REGION 16 EDUCATION SERVICE CENTER ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2011

Transcription

1 REGION 16 EDUCATION SERVICE CENTER ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2011

2 REGION 16 EDUCATION SERVICE CENTER ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2011 TABLE OF CONTENTS Exhibit Page CERTIFICATE OF BOARD 1 Independent Auditors' Report 23 Management's Discussion and Analysis 411 Basic Financial Statements GovernmentWide Statements: A1 Statement of Net Assets 12 B1 Statement of Activities 13 Governmental Fund Financial Statements: C1 Balance Sheet 1415 C2 Reconciliation for C1 16 C3 Statement of Revenues, Expenditures and Changes in Fund Balance 1718 C4 Reconciliation for C3 19 Proprietary Fund Financial Statements: D1 Statement of Net Assets 20 D2 Statement of Revenues, Expenditures and Changes in Fund Net Assets 21 D3 Statement of Cash Flows 22 Fiduciary Fund Financial Statements: E1 Statement of Net Assets 23 Notes to Financial Statements 2438 Required Supplementary Information G1 Budgetary Comparison Schedule General Fund 39 Combining Schedules Nonmajor Governmental Funds: H1 Combining Balance Sheet 4045 H2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 4651 Internal Service Funds: H3 Combining Statement of Net Assets 52 H4 Combining Statement of Revenues, Expenditures and Changes in Fund Net Assets 53 H5 Combining Statement of Cash Flows 54 Reports on Internal Controls, Compliance and Federal Awards Section Report on Compliance and Internal Control Over Financial Reporting Based on audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 5556 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 59 Summary Schedule of Prior Findings and Questioned Costs 60 Corrective Action Plan 61 K1 Schedule of Expenditures of Federal Awards 6264 Notes on Accounting Policies for Federal Awards 65

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4 UNQUALIFIED OPINION ON BASIC FINANCIAL STATEMENTS ACCOMPANIED BY REQUIRED SUPPLEMENTARY INFORMATION AND OTHER SUPPLEMENTARY INFORMATION INCLUDING THE SUPPLEMENTARY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Independent Auditor's Report Board of Directors Region 16 Education Service Center 5800 Bell Street Amarillo, Texas Members of the Board: We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Region 16 Education Service Center (the Center) as of and for the year ended August 31, 2011, which collectively comprise the Center's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Center's administrators. Our responsibility is to express an opinion on these financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Region 16 Education Service Center as of August 31, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Management s discussion and analysis and the budgetary comparison for the general fund on pages 4 through 11 and 39 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 2

5 In accordance with Government Auditing Standards, we have also issued our report dated January 6, 2012, on our consideration of the Center s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Region 16 Education Service Center basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A133, Audits of States, Local Governments, and NonProfit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Although the combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements, they have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. CORNELL & COMPANY, P.C. January 6,

6 REGION 16 EDUCATION SERVICE CENTER MANAGEMENT S DISCUSSION AND ANALYSIS This section of Region 16 Education Service Center s annual financial report presents our discussion and analysis of the Center s financial performance during the fiscal year ended August 31, Please read it in conjunction with the Center s financial statements, which follow this section. FINANCIAL HIGHLIGHTS The Center s total combined net assets were $14.05 million at August 31, This was an increase of approximately $271,000 (1.96%). During the year, the Center generated $34.59 million in grants, charges and other revenues for governmental activities. In comparison to the prior year, revenues decreased 0.6%, or approximately $208,000 and expenses decreased 0.5% also, or approximately $181,000. The general fund reported a fund balance this year of $3.2 million. This was an increase of approximately $368,000 (approximately 13%). However, the total governmental fund balance for the Center only increased approximately $127,000 (2.3%). OVERVIEW OF THE FINANCIAL STATEMENTS Figure A1. Required Components of the Center s Annual Financial Report This annual report consists of three parts management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the Center: The first two statements are governmentwide financial statements that provide both longterm and shortterm information about the Center s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the government, reporting the Center s operations in more detail than the governmentwide statements. The governmental funds statements tell how general government services were financed in the short term as well as what remains for future spending. Proprietary fund statements offer short and longterm financial information about the activities the government operates like businesses. Fiduciary fund statements provide information about the financial relationships in which the Center acts solely as a trustee or agent for the benefit of others, to whom the resources in question belong. 4

