Loading...
HomeMy WebLinkAboutIowa Legal Aid 2021 Audit Report Iowa Legal Aid Independent Auditor’s Reports and Consolidated Financial Statements December 31, 2021 Iowa Legal Aid December 31, 2021 Contents Independent Auditor’s Report ............................................................................................... 1 Financial Statements Consolidated Statement of Financial Position .................................................................................... 4 Consolidated Statement of Activities ................................................................................................. 5 Consolidated Statement of Functional Expenses ................................................................................ 6 Consolidated Statement of Cash Flows .............................................................................................. 7 Notes to Consolidated Financial Statements ...................................................................................... 8 Supplementary Information Schedule of Support, Revenue, and Expenses for LSC Funds ......................................................... 28 Schedule of Expenses Compared to Budget-AmeriCorps Grant Agreement .................................. 30 Schedule of Expenditures of Federal Awards .................................................................................. 30 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 – Independent Auditor’s Report ......................................................................................... 31 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance – Independent Auditor’s Report ............................ 33 Schedule of Expenditures of Federal Awards ................................................................... 36 Schedule of Findings and Questioned Costs .................................................................... 38 Summary Schedule of Prior Audit Findings ...................................................................... 41 Independent Auditor’s Report Board of Directors Iowa Legal Aid Des Moines, Iowa Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Iowa Legal Aid, which comprise the consolidated statement of financial position as of December 31, 2021, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Iowa Legal Aid, as of December 31, 2021, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are required to be independent of Iowa Legal Aid, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter Beginning net assets, before they were restated for the matter discussed in Note 16, were audited by other auditors, and their report thereon, dated April 16, 2021, expressed an unmodified opinion. Our opinion is not modified with respect to this mater. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Board of Directors Iowa Legal Aid Page 2 In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Iowa Legal Aid’s ability to continue as a going concern for one year after the date that the consolidated financial statements are available to be issued. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Iowa Legal Aid’s internal control. Accordingly, no such opinion is expressed.  Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.  Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Iowa Legal Aid’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. Board of Directors Iowa Legal Aid Page 3 Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information which comprises the schedule of support, revenue, and expenses for LSC funds; schedule of expenses compared to budget-AmeriCorps grant agreement; and schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The 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 accompanying supplementary information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 26, 2022, on our consideration of Iowa Legal Aid’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is solely 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 effectiveness of Iowa Legal Aid’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Iowa Legal Aid’s internal control over financial reporting and compliance. West Des Moines, Iowa April 26, 2022 Iowa Legal Aid Consolidated Statement of Financial Position December 31, 2021 See Notes to Consolidated Financial Statements 4 Assets 2021 Cash and cash equivalents 4,005,010$ Investments 6,205,904 Client trust funds 192,673 Grants and contributions receivable 3,840,093 Prepaid expenses 28,796 Property and equipment, net of accumulated depreciation 302,169 Total assets 14,574,645$ Liabilities and Net Assets LIABILITIES Accounts payable 82,929$ Accrued employee vacation 636,617 Deferred revenue 292,892 Client trust deposits 192,673 Capital lease payable 97,272 Total liabilities 1,302,383 NET ASSETS Without donor restrictions 7,624,476 With donor restrictions 5,647,786 Total net assets 13,272,262 Total liabilities and net assets 14,574,645$ Iowa Legal Aid Consolidated Statement of Activities Year Ended December 31, 2021 See Notes to Consolidated Financial Statements 5 Without Legal Other Total With Donor Services Donor Donor Restrictions Corporation Restricted Restriction 2021 PUBLIC SUPPORT AND REVENUE Public Support Annual Campaign 739,359$ -$ 1,500$ 1,500$ 740,859$ Legal Services Corporation - 4,287,420 - 4,287,420 4,287,420 Government agencies 733,241 - 4,316,665 4,316,665 5,049,906 Area Agencies on Aging 323,499 - - - 323,499 IOLTA - - 132,259 132,259 132,259 United Way 198,190 - 643,942 643,942 842,132 Other contributions 310,262 - 1,792,736 1,792,736 2,102,998 Donated support - 1,046,800 - 1,046,800 1,046,800 Total public support 2,304,551 5,334,220 6,887,102 12,221,322 14,525,873 Other revenue Investment return (95,015) 50,976 48,956 99,932 4,917 Fee awards 250 - - - 250 Miscellaneous 8,417 5,723 - 5,723 14,140 Total other revenue (86,348) 56,699 48,956 105,655 19,307 Net assets released from restrictions 10,978,665 (5,390,919) (5,587,746) (10,978,665) - Total public support and revenue 13,196,868 - 1,348,312 1,348,312 14,545,180 EXPENSES Program services 11,187,004 - - - 11,187,004 Supporting services 1,608,710 - - - 1,608,710 Total expenses 12,795,714 - - - 12,795,714 CHANGE IN NET ASSETS 401,154 - 1,348,312 1,348,312 1,749,466 Net Assets , Beginning of Year as Restated 7,223,322 - 4,299,474 4,299,474 11,522,796 Net Assets, End of Year 7,624,476$ -$ 5,647,786$ 5,647,786$ 13,272,262$ With Donor Restrictions Iowa Legal Aid Consolidated Statement of Functional Expenses Year Ended December 31, 2021 See Notes to Consolidated Financial Statements 6 Total Program Management Supporting Total Services and General Fundraising Services 2021 PERSONNEL EXPENSES Lawyers 4,277,388$ 437,051$ 151,095$ 