boardmeeting - highland academy charter...

Highland Academy Charter School

Board Meeting

Date and TimeThursday December 18, 2014 at 6:00 PM

Location715 Wellwood Ave. Beaumont, CA 92223, Conference Room

AgendaPurpose Presenter Duration

I. Opening Items

A. Record Attendance and Guests

B. Call the Meeting to Order

C. Approve Minutes Approve Minutes Kerrie Fairchild 1

II. Academic Excellence

A. ASB Report FYI Isabella Sanchez 5

III. CEO Support And Eval

IV. Development

V. Facility

A. Facility Report FYI Brent Bishop 5

VI. Finance

A. Presentation by Charter AssetManagement (Steven Holguin)

Discuss Brent Bishop 5

B. Audit Report by Nigro and Nigro Discuss Brent Bishop 10

C. 1st Interim Budget ReportClarification

Discuss Brent Bishop 10

VII. Governance

A. Discuss Potential New BoardMembers

Discuss Kerrie Fairchild 10

B. Approve New Board Member Vote Kerrie Fairchild 5

VIII. Other Business

IX. Closing Items

A. Adjourn Meeting Vote

Agenda Cover Sheets

Section: VI. FinanceItem: B. Audit Report by Nigro and NigroPurpose: DiscussGoal:Submitted by:Related Material: Highland Academy Audit Report 2014 revised (1).pdf

Highland Academy Charter School

Minutes

Board Meeting

Date and TimeThursday November 20, 2014 at 6:00 PM

Location715 Wellwood Ave. Beaumont, CA 92223, Conference Room

Board Members PresentBilly McIntosh, James Neilson, Kerrie Fairchild, Margarita Garcia, Matthew Croad

Board Members Absent

Guests PresentBrent Bishop, Terrence Davis

I. Opening Items

A.Record Attendance and Guests

B.Call the Meeting to OrderBrent Bishop called a meeting of the board of directors of Highland AcademyCharter School to order on Thursday Nov 20, 2014 @ 6:09 PM at 715 WellwoodAve. Beaumont, CA 92223, Conference Room.

C.Approve MinutesK. Fairchild made a motion to approve minutes from the Board Meeting on09-18-14.Matthew Croad seconded the motion.The board VOTED unanimously to approve the motion.

II. Facility

A.Discuss possibility of having HACS Board write letter to Beaumont USD regardingPlayground Equipment

Board will compose letter to BUSD requesting facility upgrades.

III. Finance

A.Report on Line of Credit Program through Chase BankBoard will not pursue line of credit and will stay with Charter School Capital.

B.Recommend approving 1st Interim Budget presented by Nigro and NigroK. Fairchild made a motion to Approve 1st Interim as presented.Billy McIntosh seconded the motion.The board VOTED unanimously to approve the motion.

C.Looking at switching to ADP for Payroll and HR Services

D.Recommend End of Year bonuses for Teachers and other Staff MembersK. Fairchild made a motion to approve $200 per staff member as a bonus.Billy McIntosh seconded the motion.The board VOTED unanimously to approve the motion.

E.Report on Paychex inquiry for CalSTRS Payments

IV. Closing Items

A.Schedule Meeting for December

B.Adjourn MeetingThere being no further business to be transacted, and upon motion duly made,seconded and approved, the meeting was adjourned at 7:11 PM.

Respectfully Submitted,Billy McIntosh

HIGHLANDACADEMYCHARTERSCHOOLAUDITREPORT

FortheFiscalYearEndedJune30,2014

HIGHLANDACADEMYCHARTERSCHOOLFortheFiscalYearEndedJune30,2014TableofContents

FINANCIALSECTION Page

IndependentAuditors’Report................................................................................................................................................................1BasicFinancialStatements:

StatementofFinancialPosition.....................................................................................................................................................3StatementofActivities.......................................................................................................................................................................4StatementofCashFlows...................................................................................................................................................................5

NotestoFinancialStatements.................................................................................................................................................................6

SUPPLEMENTARYINFORMATIONOrganizationalStructure........................................................................................................................................................................12ScheduleofAverageDailyAttendance..............................................................................................................................................13ScheduleofInstructionalTime.............................................................................................................................................................14ScheduleofExpendituresofFederalAwards.................................................................................................................................15ReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatements....................................16

OTHERINDEPENDENTAUDITORS’REPORTSIndependentAuditors'ReportonInternalControloverFinancialReportingandonComplianceand

OtherMattersBasedonanAuditofFinancialStatementsPerformedinAccordancewithGovernmentAuditingStandards...................................................................................................................................................17

IndependentAuditors’ReportonStateCompliance...................................................................................................................19

FINDINGSANDRECOMMENDATIONS

ScheduleofAuditFindingsandRecommendations: SummaryofAuditors’Results......................................................................................................................................................21 CurrentYearAuditFindingsandRecommendations........................................................................................................22 SummaryScheduleofPriorAuditFindings...........................................................................................................................26ManagementLetter....................................................................................................................................................................................27

FinancialSection

1

INDEPENDENTAUDITORS’REPORTBoardofDirectorsHighlandAcademyCharterSchoolBeaumont,CaliforniaReportontheFinancialStatementsWehaveaudited theaccompanying financial statementsofHighlandAcademyCharterSchool (aCalifornianonprofit Organization), which comprise the statement of financial position as of June 30, 2014, and therelated statements of activities and cash flows for the fiscal year then ended, and the relatednotes to thefinancialstatements.Management’sResponsibilityfortheFinancialStatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyaccepted intheUnitedStatesofAmerica;this includesthedesign,implementation,andmaintenanceofinternalcontrolrelevanttothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Auditors'ResponsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.Weconductedour audit in accordance with auditing standards generally accepted in the United States of America, thestandards applicable to financial audits contained in Government Auditing Standards, issued by theComptrollerGeneral of theUnited States, andStandardsandProcedures forAuditsofCaliforniaK‐12LocalEducational Agencies 2013‐14. Those standards require that we plan and perform the audit to obtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalso includesevaluating theappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourqualifiedauditopinion.BasisforQualifiedOpinionThe Academy's financial statements do not classify expenses by function, but rather by their “natural”classification.FASBASC958‐720‐05‐4statesthattohelpdonors,creditors,andothersassessanot‐for‐profitorganization’s service efforts, including the costs of its services and how it uses resources, a statement ofactivities or notes to financial statements should provide information about expenses reported by theirfunctionalclassification,suchasmajorclassesofprogramservicesandsupportingactivities.

