B44936 STATE OF INDIANA AN EQUAL OPPORTUNITY EMPLOYER STATE BOARD OF ACCOUNTS 302 WEST WASHINGTON STREET ROOM E418 INDIANAPOLIS, INDIANA 46204-2769 Telephone: (317) 232-2513 Fax: (317) 232-4711 Web Site: www.in.gov/sboa March 18, 2015 Charter School Board Business Consulting, Inc. dba Indiana Virtual School th 510 E. 96 Street Indianapolis, IN 46240 We have reviewed the Financial Statements and Independent Auditors' Report prepared by Charles Madden, PC, Independent Public Accountants, for the period July 1, 2011 to June 30, 2013. In our opinion, the audit report was prepared in accordance with the guidelines established by the State Board of Accounts. Per the Independent Public Accountants' opinion, the financial statements included in the report present fairly the financial condition of the Business Consulting, Inc. dba Indiana Virtual School, as of June 30, 2012 and 2013, and the results of its operations for the period then ended, on the basis of accounting described in the report. In addition to the report presented herein, a Supplemental Audit Report for Business Consulting, Inc. dba Indiana Virtual School was prepared in accordance with the guidelines established by the State Board of Accounts. The Financial Statements and Independent Auditors' Report and the Supplemental Audit Report are filed in our office as a matter of public record. Paul D. Joyce, CPA State Examiner BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL INDIANAPOLIS, INDIANA AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL INDIANAPOLIS, INDIANA INDEX Page AUDITED FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT EXHIBIT A: EXHIBIT B: EXHIBIT C: Statements of financial position as of June 30, 2013 and 2012 4 Statements of activities for the fiscal years ended June 30, 2013 and 2012 5 Statements of cash flows for the fiscal years ended June 30, 2013 and 2012 6 NOTES TO THE FINANCIAL STATEMENTS OTHER REPORTS 3 7-11 12 INDEPENDENT AUDITOR'S REPORT Business Consulting Inc. dba Indiana Virtual School 2206 E. 96th St. Indianapolis, IN 46240 We have audited the accompanying financial statements of Business Consulting Inc. dba Indiana Virtual School (a Not-for-Profit Corporation), which comprise the statements of financial position as of June 30, 2013 and 2012 and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes 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. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Business Consulting Inc. dba Indiana Virtual School as of June 30, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Respectfully submitted, January 22, 2015 850 Fort Wayne Ave Indianapolis, IN 46204 Telephone 317-266-0480 Facsimile 317-639-5583 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL EXHIBIT A INDIANAPOLIS, INDIANA STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, 2013 AND 2012 2013 2012 ASSETS Current Assets: Cash and cash equivalents Accounts receivable (Notes 1 and 2) Total – Current Assets Property and Equipment (Note 1): Office equipment Office furniture Less: Accumulated depreciation $ 79 0 $ 2,956 16,853 $ 79 $ 19,809 $ 18,475 8,992 (9,959) $ 18,475 8,992 (4,980) Total – Net Property and Equipment $ 17,508 $ 22,487 Total – Assets $ 17,587 $ 42,296 $ 260,593 14,980 0 $ 83,816 14,980 0 $ 275,573 $ 98,796 $ 0 $ 0 $ 275,573 $ 98,796 $ (257,986) $ (56,500) $ $ LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable Tuition reserve (Note 5) Accrued interest (Note 3) Total – Current Liabilities Long-term liabilities: Long-term debt (Note 3) Total – Liabilities Net Assets: Unrestricted net assets (deficiency) Total – Liabilities and Net Assets The Accompanying Notes are an integral part of these Financial Statements. Page 4 17,587 42,296 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL EXHIBIT B INDIANAPOLIS, INDIANA STATEMENT OF ACTIVITIES FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012 2013 REVENUES State education support Contributions Total – Revenues and Other Support 2012 $ 298,095 78,550 $ 376,645 $ 21,255 94,989 $ 116,244 $ 372,767 53,818 $ 426,585 $ 129,844 70,381 $ 200,225 EXPENSES Educational instruction Management and general Total – Expenses Change in net assets before non-operating expense (49,940) (83,981) NON-OPERATING EXPENSE Loss due to changes in legislative funding (Note 9) $ (151,546) $ Change in Net Assets Net assets – beginning of year Net assets (deficiency) – end of year $ (201,486) (56,500) $ (257,986) $ (83,981) 27,481 $ (56,500) The Accompanying Notes are an integral part of these Financial Statements. Page 5 0 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL EXHIBIT C INDIANAPOLIS, INDIANA STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012 CASH (USED IN) FROM OPERATING ACTIVITIES: (Deficiency) in net assets Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation expense Decrease (increase) in accounts receivable Increase in accounts payable and accrued expenses Increase in tuition reserve Total Adjustments 2013 2012 $ (201,486) $ (83,981) $ 4,980 16,853 176,776 0 $ 4,980 (16,853) 83,816 14,980 $ 198,609 $ 86,923 Cash (used in) from operating activities (2,877) 2,942 CASH-Beginning of Year $ 2,956 $ 14 CASH-End of Year $ 79 $ 2,956 The Accompanying Notes are an integral part of these Financial Statements. Page 6 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL INDIANAPOLIS, INDIANA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 AND 2012 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General Business Consulting, Inc. dba Indiana Virtual School (“the School”) is a public benefit not-for-profit organization incorporated under the laws of the State of Indiana. The School operates a public charter school established under Indiana Code 20-24 and is sponsored by Daleville Community Schools. The School commenced operations with the 2011-2012 school year. