Cochise County Community College District : Single Audit Reporting Package year ended ...

              A REPORT
ARIZONA LEGISLATURE
TO THE

Financial Audit Division Single Audit

Cochise County Community College District
Year Ended June 30, 2002

Debra K. Davenport Auditor General

The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and five representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the operations of state and local government entities. To this end, she provides financial audits and accounting services to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state agencies, and the programs they administer.

Copies of the Auditor General's reports are free. You may request them by contacting us at:

Office of the Auditor General
2910 N. 44th Street, Suite 410   Phoenix, AZ 85018   (602) 553-0333
Additionally, many of our reports can be found in electronic format at:

www.auditorgen.state.az.us

Cochise County Community College District Single Audit Reporting Package June 30, 2002

Table of Contents Financial Section
Independent Auditors' Report Management's Discussion and Analysis Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements Supplementary Information Schedule of Expenditures of Federal Awards

Page

i 1 2 3 5

13

Single Audit Section
Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Schedule of Findings and Questioned Costs Summary of Auditors' Results 20 16 18

DEBRA K. DAVENPORT, CPA AUDITOR GENERAL

STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL

WILLIAM THOMSON DEPUTY AUDITOR GENERAL

Independent Auditors' Report

Members of the Arizona State Legislature The Governing Board of Cochise County Community College District We have audited the accompanying basic financial statements of Cochise County Community College District as of and for the year ended June 30, 2002, as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards 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 opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Cochise County Community College District as of June 30, 2002, and the changes in financial position and cash flows of the District for the year then ended in conformity with U.S. generally accepted accounting principles. As described in Note 2, the District adopted the provisions of GASB Statement No. 35, Basic Financial Statements--and Management's Discussion and Analysis--for Public Colleges and Universities, for the year ended June 30, 2002, to implement a new financial reporting model. Also, as described in Note 2, the District raised its capitalization threshold for capital equipment. This represents a change in the application of an accounting principle. The Management's Discussion and Analysis on pages i through vii is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

2910 NORTH 44 th STREET   SUITE 410   PHOENIX, ARIZONA 85018   (602) 553 -0333   FAX (602) 553-0051

Our audit was made for the purpose of forming an opinion on the District's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards listed in the table of contents is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated March 7, 2003, on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

Debbie Davenport Auditor General March 7, 2003

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002
This section of Cochise County Community College District's basic financial statements presents management's discussion and analysis of the District's financial activity for the year ended June 30, 2002. Please read it in conjunction with the District's financial statements, which begin on page 1. Since this is an implementation year for financial reporting under Governmental Accounting Standards Board (GASB) Statement No. 35, only one year of financial data is presented. In future years, a comparative analysis of financial data will be presented.

Basic Financial Statements
Beginning with fiscal year 2001-02, the District prepares its annual financial statements in accordance with new pronouncements issued by the Governmental Accounting Standards Board (GASB), the authoritative body for establishing Generally Accepted Accounting Principles (GAAP) for state and local governments, including public institutions of higher education. These new pronouncements permit public colleges and universities to use the guidance for special-purpose governments engaged only in business-type activities, in their separately issued financial statements. As such, the presentation format has shifted from a columnar fund group format to a consolidated, single-column, entity-wide format   similar to the type of financial statements one might encounter from a typical business enterprise or a not-for-profit organization. The basic financial statements consist of the following: The Statement of Net Assets reflects the financial position of the District at June 30, 2002. It shows the various assets owned or controlled, related liabilities and other obligations, and the various categories of net assets. Net assets is an accounting concept defined as total assets less total liabilities, and as such, represents the institutional equity or ownership in the total assets of the District. The Statement of Revenues, Expenses, and Changes in Net Assets reflects the results of operations and other changes for the year ended June 30, 2002. It shows the various revenues and expenses, both operating and nonoperating, reconciling the beginning net assets amount to the ending net assets amount   which is shown on the Statement of Net Assets described above. The Statement of Cash Flows reflects the inflows and outflows of cash and cash equivalents for the year ended June 30, 2002. It shows the various cash activities by type, reconciling the beginning cash and cash equivalents amount to the ending cash and cash equivalents amount   which is shown on the Statement of Net Assets described above. In addition, this statement reconciles cash flows used for operating activities to operating loss on the Statement of Revenues, Expenses, and Changes in Net Assets described above.