2

QualifiedOpinionInouropinion,exceptfortheclassificationofexpensesasdiscussedintheprecedingparagraph,thefinancialstatements referred to above present fairly, in all material respects, the financial position of HighlandAcademyCharterSchoolasofJune30,2014andthechangesinitsnetassetsandcashflowsfortheyearthenendedinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.OtherMattersOtherInformationOurauditwasconductedforthepurposeofforminganopiniononthefinancialstatementsasawhole.Thesupplementaryinformationlistedinthetableofcontentsispresentedforpurposesofadditionalanalysisandisnotarequiredpartofthefinancialstatements.Suchinformationistheresponsibilityofmanagementandwasderived fromand relatesdirectly to theunderlyingaccountingandother recordsused toprepare thefinancialstatements.Theinformationhasbeensubjectedtotheauditingproceduresappliedintheauditofthe financial statements and certain additional procedures, including comparing and reconciling suchinformationdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethefinancialstatementsor to the financial statements themselves, and other additional procedures in accordance with auditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Inouropinion,theinformationisfairlystated,inallmaterialrespects,inrelationtothefinancialstatementsasawhole.OtherReportingRequiredbyGovernmentAuditingStandardsInaccordancewithGovernmentAuditingStandards,wehavealsoissuedourreportdatedDecember1,2014onourconsiderationoftheHighlandAcademyCharterSchool'sinternalcontroloverfinancialreportingandonour testsof itscompliancewithcertainprovisionsof laws,regulations,contracts,andgrantagreementsandothermatters.Thepurposeofthatreportistodescribethescopeofourtestingofinternalcontroloverfinancialreportingandcomplianceandtheresultsofthattesting,andnottoprovideanopiniononinternalcontrolover financialreportingoroncompliance. Thatreport isan integralpartofanauditperformed inaccordancewithGovernmentAuditingStandards in considering the School's internal control over financialreportingandcompliance.

Murrieta,CaliforniaDecember1,2014

Thenotestofinancialstatementsareanintegralpartofthisstatement. 3

HIGHLANDACADEMYCHARTERSCHOOLStatementofFinancialPositionJune30,2014

ASSETSCurrentassets:

Cash 128,147$Accountsreceivable 13,250Prepaidexpenses 4,456

Totalcurrentassets 145,853Capitalassets:

Equipment 46,290Lessaccumulateddepreciation (5,556)

Totalcapitalassets 40,734

Totalassets 186,587$

LIABILITIESANDNETASSETS

LIABILITIESCurrentliabilities:

Accountspayable 84,456$Payrollliabilities 75,427Unearnedrevenue 23,045

Totalliabilities 182,928

NETASSETSUnrestricted 3,659

Totalliabilitiesandnetassets 186,587$


HIGHLANDACADEMYCHARTERSCHOOLStatementofActivitiesFortheFiscalYearEndedJune30,2014

UnrestrictedTemporarilyRestricted Total

REVENUES,GAINS,ANDOTHERSUPPORTLCFFsources 848,708$ ‐$ 848,708$Publiccharterschoolsgrantprogram ‐ 202,500 202,500Otherlocalsources 52,975 ‐ 52,975Netassetsreleasedfromrestrictions:

Publiccharterschoolsgrantprogram 202,500 (202,500) ‐

TotalRevenues,Gains,andOtherSupport 1,104,183 ‐ 1,104,183

EXPENSESCertificatedsalaries 463,169 ‐ 463,169Classifiedsalaries 61,194 ‐ 61,194Employeebenefits 141,600 ‐ 141,600Booksandsupplies 298,658 ‐ 298,658Servicesandotheroperatingexpenditures 130,347 ‐ 130,347Capitaloutlay 5,556 ‐ 5,556

TotalExpenses 1,100,524 ‐ 1,100,524

ChangeinNetAssets 3,659 ‐ 3,659

‐ ‐ ‐

NetAssets,June30,2014 3,659$ ‐$ 3,659$

NetAssets,July1,2013


HIGHLANDACADEMYCHARTERSCHOOLStatementofCashFlowsFortheFiscalYearEndedJune30,2014

CASHFLOWSFROMOPERATINGACTIVITIES

DecreaseinNetAssets 3,659$

Adjustmentstoreconcileincrease(decrease)innetassetstonetcashprovided(used)byoperatingactivities

Depreciationexpense 5,556

(Increase)decreaseinoperatingassets:Prepaidexpenses (4,456)

Increase(decrease)inoperatingliabilities:Accountspayable 84,456Payrollliabilities 75,427Unearnedrevenue 23,045

Netcashprovided(used)byoperatingactivities 174,437

CASHFLOWSFROMINVESTINGACTIVITIESPurchasesofequipment (46,290)

Netincrease(decrease)incash 128,147

BeginningCash,July1,2013 ‐

EndingCash,July1,2014 128,147$

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HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE1–SIGNIFICANTACCOUNTINGPOLICIESA. ReportingEntity

HighlandAcademyCharterSchool(the“Academy”),anonprofitorganization,wasorganizedintheStateofCalifornia.TheAcademy’smissionisto buildcharacter,fosterself‐motivationandenhanceleadershipabilityinstudents.TheAcademywasformedasacharterschoolpursuanttoCaliforniaEducationCodeSection 47600 under a charter agreement with the Beaumont Unified School District. The Academyprovidesnon‐classroom‐basedandclassroom‐basedinstruction.

B. AccountingPoliciesTheAcademyaccountsforitsfinancialtransactionsinaccordancewiththepoliciesandproceduresoftheDepartmentofEducation’sCaliforniaSchoolAccountingManual.TheaccountingpoliciesoftheAcademyconformtogenerallyacceptedaccountingprinciplesasprescribedbytheFinancialAccountingStandardsBoard(FASB)andtheAmericanInstituteofCertifiedPublicAccountants(AICPA).

C. BasisofAccounting

Basis of accounting refers to when revenues and expenditures are recognized in the accounts andreported in the financial statements. Financial statements are prepared using the accrual basis ofaccounting.Revenues–exchangeandnon‐exchangetransactions.Revenueresultingfromexchangetransactions, inwhicheachpartygivesandreceivesessentiallyequalvalue,isrecordedundertheaccrualbasiswhentheexchangetakesplace.

Non‐exchangetransactions, inwhichtheAcademyreceivesvaluewithoutdirectlygivingequalvalueinreturn,includepropertytaxes,grantsandentitlements.Undertheaccrualbasis,revenuefrompropertytaxes is recognized in the fiscal year for which the taxes are levied. Revenue from the grants andentitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied.Eligibilityrequirements includetimingrequirements,whichspecifytheyearwhentheresourcesaretobeusedorthefiscalyearwhenuseisfirstpermitted;matchingrequirements,inwhichtheAcademymustprovide local resources tobeused for a specificpurpose; andexpenditure requirements, inwhich theresourcesareprovidedtotheAcademyonareimbursementbasis.

