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THE NEW ORLEANS JAZZ ORCHESTRA, INC.

Audits of Consolidated Financial Statements

June 30, 2015 and 2014

Contents

Independent Auditor's Report 1 - 2

Consolidated Financial Statements

Consolidated Statements of Financial Position 3 - 4

Consolidated Statements of Activities - For the Year Ended June 30, 2015 5

Consolidated Statements of Activities - For the Year Ended June 30, 2014 6

Consolidated Statements of Cash Flows 7

Notes to Consolidated Financial Statements 8-15

Supplementary Information

Schedule of Compensation, Benefits and Other Payments to Agency Head 17

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 18-19

Schedule of Findings and Responses 20 - 24

Summary Schedule of Prior Audit Findings 25

^ T A "Tt - LaPorte, APAC I j/K r iJffx' I ' H 111 Veterans Blvd. I Suite 600

CPA. A BUSINESS ADVISORS Metalric, LA 70005 504.835.5522 I Fax 504.835.5535

LaPorte.com

Independent Auditor's Report

To the Board of Directors The New Orleans Jazz Orchestra, Inc. New Orleans, Louisiana

Report on the Financial Statements We have audited the accompanying consolidated financial statements of The New Orleans Jazz Orchestra, Inc. which comprise the consolidated statement of financial position for years ended June 30, 2015 and 2014, respectively, the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

NEW ORLEANS HOUSTON BATON ROUGE COVINGTON

An Independently Owned Member, McGladrey Alliance The McGladrey Alliance Is a premier affiliation of independent accountlrrg and consulting firms. The McGladrey Alliance member firms maintain their name, autonomy and independence and are responsible for ttieir own client fee arrangements, delivery ot services and maintenance ot j client relationships. |

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The New Orleans Jazz Orchestra, Inc. as of June 30, 2015, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of compensation, benefits, and other payments to agency head is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 24, 2015 on our consideration of The New Orleans Jazz Orchestra, Inc.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering The New Orleans Jazz Orchestra, Inc.'s internal control over financial reporting and compliance.

A Professional Accounting Corporation

Metairie, l_A November 24, 2015

THE NEW ORLEANS JAZZ ORCHESTRA, INC. Consolidated Statements of Financial Position June 30, 2015 and 2014

2015 2014 Assets

Current Assets Cash Employee Receivable Other Receivable

Total Current Assets

Property and Equipment Land Buildings and Building improvements Furniture and Fixtures Computer Equipment Software Construction in Progress

Total Property and Equipment

Less: Accumulated Depreciation

Total Property and Equipment, Net

Other Assets Due from NOJO Investment Fund, LLC Deferred Loan Costs, Net of Accumulated

Amortization of $34,955 and $11,652, Respectively Restricted Assets

Cash

Total Other Assets

Total Assets

459,811 15,000

8,801

483,812

82,010 82,010 7,700,892 -

559,404 56,642 38,124 25,343 43,825 13,275

- 2,532,526

8,421,855 2,709,796

(201,338) (86,601)

8,220,517 2,623,195

4,978,000 4,976,000

457,807 481,110

_ 5,406,674

5,433,807 10,863,784

$ 14,137,938 $ 13,486,979

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

THE NEW ORLEANS JAZZ ORCHESTRA, INC. Consolidated Statements of Financial Position (Continued) June 30, 2015 and 2014

2015 2014 Liabilities and Net Assets (Deficit)

Liabilities Current Liabilities

Accounts Payable Deferred Revenue Due to Related Party Current Portion of Notes Payable

$ 11,925 50,000

29,357

$ 590,810

37,000 15,807

Total Current Liabilities 91,282 643,617

Long- Term Liabilities Deferred Revenue Note Payable - Regions Bank Note Payable - New Orleans Redevelopment Authority Note Payable - New Market Tax Credit Loan A Note Payable - New Market Tax Credit Loan B Note Payable - GSUIG Real Estate Member, LLC

