Theodore Roosevelt Boarding School Single Audit Reporting Package. Year Ended June 30, 2016

Transcription

1 Theodore Roosevelt Boarding School Single Audit Reporting Package Year Ended June 30, 2016

2 CONTENTS Page INDEPENDENT AUDITOR S REPORT 1 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) 5 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Position 18 Statement of Activities 19 Fund Financial Statements: Balance Sheet Governmental Funds 22 Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position 23 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 24 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds to the Statement of Activities 25 Notes to Financial Statements 27 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues Expenditures and Changes in Fund Balances Budget and Actual: General Fund 38 Note to Required Supplementary Information 39

3 CONTENTS Page SINGLE AUDIT 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 43 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance. 45 Schedule of Expenditures of Federal Awards 49 Notes to Schedule of Expenditures of Federal Awards 50 Schedule of Findings and Questioned Costs 51 Corrective Action Plan 63 Summary Schedule of Prior Audit Findings 67

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5 REPORT ON AUDIT OF FINANCIAL STATEMENTS

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7 INDEPENDENT AUDITOR S REPORT Governing Board Theodore Roosevelt Boarding School Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, and the major fund, of Theodore Roosevelt Boarding School (School), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for Qualified Opinion We were unable to obtain sufficient appropriate audit evidence for the $576,107 of capital assets reported on the financial statements as well as depreciation expense of $49,936 and accumulated depreciation of $258,835. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Qualified Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities of the Theodore Roosevelt Boarding School, as of June 30, 2016, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Page 1

8 Unmodified Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the major fund of Theodore Roosevelt Boarding School, as of June 30, 2016, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 3, the School ceased operations temporarily from April through June 2016 as a result of overexpenditure of federal funds. Our opinion is not modified with respect to this matter. Change in Accounting Principle As described in Note 1, the School implemented the provisions of the Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, for the year ended June 30, 2016, which represents a change in accounting principle. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and budgetary comparison information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 19, 2017, on our consideration of Theodore Roosevelt Boarding School 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 in considering Theodore Roosevelt Boarding School s internal control over financial reporting and compliance. Heinfeld, Meech & Co., P.C. Phoenix, Arizona April 19, 2017 Page 2

9 Page 3 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) (Required Supplementary Information)

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11 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 As management of the Theodore Roosevelt Boarding School (School), we offer readers of the School s financial statements this narrative overview and analysis of the financial activities of the School for the fiscal year ended June 30, The management s discussion and analysis is presented as required supplementary information to supplement the basic financial statements. FINANCIAL HIGHLIGHTS The School s total net position of governmental activities increased $29,123 which represents a four percent increase from the prior fiscal year. General revenues accounted for $2.1 million in revenue, or 82 percent of all current fiscal year revenues. Program specific revenues in the form of charges for services and grants and contributions accounted for $457,633 or 18 percent of total current fiscal year revenues. The School had approximately $2.5 million in expenses related to governmental activities, a decrease of 28 percent from the prior fiscal year, primarily due to a temporary discontinuation of operations from April through June The General Fund had $2.6 million in current fiscal year revenues, which primarily consisted of federal aid and $2.5 million in expenditures. The General Fund s fund balance increased from $349,820 million at the end of the prior fiscal year to $396,358 at the current fiscal year end. OVERVIEW OF FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the School s basic financial statements. The School s basic financial statements comprise three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the School s finances, in a manner similar to a private-sector business. The accrual basis of accounting is used for the government-wide financial statements. Page 5

12 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 OVERVIEW OF FINANCIAL STATEMENTS The statement of net position presents information on all of the School s assets, liabilities, and deferred inflows/outflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the School is improving or deteriorating. The statement of activities presents information showing how the School s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused compensated absences). The government-wide financial statements outline functions of the School that are principally supported by intergovernmental revenues. The governmental activities of the School include instruction, support services, operation and maintenance of plant services, student transportation services, operation of non-instructional services, and interest on long-term debt. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The School uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The School only has governmental funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements use the modified accrual basis of accounting and focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the School s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the School s near-term financing decision. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Page 6

