ACE ACADEMY. Financial Report with Supplemental Information and Single Audit Report June 30, 2015

Transcription

1 ACE ACADEMY Financial Report with Supplemental Information and Single Audit Report June 30, 2015

2 Independent Auditor's Report 1-3 Management's Discussion and Analysis 4-10 Basic Financial Statements District-wide Financial Statements: Statement of Net Position 11 Statement of Activities 12 Fund Financial Statements: Governmental Funds: Balance Sheet 13 Reconciliation of the Governmental Funds Balance to the Statement of Net Position 14 Statement of Revenues, Expenditures, and Changes in Fund Balances 15 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 16 Notes to Financial Statements Required Supplemental Information Budgetary Comparison Schedule - General Fund 29 Budgetary Comparison Schedule - Special Revenue Fund 30 Federal Awards Supplemental Information ACE ACADEMY CONTENTS Single Audit Report Section A

3 Independent Auditor s Report To the Board of Directors ACE Academy Report on Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining information of ACE Academy, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Academy s basic financial statements as listed in the table of contents. 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 opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Members: A.I.C.P.A. and M.I.C.P.A.

4 To the Board of Directors ACE Academy Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of ACE Academy as of June 30, 2015, and the respective changes in financial position for the year then ended in accordance with accounting principles accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the budgetary comparison information, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements is required by the Government Auditing Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquires, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise ACE Academy s basic financial statements. The nonmajor funds combining statement of revenues, expenditures, and changes in fund balances special revenue funds is presented for purposes of additional analysis and is not a required part of the basic financial statements. The nonmajor funds combining statement of revenues, expenditures, and changes in fund balances, statement of revenue and expenditures budget and actual are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the nonmajor funds combining statement of revenues, expenditures, and changes in fund balances, statement of revenue and expenditures budget and actual are fairly stated in all material respects in relation to the basic financial statements as a whole. 2

5 To the Board of Directors ACE Academy Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2015, on our consideration of ACE Academy 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 or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering ACE Academy s internal control over financial reporting and compliance. October 25,

6 ACE ACADEMY MANAGEMENT S DISCUSSION AND ANALYSIS YEAR-ENDING JUNE 30, 2015 This section of the ACE Academy s (the Academy ) annual financial report presents management s discussion and analysis of the public school academy s financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the Academy s financial statements, which immediately follow this section. Financial Highlights The Academy s net position at year end was $630,557. Blended enrollment used for state aid purposes was student FTEs. The Academy ended the operational year with a fund balance in the general fund of $438,851 compared to a budgeted figure of $468,213 and a prior year fund balance of $875,985. The decrease in fund balance and net position when compared to the prior year was primarily due to the loss of Child Care Fund (CCF) revenue when this local program ceased to be funded during the leadership changeover of Wayne County. Otherwise, the Academy as a whole continued to maintain financial stability and strength. Overview of the Financial Statements This annual report consists of three parts management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the Academy. The first two statements are Academy-wide financial statements that provide both shortterm and long-term information about the Academy s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the Academy, reporting the Academy s operations in more detail than the Academy-wide statements. The governmental funds statements tell how basic services like regular education were financed in the short-term as well as what remains for future spending. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the Academy s budget for the year. Figure A-1 shows how the various parts of the annual report are arranged and related to one another. 4

7 Figure A-1 Organization of the ACE Academy s Annual Financial Report Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Academy-wide Financial Statements Fund Financial Statements Notes to Financial Statements Summary Detail Figure A-2 summarizes the major features of the Academy s financial statements, including the portion of the Academy s activities they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis highlights the structure and contents of each of the statements. Figure A-2 Major Features of the Academy-wide and Fund Financial Statements Scope Required financial statements Accounting basis and measurement focus Type of asset/liability information Type of inflow/outflow information Academy-wide Statements Entire Academy (except fiduciary funds) Statement of net position Statement of activities Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, short-term and long-term All revenues and expenses during year, regardless of when cash is received or paid Fund Financial Statements Governmental Funds All activities of the Academy that are not fiduciary Balance sheet Statement of revenues, expenditures and changes in fund balances Modified accrual accounting and current financial resources focus Generally assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets or long-term liabilities included Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and the related liability is due and payable 5

