WASHINGTON NORTHEAST SUPERVISORY UNION PLAINFIELD, VERMONT FINANCIAL STATEMENTS JUNE 30, 2012 AND INDEPENDENT AUDITOR'S REPORTS

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1 PLAINFIELD, VERMONT FINANCIAL STATEMENTS JUNE 30, 2012 AND INDEPENDENT AUDITOR'S REPORTS

2 JUNE 30, 2012 TABLE OF CONTENTS Page(s) Independent Auditor's Report 1-2 Management's Discussion and Analysis 3-6 Basic Financial Statements: Government-wide Financial Statements - Government-wide Statement of Net Assets 7 Government-wide Statement of Activities 8 Fund Financial Statements - Balance Sheet - Governmental Funds 9-10 Statement of Revenue, Expenditures and Changes in Fund Balances - Governmental Funds Statement of Revenue and Expenditures - Budget and Actual - General Fund 13 Statement of Net Assets - Fiduciary Funds 14 Notes to Financial Statements Compliance: Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 27 Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Responses Status of Prior Period Findings 32

3 Mudgett Jennett & Krogh-Wisner, P.C. Certified Public Accountants #435 INDEPENDENT AUDITOR'S REPORT The Superintendent and Board of Education Washington Northeast Supervisory Union We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the Washington Northeast Supervisory Union (the Supervisory Union) as of and for the year ended June 30, 2012, which collectively comprise the Supervisory Union's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Supervisory Union's management. Our responsibility is to express opinions 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 opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Washington Northeast Supervisory Union as of June 30, 2012 and the respective changes in financial position thereof and the budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 25, 2013 on our consideration of the Supervisory Union's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not Main Street P.O. Box 937, Montpelier, Vermont Phone (802)

4 express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the Supervisory Union's basic financial statements. The accompanying schedule of expenditures of federal awards as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis, and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. '7'.--X/Aed,pe6; Montpelier, Vermont March 25, 2013

5 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012 This section of the Washington Northeast Supervisory Union's annual financial report presents our discussion and analysis of the Supervisory Union's financial performance during the fiscal year that ended on June 30, The intent of the Management's Discussion and Analysis is to look at the Supervisory Union's financial performance as a whole. With this in mind, please also refer to the Supervisory Union's financial statements, which immediately follow this section. Washington Northeast Supervisory Union is an oversight administrative unit organized under Vermont Statute. The Supervisory Union provides assistance to the Cabot Town School District and Twinfield Union School District #33 that includes budgeting, accounting, federal and state grant application and administration, special education administration and human resources activities. The Supervisory Union also provides these entities with assistance in curriculum, special services, physical plant maintenance and construction, and policy development. Financial Statements The accompanying financial statements include two separate presentations: government-wide financial statements and fund financial statements. The Government-wide Financial Statements present the financial picture of the Supervisory Union from the economic resources measurement focus using the accrual basis of accounting. The Statement of Net Assets includes all assets of the Supervisory Union, including any capital assets, and all liabilities, including any longterm debt. At this time, the Supervisory Union does not have any long-term debt. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Supervisory Union is improving or deteriorating. The Statement of Activities focuses on the programs of the Supervisory Union and presents information showing how the Supervisory Union's net assets changed during the year. The Fund Financial Statements present financial position and activities by fund using the modified accrual basis of accounting. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The funds of the Supervisory Union can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, governmental funds primarily focus on near-term inflows and outflows of spendable resources and their balance at the end of the fiscal year. The Supervisory Union's governmental funds are the General Fund and Grants Fund. Proprietary funds provide the same type of information as the business-type activities in the government-wide financial statements, only in more detail. At this time, the Supervisory Union does not have any proprietary funds. Fiduciary funds are used to account for resources held for the benefit of other parties (i.e., activities which the Supervisory Union is acting as fiscal agent, student activities etc.). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Supervisory Union's own programs. The Supervisory Union reports a fiduciary fund to account for the resources of the Cabot Coalition for which the Supervisory Union acts as fiscal agent

