SUNRISE CHILDREN’S FOUNDATION FINANCIAL STATEMENTS JUNE 30, 2012 Ellsworth Gilman & Stout, LLC 7881 W. Charleston Blvd., Suite 155 Las Vegas, NV 89117 Tel: (702) 871-2727 Fax: (702) 876-0040 SUNRISE CHILDREN’S FOUNDATION FINANCIAL STATEMENTS JUNE 30, 2012 Table of Contents Independent Auditor’s Report ....................................................................................................................... 1 Financial Statements: Statement of Financial Position.................................................................................................................... 2 Statement of Activities .................................................................................................................................3 Statement of Functional Expenses ...............................................................................................................4 Statement of Cash Flows ..............................................................................................................................5 Notes to the Financial Statements ...............................................................................................................6-10 Compliance Section: 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 .................................................................................................... 11 Independent Auditors’ Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance Accordance with OMB Circular A-133 ............................................................................................ 12-13 Schedule of Expenditures of Federal Awards ............................................................................................ 14 Schedule of Findings and Questioned Costs ......................................................................................... 15-16 Schedule of Prior Findings and Questioned Costs ................................................................................ 17-21 SUNRISE CHILDREN'S FOUNDATION STATEMENT OF FINANCIAL POSITION JUNE 30, 2012 ASSETS Current Assets: Cash Grants receivable Inventory Prepaid expenses Total current assets $ Property and Equipment, net 998,367 Other Assets: Refundable deposits Total Assets 694,989 513,533 52,650 78,617 1,339,789 42,423 $ 2,380,579 $ 35,625 413,137 15,888 464,650 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable Accrued expenses Current portion of lease discount Total current liabilities Long-Term Liabilities: Lease discount, net of current portion 28,681 493,331 Net Assets: Unrestricted Temporarily restricted Total Liabilities and Net Assets 945,388 941,860 1,887,248 $ 2,380,579 See accompanying notes to the financial statements. 2 SUNRISE CHILDREN'S FOUNDATION STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2012 Unrestricted Net Assets Unrestricted revenue and other support: Grant income Donations In-kind donations Interest income Other income Net assets released from donor restrictions $ 5,960,279 31,606 136,257 644 12,112 425,888 6,566,786 Expenses: Program Management and general 5,979,052 301,265 6,280,317 Other decreases: Loss on disposal of property and equipment 30,820 Increase in unrestricted net assets 255,649 Temporarily Restricted Net Assets Contributions Net assets released from donor restrictions 500 (425,888) Decrease in temporarily restricted net assets (425,388) Decrease in Net Assets (169,739) Net Assets, Beginning of Year Net Assets, End of Year 2,056,987 $ 1,887,248 See accompanying notes to the financial statements. 3 SUNRISE CHILDREN'S FOUNDATION STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2012 Program Advertising Automobile expenses Bank charges Depreciation Dues and subscriptions Education expenses Fees and certifications Insurance Meals and entertainment Miscellaneous Occupancy Office expenses Professional fees Program expenses Repair and maintenance Salaries, taxes and related expenses Training Travel Utilities Management and General Total $ 2,000 47,089 1,910 315,326 5,342 34,092 11,807 404,991 2,877 7,514 830,097 83,749 114,229 232,567 32,829 3,748,320 570 22,448 81,295 $ 105 2,478 101 16,596 281 1,794 621 21,315 151 395 43,689 4,408 6,012 1,728 197,280 30 4,281 $ 2,105 49,567 2,011 331,922 5,623 35,886 12,428 426,306 3,028 7,909 873,786 88,157 120,241 232,567 34,557 3,945,600 600 22,448 85,576 $ 5,979,052 $ 301,265 $ 6,280,317 See accompanying notes to the financial statements. 4 SUNRISE CHILDREN'S FOUNDATION STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012 Cash Flows from Operating Activities Decrease in Net Assets Adjustments to reconcile decrease in net assets to net cash provided by operating activities: Depreciation Loss on disposal of property and equipment Changes in operating assets and liabilities: (Increase) decrease in grants and accounts receivable (Increase) decrease in pledges receivable (Increase) decrease in inventory (Increase) decrease in prepaid expenses (Increase) decrease in refundable deposits Increase (decrease) in accounts payable Increase (decrease) in grant advance Increase (decrease) in accrued expenses $ (169,739) 331,922 30,820 26,402 32,000 (32,285) 43,708 16,325 (24,163) (37,011) 120,825 Net cash provided by operating activities 338,804 Cash Flows from Investing Activities Proceeds from sale of property and equipment Purchase of property and equipment Net cash used in investing activities 8,500 (7,251) 1,249 Cash Flows from Financing Activities Net decrease in lease discount (6,205) Net Increase in Cash 333,848 Cash, Beginning of Year 361,141 Cash, End of Year $ 694,989 See accompanying notes to the financial statements. 