Navajo County Community College District (Northland Pioneer College) single audit reporting package: year ended June 30, ...

              Single Audit
A REPORT
TO THE
ARIZONA LEGISLATURE
Navajo County
Community College
District
( Northland Pioneer College)
Year Ended June 30, 2002
Financial Audit Division
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
Navajo County Community College District
( Northland Pioneer College)
Single Audit Reporting Package
June 30, 2001
Table of Contents Page
Report on Audit of Financial Statements
Independent Auditors’ Report
1
Balance Sheet— Current Funds, Endowment Fund, Plant Funds,
and Agency Fund
2
Statement of Changes in Fund Balances— Current Funds,
Endowment Fund, and Plant Funds
4
Statement of Current Funds Revenues, Expenditures, and
Other Changes
6
Notes to Financial Statements
7
Supplementary Information
Schedule of Expenditures of Federal Awards
17
Reports on Compliance and Internal Control
Report on Compliance and on Internal Control over Financial
Reporting Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards
19
Report on Compliance with Requirements Applicable to Each
Major Program and on Internal Control over Compliance
in Accordance with OMB Circular A- 133
21
Schedule of Findings and Questioned Costs
Summary of Auditors’ Results
23
Financial Statement Findings
24
District Response
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • ( 602) 553 - 0333 • FAX ( 602) 553- 0051
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
Navajo County Community College District
We have audited the accompanying balance sheet of Navajo County Community College District as of
June 30, 2001, and the related statements of changes in fund balances and current funds revenues,
expenditures, and other changes for the year then ended. 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 financial statements referred to above present fairly, in all material respects, the
financial position of Navajo County Community College District as of June 30, 2001, and the changes in its
fund balances and its current funds revenues, expenditures, and other changes for the year then ended in
conformity with U. S. generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial statements of Navajo County
Community College District taken as a whole. 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 financial statements. Such information has been subjected
to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the financial statements taken as a whole.
In accordance with Government Auditing Standards, we have also issued our report dated February 28,
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
February 28, 2003
Navajo County Community College District
( Northland Pioneer College)
Balance Sheet
June 30, 2001
Current Funds Plant Funds
Unrestricted Total Retirement Investment
Auxiliary Current Endowment of in Agency
Assets General Enterprises Restricted Funds Fund Unexpended Indebtedness Plant Fund
Cash and cash equivalents $ 329,996 $ 1,700 $ 331,696 $ 10,500 $ 3 0,034
Investments 1,762,315 1,762,315 $ 8,247,743 $ 6 99,679
Receivables:
Property taxes ( net of allowances) 287,067 287,067 9 4,419
Government grants $ 3 09,389 309,389
Student loans ( less allowance of $ 435,524) 601,731 601,731
Other 4,134 48,345 52,479
Prepaid expenses 494 494
Due from other funds 3,565,046 2 1,387 3,586,433
Inventories 177,347 177,347
Property, buildings, and equipment:
Land, buildings, and improvements $ 18,931,435
Equipment 11,170,006
Library books 968,505
Construction in progress ( estimated costs to
complete $ 5,127,526) 5,488,497
Total assets $ 6,550,783 $ 227,392 $ 3 30,776 $ 7,108,951 $ 10,500 $ 8,247,743 $ 7 94,098 $ 36,558,443 $ 3 0,034
( Continued)
See accompanying notes to financial statements.
2
Navajo County Community College District
( Northland Pioneer College)
Balance Sheet
June 30, 2001
( Continued)
Current Funds Plant Funds
Unrestricted Total Retirement Investment
Auxiliary Current Endowment of in Agency
Liabilities and Fund Balances General Enterprises Restricted Funds Fund Unexpended Indebtedness Plant Fund
Liabilities:
Accounts payable $ 256,728 $ 1 5,067 $ 8 4,124 $ 355,919 $ 703,805 $ 421
Accrued liabilities 333,199 3 ,297 8 ,097 344,593
Deposits held in custody for others 50 50 29,613
Due to other funds 2 92,997 292,997 2,458,442 $ 8 34,994
Due to grantors 1 3,789 13,789
Certificates of participation payable $ 1,535,000
Bonds payable 10,705,000
Deferred revenues 12,752 12,752
Total liabilities 602,729 3 11,361 1 06,010 1,020,100 3,162,247 8 34,994 12,240,000 30,034
Fund balances:
Restricted:
Endowment $ 1 0,500
General 2 24,766 224,766 5,085,496 ( 40,896)
Unrestricted:
Designated 1,500,000 1,500,000
Undesignated 4,448,054 ( 83,969) 4,364,085
Net investment in plant 24,318,443
Total fund balances 5,948,054 ( 83,969) 2 24,766 6,088,851 1 0,500 5,085,496 ( 40,896) 24,318,443
Total liabilities and fund balances $ 6,550,783 $ 2 27,392 $ 3 30,776 $ 7,108,951 $ 1 0,500 $ 8,247,743 $ 7 94,098 $ 36,558,443 $ 30,034
See accompanying notes to financial statements.
