KIPP BAY AREA SCHOOLS. Independent Auditor s Report and Consolidated Financial Statements For the Year Ended June 30, 2017

Transcription

1 Independent Auditor s Report and Consolidated Financial Statements For the Year Ended June 30, 2017 REGIONAL SUPPORT OFFICE (RSO) KBARE Charter Schools: KIPP BAYVIEW ACADEMY (Bayview) KIPP BRIDGE ACADEMY (Bridge) KIPP EXCELENCIA COMMUNITY PREPARATORY (Excelencia) KIPP HEARTWOOD ACADEMY (Heartwood) KIPP HERITAGE ACADEMY (Heritage) KIPP KING COLLEGIATE (King) KIPP PRIZE PREPARATORY ACADEMY (Prize) KIPP SAN FRANCISCO BAY ACADEMY (SF Bay) KIPP SAN FRANCISCO COLLEGE PREPARATORY (SF College Prep) KIPP SAN JOSE COLLEGIATE (SJC) KIPP SUMMIT ACADEMY (Summit) KIPP VALIANT COMMUNITY PREP (Valiant)

2 TABLE OF CONTENTS June 30, 2017 Independent Auditor's Report...1 Consolidated Statement of Financial Position...4 Consolidated Statement of Activities...5 Consolidated Statement of Cash Flows...6 Notes to the Consolidated Financial Statements...7 Local Education Agency Organization Structure...15 Schedule of Instructional Time...17 Schedule of Average Daily Attendance...19 Reconciliation of Annual Financial Report with Audited Financial Statements...20 Schedule of Expenditures of Federal Awards...21 Supplemental Statement of Financial Position By Charter School...22 Supplemental Statement of Activities By Charter School...23 Supplemental Statement of Cash Flows By Charter School...24 Notes to the Supplementary Information...25 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...26 Independent Auditor's Report on Compliance for Each Major Program; and Report on Internal Control Over Compliance Required by the Uniform Guidance...28 Independent Auditor's Report on State Compliance...30 Schedule of Findings and Questioned Costs...32 Status of Prior Year Findings and Questioned Costs...34

3 INDEPENDENT AUDITOR S REPORT Board of Directors KIPP Bay Area Schools Oakland, CA Report on the Financial Statements We have audited the accompanying consolidated financial statements of KIPP Bay Area Schools, a California nonprofit public benefit corporation, which comprise the statement of consolidated financial position as of June 30, 2017, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the consolidated 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 of 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. -1-

4 Board of Directors KIPP Bay Area Schools 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 on page one present fairly, in all material respects, the consolidated financial position of KIPP Bay Area Schools as of June 30, 2017, 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. Other Matters Report on Summarized Comparative Information KIPP Bay Area Schools June 30, 2016 financial statements were audited by Vicenti, Lloyd, and Stutzman, LLP, whose practice became part of CliftonLarsonAllen LLP as of June 1, 2017 and whose report dated November 10, 2016, expressed an unmodified audit opinion on those 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. Supplementary 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 (CFR) 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. The accompanying supplementary schedules are presented for purposes of additional analysis and are not a required part of the basic 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. -2-

5 Board of Directors KIPP Bay Area Schools Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated November 10, 2017 on our consideration of KIPP Bay Area Schools 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 solely 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 effectiveness of KIPP Bay Area s 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 KIPP Bay Area Schools internal control over financial reporting and compliance. CliftonLarsonAllen LLP Glendora, CA November 10,

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2017 With Comparative Totals for June 30, 2016 ASSETS Total Total KBAS KBARE Eliminations CURRENT ASSETS: Cash and cash equivalents $ 68,095,022 $ 414,342 $ - $ 68,509,364 $ 57,473,908 Accounts receivable - Federal and State 7,353, ,353,155 5,190,296 Accounts receivable - other 1,130, ,130,917 1,556,289 Inter-company receivable 6,008,480 - (6,008,480) - - Contributions receivable, net 1,552, ,552,030 10,278,522 Deposits and prepaid expenses 811,684 29, , ,423 Total current assets 84,951, ,632 (6,008,480) 79,386,440 74,740,438 NONCURRENT ASSETS: Contributions receivable, net 25,289, ,289,336 16,721,860 PROPERTY, PLANT AND EQUIPMENT: Building and improvements 10,584, ,584,742 10,206,557 Leasehold improvements 1,344, ,344,823 1,275,325 Furniture and equipment 522, , ,984 Work in progress 761,006 7,633,272-8,394, ,676 Less: Accumulated depreciation (1,999,749) - - (1,999,749) (1,519,501) Total property, plant and equipment 11,213,139 7,633,272-18,846,411 10,800,041 Total assets $ 121,453,763 $ 8,076,904 $ (6,008,480) $ 123,522,187 $ 102,262,339 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 4,086,083 $ 2,073,967 $ - $ 6,160,050 $ 3,193,225 Accrued liabilities 925, , ,681 Inter-company payable - 6,008,480 (6,008,480) - - Deferred revenue 117, ,669 79,781 Notes payable, current portion 120, , ,037 Total current liabilities 5,249,307 8,082,447 (6,008,480) 7,323,274 4,002,724 LONG-TERM LIABILITIES: Notes payable, net of current portion 4,761, ,761,403 4,877,057 Total long-term liabilities 4,761, ,761,403 4,877,057 Total liabilities 10,010,710 8,082,447 (6,008,480) 12,084,677 8,879,781 NET ASSETS: Unrestricted 83,786,987 (5,543) - 83,781,444 66,249,261 Temporarily restricted 27,656, ,656,066 27,133,297 Total net assets 111,443,053 (5,543) - 111,437,510 93,382,558 Total liabilities and net assets $ 121,453,763 $ 8,076,904 $ (6,008,480) $ 123,522,187 $ 102,262,339 The accompanying notes are an integral part of these financial statements. -4-