6 Government-wide Financial Analysis The Statement of Net Assets shows the total assets, liabilities and net assets of the Supervisory Union at June 30, The following is a summary of the information from the Statement of Net Assets: Governmental Activities 2012 Current Assets $ 229,113 Capital Assets, net 58,601 Total Assets Current Liabilities 170,638 Noncurrent Liabilities 24,440 Total Liabilities Invested in capital assets, net of related debt 58,601 Restricted 61,502 Unrestricted (27,467) Total Net Assets $ 92,636 The Statement of Net Assets shows total assets of the Supervisory Union as of June 30, 2012 are $287,714. The June 30, 2012 current assets of $229,113 include cash, accounts receivable, amounts due from member districts, and prepaid expenses. Net non-current assets at June 30, 2012 total $58,601 and are comprised of leasehold improvements and equipment. Total liabilities of the Supervisory Union are $195,078 at June 30, 2012 and are comprised of accounts payable, deferred revenue, amounts due to other districts and funds as well as amounts for post-employment benefits. Net assets of the Supervisory Union are $92,636 as of June 30, $58,601 represents amounts invested in capital assets, net of related debt, $61,502 restricted for various grant programs and a $27,467 unrestricted deficit. It is intended that the deficit reported as unrestricted net assets of ($27,467) will be recovered by assessments and savings in the Supervisory Union budget to achieve future surpluses. The June 30, 2012 summary for the Statement of Activities is indicated below: Governmental Activities % of Expenses 2012 Total Administration and support $ 488, % Instructional services 159, % Grant programs 935, % State Teachers' Retirement System 28, % Total Expenses 1,611, % Program Revenue Grants and Contributions 955, % Charges for Services 31, % Other 13, % Total Program Revenue % - 4 -

7 Governmental Activities % of 2012 Total General Revenue Assessments 665, % Total General Revenue 665, % Total Revenue 1,665,507 Change in Net Assets $ 53,825 The Statement of Activities reports total expenses for Government-wide expenses include all governmental fund expenditures plus depreciation of capital assets, and exclude debt principal payments and capital asset purchases. At this time, the Supervisory Union does not have any long-term debt. Program revenues offset expenses as they relate to specific programs. Program revenue is derived from three sources: grants and contributions, charges for services and revenue from other sources. The net program costs of $611,735 were less than general revenues of $665,560 and caused an increase in net assets of $53,825. General revenues received by the Supervisory Union for the year ended June 30, 2012 was $665,560 solely from the assessments to its member districts. Financial Analysis of the Supervisory Union's Funds Governmental Funds The General Fund, the principal operating fund of the Supervisory Union, reported fund expenditures in excess of revenues, which caused a decrease in the fund balance of $778. The Grants Fund, used to account for grants restricted to certain program purposes and not available for general operations, reported fund revenues in excess of expenditures, which caused an increase in fund balance of $22,042. Capital Assets and Debt Administration As of June 30, 2012 the Supervisory Union had leasehold improvements and equipment totaling $124,049 and related depreciation of $65,448. The Supervisory Union did not have any long-term debt at June 30, 2012 Budget Highlights Revenues in the General Fund exceeded budgeted revenues by $30,720. Actual revenue amounts exceeded budgeted revenue by $16,303 for Assessments, $6,387 for Grants Administration, and other income by $8,030. Expenditures exceeded budget for Regular Education by $37,750, Curriculum by $603, Superintendent's Office by $9,641, Special Services by $6,213, Business Office by $6,041, and Operations and Maintenance by $10,281. Expenditures were under budget for Special Education by $31,913 and Board of Directors by $7,118. Other Significant Factors The Supervisory Union is proud of the community support of our public schools and is dedicated to providing administrative and financial leadership to our member school districts. As such all financial systems and procedures will be examined in order to comply with internal control standards, sound accounting practice and federal reporting requirements

8 Contacting the Supervisory Union's Financial Management This financial report is intended to provide our citizens, taxpayers and creditors with a general overview of the Supervisory Union's finances, and to reflect the accountability for the monies it receives. Questions about this report or additional financial needs should be directed to Robinson M. Billings, Business Manager, Washington Northeast Supervisory Union, PO Box 470, Plainfield, VT

9 GOVERNMENT-WIDE STATEMENT OF NET ASSETS JUNE 30, 2012 Governmental Activities ASSETS: Current assets - Cash $ 134,610 Accounts receivable 84,603 Due from member districts 4,339 Prepaid expenses 5,561 Total current assets 229,113 Noncurrent assets - Capital assets 124,049 less - accumulated depreciation (65,448) Total noncurrent assets 58,601 Total assets 287,714 LIABILITIES: Current liabilities - Accounts payable 9,386 Deferred revenue 2,465 Due to member districts 127,579 Due to fiduciary funds 1,763 Current portion - other post-employment benefits 29,445 Total current liabilities 170,638 Noncurrent liabilities - Other post-employment benefits 24,440 Total liabilities 195,078 NET ASSETS: Invested in capital assets, net of related debt 58,601 Restricted 61,502 Unrestricted (27,467) Total net assets $ 92,636 The notes to financial statements are an integral part of this statement

