YOUTH VILLAGES, INC. AND AFFILIATE CONSOLIDATED … · YOUTH VILLAGES, INC. AND AFFILIATE CONSOLIDATED STATEMENTS OF ACTIVITIES For the Years Ended June 30, 2012 and 2011 The accompanying

YOUTH VILLAGES, INC. AND AFFILIATE

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012 and 2011

TABLE OF CONTENTS

Page

INDEPENDENT AUDITOR’S REPORT 1 FINANCIAL STATEMENTS

Consolidated Statements of Financial Position 3

Consolidated Statements of Activities 5

Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7

SUPPLEMENTAL INFORMATION Consolidating Schedule of Financial Position 23 Consolidating Schedule of Activities 25 Consolidating Schedule of Cash Flows 26 Consolidated Schedules of Functional Expenses 28 SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 34 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 40 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 41 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 43 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 45 SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS 46

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INDEPENDENT AUDITOR’S REPORT

To the Board of Directors Youth Villages, Inc. and Affiliate Memphis, Tennessee We have audited the accompanying consolidated statements of financial position of Youth Villages, Inc. (a non-profit organization) and Affiliate as of June 30, 2012 and 2011, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of Youth Villages, Inc. and Affiliate’s management. Our responsibility is to express an opinion on these consolidated 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 the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Youth Villages, Inc. and Affiliate as of June 30, 2012 and 2011, and the changes in their net assets and their 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 have also issued our report dated January 15, 2013, on our consideration of Youth Villages, Inc. and Affiliate’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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.

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Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements of Youth Villages, Inc. and Affiliate as a whole. The supplemental information as described in the accompanying table of contents is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. The accompanying schedule of expenditures of federal and state awards is presented for the purpose 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 also not a required part of the consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Memphis, Tennessee January 15, 2013

tburns


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

June 30, 2012 and 2011

The accompanying notes are an integral part of the consolidated financial statements.

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2012 2011Current Assets

Cash and cash equivalents 35,046,562$ 34,946,587$ Receivables

Promises to give, current portion 1,720,225 2,465,546 Grantor agencies, net of allowance 27,564,654 23,918,329 Other - 71,358

Investments 65,894,106 64,276,347 Prepaid expenses 668,308 837,090

Total current assets 130,893,855 126,515,257

Property and equipment, net 59,616,205 60,877,700

Other AssetsPromises to give, net of current portion 1,608,336 1,694,721 Other 4,084,264 3,454,039

Total other assets 5,692,600 5,148,760

Total assets 196,202,660$ 192,541,717$

Current LiabilitiesAccounts payable 3,313,461$ 4,361,677$ Accrued salaries and compensated absences 7,210,708 6,511,138 Accrued retirement plan contributions 1,628,955 1,624,871 Accrued and withheld taxes 802,308 733,519 Accrued other expenses 1,403,916 1,372,687 Note payable - short-term 3,200,000 3,700,000

Total current liabilities 17,559,348 18,303,892

Net AssetsUnrestricted

Board designated 10,838,376 12,966,773 Unrestricted 161,267,205 155,440,156

Temporarily restricted 6,459,731 5,752,896 Permanently resticted 78,000 78,000

Total net assets 178,643,312 174,237,825

Total liabilities and net assets 196,202,660$ 192,541,717$

Assets

Liabilities and Net Assets


CONSOLIDATED STATEMENTS OF ACTIVITIES

For the Years Ended June 30, 2012 and 2011


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2012 2011Unrestricted Net Assets

Revenues and SupportState of Tennessee pass-through programs 50,202,362$ 41,213,856$ Tenncare 19,281,725 22,035,510 Net private insurance and Medicaid 76,000,311 71,961,635 Grants 6,491,025 8,332,079 USDA 910,942 780,017 United Way 155,457 219,464 Donations and pledges 7,014,612 9,292,400 Special events 126,984 158,204 Investments 590,687 522,025 Net gain (loss) on investments (498,748) 9,780,848 Miscellaneous income 169,000 195,148

160,444,357 164,491,186 Net assets released from restrictions 8,122,774 2,766,972

Total revenues and support 168,567,131 167,258,158

ExpensesProgram services 137,066,067 124,271,725 Management and general 24,080,707 22,018,925 Fundraising 3,721,705 2,704,775

Total expenses 164,868,479 148,995,425

Change in unrestricted net assets 3,698,652 18,262,733

Temporarily Restricted Net AssetsDonations and pledges 8,829,609 1,439,750 Net assets released from restrictions (8,122,774) (2,766,972)

Change in temporarily restricted net assets 706,835 (1,327,222)

Change in net assets before changes relatedto acquisition of ChristieCare 4,405,487 16,935,511

Excess of assets acquired over liabilities assumed in acquisition of ChristieCare - 12,527,695

Change in net assets 4,405,487 29,463,206

Net assets - beginning of year 174,237,825 144,774,619

Net assets - end of year 178,643,312$ 174,237,825$


CONSOLIDATED STATEMENTS OF CASH FLOWS



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2012 2011

Cash Flows Provided By (Used For) Operating Activities:Change in net assets 4,405,487$ 29,463,206$ Adjustments to reconcile change in net assets

to net cash provided by operating activities:Excess of assets acquired over liabilities

assumed in acquisition - (12,527,695) Depreciation 5,250,978 4,902,291 Amortization - 16,671 Unrealized (gain) loss on investments 415,146 (9,780,452) Realized (gain) loss on investments 83,602 (396) (Gain) loss on disposal of property and equipment (16,726) 1,276 Changes in Assets and Liabilities:

Receivables (2,743,261) 2,721,939 Prepaid expenses 168,782 (222,009) Accounts payable (1,048,216) 1,077,250 Accrued salaries and compensated balances 699,570 237,055 Accrued retirement plan contributions 4,084 162,859 Accrued and withheld taxes 68,789 76,399 Accrued other expenses 31,229 478,938

Total adjustments 2,913,977 (12,855,874)

Net cash provided by operating activities 7,319,464 16,607,332

Cash Flows From (Used For) Investing Activities:Purchase of property and equipment (4,032,849) (5,498,775) Proceeds from the sale of property and equipment 60,092 23,726 Investment in securities (12,855,738) (4,093,675) Proceeds from sales of securities 10,739,231 3,300,462 Increase in sundry assets (630,225) (453,309)

Net cash used for investing activities (6,719,489) (6,721,571)


CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)



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2012 2011

Cash Flows From (Used For) Financing Activities:Retirement of long-term debt - (3,200,000) Principal payments on note payable (500,000) (500,000) Proceeds from note payable - 3,200,000

Net cash used for financing activities (500,000) (500,000)

Net increase in cash and cash equivalents 99,975 9,385,761

Cash and cash equivalents at beginning of the year 34,946,587 24,490,446

Cash acquired through ChristieCare and Inner Harbour - 1,070,380

Cash and cash equivalents at end of the year 35,046,562$ 34,946,587$

Supplemental Disclosure of Cash Flows Information:Cash paid during year for interest 98,802$ 116,485$

Non-Cash Operating, Investing and Financing Activities:Operating Activities:

Net assets acquired from ChristieCare -$ 1,832,451$

Investing Activities:Net assets acquired from ChristieCare - 10,695,244

Financing Activities:Debt due to a financial institution was refinanced 3,200,000 -

Total non-cash operating, investing and financing activities 3,200,000$ 12,527,695$


