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FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT

LUND FAMILY CENTER, INC.

JUNE 30, 2017 AND 2016


JUNE 30, 2017 AND 2016

CONTENTS

Pages INDEPENDENT AUDITOR’S REPORT 1 - 2 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION 3 STATEMENTS OF ACTIVITIES 4 STATEMENTS OF FUNCTIONAL EXPENSES 5 - 6 STATEMENTS OF CASH FLOWS 7 - 8 NOTES TO FINANCIAL STATEMENTS 9 - 24 SUPPLEMENTAL SCHEDULES SCHEDULE OF REVENUES AND EXPENSES – RESIDENTIAL PROGRAM 25 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 27 FEDERAL AUDIT REPORTS 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 28 - 29 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 30 - 31

SCHEDULE OF FINDINGS AND QUESTIONED COSTS 32 - 33 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 34

Independent Auditor’s Report To the Board of Trustees and Finance Committee of Lund Family Center, Inc. Report on the Financial Statements

We have audited the accompanying financial statements of Lund Family Center, Inc., which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities, functional expenses, and cash flows for the years then ended and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lund Family Center, Inc. as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter – Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and the schedule of revenue and expenses – residential program, are presented for purposes of additional analysis and are not required parts 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 December 7, 2017, on our consideration of Lund Family Center, 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 Lund Family Center, Inc.’s internal control over financial reporting and compliance.

December 7, 2017

The accompanying notes are an integral part of these statements.

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STATEMENTS OF FINANCIAL POSITION

JUNE 30,

2017 2016

Cash and cash equivalents 1,215,539$ 1,185,798$ Accounts receivable 836,256 595,730 Federal and state grants receivable 172,036 166,348 Pledges receivable 68,747 118,316 Prepaid expenses and other assets 149,947 148,153 Restricted cash 157,531 157,448 Investments 962,657 883,274 Land, buildings and equipment, net 8,301,447 8,508,868

Total assets 11,864,160$ 11,763,935$

LIABILITIESAccounts payable 86,759$ 66,636$ Accrued expenses 527,791 458,812 Deferred revenue 7,515 19,461 Fair value of interest rate swap agreement 328,617 491,067 Long-term debt - bank 1,631,773 1,685,028 Long-term debt - bonds 3,201,675 3,335,940

Total liabilities 5,784,130 6,056,944

NET ASSETSUnrestricted 5,679,854 5,143,177 Temporarily restricted 127,259 290,897 Permanently restricted 272,917 272,917

Total net assets 6,080,030 5,706,991

Total liabilities and net assets 11,864,160$ 11,763,935$

A S S E T S

LIABILITIES AND NET ASSETS


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STATEMENTS OF ACTIVITIES

YEARS ENDED JUNE 30,

2017 2016

Temporarily Permanently Temporarily PermanentlyUnrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total

REVENUE AND GAINSFederal and state contracts and grants 8,620,929$ -$ -$ 8,620,929$ 7,440,482$ -$ -$ 7,440,482$ Program service fees 383,673 - - 383,673 297,390 - - 297,390 Contributions and other grants 613,060 97,095 - 710,155 673,984 150,057 - 824,041 Special event income, net of related expenses 45,002 - - 45,002 88,412 - - 88,412 Miscellaneous 34,325 - - 34,325 28,767 - - 28,767 Net assets released from restrictions 260,733 (260,733) - - 662,646 (662,646) - -

Total revenue 9,957,722 (163,638) - 9,794,084 9,191,681 (512,589) - 8,679,092

EXPENSES AND LOSSESProgram expenses:

Adoption 1,450,180 1,450,180 1,231,620 1,231,620 Child and family services 2,372,944 - - 2,372,944 2,322,310 - - 2,322,310 Residential and community treatment 4,509,277 - - 4,509,277 4,134,166 - - 4,134,166

Total program expenses 8,332,401 - - 8,332,401 7,688,096 - - 7,688,096

Supporting expenses:General administration 1,089,512 - - 1,089,512 980,691 - - 980,691 Fundraising and development 246,079 - - 246,079 374,138 - - 374,138

Total supporting expenses 1,335,591 - - 1,335,591 1,354,829 - - 1,354,829

Total expenses 9,667,992 - - 9,667,992 9,042,925 - - 9,042,925

INCREASE (DECREASE) FROM OPERATIONS 289,730 (163,638) - 126,092 148,756 (512,589) - (363,833)

OTHER GAINS (LOSSES)

Total investment return 84,497 - - 84,497 46,954 - - 46,954

Change in value of interest rate swap agreement 162,450 - - 162,450 (45,747) - - (45,747)

Gain on sale of equipment - - - - 6,500 - - 6,500

Total other gains 246,947 - - 246,947 7,707 - - 7,707

Increase (decrease) in net assets 536,677 (163,638) - 373,039 156,463 (512,589) - (356,126)