8 Academy-wide Statements The Academy-wide statements report information about the Academy as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the Academy s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two Academy-wide statements report the Academy s net position and how it has changed. Net position the difference between the Academy s assets and liabilities are one way to measure the Academy s financial health or position. Over time, increases or decreases in the Academy s net position is an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the Academy, you need to consider additional nonfinancial factors such as changes in the Academy s enrollment, the condition of school buildings and other facilities, and the Academy s ability to be competitive with other public school academies and area school districts. Fund Financial Statements The fund financial statements provide more detailed information about the Academy s funds, focusing on its more significant or major funds not the Academy as a whole. Funds are accounting devices the Academy uses to keep track of specific sources of funding and spending on particular programs: Governmental activities The Academy s basic services are included in the general fund, such as regular and special education and administration. State foundation aid finances most of these activities. The Academy has two kinds of funds: Governmental fund All of the Academy s services are included in the governmental fund, which generally focuses on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Academy s programs. Because this information does not encompass the additional long-term focus of the Academy-wide statements, we provide additional information with the governmental funds statement that explains the relationship (or differences) between them. Special revenue fund The Academy has one special revenue fund which is for after school programs. This fund accounts for all revenues and expenditures related to expenses associated with the after school program because ACE Academy serves as the fiscal agent for four other local academies participating as consortium members on this grant. 6

9 Financial Analysis of the Academy as a Whole The Academy s combined net assets were $630,557 on June 30, Figure A.3: Academy s Net Position Current Assets $ 596,023 $ 1,235,912 Capital Assets (net of accumulate depreciation) 191, ,054 Total Assets 787,729 1,452,966 Current Liablities 157, ,927 Net Postion: Invested in Capital Assets 191, ,054 Unrestricted 438, ,985 Total Net Postion $ 630,557 $ 1,093,039 Academy Governmental Activities Governmental activities resulted in a negative change of the Academy s net position of $462,482 due primarily to the loss of local county funding during a 9-month period when the program funding was temporarily frozen at the county level. Figure A.4: Governmental Activities and Change in Net Position Revenues Program Revenues Operating Grants and Contributions $ 965,716 $ 1,818,200 General Revenues State Aid - forumla grants 1,164,712 1,123,369 Other Revenue (local) 207,221 1,119,715 Total Revenues 2,337,649 4,061,284 Expenses Instruction 1,761,720 2,367,937 Support Services 984,832 1,432,699 Community Services 5,043 14,852 Depreciation 48,156 53,887 Prior Year Adjustment Total Expenses 2,800,130 3,869,375 Change in Net Position $ (462,482) $ 191,909 7

10 However, the Academy s still maintained stable financial performance as is reflected in its governmental funds, despite experiencing a loss of projected revenue of approximately $800,000. As the Academy completed the year, its governmental funds reported a fund balance of $$438,851, representing 26% of total revenues earned for the same period, and compared to a budgeted fund balance of $468,213. The Academy s stable financial position is the product of many factors. The primary reasons are management s effectiveness at securing additional local and supplemental revenues and carefully managing expenses and resources, especially when supplemental revenues fall short. Financial Analysis of the Academy s Funds The total revenue for all funds was $2,328,979, of which $675,000 were special federal revenues to operate a 5-site consortium afterschool program. In considering the Academy s General Fund, which excludes special funds (Fund 23), total operational revenue from all sources for the Academy s programs was $1,653,979. State sources of all types restricted and unrestricted totaling $1,164,712, accounted for 70% of this total. Total federal revenue of $282,046 accounted for 17% and local revenue of $207,221 accounted for 13%. Figure A.5: Operational Revenues Analysis General Fund Programs 2015 % 2014 % Operational Revenue - General Fund Local Revenues $ 207,221 13% $ 1,119,715 41% State Revenues 1,164,712 70% 1,123,369 42% Federal Revenues 282,046 17% 468,200 17% Total Revenues $ 1,653, % $ 2,711, % The total cost of regular instructional services was $1,305,180. The total cost for regular supporting services was $1,154,533. The total cost for regular community services was $14,099. A.6: Operational Expenditures Analysis General Fund Programs 2015 % 2014 % Expenditures - General Fund Instructional Services $ 1,221,006 57% $ 1,305,180 53% Support Services 859,066 41% 1,089,321 43% Community Services 4,293 1% 14,099 1% Facilities and Acquisitions 15,038 1% 65,211 3% Total Expenditures $ 2,099, % $ 2,473, % 8

