CONWAY SCHOOL DISTRICT NO. 1 FAULKNER COUNTY, ARKANSAS

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1 FAULKNER COUNTY, ARKANSAS REGULATORY BASIS FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2013 with REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

2 CONTENTS PAGE Report of independent certified public accountants 1-3 Regulatory basis financial statements: Balance sheet - regulatory basis 4 Statement of revenues, expenditures and changes in fund balances - governmental funds - regulatory basis 5 Statement of revenues, expenditures and changes in fund balances - budget to actual - general and special revenue funds - regulatory basis 6 Notes to financial statements 7-14 Other reports and supplementary information: Schedule of capital assets 15 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 Independent auditors report on compliance for each major program and on internal control over compliance required by OMB Circular A Schedule of expenditures of federal awards Schedule of state assistance 22 Schedule of findings and questioned costs Independent auditor s report on compliance with Arkansas state requirements 25 Schedule of statutes required by Arkansas Department of Education to be addressed in independent auditor s report on compliance for the year ended June 30, Supplemental data sheet as required by Arkansas Department of Human services Audit Guidelines Section IX-C 27

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6 4 BALANCE SHEET - REGULATORY BASIS JUNE 30, 2013 Governmental Funds Major Special Other Fiduciary General revenue governmental fund fund fund funds types ASSETS Cash and cash equivalents $ 6,785,436 $ 792,074 $ 7,940,594 $ 432,525 Accounts receivable 15,625 1,068, Due from other funds 891, Total assets $ 7,692,181 $ 1,860,574 $ 7,940,603 $ 432,525 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 1,133,075 $ 5,819 $ 1,433,104 $ - Due to other funds - 891, Due to student /other groups ,525 Deferred revenue 41, Total liabilities 1,174, ,939 1,433, ,525 Fund Balances: Restricted: State programs 2,044, Federal programs - 963, Capital projects - - 3,040,908 - Debt service ,946 - Assigned: Capital projects - - 3,296,645 - Unassigned 4,473, Total fund balances 6,517, ,635 6,507,499 - Total liabilities and fund balances $ 7,692,181 $ 1,860,574 $ 7,940,603 $ 432,525 See accompanying notes.

7 5 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - REGULATORY BASIS YEAR ENDED JUNE 30, 2013 Major Special Other General revenue governmental fund fund funds REVENUES Property taxes $ 40,347,719 $ - $ - Interest 78,338 2, ,465 Tuition charges 1,039, State revenues 40,789,396 28,833 - Federal revenues - 9,447,297 - Food services - 1,024,748 - Student activities 574, Other 517, ,346,643 10,502, ,808 EXPENDITURES Current: Instruction and instructional - related services 45,402,606 2,766,007 - Support services 27,174,244 2,393,417 - Non-instructional services 12,129 3,900,070 - Other - 62,442 - Debt service: Principal retirement - - 2,030,000 Interest and fiscal charges - - 5,600,689 Paying agent s fees - - 5,971 Capital outlay 1,676,184 1,422,521 14,060,312 74,265,163 10,544,457 21,696,972 Excess (deficiency) of revenue over expenditures 9,081,480 (41,469) (21,417,164) OTHER FINANCING SOURCES (USES) Transfers, net (10,513,576) - 10,513,576 Proceeds from bond issue ,525,000 Payment to refunding agent - - (76,048,502) Bond issuance costs - - (1,476,498) Compensation for disposal of capital assets 3, ,976 Total other financing sources (uses) (10,510,526) - 10,620,552 Net change in fund balances (1,429,046) (41,469) (10,796,612) Fund balance - beginning 7,946,961 1,005,104 17,304,111 Fund balance - ending $ 6,517,915 $ 963,635 $ 6,507,499 See accompanying notes.

