KANSAS LEGAL SERVICES, INC. FINANCIAL STATEMENTS

Transcription

1 FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2011

2 FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION Year Ended December 31, 2011 TABLE OF CONTENTS Independent Auditor s Report 1-2 Financial Statements: Statement of Financial Position 3 Statement of Activities 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 Notes to Financial Statements 7-14 Supplementary Information: Schedule 1 Detail Statement of Activities and Changes in Net Assets for LSC Funds 15 Schedule 2 Detail Statement of Activities for Access to Justice Funds State Fiscal Year Schedule 3 Detail Statement of Activities for Access to Justice Funds State Fiscal Year Schedule 4 Detail Statement of Activities for Kansas Bar Association Subgrant 18 Schedule of Expenditures of Federal Awards 19 Notes to Schedule of Expenditures of Federal Awards 20 Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Audit Findings and Questioned Costs Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Page

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors Kansas Legal Services, Inc.: We have audited the accompanying statement of financial position of Kansas Legal Services, Inc. (the Organization) as of December 31, 2011, and the related statements 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. The prior year summarized comparative information has been derived from the Organization s December 31, 2010 financial statements and, in our report dated April 28, 2011, 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 Organization as of December 31, 2011, 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 April 20, 2012 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.

4 Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary schedules listed in the accompanying table of contents, including the schedule of expenditures of federal awards as required by OMB Circular A-133, are presented for purposes of additional analysis and are 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. April 20,

5 STATEMENT OF FINANCIAL POSITION December 31, 2011 With Summarized Financial Information for December 31, 2010 ASSETS Current assets: Cash and cash equivalents $ 458,825 $ 534,491 Restricted cash and cash equivalents 293, ,114 Grants and contracts receivable 722, ,552 Contributions receivable 27,500 51,409 Supplies inventory - 10,919 Prepaid expenses and other assets 56,313 41,547 Total current assets 1,559,063 1,714,032 Fixed assets, net of accumulated depreciation 96,846 98,546 Total assets $ 1,655,909 $ 1,812,578 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable $ 107,434 $ 85,024 Accrued compensated absences 323, ,467 Trust deposits 292, ,028 Deferred grants revenue 49,092 75,628 Accrued insurance claims 38,149 95,988 Total current liabilities 810, ,135 Net assets: Unrestricted net assets 845, ,443 Total liabilities and net assets $ 1,655,909 $ 1,812,578 See accompanying notes to financial statements. -3-

6 STATEMENT OF ACTIVITIES Year Ended December 31, 2011 With Summarized Financial Information for the Year Ended December 31, Temporarily Total Unrestricted Restricted Revenues and support: Grants $ 1,704,448 $ 2,632,274 $ 4,336,722 $ 4,617,991 Contracts for services 3,116,144-3,116,144 3,445,551 Bar program fees 612, , ,516 Court awards 293, ,020 41,481 Interest - 2,245 2,245 1,839 Contributions 226,011 6, , ,677 Other 40,323-40,323 43,479 Net assets released from restrictions 2,641,358 (2,641,358) - - Total revenues and support 8,633,394-8,633,394 8,852,534 Expenses: Program services: Legal services and related programs 6,793,696-6,793,696 6,777,017 Job training programs 591, , ,188 Supporting services: Management and general 1,278,432-1,278,432 1,302,696 Fundraising 16,380-16,380 18,866 Total expenses 8,679,704-8,679,704 8,701,767 Change in net assets (46,310) - (46,310) 150,767 Net assets, beginning of year 891, , ,676 Net assets, end of year $ 845,133 $ - $ 845,133 $ 891,443 See accompanying notes to financial statements.

7 STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2011 With Summarized Financial Information for the Year Ended December 31, Program Services Supporting Services Legal Services Job Management 2010 and Related Training and General Fundraising Total Total Salaries $ 4,486,686 $ 364,267 $ 744,955 $ 11,235 $ 5,607,143 $ 5,482,893 Employee benefits and payroll taxes 1,046,899 74, ,600 2,519 1,249,130 1,311,228 Rent, parking, utilities and maintenance 516,235 90,493 57,886 1, , ,995 Equipment rental and maintenance 64,534 4,404 10, ,344 89,105 Office supplies, printing and postage 159,735 5,852 27, , ,207 Telephone 83,197 7,072 28, , ,501 Travel 95,025 3,885 9, ,281 95,885 Training 45,888 31,582 8, ,356 82,427 Library upkeep 46,276 2,906 9, ,179 42,575 Insurance 38,267 1,886 3, ,892 49,258 Litigation expenses 21, ,781 19,022 Audit, consulting and contract services 19, , , ,068 Private attorney retainers 36, ,471 45,585 Kansas Bar Association subgrant 46, ,505 57,500 Depreciation 32,733 3,899 7, ,494 59,044 Other 53, , ,280 99,474 Total expenses $ 6,793,696 $ 591,196 $ 1,278,432 $ 16,380 $ 8,679,704 $ 8,701,767 See accompanying notes to financial statements. -5-

