AUDIT REPORT FOR THE YEAR ENDED DECEMBER 31, 2017
Leave No Veteran Behind, Inc. Audit Report For the Year Ended December 31, 2017 Table of Contents
Independent Auditor's Report
1-2
Financial Statements: Statement of Financial Position
3
Statement of Activities
4
Statement of Functional Expenses Statement of Cash Flows Notes to the Financial Statements
5-6 7 8 - 12
INDEPENDENT AUDITOR’S REPORT
Board of Directors Leave No Veteran Behind, Inc. Chicago, Illinois
We have audited the accompanying financial statements of Leave No Veteran Behind, Inc., which comprise the statement of financial position as of December 31, 2017, and the related statements of activities, functional expenses and cash flows for the year 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 audit. We conducted our audit 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 Leave No Veteran Behind, Inc. as of December 31, 2017, and the changes in its net assets and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis-of-Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has an unrestricted net deficit balance of $150,009 at December 31, 2017, and has stated that substantial doubt exists about the Organization’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Prior Period Financial Statements The financial statements for Leave No Veteran Behind, Inc. as of and for the year ended December 31, 2016, were audited by other auditors, whose report dated February 13, 2019, expressed an unmodified opinion on those statements.
September 18, 2019
-2-
Leave No Veteran Behind, Inc. Statement of Financial Position December 31,
2017
2016
Assets Cash Accounts receivable Due from employees
$
Total current assets Computer equipment, net Total assets
17,442 64,063 316,686
$
16,162 69,037 191,240
398,191
276,439
-
1,564
$
398,191
$
278,003
$
422,200 17,500 3,500
$
263,188 15,000 -
Liabilities and Net Deficit Accrued liabilities Current portion of long-term debt Related party short-term advances Total current liabilities
443,200
278,188
Long-term debt, net of current portion
105,000
120,000
548,200
398,188
(150,009)
(120,185)
Total liabilities Net deficit: Unrestricted Total liabilities and net deficit
$
See accompanying notes and independent auditor's report. -3-
398,191
$
278,003
Leave No Veteran Behind, Inc. Statement of Activities December 31,
2017 Revenue: Contract services Corporate contributions Individual contributions Foundation contributions Event-generated contributions Interest income In-kind
$
Total revenues Expenses: Program services Administrative Fund-raising Total expenses Decrease in net deficit Net deficit, beginning of the year Net deficit, end of the year
$
See accompanying notes and independent auditor's report. -4-
673,100 36,125 27,374 252,155 1,972 5,676 15,000
2016
$
527,787 60,110 24,304 361,381 2,462 31,700
1,011,402
1,007,744
775,170 145,414 120,642
746,117 156,385 115,605
1,041,226
1,018,107
(29,824)
(10,363)
(120,185)
(109,822)
(150,009)
$
(120,185)
Leave No Veteran Behind, Inc. Statement of Functional Expenses For the Year Ended December 31, 2017
Program Services Officers' salaries Other salaries Veteran-provided services Payroll taxes and benefits Payroll processing fees Stipends Rent Insurance Telephone and internet services Professional fees Interest and bank charges Office supplies Travel and meals Auto expense Computer Other program expense Miscellaneous Depreciation Total expenses
Administrative
Fund-raising
$
85,000 106,475 473,042 12,225 37,934 9,018 129 13,360 5,114 13,954 18,919 -
$
42,500 53,238 924 3,533 4,200 19,833 9,492 3,501 5,990 78 385 176 1,564
$
42,500 53,238 6,113 158 17,962 204 467 -
$
775,170
$
145,414
$
120,642
See accompanying notes and independent auditor's report. -5-
Total $
170,000 212,951 473,042 19,262 3,533 37,934 4,200 9,018 20,120 9,492 3,501 13,360 29,066 14,236 385 18,919 643 1,564
$ 1,041,226
Leave No Veteran Behind, Inc. Statement of Functional Expenses For the Year Ended December 31, 2016
Program Services Officers' salaries Other salaries Veteran-provided services Payroll taxes and benefits Payroll processing fees Stipends Rent Insurance Telephone and internet services Professional fees Interest and bank charges Office supplies Travel and meals Auto expense Training Computer Other program expense Miscellaneous Depreciation Total expenses
Administrative
Fund-raising
$
93,501 93,230 379,515 27,691 4,145 21,886 4,200 43,824 15,283 4,313 9,529 15,063 1,079 6,220 25,521 640 477
$
34,000 23,308 3,118 1,036 5,471 18,375 57,483 1,849 335 10,108 462 360 275 205
$
42,500 2,729 15,821 14 16,781 489 37,271 -
$
746,117
$
156,385
$
115,605
See accompanying notes and independent auditor's report. -6-
Total $
170,001 116,538 379,515 30,809 5,181 27,357 4,200 43,824 36,387 73,304 6,162 9,878 41,952 2,030 6,220 360 25,521 38,186 682
$ 1,018,107
Leave No Veteran Behind, Inc. Statement of Cash Flows For the Year Ended December 31,
2017 Cash flows from operating activities: Change in net deficit Adjustments to reconcile change in net deficit to net cash from operating activities: Depreciation Change in assets and liabilities: (Increase) decrease in accounts receivables Increase in due from employees Decrease in accounts payable Increase in accrued liabilities
$
(29,824)
2016
$
1,564
(10,363)
682
4,974 (125,446) 159,012
(57,816) (123,223) (4,000) 203,294
Net cash from operating activities
10,280
8,574
Cash flows from financing activities: Proceeds (repayments) on short-term debt Payments on long-term debt
3,500 (12,500)
(7,472) (15,000)
Net cash from financing activities
(9,000)
(22,472)
Net change in cash
1,280
(13,898)
16,162
30,060
