FINANCIAL STATEMENTS WITH INDEPENDENT AUDITOR'S REPORTS THEREON JUNE 30, 201Q

Transcription

1 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA FINANCIAL STATEMENTS WITH INDEPENDENT AUDITOR'S REPORTS THEREON JUNE 30, 201Q

2 CONTENTS Page Management's Discussion and Analysis 1-7 Report of Independent Auditors on Basic Financial Statements and Supplementary Information 8-9 Basic Financial Statements: Statement of Net Assets Statement of Activities Balance Sheet - Governmental Fund Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Notes to Financial Statements Required Supplementary Information: Budgetary Comparison Schedule - General Fund Budgetary Comparison Schedule - Special Revenue Fund Report of Independent Auditors 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 Additional Information Required by Rules of the Auditor General, Chapter , Audits ofcharter Schools and Similar Entities: Management Letter Written Statement of Explanation or Rebuttal

3 MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the annual financial report of Volusia Elementary Charter School, Inc. d/b/a Boston Avenue Charter School (the "School") presents management's discussion and analysis of the School's financial performance during the fiscal year ended June 30, Please read it in conjunction with the School's financial statements, which follow this section. The School was formerly known as Boston Avenue Charter School, Inc., d/b/a Volusia Elementary Charter School. Effective July 2009, the School's name was changed to Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School. FINANCIAL HIGHLIGHTS The School's total net assets increased as compared to the prior year. For the fiscal year ended June 30, 2010, the School's revenues exceeded expenses by $186,036, which is an improvement from the prior year when revenues exceeded expenses by $3,879. The School served approximately 193 students during the 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 School: The first two statements are government-wide financial statements that provide both longterm and short-term information about the School's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the School, reporting the School's operations in more detail than the government-wide statements. The governmental funds financial statements tell how general school services were financed in the short term, as well as what remains for future spending. 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. This document also includes the independent auditor's report on compliance and internal control required by Government Auditing Standards, as well as the management letter required by the Rules of the Auditor General, Chapter , Audits of Charter Schools and Similar Entities. 1

4 The following table summarizes the major features of the School's financial statements, including the portion of the School they cover and 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. Scope Required financial statements Accounting basis and measurement focus Type of asseuliability information Type of inflow/outflow information Government-wide Statements Entire School Statement of net assets Statement of activities Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and shortterm and long-term All revenues and expenses during the year, regardless of when cash is received or paid Fund Statements Governmental Funds The activities of the School that are not proprietary or fiduciary Balance sheet Statement of revenues, expenditures and changes in fund balances Modified accrual accounting and current financial resources focus Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included 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 2

5 Government-wide Financial Statements The government-wide financial statements report information about the School as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the School'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 financial statements report the School's net assets and how they have changed. Net assets - the difference between the School's assets and liabilities - is one way to measure the School's financial condition. Over time, increases or decreases in the School's net assets are an indicator of whether its financial condition is improving or deteriorating, respectively. To assess the overall health of the School, one needs to consider additional nonfinancial factors such as changes in the School's student base. The government-wide financial statements of the School are generally divided into three categories: Governmental activities - most of the School's basic services are included here, such as instruction and school administration. Funds received through the Florida Education Finance Program ("FEFP") and state and federal grants finance most of these activities. Business-type activities - in certain instances, the School may charge fees to help it cover the costs of certain services it provides. The School currently has no business-type activities. Component units - there currently are no component units included within the reporting entity of the School. Fund Financial Statements The fund financial statements provide more detailed information about the School's most significant funds, not the School as a whole. A fund is a self-balancing set of accounts which the School uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by state law, and the School may establish other funds to control and manage money for particular purposes, such as for federal grants. The School has one kind of fund: Governmental funds - most of the School'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 funds statements provide a detailed short-term view that helps one determine whether there are more or fewer financial resources that can be spent in the near future to finance the School's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information on the subsequent page that explains the differences between them. 3

