Instituto Socio-Económico Comunitario (INSEC), Inc. (A Puerto Rico Non-Profit Organization)

Transcription

1 Instituto Socio-Económico Comunitario (INSEC), Inc. (A Puerto Rico Non-Profit Organization) Audited Financial Statements and Single Audit Repot For the Year Ended September 30, 2016

2 A Puerto Rico Non-Profit Organization September 30, 2016 Table of Contents Part I Financial Statements: Pages Independent Auditors Report... 1 Statement of Financial Position... 3 Statement of Activities and Changes in Net Assets... 5 Statement of Cash Flows... 6 Notes to the Financial Statements... 8 Part II Schedule of Expenditures of Federal Awards and Reports Required by Government Auditing Standards and Uniform Guidance: Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Part III Schedule of Findings and Questioned Costs: Section I Summary of Auditors Results Section II Financial Statements Findings Section III Federal Awards Findings and Questioned Costs Schedule of Prior Audit Findings and Questioned Costs: Schedule of Prior Audit Findings and Questioned Costs Independent Auditors Peer Review Report: Letter to the User Peer Review Report... 31

3 PART I FINANCIAL STATEMENTS

4 De Angel &Compañía Corporación Profesional Contadores Públicos Autorizados PO Box 5460 Caguas, Puerto Rico Glasgow 1890 College Park IV San Juan, Puerto Rico (787) Fax INDEPENDENT AUDITORS REPORT To the Board of Directors of Instituto Socio-Económico Comunitario (INSEC), Inc. San Juan, Puerto Rico Report on the Financial Statements We have audited the accompanying financial statements of Instituto Socio-Económico Comunitario (INSEC), Inc., a non-profit organization, which comprise the statement of financial position as of September 30, 2016, and the related statements of activities and changes in net assets, 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. Auditors 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 United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risk 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 opinions. Page 1

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Instituto Socio-Económico Comunitario (INSEC), Inc., as of September 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. Other Matter 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. 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 June 9, 2017, on our consideration of Instituto Socio-Económico Comunitario (INSEC), Inc. s internal control over financial reporting and on our tests of its compliance with certain provision 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 Instituto Socio-Económico Comunitario (INSEC), Inc. s internal control over financial reporting and compliance. San Juan, Puerto Rico June 9, Stamp No. E was affixed to original License No. 317 Expires December 1, 2020 Page 2

6 STATEMENT OF FINANCIAL POSITION September 30, 2016 ASSETS Current Assets: Cash... $ 1,229,082 Accounts Receivable from Federal Government... 2,413,412 Prepaid Expenses ,212 Total Current Assets... $ 4,167,706 Property and Equipment: Office Equipment... 1,390,373 Vehicles... 2,195,756 Capital Leases ,966 Sub Total... 3,690,095 Less: Accumulated Depreciation... (3,180,643) Total Property and Equipment ,452 TOTAL ASSETS... $ 4,677,158 Continues on the next page. Page 3

7 STATEMENT OF FINANCIAL POSITION September 30, 2016 LIABILITIES AND NET ASSETS Liabilities: Current Liabilities: Current Portion of: Loan Payable... $ 7,660 Obligations Under Capital Leases... 19,973 Accounts Payable Suppliers... 25,315 Accrued Vacations... 88,622 Federal Awards Deferred Revenues... 3,409,817 Accounts Payable to: Federal Government... 66,441 State Government... 30,769 Total Current Liabilities... $ 3,648,597 Long-Term Liabilities: Loan Payable... 6,155 Obligations Under Capital Leases... 17,641 Net Assets: Total Long-Term Liabilities... 23,796 Total Liabilities... 3,672,393 Unrestricted ,342 Temporary Restricted ,423 Total Net Assets... 1,004,765 TOTAL LIABILITIES AND NET ASSETS... $ 4,677,158 The accompanying notes are an integral part of this statement. Page 4