i

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002 Condensed Financial Information
Statement of Net Assets As of June 30, 2002 Assets Current assets Noncurrent assets, other than capital assets Capital assets, net Total assets Liabilities Current liabilities Noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ 8,289,449 1,245,980 13,142,979 22,678,408 3,057,434 1,991,000 5,048,434 11,442,979 1,112,403 5,074,592 $17,629,974

Invested in capital assets, net of related debt, and unrestricted net assets represent 64.9 percent and 28.8 percent of total net assets, respectively.

ii

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002
Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2002 Tuition and fees (net of scholarship allowances) Grants and contracts Other operating revenues Total operating revenues Total operating expenses Operating loss Nonoperating revenues (expenses) Property taxes State appropriations Investment income Other nonoperating revenues Interest expense on debt Net nonoperating revenues Capital appropriations Increase in net assets Total net assets, July 1, 2001, as restated Total net assets, June 30, 2002 $ 2,830,410 6,608,123 1,019,140 10,457,673 27,319,131 (16,861,458) 8,744,747 8,133,700 197,523 578,737 (107,570) 17,547,137 699,900 1,385,579 16,244,395 $ 17,629,974

iii

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002
The following schedule presents a summary of revenues for the fiscal year ended June 30, 2002.
Operating revenues Tuition and fees (net of scholarship allowances) Grants and contracts Commissions and rents Other operating revenues Total operating revenues Nonoperating revenues Property taxes State appropriations Investment Income Other nonoperating revenues Total nonoperating revenues Capital appropriations Total revenues % of Total 10% 23% 2% 1% 36 % 30% 28% 1% 2% 61% 3% 100%

$ 2,830,410 6,608,123 696,307 322,833 10,457,673 8,744,747 8,133,700 197,523 578,737 17,654,707 699,900 $28,812,280

Revenues by Source
Other nonoperating revenues Investment income Tuition and fees

Capital appropriations

Grants and contracts

State appropriations

Property taxes

Commissions and rents Other operating revenues

iv

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002
The following schedule presents a summary of expenses for the fiscal year ended June 30, 2002.
% of Total $11,282,892 412,659 829,502 2,463,364 4,270,073 2,529,219 2,774,394 1,693,613 1,063,415 27,319,131 107,570 $27,426,701 41% 2% 3% 9% 15% 9% 10% 6% 4% 99% 1% 100%

Operating expenses Education and general: Instruction Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships Auxiliary enterprises Depreciation Total operating expenses Nonoperating expenses Interest expense on debt Total expenses

Expenses by Program
Auxiliary enterprises Depreciation Interest expense on debt

Scholarships

Instruction

Operation and maintenance of plant

Public service

Institutional support

Student services

Academic support

v

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002 Capital Assets
Below is a summary of the capital assets, net of depreciation, as of June 30, 2002.
Capital Assets Land Buildings Equipment Improvements other than buildings Library books Total Capital Assets, net 495,580 9,518,570 1,350,616 1,517,039 261,174 $13,142,979 $

As of July 1, 2001, the District changed its equipment capitalization threshold from $1,000 to $5,000. This change resulted in a $2,395,219 write-off in the equipment category recorded as a restatement of beginning net assets. In addition, accumulated depreciation of $14,446,535 was recorded as a restatement of beginning net assets to reflect the effect on capital assets from the implementation of GASB Statement No. 35. The remaining restatement to capital assets of $1,208,932 was due to the correction of a prior year understatement of capital assets.

Long-Term Debt
At June 30, 2002, the District had one certificate of participation issue outstanding totaling $1,700,000. No new debt was issued during the fiscal year. See Note 5 on page 10 for further details.

Current Economic Conditions
Despite unfavorable economic conditions nation-wide, Cochise County realized an overall 5.8 percent increase in property values for the year, thereby increasing the College's property tax revenue. However, the District was still forced to make mid-year expense reductions and implement other efficiency initiatives due to the following revenue shortfalls:     State operating and capital appropriations decreased by $330,100. Declining interest rates on the District's investments resulted in an approximately $200,000 decrease in investment income.

