catholic charities of financial statements june 30, 2011 … · · 2011-11-12report on internal...

CATHOLIC CHARITIES OF SANTA CLARA COUNTY

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010

CONTENTS

Page INDEPENDENT AUDITOR’S REPORT…………………………………….……….. 1 FINANCIAL STATEMENTS Statements of Financial Position……………………………………………………… 3 Statements of Activities………………………………………………………………. 4 Statement of Functional Expenses – 2011……………………………………………. 5 Statement of Functional Expenses – 2010……………………………………………. 6 Statements of Cash Flows……………………………………………………………. 7 Notes to Financial Statements………………………………………………………… 8 SUPPLEMENTARY INFORMATION City of San Jose Contracts and Billings………………………………………………. 32 Reports and Schedules Required by OMB Circular A-133 Schedule of Expenditures of Federal Awards…………………………………….. 33 Note to Schedule of Expenditures of Federal Awards…………………………... 37 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……………………………….. 38 Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133…………………………………………………………………….. 40 Schedule of Findings and Questioned Costs………………………………………. 42 Summary Schedule of Prior Audit Findings………………………………………. 46

CATHOLIC CHARITIES OF SANTA CLARA COUNTYSTATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 2011 AND 2010

2011 2010

Cash flows from operating activities:Change in net assets $ 1,563,078 $ 2,113,784 Adjustments to reconcile change in net assets with net cash

provided by operating activities:Depreciation 479,761 427,711 Provision for doubtful receivables (100,574) (1,412) Change in discount of contributed support receivable 1,334 (11,861) Donation of property/inventory (1,422,204) (205,676) Distribution of donated goods 1,192,403 19,710 Realized/unrealized (gain)/loss on investments (1,677,377) (746,295) Realized loss on the abandonment of assets 33,720 - Contributions restricted for Endowment (709,895) (1,100,411) Changes in operating assets and liabilities:

Receivables 1,090,570 2,408,419 Prepaid expenses, deposits and other assets (40,372) 9,918 Accounts payable and retirement obligation 120,576 (81,790) Deferred revenue, pooled income and annuity obligations 7,279 (30,261)

Total adjustments (1,024,779) 688,052 Net cash provided by operating activities 538,299 2,801,836

Cash flows from investing activities:Purchases of investments (1,322,495) (2,455,834) Proceeds from sale of investments & fixed assets 510,863 466,306 Purchase of property and equipment (534,849) (952,610)

Net cash used by investing activities (1,346,481) (2,942,138)

Cash flows from financing activities:Borrowings 1,800,000 -Loan payments (1,843,265) (40,618) Contributions restricted for Endowment 709,895 1,100,411

Net cash provided by financing activities 666,630 1,059,793

NET INCREASE (DECREASE) IN CASH (141,552) 919,491

Cash and cash equivalents at beginning of year 1,914,900 995,409

Cash and cash equivalents at end of year $ 1,773,348 $ 1,914,900

Supplemental disclosure of cash flow information:Cash paid for interest $ 50,989 $ 9,055

See accompanying notes to financial statements.____________________________________________________________________________________

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CATHOLIC CHARITIES OF SANTA CLARA COUNTY NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 NOTE 1 - NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

NATURE OF ACTIVITIES

Catholic Charities of Santa Clara County (the Organization), a California nonprofit public benefit corporation, serves and advocates for families and individuals in need, especially those living in poverty. Rooted in gospel values, Catholic Charities works to create a more just and compassionate community in which people of all cultures and beliefs can participate. The Organization provides multiple education, community and economic development, mental health, and social services to diverse residents of Santa Clara County (the County), including children, youth, adults, seniors, families in need, refugees and immigrants, and other poor and vulnerable populations. The Organization’s primary sources of revenue and support are from contributions, government fees and grants, and program service fees. Major Service areas in 2010-2011 include: Behavioral Health Services, Community Development and Advocacy, Economic Development Services, Older Adult Services, and Children, Youth and Family Development, the Franklin-McKinley Children’s Initiative, and Step Up Silicon Valley. BEHAVIORAL HEALTH SERVICES ADULT MENTAL HEALTH - FULL SERVICE PARTNERSHIP-CRIMINAL JUSTICE AND INTEGRATION OF MENTALLY ILL PAROLEES SERVICES - combines outpatient mental health, case management, medication support, crisis intervention and recovery from both mental and chemical dependency disorders for individuals and for other persons on probation or parole who have been ordered by the court for treatment. CALWORKS HEALTH ALLIANCE is a multicultural outpatient mental health and substance abuse program for CalWORKs participants that helps improve personal and family issues that may keep them from finding economic and emotional self sufficiency. CHILDREN AND FAMILY SERVICES offers outpatient services for children who are seriously emotionally disturbed and their families. Services include psychiatric evaluations, medical monitoring, therapy, and case management and family support, including supervised and home visits. Children ages 0-5 (First Five) are included in these services. DESTINATION HOME assists chronically homeless people with mental illness, addiction, or both disorders, to access community services and housing. The team provides case management services and collaborates with many community mental health, alcohol, drug, housing, judiciary, and health-related programs. OLDER ADULT SERVICES - OASIS, FULL SERVICE PARTNERSHIP-OLDER ADULTS AND COMPREHENSIVE MENTAL HEALTH SERVICES FOR OLDER ADULTS (GOLDEN GATEWAY) - provides case management and mental health services, including medication support, to older adults who are experiencing chronic emotional problems. Golden Gateway also develops support groups and educates family members and community service providers about helping older adults with mental health conditions.

