Atkins School District No. 18, Pope County, Arkansas, regulatory basis financial statements and other reports

              LEGISLATIVE JOINT AUDITING COMMITTEE

Atkins School District No. 18

Pope County, Arkansas

Regulatory Basis Financial Statements

and Other Reports

June 30, 2007

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

TABLE OF CONTENTS

JUNE 30, 2007

Independent Auditor's Report

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial

Statements Performed in Accordance With Government Auditing Standards

Report on Compliance With Requirements Applicable to Each Major Program and on Internal Control Over Compliance in

Accordance With OMB Circular A- 133

REGULATORY BASIS FINANCIAL STATEMENTS

Exhibit

Balance Sheet – Regulatory Basis A

Statement of Revenues, Expenditures and Changes in Fund Balances –

Governmental Funds – Regulatory Basis B

Statement of Revenues, Expenditures and Changes in Fund Balances –

Budget and Actual – General and Special Revenue Funds – Regulatory Basis C

Notes to Financial Statements

SUPPLEMENTARY INFORMATION

Schedule

Schedule of Capital Assets ( Unaudited) 1

Expenditures of Federal Awards 2

Federal Award Programs – Findings and Questioned Costs 3

Federal Award Programs – Summary of Prior Audit Findings 4

INDEPENDENT AUDITOR'S REPORT

Atkins School District No. 18 and School Board Members

Legislative Joint Auditing Committee

We have audited the accompanying financial statements of each major governmental fund and the aggregate remaining fund

information of the Atkins School District No. 18 ( the " District"), as of and for the year ended June 30, 2007, which collectively

comprise the District’s regulatory basis financial statements as listed in the table of contents. These financial statements are the

responsibility of District management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the

standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the

United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that

our audit provides a reasonable basis for our opinions.

As described more fully in Note 1, the District has prepared these financial statements using accounting practices prescribed or

permitted by Arkansas Code, which practices differ from accounting principles generally accepted in the United States of America.

The effect on the financial statements of the variances between these regulatory accounting practices and accounting principles

generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to

above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the

financial position of the District as of June 30, 2007, or the changes in financial position for the year then ended. Further, the

District has not presented a management’s discussion and analysis that accounting principles generally accepted in the

United States has determined is necessary to supplement, although not required to be part of, the basic financial statements.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of

each major governmental fund and the aggregate remaining fund information of the District as of June 30, 2007, and the

respective changes in financial position and budgetary results for the year then ended, on the basis of accounting described in

Note 1.

In accordance with Government Auditing Standards, we have also issued our report dated April 1, 2008 on our consideration of

the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations,

contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal

control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control

over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government

Auditing Standards and should be considered in assessing the results of our audit.

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Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s

regulatory basis financial statements. The Schedule of Capital Assets ( Schedule 1), Expenditures of Federal Awards

( Schedule 2), as required by U. S. Office of Management and Budget Circular A- 133, Audits of States, Local Governments, and

Non- Profit Organizations, Federal Award Programs – Findings and Questioned Costs ( Schedule 3) and Federal Award

Programs – Summary of Prior Audit Findings ( Schedule 4) are presented for purposes of additional analysis and are not a

required part of the regulatory basis financial statements. The Expenditures of Federal Awards ( Schedule 2), Federal Award

Programs – Findings and Questioned Costs ( Schedule 3) and Federal Award Programs – Summary of Prior Audit Findings

( Schedule 4) have been subjected to the auditing procedures applied in the audit of the regulatory basis financial statements and,

in our opinion, are fairly stated in all material respects in relation to the regulatory basis financial statements taken as a whole.

The Schedule of Capital Assets ( Schedule 1) has not been subjected to the auditing procedures applied in the audit of the

regulatory basis financial statements and, accordingly, we express no opinion on it.

DIVISION OF LEGISLATIVE AUDIT

Roger A. Norman, JD, CPA, CFE

Legislative Auditor

Little Rock, Arkansas

April 1, 2008

EDSD31107

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

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

STANDARDS

Atkins School District No. 18 and School Board Members

Legislative Joint Auditing Committee

We have audited the financial statements of each major governmental fund and the aggregate remaining fund information of the

Atkins School District No. 18 ( the " District"), as of and for the year ended June 30, 2007, which collectively comprise the District’s

regulatory basis financial statements, and have issued our report thereon dated April 1, 2008. We issued an adverse opinion

because the District prepared the financial statements using accounting practices prescribed or permitted by the Arkansas Code,

which differ from accounting principles generally accepted in the United States of America. The effect on the financial statements

of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States

of America, although not reasonably determinable, are presumed to be material. However, the financial statements present fairly,

in all material respects, the respective financial position of each major governmental fund and the aggregate remaining fund

information of the District as of June 30, 2007, and the respective changes in financial position and budgetary results for the year

then ended, on the basis of accounting described in Note 1. We conducted our audit in accordance with auditing standards

generally accepted in the United States of America and the standards applicable to financial audits contained in Government

Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the District's internal control over financial reporting as a basis for designing

our auditing procedures for the purpose of expressing our opinion on the regulatory basis financial statements, but not for the

purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do

not express an opinion on the effectiveness of the District’s internal control over financial reporting.

Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and

would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or

material weaknesses. However, as discussed below, we identified a certain deficiency in internal control over financial reporting

that we consider to be a significant deficiency.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal

course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a

control deficiency, or combination of control deficiencies, that adversely affects the District's ability to initiate, authorize, record,

process, or report financial data reliably in accordance with the regulatory basis of accounting as prescribed or permitted by

Arkansas Code such that there is more than a remote likelihood that a misstatement of the District’s financial statements that is

more than inconsequential will not be prevented or detected by the District’s internal control. We consider the deficiency

described in the accompanying schedule of Federal Award Programs - Findings and Questioned Costs as item 2007- 1 to be a

significant deficiency in internal control over financial reporting.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote

likelihood that a material misstatement of the financial statements will not be prevented or detected by the District’s internal

control.

Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this

section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and,

accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses.

However, of the significant deficiency described above, we consider item 2007- 1 in the accompanying schedule of Federal Award

Programs - Findings and Questioned Costs to be a material weakness.

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Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District's regulatory basis financial statements are free of material

misstatement, we performed tests of its compliance with certain provisions of the state constitution, state and federal laws and

regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the

determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an

objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of

noncompliance or other matters that are required to be reported under Government Auditing Standards.

The District’s response to the finding identified in our audit is described in the accompanying schedule of Federal Award

Programs – Findings and Questioned Costs. We did not audit the District’s response and, accordingly, we express no opinion

on it.

This report is intended solely for the information and use of the Legislative Joint Auditing Committee, the local school board

and District management, state executive and oversight management, federal regulatory and oversight bodies, the federal

awarding agencies and pass- through entities, and other parties as required by Arkansas Code, and is not intended to be and

should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated § 10- 4- 417,

all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited.

DIVISION OF LEGISLATIVE AUDIT

Larry W. Hunter, CPA, CFE

Deputy Legislative Auditor

Little Rock, Arkansas

April 1, 2008

REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL

CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A- 133

Atkins School District No. 18 and School Board Members

Legislative Joint Auditing Committee

Compliance

We have audited the compliance of the Atkins School District No. 18 ( the " 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, 2007. The District's major federal programs are identified in

the summary of auditor's results section of the accompanying schedule of Federal Award Programs - Findings and Questioned

Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal

programs is the responsibility of the District's management. Our responsibility is to express an opinion on the District's

compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of

America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller

General of the United States; and OMB Circular A- 133, Audits of States, Local Governments, and Non- Profit Organizations.

Those standards and OMB Circular A- 133 require that we plan and perform the audit to obtain reasonable assurance about

whether noncompliance with the types of compliance requirements referred to above that could have a direct and material

effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's

compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the

District's compliance with those requirements.

In our opinion, the District complied, in all material respects, with the requirements referred to above that are applicable to

each of its major federal programs for the year ended June 30, 2007.

Internal Control Over Compliance

The management of the District is responsible for establishing and maintaining effective internal control over compliance with

the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our

audit, we considered the District's internal control over compliance with the requirements that could have a direct and material

effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on

compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance.

Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance.

A control deficiency in an entity’s internal control over compliance exists when the design or operation of a control does not

allow management or employees, in the normal course of performing their assigned functions, to prevent or detect

noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a

control deficiency, or combination of control deficiencies, that adversely affects the District’s ability to administer a federal

program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a

federal program that is more than inconsequential will not be prevented or detected by the District’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote

likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or

detected by the District’s internal control.

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Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this

section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material

weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material

weaknesses, as defined above.

This report is intended solely for the information and use of the Legislative Joint Auditing Committee, the local school board

and District management, state executive and oversight management, federal regulatory and oversight bodies, the federal

awarding agencies and pass- through entities, and other parties as required by Arkansas Code, and is not intended to be and

should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated § 10- 4- 417,

all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited.

