Collaborative For Children

Financial Statements and Single Audit Reports

for the year ended December 31, 2008

Blazek & Vetterling C E R T I F I E D P U B L I C A C C O U N T A N T S

2900 Weslayan, Suite 200 Houston, Texas 77027-5132 (713) 439-5757 Fax (713) 439-5758

Independent Auditors’ Report To the Board of Directors of Collaborative For Children: We have audited the accompanying statements of financial position of Collaborative For Children as of December 31, 2008 and 2007 and the related statements of activities, of functional expenses, and of cash flows for the years then ended. These financial statements are the responsibility of the management of Collaborative For Children. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the 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 significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Collaborative For Children as of December 31, 2008 and 2007 and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we also have issued a report dated August 7, 2009, on our consideration of Collaborative For Children’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was performed for the purpose of forming an opinion on the basic financial statements of Collaborative For Children taken as a whole. The accompanying schedule of expenditures of federal awards for the year ended December 31, 2008, is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. The information in this schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

August 7, 2009

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Collaborative For Children Statements of Financial Position as of December 31, 2008 and 2007 2008 2007 ASSETS Cash and cash equivalents (Note 3) $ 1,687,230 $ 801,727 U. S. Treasury securities (Note 6) 205,992 203,308 Receivables: Pledges (Note 4) 1,314,028 687,334 Government agencies 97,707 92,108 United Way service contracts 57,320 29,067 Other 96,972 10,535 Prepaid expenses and other assets 96,426 16,997 Property, net (Note 5) 110,565 141,430 TOTAL ASSETS $ 3,666,240 $ 1,982,506 LIABILITIES AND NET ASSETS Liabilities: Accounts payable and accrued expenses $ 848,879 $ 217,663 Space contraction liability (Note 10) 149,337 Line of credit payable (Note 6) 39,855 Deferred revenue 4,630 7,875

Total liabilities 853,509 414,730 Net assets: Unrestricted 319,412 484,938 Temporarily restricted (Note 7) 2,493,319 1,082,838

Total net assets 2,812,731 1,567,776 TOTAL LIABILITIES AND NET ASSETS $ 3,666,240 $ 1,982,506 See accompanying notes to financial statements.

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Collaborative For Children Statement of Activities for the year ended December 31, 2008 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL REVENUE:

Contributions $ 476,104 $ 3,549,005 $ 4,025,109 Government grants (Note 8) 991,154 991,154 United Way service contracts 748,839 748,839 Program service fees 208,193 208,193 Special events 186,652 186,652 Cost of direct donor benefits (20,583) (20,583) Investment return 19,264 19,264 Other income 2,852 2,852

Total revenue 2,612,475 3,549,005 6,161,480

Net assets released from restrictions: Expenditure for program purposes 1,863,361 (1,863,361) Expiration of time restrictions 275,163 (275,163)

Total 4,750,999 1,410,481 6,161,480 EXPENSES:

Program services: Provider Engagement 2,826,326 2,826,326 Family Engagement 676,271 676,271 Community Engagement 385,980 385,980

Total program services 3,888,577 3,888,577

Management and general 788,374 788,374 Fundraising 239,574 239,574

Total expenses 4,916,525 4,916,525 CHANGES IN NET ASSETS (165,526) 1,410,481 1,244,955 Net assets, beginning of year 484,938 1,082,838 1,567,776 Net assets, end of year $ 319,412 $ 2,493,319 $ 2,812,731 See accompanying notes to financial statements.

