ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY (A Not For Profit Corporation)

Transcription

1 ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY (A Not For Profit Corporation) INDEPENDENT AUDITORS REPORT AND FINANCIAL STATEMENTS June 30, 2016 Holcomb & Shreeve PC Mesa, Arizona

2 ARIZONA COMMUNITY DEVELOPMENT CORPORATION DBA LA PALOMA ACADEMY TABLE OF CONTENTS Page Independent Auditors Report 1 Financial Statements: Statements of Financial Position June 30, Statements of Activities for the Year Ended June 30, Statements of Cash Flows for the Year Ended June 30, Notes to Financial Statements 6 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance With Government Auditing Standards 13 Independent Auditors Report on Compliance for each Major Program and on Internal Control over Compliance Required by Uniform Guidance 15 Schedule of Expenditures of Federal Awards 19 Schedule of Findings and Questioned Costs 20

3 To the Board of Directors Arizona Community Development Corporation dba La Paloma Academy Financial Statements INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of Arizona Community Development Corporation dba La Paloma Academy (School) as of June 30, 2016, and for the year then ended, 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 auditors 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arizona Community Development Corporation dba La Paloma Academy as of June 30, 2016, and the changes in their net assets and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2016 on our consideration of the School 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 in considering the School s internal control over financial reporting and compliance. Our audit was performed for the purpose of forming an opinion on the basic financial statements of Arizona Community Development Corporation dba La Paloma Academy taken 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 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Holcomb & Shreeve, P.C. Mesa, Arizona December 18,

5 ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY STATEMENT OF FINANCIAL POSITION June 30, 2016 ASSETS Current assets Cash $ 3,112,739 Accounts receivable 181,104 Total current assets 3,293,843 Property and equipment, net 14,151,544 Other assets Bond issue costs, net 741,854 Deposits 20,633 Total other assets 762,487 Total assets $ 18,207,874 LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued liabilites 181,035 Accrued payroll and related expenses 311,495 Current portion of bond payable 300,000 Bond interest payable 262,700 Total current liabilities 1,055,230 Long term liabilities Bond payable, net 14,878,341 Total long term liabilities 14,878,341 Total liabilities 15,933,571 Unrestricted net assets 2,274,304 Total liabilities and net assets $ 18,207,874 The accompanying notes are an integral part of the financial statements 3

6 ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Revenue Revenue from local sources $ 295,821 Revenue from state sources 12,439,876 Revenue from federal sources 2,048,879 Total revenue 14,784,576 Expenses Salaries and related expenses 7,274,415 Professional services 1,321,398 Purchased property services 823,781 Other purchased services 539,855 Supplies 1,444,660 Interest expense 1,005,144 Depreciation expense 530,766 Amortization expense 26,183 Other 104,237 Total expenses 13,070,439 Change in net assets 1,714,138 Unrestricted net assets, beginning of the year 560,166 Unrestricted net assets, end of the year $ 2,274,304 The accompanying notes are an integral part of the financial statements 4

7 ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016 Cash flows from operating activities Change in unrestricted net assets $ 1,714,138 Adjustments to reconcile change in net asset deficit to net cash used in operations: Depreciation expense 530,766 Amortization 26,183 Changes in operating assets and liabilties: Increase in accounts receivable (12,854) Increase in accounts payable and accrued expenses 44,598 Decrease in accrued payroll and related expenses (222,563) Increase in deposits (2,500) Net cash from operating activities 2,077,767 Cash flows from investing activities Increase in fixed assets (725,749) Net cash from investing activities (725,749) Cash flows from financing activities Decrease in accrued interest (4,531) Change in net bond payable (947) Net cash from financing activities (5,478) Net change in cash 1,346,540 Cash at beginning of the year 1,766,199 Cash at end of the year $ 3,112,739 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,005,144 The accompanying notes are an integral part of the financial statements 5

