KING/CHAVEZ ACADEMY OF EXCELLENCE INC. CONTRACT VENDOR #Z530 SAN DIEGO COUNTY SAN DIEGO, CALIFORNIA REVISED FINANCIAL STATEMENTS AND SUPPLEMENTAL

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1 INC. CONTRACT VENDOR #Z530 SAN DIEGO COUNTY SAN DIEGO, CALIFORNIA REVISED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION YEAR ENDED JUNE 30, 2016

2 Financial Statements and Supplemental Information TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1 FINANCIAL STATEMENTS 3 Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Statement of Cash Flows... 5 Notes to the Financial Statements... 6 SUPPLEMENTARY INFORMATION 17 Combining Consolidated Statement of Financial Position Combining Consolidated Statement of Activities Schedule of Expenditures by State Categories Schedule of Reimbursable Expenditures for Renovations and Repairs Schedule of Reimbursable Administrative Costs Schedule of Expenditures of Federal and State Awards Notes to the Schedule of Expenditures of Federal and State Awards Audited Attendance and Fiscal Reports OTHER INDEPENDENT AUDITORS REPORTS 29 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards AUDITOR S RESULTS, FINDINGS & RECOMMENDATIONS 33 Schedule of Auditor s Results Schedule of Findings and Questioned Costs Schedule of Prior Year Audit Findings... 39

3 Independent Auditor s Report To the Board of Trustees of King/Chavez Academy of Excellence Report on the Financial Statements We have audited the accompanying consolidated financial statements of King/Chavez Academy of Excellence (a nonprofit organization) and King/Chavez Facilities LLC (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of King/Chavez Academy of Excellence as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

4 Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying additional supplementary information, as required by the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, prescribed in Title 5, California Code of Regulations, section is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 1, 2016, on our consideration of King/Chavez Academy of Excellence 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 King/Chavez Academy of Excellence s internal control over financial reporting and compliance. El Cajon, California December 1,

5 Financial Statements

6 Consolidated Statement of Financial Position June 30, 2016 ASSETS Current Assets Cash and cash equivalents $ 5,876,414 Accounts receivable 2,913,591 Prepaid expenditures 351,854 Total Current Assets 9,141,859 Noncurrent Assets Deferred outflow of resources 2,427,587 Deposits 75,000 Capital assets, net 6,735,620 Total Noncurrent Assets 9,238,207 TOTAL ASSETS $ 18,380,066 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 459,922 Accrued payroll liability 500,643 Unearned revenue 77,859 Accrued vacation liability 311,005 Bond payable, current portion 185,000 Total Current Liabilities 1,534,429 Long Term Liabilities Bond payable, less current portion 11,012,918 Total Long Term Liabilities 11,012,918 Total Liabilities 12,547,347 Net Assets Unrestricted 4,602,562 Temporarily restricted 1,230,157 Total Net Assets 5,832,719 TOTAL LIABILITIES AND NET ASSETS $ 18,380,066 The accompanying notes are an integral part of this statement. 3

7 Consolidated Statement of Activities Unrestricted REVENUE AND SUPPORT Revenue LCFF state aid, current year 6,417,097 Temporarily Restricted Total $ $ - $ 6,417,097 LCFF state aid, prior year (159,478) - (159,478) Education protection account funds 1,455,624-1,455,624 Payments in lieu of property taxes 9,734,704-9,734,704 Federal revenue - 1,613,443 1,613,443 Other state revenue 1,299,791 3,588,809 4,888,600 Interest 4,909-4,909 Other local revenue 564, ,041 Total Revenues 19,316,688 5,202,252 24,518,940 Net assets released from restrictions: Grant restrictions satisfied 4,643,618 (4,643,618) - TOTAL REVENUE AND SUPPORT 23,960, ,634 24,518,940 EXPENSES Certificated salaries 7,512,886-7,512,886 Classified salaries 3,034,029-3,034,029 Taxes and employee benefits 3,537,588-3,537,588 Books and supplies 1,071,449-1,071,449 Rentals, leases and repairs 1,136,058-1,136,058 Other operating expenditures 3,401,030-3,401,030 Debt service interest 815, ,664 Depreciation expense 346, ,526 TOTAL EXPENSES 20,855,230-20,855,230 CHANGE IN NET ASSETS 3,105, ,634 3,663,710 NET ASSETS, BEGINNING OF YEAR 1,497, ,523 2,169,009 NET ASSETS, END OF YEAR $ 4,602,562 $ 1,230,157 $ 5,832,719 The accompanying notes are an integral part of this statement. 4

