new designs charter school (a california not … of unaudited actuals to audited ... the school was...

NEW DESIGNS CHARTER SCHOOL

(A California Not-jor-Profit Corporation)

AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED

JUNE 30,2012

(Revised 1212812012)


TABLE OF CONTENTS

Independent auditor's report

Statement of financial position

Statement of activities

Statement of cash flows

Notes to financial statements

SUPPLEMENTARY INFORMATION:

Local educational agency organization structure

Schedule of average daily attendance

Schedule of instructional time

SUPPLEMENTARY INFORMATION REQUIRED BY GOVERNMENT AUDITING STANDARDS:

Independent auditor's report on internal control over financial reporting and on compliance and other matters based on an audit of financial

3

5

6

7

8

13

14

14

statements performed in accordance with Government Auditing Standards 16

Independent auditor's report on state compliance 18

Schedule of findings and questioned costs 21

Reconciliation of unaudited actuals to audited financial statements 22

2

Partners

HILL, MORGAN AND ASSOCIATES! LLP Certified Public Accountants

19602 Fariman Drive Carson, CA 90746 Phone (310) 749-1014 Fax (310) 639-0498 9031 Krueger Street, Culver City, CA 90232 Phone (323) 377-4385 Fax (310) 836-5727

Jeffrey Hill, CPA Raymond Morgan, CPA

To the Board of Directors of New Designs Charter School Los Angeles, California

INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying statement of financial position of New Designs Charter School (A California not-for-profit corporation) as of June 30, 2012, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of New Designs Charter School'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; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States and the Education Audit Appeals Panel's Standards and Procedures for Audits of California K-12 Local Educational Agencies. 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 New Designs Charter School as of June 30, 2011, 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.

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In accordance with Government Auditing Standards, we have also issued our report dated December 11, 2012 on our consideration of New Designs Charter School's internal control over financial reporting and 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 should be read considered in assessing the results of our audit.

Our audit was conducted for the purpose of forming an opInIon on the financial statements of New Designs Charter School taken as a whole. The supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. The supplementary 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.

Carson, California December 11, 2012

4

NEW DESIGNS CHARTER SCHOOL STATEMENT OF FINANCIAL POSITION

At June 30,2012

ASSETS CURRENT ASSETS:

Cash and cash equivalents Accounts receivable Intercompany receivable (Note 2) Prepaid expense

Total current assets

PROPERTY AND EQUIPMENT: Furniture Equipment Building Building improvements

Accumulated depreciation

Net property and equipment

OTHER ASSETS: Building deposits Other deposits

Total other assets

Total assets

LIABILITIES AND NET ASSETS CURRENT LIABILITIES:

Accounts payable-operations Payroll liabilities Due to teachers Loans payable-current portion (Note 3)

Total current liabilities

LONG-TERM LIABILITIES: Loans payable-net of current portion (Note 3)

Total long-term liabilities

Total liabilities

NET ASSETS: Unrestricted

Total net assets

Total liabilities and net assets

$ 475,160

$

2,497,300 469,282

15,503

3,457,246

103,092 235,157

1,700,000 1,379,007 3,417,256

(1,048,936)

2,368,320

1,130,000 9,626

1,139,626

6,965,192

$ 755,792

$

268,566 24,588

1,948,880

2,997,826

1,482,749

1,482,749

4,480,574

2,484,617

2,484,617

6,965,192

The accompanying notes are an integral part of these financial statements. 5

NEW DESIGNS CHARTER SCHOOL STATEMENT OF ACTIVITIES For the year ended June 30, 2012

CHANGES IN UNRESTRICTED NET ASSETS: REVENUES:

Federal income State income Local income

Total revenues

EXPENSES: Certificated salaries Classified salaries Fringe benefits Books and supplies Services and other operating expenses Depreciation Food services Leases District oversight fees Interest expense

Total expenses

Increase in net assets

Net assets, beginning of the year

Net assets, end of the year

$

$

1,268,357 4,987,022 1,028,041

7,283,421

2,107,238 548,430 699,833 214,629

1,302,135 198,035 885,401 701,350

42,060 247,656

6,946,767

336,654

2,147,963

2,484,617


NEW DESIGNS CHARTER SCHOOL STATEMENT OF CASH FLOWS For the year ended June 30, 2012