225,000 219,406 791,624

4,976,000 2,024,000 5,366,640

232,956

4,976,000 2,024,000 5,857,005

Total Long-Term Liabilities 13,602,670 13,089,961

Total Liabilities 13,693,952 13,733,578

Net Assets (Deficit) Unrestricted Temporarily Restricted

443,984 (347,457) 100,858

Total Net Assets (Deficit) 443,984 (246,599)

Total Liabilities and Net Assets (Deficit) $ 14,137,936 $ 13,486,979


THE NEW ORLEANS JAZZ ORCHESTRA, INC. Consolidated Statement of Activities For the Year Ended June 30, 2015

Unrestricted Temporarily Restricted Total

Revenue and Support Grants and Contributions Performance and Event Income Merchandising Income Investment Income Other Income

$ 2,116,462 741,943 51,710

157,403 239,853

$ - $ 2,116,462 741,943

51,710 157,403 239,853

Total Revenue and Support 3,307,371 3,307,371

Net Assets Released from Restrictions 100,858 (100,858)

Total Revenue, Support and Net Assets Released from Restrictions 3,408,229 (100,858) 3,307,371

Expenses Program Services Expenses

Performances and Events Education Programs

1,716,019 289,880

- 1,716,019 289,880

Total Program Services Expenses 2,005,899 2,005,899

Supporting Services Expenses Management and General Fundraising Expenses

309,567 301,322

- 309,567 301,322

Total Supporting Services Expenses 610,889 610,889

Total Expenses 2,616,788 2,616,788

Change in Net Assets 791,441 (100,858) 690,583

Net Deficit, Beginning of Year (347,457) 100,858 (246,599)

Net Assets, End of Year $ 443,984 $ - $ 443,984


THE NEW ORLEANS JAZZ ORCHESTRA, INC. Consolidated Statement of Activities For the Year Ended June 30, 2014

Unrestricted Temporarily Restricted Total

Revenue and Support Grants and Contributions Performance and Event Income Merchandising Income Investment Income Other Income

$ 402,553 297,052 35,344 12,440

402,146

$ 150,000 $ 552,553 297,052

35,344 12,440

402,146

Total Revenue and Support 1,149,535 150,000 1,299,535

Net /tesets Released from Restrictions 49,142 (49,142) .

Total Revenue, Support and Net Assets Released from Restrictions 1,198,677 100,858 1,299,535

Expenses Program Services Expenses

Performances and Events Education Programs

736,605 208,758

- 736,605 208,758

Total Program Services Expenses 945,363 945,363

Supporting Services Expenses Management and General Fundraising Expenses

100,714 201,414

- 100,714 201,414

Total Supporting Services Expenses 302,128 302,128

Total Expenses 1,247,491 1,247,491

Change in Net/tesets (Deficit) (48,814) 100,858 52,044

Net Deficit, Beginning of Year (298,643) - (298,643)

Net Assets (Deficit), End of Year $ (347,457) $ 100,858 $ (246,599)


THE NEW ORLEANS JAZZ ORCHESTRA, INC. Consolidated Statements of Cash Flows For the Years Ended June 30, 2015 and 2014

2015 2014 Cash Flows from Operating Activities

Change in Net Assets Adjustments to Reconcile Change in Net Assets to

Net Cash Provided by Operating Activities Depreciation and Amortization Changes in Operating Assets and Liabilities

Accounts Receivable Employee Receivable Other Receivable Accounts Payable Accrued Liabilities Due to Related Party Deferred Revenue

$ 690,583 3

138,040

(15,000) (8,801)

(578,885)

(37,000) 275,000

i 52,044

16,970

49,000

77,737 (26,871) (11,000)

Net Cash Provided by Operating Activities 463,937 157,880

Cash Flows from Investing Activities Loan to NOJO Investment Fund, LLC Property and Equipment Additions Construction in Progress Additions Decrease (Increase) in Restricted Cash

(557,968) (5,154,091) 5,406,674

(4,976,000) (89,355)

(2,050,865) (5,406,674)

Net Cash Used in Investing Activities (305,385) (12,522,894)

Cash Flows from Financing Activities Proceeds on Notes Payable Payments on Notes Payable Loan Costs

1,667,000 (1,365,741)

12,857,005

(492,762)

