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HomeMy WebLinkAboutRes 06-15 WA Approving 2005-2006 Audit WESTLAKE ACADEMY RESOLUTION NO. 06-15 A RESOLUTION OF THE BOARD OF TRUSTEES OF THE WESTLAKE ACADEMY APPROVING THE FISCAL YEAR 2005/2006 ANNUAL AUDIT REPORT FROM STOVALL, GRANDEY & ALLEN, LLP. WHEREAS, Section 7.3.6 of the Data Collection & Reporting section of the Financial Accountability System Resource Guide Update 11.0 requires that the annual financial and compliance report be audited by an independent auditor; and WHEREAS, Section 7.3.6 of the Data Collection&Reporting section of the Financial Accountability System Resource Guide Update 11.0 requires the audit report be submitted to the Division of School Financial Audits of TEA no later than 150 days after the close of the fiscal year; and WHEREAS, the audit report must be approved by the Board of Trustees; and WHEREAS, a representative of Stovall, Grandey & Allen has appeared before the Board of Trustees and has satisfactorily responded to all questions propounded by the Board. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF TRUSTEES OF THE WESTLAKE ACADEMY: SECTION 1: That the Board of Trustees of Westlake Academy does hereby approve the fiscal year 2005/2006 annual audit report from Stovall, Grandey&Allen, LLP. SECTION 2: That this Resolution shall become effective upon the date of its passage. PASSED AND APPROVED ON THIS 13" DAY OF NOVEMBER, 2006. Cow` ATTEST: Scott Bradley, President V� Ginger Awlry Acting Secretary arbara L. Bri la, Head of School APPROVE TO anion L tt me WESTLAKE ACADEMY (A COMPONENT UNIT OF THE TOWN OF WESTLAKE) ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2006 WESTLAKE ACADEMY (A COMPONENT UNIT OF THE TOWN OF WESTLAKE) ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2006 Page Certificate of Board............................................................................................................. i Independent Auditor’s Report............................................................................................. ii Management’s Discussion and Analysis............................................................................. iv Basic Financial Statements Government Wide Statements: A-1 Statement of Net Assets...................................................................................................... 1 B-1 Statement of Activities........................................................................................................ 2 Governmental Fund Financial Statements: C-1 Balance Sheet...................................................................................................................... 4 C-2 Statement of Revenues, Expenditures, and Changes in Fund Balance................................ 5 D-1 Statement of Fiduciary Net Assets ..................................................................................... 6 Notes to the Basic Financial Statements.............................................................................. 7 Required Supplementary Information G-1 Budgetary Comparison Schedule — General Fund............................................................. 15 Notes to the Required Supplementary Information............................................................. 16 Combining Schedules H-1 Combining Balance Sheet................................................................................................... 17 H-2 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance – Non Major Governmental Funds........................................................ 18 Overall Compliance and Internal Controls Section 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 ...................................................... 19 CERTIFICATE OF BOARD WESTLAKE ACADEMY TARRANT 220-810 Name of School County Co.-Dist. Number We, the undersigned, certify that the attached annual financial reports of the above-named school were reviewed and (check one) __________ approved __________ disapproved for the year ended August 31, 2006 at a meeting of the Board of Trustees of such school on the _____ day of _________________________, 2006. Signature of Board Secretary Signature of Board President If the Board of Trustees disapproved of the auditors’ report, the reason(s) for disapproving it is (are): (attach list as necessary) i FINANCIAL SECTION INDEPENDENT AUDITOR’S REPORT Board of Trustees Westlake Academy 2650 J.T. Ottinger Road Westlake, Texas 76262 Members of the Board: We have audited the accompanying financial statements of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the Westlake Academy (the “Academy”) as of and for the year ended August 31, 2006 which collectively comprise the Academy’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Academy’s management. Our responsibility is to express an opinion on these basic financial statements based on our audit. The financial statements of Westlake Academy as of August 31, 2005 were audited by other auditors whose report dated October 13, 2005, expressed an unqualified opinion on those statements. 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 basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the government activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the Academy as of August 31, 2006, and the respective changes in financial position and, where applicable, cash flows thereof, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 9, 2006 on our consideration of Westlake Academy’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants 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. The Management’s Discussion and Analysis (on pages iv through x) and the Budgetary Comparison Schedule-General Fund (on page 15) are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. ii Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Academy’s basic financial statements. The combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. STOVALL, GRANDEY & ALLEN, LLP Fort Worth, Texas October 9, 2006 iii