HENDERSHOT, BURKHARDT & ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS

Transcription

1 Young Marines of the Marine Corps League Financial Statements for the Year Ended September 30, 2016 and Independent Auditors Report Dated March 8, 2017 HENDERSHOT, BURKHARDT & ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS 7525 Presidential Lane, Manassas Virginia Frost Ave, Suite 101, Warrenton, Virginia Telephone (703) Fax (703)

2 Young Marines of the Marine Corps League Table of Contents Independent Auditors Report 1-3 Statement of Financial Position 4 Statement of Activities 5 Statement of Cash Flows 6 Statement of Functional Expenses 7 Notes to Financial Statements 8-11 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 Report on Compliance with Requirements that could have a Direct and Material Effect on each Major Program and on Internal Control over Compliance in Accordance with the Uniform Guidance Schedule of Findings and Questioned Costs Schedule of Expenditures of Federal Awards 19

3 Independent Auditors Report To the Board of Directors Young Marines of the Marine Corps League Washington, DC Report on the Financial Statements We have audited the accompanying financial statements of the Young Marines of the Marine Corps League, which comprise the statement of financial position as of September 30, 2016, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 of material misstatements. 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 Presidential Lane P: Manassas, Virginia F: info@hbacpas.com

4 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Young Marines of the Marine Corps League as of September 30, 2016, and the changes in 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 accompanying 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, 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 March 8, 2017, on our consideration of the Young Marines of the Marine Corps League 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 Young Marines of the Marine Corps League s internal control over financial reporting and compliance. 2

5 Report on Summarized Comparative Information We have previously audited the Young Marines of the Marine Corps League s 2015 financial statements, and our report dated March 3, 2016, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Hendershot, Burkhardt & Associates Certified Public Accountants Hendershot, Burkhardt & Associates Certified Public Accountants Manassas, Virginia March 8,

6 YOUNG MARINES OF THE MARINE CORPS LEAGUE Statement of Financial Position As of September 30, 2016 (With Comparative Totals As of September 30, 2015) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 5,477,379 $ 6,005,791 Investments 299, ,660 Grant Receivable - - Pledges Receivable - - Prepaid Expenses and Other Assets 43, ,141 Receivable from Employee - 20,359 Total Current Assets 5,820,884 6,408,951 PROPERTY AND EQUIPMENT Equipment and Fixtures 369, ,363 Federal Equipment 67,411 67,411 Automobile 71,579 71,579 Less: Accumulated Depreciation (378,397) (329,242) Total Property and Equipment 129, ,111 TOTAL ASSETS $ 5,950,825 $ 6,555,062 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable $ 76,784 $ 81,400 Salaries and Payroll Tax Payable 17,137 15,898 Deferred Revenue 1,078,993 1,077,878 Total Current Liabilities 1,172,914 1,175,176 TOTAL LIABILITIES 1,172,914 1,175,176 NET ASSETS Unrestricted 4,744,912 5,346,887 Temporarily Restricted 32,999 32,999 Total Net Assets 4,777,911 5,379,886 TOTAL LIABILITIES AND NET ASSETS $ 5,950,825 $ 6,555,062 See the accompanying Independent Auditors' Report and notes to the financial statements 4

7 YOUNG MARINES OF THE MARINE CORPS LEAGUE Statement of Activities For the Year Ended September 30, 2016 (With Comparative Totals for the Year Ended September 30, 2015) REVENUES Temporarily Unrestricted Restricted Total Total Federal Grants $ 3,951,641 $ - $ 3,951,641 $ 4,102,700 Fundraising Activities 2,136,203-2,136,203 1,879,368 Registration and Dues 793, , ,978 Program Income 585, , ,089 In-kind Contributions 112, , ,200 Unrealized Gain/(Loss) on Investments 66,855-66,855 (4,848) Contributions 62,666-62,666 54,441 Interest and Dividends 10,320-10,320 55,943 Realized Gain/(Loss) on Investments (1,683) - (1,683) (6,212) Total Revenues 7,717,097-7,717,097 7,637,659 EXPENSES Program Services Federal Programs 3,231,102-3,231,102 3,176,932 Non-Federal Programs 2,758,327-2,758,327 2,940,797 Total Programs 5,989,429-5,989,429 6,117,729 Supporting Services Administration - Federal 720, , ,981 Administration - Non-Federal 79,347-79,347 44,188 Fundraising 1,529,757-1,529,757 2,911,657 Total Supporting Services 2,329,643-2,329,643 3,872,826 Total Expenses 8,319,072-8,319,072 9,990,555 Change in Net Assets (601,975) - (601,975) (2,352,896) Net Assets, Beginning of Year 5,346,887 32,999 5,379,886 7,732,782 Net Assets, End of Year $ 4,744,912 $ 32,999 $ 4,777,911 $ 5,379,886 See the accompanying Independent Auditors' Report and notes to the financial statements 5

