VALLEY VIEW INDEPENDENT SCHOOL DISTRICT

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2 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2011

3 Introductory Section

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6 LIST OF PRINCIPAL OFFICIALS AUGUST 31, 2011 Elected Officials Name Juan A. Pimentel Jose A. Rosillo Noe Reyes Frank Jimenez Efrain Perez Lucio B. Villagomez Prisciliano Trevino Office President Vice-President Secretary Asst. Secretary Member Member Member Appointed Officials Name Leonel Galaviz Position Superintendent 1

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9 Financial Section

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12 Management's Discussion and Analysis

13 VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 In this section of the Annual Financial and Compliance Report, we, the managers of VALLEY VIEW ISD, discuss and analyze the District's financial performance for the fiscal year ended August 31, Please read it in conjunction with the independent auditors' report on page 3, and the District's Basic Financial Statements, which begin on page 10. FINANCIAL HIGHLIGHTS The District's net assets at August 31, 2011 were $36,090,398 an increase of $1,610,012 as a result of this year's operations. During the year, the District had expenditures that were $1,438,018 less than the $53,714,426 generated in tax and other revenues for governmental programs. Total cost of all of the District's programs decreased by $82,035. The General Fund ended the year with a fund balance of $14,684,638. The resources available for appropriations were $355,186 million less than budgeted for the General Fund and $1,019,812 million more than actual expenditures for the year. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities on pages 10 and 11. These provide information about the activities of the District as a whole and present a longer-term view of the District's property and debt obligations and other financial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. Fund financial statements starting on page 12 report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds. For governmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. The remaining statements, fiduciary statements, provide financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside of the district. The notes to the financial statements starting on page 18 provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements. The combining statements for non-major funds contain even more information about the District's individual funds. These are not required by TEA. The sections labeled TEA Required Schedules and Federal Awards Section contain data used by monitoring or regulatory agencies for assurance that the District is using funds supplied in compliance with the terms of grants. Reporting the District as a Whole The Statement of Net Assets and the Statement of Activities The analysis of the District's overall financial condition and operations begins on page 5. Its primary purpose is to show whether the District is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the District's assets and liabilities at the end of the year while the Statement of Activities includes all the revenues and expenses generated by the District's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. The District's revenues are divided into those provided by outside parties who share the costs of some programs, such as tuition received from 5

14 VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 students from outside the district and grants provided by the U.S. Department of Education to assist children with disabilities of from disadvantaged backgrounds (program revenues), and revenues provided by the taxpayers or by TEA in equalization funding processes (general revenues). All the District's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the District's net assets and changes in them. The District's net assets (the difference between assets and liabilities) provide one measure of the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the District, however, you should consider non-financial factors as well, such as changes in the District's average daily attendance or its property tax base and the condition of the District's facilities. In the Statement of Net Assets and the Statement of Activities, the District reports one kind of activity: Governmental activities Most of the District's basic services are reported here, including the instruction, counseling, cocurricular activities, food services, transportation, maintenance, community services, and general administration. Property taxes, tuition, fees, and state and federal grants finance most of these activities. Reporting the District's Most Significant Funds Fund Financial Statements The fund financial statements begin on page 12 and provide detailed information about the most significant funds not the District as a whole. Laws and contracts require the District to establish some funds, such as grants received under the No Child Left Behind Act from the U.S. Department of Education. The District's administration establishes many other funds to help it control and manage money for particular purposes (like campus activities). The District's two kinds of funds governmental and proprietary use different accounting approaches. Governmental funds Most of the District's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future spending. The governmental fund statements provide a detailed short-term view of the District's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation schedules following each of the fund financial statements. Proprietary funds The District reports the activities for which it charges users (whether outside customers or other units of the District) in proprietary funds using the same accounting methods employed in the Statement of Net Assets and the Statement of Activities. In fact, the District's enterprise funds (one category of proprietary funds) are the business-type activities reported in the government-wide statements but containing more detail and additional information, such as cash flows. The internal service funds (the other category of proprietary funds) report activities that provide supplies and services for the District's other programs and activities such as the District's self-insurance programs, the print shop, and transportation. The District did not report any proprietary funds for the year ended August 31, The District as Trustee Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for monies held on behalf of third parties. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Assets on page 16. We exclude these resources from the District's other financial statements because the District cannot use these assets to finance its operations. The District is only responsible for ensuring that the assets reported in these funds are used for their intended purposes. 6