8 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL - GENERAL AND SPECIAL REVENUE FUNDS - REGULATORY BASIS YEAR ENDED JUNE 30, 2013 General Fund Budget Actual Variance REVENUES Property taxes $ 38,444,802 $ 40,347,719 $ 1,902,917 Interest 100,000 78,338 (21,662) Tuition charges 300,010 1,039, ,051 State revenues 40,943,002 40,789,396 (153,606) Federal revenues Food services Student activities - 574, ,476 Other 398, , ,152 80,186,315 83,346,643 3,160,328 EXPENDITURES Current: Instruction and instructional-related services 45,488,533 45,402,606 85,927 Support services 27,310,074 27,174, ,830 Non-instructional services 12,471 12, Other Capital outlay 1,566,311 1,676,184 (109,873) 74,377,389 74,265, ,226 Excess (deficiency) of revenues over expenditures 5,808,926 9,081,480 3,272,554 OTHER FINANCING SOURCES (USES) Transfers, net (7,650,389) (10,513,576) (2,863,187) Compensation for disposal of capital assets - 3,050 3,050 Total other financing sources (uses) (7,650,389) (10,510,526) (2,860,137) Net change in fund balances $ (1,841,463) $ (1,429,046) $ 412,417 See accompanying notes.

9 6 Special Revenue Fund Budget Actual Variance $ - $ - $ - 2,700 2,110 (590) ,000 28, ,578,828 9,447,297 (131,531) 1,145,000 1,024,748 (120,252) ,754,528 10,502,988 (251,540) 2,741,699 2,766,007 (24,308) 2,535,965 2,393, ,548 4,205,186 3,900, ,116-62,442 (62,442) 1,429,304 1,422,521 6,783 10,912,154 10,544, ,697 (157,626) (41,469) 116, $ (157,626) $ (41,469) $ 116,157

10 7 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1: Summary of significant accounting policies Reporting entity The Board of Education, a seven (7) member group, is the level of government which has responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of the Conway School District No.1 (the District ). There are no component units. Fund accounting Major governmental funds (per the regulatory basis of accounting) are defined as General and Special Revenue. General Fund - The General Fund is the general operating fund and is used to account for all financial resources, except those required to be reported in another fund. Special Revenue Fund - The Special Revenue Fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The Special Revenue Fund includes federal revenues and related expenditures restricted for specific educational programs or projects, including the District s food services operations. The Special Revenue Fund also includes transfers from the general fund to supplement such programs. Other governmental funds, presented in the aggregate, consist of the following: Capital Projects Fund - The Capital Projects Fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets. The Capital Projects Fund excludes those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments. Debt Service Fund - The Debt Service Fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal and interest. Fiduciary Fund types including the following: Agency Funds - Agency Funds are used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities). Measurement focus and basis of accounting The financial statements are prepared in accordance with a regulatory basis of accounting (RBA), which is an Other Comprehensive Basis of Accounting (OCBOA). This basis of accounting is prescribed by Ark. Code Ann (c), as provided in Act 2201 of 2005, and requires that financial statements be presented on a fund basis with, as a minimum, the general fund and special revenue fund presented separately and all other funds included in the audit presented in the aggregate. The law also stipulates that the financial statements consist of a balance sheet; a statement of revenues, expenditures, and changes in fund balances; a comparison of the final adopted budget to the actual expenditures for the general fund and special revenue funds of the entity; notes to financial statements; and a supplemental schedule of capital assets, including land, buildings, and equipment. The law further stipulates that the State Board of Education shall promulgate the rules necessary to administer the regulatory basis of presentation.

11 8 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1: Summary of significant accounting policies (continued) Measurement focus and basis of accounting (continued) The RBA is not in accordance with generally accepted accounting principles (GAAP). GAAP requires that basic financial statements present government-wide financial statements. Additionally, GAAP requires the following major concepts: Management s Discussion and Analysis, accrual basis of accounting for government-wide financial statements, including depreciation expense, modified accrual basis of accounting for fund financial statements, separate financial statements for fiduciary fund types, separate identification of special and extraordinary items, inclusion of capital assets and debt in the financial statements, specific procedures for the identification of major governmental funds and applicable note disclosures. The RBA does not require government-wide financial statements or the previously identified concepts. The accompanying financial statements are presented on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for purposes of recording specific activities or attaining certain objectives. Revenues are reported by major sources and expenditures are reported by major function. Other transactions, which are not reported as revenues or expenditures, are reported as other financing sources and uses. Transactions related to the recording of installment contracts and capital leases are reported as other financing sources. Changes in privatepurpose trust funds, if any, will be reflected in the notes to the financial statements. Revenue recognition policies Revenues are recognized when they become susceptible to accrual in accordance with the RBA, except for property taxes (see below). Capital assets Information on capital assets and related depreciation is reported in the accompanying Schedule of Capital Assets. Capital assets are capitalized at historical cost or estimated historical cost, if actual data is not available. Capital assets purchased are recorded as expenditures in the applicable fund at the time of purchase. Donated capital assets are reported at fair value when received. The District maintains a threshold level of $1,000 for capitalizing equipment. Library holdings are not capitalized. No salvage value is taken into consideration for depreciation purposes. All capital assets, other than land and construction in progress, are depreciated using the straightline method over the following useful lives: Asset Class Estimated Useful Life in Years Improvements/infrastructure 20 Building 50 Equipment 5-20 Property taxes Property taxes are levied in November based on property assessments made between January 1 and May 31 and are an enforceable lien on January 1 for real property and June 1 for personal property. The tax records are opened on the first business day of March of the year following the levy date and are considered delinquent after October 15 of the same calendar year.

