State Bar of Texas. Financial Statements. For the Year Ended May 31, 2012

Transcription

1 Financial Statements For the Year Ended

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3 Table of Contents Independent Auditors Report 3 Management s Discussion and Analysis (Unaudited) 5 Basic Financial Statements Government Wide Financial Statements Statement of Net Assets 20 Statement of Activities 22 Fund Financial Statements: Balance Sheet Governmental Funds 24 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 25 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of Activities 27 Statement of Net Assets Proprietary Fund 28 Statement of Revenues, Expenses, and Changes in Retained Earnings Proprietary Fund 29 Statement of Cash Flows Proprietary Fund 30 Reconciliation of Operating Loss to Net Cash Provided by Operating Activities Proprietary Fund 31 Statement of Fiduciary Assets and Liabilities Agency Fund 32 Notes to Financial Statements 33 Required Supplemental Information (Unaudited) Statement of Revenues, Expenditures, and Changes in Fund Balance Budget (GAAP Basis) and Actual General Fund 50 Page 1

4 Table of Contents (Continued) Page Other Supplemental Information Combining Balance Sheet Nonmajor Governmental Funds 54 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds 56 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds 58 2

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7 Management s Discussion and Analysis The following is a discussion and analysis of the State Bar of Texas (the State Bar ) financial performance for the fiscal year ended. This section is a summary of the State Bar s financial activities based on currently known facts, decisions, or conditions. It is also based on both the government wide and fund based financial statements. The results of the current year are discussed in comparison to the prior year, with emphasis placed on the current year. This section is only an introduction and should be read in conjunction with the State Bar s financial statements, which immediately follow this section. Financial Highlights The assets of the State Bar exceeded its liabilities at the close of the most recent fiscal year by $37,784,758 (net assets). This amount includes all State Bar related assets including the reserves, all capital assets, all assets related to the Texas Bar Book Fund, the Sections, and all special revenue funds and capital project funds. Of this amount, $27,613,647 (unrestricted net assets) may be used to meet the State Bar s ongoing obligations to creditors. The State Bar s total net assets increased by $1,442,052 from the end of fiscal year 2011 to the end of fiscal year As of the close of the current fiscal year, the State Bar s governmental funds reported combined ending fund balances of $26,970,641, an increase of $2,679,719 in comparison with the prior year. Of this amount, $10,954,597 is available for spending at the State Bar s discretion (unassigned fund balance). The amount includes the General Fund, the Client Security Fund, the Special Revenue and Capital Projects Funds, and the Sections. At the end of the current fiscal year, the fund balance for the General Fund was $14,719,631 or 42% of the total General Fund expenditures for the year ending. Of this amount, $3,283,352 is subject to the Board of Director s (the Board ) approval on how the funds may be used, and $390,355 is nonspendable. 5

8 Management s Discussion and Analysis (Continued) Overview of the Financial Statements The State Bar s basic financial statements are comprised of the following components: 1) the government wide financial statements, 2) the fund financial statements, 3) notes to basic financial statements, and 4) the required supplementary information. Each one is described below. Government Wide Statements The government wide financial statements are designed to provide readers with a broad overview of the State Bar s finances, in a manner similar to a private sector business. The statements include all assets and liabilities using the accrual basis of accounting. The government wide financial statements are made up of the statement of net assets and the statement of activities. The government wide financial statements can be found on pages 20 through 23 of this report. The statement of net assets presents information on all the State Bar s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the State Bar is improving or deteriorating. The statement of activities presents information showing how the State Bar s net assets changed during the most recent fiscal year. The statement of activities is presented on the full accrual basis. This means that all changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in this statement for some items that will result in cash flows only in future fiscal periods (e.g., earned, but unused vacation leave). From the end of fiscal year 2011 to the end of fiscal year 2012, net assets increased by $1,442,052. Both government wide financial statements distinguish functions of the State Bar that are principally supported by dues and intergovernmental revenues (government activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business type activities). The governmental activities of the State Bar include general government, public services, member services, and public protection. The business type activities of the State Bar include the Texas Bar Book Fund. Fund Financial Statements 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 State Bar, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. The fund financial statements are made up of a balance sheet and a statement of revenues, expenditures, and changes in fund balances. The basic governmental fund financial statements can be found on pages 24 through 32 of this report. All of the funds of the State Bar can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. 6

