Financial Statements Including Uniform Guidance Reports and Independent Auditors Report For the Eighteen-Month Period Ended June 30, 2017
Financial Statements For the Eighteen-Month Period Ended June 30, 2017 Contents Independent Auditors Report... 1-2 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 6-13 Supplementary Schedule and Reports Required by the Uniform Guidance 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... 14-15 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance... 16-17 Schedule of Expenditures of Federal Awards... 18 Notes to the Schedule of Expenditures of Federal Awards... 19 Schedule of Findings and Questioned Costs... 20-21 Corrective Action Plan... 22 Schedule of Prior Audit Findings... 23
Rogers & Company PLLC Certified Public Accountants 8300 Boone Boulevard Suite 600 Vienna, Virginia 22182 703.893.0300 voice 703.893.4070 facsimile www.rogerspllc.com To the Board of Trustees of Youth For Understanding USA, Inc. INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of Youth For Understanding USA, Inc. (YFU USA), which comprise the statement of financial position as of June 30, 2017, the related statements of activities and cash flows for the eighteen-month period 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 controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to YFU USA 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 YFU USA 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. 1
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of YFU USA as of June 30, 2017, and the changes in its net assets and its cash flows for the eighteen-month period then ended in accordance with accounting principles generally accepted in the United States of America. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 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 (Uniform Guidance), 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 October 5, 2017, on our consideration of YFU USA s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering YFU USA s internal control over financial reporting and compliance. Vienna, Virginia October 5, 2017 2
Statement of Financial Position June 30, 2017 Assets Cash and Cash Equivalents Program Fees Receivable from International Affiliates Grants Receivable Accounts Receivable Prepaid Expenses and Other Assets Security Deposits Property and Equipment, Net Total Assets $ 2,625,094 498,281 261,201 939,982 182,662 675,639 2,708,732 $ 7,891,591 Liabilities and Net Assets Liabilities Accounts Payable and Accrued Expenses Accrued Program Expenses Capital Lease Obligations Deferred Revenue Deferred Rent and Lease Incentives Security Deposits Total Liabilities Net Assets Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets $ 537,131 6,734 15,716 3,415,890 2,964,770 15,536 6,955,777 908,989 26,825 935,814 $ 7,891,591 See accompanying notes. 3
Statement of Activities For the Eighteen-Month Period Ended June 30, 2017 Operating Revenue and Support Temporarily Unrestricted Restricted Total Program Fees $ 15,300,776 $ - $ 15,300,776 Corporate Scholarships and Special Programs 2,426,700 15,000 2,441,700 Other Contributions 318,000-318,000 In-kind contributions 149,709-149,709 Grants 1,821,900-1,821,900 Education Center Income 236,592-236,592 Released from Restrictions 54,470 (54,470) - Total Operating Revenue and Support 20,308,147 (39,470) 20,268,677 Expenses Program Services 15,370,742-15,370,742 Supporting Services: Management and General 5,198,667-5,198,667 Fundraising 691,180-691,180 Total Supporting Services Total Expenses Change in Net Assets from Operations Non-Operating Activities Interest Income Sublease Rental Income Other Revenue Total Non-Operating Activities Change in Net Assets Net Assets, Beginning of Period Net Assets, End of Period 5,889,847-5,889,847 21,260,589-21,260,589 (952,442) (39,470) (991,912) 34,445-34,445 257,826-257,826 9,737-9,737 302,008-302,008 (650,434) (39,470) (689,904) 1,559,423 66,295 1,625,718 $ 908,989 $ 26,825 $ 935,814 See accompanying notes. 4
Statement of Cash Flows For the Eighteen-Month Period Ended June 30, 2017 Cash Flows from Operating Activities Change in Net Assets $ (689,904) Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation and Amortization 391,912 Change in Operating Assets and Liabilities: (Increase) Decrease in: Program Fees Receivable from International Affiliates 308,222 Grants Receivable 535,391 Accounts Receivable (242,266) Prepaid Expenses and Other Assets 79,239 Security Deposits 8,814 Increase (Decrease) in: Accounts Payable and Accrued Expenses (342,176) Accrued Program Expenses (1,092,547) Deferred Revenue 2,801,821 Deferred Rent and Lease Incentives 24,524 Net Cash Provided By Operating Activities Cash Flows from Investing Activity Purchases of Property and Equipment Net Cash Used in Investing Activity Cash Flows from Financing Activity Principal Payments Capital Lease Obligations Net Cash Used in Financing Activity Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period 1,783,030 (238,450) (238,450) (115,719) (115,719) 1,428,861 1,196,233 $ 2,625,094 See accompanying notes. 5