Net Cash Provided by Financing Activities 301,259 12,364,243

Net Increase (Decrease) in Cash 459,811 (771)

Cash, Beginning of Year _ 771

Cash, End of Year $ 459,811 3

Supplemental Disclosure of Cash Flow Information Cash Paid for Interest $ 296,462 3 i 91,529

Noncash Investing Transaction Accounts Payable for Construction in Progress $ - 3 i 481,661 Construction in Progress Capitalized as Building Improvements $ 7,420,784 3



Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation The consolidated financial statements include the accounts of The New Orleans Jazz Orchestra, Inc. and 1436 Oretha 0. Haley, LLC. All material intercompany transactions have been eliminated.

Organization and Nature of Activities The New Orleans Jazz Orchestra, Inc. (the NOJO) is a Louisiana not-for-profit membership corporation created to inspire freedom and culture in the individual and the global community by creating authentic, engaging jazz experiences that celebrate the origins and transform the future of jazz. The NOJO's goal is to strengthen the business of jazz through performances, tours, recordings, education, and media platforms. The NOJO is committed to the development of an industry for Jazz in the city in which it was created.

1436 Oretha 0. Haley, LLC (OCH) was established on November 27, 2013, to facilitate financing for redevelopment and renovation of certain property located at 1436 Oretha C. Haley Boulevard, New Orleans, Louisiana into a musical performance venue to serve primarily as the new home of The New Orleans Jazz Orchestra, Inc. The financing was obtained through outside investors, with the intention of qualifying as a "quality low-income community investment" for purposes of generating certain tax credits called New Market Tax Credits (NMTCs) under section 45D of the Internal Revenue Code of 1986, as amended.

Basis of Accounting The NOJO prepares its consolidated financial statements in accordance with accounting principals generally accepted in the United States of America, which involves the application of accrual accounting; consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred.

Basis of Presentation In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Not-for-Profit Entities Topic, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of donor restrictions. Contributions that are restricted by the donors are reported as increases in unrestricted net assets if the restrictions expire in the reporting period in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions.

When a restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as "net assets released from restrictions". Contributions received are recorded at their fair market value on the date of receipt.



Note 1. Summary of Significant Accounting Policies (Continued)

Basis of Presentation (Continued) In accordance with PASS Accounting Standards Codification Not-for-Profit Entities Top\c, the NOJO is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The NOJO has no permanently restricted net assets.

Use of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could differ from those estimates.

Donated Assets Donated marketable securities and other non-cash donations are recorded as contributions at their estimated fair values at the date of donation.

Promises to Give Unconditional promises to give are recognized as revenues or gains in the period received and as assets, decreases of liabilities or expenses depending on the form of the benefits received. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional.

The NOJO uses the allowance method to determine uncollectible unconditional promises to give. The allowance is based on prior years' experience and management's analysis of specific promises made.

As of June 30, 2015 and 2014 there were no promises to give.

Restricted Cash As part of the New Market Tax Credit transaction (see Note 2 and 3), numerous bank accounts were required to be created relating to this transaction. The total amount of cash restricted as of June 30, 2014 was $5,406,674. During the year ended June 30, 2015, the cash restricted was utilized for its purpose and, thus, there was no cash restricted as of June 30, 2015.

Property and Equipment Property and equipment are stated at cost. Donated property is recorded at its estimated fair market value at the date of receipt. Acquisitions of property and equipment in excess of $600 and all expenditures for repairs, maintenance and improvements that materially prolong the useful lives of assets are capitalized.

Depreciation is being provided by use of the straight-line method over the estimated useful lives of the related assets. Depreciation expense for the years ended June 30, 2015 and 2014 was $117,477 and $5,318, respectively.



Note 1. Summary of Significant Accounting Policies (Continued)

Contributions Contributions received are recorded as increases in unrestricted, temporarily restricted or permanently restricted net assets, depending on the existence and/or nature of any donor restrictions.

Contributions that are restricted by donors are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions.

Income Taxes The NOJO is a 501(c)(3) charitable organization and except from federal income tax. However, income from certain activities not directly related to the NOJO's tax-exempt purpose is subject to taxation as unrelated business income.

