Understanding Your Financial Reports Dallas Independent ...

Audit InsightsUnderstanding Your Financial Reports

Audit Insights

DallasIndependent School DistrictYear Ended June 30, 2018

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Overview

• Introduction• Audit Schedule and Process• Auditor Communications and Auditor Results • Financial Highlights• Standards Implemented in FY18• Questions

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Overview

• Introductions• Audit Process• Required

Communications• Results• Strengths

• Opportunities for Improvement

• Financial Highlights• New Accounting

Pronouncements• Questions

Introductions

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The Firm of TexasLargest independent CPA firm based in the Southwest

100+Partners

700+Employees

7 TexasLocations

- Auditor of more Public School Districts in the state than any other Public Accounting Firm.

- Auditor of the five largest Districts in the state.- Auditor of over 50 Texas Public Schools and Charter

Schools.

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Engagement Leadership

Jerry Gaither Partner, Assurance Services

Jennifer Ripka Partner, Assurance Services

Forty years of public accounting experience

Dedicated to serving public sector clients

Eleven years of public accounting experience

Dedicated to serving public sector clients

Available Throughout the Year to Discuss Issues

Audit Schedule and Process

Engagement Timeline

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Initial Audit Planning

Planning Audit Committee

MeetingApril 25

Final FieldworkAugust 27-October 26

Board MeetingNovember 15

Discuss Developments/

Issues

Continuous Communication

Audit Committee PresentationNovember 8

Interim FieldworkMay 14-June 29

Weekly meetings were held through out the process with District staff to discuss status of items requested and work performed.

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Audit Process

Audit Standards — Performed the audit in accordance with Generally Accepted Auditing Standards (GAAS) and Generally Accepted Government Auditing Standards (GAGAS)

Single Audit — Performed the single audit of federal awards in accordance with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance)

Compliance — Performed tests of the District’s compliance with certain provisions of laws, regulations, contracts and grant agreements, including items such as compliance with PFIA and TEA State Compliance requirements.

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Audit Process Risk-based approach focused on specific risks, such as:

• Federal and state grant revenues and expenditures• State Foundation School Program revenue and related estimates• Construction in progress, purchasing requirements, bids and capital

assets• Payables, accrued liabilities, and expenditures

Additionally, significant audit areas include:

• Cash and investments• Capital assets• Long-term debt

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Audit Process Walkthroughs of accounting controls over significant transaction cycles

(see planning presentation with the Audit Committee on April 25th for a list of cycles reviewed)

The performance of tests of internal control over compliance, as well as, tests for compliance related to major federal financial assistance programs. (Child Nutrition Cluster)

Fraud interviews

Compliance testing

• Public Funds Investment Act

• TEA State Compliance requirements

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Audit Process Capital Projects/Construction testing

Bid/Procurement testing

Tests of controls over:• Cash disbursements • Payroll

Investigate Audit Committee concerns

Follow up on prior year recommendations

IT Control testing

Substantive testing of account balances using a combination of vouching of material transactions, sampling, and analytical procedures

Review of the Comprehensive Annual Financial Report

TRANSITION SLIDE TITLE

Auditor Communications and Audit Results

Results• We issued the Independent Auditor’s Report on the financial

statements Unmodified Opinion Emphasis of Matter- Change in Accounting Principle due to the

implementation of GASB 75 (reduced beginning net position by $1.1B)

• We issued the Independent Auditor’s 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 One significant deficiency (Finding 2018-001- Payment Authorization for

Utility Expenditures Prior to Review) No material weaknesses noted

• We issued the Independent Auditor’s Report on Compliance for Each Major Program and Report on Internal Control Over Compliance in Accordance with Uniform Guidance Unmodified Opinion No findings noted. 13

Results• We issued a letter to those charged with governance

including our required communications Auditor’s Responsibility under Generally Accepted Auditing Standards

(GAAS) Auditor’s Responsibility under Government Auditing Standards Auditor’s Responsibility under Uniform Guidance