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012 and 2011

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Youth Villages, Inc. (the “Organization”) is a not-for-profit corporation designed to offer a comprehensive continuum of care to children and youth who are in need due to life circumstances including but not limited to emotional disturbance, mental illness, serious problem behaviors, and histories of abuse and neglect. The Organization recognizes that just as life circumstances can produce a broad spectrum of needs, an equally diverse array of services is required to meet those needs utilizing evidence and research based practices whenever possible. The programs offered vary in location from residential services to transitional living and intensity from intensive residential treatment to volunteer based mentoring. The most restrictive level of care offered by the Organization is the Residential Treatment programs which provide treatment in a secured residential setting to the most seriously troubled youth. All residential treatment allows for educational, social and recreational opportunities. Children are accepted into the residential programs when they are unable to be successful in their homes or in other placements such as foster care. Residential campuses are located in Tennessee and serve children from Tennessee as well as many other states including Alabama, Arkansas, Florida, Georgia, Indiana, Massachusetts, Mississippi, New Hampshire, North Carolina, Texas, and the District of Columbia. Payments for residential services are provided through contracts and/or through private insurance carriers as services are rendered. The Group Home programs are less restrictive than residential programs, allowing children to attend public schools when possible and more community outings while still living in supervised small homes. Locations for group homes are in Memphis and Nashville, Tennessee, Atlanta and Douglasville, Georgia, as well as Marylhurst and Cedar Bough, Oregon. The Foster Home program provides settings for children with the opportunity to live and function as part of an individual family fully integrated within the community. These services are provided in Alabama, Mississippi, and Tennessee. The Organization’s largest program is the Intercept program which provides intensive in-home services to youth and their families to prevent the child from being placed out of the home. Intercept also works with families to remove barriers so that children can return home from placements such as hospitals, residential treatment centers, and foster care. Multisystemic Therapy (MST) program also provides intensive treatment in the home utilizing the nationally recognized MST model. This model serves youth presenting serious anti-social behaviors, often involving the juvenile justice systems, who are at high risk of placement out of the home. The Adoptions program allows many children in foster care to be adopted by their foster parents. The Intercept program also provides intensive in-home services to help stabilize adoptive homes in some state foster care systems.

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As children grow into young adults, the Organization recognized their changing needs by developing the Transitional Living program to work one-on-one with young adults, many of whom are in state foster care, to help establish independence. Job skills, budgeting, continuing education and independent living skills help to lay a solid foundation for a successful move into adulthood. In addition, the Mentoring program pairs adult volunteers with young adults to provide additional support and guidance. The Organization’s Specialized Crisis Services provide emergency psychiatric support and recommendations for all children living in Tennessee. This unique program sends staff into the home or the child’s placement to assist in providing immediate support and guidance to ensure appropriate placement decisions which includes avoiding unnecessary placements into psychiatric hospitals by providing immediate support in the home setting. Youth Villages Foundation, Inc. is a not-for-profit corporation organized on July 1, 1996 to provide financial and support services for and operate in conjunction with Youth Villages, Inc. Basis of Presentation The financial statements include the accounts of Youth Villages, Inc. and Youth Villages Foundation, Inc. The intercompany balances and transactions have been eliminated. Method of Accounting The Organization uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Use of Estimates The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Credit Risk The Organization’s credit risks primarily relate to cash and cash equivalents and investments. The Organization maintains cash balances at a bank. Those accounts are insured by the Federal Deposit Insurance Corporation up to an aggregate of $250,000 and by the investment companies up to an aggregate of $150,000,000. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.

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Investments Investments are carried at market value with realized and unrealized gains and losses reflected in the consolidated statement of activities. Property and Equipment The Organization capitalizes all property and equipment purchases of $2,000 or greater at cost at the date of acquisition, or at estimated fair market value at the date of donation in the case of donated property. Depreciation is provided using the straight-line method over the expected useful lives of the related assets which range from three to thirty years. Interest incurred on financing during a construction period is capitalized. Allowance for Doubtful Accounts Receivables other than pledges, which consist primarily of amounts due from grantor agencies, are valued in the financial statements net of an allowance for doubtful accounts of $1,118,658 and $732,770 at June 30, 2012 and 2011, respectively. Receivables are evaluated by management monthly, and the allowance for doubtful accounts is estimated by management based on historical experience. The Organization evaluates the collectability of pledges receivable and makes adjustments to the asset accordingly. An allowance for uncollectible pledges of $256,759 and $111,500 was established at June 30, 2012 and 2011, respectively, based on management’s estimation that all promises to give are not fully collectible. Donated Services Volunteers periodically provide uncompensated non-specialized services as administrative and special events assistants. During the years ended June 30, 2012 and 2011, there were no specialized services which would require recognition in the consolidated financial statements. Net Assets Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes in net assets are classified as follows: Unrestricted net assets are not subject to donor-imposed restrictions. Temporarily restricted net assets are subject to donor-imposed restrictions for a particular purpose or for use in a specific time period. Permanently restricted net assets are net assets with donor-imposed restrictions that are maintained permanently. The income from these net assets may be used for specified purposes. Advertising The Organization expenses advertising costs as they are incurred. Advertising expenses were $330,582 and $599,337 for the years ended June 30, 2012 and 2011, respectively.

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Functional Allocation of Expenses The costs of providing the various programs and other activities of the Organization have been summarized on a functional basis in the consolidated statement of activities. Accordingly, certain costs have been allocated by management among the programs and supporting services benefited. The Organization classifies as program services expense those items which are directly attributable to a specific program service. Those expenses which benefit more than one specific program service (shared program service expenses) are included in management and general or fundraising expenses. Federal Tax Status No provision for federal income taxes is required since the Organization is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and has been determined to be an organization that is not a private foundation. The Organization files an exempt return in the U.S. federal jurisdiction. The federal returns for tax years 2008 and beyond remain subject to examination by the taxing authorities. Financial Instruments The carrying amounts of the financial instruments of the Organization, consisting of cash, accounts receivable, and other assets, approximate their fair value. Date of Management’s Review The Organization evaluated its June 30, 2012, consolidated financial statements for subsequent events through January 15, 2013, the date the consolidated financial statements were available to be issued. Other than items in Note 19, the Organization is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements. NOTE 2 – PROMISES TO GIVE Pledges and contributions are recognized when the donor makes a promise to give to the Organization that is, in substance, unconditional. Pledges and contributions that are restricted by the donor are reported as an increase in unrestricted net assets if the restrictions expire in the fiscal year in which they are recognized. All other donor-restricted pledges and contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. NOTE 3 – PROMISES TO GIVE – CONSTRUCTION AND GROWTH In 2006, the Organization began a capital campaign to fund the construction of a new research and development building. In 2007, the Organization began a capital campaign to fund the

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construction and operation of a Girls Intensive Residential Treatment Program facility which opened in January 2009. Promises to give are restricted to payment of the costs of constructing new program service facilities and other expansion activities. These unconditional contributions are recorded as income when contributed and have been discounted to net present value using a discount rate of 0.72% based on expected payments. Promises to give are due as follows at June 30, 2012:

2013 1,925,536$ 2014 349,334 2015 391,000 2016 156,000 2017 136,000

Thereafter 680,000 3,637,870$

Promises to give, current portion, net of allowance of $205,311 1,720,225$

Promises to give, long-term 1,712,334$ Less discount to present value (52,550) Less allowance, non-current (51,448)

1,608,336$

As of June 30, 2011, total promises to give were $4,414,667, net of a discount to present value of $142,900 and the allowance of $111,500. NOTE 4 – FAIR VALUE MEASUREMENT Generally accepted accounting principles establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under generally accepted accounting principles are described below:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities the Organization has the ability to access.

