MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY (A NON PROFIT ORGANIZATION) Financial Statements and Additional Information

Transcription

1 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY (A NON PROFIT ORGANIZATION) Financial Statements and Additional Information For the Fiscal Year Ended August 31, 2011 With Comparative Totals for Richmond, Suite 500 Houston, Texas (713)

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3 Miracle Educational Systems, Inc. dba Northwest Preparatory Academy TABLE OF CONTENTS Page Certificate of Board i Independent Auditors Report 1 General Purpose Financial Statements Statement of Financial Position Statement of Activities Statement of Cash Flows Notes to the Financial Statements Supplementary Information Statement of Financial Position for Individual Charter School Statement of Activities for Individual Charter School Statement of Cash Flows for Individual Charter School Schedule of Expenses Schedule of Capital Assets Budgetary Comparison Schedule Compliance, Internal Controls, and Federal Awards Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance with the Requirements that Could have a Direct and Material Effect on each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Schedule of Findings and Questioned Costs Schedule of Expenditures of Federal Awards Notes the Schedule of Expenditures of Federal Awards

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5 Miracle Educational Systems, Inc. dba Northwest Preparatory Academy (Federal Employer Identification Number: Certificate of Board Miracle Educational Systems, Inc. Name of Charter Holder Federal Employer ID Number Northwest Preparatory Academy Harris Name of Charter School County County District Number We, the undersigned, certify that the attached Financial and Compliance Report of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy was reviewed and (check one) approved disapproved for the year ended August 31, 2011, at a meeting of the governing body of the charter holder on the day of, Signature of Board Secretary Signature of Board President NOTE: If the governing body of the charter holder does not approve the independent auditors report, it must forward a written statement discussing the reason(s) for not approving the report. i

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7 Board of Directors Miracle Educational Systems, Inc. dba Northwest Preparatory Academy Houston, Texas Independent Auditors Report We have audited the accompanying statement of financial position of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy (the Organization ) as of August 31, 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy s management. Our responsibility is to express an opinion on these financial statements based on our audit. The previous year summarized comparative information has been derived from the Organization s 2010 financial statements. The financial statements of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy as of August 31, 2010, were audited by other auditors whose opinion, dated January 11, 2011, was unqualified. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy as of August 31, 2011, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to the financial statements, Northwest Preparatory Academy renegotiated its note payable agreement with the lender to allow Northwest Preparatory Academy to make principal and interest payments through fiscal year As such, the Statement of Financial Position reflects the proper current and long-term portions of the renegotiated note payable. In accordance with Government Auditing Standards, we have also issued our report dated December 9, 2011, on our consideration of the Organization s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit Richmond Suite 500 Houston, TX (P) (F) Loop 197 North Suite 200 Texas City, TX (P) (F)

8 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 is presented for purposes 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 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 Schedule of Expenditures of Federal Awards is fairly stated in all material respects in relation to the financial statements as a whole. Houston, Texas December 9, 2011 (Except for Note 3, as to which the date is January 25, 2012)

9 General Purpose Financial Statements

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11 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Statement of Financial Position As of August 31, 2011 and 2010 Assets Current Assets: Cash and Cash Equivalents $ 189,063 $ 28,454 Due from Texas Education Agency 169, ,011 Due from federal agency 6,692 17,937 Prepaid expenses 54,389 2,389 Total current assets 419, ,791 Property and Equipment, net 130, ,642 Total Assets $ 550,349 $ 559,433 Liabilities and Net Assets Liabilities: Current liabilities: Accounts payable $ 80,490 $ 256,068 Accrued salaries payable 51,024 42,468 Due to State 102,138 Current portion of long-term note payable 18, ,000 Total Current Liabilities 252, ,536 Long-term note payable 199,467 Total Liabilities 451, ,536 Net Assets: Unrestricted 3,000 Temporarily Restricted 95,697 42,897 Total Net Assets 98,697 42,897 Total Liabilities and Net Assets $ 550,349 $ 559,433 5

