CENTER FOR INNOVATIVE PUBLIC HEALTH RESEARCH (A CALIFORNIA NOT-FOR-PROFIT RESEARCH ORGANIZATION) ANNUAL CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION WITH INDEPENDENT AUDITOR'S REPORT SEPTEMBER 30, 2016
SEPTEMBER 30, 2016 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Consolidated Statement of Financial Position 4 Consolidated Statement of Activities 5 Consolidated Statement of Cash Flows 6 Consolidated Statement of Functional Expenses 7 Notes to the Consolidated Financial Statements 8 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 12 Note to Supplementary Information 13 INDEPENDENT AUDITOR'S REPORTS 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 15 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 17 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 21 Financial Statement Findings and Recommendations 22 Federal Awards Findings and Questioned Costs 23 Summary Schedule of Prior Audit Findings 26
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT Board of Trustees Center for Innovative Public Health Research San Clemente, California Report on the Financial Statements We have audited the accompanying consolidated financial statements of the Center for Innovative Public Health Research (a California not-for-profit research organization) which comprise the consolidated statement of financial position as of September 30, 2016, and the related consolidated statements of activities, cash flows, and functional expenses for the year then ended, and the related notes to the consolidated 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 Governmental Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1-25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 www.vtdcpa.com Fax: 949.768.8408
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Center for Innovative Public Health Research 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 Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of Federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (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 basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic 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 5, 2017, on our consideration of the Center for Innovative Public Health Research'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 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 the Center for Innovative Public Health Research's internal control over financial reporting and compliance. Laguna Hills, California June 5, 2017-2-
FINANCIAL STATEMENTS -3-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION SEPTEMBER 30, 2016 ASSETS CURRENT ASSETS Cash $ 112,007 Prepaid expenses 2,228 Total Current Assets 114,235 TOTAL ASSETS $ 114,235 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable$ 12,470 Accrued salaries and benefits 91,323 Loans from officer 12,283 Total Current Liabilities 116,076 NET ASSETS (DEFICIT) Unrestricted net assets (deficit) (1,841) Total Net Assets (Deficit) (1,841) TOTAL LIABILITIES AND NET ASSETS (DEFICIT) $ 114,235 The accompanying notes are an integral part of these consolidated financial statements. -4-
CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES AND SUPPORT Federal grants $ 1,487,306 Other grants 9,237 TOTAL REVENUES AND SUPPORT 1,496,543 EXPENSES Program services 1,272,718 Supporting services 238,299 TOTAL EXPENSES 1,511,017 OTHER INCOME (EXPENSE) Interest income 192 Gain on foreign currency translation 69 Interest expense (695) TOTAL OTHER INCOME (EXPENSE) (434) Change in unrestricted net assets (14,908) NET ASSETS, Beginning of Year 13,067 NET ASSETS, End of Year $ (1,841) The accompanying notes are an integral part of these consolidated financial statements. -5-
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Change in net asset (deficit) $ (14,908) Adjustments to reconcile change in net asset (deficit) to net cash provided by operating activities: Decrease in: Grants/contracts receivable 2,129 Increase in: Accounts payable 4,956 Accrued salaries and benefits 31,400 Net Cash Flows From Operating Activities 23,577 CASH FLOWS FROM FINANCING ACTIVITIES Increase in loans from officer 695 Net Cash Flows From Investing Activities 695 NET CHANGE IN CASH 24,272 CASH, Beginning of Year 87,735 CASH, End of Year $ 112,007 Additional disclosure Interest paid $ - The accompanying notes are an integral part of these consolidated financial statements. -6-
CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED SEPTEMBER 30, 2016 Program Supporting Services Services Total Salaries and benefits $ 611,333 $ 69,031 $ 680,364 Other contracts 34,965 2,845 37,810 Subrecipient payments 497,134-497,134 Professional fees 3,515 14,174 17,689 Travel and meetings expenses 42,557 46,542 89,099 Office supplies and expenses 5,243 58,491 63,734 Rent and occupancy - 40,221 40,221 Research expenses 77,140-77,140 Insurance - 5,310 5,310 Miscellaneous 831 1,685 2,516 Total $ 1,272,718 $ 238,299 $ 1,511,017 The accompanying notes are an integral part of these consolidated financial statements. -7-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 NOTE 1 - NATURE OF ORGANIZATION The Center for Innovative Public Health Research (CiPHR), a 501(c)(3) not-for-profit research organization, was incorporated in California on July 10, 2003. CiPHR changed its legal name from Internet Solutions for Kids, Inc. to Center for Innovative Public Health Research in November 2012. The mission of CiPHR is to promote new and innovative methods that improve the health and safety of young people. CiPHR is centered on understanding the impact on and opportunities for adolescent health represented by new technologies. CiPHR formed a subsidiary, Internet Solutions for Kids Uganda Limited (ISKU), in Uganda on May 27, 2009. CiPHR owns 95 percent of the subsidiary. Hygeia Technologies, Inc., wholly owned by the Director of CiPHR, owns the remaining 5 percent of the subsidiary. The ownership structure of CiPHR is designed to facilitate research projects in Uganda. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Basis The consolidated financial statements of CiPHR have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other liabilities. Basis of Presentation CiPHR presents its financial statements in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958. Accordingly, CiPHR reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. As of September 30, 2016, CiPHR reported only unrestricted net assets. Basis of Consolidation The accompanying consolidated financial statements present the consolidated financial position and changes in net assets and cash flows of CiPHR and its subsidiary, Internet Solutions for Kids Uganda Limited (ISKU). All significant intra-organizational accounts and transactions have been eliminated. Unrestricted Net Assets Unrestricted net assets include unrestricted resources which represent the portion of funds that are available for the operating objectives of CiPHR. Cash and Cash Equivalents CiPHR considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. -8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Grants and Revenues Grant revenue is recognized as earned as expenses are incurred. Accounts Receivable Accounts receivable are recorded at the net realizable value expected to be received from grantor governments or third-party payers. When uncertainty exists as to the collection of receivables, CiPHR records an allowance for doubtful accounts and a corresponding charge to bad debt expense. CiPHR's policy is to classify accounts receivable outstanding over 45 days from third-party payers as past due. At September 30, 2016, there were no receivables over 45 days outstanding. Income Taxes CiPHR is a not-for-profit organization that is exempt from income taxes under Section 501(c) (3) of the Internal Revenue Code and classified by the Internal Revenue Service as other than a private foundation. As such, CiPHR is not taxed on income derived from its exempt functions. However, CiPHR is subject to tax on income generated unrelated to CiPHR's exempt purpose. CiPHR did not have any unrelated business income during the year ended September 30, 2016. Therefore, no tax liability has been provided in the accompanying financial statements. CiPHR's Federal informational tax returns for the years ended September 30, 2013, 2014, and 2015, are open to audit by the Federal authorities. California State informational returns for the years ended September 30, 2012, 2013, 2014, and 2015, are open to audit by State authorities. Concentration CiPHR's support comes primarily from Federal research and development grants. Over 99 percent of CiPHR's revenues for the year ended September 30, 2016, came from Federal government grants. Financial instruments that potentially expose CiPHR to concentrations of credit and market risk consist primarily of cash equivalents and investments. Cash equivalents are maintained at well-capitalized financial institutions and credit exposure is limited to any one institution. At September 30, 2016, the total amount of cash and cash equivalents did not exceed the Federal Deposit Insurance Corporation (FDIC) insured limits at all financial institutions. CiPHR has not experienced any losses on its cash equivalents. The funds held at financial institutions are closely monitored. Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Actual results could differ from those estimates. Functional Expenses The costs of providing services have been summarized on a functional basis in the statement of activities. Certain costs and expenditures have been allocated between program and supporting services based on management's estimates. -9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Subsequent Events Events subsequent to September 30, 2016, have been evaluated through June 5, 2017, the date at which CiPHR's audited financial statements were available to be issued. NOTE 3 - OPERATING LEASE CiPHR maintains an operating lease for its office facility with monthly rent payments of $1,230 for a portion office space occupied. The lease is on a month to month basis. CiPHR entered into a lease agreement for additional office space on May 20, 2016, with monthly rent payments of $1,000. This lease expires May 31, 2017. Rent expense associated with the facility lease for the year ended September 30, 2016, was $17,530, and is included in facilities expense on the accompanying statement of activities. NOTE 4 - FEDERAL FINANCIAL ASSISTANCE CiPHR participates in federally funded research. These programs are audited in accordance with the Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). NOTE 5 - RELATED PARTY TRANSACTIONS CiPHR's President occasionally makes advances to CiPHR for cash flow purposes. As of September 30, 2016, the balance of loans from officer was $12,283. The loan bears interest at 6.0 percent and is due and payable upon demand. NOTE 6 - EMPLOYEE RETIREMENT PLAN CiPHR maintains a defined contribution retirement plan for the benefit of qualified participants under Section 403(b) of the Internal Revenue Code. Under the plan, CiPHR contributes discretionary amounts to qualified participants. During the year ended September 30, 2016, CiPHR made $42,500 contributions to the plan. NOTE 7 - CONTINGENCIES CiPHR has received Federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material. CiPHR is subject to claims which arise in the ordinary course of its business. In the opinion of management, the ultimate disposition of such claims will not have a material adverse effect upon CiPHR's financial position. -10-
