ALOMA D. JOHNSON CHARTER SCHOOL

Transcription

1 REPORT TO THE BOARD OF TRUSTEES OF ALOMA D. JOHNSON CHARTER SCHOOL JUNE 30, 2014

2 October 20, 2014 To the Board of Trustees of Aloma D. Johnson Charter School Dear Board of Trustees: We are pleased to present this report related to our audit of the financial statements of the Aloma D. Johnson Charter School (the School ) for the year ended June 30, This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for Aloma D. Johnson Charter School s financial reporting process. This report is intended solely for the information and use of the Board and is not intended to be and should not be used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to Aloma D. Johnson Charter School. Buffalo, New York Page 1

3 Contents Required Communications Summary of Accounting Estimates... 5 Summary of Recorded Audit Adjustments Exhibit A - Letter Communicating Control Deficiencies in Internal Control Over Financial Reporting and Operational Matters Exhibit B - Significant Written Communications Between Management and Our Firm Representation Letter Page 2

4 Required Communications Generally accepted auditing standards in the United States of America require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process. Area Our Responsibilities with Regard to the Financial Statement Audit Overview of the Planned Scope and Timing of the Financial Statement Audit Accounting Policies and Practices Comments Our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States have been described to you in our arrangement letter dated June 9, We have issued a separate communication regarding the planned scope and timing of our audit and have discussed with you our identification of and planned audit response to significant risks of material misstatement. Preferability of Accounting Policies and Practices Under generally accepted principles, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the School. The School did not adopt any significant new accounting policies nor have there been any changes in existing significant accounting policies during the current period. Significant or Unusual Transactions We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Management s Judgments and Accounting Estimates Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates in the attached Summary of Accounting Estimates. Page 3

5 Area Comments Basis of Accounting The financial statements were prepared on assumption that the entity will continue as a going concern. Audit Adjustments Uncorrected Misstatements Disagreements with Management Consultations with Other Accountants Significant Issues Discussed with Management Significant Difficulties Encountered in Performing the Audit Letter Communicating Control Deficiencies in Internal Control over Financial Reporting and Operational Matters Certain Written Communications Between Management and Our Firm Audit adjustments proposed by us and recorded by the School are shown on the attached Summary of Recorded Audit Adjustments. There were no uncorrected misstatements identified during the audit. We encountered no disagreements with management over the application of significant accounting principles, the basis for management s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. We are not aware of any consultations management had with other accountants about accounting or auditing matters. No significant issues arising from the audit were discussed with or the subject of correspondence with management. We did not encounter any significant difficulties in dealing with management during the audit. We have separately communicated the deficiencies in internal control over financial reporting identified during our audit of the financial statements, and this communication is attached as Exhibit A. Copies of certain written communications between our firm and the management of the School are attached as Exhibit B. Page 4

6 Aloma D. Johnson Charter School Summary of Significant Accounting Estimates Year Ended June 30, 2014 Accounting estimates are an integral part of the preparation of financial statements and are based upon management s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the School s June 30, 2014 financial statements. Area Accounting Policy Management s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Functional Allocation of Expenses The School allocates expenses between program services and supporting services. Management reviews the expense allocations on an annual basis and adjusts allocations as needed. Allocations are based on the number of employees at year end. Management s process to evaluate the allocation of functional expenses appears reasonable. Accounts Receivable and Allowance for Doubtful Accounts The School considers the collectability of accounts receivable on an individual basis, and writes off uncollectible balances when all collection efforts have been exhausted. A provision for doubtful accounts is recorded based upon experience of delinquencies and write-offs, and current market conditions. The school reviews the collectability of its receivables periodically during the year and makes a determination as to the sufficiency of its allowance for doubtful accounts at year end. We have reviewed the School s estimate of its allowance for uncollectible accounts as of June 30, 2014 and have determined that the absence of an allowance appears reasonable. Land, Buildings, Equipment and Improvements, and Depreciation Depreciation is provided for on the basis of the lesser of the estimated useful life of the asset or the length of the lease terms, which range from one to ten years, on a straight-line basis. Management has been consistent in estimating the lives used for each class of asset. The methods and lives used to estimate depreciation appear proper for the year ended June 30, 2014 Page 5