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JUNE 30, 2011 AND 2010

NOTE 1 – NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES (Continued)

SUPPORTIVE HOUSING SERVICES – at CHDC provides referrals and case coordination for residents of Charities Housing Development Corporation (CHDC) units as well as long-term rental assistance and case management for chronically homeless individuals and families with disabilities. SUPPORTIVE HOUSING SERVICES provides mental health treatment and supportive housing/case management services for disabled and chronically homeless individuals and homeless families in order to help them gain and retain housing. COMMUNITY DEVELOPMENT AND ADVOCACY (CDA)

CDA is comprised of six major program areas: Parish/school Partnerships. Social Policy, Handicapables, Volunteer Management, Donation Station, and CalFresh Outreach. We work to improve community conditions by partnering with local parishes, schools and other community-based organizations. Through these partnerships, we empower people to get involved in our community, from serving lunch to needy seniors to advocating for key social justice issues. PARISH/SCHOOL PARTNERSHIPS support parishes to fulfill the Church’s mission to live out gospel values and Catholic Social Justice Teaching in collaboration with others in our community. We empower parishioners and students to respond to needs in a communal, organized, and sustainable way. Services include: education forums, workshops, presentations, and Step Up Silicon Valley Poverty Simulations. SOCIAL POLICY AND ADVOCACY provides skill building and opportunities to advocate on issues in the areas of housing, education, health care, immigration and budgets to reduce poverty. This happens through education, awareness and strategic action and placement of agency staff and volunteers on boards, commissions, and committees across the County. Our goal is to engage with local, state, and federal government officials to implement changes in regulation, legislation, and funding in support of systemic changes to help the poor become more self-sufficient. HANDICAPABLES is a peer support and enrichment program for senior and adult disabled individuals. VOLUNTEERS provide volunteer opportunities for groups as well as individuals. The group activities are suitable for young adults, parent and child combinations, youth and chaperones, and corporate groups. The days of operation are flexible and are able to accommodate groups who need to volunteer on some Saturdays. DONATION STATION accepts donations of clothing, toys, household items, and gift cards and distributes those items to refugees, homeless individuals, families and children in need.

CALFRESH OUTREACH works to increase the number of eligible individuals receiving public food benefits through providing information and application assistance.

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JUNE 30, 2011 AND 2010 NOTE 1 – NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES (Continued) ECONOMIC DEVELOPMENT SERVICES ASYLEE PROGRAM provides cash assistance, medical coverage, English as a Second Language (ESL), computer training and job placement for persons granted political asylum.

EMPLOYMENT SERVICES provides comprehensive pre-employment (including English as a Second Language, computer classes and retail vocational training); employment, job retention, and job upgrade services to immigrants, refugees, and low income individuals. Focus for Work provides individual and group employment preparation services, job development services, and post-employment support for adults diagnosed with mental illness. FINANCIAL EDUCATION SERVICES enables clients to acquire basic financial literacy and move toward establishing economic stability through effective money management, and budgeting. It includes Individual Development savings Accounts (IDA) and free financial education programs for low-income individuals and families. FREE TAX PREPARATION provides free tax preparation services to low-income individuals and families at various sites throughout Santa Clara County. IMMIGRATION LEGAL SERVICES are fully accredited by the federal Board of Immigration Appeals to provide professional legal consultations and a full range of immigration legal services for low-income people throughout Santa Clara County. Services include family visas, fiancé/e visa, adjustment of status, employment authorization, re-entry permit and advance parole, political asylum, special immigrant juvenile, religious visa, family unity, Temporary Protected Status (TPS), Violence Against Women’s Act (VAWA), Nicaraguan Adjustment and Central American Relief Act (NACARA), inadmissibility waivers, removal defense, representation, Freedom of Information Act request, citizenship information and applications, photos and fingerprinting.

SOUTH COUNTY CITIZENSHIP SERVICES offers sliding scale citizenship services in Gilroy, Morgan Hill, and San Martin. Citizenship services include application assistance, interview preparation, legal assistance or referral to legal assistance. Free South County Citizenship Days are held twice a year. REFUGEE FOSTER CARE trains and supports persons who want to become foster parents. The program matches unaccompanied refugee minors from overseas with foster families in Santa Clara County. REFUGEE RESETTLEMENT offers sponsorship from refugee camps worldwide, family reunification, case management, cultural orientation, employment preparation, job placement, English as a Second Language (ESL), and computer training. HOUSING SEARCH AND STABILIZATION SERVICES links home providers with home seekers, and provides safe and affordable shared accommodations for low-income, single-parent families, seniors, and single adults, as well as housing case management for formerly homeless and low income residents in subsidized housing.

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JUNE 30, 2011 AND 2010


POLICIES (Continued) OLDER ADULT SERVICES DAY BREAK RESPITE AND CAREGIVER SUPPORT SERVICES program serves caregivers and their dependent elders. Services include a licensed adult day support program (recreation, health promotion and social activities), in-home respite, caregiver support groups, caregiver education and escorted transportation. DAY BREAK II ASIAN RESPITE AND CAREGIVER SUPPORT SERVICES is an Asian model of the Day Break Program. Services include a licensed adult day support program (recreation, health promotion, and social activities), in-home respite, caregiver support groups and escorted transportation. All services are adapted to the cultural and linguistic needs of Vietnamese and Chinese caregivers and their dependent elders. FRIENDLY VISITOR PROGRAM matches volunteers with isolated seniors living in long term care facilities in Santa Clara County. LONG TERM CARE OMBUDSMAN PROGRAM advocates for frail, chronically ill residents in all nursing homes and residential care/assisted living facilities in Santa Clara County. This program responds to, investigates, and seeks fair resolution to complaints, including allegations of elder abuse and violations of residents’ rights. SENIOR NUTRITION PROGRAM offers socialization and hot nutritious meals for seniors (age 60 and over) five days a week at three sites in Santa Clara County: Eastside Neighborhood Center, John XXIII Multi-Service Center and the Gilroy Nutrition site. SENIOR PROGRAMS AT NEIGHBORHOOD CENTERS offers educational classes, recreation and wellness activities for older adults in a culturally responsive environment. Services include English as a Second Language classes, citizenship, information and referral, health screening and monitoring, wellness education, computer training, noon meal, exercises like tai chi, dances, health education, and cultural celebrations at John XXIII and Eastside Neighborhood Center. CHILDREN YOUTH AND FAMILY DEVELOPMENT SERVICES CORAL (Communities Organizing Resources to Advance Learning) is an after-school program functioning at over twenty San Jose public schools. CORAL focuses on improving student achievement through balanced literacy and enrichment activities. FIRST 5 SANTA CLARA COUNTY partners with families to support the healthy development of their children ages 0-5 years. The program includes parenting workshops plus community engagement and education activities. LEADERSHIP, ETHNIC, AND ACADEMIC PRIDE (LEAP) PROJECT is an after-school program supporting youth to succeed in school and make healthy choices with their peers, their families and in their community.