3
Navajo County Community College District
( Northland Pioneer College)
Statement of Changes in Fund Balances
Year Ended June 30, 2001
Current Funds Plant Funds
Unrestricted Total Retirement Investment
Auxiliary Current Endowment of in
General Enterprises Restricted Funds Fund Unexpended Indebtedness Plant
Revenues and other additions:
Unrestricted current revenues $ 1 5,191,571 $ 891,297 $ 1 6,082,868
Property taxes $ 1 ,501,024
State appropriations $ 419,600
Governmental grants and contracts $ 2 ,893,446 2 ,893,446
Private gifts, grants, and contracts 2 12,617 2 12,617 $ 54,330
Tuition and fees 1 1,884 1 1,884
Investment income 1 ,559 1 ,559 442,184 6 5,644
Expended for plant facilities ( including $ 276,071
of expenditures charged to current funds) 4,049,396
Retirement of indebtedness 1,060,000
Proceeds from sale of land and buildings 408,000
Proceeds from lawsuit settlement 919,381
Other 4 7,635 4 7,635 2,032
Total revenues and other additions 1 5,191,571 891,297 3 ,167,141 1 9,250,009 2,191,197 1 ,566,668 5,163,726
Expenditures and other deductions:
Educational and general expenditures 1 3,058,518 3 ,013,769 1 6,072,287
Auxiliary enterprises expenditures 1,597,556 1 ,597,556
Indirect costs recovered 1 7,382 1 7,382
Provision for bad debts 3 7,788 3 7,788 6 ,206
Expended for plant facilities ( including
noncapitalized expenditures of $ 9,569) 3,782,894
Retirement of indebtedness 1 ,060,000
Interest on indebtedness 7 14,458
Disposal of plant facilities 730,318
Other 1 29,343
Total expenditures and other deductions 1 3,096,306 1,597,556 3 ,031,151 1 7,725,013 3,782,894 1 ,910,007 730,318
( Continued)
See accompanying notes to financial statements.
4
Navajo County Community College District
( Northland Pioneer College)
Statement of Changes in Fund Balances
Year Ended June 30, 2001
( Continued)
Current Funds Plant Funds
Unrestricted Total Retirement Investment
Auxiliary Current Endowment of in
General Enterprises Restricted Funds Fund Unexpended Indebtedness Plant
Transfers among funds— additions ( deductions):
Mandatory transfers for:
Principal and interest $ ( 180,598) $ ( 69,000) $ ( 249,598) $ 249,598
College matching portion of
government grants ( 13,381) $ 13,381
Total mandatory transfers ( 193,979) ( 69,000) 13,381 ( 249,598) 249,598
Nonmandatory transfers ( net) ( 1,779,453) 272,693 ( 1,506,760) $ 1,500,000 6,760
Total transfers ( 1,973,432) 203,693 13,381 ( 1,756,358) 1,500,000 256,358
Net increase ( decrease) for the year 121,833 ( 502,566) 149,371 ( 231,362) ( 91,697) ( 86,981) 4,433,408
Fund balances, July 1, 2000 5,826,221 418,597 75,395 6,320,213 $ 10,500 5,177,193 46,085 19,885,035
Fund balances ( deficits), June 30, 2001 $ 5,948,054 $ ( 83,969) $ 224,766 $ 6,088,851 $ 10,500 $ 5,085,496 $ ( 40,896) $ 24,318,443
See accompanying notes to financial statements.