7 The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. Figure A1 shows how the required parts of this annual report are arranged and related to one another. Figure A2 summarizes the major features of the Center s financial statements, including the portion of the Center government they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis explains the structure and contents of each of the statements. Governmentwide Statements The governmentwide statements report information about the Center as a whole using accounting methods similar to those used by privatesector companies. The statement of net assets includes all of the government s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two governmentwide statements report the Center s net assets and how they have changed. Net assets the difference between the Center s assets and liabilities is one way to measure the Center s financial health or position. Over time, increases or decreases in the Center s net assets are an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the Center, you need to consider additional nonfinancial factors such as changes in the Center s client base or legislation that affects the Center. The Statement of Activities reflects services such as instructional, administrative, data processing, technology, special education, head start, adult education and general administration. Charges for services and grants finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the Center s most significant funds not the Center as a whole. Funds are accounting devices that the Center uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law. Figure A2. Major Features of the Center's Governmentwide and Fund Financial Statements Type of Statements Governmentwide Governmental Funds Fund Statements Proprietary Funds Fiduciary Funds Entire Center s government The activities of the center Activities the center Instances in which the Scope (except fiduciary funds) that are not proprietary or operates similar to private center is the trustee or and the Agency's component fiduciary businesses: wide area network agent for someone else's units resources Required financial statements Accounting basis and measurement focus Type of asset/liability information Type of inflow/outflow information Statement of net assets Balance sheet Statement of net assets Statement of fiduciary net assets Statement of activities Statement of revenues, Statement of revenues, Statement of changes expenditures & changes expenses and changes in in fiduciary net assets in fund balances fund net assets Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, shortterm and longterm All revenues and expenses during year, regardless of when cash is received or paid The Administration establishes other funds to control and manage money for particular purposes or to show that it is properly using certain fees and grants. 5 Modified accrual accounting and current financial resources focus Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter Statement of cash flows Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and shortterm and longterm All revenues and expenses during year, regardless of when cash is received or paid Accrual accounting and economic resources focus All assets and liabilities, both shortterm and longterm; the Agency's funds do not currently contain capital assets, although they can All revenues and expenses during year, regardless of when cash is received or paid

8 The Center has three kinds of funds: Governmental funds Most of the Center s basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at yearend that are available for spending. Consequently, the governmental fund statements provide a detailed shortterm view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Center s programs. Because this information does not encompass the additional longterm focus of the governmentwide statements, we provide additional information at the bottom of the governmental funds statement, or on the subsequent page, that explain the relationship (or differences) between them. Proprietary funds Proprietary funds, like the governmentwide statements, provide both longand shortterm financial information. The Center uses internal service funds to report activities that provide supplies and services for the Center s other programs and activities such as the print shop. Fiduciary funds The Center is the trustee, or fiduciary, for certain funds. The Center is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of the Center s fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. We exclude these activities from the Center s governmentwide financial statements because the Center cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE CENTER AS A WHOLE Net assets: The Center s combined net assets increased $271,000 between fiscal years 2010 and 2011 to approximately $14.05 million. (See Table A1) In comparison, last year net assets increased approximately $666,000. You will note that total assets decreased by 0.5%, or approximately $90,000, while total liabilities decreased by 12.5%, or approximately $360,000. The large decrease in liabilities was primarily due to a decrease in principal on the building note debt. Table A1 The District's Net Assets (in millions of dollars) Governmental Activities Total % Change Current and Other Assets % Capital and NonCurrent Assets % Total Assets % Current Liabilities % Long Term Liabilities % Total Liabilities % Net Assets Invested in Capital Assets net of related debt % Restricted % Unrestricted % Total Net Assets % 6

