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Canoe Creek Middle 2004 by wpr1947

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									  CANOE CREEK CHARTER
      MIDDLE SCHOOL
(A division of the Foundation
 for Osceola Education, Inc.)

Basic Financial Statements and
  Supplemental Information

      For the year ended
        June 30, 2004
                                  TABLE OF CONTENTS

                                                                                 Page

INDEPENDENT AUDITORS’ REPORT                                                      1

BASIC FINANCIAL STATEMENTS

     Government-Wide Financial Statements:

           Statement of Net Assets                                                3

           Statement of Activities                                                4

     Fund Financial Statements:

           Balance Sheet - Governmental Funds                                     5

           Reconciliation of the Balance Sheet - Governmental Funds to the
            Statement of Net Assets                                               6

           Statement of Revenues, Expenditures
             and Changes in Fund Balances - Governmental Funds                    7

           Reconciliation of the Statement of Revenues, Expenditures
            and Changes in Fund Balances - Governmental Funds to the Statement
            of Activities                                                         8

     Notes to Financial Statements                                                9

REQUIRED SUPPLEMENTAL INFORMATION

     Schedule of Revenues, Expenditures and Changes
      in Fund Balances - Budget and Actual - Governmental Funds                  20

SUPPLEMENTAL INFORMATION

     Schedule of Functional Expenses - General Fund                              22

     Schedule of Functional Expenses - Federal Start-Up Grant                    23

     Schedule of Functional Expenses - Capital Outlay Fund                       24

REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER
  FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL
  STATEMENTS PERFORMED IN ACCORDANCE WITH
  GOVERNMENT AUDITING STANDARDS                                                  25

MANAGEMENT LETTER                                                                27

MANAGEMENT’S RESPONSE                                                            31
                                                        INDEPENDENT AUDITORS’ REPORT

                          To the Board of Directors
                          Canoe Creek Charter Middle School
                          Kissimmee, Florida

                          We have audited the accompanying financial statements of the governmental
                          activities and each major fund of Canoe Creek Charter Middle School (a Charter
                          School), a division of The Foundation for Osceola Education, Inc. (the
                          “Charterholder,” which is a component unit of the School District of Osceola County,
                          Florida), as of and for the year ended June 30, 2004, which collectively comprises
                          Canoe Creek Charter Middle School’s financial statements, as listed in the table of
                          contents. These financial statements are the responsibility of Canoe Creek Charter
                          Middle School’s management. Our responsibility is to express an opinion on these
                          financial statements based on our audit.

             Partners:
                          Except as discussed in the following paragraph, we conducted our audit in
      John R. Hopkins     accordance with U.S. generally accepted auditing standards and the standards
   James A. Wright, Jr.   applicable to financial audits contained in Government Auditing Standards, issued
      James S. LaHam      by the Comptroller General of the United States. Those standards require that we
       Ross A. Whitley    plan and perform the audit to obtain reasonable assurance about whether the basic
                          financial statements are free of material misstatement.        An audit includes
                          examining, on a test basis, evidence supporting the amounts and disclosures in the
                          financial statements. An audit also includes assessing the accounting principles
                          used and the significant estimates made by management, as well as evaluating the
                          overall financial statement presentation. We believe that our audit provides a
                          reasonable basis for our opinion.

                          We were unable to obtain required disclosures of management’s plans regarding
                          the School’s ability to continue as a going concern or management’s evaluation of
                          the significance of the events and conditions giving rise to the assessment of
                          substantial doubt about the School’s ability to continue as a going concern.

                          As described in Note A-1, the accompanying financial statements referred to above
                          present only the financial position of Canoe Creek Charter Middle School at
                          June 30, 2004, and the results of its operations for the year then ended, and is not
307 E. New Haven Ave.
                          intended to be a complete presentation of the Charterholder.
             Suite One
            Melbourne     In our opinion, except for the omission of the aforementioned disclosures and their
         Florida 32901    ability to continue as a going concern, the financial statements referred to above
  Phone 321-727-2353      present fairly, in all material respects, the financial position of the governmental
     Fax 321-676-3923     activities and each major fund of Canoe Creek Charter Middle School as of June
                          30, 2004, and the respective changes in financial position for the year then ended in
                          conformity with U.S. generally accepted accounting principles.




www.bermanhopkins.com
info@bermanhopkins.com
                           Certified Public Accountants • Business Consultants • Profit Advisors • AICPA SEC Practice Section
The accompanying financial statements have been prepared assuming that Canoe Creek
Charter Middle School will continue as a going concern. As discussed in Note I to the financial
statements, Canoe Creek Charter Middle School has a combined ending fund deficit totaling
$340,818. The ability of Canoe Creek Charter Middle School to continue as a going concern is
based solely on decisions made by the new management company (Note H-1), and the
School’s ability to pay amounts owed to the management company as of June 30, 2004. There
is uncertainty about the specifics of future management agreements and what future
management fees will be charged to Canoe Creek Charter Middle School. Canoe Creek
Charter Middle School is also dependent on Canoe Creek Charter Elementary School, whose
financial stability is uncertain. These conditions raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

In accordance with Government Auditing Standards, we have also issued our report dated
September 10, 2004, on our consideration of Canoe Creek Charter Middle School’s internal
control over financial reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts, and grants. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction with this
report in considering the results of our audit.

The budgetary comparison information is not a required part of the financial statements but is
supplementary information required by U.S. generally accepted accounting principles. We have
applied certain limited procedures, which consisted primarily of inquiries of management
regarding the methods of measurement and presentation of the supplementary information.
However, we did not audit the information and express no opinion on it.

Canoe Creek Charter Middle School has not presented Management’s Discussion and Analysis
that U.S. generally accepted accounting principles has determined necessary to supplement,
although not required to be part of the financial statements.

Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise Canoe Creek Charter Middle School’s financial statements. The
accompanying supplemental information listed in the table of contents is presented for purposes
of additional analysis and is not a required part of the financial statements. Such information
has been subjected to the auditing procedures applied in our audit of the financial statements
and, in our opinion, is fairly stated in all material respects, in relation to the financial statements
taken as a whole.