13 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 OVERVIEW OF FINANCIAL STATEMENTS Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found immediately following the basic financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the School s budget process. The School adopts an annual expenditure budget for all governmental funds. A schedule of revenues, expenditures and changes in fund balances budget and actual has been provided for the General Fund as required supplementary information. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of a government s financial position. In the case of the School, assets exceeded liabilities by $704,932 at the current fiscal year end. A portion of the School s net position reflects its investment in capital assets (e.g., vehicles, furniture and equipment), less any related outstanding debt used to acquire those assets. The School uses these capital assets to provide services to its students; consequently, these assets are not available for future spending. Although the School s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The School has no related debt. In addition, a portion of the School s net position represents resources that are subject to external restrictions on how they may be used. The remaining balance is unrestricted and may be used to meet the School s ongoing obligations to its citizens and creditors. Page 7

14 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 GOVERNMENT-WIDE FINANCIAL ANALYSIS The following table presents a summary of the School s net position for the fiscal years ended June 30, 2016 and June 30, As of June 30, 2016 As of June 30, 2015 Current and other assets $ 437,827 $ 564,556 Capital assets, net 317, ,208 Total assets 755, ,764 Current and other liabilities 41, ,736 Long-term liabilities 8,698 41,219 Total liabilities 50, ,955 Net position: Net investment in capital assets 317, ,079 Restricted 753, ,212 Unrestricted (365,340) (444,482) Total net position $ 704,932 $ 675,809 At the end of the current fiscal year the School reported deficit unrestricted net position as a result of negative cash balances related to prior year expenditures in grant funds. Positive net position was reported in the other two categories. The same situation held true for the prior fiscal year. The School s financial position is the product of several financial transactions including the net results of activities, and the acquisition and depreciation of capital assets. The following is a significant current year transaction that had an impact on the Statement of Net Position. A decrease of $126,729 in current assets, primarily due to a decrease in receivables related to federal revenues as a result of a temporary discontinuation of operations from April through June A decrease of $173,267 in current liabilities, primary due to a decrease in expenditures at year end as a result of a temporary discontinuation of operations from April through June Page 8

15 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 GOVERNMENT-WIDE FINANCIAL ANALYSIS Changes in net position. The School s total revenues for the current fiscal year were $2.6 million. The total cost of all programs and services was $2.5 million. The following table presents a summary of the changes in net position for the fiscal years ended June 30, 2016 and June 30, Fiscal Year Ended June 30, 2016 Fiscal Year Ended June 30, 2015 Revenues: Program revenues: Charges for services $ 54,625 $ 56,299 Operating grants and contributions 403, ,849 General revenues: Investment income 38,389 Unrestricted federal aid 2,096,844 2,158,900 Total revenues 2,554,477 2,748,437 Expenses: Instruction 869, ,069 Support services students and staff 535, ,240 Support services administration 473, ,684 Operation and maintenance of plant services 357, ,770 Student transportation services 100, ,856 Operation of non-instructional services 187, ,196 Interest on long-term debt 1,617 1,941 Total expenses 2,525,354 3,528,756 Changes in net position 29,123 (780,319) Net position, beginning 675,809 1,456,128 Net position, ending $ 704,932 $ 675,809 Page 9

16 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 GOVERNMENT-WIDE FINANCIAL ANALYSIS Thousands $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Expenses FY FY The following are significant current year transactions that have had an impact on the change in net position. A decrease of $1.0 million in overall expenses due to a temporary discontinuation of operations from April through June A decrease of $91,841 in operating grants and contributions due to a decrease in Special Education grant revenue. The following table presents the cost of the School s major functional activities. The table also shows each function s net cost (total cost less charges for services generated by the activities and intergovernmental aid provided for specific programs). The net cost shows the financial burden that was placed on the federal government by each of these functions. Page 10

17 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 GOVERNMENT-WIDE FINANCIAL ANALYSIS Year Ended June 30, 2016 Year Ended June 30, 2015 Total Expenses Net (Expense) Total Expenses Net (Expense) Instruction $ 869,340 $ (705,263) $ 781,069 $ (717,699) Support services students and staff 535,331 (316,978) 800,240 (523,692) Support services administration 473,779 (473,779) 994,684 (974,726) Operation and maintenance of plant services 357,078 (356,868) 532,770 (522,959) Student transportation services 100,514 (100,514) 199,856 (196,833) Operation of non-instructional services 187,695 (112,702) 218,196 (39,758) Interest on long-term debt 1,617 (1,617) 1,941 (1,941) Total $ 2,525,354 $(2,067,721) $ 3,528,756 $(2,977,608) The cost of all governmental activities this year was $2.5 million. Federal governments and charges for services subsidized certain programs with grants and contributions and other local revenues of $457,633. Net cost of governmental activities of $2.1 million was partially financed by general revenues, which are made up of primarily unrestricted federal aid of $2.1 million. FINANCIAL ANALYSIS OF THE SCHOOL S FUNDS As noted earlier, the School uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the School s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the School s financing requirements. In particular, unassigned fund balance may serve as a useful measure of the School s net resources available for spending at the end of the fiscal year. The financial performance of the School as a whole is reflected in its governmental funds. As the School completed the year, its governmental funds reported a fund balance of $396,358, an increase of $46,538 due to a decrease in expenditures as a result of a temporary discontinuation of operations from April through June The General Fund s unassigned fund balance is in a deficit position of $356,642. Page 11

