SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

Transcription

1 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2013

2 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2013 TABLE OF CONTENTS Exhibit Page CERTIFICATE OF BOARD 1 Independent Auditors' Report 2 Management's Discussion and Analysis 4 Basic Financial Statements Government Wide Statements: A1 Statement of Net Position 11 B1 Statement of Activities 12 Governmental Fund Financial Statements: C1 Balance Sheet 13 C2 Reconciliation for C1 14 C3 Statement of Revenues, Expenditures, and Changes in Fund Balance 15 C4 Reconciliation for C3 16 Fiduciary Fund Financial Statements: E1 Statement of Fiduciary Net Position 17 Notes to the Financial Statements 18 Budget Comparisons G1 Budgetary Comparison Schedule General Fund 30 G2 Budgetary Comparison Schedule Child Nutrition Program 31 Combining Schedules Nonmajor Governmental Funds: H1 Combining Balance Sheet 32 H2 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 36 H3 Statement of Changes in Assets and Liabilities 40 Required Supplementary Schedules J1 Schedule of Delinquent Taxes 41 J2 Schedule of Expenditures for Computation of Indirect Cost 43 J3 Fund Balance and Cash Flow Calculation Worksheet 44 Federal Awards Section Independent Auditors 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 45 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs 49 Summary Schedule of Prior Audit Findings 50 Corrective Action Plan 51 K1 Schedule of Expenditures of Federal Awards 52 Notes to Schedule of Expenditures of Federal Awards 53

3 CERTIFICATE OF BOARD South Texas Independent School District Hidalgo Name of District County Co.Dist. Number We, the undersigned, certify that the attached annual financial reports of the abovenamed school district were reviewed and (check one) approved disapproved for the year ended August 31, 2013 at a meeting of the Board of Trustees of such school district on the day of December, Signature of Board Secretary Signature of Board President 1

4 INDEPENDENT AUDITORS REPORT Board of Trustees South Texas Independent School District We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of South Texas Independent School District (the District ) as of and for the year ended August 31, 2013, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 South Texas Independent School District as of August 31, 2013, and the respective changes in financial position, and, where applicable, thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 765 EAST 7 th STREET BROWNSVILLE, TX (956) FAX: (956) AFFILIATE OFFICES: HILLSBORO, TX (254) TEMPLE, TX (254) WACO, TX (254) ALBUQUERQUE, NM (505)

5

6 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS In this section of the Annual Financial and Compliance Report, we, the managers of SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT, 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 2, and the District's Basic Financial Statements which begin on page 11. FINANCIAL HIGHLIGHTS The District's net position increased by $10,150,647 as a result of this year's operations. Net position of our governmental activities increased by $10,146,171. During the year, the District had expenses that were $10,146,171 less than the $53,571,119 generated in tax and other revenues for governmental programs (before special items). This compares to last year when revenues exceeded expenses by $10,779,370. The General Fund ended the year with a fund balance of $55,762,124, of which $18,430,223 is unassigned. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The governmentwide financial statements include the Statement of Net position and the Statement of Activities. These provide information about the activities of the District as a whole and present a longterm 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 report the District's operations in more detail than the governmentwide 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. For proprietary activities, fund financial statements tell how goods or services of the District were sold to departments within the District or to external customers and how the sales revenues covered the expenses of the goods or services. 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 provide narrative explanations or additional data needed for full disclosure in the governmentwide statements or the fund financial statements. The combining statements for nonmajor 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. 4

7 Reporting the District as a Whole The Statement of Net position and the Statement of Activities The analysis of the District's overall financial condition and operations begins on page 11. 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 position 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 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 position and changes in them. The District's net position (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 position 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 nonfinancial 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 position and the Statement of Activities, one kind of activity is reported for the District: 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 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. 5

8 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 shortterm 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 Position 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 Position and the Statement of Activities. In fact, the District s 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 selfinsurance programs, the print shop, and transportation. The District as Trustee Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for money raised by student activities and alumnae scholarship programs. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Position. 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. GOVERNMENTWIDE FINANCIAL ANALYSIS The District implemented GASB Statement #34 during fiscal year August 31, Our analysis focuses on the net position (Table I) and changes in net position (Table II) of the District's governmental activities. Net position of the District's governmental activities increased from $99,807,987 to $109,958,634. Unrestricted net position the part of net position that can be used to finance daytoday operations without constraints established by debt covenants, enabling legislation, or other legal requirements was $18,430,223 at August 31, This increase is relatively significant to the overall operations of the District. 6