8 YOUNG MARINES OF THE MARINE CORPS LEAGUE Statement of Cash Flows For the Year Ended September 30, 2016 (With Comparative Totals for the Year Ended September 30, 2015) CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ (601,975) $ (2,352,567) Adjustments to reconcile change in net assets to net cash provided by/(used) by operating activities: Depreciation 49,155 40,528 Unrealized (Gain)/Loss on Investments (66,855) 4,848 (Increase)/Decrease in Grant Receivable - 166,082 (Increase)/Decrease in Pledges Receivable - 89,977 (Increase)/Decrease in Prepaid Expenses and Other Assets 86,194 (52,085) (Increase)/Decrease in Other Receivables 20,359 6,354 Increase/(Decrease) in Deferred Revenue 1,115 1,077,878 Increase/(Decrease) in Other Current Liabilities (3,377) (13,963) Net Cash provided by/(used by) Operating Activities (515,384) (1,032,948) CASH FLOWS FROM INVESTING ACTIVITIES (Purchase) of Investments (8,274) (528,808) Sale of Investments 28,231 2,508,413 (Purchase) of Equipment and Vehicles (32,985) (93,563) Net Cash used by Investing Activities (13,028) 1,886,042 CASH FLOWS FROM FINANCING ACTIVITIES - - Net Increase/(Decrease) in Cash and Cash Equivalents (528,412) 853,094 Cash and Cash Equivalents, Beginning of the Year 6,005,791 5,152,697 Cash and Cash Equivalents, End of the Year $ 5,477,379 $ 6,005,791 See the accompanying Independent Auditors' Report and notes to the financial statements 6

9 YOUNG MARINES OF THE MARINE CORPS LEAGUE Statement of Functional Expenses For the Year Ended September 30, 2016 (With Comparative Totals for the Year Ended September 30, 2015) Federal Federal Total Federal Non Federal Non Federal Non Federal Total Non- Programs Administrative Expenses Programs Administration Fundraising Federal Expense Unit Activities $ - $ - $ - $ 2,417,535 $ - $ 478,893 $ 2,896,428 $ 2,896,428 $ 2,817,228 Personnel Expenses 828, ,409 1,293,201 37,881 21,222-59,103 1,352,304 1,533,512 Fundraising Expense , , ,559 - Summer Programs 814, , , ,340 Unit Inspection and Training 592, , , ,025 Subcontractors and Professional Fees 204, , ,747 38,386-57,600 95, , ,994 Special Programs 226, , , ,843 Initial and Special Issue Programs 176, , , ,008 Promotion and Advertising ,542-24, , , ,342 Printing and Reproduction 142, , , ,290 Insurance 108,537 23, , , ,237 Miscellaneous 4,139-4,139 73,113 41,785 10, , ,132 97,731 Field Services 94,318 20, , , ,703 In-kind Rental Expense ,870 16,340 22, , , ,200 Board of Directors Meetings - 67,835 67, ,835 71,379 Office Expense 37,505 8,267 45, ,772 48,625 Contributions ,513,098 Total Expense $ 3,231,102 $ 720,539 $ 3,951,641 $ 2,758,327 $ 79,347 $ 1,529,757 $ 4,367,431 $ 8,319,072 $ 9,990,555 See the accompanying Independent Auditors' Report and notes to the financial statements 7