NET ASSETS, beginning of year 5,143,177 290,897 272,917 5,706,991 4,986,714 803,486 272,917 6,063,117

NET ASSETS, end of year 5,679,854$ 127,259$ 272,917$ 6,080,030$ 5,143,177$ 290,897$ 272,917$ 5,706,991$


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STATEMENT OF FUNCTIONAL EXPENSES

YEAR ENDED JUNE 30, 2017

Residential Child and and Community Total General Fundraising and Total Total

Adoption Family Services Treatment Program Administration Development Supporting Expenses

Salaries and wages 891,250$ 1,534,401$ 2,797,032$ 5,222,683$ 653,031$ 122,755$ 775,786$ 5,998,469$ Payroll taxes and benefits 242,291 416,765 762,039 1,421,095 146,170 34,326 180,496 1,601,591

Total personnel 1,133,541 1,951,166 3,559,071 6,643,778 799,201 157,081 956,282 7,600,060

Audit and legal 3,096 928 - 4,024 41,036 - 41,036 45,060 Dues and fees 61,219 7,738 3,246 72,203 17,633 3,250 20,883 93,086 Equipment 10,917 3,165 13,219 27,301 662 299 961 28,262 Facilities 9,567 124,480 81,384 215,431 7,988 4,844 12,832 228,263 Insurance 5,621 19,933 32,697 58,251 12,208 2,836 15,044 73,295 Interest 13,765 44,806 176,124 234,695 8,013 6,944 14,957 249,652 Other expenses 5,835 4,635 13,448 23,918 21,600 2,873 24,473 48,391 Other professional fees 10,979 10,029 68,585 89,593 112,677 30,829 143,506 233,099 Participant assistance and other program expenses 40,450 30,790 110,348 181,588 52 - 52 181,640 Postage 10,191 1,120 584 11,895 1,757 3,222 4,979 16,874 Printing and advertising 1,652 4 67 1,723 4,914 13,659 18,573 20,296 Supplies 26,959 69,821 182,042 278,822 23,943 8,671 32,614 311,436 Telephone 11,460 9,796 19,448 40,704 14,004 522 14,526 55,230 Travel 84,550 19,332 66,482 170,364 6,819 769 7,588 177,952

1,429,802 2,297,743 4,326,745 8,054,290 1,072,507 235,799 1,308,306 9,362,596 Depreciation and amortization 20,378 75,201 182,532 278,111 17,005 10,280 27,285 305,396

Total 1,450,180$ 2,372,944$ 4,509,277$ 8,332,401$ 1,089,512$ 246,079$ 1,335,591$ 9,667,992$

PROGRAM EXPENSES SUPPORTING EXPENSES


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STATEMENT OF FUNCTIONAL EXPENSES


Residential Child and and Community Total General Fundraising and Total Total

Adoption Family Services Treatment Program Administration Development Supporting Expenses

Salaries and wages 785,639$ 1,471,205$ 2,484,545$ 4,741,389$ 645,302$ 213,255$ 858,557$ 5,599,946$ Payroll taxes and benefits 182,276 429,240 659,883 1,271,399 116,539 44,122 160,661 1,432,060

Total personnel 967,915 1,900,445 3,144,428 6,012,788 761,841 257,377 1,019,218 7,032,006

Audit and legal 2,239 - - 2,239 37,587 - 37,587 39,826 Dues and fees 45,264 3,499 2,009 50,772 8,700 3,454 12,154 62,926 Equipment 11,754 6,492 28,411 46,657 1,504 749 2,253 48,910 Facilities 9,973 128,055 71,896 209,924 8,146 5,024 13,170 223,094 Insurance 4,373 15,959 24,986 45,318 9,542 2,206 11,748 57,066 Interest 15,886 53,405 182,467 251,758 9,248 8,014 17,262 269,020 Other expenses 7,118 8,345 27,264 42,727 9,244 3,350 12,594 55,321 Other professional fees 9,792 13,322 69,994 93,108 73,391 50,265 123,656 216,764 Participant assistance and other program expenses 29,166 42,825 116,927 188,918 - - - 188,918 Postage 3,269 2,306 466 6,041 1,436 4,379 5,815 11,856 Printing and advertising 6,699 - - 6,699 - 22,184 22,184 28,883 Supplies 13,449 42,471 211,852 267,772 17,540 4,292 21,832 289,604 Telephone 12,763 11,539 19,771 44,073 4,284 967 5,251 49,324 Travel 72,729 20,237 58,669 151,635 2,190 2,176 4,366 156,001

1,212,389 2,248,900 3,959,140 7,420,429 944,653 364,437 1,309,090 8,729,519 Depreciation and amortization 19,231 73,410 175,026 267,667 36,038 9,701 45,739 313,406