9 TABLE I Governmental Activities Current Assets: Cash and cash equivalents $ 55,868,877 $ 45,889,255 Property taxes receivable, net 4,016,463 4,101,841 Allowance for uncollectible taxes (401,646) (410,184) Due from other government 1,613,524 1,688,533 Accrued interest ,874 Inventories 12,069 11,817 Other receivables 23,164 Deferred expenses 5,386 Total current assets 61,133,390 51,382,522 Non current assets: Land 3,847,767 3,366,042 Building 58,474,875 56,585,362 Furniture & equipment 11,042,017 10,777,750 Construction in progress 2,339,498 2,557,094 Less: Accumulated Depreciation (25,441,108) (23,138,979) Total noncurrent assets 50,263,049 50,147,269 Total assets 111,396, ,529,791 Current Liabilities Accounts Payable 190, ,427 Payroll deductions/withholdings 1,111 11,572 Accrued wages payable 1,190,410 1,186,718 Due to Student Groups 10, Due to other governments 27,092 Accrued expenses 1,064 Unearned revenues 18,721 39,275 Non current liabilities Due within one year Due in more than one year Total liabilities 1,437,805 1,721,804 Net position: Invested in capital assets, net of related debt 50,295,671 47,806,553 Restricted for federal and state programs 318, ,347 Restricted for other purposes 37,331,901 30,825,386 Unrestricted 22,012,418 20,885,701 Total net position $ 109,958,634 $ 99,807,987 7

10 TABLE II Changes in South Texas Independent School District's Net Position Governmental Activities Program revenues: Charges for services $ 887,197 $ 923,509 Operating grants and contributions 5,365,911 5,008,357 State aid formula grants 24,856,911 23,103,825 Grants and contributions not restricted 41,948 39,900 Investment earnings 31, ,058 Misc. local and intermediate revenues 118, ,373 Property taxes 22,269,265 21,921,273 Special items Total revenues 53,571,119 51,871,295 Expenses: Instruction 21,747,748 20,455,078 Instructional resources and media services 1,795,345 1,682,936 Curriculum and staff development 318, ,443 Instructional and school leadership 221, ,748 School leadership 2,377,648 2,293,879 Guidance, counseling and evaluation services 1,963,618 1,927,037 Social work services 154, ,281 Health services 308, ,787 Student (pupil) transportation 4,234,578 3,384,831 Food services 1,538,948 1,723,208 Curricular/extracurricular activities 613, ,400 General administration 1,779,147 1,684,574 Plant maintenance and operations 5,142,335 5,196,621 Security and monitoring services 270, ,663 Data processing services 532, ,602 Community services 19,334 18,133 Debt service Bond issuance cost and fees Facilities acquisition and construction Payments to juvenile justice alternative ed. prog. Other Intergovernmental Charges 407, ,704 Total expenses 43,424,948 41,091,925 Excess (deficiency) before other resources, uses & transfers 10,146,171 10,779,370 Transfers in ( out) Prior Period Adjustment 4,476 2,354,024 Net Position at Beginning of Year 99,807,987 86,674,593 Net Position at Ending of the Year $ 109,958,634 $ 99,807,987 8

11 The cost of all governmental activities this year was $43,424,948 compared to $41,091,925 last year. However, as shown in the Statement of Activities, the amount that our taxpayers ultimately financed for these activities through District taxes was only $22,269,265 because the rest of the costs ($21,155,683) 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. THE DISTRICT'S FUNDS As the District completed the year, its governmental funds (as presented in the balance sheet) reported a combined fund balance of $56,080,768 which is more than last year's total of $45,969,061. The increase is primarily due to a decrease in the district s operational expenses. Over the course of the year, the Board of Trustees revised the District's budget several times. These amendments principally involved reclassifications between functional categories and funds from programs that did not need all the resources originally appropriated to them to programs with resource needs and reclassifications between functional categories. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2013, the District had $50,263,049 (net of depreciation) invested in a broad range of capital assets, including facilities and equipment for instruction, transportation, athletics, administration, and maintenance. This amount represents a net increase of just over $115,780, or.2 percent, above last year. This year's major additions (construction in progress) included: District's Capital Assets 2013 Land $ 116,175 Buildings and improvements 212,499 Furniture and equipment 596,883 Construction in progress 1,824,968 Total at historical cost 2,750,525 Less: Accumulated depreciation (2,602,123) Net capital assets $ 148,402 Debt at yearend, the District had $0 in bonds outstanding. 9