7 CONSOLIDATED STATEMENT OF ACTIVITIES With Comparative Totals for the Year Ended June 30, 2016 KBAS Temporarily Total Total Total Unrestricted Restricted Total KBARE REVENUES State revenue: State aid $ 27,081,068 $ - $ 27,081,068 $ - $ 27,081,068 $ 22,179,683 Other state revenue 3,737,011-3,737,011-3,737,011 4,399,019 Federal revenue 2,446,223-2,446,223-2,446,223 2,038,411 Local revenue: In-lieu property tax revenue 17,449,031-17,449,031-17,449,031 12,390,248 Contribution revenue 11,517,090 11,921,731 23,438,821-23,438,821 23,874,225 Other revenue 671, , , ,921 Net assets released from restriction 11,398,962 (11,398,962) Total revenues 74,301, ,769 74,823,974-74,823,974 65,351,507 EXPENSES Program services: Educational programs 45,011,864-45,011,864 5,543 45,017,407 33,774,929 Support services: General and administrative 10,843,516-10,843,516-10,843,516 9,192,877 Fundraising 908, , , ,072 Total expenses 56,763,479-56,763,479 5,543 56,769,022 43,741,878 Change in net assets 17,537, ,769 18,060,495 (5,543) 18,054,952 21,609,629 Beginning net assets 66,249,261 27,133,297 93,382,558-93,382,558 71,772,929 Ending net assets $ 83,786,987 $ 27,656,066 $ 111,443,053 $ (5,543) $ 111,437,510 $ 93,382,558 The accompanying notes are an integral part of these financial statements. -5-

8 CONSOLIDATED STATEMENT OF CASH FLOWS With Comparative Totals for the Year Ended June 30, 2016 Total Total CASH FLOWS from OPERATING ACTIVITIES: KBAS KBARE Eliminations Change in Net Assets $ 18,060,495 $ (5,543) $ - $ 18,054,952 $ 21,609,629 Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 480, , ,977 (Increase) and decrease in operating assets: Accounts receivable - Federal and State (2,162,859) - - (2,162,859) (635,012) Accounts receivable - other 731, ,363 (831,680) Inter-company receivable (6,008,480) - 6,008, Contributions receivable 159, ,016 (2,071,616) Deposits and prepaid expenses (571,451) (28,100) - (599,551) 100,230 Increase and (decrease) in operating liabilities: Accounts payable 957,733 1,703,101-2,660,834 1,517,562 Accrued liabilities 313, ,477 43,122 Inter-company payable - 6,008,480 (6,008,480) - - Deferred revenue 37, ,888 8,522 Net cash flows from operating activities 11,997,430 7,677,938-19,675,368 20,202,734 CASH FLOWS from INVESTING ACTIVITIES: Purchase of property, plant, and equipment (1,263,022) (7,263,596) - (8,526,618) (1,009,475) Net cash flows from investing activities (1,263,022) (7,263,596) - (8,526,618) (1,009,475) CASH FLOWS from FINANCING ACTIVITIES: Proceeds from debt ,000,000 Repayment of debt (113,294) - - (113,294) (111,072) Net cash flows from financing activities (113,294) - - (113,294) 888,928 Net increase in cash and cash equivalents 10,621, ,342-11,035,456 20,082,187 Cash and cash equivalents at the beginning of the year 57,473, ,473,908 37,391,721 Cash and cash equivalents at the end of the year $ 68,095,022 $ 414,342 $ - $ 68,509,364 $ 57,473,908 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ 76,294 $ - $ - $ 76,294 $ 78,515 The accompanying notes are an integral part of these financial statements. -6-

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities KIPP Bay Area Schools is part of the nationally acclaimed KIPP network of schools. KIPP schools nationwide successfully help students from educationally underserved communities develop the knowledge, skills, and character needed to succeed in college and the competitive world beyond. KIPP Bay Area Schools operate high-performing, college-preparatory schools in the San Francisco Bay Area. These campuses serve students with the goal of preparing them for success in college and in life. KIPP Bayview Academy KIPP Bridge Academy KIPP Excelencia Community Preparatory KIPP Heartwood Academy KIPP Heritage Academy KIPP King Collegiate KIPP Prize Preparatory Academy KIPP San Francisco Bay Academy KIPP San Francisco College Preparatory KIPP San Jose Collegiate KIPP Summit Academy KIPP Valiant Community Prep KBARE is a non-profit corporation which was formed to finance, develop, lease, and maintain certain school facilities for the exclusive support of KIPP Bay Area Schools. Principles of Consolidation The consolidating financial statements include the accounts of KIPP Bay Area Schools and KBARE, a California non-profit public benefit corporation formed exclusively to support KBAS, and its single member limited liability company subsidiaries, Seven Trees, LLC and 1700 Market School LLC. All material intercompany transactions have been eliminated. Basis of Accounting These financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables and liabilities. Cash and Cash Equivalents KIPP Bay Area Schools defines its cash and cash equivalents to include cash on hand, demand deposits, and liquid investments with original maturities of three months or less. Receivables Accounts receivable primarily represent amounts due from federal and state governments as of June 30, Management believes that all receivables are fully collectible; therefore no provisions for uncollectible accounts were recorded. -7-

