FINANCIAL STATEMENTS ENVISION SCIENCE ACADEMY RALEIGH, NORTH CAROLINA JUNE 30, 2016

Transcription

1 FINANCIAL STATEMENTS ENVISION SCIENCE ACADEMY RALEIGH, NORTH CAROLINA JUNE 30,

2 Board of Directors Arunee Monica Cutno President Marla Mills-Wilson Vice President Portia Scott Secretary Ryan Cotterman Treasurer Sonal Krishna Charles Langley Roland Lewis Jr. Josh Redlus Diego Torres 2

3 ENVISION SCIENCE ACADEMY TABLE OF CONTENTS JUNE 30, 2016 EXHIBIT PAGE FINANCIAL SECTION Independent Auditors Report 5 Management s Discussion and Analysis 7 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 1 14 Statement of Activities 2 15 Fund Financial Statements: Balance Sheet - Governmental Funds 3 16 Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position 3 16 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 4 17 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds to the Statements of Activities 5 18 Notes to the Basic Financial Statements 19 3

4 ENVISION SCIENCE ACADEMY TABLE OF CONTENTS JUNE 30, 2016 STATEMENT PAGE Statements Balance Sheet - Non-Major Government Funds 1 31 Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Government Funds 2 32 Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual, All Fund Types 3 33 COMPLIANCE SECTION Independent Auditors' 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 Independent Auditors' Report on Compliance for Each Major State Program and on Internal Control Over Compliance in Accordance Uniform Guidance and the State Single Audit Implementation Act Schedule of Findings and Questioned Costs 39 Corrective Action Plan 41 Summary Schedule of Prior Years Audit Findings 42 Schedule of Expenditures of Federal and State Awards 43 4

5 Independent Auditor s Report PETWAY MILLS & PEARSON, PA CERTIFIED PUBLIC ACCOUNTANTS C. Briggs Petway, Jr. Phyllis M. Pearson Zebulon Office P.O. Box N. Arendell Ave. Zebulon, NC Fax Raleigh Office 9121 Anson Way Raleigh, NC Memberships: North Carolina Association of Certified Public Accountants American Institute Of Certified Public Accountants Medical Group Management Association To the Board of Directors Raleigh, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of as of June 30, 2016, and the related notes to the financial statements, which collectively comprise 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. Auditors 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 audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of as of June 30, 2016, and the respective changes in financial position from June 30, 2016 in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 7 through 14 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. 5

6 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise s basic financial statements. The individual fund financial statements, budgetary schedule, as well as the accompanying Schedule of Expenditures of Federal and State Award, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and the State Single Audit Implementation Act are presented for purposes of additional analysis and are not a required part of the basic financial statements. The individual fund financial statements and the budgetary schedule, as well as the accompanying Schedule of Expenditures of Federal and State Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the individual fund financial statements and the budgetary schedule, and the accompanying Schedule of Expenditures of Federal and State Awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 28, 2016 on our consideration of 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 the 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 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 s internal control over financial reporting and compliance. PETWAY MILLS & PEARSON, PA Certified Public Accountants Zebulon, North Carolina October 28,

7 Management Discussion and Analysis June 30, 2016 As management of, we offer readers of Envision Science Academy s ( the School ) financial statements this narrative overview and analysis of the financial activities of for the fiscal year ended June 30, We encourage readers to read the information presented here in conjunction with additional information that we have furnished in the School s financial statements, which follow this narrative. Financial Highlights The liabilities of exceeded its assets at the close of the fiscal year by $439,484 (net position). The government s total net position decreased by $512,798. As of the close of the current fiscal year, s governmental funds reported combined ending fund balances of $9,871,454, an increase of $9,798,140 in comparison with the prior year. Enrollment increased with 378 students for the year ended June 30, 2016, as compared to 238 students in fiscal year Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to Envision Science Academy s basic financial statements. The School s basic financial statements consist of three components; 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements (see Figure 1). The basic financial statements present two different views of the School through the use of government-wide statements and fund financial statements. In addition to the basic financial statements, this report contains other supplemental information that will enhance the reader s understanding of the financial condition of. 7