8 ARIZONA COMMUNITY DEVELOPMENT CORPORATION DBA LA PALOMA ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Arizona Community Development Corporation dba La Paloma Academy (School) is an Arizona not for profit organization established in The School is committed to providing the highest quality education where children can achieve their full academic potential. This is accomplished by individualized instruction in core curriculum, low teacher student ratios, and a qualified teaching staff. The School s goal is to provide a safe, structured environment which encourages the development of strong family values, where a child becomes not only a well rounded scholastic student but also a lifelong responsible citizen. The School operates under a charter contract with the Arizona State Board for Charter Schools (Sponsor), which mandates policy and operational guidelines. The School provides educational services in Tucson, Arizona in kindergarten through eighth grades, and is funded primarily through its sponsor, based on student membership. Basis of Presentation The financial statements use the accrual method of accounting and the presentation follows the recommendations of the Financial Accounting Standards Board ASC 958. The School is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. As of June 30, 2016, the Organization had only unrestricted net assets. Revenue Recognition Revenues received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any grantor restrictions. All grantor restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The School receives support from the Arizona Department of Education (ADE) based on the number of students. Revenues from this support are recognized in the month it is earned. The School records a receivable if all earned support has not been received by year end. State sourced income also includes Instructional Improvement Fund and Classroom Site Fund payments received from ADE. Functional Expenses Directly identifiable expenses are charged to program services. 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 School. Contributions and Donated Services Contributed materials and services are recorded at their estimated fair value if they enhance the School s non financial assets or require specialized skills that the School would normally purchase if not provided by donation. A substantial number of volunteers (primarily parents of attending students) have donated a substantial amount of time in the School s social and fundraising efforts. These donated services are not reflected in the financial statements since the services do not meet the recognition criteria of FASB ASC

9 Cash and Cash Equivalents The School considers all bank accounts and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of three checking, one money market, two holding and two petty cash accounts. Property and Equipment Major acquisition of property and equipment, and material expenditures for repairs, maintenance, renewals, and betterments that extend 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 the straight line method over the useful life of thirty years for buildings and five years for vehicles and office equipment. Personal property and real property with a cost of $1,000 and $3,000 or greater, respectively, are capitalized. When property and equipment are sold or discarded the cost and related accumulated depreciation are removed from the accounts with any resulting gain or loss reflected in the statement of activities. 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. Due to their nature, actual results could differ from those estimates. Fair Value of Financial Instruments The School has a number of financial instruments, none of which are held for trading purposes. The School estimates that the fair value of all financial instruments at June 30, 2016 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying financial statements. Concentration of Credit Risk The School places its cash and cash equivalents with creditworthy, highquality financial institutions. Occasionally, amounts held in financial institutions are in excess of the Federal Deposit Insurance Corporation limit of $250,000. Management believes the School is not exposed to significant credit risk on those amounts. The School has not experienced any losses on its cash and cash equivalents. During the year ended June 30, 2016, the School received a substantial amount of its support (approximately 84%) from the contract with the Arizona Department of Education. The loss of support from this major source of funds would have an adverse effect on the School s programs and activities. Advertising The School follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the year ended June 30, 2016 was $181,761. Income Taxes The School qualifies as a tax exempt organization under Section 501(c)(3) of the Internal Revenue Code and under Arizona Revised Statutes Under these code sections, the School has no provision for federal or state income taxes for its exempt function activities. Income determined to be unrelated business income would be taxable. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through December 18, 2016, the date the financial statements were available to be issued: In April 2015, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update ( ASU ) No ,Simplifying the Presentation of Debt Issuance Costs. The guidance requires that debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and is required to be applied retrospectively. Early adoption is permitted. We have not adopted ASU but upon adoption, we will reclassify our 7

10 debt issuance costs related to existing debt liabilities from assets to liabilities on the balance sheet. At June 30, 2016, we have $ 741,854 of debt issuance costs recorded as assets on the balance sheet NOTE 2 CASH AND CASH EQUIVALENTS The School maintains all of its cash with three financial institutions. The carrying amount of deposits at June 30, 2016 was $3,112,739 and the bank balance was $3,340,507. As of June 30, 2016, $2,840,507 of the bank balance was not covered by federal depository insurance. NOTE 3 FUNCTIONAL CLASSIFICATION OF EXPENSES The following is a summary of the School s expense by function for the fiscal year ended June 30, 2016; Program services $ 8,115,305 Support services: Management and general 4,955,134 Total $ 13,070,439 NOTE 4 PROPERTY AND EQUIPMENT Property and equipment at June 30, 2016 consisted of the following: Life Buildings and improvements $ 13,617, years Land and improvements 3,118,041 Leasehold improvements 330, years Construction in process 816,069 Furniture and equipment 1,336, years 19,218,264 Less accumulated depreciation 5,066,720 $ 14,151,544 Depreciation expense totaled $530,766 for the year ended June 30, Bond issue costs Bond issue costs are being amortized using the straight line method over the life of the bonds which is thirty years. For the year ended June 30, 2016 the total amortization of bond issuance costs is $26,183. NOTE 5 RETIREMENT PLAN Plan Description The School contributes to a cost sharing multiple employer defined benefit pension plan; a cost sharing, multiple employer defined benefit health care plan; and a cost sharing, multipleemployer defined benefit long term disability plan, all of which are administered by the Arizona State Retirement System. The Arizona State Retirement System (through its Retirement Fund) provides retirement (i.e., pension), death, and survivor benefits; the Health Benefit Supplement Fund provided health insurance premium benefits (i.e., a monthly subsidy); and the Long Term Disability Fund provides long term disability benefits. Benefits are established by state statute. The System is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. 8