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JUNE 30, 2011 AND 2010


POLICIES (Continued) SUCCESSFUL PARENTS’ PROJECT, offered in Vietnamese and Spanish, helps parents develop a stronger, healthier relationship with their children. Workshops train parents to communicate effectively with their children and support their children’s mental, emotional and physical growth. RAISING A READER offers a pre-school literacy program for families with children 0-5 years of age. It provides age-appropriate books in English and Spanish, book bags, early literacy training, and support services for daycare providers. PEER EDUCATORS provide peer counseling and support to pregnant and early breastfeeding mothers using the Parent Education Model to improve breastfeeding rates in the Vietnamese and Latino Communities. EL TORO YOUTH CENTER provides afterschool homework assistance, recreation, wellness, and enrichment activities to low-income youth in Morgan Hill. FA’ATASI PROGRAM (FINDING AN ALTERNATIVE TOGETHER - ASSESSING AND SERVICING INDIVIDUALS) assists at-risk, gang-prone young men to develop cultural sensitivity and spiritual awareness. The program promotes healthy decision-making that improves relationships with peers, family and the community. Individual counseling, skill building, and group activities are geared to personal empowerment and self- improvement. INTERVENTION SERVICES provides gang intervention services to at-risk youth. Work with community partners to conduct ongoing prevention/intervention and truancy outreach to identify youth who exhibit high-risk behaviors including gang involvement, conflict/violence, school absence and drop out, substance abuse, and other negative behaviors.

KINSHIP RESOURCE CENTER provides comprehensive services and support to grandparents and other relatives who are raising the family’s children. Services include case management, health assessments, support groups, respite care, recreation, information and referral, education seminars and assistance with legal guardianship packets, as well as an Independent Living Program for youth moving out of kinship care. PROBATION SERVICES provides case management to youth on probation to prevent re-engagement with the criminal justice system. THE SUMMIT LEAGUE TECH LAB provides at-risk youth and their families with introductory tools to help them develop technical skills on word processing, internet usage, spreadsheet, web design, graphic design, and video production. WASHINGTON UNITED YOUTH CENTER (WUYC) offers structured after school programming and a caring environment to youth and their families: counseling support, recreation, group educational activities and cultural enrichment programs. Also available are information and referral services for families in crisis and living in poverty.

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JUNE 30, 2011 AND 2010


POLICIES (Continued) YOUNG WOMEN’S AND MEN’S EMPOWERMENT PROJECT (YW/MEP) are prevention programs that target teen pregnancy and dating violence including peer education and mentoring, support groups, career and educational development workshops, and family/community wellness events. JUSTICE EMPOWERMENT SERVICES offers services to assist families, youth, prisoners, and ex-prisoners to overcome the immediate and long term effects of incarceration, acting as a bridge between those who serve the community at large and the criminal justice system. FRANKLIN-MCKINLEY CHILDREN’S INITIATIVE The Franklin-McKinley Children’s Initiative is a place-based anti-poverty strategy focused on helping every child in the neighborhood succeed from cradle to career through creating a strong and safe neighborhood, strengthening educational opportunities, and strengthening families through a community-based coalition. STEP UP SILICON VALLEY Through Step Up Silicon Valley the Organization leads a coalition of community-based organizations, interfaith allies, government representatives, and business leaders who are working to cut poverty in half in Santa Clara County by 2020 through creating awareness, advocating for policy changes, and incubating system changing alternatives. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Under accounting principles generally accepted in the United States of America, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. o Unrestricted Net Assets includes the Operating Fund, Board Designated Funds and the

Unrestricted Equipment Fund. These funds record the net assets over which the Board of Directors has discretionary control and which are used to carry out operations of the Organization in accordance with its bylaws.

o Temporarily Restricted Net Assets includes resources currently available for use, but

expendable only for those operating purposes specified by the donor or funding source. The Organization does not imply a time restriction on gifts of long lived assets. Resources of this fund originate from gifts, grants and bequests.

o Permanently Restricted Net Assets includes the endowment funds which consist of gifts

and bequests accepted with the donor stipulation that the principal or fixed asset item be restricted in perpetuity. The income from these assets is available for either general operations or specific programs as specified by the donor.

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Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments and investments with a maturity of three months or less. The Organization maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts. Management believes it is not exposed to any significant risk on cash accounts. Accounts Receivable Accounts receivable arise principally from charges to funding sources for current expenses. The Organization records an allowance for doubtful accounts receivable based on specifically identified amounts that it believes are uncertain and records additional allowances based upon certain percentages of aged receivables, which are determined based on historical experience and consideration of the general financial conditions that may affect payment. At June 30, 2011 and 2010, the Organization considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been recognized. If amounts become uncollectable, they will be written off when that determination is made. Contributed Support Receivable and Allowance for Doubtful Accounts Contributions are recognized as receivables in the Statement of Financial Position when the donor makes a promise to give to the Organization that is, in substance, unconditional. The Organization only records pledge receivables when the total amount of the pledge is $10,000 or more. 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 contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. The Organization records an allowance for doubtful contributions receivable based on specifically identified amounts that it believes are uncertain. The Organization also records additional allowances based upon certain percentages of aged receivables, which are determined based on historical experience and the Organization’s assessment of the general financial conditions that may affect payment. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Inventory Inventory consists of donated clothing, toys and household items to be distributed to individuals in need. Donated inventory was valued based on a physical inventory count and value study.

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POLICIES (Continued) Property and Equipment Property and equipment purchases are recorded at cost whether acquired with donated funds or operating funds. It is the Organization’s policy to capitalize acquisitions in excess of $2,000. Donated property and equipment are recorded at fair value at the date received. Depreciation of property and equipment is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their useful lives on the straight-line method. Leasehold improvements are amortized over the term of the respective leases (including anticipated renewal options, where appropriate) or the estimated service lives of the assets, whichever is shorter. Long-lived assets acquired with gifts of cash restricted for those acquisitions are reported as unrestricted based on the Organization’s policy of lifting restrictions on contributions of cash used for the acquisition of long-lived assets. Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Grant Revenue The Organization recognizes support and revenue on the accrual basis of accounting. Grant revenue is recognized when earned, generally in proportion to the expenses incurred. Program fees are recognized as revenue in the period in which the service is provided. In-Kind Support and Services The Organization records various types of in-kind support including professional services, donated goods and tangible assets. Contributed professional services are recognized if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Donated goods and contributions of tangible assets are recognized at fair value when received. Except for ending inventory, the amounts, if any, reflected in the accompanying financial statements as in-kind support are offset by like amounts included in expenses. The Organization also receives donated services that do not require specific expertise but which are nonetheless central to the Volunteer Program. The Volunteer Program provides for the partnering of volunteers and the staff of Catholic Charities to create a more cohesive community by fostering trust between residents and the development of norms of solidarity and reciprocity that is essential to stable communities. These services are not reported in the financial statements since they do not meet the criteria discussed above. The estimated value of these services was $772,395 and $673,828 for the years ended June 30, 2011 and 2010, respectively.