5
Navajo County Community College District
( Northland Pioneer College)
Statement of Current Funds Revenues, Expenditures, and Other Changes
Year Ended June 30, 2001
Unrestricted
Total
Auxiliary Current
General Enterprises Total Restricted Funds
Revenues:
Property taxes $ 5 ,972,584 $ 5,972,584 $ 5,972,584
State appropriations 5 ,589,900 5,589,900 5,589,900
Governmental grants and contracts 6 39,191 639,191 $ 2,726,693 3,365,884
Private gifts, grants, and contracts 212,617 212,617
Tuition and fees 2 ,529,755 $ 36,957 2,566,712 11,884 2,578,596
Investment income 3 08,942 308,942 1,559 310,501
Bookstore sales 777,747 777,747 777,747
Dormitory rentals 46,550 46,550 46,550
Other 1 51,199 30,043 181,242 47,635 228,877
Total revenues 1 5,191,571 891,297 16,082,868 3,000,388 19,083,256
Expenditures and mandatory transfers:
Educational and general expenditures:
Instruction 5 ,760,096 5,760,096 306,880 6,066,976
Public service 184,983 184,983
Academic support 7 31,461 731,461 731,461
Student services 7 39,015 739,015 2,109,421 2,848,436
Institutional support ( administration) 4 ,418,919 4,418,919 48,697 4,467,616
Operation and maintenance of plant 1 ,241,617 1,241,617 2,027 1,243,644
Scholarships 1 67,410 167,410 361,761 529,171
Total educational and general
expenditures 1 3,058,518 13,058,518 3,013,769 16,072,287
Auxiliary enterprises expenditures 1,597,556 1,597,556 1,597,556
Provision for bad debts 3 7,788 37,788 37,788
Total expenditures 1 3,096,306 1,597,556 14,693,862 3,013,769 17,707,631
Mandatory transfers for:
Principal and interest 1 80,598 69,000 249,598 249,598
College matching portion of
government grants 1 3,381 13,381 ( 13,381)
Total mandatory transfers 1 93,979 69,000 262,979 ( 13,381) 249,598
Total expenditures and
mandatory transfers 1 3,290,285 1,666,556 14,956,841 3,000,388 17,957,229
Other transfers and additions ( deductions):
Excess of restricted receipts over
transfers to revenues 149,371 149,371
Nonmandatory transfers ( net) ( 1,779,453) 272,693 ( 1,506,760) ( 1,506,760)
Net increase ( decrease) in fund balances $ 1 21,833 $ ( 502,566) $ ( 380,733) $ 149,371 $ ( 231,362)
See accompanying notes to financial statements.
6
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
7
Note 1 - Summary of Significant Accounting Policies
The accounting policies of the Navajo County Community College District conform to U. S.
generally accepted accounting principles as applied to governmental colleges and universities
in the AICPA College Guide model as defined in Governmental Accounting Standards Board
Statement No. 15. A summary of the District’s more significant accounting policies follows.
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 Northland Pioneer 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. Fund Accounting
The District’s accounts are maintained in accordance with the principles of fund accounting to
ensure that limitations and restrictions on the District’s available resources are observed. The
principles of fund accounting require that resources be classified for accounting and reporting
purposes into funds in accordance with the activities or objectives specified for those
resources. Accounts are separately maintained for each fund; however, in the accompanying
financial statements, funds that have similar characteristics have been combined into fund
groups. Accordingly, financial transactions are reported by fund groups as if each fund group
was a single fund. A description of the funds follows.
The Current Funds account for resources that will be expended in the near term for operating
purposes in performing the District’s primary and support missions, which are instruction,
public service, academic support, student services, institutional support, operation and
maintenance of plant, scholarships, and auxiliary enterprises. The individual Current Funds are
described more fully as follows:
The General Fund accounts for all current financial resources not required to be
accounted for in the other Current Funds.
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
8
The Auxiliary Enterprises Fund accounts for transactions of substantially self- supporting
auxiliary activities that perform services primarily to students, faculty, and staff, such as
bookstores, food services, dormitories, and intercollegiate athletics.
The Restricted Fund accounts for resources that are expended only for operating
purposes specified by donors or other outside agencies. The Restricted Fund’s revenues
are reported in the statement of current funds revenues, expenditures, and other changes
only to the extent of expenditures and net mandatory transfers. Amounts received in
excess of expenditures and net mandatory transfers are reported as additions to the fund
balance during the year, and may be subject to repayment if not expended.
The Endowment Fund accounts for assets subject to restrictions requiring the principal to be
invested permanently or for a certain period of time, although investment income may be
expended. The resources may either be restricted by the donor or designated by the
Governing Board.
The Plant Funds account for transactions relating to the District’s investment in plant assets
such as property, buildings, and equipment. The individual Plant Funds are described more
fully as follows:
The Unexpended Plant Fund accounts for resources available to finance the District’s
acquisition, construction, or improvement of plant assets. Expenditures for construction in
progress are accumulated in this fund until the project is completed or until the end of the
fiscal year and then transferred to the Investment in Plant Fund. Resources restricted for
renewals and replacements of existing District plant assets are also recorded in the
Unexpended Plant Fund.
The Retirement of Indebtedness Plant Fund accounts for the accumulation of resources
for payment of principal, interest, and other debt service charges, including contributions
for sinking funds relating to debt incurred in financing District plant assets.
The Investment in Plant Fund accounts for the costs of the District’s plant assets and the
associated liabilities, except for such assets accounted for in the Endowment Fund.
Assets recorded in the Investment in Plant Fund may be acquired from resources in the
Unexpended Plant, Auxiliary Enterprises, and Restricted Funds.
