CHILDREN FIRST, INC. FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 AND REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Transcription

1 FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 AND REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CLEARWATER, FLORIDA

2 TABLE OF CONTENTS Page INDEPENDENT AUDITORS REPORT 1-2 Financial Statements for the Years Ended December 31, 2013 and 2012: Statements of Financial Position 3 Statements of Activities 4-5 Statement of Functional Expenses 6 Statements of Cash Flows 7 Notes to Financial Statements 8-18 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 19 Notes to Schedule of Expenditures of Federal Awards 20 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 FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A Schedule of Findings, Questioned Costs, and Recommendations 25-26

3 29750 U.S. Hwy. 19 North, Suite 101 Clearwater, FL Phone (727) Fax (727) INDEPENDENT AUDITORS' REPORT To the Board of Directors Children First, Inc. Sarasota, Florida We have audited the accompanying financial statements of Children First, Inc., (the Organization), which comprise the statements of financial position as of December 31, 2013 and 2012, and the related statements of activities and cash flows for the years then ended, the related statement of functional expenses for the year ended December 31, 2013, and the related notes to the financial statements. The prior year summarized comparative information included in the statement of functional expenses has been derived from the 2012 financial statements and, in our report dated March 19, 2013, we expressed an unqualified opinion on those 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. 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 auditors consider internal control relevant to the Organization 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 Organization 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. CONTINUED 1

4 INDEPENDENT AUDITORS REPORT - CONTINUED Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of December 31, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended, and its functional expenses for the year ended December 31, 2013 in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audits were 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 consolidated 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 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 March 31, 2014, 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 in considering the Organization's internal control over financial reporting and compliance. Clearwater, Florida March 31,

5 STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2013 AND 2012 ASSETS Current Assets Cash $ 810,015 $ 619,999 Grants and contracts receivable 316, ,409 United Way receivable 124, ,041 Other receivables 23,107 54,577 Prepaid expenses 50,046 27,597 Total current assets 1,324, ,623 Property and Equipment, Net 4,587,284 4,728,739 Other Assets Beneficial interest 7,619 6,650 Deposits 1,824 4,569 9,443 11,219 $ 5,921,001 $ 5,679,581 Current Liabilities LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 239,555 $ 250,705 Deferred revenue 253, ,083 Current portion of notes payable 33,138 31,532 Total current liabilities 526, ,320 Long-Term Liabilities Notes payable, net of current portion 853, ,598 Total liabilities 1,379,792 1,327,918 Net Assets Unrestricted 4,370,044 4,193,538 Temporarily restricted 135, ,848 Permanently restricted 35,821 24,277 Total net assets 4,541,209 4,351,663 $ 5,921,001 $ 5,679,581 See accompanying notes to financial statements 3

6 STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2013 (WITH COMPARATIVE TOTALS FOR 2012) Temporarily Permanently Total Unrestricted Restricted Restricted Revenue and Other Support Federal grant revenue $ 4,989,230 $ - $ - $ 4,989,230 $ 5,197,392 Contract revenue 878, ,897 1,196,507 Contributions and other 629,841-10, , ,759 United Way allocations 121, , , ,831 Program fees 122, , ,166 In-kind contributions 644, , ,843 Special events, net of direct expenses of $118,827 and $83, , , ,990 Interest income including gains from investments 54-1,059 1,113 2,453 Net assets released from restrictions: Expiration of time/use restrictions 123,548 (123,458) (90) - - Total revenue and other support 7,762,025 1,496 11,544 7,775,065 8,540,941 Expenses Program services: Head Start 2,863, ,863,572 2,824,289 Early Head Start 2,560, ,560,740 2,866,634 Early Childhood Education 988, ,620 1,340,360 Families First Initiative 56, ,977 87,456 Other restricted grants 45, , ,291 Supporting services: Management and general 730, , ,726 Fundraising 339, , ,662 Total program and supporting services 7,585, ,585,519 8,711,418 Change in Net Assets Before Other Changes 176,506 1,496 11, ,546 (170,477) Other Changes Loss disposal of assets (39,422) Change in Net Assets 176,506 1,496 11, ,546 (209,899) Net Assets at Beginning of Year 4,193, ,848 24,277 4,351,663 4,561,562 Net Assets at End of Year $ 4,370,044 $ 135,344 $ 35,821 $ 4,541,209 $ 4,351,663 See accompanying notes to financial statements 4