Cash flows from operating activities: Increase in net assets $ 336,654 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 198,035

Changes in operating assets and liabilities: (Increase) decrease in assets:

Accounts receivable (913,316) Due from New Designs Watts (86,293) Prepaid expenses 78,608

Increase (decrease) in liabilities: Accounts payable-operations 36,682 Payroll liabilities 190,778 Due to teachers 54

Net cash used in operating activities (158,799)

Cash flows from investing activities: Cash paid for property and equipment (107,676) Cash paid for deposits (110,000)

Net cash used in investing activities (217,676)

Cash flows from financing activities: Loan proceeds 420,640

Net cash provided by financing activities 420,640

Net increase in cash 44,165

Cash and cash equivalents, beginning of the year 430,995

Cash and cash equivalents, end of the year $ 475,160

SUPPLEMENTAL INFORMATION: Cash paid for interest expense $ 247,656



NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS New Designs Charter School (a California not-for-profit corporation) is a charter school located in Los Angeles, California that provides educational activities for grades sixth through twelve. The School was created under the approval of the Los Angeles Unified School District and the California State Board of Education, and receives public per-pupil funding to help support their operation. New Designs Charter School is economically dependent on Federal and State funding.

FINANCIAL STATEMENT PRESENTATION The accompanying financial statements are prepared on the accrual basis in accordance with the AICPA's Audit and Accounting Guide, "Not-for-Profit Organizations."

ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of management estimates and assumptions that could affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

CASH AND CASH EOUIV ALENTS F or the purpose of the Statement of Cash Flows, Center for Advanced considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents.

INCOME TAXES New Designs Charter School is a not-for-profit corporation that is exempt from Federal and State income taxes under the Internal Revenue Code Section 501(c) (3) and the California State Revenue and Taxation Code 2370 1 (d).

NOTE 2 - INTERCOMPANY RECEIVABLE/RELATED PARTY TRANSACTION

The intercompany activity results from transactions between the School and New Designs Watts, a related party. The outstanding intercompany balance will be settled when excess cash is available. The Schools are related because they have the same board of directors and share management personnel.

These notes are an integral part of the preceding financial statements.

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NOTE 3 - LOANS PAYABLE

Description Amount A $300,000 variable interest rate line of credit from a local banle The terms of the line require monthly principal and interest payments over a 44 month period beginning on September 1, 2008. $ 200,435

A $50,000 loan from the CEO. The loan is non-interest bearing and is due and payable when excess funds become available.

A cash advance that is secured by per-pupil revenue projections for fiscal year 2011-2012. The advance was received from a private company and is payable over the next fiscal year from revenue generated from student attendance. The interest rate charged is approximately 15%.

A secured loan payable dated March 10, 2008 to a regional bank. The loan bears interest at a variable rate of the five year FHLB rate plus 4%-(7.98% as of 6/30/2011). The repayment terms require monthly principal and interest payments over a twentyfive year period. The loan is secured by the building located at 3906-3908-3912 W. Slauson Avenue.

A secured second trust deed loan payable dated April 7, 2008 to a regional bank. The loan bears interest at a variable rate based on a 10 year U.S. Treasury rate plus 4.56%-(6.00% as of 6/30/2011). The repayment terms require interest only payments until September 2011. Thereafter principal and interest payments are due until the loan maturity date which is November 8, 2013. The loan is secured by the building located at 3906-3908-3912 W. Slauson Avenue.

10,000

1,676,043

885,474

631,836


9



NOTE 3 - LOANS PAYABLE-(continuedJ

Description

An unsecured promissory note payable to a construction company dated March 14, 2008. The note bears interest at a rate of 7%. The repayment terms require monthly principal and interest payments.

