Louisiana Health & Rehab Center, Inc.app1.lla.state.la.us/PublicReports.nsf/0A5BC5CCBDA...Louisiana...

LOUISIANA HEALTH & REHAB CENTER, INC

FINANCIAL STATEMENTS

06/30/05

06/30/04

Under provisions of state law, this report is a publicdocument, Acopy of the report has been submitted tothe entity and other appropriate public officials. Thereport is available for public inspection at the BatonRouge office of the Legislative Auditor and, whereappropriate, at the office of the parish clerk of court.

Release Date £ -2 2 -o 4

TABLE OF CONTENTS

Page tt

Independent Auditor's Report 1-2

Financial Statements:Statement of Financial Position 3-4

Statement of Activities 5

Statement of Cash Flows 6-7

Notes to Financial Statements 8 - 2 1

Supplemental Information 22 - 26

Statement of Functional Expenses

Schedule of Expenditures of Federal Awards

Report on Internal Control Over FinancialReporting And On Compliance And Other MattersBased on An Audit of the Financial StatementsPerformed In Accordance With GovernmentAuditing Standards 27 - 28

Report on Compliance With RequirementsApplicable to Each Manor Program and onInternal Control Over Compliance inAccordance With OMB Circular A-133 29 - 31

Schedule of Findings and Questioned Cost 32

Summary Schedule of Prior Year Audit Findings 33

GORDON A. GAGLIANO, CPA(A Professional Accounting Corporation)

263 Third Street, Suite 309Baton Rouge, LA 70801

Independent Auditor's Report

To the Board of Directors ofLouisiana Health & Rehab Center, Inc.

We have audited the accompanying statement of financial positionof Louisiana Health & Rehab Center, Inc.( a Louisiana non-profitcorporation) as of June 30, 2005 and 2004, and the relatedstatements of activities and cash flows for the years then ended.These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audit in accordance with auditing standardsaccepted in the United States of America and the standardsapplicable to financial audits contained in Government AuditingStandards, issued by the Comptroller General of the United Statesof America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position ofLouisiana Health & Rehab Center, Inc. as of June 30, 2005 and2004, and the changes in its net assets and its cash flows for theyear then ended in conformity with accounting principles generallyaccepted in the United States of America.

(Continued Next Page)



In accordance with Government Auditing Standards, we have alsoissued our report dated December 29, 2005, on our consideration ofLouisiana Health & Rehab Center, Inc.'s internal control overfinancial reporting and on our tests of its compliance withcertain provisions of laws, regulations, contracts, grants, andother matters. The purpose of that report is to describe the scopeof our testing of internal control over financial reporting andcompliance and the results of that testing, and not to provide anopinion on the internal control over financial reporting or oncompliance. That report is an integral part of an audit performedin accordance with Government Auditing Standards and should beconsidered in assessing the results of our audit.

Our audit was performed for the purpose of forming an opinion onthe basic financial statements of Louisiana Health & Rehab Center,Inc. taken as a whole. The schedule of functional expenses ispresented for purposes of additional analysis and is not arequired part of the financial statement of the Louisiana Health &Rehab Center, Inc. The accompanying schedule of expenditures offederal awards is presented for purposes of additional analysis asrequired by U.S. Office of Management and Budget Circular A-133,Audits of States, Local Governments and Non-Profit Organizations,and is also not a required part of the financial statements of theLouisiana Health & Rehab Center, Inc. Such information has beensubjected to the auditing procedures applied in the audit of thebasic financial statements and, in our opinion, is fairly stated,in all material respects, in relation to the basic financialstatements taken as a whole.

Gordon t?a~gliano, CPABaton Rouge, LA

December 29, 2005

Louisiana Health and Rehab Center, Inc.Statement of Financial Position

Years Ended June 30, 2005 and June 30, 2004

ASSETSCurrent Assets

Cash & Cash Equivalents

Accounts Receivable

Prepaid Insurance

Jun 30, 2005

499,997

216,859

23,968

Jun 30, 2004

209,615

174,750

21.524

Total Current Assets

Fixed Assets

Building

Accum. Depreciation

Furniture & Fixtures

Accum. Depreciation

Leasehold Improvements

Accum. Depreciation

Office Equipment/Computers

Accum. Depreciation

Vehicles

Accum. Depreciation

Land

Net Fixed Assets

Other Assets

Bane One Securities(A.F.S.)

Priamerica Securities (A.F.S.