15 GOVERNMENT-WIDE FINANCIAL ANALYSIS VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 Our analysis focuses on the net assets (Table A-1) and changes in net assets (Table A-2) of the District's governmental and business-type activities. Net assets of the District's governmental activities increased from $34,480,385 to $36,090,397. This increase of $1,610,012 in governmental net assets was the result of an increase in tax collection efforts, increase in student growth and also a decrease in construction spending. Unrestricted net assets the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements was $12,560,992 at August 31, This amount does not reflect the available funds for future operations of the district. Table A-1 Valley View School District's Net Assets (In dollars) Governmental Activities Increase / Decrease Current assets: Cash and cash equivalents $ 19,446,891 $ 21,445,951 $ (1,999,060) Current Investments $ 2,250,000 $ - 2,250,000 Due from other governments 2,420, ,731 1,523,205 Accrued Interest Inventory 74,976 64,577 10,399 Property taxes receivable 919, ,731 21,483 Other receivables 335,150 93, ,899 Total current assets 25,447,167 23,399,241 2,047,926 Noncurrent assets: Deferred expenses 311, ,088 21,631 Capitalized Bonds and Other Issuance 761, ,945 (40,571) Capital Assets 92,188,914 91,012,595 1,176,319 Less accumulated depreciation (21,586,822) (18,351,328) (3,235,494) Total noncurrent assets 71,675,185 73,753,300 (2,078,115) Total assets $ 97,122,352 $ 97,152,541 $ (30,189) Current liabilities: Accounts Payable $ 123,770 $ 222,637 $ (98,867) Interest Payable 195, ,409 (5,101) Accrued liabilities 1,169,827 1,142,694 27,133 Due to other governments 484, ,212 24,293 Due to Students Groups (738) Deferred revenue 3,253,868 2,954, ,110 Notes due within one year 1,736,368 1,690,368 46,000 Total current liabilities 6,963,646 6,671, ,830 Long-term liabilities: Notes due in more than one year 54,068,319 56,021,849 (1,953,530) Total liabilities 61,031,965 62,693,665 (1,661,700) Net Assets: Invested in capital assets 18,626,213 19,662,678 (1,036,465) Restricted for: State and federal programs 913, ,898 (82,510) Debt service 2,763,480 2,216, ,472 Capital projects 1,226,324 1,281,346 (55,022) Other Purposes Unrestricted 12,560,992 10,324,455 2,236,537 Total Net Assets $ 36,090,397 $ 34,480,385 $ 1,610,012 7

