CFO Report

Dear Latin Academy Board:

It was to my surprise to be informed yesterday afternoon about our
upcoming board meeting agenda. In response, the following is my
summarized CFO report on our historical issues, our corrective action plans,
and our current challenges going forward and it's correction plans.
Historical Issues:
- Recently identified prior period non-business related expenses of
approximately $600K
- Incomplete accounting database and records for prior fiscal year
- New administrations transition
- Past due audit report of prior year
- Outstanding debt incurred by prior administration
- Lack of internal control processes within financial environment
Since our transition, we have done the following:
- Catch up and cleaned up prior fiscal year financial data and reports in
November 2015
- Engaged experienced auditor and complete prior year fiscal audit in
December 2015
- Established brand new accounting database and accounting infrastructure
to ensure full transparency and internal control in October 2015
- Implemented semi-automatic accounting process by following guidelines
from GCSA best practice financial policies, to ensure proper internal controls
are in place.
- Complied with APS reporting requirements, meeting their deadlines.
- Brought our current fiscal year financial records to current status.
Our continue challenges:
- Cash flow shortage caused with reduced APS QBE funding from January to
June with shortfall amount about $200K
- Cash flow shortage due to receiving 10 months of QBE funding to operate
with, while processing 12 monthly payrolls
- Outstanding debt on the books that resulted from historical issues
- Probation status placed by APS with regular monitoring requirements and
compliance

Our recommended corrective action plan to maintain the

sustainability of the school and generate positive cash flow:
- We have started weekly reports monitoring our current cash flow and
projecting future cash flows, along with creating proper cash flow
management systems to ensure positive cash flow in Dec 2015.
- With the reduced QBE funding started in January 2016, we have prepared
multiple current year budget amendment scenarios for the current year. Our
challenge, as presented to both management and to the finance committee
to review, is that the cuts will only affect the remainder of the fiscal year:
- Amendment with new QBE and initial expense cuts
- Amendment with new QBE, initial cuts and possible layoffs
- Amendment with new QBE, initial cuts and 2% pay cuts
- Amendment with new QBE, initial cuts and 5% pay cuts
- Amendment with new QBE, initial cuts and 10% pay cuts
- Amendment with new QBE, initial cuts and 2 layoffs
- Amendment with new QBE, initial cuts, 10% pay cuts and layoffs
- Amendment with new QBE for June, July and August 2016 without
cuts
- Testing model with old QBE for June, July and August 2016 without
cuts
- We have created 3-5 projections based on current status to see where our
financial projection will be. This was done based on the old QBE revenue.
- We have discussed a contingency plan based on increasing enrollment next
year, creating a debt reduction plan to address the historical outstanding
debts, and our action plan to get us back in compliance with APS during our
finance committee meetings.
With this report, it is in my professional opinion that with the proper expense
cuts and continuous close monitoring of our cash flow, we will be able to
achieve positive cash flow by the end of this fiscal year, which will ensure
continued financial substantiality and the school's survival.
Of course, the challenges that we are currently facing that were caused by
the historical issues are tough, but I strongly believe with the proper financial
management, we will regain financial healthiness.
This concludes my CFO report. Please let me know if you have any
questions. Thank you very much!
Candy Yu
CFO Consultant/Founder
Avolon Accounting & CFO Services (AABS LLC)