11 The System issues a comprehensive annual financial report that included financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North Central Avenue, PO Box 33910, Phoenix, AZ or by calling (602) or (800) Funding Policy The Arizona State Legislature establishes and may amend active plan members and the School s contribution rates. For the year ended June 30, 2016, active plan members were required by statute to contribute at the actuarially determined rate of 11.47% (11.35 percent for retirement and 0.12 percent for long term disability) of the members annual covered payroll and the School was required by statute to contribute at the actuarially determined rate of 11.47% (11.35 percent for retirement and 0.12 percent for long term disability) of the members annual covered payroll. The School s contributions to the System for the year ended June 30, 2016 was $595,413, which was equal to the members required contributions for the year. NOTE 6 BONDS PAYABLE The Industrial Development Authority of the County of Pima (IDA) issued tax exempt Education Revenue Bonds (Bonds) under an Indenture of Trust dated November 1, The bond proceeds were used by the School for the financing of the costs of acquiring, constructing, renovating, and/or equipping educational facilities for the School; paying off the 2005 bonds; paying the issuance costs of the bonds; and establishing reserve accounts as required by the bond agreement. The School is obligated to the IDA under its respective loan agreement and promissory note to make payments sufficient to pay the principal, premium, and interest on its loan; and to pay its share of ongoing costs. The Schools have pledged substantially all of their revenues in order to meet their obligations under the loan agreement and promissory note. The primary revenue of the School is state equalization assistance, which is statutorily owed by the State to the School based on student enrollment. The School has irrevocably directed the State to make their monthly state equalization payments directly to the trustee of the bonds so long as any of its obligations under the loan agreement remain outstanding and unsatisfied. The trustee of the bonds calculates and retains the amount due under the loan agreement and remits the remaining state equalization payments to the School. Additionally, the loan agreement contains restrictive covenants including, but not limited to, minimum amounts of insurance, maintenance of tax exempt status, prohibition of the occurrence and continuation of any event of default under any other indebtedness, prohibition of any untrue representations or warranties made by the School, maintenance of minimum balance in the operating reserve fund, compliance with arbitrage requirements, and timely financial reporting. The loan agreement and promissory note remain in force until either all payments required by the promissory note have been paid or there are sufficient monies in the reserve funds to redeem all outstanding bonds. The reserve funds are held in trust solely for the benefit of the bondholders. The Schools have no legal, equitable or reversionary right to the reserve funds. In the event of default of the loan agreement by the School amounts held in the reserve funds and any proceeds from the sale of collateral will be used to satisfy the bonds. If at any time the amount in the reserve funds exceeds the aggregate principal amount of bonds outstanding plus any redemption premium, the reserve funds will be used to redeem all outstanding bonds and, accordingly, the School s obligation under the loan agreement and promissory note ceases. 9

12 Bonds payable as of June 30, 2016 consist of: Bonds payable to The Industrial Development Authority of the County of Pima, original amount of $16,880,000, interest rate of 6.25% to 6.5%, payable in monthly installments through July 1, 2039, secured by cash held by trustee, real and personal property. $ 16, Less bond reserve funds excluding accrued interest 1,276,659 Bond principal net of reserves 15,178,341 Less current portion 300,000 $ 14,878,341 Principal maturities of long term debt for the next five years ending June 30, are as follows: , , , , ,500 Thereafter 14,657,500 $ 16,455,000 Interest paid on the bond for the year ending June 30, 2016 was $1,005,144 Debt coverage ratio The debt service coverage ratio is calculated by dividing the Schools net income available for debt services, as defined in the bonds, by the maximum annual debt service for the bonds. For the year ended June 30, 2016 the debt service coverage ratio is 2.39 calculated as follows: Change in net assets $ 1,714,138 Add: Amortization (including costs of extinguished debt) 26,183 Depreciation 530,766 Bond interest 1,005,144 Net income available for debt service $ 3,276,231 Maximum annual debt service under bonds 1,372,263 Debt service coverage 2.39 NOTE 7 LITIGATION, COMMITMENTS, CONTINGENCIES Compliance The School s compliance with certain laws and regulations is subject to review by their Sponsor and the State of Arizona, Office of the Auditor General and Department of Education. Such reviews could result in an adjustment of state equalization assistance. Litigation The School is contingently liable for claims, either asserted or unasserted, and judgments resulting from lawsuits, incidental to the normal operation of a school. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these matters will have a material adverse effect on the School s financial position, results of operation, or liquidity. Accordingly, no provision for possible losses is reflected in the financial statements. 10

