Child Care Resource and Referral, Inc. Rochester, MN. Financial Statements December 31, 2014 and 2013

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1 Rochester, MN Financial Statements December 31, 2014 and 2013

2 Table of Contents Independent Auditor's Report on the Financial Statements 1-2 Financial Statements Statement of Financial Position 3 Statement of Activity and Changes in Net Assets 4 Statement of Functional Expenses 5-6 Statement of Cash Flows 7-8 Notes to the Financial Statements 9-17 Supplementary Information Schedule of Expenditures of Federal Awards 18 Notes to the Schedule of Expenditures of Federal Awards 19 Schedule of Findings and Questioned Costs Other Reports 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 for Each Major Program and on Internal Control over Compliance Required by OMB Circular A

3 th Ave NW, Ste 301 Rochester, MN fax: To the Board of Directors Child Care Resource and Referral, Inc. Rochester, MN Report on the Financial Statements Independent Auditor's Report We have audited the accompanying financial statements of Child Care Resource and Referral, Inc. (a nonprofit organization) which comprise the statement of financial position as of December 31, 2014 and 2013, and the related statements of activity and changes in net assets, functional expenses and cash flows for the years then ended, and the related notes of the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1

4 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Child Care Resource and Referral, Inc. as of December 31, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 21, 2015, on our consideration of Child Care Resource and Referral, Inc.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Childcare Resource and Referrals Inc. s internal control over financial reporting and compliance. Hawkins Ash CPAs, LLP August 21,

5 Rochester, MN STATEMENT OF FINANCIAL POSITION December 31, 2014 and 2013 ASSETS Cash and Cash Equivalents $ 1,851,284 $ 1,650,912 Grants and Accounts Receivable 874, ,032 Pledges Receivable, net 76,452 79,397 Prepaid Expenses 490, ,952 Investment in The Place Project 1,378,283 1,433,665 Land, Buildings, and Equipment, net 820, ,092 TOTAL ASSETS $ 5,492,103 $ 5,247,050 Liabilities Accounts Payable $ 392,128 $ 266,798 Accrued Expenses 500, ,180 Deferred Revenue 202, ,496 Note Payable 201, ,931 Total Liabilities 1,296,841 1,053,405 Net Assets LIABILITIES AND NET ASSETS Unrestricted Net Assets: Undesignated 1,919,745 1,833,491 Net Investment in Fixed Assets 820, ,092 Net Investment in The Place 1,378,283 1,433,665 Temporarily Restricted Pledges 76,452 79,397 Total Net Assets 4,195,262 4,193,645 TOTAL LIABILITIES AND NET ASSETS $ 5,492,103 $ 5,247,050 See Accompanying Notes to Financial Statements 3

6 Rochester, MN STATEMENT OF ACTIVITY AND CHANGES IN NET ASSETS Years Ended December 31, 2014 and Revenue, Grants and Other Support Olmsted County $ 858,530 $ 813,473 United Way 228, ,795 Federal Grants 7,350,456 7,132,499 Southern MN Initiative Foundation Grant 15,319 - Training Fees 163, ,474 Private Grants 257,906 17,604 Community Education 200, ,050 Winona County 104,392 76,726 Corporate Child Care Subsidies 22,592 12,823 State of Minnesota 4,170,082 1,686,870 Interest and Dividend Income 2,917 3,225 Rental and Other Income 189, ,118 Donations 197,155 55,813 In-Kind Revenue 63,453 81,311 Equity Investment Income (Loss) (113,382) 33,587 Gain on Sale of Asset - 155,988 Total Revenue, Grants and Other Support 13,711,373 10,987,356 Expenses Program Services 12,871,958 9,954,909 Supporting Services Management and General 773, ,824 Fundraising 64,268 84,989 Total Supporting Services 837, ,813 Total Expenses 13,709,756 10,734,722 Change in Net Assets 1, ,634 Net Assets, Beginning of Year 4,193,645 3,941,011 Net Assets, End of Year $ 4,195,262 $ 4,193,645 See Accompanying Notes to Financial Statements 4