ExpensesOntheaccrualbasisofaccounting,expensesarerecognizedatthetimealiabilityisincurred.Whenbothrestrictedandunrestrictedresourcesareavailableforuse, it istheAcademy’spolicytouserestrictedresourcesfirst,thenunrestrictedresourcesastheyareneeded.

D. Encumbrances

Encumbranceaccountingisusedinallbudgetedfundstoreserveportionsofapplicableappropriationsforwhich commitments havebeenmade. Encumbrances are recorded for purchase orders, contracts,andother commitmentswhen theyarewritten. Encumbrancesare liquidatedwhen the commitmentsarepaid.AllencumbrancesareliquidatedasofJune30.

7

HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE1–SIGNIFICANTACCOUNTINGPOLICIES(continued)E. NetAssets

Unrestricted: Thesegenerallyresultfromrevenuesgeneratedbyreceivingunrestrictedcontributions,providingservices,andreceivinginterestfrominvestmentslessexpensesincurredinprovidingprogramrelatedservices,raisingcontributionsandperformingadministrativefunctions.TemporarilyRestricted: TheAcademyreportsgiftsofcashandotherassetsastemporarilyrestrictedsupportwhentheyarereceivedwithdonorstipulationsthatlimittheuseofthedonatedassets. Whenthedonorrestrictionexpires,i.e.thestipulatedtimerestrictionendsorthepurposeoftherestrictionisaccomplished,temporarilyrestrictednetassetsarereclassifiedtounrestrictednetassetsandreportedintheStatementofActivitiesasnetassetsreleasedfromrestrictions.

F. CashCashconsistsoffundsheldinfinancialinstitutions.TheAcademyconsiderscertificatesofdepositwithamaturity date of 90 days or longer to be investments. At year‐end and throughout the year, theAcademy'scashbalancesweredepositedinonefinancial institution. Asof June30,2014theAcademydidnotholdanycashasinvestments.

G. Contributions

The Academy has adopted SFAS No. 116, “Accounting for Contributions Received and ContributionsMade.” Contributions received are recorded as unrestricted, temporarily restricted, or permanentlyrestrictedsupportdependingontheexistenceornatureofanydonorrestrictions.

H. Non‐CashDonations

Donationsofpropertyandequipmentarerecordedascontributionsattheirestimatedfairvalueatthedateofdonation. Suchdonationsarereportedas increasesinunrestrictednetassetsunlessthedonorhasrestrictedthedonatedassettoaspecificpurpose.Assetsdonatedwithexplicitrestrictionsregardingtheiruseandcontributionsofcashthatmustbeusedtoacquirepropertyandequipmentarereportedasrestricted contributions. Absent donor stipulations regardinghow long those donated assetsmust bemaintained,theAcademyreportsexpirationsofdonorrestrictionswhenthedonatedoracquiredassetsare placed in service as instructed by the donor. TheAcademy reclassifies temporarily restricted netassetstounrestrictednetassetsatthattime.

I. Estimates

The preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect certain reported amounts anddisclosures.Accordingly,actualresultscoulddifferfromthoseestimates.

J. CapitalAssets

Property andequipment are recorded at cost, or estimated fair value at thedate ofdonation, and areupdatedforadditionsandretirementsduringtheyear. TheAcademy’spolicy is tocapitalizeallassetscosting$500ormore;allotherassetsareexpensed in theyear incurred. All capitalassets, except forland and construction in progress, are depreciated. As of June 30, 2014 theAcademyhad $46,290 incapitalassets.

8

HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE1–SIGNIFICANTACCOUNTINGPOLICIES(continued)K. IncomeTaxes

TheAcademyisanon‐profitpublic‐benefitcorporationandhasbeenrecognizedastax‐exemptpursuanttoSection501(c)(3)of the InternalRevenueCodeandSection23701(d)of theCaliforniaRevenueandTaxationCode.Accordingly,noprovisionhasbeenmadeforincometaxes.Management has evaluated its tax positions and the certainty as to whether those positions will besustainedintheeventofanauditbytaxingauthoritiesatthefederalandstatelevels. Theprimarytaxpositions evaluated are related to theAcademy's continued qualification as a tax‐exempt organizationand whether there are unrelated business income activities conducted that would be taxable.Managementhasdetermined that all income taxpositions aremore likely thannotof being sustainedupon potential audit or examination; therefore, no disclosures of uncertain income tax positions arerequired. The Academy files informational returns in the U.S. federal jurisdiction and the state ofCalifornia.

L. UnearnedRevenue

Unearned revenue is recorded to the extent cash is received from sale of receivables in advance ofservicesrendered.

NOTE2–CASHCashatJune30,2014isreportedatfairvalueandconsistedofcashonhandandinbanksintheamountof$128,147.CustodialCreditRisk–DepositsCustodialcreditriskistheriskthatintheeventofabankfailure,theAcademy’sdepositsmaynotbereturnedtoit.TheAcademydoesnothaveapolicyforcustodialcreditriskfordeposits.DepositsheldinnoninterestbearingtransactionaccountsarefullyinsuredregardlessoftheamountintheaccountthroughDecember31,2013,andothercashbalancesheldinbanksareinsuredupto$250,000bytheFederalDepositoryInsuranceCorporation(FDIC)andarecollateralizedbytherespectivefinancialinstitutions.AsofJune30,2014,noneoftheAcademy'sbankbalancewasexposedtocustodialcreditrisk.NOTE3–ACCOUNTSRECEIVABLEAccountsreceivableatJune30,2014consistsofLCFFsourcesintheamountof$13,250.NOTE4–SALEOFRECEIVABLESOnAugust30,2013,theAcademyenteredintoanagreementwithCharterSchoolCapital,Inc.tosellagroupofitsreceivableswithoutrecourse.Thegrossreceivableamountpurchasedwasvaluedat$189,311,withaninitialdeferredsalespriceretentionof$28,411,resultinginaninitialpurchaseprice(facevalue)of$160,900.The factor charged a net program fee of $5,182 and a discount fee of $9,056. The total loss on sale ofreceivableswas$14,238,resultinginnetcashproceedsof$146,662.

