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REQUEST FOR PROPOSAL NOTICE FOR

DEPOSITORY SERVICES BY SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

100 MED HIGH DRIVE MERCEDES, TX 78570

South Texas Independent School District is soliciting proposals to serve as Depository for the purpose of assisting with the banking functions for funds of the District.

Introduction

Pursuant to existing provisions of Chapter 45, Subchapter G, School District Depositories, Texas Education Code, it is the intention of the Board of Trustees of the District to select a Depository through soliciting proposals for a Depository services contract for a term of two years beginning September 1, 2013 and ending August 31, 2015 or until such time as a successor Depository is selected and qualified agrees to a depository agreement based on either fees or compensating balances.

The District and the Depository may agree to extend this contract for two additional two-year terms in accordance with Section 45.205 of the Education Code. This Section requires that the contract and any extension of this contract coincide with the District’s fiscal year. In the event the District changes its fiscal year, the term of the contract may be shortened or extended no more than one year by mutual agreement to coincide, provided that this contract is to remain in effect until its successor is selected and been qualified. If the parties cannot agree, the District may at its option change the term of this contract.

The resulting contract and any extension(s) shall become binding upon the District and the Depository only upon acceptance by the Texas Education Agency.

The legal provisions providing for the naming of a Depository of the District are set forth in Subchapter G, School District Depositories, Sections 45.201 through 45.209, of the Texas Education Code. Investments by the District will be governed by the Government Code, Chapter 2256, Public Funds Investment. Securities pledged as collateral to secure District deposits will be governed by the Government Code, Chapter 2257, Collateral for Public Funds.

Depository Questions

There will not be a pre-proposal conference. Questions regarding this proposal request, or the services requested, will be accepted in written or e-mail form only, at the address below on or before 2:00 pm on March 26, 2013. Responses to all material questions submitted will be communicated in writing or by e-mail to all known interested depositories by 5:00 pm on March 28, 2013.

Questions are to be made to:

Marla R. Knaub, Assistant Superintendent for Finance

[email protected]

100 Med High Drive, Mercedes, TX 78570

Proposal Submission

To be eligible for consideration under this request, three (3) complete paper copies of each proposal shall be submitted by 2:00 pm CST on April 2, 2013 to the address below. Proposals received after that time by the District will not be accepted. Late submissions to the District address will be returned unopened. The proposal must be submitted in a sealed envelope or packet marked “Depository Services”. An accompanying transmittal letter must be signed by an individual authorized to bind the

STISD BANK DEPOSITORY RFP 12-030

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mailto:[email protected]�

institution, state that the proposal is valid for 180 days from the submission date, and give full contact information regarding the proposal.

The proposals must be delivered by mail, express mail, or in person to:

Marla R. Knaub Assistant Superintendent for Finance 100 Med High Drive Mercedes, TX 78570

All questions in the attached uniform proposal blank should be answered and provided to the District as the Depository’s proposal.

The Depository is to attach a Cashier's Check in the sum of $500.00 payable to the District. If any portion of this contract is awarded to the Depository the check will be returned to the Depository upon execution of contract. If the Depository fails to execute the contract in a reasonable time, the check shall be cashed by District as liquidated damages. If the proposal is not accepted, the check will be returned to the Depository immediately after contract award.

This proposal is being provided electronically by the District also. The fee schedule, Attachment A, is in Excel format. The submitted proposal must be made in both paper and electronic form.

Evaluation Process

Selection Criteria

[NOTE: According to TEC 45.206(d), the District must state the selection criteria and select the proposal based on the ranking in relation to the stated selection criteria.]

The following criteria will be used by the District for evaluation and award of the contract.

50 % - Cost of services (charges for keeping District accounts, records, reports and furnishing checks)

05 % - Additional services offered (purchasing card, payroll card, lease rate, other) 05 % - Funds availability schedule 10 % - Automated services offered

10 % - Ability of the proposer to provide the necessary services and perform the duties as Depository. Experience in providing Depository services to similar accounts (strength of project team)

10 % - Collateralization policy and type of third-party institution holding collateral 05 % - Fraud prevention/notification policy 05 % - Interest rates offered on time deposits 100 % - Total

The District reserves the right to reject any and/or all proposals and to accept the proposal the District considers most advantageous. If any portion or provision of this proposal and/or any contract between Depository and District entered into is invalid, the remainder at the option of the District shall remain in full force and effect and not be affected. Acceptance of a proposal will be based on the total package of services offered by the banking institution.


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Legislative Change

Changes in the law that may be enacted by the State Legislature, in session, could alter the scope of requirements as stated in this document. The proposal should conform to all statutes in effect at the time of proposal opening.

Additional Information

The District will make every effort to adhere to the following schedule.

03/06/2013 Release of Request for Proposal 03/26/2013 Deadline for questions concerning the RFP or services requested 03/28/2013 Responses given to any questions provided to all known interested depositories 04/02/2013 Deadline for proposal submission 04/26/2013 District Board award of contract 09/01/2013 Contract commencement

Other

1. The successful proposer will notify the District in writing within ten (10) days of any changes in Federal or State regulations or laws that would thereafter affect the depository agreement.

2. The bank's records relating to the District's accounts shall be open to review by either the District, its independent auditors and the Texas Education Agency.

3. The District reserves the right to pay for Depository services by targeted balances or by fees.

4. The District reserves the right to exclude direct payroll deposit service from the depository contract if the Depository does not offer direct payroll deposit service.

District Rights

The District reserves the right to:

- waive any defect, irregularity or informality in the proposal or proposal procedures;

- reject any and all proposals;

- accept any proposal or portion thereof most advantageous to District;

- request additional information or require a meeting with Depository representatives for clarification;

- cancel, revise, and/or reissue this request for proposal or any portions thereof,

- negotiate any conditions;

- retain all other provisions even if any provision of the proposal is deemed invalid;

- modify deadlines; and

- select any proposal deemed to be in its best interest as determined by the District.


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PROPOSAL FORM

FOR DEPOSITORY SERVICES BY

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT All questions in this form should be answered and provided to the District as the Depository’s proposal.

The District reserves the right to reject any and/or all proposals and if any portion or provision of this proposal and/or any contract between Depository and District entered into is invalid, the remainder at the option of the District shall remain in full force and effect and not be affected.

BANK COMPENSATION Does the District have the option to pay for Depository services by targeted balances or by fees? Please describe any differences in related costs to the District with either option. If the District chooses one option for the life of the contract, is there a difference in service fees?

Target Balance Compensation Basis:

The District may choose to pay for Depository services on a compensating balance basis, maintaining a targeted amount of its funds in the Depository. The District will maintain balances in the checking accounts to compensate the Depository in full or in part for services provided. Earnings credit for these balances shall be reflected on the monthly account analysis provided to the District.

Any excess collected balance may be invested daily by the Bank as directed by the District, in a District approved overnight investment, an interest bearing account, or an SEC registered money market mutual fund. The overnight investment and any index upon which the rate will be based should be listed below.

The rate history at the Depository for the months beginning November 2012 and ending January 2013 was:

NOV 2012 DEC 2012 JAN 2013

ECR Rate: __________% __________% __________%

Interest Bearing Accounts: __________% __________% __________%

Money Market Accounts: __________% __________% __________%

Sweep Accounts: __________% __________% __________%

If any of these rates is based on an index rate (such as the T-Bill auction rate) stipulate the index calculation basis.


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Fee Basis Compensation:

The District may choose to pay for Depository services on a straight fee basis in which no targeted balance will be maintained by the District. Fees will be assessed and paid in accordance with the Depository’s proposed fees as listed on Attachment A.

DISTRICT INVESTMENTS The District reserves the right to purchase, sell and invest its funds and funds under its control, including bond funds, as authorized by the Government Code, Chapter 2256, Public Funds Investment Act, and in compliance with the District’s Investment Policy, a copy of which is attached as Attachment C.

The District may choose to invest in time deposits at the Depository, but all investments including CDs are bid competitively at the time of purchase.

COLLATERALIZATION The Depository must provide either corporate surety bonds or pledged securities as per Texas Education Code §45.201. Please specify which method the Depository will use for collateralization of District funds.

Collateral Conditions

The Depository shall provide collateral equal to 102% of all District time and demand deposits plus accrued interest minus applicable FDIC coverage. Collateral will be pledged to the District and held in an independent safekeeping institution by a custodian or permitted institution as specified by the Public Funds Collateral Act (Texas Government Code, Chapter 2257). [Alternatively, the District may specify any limitations on its preferred custodial arrangement.] The Depository will be liable for monitoring and maintaining the collateral and the required margin at all times and will provide original safekeeping notice and a monthly report of the collateral to include the security description, par amount, cusip, and market value, at a minimum.

The Depository and District shall execute a collateral agreement in accordance with FIRREA. A sample Collateral Agreement should be attached as Attachment D.

The District estimates its maximum anticipated collateral requirement to be $6,000,000.00. [If voluntary collateral pooling is legislated during the period of this contract, the District may consider and agree to its use under this contract with mutual agreement of the Depository.]

Eligible Collateral

The District will accept only approved securities as specified by Texas Education Code §45.201 as pledged collateral.

BANKING SERVICES FEES Based on the Depository services required by the District, the Depository shall complete the proposed fee schedule, Attachment A.


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DEPOSITORY INFORMATION Please answer the following questions concerning the Depository.

1. State full name and address of the Depository and any parent holding company. List all branch locations within the District’s boundary.

2. Provide the UPBR reference or annual audited financial statement for the most current fiscal year. This may be in printed form, but an electronic link to the web site(s) is preferable. Members of Depository holding companies must include corporate annual financial statements and the individual Depository's call report for the most recent operating quarter.

3. State the Depository’s rating from an independent Depository rating agency or, if not available, the rating on the Depository’s senior and subordinate debt. Any change in this rating during the period of the contract must be communicated to the District in a reasonable period of time.

4. Contact Information

To insure smooth contract implementation and continuation of services, a specific account executive and a back-up must be assigned to the District account to coordinate services and expedite the solution of any problem encountered.

a. Designate a Depository officer as a primary contact with the District.

Name______________________________ Title _______________________________ Telephone # ________________________ Fax # ______________________________ E-Mail _____________________________

b. Designate a Depository representative as a backup contact with the District.

Name______________________________ Title _______________________________ Telephone # ________________________ Fax # ______________________________ E-Mail ______________________________ c. In the event the primary and backup contacts aren’t available, what is the District’s

procedure for an emergency contact? After hours?

d. Describe in detail how the Depository handles problem resolution, customer service, day-to-day contact, and ongoing maintenance for governmental clients. Please be specific about exactly whom the District will be calling and working with for the above described situations.

5. List references from at least three of the Depository’s current, comparable governmental clients. Include the length of time under contract, a client contact, title, and telephone number.

6. Based on the services required by the District, please provide a proposed timeline for implementation of the contract including the timeline activities and direct responsibilities of the District and the Depository during implementation.

7. Provide a copy of all agreements (including those not directly referenced in this RFP) which will be required to be executed under the contract.


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8. The Depository awarded the contract will be required to review the then-current District Investment Policy and certify in writing to that review in accordance with the Public Funds Investment Act certifying that the Depository has sufficient controls in place to avoid transactions not authorized by the Policy. The District has attached its investment policy to this RFP notice.

9. A pre-award interview may be conducted on site at the Depository prior to contract award. Please provide the District with a contact name for arranging the pre-award interview.

10. Is the Depository offering any transition or retention incentive to the District? If so, please describe in detail.


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BANKING SERVICES 1. Consolidated Account Structure with Sweep Mechanism The District is interested in earning at then-current interest rates available at all times. The District wants the option to use an automated, daily sweep to a money market mutual fund or Depository alternative account (if competitive) to reach its full investment goal.

The District’s current account structure is listed as Attachment B. The District does not guarantee that the balances will be maintained at these same levels.

The Depository shall clearly describe the Depository's most cost effective account structure (interest bearing accounts, ZBA accounts, or sweep, etc.).

a. Fully describe the proposed account structure. Would a sweep be from a master account with ZBAs or directly swept from the individual accounts. Is interest distributed at the account level?

b. State the average interest rate on the recommended alternative structure for the past twelve months.

c. If an SEC registered money market fund is utilized for the sweep proposal, provide the full name and a copy of the prospectus.

d. Interest earned on interest bearing accounts shall not be charged as an expense on the account analysis. Confirm acceptance of this condition.

The District may be required or may desire to open additional accounts, close accounts, or change account types during the contract period. If this occurs, the new accounts and services shall be charged at the same contracted amount or, if unanticipated, at not more than published rates.

2. Automated Cash Management Information The District is interested in automated balance and detail information. Minimum automated services shall include [specify District requirements]:

• prior day summary and detail balance reporting on all accounts • intra-day detail and summary balances (on local main and payroll accounts) • initiation and monitoring of stop pays • positive pay exception transactions • initiation and monitoring of internal and wire transfers • image access • controlled disbursement presentment totals a. Fully describe the Depository’s on-line service. List the system capabilities (i.e.

balance reporting, wires, positive pay, stop pay, etc.). b. What is the Depository’s back-up process to provide balance reporting and

transactions in case of system non-availability? c. When is daily balance information available? d. Submit samples of major screens available or provide web link access to a

demonstration module. e. How are individual security sign-ons assigned and who maintains the security

module? How many levels of security are available? f. With regard to controlled disbursements—

-- What is the cutoff time for disbursements? -- What Federal Reserve location do these accounts clear through?


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-- How does the District have access to this information?

3. Deposit Services Standard commercial deposit services are required for all accounts.

The District expects all deposited checks to clear based on the Depository’s current published availability schedule, but any expedited availability options should be noted in the proposal. All cleared deposits received by the Depository's established deadline must be processed for same day ledger credit. Failure to credit District accounts in a timely fashion will require interest payment reimbursement to the District at the then-current effective Fed Funds rate.

a. What is the Depository’s daily cut-off time to assure same day ledger credit?

b. Describe how and when credit/debit advices are sent to the District?

c. What type deposit bags are used/required? Are these available from the Depository?

d. In what city does item processing occur?

Remote Deposit The District is interested in establishing remote check deposit for a few high volume locations during the contract period. These deposits include both consumer and commercial checks.

a. What are the Depository's current capabilities in remote check deposit? Describe how checks are processed and cleared. Please state the cut-off time for same-day ledger credit.

b. Give two comparable references with contact information.

c. Is a daily balancing report produced? Provide a sample.

d. What scanner equipment is required to operate the system? Is this equipment available through the Depository on a purchase or lease basis? Please list the equipment required along with its cost.

4. Standard Disbursing Services The District is interested in positive pay services for designated accounts.

a. Does the Depository image all checks and deposits? b. Are checks and deposit images available on-line? When? Is a CD provided

monthly? If not, are reports downloadable? c. How long are checks and deposit images maintained on-line? d. Are all District checks paid without charge upon presentation?

5. Positive Pay The District is interested in positive pay services for designated accounts on which checks are written. The positive pay process should be fully automated and web based. Check information will be transmitted electronically to the Depository on each check run and as manual checks are created.

a. Describe the data transmission/transfer requirements for automated and manual checks.

b. Is input available online for manual checks? If not on-line, how is information on individual manual checks transmitted to the Depository?

c. How can check records be changed or deleted by the District, if necessary?


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d. How is the District to be notified of a positive pay exception? e. At what time is exception information reported to the District? At what time is the

deadline for District exception elections? Are images of exceptions available? f. Are all checks, including those received by the tellers and vault, verified against

the positive pay file before processing? How often is teller information updated? g. Does the Depository offer payroll positive pay? h. Please provide a copy of the Depository’s file layout format.