Notes to Financial Statements June 30, 2017 1. Nature of Operations Youth For Understanding USA, Inc. (YFU USA) is a nonprofit organization organized in 2002 that operates international student exchange programs between the United States and over fifty countries throughout the world to prepare young people for their responsibilities and opportunities in a changing, interdependent world. These programs include opportunities for secondary school students in the U.S. and abroad, community college programs for students aged 18-23 years old from other countries, and scholarship programs funded by corporations and other privately funded institutions. Through its programs, YFU USA provides students with a first-hand experience of living in a foreign country, opening participants to cultural diversity through the experience of full cultural immersion for the duration of the exchange program. YFU USA has international affiliate organizations or committees with which it works to deliver student programs. These organizations select students from their countries to go overseas to the U.S. and elsewhere, arrange for the placement of incoming U.S. students with host families, and conduct related activities. During 2016, YFU USA opted to change its fiscal year end to June 30 th to better align with programmatic objectives. 2. Summary of Significant Accounting Policies Basis of Accounting and Presentation YFU USA s financial statements are prepared on the accrual basis of accounting. Net assets are reported based on the presence or absence of donor-imposed restrictions, as follows: Unrestricted net assets represent funds that are not subject to donor-imposed stipulations and are available for support of YFU USA s operations. Temporarily restricted net assets represent funds subject to donor-imposed restrictions that are met either by actions of YFU USA or by the passage of time. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 6
Notes to Financial Statements June 30, 2017 2. Summary of Significant Accounting Policies (continued) Cash Equivalents For the purpose of the statement of cash flows, YFU USA considers as cash equivalents all highly liquid investments, which can be converted into known amounts of cash and have a maturity period of ninety days or less at the time of purchase. Grants Receivable Grants receivable are recorded at net realizable value. YFU USA provides an allowance for bad debts using the allowance method, which is based on management s judgment considering historical information. Accounts are individually analyzed for collectability, and will be reserved based on individual evaluation and specific circumstances. When all collection efforts have been exhausted, the accounts are written off against the related allowance. At June 30, 2017, all amounts are deemed to be fully collectible. No discount has been calculated for 2017 as all amounts are due within one year. Accounts Receivable Accounts receivable are reported at their unpaid balances and reduced by an allowance for doubtful accounts, if necessary. Management periodically evaluates the adequacy of the allowance for doubtful accounts by considering YFU USA s past receivables loss experience, known and inherent risks in the accounts receivable population, adverse situations that may affect the client s ability to pay, and current economic conditions. The allowance for doubtful accounts is increased by charges to bad debts expense and decreased by charge offs of the accounts receivable balances. Accounts receivable are considered past due based on management s determination. Accounts receivable are charged off based on management s case-by-case determination that they are uncollectible. As of June 30, 2017, there was no allowance for doubtful accounts as management believes that all accounts are fully collectible. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization and consist primarily of corporate and district offices furnishings and computer equipment. Depreciation and amortization is computed using the straight-line method over three to fifteen years. Leasehold improvements are amortized over the term of the lease. YFU USA capitalizes all property and equipment with a purchase price greater than $1,500. 7
Notes to Financial Statements June 30, 2017 2. Summary of Significant Accounting Policies (continued) Accrued Program Expenses A provision is made for tuition and other program costs due to community colleges, student medical insurance, and return travel for students participating in this program as of each period end. Payments of these costs are typically made throughout the student academic year. However, since YFU USA recognizes its revenue from the program when the student begins the program, the related cost is also accrued at that time. Revenue Recognition YFU USA recognizes revenue from program fees when a student departs from his or her native country. Program fees received prior to departure are recorded as deferred revenue. YFU USA recognizes support in the year received for funds received from corporate scholarships and special programs from corporations, foundations, educational institutions, and foreign governments to support YFU USA s student exchange programs. Revenues from federal and other funding sources are recognized when the related expenses are incurred. Expenses charged to federal grants, including allocable indirect costs and fringe benefits, are subject to audit and adjustment. Grant expenses incurred before the grant revenue is received are reported as grants receivable in the accompanying statement of financial position. Funds received in advance of the period in which they will be recognized are reported as refundable advances in the accompanying statement of financial position. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. YFU USA reports contributions as temporarily restricted support if they 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 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. However, restrictions met in the same accounting period in which the related contribution was received are treated as unrestricted. Revenue from all other sources is recognized when earned. 8
Notes to Financial Statements June 30, 2017 2. Summary of Significant Accounting Policies (continued) Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the accompanying statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Donated Services A substantial number of unpaid volunteers and interns have made significant contributions of their time to develop and implement YFU USA s programs. These services do not meet the criteria for reporting contributed services in the financial statements. Measure of Operations YFU USA considers interest income and revenue, other than program fees and public support, to be non-operating in nature; therefore, these are not included in the change in net assets from operations. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases. The update requires a lessee to recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payments, in its statement of financial position. The guidance also expands the required quantitative and qualitative lease disclosures. The guidance is effective beginning in YFU USA s fiscal year 2021. In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not-for-Profit Entities. The update changes the manner by which nonprofit organizations classify net assets as well as improves information presented in financial statements and notes about nonprofit organization liquidity, financial performance, and cash flows. The guidance is effective beginning in YFU USA s fiscal year 2019. 9
Notes to Financial Statements June 30, 2017 2. Summary of Significant Accounting Policies (continued) Subsequent Events In preparing these financial statements, YFU USA has evaluated events and transactions for potential recognition or disclosure through October 5, 2017, the date the financial statements were available to be issued. 3. Concentration of Credit Risk Financial instruments that potentially subject YFU USA to significant concentrations of credit risk consist of cash and cash equivalents. YFU USA maintains cash deposit and transaction accounts with various financial institutions and these values, from time to time, exceed insurable limits under the Federal Depository Insurance Corporation (FDIC). YFU USA has not experienced any credit losses on its cash and cash equivalents to date as it relates to FDIC insurance limits. Management periodically assesses the financial condition of these financial institutions and believes that the risk of any credit loss is minimal. 4. Property and Equipment Property and equipment consists of the following at June 30, 2017: Furniture, Fixtures, and Equipment $ 708,677 Computer Hardware and Software 618,472 Leasehold Improvements 2,693,238 Total Property and Equipment 4,020,387 Less: Accumulated Depreciation and Amortization (1,311,655) Property and Equipment, Net $ 2,708,732 Depreciation and amortization expense for the eighteen-month period ended June 30, 2017, totaled $391,912. 5. Temporarily Restricted Net Assets Temporarily restricted net assets were restricted for scholarships and totaled $26,825 at June 30, 2017. 10
Notes to Financial Statements June 30, 2017 6. Commitments and Contingencies Capital Leases YFU USA purchased office furniture through financing leases where the terms stipulate these arrangements to be classified as capital leases. The amounts are included in property and equipment in the accompanying statement of financial position with a capitalized cost of $231,261 at June 30, 2017. Depreciation expense associated with the furniture that was financed under these arrangements totaled $81,205 for the eighteenmonth period ended June 30, 2017. Future minimum lease payments under all capital leases are as follows for the year ending June 30: Operating Leases 2018 $ 18,502 Less: Amount Representing Interest (2,786) Net Present Value of Minimum Lease Payments $ 15,716 YFU USA leases office space in Washington, DC under the terms of an operating lease that commenced on August 