ELSIE WHITLOW STOKES COMMUNITY FREEDOM PUBLIC CHARTER SCHOOL

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1 ELSIE WHITLOW STOKES COMMUNITY FREEDOM PUBLIC CHARTER SCHOOL Financial Statements and Supplemental Schedules Together with Reports of Independent Public Accountants For the Year Ended June 30, 2010

2 JUNE 30, 2010 CONTENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS Statement of Financial Position 3 Statement of Activities and Changes in Net Assets 4 Statement of Cash Flows 5 Notes to the Financial Statements 6 SUPPLEMENTARY INFORMATION Supplemental Schedule of Vendor Payments over $25, Report of Independent Public Accountants 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 14 Report of Independent Public Accountants on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 18 Notes to the Schedule of Expenditures of Federal Awards 19 Schedule of Findings and Questioned Costs 20 Schedule of Prior Year Audit Findings 28

3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Trustees Elsie Whitlow Stokes Community Freedom Public Charter School We have audited the accompanying statement of financial position of the Elsie Whitlow Stokes Community Freedom Public Charter School, Inc. (the School), for the year ended June 30, 2010, and the related statements of activities and changes in net assets and cash flows for the year then ended. These financial statements and supplemental schedules are the responsibility of the School's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America, and with the auditing standards established pursuant to the District of Columbia School Reform Act, Public law No , 110 Stat , 2204(B)(ii)(B)(ix)(1996); D.C. Official Code (ii)(B)(2001, as amended). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the School as of June 30, 2010, and the changes in its net assets and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December XX, 2010, on our consideration of the School s internal control over financial reporting and our tests of its compliance with laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit I Street 9 th Floor Washington, DC P F

4 Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards, which is required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and the schedule of vendor payments are presented for the purpose of additional analysis 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. Washington, DC December XX,

5 Statement of Financial Position As of June 30, 2010 ASSETS Cash $ 38,221 Accounts receivable, net 25,509 Grants and other receivable, net 444,957 Prepaid expenses 4,808 Property and equipment, net 10,364,883 Security deposits 4,143 Total Assets $ 10,882,521 LIABILITIES AND NET ASSETS Liabilities Bank overdraft $ 17,206 Accounts payable and accrued expenses 824,668 Deferred revenue 101,383 Capital lease 72,723 Notes payable 8,568,998 Total Liabilities 9,584,978 Net Assets Unrestricted 1,256,507 Temporarily restricted 41,036 Total Net Assets 1,297,543 Total Liabilities and Net Assets $ 10,882,521 The accompanying notes are an integral part of this financial statement. 3

6 Statement of Activities and Changes in Net Assets For the Year Ended June 30, 2010 UNRESTRICTED NET ASSETS Revenue and Support Per pupil allocations $ 4,792,736 Federal entitlements 752,738 Federal grants 440,826 Grants and contributions 8,762 Before and after care 83,663 Donated services 16,126 Student fees 10,430 Food services 8,077 Interest income 515 Other 61,975 Total Revenue and Support 6,175,848 Satisfaction of Program Restrictions Revenue released from restriction 77,754 Total Revenue and Support 6,253,602 Expenses Program Services: Instruction 2,899,181 Student support services 426,191 Food services 200,445 Total program services 3,525,817 Supporting Services: Deveopment 136,610 General and administrative 2,454,314 Total supporting services 2,590,924 Total Expenses 6,116,741 Change in Unrestricted Net Asset 136,861 TEMPORARILY RESTRICTED NET ASSETS Grants and contributions 49,000 Net assets released from restrictions (77,754) Change in Temporarily Restricted Net Assets (28,754) Changes in net assets 108,107 Net assets, beginning of year 510,580 Restatement of net assets 678,856 Net Assets, End of Year $ 1,297,543 The accompanying notes are an integral part of this financial statement. 4