Due from Client

Deposits-Security

Due from employee

Due from LHRO

Total Other Assets

TOTAL ASSETS

740,824

437,482

(22,114)

29,742

(8,626)

41,890

(16,508)

26,415

(11,677)

123,998

(67,996)

70.000

602,606

517,378

32,849

240872

28,824

580,163

405,889

180,342

(11,836)

29,742

(4,378)

41,890

(11,773)

22,398

(6,718)

103,174

(46,863)

60.000

355,978

495,087

872

113

35,700

531,772

$ 1,923,593 $ 1,293,638

See Accountant's Audit Report #3

Louisiana Health and Rehab Center, Inc.Statement of Financial Position


Jun 30, 2005 Jun 30, 2004

LIABILITIES & NET ASSETSCurrent Liabilities

Accounts Payable

Current Maturities of L.T. Debt

Due to Clients

Garnishment Payable

Progressive-Insurance Payable

UP-Chase Bank -Van

N/P-Hibernia (Van)

N/P-Hibernia (F350)

Accrued Taxes

Accrued Wages

PICA Tax Payable

FWH Tax Payable

401k Retirement Payable

SUTA Tax Payable

SWH Tax Payable

Total Current Liabilities

Long Term Liabilities

N/P-Chase Bankf Land)

N/P-Chase Bank(Bldg)

N/P-Ford Credit(Van)

N/P-Chase Bank(Lafy. Bldg)

N/P-Wells Fargo

Current Maturity of LT Debt

Total Long-Term Liabilities

5,942

33,576

1,532

1,032

13,538

4,889

3,362

43,960

2,408

4,635

2,033

116,907

26,610

74,312

204,886

5,768(33,576)

18,950

28,337

1,447

17,259

4,1285,664

1,840

24,042

4,932

2,541

5,1101,407

115,658

34,084

100,279

11,518

10,260

(28,337)

278,000 127,803

Total Liabilities 394,907 243,461

NET ASSETSUnrestricted Net Assets

Net Income

Common Stock (-0- shares Authorized & Issued)

Total Net Assets

TOTAL LIABILITIES & NET ASSETS

1,050,177

478,509

1,528,686

738,296

311,881

1,050,177

$ 1,923,593 $ 1,293,638


Louisiana Health and Rehab Center, Inc.Statement of Activities


UNRESRT1CTED NET ASSETS

Unrestricted Revenues & Gains

Program Services

Other Services/Reimbursed Expenses

Interest Income

Dividend Income

Unrealized Gain on Securities

Rental Income

Contributions

Total Unrestricted Revenues & Gains

Net Assets Released From Restrictions:

Total Unrestricted Revenues & Gains & Other Support

June 30, 2005

2,098,372

787

1,530

22,712

3,376

36,383

2,000

2,165,160

2,165,160

June 30, 2004

1,501,087

11,332

6,069

1,515

33,121

5,157

1,558,280

1,558,280

Expenses

Program Services

Supporting Services (Management & General)

Total Expenses

INCREASE IN UNRESTRICTED NET ASSETS

1,377,795

308.856

1,686,651

478,509

1,016,140

230.258

1,246,398

311,881

TEMPORARILY RESTRICTED NET ASSETS

INCREASE IN TEMPORARILY RESTRICTED NET ASSETS

PERMNANENTLY RESTRICTED NET ASSETS

INCREASE IN PERMNANENTLY RESTRICTED NET ASSETS

INCREASE IN NET ASSETS

NET ASSETS, BEGINNING OF YEAR

NET ASSETS, END OF YEAR

478,509

1.050.177

311,881

738.296

$ 1,528,686 S 1,050,177


LOUISIANA HEALTH AND REHAB CENTER, INC.STATEMENT OF CASH FLOWS

YEARS ENDING JUNE 30, 2005 and 2004

CASH FLOWS FROM OPERATING ACTIVITIES:

Increase in net assetsAdjustment to reconcile increasein net assets to net cash providedby operating activities:

Unrealized loss/(Gain)

Depreciation and amortization(Increase)decrease in operating assets:Accounts ReceivablePrepaid expensesOther ReceivablesDefer compensation

Increase(decrease) in operating liabilities:Accounts PayableDue to clientsAccrued wagesAccrued taxAccrued retirement benefitsGarnishment Payable

Contributions restricted forlong-term purpose

UNRESTRICTED2005 2004

$478,509 $311,811

(3,376)

45,353

(42,109)(2,444)(127)