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Collaborative For Children Statement of Activities for the year ended December 31, 2007 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL REVENUE:

Contributions $ 483,739 $ 944,163 $ 1,427,902 Government grants (Note 8) 1,378,128 1,378,128 United Way service contracts 770,143 770,143 Program service fees 126,511 126,511 Special events 155,047 155,047 Cost of direct donor benefits (30,418) (30,418) Investment return 35,692 35,692 Other income 13,320 13,320

Total revenue 2,932,162 944,163 3,876,325

Net assets released from restrictions: Expenditure for program purposes 477,021 (477,021) Expiration of time restrictions 360,000 (360,000)

Total 3,769,183 107,142 3,876,325 EXPENSES:

Program services: Provider Engagement 1,782,862 1,782,862 Family Engagement 498,354 498,354 Community Engagement 376,392 376,392

Total program services 2,657,608 2,657,608

Management and general 695,447 695,447 Fundraising 289,115 289,115 Space contraction costs (Note 10) 166,215 166,215

Total expenses 3,808,385 3,808,385 CHANGES IN NET ASSETS (39,202) 107,142 67,940 Net assets, beginning of year 524,140 975,696 1,499,836 Net assets, end of year $ 484,938 $ 1,082,838 $ 1,567,776 See accompanying notes to financial statements.

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Collaborative For Children Statement of Functional Expenses for the year ended December 31, 2008 PROVIDER FAMILY COMMUNITY MANAGEMENT TOTAL EXPENSES ENGAGEMENT ENGAGEMENT ENGAGEMENT AND GENERAL FUNDRAISING EXPENSES Salaries, related taxes and benefits $ 825,406 $ 468,381 $ 254,061 $ 557,998 $ 138,586 $ 2,244,432 Equipment and incentive grants 1,540,981 1,221 106 1,542,308 Professional and contract services 113,919 79,657 67,858 14,151 33,857 309,442 Occupancy 110,870 69,425 31,384 71,420 17,666 300,765 Conferences, meetings, and workshops 42,566 5,648 1,805 3,204 28,371 81,594 Advertising 425 1,633 67,986 2,265 72,309 Travel 49,162 5,682 4,949 11,322 806 71,921 College tuition, continuing education, and awards to caregivers 48,320 125 615 116 49,176 Depreciation 13,852 7,273 5,035 12,221 2,130 40,511 Office supplies 19,263 4,987 3,835 7,257 2,351 37,693 Computer technology expense 10,168 7,590 2,367 7,513 6,196 33,834 Staff development 7,800 653 119 13,925 357 22,854 Postage and shipping 6,138 7,197 2,586 1,102 2,796 19,819 Printing 7,015 6,084 2,163 3,818 515 19,595 Telephone 6,946 2,152 1,268 2,705 412 13,483 Telephone lease interest expense 4,523 2,540 1,330 3,667 726 12,786 Equipment rental and maintenance 4,683 2,598 1,181 3,029 763 12,254 Internet service fees 2,841 1,668 832 1,948 440 7,729 Other 11,873 2,965 2,853 4,992 1,337 24,020 Total expenses $ 2,826,326 $ 676,271 $ 385,980 $ 788,374 $ 239,574 $ 4,916,525 See accompanying notes to financial statements.

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Collaborative For Children Statement of Functional Expenses for the year ended December 31, 2007 PROVIDER FAMILY COMMUNITY MANAGEMENT TOTAL EXPENSES ENGAGEMENT ENGAGEMENT ENGAGEMENT AND GENERAL FUNDRAISING EXPENSES Salaries, related taxes and benefits $ 789,372 $ 375,196 $ 258,613 $ 520,805 $ 196,375 $ 2,140,361 Equipment and incentive grants 307,964 3,765 311,729 Professional and contract services 303,626 6,749 12,666 21,783 6,236 351,060 Occupancy 142,597 66,205 51,640 86,083 34,866 381,391 Conferences, meetings, and workshops 85,384 2,670 5,349 4,183 20,746 118,332 Advertising 3,939 138 4,077 Travel 32,054 1,928 7,256 4,617 40 45,895 College tuition, continuing education, and awards to caregivers 34,561 17 152 679 35,409 Depreciation 10,702 5,014 4,799 12,003 2,391 34,909 Office supplies 12,335 5,263 13,767 10,135 3,526 45,026 Computer technology expense 7,685 2,436 3,148 5,780 3,829 22,878 Staff development 20,188 4,011 1,094 4,282 8,058 37,633 Postage and shipping 4,759 8,155 436 1,038 1,824 16,212 Printing 3,821 3,741 9,824 2,761 5,715 25,862 Telephone 5,384 911 727 1,554 622 9,198 Telephone lease interest expense 10,081 4,624 3,373 6,804 2,437 27,319 Equipment rental and maintenance 3,785 1,766 1,253 2,643 918 10,365 Internet service fees 2,379 4,564 678 1,465 515 9,601 Other 6,185 1,339 1,617 4,893 879 14,913 Total $ 1,782,862 $ 498,354 $ 376,392 $ 695,447 $ 289,115 3,642,170 Space contraction costs (Note 10) 166,215 Total expenses $ 3,808,385 See accompanying notes to financial statements.