Total 1,231,620$ 2,322,310$ 4,134,166$ 7,688,096$ 980,691$ 374,138$ 1,354,829$ 9,042,925$

SUPPORTING EXPENSESPROGRAM EXPENSES

(CONTINUED) - 7 -


STATEMENTS OF CASH FLOWS


2017 2016 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH FLOWS FROM OPERATING ACTIVITIES

Increase (decrease) in net assets 373,039$ (356,126)$

Noncash items included in increase (decrease) in net assets:

Depreciation and amortization 305,396 313,406

Net realized and unrealized gains on investments (59,180) (19,686)

Bad debt expense - 1,750

Change in fair value of interest rate swap agreement (162,450) 45,747

Gain on sale of equipment - (6,500)

Changes in assets and liabilities:

Accounts receivable (240,526) 50,102

Pledges receivable 49,569 484,184

Federal and state grants receivable (5,688) (88,216)

Prepaid expenses and other assets (9,660) 65,994

Restricted cash (83) (82)

Accounts payable 20,123 1,563

Accrued expenses 68,979 75,633

Deferred revenue (11,946) (7,149)

(45,466) 916,746

Net cash provided by operating activities 327,573 560,620

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of investments 463,943 726,320 Purchase of investments (484,146) (748,338)

Proceeds from sale of equipment - 6,500

Capital expenditures (90,109) (91,737)

Net cash used in investing activities (110,312) (107,255)

Subtotal (forward) 217,261$ 453,365$


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STATEMENTS OF CASH FLOWS


2017 2016

Subtotal (forwarded) 217,261$ 453,365$

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long-term debt - 23,436 Principal payments on long-term debt (187,520) (632,668)

Net cash used in financing activities (187,520) (609,232)

Net increase (decrease) in cash and cash equivalents 29,741 (155,867)

CASH AND CASH EQUIVALENTS, beginning of year 1,185,798 1,341,665

CASH AND CASH EQUIVALENTS, end of year 1,215,539$ 1,185,798$

Supplemental Disclosures of Cash Flows Information

Cash paid during the year for:

Interest expense 249,652$ 269,020$

Income taxes -$ -$


NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017 AND 2016

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A) SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES

Operations:

The Lund Family Center, Inc. (Lund) is a multi-program family service agency whose mission is to help children thrive by empowering families to break cycles of poverty, addiction, and abuse. Lund, a Vermont corporation, works primarily with pregnant and parenting teens and women, families with young children, adoptive families, birth parents, and adoptees. Lund’s primary revenue sources are contracts with the State of Vermont and funding by federal and state grants, which collectively account for 87% and 86% of total revenue for the years ended June 30, 2017 and 2016, respectively.

Accounting policies:

A summary of Lund’s significant accounting policies applied in the preparation of the accompanying financial statements follows:

1. Basis of accounting and presentation

The financial statement presentation follows the requirements of Accounting Standards Codification (ASC) Topic 958, Not-For-Profit Entities. Lund reports 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.

2. Revenue recognition

Contribution revenues

Lund accounts for contributions and promises to give under ASC Topic 958, Not-For-Profit Entities. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted funds depending on the existence or nature of donor restrictions.

Contributions are recognized when the donor makes a promise to give to Lund that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the revenues 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.



JUNE 30, 2017 AND 2016

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A) SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)

2. Revenue recognition (continued)

Contribution revenues (continued)

Contributions received with donor restrictions that may be satisfied through performance or with the passage of time are required to be reported as temporarily restricted support. Temporarily restricted net assets are then reclassified to unrestricted net assets upon expiration of the time or use restriction. Contributions received with donor restrictions that the donated asset must be maintained in perpetuity are classified as permanently restricted net assets.

Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give, expected to be collected in future years would be recorded at the net present value of their estimated future cash flows. The discounts on those amounts would be computed using risk-free interest rates applicable to the years in which the promises are received.

Conditional promises to give are not recorded until the conditions are substantially met.

Grant revenues

Grant revenues are recognized as revenue as conditions of the grant are satisfied. Grants are reported as increases in unrestricted net assets in the fiscal year in which any restrictions expire. All other grants are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions.

Program service fees

Program services fees are recorded upon delivery of the related services.

Deferred revenue

Revenues related to deposits, pre-payments, advance billings under enforceable contracts, and related fees are deferred until the period in which such amounts are earned.

3. Cash and cash equivalents

Lund considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash balances related to long-term investments are accounted for as investments.

4. Restricted cash

Restricted cash represents amounts required to be reserved by long-term debt and lease agreements between Lund and third parties (see Note E and Note H).



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5. Receivables

All pledges receivable at June 30, 2017 and 2016 are expected to be collected within one year.