6. Account Reconciliation The District anticipates use of partial or full reconciliation services on all accounts in concert with positive pay, dependent upon cost effectiveness.

a. Describe the partial and full reconciliation processes.

b. With what format(s) does the Depository’s system interface? What record formats are required? How is reconciled data sent to the District? When?

c. Specify all reporting alternatives.

d. Are reports available online? How long are reports maintained online? Provide a sample copy of reports.

7. Funds Transfer and Wire Services Incoming wire transfers must receive immediate same day collected credit. Wire initiation should be available online. The District requires that wires be released the same business day if information is provided by the established deadline.

a. Describe the process of online wire initiation. What back-up process is available for the on-line process in case of system unavailability?

b. Is any paper transaction required for transfers or wires as follow-up? c. How and when will the Depository notify the District of incoming wires? Online?

E-mail? d. Is future dating available for both repetitive and non-repetitive wires and

transfers? How far in advance? e. What is the deadline for initiation

-- by telephone? -- on-line?

f. Are templates available for repetitive transfers?

8. Optical Imaging The District desires optical images which are downloadable or on CD on all accounts.

a. What items and reports are available on-line (checks, statements, deposit slips, deposited items, etc.)?

b. What items are captured on the monthly CD, if provided?

c. When are the monthly CD or imaged reports available?

d. When and how long are statements and account analyses available on-line?

9. ACH Services The District expects to move toward more ACH transactions for payable and receivable transactions. The District requires a pre-notification (pre-note) on all new transactions.


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a. Describe the transmission alternatives for individual ACH transactions. Is the District able to initiate individual ACH transactions on line?

b. What filters and blocks are available on District accounts for ACH transactions? c. Are ACH addenda shown in their entirety on-line and on reports? d. What is the Depository’s policy on pre-notification? Is the pre-note charged as a

standard ACH transaction? e. What is the deadline for transmission (hour and day) for a payroll to credit

employee accounts on a Friday?

10. Investments and Safekeeping Services The Depository will be required to provide book-entry safekeeping services for any securities owned by the District. All District investments will be made by the District and instructions for clearing and safekeeping will be transmitted to the Depository in writing.

All securities must be cleared on a delivery versus payment (DVP) basis and ownership documented by original clearing confirmations and safe-keeping receipts provided within one business day of the transaction. Funds for investments will be drawn from a designated District DDA account. All P&I payments, coupon payments, and maturities must receive automated same day collected credit on the District designated account without requiring any additional District action.

If the Depository is not a member of the Federal Reserve or a federal home loan bank and utilizes a correspondent bank for safekeeping of District securities, the transactions will be handled through the Depository's systems and shall not require additional interaction by the District with the correspondent bank. No delay in transactions, wires or flow of funds will be acceptable under a correspondent relationship.

a. Is the Depository a member of the Federal Reserve or a federal home loan bank? If not, name the correspondent Depository to be used for clearing and safekeeping. Describe any safekeeping arrangement proposed with a correspondent Depository including processing requirements by the District.

b. Are security transactions available on-line for either origination or monitoring?

c. What is the deadline for settlement instructions on a cash (same day) settlement? Is there any charge incurred for late instructions?

The District may choose to purchase time deposits from the Depository, but all time deposits will be competitively bid at the time of purchase.

11. Collateral Requirements All the requirements, including those beyond the Public Funds Collateral Act, as stated in the District’s Investment Policy and below, must be met by the Depository. The proposal must state agreement to the following terms and conditions.

• All collateral pledged to the District must be held by a custodian or permitted institution as specified by the Public Funds Collateral Act (Texas Government Code, Chapter 2257) [Alternatively, the District may specify any limitations on its preferred custodial arrangement per its Investment Policy.]

• A tri-party safekeeping agreement shall be executed between the District, the Depository, and the safekeeping bank for custody of pledged securities in full compliance with FIRREA requiring a Depository resolution. (Or completion of Circular 7 if the Federal Reserve is acting as custodian. Use of the FRB will still require a depository agreement be executed between the District and the Depository.)


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• All time and demand deposits above FDIC coverage shall be collateralized at a minimum of 102% of principal plus accrued interest at all times (110% on mortgage backed securities.)

• The Depository shall be contractually liable for the continuous monitoring and maintaining of collateral at the District's required margin levels.

• Pledged collateral shall be evidenced by original safekeeping receipts/report sent directly to the District by the custodian within one business day of receipt.

• The District shall receive a monthly report of collateral pledged including description, par, market value and cusip, at a minimum.

• Substitution rights shall be granted if the Depository obtains the District’s prior approval and if substituting securities are received before previously pledged securities are removed from safekeeping.

Authorized collateral includes only approved securities as specified by Texas Education Code §45.201. [Alternatively, the District may specify any limitations on its preferred collateral requirements as stated in its Investment Policy.]

a. Does the Depository propose any collateral charges? If so, under what conditions are they charged and how is the charge applied?

b. What is the Depository’s deadline for requesting collateral in excess of existing requirements?

12. Account Analysis Monthly account analysis reports should be provided for each account and on a consolidated account basis.

a. When is the analysis available each month?

b. Is the account analysis available online? Is it imaged monthly?

c. Are paper statements also sent to the District? If so, when?

d. How long will it take the Depository to correct any billing errors on account analysis?

13. Monthly Statements The Depository must provide monthly account statements on all accounts with complete supporting documentation.

a. State when monthly statements will be available each month.

b. Is the monthly statement available online? If so, when and how long? Are the statements imaged or on a CD?

c. If imaged, are paper statements also sent to the District? If so, when?

14. Overdrafts a. Are all accounts aggregated for overdraft calculation purposes?

b. State the rate basis for intra-day and inter-day overdrafts.

c. What is the policy for daylight overdrafts?

15. Stop Payments An automated stop pay process is desired.


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a. What are the time period options available for stop pays?

b. What are the time period options for extended stop pay periods? How is it extended?

c. What is the cut-off hour for same day action on stop pays?

d. Can stop pay orders be initiated on-line? If so, is there any paper follow-up document required?

e. What information on current and expiring stop pays is available on-line? 16. Customer Service Does the Depository offer customer services in languages other than English? What languages are offered?

17. Service Enhancements Based on the information provided in the RFP and your firm’s knowledge of the public sector, please describe any services or technological enhancements, not previously mentioned, that should be considered for further improving the effectiveness of the District’s treasury management operations.


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OPTIONAL SERVICES

1. NSF Checks Represented as ACH (RCK) The District may want the option of the second presentment to be made by ACH to targeted dates for maximum collection potential.

a. Is the Depository currently using ACH for collection of NSF checks? How long has the Depository been providing this service? Provide two comparable references with contact information.

b. How are the NSF and the later ACH matched/reconciled? Does the Depository system cross reference the two transactions in any way?

c. Is the NSF information, image, or occurrence available on-line? When and how? How long is it available online?

d. Can the District specify any target pay day(s)?

2. Merchant Services. The District is interested in possibly accepting credit card payments for various activities. The service should include daily capture, transmission and authorization of payments at point-of-sale and on the web. Reporting would be required by location.

a. Does the Depository currently offer merchant card processing services? How long has this service been available? What interface format(s) does the Depository’s system supply?

b. How many institutions and end customers do you have?

c. Describe the fee components of a merchant card processing relationship. Provide a list of all the fees to the District. State the association fees, discount rates, and the Depository's fee per transaction.

d. Does the Depository have software available for implementation which allows on-line payments to the District through the Depository’s portal?

e. Describe the reporting functions and data availability.

f. Detail billing options.

g. Describe the authorization method/process used. How are incorrect authorizations reversed?

h. Describe your debit card processing capabilities. Do you identify between debit and credit cards on BIN number? Can you program a debit card to the lowest cost network?

i. Describe your transmission process. Describe the monitoring and notification process if transmissions fail.

j. Is data imaging available on line? What is available online? When? For how long?

k. Describe the dispute resolution process.

l. Describe your security measures for internet transactions and unauthorized use.


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3. Payroll Cards/Debit Cards The District is exploring the use of stored value cards (payroll card/debit card) as a payroll option for employees at a minimum. Card holders should have the ability to use the cards for purchases at point of sale as a debit card as well as cash withdrawals at financial institutions and ATMs.

The purchasing ability of the cards must be limited to the stored value of the card. The District may choose to not pay for access fees for the employees issued the stored value cards.

The District will be responsible for any marketing of the program and has total discretion on the distribution of the cards. The District will enroll the employees. The Depository is required to provide card holders with all processing and transaction information and reports. Services expected from the Depository would include, at a minimum:

- embossing, encoding and distributing standard cards as directed by District - provision of paper/electronic statements to cardholders - administration of accounts to include maintenance of accounts, application of

funds, authorization of transactions, related tracking - customer service functions a. Does the Depository currently provide this service? If so, how long has it been

available? b. How many institutions and end customers use the service? Provide three

comparable references for the service. c. Which program (authorization marks) does your program use? (Visa, MC, etc.) d. Describe the enrollment process. Is enrollment batched and web-based? e. Describe the manner by which funds will be made available to the card-holders. f. What are the inactivity levels for the program? Do these generate additional

fees? Describe any other potential fees. g. Are all funding transmissions by standard ACH? Describe the data transmission

requirements and deadlines. 4. Purchasing Cards The District may consider a purchasing card program during the contract period. Cards would be assigned to District employees for defined use.

a. What a card platform does the Depository support (MC, Visa)? Is a third party processor used?

b. What, if any, information is available on-line? When? Describe data download and integration capabilities. Describe reporting capabilities

c. What client support is available? How is it provided?

d. Describe the diverse parameters and restrictions available for the card control. How many access levels are available?

e. Discuss settlement and corporate liability terms. Include information on Depository support for the program, the Depository’s experience, settlement terms on payment, security procedures, and license requirements. How will billing be received?

f. Describe how cards are issued, deleted or replaced. How are lost/stolen cards handled?


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g. Provide three comparable references for the service.

5. Company Bank Program The District is interested in giving its employees the opportunity for enhanced, personal banking services.

a. Does the Depository have a banking program available for District employees?

b. List services provided under this program with applicable discounts or fees to the District or employee.

c. Is availability of the program based on use of direct deposit or District employment?


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List of schedules/attachments provided by District:

1. Attachment A, Volumes for Pricing Transactions (filled in with volumes) 2. Attachment B, District’s Current Account Structure 3. Attachment C, District Investment Policy 4. Attachment D, 2012 Audit

List of schedules/attachments to be provided by Depository: The following information must be included with the proposal:

1. Copy of Depository audited financial statements [or link to web site] 2. Corporate audited financial statements and the individual Depository’s call report (for

members of Depository holding companies) [or link to web site] 3. UPBR reference 4. Attachment A, Volumes for Pricing Transactions (filled in with rates) 5. Sample Account Analysis Statement and User’s Guide (if applicable) 6. Attachment D, Sample Collateral Agreement (if applicable) 7. Any agreements (including those not directly referenced in this RFP) which will be

required to be executed under the contract (if applicable) 8. Samples of major screens or web access for automated cash management (if

applicable) 9. Sample daily balancing report for Remote Deposit (if applicable) 10. Sample account reconciliation reports (if applicable)


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ATTACHMENT A SOUTH TEXAS ISD REQUEST FOR PROPOSAL NOTICE FOR DEPOSITORY SERVICE 12-030

Provide a price schedule for all services and include any one-time charges or set-up fees.

Est. Unit Bank ExplanatoryService Unit Basis Vol. Charge Notes, if applicable

Account Deposit Services Master Account Maintenance Fee Per account 9Subsidiary Account Maintenance Per accountMoney Market Account Maintenance Fee Per accountInterest Bearing Accounts Maintenance Fee Per accountZBA Accounts Maintenance Fee Master Per accountZBA Accounts Maintenance Subsidiary Per accountZBA Account Transfers Per item Investment Sweep - master account Per account/moInvestment Sweep - Subsidiary accounts Per account/mo

Debits Posted Per item 654Credits Posted Per item 383 Per item Automated Services - Balance & Detail If Services are Bundled:Bundled Balance & Activity Reporting Per month Monthly Maintenance Per month/account Detail Item Fees Per item

If services are Un-Bundled (by Module)Balance Reporting Module Maintenance Per account 4 Daily Balance Reporting Per account Previous day Reporting Per account Previous Day Dr/Cr Items Per item 786ACH Module Maintenance Per account/overall ACH Detail Per itemReconciliation Module Maintenance Per account/overall Recon detail Per itemStop Pay Module Maintenance Per account/overall Stop pay item Per item Wire and Internal Transfer Module Maintenance Per account/overall Addenda reporting Per itemPositive Pay Module Per account/mo PP Detail Per item

Detail Transactions - All modules Per item

Deposits Commercial Account Maintenance Per account Banking Center Deposits Per item Night Drop Deposit Per itemItems Deposited Items deposited Per deposit 486 On-us Items Per item Local items Per item Local Fed/RCPC Clearing Per item City Items (in state) Per Item Other State Items Per item 11th Fed Country Items Per item Other 11th Fed RCPC Items Per item Transit Item Clearing Per item Encoding Charge Per item

Cash Vault Cash Vault Base Fee Processing Fee Per item Standard Deposit Vault Per deposit Standard Deposit Note Vault Per depositCurrency Deposits Cash deposited Per $$ Strapped currency furnished Currency Wraps Shipped Per strapCoin Deposits Full bag - loose coin


18




Partial bag of loose coin Rolled Coin Furnished Per roll Minimum Change Order

Branch Order Processing Per OrderBranch Per Deposit Per DepositBranch Coin Shipped Per Shipment Change Order Per itemDeposit Corrections Per item 2Return Item - Per item Per item 2Return Items Return and Reclear Per item 1Charge-backs Per itemReturn Check Notice Fax Per itemReturn Check Notice Internet Per item

ACH Processing Service Monthly Maintenance (Base) Fee Per month/accountACH Transactions Originated Per item 1Debits originated Per item 567Credits Originated Per item

Electronic Credit Received/Posted Per Item 45Electronic Debit Recived/Posted Per item 6 Electronic Originated Addenda Per itemACH Return Items Per itemReturn Notification Per ItemDeletions or Reversal Charges Per itemTransmission Per file

Fraud Filter - Review - Base Fee Per monthFraud Filter - Review - Per Item Per itemReports - by Fax Per item

Positive Pay Service Monthly Maintenance (Base) Fee* Per account or moPositive Pay Item Per itemPer item charge with Partial Recon Per itemPer item charge with Full Recon Per itemPer item without recon servicesTransmission - File Transmission Per item

Imaging Imaging Maintenance Per monthCD Rom Service - Per Item Per item 634CD Rom Service - Per Disk Per item 3

Reconciliation ACH Monthly Maintenance Per MonthPartial Recon Monthly Maintenance Per Month Partial reconciliation - detail Per itemFull recon monthly maintenance Per month Full recon detail Per itemDeposit Reconciliation - Mo Maintenance Per Month Deposit Recon - per detail Per itemTransmissions Per Transmission Transmission Detail Per item


19




Safekeeping Service Monthly Maintenance Custody Per monthClearing Fees Securities Received/ Delivered - DVP Per item Safekeeping Fees Per itemCustody per Cusip/Holding Per cusipIncome Collection to DDA Per item

Stop PaysStop Pays (automated) Per item 2

Wire TransfersService Monthly Maintenance* Per monthIncoming - domestic Straight Per item 2Outgoing - repetitive - automated,domestic Per item 7Outgoing - non-repetitive - automated,domestic Per itemBook Transfer Internet Initiated Per item 19Wire Advices Faxed/Mailed Per item 4