9 Management s Discussion and Analysis (Continued) The State Bar has three types of funds: Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government wide financial statements. However, unlike the governmentwide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near term financing requirements. Because the focus of governmental funds is narrower than that of the government wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government wide financial statements. By doing so, readers may better understand the long term impact of the government s near term financing decision. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The State Bar maintains 13 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, the Client Security Fund, and Sections, all of which are considered to be major funds. Data from the other ten governmental funds are combined into a single, aggregated presentation. These ten funds are: Texas Board of Legal Specialization, Annual Meeting, Law Focused Education, the Legal Administrators Division, the Law Student Division, the Department of Public Services Fund, the State Bar College, the Technology Fund, the Law Center Fund, and the Hatton W. Sumners Grants. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in the report. Proprietary funds The Texas Bar Book Fund is the State Bar s one proprietary fund. It is an enterprise fund. An enterprise fund is used to report an entity s business type activities in the government wide financial statements. The basic proprietary fund financial statements can be found on pages 28 through 31 of this report. Fiduciary funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government wide financial statements because the resources of those funds are not available to support the State Bar s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The only fiduciary fund the State Bar has is an agency fund used to hold moneys for donations received for access to justice. The basic fiduciary fund financial statement can be found on page 32 of this report. 7

10 Management s Discussion and Analysis (Continued) Notes to Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government wide and fund financial statements. The notes to basic financial statements can be found on pages 33 through 48 of this report. Required Supplemental Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. The State Bar adopts an annual budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. Required supplementary information can be found on pages 50 through 52 of this report. Government Wide Financial Analysis Net Assets As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. In the case of the State Bar, assets exceeded liabilities by $37,784,758 at the close of the most recent fiscal year. The State Bar s net assets invested in capital assets, net of accumulated depreciation, (e.g., land, buildings, furniture, and equipment) less any related debt used to acquire those assets that is still outstanding reflects 28% of net assets. The State Bar uses these capital assets to provide services to members; consequently, these assets are not available for future spending. Although the State Bar s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. 8

11 Management s Discussion and Analysis (Continued) Table A 1 The State Bar s Net Assets 2012 Governmental Business Type 2011 Activities Activities Total Total Current and other assets $ 39,214,736 $ 2,350,258 $ 41,564,994 $ 40,966,426 Capital assets 10,191,463 89,427 10,280,890 10,774,230 Total assets $ 49,406,199 $ 2,439,685 $ 51,845,884 $ 51,740,656 Total liabilities $ 13,927,061 $ 134,065 $ 14,061,126 $ 15,397,950 Net assets: Invested in capital assets net of related debt $ 10,096,379 $ 74,732 $ 10,171,111 $ 10,631,604 Unrestricted 25,382,759 2,230,888 27,613,647 25,711,102 Total net assets $ 35,479,138 $ 2,305,620 $ 37,784,758 $ 36,342,706 9

12 Management s Discussion and Analysis (Continued) Government activities Governmental activities increased the State Bar s net assets by $1,916,197. Key elements of this increase are as follows. Table A 2 Changes in the State Bar's Net Assets Governmental Business Type 2011 Activities Activities Total Total Revenues Program revenues: Charges for services $ 20,856,407 $ 1,920,608 $ 22,777,015 $ 21,807,940 Operating grants and contributions 1,367,867 1,367,867 1,416,389 General revenues: Membership dues 20,580,181 20,580,181 20,149,026 Investment income 129,140 1, , ,749 Royalty revenue 326, ,513 1,007,308 1,018,861 Other income 162, , ,427 Total revenues 43,422,967 2,602,234 46,025,201 44,879,392 Expenses General government 7,950,310 7,950,310 7,115,431 Public services 3,578,782 3,578,782 3,553,637 Member services 20,219,437 20,219,437 20,071,399 Public protection 9,758,241 9,758,241 9,474,106 Books 3,076,379 3,076,379 2,848,010 Total expenses 41,506,770 3,076,379 44,583,149 43,062,583 Increase (decrease) in net assets 1,916,197 (474,145) 1,442,052 1,816,809 Net assets at beginning of year 33,562,941 2,779,765 36,342,706 34,525,897 Net assets at end of year $ 35,479,138 $ 2,305,620 $ 37,784,758 $ 36,342,

13 Management s Discussion and Analysis (Continued) Expense and Program Revenues Governmental Activities $25,000,000 $20,000,000 $20,219,437 $20,517,661 $15,000,000 $10,000,000 $7,950,310 $9,758,241 $5,000,000 $3,578,782 $0 $304,036 $945,878 $456,699 General Governmental Public Services Member Services Public Protection Expenses Revenues 11