-0-

(16,730)85

19,918(5,801)2,4081,032

6,428

36,617

(20,875)10,173

-0-34,500

lC,48688

16,5472,607(669)-0-

-0-

NET CASH PROVIDED BY OPERATING ACTIVITIES $476,718 $407,783

CASH FLOWS FROM INVESTING ACTIVITIES:Purchase/Earnings on InvestmentsProceeds from property and equipment loansPurchase of property and equipmentPayments on notes payable

($51,765) ($500,000)212,000 40,000(291,982) (81,828)(61,466) (69,6531

NET CASH USED BY INVESTING ACTIVITIES $(193,213)$(611,481)

See Accountant's Audit Report

LOUISIANA HEALTH AND REHAB CENTER, INC.STATEMENT OF CASH FLOWS

YEARS ENDING JUNE 30, 2005 AND 2004

UNRESTRICTED2005 2004

CASH FLOWS FROM FINANCING ACTIVITIES:Net Due from LHRO, Inc. 5 6.877 $ (42,000)

NET CASH USED BY FINANCING ACTIVITIES 5 6,877 $(42,000)

NET INCREASE IN CASHAND CASH EQUIVALENTS 290,382 (295,698)

BEGINNING CASH AND CASH EQUIVALENTS 209.615 455,313

ENDING CASH AND CASH EQUIVALENTS 5 499.997:$209,615

Supplemental Data:Interest paid £ 15.242 £ 15.242


LOUISIANA HEALTH AND REHAB CENTER, INC.NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2005 and 2004

1. Summary of Significant Accounting Policies

Operations

The company provides therapeutic psychiatric programsdesigned to eliminate inappropriate and maladaptivebehaviors. The company began providing services on 7/1/00.Services provided are designed to help persons withdevelopmental disabilities and severe and persistentbehavioral problems reach their maximum functioning levelin the community. All programs are operated in southernLouisiana and are wholly funded by Louisiana Governmentagencies.

Revenue and Cost Recognition

Revenue is recognized when services are provided. Expensesare recognized as incurred. The financial statements havebeen prepared on the accrual basis of accounting inaccordance with generally accepted accounting principles.

Property and Equipment

Property and equipment are recorded at cost. Expendituresare charged against earnings as incurred. Major expendituresexceeding $1,000 for renewals and betterments arecapitalized. When items are retired or otherwise disposed of,the cost of the asset and the related accumulateddepreciation are removed from the books. Any resulting gainor loss is credited to or charged against income.

Depreciation is provided in amounts sufficient to relate thecost of depreciable assets to operations over their estimatedservice lives (5 to 7 years for furniture, equipment, andvehicles; 40 years for buildings), using the straight-linemethod.


JUNE 30, 2005 and 2004

1. Summary of Significant Accounting Policies (continued);

Property and Equipment (continued)

Donations of property and equipment are recorded ascontributions at their estimated fair value. Such donationsare reported as unrestricted contributions unless the donorhas restricted the donated asset to a specific purpose.Assets donated with explicit restrictions regarding their useand contributions of cash that must be used to acquireproperty and equipment are reported as restrictedcontributions. Absent donor stipulations regarding how longthose donated assets must be maintained, the Organizationreports expirations of donor restrictions when the donated oracquired assets are placed in service as instructed by thedonor. The Organization reclassifies temporarily restrictednet assets at that time. Currently, there are no restrictedassets as of 6/30/05 and 6/30/04.

Income Taxes

The organization is a not-for-profit organization that isexempt from income taxes under section 501(c)(3) of theInternal Revenue code and classified by the Internal RevenueService as other than a private foundation. There was nounrelated business income for the years ending.

Allowance for Uncollectible Accounts

The allowance for uncollectible accounts is based on priorexperience and management's assessment of the collectibilityof accounts receivable. Due to the nature of thereceivables, all amounts are considered to be collectibleand, therefore, an allowance for uncollectible accounts hasnot been established.

Cash and Cash Equivalents

Cash and cash equivalents consist of items having maturitiesof three months or less from the date of acquisition.


JUNE 30, 2005 and 2004


Concentrations of Credit Risk

The Company maintains its cash balances in a financialinstitution located in Baton Rouge, Louisiana. The balancesare insured by the Federal Deposit Insurance Corporation upto $100,000. As of June 30, 2005 and 2004, the Company haduninsured cash balances of $398,465 and $73,732,respectively.

Estimates

The preparation of financial statements in conformity withgenerally accepted accounting principles requires managementto make estimates and assumptions that affect certainreported amounts and disclosures. Accordingly, actual resultscould differ from those estimates.