8 Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 3,663,710 Depreciation 346,526 Adjustment to beginning net assets: (590,182) Adjustments to reconcile change in net assets to net cash provided by operating activities: (Increase) Decrease resulting from changes in assets: Accounts receivable (715,722) Prepaid expenses (188,614) Increase (Decrease) resulting from changes in liabilities: Accounts payable (272,411) Accrued payroll liability 305,671 Unearned revenue 44,627 Accrued vacation liability 311,005 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,904,610 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of capital assets (6,672,379) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,672,379) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bonds payable 8,770,331 Principal payments on loan payable (551,700) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,218,631 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,450,862 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,425,552 CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,876,414 The accompanying notes are an integral part of this statement. 5

9 Notes to the Financial Statements A. Organization and Summary of Significant Accounting Policies Organization King-Chavez Academy of Excellence Inc. (the School) operates a preschool. The preschool serves children in San Diego County. The preschool is funded by the California Department of Education under a child development contract and is economically dependent on State funding. The preschool is a subsidiary of the King-Chavez Neighborhood of Schools. King/Chavez Facilities LLC was founded to acquire and maintain facilities that would be for the sole use of King/Chavez Academy of Excellence schools. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Accounting Standards Codification (ASC) No. 958, Financial Statements of Not-for-Profit Organizations. Under ASC No. 958, the School is required to report information regarding its financial position and activities according to three classes of net assets: Unrestricted net assets represent expendable funds available for operations, which are not otherwise limited by donor or grant restrictions. Temporarily restricted net assets consist of contributed funds or grants subject to donor or grant imposed restrictions contingent upon specific performance of a future event or a specific passage of time before the School may spend the funds. Permanently restricted net assets are subject to irrevocable donor restrictions requiring that the assets be maintained in perpetuity usually for the purpose of generating investment income to fund current operations. The School had no permanently restricted net assets during the year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents For the purposes of the statement of cash flows, the School considers all highly liquid debt equity instruments purchased with an original maturity of three months or less to be cash equivalents. 6

10 Notes to the Financial Statements (Continued) Investments The School s method of accounting for investments, in accordance with generally accepted accounting principles, is the fair value method. Fair value is determined by published quotes. Changes in fair value of investments results in increases or decreases in unrealized fair values of equity investments. Adjustments to fair values are reflected as unrealized gain/loss on investments in the accompanying statement of activities. Accounts Receivable Accounts receivable arise in the normal course of operations. It is the policy of management to review the outstanding accounts receivable at year end, as well as bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts. No allowance was considered necessary as management believes that all amounts are collectible. Capital Assets Property and equipment are recorded at cost, or estimated fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. The cost of assets sold or retired and related amounts of accumulated depreciation are eliminated from the accounts in the year of disposal, and any resulting gain or loss is included in the School s earnings. Management has elected to capitalize and depreciate all assets costing $5,000 or more; all other assets are charged to expense in the year incurred. The School s policy is to evaluate the remaining lives and recoverability in light of the current conditions. It is reasonably possible that the School s estimate to recover the carrying amount of the property and equipment will change. Estimated useful lives range from three to fifty years depending on the asset. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the measurable and available criteria for recognition or when resources are received by the School prior to the School meeting the requirements for legal claim to the resources. In subsequent periods, when both revenue recognition criteria are met or when the School has legal claim to the resources, the liability for unearned revenue is removed from the statement of financial position and revenue is recognized. Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any restrictions. All donor or grant restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. 7

11 Notes to the Financial Statements (Continued) Contributed Materials and Services Contributed materials are recorded at their fair market value where an objective basis is available to measure their value. Such items are capitalized or charged to operations as appropriate. The School receives services donated by volunteers in carrying out the School s operations. The services do not meet the criteria as contributions and are, therefore, not recognized in the financial statements. Donated Property and Equipment Donations of property and equipment are recorded as contributions at their estimated fair value at the date of donation. Such donations are reported as increases in unrestricted net assets unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contribution of cash that must be used to acquire property and equipment are reported as restricted contributions. Absent donor stipulations regarding how long those donated assets must be maintained, the School reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The School reclassifies temporarily restricted net assets to unrestricted net assets at that time. LCFF Revenues and Payments in Lieu of Property Taxes The School s primary funding source is a combination of local property taxes and state revenues. The California Department of Education computes the local control funding formula (LCFF) on statewide charter school rates multiplied by the School s average daily attendance (ADA) as reported at the Second Principal apportionment period (P2). The result is then reduced by property tax revenues transferred from the District to the School, which is funding in lieu of property taxes and education protection account funds paid by the state under proposition 30. The remaining balance is paid from the state General Fund, in the form of LCFF State Aid. LCFF funding sources, inclusive of state and local sources, made up 62% of the school s revenue. The School is not at risk of losing these funding sources, as long as the school maintains a steady level of ADA, as these funding sources are mandated by the California State Constitution to fund schools. Advertising Advertising costs are expensed when incurred. Income Taxes The School is a 509(a)(1) publicly supported non-profit organization that is exempt from income taxes under Sections 501(a) and 501(c)(3) of the Internal Revenue Code. The School is also exempt from California franchise or income tax under Section 23701d of the California Revenue and Taxation Code. The School may be subject to tax on income which is not related to its exempt purpose. For the year ended June 30, 2016, no such unrelated business income was reported and, therefore, no provision for income taxes has been made. The School follows provisions of uncertain tax positions as addressed in ASC 958. The School recognizes accrued interest and penalties associated with uncertain tax positions as part of the income tax provision, when applicable. There are no amounts accrued in the financial statements related to uncertain tax positions for the year ended June 30,