12 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES These indicators were taken into account when adopting the General Fund budget for Amounts available for appropriation in the General Fund budget are $22,312,756, an increase of approximately 7.6 percent from the final 2014 budget of $47,523,000 resulting from state per capita payments, and grant revenue decreases. The District will use its revenues to finance programs we currently offer. The budget approved by the Board of Trustees was not a balanced budget. Expenditures are budgeted to increase 11.6% to $46,611,905. The increase is mainly due to salaries and capital projects. If these estimates are realized, the District's budgetary General Fund balance is expected to increase constant by the close of 2014, less any amounts from fund balance for major renovations and new district initiatives. 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 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT, 100 Med High Dr., Mercedes, Texas

13 BASIC FINANCIAL STATEMENTS

14 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT STATEMENT OF NET POSITION AUGUST 31, 2013 EXHIBIT A1 Data Control Codes Primary Government Governmental Activities ASSETS 1110 Cash and Cash Equivalents $ 1220 Property Taxes Receivable (Delinquent) 1230 Allowance for Uncollectible Taxes 1240 Due from Other Governments 1250 Accrued Interest 1290 Other Receivables, net 1300 Inventories Capital Assets: 1510 Land 1520 Buildings, Net 1530 Furniture and Equipment, Net 1580 Construction in Progress 55,868,877 4,016,463 (401,646) 1,613, ,164 12,069 3,847,767 36,519,339 7,556,445 2,339, Total Assets 111,396,439 LIABILITIES 2110 Accounts Payable 2150 Payroll Deductions & Withholdings 2160 Accrued Wages Payable 2180 Due to Other Governments 2190 Due to Student Groups 2300 Unearned Revenue 190,102 1,111 1,190,410 27,092 10,369 18, Total Liabilities 1,437,805 NET POSITION 3200 Net Investment in Capital Assets 3820 Restricted for Federal and State Programs 3890 Restricted for Other Purposes 3900 Unrestricted 50,295, ,644 37,331,901 22,012, Total Net Position $ 109,958,634 The notes to the financial statements are an integral part of this statement. 11

15 Data Control Codes Primary Government: SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2013 Program Revenues EXHIBIT B1 Net (Expense) Revenue and Changes in Net Position Expenses Charges for Services Operating Grants and Contributions Primary Gov. Governmental Activities GOVERNMENTAL ACTIVITIES: 11 Instruction $ 21,747,748 $ 372,666 $ 2,473,082 $ (18,902,000) 12 Instructional Resources and Media Services 1,795, ,979 (1,672,366) 13 Curriculum and Staff Development 318, ,500 (77,754) 21 Instructional Leadership 221,784 5,188 12,307 (204,289) 23 School Leadership 2,377, ,737 (2,248,911) 31 Guidance, Counseling and Evaluation Services 1,963, ,909 (1,686,709) 32 Social Work Services 154, ,801 (35,387) 33 Health Services 308,420 17,555 (290,865) 34 Student (Pupil) Transportation 4,234, ,596 (4,096,982) 35 Food Services 1,538, ,119 1,490, , Extracurricular Activities 613,773 19,825 (593,948) 41 General Administration 1,779,147 9,224 69,834 (1,700,089) 51 Facilities Maintenance and Operations 5,142, ,109 (4,929,226) 52 Security and Monitoring Services 270,383 (270,383) 53 Data Processing Services 532,068 24,566 (507,502) 61 Community Services 19,334 19, Other Intergovernmental Charges 407,377 (407,377) [TP] TOTAL PRIMARY GOVERNMENT: $ 43,424,948 $ 887,197 $ 5,365,911 (37,171,840) Data Control Codes MT SF GC IE MI TR General Revenues: Taxes: Property Taxes, Levied for General Purposes State Aid Formula Grants Grants and Contributions not Restricted Investment Earnings Miscellaneous Local and Intermediate Revenue Total General Revenues 22,269,265 24,856,911 41,948 31, ,754 47,318,011 CN Change in Net Position 10,146,171 NB PA NE Net Position Beginning Prior Period Adjustment Net PositionEnding $ 99,807,987 4, ,958,634 The notes to the financial statements are an integral part of this statement. 12