8 Management Discussion and Analysis June 30, 2016 Required Components of Annual Financial Report Figure 1 Management s Discussion and Analysis Basic Financial Statements Governmentwide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail Basic Financial Statements The first two statements (Exhibits 1 and 2) in the basic financial statements are the Government-wide Financial Statements. They provide both short and long-term information about the School s financial status. The next statements (Exhibits 3 through 5) are Fund Financial Statements. These statements focus on the activities of the individual parts of the School s government. These statements provide more detail than the government-wide statements. 8

9 Management Discussion and Analysis June 30, 2016 The next section of the basic financial statements is the notes. The notes to the financial statements explain in detail some of the data contained in those statements. After the notes, supplemental information is provided to show details about the School s individual funds. Budgetary information for the School also can be found in this section of the statements. Government-wide Financial Statements The government-wide financial statements are designed to provide the reader with a broad overview of the School s finances, similar in format to a financial statement of a privatesector business. The government-wide statements provide short and long-term information about the School s financial status as a whole. The two government-wide statements report the School s net position and how it has changed. Net position is the difference between the School s total assets and total liabilities. Measuring net position is one way to gauge the School s financial condition. The government-wide statements are divided into two categories: 1) governmental activities; and 2) business-type activities. The governmental activities include most of the School s basic functions such as instructional services and business services. State, county, and federal funds provide virtually all of the funding for these functions. The business-type activities are those services for which the School charges its students and other customers to provide. The government-wide financial statements are on Exhibits 1 and 2 of this report. Fund Financial Statements The fund financial statements provide a more detailed look at the School s most significant activities. 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. Envision Science Academy, like all other governmental entities in North Carolina, uses fund accounting to ensure and reflect compliance (or non-compliance) with finance-related legal requirements, such as the General Statutes or the School s budget ordinance. All of the funds of Envision Science Academy can be divided into two categories: governmental funds and proprietary funds. 9

10 Management Discussion and Analysis June 30, 2016 Governmental Funds Governmental funds are used to account for those functions reported as governmental activities in the government-wide financial statements. Most of the School s basic services are accounted for in governmental funds. These funds focus on how assets can readily be converted into cash flow in and out, and what monies are left at yearend that will be available for spending in the next year. Governmental funds are reported using an accounting method called modified accrual accounting that provides a short-term spending focus. As a result, the governmental fund financial statements give the reader a detailed short-term view that helps him or her determine if there are more or less financial resources available to finance the School s programs. The relationship between government activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is described in a reconciliation that is a part of the fund financial statements. adopts an annual budget for each of its funds, although it is not required to do so by the General Statutes. Because the budget is not legally required by the Statutes, the budgetary comparison statements are not included in the basic financial statements, but are part of the supplemental statements and schedules that follow the notes. The budget is a legally adopted document that incorporates input from the faculty, management, and the Board of Directors of the School in determining what activities will be pursued and what services will be provided by the School during the year. It also authorizes the School to obtain funds from identified sources to finance these current period activities. The budgetary statement provided for the funds demonstrates how well the School has complied with the budget ordinance and whether or not the School has succeeded in providing the services as planned when the budget was adopted. 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 begin on page 19 of this report. Government-Wide Financial Analysis As noted earlier, net position may serve over time as one useful indicator of a school s financial condition. The liabilities of exceeded assets by $439,484 as of June 30, As of June 30, 2015 the net assets of Envision Science Academy stood at $73,314. The School s net position decreased by $512,798 for the fiscal year ended June 30, 2016, compared to an increase of $73,314 in A large portion $(10,310,938) reflects the School s investment in capital assets (e.g. land, buildings, machinery, and equipment), less any related debt still outstanding that was issued to acquire those items. $9,679,360 is restricted for bond obligation. Of the remaining balance, $11,250 is restricted for a security deposit and $180,844 is unrestricted. 10

