December 20, 2004
The Board of Trustees
Spindletop MHMR Services
PO Box 3846
Beaumont, Texas 77704-3846
Gentlemen and Mesdames:
We are pleased to submit herewith the comprehensive annual financial report of Spindletop MHMR Services (hereinafter referred to as the Center) for the fiscal year ended August 31, 2004. This report is required by the Commissioner of the Texas Department of Mental Health and Mental Retardation (TDMHMR) and is prepared by the Center’s Financial Services Department using guidelines issued by TDMHMR. Presentation of objects
of revenue and expenditure are set forth in our contract with TDMHMR. In the implementation of H.B. 2292, Organization of the Health and Human Services, effective September1, 2004, the powers, duties, programs and activities of TDMHMR were transferred to two successor agencies: the Department of State Health Services (DSHS) relating to mental health services and the Department of Aging and Disability Services relating to mental retardation services.
Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the Center. We believe said data are accurate in all material respects; that they present fairly the financial position and results of operations of the Center as measured by the financial activity of its various funds; and that all disclosures necessary to enable the reader to gain an understanding of the Center’s financial activity have been included.
Purpose of the Center
The Center is a public agency which provides mental health, mental retardation, early childhood intervention, and substance abuse treatment services for residents in Jefferson, Orange, Chambers and Hardin counties. These services are designed for persons who can be treated effectively in their own community and do not require long-term institutional care. To fulfill this objective, the Center seeks to: provide a full range of community alternatives for treatment, offer effective services to formerly institutionalized clients, and establish screening procedures to facilitate appropriate state hospital admissions.
The Center was established as a result of the Texas Mental Health and Mental Retardation Act of 1965. This Act provided for the creation of local boards of trustees to develop and implement community-based mental health and mental retardation services. The Commissioners Courts of Jefferson, Orange and Chambers Counties established the Center on August 3, 1973. At that time, the Center was known as the MHMR of Southeast Texas until May 1990 when the name changed to Life Resource.
Hardin County was added as a sponsoring agency on April 13, 1992. On September 1, 2000, Beaumont State Center and the Hardin County Mental Retardation Program, previously operated by the Burke Center in Lufkin, merged with Life Resource to become Spindletop MHMR Services. As of August 31, 2004, the end of its fiscal year, the Board was composed of nine citizens who were appointed to serve two-year terms of office by the four Commissioners Courts.
The Center submits reports regularly to its sponsoring agencies. The reports include copies of the approved annual budget, personnel salary schedule, audited financial statements, and a management letter. 2
Members of the Center’s Board of Trustees receive no salary or payment for their work on the Board, except for reimbursement of travel expenses.
Economic and Political Milieu
Spindletop MHMR Services serves an area that is significantly influenced economically by the City of
Beaumont and Jefferson County. This geographic area has a diverse employment base heavily dominated by
the state and federal correctional system, the petrochemical industry, a regional medical center, and a public
university. The local unemployment rate of Jefferson County was 8.7% as of August 2004, a slight reduction
from the 9.0% of the previous year. Residential and commercial construction which enjoyed an upsurge last
year tapered down in FY 2004. Fortunately, the employment slack was picked up by a reinvigorated retail
industry. Recruitment of skilled individuals for professional and paraprofessional positions in the healthcare
field continues to be a challenge since the Center is frequently unable to compete with the salaries offered by
the correctional system and the petrochemical industry.
Spindletop MHMR Services is designated as the Mental Health Authority and the Mental Retardation
Authority for its 4-county service area by TDMHMR. It also certified the Center as a community mental
health center and designated it as a single portal for admission to state hospitals. The Center is licensed by the
following state agencies: (1) Texas Commission on Alcohol and Drug Abuse, as a provider of substance abuse
services; (2) Texas Department of Health, as a crisis stabilization unit administrator; (3) Texas Department of
Mental Health & Mental Retardation as a Home and Community Services provider; and (4) Texas Department
of Mental Health & Mental Retardation as an Intermediate Care Facility/Mental Retardation provider. The
Center is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO).
TDMHMR serves as the Center’s cognizant agency for purposes of the single audit.