12 9 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1: Summary of significant accounting policies (continued) Property taxes (continued) Prior to the year ending June 30, 2012, property taxes were accrued or deferred, as applicable, in accordance with guidelines issued by the Arkansas Department of Education (ADE), which were effective beginning with the fiscal year ended June 30, Arkansas Code defined revenue receipts of a school district and included forty percent (40%) of the proceeds of local taxes which are not pledged to secure bonded indebtedness or forty percent (40%) of the revenue from the uniform rate of tax whichever is greater collected in the succeeding calendar year, commonly known as 40% pullback, within that definition. The ADE determined that school districts must utilize the 40% pullback amount, as calculated by the ADE and reflected on the respective county s abstract of assessments, in recording property tax revenue as follows: If the amount of 40% pullback collected by June 30 th is less than the calculated 40% pullback amount, the difference must be accrued; If the amount of 40% pullback collected by June 30 th is more than the calculated 40% pullback amount, the excess must be recorded as deferred taxes. In March 2011, the General Assembly of the State of Arkansas passed Act 871 to amend Arkansas Code to clarify the definition of revenue receipts of a school district. Act 871 became effective for years ending June 30, 2012 and thereafter. The Act reduced the pullback percentage by 4% each year (to 32% for the year ending June 30, 2013) and eliminated the deferral of amounts collected in excess of the pullback amount. Now, if the District collects less than the stated pullback amount, they must still accrue the difference. However, if they collect more, they must reflect it as current year revenues. In the current year, the District collected approximately $4,700,000 more than the stated 32% pullback amount and has recorded this amount in its current year revenues. Amendment No. 74 to the Arkansas Constitution established a uniform minimum property tax millage rate of 25 mills for maintenance and operation of public schools. Ark. Code Ann provides the uniform rate of tax (URT) shall be assessed and collected in the same manner as other school property taxes, but the net revenues from the URT shall be remitted to the State Treasurer and distributed by the State to the county treasurer of each county for distribution to the school districts in that county. For reporting purposes, URT revenues are considered property taxes. Fund balance classifications Under GASB 54, fund balance is reported under the following five classifications: 1. Nonspendable Fund Balance - includes amounts that are not in a spendable form or are required to be maintained intact. The District does not have any nonspendable fund balance at year end. 2. Restricted Fund Balance - includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally, or through enabling legislation. The Restricted for State Programs and Restricted for Federal Programs balances reflect amounts restricted for specific state and federal programs as mandated by respective state and federal grant or funding agreements. The Restricted for Capital Projects balance reflects unspent bond proceeds that are intended for construction projects. The Restricted for Debt Service balance reflects amounts required to be used to pay future interest payments on District debt.

