Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 Mike Beebe Governor Richard A. Weiss Director Department of Finance and Administration Prepared By The Department of Finance and Administration Office of Accounting Act 501 of 2013 reduced the requirements of state agencies to print annual reports, as such the State of Arkansas’s Comprehensive Annual Financial Report is available in electronic format at http://www.dfa.arkansas.gov/offices/accounting/ Pages/CAFR.aspx. The photograph of Governor Mike Beebe is courtesy of the Governor’s Office. Governor Mike Beebe STATE OF ARKANSAS MIKE BEEBE GOVERNOR December 23, 2013 To the People of Arkansas and the Honorable Members of the Arkansas General Assembly: I submit to you the Arkansas Comprehensive Annual Financial Report (CAFR). This annual publication is an important part of our efforts to ensure that the State’s finances are accounted for in an accurate and timely manner. The financial statements and accompanying disclosures provide detailed information of Arkansas’s financial status to the national credit markets on an annual basis. I am pleased to report that the Fiscal Year 2012 CAFR received the Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting. The State has received this prestigious award fifteen times. I appreciate the work performed by the dedicated State employees who support the efforts of the Department of Finance and Administration to publish this report. Sincerely yours, Mike Beebe ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Finance and Administration Office of Accounting: Richard A. Weiss Director Tim Leathers Deputy Director/Commissioner of Revenue Paul S. Louthian, CPA Administrator of Office of Accounting Financial Reporting Staff: Brenda Horner, CPA, CGFM Assistant Administrator of Office of Accounting Dan Brassart, CPA – CAFR Accounting Manager Linda Huck, CPA – SEFA Accounting Manager Gerald Plafcan, CPA, CFE, CGFM – Technical Accounting Manager Gary Puls, CPA – CAFR Coordinator David Paes, CPA – CAFR Coordinator Rhonda Harris, CPA – CAFR Coordinator Jessica Primm, CPA – CAFR Coordinator Ed Niday, CPA – CAFR Coordinator Marcella Winzerling, CPA, CGFM Becky Salewski Mark Troillett, CPA, inactive Lisa Bucks, CPA, Illinois Chris McTigrit John Joyner Todd McCauley, CPA Jason Hogland George Williams Linda Hensley Kathy Crawford Special appreciation is given to all personnel throughout the State whose extra effort to contribute accurate, timely financial data for their agencies made this report possible. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2013 TABLE OF CONTENTS Page Introductory Section Letter of Transmittal i GFOA – Certificate of Achievement for Excellence in Financial Reporting x Organizational Chart xii Principal Officials xiii Financial Section Independent Auditor’s Report 1 Management’s Discussion and Analysis 4 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Discretely Presented Component Units Consolidated Statement of Financial Position 18 Statement of Activities 20 Discretely Presented Component Units Consolidated Statement of Activities 22 Fund Financial Statements Governmental Fund Financial Statements Balance Sheet 24 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position 25 Statement of Revenues, Expenditures and Changes in Fund Balance 26 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of the Governmental Fund to the Statement of Activities 27 Proprietary Fund Financial Statements Statement of Net Position 28 Statement of Revenues, Expenses and Changes in Fund Net Position 30 Statement of Cash Flows 31 Fiduciary Fund Financial Statements Statement of Fiduciary Net Position 33 Statement of Changes in Fiduciary Net Position 34 Notes to the Financial Statements – Table of Contents 35 Required Supplementary Information Pension Funds – Schedule of Funding Progress 129 Schedule of Expenditures – Budget and Actual – General Fund 130 Notes to Schedule of Expenditures – Budget and Actual – General Fund 131 Ten-Year Claims Development Information – Employee Benefits Division – Public School Employee Health and Life Benefit Plan 134 Page Ten-Year Claims Development Information – Workers’ Compensation Commission – Death and Permanent Total Disability Trust Fund 136 Ten-Year Claims Development Information – Workers’ Compensation Commission – Second Injury Trust Fund 138 Other Postemployment Benefits – Schedule of Funding Progress 140 Combining Financial Statements Non-major Enterprise Funds 141 Combining Statement of Net Position 142 Combining Statement of Revenues, Expenses and Changes in Fund Net Position 144 Combining Statement of Cash Flows 145 Fiduciary Funds 146 Combining Statement of Fiduciary Net Position – Pension Trust Funds 147 Combining Statement of Changes in Fiduciary Net Position – Pension Trust Funds 148 Combining Statement of Fiduciary Net Position – Agency Funds 149 Combining Statement of Changes in Assets and Liabilities – Agency Funds 150 Statistical Section Statistical Section 153 Financial Trends Schedule 1 Net Position by Component 154 Schedule 2 Changes in Net Position 156 Schedule 3 Fund Balances, Governmental Fund 160 Schedule 4 Changes in Fund Balance, Governmental Fund 162 Revenue Capacity Information Schedule 5 Revenue Base – Sales and Use Tax Collections by Industry 164 Schedule 6 Revenue Payers 166 Debt Capacity Information Schedule 7 Ratios of Outstanding Debt by Type 167 Schedule 8 Pledged Revenue Coverage 168 Demographic and Economic Information Schedule 9 Demographic and Economic Indicators 169 Schedule 10 Principal Employers 170 Schedule 11 State Employees by Function 171 Operating Information Schedule 12 Operating Indicators by Function 172 Schedule 13 Capital Asset Statistics by Function 176 Other Information Schedule 14 Miscellaneous Statistics 177 Introductory Section December 23, 2013 The Honorable Mike Beebe, Governor The Honorable Members of the Arkansas General Assembly The Citizens of Arkansas In accordance with the requirements set forth in Arkansas Code of 1987 Annotated (ACA) § 19-4-517, it is my pleasure to transmit to you the Comprehensive Annual Financial Report (CAFR) of the State of Arkansas (the State) for the fiscal year ended June 30, 2013. This report has been prepared by the Department of Finance and Administration (DFA) in conformance with Generally Accepted Accounting Principles (GAAP) for governments as promulgated by the Governmental Accounting Standards Board (GASB). The accuracy of agency level data that supports these financial statements is the responsibility of agency management. The completeness and fairness of the presentation, including all disclosures, rests with DFA. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position of the State. All disclosures necessary to enable the reader to gain an understanding of the State’s financial activities have been included. The management of the State is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft, or misuse and that adequate accounting data is compiled to allow the preparation of the financial statements. The internal control structure has been designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against loss from unauthorized use or disposition and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived, and that the valuation of costs and benefits require estimates and judgments by management. The State of Arkansas Division of Legislative Audit performed the audit for the fiscal year ended June 30, 2013. Auditing standards generally accepted in the United States of America were used by the auditors in conducting the engagement. The auditors’ report on the basic financial statements is included in the financial section of this report. The Management’s Discussion and Analysis (MD&A) introduces the basic financial statements and provides an analytical overview of the government’s financial activities. This letter of transmittal complements the MD&A and should be read in conjunction with it. The State’s MD&A can be found in the financial section immediately following the report of the independent auditor. PROFILE OF THE GOVERNMENT Originally part of the Louisiana Purchase of 1803, Arkansas was organized into a territory in 1819 with the same northern, eastern and southern borders it shares today. In 1836, Arkansas became the 25th state of the United States of America with a new border on the west. It stands as the 26th state in size with an area of 53,225 square miles. Arkansas has grown from a vast wilderness to a thriving state with a population of 3.0 million and industries ranging from agriculture to technology to commerce. Nicknamed “The Natural State,” Arkansas is known throughout the country for its natural beauty, clear lakes and streams and abundance of natural wildlife. i The Constitution of the State provides for three distinct departments: executive, legislative