6 FINANCIAL ANALYSIS OF THE SCHOOL AS A WHOLE Net Assets The School's total net assets increased from fiscal years 2009 to 2010 {see table below). Current and other assets Capital assets, net Governmental Activities Increase (Decrease) $ 165,805 $ 56, % 127, % Total assets $ 293,283 $ 56, % Current and other liabilities Total liabilities $ $ 103, ,368 $ $ 52,286 52,286 98% 98% Net assets: Invested in capital assets $ 127,478 $ 100% Unrestricted 62,437 3, % Total net assets $ 189,915 $ 3, % As this was the School's second year of operations, current and other assets increased due to the ability to better budget for revenues and expenses. Also, at the end of the year, the School had Start-Up Grant reimbursements that were receivable from the School District. Net capital assets increased due to capital asset purchases in excess of depreciation expense in the current year. During the first year of operation, no capital assets were purchased. Current and other liabilities increased due to textbook purchases, contract labor to prepare the facility for the installation of the new classroom cottages, and management fees that were unpaid at year-end. The fluctuation in total net assets from the prior fiscal year was due to the current year operating surplus. 4

7 Change in Net Assets The School's total revenues increased by 105% to $1,673,823, and the total cost of all programs and services increased by 83% to $1,487,787 (see table below). Governmental Activities Increase (Decrease} Revenues: Federal sources passed through local school district $ 305,336 $ 21, % State and local sources 1,286, , % Contributions and other revenue 81, ,276-54% Total revenues 1,673, , % Expenses: Instruction 604, ,565 40% Pupil personnel services % Instructional media 3, % Instruction and curriculum developmen1 17, % Instructional staff training 4, % Board 34, % General administration 64,154 30, % School administration 372, , % Facilities acquisition and construction 6, % Fiscal services 41,058 17, % Food services 98,589 46, % Central services 21,146 2, % Pupil transportation 52,235 7, % Operation of plant 138,251 79,108 75% Maintenance of plant 12,145 32,449-63% Community services 19,538 1, % Total expenses 1,487, ,048 83% Change in net assets $ 186,036 $ 3, % Revenues from state and local sources constitute 77% of total revenues. Revenues from state and local sources increased from the prior year amount due to the increase in student enrollment from 100 FTE students in fiscal 2009 to 193 FTE students in fiscal Federal revenues increased as a result of receiving the federal start-up grant in the current fiscal year. Also, the School received an increase in funds from the National School Lunch Program primarily due to the increase in student enrollment and more participants in the free and reduced breakfast and lunch program. Contributions and other revenue decreased due to the spin-off of the preschool program. During fiscal year 2009, revenues and expenses of the preschool and extended day services were reported as part of the School's activities. Effective July 1, 2009, the preschool became a separate legal entity and is no longer reported with the School's activities. 5

8 Instructional expenses increased from fiscal 2009 to fiscal 2010, primarily as a result of the increase in teachers on staff to accommodate the increase in student enrollment and use of start-up grant funds to purchase new curriculum materials, computers for the teachers and classrooms, and numerous other classroom supplies to support the core curriculum and educational needs of the expanding student population. School administration expenses increased due to an increase in the management fee, which was a result of revenues increasing, and the addition of an administrator hired to assist with the increase in student enrollment. Fiscal services expenses increased due to audit and accounting services related to fiscal year 2009 being provided to the School during the current year. Food services expenses increased due to the increase in food supply purchases to accommodate for the number of students participating in school lunch and breakfast programs. Transportation expenses increased due to the School purchasing buses and incurring the cost of maintaining the vehicles. Operation of plant increased due to the increase in custodial staff, the reclassification of custodial expenses from maintenance of plant to operation of plant and increased utility expenses related to increased staff and students. Certain reclassifications were made in the 2009 amounts to conform to their classifications in FINANCIAL ANALYSIS OF THE SCHOOL'S FUNDS As the School completed the year, its governmental funds reported a combined fund balance of $62,437. Both revenues and expenditures increased overall for the same reasons described above. General and Special Revenue Fund Budgetary Highlights Over the course of the year, the School revised its budget several times to account for changes in student enrollment and appropriations. For the year ended June 30, 2010, actual general fund revenues were approximately $36,000 above the final budget amounts, which represents an approximate 3% budget variance. Actual general fund expenditures were approximately $21,000 above the final budget, which represents an approximate 2% budget variance. The differences in the revenues and expenditures were due to revenues earned and expenditures paid from the internal account, which were not included in the operating budget. For the year ended June 30, 2010, actual special revenue fund revenues and expenditures were not significantly different from the budgeted amounts. CAPITAL ASSET ADMINISTRATION At the end of fiscal 2010, the School had invested $136,708 in a broad range of capital assets, including leasehold improvements, furniture, fixtures and equipment and motor vehicles. 6

