Jefferson County Board of Education Audit Oct. 2011 - Sept. 2012

7/30/2019 Jefferson County Board of Education Audit Oct. 2011 - Sept. 2012

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Ronald L. Jones, Chief Examiner13-195

Report on theJefferson County

Board of Education

Jefferson County, Alabama

October 1, 2011 through September 30, 2012

Filed: May 3, 2013

Department of

Examiners of Public Accounts50 North Ripley Street, Room 3201

P.O. Box 302251

Montgomery, Alabama 36130-2251

Website: www.examiners.alabama.gov


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State of AlabamaDepartment ofExaminers ofPublic AccountsRonald L. JonesChie fExaminer

P.O. Box 302251, Montgomery, AL 36130-225150 North Ripley Street, Room 3201Montgomery, Alabama 36104-3833Telephone (334) 242-9200

Honorable Ronald L. JonesChief Examiner ofPublic AccountsMontgomery, Alabama 36130

Dear Sir:

FAX (334) 242-1775

Under the authority of the Code of Alabama 1975, Section 41-5-21 , I submit thisreport on the results of the audit of the Jefferson County Board of Education,Jefferson County, Alabama, for the period October 1, 2011 through September 30, 2012.

Respectfully submitted,Sworn to...e_nd subscribed before me thisthe t l a y o f ~ \ \ , 20_a .l fu COle Q . L01ctna., Amanda HensleyNotary Public Examiner ofPubl ic Accountsrb

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Table of ContentsPage

Jefferson CountyBoard of Education

Summary A

Contains items pertaining to federal, state and local legal compliance, Board

operations, and other matters.

Independent Auditors Report C

Reports on whether the financial information constitutes a fair presentation ofthe financial position and results of financial operations in accordance with

generally accepted accounting principles (GAAP).

Managements Discussion and Analysis F

Provides information required by the Governmental Accounting Standards

Board (GASB) that is prepared by management of the Board introducing thebasic financial statements and providing an analytical overview of the Boards

financial activities for the year. This information has not been audited, and no

opinion is provided about the information.

Basic Financial Statements 1

Provides the minimum combination of financial statements and notes to the

financial statements that is required for the fair presentation of the Boards

financial position and results of operations in accordance with GAAP.

Exhibit #1 Statement of Net Assets 2

Exhibit #2 Statement of Activities 3

Exhibit #3 Balance Sheet Governmental Funds 5

Exhibit #4 Reconciliation of the Balance Sheet of Governmental Fundsto the Statement of Net Assets 7

Exhibit #5 Statement of Revenues, Expenditures and Changes in FundBalances Governmental Funds 8

Exhibit #6 Reconciliation of the Statement of Revenues, Expenditures andChanges in Fund Balances of Governmental Funds to the

Statement of Activities 10

Exhibit #7 Statement of Fiduciary Net Assets 11


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Notes to the Financial Statements 12

Required Supplementary Information 37

Provides information required by the GASB to supplement the basic financialstatements. This information has not been audited and no opinion is provided

about the information.

Exhibit #8 Schedule of Revenues, Expenditures and Changes in Fund

Balances Budget and Actual General Fund 38

Exhibit #9 Schedule of Revenues, Expenditures and Changes in FundBalances Budget and Actual Special Revenue Fund 42

Supplementary Information 46

Contains financial information and notes relative to federal financial assistance.

Exhibit #10 Schedule of Expenditures of Federal Awards 47

Notes to the Schedule of Expenditures of Federal Awards 51

Additional Information 52

Provides basic information related to the Board, including reports and items

required by generally accepted government auditing standards and/or U. S.Office of Management and Budget (OMB) Circular A-133 for federal

compliance audits.

Exhibit #11 Board Members and Administrative Personnel a listing

of the Board members and administrative personnel. 53

Exhibit #12 Report on Internal Control Over Financial Reporting and on

Compliance and Other Matters Based on an Audit of Financial

Statements Performed in Accordance WithGovernment AuditingStandards a report on internal controls related to the financial

statements and on whether the Board complied with laws andregulations which could have a direct and material effect onthe Boards financial statements. 54


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Exhibit #13 Report on Compliance With Requirements That Could Have

a Direct and Material Effect on Each Major Program and on

Internal Control Over Compliance in Accordance With OMB

Circular A-133 a report on internal controls over compliancewith requirements of laws, regulations, contracts, and grantsapplicable to major federal programs and an opinion on whether

the Board complied with laws, regulations, and the provisions

of contracts or grant agreements which could have a direct andmaterial effect on each major program. 56

Exhibit #14 Schedule of Findings and Questioned Costs a schedule

summarizing the results of audit findings relating to the financialstatements as required by Government Auditing Standards and

findings and questioned costs for federal awards as required

by OMB Circular A-133. 59

Exhibit #15 Auditee Response/Corrective Action Plan a response by the

Board on the results of the audit and a corrective action planfor federal audit findings. 62

__________________________________________________


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13-195 A

Department of

Examiners of Public Accounts

SUMMARY

Jefferson County Board of Education

October 1, 2011 through September 30, 2012

The Jefferson County Board of Education (the Board) is governed by a five-member body

elected by the citizens of Jefferson County. The members and administrative personnel in

charge with governance of the Board are listed in Exhibit 11. The Board is the governmentalagency that provides general administration and supervision for Jefferson County public

schools, preschool through high school, with the exception of school systems of Bessemer,

Birmingham, Fairfield, Homewood, Hoover, Leeds, Midfield, Mountain Brook, Tarrant,Trussville, and Vestavia Hills, which are administered by separate Boards of Education

appointed by their municipal governments.

This report presents the results of an audit the objectives of which were to determine whetherthe financial statements present fairly the financial position and results of financial operations

and whether the Board complied with applicable laws and regulations, including those

applicable to its major federal financial assistance programs. The audit was conducted in

accordance with auditing standards generally accepted in the United States of America andthe standards applicable to financial audits contained in Government Auditing Standards

issued by the Comptroller General of the United States as well as the requirements of the

Department of Examiners of Public Accounts under the authority of theCode of Alabama

1975, Section 41-5-14.

An unqualified opinion was issued on the financial statements, which means that the Boards

financial statements present fairly, in all material respects, its financial position and the resultsof its operations for the fiscal year ended September 30, 2012.

Tests performed during the audit did not disclose any significant instances of noncompliance

with applicable state and local laws and regulations.

Problems were found with the Boards internal controls over financial reporting (Exhibit 14) and

they are summarized below:

2012-01 relates to problems with properly accounting for athletic events at the localschools.

2010-01 relates to problems with documentation of expenditures at the local schools. 2010-02 relates to problems with receipting of funds at the local schools.


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The following officials/employees were invited to an exit conference to discuss the

findings and recommendations appearing in this report: Board Members: Jennifer H. Parsons,Ronald A. Rhodes, Jacqueline A. Smith, Karen Smith Nix, and Tommy L. Little;

Superintendent: Dr. Phillip Hammonds; Deputy Superintendent: Dr. Yancy Morris; Interim

Deputy Superintendent: Dr. Julie Hannah; Deputy Superintendent: Dr. Anna Vacca; and ChiefSchool Finance Officer: Sheila Jones. The following individuals attended the exit conference,

held at the Boards offices: Superintendent: Dr. Phillip Hammonds; Deputy Superintendent:Dr. Yancy Morris; Board Members: Ronald A. Rhodes, Jacqueline A. Smith; Chief SchoolFinance Officer: Sheila Jones; and representatives of the Department of Examiners of Public

Accounts: Brian Wheeler, Audit Manager; and Amanda Hensley, Examiner of Public

Accounts.


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C

Independent Auditors Report


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Independent Auditors Report

We have audited the accompanying financial statements of the governmental activities, eachmajor fund, and the aggregate remaining fund information of the Jefferson County Board of

Education, as of and for the year ended September 30, 2012, which collectively comprise the

Jefferson County Board of Educations basic financial statements as listed in the table of

contents as Exhibits 1 through 7. These financial statements are the responsibility of theJefferson County Board of Educations management. Our responsibility is to express

opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the

United States of America and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States.

Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material

respects, the respective financial position of the governmental activities, each major fund, and

the aggregate remaining fund information of the Jefferson County Board of Education, as ofSeptember 30, 2012, and the respective changes in financial position thereof for the year thenended in conformity with accounting principles generally accepted in the United States of

America.

In accordance with Government Auditing Standards, we have also issued our report dated

April 16, 2013 on our consideration of the Jefferson County Board of Educations internal

control over financial reporting and on our tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements and other matters. The purpose of that

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 controlover financial reporting or on compliance. That report is an integral part of an audit

performed in accordance with Government Auditing Standards and should be considered in

assessing the results of our audit.


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Accounting principles generally accepted in the United States of America require that theManagement' s Discussion and Analysis (MD&A) and the Schedules of Revenues,Expenditures and Changes in Fund Balances - Budget and Actual (Exhibits 8 and 9), bepresented to supplement the basic financial statements . Such information, although not a partof the basic financial statements is required by the Governmental Accounting StandardsBoard who considers it to be an essential part of financial reporting for placing the basicfinancial statements in an appropriate operational, economic, or historical context. We haveapplied certain limited procedures to the required supplementary information in accordancewith auditing standards generally accepted in the United States of America, which consistedof inquiries of management about the methods of preparing the information and comparingthe information for consistency with management's responses to our inquiries, the basicfinancial statements, and other knowledge we obtained during our audit of the basic financialstatements. We do not express an opinion or provide any assurance on the informationbecause the limited procedures do not provide us with sufficient evidence to express anopinion or provide any assurance.Our audit was conducted for the purpose of forming opinions on the financial statements thatcollectively comprise the Jefferson County Board of Education' s basic financial statements.The accompanying Schedule of Expenditures of Federal Awards (Exhibit 10) is presented forthe purposes of additional analysis as required by U. S. Office of Management and BudgetCircular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, and isnot a required part of the basic financial statements. Such information is the responsibility ofmanagement and was derived from and relates directly to the underlying accounting and otherrecords used to prepare the financial statements. The information has been subjected to theauditing procedures, including comparing and reconciling such information directly to theunderlying accounting and other records used to prepare the financial statements or to thefinancial statements themselves, and other additional procedures in accordance with auditingstandards generally accepted in the United States of America. In our opinion, the schedule ofexpenditures of federal awards is fairly stated in all material respects in relation to thefinancial statements as a whole .

ChiefExaminerDepartment of Examiners of Public AccountsApril 16, 2013

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F

Managements Discussion and Analysis(Required Supplementary Information)


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G

Jefferson County Board of Education

Management's Discussion and Analysis (MD&A)

September 30, 2012

Our discussion and analysis of the Jefferson County Board of Education's (the "Board's")

financial performance provide an overview of the Board's financial activities for the fiscalyear ended September 30, 2012. Please read it in conjunction with the Board's financialstatements and notes to the financial statements, which immediately follow this analysis.

The Management's Discussion and Analysis (MD&A) is an element of the reportingmodel adopted by the Governmental Accounting Standards Board (GASB) in theirStatement No. 34, Basic Financial Statements - and Management's Discussion andAnalysis - for State and Local Governments issued June 1999.

Financial Highlights: Significant Items to Note

Our financial statements provide these insights into the results of this year's operations:

The Board's financial status showed improvement for the 2012 fiscal year. Theboard's total net assets increased by $2.3 million over the course of the fiscal year.This increase is largely attributable to an increased investment in land and buildingsfunded mainly by the Jefferson County Commission Grant.

The assets of the Board exceeded its liabilities at the close of the 2012 fiscal year by$586.04 million (net assets). Of this amount, $63.52million (unrestricted net assets)may be used to meet the Board's future costs of operations.

The total cost of the Board's programs for the year was $329.51 million. After takingaway a portion of these costs paid for with charges or fees, intergovernmental aid,interest earnings and other miscellaneous sources, the net cost that required fundingfrom Jefferson County taxpayers was $83.78 million. (The state's FoundationProgram provided $155.21 million towards the cost of the programs.)

As a result of controlling expenditures, the General Fund revenues for the yearexceeded total expenditures by over $8.42 million.

At the end of the current fiscal year, the unassigned fund balance for the GeneralFund was $48.3 million, or 19 percent of the total General Fund expenditures, before

other financing uses and special items.

Major capital outlay projects consisted of twenty five (25) local, state, and countycommission grant funded building projects, eleven (11) of which were still inprogress at years end.

The Board saw a net decrease in its outstanding long-term debt by $9.09 million or8.15 percent.


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Using the Financial Statements - An Overview for the User

As a result of the implementation of the GASB 34 reporting model, the financial sectionnow consists of five parts - management's discussion and analysis (this section), the

independent auditors' report, the basic financial statements, required supplementaryinformation, andother supplementary information.

The Board's basic financial statements are comprised of three components:1) government-wide financial statements, 2)fund financial statements, and 3) notes to thebasic financial statements.

Government-wide financial statements - The focus of these statements is to providereaders with a broad overview of the Board's finances as a whole instead of on anindividual fund basis, in a manner similar to a private-sector business, indicating bothlong-term and short-term information about the Board's overall financial status. It is

important to note that all of the activities of the board reported in the government-widefinancial statements are classified as governmental activities. These activities include thefollowing:

Instruction includes teacher salaries and benefits, teacher aides, substitute teachers,textbooks, depreciation of instructional buildings, professional development, andclassroom instructional materials, supplies and equipment.Instructional support includes salaries and benefits for school principals, assistant

principals, librarians, counselors, school secretaries, school bookkeepers, speechtherapists, and school nurses, as well as professional development expenses.Operation and maintenance includes utilities, security services, janitorial services,

maintenance services, and depreciation of maintenance vehicles.Auxiliary services includes student transportation expenses, such as bus driver salariesand benefits, mechanics, bus aides, vehicle maintenance and repair expenses, vehiclefuel, depreciation of buses and bus shops, and fleet insurance, and food service expensessuch as lunchroom managers, cooks, cashiers and servers' salaries and benefits as well asdonated and purchased food, food preparation and service supplies, kitchen andlunchroom equipment and depreciation of food service equipment and facilities.General administration and central support includes salaries and benefits for thesuperintendent, assistants, clerical and financial staff, and other personnel that providesystem-wide support for the schools. Also included are legal expenses, liabilityinsurance, training for board members and general administrative staff, printing costs,

and depreciation of central office equipment and facilities.Interest and fiscal charges includes interest, but not principal payments, on long-termdebt issues and other expenses related to the issuance and continuance of debt issues.Other includes the salaries and benefits for adult and continuing education teachers,preschool teachers and aides, extended day personnel, and community educationinstructors. Also included are the materials, supplies, equipment, related depreciation,and other expenses for operating programs outside of those for educating students in thekindergarten through 12th grade instructional programs.


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Government-wide statements report the capitalization of capital assets and depreciation ofall exhaustible capital assets and the outstanding balances of long-term debt and otherobligations. These statements report all assets and liabilities perpetuated by theseactivities using the accrual basis of accounting. The accrual basis takes into account all

of the Board's current year revenues and expenses regardless of when received or paid.This approach moves the financial reporting method for governmental entities closer tothe financial reporting methods used in the private sector. The following government-wide financial statements report on all of the governmental activities of the Board as awhole.

The statement of net assets (on page 2) is most closely related to a balance sheet.It presents information on all of the board's assets (what it owns) and liabilities (what itowes), with the difference between the two reported as net assets. The net assets reportedin this statement represent the accumulation of changes in net assets for the current fiscalyear and all fiscal years in the past combined. Over time, the increases or decreases in

net assets reported in this statement may serve as a useful indicator of whether thefinancial position of the school board is improving or deteriorating.

The statement of activities (on page 3) is most closely related to an incomestatement. It presents information showing how the Board's net assets changed duringthe current fiscal year only. All of the current year's revenues and expenses areaccounted for in the statement of activities regardless of when cash is received or paid.This statement shows gross expenses and offsetting program revenues to arrive at net costinformation for each major expense function or activity of the Board. By showing thechange in net assets for the year, the reader may be able to determine whether the Board'sfinancial position has improved or deteriorated over the course of the current fiscal year.The change in net assets may be financial or non-financial in nature. Non-financialfactors which may have an impact on the Board's financial condition include: age andcondition of facilities, mandated educational programs for which little or no funding isprovided, and increases or decreases in funding from state and federal governments, toname a few.

