Audit Wrap Up & PresentationNew Hanover County Board of Education

December 3, 2013

Cherry Bekaert LLP2626 Glenwood Avenue | Suite 200 | Raleigh, NC 27608919.782.1040 | www.cbh.com

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Table of Contents

1 Overview

2 Audit Areas of Focus

3 Results Financial Statements OMB A-133 Audit State Single Audit

4 Required Communications

5 Accounting Measurements & Metrics

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OverviewAudit of Financial Statements

We have completed our audit of the financial statements of the Board for the year ended June 30, 2013.

Our audit was conducted in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. This audit of the financial statements does not relieve management or those charged with governance of their responsibilities.

We are responsible for forming and expressing an opinion about whether the financial statements that have been prepared by management with the oversight of those charged with governance are presented fairly, in all material respects, in conformity with generally accepted accounting principles.

The objective of our audit was to obtain reasonable - not absolute - assurance about whether the financial statements are free from material misstatements. The scope of the work performed was substantially the same as that described to you in our engagement letter.

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Overview (continued)Internal Control Over Financial Reporting

In accordance with Government Auditing Standards, we have also issued our report on our consideration of the Board’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of the report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.

Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.

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Overview (continued)Internal Control Over Compliance

In accordance with OMB Circular A-133, Audits of States, Local Governments, and Non-Profits, and the State Single Audit Implementation Act we have also issued our report on our consideration of the Board’s compliance with requirements of laws, regulations, contracts and federal and State grants that could have a direct and material effect on the determination of the financial statement amounts. The purpose of the report is to describe the scope of our testing over compliance and the results of that testing, and not to provide an opinion on the internal control over compliance.

Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.

All records and information requested by Cherry Bekaert LLP were freely available for our inspection.

Management and other personnel provided full cooperation.

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Audit Areas of FocusPrimary Area of Focus Procedures Performed

Compliance with new GAAP (GASB) regulations

Discussed with management and evaluated new accounting and reporting requirements to determine the extent these pronouncements affect the Board. GASB statements No. 63 & 65 were implemented in the current year.

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

Receivables and Revenue

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

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

Accounts Payable and Expenses

Search for unrecorded liabilities was performed to assess the reasonableness of accounts payable at 6/30/13.

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

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Audit Areas of Focus (continued)Primary Area of Focus Procedures Performed

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

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

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

Management's Judgments and Accounting Estimates

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

• Allowance for doubtful accounts• Depreciation expense• Potential charter school liability

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Results on Financial StatementsCategory Definition

Opinion Unmodified

Internal Control No significant deficiencies or material weaknesses noted.

Statutory Compliance No instances of noncompliance noted.

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Results on OMB A-133 AuditCategory Definition

Opinion Unmodified

Internal Control No significant deficiencies or material weaknesses noted.

Statutory Compliance No instances of noncompliance noted.

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Results on State Single AuditCategory Definition

Opinion Unmodified

Internal Control No significant deficiencies or material weaknesses noted.

Statutory Compliance One instance of nonmaterial noncompliance noted related to special tests & provisions.

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Required CommunicationsMatters Required to be Reported to Those Charged with Governance

Requirement Discussion Points

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

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

Critical accounting policies and practices

Please refer to Primary Areas of Focus in section two.

Adoption of a change in accounting principle

Board adopted GASB 63 and GASB 65 in the current year, which resulted in changes to the financial statement presentation. There were no other significant changes in accounting principles where the application of alternative generally accepted accounting principles, including alternative methods of applying an accounting principle, would have a material effect on the Board’s financial statements.

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

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

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

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

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

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

Requirement Discussion Points

Consultations with other accountants

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

Major issues discussed with management prior to retention

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

Significant issues discussed with management

Please refer to the Results of Our Audit in section two.

Significant difficulties encountered during the audit

There were no significant difficulties encountered during the audit.

Representations requested from management

We have received a management representation letter signed by management.

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

The Clarity Standards were required to be implemented in the current year. Impact of these standards was a change in the wording of the auditors’ report and some additional consideration relating to the Board being a group audit. There were no other issues arising from the audit that we consider significant and relevant to those charged with governance.

Material alternative accounting treatments discussed with management

There was no discussion with management concerning alternative accounting treatments.

Accounting Measurements & Metrics

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Statement of Net Position

Governmental and Business-Type Activities:

Total assets decreased by approximately $3.5m or 1.2%. The most significant changes were:• Capital assets decreased by approximately $6.8m due to the reduction of capital spending and an increase

in depreciation expense.• Due from other governments increased by approximately $1.5m due mainly to Qualified School Construction

Bonds and Lottery amounts receivable at year end from New Hanover County.