9 Changes in net assets: The Center s total revenues decreased 0.6% to $34.59 million. (See Table A2.) The majority of the Center s revenues, 82.1%, came from grants while 17.1 % related to charges for services. (See Figure A3.) The total cost of all programs and services increased 0.5% to $34.32 million. The majority of these costs, 47.06%, were for services related to instruction, curriculum and staff development and school district administrative support. Another 23.31% of these costs were for payments to member districts of shared service arrangements. The Center s revenues generated by charging for services decreased approximately $70,000 from the prior year. This was primarily due to decreased revenues from CSCOPE and Title I Stimulus Contracts services along with charging for fewer workshops. These decreases were offset by increased revenues for technology related services and business office support services. The Center s other revenues decreased $770,000 primarily due to a decrease in EDNET16 revenue. The Center s revenues from grants and contributions increased approximately $490,000 from the prior year. The primary reasons for the increase were due to the following programs: Increase in Migrant funds $449,000 Addition of Title II Secondary Math Teacher Support $97,000 Increase in Adult Education/TANF funds $358,000 Charges for Services 4.13 Grant revenue Other revenue 0.65 Investment earnings Investment 0.12 Investment earnings Other Earnings 0 Investment earnings Revenue 0.0% 0 Other 0.8% 0 Instruction 9.6 Extracurricular Activities 34.8 General Administration 30.3 Community Services 3 Grant Interest 6.1 Revenue Payment to charter schools 82.1% 21.9 Businesstype activities 11.3 Increase in TALA/ELAR/SLAR TEKS Training funds $227,000 Figure A3 Center Sources of Revenue for Fiscal Year 2011 Offset by decreases in Head Start ($116,000); Reading First ($99,000); Title II, Part D SSA ($137,000); and, Academy Teachers of Young Children ($95,000) Charges for Services 17.1% The Center s total expenditures for governmental activities increased approximately $180,000 from the prior year. This was primarily due to the increases in grant revenues described above, which resulted in direct increases in expenditures related to the respective programs. These increases were offset by decreased expenditures as the Center implemented spending cuts to prepare for pending revenue cuts as a result of a decrease in state funding. 7

10 Table A2 Changes in the District's Net Assets (in millions of dollars) Governmental Activities Total % Change Revenues Program Revenues Charges for Services % Operating Grants and Contributions % General Revenues Grants and Contributions not Restricted % Investment earnings % Miscellaneous Revenues % Total Revenues % Expenses Instruction % Instructional Resources & Media Services % Curriculum and Staff Development % Instructional Leadership % School Leadership % Guidance, Counseling & Evaluation Services % Social Work Services % Health Services % Food Services % General Administration % Plant Maintenance and Operations % Security and Monitoring Services % Data Processing Services % Community Serivces % District Administrative Support % Debt Service % Facilities Acquisition and Construction % Pmts to Fiscal Agent/member districts SSA % Depreciation Unallocated % Total Expenses % Excess (deficiency) in Net Assets % Increase (decrease) in Net Assets % FINANCIAL ANALYSIS OF THE CENTER S FUNDS As the Center completed the year, the governmental fund balances reported a combined fund balance of $5.76 million, approximately $127,000 more than the prior year. The revenues from governmental fund types totaled $34.68 million, a decrease of approximately $147,000, or 0.4%, from the preceding year. 8

11 Local revenue decreased approximately $533,000. This was primarily due to decreased revenues from the EDNET16 program. State revenues increased approximately $445,000 primarily due to an increase of state funds from TEA for the Adult Basic Education program. Federal revenue decreased approximately $60,000. Several programs experienced slight increases that were offset by other programs experiencing slight decreases or elimination. General Fund Budgetary Highlights Over the course of the year, the Center amended its budget several times. The primary budget revisions were due to the following reasons: Budgeted local revenues increased due to additional contract participation; decrease in expenditures due to delaying computer purchases and decrease in travel. Budgeted local expenditures increased due to legal fees related to employment issues; addition of centralized personnel in registration and purchasing; purchase of furniture and technology equipment; possible renovation of conference room area at Cleveland Street facility. Budgeted local expenditures decreased due to cost cutting measures taken with state funding issues. Budgeted local revenues and expenditures decreased as a result of workshop fees being eliminated. Budgeted local revenue decreased due to lower indirect cost being charged; expenditures increased due to TRS Onbehalf and Medicare B Onbehalf. After these adjustments, actual expenditures were approximately $333,000, or 3.9%, below final budget amounts. Revenues available were approximately $187,000, or 2.1%, above the final budgeted amount. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2011, the Center had invested $15.72 million in a broad range of capital assets, including land, buildings and furniture & equipment (See Table A3.) This amount represents a net increase (including additions and retirements) of approximately $200,000 or 1.3% from the prior year. The primary factor causing the increase in equipment was the purchase of furniture and equipment for the Adult Basic Education program. 9