8 STATEMENT OF CASH FLOWS Year Ended December 31, 2011 With Summarized Financial Information for the Year Ended December 31, Cash flows from operating activities: Change in net assets $ (46,310) $ 150,767 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 44,494 59,044 Gain (loss) on disposal of fixed assets 675 (190) Changes in assets and liabilities: Grants, contracts and contributions receivable 34,754 37,846 Supplies inventory 10,919 6,707 Prepaid expenses and other assets (14,766) 3,536 Accounts payable 22,410 (34,610) Accrued compensated absences (215) 27,097 Trust deposits (48,179) 19,660 Deferred grants revenue (26,536) (35,165) Accrued insurance claims (57,839) 44,340 Net cash provided by (used in) operating activities (80,593) 279,032 Cash flows from investing activities: Proceeds from sale of fixed assets Purchases of fixed assets (43,619) (65,479) Net cash used in investing activities (43,469) (65,479) Net increase (decrease) in cash and cash equivalents (124,062) 213,553 Cash and cash equivalents, beginning of year 876, ,052 Cash and cash equivalents, end of year $ 752,543 $ 876,605 Cash and cash equivalents consisted of the following: Cash and cash equivalents $ 458,825 $ 534,491 Restricted cash and cash equivalents 293, ,114 $ 752,543 $ 876,605 See accompanying notes to financial statements. -6-

9 NOTES TO FINANCIAL STATEMENTS December 31, Organization and Summary of Significant Accounting Policies Organization Kansas Legal Services, Inc. (the Organization) is a non-profit corporation organized for the purpose of providing legal assistance to persons in the State of Kansas who are financially unable to afford legal assistance. In 2011, the Organization received approximately 31% of its funding through grants from the Legal Services Corporation (LSC), a non-profit corporation established by the U.S. Congress to administer a nationwide legal assistance program. Statement of Cash Flows For purposes of the statement of cash flows, cash and cash equivalents include cash on hand, cash in banks, trust deposits and cash invested in repurchase agreements, which have original maturities of three months or less. Prepaid Expenses and Other Assets Prepaid expenses and other assets consist of insurance premiums paid for coverage that benefits more than one fiscal period, salary advances to employees, and deposits on rental property. The prepaid insurance premiums are amortized over the policy period. Fixed Assets Fixed assets consist of automobiles, equipment, furniture, leasehold improvements and the law library and are carried at original acquisition cost. All capital expenditures of $ 1,000 or more are capitalized. Depreciation on fixed assets is computed using the straight-line method over the estimated useful lives of the respective assets, ranging from two to twenty years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized as income for the period. The costs of maintenance and repairs are charged to income as incurred; significant renewals and betterments are capitalized. LSC retains a reversionary interest in all equipment purchased with LSC funds and may require that equipment or the proceeds from the sale of such equipment be returned to LSC or disposed of at their discretion. -7-

10 NOTES TO FINANCIAL STATEMENTS (Continued) 1 - Organization and Summary of Significant Accounting Policies (Continued) Accrued Compensated Absences Under the terms of the Organization s personnel policies, employees are granted vacation leave in varying amounts. In the event of termination, an employee is paid for accumulated leave up to the maximum of thirty days. Trust Deposits Trust deposits and the related liability consist of cash received from the Organization s clients to cover witness and filing fees and deposition costs, etc. The trust deposits are reported as restricted cash and cash equivalents. Net Assets The Organization reports gifts of cash and other assets as restricted revenue if they are received with donor or grantor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Contributions whose use is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Organization are recorded as permanently restricted net assets. As of December 31, 2011, the Organization had no temporarily or permanently restricted net assets. Functional Expense Allocation Certain expenses have been allocated between program and supporting services based on the amount of time employees spent on each function. Income Tax Matters The Organization is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code, is exempt from federal income taxes pursuant to Section 501(a) of the Code and has not been classified as a private foundation under Section 509(a) of the Code. -8-