10 GOVERNMENT-WIDE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 Program Revenues Net (Expense) Grants Charges Revenue and and for Changes in Expenses Contributions Services Other Net Assets FUNCTIONS/PROGRAMS: Governmental activities - Administration and support $ 488,295 $ - $ 13,850 $ (474,445) Instructional services 159,332 (159,332) Grant programs 935, ,407 31,008 22,042 State Teachers' Retirement System 28,682 28,682 Total governmental activities $ 1,611,682 $ 955,089 $ 31,008 $ 13,850 (611,735) GENERAL REVENUES - ASSESSMENTS 665,560 CHANGE IN NET ASSETS 53,825 NET ASSETS, July 1, 2011, as restated 38,811 NET ASSETS, June 30, 2012 $ 92,636 The notes to financial statements are an integral part of this statement

11 BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2012 (Page 1 of 2) ASSETS General Fund Grants Fund Totals Governmental Funds Cash $ 134,610 $ - $ 134,610 Accounts receivable ,456 84,603 Due from member districts 4,339-4,339 Prepaid expenditures 5,561-5,561 Due from other funds - 39,052 39,052 Total assets $ 144,657 $ 123,508 $ 268,165 LIABILITIES AND FUND EQUITY LIABILITIES: Accounts payable $ 7,646 $ 1,740 $ 9,386 Deferred revenue - 2,465 2,465 Due to member districts 69,778 57, ,579 Due to other funds 40,815-40,815 Total liabilities 118,239 62, ,245 FUND BALANCES: Nonspendable 5,561-5,561 Restricted - 61,502 61,502 Unassigned 20,857-20,857 Total fund balances 26,418 61,502 87,920 Total liabilities and fund equity $ 144,657 $ 123,508 $ 268,165 The notes to financial statements are an integral part of this statement. -9-

12 BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2012 (Page 2 of 2) RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS TO THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS: Amount reported on Balance Sheet - Governmental Funds - total fund balances $ 87,920 Amounts reported for governmental activities in the Government-wide Statement of Net Assets are different because - Capital assets used in governmental funds are not financial resources and are therefore not reported in the funds. Capital assets 124,049 Accumulated depreciation (65,448) Liabilities not due and payable in the current year are not reported in the governmental funds. Other post-employment benefits (53,885) Net Assets of Governmental Activities - Government-wide Statement of Net Assets $ 92,636 The notes to financial statements are an integral part of this statement

13 STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2012 (Page 1 of 2) General Fund Grants Fund Totals Governmental Funds REVENUE: Assessments $ 665,560 $ - 665,560 Charges for services - 31,008 31,008 Intergovernmental - State - 250, ,525 State Teachers' Retirement System 28,682 28,682 Federal 650, ,248 Grant administration 6,387 6,387 Other income 8,030 25,634 33, , ,415 1,666,074 EXPENDITURES: Regular education 37,750-37,750 Special education 121, , ,512 Cocurricular 86,474 86,474 Support services - Students 1,980 1,980 Instructional staff , ,898 Central administration 222,560 1, ,410 School administration 35,761 71, ,766 Other 253, ,089 Other services 23,911 23,911 Subgrants to member districts 374, ,928 Capital outlay 9,410-9,410 State Teachers' Retirement System 28,682-28,682 Total expenditures 709, ,373 1,644,810 NET CHANGE IN FUND BALANCES (778) 22,042 21,264 FUND BALANCES, July 1, 2011, as restated 27,196 39,460 66,656 FUND BALANCES, June 30, 2012 $ 26,418 $ 61,502 $ 87,920 The notes to financial statements are an integral part of this statement.

