North East Independent School District San Antonio, Texas Comprehensive Annual Financial Report Year Ended June 30, 2012 Report Issued by the Department of Finance and Accounting Services (This page intentionally left blank.) North East Independent School District Comprehensive Annual Financial Report Finance and Accounting Team: Dan Villarreal, CPA, Associate Superintendent for Business Services/ Chief Financial Officer Michelle Ferrara, Senior Director of Accounting Services Mary Alex, CPA, Senior Director of Grants Administration and Financial Control Brian Moy, Senior Director of Budgets and Financial Analysis Susie Lackorn, CPA, Comptroller for Business Services and Operations Veronica Binder, Special Revenue Accounting Manager Lori Ganci, Comptroller for Instruction and Technology Services Dee Parchman, CPA, CTSBO, Comptroller for Campus Support and Human Resources Nancy Bomer, Senior Accountant for Construction and Capital Assets Shanna Toborg, District Treasurer Jeff Coats, Senior Accounting Manager Chana Floyd, Senior Accountant Janie Villarreal, Senior Accounting Manager Emma Jackson, CPP, Payroll Manager Internal Audit: Sharon Lyerly, CIA, CISA, CGAP, Director of Internal Audit (This page intentionally left blank.) Page Exhibit INTRODUCTORY SECTION Letter of Transmittal v GFOA Distinguished Budget Presentation Award xi GFOA Certificate of Achievement xii List of Elected Officials and Administrators xiii Certificate of Board xiv Organizational Chart xv FINANCIAL SECTION Independent Auditors’ Report 1 Management’s Discussion and Analysis 3 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets 21 A – 1 Statement of Activities 22 B – 1 Fund Financial Statements: Balance Sheet – Governmental Funds 24 C – 1 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 26 C – 2 Statement of Revenues, Expenditures, and Changes in Fund Balance – Governmental Funds 28 C – 3 Reconciliation of the Governmental Funds Statement of Revenues Expenditures, and Changes in Fund Balances to the Statement of Activities 30 C – 4 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund 31 C – 5 Statement of Net Assets – Proprietary Funds 32 D – 1 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds 33 D – 2 Statement of Cash Flows – Proprietary Funds 34 D – 3 Statement of Fiduciary Net Assets – Fiduciary Funds 36 E – 1 Statement of Changes in Fiduciary Net Assets 37 E – 2 Notes to the Financial Statements 39 SUPPLEMENTARY INFORMATION Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds – Fund Descriptions 87 Combining Balance Sheet – Nonmajor Governmental Funds 98 H – 1 Combining Statement of Revenues, Expenditures, and Changes In Fund Balances – Nonmajor Governmental Funds 106 H – 2 Internal Service Funds – Fund Descriptions 115 Page Exhibit Combining Statement of Net Assets – Internal Service Funds 118 H – 3 Combining Statement of Revenues, Expenses, and Changes In Fund Net Assets – Internal Service Funds 120 H – 4 Combining Statement of Cash Flows – Internal Service Funds 122 H – 5 Enterprise Funds – Fund Descriptions 127 Combining Statement of Net Assets – Nonmajor Enterprise Funds 128 H – 6 Combining Statement of Revenues, Expenses, and Changes In Fund Net Assets – Nonmajor Enterprise Funds 130 H – 7 Combining Statement of Cash Flows – Nonmajor Enterprise Funds 132 H – 8 Agency Funds – Fund Descriptions 136 Combining Statement of Changes in Assets and Liabilities – All Agency Funds 137 H – 9 Capital Assets Used in the Operation of Governmental Funds: Comparative Schedule by Source 140 Schedule by Function and Activity 141 Schedule of Changes by Function 142 Schedules Required by the Texas Education Agency: Schedule of Delinquent Taxes Receivable 144 J – 1 Schedule of Expenditures for Computation of Indirect Cost for 2012-2013 - General and Special Revenue Funds 146 J – 2 Fund Balance and Cash Flow Calculation Worksheet – General Fund 147 J – 3 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – National Breakfast and Lunch Program Fund 148 J – 4 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Debt Service Fund 149 J – 5 STATISTICAL SECTION (unaudited) Statistical Section Overview 151 Financial Trend Information: Government –Wide Information Net Assets by Component – Last Ten Years 154 Governmental Activities Revenues and Expenses – Last Ten Years 156 Business-Type Activities Revenues and Expenses – Last Ten Years 158 General Revenues and Changes in Net Assets – Last Ten Years 160 Fund Balances, Governmental Funds – Last Ten Years 162 Governmental Fund Revenues – Last Ten Years 164 Governmental Fund Revenue as a Percentage of Total Revenue – Last Ten Years 166 Governmental Fund Expenditures by Function – Last Ten Years 168 Governmental Fund Expenditures by Function as a Percentage of Total Expenditures – Last Ten Years 170 Page Exhibit General Fund Other Sources, Uses, and Changes in Fund Balance - Last Ten Years 172 General Fund Revenues per ADA – Last Ten Years 174 General Fund Expenditures per ADA – Last Ten Years 176 Revenue Capacity Information Assessed and Actual Value of Taxable Property – Last Ten Years 180 Direct and Overlapping Property Tax Rates – Last Ten Years 182 Property Tax Levies and Collections – Last Ten Years 184 Principal Property Taxpayers – Current Year and Nine Years Prior 185 Allocation of Tax Rates and Levies – Last Ten Years 186 Debt Capacity Information Outstanding Debt by Type – Last Ten Years 188 Direct and Overlapping Debt as of June 30, 2012 189 Debt Margin Information – Last Ten Years 190 Debt to Net Assessed Valuation – Last Ten Years 192 Bonded Debt to Operating Expenditures – Last Ten Years 194 Outstanding Debt by Issuance Date 195 Demographic and Economic Information Demographic and Economic Information – Last Ten Years 198 Student Demographic Information – Last Ten Years 199 Principal Employers – Current Year 200 Commercial and Residential Construction - Last Ten Years 201 Operating Information Employees by Full Time Equivalent by Job Function – Last Ten Years 204 Teacher Salary Comparison – Last Ten Years 206 Operating Statistics – Last Ten Years 207 Fidelity Bonds – Current Year 208 School Building