9 This year's major capital asset additions included the following: Leasehold improvements -$54,992 Buses - $32,000 Computer lab computers - $22,836 Utility truck - $8,037 More detailed information about the School's capital assets is presented in Note 3 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET When adopting the general fund budget for fiscal year 2011, the School considered the expected increase in student enrollment and related instructional and administration expenditures. Amounts available for appropriation in the general fund are $1,890,813, an increase of approximately 38% over the actual 201 O amount of $1,368,487. FEFP revenue is expected to increase due to the increase in the number of students. Budgeted general fund expenditures are expected to increase to $1,871,331, or approximately 43%, from the fiscal 2010 actual figure of $1,309,929. Instructional and administration expenditures are expected to increase due to the increase in the number of students. The School has added no major new programs to the fiscal 2011 budget. If these estimates are realized, the School's general fund balance is expected to increase by the close of fiscal CONTACTING THE SCHOOL'S FINANCIAL MANAGEMENT This financial report is designed to provide interested parties with a general overview of the School's finances and to demonstrate the School's accountability for the money it receives. Should additional information be required, please contact the administrative offices of the School at 340 N. Boston Avenue, Deland, FL

10 Report of Independent Auditors on Basic Financial Statements and Supplementary Information To the Board of Directors of Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School, a Charter School and Component Unit of the District School Board of Volusia County, Florida We have audited the accompanying financial statements of the governmental activities and each major fund of Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School (the "School"), a charter school and component unit of the District School Board of Volusia County, Florida, as of and for the year ended June 30, 2010, which collectively comprise the School's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the School's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School, as of June 30, 2010, and the respective changes in financial position 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 September 20, 2010 on our consideration of the 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 and should be considered in assessing the results of our audit. 8

11 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 1-7 and the budgetary comparison information on pages 25-26, 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. Winter Park, Florida September 20,

12 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA STATEMENT OF NET ASSETS JUNE 30, 2010 ASSETS Governmental Activities Cash and cash equivalents $ 123,525 Accounts receivable 33,020 Prepaid expenses 9,260 Capital assets: Leasehold improvements 54,992 Furniture, fixtures and equipment 41,679 Motor vehicles 40,037 Less accumulated depreciation {9,230} Total capital assets, net 127,478 Total assets $ 293,283 LIABILITIES Accounts payable and accrued expenses $ 103,368 Total liabilities 103,368 NET ASSETS Invested in capital assets 127,478 Unrestricted 62,437 Total net assets 189,915 Total liabilities and net assets $ 293,283 The accompanying notes to financial statements are an integral part of this statement. 10

13 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010 Net (Expense) Revenue and Changes in Net Assets Program Revenues Operating Capital Charges for Grants and Grants and Governmental ~enses Services Contributions Contributions Activities Total Governmental activities: Instruction $ 604,427 $ - $ 19,067 $ - $ (585,360) $ (585,360) Instruction and curriculum development 17, (17,577) (17,577) Instructional staff training 4, (4,675) (4,675) Board 34, (34,799) (34,799) General administration 64, (64,154) (64,154) School administration 372, (372,980) (372,980) Facilities acquisition and construction 6, (6,213) (6,213) Fiscal services 41, (41,058) (41,058) Food services 98,589 18,059 86,269-5,739 5,739 Central services 21, (21, 146) (21,146) Pupil transportation 52, (52,235) (52,235) Operation of plant 138, (138,251) (138,251) Maintenance of plant 12, (12,145) (12,145) Community services 19, ~19,538} (19,538) Total primary government $ 1,487,787 $ 18,059 $ 105,336 $ - (1,364,392) (1,364,392) General revenues: Federal sources passed through local school district 200, ,000 State and local sources 1,286,733 1,286,733 Contributions and other revenue 63,695 63,695 Total general revenues 1,550,428 1,550,428 Change in net assets 186, ,036 Net assets at beginning of year 3,879 3,879 Net assets at end of year $ 189,915 $ 189,915 The accompanying notes to financial statements are an integral part of this statement. 11