14 STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2012 (Page 2 of 2) RECONCILIATION OF THE STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS TO THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES: Net change in fund balances - total Governmental Funds $ 21,264 Amounts reported for governmental activities in the Government-wide Statement of Activities are different because - Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives as depreciation expense. Additions to capital assets Depreciation Changes in other post-employment benefits accumulated by employees will increase or decrease the liability reported in the government-wide statements, but are only recorded as an expenditure when paid in the governmental funds. Decrease in other post-employment benefits 9,410 (6,294) 29,445 Change in Net Assets of Governmental Activities - Government-wide Statement of Activities $ 53,825 The notes to financial statements are an integral part of this statement

15 STATEMENT OF REVENUE AND EXPENDITURES - BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2012 Budget Actual Variance Favorable (Unfavorable) REVENUE: Assessments $ 649,257 $ 665,560 $ 16,303 Grant administration 6,387 6,387 Other income 8,030 8,030 Total revenue 649, ,977 30,720 EXPENDITURES: Regular education 37,750 (37,750) Special education 153, ,582 31,913 Curriculum coordinator 603 (603) Board of directors 22,815 15,697 7,118 Superintendent's office 206, ,273 (9,641) Special services administration 29,548 35,761 (6,213) Business office 213, ,167 (6,041) Operations and maintenance 23,641 33,922 (10,281) Total expenditures 649, ,755 (31,498) EXCESS OF REVENUE OR (EXPENDITURES) $ $ (778) $ (778) The notes to financial statements are an integral part of this statement

16 STATEMENT OF NET ASSETS - FIDUCIARY FUNDS JUNE 30, 2012 ASSETS: Agency Funds Accounts receivable Due from other funds $ 2,526 1,763 Total assets 4,289 LIABILITIES: Due to Cabot Coalition 4,289 NET ASSETS Held in trust for specific purposes The notes to financial statements are an integral part of this statement. -14-

17 NOTES TO FINANCIAL STATEMENTS JUNE 30, Summary of significant accounting policies: The Washington Northeast Supervisory Union (Supervisory Union) is organized under Title 16, Chapter 7, Section 261, of Vermont Statutes Annotated, in "the interest of convenience and efficiency" to provide services to its member districts, Cabot Town School District and Twinfield Union School District No. 33. A. Reporting entity - The Supervisory Union is a primary unit of government under reporting criteria established by the Governmental Accounting Standards Board (GASB). Those criteria include a separately elected governing body, separate legal standing, and fiscal independence from other state and local governmental entities. Based on these criteria, there are no other entities which are component units of the Supervisory Union. The financial statements of the Supervisory Union have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes GAAP for governmental units. B. Government-wide and fund financial statements - The basic financial statements include both government-wide and fund financial statements. The government-wide financial statements (the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the Supervisory Union. The effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Supervisory Union has no business-type activities. In the government-wide statement of net assets, the financial position of the Supervisory Union is consolidated and incorporates capital assets as well as long-term debt and obligations. The governmentwide statement of activities reflects both the gross and net costs by category. Direct expenses that are clearly identifiable with the category are offset by program revenues of the category. Program revenues include charges for services provided by a particular function or program and grants that are restricted to meeting the operational or capital requirements of the particular segment. Assessments and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide statements. Major individual governmental funds are reported as separate columns in the fund financial statements. C. Basis of presentation - The accounts of the Supervisory Union are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balances, revenue and expenditures.

18 NOTES TO FINANCIAL STATEMENTS JUNE 30, Summary of significant accounting policies (continued): C. Basis of presentation (continued) - The Supervisory Union reports the following major governmental funds: General Fund - The General Fund is the general operating fund of the Supervisory Union. It is used to account for all financial resources, except those required to be accounted for in another fund. Grants Fund - The Grants Fund is used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified services. These funds consist of federal and state grants and other assessments. The Supervisory Union also reports fiduciary funds (agency funds) used to account for the Cabot Coalition for which the Supervisory Union acts as fiscal agent. These Agency Funds are excluded from the government-wide financial statements. D. Measurement focus and basis of accounting - The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported on a current financial resource measurement focus and the modified accrual basis of accounting. Revenues are recognized as they become both measurable and available. "Measurable" means the amount of the transaction that can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are recorded when the fund liability is incurred, if measurable, except for principal and interest on long-term debt which are recognized when due. E. Supervisory Union budget and budgetary accounting - General governmental revenues and expenditures accounted for in budgetary funds are controlled by a formal integrated budgetary accounting system in accordance with various legal requirements which govern the Supervisory Union's operations. Appropriations lapse at year end. The Supervisory Union follows these procedures in establishing the budgetary data reflected in the financial statements. During the month of December, the Supervisory Union Board of Education (the Board) prepares a proposed budget for the upcoming fiscal year commencing July 1. The operating budget includes proposed expenditures as a basis for the annual assessments. At the annual meeting in January, the budget is reviewed, amended, if necessary, and formally approved. The Supervisory Union budget includes the results of activities in the General Fund. Budgets for certain federal and state programs are approved by the respective federal or state agency. Budgets for federal funds "passed through" the state are approved by the respective state agency. -16-