12 Table A3 Center's Capital Assets (in millions of dollars) Governmental Activites Total % Change Land $ 0.42 $ % Buildings and improvements % Equipment % Construction in Progress 0.0% Totals at historical cost % Total accumulated depreciation (6.12) (5.87) 4.3% Net Capital assets % LongTerm Debt At yearend the Center had $1.43 million in lease payables outstanding as shown in Table A4. More detailed information about the Center s debt is presented in the Notes to the Financial Statements. Center's Long Term Debt (in millions of dollars) Total Total % Change Leases Payable % ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The Center will have changes in several grants for the fiscal year. They include: Loss of SSA Title II, Part D Vision 20/20 Grant $155,000 Loss of ESC School Tobacco Prevention Funding $83,000 Decrease in ESC State Funding $300,000 Decrease in Adult Basic Education Funding $170,000 Decrease in ECI funding $93,000 The Center will experience an increase in local funding due to a new one year Effective Strategies program that is expected to earn approximately $990,000 of revenue for The Center is also expecting an increase in Communication Technology revenue of approximately $360,000. These increases will be offset somewhat by a revenue decrease in Federal Programs/State Comp services and indirect cost revenue decrease in the General Fund. The Center s indirect cost (IDC) rate increased from 6.063% to 6.398%, effective July 1, The anticipated increase in IDC revenue caused by the higher rate will be offset by decreased grant funding. 10

13 CONTACTING THE CENTER S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, customers, and grantors and creditors with a general overview of the Center s finances and to demonstrate the Center s accountability for the money it receives. If you have questions about this report or need additional financial information, please contact the Center s Business Services Department. 11

14 BASIC FINANCIAL STATEMENTS

15 REGION 16 EDUCATION SERVICE CENTER STATEMENT OF NET ASSETS AUGUST 31, 2011 EXHIBIT A1 Data Control Codes Primary Government Governmental Activities ASSETS 1110 Cash and Cash Equivalents $ 1120 Current Investments 1240 Due from Other Governments 1290 Other Receivables, net 1300 Inventories 1410 Deferred Expenses Capital Assets: 1510 Land 1520 Buildings, Net 1530 Furniture and Equipment, Net 1580 Construction in Progress 1,339,867 2,337,649 2,187, , ,394 32, ,006 7,509,827 1,668,021 2, Total Assets 16,485,274 LIABILITIES 2110 Accounts Payable 2120 Short Term Debt Payable 2150 Payroll Deductions & Withholdings 2160 Accrued Wages Payable 2180 Due to Other Governments 2200 Accrued Expenses 2300 Deferred Revenues Noncurrent Liabilities 2501 Due Within One Year 2502 Due in More Than One Year 567, ,149 1,308 79,774 89,064 3,190 3, ,994 1,049, Total Liabilities 2,435,584 NET ASSETS 3200 Invested in Capital Assets, Net of Related Debt 3820 Restricted for Federal and State Programs 3890 Restricted for Other Purposes 3900 Unrestricted Net Assets 8,166,438 11,451 2,553,699 3,318, Total Net Assets $ 14,049,690 The notes to the financial statements are an integral part of this statement. 12

16 Data Control Codes Primary Government: REGION 16 EDUCATION SERVICE CENTER STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2011 Program Revenues EXHIBIT B1 Net (Expense) Revenue and Changes in Net Assets Expenses Charges for Services Operating Grants and Contributions Primary Gov. Governmental Activities GOVERNMENTAL ACTIVITIES: 11 Instruction $ 5,726,092 $ $ 5,823,874 $ 97, Instructional Resources and Media Services 116, ,807 47,218 37, Curriculum and Staff Development 5,968,568 1,289,453 4,235,068 (444,047) 21 Instructional Leadership 1,601, ,615 1,145,546 (242,172) 23 School Leadership 281, ,917 (1,033) 31 Guidance, Counseling and Evaluation Services 21,144 21, Social Work Services 226, ,926 (953) 33 Health Services 255, ,577 (2,144) 35 Food Services 263, , General Administration 1,801,012 97,100 (1,703,912) 51 Plant Maintenance and Operations 1,393, , ,681 (59,403) 52 Security and Monitoring Services Data Processing Services 1,891,369 1,762, ,293 (22,754) 61 Community Services 1,603,936 1,602,464 (1,472) 62 School District Administrative Support (ESC) 4,452,181 1,889,554 2,909, , Debt Service Interest on Long Term Debt 77,652 (77,652) 93 Payments related to Shared Services Arrangements 8,003,784 8,003, Depreciation Unallocated 634,324 (634,324) [TP] TOTAL PRIMARY GOVERNMENT: $ 34,321,117 $ 5,903,225 $ 25,710,112 (2,707,780) Data Control Codes GC IE MI TR General Revenues: Taxes: Grants and Contributions not Restricted Investment Earnings Miscellaneous Local and Intermediate Revenue Total General Revenues 2,685,824 6, ,852 2,978,514 CN NB Net AssetsBeginning Change in Net Assets 270,734 13,778,956 NE Net AssetsEnding $ 14,049,690 *Depreciation Unallocated above excludes direct depreciation expense of the various programs. The notes to the financial statements are an integral part of this statement. 13