Level 2 – Inputs (other than quoted prices with level 1) that are observable for the asset or liability, either directly or indirectly.

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If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – Inputs which are unobservable for the asset or liability and rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2012. Private equity funds, limited partnerships, hedge funds and real estate: Valued at the net asset value of shares held by the Organization at year end, as reported by the fund. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth by level, within the fair value hierarchy, the Organization’s assets at fair value as of June 30, 2012 and 2011. All categories of mutual funds and common stock representing 5% or more of total assets at fair value are separately identified.

Level 1 Level 2 Level 3 Total Mutual Funds

Large blend 11,203,611$ -$ -$ 11,203,611$ Other - below 5% threshold 8,179,261 - - 8,179,261

Total mutual funds 19,382,872 - - 19,382,872

Common Stock Other - below 5% threshold 2,095,525 - - 2,095,525

Private equity fundsand limited partnerships - - 37,904,529 37,904,529

Hedge funds - - 5,933,377 5,933,377

Real estate - - 577,803 577,803

Total assets at fair value 21,478,397$ -$ 44,415,709$ 65,894,106$

Assets at Fair Value as of June 30, 2012

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Level 1 Level 2 Level 3 Total Mutual Funds

Foreign large blend 3,642,253$ -$ -$ 3,642,253$ Large blend 11,125,534 - - 11,125,534 Intermediate term bond 5,574,958 - - 5,574,958 Other - below 5% threshold 5,630,993 - - 5,630,993

Total mutual funds 25,973,738 - - 25,973,738

Common Stock Other - below 5% threshold 2,034,832 - - 2,034,832

Private equity fundsand limited partnerships - - 30,289,689 30,289,689

Hedge funds - - 5,432,960 5,432,960

Real estate - - 545,128 545,128

Total assets at fair value 28,008,570$ -$ 36,267,777$ 64,276,347$

Assets at Fair Value as of June 30, 2011

The following tables set forth summaries of changes in the fair value of the Organization’s level 3 assets for the years ended June 30, 2012 and 2011:

Private Equity Funds Hedgeand Ltd Partnerships Funds Real Estate

Balance, beginning of year 30,289,689$ 5,432,960$ 545,128$ Total gains or losses for the period (72,731) 200,417 32,675 Purchases, Sales, and Settlements:

Purchases 8,016,850 300,000 50,000 Settlements (329,279) - (50,000)

Balance, end of year 37,904,529$ 5,933,377$ 577,803$

Changes in unrealized gains or lossesfor the period included in the change in unrestricted net assets, for assets held at the end of the reporting period (72,731)$ 200,417$ 32,675$

Year Ended June 30, 2012

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Private Equity Funds Hedgeand Ltd Partnerships Funds Real Estate

Balance, beginning of year 20,988,930$ 4,953,658$ 432,798$

Unrealized gains/(losses) relating to instruments still held at the reporting date 5,380,479 651,821 47,330

Purchases, sales, issuances and settlements (net) 3,920,280 (172,519) 65,000

Balance, end of year 30,289,689$ 5,432,960$ 545,128$

Year Ended June 30, 2011

NOTE 5 – INVESTMENTS The cost and market value of investments are as follows at June 30:

MarketCost Value

Mutual funds 17,014,681$ 19,382,872$ Common stock 1,448,523 2,095,525Private equity funds and limited partnerships 33,050,907 37,904,529Hedge funds 4,446,000 5,933,377Real estate 780,000 577,803

Total 56,740,111$ 65,894,106$

Cumulative unrealized gain on investments 9,153,995$

2012

MarketCost Value

Mutual funds 21,826,757$ 25,973,738$ Common stock 1,430,676 2,034,832Private equity funds and limited partnerships 25,353,197 30,289,689Hedge funds 4,110,000 5,432,960Real estate 780,000 545,128

Total 53,500,630$ 64,276,347$

Cumulative unrealized gain on investments 10,775,717$

2011

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The Organization holds shares in domestic and foreign companies that invest in derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the types of risks hedged are those relating to the effects of stock selections through 1) borrowing money against their long positions and 2) borrowing securities in connection with short positions. The hedged investments are carried at fair market value. During 2012 and 2011, the Organization recognized a net gain of $200,417 and $651,821, respectively, from fair value hedges which are included in “Net gain (loss) on investments” in the consolidated statements of activities. At June 30, 2012, the Foundation had commitments to fund private equity and limited partnership investments of approximately $4,200,000 which are due upon request. NOTE 6 – PROPERTY AND EQUIPMENT A summary of property and equipment is as follows at June 30:

2012 2011

Land 7,487,974$ 7,488,177$ Buildings 59,671,799 58,874,262 Equipment and vehicles 14,650,579 16,183,292 Furniture and fixtures 5,100,421 4,652,229 Construction in progress 990,505 969,640

87,901,278 88,167,600 Less accumulated depreciation (28,285,073) (27,289,900)

59,616,205$ 60,877,700$

Construction in progress primarily consists of various construction projects and the installation of medical and recruiting software. As of June 30, 2012, the estimated cost to complete these projects was approximately $3,800,000. NOTE 7 – NOTE PAYABLE In 2010, the Organization entered into a one-year note payable to a financial institution in an original amount of $1,000,000, interest was variable, with a minimum rate of 3.50% The note payable matured on December 15, 2011, with all principal and accrued interest due in full. The note was secured by a deposit account held with a financial institution. In December 2011, the note was paid in full. In December of 2011, the Organization entered into a note payable to a financial institution in an original amount of $3,200,000, interest is variable. As of June 30, 2012, the rate was 3.0%. The proceeds of the note were used to pay off a short-term note payable. The note payable matures on November 30, 2018, and is due in annual principal payments of $500,000 with interest payments required monthly. The note is secured by a deposit account held with a financial institution. At June 30, 2012, the balance on the note payable was $3,200,000. Subsequent to year-end, the Organization refinanced the note payable through a line of credit (see Note 19 for details).

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Interest expense for the years ended June 30, 2012 and 2011 was $106,802 and $69,977, respectively. NOTE 8 – NET ASSETS Unrestricted, board designated net assets are $10,838,376 at June 30, 2012. Of this amount, $3,479,661 has been designated to pay benefits to key employees upon termination of employment. As a part of the merger agreement with ChristieCare, $4,693,673 of the funds would revert back to Oregon if the Organization were to sell the facilities within 10 years from the date of the merger. The remaining funds of $2,665,042 have been designated for Oregon expenditures. Temporarily restricted net assets are available for the following purposes at June 30:

2012 2011

Girls Intensive Residential Treatment building -$ 1,376,230$ Transitional Living program 4,096,796 2,316,988 Inner Harbour - 30,000 Strategic Partners 1,479,572 1,104,572 Capital Projects 826,338 848,292 Equine Therapy Program 57,025 76,814

6,459,731$ 5,752,896$

Net assets were released from donor restrictions by incurring expenses satisfying the purpose or time restrictions specified by donors as follows:

2012 2011

Girls Intensive Residential Treatment building 1,376,230$ -$ Transitional Living program 6,341,301 2,448,763 Strategic Partners - 300,331 Inner Harbour 30,000 - Capital Projects 355,454 17,293 Equine Therapy Program 19,789 585

8,122,774$ 2,766,972$

Permanently restricted net assets of $78,000 at June 30, 2012 and 2011 consisted of Oregon land acquired through the merger with ChristieCare. The land is limited under the deed from encumbrance, mortgage, or transfer of title without prior written consent.