9

HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE4–SALEOFRECEIVABLES(continued)OnDecember30,2013,theAcademyenteredintoanotheragreementwithCharterSchoolCapital,Inc.tosellagroupof itsreceivableswithoutrecourseThegrossreceivableamountpurchasedwasvaluedat$72,560,withaninitialdeferredsalespriceretentionof$16,860,resultinginaninitialpurchaseprice(facevalue)of$55,700.Thefactorchargedanetprogramfeeof$2,786andadiscountfeeof$2,726.Thetotallossonsaleofreceivableswas$5,512,resultinginnetcashproceedsof$50,188.OnFebruary28,2014,theAcademyenteredintoathirdagreementwithCharterSchoolCapital,Inc.tosellagroupofitsreceivableswithoutrecourse. Thegrossreceivableamountpurchasedwasvaluedat$134,947,withaninitialdeferredsalespriceretentionof$20,447,resultinginaninitialpurchaseprice(facevalue)of$114,500.Thefactorchargedanetprogramfeeof$5,725andadiscountfeeof$8,298.Thetotallossonsaleofreceivableswas$14,023,resultinginnetcashproceedsof$100,477.OnMay30, 2014, theAcademyentered into a fourth agreementwithCharter School Capital, Inc. to sell agroupof its receivableswithout recourse. Thegrossreceivableamountpurchasedwasvaluedat$94,441,withaninitialdeferredsalespriceretentionof$14,441,resultinginaninitialpurchaseprice(facevalue)of$80,000.Thefactorchargedanetprogramfeeof$2,000andadiscountfeeof$4,115.Thetotallossonsaleofreceivableswas$6,115,resultinginnetcashproceedsof$73,885.NOTE5‐CAPITALASSETSANDDEPRECIATIONCapitalassetactivityfortheyearendedJune30,2014wasasfollows:

Balance, Balance,July1,2013 Additions Retirements June30,2014

Capitalassetsbeingdepreciated:Equipment ‐$ 46,290$ ‐$ 46,290$

Totalcapitalassetsbeingdepreciated ‐ 46,290 ‐ 46,290Accumulateddepreciationfor:

Equipment ‐ (5,556) ‐ (5,556)Totalaccumulateddepreciation ‐ (5,556) ‐ (5,556)Totalcapitalassetsbeingdepreciated,net ‐ 40,734 ‐ 40,734

Capitalassets,net ‐$ 40,734$ ‐$ 40,734$

Depreciationonallequipmentisprovidedonthestraight‐linebasisoveranestimatedusefullifeoffiveyears.

10

HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE6–EMPLOYEERETIREMENTPLANSQualified employees are covered under multiple‐employer defined benefit pension plans maintained byagencies of the Stateof California. Certificated employees aremembers of the StateTeachers’RetirementSystem(STRS).PlanDescriptionandProvisionsStateTeachers’RetirementSystem(STRS)PlanDescriptionThe Academy contributes to the California State Teachers’ Retirement System (CalSTRS), a cost‐sharingmultiple‐employer public employee retirement system defined benefit pension plan administered byCalSTRS.Theplanprovidesretirement,disabilityandsurvivorbenefits tobeneficiaries. Benefitprovisionsare established by state statutes, as legislatively amended, within the State Teachers’ Retirement Law.CalSTRS issues a separate comprehensive annual financial report that includes financial statements andrequiredsupplementaryinformation.CopiesofthecomprehensiveannualfinancialreportmaybeobtainedfromCalSTRS,100WaterfrontPlace,WestSacramento,California95605,oratwww.calstrs.com.FundingPolicyActiveplanmembersare required tocontribute8.0%of their salary. Therequiredemployercontributionrate for fiscal year 2013‐14 was 8.25% of annual payroll. The contribution requirements of the planmembersareestablishedbyStatestatute.TheAcademy’scontributionstoSTRSforthelastfiscalyearwasasfollows:

Contribution

PercentofRequiredContribution

2013‐14 $‐ 0%TheCharterwasunawareof the fundingrequirements forCalSTRS for the2013‐14 fiscalyearanddidnotremit the required contributions of $54,152 to CalSTRS. This amount represents a current liability in thefinancialstatements.AlternativeRetirementPlanThe Organization has established a 403(b) retirement plan, also known as a tax‐sheltered annuity plan,whereby all eligible employees may contribute to the plan under a salary reduction agreement. TheOrganizationhasprovidedformatchingcontributionstobemadeforupto5%ofgrosscompensation.TheOrganizationpaid$14,736inmatchingcontributionsfortheyearendedJune30,2014.NOTE7–COMMITMENTSANDCONTINGENCIESStateandFederalAllowances,Awards,andGrantsTheAcademyhasreceivedfederalandstatefundsforspecificpurposesthataresubjecttoreviewandauditbythegrantoragencies. Althoughsuchauditscouldgeneratedisallowancesundertermsofthegrants,itisbelievedthatanyrequiredreimbursementwillnotbematerial.

11

HIGHLANDACADEMYCHARTERSCHOOLNotestoFinancialStatementsJune30,2014NOTE8–SUBSEQUENTEVENTSEventssubsequentto June30,2014havebeenevaluatedthroughDecember1,2014, thedateatwhichtheSchool'sauditedfinancialstatementswereavailabletobeissued.OnOctober22,2014theAcademyenteredintoanagreementwithCharterSchoolCapital,Inc.tosellagroupofitsreceivableswithoutrecourse.Thegrossreceivableamountpurchasedwasvaluedat$159,171,withaninitialdeferredsalespriceretentionof$25,471,resultinginaninitialpurchaseprice(facevalue)of$133,700.The factor charged a net program fee of $3,400, with additional offsets of $58,500, and a discount fee of$8,747.Thetotallossonsaleofreceivableswas$12,147,resultinginnetcashproceedsof$63,053.

SupplementaryInformation

12

HIGHLANDACADEMYCHARTERSCHOOLOrganizationalStructureJune30,2014HighlandAcademyCharterSchool(Charter#1493)wasformedpursuanttoEducationCodeSection47600underanagreementwithBeaumontUnifiedSchoolDistrictgrantedinJune2013.TheagreementexpiresonJune 30, 2016. The Academy offers classroom‐based instruction in grades 6‐8 and non‐classroom basedinstructioninkindergartenandgrades1‐5.TheAcademyoperatedoneschoolsiteduringtheyear.

BOARDOFDIRECTORS

Name

Office

TermandTermExpiration

KerrieFairchild President TwoYearTermExpiresJune2015

WilliamMcIntosh CFO/CommunityMember

TwoYearTermExpiresDecember2014

MatthewCroad Secretary/CommunityMember

TwoYearTermExpiresDecember2015

MargaritaGarcia CommunityMember TwoYearTermExpiresMarch2016

JamesNeilson CommunityMember TwoYearTermExpiresJune2015

ADMINISTRATION

BrentBishop,Director/ChiefBusinessOfficer

13

HIGHLANDACADEMYCHARTERSCHOOLScheduleofAverageDailyAttendanceFortheFiscalYearEndedJune30,2014

ClassroomBased

Non‐ClassroomBased Total

ClassroomBased


TransitionalKindergarten/KindergartenThrough3 ‐ 13.84 13.84 ‐ 9.36 9.36Grades4Through6 74.40 7.87 82.27 74.48 5.41 79.89Grades7and8 48.85 ‐ 48.85 48.92 ‐ 48.92

TotalAverageDailyAttendance 123.25 21.71 144.96 123.40 14.77 138.17

ClassroomBased


TransitionalKindergarten/KindergartenThrough3 ‐ 6.92 6.92Grades4Through6 74.24 4.04 78.28Grades7and8 48.21 ‐ 48.21

TotalAverageDailyAttendance 122.45 10.96 133.41

* TheCharter'soriginallyfiledP2reportwasrevisedtoreflecttheremovalofADAasaresultofanauditfindingregardingindependentstudycontracts.** TheCharterremovedindependentstudyADAasaresultofanauditfindingpriortofilingtheannualreportandthusonlyfiledonefinalreport.