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property, Plant, and Equipment Property, plant, and equipment purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on a straight-line basis over the various estimated useful lives of the assets which range from three to seven years for equipment, five to fifteen years for leasehold improvements, and forty years for new facility construction. Income Taxes KIPP Bay Area Schools and KBARE are non-profit public-benefit corporations exempt from the payment of income taxes under Internal Revenue Code Section 501(c)(3) and California Revenue and Taxation Code Section 23701d. Accordingly, no provision has been made for income taxes. Management has determined that all income tax positions are more likely than not of being sustained upon potential audit or examination; therefore, no disclosures of uncertain income tax positions are required. KIPP Bay Area Schools and KBARE file informational returns in the U.S. federal jurisdiction, and the state of California. The statute of limitations for federal and California state purposes is generally three and four years, respectively. Seven Trees LLC and 1700 Market School LLC are considered disregarded and therefore exempt from the payment of income taxes. Additionally, the LLCs have been granted exemption from the California state LLC fee under California Revenue and Taxation Code. Revenue Recognition Amounts received from the California Department of Education are recognized as revenue by KIPP Bay Area Schools based on the average daily attendance (ADA) of students. Revenue that is restricted is recorded as an increase in unrestricted net assets if the restriction expires in the reporting period in which the revenue is recognized. All other restricted revenues are reported as increases in temporarily restricted net assets. Functional Allocation of Expenses Costs of providing KIPP Bay Area Schools programs and other activities have been allocated on a functional basis in the statement of activities. During the year, such costs are accumulated into separate groupings as either direct or indirect. Indirect or shared costs are allocated among program and support services by a method that best measures the relative degree of benefit. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -8-

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Comparative Totals 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 generally accepted accounting principles. Accordingly, such information should be read in conjunction with KIPP Bay Area Schools' financial statements for the year ended June 30, 2016, from which the summarized information was derived. Net Assets Net assets of the organization and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that will be met either by actions of KIPP Bay Area Schools and/or the passage of time. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by KIPP Bay Area Schools. Generally, the donors of these assets permit the use of all or part of the income earned on related investments for general or specific purposes. KIPP Bay Area Schools had no permanently restricted net assets as of June 30, All contributions are considered to be for unrestricted purposes unless specifically restricted by the donor. All donor-restricted contributions made in the year ended June 30, 2017, whose restrictions have been met in this period, are included in the statement of activities as unrestricted revenue. Contributed Assets and Services Contributions of donated non-cash assets are recorded at fair value in the period received. Contributions of donated services that create or enhance non-financial 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 fair values in the period received. Property Taxes Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on September 1 and are payable in two installments on or before November 1 and February 1. Unsecured property taxes are not a lien against real property and are payable in one installment on or before August 31. The County bills and collects property taxes for all taxing agencies within the County and distributes these collections to the various agencies. The sponsor agency of the School is required by law to provide in-lieu property tax payments on a monthly basis, from August through July. The amount paid per month is based upon an allocation per student, with a specific percentage to be paid each month. Subsequent Events KIPP Bay Area Schools has evaluated subsequent events through November 10, 2017, the date these financial statements were available to be issued. -9-

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: CONCENTRATION OF CREDIT RISK KIPP Bay Area Schools maintains its cash in bank deposit accounts at two financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. KIPP Bay Area Schools has a need to maintain cash balances with a single financial institution in excess of the $250,000 FDIC insured limit. KIPP Bay Area Schools has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. NOTE 3: CONTRIBUTIONS RECEIVABLE Unconditional promises to give expected to be received in one year or less are reported as contributions receivable at net realizable value, which approximates fair value. Unconditional promises to give expected to be received after one year are reported as contributions receivable at fair value using estimated future cash flows discounted by rates ranging from 5.0% to 11.0%. Unconditional promises to give are expected to be realized in the following periods as follows: In one year or less $ 1,552,280 Between one and five years 25,157,616 Greater than five years 2,010,000 Total gross contributions receivable 28,719,896 Less: discount on pledges receivable (945,934) Less: allowance for uncollectible contributions receivable (810,346) Net contributions receivable $ 26,963,616 NOTE 4: PROPERTY, PLANT AND EQUIPMENT A summary of changes in property, plant and equipment is as follows: Beginning Ending Balance Additions Deletions Balance Building and improvements $ 10,206,557 $ 378,185 $ - $ 10,584,742 Leasehold improvements 1,275,325 69,498-1,344,823 Furniture and equipment 467,984 54, ,317 Work in progress 369,676 8,024,602-8,394,278 Total 12,319,542 8,526,618-20,846,160 Less: accumulated depreciation (1,519,501) (480,248) - (1,999,749) Property, plant and equipment, net $ 10,800,041 $ 8,046,370 $ - $ 18,846,

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: NOTES PAYABLE Through Proposition 1D, KIPP King Collegiate has a note payable of $4,141,422 maturing in 2043 and bearing interest at a rate of 2%. During the year ended June 30, 2017, principal payments of $113,294 were made. The total balance as of June 30, 2017 was $3,881,800. KIPP Bay Area Schools entered into a note agreement with Charter School Growth Fund for $1,000,000 on February 23, The note bears interest at 1% and matures on December 31, The balance as of June 30, 2017 was $1,000,000. Estimated future maturities of the notes are as follows: For the Year Ending June 30, 2018 $ 120, ,806 1,125, , ,322 Thereafter 3,255,246 Total $ 4,881,800 NOTE 6: TEMPORARILY RESTRICTED NET ASSETS For the year ended June 30, 2017, temporarily restricted net assets were received and released as follows: June 30, 2016 Additions Releases June 30, 2017 Regional Support Office: Restricted due to time $ 27,000,382 $ 10,466,290 $ (10,503,056) $ 26,963,616 Restricted giving for a specific school 132,915 1,455,441 (895,906) 692,450 Total $ 27,133,297 $ 11,921,731 $ (11,398,962) $ 27,656,