12 Notes to the Financial Statements (Continued) The School files informational and income tax returns in the United States and in the state of California. The federal income tax and informational returns are subject to examination by the Internal Revenue Service for three years after the returns are filed. State and local jurisdictions have statutes of limitation that generally range from three to five years. Subsequent Events In preparing these financial statements, the School has evaluated events and transactions for potential recognition or disclosure through December 1, 2016, the date the financial statements were available to be issued. B. Cash and Cash Equivalents Cash in County Treasury The School is a voluntary participant and therefore maintains a portion of its cash in the San Diego County Treasury as part of the common investment pool ($2,856,112 as of June 30, 2016). The County Treasury is restricted by Government Code pursuant to to invest in time deposits, U.S. Government Securities, state registered warrants, notes or bonds, State Treasurer s investment pool, banker s acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse agreements. The fair value of the School s investment in this pool is reported in the accompanying financial statements at amounts based upon the School s pro-rata share of the fair value provided by the County Treasury for the entire County Treasury portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasury, which are recorded on an amortized cost basis. Cash in Bank The remainder of the School s cash ($1,283,999 as of June 30, 2016) is held in financial institutions which are either insured by the Federal Deposit Insurance Corporation (FDIC) up to a limit of $250,000 per depositor or certain non-interest bearing accounts that are fully insured by the FDIC. As of June 30, 2016, the School had cash that was exposed to uninsured deposit risk of $1,033,999. 9

13 Notes to the Financial Statements (Continued) C. Accounts Receivable As of June 30, 2016 accounts receivable consisted of: Accounts Receivable Federal Government: Special Education $ 400,978 21st Century Assets 212,500 Other Federal Programs 125,401 State Government: SB ,480 Child Development 225,511 Special Education 117,065 Lottery Revenue 223,292 Other State Grants 35,090 Local Sources: Interest 3,584 In Lieu of Property Taxes 785,311 Other Local Sources 133,379 Total Accounts Receivable $ 2,913,591 D. Capital Assets As of June 30, 2016 capital assets consisted of: Beginning Balance Increases Decreases Ending Balance Land $ 3,466,736 $ - $ - $ 3,466,736 Work in progress - 17,000-17,000 Building 3,620,375 44,556-3,664,931 Building improvements 617, ,118 Furniture and fixtures 81, ,791 Computer equipment 543,835 4, ,213 Transportation equipment 40, ,000 Total capital assets 8,369,855 65,934-8,435,789 Less accumulated depreciation (1,353,643) (346,526) (1,700,169) Capital assets, net $ 7,016,212 $ (280,592) $ - $ 6,735,620 10

14 Notes to the Financial Statements (Continued) E. Accounts Payable As of June 30, 2016 accounts payable consisted of: F. Unearned Revenue Accounts Payable Accrued Payroll Liability Vendors payable $ 275,447 $ - Accrued salaries - 169,430 Accrued pensions payable Summer holdback - 330,678 Due to grantor governments 107,724 - Interest payable 76,751 - Total Accounts Payable $ 459,922 $ 500,643 As of June 30, 2016 unearned revenue consisted of: G. Bonds Payable Local Sources: Other Local Sources 77,859 Total Unearned Revenue $ 77,859 In May 2016, King Chavez Facilities LLC entered into a loan agreement with the California Municipal Finance Authority for the issuance of $11,090,000 Refunding Charter School Revenue Bonds. The funds were used for acquisition, construction, renovation, improving and equipping of certain educational facilities utilized by King Chavez Preparatory Academy as well as refunding portions of debt previously issued. The facilities will be leased by the School. Description Original Issue Amount Beginning Balance Current Year Additions Current Year Subtractions Ending Balance 2009 Charter School Revenue Bonds $ - $ 8,620,000 $ - $ 8,620,000 $ A Charter School Revenue Bond 185, , , B Charter School Revenue Bond 10,905,000-10,905,000-10,905,000 $ 11,090,000 $ 8,620,000 $ 11,090,000 $ 8,620,000 $ 11,090, B Charter Schhol Bond Premium $ 113,679 $ 113,679 $ - $ 5,761 $ 107,918 The Series 2016 Charter School Revenue Bonds mature as follows: Bond Component Rate Amount Maturity Date Taxable Term Bonds 4.000% $ 185,000 May 1, Tax-exempt Term Bonds 5.000% 5,350,000 May 1, Tax-exempt Term Bonds 5.000% 5,555,000 May 1,