11 General Fund Budgetary Highlights Over the course of the year, the Academy revised the annual operating budget twice. From when the original budget was adopted, changes were made in the second and fourth quarters to account for shifts in student enrollment numbers and changes in assumptions (e.g. federal revenue allocations, staffing, special education, pupil services, and instructional expenditures) While the Academy s final budget for the general fund anticipated revenues to be $407,722 less than estimated expenses, the actual results for the year showed revenues less than expenses by $437,133. The Academy and its administration earned $7,562 in additional state revenues for the fiscal year by once again implementing Best Practices recognized by the State of Michigan. An additional $2,400 was also earned for participating in a state-wide voluntary technology infrastructure grant. Despite that overall state revenues have remained relatively flat for the past eight years, through effective and efficient use of financial resources, the Academy has been able to end the year with a positive and healthy fund balance of $438,851, which is 26% of total revenues, well above the state of Michigan s new early warning level of 5%. Capital Assets and Debt Administration Capital Assets By the end of the fiscal year ending June 30, 2015, the Academy had invested $467,053 in total capital assets consisting of computer equipment, office equipment and facility renovation costs, net of accumulated depreciation of $275,347. Total depreciation expense for the period was $48,156. Additional information regarding the Academy s capital assets can be found in Note 4 to the financial statements. Figure A.7: Academy s Capital Assets Accumulated Accumulated Net Book Value Net Book Value Costs Depreciation June 30, 2015 June 30, 2014 Furniture, Fixtures & Equipment $ 74,592 $ 50,846 $ 23,746 $ 33,948 Computer Equipment 295, ,259 79, ,057 Construction & Rennovation 96,998 8,242 $ 88,756 77,049 Total Capital Assets $ 467,053 $ 275,347 $ 191,706 $ 217,054 9

12 Facilities Lease Obligation ACE Academy paid $1 for facilities lease obligations during the school year associated with its main campus programs operating at Spectrum Juvenile Justice Services and $36,889 for its lease obligations to Woodward Place, LLC for the Academy s community-based, extension program location. Long-term Debt At the year end, the Academy had no outstanding long-term debt obligations. Factors Bearing on the Academy s Future Factors that could bear on the Academy s future include the following: 1) Continued uncertain economic conditions for the entire state of Michigan, which poses some uncertainties in the amount of total state aid revenue that the Academy may rely on when budgeting for subsequent fiscal years. 2) The ability of the Academy to generate alternative sources of revenue through competitive, foundational and other grants, plus continued participation and possible expansion of services through its special funded projects; these bear positively on the Academy s ability to generate supplemental revenue. 3) The Academy s growing student population at the ACE Woodward location, in conjunction with anticipated growth through the ACE Jefferson location opening during the next fiscal year, which will increase overall enrollment and projected future revenue. Contacting the Academy s Financial Management Team This financial report is designed to provide our stakeholders and creditors with a general overview of the Academy s finances and to demonstrate the Academy s accountability for the money it receives. If you have questions about this report or need additional information, please contact the Academy s central administration at: ACE Academy c/o edtec central, LLC Woodward Ave. Ferndale, Michigan team@edtec.net (ph) (fx) 10

13 ACE ACADEMY STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities Assets Cash and cash equivalents $ 163,474 Other receivables 8,706 Federal 141,227 State 209,780 Other 42,268 Prepaid expenditures 30,568 Capital assets, net of accumulated depreciation 191,706 Total assets $ 787,729 Liabilities Accounts payable 31,396 Note payable 75,932 Accrued liabilities 49,844 Total liabilities 157,172 Net Position Invested in capital assets, net of related debt 191,706 Unrestricted 438,851 Total Net Position $ 630,557 See accompanying notes to financial statements 11

14 ACE ACADEMY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Functions/Programs Governmental Activities Program Revenues Net (Expenses) Operating Revenues and Charges for Grants and Changes in Expenses Services Contributions Net Position Governmental Activities Instruction $ 1,761,720 $ 801,815 $ - $ (959,905) Supporting services Pupil support services 159, (159,956) Instructional support services 226, ,832 (111,453) General administration services 145, (145,119) School administration services 118, (118,627) Business services 105,088-30,000 (75,088) Operations and maintenance 73, (73,625) Pupil transportation services (890) Central services 155,241-8,449 (146,792) Community services 5,043-1,950 (3,093) Prior period adjustments 380-8,670 8,290 Depreciation 48, (48,156) Total governmental activities $ 2,800,130 $ 801,815 $ 163,901 (1,834,414) General revenues State aid - formula grants 1,164,712 Other - Private sources 207,221 Total general revenues 1,371,933 Change in Net Position (462,482) Net Position - July 1, ,093,039 Net Position - June 30, 2015 $ 630,557 See accompanying notes to financial statements 12