11 NOTES TO FINANCIAL STATEMENTS (Continued) 1 - Organization and Summary of Significant Accounting Policies (Continued) Income Tax Matters (Continued) The Organization s policy is to evaluate uncertain tax positions annually. Management has evaluated the Organization s tax positions and concluded that the Organization had taken no uncertain tax positions that require adjustment to the financial statements. Forms 990 and 990T filed by the Organization are subject to examination by the Internal Revenue Service up to three years from the extended due date of each return. Forms 990 and 990T filed by the Organization are no longer subject to examination for the fiscal years ended December 31, 2007 and prior. Revenue Recognition A significant portion of the Organization s revenue consists of conditional grants and contracts received for specific activities to be performed by the Organization. Grant and contracts revenues are recorded when the conditions on which they depend are substantially met. Grant and contract funds received before the period in which they are earned are reflected as deferred revenue. LSC grant revenues are reflected as temporarily restricted net assets when received and are released from restriction as the money is spent on LSC grant restricted purposes. Concentration The Organization receives a substantial amount of its support from grants and contracts. If a significant reduction in the level of these revenues or delay in the timing of receipts were to occur, the Organization would curtail its programs and activities accordingly. Use of 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. -9-

12 NOTES TO FINANCIAL STATEMENTS (Continued) 1 - Organization and Summary of Significant Accounting Policies (Continued) Comparative Information 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 accounting principles generally accepted in the United States of America. Accordingly, such financial information should be read in conjunction with the Organization s financial statements for the year ended December 31, 2010, from which the summarized information was derived. 2 - Fixed Assets Fixed assets consisted of the following at December 31: Automobiles $ 41,736 $ 50,605 Equipment 610, ,582 Furniture 26,144 26,678 Leasehold improvements 138, ,591 Law library 32,084 32, , ,540 Less accumulated depreciation 752, ,994 $ 96,846 $ 98, Line of Credit The Organization has a $ 250,000 line of credit that is secured by the Organization s accounts receivable, equipment, grants, awards, and contracts. The line of credit has a variable interest rate which is calculated at the Prime Rate plus 0.5%. The Prime Rate was 3.25% at December 31, There was no balance owed on the line of credit at December 31, 2011 and

13 NOTES TO FINANCIAL STATEMENTS (Continued) 4 - Deferred Grants Revenue Deferred grants revenue consisted of the following by source at December 31: Kansas Human Rights Commission $ - $ 9,584 Sedgwick County Detention Advocacy 18,584 47,462 Manhattan Medical Legal Clinic 29,608 17,782 Other $ 49,092 $ 75, Temporarily Restricted Net Assets Temporarily restricted net asset activity relates to LSC grant revenue, LSC interest earned and contributions received for donor-designated purposes. Temporarily restricted net assets of $ 2,641,358 were released from restrictions during 2011 for LSC program expenses. -11-

14 NOTES TO FINANCIAL STATEMENTS (Continued) 6 - Leases The Organization leases certain office facilities and office equipment under operating lease agreements. Under the terms of these leases, the facilities remain the property of the lessor and, accordingly, are not recorded as an asset or liability. Rental expense incurred under these leases was $ 614,389 and $ 629,447 during the years ended December 31, 2011 and 2010, respectively. Future minimum rental payments are as follows: 2012 $ 505, , , , ,525 Thereafter 250,931 $ 1,707, Defined Contribution Plan Retirement benefits are provided for all employees through a defined contribution plan (the Plan). In a defined contribution plan, benefits depend solely on amounts contributed to the participants accounts and earnings on investments of those contributions. All full-time permanent employees are eligible to participate upon completing six months of continuous service. The Organization contributes an amount equal to 2% of the employee s salary. Additionally, employees may contribute any percentage of their salary up to limitations imposed by the Internal Revenue Code. The contributions to the Plan and earnings on investments of all contributions are 100% vested. Contributions by the Organization to the Plan were $ 100,287 and $ 98,712 during the years ended December 31, 2011 and 2010, respectively. Employee contributions to the Plan were $ 201,226 and $ 219,122 during the years ended December 31, 2011 and 2010, respectively. -12-

