KOINONIA FOSTER HOMES, INC. (A California Not-For-Profit Corporation) FINANCIAL STATEMENTS DECEMBER 31, 2016

Transcription

1 (A California Not-For-Profit Corporation) FINANCIAL STATEMENTS DECEMBER 31, 2016

2 DECEMBER 31, 2016 TABLE OF CONTENTS Independent Auditor s Report Statement of Financial Position... 3 Statement of Activities... 4 Statement of Functional Expenses... 5 Statement of Cash Flows... 6 Notes to Financial Statements Supplemental Information: Schedule of Federal Awards Independent Auditor s Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page Independent Auditor s Report on Compliance for Each Major Program, Internal Control over Compliance and Report on Schedule of Expenditures of Federal Awards over Compliance in Accordance with the Uniform Guidance Schedule of Findings and Questioned Costs

3 Board of Directors Koinonia Foster Homes, Inc. INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of Koinonia Foster Homes, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, statement of functional expenses, 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 of 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 Koinonia Foster Homes, Inc., as of December 31, 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 Board of Directors Koinonia Foster Homes, Inc. Other Matters 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. 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. Our audit was performed for the purpose of forming an opinion on the basic financial statements of Koinonia Foster Homes, Inc., taken as a whole. The accompanying schedule cost data (SR 3, SR 4, and FCR 12FFA) are presented for additional analysis and are 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 17, 2017, on our consideration of Koinonia Foster Homes, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purposes 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 in considering Koinonia Foster Homes, Inc. s internal control over financial reporting or compliance. Fechter & Company Certified Public Accountants Sacramento, California June 17,

5 STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016 ASSETS CURRENT: Cash and cash equivalents $ 1,148,825 Accounts receivable, net 2,806,896 Prepaid expenses and deposits 142,934 Total current assets 4,098,655 Fixed assets, net 2,773,482 OTHER ASSETS: Other assets 2,312 Total other assets 2,312 Total Assets $ 6,874,449 LIABILITIES AND NET ASSETS CURRENT Accounts payable - vendors $ 616,202 Accounts payable - foster families 118,951 Overpayments refundable to counties 22,980 Accrued payroll 623,809 Vacation, sick and emergency leave 314,456 Total current liabilities 1,696,398 NET ASSETS Unrestricted 5,178,051 Total Liabilities and Net Assets $ 6,874,449 The accompanying notes are an integral part of these financial statements 3

6 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 Changes in unrestricted net assets: Fees and grants: Foster family services $ 16,020,511 Group home services 3,346,870 Adoption services 4,560,000 Crisis resolution center services 1,155,468 Drug medi-cal services 298,422 Total fees and grants 25,381,271 Contributions 283,873 Interest income - Loss on fixed asset disposal (649) Other 4,236 Total unrestricted revenue 25,668,731 Expenses: Foster family 15,053,498 Group homes 2,794,137 Adoptions 3,780,641 Training and other program services 1,678,651 Total program services 23,306,927 Supporting services Administration 2,294,248 Total support services 2,294,248 Total expenses 25,601,175 Increase in net assets 67,556 Net assets, beginning of year 5,207,621 Prior period adjustment (97,126) Net assets, end of the year $ 5,178,051 The accompanying notes are an integral part of these financial statements 4