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Collaborative For Children Statements of Cash Flows for the years ended December 31, 2008 and 2007 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES:

Changes in net assets $ 1,244,955 $ 67,940 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Unrealized gain on U.S. Treasury securities (5,201) (7,547) Depreciation 40,511 34,909 Changes in operating assets and liabilities: Receivables (746,983) (167,215) Prepaid expenses and other assets (79,429) 7,208 Accounts payable and accrued expenses 631,216 103,395 Space contraction liability (149,337) 149,337 Deferred revenue (3,245) 4,573

Net cash provided by operating activities 932,487 192,600 CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of U. S. Treasury securities 412,000 412,000 Purchases of U. S. Treasury securities (409,483) (404,210) Purchases of property (9,646) (144,799)

Net cash used by investing activities (7,129) (137,009) CASH FLOWS FROM FINANCING ACTIVITIES:

Advances (payments) on line of credit (39,855) 39,855

Net cash provided (used) by financing activities (39,855) 39,855 NET CHANGE IN CASH AND CASH EQUIVALENTS 885,503 95,446 Cash and cash equivalents, beginning of year 801,727 706,281 Cash and cash equivalents, end of year $ 1,687,230 $ 801,727 See accompanying notes to financial statements.

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Collaborative For Children Notes to Financial Statements for the years ended December 31, 2008 and 2007 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization – Collaborative For Children (CC) is located in Houston, Texas and was formed in 2004 through a merger of the Greater Houston Collaborative For Children (GHCC) and Initiatives for Children, Inc. (IFC), two non-profit organizations with more than 20 years of combined experience in serving the community. CC works with families and those that deliver educational and other support services to children to positively impact the care and education of young children. CC works to fulfill its mission of building a strong education foundation for young children to succeed in school and life by focusing its programs and services on the following goal areas: • Provider Engagement programs support and develop child care and early education professionals through one-

on-one consulting, training and mentoring for teachers and directors in early care and education centers, scholarships for professional development conferences, and wage enhancement programs to reward teachers for obtaining higher educational credentials.

• Family Engagement programs provide families with information, resources and support to launch their children

toward academic and life success by providing parent education, printed parenting tips, resource materials, and referrals for early education, after-school programs and children with special needs.

• Community Engagement programs provide a speaker’s bureau, partnerships to promote healthy child

development and strengthen policy and regulations impacting young children. Early childhood education is promoted as a high priority public policy issue in our region with adequate support necessary to deliver quality programs for parents, children, and teachers.

Tax status – CC is exempt from federal income taxes under §501(c)(3) of the Internal Revenue Code and is classified as a public charity under §509(a)(2). Net asset classification – Contributions and the related net assets are classified based on the existence or absence of donor-imposed restrictions, as follows: • Unrestricted net assets include those net assets whose use is not restricted by donor-imposed stipulations even

though their use may be limited in other respects such as by contract or board designation. • Temporarily restricted net assets include contributions restricted by the donor for specific purposes or time

periods. When a purpose restriction is accomplished or a time restriction ends temporarily restricted net assets are released to unrestricted net assets.

Estimates – Management must make estimates and assumptions to prepare financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, the amounts reported as revenue and expenses, and the allocation of expenses among various functions. Actual results could vary from the estimates that were used. Cash equivalents include highly liquid financial instruments with original maturities of three months or less. U. S. Treasury securities are recorded at fair value. Investment return includes interest and realized and unrealized gains and losses. Investment return is reported in the statement of activities as an increase in unrestricted net assets unless the use of the income is limited by donor-imposed restrictions. Investment return whose use is restricted by the donor is reported as an increase in temporarily restricted net assets.