DIVISION OF LEGISLATIVE AUDIT

Larry W. Hunter, CPA, CFE

Deputy Legislative Auditor

Little Rock, Arkansas

April 1, 2008

Exhibit A

Special Other Fiduciary

General Revenue Aggregate Fund Types

ASSETS

Cash $ 1 ,658,520 $ 1 51,458 $ 2 ,348 $ 5 4,558

Deposit with paying agent 6 7,823

TOTAL ASSETS $ 1 ,726,343 $ 1 51,458 $ 2 ,348 $ 5 4,558

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable $ 2 5,534 $ 1 0,817

Due student groups $ 5 4,558

Deferred taxes 1 44,853

Total Liabilities 1 70,387 1 0,817 5 4,558

Fund Balances:

Reserved:

Debt service 6 7,823

Capital projects $ 2 ,348

Unreserved:

Undesignated 1 ,488,133 1 40,641

Total Fund Balances 1 ,555,956 1 40,641 2 ,348

TOTAL LIABILITIES AND

FUND BALANCES $ 1 ,726,343 $ 1 51,458 $ 2 ,348 $ 5 4,558

The accompanying notes are an integral part of these financial statements.

Major

Governmental Funds

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

BALANCE SHEET - REGULATORY BASIS

JUNE 30, 2007

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Exhibit B

Special Other

General Revenue Aggregate

REVENUES

Property taxes ( including property tax relief trust distribution) $ 1,388,472 $ 677

State assistance 5,853,538 $ 4,388

Federal assistance 2,249 1,000,240

Activity revenues 114,240

Meal sales 138,776

Investment income 56,243 1,228 100

Other revenues 59,620 80,950

TOTAL REVENUES 7,474,362 1,225,582 777

EXPENDITURES

Regular programs 3,386,500 161,063 25,875

Special education 434,538 164,048

Workforce education 272,324 15,954

Compensatory education 3,616 296,542

Other instructional programs 180,428

Student support services 242,726 106,360

Instructional staff support services 295,156 131,503

General administration support services 197,205

School administration support services 326,655

Business support services 93,226

Operation and maintenance of plant services 732,016 848

Student transportation services 305,954 21,274

Other support services 23,140

Food services operations 7,490 448,960

Facilities acquisition and construction services 286

Non- programmed costs 56,745 24,836

Activity expenditures 101,235

Debt Service:

Principal retirement 72,949 135,000

Interest and fiscal charges 3,454 91,811

TOTAL EXPENDITURES 6,735,357 1,371,388 252,972

EXCESS OF REVENUES OVER ( UNDER) EXPENDITURES 739,005 ( 145,806) ( 252,195)

OTHER FINANCING SOURCES ( USES)

Transfers in 226,811

Transfers out ( 226,811)

TOTAL OTHER FINANCING SOURCES ( USES) ( 226,811) 226,811

EXCESS OF REVENUES AND OTHER

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER USES 512,194 ( 145,806) ( 25,384)

FUND BALANCES - JULY 1 1,043,762 286,447 27,732

FUND BALANCES - JUNE 30 $ 1,555,956 $ 140,641 $ 2,348

The accompanying notes are an integral part of these financial statements.

Major

GOVERNMENTAL FUNDS - REGULATORY BASIS

FOR THE YEAR ENDED JUNE 30, 2007

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -

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Exhibit C

Variance Variance

Favorable Favorable

Budget Actual ( Unfavorable) Budget Actual ( Unfavorable)

REVENUES

Property taxes ( including property tax relief trust distribution) $ 1,382,000 $ 1,388,472 $ 6,472

State assistance 5,791,737 5,853,538 61,801 $ 4,472 $ 4,388 $ ( 84)

Federal assistance 250 2,249 1,999 1,025,142 1,000,240 ( 24,902)

Activity revenues 114,240 114,240

Meal sales 136,140 138,776 2,636

Investment income 10,000 56,243 46,243 1,228 1,228

Other revenues 59,620 59,620 80,950 80,950

TOTAL REVENUES 7,183,987 7,474,362 290,375 1,165,754 1,225,582 59,828

EXPENDITURES

Regular programs 3,510,376 3,386,500 123,876 157,281 161,063 ( 3,782)

Special education 427,142 434,538 ( 7,396) 166,652 164,048 2,604

Workforce education 265,599 272,324 ( 6,725) 16,450 15,954 496

Compensatory education 3,616 ( 3,616) 287,124 296,542 ( 9,418)

Other instructional programs 202,448 180,428 22,020

Student support services 231,975 242,726 ( 10,751) 115,670 106,360 9,310

Instructional staff support services 386,708 295,156 91,552 218,047 131,503 86,544

General administration support services 247,405 197,205 50,200

School administration support services 323,977 326,655 ( 2,678)

Business support services 60,239 93,226 ( 32,987)

Operation and maintenance of plant services 795,826 732,016 63,810 1,430 848 582

Student transportation services 419,167 305,954 113,213 21,769 21,274 495

Other support services 22,000 23,140 ( 1,140)

Food services operations 7,490 ( 7,490) 421,157 448,960 ( 27,803)

Community services 1,000 1,000

Other non- instructional services

Facilities acquisition and construction services 20,000 20,000

Non- programmed costs 79,573 56,745 22,828 24,836 24,836

Activity expenditures 101,235 ( 101,235)