7 Statement of Cash Flows For the Year Ended June 30, 2010 Cash Flows from Operating Activities Changes in net assets $ 756,116 Adjustments to reconcile changes in net assets to net cash from operating activities: Depreciation 330,768 Donated property contribution (7,500) Effect of changes in non-cash operating assets and liabilities: Accounts receivable (1,734) Grants and other receivables (237,726) Prepaid expenses 3,310 Security deposits 12,018 Accounts payable and accrued expenses 70,103 Deferred revenue (736,317) Net Cash from Operating Activities 189,038 Cash Flows from Investing Activities Purchases of property and equipment (54,225) Cash Flows from Financing Activities Book overdraft 43 Principal payments on capital leases (30,842) Principal payments on notes leases (96,640) Net Cash from Financing Activities (127,439) Net change in cash 7,374 Cash, beginning of year - Cash, End of Year $ 7,374 Supplemental Disclosure Cash paid during the year for interest $ 309,971 Supplemental Disclosure of Non-cash Investing and Financing Activities Fixed assets acquired by entering into capital leases $ 50,046 Donated property $ 7,500 The accompanying notes are an integral part of this financial statement. 5

8 Notes to the Financial Statements June 30, ORGANIZATION AND PROGRAM Elsie Whitlow Stokes Community Freedom Public Charter School, Inc. (the School) was incorporated in 1998 as a public charter school and enrolls students in kindergarten through sixth grade. The School s mission is to provide an exemplary academic experience in a small nurturing environment to 250 culturally diverse, young children and to focus on high academic standards, early foreign languages, multi-cultural and international education, and to prepare students for citizenship through community service. The School s revenue and other support consist primarily of contributions and grants from the District of Columbia and the Federal government. On July 1, 1998, the School entered into a contract with the District of Columbia Board of Education granting the School a charter for the establishment of a public charter school in Washington, DC. The charter expires on June 30, 2012, and can be renewed. The Board of the Education has the authority to revoke the charter for violations of applicable laws and conditions, terms and procedures set forth in the charter. The School s charter provides for enrollment of up to 250 students in kindergarten through sixth grade. Under the provisions of the contract, the District of Columbia Board of Education is to make annual payments to the School for services provided to the students based on the number of students attending the School each year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the School have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Accounts and Grant Receivable The School provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The School s estimate is based on historical collection experience and a review of the current status of accounts and grants receivable. It is reasonably possible that the School s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $2,000 as of June 30,

9 Notes to the Financial Statements June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and Equipment Fixed assets valued in excess of $500 are capitalized and recorded at cost if purchased or estimated fair market value as of the date of gift, if donated. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which range from 3 to 39 years. Net Assets Unrestricted net assets are assets and contributions that are not restricted by donors or for which restrictions have expired. Temporarily restricted net assets are those whose uses by the School have been limited by donors primarily for a specific time period or purpose. When a donor restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets. If a donor restriction is met in the same reporting period in which the contribution is received, the contribution (to the extent that the restrictions have been met) is reported as unrestricted net assets. Permanently restricted net assets are those that are restricted by donors to be maintained by the School in perpetuity. There were no permanently restricted net assets as of June 30, Contributions and Grants Contributions are recorded when pledged and classified as unrestricted or temporarily restricted support depending on the existence and/or nature of any donor restrictions. Temporarily restricted contributions and grants whose restrictions are fulfilled in the same period are recorded as unrestricted support in the statement of activities and changes in net assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions. Federal and Charter School Funding The School receives a student allocation from the District of Columbia as well as Federal funding to cover the cost of academic expenses. The student allocation is on a per pupil basis and includes the academic year funding, special education funding and a facilities allotment. The School recognizes this funding in the year in which the school term is conducted. Funding received in advance of the school term is recorded as deferred revenue in the accompanying statement of financial position. 7

10 Notes to the Financial Statements June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Functional Expense Allocation The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services that benefit from those costs. General and administrative expenses include those expenses that are not directly identified with any other specific function but provide for the overall support and direction of the School. Income Taxes The School is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable District of Columbia income tax laws. Restatement of Beginning Net Assets The net asset balance as of July 1, 2009, was restated by $678,856 to properly state deferred revenue. Net assets increased and deferred revenue decreased by $678,856 as of July 1, Subsequent Events The School evaluated the accompanying financial statements for subsequent events and transactions through December XX, 2010, the date the financial statements were available for issue, and have determined that no material subsequent events have occurred that would affect the information presented in the accompanying financial statements or require additional disclosure. 8