16 VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 Referring to Table A-2, the District's total revenues increased by 1.37 percent or $723,591. The total cost of all programs and services was higher than last year due primarily to increased instructional costs, curriculum costs and maintenance & transportation costs. The cost of all governmental activities this year was $52,276,408 compared to $52,358,443 last year. However as shown in the Statement of Activities on page 10, the amount that our taxpayers ultimately financed for these activities through District taxes was only $4,460,956 because some of the costs were paid by those who directly benefited from the programs or by other governments and organizations that subsidized certain programs with grants and contributions or by State equalization funding. Table A-2 Valley View School District's Net Assets (In dollars) Governmental Activities Increase / Decrease Program Revenues: Charges for Services $ 105,337 $ 101,512 $ 3,825 Operating Grants and Contributions 8,117,981 10,762,400 (2,644,419) Capital Grants and Contributions General Revenues Property Taxes, Levied for general purposes 4,460,956 4,504,766 (43,810) Property Taxes, Levied for Debt Service 1,187,647 1,127,119 60,528 Investments Earnings 25,734 48,659 (22,925) Grants & Contributions not restricted to specific programs 39,692,844 36,374,181 3,318,663 Miscellaneous 123,927 72,198 51,729 Total Revenues $ 53,714,426 $ 52,990,835 $ 723,591 Instruction $ 28,299,164 $ 29,758,644 $ (1,459,480) Instructional Resources and Media Services 918, , ,423 Curriculum Dev. And Instructional Staff Dev. 555, , ,288 Instructional Leadership 853, , ,900 School Leadership 2,672,507 2,211, ,361 Guidance, Counseling and Evaluation Services 1,489,143 1,465,948 23,195 Health Services 702, , ,301 Student (Pupil) Transportation 1,683,222 1,248, ,633 Food Services 3,642,428 3,588,445 53,983 Curricular/Extracurricular Activities 1,477,796 1,468,176 9,620 General Administration 1,513,644 1,398, ,892 Plant Maintenance & Oper. 4,252,816 4,040, ,368 Security & Monitoring Svcs. 560, ,872 19,291 Data Processing Services 503, ,516 (54,998) Community Services 547, , ,801 Interest on long-term debt 2,493,682 2,770,536 (276,854) Bond issuance costs and fees 46,153 55,679 (9,526) Capital Outlay 65, ,492 (359,793) Payments to Juvenile Justice Alternative Ed. Programs - 10,440 (10,440) Total Expenses $ 52,276,408 $ 52,358,443 $ (82,035) Excess (Deficiency) Before Other Resources, 1,438, , ,626 Increase (Decrease) in Net Assets 1,438, , ,626 Net Assets Beginning-Restated 34,652,380 33,847, ,388 Net Assets Ending $ 36,090,398 $ 34,480,384 $ 1,610,014 8

17 VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 THE DISTRICT'S FUNDS As the District completed the year, its governmental funds as presented in the balance sheet on page 12 reported a combined fund balance of $26,783,621, which is greater than last year's total of $24,353,891. Over the course of the year, the Board of Trustees revised the District's budget several times. These budget amendments fall into two categories. The first category involved amendments moving funds from programs that did not need all the resources originally appropriated to them to programs with resource needs. The second category involves budgeting for additional state foundation revenues. The District's General Fund balance of $14,684,638 reported on page 14 differs from the General Fund's budgetary fund balance of $13,664,826 reported in the budgetary comparison schedule on page 32. This is principally due to cost savings and added revenues during the school year. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2011, the District had $70,602,092 invested in a broad range of capital assets, including facilities and equipment for instruction, transportation, administration, and maintenance. This amount represents a net decrease of just over $2,059,175, or 2.83 percent, below last year. Table A-3 District's Capital Assets (In dollars) Governmental Activities Increase / Decrease Land $ 4,724,213 $ 4,724,212 $ 1 Construction in progress - 11,243,468 (11,243,468) Building and improvements 64,655,307 70,405,962 (5,750,655) Vehicles 3,135,360 3,135,360 - Equipment 4,891,174 1,503,593 3,387,581 Totals at historical cost 92,188,914 91,012,595 1,176,319 Total accumulated depreciation (21,586,822) (18,351,328) (3,235,494) Net capital assets $ 70,602,092 $ 72,661,267 $ (2,059,175) More detailed information about the District's capital assets is presented in Note D to the financial statements. 9