15 ACE ACADEMY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2015 ASSETS Special Total General Revenue Governmental Fund Fund Funds Cash and cash equivalents $ 163,474 $ - $ 163,474 Due from other governmental units 288,350 62, ,007 Accounts receivable 8,706-8,706 Due from other funds 42,268-42,268 Prepaid expenditures 30,568-30,568 Total assets $ 533,367 $ 62,657 $ 596,023 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 11,008 $ 20,388 $ 31,396 Note payable 75,932-75,932 Accrued liabilities 7,575-7,575 Due to other funds - 42,268 42,268 Total liabilities 94,515 62, ,172 Fund Balances Unrestricted fund balance: Assigned fund balance Non-spendable 30,568-30,568 Unassigned fund balance 408, ,284 Total fund balances 438, ,851 Total liabilities and fund balances $ 533,367 $ 62,657 $ 596,023 See accompanying notes to financial statements 13

16 ACE ACADEMY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total Fund Balances - Governmental Funds $ 438,851 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, not reported as assets in governmental funds Cost of capital assets $ 467,053 Accumulated depreciation (275,347) 191,706 Total Net Position - Governmental Activities $ 630,557 See accompanying notes to financial statements 14

17 ACE ACADEMY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 Revenues Special Total General Revenue Governmental Fund Fund Funds Local sources $ 207,221 $ - $ 207,221 State sources 1,164,712-1,164,712 Federal sources 282, , ,046 Total revenues 1,653, ,000 2,328,979 Expenditures Current Instructional services 1,221, ,714 1,761,720 Supporting services: Pupil support services 159, ,956 Instructional support services 131,198 95, ,285 General administration services 145, ,119 School administration services 118, ,627 Business services 75,088 30, ,088 Operations and maintenance 81,395-81,395 Pupil transportation Central support services 146,792 8, ,241 Community services 4, ,043 Facilities acquisition, construction & improvements 15,038-15,038 Total expenditures 2,099, ,000 2,774,402 Excess (Deficiency) of Revenues Over Expenditures (445,423) - (445,423) Other Financing Sources (Uses) Operating transfers - in 8,670-8,670 Operating transfers - out (380) - (380) Total other financing sources (uses) 8,290-8,290 Net Change in Fund Balances (437,133) - (437,133) Fund Balances - July 1, , ,985 Fund Balances - June 30, 2015 $ 438,851 $ - $ 438,851 See accompanying notes to financial statements 15

18 ACE ACADEMY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Total Net Change in Fund Balances - Governmental Funds $ (437,133) Amounts reported for governmental activities in the statement of activities are different because: - Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, for governmental activities those costs are shown in the statement and allocated over their estimated useful lives as annual depreciation expenses in the statement of activities. This is the amount by which depreciation exceeds capital outlays in the period: Depreciation expense (48,156) Capital outlays (site improvements, equipment and furniture expenditures) 22,808 (25,348) Change in Net Position of Governmental Activities $ (462,482) See accompanying notes to financial statements 16

19 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of ACE Academy (the Academy ) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The following is a summary of the significant accounting policies: A. Reporting Entity ACE Academy is a strict discipline academy as part of the Michigan Public School System under Act No. 23 of the Public Acts of 1999 and is subject the leadership and general supervision of the State Board of Education. Central Michigan University is the authorizing body of the Academy and has contracted with the Academy confirming the status of the strict discipline academy. The contract with Central Michigan University expires June 30, ACE Academy s school board is approved by the authorizing body and is authorized to manage the property and affairs of the Academy. The Academy does not include any other component unit within its financial statements as defined in Governmental Accounting Standards Board Statement Nos. 14 and 39. The contract with Central Michigan University requires the Academy to act exclusively as a governmental agency and not undertake any action inconsistent with its status as an entity authorized to receive state school aid funds pursuant to the state constitution. Central Michigan University is the fiscal agent for the Academy and is responsible for overseeing the Academy s compliance with the contract and all applicable laws. The Academy pays Central Michigan University three percent of the state school aid payments received by the Academy as administrative fees. The total administrative fees for the year ended June 30, 2015 to Central Michigan approximated $30,272. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational and financial relationships that determine which of the governmental organizations are a part of the Academy s reporting entity, and which organizations are legally separate, component units of the Academy. Based on application of the criteria, the entity does not contain component units. 17