15 Notes to the Financial Statements (Continued) H. Temporarily Restricted Net Assets I. Adjustment to Beginning Fund Balance Student body funds $ 38,954 California clean energy grant 1,026,950 Educator effectivness grant 164,253 Total Temporarily Restricted Net Assets $ 1,230,157 The beginning balance of Net Assets was adjusted to account for restricted ASB funds. J. Operating Lease Student body funds $ 43,275 Total Adjustment to Beginning Net Assets $ 43,275 King-Chavez Neighborhood of Schools maintains multiple operating leases for its schools. King-Chavez Academy of Arts, King-Chavez Primary Academy, King-Chavez Athletics Academy and King-Chavez Academy of Excellence Inc. all maintain one lease contract with the San Diego Unified School District. On July 1, 2013 King-Chavez Arts Academy, King-Chavez Athletics Academy, King-Chavez Primary Academy and King-Chavez Academy of Excellence Inc. entered into a lease agreement with San Diego Unified School District for use of facilities. Under the wording of the agreement, the District will charge for the facilities space granted to the Schools consistent with the method applied to charter schools requesting facilities space under Proposition 39. During the years in which the District provides other charter schools with substantially rent-free facilities under Prop. 39 and charges those charter schools three percent (3%) of the revenue of the charter school for supervisorial oversight, such payments shall be made by the Schools in 10 consecutive monthly installments. During years in which the District assesses other charter schools a pro-rata charge for the use of District facilities under Prop. 39, the use payments shall be paid in 10 equal monthly installments. Since it is not possible to predict which method will be applied in future years, an operating lease schedule cannot be provided. King-Chavez Community High School maintains an operating lease with Executive Complex, LP. On June 24, 2011 the School entered into a lease agreement with Executive Complex, LP, for use of facilities. The agreement does not contain a purchase option and does not meet the requirements for capitalization. As such, the lease has not been recorded on the statement of financial position. The agreement contains a termination clause providing for cancellation after a specified number of days written notice to the lessor, but it is unlikely that the School will cancel the agreement prior to the expiration date. Future minimum lease payments under the agreement are as follows: Year Ended June 30, Lease Payments 2017 $ 342, , ,366 Total $ 755,765 12

16 Notes to the Financial Statements (Continued) K. Related Party Capital Lease On May 1, 2016 the School entered into a lease agreement with King-Chavez Facilities, LLC, a related party, for use of facilities. The agreement meets the requirements for capitalization. As such, the lease has been recorded on the statement of financial position. The consolidating statement of net assets includes the lessor as well, King Chavez Facilities LLC. Therefore, the capital lease is part of the eliminating entries as part of the consolidation. The agreement contains a termination clause providing for cancellation after a specified number of days written notice to the lessor, but it is unlikely that the School will cancel the agreement prior to the expiration date. Future minimum lease payments under the agreement are as follows: Year Ended June 30, Lease Payments 2017 $ 764, , , , , ,602, ,598, ,594, ,597, ,417,314 Total $ 21,461,781 13

17 Notes to the Financial Statements (Continued) L. Functional Expenses As of June 30, 2016 functional expenses consisted of: Program Services Management and General Total Salaries and wages $ 8,009,469 $ 2,541,648 $ 10,551,117 Pension plan accruals and contributions 825, ,033 1,087,775 Other employee benefits 1,605, ,384 2,114,602 Payroll taxes 251,273 79, ,009 Fees for services (non-employees): Legal - 65,041 65,041 Accounting - 27,525 27,525 Professional consulting 229,101 1,356,716 1,585,817 Other fees - 46,758 46,758 Office expenses - 317, ,657 Information technology 129, ,926 Occupancy 946, ,461 Travel 163, ,688 Conferences, conventions and meetings 85,587-85,587 Interest - 800, ,149 Debt service - 15,515 15,515 Depreciation - 346, ,526 Insurance - 123, ,048 All other expenses: Books and supplies 568, ,964 All other expenses: Student transportation 302, ,136 All other expenses: Equipment and repairs 695, ,990 All other expenses: District oversight - 361, ,779 All other expenses: Dues and memberships - 93,981 93,981 All other expenses: Miscellaneous 5,629 88,550 94,179 Total expenses $ 13,819,183 $ 7,036,047 $ 20,855,230 14