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
9
The Agency Fund accounts for resources held by the District as custodian or fiscal agent for
students, faculty, staff, and other organizations; therefore, the transactions within this fund do
not affect the statement of changes in fund balances.
C. Basis of Accounting
The financial statements are presented on the accrual basis of accounting. The statement of
current funds revenues, expenditures, and other changes is a statement of financial activities
of current funds related to the current reporting period. It does not claim to present the results
of operations, or the net income or loss for the period as would a statement of income, or a
statement of revenues and expenses.
D. Cash and Investments
The District’s cash and cash equivalents are considered to be cash on hand and demand
deposits.
Investments consist of District monies on deposit with the State and County Treasurer’s
investment pools. Investments are stated at fair value.
E. Inventories
The bookstore inventory is stated at the lower of cost ( first- in, first- out method) or market.
F. Property, Buildings, and Equipment
Property, buildings, and equipment are capitalized at cost if purchased, or estimated fair
market value at the time received in the case of gifts. Major outlays for assets or improvements
to them are capitalized as projects are constructed.
To the extent that current fund monies are used to finance such assets, the amounts so
provided are accounted for as expenditures in the case of normal acquisition or replacement
of movable equipment and library books; mandatory transfers ( transfers among funds
resulting from legally binding agreements) in the case of required provisions for debt
amortization and interest, and equipment renewal and replacement; or nonmandatory
transfers ( transfers among funds made at the discretion of the Governing Board) in other
cases.
Depreciation on buildings and equipment is not recorded.
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
10
G. Compensated Absences
Compensated absences consist only of vacation leave and a calculated amount of sick leave
earned by employees based on services already rendered. Employees may accumulate up to
224 hours of vacation depending on years of service, but any vacation hours in excess of the
maximum amount that are unused at the end of August are forfeited. Generally, sick leave
benefits provide for ordinary sick pay and are cumulative but do not vest with employees and
therefore, are not accrued.
H. Investment Income
Investment income is composed of interest, dividends, and net changes in the fair value of
applicable investments. Income earned from investments purchased with pooled monies is
allocated to each of the District’s funds on a pro rata basis.
I. Summer Sessions
Summer sessions revenues and expenditures are reported in the General Fund within the
fiscal year in which the total summer sessions program is predominately conducted.
Note 2 - 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. Although not statutorily
required, the District has also chosen to deposit other public monies in its custody with the
County Treasurer.
Deposits— At June 30, 2001, the carrying amount of the District’s deposits was $ 355,630, and
the bank balance was $ 716,178. Of the bank balance, $ 222,405 was covered by federal
depository insurance; $ 453,740 was covered by collateral held by the pledging financial
institution’s trust department or agent in the District’s name; and $ 40,033 was uninsured and
uncollaterized.
Investments— At June 30, 2001, the District’s investments consisted of the following.
Fair Value
Cash and investments held by
the County Treasurer
$ 2,245,179
Investment in State Treasurer’s
investment pool
8,464,558
Total
$ 10,709,737
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
11
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 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.
A reconciliation of cash and investments to amounts shown on the balance sheet follows.
Cash and investments: Balance sheet:
Cash on hand $ 16,600 Cash and cash equivalents $ 372,230
Carrying amount of deposits 355,630 Investments 10,709,737
Reported amount of
investments
10,709,737
Total
$ 11,081,967
Total $ 11,081,967
Note 3 - Property Taxes Receivable
The Navajo County Treasurer is responsible for collecting property taxes for all governmental
entities within the County. The County levies the property taxes due to the District in August.
Two equal installments, payable in October and March, become delinquent after the first
business day in November and May. A lien assessed against real and personal property
attaches on the first day of January preceding the assessment and levy.
Property taxes receivable consist of uncollected property taxes as determined from the
records of the County Treasurer’s Office, and at June 30, 2001, the uncollected property taxes
and related allowances for uncollectibles were as follows:
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
12
Fiscal
Year
General
Fund
Retirement of
Indebtedness
2000- 01 $ 311,813 $ 79,248
Prior 75,254 15,171
387,067 94,419
Less allowance for
uncollectibles
( 100,000)
Net total $ 287,067 $ 94,419
Note 4 - Bonds Payable
In July 1995, the District issued $ 15,600,000 in general obligation bonds, with an average
interest rate of 5.36 percent. The proceeds were used to construct permanent educational
facilities, finance various telecommunications equipment and improvements to other existing
equipment, and pay costs relating to the issuance of the bonds. The bonds are generally
callable with interest payable semiannually.