Current Factors Having Probable Future Financial Significance
During the 2001-02 fiscal year, state appropriations to the District were decreased mid-year by $330,100, or approximately 3.6 percent. Financial support from the State is projected to continually decline. An additional 1.4 percent decrease is projected for the 2002-03 fiscal year with possible further cuts in future years. The District is continuing to implement efficiency measures and strategies to increase other revenue sources in order to offset this projected shortfall and maintain services.

vi

Cochise County Community College District Management's Discussion and Analysis For the Year Ended June 30, 2002 Requests for Information
This discussion and analysis is designed to provide a general overview of the Cochise County Community College District's finances for all those with an interest in such matters. Questions concerning any of the information provided in the basic financial statements or requests for additional financial information should be addressed to the Office of the Controller, Cochise County Community College District, 4190 West Highway 80, Douglas, AZ 85607.

vii

Cochise County Community College District Statement of Net Assets June 30, 2002 Assets
Current assets: Cash and cash equivalents Receivables: Accounts (less allowances of $256,973) Property taxes (less allowances of $300,795) Government grants and contracts Interest Other Inventories Prepaid items Total current assets Noncurrent assets: Restricted assets: Cash and cash equivalents Cash and investments held by trustee Capital assets, not being depreciated Capital assets, being depreciated, net Total noncurrent assets Total assets $ 5,865,480 1,132,955 569,173 239,713 8,924 13,120 310,513 149,571 8,289,449

1,194,616 51,364 495,580 12,647,399 14,388,959 22,678,408

Liabilities
Current liabilities: Accounts payable Accrued payroll and employee benefits Interest payable Deposits held in custody for others Deferred revenues Current portion of compensated absences payable Current portion of long-term debt Total current liabilities Noncurrent liabilities: Compensated absences payable Long-term debt Total noncurrent liabilities Total liabilities 419,045 948,779 51,125 171,307 812,178 450,000 205,000 3,057,434

496,000 1,495,000 1,991,000 5,048,434

Net Assets
Invested in capital assets, net of related debt Restricted: Expendable: Grants and contracts Debt service Capital projects Unrestricted Total net assets See accompanying notes to financial statements. 1 11,442,979

262,010 134,424 715,969 5,074,592 $ 17,629,974

Cochise County Community College District Statement of Revenues, Expenses, and Changes in Net Assets Year Ended June 30, 2002

Operating revenues: Tuition and fees (net of scholarship allowances of $1,726,051) Government grants and contracts Private grants and contracts Bookstore income Food service income Dormitory rentals and fees Other Total operating revenues Operating expenses: Educational and general: Instruction Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships Auxiliary enterprises Depreciation Total operating expenses Operating loss Nonoperating revenues (expenses): Property taxes State appropriations Share of state sales taxes Investment income Gain on disposal of capital asset Interest expense on debt Total nonoperating revenues Income before other revenues, expenses, gains, or losses Capital appropriations Increase in net assets Total net assets, July 1, 2001, as restated Total net assets, June 30, 2002

$

2,830,410 6,607,112 1,011 106,697 339,556 250,054 322,833 10,457,673

11,282,892 412,659 829,502 2,463,364 4,270,073 2,529,219 2,774,394 1,693,613 1,063,415 27,319,131 (16,861,458) 8,744,747 8,133,700 540,737 197,523 38,000 (107,570) 17,547,137

685,679 699,900 1,385,579 16,244,395 $ 17,629,974

See accompanying notes to financial statements. 2

Cochise County Community College District Statement of Cash Flows Year Ended June 30, 2002

Cash flows from operating activities: Tuition and fees Grants and contracts Bookstore receipts Food services receipts Dormitory rentals and fees Other receipts Payments to suppliers and providers of goods and services Payments to employees Payments for scholarships Other payments Net cash used for operating activities Cash flows from noncapital financing activities: Property taxes State appropriations Share of state sales taxes Federal family education loan receipts Federal family education loan disbursements Funds held for others received Funds held for others disbursed Net cash provided by noncapital financing activities Cash flows from capital and related financing activities: Capital appropriations Principal paid on capital debt Interest paid on capital debt Purchases of capital assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Net increase in cash and cash equivalents Cash and cash equivalents, July 1, 2001 Cash and cash equivalents, June 30, 2002