16 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS AUGUST 31, 2013 EXHIBIT C1 Data Control Codes 10 General Fund Nonmajor Governmental Funds Total Governmental Funds ASSETS 1110 Cash and Cash Equivalents $ 55,898,457 $ (29,580) $ 55,868, Property Taxes Delinquent 4,016,463 4,016, Allowance for Uncollectible Taxes (401,646) (401,646) 1240 Receivables from Other Governments 1,221, ,086 1,613, Accrued Interest Due from Other Funds 6,653 6, Other Receivables ,870 23, Inventories 12,069 12, Total Assets $ 60,742,598 $ 397,445 $ 61,140,043 LIABILITIES 2110 Accounts Payable $ 188,729 $ 1,373 $ 190, Payroll Deductions and Withholdings Payable 1,111 1, Accrued Wages Payable 1,138,356 52,054 1,190, Due to Other Funds 6,653 6, Due to Other Governments 27,092 27, Due to Student Groups 10,369 10, Deferred Revenue 3,614,817 18,721 3,633, Total Liabilities 4,980,474 78,801 5,059,275 FUND BALANCES Restricted Fund Balance: 3450 Federal or State Funds Grant Restriction Committed Fund Balance: 3510 Construction 3545 Other Committed Fund Balance 3600 Unassigned Fund Balance 318, ,644 33,702,533 33,702,533 3,629,368 3,629,368 18,430,223 18,430, Total Fund Balances 55,762, ,644 56,080, Total Liabilities and Fund Balances $ 60,742,598 $ 397,445 $ 61,140,043 The notes to the financial statements are an integral part of this statement. 13

17 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION AUGUST 31, 2013 EXHIBIT C2 Total Fund Balances Governmental Funds 1 Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $73,286,248 and the accumulated depreciation was $23,138,979. In addition, longterm liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and longterm debt in the governmental activities is to increase net position. 2 Current year capital outlays are expenditures in the fund financial statements,but they should be shown as increases in capital assets in the governmentwide financial statements. The net effect of including the 2013 capital outlays is to increase net position. $ 56,080,768 50,147,269 2,750,525 3 The 2013 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to (decrease) net position. (2,602,123) 4 Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing unavailable revenue from property taxes as revenue, and eliminating interfund transactions. The net effect of these reclassifications and recognitions is to increase net position. 19 Net Position of Governmental Activities $ 3,582, ,958,634 The notes to the financial statements are an integral part of this statement. 14

18 Data Control Codes SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, General Fund Nonmajor Governmental Funds Total Governmental Funds EXHIBIT C REVENUES: Total Local and Intermediate Sources $ 23,347,380 $ 570,342 $ 23,917,722 State Program Revenues 26,628, ,298 26,822,309 Federal Program Revenues 41,948 2,865,980 2,907, Total Revenues 50,017,339 3,630,620 53,647,959 EXPENDITURES: Current: 0011 Instruction 0012 Instructional Resources and Media Services 0013 Curriculum and Instructional Staff Development 0021 Instructional Leadership 0023 School Leadership 0031 Guidance, Counseling and Evaluation Services 0032 Social Work Services 0033 Health Services 0034 Student (Pupil) Transportation 0035 Food Services 0036 Extracurricular Activities 0041 General Administration 0051 Facilities Maintenance and Operations 0052 Security and Monitoring Services 0053 Data Processing Services 0061 Community Services Capital Outlay: 0081 Facilities Acquisition and Construction Intergovernmental: 0099 Other Intergovernmental Charges 19,212,377 1,426,391 20,638,768 1,577,931 70,083 1,648,014 77, , , , ,784 2,265,977 2,265,977 1,693, ,287 1,880,001 37, , , , ,420 4,128,682 4,128,682 1,490,777 1,490, , ,773 1,769,034 1,769,034 4,783,015 4,783, , , , ,351 19,334 19,334 2,182,352 51,977 2,234, , , Total Expenditures 39,971,027 3,602,323 43,573, Net Change in Fund Balances 10,046,312 28,297 10,074, Fund Balance September 1 (Beginning) 45,678, ,347 45,969, Increase (Decrease) in Fund Balance 37,098 37, Fund Balance August 31 (Ending) $ 55,762,124 $ 318,644 $ 56,080,768 The notes to the financial statements are an integral part of this statement. 15