Governmental and Business-Type Activities:

Total liabilities and deferred inflows of resources increased by approximately $3.6m or 18.9%. The most significant change was:• Long-term liabilities due in more than one year increased by approximately $3.6m as there was less usage

of annual leave partially due to the five bonus leave days provided to qualifying employees.

Accounting Measurements & Metrics (continued)

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Statement of Activities

Governmental Activities:

Total revenues increased approximately $5.8m or 2.7%. The most significant changes were:• $4.0m increase due to additional State Public Schools Fund revenue.• $1.2m increase due to additional Race-to-the-Top revenue .• $832k increase due to additional IDEA grant revenue.Total expenses increased by approximately $11.6m or 5.3%. The most significant changes were:• $3.8m increase in State Public School Fund payroll and related expenses due to funding positions that have

been ARRA funded in previous years.• $1.2m increase in Race-to-the-Top expenses due to technology enhancement projects.• $2.0m increase in General Fund mainly due to increased payroll and related expenses to funding positions

that have been ARRA funded in previous years.• $960k increase related to increased debt service on installment purchases.• $498k increase related to the NC-Prekindergarten program.

Business-Type Activities:

Total revenues increased by $335k or 2.9%. The most significant change was: • $475k increase in Federal Reimbursements due to additional service requirements of Child Nutrition

Services.Total expenses increased by approximately $388k or 3.3%. The most significant changes were:• $183k increase in food costs of due to additional service requirements of Child Nutrition Services.• $260k increase in salaries and fringe benefits due to increased service and increased employment costs.

Accounting Measurements & Metrics (continued)

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ASSETS- General Fund (Modified Accrual Basis) (thousands)

$29,313

$269

$50 $1,204 $360

2013Cash and in-vestmentsDue from other governmentsAccounts re-ceivableInventoriesPrepaids

$27,941

$150 $22 $914

$299

2012Cash and in-vestmentsDue from other governmentsAccounts re-ceivableInventoriesPrepaids

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

$3,061

$28,136

2013

Liabilities

Fund balance

$3,243

$26,081

2012

Liabilities

Fund balance

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Accounting Measurements & Metrics (continued)

FUND BALANCE- General Fund (Modified Accrual Basis) (thousands)

$1,565 $710

$7,922

$17,939

2013

NonspendableRestrictedAssignedUnassigned

$1,212 $172

$3,45

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$21,2

43

2012

NonspendableRestrictedAssignedUnassigned

Accounting Measurements & Metrics (continued)

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REVENUES- General Fund (Modified Accrual Basis) (thousands)

$61,437

$9

$2,434 2013

New Hanover County

U.S. Government

Other local revenues

$61,808

$8 $2,380

2012

New Hanover County

U.S. Government

Other local revenues

EXPENDITURES- General Fund (Modified Accrual Basis) (thousands)

$30,351

$30,285

$57 $1,189 $109

2013Instructional Services

System-wide Support Services

Ancillary Services

Non-programmed Charges

Debt Service

$27,481

$30,766

$52

$1,620 $91

2012Instructional Services

System-wide Support Services

Ancillary Services

Non-programmed Charges

Debt Service

Accounting Measurements & Metrics (continued)

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CAPITAL ASSETS, net of depreciation – Governmental Activities (Full Accrual Basis) (thousands)

$9,766 $11,867

$772 $7,968

$194,562

$4,085 $1,245

2013Land

Non-exhaustible land improvements

Construction in progress

Land improvements

Buildings and building improvements

Vehicle fleet

Furniture and equipment

$9,766

$11,867 $1,764

$8,503

$200,942

$2,854

$1,119 2012Land

Non-exhaustible land improvements

Construction in progress

Land improvements

Buildings and building improvements

Vehicle fleet

Furniture and equipment

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

$1,252

2013

Equipment $1,464

2012

Equipment

Accounting Measurements & Metrics (continued)

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DEBT – Governmental Activities (Full Accrual Basis) (thousands)

$11,370

$186

$960 2013

Compensated Absences

Capital Lease

Installment Purchase

$9,579

$286 $156

2012

Compensated Absences

Capital Lease

Installment Purchase

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

$308

2013

Compensated Absences $240

2012

Compensated Absences

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

$23,624

$134,952

2013Federal Programs

State Programs

$20,755

$129,368

2012Federal Programs

State Programs

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Contact

Michelle Thompson | Engagement Partner

mthompson@cbh.com | 919.782.1040 | www.cbh.com

Cherry Bekaert LLP