OPTIONAL SERVICES REQUESTEDRemote capture of checksOne-time set-up or training fees One timeMonthly maintenance Per month/cardCapture and transmission fee from provider Per itemOn-us Item Per itemLocal Item Per itemTransit Item Per item

RCK ServicesRCK Maintenance Per account/moRCK Detail Per items

Pay/Debit Cards Service Monthly Maintenance Per monthProcessing and servicing Per cardImplementation fee One timeInitial system design and development One timeEnrollment Per cardCorrections Per item

Employee Charges ATM Cash Withdrawal - On-us Per item ATM Cash Withdrawal - non-bank Per item Cash Advance OTC Per item ATM Balance Inquiry Per item Overdraft Fee Per item Lost/stolen replacement fee Per card Standard reporting Per item

Purchasing CardsService Monthly Maintenance Per monthCard Issuance Fee Per cardTransaction Fee Per itemLicense Fee Per monthRebate on amt purchased <$1mm

Merchant Card Services FeesOne-time set up feeApplication fees: First location Locations 2-5 Locations >5Annual fee / Monthly Maintenance fee Per month/locationMonthly Statement Fee Per monthSupply fee Per monthMinimum processing fee


20




Internet Set-up fee Per locationCredit Card Processing fees Per itemVISA CPS-2 Interchange % Assocation % Visa fee $ Bank fee $MC Merit III Interchange % Assocation % MC fee $ Bank fee $Visa Check Card Interchange (Signature) % Assocation % Visa fee $ Bank fee $MC Debit Card Interchange (Signature) % Assocation % MC fee $ Bank fee $Debit Card Processing MC/VisaAuthorization FeesVoice authorizationsAddress verificationTerminal AuthorizationsMC Electronic authorizationDiscover Electronic authorizationAmEx Electronic authorizationProcessing FeesChargeback processingBatch settlement feeTransmission Fee Per itemTransmission - Item Per item


21

ATTACHMENT A

District-ProvidedHistorical Information(to be completed by the district and provided to banks)

Average ExplanatoryLedger Balance Notes, if applicable

Month Dollars

January-13 1,395,606.80$ December-12 1,778,942.99$ November-12 1,135,332.97$

October-12 912,372.08$ September-12 1,596,371.82$

August-12 506,721.25$ July-12 1,307,323.91$

June-12 1,046,288.88$ May-12 738,556.81$ April-12 1,308,434.32$

March-12 3,311,381.45$ February-12 3,070,873.94$

Average ExplanatoryCollected Balance Notes, if applicable

Month Dollars

January-13 1,384,198.31$ December-12 1,778,942.99$ November-12 1,135,127.47$

October-12 780,390.35$ September-12 1,595,753.82$

August-12 505,652.75$ July-12 1,307,323.91$

June-12 1,046,288.88$ May-12 738,556.81$ April-12 1,308,434.32$

March-12 3,311,381.45$ February-12 3,070,873.94$

SOUTH TEXAS ISD REQUEST FOR PROPOSAL NOTICE FOR DEPOSITORY SERVICE 12-030


22

ATTACHMENT A

District-ProvidedHistorical Information(to be completed by the district and provided to banks)


Merchant Services Avg Ticket Estimated Explanatory(Credit Cards) Size Volume Notes, if applicable

Month Dollars DollarsJanuary-13 N/A N/A

December-12November-12

October-12September-12

August-12July-12

June-12May-12April-12

March-12February-12

Estimated Estimated ExplanatoryPurchasing Cards Volume Volume Notes, if applicable

Month Transactions DollarsJanuary-13 N/A N/A



August-12July-12


March-12February-12


23

ATTACHMENT A

Bank-ProvidedHistorical Information(to be completed by the bank and provided to district)

ECR ExplanatoryRate Notes, if applicable

Month %February-13January-13



August-12July-12


March-12

Interest Bearing ExplanatoryAccounts Notes, if applicable




August-12July-12


March-12



24

ATTACHMENT A

Bank-ProvidedHistorical Information(to be completed by the bank and provided to district)


Money Market ExplanatoryAccounts Notes, if applicable




August-12July-12


March-12

Sweep ExplanatoryAccounts Notes, if applicable




August-12July-12


March-12


25

ATTACHMENT B

DISTRICT’S CURRENT ACCOUNT STRUCTURE

The District presently maintains accounts as listed below. The District reserves the right to open additional accounts or to close accounts during the course of the depository contract. Type of Account Number of Interest Bearing/ Accounts Non-Interest Bearing General Operating 1 IB checking Non Operating 1 IB Payroll 1 IB Activity 5 IB


26

The Depository confirms that interest earned will not be charged on the account analysis. If awarded the contract, the Depository will be required to review the then-current District Investment Policy and certify in writing to that review in accordance with the Public Funds Investment Act certifying that the Depository has sufficient controls in place to avoid transactions not authorized by the Policy. The Depository accepts the investment options and/or collateral conditions as specified in the District’s Investment Policy. By virtue of the proposal submission, the Proposer acknowledges agreement with and acceptance of all provisions of the specifications except as expressly qualified in the proposal. Firm: ____________________________________________________________________ Address: _________________________________________________________________ City/State/Zip: _____________________________________________________________ Phone No: ________________________________________________________________ Fax No: __________________________________________________________________ Email Address: ____________________________________________________________ Typed Name: ______________________________________________________________ Date: ____________________________________________________________________


27

Execution Offer In compliance with this RFP, and subject to all the conditions herein, the undersigned offers and agrees to furnish any or all commodities or services as submitted.

By signature hereon, the Respondent hereby certifies that he/she is not currently delinquent in the payment of any franchise taxes owed the State of Texas under Chapter 171, Tax Code.

By executing this offer, Respondent affirms that he/she has not given, offered to give, nor intends to give at anytime hereafter, any economic opportunity, future employment, gift, loan, gratuity, special discount, trip, favor, or service to a public servant in connection with the submitted offer. Failure to sign the offer, or signing it with a false statement, shall void the submitted offer or any resulting contracts, and the Respondent may be removed from all vendor lists.

By the signature hereon affixed, the Respondent hereby certifies that neither the Respondent nor the firm, corporation, partnership, or institution represented by the Respondent or anyone acting for such firm, corporation, or institution has violated the antitrust laws of this State, codified in Section 15.01, et seq., Texas Business and Commerce Code, or the Federal antitrust laws, nor communicated directly or indirectly the offer made to any competitor or any other person engaged in such line of business. By signing this offer, Respondent certifies that if a Texas address is shown as the address of the Respondent, Respondent qualifies as a Texas Resident Bidder as defined in Rule 1 TAC 113.8.

Failure to manually sign proposal will disqualify it. The person signing the proposal should show title or authority to bind his/her firm in contract. Respondent/Company: Signature:

Name (Typed/Printed): Title: Street: City/State/Zip: Telephone No.: Fax No.:

THIS SHEET MUST BE COMPLETED, SIGNED, AND RETURNED WITH RESPONDENT’S PROPOSAL. FAILURE TO SIGN AND RETURN THIS SHEET MAY RESULT IN THE REJECTION OF YOUR PROPOSAL.


28

Felony Conviction Notification THIS FORM MUST BE COMPLETED, SIGNED, AND RETURNED WITH

PROPOSAL

State of Texas legislative Bill No. 1 Section 4.034, Notification of Criminal History, Subsection (a) states “a person or business entity that enters into a contract with a school district must give advance notice to the district if the person or an owner or operator of the business entity has been convicted of a felony. The notice must include a general description of the conduct resulting in the conviction of a felony.” Subsection (b) states “a school district may terminate a contract with a person or business entity if the district determines that the person or business entity failed to give notice as required by Subsection (a) or misrepresented the conduct resulting in the conviction. The district must compensate the person or business entity for services performed before the termination of the contract.”

THIS NOTICE IS NOT REQUIRED OF A PUBLICLY-HELD CORPORATION Please check off one box and sign the form in the appropriate space

I, the undersigned agent for the firm named below, certify; that the information concerning notification of felony convictions has been reviewed by me and the information furnished is true to the best of my knowledge.

VENDOR’S NAME: _____________________________ ______________________________

AUTHORIZED COMPANY OFFICIAL’S NAME (PRINTED): ____________________________ A. My firm is a publicly held corporation; therefore, this reporting requirement is not applicable. SIGNATURE OF COMPANY OFFICIAL ______________________________________ B. My firm is not owned nor operated by anyone who has been convicted of a felony. SIGNATURE OF COMPANY OFFICIAL ______________________________________ C. My firm is owned and/or operated by the following individual(s) who has/have been convicted of a felony: Name of Felon(s) ___________________________________________________________ Details of Conviction(s) ___ ___________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ SIGNATURE OF COMPANY OFFICIAL ________________________________________________


29

NON-COLLUSION STATEMENT The undersigned Proposer, by signing and executing this proposal, certifies and represents to the South Texas Independent School District that Proposer has not offered, conferred or agreed to confer any pecuniary benefit, as defined by Section 1.07 (a)(6) of the Texas Penal Code, or any other thing of value, as consideration for the receipt of information or any special treatment or advantage relating to this proposal; the Proposer also certifies and represents that Proposer has not offered, conferred or agreed to confer any pecuniary benefit or other things of value as consideration for the recipient's decision, opinion, recommendation, vote or other exercise of discretion concerning this proposal; the Proposer certifies and represents that Proposer has neither coerced nor attempted to influence the exercise of discretion by any officer, trustee, agent or employee of the South Texas Independent School District concerning this proposal on the basis of any consideration not authorized by law; the Proposer also certifies and represents that Proposer has not received any information not available to other proposers so as to give the undersigned a preferential advantage with respect to this proposal; the Proposer further certifies and represents that Proposer has not violated any state, federal or local law, regulation or ordinance relating to bribery, improper influence, collusion or the like and that Proposer will not in the future, offer, confer, or agree to confer any pecuniary benefit or other thing of value of any officer, trustee, agent or employee of the South Texas Independent School District in return for the person having exercised the person's official discretion, power or duty with respect to this proposal; the Proposer certifies and represents that it has not now and will not in the future offer, confer, or agree to confer a pecuniary benefit or other thing of value to any office, trustee, agent or employee of the South Texas Independent School District in connection with information regarding this proposal, the submission of this proposal, the award of this proposal or the performance, delivery or sale pursuant to this proposal.

FIRM NAME_________________________________________________________

ADDRESS __________________________________________________________

CITY/STATE/ZIP _____________________________________________________

TELEPHONE NUMBER _______________________________________________

FAX NUMBER _______________________________________________________

TYPED NAME OF REPRESENTATIVE(S) _________________________________

SIGNATURE OF REPRESENTATIVE(S) __________________________________

DATE ______________________________________________________________


30

ACCEPTANCE FORM

We have reviewed all of the documents provided in connection with RFP 12-030 and agree to all terms, conditions, criteria and specifications set forth in any of the documents provided by South Texas ISD in connection with the Depository Service RFP 12-030. Accordingly, we submit our response as requested. All costs involved in submitting this proposal to the South Texas Independent School District will be liable in full by the proposing firm. FIRM NAME ADDRESS CITY/STATE/ZIP+4 TELEPHONE NUMBER FAX NUMBER AUTHORIZED SIGNATURE PRINTED NAME POSITION WITH COMPANY SIGNATURE OF COMPANY OFFICIAL AUTHORIZING THIS PROPOSAL COMPANY OFFICIAL (PRINT NAME) OFFICIAL POSITION


31

Form W-9(Rev. January 2011)Department of the Treasury Internal Revenue Service

Request for Taxpayer Identification Number and Certification

Give Form to the requester. Do not send to the IRS.

Pri

nt o

r ty

pe

See

Sp

ecifi

c In

stru

ctio

ns o

n p

age

2.

Name (as shown on your income tax return)

Business name/disregarded entity name, if different from above

Check appropriate box for federal tax

classification (required): Individual/sole proprietor C Corporation S Corporation Partnership Trust/estate

Limited liability company. Enter the tax classification (C=C corporation, S=S corporation, P=partnership) ▶

Other (see instructions) ▶

Exempt payee

Address (number, street, and apt. or suite no.)

City, state, and ZIP code

Requester’s name and address (optional)

List account number(s) here (optional)

Part I Taxpayer Identification Number (TIN)Enter your TIN in the appropriate box. The TIN provided must match the name given on the “Name” line to avoid backup withholding. For individuals, this is your social security number (SSN). However, for a resident alien, sole proprietor, or disregarded entity, see the Part I instructions on page 3. For other entities, it is your employer identification number (EIN). If you do not have a number, see How to get a TIN on page 3.

Note. If the account is in more than one name, see the chart on page 4 for guidelines on whose number to enter.

Social security number

– –

–

Employer identification number

Part II CertificationUnder penalties of perjury, I certify that:

1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and

2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and

3. I am a U.S. citizen or other U.S. person (defined below).

Certification instructions. You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN. See the instructions on page 4.

Sign Here

Signature of U.S. person ▶ Date ▶

General InstructionsSection references are to the Internal Revenue Code unless otherwise noted.

Purpose of FormA person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report, for example, income paid to you, real estate transactions, mortgage interest you paid, acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA.

Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN to the person requesting it (the requester) and, when applicable, to:

1. Certify that the TIN you are giving is correct (or you are waiting for a number to be issued),

2. Certify that you are not subject to backup withholding, or

3. Claim exemption from backup withholding if you are a U.S. exempt payee. If applicable, you are also certifying that as a U.S. person, your allocable share of any partnership income from a U.S. trade or business is not subject to the withholding tax on foreign partners’ share of effectively connected income.

Note. If a requester gives you a form other than Form W-9 to request your TIN, you must use the requester’s form if it is substantially similar to this Form W-9.

Definition of a U.S. person. For federal tax purposes, you are considered a U.S. person if you are:

• An individual who is a U.S. citizen or U.S. resident alien,

• A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States,

• An estate (other than a foreign estate), or

• A domestic trust (as defined in Regulations section 301.7701-7).

Special rules for partnerships. Partnerships that conduct a trade or business in the United States are generally required to pay a withholding tax on any foreign partners’ share of income from such business. Further, in certain cases where a Form W-9 has not been received, a partnership is required to presume that a partner is a foreign person, and pay the withholding tax. Therefore, if you are a U.S. person that is a partner in a partnership conducting a trade or business in the United States, provide Form W-9 to the partnership to establish your U.S. status and avoid withholding on your share of partnership income.

Cat. No. 10231X Form W-9 (Rev. 1-2011)


32

South Texas ISD 031916 OTHER REVENUES CDA INVESTMENTS (LOCAL)

DATE ISSUED: 10/10/2011 1 of 4 UPDATE 91 CDA(LOCAL)-X

The Superintendent or other person designated by Board resolu-tion shall serve as the investment officer of the District and shall invest District funds as directed by the Board and in accordance with the District’s written investment policy and generally accepted

accounting procedures. All investment transactions except in-vestment pool funds and mutual funds shall be executed on a deli-very versus payment basis.

From those investments authorized by law and described further in CDA(LEGAL), the Board shall permit investment of District funds in only the following investment types, consistent with the strategies and maturities defined in this policy:

1. Obligations of, or guaranteed by, governmental entities as permitted by Government Code 2256.009.

2. Certificates of deposit and share certificates as permitted by Government Code 2256.010.

3. A public funds investment pool as permitted by Government Code 2256.016-2256.019.

The main goal of the investment program is to ensure its safety and maximize financial returns within current market conditions in accordance with this policy. Investments shall be made in a man-ner that ensures the preservation of capital in the overall portfolio, and offsets during a 12-month period any market price losses re-sulting from interest-rate fluctuations by income received from the balance of the portfolio. No individual investment transaction shall be undertaken that jeopardizes the total capital position of the overall portfolio.