15 NOTES TO FINANCIAL STATEMENTS (Continued) 8 - Subrecipients The Organization provided annual financial assistance, in the form of pass-through federal awards, to the Kansas Bar Association (KBA) and Legal Aid of Western Missouri (LAWMO). KBA was awarded $ 43,700 and $ 46,000 during each of the grant periods ended June 30, 2012 and 2011, respectively. LAWMO was awarded $ 13,585 and $ 12,674 during the years ended December 31, 2011 and 2010, respectively. These federal awards are included in grants in the accompanying statement of activities and the related expenses are included in Kansas Bar Association subgrant and audit, consulting and contract services, respectively, in the accompanying statement of functional expenses. 9 - Risk Management The Organization is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Additionally, the Organization is self-insured for employee medical coverage with stop-loss coverage for claims over $ 40,000 per person, or 125% of total claims expected to be paid as computed by the third-party administrator of the plan (approximately $ 992,119 for the year ended December 31, 2011). The third-party administrator provides information regarding expected claims incurred but not reported based upon historical data. This information is used to determine the accrued insurance claims liability on the statement of financial position. The Organization currently reports all of its risk management activities pro rata to each of its programs. Claims expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. The Organization has commercial insurance coverage up to $ 500,000 for each worker s compensation claim, $ 1,000,000 for each general liability claim, and $ 500,000 for each automobile claim. Additionally, the Organization has a $ 2,000,000 commercial umbrella policy which exceeds the primary coverage for general liability, workers compensation, and automobile claims, and $ 1,000,000 for fidelity bond coverage of the Organization s employees. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. Any claims other than medical or those covered by insurance are provided for on an occurrence basis. -13-

16 NOTES TO FINANCIAL STATEMENTS (Continued) 10 - Subsequent Events Subsequent events have been evaluated by management of the Organization through the date of the independent auditor s report, which is the date the financial statements were available to be issued. -14-

17 SUPPLEMENTARY INFORMATION

18 Schedule 1 KANSAS LEGAL SERVICES, INC. DETAIL STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR LSC FUNDS GRANT NO Year Ended December 31, 2011 With Summarized Financial Information for the Year Ended December 31, Basic Field 2010 Grant PAI* Migrant Total Total Revenues and support: Grants $ 2,291,761 $ 327,394 $ 13,119 $ 2,632,274 $ 2,745,779 Contributions 6, ,839 23,583 Interest 2, ,245 1,839 Total revenues and support 2,300, ,394 13,119 2,641,358 2,771,201 Expenses: Salaries 2,660, ,103-2,830,082 2,842,763 Employee benefits and payroll taxes 596,629 37, , ,437 Rent, parking, utilities and maintenance 267,500 16, , ,483 Equipment rental and maintenance 36,111 2,295-38,406 44,032 Office supplies, printing and postage 91,955 7,470-99, ,532 Telephone 55,725 3,618-59,343 54,110 Travel 20,058 2,876-22,934 25,509 Training 8,645 4,332-12,977 23,273 Library upkeep 24,952 2,150-27,102 19,138 Insurance 20,911 1,328-22,239 25,575 Litigation expenses ,314 Audit, consulting and contract services 51,785 4,214 13,119 69,118 72,668 Private attorney retainers - 32,002-32,002 45,585 Kansas Bar Association subgrant - 46,505-46,505 57,500 Other 43,027 2,674-45,701 60,220 Total expenses 3,878, ,502 13,119 4,225,206 4,376,139 Revenues and support under expenses (1,577,740) (6,108) - (1,583,848) (1,604,938) LSC eligible clients served with other funds 1,577,740 6,108-1,583,848 1,604,938 Change in net assets Net assets, beginning of year Net assets, end of year $ - $ - $ - $ - $ - * Private Attorney Involvement (PAI) represents 12.7% of LSC Basic Field grant. See independent auditor s report. -15-