Debt Service:

Principal retirement 72,950 72,949 1

Interest and fiscal charges 3,514 3,454 60

TOTAL EXPENDITURES 7,068,899 6,735,357 333,542 1,431,416 1,371,388 60,028

FOR THE YEAR ENDED JUNE 30, 2007

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -

BUDGET AND ACTUAL - GENERAL AND SPECIAL REVENUE FUNDS - REGULATORY BASIS

General Special Revenue

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Exhibit C

Variance Variance

Favorable Favorable

Budget Actual ( Unfavorable) Budget Actual ( Unfavorable)

FOR THE YEAR ENDED JUNE 30, 2007

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -

BUDGET AND ACTUAL - GENERAL AND SPECIAL REVENUE FUNDS - REGULATORY BASIS

General Special Revenue

EXCESS OF REVENUES OVER ( UNDER)

EXPENDITURES $ 115,088 $ 739,005 $ 623,917 $ ( 265,662) $ ( 145,806) $ 119,856

OTHER FINANCING SOURCES ( USES)

Transfers in 3,798,441 ( 3,798,441)

Transfers out ( 4,053,561) ( 226,811) 3,826,750 ( 10,530) 10,530

TOTAL OTHER FINANCING SOURCES ( USES) ( 255,120) ( 226,811) 28,309 ( 10,530) 10,530

EXCESS OF REVENUES AND OTHER

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER USES ( 140,032) 512,194 652,226 ( 276,192) ( 145,806) 130,386

FUND BALANCES - JULY 1 1,004,990 1,043,762 38,772 287,508 286,447 ( 1,061)

FUND BALANCES - JUNE 30 $ 864,958 $ 1,555,956 $ 690,998 $ 11,316 $ 140,641 $ 129,325

The accompanying notes are an integral part of these financial statements.

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ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Reporting Entity

The Board of Education, a five member group, is the level of government, which has responsibilities

over all activities related to public elementary and secondary school education within the jurisdiction of

the Atkins School District ( District). There are no component units.

B. Description of Funds

Major governmental funds ( per the regulatory basis of accounting) are defined as General and Special

Revenue.

General Fund - The General Fund is the general operating fund and is used to account for all financial

resources, except those required to be reported in another fund.

Special Revenue Fund – The Special Revenue Fund is used to account for the proceeds of specific

revenue sources ( other than trusts for individuals, private organizations, or other governments or for

major capital projects) that are legally restricted to expenditures for specified purposes.

Other governmental funds, presented in the aggregate, consist of the following:

Capital Projects Fund – The Capital Projects Fund is used to account for financial resources

to be used for the acquisition or construction of major capital facilities ( other than those

financed by proprietary funds or in trust funds for individuals, private organizations, or other

governments).

Debt Service Fund – The Debt Service Fund is used to account for the accumulation of

resources for, and the payment of, general long- term debt principal, interest and related

costs.

Fiduciary Fund types include the following:

Agency Funds - Agency Funds are used to report resources held by the reporting

government in a purely custodial capacity ( assets equal liabilities).

C. Measurement Focus and Basis of Accounting

The financial statements are prepared in accordance with a regulatory basis of accounting ( RBA).

This basis of accounting is prescribed by Arkansas Code Annotated § 10- 4- 413( c), as provided in

Act 2201 of 2005, and requires that financial statements be presented on a fund basis with, as a

minimum, the general fund and special revenue fund presented separately and all other funds

included in the audit presented in the aggregate. The law also stipulates that the financial

statements consist of a balance sheet; a statement of revenues, expenditures, and changes in fund

balances; a comparison of the final adopted budget to the actual expenditures for the general fund

and special revenue funds of the entity; notes to financial statements; and a supplemental schedule

of capital assets, including land, buildings, and equipment. The law further stipulates that the State

Board of Education shall promulgate the rules necessary to administer the regulatory basis of

presentation.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued)

C. Measurement Focus and Basis of Accounting ( Continued)

The RBA is not in accordance with generally accepted accounting principles ( GAAP). GAAP require

that basic financial statements present government- wide financial statements. Additionally, GAAP

require the following major concepts: Management’s Discussion and Analysis, accrual basis of

accounting for government- wide financial statements, including depreciation expense, modified accrual

basis of accounting for fund financial statements, separate financial statements for fiduciary fund

types, separate identification of special and extraordinary items, inclusion of capital assets and debt in

the financial statements, specific procedures for the identification of major governmental funds and

applicable note disclosures. The RBA does not require government- wide financial statements or the

previously identified concepts.