7 Supporting Program Services Services Foster Families Group Homes Adoptions Other Programs Total Program Services Admin Total Expenses PERSONNEL SERVICES Salaries $ 4,251,711 $ 1,528,101 $ 2,175,110 $ 920,395 $ 8,875,317 $ 1,341,574 $ 10,216,891 Payroll Taxes and fringe benefits 1,765, , , ,718 3,660, ,613 4,199,960 Contract Services 210,388 29, , , , , ,490 Total personnel services 6,228,072 2,154,509 3,241,123 1,398,031 13,021,735 1,990,606 15,012,341 CHILD-RELATED EXPENSES Food and kitchen supplies 10,128 79,490-26, , ,102 Program supplies - 43,243-11,875 55,118-55,118 Supervised activities - 46, ,260-47,260 Clothing, net 67,136 35, , ,353 Allowances 16,894 32, ,809-49,809 Personal and incidental needs - 3, ,764-3,764 Medical and dental - 1, ,276-1,276 Other child-related expense 134,113 21,303 5, , ,775 Total child-related expenses 228, ,345 5,047 39, , ,457 SERVICES AND SUPPLIES Postage, printing, and office supplies 69,563 13,693 30,629 13, ,692 33, ,435 Telephone 151,233 22,864 28,380 13, ,519 21, ,129 Subscriptions and publications 2, ,005 2,908 7,124 25,687 32,811 Special parent support services 51,805-19,638 3,231 74, ,497 Total services and supplies 274,878 37,491 79,652 32, ,009 81, ,872 OCCUPANCY EXPENSES KOINONIA FOSTER HOMES, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2016 Utilities 55,448 64,705 19,403 19, ,635 33, ,734 Repairs and maintenance 24,156 1,263 9,087 1,321 35,827 11,524 47,351 Building and equipment rent 527,775 11, ,164 12, ,115 21, ,118 Insurance 67,348 26,835 42,464 4, ,535 28, ,352 Expendable equipment 105,454 48,255 35,755 59, ,441 21, ,230 Building supplies 10,142 13,206 3,821 12,633 39,802 3,213 43,015 Total occupancy expenses 790, , , ,037 1,327, ,445 1,446,800 OTHER ADMINISTRATIVE EXPENSES Advertising 52, ,769 28, ,371 19, ,606 Education and training 25,023 4,799 11,736 12,924 54,482 10,064 64,546 Licenses and fees 60,145 13,571 26,421 8, ,554 31, ,212 Foster parent insurance 84, ,903-84,903 Miscellaneous 60,602 21,983 28,519 7, , ,828 Total other administrative expenses 283,027 41,312 97,445 57, ,138 60, ,095 DIRECT FAMILY PAYMENTS 6,989, ,712 7,008,313-7,008,313 TRANSPORTATION 235,185 94,740 87,922 10, ,857 9, ,890 DEPRECIATION 24,141 37,439 7,758 11,725 81,063 32, ,407 TOTAL FUNCTIONAL EXPENSES $ 15,053,498 $ 2,794,137 $ 3,780,641 $ 1,678,651 $ 23,306,927 $ 2,294,248 $ 25,601,175 The accompanying notes are an integral part of these financial statements 5

8 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Increase in Net Assets $ 67,556 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 167,029 Loss on fixed asset disposal (649) Prior period adjustment (97,126) (Increase)/Decrease in accounts receivable (155,569) (Increase)/Decrease in prepaid expenses and deposits (11,083) (Increase)/Decrease in other assets 3,098 Increase/(Decrease) in accounts payable (55,513) Increase/(Decrease) in overpayments (14,189) Increase/(Decrease) in payroll liabilities 168,427 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 71,981 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (441,996) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (441,996) NET CASH USED IN FINANCING ACTIVITIES - NET DECREASE IN CASH AND CASH EQUIVALENTS (370,015) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,518,840 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,148,825 SUPPLEMENTAL DATA: Interest paid $ - The accompanying notes are an integral part of these financial statements 6

9 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation: The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Accordingly, Koinonia Foster Home, Inc. s (the Agency) net assets are reported as unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Net assets of the two restricted classes are created only by donor-imposed restrictions on their use. All other net assets, including board-designated amounts, are legally unrestricted and are reported as part of the unrestricted class. For the year ended December 31, 2015, Koinonia Foster Homes, Inc., had no permanently restricted or temporarily restricted net assets. Cash and Equivalents: Cash and equivalents include bank accounts with a maturity of three months or less. Interest income on the certificates of deposit is recorded as income when earned. At December 31, 2016, cash and equivalents included $1,148,825 held in commercial banks, of which $250,000 was insured by the Federal Deposit Insurance Corporation. Property and Equipment: The Agency follows the practice of capitalizing all expenditures for land, buildings, and equipment in excess of $2,000; the fair value of donated property and equipment is similarly capitalized. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Leases: Leases meeting certain criteria are considered to be capital leases and the related asset and lease obligations are recorded at their present value in the financial statements. Other leases not meeting such criteria are considered to be operating leases and the related rentals are charged to expense as incurred. Contributed Support: The Agency recognizes all contributed support as revenue in the period received. Contributed support is reported as unrestricted or as restricted, depending on the existence of donor stipulations that limit the use of the support. When a donor 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 7