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Revenue Recognition Revenues generally come from resources provided under the Indiana Charter Schools Act. Under the Act, the School receives an amount per student in relation to the funding received by public schools in the same geographic area. Funding from the State of Indiana is based on enrollment, and paid in equal monthly installments from January through December following the start of the school year. Revenue is recognized in the school year in which educational services are rendered. Cash and Cash Equivalents The School considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Accounts Receivable Accounts receivable relate primarily to activities funded under federal grants and legislation enacted by the State of Indiana. The School believes that it is operating in compliance with regulatory requirements and as such no allowance for doubtful accounts is deemed necessary. Taxes on Income The School has received a determination letter from the U.S. Treasury Department stating that it qualifies under the provisions of Section 501(c)(3) of the Internal Revenue Code as a tax-exempt organization; however, the School would be subject Page 7 to tax on income unrelated to its tax exempt purpose. For the years ended June 30, 2013 and 2012, no accounting for federal and state income taxes was required to be included in the accompanying financial statements. Professional accounting standards require the School to recognize a tax liability only if it is more likely than not the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax liability that is greater than 50% likely of being realized on examination. For tax positions not meeting the more-likely-thannot test, no tax liability is recorded. The School has examined the issue and has determined that there are no material contingent tax liabilities or questionable tax positions. The tax years ending June 30, 2013 and June 30, 2012 are open to audit for both federal and state purposes. Property and Equipment Purchases of assets and expenditures that materially increase value or extend useful lives are capitalized and are included in the accounts at cost. Routine maintenance and repairs, minor replacement costs, and equipment purchases with a unit cost of less than $100 are charged to expense as incurred. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method. The estimated useful lives generally are as follows: Furniture and equipment NOTE 2: 3 to 7 years ACCOUNTS RECEIVABLE: Accounts receivable from the State of Indiana for education support reflect the following amounts as of June 30, 2013 and 2012. 2013 Tuition support $ 2012 0 $ 16,853 Tuition support is determined by state law and is dependent upon the geographic location of the School and is indexed to poverty data of the enrolled students. The payment schedule is likewise determined by the state law with tuition payable in equal monthly installments by the State of Indiana in the calendar year following the start of the school year. Upon revocation or termination of the charter, the payment streams will cease and any unpaid amounts will be applied to the unpaid balance of loans from the Indiana Common School Fund (see Note 3). On June 26, 2013 the State of Indiana eliminated its funding due the School as part of its Legislative Funding Changes (See Note 9). NOTE 3: LONG-TERM DEBT: Long-term debt at June 30, 2013 consisted of a note payable to the Indiana Common School Fund. The note required semi-annual payments of principal and interest over a period of 20 years with interest at 4% per annum. In 2011, the Indiana Common School Fund granted a two-year moratorium on loan and interest payments. On June 26, 2013 the School was informed that this loan was forgiven and the School’s loan balance was $0. The note was secured by unpaid tuition support distributions (See Notes 2 and 9). Page 8 NOTE 4: RELATED PARTY: The School is related to AlphaCom, Inc. in that they have a common board member. AlphaCom, Inc. provides management services to the School under contract. During fiscal years ended June 30, 2013 and 2012, AlphaCom, Inc. charged the School a total of $284,486 and $117,919, respectively (see Note 8). At June 30, 2013 and 2012 the School owed AlphaCom, Inc. $214,686 and $62,900, respectively. Currently, the School is operating out of a building owned by a board member and the School is not paying rent to the owner. The fair value of rent for the building is approximately $1,500 per month and is being recorded as a donation to the School and as rent expense. NOTE 5: TUITION RESERVE: The School booked a tuition reserve liability to reflect the possible repayment of student tuition to the state of Indiana. The