The comprehensive annual financial report consists of four sections: introductory, financial, statistical and
single audit. The introductory section includes this transmittal letter, the Certificate of Achievement for
Excellence in Financial Reporting, the Center’s organizational chart and a list of principal officials. The financial section includes management discussion and analysis, the government-wide financial statements,
general-purpose financial statements and the combining and individual fund financial statements and schedules,
as well as the auditors’ report on the financial statements and schedules, and required supplemental
information. The statistical section includes selected financial and demographic information, generally
presented on a multi-year basis. The single audit section includes information related to the annual single audit.
Particular attention is called to the section entitled Management Discussion and Analysis. It provides an
objective and easily readable analysis of the Center’s financial activities based on currently known facts.
The Center is required to undergo an annual single audit in accordance with the provisions of the Single Audit
Act of 1984 (as amended) and U.S. Office of Management and Budget Circular A-133, “Audits of States,
Local Governments, and Nonprofit Organization.” Information related to this single audit includes the
Schedule of Federal and State Awards, Findings and Questioned Costs, and the auditors’ reports on the internal
control structure and compliance with applicable laws and regulations.
The Center’s fiscal year starts on September 1 of each year and ends on August 31 of the following year, consistent with the fiscal year observed by the State of Texas government.
Accounting Systems and Budgetary Controls
The management of the Center is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the Center are protected from loss, theft or misuse and to ensure that
adequate accounting data is compiled to allow for the preparation of financial statements in conformity with
generally accepted accounting principles. The internal control structure is designed to provide reasonable, but
not absolute assurance that these objectives are met. The concept of reasonable assurance recognizes that (1)
the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and
benefits requires estimates and judgments by management.
As a recipient of federal, state and local financial assistance, the Center is also responsible for ensuring that an
adequate internal control structure is in place to ensure compliance with applicable laws and regulations. This
internal control structure is subject to periodic evaluation by management.
In addition, the Center maintains budgetary controls. The objective of these budgetary controls is to ensure
compliance with legal provisions embodied in the annual appropriated budget approved by the Center's
governing body. Activities of the General Fund are included in the annual appropriated budget. The level of
budgetary control or the level at which expenditures cannot legally exceed the appropriated amount is
established at the fund level. Budgetary control is maintained by account at the cost center level through
monthly budget-to-actual variance reports.
General Center Functions
The following schedule presents a summary of General Fund revenues for the fiscal year ended August 31,
2004 and the amount and percentage of increases and decreases in relation to prior year revenues:
Revenue Amount of Totalfrom 2003(Decrease)
County/City $ 357,787 1.20% $ 3,000 0.85%
Patient Fees & Insurance 237,867 0.79% (31,683)-11.75%
Investment Income 138,287 0.46% 5,699 4.30%
Miscellaneous 2,781,311 9.29% (96,573)-3.36%
Medicare & Medicaid 9,515,153 31.80% 1,416,335 17.49%
General Revenue 10,551,745 35.26% (3,325,718)-23.96%
Children’s MH Plan 431,827 1.44% 1,769 0.41%
In-Home & Family Support 17,141 0.06% (91,305)-84.19%
New Generation Medications 549,017 1.83% (23,725)-4.14%
State Revenues 2,945,512 9.84% 59,585 2.06%
Federal Block Grants 1,120,783 3.75% 38,073 3.52%
Federal Pass-Through 1,279,112 4.27% (235,011)-15.52%
Totals$ 100.00%(2,279,554)29,925,541$ -7.08%4
The areas of significant increase in revenue as compared to fiscal year 2003 are miscellaneous revenue and
revenue generated from Medicaid and Medicare. Miscellaneous revenue increased as a result of an increase in
receipts of public assistance and sample medications. Medicaid revenues registered a substantial increase due
to the refinancing of consumers from General Revenue- Mental Retardation dollars to the Home and
Community-based Services (HCS) Medicaid waiver program. Conversely and for the same reason, general
revenue reflected a decrease.
Investment income for fiscal year 2004 totaled $138,287 and is higher than the earnings for the previous year
of $132,588. The increase of interest rates during the later part of the fiscal year contributed to this slight
General Fund Balance
The fund balance of the General Fund rose by $534,567 or 8% during fiscal year 2004. This is before a prior
year adjustment which decreased this fund balance by $656,952 and is further discussed in the Notes to the
Financial Statements. All told, the fund balance as of August 31, 2004 was $6,555,193 which is equivalent to
81 days of expenditure.