10 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.): Contributed Support (cont.): from restrictions. Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Long-lived assets acquired with gifts of cash restricted for those acquisitions are reported as unrestricted or as temporarily restricted, depending on whether there is an explicit, donor-imposed time requirement as to how long the assets must be maintained. Long-lived assets are reported as permanently restricted only if the Agency must maintain the assets in perpetuity or if the donor explicitly restricted the proceeds from any future disposition of the assets to reinvestment in long-lived assets. In-Kind Support: The Agency records various types of in-kind support. Contributed professional services are recognized if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Contributions of tangible assets are recognized at fair market value when received. The amounts reflected in the accompanying financial statements as in-kind support are offset by like amounts included in expenses or property and equipment. Additionally, the Agency receives some skilled, contributed time that does not meet the two recognition criteria described above. Accordingly, the value of this contributed time has not been determined and is not reflected in the accompanying financial statements. Contract Revenue and Deferred Revenue: The Agency contracts with the California and Nevada Departments of Social Services to provide shelter and foster care services through various counties in these states. The revenue from these services is recognized as services are performed. Revenue from other contracts is recognized as services are performed or costs are incurred, depending on whether they are fee-for-service or cost reimbursement type contracts. Deferred revenue is recorded when fees are received in advance of being earned or the amount received exceeds the costs being reimbursed. Bad Debt Reserve: The Agency records bad debts using the reserve method. 8

11 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.): Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Functional Allocation of Expenses: The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Advertising Costs: Advertising costs are expensed as incurred. NOTE 2: AGENCY OPERATIONS: Koinonia Foster Homes, Inc., is a California not-for-profit organization incorporated February 3, The organization provides foster homes and specialized group homes for children with emotional and social problems in California and Nevada. The major funding source is the California Department of Social Services through various counties in California to provide foster care services. These funds comprised over 80% of the Agency s revenues in In 2005, Koinonia applied for and received a license to provide private adoption services in the State of California. Under the Private Adoption Agency Reimbursement Program (PAARP) and the State of California Department of Social Services, Koinonia facilitates private adoptions and receives reimbursement for these services. NOTE 3: ACCOUNTS RECEIVABLE: Accounts receivable consists of the following: Foster care $ 1,494,035 Adoption 630,000 Other contracts 38,293 Less allowance for doubtful accounts (55,432) Total $ 2,806,896 9

12 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4: PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: Land $ 946,711 Building 2,021,957 Furniture & equipment 849,876 Leasehold improvements 903,619 Vehicles 543,705 Subtotal 5,265,868 Less accumulated depreciation & amortization (2,492,386) Total $ 2,773,482 NOTE 5: COMMITMENTS: Operating leases: The Agency is liable for operating leases providing for the following future minimum lease payments, as follows: Year Ending December 31, Real Property 2017 $ 566, , , ,878 Total $ 1,305,739 Total rent expense for the year was $715,787. NOTE 6: INCOME TAX EXEMPTION: The Agency has received the notifications from the Internal Revenue Service and the State of California that it qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. NOTE 7: LIABILITY FOR OVERPAYMENTS RECEIVED: Timing differences in recording terminations from the various programs result in receipts for services relating to children who have left the programs. These receipts 10

13 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 may be refundable to the county agencies providing the funds. Accordingly, the Agency records these amounts as liabilities. NOTE 7: LIABILITY FOR OVERPAYMENTS RECEIVED (Cont.): If repayment has not been requested by the end of the third year after the year of receipt of these overpayments, they are taken into income. The Agency, however, intends to continue to research and discuss these amounts with county agencies. NOTE 8: RETIREMENT PLAN: The Agency adopted a Cash or Deferred Profit-Sharing Plan (401K plan) effective July 1, 2000, covering all employees having attained age 18. Employees are permitted to make Elective Deferrals up to 15% of their compensation upon 30-days notice to the Agency. The Agency makes matching contributions up to 1% for all employees who have been credited with 1,000 hours of service after their first calendar year. The total company contribution for the 2016 year was $53,662. NOTE 9: UNEMPLOYMENT BENEFITS: Under programs administered by the State of California Employment Development Department and State of Nevada Department of Employment, Training and Rehabilitation for nonprofit organizations,the Agency, does not pay a set amount of unemployment insurance based on a percentage of each employee s pay up to certain limits. Instead, under this program, the organization agrees to reimburse the states directly for any unemployment benefit claims filed by its terminated employees. Unemployment expense for the year ended December 31, 2016, was $38,078. NOTE 10: CONTINGENT LIABILITIES: The Agency s grants and contracts are subject to inspection and audit by the appropriate governmental funding agencies. The purpose is to determine whether program funds were used in accordance with their respective guidelines and regulations. The potential exists for disallowance of previously funded program costs. The ultimate liability, if any, which may result from these governmental duties, cannot be reasonably estimated and, accordingly, the Agency has no provision for the possible disallowance of previously funded program costs. 11