18 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 BUDGETARY HIGHLIGHTS Over the course of the year, the School did not revise the General Fund annual expenditure budget. A schedule showing the final budget amounts compared to the School s actual financial activity for the General Fund is provided in this report as required supplementary information. The significant variances are summarized as follows: The favorable variance of $721,677 in instruction was a result of an unanticipated discontinuation of operations from April through June The unfavorable variance of $356,552 in support services administration was a result of unanticipated expenditures in the Administrative Costs Grants for Indian Schools. The favorable variance of $141,162 in operation and maintenance of plant services was a result of an unanticipated discontinuation of operations from April through June CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets. At year end, the School had invested $576,107 in capital assets, including building improvements, vehicles and other equipment. Total depreciation expense for the year was $49,936. The net capital asset balance was $317,272 at June 30, 2016, and $367,208 at June 30, The School has no non-depreciable capital assets. Additional information on the School s capital assets can be found in Note 6. Debt Administration. At year end, the School had no long-term debt. Long-term debt decreased by $10,129 due to capital lease principal payments made during the year. Additional information on the School s long-term debt can be found in Notes 7 and 8. ECONOMIC FACTORS AND NEXT YEAR S BUDGET Many factors were considered by the School s administration during the process of developing the fiscal year budget. Among them: School student population (estimated 124 students). Employee salaries (estimated 37 employees). Also considered in the development of the budget is the local economy and inflation of the surrounding area. Budgeted expenditures in the General Fund decreased $806,655 to $2.1 million in fiscal year The decrease is a result of the School reducing the deficit fund balances in various grants. Unrestricted Federal aid is expected to be the primary funding source. No new programs were added to the budget. Page 12

19 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2016 CONTACTING THE SCHOOL S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, and federal granting agencies with a general overview of the School s finances and to demonstrate the School s accountability for the resources it receives. If you have questions about this report or need additional information, contact the Business Department, Theodore Roosevelt Boarding School, 101 Thomas Road, P. O. Box 567, Fort Apache, Arizona Page 13

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21 Page 15 BASIC FINANCIAL STATEMENTS

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23 Page 17 GOVERNMENT-WIDE FINANCIAL STATEMENTS

24 THEODORE ROOSEVLET BOARDING SCHOOL STATEMENT OF NET POSITION JUNE 30, 2016 ASSETS Current assets: Cash and investments Due from governmental entities Total current assets Noncurrent assets: Capital assets, net of accumulated depreciation Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable Compensated absences payable Total current liabilities Total liabilities NET POSITION Net investment in capital assets Restricted for: Federal projects Unrestricted Total net position Governmental Activities $ 424,462 13, , , , ,099 41,469 8,698 50,167 50, , ,000 (365,340) $ 704,932 The notes to the basic financial statements are an integral part of this statement. Page 18

25 THEODORE ROOSEVLET BOARDING SCHOOL STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Program Revenues Net (Expense) Revenue and Changes in Net Position Functions/Programs Governmental activities: Instruction Support services - students and staff Support services - administration Operation and maintenance of plant services Student transportation services Operation of non-instructional services Interest on long-term debt Total governmental activities Expenses $ 869, , , , , ,695 1,617 $ 2,525,354 Charges for Services $ 54,625 $ 54,625 Operating Grants and Contributions $ 109, , ,993 $ 403,008 Governmental Activities $ (705,263) (316,978) (473,779) (356,868) (100,514) (112,702) (1,617) (2,067,721) General revenues: Unrestricted federal aid Total general revenues Changes in net position Net position, beginning of year Net position, end of year 2,096,844 2,096,844 29, ,809 $ 704,932 The notes to the basic financial statements are an integral part of this statement. Page 19

