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3.

  1. 1. (The following represent various excerpts from the financial statement of a fictitious organization) THE ABC CHILDREN CENTER ANYTOWN, PENNSYLVANIA FOR THE YEAR ENDED JUNE 30, 2008
  2. 2. C O N T E N T S Page INDEPENDENT AUDITOR’S REPORT 1 - 2 FINANCIAL STATEMENTS Statement of Financial Position 3 Statement of Activities 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 Notes to Financial Statements 7 - 10 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 11 Notes to Schedule of Expenditures of Federal Awards 12 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 13 - 14 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 15 - 16 Schedule of Findings and Questioned Costs 17 -18 Summary Schedule of Prior Years’ Findings 19 Independent Auditor’s “Agreed-Upon Procedures” Report for Fiscal Year Financial Schedules 27 - 28 Schedule Of Income/Service Revenue And Expenses By Discipline 29 - 34
  3. 3. Dewey, Cheatem, and Howe, C.P.A. P.O. Box 1 Anytown, Pennsylvania 12345 INDEPENDENT AUDITOR’S REPORT Board of Directors The ABC Children Center Anytown, PA We have audited the accompanying statement of financial position of The ABC Children Center (a nonprofit organization) as of June 30, 2008, and the related statements of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of The ABC Children Center’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The ABC Children Center as of June 30, 2008, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 10, 2008 on our consideration of The ABC Children Center’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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and important in assessing the results of our audit. -1-
  4. 4. Our audit was performed for the purpose of forming an opinion on the basic financial statements of The ABC Children Center taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Dewey, Cheatem, and Howe, C.P.A. September 10, 2008 -2-
  5. 5. THE ABC CHILDREN CENTER STATEMENT OF FINANCIAL POSITION JUNE 30, 2008 Assets Current Assets Cash $189,489 Accrued Revenue from Commonwealth 518,066 Other Receivable 727 Prepaid Expenses 3,636 Total Current Assets $711,918 Fixed Assets, net of Accumulated Depreciation 235,336 Investments in Marketable Securities 295,000 Total Assets $1,242,254 Liabilities and Net Assets Current Liabilities Accounts Payable $589,110 Accrued Payroll 8,145 Accrued Paid Time Off 30,643 Accrued Payroll Taxes and Benefits 209 Loan Payable, Current Portion 20,000 Total Current Liabilities $648,107 Long-Term Debt, net of current portion 80,000 Total Liabilities $728,107 Net Assets Unrestricted Net Assets $ 514,147 _______ Total Liabilities and Net Assets $1,242,254 See Accompanying Notes and Independent Auditor's Report
  6. 6. -3- THE ABC CHILDREN CENTER STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008 Temporarily Unrestricted Restricted Net Assets Net Assets Total Support and Revenue Commonwealth Grants $ 4,431,989 $ 0 $ 4,431,989 Other Income 17,500 0 17,500 Net Assets Released from Restrictions-Purpose Restriction 16,097 (16,097) 0 _________ ______ _________ Total Support, Revenue and Released Net Assets $4,465,586 ($16,097) $4,449,489 _________ ______ _________ Expenditures Administration $ 535,632 $ 0 $ 535,632 Program Costs 3,927,968 0 3,927,968 Total Expenditures $4,463,600 $ 0 $4,463,600 _________ ______ _________ Change in Net Assets $ 1,986 ($16,097) ($ 14,111) Net Assets - Beginning 512,161 16,097 528,258 Net Assets - Ending $ 514,147 $ 0 $ 514,147 See Accompanying Notes and Independent Auditor's Report -4-
  7. 7. THE ABC CHILDREN CENTER STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2008 Administration Program Total Salaries $307,632 $ 2,184,881 $ 2,492,513 Payroll Taxes 32,534 192,158 224,692 Employee Benefits 77,556 534,858 612,414 Contracted Direct Services 0 404,900 404,900 Training Development 3,424 8,805 12,229 Travel 10,787 427,739 438,526 Meeting 2,650 6,814 9,464 Insurance 2,140 5,502 7,642 Professional Fees 30,277 0 30,277 Interest 5,500 0 5,500 Other Contracted Services 17,261 44,385 61,646 Supplies 5,643 14,509 20,152 Rent - Building 12,217 31,415 43,632 Rent - Equipment 5,620 14,452 20,072 Utilities 3,708 9,536 13,244 Office Supplies 5,643 14,511 20,154 Advertising 1,595 4,103 5,698 Telephone 4,029 10,360 14,389 Depreciation 5,003 12,864 17,867 Repairs and Maintenance 727 1,869 2,596 Miscellaneous 1,686 4,307 5,993 Total Expenses $535,632 $3,927,968 $4,463,600 See Accompanying Notes and Independent Auditor's Report
  8. 8. -5- THE ABC CHILDREN CENTER STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 Cash Flows from Operating Activities Change in Net Assets ($ 14,111) Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation 17,867 Decrease In Accrued Revenue from Commonwealth 717 (Increase) Other Receivables ( 85) Decrease in Prepaid Expenses 403 Increase in Accounts Payable 5,875 Increase in Accrued Paid Time Off 3,934 Increase in Accrued Payroll 1,658 (Decrease) in Accrued Payroll Taxes and Benefits ( 16,166) Net Cash Provided by Operating Activities $ 92 Cash – Beginning 189,397 Cash - Ending $ 189,489 Interest Paid $ 5,500 Income Tax Paid $ 0 See Accompanying Notes and Independent Auditor's Report
  9. 9. -6- THE ABC CHILDREN CENTER NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 Note 1: Summary of Significant Accounting Policies The following summary describes the significant accounting policies followed by The ABC Children Center (the Organization) in the presentation of its financial statements. Organization and Nature of Activities The Center’s primary purpose is to provide child care services in a three county region. This activity, which is funded by the Commonwealth of Pennsylvania, represents over 99% of the Center’s total support and revenue. Financial Statement Presentation Under Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations, the Organization is required to report 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. In addition, the Organization is required to present a statement of cash flows. Contributions In accordance with SFAS No. 116, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. Basis of Accounting The Organization utilizes the accrual method of accounting. Under this basis, revenues are recorded when earned and expenses are recorded when incurred. Restricted grant income is deferred until expended for the purpose of the grant. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Cash and Cash Equivalents The Organization considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the statement of financial position. Realized and unrealized gains and losses are reported in the statement of activities as investment income along with earned interest and dividends. -7-