18 Notes to the Financial Statements (Continued) M. Commitments and Contingencies State and Federal Allowances, Awards, and Grants The School has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate disallowances under terms of the grants, it is believed that any required reimbursement will not be material. As a result, no liability has been accrued. Paid Time Off Paid time off is accumulated with a limit for each employee accrued at through each payroll. Employees, are paid for any paid time off balance at termination of employment. Therefore, it is appropriate to accrue the value of the accumulated paid time off. N. Employee Retirement System Qualified employees are covered under multiple-employer defined benefit pension plans by agencies of the State of California. Certificated employees are members of the State Teachers Retirement System (CalSTRS) and classified employees are members of the California Public Employees Retirement System (CalPERS). The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: 1. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of the other participating employers. 2. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. 3. If the School chooses to stop participating in some of its multi-employer plans, the School may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The School s participation in these plans for the fiscal year ended June 30, 2016, is outlined in the table below. The EIN/Pension Plan Number column provides the Employee Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2016, 2015 and 2014 is for the plan s year-end at June 30, 2016, 2015 and 2014, respectively. The zone status is based on information that the School received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. Finally, the number of employees covered by the School s multiemployer plans increased by 26% from 2015 to 2016, affecting the period-to-period comparability of the contributions for years 2015 and The significant increase in covered employees corresponded to an increase in overall business. There have been no significant changes that affect the comparability of the 2015 and 2014 contributions. 15

19 Notes to the Financial Statements (Continued) Pension Protection EIN/ Act Zone Status FIP/RP Status Pension Plan Year Ended June 30 Pending/ Pension Fund Number Implemented CalSTRS Yellow Yellow Yellow No CalPERS Yellow Green Yellow No Pension Fund 2016 Contributions of School Number of Employees Surcharge Imposed CalSTRS 765, , , No CalPERS 321, , , No CalSTRS: The School contributes to the State Teachers Retirement System (CalSTRS), a cost-sharing multiple employer public employee retirement system defined benefit pension plan administered by CalSTRS. Required contribution rates are set by the California Legislature and detailed in Teachers Retirement Law. Contribution rates are expressed as a level of percentage of payroll using the entry age normal actuarial cost method. CalSTRS also uses the level percentage of payroll method to calculate the amortization of any unfunded liability. Copies of the STRS annual report may be obtained from the STRS, 7667 Folsom Boulevard, Sacramento, California For the fiscal year ended June 30, 2016 active plan members were required to contribute 8.56% to 9.20% of their salary and the employer contribution rate was 10.73% of annual payroll. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. The School made contributions as noted above. For the year ended June 30, 2016 the State contributed $488,982 ( % of creditable salaries from ) on behalf of the School. CalPERS: The School contributes to the School Employer Pool under the California Public Employees Retirement System (CalPERS), a cost-sharing multiple employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, with the Public Employees Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California Active plan members are required to contribute 6% to 7% of their salary, and the School is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rates for fiscal year were % of salaries. The School made contributions as noted above. O. Subsequent Events In our review of board minutes and pertinent audit information there did not appear to be any significant subsequent items to include in the audit report as of December 1,

20 Supplementary Information

21 Combining Consolidated Statement of Financial Position ASSETS Charter King Chavez State Schools LLC Preschool Elimination Total Current Assets Cash and cash equivalents $ 4,132,430 $ 1,736,302 $ 7,682 $ 5,876,414 Accounts receivable 2,610, ,477 2,913,591 Intercompany receivable 3,353,310-8,309 (3,361,619) - Prepaid expenditures 346,517-5, ,854 Total Current Assets 10,442,371 1,736, ,805 (3,361,619) 9,141,859 Noncurrent Assets Deferred outflows of resources - 2,427, ,427,587 Deposits 75, ,000 Capital assets, net 11,438,350 6,479,714 1,028 (11,183,472) 6,735,620 Total Noncurrent Assets 11,513,350 8,907,301 1,028 (11,183,472) 9,238, TOTAL ASSETS $ 21,955,721 $ 10,643,603 $ 325,833 $ (14,545,091) $ 18,380,066 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 383,172 $ 76,750 $ - $ - $ 459,922 Accrued payroll liabilities 798,987-12, ,648 Intercompany payable 2,867, ,956 (3,361,619) - Unearned revenue - 77,859-77,859 Capital leases, current portion 195, (195,113) - Bond payable, current portion - 185, ,000 Total Current Liabilities 4,244, , ,617 (3,556,732) 1,534,429 Long Term Liabilities Capital leases, less current portion 10,988, (10,988,359) - Bond payable, less current portion - 11,012, ,012,918 Total Long Term Liabilities 10,988,359 11,012,918 - (10,988,359) 11,012,918 - Total Liabilities 15,233,294 11,352, ,617 (14,545,091) 12,547,347 Net Assets Unrestricted 5,492,270 (708,924) (180,784) - 4,602,562 Temporarily restricted 1,230, ,230,157 Total Net Assets 6,722,427 (708,924) (180,784) - 5,832,719 TOTAL LIABILITIES AND NET ASSETS $ 21,955,721 $ 10,643,603 $ 325,833 $ (14,545,091) $ 18,380,066 See accompanying auditors reports and notes to financial statements 17