11 Notes to the Financial Statements June 30, PROPERTY AND EQUIPMENT As of June 30, 2010, fixed assets consisted of the following: Amount Estimated Useful Life Building $ 10,735,987 5 years Furniture and equipment 392, years Donated Assets 135,220 5 years Auto 9,002 5 years Capital Leases 121, years Total 11,393,507 Less: accumulated depreciation 1,028,624 Fixed assets, net $ 10,364,883 Depreciation expense was $330,768 for the year ended June 30, CAPITAL LEASE OBLIGATION The School leases office equipment under capital leases that expire at various times through October, The leased equipment is included in property and equipment at a cost of $72,723 with accumulated amortization of $ 47,753 for the year ended June 30, Future minimum lease payments of the above leases approximate the following: Years Ending June 30, Amount 2011 $ 43, , , ,356 Total minimum lease payment 74,783 Less: Amount representing interest (2,060) Present value of net minimum lease payment $ 72,723 9

12 Notes to the Financial Statements June 30, NOTES PAYABLE Notes payable consist of the following as of June 30, 2010: $7,000,000 construction note payable from United Bank dated July 31, This note bears interest at 3.75%. Interest due monthly through January, 2009 and thereafter, principal and interest payment of $39,666 due monthly through January 31, $ 6,705,533 $1,000,000 note payable from Building Hope dated July 31, 2007, bearing interest of 4.25%. Principal and interest payments of $5,417 are due monthly, with a balloon payment of remaining principal and unpaid interest due in July ,124 $1,000,000 note payable from DC Office of Public Chartered Schools dated July 31, 2007, bearing interest of 4.00%. Principal and interest payments of $5,278 are due monthly, with a balloon payment of remaining principal and unpaid interest due in August ,341 Total Notes Payable $ 8,568,998 The future minimum payments on the notes payable as of June 30, 2010, are as follows: Years Ending June 30, Amount 2011 $ 2,039, , , ,156,962 Total $ 8,568,998 These notes are collateralized by the School building. The Building Hope and DC Office of Public Chartered Schools (OSSE) notes are subordinate to the United Bank note. The School is in current negotiations with Building Hope and OSSE to extend the terms of the notes until they are able to refinance the notes. If the School is not able to refinance these notes, the repayment will have a significant impact on the Schools operations. These notes have certain financial covenants that require annual financial statements within 150 days after year end, quarterly certified financial statements, a debt service coverage ratio and minimum net asset balance as of year-end. The School was not in compliance with these covenants as of and for the year ended June 30, Interest expense on these notes was $309,071 for the year ended June 30,

13 Notes to the Financial Statements June 30, TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets represent time restricted contributions as of June 30, 2010, as follows: General Mills Foundation - Wellness Initiativ $ 1,000 The Shippy Foundation 25,000 State Farm - Wellness Initiative 9,036 American Forest Foundation 6,000 Total $ 41, RETIREMENT PLAN The School has a 403(b) plan. All full time employees who have reached the age of 21 and have been employed for more than one year are eligible to participate in this tax-deferred retirement plan (the Plan). The School s contribution is 3% for employees with less than four years of experience and 5% thereafter. Employees may also make discretionary contributions. Pension expense totaled $79,058 for the year ended June 30, RELATED PARTY During 2005, the Elsie Whitlow Stokes Foundation (the Foundation) was incorporated pursuant to the District of Columbia Nonprofit Corporation Act. The Foundation has applied for exempt status under Internal Revenue Code Section 501(c)(3). The Foundation had no financial transactions during the year ended June 30, COMMITMENTS AND CONTINGENCIES Grants The School receives financial assistance from Federal agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit. Any disallowed claims resulting from such audits could become a liability of the School. The School s administration believes such disallowance, if any, would be immaterial. The School receives a substantial portion of its revenue from the Government of the District of Columbia. If a significant reduction in this revenue should occur, it may have an effect on the School s programs. During the year ended June 30, 2010, the School earned revenue of $5,965,775 from the Government of the District of Columbia, which is 97% of the total revenue and support. These amounts are reflected as per pupil allocation, Federal grants and entitlements in the accompanying statement of activities and changes in net assets. 11