8 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS For the Year Ended September 30, 2016 Revenues and Other Supports: Temporary Unrestricted Restricted Total Federal Awards... $ - $10,121,840 $10,121,840 State Awards , ,528 Contributions... 15,266-15,266 In-Kind Contributions and Services , ,243 Interest Net Assets Released from Restrictions by Satisfaction of Specific Purpose Restrictions... 10,806,287 (10,806,287) - Expenses: Total Revenues and Other Supports... 10,981,810 (333,919) 10,647,891 Program-Related Expenses: On the Job Training.... (5,640,679) - (5,640,679) Housing Improvements... (714,365) - (714,365) Emergency Services (Crisis Management)... (856,892) - (856,892) Community Development... (1,506,703) - (1,506,703) Economic Development (Micro-enterprise)... (842,681) - (842,681) Supporting Services: Management and General... (1,478,174) - (1,478,174) Total Expenses... (11,039,494) - (11,039,494) CHANGE IN NET ASSETS... (57,684) (333,919) (391,603) Net Assets at Beginning of Year , ,342 1,396,368 NET ASSETS AT END OF YEAR... $ 768,342 $ 236,423 $ 1,004,765 The accompanying notes are an integral part of this statement. Page 5

9 STATEMENT OF CASH FLOWS For the Year Ended September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Federal Awards... $ 9,810,616 Cash Received from State Awards ,517 Contributions Received... 15,266 Interest Received Cash Paid to Suppliers and Employees... (11,711,632) Interest Paid... (6,251) Net Cash Used In Operating Activities... ($ 1,528,470) CASH FLOWS FROM INVESTING ACTIVITY: Cash Used to Purchase Office Equipment... (27,999) Net Cash Used In Investing Activity... (27,999) CASH FLOWS FROM FINANCING ACTIVITIES: Cash Used for Principal Payments of: Loans Payable... (7,078) Obligations Under Capital Leases... (18,923) Net Cash Used in Financing Activities... (26,001) NET DECREASE IN CASH... (1,582,470) Cash, Beginning of Year... 2,811,552 CASH, END OF YEAR... $ 1,229,082 Continues on the next page. Page 6

10 STATEMENT OF CASH FLOWS For the Year Ended September 30, 2016 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH USED IN OPERATING ACTIVITIES: CHANGE IN NET ASSETS... ($ 391,603) ADJUSTMENT TO RECONCILE CHANGE IN NET ASSETS TO NET CASH USED IN OPERATING ACTIVITIES: Depreciation Expense... $ 435,517 (Increase) in Current Assets: Accounts Receivable from Federal Government... (150,007) Prepaid Expenses... 9,967 Increase (Decrease) in Current Liabilities: Accounts Payable Suppliers... (1,239,524) Accrued Vacations... (44,591) Federal Awards Deferred Revenues... (161,217) Accounts Payable to State Government... 12,988 Total Adjustments... (1,136,867) NET CASH USED IN OPERATING ACTIVITIES... ($ 1,528,470) The accompanying notes are an integral part of this statement. Page 7