17 REGION 16 EDUCATION SERVICE CENTER BALANCE SHEET GOVERNMENTAL FUNDS AUGUST 31, 2011 Data Control Codes 10 General Fund Major Sp Rev Head Start Major Sp Rev SSA Head Start ASSETS Cash and Cash Equivalents $ 2,142,104 $ 66,359 $ 59,048 Investments Current 392,872 Receivables from Other Governments 132, ,754 Due from Other Funds 338,723 15,225 Other Receivables 747, Inventories 9,725 Deferred Expenditures 20, Total Assets $ 3,783,115 $ 66,359 $ 414, LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 121,822 $ 11,405 $ 61,280 Short Term Debt Payable Current 125,060 Payroll Deductions and Withholdings Payable 1,308 Accrued Wages Payable 3,865 19,924 25,296 Due to Other Funds 329,716 33, ,462 Due to Other Governments Accrued Expenditures 1,115 2,045 Deferred Revenues 1, Total Liabilities 583,021 66, , Fund Balances: Nonspendable Fund Balance: Inventories Prepaid Items Other NonSpendable Fund Balance Restricted Fund Balance: Federal or State Funds Grant Restriction Other Restricted Fund Balance Committed Fund Balance: Construction Other Committed Fund Balance Assigned Fund Balance: Capital Expenditures for Equipment Other Assigned Fund Balance Unassigned Fund Balance 9,725 20, , , , , ,000 52, , Total Fund Balances 3,200, Total Liabilities and Fund Balances $ 3,783,115 $ 66,359 $ 414,083 The notes to the financial statements are an integral part of this statement. 14

18 EXHIBIT C1 Major Sp Rev EdNet 16 Other Funds Total Governmental Funds $ 146,136 $ (1,227,566) $ 1,186,081 1,944,777 2,337, ,820 1,591,616 2,187, , ,119 63, ,704 9,725 20,040 $ 2,214,733 $ 764,218 $ 7,242,508 $ $ 294,650 $ 489, ,060 1,308 27,031 76,116 1, ,119 40,768 48,296 89, ,190 2,000 3,250 40, ,033 1,477,264 9,725 20, ,582 11,451 11,451 2,173, ,734 3,004, , , ,000 52, ,447 2,173, ,185 5,765,244 $ 2,214,733 $ 764,218 $ 7,242,508 15

19 REGION 16 EDUCATION SERVICE CENTER RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS AUGUST 31, 2011 EXHIBIT C2 Total Fund Balances Governmental Funds 1 The Center uses internal service funds to charge the costs of certain activities, such as plant, print shop and computer operations, to appropriate functions in other funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. The net effect of this consolidation is to increase (decrease) net assets. 2 Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $14,454,208 and the accumulated depreciation was $(5,109,137). In addition, longterm liabilities $(1,800,750), including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and longterm debt in the governmental activities is to increase (decrease) net assets. 3 Current year capital outlays $467,582 and longterm debt principal payments $366,645 are expenditures in the fund financial statements,but they should be shown as increases in capital assets and reductions in longterm debt in the governmentwide financial statements. The net effect of including the 2011 capital outlays and debt principal payments is to increase (decrease) net assets. 4 The 2011 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to decrease net assets. $ 5,765, ,761 7,544, ,227 (634,324) 5 Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions, reclassifying the proceeds of bond sales as an increase in bonds payable, recognizng the basis of capital assets disposed of or sold during the year $(10,985), and recognizing the liabilities associated with maturing longterm debt and interest $(14,976). The net effect of these reclassifications and recognitions is to increase (decrease) net assets. 6 The Center used the modified accrual basis of accounting for recognized accrued vacation and compensation payables. The current portion of any vacation and compensated absences are recorded as a liability directly in the governmnetal fund to which it relates. The portion of the vacation and compensated absence liability which will not be paid from expendable and available resources in the governmental funds, (special revenue funds), are recorded in the General LongTerm Debt Account Group. The net effect is to (decrease) net assets. 19 Net Assets of Governmental Activities $ (25,961) (102,578) 14,049,690 The notes to the financial statements are an integral part of this statement. 16