The NOJOs subsidiary, OCH, is a single member limited liability company which did not incur income taxes as of June 30, 2015 and 2014.

Note 3. Long-Term Debt

New Market Tax Credit Loans As mentioned in Note 1, OCH was formed to facilitate the issuance of New Market Tax Credits to further facilitate the financing of the construction of the New Orleans Jazz Market building (the Building).

On December 24, 2013, the NOJO entered into a Senior Loan Agreement (GSUIG Senior Loan) with GSUIG Real Estate Member, LLC (GSUIG). The loan bears interest at a rate of 5.00% and matures on December 23, 2018. Beginning on January 1, 2014, interest is payable each succeeding calendar quarter until maturity. As of June 30, 2014, GSUIG funded the first draw on the loan totaling $5,857,005 to the NOJO. During the year ended June 30, 2015, GSUIG funded an additional $875,377. The principal balance outstanding was $5,366,640 and $5,857,005 as of June 30, 2015 and 2014, respectively. Interest expense totaled $295,600 and $146,425 for the years ended June 30, 2015 and 2014, respectively.

The GSUIG Senior Loan is secured by a grant of liens and security interests in all of its assets to the extent such assets are capable of being pledged under the Uniform Commercial code in effect in the State of Louisiana.

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Note 3. Long-Term Debt (Continued)

New Market Tax Credit Loans (Continued) Scheduled principal payments on the GSUIG Senior Loan as of June 30, 2015, are as follows:

2016 $ 4,066,640 2017 400,000 2018 400,000 2019 500,000 2020

Thereafter

Total $ 5,366,640

Upon receipt of the Senior Loan Agreement funds, the NOJO entered into a leverage loan with NOJO Investment Fund, LLC, for the principal amount of $4,976,000. In addition, NOJO Investment Fund, LLC, received a capital contribution from an Investor Member in the aggregate amount of $2,047,500. NOJO Investment Fund, LLC, used the proceeds of the leverage loan, together with the proceeds of the Investor Member's capital contribution to make a qualified equity investment (as defined in section 45D of the Internal Revenue Code of 1986, as amended, collectively "New Market Tax Credit Law") of $7,000,000 in GSNMFSub-CDE 14, LLC (Sub-CDE).

On December 24, 2013, 1436 Oretha C Haley, LLC, entered into Loan Note A agreement (Loan A) with Sub-CDE for the principal sum of $4,976,000. The loan bears interest at a rate of 1.05% and matures on December 23,2043. Beginning on January 5, 2014, interest is payable on the fifth day of each succeeding calendar quarter until maturity. Principal on the note shall begin to amortize on January 1, 2021. Interest expense on this loan totaled $52,083 and $26,041 for the years ended June 30, 2015 and 2014, respectively.

On December 24, 2013, 1436 Oretha C Haley, LLC, entered into Loan Note B agreement (Loan B) with Sub-CDE for the principal sum of $2,024,000. The loan bears interest at a rate of 1.05% and matures on December 22,2043. Beginning on January 5, 2014, interest is payable on the fifth day of each succeeding calendar quarter until maturity. Principal on the note shall begin to amortize on January 1, 2021. Interest expense on this loan totaled $21,185 and $10,592 for the years ended June 30, 2015 and 2014, respectively.

Loan A and Loan B are secured by a mortgage, security agreement, and assignment of leases and rentals.

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Note 3. Long-Term Debt (Continued)

New Market Tax Credit Loans (Continued) Scheduled principal payments on Loan A and Loan B as of June 30, 2015, are as follows:

Loan A Loan B 2016 $ - $ 2017 2018 2019 2020

Thereafter 2,024,000 4,976,000

Total $ 2,024,000 $ 4,976,000

Note Payable to New Orleans Redevelopment Authority The NOJO entered into a loan agreement with New Orleans Redevelopment Authority (NORA). The funds were used to repay the bridge loan obtained in the new market tax transaction noted above. The note bears an interest rate of 2.50%. The term of repayment is over 15 years with quarterly principal and interest payments calculated with a 25 year amortization. Scheduled principal payments on the note as of June 30, 2015, are as follows:

