INVICTUS PREPARATORY CHARTER SCHOOLInvictus Preparatory Charter School (the “School”) is a New...

INVICTUS PREPARATORY CHARTER SCHOOL

FINANCIAL STATEMENTS

JUNE 30, 2018


TABLE OF CONTENTS

INDEPENDENT AUDITOR’S REPORT 1-2

FINANCIAL STATEMENTS:

Independent Auditor’s Report on Internal Control over Financial Reporting and onCompliance and Other Matters Based on an Audit of Financial Statements

Statement of Net Assets in Liquidation 3

Statement of Changes in Net Assets in Liquidation 4

Statement of Activities (Going Concern Basis) 5

Statement of Functional Expenses (Going Concern Basis) 6

Statement of Cash Flows (Going Concern Basis) 7

Notes to Financial Statements 8-12

Performed in Accordance with Government Auditing Standards 13-14

INDEPENDENT AUDITOR’S REPORT

To the Board of Trustees Invictus Preparatory Charter School

Report on the Financial Statements We have audited the accompanying financial statements of Invictus Preparatory Charter School (the “School”), which comprise the statement of net assets in liquidation as of June 30, 2018, and the related statement of changes in net assets in liquidation for the period from December 21, 2017 to June 30, 2018, and the statements of activities (going concern basis), functional expenses (going concern basis), and cash flows (going concern basis) for the period from July 1, 2017 to December 20, 2017, 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 misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the School’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 School’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

An Independent Member of Baker Tilly International

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Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets in liquidation of Invictus Preparatory Charter School as of June 30, 2018, the changes in its net assets in liquidation for the period from December 21, 2017 to June 30, 2018, and the changes in its net assets and its cash flows for the period from July 1, 2017 to December 20, 2017, in accordance with accounting principles generally accepted in the United States of America.

Basis of Accounting

As discussed in Note 1 to the financial statements, the School agreed to cease operations at a duly called and constituted board meeting in view of its financial condition. It is anticipated that the School will be dissolved in 2018. As a result, the School has changed its basis of accounting for periods subsequent to December 21, 2017 from the going-concern basis to the liquidation basis. Our opinion is not modified with respect to that matter.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 31, 2018, on our consideration of Invictus Preparatory Charter School’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 the 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 Invictus Preparatory Charter School’s internal control over financial reporting and compliance.

New York, NY October 31, 2018

INVICTUS PREPARATORY CHARTER SCHOOL STATEMENT OF NET ASSETS IN LIQUIDATION

JUNE 30, 2018,

ASSETS

Cash Cash - restricted Grants and other receivables Prepaid expenses and other assets

$ 105,034 75,357 143,277 18,750

$ 342,418

LIABILITIES AND NET ASSETS

LIABILITIES Accounts payable and accrued expenses $ 69,181

NET ASSETS - UNRESTRICTED 273,237

$ 342,418

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

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INVICTUS PREPARATORY CHARTER SCHOOL STATEMENT OF C+ANGES IN NET ASSETS IN LIQUIDATIONFOR T+E PERIOD DECEMBER 21, 2017 TO JUNE 30, 2018

OPERATING RE9ENUE State and local per pupil operating revenue Government grants and contracts

$ 2,519,810 201,417

2,721,227

E;PENSES Program services� General education Special education Management and general Fundraising

1,746,939475,979 571,112 27,078

2,821,108

DEFICIT FROM SC+OOL OPERATIONS �99,881�

SUPPORT AND OT+ER INCOME �E;PENSES� Contributions and other grants Interest income :rite off of property and eTuipment

750 21

�177,901�

�177,130�

C+ANGE IN NET ASSETS �277,011�

NET ASSETS AS OF DECEMBER 21, 2017 550,248

NET ASSETS IN LI4UIDATION AS O) -UNE 30, 2018 $ 2�3,23�


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INVICTUS PREPARATORY CHARTER SCHOOL STATEMENT OF ACTI9ITIES �GOING CONCERN BASIS�

FOR T+E PERIOD FROM JUL< 1, 2017 TO DECEMBER 20, 2017

OPERATING RE9ENUE State and local per pupil operating revenue Government grants and contracts

$ 1,774,235 97,405

1,871,640

E;PENSES Program services� General education Special education Management and general Fundraising

1,288,454351,000 424,071 20,696

2,084,221

DEFICIT FROM SC+OOL OPERATIONS �212,581�

SUPPORT AND OT+ER INCOME Fundraising Interest income

1,228 16

1,244

C+ANGE IN NET ASSETS �211,337�

NET ASSETS - AS OF JUL< 1, 2017 761,585

NET ASSETS � AS O) DECE0BER 20, 201� $ ��0,248


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INVICTUS PREPARATORY CHARTER SCHOOL STATEMENT OF FUNCTIONAL E;PENSES �GOING CONCERN BASIS�

FOR PERIOD FROM JUL< 1, 2017 TO DECEMBER 20, 2017

PHUVRQQHO SHUYLFHV CRVWV Administrative staff personnel Instructional personnel Non-instructional personnel Total salaries and staff

Fringe benefits and payroll taxes Retirement Accounting and audit services Legal services Repairs and maintenance Insurance Supplies and materials Staff development MarNeting and recruitment Technology Food service Student services Office expense Depreciation and amorti]ation Other expenses

NR� RI PRVLWLRQV 11 29 1 41

$

*HQHUDO EGXFDWLRQ

239,959 599,181

-839,140 190,462 437 --

4,328 8,742 47,267 52,052 2,890 13,434 2,991 52,934 15,715 24,642 33,420

SSHFLDO EGXFDWLRQ

65,380$ 163,255

-228,635 51,894 119 --

1,180 2,382 12,879 14,182 787 3,660 815

14,423 4,282 6,654 9,108

PURJUDP SHUYLFHV

$

TRWDO

305,339 762,436

-1,067,775 242,356 556 --

5,508 11,124 60,146 66,234 3,677 17,094 3,806 67,357 19,997 31,296 42,528

)XQGUDLVLQJ

8,850$ -

4,632 13,482 3,060 7 --70 140 ---

495 --

580 1,640 1,222

0DQDJHPHQW DQG *HQHUDO

128,331$ -

88,016 216,347 49,105 113

69,500 4,468 1,116 2,254

-27,053

-7,185

--

8,404 20,653 17,873

SXSSRUWLQJ AFWLYLWLHV

$

TRWDO

137,181 -

92,648 229,829 52,165 120

69,500 4,468 1,186 2,394

-27,053

-7,680

--

8,984 22,293 19,095

$

2018

442,520 762,436 92,648

1,297,604 294,521 676

69,500 4,468 6,694 13,518 60,146 93,287 3,677 24,774 3,806 67,357 28,981 53,589 61,623

$ 1,288,4�4 $ 3�1,000 $ 1,�3�,4�4 $ 20,�� $ 424,0�1 $ 444,�� $ 2,084,221


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INVICTUS PREPARATORY CHARTER SCHOOL STATEMENT OF CAS+ FLO:S �GOING CONCERN BASIS�FOR PERIOD FROM JUL< 1, 2017 TO DECEMBER 20, 2017

CAS+ FLO:S FROM OPERATING ACTI9ITIES Cash received from operating revenue Cash paid to employees and suppliers

NET CAS+ PRO9IDED B< OPERATING ACTI9ITIES

CAS+ FLO:S FROM IN9ESTING ACTI9ITIES Purchase of property and eTuipment

NET INCREASE IN CAS+

$ 2,825,913 �2,019,448� 806,465

�15,883�

790,582

CAS+ AND CAS+ - RESTRICTED - BEGINNING OF PERIOD

CAS+ AND CAS+ - RESTRICTED - END OF PERIOD $

562,252

1,3�2,834

Reconciliation of change in net assets to net cash provided by operating activities�

Change in net assets AdMustments to reconcile change in net assets to net cash provided by operating activities� Depreciation and amorti]ation

Changes in operating assets and liabilities� Security deposits Grants and other receivables Prepaid expenses and other assets Accounts payable and accrued expenses Due to N


NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018

1. NATURE OF THE ORGANIZATION

General

Invictus Preparatory Charter School (the “School”) is a New York State, not-for-profit educational corporation that was incorporated on December 14, 2010 to operate a charter school pursuant to Article 56 of the Educational Law of the State of New York. The School was granted a provisional charter on December 14, 2010, valid for a term of five years and renewable upon expiration by the Board of Regents of the University of the State of New York. The School opened its doors in the fall of 2011 in Brooklyn with a college preparatory academic program and a highly structured and supportive school culture. While the School is comprised of students from many backgrounds, it is uniquely designed to close the achievement gap in middle school and prepare students to be successful in high school and college by focusing on the integration of goal setting, critical thinking and problem solving skills. The School received an extension to their charter term to July 31, 2019.