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 11: FINANCIAL INSTRUMENTS: The carrying amount of certain on-balance-sheet financial instruments (cash and cash equivalents, accounts receivable, accounts payable, overpayments refundable, accrued expenses) approximate their fair values because they are short-term in nature, are payable on demand, or they bear fair market interest. NOTE 12: CONCENTRATIONS: The Agency receives the bulk of its revenues (approximately 98%) from the Foster Care and Adoption Assistance programs that are funded by federal, state, and local governments. Any major changes in these programs could potentially adversely affect the Agency s financial condition. The Agency also receives funding from different grant sources. All programs are subject to audit by the grant sources which could result in funds being returned. The agency did not believe there were any instances of material non-compliance with grants at the balance sheet date. NOTE 13: PRIOR PERIOD ADJUSTMENT: A prior period adjustment was recorded to adjust the workers compensation expense. NOTE 14: SUBSEQUENT EVENTS: Subsequent events have been evaluated through June 17, 2017, the date the financial statements were available to be issued. No event was found that would materially affect the carrying values of the Agency s assets or liabilities. 12

15 SUPPLEMENTAL INFORMATION

16 SCHEDULE OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2016 Federal Grantor/Pass-through CFDA Contract Contract Federal Grantor/Program Name Number Number Period Amount Expenditures DEPARTMENT OF HEALTH AND HUMAN SERVICES Foster Care-Title IV-E Various counties in California Group Home N/A 1/1/16-12/31-16 N/A $ 287,299 * Foster Family N/A 1/1/16-12/31-16 N/A 2,797,054 * Adoption Assistance-Title IV-E State of California N/A 1/1/16-12/ ,905,000 * Medical assistance program- Medicaid - Title XIX Placer County CN /1/2015-6/30/ ,000 82,514 Placer County CN /1/2016-6/30/ ,000 78,335 Totals $ 7,150,202 * - Denotes a major program Note 1 - The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Koinonia Foster Homes, Inc. under programs of the federal government for the year-end December 31, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award (Uniform Guidance). Because the Schedule presents only a seleected portion of the operations of Koinonia Foster Homes Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Koinonia Foster Homes, Inc. Note 2 - Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 13

17 Independent Auditor s Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Koinonia Foster Homes, Inc. We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Koinonia Foster Homes, Inc., as of and for the year ended December 31, 2016, and have issued our report thereon dated June 17, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Koinonia Foster Homes, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of Koinonia Foster Homes, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Koinonia Foster Homes, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements in a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of Koinonia Foster Homes, Inc. s will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 14

18 Board of Directors Koinonia Foster Homes, Inc. Our consideration of the internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in the internal control that are also considered to be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Koinonia Foster Homes, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determinations 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 that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fechter & Company Certified Public Accountants Sacramento, California June 17,

19 Independent Auditor s Report on Compliance for Each Major Program, Internal Control Over Compliance, and Report on Schedule of Expenditures of Federal Awards over Compliance in Accordance with the Uniform Guidance Board of Directors Koinonia Foster Homes, Inc. Report on Compliance for Each Major Federal Program We have audited Koinonia Foster Homes, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of ABC Organization s major federal programs for the year ended December 31, Koinonia Foster Homes, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Koinonia Foster Homes, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Koinonia Foster Homes, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 16

20 Board of Directors Koinonia Foster Homes, Inc. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Koinonia Foster Homes, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Koinonia Foster Homes, Inc., complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Report on Internal Control Over Compliance Management of Koinonia Foster Homes, Inc., is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Koinonia Foster Homes, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Koinonia Foster Homes, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 17

21 Board of Directors Koinonia Foster Homes, Inc. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance, 2 CFR Part 200, Subpart F. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by Uniform Guidance We have audited the financial statements of Koinonia Foster Homes, Inc., as of and for the year ended June 30, 2016, and have issued our report thereon dated June 17, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statement as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance, 2 CFR Part 200, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. Fechter & Company Certified Public Accountants Sacramento, California June 17,