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: EMPLOYEE RETIREMENT 401(k) Plan KIPP Bay Area Schools has a 401(k) defined contribution plan for those employees who meet the eligibility criteria set forth in the plan. KIPP Bay Area Schools matches employee contributions based upon criteria set forth in the plan up to 4% of compensation. Contributions to the plan for the year ended June 30, 2017 totaled $852,138. State Teachers Retirement System (STRS) Qualified employees of KIPP Bay Area Schools (KIPP Summit Academy and the Regional Support Office) are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers Retirement System (STRS). The risks of participating in this multiemployer defined benefit pension plan are different from single-employer plans because: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (b) the required member, employer, and state contribution rates are set by the California Legislature and detailed in Teachers Retirement Law, and (c) if KIPP Bay Area Schools chooses to stop participating in the multiemployer plan, it may be required to pay a withdrawal liability to the plan. KIPP Bay Area Schools has no plans to withdraw from this multiemployer plan. Plan Description The School contributes to the State Teachers Retirement System (STRS), a cost-sharing multi-employer public employee retirement system defined benefit pension plan administered by STRS. Plan information for STRS is not publicly available. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. According to the most recently available Comprehensive Annual Financial Report and Actuarial Valuation Report for the year ended June 30, 2016, total STRS plan net assets are $178 billion, the total actuarial present value of accumulated plan benefits is $267 billion, contributions from all employers totaled $3.2 billion, and the plan is 63.7% funded. The School did not contribute more than 5% of the total contributions to the plan. Copies of the STRS annual financial reports may be obtained from STRS, 7667 Folsom Boulevard, Sacramento, CA and Funding Policy Active plan members hired before January 1, 2013 are required to contribute 10.25% of their salary and those hired after are required to contribute 9.205% of their salary. The School is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers Retirement Board. Under the 2014 funding plan, employer contributions on compensation creditable to the program will increase every year for the next seven -12-

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: EMPLOYEE RETIREMENT years, up to 19.10% in The required employer contribution rate for year ended June 30, 2017 was 12.58% of annual payroll. The contribution requirements of the plan members are established and may be amended by State statute. KIPP Bay Area Schools (KIPP Summit Academy and the Regional Support Office) contributions to STRS for each of the last three fiscal years are as follows: Year Ended Required Percent June 30, Contribution Contributed 2015 $ 184, % 2016 $ 233, % 2017 $ 252, % NOTE 8: OPERATING LEASES KIPP Bay Area Schools leases its facilities under several lease agreements with expirations ranging from May 31, 2018 to June 30, Lease expense under these agreements for the year ended June 30, 2017 was $987,082. One of KIPP Bay Area Schools leases contains provisions for the annual payment to be discounted based on the School making improvements to the facilities. For the fiscal years ending June 30, 2017 and 2018, the School can be discounted $250,690 annually provided it makes improvements of at least that amount to the facilities. Subsequent to June 30, 2018, if the School builds a new building on the leased land, the landlord will credit the School up to $9.9 million for the actual construction costs to be applied to the annual land lease amount. Rent discounted for the year ended June 30, 2017 was $250,690. Future minimum lease payments are as follows: For the Year Ending June 30, 2018 $ 1,315, , , , ,690 Thereafter 3,829,660 Total $ 6,875,

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9: CONTINGENCIES KIPP Bay Area Schools has a commercial card line of credit with a financial institution for up to $600,000. This line of credit is associated with KIPP Bay Area Schools credit cards and is settled monthly. The line of credit expires each July and was renewed in July KIPP Bay Area Schools has a revolving line of credit with a financial institution for $3,000,000. It carries a variable interest rate of prime plus 1.75% with a 5% minimum rate expires each July. It was renewed in July This line of credit is collateralized with KIPP Bay Area Schools accounts, inventory, and equipment. KIPP Bay Area Schools has no amounts outstanding under this line of credit as of June 30, KIPP Bay Area Schools has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate disallowances under terms of the grants, it is believed that any required reimbursement would not be material. Litigation KIPP Bay Area Schools is subject to asserted and unasserted claims encountered in the normal course of business. The School s management and legal counsel assess such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Organization or unasserted claims that may result in such proceedings, the Organization's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. These claims are covered by insurance, and no range of loss is estimated. In the opinion of management, disposition of these matters will not have a material effect on the School s financial condition or results of operations. NOTE 10: SUBSEQUENT EVENTS KIPP Bay Area Schools obtained a loan subsequent to June 30, 2017 for $2 million and signed a contract in October 2017 for construction at KIPP Bridge for $8.2 million. KIPP Bay Area Schools obtained a loan subsequent to June 30, 2017 for $3 million to be used for construction at KIPP Heritage. -14-

17 SUPPLEMENTARY INFORMATION

18 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE KIPP Bay Area Schools is a tax exempt non-profit, public-benefit corporation that was established in KIPP Bay Area Schools manages eleven charter schools. The charter school sponsors and charter school numbers are as follows: KIPP Bayview Academy (Bayview) Charter Number: 0549 Sponsor: San Francisco Unified School District, established July 2003 KIPP Bridge Academy (Bridge) Charter Number: 0938 Sponsor: Oakland Unified School District, established June 2007 KIPP Excelencia Community Preparatory (Excelencia) Charter Number: 1735 Sponsor: Redwood City School District, established July 2015 KIPP Heartwood Academy (Heartwood) Charter Number: 0628 Sponsor: Alum Rock Union Elementary School District, established June 2004 KIPP King Collegiate (King) Charter Number: 0880 Sponsor: San Lorenzo Unified School District, established June 2007 KIPP San Francisco Bay Academy (SF Bay) Charter Number: 0551 Sponsor: San Francisco Unified School District, established February 2003 KIPP San Francisco College Preparatory (SF College Prep) Charter Number: 1502 Sponsor: San Francisco Unified School District, established July 2013 KIPP San Jose Collegiate (San Jose) Charter Number: 0976 Sponsor: East Side Union High School District, established June 2008 KIPP Summit Academy (Summit) Charter Number: 0524 Sponsor: San Lorenzo Unified School District, established June 2003 KIPP Heritage Academy (Heritage) Charter Number: 1608 Sponsor: Franklin-McKinley Elementary School District, established August 2014 KIPP Prize Preparatory Academy (Prize) Charter Number: 1609 Sponsor: Alum Rock Union Elementary School District, established August 2014 KIPP Valiant Community Prep (Valiant) Charter Number: 1868 Sponsor: Ravenswood City Elementary, established August