14 Management s Discussion and Analysis (Continued) Revenues by Source Governmental Activities Charges for Services 48% Investment and Other Income 1% Operating Grants and Contributions 3% Royalty Revenue 1% Membership Dues 47% 12

15 Management s Discussion and Analysis (Continued) Business type activities Business type activities decreased the State Bar s net assets by $474,145. breakdown of expenses and program revenues and revenues by source type follows. A Expenses and Program Revenues Business Type Activities $3,500,000 $3,000,000 $3,076,379 $2,500,000 $2,000,000 $1,920,608 $1,500,000 $1,000,000 $500,000 $0 Expenses Revenues Book Fund 13

16 Management s Discussion and Analysis (Continued) Revenues by Source Business Activities Charges for Services 74% Royalty and Other Revenue 26% Financial Analysis of the Government s Funds As noted earlier, the State Bar uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental Funds The focus of the State Bar s governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the State Bar s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the State Bar s governmental funds reported combined ending fund balances of $26,970,641, an increase of $2,679,719 in comparison with the prior year. Of this amount, $758,994 is nonspendable for prepaid expenditures and inventories, and $15,257,050 is committed for specific uses by the Board of Directors. 14

17 Management s Discussion and Analysis (Continued) The General Fund is the chief operating fund of the State Bar. At the end of the current fiscal year, the total fund balance of the General Fund was $14,719,631, which is 75% unassigned. As a measure of the General Fund s liquidity, it may be useful to compare the unassigned fund balance to total fund expenditures. Unassigned fund balance represents 31% of total General Fund expenditures. During the current fiscal year, the fund balance of the State Bar s General Fund increased by $1,709,427. Proprietary Funds The State Bar s proprietary funds provide the same type of information found in the government wide financial statements, but in more detail. At the end of the current fiscal year, net assets of the Texas Bar Book Fund totaled $2,305,620. The total decrease in net assets was $474,145. Other factors concerning the finances of this fund have already been addressed in the discussion of the State Bar s business type activities. General Fund Budgetary Highlights The State Bar s actual revenue for the General Fund was $1,594,909 above budgeted amounts. The most significant positive variances resulted from professional development revenue and other income which were offset by negative variances from membership dues, investment income, and Bar Journal revenues. The State Bar s actual expenditures for the General Fund were $952,358 below budgeted amounts. The most significant positive variances resulted from professional development and legal service support expenditures. Capital Asset Administration Capital Assets The State Bar s investment in capital assets for its governmental activities as of, amounts to $10,280,890 (net of accumulated depreciation and amortization). This investment in capital assets includes land, buildings, and furniture, equipment and other assets. 15

18 Management s Discussion and Analysis (Continued) Table A 3 State Bar s Capital Assets Net of Accumulated Depreciation Governmental Business Type 2011 Activities Activities Total Total Land $ 154,074 $ $ 154,074 $ 154,074 Construction in progress 175, ,611 Building 628, , ,225 Furniture, equipment, and other 9,233,553 54,350 9,287,903 9,991,191 Digital publication 35,077 35, , $ 10,191,463 $ 89,427 $ 10,280,890 $ 10,973,929 Additional information on the State Bar s capital assets can be found in Note 4 on page 45 of this report. Long Term Liabilities At the end of the current fiscal year, the State Bar had capital leases of $360,565 and accrued compensated absences of $1,422,492. Table A 4 State Bar s Noncurrent Liabilities 2012 Governmental Business Type 2011 Activities Activities Total Total Capital lease payable $ 345,870 $ 14,695 $ 360,565 $ 166,260 Deferred rent liability 46,903 Accrued compensated absences 1,337,096 85,396 1,422,492 1,326,236 1,682, ,091 1,783,057 1,539,399 Less current portion (640,709) (35,497) (676,206) (559,454) Total noncurrent liabilities $ 1,042,257 $ 64,594 $ 1,106,851 $ 979,945 16

19 Management s Discussion and Analysis (Continued) Additional information on the State Bar s noncurrent liabilities can be found in Notes 7 on page 47 of this report. Economic Factors and Next Year s Budget For the General Fund, estimated revenues for fiscal year 2013 are $37,890,366 and estimated expenditures and other uses are $36,707,299. If these estimates are realized, and the General Fund transfers $1,183,067 to other funds as budgeted, the State Bar s budgetary General Fund fund balance is not expected to change. Contacting the State Bar s Financial Management This financial report is designed to provide a general overview of the State Bar s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Chief Financial Officer, State Bar of Texas, and P.O. Box 12487, Austin, Texas