This report is intended solely for the information and use of the management, regulatory
agencies of federal and state governments and the School Board of Osceola County. It is not
intended to be and should not be used by anyone other than these specified parties.

September 10, 2004
Melbourne, Florida                                                    Berman Hopkins
                                                                 Wright & LaHam, CPAs, LLP




                                                  2
                      Canoe Creek Charter Middle School
           (A division of The Foundation for Osceola Education, Inc.)

                            STATEMENT OF NET ASSETS

                                     June 30, 2004


                                                                            Governmental
                                                                              Activities
                             ASSETS
CURRENT ASSETS
 Cash                                                                      $           5,480
 Due from charterholder                                                               30,148
 Due from local school district                                                      150,000
 Prepaid expenses                                                                      9,786
        Total current assets                                                         195,414
CAPITAL ASSETS
 Capital assets, net of accumulated depreciation
  Furniture, fixtures and equipment                                                     4,360
        Total assets                                                       $         199,774
                  LIABILITIES AND NET ASSETS
LIABILITIES
  Accounts payable                                                         $          10,082
  Accrued payroll and other expenses                                                  74,821
  Due to management company                                                          142,586
  Due to other schools                                                               308,743
        Total liabilities                                                            536,232
NET ASSETS
 Investment in capital assets                                                           4,360
 Unrestricted                                                                        (340,818)
        Total net assets                                                             (336,458)
        Total liabilities and net assets                                   $         199,774




          The accompanying notes are an integral part of this financial statement.

                                             3
                                           Canoe Creek Charter Middle School
                               (A division of The Foundation for Osceola Education, Inc.)

                                                STATEMENT OF ACTIVITIES

                                              For the year ended June 30, 2004




                                                                             Program Revenues
                                                                                                                  Net (Expense)
                                                                                Operating          Capital          Revenue
                                                            Charges for         Grants and        Grants and     and Changes in
Functions/Programs                         Expenses          Services          Contributions     Contributions     Net Assets
Governmental activities:
   Basic instruction                      $    249,812      $            -     $    67,648       $           -   $    (182,164)
   Guidance services                             4,733                   -               -                   -          (4,733)
   Health services                                  81                   -               -                   -             (81)
   Psychological services                           85                   -               -                   -             (85)
   Media services                                5,944                   -               -                   -          (5,944)
   Staff development                             1,169                   -               -                   -          (1,169)
   Board of directors                           24,833                   -               -                   -         (24,833)
   School administration                       251,023                   -          82,352                   -        (168,671)
   Plant                                       338,488                   -               -              39,636        (298,852)
    Total governmental activities         $    876,168      $            -     $   150,000       $      39,636        (686,532)

                                                                              General revenues:
                                                                               State passed through local
                                                                                school district                        350,074
                                                                                    Total general revenues             350,074
                                                                              Change in net assets                    (336,458)
                                                                              Net assets at July 1, 2003                     -
                                                                              Net assets at June 30, 2004        $    (336,458)




                             The accompanying notes are an integral part of this financial statement.

                                                                4
                                Canoe Creek Charter Middle School
                    (A division of The Foundation for Osceola Education, Inc.)

                           BALANCE SHEET - GOVERNMENTAL FUNDS

                                             June 30, 2004


                                                                                                Total
                                                      Federal Start-        Capital          Governmental
                                   General Fund       Up Grant Fund       Outlay Fund           Funds
           ASSETS
Cash                                $      5,480         $         -      $            -     $     5,480
Due from charterholder                    30,148                   -                   -          30,148
Due from local school district                 -             150,000                   -         150,000
Due from other funds                     150,000                   -                   -         150,000
Prepaid expenses                           9,786                   -                   -           9,786
       Total assets                 $    195,414         $   150,000      $            -     $   345,414

   LIABILITIES AND FUND
          BALANCES
LIABILITIES
  Accounts payable                  $     10,082         $           -    $            -     $    10,082
  Accrued payroll and
   other expenses                         22,767              52,054                   -          74,821
  Due to management
   company                               142,586                   -                   -         142,586
  Due to other schools                   308,743                   -                   -         308,743
  Due to other funds                      52,054              97,946                   -         150,000
       Total liabilities                 536,232             150,000                   -         686,232
FUND BALANCES
 Unreserved                             (340,818)                    -                 -         (340,818)
     Total fund balances
      (deficit)                         (340,818)                    -                 -         (340,818)
     Total liabilities and
      fund balances                 $    195,414         $   150,000      $            -     $   345,414




                  The accompanying notes are an integral part of this financial statement.

                                                     5
                                Canoe Creek Charter Middle School
                    (A division of The Foundation for Osceola Education, Inc.)

            RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS
                         TO THE STATEMENT OF NET ASSETS

                                             June 30, 2004

Fund balances - total governmental funds                                                     $   (340,818)

The net assets reported for governmental activities in the statement
of net assets is different because:

 Capital assets used in governmental activities are not financial
 resources and therefore are not reported in the governmental funds.
 Those assets consist of:
   Furniture, fixtures and equipment, net of $523 accumulated
    depreciation                                                           $      4,360
       Total capital assets                                                                         4,360
       Total net assets of governmental activities                                           $   (336,458)




                  The accompanying notes are an integral part of this financial statement.

                                                     6
                                          Canoe Creek Charter Middle School
                              (A division of The Foundation for Osceola Education, Inc.)

              STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
                                     GOVERNMENTAL FUNDS

                                           For the year ended June 30, 2004


                                                                                                                   Total
                                                                        Federal Start-         Capital         Governmental
                                                      General Fund      Up Grant Fund        Outlay Fund          Funds
Revenues
 Federal passed through local school district        $            -      $     150,000      $              -   $   150,000
 State passed through local school district                 350,074                   -               39,636       389,710
         Total revenues                                     350,074            150,000                39,636       539,710
Expenditures
 Current:
   Basic instruction                                        182,164             67,648                     -       249,812
   Guidance services                                          4,733                  -                     -         4,733
   Health services                                               81                  -                     -            81
   Psychological services                                        85                  -                     -            85
   Media services                                             5,944                  -                     -         5,944
   Staff development                                          1,169                  -                     -         1,169
   Board of directors                                        24,833                  -                     -        24,833
   School administration                                    173,031             77,469                     -       250,500
   Plant                                                    298,852                  -                39,636       338,488
   Fixed capital outlay                                           -              4,883                     -         4,883
         Total expenditures                                 690,892            150,000                39,636       880,528
Deficiency of revenues
 under expenditures                                        (340,818)                   -                   -       (340,818)
Fund balances (deficit) at July 1, 2003                             -                  -                   -              -
Fund balances (deficit) at June 30, 2004             $     (340,818)     $             -    $              -   $   (340,818)




                           The accompanying notes are an integral part of this financial statement.

                                                              7
                                    Canoe Creek Charter Middle School
                        (A division of The Foundation for Osceola Education, Inc.)

               RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES
                AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS TO THE
                                 STATEMENT OF ACTIVITIES

                                      For the year ended June 30, 2004



Net change in fund balances - total government funds                                               $   (340,818)

The change in net assets reported for governmental activities
in the statement of activities is different because:

Governmental funds report fixed capital outlays as expenditures. However,
in the statement of activities, the cost of those assets is allocated over their
estimated useful lives and reported as depreciation expense.

 Total fixed capital outlay                                                        $      4,883
 Less: depreciation                                                                        (523)          4,360
Change in net assets of governmental activities                                                    $   (336,458)




                      The accompanying notes are an integral part of this financial statement.

                                                         8
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                           NOTES TO FINANCIAL STATEMENTS

                                       June 30, 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1. Reporting entity

     Canoe Creek Charter Middle School (the “School”) is a division of The Foundation for
     Osceola Education, Inc. (the “Charterholder”), which is a not-for-profit corporation
     organized pursuant to Chapter 617, Florida Statutes, the Florida Not-For-Profit
     Corporation Act, and Section 1002.33, Florida Statutes. The governing body of the
     School is the Board of Directors (the “Board”), which is composed of thirty-nine
     members. The financial information presented is that of Canoe Creek Charter Middle
     School only. The entire workforce is provided by the management company; therefore,
     all employee benefits are provided by the management company.

     The general operating authority of Canoe Creek Charter Middle School is contained in
     Section 1002.33, Florida Statutes. The School operates under a charter of the
     sponsoring school district, which is The School District of Osceola County, Florida (the
     “District”). The current charter shall be for a term of three school years commencing with
     the 2003 - 2004 school year. The charter may be renewed as provided in Section
     1002.33, Florida Statutes, upon mutual consent of the parties and execution of a written
     renewal. At the end of the term of the charter, the District may choose not to renew the
     charter under grounds specified in the charter in which case the District is required to
     notify the School in writing at least 90 days prior to the charter’s expiration. During the
     term of the charter, the District may also terminate the charter if good cause is shown.
     The school is considered a division of the Charterholder, and the Charterholder is a
     component unit of The School District of Osceola County, Florida.

     Criteria for determining if other entities are potential component units which should be
     reported within the School’s basic financial statements are identified and described in
     the Governmental Accounting Standards Board’s (GASB) Codification of Governmental
     Accounting and Financial Reporting Standards, Sections 2100 and 2600. The
     application of these criteria provide for identification of any entities for which the School
     is financially accountable and other organizations for which the nature and significance
     of their relationship with the School are such that exclusion would cause the School’s
     basic financial statements to be misleading or incomplete. Based on these criteria, no
     component units are included within the reporting entity of the School.

     2. Government-wide and fund financial statements

     The government-wide financial statements consist of a statement of net assets and a
     statement of activities. These statements report information on all of the nonfiduciary
     activities of the School. As part of the consolidation process, all interfund activities are
     eliminated from these statements. Both statements report only governmental activities
     as the School does not engage in any business type activities.




                                              9
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                         NOTES TO FINANCIAL STATEMENTS

                                       June 30, 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     2. Government-wide and fund financial statements (continued)

     Net assets, the difference between assets and liabilities, as presented in the statement
     of net assets, are subdivided into three categories: amounts invested in capital assets;
     restricted net assets; and unrestricted net assets. Net assets are reported as restricted
     when constraints are imposed on the use of the amounts either externally by creditors,
     grantors, contributors, or laws or regulations of other governments, or enabling
     legislation.

     The statement of activities presents a comparison between the direct and indirect
     expenses of a given function and its program revenues, and displays the extent to which
     each function contributes to the change in net assets for the fiscal year. Direct expenses
     are those that are clearly identifiable to a specific function. Indirect expenses are costs
     the School has allocated to various functions. Program revenues consist of charges for
     services, operating grants and contributions, and capital grants and contributions.
     Charges for services refer to amounts received from those who purchase, use, or
     directly benefit from goods, services, or privileges provided by a given function or
     segment. Grants and contributions consist of revenues that are restricted to meeting the
     operational or capital requirements of a particular function. Revenues not classified as
     program revenues are reported as general revenues.

     Separate fund financial statements report detailed information about the School’s
     governmental funds. The focus of the governmental fund financial statements is on
     major funds. Therefore, major funds are reported in separate columns on the fund
     financial statements. All of the School’s funds were deemed major funds. A
     reconciliation is provided that converts the results of governmental fund accounting to
     the government - wide presentation.

     3. Measurement focus, basis of accounting, and financial statement presentation

     The government-wide financial statements are reported using the economic resources
     measurement focus and the accrual basis of accounting. Revenues are recognized in
     the period earned and expenses are recognized when a liability is incurred.