14 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA BALANCE SHEET-GOVERNMENTAL FUND JUNE 30, 2010 ASSETS Cash and cash equivalents Accounts receivable Prepaid expenses Total assets General Fund $ 123,525 33,020 9,260 $ 165,805 LIABILITIES AND FUND BALANCE Accounts payable and accrued expenditures Total liabilities $ 103, ,368 Fund balance: Unreserved: Designated for school-based student activity groups Undesignated Total fund balance Total liabilities and fund balance 4,709 57,728 62,437 $ 165,805 The accompanying notes to financial statements are an integral part of this statement. 12

15 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2010 Total fund balance -total governmental fund $ 62,437 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in the governmental funds. The cost of the assets is $136,708, and the accumulated depreciation is $9, ,478 Total net assets - governmental activities $ 189,915 The accompanying notes to financial statements are an integral part of this statement. 13

16 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Federal sources passed through local school district State and local sources Contributions and other revenue General Fund Special Revenue Fund Total Governmental Funds $ $ 305,336 $ 305,336 1,286,733 1,286,733 81,754 81,754 Total revenues EXPENDITURES Current: Instruction Instruction and curriculum development Instructional staff training Board General administration School administration Facilities acquisition and construction Fiscal services Food services Central services Pupil transportation Operation of plant Maintenance of plant Community services Capital outlay 1,368, , , , ,950 2,244 2,431 15,901 18,898 64, ,695 12,612 6,213 41,058 12,320 86,269 21, , ,251 12,145 19, ,708 1,673, ,876 17,577 4,675 34,799 64, ,307 6,213 41,058 98,589 21,146 46, ,251 12,145 19, ,708 Total expenditures Net changes in fund balances Fund balances at beginning of year Fund balances at end of year 1,309, ,336 1,615,265 58,558 58,558 3,879 3,879 $ 62,437 $ $ 62,437 The accompanying notes to financial statements are an integral part of this statement. 14

17 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010 Net changes in fund balances total governmental funds $ 58,558 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those capital assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays ($136,708) exceed depreciation expense ($9,230} in the current period. 127,478 Change in net assets of governmental activities $ 186,036 The accompanying notes to financial statements are an integral part of this statement. 15

18 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School (the "School"), is a not-for-profit corporation organized pursuant to Chapter 617, Florida Statutes, the Florida Not-For Profit Corporation Act and Section , Florida Statutes. The governing body of the School is the not-for-profit corporation Board of Directors, which is composed of three members. The School commenced formal operations on July 1, The School was formerly known as Boston Avenue Charter School, Inc., d/b/a Volusia Elementary Charter School. Effective July 2009, the School's name was changed to Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School. The general operating authority of the School is contained in Section , Florida Statutes. The School operates under a charter of the sponsoring school district, the District School Board of Volusia County, Florida (the "School Board"). The current charter is effective until June 30, 2012 and may be renewed by mutual written agreement between the School and the School Board. At the end of the term of the charter, the School Board may choose not to renew the charter under grounds specified in the charter. In this case, the School Board is required to notify the School in writing at least 90 days prior to the charter's expiration. During the term of the charter, the School Board may also terminate the charter if good cause is shown. In the event of termination of the charter, any property purchased by the School with public funds and any unencumbered public funds revert back to the School Board. The School is considered a component unit of the School Board and meets the definition of a governmental entity under the Governmental Accounting Standards Board ("GASB'') accounting guidance; therefore, for financial reporting purposes, the School is required to follow generally accepted accounting principles applicable to state and local governmental units. Criteria for determining if other entities are potential component units of the School which should be reported with the School's basic financial statements are identified and described in the GASS Codification of Governmental Accounting and Financial Reporting Standards. The application of these criteria provides for identification of any entities for which the School is financially accountable and other organizations for which the nature and significance of their relationship with the School are such that exclusion would cause the School's basic financial statements to be misleading or incomplete. Based on these criteria, no component units are included within the reporting entity of the School. Recently adopted accounting pronouncements During fiscal year 2010, the School adopted changes issued by the Financial Accounting Standards Board ("FASS") related to disclosure of subsequent events. These changes require 16