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Pledges receivable that are expected to be collected within one year are recorded at net realizable value. Amounts expected to be collected in future years are discounted to the present value of their estimated future cash flows. Discounts are computed using interest rates applicable to the years in which the promises are received. Amortization of discounts is included in contribution revenue. Property is recorded at cost if purchased or at fair value at the date of gift if donated. Depreciation is calculated using the straight-line method over estimated useful lives of 5 years. Additions and improvements that have a cost of more than $500 are capitalized. Government grants and program service fees are recognized when the related services are provided. Amounts billed or received but unearned are included in the statement of financial position as deferred revenue. Contributions are recorded as revenue at fair value when an unconditional commitment is received from the donor. Contributions received with donor stipulations that limit their use are recorded as restricted support. Conditional contributions are recognized in the same manner when the conditions are substantially met. In-kind contributions – Donated materials and services are recorded at fair value as contributions when an unconditional commitment is received from the donor. The related expense is recorded as the item is used. Contributions of services are recognized when services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Grants made – Equipment and incentive grants are awarded to child care providers for equipment and facilities renovation and expansion. Grants awarded are recorded as expense at their fair value when a commitment is made to a recipient. NOTE 2 – FAIR VALUE MEASUREMENTS Effective January 1, 2008, CC adopted Statement of Financial Accounting Standard 157, Fair Value Measurements (SFAS 157), which provides a framework for measuring fair value of certain assets and liabilities and expands disclosures about fair value measurements. As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by SFAS 157 and a description of the valuation methodology used for assets or liabilities measured at fair value are as follows: • Level 1 – Pricing inputs include quoted prices in active markets for identical assets or liabilities that the

reporting entity has the ability to access at the reporting date. • Level 2 – Pricing inputs other than quoted prices included in Level 1, that are either directly observable or that

can be derived from or corroborated by observable market data as of the reporting date. • Level 3 – Pricing inputs include those that are unobservable for the asset or liability and reflect the reporting

entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

U.S. Treasury securities are valued using prices obtained from active market makers and inter-dealer brokers on a daily basis. These valuation methods may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while CC believes its valuation methods are appropriate, the use of different methods or assumptions could result in a different fair value measurement at the reporting date.

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The summary of the inputs used as of December 31, 2008 are as follows: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Money market funds $ 1,620,341 $ 1,620,341 U.S. Treasury securities 205,992 205,992

Total $ 1,826,333 $ 0 $ 0 $ 1,826,333 NOTE 3 – CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following: 2008 2007

Money market funds $ 1,620,341 $ 620,282 Demand deposits 66,889 181,445

Total cash and cash equivalents $ 1,687,230 $ 801,727 CC maintains cash for daily operations at several banking institutions. At times, bank deposits exceeded the federally insured limit per depositor per institution. CC has entered into a collateral agreement with one of its depository institutions to collateralize deposits in excess of the federally-insured limit with U. S. government debt securities with a fair value of $909,047 at December 31, 2008. NOTE 4 – PLEDGES RECEIVABLE Pledges receivable are as follows: 2008 2007

Pledges receivable $ 1,315,750 $ 706,163 Discount to present value at 3% (1,722) (18,829)

Pledges receivable, net $ 1,314,028 $ 687,334 Pledges receivable at December 31, 2008 are expected to be collected as follows: Receivable in 2009 $ 1,285,750 Receivable in 2010 30,000

Total pledges receivable $ 1,315,750 At December 31, 2008, approximately 84% of pledges are due from two foundations. NOTE 5 – PROPERTY Property consists of the following: 2008 2007

Furniture and equipment $ 187,390 $ 178,232 Leasehold improvements 25,710 24,984

Total property at cost 213,100 203,216 Accumulated depreciation (102,535) (61,786)