Any internally created pool fund group of the District shall have a maximum dollar weighted maturity of 180 days. The maximum al-lowable stated maturity of any other individual investment owned by the District shall not exceed one year from the time of purchase. The Board may specifically authorize a longer maturity for a given investment, within legal limits.

The District’s investment portfolio shall have sufficient liquidity to

meet anticipated cash flow requirements.

The investment portfolio shall be diversified in terms of investment instruments, maturity scheduling, and financial institutions to re-duce risk of loss resulting from over concentration of assets in a specific class of investments, specific maturity, or specific issuer.

The following maturities and diversification levels shall be applied:

INVESTMENT AUTHORITY

APPROVED INVESTMENT INSTRUMENTS

SAFETY AND INVESTMENT MANAGEMENT

LIQUIDITY AND MATURITY

DIVERSITY


33



Maximum Maturity

Maximum Percent of Portfolio

U.S. Obligations 1 year 90 percent

Certificates of Deposit 1 year 90 percent

Pools N/A 90 percent

The investment officer shall monitor the investment portfolio and shall keep the Board informed of significant declines in the market value of the District’s investment portfolio. Information sources

may include financial/investment publications and electronic media, available software for tracking investments, depository banks, commercial or investment banks, financial advisors, and repre-sentatives/advisors of investment pools or money market funds. Monitoring shall be done monthly or more often as economic condi-tions warrant by using appropriate reports, indices, or benchmarks for the type of investment.

In accordance with Government Code 2256.005(b), the investment officer shall develop a procedure to monitor changes in investment ratings and to liquidate investments that do not maintain satisfacto-ry ratings.

Investments of the following fund categories shall be consistent with this policy and in accordance with the strategy defined below.

Investment strategies for operating funds (including any commin-gled pools containing operating funds) shall have as their primary objectives safety, investment liquidity, and maturity sufficient to meet anticipated cash flow requirements.

Investment strategies for agency funds shall have as their objec-tives safety, investment liquidity, and maturity sufficient to meet an-ticipated cash flow requirements.

Investment strategies for debt service funds shall have as their ob-jective sufficient investment liquidity to timely meet debt service payment obligations in accordance with provisions in the bond documents. Maturities longer than one year are authorized pro-vided legal limits are not exceeded.

Investment strategies for capital project funds shall have as their objective sufficient investment liquidity to timely meet capital project obligations. Maturities longer than one year are authorized provided legal limits are not exceeded.

MONITORING MARKET PRICES

MONITORING RATING CHANGES

FUNDS / STRATEGIES

OPERATING FUNDS

AGENCY FUNDS

DEBT SERVICE FUNDS

CAPITAL PROJECTS


34



The District shall retain clearly marked receipts providing proof of the District’s ownership. The District may delegate, however, to an

investment pool the authority to hold legal title as custodian of in-vestments purchased with District funds by the investment pool.

Prior to handling investments on behalf of the District, bro-kers/dealers must submit required written documents in accor-dance with law. [See SELLERS OF INVESTMENTS, CDA(LEGAL)] Representatives of brokers/dealers shall be regis-tered with the Texas State Securities Board and must have mem-bership in the Securities Investor Protection Corporation (SIPC), and be in good standing with the Financial Industry Regulatory Au-thority (FINRA).

In order to get the best return on its investments, the District may solicit bids for certificates of deposit in writing, by telephone, or electronically, or by a combination of these methods.

To reduce exposure to changes in interest rates that could ad-versely affect the value of investments, the District shall use final and weighted-average-maturity limits and diversification.

The District shall monitor interest rate risk using weighted average maturity and specific identification.

A system of internal controls shall be established and documented in writing and must include specific procedures designating who has authority to withdraw funds. Also, they shall be designed to protect against losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the District. Controls deemed most important shall include:

1. Separation of transaction authority from accounting and re-cordkeeping and electronic transfer of funds.

2. Avoidance of collusion.

3. Custodial safekeeping.

4. Clear delegation of authority.

5. Written confirmation of telephone transactions.

6. Documentation of dealer questionnaires, quotations and bids, evaluations, transactions, and rationale.

7. Avoidance of bearer-form securities.

These controls shall be reviewed by the District’s independent au-diting firm.

SAFEKEEPING AND CUSTODY

BROKERS / DEALERS

SOLICITING BIDS FOR CD’S

INTEREST RATE RISK

INTERNAL CONTROLS


35


DATE ISSUED: 10/10/2011 ADOPTED: 4 of 4 UPDATE 91 CDA(LOCAL)-X

In addition to the quarterly report required by law and signed by the District’s investment officer, a comprehensive report on the invest-ment program and activity shall be presented annually to the Board.

PORTFOLIO REPORT


36

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED

AUGUST 31, 2012


37

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED AUGUST 31, 2012

TABLE OF CONTENTS Exhibit Page CERTIFICATE OF BOARD 1

Independent Auditors' Report 2 Management's Discussion and Analysis 4

Basic Financial Statements

Government Wide Statements: A-1 Statement of Net Assets 11 B-1 Statement of Activities 12 Governmental Fund Financial Statements: C-1 Balance Sheet 13 C-2 Reconciliation for C-1 14 C-3 Statement of Revenues, Expenditures, and Changes in Fund Balance 15 C-4 Reconciliation for C-3 16 Fiduciary Fund Financial Statements: E-1 Statement of Fiduciary Net Assets 17 Notes to the Financial Statements 18

Budget Comparisons

G-1 Budgetary Comparison Schedule - General Fund 31 G-2 Budgetary Comparison Schedule - Child Nutrition Program 32 Combining Schedules Nonmajor Governmental Funds: H-1 Combining Balance Sheet 33 H-2 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 37 H-3 Statement of Changes in Assets and Liabilities 41

Required Supplementary Schedules J-1 Schedule of Delinquent Taxes 42 J-2 Schedule of Expenditures for Computation of Indirect Cost 44 J-3 Fund Balance and Cash Flow Calculation Worksheet 45 Federal Awards Section Report Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 46

Independent Auditor’s 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 48 Schedule of Findings and Questioned Costs 50 Summary Schedule of Prior Audit Findings 51 Corrective Action Plan 52 K-1 Schedule of Expenditures of Federal Awards 53 Notes to Schedule of Expenditures of Federal Awards 54


38

1

CERTIFICATE OF BOARD South Texas Independent School District Hidalgo 031-916 Name of District County Co.-Dist. Number

We, the undersigned, certify that the attached annual financial reports of the above-named school district were

reviewed and (check one) _________ approved _______ disapproved for the year ended August 31, 2012 at a

meeting of the Board of Trustees of such school district on the _________ day of December, 2012.

__________________________________ ___________________________________ Signature of Board Secretary Signature of Board President


39

765 EAST 7th STREET BROWNSVILLE, TX 78520 (956) 544-7778 FAX: (956) 544-8465 www.pbhcpa.com AFFILIATE OFFICES: McALLEN, TX (956) 682-2853 HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460

WACO, TX (254) 772-4901 WHITNEY, TX (254) 694-4600 ALBUQUERQUE, NM (505) 266-5904

INDEPENDENT AUDITORS’ REPORT Board of Trustees South Texas Independent School District Mercedes, Texas We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of South Texas Independent School District (the “District”) as of and for the year ended August 31, 2012, which collectively comprise the District’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District’s 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 in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 significant estimates 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 South Texas Independent School District as of August 31, 2012, and the respective changes in financial position, thereof and the respective budgetary comparison for the general fund for the year then ended 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 November 6, 2012, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, 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 internal control over 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.


40

3

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 4 through 10 and the budgetary comparison information on pages 31 and 32, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s financial statements. The accompanying combining and individual nonmajor fund financial statements and schedule of expenditures of federal awards, as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the financial statements as a whole.

PATTILLO, BROWN & HILL, LLP November 6, 2012


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4


MANAGEMENT'S DISCUSSION AND ANALYSIS In this section of the Annual Financial and Compliance Report, we, the managers of SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT, discuss and analyze the District's financial performance for the fiscal year ended August 31, 2012. Please read it in conjunction with the independent auditors’ report on page 2, and the District's Basic Financial Statements which begin on page 11. FINANCIAL HIGHLIGHTS The District's net assets increased by $13,133,394 as a result of this year's operations. Net assets of our governmental activities increased by $10,779,370. During the year, the District had expenses that were $10,779,370 less than the $51,871,295 generated in tax and other revenues for governmental programs (before special items). This compares to last year when revenues exceeded expenses by $11,121,224. The General Fund ended the year with a fund balance of $45,678,714, of which $14,853,328 is unreserved, undesignated. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities. These provide information about the activities of the District as a whole and present a long-term view of the District's property and debt obligations and other financial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. Fund financial statements report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds. For governmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. For proprietary activities, fund financial statements tell how goods or services of the District were sold to departments within the District or to external customers and how the sales revenues covered the expenses of the goods or services. The remaining statements, fiduciary statements, provide financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside of the district. The notes to the financial statements provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements. The combining statements for non-major funds contain even more information about the District's individual funds. These are not required by TEA. The sections labeled TEA Required Schedules and Federal Awards Section contain data used by monitoring or regulatory agencies for assurance that the District is using funds supplied in compliance with the terms of grants.


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Reporting the District as a Whole The Statement of Net Assets and the Statement of Activities The analysis of the District's overall financial condition and operations begins on page 11. Its primary purpose is to show whether the District is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the District's assets and liabilities at the end of the year while the Statement of Activities includes all the revenues and expenses generated by the District's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. The District's revenues are divided into those provided by outside parties who share the costs of some programs, such as tuition received from students from outside the district and grants provided by the U.S. Department of Education to assist children with disabilities of from disadvantaged backgrounds (program revenues), and revenues provided by the taxpayers or by TEA in equalization funding processes (general revenues). All the District's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the District's net assets and changes in them. The District's net assets (the difference between assets and liabilities) provide one measure of the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the District, however, you should consider non-financial factors as well, such as changes in the District's average daily attendance or its property tax base and the condition of the District's facilities. In the Statement of Net Assets and the Statement of Activities, one kind of activity is reported for the District: ·Governmental activities–Most of the District's basic services are reported here, including the instruction, counseling, co-curricular activities, food services, transportation, maintenance, community services, and general administration. Property taxes, tuition, fees, and state and federal grants finance most of these activities. Reporting the District's Most Significant Funds Fund Financial Statements The fund financial statements provide detailed information about the most significant funds–not the District as a whole. Laws and contracts require the District to establish some funds, such as grants received under the No Child Left Behind Act from the U.S. Department of Education. The District's administration establishes many other funds to help it control and manage money for particular purposes (like campus activities). The District's two kinds of funds–governmental and proprietary–use different accounting approaches. ·Governmental funds–Most of the District's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future spending. The governmental fund statements provide a detailed short-


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term view of the District's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation schedules following each of the fund financial statements. ·Proprietary funds–The District reports the activities for which it charges users (whether outside customers or other units of the District) in proprietary funds using the same accounting methods employed in the Statement of Net Assets and the Statement of Activities. In fact, the District’s internal service funds (the other category of proprietary funds) report activities that provide supplies and services for the District's other programs and activities–such as the District's self-insurance programs, the print shop, and transportation. The District as Trustee Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for money raised by student activities and alumnae scholarship programs. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Assets. We exclude these resources from the District's other financial statements because the District cannot use these assets to finance its operations. The District is only responsible for ensuring that the assets reported in these funds are used for their intended purposes. GOVERNMENT-WIDE FINANCIAL ANALYSIS The District implemented GASB Statement #34 during fiscal year August 31, 2012. Our analysis focuses on the net assets (Table I) and changes in net assets (Table II) of the District's governmental activities. Net assets of the District's governmental activities increased from $86,674,593 to $99,807,907. Unrestricted net assets – the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements – was $14,853,328 at August 31, 2012. This increase is relatively significant to the overall operations of the District.


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GovernmentalActivities

2012 2011Current Assets:

Cash and cash equivalents 45,889,255$ 34,481,422$ Property taxes receivable, net 4,101,841 4,175,671 Allowance for uncollectible taxes (410,184) (417,568) Due from other government 1,688,533 3,950,779 Accrued interest 95,874 108,400 Internal balances 11,817 14,151 Other receivable - 2,700 Deferred expenditures/expenditures 5,386 4,326

Total current assets 51,382,522 42,319,881

Non current assets:Land 3,366,042 3,514,669 Building 56,585,362 55,369,125 Furniture & equipment 10,777,750 9,950,988 Leased property under capital leases - 878,870 Construction in progress 2,557,094 456,450 Less: Accumulated Depreciation (23,138,979) (23,135,424)

Total noncurrent assets 50,147,269 47,034,678

Total assets 101,529,791 89,354,559

Current LiabilitiesAccounts Payable 482,427 841,651 Payroll deductions/withholdings 11,572 285,256 Accrued wages payable 1,186,718 1,274,924 Due to Student Groups 748 - Accrued expenses 1,064 - Deferred revenues 39,275 278,135

Non current liabilitiesDue within one year - - Due in more than one year - -

Total liabilities 1,721,804 2,679,966

Net assets:Invested in capital assets, net of related debt 47,806,553 47,034,678 Restricted for federal and state programs 290,347 281,160 Restricted for other purposes 30,825,386 24,004,326 Unrestricted net assets 20,885,701 15,354,429

Total net assets 99,807,987$ 86,674,593$

TABLE 1


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2012 2011Program revenues:

Charges for services 923,509$ 973,068$ Operating grants and contributions 5,008,357 7,249,988 State aid - formula grants 23,103,825 19,296,629 Grants and contributions - not restricted 39,900 95,185 Investment earnings 290,058 151,508 Misc. local and intermediate revenues 584,373 78,555 Property taxes 21,921,273 21,998,613 Special items - 125,070

Total revenues 51,871,295 49,968,616

Expenses:

Instruction 20,455,078 18,684,616 Instructional resources and media services 1,682,936 1,702,848 Curriculum and staff development 360,443 314,505 Instructional and school leadership 147,748 174,465 School leadership 2,293,879 2,127,294 Guidance, counseling and evaluation services 1,927,037 1,794,714 Social work services 166,281 152,156 Health services 303,787 275,256 Student (pupil) transportation 3,384,831 3,521,560 Food services 1,723,208 1,347,881 Curricular/extracurricular activities 576,400 536,991 General administration 1,684,574 1,675,562 Plant maintenance and operations 5,196,621 5,115,898 Security and monitoring services 287,663 262,770 Data processing services 476,602 728,790 Community services 18,133 19,340 Debt service - - Bond issuance cost and fees - - Facilities acquisition and construction - - Payments to juvenile justice alternative ed. prog. - 4,560 Other Intergovernmental Charges 406,704 408,186

Total expenses 41,091,925 38,847,392

Excess (deficiency) before other resources, uses & transfers 10,779,370 11,121,224 Transfers in ( out) - - Prior Period Adjustment 2,354,024 (76,803) Net Assets at Beginning of Year 86,674,593 75,630,172

Net Assets at Ending of the Year 99,807,987$ 86,674,593$

TABLE IIChanges in South Texas Independent School District's Net Assets

Governmental

Activities


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The cost of all governmental activities this year was $41,091,925 compared to $38,847,392 last year. However, as shown in the Statement of Activities, the amount that our taxpayers ultimately financed for these activities through District taxes was only $21,921,273 because the rest of the costs ($19,170,652) were paid by those who directly benefited from the programs or by other governments and organizations that subsidized certain programs with grants and contributions or by State equalization funding. THE DISTRICT'S FUNDS As the District completed the year, its governmental funds (as presented in the balance sheet) reported a combined fund balance of $45,969,061 which is more than last year's total of $35,881,811. The increase is primarily due to a decrease in the district’s operational expenses. Over the course of the year, the Board of Trustees revised the District's budget several times. These amendments principally involved reclassifications between functional categories and funds from programs that did not need all the resources originally appropriated to them to programs with resource needs and reclassifications between functional categories. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2012, the District had $50,147,269 (net of depreciation) invested in a broad range of capital assets, including facilities and equipment for instruction, transportation, athletics, administration, and maintenance. This amount represents a net increase of just over $3,112,591, or 6.6 percent, above last year. This year's major additions (construction in progress) included:

2012

Land 64,386$

Buildings and improvements 186,548

Furniture and equipment 826,762

Capital leases -

Construction in progress 2,038,450

Total at historical cost 3,116,146

Less:

Accumulated depreciation (2,344,271)

Net capital assets 771,875$

District's Capital Assets

Debt at year-end, the District had $0 in bonds outstanding.