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JUNE 30, 2011 AND 2010


POLICIES (Continued) Functional Allocation of Expenses

The costs of providing the various program services have been summarized on a functional

basis in the Statement of Activities. Accordingly, certain costs have been allocated, principally on an indirect cost basis, using personnel time studies, among the programs and supporting services.

Tax-Exempt Status

The Organization has been granted tax-exempt status by the Internal Revenue Service (Section 501(c) (3)) and the California Franchise Tax Board (Section 23701d). The Organization is registered with the Registry of Charitable Trusts of the Office of the Attorney General of the State of California. Catholic Charities qualifies for the charitable contribution deduction under Section 170(b) (1) (A) and has been classified as an organization other than a private foundation under Section 509(a) (2).

. Investments Investments in marketable securities with readily determinable fair values and all investments

in debt securities are reported at their fair values in the statements of financial position. Unrealized gains and losses are included in the change in net assets.

Fair Value Measurements Fair value is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Accounting principles generally accepted in the United States of America establish a hierarchy to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the asset based on market data obtained from sources independent of the Organization. Unobservable inputs reflect the Organization’s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.

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Level 3 - Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Organization’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

Advertising The Organization’s policy is to expense advertising costs as the cost are incurred.

Advertising expense for the years ended June 30, 2011 and 2010 was $97,056 and $116,403, respectively. Reclassification

Certain amounts in the 2010 financial statements have been reclassified to conform to the

2011 presentation. Such reclassifications have no effect on reported changes in net assets. NOTE 2 – FAIR VALUE MEASUREMENTS

Fair values for Level 1 investments are determined by reference to quoted market prices. Fair value for the contribution receivable from a beneficial interest in a charitable lead trust is determined by calculating the present value of the cash flow stream using a discount rate of 8% which reflects the Organization’s best estimate of the inherent risk related to the performance of the trust.

Fair values of assets measured on a recurring basis at June 30, 2011 are as follows:

Total

Quoted Prices in Active

Markets for Identical Assets Level 1

Significant

Other Observable

Inputs Level 2

Significant Unobservable

Inputs Level 3

Investments $ 5,747,879 $ 1,083 $ 5,746,796 $ - Investments – long-term 5,806,453 - 5,806,453 - Total Investments 11,554,332 1,083 11,553,249 - Contribution receivable – beneficial interest in charitable lead trust

939,411

-

- 939,411

$ 12,493,743 $ 1,083 $ 11,553,249 $ 939,411

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JUNE 30, 2011 AND 2010 NOTE 2 – FAIR VALUE MEASUREMENTS (Continued)

Fair values of assets measured on a recurring basis at June 30, 2010 are as follows:

Total

Quoted Prices in Active

Markets for Identical Assets Level 1

Significant

Other Observable

Inputs Level 2

Significant Unobservable

Inputs Level 3

Investments $ 4,275,284 $ - $ 4,275,284 $ - Investments – long term 4,790,039 - 4,790,039 - Total Investments 9,065,323 - 9,065,323 - Contribution receivable – beneficial interest in charitable lead trust 999,455

-

-

999,455 $ 10,064,778 $ - $ 9,065,323 $ 999,455

There were no significant transfers in or out of level 2 investments during the years ending June 30, 2010 and 2011.

The following table summarizes the Organizations level 3 reconciliation as of June 30, 2011 and 2010:

Level 3 2011 2010

Balance at beginning of the year $ 999,455 $ 1,055,050 Distributions (140,000

) (140,000

)

Change in valuation of beneficial interest in charitable lead trust 79,956

84,405

Balance at end of the year $ 939,411 $ 999,455

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JUNE 30, 2011 AND 2010

NOTE 3 – INVESTMENTS Investments consisted of the following as of June 30:

2011 2010 Equities $ 1,083 $ - Mutual Funds: Religious Communities Trust Catholic United Investment Trust:

CUIT Balanced Fund 11,493,759 9,004,091 RCT Short Bond Fund - 12,186 American Funds: American Balanced Fund 59,490 49,046 $ 11,554,332 $ 9,065,323

Investments – unrestricted & temporarily restricted $ 5,747,879 $ 4,275,284

Investments – permanently restricted 5,806,453 4,790,039 $ 11,554,332 $ 9,065,323

Total investment income was $1,844,572 and $920,234 for the years ended June 30, 2011 and 2010, respectively, which included interest and dividends of $168,435 and $173,939, and net realized/unrealized gains of $1,676,137 and 746,295 respectively.

Risks and Uncertainties – The Organization holds investments which include mutual funds.

These securities are exposed to various risks such as interest rate and market risk. Due to the level of risk associated with these securities and the level of uncertainty related to changes in value, it is at least reasonably possible that changes in the various risk factors will occur in the near term that could materially affect the value of the investments reported in the accompanying financial statements.

NOTE 4 – CONTRIBUTED SUPPORT RECEIVABLE Contributions receivable consists of the following at June 30:

2011 2010 Charitable lead trust $ 939,411 $ 999,455Promises to give (pledges) 355,449 823,433 Total contributed support 1,294,860 1,822,888Less: allowance for doubtful accounts (103,000) (2,425) Contributed support receivable, net $ 1,191,860 $ 1,820,463

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JUNE 30, 2011 AND 2010

NOTE 4 – CONTRIBUTED SUPPORT RECEIVABLE (Continued)

Contributed support receivables are recorded after discounting the future cash flows to the present value using discount rates from 3.45% to 8%, established in the year of contribution. Maturities of these receivable are as follows:

2012 $ 188,793 2013 277,210 2014 165,800 2015 143,875 2016 142,160 2017 and thereafter 840,000 1,757,838 Less: discount for present value (462,978) Total contributed support receivable $ 1,294,860

The Organization is the beneficiary of a charitable remainder unitrust and is the trustee of the

trust. This trust provides for the payment of distributions to the donor over the donor’s lifetime. At the end of the trust’s term, the remaining assets are available for the Organization’s use. Assets held in the trust are recorded at fair value and are included with other investments on the Organization’s Statement of Financial Position. The present value of estimated future payments to the income beneficiary, which is based on a discount rate of 3% and applicable mortality tables, is recognized as a liability. The liability at June 30, 2011 and 2010 is $33,006 and $30,957, respectively.