12 MIRACLE EDUCATIONAL SYSTEMS, INC. Page 1 of 2 dba NORTHWEST PREPARATORY ACADEMY Statement of Activities For the Years Ended August and 2010 Unrestricted Revenues Local Support: Other revenues from local sources 3,000 Temporarily Restricted $ $ 12,516 $ 15,516 $ 99,176 Revenue from co-curricular, enterprising services, or activities Total Local Support 3,000 12,516 15,516 99,176 State Program Revenues: Foundation School Program 3,050,163 3,050,163 2,849,263 State Program Revenues Distributed by Texas Education Agency 40,993 40,993 49,635 Total State Program Revenues 3,091,156 3,091,156 2,898,898 Federal Program Revenues: Federal revenues distributed by the TEA 520, ,813 1,119,733 Net Assets Released from Restrictions: Restrictions satisfied by payments 3,823,433 (3,823,433) Total Revenues 3,826,433 (198,948) 3,627,485 4,117,807 The accompanying notes are an integral part of these financial statements 6

13 MIRACLE EDUCATIONAL SYSTEMS, INC. Page 2 of 2 dba NORTHWEST PREPARATORY ACADEMY Statement of Activities For the Years Ended August and 2010 Unrestricted Temporarily Restricted Expenses Instruction $ 1,929,858 $ $ 1,929,858 $ 2,269,163 Curriculum Development and Instructional Staff Development 29,959 29,959 47,979 School Leadership 300, , ,380 Guidance, Counseling & Evaluation Services 69,181 69,181 Health Services 6,753 6,753 8,277 Student (Pupil) Transportation 195, , ,682 Food Services 227, , ,696 Extracurricular Activities 4,337 4,337 5,190 General Administration 308, , ,786 Facilities Maintenance and Operations 653, , ,566 Security and Monitoring Services 83,799 83,799 16,528 Data Processing Services 14,282 14,282 13,050 Total Expenses 3,823,433 3,823,433 3,889,297 Change in Net Assets 3,000 (198,948) (195,948) 228,510 Net Assets, beginning of year 42,897 42,897 (185,613) Prior Period Adjustment 251, ,748 Net Assets, beginning of year - restated 294, ,645 (185,613) Net Assets, end of year $ 3,000 $ 95,697 $ 98,697 $ 42,897 7

14 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Statement of Cash Flows For the Years Ended August 31, 2011 and Cash flows from operating activities: Foundation school program payments $ 3,326,764 $ 2,724,159 Grant payments 551,855 1,169,368 Other state and local revenue payments 56,509 99,176 Payments to vendors for goods and services rendered (1,557,920) (1,997,030) Payments to charter school personnel for services rendered (2,216,598) (2,036,778) Net cash provided (used) in operating activities 160,610 (41,105) Net Change in cash and cash equivalents 160,610 (41,105) Beginning cash and cash equivalents 28,453 69,558 Ending cash and cash equivalents $ 189,063 $ 28,453 Reconciliation of change in net assets to net cash provided (used) by operating activities: Increase (decrease) in net assets $ (195,948) $ 228,510 Adjustments to reconcile increase (decrease) in net assets to net cash provided (used) by operating activities: Depreciation 16,189 19,610 (Increase) decrease in: Due from Texas Education Agency 194,260 (107,167) Due from federal agency 11,245 (17,937) Prepaid expenses (52,000) (Increase) decrease in operating liabilities: Accounts payable 76,170 (141,820) Accrued salaries payable 8,556 (22,301) Due to state 102,138 Net cash provided (used) by operating activities $ 160,610 $ (41,105) The accompanying notes are an integral part of these financial statements 8

15 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Financial Statements Note 1 - Summary of Significant Accounting Policies The general-purpose financial statements of Miracle Educational Systems, Inc. dba Northwest Preparatory Academy (the Organization ) were prepared in conformity with accounting principles generally accepted in the United States. The Financial Accounting Standards Board is the accepted standard setting body for establishing not-for-profit accounting and financial reporting principles. Reporting Entity The corporation is a not-for-profit organization incorporated in the State of Texas in August 1999 and exempt from federal income taxes pursuant to Section 501(c)(3) of the Internal Revenue Code. The corporation is governed by a Board of Directors comprised of seven members. The Board of Directors is selected pursuant to the bylaws of the corporation and has the authority to make decisions, appoint the chief executive officer of the corporation, and significantly influence operations. The Board of Directors has the primary accountability for the fiscal affairs of the corporation. Since the Organization receives funding from local, state, and federal government sources, it must comply with the requirements of the entities providing those funds. Corporate Operations In 2000, the State Board of Education of the State of Texas granted the corporation an open-enrollment charter pursuant to Chapter 12 of the Texas Education Code. Pursuant to the program described in the charter application approved by the State Board of Education and the terms of the applicable Contract for Charter, Northwest Preparatory Academy was opened on September 1, Northwest Preparatory Academy was organized to provide educational services to at-risk elementary and middle school aged students; the programs, services, activities, and functions are governed by the corporation s board of directors. The corporation s charter was issued for a period of five (5) years and expired May An automatic extension of the charter was granted until such time as the State of Texas Board of Education reviews their charter renewal. Basis of Accounting and Presentation The accompanying general purpose financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. In accordance with SFAS No. 117, net assets, revenues, expenses, gains, and losses are classified based on the existence and nature or absence of donor imposed restrictions. Accordingly, net assets of the Academy and changes therein are classified and reported as follows: Unrestricted - net assets that are not subject to donor-imposed restrictions. Temporarily restricted - net assets subject to donor-imposed stipulations that may or will be met either by actions of the corporation, the charter school and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. 9