14 SUPPLEMENTARY INFORMATION

15 Supplemental Schedule of Vendor Payments over $25,000 For the Year Ended June 30, 2010 Payment Vendor Amount Purpose of Service Achieve Tutoring, LLC $ 64,325 Tutoring To Elsie students ACS Business & Accounting Solutions, LLC 110,554 Accounting services Affordable Bus Services, LLC 65,435 School transportation services At Home Management 209,176 Catering services Brad Corp Services, Inc 82,326 Janitorial supplies Conaboy & Associates, Inc. 27,066 Occupational therapy services Foulger Pratt Contracting LLC 130,509 Draw application Raffa, Inc 43,572 Audit/professional services Responsive Classroom 29,000 Professional development Securitas 27,438 Security Services Sheila Polk 62,250 Consulting services Total $ 851,651 13

16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 The Board of Trustees Elsie Whitlow Stokes Community Freedom Public Charter School We have audited the financial statements of the Elsie Whitlow Stokes Community Freedom Public Charter School (the School) as of and for the year ended June 30, 2010, and have issued our report thereon dated December XX, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America. Internal Control Over Financial Reporting In planning and performing our audit, we considered the School s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the School s internal control over financial reporting. A control deficiency 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 significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the School s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of the School s financial statements that is more than inconsequential will not be prevented or detected and corrected by the School s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected and corrected by the School s internal control I Street 9 th Floor Washington, DC P F

17 Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the School s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, the Board of Trustees, others within the School, District of Columbia Board of Education, and Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Washington, DC December XX,

18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Board of Trustees Elsie Whitlow Stokes Community Freedom Public Charter School Compliance We have audited Elsie Whitlow Stokes Community Freedom Public Charter School (the School), 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 School s major Federal programs for the year ended June 30, The School s major Federal programs are identified in the summary of independent public accountant s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of the School s management. Our responsibility is to express an opinion on the School s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; 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 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. Our audit does not provide a legal determination of the School s compliance with those requirements. In our opinion, the School complied, in all material respects, with the 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, However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 10-01, 10-02, and I Street 9 th Floor Washington, DC P F

19 Internal Control Over Compliance Management of the School is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered the School s internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB A-133, but not for the purpose of expressing an opinion on the effectiveness of the School s 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 a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies as described in the accompanying schedule of findings and questioned costs as items 10-01, 10-02, and 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. The School s responses to the finding identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the School s responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information of management, the Board of Trustees, others within the School, the District of Columbia Board of Education, and Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Washington, DC December XX,

20 Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2010 Federal Pass-Through Federal Agency Pass-through Entity CFDA Entity Identifying Federal Federal Program/State Project Number Number Expenditures U.S. Department of Agriculture (USDA) Direct Programs National School Lunch Program N/A $ 125,664 Fresh Fruits & Vegetable Program 10.Unknown N/A 7,551 Subtotal Direct Programs 133,215 Pass-through DC Public Schools ARRA - Equipment Assistance Grant 10.FY2009-EAG FY2009-EAG 16,674 Total U.S. Department of Agriculture 149,889 U.S Department of Education (ED) Pass-through DC Public Schools Title I, Part A Cluster Title I Grants to Local Educational Agencies SG010A 4,290 Title I Grants to Local Educational Agencies SG010A 226,514 ARRA - Title I Grants to Local Educational Agencies A SG389A 105,879 ARRA - Title I Grants to Local Educational Agencies A RA389A 25,311 Total Title I, Part A Cluster 361,994 Special Education Cluster Special Education - Grants to States, Part B A SGO27A 9,398 Special Education - Grants to States, Part B A SGO27A 39,646 Special Education - Preschool Grants A SGO173A 34 ARRA - Special Education - Grants to States, Part B A RA391A 45,071 ARRA - Special Education - Preschool Grants A RA392A 1,000 Total Special Education Cluster 95,149 Safe and Drug-Free Schools and Communities, Title IV SG186A 1,071 Safe and Drug-Free Schools and Communities, Title IV A SG186A 4,671 English Language Acquisition Grants SG365A 3,597 English Language Acquisition Grants A SG365A 16,084 Improving Teacher Quality State Grants A SG367A 53,102 Improving Teacher Quality State Grants SG367A 11,021 State Fiscal Stabilization Fund Cluster ARRA - State Fiscal Stabilization Fund (SFSF) - Education State Grants A RA394A 337,655 ARRA - State Fiscal Stabilization Fund (SFSF) - Government Services A RA397A 45,655 Total State Fiscal Stabilization Fund Cluster 383,310 Total U.S. Department of Education 929,999 U.S. Congress Pass-through DC Public Schools Quality Schools Incentive Grant 99.GD0-QSI-08 GD0-QSI-08 26,638 City Build Incentive Grant 99.GD0-CB5-09 GD0-CB ,809 Total U.S. Congress 62,447 U.S. Department of Health and Human Services Pass-through DC Public Schools DC Children & Youth Investment Trust YPC YPC 11,500 TOTAL FEDERAL AWARDS $ 1,153,835 The accompanying notes are an integral part of this schedule. 18