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NOTE 9 – LEASE COMMITMENTS The Organization maintains various lease agreements for certain administrative and operating facilities in Alabama, Arkansas, District of Columbia, Mississippi, North Carolina, Tennessee, Texas, Florida, Massachusetts, Indiana and New Hampshire. Total rental expense for such real property was $2,788,442 and $2,723,385 for the years ended June 30, 2012 and 2011, respectively. Certain leases are subject to rental escalation clauses in future years. Minimum lease commitments in fiscal years subsequent to June 30, 2012 are as follows:

2013 2,165,667$ 2014 1,717,655 2015 688,507 2016 252,930 2017 218,368

Thereafter 15,627 5,058,754$

NOTE 10 – CONTINGENCIES The Organization holds performance-based contracts with the State of Tennessee. Based on a performance evaluation for the year ended June 30, 2012, the Organization is potentially subject to an adjustment in performance fees due to the State of Tennessee of approximately $824,000. Management does not consider this adjustment in performance fees to be probable and is in communication with the State to remedy the issue. Accordingly, no provision for a contingent liability has been made in the consolidated financial statements. The Organization is also involved in various legal actions incident to the ordinary course of business. In the opinion of management, the eventual disposition of these matters will not have a material adverse effect on financial position or results of operations. NOTE 11 – RETIREMENT PLAN Youth Villages Profit Sharing Plan (the “Plan”) is a defined contribution retirement plan which covers substantially all employees that have completed one year of service and have attained the age of twenty one. Contributions are made at the discretion of management and the Board of Directors. Employees may make voluntary rollover contributions from other qualified pension, profit sharing, or IRA plans. Employer contributions for the years ended June 30, 2012 and 2011 were $3,231,709 and $3,042,339, respectively. NOTE 12 – RELATED PARTY TRANSACTIONS Youth Villages, Inc. is affiliated through common management and membership with Youth Villages Foundation. The Foundation collects donations and pledges for Youth Villages, Inc. which totaled $15,245,293 for the year ended June 30, 2012. Also, Youth Villages, Inc. has

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intercompany receivables which totaled $7,023,629 as of June 30, 2012. These amounts have been eliminated in the consolidation. In the normal course of business, Youth Villages, Inc. purchased products and services from local companies who have individuals serving on their Board of Directors. Significant expenditures were made during 2012 and 2011 for the following:

2012 2011

Insurance premiums 258,856$ 258,856$ Specialty items and services 118,545 53,709

377,401$ 312,565$

The Organization maintains cash and investments in numerous banks and trust companies. Officers of these banks and trust companies serve on the Board of Directors of the Organization. Also, an officer of Youth Villages, Inc. serves on the Board of Directors of one of these banking institutions. The amount of funds maintained at these institutions at June 30, 2012 and 2011 was $39,298,591 and $35,058,860, respectively. NOTE 13 – INSURANCE POLICIES Youth Villages, Inc. maintains life insurance policies on certain key employees of the Organization. As of June 30, 2012 and 2011, the cash value of these policies totaled $3,479,661 and $3,064,528, respectively and are included in “Other Assets” on the consolidated statements of financial position. NOTE 14 – ECONOMIC DEPENDENCY Youth Villages, Inc. relies upon the State of Tennessee as its major source of revenue. For the years ended June 30, 2012 and 2011, revenues from the State of Tennessee were $69,601,851 and $64,192,853, respectively. These revenues represented 39% and 38% of total revenue for the years ended June 30, 2012 and 2011, respectively. NOTE 15 – UNCERTAINTIES The Medicaid program accounted for approximately 24% and 28% of Youth Villages, Inc.’s total revenue for the years ended June 30, 2012 and 2011, respectively. Laws and regulations governing the Medicaid program are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term.

19

NOTE 16 – NET PRIVATE INSURANCE AND MEDICAID REVENUE Net private insurance and Medicaid revenue is reported at estimated net realizable amounts from third-party payors for services rendered. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews, and investigations. NOTE 17 – LETTERS OF CREDIT The Organization has established two letters of credit with a bank, which name an insurance company as beneficiary. The Organization is self-insured with regard to workers’ compensation, and the letters of credit were established to cover workers’ compensation claims in the event of default on the part of the Organization. The letters of credit allow beneficiary drawings up to $70,000, and $430,000, which will be automatically extended until October 18, 2013 and September 30, 2013, respectively. As of June 30, 2012 and 2011, there were no drawings made by the beneficiary. NOTE 18 – ACQUISITION OF CHRISTIECARE On June 1, 2011, the Organization acquired ChristieCare, an Oregon non-profit corporation, pursuant to a merger agreement under which ChristieCare was merged into the Organization. On the effective date of the merger, the separate existence of ChristieCare ceased, and the Organization continued as the surviving corporation. No consideration was transferred in the merger. The Organization recorded the merger using the carry-over method.

20

As of June 1, 2011, the assets acquired and liabilities assumed of ChristieCare consisted of the following:

Current AssetsCash and cash equivalents 1,070,380$ Accounts receivable, net 1,048,899Contributions receivable, net 237,250Investments 5,885,014Prepaid expenses and other assets 15,910

Total current assets 8,257,453

Other AssetsBeneficial interest in a charitable trust 750,573Property, plant, and equipment, net 4,059,657

Total other assets 4,810,230

13,067,683$

Current LiabilitiesAccounts payable and other accrued 217,745$

expensesAccrued payroll liabilities 314,748Deferred revenue 7,495

Total current liabilities 539,988

Net AssetsUnrestricted:

Available for programs and general operations 1,278,014

Designated by Board 6,247,039Net investment in capital assets 3,981,657

Total unrestricted 11,506,710Temporarily restricted 942,985Permanently restricted 78,000 Total net assets acquired 12,527,695

Total liabilities and net assets 13,067,683$

Assets

Liabilities and Net Assets

NOTE 19 – SUBSEQUENT EVENTS On July 11, 2012, the Organization entered into an agreement with a bank to increase the limit on their line of credit from $1,500,000 to $8,000,000, interest is variable. The line of credit matured on December 31, 2012, with all principal and accrued interest due in full. The note is secured by a deposit account held with a financial institution. $3,200,000 was drawn on the line of credit to pay off a long-term note payable (see Note 7). As a result, this amount has been reflected as a current

21

liability in the consolidated statements of financial position. The note was paid in full in November 2012. On September 1, 2012, the Organization acquired Germaine Lawrence, Inc., a Massachusetts nonprofit corporation, pursuant to a merger agreement under which Germaine Lawrence, Inc. was merged into the Organization. On the effective date of the merger, the separate existence of Germaine Lawrence, Inc. ceased, and the Organization continued as the surviving corporation. As a result of the merger, the Organization’s assets and liabilities increased by $13,170,000 and $5,127,000, respectively.

SUPPLEMENTAL INFORMATION


CONSOLIDATING SCHEDULE OF FINANCIAL POSITION

June 30, 2012

See independent auditor’s report.

23

Youth Villages Inc.