7 STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2012 Temporarily Permanently Total Unrestricted Restricted Restricted 2012 Revenue and Other Support Federal grant revenue $ 5,197,392 $ - $ - $ 5,197,392 Contract revenue 1,196, ,196,507 Contributions and other 926,132 9,000 17, ,759 United Way allocations 117, , ,831 Program fees 124, ,166 In-kind contributions 638, ,843 Special events, net of direct expenses of $83, , ,990 Interest and investment income 1, ,453 Net assets released from restrictions: Expiration of time/use restrictions 132,123 (132,041) (82) - Total revenue and other support 8,525,451 (2,753) 18,243 8,540,941 Expenses Program services: Head Start 2,824, ,824,289 Early Head Start 2,866, ,866,634 Early Childhood Education 1,340, ,340,360 Families First Initiative 87, ,456 Other restricted grants 500, ,291 Supporting services: Management and general 742, ,726 Fundraising 349, ,662 Total program and supporting services 8,711, ,711,418 Change in Net Assets Before Other Changes (185,967) (2,753) 18,243 (170,477) Other Changes Loss disposal of assets (39,422) - - (39,422) Change in Net Assets (225,389) (2,753) 18,243 (209,899) Net Assets at Beginning of Year 4,418, ,601 6,034 4,561,562 Net Assets at End of Year $ 4,193,538 $ 133,848 $ 24,277 $ 4,351,663 See accompanying notes to financial statements 5

8 STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2013 (WITH COMPARATIVE TOTALS FOR 2012) Program Services Supporting Services Early Families Other Total Management Total Head Early Head Childhood First Restricted Program and Supporting Total Expenses Start Start Education Initiative Grants Services General Fundraising Services Salaries $ 1,408,871 $ 1,440,052 $ 456,268 $ 41,487 $ 19,186 $ 3,365,864 $ 497,736 $ 230,524 $ 728,260 $ 4,094,124 $ 4,608,478 Payroll taxes 133, ,363 38,539 2,988 1, ,265 37,582 18,229 55, , ,033 Employee insurance 183, ,355 87,404 3,818 1, ,494 37,044 12,961 50, , ,484 Retirement 48,176 56,862 15,105 1, ,385 19,842 6,804 26, , ,972 Total Salaries and Related Expenses 1,773,991 1,794, ,316 50,292 21,777 4,238, , , ,722 5,098,730 5,662,967 Contractual services 311, ,364 31,053 1,902 4, ,611 88,599 29, , , ,547 Repairs and maintenance 72,533 49,357 30,928-6, ,895 2, , , ,016 Utilities and telephone 67,700 46,674 34, ,242 4,263 2,870 7, , ,878 Rent 236,524 73,587 30, , , ,764 Insurance 42,222 29,936 17, ,565 2,690 1,076 3,766 93,331 90,314 Food and nutrition 175,703 76,099 61,728 1, ,492 3,494 1,503 4, , ,397 Transportation 10,147 1, , ,991 15,663 Staff training and travel 37,432 70,832 2,456-1, ,053 5,055 2,071 7, , ,536 Program supplies 61,291 61,124 23,988 1,732 8, , , ,452 Office supplies and postage 8,299 5,736 1, , ,767 6,926 12,693 28, ,997 Parent activities 4,217 4,556 8, ,050 18, ,054 79,975 Children's screening and therapy 1, , ,235 2,443 Printing and advertising 19,958 14,895 4, ,561 3,029 22,912 25,941 65,502 83,491 Miscellaneous 4, , ,884 14,063 Property tax expense 3,391 2,177 1, , ,906 10,569 Subscriptions and dues 1,900 2, ,566 3,429 2,025 5,454 10,020 13,143 1,058, , ,372 5,908 24,074 2,096, ,256 70, ,733 2,287,129 2,825,248 Total Expenses Before Depreciation 2,832,936 2,551, ,688 56,200 45,851 6,334, , ,995 1,051,455 7,385,859 8,488,215 Depreciation 30,636 9, , ,356 18, , , ,203 Total Expenses $ 2,863,572 $ 2,560,740 $ 988,620 $ 56,977 $ 45,851 $ 6,515,760 $ 730,667 $ 339,092 $ 1,069,759 $ 7,585,519 $ 8,711,418 See accompanying notes to financial statements 6