20 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. District-Wide and Fund Financial Statements The district-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government. Substantially all interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All of the Academy s government-wide activities are considered governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function. Program revenue includes: (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function; and (2) grants and contributions that are restricted to meeting the operational and capital requirements of a particular function. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation District-Wide Statements The district-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants, categorical aid, and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 18

21 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) The effect of the interfund activity has been substantially eliminated from the government-wide financial statements. Amounts reported as program revenue include: (1) charges to customers or applicants for goods, services, or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions. Internally dedicated resources are reported as general revenue rather than as program revenue. Likewise, general revenue includes all unrestricted State aid. Fund-Based Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenue to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as required under accrual accounting. However, debt service expenditures are recorded only when payment is due. Unrestricted State aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be available only when cash is received by the government. 19

22 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) The State of Michigan utilizes a foundation allowance approach, which provides for a specific annual amount of revenue per student based on a state-wide formula. The foundation allowance is funded from a combination of state and local sources. Revenues from state sources are primarily governed by the School Aid Act and the School Code of Michigan. The State portion of the foundation is provided from the State s School Aid Fund and is recognized as revenue in accordance with state law. The Academy also receives revenue from the State to administer certain categorical educational programs. State rules require that revenue earmarked for these programs be used for its specific purpose. Certain categorical funds require an accounting to the State of the expenditures incurred. For categorical funds meeting this requirement, funds received which are not expected to be expended by the close of the fiscal year are recorded as deferred revenue. Other categorical funding is recognized when the appropriation is received. The Academy reports the following major governmental fund: General Fund The General Fund is used to record the general operation of the Academy pertaining to education and those operations not provided for in other funds. Included are all transactions related to the approved current operating budget. Special Revenue Fund Additionally, the Academy reports a non-major governmental Special Revenue Fund. This fund is used to account for the proceeds of specific revenue sources that are restricted to expenditures for specified purposes in the Academy s after-school consortium program. Any deficit generated by this activity is the responsibility of the General Fund. 20

23 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity Deposits, Cash Equivalents, and Investments Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with a maturity of twelve months or less when acquired. The Academy believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all bank deposits. As a result, the Academy evaluates each financial institution it deposits Academy funds with and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk are used as depositories. The Academy is authorized by Michigan Compiled Laws, Section to invest surplus monies in federally insured United States banks, credit unions, and savings and loan associations that have offices in Michigan. The Academy is also authorized to invest in bonds and notes, certain commercial paper, U.S. Government repurchase agreements, bankers acceptances and mutual funds and investment pools that are composed of authorized investment vehicles. Capital Assets Capital assets, which include land, buildings, equipment, and vehicles, are reported in the applicable governmental column in the government-wide financial statements. Capital assets are defined by the government as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of one year. The Academy utilizes this definition for determining what items to record as capital assets for purposes of reporting and recording depreciation over more than one reporting period. In addition, the Academy records technology equipment with a useful life of 3 or more years as a capital asset regardless of cost. Such assets are recorded at historical cost or estimated historical cost if purchased 21

24 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity (Continued) Capital Assets (Continued) or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair and maintenance that do not add to the value or materially extend asset life are not capitalized. The Academy does not have any infrastructuretype assets. Buildings, leasehold improvements, vehicles and equipment are depreciated using the straight-line method over the following useful lives: Buildings and additions years Leasehold Improvements years Buses and other vehicles 5 10 years Furniture and other equipment 5 20 years Computer and technology equipment 3 10 years MPSERS Liability The Academy contracted with edtec central, LLC Management Company to provide all staffing personnel during the year under audit. Consequently, all staffing cost is treated as purchased services in these financial statements. The Academy has no obligation to fund the Michigan Public School Employees Retirement System for the year ended June 30, Deferred Revenue Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. The Academy has no deferred revenue for the year ended June 30,

25 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity (Continued) Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net assets. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriations or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Comparative Data Comparative data is not included in the Academy s financial statements. District-wide financial statements (statement of net assets and statement of activities) prepared using full accrual accounting for all of the Academy s activities have been provided. 23