Youth Villages Foundation Inc. Eliminations Total

Current AssetsCash and cash equivalents 22,337,762$ 12,708,800$ -$ 35,046,562$ Receivables

Affiliate 7,023,629 - (7,023,629) - Promises to give, current portion - 1,720,225 - 1,720,225 Grantor agencies, net of allowance 27,564,654 - - 27,564,654

Investments - 65,894,106 - 65,894,106 Prepaid expenses 645,788 22,520 - 668,308

Total current assets 57,571,833 80,345,651 (7,023,629) 130,893,855

Property and EquipmentLand 7,487,974 - - 7,487,974 Buildings 59,671,799 - - 59,671,799 Equipment and vehicles 14,557,977 92,602 - 14,650,579 Furniture and fixtures 5,047,809 52,612 - 5,100,421 Construction in progress 990,505 - - 990,505

87,756,064 145,214 - 87,901,278 Accumulated depreciation (28,233,634) (51,439) - (28,285,073)

Total property and equipment 59,522,430 93,775 - 59,616,205

Other AssetsPromises to give, net of current portion - 1,608,336 - 1,608,336 Other 4,084,264 - - 4,084,264

Total other assets 4,084,264 1,608,336 - 5,692,600

Total assets 121,178,527$ 82,047,762$ (7,023,629)$ 196,202,660$

24

Youth Villages Inc.


Current LiabilitiesAccounts payable 3,241,722$ 71,739$ -$ 3,313,461$ Accounts payable - affiliate - 7,023,629 (7,023,629) - Accrued salaries and compensated absences 7,096,398 114,310 - 7,210,708 Accrued retirement plan contributions 1,596,783 32,172 - 1,628,955 Accrued and withheld taxes 785,314 16,994 - 802,308 Accrued other expenses 1,391,951 11,965 - 1,403,916

Note payable - short-term 3,200,000 - - 3,200,000

Total current liabilities 17,312,168 7,270,809 (7,023,629) 17,559,348

Net AssetsUnrestricted

Board designated 6,144,703 4,693,673 - 10,838,376 Unrestricted 97,721,656 63,545,549 - 161,267,205

Temporarily restricted - 6,459,731 - 6,459,731 Permanently restricted - 78,000 - 78,000

Total net assets 103,866,359 74,776,953 - 178,643,312

Total liabilities and net assets 121,178,527$ 82,047,762$ (7,023,629)$ 196,202,660$


CONSOLIDATING SCHEDULE OF ACTIVITIES

For the Year Ended June 30, 2012


25

Youth Villages Inc.


Unrestricted Net AssetsRevenues and Support

State of Tennessee pass-through programs 50,202,362$ -$ -$ 50,202,362$ Tenncare 19,281,725 - - 19,281,725 Net private insurance and Medicaid 76,000,311 - - 76,000,311 Grants 6,491,025 - - 6,491,025 USDA 910,942 - - 910,942 United Way - 155,457 - 155,457 Donations and pledges 16,274,623 13,023,314 (22,283,325) 7,014,612 Special events - 126,984 - 126,984 Investments 77,601 513,086 - 590,687 Net loss on investments - (498,748) - (498,748) Miscellaneous income 169,000 - - 169,000

169,407,589 13,320,093 (22,283,325) 160,444,357 Net assets released from restrictions - 8,122,774 - 8,122,774

Total revenues and support 169,407,589 21,442,867 (22,283,325) 168,567,131 Expenses

Charitable contributions 6,000,003 16,283,322 (22,283,325) - Program services 137,066,067 - - 137,066,067 Management and general 23,851,111 229,596 - 24,080,707 Fundraising - 3,721,705 - 3,721,705

Total expenses 166,917,181 20,234,623 (22,283,325) 164,868,479

Change in unrestricted net assets 2,490,408 1,208,244 - 3,698,652

Temporarily Restricted Net AssetsDonations and pledges - 8,829,609 - 8,829,609 Net assets released from restrictions - (8,122,774) - (8,122,774)

Change in temporarily restricted net assets - 706,835 - 706,835

Change in net assets 2,490,408 1,915,079 - 4,405,487

Net assets - beginning of year 101,375,951 72,861,874 - 174,237,825

Net assets - end of year 103,866,359$ 74,776,953$ -$ 178,643,312$


CONSOLIDATING SCHEDULE OF CASH FLOWS



26

Youth Villages Inc.


Cash Flows Provided By (Used For) Operating Activities:Change in net assets 2,490,408$ 1,915,079$ -$ 4,405,487$ Adjustments to reconcile change in net assets

to net cash provided by operating activities:Depreciation 5,241,602 9,376 - 5,250,978 Unrealized loss on investments - 415,146 - 415,146 Realized loss on investments - 83,602 - 83,602 Gain on disposal of equipment (16,726) - - (16,726) Changes in assets and liabilities:

Receivables (3,574,967) 831,706 - (2,743,261) Receivables - affiliate (276,643) - 276,643 - Prepaid expenses 147,303 21,479 - 168,782 Accounts payable (1,002,702) (45,514) - (1,048,216) Accounts payable - affiliate - 276,643 (276,643) - Accrued salaries and comp absences 690,309 9,261 - 699,570 Accrued retirement plan contributions 6,500 (2,416) - 4,084 Accrued and withheld taxes 68,328 461 - 68,789 Accrued other expenses 39,635 (8,406) - 31,229

Total adjustments 1,322,639 1,591,338 - 2,913,977

Net cash provided by operating activities 3,813,047 3,506,417 - 7,319,464

Cash Flows From (Used For) Investing Activities:Purchase of property and equipment (3,987,094) (45,755) - (4,032,849) Proceeds from the sale of equipment 60,092 - - 60,092 Purchase of securities - (12,855,738) - (12,855,738) Proceeds from sales of securities - 10,739,231 - 10,739,231 Increase in sundry assets (633,664) 3,439 - (630,225)

Net cash used for investing activities (4,560,666) (2,158,823) - (6,719,489)


CONSOLIDATING SCHEDULE OF CASH FLOWS (continued)



27

Youth Villages Inc.


Cash Flows From (Used For) Financing Activities:Principal payments on note payable (500,000) - - (500,000)

Net cash used for financing activities (500,000) - - (500,000)

Net increase (decrease) in cash and cash equivalents (1,247,619) 1,347,594 - 99,975

Cash and cash equivalents at beginning of the year 23,585,381 11,361,206 - 34,946,587

Cash and cash equivalents at end of the year 22,337,762$ 12,708,800$ -$ 35,046,562$

Supplemental Disclosure of Cash Flows Information:

Cash paid during year for interest 98,802 -$ -$ 98,802$

Non-Cash Financing Activity:

Debt due to a financial institution was refinanced 3,200,000$ -$ -$ 3,200,000$


CONSOLIDATED SCHEDULE OF FUNCTIONAL EXPENSES



28

BartlettDogwood Campus Deer Valley Boys CIRT Girls CIRT Marylhurst

Residential Residential Residential Residential Residential Residential

Salaries and wages 3,932,791$ 4,967,937$ 2,243,885$ 4,233,612$ 3,930,328$ 2,823,998$ Employee benefits 1,218,774 1,392,942 744,720 1,195,613 1,097,339 853,481 Clothing allowance 34,077 29,817 - - - - Communications 23,498 39,875 30,630 9,527 12,017 9,026 General insurance 64,855 108,560 24,339 38,336 38,168 10,539 Interest - 33,356 - 66,883 - - Miscellaneous 47,501 99,027 35,212 47,968 45,932 37,244 Professional services 131,852 149,466 8,851 112,200 120,802 420,074 Rent - - 1,373 - - 185 Repairs and maintenance 248,935 356,077 110,828 108,538 112,838 251,121 Supplies 543,198 614,510 378,381 536,552 510,083 304,792 Training and seminars - 10,528 - - - 11,443Travel 120,525 152,419 97,898 55,320 52,845 35,317 Bad debt expense 35,630 17,139 8,934 19,155 7,292 127,293Special event expense - - - - - - Utilities 141,867 254,496 102,041 160,104 151,586 32,929

Total functional expenses before depreciation 6,543,503 8,226,149 3,787,092 6,583,808 6,079,230 4,917,442