5 SUNRISE CHILDREN’S FOUNDATION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 – NATURE OF ORGANIZATION Sunrise Children’s Foundation (the Foundation) is a nonprofit organization, serving residents of Clark County, Nevada. The Foundation is dedicated to helping children fulfill their potential of safe, healthy and educated lives. The majority of revenue is obtained through government grants, fees and reimbursements. The activities of the Foundation are described below: Early Head Start (EHS) – recognizes the importance of the development that occurs in the first three years of life and actively works in partnership with families and community to promote the healthy growth and development of children from low-income families. Women, Infants and Children (WIC) – is a federally funded program operated by the Nevada State Health Division. The Foundation currently operates four WIC clinics throughout Clark County. The clinics provide a supplemental nutrition program for women, infants and children. Home Instruction Program for Preschool Youngsters (HIPPY) – is a parent involvement, school readiness program that helps parents prepare their preschool age children for success in school and beyond. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Sunrise Children’s Foundation is presented to assist in understanding the Foundation’s financial statements. The financial statements and notes are representations of the Foundation’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Basis of Accounting The financial statements of the Foundation have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Accordingly, actual results could differ from those estimates. Basis of Presentation The accompanying financial statements have been presented in accordance with accounting principles generally accepted in the United States applicable to not-for-profit organizations, principally ASC 958, Not-for-Profit Entities. Under ASC 958, the Foundation is required to report information regarding its financial position and changes in financial position according to three classes of net assets; unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Statement of Cash Flows For the purpose of the statement of cash flows, cash consists of cash on hand and demand deposits. 6 SUNRISE CHILDREN’S FOUNDATION NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2012 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Grants and Accounts Receivable Revenue and support are recorded when the related amounts are pledged or due. The Foundation does not anticipate any collection losses with respect to the receivable balances. As a result, a zero allowance for doubtful accounts has been established as of June 30, 2012. If accounts become uncollectible, the balances will be allowed for when that determination is made. Inventory Inventories, which consists of books to be distributed and furniture and equipment held in storage and not yet placed in service, are valued at the lower of cost or market value. Donated items are recorded at estimated fair value at the date of donation. Property and Equipment The Foundation adopted an updated Capitalization Policy during the year. The Policy now includes “unit” costs which is defined as all base stock required to put a classroom or clinic into production as well as material additions, repairs or maintenance with a per item cost greater than $1,000 after operations in a clinic or classroom has begun. Items not related to the operation of a clinic or classroom are capitalized at $1,000 per item. Property and equipment that are contributed to the Foundation are recorded at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range between five to fifteen years. Due to grant restrictions, the Foundation may be required to obtain prior approval before disposing of any material fixed assets that have been purchased with grant funds. Contributed Services Unpaid volunteers have donated their time to the Foundation’s programs. The value of such services has not been reflected in the accompanying financial statements since the volunteers’ time does not meet the criteria for recognition as contributed services. Generally, donated materials, if significant in amount, are recorded at their fair market value, provided the Foundation has a clearly measurable and objective basis for determining the value. In the case of materials where such values cannot reasonably be determined, the donation is not recorded. Donated professional services are recognized if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Revenue Recognition Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires by a stipulated time restriction lapsing or by the purpose of the restriction having been accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Donor restricted contributions whose restrictions are met in the same period received are reported as unrestricted support. 7 SUNRISE CHILDREN’S FOUNDATION NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2012 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited, based on management’s estimates. Income Taxes In October 1994, the Foundation received notification from the Internal Revenue Service that the Foundation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and has been classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi). As such, the Foundation is exempt from Federal income tax. Therefore, no provision for income taxes is made in the accompanying financial statements. Advertising Advertising costs are expensed as incurred. NOTE 3 – PROPERTY AND EQUIPMENT As of June 30, 2012, property and equipment consisted of the following: Base stock Computer equipment Furniture and fixtures Playground equipment Leasehold improvements Vehicles $ Less: accumulated depreciation 443,235 44,603 34,494 123,728 702,031 345,963 