9 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2013 AND Cash Flows from Operating Activities: Change in net assets $ 189,546 $ (209,899) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 199, ,203 Loss on sale of property and equipment - 39,422 Change in beneficial interest (969) (616) (Increase) decrease in: Decrease (increase) in grants and contract receivable (198,743) 26,008 Decrease (increase) in United Way receivable (4,913) - Decrease (increase) in other receivables 31,470 (10,853) Decrease (increase) in prepaid expenses (22,449) 3,671 Decrease (increase) in deposits 2,745 (3,569) Increase (decrease) in: Increase (decrease) in accounts payable and accrued expenses (11,150) (344) Increase (decrease) in deferred revenue 96,258 (234,410) Net cash provided by (used in) operating activities 281,455 (167,387) Cash Flows from Investing Activities: Proceeds from the disposal of property and equipment - 18,400 Purchases of property and equipment (58,205) (210,313) Net change in investment transactions - 21,131 Net cash used in investing activities (58,205) (170,782) Cash Flows from Financing Activities: Repayment on notes payable (33,234) (31,428) Net Increase (Decrease) in Cash 190,016 (369,597) Cash at Beginning of Year 619, ,596 Cash at End of Year $ 810,015 $ 619,999 See accompanying notes to financial statements 7

10 NOTE A - NATURE OF ORGANIZATION CHILDREN FIRST, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Children First, Inc. (the Organization) is a not-for-profit organization whose purpose is to strengthen children and families by improving the quality of their lives through a comprehensive approach to development, education, health, and well-being. Federal Head Start and Early Head Start programs are available for children from birth to five years of age. Subsidized children and preschool programs are available for families with low income. The Organization also offers The Families First Initiative, which focuses on strengthening families. Funding is provided primarily from the Department of Health and Human Services. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Presentation The financial statements of the Organization are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (US GAAP). The Organization presents information regarding its financial position and activities according to three classes of net assets described as follows: - Unrestricted Net Assets - All resources over which the governing board has discretionary control. The governing board of the Organization may elect to designate such resources for specific purposes. This designation may be removed at the Board s discretion. - Temporarily Restricted Net Assets - Resources accumulated through donations or grants for specific operating or capital purpose. Such resources will become unrestricted when the requirements of the donor or grantee have been satisfied through expenditure for the specified purpose or program or through the passage of time. - Permanently Restricted Net Assets - Resources accumulated through donations or grants that are subject to the restriction in perpetuity that the principal be invested. These net assets include the original value of the gift, plus any subsequent additions. The accompanying financial statements include certain prior year summarized comparative total amounts. Such information does not include sufficient detail to constitute a presentation in conformity with US GAAP. Accordingly, such information should be read in conjunction with the Organization s financial statements for the year ended December 31, 2012 from which summarized information was derived. 8