16 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Financial Statements (continued) Note 1 - Summary of Significant Accounting Policies (continued) Basis of Accounting and Presentation (continued) Permanently restricted - net assets required to be maintained in perpetuity with only the income to be used for the Academy s activities due to donor-imposed restrictions Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Contributions The Organization accounts for contributions in accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made. In accordance with SFAS No. 116, contributions are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in temporarily restricted or permanently restricted net assets in the reporting period in which the support is recognized. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Cash and Cash Equivalents For financial statement purposes, the Organization considers all highly liquid investment instruments with an original maturity of three months or less to be cash equivalents. Capital Assets Capital assets, which include buildings and improvements, furniture and equipment, vehicles, and other personal property, are reported in the general-purpose and specific-purpose financial statements. Capital assets are defined by the Organization as assets with an individual cost of more than $5,000. Such assets are recorded at historical cost and are depreciated over the estimated useful lives of the assets, which range from three to twenty years, using the straight-line method of depreciation. Expenditures for additions, major renewals and betterments are capitalized, and maintenance and repairs are charged to expenses as incurred. Donations of assets are recorded as direct additions to net assets at fair value at the date of donation, which is then treated as cost. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenses. 10

17 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Financial Statements (continued) Note 2 - Capital Assets Capital assets at August 31, 2011 and 2010 were as follows: Buildings and Improvements $ 158,789 $ 158,789 Furniture and Equipment 135, ,738 Total Property and Equipment 294, ,527 Less Accumulated Depreciation (164,073) (147,885) Property and Equipment, Net $ 130,454 $ 146,642 Capital assets acquired with public funds received by the Organization for the operation of Northwest Preparatory Academy constitute public property pursuant to Chapter 12 of the Texas Education Code. These assets are specifically identified on the Schedule of Capital Assets. Note 3 - Long-Term Debt The corporation has a note payable with Managed Mortgage Investment Fund, L.P. The note is dated June 30, 2006 and has a 16 percent interest rate. The original amount of the note was $218,000. No principal amount has been applied to the loan. The outstanding balance due as of August 31, 2011 was $218,000. The interest is paid quarterly. During fiscal year 2011, Northwest Preparatory Academy paid $30,250 under the terms discussed above. As of December 9, 2012, the initial date of our report, the entire principal amount was due and payable in fiscal year However, on January 21, 2012, the Academy renegotiated the terms of the loan. As such, interest on the note payable is 14 percent per annum. Principal and interest payments are due monthly and are shown below. Note 4 - Pension Plan Obligations Plan Description As of Principal Interest August 31, Amount Amount 2012 $ 18,533 $ 14, ,170 25, ,318 19, ,385 12, ,594 4,016 $ 218,000 $ 75,430 The Organization contributes to the Teacher Retirement System of Texas (the System), a public employee retirement system. It is a cost-sharing, multiple-employer defined benefit pension plan with one exception; all risks and costs are not shared by the charter school, but are the liability of the State of Texas. The System provides service retirement and disability retirement benefits, and death benefits to plan members and beneficiaries. The System operates under the authority of provisions contained primarily in Texas Government code, Title 8, Public Retirement Systems, Subtitle C, Teacher Retirement System of Texas, which is subject to amendment by the Texas Legislature. The System's annual financial report and other required disclosure information are available by writing the Teacher Retirement System of Texas, 1000 Red River, Austin, Texas or by calling (800)