20 Data Control Codes REGION 16 EDUCATION SERVICE CENTER STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, General Fund Major Sp Rev Head Start Major Sp Rev SSA Head Start REVENUES: Total Local and Intermediate Sources $ 5,792,962 $ $ State Program Revenues 2,290,613 Federal Program Revenues 870,868 5,113,800 9,787, Total Revenues 8,954,443 5,113,800 9,787,102 EXPENDITURES: Current: 0011 Instruction 0012 Instructional Resources and Media Services 0013 Curriculum and Instructional Staff Development 0021 Instructional Leadership 0023 School Leadership 0031 Guidance, Counseling and Evaluation Services 0032 Social Work Services 0033 Health Services 0035 Food Services 0041 General Administration 0051 Facilities Maintenance and Operations 0052 Security and Monitoring Services 0053 Data Processing Services 0061 Community Services 0062 School District Administrative Support (ESC Only Debt Service: 0071 Principal on Long Term Debt 0072 Interest on Long Term Debt Capital Outlay: 0081 Facilities Acquisition and Construction Intergovernmental: 0093 Payments to Fiscal Agent/Member Districts of SSA 78,449 2,813, ,511 72,916 43,353 1,605, , , , , , ,917 16, , ,186 28,404 1,799, , , , ,644, , ,760 1,614, , , ,645 84,655 89,127 7,081, Total Expenditures 8,593,114 5,113,800 9,787, Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): 7912 Sale of Real and Personal Property 7915 Transfers In 8911 Transfers Out (Use) 8949 Other (Uses) 361,329 4,070 2, Total Other Financing Sources (Uses) 7, Net Change in Fund Balances 368, Fund Balance September 1 (Beginning) 2,831, Fund Balance August 31 (Ending) $ 3,200,094 $ $ The notes to the financial statements are an integral part of this statement. 17

21 EXHIBIT C3 Major Sp Rev EdNet 16 Other Funds Total Governmental Funds $ 101,624 $ 931,338 $ 6,825,924 1,598,364 3,888,977 8,190,762 23,962, ,624 10,720,464 34,677,433 2,694,764 5,874, ,269 74,980 3,549,144 6,080, ,622 1,589, ,917 4,346 21, , , , , ,800,348 1, ,138 1,422, ,538 1,960, ,746 1,602,464 1,746,745 4,440, ,645 84,655 89, ,717 8,003, ,364 10,592,053 34,478,433 (290,740) 128, ,000 4,070 2,910 5,880 (2,970) (2,970) (78,667) (78,667) (78,727) (71,687) (290,740) 49, ,313 2,464, ,501 5,637,931 $ 2,173,965 $ 391,185 $ 5,765,244 18

22 EXHIBIT C4 REGION 16 EDUCATION SERVICE CENTER RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2011 Total Net Change in Fund Balances Governmental Funds The Center uses internal service funds to charge the costs of certain activities, such as plant, print shop and computer operations, to appropriate functions in other funds. The net income (loss) of internal service funds are reported with governmental activities. The net effect of this consolidation is to increase (decrease) net assets. $ 127,313 (38,432) Current year capital outlays $467,582 and longterm debt principal payments $366,645 are expenditures in the fund financial statements, but they should be shown as increases in capital assets and reductions in longterm debt in the governmentwide financial statements. The net effect of removing the 2011 capital outlays and debt principal payments is to increase (decrease) net assets. Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets. 834,227 (634,324) Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions, reclassifying the proceeds of bond sales, recognizing the basis of capital assets disposed of or sold during the year $(10,985), and recognizing the liabilities associated with maturing longterm debt and interest $7,003. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. The Center used the modified accrual basis of accounting for recognizing accrued vacation and compensation payables. The current portion of any compensated absences are recorded as a liability directly in the governmental fund to which it relates. The portion of the compensated absence liability which will not be paid from expendable and available resources in the governmental funds, (special revenue funds), are recorded in the General LongTerm Debt Account Group. The net effect of recording the current years (increase) decrease in the liability is to increase (decrease) net assets. Change in Net Assets of Governmental Activities $ (3,982) (14,068) 270,734 The notes to the financial statements are an integral part of this statement. 19