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ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES These indicators were taken into account when adopting the General Fund budget for 2012. Amounts available for appropriation in the General Fund budget are $21,673,325, an increase of approximately 4.6 percent from the final 2013 budget of $44,146,823 resulting from state per capita payments, and grant revenue decreases. The District will use its revenues to finance programs we currently offer. The budget approved by the Board of Trustees was not a balanced budget. Expenditures are budgeted to increase 2.1% to $41,739,600. The increase is mainly due to salaries and capital projects. If these estimates are realized, the District's budgetary General Fund balance is expected to increase constant by the close of 2013, less any amounts from fund balance for major renovations and new district initiatives. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the District's business office, at SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT, 100 Med High Dr., Mercedes, Texas 78570.


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BASIC FINANCIAL STATEMENTS


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EXHIBIT A-1SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

STATEMENT OF NET ASSETSAUGUST 31, 2012

Control

Data

CodesGovernmental

Activities

Primary Government

ASSETS45,889,255 Cash and Cash Equivalents $1110

4,101,841 Property Taxes Receivable (Delinquent)1220

(410,184)Allowance for Uncollectible Taxes1230

1,688,533 Due from Other Governments1240

95,874 Accrued Interest1250

11,817 Inventories1300

5,386 Deferred Expenses1410

Capital Assets:

3,366,042 Land1510

36,464,817 Buildings, Net1520

7,759,316 Furniture and Equipment, Net1530

2,557,094 Construction in Progress1580

Total Assets1000 101,529,791

LIABILITIES

482,427 Accounts Payable2110

11,572 Payroll Deductions & Withholdings2150

1,186,718 Accrued Wages Payable2160

748 Due to Student Groups2190

1,064 Accrued Expenses2200

39,275 Deferred Revenues2300

Total Liabilities2000 1,721,804

NET ASSETS

47,806,553 Invested in Capital Assets, Net of Related Debt3200

290,347 Restricted for Federal and State Programs3820

30,825,386 Restricted for Other Purposes3890

20,885,701 Unrestricted Net Assets3900

Total Net Assets3000 99,807,987 $

11

The notes to the financial statements are an integral part of this statement.


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EXHIBIT B-1SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

STATEMENT OF ACTIVITIESFOR THE YEAR ENDED AUGUST 31, 2012

Net (Expense)

Revenue and

Changes in Net

AssetsProgram RevenuesData

Control

Codes

1 3 4 6

Operating

Grants and

Contributions

Charges for

ServicesExpenses

Governmental

Activities

Primary Gov.

Primary Government:

GOVERNMENTAL ACTIVITIES:431,070 20,455,078 2,509,666 (17,514,342)Instruction $ $ $ $11

- 1,682,936 144,956 (1,537,980)Instructional Resources and Media Services12

- 360,443 311,832 (48,611)Curriculum and Staff Development13

11,574 147,748 7,200 (128,974)Instructional Leadership21

- 2,293,879 121,664 (2,172,215)School Leadership23

- 1,927,037 284,768 (1,642,269)Guidance, Counseling and Evaluation Services31

- 166,281 130,000 (36,281)Social Work Services32

- 303,787 16,822 (286,965)Health Services33

- 3,384,831 267,354 (3,117,477)Student (Pupil) Transportation34

460,288 1,723,208 938,804 (324,116)Food Services35

- 576,400 19,598 (556,802)Extracurricular Activities36

20,577 1,684,574 65,521 (1,598,476)General Administration41

- 5,196,621 140,496 (5,056,125)Facilities Maintenance and Operations51

- 287,663 - (287,663)Security and Monitoring Services52

- 476,602 31,543 (445,059)Data Processing Services53

- 18,133 18,133 - Community Services61

- 406,704 - (406,704)Other Intergovernmental Charges99

[TP] TOTAL PRIMARY GOVERNMENT: 41,091,925 923,509 5,008,357 (35,160,059)$ $ $

DataControlCodes General Revenues:

Taxes:21,921,273 Property Taxes, Levied for General PurposesM T

23,103,825 State Aid - Formula GrantsSF

39,900 Grants and Contributions not RestrictedGC

290,058 Investment EarningsIE

584,373 Miscellaneous Local and Intermediate RevenueMI

45,939,429 Total General RevenuesTR

Net Assets--Beginning

Change in Net Assets

Net Assets--Ending

Prior Period Adjustment

CN

NB

NE

PA

10,779,370

86,674,593

2,354,024

99,807,987 $

12The notes to the financial statements are an integral part of this statement.


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EXHIBIT C-1SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

BALANCE SHEET

GOVERNMENTAL FUNDS

AUGUST 31, 2012

Control

Data

Codes

General

Fund Funds

Governmental

Nonmajor

Funds

Governmental

Total10

ASSETS

306,850 45,582,405 45,889,255 Cash and Cash Equivalents $ $ $1110

- 4,101,841 4,101,841 Property Taxes - Delinquent1220

- (410,184) (410,184)Allowance for Uncollectible Taxes1230

188,563 1,499,970 1,688,533 Receivables from Other Governments1240

- 95,874 95,874 Accrued Interest1250

- 62,991 62,991 Due from Other Funds1260

11,817 - 11,817 Inventories1300

- 5,386 5,386 Deferred Expenditures1410

Total Assets1000 50,938,283 507,230 51,445,513 $ $ $

LIABILITIES AND FUND BALANCES

Liabilities:

67,328 415,099 482,427 Accounts Payable $ $ $2110

- 11,572 11,572 Payroll Deductions and Withholdings Payable2150

50,299 1,136,419 1,186,718 Accrued Wages Payable2160

62,991 - 62,991 Due to Other Funds2170

- 748 748 Due to Student Groups2190

- 1,064 1,064 Accrued Expenditures2200

36,265 3,694,667 3,730,932 Deferred Revenues2300

Total Liabilities2000 5,259,569 216,883 5,476,452

Fund Balances:

Nonspendable Fund Balance: - 5,386 5,386 Prepaid Items3430

Restricted Fund Balance:

290,347 - 290,347 Federal or State Funds Grant Restriction3450

Committed Fund Balance: - 30,820,000 30,820,000 Construction3510

- 14,853,328 14,853,328 Unassigned Fund Balance3600

Total Fund Balances3000 45,678,714 290,347 45,969,061

Total Liabilities and Fund Balances4000 50,938,283 507,230 51,445,513 $ $ $

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RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THESTATEMENT OF NET ASSETS

AUGUST 31, 2012

45,969,061 $Total Fund Balances - Governmental Funds

47,034,678 1 Capital assets used in governmental activities are not financial resources and therefore Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $70,170,102 and the accumulated depreciation was $23,135,424. In

Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $70,170,102 and the accumulated depreciation was $23,135,424. In addition, long-term liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect

Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $70,170,102 and the accumulated depreciation was $23,135,424. In addition, long-term liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and long-

Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $70,170,102 and the accumulated depreciation was $23,135,424. In addition, long-term liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and long-term debt in the governmental activities is to increase net assets.

3,116,146 2 Current year capital outlays and long-term debt principal payments are expenditures in Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital assets Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital assets and reductions in long-term debt in the government-wide financial statements. The net

Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital assets and reductions in long-term debt in the government-wide financial statements. The net effect of including the 2012 capital outlays and debt principal payments is to increase net assets.

(2,344,271)3 The 2012 depreciation expense increases accumulated depreciation. The net effect of The 2012 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to decrease net assets.

6,032,373 4 Various other reclassifications and eliminations are necessary to convert from the Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions. The net

Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions. The net effect of these reclassifications and recognitions is to increase net assets.

99,807,987 $19 Net Assets of Governmental Activities

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53


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE

GOVERNMENTAL FUNDS


Control

Data

Codes

10

General

Fund Funds

Governmental

Nonmajor

Funds

Governmental

Total

REVENUES:627,640 23,325,371 23,953,011 Total Local and Intermediate Sources $ $ $5700

74,357 24,731,409 24,805,766 State Program Revenues5800

3,139,068 39,897 3,178,965 Federal Program Revenues5900

Total Revenues5020 48,096,677 3,841,065 51,937,742

EXPENDITURES:Current:

1,552,583 18,017,696 19,570,279 Instruction0011

94,851 1,451,509 1,546,360 Instructional Resources and Media Services0012

311,832 48,611 360,443 Curriculum and Instructional Staff Development0013

- 147,748 147,748 Instructional Leadership0021

- 2,193,274 2,193,274 School Leadership0023

195,055 1,656,651 1,851,706 Guidance, Counseling and Evaluation Services0031

127,979 38,302 166,281 Social Work Services0032

- 303,787 303,787 Health Services0033

141,537 3,717,324 3,858,861 Student (Pupil) Transportation0034

1,387,558 - 1,387,558 Food Services0035

- 576,400 576,400 Extracurricular Activities0036

- 1,671,315 1,671,315 General Administration0041

- 4,872,906 4,872,906 Facilities Maintenance and Operations0051

- 177,806 177,806 Security and Monitoring Services0052

- 464,855 464,855 Data Processing Services0053

18,133 - 18,133 Community Services0061

Capital Outlay: - 2,289,384 2,289,384 Facilities Acquisition and Construction0081

Intergovernmental: - 406,704 406,704 Other Intergovernmental Charges0099

Total Expenditures6030 38,034,272 3,829,528 41,863,800

1200 Net Change in Fund Balances 10,062,405 11,537 10,073,942

0100 Fund Balance - September 1 (Beginning) 35,600,651 281,160 35,881,811

1300 Increase (Decrease) in Fund Balance 15,658 (2,350) 13,308

3000 Fund Balance - August 31 (Ending) $ 45,678,714 $ 290,347 $ 45,969,061

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RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES


10,073,942 $Total Net Change in Fund Balances - Governmental Funds

3,116,146 Current year capital outlay are expenditures in the fund financial statements, but they Current year capital outlay are expenditures in the fund financial statements, but they should be shown as increases in capital assets in the government-wide financial Current year capital outlay are expenditures in the fund financial statements, but they should be shown as increases in capital assets in the government-wide financial statements. The net effect of removing the 2012 capital outlays is to increase net assets.

(2,344,271)Depreciation is not recognized as an expense in governmental funds since it does not Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets.

(66,447)Various other reclassifications and eliminations are necessary to convert from the Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the

Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions. The net effect of these reclassifications and recognitions is to (decrease) net assets.

10,779,370 $ Change in Net Assets of Governmental Activities

16



55

EXHIBIT E-1SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

STATEMENT OF FIDUCIARY NET ASSETSFIDUCIARY FUNDS

AUGUST 31,2012

Agency

Fund

ASSETS

528,275 Cash and Cash Equivalents $

Total Assets 528,275 $

LIABILITIES

528,275 Due to Student Groups $

Total Liabilities 528,275 $

17



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SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED AUGUST 31, 2012 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

South Texas Independent School District (the “District”) is a public educational agency operating under the applicable laws and regulations of the State of Texas. The District prepares its basic financial statements in conformity with generally accepted accounting principles promulgated by the Governmental Accounting Standards Board and other authoritative sources identified in Statement on Auditing Standards No. 69 of the American Institute of Certified Public Accountants; and it complies with the requirements of the appropriate version of Texas Education Agency's Financial Accountability System Resource Guide (the “Resource Guide”) and the requirements of contracts and grants of agencies from which it receives funds. A. REPORTING ENTITY

The Board of School Trustees (“Board”), a twenty-one group, has governance responsibilities over all activities related to public special and secondary school education within the jurisdiction of the South Texas Independent School District. The District has no exclusive jurisdiction but instead recruits students from other districts within Cameron, Hidalgo and Willacy counties. Because members of the Board of Trustees are elected by the public and appointed; have the authority to make decisions, appoint administrators and managers, and significantly influence operations; and have the primary accountability for fiscal matters; the District is not included in any other governmental “reporting entity” as defined by Governmental Accounting Standards Board (“GASB”), Statement No. 14, The Financial Reporting Entity. In evaluating how to define the District, for financial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity was made by applying the criteria set forth in GASB 14. Based upon the application of these criteria, the component unit disclosed below is included in the District’s reporting entity because of the significance of their operational and financial relationship with the District. Since the District receives funding from local, state and federal government sources, it must comply with the requirements of the entities providing those funds.

Component unit included:

South Texas Independent School District Public Facilities Corporation (“PFC”) was formed as an independent separate entity to finance the construction of various school facilities by issuing revenue bonds. The PFC is used to finance the payment of bonds by leasing the school buildings to the District. Enough revenue should be realized from the annual lease proceeds to service the principal and interest on the bonds. The PFC was formed by the District to facilitate the construction of several school buildings. The PFC Board of Directors are also members of the School Board. PFC is included in these financial statements in a blended presentation since the entity has essentially the same Board as the District; it receives all of its revenue from the lease solely from the District and is a mere extension of the District. Financial information on the PFC is available for review at the District’s administrative offices.

The Statement of Net Assets and the Statement of Activities are government-wide financial statements. They report information on the entire District with the interfund activities removed. Governmental activities include programs supported primarily by grants, state foundation funds and other intergovernmental revenues.


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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

The Statement of Net Assets and the Statement of Activities are government-wide financial statements. They report information on the entire District with the interfund activities removed. Governmental activities include programs supported primarily by grants, state foundation funds and other intergovernmental revenues. The Statement of Activities demonstrates how other people or entities that participate in programs the District operates have shared in the payment of the direct costs. The “charges for services” column includes payments made by parties that purchase, use or directly benefit from goods or services provided by a given function or segment of the District. Examples include services provided to student within the District, refunds, and miscellaneous income, etc. The “grants and contributions” column includes amounts paid by organizations outside the District to help meet the operational or capital requirements of a given function. Examples include grants through the Department of Education and Department of Agriculture. If revenue is not program revenue, it is general revenue used to support all of the District’s functions. Interfund activities between governmental funds appear as due to/due froms on the Governmental Fund Balance Sheet and Proprietary Fund Statement of Net Assets and as other resources and other uses on the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balance and on the Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets. All interfund transactions between governmental funds and between governmental funds and internal service funds are eliminated on the government-wide statements. The fund financial statements provide reports on the financial condition and results of operations for three fund categories - governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for District operations, they are not included in the government-wide statements. The District considers some governmental funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. All other revenues and expenses are nonoperating.