19 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE Board of Directors Name Office Current Term Expires Chuck Daggs Board Chair June 2019 (eligible through 2019) Jay Allen Member June 2018 (eligible through 2021) John Philip Coghlan Member June 2017 (eligible through 2017) Michael Cohen Member June 2020 (eligbile through 2026) Lauren Dutton Member June 2017 (eligible through 2017) Andrea Evans Member June 2019 (eligible through 2022) Kevin Eyres Member June 2017 (eligible through 2023) Doris Fisher Member Indefinite Laura Fisher Member June 2020 (eligbile through 2026) Cheryl Frank Member June 2017 (eligible through 2023) Abe Friedman Member June 2018 (eligible through 2021) Andrea Higuera-Ballard Member June 2019 (eligible through 2022) Ken Hirsch Member June 2018 (eligible through 2021) Tom Holland Member June 2018 (eligible through 2021) Tonia Karr Member June 2019 (eligible through 2022) Satya Patel Member June 2017 (eligible through 2017) Jenny Shimizu Risk Member June 2018 (eligible through 2021) Emily Rummo Member June 2019 (eligible through 2025) Lisa Sobrato Sonsini Member June 2019 (eligible through 2022) Grace Voorhis Member June 2018 (eligible through 2021) Ted Williams Member June 2019 (eligible through 2022) Chris Young Member June 2018 (eligible through 2024) Name Beth Sutkus Thompson Kendra Ferguson April Chou Marie Huxley Prabhu Reddy Kati Vastola Administration Title Chief Executive Offier Chief People Officer Chief Growth & Operating Officer Chief of Schools Chief Finnacial Officer Executive Associate and Board Secretary -16-

20 SCHEDULE OF INSTRUCTIONAL TIME Instructional Minutes Instructional Requirement Actual Days Status Transitional Kindergarten Bridge 36,000 63, In compliance Excelencia 36,000 63, In compliance Kindergarten Bridge 36,000 66, In compliance Excelencia 36,000 73, In compliance Grade 1 Bridge 50,400 64, In compliance Excelencia 50,400 74, In compliance Grade 2 Bridge 50,400 64, In compliance Excelencia 50,400 65, In compliance Grade 3 Bridge 50,400 71, In compliance Excelencia 50,400 82, In compliance Grade 4 Bridge 50,400 71, In compliance Excelencia 54,000 74, In compliance Grade 5 Bayview 54,000 70, In compliance Bridge 54,000 67, In compliance Excelencia 54,000 70, In compliance Heartwood 54,000 70, In compliance Heritage 54,000 68, In compliance Prize 54,000 66, In compliance SF Bay 54,000 66, In compliance Summit 54,000 68, In compliance Grade 6 Bayview 54,000 70, In compliance Bridge 54,000 67, In compliance Excelencia 54,000 67, In compliance Heartwood 54,000 70, In compliance Heritage 54,000 69, In compliance Prize 54,000 66, In compliance SF Bay 54,000 72, In compliance Summit 54,000 68, In compliance See auditor s report and the notes to the supplementary information. -17-

21 SCHEDULE OF INSTRUCTIONAL TIME Instructional Minutes Instructional Requirement Actual Days Status Grade 7 Bayview 54,000 70, In compliance Bridge 54,000 68, In compliance Heartwood 54,000 70, In compliance Heritage 54,000 69, In compliance Prize 54,000 68, In compliance SF Bay 54,000 71, In compliance Summit 54,000 69, In compliance Grade 8 Bayview 54,000 70, In compliance Bridge 54,000 68, In compliance Heartwood 54,000 70, In compliance SF Bay 54,000 72, In compliance Summit 54,000 70, In compliance Grade 9 King 64,800 70, In compliance SF College Prep 64,800 71, In compliance San Jose 64,800 72, In compliance Grade 10 King 64,800 71, In compliance SF College Prep 64,800 71, In compliance San Jose 64,800 72, In compliance Grade 11 King 64,800 71, In compliance SF College Prep 64,800 71, In compliance San Jose 64,800 72, In compliance Grade 12 King 64,800 71, In compliance SF College Prep 64,800 71, In compliance San Jose 64,800 72, In compliance See auditor s report and the notes to the supplementary information. -18-

22 SCHEDULE OF AVERAGE DAILY ATTENDANCE Second Period Report Annual Report Classroom Classroom Charter School Grade Levels Based Total Based Total Bayview Grades 4 through Grades 7 through ADA Totals Bridge Grades TK through Grades 4 through Grades 7 through ADA Totals Excelencia Grades TK/K through Grades 4 through ADA Totals Heartwood Grades 4 through Grades 7 through ADA Totals Heritage Grades 4 through Grades 7 through ADA Totals King Grades 9 through ADA Totals Prize Grades 4 through Grades 7 through ADA Totals SF Bay Grades 4 through Grades 7 through ADA Totals SF College Prep Grades 9 through ADA Totals San Jose Grades 9 through ADA Totals Summit Grades 4 through Grades 7 through ADA Totals ADA Totals 4, , , , See independent auditor s report and the notes to the supplementary information. -19-

23 RECONCILIATION OF ANNUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS SF College Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay Prep San Jose Summit Annual Financial and Budget Report Fund Balances (Net Assets) $ 1,545,971 $ 2,517,733 $ 885,939 $ 4,921,777 $ 1,575,066 $ 6,840,196 $ 1,599,624 $ 1,398,534 $ 768,950 $ 2,818,356 $ 2,697,379 Adjustments and Reclassifications: Increasing (Decreasing) the Fund Balance (Net Assets): Cash and cash equivalents 176, ,811 (2,216) 250, , , , , , ,140 Accounts receivable - Federal and State 120,656 (407,596) 1,005, , , ,841 (493,973) 435, , , ,493 Accounts receivable - other , , ,683-26, ,670 8, ,624 Intracompany receivables - 273, , Prepaid Assets 57,867 71,110 68,084 66,803 65,294 63,637 72,156 35,573 66,895 71,779 63,902 Capital Assets (8,277) 375,357 4, ,438 6,743 (71,227) 299,112 5,344 16,349 13,845 (506) Accounts Payable (118,021) (267,899) (366,595) (261,095) (253,967) (416,453) (429,809) (251,547) (388,719) 46,094 (31,839) Accrued Liabilities (28,223) (56,646) (31,031) (34,651) (22,136) (32,152) (22,510) (28,080) (29,326) (42,976) (29,152) Intracompany payables (254,584) - (570,184) (1,107,141) (423,767) (880,204) - (491,691) (157,686) (705,391) (626,112) Deferred revenue - (250) (484) (19,390) - (1,333) (21,208) - (2,109) (8,956) (54,953) Notes payable (4,743) Net Adjustments and Reclassifications (54,049) 613, ,354 (444,818) (17,772) (214,067) 42,130 (33,905) 200, , ,597 Audited Financial Statement Fund Balances (Net Assets) $ 1,491,922 $ 3,131,190 $ 1,161,293 $ 4,476,959 $ 1,557,294 $ 6,626,129 $ 1,641,754 $ 1,364,629 $ 969,734 $ 2,988,159 $ 2,884,976 See independent auditor s report and the notes to the supplementary information. -20-