Depreciation 242,086 598,598 102,556 341,875 592,895 329,411

Total 6,785,589$ 8,824,747$ 3,889,648$ 6,925,683$ 6,672,125$ 5,246,853$


CONSOLIDATED SCHEDULE OF FUNCTIONAL EXPENSES (continued)



29

Therapeutic Cedar Bough Inner Foster Intercept Group Transitional

Residential Harbour care Program Homes Adoptions Living

Salaries and wages 992,765$ 7,782,271$ 5,041,955$ 25,832,304$ 4,410,950$ 375,467$ 6,515,103$ Employee benefits 339,390 2,333,575 1,336,968 6,963,265 1,166,325 96,653 1,782,417 Clothing allowance - - - - - - - Communications 6,539 17,851 120,294 753,876 70,429 4,723 83,755 General insurance 8,532 118,634 30,600 102,919 35,352 1,164 19,281 Interest - 6,563 - - - - - Miscellaneous 10,093 76,029 396,360 1,145,470 64,900 7,385 287,035 Professional services 65,770 519,698 6,019,776 863,919 75,716 72,413 34,058 Rent 286 13,593 259,874 2,024,356 18,399 - 222,341 Repairs and maintenance 74,539 405,649 133,372 904,187 167,006 - 52,302 Supplies 86,161 1,019,285 272,406 496,497 484,732 3,542 75,961 Training and seminars 2,904 - - - - - - Travel 30,142 156,449 722,136 4,820,693 141,648 24,255 950,853 Bad debt expense 6,755 401,219 8,052 484,901 5,068 - 33,900 Special event expense - - - - - - - Utilities 92,479 230,924 30,730 135,399 74,248 - 7,086

Total functional expenses before depreciation 1,716,355 13,081,740 14,372,523 44,527,786 6,714,773 585,602 10,064,092

Depreciation 97,253 890,857 27,527 355,976 240,928 - 47,058

Total 1,813,608$ 13,972,597$ 14,400,050$ 44,883,762$ 6,955,701$ 585,602$ 10,111,150$





30

TotalCare Crisis Program Management Total

Coordination Mentoring Services Services and General Fundraising Expenses

Salaries and wages 58,008$ 189,461$ 3,195,284$ 76,526,119$ 12,832,973$ 1,783,555$ 91,142,647$ Employee benefits 20,645 77,572 837,457 21,457,136 2,706,181 367,470 24,530,787 Clothing allowance - - - 63,894 - - 63,894 Communications 1,223 3,926 96,306 1,283,495 1,171,841 301,236 2,756,572 General insurance 216 2,880 8,592 612,967 236,329 - 849,296 Interest - - - 106,802 - - 106,802 Miscellaneous 252 19,517 31,659 2,351,584 373,615 - 2,725,199 Professional services 896,044 6,028 28,662 9,525,329 2,121,918 551,458 12,198,705 Rent - - 185,618 2,726,025 19,295 30,000 2,775,320 Repairs and maintenance - 990 45,589 2,971,971 1,151,829 68,267 4,192,067 Supplies 38 3,522 16,233 5,345,893 1,043,817 344,460 6,734,170 Training and seminars - - - 24,875 - - 24,875 Travel 1,725 9,000 236,575 7,607,800 695,837 58,256 8,361,893 Bad debt expense - - - 1,155,338 58,221 - 1,213,559 Special event expense - - - - - 207,628 207,628 Utilities - - 10,410 1,424,299 309,788 - 1,734,087

Total functional expenses before depreciation 978,151 312,896 4,692,385 133,183,527 22,721,644 3,712,330 159,617,501

Depreciation - - 15,520 3,882,540 1,359,063 9,375 5,250,978

Total 978,151$ 312,896$ 4,707,905$ 137,066,067$ 24,080,707$ 3,721,705$ 164,868,479$


CONSOLIDATED SCHEDULE OF FUNCTIONAL EXPENSES



31

Bartlett

Dogwood Campus Deer Valley Boys CIRT Girls CIRT MarylhurstResidential Residential Residential Residential Residential Residential

Salaries and benefits 3,842,173$ 4,808,560$ 2,170,619$ 4,066,815$ 3,674,060$ 210,640$ Employee benefits 1,074,981 1,431,699 643,018 1,295,671 1,044,584 59,823 Clothing allowance 30,808 27,467 - - - - Communications 31,612 42,805 27,937 16,558 15,362 553 General insurance 59,205 102,908 22,100 32,684 32,516 2,386 Interest - 16,660 - 31,476 2,009 - Miscellaneous 52,099 116,881 35,179 51,397 43,028 508 Professional services 142,508 188,124 (14,654) 110,260 170,979 29,540 Rent 2,164 1,745 1,380 - 226 - Repairs and maintenance 239,254 558,684 182,938 148,987 120,857 287 Supplies 647,281 624,739 322,402 534,827 576,714 18,238 Training and seminars - 10,397 - - - - Travel 116,457 162,231 105,813 47,696 39,649 1,874 Bad debt expense 42,498 49,602 1,690 35,701 95,585 - Special event expense - - - - - - Utilities 133,398 231,060 109,956 151,392 156,242 1,272

Total functional expenses before depreciation and amortization 6,414,438 8,373,562 3,608,378 6,523,464 5,971,811 325,121

Amortization - - - 16,671 - - Depreciation 190,583 584,065 146,691 337,446 629,204 21,420

Total depreciation and amortization 190,583 584,065 146,691 354,117 629,204 21,420

Total 6,605,021$ 8,957,627$ 3,755,069$ 6,877,581$ 6,601,015$ 346,541$





32

Therapeutic

Cedar Bough Inner Foster Intercept Group Transitional Residential Harbour Care Program Homes Adoptions Living

Salaries and benefits 107,172$ 8,204,593$ 4,818,956$ 24,277,587$ 3,443,851$ 359,807$ 4,714,739$ Employee benefits 30,290 2,307,186 1,298,064 6,526,034 938,752 92,769 1,161,283 Clothing allowance - - - - - - - Communications 198 24,254 148,350 723,498 64,809 3,081 57,710 General insurance 1,200 112,324 22,600 94,522 34,080 1,164 16,167 Interest - 10,352 - - - - - Miscellaneous 42 86,558 722,381 1,013,254 65,535 6,240 252,356 Professional services 18,533 543,374 5,523,108 813,177 69,435 140,535 38,900 Rent 109 18,123 227,969 2,075,663 18,000 - 140,351 Repairs and maintenance 16,826 468,659 174,186 793,025 187,365 1,240 47,169 Supplies 8,425 1,024,297 272,185 511,678 428,193 1,438 50,328 Training and seminars - - - - - - - Travel 957 148,253 670,526 4,926,439 139,959 23,126 646,166 Bad debt expense - 267,027 65,664 834,271 1,700 (11,400) - Special event expense - - - - - - - Utilities 6,583 268,904 33,260 131,521 68,085 - 1,920

Total functional expenses before depreciation and amortization 190,335 13,483,904 13,977,249 42,720,669 5,459,764 618,000 7,127,089

Amortization - - - - - - - Depreciation 6,512 780,188 44,399 441,586 193,423 - 46,293

Total depreciation and amortization 6,512 780,188 44,399 441,586 193,423 - 46,293

Total 196,847$ 14,264,092$ 14,021,648$ 43,162,255$ 5,653,187$ 618,000$ 7,173,382$