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27 Page 21 FUND FINANCIAL STATEMENTS

28 THEODORE ROOSEVLET BOARDING SCHOOL BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2016 ASSETS Cash and investments Due from governmental entities Total assets Total Governmental Funds: General Fund $ 424,462 13,365 $ 437,827 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Total liabilities Fund balances (deficits): Restricted Unassigned Total fund balances Total liabilities and fund balances $ 41,469 41, ,000 (356,642) 396,358 $ 437,827 The notes to the basic financial statements are an integral part of this statement. Page 22

29 RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Total governmental fund balances $ 396,358 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Governmental capital assets $ 576,107 Less accumulated depreciation (258,835) 317,272 Compensated absences liabilities are not due and payable in the current period and, therefore, are not reported in the funds. (8,698) Net position of governmental activities $ 704,932 The notes to the basic financial statements are an integral part of this statement. Page 23

30 THEODORE ROOSEVLET BOARDING SCHOOL STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2016 Revenues: Other local Federal aid, grants and reimbursements Total revenues Expenditures: Current - Instruction Support services - students and staff Support services - administration Operation and maintenance of plant services Student transportation services Operation of non-instructional services Capital outlay Debt service - Principal retirement Interest and fiscal charges Total expenditures Changes in fund balances Fund balances, beginning of year Fund balances, end of year Total Governmental Funds: General Fund $ 54,625 2,499,852 2,554, , , , ,039 67, ,695 56,144 10,129 1,617 2,507,939 46, ,820 $ 396,358 The notes to the basic financial statements are an integral part of this statement. Page 24

31 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Changes in fund balances - total governmental funds $ 46,538 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report the portion of capital outlay for capitalized assets as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as depreciation expense. (49,936) Repayments of capital lease principal are expenditures in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. 10,129 Compensated Absences expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. 22,392 Changes in net position in governmental activities $ 29,123 The notes to the basic financial statements are an integral part of this statement. Page 25

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33 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Theodore Roosevelt Boarding School have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. During the year ended June 30, 2016, the District implemented the provisions of GASB Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements and establishes a hierarchy of inputs to valuation techniques used to measure fair value. This Statement also enhances accountability and transparency through revised note disclosures. The more significant of the School s accounting policies are described below. A. Reporting Entity Effective July 1, 1996, Theodore Roosevelt Boarding School became a Tribally Controlled Grant School as authorized by Public Law , and is located on the White Mountain Apache Indian Reservation in eastern Arizona. The School is operated under the authority of the Theodore Roosevelt Boarding School Governing Board. The membership of the Governing Board consists of five members, which were appointed by the White Mountain Apache Indian Tribal Council. The financial reporting entity consists of a primary government and its component units. A component unit is a legally separate entity that must be included in the reporting entity in conformity with generally accepted accounting principles. The School is a primary government because it is a special-purpose government that has a separate governing body, is legally separate, and is fiscally independent of other state or local governments. Furthermore, there are no component units combined with the School for financial statement presentation purposes, and the School is not included in any other governmental reporting entity. Consequently, the School s financial statements include only the funds of those organizational entities for which its governing board is financially accountable. The School s major operations include education, student transportation and maintenance of School facilities and food services. B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) present financial information about the School as a whole. The reported information includes all of the nonfiduciary activities of the School. For the most part, the effect of internal activity has been removed from these statements. These statements are to distinguish between the governmental and business-type activities of the School. Governmental activities normally are supported by intergovernmental revenues, and are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The School does not have any business-type activities. Page 27

34 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Unrestricted Federal aid and other items not included among program revenues are reported instead as general revenues. The School s major governmental fund is the General Fund and is reported as a separate column in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using 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 related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. As a general rule, the effect of internal activity has been eliminated from the governmentwide financial statements; however, the effects of interfund services provided and used between functions are reported as expenses and program revenues at amounts approximating their external exchange value. Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Compensated absences are recorded only when payment is due. Federal aid and investment income associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Food services and miscellaneous revenues are not susceptible to accrual because generally they are not measurable until received in cash. Grants and similar awards are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. Page 28