SecondPeriodReport‐Original(CertificateNo.41BB0411)

SecondPeriodReport‐FinalAdjusted*(CertificateNo.A6755703)

AnnualReport‐Final**(CertificateNo.40CB6EF5)

Average daily attendance is ameasurement of the number of pupils attending classes of the School. Thepurposeofattendanceaccountingfromafiscalstandpointistoprovidethebasisonwhichapportionmentsofstate funds aremade to charter schools. This schedule provides information regarding the attendance ofstudentsatvariousgradelevelsandindifferentprograms.

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofInstructionalTimeFortheFiscalYearEndedJune30,2014Highland Academy Charter School provides both classroom and non‐classroom based instruction. ThefollowingistheScheduleofInstructionalTimefortheAcademy’sclassroombasedclasses.

2013‐14 NumberofDaysPreviously Actual Traditional

GradeLevel Required Reduced* Minutes Calendar Status

Kindergarten** 36,000 34,971 N/A 180 N/AGrade1** 50,400 48,960 N/A 180 N/AGrade2** 50,400 48,960 N/A 180 N/AGrade3** 50,400 48,960 N/A 180 N/AGrade4** 54,000 52,457 N/A 180 N/AGrade5** 54,000 52,457 N/A 180 N/AGrade6 54,000 52,457 54,718 180 CompliedGrade7 54,000 52,457 54,718 180 CompliedGrade8 54,000 52,457 54,718 180 Complied

*AmountsreducedaspermittedbyEducationCodeSection46201.2(a).**TheAcademydoesnotofferclassroom‐basedinstructionatthesegradelevels.

1986‐87Minutes

ThisschedulepresentsinformationontheamountofinstructionaltimeofferedbytheAcademyandwhethertheAcademycompliedwiththeprovisionsofEducationCodeSections46200through46206.

15

HIGHLANDACADEMYCHARTERSCHOOLScheduleofExpendituresofFederalAwardsFortheFiscalYearEndedJune30,2014

Federal Pass‐ThroughFederalGrantor/Pass‐Through CFDA EntityIdentifying FederalGrantor/ProgramorClusterTitle Number Number Expenditures

U.S.DepartmentofEducation:PassedthroughCaliforniaDept.ofEducation(CDE):

NoChildLeftBehind(NCLB):TitleV,PartB,PublicCharterSchoolsGrantProgram(PCSGP) 84.282A 14941 202,500$

TotalU.S.DepartmentofEducation 202,500$

The scheduleof expendituresof Federal awards includes theFederal grant activityof theAcademyand ispresented on the modified accrual basis of accounting. The information in this schedule is presented inaccordancewiththerequirementsoftheUnitedStatesofAmericaOfficeofManagementandBudgetCircularA‐133,AuditsofStates,LocalGovernments,andNon‐ProfitOrganizations.Therefore,someamountspresentedinthisschedulemaydifferfromamountspresentedin,orusedinthepreparationofthefinancialstatements.Of the Federal expenditures presented in the schedule, the Academy provided no Federal awards tosubrecipients.

16

HIGHLANDACADEMYCHARTERSCHOOLReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatementsFortheFiscalYearEndedJune30,2014

StatementofFinancialPosition

June30,2014annualfinancialandbudgetreportnetassets 291,081$Adjustmentsandreclassifications:

Increase(decrease)innetassets:Equipmentunderreported 22,905Depreciationunderreported (5,556)Accountspayableunderaccrued (84,456)Prepaidexpensesunderaccrued 4,456Revenuesoverreported (431,221)Expensesoverreported 205,907Payrollliabilitiesunderaccrued (68,455)Accountsreceivablesunderstated 13,298Currentloansoverstated 55,700

Netadjustmentsandreclassifications (287,422)

June30,2014auditedfinancialstatement 3,659$

OtherIndependentAuditors'Reports

17

INDEPENDENTAUDITORS'REPORTONINTERNALCONTROLOVERFINANCIAL

REPORTINGANDONCOMPLIANCEANDOTHERMATTERSBASEDONANAUDITOFFINANCIALSTATEMENTSPERFORMEDINACCORDANCE

WITHGOVERNMENTAUDITINGSTANDARDSBoardofDirectorsHighlandAcademyCharterSchoolBeaumont,CaliforniaWe have audited, in accordance with the auditing standards generally accepted in the United States ofAmericaandthestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandardsissuedbytheComptrollerGeneraloftheUnitedStates,thefinancialstatementsofthegovernmentalactivities,eachmajorfund,andtheaggregateremainingfundinformationofHighlandAcademyCharterSchoolasofandfortheyearendedJune30,2014,andtherelatednotestothefinancialstatements,whichcollectivelycompriseHighland Academy Charter School's basic financial statements, and have issued our report thereon datedDecember1,2014.InternalControlOverFinancialReportingInplanningandperformingourauditofthefinancialstatements,weconsideredHighlandAcademyCharterSchool’s internal controlover financial reporting (internal control) todetermine theauditprocedures thatareappropriateinthecircumstancesforthepurposeofexpressingouropinionsonthefinancialstatements,but not for the purpose of expressing an opinion on the effectiveness of the Highland Academy CharterSchool’s internal control. Accordingly,we do not express an opinion on the effectiveness of theHighlandAcademyCharterSchool’sinternalcontrol.Ourconsiderationofinternalcontrolwasforthelimitedpurposedescribedintheprecedingparagraphandwas not designed to identify all deficiencies in internal control that might be significant deficiencies ormaterialweaknessesandtherefore,materialweaknessesorsignificantdeficienciesmayexistthatwerenotidentified. However, as described in the accompanying schedule of findings and recommendations, weidentifiedcertaindeficienciesininternalcontrolthatweconsidertobematerialweaknessesandasignificantdeficiency.Adeficiencyininternalcontrolexistswhenthedesignoroperationofacontroldoesnotallowmanagementoremployees, in the normal course of performing their assigned functions, to prevent, or detect and correctmisstatements on a timely basis. Amaterialweakness is a deficiency, or a combination of deficiencies, ininternal control such that there is a reasonable possibility that a material misstatement of the School'sfinancial statements will not be prevented, or detected and corrected on a timely basis. A significantdeficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than amaterialweakness,yetimportantenoughtomeritattentionbythosechargedwithgovernance.WeconsiderthedeficienciesdescribedintheaccompanyingscheduleoffindingsandrecommendationsasFindings2014‐1and2014‐2tobematerialweaknesses.Asignificantdeficiencyisadeficiency,oracombinationofdeficiencies,ininternalcontrolthatislessseverethanamaterialweakness,yet importantenoughtomeritattentionbythosechargedwithgovernance. Weconsider thedeficiencydescribed in the accompanying schedule of findings and recommendations to be asignificantdeficiencyasFinding2014‐3.