19 EXHIBIT C4 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2013 Total Net Change in Fund Balances Governmental Funds Current year capital outlays are expenditures in the fund financial statements, but they should be shown as increases in capital assets in the governmentwide financial statements. The net effect of removing the 2013 capital outlays is to increase net position. $ 10,074,609 2,750,525 Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to (decrease) net position. (2,602,123) Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing unavailable revenue from property taxes as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, and eliminating interfund transactions. The net effect of these reclassifications and recognitions is to (decrease) net position. Change in Net Position of Governmental Activities $ (76,840) 10,146,171 The notes to the financial statements are an integral part of this statement. 16

20 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS AUGUST 31, 2013 EXHIBIT E1 Agency Fund ASSETS Cash and Cash Equivalents $ 488,742 Total Assets $ 488,742 LIABILITIES Due to Student Groups $ 488,742 Total Liabilities $ 488,742 The notes to the financial statements are an integral part of this statement. 17

21 SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED AUGUST 31, 2013 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES South Texas Independent School District (the District ) is a public educational agency operating under the applicable laws and regulations of the State of Texas. The District prepares its basic financial statements in conformity with generally accepted accounting principles promulgated by the Governmental Accounting Standards Board and it complies with the requirements of the appropriate version of Texas Education Agency's Financial Accountability System Resource Guide (the Resource Guide ) and the requirements of contracts and grants of agencies from which it receives funds. A. REPORTING ENTITY The Board of School Trustees ( Board ), a twenty four group, has governance responsibilities over all activities related to public special and secondary school education within the jurisdiction of the South Texas Independent School District. The District has no exclusive jurisdiction but instead recruits students from other districts within Cameron, Hidalgo and Willacy counties. Because members of the Board of Trustees are elected by the public and appointed; have the authority to make decisions, appoint administrators and managers, and significantly influence operations; and have the primary accountability for fiscal matters; the District is not included in any other governmental reporting entity as defined by Governmental Accounting Standards Board ( GASB ). In evaluating how to define the District, for financial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity was made by applying the criteria set forth in GASB 14. Based upon the application of these criteria, the component unit disclosed below is included in the District s reporting entity because of the significance of their operational and financial relationship with the District. Since the District receives funding from local, state and federal government sources, it must comply with the requirements of the entities providing those funds. Component unit included: South Texas Independent School District Public Facilities Corporation ( PFC ) was formed as an independent separate entity to finance the construction of various school facilities by issuing revenue bonds. The PFC is used to finance the payment of bonds by leasing the school buildings to the District. Enough revenue should be realized from the annual lease proceeds to service the principal and interest on the bonds. The PFC was formed by the District to facilitate the construction of several school buildings. The PFC Board of Directors are also members of the School Board. PFC is included in these financial statements in a blended presentation since the entity has essentially the same Board as the District; it receives all of its revenue from the lease solely from the District and is a mere extension of the District. Financial information on the PFC is available for review at the District s administrative offices. The Statement of Net Position and the Statement of Activities are governmentwide financial statements. They report information on the entire District with the interfund activities removed. Governmental activities include programs supported primarily by grants, state foundation funds and other intergovernmental revenues. 18

22 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. GOVERNMENTWIDE AND FUND FINANCIAL STATEMENTS The Statement of Net Position and the Statement of Activities are governmentwide financial statements. They report information on the entire District with the interfund activities removed. Governmental activities include programs supported primarily by grants, state foundation funds and other intergovernmental revenues. The Statement of Activities demonstrates how other people or entities that participate in programs the District operates have shared in the payment of the direct costs. The charges for services column includes payments made by parties that purchase, use or directly benefit from goods or services provided by a given function or segment of the District. Examples include services provided to student within the District, refunds, and miscellaneous income, etc. The grants and contributions column includes amounts paid by organizations outside the District to help meet the operational or capital requirements of a given function. Examples include grants through the Department of Education and Department of Agriculture. If revenue is not program revenue, it is general revenue used to support all of the District s functions. Interfund activities between governmental funds appear as due to/due froms on the Governmental Fund Balance Sheet and Proprietary Fund Statement of Net Position and as other resources and other uses on the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balance and on the Proprietary Fund Statement of Revenues, Expenses and Changes in Net Position. All interfund transactions between governmental funds and between governmental funds and internal service funds are eliminated on the governmentwide statements. The fund financial statements provide reports on the financial condition and results of operations for three fund categories governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for District operations, they are not included in the governmentwide statements. The District considers some governmental funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. All other revenues and expenses are nonoperating. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The governmentwide financial statements use the economic resources measurement focus and the accrual basis of accounting, as do the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of these funds present net increases and decreases in current assets (i.e., revenues and other financing sources and expenditures and other financing uses). The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on longterm debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The District considers all revenues available if they are collectible within 60 days after yearend. 19