19 DETAIL STATEMENT OF ACTIVITIES FOR ACCESS TO JUSTICE FUNDS - STATE FISCAL YEAR 2011 Year Ended December 31, 2011 July 1, 2010 to December 31, 2010 January 1, 2011 to June 30, 2011 Case and Management Case and Management Contract Noncase and Noncase and Period Activity General Total Activity General Total Total Revenues and support: Access to Justice contract $ 363,755 $ 58,951 $ 422,706 $ 335,669 $ 58,139 $ 393,808 $ 816, Expenses: Salaries 240,288 39, , ,343 38, , ,300 Employee benefits and payroll taxes 61,692 7,188 68,880 56,205 9,735 65, ,820 Rent, parking, utilities and maintenance 27,312 3,591 30,903 24,861 4,306 29,167 60,070 Equipment rental and maintenance 4, ,707 3, ,889 8,596 Office supplies, printing and postage 7,425 1,619 9,044 8,123 1,407 9,530 18,574 Telephone 3,074 1,646 4,720 4, ,774 9,494 Travel 3, ,376 5, ,925 10,301 Training 1, ,778 2, ,869 5,647 Library upkeep 1, ,931 2, ,899 4,830 Insurance 2, ,265 1, ,282 4,547 Litigation expenses 1,138-1,138 1, ,406 2,544 Audit, consulting and contract services 2,286 1,086 3, ,826 Capital outlay 1, , ,947 Other 5,192 1,082 6,274 4, ,744 12,018 Total expenses 363,755 58, , ,669 58, , ,514 Revenues and support over (under) expenses $ - $ - $ - $ - $ - $ - $ - See independent auditor's report. Schedule 2

20 Schedule 3 KANSAS LEGAL SERVICES, INC. DETAIL STATEMENT OF ACTIVITIES FOR ACCESS TO JUSTICE FUNDS - STATE FISCAL YEAR 2012 Year Ended December 31, 2011 July 1, 2011 to December 31, 2011 Case and Management Noncase and Activity General Total Revenues and support: Access to Justice contract $ 328,342 $ 56,850 $ 385,192 Expenses: Salaries 215,532 37, ,847 Employee benefits and payroll taxes 54,977 9,517 64,494 Rent, parking, utilities and maintenance 24,319 4,213 28,532 Equipment rental and maintenance 3, ,805 Office supplies, printing and postage 7,947 1,376 9,323 Telephone 3, ,670 Travel 4, ,796 Training 2, ,806 Library upkeep 2, ,836 Insurance 1, ,233 Litigation expenses 1, ,375 Audit, consulting and contract services Capital outlay Other 4, ,618 Total expenses 328,342 56, ,192 Revenues and support over (under) expenses $ - $ - $ - See independent auditor s report. -17-

21 Schedule 4 KANSAS LEGAL SERVICES, INC. DETAIL STATEMENT OF ACTIVITIES FOR KANSAS BAR ASSOCIATION SUBGRANT Year Ended December 31, 2011 With Comparative Totals for the Year Ended December 31, Total Total Revenues and support: Grants $ 46,505 $ 57,500 Expenses: Salaries 31,177 38,690 Employee benefits and payroll taxes 4,456 8,333 Rent, parking, utilities and maintenance 2,180 2,322 Equipment rental and maintenance 1,000 1,539 Office supplies, printing and postage 450 1,430 Telephone Travel 1,589 1,674 Library upkeep - 50 Insurance 2, Audit, consulting and contract services Other 1,945 1,476 Total expenses 46,505 57,500 Revenues and support over (under) expenses $ - $ - See independent auditor s report. -18-

22 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended December 31, 2011 Federal Grantor/ Federal Amounts Pass-Through Grantor/ CFDA Grant Passed on to Program Title/Project Title Number Number Expenditures Subrecipients Legal Services Corporation: Legal Services Corporation Grant $ 2,632,274 $ 59,624 U.S. Department of Housing and Urban Development: Direct Program - Supportive Housing Program KS0024B7P030802, KS0024B7P ,641 - U.S. Department of Justice: Direct Programs - Legal Assistance for Victims Grant WL-AX-0057, 2011-WL-AX ,819 - Passed through the Kansas Office of the Governor: Victims of Crime Act VOCA-40, 12-VOCA-42 71,020 - Passed through YWCA of Topeka: Rural Domestic Violence WR-AX ,089 - Total U.S. Department of Justice 360,928 - U.S. Department of Health and Human Services: Passed through the Kansas Department of Aging: Passed through various area agencies: Title III-B Various 250,680 - Total federal expenditures $ 3,434,523 $ 59,624 See accompanying notes to schedule of expenditures of federal awards. -19-