19 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date (that is, whether that date represents the date the financial statements were issued or were available to be issued). The School has evaluated subsequent events through September 20, 2010, which is the date the financial statements were available to be issued. During fiscal year 2010, the School adopted guidance issued by the GASS that incorporates accounting and financial reporting guidance previously contained in the American Institute of Certified Public Accountants ("AICPA") auditing literature into the GASS's accounting and financial reporting literature for state and local governments. This guidance did not have a material impact on the financial statements of the School. Basis of presentation The School's financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the GASS. Accordingly, both government-wide and fund financial statements are presented. The government-wide financial statements report information about the School as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the School'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 government-wide financial statements of the School are generally divided into three categories: Governmental activities most of the School's basic services are included here, such as instruction and school administration. Funds received through the Florida Education Finance Program ("FEFP") and state and federal grants finance most of these activities. Business-type activities in certain instances, the School may charge fees to help it cover the costs of certain services it provides. The School currently has no business-type activities. Component units there currently are no component units included within the reporting entity of the School. The fund financial statements provide more detailed information about the School's most significant funds, not the School as a whole. A fund is an accounting entity having a selfbalancing set of accounts for recording assets, liabilities, fund balance, revenues, expenditures, and other financing sources and uses. Resources are allocated to and accounted for in individual funds based on the purposes for which they are to be spent and the means by which spending activities are controlled. 17

20 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) The funds in the financial statements of this report are as follows: Governmental Funds: General Fund - to account for all financial resources not required to be accounted for in another fund. Special Revenue Fund - to account for the proceeds of specific revenue sources and federal grants that are restricted by law or administrative action to expenditure for specific purposes. For purposes of these statements, the general and special revenue funds constitute major funds. There are no other governmental funds. Basis of accounting Basis of accounting refers to when revenues and expenses/expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. The government-wide financial statements are presented using the accrual basis of accounting and an economic resources focus. Under the accrual basis of accounting, revenues and expenses are recognized when they occur. The modified accrual basis of accounting and current financial resources focus is followed by the governmental funds. Under the modified accrual basis, revenues are recognized when they become measurable and available. Available means collectible within the current period or soon enough thereafter to pay current liabilities. The School considers revenues to be available if they are collected within sixty days of the end of the fiscal year. Under the modified accrual basis of accounting, expenditures are generally recognized when the related fund liability is incurred. The principal exceptions to this general rule are: (1) interest on general long-term debt is recognized when due and (2) expenditures related to liabilities reported as general long-term debt are recognized when due. Budgetary basis accounting Budgets are presented on the modified accrual basis of accounting. During the fiscal year, expenditures were controlled at the object level ( e.g., salaries, purchased services and capital outlay). Cash and cash equivalents All cash received by the School is maintained in a demand deposit account and is insured by federal depository insurance. For purposes of presentation on the Statement of Net Assets, 18

21 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) investments with an original maturity of three months or less at the time they are purchased are considered to be cash equivalents. Capital assets and depreciation Expenditures for capital assets acquired for general School purposes are reported in the governmental fund that financed the acquisition. Purchased capital assets are reported at cost, net of accumulated depreciation, in the government-wide financial statements. Donated assets are recorded at fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range as follows: Years Leasehold improvements 10 Motor vehicles 5 Furniture, fixtures and equipment 3-10 Information relative to changes in capital assets is described in Note 3. Revenue sources Revenues for current operations are received primarily from the District School Board of Volusia County, Florida pursuant to the funding provisions included in the School's charter. As such, the School's revenue stream is largely dependent upon the general state of the economy and the amounts allotted to the Florida Department of Education ("FDOE") by the state legislature. In accordance with the funding provisions of the charter and Section (18), Florida Statutes, the School reports the number of full-time equivalent students and related data to the School Board. Under the provisions of Section , Florida Statutes, the School Board reports the number of full-time equivalent students and related data to the FDOE for funding through the FEFP. Funding for the School is adjusted during the year to reflect the revised calculations by the FDOE under the FEFP and the actual weighted full-time equivalent students reported by the School during the designated full-time equivalent student survey years. The School Board receives a 5% administrative fee from the School, which is reflected as a general administration expense/expenditure in the accompanying statement of activities and statement of revenues, expenditures and changes in fund balances - governmental funds. The School receives federal awards for the enhancement of various educational programs. This assistance is generally received based on applications submitted to and approved by various granting agencies. For federal awards in which a claim to these grant proceeds is based on 19