19 NOTES TO FINANCIAL STATEMENTS JUNE 30, Summary of significant accounting policies (continued): F. Cash and cash equivalents - The Supervisory Union's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. G. Prepaid items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. H. Capital assets - Capital assets, which include leasehold improvements and equipment, are reported in the government-wide financial statements. Capital assets are defined by the Supervisory Union as assets with an initial individual cost of $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are depreciated using the straight-line method over the following useful lives: Leasehold improvements Equipment 10 years 7 years I. Deferred revenue - Revenues from federal, state and other grants, designated for payment of specific Supervisory Union expenditures, are recorded in the Grants Fund and, upon receipt, are recorded as deferred revenue until they are expended. J. Compensated absences - Vacation and sick leave do not vest for any employee. K. Long-term - In the government-wide financial statements, long-term debt and other longterm obligations are reported as liabilities in the statement of net assets. In the fund financial statements, governmental fund types recognize the amount of debt issued as other financing sources and the repayment of debt as debt service expenditures. L. Fund equity - In the fund financial statements, governmental funds may report five categories of fund balances: nonspendable, restricted, committed, assigned and unassigned. Nonspendable fund balance includes amounts associated with inventory, prepaid expenditures, longterm loans or notes receivable, and trust fund principal to be held in perpetuity. Restricted fund balance includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. Committed fund balance includes amounts that can be used only for specific purposes detemiined by the Supervisory Union's highest level of decision making authority, the Board, as a result of motions passed at regular or special Board meetings. Assigned fund balance includes amounts that are intended to be used by the Supervisory Union for specific purposes, as authorized by management. Currently, the Board has not granted any members of management the authority to make fund balance assignments. -17-

20 NOTES TO FINANCIAL STATEMENTS JUNE 30, Summary of significant accounting policies (continued): L. Fund equity (continued) - Unassigned fund balance is the residual classification for the government's General Fund and includes all spendable amounts not contained in another classification. The Supervisory Union has not established policies or procedures for classifying fund balance nor a policy specifying the order in which to apply expenditures to fund balance. M. Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. N. On-behalf payments - The State of Vermont makes payments on behalf of the Supervisory Union's teachers to the State Teachers' Retirement System of Vermont. As required by GASB Statement No. 24, the Supervisory Union recognized these pension contributions in the government-wide financial statements and in the statement of revenue, expenditures and changes in fund balances. The amounts are not budgeted and have been excluded from the budget basis statement; see note 9 for reconciling details. 2. Cash: Custodial credit risk - Custodial credit risk is the risk that in the event of a bank failure, the Supervisory Union's deposits may not be returned to it. The Supervisory Union does not have a deposit policy for custodial credit risk. The Supervisory Union's bank balance was fully insured or collateralized at June 30, Interfund receivable and payable: As of June 30, 2012 interfund receivable and payable balances, due to the pooling of cash, were as follows: Due From Other Funds Due To Other Funds Governmental funds - General Fund Grants Fund 39,052 $ 40,815 Fiduciary funds - 39,052 40,815 Agency Funds 1,763 $ 40,815 $ 40,815

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, Capital assets: Capital asset activity for the year ended June 30, 2012 was as follows: Balance July 1, 2011 Increase Decrease Balance June 30, 2012 Capital assets, depreciated: Leasehold improvements $ 36,147 $ - $ - $ 36,147 Equipment 78,492 9,410 87,902 Total capital assets, depreciated 114,639 9, ,049 Less accumulated depreciation: Leasehold improvements 12,652 3,615-16,267 Equipment 46,502 2,679 49,181 Total accumulated depreciation 59,154 6,294 65,448 Capital assets, net $ 55,485 $ 3,116 $ $ 58,601 Depreciation expense in the governmental activities of $6,294 was charged to expenses of administration and support based on capital assets assigned to that function. 5. Operating lease: In November 2007, the Supervisory Union entered into a lease agreement with the Town of Plainfield (the Town) to occupy space above the municipal office of the Town which expired November 30, The parties have verbally agreed to monthly payments of $1,230 since the expiration of the lease and a new agreement has not been signed. The Supervisory Union paid the Town $14,760 for the year ended June 30, Pension plans: State Teachers' Retirement System - Plan description: The Supervisory Union participates in the State Teachers' Retirement System of Vermont (the System), a cost-sharing multiple-employer defined benefit public employee retirement system, administered by the State of Vermont, which makes annual contributions to the System. The System provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The State statutory provisions, found in Section 1942, Title 16, Chapter 55, of the V.S.A., govern eligibility for benefits, service requirements and benefit provisions. The general administration and responsibility for the proper operation of the System is vested in a Board of Trustees consisting of eight members. The System issues annual fmancial information which is available and may be reviewed at the System's office, 109 State Street, Montpelier, Vermont, or by calling (802)