Financial Statement Presentation

The organization has adopted Statement of FinancialAccounting Standards (SFAS) No. 117, "Financial Statements ofNot-for-Profit Organizations." Under SFAS No. 117, theOrganization is required to report information regarding itsfinancial position and activities according to three classesof net assets: unrestricted net assets, temporarilyrestricted net assets, and permanently restricted net assets.As permitted by the statement, the Organization does not usefund accounting. All of the company's net assets areunrestricted as of 6/30/05 and 6/30/04.

Contribut ions

The organization has also adopted SFAS No. 116, "Accountingfor Contributions Received and Contributions Made."Contributions received are recorded as unrestricted,temporarily restricted, or permanently restricted supportdepending on the existence or nature of any donorrestrictions. The company received $2,000 and $5,157 ofunrestricted contributions for years ending 6/30/05 and6/30/04, respectively.

#10


JUNE 30, 2005 and 2004


Promises to Give

Contributions are recognized when the donor makes a promiseto give to the Organization that is, in substance,unconditional. Contributions that are restricted by thedonor are reported as increases in unrestricted net assets ifthe restrictions expire in the fiscal year in which: thecontributions are recognized. All other donor-restrictedcontributions are reported as increases in temporarily orpermanently restricted net assets depending on the nature ofthe restrictions. When a restriction expires, temporarilyrestricted net assets are reclassified to unrestricted netassets.

The Organization uses the allowance method to determineuncollectible unconditional promises receivable. Theallowance is based on prior years' experience andmanagement's analysis of specific promises made. Nocontributions were received for years ending 6/30/05and 6/30/04, or were any donor promises made.

Contributed Services

During the years ended June 30, 2005 and 2004, the value ofcontributed services meeting the requirements for recognitionin the financial statements was -0- and has not beenrecorded.

Allocation of Administrative Expenses

General and administrative overhead expenses are proratedbased upon the percentage of each program's direct expensesto total direct expenses. At 6/30/05 and 6/30/04, theseexpenses totaled $287,151 and $230,258, respectively.

#11


JUNE 30, 2005 and 2004

Related Party Transactions

During the year ended June 30, 2005, the Company leasedpremises from Temple Properties, LLC, of which the company'sexecutive director is a member. The amount of rental expenseincurred by the Company under this lease agreement totaled$32,400 and $32,400 for the years ended June 30, 2005 and2004, respectively.

During the year ended June 30, 2005, the Company receivedrents from Louisiana Health & Rehabilitation Options, Inc.,whose President and 100% owner is the executive director ofLHRC, Inc. The total rent payments received for years ending6/30/05 and 6/30/04 were $24,702 and 24,000, respectively.

Operating Leases

The Company leases the following facility under the followinglease agreement:

Lessor Terms

Temple Properties,(Reality House)N. Blvd. BR,LA

LLC

Temple Properties, LLC(Reality House - Expansion)N. Blvd. BR,LA

One year term, commencing7/1/04, terminating 6/30/05,$2,000 monthly rental. Thelease has been renewed for aone year period commencing7/1/05.

One year term, commencing7/1/04, terminating 6/30/05,$700 monthly rental. Thelease has been renewed for aone year period commencing7/1/05.

#12


JUNE 30, 2005 and 2004

3. Operating Leases (continued)

Agape Outreach Ministry(Awakenings)Jackson, LA

Two year term, commencing8/1/04, terminating 7/31/06,$3,000 monthly rental.

Future Annual Payments:

Agape Outreach MinistryTemple Properties, LLC

6/30/05 6/30/06 6/30/07

$24,000 $36,000 $ 3,00032,400 -0- -Q-

Total 556.400 $36.000 5 3.000

*There are no leases extending beyond 6/30/07.

Total rent expense under the above-described leases for theyears ended June 30, 2005 was $56,400 and $44,400,respectively.

#13


JUNE 30, 2005 AND 2004

4. Program Revenues/Concentrations

The Company provides care to clients in the followingtherapeutic program which is funded by several State ofLouisiana agencies through the Department of Health andHospitals. The Reality House program accounts for asignificant percentage of the company's revenue, as listedbelow in brackets:

Program

Reality House/ExpansionChildren's ChoiceAwakeningBR WaiverCARCRI/JobTeen Pregnancy (NO)Capital AreaATRTeen Pregnancy (BR)NO Waiver

Year Ended6/30/05 6/30/04

Recognized Support

720,324 (34%)134,872524,792 (25%)399,148 (19%)

-0--0-

104,17337,4284,52479,57093,541

830,152 (55%)113,855106,203182,496 (12%)80,82643,061122,187_22,307

-0--0--0-

Total Program Revenue $2,098,372 $1,501,087

Note: Programs CRI/JOB and Car have been cancelled due to StateBudget cuts.