1,694,054 (695,687) $ 998,367 Depreciation expense for the year ended June 30, 2012 was $331,922. NOTE 4 – LEASE AGREEMENTS The Foundation has several non-cancelable operating leases for office space for their EHS, WIC and administrative locations. The monthly rent ranges from $900 to $14,109 per month. Rent expense under these agreements was $584,580 for the year ended June 30, 2012. At June 30, 2012, future minimum rental payments due are as follows: 2013 2014 2015 2016 2017 $ $ $ $ $ 446,453 408,729 324,997 67,768 43,942 8 SUNRISE CHILDREN’S FOUNDATION NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2012 NOTE 5 – COMMITMENTS In November 2007, the Foundation signed a lease to rent space for several programs. In March 2010, the first amendment to the lease agreement was signed. This resulted in the Foundation paying $77,764 in leasehold improvements and obtaining the equivalent of 5.5 months worth of abated rent, which is recognized as a lease discount on the Statement of Financial Position in accordance with FASB ASC 840-20-25-6 Lease Incentives. In September 2010, the Foundation signed a lease to rent space for the Early Head Start program. As an incentive for leasing the space, the landlord agreed to April and July 2012 of free rent resulting in two months of abated rent of $5,775. This is recognized as a lease discount on the Statement of Financial Position in accordance with FASB ASC 840-20-25-6 Lease Incentives. In April 2012, the Foundation signed a lease to rent space for a WIC Clinic. The Foundation will receive one month of abated rent of $3,000 in January 2015. This is recognized as a lease discount on the Statement of Financial Position in accordance with FASB ASC 840-20-25-6 Lease Incentives. In accordance with the GAAP literature, lease incentives are recognized as a reduction of rent expense on the straight line basis over the term of the lease, which ends in May 2015, August 2011 and June 30, 2017, respectively. NOTE 6 – CONCENTRATION OF CREDIT RISK The Foundation has concentrated its credit risk for cash by maintaining deposits in financial institutions, which at times may exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (FDIC). The Foundation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash. NOTE 7 – CONCENTRATION OF GRANT CONTRIBUTIONS The Foundation received approximately 94% of grant funding from the Department of Health and Human Services for the year ended June 30, 2012. NOTE 8 – IN-KIND DONATIONS During the year ended June 30, 2012, the Foundation received the following in-kind donations of supplies, professional services, and free use of facilities that have been reflected in the Statement of Activities of the Foundation: Early Head Start Free use of facilities Professional services Supplies $ 74,750 $ 16,480 14,303 $ 105,533 $ WIC 2,647 $ 993 483 4,123 $ Other 3 1,028 1,031 Total Program Management and General $ 77,397 $ 17,476 15,814 $ 110,687 $ $ 24,527 1,043 25,570 $ Total 77,397 42,003 16,857 136,257 9 SUNRISE CHILDREN’S FOUNDATION NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2012 NOTE 9 – RETIREMENT PLAN The Foundation has a defined contribution plan (the Plan) that was established in July 2010 and is available to all employees who normally work more than 20 hours per week. Eligible employees become a participant in the Plan on his/her first day of employment. Through payroll deduction, plan participants contribute elective deferrals up to the maximum amount allowed by law and the Plan. Currently, the Foundation is not matching employee contributions. NOTE 10 – TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets have been purchased with monies from grantors and are only to be used for their related program. If the Foundation ceases to operate the program the assets would be given to the succeeding organization. Temporarily restricted net assets are made up of program related fixed assets and inventory. Temporarily restricted net assets are available for the following programs: Early Head Start Women, Infants and Children Home Instruction Program for Preschool Youngsters $ $ 870,365 48,210 23,285 941,860 NOTE 11 – CHANGE IN ACCOUNTING PRINCIPLE The Foundation changed their Capitalization Policy to be able to more accurately define what is included as a fixed asset. This will enable the Foundation to analyze the costs that are involved in opening new locations. The new Capitalization Policy now includes “unit” costs. This is defined as all base stock required to put a classroom or clinic into production as well as material additions, repairs or maintenance with a per item cost greater than $1,000 after operations in a clinic or classroom has begun. Items not related to the operation of a clinic or classroom are capitalized at $1,000 per item. The implementation of the Policy has been applied to the current year. The effect of this change caused depreciation expense to increase. No prior year balances have been adjusted. The accounting change is not deemed material in the current year and is not expected to have a material effect in future periods. NOTE 12 – SUBSEQUENT EVENTS Subsequent events have been evaluated through November 19, 2012, which is the date the financial statements were available to be issued. 