Fund financial statements - A fund is a grouping of related accounts that is used tomaintain control over resources that have been segregated for specific activities orobjectives. The Board has used fund accounting to ensure and demonstrate compliancewith finance-related legal requirements. The reporting model still requires the Board topresent financial statements on a fund basis, but with some modifications. All of thefunds of the Board can be classified into two categories: governmental funds andfiduciary funds.


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Governmental Funds - Governmental fund financial statements begin on page 5.These statements account for basically the same governmental activities reported in thegovernment-wide financial statements. As required under the reporting model, thefundfinancial statements presented herein display information on each of the Board's most

important governmental funds ormajor funds. This is required in order to better assessthe Board's accountability for significant governmental programs or certain dedicatedrevenue. The Board's major funds are the General Fund and Special Revenue Fund.

Thefund financial statements are still measured on the modified-accrual basis ofaccounting as reported in the previous fiscal years, where revenues and expenditures arerecorded when they become measurable and available. As a result, the fund financialstatements focus more on the near term use and availability of spendable resources. Theinformation provided in these statements is useful in determining the Board's immediatefinancial needs. This is in contrast to the accrual-based government-wide financialstatements which focus more on overall long-term availability of spendable resources.

The relationship between governmental activities reported in the government-widefinancial statements and the governmental funds reported in thefund financial statementsare reconciled on pages 7 and 10 of these financial statements. These reconciliations areuseful to readers in understanding the long-term impact of the Board's short-termfinancing decisions.

Fiduciary Funds - The Board is the trustee, or fiduciary, for some of its boosterand parent organization activity funds which are under the control and administration ofits schools. However, balances of these funds are not considered material to the financialstatements and therefore have been included in the governmental funds. Fiduciary fundsalso include the balances of agency funds, such as accounts payable clearing and payrollclearing funds. All of the Board's fiduciary activities, with the exception of theimmaterial balances referred to above, are reported in a separate Statement of FiduciaryNet Assets on page 11 of this section. These funds are not available to the Board tofinance its operations, and therefore not included in the government-wide financialstatements. The Board is responsible for ensuring that the assets reported by these fundsare used for their intended purposes.

Notes to the Basic Financial Statements - The notes to the basic financial statementsprovide additional information that is essential for the statements to fairly represent theBoard's financial position and its operations. The notes contain important informationthat is not part of the basic financial statements. However, the notes are an integral partof the statements, not an appendage to them. The notes to the basic financial statementsbegin on page 12 in this section.


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After the presentation of the basic financial statements, the reporting model requiresadditional required supplementary information to be presented following the notes to thebasic financial statements. The required supplementary information beginning on page38 provides a comparison of the original adopted budget to the final amended budget of

the Board's General Fund and Special Revenue Fund, which are then further compared tothe actual operating results for the fiscal year. The comparison of this data allows usersto assess management's ability to project and plan for its operations throughout the year.

Analysis of the School Board's Overall Financial Position

As indicated earlier, net assets may serve over time as a useful indicator of agovernment's financial position. Refer to Table 1 when reading the following analysisof net assets. The Board's assets exceeded liabilities by $586.04 million atSeptember 30, 2012.

Of this figure, 86.2 percent or $505.34 million reflects the Board's investment incapital assets (e.g., land, buildings, improvements other than buildings, furniture andequipment, and transportation equipment), less accumulated depreciation and debtrelated to the acquisition of the assets. Since these capital assets are used ingovernmental activities, this portion of net assets is not available for future spendingor funding of operations.

Restricted net assets account for 2.9 percent or $17.18 million of total net assets.Restricted net assets are reported separately to show the external legal constraintsfrom debt covenants and enabling legislation that limit the Board's ability to use thosenet assets for day-to-day operations.

The remaining balance of unrestricted net assets of $63.52 million may be used at the

Board's discretion to meet ongoing obligations to citizens and creditors and for futureoperations.


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Table 1: Summary of Net AssetsAs of September 30, 2012

(in millions)

Governmental Activities

9/30/2012 9/30/2011

Current and other assets $ 183.35 $ 204.06

Capital assets 605.76 593.81

Total Assets $ 789.11 $ 797.87

Current and other liabilities 100.67 102.63

Long-term liability 102.40 111.49

Total Liabilities $ 203.07 $ 214.12

Net Assets:Invested in Capital Assets, Net of Related

Debt $ 505.34 $ 500.87

Restricted 17.18 24.52Unrestricted 63.52 58.36

Total Net Assets $ 586.04 $ 583.75

At the end of the current fiscal year, the Board is able to report positive balances in allthree categories of net assets: invested in capital assets-net of related debt, restricted andunrestricted. This means that the Board has enough available resources to cover alloutstanding obligations, including non-capital liabilities (such as compensated absences)as of September 30, 2012, with resources left over to use for next year's operations.

The Board's improved financial position is the product of several factors. But mostsignificantly, this is the result of the following:

Investment in Capital Assets, net of related debt increased by $4.46 millionfunded mainly with the proceeds of the County Commission Grant

controlling expenditures

The results of this fiscal year's operations as a whole are reported in detail in theStatement of Activities on page 3. Table 2 below condenses the results of operations forthe fiscal year into a format where the reader can easily see the total revenues of theBoard for the year. It also shows the impact the operations had on changes in net assets

as of September 30, 2012.


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Table 2: Summary of Changes in Net Assets from Operating Results(in millions)


9/30/2012 9/30/2011

RevenuesProgram Revenues:

Charges for services $ 28.83 $ 27.48

Operating grants and contributions 201.57 214.73

Capital grants and contributions 9.93 11.26

General Revenues:

Local property taxes 81.98 81.18

Alcohol beverage tax 0.80 0.84

Other taxes 1.00 0.99

Other 7.69 7.44

Total Revenues $ 331.80 $ 343.92

Expenses

Instructional services $ 182.18 $ 194.55

Instructional support services 53.28 55.54

Operation and maintenance services 27.32 27.78

Auxiliary services 43.08 42.63

General administrative services 9.39 8.87

Interest and fiscal charges 4.85 2.88

Other expenses 9.41 8.94

Total Expenses $ 329.51 $ 341.19

Increase in Net Assets 2.29 2.73

Net Assets - Beginning 583.75 581.02

Net Assets - Ending $ 586.04 $ 583.75


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Governmental Activities - As shown in Table 2, the cost of services rendered from theBoard's governmental activities for the year ended September 30, 2012 was $329.51million. It is important to note that not all of these costs were borne by the taxpayers ofJefferson County:

Some of the cost, $28.83 million, was paid by users who benefited from servicesprovided during the year, such as school lunches, summer school, drivers educationinstruction, and transfer tuition.

State and federal governments subsidized certain programs with grants andcontributions totaling $211.5 million.

Other general revenue sources, such as interest earnings, sale of surplus property,proceeds from Sixteenth Section Land Trust Fund distributions, etc., provided for$7.69 million in revenues.

$83.78 million of the Board's total costs of $329.51 million was financed by districtand state taxpayers, as follows: $81.98 million in property taxes, $0.80 million in

alcohol beverage tax, and $1.0 million in other taxes (business privilege tax, minerallease documentary tax, helping-school vehicle tags, and manufactured homeregistration fees).

Table 3 is a condensed statement taken from the Statement of Activities on page 3showing the total cost for providing identified services for six major Board activities.Total cost of services is compared to the net cost of providing these services. The netcost of services is the remaining cost of services after subtracting grants and charges forservices that the Board used to offset the program's total cost. In other words, the net costshows the financial burden that was placed on all taxpayers for each of these activities.This information allows citizens to consider the cost of each program in comparison tothe benefits they believe are provided.