#14


JUNE 30, 2005 AND 2004

5. Summary of Grants/Contract Funding

The company's programs were primarily funded through thefollowing grants and contracts for the year ended 6/30/05:

CFDAtf

93.959

93.959

Grant/Contract**

* 2SA1050

* 2SA1050A

ContractPeriod

7/1/04-9/30/05

7/1/04-6/30/05

ContractTotal

$784,212

192,720976,932

RecognizedSuDDort® 6/30/05

$527,604

192,720720,324

N/A * 9505 (SIL) 7/1/04-* 9507 (PCA) 6/30/05

N/A ** 4502091(Medicaid)

N/A **** 4448 (SIL) 7/31/04-**** 3922 (PCA) 4/30/05

$18,124 399,148(per client)

Cost 134,872Re imbursement

$18,124 93,541(per client)

93.558 *** 615882

93.558 *** 615881

TIPSN/A **** 020124698

93.959 * 298

10/1/04- 113,8408/31/05

10/1/04-8/31/05

7/01/04-6/30/06

7/01/04-6/30/04

93,940

79,570

104,173

$113 524,792(Per Child/Per Day)

39,139 37,427

Funding Sources:* Capital Area Human Services** Department of Health & Hospitals*** Department of Education**** Department of Social Services


JUNE 30, 2005 AND 2004

Accounts Receivable - Grants & Contracts

As of 6/30/05 and 6/30/04, accounts receivable from grantsand contracts was composed of:

2005 2004

Capital Area Human Services $ 73,377 $ 67,785Dept. of Health & Hospitals 4,524 45,727Office of Social Services 37,110 39,149Office of Community Development 9,855 -0-Department of Education 31,508 -0-Office of Community Support 60.485 22.089

Totals: $216,859 $174.750

7. Short Term Debt6/30/05 6/30/04

N/P Ford Credit12.5% annual interest rate; $ 4,889 $ -0-monthly payment of $641;maturing on 2/15/06. 2001Ford E350 vehicle serves ascollateral on the loan.

N/P ProgressiveNine monthly installments of 13,538 17,260$2,352 with a $5 monthlyinstallment fee; maturing on12/17/05; no collateral ondebt; financing for auto insurance

#16


JUNE 30, 2005 AND 2004

7. Short Term Debt (Continued)6/30/05 6/30/04

L/P Chase Bank (Capital Lease)6.765% annual interest rate; $ -0- $ 4,128monthly payment of $2,591;maturing on 6/14/03; (2) 2002Chevy vans serve as collateral

Hibernia National Bank12.5% annual interest rate; -0- 5.664monthly payment of $599maturing on 4/23/05, 2000Ford Van serves as collateral.

Totals: S18.427 $27.052

8 . Long Term Debt6/30/05 6/30/04

N/P Chase Bank6.5% annual interest rate; $204,886 -0-monthly payment of $1,858;maturing on 8/20/09; buildingon Webb street in Lafayette, LAserves as collateral on the loan

N/P Chase Bank6.5% annual interest rate; 74,312 100,279monthly payment of $1,332;maturing on 11/19/06, at whichtime the balance will be due.Company building and property@ 1033 N. Lobdell serve ascollateral on the note

#17


JUNE 30, 2005 AND 2004

8. Long Term Debt (Continued)6/30/05 6/30/04

N/P Ford Credit12.5% annual interest rate; $ -0- $ 11,517monthly payment of $642;maturing on 2/15/06. 2001Ford E350 vehicle serves ascollateral on the loan

N/P Wells Fargo Financial9.0% projected interest rate 5,769 10,260on this capitalized lease;monthly payment of $436;maturing on 8/19/06. Leasedoes not have option to purchase

N/P Chase Bank5.5.% annual interest rate 26,610 34,084monthly payment of $766,maturing on 8/8/08. A lot onNorth Lobdell serves as colleralon the loan

Totals: 311,577 156,140Current Maturity of Debt (33.576) (28,337)

Total $278,001 $127,803

Subsequent Debt Maturity6/30/07 $ 31,3646/30/08 32,4706/30/09 26,7496/30/10 178,7226/30/11 8,696Total $278,001


JUNE 30, 2005 AND 2004

9. Retirement Plan

The Company has adopted a Simple IRA plan under Section 408(P)of the Internal Revenue Code, effective 7/1/02. The Companyhas chosen a 2% matching option.