Cash, beginning of the year Cash, end of the year
$
17,442
$
16,162
Supplemental disclosures of cash flow information: Cash paid during the year for interest
$
940
$
1,660
See accompanying notes and independent auditor's report. -7-
Leave No Veteran Behind, Inc. Notes to the Financial Statements
1. Summary of Significant Accounting Policies Purpose – Leave No Veteran Behind, Inc. (Organization) is an Illinois not-for-profit corporation. The Organization provides educational and employment services to veterans who face economic hardship. Through its innovative educational debt relief scholarship, community service, employment training, and job placement programs, Leave No Veteran Behind, Inc. invests in heroes who have honorably served our Nation and seek to continue their service as productive citizens in their communities. Basis of Presentation – The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (hereafter referred to “U.S. GAAP”). In accordance with these principles, the Organization adheres to guidance provided by Accounting Standards Codification (ASC) No. 958-205. Under ASC 958-205, “Presentation of Financial Statements”, the Organization, if applicable, is required to report information regarding its financial position and activities according to three classes of net assets, namely unrestricted, temporarily restricted and permanently restricted. Support that is restricted by donors as being available only in future accounting periods, is reported as restricted support. Additionally, promises to give or pledges are recognized when the conditions of the promise or pledge have been substantially met by the Organization. Donorrestricted support whose restrictions are met in the same reporting period are reported as unrestricted support. During fiscal year 2017 and 2016, no amounts were pledged, received, earned, or released from restriction; hence for 2017 and 2016, the Organization has only unrestricted net assets. Revenue and Expense Recognition – The financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, all significant receivables, payables, and other liabilities have been reflected. Thus, revenue is recognized when earned and expenses are recognized when incurred. Support Recognition – Contributions, received or pledged, are recorded as unrestricted unless specifically restricted by the donor. All donor-restricted contributions are reported as an increase in temporarily restricted net assets and are transferred to unrestricted net assets as the restrictions are met. In-Kind Services – Contributions of donated services or use of facilities that create or enhance non-financial assets or that require specialized skills are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation, are recorded at their fair values in the period received. The value of in-kind services at December 31, 2017, was $15,000 consisting of $15,000 for audit and tax preparation services. The value of in-kind services at December 31, 2016, was $31,700 consisting of $27,500 for audit and tax preparation services, and $4,200 for in-kind rent.
-8-
Leave No Veteran Behind, Inc. Notes to the Financial Statements (cont’d)
1. Summary of Significant Accounting Policies (cont’d) Use of Estimates – The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, activities, and the related disclosures at the date of the financial statements and during the reporting period. Actual results may differ from those estimates Functional Expenses – The Organization allocates its expenses on a functional basis among its various programs. Expenses that can be identified with a specific program are allocated according to their natural expenditure classification. Other expenses that are common to several functions are allocated by various formulas. Accounts Receivable and Due From Employee – Accounts receivable represent amounts due from service contracts entered into with governmental agencies (not subject to OMB Circular A-133 audit requirements) and are stated at the unpaid balances, less any allowance for doubtful accounts. It is the Organization’s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. At December 31, 2017 and 2016, there was no balance in the allowance for doubtful accounts as the Organization determined the outstanding balance was fully collectible. With respect to amounts due from employees, amounts are considered fully collectible. Computer Equipment – Furniture and equipment is capitalized at cost. Depreciation has been provided on the straight-line method over a three-year estimated useful life. 2. Due from Employees At the end of 2015, the audited financial statements reflected employee advances of $68,017. By the end of 2016, those advances rose to $191,240. Upon review, Management and the Board realized that the two employees who were advanced the monies were entitled to deferred salary, in accordance with a Board action dating back to before 2015. To document this understanding, the Board drafted a “Retroactive Salary Agreement”, which was ratified in January 2019. The total of the advances at December 31, 2017, was $316,686. The agreement stipulates that the two employees in question were entitled to deferred compensation to be paid over time at the Board’s direction and discretion, as cash flow permitted. At December 31, 2017 and 2016, in conformity with the “Retroactive Salary Agreement”, the financial statements reflect accrued salaries aggregating $309,235 and $139,235, respectively. For financial statement presentation purposes, the receivable and related accrued liability have been reflected separately. If presented on a net basis, the employee advances net balance receivable at December 31, 2017 and 2016, would be $1,775 and $52,005, respectively. -9-