24 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal CFDA Number Pass-Through Entity Identifying Number RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay Federal Grantor/Pass-Through Grantor/Program or Cluster Title SF College Prep San Jose Summit Total Expenditures U.S. Department of Education: Pass-Through California Department of Education: Title I, Part A, Basic Grants $ - $ 99,261 $ 177,659 $ 183,608 $ 143,477 $ 91,636 $ 144,510 $ 116,486 $ 122,884 $ 106,121 $ 149,950 $ 117,251 $ 1,452,843 Title II - Improving Teacher Quality ,165 2,230 2,110 1,749 1,204 1,971 1,339 1,544 1,309 1,907 1,569 18,097 Title III - Limited English Proficiency ,622 9,557 22,635 9,356 9,155 3,420 11,066 10,362 3,454 3,823 9,859 96,309 State Charter School Facilities Incentive Grant D , ,979-65,583-51, ,886 Advanced Placement Test Fee Program B N/A , ,350-28,798 Special Education: IDEA Basic Local Assistance Entitlement, Part B, Section , ,330 Special Education Mental Health A N/A 105, ,960 Total Pass-Through California Department of Education: 587, , , , , , , , , , , ,151 2,371,223 Pass-Through KIPP Foundation: Supporting Effective Educator Development D N/A 75, ,000 Total U.S. Department of Education 662, , , , , , , , , , , ,151 2,446,223 Total Expenditures of Federal Awards $ 662,290 $ 104,048 $ 223,298 $ 208,353 $ 154,582 $ 101,995 $ 165,349 $ 165,870 $ 134,790 $ 176,467 $ 169,030 $ 180,151 $ 2,446,223 See independent auditor s report and the notes to the supplementary information. -21-

25 SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION BY CHARTER SCHOOL June 30, 2017 ASSETS RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay SF College Prep San Jose Summit Valiant Eliminations Total CURRENT ASSETS: Cash and cash equivalents $ 47,074,872 $ 1,417,906 $ 1,816,111 $ 463,983 $ 4,826,009 $ 1,562,491 $ 1,614,664 $ 659,063 $ 1,676,794 $ 883,355 $ 3,440,868 $ 2,658,906 $ - $ - $ 68,095,022 Accounts receivable - Federal and State 432, , ,999 1,425, , ,607 1,040, , , , , , ,353,155 Accounts receivable - other 147, , , ,683-26, ,670 8, , ,506-1,130,917 Contributions receivable, net 1,552, ,552,030 Intracompany receivables 10,686, , , (5,331,700) 6,008,480 Deposits and prepaid expenses 70,192 57,867 71,110 68,084 66,803 65,294 63,637 72,156 35,573 66,895 71,779 63,902 38, ,684 Total current assets 59,963,537 1,862,674 3,072,790 2,124,975 5,443,143 2,248,392 2,744,950 1,665,015 2,156,286 1,424,665 3,976,738 3,397, ,898 (5,331,700) 84,951,288 NONCURRENT ASSETS: Contributions receivable, net 25,289, ,289,336 PROPERTY, PLANT AND EQUIPMENT: Building and improvements 2,500 32, , ,196, , , ,584,742 Leasehold improvements 175,187 2,371 16, ,177-10,551 8, , ,154 5, , ,344,823 Furniture and equipment 39,132 35,859 45,027 6,918 31,330 3, ,324 86,726 22,536 21, ,126 16, ,317 Work in progress , ,783 7,757 8, ,662 2,956 16,944-2, ,006 Less: Accumulated depreciation (193,864) (40,579) (33,998) (2,306) (139,197) (2,029) (1,225,590) (76,196) (52,079) (47,828) (45,260) (140,823) - - (1,999,749) Total property, plant and equipment 22,955 30, ,195 4, ,093 8,772 9,093, ,266 79, ,909 73, , ,213,139 Total assets $ 85,275,828 $ 1,892,750 $ 3,455,985 $ 2,129,587 $ 5,899,236 $ 2,257,164 $ 11,838,071 $ 2,115,281 $ 2,235,710 $ 1,547,574 $ 4,049,924 $ 3,886,455 $ 201,898 $ (5,331,700) $ 121,453,763 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 596,935 $ 118,021 $ 267,899 $ 366,595 $ 261,095 $ 253,967 $ 416,453 $ 429,809 $ 351,310 $ 388,719 $ 304,442 $ 291,262 $ 39,576 $ - $ 4,086,083 Accrued liabilities 562,762 28,223 56,646 31,031 34,651 22,136 32,152 22,510 28,080 29,326 42,976 29,152 5, ,158 Intracompany payables - 254, ,184 1,107, , , , , , , ,940 (5,331,700) - Deferred revenue ,390-1,333 21,208-2,109 8,956 54,953 8, ,669 Notes payable, current portion , ,397 Total current liabilities 1,159, , , ,294 1,422, ,870 1,450, , , ,840 1,061,765 1,001, ,015 (5,331,700) 5,249,307 LONG-TERM LIABILITIES: Notes payable, net of current portion 1,000, ,761, ,761,403 Total long-term liabilities 1,000, ,761, ,761,403 Total liabilities 2,159, , , ,294 1,422, ,870 5,211, , , ,840 1,061,765 1,001, ,015 (5,331,700) 10,010,710 NET ASSETS: Unrestricted 55,460,065 1,491,922 3,131,190 1,161,293 4,476,959 1,557,294 6,626,129 1,641,754 1,364, ,734 2,988,159 2,884,976 32,883-83,786,987 Temporarily restricted 27,656, ,656,066 Total net assets 83,116,131 1,491,922 3,131,190 1,161,293 4,476,959 1,557,294 6,626,129 1,641,754 1,364, ,734 2,988,159 2,884,976 32, ,443,053 Total liabilities and net assets $ 85,275,828 $ 1,892,750 $ 3,455,985 $ 2,129,587 $ 5,899,236 $ 2,257,164 $ 11,838,071 $ 2,115,281 $ 2,235,710 $ 1,547,574 $ 4,049,924 $ 3,886,455 $ 201,898 $ (5,331,700) $ 121,453,763 See independent auditor s report and the notes to the supplementary information. -22-