6/30/05 6/30/04

Employee Deferrals $ 5.338 $ 4.687

Employer Contributions $ 4.083 $ 3.447

Matching IRA Liability Due $ -0- $ -0-

Due to the company's Simple Plan exceeding 100 participants duringthe year ended 6/30/05, a 401k retirement plan was adopted,effective 1/1/05.The company elected a 3% matching for the yearended 6/30/05.

6/30/05 6/30/04

Employee Deferrals 5 1.315 $ -0-

Employer Contributions $ 945 $ -0-

Matching 401k Liability Due $ 945 $ -0-

#19


JUNE 30, 2005 AND 2004

10. Deferred Compensation Plan

The Company was participating in a nonqualified deferredcompensation plan under IRS Code Section 457 (f). Thisplan covers the Company's key employees who have beenemployed for at least one year. The employees fullvesting will occur at: the latter of age 55 or the 10year anniversary of the employee's participationcommencement; death of participant; and total disabilityof the participant. Each participant has a variable lifeinsurance policy which is owned by the Company until theparticipant becomes vested. Equitable serves as trusteeof the plan. The plan was terminated in January of 2004.

Year Ended

6/30/04

Premium paid $ 11,950Insurance cost $ 2,910Administrative cost $ 11,421Unrecognized Gain/Loss $ -0-Fair Market Value

@ year end $ -0-

Reorganized loss on InvestmentLiquidation $ 1,502

11. Investments (Available for Sale)

The company has invested funds with Bank One Securities andPriamerica, which consist of 100% of mutual funds. The Bane Oneinvestments have a unrealized loss of $3,052 @ 6/30/05 and $6,428@ 6/30/04. The Priamerica investment has a $1,120 unrealized gainas of 6/30/05 and no activity for 6/30/04.These investments are toserve as a source of working capital, as well as any furtherconstruction needs. The fair market value of the securities is asfollows:

#20


JUNE 30, 2005 AND 2004

11. Investments (Available for Sale)-(Continued)

©6/30/05 ©6/30/04Bane One-Franklin Income Fund $ 84,238 $ 74,264-Franklin Govt. Sec.(Class A) 215,087 209,854-Franklin Floating Fund(Class A) 218.053 210,969

Totals: $517,378 $495,087

Priamerica-S/B Cap Inc FD CL B S 32,849

12. Subsequent Events

Due to Hurricane Katrina the New Orleans Program (NOPTR) hadto close its doors for the month of September 2005. All ofthe programs capital assets were casualty losses, resultingprograms capital assets were casualty losses, resulting a$7,420 loss in September 30, 2005. The short term loss ofthe Company's (2) minor programs and the $7,420 loss of thecapital assets is not material, and in my opinion, does noteffect these audited financial statements. New Orleans TeenPregnancy Program was funded at 10/01/2005 and has beenappealed by the State due to review, and currently is notup and running.

#21

SUPPLEMENTAL INFORMATION

#22

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LOUISIANA HEALTH & REHAB CENTER, INC.SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

FOR THE YEAR ENDED JUNE 30, 2005

Federal Grantor/Pass-through Grantor/ FederalProgram or CFDACluster Title Number

U.S. Department of Healthand Human Services:

Pass-through programs from:

State Department ofHealth and Hospitals:

-Community MentalHealth Services 93.958

-Prevention andTreatment ofSubstance Abuse 93.959

-Office of Family Support(T.A.N.F.) 93.558

Department of Social Services

Pass-through -.Entity

Identifying FederalNumber Expenditures

(Medicaid)4502091/(CC)

298/ (CapArea)2SA1050/(RH)2SA1050A/(RH)

/ (TANF)615881615882

0202124698/(Awankening)

131,711

514,536

162,494

458,294

Total Pass-Through Programs

Total U.S. Department ofHealth and Human Services

Total expenditures ofFederal awards

1,267,035

1,267,035

1,267.035

** (See note #5 for Program Awards Received)

#26



REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ONCOHPLIIANCE AND OTHER HATTERS BASED ON AN AUDIT OFFINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS


We have audited the financial statements of Louisiana Health &Rehab Center, Inc. as of and for the years ended June 30, 2005 and2004, have issued our report thereon dated December 29, 2005. Weconducted our audit in accordance with generally accepted auditingstandards and the standards applicable to financial auditscontained in Government Auditing Standards, issued by theComptroller General of the United States.