Cash temporarily idle during the year was invested in money market funds, interest-bearing demand deposit
accounts, certificates of deposit, mutual funds, US treasury reserves and government reserves. At August 31,
2004, the Center had $3,337,855 invested in TEXPOOL, a state-sponsored, AAA-rated local government
investment pool which is sponsored by the Texas Comptroller of Public Accounts and operated under the
supervision of the Texas Treasury Safekeeping Trust Company. This pool is managed by the Lehman Brothers
and Federated Investors. In addition, the Center had $34,149 invested in a money market account, $742,207 in
mutual funds, $195,000 in certificates of deposits, and $262,399 in Federal Agency Discount Notes.
Furthermore, the Center had $997,357 invested in long-term investments. The available balance in the primary
depository money market account is swept each evening and invested in overnight U. S. treasury reserves.
The amount invested at August 31, 2004 was $1,081,195.
State statutes authorize the Center to invest in obligations of the United States or its agencies, direct obligations
of the State of Texas or the United States or its agencies, prime domestic bankers acceptances, commercial
paper, SEC-registered no-load money market mutual funds, other obligations which are unconditionally
guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities, and
obligations of states, agencies, countries, cities and other political subdivisions having been rated as to
investment quality by a nationally recognized investment rating firm and having received a rating of not less
than A or its equivalent, certificates of deposit, and fully collateralized repurchase agreements. The Center’s
demand deposits were secured at August 31, 2004, by the Federal Deposit Insurance Corporation and by
pledged securities held by the Center’s agent in the Center’s name.
The Agency Fund includes assets totaling $150,907 held for clients’ use from Social Security where the Center
serves as payee. Additionally, the fund also holds monies collected during fund raising activities in the
amount of $16,242. The total assets of the Agency Fund is therefore $167,149 as of August 31, 2004.
The Board approved the adoption of a Section 401(a) pension fund effective September 1, 1990, which was
approved by the Internal Revenue Service. On August 31, 2004, the Pension Fund has a balance of $3,970,294
funded by matching contributions made by eligible employees who contribute at least 3.0% of their gross
salary to the fund.
TDMHMR requires an annual audit of the accounting books, financial records, and transactions of the Center
by an independent Certified Public Accountant. This requirement includes “single audit” procedures for compliance with general revenue (state appropriated funding) and federal and state grant requirements. The
Center’s financial statements were audited by Wathen, DeShong & Juncker L.L.P., a firm of licensed certified
public accountants. The goal of the independent audit was to provide reasonable assurance that the financial
statements of the Center for the fiscal year ended August 31, 2004 are free of material misstatement. The
independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements; assessing the accounting principles used and significant estimates made by management;
and evaluating the overall financial statement presentation. The independent auditor concluded, based upon
the audit, that there was a reasonable basis for rendering an unqualified opinion that Spindletop MHMR
Services’ financial statements for the fiscal year ended August 31, 2004, are fairly presented in conformity
with generally accepted accounting principles (GAAP). The independent auditor’s report is attached as the
first component of the financial section of this report.
The Center participates in a comprehensive self-funded insurance pool managed by the Texas Council Risk
Management Fund covering workers’ compensation, liability coverage, property, and vehicle physical damage with an aggressive loss control program. Coverage includes maximum amounts eligible to be paid by the pool
as discussed in the Notes to the Financial Statements.
Awards and Accomplishments
The Government Finance Officers’ Association of the United States and Canada (GFOA) awarded a Certificate
of Achievement for Excellence in Financial Reporting to Spindletop MHMR Services for its Comprehensive
Annual Financial Report (CAFR) for the fiscal year ended August 31, 2003 as shown on page 7. In order to
be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently
organized CAFR. This report must satisfy both generally accepted accounting principles and applicable legal
A Certificate of Achievement is valid for a period of one year only. We believe that our current
comprehensive annual financial report continues to meet the Certificate of Achievement Program’s
requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.
This report could not have been prepared without the competence and dedication of the entire staff of the
Center’s Financial Services Department. We express our appreciation to all the members of the said
department for their invaluable contribution to this effort. We also thank the members of the Center’s Board of
Trustees for their keen interest and unwavering support in planning and monitoring the financial operations of
the Center reflecting their deep commitment to their community, especially those who are mentally impaired.
N. Charles Harris, Ph.D. Alex V. Lim, CPA, MBA Chief Executive Officer Chief Financial Officer