11 Management Discussion and Analysis June 30, 2016 The s Net Assets Figure 2 Governmental Activities Current and other assets $ 191,525 $ 51,059 Restricted Cash Bonds $ 9,679,360 $ - Accounts Receivable $ 4,474 $ 2,053 Capital Lease Receivable $ 13,553,347 Security Deposit $ 11,250 $ - Capital Assets (net of depreciation) $ 1,394,062 Prepaid Expense - 25,016 Total assets $ 24,834,018 $ 78,128 Current liabilities 15,155 4,814 Long-term liabilities - Bond Payable 11,705,000 - Capital Lease Payable 13,553,347 - Total liabilities $ 25,273,502 $ 4,814 Prepaid Items - 25,016 Net investment in capital asset Capital assets 1,394,062 Bond financing (11,705,000) Restricted for bond financing 9,679,360 Security Deposit 11,250 Unrestricted 180,844 48,298 Total Net Assets $ (439,484) $ 73,314 11

12 Management Discussion and Analysis June 30, 2016 Changes in Net Position Figure 3 Governmental Governmental Activities Activities Revenues: Program revenues: Operating grants and contributions $ 56,948 $ 48,253 General revenues: Unrestricted County appropriations 894, ,016 Unrestricted State appropriations 2,088,060 1,274,550 Contributions and Donations 16,226 10,430 Other revenue 47,429 31,676 Total revenues 3,103,452 1,871,925 Expenses: Instructional programs 2,012,740 1,201,623 Support services 1,595, ,029 Non-programmed charges - 1,959 Interest on long-term debt 8,496 - Total expenses 3,616,250 1,798,611 Increase in net position (512,798) 73,314 Net assets, July 1 73,314 - Net position, June 30 $ (439,484) $ 73,314 Governmental activities. Governmental activities decreased the School s net position by $512,798. Financial Analysis of the School s Funds As noted earlier, the uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 12

13 Management Discussion and Analysis June 30, 2016 Governmental Funds. The focus of s governmental funds is to provide information on near-term inflows, outflows, and balances of usable resources. Such information is useful in assessing s financing requirements. Specifically, unreserved fund balance can be a useful measure of a government s net resources available for spending at the end of the fiscal year. The general fund is the chief operating fund of. At the end of the current fiscal year, unreserved fund balance of the General Fund was $180,844. At June 30, 2016, the governmental funds of reported a combined fund balance of $9,871,454. Capital Asset and Debt Administration Capital assets. It is the policy of the School to capitalize all capital assets costing more than $1,000 with an estimated useful life of two or more years. s investment in capital assets for its governmental and business type activities as of June 30, 2016, totals 1,394,062, net of accumulated depreciation. Additional information on the School s capital assets can be found in note III.A.2.of the Basic Financial Statements. Long-term Debt. As of June 30, 2016, had total debt outstanding of $11,705,000. Economic Factors The following key economic indicators reflect the growth and prosperity of the School: The unemployment rate in Wake County is 4.2% versus the state average of 4.9% at June 30, The growth rate in Wake County coupled with a lower unemployment rate should assure the continued growth and stability of the school. Requests for Information This report is designed to provide an overview of the School s finances for those with an interest in this area. Questions concerning any of the information found in this report or requests for additional information should be directed to the Director, Envision Science Academy, 9400 Forum Drive, Raleigh, NC (Telephone number ). 13

14 Statement of Net Position June 30, 2016 Exhibit 1 Primary Government Businesstype Governmental Activities Activities Total ASSETS Cash and cash equivalents $ 191,525 $ - $ 191,525 Restricted cash - bonds 9,679,360-9,679,360 Accounts receivable - other Due from other governments 4,449-4,449 Capital lease receivable 13,553,347-13,553,347 Security Deposit 11,250-11,250 Capital assets: Land, improvements, and construction in progress 1,394,062-1,394,062 Other capital assets, net of depreciation Total capital assets 1,394,062-1,394,062 Total assets 24,834,018-24,834,018 LIABILITIES Accounts payable - trade 15,155-15,155 Long-term liabilities: Due within one year 67,257-67,257 Due in more than one year 25,191,090-25,191,090 Total liabilities 25,273,502-25,273,502 NET POSITION Net investment in capital assets (23,864,285) - (23,864,285) Restricted for: Bonds 9,679,360-9,679,360 Unrestricted 13,745,441-13,745,441 Total net position $ (439,484) $ - $ (439,484) The notes to the financial statements are an integral part of this statement. 14