• We issued a letter to management which expressed our consideration of the District’s internal controls over financial reporting No material weaknesses One significant deficiency (Finding 2018-001- Payment Authorization for

Utility Expenditures Prior to Review) Five recommendations

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Significant Deficiency• Finding 2018-001

– Significant Deficiency in Internal Controls- Payment Authorization for Utility Expenditures Prior to Review

• During the fiscal year, there were 18 vendors authorized by the District for auto draft payments, the breakdown of the 18 vendors is as follows: 10 utility (water, gas, and electricity) vendors, 7 payroll/benefits vendors, and one credit card processing company. For the utility vendors, the review of charges incurred for reasonableness takes place after payment.

• Recommendation- Implement a formal written process outlining the process for reviewing and reconciling utility expenditures including a specified timeframe in which the review and reconciliation process will take place.

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Recommendations• During the course of the audit, Weaver identified opportunities

for improvement which were communicated in the management letter.– We identified that the process for disposing of assets can include

the use of the “DISD Fixed Asset Transfer and Disposal Form” in Oracle or other forms of documentation in replace of the “DISD Fixed Asset Transfer and Disposal Form”. Weaver, LLP identified four instances in which sampled child nutrition capital assets disposed of during the fiscal year included Microsoft Excel and email documentation. Weaver, LLP recommends that the District review the current process and formally document the process for disposing of capital assets outside of the use of “DISD Fixed Asset Transfer and Disposal Form”.

– We identified one child nutrition capital asset in which the documented District tag number varied from the tag number on the asset. The asset was verified through the use of the VIN number. Weaver, LLP recommends the District stress the importance of proper asset management with District staff and contractors. 16

Recommendations– We recommended that the District require formal evidence that

Human Capital Management (HCM) personnel reviews Oracle to ensure that board approved contract salaries are properly entered.

– We recommends that the District require the end user to include historical information or a documented strategic plan including dollar amounts to be included with the information provided to Procurement as support for the “Amount Limit” or the “Amount Not to Exceed” for contracts.

– We identified the supporting documentation provided by Dallas ISD Construction Services related to construction in progress did not reconcile to Oracle. Weaver, LLP recommends that Dallas ISD Construction Services reconcile their records to Oracle in a timely manner.

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Audit Committee Concerns • During the planning presentation with the Audit Committee on

April 25th, Trustees expressed concerns with certain areas. These areas were reviewed during the course of fieldwork.

– Awards to vendors between $50,000 and $149,999• Weaver obtained a list of items awarded with “Amount Limits” between

$50,000 and $149,999 for FY18 and selected contracts for testing. During testing, Weaver noted “Amount Limits” were set well in excess of expected actuals per the contracts and actual expenditures tested by Weaver.

• Refer to recommendation surrounding “Amount Limits” or “Amount Not to Exceed” provided to the board.

– Food Service Expenditures • During single audit testing, a random sample of 60 cash disbursements and

60 payroll disbursements were reviewed to determine 1) the item was in compliance with the compliance requirements specific to Child Nutrition 2) the controls over those expenditures were effective 3) the expenditure was a proper expenditure in FY18

• Performed procurement/ bid testing over significant contracts awarded by Food Service

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Audit Committee Concerns – Budget Amendments

• During the fiscal year ended June 30, 2018, the Board amended the General Fund operating budget on a monthly basis. Amendments fell into 18 categories listed on page 13 of the CAFR.

• The process for budget amendment requests includes budget chiefs submitting their amendments to the CFO and/or Budget Services for review. This occurs monthly. Discussions between the party submitting the amendment, the CFO, and Budget Services and once a consensus is reached the amendment is presented to the board for approval.

• All budget amendments were appropriately authorized by the Board of Trustees.

– Payment Authorization• Refer to the Significant Deficiency in Internal Controls- Payment

Authorization for Utility Expenditures Prior to Review (Finding 2018-001)

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Follow-up on Prior Year Items• During the prior year audit, Weaver identified opportunities for

improvement which were communicated in the management letter dated. Progress on these items are as follows:– Prior year comment: Weaver, LLP identified two instances in

which sampled land items disposed of during the fiscal year had no associated book value recorded on the District’s asset register. Weaver, LLP recommends that the District complete an inventory of properties owned by the District.