     All governmental fund financial statements are reported using a current financial
     resources measurement focus on a modified accrual basis of accounting. Under the
     modified accrual basis of accounting, revenues, except for certain grant revenues, are
     recognized in the accounting period in which they become both measurable and
     available to finance expenditures of the current period. Available means collectible
     within the current period or soon enough thereafter to be used to pay liabilities of the
     current period, considered to be sixty days. When grant terms provide that the




                                             10
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                          NOTES TO FINANCIAL STATEMENTS

                                       June 30, 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     3. Measurement focus, basis of accounting, and financial statement presentation
        (continued)

     expenditure of resources is the prime factor for determining eligibility for federal, state,
     and other grant resources, revenue is recognized at the time the expenditure is made.
     Under the modified accrual basis of accounting, expenditures are generally recorded
     when the related fund liability is incurred. However, principal and interest on general
     long-term debt is recorded as expenditures only when payment is due.

     The School’s financial statements have been prepared in accordance with U.S. generally
     accepted accounting principles as prescribed by the Governmental Accounting
     Standards Board. Accordingly, the financial statements are organized on the basis of
     funds. A fund is an accounting entity having a self-balancing set of accounts for
     recording assets, liabilities, fund equity, revenues, expenditures, and other financing
     sources and uses.

     Resources are allocated to and accounted for in individual funds based on the purpose
     for which they are to be spent and the means by which spending activities are controlled.
     The School reports the following major governmental funds:

            General Fund - the general operating fund of the School. It is used to account for
            all financial resources not required to be accounted for in another fund.

            Federal Start-Up Grant Fund - to account for the proceeds of federal grants
            received through the District that are legally restricted to expenditures for
            specified purposes.

            Capital Outlay Fund - in accordance with guidelines established by The School
            District of Osceola County, Florida, this fund accounts for all resources for the
            leasing or acquisition of capital facilities by the School to the extent funded by
            capital outlay funds.

     When both restricted and unrestricted resources are available for use, it is the School’s
     policy to use restricted resources first, then unrestricted resources as they are needed.

     4. Budgetary basis of accounting

     The School’s annual budgets are adopted for the entire operations at the combined
     governmental level and may be amended by the Board. Since the budgetary basis
     differs from generally accepted accounting principles (“GAAP”), budget and actual
     amounts in the accompanying required supplementary information are presented on the
     budgetary basis. A reconciliation to deficiency of revenues under expenditures
     presented in conformity with generally accepted accounting principles is set forth in the
     adjustments to the required supplementary information.



                                              11
                           Canoe Creek Charter Middle School
               (A division of The Foundation for Osceola Education, Inc.)

                         NOTES TO FINANCIAL STATEMENTS

                                      June 30, 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     4. Budgetary basis of accounting (continued)

     The budget presented for the year ended June 30, 2004 has been amended according
     to Board procedures. During the fiscal year, expenditures were controlled at the line
     item level.

     5. Cash

     Cash consists of cash on hand at the School and a checking account held at a financial
     institution. The School has no cash equivalents.

     6. Receivables

     The School’s management determined that 100% of receivables are fully collectible.
     Therefore, no allowance for doubtful accounts has been provided.

     7. Interfund receivables and payables

     Activity between funds that are representative of lending/borrowing arrangements
     outstanding at the end of the fiscal year are referred to as due to/from other funds.

     8. Capital assets

     Capital assets, which include property, plant and equipment, are reported in the
     applicable governmental columns on the government-wide financial statements. Capital
     assets are defined by the School as assets with an initial individual cost of more than
     $500 and an estimated useful life of more than two years. Such assets are recorded at
     historical cost. Donated capital assets are recorded at their estimated fair market values
     at the date of donation.

     The cost of normal maintenance and repairs that do not add to the value of the asset or
     materially extend assets lives are not capitalized.

     Property, plant and equipment of the School is depreciated using the straight-line
     method over the following estimated useful lives:

                                                                   Estimated
                                                                    Useful
                                  Asset Class                        Lives
                    Furniture, fixtures and equipment               7 - 10




                                             12
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                         NOTES TO FINANCIAL STATEMENTS

                                      June 30, 2004

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     9. Revenue sources

     Revenues for current operations are received primarily from the State of Florida passed
     through the District to the Charterholder and then to the School, pursuant the funding
     provisions included in the School’s charter. In accordance with the funding provisions of
     the charter and Section 1002.33(18), Florida Statutes, the School reports the number of
     full-time equivalent (FTE) students and related data to the District. Under the provisions
     of Section 1011.62, Florida Statutes, the District reports the number of FTE students and
     related data to the Florida Department of Education (FDE) for funding through the
     Florida Education Finance Program. Funding for the School is adjusted during the year
     to reflect revised calculations by the FDE under the Florida Education Finance Program
     and actual weighted FTE students reported by the School during designated FTE
     student survey periods.

     The School receives federal awards for the enhancement of various educational
     programs. This assistance is generally based on applications submitted to and
     approved by various granting agencies. These federal awards may have requirements
     whereby the issuance of grant funds is withheld until qualifying expenditures are
     incurred. Revenues for these awards are recognized only to the extent that eligible
     expenditures have been incurred.

     Additionally, other revenues may be derived from various fundraising activities and
     certain other programs.

     10. Use of estimates

     The process of preparing financial statements in conformity with U.S. generally accepted
     accounting principles requires the use of estimates and assumptions regarding certain
     types of assets, liabilities, revenues and expenses. Such estimates primarily relate to
     unsettled transactions and events as of the date of the financial statements.
     Accordingly, upon settlement, actual results may differ from estimated amounts.




                                             13
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                          NOTES TO FINANCIAL STATEMENTS

                                          June 30, 2004

NOTE B - CASH

     The School’s cash balance at June 30, 2004 has been categorized to indicate the level
     of risk assumed by the School. Category 1 includes cash and cash equivalents and
     investments that are insured or registered, or securities held by the School or by its
     agent in the School’s name. Category 2 includes uninsured or unregistered, with
     securities held by the counterpart’s trust department or agent in the School’s name.
     Category 3 includes uninsured and unregistered, with securities held by the counterparty
     or by its trust department or agent but not in the School’s name.

     The School’s bank account balance as of June 30, 2004 totaled $5,480, and is classified
     in Category 1 of credit risk.