7 Rochester, MN STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2014 Program Services Supporting Services Crisis Nursery School Readiness Child Care Assistance Child/Adult Care Food Program Head Start Resource & Referral Total Management and General Fundraising Total Salaries/Consultants $ 126,189 $ 170,588 $ 362,755 $ 284,103 $ 2,660,712 $ 660,362 $ 4,264,709 $ 525,668 $ 28,867 $ 4,819,244 Fringe Benefits 37,377 40,234 93,378 78, , ,349 1,180, ,768 5,763 1,297,051 Total Salaries & Related Expenses 163, , , ,939 3,428, ,711 5,445, ,436 34,630 6,116,295 Professional Services ,581 1,978 15,682 2,403 22,572 20, ,499 Supplies 3,126 10,037 19,966 10, ,792 25, ,645 11, ,477 Communications 2,583 3,442 6,579 12,862 44,297 18,889 88,652 5, ,518 Occupancy 5,613 5,694 16,537 15, ,389 28, ,946 54, ,448 Equipment Acquisition/Repair 2,474 40,730 64,052 8,874 75,348 21, ,818 23, ,545 Printing and Publications ,456 33,287 11,760 9,713 59,791 3,729 2,620 66,140 Staff Development 1,813 2,693 3,091 6,894 13,311 5,868 33,670 1,945 1,051 36,666 Direct 126, ,257 31,244 2,743, ,920 2,555,534 5,960,658 11,740 21,766 5,994,164 Travel 1,353 2, , ,032 21, ,782 1, ,698 Other ,536 4,691 78,195 1,708 1,403 81,306 Total Expenses Before Administrative Allocation 307, , ,881 3,218,054 4,793,125 3,516,933 12,871, ,530 64,268 13,709,756 Administrative Allocation 18,887 18,857 63,936 44, , , ,798 (773,530) (64,268) - Total Expenses $ 326,359 $ 450,350 $ 668,817 $ 3,262,227 $ 5,381,381 $ 3,620,622 $ 13,709,756 $ - $ - $ 13,709,756 See Accompanying Notes to the Financial Statements 5

8 Rochester, MN STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2013 Program Services Supporting Services Crisis Nursery Scholarship- School Readiness Child Care Assistance Child/Adult Care Food Program Head Start Resource & Referral Infant/ Toddler Facility Total Management and General Fundraising Total Salaries/Consultants $ 117,729 $ 91,514 $ 364,879 $ 281,322 $ 2,359,702 $ 459,967 $ - $ 3,675,113 $ 487,972 $ 14,546 $ 4,177,631 Employee Benefits, Payroll Taxes & Workers' Compensation 34,544 23,786 99,148 82, , ,398-1,053, ,704 3,871 1,166,677 Total Salaries & Related Expenses 152, , , ,373 3,059, ,365-4,728, ,676 18,417 5,344,308 Professional Services ,549 1,849 15,848 1,798 31,220 54,460 2, ,356 Supplies 3,356 1,305 2,021 19,362 41,510 19,307-86,861 5, ,861 Communications 4,476 2,899 9,004 10,716 28,165 16,928-72,188 4,853 1,048 78,089 Occupancy 6,027 4,358 14,453 13, ,484 24,931 56, ,710 45, ,586 Equipment Acquisition/Repair 1,520 3,072 5,211 6,266 51,569 10,225-77,863 14, ,696 Printing and Publications 1, ,796 34,426 10,543 12,003-63,311 2,418 6,547 72,276 Staff Development 1,210 1, ,230 14,508 7,959-38,452 4,084 3,366 45,902 Direct 103, ,920 15,507 2,933, , ,222-4,004,429 14,114 51,406 4,069,949 Travel 2,160 1,184 1,099 23, ,392 9, ,215 1, ,019 Other (7) ,782 35, ,205 1,962 2, ,680 Total Expenses Before Administrative Allocation 276, , ,003 3,419,408 4,187,683 1,182,982 88,193 9,954, ,824 84,989 10,734,722 Administrative Allocation 20,829 19,287 73,575 44, ,780 83, ,813 (694,824) (84,989) - Total Expenses $ 296,929 $ 299,827 $ 593,578 $ 3,463,790 $ 4,725,463 $ 1,266,942 $ 88,193 $ 10,734,722 $ - $ - $ 10,734,722 See Accompanying Notes to the Financial Statements 6

