ARCH FORD EDUCATION SERVICE COOPERATIVE

Transcription

1 REGULATORY BASIS FINANCIAL STATEMENTS AND OTHER REPORTS Year Ended June 30, 2005

2 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1 REGULATORY BASIS FINANCIAL STATEMENTS Balance Sheet Regulatory Basis 3 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Regulatory Basis 4 Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual General and Special Revenue Funds Regulatory Basis 5 Notes to Financial Statements 6 OTHER REPORTS AND SUPPLEMENTARY INFORMATION Report on Compliance and Other Matters and on Internal Control over Financial Reporting 12 Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to Each Major Program and on Internal 14 Control over Compliance in Accordance with OMB Circular A-133 Schedule of Capital Assets 16 Schedule of Expenditures of Federal Awards 17 Schedule of Findings and Questioned Costs 18 Schedule of Prior Year Audit Findings 19 Independent Auditors Report on Compliance with Arkansas State Requirements 20 Management Letter 21 Page

3 Doug Dobbs, CPA, P.A. Certified Public Accountants 2123 W. Colonel Glenn Road Little Rock, AR (501) FAX (501) To the Board of Education Arch Ford Education Service Cooperative Plumerville, Arkansas INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of each major governmental fund of the Arch Ford Education Service Cooperative (the "Cooperative"), as of and for the year ended June 30, 2005, as listed in the table of contents. These financial statements are the responsibility of Cooperative 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. As described more fully in Note A, the Cooperative has prepared the financial statements using accounting practices prescribed or permitted by Arkansas Code, which differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determined, are presumed to be material. In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Cooperative as of June 30, 2005, or the changes in financial position thereof for the year then ended. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major governmental fund and the aggregate remaining fund information of the Cooperative as of June 30, 2005, and the respective changes in financial position and budgetary results for the year then ended, on the basis of accounting described in Note A. 1

4 To the Board of Education Page Two In accordance with Government Auditing Standards, we have also issued our report dated January 11, 2007 on our consideration of the Cooperative's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Cooperative's regulatory basis financial statements. The Schedule of Capital Assets on page 16, Expenditures of Federal Awards on page 17, as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Federal Award Programs - Findings and Questioned Costs on page 18 and Federal Award Programs - Summary of Prior Audit Findings on page 19 are presented for purposes of additional analysis and are not a required part of the regulatory basis financial statements. The Expenditures of Federal Awards, Federal Award Programs - Findings and Questioned Costs and Federal Award Programs - Summary of Prior Audit Findings have been subjected to the auditing procedures applied in the audit of the regulatory basis financial statements and, in our opinion, are fairly stated in all material respects in relation to the regulatory basis financial statements taken as a whole. The Schedule of Capital Assets has not been subjected to the auditing procedures applied in the audit of the regulatory basis financial statements and, accordingly, we express no opinion on it. Doug Dobbs, CPA, P.A. Little Rock, Arkansas January 12,

5 BALANCE SHEET - REGULATORY BASIS JUNE 30, 2005 Governmental Funds Major Special General Revenue ASSETS Cash and investments $ 2,014,611 $ 122,110 Accounts receivable 79,505 Inventories 936,547 TOTAL ASSETS $ 3,030,663 $ 122,110 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 82,029 $ TOTAL LIABILITIES 82,029 0 Fund balances: Unreserved: Undesignated 2,948, ,110 TOTAL FUND BALANCES 2,948, ,110 TOTAL LIABILITIES AND FUND BALANCES $ 3,030,663 $ 122,110 The accompanying notes are an integral part of these financial statements 3