10 Young Marines of the Marine Corps League Notes to the Financial Statements For the Year Ended September 30, Nature of Activities and Significant Accounting Policies Nature of Activities: Young Marines of the Marine Corps League ( Young Marines ), headquartered in Washington D.C., is a not-for-profit organization. The objectives of Young Marines are to develop, within its youth membership, those traits of character and physical stamina exemplified by members of the United States Marine Corps. Young Marines promotes the mental, moral, and physical development of young Americans by providing a variety of activities designed to develop self-esteem, discipline, confidence, and a drug free lifestyle. As of September 30, 2016, there are over 275 units across the United States operating under the national charter. Method of Accounting: The financial statements are presented on an accrual basis. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: For purposes of statement of financial position classification and the statement of cash flows, Young Marines considers all highly liquid debt instruments purchased with a maturity of six months or less and any certificates of deposit to be cash equivalents. Investments: Investments are carried in the financial statements at fair value. Investment income reflected in the accompanying statements of activities includes gains and losses realized upon sales and unrealized gains and losses resulting from fluctuations in market values of investments. Property and Equipment: Young Marines capitalizes all expenditures in excess of $500 for property and equipment at cost. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally from three to five years. Depreciation was $49,155 for the year ended September 30, Net Assets: Young Marines classifies its net assets based upon the existence of or lack of donor-imposed restrictions. In order to account for such restrictions or limitations on the use of its resources, Young Marines classifies its net assets as unrestricted, temporarily restricted, or permanently restricted depending upon the nature of the restriction. Contributions or donations with donor- 8

11 Young Marines of the Marine Corps League Notes to the Financial Statements For the Year Ended September 30, Nature of Activities and Significant Accounting Policies (continued) imposed restrictions that are received and released from restriction during the same fiscal year are reflected as unrestricted support. Revenue Recognition: Young Marines prepares its financial statements on the accrual basis of accounting, which requires that revenue to be recognized when earned and expenses when obligations are incurred. Revenues for the purpose of funding specific expenditures are recognized when earned. Young Marines reflects earned but unbilled revenues in accounts receivable and payments received but unearned in deferred revenue. Contributions: Contributions are recorded when the unconditional promise to give is known. Contributions received by Young Marines are reported as increases in unrestricted, temporarily restricted, or permanently restricted net assets based upon the existence or lack of donor-imposed restrictions. In-Kind Donations: Any donated goods or services are reflected as contributions in Young Marines financial statements at their fair value at time of donation, including any donated fixed assets, which are capitalized at fair value at donation and depreciated over the useful lives of the assets. Young Marines receives contributed services from community volunteers to assist them in carrying out their program goals and objectives. Although the value of these services are substantial to Young Marines and its programs, Young Marines has not recorded a value for contributed services because they do not meet the criteria for being recognized pursuant to accounting principles generally accepted in the United States of America for not-for-profit organizations. Functional Expense Allocation: Young Marines has summarized the cost of providing its various programs and supporting services on a functional basis in the statement of activities. Accordingly, expenses are charged to each program or supporting services either based upon direct allocation or management estimation as to the benefits provided to each program. 2. Cash and Cash Equivalents The composition of cash and cash equivalents as of September 30, 2016 is as follows: Cash held by Headquarters $3,734,207 Cash held by Units 1,738,259 Money Market Funds 4,913 Total Cash and Cash Equivalents $5,477,379 9

12 Young Marines of the Marine Corps League Notes to the Financial Statements For the Year Ended September 30, Investments Investments are carried at fair value based on quoted prices in active markets (all Level 1 measurements) and are composed of stocks valued at $299,558 at September 30, Temporarily Restricted Net Assets At September 30, 2016, temporarily restricted net assets consist of $26,999 restricted to a drug demand reduction project. 5. Government Grants In the fiscal year ended September 30, 2011, Young Marines was awarded a grant from the Marine Corps Systems Command (MCSC) amounting to $5,151,087 for the period beginning September 30, 2010 and ending September 29, There have been several grant modifications awarding additional funding, bringing the total grant to $25,529,135. The purpose of the grant is to fund the Young Marine program based on a proposal submitted by Young Marines and approved by the MCSC. In fiscal year 2016, Young Marines had federal expenditures of $3,951, In-kind Donation of Office Space Young Marines utilizes a space donated by the United States Navy at no cost. The estimated inkind contribution for facility rental in the amount of $112,200 for the period ended September 30, 2016, is based on the current rental value per square footage of similar facilities in the neighborhood. 7. Concentrations of Risk A significant portion of Young Marines revenue is received from a grant awarded by the federal government. For the fiscal year ended September 30, 2016, $3,951,641 or 51% of Young Marines total revenue was received from this grant. Given the significance of this concentration, Young Marines would face severe and adverse economic conditions should any of the grant awards be terminated or significantly reduced due to governmental budget constraints. Young Marines maintains its cash in commercial banks, which are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At September 30, 2016, Young Marines had uninsured cash balances of $3,231,