NOTE C - CAPITAL ASSETS

     Changes in capital assets were as follows:

                                             Balance at                             Balance at
                                              July 1,                                June 30,
                                               2003       Additions   Deletions        2004
     Capital assets depreciated:
      Furniture, fixtures and equipment      $        -   $   4,883   $         -   $   4,883
     Less accumulated depreciation:
      Furniture, fixtures and equipment      $        -   $    523    $         -         523

        Total governmental activities
         capital assets, net                                                        $   4,360

     Depreciation expense for the year ended June 30, 2004 was charged to functions of the
     School as follows:
                 Basic Instruction                               $        523




                                                 14
                         Canoe Creek Charter Middle School
             (A division of The Foundation for Osceola Education, Inc.)

                        NOTES TO FINANCIAL STATEMENTS

                                     June 30, 2004

NOTE D - CONCENTRATIONS

     1. Revenue sources

                            -9,
        As stated in Note A the School receives revenues for current operations primarily
        from the State of Florida through the District. The following is a schedule of revenue
        sources and amounts:

                                      Sources                               Amounts
            School District of Osceola County:
             Base funding                                               $    288,902
             Safe schools                                                       1,655
             Exceptional student education guaranteed allocation               14,313
             Supplemental academic instruction                                 17,101
             Summer reading programs                                              787
             Class size reduction                                              13,064
             Discretionary millage                                             13,474
             Discretionary lottery                                              3,546
             Instructional materials allocation                                 8,175
             Instructional technology                                           1,595
             Teacher training                                                     526
             Administration fee withheld (5%)                                 (18,157)
               Subtotal                                                      344,981
              Capital outlay                                                  39,636
              Federal grants                                                 150,000
              Teacher lead program                                               460
              Other miscellaneous state revenue                                4,633
                                                                        $    539,710

     2. Concentration of cash deposits

     The School maintains cash deposits at a bank in Florida. Deposits at the bank are
     insured by the Federal Deposit Insurance Corporation up to $100,000. As of June 30,
     2004, there were no uninsured deposit balances.




                                            15
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                         NOTES TO FINANCIAL STATEMENTS

                                      June 30, 2004

NOTE E - COMMITMENTS AND CONTINGENCIES

     1. Management service contract

     Canoe Creek Charter Elementary School entered into a service agreement,
     commencing in June 2001 and later amended in May 2003 to include the School with an
     effective date of June 2003. The contract is for management services for a term of five
     years, and may be cancelled or terminated pursuant to the terms and conditions as set
     forth in the charter. Under the management agreement, Chancellor Beacon Academies,
     Inc. will manage and operate the School and Canoe Creek Charter Elementary School
     during the term of the agreement for a base fee of $275,520; plus additional annual fees
     of 12% of other revenue sources. Additional incentive fees may be charged if specific
     benchmarks are achieved as discussed in Note E-3. Current year management fees
     under this agreement totaled $341,370, of which $102,411 was charged to the
     operations of the School. The remaining portion was charged to the operations of
     Canoe Creek Charter Elementary School.

     2. Facilities sub-lease

     The School operates from Canoe Creek Charter Elementary School’s facility. During the
     year ended June 30, 2004, approximately $215,370 or 30% was allocated to the School
     based upon classroom use and other factors as determined by management. This
     amount is included in the “Plant” function on the accompanying statement of activities
     and statement of revenues, expenditures and changes in fund balance. A portion of the
     facility use fee in the amount of $39,636 was reimbursed through capital outlay funds.

     3. Incentive allocation contingency

     As part of the management service agreement discussed above, the School may be
     liable for various incentive allocations of up to 4% of total revenues, and other fees if
     specific benchmarks are achieved, payable to the management company. The Board of
     Directors of the Charterholder must approve the incentive allocations before payment is
     made. No incentive allocations were approved by the Board during the year ended June
     30, 2004.

NOTE F - RELATED PARTIES

     1. Due to management company

     The School has entered into multiple agreements with the management company. The
     management company is responsible for organizing, developing, managing, staffing, and
     operating the School. During the current year, the management company charged fees
     to the School for management services as described in Note E-1. The due to
     management company also reflects activity for operating advances and invoices for
     certain expenses paid on behalf of the School. Management’s intent is for the liability to
     be reduced through excess cash flows as they become available.


                                             16
                           Canoe Creek Charter Middle School
               (A division of The Foundation for Osceola Education, Inc.)

                          NOTES TO FINANCIAL STATEMENTS

                                        June 30, 2004

NOTE F - RELAT ED PARTIES (continued)

      1. Due to management company (continued)

      The due to management company activity consists of the following for the year ended
      June 30, 2004:

                                         Management
                                           fees and            Working
                                           services            capital          Total
            Balance at July 1, 2003      $          -      $           -    $          -
             Additions                        151,942            219,500         371,442
             Reductions                       (89,856)          (139,000)       (228,856)
            Balance at June 30, 2004     $     62,086      $     80,500     $    142,586

      2. Due to Canoe Creek Charter Elementary School

      The School shares a facility with Canoe Creek Charter Elementary School. The schools
      are related by a common charterholder. As of June 30, 2004, the School’s balance
      sheet reflects a payable due to Canoe Creek Charter Elementary School in the amount
      of $308,743 as a result of advances for expenses paid on behalf of the School. Such
      expenses have been allocated between the schools.

NOTE G - RISK MANAGEMENT

      The School is exposed to various risks of loss related to torts; theft of, damage to, and
      destruction of assets; errors and omissions; general liabilities; and natural disasters for
      which the School carries commercial insurance. Under the plan for property insurance,
      the School’s liability is $25,000 per occurrence. Settled claims resulting from the risks
      described above have not exceeded the insurance coverage during the previous three
      years.




                                              17
                          Canoe Creek Charter Middle School
              (A division of The Foundation for Osceola Education, Inc.)

                          NOTES TO FINANCIAL STATEMENTS

                                       June 30, 2004

NOTE H - SUBSEQUENT EVENT

     1. Management company merger

     The management company, Chancellor Beacon Academies, Inc., has completed a
     merger agreement with an Arlington, Virginia based management company prior to the
     School’s year end. As a result of the merger, the new management company will be
     Imagine Schools, Inc. As of the date of the audit report, the specifics of the School’s
     new management agreement with Imagine Schools, Inc had not been determined.