11 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Instituto Socio-Económico Comunitario (INSEC), Inc. (hereinafter INSEC) was organized under the laws of the Commonwealth of Puerto Rico on September 25, 1985 as a non-profit organization. INSEC is also a member of the National Association of Community Action Agencies (NACAA). It was created to develop and promote social, education, and cultural activities to alleviate the distressed socialeconomic conditions of the people living in low-income communities. Its strategy to increase the accessibility of services to low-income people rest upon an interaction and integration process of the following social agents: private sector, local and state government units and residents in communities. INSEC is supported primarily through federal awards in form of grants from U.S. Department of Health and Human Services, and U.S. Department of Housing Urban Development. For the year ended September 30, 2016, INSEC administered the following programs: On the Job Training This program serves unemployed low-income individuals, youngsters and the elderly (aged 55 and over), providing them with training and employment opportunities. In addition, the program offers: work related counseling; workshops on effective techniques to obtain and maintain employment; and referral services. Housing Improvements INSEC make the project management of this program to provide decent housing, a suitable living environment, and expanding economic opportunities, principally for the persons of low income in Mayagüez. The participants served by the program are qualified and referred by this municipality. Emergency Services (Crisis Management) This program promotes that low-income people, especially vulnerable populations, achieve their potential by strengthening family and other supportive systems. For this, the program provides low-income families financial assistance, in form of goods and services, to satisfy emergency needs due to a sudden illness, disability, unemployment, use or abuse of drugs and alcohol, domestic violence, among others. In addition, the program has a component that addresses Homeless Prevention. The program, through alliances with the private and public sector provide services to homeless individuals or person in risk of becoming homeless; offering general and professional counseling and referrals to support groups, detoxification programs and legal counseling, among others. Community Development This program provides services to develop community leadership, volunteering work, community organizations, and neighborhoods associations. Through capacity building workshops, the residents acquire life skills, such as: negotiation and persuasions, effective leadership, proposal writing, development and implementation of community work plans, and effective techniques to promote the economic development of the vicinity. Also, the program promotes activities that support a sustained community development, such as: recreational, educational, and sport activities; health clinics; cultural celebrations; and environmental cleaning campaigns. Page 8

12 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continues) Economic Development (Micro-enterprise) This program serves low-income individuals, contributing to the development of sustainable micro-enterprises; for which, the program provides technical and financial assistance. The technical assistance offers entrepreneur counseling for the conceptualization and design of the Business Plan. The financial assistance endows the participant with the equipment and materials that makes possible the implementation of the desired business. After the business is established, the program provides entrepreneur counseling services for a period no less than a year to assure the sustainability of the business. Financial Statements Presentation INSEC s financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the Unites States of America. Resources are reported for accounting purposes into separate classes of net assets based on the existence or absence of donorimposed restrictions. In the accompanying financial statements, net assets that have similar characteristics have been combined into similar categories. Change in net assets from operating activities in the statement of activities reflects all transactions increasing or decreasing unrestricted net assets. Unrestricted Net Assets Unrestricted net assets generally results from revenues derived from providing services, receiving unrestricted contributions, receiving dividends and interest from investing in income-producing assets, and unrestricted gain and losses, less expenses incurred in providing services, raising contributions, and performing administrative functions. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors. Temporarily Restricted Net Assets Temporarily restricted net assets generally result from contributions and other inflows of assets whose use by INSEC is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of INSEC pursuant to those stipulations or by law. Gift of cash and other non-capital assets are reported as temporarily restricted operating revenue if the gifts are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose for 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. Permanently Restricted Net Assets Permanently restricted net assets generally represent the corpus of contributions and other inflows of assets whose use by INSEC is limited by donor imposed stipulations that neither expire by the passage of time nor can be fulfilled or otherwise removed by INSEC. As of September 30, 2016, and for the year then ended, there are no permanently restricted assets. Page 9

13 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continues) Revenues are reported as increase in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Amounts received that are designated for future periods or restricted by the donor for specific purpose are reported as temporarily restricted or permanently restricted support that increase these net assets classes. Expenses are generally reported as decrease in unrestricted net assets. Expiration of restriction on net assets (that is, the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Contributions Contributions with donor-imposed restrictions are recorded as increases in temporarily restricted or permanently restricted net assets, depending on the nature of the restriction. Contributions recorded as temporarily restricted net assets are released from restrictions and recognized as unrestricted net assets upon receipt of the gift or expiration of the time restriction, and after any donor stipulations are met. In addition, grant revenues are being recognized as the qualifying expenses under the grants are incurred. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amount and disclosures. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses. Accordingly, actual results could differ from those estimates. Cash Equivalents For purposes of the statement of cash flows, INSEC considers all liquid investments with original maturities of three months or less to be cash equivalents. As of September 30, 2016, there are no cash equivalents. Federal Awards For the year ended September 30, 2016, the revenues received from federal awards in the form of grants were 95.06% from the total revenues and other supports. These funds are received from pass-through entities and are subject to independent financial and compliance audits under the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Page 10