26 SUPPLEMENTAL STATEMENT OF ACTIVITIES BY CHARTER SCHOOL UNRESTRICTED NET ASSETS RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay REVENUES SF College Prep San Jose Summit Valiant Eliminations Total State revenue: State aid $ 2,565,758 $ 471,056 $ 3,562,586 $ 2,292,480 $ 2,440,207 $ 1,847,597 $ 4,625,497 $ 1,854,636 $ 651,962 $ 1,336,161 $ 2,703,496 $ 2,729,632 $ - $ - $ 27,081,068 Other state revenue 65, , , , , , , , , , , , ,737,011 Federal revenue 662, , , , , , , , , , , , ,446,223 Local revenue: In-lieu property tax revenue - 1,743,665 1,251,712 2,099,023 1,238,750 1,057,741 1,154, ,041 2,370,048 2,490,426 2,306, , ,449,031 Contribution revenue 8,431,077 96,512 1,408, ,564 37,514 18,219 35, ,982 18, ,286 92,617 18, ,235-11,517,090 Other revenue 5,615,416 3,424 6,098 25,185 47,833 32,254 74,220 53,236 4,021 20,187 51,492 93,946 - (5,355,492) 671,820 Net assets released from restriction 11,398, ,398,962 Total revenues 28,739,381 2,948,607 6,740,508 5,043,282 4,252,962 3,284,370 6,412,948 3,615,241 3,686,464 4,866,029 5,617,229 4,187, ,235 (5,355,492) 74,301,205 EXPENSES Program services: Educational programs 8,334,187 2,434,775 4,090,827 3,654,209 3,050,073 2,214,400 5,188,996 2,297,110 3,014,376 3,791,622 3,715,776 3,051, ,078-45,011,864 Support services: General and administrative 6,756, ,530 1,148, , , ,336 1,176, , , ,403 1,012, ,524 54,879 (5,355,492) 10,843,516 Fundraising 832,139 5,200 9,224 7,355 6,417 4,342 10,444 4,539 6,395 6,870 7,519 7, ,099 Total expenses 15,922,612 3,022,505 5,248,980 4,605,928 3,994,814 2,847,078 6,375,957 3,000,774 3,730,529 4,573,895 4,735,328 3,831, ,352 (5,355,492) 56,763,479 Change in unrestricted net assets 12,816,769 (73,898) 1,491, , , ,292 36, ,467 (44,065) 292, , ,222 32,883-17,537,726 TEMPORARILY RESTRICTED NET ASSETS Local revenue: Contribution revenue 11,921, ,921,731 Net assets released from restriction (11,398,962) (11,398,962) Change in temporarily restricted net assets 522, ,769 Change in net assets 13,339,538 (73,898) 1,491, , , ,292 36, ,467 (44,065) 292, , ,222 32,883-18,060,495 Beginning net assets 69,776,593 1,565,820 1,639, ,939 4,218,811 1,120,002 6,589,138 1,027,287 1,408, ,600 2,106,258 2,528, ,382,558 Ending net assets $ 83,116,131 $ 1,491,922 $ 3,131,190 $ 1,161,293 $ 4,476,959 $ 1,557,294 $ 6,626,129 $ 1,641,754 $ 1,364,629 $ 969,734 $ 2,988,159 $ 2,884,976 $ 32,883 $ - $ 111,443,053 See independent auditor s report and the notes to the supplementary information. -23-