26 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity (Continued) Capital assets of $191,706 (net of depreciation of $275,347) are currently recorded in the governmental activities column of the statement of net assets. The fund financial statements focus on major funds rather than fund types. Estimates The preparation of the 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Budgetary Data The Academy is legally subject to the budgetary control requirements of the State of Michigan P.A. 621 of 1978 (the Uniform Budgetary Act). The following is a summary of the requirements of the Act: 1. Budgets must be adopted for the General Fund and Special Revenue Funds. 2. The budgets must be balanced. 3. The budgets must be amended when necessary. 4. Public hearings must be held before budget adoptions. 5. Expenditures cannot exceed budget appropriations. 6. Expenditures must be authorized by a budget before being incurred. 24

27 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY The Academy formally adopted General Fund, and Special Revenue Fund (after-school consortium) budgets by function for the fiscal year ended June 30, Expenditures at this level in excess of amounts budgeted are a violation of Michigan law. Unexpended appropriations lapse at year end; encumbrances are not included as expenditures. No encumbrances were outstanding in the General Fund and Special Revenue Funds at June 30, During the current year, the budget was amended in a legally permissible manner. The combined statement of revenues, expenditures and changes in fund balances all governmental fund types is presented in conformity with generally accepted accounting principles. The combined statement of revenues, expenditures and changes in fund balances budget and actual is presented on the same basis of accounting used in preparing the adopted budget. NOTE 3 - DEPOSITS AND INVESTMENTS State statutes and the Academy s investment policy authorize the Academy to make deposits in the accounts of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan; the Academy is allowed to invest in U.S. Treasury or agency obligations, U.S. government repurchase agreements, bankers acceptances, commercial paper rated prime at the time of purchase that matures not more than 270 days after the date of purchase, mutual funds, and investment pools that are composed of authorized investment vehicles. The Academy s deposits are in accordance with statutory authority. The Academy has designated one bank for the deposit of its funds, and has not adopted any other formal investment policy. The Academy s cash and investments are subject to custodial credit risk, which is examined in more detail below: Custodial Credit Risk of Bank Deposits Custodial credit risk is the risk that in the event of a bank failure, the Academy s deposits may not be returned to it. The Academy evaluates its depositories and only those with an acceptable risk level are used for the Academy s deposits. The Academy believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all deposits. 25

28 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 - DEPOSITS AND INVESTMENTS (Continued) At year end, the Academy s deposits and investments were reported in the basic financial statements as cash and cash equivalents of $163,474. The deposits of the Academy were reflected in the accounts of the financial institution on June 30, 2015 at $212,290 of which, all was covered by federal depository insurance. NOTE 4 - CAPITAL ASSETS Capital assets activity of the Academy s governmental activities was as follows: Disposals Balance and Balance July 1, 2014 Additions Adjustments June 30, 2015 Assets being depreciated: Equipment 74, ,592 Computer equipment 288,548 6, ,462 Construction in progress 81,105 15,893-96,998 Subtotal 444,245 22, ,053 Accumulated depreciation: Equipment 40, ,645 Computer equipment 182, ,179 Construction in progress 4, ,186 Subtotal 227, ,010 Net capital assets being depreciated 217,054 21, ,048 Net capital assets $ 217,054 $ 21,994 $ - $ 239,048 26

29 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 - CAPITAL ASSETS (Continued) Depreciation expense was not charged to specific activities as the Academy considers its assets to impact multiple activities and allocation is not practical. Governmental activities: Instruction Basic Programs $ - Unallocated 48,156 Total governmental activities $ 48,156 NOTE 5 - RISK MANAGEMENT The Academy is exposed to various risks of loss related to property loss, torts, errors and omissions and employees injuries (workers compensation), as well as medical benefits provided to employees. The Academy has purchased commercial insurance for all claims. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage since inceptions. NOTE 6 - MANAGEMENT AGREEMENT The Academy has entered into a management agreement with edtec central, LLC (the Management Company ), a for-profit corporation. The Management Company is responsible for all management, operation, administration, and education of the Academy. All Academy personnel are provided by the Management Company. The total management fee expensed by ACE Academy for the year ended June 30, 2015 approximated $133,321. The management agreement between the Academy and edtec central, LLC is extended annually. Further, it allows for both parties to mutually agree to a reduction in the management fee for any period in order to avoid a deficit fund balance at year-end, and/or to avoid expenses in excess of amounts budgeted for major functions. 27