18 VALLEY VIEW ISD MANAGEMENT'S DISCUSSION AND ANALYSIS AUGUST 31, 2011 Debt At year-end, the District had $55,804,687 in bonds and notes outstanding versus $57,712,217 last year a decrease of 3.3 percent. The District's general obligation bond rating has been the highest possible, according to national rating agencies. Table A-4 District's Long Term Debt (In dollars) Governmental Activities Increase / Decrease Bonds payable $ 55,804,687 $ 57,712,217 $ (1,907,530) Total Bonds & notes payable $ 55,804,687 $ 57,712,217 $ (1,907,530) ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The District's elected and appointed officials considered many factors when setting the fiscal-year 2012 budget and tax rates. One of those factors is the economy. The District's population growth has hit a plateau after having risen rather quickly during , which averaged annual gains of 8 percent. Current population growth rates have averaged 2 percent since The economic impact of potential budget cuts at federal, state and local levels will greatly influence next year s budget fiscalyear ending These indicators are being taken into account when adopting the General Fund budget for Amounts available for appropriation in the General Fund budget are $39.8 million, a decrease of 9.7 percent under the final 2011 budget of $41 million. Property taxes (benefiting from the 2011 increases in assessed valuations), State per capita payments, and grant revenue (boosted by increase in students and State Foundation Program Aid funding) account for majority of the revenue increase. The District will use its revenues to finance programs in the coming year we currently offer. Wages and benefits costs might increase as a whole depending on the turnover rate. The District has added no major new programs or initiatives to the 2012 budget. If these estimates are realized, the District's budgetary General Fund balance is expected to increase minimally by the close of CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the District's Business Office, at VALLEY VIEW ISD, 9701 S. Jackson Road, Pharr, Texas,

19 Basic Financial Statements

20 STATEMENT OF NET ASSETS AUGUST 31, 2011 EXHIBIT A-1 1 Data Control Governmental Codes Activities ASSETS: 1110 Cash and Cash Equivalents $ 19,446, Current Investments 2,250, Property Taxes Receivable (Net) 919, Due from Other Governments 2,420, Other Receivables (Net) 335, Inventories 74, Deferred Expenses 311, Capitalized Bond and Other Debt Issuance Costs 761,374 Capital Assets: 1510 Land 4,724, Buildings and Improvements, Net 64,655, Furniture and Equipment, Net 1,222, Total Assets 97,122,363 LIABILITIES: 2110 Accounts Payable 123, Interest Payable 195, Accrued Liabilities 1,169, Due to Other Governments 484, Unearned Revenue 3,253,868 Noncurrent Liabilities: 2501 Due Within One Year 1,736, Due in More Than One Year 54,068, Total Liabilities 61,031,965 NET ASSETS 3200 Invested in Capital Assets, Net of Related Debt 18,626,213 Restricted For: 3820 State and Federal Programs 913, Debt Service 2,763, Capital Projects 1,226, Unrestricted 12,560, Total Net Assets $ 36,090,398 The accompanying notes are an integral part of this statement. 11

21 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2011 EXHIBIT B-1 Net (Expense) Revenue and Changes in Program Revenues Net Assets Data Operating Control Charges for Grants and Governmental Codes Functions/Programs Expenses Services Contributions Activities Governmental Activities: 11 Instruction $ 28,299,164 $ -- $ 1,932,116 $ (26,367,048) 12 Instructional Resources and Media Services 918, ,776 (179,381) 13 Curriculum and Staff Development 555, ,091 (541,046) 21 Instructional Leadership 853, ,978 (843,690) 23 School Leadership 2,672, ,420 (2,521,087) 31 Guidance, Counseling, & Evaluation Services 1,489, ,392 (1,398,751) 33 Health Services 702, ,791 (667,510) 34 Student Transportation 1,683, ,696 (1,597,526) 35 Food Service 3,642,428 62,465 1,313,949 (2,266,014) 36 Cocurricular/Extracurricular Activities 1,477,796 36,634 11,094 (1,430,068) 41 General Administration 1,513, ,928 (1,437,716) 51 Plant Maintenance and Operations 4,252,816 6, ,910 (3,922,668) 52 Security and Monitoring Services 560, ,002 (531,161) 53 Data Processing Services 503, ,054 (335,464) 61 Community Services 547, (547,162) 72 Interest on Long-term Debt 2,493, ,138, , Bond Issuance Costs and Fees 46, (46,153) 81 Capital Outlay 65, (65,556) TG Total Governmental Activities 52,276, ,337 8,117,981 (44,053,090) TP Total Primary Government $ 52,276,408 $ 105,337 $ 8,117,981 (44,053,090) General Revenues: MT Property Taxes, Levied for General Purposes 4,460,956 DT Property Taxes, Levied for Debt Service 1,187,647 IE Investment Earnings 25,734 GC Grants and Contributions Not Restricted to Specific Programs 39,692,844 MI Miscellaneous 123,927 TR Total General Revenues 45,491,108 CN Change in Net Assets 1,438,018 NB Net Assets - Beginning 34,480,385 PA Prior Period Adjustment 171,995 Net Assets - Beginning, as Restated 34,652,380 NE Net Assets - Ending $ 36,090,398 The accompanying notes are an integral part of this statement. 12