Receivables are stated at the amount Lund expects to collect. Lund maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers and grantors to make required payments and donors to fulfill promises to give. Management considers the following factors when determining the collectability of specific customer and grantor accounts: creditworthiness, past transaction history, current economic industry trends, and changes in payment terms. If the financial condition of Lund’s customers, grantors, or donors were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, Lund provides for estimated uncollectible amounts through a charge to activities and a credit to the valuation allowance. No allowance was required at June 30, 2017 or 2016.

6. Fair value of financial instruments

The estimated fair values of Lund’s short-term financial instruments, including receivables and payables arising in the ordinary course of business, approximate their individual carrying amounts due to the relatively short period of time between their origination and expected realization. Lund’s cash, investments, and interest rate swap are carried at fair value in the accompanying financial statements. The carrying value of Lund’s long-term debt also approximates fair value.

7. Fair value measurements

Under the Financial Accounting Standards Board (FASB) authoritative guidance on fair value measurements, fair value is the price that would be received for selling an asset or paid for transferring a liability in an orderly transaction between market participants at the measurement date. In determining fair value, Lund uses various methods including market, income and cost approaches. Based on these approaches, Lund often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. Lund utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques Lund is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.



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7. Fair value measurements (continued)

Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets in active markets that Lund has access to.

Level 2: Inputs to the valuation methodology include:

Quoted prices for similar assets in active markets;

Quoted prices for identical or similar assets in inactive markets;

Inputs other than quoted prices that are observable for the asset;

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.

Level 3: Inputs that are unobservable for the asset or liability.

For the years ended June 30, 2017 and 2016, the application of valuation techniques applied to similar assets and liabilities has been consistent. The following is a description of the valuation methodologies used for instruments measured at fair value:

Investment securities

Fixed income securities and common stocks are recorded at fair value based on quoted market prices, when available, or market prices provided by recognized broker dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use unobservable inputs due to the limited market activity of the instrument.

Money market and mutual funds are valued based on the net asset value (NAV) of units within a fund of assets. The NAV is used as a practical expedient to estimating fair value and is based upon the quoted prices of the underlying investments. This practical expedient would not be used if it were determined to be probable that the fund will sell the investment for an amount different from the reported NAV. Each fund provides for daily redemptions at reported NAV per unit, with no advance notification requirement.



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7. Fair value measurements (continued)

Derivative instrument

Derivatives consist of an interest rate swap agreement, measured on a recurring basis. This derivative is valued under Level 2 using third-party services. Observable market inputs include yield curves (the LIBOR swap curve and applicable basis swap curves), counterparty credit risk, and other related data. Credit valuation adjustments are required to reflect both Lund’s nonperformance risk and the respective counterparty’s nonperformance risk. These adjustments are determined generally by applying a credit spread for the counterparty or Lund as appropriate to the total expected exposure of the derivative.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although Lund believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

To assess the appropriate classification of investments within the fair value hierarchy, the availability of market data is monitored. Changes in economic conditions or valuation techniques may require the transfer of investments from one fair value level to another. In such instances, the transfer is reported at the end of the reporting period.

8. Investment income

Changes in investment value during the period are included in investment return in the accompanying statements of activities. Gains and investment income that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the revenues are recognized.

9. Land, buildings and equipment

Purchased land, buildings and equipment are recorded at cost.

Donations of property and equipment are recorded as contributions at their estimated fair market value on the date of donation. Such donations are recorded as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with specific restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as temporarily restricted support.



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9. Land, buildings and equipment (continued)

Absent donor stipulations regarding how long those donated assets must be maintained, Lund reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. Lund reclassifies temporarily restricted net assets to unrestricted net assets at that time.

Lund depreciates assets on a straight-line basis over the estimated useful life of the asset.

10. Impairment of long-lived assets

Long-lived assets, such as land, buildings and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows. An impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

11. Net assets

Lund reports information regarding its financial position and activities, depending upon the existence or absence of donor restrictions, according to these classes of net assets: unrestricted, temporarily restricted and permanently restricted.

Unrestricted net assets include Lund’s operating accounts and board-designated fund assets. Any portion of these designated funds may be expended with the approval of the Board.

Temporarily restricted net assets are subject to donor-imposed stipulations that can be fulfilled by actions of Lund.

Permanently restricted net assets must be maintained in perpetuity, and income from such assets must be utilized in accordance with the donor imposed stipulations, if any.

Reporting endowment funds

Lund’s endowment consists of three donor-restricted funds established for use at the discretion of the board of trustees. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the board of trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.



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11. Net assets (continued)

Interpretation of relevant law

The board of trustees of Lund has interpreted the State of Vermont Uniform Prudent Management of Institutional Funds Act of 2006 (SUPMIFA), as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, Lund classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by SUPMIFA.