     2. Other

     During the months of August and September 2004, several hurricanes impacted
     Osceola County, Florida causing significant damage to buildings and infrastructure. The
     School did not sustain material damage to its building or equipment and is continuing
     normal operations.

NOTE I - GOING CONCERN

     The accompanying financial statements have been prepared in conformity with US
     generally accepted accounting principles, which contemplates the continuation of the
     School as a going concern. As of June 30, 2004, combined ending fund deficit totaled
                                           -1,
     $340,818. As described in Note H the management company merged with a new
     management company prior to the School’s year end. The ability of the School to
     continue as a going concern is based solely upon the decisions made by the new
     management company. Amounts due to the management company at June 30, 2004
     totaled $142,586, which consists of management fees and working capital advances
     accrued since the School’s inception. The management company has represented,
     since the School’s inception, that they will fund operating deficits of the School in present
     and future periods, with repayment terms subject to excess future cash flows. There is
     uncertainty about what will be the specifics of future management agreements and
     management fees charged. The School is also dependent on Canoe Creek Charter
     Elementary School’s (the “elementary school”) financial stability due to shared facilities.
     Certain school expenses are allocated from the elementary school, which has reported
     an uncertainty about its ability to continue as a going concern. The aforementioned
     conditions raise substantial doubt about the School’s ability to continue as a going
     concern. Management plan’s regarding these matters is unknown as of the date of the
     auditors’ report.




                                              18
REQUIRED SUPPLEMENTAL INFORMATION




               19
                                        Canoe Creek Charter Middle School
                            (A division of The Foundation for Osceola Education, Inc.)


                         SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES
                    IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUNDS

                                          For the year ended June 30, 2004


                                                          Budgeted Amounts
                                                                                                           Variance -
                                                                                                            Positive
                                                       Original           Final           Actual           (Negative)
Revenue
 Base FTE funding                                  $    405,838       $   361,207     $    344,983     $      (16,224)
 Charter capital funding                                 52,384            43,952           39,636             (4,316)
 Other state revenue                                        500               376            5,091              4,715
 Grants                                                 144,832           144,832          150,000              5,168
          Gross school revenue                          603,554           550,367          539,710            (10,657)
Less: Non-profit expense                                225,982           230,982          225,372              5,610
Net school operating revenue                            377,572           319,385          314,338             (5,047)
Expenses
 Salaries and Benefits                                  144,493           165,987          226,719            (60,732)
 Direct Educational Expense                              61,344            59,612           72,636            (13,024)
 Student Advisory Committee (SAC)                         1,008               842                -                842
 General and Administrative                              52,128            53,252          123,689            (70,437)
 Faculty Development                                     19,600            19,600            1,169             18,431
 Marketing Expense                                       33,900            33,900           34,431               (531)
 Facility Expense                                        74,160            82,275           89,741             (7,466)
         School operating expenses                      386,633           415,468          548,385           (132,917)
 School reserves                                          9,174                 -                -                  -
 Management fees                                        100,036           100,036          102,411             (2,375)
          Total expenses                                495,843           515,504          650,796           (135,292)
Change in net assets (budgetary basis)                  (118,271)         (196,119)       (336,458)          (140,339)
Adjustments to conform with GAAP:
   Capital outlay expenditures                                    -               -         (4,883)            (4,883)
   Depreciation expense                                           -               -            523                523
Deficiency of revenue under expenditures
 (GAAP basis)                                           (118,271)         (196,119)       (340,818)          (144,699)
Fund balance (deficit) at July 1, 2003                            -               -                -                    -
Fund balance (deficit) at June 30, 2004            $    (118,271)     $   (196,119)   $   (340,818)    $     (144,699)




                                                          20
SUPPLEMENTAL INFORMATION




           21
                                    Canoe Creek Charter Middle School
                        (A division of The Foundation for Osceola Education, Inc.)

                    SCHEDULE OF FUNCTIONAL EXPENSES - GENERAL FUND

                                        For the year ended June 30, 2004



                                    Basic           Guidance            Health          Psychological        Media
                                 Instruction        Services           Services           Services          Services
Dues and fees                $              -   $           -      $               -   $            -   $            -
Electricity                                 -               -                      -                -                -
Garbage                                     -               -                      -                -                -
Group insurance                        25,436             399                      -                -              181
Insurance                                   -               -                      -                -                -
Internet access                             -               -                      -                -                -
Management fee                              -               -                      -                -                -
Marketing                                   -               -                      -                -                -
Miscellaneous                             970               -                      -                -                -
Out of county travel                        -               -                      -                -                -
Printing                                    -               -                      -                -                -
Professional services                       -               -                      -               85                -
Rentals                                     -               -                      -                -                -
Repairs
 and maintenance                           -                 -                     -                -                -
Salaries                             142,647             4,320                     -                -            5,175
Social security                        9,509                14                     -                -              338
Supplies                               1,622                 -                    81                -              250
Telephone                                  -                 -                     -                -                -
Water and sewer                            -                 -                     -                -                -
Furniture, fixtures
 and equipment                              -                  -                   -                -                  -
Computer software                       1,980                  -                   -                -                  -

                             $       182,164    $        4,733     $              81   $          85    $        5,944
    Staff            Board of            School
 Development         Directors        Administration        Plant           Total
$            -   $             -     $         7,448    $          -    $       7,448
             -                 -                    -         40,635           40,635
             -                 -                    -          1,626            1,626
             -                 -             10,774                -           36,790
             -                 -                    -         11,829           11,829
             -                 -                    -          3,109            3,109
             -                 -           102,411                 -         102,411
             -                 -                 531               -              531
             -                 -                  71               -            1,041
             -                 -               1,279               -            1,279
             -                 -               1,236               -            1,236
        1,169             24,833             10,000              722           36,809
             -                 -                    -        175,736         175,736

             -                   -            6,125            50,426         56,551
             -                   -           26,226                 -        178,368
             -                   -            1,700                 -         11,561
             -                   -            4,069                 -          6,022
             -                   -                -             5,597          5,597
             -                   -                -             9,172          9,172

             -                   -               251                -            251
             -                   -               910                -          2,890

$       1,169    $        24,833     $      173,031     $    298,852    $    690,892




                                           22
                             Canoe Creek Charter Middle School
                  (A division of The Foundation for Osceola Education, Inc.)