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21 Basic Financial Statements

22 Statement of Net Assets Governmental Business Type ASSETS Activities Activities Total Assets Current assets: Cash and cash equivalents $ 15,811,549 $ $ 15,811,549 Investments 22,607,843 22,607,843 Receivables: Sales to members and others net of allowance for uncollectibles of $2,369 and $38,894 45, , ,987 Interest receivable 91,583 91,583 Other accounts receivable 835, ,671 Internal balances (935,913) 935,913 Inventories at cost 6, , ,406 Prepaid items 752, ,955 Total current assets 39,214,736 2,350,258 41,564,994 Noncurrent assets: Capital assets net of accumulated depreciation/amortization: Land 154, ,074 Construction in progress 175, ,611 Building 628, ,225 Furniture, equipment, and other 9,233,553 54,350 9,287,903 Digital publication 35,077 35,077 Total noncurrent assets 10,191,463 89,427 10,280,890 Total assets $ 49,406,199 $ 2,439,685 $ 51,845,884 The accompanying notes are an integral part of this statement. 20

23 Governmental Business Type LIABILITIES AND NET ASSETS Activities Activities Total Liabilities Current liabilities: Accounts payable $ 1,307,307 $ $ 1,307,307 Accrued liabilities 436,416 33, ,390 Due to agency funds 447, ,079 Unearned revenue 10,053,293 10,053,293 Capital lease payable 160,172 6, ,836 Accrued compensated absences 480,537 28, ,370 Total current liabilities 12,884,804 69,471 12,954,275 Long Term Liabilities Capital lease payable 185,698 8, ,729 Accrued compensated absences 856,559 56, ,122 Total noncurrent liabilities 1,042,257 64,594 1,106,851 Total liabilities $ 13,927,061 $ 134,065 $ 14,061,126 Net Assets Invested in capital assets net of related debt $ 10,096,379 $ 74,732 $ 10,171,111 Unrestricted 25,382,759 2,230,888 27,613,647 Total net assets $ 35,479,138 $ 2,305,620 $ 37,784,758 21

24 Statement of Activities Year Ended Operating Charges for Grants and Functions/Programs Expenses Services Contributions Governmental activities: General government $ 7,950,310 $ 304,036 $ Public services 3,578, , ,961 Member services 20,219,437 19,579, ,906 Public protection 9,758, ,699 Total governmental activities 41,506,770 20,856,407 1,367,867 Business type activities: Books 3,076,379 1,920,608 Total business type activities 3,076,379 1,920,608 Total primary governmental activities $ 44,583,149 $ 22,777,015 $ 1,367,867 General revenues: Membership dues Investment income Royalty revenue Other income Gain on disposal of capital assets Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year Program Revenues The accompanying notes are an integral part of this statement. 22

25 Net (Expenses) Revenues and Changes in Net Assets Governmental Business Type Activities Activities Total $ (7,646,274) $ $ (7,646,274) (2,632,904) (2,632,904) 298, ,224 (9,301,542) (9,301,542) (19,282,496) (19,282,496) (1,155,771) (1,155,771) (1,155,771) (1,155,771) (19,282,496) (1,155,771) (20,438,267) 20,580,181 20,580, ,140 1, , , ,513 1,007, , ,245 4,426 4,426 21,198, ,626 21,880,319 1,916,197 (474,145) 1,442,052 33,562,941 2,779,765 36,342,706 $ 35,479,138 $ 2,305,620 $ 37,784,758 23

26 Balance Sheet Governmental Funds Client Other Total General Security Governmental Governmental ASSETS Fund Fund Sections Funds Funds Assets Current assets: Cash and cash equivalents $ 8,156,851 $ 922,485 $ 4,512,199 $ 2,220,014 $ 15,811,549 Investments 17,476,801 2,204,310 1,515,988 1,410,744 22,607,843 Receivables: Sales to members and others net of allowance for uncollectibles of $2,369 45,009 45,009 Interest receivable 80,116 5,645 1,530 4,292 91,583 Other accounts receivable 626, , ,671 Due from other governmental funds 207, , ,468 1,767,439 Inventories at cost 6,039 6,039 Prepaid expenditures 384,316 18, , ,955 Total assets $ 26,983,702 $ 3,132,440 $ 7,020,450 $ 4,781,496 $ 41,918,088 LIABILITIES AND FUND BALANCE Liabilities Current liabilities: Accounts payable $ 1,188,084 $ $ 119,223 $ $ 1,307,307 Accrued liabilities 385,469 49,370 1, ,416 Due to other governmental funds 1,559,643 28, ,535 1,767,439 Due to enterprise fund 935, ,913 Due to agency fund 447, ,079 Unearned revenue 7,747, ,175 1,542,235 10,053,293 Total liabilities 12,264,071 28, ,768 1,723,347 14,947,447 Fund Balances Nonspendable 390,355 18, , ,994 Committed 3,283,352 3,104,179 6,069,796 2,799,723 15,257,050 Unassigned 11,045,924 (91,327) 10,954,597 Total fund balances 14,719,631 3,104,179 6,088,682 3,058,149 26,970,641 Total liabilities and fund balances $ 26,983,702 $ 3,132,440 $ 7,020,450 $ 4,781,496 $ 41,918,088 The accompanying notes are an integral part of this statement. 24