22 Combining Consolidated Statement of Activities Unrestricted REVENUE AND SUPPORT Revenue LCFF - State Aid 6,417,097 Charter Schools King Chavez LLC State Preschool Temporarily Restricted Unrestricted Temporarily Restricted Unrestricted Temporarily Restricted Elimination Total $ $ - $ - $ - $ - $ - $ - $ 6,417,097 Education Protection Account Funds 1,455, ,455,624 Prior Year LCFF Adjustments (159,478) (159,478) Payments in lieu of property taxes 9,734, ,734,704 Federal revenue - 1,491, ,983-1,613,443 Other state revenue 1,299,791 2,839, ,139,732 State preschool revenue , ,868 Interest 4, ,909 Other local revenue 3,512, ,546-32,900 - (3,853,455) 564,041 Total Revenues 22,264,564 4,331, ,672-32, ,851 (3,853,455) 24,518,940 Net assets released from restrictions: Grant restrictions satisfied 3,772,767 (3,772,767) ,851 (870,851) - - TOTAL REVENUE AND SUPPORT 26,037, , , ,758 - (3,853,455) 24,518,940 EXPENSES Certificated salaries 7,283, , ,512,886 Classified salaries 2,849, , ,034,029 Taxes and employee benefits 3,358, , ,537,588 Books and supplies 1,009, , ,071,449 Rentals, leases and repairs 1,866, ,472 - (819,433) 1,136,058 Other operating expenditures 6,187,897-1, ,372 - (2,987,239) 3,401,030 Debt service interest 46, , (46,783) 815,664 Depreciation expense 213, ,475-1, ,526 TOTAL EXPENSES 22,814, , ,563 - (3,853,455) 20,855,230 CHANGE IN NET ASSETS 3,222, ,634 (75,467) - (41,805) - - 3,663,710 NET ASSETS, BEGINNING OF YEAR 2,269, ,523 (633,457) - (138,979) - - 2,169,009 NET ASSETS, END OF YEAR $ 5,492,270 $ 1,230,157 $ (708,924) $ - $ (180,784) $ - $ - $ 5,832,719 See accompanying auditors reports and notes to financial statements 18

23 Schedule of Expenditures by State Categories State Expenses: Preschool 1000 Certificated Salaries 1100 Teacher slaries $ 120, Supervisor salaries 108, Classified Salaries 2100 Classified instructonal salaries 168, Clerical, technical, and office staff salaries Other classified salaries 15, Employee Benefits 3100 Pension plans 45, Payroll taxes 18, Health and welfare benefits 80, State unemployement benefits 12, Workers compensation benefits 9, Other employee benefits 12, Books and Supplies 4300 Materials and Supplies 20, Non capitalized equipment 1, Non school disitrct food 39, Services and Other Operating Expenses 5200 Travel and training 1, Dues and memberships Insurance 2, Occupancy 117, Consultants 162, Other services and operating expenses 4, Depreciation 1,367 Total expenses $ 945,563 See accompanying auditors reports and notes to financial statements 19

24 Schedule of Reimbursable Expenditures for Renovations and Repairs State Preschool Unit cost under $10,000 None $ - Unit cost over $10,000 with CDD approval None - Unit cost over $10,000 without CDD approval None - Total renovation and repair expenditures $ - See accompanying auditors reports and notes to financial statements 20

25 Schedule of Reimbursable Administrative Costs State Preschool Administrative Expenses: Certificated salaries $ 10,023 Classified salaries 20,076 Benefits 8,936 Services and other operating expense 72,733 Total expenses $ 111,768 See accompanying auditors reports and notes to financial statements 21

26 Schedule of Expenditures of Federal and State Awards Federal Grantor/Pass Through Grantor/ Program or Cluster Title Federal CFDA Number Pass-Through Entity Identifying Number Federal Expenditures U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Direct Program: Medi-Cal ,865 Total Medi-Cal Cluster 135,865 Passed Through U.S. Department of Health and Human Services: Child Development ,061 Total passed through U.S. Department of Health and Human Services 106,061 Total U.S. Department of Health and Human Services 241,926 U.S. DEPARTMENT OF EDUCATION Passed through State Department of Education Title I $ 787,159 Special Education Cluster Special Education : IDEA Basic ,316 Special Education: IDEA Mental Health ,800 Total Special Education Cluster 259,116 Title III - Limited English Proficiency ,376 Title II - Teacher Quality ,833 Title V - Charter School (98,889) 21st Century Assets ,000 Total passed through State Department of Education 1,355,595 Total U.S. Department of Education 1,355,595 U.S. DEPARTMENT OF AGRICULTURE National School Lunch ,922 Total U.S. Department of Agriculture 15,922 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 1,613,443 CALIFORNIA DEPARTMENT OF EDUCATION Direct Program: State Preschool 748,868 Total California Department of Education 748,868 TOTAL EXPENDITURES OF FEDRAL AND STATE AWARDS $ 2,362,311 See accompanying auditors reports and notes to financial statements 22