6 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS - REGULATORY BASIS FOR THE YEAR ENDED JUNE 30, 2005 Governmental Funds Major Special General Revenue REVENUES Tuition and services to other LEA's 1,330,352 Cooperative sales 1,402,976 State assistance 3,131,972 Federal assistance 1,252,744 Investment income 56,116 Medicaid reimbursements 32,033 Other revenues 813,838 TOTAL REVENUES 6,735,254 1,284,777 EXPENDITURES Current: Regular programs 86,500 Special education 276, ,218 Other instructional programs 628,800 Pupil support services 560, ,761 Staff support services 1,722, ,109 General administration support services 309,156 School administration support services 77,372 Business support services 488,947 Operation and maintenance of plant 57,389 Student transportation services 3,544 Central support services 403,219 10,715 Cost of Cooperative sales 1,104,567 Other support services Debt service: Principal 88,890 Interest 1,849 Capital outlay 34,020 18,683 TOTAL EXPENDITURES 5,840,661 1,266,030 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 894,593 18,747 OTHER FINANCING SOURCES (USES) Proceeds of loan 89,000 TOTAL OTHER FINANCING SOURCES (USES) 89,000 0 EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES 983,593 18,747 FUND BALANCE--BEGINNING 1,965, ,363 FUND BALANCE--ENDING $ 2,948,634 $ 122,110 The accompanying notes are an integral part of these financial statements 4

7 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL AND SPECIAL REVENUE FUNDS - REGULATORY BASIS FOR THE YEAR ENDED JUNE 30, 2005 General Fund Special Revenue Fund Variance Variance Budgeted Favorable Budgeted Favorable Amounts Actual (Unfavorable) Amounts Actual (Unfavorable) REVENUES Tuition and services to other LEA's $ 1,123,466 $ 1,330,352 $ 206,886 Cooperative sales 1,500,000 1,402,976 (97,024) State assistance 2,529,952 3,131, ,020 Federal assistance $ 1,230,814 $ 1,252,744 $ 21,930 Investment income 10,000 56,116 46,116 Medicaid reimbursements 0 10,000 32,033 22,033 Other revenues 967, ,838 (153,370) TOTAL REVENUES 6,130,626 6,735, ,628 1,240,814 1,284,777 43,963 EXPENDITURES Current: Regular programs 190,375 86, ,875 Special education 179, ,882 (97,073) 354, , Other instructional programs 664, ,800 36,052 Pupil support services 654, ,541 94, , ,761 33,769 Staff support services 1,655,442 1,722,529 (67,087) 530, ,109 (5,577) General administration support services 288, ,156 (20,599) School administration support services 75,739 77,372 (1,633) Business support services 485, ,947 (3,137) Operation and maintenance of plant 41,155 57,389 (16,234) Student transportation services 5,000 3,544 1,456 Central support services 526, , ,824 6,370 10,715 (4,345) Cost of Cooperative sales 1,190,000 1,104,567 85,433 Other support services 6, ,250 Debt Service 90,739 (90,739) Capital outlay 88,360 34,020 54,340 11,000 18,683 (7,683) TOTAL EXPENDITURES 6,040,971 5,840, ,310 1,290,576 1,266,030 24,546 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 89, , ,938 (49,762) 18,747 68,509 OTHER FINANCING SOURCES (USES) Proceeds of loan 89,000 89,000 EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES $ 89,655 $ 983,593 $ 893,938 $ (49,762) $ 18,747 $ 68,509 The accompanying notes are an integral part of these financial statements 5