27 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets Total fund balance Governmental Funds balance sheet $ 26,970,641 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 10,191,463 The following liabilities are not due and payable in the current period and, therefore, are not reported in the funds: Capital lease payable (345,870) Accrued compensated absences (1,337,096) Net assets of governmental activities statement of net assets $ 35,479,138 The accompanying notes are an integral part of this statement. 25

28 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds Year Ended Client Other Total General Security Governmental Governmental Fund Fund Sections Funds Funds Revenues Membership dues $ 18,624,636 $ $ 1,955,545 $ $ 20,580,181 Accounting/management fees 594, ,214 Bar Journal 665, ,413 MCLE fees 2,746,252 2,746,252 Professional development 13,269,615 13,269,615 Investment income 74,194 9,353 36,956 8, ,140 Grant revenue 416, ,711 Other income 2,321,014 12,769 1,159,274 2,162,884 5,655,941 Total revenues 38,295,338 22,122 3,151,775 2,588,232 44,057,467 Expenditures Executive 2,147,936 2,147,936 Governmental relations 2,102,816 2,102,816 Special services 2,501,301 2,464,791 4,966,092 Professional development 9,297,739 9,297,739 Legal services support 1,076,148 1,076,148 Access to justice 526, ,734 Attorney compliance 2,906,143 2,906,143 Administration 1,967,622 30,718 1,998,340 Finance 2,249,768 2,249,768 Information technology 1,515,510 1,021,082 2,536,592 Communications 2,304,759 2,304,759 Web management 422, ,111 Public protection division 8,581, ,450 9,157,742 Total expenditures 35,098, ,450 2,501,301 3,516,591 41,692,920 Excess (deficiency) of revenues over (under) expenditures 3,196,760 (554,328) 650,474 (928,359) 2,364,547 Other Financing Sources (Uses) Proceeds from capital leases 315, ,172 Transfers in 300,000 1,187,333 1,487,333 Transfers out (1,487,333) (1,487,333) Total other financing sources (uses) (1,487,333) 300,000 1,502, ,172 Net change in fund balances 1,709,427 (254,328) 650, ,146 2,679,719 Fund balances at beginning of year 13,010,204 3,358,507 5,438,208 2,484,003 24,290,922 Fund balances at end of year $ 14,719,631 $ 3,104,179 $ 6,088,682 $ 3,058,149 $ 26,970,641 The accompanying notes are an integral part of this statement. 26

29 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of Activities Year Ended Net change in fund balance total Governmental Funds $ 2,679,719 Amounts reported for governmental activities in the 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. Capital outlay exclusive of noncapitalized items 245,254 Depreciation expense (797,083) Gain on disposal of capital assets 4,426 Proceeds from capital leases provide current financial resources to governmental funds, but issuing debt increases noncurrent liabilities in the statement of net assets. Repayment of capital leases is an expenditure in the governmental funds, but the repayment reduces noncurrent liabilities in the statement of net assets. Proceeds from capital leases (315,172) Repayment of capital leases 135,562 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Change in deferred rent liability 46,903 Change in compensated absences (83,412) Change in net assets of governmental activities statement of activities $ 1,916,197 The accompanying notes are an integral part of this statement. 27