1, 2014 and expires on July 31, 2029. The terms of the lease contain provisions for a free rent period and future rent increases of 2.5% per year. In addition, YFU USA was provided a build-out allowance totaling $2,489,589 as an incentive to lease the office space. The effects of the scheduled rent increases and paid leasehold improvement costs are being recognized over the life of the lease on a straight-line basis. The difference between rent expense recorded and the required lease payments is reflected as deferred rent and lease incentives in the accompanying statement of financial position. YFU USA also leases other facilities under separate operating leases, all of which expire in various years through 2020. Total rental expense for the eighteen-month period ended June 30, 2017 was $2,275,576. In addition, portions of leased office space are being subleased by YFU USA to other organizations under various rental agreements. 11
Notes to Financial Statements June 30, 2017 6. Commitments and Contingencies (continued) Operating Leases (continued) Future minimum rental payments and receipts under the Washington, DC lease agreements are as follows for the years ending June 30: 2018 $ 1,443,090 $ (165,872) $ 1,277,218 2019 1,479,168 (170,960) 1,308,208 2020 1,516,147 (72,199) 1,443,948 2021 1,554,050-1,554,050 2022 1,592,902-1,592,902 Thereafter 12,480,981-12,480,981 Total $ 20,066,338 $ (409,031) $ 19,657,307 Government Grants Payments Receipts Net The funds that YFU USA receives from the U.S. Department of State are subject to audit under the provisions of the Cooperative Agreements. The ultimate determination of amounts received under the U.S. Government grants are based upon the allowance of costs reported to and accepted by the oversight agency. Until the grants are closed out, there exists a contingency to refund any amount received in excess of allowable costs. Management is of the opinion that no material liability exists. 7. Retirement Plan YFU USA maintains a retirement plan that meets the requirements of Section 403(b) of the Internal Revenue Code (IRC). Employees may contribute to the plan subject to Internal Revenue Service requirements. The Plan has a matching provision. During the eighteen-month period ended June 30, 2017, YFU USA matched up to 4% of a contributing employee s base salary. The matching contributions for the eighteen-month period ended June 30, 2017 totaled $267,188. 12
Notes to Financial Statements June 30, 2017 8. Income Taxes YFU USA is recognized as a tax-exempt organization under IRC Section 501(c)(3), and is exempt from income taxes except for taxes on unrelated business activities. No tax expense is recorded in the accompanying financial statements for YFU USA, as there was no unrelated business taxable income. Contributions to YFU USA are deductible as provided in IRC Section 170(b)(1)(A)(vi). Management evaluated the tax positions for YFU USA and determined that no significant uncertain tax positions qualify for either recognition or disclosure in the financial statements at June 30, 2017. 13
SUPPLEMENTARY SCHEDULE AND REPORTS REQUIRED BY THE UNIFORM GUIDANCE
Rogers & Company PLLC Certified Public Accountants 8300 Boone Boulevard Suite 600 Vienna, Virginia 22182 703.893.0300 voice 703.893.4070 facsimile www.rogerspllc.com 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 Trustees of Youth For Understanding USA, Inc. 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 Youth For Understanding USA, Inc. (YFU USA), which comprise the statement of financial position as of June 30, 2017, the related statements of activities and cash flows for the eighteen-month period then ended, and the related notes to the financial statements, and have issued our report thereon dated October 5, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered YFU USA 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 YFU USA s internal control. Accordingly, we do not express an opinion on the effectiveness of YFU USA 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 internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 14
Compliance and Other Matters As part of obtaining reasonable assurance about whether YFU USA 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 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. Vienna, Virginia October 5, 2017 15
Rogers Rogers & Company Company PLLC PLLC Certified Certified Public Public Accountants Accountants 8300 8300 Boone Boone Boulevard Boulevard Suite Suite 600 600 Vienna, Vienna, Virginia Virginia 22182 22182 703.893.0300 703.893.0300 voice voice 703.893.4070 703.893.4070 facsimile facsimile www.rogerspllc.com www.rogerspllc.com INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Trustees of Youth For Understanding USA, Inc. Report on Compliance for Each Major Federal Program We have audited the Youth For Understanding USA, Inc. s (YFU USA) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on YFU USA s major federal program for the eighteen-month period ended June 30, 2017. YFU USA s major federal program is identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with 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 YFU USA 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 (CFR) 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 YFU USA 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 the major federal program. However, our audit does not provide a legal determination of YFU USA s compliance. 16