22 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2016 Financial Statements: Section I Summary of Auditor s Results Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weaknesses identified? No Significant deficiencies identified that are not considered to be material weaknesses? No Noncompliance material to financial statements noted? No Federal Awards: Internal control over major programs: Material weaknesses identified? No Significant deficiencies identified that are not considered to be material weaknesses? No Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance at CFR Part (d)(1)(iv) Unmodified No Identification of major programs: Program Title CFDA # Foster Care Title IV-E CFDA # Adoption Assistance Title IV-E Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee No 19

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2016 Section II Financial Statement Findings No matters were reported. Section III Federal Award Findings and Questioned Costs No matters were reported. Section IV Prior Year No matters were reported. 20

24 FCR 12FFA WP8 Worksheet Only Input CA FFA INFANT SUPPLEMENT INCOME here - 13, Input CA FFA CLOTHING INCOME here ---> 142, YR: 2015 AGENCY NAME: Reporting Period KOINONIA FOSTER HOMES, INC. PROGRAM NAME: FFA PROGRAM #: REPORTING PERIOD: thru (1) (2) (3) (4) (5) (6) (7) LINE LINE ITEMS OF COST TOTAL ALLOCATED TOTAL (SUM OF COST COLUMNS 3 ADMINISTRATION RECRUITMENT TRAINING SOCIAL WORK CHILD RELATED N/A EXPLANATION-COMMENTS THROUGH 8) From PR-FFA % spreadsheet 100a Executive Director Salary 91, , From PR-FFA % spreadsheet 100b Assistant Director Salary From PR-FFA % spreadsheet 100c Administrator Salary 2, d All Other Administrative Salaries 1,983, ,983, Recruitment Payroll 102, , Training Payroll 102, , Administrative Contracts 96, , Telephone and Telegraph 135, , , , , , From P/R allocation spreadsheet, w/fringe Benefits From P/R allocation spreadsheet, w/fringe Benefits From P/R allocation spreadsheet, w/fringe Benefits Actual Concert, Promo, Prod in Recruitment. Trainers in Trng. Rest of contracts are Admin Lines 121 through 243 are based on P/R% adjusted by column L (n/a) Postage and Freight 14, , , , (0.01) 123 Office Supplies 53, , , , , , Office, Food, Supplies (0.01) 132 Conferences, Mtgs, In-Service Training 70, , , , , Specific Cost to Training (Col 5) - Equals FFA..GH Training in Col. K , Memberships, Subscriptions 13, , , , Printing, Publications Specific Cost to Recruitment (Col 4) Bonding, General Insurance 153, , , , , , Liability 0.01 Misc Equals FFA..GH TV Production in Col. 137 Advertising 59, , , , , , K Travel, Mileage reimb, Other, Bank (58,197.61) Travel fees, Contribs (U & R), Allocations, 138 Miscellaneous 123, , , , , , Care 0.00 Everything is N/A except travel, mileage, other 702-Lic/Fees 708-FP Recruitment 200 Building and Equipments Payroll Building Rents and Leases 390, , , , , , Building Depreciation., Building Acquisition non capitolized costs year A-122; KFH average 40 year; exclude 1/5? Removed in Acquisition Mortgage Principal & Interest 40, , , , Property Appraisel Fees Property Taxes 1, , Taxes Building and Equipment Insurance Property Insurance Utilities 54, , , , , , Building Maintenance 31, , , , Building and equipment maintenance Building and Equipment Contracts 25, , , , /1/2017 Page 1 of 2 F:\Data_xl\2016_Ratesetting_Worksheet_for_Audited_Cost_Reports.xlsx - SHEET: FCR 12FFA WP8

25 FCR 12FFA WP8 224 Building and Equipment Supplies Equipment Leases 3, , , , Equipment Depreciation Expense 15, , , , year A-122; KFH average 5 year; exclude 2/3? 227 Expendable Equipment 101, , , , , , Building and Equipment Miscellaneous Vehicle Leases Vehicle Depreciation 6, , , , year A-122; KFH average 5 year; exclude 2/3? 243 Vehicle Operating Costs 181, , , , , , Total Paid to Certified Family Homes 6,484, ,471, , Other Child Related Costs, Not Provided by CFH's 187, , , Infant Supplement Income offset (from above) FP Pay and FP Recruiting (708) Clothing Supplement Income offset (above) 410 Social Worker Payroll or Social Worker Contract 2,910, ,910, Psychology is Not Allowed (680) 440 Direct Care Contracts 25, , None in columns I and L 500 TOTAL EXPENSES ########### 2,746, , , ,707, ,541, , (58,197.61) 390, /1/2017 Page 2 of 2 F:\Data_xl\2016_Ratesetting_Worksheet_for_Audited_Cost_Reports.xlsx - SHEET: FCR 12FFA WP8