The Organization is named as a beneficiary in a charitable lead trust where a third party serves as trustee. Under the terms of the trust, the Organization is to receive $140,000 annually through 2021. The present value of the future benefits is reflected as a contribution receivable on the Organization’s Statement of Financial Position, using a discount rate of 8%. See Note 2.

The Organization has also been named as beneficiary in various revocable trusts. The assets of these trusts are not included in the Statement of Financial Position of the Organization since these trusts are revocable at the discretion of the grantor.

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JUNE 30, 2011 AND 2010

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at June 30:

2011 2010 Equipment $ 623,331 $ 420,132Automobiles 272,658 255,081Software 51,270 51,270Computer equipment 261,247 261,247Buildings and improvements: Zanker Road, San Jose (1) 5,402,499 5,364,554 Alum Rock Ave, San Jose (1, 2) 1,714,751 1,413,995Leasehold improvements 1,608,044 1,506,874Land improvements 235,319 235,319 10,169,119 9,508,472Less: Accumulated depreciation and amortization (6,347,232) (5,912,878) 3,821,887 3,595,594Land: Zanker Road, San Jose Alum Rock Ave, San Jose (2)

888,225265,532

888,225265,532

1,153,757 1,153,757 $ 4,975,644 $ 4,749,351

(1) Construction in progress included in improvements at June 30, 2010 were $456,359 for

the Alum Rock Avenue facility (East Side Community Center), and $106,866 for the Zanker Road Facility, for a total of $563,225. There was no construction in progress at June 30, 2011.

(2) On November 21, 1983, a site (on Alum Rock Ave in San Jose) was donated to the Organization, on which it constructed Eastside Neighborhood Center. The land was conveyed upon the condition that the property is used solely for the operation of a senior citizen center for a forty-year period. If this condition is not met, title to the land, buildings and improvements on the premises, will pass to the Department of Housing and Urban Development (HUD). In addition, the Organization must pay the City of San Jose $368,000 if the property is sold or used for other activities. It is management’s intention to use the property for its intended purpose for the entire forty-year period.

During the year ended June 30, 2011 and 2010 the Organization operated at five (5) sites that

it did not lease or own. These spaces were provided by governmental agencies or other groups to enable the Organization to provide program services at the locations.

NOTE 6 – FUNDS HELD FOR OTHERS/RETIREMENT OBLIGATION The Organization has set aside funds in the name of certain employees who are due their

account balance from a previous retirement plan than was terminated several years ago. As agreed upon by the parties involved, upon separation from service, the funds in these accounts will be distributed to these employees.

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JUNE 30, 2011 AND 2010

NOTE 7 – NOTES PAYABLE

Notes payable consisted of the following for the year ending June 30:

2011 2010 Note payable, payable in monthly installmentsof $2,911 including interest at 9.25%, through July 2012, secured by vehicles. $ 35,903

$ 65,985

Note payable, payable in monthly installmentsof $1,099 including interest at 12.65%, through July 2011, secured by certain equipment.

1,099

14,282

Total notes payable $ 37,002 $ 80,267

Principle maturities for the years ending June 30 are as follows:

2012 $ 34,085 2013 2,917 $ 37,002

NOTE 8 – LINE OF CREDIT The Organization has available a line of credit which is secured by a first deed of trust

security agreement. Annual interest is charged either at the bank’s reference rate or an optional set of interest rates that the Organization may exercise at various points in time and are calculated at LIBOR plus a margin. The Organization has $4,000,000 available on the line of credit which expires September 20, 2011. The line of credit is in the process of being renewed.

NOTE 9 – CONTRIBUTIONS AND NET REVENUE FROM SPECIAL EVENTS

Contributions and revenue from special events consisted of the following:

2011 2010 Contributions $ 316,304 $ 294,845Special event revenue 36,540 32,033Less: costs of direct benefits to donors (53,235) (36,169) Net contributions and revenue $ 299,609 $ 290,709

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JUNE 30, 2011 AND 2010

NOTE 10 – IN-KIND CONTRIBUTIONS

In-kind contributions consisted of the following as of June 30:

2011 2010 Food donated by Second Harvest Food bank $ 1,030,752 $ 55,314Clothing and household items 186,527 35,000Equipment 204,925 - Vehicles (Sold at auction) 102,372 67,842 Special event costs 12,109 9,835 Total in-kind contributions $ 1,536,685 $ 167,991

NOTE 11 – COMMITMENTS The Organization leases certain facilities and equipment under cancelable and non-cancelable

operating leases expiring through 2016. Minimum rental commitments under operating leases are as follows:

Year Ending

June 30

2012 $ 332,419 2013 59,611 2014 48,189 2015 13,922 2016 2,500 $ 456,641

Total rental expense for the year ended June 30, 2011 and 2010 was $336,836 and $271,155, respectively.

The Organization currently leases portions of John XXIII Senior Center (the “Center”) from Giovanni Center, a related party, under a year-to-year lease. The lease requires the Organization to make annual payment of $1 plus utilities. The fair value of this below market rate rent has not been reflected in the financial statements as the amount is not readily determinable. There is a note secured by a deed of trust on the property. The note becomes due and payable if, prior to December 31, 2016, there is a default under the Deed of Trust, if the facility is sold or if the Organization changes the use of the facility to an activity not “eligible” under the acts and regulations issued by HUD.

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JUNE 30, 2011 AND 2010

NOTE 12 – RETIREMENT PLANS Retirement benefits are provided to substantially all full-time employees. On January 1, 1989, the Organization changed its defined benefit plan to a defined

contribution plan. At its termination, the old plan had an excess of assets over accrued liabilities of $473,634, which the Organization received in June 1990. Of this amount, $217,471 and $266,900 is reflected as a retirement liability for those participants whose benefits were reduced by the change in plan, at June 30, 2011 and 2010, respectively. Separate accounts (see Note 6) have been set up to hold the amounts due participants until separation from service occurs and the amounts are distributed.