In accordance with SUPMIFA, Lund considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

1. The duration and preservation of the fund

2. The purposes of Lund and the donor-restricted endowment fund

3. General economic conditions

4. The possible effect of inflation and deflation

5. The expected total return from income and the appreciation of investments

6. Other resources of Lund

7. The investment policies of Lund

Funds with deficiencies

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or SUPMIFA requires Lund to retain as a fund of perpetual duration. In accordance with accounting principles generally accepted in the United States of America, there were no deficiencies of this nature that are reported in unrestricted net assets at June 30, 2017 and 2016.



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11. Net assets (continued)

Return objectives and risk parameters

Lund has adopted investment and spending policies that attempt to provide long-term growth (considered to be a fifteen year horizon) with an average annual return of 6% in the investment portfolio to provide a predictable stream of funding to programs in the future, while seeking to maintain the purchasing power of the assets. Endowment assets include those assets of donor-restricted funds that Lund must hold in perpetuity or for a donor-specified period(s) as well as board-designed funds. Under this policy, as approved by the board of trustees, the assets are invested in a manner that is structured for long term growth with a broadly diversified mix of asset classes and investment styles intended to control volatility while supporting return objectives.

Strategies employed for achieving objectives

To satisfy its long-term rate of return objectives, Lund relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Lund targets a diversified asset allocation that places an emphasis on fixed income and equity-based investments to achieve its long-term return objectives within prudent risk constraints.

Spending policy

The Board of Trustees’ goal is to minimize spending of unrestricted endowment funds in order to preserve capital for future use. Any appropriations of unrestricted endowment funds must be approved by the board of directors. Donor-restricted endowment funds are managed in accordance with donor restrictions as to purpose and use. Absent specific donor instructions, Lund may expend annual amounts to satisfy operating needs while preserving the capital for future use.

12. Functional expenses and allocation of shared costs

Expenses are charged to program and supporting services based on direct expenses incurred. Common costs, including occupancy and fringe benefits, are allocated to program and supporting expenses based upon related utilization.

13. Use of estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.



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14. Income taxes

Lund is a not-for-profit organization as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. Accordingly, Lund has not provided for income taxes in these financial statements.

Each year, management considers whether any material tax position Lund has taken is more likely than not to be sustained upon examination by the applicable taxing authority. Management believes that any positions Lund has taken are supported by substantial authority and, therefore, do not need to be measured or disclosed in these financial statements. Tax returns for years subsequent to June 30, 2013, are subject to examination by tax authorities.

15. Recently issued accounting pronouncements

Lund has not yet evaluated the impact of the following on its financial statements:

Not-for-profit reporting standards

In August 2016, the FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-For-Profit Entities. The most significant elements of the ASU will include reduction of net asset classes from three to two classes (unrestricted and donor restricted) and enhanced disclosures related to investments, financial liquidity, and expense allocation. The ASU is effective for years beginning after December 15, 2017.

Revenue recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. The revenue recognition policies of almost all entities will be affected by the new guidance in the ASU. The degree to which an entity’s revenue recognition policies will change upon the adoption of the ASU, and the effects the changes will have on the entity’s financial statements will vary depending on the nature and terms of the entity’s revenue-generating transactions. In addition, entities in some industries likely will be affected by the new guidance in the ASU more than entities in other industries. Given the broad applicability and potentially significant ramifications of the guidance in the ASU, the FASB provided significantly delayed effective dates for its guidance. The ASU is effective for years beginning after December 15, 2018.



JUNE 30, 2017 AND 2016

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15. Recently issued accounting pronouncements (continued)

Restricted cash

In December 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies that the statement of cash flows should include restricted cash with cash and cash equivalents in the reconciliation of the beginning of period and end of period amounts shown on the statement of cash flows. This ASU is effective for years beginning after December 15, 2018.

Leases

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02 Leases (Topic 842). This ASU was issued in three parts: (a) Section A, Leases: Amendments to the FASB Accounting Standards Codification, (b) Section B, Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification, and (c) Section C, Background Information and Basis for Conclusions. While both lessees and lessors are affected by the new guidance which includes many changes, the effects on lessees are much more significant. The most significant change for lessees is the requirement to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, affecting leases which previously were accounted for as operating leases. This ASU is effective for years beginning after December 15, 2019, and must be implemented using a modified retrospective approach.

16. Evaluation of subsequent events

In preparing these financial statements, Lund has evaluated events and transactions for potential recognition or disclosure through December 7, 2017, the date the financial statements were available to be issued.



JUNE 30, 2017 AND 2016

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B) CONCENTRATION OF CREDIT RISK

Lund maintains bank balances which, at times, may exceed federally insured limits. Lund has not experienced any losses with these accounts. Management believes Lund is not exposed to any significant risk on cash.