588,146$ 4,865,534$ Paralegals 721,197 73,960 25,476 99,436 820,633 Other salaries 1,247,938 127,511 44,082 171,593 1,419,531 Employee benefits 2,479,002 253,297 87,568 340,865 2,819,867 Total personnel expenses 8,725,525 891,819 308,221 1,200,040 9,925,565 NONPERSONNEL EXPENSES Office and occupancy 858,017 92,732 27,646 120,378 978,395 Contract services 198,229 26,059 7,002 33,061 231,290 Supplies and travel 144,735 29,887 4,949 34,836 179,571 Library 90,650 - - - 90,650 Insurance 52,375 5,352 1,850 7,202 59,577 Audit fees - 33,550 - 33,550 33,550 Training and related 41,602 309 107 416 42,018 Dues and fees 15,472 3,009 547 3,556 19,028 Litigation 27,085 - - - 27,085 Other 7,917 739 280 1,019 8,936 Fundraising - - 33,659 33,659 33,659 Donated support 920,263 94,030 32,507 126,537 1,046,800 Total nonpersonnel expenses 2,356,345 285,667 108,547 394,214 2,750,559 Depreciation 105,134 10,742 3,714 14,456 119,590 Total expenses 11,187,004$ 1,188,228$ 420,482$ 1,608,710$ 12,795,714$ Supporting Services Iowa Legal Aid Consolidated Statement of Cash Flows Year Ended December 31, 2021 See Notes to Consolidated Financial Statements 7 2021 Operating Activities Change in net assets 1,749,466$ Adjustments to reconcile change in net assets to net cash flows from operating activities Depreciation 119,590 Realized and unrealized losses on investments 68,185 Reinvested dividends (91,016) Contributions restricted for endowments (18,200) Changes in Grants and contributions receivable (595,239) Prepaid expenses 33,440 Accounts payable 19,747 Accrued expenses (42,104) Deferred revenue (658,095) Net cash flows provided by operating activities 585,774 Investing Activities Purchase of investments (993,717) Maturities of investments 1,298,803 Purchase of property and equipment (188,190) Net cash flows provided by investing activities 116,896 Financing Activities Proceeds from contributions with perpetual restrictions 18,200 Principal payments on capital lease obligations (92,768) Net cash flows used in financing activities (74,568) Net Increase in Cash and Cash Equivalents 628,102 Cash and Cash Equivalents, Beginning of Year 3,376,908 Cash and Cash Equivalents, End of Year 4,005,010$ Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 8 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Iowa Legal Aid (the Organization) is a nonprofit corporation organized for the purpose of providing legal assistance in non-criminal proceedings or matters to persons financially unable to afford legal assistance in the State of Iowa. Iowa Legal Aid is principally funded through grants from the Legal Services Corporation (LSC), a nonprofit corporation established by Congress to administer a nationwide legal assistance program, and through funding from the State of Iowa. Principles of Consolidation The Iowa Legal Aid Foundation, a nonprofit organization, was formed with funding from donors. The Foundation’s purpose is to support the Organization and is wholly controlled by the Organization. The activities of the Foundation have been consolidated with the activities of the Organization. All material related party balances and transactions have been eliminated in consolidation. Use of Estimates The preparation 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 amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Organization considers all liquid investments with original maturities of three months or less to be cash equivalents. Uninvested cash and cash equivalents included in investment accounts, including endowment accounts and assets limited as to use, are not considered to be cash and cash equivalents. At December 31, 2021, cash equivalents consisted primarily of money market accounts. At December 31, 2021, the Organization’s cash accounts exceeded federally insured limits by approximately $3,568,000. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 9 Client Escrow Funds The Organization receives monies from clients for payment of certain court costs and litigation expenses. An attempt to return unexpected receipts in connect with representation to the client is made at the conclusion of the case. Unexpected funds that belong to a client who cannot be located are treated as donations to the Organization in accordance with the retainer agreement between the client and the program. Client funds are segregated from program funds and accordingly, at December 31, 2021, the Organization recorded a corresponding liability in the amount of the client escrow fund assets. Grants and Contributions Receivable Grants and contributions receivable are stated at net realizable value. An allowance for doubtful accounts is provided based upon management’s judgement, including such factors as prior history and nature of the contribution. The Organization considers all balances as of December 31, 2021 to be fully collectible and, therefore, no allowance for doubtful accounts has been recorded. Investments The Organization measures securities, other than investments that qualify for the equity method of accounting, at fair value. Investments in beneficial interests in net assets of Foundations are recorded at net asset value (NAV), as a practical expedient, to determine fair value of the investments. Net Investment Return Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments, less external and direct internal investment expenses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in net assets without donor restrictions. Other investment return is reflected in the statements of activities with or without donor restrictions based upon the existence and nature of any donor or legally imposed restrictions. The Organization maintains pooled investment accounts for its endowments. Investment income and realized and unrealized gains and losses from securities in the pooled investment accounts are allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investments accounts, as adjusted for additions to or deductions from those accounts. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 10 Property and Equipment Property and equipment acquisitions over $500 are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is charged to expense on the straight-line basis over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are amortized over the shorter of the lease term or respective estimated useful lives. Estimated useful lives of 5-10 years have been assigned to furniture, fixtures and equipment. Property and equipment acquired with LSC funds are considered to be owned by the Organization while used in the program or in future authorized programs. However, LSC has a reversionary interest in these assets with the right to determine the use of any proceeds from the sale of assets purchased with its funds. Long-Lived Asset Impairment The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset are less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the year ended December 31, 2021. Deferred Revenue Deferred revenue consists of grant proceeds received from conditional contributions for which the Organization has not overcome all material barriers in order to be entitled to funding. Net Assets Net assets, revenues, gains and losses are classified based on the existence or absence of restrictions. Net assets without donor restrictions are available for use in general operations and not subject to donor or grantor restrictions. The governing board has designated, from net assets without donor or grantor restrictions, net assets for an operating reserve and board-designated endowment. Net assets with donor restrictions are subject to donor or grantor restrictions. Some restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other restrictions are perpetual in nature, where the donor stipulates that resources be maintained in perpetuity. Property and equipment purchased with LSC funding are classified as net assets with donor restrictions, which are released from restriction as the related depreciation on such property and equipment is recognized. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 11 At its discretion, LSC may request reimbursement of expenses or the return of unexpended funds as a result of noncompliance by the Organization with the terms of the grant. In addition, if the Organization terminates its LSC grant activities, all unexpended funds are to be returned to LSC. The Organization recognizes interest on lawyer trust account (IOLTA) grant funds in the period received. Funds remaining unexpended at the end of an accounting period are recorded as net assets with donor restrictions until funds are expended in accordance with specific terms of the grant. Contributions Contributions are provided to the Organization either with or without restrictions placed on the gift by the donor. Revenues and net assets are separately reported to reflect the nature of those gifts – with or without donor restrictions. The value recorded for each contribution is recognized as follows: Nature of the Gift Value Recognized Conditional gifts, with or without restriction Gifts that depend on the Organization overcoming a donor imposed barrier to be entitled to the funds Not recognized until the gift becomes unconditional, i.e. the donor imposed barrier is met Unconditional gifts, with or without restriction Received at date of gift – cash and other assets Fair value Received at date of gift – property, equipment and long-lived assets Estimated fair value Expected to be collected within one year Net realizable value Collected in future years Initially reported at fair value determined using the discounted present value of estimated future cash flows technique In addition to the amount initially recognized, revenue for unconditional gifts to be collected in future years is also recognized each year as the present-value discount is amortized using the level- yield method. When a donor stipulated time restriction ends or purpose restriction is accomplished, net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the statements of activities as net assets released from restrictions. Absent explicit donor stipulations for the period of time that long-lived assets must be held, expirations of restrictions for gifts of land, buildings, equipment and other long-lived assets are reported when those assets are placed in service. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 12 Gifts and investment income that are originally restricted by the donor and for which the restriction is met in the same time period the gift is received are recorded as revenue with donor restrictions and then released from restriction. Conditional contributions and investment income having donor stipulations which are satisfied in the period the gift is received and the investment income is earned are recorded as revenue with donor restrictions and then released from restriction. Government Grants Support funded by grants is recognized as the Organization meets the conditions prescribed by the grant agreement, performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. The Organization recognizes grant funds from Legal Services Corporation (LSC) as restricted support when all material conditions have been met. Funds remaining unexpended at the end of an accounting period are recorded as deferred revenue. In accordance with normal LSC policies, the Organization may use unspent funds in future periods as long as expenses incurred are in compliance with the specified terms of the LSC grant as defined. LSC may, at its discretion, request reimbursement for expenses or return of funds, or both, as a result of noncompliance by the Organization with the terms of the grant. In addition, if the Organization terminates its LSC grant activities, all unexpended funds are to be returned to LSC. Income Taxes The Organization is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, the Organization is subject to federal income tax on any unrelated business taxable income. The Organization files tax returns in the U.S. federal jurisdiction. Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the statements of activities. The statements of functional expenses present the natural classification detail of expenses by function. Certain costs have been allocated among the program, management and general and fundraising categories based on the time and effort analysis and other methods. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 13 In some cases, common expenses are incurred which support the work performed under more than one grant. Such expenses are allocated between LSC funding and other grant funds as agreed by these funding sources or, in the absence of an agreement, on the basis of allocations which are deemed appropriate by the Organization’s management. Activities financed in party by LSC funds are carried out in a manner consistent with the LSC Act, regulations and appropriations riders, as amended. Activities financed by non-LSC sources of funding are carried out in accordance with the restrictions and requirements imposed by LSC regulations on the recipient’s other sources of funding. Non-LSC funding sources are notified by the Organization’s management prior to the granting of funds that no funding received will be used in a manner contrary to the LSC Act, regulations and appropriations rides, as amended. Note 2: Grants and Contributions Receivable Grants and contributions receivable consisted of the following at December 31, 2021: Appropriations from State of Iowa 1,314,601$ IOLTA (Interest on Lawyes Trsut Account) grants 66,630 United Way agency allocations 240,591 Legal Services Coporation 166,500 Billings on conditional grant awards 376,898 Other unconditional awards 1,674,873 3,840,093$ All balances are anticipated to be collected in the following year. The Organization has not recorded an allowance for uncollectible grants and contributions receivable as it believes all amounts will be collected. Note 3: Interest in Assets at Community Foundations Pooled investments are included under investments in statement of financial position and consist of assets held at the Quad Cities Community Foundation and the Cedar Rapids Community Foundation (the Community Foundation) under designated agency agreements. Pooled investments are carried at fair value, with gains and losses resulting from market fluctuations recognized in the period in which the fluctuations occur. Investment return is reported as an increase or decrease in net assets without donor restrictions unless the use of the assets is restricted by the donor and the restrictions have not been met in the reporting period in which the investment return was recognized. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 14 The Organization holds a share of the pooled funds and not direct ownership of the underlying investment. The funds are subject to policies and governing documents of the Community Foundation, including control over investment and asset management. Distributions from the fund are paid to the Organization according to the Community Foundation’s distribution policy. The Community Foundation maintains variance power over these assets. Variance power assures the donor that if the charitable purpose of the contribution becomes impractical, impossible or inconsistent with the charitable needs of the community served the distributions will be directed to similar purposes in the community. Despite the variance power, the Organization believes the Community Foundation will continue to make annual distributions to the Organization. The fair value of the retained beneficial interest included in the statements of financial position was $941,895 at December 31, 2021. Note 4: Property and Equipment Property and equipment at December 31, 2021 consists of: Non-LSC LSC Total Furniture and equipment 768,454$ 34,311$ 802,765$ Leasehold improvements 251,394 - 251,394 1,019,848 34,311 1,054,159 Less accumulated depreciation (742,683) (9,307) (751,990) Net property and equipment 277,165$ 25,004$ 302,169$ Note 5: Deferred Revenue The Organization has received the funds from various grants in which the Organization has not yet overcome all material barriers in order to be entitled to the funding. The Organization anticipates achieving these barriers in the upcoming fiscal year. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 15 Deferred revenue at December 31, 2021 consists of the following: LSC Farm Worker Program 210,022$ LSC Disaster Supplemental Grant 38,664 LSC Disater Project 34,420 LSC TIG 9,786 Total 292,892$ Note 6: Paycheck Protection Program Loan The Organization received a PPP loan established by the CARES Act and has elected to account for the funding as a conditional contribution by applying ASC Topic 958-605, Revenue Recognition. Revenue is recognized when conditions are met, which include meeting FTE and salary reduction requirements and incurring eligible expenditures. PPP loans are subject to audit and acceptance by the U.S. Department of Treasury, Small Business Administration, or lender; as a result of such audit, adjustments could be required to the recognition of revenue. The Organization concluded it had substantially met all requirements for forgiveness as of December 31, 2020 and, accordingly, recognized the award in the amount of $1,412,400 as public support from government agencies in the 2020 statement of activities. The Organization received formal forgiveness of the loan in 2021. Note 7: Operating Leases The Organization leases office space at its various office locations. The leases expire at various dates between 2022 and 2027. All leases may be canceled if all or part of LSC funding is eliminated, with periods ranging from 30 to 90 days. Future minimum lease payments at December 31, 2021, were: 2022 403,194$ 2023 256,278 2024 225,171 2025 196,143 2026 139,744 Thereafter 546,175 1,766,705$ Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 16 Note 8: Capital Leases The Organization leases telecommunications equipment under a capital lease agreement which expires in December 2022. The Organization retains ownership of the equipment at the end of the lease term. The assets and liabilities under the capital lease are recorded at the present value of the minimum lease payments. The leased assets are reported with property and equipment and are amortized over their estimated useful lives. Amortization of the assets under the capital lease is included in depreciation expense. Total assets under lease were $278,479 as of December 31, 2021. Minimum future lease payments under the capital lease as of December 31, 2021 are as follows: Total Less Portion Principal Required Representing Portion of Payments Interest Payments 2022 99,790$ 2,518$ 97,272$ Total 99,790$ 2,518$ 97,272$ Note 9: Employee Benefits Employees are credited with vacation from the first day of employment. Employees with less than five years with the Organization accrue 20 days per year; employees with five to ten years with the Organization accrue 24 days per year; and, employees with over ten years with the Organization accrue vacation leave at 30 days per year. The maximum number of vacation hours that can be accumulated and carried over into a new fiscal year per employee is 337.5 hours. The liability shown is the accumulation of vacation pay through December 31, 2021 of $636,617. The Organization has a 401(k) retirement plan for all eligible employees. All employees are eligible for the plan, except for leased employees and all non-salaried clerical employees and law clerks, following minimum service of six months. The employer contribution is 4.0%, with an additional match of up to 3.0% for employees making contributions to the retirement plan. The total net employer contributions to the retirement plan, including the employer match for the year ended December 31, 2021, was $431,349. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 17 Note 10: Contributed Nonfinancial Assets Donated Support Contributions of services are recognized as revenue at their estimated fair value only when the services received create or enhance nonfinancial assets or require specialized skills possessed by the individuals providing the service and the service would typically need to be purchased if not donated. The value of donated services is derived by the number of hours a private attorney or an in-house volunteer works on a case or activity multiplied by a predetermined hourly rate. The predetermined hourly rate of $243 for volunteer attorneys was determined by market data and industry standards. The value of donated services recognized in the statement of activities was $1,046,800 during 2021. Other Contributed Items Donations of property and equipment are recorded as support at their estimated fair value. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated assets are placed in service as instructed by the donor. The Organization reclassifies net assets with donor restrictions to net assets without donor restrictions at that time. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 18 Note 11: Net Assets Net Assets With Donor Restrictions Net assets with donor restrictions at December 31 are restricted for the following purposes or periods: Subject to expenditure for specified purpose IOLTA - BOA 9,383$ Parent representation 105,000 Public school legal clinics 30,000 Technology 20,000 Community stabilization 55,000 Housing 90,000 Disaster 7,764 Eviction diversion project 595,833 912,980 Subject to the passage of time Promises to give that are not restricted by donors but which are unavailable for expenditure until due 3,840,093 Other 125,092 3,965,185 Not subject to spending policy or appropriation Beneficial interest in assets held by the: Cedar Rapids Community Foundation 289,481 Quad Cities Community Foundation 480,140 769,621 5,647,786$ Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 19 Net Assets Without Donor Restrictions Net assets without donor restrictions at December 31 have been designated for the following purposes: Net Assts Without Donor Restrictions Undesignated 7,389,310$ Designated by the Board for Endowment 30,269 Invested in property and equipment, net of related debt 204,897 Net assets without donor restrictions 7,624,476$ Net Assets Released from Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. Expiration of time restriction 4,400,880$ Satisfaction of purpose restrictions Legal Services Corporation 5,390,919 IOLTA 406,902 COVID-19 51,106 Community stabilization 20,000 Expungement 4,577 Health and law 2,612 Hotline for older Iowans 10,000 Housing 579,582 Parent representation 26,753 Public school legal clinics 81,138 Technology 4,196 10,978,665$ Note 12: Endowment Funds The Organization’s governing body is subject to the Uniform Prudent Management of Institutional Funds Act (UPMIFA). As a result, the Organization classifies amounts in its donor-restricted endowment funds as net assets with donor restrictions because those net assets are time restricted until the governing body appropriates such amounts for expenditures. Most of those net assets also are subject to purpose restrictions that must be met before being reclassified as net assets without donor restrictions. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 20 Additionally, in accordance with UPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the Organization and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Organization 7. Investment policies of the Organization The Organization’s endowment consists of approximately 4 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The composition of net assets by type of endowment fund at December 31, 2021, was: Without With Donor Donor Restrictions Restrictions Total Board-designated endowment funds 30,269$ -$ 30,269$ Donor-restricted endowment funds - 769,621 769,621 Total endowment funds 30,269$ 769,621$ 799,890$ The change in endowment funds for the year ended December 31, 2021 is as follows: Without With Donor Donor Restrictions Restrictions Total Endowment net assets, beginning of year 26,936$ 721,993$ 748,929$ Investment return, net 3,333 64,342 67,675 Contributions - 18,200 18,200 Appropriation of endowment assets for expenditures - (34,914) (34,914) Endowment net assets, end of year 30,269$ 769,621$ 799,890$ Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 21 Investment and Spending Policies The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Organization must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the Organization’s policies, endowment assets are invested in a manner that is intended to produce results that produce maximum long-term investment returns. Actual returns and risk in any given year may vary. To satisfy its long-term rate of return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Organization targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Organization has a spending policy of appropriating for expenditure each year 4.5 percent of its endowment fund’s average fair value over the prior 20 quarters through the year end preceding the year in which expenditure is planned. In establishing this policy, the Organization considered the long-term expected return on its endowment. Accordingly, over the long term, the Organization expects the current spending policy to allow its endowment to grow at an average of 7.0 percent annually. This is consistent with the Organization’s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. Underwater Endowments The governing body of the Organization has interpreted UPMIFA as not requiring the maintenance of purchasing power of the original gift amount contributed to an endowment fund, unless a donor stipulates the contrary. As a result of this interpretation, when reviewing its donor-restricted endowment funds, the Organization considers a fund to be underwater if the fair value of the fund is less than the sum of a) the original value of initial and subsequent gift amounts donated to the fund and b) any accumulations to the fund that are required to be maintained in perpetuity in accordance with the direction of the applicable donor gift instrument. The Organization has interpreted UPMIFA to permit spending from underwater funds in accordance with the prudent measures required under the law. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 22 Note 13: Liquidity and Availability Financial assets available for general expenditure, that is, without donor or other restrictions limiting their use, within one year of December 31, 2021, comprise the following: Cash and cash equivalents 4,005,010$ Investments 6,205,904 Grants and contributions receivable 3,840,093 14,051,007 Less financial assets of Iowa Legal Aid Foundation (1,409,169) 12,641,838$ The Organization structures its financial assets to be available as its general expenditures, liabilities, and other obligations come due. The Organization invests cash in excess of daily requirements in various short-term investments. Iowa Legal Aid Foundation has a separate board that controls availability of funds to the Organization. The Organization may make grant requests to the Foundation for access to these funds. Note 14: Disclosures About Fair Value of Assets and Liabilities 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. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy comprises three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 23 Recurring Measurements The following table presents the fair value measurements of assets and liabilities recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2021: Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Investments Measured (Level 1) (Level 2) (Level 3) at NAV (A) December 31, 2021 U.S. Treasury Bills 5,129,051$ 5,129,051$ -$ -$ -$ Money market funds 134,958 134,958 - - - 5,264,009 5,264,009 - - - Interest in assets at Greater Cedar Rapids Community Foundation 461,755 - - - 461,755 Interest in assets at Quad Cities Community Foundation 480,140 - - - 480,140 Total Investments 6,205,904$ 5,264,009$ -$ -$ 941,895$ Fair Value Measurements Using Total Fair Value (A) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts included above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position. Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended December 31, 2021. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 24 Note 15: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Contributions Approximately 30% of the Organization’s public support for the year ended December 31, 2021 came from LSC. LSC provided the Organization funding of $4,287,420 for the year ended December 31, 2021. LSC funds are restricted to be used only for purposes authorized under the Legal Services Corporation Act, regulations and appropriations riders, as amended, including those contained in Section 509 of 110 Stat. 1321 (1996). Approximately 18% of the Organization’s public support for the year ended December 31, 2021 was from an appropriation from the State of Iowa’s General Assembly. The 2021 session of the Iowa General Assembly awarded Iowa Legal Aid $2,629,202. Funds are paid to Iowa Legal Aid quarterly and may be subject to de-appropriation. $1,314,601 of this award is included in grants and contributions receivable at December 31, 2021. General Litigation The Organization is subject to claims and lawsuits that arose primarily in the ordinary course of its activities. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the Organization. Events could occur that would change this estimate materially in the near term. Investments The Organization invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying statements of financial position. Note 16: Restatement of Beginning Balances Effective January 1, 2021, the Organization changed the reporting for Iowa Legal Aid Foundation, a financially interrelated organization to consolidate their activities. Previously, the Organization had reported such interest as an investment in the Iowa Legal Aid Foundation with changes in the Organization’s interest recorded through the statement of activities. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 25 The effects of the changes were as follows: Without With Donor Donor Restrictions Restrictions Total Beginning net assets at January 1, 2021, as previously reported 6,524,777$ 4,998,019$ 11,522,796$ Increase (decrease) beginning net assets as of January 1, 2021 698,545 (698,545) - Beginning net assets at January 1, 2021, as restated 7,223,322$ 4,299,474$ 11,522,796$ The effect on net assets without donor restrictions was an increase of $698,545 and the effect on net assets with donor restrictions was a decrease of the same amount. There was no effect on the change in net assets. Note 17: Subsequent Events Subsequent events have been evaluated through April 26, 2022, which is the date the financial statements were available to be issued. Subsequent to year end the Organization signed a 10 year, approximately $2,700,000, lease for a new office space in Des Moines, Iowa. The anticipated move in date is late 2022. Iowa Legal Aid Notes to Consolidated Financial Statements December 31, 2021 26 Note 18: Future Change in Accounting Principle Accounting for Leases The Financial Accounting Standards Board amended its standard related to the accounting for leases. Under the new standard, lessees will now be required to recognize substantially all leases on the statements of financial position as both a right-of-use asset and a liability. The standard has two types of leases for statements of activities recognition purposes: operating leases and finance leases. Operating leases will result in the recognition of a single lease expense on a straight-line basis over the lease term similar to the treatment for operating leases under existing standards. Finance leases will result in an accelerated expense similar to the accounting for capital leases under existing standards. The determination of lease classification as operating or finance will be done in a manner similar to existing standards. The new standard also contains amended guidance regarding the identification of embedded leases in service contracts and the identification of lease and nonlease components in an arrangement. The new standard is effective for annual periods beginning after December 15, 2021, and any interim periods within annual reporting periods that begin after December 15, 2022. The Organization is evaluating the effect the standard will have on the financial statements; however, the standard is expected to have a material effect on the financial statements due to the recognition of additional assets and liabilities for operating leases. Supplementary Information Iowa Legal Aid Schedule of Support, Revenue, and Expenses for LSC Funds Year Ended December 31, 2021 28 Basic Field Grant Private Attorney Involvement Farm Worker Project COVID-19 Response Grant - Agricultural Worker SUPPORT AND REVENUE Contributions 2,676,263$ 325,216$ 567,170$ 32,545$ Donated support - 1,046,800 - - Miscellaneous revenue 5,723 - - - Interest income 50,976 - - - Total support and revenue 2,732,962 1,372,016 567,170 32,545 PERSONNEL EXPENSES Lawyers 1,169,704 73,991 238,137 2,435 Paralegals 177,420 69,666 43 706 Other salaries 314,710 32,626 145,989 588 Employee benefits 666,086 82,060 128,499 1,583 Total personnel expenses 2,327,920 258,343 512,668 5,312 OTHER EXPENSES Office and occupancy 232,052 39,454 32,384 2,791 Contract services 47,192 7,112 7,755 11 Supplies and travel 33,582 7,740 4,749 24,465 Library 23,271 2,787 483 - Insurance 14,996 1,525 1,415 - Audit fees 8,313 1,032 1,125 - Training and related 