30 Statement of Net Assets Proprietary Fund Business Type Activities Major Enterprise Fund Assets Current assets: Sales to members and others net of allowance for uncollectible accounts of $38,894 $ 738,978 Due from other funds 935,913 Inventories at cost 675,367 Total current assets 2,350,258 Capital assets furniture, equipment, digital publication, and other net of accumulated depreciation and amortization of $586,912 89,427 Total assets $ 2,439,685 Liabilities Current liabilities: Accrued liabilities $ 33,974 Capital lease payable 6,664 Accrued compensated absences 28,833 Total current liabilities 69,471 Long Term Liabilities Capital lease payable 8,031 Accrued compensated absences 56,563 Total long term liabilities 64,594 Total liabilities $ 134,065 Net Assets Invested in capital assets net of related debt $ 74,732 Unrestricted 2,230,888 Total net assets $ 2,305,620 The accompanying notes are an integral part of this statement. 28

31 Statement of Revenues, Expenses, and Changes in Retained Earnings Proprietary Fund Year Ended Business Type Activities Major Enterprise Fund Operating Revenues Charges for sales and services: Book sales $ 1,920,608 Royalty revenue 680,513 Other income 94 Total operating revenues 2,601,215 Operating Expenses Costs of goods sold 576,847 Administrative 2,331,113 Depreciation 3,057 Amortization 165,362 Total operating expenses 3,076,379 Operating loss (475,164) Nonoperating Revenues Investment income 1,019 Total nonoperating revenues 1,019 Net loss (474,145) Net assets at beginning of year 2,779,765 Net assets at end of year $ 2,305,620 The accompanying notes are an integral part of this statement. 29

32 Statement of Cash Flows Proprietary Fund Year Ended Business Type Activities Major Enterprise Fund Cash Flows From Operating Activities Receipts from customers $ 1,748,064 Receipts from royalties 680,513 Payments to suppliers for goods and services (1,420,289) Payments to employees (1,001,959) Net cash provided by operating activities 6,329 Cash Flows From Capital and Related Financing Activities Payments on capital leases (7,348) Net cash used in capital and related financing activities (7,348) Cash Flows From Investing Activities Interest received 1,019 Net cash provided by investing activities 1,019 Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ The accompanying notes are an integral part of this statement. 30

33 Reconciliation of Operating Loss to Net Cash Provided by Operating Activities Proprietary Fund Year Ended Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating loss $ (475,164) Depreciation and amortization expense 168,419 Bad debt expense 32,799 Adjustments to reconcile operating loss to net cash provided by operating activities: Decrease in accounts receivable (205,437) Increase in due from other funds 587,374 Decrease in merchandise inventories (103,078) Decrease in accrued liabilities (11,428) Increase in accrued compensated absences 12,844 Net cash provided by operating activities $ 6,329 Supplemental Disclosure of Cash Information Borrowings under capital lease $ 22,043 The accompanying notes are an integral part of this statement. 31

34 Statement of Fiduciary Assets and Liabilities Agency Fund Assets Restricted cash $ 6,407 Due from general fund 447,079 Total assets $ 453,486 Liabilities Due to other organizations $ 453,486 Total liabilities $ 453,486 The accompanying notes are an integral part of this statement. 32

35 Notes to Financial Statements 1. Summary of Significant Accounting Policies Reporting Entity The State Bar of Texas (the State Bar ) enabling legislation, Texas Rev. Civ. Stat. Ann. Art. 320a l (Vernon Supp. 1986), provides the authority for operations of the State Bar. In 1939, the State Bar was created by the State of Texas legislature. Located in the judicial branch of State government, its primary responsibility is to cooperate in the regulation of the practice of law in the State of Texas. The State Bar is an administrative branch or department of the Supreme Court of Texas. This report includes the funds and account groups required to account for those activities, organizations, and functions which are related to the State Bar and are controlled by the State Bar. The State Bar is included in the financial statements of the State of Texas as a component unit. The State Bar is subject to the Texas Sunset Act (Chapter 325). Subsequent to May 31, 2003, the revised State Bar Act was approved (Texas Gov. Code Section et. seq.), which recreated the State Bar until September 1, 2015 and thereafter, contingent upon the State of Texas legislature and the Supreme Court of Texas. The State Bar s major activities or functions include the collection and monitoring of membership dues, discipline of attorneys, development and accreditation of professional development courses, publishing and printing of legal text for sale to members, preparation and distribution of the Bar Journal, and providing access to a database of legal information for member use. These activities are included in the accompanying financial statements. Effective June 1, 1993, the State Bar adopted the provisions of Governmental Accounting Standards Board ( GASB ) Statement No. 14, The Financial Reporting Entity, which resulted in inclusion of the Sections in the basic financial statements of the State Bar. The State Bar appoints a majority of members to the Texas Bar Foundation s (the Foundation ) governing body; however, because the State Bar is not in a position to impose its will on or significantly influence the programs, projects, activities, or level of service performed by the Foundation, and because no financial burden or benefit exists between the State Bar and the Foundation, the Foundation is not considered a component unit of the State Bar. The State Bar also appoints a majority of members to the Texas Center For Legal Ethics (the Center ) governing body; however, because the State Bar is not in a position to impose its will on or significantly influence the programs, projects, activities, or level of service performed by the Center, and because no financial burden or benefit exists between the State Bar and the Center, the Center is not considered a component unit of the State Bar. 33