Principal and interest requirements at June 30, 2001, were as follows:
Description
Interest
Rate( s)
Maturities
Outstanding
Principal
General Obligation
Bonds
5.0— 7.0%
7/ 1/ 01— 2010
$ 10,705,000
General obligation bond debt service requirements to maturity, including $ 2,938,960 of
interest, are as follows:
Year ending June 30,
2002 $ 1,507,675
2003 1,504,675
2004 1,509,425
2005 1,511,425
2006 1,514,560
Thereafter 6,096,200
Total $ 13,643,960
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
13
Note 5 - Certificates of Participation Payable
In April 1994, the District issued $ 2,410,000 in certificates of participation with an average
interest rate of 6.17 percent. Of the total proceeds, $ 1,500,000 was used to construct a
classroom building in Show Low, Arizona, and the remaining $ 910,000 was obligated to
advance refund outstanding series 1990 revenue bonds by placing it in an irrevocable trust to
provide for all future debt service payments on the refunded bonds. Accordingly, the trust
account assets and the liability for the defeased bonds are not included in the District’s
financial statements. At June 30, 2001, $ 715,000 of defeased bonds are outstanding.
The certificates are generally callable with interest payable semiannually.
Principal and interest requirements at June 30, 2001, were as follows:
Description
Interest Rates
Maturities
Outstanding
Principal
Certificates of
Participation
5.9— 6.55%
7/ 1/ 01— 2009
$ 1,535,000
Certificates of participation debt service requirements to maturity, including $ 462,449 of
interest, are as follows:
Year ending June 30,
2002 $ 251,188
2003 252,042
2004 252,142
2005 246,468
2006 250,308
Thereafter 745,301
Total $ 1,997,449
Note 6 - Obligations Under Operating Leases
The District leases land, buildings, and equipment under the provisions of various long- term
lease agreements classified as operating leases for accounting purposes. Rental expenditures
under the terms of the operating leases were $ 15,631 for the year ended June 30, 2001. The
operating leases have remaining noncancelable lease terms from four to thirteen years and
provide renewal options. The future minimum rental payments required under the operating
leases at June 30, 2001, were as follows:
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
14
Year ending June 30,
2002 $ 15,631
2003 15,631
2004 15,631
2005 16,346
2006 9,263
Thereafter 73,139
Total minimum payments required $ 145,641
Note 7 - Risk Management
The District is exposed to various risks of loss related to torts; theft of, damage to, and
destruction of assets; errors 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. Settled claims resulting from these risks have not
exceeded commercial insurance coverage in any of the past three fiscal years.
Note 8 - 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 System, 3300 North Central Avenue, PO 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 rate. For the year ended June 30, 2001, active plan
members and the District were each required by statute to contribute at the actuarially
determined rate of 2.66 percent ( 2.17 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, 2001, 2000, and 1999 were $ 175,974, $ 164,910, and $ 207,042,
respectively, which were equal to the required contributions for the year.
Navajo County Community College District
( Northland Pioneer College)
Notes to Financial Statements
June 30, 2001
15
Note 9 - Implementation of GASB Statement No. 35
Beginning with fiscal year 2002, the District will prepare its external financial reports following
the requirements of GASB Statement No. 35, Basic Financial Statements— and Management’s
Discussion and Analysis— for Public Colleges and Universities. Implementing this standard will
significantly change the accounting principles and reporting format used by the District in
future financial reports.
Supplementary Information
Navajo County Community College District
( Northland Pioneer College)
Schedule of Expenditures of Federal Awards
Year Ended June 30, 2001
17
Federal Grantor/ Pass- Through
Grantor/ Program Title
CFDA
Number
Pass- Through
Grantor’s Number
Expenditures
U. S. Department of Labor
Passed through the Governor’s Office of School to Work
Employment and Training Administration Pilots,
Demonstrations, and Research Projects
17.261
A9- 0023- 006
$ 164,533
Passed through the White Mountain Apache Tribe
Workforce Investment Act 17.255 B51605008155 41,598
Total U. S. Department of Labor
206,131
U. S. Small Business Administration
Passed through the Maricopa County Community
College District
Small Business Development Center 59.037 0- 7620- 0003- 08
7620- 00- 76200- 4130 71,694
Total U. S. Small Business Administration
71,694
U. S. Department of Education
Direct Grants
Student Financial Assistance Cluster
Federal Supplemental Educational Opportunity
Grants
84.007
53,057
Federal Work- Study Program 84.033 125,758
Federal Pell Grant Program 84.063 1,473,445
Total Student Financial Assistance Cluster 1,652,260
Passed through the Arizona State Board of Directors for
Community Colleges
Vocational Education— Basic Grants to States 84.048 30106,
30006 209,473
Passed through the Arizona Commission for Postsecondary
Education
Higher Education- Institutional Aid 84.031 P031A000160 161,353
Leveraging Educational Assistance Partnership 84.069 200PE175 44,651
Fund for the Improvement of Postsecondary Education 84.116 P116D990484 155,564
Passed through the Arizona Department of Education
Adult Education— State Grant Program 84.002 01FAEABE- 170595- 01A 93,970
Tech- Prep Education 84.243 01- FVEDTP- 170595- 03A,
00- FVEDTP- 070595- 03A 23,961
Passed through the University of Arizona
Fund for the Improvement of Postsecondary Education 84.116 V399268 4,943
Total U. S. Department of Education
2,346,175
Total Expenditures of Federal Awards
$ 2,624,000
See accompanying notes to schedule.