6,465 2,833 1,373 - Dues and fees 802 97 - - Litigation 6,693 906 906 - Other expenses 1,833 (291) 302 (33) Donated support - 1,046,800 - - Total other expenses 375,199 1,109,995 50,492 27,234 Capital expenditures - - - - Depreciation 29,833 3,677 4,010 - Total Expenses 2,732,952$ 1,372,015$ 567,170$ 32,546$ Iowa Legal Aid Schedule of Support, Revenue, and Expenses for LSC Funds (continued) Year Ended December 31, 2021 29 Pro Bono Innovations Disaster Supplemental Grant Disaster Project Disaster Relief Emergency Grant Technology Improvement Grant Total 59,208$ 554,851$ 19,437$ 49,782$ 2,948$ 4,287,420$ - - - - - 1,046,800 - - - - - 5,723 - - - - - 50,976 59,208 554,851 19,437 49,782 2,948 5,390,919 33,450 100,271 13,371 16,391 1,567 1,649,317 2,352 66,393 - 15,712 - 332,292 - 59,869 - - 281 554,063 12,714 79,287 6,043 11,236 600 988,108 48,516 305,820 19,414 43,339 2,448 3,523,780 5,971 21,459 - 5,491 320 339,922 1,449 37,950 - - 61 101,530 888 800 - - 37 72,261 90 - - - 4 26,635 386 - - - 17 18,339 210 - - - 9 10,689 1,149 11,516 - 895 11 24,242 260 55 - - - 1,214 169 - - - 7 8,681 118 - 23 70 2 2,024 - - - - - 1,046,800 10,690 71,780 23 6,456 468 1,652,337 - 177,250 - - - 177,250 - - - - 32 37,552 59,206$ 554,850$ 19,437$ 49,795$ 2,948$ 5,390,919$ Iowa Legal Aid Schedule of Expenses Compared to Budget - AmeriCorps Grant Agreement For the Year Ended December 31, 2021 30 Cost Category Approved Budget Actual 9/1/2021 to 12/31/2021 Program Operating Costs 136,707$ 23,023$ Member Costs 224,590 62,616 Administrative Costs 8,994 2,560 Total 370,291$ 88,199$ Federal Share of Cost 180,892$ 51,487$ Grantee's Share of Cost 189,399 36,712 Total 370,291$ 88,199$ Contract # 21-AC-08 9/1/2021 through 12/31/2021 Cost Category Approved Budget Actual 9/1/2020 to 12/31/2020 Actual 1/1/2021 to 12/31/2021 Total Program Operating Costs 134,579$ 31,894$ 55,863$ 87,757$ Member Costs 199,797 67,313 114,063 181,376 Administrative Costs 8,426 2,135 6,291 8,426 Total 342,802$ 101,342$ 176,217$ 277,559$ Federal Share of Cost 168,618$ 69,748$ 98,870$ 168,618$ Grantee's Share of Cost 174,184 31,594 77,347 108,941 Total 342,802$ 101,342$ 176,217$ 277,559$ Contract # 20-AC-08 9/1/2020 through 12/31/2021 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 Independent Auditor’s Report Board of Directors Iowa Legal Aid Des Moines, Iowa We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the consolidated financial statements of Iowa Legal Aid, which comprise the Organization’s consolidated statement of financial position as of December 31, 2021, and the related statements of activities, functional expenses and cash flows for the year then ended and the related notes to the consolidated financial statements, and have issued our report thereon dated April 26, 2022, which contained an emphasis of matters paragraph regarding an error correction. Report on Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Organization’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s consolidated financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We identified certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs as item 2021-001, that we consider to be a significant deficiency. Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization’s consolidated financial statements are free from 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 consolidated financial statements. 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. Iowa Legal Aid’s Response to Findings Government Auditing Standards requires the auditor to perform limited procedures on the Organization’s response to the findings identified in our audit and described in the accompanying schedule of findings and questioned costs. The Organization’s response was not subjected to the other auditing procedures applied in the audit of the consolidated financial statements, and accordingly, we express no opinion on the response. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. West Des Moines, Iowa April 26, 2022 Report on Compliance for the Major Federal Program and Report on Internal Control over Compliance Independent Auditor’s Report Board of Directors Iowa Legal Aid Des Moines, Iowa Report on Compliance for the Major Federal Program Opinion on the Major Federal Program We have audited Iowa Legal Aid’s compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on Iowa Legal Aid’s major federal program for the year ended December 31, 2021. Iowa Legal Aid’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. In our opinion, Iowa Legal Aid complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2021. Basis for Opinion on the Major Federal Program We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the “Auditor’s Responsibilities for the Audit of Compliance” section of our report. We are required to be independent of Iowa Legal Aid and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of Iowa Legal Aid’s compliance with the compliance requirements referred to above. Responsibilities of Management for Compliance Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to Iowa Legal Aid’s federal programs. Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on Iowa Legal Aid’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material, if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about Iowa Legal Aid’s compliance with the requirements of the major federal program as a whole. In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding Iowa Legal Aid’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.  Obtain an understanding of Iowa Legal Aid’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of Iowa Legal Aid’s internal control over compliance. Accordingly, no such opinion is expressed. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit. Report on 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 a 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. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the “Auditor’s Responsibilities for the Audit of Compliance” section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified. Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. West Des Moines, Iowa April 26, 2022 Iowa Legal Aid Schedule of Expenditures of Federal Awards Year Ended December 31, 2021 36 Federal Assistance Pass-Through Entity Listing or Other Federal Federal Grantor/Program or Cluster Title Number Pass-Through Grantor Identifying Number Expenditures Legal Services Corporation Legal Assistance 09.516006 516006 3,013,824$ Migrant Project 09.516006 516006 567,170 COVID-19 Response Grant - Agricultural Worker 09.516006 516006 32,545 Midwest Disaster Coordination Project 09.516006 516006 19,437 Disaster Supplemental Appropriation Grant 09.516006 516006 554,851 Pro Bono Innovations 09.516006 516006 59,208 Technology Innovation Grant 09.516006 516006 2,948 Disaster Relief Emergency Grant (Derecho) 09.516006 516006 49,782 Total Legal Services Corporation 4,299,765 U.S. Department of Justice Legal Assistance for Victims 16.524 2015-WL-AX-0036 165,336 Crime Victim Assistance 16.575 Iowa Department of Justice 2019-V2-GX-0058 150,847 Crime Victim Assistance 16.575 Iowa Department of Justice 2020-V2-GX-0032 50,817 Justice Systems Responses to Families 16.021 Siouxland Human Investment Partnership 2017-FJ-AX-0010 15,821 Total U.S. Department of Justice 382,821 Internal Revenue Service Low Income Taxpayer Clinics 21.008 20-LITC0373-02-00 (416) Low Income Taxpayer Clinics 21.008 21-LITC0373-03-00 60,167 Total Internal Revenue Service 59,751 U.S. Department of Health & Human Services Aging Cluster Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers 93.044 Area Agencies on Aging Various 319,619 Total for Aging Cluster CFDA 93.044 319,619 477 Cluster Temporary Assistance for Needy Families 93.558 Iowa Department of Human Services DCAT5-19-003 68,751 Total for 477 Cluster CFDA 93.558 68,751 Total U.S. Department of Health & Human Services 388,370 Corporation for National and Community Service AmeriCorps 94.006 Iowa Commission on Volunteer Services 19-AC-08 23 AmeriCorps 94.006 Iowa Commission on Volunteer Services 20-AC-08 101,005 AmeriCorps 94.006 Iowa Commission on Volunteer Services 21-EV-01 2,880 AmeriCorps 94.006 Iowa Commission on Volunteer Services 21-AC-08 51,487 Total Corporation for National and Community Service 155,395 U.S. Department of Housing and Urban Development Emergency Solutions Grant 14.231 Iowa Finance Authority ESG -777054-21 81,278 COVID-19 Emergency Solutions Grant 14.231 Iowa Finance Authority ESG-CV-77054-20 199,711 Emergency Solutions Grant 14.231 Iowa Finance Authority 21-ILA 01 468,082 COVID-19 Education and Outreach Initiatives 14.416 FEO2100214 20,000 Education and Outreach Initiatives 14.416 FEIO20025 77,847 U.S. Department of Housing and Urban Development 846,918 U.S. Department of Veteran Affairs Supportive Services to Veterans Families Program 64.033 Primary Health Care 13-IA-103 26,681 Supportive Services to Veterans Families Program 64.033 Hawkeye Community Action Agency 15-IA-192 9,125 Supportive Services to Veterans Families Program 64.033 Family Alliance for Veterans 14-IA-191 264 Total U.S. Department of Veteran Affairs 36,070 Total Federal Awards 6,169,090$ Iowa Legal Aid Schedule of Expenditures of Federal Awards Year Ended December 31, 2021 37 Notes to Schedule 1. The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Iowa Legal Aid (the Organization) under programs of the federal government for the year ended June 30, 2021. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Organization, it is not intended to and does not present the financial position, changes in net position or cash flows of the Organization. 2. Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, or other applicable regulatory guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. The Organization has elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 3. The Organization did not pass through any federal awards to subrecipients during the year ended December 31, 2021. Iowa Legal Aid Schedule of Findings and Questioned Costs Year Ended December 31, 2021 38 Section I - Summary of Auditor’s Results Financial Statements 1. Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Qualified Adverse Disclaimer 2. Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Noncompliance material to the financial statements noted? Yes No Federal Awards 3. Internal control over major federal awards programs: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported 4. Type of auditor’s report issued on compliance for major federal awards program(s) were: Unmodified Qualified Adverse Disclaimer 5. Any audit findings required to be reported in accordance with 2 CFR 200.516(a)? Yes No Iowa Legal Aid Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2021 39 6. Identification of major federal programs: Name of Federal Program or Cluster Assistance Listing Number Legal Services Corporation 09.516006 7. Dollar threshold used to distinguish between Type A and Type B programs: $750,000. 8. Auditee qualified as a low-risk auditee? Yes No Iowa Legal Aid Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2021 40 Section II - Financial Statement Findings Reference Number Finding 2021-001 Significant Deficiency Finding: The Organization was incorrectly reporting a financially interrelated organization as an investment in net assets when it should have been consolidated as part of the Organization's financial statements. Criteria or specific requirement: Per FASB ASC 958-810-25, a nonprofit with a controlling financial interest in another nonprofit through direct or indirect ownership of a majority voting interest or sole corporate membership in that other nonprofit shall consolidate that other nonprofit, unless control does not rest with the majority owner or sole corporate member (for example, if the subsidiary is in legal reorganization or bankruptcy), in which case consolidation is prohibited, as discussed in paragraph 810-10- 15-10. Condition: The Organization improperly identified Iowa Legal Aid Foundation as a related, but not financially interrelated entity, when in fact, Iowa Legal Aid Foundation is a financially interrelated organization that meets the criteria for consolidation. Effect: The Organization was incorrectly reporting a Iowa Legal Aid Foundation as an investment in net assets when it should have been consolidated as part of the Organization's financial statements. Cause: While the Organization appoints the entire board for the Foundation, there is only one position that overlaps between the two boards. As such, it created the impression that control did not exist. Recommendation: The Organization should review any related entities and work through a detailed analysis in accordance with the guidance to verify proper treatment and inclusion in the Organization's financials. Views of Responsible Officials: The Organization agrees with the finding and has consolidated Iowa Legal Aid Foundation as part of it's financial statements. Section III - Federal Award Findings and Questioned Costs Reference Number Finding There were no findings to report. Iowa Legal Aid Summary of Prior Year Findings Year Ended December 31, 2021 41 Reference Number Finding Status 2021-001 Finding: Revenue Recognition Prior Year Recommendation: Revenue recognition determinations should be made by the finance department, in coordination with program and development staff, upon receipt of a grant award. Implemented