$

2,803,402 6,535,655 89,919 343,448 253,867 593,276 (4,837,924) (18,068,131) (2,841,719) (414,708) (15,542,915) 8,719,140 8,133,700 451,954 1,750,318 (1,767,479) 439,527 (419,284) 17,307,876 699,900 (190,000) (107,570) (849,652) (447,322)

211,143 211,143 1,528,782 5,531,314 $ 7,060,096 (Continued)

See accompanying notes to financial statements. 3

Cochise County Community College District Statement of Cash Flows Year Ended June 30, 2002 (Continued)
Reconciliation of operating loss to net cash used for operating activities: Operating loss Adjustments to reconcile operating loss to net cash used for operating activities: Depreciation Changes in assets and liabilities: Increase in: Accounts receivable Government grants and contracts receivable Inventories Prepaid items Accounts payable Accrued payroll and employee benefits Deposits held in custody for others Deferred revenues Decrease in: Other receivables Compensated absences payable Net cash used for operating activities Noncash investing, capital, and noncapital financing activities: Gain on disposal of capital asset Capital assets donated to others

$ (16,861,458) 1,063,415 (1,104,744) (132,459) (50,117) (87,431) 194,291 83,583 97,301 734,382 562,090 (41,768) $ (15,542,915)

$

38,000 32,947

See accompanying notes to financial statements. 4

Cochise County Community College District Notes to Financial Statements June 30, 2002 Note 1 - Summary of Significant Accounting Policies
The accounting policies of the Cochise County Community College District conform to generally accepted accounting principles applicable to public institutions engaged only in business-type activities adopted by the Governmental Accounting Standards Board (GASB). During the year ended June 30, 2002, the District implemented GASB Statement No. 35, which prescribes a new reporting model for public colleges within the reporting guidelines of GASB Statement No. 34, as amended by GASB Statement No. 37. The District also implemented GASB Statement No. 38, which prescribes new and revised note disclosures.

A. Reporting Entity
The District is a special-purpose government that is governed by a separately elected governing body. It is legally separate and fiscally independent of other state and local governments. Furthermore, there are no component units combined with the District for financial statement presentation purposes, and it is not included in any other governmental reporting entity. The financial activities of the Cochise College Foundation are not included in the District's financial statements. The Foundation is a nonprofit corporation controlled by a separate board of directors. The Foundation's goals are to promote educational programs and District objectives.

B. Basis of Presentation and Accounting
The financial statements include a statement of net assets; a statement of revenues, expenses, and changes in net assets; and a statement of cash flows. A statement of net assets provides information about the assets, liabilities, and net assets of the District at the end of the year. Assets and liabilities are classified as either current or noncurrent. Net assets are classified according to external donor restrictions or availability of assets to satisfy District obligations. Invested in capital assets net of related debt represents the net value of capital assets less the debt incurred to acquire or construct the asset. Expendable restricted net assets represent grants, contracts, gifts, and other resources that have been externally restricted for specific purposes. Unrestricted net assets include all other net assets, including those that have been designated by management to be used for other than general operating purposes. A statement of revenues, expenses, and changes in net assets provides information about the District's financial activities during the year. Revenues and expenses are classified as either operating or nonoperating, and all changes in net assets are reported, including capital contributions and additions to endowments. Generally, revenues generated by the District for instruction and public service are considered to be operating revenues. Other revenues used for instruction and public service, such as property taxes and state appropriations, are not generated from operations and are considered to be nonoperating revenues.
5

Cochise County Community College District Notes to Financial Statements June 30, 2002
A statement of cash flows provides information about the District's sources and uses of cash and cash equivalents during the year. Increases and decreases in cash and cash equivalents are classified as either operating, noncapital financing, capital financing, or investing. The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Property taxes are recognized in the year for which they are levied. State appropriations are recognized as revenue in the year in which the appropriation is first made available for use. Grants and donations are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The District eliminates all internal activity. It is the District's policy to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. The District follows FASB Statements and Interpretations issued on or before November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements.