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ComplianceandOtherMattersAs part of obtaining reasonable assurance about whether Highland Academy Charter School’s financialstatementsarefreeofmaterialmisstatement,weperformedtestsofitscompliancewithcertainprovisionsoflaws, regulations, contracts, and grant agreements, noncompliance with which could have a direct andmaterial effect on the determination of financial statement amounts. However, providing an opinion oncompliancewiththoseprovisionswasnotanobjectiveofouraudit,andaccordingly,wedonotexpresssuchanopinion.TheresultsofourtestsdisclosedinstancesofnoncomplianceorothermattersthatarerequiredtobereportedunderGovernmentAuditingStandardsandwhicharedescribedintheaccompanyingscheduleoffindingsandrecommendationsasFindings2014‐4and2014‐5.HighlandAcademyCharterSchool’sResponsestoFindingsHighland Academy Charter School’s responses to the findings identified in our audit are described in theaccompanying schedule of findings and recommendations. Highland Academy Charter School’s responseswere not subjected to the auditing procedures applied in the audit of the financial statements and,accordingly,weexpressnoopiniononthem.PurposeofthisReportThepurposeofthisreportissolelytodescribethescopeofourtestingofinternalcontrolandcomplianceandtheresultsofthattesting,andnottoprovideanopinionontheeffectivenessoftheAcademy'sinternalcontrolor on compliance. This report is an integral part of an audit performed in accordance with GovernmentAuditing Standards in considering the Academy's internal control and compliance. Accordingly, thiscommunicationisnotsuitableforanyotherpurpose.


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INDEPENDENTAUDITORS’REPORTONSTATECOMPLIANCE

BoardofDirectorsHighlandAcademyCharterSchoolBeaumont,CaliforniaReportonComplianceforStateProgramsWehaveauditedHighlandAcademyCharterSchool'scompliancewiththetypesofcompliancerequirementsdescribed intheStandardsandProcedures forAuditsofCaliforniaK‐12LocalEducationalAgencies2013‐14,published by the Education Audit Appeals Panel, for the year ended June 30, 2014. Highland AcademyCharterSchool’sstateprogramsareidentifiedbelow.Management'sResponsibilityManagementisresponsibleforcompliancewiththerequirementsoflaws,regulations,contracts,andgrantsapplicabletoitsStateprograms.Auditors'ResponsibilityOur responsibility is to express an opinion on compliance for each ofHighlandAcademy Charter School'sStateprogramsbasedonourauditofthetypesofcompliancerequirementsreferredtobelow.Weconductedour audit of compliance in accordancewith auditing standards generally accepted in the United States ofAmerica;thestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandards,issuedbytheComptrollerGeneraloftheUnitedStates;andStandardsandProceduresforAuditsofCaliforniaK‐12LocalEducational Agencies 2013‐14. Those standards require that we plan and perform the audit to obtainreasonableassuranceaboutwhethernoncompliancewiththetypesofcompliancerequirementsreferredtobelow occurred. An audit includes examining, on a test basis, evidence about Highland Academy CharterSchool’s compliance with those requirements and performing such other procedures as we considerednecessaryinthecircumstances.WebelievethatourauditprovidesareasonablebasisforouropiniononcomplianceforeachStateprogram.However,ourauditdoesnotprovidealegaldeterminationofHighlandAcademyCharterSchool’scompliance.Description

ProceduresinAuditGuide

ProceduresPerformed

LocalControlFundingFormulaCertification 1 YesCaliforniaCleanEnergyJobsAct 3 NotApplicableAfterSchoolEducationandSafetyProgram

GeneralRequirements 4 NotApplicableAfterSchool 5 NotApplicableBeforeSchool 6 NotApplicable

EducationProtectionAccountFunds 1 NotApplicableCommonCoreImplementationFunds 3 NotApplicableUnduplicatedLocalControlFundingFormulaPupilCounts 3 Yes

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Description

ProceduresinAuditGuide

ProceduresPerformed

CharterSchools: ContemporaneousRecordsofAttendance 8 YesModeofInstruction 1 YesNonclassroom‐BasedInstruction/IndependentStudy 15 YesDeterminationofFundingforNonclassroom‐BasedInstruction 3 YesAnnualInstructionalMinutes–ClassroomBased 4 YesCharterSchoolFacilityGrantProgram 1 NotApplicable

OpiniononCompliancewithStateProgramsIn our opinion, Highland Academy Charter School complied, in all material respects with the compliancerequirementsreferredtoabovefortheyearendedJune30,2014.OtherMattersThe results of our auditing procedures disclosed instances of noncompliance with the compliancerequirements referred to above, which are required to be reported in accordance with Standards andProcedures forAuditsofCaliforniaK‐12LocalEducationalAgencies2013‐14,andwhicharedescribed intheaccompanyingscheduleoffindingsandrecommendationsasFindings2014‐4and2014‐5.HighlandAcademyCharterSchool'sResponsetoFindingsHighlandAcademyCharterSchool's responses to the internal controlovercompliance finding identified inourauditaredescribedintheaccompanyingscheduleoffindingsandrecommendations.HighlandAcademyCharter School's responseswere not subjected to the auditing procedures in the audit of compliance and,accordingly,weexpressnoopinionontheresponses.The purpose of this report on State compliance is solely to describe the scope of our testing of Statecompliance and the results of that testing based on the requirements of the StandardsandProcedures forAuditsofCaliforniaK‐12LocalEducationalAgencies2013‐14. Accordingly,thisreportisnotsuitableforanyotherpurpose.


FindingsandRecommendations

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofFindingsandRecommendationsFortheFiscalYearEndedJune30,2014SECTIONI‐SUMMARYOFAUDITORS'RESULTS

FinancialStatements

Typeofauditors'reportissued ModifiedInternalcontroloverfinancialreporting:

Materialweakness(es)identified? YesSignificantdeficiency(s)identifiednotconsideredtobematerialweaknesses? Yes

Noncompliancematerialtofinancialstatementsnoted? Yes

FederalAwards

Notapplicable;theAcademyexpendedlessthan$500,000infederalawardsinthefiscalyear2013‐14.