14 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continues) Federal grants are considered conditional gifts due to the strings and conditions attached to it by the federal government. Accordingly, significant federal grants receipts are accounted for as federal award deferred revenue until the conditions imposed by the federal government have been substantially met which includes payment. In-kind Contributions and Contributed Services Contributions and contributed services received are recognized as in-kind revenues if the services provided, (a) create or enhance nonfinancial assets or (b) required specialized skills which would need to be purchased if they were not donated. A significant number of volunteers have donated their time and provided in-kind contributions of materials and supplies to help the Community Development program. For the year ended September 30, 2016 the amount for contributed services and in-kind contributions amounted to $160,243. Property and Equipment Property and equipment is stated at cost. Additions over $500 are capitalized, whereas expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Donations of property and equipment are recorded as contributions at their estimated fair value. Such donations are reported as unrestricted contributions unless the donor has restricted the donated asset for a specific purpose. Asset donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as temporarily restricted contributions. Depreciation expense is computed following the straight-line method over the estimated lives of the depreciable assets. Accumulated depreciation and depreciation expense as of and for the year ended September 30, 2016, are the following: Estimated Depreciation Accumulated Description of Assets Lives Expense Depreciation Office Equipment 5 & 7 years $ 112,115 $1,138,074 Vehicles 7 years 299,019 1,976,899 Property Under Capital Leases 5 years 24,383 65,670 Total $ 435,517 $3,180,643 Property and equipment purchased under existing grant agreements with the Puerto Rico Department of Family - Administration of Children and Families (Pass-Through Grantor) shall be returned to the Pass- Through Grantor upon 60 days finalized the grant period, unless the Pass-Through Grantor previously authorizes INSEC to retain such property and equipment and continue using it in accordance with the purposes established by the grant agreements. Page 11

15 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (continues) Income Taxes INSEC was granted complete Puerto Rico income tax exemption under the provisions of Section 1101(4) of the Puerto Rico Internal Revenue Code of 1994, as amended. It is also exempt from property and municipal taxes under section 9 (g) of the Municipal License Tax Act, and section 5.01(e) of the Municipal Property Tax Act, respectively. INSEC is also recognized as an organization exempt from federal income taxes under the Section 501(c)(3) of the U.S. Internal Revenue Code. Accordingly, no provision for income taxes has been recorded in the accompanying financial statements. However, if applicable, income from unrelated business income activities would be taxable under Sections 511 through 515. Accounting principles generally accepted in the United States of America require that INSEC s management evaluates tax position taken and recognize a tax liability (or asset) if INSEC has taken an uncertain position that more likely than not, would not be sustained upon examination of taxing authorities. All tax returns through fiscal year September 30, 2016, have been appropriately filed by INSEC. INSEC s open audit periods are the last four (4) fiscal years ended September 30, Management has evaluated INSEC s tax positions and concluded that INSEC had maintained its tax exempt status and had taken no uncertain tax positions that require adjustment or disclosure to the financial statements. Therefore, no provision or liability for income taxes has been included in the financial statements. NOTE 2 CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject INSEC to concentration of credit risks are cash and receivables. INSEC s cash is placed with one financial institution. Financial instruments, which potentially subject INSEC to concentrations of credit risk, consist principally of cash deposits and accounts receivable. Cash is maintained in one (1) financial institution. The cash deposits, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC) of $250,000 per financial institution. As of September 30, 2016, cash deposits exceeded the FDIC's insured limits by approximately $4.4 million. INSEC periodically assesses the financial condition of these financial institutions and believes that the risk of loss is limited. NOTE 3 RESTRICTIONS ON ASSETS Substantially all of the restrictions on assets as of September 30, 2016 are related to federal and state awards. Such assets must be used in accordance with the purposes established by the federal and state laws and regulations in contrast with unrestricted funds over which the governing board remained full control to use in achieving any of its institutional purposes. Separate cash accounts for each federal award are maintained as required. This cash is restricted to be used only for federal awards purposes. Also, separate cash accounts are maintained for other non-federal programs. Page 12