The accompanying financial statements are presented on a fund basis. A fund is defined as a fiscal

and accounting entity with a self- balancing set of accounts, which are segregated for purposes of

recording specific activities or attaining certain objectives. Revenues are reported by major sources

and expenditures are reported by major function. Other transactions, which are not reported as

revenues or expenditures, are reported as other financing sources and uses. Transactions related to

the recording of installment contracts and capital leases are reported as other financing sources.

Changes in private- purpose trust funds will be reflected in the notes to the financial statements.

D. Revenue Recognition Policies

Revenues are recognized when they become susceptible to accrual in accordance with the RBA,

except for property taxes ( see Note 1 F below).

E. Capital Assets

Information on capital assets and related depreciation is reported at Schedule 1. Capital assets are

capitalized at historical cost or estimated historical cost, if actual data is not available. Capital assets

purchased are recorded as expenditures in the applicable fund at the time of purchase. Donated

capital assets are reported at fair value when received. The District maintains a threshold level of

$ 1,000 for capitalizing equipment. Library holdings are not capitalized.

No salvage value is taken into consideration for depreciation purposes. All capital assets, other than

land and construction in progress, are depreciated using the straight- line method over the following

useful lives:

Asset Class Estimated Useful Life in Years

Improvements/ infrastructure 20

Buildings 50

Equipment 5- 20

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued)

F. Property Taxes

Property taxes are levied in November based on property assessment made between January 1 and

May 31 and are an enforceable lien on January 1 for real property and June 1 for personal property.

The tax records are opened on the first business day of March of the year following the levy date and

are considered delinquent after October 10 of the same calendar year. Property taxes are accrued or

deferred, as applicable, in accordance with guidelines issued by the Arkansas Department of

Education ( ADE), which were effective beginning with the fiscal year ended June 30, 2006. Arkansas

law defines revenue receipts of a school district and includes forty percent ( 40%) of the proceeds of

local taxes which are not pledged to secure bonded indebtedness or forty percent ( 40%) of the

revenue from the uniform rate of tax whichever is greater collected in the succeeding calendar year,

commonly known as 40% pullback, within that definition. The ADE has determined that school districts

must utilize the 40% pullback amount, as calculated by the ADE and reflected on the respective

county’s abstract of assessments, in recording property tax revenue as follows:

• If the amount of 40% pullback collected by June 30th is less than the calculated 40% pullback

amount, the difference must be accrued;

• If the amount of 40% pullback collected by June 30th is more than the calculated 40% pullback

amount, the excess must be recorded as deferred taxes.

Amendment No. 74 to the Arkansas Constitution established a uniform minimum property tax millage

rate of 25 mills for maintenance and operation of public schools. Ark. Code Ann. § 26- 80- 101 provides

the uniform rate of tax ( URT) shall be assessed and collected in the same manner as other school

property taxes, but the net revenues from the URT shall be remitted to the State Treasurer and

distributed by the State to the county treasurer of each county for distribution to the school districts in

that county. For reporting purposes, URT revenues are considered property taxes.

G. Fund Balance Designations

1. Reserved fund balance - represents that portion of the fund balance which is not appropriable

for expenditure or is legally segregated for a specific future use.

2. Undesignated fund balance - indicates that portion of the fund balance not reserved or

designated.

H. Budget and Budgetary Accounting

The District is required by state law to prepare an annual budget. The annual budget is prepared

on a fiscal year basis. The District does not prepare and submit amended budgets during the fiscal

year. The State Department of Education’s regulations allow for the cash basis or the modified

accrual basis. However, the majority of the school districts employ the cash basis method.

The District budgets intra- fund transfers. Significant variances may result in the comparison of

transfers at the Statement of Revenues, Expenditures and Changes in Fund Balances – Budget

and Actual – General and Special Revenue Funds – Regulatory Basis because only interfund

transfers are reported at the Statement of Revenues, Expenditures and Changes in Fund

Balances – Governmental Funds – Regulatory Basis.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued)

H. Budget and Budgetary Accounting ( Continued)

Budgetary perspective differences are not considered to be significant, because the structure of the

information utilized in preparing the budget and the applicable fund financial statements is

essentially the same.

On- behalf payments as described at Note 7 are nonbudgeted data for the year ended June 30,

2007. Such payments are reported as actual revenues and expenditures in the Statement of

Revenues, Expenditures and Changes in Fund Balances – Budget and Actual – General and

Special Revenue Funds – Regulatory Basis ( Exhibit C).

2: CASH DEPOSITS WITH FINANCIAL INSTITUTIONS

Cash deposits are carried at cost ( carrying value). A comparison of the bank balance and carrying value is as

follows:

Carrying Bank

Amount Balance

Insured ( FDIC) $ 100,000 $ 1 00,000

Collateralized:

Collateral held by the pledging bank or pledging

bank's trust department in the District's name 1 ,766,884 2,028,684

Total Deposits $ 1 ,866,884 $ 2 ,128,684

3: COMMITMENTS

The District was contractually obligated for the following at June 30, 2007:

A. Operating Leases ( noncapital leases with initial noncancellable lease terms in excess of one year)

General description of leases and leasing arrangements:

The District executed the following lease agreements for 60 months:

( a) One Canon 3300 copier, dated July 9, 2003, with monthly payment of $ 175 plus applicable

sales taxes.