C) LAND, BUILDINGS AND EQUIPMENT

Land, buildings and equipment consist of the following at June 30:

2017 2016 Land 233,177$ 233,177$ Buildings and improvements 9,743,419 9,716,520 Equipment and furniture 531,852 502,592 Vehicles 167,253 157,906

10,675,701 10,610,195 Less accumulated depreciation 2,374,254 2,101,327

8,301,447$ 8,508,868$



JUNE 30, 2017 AND 2016

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D) INVESTMENTS

A summary of Lund’s investments is as follows at June 30:

Level 1 Level 2 Level 3 TotalInvestments at fair value:

Fixed income: Federal government -$ 194,848$ -$ $ 194,848 Corporate bonds - 128,160 - 128,160 Common stocks 489,973 - - 489,973

489,973$ 323,008$ -$ 812,981

Investment measured using net asset value: Money market fund 69,769 Mutual funds - corporate bonds 79,907

149,676

962,657$

2017

Level 1 Level 2 Level 3 TotalInvestments at fair value:

Fixed income: Federal government -$ 334,582$ -$ $ 334,582 Corporate bonds - 143,301 - 143,301 Common stocks 288,495 - - 288,495

288,495$ 477,883$ -$ 766,378

Investment measured using net asset value: Money market fund 23,792 Mutual funds - corporate bonds 93,104

116,896

883,274$

2016



JUNE 30, 2017 AND 2016

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D) INVESTMENTS (continued)

The following schedule summarizes the investment returns, all of which are unrestricted, for the years ended June 30:

2017 2016 Interest and dividend income 25,317$ 27,268$

Net realized and unrealized gains 59,180 19,686

84,497$ 46,954$

E) LONG-TERM DEBT

Bank: Long-term debt – bank consists of the following at June 30:

2017 2016 People’s United Bank:

Payable in monthly installments of $10,618 including interest at 4.80%, with a balloon payment of $1,360,398 due April 2022. Secured by real estate. The loan is subject to an annual debt service coverage ratio, as defined, and a deposit account with a minimum balance of $75,000 must be maintained. $ 1,618,590 $ 1,665,986

Toyota Motor Credit Corporation: Payable in monthly installments of $488 with no interest. Due September 2019. Secured by a vehicle. 13,183 19,042

$ 1,631,773 $ 1,685,028

Principal payments are due as follows:

Years ending June 30, Amount 2018 $ 55,582 2019 58,078 2020 56,083

2021 57,536 2022 1,404,494

$ 1,631,773



JUNE 30, 2017 AND 2016

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E) LONG-TERM DEBT (continued)

Bonds: Long-term debt – bonds consists of the following at June 30:

2017 2016 Vermont Economic Development Authority (VEDA): – The

following bonds are subject to, among other things, an annual debt service coverage ratio, as defined.

Fixed rate revenue bond (known as the “Series 2007D” bond) issued by VEDA pursuant to a bond issue that is under the trusteeship of TD Bank, N.A. Payable in monthly installments of $5,668, including interest of 3.66%, due January 2020, with a balloon payment of approximately $567,000. Lund may extend the bond for two additional five year terms, at which time the interest rate will be 69% of the total of the Federal Home Loan Bank of Boston Five Year Advance Rate plus 2.175%. Secured by real property. $ 682,710 $ 724,510

Fixed rate revenue bond (known as the “Series 2007E” bond) issued by VEDA pursuant to a bond issue that is under the trusteeship of TD Bank, N.A. Currently payable in fixed monthly principal installments of $7,985, which increase annually, plus interest at 69% of the total of the thirty-day LIBOR (1.05% at June 30, 2017) plus 2.175% through January 1, 2023. Thereafter, interest is adjusted on February 1, 2023 and 2028, to be 69% of the total of the Federal Home Loan Bank of Boston Five Year Advance Rate plus 2.175%. The interest rate is effectively fixed at 6.20% by an interest rate swap (see Note F). Due February 2033. Secured by real property. 2,518,965 2,611,430

$ 3,201,675 $ 3,335,940



JUNE 30, 2017 AND 2016

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E) LONG-TERM DEBT (continued)

Bonds (continued): Principal payments of the bonds are due as follows:

Years ending June 30, Amount 2018 $ 141,745 2019 149,658 2020 705,622 2021 118,414 2022 125,972 Thereafter 1,960,264

$ 3,201,675

F) INTEREST RATE SWAP AGREEMENT

In April 2007, Lund entered into an interest rate swap agreement with TD Bank, N.A. related to the VEDA 2007E Bond (see Note E). The agreement expires February 2023, and effectively fixes the interest rate at 6.20%. The notional amount totals $ 2,518,965 and $2,611,430 at June 30, 2017 and 2016, respectively. Unrealized gains and losses on the interest rate swap are recognized in other income or expense over the life of the agreement to recognize the net settlement fair value of the agreement in the accompanying statements of financial position. A net unrealized loss on the interest rate swap totaling $328,617 and $491,067 was recorded as a liability in the accompanying statements of financial position at June 30, 2017 and 2016, respectively. A net gain of $162,450 was recorded in 2017 and a net loss of $45,747 was recorded in 2016.