36 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Blended Component Units The College of the State Bar (the College ) is an honor society designed to recognize attorneys who accumulate at least twice as many continuing legal education credit hours each year than the minimum required. The College was created in 1981 by order of the Texas Supreme Court. The College is governed by a 18 member board of directors, of which 12 members are appointed by the State Bar s President and 6 members are appointed by the State Bar s President based on nominations submitted by the College s board. The College is a Section 501(c)3 corporation and is self funded through membership dues, investment income, and merchandise sales. The College is reported as a Special Revenue Fund. Law Focused Education, Inc. was created in 1975 as a Section 501(c)3 corporation to plan, promote, and support law related education programs which are aimed at preparing elementary, middle, and high school students for effective, responsible citizenship, and who are committed to liberty, justice, and the Rule of Law. Law Focused Education, Inc. is governed by a 16 member board of directors, all of which are appointed by the State Bar s President. Law Focused Education, Inc. is made up of three funds: Department of Public Services, Hatton W. Sumners Grants, and Law Focused Education, all of which are reported as Special Revenue Funds. Government Wide and Fund Financial Statements The government wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the State Bar and are reported on a full accrual basis of accounting, using the economic resource measurement focus, which recognizes all long term assets and receivables, as well as long term debt and obligations. The effect of interfund activity has been removed from these statements. Governmental activities, which are supported by dues, fees, grants, and other revenues, are reported separately from business type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. All capital asset depreciation is reported as a direct expense of the financial program that benefits from the use of the capital assets. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Membership dues and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, although the latter are excluded from the government wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. 34

37 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are 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 related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. This measurement focus means that only current assets and current liabilities are included on the balance sheet. Operating statements of these funds present resources (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Revenues earned are recognized as soon as they are both measurable and available. In the governmental fund financial statements, revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the State Bar considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related to debt service, compensated absences, and claims and judgments are recorded only when payment is due. The State Bar reports the following major governmental funds: The General Fund is the State Bar s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Client Security Fund accounts for the payments associated with losses related to a lawyer s dishonest conduct or dishonest act against an individual. The Client Security Fund must maintain a corpus of $3,000,000, in accordance with resolutions of the State Bar s Board of Directors (the Board ). The fund did not meet the criteria for a major fund; however, management decided to include it as a major fund in the interest of the users of the financial statements. The Sections are a special revenue fund. The Sections include all entities created by the State Bar s Board, which serve the individual members of the State Bar in certain legal specialization areas. The Sections officers are elected by the members of the individual sections and are responsible for maintaining and administering their operations. Although the Sections collect a portion of their revenues and pay expenditures for administration and operations individually, the State Bar administers the collection of dues for the Sections. The State Bar believes it is unlikely that it will be required to use its assets to satisfy future claims of the Sections; however, the State Bar is liable for any claims should they occur. 35

38 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (continued) The State Bar reports its Book Enterprise Fund, now known as TexasBarBooks, as a major proprietary fund. The Book Fund accounts for the activities relating to the sales of books. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the State Bar s Book Fund are charges for the sales of books. Operating expenses include the cost of sales and services, administrative expenses, depreciation on capital assets, and amortization on the intangible asset. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Additionally, the State Bar reports the following nonmajor fund types: The special revenue funds include the Legal Administrators Division, Annual Meeting, the Law Student Division Fund, and the Texas Board of Legal Specialization Fund. The special revenue funds function for the benefit of the members of the State Bar and the State Bar s Board administers and maintains all control over their operations. The State Bar is obligated to fund liabilities and deficits of the special revenue funds. Although expenses for administration and operations are paid by the special revenue funds individually, the State Bar controls the collection and disbursement of monies for the special revenue funds and executes all investment transactions. The capital projects funds are used to account for the acquisition and construction of the State Bar s major capital facilities, and other capital expenditures, other than those financed by proprietary funds. The capital projects funds include the Technology Fund and the Texas Law Center Fund. Private sector standards of accounting and financial reporting issued prior to November 30, 1989, generally are followed in both the government wide and proprietary fund financial statements to the extent that those standards do not conflict with, or contradict, guidance of GASB. Governments also have the option of following subsequent private sector guidance for their proprietary funds, subject to this same limitation. The State Bar has elected to follow subsequent private sector guidance. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the State Bar s policy to use restricted resources first, then unrestricted resources as they are needed. The agency fund (a fiduciary fund type) is custodial in nature and is used to account for reporting voluntary access to justice contributions. 36