33

TotalCare Crisis Program Management Total

Coordination Mentoring Services Services and General Fundraising Expenses

Salaries and benefits 38,709$ 377,153$ 3,151,302$ 68,266,736$ 11,412,718$ 1,521,834$ 81,201,288$ Employee benefits 9,724 126,307 803,053 18,843,238 2,458,625 294,721 21,596,584 Clothing allowance - - - 58,275 - - 58,275 Communications 350 5,194 106,565 1,268,836 1,129,721 235,370 2,633,927 General insurance 216 2,880 8,592 545,544 185,126 - 730,670 Interest - - - 60,497 9,480 - 69,977 Miscellaneous 91 8,255 35,915 2,489,719 500,495 - 2,990,214 Professional services 774,525 2,804 27,447 8,578,595 2,218,233 127,479 10,924,307 Rent - - 178,035 2,663,765 32,119 30,000 2,725,884 Repairs and maintenance - - 67,110 3,006,587 938,018 34,016 3,978,621 Supplies 356 5,444 19,421 5,045,966 800,305 256,190 6,102,461 Training and seminars - - - 10,397 - - 10,397 Travel 5,100 17,871 224,638 7,276,755 792,513 53,245 8,122,513 Bad debt expense - - - 1,382,338 (189,366) - 1,192,972 Special event expense - - - - - 141,466 141,466 Utilities - - 13,410 1,307,003 289,187 717 1,596,907

Total functional expenses before depreciation and amortization 829,071 545,908 4,635,488 120,804,251 20,577,174 2,695,038 144,076,463

Amortization - - - 16,671 - - 16,671 Depreciation - - 28,993 3,450,803 1,441,751 9,737 4,902,291

Total depreciation and amortization - - 28,993 3,467,474 1,441,751 9,737 4,918,962

Total 829,071$ 545,908$ 4,664,481$ 124,271,725$ 22,018,925$ 2,704,775$ 148,995,425$


SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS


See independent auditor’s report and accompanying notes to the schedule.

34

Federal Grantor/ Account AccountCFDA Grantor Program Pass-through Receivable Qualifying Cash Receivable

Number Number Name Agency June 30, 2011 Expenditures Receipts June 30, 2012

U.S. Department of AgriculturePass-Through Programs From:

10.553 DP0101447 Nat'l Sch Lunch/ Brkfst Prog TN Dept of Agriculture 51,906$ 641,339$ 534,192$ 159,053$ 10.553 900686 Nat'l Sch Lunch/ Brkfst Prog GA Dept of Agriculture 12,716 196,558 192,930 16,344 10.553 303005 Nat'l Sch Lunch/ Brkfst Prog OR Dept of Agriculture 5,449 72,776 71,350 6,875

Total U.S. Department of Agriculture 70,071 910,673 798,472 182,272

U.S. Department of Justice16.541 2009-BI-BX-0333 NPS Excel Grant GA Dept of Juvenile Justice 13,636 13,604 27,240 -

U.S. Department of Health and Human ServicesDirect Programs From:

93.623 90CY2284-03 Runaway Homeless Youth U.S. Dept of Health andBasic Ctr Grant Program Human Svcs 8,333 100,000 100,000 8,333

Total Federal 93.623 CFDA 8,333 100,000 100,000 8,333

. Pass-Through Programs From:93.558 42700-040-5297 Intercept A GA Dept of Human Resources 702,000 1,704,900 1,572,700 834,200 93.558 42700-040-5297 Intercept B GA Dept of Human Resources 286,650 257,700 539,150 5,200

Total Federal 93.558 CFDA 988,650 1,962,600 2,111,850 839,400


SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS (continued)



35



93.658 3907 Statewide Therapeutic FC AL Dept of Human Resources 163,503 935,768 951,624 147,647 93.658 1184 Wrap Services in the Home AL Dept of Human Resources 325,469 773,800 1,027,955 71,314 93.658 3800 Wrap Services AL Dept of Human Resources 121,031 197,715 318,746 - 93.658 2006-096-2058 Juvenile Brd & Dept Dallas County ,TX 151,098 351,364 485,733 16,729 93.658 9038722104 Juvenile Prob Dept Navarro County,TX (179) 14,230 14,051 - 93.658 0002 07 19933 Int In-Home Svcs, Intercept Commonwealth of Mass DSS 327,224 5,673,499 5,233,983 766,740 93.658 0002 07 19933 Transitional Living Commonwealth of Mass DSS 61,919 452,925 444,494 70,350 93.658 0002 09 19933 Int In-Home Svcs, Intercept Mass Dept of Mental Health 159,134 969,520 988,533 140,121 93.658 10177/0906 FC, Title IV-E Comp

Residential Services MS Hum Svcs/Fam & Child Svcs 114,480 1,227,969 1,227,969 114,480 93.658 009D393A Intercept Reunification MS Hum Svcs/Fam & Child Svcs (57,024) - (57,024) - 93.658 4600016896 Comp Res Psych Tx AR Department of Human Services/

Division of Youth Svcs 3,850 16,450 20,300 - 93.658 Z08212410 Special Education TN Dept of Children's Services - 36,328 36,328 - 93.658 GR1132718 Mobile Crisis Services TN Dept of Mental Hlth & Dev 180,000 - 180,000 - 93.658 GR1235405 Mobile Crisis Services TN Dept of Mental Hlth & Dev - 1,080,000 990,000 90,000 93.658 GR06175605 Int In-Hm Svsc, Intercept Plt TN Dept of Children's Services 1,350 - 1,350 - 93.658 GR1029107 Int In-Hm Svcs, Intercept Plt TN Dept of Children's Services 2,550 - 2,550 - 93.658 GR1133062 Int In-Hm Svcs, Intercept Plt TN Dept of Children's Services 406,350 - 411,835 (5,485) 93.658 GR1236138 Int In-Hm Svcs, Intercept Plt TN Dept of Children's Services - 2,198,175 1,645,425 552,750





36



93.658 GR1133234 Transitional Living TN Dept of Children's Services 399,926 - 399,926 - 93.658 GR1236216 Transitional Living TN Dept of Children's Services - 2,165,000 2,165,000 - 93.658 GR1133492 Mentoring TN Dept of Children's Services 68,272 - 68,272 - 93.658 PFM000009 FC, Medically Fragile TN Dept of Mental Hlth & Dev - 349,268 302,834 46,434 93.658 PFM000013 FC, Medically Fragile TN Dept of Mental Hlth & Dev 68,739 - 55,771 12,968 93.658 P3N000018 FC Title IV-E Level 3 TN Dept of Children's Services 2,604,761 - 2,496,984 107,777 93.658 P3N000012 FC Title IV-E Level 4 TN Dept of Children's Services - 25,732,200 21,320,244 4,411,956 93.658 P3C000004 FC Title IV-E Level 3 Svcs TN Dept of Children's Services 6,437 - 6,612 (175) 93.658 P3C000023 FC Title IV-E Level 3 Svcs TN Dept of Children's Services 18,770 - 39,289 (20,519) 93.658 P2C000035 FC Title IV-E Level 2 Svcs TN Dept of Children's Services 1,419 6,843,840 5,686,408 1,158,851 93.658 PFC000056 FC Title IV-E Level 2 Svcs TN Dept of Children's Services 630,569 - 629,259 1,310 93.658 PFC4000039 FC Title IV-E Level 1 Svcs TN Dept of Children's Services 1,266 1,376,311 1,128,823 248,754 93.658 PFC4000064 FC Title IV-E Level 1 Svcs TN Dept of Children's Services 117,022 - 117,800 (778) 93.658 PL4000004 FC Title IV-E Level 4 TN Dept of Children's Services (10,325) 6,168,620 5,062,635 1,095,660 93.658 PL4000009 FC Title IV-E Level 4 TN Dept of Children's Services 254,550 - 254,198 352 93.658 P3N000001 FC Title IV-E SpNeeds Level 3 TN Dept of Children's Services 390 - 390 - 93.658 P4S000003 FC Title IV-E SpNeeds Level 4 TN Dept of Children's Services 11,027 3,078,349 2,348,653 740,723 93.658 P4S000006 FC Title IV-E SpNeeds Level 4 TN Dept of Children's Services 109,458 - 108,568 890 93.658 PL3000002 FC Title IV-E Level 3 Non-con TN Dept of Children's Services 1,575 - 1,785 (210)