22 NOTES TO FINANCIAL STATEMENTS JUNE 30, Pension plans (continued): State Teachers' Retirement System (continued) - Funding policy: Member teachers are required to contribute 5.5% (Group A) or 5.0% (Group C) of their annual covered salary and the State contributes the balance of an actuarially determined rate. The current State rate is 1.80% of annual covered payroll plus a payment to liquidate the unfunded accrued liability. The Supervisory Union estimates the State's fiscal 2012 contribution to the System on behalf of the Supervisory Union's teachers to be $28,682. The teachers also contributed $13,800. The contribution requirements of plan members and the State are established and may be amended by the System's Board of Trustees. The Supervisory Union is not required to contribute to the System. The June 30, 2011 actuarial valuation of the System indicates an asset market value of approximately $1,520,766,932; asset actuarial value (adjusted to recognize asset gains/losses over 5 years) of $1,486,698,448; and actuarial accrued liability of $2,331,806,328; leaving an unfunded actuarial accrued liability of $845,107,880. Vermont Municipal Employees' Retirement System - Plan description: The Supervisory Union contributes to the Vermont Municipal Employees' Retirement System (VMERS) a cost-sharing multiple-employer public employee retirement system with defined benefit and defined contribution plans, administered by the State of Vermont. VMERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The State statutory provisions, found in Section 5062 of Title 24, Chapter 125, of the V.S.A., govern eligibility for benefits, service requirements and benefit provisions. The general administration and responsibility for the proper operation of VMERS is vested in the Board of Trustees consisting of five members. VMERS issues annual fmancial information which is available and may be reviewed at the VMERS' office, 109 State Street, Montpelier, Vermont, or by calling (802) Funding policy: Defined Benefit Plan members are required to contribute 2.5% (Group A), 4.5% (Group B), 9.25% (Group C) or 11.00% (Group D) of their annual covered salary, and the Supervisory Union is required to contribute 4% (Group A), 5% (Group B), 6.5% (Group C) or 9.5% (Group D) of the employees' compensation. Defined Contribution Plan members are required to contribute 5% of their annual covered salary and the Supervisory Union is required to contribute an equal dollar amount. The contribution requirements of plan members and the Supervisory Union are established and may be amended by the Board of Trustees. The Supervisory Union's contribution to VMERS for the year ended June 30, 2012 was $13,348, which was equal to the required contribution for the year. The July 1, 2011 actuarial valuation of VMERS reports asset market value of $402,550,150 and actuarial accrued liability of $436,229,310, leaving an actuarial shortfall of $33,679, Other post-employment benefits: As of June 30, 2012, two former employees are currently receiving early retirement incentive payments with a remaining liability of $53,885 to the Supervisory Union. These benefits are financed on a pay as you go basis through annual operations. In the government-wide financial statements, the Supervisory Union has recognized the liability for post-employment benefits attributable to employees that have elected to participate in the retirement incentive and have been approved by the Supervisory Union to receive postemployment benefits