23 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION Revenues from local sources consist primarily of property taxes. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as unearned revenues until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors sometimes require the District to refund all or part of the unused amount. The Proprietary Fund Types and Fiduciary Funds are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. D. BASIS OF PRESENTATION FUND ACCOUNTING The District reports the following major governmental funds: 1. General Fund is used to account for financial resources used for general operations. This is a budgeted fund and any fund balances are considered resources available for current operations. All revenues and expenditures not required to be accounted for in other funds, are accounted for in this fund. Additionally, the District reports the following fund type(s): Governmental Funds: 1. Special Revenue Funds are used to account for resources restricted to, or designated for, specific purposes by a grantor. Federal and state financial assistance generally is accounted for in a Special Revenue Fund. Normally, unused balances are returned to the grantor at the close of specified project periods. Fiduciary funds: 1. Agency Funds are used to account for assets held by the District in a trustee capacity or as an agent for individual, private organizations, other governments and/or other funds. Agency Funds are custodial in nature (assets and liabilities) and do not involve measurement of results of operations. E. OTHER ACCOUNTING POLICIES 1. For purposes of the statement of cash flows for proprietary and similar fundtypes, the District considers highly liquid investments to be cash equivalents if they have maturity of three months or less when purchased. 2. Inventories of supplies on the balance sheet are stated at weighted average cost and they include consumable maintenance, instructional and office items. Supplies are recorded as expenditures when they are consumed. 20

24 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. OTHER ACCOUNTING POLICIES 3. In the governmentwide financial statements, and proprietary fund types in the fund financial statements, longterm obligations are reported as liabilities in the applicable governmental activities statement of net position. 4. Capital assets, which include land, buildings, furniture and equipment, are reported in the applicable governmental activities columns in the governmentwide financial statements. Capital assets are defined by the District as assets with an initial, individual cost of equal or more than $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. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Buildings, furniture and equipment of the District is depreciated using the straight line method over the following estimated useful lives: Assets Years Building & Improvements 40 Buses 10 Other Vehicles 7 Equipment 5 5. When the District incurs an expense for which it may use either restricted or unrestricted assets, it uses the restricted assets first unless unrestricted assets will have to be returned because they were not used. 6. When the District incurs an expense for which it may use either restricted or unrestricted assets, it uses the restricted assets first unless unrestricted assets will have to be returned because they were not used. 7. The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the District is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows: Nonspendable: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. Nonspendable items are not expected to be converted to cash or are not expected to be converted to cash within the next year. Restricted: This classification includes amounts for which constraints have been placed on the use of the resources either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. Committed: This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by board resolution by the Board. The Board's commitment may be modified or rescinded by a majority vote in a scheduled meeting. Board commitments cannot exceed the amount of fund balance that is greater than the sum of nonspendable and restricted fund balances since that practice would commit funds that the District does not have. Board commitments must occur before the end of the reporting period with amounts to be determined subsequently. 21