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Table 3: Net Cost of Governmental Activities(in millions)

Total Cost of ServicesNet Costof Services

2012 2011 2012 2011

Instructional services $182.18 $194.55 $ 30.20 $32.39

Instructional support services 53.28 55.54 16.58 14.35

Operation and maintenance services 27.32 27.78 18.53 18.16

Auxiliary services 43.08 42.63 6.85 8.72

General administrative services 9.39 8.87 8.34 7.50

Interest and fiscal charges 4.85 2.88 4.85 2.88

Other expenses 9.41 8.94 3.83 3.71

Total $ 329.51 $ 341.19 $ 89.18 $87.71

Performance of School Board Funds

As noted earlier, the Board uses fund accounting to control and manage resources inorder to ensure compliance with finance-related legal requirements. Using funds to

account for resources for particular purposes helps the reader to determine whether theBoard is being accountable for the resources provided by taxpayers and other entities, andit may also help to provide more insight into the Board's overall financial health. Thefollowing analysis of the Board's funds should be read in reference to the fund financialstatements which begin on page 5.

Governmental Funds - The focus of the Board's governmental funds is toprovide information on near-term inflows, outflows, and balances of spendable resources.Such information is useful in assessing the Board's financial requirements (Note that therelationship between the fund financial statements and the government-wide financialstatements are reconciled on pages 7 and 10). The strong financial performance of the

Board as a whole is reflected in its governmental funds as well. At the end of the fiscalyear, the Board's governmental funds reported combined ending fund balances of $82.85million.


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General Fund - The General Fund is the primary operating fund of the Board.The General Fund ended the year with a $49.62 million fund balance.Approximately $48.3 million of this amount constitutes an unassigned fundbalance which is available as of the end of the fiscal year for spending on future

operations. An additional $1.32 million was designated as nonspendable forinventories and prepaid items. The General Fund ended the fiscal year with apositive $8.42 million net change in fund balance that was achieved primarilyfrom controlling expenditures.

The Special Revenue Fund is used to account for and report the proceeds ofspecific revenue sources that are restricted or committed to expenditure forspecified purposes other than debt service or capital projects. Various federal andlocal funding sources are included in this fund. Some of the significant federalfunding sources include the federal funds that are received for Special Education,Title I, and Child Nutrition. This fund ended the year with a fund balance of$19 million.

Budgetary Highlights of Major Funds

On or before October 1 of each year, the Board is mandated by state law to prepare andsubmit to the State Superintendent of Education the annual budget adopted by the Board.The original 2012 fiscal year budget, adopted on September 13, 2011, was based on aconservative approach that reflected current revenues and expenditures. The originalbudget figures were amended when revenues or expenditures exceeded ten percent. Overthe course of the year, the Board revised the annual operating budgets two times onJanuary 24, 2012 and May 24, 2012. For purposes of this budgetary analysis, only the

General Fund of the Board is discussed in accordance with the GASB 34 reportingmodel.

General Fund - The comparison of the General Fund original budget to the finalamended budget is on page 38. The differences between the original budget and the finalamended budget of the Board were a $2.06 million increase in overall revenueappropriations and $6.69 million increase in expenditure appropriations and can bebriefly summarized as follows:Amendment #1 was necessary to budget beginning fund balances to reflect ending fundbalances from FY 2011 and budget federal programs carryover.

Additionally, revenues and expenditures were increased for the following additional stateallocations:

$.67 million National Board Professional Teacher Standards

$.54 million Catastrophic Special Education

$.23 million State Advanced Placement


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Amendment #2 was necessary to reduce budgeted pass through funds to the ChildNutrition program, budget final federal program changes, and increase revenues andexpenditures for the following additional state allocations:

$.10 million State Contracts

$.20 million National Board Professional Teacher Standards

The positive variance between budgeted and actual expenditures was primarily the resultof conservative spending throughout the school system.

Overall, the final amended budget is reflective of the actual operating activity for theyear. Although actual revenues were higher than budgetary estimates ($6.89 million) andactual expenditures were less than budgetary estimates ($4.28 million) the resulting$13.69 million net change in fund balance (budgetary vs. actual) reflects a more positiveending financial picture than was originally anticipated and reflected in the budget.

Capital Assets and Debt Administration

Capital Assets - The Board's investment in capital assets for its governmental activitiesfor the year ended September 30, 2012, amounted to $505.34 million, net of accumulateddepreciation, restricted net assets and debt related to the acquisition of the assets. TheBoard's investment in capital assets includes land at estimated historical cost, buildingsand improvements at estimated historical cost, equipment and furniture at estimatedhistorical cost, buildings and improvements under capital lease, and construction inprogress, and is shown in Table 4.

Table 4: Capital Assets (net of accumulated depreciation)(in Millions)


2012 2011

Land and land improvements $ 26.44 $ 26.58

Construction in progress 24.83 24.75

Buildings & Improvements 507.03 494.17

Equipment and Furniture 21.96 21.68

Buildings and ImprovementsUnder Capital Lease 25.50 26.63

$ 605.76 $ 593.81


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Net capital assets increased by $11.94 million for the 2012 fiscal year. The Boardexpended available resources to acquire $31.58 million in capital asset additions duringthe year. These additions are reduced by the current year's net depreciation expense of$16.97 million and $2.66 million in net capital assets taken out of service during the year.

The additions to capital assets were primarily for the following:

Land was purchased in the amount of $.66 million for Concord Elementary.

Building construction/improvements (paid for with state, local, and County Commissiongrant funds) were completed on the following schools:

Clay Chalkville Middle $3,669,650.12Centerpoint High 6,062,564.81Bottenfield 660,318.87Hueytown High 1,125,851.02

Irondale Community 7,056,689.75McAdory High 1,295,205.83Mortimer Jordan 879,064.68Pleasant Grove High 4,955,051.59Pinson Valley High 812,723.69Brighton School 89,341.05Gardendale High 316,743.59McAdory Middle 181,730.79Fultondale High 183,955.40McAdory Elementary 181,000.00Minor High 145,265.41

Total $ 27,655,156.60


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Construction in progress at year-end reflected the following projects paid for with state,local, and County Commission Grant capital outlay funds:

Burkett 2,788,511.48 New BuildingConcord 11,546,547.37 New BuildingVarious Schools 1,428,344.80 RoofingErwin Elementary 8,408,519.24 AdditionsPinson Valley High 118,545.15 Accessibility ImprovementsPleasant Grove High 72,022.80 Athletic FacilitiesCenter Point Elementary 446,364.94 Building ImprovementsCentral Office 9,110.00 Building ImprovementsErwin Middle 800.00 Fire Alarm SystemFultondale High 14,550.00 Field House

Total $24,833,315.78

The Board purchased $1.75 million in new vehicles, including twenty one new buses allpurchased with state and federal funds, one car for Drivers Education (purchased withstate and local funds), and two service vehicles (purchased with local funds).

Equipment purchases totaling $2.02 million were primarily funded with Child Nutritionfunds at various cost centers.

Long-Term Debt - At year-end, the Board had $102.40 million in capital outlay

warrants, capital lease contracts payable, and other long-term debt outstanding as shownin Table 5 below.

Table 5: Outstanding Long-Term Debt(in millions)

Fiscal Year Ended September 30, 2012

Beginning Ending

BalanceNet

Change Balance

Governmental Activities:

Bonds and warrants payable $ 85.93 $ (6.94) $ 78.99

Unamortized Premium 1.37 (.16) 1.21

Unamortized Discount/Deferred Loss (3.42) 0.42 (3.00)

Other liabilities:

Capital leases 25.95 (2.28) 23.67

Compensated absences 1.66 (0.13) 1.53

Total other liabilities 27.61 (2.41) 25.20

Governmental activities long-term debt $ 111.49 $ (9.09) $ 102.40


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Long-term debt activity for the year consisted of the following:

The Board continued to pay down its capital outlay warrants issued in 2005, 2009,and 2011 retiring $6.94 million in outstanding bonds during the fiscal year 2012. Inaddition, the Board continued to make lease payments on its one remaining capitallease agreement (the 2000 Jefferson County Commission Sale LeasebackAgreement), resulting in a decrease of $2.28 million in capital lease contractspayable.

(More detailed information about the Board's long-term liabilities is presented in thenotes to the basic financial statements.)