Leave No Veteran Behind, Inc. Notes to the Financial Statements (cont’d)
3. Computer Equipment 2016 Computer Equipment Accumulated Depreciation
$
$
2016
19,369 (19,369) -
$
19,369 (17,805)
$
1,564
Depreciation expense for the years ended December 31, 2017 and 2016 was $1,564 and $682. 4. Long-Term Debt The Organization has an unrestricted “program-related investment� loan from a local foundation. This is an interest free loan. As of December 31, 2017, and 2016, the outstanding balance was $122,500 and $135,000, respectively. According to the debt agreement, the principal is to be repaid in ten annual installments of $15,000 due on or before December 15 of each year commencing in 2015. The Organization did not make its first payment until December 2016, and did paid $12,500 in 2017, which is $2,500 less than the required payment under terms of the agreement. The Organization made a payment of $7,500 for the balance of the 2017 installment and the 2018 installment in June 2019. The Organization had a short-term small business revolving credit with an online lending platform. While the Organization drew down funds periodically in 2016 and 2017, there was no balance outstanding at December 31, 2017 and 2016. The applicable interest rate varies based on several factors agreed online prior to borrowing. At an effective interest rate of 7%, the interest payments for the years 2017 and 2016 were $940 and $1,660, respectively. 5. Related Party Short-Term Advances The Organization received a short-term advance from a Board member totaling $15,500 in November 2017 to assist with cash flow for payroll and repaid $12,000 prior to year-end. The outstanding balance of $3,500 at December 31, 2017, is reported as a related party shortterm advance. 6. Income Tax Status The Organization is incorporated as a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code, and is exempt from income taxes, except to the extent of any unrelated business income. There was no unrelated business income for the years ended December 31, 2017 or 2016. Accordingly, no provision for income tax is included in the financial statements. The Company has never been examined by the Internal Revenue Service. All years under the statute of limitations (2014-2016) are open for examination.
- 10 -
Leave No Veteran Behind, Inc. Notes to the Financial Statements (cont’d)
6. Income Tax Status (cont’d) In 2019, the Organization learned the Internal Revenue Service revoked their tax-exempt status due to misfiled tax returns. The Organization is working with legal counsel and its new auditing firm to address this issue. 7. Concentration of Risk – Accounts Receivable and Revenue In 2017 and 2016, the Organization received 59% and 43%, respectively, of its total revenue from a single governmental agency. Accounts receivable outstanding from this agency at the end of the years ended December 31, 2017 and 2016, respectively, were 100% and 54% of total accounts receivable. In 2016, a large donation from a single foundation contributed 25% of the total revenue. 8. Going Concern The financial statements have been prepared assuming that the Organization will continue as a going concern. As presented in the statement of financial position and the statement of activities, the Organization has reported a net deficit of $150,009 and $120,185 for the years ended December 31, 2017 and 2016, respectively. Management asserts that reductions in contract service revenue and grant revenue in 2016, which was precipitated by the State of Illinois budget crisis, contributed to the net deficit in 2016. In addition, the Organization learned in 2019, that their tax exempt status was revoked as discussed in Note 6. The largest asset on the financial statements at December 31, 2017, is employee advances of approximately $317,000. Although management has a plan to collect these advances, the facts listed above, taken in the aggregate, raise substantial doubt about the Organization’s ability to continue as a going concern. In order to address the financial deficit, the Organization is continuing to seek additional grants and contributions. During 2019, the Organization received a $50,000 grant that will cover 70% of the current staff member who oversees the VYC program. In addition, the Organization was awarded a $140,000 grant in August 2019 for capacity building. The Organization has more than doubled the foundation and corporate support in 2018 and 2019. The Organization is also working to reduce expenses and manage its cash flow by implementing payment plans with large invoices, reducing administrative costs, including travel and meeting charges, and performing an immediate review of the vouchering process to ensure all allowable administrative and overhead expenses are being charged to grants under the Safe Passage program. Management has concluded that the combination of these uncertainties cast substantial doubt about the Organization’s ability to continue as a going concern within one year from the date these financial statements were available to be issued. Therefore, the Organization may be unable to realize its assets and discharge its liabilities in the normal course of operations.
- 11 -
Leave No Veteran Behind, Inc. Notes to the Financial Statements (cont’d)
9. Concentration of Credit Risk The Organization maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. 10. Subsequent Event Subsequent events have been evaluated through September 18, 2019, which is the date the financial statements were available to be issued.
- 12 -