15 Statement of Activities For The Year Ended June 30, 2016 Exhibit 2 Program Revenues Net (Expense) Revenue and Changes in Net Position Primary Government Component Unit Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Business-type Activities Total Envision Science Foundation, LLC Primary government: Governmental Activities: Instructional programs $ 2,012,740 $ - $ 56,948 $ - $ (1,955,792) $ - $ (1,955,792) $ - Support services 1,595, (1,595,014) - (1,595,014) - Community services Non-programmed charges Interest on long-term debt 8, (8,496) - (8,496) - Total governmental activities 3,616,250-56,948 - (3,559,302) - (3,559,302) - Business-type activities: School food service Fund Raising Total business-type activities Total primary government $ 3,616,250 $ - $ 56,948 $ - (3,559,302) - (3,559,302) - General revenues: Unrestricted County appropriations 894, ,789 - Unrestricted State appropriations 2,088,060-2,088,060 - Unrestricted Federal appropriations Donations 16,226-16,226 - Miscellaneous, unrestricted 47,429-47,429 - Transfers Total general revenues, special items, and transfers 3,046,504-3,046,504 - Change in net position (512,798) - (512,798) - Net position- beginning 73,314-73,314 - Net position-ending $ (439,484) $ - $ (439,484) $ - The notes to the financial statements are an integral part of this statement. 15

16 Balance Sheet Governmental Funds June 30, 2016 Exhibit 3 Major Funds Total Non-major Funds Total Governmental Funds General State Public School Capital Outlay Federal Grants ASSETS Cash and cash equivalents $ 191,525 $ - $ - $ - $ 191,525 Restricted cash - bonds - - 9,679,360-9,679,360 Accounts receivable - other Due from other governments 4, ,449 Security Deposit 11, ,250 Total assets 207,249-9,679,360-9,886,609 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable - trade 15, ,155 Total liabilities 15, ,155 Fund balances: Restricted: Restricted - Bonds - - 9,679,360-9,679,360 Nonspendable: Security Deposit 11, ,250 Assigned: Clubs and Activities Unassigned: 180, ,844 Total fund balances 192,094-9,679,360-9,871,454 Total liabilities and fund balances $ 207,249 $ - $ 9,679,360 $ - Amounts reported for governmental activities in the statement of net position (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Capital lease receivable Capital lease payable Liabilities for earned but unavailable revenues in fund statements. 1,394,062 13,553,347 (13,553,347) - Some liabilities, including bonds payable and accrued interest, are not due and payable in the current period and therefore are not reported in the funds (Note 5). (11,705,000) Net position of governmental activities $ (439,484) The notes to the financial statements are an integral part of this statement. 16

17 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For The Year Ended June 30, 2016 Exhibit 4 Major Funds Total Non- Major Funds Total Governmental Funds General State Public School Capital Outlay Federal Grants REVENUES State of North Carolina $ - $ 2,088,060 $ - $ - $ 2,088,060 Local Education Agencies 894, ,789 U.S. Government ,948 56,948 Contributions and donations 16, ,226 Other 47, ,429 Total revenues 958,036 2,088, ,948 3,103,452 EXPENDITURES Current: Instructional programs 221,531 1,735,813-56,948 2,014,292 Support services 962, , ,315,211 Non-programmed charges 5, ,661 Capital outlay - - 1,394,062-1,394,062 Debt service: Cost of Bond issuance , ,590 Principal 175, ,000 Interest and other charges 8, ,496 Total expenditures 1,373,652 2,088,060 1,666,652 56,948 5,185,312 Excess (Deficit) of revenues over (Under) expenditures (415,616) - (1,666,244) - (2,081,860) OTHER FINANCING SOURCES (USES) Transfers to other funds 359,396 - (359,396) - - Bond payable issued ,345,604-11,345,604 Underwriters discount , ,337 Capital lease issued 13,553,347-13,553,347 Capital lease receivable - - (13,553,347) - (13,553,347) Bond premium , ,059 Note payable issued 175, ,000 Total other financing sources (uses) 534,396-11,345,604-11,880,000 Net change in fund balance 118,780-9,679,360-9,798,140 Fund balances-beginning 73, ,314 Fund balances-ending $ 192,094 $ - $ 9,679,360 $ - $ 9,871,454 The notes to the financial statements are an integral part of this statement. 17