The School, as determined by the Internal Revenue Service, was approved for Federal income tax exemption under section 501(a) of the Internal Revenue Code (“IRC”) as an organization described in Section 501(c)(3) of the IRC. It is also currently exempt under a similar provision under New York State income tax laws. The School has also been classified as an entity that is not a private foundation within the meaning of Section 509(a) of the IRC and qualifies for deductible contributions as provided in section 170(b)(1)(A)(ii) of the IRC. The School’s primary source of income is government funding.

During the year ended June 30, 2018, the School operated classes for students in the fifth, sixth, seventh and eighth grades. The School shares space with a New York City public school and is not responsible for rent, utilities, custodial services, maintenance, or school safety. Approximately 16,650 feet of square footage is allocated to the School.

Liquidation Basis of Accounting

On December 21, 2017, the Board agreed to cease operations at a duly called and constituted board meeting in view of its financial condition. At this meeting, the Board approved a plan of liquidation effective December 21, 2017. The School completed its 2017-2018 school year and has ceased operating its not-for-profit educational program on June 30, 2018. The School has engaged a dissolution consultant who began work in July 2018 and assisted in the placement of the School’s students into other schools for the next school year. The School expects to finalize liquidation in 2018.

Effective December 21, 2017, the School changed the basis of preparing its financial statements from going concern to liquidation. On a liquidation basis, the School has presented a statement of net assets in liquidation at June 30, 2018 and a statement of changes in statement of net assets in liquidation for the period from December 21, 2017 to June 30, 2018. Under the liquidation basis of accounting, assets are measured to reflect the estimated amount of cash or other consideration expected to be collected in settling or disposing of the assets. Liabilities are measured by the amount of cash required to settle them.

The measurement of assets and liabilities represent estimates, based on present facts and circumstances, of the realizable value of the assets and the costs associated with carrying out the plan of liquidation. These estimates are subject to change based on changes in market conditions, amongst other variables.

Under the liquidation basis of accounting, management is required to make significant estimates and judgments regarding the anticipated costs of liquidation. The actual values and costs associated with carrying out the plan of dissolution may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. In particular, the estimates of costs will vary with the length of time necessary to complete the dissolution process and to resolve any claims.

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NOTES TO FINANCIAL STATEMENTSJUNE 30, 2018

1. NATURE OF THE ORGANIZATION (CONTINUED)

Liquidation Basis of Accounting (Continued)

As of June 30, 2018, assets consist of cash of $105,034, cash – restricted of $75,357, grants and other receivables of $143,277, prepaid expenses and other assets of $18,750, and accounts payable and accrued expenses of $69,181.

The School plans to use the escrow funds for dissolution services and the remainder of the funds will pay existing accounts payable. The School intends to sell or donate the property and equipment.

2. ACCOUNTING POLICIES

Financial Statement Presentation

The School’s financial statements at December 20, 2017 and for the period then ended, have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The classification of a School’s net assets and its support, revenues and expenses is based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of the three classes of net assets – permanently restricted, temporarily restricted, and unrestricted – be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.

These classes are defined as follows:

Permanently Restricted - Net assets resulting from contributions and other inflows of assets whose use by the School is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the School.

Temporarily Restricted - Net assets resulting from contributions and other inflows of assets whose use by the School is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the School pursuant to those stipulations. When such stipulations end or are fulfilled, such temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities.

Unrestricted - The part of net assets that is neither permanently nor temporarily restricted by donor-imposed stipulations.

Cash – Restricted

An escrow account of $75,357 is held aside for contingency purposes as required by the New York City Department of Education (“NYCDOE”).

Grants and Other Receivables

Grants and other receivables represent unconditional promises to give. Grants and other receivables that are expected to be collected within one year and recorded at net realizable value are $143,277 at June 30, 2018.

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2. ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

Revenue from the state and local governments resulting from the School’s charter status is based on the number of students enrolled and is recorded when services are performed in accordance with the charter agreement.

Revenue from federal, state and local government grants and contracts are recorded when qualifying expenditures are incurred and billable. Funds received in advance for which qualifying expenditures have not been incurred, if any, would be reflected as liabilities from state and local government grants in the accompanying statement of financial position.

Premises Provided by Government Authorities

The School does not record any in-kind contributions and related costs with respect to dedicated and shared space provided to it by the NYCDOE as the premises are temporary in nature, is excess shared space whereby a fair value cannot be determined, and is industry practice.

The School receives contributed legal services that are an integral part of its operations. Such services are only recorded as contributions in-kind, at their fair value, provided the services received create or enhance non-financial assets, require specified skills provided by individuals possessing those skills, and typically need to be purchased if not provided by donation. There were no donated services received for the year ended June 30, 2018.