27 Notes to the Schedule of Expenditures of Federal and State Awards Basis of Presentation The accompanying schedule of expenditures of federal and state awards includes the federal grant activity of the School and is presented on the accrual basis of accounting. The federal information in this schedule is presented in accordance with requirements of 2 CFR Basis for Determining Federal Awards Expended and 2CFR (b) Schedule of Expenditures of Federal Awards. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the general purpose financial statements. Indirect Cost Rate Indirect costs were calculated in accordance with 2 CFR Direct and Indirect Costs. The School used an indirect cost rate of 5.11% based on the rate approved by the California Department of Education for each program which did not have a pre-defined allowable indirect cost rate. The School did not elect to use the 10% de minimis cost rate as covered in 2 CFR Indirect Costs. The following programs are restricted to a lower indirect cost rate and therefore the school used the lower indirect cost rate for these programs: Schoolwide Program Program CFDA # Allowable Indirect Cost Rate Title III % The School operates a schoolwide program. Using federal funding, schoolwide programs are designed to upgrade an entire educational program within a school for all students, rather than limiting services to certain targeted students. The following federal program amounts were expended by the School in it s schoolwide program: Program CFDA # Amount Expended Title I $787,159 See accompanying auditors reports and notes to financial statements 23

28 Audited Attendance and Fiscal Reports AUDITED ATTENDANCE AND FISCAL REPORT for California State Preschool Programs Agency Name: King-Chavez Academy of Excellence Vendor No. Z530 Fiscal Year Ended: June 30, 2016 Contract No. CSPP5413 Independent Auditor's Name: Wilkinson Hadley King & Co LLP SECTION I - CERTIFIED CHILDREN DAYS OF ENROLLMENT Three and Four Year Olds Full-time-plus Full-time Three-quarters-time One-half-time Exceptional Needs Full-time-plus Full-time Three-quarters-time One-half-time Limited and Non-English Proficient Full-time-plus Full-time Three-quarters-time One-half-time At Risk of Abuse or Neglect Full-time-plus Full-time Three-quarters-time One-half-time Severely Disabled Full-time-plus Full-time Three-quarters-time One-half-time TOTAL DAYS OF ENROLLMENT DAYS OF OPERATION DAYS OF ATTENDANCE COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E CUM ULATIVE FISCAL YEAR PER FORM CDFS 8501 AUDIT ADJUSTM ENTS CUM ULATIVE FISCAL YEAR PER AUDIT ADJUSTM ENT FACTOR ADJUSTED DAYS OF ENROLLM ENT PER AUDIT (25) ,396 (32) 2, , ,281 (79) 1, , ,738 (117) 7, , (10) ,100 (263) 12,837 8, ,094 (263) 12,831 NO NONCERTIFIED CHILDREN - Check box, omit page 2 & continue to Section III if no noncertified children were enrolled in the program. Comments - If necessary, attach additional sheets to explain adjustments: AUD 8501, Page 1 of 4 (FY ) See accompanying auditors reports and notes to financial statements 24 California Department of Education

29 Audited Attendance and Fiscal Reports, Continued AUDITED ATTENDANCE AND FISCAL REPORT for California State Preschool Programs Agency Name: King-Chavez Academy of Excellence Vendor No. Z530 Fiscal Year Ended: June 30, 2016 Contract No. CSPP5413 SECTION II - NONCERTIFIED CHILDREN Report all children w ho w ere not certified, but w ho w ere served at the same sites as certified children. DAYS OF ENROLLMENT Three and Four Year Olds Full-time-plus Full-time Three-quarters-time One-half-time Exceptional Needs Full-time-plus Full-time Three-quarters-time One-half-time Limited and Non-English Proficient Full-time-plus Full-time Three-quarters-time One-half-time At Risk of Abuse or Neglect Full-time-plus Full-time Three-quarters-time One-half-time Severely Disabled Full-time-plus Full-time Three-quarters-time One-half-time TOTAL DAYS OF ENROLLMENT Comments - If necessary, attach additional sheets to explain adjustments: COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E CUM ULATIVE FISCAL YEAR PER FORM CDFS 8501 AUDIT ADJUSTM ENTS CUM ULATIVE FISCAL YEAR PER AUDIT ADJUSTM ENT FACTOR ADJUSTED DAYS OF ENROLLM ENT PER AUDIT AUD 8501, Page 2 of 4 (FY ) See accompanying auditors reports and notes to financial statements 25 California Department of Education