SUPPLEMENTARY INFORMATION -11-
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Pass-Through Entity Amounts Federal Grantor/Pass-Through CFDA Identification Federal Passed to Grantor/Program or Cluster Title Number Number Expenditures Subrecipients U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES RESEARCH AND DEVELOPMENT CLUSTER Rigorous Evaluation of New or Innovative Approaches to Prevent Teen Pregnancy 93.297 $ 720,739 $ 130,438 Passed through National Institutes of Mental Health Course and Prediction of Sexual Perpetration in Adolescence Through Young Adulthood 93.865 5R01HD083072-02 520,157 325,495 Harnessing the Power of Text Messaging to Invigorate AMSM HIV Preventive Behavior 93.242 5R01MH096660-03 23,258 17,143 Affecting the Epidemiology of HIV in Uganda Through Older Adolescents 93.242 5R34MH109296-02 REVISED 114,660 - Texting for Relapse Prevention: Improving Outcomes for People with Schizophrenia 93.242 1R34MH108781-01A1 33,590 24,058 Capitalizing on the Power of the Internet to Survey Ugandan LGBT Nationally 93.242 1R21MH109583-01A1 34,869 - Total Research and Development Cluster 1,447,273 497,134 Total Expenditure of Federal Awards $ 1,447,273 $ 497,134 See the accompanying note to supplementary information. -12-
NOTE TO SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2016 NOTE 1 - PURPOSE OF SCHEDULE Schedule of Expenditures of Federal Awards The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of CiPHR and is presented on the modified accrual basis of accounting. 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 Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. CiPHR has not elected to use the ten percent de minimis cost rate as covered in Section 200.414 Indirect (F&A) costs of the Uniform Guidance. -13-
INDEPENDENT AUDITOR'S REPORTS -14-
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Center for Innovative Public Health Research San Clemente, California 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 the Center for Innovative Public Health Research (a California not-for-profit research organization), which comprise the statement of financial position as of September 30, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated June 5, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Center for Innovative Public Health Research'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 the Center for Innovative Public Health Research's internal control. Accordingly, we do not express an opinion on the effectiveness of the Center for Innovative Public Health Research'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 Center for Innovative Public Health Research'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 and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. -15-25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 www.vtdcpa.com Fax: 949.768.8408
Compliance and Other Matters As part of obtaining reasonable assurance about whether the Center for Innovative Public Health Research'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. We noted certain matters that we reported to management of the Center for Innovative Public Health Research in a separate letter dated June 5, 2017. 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 Center for Innovative Public Health Research'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 Center for Innovative Public Health Research's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Laguna Hills, California June 5, 2017-16-
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Trustees Center for Innovative Public Health Research San Clemente, California Report on Compliance for Each Major Federal Program We have audited the Center for Innovative Public Health Research'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 the Center for Innovative Public Health Research's (a California not-for-profit research organization) major Federal programs for the year ended September 30, 2016. The Center for Innovative Public Health Research'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 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 the Center for Innovative Public Health Research'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 the Center for Innovative Public Health Research'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 the Center for Innovative Public Health Research's compliance. -17-25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 www.vtdcpa.com Fax: 949.768.8408