C. Cash and Investments
The District's cash and cash equivalents are considered to be cash on hand, demand deposits, cash and investments held by the County Treasurer, investments in the State Treasurer's Local Government Investment Pool, and highly liquid investments. Investments are stated at fair value.

D. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.

E. Capital Assets
Capital assets are reported at actual cost or estimated historical cost if historical records are not available. Donated assets are reported at estimated fair value at the time received. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts), depreciation methods, and estimated useful lives of capital assets reported in the financial statements are as follows:

6

Cochise County Community College District Notes to Financial Statements June 30, 2002
Capitalization Threshold Land Improvements other than buildings Buildings Equipment Library books $5,000 $5,000 $5,000 $5,000 $1 Depreciation Method N/A Straight line Straight line Straight line Straight line Estimated Useful Life N/A 15 years 40 years 5-30 years 10 years

F. Investment Income
Investment income is composed of interest, dividends, and net changes in the fair value of applicable investments.

G. Compensated Absences
Compensated absences consist of vacation leave and a calculated amount of sick leave earned by employees based on services already rendered. Employees may accumulate up to 176 hours of vacation per year depending on years of service, but any vacation hours in excess of the maximum amount that are unused at year-end are forfeited. Upon termination of employment, all unused and unforfeited vacation benefits are paid to employees. Accordingly, vacation benefits are accrued as a liability in the financial statements. Generally, sick leave benefits provide for ordinary sick pay and are cumulative but do not vest with employees. Therefore, a liability for sick leave benefits is not accrued in the financial statements. However, for employees who are at least 55 years of age or have met the necessary points for full retirement with the Arizona State Retirement System and have been employed by the District for at least 10 years, a portion of their sick leave benefits does vest. Those amounts are accrued as a liability in the financial statements.

H. Scholarship Allowances
A scholarship allowance is the difference between the stated charge for goods and services provided by the District and the amount that is paid by the student or third parties making payments on behalf of the student. Accordingly, some types of student financial aid such as Pell grants and scholarships awarded by the District are considered to be scholarship allowances. These allowances are netted against tuition and fees revenues in the statement of revenues, expenses, and changes in net assets.

7

Cochise County Community College District Notes to Financial Statements June 30, 2002 Note 2 - Beginning Balances Restated
As a result of implementing GASB Statement No. 35, a correction of an error for understating capital assets, and a change in the capitalization threshold from $1,000 to $5,000, the District's aggregate fund balances reported as of June 30, 2001, have been restated as beginning net assets as follows: Fund balances as of June 30, 2001, as previously reported Correction of error for capital assets Accumulated depreciation as of June 30, 2001 Change in equipment capitalization threshold Beginning net assets, as restated $31,877,217 1,208,932 (14,446,535) (2,395,219) $16,244,395

Note 3 - Deposits and Investments
Arizona Revised Statutes (A.R.S.) require the District to deposit special tax levies for the District's maintenance or capital outlay with the County Treasurer. The statutes do not require the District to deposit other public monies in its custody with the County Treasurer; however, the District must act as a prudent person dealing with the property of another when making investment decisions about those monies. At June 30, 2002, the District's deposits and investments consisted of the following. Reported on the Statement of Net Assets as: Cash and Cash and Cash Investments Equivalents Held by Trustee $ 17,729 421,024 230,128 6,391,215 $7,060,096 $51,364 $51,364

Deposits: Cash on hand Cash in bank Investments at fair value: Cash and investments held by the County Treasurer Investment in State Treasurer's investment pool Money market mutual fund Total

At June 30, 2002, the carrying amount of the District's cash in bank was $421,024, and the bank balance was $681,310. Of the bank balance, $118,552 was covered by federal depository insurance, or by collateral held by the District or its agent in the District's name, and $562,758 was covered by collateral held by an affiliate of the pledging financial institution in the District's name.
8

Cochise County Community College District Notes to Financial Statements June 30, 2002
The District's investment in the State or County Treasurer's investment pools represents a proportionate interest in those pools' portfolios; however, the District's portion is not identified with specific investments and is not subject to custodial credit risk. The same is true for the District's money market mutual fund. The State Board of Deposit provides oversight for the State Treasurer's pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant's position in the pool approximates the value of that participant's pool shares. No comparable oversight is provided for the County Treasurer's investment pool, and that pool's structure does not provide for shares.