9 Rochester, MN STATEMENT OF CASH FLOWS For the Years Ended December 31, 2014 and Cash Flows From Operating Activities: Cash Received from: Federal Grants $ 7,229,099 $ 7,215,352 State of Minnesota 4,170,082 1,686,870 Community Grants and Support 1,687,635 1,375,471 Fees 163, ,474 Donations 200,100 84,512 Interest and Dividend Income 2,917 3,225 Rental and Other Income 189, ,118 Cash Paid to Vendors (8,412,371) (6,324,389) Cash Paid to Employees (4,819,244) (4,148,911) Net Cash Provided by Operating Activities 411, ,722 Cash Flows From Investing Activities: Sale of Land - 350,000 Purchase of Property and Equipment (146,049) (24,041) Investment in The Place Project (58,000) (324,117) Net Cash Provided (Used) By Investing Activities (204,049) 1,842 Cash Flows From Financing Activities: Payments on Bank Note (6,854) (6,443) Net Cash Used by Financing Activities (6,854) (6,443) Net Increase in Cash and Cash Equivalents 200, ,121 Cash and Cash Equivalents - January 1 1,650,912 1,300,791 Cash and Cash Equivalents - December 31 $ 1,851,284 $ 1,650,912 See Accompanying Notes to Financial Statements 7

10 Rochester, MN STATEMENT OF CASH FLOWS, Cont. For the Years Ended December 31, 2014 and Change in Net Assets $ 1,617 $ 252,634 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation and Amortization 172, ,825 Gain on the Sale of Land - (155,988) Equity Change in Investment 113,382 (33,587) Change in assets (increase) decrease Grants and Accounts Receivable (159,736) 120,093 Pledges Receivable 2,945 28,699 Prepaid Expenses 30,418 11,018 Change in liabilities increase (decrease) Accounts Payable 125,330 (47,909) Accrued Expenses 86,581 38,177 Deferred Revenue 38,379 (37,240) Net Cash Provided (Used) by Operating Activities $ 411,275 $ 354,722 Supplemental Information Interest Paid $ 10,094 $ 3,444 See Accompanying Notes to Financial Statements 8

11 NOTES TO THE FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities Child Care Resource and Referral, Inc. is a nonprofit corporation organized under the laws of the State of Minnesota for the purpose of administering child development programs, day care projects and referral programs in the State of Minnesota. The Organization's primary sources of revenue include federal grants, state grants, county contributions and local grants. Net Asset Presentation Net assets, support and revenue, expenses, gains an losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization are classified and reported as follows: Unrestricted net assets are those funds presently available for use by or on behalf of the Organization including amounts available for general and administrative expenses. These unrestricted net assets also include board designated funds. Temporarily restricted net assets are contributions that have donor-imposed stipulations that can be fulfilled by certain actions of the Organization. These are primarily contributions that are restricted for the acquisition of property and equipment and residential support. When the donor restriction is accomplished, these temporarily restricted assets are reclassified to unrestricted and reported on the statement of activities as assets released from restrictions. If the restriction is met in the period the related revenue is recognized, the amounts are reported within the unrestricted activity. Permanently restricted net assets are contributions that have donor imposed restrictions whereby the amount of the gift is to be held in perpetuity. These are referred to as endowment funds. Income derived from such funds is to be used for operating expenses of the Organization. The Organization does not currently have any permanently restricted funds. Revenue Recognition Grants that are funded based upon the reimbursement of costs are recognized as revenues in the accounting period earned, which is usually when the related expenses are incurred. Performance contracts, which reimburse the Organization based upon the completion of a service, are recognized in the accounting period that the service is provided. Revenues, such as fees for service, are recognized when earned. Contributions and contribution type grants are recognized as revenue when they are received or an unconditional pledge is made. All contributions are recorded as unrestricted unless explicit restrictions are received from the donor. Contributions which will be received over a period exceeding one year are recorded at fair value, i.e., present value of estimated future cash flows. 9