( b) One Canon 400S copier, dated June 1, 2004, with monthly payment of $ 198 plus applicable

sales taxes.

( c) Two Canon 3300 copiers, dated July 7, 2004, with monthly payments of $ 189 each plus

applicable sales taxes.

( d) One Canon 3300 copier, dated August 2, 2004, with monthly payments of $ 189 plus

applicable sales taxes.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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3: COMMITMENTS ( Continued)

A. ( Continued)

General description of leases and leasing arrangements: ( Continued)

1. Future minimum rental payments ( aggregate) at June 30, 2007: $ 22,183

2. Future minimum rental payments for the succeeding years:

Year Ended June 30, Amount

2008 $ 1 2,233

2009 9 ,745

2010 2 05

Total $ 22,183

Rental payments for the operating leases described above were approximately $ 12,233 for the year

ended June 30, 2007.

B. Long- term Debt Issued and Outstanding

The District is presently paying on the following long- term debt:

Amount Debt Maturities

Date Date of Final Rate of Authorized Outstanding To

of Issue Maturity Interest and Issued June 30, 2007 June 30, 2007

8/ 1/ 03 6/ 1/ 20 3.6 - 3.85% $ 2 ,855,275 $ 2 ,330,000 $ 5 25,275

5/ 30/ 05 5/ 30/ 15 1 10,468 110,468

6/ 18/ 03 6/ 18/ 13 1 26,681 126,681

Totals $ 3 ,092,424 $ 2 ,567,149 $ 5 25,275

Changes in Long- term Debt

Balance Balance

July 1, 2006 Retired June 30, 2007

Bonds payable $ 2 ,465,000 $ 135,000 $ 2,330,000

Postdated warrants 3 10,098 7 2,949 237,149

Totals $ 2 ,775,098 $ 207,949 $ 2,567,149

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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3: COMMITMENTS ( Continued)

B. Long- term Debt Issued and Outstanding ( Continued)

Total long- term debt principal and interest payments are as follows:

Year Ended

June 30, Principal Interest Total

2008 $ 1 40,000 $ 8 6,270 $ 226,270

2009 1 50,000 8 1,230 231,230

2010 1 55,000 7 5,830 230,830

2011 1 55,000 7 0,870 225,870

2012 1 65,000 6 5,600 230,600

2013- 2017 1 ,157,149 2 32,795 1,389,944

2018- 2020 6 45,000 5 0,435 695,435

Totals $ 2 ,567,149 $ 6 63,030 $ 3,230,179

Qualified Zone Academy Bond ( QZAB)

On June 18, 2003 and May 30, 2005, respectively, the District obtained funding through the

Qualified Zone Academy Bond ( QZAB) program, a financial arrangement created by the Tax Relief

Act of 1997. A QZAB does not generally require interest payments from the borrower. The eligible

financial institution holding the bond receives a tax credit in lieu of interest payments. The principal

is not due until the end of the term. The District borrowed $ 126,681 and $ 110,468, respectively,

through this program by issuing postdated warrants. The District will deposit $ 11,694 and $ 10,524

annually into a sinking fund for 10 years for a total of $ 116,940 and $ 105,240, respectively. This

amount plus interest will be used to retire the debt when due.

4: ACCOUNTS PAYABLE

The accounts payable balance of $ 36,351 at June 30, 2007, was comprised of the following:

Special

Description General Revenue Total

Vendor payables $ 2 5,534 $ 10,817 $ 36,351

Major

Governmental Funds

5: INTERFUND TRANSFERS

The District transferred $ 226,811 from the general fund to the other aggregate funds for debt related payments.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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6: RETIREMENT PLANS

Arkansas Teacher Retirement System

Plan Description. The District contributes to the Arkansas Teacher Retirement System ( ATRS), a cost-sharing

multiple- employer defined benefit pension plan that covers all Arkansas public school employees,

except certain nonteachers hired prior to July 1, 1989. ATRS provides retirement and disability benefits,

annual cost- of- living adjustments, and death benefits to plan members and beneficiaries. Benefit and

contribution provisions are established by State law and can be amended only by the Arkansas General

Assembly. The Arkansas Teacher Retirement System issues a publicly available financial report that

includes financial statements and required supplementary information for ATRS. That report may be

obtained by writing to Arkansas Teacher Retirement System, 1400 West Third Street, Little Rock, Arkansas

72201 or by calling 1- 800- 666- 2877.