Note 4 - Capital Assets
Capital asset activity for the year ended June 30, 2002, was as follows: Balance July 1, 2001, as restated Capital assets not being depreciated: Land Total capital assets not being depreciated Capital assets being depreciated: Buildings Equipment Improvements other than buildings Library books Total capital assets being depreciated Less accumulated depreciation for: Buildings Equipment Improvements other than buildings Library books Total accumulated depreciation Total capital assets being depreciated, net Capital assets, net $ 495,580 495,580 18,053,279 4,347,594 3,767,250 1,117,167 27,285,290 8,146,914 3,355,439 2,081,185 862,997 14,446,535 12,838,755 $13,334,335 $ 72,917 710,283 33,062 57,797 874,059 460,712 349,822 202,088 50,793 1,063,415 189,356 $ 189,356 Balance June 30, 2002 $ 495,580 495,580 18,126,196 5,017,877 3,800,312 1,142,017 28,086,402 8,607,626 3,667,261 2,283,273 880,843 15,439,003 12,647,399 $13,142,979

Increases

Decreases

$40,000 32,947 72,947 38,000 32,947 70,947 2,000 $ 2,000

9

Cochise County Community College District Notes to Financial Statements June 30, 2002 Note 5 - Long-Term Liabilities
The following schedule details the District's long-term liability and obligation activity for the year ended June 30, 2002.
Balance July 1, 2001 Compensated absences payable Certificates of participation payable Total long-term liabilities $ 987,768 1,890,000 $2,877,768 $428,576 Balance June 30, 2002 $ 946,000 1,700,000 $2,646,000 Due within 1 year $450,000 205,000 $655,000

Additions $428,576

Reductions $470,344 190,000 $660,344

Certificates of participation--The District has issued certificates of participation that are generally noncallable until 2004 when they become callable at a premium, with interest payable semiannually to fund a portion of the $5,000,000 building expansion project on the Sierra Vista campus. Certificates outstanding at June 30, 2002, were as follows: Issue Series 1993 Original Amount $3,000,000 Maturity Ranges 2003-09 Interest Rates 5.70% 6.25% Outstanding Principal $1,700,000

The following schedule details debt service requirements to maturity for the District's certificates of participation payable at June 30, 2002. Year Ending June 30, 2003 2004 2005 2006 2007 2008-09 Total Principal $ 205,000 215,000 225,000 240,000 255,000 560,000 $1,700,000 Interest $102,250 90,565 78,095 64,820 50,420 52,990 $439,140

10

Cochise County Community College District Notes to Financial Statements June 30, 2002 Note 6 - Risk Management
The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; error and omissions; injuries to employees; and natural disasters. The District carries commercial insurance for all such risks of loss, including workers' compensation and accident insurance. In addition, the District carries specialized commercial insurance for the risks of loss associated with its aircraft program and nursing and emergency medical technician student program. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

Note 7 - Retirement Plan
Plan Description--The District contributes to a cost-sharing multiple-employer defined benefit pension plan administered by the Arizona State Retirement System. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The System is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The System issues a comprehensive annual financial report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the Arizona State Retirement System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067-3910 or by calling (602) 240-2000 or (800) 621-3778. Funding Policy--The Arizona State Legislature establishes and may amend active plan members' and the District's contribution rates. For the year ended June 30, 2002, active plan members and the District were each required by statute to contribute at the actuarially determined rate of 2.49 percent (2.00 percent retirement and 0.49 percent long-term disability) of the members' annual covered payroll. The District's contributions to the System for the years ended June 30, 2002, 2001, and 2000 were $307,696, $330,738, and $316,649, respectively, which were equal to the required contributions for the year.