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT

PRESENTATION The government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting, as do the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of these funds present net increases and decreases in current assets (i.e., revenues and other financing sources and expenditures and other financing uses). The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on long-term debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The District considers all revenues available if they are collectible within 60 days after year-end.


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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (Continued) Revenues from local sources consist primarily of property taxes. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as deferred revenues until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors sometimes require the District to refund all or part of the unused amount. The Proprietary Fund Types and Fiduciary Funds are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. The District applies all GASB pronouncements as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless these pronouncements conflict or contradict GASB pronouncements. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the fund Statement of Net Assets. The fund equity is segregated into invested in capital assets net of related debt, restricted net assets, and unrestricted net assets.

D. BASIS OF PRESENTATION - FUND ACCOUNTING

The District reports the following major governmental funds:

1. General Fund - is used to account for financial resources used for general operations. This is a budgeted fund and any fund balances are considered resources available for current operations. All revenues and expenditures not required to be accounted for in other funds, are accounted for in this fund.

Additionally, the District reports the following fund type(s): Governmental Funds:

1. Special Revenue Funds - are used to account for resources restricted to, or designated for,

specific purposes by a grantor. Federal and state financial assistance generally is accounted for in a Special Revenue Fund. Normally, unused balances are returned to the grantor at the close of specified project periods.

Fiduciary funds:

1. Agency Funds – are used to account for assets held by the District in a trustee capacity or as an

agent for individual, private organizations, other governments and/or other funds. Agency Funds are custodial in nature (assets and liabilities) and do not involve measurement of results of operations.

E. OTHER ACCOUNTING POLICIES

1. For purposes of the statement of cash flows for proprietary and similar fund-types, the District

considers highly liquid investments to be cash equivalents if they have maturity of three months or less when purchased.

2. Inventories of supplies on the balance sheet are stated at weighted average cost and they include

consumable maintenance, instructional and office items. Supplies are recorded as expenditures when they are consumed.


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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

E. OTHER ACCOUNTING POLICIES (Continued) 3. In the government-wide financial statements, and proprietary fund types in the fund financial

statements, long-term obligations are reported as liabilities in the applicable governmental activities statement of net assets.

4. Capital assets, which include land, buildings, furniture and equipment, are reported in the applicable

governmental activities columns in the government-wide financial statements. Capital assets are defined by the District as assets with an initial, individual cost of equal or more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Buildings, furniture and equipment of the District is depreciated using the straight line method over the following estimated useful lives:

Assets

Years

Building & Improvements 40 Buses 10 Other Vehicles 7 Equipment 5

5. When the District incurs an expense for which it may use either restricted or unrestricted assets, it

uses the restricted assets first unless unrestricted assets will have to be returned because they were not used.

6. When the District incurs an expense for which it may use either restricted or unrestricted assets, it

uses the restricted assets first unless unrestricted assets will have to be returned because they were not used.

7. The Data Control Codes refer to the account code structure prescribed by TEA in the Financial Accountability System Resource Guide. Texas Education Agency requires school districts and service centers to display these codes in the financial statements filed with the agency in order to insure accuracy in building a statewide database for policy development and funding plans.

8. The District is exposed to various risks of loss related to torts, theft, damage or destruction of assets,

errors and omissions, injuries to employees, and natural disasters. The District purchased commercial insurance to cover general liabilities. There were no significant reductions in coverage in the past fiscal year and there were no settlements exceeding insurance coverage for each of the past three fiscal years.

II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

A. EXPLANATION OF DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS

Exhibit C-2 provides the reconciliation between the fund balance for total governmental funds on the governmental fund balance sheet and the net assets for governmental activities as reported in the government-wide statement of net assets.


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II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued)

A. EXPLANATION OF DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS (Continued)

One element of that reconciliation explains that capital assets are not financial resources and are therefore not reported in governmental funds. In addition, long-term liabilities, including capital leases payable, are not due and payable in the current period and are not reported as liabilities in the funds. The details of capital assets and long-term debt at the beginning of the year were as follows:

Capital Assets at the Historic Accumulated Net Value at the Change in Beginning of Year Cost Depreciation Beginning of Year Net Assets Land 3,514,669$ -$ 3,514,669$ Buildings 55,369,125 (17,958,216) 37,410,909 Furniture & Equipment 9,950,988 (5,177,208) 4,773,780 Leased Property 878,870 - 878,870 Construction in Progress 456,450 - 456,450

Change in Net Assets 47,034,678$

Long -term liabilities at the Payable at the

Beginning of Year Beginning of Year Bonds Payable -

Change in Net Assets -

Net Adjustment to Net Assets 47,034,678$

B. EXPLANATION OF DIFFERENCES BETWEEN THE GOVERNMENTAL FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES

Exhibit C-4 provides a reconciliation between the net changes in fund balance as shown on the governmental fund statement of revenues, expenditures and changes in fund balances and the changes in net assets of governmental activities as reported on the government-wide statement of activities. One element of that reconciliation explains that current year capital outlays and debt principal payments are expenditures in the fund financial statements, but should be shown as increases in capital assets and decreases in long-term debt in the government-wide statements. This adjustment affects both the net asset balance and the change in net assets. The details of this adjustment are as follows:

Adjustments to Adjustments in Current Year Capital Outlay Amount Net Assets

Land 64,386$ 64,386$

Buildings & Improvements 186,548 186,548

Furniture & Equipment 826,762 826,762

Construction in Progress 2,038,450 2,038,450

Total Capital Outlay 3,116,146$

Net Adjustment to Net Assets 3,116,146$

Changes in Net Assets


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III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETARY DATA

The official budget was prepared for adoption for the General Fund and the Food Service Fund, which is included within the Special Revenue Funds, which is included within the General Funds. The General Fund and Food Service Fund Budget reports appear in Exhibits G-1 and G-2, respectively. The following procedures are followed in establishing the budgetary data reflected in the general purpose financial statements: The following procedures are followed in establishing the budgetary data reflected in the general-purpose financial statements: 1. Prior to August 20th the District prepares a budget for the next succeeding fiscal year beginning

September 1st. The operating budget includes proposed expenditures and the means of financing them.

2. A meeting of the Board is then called for the purpose of adopting the proposed budget. Public

notice of the meeting must be given at least ten days prior to the meeting. 3. Prior to September 1st, the budget is legally enacted through passage of a resolution by the Board.

Once a budget is approved, it can only be amended at the function and fund level by approval of a majority of the members of the Board. Amendments are presented to the Board at its regular meetings. Each amendment must have Board approval. As required by law, such amendments are made before the fact, are reflected in the official minutes of the Board, and are not made after fiscal year-end. During the year, the budget was amended as necessary. These were no significant budget amendments passed during the 2011-2012 school year.

4. Each budget is controlled by the budget coordinator at the revenue and expenditure function or

object level. Budgeted amounts are as amended by the Board. All budget appropriations lapse at year-end.

5. Encumbrances for goods or purchased services are documented by purchase orders or contracts.

Under Texas law, appropriations lapse at August 31st, and encumbrances outstanding at that time are to be either canceled or appropriately provided for in the subsequent year’s budget. The District had no outstanding end-of-year encumbrances.

IV. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS

A. DEPOSITS AND INVESTMENTS

The funds of the District must be deposited and invested under the terms of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the District’s agent bank in an amount sufficient to protect District funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank’s dollar amount of Federal Deposit Insurance Corporation (“FDIC”) insurance.

At August 31, 2012, the carrying amount of the District’s deposits (cash, and interest bearing savings accounts) was $311,582 and the bank balance was $1,145,110. The District’s cash deposits at August 31, 2012 and the year ended were entirely covered by FDIC insurance or by pledged collateral held by the District’s agent bank in the District’s name.


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IV. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (Continued)

A. DEPOSITS AND INVESTMENTS (Continued)

In addition, the following is disclosed regarding coverage of combined balances on the date of highest deposit:

a. Depository: Frost National Bank

b. The market value of securities pledged as of the date of the highest combined balance on deposit

was $9,262,750.

c. Highest combined balances of cash, saving and time deposit accounts amounted to $6,663,844 and occurred during the month of December, 2011.

d. Total amount of FDIC coverage at the time of the highest combined balance was $250,000.

District Policies and Legal Contractual Provisions Governing Deposits

Custodial Credit Risk for Deposits – State law requires governmental entities to contract with financial institutions in which funds will be deposited to secure on deposit at the end of each business day. The pledged securities must be in the name of the governmental entity and held by the entity or its agent. Since the District complies with this law, it has no custodial risk for deposits.

Foreign Currency Risk for Deposits – The District limits the risk that changes in exchange rates will adversely affect the fair value of a deposit. At year-end, the District was not exposed to foreign currency risk.

District Policies and Legal Contractual Provisions Governing Investments

The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the District to adopt, implement and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the District to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas; (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) Mutual Funds, (8) Investment pools, (9) guaranteed investment contracts, (10) and common trust funds. The Act also requires the District to have independent auditors perform test procedures related to investment practices as provided by the Act. The District is in substantial compliance with the requirements of the Act and with local policies. The District’s temporary investments at August 31, 2012 are shown below:

Fair Less More Investment Type Value Than 1 1 to 5 6 to 10 Than 10 Certificates of Deposit 35,376,558$ 35,376,558$ -$ -$ -$ Lone Star Investment Pool 9,508,457 9,508,457 - - - TexPool 692,658 692,658 - - -

Total 45,577,673$ 45,577,673$ -$ -$ -$

Investment Maturities (in years )


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A. DEPOSITS AND INVESTMENTS (Continued)

Additional policies and contractual provisions governing deposits and investments for the District are specified below:

Credit Risk – In accordance with state law and the District’s investment policy, investments in mutual funds and investment pools must be rated at least AAA or have an equivalent rating, commercial paper must be rated at least A-1, P-1 or have an equivalent rating, and obligations of states, agencies, counties, and cities must be at least A or its equivalent. As of August 31, 2012, the District’s investments in TexPool and Lonestar Investment Pool were rated AAAm by Standard and Poor’s (S&P).

Custodial Risk for Investments – For an investment, this is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. All investments held by third parties were fully collateralized and held in the District’s name.

Concentration of Credit Risk – The investment portfolio is diversified in terms of investment instruments and maturity scheduling to reduce risk of loss resulting from over concentration of assets in specific class of investments, specific maturity or specific issuer. As of August, 31, 2012, the District had 80% of its investments in certificates of deposits. These certificates of deposit were fully covered by eligible pledged securities. The District had 20% of its investments in Texpool and Lonestar Investment Pool rated AAA as noted above.

Interest Rate Risk – In accordance with state law and the District’s investment policy, the District does not purchase any investments greater than five (5) years for its operating funds.

Foreign Currency Risk for Investments – The District limits the risk that changes in exchange rates will adversely affect the fair value of an investment. At year-end, the District was not exposed to foreign currency risk.

The Public Funds Investment Act requires an annual audit of investment practices. Audit procedures in this area conducted as a part of the general purpose financial statements, disclosed that in the areas of investment practices, management reports and establishment of appropriate policies, the District adhered to the requirements of the Act. Additionally, investment practices of the District were in accordance with local policies.

B. PROPERTY TAXES

Property taxes are levied by October 1st in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1st of the year following the year in which imposed. On January 1st of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period and those expected to be collected during a 60 day period after the close of the school fiscal year. The District’s 2012 tax rate was $0.04920 for maintenance, per $100 assessed valuation. The assessed valuation of $44,598,967,735 used to determine the tax rates, represents 100% of the fair market value of the property. Allowances for uncollectible within the General Fund is based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the District is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature.


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IV. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (Continued) C. INTERFUND RECEIVABLES AND PAYABLES

Interfund balances at August 31, 2012 consisted of the following individual fund balances:

Due from Due to Other Funds Other Funds

Special Revenue Fund 62,991$ -$

Total General Fund 62,991 -

General Fund - 62,991

Total Special Revenue Funds - 62,991

Totals 62,991$ 62,991$

General Fund:

Special Revenue Funds:

Balances resulted from the time lag between the dates that interfund goods and services are provided and/or reimbursement expenditures occur.

D. DUE FROM AND TO OTHER GOVERNMENTS

The District participates in a variety of federal and state programs from which it receives grants to partially or fully finance certain activities. In addition, the District receives entitlements from the State through the School Foundation and Per Capita Programs. Amounts due from and to federal and state governments as of August 31, 2012, are summarized below:

Due from Due to Other Gov'ts Other Gov'ts

Texas Education Agency 686,491$ -$ Various School Districts 724,798 - Cameron County 8,288 - Willacy County 6,978 - Hidalgo County 73,415 -

Total General Fund 1,499,970 -

Special Revenue Funds: ESEA Title I, Part A Improving Basic Program 20,589 - ESEA Title I, Part C Migrant 6,688 - IDEA Part B, Formula 41,762 - ESEA Title II, Part A Training and Recruiting 13,622 - National Breakfast and Lunch Program 20,620 - Education Jobs Fund 4,486 - Texas Propane Fleet Pilot Program 78,157 - SSA - III, A English Lang. Acquisition 2,639 -

Total Special Revenue Funds 188,563 -

Total 1,688,533$ -$

General Fund:


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E. CAPITAL ASSET ACTIVITY Capital asset activity for the District for the year ended August 31, 2012, was as follows:

Balance Adjustments/ Balance Governmental Activities: 09/01/11 Additions Retirements Reclassifications 08/31/12

Land 3,514,669$ 64,386$ -$ (213,013)$ 3,366,042$ Buildings & Improvements 55,369,125 186,548 - 1,029,689 56,585,362 Furniture & Equipment 9,950,988 826,762 - - 10,777,750 Leased Property 878,870 - - (878,870) - Construction in Progress 456,450 2,038,450 - 62,194 2,557,094

Totals at Historic Cost 70,170,102 3,116,146 - - 73,286,248

Less Accumulated Depreciation: Buildings & Improvements (17,958,216) (1,617,887) - (544,442) (20,120,545) Furniture & Equipment (5,177,208) (726,384) - 2,885,158 (3,018,434)

Total Accum. Depreciation (23,135,424) (2,344,271) - 2,340,716 (23,138,979)

Governmental Activities Capital Assets, Net 47,034,678$ 771,875$ -$ 2,340,716$ 50,147,269$

Changes During Year

Depreciation expense was charged to governmental functions as follows:

Instruction 1,071,501$ Instructional Resources & Media Services 136,576 School Leadership 100,605 Guidance, Counseling & Evaluation Services 75,331 Student (Pupil) Transportation 410,799 Food Services 109,857 General Administration 16,041 Plant Maintenance and Operations 102,247 Security Monitoring Services 86,587 Data Processing Services 13,259 Facilities Processing Services 221,468

Total Depreciation Expense 2,344,271$

F. DEFERRED REVENUE Deferred revenue at year-end consisted of the following:

General Special Fund Revenue Total

Net tax revenue 3,691,657$ -$ 3,691,657$ Other 3,010 36,265 39,275

Totals 3,694,667$ 36,265$ 3,730,932$


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G. DEFINED PENSION PLAN Plan Description. The District contributes to the Teacher Retirement System of Texas (the “System”), a public employee retirement system. It is a cost-sharing, multi-employer defined pension plan with one exception: all risks and costs are not shared by the District, but are the liability of the State of Texas. The System provides service retirement and disability retirement benefits, and death benefits to plan members and beneficiaries. The System operates primarily under the provisions of the Texas Constitution and Texas Government Code. Title 8, Subtitle C. The Texas legislature has the authority to establish or amend benefit provisions. The System issues a publicly available financial report that includes financial statements and required supplementary information for the District. That report may be obtained by writing the Teacher Retirement System of Texas, 1000 Red River Street, Austin, TX 78701-2698, by calling (800) 223-8778, or by downloading the report from the TRS Internet website, www.trs.state.tx.us, under the TRS Publications heading. Funding Policy. State law provides a state contribution rate of 6.0% and a member contribution rate of 6.4%. In certain instances the reporting district (I.S.D., college, university, or state agency) is required to make all or a portion of the state's 6.0% contribution. Contribution requirements are not actuarially determined but are legally established each biennium pursuant to the following state funding policy: (1) The state constitution requires the legislature to establish a member contribution rate of not less than 6.4% of the member's annual compensation and a state contribution rate of not less than 6.0% and not more than 10.0% of the aggregate annual compensation of all members of the system during that fiscal year; (2) A state statute prohibits benefit improvements or contribution reductions if, as a result of a the particular action, the time required to amortize TRS's unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, the period would be increased by such action. The district’s employees’ contributions to the System for the fiscal periods ending in 2012, 2011 and 2010 were $1,564,609, $1,459,080 and $1,693,272, respectively, and were equal to the required contributions for each year. Other contributions made from federal and private grants and from the District for salaries above the statutory minimum for the fiscal periods ending in 2012, 2011 and 2010 were $181,969, $430,966 and $195,012, respectively, and were equal to the required contributions for each year. Medicare Part D. Federal legislation enacted in January 2006 established prescription drug coverage for Medicare beneficiaries known as Medicare Part D. As a result, this provision allows for the Texas Public School Retired Employee Group Insurance Program (TRS-Care) to receive retiree drug subsidy payments from the federal government to offset pharmacy claims paid by TRS-Care on behalf of plan participants. GASB Statement No. 24 requires recognition of these on-behalf payments in the financial statements. Medicare Part D payments made on-behalf of South Texas ISD participants for the years ended August 31, 2010, 2011, and 2012 were $63,786, $59,857, and $62,974 respectively.