16 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 4 FEDERAL AWARDS RECEIVABLE AND FEDERAL AWARDS PAYABLE As of September 30, 2016, the Account Receivable from Federal Government consists of the following federal programs: U.S. Department of Health and Human Services (HHS): Community Services Block Grants $ 2,398,677 U.S. Department of Housing and Urban Development (HUD): Community Development Block Grants / Entitlement Grants 14,735 Total Account Receivable from Federal Government $ 2,413,412 As of September 30, 2016, the Account Payable to Federal Government consists of the following federal programs: U.S. Department of Agriculture (USDA): Community Facilities Loans and Grants $ 2,739 U.S. Department of Health and Human Services (HHS): Substance Abuse and Mental Health Services / Projects of Regional and National Significance 63,702 Total Account Payable to Federal Government $ 66,441 NOTE 5 ACCOUNTS PAYABLE TO FEDERAL AND STATE GOVERNMENTS Any federal fund paid to a recipient in excess of the amount to which the recipient is finally determined to be entitled under the terms and conditions of the award program and the pass-through entities contracts constitute a debt to the financial government. Also, any unused of state government s funds must be returned to the state government. NOTE 6 COMPENSATED ABSENCES Employees are entitled to paid vacation and paid sick days depending on job classification, length of service, and other factors. Accrued vacation payable is included in the in the accompanying financial statements based on days of vacation earned by employee. This accrued compensate absences is eligible to be carried into the next fiscal year. Page 13

17 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 7 LOAN PAYABLE Loan payable as of September 30, 2016, are as follows: Current Long-Term Description Portion Portion Loan payable to bank due in monthly installments of approximately $707 at 7.91% of interest through June The loan is collateralized with a vehicle used in the operations. $ 7,660 $ 6,155 Interest expense on loans payable during the year ended September 30, 2016, amounted to $1,400. Maturities of the above loans during the following years subsequent to September 30, 2016, are as follows: Year Ending September 30, Amount 2017 $ 7, ,155 NOTE 8 OBLIGATIONS UNDER CAPITAL LEASES Obligations under capital leases as of September 30, 2016, are as follows: Current Long-Term Description Portion Portion Capital lease obligation covering office equipment due in monthly installments of approximately $1,557 at 10.78% of interest through September The lease includes an option to renew the agreement or purchase the office equipment at fair market value at termination of the lease agreement. $ 15,847 $ 17,641 Capital lease obligation covering vehicle due in monthly installments of approximately $424 at 5.95% of interest through July The lease includes an option to purchase the vehicle. 4,126 - Total $ 19,973 $ 17,641- Page 14

18 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 8 OBLIGATIONS UNDER CAPITAL LEASES (continues) Interest expense on capital leases during the year ended September 30, 2016 amounted to $4,850. The capital leases are collateralized by office equipment and vehicle acquired under the agreements, which are recorded in the accompanying financial statements at cost totaling $77,037 and $26,929, respectively. Accumulated depreciation as of September 30, 2016 on such assets totaled $65,670. Amortization expense totaled $24,383 and this amount was included as depreciation expense for the year ended September 30, Future minimum lease payments under the capital lease agreements are as follows: Year Ending September 30, Amount 2017 $ 35, ,792 Total future minimum lease payments 65,823 Less: Amount representing: Imputed Interest (4,001) Maintenance (24,208) Present Value of Net Minimum Payments $ 37,614 NOTE 9 NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from restrictions when expenses were incurred to satisfy the specified restricted purposes by donors for the year ended September 30, 2016 as follows: Purpose restrictions accomplished: Purchase of office equipment and principal payments on loans payable and obligations under capital leases, interests and other $ 97,300 Program-related expenses: On the Job Training 5,538,522 Housing Improvements 714,365 Emergency Services (Crisis Management) 841,373 Community Development 1,479,416 Economic Development (Micro-enterprise) 827,401 Management and General 1,307,910 Total $10,806,287 Page 15