11

Cochise County Community College District Notes to Financial Statements June 30, 2002 Note 8 - Operating Expenses
The District's operating expenses are presented by functional classification in the Statement of Revenues, Expenses, and Changes in Net Assets. The operating expenses can also be classified into the following: Personal services Contract services Supplies and other services Current fixed charges Communications and utilities Travel Scholarships Depreciation Other Total $18,089,293 1,883,281 1,564,686 545,764 887,340 280,232 2,774,394 1,063,415 230,726 $27,319,131

Note 9 - Subsequent Event
Recent Investment Losses in the State Treasurer's Local Government Investment Pool-- Pursuant to statutory authority, a portion of the District's monies are invested in the State Treasurer's Local Government Investment Pool (LGIP), which was established in 1980 for the collective investment of state and local government monies. Monies in the LGIP may be invested in various types of investments prescribed by law, including bonds, debentures, or other evidences of indebtedness that are issued by entities organized and doing business in the United States that have a minimum rating of "Baa" from Moody's Investors Service or "BBB" from Standard & Poors Rating Service. In December 2002, the State Treasurer announced that the LGIP currently holds approximately $131 million of asset-backed securities issued by an NPF-12 trust that are serviced by National Century Financial Enterprises (NCFE). Recently, NCFE has come under investigation by the Federal Bureau of Investigation, the Securities and Exchange Commission, and various state authorities for possible fraud and violations of federal and state laws. NCFE has since declared bankruptcy and the trustee for the bonds has informed the State Treasurer that the interest payment due December 1, 2002, was not received. All LGIP participants have been allocated a proportional share of the value of the NPF-12 securities. It is likely that the LGIP will incur a loss on the NPF-12 securities of approximately $131 million and the District may be allocated approximately $330,000 of this loss. The State is pursuing legal action to the fullest extent possible to protect the interests of the LGIP participants, which may eventually include the recovery of all or a portion of the investment loss.

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Cochise County Community College District Supplementary Information Schedule of Expenditures of Federal Awards Year Ended June 30, 2002

Federal Grantor/Pass-Through Grantor/Program or Cluster Title U.S. Department of Defense Basic Scientific Research U.S. Department of Housing and Urban Development Hispanic-Serving Institutions Assisting Communities U.S. Department of Labor Passed through Arizona Department of Commerce-- Workforce Development WIA Adult Program Passed through Arizona Department of Commerce--School to Work Division Employment and Training Administration Pilots, Demonstrations, and Research Projects Total U.S. Department of Labor U.S. National Endowment for the Humanities, National Foundation on the Arts and the Humanities Passed through Arizona Humanities Council Promotion of the Humanities--Federal/State Partnership U.S. Small Business Administration Passed through Maricopa County Community College District Small Business Development Center

CFDA Number 12.431

Pass-Through Grantor's Number

Expenditures $ 40,045

14.514

153,921

17.258

AD020049-002

676

17.261

A9-0023-002, A9-0023-002-Supplement

107,106 107,782

45.129

GG11-3541-2002

3,000

59.037

01-7620-0003-9 2-603001-Q-0003-10

64,125

U.S. Department of Education Student Financial Assistance Cluster Federal Supplemental Educational Opportunity Grants Federal Family Education Loans Federal Work-Study Program Federal Pell Grant Program Total Student Financial Assistance Cluster

84.007 84.032 84.033 84.063

108,278 1,767,479 157,562 4,051,969 6,085,288 (Continued)

See accompanying notes to schedule. 13

Cochise County Community College District Supplementary Information Schedule of Expenditures of Federal Awards Year Ended June 30, 2002 (Continued)

Federal Grantor/Pass-Through Grantor/Program or Cluster Title U.S. Department of Education (continued) Higher Education--Institutional Aid TRIO--Student Support Services Child Care Access Means Parents in School Passed through Arizona Department of Education Adult Education--State Grant Program Vocational Education--Basic Grants to States Even Start--State Educational Agencies Tech-Prep Education Passed through the State Board of Directors for Community Colleges of Arizona Vocational Education--Basic Grants to States Tech-Prep Education Passed through Arizona Commission for Postsecondary Education Leveraging Educational Assistance Partnership Passed through University of Arizona--Rural Health Office Fund for the Improvement of Postsecondary Education Total U.S. Department of Education U.S. Department of Health and Human Services Passed through Arizona Department of Economic Security Temporary Assistance for Needy Families Total Expenditures of Federal Awards

CFDA Number 84.031 84.042 84.335 84.002 84.048 84.213 84.243

Pass-Through Grantor's Number

Expenditures $ 147,269 112,592 10,654

02FAEABE-270536-02A 02FVEDBG-270536-07A 02FAEEVS-270536-01A 02FVEDTP-270536-04A

229,555 18,672 110,000 32,804

84.048 84.243

30101, 30201 10101, 10201

153,431 136,512

84.069

LEAP

8,141

84.116

P116B980389-99

59 7,044,977

93.558

E5900004-Extension

17,150 $ 7,431,000

See accompanying notes to schedule. 14

Cochise County Community College District Supplementary Information Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2002 Note 1 - Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of Cochise County Community College District and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements.