H. RISK MANAGEMENT

On September 1, 2009, the District entered into an interlocal agreement with the Texas Association State Board (TASB) for the purpose of providing the statutory workers’ compensation benefits for employees. The TASB Board establishes an experience rating formula for each Fund member and a specific contribution amount. The District’s contribution amount for the year was $243,110. This contribution to the plan was accrued throughout the year and paid in one installment by the District. The District assumes no joint or several liabilities beyond the annual contribution amount. However, should the District continue in this Plan, it would be subject to annual rate contribution adjustments, which would be based on claims experience.


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I. LITIGATION

The District is a party to various litigation under which it may be required to pay certain monies upon decision of the courts. The District's attorney reports various possible contingent liabilities based on the amount of damages alleged in various cases. However, it is the opinion of the District's attorney that these cases are covered by liability insurance. In the opinion of the District's management, the outcome of these lawsuits will not have a material adverse effect on the accompanying financial statements and, accordingly, no provisions or losses have been recorded.

J. COMMITMENTS AND CONTINGENCIES

The District participates in grant programs, which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the District has not compiled with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable may be impaired. In the opinion of the District, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying combined financial statements for such contingencies.

K. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and/or disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

L. MAINTENANCE OF EFFORT The amount paid by the District for employee health care premiums is as follows:

2,346,274$

Life insurance 28,740$ Dental insurance 86,995 Vision insurance -

Long-term disability 25,866 Short-term disability -

Alternate plans -

COBRA expense -

Retiree expense - 141,601

2,204,673$

b. Subtract any non-medical expenditures:

c. 2011-2012 Maintenance of Effort:

a. Total District premium paid for health care for 2011-2012:

M. INCREASE (DECREASE) IN FUND BALANCES

Adjustments to the fund balance during the 2011-2012 school year consisted of an adjustment to liability accounts. The effect was an increase in fund balance in the amount of $13,308.

The beginning fund balance on the Statement of Activities, Exhibit B-1, was adjusted by $2,340,716 for adjustments of accumulated depreciation for capital assets.


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N. FUND BALANCE REPORTING

The District recognizes the importance of maintaining its financial integrity; therefore, it has developed this policy to support its mission and its goals and objectives. The five classifications of fund balance of the governmental types are Non-spendable, Restricted, Committed, Assigned, and Unassigned. Committed fund balance shall mean that portion of the fund balance that is constrained to a specific purpose by the Board. The Board’s commitment may be modified or rescinded by a majority vote in a scheduled meeting. Board commitments cannot exceed the amount of fund balance that is greater than the sum of non-spendable and restricted fund balances since that practice would commit funds that the District does not have. Board commitments must occur before the end of the reporting period with amounts to be determined subsequently. Assigned fund balance shall mean that portion of the fund balance that is spendable or available for appropriation but has been tentatively earmarked for some specific purpose by the Board, the Superintendent, or Superintendent’s designee. The Board delegates by formal action in a scheduled meeting specific persons or groups to assign certain fund balances. The Board may modify or rescind its delegation of authority by the same action. The authority to make assignments shall be in effect until modified or rescinded by the Board by majority vote in a scheduled meeting. The order of spending and availability shall be to reduce funds from the listed areas in the following order: restricted, committed, assigned, and unassigned. The District manages several Special Revenue Funds of which the following have a fund balance at August 31, 2012:

State Technology Allotment – to account on a project basis for funds awarded to the school district to

purchase technological software or equipment that contributes to student learning, or to pay for training for educational personnel involved in the use of these materials. The State will not continue to fund this program in the future. The fund balance of $7,512 will be used to purchase technology equipment and will be consumed in Fiscal Year 2013.


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BUDGETARY COMPARISON SCHEDULES


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EXHIBIT G-1SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL - GENERAL FUND


Control

Data

CodesOriginal Final Note III A)

Basis - See

(GAAP

(Negative)

Positive or

Final BudgetVariance WithActual Amounts

Budgeted Amounts

REVENUES:22,910,029 21,506,000 23,325,371 415,342 Total Local and Intermediate Sources $ $ $ $5700

25,211,345 20,634,000 24,731,409 (479,936)State Program Revenues5800

49,056 49,000 39,897 (9,159)Federal Program Revenues5900

Total Revenues5020 42,189,000 48,170,430 48,096,677 (73,753)

EXPENDITURES:

Current:19,601,200 19,601,200 18,017,696 1,583,504 Instruction0011

1,481,350 1,481,350 1,451,509 29,841 Instructional Resources and Media Services0012

79,500 79,500 48,611 30,889 Curriculum and Instructional Staff Development0013

280,600 280,600 147,748 132,852 Instructional Leadership0021

2,237,950 2,237,950 2,193,274 44,676 School Leadership0023

1,864,000 1,864,000 1,656,651 207,349 Guidance, Counseling and Evaluation Services0031

47,900 47,900 38,302 9,598 Social Work Services0032

328,400 328,400 303,787 24,613 Health Services0033

4,175,250 3,905,250 3,717,324 457,926 Student (Pupil) Transportation0034

635,350 635,350 576,400 58,950 Extracurricular Activities0036

1,907,100 1,857,100 1,671,315 235,785 General Administration0041

4,998,600 4,998,600 4,872,906 125,694 Facilities Maintenance and Operations0051

202,500 202,500 177,806 24,694 Security and Monitoring Services0052

645,300 645,300 464,855 180,445 Data Processing Services0053

Capital Outlay:2,380,000 2,250,000 2,289,384 90,616 Facilities Acquisition and Construction0081

Intergovernmental:25,000 25,000 - 25,000 Payments to Juvenile Justice Alternative Ed. Prg.0095

440,000 440,000 406,704 33,296 Other Intergovernmental Charges0099

Total Expenditures6030 40,880,000 41,330,000 38,034,272 3,295,728

1200 Net Change in Fund Balances 1,309,000 6,840,430 10,062,405 3,221,975

0100 Fund Balance - September 1 (Beginning) 35,600,651 35,600,651 35,600,651 -

1300 Increase (Decrease) in Fund Balance - - 15,658 15,658

3000 Fund Balance - August 31 (Ending) $ 36,909,651 $ 42,441,081 $ 45,678,714 $ 3,237,633

31


71

EXHIBIT G-2SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL - CHILD NUTRITION PROGRAM


Control

Data

CodesOriginal Final Note III A)

Basis - See

(GAAP

(Negative)

Positive or

Final BudgetVariance WithActual Amounts

Budgeted Amounts

REVENUES:415,950 415,950 460,289 44,339 Total Local and Intermediate Sources $ $ $ $5700

7,000 7,000 7,686 686 State Program Revenues5800

981,000 981,000 931,120 (49,880)Federal Program Revenues5900

Total Revenues5020 1,403,950 1,403,950 1,399,095 (4,855)

EXPENDITURES:1,465,453 1,403,950 1,387,558 77,895 Food Services0035

Total Expenditures6030 1,403,950 1,465,453 1,387,558 77,895

1200 Net Change in Fund Balances - (61,503) 11,537 73,040

0100 Fund Balance - September 1 (Beginning) 271,298 271,298 271,298 -

3000 Fund Balance - August 31 (Ending) $ 271,298 $ 209,795 $ 282,835 $ 73,040

32


72

COMBINING STATEMENTS


73


COMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS

AUGUST 31, 2012

Control

Data

Codes

ESEA I, A

Improving

Basic Program Migrant

Part C

ESEA Title I

Formula

IDEA - Part B

Lunch Program

Breakfast and

National

211 212 224 240

ASSETS

- - - 355,686 $ $ $ $1110 Cash and Cash Equivalents

6,688 20,589 41,762 20,620 1240 Receivables from Other Governments

- - - 11,817 1300 Inventories

Total Assets1000 20,589 6,688 41,762 388,123 $ $ $ $


Liabilities:

30 - - 67,172 $ $ $ $2110 Accounts Payable

- 9,805 14,195 26,299 2160 Accrued Wages Payable

6,658 10,784 27,567 - 2170 Due to Other Funds

- - - 11,817 2300 Deferred Revenues

Total Liabilities2000 20,589 6,688 41,762 105,288

Fund Balances:


- - - 282,835 3450 Federal or State Funds Grant Restriction

Total Fund Balances3000 - - - 282,835

4000 Total Liabilities and Fund Balances 20,589 6,688 41,762 388,123 $ $ $ $

33


74

EXHIBIT H-1 (Cont'd)

Summer

Feeding

Basic Grant

Technical -

Career and

Recruiting

Training and

ESEA II,A

Formula

ARRA

IDEA, Pt. B Education

Jobs

Fund

Other Federal

Special

Revenue Funds

Advanced

Placement

Incentives

SSA - III, A

English Lang.

Acquisition

242 244 255 283 287 289 350 397

Program

- - (78,157) - - - (2,639) 24,313 $ $ $ $ $ $ $ $

4,486 - 78,157 - - 13,622 2,639 -

- - - - - - - -

- - 13,622 - 4,486 - - 24,313 $ $ $ $ $ $ $ $

- - - - - 126 - - $ $ $ $ $ $ $ $

- - - - - - - -

4,486 - - - - 13,496 - -

- - - - - - - 24,313

- - 13,622 - 4,486 - - 24,313

- - - - - - - -

- - - - - - - -

- - 13,622 - 4,486 - - 24,313 $ $ $ $ $ $ $ $

34


75


COMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS

AUGUST 31, 2012

Control

Data

Codes

State

Textbook

Fund Allotment

Technology

Revenue Funds

Special

Other State

Grant

of Medicine

Nat'l Library

410 411 429 481

ASSETS

7,512 - - 135 Cash and Cash Equivalents $ $ $ $1110

- - - - Receivables from Other Governments1240

- - - - Inventories1300

Total Assets1000 - 7,512 - 135 $ $ $ $


Liabilities:

- - - - Accounts Payable $ $ $ $2110

- - - - Accrued Wages Payable2160

- - - - Due to Other Funds2170

- - - 135 Deferred Revenues2300

Total Liabilities2000 - - - 135

Fund Balances:


7,512 - - - Federal or State Funds Grant Restriction3450

Total Fund Balances3000 - 7,512 - -

4000 Total Liabilities and Fund Balances - 7,512 - 135 $ $ $ $

35


76

EXHIBIT H-1

Strategies

Funds

Governmental

Nonmajor

483 Total

Grant

- 306,850 $ $

- 188,563

- 11,817

- 507,230 $ $

- 67,328 $ $

- 50,299

- 62,991

- 36,265

- 216,883

- 290,347

- 290,347

- 507,230 $ $

36


77


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES INFUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS


Control

Data

Codes

ESEA I, A

Improving

Basic Program Migrant

Part C

ESEA Title I

Formula

IDEA - Part B

Lunch Program

Breakfast and

National

211 212 224 240

REVENUES: - - - 460,289 Total Local and Intermediate Sources5700 $ $ $ $ - - - 7,686 State Program Revenues5800

66,311 1,113,543 620,886 931,120 Federal Program Revenues5900

Total Revenues5020 1,113,543 66,311 620,886 1,399,095

EXPENDITURES:

Current:66,311 891,917 460,537 - Instruction0011

- - - - Instructional Resources and Media Services0012 - 75,514 - - Curriculum and Instructional Staff Development0013 - - 160,349 - Guidance, Counseling and Evaluation Services0031 - 127,979 - - Social Work Services0032 - - - - Student (Pupil) Transportation0034 - - - 1,387,558 Food Services0035 - 18,133 - - Community Services0061

Total Expenditures6030 1,113,543 66,311 620,886 1,387,558

1200 Net Change in Fund Balance - - - 11,537

0100 Fund Balance - September 1 (Beginning) - - - 271,298

1300 Increase (Decrease) in Fund Balance -

3000 Fund Balance - August 31 (Ending)

- - -

$ - $ - $ - $ 282,835

37


78

EXHIBIT H-2 (Cont'd)

Summer

Feeding

Program Basic Grant

Technical -

Career and

RecruitingTraining and

ESEA II,A

Formula

ARRA

IDEA, Pt. B

242 244 255 283 397

Advanced

Placement

Incentives

350

SSA - III, A

English Lang.