22 BALANCE SHEET - GOVERNMENTAL FUNDS AUGUST 31, 2011 EXHIBIT C Data Series 2007 Other Total Control General Construction Governmental Governmental Codes Fund Fund Funds Funds ASSETS: 1110 Cash and Cash Equivalents $ 16,819,997 $ 3,785,526 $ (1,158,637) $ 19,446, Current Investments 2,250, ,250, Taxes Receivable, Net 750, , , Due from Other Governments 217, ,203,194 2,420, Due from Other Funds 307, ,217 1,024, Other Receivables 335, , Inventories 74, , Deferred Expenditures 299, , , Total Assets $ 21,055,848 $ 3,785,536 $ 1,942,238 $ 26,783,622 LIABILITIES: Current Liabilities: 2110 Accounts Payable $ 114,651 $ -- $ 9,117 $ 123, Payroll Deductions & Withholdings 62, , Accrued Wages Payable 1,015, ,092 1,079, Due to Other Funds 815, ,018 1,024, Due to Other Governments 440, , , Accrued Expenditures 23, ,225 27, Deferred Revenue 3,898, ,463 4,173, Total Liabilities 6,371, ,700 6,975,910 FUND BALANCES: Nonspendable Fund Balances: 3410 Inventories 74, ,976 Restricted Fund Balances: 3450 Federal/State Funds Grant Restrictions 789, , Retirement of Long-Term Debt ,203,665 1,203, Other Restrictions of Fund Balance -- 3,785,536 21,654 3,807,190 Committed Fund Balances: 3510 Construction 3,800, ,800, Unassigned 10,020, ,020,645 Unassigned, Reported in Nonmajor: 3610 Special Revenue Funds ,750 64, Debt Service Funds ,469 47, Total Fund Balances 14,684,638 3,785,536 1,337,538 19,807, Total Liabilities and Fund Balances $ 21,055,848 $ 3,785,536 $ 1,942,238 $ 26,783,622 The accompanying notes are an integral part of this statement. 13

23 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS AUGUST 31, 2011 EXHIBIT C-1R Total fund balances - governmental funds balance sheet $ 19,807,712 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not reported in the funds. 70,602,090 Property taxes receivable unavailable to pay for current period expenditures are deferred in the funds. 919,214 Payables for bond principal which are not due in the current period are not reported in the funds. (54,025,037) Payables for bond interest which are not due in the current period are not reported in the funds. (195,308) Payables for notes which are not due in the current period are not reported in the funds. (1,736,368) Other long-term assets are not available to pay for current period expenditures and are deferred in the funds. 718,092 Rounding difference 3 Net assets of governmental activities - Statement of Net Assets $ 36,090,398 The accompanying notes are an integral part of this statement. 14