13 Operating leases The School leases equipment under the provisions of long term lease agreements classified as operating leases. Total rental expense under operating leases for the year ended June 30, 2016 was $301,466. Future minimum rents under these leases are as follows: Years ending June 30, 2017 $34, , , The School entered into a material lease agreement with La Buena Vida Properties, LLC, a Delaware Corporation. The lease is for the administrative offices occupied by APEX and is for an initial term of five years, payable at $7,875 per month, with annual escalators each year. Future minimum payments under this lease is as follows: Years ending June 30, 2017 $ 99, ,313 On April 17, 2014, the School entered into two Solar Savings Agreements and related Site Leases for the purchase of energy from solar photovoltaic devices installed at the Central and Lakeside campuses. The agreements are for twenty years with initial monthly payments totaling $12,403 with a 2% annual escalator. The initial energy price is estimated to be 14% below the market price paid by the School prior to the installation of the solar energy system and is expected to yield similar savings through the duration of the agreement. The agreement contains a buyout provision upon completion of its term at fair market value. Future minimum payments under these lease agreements are as follows: Years ending June 30, 2017 $ 155, , , , ,449 Thereafter $2,467,062 These leases are considered operating leases and are not capitalized because they represent a commitment to purchase future services rather than the acquisition of equipment. NOTE 9 RELATED PARTY TRANSACTIONS Commencing with the school year the School entered into a material management agreement with APEX Charter Services, LLC (APEX) whereby APEX provides management services to the School in lieu of personnel and related costs of persons formerly managing the School as employees. APEX serves other schools as well in a like capacity and was created to save payroll taxes by consolidating multiple W 2 s into one W 2 for each of the several employees working for APEX. The sole member of APEX is the Director of the School so the agreement represents a contract with a related party. During consideration of the service agreement the Director disclosed her duality of interest and recused herself from discussion or voting on approval of the agreement. The disinterested 11

14 members of the Board determined that the service agreement was fair and reasonable to the School and approved the agreement. During the year ended June 30, 2016, the School was billed $1,075,289 under the management agreement. APEX, in addition to the management agreement, provided truancy services to the School. During the year ended June 30, 2016, the School was billed $55,000 for these services. The School, as described in Note 8, entered into a material lease agreement with La Buena Vida Properties, LLC. The lease is for the administrative offices occupied by APEX. The sole member of La Buena Vida Properties is the Director of the School so the agreement represents a contract with a related party. During consideration of the lease agreement the Director disclosed her duality of interest and recused herself from discussion or voting on approval of the agreement. The disinterested members of the Board determined that the service agreement was fair and reasonable to the School and approved the agreement. During the year ended June 30, 2016, the School was billed $83,813 for this lease. Two persons have been added to the Corporate Governing Board who have substantial financial dealings with the Company. Karen Gavender is an owner and officer of McFadden/Gavender Advertising, Inc. During the fiscal year ended June 30, 2016 the agency was paid $170,231 for advertising services. Tony Santa Maria is the owner of A.L. Santa Maria Design & Construction, Inc. During the fiscal year ended June 30, 2016 the company was paid $390,700 for construction and maintenance services. Management asserts that such services were performed on an arms length, fair market basis. NOTE 10 CLASSROOM SITE FUND Classroom Site Project In June of 2000, the Arizona Legislature created a Classroom Site Fund (CSF) to be administered by the Arizona Department of Education (ADE). The CSF was created to provide funding to school districts and charter schools for designated purposes. The measure (Proposition 301) was approved by the voters of Arizona and was implemented after May 31, Proposition 301 authorizes the State to levy and collect 0.60% sales tax for educational purposes. The ADE administers and allocates CSF funds to the School based on student count and other factors specified by statute. The School must allocate funding from CSF according to the following statutory parameters: 40% of the funds must be used for performance based teacher compensation increases and teacher employment related expenses 40% of the funds must be used for maintenance and operations purposes including: class size reduction, teacher compensation increases, AIMS intervention programs, teacher development, dropout prevention programs, and teacher liability insurance premiums; 20% of the funds must be used for teacher base salary increases and employment related expenses. The CSF funds are nonreverting; therefore, unspent monies at fiscal year end may be used in future years. However, restrictions placed on the original allocation of revenues apply in future years. Therefore, the unexpended balance must be carried forward in each of the three categories. As of June 30, 2016, the School had a cash carryover balance of $156,