18 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Financial Statements (continued) Note 4 - Pension Plan Obligations (continued) Funding Policy Under provisions in State law, plan members are required to contribute 6.40% of their annual covered salary and the State of Texas contributes an amount equal to 6.644% of the charter school s covered payroll. The charter school s employees contributions to the System for the fiscal years ended August 31, 2011 and 2010 were $119,067 and $116,258, respectively, equal to the required contributions for each year. Other contributions made from federal and private grants and from the charter school for salaries for the years ending August 31, 2011 and 2010 were $6,201 and $6,320, respectively, equal to the required contributions for each year. Note 5 - Health Care Coverage During the year ended August 31, 2011, employees of the charter school were covered by a Health Insurance Plan (the Plan). The Organization contributed $150 per month per employee to the Plan. Employees, at their option, authorized payroll withholdings to pay contributions or premiums for dependents. All premiums were paid to licensed insurers. Note 6 - Due from State Amounts due from the Texas Education Agency at August 31, 2011 and 2010 consisted of the following: State Foundation Program Year $ 160,961 $ 121,807 Title IV Part A - Safe & Drug Free 154 Title I Part A - Improving Basic Programs 85,913 Title I - School Improvement 1,112 IDEA B - Formula 25,211 School Breakfast Program 8,790 1,652 Title IIX SFSF - ARRA 15,386 Title I SIP Academy Grant 14,170 IDEA B - Formula - ARRA 13,417 Title I Part A - ARRA Stimulus 70,280 Title I - SIP - ARRA Stimulus 81 SSI - ARI/AMI 10,447 Pre-K Early Start - Tier 3 Year 1 4,381 $ 169,751 $ 364,011 12

19 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Financial Statements (continued) Note 7 - Leases The Organization conducts its administrative activities from facilities that are leased under three-year noncancelable operating lease expiring June 30, The Charter Holder s future lease payments as of August 31, 2011, are as follows: Year Amount $ 25, ,342 Total $ 46,988 On September 15, 2010, the Organization entered into a twelve (12) month renewable lease agreement with SoZo Investment Group, LLC. The facility, located at 600 Charles Street, Humble, Texas 77338, is the physical location of Northwest Preparatory Charter School, and is where the Organization conducts its educational services. Rent under the lease amount to $27,000 monthly beginning October 1, On July 1, 2011, the Organization entered into month-to-month lease agreement for the facility in which the Charter School was previously located. KEW Learning Academy (the Lessee) is required to pay monthly rent in the amount of $3,000. Note 8 - Commitments and Contingencies The Charter Holder receives funds through state and federal programs that are governed by various statutes and regulations. State program funding is based primarily in student attendance data submitted to the Texas Education Agency and is subject to audit and adjustment. Expenses charged to federal programs are subject to audit and adjustment by the grantor agency. The programs administered by the charter school have complex compliance requirements, and should state or federal auditors discover areas of noncompliance, charter school funds may be subject to refund if so determined by the Texas Education Agency or the grantor agency. Note 9 - State Foundation Program Revenue Charter schools in the State of Texas participate in the State foundation program. Under this program, each charter school is entitled to receive these revenues based upon student enrollment and average daily attendance. Each charter school is required to file enrollment and attendance reports at the close of each six weeks reporting period, and at the close of the year, actual attendance is calculated by the TEA and the attendance reports are subject to audit by the TEA and final State foundation program earnings may be adjusted as a result of any such audit. During the period ended August 31, 2011, the Charter Holder was paid $3,106,172 of State foundation program funds of which all was earned (before any possible TEA enrollment and attendance audit). During the year ended August 31, 2011, the Charter Holder had eight days of instruction in August Based on the estimated State Foundation Program revenue for fiscal year as provided by the TEA, $144,290 was earned for these days of instruction. This revenue has been accrued at August 31, 2011, and will be received after September 1,

20 Note 10 - Accrued Salaries During August 2011, Northwest Preparatory Academy's teachers worked nine days for which they were not paid until after September 1, Based on the daily rate of pay and the number of days worked, the Charter Holder accrued $51,024 in teachers' salaries to be paid after September 1, Note 11 - Charter Holder Operations The Charter Holder is Miracle Educational Systems, Inc. The Charter Holder operates only single charter school named Northwest Preparatory Academy and does not conduct any other charter or non-charter activities. Note 12 - Prior Period Adjustment During fiscal year 2011, Northwest Preparatory Academy researched its outstanding accounts payables from prior years and determined that $246,945 were not liabilities of Northwest Preparatory Academy. In addition, there was a receivable related to the Child Nutrition Program that was not recorded in the prior year in the amount of $5,803. Finally, there was a miscellaneous amount of $1,000 that was charged to net assets. Note 13 - Budgetary Comparison Schedule The original and final budgets vary by more than ten percent because the Academy only adopted a budget for the Child Nutrition Fund (240) and General Fund (420). 14