8 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY The Arch Ford Education Service Cooperative Board of Directors, a ten member group, is the basic level of Government which has oversight responsibility and control over all activities within the jurisdiction of the Cooperative. The Cooperative serves Cleburne, Conway, Faulkner, Perry, Pope, Van Buren and Yell counties in Arkansas. The Cooperative receives funding from local, state and federal governmental sources and must comply with the requirements of these funding source entities. However, the Cooperative is not included in any other governmental reporting entity as defined by the GASB in its Statement No. 14 The Reporting Entity since Board members are elected by the public and have decision making authority, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. There are no component units included within the reporting entity. BASIS OF PRESENTATION Major governmental funds (per the regulatory basis of accounting) are defined as General and Special Revenue. General Fund The General Fund is the primary operating fund of the Cooperative and accounts for all revenues and expenditures of the Cooperative not encompassed within other funds. Special Revenue Fund The Special Revenue Fund is used to account for federal funding received by the Cooperative that is restricted for specified purposes. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The financial statements are prepared in accordance with a regulatory basis of accounting (RBA), which is an Other Comprehensive Basis of Accounting (OCBOA). This basis of accounting is prescribed by the Arkansas Department of Education, a governmental regulatory agency, to whose jurisdiction the Cooperative is subject. The RBA is not in accordance with generally accepted accounting principles (GAAP). GAAP require that basic financial statements present government-wide financial statements. Additionally, GAAP require the following major concepts: Management's Discussion and Analysis, accrual basis of accounting for government-wide financial statements, including depreciation expense, modified accrual basis of accounting for fund financial statements, separate financial statements for fiduciary fund types, separate identification of special and extraordinary items, inclusion of capital assets and debt in the financial statements, specific procedures for the identification of major governmental funds and applicable note disclosures. The RBA does not require government-wide financial statements or the previously identified concepts. 6

9 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 NOTE A SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) The accompanying financial statements are presented on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for purposes of recording specific activities or attaining certain objectives. Revenues are reported by major sources and expenditures are reported by major function. Other transactions, which are not reported as revenues or expenditures, are reported as other financing sources and uses. Transactions related to the recording of installment contracts and capital leases are reported as other financing sources. REVENUE RECOGNITION POLICIES Revenues are recognized when they become susceptible to accrual in accordance with the RBA. INVENTORIES Inventories consist of various school supplies held for sale to the school districts served by the Cooperative and are valued at cost using the first-in/first-out (FIFO) method. CAPITAL ASSETS Buildings and equipment are stated on the basis of historical costs or estimated cost. Assets acquired through gifts or donations are recorded at their estimated or market value at time of acquisition. The Cooperative defines capital assets as assets with an initial, individual cost of $ 1,000 or greater and an estimated useful life in excess of two years. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend lives are not capitalized. When assets are retired or otherwise disposed of, the related costs or other recorded amounts are removed. Depreciable capital assets are depreciated using the straight-line method over useful lives of 5-20 years for furniture and equipment and 50 years for buildings and improvements. FUND BALANCE DESIGNATIONS Undesignated fund balance indicates that portion of the fund balance not reserved or designated. ANNUAL BUDGET The Cooperative is required to prepare an annual budget that is filed with the Arkansas Department of Education. The budget is required to be approved by the Cooperative s Board and submitted no later than September 15 each year. Budget amendments, if any, are not required to be submitted for approval. Budgetary perspective differences are not considered to be significant, because the information utilized in preparing the budget and the applicable fund financial statements is essentially the same. 7

10 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ANNUAL BUDGET (CONTINUED) On-behalf payments as described at Note H are non-budgeted financial data for the year ended June 30, Such payments are recorded as actual revenues and expenditures in the Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Special Revenue Funds - Regulatory Basis. NOTE B CASH DEPOSITS WITH FINANCIAL INSTITUTIONS Cash deposits are carried at cost (carrying value). A comparison of the bank balance and carrying value is as follows: Carrying Bank Amount Balance Insured (FDIC) $ 100,000 $ 100,000 Collateralized: Collateral held by the pledging bank or pledging bank s trust department in the Cooperative s name 2,036,721 2,246,349 Total Deposits $ 2,136,721 $ 2,346,349 The above includes a certificate of deposit of $ 89,000 classified as a nonparticipating contract and is reported at cost. NOTE C RECEIVABLES The receivables of $ 79,505 at June 30, 2005 consist of billings to customers of sales from the general fund. NOTE D COMMITMENTS The Cooperative is presently paying on the following long-term debt: Amount Debt Maturities Date of Date of Final Rate of Authorized Outstanding To Issue Maturity Interest And Issued June 30, 2005 June 30, /02/05 2/02/ % $ 89,000 $ 89,000 $ -- 6/23/03 6/23/ % 121, ,690 6/05/97 7/15/ % 23,304 4,891 18,413 $ 233,994 $ 93,891 $ 140,103 8