23 REGION 16 EDUCATION SERVICE CENTER STATEMENT OF NET ASSETS PROPRIETARY FUNDS AUGUST 31, 2011 EXHIBIT D1 Governmental Activities Total Internal Service Funds ASSETS Current Assets: Cash and Cash Equivalents $ Other Receivables Inventories Deferred Expenses Total Current Assets Noncurrent Assets: Capital Assets: Furniture and Equipment Depreciation on Furniture and Equipment District Defined Capital Assets Total Noncurrent Assets 153,786 38, ,669 11, , ,520 (489,436) 67, ,200 Total Assets 765,541 LIABILITIES Current Liabilities: Accounts Payable Short Term Debt Payable Accrued Wages Payable Deferred Revenues 78,061 14,511 3, NET ASSETS Total Liabilities 96,780 Investments in Capital Assets, Net of Debt Unrestricted Net Assets 433, ,562 Total Net Assets $ 668,761 The notes to the financial statements are an integral part of this statement. 20

24 REGION 16 EDUCATION SERVICE CENTER STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED AUGUST 31, 2011 EXHIBIT D2 OPERATING REVENUES: Local and Intermediate Sources $ Governmental Activities Total Internal Service Funds 1,872,878 Total Operating Revenues 1,872,878 OPERATING EXPENSES: Payroll Costs Professional and Contracted Services Supplies and Materials Other Operating Costs Depreciation Expense 703, , ,381 56, ,623 Total Operating Expenses 1,908,400 Income (Loss) Before Transfers (35,522) Transfer In Transfers Out Change in Net Assets Total Net Assets September 1 (Beginning) 15,655 (18,565) (38,432) 707,193 Total Net Assets August 31 (Ending) $ 668,761 The notes to the financial statements are an integral part of this statement. 21

25 REGION 16 EDUCATION SERVICE CENTER STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED AUGUST 31, 2011 EXHIBIT D3 Governmental Activities Total Internal Service Funds Cash Flows from Operating Activities: Cash Received from User Charges $ Cash Received from Assessments Other Funds Cash Payments to Employees for Services Cash Payments for Professional and Contracted Serv Cash Payments for Suppliers Cash Payments for Other Operating Expenses Net Cash Provided by Operating Activities Cash Flows from NonCapital Financing Activities: Operating Transfer Out Cash Flows from Capital & Related Financing Activities: Acquisition of Capital Assets 41,894 1,811,722 (703,367) (842,895) (181,738) (56,032) 69,584 (202,960) (236,046) Net Decrease in Cash and Cash Equivalents (369,422) Cash and Cash Equivalents at Beginning of Year 523,208 Cash and Cash Equivalents at End of Year $ 153,786 Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating Income (Loss): $ (35,522) Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Effect of Increases and Decreases in Current Assets and Liabilities: 103,623 Decrease (increase) in Receivables (19,462) Decrease (increase) in Inventories 10,643 Decrease (increase) in Prepaid Expenses (7,432) Increase (decrease) in Accounts Payable 17,083 Increase (decrease) in Vacation Payable (3,207) Increase (decrease) in Accrued Wages Payable 3,658 Increase (decrease) in Deferred Revenues 200 Net Cash Provided by Operating Activities $ 69,584 The notes to the financial statements are an integral part of this statement. 22

26 REGION 16 EDUCATION SERVICE CENTER STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2011 EXHIBIT E1 Agency Fund ASSETS Cash and Cash Equivalents $ Other Receivables 47,095 3,389 Total Assets $ 50,484 LIABILITIES Accounts Payable $ Due to Other Governments 1,627 48,857 Total Liabilities $ 50,484 The notes to the financial statements are an integral part of this statement. 23