30 Audited Attendance and Fiscal Reports, Continued Agency Name: King-Chavez Academy of Excellence Vendor No. Z530 Fiscal Year End: June 30, 2016 Contract No. CSPP5413 COLUMN A COLUMN B COLUMN C CUMULATIVE A UD IT CUMULATIVE FISCAL YEAR A D JUST M EN T FISCAL YEAR PER PER FORM IN C R EA SE OR (D EC R EA SE) AUDIT SECTION III - REVENUE CDFS 8501 RESTRICTED INCOME Child Nutrition Programs $16,900 $16,900 County Maintenance of Effort (EC 8279) 0 Other (Specify): SDCOE Quality Preschool Initiative Other (Specify): Federal Child Development 94, ,061 94, ,061 Subtotal $0 $217,587 $217,587 Transfer from Reserve 0 Family Fees for Certified Children 38,487 (5,587) 32,900 Interest Earned on Apportionments 0 UNRESTRICTED INCOME Family Fees for Noncertified Children 0 Head Start Program (EC 8235(b)) 0 Other (Specify): Quality Preschool Initiative 0 0 Other (Specify): Interest 7 7 TOTAL REVENUE $38,487 $212,007 $250,494 SECTION IV - REIMBURSABLE EXPENSES 1000 Certificated Salaries $203,411 $0 $203, Classified Salaries 170, , Employee Benefits 158,622 12, , Books and Supplies 43, , Services and Other Operating Expenses 188,590 88, , /6200 Other Approved Capital Outlay 6400 New Equipment (program-related ) 1,025 (1,025) Replacement Equipment (program-related) 0 Depreciation or Use Allowance 1,367 1,367 Start-Up Expenses (service level exemption) 0 Budget Impasse Credit 0 Indirect Costs. Rate:0.00% (Rate is Self-Calculating) 0 TOTAL EXPENSES CLAIMED FOR REIMBURSEMENT $765,459 $101,413 $866,872 TOTAL ADMINISTRATIVE COSTS (included in section IV above) $0 $111,768 $111,768 FOR CDE-A&I USE ONLY: AUDITED ATTENDANCE AND FISCAL REPORT for California State Preschool Programs Independent Auditor's Assurances on Agency's compliance with Contract Funding Terms and Conditions and Program Requirements of the California Department of Education, Early Education and Support Division: Eligibility, enrollment, and attendance records are being maintained as required (check YES or NO): COMMENTS - If necessary, attach additional sheets to explain adjustments: YES NO - Explain any discrepancies. Reimbursable expenses claimed above are eligible for reimbursement, reasonable, necessary, and adequately supported (check YES or NO): YES NO - Explain any discrepancies. NO SUPPLEMENTAL REVENUES OR EXPENSES - Check box and omit page 4 if there are no supplemental revenue or expenses to report. AUD 8501, Page 3 of 4 (FY ) California Department of Education See accompanying auditors reports and notes to financial statements 26

31 Audited Attendance and Fiscal Reports, Continued AUDITED ATTENDANCE AND FISCAL REPORT for California State Preschool Programs Agency Name: King-Chavez Academy of Excellence Vendor No. Z530 Fiscal Year End: June 30, 2016 Contract No. CSPP5413 COLUMN A COLUMN B COLUMN C CUMULATIVE A UD IT A D JUST M EN T CUMULATIVE FISCAL FISCAL YEAR PER IN C R EA SE OR YEAR PER AUDIT SECTION V - SUPPLEMENTAL REVENUE FORM CDFS 8501 (D EC R EA SE) Enhancement Funding $93,551 ($93,551) $0 Other (Specify): 0 Other (Specify): 0 Other (Specify): 0 TOTAL SUPPLEMENTAL REVENUE $93,551 ($93,551) $0 SECTION VI - SUPPLEMENTAL EXPENSES EXPENSES RELATED TO SUPPLEMENTAL REVENUE 1000 Certificated Salaries $26,100 $26, Classified Salaries 13,953 13, Employee Benefits 7,936 7, Books and Supplies 33,450 (14,590) 18, Services and Other Operating Expenses 11,842 11, Equipment/Other Capital Outlay 0 Depreciation or Use Allowance 0 Indirect Costs 0 NONREIMBURSABLE EXPENSES Nonreimbursable Capital Outlay 0 Other: e.g., Entertainment Expenses 0 Other (Specify): 0 Other (Specify): 0 TOTAL SUPPLEMENTAL EXPENSES $93,281 ($14,590) $78,691 COMMENTS - If necessary, attach additional sheets to explain adjustments: AUD 8501, Page 4 of 4 (FY ) California Department of Education See accompanying auditors reports and notes to financial statements 27