           SCHEDULE OF FUNCTIONAL EXPENSES - FEDERAL START-UP GRANT

                                For the year ended June 30, 2004


                                                                        Fixed
                                 Basic            School               Capital
                              Instruction      Administration          Outlay         Total
Professional services       $       11,116     $     65,520        $          -   $     76,636
Supplies                            56,532           11,949                   -         68,481
Computer hardware                         -                 -             4,883           4,883
                            $        67,648    $      77,469       $      4,883   $    150,000




                                              23
                      Canoe Creek Charter Middle School
          (A division of The Foundation for Osceola Education, Inc.)

     SCHEDULE OF FUNCTIONAL EXPENSES - CAPITAL OUTLAY FUND

                      For the year ended June 30, 2004




                                                                       Plant
Rentals                                                        $         39,636




                                     24
                                 REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER
                                       FINANCIAL REPORTING BASED ON AN AUDIT OF
                                   FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
                                         WITH GOVERNMENT AUDITING STANDARDS


                          To the Board of Directors
                          Canoe Creek Charter Middle School
                          Kissimmee, Florida

                          We have audited the financial statements of Canoe Creek Charter Middle School, a
                          division of The Foundation for Osceola Education, Inc. (the “Charterholder,” which
                          is a component unit of the School District of Osceola County, Florida), as of and for
                          the year ended June 30, 2004, and have issued our report thereon dated
                          September 10, 2004. We conducted our audit in accordance with U.S. generally
                          accepted auditing standards and the standards applicable to financial audits
             Partners:
                          contained in Government Auditing Standards issued by the Comptroller General of
      John R. Hopkins     the United States.
   James A. Wright, Jr.
      James S. LaHam      Compliance - As part of obtaining reasonable assurance about whether Canoe
       Ross A. Whitley    Creek Charter Middle School’s financial statements are free from material
                          misstatement, we performed tests of its compliance with certain provisions of laws,
                          regulations, contracts and grants, 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 instances of noncompliance that are required to be reported under
                          Government Auditing Standards, which are described in the accompanying
                          management letter dated September 10, 2004, as items 04-1, 04-2, and 04-3.
                          These items are being reported due to the School’s non-compliance with the charter
                          agreement and state statutes, and the inaction of the management company.

                          We also noted certain immaterial instances of noncompliance that we have reported
                          to management of Canoe Creek Charter Middle School in the management letter
                          dated September 10, 2004.

307 E. New Haven Ave.
                          Internal Control Over Financial Reporting - In planning and performing our audit, we
             Suite One    considered Canoe Creek Charter Middle School’s internal control over financial
            Melbourne     reporting in order to determine our auditing procedures for the purpose of
         Florida 32901    expressing our opinion on the financial statements and not to provide assurance on
  Phone 321-727-2353      the internal control over financial reporting. Our consideration of the internal control
     Fax 321-676-3923     over financial reporting would not necessarily disclose all matters in the internal
                          control over financial reporting that might be material weaknesses. A material
                          weakness is a condition in which the design or operation of one or more of the
                          internal control components does not reduce to a relatively low level the risk that
                          misstatement in amounts that would be material in relation to the financial


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info@bermanhopkins.com
                           Certified Public Accountants • Business Consultants • Profit Advisors • AICPA SEC Practice Section
statements being audited may occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions. We noted no matters involving the
internal control over financial reporting and its operation that we consider to be material
weaknesses.

However, we noted other matters involving the internal control over financial reporting that we
have reported to the management of Canoe Creek Charter Middle School in the management
letter dated September 10, 2004.

This report is intended solely for the information and use of the m    anagement, regulatory
agencies of federal and state governments and the School Board of Osceola County. It is not
intended to be and should not be used by anyone other than these specified parties.


September 10, 2004
                                                                     Berman Hopkins
Melbourne, Florida                                              Wright & LaHam, CPAs, LLP




                                              26
                                                            MANAGEMENT LETTER


                          To the Board of Directors
                          Canoe Creek Charter Middle School
                          Kissimmee, Florida

                          We have audited the financial statements of Canoe Creek Charter Middle School, a
                          division of The Foundation for Osceola Education, Inc. (the “Charterholder,” which
                          is a component unit of the School District of Osceola County, Florida), as of and for
                          the fiscal year ended June 30, 2004, and have issued our report thereon dated
                          September 10, 2004.

                          We issued our Report on Compliance and on Internal Control Over Financial
                          Reporting dated September 10, 2004. Disclosures in that report, if any, should be
                          considered in conjunction with this management letter.
             Partners:
      John R. Hopkins     The discussion required by the rules of the Auditor General follows:
   James A. Wright, Jr.
      James S. LaHam              1. Because this was the first year of operations for the School, there were
       Ross A. Whitley               no violations reported in the preceding annual financial audit report.

                                  2. See the attached list of any violations of laws, rules, regulations, and
                                     contractual provisions that: (1) have occurred, or are likely to have
                                     occurred; (2) were discovered within the scope of the financial audit; and
                                     (3) may or may not have materially affected the financial statements.

                                  3.        Recommendations to improve the School’s present financial
                                       management, accounting procedures and internal controls are attached.

                                  4. There were no illegal or improper expenditures discovered within the
                                     scope of the financial audit which may or may not materially affect the
                                     financial statements.

                                  5. There were no matters requiring correction which may or may not
                                     materially affect the financial statements reported on, including, but not
307 E. New Haven Ave.
                                     limited to:
             Suite One
            Melbourne                          Improper or inadequate accounting procedures (e.g., the
         Florida 32901                         omission of required disclosures from the annual financial
  Phone 321-727-2353                           statements).
     Fax 321-676-3923                          Failures to properly record financial transactions.
                                               Other inaccuracies, shortages, defalcations, and instances of
                                               fraud discovered by, or that comes to the attention of, the auditor.