Basis for Qualified Opinion on the Research and Development Cluster As described in the accompanying schedule of findings and questioned costs, the Center for Innovative Public Health Research did not comply with requirements regarding CFDA Numbers 93.242, 93.297, and 93.865 Research and Development Cluster as described in finding numbers 2016-001 and 2016-002. Compliance with such requirements is necessary, in our opinion, for the Center for Innovative Public Health Research to comply with the requirements applicable to that program. Qualified Opinion on the Research and Development Cluster In our opinion, except for the noncompliance described in the "Basis for Qualified Opinion" paragraph, the Center for Innovative Public Health Research complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on the Research and Development Cluster for the year ended September 30, 2016. Other Matters The Center for Innovative Public Health Research's responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Center for Innovative Public Health Research's responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. Report on Internal Control Over Compliance Management of the Center for Innovative Public Health Research 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 the Center for Innovative Public Health Research'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 the Center for Innovative Public Health Research's internal control over compliance. 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies. 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. -18-
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. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 2016-001 and 2016-002 to be significant deficiencies. The Center for Innovative Public Health Research's responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Center for Innovative Public Health Research's responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. 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. Laguna Hills, California June 5, 2017-19-
SCHEDULE OF FINDINGS AND QUESTIONED COSTS -20-
SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major Federal programs: Material weaknesses identified? Significant deficiencies identified? Type of auditors' report issued on compliance for major Federal programs: Any audit findings disclosed that are required to be reported in accordance with Section 200.516(a) of the Uniform Guidance? Identification of major Federal programs: Unmodified No None reported No No Yes Qualified Yes CFDA Numbers Name of Federal Program or Cluster 93.242, 93.297, 93.865 Research and Development Cluster Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 750,000 No -21-
FINANCIAL STATEMENT FINDINGS AND RECOMMENDATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2016 None reported. -22-
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2016-001: POLICIES AND PROCEDURES - CASH MANAGEMENT AND ALLOWABLE COSTS Federal Program Affected: Research and Development Cluster CFDA Numbers: 93.297, 93.865, 93.242 Direct funded by: U.S. Department of Health and Human Services, and Passed through from: National Institutes of Mental Health Federal Agency: U.S. Department of Health and Human Services Criteria or Specific Requirement Non-Federal entities must establish written procedures to implement the requirements of 2 CFR section 200.305 and 2 CFR section 200.302(b)(6) to address the collection of Federal funds (2 CFR section 200.305) and determination of allowability of costs (2 CFR section 200.302(b)(7)), as required by the Uniform Guidance. Condition CiPHR is not in compliance with the requirement for updated written procedures over cash management and allowable costs to incorporate requirements of the Uniform Guidance. Cause CiPHR did not update the established written procedures to address the requirements of 2 CFR section 200.305(b) in order to minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for direct program costs. CiPHR also did not update the established written policies and procedures to address determination in allowability of cost as described in 2 CFR section 200.403. Effect CiPHR is not in compliance with the Uniform Guidance requirements for cash management and allowable costs. Context CiPHR expended $1,447,273 in Research and Development funds. Questioned Costs No questioned costs. Recommendation Written policies and procedures related to all areas of the Uniform Guidance as applicable to CiPHR should be updated accordingly and followed. -23-
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Management's Response and Corrective Action Plan CiPHR's Grant Administrator Manual currently describes our policy to minimize the time elapsing between the transfer of funds from the U.S. Treasury thusly: "Cash on hand should always = $0. CiPHR does not keep any cash on hand because everything is done on a reimbursement basis." This will be expanded to provide the required detail of our policies and procedures per 2 CFR section 200.305. CiPHR's Policies and Procedures Manual, which is distributed to every new employee, includes a Reimbursement Policies section, which includes policies and procedures for reimbursement of Travel- and non-travel related expenses including: business meals not involving overnight travel; entertainment; club memberships; alcoholic beverages; hospitality, courtesies and other functions; and political contributions. The policies and procedures text will be expanded to include the other costs articulated in 2 CFR section 200.403. 