Total notes payable Less: current portion

Total long-term portion

Amount

27,840

3,431,629 (l,948,880)

$ ___ 1_,4_8-=-2':;,...74_9""""

The future minimum principal maturity on these loans is as follows:

Year ended June 30, Amount

2013 2014 2015 2016 2017

Thereafter

Total

$ 1,948,880 632,371

19,924 21,573 23,359

785,222

$ 3,431,629


10



NOTE 4 - LEASE COMMITMENTS

New Designs Charter School has an operating lease agreement for the rental of its administrative office and educational facilities located in Los Angeles, California. This lease agreement commenced on June 1, 2012 and has a term of five years with a purchase option at the conclusion of the lease. Rent expense for all facilities was $763,912 for the year ended June 30, 2012.

The future minimum annual payments for non-cancelable lease agreements as of June 30, 2012 are as follows:

Year ended June 30, Amount

2013 $ 802,228 2014 842,340 2015 884,457 2016 928,680 2017 975,114

Thereafter -0-

Total $ 4,432,819


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SUPPLEMENTARY INFORMATION SECTION

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SUPPLEMENTARY INFORMATION

LOCAL EDUCATIONAL AGENCY ORGANIZATION STRUCTURE

Name of School Sponsoring District Original date of charter Charter expiration date

Member

Andrea Cockrum Sheldon Zaslansky Whitney Walters Kojoe Essien Lloyd Mckinney Yaw Adutwum

New Designs Charter School LAUSD 10/23/2003 613012014

GOVERNING BOARD

President Treasurer Member Member

Vice President CEO

MANAGEMENT TEAM

Dr. Yaw Adutwum, CEO Stephen Gyesaw, Principal

Paul Okaiteye, Director of Business Services Warren Sata, Director of School Operations

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Term Expires

6/30/2013 6/30/2013 6/30/2013 6/30/2013 6/30/2013 6/30/2013


SUPPLEMENTARY INFORMATION

SCHEDULE OF AVERAGE DAILY ATTENDANCE

Elementary Grades four to six-classroom based Grades seven and eight-classroom based

High School Grades nine to twelve-classroom based

Total

Annual ADA

141.39 213.38

286.18

640.95

Second Period ADA

145.46 215.97

290.17

651.60

The above schedule of average daily attendance is a measurement of the number of pupils attending classes of the School. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to charter schools. This schedule provides information regarding the attendance of students at various grade levels.

SCHEDULE OF INSTRUCTIONAL TIME

Minute Actual Number Grade level reguirement minutes ofda~s Status

Grade 4 50,297 64,068 179 Complied Grade 5 50,297 64,068 179 Complied Grade 6 50,297 64,068 179 Complied Grade 7 50,297 64,068 179 Complied Grade 8 50,297 64,068 179 Complied Grade 9 60,357 64,068 179 Complied Grade 10 60,357 64,068 179 Complied Grade 11 60,357 64,068 179 Complied Grade 12 60,357 64,068 179 Complied

The above schedule presents information on the amount of instructional time offered by the School and whether the School complied with the provisions of Education Code Sections 46200 through 46206.

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SUPPLEMENTARY INFORMATION SECTION REQUIRED BY GOVERNMENT AUDITING STANDARDS

15

Partners

HILL, MORGAN AND ASSOCIATES! LL. Certified Public Accountants

19602 FarimanDrive Carson.CA90746 Phone (310) 749-1014 Fax (310) 639-0498 9031 Krueger Street. Culver City. CA 90232 Phone (323) 377-4385 Fax (310) 836-5727

Jeffrey Hill. CPA Raymond Morgan. CPA

To the Board of Directors of New Designs Charter School Los Angeles, California

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

We have audited the financial statements of New Designs Charter School (a California not-forprofit corporation) as of and for the year ended June 30, 2012 and have issued our report thereon dated December 11, 2012. 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.

Internal Control Over Financial Reporting In planning and performing our audit, we considered New Designs Charter School's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of New Designs Charter School's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of New Designs Charter School's internal control over financial reporting.

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 combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

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Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

Compliance and Other Matters As part of obtaining reasonable assurance about whether New Designs Charter School's financial statements are free of 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 ~tandards.

This report is intended solely for the information and use of New Designs Charter School's Board of Directors and management, the State Controller's Office, and the Department of Education, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties.