Note 2 - Catalog of Federal Domestic Assistance (CFDA) Numbers
The program titles and CFDA numbers were obtained from the federal or pass-through grantor or the 2002 Catalog of Federal Domestic Assistance.

Note 3 - Subrecipients
The District did not pass-through any federal awards to subrecipients.

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DEBRA K. DAVENPORT, CPA AUDITOR GENERAL

STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL

WILLIAM THOMSON DEPUTY AUDITOR GENERAL

Independent Auditors' Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Members of the Arizona State Legislature The Governing Board of Cochise County Community College District We have audited the basic financial statements of Cochise County Community College District as of and for the year ended June 30, 2002, and have issued our report thereon dated March 7, 2003, which was modified as to consistency because of the implementation of Governmental Accounting Standards Board Statement No. 35, and a change in the capitalization threshold as described in our report. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the District's basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, 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 that are required to be reported under Government Auditing Standards. Internal Control over Financial Reporting In planning and performing our audit, we considered the District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on internal control over financial reporting. Our consideration of internal control over financial reporting would not necessarily disclose all such internal control matters that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over financial reporting and its operation that we consider to be material weaknesses.

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2910 NORTH 44
th

STREET   SUITE 410   PHOENIX, ARIZONA 85018   (602) 553 -0333   FAX (602) 553-0051

This report is intended solely for the information and use of the members of the Arizona State Legislature, the Governing Board, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Debbie Davenport Auditor General March 7, 2003

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DEBRA K. DAVENPORT, CPA AUDITOR GENERAL

STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL

WILLIAM THOMSON DEPUTY AUDITOR GENERAL

Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133

Members of the Arizona State Legislature The Governing Board of Cochise County Community College District Compliance We have audited the compliance of Cochise County Community College District with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal programs for the year ended June 30, 2002. The District's major federal programs are identified in the Summary of Auditors' Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program cluster 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 U.S. generally accepted auditing standards; 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 on the District's compliance with those requirements. In our opinion, Cochise County Community College District complied, in all material respects, with the requirements referred to above that are applicable to its major federal programs for the year ended June 30, 2002.

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2910 NORTH 44 th STREET   SUITE 410   PHOENIX, ARIZONA 85018   (602) 553 -0333   FAX (602) 553-0051

Internal Control over Compliance The District's management is responsible for establishing and maintaining effective internal control over compliance with 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 requirements that could have a direct and material effect on a major federal program in order to determine our 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. Our consideration of internal control over compliance would not necessarily disclose all such internal control matters that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts, and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over compliance that we consider to be material weaknesses. This report is intended solely for the information and use of the members of the Arizona State Legislature, the Governing Board, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Debbie Davenport Auditor General March 7, 2003

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Cochise County Community College District Schedule of Findings and Questioned Costs Year Ended June 30, 2002
Summary of Auditors' Results Financial Statements Type of auditors' report issued: Material weakness identified in internal control over financial reporting? Reportable conditions identified not considered to be material weaknesses? Unqualified Yes No X
(None reported)

X

Noncompliance material to the financial statements noted? Federal Awards Material weakness identified in internal control over major programs? Reportable conditions identified not considered to be material weaknesses?

X

X
(None reported)

X

Type of auditors' report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Circular A133 (section .510[a])? Identification of major programs: CFDA Number 84.007 84.032 84.033 84.063

Unqualified X

Name of Federal Program or Cluster Student Financial Assistance Cluster: Federal Supplemental Educational Opportunity Grants Federal Family Education Loans Federal Work-Study Program Federal Pell Grant Program $ 300,000 X

Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? Other Matters Auditee's summary schedule of prior audit findings required to be reported in accordance with Circular A-133 (section .315[b])?

X

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