11 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, as well as pro rata allocations in the recording of expenditures, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Significant estimates included in the financial statements include allocation of expenses by function and useful lives of depreciable assets. 3. Fair Value Measurement The financial statements are prepared in accordance with an accounting standard, for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements or on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The standard also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. 4. Fair Value of Financial Instruments The following methods and assumptions were used by the Organization in estimating the fair value of its financial instruments: Cash - the carrying amount reported in the statements of financial position approximates fair value because of the short maturity of those instruments. Grants receivable - the carrying amount reported in the statements of financial position approximates fair value because of the short maturity of those instruments. 9

12 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Fair Value of Financial Instruments - Continued Accounts payable and accrued expenses - the carrying amount reported in the statements of financial position approximates fair value because of the short maturity of those instruments. Note payable - the fair value of the Organization's debt is at rates offered to the Organization for similar debt instruments of comparable maturities by the Organization s financial institution. Interest rate swap - the fair value of the interest rate swap is based on dealer quotations which generally represents an estimate of the amount the Organization would pay or receive to terminate the agreement at the reporting date. The fair value of the interest rate swap as of December 31, 2013 and 2012 is not material to the financial statements and was not recorded. 5. Cash Cash consists of cash on deposit with financial institutions and petty cash funds. The Organization considers all highly liquid investments with an initial maturity of three months or less as cash. Financial instruments, which potentially subject the Organization to concentrations of credit risk, consist principally of cash held in financial institutions in excess of federally-insured limits. From time to time throughout the years ending December 31, 2013 and 2012, the Organization s cash balance may have exceeded the federally insured limit. However, the Organization has not experienced and does not expect to incur any losses in such accounts. 6. Grants, Contracts, and Other Receivables Contributions are recognized when the donor makes a promise to give to the Organization that is, in substance, unconditional. Unconditional promises to give are reported at fair value at the date the promise is received to the extent estimated to be collected by the Organization. Other conditional promises to give are recognized when the conditions on which they depend are substantially met. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire during the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. 10

13 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Grants, Contracts, and Other Receivables - Continued Grants and contracts receivable represent amounts due from various federal, state, and local agencies for purposes specified by each grant. Management monitors the collection status of its receivable balance on an ongoing basis. The Organization uses the allowance method to determine uncollectible unconditional promises. Based on management s analysis of possible bad debts, an allowance for doubtful accounts was not deemed necessary at December 31, 2013 and Property and Equipment Property and equipment are stated at cost, if purchased or at estimated fair value at the date of receipt if acquired by gift. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Major renewals and betterments are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. It is the policy of the Organization to maintain all property and equipment in good condition. Depreciation expense is provided on a straight-line basis over the estimated useful lives of the assets ranging from 5 40 years. 8. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the statements of financial position. Investment income or loss (including realized and unrealized gains and losses on investments, interest, and dividends) are included as a component in the statements of activities. 9. Deferred Revenue and Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. Revenue is reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Federal grants are considered exchange transactions and are recorded as unrestricted revenue when earned. Certain of the Organization's contract awards are cost reimbursement contracts. Revenue under these contracts is deferred until earned. Revenue is earned and recognized in the financial statements when eligible expenses are incurred. 11

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 10. Donated Services and Materials Donated materials are recorded as support at their fair value at the date of donation. Contributions of services are recorded as support at their estimated fair value if the services received create or enhance non-financial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. For the years ended December 31, 2013 and 2012, the value of contributed services meeting the requirements for recognition in the financial statements has been recorded as unrestricted support. In addition, many individuals volunteer their time and perform a variety of tasks that assist the Organization, but these services do not meet the criteria for recognition as contributed services under the financial accounting standards. 11. Functional Allocation of Expenses The costs of providing the various program and other activities have been detailed in the statement of functional expenses and summarized on a functional basis in the statements of activities. Expenses that can be identified with a specific program service are charged directly to that program, according to their natural expenditure and classification. Certain costs have been allocated among the programs and supporting services benefited based on direct usage or management's estimates of the benefit derived by each activity. 12. Income Taxes The Organization is a not-for-profit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. 13. Uncertain Tax Positions The Organization accounts for the effect of any uncertain tax positions based on a more likely than not threshold to the recognition of the tax positions being sustained based on the technical merits of the position under scrutiny by the applicable taxing authority. If a tax position or positions are deemed to result in uncertainties of those positions, the unrecognized tax benefit is estimated based on a cumulative probability assessment that aggregates the estimated tax liability for all uncertain tax positions. The Organization has identified its tax status as a tax-exempt entity as its only significant tax position; however, the Organization has determined that such tax position does not result in an uncertainty requiring recognition. The Organization is not currently under examination by any taxing jurisdiction. The Organization s federal returns are generally open for examination for three years following the date filed. 12