13 10 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1: Summary of significant accounting policies (continued) Fund balance classifications (continued) 3. Committed Fund Balance - includes amounts that can be used only for the specific purposes determined by a formal action of the District's highest level of decision-making authority (the Board of Education) and does not lapse at year end. The District does not have any committed fund balance at year end. 4. Assigned Fund Balance - includes amounts intended for a specific purpose by the Board of Education or by a District official that has been delegated authority to assign amounts. The Assigned for Capital Projects balance reflects amounts that are assigned for construction or other capital outlay projects. 5. Unassigned Fund Balance - includes any remaining fund balance that has not been reported in any other classification. This classification can also include negative amounts in other governmental funds, if expenditures incurred for specific purposes exceeded the amounts restricted, committed, or assigned to those purposes. For the purposes of fund balance classification, the District s policy is to have expenditures spent from restricted fund balance first, followed in order by committed fund balance (if any), assigned fund balance and lastly unassigned fund balance. Budget and budgetary accounting The District is required by state law to prepare an annual budget. The annual budget is prepared on a fiscal year basis. The District does not prepare and submit amended budgets during the fiscal year. The State Department of Education s regulations allow for the cash basis or the modified accrual basis. The District budgets intra-fund transfers. Significant variances may result in the comparison of transfers at the Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Special Revenue Funds - Regulatory Basis because only interfund transfers are reported at the Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds - Regulatory Basis. Budgetary perspective differences are not considered to be significant because the structure of the information utilized in preparing the budget and the applicable fund financial statements is essentially the same. Note 2: Cash deposits with financial institutions Cash deposits are carried at cost (carrying value). A comparison of the bank balance and carrying value is as follows: Carrying Bank amount balance Insured (FDIC) $ 500,000 $ 500,000 Collateralized - held by pledging bank or pledging bank s trust department in the District s name 15,450,629 17,140,018 Total deposits $ 15,950,629 $ 17,640,018

14 11 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 3: Accounts receivable The accounts receivable balance of $1,084,134 is comprised of the following at June 30, 2013: Special Other Class of General revenue governmental receivable fund fund funds Total Due from other governments $ 11,875 $ 1,067,382 $ - $ 1,079,257 Other 3,750 1, ,877 Total $ 15,625 $ 1,068,500 $ 9 $ 1,084,134 Note 4: Commitments Construction commitments At June 30, 2013, the District was contractually obligated for three construction projects with a total cost of approximately $10 million and remaining costs to complete of approximately $2.6 million. The projects are estimated to be completed in Long-term debt issued and outstanding The District is presently paying on the following long-term debt: Amount Debt Maturities Date of Date of final Rate of authorized outstanding to issue maturity interest and issued June 30, 2013 June 30, /1/2010 2/1/ % $ 21,210,000 $ 18,990,000 $ 2,220,000 11/1/2010 2/1/ % 8,210,000 7,905, ,000 11/1/2011 2/1/ % 36,520,000 36,520,000-6/1/2012 2/1/ % 1,495,000 1,495,000-2/1/2013 2/1/ % 41,045,000 41,045,000-2/1/2013 2/1/ % 36,480,000 36,480,000 - Totals $ 144,960,000 $ 142,435,000 $ 2,525,000 Changes in long-term debt: Balance Balance Description July 1, 2012 Issued Retired** June 30, 2013 Bonds payable $ 135,800,000 $ 77,525,000 $ 70,890,000 $ 142,435,000 Totals $ 135,800,000 $ 77,525,000 $ 70,890,000 $ 142,435,000 **Includes $68,860,000 early retirement of debt. See Note 5.

15 12 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 4: Commitments (continued) Long-term debt issued and outstanding (continued) Total long-term debt principal and interest payments are as follows: Operating leases Year ended June 30 Principal Interest Total 2014 $ 875,000 $ 4,744,639 $ 5,619, ,900,000 4,726,851 6,626, ,140,000 4,686,589 7,826, ,570,000 4,614,939 8,184, ,650,000 4,528,941 8,178, ,750,000 21,104,380 42,854, ,590,000 17,613,556 43,203, ,165,000 12,926,050 43,091, ,605,000 7,086,131 42,691, ,190, ,038 17,117,038 Totals $ 142,435,000 $ 82,959,114 $ 225,394,114 The District has entered into an agreement to lease office equipment. Future minimum payments under this noncancelable lease in effect as of June 30, 2013 are as follows: 2014 $ 117, , ,012 $ 351,036 Rental expense was $179,894 for the year ended June 30, Note 5: Debt refunding The District issued two refunding bonds on February 1, 2013 to retire the two bonds dated December 1, 2009 and February 1, The refunding portion of the bond proceeds totaled $77,525,000 and principal retirements totaled $68,860,000. Note 6: Accounts payable The accounts payable balance of $2,571,998 is comprised of the following at June 30, 2013: Special Other Class of General revenue governmental payable fund fund funds Total Vendor payables $ 911,959 $ 5,819 $ 1,433,104 $ 2,350,882 Due to other governments 221, ,116 Total $ 1,133,075 $ 5,819 $ 1,433,104 $ 2,571,998