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23 Northwest Preparatory Academy Statement of Financial Position As of August 31, 2011 and 2010 Assets Current Assets: Cash and Cash Equivalents $ 189,063 $ 28,454 Due from Texas Education Agency 169, ,011 Due from federal agency 6,692 17,937 Prepaid expenses 54,389 2,389 Total current assets 419, ,791 Property and Equipment, net 130, ,642 Total Assets $ 550,349 $ 559,433 Liabilities and Net Assets Liabilities: Current liabilities: Accounts payable $ 80,490 $ 256,068 Accrued salaries payable 51,024 42,468 Due to State 102,138 Current portion of long-term note payable 18, ,000 Total Current Liabilities 252, ,536 Long-Term Debt 199,467 Total Liabilities 451, ,536 Net Assets: Unrestricted 3,000 Temporarily Restricted 95,697 42,897 Total Net Assets 98,697 42,897 Total Liabilities and Net Assets $ 550,349 $ 559,433 17

24 Northwest Preparatory Academy Page 1 of 2 Statement of Activities For the Years Ended August and 2010 Unrestricted Revenues Local Support: Other revenues from local sources 3,000 Temporarily Restricted $ $ 12,516 $ 15,516 $ 99,176 Revenue from co-curricular, enterprising services, or activities Total Local Support 3,000 12,516 15,516 99,176 State Program Revenues: Foundation School Program 3,050,163 3,050,163 2,849,263 State Program Revenues Distributed by Texas Education Agency 40,993 40,993 49,635 Total State Program Revenues 3,091,156 3,091,156 2,898,898 Federal Program Revenues: Federal revenues distributed by the TEA 520, ,813 1,119,733 Net Assets Released from Restrictions: Restrictions satisfied by payments 3,823,433 (3,823,433) Total Revenues 3,826,433 (198,948) 3,627,485 4,117,807 18

25 Northwest Preparatory Academy Page 2 of 2 Statement of Activities For the Years Ended August and 2010 Unrestricted Temporarily Restricted Expenses Instruction $ 1,929,858 $ $ 1,929,858 $ 2,269,163 Curriculum Development and Instructional Staff Development 29,959 29,959 47,979 School Leadership 300, , ,380 Guidance, Counseling & Evaluation Services 69,181 69,181 Health Services 6,753 6,753 8,277 Student (Pupil) Transportation 195, , ,682 Food Services 227, , ,696 Extracurricular Activities 4,337 4,337 5,190 General Administration 308, , ,786 Facilities Maintenance and Operations 653, , ,566 Security and Monitoring Services 83,799 83,799 16,528 Data Processing Services 14,282 14,282 13,050 Total Expenses 3,823,433 3,823,433 3,889,297 Change in Net Assets 3,000 (198,948) (195,948) 228,510 Net Assets, beginning of year 42,897 42,897 (185,613) Prior Period Adjustment 251, ,748 Net Assets, beginning of year - restated 294, ,645 (185,613) Net Assets, end of year $ 3,000 $ 95,697 $ 98,697 $ 42,897 19

26 Northwest Preparatory Academy Statement of Cash Flows For the Years Ended August 31, 2011 and Cash flows from operating activities: Foundation school program payments $ 3,326,764 $ 2,724,159 Grant payments 551,855 1,169,368 Other state and local revenue payments 56,509 99,176 Payments to vendors for goods and services rendered (1,557,920) (1,997,030) Payments to charter school personnel for services rendered (2,216,598) (2,036,778) Net cash provided (used) in operating activities 160,610 (41,105) Net Change in cash and cash equivalents 160,610 (41,105) Beginning cash and cash equivalents 28,453 69,558 Ending cash and cash equivalents $ 189,063 $ 28,453 Reconciliation of change in net assets to net cash provided (used) by operating activities: Increase (decrease) in net assets $ (195,948) $ 228,510 Adjustments to reconcile increase (decrease) in net assets to net cash provided (used) by operating activities: Depreciation 16,189 19,610 (Increase) decrease in: Due from Texas Education Agency 194,260 (107,167) Due from federal agency 11,245 (17,937) Prepaid expenses (52,000) (Increase) decrease in operating liabilities: Accounts payable 76,170 (141,820) Accrued salaries payable 8,556 (22,301) Due to state 102,138 Net cash provided (used) by operating activities $ 160,610 $ (41,105) 20