13 8. 403b Plan Young Marines of the Marine Corps League Notes to the Financial Statements For the Year Ended September 30, 2016 Young Marines has a defined contribution plan covering substantially all employees. The Young Marines, at its discretion, may make contributions equal to 10% of the participants compensation. Total employer contribution expense for the year ended September 30, 2016 was $91, Subsequent Events Management evaluated events and transactions that occurred after the statement of financial position date for potential recognition and disclosure through March 8, 2017, the date on which the financial statements were available to be issued. 10. Related Party Transactions The Organization made a significant contribution to the Young Marines National Foundation (the Foundation) of $935,559. The sole purpose of the Foundation is to fundraise for the Organization. 11. Tax Status and Contributions Young Marines is exempt from federal income tax for related purpose net income as described in Section 501(c)(3) of the Internal Revenue Code. Accordingly, contributions to Young Marines are deductible for federal income, estate, and gift tax purposes. In addition, Young Marines has been classified by the Internal Revenue Service as a public charity and is not a private foundation. Young Marines is also exempt from State income taxes. Young Marines's Forms 990, Return of Organization Exempt from Income Tax, are subject to examination by the IRS, generally for three years after they were filed. 11

14 INDEPENDENT AUDITORS 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 Board of Directors Young Marines of the Marine Corps League 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 Young Marines of the Marine Corps League (a nonprofit organization), which comprise the statement of financial position as of September 30, 2016, and the related statements 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 March 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Young Marines of the Marine Corps League 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 Young Marines of the Marine Corps League s internal control. Accordingly, we do not express an opinion on the effectiveness of the organization 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 the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or 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 7525 Presidential Lane P: Manassas, Virginia F: info@hbacpas.com 12

15 material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Young Marines of the Marine Corps League 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. 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 organization 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 organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Hendershot, Burkhardt & Associates Certified Public Accountants Hendershot, Burkhardt & Associates Certified Public Accountants Manassas, Virginia March 8,

16 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Directors Young Marines of the Marine Corps League Report on Compliance for Each Major Federal Program We have audited the Young Marines of the Marine Corp League s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Young Marines of the Marine Corp League s major federal programs for the year ended September 30, The Young Marines of the Marine Corp League s major federal program is 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 laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Young Marines of the Marine Corp League 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; 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 7525 Presidential Lane P: Manassas, Virginia F: info@hbacpas.com 14

17 about the Young Marines of the Marine Corp League 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 the Young Marines of the Marine Corp League s compliance. Opinion on the Major Federal Program In our opinion, the Young Marines of the Marine Corp League complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended September 30, Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questions costs as item Our opinion on the major federal program is not modified with respect to this matter. The Young Marines of the Marine Corp League s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Young Marines of the Marine Corp League s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the Young Marines of the Marine Corp League 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 the Young Marines of the Marine Corp League 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 the Young Marines of the Marine Corp League 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 15

18 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. However, we identified a deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item , that we consider to be a significant deficiency. The Young Marines of the Marine Corps League s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Young Marines of the Marine Corps League s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response. 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. Hendershot, Burkhardt & Associates Certified Public Accountants Hendershot, Burkhardt & Associates Certified Public Accountants Manassas, Virginia March 8,