24 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, 2011 EXHIBIT C Data Series 2007 Other Total Control General Construction Governmental Governmental Codes Fund Fund Funds Funds REVENUES: 5700 Local and Intermediate Sources $ 4,697,256 $ 4,564 $ 1,180,298 $ 5,882, State Program Revenues 31,928, ,000 4,273,106 37,021, Federal Program Revenues 4,072, ,717,616 10,789, Total Revenues 40,697, ,564 12,171,020 53,692,943 EXPENDITURES: Current: 0011 Instruction 20,530, ,974,372 26,505, Instructional Resources and Media Services 610,973 4, , , Curriculum and Staff Development 300, , , Instructional Leadership 296, , , School Leadership 2,468, ,335 2,502, Guidance, Counseling, & Evaluation Services 1,222, ,791 1,394, Health Services 629, , , Student Transportation 1,745, ,745, Food Service 3,365, ,957 3,457, Cocurricular/Extracurricular Activities 1,382,196 21, ,403, General Administration 1,372, ,130 1,417, Plant Maintenance and Operations 3,981, ,981, Security and Monitoring Services 524, , Data Processing Services 460, , , Community Services , , Principal on Long-term Debt 135, ,833,000 1,968, Interest on Long-term Debt 20, ,417,459 2,438, Bond Issuance Costs and Fees ,581 5, Capital Outlay 2, , , Total Expenditures 39,050, ,720 12,087,668 52,089, Excess (Deficiency) of Revenues Over (Under) 1100 Expenditures 1,646,456 (126,156) 83,352 1,603,652 Other Financing Sources and (Uses): 7915 Transfers In 1,144, ,175 1,330, Transfers Out (1,330,334) (1,330,334) 7080 Total Other Financing Sources and (Uses) (186,175) , Net Change in Fund Balances 1,460,281 (126,156) 269,527 1,603, Fund Balances - Beginning 13,052,362 3,911,692 1,068,011 18,032, Prior Period Adjustment 171, ,995 Fund Balances - Beginning, as Restated 13,224,357 3,911,692 1,068,011 18,204, Fund Balances - Ending $ 14,684,638 $ 3,785,536 $ 1,337,538 $ 19,807,712 The accompanying notes are an integral part of this statement. 15

25 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2011 EXHIBIT C-3 Net change in fund balances - total governmental funds $ 1,603,652 Amounts reported for governmental activities in the Statement of Activities ("SOA") are different because: The depreciation of capital assets used in governmental activities is not reported in the funds. (2,059,177) Certain property tax revenues are deferred in the funds. This is the change in these amounts this year. 21,483 Repayment of bond principal is an expenditure in the funds but is not an expense in the SOA. 1,968,000 Bond issuance costs and similar items are amortized in the SOA but not in the funds. (40,572) The accretion of interest on capital appreciation bonds is not reported in the funds. (64,108) (Increase) decrease in accrued interest from beginning of period to end of period. 5,101 Bond premiums are reported in the funds but not in the SOA. 3,638 Rounding difference 1 Change in net assets of governmental activities - Statement of Activities $ 1,438,018 The accompanying notes are an integral part of this statement. 16

26 STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2011 Private-purpose Trust Fund Agency Fund EXHIBIT E-1 Data Control Scholarship Student Codes Fund Activity ASSETS: 1110 Cash and Cash Equivalents $ (24,397) $ 98, Restricted Assets 67, Total Assets $ 43,076 $ 98,840 LIABILITIES: Current Liabilities: 2190 Due to Student Groups $ -- $ 98, Total Liabilities -- 98,840 NET ASSETS 3800 Held in Trust 43, Total Net Assets $ 43,076 $ -- The accompanying notes are an integral part of this statement. 17

27 STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED AUGUST 31, 2011 Private- Purpose Trusts EXHIBIT E Scholarship Fund Additions: Investment Income $ -- Net (Decrease) in Fair Value of Investments -- Employer Contributions 36,019 Plan Member Contributions -- Total Additions 36,019 Deductions: Scholarship Awards 82,140 Benefits -- Refunds of Contributions -- Administrative Expenses -- Total Deductions 82,140 Change in Net Assets (46,121) Net Assets-Beginning of the Year 89,197 Net Assets-End of the Year $ 43,076 The accompanying notes are an integral part of this statement. 18