11 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 NOTE D COMMITMENTS (CONTINUED) Changes in Long-term Debt: Description Balance at 7/1/04 Additions Reductions Balance at 6/30/05 Notes payable $ 93,781 $ 89,000 $ (88,890) $ 93,891 The annual requirements to amortize the notes as of June 30, 2005 are as follows: Year Ended June 30 Principal Interest Total 2006 $ 93,891 $ 3,889 $ 97,780 Operating Leases (noncapital leases with initial or remaining noncancellable terms in excess of one year): (1) On April 15, 2002, the Cooperative executed an agreement for a copier at $ 1,646 per month for a period of 60 months. (2) On May 26, 2004, the Cooperative executed an agreement for a copier at $ 2,107 per month for a period of 60 months. Future minimum lease payments are as follows: Year Ended June 30 Amount , , , ,287 Total $ 137,360 9

12 NOTE E RETIREMENT PLANS Arkansas Teacher Retirement System ARCH FORD EDUCATION SERVICE COOPERATIVE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 Plan Description. The Cooperative contributes to the Arkansas Teacher Retirement System (ATRS), a cost-sharing multiple-employer defined benefit pension plan that covers all Arkansas public school employees, except certain non-teachers hired prior to July 1, ATRS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Teacher Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for ATRS. That report may be obtained by writing to Arkansas Teacher Retirement System, 1400 West Third Street, Little Rock, Arkansas or by calling Funding Policy. ATRS has contributory and non-contributory plans. Contributory members are required by law to contribute 6% of their salary. Each participating employer is required by law to contribute at a rate established by the Arkansas General Assembly. The current employer rate is 14%. The employer contribution was paid by the Department of Education from the Public School Fund, except for those employees paid from federal funding. Employer contributions for those employees were paid by the Cooperative. The Department of Education determines the amount funded. The Department of Education's contributions to ATRS for the Cooperative during the years ended June 30, 2005, 2004 and 2003 were $ 390,632, $ 359,001 and $ 298,839 respectively. The Cooperative's contributions to ATRS for federally funded employees for the years ended June 30, 2005, 2004 and 2003 were $ 62,307, $ 47,416 and $ 36,055, respectively, equal to the required contributions for each year. NOTE F CONTINGENCIES The school Cooperative participates in federally assisted grant programs. The Cooperative is potentially liable for expenditures which may be disallowed pursuant to the terms of these grant programs. Management is not aware of any material items of noncompliance which would result in the disallowance of program expenditures. NOTE G - ON-BEHALF PAYMENTS The accompanying financial statements reflect on-behalf payments for health insurance premiums paid by the Arkansas Department of Education in the amount of approximately $ 103,212. Additionally, these financial statements include on-behalf payments for retirement matching paid to the Arkansas Teacher Retirement System by the Arkansas Department of Education totaling $ 390,

13 OTHER REPORTS AND SUPPLEMENTARY INFORMATION 11

14 Doug Dobbs, CPA, P.A. Certified Public Accountants 2123 W. Colonel Glenn Road Little Rock, AR (501) FAX (501) REPORT ON COMPLIANCE AND OTHER MATTERS AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Education Arch Ford Education Service Cooperative Plumerville, Arkansas We have audited the financial statements of each major governmental fund of the Arch Ford Education Service Cooperative (the "Cooperative"), as of and for the year ended June 30, 2005, which collectively comprise the Cooperative's regulatory basis financial statements, and have issued our report thereon dated January 11, We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. We issued an adverse opinion because the Cooperative prepared the financial statements using accounting practices prescribed or permitted by the Arkansas Code, which differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determined, are presumed to be material. However, the financial statements present fairly, in all material respects, the respective financial position of each major governmental fund and the aggregate remaining fund information of the Cooperative as of June 30, 2005, and the respective changes in financial position and budgetary results for the year then ended, on the basis of accounting described in Note A. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Cooperative s regulatory basis financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the 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 that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Cooperative s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be a material weakness. A 12