~Jn) MToJ.~JW Carson, California December 11,2012

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HILL, MORGAN AND ASSOCIATES, LLP Certified Public Accountants

19602 Fariman Drive Carson,CA90746 Phone (310) 749-1014 Fax (310) 639-0498 9031 Krueger Street, Culver City, CA 90232 Phone (323) 377-4385 Fax (310) 836-5727

Partners Jeffrey Hill. CPA Raymond Morgan, CPA

To the Board of Directors of the New Designs Charter School Los Angeles, California

INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE

We have audited New Designs Charter School's compliance with the types of compliance requirements described in the Standards and Procedures for Audits of California K-12 Local Educational Agencies 2011-12, published by the Education Audit Appeals Panel, for the year ended June 30, 2012. The School's State programs are identified in the schedule below. Compliance with the requirements of laws, regulations, contracts, and grants is the responsibility of the School's management. Our responsibility is to express an opinion on New Designs Charter School's compliance based on our audit.

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 Standards and Procedures for Audits of California K-12 Local Educational Agencies 2011-12. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to below occurred. An audit includes examining, on a test basis, evidence about New Designs Charter School'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. Our audit does not provide a legal determination of the School's compliance with those requirements:

Attendance Accounting: Attendance reporting Teacher certification and misassignments Kindergarten continuance Independent study Continuation education

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Procedures in Audit Guide

6 3 3

23 10

Procedures performed

Not applicable Not applicable Not applicable Not applicable Not applicable

Instructional Time: School districts County offices of education

Instructional Materials: General requirements

Ratios of Administrative Employees to Teachers Classroom teacher salaries Early retirement incentive Gann limit calculation School accountability report card Public hearing requirements-receipt of funds Juvenile court schools Exclusion of pupils-Pertussis immunization Class Size Reduction Program (Including Charter School):

General requirements Option one classes Option two classes District or charter schools with only one school

Servicing K -3 After school education and safety program: (Including Charter Schools):

General requirements After school Before school

Charter Schools: Contemporaneous record of attendance Mode of instructions Non classroom-based instruction/independent study Determination of funding for non-classroom-based

instruction Annual instructional minutes-classroom based

19

Procedures in Procedures Audit Guide performed

6 Not applicable 3 Not applicable

8 Not applicable 1 Not applicable 1 Not applicable 4 Not applicable 1 Not applicable 3 Not applicable 1 Not applicable 8 Not applicable 2 Not applicable

7 Not applicable 3 Not applicable 4 Not applicable

4 Not applicable

4 Not applicable 5 Not applicable 6 Not applicable

3 Yes 1 Yes

15 Not applicable

3 Not applicable 4 Yes

In our opinion, New Designs Charter School complied, in all material respects, with the compliance requirements referred to on the previous page for the year ended June 30,2012.

This report is intended solely for the information and use of New Designs Charter School's Board of Directors and management, the State Controller's Office, and the Department of Education, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties.

Carson, California December 11,2012

20


SCHEDULE OF FINDINGS AND QUESTIONED COSTS

FINANCIAL STATEMENT FINDINGS

None noted.

STATE AWARDS FINDINGS AND QUESTIONED COSTS

None noted.

STATUS OF PRIOR YEAR FINDINGS

There were no prior year findings noted

21

NEW DESIGNS CHARTER SCHOOL Schedule to Reconcile the Unaudited Actuals Report With the Audited Financial Statements

For the year ended June 30, 2012

June 30, 2012 unaudited actual report of net assets

RESTATEMENTS: None

AUDIT ADJUSTMENTS: Increase (decrease) in net assets: Cash Accounts receivable Intercompany receivable Prepaid Other current assets Buildings and building improvements Accumulated depreciation Building deposit Accounts payable Accrued liabilities Loan payables

Net adjustments

June 30, 2012 Audited actual report of net assets

$ 2,167,570

$ (107,031) 780,834 469,282

15,503 (1,437,028)

15,450 (28,035)

1,139,626 112,867

(293,154) (351,267)

317,047

$ 2,484,617

new designs charter school (a california not … of unaudited actuals to audited ... the school was...

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