30 ACE ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 7 - OPERATING LEASE On July 1, 2013, the Academy extended its operating lease agreement with Spectrum Juvenile Justice Service ( SJJS ) for the use of its school facilities at a nominal fee of $1 per year, through June Under the agreement, SJJS is responsible for all utilities, taxes, insurance, and maintenance. On October 1, 2012, the Academy entered into a separate lease agreement with Woodward Place, LLC ( the Landlord ) for a 5-year term, to house its community-based, education extension center. Lease payments to the Landlord for the period ended June 30, 2015 were $36,889. NOTE 8 - SUBSEQUENT EVENTS On August 5, 2015, the Academy entered into a lease agreement with Riverbend Properties, LLC to house its second community-based program, while the facility is under review and renovation. The first month s rent was due and payable by September 1, The lease extends five years through August 31, Payments related to this third lease and subsequent to the year ended June 30, 2015 through the date of this audit report totaled $4,

31 REQUIRED SUPPLEMENTAL INFORMATION

32 ACE ACADEMY BUDGETARY COMPARISON SCHEDULE - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 Variances Over/(Under) Budgeted Amounts Actual Final Original Final (GAAP Basis) to Actual Revenues Local revenues 983, , ,221 (4,113) State program revenues 1,361,868 1,157,656 1,164,712 7,056 Federal program revenues 323, , ,046 (41,422) Total revenues 2,668,886 1,692,458 1,653,979 (38,479) Expenditures Current Instructional services 1,458,000 1,221,310 1,221,006 (304) Supporting services Pupil support services 181, , ,956 (9) Instructional staff services 135, , ,198 (11) General administration services 229, , ,119 (28) School administration services 163, , ,627 (13) Business services 163,000 75,092 75,088 (4) Operations and maintenance 482,000 81,404 81,395 (9) Pupil Transportation Central support services 215, , ,792 (70) Community service 27,000 4,293 4,293 - Facilities & Acquisition Services 15,038 15,038 15,038 (1) Total expenditures 3,068,038 2,099,850 2,099,402 (448) Excess (Deficiency) of Revenues Over Expenditures (399,152) (407,392) (445,423) (38,032) Other Financing Sources (Uses) Operating transfers - in - - 8,670 8,670 Operating transfers - out - (380) (380) - Total other financing sources (uses) - (380) 8,290 8,670 Net Change in Fund Balance (399,152) (407,772) (437,133) (29,362) Fund Balance - July 1, , , ,985 - Fund Balance - June 30, , , ,851 (29,362) See accompanying notes to financial statements 29

33 ACE ACADEMY BUDGETARY COMPARISON SCHEDULE - SPECIAL REVENUE FUND FOR THE YEAR ENDED JUNE 30, 2015 Variances Over/(Under) Budgeted Amounts Actual Final Original Final (GAAP Basis) to Actual Revenues Local revenues State program revenues Federal program revenues 675, , ,000 - Total revenues 675, , ,000 - Expenditures Current Instructional services 534, , ,714 - Supporting services Pupil support services Instructional staff services 101,450 95,087 95,087 - General administration services School administration services Business services 30,000 30,000 30,000 - Operations and maintenance Central services 8,500 8,449 8,449 - Community service Total expenditures 675, , ,000 - Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses) Operating transfers - in Operating transfers - out Total other financing sources (uses) Net Change in Fund Balance Fund Balance - July 1, Fund Balance - June 30, See accompanying notes to financial statements 30

34 ACE ACADEMY SUPPLEMENTAL INFORMATION SINGLE AUDIT REPORT JUNE 30, 2015 SECTION A

35 ACE ACADEMY CONTENTS Independent Auditor's Reports: Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 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 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedules of Findings and Questioned Costs 1A 2A - 3A 4A - 5A 6A - 7A 8A 9A - 10A

36 To the Board of Directors ACE Academy Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 Independent Auditor s Report We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of ACE Academy (the Academy ) as of and for the year ended June 30, 2015 and the related notes to the financial statements, which collectively comprise the Academy s basic financial statements. We issued our report thereon dated October 25, 2015, which contained unqualified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. We have not performed any procedures with respect to the audited financial statements subsequent to October 25, The accompanying schedule of expenditures of federal awards is presented for the purpose of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information 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 states in all material respects in relation to the financial statements as a whole. Dearborn, MI October 25, 2015 Members: A.I.C.P.A. and M.I.C.P.A. 1A