27 SUPPLEMENTAL STATEMENT OF CASH FLOWS BY CHARTER SCHOOL RSO Bayview Bridge Excelencia Heartwood Heritage King Prize SF Bay SF College Prep San Jose Summit Valiant Eliminations Total CASH FLOWS from OPERATING ACTIVITIES: Change in net assets $ 13,339,538 $ (73,898) $ 1,491,528 $ 437,354 $ 258,148 $ 437,292 $ 36,991 $ 614,467 $ (44,065) $ 292,134 $ 881,901 $ 356,222 $ 32,883 $ - $ 18,060,495 Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 32,500 14,849 25,481 2,306 31,827 1, ,971 39,654 25,417 27,352 25,300 19, ,248 (Increase) and decrease in operating assets: Accounts receivable - Federal and State 312, ,553 (267,989) (1,202,432) (132,254) (456,768) (96,677) (341,911) 158,702 (60,226) (206,055) (94,368) - - (2,162,859) Accounts receivable - other 935,142 15,074 (225,424) 56,740 (127,892) 193,887 (10,714) 24,943 (1,285) 12,083 13,546 8,769 (163,506) - 731,363 Contributions receivable 159, ,016 Intracompany receivable (3,391,579) - (273,378) (258,444) (2,085,079) (6,008,480) Deposits and prepaid expenses 6,429 (43,694) (45,092) (61,710) (60,028) (51,098) (54,115) (65,239) (17,778) (53,885) (52,434) (34,415) (38,392) - (571,451) Increase and (decrease) in operating liabilities: Accounts payable 139,642 (86,768) 81, ,186 (44,745) 160,866 70, ,052 (43,162) (691) 59,404 45,753 39, ,733 Accrued liabilities 12,397 24,099 50,413 25,538 28,522 18,983 23,579 18,335 19,271 24,962 33,753 28,112 5, ,477 Intracompany payable - (364,432) (806,426) 567,132 56,899 (451,490) (236,675) - (168,524) (23,607) (511,993) (260,903) 114,940 2,085,079 - Deferred revenue (3,708) 15,678-1,189 6,486-1, ,292 8,986-37,888 Net cash flows from operating activities 11,545,651 (290,217) 30, ,406 26,155 (147,313) (30,883) 283,343 (71,424) 219, ,410 75, ,997,430 CASH FLOWS from INVESTING ACTIVITIES: Purchase of property, plant, and equipment - - (392,970) (6,918) (293,376) (7,758) (163,744) (302,224) (28,265) (35,183) (30,458) (2,126) - - (1,263,022) Net cash flows from investing activities - - (392,970) (6,918) (293,376) (7,758) (163,744) (302,224) (28,265) (35,183) (30,458) (2,126) - - (1,263,022) CASH FLOWS from FINANCING ACTIVITIES: Repayments of debt (113,294) (113,294) Net cash flows from financing activities (113,294) (113,294) Net increase (decrease) in cash and cash equivalents 11,545,651 (290,217) (362,555) 105,488 (267,221) (155,071) (307,921) (18,881) (99,689) 184, ,952 72, ,621,114 Cash and cash equivalents at the beginning of the year 35,529,221 1,708,123 2,178, ,495 5,093,230 1,717,562 1,922, ,944 1,776, ,689 3,226,916 2,585, ,473,908 Cash and cash equivalents at the end of the year $ 47,074,872 $ 1,417,906 $ 1,816,111 $ 463,983 $ 4,826,009 $ 1,562,491 $ 1,614,664 $ 659,063 $ 1,676,794 $ 883,355 $ 3,440,868 $ 2,658,906 $ - $ - $ 68,095,022 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ - $ - $ - $ - $ - $ - $ 76,294 $ - $ - $ - $ - $ - $ - $ - $ 76,294 See independent auditor s report and the notes to the supplementary information. -24-

28 NOTES TO THE SUPPLEMENTARY INFORMATION NOTE 1: PURPOSE OF SCHEDULES Schedule of Instructional Time This schedule presents information on the amount of instructional time offered by each charter school and whether it complied with the provisions of the Education Code. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes at each charter school. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to charter schools. This schedule provides information regarding the attendance of students at various grade levels. Reconciliation of Annual Financial Report with Audited Financial Statements This schedule provides the information necessary to reconcile the net assets of the charter schools as reported on the Annual Financial Report form to the audited financial statements. Schedule of Expenditures of Federal Awards The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the School under programs of the federal governmental for the year ended June 30, This Schedule is presented on the accrual basis of accounting and in accordance with the requirements of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of operations of the School, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the School. Indirect Cost Rate KIPP Bay Area Schools has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. Supplemental Financial Statements By Charter School These statements report the financial position, activities and cash flows for each of KIPP Bay Area s charter schools as is required to be reported for the various sponsoring agencies. -25-

29 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 Board of Directors KIPP Bay Area Schools Oakland, CA 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 KIPP Bay Area Schools, a nonprofit California public benefit corporation, which comprise the statement of financial position as of June 30, 2017, and the related statements of activities, and cash flows for the year then ended, the related notes to the financial statements, and have issued our report thereon dated November 10, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered KIPP Bay Area Schools 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 the KIPP Bay Area Schools internal control. Accordingly, we do not express an opinion on the effectiveness of KIPP Bay Area Schools 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 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. -26-

30 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 Compliance and Other Matters As part of obtaining reasonable assurance about whether KIPP Bay Area Schools 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 non-compliance 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 entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering KIPP Bay Area Schools internal control and compliance. Accordingly, this communication is not suitable for any other purpose. CliftonLarsonAllen LLP Glendora, CA November 10,

31 Board of Directors KIPP Bay Area Schools Oakland, CA INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Report on Compliance for Each Major Federal Program We have audited the compliance of KIPP Bay Area Schools (the School) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, The School s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and terms and conditions of federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the School s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the School s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the School's compliance. Opinion on Each Major Federal Program In our opinion, the School complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,

32 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Report on Internal Control Over Compliance Management of the School is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the School s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance, for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the School s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance such that there is a reasonable possibility, that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. CliftonLarsonAllen LLP Glendora, CA November 10,

33 Board of Directors KIPP Bay Area Schools Oakland, CA INDEPENDENT AUDITOR S REPORT ON STATE COMPLIANCE We have audited KIPP Bay Area Schools s (the School) compliance with the types of compliance requirements described in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, published by the Education Audit Appeals Panel for the year ended June 30, The School s State compliance requirements are identified in the table below. Management s Responsibility Management is responsible for the compliance with the State laws and regulations as identified below. Auditor s Responsibility Our responsibility is to express an opinion on the School s compliance based on our audit of the types of compliance requirements referred to below. 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 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, published by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the specific areas listed below has occurred. An audit includes examining, on a test basis, evidence about the School s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on state compliance. Our audit does not provide a legal determination of the School s compliance. Compliance Requirements Tested In connection with the audit referred to above, we selected and tested transactions and records to determine the School s compliance with the laws and regulations applicable to the following items: Description School Districts, County Offices of Education, and Charter Schools: Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program Proper Expenditure of Education Protection Account Funds Procedures Performed Yes Yes Yes Yes -30-