Opinion on the Major Federal Program In our opinion, YFU USA complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the eighteen-month period ended June 30, 2017. Report on Internal Control over Compliance Management of YFU USA 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 YFU USA s internal control over compliance with the types of requirements that could have a direct and material effect on its major federal programs to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal programs 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 YFU USA 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. 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. Vienna, Virginia October 5, 2017 17
Schedule of Expenditures of Federal Awards For the Eighteen-Month Period Ended June 30, 2017 Federal Federal Grantor/Pass-Through Agency or Pass- CFDA Grantor/Program or Cluster Title Through Grant Number Number U.S. Department of State Total Federal Expenditures Passed- Through to Subrecipients Special Professional and Cultural Program Congress S-ECAGD-15-CA-1046, S-ECAGD- Bundestag Youth Exchange 16-CA-1040, and S-ECAGD-17-CA- 1033 19.415 $ 1,070,613 $ - Pass-Through from American Councils For International Education: Citizen Exchanges Youth Exchange S-ECAGD-13-GR-145-YFU-200852 19.415 612,133 - Future Leader Exchange Program S-ECAGD-13-CA-0075-200415-YFU 19.415 139,154 - Total U.S. Department of State 1,821,900 - Total Expenditures of Federal Awards $ 1,821,900 $ - See accompanying notes to the schedule of expenditures of federal awards. 18
Notes to the Schedule of Expenditures of Federal Awards For the Eighteen-Month Period Ended June 30, 2017 1. Basis of Accounting The accompanying schedule of expenditures of federal awards (SEFA) includes the federal award activity of YFU USA under the programs of the federal government for the eighteen-month period ended June 30, 2017. The information in the SEFA 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 Awards (Uniform Guidance). Because the SEFA presents only a selected portion of the operations of YFU USA, it is not intended to, and does not, present the financial position, changes in net assets, or cash flows of START. 2. Summary of Significant Accounting Policies Expenditures reported on the SEFA are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, where certain types of expenditures are not allowable or are limited as to reimbursement. For new awards or modifications of existing awards after December 26, 2014, the expenditures reported in the SEFA follow the cost principles contained in the Uniform Guidance. For existing awards prior to December 26, 2014, the expenditures follow the cost principles contained in OMB Circular A-122, Cost Principles for Nonprofit Organizations. The cost principles indicate that certain types of expenditures are not allowable or reimbursements of allowable costs are limited as to reimbursement. 3. Indirect Cost Rates YFU USA records its expenditures of federal awards using the indirect cost and fringe benefit rates per its nonprofit rate agreement with the federal government, which was approved in accordance with the authority in the Uniform Guidance. In this manner, YFU USA has elected not to use the 10% de minimis indirect cost rate, which is allowed in accordance with the Uniform Guidance. 19
Schedule of Findings and Questioned Costs For the Eighteen-Month Period Ended June 30, 2017 Section I Summary of Independent Auditors Results Financial Statements Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over the major program: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Type of auditor s report issued on compliance for the major program: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Yes X No Identification of the major program: CFDA Number Name of Federal Program or Cluster 19.415 Youth Exchange Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes X No 20
Schedule of Findings and Questioned Costs (continued) For the Eighteen-Month Period Ended June 30, 2017 Section II Financial Statement Findings There were no financial statement findings reported during the 2017 audit. Section III Federal Award Findings and Questioned Costs There were no federal award findings or questioned costs reported during the 2017 audit. 21
Corrective Action Plan For the Eighteen-Month Period Ended June 30, 2017 There were no findings for the eighteen-month period ended June 30, 2017; therefore, a corrective action plan is not needed. 22
Schedule of Prior Audit Findings For the Eighteen-Month Period Ended June 30, 2017 There were no federal award findings or questioned costs reported for the December 31, 2015 audit. 23