Under the defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code, the Organization’s contributions are 5% of the annual salary of each eligible participant. Pension expense (net of forfeitures) for the years ended June 30, 2011 and 2010 was $590,676 and $409,334, respectively. In addition, the Organization has a defined contribution plan (employee contributions only) which qualifies under Section 403(b) of the Internal Revenue Code. These defined contribution plans cover all permanent employees.

NOTE 13 – NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from donor restrictions by incurring expenses satisfying the

restricted purpose, generally related to the support of program services, or by the expiration of time as follows for the years ended June 30:

2011 2010 Time restrictions expired: United Way allocations $ 60,605 $ 50,000 Contributions - individuals and businesses 21,961 50,071 Charitable lead trust 60,044 55,596 142,610 155,667 Purpose restrictions fulfilled: Appropriated endowment earnings 130,754 74,185 Contributions - foundation and trust 1,731,418 1,924,917 Contributions - individuals and businesses 712,522 207,165 Special events 52,993 51,525 2,627,687 2,257,792 Total net assets released from restrictions $ 2,770,297 $ 2,413,459

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JUNE 30, 2011 AND 2010

NOTE 14 - NET ASSETS Net assets at June 30:

2011 2010 Unrestricted net assets Undesignated $ 1,673,087 $ 2,222,979 Board designated reserve 4,798,529 4,199,898 Net investment in property & equipment 4,975,644 4,749,351 Total unrestricted net assets 11,447,260 11,172,228 Temporarily restricted net assets Time restrictions United Way allocations 50,000 50,000 Charitable lead trust (Note 4) 939,411 999,455 989,411 1,049,455 Purpose restrictions Contributions – foundation and trusts 762,513 1,045,500 Contributions – individuals and businesses 327,535 369,801

Special events – golf & bocce 90,972 - Unappropriated endowment earnings 898,816 26,340 Emergency Relief Fund 53,314 53,314 2,133,150 1,494,955 Total temporarily restricted net assets 3,122,561 2,544,410

Permanently restricted net assets The portion of permanent endowments funds that is required to be retained permanently either by explicit donor stipulations or by UPMIFA (Note 15) 5,960,686 5,250,791

Total permanently restricted 5,960,686 5,250,791 Total net assets $ 20,530,507 $ 18,967,429

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JUNE 30, 2011 AND 2010 NOTE 15 – ENDOWMENT

Catholic Charities endowment consists of 9 individual funds established for a variety of purposes. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions.

Interpretation of Relevant Law: The California version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) requires 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, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts are added 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 the California version of UPMIFA. In accordance with the California version of UPMIFA, the organization 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 the organization 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 the organization (7) The investment policies of the organization

Endowment Net Asset Composition by Type of Fund as of June 30, 2011:

Unrestricted Temporarily

Restricted Permanently

Restricted

Total

Donor-restricted endowment funds $ -

$ 898,816

$ 5,960,686

$ 6,859,502 Total funds $ - $ 898,816 $ 5,960,686 $ 6,859,502

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JUNE 30, 2011 AND 2010

NOTE 15 – ENDOWMENT (Continued)

Changes in endowment net assets for the year ended June 30, 2011:

Unrestricted Temporarily

Restricted Permanently

Restricted

Total Endowment net assets, beginning of year $

-

$ 26,340

$ 5,250,791

$ 5,277,131

Investment return: Investment income - 90,988 - 90,988 Net appreciation

-

912,242

-

912,242

Total investment return - 1,003,230 - 1,003,230 Contributions - - 709,895 709,895Appropriated earnings spent on programs

- (130,754)

- (130,754

)

Endowment net assets, end of year $ -

$ 898,816 $ 5,960,686

$ 6,859,502

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 California version of UPMIFA requires the Organization to retain as a fund of perpetual duration. In accordance with accounting principles generally accepted in the United States of America, deficiencies of this nature would be reported in unrestricted net assets. There were no funds with deficiencies as of June 30, 2011 and 2010. Return Objectives and Risk Parameters: The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period(s). These funds have been donated to Catholic Charities with the intent that the principal remain intact and that only the investment earnings be used in the operations of Catholic Charities. Funds should be invested in growth or income producing assets with preservation and growth as primary objectives. The assets will be invested in cash equivalents, equities or income investments consistent with the investment policy.

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JUNE 30, 2011 AND 2010

NOTE 15 – ENDOWMENT (Continued)

Strategies Employed for Achieving Objectives: The overall investment goals over a rolling five-year time period are as follows:

A. To achieve a total return that is in the top half of managers within a representative universe with similar investment parameters. The ranking over multiple time periods is the performance criteria rather than the ranking achieved in any one specific year.

B. The Investment Funds should experience long-term growth in the value of its assets. C. The Investment Funds should be invested in accordance with prudent fiduciary

practice. D. That growth in assets be experienced with reasonable levels of risk and volatility of

return. Management and the Board of Directors recognize that risk (i.e., the uncertainty of future events), volatility (i.e., the variability of returns), and the possibility of loss in purchasing power (due to inflation) are present to some degree in all types of investment vehicles. High levels of risk, as evidenced by high volatility and low quality rated securities, are to be avoided. The assumption of reasonable risk levels consistent with the objectives and guidelines approved the Board of Directors is warranted and encouraged in order to allow the investment manager the opportunity to achieve satisfactory long-term results. The investment policy of Catholic Charities is to strive for preservation and growth of entrusted funds with a maximum economic return thereon, while showing a preference toward those companies which have manifested a particular consideration for the social good. Spending Policy and How the Investment Objectives Relate to Spending Policy: The Organization shall distribute funds from the return on each endowment fund at its “normal spending rate” according to its Investment Policy and Guidelines established by the Board of Directors. Currently the normal spending rate is up to 5% on a 12-quarter rolling average of the market value. Return on the endowment funds that exceed the normal spending allocation will normally be added to the principal (and accounted for in the temporarily restricted fund). At the discretion of the Board of Directors, some portion or all of such excess may be expended for a particular need or project related to the purpose of the endowment.