15 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 14. Derivative Financial Instruments Accounting standards require that all derivative financial instruments, such as interest rate swap contracts and foreign exchange contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. If the derivative is a hedge, depending on the nature of the hedge, a change in fair value of the derivative will either be offset against the change in the fair value of a hedge asset or liability through earnings. The Organization utilizes interest rate swaps to manage interest rate costs and to hedge against risks associated with changing interest rates. The Organization designates interest rate swaps as hedges of specific debt instruments. Interest differentials on interest rate swaps are recognized as adjustments to interest incurred on the related debt instruments. NOTE C - BENEFICIAL INTEREST The Organization established an endowment account with Community Foundation of Sarasota County (CFSC). Although the Organization does not have the right to receive the endowment assets per the Trust Agreement, the contribution to the endowment fund is considered an asset of the Organization as it has been named beneficiary. Earnings on the endowment funds are periodically distributed to the Organization in accordance with the trust agreement. CFSC has been granted variance power over funds contributed by donors to CFSC on behalf of the Organization. Therefore, those donated funds are not considered to be an asset of CFSC. NOTE D - PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2013 and 2012: Land $ 1,220,357 $ 1,220,357 Buildings 4,311,486 4,311,486 Furniture, fixtures, and equipment 869, ,851 Vehicles 157, ,355 Leasehold improvements 628, ,497 7,187,751 7,129,546 Less accumulated depreciation (2,600,467) (2,400,807) $ 4,587,284 $ 4,728,739 13

16 NOTE E - FAIR VALUE MEASUREMENT CHILDREN FIRST, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 The Organization s investments are reported at fair value in the accompanying statements of financial position. During the year ended December 31, 2013, the Organization transferred its beneficial interest in perpetual trust to Level 3 based on additional analysis performed by management. The analysis determined that these items should be reported at Level 3 because the fair values for these assets have unobservable inputs. Following is a description of valuation methodologies used for investments measured at fair value. Beneficial interest in a perpetual trust - the investments are managed by a third party which is unrelated to this Organization. The trust assets are valued based upon the third party information without adjustment. The Organization does not develop nor are they provided with the quantitative inputs used to develop the fair market values. Fair Value Measurements at Reporting Date Using Fair values of assets measured on a recurring basis at December 31, 2013 are as follows: Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Total Assets Inputs Inputs Fair Description: Level 1 Level 2 Level 3 Value Assets Beneficial interest $ - $ - $ 7,619 $ 7,619 Total assets at fair value $ - $ - $ 7,619 $ 7,619 Fair values of assets measured on a recurring basis at December 31, 2012 are as follows: Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Total Assets Inputs Inputs Fair Description: Level 1 Level 2 Level 3 Value Assets Beneficial interest $ - $ - $ 6,650 $ 6,650 Total assets at fair value $ - $ - $ 6,650 $ 6,650 14