G) NET ASSETS

Net assets are temporarily restricted for the following purposes as follows at June 30:

2017 2016 Child and family services 95,219$ 168,123$ Strategic planning - 73,212 Adoption 32,040 49,562

127,259$ 290,897$

Net assets are permanently restricted for investment, the income of which may be used to fund operations at Lund’s discretion. There were no changes in endowment-related net assets, all of which are permanently restricted, during the years ended June 30, 2017 and 2016.



JUNE 30, 2017 AND 2016

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H) OPERATING LEASES

Lund has an operating lease for a building used to carry out residential program services. The lease expired June 2016, and is currently on a month-to-month basis. Monthly rent approximates $7,500 at June 30, 2017. Lund also leases vehicles, copiers, and other equipment under agreements that expire October 2017 through December 2020. These leases require aggregate monthly payments approximating $1,900.

Total rent expense charged to activities was approximately $112,300 in 2017 and $109,500 in 2016.

Future minimum lease payments for all noncancellable operating leases having a term in excess of one year as of June 30, 2017 are as follows:

Years ending June 30, Amount 2018 $ 10,600 2019 3,000 2020 3,000 2021 900

Total minimum lease payments $ 17,500 I) RETIREMENT PLAN

Lund sponsors a tax sheltered defined contribution annuity plan (the Plan) under the provisions of Section 403(b) of the Internal Revenue Code. The Plan covers substantially all employees who are 21 years of age and have completed two years of service. Lund contributes to the plan on a discretionary basis. Total contributions to the Plan charged to activities approximated $49,000 in 2017 and $37,500 in 2016.

J) RELATED PARTY TRANSACTIONS

Contributions from trustees approximated $67,000 and $47,700 during 2017 and 2016. Pledges receivable from trustees as of June 30, 2017 and 2016 were not significant.

SUPPLEMENTAL SCHEDULES


SCHEDULE OF REVENUE AND EXPENSES – RESIDENTIAL PROGRAM


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Residential School Total

REVENUEGovernment contracts 3,338,268$ 177,398$ 3,515,666$ Government grants - 1,000 1,000 Contributions 700 444 1,144 Other 7,043 5,000 12,043

Total revenue 3,346,011 183,842 3,529,853

EXPENSESSalaries and wages 1,693,073 151,060 1,844,133 Payroll taxes and benefits 463,064 41,234 504,298 Supplies 152,794 15,568 168,362 Family assistance 103,430 10 103,440 Occupancy 561,835 63,029 624,864 Travel 29,096 1,546 30,642 Equipment repairs and maintenance 3,332 - 3,332 Telephone 3,594 377 3,971 Staff development and training 6,762 876 7,638 Contracts and services 1,490 260 1,750 Postage 584 66 650 Agency costs 361,116 32,718 393,834 Other 4,086 165 4,251

Total expenses 3,384,256 306,909 3,691,165

Net program loss (38,245)$ (123,067)$ (161,312)$


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


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Federal Pass-ThroughCFDA Entity Identifying Total Federal

Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Expenditures

U.S. Department of Agriculture:Passed Through State of Vermont:

Child and Adult Care Food Program 10.558 R114( c ) 27,940$

Total U.S. Department of Agriculture 27,940

U.S. Department of Health and Human Services:Substance Abuse and Mental Health Services program cluster 93.243 N/A 569,404 Passed Through the State of Vermont:

Affordable Care Act (ACA) Personal Responsibility Education Program 93.092 03420-6724S 11,950 Substance Abuse and Mental Health Services program cluster 93.243 03420-6905S 60,450 Promoting Safe and Stable Families 93.556 03440-28318-PROJFAM17 305,791 Temporary Assistance for Needy Families 93.558 03440-10011-17 66,658 Temporary Assistance for Needy Families 93.558 03440-10040-17 264,120 Parent Child Center Grant 93.590 03440-42302-17-PCC 34,000 State Access and Visitation Program 93.597 03440-28513-AV17 8,200 Medical Assistance Program 93.778 03440-32363-1516-SFG 9,646 Substance Abuse Prevention and Treatment Block Grant 93.959 30420-A17053S 79,258

Total U.S. Department of Health and Human Services 1,409,477

Total expenditures of federal awards 1,437,417$


NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


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A) BASIS OF PRESENTATION

The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Lund Family Center, Inc. (Lund) under programs of the federal government for the year ended June 30, 2017. The information in this Schedule is presented in accordance with requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of Lund, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Lund.