35 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The focus of governmental fund financial statements is on the major fund rather than reporting funds by type. The major fund is presented in a separate column. The School reports the following major governmental fund: General Fund The General Fund is the School s primary operating fund. It accounts for all resources used to finance School maintenance and operation except those required to be accounted for in other funds. The School only utilizes the General Fund within the governmental funds. D. Cash and Investments The Theodore Roosevelt Boarding School s Governing Board authorizes the School to invest monies in interest-bearing savings accounts, certificates of deposit, and repurchase agreements in eligible depositories; and bonds or other obligations of the U.S. government that are guaranteed as to principal and interest by the U.S. government. All investments are stated at fair value. E. Investment Income Investment income is composed of interest, dividends, and net changes in the fair value of applicable investments. Investment income is included in other local revenue in the governmental fund financial statements. F. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. Prepaid items are recorded as expenses when consumed in the government-wide financial statements and as expenditures when purchased in the fund financial statements. G. Capital Assets Capital assets, which include vehicles, furniture and equipment, are reported in the government-wide financial statements. Capital assets are defined by the School as assets with an initial, individual cost in excess of $5,000 and an estimated useful life of more than one year. Such assets are recorded at historical cost, or estimated historical cost if actual historical cost is not available. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. Page 29

36 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capital assets are depreciated using the straight-line method over the following estimated useful lives: Buildings and improvements Vehicles, furniture and equipment years 5-10 years H. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position may report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. The School did not have any items that qualified for reporting in this category. In addition to liabilities, the statement of financial position may report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The School did not have any items that qualified for reporting in this category. I. Compensated Absences The School s employee vacation and sick leave policies generally provide for granting vacation and sick leave with pay in varying amounts. Only benefits considered vested are recognized in the financial statements. The liability for vacation and sick leave is reported in the government-wide financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee leave, resignations and retirements. Generally, resources from the General Fund are used to pay for compensated absences. J. Net Position Flow Assumption In the government-wide fund financial statements the School applies restricted resources first when outlays are incurred for purposes for which either restricted or unrestricted amounts are available. Page 30

37 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES K. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. NOTE 2 FUND BALANCE CLASSIFICATIONS Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on the use of those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are nonspendable, restricted, and unrestricted, which includes committed, assigned, and unassigned fund balance classifications. Although the School does not use all of the fund balance classifications, a description of each classification follows. Nonspendable. The nonspendable fund balance classification includes amounts that cannot be spent because they are not in spendable form, or legally or contractually required to be maintained intact. Restricted. Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or is imposed by law through constitutional provisions or enabling legislation. Committed. The committed fund balance classification includes amounts that can be used only for the specific purposes imposed by formal action of the Governing Board. Those committed amounts cannot be used for any other purpose unless the Governing Board removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. The School does not have a formal policy or procedures for the utilization of committed fund balance, accordingly, no committed fund balance amounts are reported. Assigned. Amounts in the assigned fund balance classification are intended to be used by the School for specific purposes but do not meet the criteria to be classified as restricted or committed. In the General Fund, assigned amounts represent intended uses established by the Governing Board or a management official delegated that authority by the formal Governing Board action. The School does not have a formal policy or procedures for the utilization of assigned fund balance, accordingly, no assigned fund balance amounts are reported. Page 31

38 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 2 FUND BALANCE CLASSIFICATIONS Unassigned. Unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not contained in the other classifications. The School applies restricted resources first when outlays are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. The table below provides detail of the major components of the School s fund balance classifications at year end: General Fund Fund Balances: Restricted Federal projects $ 753,000 Unassigned (356,642) Total fund balances $ 396,358 NOTE 3 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Stewardship During the fiscal year, the School temporarily closed from April through June The School began the year with a deficit in fund balance due to significant overexpenditures of grant funds in fiscal year To ensure the School did not continue in a deficit position, the decision was made to cease operations in April. Compliance The School s compliance with certain laws and regulations is subject to review by the Bureau of Indian Affairs (BIA) and the Bureau of Indian Education (BIE). Such reviews may result in a reduction of federal grant assistance, or other disciplinary actions. The School overspent the Administrative Cost Grant by $616,375. As a result, the Fiscal Review Team of the BIE has been monitoring the School to determine what sanctions will be taken. In addition, amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures/expenses that may be disallowed by the grantor cannot be determined at this time, although the School expects such amounts, if any, to be material. Page 32