17 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE F - LINE-OF-CREDIT The Organization has a revolving line-of-credit with a financial institution, with no outstanding balance as of December 31, 2013 and The line-of-credit permits borrowings up to $200,000, bearing interest at the greater of 3% or prime plus 0.5%. All outstanding principal and interest is due upon maturity on June 26, The line is secured by real property and assignment of pledges. NOTE G - NOTES PAYABLE Notes payable consist of the following at December 31, 2013 and 2012: Note payable to a financial institution, bearing interest at LIBOR plus 2.5% (currently 2.667%), principal and interest payments due monthly, maturing June 30, 2014, at which time all unpaid principal and interest is due, with extension possible through June 30, 2016, secured by real property and assignment of pledges. This note payable was modified and renewed to include an interest rate swap effective June 30, 2011 $ 886,896 $ 920,130 Less current portion (33,138) (31,532) Total notes payable, net $ 853,758 $ 888,958 Future maturities of notes payable as of December 31, 2013 are as follows: 2014 $ 33, , ,912 Total $ 886,896 15

18 NOTE H - FAIR VALUE OF INTEREST RATE SWAP CHILDREN FIRST, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 During June 2011, the Organization entered into a derivative financial instrument with a lender to manage the overall borrowing costs associated with its note payable (NOTE G). At December 31, 2013 and 2012, the outstanding notional balance is $886,896 and $920,130, respectively. This swap matures on June 2014, with an option to terminate through June Credit losses from counterparty non-performance are not anticipated. This agreement fixes the interest rate at 5.10%. The swap is a cash flow hedge, as it has been designated against the note payable carrying a variable rate of interest and converts such loan to fixed debt. Amounts received or paid as a result of the swap agreement are recognized as an expense called change in fair value of interest rate swap in the statements of activities. The net effect on the Organization s operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. The interest rate swap contract is reflected at fair value in the statements of financial position and the related gain (loss) is recognized as a change in net assets. The fair value of the interest rate swap as of December 31, 2013 and 2012 is not material to the financial statements and was not recorded. The fair value is based on dealer quotations which generally represent an estimate of the amount the Organization would pay or receive to terminate the agreement at the reporting date. NOTE I - TEMPORARILY RESTRICTED NET ASSETS As of December 31, 2013 and 2012, temporarily restricted net assets related to the following: United Way - pledges $ 124,954 $ 120,288 Other donations for restricted purposes 10,390 13,560 $ 135,344 $ 133,848 Net assets released from restriction related to temporarily restricted net assets was $123,458 and $132,041 for the years ended December 31, 2013 and 2012, respectively. NOTE J - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets consist of endowments for Nurturing Dads and the Wishnie Memorial Fund which amounted to $35,821 and $24,277 at December 31, 2013 and 2012, respectively. 16

19 NOTE K - IN-KIND CONTRIBUTIONS CHILDREN FIRST, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Certain services are provided to the Organization gratis or at a cost substantially less than fair market value. The difference between that actual charge and the estimated fair market value is reflected as in-kind revenue and expense in the accompanying financial statements. In-kind revenue and expense of $644,817 and $638,843 for the years ended December 31, 2013 and 2012, respectively, consisted primarily of in-kind rent for centers and in-kind professional services. Additionally, volunteers and parents have donated 15,915 and 16,680 hours for 2013 and 2012, respectively, to the Organization in various capacities. However, these services are not reflected in the financial statements as the services do not require specialized skills. The value of other contributed services meeting the requirements for recognition in the financial statements was not material and has not been reflected in the financial statements. NOTE L - OPERATING LEASES The Organization leases center space, a vehicle, and certain office equipment under operating leases, which expire on various dates through The rent expense on these leases for the years ended December 31, 2013 and 2012 was $17,580 and $17,580, respectively. Certain of the Organization's leases for center space have cancellation options requiring notice from 30 to 180 days. Future minimum lease payments required under non-cancelable leases as of December 31, 2013 are as follows: NOTE M - RETIREMENT PLANS 2014 $ 17, , ,497 Total minimum lease payments $ 36,662 The Organization has a 403(b) retirement plan covering all employees who have completed 1,000 or more hours of service within a one-year service period. The Organization's policy was to contribute 5% of eligible employee's compensation to the plan through April 30, This amount was changed to 2% beginning May 1, In addition, for employees contributing at least 1% of compensation, the Organization will also contribute $1 for each $1 the employee contributes to the plan up to 2% of compensation. The employer's contribution vests based on the years of service. Forfeitures are used by the Organization to offset its contribution to the plan. Retirement expense for the years ended December 31, 2013 and 2012 was $149,031 and $265,972, respectively. 17