25 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. OTHER ACCOUNTING POLICIES Assigned: This classification includes amounts that are constrained by the District s intent to be used for a specific purpose but are neither restricted nor committed. This intent can be expresses by the Board, the Superintendent, or Superintendent s designee. Unassigned: This classification includes the residual fund balance for the General Fund. The unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of assigned fund balance amounts. The order of spending and availability shall be to reduce funds from the listed areas in the following order: restricted, committed, assigned, and unassigned. 8. The Data Control Codes refer to the account code structure prescribed by TEA in the Financial Accountability System Resource Guide. Texas Education Agency requires school districts and service centers to display these codes in the financial statements filed with the agency in order to insure accuracy in building a statewide database for policy development and funding plans. 9. The District is exposed to various risks of loss related to torts, theft, damage or destruction of assets, errors and omissions, injuries to employees, and natural disasters. The District purchased commercial insurance to cover general liabilities. There were no significant reductions in coverage in the past fiscal year and there were no settlements exceeding insurance coverage for each of the past three fiscal years. II. RECONCILIATION OF GOVERNMENTWIDE AND FUND FINANCIAL STATEMENTS A. EXPLANATION OF DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENTWIDE STATEMENT OF NET POSITION Exhibit C2 provides the reconciliation between the fund balance for total governmental funds on the governmental fund balance sheet and the net position for governmental activities as reported in the governmentwide statement of net position. One element of that reconciliation explains that capital assets are not financial resources and are therefore not reported in governmental funds. In addition, longterm liabilities, including capital leases payable, are not due and payable in the current period and are not reported as liabilities in the funds. The details of capital assets and longterm debt at the beginning of the year were as follows: Capital Assets at the Historic Accumulated Net Value at the Change in Beginning of Year Cost Depreciation Beginning of Year Net Position Land $ 3,366,042 $ $ 3,366,042 Buildings 56,585,362 (20,120,545) 36,464,817 Furniture & Equipment 10,777,750 (3,018,434) 7,759,316 Construction in Progress 2,557,094 2,557,094 Change in Net Position $ 50,147,269 Long term liabilities at the Beginning of Year Payable at the Beginning of Year Bonds Payable Change in Net Position Net Adjustment to Net Position $ 50,147,269 22

26 II. RECONCILIATION OF GOVERNMENTWIDE AND FUND FINANCIAL STATEMENTS B. EXPLANATION OF DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES AND THE GOVERNMENTWIDE STATEMENT OF ACTIVITIES Exhibit C4 provides a reconciliation between the net changes in fund balance as shown on the governmental fund statement of revenues, expenditures and changes in fund balances and the changes in net position of governmental activities as reported on the governmentwide statement of activities. One element of that reconciliation explains that current year capital outlays and debt principal payments are expenditures in the fund financial statements, but should be shown as increases in capital assets and decreases in longterm debt in the governmentwide statements. This adjustment affects both the net asset balance and the change in net position. The details of this adjustment are as follows: Adjustments to Adjustments in Current Year Capital Outlay Amount Changes in Net Position Net Position Land $ 116,175 $ 116,175 Buildings & Improvements 212, ,499 Furniture & Equipment 596, ,883 Construction in Progress 1,824,968 1,824,968 Total Capital Outlay $ 2,750,525 Net Adjustment to Net Position $ 2,750,525 III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETARY DATA The official budget was prepared for adoption for the General Fund and the Food Service Fund, which is included within the Special Revenue Funds, which is included within the General Funds. The General Fund and Child Nutrition Program Budget reports appear in Exhibits G1 and G2, respectively. The following procedures are followed in establishing the budgetary data reflected in the basic financial statements: The following procedures are followed in establishing the budgetary data reflected in the basic financial statements: 1. Prior to August 20 th the District prepares a budget for the next succeeding fiscal year beginning September 1 st. The operating budget includes proposed expenditures and the means of financing them. 2. A meeting of the Board is then called for the purpose of adopting the proposed budget. Public notice of the meeting must be given at least ten days prior to the meeting. 3. Prior to September 1 st, the budget is legally enacted through passage of a resolution by the Board. Once a budget is approved, it can only be amended at the function and fund level by approval of a majority of the members of the Board. Amendments are presented to the Board at its regular meetings. Each amendment must have Board approval. As required by law, such amendments are made before the fact, are reflected in the official minutes of the Board, and are not made after fiscal yearend. During the year, the budget was amended as necessary. These were no significant budget amendments passed during the school year. 4. Each budget is controlled by the budget coordinator at the revenue and expenditure function or object level. Budgeted amounts are as amended by the Board. All budget appropriations lapse at yearend. 5. Encumbrances for goods or purchased services are documented by purchase orders or contracts. Under Texas law, appropriations lapse at August 31 st, and encumbrances outstanding at that time are to be either canceled or appropriately provided for in the subsequent year s budget. The District had no outstanding endofyear encumbrances. 23