Audit Wrap Up & Presentation New Hanover County Board of Education January 6, 2015

Cherry Bekaert LLP 2626 Glenwood Avenue | Suite 200 | Raleigh, NC 27608

919.782.1040 | www.cbh.com

Table of Contents 1 Overview 2 Audit Areas of Focus 3 Results  Financial Statements  OMB A-133 Audit  State Single Audit

4 Required Communications 5 Accounting Measurements & Metrics

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Overview Audit of Financial Statements We have completed our audit of the financial statements of the Board for the year ended June 30, 2014. Our audit was conducted in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. This audit of the financial statements does not relieve management or those charged with governance of their responsibilities. We are responsible for forming and expressing an opinion about whether the financial statements that have been prepared by management with the oversight of those charged with governance are presented fairly, in all material respects, in conformity with generally accepted accounting principles. The objective of our audit was to obtain reasonable - not absolute - assurance about whether the financial statements are free from material misstatements. The scope of the work performed was substantially the same as that described to you in our engagement letter.

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Overview (continued) Internal Control Over Financial Reporting In accordance with Government Auditing Standards, we have also issued our report on our consideration of the Board’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of the report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.

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Overview (continued) Internal Control Over Compliance In accordance with OMB Circular A-133, Audits of States, Local Governments, and Non-Profits, and the State Single Audit Implementation Act, we have also issued our report on our consideration of the Board’s compliance with requirements of laws, regulations, contracts and federal and State grants that could have a direct and material effect on the determination of the financial statement amounts. The purpose of the report is to describe the scope of our testing over compliance and the results of that testing, and not to provide an opinion on the internal control over compliance. Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. All records and information requested by Cherry Bekaert LLP were freely available for our inspection. Management and other personnel provided full cooperation.

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Audit Areas of Focus Primary Area of Focus

Procedures Performed

Compliance with New GAAP (GASB) Regulations

Discussed with management and evaluated new accounting and reporting requirements to determine the extent that these pronouncements will affect the Board.

Cash

Cash reconciliations were inspected for accuracy and agreed to original bank statements.

Receivables and Revenue

Analytically reviewed revenue and receivables and significant items were confirmed directly with revenue sources.

Capital Assets

Obtained the capital asset roll forwards and the capital outlay reconciliation and analytically reviewed depreciation expense.

Accounts Payable and Expenses

Search for unrecorded liabilities was performed reasonableness of accounts payable at June 30, 2014.

Payroll Expenses

Analytical procedures were performed on payroll expense which included salaries, benefits and payroll taxes.

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to

assess

the

Audit Areas of Focus (continued) Primary Area of Focus

Procedures Performed

Debt

Obtained the LT Debt roll forwards and analytically reviewed compensated absences.

Single Audit

Performed test of compliance with grant agreements and certain laws and regulations.

Litigation

Discussed actual and threatened litigation with management and obtained representations with respect to the effect of litigation on the financial statements.

Management's Judgments and Accounting Estimates

Accounting estimates are an integral part of the financial statements and are based on management’s current judgments. We believe that the following items represent significant judgmental areas that impact the Board’s financial reporting: • • •

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Allowance for doubtful accounts Depreciation expense Charter school liability

Results on Financial Statements Category

Definition

Opinion

Unmodified

Internal Control

No significant deficiencies or material weaknesses noted.

Statutory Compliance

No instances of noncompliance noted.

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Results on OMB A-133 Audit Category

Definition

Opinion

Unmodified

Internal Control

No significant deficiencies or material weaknesses noted.

Statutory Compliance

No instances of noncompliance noted.

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Results on State Single Audit Category

Definition

Opinion

Unmodified

Internal Control

No significant deficiencies or material weaknesses noted.

Statutory Compliance

No instances of noncompliance noted.

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Required Communications Matters Required to be Reported to Those Charged with Governance Requirement

Discussion Points

Auditor’s judgment about the quality of the Board’s accounting policies, estimates and financial statement disclosures

In accordance with applicable auditing standards, a discussion was held regarding the quality of financial reporting, which included the Board’s significant accounting practices, estimates and financial statement disclosures.

Critical accounting policies and practices

Please refer to Primary Areas of Focus in Section 2.

Adoption of a change in accounting principle

There were no significant changes in accounting principles where the application of alternative generally accepted accounting principles, including alternative methods of applying an accounting principle, would have a material effect on the Board’s financial statements.

Material, corrected misstatements brought to the attention of management by the auditor

There were no material misstatements detected as a result of our audit procedures required to be corrected by management.

Uncorrected misstatements, other than those the auditor believes to be trivial

There were no passed adjusting journal entries noted during the audit.

Disagreements with management

There were no disagreements with management on financial accounting and/or reporting matters and auditing procedures that, if not satisfactorily resolved, would cause a modification of our audit report.

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Required Communications (continued) Matters Required to be Reported to Those Charged with Governance Requirement

Discussion Points

Consultations with other accountants

We are not aware of any consultations about accounting or auditing matters between management and other independent public accountants, nor are we aware of opinions obtained by management from other independent public accountants on the application of generally accepted accounting principles.

Major issues discussed with management prior to retention

Prior to our being retained as auditor for the current fiscal year, there were no major accounting or other issues of concern discussed with management.

Significant issues discussed with management

Please refer to the Results of Our Audit in Section 3.