28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 A. Summary of Significant Accounting Policies The basic financial statements of Valley View Independent School District (the "District") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") applicable to governmental units in conjunction with the Texas Education Agency's Financial Accountability System Resource Guide ("Resource Guide"). The Governmental Accounting Standards Board ("GASB") is the accepted standard setting body for establishing governmental accounting and financial reporting principles. 1. Reporting Entity The Board of School Trustees ("Board"), a seven-member group, has governance responsibilities over all activities related to public elementary and secondary education within the jurisdiction of the District. The Board is elected by the public and has the exclusive power and duty to govern and oversee the management of the public schools of the District. All powers and duties not specifically delegated by statute to the Texas Education Agency ("TEA") or to the State Board of Education are reserved for the Board, and the TEA may not substitute its judgment for the lawful exercise of those powers and duties by the Board. The District receives funding from local, state and federal government sources and must comply with the requirements of those funding entities. However, the District is not included in any other governmental "reporting entity" as defined by the GASB in its Statement No. 14, "The Financial Reporting Entity," as revised by GASB Statement No.39, and there are no component units included within the reporting entity. 2. Basis of Presentation, Basis of Accounting a. Basis of Presentation Government-wide Financial Statements: The statement of net assets and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The District does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the District's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. The District reports the following major governmental funds: General Fund: This is the District's primary operating fund. It accounts for all financial resources of the District except those required to be accounted for in another fund. In addition, the District reports the following fund types: Private-Purpose Trust Funds: These funds are used to report trust arrangements under which principal and income benefit individuals, private organizations, or other governments not reported in other fiduciary fund types. Agency Funds: These funds are used to report student activity funds and other resources held in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. Fiduciary funds are reported in the fiduciary fund financial statements. However, because their assets are held in 19

29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 a trustee or agent capacity and are therefore not available to support District programs, these funds are not included in the government-wide statements. b. Measurement Focus, Basis of Accounting Government-wide and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual 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. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District's policy to use unrestricted resources first, then restricted resources. 3. Financial Statement Amounts a. Property Taxes Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Allowances for uncollectible tax receivables within the General Fund General and Debt Service Funds are based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the District is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. b. Inventories and Prepaid Items The District records purchases of supplies as expenditures, utilizing the purchase method of accounting for inventory in accordance with the Resource Guide. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. c. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets 20

30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: Asset Class Estimated Useful Lives Infrastructure 30 Buildings 30 Building Improvements 20 Vehicles 2-15 Office Equipment 3-15 Computer Equipment 3-15 d. Receivable and Payable Balances The District believes that sufficient detail of receivable and payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates those balances. e. Interfund Activity Interfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single "Transfers" line on the government-wide statement of activities. Similarly, interfund receivables and payables are netted and presented as a single "Internal Balances" line of the government-wide statement of net assets. f. Use of Estimates The preparation of financial statements in conformity with GAAP requires the use of management's estimates. g. Data Control Codes Data Control Codes appear in the rows and above the columns of certain financial statements. The TEA requires the display of these codes in the financial statements filed with TEA in order to insure accuracy in building a statewide database for policy development and funding plans. h. The District has adopted GASB 54 as part of its fiscal year reporting. Implementation of GASB 54 is required for all districts for the fiscal year ending in The intention of the GASB is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the District's financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on teh sues of those resources. GASB 54 provides for two major types of fund balances which are non-spendable and spendable. Non-spendable fund balances are balances that cannot be spent becasue they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The District has inventories that are considered non-spendable. The District does not have any prepaid items or non-spendable funds related to endowments. 21

31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 In addition to the non-spendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. - Restricted: Fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. - Committed: Fund balances that contain self-imposed constraints of the government from its highest level of decision making authority. The responsibility to commit funds rests with the Board of Trustees. Committed amounts cannot be used for any other purpose unless the governing board removes those constraints by taking the same type of formal action. - Assigned: Fund balances that contain self-imposed constraints of the government to be used for a particular purpose. The responsibility to assign funds rests with the Superintendent. - Unassigned: Fund balance of the general fund that is not constrained for any particular purpose. When an expenditure is incurred for a purpose for which both restricted and unrestricted fund balance is available, the District consideres restricted funds to have been spent first. When an expenditures is incurred for which committed, assigned, or unassigned fund balance are available, the District considers amounts to have been spent first out of commited funds, then assigned funds, and finally unassigned funds. B. Compliance and Accountability 1. Finance-Related Legal and Contractual Provisions In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance- related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violation None reported Action Taken Not applicable 2. Deficit Fund Balance or Fund Net Assets of Individual Funds Following are funds having deficit fund balances or fund net assets at year end, if any, along with remarks which address such deficits: Deficit Fund Name Amount Remarks None reported Not applicable Not applicable C. Deposits and Investments The District's funds are required to be deposited and invested under the terms of a depository contract. The depository bank deposits for safekeeping and trust with the District's agent bank approved pledged securities in an amount sufficient to protect District funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") insurance. 1. Cash Deposits: At August 31, 2011, the carrying amount of the District's deposits (cash, certificates of deposit, and interest-bearing savings accounts included in temporary investments) was $19,484,941 and the bank balance was $20,546,649. The District's cash deposits at August 31, 2011 and during the year ended August 31, 2011, were covered by FDIC insurance or by pledged collateral held by the District's agent bank in the District's name. 22