Property and Equipment

Property and equipment are stated at cost and are depreciated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the asset or the period covered by the charter. The School has established a $1,000 threshold above which assets are evaluated to be capitalized. Property and equipment acquired with certain government contract funds is recorded as an expense pursuant to the terms of the contract in which the government funding source retains ownership of the property. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized.

Advertising

The School expenses advertising costs as incurred. The School incurred $5,645 for the year ended June 30, 2018, which is included in the accompanying statement of functional expenses under marketing and recruitment.

Functional Allocation of Expenses

The costs of providing the various programs and other activities have been summarized on a functional basis. Expenses that can be directly identified with the program or supporting service to which they relate are charged accordingly. Other expenses by function have been allocated among program and supporting service classifications based upon benefits received.

Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

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2. ACCOUNTING POLICIES (CONTINUED)

Subsequent Events

The School has evaluated events through October 31, 2018, which is the date the financial statements were available to be issued.

Income Taxes

The School follows the accounting standard for uncertainty in income taxes. The standard prescribes a minimum recognition threshold and measurement methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. It also provides guidance for derecognition, classification, interest and penalties, disclosure and transition.

The School files informational returns in the federal and New York State jurisdictions. With few exceptions, the School is no longer subject to federal, state, or local income tax examinations for fiscal years before 2015.

The School believes that it has appropriate support for the positions taken on its tax returns. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Management believes that its nonprofit status would be sustained upon examination.

Should there be interest on underpayments of income tax, the School would classify it as interest expense. The School would classify penalties in connection with underpayments of income tax as other expense.

3. PROPERTY AND EQUIPMENT

The School concluded that it would not be likely that it would recover a material amount of cash by selling its property and equipment. Accordingly, the School wrote off the entire amount of property and equipment and the related accumulated depreciation and amortization as of December 21, 2017. Depreciation and amortization expense for the year ended June 30, 2018 was $53,589.

4. COMMITMENTS

The School leases telecommunications equipment and copiers under a non-cancelable operating lease which expires in September 2020. There was a lease payout due to the closure of the school of $4,750 in June 2018.

Leasing expense for the year ended June 30, 2018 was $15,495.

5. EMPLOYEE BENEFITS

Effective July 1, 2011, the School adopted a 403(b) retirement plan (the “Plan”) which covers most of the employees. The Plan is a defined contribution plan. Employees are eligible to enroll in the Plan either the first day of the Plan year or the first day of the seventh month of the Plan year. Those employees who have completed at least 1 full year of service are also eligible for employer contributions. The Plan provides for the School to contribute up to 4% of an employee’s salary. The School’s contribution becomes fully vested after the first year. For the year ended June 30, 2018, employer contribution expense for the School was $34,651.

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NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018

6. RISK MANAGEMENT

A. The School is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; injuries to employees; and natural disasters. The School maintains commercial insurance to help protect itself from such risks.

B. The School entered contractual relationships with certain governmental funding sources. The governmental agencies may request return of funds as a result of noncompliance by the School, as well as additional funds for the use of facilities. The accompanying financial statements make no provision for the possible disallowance or refund.

7. AGREEMENT FOR SCHOOL FACILITY

The School has entered into a verbal agreement (the “Agreement”) with the NYCDOE for dedicated and shared space at IS 218, a New York City Public School located at 370 Fountain Ave, Brooklyn, New York. The School will be responsible for any overtime-related costs for services provided beyond the regular opening hours. For the year ended June 30, 2018, the School incurred $6,694 in overtime permit fees, which is included in the accompanying statement of functional expenses under repairs and maintenance expense.

8. CONCENTRATIONS

A. Financial instruments that potentially subject the School to a concentration of credit risk include cash accounts at a major financial institution that, at times, exceeded the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000.

B. The School received approximately 95% of its total revenue from per pupil funding from the NYCDOE for the year ended June 30, 2018.

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Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

To the Board of Trustees Invictus Preparatory Charter School

We have audited, 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, the financial statements of Invictus Preparatory Charter School (the “School”), which comprise the statement of net assets in liquidation as of June 30, 2018, and the related statement of changes in net assets in liquidation for the period from December 21, 2017 to June 30, 2018, and the statements of activities (going concern basis), functional expenses (going concern basis), and cash flows (going concern basis) for the period of July 1, 2017 to December 20, 2017, and the related notes to the financial statements and have issued our report thereon dated October 31, 2018.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the School’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 School’s internal control. Accordingly, we do not express an opinion on the effectiveness of the School’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 a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. 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 School’s financial statements are free of 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.