27 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Schedule of Expenses For the Years Ended August 31, 2011 and Expenses 6100 Payroll Costs $ 2,225,154 $ 2,033, Professional and Contract Services 1,190,294 1,256, Supplies and Materials 234, , Other Operating Costs 143, , Debt 30,520 Total Expenses $ 3,823,433 $ 3,889,297 21

28 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Schedule of Capital Assets As of August 31, 2011 Ownership Interest Local State Federal 1520 Leasehold improvements $ $ 158,789 $ 1539 Furniture and equipment 135,738 Total Property & equipment $ $ 294,527 $ 22

29 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Budgetary Comparison Schedule For the Year Ended August 31, 2011 Original Final Revenues Local Support: 5740 Other Revenues from Local Sources $ 5, ,700 Actual Amounts Variance from Final Budget $ $ 15,516 $ (149,184) State Program Revenues: 5810 Foundation School Program Act Revenues 3,040,000 3,113,600 3,050,163 (63,437) 5820 State Program Revenues Distributed by the Texas Education Agency 46,245 40,993 (5,252) Total State Program Revenues 3,040,000 3,159,845 3,091,156 (68,689) Federal Program Revenues: 5929 Federal Revenues Distributed by the Texas Education Agency 160, , ,813 (4,877) Total Revenues 3,205,000 3,850,235 3,627,485 (222,750) Expenses 11 Instruction 1,670,207 1,848,565 1,929,858 (81,293) 13 Curriculum Development and Instructional Staff Development 15,000 33,451 29,959 3, School Leadership 182, , ,446 (9,618) 31 Guidance, Counseling and Evaluation Services 69,621 69, Health Services 7,220 6, Student (Pupil) Transportation 353, , ,590 46, Food Service 219, , ,296 10, Cocurricular/Extracurricular Activities 5,013 4, General Administration 140, , ,455 (22,255) 51 Plant Maintenance and Operations 367, , ,477 13, Security and Monitoring Services 88,206 83,799 73, Data Processing Services 17,873 14,282 17,873 Total Expenses 2,950,002 3,793,200 3,823,433 53,566 Change in net assets 254,998 57,035 (195,948) (252,983) Beginning net assets, restated 294, , ,645 Ending net assets $ 549,643 $ 351,680 $ 98,697 $ (252,983) 23

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31 Compliance, Internal Controls, and Federal Awards 25

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33 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors Northwest Preparatory Academy Houston, Texas We have audited the financial statements of Northwest Preparatory Academy (the Organization ) as of and for the year ended August 31, 2011, and have issued our report thereon dated December 9, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting Management of the Organization is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Northwest Preparatory Academy s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses, as defined above. However, we identified a deficiency in internal control over financial reporting, described in the accompanying schedule of findings and questioned costs that we consider to be significant deficiencies in internal control over financial reporting. We have identified this deficiency as findings # 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 Richmond Suite 500 Houston, TX (P) (F) Loop 197 North Suite 200 Texas City, TX (P) (F)

34 Northwest Preparatory Academy Houston, Texas Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Northwest Preparatory Academy s response to the findings identified in our audit is included in the accompanying schedule of findings and questioned costs. We did not audit the Organization s response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of the Board of Directors, management, others within the Organization, Texas Education Agency and other federal and state awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. Houston, Texas December 9,

35 Independent Auditors Report on Compliance with Requirements that Could have a Direct and Material Effect on each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 To the Board of Directors Northwest Preparatory Academy Houston, Texas Compliance We have audited the compliance of Northwest Preparatory Academy (the Organization ) with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A- 133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended August 31, The Organization's major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Organization management. Our responsibility is to express an opinion on the Organization's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, 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 or state program occurred. An audit includes examining, on a test basis, evidence about the Organization's compliance with those requirements and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Organization's compliance with those requirements. In our opinion, Northwest Preparatory Academy complied in all material respects, with the requirements referred to above that could have a direct and material effect to each of its major federal programs for the year ended August 31, Richmond Suite 500 Houston, TX (P) (F) Loop 197 North Suite 200 Texas City, TX (P) (F)