B) SUMMARY OF ACCOUNTING POLICIES

Expenditures reported on the Schedule are reported on the accrual basis of accounting under accounting principles generally accepted in the United States of America. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement.

During 2017, Lund submitted an indirect cost rate proposal with the U.S. Department of Health and Human Services for the year ended June 30, 2017 and is awaiting resolution. The difference between the proposed rate and the de minimus rate of 10% is not material.

FEDERAL AUDIT REPORTS

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 To the Board of Trustees and Finance Committee of Lund Family Center, Inc.

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 Lund Family Center, Inc. (Lund), which comprise the statement of financial position as of June 30, 2017, and the related statement of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated December 7, 2017.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements of Lund Family Center, Inc., we considered Lund’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 Lund’s internal control. Accordingly, we do not express an opinion on the effectiveness of Lund’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Lund’s financial statements will not be prevented, or detected and corrected on a timely basis. 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.

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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify a deficiency in internal control, described in the accompanying schedule of findings and questioned costs as item 2017-01, that we consider to be a significant deficiency.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Lund’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.

Lund’s Response to Findings

Lund’s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Lund’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 Lund’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.

December 7, 2017

Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance

Required by the Uniform Guidance

To the Board of Trustees and Finance Committee of

Lund Family Center, Inc.

Report on Compliance for Each Major Federal Program

We have audited Lund Family Center, Inc.’s (“Lund”) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Lund Family Center, Inc.’s major federal programs for the year ended June 30, 2017. Lund Family Center, Inc.’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with the requirements of federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of Lund’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence Lund Family Center, Inc.’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Lund’s compliance.

Opinion on Each Major Federal Program

In our opinion, Lund Family Center, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2017.

Report on Internal Control Over Compliance

Management of Lund is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Lund’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Lund’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies, and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses or significant deficiencies. However, material weaknesses or significant deficiencies may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

December 7, 2017


SCHEDULE OF FINDINGS AND QUESTIONED COSTS


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I. SUMMARY OF AUDITOR’S RESULTS

Financial statements Type of report the auditor issued on whether the financial statements as of and for the year ended June 30, 2017 were prepared in accordance with GAAP: Unmodified Internal control over financial reporting:

Material weaknesses identified? Yes X No Significant deficiencies identified? X Yes No Noncompliance material to financial

statements noted? Yes X No

Federal Awards Internal control over major programs:

Material weakness identified? Yes X No Significant deficiency identified? Yes X No

Type of auditor’s report issued on compliance for major federal programs: Unmodified

Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? X Yes No Identification of major federal program cluster:

CFDA Program Numbers Title 93.243 Substance Abuse and Mental Health Services program cluster

Dollar threshold used to distinguish between type A and type B programs: $750,000

Auditee qualified as low-risk auditee: Yes X No


SCHEDULE OF FINDINGS AND QUESTIONED COSTS


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II. FINANCIAL STATEMENT FINDINGS

FINDING NUMBER 2017-01

Criteria or specific requirement: In accordance with 2 CFR parts 200.510(b), Lund Family Center, Inc.’s management is required to prepare an accurate schedule of expenditures of federal awards.

Condition: Our audit of the schedule of expenditures of federal awards resulted in significant changes in the amounts reported. Specifically, Medicaid grant awards (CFDA 93.778) passed through to Lund from the State of Vermont were improperly included in the schedule of expenditures of federal awards. 2 CFR part 200.502(i) states that Medicaid payments to a subrecipient are not considered federal awards expended, unless the state requires them to be reported as such.

Context: Our finding was identified through our review of the schedule of expenditures of federal awards and reconciliation to underlying grant agreements and other supporting documents, in addition to consultation with the State of Vermont.

Extent: Total expenditures of federal awards initially quantified by management were overstated by approximately $912,000, of which approximately $874,000 related to Medicaid awards improperly included in the schedule.

Cause: Lund’s management had not implemented a formal process to review grant awards and the relevant provisions of the Uniform Guidance in order to ensure the accurate preparation of the schedule.

Recommendation: We recommend that management develop a formal process to ensure proper identification of federal awards for the schedule of expenditures of federal awards. We recommend that this include formal documentation of the evaluation to ensure proper and consistent reporting.

Views of responsible officials and planned corrective action: Management had relied on a report received from the state of Vermont, but didn’t initially follow up with representatives of the state to clarify whether the state wanted to consider the funds as expenditures of federal awards for the purpose of the schedule of federal awards. Going forward, management will implement a process to undertake a review of applicable federal regulations and review all federal monies received and, if required, to clarify the state’s consideration of the funds on a timely basis.

III. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS

None to report.


SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


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Corrective action was taken during 2017.


Corrective action was taken during 2017.

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