12 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 CONT. Cash and Cash Equivalents For purposes of reporting cash flows, the Organization considers all demand deposits, savings and money market accounts with an original maturity of three months or less to be considered cash equivalents. The Organization maintains its cash balances in financial institutions located in Rochester, MN. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2014 and 2013, the Organization's uninsured cash balances totaled $1,654,761 and $1,504,406, respectively. Building and Equipment All acquisitions of property and equipment in excess of $5,000 and all expenditures for repairs, maintenance, renewals, and betterments that materially prolong the useful lives of assets are capitalized. Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. Depreciation is computed using primarily the straight-line method over estimated useful lives of five to thirty-five years. Deferred Revenue Deferred revenues from grants are included in income when the related expenditures are incurred and over the period designated by the grantor. Donated Materials Donated materials are reported at the fair market value on the date of the gift. A substantial number of volunteers have donated time to the Organization. The Organization does not recognize there contributed services as revenues unless the services (a) create or enhance existing nonfinancial assets or (2) require specialized skills and are provided by individuals possessing those skills. No amounts have been reflected in the statements for donated services. However. a substantial number of volunteers have been donated time to the Organization. Pension Plan The Organization contributes to a defined contribution money purchase pension plan. All employees over age 18, who have worked one year and 1,000 hours, are eligible for a 4% employer contribution and up to a 1% match. Pension expense totaled $206,583 for 2014 and $183,997 for Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from estimates. 10

13 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 CONT. Income Taxes The organization is exempt from federal income taxes as a public charity under Section 501 (c)(3) of the Internal Revenue Code; therefore, no provision for income taxes has been made in these financial statements. The organization's partial ownership of the for-profit partnership, the 1026 Leverage Lender, is considered unrelated business income that is subject to taxation, but has not resulted in material unrelated income for the years ended December, 31, 2014 and In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization other than a private foundation under Section 509(a)(2). The Organization files federal exempt income tax returns (Form 990). Management is not aware of any uncertain tax positions and the open years are 2011, 2012, 2013 and Accounts Receivable Accounts receivable are stated at the amount management expects to collect from balances outstanding at year-end. The Organization does not estimate a reserve for bad debts, as write-offs have been historically small and the amounts involved are believed to be not material. The Organization does not currently have a policy to place receivables on nonaccrual status. Accounts in excess of 30 days are considered past due. The Organization has no nonmortgage loans held for sale, interest-only strips, loans, or other receivables, or retained interests in securitizations. Promises to Give Contributions are recognized when the donor makes a promise to give to the Organization that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. The Organization uses the allowance method to determine uncollectible promises receivable. The allowance is based on management's analysis of promises made. Contributions which will be received over a period exceeding one year are recorded at fair value, i.e., present value of estimated future cash flows. Reclassifications Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation of the current year's financial statements. 11