27 REGION 16 EDUCATION SERVICE CENTER NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED AUGUST 31, 2011 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Region 16 Education Service Center (the "Center") is a public educational agency operating under the applicable laws and regulations of the State of Texas. It is governed by a seven member Board of Directors (the "Board") elected by the board of trustees of each Independent School District in the Center s region. The Center prepares its generalpurpose financial statements in conformity with generallyaccepted accounting principles promulgated by the Governmental Accounting Standards Board and other authoritative sources identified in Statement on Auditing Standards No. 69 of the American Institute of Certified Public Accountants; and it complies with the requirements of the appropriate version of Texas Education Agency's Financial Accountability System Resource Guide (the "Resource Guide") and the requirements of contracts and grants of agencies from which it receives funds. A. REPORTING ENTITY Because the Board of Directors (the "Board") is elected; has the authority to make decisions, appoint administrators and managers, and significantly influence operations; and has the primary accountability for fiscal matters; the Center is not included in any other governmental reporting entity as defined by the Governmental Accounting Standards Board ("GASB") in its Statement No. 14, "The Financial Reporting Entity." There are no component units included within the reporting entity. B. GOVERNMENTWIDE AND FUND FINANCIAL STATEMENTS The Statement of Net Assets and the Statement of Activities are governmentwide financial statements. They report information on all of the Center s nonfiduciary activities with most of the interfund activities removed. Governmental activities include programs supported primarily by grants and other intergovernmental revenues. Businesstype activities include operations that rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates how other people or entities that participate in programs the Center operates have shared in the payment of the direct costs. The "charges for services" column includes payments made by parties that purchase, use, or directly benefit from goods or services provided by a given function or segment of the Center. The "grants and contributions" column includes amounts paid by organizations outside the Center to help meet the operational or capital requirements of a given function. If a revenue is not a program revenue, it is a general revenue used to support all of the Center s functions. The Center does not allocate indirect expenses to functions in the statement of activities. Interfund activities between governmental funds and between governmental funds and proprietary funds appear as due to/due froms on the Governmental Fund Balance Sheet and Proprietary Fund Statement of Net Assets and as other resources and other uses on the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balance and on the Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets. All interfund transactions and between governmental funds and internal service funds are eliminated on the governmentwide statements. Interfund activities between governmental funds and enterprise funds remain on the governmentwide statements and appear on the governmentwide Statement of Net Assets as internal balances and on the Statement of Activities as interfund transfers. Interfund activities between governmental funds and fiduciary funds remain as due to/due froms on the governmentwide Statement of Activities. The fund financial statements provide reports on the financial condition and results of operations for three fund categories governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for Center operations, they are not included in the governmentwide statements. The Center considers some governmental and enterprise funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. All other revenues and expenses are nonoperating. 24

28 C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The governmentwide financial statements use the economic resources measurement focus and the accrual basis of accounting, as do the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of these funds present net increases and decreases in current assets (i.e., revenues and other financing sources and expenditures and other financing uses). The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on longterm debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The Center considers all revenues available if they are collectible within 60 days after year end. Revenues from local sources consist primarily of fees charged to school districts and revenues received from the State. These revenues are recognized under the susceptibletoaccrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as deferred revenues until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors sometimes require the Center to refund all or part of the unused amount. The Proprietary Fund Types and Fiduciary Funds are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. The Center applies all GASB pronouncements as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless these pronouncements conflict or contradict GASB pronouncements. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the fund Statement of Net Assets. The fund equity is segregated into invested in capital assets net of related debt, restricted net assets, and unrestricted net assets. D. FUND ACCOUNTING The Center reports the following major governmental funds: 1. The General Fund The general fund is the Center's primary operating fund. It accounts for all financial resources except those required to be accounted for in another fund. 2. Head Start This is a federal funded program. 3. SSA Head Start This is a shared service arrangement federally funded program. 4. EdNet 16 This is a local funded program. Additionally, the Center reports the following fund types: Governmental Funds: 1. Special Revenue Funds The Center accounts for resources restricted to, or designated for, specific purposes by the Center or a grantor in a special revenue fund. Most Federal, some State and some Local financial assistance is accounted for in a Special Revenue Fund, and sometimes unused balances must be returned to the grantor at the close of specified project periods. 25