Navajo County Community College District
( Northland Pioneer College)
Notes to Schedule of Expenditures of Federal Awards
Year Ended June 30, 2001
18
Note 1 - Basis of Presentation
The accompanying schedule of expenditures of federal awards includes the federal grant
activity of Navajo 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 2001 Catalog of Federal
Domestic Assistance.
Note 3 - Subrecipients
The District did not provide federal awards to subrecipients during the year ended June 30,
2001.
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • ( 602) 553 - 0333 • FAX ( 602) 553- 0051
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
Navajo County Community College District
We have audited the financial statements of Navajo County Community College District as of and for the
year ended June 30, 2001, and have issued our report thereon dated February 28, 2003. 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 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. However, we noted
certain matters involving internal control over financial reporting and its operation that we consider to be
reportable conditions. Reportable conditions involve matters coming to our attention relating to significant
deficiencies in the design or operation of internal control over financial reporting that, in our judgment,
could adversely affect the District’s ability to record, process, summarize, and report financial data
consistent with the assertions of management in the financial statements. Reportable conditions are
described in the accompanying schedule of findings and questioned costs as items 01- 01 through 01- 06.
19
20
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. Our consideration of
internal control over financial reporting would not necessarily disclose all such internal control matters that
might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions
that are also considered to be material weaknesses. However, of the reportable conditions described
above, we consider items 01- 01 and 01- 03 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
February 28, 2003
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • ( 602) 553 - 0333 • FAX ( 602) 553- 0051
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
Navajo County Community College District
Compliance
We have audited the compliance of Navajo 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 each of its major federal programs for the year ended
June 30, 2001. 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 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 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, Navajo County Community College District complied, in all material respects, with the
requirements referred to above that are applicable to each of its major federal programs for the year
ended June 30, 2001.
21
22
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 of the 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 and its operation 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
February 28, 2003
Navajo County Community College District
( Northland Pioneer College)
Schedule of Findings and Questioned Costs
Year Ended June 30, 2001
23
Summary of Auditors’ Results
Financial Statements
Type of auditors’ report issued: Unqualified
Yes No
Material weaknesses identified in internal control over financial reporting? x
Reportable conditions identified not considered to be material weaknesses? x
Noncompliance material to the financial statements noted? x
Federal Awards
Material weakness identified in internal control over major programs? x
Reportable condition identified not considered to be a material weakness? x
( None reported)
Type of auditors’ report issued on compliance for major programs: Unqualified
Any audit findings disclosed that are required to be reported in accordance with
Circular A- 133 ( section .510[ a])? x
Identification of major programs:
CFDA Number Name of Federal Program or Cluster
Student Financial Assistance Cluster
84.007 Federal Supplemental Educational Opportunity Grants
84.033 Federal Work- Study Program
84.063 Federal Pell Grant Program
Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000
Auditee qualified as low- risk auditee? x
Other Matters
Auditee's summary schedule of prior audit findings required to be reported in
accordance with Circular A- 133 ( section .315[ b])?
x
Navajo County Community College District
( Northland Pioneer College)
Schedule of Findings and Questioned Costs
Year Ended June 30, 2001
24
Financial Statement Findings
01- 01
The District did not properly account
for property, buildings, and equipment
Property, buildings, and equipment ( plant assets) constitute a significant portion of the District’s total
assets. Maintaining adequate accounting records is essential to safeguard those assets against theft and
misuse; to provide documentation for insurance purposes; to effectively plan future acquisitions,
replacements, and maintenance; and to properly report them in the financial statements. To accomplish
those objectives, the District should maintain a complete, accurate, and properly supported listing of plant
assets.
Although audit adjustments were made to the financial statements for significant property, buildings, and
equipment acquisitions and disposals during the fiscal year, District plant assets records were inaccurate
and incomplete as evidenced by the following:
§ The District had not taken a physical inventory of plant assets in the last 8 years and did not update its
plant assets listing and account balances for current year acquisitions and disposals. Consequently,
the District did not have current and accurate plant assets records as of June 30, 2001.