16 13 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 7: Interfund transfers The following details the transfers between governmental funds for operating purposes: General Capital Debt fund project fund service fund Total Transfers in $ 109,556,590 $ 2,883,254 $ 7,630,322 $ 120,070,166 Transfers out (120,070,166) - - (120,070,166) Note 8: Retirement plans Arkansas Teacher Retirement System $ (10,513,576) $ 2,883,254 $ 7,630,322 $ - Plan description: The District contributes to the Arkansas Teacher Retirement System (ATRS), a costsharing multiple-employer defined benefit pension plan that covers all Arkansas public school employees, except certain nonteachers hired prior to July 1, ATRS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Teacher Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for ATRS. That report may be obtained by writing to Arkansas Teacher Retirement System, 1400 West Third Street, Little Rock, Arkansas or by calling Funding policy: ATRS has contributory and non-contributory plans. Contributory members are required by law to contribute 6% of their salary. Each participating employer is required by law to contribute at a rate established by the Arkansas General Assembly. The current employer rate is 14%. The District s contributions to ATRS for nonfederally-funded employees for the years ended June 30, 2013, 2012, and 2011 were $7,497,891, $7,336,898, and $6,528,628 respectively. Arkansas Public Employees Retirement System Plan description: The District contributes to the Arkansas Public Employees Retirement System (APERS), a cost-sharing multiple-employer defined benefit pension plan that covers certain nonteaching Arkansas public school employees hired before July 1, APERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for APERS. That report may be obtained by writing to Arkansas Public Employees Retirement System, One Union National Plaza, 124 W. Capitol, Little Rock, Arkansas or by calling Funding policy: APERS has contributory and non-contributory plans. Contributory members are required by law to contribute 5% of their salary. Each participating employer is required by law to contribute at a rate established by the Arkansas General Assembly. The current statutory employer rate is 4% of annual covered payroll. The District s contributions to APERS for the years ended June 30, 2013, 2012 and 2011 was $7,924, $7,533, and $7,401, respectively, equal to the required contributions for each year.

17 14 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 9: Risk management The District is exposed to various risk of loss from torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. Settled claims have not exceeded this commercial coverage in any of the three preceding years. The District carries commercial insurance for coverage of buildings contents, board liability, theft, student accidents, and bus drivers and business trip accidental death and dismemberment. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. There were no significant reductions in insurance coverage from the prior year in the major categories of risk. The District is a member of the Arkansas School Board Association self-insurance program, a public entity risk pool currently operating a common risk management and insurance program for its members. The fund was created by members to formulate, develop and administer a program of self-funding for the fund s membership, obtain lower costs for Workmen s Compensation Coverage and develop a comprehensive loss control program. The District pays an annual premium to the fund for its Workmen s Compensation Coverage. The Pool s governing agreement specifies that the Pool will be self-sustaining through member premiums and will reissue through commercial carriers for claims in excess of specified stop loss amounts. Note 10: Litigation and contingencies The District participates in federally assisted grant programs. The District is potentially liable for expenditures which may be disallowed pursuant to the terms of these grant programs. Management is not aware of any material items of noncompliance which would result in the disallowance of program expenditures. The District participates in the Arkansas Fidelity Bond Trust Fund administered by the Governmental Bonding Board. This program provides coverage for actual losses sustained by its members through fraudulent or dishonest acts committed by officials or employees. Each loss is limited to $250,000 with a $2,500 deductible. Premiums for coverage are paid by the Chief Fiscal Officer of the State of Arkansas from funds withheld from the Public School Fund. The District participates in the Public School Property and Vehicle Insurance Trust Fund Program administered by the Risk Management Division of the Arkansas Insurance Department. The program s general objectives are to formulate, develop and administer, on behalf of the member districts, a program of insurance to obtain lower costs for property and vehicle coverage, and to develop a comprehensive loss control program. The fund uses a reinsurance policy to reduce exposure to large losses on insured events. The District pays an annual premium for its coverage of vehicles. On July 6, 2012, a complaint was filed in the Circuit Court of Faulkner County, Arkansas against the District. The Plaintiff is seeking damages of $1,500,000. The District is insured up to $100,000 for this type of claim. Due to the nature of the litigation and its early stages, the District is unable to determine the amount of loss, if any, it may sustain. Note 11: On-behalf payments During the year ended June 30, 2013, health insurance premiums of $842,493 were paid by the Arkansas Department of Education to the Arkansas Employee Benefits Division on behalf of District employees. Note 12: Subsequent events On July 12, 2013, the District sold an unused building to a local organization for $740,000.