22 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) incurring eligible expenditures, revenue is recognized to the extent that eligible expenditures have been incurred. Use of estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and affect revenues and expenses/expenditures for the period presented. Actual results could differ significantly from those estimates. 2 ACCOUNTS RECEIVABLE Accounts receivable in the accompanying financial statements include $30,888 in start-up grant funds and federal lunch reimbursements receivable from the School Board. Receivables also include $2, 132 due from various private organizations. Based on collectibility of funds from these sources, an allowance for doubtful accounts is not considered necessary. These amounts are expected to be collected in fiscal CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended June 30, 2010 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities: Leasehold improvements $ $ 54,992 $ $ 54,992 Furniture, fixtures and equipment 41,679 41,679 Motor vehicles 40,037 40,037 Total capital assets at historical cost 136, ,708 Less accumulated depreciation for: Leasehold improvements (131) (131) Furniture, fixtures and equipment (3,093) (3,093) Motor vehicles (6,006} (6,006} Total accumulated depreciation {9,230} {9,230} Governmental activities capital assets, net $ $ 127,478 $ $ 127,478 20

23 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS {continued) Depreciation expense was charged to functions as follows: Governmental activities: Instruction $ 2,551 School administration 673 Pupil transportation 6,006 Total governmental activities depreciation expense $ 9,230 4 RELATED PARTY TRANSACTIONS School Management Solutions, Inc. School Management Solutions, Inc. ("SMS"), a Florida corporation, provides certain management and administrative services to the School. The Chief Executive Officer of SMS served as Director of the School during fiscal The School pays SMS a management fee of up to 18% of gross school revenues. In fiscal year 2010, the School recorded management fees of $238,021. Of this amount, $230,035 was paid to SMS, and the remaining $7,986 was due to SMS as of June 30, 2010 and is included in accounts payable and accrued expenses/expenditures in the accompanying financial statements. Additionally, the School leases employees from SMS and is billed bimonthly for salary expenses/expenditures. The School also reimburses SMS for expenses/expenditures SMS may pay on their behalf. During fiscal year 2010, the School purchased three buses to be used for student transportation from SMS valued at $32,000. Of this amount, $18,000 was paid to SMS and the remaining $14,000 was a donation from SMS and is included in contributions and other revenue in the accompanying financial statements. During fiscal year 2010, the School purchased a vehicle from a not-for-profit corporation. The School's Director previously served on the board of directors of the not-for-profit corporation. The vehicle was purchased for $8,037, which represents its approximate fair value, and is recorded as a capital asset. Academies of Excellence, Inc. The School Board transferred ownership of the facilities and certain furniture, fixtures and equipment used by the School to Academies of Excellence, Inc. ("Academies"), a Florida notfor-profit corporation, with the express condition that the facilities be used solely for pubilc school purposes. Academies provided certain management and administrative services to the School in fiscal year The Chief Executive Officer of Academies is also the Chief Executive Officer of SMS and serves as Director of the School. These facilities and equipment 21

24 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) are used by the School in its normal operations, but there is no formal lease agreement between the School and Academies. No rent is charged for use of the facilities and equipment, as this is expressly prohibited by the deed which transferred ownership from the School Board to Academies. Boston Avenue Preschool, Inc. The School charges Boston Avenue Preschool, Inc., which is operated at the School's facility, facility overhead based on a square-foot allocation. The owner of the Preschool is the Chief Executive Officer of SMS. During fiscal year 2010, the School recorded $24,732 in revenue from the preschool, which is included as contributions and other revenue in the accompanying financial statements. 5 SCHEDULE OF STATE AND LOCAL REVENUE SOURCES The following is a schedule of state and local revenue sources and amounts: District School Board of Volusia County, Florida: Florida Education Finance Program $ 708,443 Class size reduction 237,740 Discretionary local effort 96,985 State fiscal stabilization funds 62,815 ESE guaranteed allocation 53,701 Supplemental academic instruction 52,423 Transportation 26, 172 Instructional materials 15,204 Discretionary millage funds 14,907 Reading allocation 6,517 Safe schools 4,881 Declining enrollment 2,764 Teacher lead 2,509 School lunch supplement 1, 153 Discretionary lottery funds 519 Total $ 1,286,733 22