WESTLAKE ACADEMY MANAGEMENT’S DISCUSSION AND ANALYSIS This section of Westlake Academy’s annual financial report presents our discussion and analysis of the Academy’s financial performance during the fiscal year ended August 31, 2006. Please read it in conjunction with the Academy’s financial statements, which follow this section. FINANCIAL HIGHLIGHTS • On the government-wide financial statements, the assets of the Academy exceeded liabilities by $427,720 (Net Assets). This is an increase of $195,629 during the year ended August 31, 2006. • The Academy had $2,249,998 in expenses related to governmental activities of which $230,652 of these expenses were offset by program-specific charges for services or grants and contributions. This is a total expense increase of $372,600 over the prior year. • The General Fund reported a fund balance this year of $427,720, an increase of $195,629 from the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts—management’s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the Academy: The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. Figure A-1 shows how the required parts of this annual report are arranged and related to one another. Figure A-1. Required Components of the Academy’s Annual Financial Report • The first two statements are government-wide financial statements that provide both long-term and short-term information about the Academy’s overall financial status. • The remaining statements are fund financial statements that focus on individual parts of the government, reporting the Academy’s operations in more detail than the government- wide statements. − The governmental funds statements tell how general government services were financed in the short-term as well as what remains for future spending. iv Figure A-2 below summarizes the major features of school district/charter school financial statements, including the portion of the Academy government they cover, as well as the types of information they contain. The remainder of this overview section of management’s discussion and analysis explains the structure and contents of each of the statements. The Academy did not have any “Proprietary” funds at August 31, 2006. Government-wide Statements The government-wide statements report information about the Academy as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the government’s assets and liabilities. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the Academy’s net assets and how they have changed. Net assets—the difference between the Academy’s assets and liabilities—is one way to measure the Academy’s financial health or position. • Over time, increases or decreases in the Academy’s net assets are an indicator of whether its financial health is improving or deteriorating, respectively. The government-wide financial statements of the Academy include the Governmental activities. Most of the Academy’s basic services are included here, such as instruction, extracurricular activities, curriculum and staff development, health services, and general administration. State funds, donations and grants finance most of these activities. FIGURE A-2. MAJOR FEATURES OF THE ACADEMY’S GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Type of Statements Government-wide Governmental Funds Proprietary Funds Fiduciary Funds The Academy has no Proprietary Funds for the year ended 8-31-06. Scope Entire Academy’s govern- ment (except fiduciary funds) and the Academy’s component units The activities of the Academy that are not proprietary or fiduciary Activities of the Academy operates similar to private business, i.e. self- insurance Instances in which the Academy is the trustee or agent for someone else’s resources Required financial statements *Statement of net assets *Statement of activities *Balance Sheet *Statement of revenues, expenditures & changes in fund balances *Statement of net assets *Statement of revenues, expenses and changes in fund net assets *Statement of cash flows *Statement of fiduciary net assets *Statement of changes in fiduciary net assets Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual account- ing and current financial resources focus Accrual accounting and economic resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, short-term and long-term Only assets expected to be used up and liabilities that come due during the year or soon thereafter, no capital assets included All assets and liabilities both financial and capital, and short-term and long- term. All assets and liabilities, both short-term and long- term; the Agency’s funds do not currently contain capital assets, although they can. Type of inflow/outflow information All revenues and ex- penses during year, regardless of when cash is received or paid. Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and payment is due during the year or soon thereafter All revenues and ex- penses during year, regardless of when cash is received or paid All revenues and ex- penses during year, regardless of when cash is received or paid v Fund Financial Statements The fund financial statements provide more detailed information about the Academy’s most significant funds—not the Academy as a whole. Funds are accounting devices that the Academy uses to keep track of specific sources of funding and spending for particular purposes. • Some funds are required by State law and by bond covenants. • The Board of Trustees establishes other funds to control and manage money for particular purposes or to show that it is properly using certain taxes and grants. Below are the three types of funds. The Academy had only “Governmental funds” and “Fiduciary funds” for the year ended August 31, 2006. • Governmental funds—Most of the Academy’s basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Academy’s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information at the bottom of the governmental funds statement, or on the subsequent page, that explains the relationship (or differences) between them. • Proprietary