32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 In addition, the following is disclosed regarding coverage of combined balances on the date of highest deposit: a. Depository: First National Bank b. The market value of securities pledged as of the date of the highest combined balance on deposit was $0. c. The highest combined balances of cash, savings and time deposit accounts amounted to $11,796,647 and occurred during the month of January, d. Total amount of FDIC coverage at the time of the largest combined balance was $11,796, Investments: The District is required by Government Code Chapter 2256, The Public Funds Investment Act, to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, and (9) bid solicitation preferences for certificates of deposit. The Public Funds Investment Act ("Act") requires an annual audit of investment practices. Audit procedures in this area conducted as a part of the audit of the basic financial statements disclosed that in the areas of investment practices, management reports and establishment of appropriate policies, the District adhered to the requirements of the Act. Additionally, investment practices of the District were in accordance with local policies. The Act determines the types of investments which are allowable for the District. These include, with certain restrictions, 1) obligations of the U.S. Treasury, U.S. agencies, and the State of Texas, 2) certificates of deposit, 3) certain municipal securities, 4) securities lending program, 5) repurchase agreements, 6) bankers acceptances, 7) mutual funds, 8) investment pools, 9) guaranteed investment contracts, and 10) commercial paper. The District's investments at August 31, 2011 are shown below. Investment or Investment Type Maturity Fair Value Cost Texpool Less than three months $ 15,472,792 $ 15,472,792 Mainstay Short Term Bond Fund A 6/17/12 2,250,000 2,250,000 Total Investments $ 17,722,792 $ 17,722, Analysis of Specific Deposit and Investment Risks GASB Statement No. 40 requires a determination as to whether the District was exposed to the following specific investment risks at year end and if so, the reporting of certain related disclosures: a. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. At year end, the District was not significantly exposed to credit risk. At August 31, 2011, the District's investments, other than those which are obligations of or guaranteed by the U. S. Government, are rated as to credit quality as follows: Investment Mainstay Short Term Bond Fund A Credit Rating AAA b. Custodial Credit Risk 23

33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2011 Deposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution's trust department or agent but not in the District's name. Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the counterparty's trust department or agent but not in the District's name. At year end, the District was not exposed to custodial credit risk. c. Concentration of Credit Risk This risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. At year end, the District was not exposed to concentration of credit risk. d. Interest Rate Risk This is the risk that changes in interest rates will adversely affect the fair value of an investment. At year end, the District was not exposed to interest rate risk. e. Foreign Currency Risk This is the risk that exchange rates will adversely affect the fair value of an investment. At year end, the District was not exposed to foreign currency risk. Investment Accounting Policy The District's general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts. Public Funds Investment Pools Public funds investment pools in Texas ("Pools") are established under the authority of the Interlocal Cooperation Act, Chapter 79 of the Texas Government Code, and are subject to the provisions of the Public Funds Investment Act (the "Act"), Chapter 2256 of the Texas Government Code. In addition to other provisions of the Act designed to promote liquidity and safety of principal, the Act requires Pools to: 1) have an advisory board composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool; 2) maintain a continuous rating of no lower than AAA or AAA-m or an equivalent rating by at least one nationally recognized rating service; and 3) maintain the market value of its underlying investment portfolio within one half of one percent of the value of its shares. The District's investments in Pools are reported at an amount determined by the fair value per share of the pool's underlying portfolio, unless the pool is 2a7-like, in which case they are reported at share value. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of