25 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) The School receives substantially all of its support and revenue from federal and state funding sources, passed through the School Board, in the form of performance and budget-based contracts and from SMS. Continuing operations of the School are greatly dependent upon the continued support of these funding sources. A reduction in the amount of funding could prevent the School from continuing in its present form. The administration fee paid to the School Board during the year ended June 30, 201 O totaled approximately $64,000, which is reflected as a general administration expense/expenditure in the accompanying statement of activities and statement of revenues, expenditures and changes in fund balances - governmental funds. 6 RISK MANAGEMENT PROGRAM Workers' compensation coverage, health and hospitalization, general liability, professional liability and property coverages are being provided through purchased commercial insurance with minimum deductibles for each line of coverage. Settled claims resulting from these risks have not historically exceeded commercial coverage. 7 COMMITMENTS AND CONTINGENT LIABILITIES Grants The School participates in state and federal grant programs, which are governed by various rules and regulations of the granter agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the School has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectibility of any related receivable as of June 30, 2010 may be impaired. In the opinion of the School, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying financial statements for such contingencies. Legal matters In the normal course of conducting its operations, the School occasionally becomes party to various other legal actions and proceedings. In the opinion of management, the ultimate resolution of such legal matters will not have a significant adverse effect on the accompanying financial statements. 23

26 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA NOTES TO FINANCIAL STATEMENTS (continued) Lease commitments The School leases certain property under noncancelable operating leases. These leases contain varying renewal options and require the School to pay insurance and other costs. Aggregate remaining minimum rental commitments, including minimum annual maintenance fees, as of June 30, 201 O under these leases are summarized as follows: Year ended June 30, Amount 2011 $ 3, , ,562 Total future minimum lease payments $ 9,058 Rental expense for the year ended June 30, 2010 totaled approximately $4,

27 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 Actual Budgeted Amounts (Budgetary Original Final Basis} REVENUES State and local sources $ 1,100,863 $ 1,290,012 $ 1,286,733 Contributions and other revenue 121,105 42,732 81,754 Total revenues 1,221,968 1,332,744 1,368,487 Variance with Final Budget- Positive {Negative} $ (3,279) 39,022 35,743 EXPENDITURES Current: Instruction 423, , ,913 Instruction and curriculum development 18, Instructional staff training 1,340 2,244 Board 12,661 15,901 General administration 198, ,273 64,154 School administration 113, , ,695 Facilities acquisition and construction 110,840 48,268 Fiscal services 46,800 45,209 41,058 Food services 23,014 23,885 12,320 Central services 3,000 20,552 21,146 Pupil transportation 28,241 64,356 46,229 Operation of plant 126, , ,251 Maintenance of plant 95,000 8,040 12,145 Community services 19,538 Capital outlay 15, ,708 53, (904) (3,240) ,268 4,151 11,565 (594) 18, 127 8,384 (4,105) (19,538) {136,708} Total expenditures 1,202,030 1,288,897 1,309,929 {21,032} Net change in fund balance Fund balance at beginning of year Fund balance at end of year 19,938 3,879 $ 23,817 43,847 3,879 $ 47,726 $ 58,558 3,879 62,437 $ 14,711 14,711 See report of independent auditors. 25

28 A CHARTER SCHOOL AND COMPONENT UNIT OF THE DISTRICT SCHOOL BOARD OF VOLUSIA COUNTY, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE - SPECIAL REVENUE FUND FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Federal sources passed through local school district Total revenues Actual Budgeted Amounts (Budgetary Original Final Basis} $ 21,986 21,986 $ 304, ,208 $ 305, ,336 Variance with Final Budget- Positive {Negative} $ 1,128 1,128 EXPENDITURES Current: Instruction Instruction and curriculum development Instructional staff training Board School administration Facilities acquisition and construction Food services 21,986 Total expenditures Net change in fund balance Fund balance at beginning of year 157,225 16,950 6,889 20,000 15,061 10,000 78, ,963 16,950 2,431 18,898 12,612 6,213 86,269 21, , ,336 Fund balance at end of year $ $ $ $ 4,738 (4,458) (1,102) (2,449) (3,787) 8,186 1,128 See report of independent auditors. 26

29 Report of Independent Auditors 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 To the Board of Directors of Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School, a Charter School and Component Unit of the District School Board of Volusia County, Florida We have audited the financial statements of the governmental activities and each major fund of Volusia Elementary Charter School, Inc., d/b/a Boston Avenue Charter School (the "School"), a charter school and component unit of the District School Board of Volusia County, Florida, as of and for the year ended June 30, 2010, which collectively comprise the School's basic financial statements and have issued our report thereon dated September 20, 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 School's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the School's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified a certain deficiency in internal control over financial reporting that we consider to be a significant deficiency in internal control over financial reporting. 27