23 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31, General The accompanying schedule of expenditures of federal awards presents the activity of all federal programs of the Organization. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental agencies, are included on the schedule. 2 - Basis of Accounting The accompanying schedule of expenditures of federal awards is presented using the accrual basis of accounting. 3 - Relationship to Financial Statements Federal awards received are reported in the Organization s financial statements as grants on the statement of activities. 4 - Difference in Presentation of Fixed Assets The accompanying schedule of expenditures of federal awards presents fixed asset acquisitions as expenditures under the definition of OMB Circular A-133, Audits of State, Local Governments, and Non-Profit Organizations. The financial statements present fixed asset acquisitions as assets in accordance with accounting principles generally accepted in the United States of America. -20-

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2011 Section I. Summary of Auditor s Results: Financial Statements Type of auditor s report issued Unqualified Internal control over financial reporting: Material weaknesses identified Significant deficiencies identified that are not considered to be material weaknesses Noncompliance material to financial statements noted None None reported None Federal Awards Type of auditor s report issued on compliance for major programs Unqualified Internal control over major programs: Material weaknesses identified Significant deficiencies identified that are not considered to be material weaknesses Findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133 None None reported None Identification of major program: CFDA Number Name of Federal Program Legal Services Corporation Grant Dollar threshold used to distinguish between type A and type B programs $ 300,000 Auditee qualified as a low-risk auditee No -21-

25 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section II. Financial Statement Findings Section III. Findings and Questioned Costs for Federal Awards None None -22-

26 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2011 Finding No Federal Award Legal Assistance for Victims Grant (CFDA No ), U.S. Department of Justice, Grant Award No WL-AX-0057 Compliance Requirements Cash Management and Financial Reporting Condition Cash management testing revealed that KLS drew down extra funding in the amount of $ 27,957 due to an incorrect formula in the supporting salary and fringe expense allocation spreadsheet. The original intent of the draw was to cover October expenses which had already been paid. Due to the error, the extra funding became an advance from the Department of Justice and was not spent within a reasonable timeframe as required. In addition, KLS included the incorrect expense amount in the Financial Status Report for the quarter ending December 31, Criteria According to 2 CFR , payment methods shall minimize the time elapsing between the transfer of funds from the United States Treasury and the issuance or redemption of checks, warrants, or payments by other means by the recipient. In addition, information included in financial reports submitted to the federal grantor should be accurately reported for the given time period. Cause While there was a separate review of the supporting documentation, there was no separate control test of the formulas contained in the supporting documentation used to track grant expenses which could have identified errors prior to drawing down funds. Effect The inadvertent advance was not spent in a timely manner as required, and the federal grantor agency did not receive accurate financial information regarding the expenses that had actually occurred during the specified time period. Questioned Costs None. Recommendation We recommend KLS revise the review process to include a control test of the formulas contained in the supporting documentation used to calculate the draw to verify the accuracy of the formulas prior to requesting federal funding. -23-

27 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Finding No (Continued) Management s Response/Corrective Action Plan (Unaudited) KLS will implement three steps as part of a corrective action plan to address the cash management and financial reporting compliance requirements. (1) Assign the responsibility for preparing the salary and fringe expense allocation spreadsheet to a staff accountant, which will allow the CFO to only focus on elements of the spreadsheet review; (2) Develop a True False control test to evaluate cell contents with formulas and identify potential errors; (3) Develop a range criteria comparison based on previously submitted financial reports to assess the reasonableness of the proposed allocation amounts which are to be requested. The corrective action steps will be implemented no later than the start of the CY 2011 third quarter. Follow-up This finding is resolved. -24-

28 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Kansas Legal Services, Inc.: We have audited the financial statements of Kansas Legal Services, Inc. (the Organization) as of and for the year ended December 31, 2011, and have issued our report thereon dated April 20, 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 Management of the Organization is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Organization'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 Organization'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. 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 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.

29 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization'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 solely for the information and use of the Board of Directors, management, others within the entity, 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. April 20,

30 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Directors Kansas Legal Services, Inc.: Compliance We have audited Kansas Legal Services, Inc. s (the Organization) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement and the Legal Service Corporation Office of Inspector General Compliance Supplement for LSC recipients, December 1998 that could have a direct and material effect on the Organization s major federal program for the year ended December 31, The Organization's major federal program is 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 its major federal program is the responsibility of the Organization's management. Our responsibility is to express an opinion on the Organization'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, OMB Circular A-133 and Legal Services Corporation require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Organization'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 Organization's compliance with those requirements. In our opinion, the Organization complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2011.

31 Internal Control Over Compliance Management of the Organization 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 the Organization's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, 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 and use of the Board of Directors, management, others within the entity, 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. April 20,