7 Aloma D. Johnson Charter School Summary of Recorded Audit Adjustments Year Ended June 30, 2014 Number Date Name Account No Debit Credit Net Income (Loss) Net Income (Loss) Before Adjustments 584, /30/2014 Unrestricted Net Assets 3100 (17,682.00) 1 06/30/2014 Race To The Top , /30/2014 Legal Fees , /30/2014 Consultants , /30/2014 Consultants , /30/2014 Hearing & Speech , /30/2014 Moving Expenses Main St 5276 (6,400.00) 1 06/30/2014 Other Costs 5599 (3,652.00) 1 06/30/2014 Other Costs , /30/2014 Health Insurance , /30/2014 TRS/403B , /30/2014 Office Supplies /30/2014 Lease - Copier 7070 (10,615.00) 1 06/30/2014 Lease - Copier , /30/2014 Instructional Mat/Test /30/2014 Computers & Software 7135 (19,292.00) To properly rollforward net asset balance at 6/30/14. 57, (57,641.00) 566, /30/2014 Leasehold Improvements , /30/2014 Accounts Payable 2000 (45,000.00) To properly capitalize full amount of elevator improvements. 45, (45,000.00) 566, /30/2014 Accounts Payable 2000 (4,693.00) 3 06/30/2014 Legal Fees , To adjust for legal fees pertaining to June 2014 services, but not recorded at year end 4, (4,693.00) 562, Page 6

8 4 06/30/2014 NYS Retirement Teacher W/H 2160 (1,024.00) 4 06/30/2014 Accrued Pension 2185 (76,618.00) 4 06/30/2014 TRS/403B , To accrue for the TRS expense based on estimated bill 77, (77,642.00) 484, /30/2014 PTO Income 4315 (10,547.00) 5 06/30/2014 Other Costs , /30/2014 PTO Activities , To adjust PTO activity 10, (10,547.00) 482, /30/2014 Accrued Expenses , /30/2014 Rent/Lease 8010 (2,132.00) To adjust accrued account. 2, (2,132.00) 484, , (197,655.00) 484,361.00) Page 7

9 Exhibit A Letter Communicating Control Deficiencies in Internal Control over Financial Reporting and Operational Matters To the Board of Directors of Aloma D. Johnson Charter School In planning and performing our audit of the financial statements of Aloma D. Johnson Charter School (the "School") as of and for the year ended June 30, 2014, in accordance with auditing standards generally accepted in the United States of America, we considered the School s internal control over financial reporting (internal control) as a basis for designing 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 School's internal control. Accordingly, we do not express an opinion on the effectiveness of the School'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 deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. A material weakness is a deficiency, or a combination of deficiencies in internal controls, such that there is a reasonable possibility that a material misstatement of the District 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. Following are descriptions of other control deficiencies and other matters that we do not believe constitute significant deficiencies or material weaknesses. Financial Close Process and Control Environment Observation: Among other critical data, management of the School prepares timely informative monthly financial statements and comparative statistics for use by the Board. As part of the audit process, we identify and recommend various audit adjustments required to ensure the financial statements are fairly stated in conformity with generally accepted accounting principles in the United States of America. We are aware that a formal accounting and procedure manual has been established and the School has continued to improve its conformity and implementation of the appropriate accounting procedures. Due to the limited number of employees in the accounting department, many critical duties are performed by one individual with oversight by the Financial Controller. Page 8

10 For example, when documenting our understanding of internal controls, evaluation of control design, and walkthroughs, we noted that the Business Manager performs much of the processing and reconciliation within the treasury function. This results in a lack of segregation of duties around the treasury cycle. While there are mitigating controls in place that are being performed in accordance with the School s procedures manual, such as review of bank reconciliations and journal entries, the review is not formally documented to help limit the risk of misappropriation or misstatement failing to be prevented or detected and corrected in a timely manner. Recommendation: While we aware that a finding of this nature is typical of Schools of your size and structure and that the Financial Controller has experience in financial reporting, we recommend management consider formally documenting the review process in place to ensure appropriate oversight is maintained. Key control areas the School should consider adding formal documented review procedures are as follows: Bank reconciliations and treasury cycle Journal entries Cash disbursements Payroll Cash receipts Payroll Observation: During our testing procedures, we noted multiple instances where employees selected for testing did not have signed I-9 forms maintained in their personnel files. This is due in part to these employees never being provided with an I-9 form to complete upon hiring. Recommendation: We recommend that the School implement a formal policy for the hiring of new employees to ensure that all necessary documentation is completed and maintained in each employee s personnel file. A checklist may be useful in this process. This communication is intended solely for the information and use of management, the Board of Trustees, management and others within the School and is not intended to be, and should not be, used by anyone other than these specified parties. Buffalo, New York October 20, 2014