Significant difficulties encountered during the audit

There were no significant difficulties encountered during the audit.

Representations requested from management

We have received a management representation letter signed by management.

Other issues arising from the audit the auditor considers significant and relevant to those charged with governance

There were no issues arising from the audit that we consider significant and relevant to those charged with governance.

Material alternative accounting treatments discussed with management

There was no discussion with management concerning alternative accounting treatments.

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Accounting Measurements & Metrics Statement of Net Position Governmental and Business-Type Activities: Total assets decreased by approximately $8.4m or 3.0%. The most significant changes were: • Capital assets decreased by approximately $8.8m due to the reduction of capital spending and an increase in depreciation expense. • Prepaids increased $764k due to the timing of insurance payments to the NC School Board Association, the NC School Boards Trust and New Hanover County Risk Management. Governmental and Business-Type Activities:

Total liabilities and deferred inflows of resources increased by approximately $977k or 4.3%. The most significant changes were: • Accrued salaries and wages payable increased due to increased total salary for FY14. • Compensated absences increased by approximately $736k due to additional leave days granted by the State.

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Accounting Measurements & Metrics (continued) Statement of Activities Governmental Activities: Total revenues increased by approximately $1.6m or 0.7%. The most significant changes were: • $3.8m increase due to additional county funding. • $1.9m decrease due to replacement school buses received in the prior year and not in the current year. • Decrease in federal funding due to the ending of Race-to-the-Top, School Improvement and other ARRA funding. Total expenses increased by approximately $3.9m or 1.7% due to increased State and County funding. Significant factors resulting in increased spending were: • Restoration of salary reductions which occurred in previous years and to fund State mandated benefits. • Capital projects such as security projects, HVAC upgrades at Noble, Myrtle Grove and Hoggard schools as well as mobile computer lab upgrades. • Career Technical Education – Program Support Funds expenditures increased by $382k. Business-Type Activities: Total revenues increased by approximately $67k or 0.6% mainly due to increased free and reduced lunch reimbursements. Total expenses decreased by approximately $13k or 0.1% mainly due to decreased depreciation expense.

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Accounting Measurements & Metrics (continued) $33 $196

ASSETS- General Fund (Modified Accrual Basis) (thousands) 2013 2014 $1,204 Cash and

$1,227 $1,125

investments Due from other governments Accounts receivable Inventories

$27,963

$50 $269

$360

$29,313

Cash and investments Due from other governments Accounts receivable Inventories Prepaids

Prepaids

LIABILITIES AND FUND BALANCE- General Fund (Modified Accrual Basis) (thousands) 2014

$3,061

$3,402

Liabilities

$27,142

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Fund balance

2013 Liabilities

$28,135

Fund balance

Accounting Measurements & Metrics (continued) FUND BALANCE- General Fund (Modified Accrual Basis) (thousands)

2014

2013

$2,353

$1,564 $656

$710

Nonspendable $15,971

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Restricted $8,162

Nonspendable $17,939

$7,922

Restricted

Assigned

Assigned

Unassigned

Unassigned

Accounting Measurements & Metrics (continued) REVENUES- General Fund (Modified Accrual Basis) (thousands) 2013 2014 $2,434 $2,677

New Hanover County

$9

New Hanover County U.S. Government

$61,437

$64,741

Other local revenues

Other local revenues

EXPENDITURES- General Fund (Modified Accrual Basis) (thousands) $1,810 $163

$29,710

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2014 $109

$35,211

Instructional Services System-wide Support Services Ancillary Services Non-programmed Charges Debt Service

$1,189 $57

$30,285

2013 $109

$30,351

Instructional Services System-wide Support Services Ancillary Services Non-programmed Charges Debt Service

Accounting Measurements & Metrics (continued) CAPITAL ASSETS, net of depreciation – Governmental Activities (Full Accrual Basis) (thousands) $9,766 $781 $3,682

2014

$11,867 $233 $7,308

$1,245

Land

$4,085 Non-exhaustible land improvements

2013 $11,867 $772 $7,968

Land Non-exhaustible land improvements

Construction in progress

Construction in progress

Land improvements

Land improvements

Buildings and building improvements

$187,953

$9,766

Buildings and building improvements

$194,562

Vehicle fleet

Vehicle fleet

Furniture and equipment

Furniture and equipment

CAPITAL ASSETS, net of depreciation – Business Type Activities (Full Accrual Basis) (thousands) 2014

$1,139

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2013

Equipment

$1,253

Equipment

Accounting Measurements & Metrics (continued) $480

DEBT – Governmental Activities (Full Accrual Basis) (thousands) 2013 2014 $960 Compensated Absences

$83

$186

Compensated Absences Capital Lease

Capital Lease $11,370

$12,080

Installment Purchase

Installment Purchase

DEBT – Business Type Activities (Full Accrual Basis) (thousands) 2014

$334

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2013

Compensated Absences

$308

Compensated Absences

Accounting Measurements & Metrics (continued) Federal and State Program Expenditures (thousands)

2014

2013 Federal Programs

$23,252

$135,525

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Federal Programs

State Programs $23,624

$134,952

State Programs

Contact Michelle Thompson | Engagement Partner [email protected] | 919.782.1040 | www.cbh.com Cherry Bekaert LLP

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