18 Exhibit 5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds to the Statement of Activities For The Year Ended June 30, 2016 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $ 9,798,140 Change in fund balance due to change in reserve for inventory - Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 1,394,062 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Amount of donated assets - Capital lease receivable of component unit 13,553,347 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. This amount is the net effect of these differences in the treatment of long-term debt and related items. (25,258,347) Difference in accrued interest payable and interest expensed on fund statements - Some 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. - Total changes in net position of governmental activities $ (512,798) The notes to the financial statements are an integral part of this statement. 18

19 I. Summary of Significant Accounting Policies Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 The accounting policies of (the School) conform to generally accepted accounting principles (GAAP) as applicable to governments. Charter schools are established by nonprofit entities. Because of the authority of the State Board of Education (SBE) to unilaterally abolish a school with all the assets reverting to a local education agency, the charter schools in North Carolina follow the governmental reporting model, as used by local education agencies. The following is a summary of the more significant accounting policies: A. Reporting Entity is a public school operated by a North Carolina non-profit corporation,, Inc., serving approximately 378 students. The School operates under an approved charter held by, Inc. and received from the SBE, and applied for under the provisions of General Statute (G.S.) 115C B. G.S. 115C F(f)(1) states that a charter school shall be subject to the audit requirements adopted by the SBE, which includes the audit requirements established by G.S. 115C-447 of the School Budget and Fiscal Control Act (SBFCA). G.S. 115C-447 also requires financial statements to be prepared in accordance with GAAP. These financial statements include the financial activity of, Inc. and Envision Foundation, LLC using the blended presentation method permitted under generally accepted accounting principles because of common governing boards., Inc. and Envision Foundation, LLC do not issue separate financial statements. B. Basis of Presentation Government-wide Statements: The statement of net position and the statement of activities display information about the School. These statements include the financial activities of the overall government. Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between the governmental and business-type activities of the School. Governmental activities generally are financed through intergovernmental revenues, and other non-exchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. This school has no business-type activities. The statement of activities presents a comparison between direct expenses and program revenues for the different business-type activities of the School and for each function of the School s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reversed for the statement of activities. Program revenues include (a) fees and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School s funds. Statements for the governmental fund category are presented. The emphasis of fund financial statements is on major governmental funds. All remaining governmental funds are aggregated and reported as nonmajor funds. The School reports the following major governmental funds: General Fund. The General Fund is the general operating fund of the School. The General Fund accounts for all financial resources except those that are required to be accounted for in another fund. State Public School Fund. The State Public School Fund includes appropriations from the Department of Public Instruction for current operating needs of the public school system and is reported as a special revenue fund. 19