Information – Last Ten Years 210 FEDERAL AWARDS SECTION Independent Auditors’ Report on Internal Control Over Financial Reporting And on Compliance Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 213 Independent Auditors’ Report on Compliance With Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance With OMB Circular A-133 215 Schedule of Findings and Questioned Costs 217 Summary Schedule of Prior Audit Findings 219 Schedule of Expenditures of Federal Awards 220 K – 1 Notes to Schedule of Expenditures of Federal Awards 223 (This page intentionally left blank) North East Independent School District 8961 TESORO DRIVE – SAN ANTONIO, TEXAS 78217-6225 November 12, 2012 Mrs. Susan Galindo, President, Board of Trustees, and Patrons of the North East Independent School District Dear Mrs. Galindo, Board of Trustees and Patrons: Management hereby submits the Comprehensive Annual Financial Report (“CAFR”) for the fiscal year ended June 30, 2012. The North East Independent School District’s (the “District”) Finance and Accounting Services Department prepared the CAFR in accordance with generally accepted accounting principles (GAAP). The CAFR is management’s report of financial operations to the Board of Trustees (the “Board”), taxpayers, grantor agencies, employees, the Texas Education Agency, and other interested parties. The financial statements in this report provide an overview of the District’s operation and financial position as a whole and of its individual funds. Responsibility for the accuracy and completeness of the financial statements and fairness of the presentation, including all disclosures, rests with the District. We believe the data, as presented, is accurate in all material respects. The Texas Education Agency (TEA) requires all school districts publish within 150 days of the close of each fiscal year a complete set of financial statements presented in conformity with GAAP and audited in accordance with generally accepted auditing standards (GAAS) by a firm of licensed certified public accountants. Management’s Discussion and Analysis (MD&A) is a required narrative introduction, overview, and analysis of the basic financial statements and should be read in conjunction with this letter of transmittal. The District’s MD&A can be found immediately following the report of the independent auditors. DISTRICT PROFILE The District provides a full range of educational services appropriate to grade levels Pre-K through 12. These include regular and enriched academic education, special education for students with disabilities, gifted and talented classes and many individualized programs, such as specialized instruction for at-risk students and those with limited English proficiency. These v basic programs are supplemented by a wide variety of offerings in career and technology, fine arts, and athletics. The District encompasses approximately 140 square miles in north and northeast Bexar County. Founded in 1949, the District has operated as an independent school district since 1955. The District is one of the 10 largest districts in the State of Texas with a projected enrollment of more than 68,100 students for the 2012-2013 school year. The District is an urban-suburban community, lying within the boundaries of San Antonio and encompassing several smaller municipalities. All campuses are fully accredited by the TEA. The District tailors its instructional programs to enrich and expand student learning and exposure to the tenets of responsible citizenship. District leaders believe this philosophy is instrumental in keeping the completion rate high (94%) and the District’s number of college-bound students high. The Board constitutes the governing body elected from seven single-member districts and sets the tone for instruction and service to students and patrons with its mission statement and goals. Internal and Budgetary Controls The District has established a comprehensive internal control framework designed both to protect the District’s assets from loss, theft or misuse and to compile sufficiently reliable information for the preparation of the District’s financial statements in conformity with GAAP. Internal controls are designed to provide management with reasonable, but not absolute, assurance assets are safeguarded against loss from unauthorized use or disposition and those transactions are executed in accordance with management’s authorization and recorded properly. The concept of reasonable assurance recognizes the cost of a control should not exceed the benefits likely to be derived, and the evaluation of costs and benefits requires estimates and judgments by management. As a recipient of federal, state and local grants, the District is also responsible for an adequate internal control structure that ensures compliance with applicable laws and regulations related to the grants. All funded grants are subject to testing as part of the District’s Single Audit as mandated by the Office of Management and Budget Circular A-133. The results of the District’s Single Audit for the fiscal year ended June 30, 2012, provided no instances of material weaknesses in the internal control structure or significant violations of applicable laws and regulations. The report may be viewed in the Federal Awards section of the CAFR. Budgetary controls are established in accordance with TEA regulations and District policy for all managers with line-item responsibility. TEA regulations set the level of budgetary control at the functional expenditure level. The Board authorized the administration, through resolution, to provide budgetary transfers when there is no impact on the fund balance. The Board must approve all budget amendments impacting fund balance of the General, Debt Service and National Breakfast and Lunch Program Funds. The District utilizes a line-item budget of proposed expenditures and the means of financing them. The emphasis of the budget process is to identify the activities requiring resources and to rank those activities according to the needs of the entire District. Administrators have the responsibility to develop and manage their own vi