GRANTS AND STATE AID To the Board of Trustees of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson Report on Compliance for Each Major Federal Program We have audited Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s major federal and state programs for the year ended June 30, Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s major federal and state 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 federal and state statutes, regulations, and the terms and conditions of its federal and state awards applicable to its federal and state programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s major federal and state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and New Jersey OMB, Single Audit Policy for Recipients of Federal Grants, State Grants and State Aid. Those standards and the Uniform Guidance and New Jersey OMB 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 and/ or state programs occurred. An audit includes examining, on a test basis, evidence about Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal and state program. However, our audit does not provide a legal determination of Catholic Family and Community Services, Inc. Roman Catholic Diocese of Paterson s compliance. 21