2016 $ 19,100 2017 23,741 2018 24,340 2019 24,954 2020 25,584

Thereafter 673,905

Total $ 791,624

Note Payable to Regions Bank The NOJO entered into a loan agreement with Regions Bank. On May 12, 2014, the NOJO restructured the loan agreement, which had a balance of $271,043 including principal and accrued interest, costs and expenses. The restructured agreement calls for the NOJO to pay a total amount of $135,492 payable in 120 monthly installments of $1,129 beginning on May 30, 2014, with an interest rate of -0-%. Provided that the NOJO satisfied all conditions of the agreement and timely pays the amount due with no default, the agreement provides for forgiveness of the remaining outstanding balance of the debt. Due to the condition set on the debt forgiveness, the balance as of June 30, 2015, which is $248,763, includes the portion that could be forgiven.

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Note 4. Deferred Loan Costs

Loan costs associated with the New Market Tax Credit Loans A & B (NMTC Loans) and the Senior Loan Agreement were capitalized. Capitalized loan costs as of June 30, 2015 and 2014 totaled $492,762. These loan costs are amortized over the life of the loans, which are forty years for the NMTC Loans and seven years for the Senior Loan Agreement. Amortization expense totaled $23,303 and $11,652, for the years ended June 30, 2015 and 2014, respectively.

Note 5. Operating Leases

The NOJO rents 800 square feet of office space at 2020 St. Charles Avenue, New Orleans. The lease began on April 1, 2012 and continues on a month-to-month basis until terminated by either party. Monthly rent is $933. Payments for the years ending June 30, 2015 and 2014 totaled $12,572 and $11,200, respectively.

On October 8, 2010, the NOJO leased an office copier under a five year agreement. Monthly rental expense is $303. Payments for the years ending June 30, 2015 and 2014 totaled $3,636, respectively. Payments under the lease for the remainder of the agreement total $3,636,and $1,212 for the years ending June 30, 2016 and 2017, respectively.

Note 6. Related Party Transactions

As part of the NMTC transactions described in Note 3, on December 24, 2013, OCH entered into a direct loan note with the NOJO for the principal sum of $2,357,615. The note bears interest at a rate of 18.00% and matures on June 22, 2015. The balance of the loan was $1,005,424 and $1,018,357 as of June 30, 2015 and 2014, respectively. Interest is paid quarterly beginning on December 31, 2013. The balances of the loan receivable and payable along with corresponding interest income and expense fully eliminate upon consolidation.

On December 24, 2013, OCH entered into a lease agreement with the NOJO to lease the land and building located at 1436 Oretha C. Haley Boulevard for the purpose of undertaking significant renovations to the entirety of the property in order to convert the existing unoccupied historic building into a musical performance venue. During the year ended June 30, 2014, OCH paid an upfront base rental fee of $625,693. Annual rent of $1 will be due before December 31®* for each of the sixty years until December 31, 2072. The effects of this transaction fully eliminate upon consolidation.

On December 24, 2013, the NOJO entered into a sublease with OCH to lease the property located at 1436 Oretha C. Haley Boulevard to operate its interests. The lease term begins on the commencement date which is the date a certificate of occupancy is issued for the property after completion of the rehabilitation. The lease ends on the day preceding the thirty second anniversary of the commencement date unless terminated as provided in the agreement. Annual rent is payable in quarterly installments. Rent expense related to this sublease totaled $29,882 for the year ended June 30, 2015.

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Note 6. Related Party Transactions (Continued)

Future payments are $118,727 for calendar years ending between December 31, 2015 through December 31, 2020 and $405,000 for calendar years ending between December 31, 2012 through December 31, 2043.

One board member acts in the capacity of the Artistic Director for the NOJO. Payments are made throughout the year to either this board member or his company which performs services for the NOJO. Total payments received by this board member directly and through his company totaled $209,969 and $115,850 for the years ended June 30, 2015 and 2014, respectively.

One board member advanced funds to the NOJO which had a balance of $37,000 for year ended June 30, 2014. This unsecured, non-interest bearing advance was paid in full during fiscal year ended June 30, 2015.