21 Notes to the Schedule of Expenditures of Federal Awards For the Year Ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES All Federal grant operations of the Elsie Whitlow Stokes Community Freedom Public Charter School (the School) are included in the scope of the U.S. Office of Management and Budget (OMB) Circular A-133 audit (the Single Audit). The Single Audit was performed in accordance with the provisions of the OMB Circular A-133 (the Compliance Supplement). Compliance testing of all requirements, as described in the Compliance Supplement, was performed for the major grant program noted below. The programs on the schedule of expenditures of Federal awards represent all Federal award programs and other grants with fiscal year 2010 cash or non-cash expenditure activities. For our single audit testing, we tested the below Federal award programs with 2010 cash and non-cash expenditures in excess of $300,000 to ensure coverage of at least 50% of Federally granted funds. Our actual coverage was 60%. Major Program CFDA No. Federal Expenditures Title I, Part A Cluster / $ 361,994 State Fiscal Stabilization Fund Cluster / ,310 Equipment Grant 10.FY2009-EAG 16, BASIS OF PRESENTATION The schedule of expenditures of Federal awards has been accounted for on the accrual basis of accounting. 19

22 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Section I Summary of Independent Public Accountant s Results Financial Statements Type of auditor s report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? No None Reported No Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weaknesses? Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? No Yes Unqualified Yes Identification of major programs: Major Program CFDA No. Federal Expenditures Title I, Part A Cluster / $ 361,994 State Fiscal Stabilization Fund Cluster / ,310 Equipment Grant 10.FY2009-EAG 16,674 Threshold used to distinguish between type A and type B programs 300,000 Auditee qualified as low-risk auditee? No 20

23 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Section II Financial Statement Findings None Noted. 21

24 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Section III - Federal Award Findings Finding Number 10-01: Federal Program: Equipment Assistance Grants for School Food Authorities CFDA #: Unknown Type of Finding: Significant Deficiency Compliance Requirement: Activities Allowed & Allowable Costs Criteria According to the grant agreement for FY 2009 Equipment Assistance: These funds are available exclusively to purchase the following equipment requested in your grant proposal: Reach In Refrigerator, Reach In Freezer, and a Controlled Humidity Cabinet. Condition During our testing of activities allowed and allowable costs, we noted our sample of two purchases were for unallowable purchases per the grant award and agreement. Cause The School did not have controls in place to review grant agreements and to determine how to properly spend funds based on criteria identified in the grant agreement for allowable costs. Effect The School is not in compliance with the activities allowed and allowable costs in accordance with the Equipment Assistance Grants requirements. Violation of these requirements could impose operating and financial penalties on the School. Questioned Costs $4,830 Recommendation We recommend appropriate personnel review grant agreements on a timely basis. A review procedure is necessary to ensure understanding of and compliance with specific terms identified by the funding source. Management response and corrective action plan 22

25 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Finding Number 10-02: Federal Program: State Fiscal Stabilization Fund Cluster (SFSF) & Title I CFDA #: , & , Type of Finding: Significant Deficiency, Internal Control deficiency Compliance Requirement: Activities Allowed & Allowable Costs Criteria Per OMB A-87 compliance requirement: (1) Charges to Federal awards for salaries and wages, whether treated as direct or indirect costs, will be based on payrolls documents in accordance with generally accepted practice of the governmental unit and approved by a responsible official of the governmental unit. (3) Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee. Condition We selected eight employees to test payroll for the SFSF cluster. Of the sample tested, we noted two instances of unsigned and unapproved timesheets. In addition, we were not provided timesheets for two employees. We selected five employees to test payroll for the Title I cluster. Of the sample selected we were not provided timesheets for any of the employees and we did not receive time and effort certifications for three employees. Cause The School does not have controls in place to properly account for employee s time and timesheets. Effect The School is not in compliance with the activities allowed and allowable costs for payroll. A lack of controls in payroll could allow errors in the time charged and cost allocated. Questioned Costs Not determinable Recommendation We recommend supervisory review and approval for all personnel timesheets. We also recommend that the School maintain supporting documentation for employee time sheets or effort reports. This methodology provides a strong and suitable approach to cost allocation for grants. 23