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JUNE 30, 2011 AND 2010

NOTE 16 – RELATED PARTIES The Organization is affiliated with Charities Housing Development Corporation through

common board members. The Organization signed contracts with Charities Housing Development Corporation to provide services at various housing projects for low-income individuals. Revenue for these services was $126,000 and $124,958 for the years ended June 30, 2011 and 2010, respectively.

The Organization pays dues to Catholic Charities USA, which is a trade association providing

training and seminars. Dues for the years ended June 30, 2011 and 2010 were $10,838 and $18,204, respectively.

The Organization pays dues to Catholic Charities of California, a trade association that

provides training and seminars. Dues for the years ended June 30, 2011 and 2010 were $16,819 and $17,106, respectively.

The Organization pays insurance premiums to the Diocese of San Jose with respect to certain

policies arranged by the Diocese which cover the Organization as a named insured. Amounts paid for the years ended June 30, 2011 and 2010 were $272,453 and $170,743, respectively. The Organization also paid the Diocese of San Jose for advertising and contract services in the amounts of $25,172 and $-0- for the years ending June 30, 2011, and 2010, respectively.

The Organization rents portions of John XXIII Senior Center from Giovanni Center, a related party. The agreement requires the Organization to make annual payments of $1.00 plus utilities.

NOTE 17 – ACCOUNTING FOR INCOME TAXES

The Organization has been classified as other than a private foundation and is tax-exempt under Section 501(c) (3) of the Internal Revenue Code. The Organization is subject to a tax on income from any unrelated business. Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by the Organization in its federal and state exempt organization tax returns are more-likely-than-not to be sustained upon examination.

The Organization’s federal Return of Organization Exempt from Income Tax (Forms 990) for years ended June 30, 2008 through 2010 are subject to examination by the IRS, generally for three years after they are filed. The Organization’s state returns (forms 199) for the years ended June 30, 2007 through 2010 could be subject to examination by state taxing authorities, generally for four years after they are filed.

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JUNE 30, 2011 AND 2010

NOTE 18 – CONTINGENCIES

Grants Conditions contained within the various contracts awarded to the Organization are subject to

the funding agencies’ criteria and regulations under which expenditures may be charged against and are subject to be audited under such regulations and criteria. Occasionally, such audits may determine that certain costs incurred against the grants may not comply with the established criteria that govern them. In such cases, the Organization could be held responsible for repayments to the funding source for the costs or be subject to the reductions of future funding in the amount of the costs. Management does not anticipate any material questioned costs for the contracts and grants administered during the periods ended June 30, 2011 and 2010. State Unemployment Insurance

The organization is self-insured for State Unemployment Insurance purposes. When terminated employees file unemployment claims with the Employment Development Department, those claims are submitted directly to the Organization for payment. Since the Organization does not know how long a particular claimant will claim benefits, it is not feasible to accurately calculate the cost of claims applicable to the year ended June 30, 2011, and as such, the organization may be liable for claims in excess of those accrued for in these financial statements. Management does not expect these claims to be material to the financial statements. Litigation The Organization is a defendant in a lawsuit pertaining to compensation for past employees. While management believes that there will be a favorable outcome in this case, the Organization has designated unrestricted net assets to cover any potential exposure. Due to uncertainties with the lawsuit, it is reasonably possible that management’s view of the outcome will change in the near term.

NOTE 19 – SUBSEQUENT EVENTS

Management of the Organization has evaluated events and transactions subsequent to June 30, 2011 for potential recognition or disclosure in the financial statements. The Organization did not have subsequent events, that require recognition or disclosure in the financial statements for the year ended June 30, 2011. Subsequent events have been evaluated through the date the financial statements became available to be issued, October 26, 2011. The Organization has not evaluated subsequent events after that date.

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JUNE 30, 2011 AND 2010

NOTE 19 – PRIOR YEAR EXCESS:

During the prior year, the Organization received grants from the Catholic Foundation to fund building and leasehold improvements. Of the total grant monies received in the amount of $1,221,086, $576,096 was expended in the fiscal year ending June 30, 2011, and $625,423 was expended in the fiscal year ended June 30, 2010. Since these expenditures were for capitalized assets, the expenditure of these funds is reflected as an increase in fixed asset on the Statement of Financial Position instead of being reflected in the Statement of Activities as an expense. This resulted in a substantial increase in the reported prior year change in net assets.

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SUPPLEMENTARY INFORMATION

REPORTS AND SCHEDULES REQUIRED BY OMB CIRCULAR A-133

CATHOLIC CHARITIES OF SANTA CLARA COUNTY

NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

_____________________________________________________________________________________ NOTE 1 - BASIS OF PRESENTATION

The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal grant activity of Catholic Charities under programs of the federal government for the year ending June 30, 2011. The information in this schedule is presented in accordance with the requirements of OMB A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of Catholic Charities, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Catholic Charities.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. 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.

B. Pass-through entity identifying numbers are presented where available.

NOTE 3 – FOOD DISTRIBUTION:

Nonmonetary assistance is reported in the schedule at the fair value of the commodities received and disbursed. At June 30, 2011, the Organization had no food commodities in inventory.

_____________________________________________________________________________________

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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. We noted certain other matters that we reported to management of Catholic Charities in separate letter dated October 26, 2011. This report is intended solely for the information and use of management, the audit committee, others within the Catholic Charities, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

BERGER LEWIS ACCOUNTANCY CORPORATION San Jose, California October 26, 2011

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Internal Control Over Compliance Management of Catholic Charities is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Catholic Charities’ internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 Catholic Charities’ 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. 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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified a deficiency in internal control over compliance that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item 2011-1. 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. Catholic Charities’ responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Catholic Charities’ responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of management, the audit committee, others within Catholic Charities, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

BERGER LEWIS ACCOUNTANCY CORPORATION San Jose, California October 26, 2011

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CATHOLIC CHARITIES OF SANTA CLARA COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED JUNE 30, 2011

_____________________________________________________________________________________ SECTION I - SUMMARY OF AUDITOR'S RESULTS: 1. The auditor's report expresses an unqualified opinion on the financial statements of Catholic

Charities.

2. With respect to internal control over financial reporting:

A. There were no material weaknesses identified. B. There were no instances of noncompliance material to the financial statements noted.

3. With respect to internal control over major federal award programs: A. There were no material weaknesses identified. B. There was one significant deficiency noted that was not considered to be material weaknesses. C. The auditor’s report issued on compliance for the major federal award programs is unqualified.