18 15 SCHEDULE OF CAPITAL ASSETS FOR THE YEAR ENDED JUNE 30, 2013 (Unaudited) Nondepreciable capital assets: Land $ 5,854,025 Construction in progress 8,033,093 Total nondepreciable capital assets 13,887,118 Depreciable capital assets: Buildings 161,926,977 Improvements/infrastructure 4,545,944 Equipment 17,136,720 Total depreciable capital assets 183,609,641 Less accumulated depreciation for: Buildings 34,102,454 Improvements/infrastructure 1,852,645 Equipment 10,270,903 Total accumulated depreciation 46,226,002 Total depreciable capital assets, net 137,383,639 Capital assets, net $ 151,270,757

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24 20 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2013 Federal CFDA number Federal expenditures CHILD NUTRITION CLUSTER U.S. Department of Agriculture Passed through Arkansas Department of Education: School Breakfast Program - Cash Assistance $ 622,728 National School Lunch Program - Cash Assistance ,995,811 Total Child Nutrition Cluster - Cash Assistance 2,618,539 Passed through Arkansas Department of Human Services: National School Lunch Program - Non-Cash Assistance ,426 Total Child Nutrition Cluster 2,870,965 OTHER PROGRAMS: Federal grant/pass-through grantor/program title U.S. Department of Agriculture Passed through Arkansas Department of Human Services: Supplemental Nutrition Assistance Program - Matching Grant ,582 U.S. Department of Education Passed through Arkansas Department of Education: Adult Education - Basic Grants to States ,590 Title I, Part A - Grants to Local Education Agencies ,026,598 Title VI - Part B - Special Education Grants to States ,014,372 Even Start Family Literacy ,954 Title III - English Language Acquisition ,455 Title II - Part A - Improving Teacher Quality State Grants ,869 Title III - Part F- Supplemental Grants ,131 Total Passed through Arkansas Department of Education 4,620,969 Passed through Arkansas Department of Career Education: Vocational Education - Basic Grants ,855 Total U.S. Department of Education 4,735,824

25 21 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (CONTINUED) YEAR ENDED JUNE 30, 2013 Federal grant/pass-through grantor/program title OTHER PROGRAMS (continued): Federal CFDA number Federal expenditures U.S. Department of Health and Human Services Passed through Arkansas Department of Human Services: Child Care and Development Block Grant ,868 U.S. Department of Homeland Security Passed through Arkansas Department of Emergency Management: Hazard Mitigation Grant Program (HMGP) ,189,166 Total Other Programs 6,011,440 Total Expenditures of Federal Awards $ 8,882, Notes to schedule: This schedule includes the federal awards activity of the District and is presented on the regulatory basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the basic financial statements. Medicaid reimbursements are defined as contracts for services and not federal awards, therefore, such reimbursements totaling $496,876 are not covered by the reporting requirements of OMB Circular A-133. Nonmonetary assistance is reported at the approximate value as provided by the Arkansas Department of Human Services.

26 22 SCHEDULE OF STATE ASSISTANCE YEAR ENDED JUNE 30, 2013 Arkansas Department of Education State Foundation Funding $ 32,653,167 98% Uniform Rate of Tax Actual Collection Adjustment 97,671 GT Advanced Placement 28,200 Student Growth Funding 865,629 General Facilities Funding 34,999 Bonded Debt Assistance 149,977 Professional Development Funding 407,611 LEP Allocation 126,270 Food Service State Matching 28,833 Youth Shelters 6,827 Special Education - Catastrophic Occurrences 299,903 Alternative Learning 277,610 National School Lunch Student Funding 2,211,726 Arkansas Better Chance Program 868,692 Child Supervision Extended School Year Funding 39,036 PQE Mentoring 18,200 Residential Center / Juvenile Dentention 100,272 Residential Treatment 5,700 38,220,323 Arkansas Department of Career Education SVAC Funding 1,081,500 Adult Basic Education 93,623 Adult General Education 452,787 Adult Education Special Projects 18,499 Workforce Center Grant 703,625 Short Term Adult Skill 133,784 Youth Apprenticeship 30,410 Traditional Apprenticeship 82,759 2,596,987 Arkansas Game and Fish Game and Fish Fines 919 Total State Assistance $ 40,818,229