19 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 10 COMMITMENTS AND CONTINGENCIES Operating Leases: INSEC conducts its operations at different premises under various operating lease agreements. The Central Office operates from a leased facility. New agreement commenced on June 1, 2015 and will expire on May 31, This agreement requires an annual base rent of $360,000. The regional offices operate on leased facilities under an annual or monthly contracts; the monthly payments range are from $1,965 to $5,880, approximately. Some leases contain annual renewal periods. Some leases require payments of insurance and maintenance costs in addition to rent payments. INSEC also has few monthly lease contracts for parking vehicles. The monthly payments ranges for these contracts lease are from $444 to $1,000, approximately. Year Ending September 30, Amount 2017 $ 546, , , , $1,108,597 Rent expense for the year ended September 30, 2016 amounted to $567,574. Contingencies Legal Cases INSEC is a defendant in a lawsuits arising in the ordinary course of business. Management and their legal counsel are of the opinion that the ultimate disposition of these matters will not have a material adverse effect on its financial position and result of operations. Any adverse effect will be presented in the financial position during the year that occurs. Federal Grants INSEC receives financial assistance from the federal government in the form of grants and entitlements. Receipt of grants is generally conditioned upon compliance with terms and conditions of the grant agreements and applicable federal laws and regulations, including the expenditure of resources for eligible purposes. Accordingly, expenditures financed by these programs are subject to financial and compliance audits by the grantor agencies, which could result in request for reimbursement by the grantor agencies for expenditures, if disallowed under the terms of the grants. These amounts, if any, of expenditures, which may be disallowed by the granting agencies, cannot be determined at this time. Management believes that such disallowances, if any, will not have a material adverse effect on the financial position of INSEC. Page 16

20 NOTES TO THE FINANCIAL STATEMENTS September 30, 2016 NOTE 11 SUBSEQUENT EVENTS Management has evaluated subsequent events through June 9, 2017, the date on which the financial statements were available to be issued and has determined that there were no events occurring during that period that required disclosure to the accompanying financial statements. Page 17

21 PART II SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND REPORTS REQUIRED BY GOVERNMENT AUDITING STANDARDS AND UNIFORM GUIDANCE

22 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended September 30, 2016 FEDERAL PASS-THROUGH FEDERAL GRANTOR / PASS-THROUGH CFDA ENTITY IDENTIFYING FEDERAL GRANTOR / PROGRAM TITLE OR CLUSTER TITLE NUMBER NUMBER EXPENDITURES PASS-THROUGH FROM PROGRAMS: U.S. Department of Health and Human Services (HHS): Puerto Rico Department of Family Administration of Children and Families: Community Services Block Grant N/AV $ 9,755,924 U.S. Department of Housing and Urban Development (HUD): Municipality of Mayagüez, Puerto Rico: Community Development Block Grants / N/AV 365,916 Entitlement Grants Total Expenditures of Federal Awards $10,121,840 The accompanying notes are an integral part of this schedule. Page 19

23 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended September 30, 2016 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal award (the Schedule ) includes the federal awards activity of Instituto Socio-Económico Comunitario (INSEC), Inc. (hereinafter INSEC ), under programs of the federal government for the year ended September 30, The information in this Schedule is presented in accordance with the requirements of the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the INSEC, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the INSEC. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. NOTE 3 SCHEDULE NOT IN AGREEMENT WITH OTHER FEDERAL AWARDS REPORTING The information included in the Schedule may not fully agree with other federal awards reports submitted directly to federal grantor agencies or pass-through entities because, among other reasons, the award report may (a) be prepared for a different fiscal period and (b) include cumulative (from prior years) data rather than data from the current year only. NOTE 4 FEDERAL CFDA NUMBERS The federal CFDA numbers included in this Schedule were determined based on the program name, review of grant contract information, and the OMB s Catalog of Federal Domestic Assistance (CFDA). NOTE 5 PASS-THROUGH AWARDS INSEC is a subrecipient of Puerto Rico Department of Family Administration of Children and Families, and the Municipality of Mayagüez. Under pass-through awards, a subrecipient is an entity that expends federal awards received from a pass-through entity to carry out a federal program. The state and local government redistributions of federal awards to INSEC are treated by INSEC as if they were received directly from the federal government. That is, federal awards expended as a subrecipient are subject to a single audit on the same basis as that of federal awards that are received directly. The Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires the Schedule to include the name of the pass-through entity and identifying number assigned by the pass-through entity for federal awards received as a subrecipient. Pass-through entity numbers identified in the Schedule as N/AV are not available. Page 20