20 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 Capital Outlay Fund. The capital outlay fund is used to account for the construction project for school building. C. Measurement Focus and Basis of Accounting Government-wide Fund Financial Statements. The government-wide fund financial statements are reported using the economic resources measurement focus. The government-wide fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the School gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants and donations. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental Fund Financial Statements. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. These could include federal, State, and county grants, and some charges for services. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the School funds certain programs by a combination of specific cost-reimbursement grants and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the School s policy to first apply cost-reimbursement grant resources to such programs, and then general revenues. D. Budgetary Data Annual budgets are adopted for all funds on a government-wide basis. All budgets are prepared using the modified accrual basis of accounting. The governing board has voluntarily established the policy, as a sound business practice, that expenditures may not exceed appropriations, for all of the School s funds, based on the adopted budget and subsequent amendments. During the year, several amendments to the original budget were necessary, the effects of which were not material. The budget presented in the supplemental data represents the budget of the School at June 30, All appropriations lapse at year end. E. Assets, Liabilities, Deferred Outflows and Inflows of Resources and Fund Equity 1. Deposits and Investments All deposits of the School are made in a local bank, whose accounts are FDIC insured. 2.. Cash and Cash Equivalents The School pools money from several funds to facilitate disbursement and investment and to maximize investment income. Therefore, all cash and investments are essentially demand deposits and are considered cash and cash equivalents. 20

21 3. Capital Assets Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 The School's capital assets are recorded at original cost. Donated assets received prior to June 15, 2015 are listed at their estimated fair value at the date of donation. Donated capital assets received after June 15, 2015 are recorded at acquisition value. The total of these estimates is not considered large enough that any errors would be material when capital assets are considered as a whole. It is the policy of the School to capitalize all capital assets costing more than $1,000 with an estimated useful life of two or more years. In addition, other items which are purchased and used in large quantities such as student desks and office furniture are capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. All depreciable assets are depreciated using the straight-line method of depreciation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are depreciated over the following estimated useful lives: Years Site Improvements 30 Modular Units 15 Vehicles 10 Furniture & Fixtures 7 Instructional Equipment 7 4. Deferred outflows/inflows of resources In addition to assets, the statement of financial position will sometimes 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 expense or expenditure until then. The School has no items that meet this criterion. In addition to liabilities, the statement of financial position will sometimes 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 revenue until then. The School has no items that meet this criterion. 5. Long-term obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method that approximates the effective interest method. Bonds payable are reported net of the applicable bond premiums or discount. Bond issuance costs, except for prepaid insurance costs, are expensed in the reporting period in which they are incurred. Prepaid insurance costs are expensed over the life of the debt. In fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 6. Net Position/Fund Balances Net position in the government-wide financial statements is classified as invested in capital assets, net of related debt; restricted; and unrestricted. Restricted net position represents constraints on resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through State statute. 21

22 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 Fund Balances In the governmental fund financial statements, fund balance is composed of five classifications designed to disclose the hierarchy of constraints placed on how fund balance can be spent. The governmental fund types classify fund balances as follows: Non-spendable Fund Balance This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Prepaid Items portion of fund balance that is not an available resource because it represents the year-end balance of prepaid rent on the school facility which is not a spendable resource. Restricted Fund Balance This classification includes amounts that are restricted to specific purposes externally imposed by creditors or imposed by law. Committed Fund Balance portion of fund balance that can only be used for specific purposes imposed by majority vote of the School s governing body (highest level of decision-making authority). Any changes or removal of the specific purpose requires majority action by the governing bodies that approved the original action. Assigned Fund Balance portion of fund balance that intends to use for specific purposes. Unassigned Fund Balance portion of fund balance that has not been assigned to another fund or restricted, committed, or assigned to specific purposes within the General Fund. has a revenue spending policy that provides guidance for programs with multiple revenue sources. The Finance Officer will use resources in the following hierarchy: bond proceeds, federal funds, State funds, local non-board of education funds, board of education funds. For purposes of fund balance classification expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance and lastly unassigned fund balance. The Finance Officer has the authority to deviate from this policy if it is in the best interest of the School. 7. The governmental funds balance sheet includes reconciliation between fund balance - total governmental funds and net position - governmental activities as reported in the government-wide statement of net position. The net adjustment of $(10,310,938) consists of several elements as follows: Capital assets used in governmental activities that are not financial resources are therefore not reported in the funds (total capital assets on government-wide statement in governmental activities column). Capital lease receivable Capital lease payable DESCRIPTION Liabilities that, because they are not due and payable in the current period, do not require current resources to pay and are therefore not reported in the fund statements: Bonds, leases, and installment financing AMOUNT $ 1,394,062 13,553,347 (11,705,000) (13,553,347) Total Adjustment $ (10,310,938) 22