19 Young Marines of the Marine Corps League SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended September 30, 2016 A. SUMMARY OF AUDITORS RESULTS 1. The auditors report expresses an unmodified opinion on whether the the financial statements of the Young Marines of the Marine Corps League were prepared in accordance with GAAP. 2. No significant deficiencies or material weaknesses relating to the audit of the financial statements are reported in the 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. 3. No instances of noncompliance material to the financial statements of the Young Marines of the Marine Corps League, which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit. 4. One significant deficiency in internal control over major federal award programs is reported in the report on compliance with requirements that could have a direct and material effect on each major program and on internal control over compliance. 5. The auditors report on compliance for the major federal award program for the Young Marines of the Marine Corps League expresses an unmodified opinion on the major federal program. 6. One audit finding relative to the major program that is required to be reported in accordance with 2 CFR section (a) is reported in this Schedule. 7. The program tested as a major program was: Department of Defense grant #M for the Young Marines Program, CFDA #12-369, issued through the Marine Corps System Command 8. The threshold for distinguishing between Types A and B programs was $750, Young Marines was not determined to be a low-risk auditee. B. FINDINGS FINANCIAL STATEMENT AUDIT None. 17

20 C. FINDINGS MAJOR AWARD PROGRAM AUDIT DEPARTMENT OF DEFENSE Young Marines Program Marine Corps Systems Command Federal Assistance Program CFDA # ; Grant # M ; Grant period: Year Ended September 30, 2016 Condition: Criteria: Cause: Effect: Grant funds were used to pay the salary of the director of the alumni program. Per the grant agreement, grant funds may only be applied to costs allowed under OMB Circular A-122. Per paragraph of OMB Circular A-122, alumni costs are unallowable. The procedures in place for monitoring allowable costs were inadequately designed and implemented. Costs associated with the alumni program totaling $35,000, were improperly paid with grant funds. Recommendation: The Organization should implement more robust monitoring procedures by top management or those charged with governance of federal drawdown activities, as well as, a more thorough review process for supporting documentation to ensure that costs charged to the grant are allowable. Views of Responsible Officials and Planned Corrective Actions: Staff and Leadership will review the applicable OMB circulars. Any new programs will be reviewed against the OMB circular to confirm proper funding is utilized and annotations made to these program files on initiation. The error was corrected during March 2017 timeframe soon after discovery, funds were transferred from non-grant account to reimburse the grant account for the erroneous expenditure. All accounting records have been updated to correct the appropriate funds source. D. PRIOR YEAR FINDINGS MAJOR AWARD PROGRAM AUDIT None. 18

21 YOUNG MARINES OF THE MARINE CORPS LEAGUE Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2016 Federal Grantor / Program Title CFDA # / Grant # Federal Expenditures Department of Defense direct program: Marine Corps Systems Command Federal Assistance Program - Young Marines Program $ 3,951,641 M TOTAL EXPENDITURES OF FEDERAL AWARDS $ 3,951,641 Note 1 - Basis of Presentation: The schedule of expenditures of Federal awards includes the Federal grant activity of Young Marines under programs of the Federal government for the year ended September 30, The information in this schedule is presented in accordance with the 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 Young Marines, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Young Marines. Note 2 - Summary of Significant Accounting Policies: Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A- 122, Cost Principles for Non-profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. See the accompanying Independent Auditors' Report and notes to the financial statements 19

22 *** goung;harin;~ National Headquarters * Main Street, Suite 250 * Dumfries,Virginia June 2017 From National Executive Director To : Federal Audit Clearing House Subject: Corrective Action Plan: Case of Young Marines of the Marine Corps League Report ID Per request, the following action plan is submitted for the audit finding in the report for audit year ending 9/30/16: a. Corrective Actions Taken : The Staff and Leadership will review the applicable OMB circulars. Any future programs will be reviewed against the OMB circular to confirm proper funding is utilized and annotations made to these program files on initiation. The error was corrected during March 2017 timeframe soon after discovery, funds were transferred from non-grant account to reimburse the grant account for the erroneous expenditure. All accounting records have been updated to correct the appropriate funds source. b. Anticipated Completion Date: Completed 30 March 2017 c. Point of Contact responsible for actions: William Davis, CEO, Young Marines Bill.davis@youngmarines.com or ext We hope this provides sufficient information to complete the acceptance of our audit. ;;~ ~ William Davis National Executive Director