14 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 CONT. Fair Value of Financial Instruments The Organization has determined the fair value of certain assets in accordance with U.S. GAAP, which provides a framework for measuring fair value under generally accepted accounting principles. U.S. GAAP defines fair value as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. Level 1 inputs consist of quoted prices in active markets for identical assets that the reporting organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset. Level 3 inputs are unobservable inputs related to the asset. At this time, the Organization only holds Level 3 investments. The asset s fair value measurement within the fair value hierarchy is based on the lowest of any input that is significant to the fair value measurement. Expense Allocation Directly identifiable expenses are charged to programs and supporting services. Expenses related to more than one function are charged to programs and supporting services on the basis of periodic time and expense studies. Building and occupancy costs are allocated on the basis of square footage. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the Organization. NOTE 2. SUPPORT FROM GOVERNMENTAL UNITS The Organization received approximately 91% and 88% of its support and revenue from federal, state and local governments for the years ended December 31, 2014 and Receivables from governmental units at December 31, 2014 and 2013 were approximately $767,420 and $668,267, respectively. A material change in this level of support would likely result in a corresponding change in the level of program activity of the Organization. 12

15 NOTE 3. LAND, BUILDING, AND EQUIPMENT A summary of land, buildings and equipment as of December 31 is as follows: Land $ 97,500 $ 97,500 Buildings and improvements 1,182,922 1,182,922 Leasehold improvements - 16,011 Equipment 480, ,730 Vehicles 675, ,230 2,436,479 2,456,393 Less Accumulated Depreciation (1,615,697) (1,609,301) $ 820,782 $ 847,092 NOTE 4. COMMITMENTS Child Care Resource and Referral, Inc. NOTES TO THE FINANCIAL STATEMENTS Depreciation expense of $172,359 and $178,825 was recognized for years ended December 31, 2014 and 2013, respectively. A portion of the land, building, and equipment was acquired through funds provided by federal, state, and local sources and cannot be disposed of without prior approval from the grantor or until certain time restrictions have lapsed. The Organization leases facilities at three locations under leases which expire from February, 2013 to August, Future minimum rental commitments as of December 31, 2014 are as follows: Rental expense totaled $391,004 in 2014 and $352,172 in For the Year Ending Amount 2015 $ 276, , , , ,880 Thereafter 74,370 The Organization entered into a computer maintenance and monitoring contract which expires February, There is a minimum monthly charge of $7,610, with additional charges possible. Minimum future payments for 2015, 2016, and 2017 will be $91,320, $91,320, and $15,220, respectively. In 2014, the Organization entered into a telephone service contract which expires February, There is a minimum monthly charge of $269, with additional charges possible. Minimum future payments for 2015, 2016, and 2017 will be $3,233, $3,233, and $539, respectively. 13

16 NOTES TO THE FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT Note Payable to Bank, bearing interest at 4.875%, payments made in monthly installments of $1,412, including interest, with the remaining balance of approximately $134,344 due November 9, 2022, collateralized by real estate $ 201,077 $ 207,931 Aggregate maturities required for long-term debt as of December 31, 2014 are as follows: Years Ending December 31, Amount 2015 $ 7, , , , ,729 Thereafter 161,460 Total $ 201,077 NOTE 6. IN-KIND DONATIONS The value of In-Kind donations included in the financial statements and the corresponding expenses are as follows for the year ended December 31: Rent $ 63,453 $ 81,311 14

17 NOTE 7. PLEDGES RECEIVABLE Child Care Resource and Referral, Inc. NOTES TO THE FINANCIAL STATEMENTS In 2009, the Organization formed a joint venture with the Boys and Girls Club of Rochester to construct a Joint Facility and proceeded to begin fundraising. Pledges have been received and will be collected over a five year period. In 2012, as part of the Investment in "The Place" and the New Market Tax Credit (Note 8), the pledges receivable were pledged to a loan held by the 1026 Leverage Lender. Because there was no transfer of these pledges, nor recourse for the organization, they remain on the balance sheet and any subsequent collection is transferred to the 1026 Leverage Lender to make the loan payments. Long-term pledges receivable are recognized at fair value, using present value techniques and a discount rate of 3%. Due to the nature of the pledge drive, the net amount has been temporarily restricted Total Pledges Received $ 429,980 $ 388,054 Accounts Written Off (2,360) - Received Prior to December 31 (339,881) (297,328) 87,739 90,726 Less: 3% Discount Applied to Long-Term Portion (6,900) (6,793) Less: Provision for Uncollectible Accounts (4,387) (4,536) Total $ 76,452 $ 79,397 Pledges to be received in years ended December 31: 2015 $ 38, , , , ,933 Thereafter 5,401 Total $ 87,739 15