15 To the Board of Education Page Two material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the regulatory basis financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. These reports are intended solely for the information and use of the Legislative Joint Auditing Committee, the local governing board and Cooperative management, state executive and oversight management, federal regulatory and oversight bodies, the federal awarding agencies and pass-through entities, and other parties as required by Arkansas Code and are not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. Doug Dobbs, CPA, P.A. Little Rock, Arkansas January 11,

16 Doug Dobbs, CPA, P.A. Certified Public Accountants 2123 W. Colonel Glenn Road Little Rock, AR (501) FAX (501) REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Education Arch Ford Education Service Cooperative Plumerville, Arkansas Compliance We have audited the compliance of Arch Ford Education Service Cooperative (the Cooperative ) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of the major federal programs for the year ended June 30, The Cooperative s major federal programs are identified in the Summary of Auditor s Results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Cooperative s management. Our responsibility is to express an opinion on Cooperative s compliance based on our audit. We conducted our audit of compliance in accordance with U.S. generally accepted auditing standards; 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 Cooperative 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 Cooperative s compliance with those requirements. In our opinion, Arch Ford Education Service Cooperative complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of the Cooperative is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Cooperative s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our 14

17 To the Board of Education Page Two opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirement of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. These reports are intended solely for the information and use of the Legislative Joint Auditing Committee, the local governing board and Cooperative management, state executive and oversight management, federal regulatory and oversight bodies, the federal awarding agencies and pass-through entities, and other parties as required by Arkansas Code and are not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. Doug Dobbs, CPA, P.A. Little Rock, Arkansas January 11,

18 SCHEDULE OF CAPITAL ASSETS JUNE 30, 2005 GOVERNMENTAL ACTIVITIES: Beginning Retirements/ Ending Balance Additions Reclassifications Balance Capital assets that are depreciated: Building and improvements $ 272,632 $ $ $ 272,632 Equipment 781,370 52, ,073 Total depreciable historical cost 1,054,002 52, ,106,705 Less accumulated depreciation for: Building and improvements 46,232 5,453 51,685 Total accumulated deprecation 46,232 5, ,685 GOVERNMENTAL ACTIVITIES CAPITAL ASSETS, NET $ 1,007,770 $ 47,250 $ 0 $ 1,055,020 16

19 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2005 FEDERAL GRANTOR/PASS THROUGH GRANTOR/PROGRAM TITLE SPECIAL EDUCATION CLUSTER U.S. DEPARTMENT OF EDUCATION Passed Through Arkansas Department of Education FEDERAL CFDA NUMBER FEDERAL EXPENDITURES Special Education Grants to States $ 219,150 Special Education Preschool Grants ,249 TOTAL SPECIAL EDUCATION CLUSTER 621,399 OTHER PROGRAMS U.S. DEPARTMENT OF EDUCATION Passed Through Arkansas Department of Education Vocational Education Basic Grants to States ,172 Goals 2000-State and Local Ed. Systematic Improvement Gr ,058 Sliver Grant ,723 Reading First State Grants ,093 Title VI-B Head Start ,988 Technology Literacy Challenge Fund Grants ,656 Eisenhower Math/Science ,660 Title VI-B Special Grants ,000 TOTAL OTHER PROGRAMS 619,350 Passed Through Dawson Educational Services Cooperative Enhancing Education Through Technology ,057 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 1,244,806 Notes to Schedule: 1.This schedule includes the federal awards activity of the Cooperative and is presented on the regulatory basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the basic financial statements. 2. Medicaid reimbursements are defined as contracts for services and not federal awards, therefore such reimbursements totaling $ 32,033 are not covered by the reporting requirements of OMB Circular A CFDA # unavailable listed as