  10. 10. THE ABC CHILDREN CENTER NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (CONTINUED) Note 1: Summary of Significant Accounting Policies (Continued) Investments (Continued) Concentrations of credit risk with respect to investments are limited due to the diversity of major types of investments but also due to the diversity within certain types of investments. Federal Income Taxes The Organization, which is not a private foundation, is exempt from federal income taxes under Section 501(c) (3) of the Internal Revenue Code. Therefore, no provision for income taxes is made in the accompanying financial statements. Expense Allocation Various operating expenses are allocated to programs based upon the amount of time spent working within each program. Allocated expenses include office rental, insurance, salaries and wages, and fringe benefits. Risk Concentration The entity maintains cash balances with a high credit quality financial institution located in Pennsylvania. Amounts at this institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At June 30, 2008, the carrying amount of the Organization's deposit was $189,489. The bank balance was $212, 643 of which $112,643 was uninsured. The Center receives over 99% of their support and revenue from the Commonwealth of Pennsylvania. Contributed Services The Center receives various types of in-kind support; however, none of these services meets the criteria in Financial Accounting Standards Board Statement No.116, which requires that contributed services that create or enhance a non-financial asset, or require specialized skills that would otherwise need to be purchased to be recognized in these financial statements. Note 2: Investments Investments consisted of the following at June 30, 2008: Cost Fair Market Equity Funds $295,000 $295,000
  11. 11. -8- THE ABC CHILDREN CENTER NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (CONTINUED) Note 2: Investments (Continued) No one single investment within equity funds exceeds 5% of total investments at fair value. Fair value of all investments is based on their respective readily determinable quoted market prices. None of the above investments are held for trading purposes. Note 3: Fixed Assets/Depreciation The Center’s Property Procedures Manual defines property as nonexpendable personal property with a unit acquisition cost of $5,000 or more with a useful life of more than one year. The Center depreciates its fixed assets over its applicable useful life using the straight-line method of depreciation. Note 4: Contingencies Grantor agencies reserve the right to perform certain audits in addition to the work performed by the Corporation’s independent auditors. Disallowed costs, if any, resulting from such additional audits would have to be absorbed by the Organization. Management does not believe that any significant costs will be incurred by the Organization if such additional audits should occur. Note 5: Commitments As of June 30, 2008, the Corporation had entered into various noncancellable operating lease agreements for the rental of office facilities and equipment expiring from March 2012 to December 2012. Minimum rentals, including utilities, on an annual basis are as follows: Fiscal Year Ending June 30 2009 $ 69,864 2010 69,864 2011 69,864 2012 56,406 2013 6,680 Thereafter 0 $272,678 The Corporation has an option to extend the lease for the rental of office space for its administrative offices an additional five (5) year term by giving six (6)
  12. 12. -9- THE ABC CHILDREN CENTER NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 (CONTINUED) Note 5: Commitments (Continued) months notice to the landlord prior to the termination date of the lease. The rent for the extended period would be negotiated at that time. Total rent expense for the year ended June 30, 2008 was $63,704. Note 6: Retirement Plan As of January 1, 2000, the Corporation established The ABC Children Center 401(k) Retirement Plan and Trust, in which employees can contribute the annual maximum amount as determined by the IRS with a match from the Corporation of up to 15%. The Corporation, in its sole discretion, may also contribute an amount, which it designates as a qualified nonelective contribution. Employees become active participants when the employee has completed six months of eligibility service (1,000 hours or more of service in a 12 consecutive month period) and is age 21 or older. Past Corporation employment is considered. Employees vest immediately. For the year ended June 30, 2008, the Corporation's contributions to this Plan were $15,072. Note 7: Economic Dependency The Organization’s revenues are derived almost entirely from the Commonwealth of Pennsylvania. Note 8: Notes Payable The Center has a $100,000 loan from a local financial institution, which is due in five installment of $20,000, plus interest on March 31 of each of the next five year. The loan carries an interest rate of 5.5%, collateralized by the Center’s assets. As of June 30, 2008, the balance on this loan was $100,000. Note 9: Temporarily Restricted Net Assets/Permanently Restricted Net Assets The Center had no temporarily restricted or permanently restricted net assets at June 30, 2008. Net assets of $16,097 were released from donor restrictions during the year ended June 30, 2008 by meeting the time restrictions or by incurring expenses satisfying the purpose restrictions specified by donors. -10-

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