10 COMPLIANCE SECTION SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2012 FEDERAL GRANTOR/PASS-THROUGH GRANTOR/PROGRAM TITLE U.S. Dept. of Health and Human Services Early Head Start Early Head Start ARRA Expansion PASSTHROUGH FEDERAL ENTITY CFDA IDENTIFYING FEDERAL NUMBER NUMBER EXPENDITURES 93.600 93.709 $ Total Head Start Cluster Passed through the Nevada Department of Health and Human Services: Child Care Mandatory and Matching Funds of the Child Care and Development Fund (CCDP) U.S. Department of Agriculture Child and Adult Care Food Program (CACFP) Passed through the Nevada Department of Health and Human Services: Women, Infants and Children (WIC) Program U.S. Department of Education Home Instruction for Parents of Pre-School Youngsters (HIPPY) 2,833,672 481,620 3,315,292 93.596 384,300 10.558 105,457 10.557 1,894,826 84.215K Total Expenditures of Federal Awards 153,322 $ 5,853,197 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of Sunrise Children’s Foundation and is presented on the cash basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 14 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012 Section I - Summary of Auditors' Results: Financial Statements Type of auditor's report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified? Noncompliance material to financial statements? Federal Awards Internal control over major programs: Material weaknesses identified? Significant deficiencies identified? Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Unqualified yes yes yes x x x no no no yes yes x x no none reported x none reported x no Unqualified yes Identification of major programs: CFDA Number Name of Federal Program: Head Start Cluster: 93.600 93.709 10.557 Early Head Start Early Head Start ARRA Expansion Women, Infants and Children (WIC) Program Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as a low-risk auditee? yes 15 SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2012 Section II – Findings relating to the financial statements, which are required to be reported in accordance with auditing standards generally accepted in the United States: None reported. Section III – Findings and questioned costs for federal awards, including audit findings as defined in Circular A-133 Section .510(a): None reported. 16 SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 Section I - Summary of Auditors' Results: Financial Statements Type of auditor's report issued: Internal control over financial reporting: Material weaknesses identified? Significant deficiencies identified? Noncompliance material to financial statements? Federal Awards Internal control over major programs: Material weaknesses identified? Significant deficiencies identified? Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Unqualified x x yes yes yes yes yes x x x no no no no none reported Unqualified x yes none reported Identification of major programs: CFDA Number Name of Federal Program: Head Start Cluster: 93.600 93.709 10.557 Early Head Start Early Head Start ARRA Expansion Women, Infants and Children (WIC) Program Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as a low-risk auditee? yes x no 17 SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2011 Section II – Findings relating to the financial statements, which are required to be reported in accordance with auditing standards generally accepted in the United States: 11-1 Criteria: Property and equipment records (including serial number or other identification number, acquisition date and cost, percentage and source of federal participation in the costs, location, condition, and disposition data) shall be accurate and complete. Condition: Property and equipment records were not accurate and complete. On a few occasions the Foundation was recording individual fixed assets as a group of assets on their fixed asset schedule, which did not allow for appropriate listing of individual costs, locations, etc. Effect: Reasonable assurance that property and equipment records are accurate, complete and agree to the general ledger, and that property and equipment is appropriately safeguarded and maintained cannot readily be attained. As a result, adjustments were necessary to correct property and equipment records. Cause: Failure to effectively monitor compliance with policies and procedures designed to provide reasonable assurance that property and equipment records are accurate, complete and agree to the general ledger and that property and equipment is appropriately safeguarded and maintained. Recommendation: Management should instruct personnel regarding the importance of maintaining accurate and complete property and equipment records and ensuring that property and equipment is appropriately safeguarded and maintained and should provide additional resources to monitor compliance with all property and equipment policies and procedures. Management’s response: The above comment refers to assets that were inappropriately combined when the Foundation expanded resulting in construction at many of the facilities that we occupy. The Foundation has instituted additional controls to ensure that fixed asset costs, regardless if we construct them or purchase them in final form, are properly identified and capitalized based on our accounting policy and in such detail as to identify the necessary information for proper tracking and control. 