funds - (None at August 31, 2006) Services for which the Academy would charge customers a fee are generally reported in proprietary funds. Proprietary funds, like the government-wide statements, provide both long- and short-term financial information. − Internal service funds to report activities that provide supplies and services for the Academy’s other programs and activities - such as a School’s Self Insurance Fund or Print Shop. • Fiduciary funds - Some schools are the trustee, or fiduciary, for certain funds. It is also responsible for other assets that—because of a trust arrangement—can be used only for the trust beneficiaries. These schools are responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of these fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. These activities are excluded from the school’s government- wide financial statements because they cannot use these assets to finance their operations. vi FINANCIAL ANALYSIS OF THE ACADEMY AS A WHOLE Net assets. The Academy’s combined net assets were $427,720 at August 31, 2006. (See Table A-1). Table 1-A Westlake Academy’s Net Assets (in thousands of dollars) Governmental Activities Total % Change 2006 2005 2005-2006 Current and Other Assets $ 470 $ 316 Total Assets 470 316 49% Current Liabilities 42 84 Total Liabilities 42 84 (50)% Net Assets Unrestricted 428 232 Total Net Assets $ 428 $ 232 85% Figure A-3 Westlake Academy Sources of Revenue for Fiscal Year 2006 Federal Grants 2% Charge for Services 3% Gifts and Bequests 16% State Funding 79% Changes in net assets. The Academy’s total revenues were $2.4 million. A significant portion, 79%, of the Academy’s revenue came from state funding. (See Figure A-3.) 2% percent came from federal grants, 16% came from gifts and bequests, and 3% from revenue related to charges for services. The total cost of all programs and services was $2.2 million; 66% of these costs are for instructional and instructional related costs. vii Table A-3 Changes in Westlake Academy’s Net Assets (in thousands of dollars) Governmental Activities Total % Change 2006 2005 2005-2006 Revenues Program Revenues: Charges for Services $ 98 $ 39 151% Operating Grants and Contributions 132 335 (61)% General Revenues: Grants and Contributions not restricted 1,822 1,520 20% Miscellaneous Local and Intermediate Revenues 394 203 94% Total Revenues 2,446 2,097 17% Expenses Instruction and instructional related 1,484 1,237 20% Instructional leadership/school administration 276 258 7% Guidance, social work, health, transportation 67 64 5% Food services 83 14 493% Extracurricular activities 44 45 (2)% General administration 85 84 1% Plant maintenance and security 167 129 29% Data processing services 42 44 (5)% Community services 2 2 0% Total Expenses 2,250 1,877 20% Increase in Net Assets 196 220 (11)% Beginning Net Assets 232 12 1,833% Ending Net Assets $ 428 $ 232 84% Table A-4 (below) presents the cost of each of the Academy’s largest functions as well as each function’s net cost (total cost less fees generated by the activities and intergovernmental aid). The net cost reflects what was funded by state revenues as well as local tax dollars. • The cost of all governmental activities this year was $2,249,998. • Some of the cost was paid by those who directly benefited from the programs, $98,357. • By grants and contributions $132,295. viii Table A-4 Net Cost of Selected Westlake Academy Functions (in thousands of dollars) Total Cost of Services Total % Change Net cost of Services Total % Change 2006 2005 2005-2006 2006 2005 2005-2006 Instruction $ 1,406 $ 1,190 18% $ 1,292 $ 930 39% School Leadership 276 258 7% 261 209 25% Food Services 83 14 493% (8) (3) 167% General Administration 85 84 1% 85 66 29% Plant Maintenance and Operations 167 130 28% 167 117 43% FINANCIAL ANALYSIS OF THE ACADEMY’S FUNDS Revenues from governmental fund types totaled $2,445,627 with total governmental fund type expenditures totaling $2,249,998. General Fund Budgetary Highlights Over the course of the year, the Academy revised its budget by increasing revenues by $80,375 and decreased expenditures by $2,649, netting an increase of $83,024 to the budget. At year-end, actual expenditures were $64,195 below the amended budget. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS • General Fund revenues are budgeted to increase 14% over 2005-2006 actual revenues. This rise is primarily attributable to the increase in student population as well as anticipated Blacksmith Apprentice program donations which correspond to the number of students enrolled. • Increase in the Academy population by adding a ninth grade for FY 2006-2007. Each year the Academy will expand one grade level until the Academy reaches K-12. With this expansion, increase in the 7th grade and new Westlake students being admitted, the student population is estimated to increase by 56. • The Academy’s 2007 refined average daily attendance is expected to be 335.620 up by 20.20 from FY 2006’s 315.417. This is an increase of approximately 7%. • Amounts available for appropriation in the General Fund budget are $2.76 million, an increase of 20% over the final 2006 budget of $2.3 million. This increase includes the addition of staff, teacher salary adjustments, and additional technology and supplies for the 9th grade classes. • General Fund operation spending per student increased in the 2007 budget from $7,447 to $7,817. This 5% increase is associated with the above referenced explanation of the additional budgeted expenditures. The addition to staff for FY 2006-2007 includes a total of 4.8 teachers. Full time additions include the English/Humanities MYP teacher, part-time Mathematics and Biology MYP teachers, additional PE teacher, additional Special Education teacher and full-time IT teacher/Coordinator/Technician. Other personnel increases are a result of expanding the total number of days worked for the following positions: Spanish teacher, and the Art and Music teachers. • If the FY 2006-2007 budget estimates are realized, the