Economic Factors and Next Year's Budget

The following are currently known Jefferson County economic factors considered whilegoing into the 2012-2013 fiscal year.

The unemployment rate in Jefferson County for September 2012 is 7.3 percent, whichis lower than the September 2011 rate of 9.5 percent, indicating a positive economictrend in this area. Jefferson County's unemployment rate is lower than the statesaverage unemployment rate of 8.2 percent but is slightly higher than the national rateof 7.8 percent for September 2012.

The population in Jefferson County as of the year 2010 census decreased slightlysince the last ten-year census taken in 2000. The population decreased byapproximately 3,581 people or 0.5 percent over a ten-year period for a total estimatedpopulation of 658,466.

According to the Center for Business and Economic Research, state tax revenues forthe fiscal year ended September 30, 2012 were up 3.8 percent or approximately$324 million. Sales tax revenues rose 4.3 percent, corporate income tax receipts wereup $53 million, and personal income tax revenues increased 4.7 percent.Appropriations to the Alabama Education Trust Fund, which come primarily fromincome and sales taxes, increased by 7.0% or $369 million.

Because of funding concerns at the state level and increasing expenditures in theareas of retirement, health insurance, and pay increases, the Board continues tobudget for cautious spending for the 2013 fiscal year.

At the time these financial statements were prepared and audited, the Board was aware ofthe following circumstances that could significantly affect the Board's financial health inthe future:


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Establishment of Independent City School Districts - At the present time, there aretwelve public school systems operating within Jefferson County--the Board and schoolboards for the following municipalities in the County: Bessemer, Birmingham, Fairfield,Homewood, Hoover, Leeds, Midfield, Mountain Brook, Tarrant, Trussville, and Vestavia

Hills (collectively, the "City Boards"). Under existing Alabama law, a city with apopulation in excess of 5,000 is entitled to establish a separate public school systemwithin its jurisdiction with its own board of education, members of which are elected bythe governing body of such city. If an additional city system is established in the County,the State and County revenues for general educational purposes and all county-wideschool property taxes would be apportioned among all school systems in the Countyincluding the Board, the existing city school systems in the County and the new cityschool system. Any district school property tax then being levied in the district in whicha system is established shall be distributed as follows: (1) that part of the district taxcollected in the city forming the independent system shall be apportioned to theindependent city system and (2) that part of the district tax collected in the County

outside the city forming the independent system shall be apportioned to the county boardof education. Other than the municipalities operating the City Boards, the municipalitiesin the County that have a population of at least 5,000 are the Cities of Adamsville,Centerpoint, Clay, Fultondale, Gardendale, Hueytown, Irondale, Pinson, and PleasantGrove. Reports in the news media would indicate that the establishment of independentcity boards of education by other municipalities is considered from time to time.

Proration of State Appropriations - Applicable provisions of the Constitution ofAlabama effectively prohibit the State from engaging in deficit financing--that is to say,state expenditures during any fiscal year may not exceed available revenues. State law

provides procedures for delaying or, if necessary, reducing (or "prorating")appropriations of state revenues in order to maintain and enforce the constitutional ban ondeficit financing. The Board received the largest share of its annual revenue from theState. Although the State revenues provided for the payment of employee salaries andbenefits are prorated, State law prohibits the Board from reducing salaries and benefitspaid to employees. The postponement or reduction of State appropriations to the Boardas a consequence of proration may therefore result in reductions of expenditures by theBoard for certain budget items other than salaries (e.g. instructional materials, suppliesand maintenance). The following table sets forth the years in which proration has beenenforced since 1985 and the amounts of such proration:


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Fiscal Year Proration Percentage

1986-86 4.2133%

1990-91 6.5000%

1992-92 3.0000%

2000-01 6.2000%

2002-03 4.4000%

2008-09 11.000%

2009-10 9.5000%

2010-11 3.0000%

Estimated Capital Needs - As of September 30, 2012, the Board's Five-Year CapitalPlan, based upon critical needs and a State facility assessment, included $133.09 millionin estimated capital needs through-out the system, $29.58 million of which will be stateor locally funded, $2.24 million will be funded by the Jefferson County Commissiongrant, and $101.27 million which is unfunded at this time.

Student Enrollment - The latest student enrollment figure for the 2012-2013 school yearof 36,068 indicates a slight increase in enrollment of approximately 10 students. Thisincrease will be reflected in the Boards FY 2014 allocations from the State Departmentof Education as prior school year enrollment is used to calculate allocations for a fiscal

year. It should be noted that the large decline from fiscal year 2005 to 2006 was theresult of the pullout of Trussville City Schools (4,032 students) and the decline from2002 to 2003 was largely a result of the loss of 274 ADM to the Vestavia City Board ofEducation upon transfer of the Cahaba Heights Community School, and approximately1,265 ADM to the Leeds City Board of Education.

ADM Enrol lment ChangeFiscalYear School Year

36,058 106 2013 2011-201235,952 (220) 2012 2010-201136,172 (73) 2011 2009-2010

36,24536,216

29 20102009

2008-2009(190) 2007-2008

36,406 433 2008 2006-2007

35,973 224 2007 2005-2006

35,749 (3,694) 2006 2004-2005

39,443 844 2005 2003-2004

38,599 (107) 2004 2002-2003

38,706 (1,751) 2003 2001-2002


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Medical and Retirement Costs - Employee health insurance is provided through thePublic Education Employees' Health Insurance Program (PEEHIP). The fiscal year2012-2013 premium for health insurance for teachers and support personnel underPEEHIP is projected to remain the same at $714 per month per employee. Also employer

contributions to the Teachers Retirement System (TRS) are expected to increase to10.08 percent for all employees hires prior to January 1 2013. For employees hired afterJanuary 1, 2013 a new rate of 9.44% is expected to be established.

CONTACTING THE SCHOOL BOARD'S FINANCIAL

MANAGEMENT

This financial report is designed to provide citizens, taxpayers, investors, and creditorswith a general overview of the Board's finances and to show the Board's accountabilityfor the money it receives. If you have any questions about this report or need additionalfinancial information, contact Sheila Jones, Executive Director of Business and FinancialAffairs, at the Jefferson County Board of Education, 2100 18th Street South, Birmingham,AL 35209-1891, or by calling (205) 379-2001 during regular office hours, Mondaythrough Friday, from 8:00 a.m. to 4:30 p.m., central standard time.


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1

Basic Financial Statements


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Jefferson County

Board of Education 2 Exhibit #1

Statement of Net Assets

September 30, 2012

Governmental

Act iv it ies

Assets

Cash and Cash Equivalents 35,030,913.25$

Cash with Fiscal Agent 4,841,421.03

Investments 59,693,583.87

Receivables (Note 4) 4,786,924.50

Property Taxes Receivable 75,175,217.91

Accrued Interest Receivable 34,794.17

Inventories 1,583,791.69

Deferred Charges - Issuance Costs 451,409.49

Restricted Cash 939,005.32

Prepaid Items 821,591.82

Capital Assets (Note 5):

Nondepreciable 48,030,188.90

Depreciable, Net 557,726,359.82Total Assets 789,115,201.77

Liabilities

Payables (Note 10) 3,971,966.74

Deferred Revenue 78,438,290.70

Salaries and Benefits Payable 17,610,323.55

Accrued Interest Payable 649,250.97

Long-Term Liabilities:

Portion Due or Payable Within One Year:

Warrants Payable 7,223,243.94

Add: Unamortized Premium 154,399.15

Less: Deferred Loss on Refunding (415,274.02)Capital Lease Contracts Payable 2,415,354.07

Estimated Liability for Compensated Absences 130,828.14

Portion Due or Payable After One Year:

Warrants Payable 71,773,568.87

Add: Unamortized Premium 1,059,408.94

Less: Deferred Loss on Refunding (2,588,490.52)

Capital Lease Contracts Payable 21,251,228.37

Estimated Liability for Compensated Absences 1,400,361.68

Total Liabilities 203,074,460.58

Net Assets

Invested in Capital Assets, Net of Related Debt 505,334,519.41

Restricted for:Debt Service 4,192,170.06

Capital Projects 6,854,909.93

Child Nutrition Program 6,135,036.39

Unrestricted 63,524,105.40Total Net Assets 586,040,741.19$

The accompanying Notes to the Financial Statements are an integral part of this statement.