39 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 CASH AND INVESTMENTS The School Board authorizes the School to invest public monies in interest-bearing savings accounts, certificates of deposit, and repurchase agreements in eligible depositories. The School s policy does not include any requirements for credit risk, custodial credit risk, concentration of credit risk, interest rate risk, or foreign currency risk for the School s investments. Custodial Credit Risk Deposits. Custodial credit risk is the risk that in the event of bank failure the School s deposits may not be returned to the School. The School does not have a deposit policy for custodial credit risk. At year end, the carrying amount of the School s deposits was $424,462 and the bank balance was $427,071. Of the bank balance, $250,000 was covered by Federal depository insurance and $177,071 was uninsured and uncollateralized. NOTE 5 RECEIVABLES Receivable balances are reported net of allowance for uncollectibles in the financial statements as due from governmental entities. This amount is solely due from Federal government as of year end in the amount of $13,365. NOTE 6 CAPITAL ASSETS A summary of capital asset activity for the current fiscal year follows: Beginning Balance Increase Decrease Ending Balance Governmental Activities Capital assets, being depreciated: Buildings and improvements $ 134,745 $ $ $ 134,745 Vehicles, furniture and equipment 441, ,362 Total capital assets being depreciated 576, ,107 Less accumulated depreciation for: Buildings and improvements (8,765) (10,648) (19,413) Vehicles, furniture and equipment (200,134) (39,288) (239,422) Total accumulated depreciation (208,899) (49,936) (258,835) Total capital assets, being depreciated, net 367,208 (49,936) 317,272 Governmental activities capital assets, net $ 367,208 $ (49,936) $ $ 317,272 Page 33

40 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 6 CAPITAL ASSETS Depreciation expense was charged to governmental functions as follows: Instruction $ 5,769 Support services administration 132 Operation and maintenance of plant services 19,986 Student transportation services 24,049 Total depreciation expense governmental activities $ 49,936 NOTE 7 OBLIGATIONS UNDER CAPITAL LEASES The School has acquired three vehicles under the provisions of long-term lease agreements classified as capital leases. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. Revenues from the Indian Schools Student Transportation federal program are used to pay the capital lease obligations. NOTE 8 CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the current fiscal year was as follows: Beginning Balance Additions Reductions Ending Balance Due Within One Year Governmental activities: Obligations under capital leases $ 10,129 $ $ 10,129 $ $ Compensated absences payable 31,090 9,103 31,495 8,698 8,698 Governmental activity longterm liabilities $ 41,219 $ 9,103 $ 41,624 $ 8,698 $ 8,698 NOTE 9 RISK MANAGEMENT The School 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 School continues to carry commercial insurance for all risks of loss, including property and liability, life, and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. Page 34

41 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 9 RISK MANAGEMENT The School joined the Native American Schools Workers Compensation Pool, (Pool) together with other Tribally Controlled Grants Schools for risks of loss related to workers compensation claims. The Pool is a public entity risk pool currently operating as a common risk management and insurance program for Tribally Controlled Grant Schools and is managed by Summit Administrative Services, Inc. as the third party administrator. The Schools pay monthly premiums into the Pool for its employee worker s compensation coverage. The agreement provides that the Pool will be self-sustaining through members premiums and will reinsure through commercial companies for claims in excess of specified amounts for each insured event. NOTE 10 ECONOMIC DEPENDENCY The School s revenue sources are based primarily on federal financial assistance subject to availability of funds and the School s compliance with federal rules and regulations. Page 35

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43 Page 37 REQUIRED SUPPLEMENTARY INFORMATION

44 THEODORE ROOSEVLET BOARDING SCHOOL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL TOTAL GOVERNMENTAL FUNDS: GENERAL FUND YEAR ENDED JUNE 30, 2016 Revenues: Other local Federal aid, grants and reimbursements Total revenues Budgeted Amounts Original & Final $ Actual $ 54,625 2,499,852 2,554,477 Variance with Final Budget Positive (Negative) $ 54,625 2,499,852 2,554,477 Expenditures: Current - Instruction Support services - students and staff Support services - administration Operation and maintenance of plant services Student transportation services Operation of non-instructional services Capital outlay Debt service - Principal retirement Interest and fiscal charges Total expenditures 1,545, , , ,201 11,724 68,352 2,865, , , , ,039 67, ,695 56,144 10,129 1,617 2,507, ,677 94,345 (356,552) 141,162 (55,621) (119,343) (56,144) (10,129) (1,617) 357,778 Changes in fund balances (2,865,717) 46,538 2,912,255 Fund balances, beginning of year 349, ,820 Fund balances (deficits), end of year $ (2,865,717) $ 396,358 $ 3,262,075 See accompanying notes to this schedule. Page 38