We noted certain matters that we reported to management of the School in a separate letter dated October 31, 2018.





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 School’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 School’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

New York, NY October 31, 2018

Invictus Preparatory Charter School

Communication With Those Charged With Governance

OCTOBER 31, 2018

October 31, 2018

To the Audit Committee Invictus Preparatory Charter School

We have audited the financial statements of Invictus Preparatory Charter School (the “School”) for the year ended June 30, 2018 and are prepared to issue our report thereon dated October 31, 2018. Professional standards require that we provide you with the following information related to our audit. This letter is divided into two sections: 1) required communications from the auditors to those with audit oversight responsibilities and 2) opportunities for strengthening internal controls or enhancing operating efficiency and our related recommendations.

REQUIRED COMMUNICATIONS

A. Our Responsibility under U.S. Generally Accepted Auditing Standards:

As stated in our engagement letter April 4, 2018, our responsibility, as described by professional standards, is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control of Invictus Preparatory Charter School. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters.

B. Planned Scope and Timing of the Audit:

We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on July 2018.

C. Auditor Independence:

We affirm that MBAF CPAs, LLC is independent with respect to Invictus Preparatory Charter School.

D. Qualitative Aspects of Accounting Practices:

Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by Invictus Preparatory Charter School are described in Note 2 to the financial statements. We noted no transactions entered into by the School during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred.





E. Accounting Estimates Used in the Financial Statements:

Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were:

Allowance for Doubtful Accounts: As of June 30, 2018, Invictus Preparatory Charter School recorded grants and other receivables of $143,277. Management concluded that no allowance for doubtful accounts was necessary. Management calculated based on the assessment of the credit-worthiness of the School’s grantors, the aged basis of the receivables, as well as economic conditions and historical information. Based on our audit procedures which included a discussion with the School fiscal Consultant and a test of subsequent collections, we concur with management’s conclusion.

Depreciation: Management’s estimate of depreciation is based on estimated useful lives of assets. We evaluated the estimated useful of assets in comparison to accounting principles generally accepted in determining that it is reasonable in relation to the financial statements taken as a whole.

Functional Statement Allocation: Management's estimate of the allocation of functional expenses is directly identified with the program or supporting service to which they relate. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the financial statements taken as a whole.

F. Sensitive Disclosures Affecting the Financial Statements:

The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure(s) affecting the financial statements were:

The disclosure of risk management in Note 7 to the financial statements describes various risks to which the School is exposed.

G. Corrected and Uncorrected Misstatements:

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. We will identify those adjustments proposed both corrected and uncorrected:

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Proposed and Corrected:

For the current year, there were 5 audit adjustments which reduced net assets by approximately $170,000. The most significant of these entries were as follows:

- one entry to reduce net assets by approximately $36,000 to write off an old receivable from the NYCDOE - one entry to reduce net assets by approximately $124,000 to fully write off fixed assets as of 6/30/18. - one entry to reduce net assets by approximately $9,000 to fully amortize lease improvements due to School’s closure.

Last year there were no audit adjustments recorded.

Proposed and Uncorrected:

There were no audit adjustments proposed and uncorrected.

H. Audit Difficulties and Disagreements with Management:

For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report.

We are pleased to report that no such disagreements arose during the course of our audit.

I. Management Representations:

We have requested certain representations from management that are included in the management representation letter dated October 31, 2018.

J. Management Consultations with Other Independent Accountants:

In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion" on certain situations. If a consultation involves application of an accounting principle to the School's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.

K. Other Audit Findings or Issues:

We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the School's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.

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OPPORTUNITES FOR STRENGTHENING INTERNAL CONTROLS OR ENHANCING OPERATING EFFEICIENCY

Debit Card Expense Testing:

Our testing of debit card expense revealed two missing receipts. We recommended that all receipts must be presented to process refund.

Terminated Employee Testing:

Our testing of terminated employees revealed that there was a terminated employee on the payroll for four payroll periods and efforts to recoup the funds were unsuccessfully. We recommended that human resources must informed the payroll department of all terminated employees in writing and the payroll department must remove all terminated employees from payroll record.

Journal Entry Testing:

Our testing of journal entry revealed that two entries totally $3,324, were missing support. We recommended that all journal entries must have proper support before entering into system.

We wish to thank management and personnel for their support and assistance during our audit. We would be pleased to further discuss the contents of this report with you at your convenience.

This information is intended solely for the use of the Audit Committee, Board of Trustees, and management of Invictus Preparatory Charter School and is not intended to be and should not be used by anyone other than these specified parties.

Very truly yours,

MBAF CPAs, LLC

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