• Follow-up: Assets (land and buildings) were discovered in FY18 by District staff through the inventory of assets.

– Prior year comment: Weaver, LLP identified 18 playgrounds purchased within the Deferred Maintenance Fund that were not capitalized by the District. See recommendation regarding internal service funds below.

• Follow-up: The Deferred Maintenance Fund was closed in FY18.

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Follow-up on Prior Year Items– Prior year comment: Weaver, LLP identified that the District’s ITS

Backup Plan and other IT policies are not updated and reviewed annually. Therefore the current plans and policies do not reflect current processes. Weaver, LLP recommends the District update and review current policies to reflect current District practices.

• Follow-up: The District did not formalize a process in FY2018. – Prior year comment: Weaver, LLP identified 19 out of the 34

enabled dormant accounts with privileged access (members of the Domain Admins, Enterprise Admins, and/or other groups with access to application-specific privileged functions) and one (1) guest account within Active Directory did not have a business justification for having access. Weaver, LLP recommends that any generic, shared, or guest accounts that are not currently being used on a daily basis by the District be disabled for security purposes.

• Follow-up: The number of accounts decreased to 4 out of 11 active dormant with privileged access within the Active Directory did not have a business justification for having retained access.

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Follow-up on Prior Year Items– Prior year comment: Weaver, LLP recommends that the District

review the current fund balance policy and better define the fund balance goals of the District.

• Follow-up: The District revised the fund balance policy (issued 2/9/18). The revised fund balance policy reads as follows “The formula for determining the minimum fund balance is to divide the adopted general fund expenditure budget by 12 to determine the average monthly expenditure. The average monthly expenditure is then multiplied by two to obtain the minimum fund balance of two months’ average operating expenditures.

– Prior year comment: Weaver, LLP recommends that the District evaluate the current rates charged to the General Fund by the Risk Management Fund. Revenue continues to exceed expenses which has created a build-up of net position within the Risk Management Fund.

• Follow-up: This fund was evaluated by District staff and $10M of excess fund balance was transferred to the General Fund. The District should continue to monitor changes as current year revenue exceeded expenditures by $4.3M.

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Follow-up on Prior Year Items– Prior year comment: Weaver, LLP recommends that the District

evaluate the purposes and processes related to the Program Evaluation Fund, Deferred Maintenance Fund, and Technology Services Fund as these funds do not appear to be operating as internal service funds are intended.

• Follow-up: Each of these funds were closed in FY 2018. The closing of these funds returned approximately $20M to the General Fund fund balance.

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Financial Highlights

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Financial HighlightsComparison of Revenues by Source-General Fund

(Exhibit C-2)

$1,132.0 , 78%

$242.9 , 17%

$74.3 , 5%FY 2018 Revenues

Total Local and IntermediateSourcesState Program Revenues

$1,034.7 , 73%

$327.4 , 23%

$57.7 , 4%FY 2017 Revenues

Total Local and IntermediateSourcesState Program Revenues

Fiscal year 2018 revenues totaled $1.4 billion, a increase of $29.4 million or 2% compared to 2017.- Local Revenue increased $97.3M (primarily due to increases in tax revenue and E-Rate

Revenue)- State Revenue decreased $84.5M (Due to decreases in ASF and Foundation funding)- Federal Revenue increased $16.6M (primarily due to increased SHARS revenue)

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(5 year comparison in millions of dollars)

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

Total Local and Intermediate Sources State Program Revenues Federal Program Revenues

2014

2015

2016

2017

2018

Comparison of Revenues-General Fund (Exhibit C-2)

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Financial HighlightsComparison of Expenditures-General Fund

(Exhibit C-2)