15 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 Arizona Community Development Corporation dba La Paloma Academy We have audited, 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, the financial statements of Arizona Community Development Corporation dba La Paloma Academy (School), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to financial statements, and have issued our report thereon dated December 18, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the School 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 the School's internal control. Accordingly, we do not express an opinion on the effectiveness of the School'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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the School 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 a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the School s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, 13

16 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 did not disclose any instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management and the Board of Directors of the School in the Arizona State Board for Charter Schools USFRCS Compliance Questionnaire dated December 18, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Holcomb & Shreeve, P.C. Mesa, Arizona December 18,

17 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors Arizona Community Development Corporation dba La Paloma Academy Report on Compliance for Each Major Federal Program We have audited Arizona Community Development Corporation dba La Paloma Academy s (the School) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have that could have a direct and material effect on each of Arizona Community Development Corporation dba La Paloma Academy s major federal programs for the year ended June 30, The School s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Arizona Community Development Corporation dba La Paloma Academy 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 State of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the School s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Arizona Community Development Corporation dba La Paloma Academy s compliance. 15

18 Opinion on Each Major Federal Program In our opinion, the School complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Arizona Community Development Corporation dba La Paloma Academy is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the School s internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the School s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness 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 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. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of the testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by Uniform Guidance We have audited the financial statements of Arizona Community Development Corporation dba La Paloma Academy as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School s basic financial statements. We have issued our report thereon dated December 18, 2016, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of 16

19 federal awards is presented for purposes of additional analysis as required by the Uniform Guidance 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 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. This report is intended solely for the information and use of the board of directors, management, the Arizona State Board for Charter Schools, the State of Arizona, Department of Education and federal awarding agencies and is not intended to be and should not be used by anyone other than these specified parties. Holcomb & Shreeve, P.C. Mesa, Arizona December 18,

20 ARIZONA COMMUNITY DEVELOPMENT CORPORATION DBA LA PALOMA ACADEMY SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2016 SECTION I SUMMARY OF AUDITORS RESULTS Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified that are not considered to be a material weakness(es)? yes X none reported Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs: Material weakness(es) identified? yes X no Significant deficiency(ies) identified that are not considered to be a material weakness(es)? yes X none reported Type of auditors report issued on compliance for each major program listed below Unmodified Any audit findings disclosed that are required to be reported In accordance with the uniform guidance? yes X no Identification of major programs: CFDA Numbers Name of Federal Program or Cluster A Title I Grants to LEAS National School Lunch Program Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low risk auditee? X yes no 18

21 ARIZONA COMMUNITY DEVELOPMENT CORPORATION dba LA PALOMA ACADEMY Schedule of Expenditures of Federal Awards June 30, Expenditures Federal Agency Name Pass Through Agency Federal Program Title CFDA Number Other Identification Number From Direct Awards From Pass Through Awards US Dept of Education AZ Dept of Ed Title I Grants to Local Education Agencies A 15FT1TTI A x 798,026 US Dept of Education AZ Dept of Ed Title II Improving Teacher Quality A 15FT1TTII A x 13,672 US Dept of Education AZ Dept of Ed Title III LEP Program A 15FELLEP A x 36,271 US Dept of Education AZ Dept of Ed IDEA Basic Ent A 15FESCBG A x 223,345 US Dept of Agriculture AZ Dept of Ed National School Lunch Program Unknown x 886,385 US Dept of Agriculture AZ Dept of Ed NSLP -School Equipment Grant Unknown x 26,801 Total federal awards 1,984,500 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Schedule of Expenditure s of Feder al Awards includes the federal grant activity of Arizona Community Development Corporation dba La Paloma Academy and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 2. INDIRECT COST RATE The organization has not elected to use the 10% de minimis indirect cost rate Total Footnote 19

22 ARIZONA COMMUNITY DEVELOPMENT CORPORATION DBA LA PALOMA ACADEMY SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2016 FINDINGS AND QUESTIONS RELATED TO INTERNAL CONTROL AND COMPLIANCE None noted PRIOR YEAR FINDINGS RELATED TO INTERNAL CONTROL AND COMPLIANCE None noted FINDINGS AND QUESTIONS COSTS RELATED TO FEDERAL AWARDS None noted PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None noted 20