school could not locate four (4) student enrollment folders as proof of enrollment in the 2011-2012 school year. Thus, the following calculation was completed to determine the amount of the reserve: NOTE 6: Total tuition assistance for 2011-2012 school year Divided by total ADM claimed $ 33,705 9 Tuition assistance per student Multiplied by number of missing folders $ 3,745 4 Tuition reserve liability $ 14,980 COMMITMENTS: The School operates under a charter granted by Daleville Community Schools. As the sponsoring organization, Daleville Community Schools exercises certain oversight responsibilities. The charter remains in effect until July 2015, and is renewable thereafter by mutual consent. NOTE 7: RISKS AND UNCERTAINTIES: The School provides educational instruction services to families residing in Indiana and is subject to the risks of economic and competitive forces at work within this geographic area. The majority of revenues relate to legislation enacted by the State of Indiana and one-time gifts and contributions. Changes in state or federal legislation could significantly affect the School. Additionally, the School is subject to monitoring and audit by state and federal agencies. Those examinations may result in additional liabilities to be imposed on the School. Financial instruments that potentially subject the School to concentrations of credit risk consist principally of receivables from the State of Indiana. At June 30, 2012, all of the receivable balance was due from the State of Indiana. Page 9 NOTE 8: FUNCTIONAL EXPENSE REPORTING: The costs of providing educational activities have been summarized on a functional basis in the statement of activities. Accordingly, certain expenses have been allocated between program and administrative services. Following is a summary of expenses comprising each program and service for the years ended June 30, 2013 and 2012. June 30, 2013 Management fees Professional fees Professional fees – legal Professional fees – accounting Teacher pay Online courses Website design Insurance Interest expense Rent expense Utilities Charter authorization fee Repairs Depreciation expense Supplies and other Educational Instruction $ 284,986 36,680 Management and General $ 14,400 2,000 41,101 10,000 $ 372,767 $ 9,761 171 1,472 18,000 324 1,067 350 4,980 1,293 53,818 June 30, 2012 Management fees Professional fees Professional fees – legal Teacher pay Website design Insurance Rent expense Dues & subscriptions Utilities Depreciation expense Supplies and other NOTE 9: Educational Instruction $ 117,919 5,200 Management and General $ 14,228 6,725 $ 129,844 $ 17,098 10,461 18,000 800 512 4,980 4,302 70,381 LEGISLATIVE FUNDING CHANGES: In 2013, the Indiana legislature passed amendments to the Indiana Charter Schools Act that altered the manner in which charter schools are funded. Prior to enactment, charter schools received funding in monthly installments in the calendar year following the start of the academic school year. As such, the School followed Page 10 the practice of recognizing at June 30 of each year a receivable for payments to be made to the School in the subsequent January through June time period, which represented amounts due for services rendered. Effective July 1, 2013, charter school funding will be paid following the State of Indiana fiscal year of July to June, which is similar to the School’s academic year. As part of this legislative amendment, the funding owed to the school under prior legislation for the period July to December 2013 was suspended. In the same session, the Indiana legislature appropriated funding from the Indiana General Fund to repay Indiana Common School Fund loans accrued interest outstanding as of June 30, 2013 on behalf of charter schools. The School has applied for and received repayment of its indebtedness under these obligations as of June 26, 2013. The effect of these legislative amendments has been reflected in the accompanying statements of activities, as a loss due to changes in legislative funding and is comprised of the following: NOTE 10: Repayment of Common School Fund loan Repayment of accrued interest on Common School Fund loan $ 64,271 1,472 Total Repayment Suspension of school funding 65,743 $ (217,289) Loss due to changes in legislative funding $ (151,546) SUBSEQUENT EVENTS: The School evaluated subsequent events through January 22, 2015, the date these financial statements were available to be issued. Events occurring through that date have been evaluated to determine whether a change in the financial statements or related disclosures would be required. Page 11 BUSINESS CONSULTING, INC. dba INDIANA VIRTUAL SCHOOL INDIANAPOLIS, INDIANA OTHER REPORTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012 The report presented herein was prepared in addition to another official report prepared for the School as listed below: Supplemental Audit Report of Business Consulting, Inc. dba Indiana Virtual School The Supplemental Audit Report contains the results of compliance testing required by the Indiana State Board of Accounts under its Guidelines for the Audits of Charter Schools Performed by Private Examiners pertaining to matters addressed in its Accounting and Uniform Compliance Guidelines Manual for Indiana Charter Schools. Page 12