StateAwards

Internalcontroloverstateprograms:Materialweakness(es)identified? NoSignificantdeficiency(s)identifiednotconsideredtobematerialweaknesses? Yes

Typeofauditors'reportissuedoncomplianceforstateprograms: Unmodified

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofFindingsandRecommendationsFortheFiscalYearEndedJune30,2014SECTIONII‐FINANCIALSTATEMENTFINDINGSThis section identifies the significant deficiencies, material weaknesses, and instances of noncompliancerelatedtothefinancialstatementsthatarerequiredtobereportedinaccordancewithGovernmentAuditingStandards. PursuanttoAssemblyBill(AB)3627,allauditfindingsmustbeidentifiedasoneormoreofthefollowingcategories:

FiveDigitCode AB3627FindingTypes10000 Attendance20000 InventoryofEquipment30000 InternalControl40000 StateCompliance41000 CalSTRS50000 FederalCompliance60000 Miscellaneous61000 ClassroomTeacherSalaries70000 InstructionalMaterials71000 TeacherMisassignments72000 SchoolAccountabilityReportCard

Finding2014‐1:FunctionalExpenses(30000)Condition: The Academy is required by FASB ASC 958‐720‐05‐4 to report expenses by function. TheAcademydoesnothaveachartofaccountsestablishedwithintheQuickBooksaccountingsoftwaretoclassifyexpensesonafunctionalbasis.Inaddition,theaccountingsystemmakesitdifficulttoseparatetemporarilyrestrictedrevenuesfromunrestrictedrevenues.Recommendation: The Academy should allocate costs among the instructional program and supportingservicesbenefitedinordertoreportexpensesbyfunction.Response:AsofJuly1,2014theAcademycontractedwithacharterschoolfinancialmanagementprovidertoassistwithallaccountingtransactions.

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofFindingsandRecommendationsFortheFiscalYearEndedJune30,2014SECTIONII‐FINANCIALSTATEMENTFINDINGS(continued)Finding 2014‐2: Personnel are Not Knowledgeable About GAAP (Generally Accepted AccountingPrinciples)(30000)Condition: Management relies upon the auditor to recommend footnote disclosures for the financialstatements and to prepare for approval and record adjusting entries to convert the Academy's financialstatements from the cash basis of accounting to the accrual basis of accounting. Statement of AuditingStandards No. 112 states that the auditormay not be part of the Academy's internal control system. Anindividual from the Academy should be knowledgeable in generally accepted accounting principles andcapableofpreparingfinancialstatementsinconformitywithgenerallyacceptedaccountingprinciples. TheAcademy does not have either an employee educated in generally accepted accounting principles or anaccounting firmengaged toprepare financial statements in conformitywithgenerally acceptedaccountingprinciples.Recommendation: The Academy should consider the cost benefit of hiring an accountant familiar withgenerallyacceptedaccountingprinciplesorhiringanindependentCPAfirmtocompilefinancialstatementsinconformitywithgenerallyacceptedaccountingprinciples.Response:AsofJuly2014,theAcademycontractedwithacharterschoolfinancialmanagementprovidertoassistwithallaccountingtransactionsandGAAPreporting.Finding2014‐3:SegregationofDuties(30000)Condition: It was determined through inquiry that the administrative assistant who opens the mail toreceive checks also issues the receipt and prepares the deposit. Also, this same individual can add andremovevendorsintheaccountingsystemwithoutanyformalapprovalfromasupervisor.Recommendation:TheAcademyshoulddesignand implementeffectivesegregationofdutiespoliciesandprocedures so as to prevent or detect anymaterialmisstatements in the financial statements in a timelymanner.Thisalsomitigatestheriskofmisappropriationofassets.Response:TheAcademywillseekto involveotheradministrativestaff inthecashreceiptsandpurchasingprocesssoastoincreasesegregationofduties.

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofFindingsandRecommendationsFortheFiscalYearEndedJune30,2014SECTIONIII‐STATEAWARDFINDINGSANDRECOMMENDATIONSThis section identifies the audit findings pertaining to noncompliance with State program rules andregulations.Finding2014‐4:IndependentStudyContracts(40000)Criteria:NoADAmaybeclaimedforindependentstudyuntilawrittenagreementiscompletedpursuanttoEducation Code Section 51747 (c)(8). A written agreement may not exceed one semester. Attendancereportsshouldbereviewedbysomeoneotherthanthepersonpreparingthemtoensuretheiraccuracy.Condition: The Academywas unable to provide documentation providing evidence of contemporaneouswrittenagreementsforindependentstudyforthesecondsemesteroftheschoolyear.However,theAcademywasabletoprovidetheseagreementsforthefirstsemester.QuestionedCost:ThetotalindependentstudyADAreportedfortheperiodJanuarythroughJune2014was6.79andisdisallowed.Totaldisallowedfundingis$35,504.Context: This error is isolated to the January ‐ June 2014 agreements only. The Academy has providedagreementsforallotherperiods.IndependentstudyADAwasremovedintheP2revisedattendancereport.Effect:TheAcademywillforfeitfundingfortheindependentstudyADAinquestion.Cause: The Academy administration was unaware of the requirement to administer independent studyagreementsfortheperiodinquestion.Recommendation:Werecommendthatindependentstudyagreementsareadministeredsemi‐annuallyforeachschoolyear.WerecommendthattheAcademyapplyforawaivertotheauthorizingagency.Response: TheAcademyhascontacted theauthorizingagencyregarding theavailabilityofapplying forawaiver. They have revised the P2 report to reflect the removal of all full‐time independent studyADA inquestion.