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Jefferson County


Statement of Activities

For the Year Ended September 30, 2012

Charges Operating Grants

Functions/Programs Expenses for Services and Contributions


Instruction 182,176,925.20$ 3,771,204.93$ 140,170,543.06$

Instructional Support 53,282,357.14 1,581,024.02 35,087,647.40

Operation and Maintenance 27,321,681.14 1,009,429.60 7,599,038.06

Auxiliary Services:

Student Transportation 19,756,216.61 508,012.77 15,092,903.07

Food Service 23,321,133.13 17,770,963.06 1,202,621.61

General Administrative and Central Support 9,388,159.68 91,776.54 931,301.90

Other 9,410,284.75 4,095,595.55 1,486,399.06

Interest and Fiscal Charges 4,855,255.37

Total Governmental Activities 329,512,013.02$ 28,828,006.47$ 201,570,454.16$

General Revenues:

Taxes:

Property Taxes for General Purposes

Alcohol Beverage Tax

Other Taxes

Investment Earnings

Miscellaneous

Total General Revenues

Changes in Net Assets

Net Assets - Beginning of Year

Net Assets - End of Year


Program Revenues


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Jefferson County


Net (Expenses) Revenues

and Changes in Net Assets

Capital Grants Total Governmental

and Contributions Activities

8,033,185.89$ (30,201,991.32)$

36,470.42 (16,577,215.30)

186,592.85 (18,526,620.63)

1,570,569.00 (2,584,731.77)

82,068.60 (4,265,479.86)

25,915.00 (8,339,166.24)

(3,828,290.14)

(4,855,255.37)

9,934,801.76$ (89,178,750.63)

81,977,466.92

800,716.26

997,641.56

494,656.73

7,193,931.53

91,464,413.00

2,285,662.37

583,755,078.82

586,040,741.19$


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Jefferson County


Balance Sheet

Governmental Funds

September 30, 2012

Special

General Revenue

Fund Fund

Assets

Cash and Cash Equivalents 9,743,032.16$ 17,277,198.38$

Cash with Fiscal Agent

Investments 59,124,225.00 569,358.87

Receivables (Note 4) 714,341.94 3,102,592.25

Property Taxes Receivable 75,175,217.91

Accrued Interest Receivable 320.55

Interfund Receivables 597,798.43 1,701.75

Inventories 494,610.17 1,089,181.52


Total Assets 146,671,137.98 22,040,032.77

Liabilities and Fund Balances

Liabilities

Payables (Note 10) 1,987,401.55 1,456,161.48

Interfund Payables 1,701.75 597,798.43

Deferred Revenues 78,124,199.11 314,091.59

Salaries and Benefits Payable 16,934,624.86 675,698.69

Total Liabilities 97,047,927.27 3,043,750.19

Fund Balances

Nonspendable:

Inventories 494,610.17 1,089,181.52


Restricted for:

Debt Service

Capital Projects

Child Nutrition Programs 6,881,422.38

Assigned to:

Local Schools 11,025,678.68

Other Purposes

Unassigned 48,307,008.72

Total Fund Balances 49,623,210.71 18,996,282.58Total Liabilities and Fund Balances 146,671,137.98$ 22,040,032.77$



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Jefferson County


Other Total

Governmental Governmental

Funds Funds

8,949,688.03$ 35,969,918.57$

4,841,421.03 4,841,421.03

59,693,583.87

969,990.31 4,786,924.50

75,175,217.91

320.55

599,500.18

1,583,791.69

821,591.82

14,761,099.37 183,472,270.12

528,403.71 3,971,966.74

599,500.18

78,438,290.70

17,610,323.55

528,403.71 100,620,081.17

1,583,791.69

821,591.82

5,811,411.34 5,811,411.34

7,793,915.25 7,793,915.25

6,881,422.38

11,025,678.68

627,369.07 627,369.07

48,307,008.72

14,232,695.66 82,852,188.9514,761,099.37$ 183,472,270.12$


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Jefferson County


Reconciliation of the Balance Sheet of Governmental Funds to the

Statement of Net Assets

September 30, 2012

Total Fund Balances - Governmental Funds (Exhibit 3) 82,852,188.95$

Amounts reported for governmental activities in the Statement of Net Assets(Exhibit 1) are different because:

Capital assets used in governmental activities are not financial resources and thereforeare not reported as assets in governmental funds. 605,756,548.72

Other long-term assets are not available to pay for current-period expenditures andtherefore, are deferred on the Statement of Net Assets. 451,409.49

Interest on unmatured investments will not be collected this year and is not availablesoon enough to pay for the current period`s expenditures, and therefore is notaccrued in the funds.

Accrued Interest Receivable 34,473.62

Long-term liabilities, including bonds payable, are not due and payable in the currentperiod and therefore are not reported as liabilities in the funds.

Portion Due or Payable Within One Year:Warrants Payable 7,223,243.94$Unamortized Premium 154,399.15Deferred Loss on Refunding (415,274.02)Capital Lease Contracts Payable 2,415,354.07Estimated Liability for Compensated Absences 130,828.14

Portion Due or Payable After One Year:Warrants Payable 71,773,568.87Unamortized Premium 1,059,408.94Deferred Loss on Refunding (2,588,490.52)Capital Lease Contracts Payable 21,251,228.37Estimated Liability for Compensated Absences 1,400,361.68

(102,404,628.62)

Interest on long-term debt is not accrued in the funds but rather is recognized as an

expenditure when due.

Accrued Interest Payable (649,250.97)

Total Net Assets - Governmental Activities (Exhibit 1) 586,040,741.19$



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Jefferson County


Statement of Revenues, Expenditures and Changes in Fund Balances

Governmental Funds


Special

General Revenue

Fund Fund

Revenues

State 177,779,955.40$ $

Federal 2,301,593.72 32,219,677.46

Local 85,927,745.59 19,379,663.34

Other 369,522.65 1,602,564.74

Total Revenues 266,378,817.36 53,201,905.54

Expenditures

Current:

Instruction 150,956,545.95 19,710,526.65

Instructional Support 46,210,421.33 6,433,020.13Operation and Maintenance 25,090,465.84 1,122,860.87

Auxiliary Services:

Student Transportation 17,022,224.95 569,377.43

Food Service 22,908,563.92

General Administrative and Central Support 9,046,766.62 495,438.01

Other 1,166,000.53 5,599,436.74

Capital Outlay 346,796.50 1,280,513.65

Debt Service:

Principal Retirement

Interest and Fiscal Charges

Total Expenditures 249,839,221.72 58,119,737.40

Excess (Deficiency) of Revenues Over Expenditures 16,539,595.64 (4,917,831.86)

Other Financing Sources (Uses)

Indirect Cost 1,834,584.64

Transfers In 159,805.96 3,740,721.75

Other Financing Sources 2,022,345.13

Sale of Capital Assets

Transfers Out (12,135,647.23)

Total Other Financing Sources (Uses) (8,118,911.50) 3,740,721.75

Net Changes in Fund Balances 8,420,684.14 (1,177,110.11)

Fund Balances - Beginning of Year 41,202,526.57 20,173,392.69

Fund Balances - End of Year 49,623,210.71$ 18,996,282.58$



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Jefferson County


Other Total

Governmental Governmental

Funds Funds

9,908,886.76$ 187,688,842.16$

34,521,271.18

118,183.65 105,425,592.58

1,972,087.39

10,027,070.41 329,607,793.31

393,509.27 171,060,581.87

45,622.54 52,689,064.00145,064.54 26,358,391.25

17,591,602.38

76,680.00 22,985,243.92

9,542,204.63

6,765,437.27

29,946,382.82 31,573,692.97

9,219,225.67 9,219,225.67

4,652,578.65 4,652,578.65

44,479,063.49 352,438,022.61

(34,451,993.08) (22,830,229.30)