Funding Policy. ATRS has contributory and non- contributory plans. Contributory members are required by

law to contribute 6% of their salary. Each participating employer is required by law to contribute at a rate

established by the Arkansas General Assembly. The current employer rate is 14%. The District's

contributions to ATRS for the years ended June 30, 2007, 2006 and 2005 were $ 665,956, $ 649,736 and

$ 606,296, respectively, equal to the required contributions for each year.

Arkansas Public Employees Retirement System

Plan Description. The District contributes to the Arkansas Public Employees Retirement System ( PERS), a

cost- sharing multiple- employer defined benefit pension plan that covers certain nonteaching Arkansas public

school employees hired before July 1, 1989. PERS provides retirement and disability benefits, annual cost-of-

living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution

provisions are established by State law and can be amended only by the Arkansas General Assembly. The

Arkansas Public Employees Retirement System issues a publicly available financial report that includes

financial statements and required supplementary information for PERS. That report may be obtained by

writing to Arkansas Public Employees Retirement System, One Union National Plaza, 124 W. Capitol,

Little Rock, Arkansas 72201 or by calling 1- 800- 682- 7377.

Funding Policy. PERS has contributory and non- contributory plans. Contributory members are required by

law to contribute 6% of their salary. Each participating employer is required by law to contribute at a rate

established by the Arkansas General Assembly. The current statutory employer rate is 4% of annual

covered payroll. The District's contributions to PERS for the years ended June 30, 2007, 2006 and 2005

were $ 4,737, $ 4,874 and $ 4,857, respectively, equal to the required contributions for each year.

7: ON- BEHALF PAYMENTS

The accompanying financial statements reflect on- behalf payments of $ 74,603 for health insurance premiums

paid by the Arkansas Department of Education.

8: 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 board liability and student accidents. Settled claims have not

exceeded this commercial coverage in any of the past three fiscal years. There were no significant reductions in

insurance coverage from the prior year in the major categories of risk.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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8: RISK MANAGEMENT ( Continued)

The District participates in the Arkansas School Boards Association – Workers’ Compensation Trust ( the Trust),

a self- insurance trust voluntarily established on July 1, 1994 pursuant to state law. The Trust is responsible for

obtaining and administering workers’ compensation insurance coverage for its members, as well as obtaining

reinsurance coverage for those claims that exceed the standard policy limits. In its administrative capacity, the

Trust is responsible for monitoring, negotiating and settling claims that have been filed on behalf of and against

member districts. The District contributes annually to this program.

Additionally, the District participates in the Arkansas School Boards Association – Risk Management Program

( the Association), a self- insurance program voluntarily established on February 1, 1984 pursuant to state law.

The Association is responsible for obtaining and administering insurance coverage for property and vehicles for

its members, as well as obtaining reinsurance coverage for those claims that exceed the standard policy limits.

In its administrative capacity, the Association is responsible for monitoring, negotiating and settling claims that

have been filed against member districts. The District pays an annual premium for its coverage of buildings,

contents and vehicles.

The District participates in the Arkansas Fidelity Bond Trust Fund administered by the Governmental Bonding

Board. This program provides coverage for actual losses sustained by its members through fraudulent or

dishonest acts committed by officials or employees. Each loss is limited to $ 250,000 with a $ 1,000 deductible.

Premiums for coverage are paid by the Chief Fiscal Officer of the State of Arkansas from funds withheld from

the Public School Fund.

Schedule 1

Balance

June 30, 2007

Nondepreciable capital assets:

Land $ 4 04,711

Depreciable capital assets:

Buildings 6 ,377,618

Improvements/ infrastructure 4 84,306

Equipment 1 ,704,306

Total depreciable capital assets 8 ,566,230

Less accumulated depreciation for:

Buildings 2 ,266,025

Improvements/ infrastructure 1 96,494

Equipment 1 ,098,784

Total accumulated depreciation 3,561,303

Total depreciable capital assets, net 5,004,927

Capital assets, net $ 5,409,638

( Unaudited)

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

SCHEDULE OF CAPITAL ASSETS

FOR THE YEAR ENDED JUNE 30, 2007

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Schedule 2

Federal Pass- Through

CFDA Entity Identifying Federal

Number Number Expenditures

10.553 58- 01 $ 6 4,428

10.555 58- 01 2 13,096

TOTAL CHILD NUTRITION CLUSTER 2 77,524

OTHER PROGRAMS

U. S. Department of Agriculture

Food Donation ( Note 2) 10.550 1 ,193

Passed Through State Department of Health and Human Services:

Food Donation ( Note 3) 10.550 58- 01 2 9,152

Total U. S. Department of Agriculture 3 0,345

U. S. Department of Education

Passed Through State Department of Education:

84.010 58- 01 3 68,866

84.027 58- 01 2 23,590

84.186 58- 01 6 ,171

84.298 58- 01 2 ,101

Education Technology State Grants 84.318 58- 01 5 ,640

Rural Education 84.358 58- 01 4 0,069

Improving Teacher Quality State Grants 84.367 58- 01 1 61,550

Hurricane Education Recovery 84.938 58- 01 1 0,530

Passed Through Russellville School District:

Career and Technical Education - Basic Grants to States 84.048 58- 01 1 5,954

8 34,471

TOTAL OTHER PROGRAMS 8 64,816

$ 1 ,142,340

Note 1:

Passed Through State Department of Education:

NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

Basis of Presentation - The accompanying schedule of expenditures of federal awards includes the federal grant activity of

Atkins School District No. 18 and is presented on the regulatory 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 regulatory basis financial statements.

School Breakfast Program

National School Lunch Program

Safe and Drug- Free Schools and Communities -

Special Education - Grants to States

State Grants

Federal Grantor/ Pass- Through

Grantor/ Program or Cluster Title

CHILD NUTRITION CLUSTER

U. S. Department of Agriculture

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

EXPENDITURES OF FEDERAL AWARDS

FOR THE YEAR ENDED JUNE 30, 2007

Title I Grants - Local Educational Agencies

Nonmonetary assistance is reported at the approximate value as provided by the U. S. Department of Defense through an

agreement with the U. S. Department of Agriculture.

TOTAL EXPENDITURES OF FEDERAL AWARDS

Total U. S. Department of Education

State Grants for Innovative Programs

Note 4: During the year ended June 30, 2007, the District received Medicaid funding of $ 75,186 from the State Department of Health

and Human Services. Such payments are not considered Federal awards expended and therefore are not included in the

above schedule.

Note 2:

Note 3: Nonmonetary assistance is reported at the approximate value as provided by the State Department of Health and Human

Services.

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Schedule 3

FINANCIAL STATEMENTS

Material weakness( es) identified?

Material weakness( es) identified?

Type of auditor's report issued on compliance for major programs: unqualified

Any audit findings disclosed that are required to be reported in

accordance with Section 510( a) of OMB Circular A- 133?

Noncompliance material to financial statements noted?

FEDERAL AWARDS

Internal control over major programs:

Significant deficiencies identified that are not considered to

be material weakness( es)?

Identification of major programs:

CFDA Numbers Name of Federal Programs or Cluster

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

FEDERAL AWARD PROGRAMS -

FINDINGS AND QUESTIONED COSTS

FOR THE YEAR ENDED JUNE 30, 2007

SECTION I - SUMMARY OF AUDITOR'S RESULTS

Internal control over financial reporting:

Significant deficiencies identified that are not considered to

be material weakness( es)?

Types of auditor's reports issued:

Regulatory basis opinion units - unqualified

GAAP basis of reporting - adverse

Dollar threshold used to distinguish between Type A and Type B

programs: $ 3 00,000

84.027

84.010 Title I Grants - Local Educational Agencies

Special Education - Grants to States

Auditee qualified as low- risk auditee?

yes no

yes none reported

yes no

yes no

yes none reported

yes no

yes no

- 21 -

ATKINS SCHOOL DISTRICT NO. 18 Schedule 3

POPE COUNTY, ARKANSAS

FEDERAL AWARD PROGRAMS -

FINDINGS AND QUESTIONED COSTS

FOR THE YEAR ENDED JUNE 30, 2007

SIGNIFICANT DEFICIENCY

2007- 1. Segregation of Duties

SECTION II - FINANCIAL STATEMENT FINDINGS

Effect: Financial accounting duties are not distributed among the District’s employees to sufficiently reduce the risk that a

material misstatement of the financial statements due to fraud or error will not be prevented or detected.

SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No findings and questioned costs noted.

Criteria: Financial accounting duties should be distributed among appropriate employees to enhance the design of the

internal control process to ensure the preparation of reliable financial statements that are fairly presented in conformity

with the regulatory basis of accounting.

Condition: The District has not segregated financial accounting duties among appropriate employees to provide

reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting.

Context: Completion of internal control questionnaire.

Views of responsible officials and planned corrective actions: We concur with the recommendation.

Cause: Cost/ benefit implications hinder the District’s ability to adequately segregate financial accounting duties among

employees.

Recommendation: To achieve effective internal control over financial reporting, accounting duties should be distributed

among appropriate employees.

- 22 -

Schedule 4

FOR THE YEAR ENDED JUNE 30, 2007

There were no findings in the prior audit.

ATKINS SCHOOL DISTRICT NO. 18

POPE COUNTY, ARKANSAS

FEDERAL AWARD PROGRAMS -

SUMMARY OF PRIOR AUDIT FINDINGS

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