36 Northwest Preparatory Academy Houston, Texas Page 2 Internal Control over Compliance The management of the Organization is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal and state programs.. In planning and performing our audit, we considered the Organization s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Organization s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Directors, management, others within the organization and the Texas Education Agency and other federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Houston, Texas December 9,

37 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Schedule of Findings and Questioned Costs For the year Ended August 31, 2011 I. Summary of Auditors Results Financial Statements Type of auditors report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? No Significant deficiencies identified that are not considered to be material weaknesses? Yes: Finding #11-01 Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiencies identified that are not considered to be material weaknesses? Type of auditors report issued on compliance with major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a)2-7 OMB Circular A-133? No None Reported Unqualified No Identification of major programs: Name of Federal Program or Cluster: CFDA Numbers U.S. Department of Education Title I, Part A Cluster Title I, Part A Improving Basic Programs A Child Nutrition Cluster School Breakfast Program National School Lunch Program Dollar threshold considered between Type A and Type B Federal $300,000 Programs Auditee qualified as low-risk auditee? No 31

38 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Schedule of Findings and Questioned Costs For the year Ended August 31, 2011 II. Financial Statement Findings Finding #11-01 Supporting Documentation for Journal Entries Criteria: Condition: Effect: Cause: Recommendation: Journal entries, whether routine or nonroutine are supported by adequate documentation and are numbered for tracking purposes. The Academy does not have a system of tracking journal entries in the system. In addition, the Academy identified accounts payable that were not true liabilities of the Academy as identified in Note 12 of the financial statements. However, a journal entry form was not completed in order for review and approval as necessary with all journal entries. We were unable to determine if the journal entry was reviewed and approved by management. When the Academy converted to the new software there were encumbrances that rolled into the new system as accounts payables that should not have been reflected as a liability. The Academy should ensure that all journal entries have substantial documentation and are sequentially numbered in order to track them in the system. III. Federal Awards Findings and Questioned Costs There are no current year federal findings. IV. Status of Prior Year Findings Finding Condition: Status: The Academy had unfavorable budget variances in fiscal year 2010 that were greater than ten percent in several function categories. This finding appears to be resolved. There were unfavorable variances during fiscal year 2011, but none exceeded ten percent of the budgeted amounts by function. In total, the Academy was within budget. V. Corrective Action Plan Response: The internal control related to all journal entries will now require appropriate documentation for each entry. In addition, we will be using an ascending control numbering for the journal entries that will be noted in the accounting records. Then, on a monthly basis, the superintendent will review and approve in writing all journal entries for the month. Responsible Party: Assistant Superintendent of Finance and Operations Estimated Completion Date: Immediately 32

39 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Schedule of Expenditures of Federal Awards For the Year Ended August 31, 2011 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Entity Identifying Federal Program Title Number Number Expenditures U.S. Department of Education Passed Through Texas Education Agency: Title II Part A - Teacher and Principal A $ 29,031 Title XIV SFSF - ARRA A ,290 ESEA Title I Part A - Improving Basic Programs A ,055 IDEA B - Formula * A ,096 IDEA B - Preschool -ARRA* A ,748 Total Passed U.S. Department of Education 334,220 U.S. Department of Agriculture Passed Through Texas Education Agency: National School Lunch Program** ,422 School Breakfast Program** ,602 Fresh Fruit and Vegetables ,569 Total U.S. Department of Agriculture 186,593 Total Expenditures of Federal Awards $ 520,813 *Title I, Part A Cluster ** Special Education Cluster *** Child Nutrition Cluster 33

40 MIRACLE EDUCATIONAL SYSTEMS, INC. dba NORTHWEST PREPARATORY ACADEMY Notes to the Schedule of Expenditures of Federal Awards Note 1 - Standard Financial Accounting System For all federal programs, the Charter Holder used the net asset classes and codes specified by the Texas Education Agency in the Special Supplement to Financial Accounting and Reporting, Nonprofit Charter School Chart of Accounts. Temporarily restricted net asset codes are used to account for resources restricted to or designated for specific purposes by a grantor. Federal and state financial assistance is generally accounted for in temporarily restricted net asset codes. Note 2 - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Organization under programs of the federal government for the year ended August 31, The information in this schedule is presented in accordance with the requirement of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presented only a selected portion of the operations of the Organization, it is not intended to and does not present the financial position, changes in net assets or cash flows of the Organization. Note 3 - Summary of Significant Accounting Polices Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non- Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through entity identifying numbers are presented where available. 34