26 STATE OF CALIFORNIA - HEALTH AND HUMAN SERVICES AGENCY GROUP HOME PROGRAM COST REPORT (SR 3) CALIFORNIA DEPARTMENT OF SOCIAL SERVICES This form is to collect cost information for this group home program. Report actual allowable and reasonable costs. If the corporation operates more than one group home program and/or the program provides other activities, (example: day care, on-site education, adult services, foster family agency, etc.) cost must be allocated to the appropriate activity and only the allowable group home program costs for the program are to be reported. Describe the methodology used to allocate costs if other than the standard allocation methodology indicated in current regulations (MPP et seq.). NOTE: A separate cost report form must be completed for each group home program operated by the corporation. NOTE: A separate application and forms package must be completed for each group home program operated by the agency. Number of Months in cost reporting period: 12 CORPORATE NAME: KOINONIA FOSTER HOMES, INC. COST GROUPS (See attachment) PROGRAM NAME (IF DIFFERENT): CORPORATE NUMBER: PROGRAM FISCAL YEAR: 01/15-12/15 Chemical Dependency A B C D E F TOTAL PROGRAM COSTS OFFSETS REASONABLENESS ADJUSTMENTS PROGRAM NUMBER: FINAL COSTS (COL. A MINUS COLS. B & C) Percentage of Total Cost CDSS USE ONLY 1 Child Care and Supervision 1,734, ,734, % 2 Social Work Activity 230, , % 3 Food 85, , % 4a Shelter Costs - Building Rent and Leases 9, , % 4b Shelter Costs - Approved by Attorney General Self Dealing Transactions Affiliated Leases % 4c Shelter Costs - Acquisition Mortgage Principal & Interest - Includes Mortg payoff 158, , % 5 Building and Equipment 135,930 (9,240) 0 126, % 6 Utilites 65, , % 7 Vehicles & Travel 94, , % 8 Child Related 164, , % 9a Executive Director Salary 4, , % 9b Assistant Director Salary % 9c Administrator Salary 66, , % 9d All Other Admin. Salaries 110, , % 9e Annual Financial Audit Costs 1, , % 9f Administration (Minus Admin. Salaries and Financial Audit Costs) 128, , % Total 2,990,553 (9,240) 0 2,981, % 0 CDSS USE ONLY KDE DATE

27 STATE OF CALIFORNIA - HEALTH AND HUMAN SERVICES AGENCY GROUP HOME PROGRAM Payroll & Fringe Benefit Report (SR 4) CALIFORNIA DEPARTMENT OF SOCIAL SERVICES Number of months in cost reporting period: 12 CORPORATE/LICENSEE NAME: KOINONIA FOSTER HOMES, INC. CORPORATE NUMBER: (1) Child Care & Supervision PROGRAM NUMBER: (2) Social Work Activities PROGRAM FISCAL YEAR: 01/15-12/15 (3) CDSS USE ONLY I. PAYROLL (DO NOT INCLUDE BENEFITS) 1,242, ,330 II. FRINGE BENEFIT EXPENSE 1 FICA Employer Tax (Include Medicare) 95,066 12,648 2 Unemployment Coverage (State & Federal) 1, Workers' Compensation Insurance 65,209 8,675 4 Medical Insurance Expense 239,536 31,868 5 Retirement 4, Other (Specify on back of Form) (PTO, Disability insurance, Moving expense, Other) 86,131 11,459 TOTAL FRINGE BENEFITS (Add Lines 1 through 6) 491,728 65,420 III. TOTAL PAYROLL & FRINGE BENEFITS 1,734, ,750 IV. CONTRACTOR COSTS 0 0 V. TOTAL (Add line III and Line IV) Transfer to Column A, Lines 1 and 2, Cost Report (SR 3) 1,734, ,750 1,734, , CDSS USE ONLY KDE DATE - -