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HIGHLANDACADEMYCHARTERSCHOOLScheduleofFindingsandRecommendationsFortheFiscalYearEndedJune30,2014SECTIONIII‐STATEAWARDFINDINGSANDRECOMMENDATIONS(continued)Finding2014‐5:IndependentStudyContracts(40000)Criteria: Pursuant to Education Code Section 51747 (c ) and the California Code of Regulations, Title 5,Section11702,independentstudywrittenagreementsmustbesignedanddatedpriortothecommencementofstudyandthewrittenagreementsmustcontainalltherequiredelements:(a)themanner,time,frequency,andplaceforsubmittingstudent’sassignmentsandforreportinghisorherprogress;(b)theobjectivesandmethodsofstudy; (c) themethodsutilizedtoevaluatestudent’swork; (d)thespecificresources, includingmaterialsandpersonnel,tobemadeavailabletothestudents;(e)astatementstatingthemaximumlengthoftimeallowedbetween theassignmentand thecompletionofa student’sassignedworkand thenumberofassignments a studentmaymiss before theremust be an evaluation ofwhether it is in the student’s bestinterests tocontinue in independentstudy; (f) thedurationof the independentstudyagreement, includingbeginningandendingdatesforthestudent’sparticipationinindependentstudyundertheagreement,withno agreement being for a period longer than one semester, or one‐half year for a school on a year‐roundcalendar;(g)astatementofthenumberofcoursecreditstobeearnedbythestudentuponcompletion;(h)astatement in each agreement that independent study is an optional educational alternative in which nostudent is required to participate; and (i) signatures affixed prior to the commencement of independentstudy, by the student, the student’s parent or legal guardian, the certificated employee who has beendesignatedashavingresponsibilityforthegeneralsupervisionof independentstudy,andallotherpersonswhohaddirectresponsibilityforprovidingassistancetothestudent.Condition: Independent study contracts tested lackedappropriate signatures, lackedwrittenagreements,andlackedkeyelementsofthewrittenagreementsasdescribedabove.QuestionedCost: Thetotal independentstudyADAreportedforthesecontracts is0.38andisdisallowed.Totaldisallowedfundingis$241.Context:Threeshort‐termindependentstudycontractswerelackingthekeyrequiredelements.Effect:TheAcademywillforfeitfundingfortheindependentstudyADAinquestion.IndependentstudyADAwasremovedintheP2revisedattendancereport.Cause: The Academy administrationwas unaware of the requirements to administer independent studyagreements.Recommendation:Werecommendthatindependentstudymasteragreementsarerevisedtoincludealltherequiredelementsandappropriatesignaturesareobtainedforeachcontractadministered.Response: The Academy has revised the P2 attendance report to reflect the removal of all disallowedindependentstudyADAinquestion.

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HIGHLANDACADEMYCHARTERSCHOOLSummaryScheduleofPriorAuditFindingsFortheFiscalYearEndedJune30,2014TheAcademywasnotinoperationin2012‐13.

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BoardofDirectorsHighlandAcademyCharterSchoolBeaumont,CaliforniaInplanningandperformingourauditofthefinancialstatementsofHighlandAcademyCharterSchoolasofandfortheyearendingJune30,2014,inaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica,weconsideredHighlandAcademyCharterSchool’sinternalcontroloverfinancialreporting(internalcontrol)asabasisfordesigningauditproceduresthatareappropriateinthecircumstancesforthepurposeofexpressingouropiniononthebasicfinancialstatements,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheAcademy'sinternalcontrol.Accordingly,wedonotexpressanopinionontheeffectivenessoftheAcademy'sinternalcontrol.However,duringourauditwenotedmattersthatareanopportunityforstrengtheninginternalcontrolsandoperatingefficiency.Thefollowingitemsrepresentconditionsnotedbyourauditthatweconsiderimportantenough to bring to your attention. This letter does not affect our report datedDecember 1, 2014, on thefinancialstatementsofHighlandAcademyCharterSchool.CASHRECEIPTSObservation:ItwasdeterminedthroughinquiryandobservationthatthecashcollectediskeptinacashboxintheSecretary'sdeskuntilthecashisdepositedinthebank.Recommendation:Werecommendthatcashshouldberestrictedatalltimes.Itshouldbekeptinalocked,securestorageareasuchasasafetowhichonlya limitednumberof individualshaveaccesstoensurethecashisproperlysecuredandaccountedfor.Observation: During our testing of cash receipts, we found that four of the five deposits tested lackedsufficient supporting documentation. Without supporting documentation,we could not verifywhether allcashcollectedhadbeendepositedintactandintothecorrectaccount. Soundinternalcontrolsforhandlingcashdiscouragetheftoffundsandprotectthosewhohandlethecash.Itisimportanttotieallproceedsandtoensurethatallproceedsfromaneventareturnedinandproperlyaccountedfor.Recommendation: We recommend that the Academy establish procedures that will allow for thereconciliationofmoneycollected.

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BANKRECONCILIATIONSObservation: It was determined through inquiry and observation that either the Program Director or theSecretarywillperformthebankreconciliations. Afterthereconciliationiscompleted,thereisnoreviewofthereconciliation foraccuracybysomeoneother thanwhoprepared it. The lackofreviewbyanotherpersoncanlead tonot identifying errors in a timelymanner and their potential causes, in addition tonot identifying anyfraudulentactivity.Additionally,theAcademyisnotperformingbankreconciliationsforseveralsavingsaccountsanddoesnotarchivepreviousreconciliationsofaccounts.Recommendation: We recommend that someone other than the preparer review the bank reconciliations toensure accuracy and prevent any misappropriation of funds due to fraud. Also, we recommend thatreconciliationsbeperformedforallbankaccountsandthattheybearchivedforfuturereference.CASHDISBURSEMENTSObservation:Duringourtestofexpenditures,wenotedseveralweaknessesininternalcontrolsovertheprocess.We noted that seven out of twenty‐six expenditures had insufficient or no supporting documentation. Threeexpenditures should have been capitalized instead of being recorded as an expense of the period. Twoexpenditureswereclassifiedtoanimproperaccountcode.Recommendation:TheAcademyshouldalwaysobtainandarchiveadequatesupportingdocumentationforcashdisbursements,includinganassociatedpurchaseorder,invoiceandreceivingreport,ifapplicable.TheAcademyshouldbeawareofitscapitalizationpolicyandshouldidentifyandcapitalizeallrelatedexpendituressubjecttothis policy. Also, theAcademy shouldbe familiarwith the StandardizedAccountCode Structure applicable toCaliforniacharterschools,availablefromtheCaliforniaDepartmentofEducation.INFORMATIONTECHNOLOGYObservation:DuringtheinquiryandobservationoftheAcademy'sgeneralcomputercontrols,wefoundthattheCharterdoesnotregularlyperformfilerecoveryproceduresanddoesnothaveaformal,communicatedpasswordpolicy.Without filerecoveryproceduresperformed,theriskofdata loss is increased.Withoutacommunicatedpasswordpolicy,includingcharactersandrequiredchangeintervals,thethreatofdatamisuseandunpermittedaccessishigher.Recommendation: TheAcademyshouldperformfile recoveryproceduresat leastannuallyandshouldhaveapasswordpolicythatisconsistentandcommunicatedtoallstaffwithspecificparametersforlength/characters.Thiscommunication is intendedsolely forthe informationanduseofmanagement, theBoardofDirectors,andothers within the Academy, and is not intended to be, and should not be, used by anyone other than thesespecifiedparties.Wewillreviewthestatusofthecurrentyearcommentsduringournextauditengagement.


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