1,834,584.64

12,166,834.99 16,067,362.70

168,244.34 2,190,589.47

56,394.65 56,394.65

(3,931,715.47) (16,067,362.70)

8,459,758.51 4,081,568.76

(25,992,234.57) (18,748,660.54)

40,224,930.23 101,600,849.49

14,232,695.66$ 82,852,188.95$


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Jefferson County


Reconciliation of the Statement of Revenues, Expenditures and Changes

in Fund Balances of Governmental Funds to the Statement of Activities


Net Changes in Fund Balances - Total Governmental Funds (Exhibit 5) (18,748,660.54)$

Amounts reported for governmental activities in the Statement of Activities

(Exhibit 2) are different because:

Capital outlays to purchase or build capital assets are reported in governmental funds

as expenditures. However, in the Statement of Activities, the cost of those assets

is allocated over their estimated useful lives as depreciation expense. This is the

amount by which capital outlays ($31,573,692.97) differed from depreciation expense($19,569,557.43) in the period. 12,004,135.54

Repayment of debt principal is an expenditure in the governmental funds, but itreduces long-term liabilities in the Statement of Net Assets and does not

affect the Statement of Activities. 9,219,225.67

In the Statement of Activities, only the loss on the sale of capital assets is

reported, whereas in the governmental funds, the proceeds from the sale increasefinancial resources. The change in net assets differs from the change in fund

balances this amount.

Proceeds from Sale of Capital Assets (56,394.65)$

Loss on Disposition of Capital Assets (5,464.50) (61,859.15)

Some expenses reported in the Statement of Activities do not require the use ofcurrent financial resources and, therefore, are not reported as expenditures in

governmental funds.

Accrued Interest Payable, Current Year Decrease (58,198.15)$Compensated Absences, Current Year Decrease

in Noncurrent Portion (129,655.73)

Amortization of Bond Premium (154,399.15)Amortization of Bond Issuance Costs 53,450.77

Amortization of Deferred Loss on Refunding 415,274.02 (126,471.76)

Revenues in the Statement of Activities that do not provide current financialresources are not reported as revenues in the funds:

Accrued Interest Receivable, Current Year Decrease (707.39)

Change in Net Assets of Governmental Activities (Exhibit 2) 2,285,662.37$



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Jefferson County


Statement of Fiduciary Net Assets

September 30, 2012

Agency

Funds

Assets

Cash and Cash Equivalents 6,946,132.51$

Receivables 494.70Total Assets 6,946,627.21

Liabilities

Salaries and Benefits Payable 6,946,627.21Total Liabilities 6,946,627.21$



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Notes to the Financial StatementsFor the Year Ended September 30, 2012


12

Note 1 Summary of Significant Accounting Policies

The financial statements of the Jefferson County Board of Education (the Board) have been

prepared in conformity with generally accepted accounting principles (GAAP) as applied togovernmental units. The Governmental Accounting Standards Board (GASB) is the acceptedstandard-setting body for establishing governmental accounting and financial reportingprinciples. The more significant of the governments accounting policies are described below.

A. Reporting Entity

The Board is governed by a separately elected board composed of five members elected by thequalified electors of the County. The Board is responsible for the general administration andsupervision of the public schools for the educational interests of the County (with the exceptionof cities having a city board of education).

Generally accepted accounting principles (GAAP) require that the financial reporting entityconsist of the primary government and its component units. Accordingly, the accompanyingfinancial statements present the Board (a primary government).

Component units are legally separate organizations for which the elected officials of the primarygovernment are financially accountable and other organizations for which the nature andsignificance of their relationship with the primary government are such that exclusion wouldcause the reporting entitys financial statements to be misleading or incomplete. Based on theapplication of these criteria, there are no component units which should be included as part of thefinancial reporting entity of the Board.

B. Government-Wide and Fund Financial Statements

Government-Wide Financial Statements

The statement of net assets and the statement of activities display information about the Board.These statements include the financial activities of the overall government, except for fiduciaryactivities. Eliminations have been made to minimize the double counting of internal activities.Governmental activities generally are financed through taxes, intergovernmental revenues, andother nonexchange transactions.


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13

The statement of activities presents a comparison between direct expenses and program revenuesfor each function of the Boards governmental activities. Direct expenses are those that arespecifically associated with a program or function and, therefore, are clearly identifiable to a

particular function. The Board does not allocate indirect expenses to the various functions.Program revenues include (a) charges to customers or applicants who purchase, use or directlybenefit from goods, services, or privileges provided by a given function or program and(b) grants and contributions that are restricted to meeting the operational or capital requirementsof a particular program. Revenues that are not classified as program revenues, including alltaxes, are presented as general revenues.

Fund Financial Statements

The fund financial statements provide information about the Boards funds, including fiduciaryfunds. Separate statements for each fund category governmental and fiduciary are presented.

The emphasis of fund financial statements is on major governmental funds, each displayed in aseparate column. All remaining governmental funds are aggregated and reported as nonmajorfunds in the other governmental funds column.The Board reports the following major governmental funds:

General Fund The general fund is the primary operating fund of the Board. It is used toaccount for all financial resources except those required to be accounted for in another fund.The Board primarily receives revenues from the Education Trust Fund (ETF) and local taxes.Amounts appropriated from the ETF were allocated to the school board on a formula basis.

Special Revenue Fund This fund is used to account for and report the proceeds of specificrevenue sources that are restricted or committed to expenditure for specified purposes otherthan debt service or capital projects. Various federal and local funding sources are includedin this fund. Some of the significant federal funding sources include the federal funds thatare received for Special Education, Title I, and the Child Nutrition Program in addition tovarious smaller grants, which are required to be spent for the purposes of the applicablefederal grants. Also included in this fund are the public and non-public funds received by thelocal schools which are generally not considered restricted or committed.


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The Board reports the following fund types in the Other Governmental Funds column:

Governmental Fund Types

Debt Service Funds These funds are used to account for and report financial resources thatare restricted, committed, or assigned to expenditure for principal and interest and theaccumulation of resources for principal and interest payments maturing in future years.

Capital Projects Funds These funds are used to account for and report financial resourcesthat are restricted, committed, or assigned to expenditure for capital outlay, including theacquisition or construction of capital facilities and other capital assets.

The Board reports the following fiduciary fund type:

Fiduciary Fund Type

Agency Funds These funds are used to report assets held by the Board in a purely custodialcapacity. The Board collects these assets and transfers them to the proper individual, privateorganizations, or other government.

C. Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resourcesmeasurement focus and the accrual basis of accounting, as are the fiduciary fund financialstatements. Revenues are recorded when earned and expenses are recorded at the time liabilities

are incurred, regardless of the timing of related cash flows. Nonexchange transactions, in whichthe Board gives (or receives) value without directly receiving (or giving) equal value inexchange, include property taxes, grants, entitlements, and donations. On an accrual basis,revenue from grants, entitlements, and donations is recognized in the fiscal year in which alleligibility requirements have been satisfied. Revenue from property taxes is recognized in thefiscal year for which the taxes are levied.

As a general rule, the effect of interfund activity has been eliminated from the government-widefinancial statements.


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15

Governmental fund financial statements are reported using the current financial resourcesmeasurement focus and the modified accrual basis of accounting. Revenues are recognized assoon as they are both measurable and available. Revenues are considered to be available when

they are collectible within the current period or soon enough thereafter to pay liabilities of thecurrent period. For this purpose, the Board considers revenues to be available if they arecollected within sixty (60) days of the end of the current fiscal year. Expenditures are recordedwhen the related fund liability is incurred, except for principal and interest on general long-termdebt, which are recognized as expenditures to the extent they have matured. General capitalasset acquisitions are reported as expenditures in governmental funds. General long-term debtissued and acquisitions under capital leases are reported as other financing sources.

Under the terms of grant agreements, the Board funds certain programs by a combination ofspecific cost-reimbursement grants, categorical block grants, and general revenues. Thus, whenprogram expenses are incurred, there are both restricted and unrestricted net assets available to

finance the program. It is the Boards policy to first apply cost-reimbursement grant resources tosuch programs, followed by categorical block grants and then by general revenues.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989,generally are followed in the government-wide financial statements to the extent that thosestandards do not conflict with or contradict guidance of the Governmental Accounting StandardsBoard.