Internal Control Over Financial ReportingIn planning and performing our audit, we considered LouisianaHealth & Rehab Center, Inc.'s internal control over financialreporting in order to determine our auditing procedures for thepurpose of expressing our opinion on the financial statements andnot to provide assurance on the internal control financialreporting. Our consideration of the internal control overfinancial reporting would not necessarily disclose all matters inmaterial weaknesses. A material weakness is a reportablecondition in which the design or operation of one or more of theinternal control components does not reduce to a relatively lowlevel the risk that misstatements caused by error or fraud inamounts that would be material in relation to the financialstatements being audited may occur and not be detected within atimely period by employees in the normal course of performingtheir assigned functions

#27



Compliance and Others MattersAs part of obtaining reasonable assurance about whether LouisianaHealth & Rehab Center, Inc.'s financial statements are free ofmaterial misstatement, we performed tests of its compliance withcertain provisions of laws, regulations, contracts, and grantsnoncompliance with which could have a direct and material effectproviding an opinion on compliance with those provisions was notan objestive or our audit, and accordingly, we do not expresssuch an opinion. The results or our tests disclosed noinstances of noncompliance or other matters that are reportedunder Government Auditing Standards.Government Auditing Standards.

We noted no matters involving the internal control over financialreporting and its operations that we consider to be materialweaknesses. However, we noted other matters involving the internalcontrol over financial reporting, which we have reported tomanagement of Louisiana Health & Rehab Center, Inc. in a separateletter dated December 29, 2005.

This report is intended solely for the information and use of theBoard of Directors, management, and awarding agencies and is notintended to be and should not be used by anyone other than thesespecified parties.

Gordon Gagliano, CPA

December 29, 2004

#28

Gordon A. Gagliano(A Professional Accounting Corporation)


REPORT ON COMPLIANCE WITH REQUIREMENTSAPPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROLOVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133


ComplianceWe have audited the compliance of Louisiana Health & Rehab Center,Inc. with the types of compliance requirements described in theU.S. Office of Management and Budget (OMB) Circular A-133Compliance Supplement that are applicable to each of its majorfederal programs for the year ended June 30, 2005. LouisianaHealth & Rehab Center, Inc.'s major federal programs areidentified in the summary of auditor's results section of theaccompanying schedule of findings and questioned costs.Compliance with the requirements of laws, regulations, contractsand grants applicable to each of its major federal programs is theresponsibility of Louisiana Health & Rehab Center, Inc.'smanagement. Our responsibility is to express an opinion onLouisiana Health & Rehab Center, Inc.'s compliance based on ouraudit.

We conducted our audit of compliance in accordance with auditingstandards generally accepted in the United States of America; thestandards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of theUnited States; and OMB Circular A-133, Audits of States, LocalGovernment, and Non-profit Organizations. Those standards and OMBCircular A-133 require that we plan and perform the audit toobtain reasonable assurance about whether noncompliance with thetypes of compliance requirements referred to above that could havea direct and material effect on a major federal program occurred.An audit includes examining, on a test basis, evidence aboutLouisiana Health & Rehab Center, Inc.'s compliance with thoserequirements and performing such other procedures as we considerednecessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Our audit does notprovide a legal determination of Louisiana Health & Rehab Center,Inc.'s compliance with those requirements.

#29

Gordon A. Gagliano(A Professional Accounting Corporation)


In our opinion, Louisiana Health & Rehab Center, Inc. complied, inall material respects with the requirements referred to above thatare applicable to each of its major federal programs for the yearended June 30, 2005.

Internal Control Over ComplianceThe management of Louisiana Health & Rehab Center, Inc. isresponsible for establishing and maintaining effective internalcontrol over compliance with the requirements of laws,regulations, contracts, and grants applicable to federal programs.In planning and performing our audit, we considered LouisianaHealth & Rehab Center, Inc.'s internal control over compliancewith requirements that could have a direct and material effect ona major federal program in order to determine our auditingprocedures for the purpose of expressing our opinion on complianceand to test and report on the internal control over compliance inaccordance with OMB Circular A-133.

Our consideration of the internal control over compliance wouldnot necessarily disclose all matters in the internal control thatmight be material weaknesses. A material weakness is a conditionin which the design or operation of one or more of the internalcontrol components does not reduce to a relatively low level therisk that noncompliance with applicable requirements of laws,regulations, contracts, and grants that would be material inrelation to a major federal program being audited may occur andnot be detected within a timely period by employees in the normalcourse of performing their assigned functions. We noted nomatters involving the internal control over compliance and itsoperation that we consider to be material weaknesses.