11 Exhibit B - Material Written Communications Between Management and Our Firm Representation Letter see attached Page 10

12 Aloma D. Johnson Charter School 15 Jewett Parkway Buffalo, New York October 17, 2014 Freed Maxick CPAs, P.C. 424 Main Street, Suite 800 Buffalo, NY Gentlemen: This representation letter is provided in connection with your audit of the financial statements of Aloma D. Johnson Charter School which comprise the statement of financial position as of June 30, 2014 and the related statements of activities and changes in net assets, functional expenses and cash flows for the years then ended, and the related notes to the financial statements, for the purpose of expressing an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States (U.S. GAAP). We confirm, to the best of our knowledge and belief that as of the auditor s report date: Financial Statements 1. We have fulfilled our responsibilities, as set out in the terms of the audit arrangement letter dated June 9, 2014, for the preparation and fair presentation of the financial statements referred to above in accordance with U.S. GAAP. 2. We acknowledge our responsibility for 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. 3. We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud. 4. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable and reflect our judgment based on our knowledge and experience about past and current events and our assumptions about conditions we expect to exist and courses of action we expect to take. 5. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP. 6. All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. 7. The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with U.S. GAAP. 8. We have no knowledge of any uncorrected misstatements in the financial statements.

13 Page 2 Information Provided 9. We have provided you with: a. Access to all information, of which we are aware that is relevant to the preparation and fair presentation of the financial statements such as records, documentation, and other matters. b. Additional information that you have requested from us for the purpose of the audit. c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. d. Minutes of the meetings of stockholders, directors and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared. 10. All transactions have been recorded in the accounting records and are reflected in the financial statements. 11. We have disclosed to you the results of our assessment of risk that the financial statements may be materially misstated as a result of fraud. 12. We have no knowledge of allegations of fraud or suspected fraud, affecting the entity s financial statements involving: a. Management. b. Employees who have significant roles in the internal control. c. Others where the fraud could have a material effect on the financial statements. 13. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity s financial statements received in communications from employees, former employees, analysts, regulators, short sellers, or others. 14. We have no knowledge of noncompliance or suspected noncompliance with laws and regulations whose effects should be considered when preparing financial statements. 15. We are not aware of any pending or threatened litigation and claims whose effects should be considered when preparing the financial statements. 16. We have disclosed to you the identity of the entity s related parties and all the related-party relationships and transactions of which we are aware. 17. We are aware of no significant deficiencies, including material weaknesses, in the design or operation of internal controls that could adversely affect the entity's ability to record, process, summarize, and report financial data. 18. We are aware of no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices. Compliance Considerations In connection with your audit, conducted in accordance with Government Auditing Standards, we confirm: 1. Is responsible for compliance with the laws, regulations, and provisions of contracts and grant agreements applicable to the auditee. 2. Has identified and disclosed to the auditor all instances that have occurred or are likely to have occurred, of fraud and noncompliance with provisions of laws and regulations that have a material effect on the financial statements or other financial data significant to the audit objectives, and any other instances that warrant the attention of those charged with governance.

14 Page 3 3. Has identified and disclosed to the auditor all instances that have occurred or are likely to have occurred, of noncompliance with provisions of contracts and grant agreements that have a material effect on the determination of financial statement amounts or other financial data significant to the audit objectives. 4. Has identified and disclosed to the auditor all instances that have occurred, or are likely to have occurred of abuse that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives. 5. Has a process to track the status of audit findings and recommendations. 6. Has identified for the auditor previous audits, attestation engagements, and other studies related to the audit objectives and whether related recommendations have been implemented. 7. Has provided views on the auditor s reported findings, conclusions, and recommendations as well as management s planned corrective actions for the report. 8. Acknowledges its responsibilities as it relates to nonaudit services performed by the auditor, and assumes all management responsibilities. Kenneth Kruly, Financial Controller, who possesses suitable skill, knowledge, or experience; has evaluated the adequacy and results of the services performed; and accepts responsibility for the results of the services. *We reaffirm the representations made to you in our letter dated October 21, 2013 related to the financial statements as of and for the year ended June 30, 2013 and to the best of our knowledge and belief, no events have occurred subsequent to October 21, 2013 that would require adjustment to, or disclosure in, the aforementioned financial statements. Aloma D. Johnson Charter School Jerry L. Linder, President Kenneth C. Kruly Kenneth C. Kruly, Financial Controller