The NOJO, through the various events during the year, received contributions from various board members or organizations with which they are associated. Total revenues received from related parties for the years ended June 30, 2015 and 2014 was approximately $315,000 and $217,000, respectively.

The NOJO leased approximately 800 square feet of office space located in New Orleans, Louisiana from a nonprofit organization related to the NOJO by two board members. Rent expense related to this lease was approximately $12,500 and $11,000 for the years ended June 30, 2015 and 2014, respectively.

During the year ended June 30, 2015, the NOJO retained a company, that is related to the NOJO by one board member, to manage the new building. Total fees paid to this company for the year ended June 30, 2015 totaled approximately $8,000.

Bank accounts are maintained as a financial institution that is related to the NOJO by one board member.

Note 7. Income Taxes

The NOJO is exempt from income taxes under Section 501 (c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the NOJOs tax-exempt purpose is subject to taxation as unrelated business income. Income taxes for such unrelated business income was estimated to be approximately $1,600 and $-0- for the years ended June 30, 2015 and 2014, respectively. As this amount is deemed insignificant by management, taxes for unrelated business income were not recorded as of June 30, 2015.

Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an entity in its tax returns that might be uncertain. The NOJO believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements.

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Note 7. Income Taxes (Continued)

For the year ending June 30, 2015 and 2014, the NOJO incurred penalties totaling $3,147 and $-0-, respectively, for late filing of a quarterly 941 form. Penalties and interest assessed by income taxing authorities are included in interest expense.

Note 8. Cooperative Endeavor Agreement

On March 17, 2014 the NOJO entered into a Cooperative Endeavor Agreement (CEA) with the State of Louisiana wherein the State Office of Facility Planning and Control (FP&C) administered funding appropriated for capital improvements related to the construction of the New Orleans Jazz Market building (see Note 3). The Building was completed during the year ended June 30, 2015. Funding received as per this agreement was $1,100,255 and $9,745 during the years ended June 30, 2015 and 2014, respectively.

Note 9. Naming Rights Agreement

On December 29, 2014, the NOJO entered into a naming rights agreement with New Orleans Regional Physician Hospital Organization, Inc. d/b/a Peoples Health Network (PHN). The terms of the agreement include payment to the NOJO a total sum of $1,500,000 (the Fee), payable in installments of $300,000 per year for five years. The NOJO recognizes the Fee as revenue earned over the 30 year term of the agreement. For the year ended June 30, 2015, the NOJO recognized $25,000 as revenue, and deferred revenue of $275,000 as of June 30, 2015.

As part of the agreement, PHN has the exclusive right to name the Building and all promotional materials shall refer to the designated name. In addition, PHN shall have the right to use the Building for events for its members or employees for no additional compensation other than the Fee.

Note 10. Subsequent Events

Management has evaluated subsequent events through the date that the consolidated financial statements were available to be issued, November 24, 2015, and determined that no events occurred that required disclosure. No subsequent events occurring after November 24, 2015, have been evaluated for inclusion in these consolidated financial statements.

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SUPPLEMENTARY INFORMATION

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THE NEW ORLEANS JAZZ ORCHESTRA, INC. Supplementary Information Schedule of Compensation, Benefits and Other Payments to Agency Head For the Year Ended June 30, 2015

Agency Head Ronald Markham, President & CEO

Purpose Amount Paid Salary $100,000 Benefits - Insurance $0 Benefits - Retirement $0 Benefits - Other $0 Vehicle Provided by Agency $0 Per Diem $0 Reimbursements $0 Travel $3,086 Registration Fees $0 Conference Travel $0 Continuing Professional Education Fees $0 Housing $0 Unvouchered Expenses $0 Special Meals $5,996

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T A Tl# LaPorte, APAC I r 1} fx I 111 Veterans Blvd. I Suite 600

CPAs A BUSINESS ADVISORS Metaitic, LA 70005 504.835.5522 | Fax 504.835.5535

LaPorte.com

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF

FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Independent Auditor's Report

To the Board of Directors The New Orleans Jazz Orchestra, Inc. New Orleans, Louisiana

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of The New Orleans Jazz Orchestra, Inc., which comprise the consolidated statement of financial position as of June 30, 2015, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated November 24, 2015.

Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered The New Orleans Jazz Orchestra, Inc.'s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The New Orleans Jazz Orchestra, Inc.'s internal control. Accordingly, we do not express an opinion on the effectiveness of The New Orleans Jazz Orchestra, Inc.'s internal control.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and responses, we identified certain deficiencies in internal control that we consider to be a material weaknesses and significant deficiencies.

A deficiency in internal controi exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency described in 2015-01 in the accompany schedule of findings and responses to be a material weakness.

NEW ORLEANS HOUSTON BATON ROUGE COVINGTON

An Independently Owned Member, McGladrey Alliance Tlie McGladrey Alliance is a pfemier affiliation of independent accounting and consulting firms. The McGladrey Alliance member firms manta^ their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services arvd maintenance of client relationships. 18

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in 2015-02 through 2015-05 in the accompany schedule of findings and responses to be significant deficiencies.

Compliance and Other Matters As part of obtaining reasonable assurance about whether The New Orleans Jazz Orchestra, Inc.'s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

The New Orleans Jazz Orchestra's Response to Findings The New Orleans Jazz Orchestra's response to the findings identified in our audit are described in the accompanying schedule of findings and responses. The New Orleans Jazz Orchestra's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.

Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Under Louisiana Revised Statute 24:513, this report is distributed by the Legislative Auditor as a public document.

A Professional Accounting Corporation

Metairie, LA November 24, 2015

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THE NEW ORLEANS JAZZ ORCHESTRA, INC. Schedule of Findings and Responses For the Year Ended June 30, 2015

Part I • Summary of Auditor's Results

Financial Statements

1. Type of auditors' report issued: Unmodified

2. Internal control over financial reporting and compliance and other matters: a. Material weaknesses identified? Yes b. Significant deficiencies identified? Yes c. Noncompliance material to the financial statements None

3. Management letter comment provided? None

Federal Awards

Not applicable

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THE NEW ORLEANS JAZZ ORCHESTRA, INC. Schedule of Findings and Responses (Continued) For the Year Ended June 30, 2015

Part II - Findings Related to the Financial Statements

2015-01 Internal Controls Over Financial Reporting

Condition/Criteria:

Cause:

Effect:

Recommendation:

Management's Response/ Corrective Action Pian:

During the audit, numerous adjusting journal entries were needed to correct the coding of transactions in the general ledger. These adjustments included; • Correcting consolidation entries • Reclassifying transactions recorded to temporary accounts • Correcting duplicate accounts payable entries • Reclassifying expenses to proper accounts

An effective system of internal controls requires that management implement controls over financial reporting to ensure that accurate financial information is produced timely for use in the management of the organization.

The NOJO did not have adequate controls over financial reporting to ensure that the financials as of June 30, 2015 were materially correct.

Numerous adjusting entries were required to present the financial statements in accordance with U.S. generally accepted accounting principles.

We realize that the preparation of the financial statements is outsourced but the NOJO remains responsible for supervising the financial reporting process. We recommend that a thorough review of the financial statements be performed regularly to ensure that accounts are accurately recorded.

Management recognizes the issue and agrees with the recommendation. We intend to bring in another layer of financial consultants to strengthen controls in overall financial reporting.

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Part II - Findings Related to the Financial Statements (Continued)

2015-02 Cash Disbursement Documentation

Condition/Criteria:

Cause:

Effect:

During our testing of disbursements, we noted several areas wherein controls appeared to be deficient. These deficiencies included instances of: • Check copies or check requests being the sole documentation provided

to us in support of disbursements. • Lack of supporting documentation provided, noting many of these

transactions were purchases from a debit card. • Lack of evidence of invoice being properly cancelled. • The business purpose of meal or travel transactions were not noted.

Sound controls over cash disbursements include maintaining adequate, appropriate supporting documentation for purchases, making payments only from original invoices for the amount due, ensuring invoices are canceled to prevent duplicate payment of amounts, and proper coding of expenses.

Accepted best practices over purchasing have not been implemented.

Presents an opportunity for unauthorized transactions to take place.