Acquisition

289

Other Federal

Special

Revenue Funds

287

Education

Jobs

Fund

- - - - - - - - $ $ $ $ $ $ $ $ - - - - 652 2,639 - -

41,292 - 235,666 38,523 - - 78,157 13,570

- 41,292 235,666 38,523 652 2,639 78,157 13,570

41,292 - - 3,817 - 2,639 - 13,570 - - - - - - - - - - 235,666 - 652 - - - - - - 34,706 - - - - - - - - - - - - - - - - - - 78,157 -

- - - - - - - - - - - - - - - -

- 41,292 235,666 38,523 652 2,639 78,157 13,570

- - - - - - - -

- - - - - - - -

- - - - - - - -

$ - $ - $ - $ - $ - $ - $ - $ -

38


79


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES INFUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS


Control

Data

Codes

State

Textbook

Fund Allotment

Technology

Revenue Funds

Special

Other State

Grant

of Medicine

Nat'l Library

410 411 429 481

REVENUES: - - - 94,851 Total Local and Intermediate Sources5700 $ $ $ $ - - 63,380 - State Program Revenues5800 - - - - Federal Program Revenues5900

Total Revenues5020 - - 63,380 94,851

EXPENDITURES:

Current: - - - - Instruction0011 - - - 94,851 Instructional Resources and Media Services0012 - - - - Curriculum and Instructional Staff Development0013 - - - - Guidance, Counseling and Evaluation Services0031 - - - - Social Work Services0032 - - 63,380 - Student (Pupil) Transportation0034 - - - - Food Services0035 - - - - Community Services0061

Total Expenditures6030 - - 63,380 94,851

1200 Net Change in Fund Balance - - - -

0100 Fund Balance - September 1 (Beginning) - 9,862 - -

1300 Increase (Decrease) in Fund Balance -

3000 Fund Balance - August 31 (Ending)

(2,350) - -

$ - $ 7,512 $ - $ -

39


80

EXHIBIT H-2

Strategies

Grant Funds

Governmental

Nonmajor

483 Total

627,640 72,500 $ $74,357 -

3,139,068 -

72,500 3,841,065

1,552,583 72,500 94,851 -

311,832 - 195,055 - 127,979 - 141,537 -

1,387,558 - 18,133 -

72,500 3,829,528

- 11,537

- 281,160

- (2,350)

290,347 $ - $

40


81

EXHIBIT H-3


STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

AGENCY FUND


BALANCE

SEPTEMBER 1

2011 ADDITIONS

DEDUCTIONS

2012

AUGUST 31

BALANCE

STUDENT ACTIVITY FUNDSAssets:

806,529 465,291 743,545 Cash and Temporary Investments 528,275 $ $ $ $

Liabilities:806,529 465,291 743,545 Due to Student Groups 528,275 $ $ $ $

TOTAL AGENCY FUNDSAssets:

806,529 465,291 743,545 Cash and Temporary Investments 528,275 $ $ $ $

Liabilities:806,529 465,291 743,545 Due to Student Groups 528,275 $ $ $ $

41


82

REQUIRED SUPPLEMENTARY SCHEDULES


83


SCHEDULE OF DELINQUENT TAXES RECEIVABLE

FISCAL YEAR ENDED AUGUST 31, 2012

Last 10 Years Ended

August 31

Tax Rates

Debt ServiceMaintenance Tax Purposes

Value for School

Assessed/Appraised

(1) (2) (3)

VariousVariousand prior years2003 $ Various

0.0000000.039200 26,848,912,853 2004

0.0000000.039200 30,097,163,050 2005

0.0000000.039200 32,522,770,968 2006

0.0000000.039200 36,038,520,908 2007

0.0000000.049200 40,603,060,838 2008

0.0000000.049200 44,825,923,627 2009

0.0000000.049200 44,296,074,153 2010

0.0000000.049200 44,826,248,880 2011

0.0000000.049200 44,598,967,735 (School year under audit)2012

1000 TOTALS

42


84

EXHIBIT J-1

9/1/2011

Balance

Beginning

Total Levy

Year's

Current

(20)(10) (50)

Ending

Balance

8/31/2012

(40)

Entire

Year's

Adjustments

(31)

Maintenance

Collections

(32)

Debt Service

Collections

- 506,298 31,460 (40,080)$ $ $ $ $ 434,758 $ -

- 99,745 9,761 (2,247) 87,737 -

- 124,601 13,915 (2,627) 108,059 -

- 161,702 23,379 (2,876) 135,447 -

- 197,469 35,162 (1,914) 160,393 -

- 365,094 79,229 (11,957) 273,908 -

- 515,658 135,901 3,497 383,254 -

- 796,955 263,419 (1,557) 531,979 -

- 1,408,149 671,579 (5,324) 731,246 -

21,952,311 - 20,723,915 26,664 1,255,060 -

$ 4,101,841 $ (38,421)$ 21,987,720 $ 21,952,311 $ 4,175,671 $ -

43


85

EXHIBIT J-2SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

SCHEDULE OF EXPENDITURES FOR COMPUTATIONS OF INDIRECT COST FOR 2013-2014GENERAL AND SPECIAL REVENUE FUNDS

AUGUST 31, 2012

FUNCTION 41 AND RELATED FUNCTION 53 - GENERAL ADMINISTRATION, 99 - APPRAISAL DISTRICT COST

Account

Number Board

School

(702)

Collections

Tax

(703)

Office

Supt's

(701)

21 3 4

(750)

Indirect

Cost

5

(720)

Direct

Cost

6

(other)

Miscellaneous

7

Total

Account

Name

-66,746 279,867 605,203 111,238 - 1,063,054$ $ $ $ $ $ $PAYROLL COSTS611X-6146

-- - 34,517 - - 34,517Leave for Separating

Employees in Fn 41 & 53

6149

-- - - - - -Leave - Separating Employees

not in 41 & 53

6149

-- 61,049 - - - 61,049Legal Services6211

-- - 23,000 - - 23,000Audit Services6212

406,704- - - - - 406,704Tax Appraisal/Collection -

Appraisal in Fn 99

6213

-- - - - - -Lobbying6214

-- 74,109 29,957 4,384 - 108,450Other Professional Services621X

-- - - - - -Tuition and Transfer Payments6220

-- 2,323 71,354 - - 73,677Education Service Centers6230

-- - - 931 - 931Contr. Maint. and Repair6240

-- - - - - -Utilities6250

-550 11,424 6,766 6,158 - 24,898Rentals6260

-- - - - - -Miscellaneous Contr.6290

-- 337 - - - 337Textbooks and Reading6320

-- - - - - -Testing Materials6330

-6,275 60,644 34,539 22,693 - 124,151Other Supplies Materials63XX

-90,005 11,545 13,712 6,303 - 121,565Travel, Subsistence, Stipends6410

-6,068 - - - - 6,068Ins. and Bonding Costs6420

-- - - - - -Election Costs6430

-675 47,241 47,559 918 - 96,393Miscellaneous Operating6490

-- - - - - -Debt Service6500

-- - - - - -Capital Outlay6600

$TOTAL6000 170,319 406,704 548,539 866,607 152,625 - 2,144,794$ $ $ $ $ $

Total expenditures/expenses for General and Special Revenue Funds: 41,863,800

LESS: Deductions of Unallowable Costs

Total Capital Outlay (6600) 3,116,146(10)

Total Debt & Lease(6500)

Plant Maintenance (Function 51, 6100-6400)

Food (Function 35, 6341 and 6499)

Stipends (6413)

Column 4 (above) - Total Indirect Cost

SubTotal:

Net Allowed Direct Cost

Total Cost of Buildings before Depreciation (1520)

Historical Cost of Building over 50 years old

Amount of Federal Money in Building Cost (Net of #16)

Total Cost of Furniture & Equipment before Depreciation (1530 & 1540)

(8) NOTE A:

-(11)

(12) 4,872,906

(13) 459,107

(14) -

866,607

9,314,766

32,549,034

56,585,362(15)

(16) -

(17) -

(18) 10,777,750

$71,354 in Function 53 expenditures are included in this report on administrative costs.

$

$

$

$

$

$

$

(9)

Historical Cost of Furniture & Equipment over 16 years old (19) $ -

Amount of Federal Money in Furniture & Equipment (Net of #19) (20) $ -

FISCAL YEAR

CUMULATIVE

$406,704 in Function 99 expenditures for appraisal district costs are included in this report on administrative costs.

44


86

EXHIBIT J-3SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT

FUND BALANCE AND CASH FLOW CALCULATION WORKSHEET

GENERAL FUND AS OF AUGUST 31, 2012

UNAUDITED

Total General Fund Balance as of 8/31/12 (Exhibit C-1 object 3000 for the General Fund Only)

45,678,714 1 $

Total Non-Spendable Fund Balance (from Exhibit C-1 - for the General Fund Only)

2 5,386 $

Total Restricted Fund Balance (from Exhibit C-1 - for the General Fund Only)

3 -

Total Committed Fund Balance (from Exhibit C-1 - for the General Fund Only)

4 30,820,000

Total Assigned Fund Balance (from Exhibit C-1 - for the General Fund Only)

5 -

6 Estimated amount needed to cover fall cash flow deficits in the General Fund (Net of borrowed funds and funds representing deferred revenues.)

1,873,960

7 Estimate of two month's average cash disbursements during the fiscal year. 10,350,000

8

13Excess (Deficit) Unassigned Fund Balance (Line 1 minus Line 12) 2,629,368

The District will use the fund balance to initiate more District-wide capital outlay such as construction and various other projects.

Explanation of need for and/or projected use of net positive Unassigned General Fund Fund Balance:

$

12

9

10

11

Estimate of delayed payments from state sources (58xx). -

Estimate of underpayment from state sources equal to variance between Legislative Payment Estimate (LPE) and District Planning Estimate (DPE) or District's calculated earned state aid amount.

-

Estimate of delayed payments from federal sources (59xx) -

Estimate of expenditures to be reimbursed to General Fund from Capital Projects Fund (uses of General Fund cash after bond referendum and prior to issuance of bonds)

-

Optimum Fund Balance and Cash Flow (Lines 2+3+4+5+6+7+8+9+10+11) 43,049,346

45


87

FEDERAL AWARDS SECTION


88

765 EAST 7TH STREET BROWNSVILLE, TX 78520 (956) 544-7778 FAX: (956) 544-8465 www.pbhcpa.com AFFILIATE OFFICES: McALLEN, TX (956) 682-2853 HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460


REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Board of Trustees South Texas Independent School District Mercedes, Texas

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of South Texas Independent School District (the “District”) as of and for the year ended August 31, 2012, which collectively comprise the District’s basic financial statements and have issued our report thereon dated November 6, 2012. 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 in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the District is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the District’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of South Texas Independent School District’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined previously. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.


89

47

We noted certain other matters that we reported to management of the District in a separate letter dated November 6, 2012. This report is intended for the information and use of the Board of Trustees, management, the Texas Education Agency, federal awarding agencies and pass-through entities, and is not intended to be used and should not be used by anyone other than these specified parties.



90

765 EAST 7TH STREET BROWNSVILLE, TX 78520 (956) 544-7778 FAX: (956) 544-8465 www.pbhcpa.com AFFILIATE OFFICES: McALLEN, TX (956) 682-2853 HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460


INDEPENDENT AUDITOR’S 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

Board of Trustees South Texas Independent School District Mercedes, Texas Compliance We have audited the compliance of South Texas Independent School District (the “District”) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District’s major federal programs for the year ended August 31, 2012. The District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the District’s management. Our responsibility is to express an opinion on the District’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District’s compliance with those requirements. In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect of its are major federal programs for the year ended August 31, 2012. Internal Control Over Compliance Management of the District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the District’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance.


91

49

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses as defined above. This report is intended for the information and use of the Board of Trustees, management, the Texas Education Agency, federal awarding agencies and pass-through entities and is not intended to be used and should not be used by anyone other than these specified parties.



92

50

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS


I. Summary of the Auditors' Results: The type of auditors' report on financial statements: Unqualified Regarding internal control over financial reporting: a. Material weakness(es) identified: None b. Significant deficiency(ies) identified that are not considered to be material weaknesses: None reported c. Noncompliance which is material to the financial statements: None d. Regarding internal control over major programs: Material weakness(es) identified: None reported Significant deficiency(ies) identified that are not considered to be material weaknesses: None

e. Type of auditors' report on compliance with major programs: Unqualified f. Any audit findings which are required to be reported in accordance with OMB Circular A-133, Sec. 510(a): No g. Major programs are as follows: Child Nutrition Cluster CFDA 10.553/10.555/10.559 h. Dollar threshold used to distinguish between Type A and Type B programs: $300,000

i. Low risk auditee: Yes

II. Findings Relating to the Financial Statements Which Are Required To Be Reported in Accordance with Generally Accepted Government Auditing Standards.

None reported

III. Findings and Questioned Costs for Federal Awards.

None reported


93

51

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


Not Applicable.


94

52

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT CORRECTIVE ACTION PLAN


Not applicable.


95

EXHIBIT K-1

(1) (2) (3) (4)

FEDERAL GRANTOR/ Federal Pass-ThroughPASS-THROUGH GRANTOR/ CFDA Entity Identifying FederalPROGRAM or CLUSTER TITLE Number Number Expenditures

U.S. DEPARTMENT OF EDUCATION

Passed Through State Department of Education:

ESEA Title 1, Part A - Improving Basic Programs * 84.010A 10610101031916 1,113,543$

ESEA Title 1, Part C, - Migratory Children 84.011A 11615001031916 66,311

IDEA - Part B, Formula * 84.027A 106600010319166000 620,886

IDEA - Part B, Formula - ARRA * 84.391A 10554001031916 38,523

Carl D. Perkins - Basic Grant 84.048A 11420006031916 41,292

ESEA Title II, Part A - Teacher & Principal Training 84.367A 08685001031916 235,666

Education Jobs Fund 84.410A 11550101031916 13,570

Total Passed Through State Dept. of Education 2,129,791

TOTAL U.S. DEPARTMENT OF EDUCATION 2,129,791

U.S. DEPARTMENT OF ENERGY

Passed Through Railroad Commission of Texas

Texas Propane Fleet Pilot Program - ARRA 81.086 DE-EE0002564 78,157

TOTAL U.S. DEPARTMENT OF ENERGY 78,157

U.S. DEPARTMENT OF AGRICULTURE

Passed Through State Department of Education:

School Breakfast Program * 10.553 71401101 222,146

National School Lunch Program - Cash Assistance * 10.555 71301101 645,341

National School Lunch Program - Non-Cash Assistance * 10.555 031916 63,633

Summer Feeding Program * 10.559 031916 -

TOTAL U.S. DEPARTMENT OF AGRICULTURE 931,120

TOTAL EXPENDITURES OF FEDERAL AWARDS 3,139,068$

* Indicates clustered program under OMB Circular A-133 Compliance Supplement

The accompanying notes are an integral part of this schedule.

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICTSCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


53


96

54

SOUTH TEXAS INDEPENDENT SCHOOL DISTRICT NOTES ON ACCOUNTING POLICIES FOR FEDERAL AWARDS

YEAR ENDED AUGUST 31, 2012

1. For all Federal programs, the District uses the fund types specified in Texas Education Agency's Financial Accountability System Resource Guide. Special revenue funds are used to account for resources restricted to, or designated for, specific purposes by a grantor. Federal and state financial assistance generally is accounted for in a Special Revenue Fund.

2. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus.

The Governmental Fund types and Trust Funds are accounted for using a current financial resources measurement focus. All Federal grant funds were accounted for in a Special Revenue Fund which is a Governmental Fund type. With this measurement focus, only current assets and current liabilities and the fund balance are included on the balance sheet. Operating statements of these funds present increases and decreases in net current assets.

The modified accrual basis of accounting is used for the Governmental Fund types, the Trust Funds and Agency Funds. This basis of accounting recognizes revenues in the accounting period in which they become susceptible to accrual, i.e., both measurable and available, and expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest on Long-Term Debt, which is recognized when due, and certain compensated absences and claims and judgments, which are recognized when the obligations are expected to be liquidated with expendable available financial resources.

Federal grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant, and, accordingly, when such funds are received, they are recorded as deferred revenues until earned.

3. The period of availability for federal grant funds for the purpose of liquidation of outstanding obligations made

on or before the ending date of the federal project period extended 30 days beyond the federal project period ending date, in accordance with provisions in Section H, Period of Availability of Federal Funds, Part 3, OMB Circular A-133 Compliance Statement - Provisional 6/97.


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SCHOOLS FIRST QUESTIONNAIRE

South Texas Independent School District Fiscal Year 2012

Were there any disclosures in the Annual Financial Report and/or other sources of information concerning default on bonded indebtedness obligations?

NoSF2

Did the district receive a clean audit? - Was there an unqualified opinion in the Annual Financial Report?

YesSF4

Did the Annual Financial Report disclose any instances of material weaknesses in internal controls?

NoSF5

Was there any disclosure in the Annual Financial Report of material noncompliance? NoSF9

Total accumulated accretion on capital appreciation bonds included in government-wide financial statements at fiscal year end.

0SF10


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