24 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended September 30, 2016 NOTE 6 RESTRICTIONS Each federal program has its own use restrictions. Those restrictions are included in the OMB s CFDA. NOTE 7 GENERAL OBJECTIVES INSEC received federal awards from the following federal grantors/pass-through entities: (1) U.S. Department of Health and Human Services (HHS) / Puerto Rico Department of Family - Administration of Children and Families and (2) U.S. Department of Housing Urban Development (HUD) / Municipality of Mayagüez, Puerto Rico. All these federal grants are received for the development and promotion of social, educational and cultural activities to alleviate the distressed social-economic conditions of people living in low-income communities. Community Services Block Grant (CFDA No ) The objective of the Community Services Block Grant (CSBG) program is to provide assistance to a network of community-based organizations for programs and services to ameliorate the causes and consequences of poverty and to revitalize low-income communities. CSBG can be used to fund programs and other activities that assist low-income individuals and families attain self-sufficiency; provide emergency assistance; support positive youth development; promote civic engagement; and improve the organization infrastructure for planning and coordination among multiple resources that address poverty conditions in the community. Community Development Block Grants / Entitlement Grants (CFDA No ) The primary objective of the Community Development Block Grants (CDBG)/Entitlement Grants program (large cities and urban counties) (24 CFR part 570 subpart D) is to develop viable urban communities by providing decent housing, a suitable living environment, and expanded economic opportunities, principally for persons of low and moderate income. This objective is to be achieved in two ways. First, a grantee can only use funds to assist eligible activities that meet one of three national objectives of the program: benefit low- and moderate-income persons, aid in the prevention or elimination of slums and blight, or meet community development needs having a particular urgency. Second, the grantee must spend at least 70 percent of its funds, over a period of up to 3 years as specified by the grantee in its certification, for activities that address the national objective of benefiting low- and moderate-income persons (24 CFR section ). Page 21

25 De Angel &Compañía Corporación Profesional Contadores Públicos Autorizados PO Box 5460 Caguas, Puerto Rico Glasgow 1890 College Park IV San Juan, Puerto Rico (787) Fax INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Instituto Socio-Económico Comunitario (INSEC), Inc. San Juan, Puerto Rico We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Instituto Socio-Económico Comunitario (INSEC), Inc., a nonprofit organization, which comprise the statement of financial position as of September 30, 2016, and the related statements of activities and changes in net assets, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated June 9, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Instituto Socio-Económico Comunitario (INSEC), 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 financial statements, but not for the purpose of expressing an opinion on the effectiveness of Instituto Socio-Económico Comunitario (INSEC), Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of the Instituto Socio-Económico Comunitario (INSEC), 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 on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of 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 internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weakness. However, material weaknesses may exist that have not been identified.. Page 22

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether Instituto Socio-Económico Comunitario (INSEC), 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 determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Juan, Puerto Rico June 9, Stamp No. E was affixed to original License No. 317 Expires December 1, 2020 Page 23