2016-002: SUBRECIPIENT MONITORING Federal Program Affected: Research and Development Cluster CFDA Numbers: 93.297, 93.865, 93.242 Direct funded by: U.S. Department of Health and Human Services, and Passed through from: National Institutes of Mental Health Federal Agency: U.S. Department of Health and Human Services Criteria or Specific Requirement A pass-through entity (PTE) must: identify the award and applicable requirements (2 CFR sections 200.331(a)(1) through (3)), evaluate each subrecipient's risk of noncompliance for purposes of determining the appropriate subrecipient monitoring related to the subaward (2 CFR section 200.331(b)), and monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals (2 CFR sections 200.331(d) through (f)). The requirements for subrecipient monitoring for the subaward are contained in 31 USC 7502(f)(2), 2 CFR sections 200.330,.331, and.501(h); Federal awarding agency regulations; and the terms and conditions of the award. Condition CiPHR's subrecipient agreements do not contain all information as required by 2 CFR section 200.331. Cause CiPHR did not amend subrecipient agreements to contain all pertinent information as required by the Uniform Guidance. Effect CiPHR is not in compliance with the Uniform Guidance requirements for subrecipient monitoring. -24-
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Context CiPHR passed through $497,134 in Research and Development funds to six subrecipient organizations. Questioned Costs No questioned costs. Recommendation CiPHR should update or amend all subrecipient contracts to include all necessary information relating to Federal subawards as required by 2 CFR section 200.331. Management's Response and Corrective Action Plan Many, but not all, of the award and applicable requirements are included in the subaward documentation; this will be rectified through a contractual modification with each subrecipient. We will identify and enact a plan to evaluate each subrecipient's risk of noncompliance. We have always enforced the ongoing monitoring of subrecipient activities through monthly, and more often when necessary, progress report telephone calls with all subrecipients; as well as through written quarterly reports that include a subrecipient's accounting of financial expenditures as well as project achievements during the period in question. Our understanding of 1 USC 7502(f)(2), 2 CFR sections 200.330,.331, and.501(h) leads us to believe that our routine oversight is consistent with the regulations for subrecipient monitoring. We will review our documentation and update it if necessary per the regulations. To date, when subrecipient noncompliance has been identified, CiPHR has increased the frequency of monitoring meetings, and if necessary, engaged our lawyer for legal advice as well as ended the subcontract if called for. Per the regulations, we will add to our Grant Administrator Manual more details about these policies and procedures. We will also outline additional monitoring tools for subrecipients who are categorized as particularly high risk. -25-
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED SEPTEMBER 30, 2016 None reported. -26-
MANAGEMENT S RESPONSE AND CORRECTIVE ACTION PLAN FOR THE YEAR ENDED SEPTEMBER 30, 2016 2016-001: POLICIES AND PROCEDURES - CASH MANAGEMENT AND ALLOWABLE COSTS Management's Response and Corrective Action Plan CiPHR's Grant Administrator Manual currently describes our policy to minimize the time elapsing between the transfer of funds from the U.S. Treasury thusly: "Cash on hand should always = $0. CiPHR does not keep any cash on hand because everything is done on a reimbursement basis." This will be expanded to provide the required detail of our policies and procedures per 2 CFR section 200.305. CiPHR's Policies and Procedures Manual, which is distributed to every new employee, includes a Reimbursement Policies section, which includes policies and procedures for reimbursement of Travel- and non-travel related expenses including: business meals not involving overnight travel; entertainment; club memberships; alcoholic beverages; hospitality, courtesies and other functions; and political contributions. The policies and procedures text will be expanded to include the other costs articulated in 2 CFR section 200.403. 2016-002: SUBRECIPIENT MONITORING Management's Response and Corrective Action Plan Many, but not all, of the award and applicable requirements are included in the subaward documentation; this will be rectified through a contractual modification with each subrecipient. We will identify and enact a plan to evaluate each subrecipient's risk of noncompliance. We have always enforced the ongoing monitoring of subrecipient activities through monthly, and more often when necessary, progress report telephone calls with all subrecipients; as well as through written quarterly reports that include a subrecipient's accounting of financial expenditures as well as project achievements during the period in question. Our understanding of 1 USC 7502(f)(2), 2 CFR sections 200.330,.331, and.501(h) leads us to believe that our routine oversight is consistent with the regulations for subrecipient monitoring. We will review our documentation and update it if necessary per the regulations. To date, when subrecipient noncompliance has been identified, CiPHR has increased the frequency of monitoring meetings, and if necessary, engaged our lawyer for legal advice as well as ended the subcontract if called for. Per the regulations, we will add to our Grant Administrator Manual more details about these policies and procedures. We will also outline additional monitoring tools for subrecipients who are categorized as particularly high risk