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93.658 PL3000013 FC Title IV-E Level 3 Non-con TN Dept of Children's Services 4,875 - 4,875 - 93.658 P3SN00006 FC Title IV-E SpNeeds Level 3 TN Dept of Children's Services 50 2,432,100 2,033,725 398,425 93.658 P3SN00012 FC Title IV-E SpNeeds Level 3 TN Dept of Children's Services 232,550 - 224,025 8,525 93.658 U4S000042 FC Title IV-E Unique Care TN Dept of Children's Services 850 - - 850 93.658 U4S000040 FC Title IV-E Unique Care TN Dept of Children's Services 26,775 - 20,475 6,300 93.658 U4S000050 FC Title IV-E Unique Care TN Dept of Children's Services - 60,900 - 60,900

Total Federal 93.658 CFDA 6,509,711 62,134,331 58,400,403 10,243,639

93.887 C76HF16874 HRSA facilities grant - 60,347 60,347 - Total Federal 93.887 CFDA - 60,347 60,347 -

Total U.S. Department of Health and Human Services 7,506,694 64,257,278 60,672,600 11,091,372

U.S. Department of Community AffairsPass Through Programs From:

94.006 Americorp GA Dept of Community Affairs 53,242 303,309 298,779 57,772

Total Federal Awards 7,643,643 65,484,864 61,797,091 11,331,416





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State AwardsDistrict of Columbia

DCJZ2008-H-0016 Intensive Int Res Treatment Govern of District of Columbia 22,680 171,510 194,190 -

New Hampshire

N/A In-Home Comm Based SvcsNew Hampshire Div for Chld, Youth, &Fam & Div for Juvenile Justice Sv 150,042 518,396 640,450 27,988

Georgia Department of Juvenile Justice461-93-RBWO120088 Rm Board & Watchful Oversight Georgia Dept of Juvenile Justice 16,459 496,803 478,612 34,650 461-93-120170 EXCEL Leadership Program Georgia Dept of Juvenile Justice 160,649 1,708,520 1,651,302 217,867

N/AJuvenile Justice Fund: Angela's House Georgia Dept of Juvenile Justice 223,479 - 223,479 -

Georgia Department of Human Resources427-040-0000009400

Rm Board and Watchful Oversight GA Dept of Human Resources 184,936 823,059 883,471 124,524

441-93-1231024 PRTF GA Dept of Hum Rrs (DBHDD) 205,720 202,760 2,960

Georgia Parent Support NetworkN/A Child & Adolescent Crisis Beds Fulton County, GA 400 28,400 - 28,800





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Georgia Department of EducationN/A Educational Services Georgia Department of Education 124,220 1,230,697 1,354,917 -

Indiana Department of Child ServicesN/A Intercept Program Indiana Department of Child Services - 624,220 194,120 430,100

Total State Awards 1,088,585 5,601,605 5,823,301 866,889

TOTAL EXPENDITURES OF FEDERAL AND STATE AWARDS 8,732,228$ 71,086,469$ 67,620,392$ 12,198,305$


NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS


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NOTE 1 – BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal and State Awards includes the activity of all federal, state and other financial awards programs of Youth Villages, Inc. and Affiliate. Federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included on the schedule. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133 “Audits of States, Local Governments, and Non-Profit Organizations.” Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the consolidated financial statements. The ending balance at June 30, 2012 of $12,198,305 consists of grantor receivables included in the accompanying consolidated statements of financial position. Because the schedule presents only a selected portion of the operations of Youth Villages, Inc. and Affiliate, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Youth Villages, Inc. and Affiliate. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. NOTE 3 – ARKANSAS MEDICAID During 2012, the Organization received payments from the Arkansas Medicaid program in the amount of $10,171,350.

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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 Youth Villages, Inc. and Affiliate Memphis, Tennessee We have audited the consolidated financial statements of Youth Villages, Inc. and Affiliate (the “Organization”) as of and for the year ended June 30, 2012, and have issued our report thereon dated January 15, 2013. 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 Management of the Organization is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Organization’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

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Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization’s consolidated 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. This report is intended solely for the information and use of management, the Board of Directors, others within the Organization, 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. Memphis, Tennessee January 15, 2013

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INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON

INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

To the Board of Directors Youth Villages, Inc. and Affiliate Memphis, Tennessee Compliance We have audited Youth Villages, Inc. and Affiliate’s compliance (the “Organization”) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Youth Villages, Inc. and Affiliate’s major federal programs for the year ended June 30, 2012. Youth Villages, Inc. and Affiliate’s major federal programs are identified in the summary of audit 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 the Organization’s management. Our responsibility is to express an opinion on the Organization’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 the Organization’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 about the Organization’s compliance with those requirements. In our opinion, the Organization complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2012.

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Internal Control Over Compliance Management of the Organization 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 the Organization’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. The purpose of this report is solely to describe the scope of our testing of compliance with the types of compliance requirements applicable to Youth Villages, Inc. and Affiliate’s major program and our testing of internal control over compliance and the results of our testing, and to provide an opinion on the Organization’s compliance but not to provide an opinion on the effectiveness of the Organization’s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization’s compliance with requirements applicable to its major program and its internal control over compliance. Accordingly, this report is not suitable for any other purpose. Memphis Tennessee January 15, 2013

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS


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A. SUMMARY OF AUDIT RESULTS

1. The auditor’s report expresses an unqualified opinion on the consolidated financial statements of Youth Villages, Inc. and Affiliate.

2. No significant deficiencies or material weaknesses relating to the audit of the consolidated

financial statements are reported in the Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.

3. No instances of noncompliance material to the consolidated financial statements of Youth Villages, Inc. and Affiliate were disclosed during the audit.

4. No significant deficiencies or material weaknesses relating to the audit of the major federal award program are reported in the Independent Auditor’s Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133.

5. The auditor’s report on compliance for the major federal award program for Youth Villages,

Inc. and Affiliate expresses an unqualified opinion on the major federal program.

6. There were no audit findings required to be reported in accordance with Section 510(a) of OMB Circular A-133.

7. The program tested as a major program was the U.S. Department of Health and Human Services, Foster Care Title IV-E, CFDA No. 93.658.

8. The threshold for distinguishing between Type A and B programs was $1,964,546. 9. Youth Villages, Inc. and Affiliate was determined to be a low risk auditee.

B. FINDINGS – FINANCIAL STATEMENTS AUDIT

None C. FINDINGS AND QUESTIONED COSTS – MAJOR FEDERAL AWARD PROGRAM AUDIT

None


SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS


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There were no findings in the 2011 auditor’s report.

Documents

YOUTH VILLAGES, INC. AND AFFILIATE CONSOLIDATED … · YOUTH VILLAGES, INC. AND AFFILIATE CONSOLIDATED STATEMENTS OF ACTIVITIES For the Years Ended June 30, 2012 and 2011 The accompanying