(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
CONTENTS
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
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-
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-
THE ABC CHILDREN CENTER
STATEMENT OF FINANCIAL POSITION
JUNE 30, 2008
Assets
Current Assets
Cash
Accrued Revenue from Commonwealth
Other Receivable
Prepaid Expenses
$189,489
518,066
727
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
Accrued Payroll
Accrued Paid Time Off
Accrued Payroll Taxes and Benefits
Loan Payable, Current Portion
$589,110
8,145
30,643
209
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
-3-
THE ABC CHILDREN CENTER
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2008
Unrestricted
Net Assets
Temporarily
Restricted
Net Assets
Total
Support and Revenue
Commonwealth Grants
Other Income
Net Assets Released from Restrictions-Purpose Restriction
$ 4,431,989
17,500
16,097
_________
Total Support, Revenue and Released Net Assets
$4,465,586
_________
Expenditures
Administration
Program Costs
$
Total Expenditures
535,632
3,927,968
$4,463,600
_________
Change in Net Assets
$
Net Assets - Beginning
1,986
512,161
Net Assets - Ending
$
514,147
$
0
0
(16,097)
______
$ 4,431,989
17,500
0
_________
($16,097)
______
$4,449,489
_________
$
$
$
0
______
16,097
$
0
535,632
3,927,968
$4,463,600
_________
($16,097) ($
See Accompanying Notes and Independent Auditor's Report
-4-
0
0
14,111)
528,258
$
514,147
THE ABC CHILDREN CENTER
STATEMENT OF FUNCTIONAL EXPENSES
FOR THE YEAR ENDED JUNE 30, 2008
Administration
Salaries
Payroll Taxes
Employee Benefits
Contracted Direct Services
Training Development
Travel
Meeting
Insurance
Professional Fees
Interest
Other Contracted Services
Supplies
Rent - Building
Rent - Equipment
Utilities
Office Supplies
Advertising
Telephone
Depreciation
Repairs and Maintenance
Miscellaneous
Total Expenses
Program
$307,632
32,534
77,556
0
3,424
10,787
2,650
2,140
30,277
5,500
17,261
5,643
12,217
5,620
3,708
5,643
1,595
4,029
5,003
727
1,686
$ 2,184,881
192,158
534,858
404,900
8,805
427,739
6,814
5,502
0
0
44,385
14,509
31,415
14,452
9,536
14,511
4,103
10,360
12,864
1,869
4,307
$535,632
$3,927,968
See Accompanying Notes and Independent Auditor's Report
-5-
Total
$
2,492,513
224,692
612,414
404,900
12,229
438,526
9,464
7,642
30,277
5,500
61,646
20,152
43,632
20,072
13,244
20,154
5,698
14,389
17,867
2,596
5,993
$4,463,600
THE ABC CHILDREN CENTER
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2008
Cash Flows from Operating Activities
Change in Net Assets
($
14,111)
Adjustments to Reconcile Change in Net Assets
to Net Cash Provided by Operating Activities:
Depreciation
Decrease In Accrued Revenue from Commonwealth
(Increase) Other Receivables
Decrease in Prepaid Expenses
Increase in Accounts Payable
Increase in Accrued Paid Time Off
Increase in Accrued Payroll
(Decrease) in Accrued Payroll Taxes and Benefits
Net Cash Provided by Operating Activities
17,867
717
85)
403
5,875
3,934
1,658
16,166)
(
(
$
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
-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-
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
Equity Funds
$295,000
-8-
Fair Market
$295,000
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
2010
2011
2012
2013
Thereafter
$ 69,864
69,864
69,864
56,406
6,680
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)
-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-