$837.1

$123.3

$145.6

$43.6

$190.8

$3.4 $8.4

$23.3

$5.0

FY 2018 ExpendituresInstruction, Curriculum, MediaServices, and Staff Development

Instructional and School Leadership

Student Support, Food Services,and Co-Curricular

General Administration

Facilities Maintenance, Security,and Data Processing

Community Services

Debt Service

Facilities Acquisition andConstruction

Intergovernmental Charges

$827.0

$124.1

$166.9

$48.4

$204.5

$3.9

$9.5 $54.3

$4.9

FY 2017 ExpendituresInstruction, Curriculum, MediaServices, and Staff Development

Instructional and School Leadership

Student Support, Food Services,and Co-Curricular

General Administration

Facilities Maintenance, Security,and Data Processing

Community Services

Debt Service

Facilities Acquisition andConstruction

Intergovernmental Charges

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Financial HighlightsComparison of Expenditures-General Fund- continued

(Exhibit C-2)

Fiscal year 2018 expenditures totaled $1.4 billion, a decrease of $63 million or 4% compared to 2017.

Significant decreases were as follows:• Student Support, Food Services, and Co-Curricular decreased by $21.3M primarily

due to the dissolution of Dallas County Schools• Facilities Maintenance, Security, and Data Processing decreased by $13.7M due to

decreased contracted maintenance ($4.3M), electricity ($6.6M) and contractors in IT ($4M)

• Facilities Acquisition and Construction decreased by $31M due to a decrease in general fund funded capital outlay costs.

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$- $100.0 $200.0 $300.0 $400.0 $500.0 $600.0 $700.0 $800.0 $900.0

20142015201620172018

(5 year comparison in millions of dollars)

Comparison of Expenditures-General Fund (Exhibit C-2)

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Financial HighlightsGeneral Fund – Fund Balance

(Exhibit C-1)

$8.9 , 2%

$112.4 , 30%

$251.2 , 68%

FY 2018 Fund Balance

Unspendable Assigned Unassigned

$8.8 , 4%

$118.0 , 45%$133.4 ,

51%

FY 2017 Fund Balance

Unspendable Assigned Unassigned

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Financial HighlightsGeneral Fund – Fund Balance- Continued

• Fund balance totaled $372.5M an increase of $112.3M as a result of revenues exceeding expenditures by $68.7M, transfers from other funds of $29.8M, and proceeds from sale of assets of $21.1M.

• The transfer of $29.8M was from Internal Service Funds closed in FY18 due to the prior year recommendation by Weaver.

• Unassigned fund balance increased $117.8M to $251.2M which was approximately 18% of current year general fund expenditures.

• Assigned fund balance decreased primarily due to the transfer of $7.167M to the debt service fund related to the Qualified School Construction Notes.

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Financial HighlightsGeneral Fund – Budget and Actual

General Fund Highlights (Exhibit G-1)• General Fund actual

revenues exceeded budgeted revenues by $33.2M.

• General Fund budgeted expenditures exceeded actual expenditures by $75.8M.

• Actual transfers exceeded budgeted transfers by $10M.

• General Fund had a favorable budget variance of $119M.

$1,340,000

$1,360,000

$1,380,000

$1,400,000

$1,420,000

$1,440,000

$1,460,000

$1,480,000

Budget and Actual(in thousands of dollars)

FinalBudget

ActualAmounts

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$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

2 Year Comparison(in thousands of dollars)

FY 2017

FY 2018

Debt Service Fund Highlights (Exhibit C-2)• Revenues exceeded expenditures by

$12.6 million.• Fund balance increased by $19.8 million

primarily due to an increase in revenues and a $7.2 million budgeted transfer in from the general fund for Qualified School Construction Notes

• Actual revenues exceeded budgeted revenues by $6 million.

• Actual expenditures exceeded budget by $2 million primarily due to a cash defeasance of $1.8M in late April 2018.

• The District defeased a total of $37M in debt through cash defeasances in FY18.

• The Debt Service Fund had a favorable budget variance of $4 million.