39 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents The State Bar s cash and cash equivalents are considered to be demand deposits, petty cash, and money market accounts. Short term highly liquid investments with an original maturity of three months or less are considered cash equivalents. Investments Investments, consisting primarily of government agency securities and United States Treasury securities and certificates of deposit ( CDs ), are stated at fair value. Chapter 2256 of the Texas Governmental Code ( Public Funds Investment Act ) authorizes the State Bar to invest in funds under a written investment policy. The State Bar s deposits and investments are invested pursuant to the investment policy, which is approved annually by the Board. The primary objectives of the State Bar s investment strategy, in order of priority, are preservation and safety of principal, liquidity, and return on investment. The State Bar is authorized to invest in the following investment instruments provided that they meet the guidelines established in the State Bar s investment policy and the Public Funds Investment Act: United States Treasury securities United States federal agency securities CDs and share certificates Banker s acceptances Fully collateralized repurchase agreements Money market mutual funds Commercial paper Merchandise Inventories Merchandise inventories are valued at the lower of cost or market. Cost is determined for inventories on the first in, first out method. Merchandise inventories consist of books and other publications held for sale by the State Bar. Merchandise inventories reported in the General Fund are offset in the fund level financial statements by a fund balance reserve to indicate they do not represent available spendable resources. 37

40 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. Capital Assets Capital assets, consisting of land, buildings, and furniture and equipment, are reported in the governmental activities and business type activities columns of the government wide financial statements. Capital assets are defined by the State Bar as assets with an initial cost of at least $5,000. Capital assets are recorded at historical cost. Donated capital assets are recorded at estimated fair market value at the date of the donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets lives are not capitalized. Capital assets of the State Bar are depreciated using the straight line method over the following estimated useful lives: Asset Description Buildings Furniture and fixtures Computer equipment Software Other equipment Asset Life 30 years years 3 5 years 3 5 years 5 10 years Intangible Asset The intangible asset, consisting of a digital book publication, is reported in the business type activities column of the government wide financial statements and is considered to have a finite life. The finite lived intangible asset is amortized over its estimated useful life, based on the digital publication s pattern of benefits. The finitelived intangible asset is reviewed for impairments or obsolescence annually, or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. If impaired, the intangible asset is written down to fair value based on discounted cash flows. Income Taxes The State Bar is operating as part of the judicial branch of the state government; therefore, it is not subject to Federal income taxes. 38

41 Notes to Financial Statements 1. Summary of Significant Accounting Policies (continued) Unearned Revenues The State Bar collects certain dues, fees, and subscription revenue in advance for services to be rendered. These receipts are accounted for as deferred revenue, which will be earned and recognized in the subsequent fiscal year, as the services are rendered. Interfund Receivables/Payables Short term advances between funds are accounted for in the appropriate interfund receivable and payable accounts. These balances will be repaid within the next year. Net Assets Net of Related Debt Net assets represent the difference between assets and liabilities. Net assets invested in capital assets consist of capital assets net of related capital leases. Net assets are reported as restricted when there are external limitations imposed on their use by creditors, grantors, or laws or regulations of other governments. Unrestricted net assets represent the remaining portion of net assets. Fund Balance The State Bar has implemented the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. GASB No. 54 provides more clearly defined fund balance classifications. Fund balance is divided into five classifications based primarily on the extent to which the State Bar is bound to observe constraints imposed upon the use of the resources in the Governmental Funds. The classifications are as follows: Nonspendable The nonspendable fund balance category includes amounts that cannot be spent because they are not in spendable form, or amounts that are legally or contractually required to be maintained intact. The not in spendable form criterion includes items that are not expected to be converted to cash. It also includes the long term amount of interfund loans. Restricted Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or are imposed by law through constitutional provisions or enabling legislation. Legal enforceability means that the State Bar can be compelled by an external party, such as citizens, public interest groups, or the judiciary, to use resources created by enabling legislation only for the purposes specified by the legislation. 39