23 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 F. Revenues, Expenditures, and Expenses 1. Funding is funded by the State Board of Education, receiving (i) an amount equal to the average per pupil allocation for the average daily membership (ADM) from the local school administrative unit allotments in which the school is located (i.e. Wake County Board of Education) for each child attending the School except for the allocation for children with special needs and (ii) an additional amount for each child attending the School who is a child with special needs [G.S. 115C H(a)]. Additionally, the appropriate local school administrative unit(s) transfers to the School, for each student who resides in the local administrative unit and attends the charter school, an amount equal to the per pupil local current expense appropriation to the respective local school administrative unit for the fiscal year. [G.S. 115C H(b)]. As of June 30, 2016, received funding from the Boards of Education for Wake, Johnston, Granville, Durham, Franklin, and Alamance Counties. Furthermore, the has received donations of cash and/or equipment from private organizations. The cash has been used for start up and other operating activities. 2. Reconciliation between government-wide and fund statements The governmental fund statement of revenues, expenditures, and changes in fund balance is followed by reconciliation between the change in fund balance - governmental activities and the change in net position - governmental funds as reported on the government-wide statement of activities. The net difference of $(10,310,938) between the two amounts consists of the following elements: Capital outlay expenditures recorded in the fund statements but capitalized as assets on the statement of activities. Depreciation expense that is recorded on the statement of activities but not in the fund statements. Capital lease receivable DESCRIPTION New debt issued during the year is recorded as a source of funds on the fund statements but has no effect on the statement of activities, only the statement of net position. Principal payments on debt owed are recorded as a use of funds on the fund statements but again affect only the statement of net position in the government-wide statements. $ AMOUNT 1,394,062-13,553,347 (11,705,000) - Capital lease payable (13,553,347) Total $ (10,310,938) II. Stewardship, Compliance, and Accountability A. Material Violations of Finance-Related Legal and Contractual Provisions Noncompliance with North Carolina General Statutes None. Contractual Violations None. 23

24 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 B. Deficit Fund Balance or Net Position of Individual Funds Governmental Funds had a deficit balance of $(439,484) due to cost of construction. III. Detail Notes on All Funds A. Assets 1. Deposits At June 30, 2016, the School had deposits with banks and savings and loans with a carrying amount of $191,525. The bank balance with the financial institutions was $218,447, all of which was covered by federal depository insurance. The School does not have a deposit policy for custodial risk. At June 30, 2016, the Foundation had deposits with banks and savings and loans with a carrying amount of $9,679,360. The bank balance with the financial institutions was $9,679,360. $250,000 was covered by federal depository insurance and $9,429,360 was not covered by federal depository insurance. The Foundation does not have a deposit policy for custodial risk. 2. Capital Assets The School does not have any capital assets for the year ended June 30, The Foundation s capital asset activity for the year ended June 30, 2016 was as follows: Beginning Balances Increases Decreases Governmental activities: Capital assets not being depreciated: Construction in progress $ - $ 1,394,062 - Total capital assets not being depreciated $ - $ 1,394,062 - B. Liabilities 1. Risk Management The School is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The School maintains general liability and errors and omissions insurance coverage of $1 million per occurrence with a commercial carrier. The School has obtained a major medical insurance policy for its personnel through a commercial insurer. Through the plan, permanent, full-time employees of the School are eligible to receive health care benefits. The School carries commercial coverage for all other risks of loss. There have been no claims that exceeded coverage in this fiscal year. 2. Short Term Debt The School borrowed and repaid $175,000 in 2016 for working capital. 3. Long Term Debt a. Bond Payable The Public Finance Authority issued tax exempt bonds on behalf of Envision Foundation, LLC under an Indenture of Trust dated on May 1, The proceeds of the 2016 bonds were loaned to Envision Foundation, LLC. for the purpose of financing the costs of acquiring, renovating and equipping certain charter school educational facilities located in Wake Forest, North Carolina and establishing reserves to 24 Ending Balances $ $ 1,394,062 $ $ 1,394,062