27 De Angel &Compañía Corporación Profesional Contadores Públicos Autorizados PO Box 5460 Caguas, Puerto Rico Glasgow 1890 College Park IV San Juan, Puerto Rico (787) Fax INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY UNIFORM GUIDANCE To the Board of Directors of Instituto Socio-Económico Comunitario (INSEC), Inc. San Juan, Puerto Rico Report on Compliance for Each Major Federal Program We have audited Instituto Socio-Económico Comunitario (INSEC), Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have direct and material effect on each of Instituto Socio-Económico Comunitario (INSEC), Inc. s major federal programs for the year ended September 30, Instituto Socio-Económico Comunitario (INSEC), 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 federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Instituto Socio-Económico Comunitario (INSEC), 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 Instituto Socio-Económico Comunitario (INSEC), Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Instituto Socio-Económico Comunitario (INSEC), Inc. s compliance. Page 24

28 Opinion on Each Major Federal Program In our opinion, Instituto Socio-Económico Comunitario (INSEC), 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 September 30, Report on Internal Control over Compliance Management of Instituto Socio-Económico Comunitario (INSEC), 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 Instituto Socio-Económico Comunitario (INSEC), 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 Instituto Socio-Económico Comunitario (INSEC), 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 preceding paragraph 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. 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. Accordingly, this report is not suitable for any other purpose. San Juan, Puerto Rico June 9, Stamp No. E was affixed to original License No. 317 Expires December 1, 2020 Page 25

29 PART III SCHEDULE OF FINDINGS AND QUESTIONED COSTS

30 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2016 Financial Statements Section I Summary of Auditors Results Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major federal programs: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Type of auditors report issued on compliance for major federal programs Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Unmodified Yes No Identification of major federal programs: CFDA Number(s) Name of Federal Program or Cluster Community Services Block Grant Dollar threshold used to distinguish between Type A and Type B Programs: $750,000 Auditee qualified as low-risk auditee? Yes No END OF SECTION I SUMMARY OF AUDITORS RESULTS Page 27

31 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2016 Section II Financial Statements Findings The audit of the financial statements of the INSEC as of and for the year ended September 30, 2016, disclosed no matters involving internal control over financial reporting and its operations. Section III Federal Awards Findings and Questioned Costs The single audit of INSEC under the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) for the year ended September 30, 2016, disclosed no instances of non-compliance. Page 28

32 SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2016 The single audit of INSEC under the OMB A-133 for the year ended September 30, 2015, disclosed no instances of non-compliance. Page 29

33 De Angel &Compañía Corporación Profesional Contadores Públicos Autorizados PO Box 5460 Caguas, Puerto Rico Glasgow 1890 College Park IV San Juan, Puerto Rico (787) Fax June 9, 2017 To the Board of Directors Instituto Socio-Económico Comunitario (INSEC), Inc. San Juan, Puerto Rico The stockholders and staff of De Angel & Compañía, CPA, LLC, are pleased to announce the successful completion of an independent peer review of our accounting and auditing practice. This review was undertaken as a condition of membership in the American Institute of Certified Public Accountants (AICPA), the national organization of CPAs in public practice, industry, government and education. In 1988, the members of the AICPA overwhelmingly approved a proposal to require members in public practice to participate in a practice-monitoring program. With the adoption of this proposal, the AICPA implemented a peer review program of unprecedented scope in the CPA profession or any other. Our participation in peer review demonstrates our firm s desire to measure up to the profession s high standards of professionalism and our commitment to maintaining and improving the quality of our practice. In August 2000, the Puerto Rico Society of CPAs (PRSCPA) adopted a voluntary peer review program, which follows the lead established by the AICPA. Our peer review was conducted by Kreston PR, LLC, an independent firm (the Reviewer). The Reviewer first determined that we have an adequate quality control system, and then checked to see that professional s standards were followed in a representative sample of our accounting and auditing engagements. After thorough study of our policies and procedures, the Reviewer concluded our firm complies with the stringent quality control standards established by the AICPA and the PRSCPA. Our firm is committed to periodic peer review to foster quality performance. Bankers, bonding agents, investors, suppliers, legal advisors and others use the financial statements our firm audits, reviews, or compiles. We think those people, our clients, and our own staff deserves independent quality assurance that our firm provides quality services. We are proud of our peer review results and would be happy to answer any questions you might have. Sincerely, Carlos De Ángel Ramírez President Page 30

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