18 NOTE 8. INVESTMENTS Child Care Resource and Referral, Inc. NOTES TO THE FINANCIAL STATEMENTS Investments as of December 31, 2014, are summarized as follows: Cost Fair Value Carrying Value Level 3- Unobservable Inputs 1026 East Center Street Leverage Lender $ 1,492,426 $ 1,492,426 $ 1,492, East Center Street LLC (114,143) (114,143) (114,143) $ 1,378,283 $ 1,378,283 $ 1,378,283 Equity Investment Adjustment as of December 31, 2014, is calculated as follows: Income in 1026 East Center Street Leverage Lender $ 53,916 Loss in 1026 East Center Street LLC (167,298) Equity Investment Loss $ (113,382) Investments as of December 31, 2013, are summarized as follows: Cost Fair Value Carrying Value Level 3- Unobservable Inputs 1026 East Center Street Leverage Lender $ 1,380,510 $ 1,380,510 $ 1,380, East Center Street LLC 53,155 53,155 53,155 $ 1,433,665 $ 1,433,665 $ 1,433,665 Equity Investment Adjustment as of December 31, 2014, is calculated as follows: Income in 1026 East Center Street Leverage Lender $ 40,446 Loss in 1026 East Center Street LLC (6,859) Equity Investment Income $ 33,587 16

19 NOTE 8. INVESTMENTS CONT. The Organization owns 47.5% of the partnership interest in the 1026 East Center Street Leverage Lender. The investment is accounted for by the equity method and carried on the books at its net book value, since estimated fair market values are not readily available. Summarized activity for December 31, 2014 is as follows: assets total $9,310,433, liabilities total $3,123,659, equity totals $6,186,774, income totals $274,023, expenses total $160,406, and net income equals $113,617. Summarized activity for December 31, 2013 is as follows: assets total $9,338,450, liabilities total $3,886,403, equity totals $5,452,047, income totals $274,023, expenses total $199,403, and net income equals $74,620, respectively. The Organization owns 50% of the not-for-profit partnership interest in the 1026 East Center Street LLC. The investment is accounted for by the equity method and carried on the books at its net book value, since estimated fair market values are not readily available. Summarized activity for December 31, 2014 is as follows: assets total $12,794,967, liabilities total $12,855,672, equity totals ($60,705), income totals $530,545, expenses total $865,140, and net loss equals $334,595. Summarized activity for December 31, 2013 is as follows: assets total $13,697,442, liabilities total $13,423,552, equity totals $273,890, income totals $334,236, expenses total $346,728, and net loss equals $12,492, respectively. NOTE 9. SUBSEQUENT EVENTS Child Care Resource and Referral, Inc. NOTES TO THE FINANCIAL STATEMENTS In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through August 21, 2015, the date the financial statements were available to be issued. 17