§ The District did not prepare additions and deletions listings for items acquired or disposed of during
the fiscal year. In addition, the District did not prepare a reconciliation of current year capital
expenditures to capital acquisitions. Further, the District did not prepare a subsidiary ledger or
schedule of construction in progress to accumulate the costs associated with each project.
Consequently, changes in the District’s plant assets balances from the prior year were not adequately
supported.
To help ensure the integrity and accuracy of the District’s plant asset records and to help safeguard the
District’s plant assets, the District’s policies and procedures should include the following:
§ Conduct a complete physical inventory of plant assets at least every 3 years, and investigate and
resolve any discrepancies between the physical inventory, plant assets listing, and account balances.
§ Prepare and maintain a current plant assets listing that includes the acquisition method, funding
source, purchase price, acquisition date, location, serial number, and purchase document number for
all capitalized land, buildings, improvements, and machinery and equipment, including related costs.
§ Update the plant assets listing for all capital acquisitions and donations by fiscal year- end and prepare
a separate additions listing.
§ Delete all disposed, stolen, and lost assets from the plant assets listing by fiscal year- end and prepare
a separate deletions listing.
§ Reconcile capital expenditures to capital acquisitions at least annually.
§ Prepare and maintain a schedule of construction projects in progress that accumulates the costs
associated with each project.
Navajo County Community College District
( Northland Pioneer College)
Schedule of Findings and Questioned Costs
Year Ended June 30, 2001
25
01- 02
The District lacked adequate controls
over its bookstore operations
The District did not have adequate policies and procedures in place for its bookstore operations to ensure
that bookstore materials and supplies were adequately safeguarded, cash receipts were properly
accounted for, inventory was accurately counted and valued, and incompatible employee duties were
segregated. Specifically, we noted the following control deficiencies that could make the bookstore’s
assets susceptible to potential abuse and theft and could cause inventory to be misstated at year- end:
· The bookstore manager was responsible for ordering, receiving, issuing, and storing bookstore
inventory. This employee also received and deposited cash collected from the Keams Canyon Center
and maintained the bookstore’s accounting records.
· The District did not provide written instructions for the year- end physical inventory.
· The year- end inventory listing was lost, and as a result, the year- end inventory balance was not
supported.
No one person should be responsible for handling assets and also maintaining the accounting records for
those assets. The District should take immediate action to separate cash- handling, recordkeeping, and
inventory ordering and receiving functions among employees.
To help ensure that inventory quantities are accurate and the inventory is properly valued, the District
should issue written detailed instructions for year- end physical inventory and take greater care to ensure
that the inventory listings are maintained to support the recorded balance.
Further, the District should document these policies and procedures and provide detailed descriptions of
employees’ responsibilities and duties. Written policies and procedures provide the basic framework for
establishing employee accountability. They also serve as a reference tool for employees seeking guidance
on the proper handling of complex or infrequent transactions and situations, thereby reducing the risk of
errors and irregularities.
01- 03
The District controller performed
incompatible cash- related duties
The District controller transferred cash between accounts and funds, reconciled bank accounts, prepared
journal entries, and maintained accounting records. Allowing one person to perform these incompatible
duties creates the potential for cash to be lost or stolen without being detected by other employees in the
normal course of performing their duties.
The District should separate cash- handling and recordkeeping functions among employees. If the District
controller must perform all these duties, an administrator should review and approve the monthly bank
reconciliations and journal entries.
Navajo County Community College District
( Northland Pioneer College)
Schedule of Findings and Questioned Costs
Year Ended June 30, 2001
26
01- 04
The District’s information system lacked
adequate information technology controls
The District did not establish the necessary information technology controls to secure its information
system from unauthorized access to hardware or software and provide for adequate recovery in the event
of a disaster or systems failure. We noted several control deficiencies that could make the District’s
information system and data vulnerable to unauthorized changes or loss in case of disaster. Specifically,
the District Information Technology group:
Access and physical security controls
· Did not separate operations and programming duties ( two programmers had access to all information
system resources).
· Lacked written procedures for the physical security of computer equipment and for computer- related
emergencies.
Backup and recovery controls
· Did not complete its disaster recovery plan for processing critical jobs in the event of a major hardware
or software failure or applicable forms to be used in case of a disaster.
· Stored the backup tapes openly on a shelf with only smoke detectors as a safeguard.
As a result of these deficiencies, employees could initiate inappropriate transactions or make system
changes without detection. In addition, if a major hardware or software failure occurred, the District might
be unable to recapture financial transactions already processed or process any additional financial
transactions until the failure was corrected.
Protecting information system resources and processing information on secure systems with provisions
for optimum recovery from potential threats are essential to effective District management. Therefore, the
District should prepare, implement, and maintain written procedures that, at a minimum, address the
control deficiencies noted above.