4. The programs tested as major programs included:

CFDA Number

Program Name

14.235 Supportive Housing 84.126 Rehabilitation Services - Vocational Rehabilitation Grants to States 84.390 ARRA - Rehabilitation Services - Vocational Rehabilitation Grants to States 19.510 Refugee Admissions 93.558 Temporary Assistance to Needy Families 93.714 ARRA - Emergency Contingency Fund for Temporary Assistance for

Needy Families (TANF) State Program 93.044 Special Programs for the Aging - Title III, Part B - Grants for Supportive

Services and Senior Centers 93.045 Special Programs for the Aging - Title III, Part C - Nutrition Services 93.243 Substance Abuse and Mental Health Services - Projects of Regional and

National Significance 5. The threshold for distinguishing Type A and B programs was $300,000. 6. Catholic Charities qualified as a low-risk auditee.

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_____________________________________________________________________________________ SECTION II - FINDINGS – FINANCIAL STATEMENT AUDIT: None

SECTION III - FINDINGS AND QUESTIONED COSTS – MAJOR FEDERAL AWARD PROGRAMS AUDIT: Department of Housing and Urban Development Grant No. - CA0014B9T000802 Program Name - Supportive Housing Program (SHP) CFDA# - 14.235 Finding # 2011-1: Internal Controls Over Rental Assistance Calculations Condition: The calculations of the amount of rental assistance to be provided on behalf of two program participants were incorrectly calculated. Criteria: Allowable costs related to rental assistance are based on a rental assistance formula prescribed by HUD. Cause: Insufficient training and supervision of staff. Effect: Catholic Charities overcharged the SHP program by $83.60 and $130.90 per month for the program participants. Context: Two out of twelve program participants selected had reportable errors in the calculation of the allowable rental assistance. Auditor’s recommendation: We recommend that management review controls over the review of rental assistance calculations and make the necessary changes to ensure that rental assistance amounts are being calculated correctly. Views of Responsible Officials and Planned Corrective Action: A new program supervisor has been hired, additional training scheduled, and structural changes, including the incorporation of a new position, “Director of Housing,” are being considered.

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_____________________________________________________________________________________ SECTION III - FINDINGS AND QUESTIONED COSTS – MAJOR FEDERAL AWARD PROGRAMS AUDIT: (Continued) U.S. Department of Health & Human Services Grant No. IH79SMO59129-01 Program Name: Substance Abuse and Mental Health Services – Projects of Regional and National Significance CFDFA#: 93.243

Finding # 2011-2: Purchase of Gift Cards Claimed on Grant Report in Different Period than Distributed Condition: The Organization purchased $6,000 of gift cards and charged the expenditure to the grant prior to distribution of the gift cards. The specific award charged with the costs (award for the period ending April 30, 2011) was not the award that benefited from the purchase of the gift certificates. Criteria: OMB A-122 states that a cost is allocable to a specific grant in accordance with the benefits received. Effect: While the gift cards are an allowable expenditure, the costs were claimed in the wrong period. Cause: Insufficient supervision and training of staff. Auditor’s recommendation: We recommend that management provide training to staff regarding standard cost principles related to governmental grants. Views of Responsible Officials and Planned Corrective Action: The reimbursement request will be amended and training will be provided regarding standard cost principles.

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CATHOLIC CHARITIES OF SANTA CLARA COUNTY SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


_____________________________________________________________________________________ STATUS OF PRIOR YEAR AUDIT FINDINGS: Department of Housing and Urban Development Grant No. - CA0014B9T000801 Program Name - Supportive Housing CFDA# - 14.235 Finding # 2010-1: Payroll Logs and Timesheet Consistency Condition: The activity logs for one employee did not consistently agree with the timesheets for the same period. This employee apparently did not have an adequate understanding as to how to allocate and record time. Criteria: OMB A-122 states that the distribution of salaries and wages to awards must be supported by personnel activity reports. Cause: Insufficient supervision and training of staff. Effect: The amounts billed HUD are not properly supported. Auditor’s recommendation: We recommend that management review and identify the underlying cause and implement procedures to ensure that timesheets are supported by adequate documentation Status of Actions Taken: Catholic Charities implemented a new time tracking system called Awards, has documented HUD Time Allocation Policy and Procedures, hired an outside consultant that provided training and reviewed their programs and provided recommendations for improvements that have been implemented.

Finding # 2010-2: Incorrect Fair Value Rent Calculation Condition: The Fair Value Rents utilized in billing HUD for a particular lease were based on an incorrect number of bedrooms. Criteria: Allowable costs related to rental assistance are based on a rental assistance formula prescribed by HUD. Effect: Catholic Charities overcharged the SHP program in one of the sample items. However, after all the rents were recalculated, the Organization determined that the net effect was an under billing to HUD. Cause: Insufficient supervision and training of staff. Auditor’s recommendation: We recommend that management provide adequate training to staff, and that they review all leases assisted by this grant, identify the amount of overpayment, if any.

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CATHOLIC CHARITIES OF SANTA CLARA COUNTY SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


_____________________________________________________________________________________ Finding # 2010-2: Incorrect Fair Value Rent Calculation (Continued) Status of Actions Taken: The Organization hired an outside consultant to provide training and reviewed their programs and provided recommendations for improvements that have been implemented. Specifically, procedures for rent calculations have been documented and spreadsheets designed to assist staff in verifying that the rental calculations are done correctly. Finding # 2010-3: Unsupported Fair Value Rent Calculation Condition: For two leases, there was no support in the file for the number of bedrooms on which the fair value rent was based. Criteria: Allowable costs related to rental assistance are based on a rental assistance formula prescribed by HUD. The number of bedrooms is a component of this calculation and is required to be documented. Effect: Without the documentation of the number of the bedrooms, staff is not able to determine if the calculations are based on the correct number of bedrooms. Cause: Insufficient review and maintenance of client files. Auditor’s recommendation: We recommend that management provide adequate supervision and oversight to prevent future omissions of required information. Status of Actions Taken: The Organization hired an outside consultant to provide training and reviewed their programs and provided recommendations for improvements that have been implemented. Specifically, procedures for rent calculations have been documented and spreadsheets designed to assist staff in verifying that the rental calculations are done correctly.

_____________________________________________________________________________________

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