20 NOTE N - CONCENTRATIONS OF RISK CHILDREN FIRST, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 The Organization received federal funding from the Department of Health and Human Services in 2013 and 2012, which accounted for approximately 70% and 61% of revenues. The Organization receives a substantial amount of support from grantor agencies for its programs. If this support were to be reduced or eliminated, it could affect the operation of the supported programs. In addition, the Organization is subject to audit examination by grantor agencies. In the event that reimbursed expenditures were disallowed, repayments would be required. Management believes the Organization is in compliance with the terms of its grant agreements. NOTE O - SUBSEQUENT EVENTS The Organization evaluated subsequent events through March 31, 2014, the date the financial statements were available and issued. The Organization is not aware of any subsequent events which would require recognition or disclosures in the financial statements. 18

21 SUPPLEMENTARY INFORMATION

22 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS DECEMBER 31, 2013 CFDA Contract Federal Grantor/Pass-through Grantor Program Title Number Number(s) Expenditures U.S. Department of Agriculture: Passed through Florida Department of Health: Child and Adult Care Food Program S-6 $ 335,326 U.S. Department of Health and Human Services Head Start/Early Head Start CH0508/20 4,653,904 Total Expenditures of Federal Awards $ 4,989,230 See notes to schedule of expenditures of federal awards 19

23 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS DECEMBER 31, 2013 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the grant activity of Children First, Inc. and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with accounting principles generally accepted in the United States of America as applicable to non-profit organizations and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. MATCH The Organization is required to provide at least 20% of the cost of the Head Start program through cash or in-kind contributions from non-federal sources. The Organization met this match requirement for the year ended December 31,

24 29750 U.S. Hwy. 19 North, Suite 101 Clearwater, FL Phone (727) Fax (727) 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 Children First, Inc. Sarasota, Florida 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 Children First, Inc. (the Organization), which comprise the statement of financial position as of December 31, 2013, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 31, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Organization 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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization'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 Organization 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. CONTINUED 21

25 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 - CONTINUED Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization 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. 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 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. Clearwater, Florida March 31,

26 29750 U.S. Hwy. 19 North, Suite 101 Clearwater, FL Phone (727) Fax (727) INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board of Directors Children First, Inc. Sarasota, Florida Report on Compliance for Each Major Federal Program We have audited Children First, Inc. s (the Organization) 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 the Organization s major federal programs for the year ended December 31, The Organization 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 the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of the Organization'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 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the Organization's compliance. Opinion on Each Major Federal Program In our opinion, the Organization 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, CONTINUED 23

27 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A CONTINUED Report on Internal Control Over Compliance Management of the Organization 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 Organization s internal control over compliance with the types of requirements that could have a direct and material effect on a 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 the 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. 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 material weakness 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. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Clearwater, Florida March 31,

28 A. Summary of Audit Results CHILDREN FIRST, INC. SCHEDULE OF FINDINGS, QUESTIONED COSTS, AND RECOMMENDATIONS DECEMBER 31, The auditors' report expresses an unqualified opinion on the financial statements. 2. No deficiencies were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements, which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit. 4. No deficiencies relating to the audit of the major federal award programs were reported in the report on compliance with the major federal award programs. 5. The auditors' report on compliance for the major federal award program expresses an unqualified opinion. 6. There were no audit findings that were required to be reported in accordance with Section 510(a) of OMB Circular A The federal programs tested as a major program include the following: Federal Program CFDA No. U.S. Department of Health and Human Services Head Start/Early Head Start The threshold used for distinguishing between Type A and Type B programs was $300, The auditee did qualify as a low risk auditee pursuant to OMB Circular A