#30

(A Professional Accounting Corporation)263 Third Street, Suite 309

Baton Rouge, LA 70801

Schedule of Expenditures of Federal AwardsWe have audited the basic financial statements of Louisiana Health& Rehab Center, Inc. as of and for the year ended June 30, 2004,and have issued our report thereon dated December 29, 2005,presented on page #26. Our audit was performed for the purpose offorming an opinion on the basic financial staements taken as awhole. The accompanying schedule of expenditures of federalawards is presented for purposes of additional analysis asrequired by OMB Circular A-133, Audits of States, LocalGovernments, and Non-profit organizations, and is not a requiredpart of the basic finanacial statements. Such information has beensubjected to the auditing procedures applied in the audit of thebasic financial statements and in our opinion, is fairly stated,in all material respects, in relation to the basic financialstatements taken as a whole.

This report is intended solely for the information and use of theaudit committee, management, Federal Audit Clearinghouse, andfederal awarding agencies and pass-through entities and is notintended to be and should not be used by anyone other than thesespecified parties.

Gordon Gagliano, CPABaton Rouge, LADecember 29, 2005

LOUISIANA HEALTH & REHAB CENTER, INC.SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED JUNE 30, 2005

SUMMARY OF AUDITOR'S RESULTS;

1. The auditor's report expresses an unqualified opinionon the financial statements of Louisiana Health & RehabCenter, Inc.

2 No reportable condition or questioned cost disclosed duringthe audit.

3. No instances of noncompliance material to the financialstatements of Louisiana Health & Rehab Center, Inc., whichwould be required to be reported in accordance withGovernment Auditing Standards, were disclosed during theaudit.

4. No reportable conditions disclosed during the audit ofinternal control over major federal award programs arereported.

5. The auditor's report on compliance for the major federalaward programs for Louisiana Health & Rehab Center, Inc.expresses an unqualified opinion on all major federalprograms.

6. Audit findings that are required to be reported in accordancewith Section 510(a) of OMB Circular A-133 are reported inthis Schedule.

7. The programs tested as major programs included:Reality House (#93.959) and Awakenings.

8. The threshold used for distinguishing between Type A and Bprograms was $300,000.

9. Louisiana Health & Rehab Center, Inc. qualified as a low-riskauditee.

#32

LOUISIANA HEALTH & REHAB CENTER, INC.SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

FOR THE YEAR ENDED JUNE 30, 2005

Finding (XI):

Condition: The Director of the Reality House program, hasdisbursement checks issued directly to herself as reimbursementsof program expenditures. Check #3145 for $500 was issued on8/15/03 and had neither a receipt or a voucher request attached tothe company's payment record.

Recommendation: Implemented procedures shall be followed- by alldirectors, which requires proper approval with a voucher and thesubmitting of proper documentation of the expenditures. If theseprocedures are not followed, then the directors should not bereimbursed for any disbursements.

tCurrent Status.- The recommendation was adopted on December 24,2005. No similar findings were noted in the 6/30/05 audit.

#33

Gordon A Gagliano, CPA (APAC)263 Third Street - #309Baton Rouge LA 70801

Tel: (225) 338-0810 Fax: (225) 338-1998

December 29, 2005

Louisiana Health & Rehab Center, Inc.1033N.LobdellBaton Rouge LA 70806

Dear Soundra T. Johnson & Board of Directors,

This management letter is a result of the company's audit for the year ending 6/30/05. The purpose of the auditwas to express an opinion on the company's audited financial statements and not to provide assurance on thecompany's internal control. During the audit immaterial matters were noted and these matters are summarized inthe letter below. None of these matters were considered to be material weaknesses. Note that the managementpoints listed below will be reviewed and followed up on during next year's audit.

-A $172.35 check to Z. Hicks on 7/1/04 was not run through payroll but is coded to the wage account in thegeneral ledger.

-A $617.60 expense listed on the ledger @ 1/31/05 as "supplies" did not have any payee information listed. Thisexpense was latter traced to the Bank One debit card statement.

-A Wells Fargo note payment of $229.82 on 1/11/05 is incorrectly coded to the property tax account.

-The following invoices were missing purchase orders:-9/7/04 Ben Clark Home Maintenance $450-5/4/05 Harkins A/C $120

-(2) Fuelman purchases on 8/19/04 and 3/31/05 was incorrectly coded to the "utilities" account.

-The invoice and purchase order was missing for Patricia Guerin training expense for $26.67 on 12/15/04.

Sincerely,

z5>GordoivGafrrano, CPA

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