Property, net $ 110,565 $ 141,430

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Property with a cost of $47,681 is used in operations but not included in the statement of financial position at December 31, 2008 because title is held by grantors. NOTE 6 – LINE OF CREDIT CC has a $200,000 revolving line of credit with a bank that is collateralized by U. S. Treasury securities having a face value of $206,000. The line expires in May 2010. Draws on the line bear interest at the bank’s prime lending rate, which was 3.25% at December 31, 2008. There are no outstanding draws against this line of credit at December 31, 2008. NOTE 7 – TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: 2008 2007 Neighborhood Initiative $ 1,270,242 $ 338,338 Use in future periods 600,000 525,163 Hurricane Ike Childcare Recovery Project 464,345 Corporate H. A. N. D. S. projects 93,085 81,913 Baby Basics 57,462 62,814 Parents as Partners in Preschool 8,185 20,000 Inclusive Care 34,610 Educational Video 20,000

Total temporarily restricted net assets $ 2,493,319 $ 1,082,838 NOTE 8 – GOVERNMENT GRANTS Sources of government grants are as follows: 2008 2007 U. S. Department of Health and Human Services: Child Care Mandatory and Matching Funds $ 761,495 $ 887,326 Early Learning Opportunity Act 380,898 U. S. Department of Education: Quality Assessment System 120,632 69,330 Corporation for National and Community Service 9,407 31,416 Other 99,620 9,158

Total $ 991,154 $ 1,378,128 NOTE 9 – EMPLOYEE BENEFIT PLAN Substantially all employees are eligible to participate in a §403(b) tax deferred annuity plan. Employees may elect to participate upon employment by contributing up to 15% of their salary. After three months of employment, the employee is eligible to receive an employer matching contribution, which is determined annually as a percentage of the employee’s base salary. CC’s contribution to this plan totaled approximately $29,000 during 2008 and 2007.

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NOTE 10 – COMMITMENTS CC leases office space and office equipment under noncancelable operating leases. Future minimum lease payments are payable as follows: 2009 $ 262,879 2010 262,360 2011 260,804 2012 217,337

Total $ 1,003,380 Lease expense for office space and equipment was approximately $263,000 in 2008 and $334,000 in 2007. In December 2007, CC incurred costs of $166,215 to release office space held under long-term operating leases.

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Collaborative For Children Schedule of Expenditures of Federal Awards for the year ended December 31, 2008 FEDERAL GRANTOR Pass-through Pass-through Grantor CFDA Contract Award Program Title & Period Number Number Amount Revenue Expenditures U. S. DEPARTMENT OF EDUCATION Passed through The Center for Houston’s Future: Fund for the Improvement of Education Earmark Grant Award Quality Assessment System #1 09/30/05 – 03/31/08 84.215K* None $198,400 $ 120,632 $ 116,668 U. S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed through the Houston-Galveston Area Council: Child Care Mandatory and Matching Funds of the Child Care and Development Fund #2 10/01/07 – 10/31/08 93.596* 301-08 $800,000 656,014 656,014 #3 11/01/08 – 09/30/09 93.596* 301-09 $700,000 105,481 105,481

Total U. S. Department of Health and Human Services 761,495 761,495 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE Passed through the OneStar National Service Commission: Americorps Early Education Assessment Program #4 01/01/07 – 01/31/08 94.006 15.0607.080 $49,282 9,407 9,407 TOTAL FEDERAL AWARDS $ 891,534 $ 887,570 *Denotes a major program See accompanying note to schedule of expenditures of federal awards.

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Collaborative For Children Note to Schedule of Expenditures of Federal Awards for the year ended December 31, 2008 SIGNIFICANT ACCOUNTING POLICIES Basis of presentation – The schedule of expenditures of federal awards includes the government grant activity of CC and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Allowable expenses are determined according to the standards of OMB circular A-122, Cost Principles for Non-Profit Organizations and are expensed in the statement of activities in conformity with generally accepted accounting principles.