20 FEDERAL AWARD PROGRAMS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2005 A. SUMMARY OF AUDITOR S RESULTS 1. Our report expresses an unqualified opinion on the Regulatory basis opinion units and an adverse opinion on the GAAP basis of reporting of Arch Ford Education Service Cooperative. No reportable conditions were disclosed during the audit of the financial statements. 2. No instances of non-compliance material to the financial statements of Arch Ford Education Service Cooperative were disclosed during the audit. 3. There were no reportable conditions during the audit of the major federal award programs. 4. Our report on compliance for the major federal awards programs for Arch Ford Education Service Cooperative expresses an unqualified opinion. 5. There were no audit findings relative to the major federal award programs. 6. The programs tested as major programs included: Special Education Cluster: Preschool CFDA No and Grants to States CFDA No The threshold for distinguishing types A and B programs was $ 300, Arch Ford Education Service Cooperative was determined to be a low-risk auditee. B. FINDINGS FINANCIAL STATEMENTS AUDIT No reportable conditions. C. FINDINGS FEDERAL AWARDS AUDIT No reportable conditions. 18

21 FEDERAL AWARD PROGRAMS SUMMARY OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2005 There were no findings in the prior audit. 19

22 Doug Dobbs, CPA, P.A. Certified Public Accountants 2123 W. Colonel Glenn Road Little Rock, AR (501) FAX (501) INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH ARKANSAS STATE REQUIREMENTS To the Board of Education Arch Ford Education Service Cooperative Plumerville, Arkansas We have examined management s assertions, included in its representation letter dated January 11, 2007, that Arch Ford Education Service Cooperative substantially complied with the requirements of Arkansas Code Annotated and the applicable laws and regulations listed on Arkansas Department of Education form OCI during the year ended June 30, As discussed in that representation letter, management is responsible for the Cooperative s compliance with those requirements. Our responsibility is to express an opinion on management s assertions about the Cooperative s compliance based on our examination. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the Cooperative s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the Cooperative s compliance with specified requirements. In our opinion, management s assertions that Arch Ford Education Service Cooperative complied with the aforementioned requirements for the year ended June 30, 2005, are fairly stated, in all material respects. This report is intended solely for the information and use of the School Board, management, and the Arkansas Department of Education and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record, and its distribution is not limited. Doug Dobbs, CPA, P.A. Little Rock, Arkansas January 11,

23 Doug Dobbs, CPA, P.A. Certified Public Accountants 2123 W. Colonel Glenn Road Little Rock, AR (501) FAX (501) To the Board of Education Arch Ford Education Service Cooperative Plumerville, Arkansas MANAGEMENT LETTER As a management service, we would life to bring to your attention the following other items that came to our attention during our audit. The purpose of such comments is to provide constructive feedback and guidance in an effort to assist management to maintain a satisfactory level of compliance with the state constitution, laws and regulations and achieve adequate internal controls. These matters were discussed previously with Cooperative officials during the course of our audit fieldwork and at the exit conference. It appears that state ethics restrictions were not adhered to relating to the employment of a relative of management by a company that the Cooperative does business with. Also several nonbusiness charges were paid for against the Cooperative s established policies. These matters were disclosed in an Investigative Report released June 10, 2005 by the Legislative Joint Audit Committee. These reports are intended solely for the information and use of the Legislative Joint Auditing Committee, the local governing board and Cooperative management, state executive and oversight management, federal regulatory and oversight bodies, the federal awarding agencies and pass-through entities, and other parties as required by Arkansas Code and are not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. Doug Dobbs, CPA, P.A. Little Rock, Arkansas January 11,