• Fund balance includes $124.9M in restricted and $110.8M in assigned fund balance

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$- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000


FY 2017FY 2018

Capital Projects Fund Highlights (Exhibit C-2)• Expenditures exceeded revenues by

$196.9M.• The district did not issue debt in FY18.• Fund balance decreased by $196.9M.• Capital Projects Fund ending fund

balance was $497 million.

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$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000


FY 2017FY 2018

Non Major Funds Highlights (Exhibit C-2)• Non Major funds consist of federal, state, and local

special revenue funds with the majority of the funds on a cost reimbursement basis.

• Fund balance increased by $3.2M primarily Food Service of $1.2M and Campus Activity of $1.5M

• Fund balance of Special Revenue Funds are as follows:– National Breakfast and Lunch Program- $21M– Medicaid Administration Claims- $2.4M– Texas Successful School Program- $27K– Advanced Placement Incentives- $132.6K– Other State Special Revenue Funds- $16.3K– Campus Activity Funds- $5.3M– Other Local Special Revenue Funds- $3.3M

• The District expended $236.8M of federal expenditures predominantly in the Non Major Funds. See the Schedule of Expenditures of Federal Awards, pages 152-153.

• Revenues of the Food Services Program of $114.4M were $6.3M below budget.

• Expenditures of the Food Services Fund of $113.2M were $7.5M below budget.

• The Food Service Fund had an favorable budget variance of $1.2M and a increase in fund balance of $1.2M.

• Food Service Fund ending fund balance was $21M.

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$- $5,000

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000


FY 2017FY 2018

Internal Service Funds Highlights (Exhibit D-2)• The District’s Internal Services Funds include

the Graphics Shop, Risk Management, Deferred Maintenance, and Technology Services.

• The Graphic’s Shop revenues exceeded expenditures by $28K and had an ending net position of $258.7K.

• The Risk Management Fund’s revenues exceeded expenditures by $4.3M and had an ending net position of $13.9M. The District transferred $10M of accumulated net positon to the General Fund based on Weaver’s prior year recommendation.

• The Deferred Maintenance Fund was closed in FY2018 and transferred the prior year net position of $13.4M to the General Fund based on Weaver’s prior year recommendation.

• The Technology Fund’s was closed in FY2018 and transferred the prior year net position of $6.5M to the General Fund based on Weaver’s prior year recommendation.

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Financial HighlightsCapital Assets and Long-Term Debt

Capital Assets • Total Capital Assets increased $123.2M or 4.73% in FY 2018.• The change in capital assets is primarily driven by capital outlay purchases of

$278M and the transfer of $41.5M in buses from Dallas County Schools (DCS) offset by the disposal and depreciation of assets during the fiscal year.

• The $41.5M in buses were valued at fair value based on the Yellow School Book appraisal values and capitalized in FY 2018. The transferred assets were recorded as a Special Item in the Statement of Activities.

Long-Term Debt• The District did not issue debt in FY 2018. • Bonds and notes payable decreased $108.6M or 3.7% over the prior year.

• This included $37M in defeased debt.• Net Pension Liability decreased $88.6M or 19.3%• The District implemented GASB 75 in FY 2018 which required Dallas ISD to record

the District’s proportionate share of the Net Other Post-Employment Benefit Liability for TRS-Care on the Statement of Net Position which resulted in a year end accrual of $1.1B.

Standards Implemented in FY18

Standards Implemented in FY18

Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (OPEB)

The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for OPEB.

It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities.

The District recorded a liability on the statement of net position for the OPEB (TRS-Care) liability and additional note disclosures will be required. (see Note M. and Note P. within the CAFR for additional information. 39

GASB 75:

Effective for periods beginning after 6/15/2017

Thank you!

We appreciate the opportunity to serve Dallas ISD and look forward to working with you next year.

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Jerry Gaither, CPAPartner, Assurance ServicesDirect: (972) 448.6918Email: [email protected]

Jennifer Ripka, CPAPartner, Assurance ServicesDirect: (972) 448.9268Email: [email protected]

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