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                           Certified Public Accountants • Business Consultants • Profit Advisors • AICPA SEC Practice Section
       6. The official title of the School is Canoe Creek Charter Middle School which is a
                                                                  n
          division of The Foundation for Osceola Education, I c., which is a not-for-profit
          corporation organized pursuant to Chapter 617, Florida Statutes, the Florida Not-For-
          Profit Corporation Act, and Section 1002.33, Florida Statutes.

This management letter is intended for the information of Canoe Creek Charter Middle School’s
management, and the State of Florida Office of the Auditor General and is not intended to be
and should not be used by anyone other than these specified parties. However, this report is a
matter of public record, and its distribution is not limited.

September 10, 2004                                           Berman Hopkins
Melbourne, Florida
                                                        Wright & LaHam, CPAs, LLP




                                              28
              Current Year Violations of Laws, Rules, Regulations and
                              Contractual Provisions

04-1   Insurance requirements

The charter school agreement section VI(D) requires a deductible for Property Damage
Liability of $1,000 per occurrence. We did not find such evidence of this on the
Certificate of Insurance. In order for the School to be in compliance with the charter
agreement, we recommend the deductible be changed.

The charter agreement requires that the School purchase fidelity bonds for its
administrator/principal and its Board of Directors. Per discussions with management, no
purchases have been made. We highly recommend management of the School obtain
this surety as soon as possible.

04-2   Categorical revenues

A portion of the revenue received from the School District is derived from categorical
sources and therefore is restricted in related expenses. We noted during our testing,
that the School’s accounting system has not been tracking the revenues and expenses
related to categoricals in separate program accounts. We recommend the School utilize
its accounting system to track these revenues and expenses on an ongoing basis.

        Current Year Recommendations to Improve Financial Management,
                  Accounting Procedures and Internal Controls

04-3   Segregate cash receipts duties

The School has a small number of people in their offices performing a variety of duties,
some of which may be incompatible. For example, the person who handles cash
receipts should not record the payments to the accounts receivable detail ledger. We
recommend management isolate any incompatible accounting functions that are the
responsibility of one employee and reassign responsibility for these duties, if practical, or
create a supervisory review of these functions. Segregation of duties is necessary
because financial and accounting records are vulnerable to manipulation and potential
fraudulent activity.

04-4   Budgeting capital expenditures

When reviewing the annual budget for the School, we noted that the budget was
prepared on an operationally-wide accrual basis. This resulted in expenditures for
capital outlay not being budgeted. The School’s capitalization policy calls for
capitalization of property and equipment additions exceeding $500. We recommend that
annual capital expenditures be included in the budget prepared and approved by the
Board of Directors.




                                         29
        Current Year Recomme ndations to Improve Financial Management,
            Accounting Procedures and Internal Controls (continued)

04-5   Maintaining copies of teacher certification

The charter agreement, section V(A) requires that teachers employed by the School be
certified. During our compliance testing, we noted that the actual School’s facility does
not maintain copies of teacher certifications, but rather all certifications are kept at the
management company’s facility. We recommend that the Principal of the School
maintain copies of the certifications for all teachers employed at the School.

04-6   Going Concern

During the year ended June 30, 2004, the management company merged with a new
management company, and the ability of the School to continue as a going concern is
based solely upon the decisions made by the new management company. Since the
School’s inception, the management company has represented that they will fund
operating deficits of the School in present and future periods, with repayment terms
subject to excess future cash flows. There is uncertainty about the School’s ability to
pay amounts owed to the new management company and what the specifics will be for
future management agreements and management fees. The School is also dependent
on Canoe Creek Charter Elementary School’s (the “elementary school”) financial stability
due to the shared facility. Certain expenses are allocation from the elementary school,
which has reported an uncertainty about its ability to continue as a going concern. The
aforementioned conditions raise substantial doubt about the School’s ability to continue
as a going concern. We recommend the management of the School institute a plan to
alleviate the above uncertainties.




                                         30
November 4, 2004


To Whom It May Concern:

The following is our response to the management letter, for Canoe Creek Middle School, dated
November 1, 2004. Each response is in order, numbered consistently with the numbers assigned
in the management letter:

4-1 Insurance Requirements

Our research continues to indicate such a policy is not readily available. We will work with the
governing board to amend the language in the charter to reflect policies based on current
availability

The present crime coverage policy indemnifies all employees as a rider to the general liability
policy up to a maximum of 5 million dollars per occurrence.

4-2 Categorical revenues

The accounting software used by the school has not been set up to automatically track the State
Categorical Funding Programs. The expenditures made for each categorical program are tracked
and analyzed on a manual basis throughout the year. The process was conducted centrally and it
was felt to be sufficient to ensure that only appropriate expenditures were processed.
The school has undertaken a project to track the Categorical Funding Program items on a project
basis within the accounting system.

4-3 Segregate cash receipts duties

The school policy contains a cash management section that dictates incompatible cash
responsibilities be separate, however, due to the number and type of active positions this policy
was periodically circumvented in order to make timely deposits of the collected funds. To
mitigate any increased risk cash receipt duties have been segregated and additional steps are in
place to restrict access to the accounting, banking, and reconcilement systems and require, where
appropriate, supervisor signoff of files, scheduled, and other documents.

4-4 Budgeting capital expenditures

The school submits the majority of its capital purchases to the Foundation Board for purchases
by them with bond proceeds. Any future annual capital expenditures from the school will be
included in the school’s budget and approved by the Foundation Board.
4-5 Maintaining copies of teacher certification


All Humane Resource functions have been transferred to the school site. The principal of the
school will now maintain copies of current teacher certifications for all teachers employed at the
school.

4-6 Going Concern

A plan to amortize the existing debt and a payment schedule will be approved by the Foundation
Board to alleviate this going concern regarding uncertainties. Since the school has matured and is
near student capacity, no new debt will be created and previous debt will be paid per the
approved schedule.

								
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