Recommendation: Management should implement stronger controls over cash disbursements, including maintaining adequate supporting documentation on cash disbursements, proper documentation of cancellation of invoices, and documentation of business purpose of meals and travel related expenses. As noted, many transactions were noted from a debit card, the use of which we recommend be curtailed. If a debit card is used, documentation for each purchase should be maintained and a policy be implemented wherein reimbursement will be requested if receipts can not be produced.

Management's Response/ Corrective Action Pian: Management agrees and began implementing stronger control procedures

in this area during the 2016 fiscal year. All employees were made aware that supporting documentation is required to be maintained for all purchases and the Executive Director is ensuring that this is being followed through.

Beginning in May 2015, only the Executive Director has control over the operating account debit card. He collects all receipts for purchases made with this debit card and ensures that business purpose is documented. An email account has also been set up to act as a collection center for supporting documentation for any electronic purchases made with the card.

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2015-03 Internal Controls Over Revenue Reconciliation

Condition/Criteria:

Cause:

Effect:

Our audit procedures disclosed that a detail of revenue transactions related to the bar and events held within the building were not maintained by the NOJO. As a result, reconciliations over bar receipts did not appear to be regularly performed. It was noted that point of sale reports were not provided to the contracted accountant to review for reconciliation to the general ledger. In addition, it appeared that tour income from one booking agent was not regularly reconciled. Each tour booked through this agent has an established fee but there is no detail of the amounts wired to the NOJO by the agent. As a result, reconciliation between the established fees and the amounts collected is not performed. Good controls require timely reconciliation of revenue reports to the amounts recorded in the general ledger.

There is no established policy in place to reconcile revenues related to the bar, events held in the building and tours booked through one booking agent.

The completeness and accuracy of bar sales and tour revenues associated with the one booking agent is unknown.

Recommendation: Management should ensure that detailed documentation of all revenue transactions is turned over to the contracted accountant for regular reconciliation to deposits recorded in the general ledger. In addition, management should endeavor to receive more detailed information from the booking agent which should be forwarded to the accounting firm providing accounting services for regular reconciliation.

Management's Response/ Corrective Action Pian: Immediately upon receiving this recommendation, the Executive Director

required the bar manager to maintain documentation and detailed information for every deposit made. With regards to the booking agent, we will work with our accountants to determine the best way to improve the revenue reconciliation process.

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2015-04 Internal Controls Over Inventory

Condition/Criteria: While it is not anticipated that the inventory is material to the financial statements, we noted during the audit that a physical count was not performed as of year end on bar related inventory.

Cause:

Effect:

The NOJO did not maintain detailed records of inventory remaining at year end.

Inventory asset is unrecorded as of year end.

Recommendation: At the end of each fiscal year, an inventory count of bar related items should be performed to maintain adequate records of inventory. These bar related items should be recorded as inventory asset and adjusted to the physical count performed at the end of each year.

Management's Response/ Corrective Action Pian: Management agrees and intends to bring in professionals in the bar

industry to consult on best practices in relation to bar operations, as this is a new area for the NOJO. We intend to conduct a physical count of bar inventory at the end of the 2016 fiscal year as recommended.

2015-05 Written Management Agreement

Condition/ Criteria: As part of our audit, we noted that there was no written management agreement between the NOJO and the Artistic Director nor the production company he owns. Good business practices always include having a written agreement for any such major contractual arrangements.

Cause:

Effect:

There is no formal document in place which clearly outlines the duties, responsibilities and obligations of each party.

There is no formally established mutually agreed upon payment terms for the Artistic Director. This could result in misunderstandings and disputes over payment.

Recommendation: We suggest that a contract be executed and maintained on file which outlines the duties, responsibilities and obligations of each party as well as contain other standard but critical contract language.

Management's Response/ Corrective Action Pian: Management agrees and intends to have an agreement in place with the

publishing company owned by the Artistic Director which will cover both the responsibilities of the position of Artistic Director as well as performances in which the Artistic Director participates.

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THE NEW ORLEANS JAZZ ORCHESTRA, INC. Summary Schedule of Prior Audit Findings For the Year Ended June 30, 2015

None

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