Academy’s General Fund’s budgetary fund balance is expected to decrease approximately $14K by the close of FY 2007. ix ACHIEVEMENTS DURING FISCAL YEAR 2005-2006: • Became an IBO World School with the Authorization of the PYP (Primary Years Program). This makes Westlake Academy only the sixth school in Texas with an IBO/PYP program. • Obtained a successful Consultation visit for the MYP (Middle Years Program). As a result, IB North America has scheduled the MYP Authorization visit for second semester of the 2006-2007 academic year. • The PYP Exhibition, planned, organized and carried out by the G6 students, was of the highest caliber. Other IB candidates and authorized schools have contacted us for input on how to incorporate our unique plan for the exhibition, a required part of the PYP. • Conducted 1st international student exchange when fifth grade students from Greengates School, an IB World School in Mexico City, visited Westlake Academy in October 2005. Thirteen Westlake Academy students returned the five-day, four night visit in March 2006. • Implemented residential field trips for Grades 4, 5, 7 and 8. • Maintained TEA Recognized status, with increased numbers of a 100% passing rate and even had 25% perfect scores in one grade’s exam. • Started a school newspaper, The Black Cow, headed by our MYP students. The paper became the most highly read newspaper in the community and was named one of the top 7 Junior High newspapers in the State of Texas. Numerous student editors and contributors garnered individual awards. • For the first time, students created the layout, writing and production for the school yearbook. • Competitive sports doubled in number with both Elementary and Junior High teams in most sports offered. • Fine Arts staged 3 drama productions. In every production, each and every one of the students in G7 and G8 were on stage. Plays staged: The Miracle Worker, Westside Story and Shakespeare’s Julius Caesar. • Formed an exceptional Community Choir, comprised of parents and teachers, under the direction of our Music Teacher. • All Westlake Academy Odyssey of the Mind Teams won 1st or 2nd prizes at Regionals and went on to State Competition. • Westlake Academy students participated in UIL Regional Spelling Bees and did very well. • Student-led conferences were successfully initiated in lieu of Parent-Teacher conferences. • Students created service projects in record numbers, donating time, supplies, money and support to many different agencies and emergency relief funds. • Teachers attended a record number of IB training courses, both locally, nationally and internationally. • House of Commons donated funds for teachers to visit IB schools during the 2006-2007 school year. • Parents donated over $358,000 to the Blacksmith Apprentice Program. • TEA ranked the Academy as Gold Medalist in 5 categories for 2005: Math; Reading; Science; Writing; Attendance CONTACTING THE ACADEMY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the Academy’s finances and to demonstrate the Academy’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Academy/Town Finance Director, Debbie Piper, at 817-490-5712. x BASIC FINANCIAL STATEMENTS EXHIBIT A-1 WESTLAKE ACADEMY STATEMENT OF NET ASSETS AUGUST 31, 2006 1 4 Control Data Codes Governmental Activities Foundation WA Primary Government Component Unit ASSETS 118,468 12,051 Cash and Cash Equivalents $$1110 55,534 361,864 Current Investments1120 - 84,425 Due from Other Governments1240 - 11,430 Deferred Expenses1410 Total Assets1000 469,770 174,002 LIABILITIES - 7,963 Accounts Payable2110 - 33,209 Accrued Wages Payable2160 - 878 Accrued Expenses2200 Total Liabilities2000 42,050 - NET ASSETS 174,002 427,720 Unrestricted Net Assets3900 Total Net Assets3000 427,720 174,002 $$ 1 The notes to the financial statements are an integral part of this statement. WESTLAKE ACADEMY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2006 Control Data Codes Expenses Services Charges for Contributions Grants and Operating Program Revenues 1 43 Primary Government: GOVERNMENTAL ACTIVITIES: 4,815 1,406,462 110,055 Instruction $$$11 - 58,065 2,972 Instructional Resources and Media Services12 - 19,978 - Curriculum and Instructional Staff Development13 - 386 - Instructional Leadership21 - 275,559 15,005 School Leadership23 - 44,569 1,545 Guidance, Counseling and Evaluation Services31 - 22,220 1,313 Health Services33 90,346 82,844 555 Food Services35 1,333 43,726 595 Cocurricular/Extracurricular Activities36 - 84,847 - General Administration41 - 167,318 - Plant Maintenance and Operations51 - 42,039 124 Data Processing Services53 1,863 1,985 131 Community Services61 [TP] TOTAL PRIMARY GOVERNMENT:2,249,998 98,357 132,295 $$$ Component Unit: - 473,113 - Nonmajor Component Unit $$$1C [TC] TOTAL COMPONENT UNIT:473,113 - - $$$ Data Control Codes General Revenues: Taxes: State Aid - Formula GrantsSF Investment EarningsIE Miscellaneous Local and Intermediate RevenueMI Total General RevenuesTR Net Assets--Beginning Change in Net Assets Net Assets--Ending CN NB NE 2 The notes to the financial statements are an integral part of this statement. EXHIBIT B-1 Net (Expense) Revenue and Activities Governmental Changes in Net Assets 6 9 WA Foundation Primary Government Component Unit (1,291,592)$ - $ (55,093) - (19,978) - (386) - (260,554) - (43,024) - (20,907) - 8,057 - (41,798) - (84,847) - (167,318) - (41,915) - 9 - (2,019,346) - - (473,113) - (473,113) 1,822,200 - 8,180 - 384,595 599,973 2,214,975 599,973 195,629 232,091 427,720 $ 126,860 47,142 174,002 $ 3 EXHIBIT C-1 WESTLAKE ACADEMY BALANCE SHEET GOVERNMENTAL FUNDS AUGUST 31, 2006 Control Data Codes General Fund Funds Revenue Special Funds Governmental Total10 ASSETS - 12,870 12,870 Cash and Cash Equivalents $$$1110 - 361,864 361,864 Investments - Current1120 1,417 83,008 84,425 Due from Other Governments1240 - 11,430 11,430 Deferred Expenditures1410 Total Assets1000 469,172 1,417 470,589 $$$ LIABILITIES AND FUND BALANCES Liabilities: 819 - 819 Deficit Cash $$$2105 - 7,963 7,963 Accounts Payable2110 551 32,658 33,209 Accrued Wages Payable2160 47 831 878 Accrued Expenditures2200 Total Liabilities2000 41,452 1,417 42,869 $$$ Fund Balances: Unreserved and Undesignated: - 427,720 427,720 Reported in the General Fund $$$3600 Total Fund Balances3000 427,720 - 427,720 $$$ Total Liabilities and Fund Balances4000 469,172 1,417 470,589 $$$ 4 The notes to the financial statements are an integral part of this statement. EXHIBIT C-2 WESTLAKE ACADEMY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, 2006 Control Data Codes 10 General Fund Funds Revenue Special Funds Governmental Total REVENUES: - 491,132 491,132 Total Local and Intermediate Sources $$$5700 8,649 1,916,394 1,925,043 State Program Revenues5800 29,452 - 29,452 Federal Program Revenues5900 Total Revenues5020 2,407,526 38,101 2,445,627 EXPENDITURES: Current: 38,101 1,368,361 1,406,462 Instruction0011 - 58,065 58,065 Instructional Resources and Media Services0012 - 19,978 19,978 Curriculum and Instructional Staff Development0013 - 386 386 Instructional Leadership0021 - 275,559 275,559 School Leadership0023 - 44,569 44,569 Guidance, Counseling and Evaluation Services0031 - 22,220 22,220 Health Services0033 - 82,844 82,844 Food Services0035 - 43,726 43,726 Cocurrricular/Extracurricular Activities0036 - 84,847 84,847 General Administration0041 - 167,318 167,318 Plant Maintenance and Operations0051 - 42,039 42,039 Data Processing Services0053 - 1,985 1,985 Community Services0061 Total Expenditures6030 2,211,897 38,101 2,249,998 1200 Net Change in Fund Balances 195,629 - 195,629 0100 Fund Balance - September 1 (Beginning)232,091 - 232,091 3000 Fund Balance - August 31 (Ending)$427,720 $ - $427,720 5 The notes to the financial statements are an integral part of this statement. EXHIBIT D-1 WESTLAKE ACADEMY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2006 Agency Fund ASSETS 9,320 Cash and Cash Equivalents $ Total Assets 9,320 $ LIABILITIES 9,320 Due to Student Groups $ Total Liabilities 9,320 $ 6 The notes to the financial statements are an integral part of this statement. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 7 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY Westlake Academy (the “Academy”), a blended component unit of the Town of Westlake (the “Town”), is a Texas non-profit Corporation under Chapter 12, Subchapter D of the Education Code to provide education services and acquire, finance and operate educational facilities. The Board of Trustees (the “Board”) consists of six trustees and is appointed by the Town’s governing body. Currently all the members of the Board are members of the Town’s governing body. The Academy prepares its basic financial statements in conformity with generally accepted accounting principles promulgated by the Governmental Accounting Standards Board (the “GASB”) and other authoritative sources identified in Statement on Auditing Standards No. 69 of the American Institute of Certified Public Accountants; and it complies with the requirements of the appropriate version of Texas Education Agency’s Financial Accountability System Resource Guide (the “Resource Guide”) and the requirements of contracts and grants of agencies from which it receives funds. The Board is appointed by the governing board of the Town and it has the authority to make decisions, appoint administrators and managers, and significantly influence operations. It also has the primary accountability for fiscal matters. Therefore, the Academy is a financial reporting entity as defined by the GASB in its Statement No. 14, “The Financial Reporting Entity.” The Academy’s basic financial statements include a separate governmental entity that is controlled by or dependent on the Academy. The determination to include separate governmental entities is based on the criteria of GASB Statement No. 14, “The Financial Reporting Entity” as amended by GASB Statement No. 39 “Determining Whether Certain Organizations Are Component Units” GASB defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. To be financially accountable, a voting majority of the component unit’s ruling body must be appointed by the primary government, and either (a) the primary government must be able to impose its will, or (b) the primary government may potentially benefit financially or be financially responsible for the component unit. The Westlake Academy Foundation (the “Foundation”) is a 501(c)3 nonprofit organization which was established exclusively for the purposes of supporting the Academy. This includes fundraising for and contributing raised funds to the Academy. The Foundation has been discretely presented in the accompanying financial statements. See Footnote II for additional information relating to the Foundation. Separate audited financial statements of the Foundation are not available. B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The Statement of Net Assets and the Statement of Activities are government-wide financial statements. They report information on all of the Academy’s nonfiduciary activities with most of the interfund activities removed. Governmental activities include programs supported primarily by State and Federal grants, the Foundation, and the Town. The Academy has no business-type activities that rely to a significant extent, on fees and charges for support. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 8 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS, continued The Statement of Activities demonstrates how other people or entities that participate in programs the Academy operates have shared in the payment of the direct costs. Direct expenses are those that are clearly identifiable with a specific function or segment. The "charges for services" column includes payments made by parties that purchase, use, or directly benefit from goods or services provided by a given function or segment of the Academy. The primary example is school lunch charges. The "grants and contributions" column includes amounts paid by organizations outside the Academy to help meet the operational or capital requirements of a given function. Examples include grants under the Elementary and Secondary Education Act. If a revenue is not a program revenue, it is a general revenue used to support all of the Academy's functions. Interfund activities between governmental funds appear as due to/due froms on the Governmental Fund Balance Sheet and as other resources and other uses on the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balance. All interfund transactions between governmental funds are eliminated on the government-wide statements. Interfund activities between governmental funds and fiduciary funds remain as due to/due froms on the government-wide Statement of Activities. The fund financial statements provide reports on the financial condition and results of operations for three fund categories - governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for Academy operations, they are not included in the government-wide statements. The Academy considers some governmental funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. All other revenues and expenses are nonoperating. The Academy has no proprietary funds. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of these funds present net increases and decreases in current assets (i.e., revenues and other financing sources and expenditures and other financing uses). The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The Academy considers all revenues available if they are collectible within 60 days after year end. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 9 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION, continued Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as deferred revenues until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors sometimes require the Academy to refund all or part of the unused amount. The Proprietary Fund Types and Fiduciary Funds are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. The Academy applies all GASB pronouncements as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless these pronouncements conflict or contradict GASB pronouncements. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the fund Statement of Net Assets. The fund equity is segregated into restricted net assets, and unrestricted net assets. D. FUND ACCOUNTING The Academy reports the following major governmental funds: • The General Fund — The General Fund is the Academy’s primary operating fund. It accounts for all financial resources except those required to be accounted for in another fund. Additionally, the Academy reports the following fund types: 1. Special Revenue Fund — The Academy accounts for resources restricted to, or designated for, specific purposes by the Academy or a grantor in a special revenue fund. Most Federal and some State financial assistance is accounted for in a Special Revenue Fund and sometimes unused balances must be returned to the grantor at the close of specified project period. 2. Agency Funds – The Academy accounts for resources held for others in a custodial capacity in agency funds. Fiduciary funds are reported in the fiduciary fund financial statements. However, because these assets are not available to support Academy programs, these funds are not included in the government-wide statements. The Academy's agency fund is a Student Activity Fund. E. OTHER ACCOUNTING POLICIES 1. For purposes of the statement of cash flows for proprietary and similar fund types, the Academy considers highly liquid investments to be cash equivalents if they have a maturity of three months or less when purchased. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 10 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued E. OTHER ACCOUNTING POLICIES, continued 2. It is the Academy's policy to permit some employees to accumulate earned but unused vacation and sick pay benefits. There is no liability for unpaid accumulated sick leave since the Academy does not have a policy to pay any amounts when employees separate from service with the government. All vacation pay is accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. 3. The Academy provides health insurance for its employees through Blue Cross/Blue Shield. The Academy meets its obligations for workers’ compensation insurance through The Hartford Insurance Company. 4. In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 5. When the Academy incurs an expense for which it may use either restricted or unrestricted assets, it uses the restricted assets first unless unrestricted assets will have to be returned because they were not used. 6. The Academy is exposed to various risk of loss related to torts theft of; damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During fiscal 2006, the Academy purchased commercial insurance to cover general liabilities. There were no settlements exceeding insurance coverage in the current fiscal year. 7. During the year ended August 31, 2006, employees of the Academy were covered by a health insurance plan (the Plan). The Academy paid premiums of $296.84 per month per employee to the Plan. Employees, at their option, authorized payroll withholdings to pay premiums for dependents. All premiums were paid to a licensed insurer. The Plan was authorized by Article 3.51-2, Texas Insurance Code and was documented by contractual agreement. 8. The Data Control Codes refer to the account code structure prescribed by TEA in the Financial Accountability System Resource Guide. Texas Education Agency requires the Academy to display these codes in the financial statements filed with the Agency in order to insure accuracy in building a statewide database for policy development and funding plans. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 11 II. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. DEPOSITS AND INVESTMENTS The funds of the Academy must be deposited and invested under the terms of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the Academy’s agent bank in an amount sufficient to protect Academy funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank’s dollar amount of Federal Deposit Insurance Corporation (“FDIC”) insurance. At August 31, 2006, the carrying amount of the Academy’s deposits (cash, certificates of deposit, and interest-bearing savings accounts included in temporary investments) was $12,050 and the bank balance was $54,453. The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the Academy to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the Academy to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas; (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, (10) and common trust funds. The Act also requires the Academy to have independent auditors perform test procedures related to investment practices as provided by the Act. The Academy is in substantial compliance with the requirements of the Act and with local policies. The carrying value of investments at August 31, 2006 was $361,864 (Texas Local Government Investment Pool). Local government investment pools operate in a manner consistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940. Local government investment pools use amortized cost rather than market value to report net assets to compute share prices. Accordingly, the fair value of the position of these pools is the same as the value of the shares in each pool. TexPool is organized in conformity with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code. The Texas Comptroller of Public Accounts is the sole officer, director and shareholder of the Texas Treasury Safekeeping Trust Company, which is authorized to operate TexPool. In addition, the TexPool Advisory Board advises on TexPool’s Investment Policy. This Board is composed equally of participants in TexPool and other persons who do not have a business relationship with TexPool who are qualified to advise TexPool. TexPool is subject to annual review by an independent auditor consistent with the Public Funds Investment Act. KPMG Peat Marwick, 111 Congress Avenue, Suite 1100, Austin, Texas 78701 performs the annual audit. In addition, TexPool is subject to review by the State Auditor’s Office and by the Internal Auditor of the Comptroller’s Office. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 12 II. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS, continued A. DEPOSITS AND INVESTMENTS, continued Policies Governing Deposits and Investments In compliance with the Public Funds Investment Act, the Academy has adopted a deposit and investment policy. That policy does address the following risks: Custodial Credit Risk – Deposits: This is the risk that in the event of bank failure, the Academy’s deposits may not be returned to it. The Academy was not exposed to custodial credit risk since its deposits at year- end and during the year ended August 31, 2006 was covered by depository insurance or by pledged collateral held by the Academy’s agent bank in the Academy’s name. Custodial Credit Risk – Investments: This is the risk that, in the event of the failure of the counterparty, the Academy will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Investments are subject to custodial credit risk only if they are evidenced by securities that exist in physical or book entry form. Thus positions in external investment pools are not subject to custodial credit risk because they are not evidenced by securities that exist in physical or book entry form. Other Credit Risk: There is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. To minimize credit risk, TexPool invests only in investments authorized under the Public Funds Investment Act. As of August 31, 2006, TexPool’s investments credit quality rating was AAAm (Standard & Poor’s). B. DUE FROM OTHER GOVERNMENTS The Academy participates in a variety of federal and state programs from which it receives grants to partially or fully finance certain activities. Amounts due from federal and state governments as of August 31, 2006, are summarized below. All federal grants shown below are passed through the TEA and are reported on the financial statements as Due from Other Governments. Fund Due from Other Governments General $ 83,008 Special Revenue 1,417 Total $ 84,425 WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 13 II. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS, continued C. DEFINED BENEFIT PENSION PLAN Plan Description. The Academy contributes to the Teacher’s Retirement System of Texas (TRS), a cost- sharing multiple employer defined benefit pension plan. TRS administers retirement and disability annuities, and death and survivor benefits to employees and beneficiaries of employees of the public school systems of Texas. It operates primarily under the provisions of the Texas Constitution, Article XVI, Sec. 67, and Texas Government Code, Title 8, Subtitle C. TRS also administers proportional retirement benefits and service credit transfer under Texas Government Code, Title 8, Chapters 803 and 805, respectively. TRS issues a publicly available financial report that includes financial statements and required supplementary information for the defined benefit pension plan. That report may be obtained by writing to the TRS Communications Department, 1000 Red River Street, Austin, Texas 8701, by calling the TRS Communications Department at 1-800-2238778, or by downloading the report from the TRS Internet website, www.trs.state.tx.us, under the TRS Publications heading. Funding Policy. State law provides for fiscal years 2006 and 2005 a state contribution rate of 6.0% and a member contribution rate of 6.4%. In certain instances the reporting academy is required to make all or a portion of the state’s 6.0% contribution. Contribution requirements are not actuarially determined but are legally established each biennium pursuant to the following state funding policy: (1) The state constitution requires the legislature to establish a member contribution rate of not less than 6.0% of the member’s annual