26 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Management response and corrective action plan 24

27 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Finding Number 10-03: Federal Program: Title I Cluster CFDA #: & Type of Finding: Significant Deficiency, Internal Control Deficiency Compliance Requirement: Activities Allowed & Allowable Costs Criteria Per OMB A-87 compliance requirement: To be allowable under Federal awards, costs must meet the following general criteria: (j) be adequately documented. Condition During our activities allowed test for nonpayroll transactions, the School was not able to provide two vendor invoices. We also noted the School was unable to provide complete and accurate documentation for charges for four invoices. Cause The School s internal control process did not properly identify the potential noncompliance concerns related to the activities allowed for payment to vendors. Effect The School is not in compliance documenting in accordance with Title I program requirements. For transactions related to Federal grants, without the proper supporting documentation, charges may be disallowed. Questioned Costs Not determinable. Recommendation We recommend the School create procedures to review and follow up on documenting nonpayroll transactions. We also recommend that the School establish controls and implement policies to ensure that support is obtained and maintained supporting documentation for all transactions. Management response and corrective action plan 25

28 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Finding Number 10-04: Federal Program: Title I Cluster, SFSF & Equipment Grant CFDA #: , , , and Unknown Type of Finding: Significant Deficiency/Material Weakness? Compliance Requirement: Cash Management/Reporting Criteria Circular A-110 Subpart C, paragraph 21, states: (1) Accurate, current and complete disclosure of the financial results of each Federallysponsored project or program in accordance with the reporting requirements set forth in Section.52. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its records on other than an accrual basis, the recipient shall not be required to establish an accrual accounting system. These recipients may develop such accrual data for its reports on the basis of an analysis of the documentation on hand. (2) Records that identify adequately the source and application of funds for Federallysponsored activities. These records shall contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, outlays, income and interest. (3) Account records including cost accounting records that are supported by source documentation. (4) Comparison of outlays with budget amounts for each award. Whenever appropriate, financial information should be related to performance and unit cost data. Condition During our testing of cash management/reporting for each program, the School was not able to provide records/documentation to support the reimbursement requests for each program selected. Cause The School does not have proper controls to ensure that the amounts reported in the reimbursement reports agree with the general ledger. Effect Financial reports are not supported by accounting records and may include inaccurate information. This could result in disallowed payments for reimbursement requests. Questioned Costs Not determinable. Recommendation We recommend a careful review of the reporting detail prior to filing the request for reimbursement. Amounts reported should agree to the general ledger and have proper support for reconciling items. Establishing a system will facilitate the reporting requirements for grants and greatly improve internal control. 26

29 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Management response and corrective action plan 27

30 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2010 Finding U.S. Department of Education, Title I Grants to Local Educational Agencies CFDA Criteria Paragraph 8(m) of OMB Circular A-122 states that salary charges to a federal grant must be supported by reports reflecting the distribution of activity of each employee whose compensation is charged, in whole or in part, directly to the federal grant. The reports must meet the following standards: the reports must reflect an after-the-fact determination of the actual activity of each employee; each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization; the reports must be signed by the individual employee, or by a responsible supervisory official having first-hand knowledge of the activities performed by the employee, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports; and the reports must be prepared at least monthly and must coincide with one or more pay periods. Budget estimates do not qualify as support for charges to awards. Condition Timesheets were not prepared to support the actual time charged by staff to the federal grant. In addition, we noted that the employee time was allocated to the grant based on the budget submitted. Cause The timesheets do not reflect the time spent on Federal grants. Effect Direct salaries charged to the federal grants have not been documented in accordance with OMB Circular A-122. Questioned Costs $150,000 for Title I. However, total salaries charged to all federal programs on the schedule of expenditures of Federal awards totaled $228,000. Current Year Status Repeat finding