27 23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 A. SUMMARY OF AUDITORS RESULTS 1. Our report expresses an adverse opinion based on generally accepted accounting principles and an unqualified opinion based on the regulatory basis of accounting used in preparing the financial statements of Conway School District No The independent auditors report on internal control over financial reporting described: Significant deficiency(ies) identified? Material weakness(es) identified? 3. Noncompliance considered material to the financial statements was disclosed by the audit? Yes Yes Yes No No No 4. The independent auditors report on internal control over compliance with requirements applicable to major federal awards programs described: Significant deficiency(ies) identified? Material weakness(es) identified? Yes Yes No No 5. The opinion expressed in the independent auditors report on compliance with requirements applicable to major federal awards was: Unqualified Qualified Adverse Disclaimed 6. The audit disclosed findings required to be reported by OMB Circular A-133? 7. The Auditee s major programs were: Yes No Cluster/Program CFDA Number(s) Title VI - Part B - Special Education Grants to States Hazard Mitigation Grant Program (HMGP) The threshold used to distinguish between Type A & Type B programs as those terms are defined in OMB Circular A-133 was $300,000.

28 24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (continued) YEAR ENDED JUNE 30, 2013 A. SUMMARY OF AUDITORS RESULTS (CONTINUED) 1. The Auditee qualified as a low-risk auditee as that term is defined in OMB Circular A-133? B. FINDINGS - FINANCIAL STATEMENTS AUDIT None noted Yes No C. FINDINGS AND QUESTIONED COSTS - FEDERAL AWARDS AUDIT None noted D. PRIOR YEAR FINDINGS AND QUESTIONED COST None noted

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30 26 CONWAY SCHOOL DISTRICT NO. 1 SCHEDULE OF STATUTES REQUIRED BY ARKANSAS DEPARTMENT OF EDUCATION TO BE ADDRESSED IN INDEPENDENT AUDITORS REPORT ON COMPLIANCE YEAR ENDED JUNE 30, 2013 DESCRIPTION STATUTES Bidding & Purchasing Commodities Ethical Guidelines and Prohibitions ; et seq. Collateralization & Investment of Funds ; Deposit of Funds ; District Finances Bonded & Non-bonded Debt, District School Bonds Petty Cash Changes in Pullback (no deferrals declining accrual percentages) Investment of Fund Management of Schools Board of Directors ; ; ; ; ; ; et seq ; ; District Treasurer o Warrants/checks Management Letter for Audit Nonrecurring Salary Payments Revolving Loan Fund ; et seq. Salary Laws - Classified et seq.; et seq. School Elections ; ; ; ; ; ; Teachers and Employees Personnel Policies et seq., Employment and Assignment et seq. Teacher's License Requirement et seq. Contracts et seq. Certification Requirements ; Fair Dismissal Act et seq.; et seq et seq.; et seq. Sick Leave Policies Teacher Salaries and Foundation Funding Aid Trust Funds (Education Excellence) Use of Contractors, Improvement Contracts Use of DM&O Millage On Behalf Payments ; ; ; ; ; The amounts of funds paid by the Arkansas Department of Education to the Employee Benefits Division, on-behalf of District employees

31 27 SUPPLEMENTAL DATA SHEET YEAR ENDED JUNE 30, 2013 The following information is being provided to satisfy the requirements of Arkansas Department of Health and Human Services Audit Guidelines, Section IX. C - Special Requirements: 1. Entity's Full Name: Conway School District No. 1 of Faulkner County 2. Entity's Address: 2220 Prince Street Conway, AR Entity's FEIN: Entity's Telephone Number: Name of Director: Dr. Greg Murry, Superintendent 6. Name of Contact Person: Dr. Greg Murry, Superintendent