18 SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2011 Section III – Findings and questioned costs for federal awards, including audit findings as defined in Circular A-133 Section .510(a): 11-2 Program: Early Head Start, Early Head Start ARRA Expansion and Women, Infants and Children. CFDA #93.600, #93.709, #10.557. Specific requirements: Requests for funds shall be complete and accurate and agree to supporting records/documentation. Independent review of requests for funds shall be performed to assure accuracy, completeness of data and information included therein, and agreement to supporting records/documentation. Condition/Context: Individual program expenses and appropriate allocated administrative expenses could not be traced to the requests for funds. Also, we could not verify an independent review for accuracy and completeness was conducted at the time the request for reimbursement was submitted. Questioned Costs: Not applicable Effect: Reasonable assurance that requests for funds are complete and accurate and agree to supporting records/documentation cannot readily be attained. As a result, individual requests for funds could not be traced to related expenses or reconciled to the general ledger. Cause: Failure to adopt and effectively implement and monitor policies and procedures designed to provide reasonable assurance that requests for funds are complete and accurate and agree to supporting records/documentation. Management’s response: The Foundation discovered that prior draws did not agree to supporting documentation and self-reported this situation to the grantor and our auditors. Beginning March 2012, as part of the process of remediation and communication with the grantor, the Foundation has implemented policies and procedures designed to provide reasonable assurances that request for funds are complete and accurate, and to include better financial and accounting controls for the Foundation as whole. Because of our self-reporting, the Foundation is currently on restricted drawdown of funds from the Early Head Start program, meaning all supporting documentation must be provided to the grantor prior to the grantor approving the request for funds. The policies and procedures implemented for restricted drawdown from Early Head Start are the same policies and procedures that are in place for unrestricted drawdowns from Women, Infants and Children, and the same policies and procedures that are followed for every fund request the Foundation makes from grantors. 19 SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2011 Section III – Findings and questioned costs for federal awards, including audit findings as defined in Circular A-133 Section .510(a)(continued): 11-2 (continued) Management’s response (continued): Additionally, fiscal consultants and monitoring personnel from the Early Head Start program have reviewed the updated policies and procedures and have found that the policies and procedures provide appropriate support and monitoring compliance for fund requests. 11-3 Program: Early Head Start, Early Head Start ARRA Expansion and Women, Infants and Children. CFDA #93.600, #93.709, #10.557. Specific requirements: Property and equipment records (including serial number or other identification number, acquisition date and cost, percentage and source of federal participation in the costs, location, condition, and disposition data) shall be accurate and complete. Condition/Context: Property and equipment records were not accurate and complete. The Foundation did not include the condition of any of the fixed assets on their fixed asset schedule. Questioned Costs: Not applicable Effect: Reasonable assurance that property and equipment records are accurate, complete cannot readily be attained. Cause: Failure to effectively monitor compliance with policies and procedures designed to provide reasonable assurance that property and equipment records are accurate and complete. Management’s response: We have added this tracking item to our overall management and control of fixed assets as a whole for the Foundation. 11-4 Program: Women, Infants and Children. CFDA #10.557. Specific requirements: The Foundation must account for all food instruments issued within 120 days of the food instrument’s first valid date for participant use. The Foundation must identify all food instruments as either issued or voided; and identify issued food instruments as either redeemed or unredeemed. 20 SUNRISE CHILDREN’S FOUNDATION SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2011 Section III – Findings and questioned costs for federal awards, including audit findings as defined in Circular A-133 Section .510(a)(continued): 11-4 (continued) Specific requirements (continued): Redeemed food instruments must be identified as one of the following: (1) validly issued, (2) lost or stolen, (3) expired, (4) duplicate, or (5) not matching valid enrollment and issuance records. Condition/Context: The Foundation did not account for all food instruments issued within 120 days of the food instrument’s first valid date for participant use. The Foundation discovered that two employees created three fictitious families in the WIC program and issued three food instruments. All three food instruments had fraudulent food purchases spanning seven months. The fraudulent activity was discovered by management of the Foundation after 120 days from issuance of the food instruments. The Foundation self-reported to the grantor and suspected employees were terminated. Questioned Costs: $1,663.63 Effect: Reasonable assurance that all food instruments issued within 120 days of the food instrument’s first valid date for participant use are accounted for cannot readily be attained. Cause: Failure to effectively monitor compliance with policies and procedures designed to provide reasonable assurance that all food instruments issued within 120 days of the food instrument’s first valid date for participant use are accounted for. Management’s response: We continue to work within the parameters of the program as dictated by the State funding source for Women, Infants and Children. The Foundation, as the fiscal agent, is responsible for implementing a control structure which discourages and prohibits fraud. When this situation same to light, as noted above, it was self-reported to the funding agency and the Foundation began working on control changes to deter future reoccurrence. As of the date of this response, negotiations for revising the control structure parameters with the funding source are still ongoing. 21