25 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 be used in the event of default. The amount of the issuance is $11,705,000 and is expected to have a final maturity date of May 1, The bonds are expected to bear interest rates that range from 4.125% to 6.0%. The Foundation expects construction of the Series 2016 Facilities will take approximately eight months, and expects that the Construction Project will be completed no later than January 16, Since the Construction Project will not be completed by the scheduled start of the spring semester of the school year on January 2, 2017, the School has extended its existing lease of the Existing Campus to January 31, 2017, and has secured additional leased space at 4154 Shearon Farms Avenue, Wake Forest, North Carolina (the Temporary Campus) for the period July 1, 2016 through February 28, The Temporary Campus is located approximately ten miles from the Existing Campus. The Existing Campus will service grades K-5 and the Temporary Campus will serve grades 6-8. Future maturities of the bonds are as follows: For year ended June 30, Principal Interest 6/30/2017 $ - $ 549,546 6/30/ ,106 6/30/ , ,106 6/30/ , ,044 6/30/ , ,775 6/30/22-6/30/26 1,274,209 2,704,341 6/30/27-6/30/31 1,584,953 2,384,063 6/30/32-6/30/36 2,039,549 1,927,938 6/30/37-6/30/41 2,627,690 1,334,551 6/30/42-6/30/46 3,389, ,389 Total $ 11,557,941 $ 11,753,859 Future maturities of the bond premium are as follows: For year ended June 30, Principal Interest 6/30/2017 $ 2,256 $ 7,076 6/30/2018 2,367 6,966 6/30/2019 2,482 6,850 6/30/2020 2,604 6,729 6/30/2021 2,731 6,601 6/30/22-6/30/26 15,791 30,869 6/30/27-6/30/31 20,047 26,613 6/30/32-6/30/36 25,451 21,210 6/30/37-6/30/41 32,310 14,351 6/30/42-6/30/46 41,020 5,643 Total $ 147,059 $ 132,908 25

26 Notes to the Financial Statements For the Fiscal Year Ended June 30, 2016 The School is required to meet debt coverage ratios once the School begins to make principal and interest payments on the bonds in b. Changes in General Long-Term Obligations The following is a summary of changes in the Foundation s long-term obligations for the fiscal year ended June 30, 2016: Governmental activities: Balance July 1, 2015 Increases Decreases Balance June 30, 2016 Current Portion Note payable: Bond A $ - $ 11,242,941 $ - $ 11,242,941 $ - Bond B - 315, ,000 - Bond Premium - 147, ,059 2,256 Total $ - $ 11,705,000 $ - $ 11,705,000 $ 2,256 The following is a summary of changes in the School s long-term obligations for the fiscal year ended June 30, 2016: Governmental activities: Balance July 1, 2015 Increases Decreases Balance June 30, 2016 Current Portion Capital lease payable $ - $ 13,553,347 $ - $ 13,553,347 $ 67,257 Total $ - $ 13,553,347 $ - $ 13,553,347 $ 67, Operating and Capital Leases Operating Leases The School entered into an operating lease for computer equipment that expires on October 31, The lease requires monthly payments of $335. The School paid $4,022 in 2016 under this lease. The School is obligated to pay $3,352 in The School entered into an operating lease for modular units on June 26, 2015 that will continue on a month to month basis in The lease requires monthly payments of $1,627. The School paid $50,324 in 2016 under this agreement. The School entered into an operating lease for land and facility use that expires on January 31, The lease requires monthly payments of $28,161. The School paid $309,769 in 2016 under this agreement. The School is obligated to pay $197,127 in Capital Leases The School entered into capital lease on May 1, 2016 for facility rental from Envision Foundation, LLC. The agreement requires variable monthly payments and expires April 20, The School did not make any payments under this lease agreement for the year ended June 30, Future lease payments are included in the schedule below. 26