23 NOTES TO FINANCIAL STATEMENTS JUNE 30, Related parties: As described in note 1, the Supervisory Union is the oversight administrative district for its member districts. The member districts are billed for their appropriate share of expenditures through annual assessments. The Supervisory Union received assessment revenue as follows: Special Fiscal Operating Education Services Cabot Town School District $ 118,284 $ 81,154 $ 37,813 Twinfield Union School District No ,569 88,644 98,096 $ 359,853 $ 169,798 $ 135,909 The following are the amounts receivable and payable to the Cabot Town School District and Twinfield Union School District No. 33: Accounts Receivable Accounts Payable Cabot Town School District $ 16,303 $ 11,964 Twinfield Union School District No. 33 5, , Budgetary basis of accounting: $ 21,868 $ 145,108 These financial statements include totals for General Fund revenue and expenditures on the Supervisory Union's budgetary accounting basis, which vary from the totals of revenue and expenditures recognized on the basis of accounting prescribed by GAAP, as follows: 10. Risk management: Revenues Expenditures GAAP basis $ 708,659 $ 709,437 On-behalf payments - STRS (28,682) (28,682) Budget basis $ 679,977 $ 680,755 The Supervisory Union is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees and others; and natural disasters. The Supervisory Union manages these risks through a combination of commercial insurance packages purchased in the name of the Supervisory Union. Management believes such coverage is sufficient to preclude any significant uninsured losses to the Supervisory Union. Settled claims resulting from these risks have not exceeded coverage in any of the past three fiscal years. In addition, the Supervisory Union is a member of the Vermont School Boards Insurance Trust, Inc. (VSBIT) for unemployment compensation benefits and the Vermont Education Health Initiative (VEHI) for medical benefits. VSBIT and VEHI are nonprofit corporations formed to provide insurance and risk management programs for Vermont school districts and is owned by the participating districts

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, Risk management (continued): To provide health and dental insurance coverage, VEHI has established a self-funded fully insured program in conjunction with Blue Cross and Blue Shield. A portion of member contributions is used to purchase reinsurance and to fund a reserve required by the reinsurance. The pooling agreement does not permit the pool to make additional assessments to its members. To provide unemployment coverage, VSBIT has established a separate trust fund from member contributions to pay administrative costs and unemployment claims and to provide excess reinsurance protection. Contributions are based on payroll expense and the previous three-year unemployment compensation experience. In the event that total contributions assessed to and made by all members result in an actual or projected financial deficit and VSBIT is unable to meet its required obligations, the program will be teiminated with each member assessed their proportionate share of the deficit. 11. Fund balances: At June 30, 2012, the Supervisory Union's General Fund reported a nonspendable fund balance of $5,561 related to prepaid expenditures. The remaining $20,857 of fund balance was unassigned at year end. At June 30, 2012, the Supervisory Union's Grants Fund reported $61,502 of restricted fund balance related to various grant programs. 12. Restatement: Beginning fund balance of the General Fund was restated from $28,196 to $27,196 to correct an FY11 expenditure accrual. Beginning fund balance in the Grants Fund, reported as Other Governmental Funds in the prior year, was restated from $6,236 to $39,460 to correct FY11 revenue and expenditure accruals. As a result of these fund balance restatements, beginning net assets in the governmental activities was restated from $6,587 to $38,811.

25 Mudgett Jennett & Krogh-Wisner, P.C. Certified Public Accountants #435 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Superintendent and Board of Education Washington Northeast Supervisory Union We have audited the financial statements of the governmental activities and each major fund of the Washington Northeast Supervisory Union (the Supervisory Union) as of and for the year ended June 30, 2012, which collectively comprise the Supervisory Union's basic financial statements, and have issued our report thereon dated March 25, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Supervisory Union is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Supervisory Union's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Supervisory Union's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Supervisory Union's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule of findings and responses, we identified a certain deficiency in internal control over financial reporting that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and responses, as item 12-1, to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Supervisory Union's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the Main Street P.O. Box 937, Montpelier, Vermont Phone (802)

26 determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters, as described in items 12-2 and 12-3, which were not considered significant deficiencies or material weaknesses. Management's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. We did not audit management's responses, and accordingly, we express no opinion on them. This report is intended solely for the information and use of the Board of Education and management of the Supervisory Union, the Vermont Department of Education, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Montpelier, Vermont March 25, 2013

27 Mudgett Jennett & Krogh-Wisner, P.C. Certified Public Accountants #435 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Superintendent and Board of Education Washington Northeast Supervisory Union Compliance We have audited the Washington Northeast Supervisory Union (the Supervisory Union) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that that could have a direct and material effect on each of its major federal programs for the year ended June 30, The Supervisory Union's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and responses. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs is the responsibility of the Supervisory Union's management. Our responsibility is to express an opinion on the Supervisory Union's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Supervisory Union's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Supervisory Union's compliance with those requirements. In our opinion, the Washington Northeast Supervisory Union complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance Management of the Supervisory Union is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Supervisory Union's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Supervisory Union's internal control over compliance Main Street P.O. Box 937, Montpelier, Vermont Phone (802)