20 Federal Grantor/Pass-through Grantor Program or Cluster Title Child Care Resource and Referral, Inc. Rochester, MN SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended December 31, 2014 Federal CFDA Number Pass-Through Entity Identifying Number Federal Expenditures U.S. Department of Agriculture: Pass-through Programs From: Minnesota Department of Human Services: Child Care Food Program $ 2,507,330 Child Care Food Program ,241 Child Care Food Program ,029 Total U.S. Department of Agriculture 3,409,600 U.S. Department of Health and Human Services: Direct Program (Head Start Cluster): Head Start CH5108/30 1,357,779 Head Start CH8394/01,02 1,061,294 Head Start CH5108/30 711,797 Head Start CH8394/01,02 736,742 Head Start CH5108/30 20,141 Head Start CH8394/01,02 17,539 Head Start CH5108/30 18,598 Head Start CH8394/01,02 16,967 Total Head Start Cluster 3,940,857 Pass-through Programs (CCDF Cluster) From: Minnesota Department of Human Services: Child Care and Development Block Grant ,635 Child Care and Development Block Grant ,383 Child Care and Development Block Grant ,194 Child Care and Development Block Grant ,754 Child Care and Development Block Grant ,122 Child Care and Development Block Grant ,597 Child Care and Development Block Grant ,735 Child Care Mandatory and Matching Funds ,089 Child Care Mandatory and Matching Funds ,384 Child Care Mandatory and Matching Funds ,008 Total CCDF Cluster 1,788,901 Total U.S. Department of Health and Human Services 5,729,758 Total Expenditures of Federal Awards $ 9,139,358 See Accompanying Notes to Financial Statements 18

21 Rochester, MN NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended December 31, 2014 NOTE 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Child Care Resource and Referral, Inc. and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. NOTE 2. SUBRECIPIENTS The Organization did not sub grant any of its federal expenditures. 19

22 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 2014 Section I - Summary of Auditor's Results Financial Statements Type of Auditor's Report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiencies identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted? Yes X No Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiencies identified that are not considered to be material weakness(es)? Type of Auditor's Report issued on compliance for major programs: Any Audit findings disclosed that are required to be reported in accordance with section 510 (a) of Circular A-133? Yes X None Reported Unqualified Yes X No Identification of major programs: CFDA Number Name of Federal Program Head Start Cluster CCDF Cluster Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low-risk auditee? X Yes No 20

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) For the Year Ended December 31, 2014 Section II - Financial Statement Findings The audit disclosed no findings relating to the financial statements which were required to be reported under Government Aiding Standards issued by OMB. Section III - Federal Awards Findings and Questioned Costs The audit disclosed no findings which were required to be reported under Government Auditing Standards issued by the OMB Circular A-133. Summary Schedule of Prior Audit Findings The audit report for the year ended December 31, 2013, contained no findings. 21

24 th Ave NW, Ste 301 Rochester, MN fax: To the Board of Directors Child Care Resource and Referral, Inc. Rochester, MN Internal Control Over Financial Reporting 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 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 Child Care Resource and Referral (a nonprofit organization), which comprise the statement of financial position as of December 31, 2014, and the related statements of activity and changes in net assets, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated August 21, In planning and performing our audit of the financial statements, we considered Child Care Resource and Referral, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Child Care Resource and Referral s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

25 Compliance and Other Matters As part of obtaining reasonable assurance about whether Child Care Resource and Referral s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Compliance and Other Matters The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Rochester, Minnesota August 21, 2015

26 th Ave NW, Ste 301 Rochester, MN fax: Report on Compliance for Each Major Federal Program Management's Responsibility Auditor's Responsibility Independent Auditor's Report on Compliance for Each Major Program And on Internal Control Over Compliance Required by OMB Circular A-133 To the Board of Directors Child Care Resource & Referral, Inc. Rochester, MN We have audited Child Care Resource and Referral, Inc.'s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Child Care Resource and Referral, Inc.'s major federal programs for the year ended December 31, Child Care Resource and Referral, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Our responsibility is to express an opinion on compliance for each of Child Care Resource and Referral, Inc. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Child Care Resource and Referral, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Child Care Resource and Referral, Inc. s compliance.

27 Opinion on Each Major Federal Program In our opinion, Child Care Resource and Referral, Inc. 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 December 31, Report on Internal Control Over Compliance Management of Child Care Resource and Referral, Inc. 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 Child Care Resource and Referral, Inc. 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 OMB Circular A- 133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Child Care Resource and Referral, Inc. 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 in internal control over compliance, 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 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 This 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Rochester, Minnesota August 21, 2015