Blazek & Vetterling C E R T I F I E D P U B L I C A C C O U N T A N T S

2900 Weslayan, Suite 200 Houston, Texas 77027-5132 (713) 439-5757 Fax (713) 439-5758 – 15 –

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards To the Board of Directors of Collaborative For Children: We have audited the financial statements of Collaborative For Children (CC) for the year ended December 31, 2008, and have issued our report thereon dated August 7, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting – In planning and performing our audit, we considered CC’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of CC’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of CC’s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. We consider the deficiency described in the accompanying schedule of findings and questioned costs as finding #08-1 to be a significant deficiency in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we consider finding #08-1 to be a material weakness. Compliance and Other Matters – As part of obtaining reasonable assurance about whether CC’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. CC’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit CC’s response and, accordingly, we express no opinion on it.

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This report is intended solely for the information and use of management, the board of directors, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

August 7, 2009

Blazek & Vetterling C E R T I F I E D P U B L I C A C C O U N T A N T S

2900 Weslayan, Suite 200 Houston, Texas 77027-5132 (713) 439-5757 Fax (713) 439-5758 – 17 –

Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in

Accordance with OMB Circular A-133 To the Board of Directors of Collaborative For Children: Compliance – We have audited the compliance of Collaborative For Children (CC) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31, 2008. CC’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of CC’s management. Our responsibility is to express an opinion on CC’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about CC’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of CC’s compliance with those requirements. In our opinion, CC complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended December 31, 2008. Internal Control Over Compliance – The management of CC is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered CC’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of CC’s internal control over compliance. A control deficiency in an entity’s internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects an entity’s ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by an entity’s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by an entity’s internal control.

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Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the board of directors, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

August 7, 2009

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Collaborative For Children Schedule of Findings and Questioned Costs for the year ended December 31, 2008 Section I – Summary of Auditor’s Results Financial Statements Type of auditor’s report issued: unqualified qualified adverse disclaimer Internal control over financial reporting: • Material weakness(es) identified? yes no • Significant deficiencies identified that

are not considered to be material weakness(es)? yes none reported Noncompliance material to the financial statements noted? yes no Federal Awards Internal control over major programs: • Material weakness(es) identified? yes no • Significant deficiencies identified that

are not considered to be material weakness(es)? yes none reported Type of auditor’s report issued on compliance for major programs: unqualified qualified adverse disclaimer Any audit findings disclosed that are required to be reported in accordance with §510(a) of Circular A-133? yes no Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster 84.215K Fund for the Improvement of Education Earmark Grant Award 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as a low-risk auditee? yes no Section II – Financial Statement Findings Finding #08-1 Material weakness: Approximately $1.2 million of restricted contributions were recorded directly into net asset accounts. An audit adjustment was required to adjust contributions to comply with generally accepted accounting principles (GAAP). Criteria: The management of CC is responsible for establishing a system of internal control over financial reporting.

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Effect: Failure to adequately establish and maintain a system of internal control over the financial reporting of contributions adversely affects the CC’s ability to provide the information for audit prepared in accordance with generally accepted accounting principles. Recommendation: Implement procedures to report contributions in accordance with generally accepted accounting principles (GAAP). Management’s response and corrective action plan: In connection with our monthly and year end closing process, CC will prepare its financial reports in accordance with both internal and external requirements adequate for audit. During 2008, CC management implemented a new financial reporting format to assist with monitoring multi-year contributions and program restricted contributions for internal reporting. The new process was adopted so that management and board members would be aware of funds available for the current period separate from funds available for future periods as well as clearly identify funds restricted to program expenses from those that were unrestricted. CC management has the necessary skills and knowledge to report its financial statements in the format required for generally accepted accounting principles (GAAP). Given the change in reporting format for internal purposes during 2008, additional steps were necessary to properly present the financial statements under GAAP prior to final submission to the auditors. CC management has traditionally worked with the auditors in preparing the financial statements as a part of the audit, and CC management has always approved the final version once the trial balance was provided to the auditors. CC management provided the proper entries necessary to the auditor to properly reflect the CC financial statement under GAAP. Responsible officer: Chief Financial Officer Estimated completion date: The corrective action plan has been implemented effective May 2009. Section III – Federal Award Findings and Questioned Costs There were no findings for federal awards required to be reported in accordance with section .510(a) of Circular A-133.