01- 05
The District’s bank accounts were not reconciled
timely nor were reconciling items supported
Timely bank reconciliations are necessary to ensure that cash is adequately safeguarded and accurately
reported. We noted the following deficiencies in the District’s bank reconciliations:
· Several bank accounts were not reconciled until several months after the bank statement dates.
Navajo County Community College District
( Northland Pioneer College)
Schedule of Findings and Questioned Costs
Year Ended June 30, 2001
27
· The General and Payroll accounts were not completely and accurately reconciled as of the fiscal year-end.
Further, reconciling items listed on the year- end reconciliations were not always supported by the
accounting records or other documentation.
To properly account for and safeguard cash, the District should ensure that complete and accurate
reconciliations are performed for all bank accounts on a monthly basis. Further, all reconciling items
should be adequately supported.
01- 06
The District’s did not reconcile expenditures
between the payroll system and general ledger
Payroll expenditures comprise a significant portion of the District’s total expenditures. The District’s payroll
expenditures recorded in the general ledger should be supported by the amounts recorded in the District’s
payroll system. However, the District did not reconcile the payroll registers from the District’s payroll
system to the general ledger. At June 30, 2001, there was a difference of approximately $ 380,000 between
the two systems.
To ensure payroll expenditures are properly recorded, the District should reconcile the payroll registers to
the general ledger for each pay period, and investigate and resolve any discrepancies.
7 May 2003
Mr. Dennis L. Mattheisen
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Mr. Mattheisen,
The following is Northland Pioneer College's response to the audit findings and related
recommendations as described in the management letter for the year ended June 30, 2001.
1. The District did not properly account for property, buildings and equipment. A complete
physical inventory of plant assets has been accomplished since the period reviewed in this
audit. Plant asset listings have been updated and we are in process of reconciling these
entries to the general ledger. We are scheduled to complete a reconciliation of the physical
inventory, plant assets listing, and account balances by June 30, 2003. Procedures have
been implemented requiring a separate additions and deletions listing to be completed
annually along with a schedule of construction in progress and a complete reconciliation
for all components of the plant assets record.
2. The District lacked adequate controls over its bookstore operations. We agree that no one
individual should be responsible for handling assets and also maintaining the accounting
records for these assets. In order to ensure adequate separation of duties, we have
incorporated the following procedures:
• All cash collections will be forwarded to the business office for deposit if a local banking
relationship has not been established. No cash will be forwarded to the district bookstore.
• The District purchasing department, not the District bookstore, is responsible for receiving
bookstore assets.
• Detailed written instructions for the completion of the annual year- end physical inventory
will be provided to each bookstore location.
• Inventory listings are to be maintained and reconciled. Backup copies of all inventory
listings are to be kept in two separate physical locations.
• A bookstore procedure manual is to be distributed to all bookstore locations and will be
reviewed by all employees performing bookstore duties.
Navajo County Community College District Mailing
Address: P. O. Box 6111. Holbrook, AZ 86025- 0610
( 928) 524- 7600
3. The District controller performed incompatible cash- related duties. Several mitigating
controls are in place to ensure that the combining of cash- handling and record keeping
functions does not create a potential loss to the District.
• Bank transfers require the participation of two individuals.
• The business office manager reviews all journal entries prepared by the controller.
• An administrator reviews all monthly bank reconciliations prepared by the controller.
• A check log is maintained and reviewed independently of the controller.
4. The District's information system lacked adequate information technology controls.
Procedures in the areas of physical security controls, program change controls, database
controls and backup/ recovery controls have been implemented. A procedure manual that
includes each of the following controls is being updated and will be maintained.
• Administrative review controls to address the inability to completely separate operations
and programming duties.
• Physical security of computer equipment, including computer- related emergencies.
• Disaster recovery plan for processing critical jobs, including a mirrored database in a
separate physical location and an HDR ( High Availability Data Replication) system.
• The use of a fire- safe cabinet for backup tapes.
• Database logging, database audit functions and software revision control.
5. The District's bank accounts were not reconciled timely nor were reconciling items
supported. Due to a change in the controller position, including a lengthy period of vacancy,
critical procedures were not accomplished on a timely basis. Additionally, some support
documentation was not able to be located. All bank accounts are now being reconciled
timely and with complete documentation.
6. The District did not reconcile expenditures between the payroll system and the general
ledger. Due to a change in the controller position, including a lengthy period of vacancy,
critical procedures were not accomplished on a timely basis. Procedures have been
implemented to reconcile the payroll registers to the general ledger for each payroll.
Thank you for the professional activities of your audit staff and their assistance in identifying areas of
concern along with the recommendations for improvement. We appreciate your continuing involvement
in this important function. Please contact me if you have any questions.
Sincerely,
V. Blaine Hatch
Vice President for Administrative Services