D. Assets, Liabilities and Net Assets/Fund Balances

1. Deposits and Investments

Cash and cash equivalents include cash on hand, demand deposits and short-term investmentswith original maturities of three months or less from the date of acquisition.

Statutes authorize the Board to invest in obligations of the U. S. Treasury, obligations of anystate of the United States, general obligations of any Alabama county or city board of educationsecured by the pledged of the three-mill school tax, certificates of deposit and other obligationsas outlined in Note 3.

Investments are reported at fair value, based on quoted market prices, except for money marketinvestments and repurchase agreements, which are reported at amortized cost. The Board reports

all money market investments U. S. Treasury bills and bankers acceptances having aremaining maturity at time of purchase of one year or less at amortized cost.


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2. Receivables

Millage rates for property taxes are levied at the first regular meeting of the County Commission

in February of each year. Property taxes are assessed for property as of October 1 of thepreceding year based on the millage rates established by the County Commission. Property taxesare due and payable the following October 1 and are delinquent after December 31. Amountsreceivable, net of estimated refunds and estimated uncollectible amounts, are recorded for theproperty taxes levied in the current year. However, since the amounts are not available to fundcurrent year operations, the revenue is deferred and recognized in the subsequent fiscal yearwhen the taxes are both due and collectible and available to fund operations.

Receivables due from other governments include amounts due from grantors for grants issued forspecific programs and capital projects.

3. Inventories

Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO)method. Inventories of governmental funds are recorded as expenditures when consumed ratherthan when purchased.

4. Prepaid Items

Certain payments to vendors reflect costs applicable to future accounting periods and arerecorded as prepaid items in both government-wide and fund financial statements.

5. Restricted Assets

Certain funds received from the State Department of Education for capital projects andimprovements, as well as certain resources set aside for repayment of debt, are consideredrestricted assets because they are maintained separately and their use is limited. The DebtService Fund is used to report resources set aside to pay the principal and interest on debt as itbecome due.


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6. Capital Assets

Capital assets, which include property and equipment, are reported in the government-wide

financial statements. Such assets are valued at cost where historical records are available and atan estimated historical cost where no historical records exist. The Board estimated some of thevalues associated with land and buildings because the original costs were not available. Theseestimates were based upon research into the original acquisition of the assets. Some estimatesare based upon the selling prices of real property near the school during the time they wereacquired. Donated fixed assets are valued at their estimated fair market value on the datereceived. Additions, improvements and other capital outlays that significantly extend the usefullife of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed asincurred. Major outlays of capital assets and improvements are capitalized as projects areconstructed.

Depreciation on all assets is provided on the straight-line basis over the assets estimated usefullife. Capitalization thresholds (the dollar values above which asset acquisitions are added to thecapital asset accounts) and estimated useful lives of capital assets reported in the government-wide statements are as follows:

CapitalizationThreshold

EstimatedUseful Life

Land Improvements Exhaustible $50,000 10 yearsBuildings and Improvements $50,000 40 yearsBuilding Under Capital Lease $50,000 40 years

Equipment and Furniture $ 5,000 5 20 yearsEquipment Under Capital Lease $ 5,000 10 years

7. Long-Term Obligations

In the government-wide financial statements long-term debt and other long-term obligations arereported as liabilities in the governmental activities statement of net assets. Bond/Warrantpremiums and issuance costs are deferred and amortized over the life of the bonds.Bonds/Warrants payable are reported net of the applicable bond/warrant premium.Bond/Warrant issuance costs are reported as deferred charges and amortized over the term of therelated debt.

In the fund financial statements, governmental fund types recognize bond premiums andissuance costs during the current period. The face amount of debt issued is reported as otherfinancing sources. Premiums received on debt issuances are reported as other financing sources.Issuance costs, whether or not withheld from the actual debt proceeds received, are reported asdebt service expenditures.


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8. Compensated Absences

The Boards vacation leave policy consists of the following: Twelve-month employees with

less than fifteen years of service are entitled to ten days of vacation leave per year, earned at therate of 0.83 days per month. Twelve-month employees with fifteen years or more service areentitled to fifteen days of vacation leave per year, earned at the rate of 1.25 days per month.Vacation days will be accrued from July 1 of each year through June 30 of the following year.Vacation days accrued in a vacation year may be taken during that vacation year or may becarried over for one additional year. Vacation days not taken within the additional carryoveryear will be lost. Accumulated vacation days are not reimbursable upon resignation, terminationor retirement.

9. Net Assets/Fund Equity

Net assets are reported on the government-wide financial statements and are required to beclassified for accounting and reporting purposes into the following net asset categories:

Invested in Capital Assets, Net of Related Debt Capital assets, net of accumulateddepreciation and outstanding principal balances of debt attributable to the acquisition,construction or improvement of those assets. Any significant unspent related debt proceedsat year-end related to capital assets are not included in this calculation.

Restricted Constraints imposed on net asset by external creditors, grantors, contributors,laws or regulations of other governments, or law through constitutional provision or enablinglegislation.

Unrestricted Net assets that are not subject to externally imposed stipulations. Unrestrictednet assets may be designated for specific purposes by action of the Board.

Fund balance is reported in governmental funds in the fund financial statements under thefollowing five categories:

A.Nonspendable fund balances include amounts that cannot be spent because they are either (a)not in spendable form or (b) legally or contractually required to be maintained.

B. Restricted fund balances consist of amounts that are subject to externally enforceable legal

restrictions imposed by creditors, grantors, contributors, or provisions or enabling legislation.

C. Committed fund balances consist of amounts that are subject to purpose constraint imposedby formal action of the Board before the end of the fiscal year and that require the same levelof formal action to remove the constraint.


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D. Assigned fund balances consist of amounts that are intended to be used by the school systemfor specific purposes. The Board has authorized the Superintendent or Chief School FinanceOffice to make a determination of the assigned amounts of fund balance. Such assignments

may not exceed the available (spendable, unrestricted, uncommitted) fund balance in anyparticular fund. Assigned fund balances require the same level of authority to remove theconstraint.

E. Unassigned fund balances include all spendable amounts not contained in the otherclassifications. This portion of the total fund balance in the general fund is available tofinance operating expenditures.

When an expenditure is incurred for purposes for which both restricted and unrestricted(committed, assigned, or unassigned) amounts are available, it shall be the policy of the Board toconsider restricted amounts to have been reduced first. When an expenditure is incurred for the

purposes for which amounts in any of the unrestricted fund balance classifications could be used,it shall be the policy of the Board that committed amounts would be reduced first, followed byassigned amounts and then unassigned amounts. The Board, along with the Superintendent andthe Chief School Finance Officer will periodically review all restricted, committed, and assignedfund balances. The Chief School Finance Officer will prepare and submit an annual report of allrestricted, committed, and assigned funds for the Board.

Note 2 Stewardship, Compliance, and Accountability

Budgets

Budgets are adopted on a basis of accounting consistent with accounting principles generallyaccepted in the United States of America (GAAP) for the General Fund with the exception ofsalaries and benefits, which are budgeted only to the extent expected to be paid rather than on themodified accrual basis of accounting. Also, ad valorem taxes are budgeted only to the extentexpected to be received rather than on the modified accrual basis of accounting. The SpecialRevenue Fund budgets on a basis of accounting consistent with GAAP with the exception ofsalaries and benefits, which are budgeted only to the extent expected to be paid rather than on themodified accrual basis of accounting. All other governmental funds adopt budgets on themodified accrual basis of accounting. The Capital Projects Fund adopts project-length budgets.All appropriations lapse at fiscal year-end.

On or before October 1 of each year, each county board of education shall prepare and submit tothe State Superintendent of Education the annual budget to be adopted by the County Board ofEducation. The Superintendent or County Board of Education shall not approve any budget foroperations of the school for any fiscal year which shall show expenditures in excess of incomeestimated to be available plus any balances on hand.


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Note 3 Deposits and Investments

A. Deposits

The custodial credit risk for depos

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Jefferson County Board of Education Audit Oct. 2011 - Sept. 2012

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