compensation and a state contribution rate of not less than 6.0% and not more than 10.0% of the aggregate annual compensation of all members of the system during that fiscal year; (2) A state statute prohibits benefit improvements or contribution reductions if, as a result of a the particular action, the time required to amortize TRS’s unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, the period would be increased by such action. State contributions to TRS made on behalf of Westlake Academy’s employees for the year ended August 31, 2006 and 2005 were $94,194 and $70,270, respectively. D. REVENUE FROM LOCAL AND INTERMEDIATE SOURCES During the current year, revenues from local and intermediate sources as reported on Exhibit C-2 of the fund statements consisted of the following: General Fund Gift and Bequests $ 389,410 Food Sales 90,346 Interest 8,180 Co-curricular 3,196 Total $ 491,132 E. DONATED USE OF FACILITIES The Academy currently operates in facilities that are capital assets of the Town. The Academy is not required by the Town to pay rent for the use of those facilities. WESTLAKE ACADEMY NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2006 14 II. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS, continued F. COMPONENT UNIT ACTIVITY Major classes of assets, liabilities, net assets, revenues and expenses for the Foundation are reported below for the fiscal year-ended August 31, 2006. Statement of Net Assets Assets Cash and Cash Equivalents $ 118,468 Investments 55,534 Total Assets $ 174,002 Total Liabilities $ - Net Assets Unrestricted Net Assets $ 174,002 Total Net Assets $ 174,002 Statement of Activities Revenues Expenses Net Gallery Night $ 114,561 $ (24,114) $ 90,447 Gallery Day 4,119 - 4,119 Blacksmith Apprentice 342,577 (385,634) (43,057) Capital Campaign 75,000 (60,000) 15,000 Miscellaneous 63,716 (3,365) 60,351 Totals $ 599,973 $ (473,113) $ 126,860 Beginning Net Assets 47,142 Ending Net Assets $ 174,002 The Blacksmith Apprentice program includes expenses of approximately $383,000 of contributions that were remitted to the Academy during the fiscal year ended August 31, 2006. The Foundation received approximately $55,534 of a donated investment from an anonymous donor for the benefit of the Academy during the fiscal year ended August 31, 2006. This contribution is unrestricted. REQUIRED SUPPLEMENTARY SCHEDULES EXHIBIT G-1 WESTLAKE ACADEMY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED AUGUST 31, 2006 Control Data Codes Original Final (GAAP BASIS) (Negative) Positive or Final Budget Variance WithActual Amounts Budgeted Amounts REVENUES: 483,470 451,200 491,132 7,662 Total Local and Intermediate Sources $$$$5700 1,886,206 1,838,101 1,916,394 30,188 State Program Revenues5800 Total Revenues5020 2,289,301 2,369,676 2,407,526 37,850 EXPENDITURES: Current: 1,402,534 1,484,979 1,368,361 34,173 Instruction0011 58,143 62,924 58,065 78 Instructional Resources and Media Services0012 25,530 17,000 19,978 5,552 Curriculum and Instructional Staff Development0013 413 - 386 27 Instructional Leadership0021 287,252 287,790 275,559 11,693 School Leadership0023 44,959 38,858 44,569 390 Guidance, Counseling and Evaluation Services0031 23,531 22,905 22,220 1,311 Health Services0033 78,314 15,840 82,844 (4,530)Food Services0035 47,115 50,406 43,726 3,389 Cocurrricular/Extracurricular Activities0036 93,725 92,648 84,847 8,878 General Administration0041 170,531 155,249 167,318 3,213 Plant Maintenance and Operations0051 42,192 47,192 42,039 153 Data Processing Services0053 1,853 2,950 1,985 (132)Community Services0061 Total Expenditures6030 2,278,741 2,276,092 2,211,897 64,195 1200 Net Change in Fund Balances 10,560 93,584 195,629 102,045 0100 Fund Balance - September 1 (Beginning)232,091 232,091 232,091 - 3000 Fund Balance - August 31 (Ending)$242,651 $325,675 $427,720 $102,045 15 COMBINING SCHEDULES EXHIBIT H-1 WESTLAKE ACADEMY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS AUGUST 31, 2006 Control Data Codes IDEA - Part B Formula Allotment Technology Funds Governmental Nonmajor 224 411 Total ASSETS 48 1,369 1,417 Due from Other Governments $$$1240 Total Assets1000 1,369 48 1,417 $$$ LIABILITIES AND FUND BALANCES Liabilities: 48 771 819 Deficit Cash $$$2105 - 551 551 Accrued Wages Payable2160 - 47 47 Accrued Expenditures2200 Total Liabilities2000 1,369 48 1,417 4000 Total Liabilities and Fund Balances 1,369 48 1,417 $$$ 17 EXHIBIT H-2 WESTLAKE ACADEMY COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, 2006 Control Data Codes IDEA - Part B Formula Allotment Technology Funds Governmental Nonmajor 224 411 Total REVENUES: 8,649 - 8,649 State Program Revenues5800 $$$ - 29,452 29,452 Federal Program Revenues5900 Total Revenues5020 29,452 8,649 38,101 EXPENDITURES: Current: 8,649 29,452 38,101 Instruction0011 Total Expenditures6030 29,452 8,649 38,101 1200 Net Change in Fund Balance - - - 0100 Fund Balance - September 1 (Beginning) - - - 3000 Fund Balance - August 31 (Ending)$ - $ - $ - 18 OVERALL COMPLIANCE AND INTERNAL CONTROLS SECTION 19 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 Board of Trustees Westlake Academy 2650 J.T. Ottinger Road Westlake, Texas 76262 We have audited the accompanying financial statements of the governmental activities, the discretely presented component unit, each major fund, and aggregate remaining fund information of Westlake Academy (the “Academy”) as of and for the year ended August 31, 2006, which collectively comprise the Academy’s basic financial statement and have issued our report thereon dated October 9, 2006. 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 Academy’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 the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Academy’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 or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management and is not intended to be and should not be used by anyone other than these specified parties. STOVALL, GRANDEY & ALLEN, LLP Fort Worth, Texas October 9, 2006