KERNVILLE UNION SCHOOL DISTRICT COUNTY OF KERN LAKE ISABELLA, CALIFORNIA AUDIT REPORT JUNE 30, 2011

Transcription

1 COUNTY OF KERN LAKE ISABELLA, CALIFORNIA AUDIT REPORT JUNE 30, 2011 BURKEY COX EVANS & BRADFORD Accountancy Corporation 1058 West Avenue M-14, Suite B Palmdale, CA 93551

2 INTRODUCTORY SECTION

3 JUNE 30, 2011 TABLE OF CONTENTS FOR THE AUDIT REPORT Page No. FINANCIAL SECTION Independent Auditor's Report Management Discussion and Analysis BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds 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 Statement of Fiduciary Net Assets - Rduciary Funds Notes to the Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Budgetary Comparison Data General Fund 46 COMBINING STATEMENTS AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Combining Balance Sheet -Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances -Nonmajor Governmental Funds Special Revenue Funds Combining Balance Sheet - Nonmajor Special Revenue Funds Combining Statement of Revenues, Expendftures and Changes In Fund Balances - NonmaJor Special Revenue Funds Budgetary Comparison Schedules Child Development Fund 53 (I)

4 JUNE 30, 2011 TABLE OF CONTENTS FOR THE AUDIT REPORT Page No. COMBINING STATEMENTS AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES (Continued) Budgetary Comparison Schedules (Continued) Cafeteria Fund Deferred Maintenance Fund Special Reserve Fund for Other Than Capital Outlay Projects Special Reserve Fund for Post-Employment Benefits Debt Service Funds Combining Balance Sheet - Nonmajor Debt Service Fund Combining Statement of Revenues, Expend~ures and Changes in Fund Balances - Nonmajor Debt Service Fund Budgetary Comparison Scheduies Bond Interest and Redemption Fund Blended Component Unit Capital Projects Funds Combining Balance Sheet - Nonmajor Capital Project Funds Combining Statement of Revenues, Expend~ures and Changes in Fund Balances - Nonmajor Capital Project Funds Budgetary Comparison Schedules Buitdlng Fund Capital Facilities Fund State School Building Lease-Purchase Fund County School Facilities Fund Special Reserve Fund for Capital Outlay Projects OTHER SUPPLEMENTARY INFORMATION SECTION Local Education Agency Organization Structure Schedule of Average Daily Attendance Table 1 (II)

5 JUNE 30, 2011 TABLE OF CONTENTS FOR THE AUDIT REPORT Page No. OTHER SUPPLEMENTARY INFORMATION SECTION (Continued) Schedule of Instructional Time Schedule of Financial Trends and Analysis Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Schedule of Proposition 10 Financial Assistance Schedule of School Community Violence Prevention Program Schedule of Charter Schools Notes to Supplementary Infonnation 73 Table 2 74 Table 3 75 Table Table 5 80 Table 6 81 Table 7 82 Table OTHER tndependent AUDITOR'S REPORTS Report On Internal Control Over Financial Reporting And On Compliance And Other Malters Based On An Audit Of Financial Statements Performed In Accordance with Government Auditing Standards Independent Auditors Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program And On Internal Control Over Compliance In Accordance With OMB Circular A-133 Independent Auditors Report On State Compliance Auditors Report On Compliance And On Internal Control Over Proposition 10 Funds Perfonned In Accordance With Government Auditing Standards FINDtNGS AND RECOMMENDATIONS Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings (111)

6 FINANCIAL SECTION

7 BURKEY Cox EVANS & BRADFORD 1058 W"" AVENUE M-14. SUITE B PALMDALE. CALIFORNIA TEL: (661) FAX: (661) ACCOUNTANCY CORPORATION 425 WEST DRUMMOND AVENUE. SUITE A RIDGECREST. CAUFORNIA TE~ (760) FAX: (760) GERALD D, BURKEY. CPA (rallred) GARY W. COx. CPA (raifred) SCOTT EVANS. CPA, CFP, CVA LAURA A. BRADFORD. CPA HAROLD W. MANNING. CPA JANETIE HENRIQUEZ. CPA JAMES MANNIE. CPA MARTHA J. W,lI Y, CPA INDEPENDENT AUDITOR'S REPORT Board of Trustees Kernville Union School District Lake Isabella, California We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District, as of and for the year ended June 30, 2011, which collectively comprise the District's basic financial statements as listed In the table of contents. These financial statements are the responsibility of Kernville Union School District'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; and the provisions of Office and Management and Budget Circular A-133, "Audits of State, Local Governments, and Non-Profit Organizations." 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 govemmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District as of June 30, 2011, 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 May 31, 2012, on our consideration of Kernville Union School District'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. Accounting principles generally accepted In the United States of America require that the management's discussion and analysis and budgetary comparison information on pages 3 through 9 and 46 through 70 and other supplementary information on pages 71 through 84 are presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Govemmental 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 inquires of management about the methods of preparing In Information and MEMBER: AMERICAN INSTITUTE AND CALIFORNil>. SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

8 BURKEY Cox EVANS & BRADFORD ACCOUNTANCY CORPORATION Kernville Union School District Page 2 management's responses to our inquires, 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Kernville Union School District's financial statements as a whole. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office and Management and Budget Circular A-133, Audifs of Sfafes, Local Governments and Non-Profif Organizations, and is also not a required part of the financial statements. The accompanying other supplementary information is presented for purposes of additional analysis as required by the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies , published by the Education Audit Appeals Panel, and is also not a required part of the financial statements. The combining and individual nonmajor fund financial statements and other supplementary information and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directiy to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted In the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 1-1<. ~ thy;' Cbik B~Y COl< ;$ANS & BRAbF61=lD Accountancy orporation Palmdale, California May 31,

9 MANAGEMENT DISCUSSION AND ANALYSIS

10 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 The management discussion and analysis of the Kernville Union School District's financial position provides an overall view of the School District's financial activities for the fiscal year ended June 30, The intent of this discussion and analysis is to look at the School District's financial performance as a whole and should include a review of the financial statements along with the notes to the financial statements to gain a clear picture of the District's financial position. Financial Highlights The District's General fund financial status increased from the school year by $ 870,849. The District ended the school year with 24% in the General Fund Reserve. Post employment and compensated absence benefit obligations represent 2.6%, General Obligation Bonds represent 61.2% and Certificates of Participation represent 36.1 %. Special Education and employee health! welfare benefits continue to increase. Unrestricted revenues accounted for $4.9 million or 65% of all General Fund revenues. Program specific revenues in the form of grants, entitlements and charges for services accounted for $2.8 million or 35 % of total general fund revenues. Unrestricted expenditures accounted for $3.9 million or 57% of all General Fund expenditures. Program specific expenditures in the form of operating grants, implementing programs account for $2.9 million or 43% of total general fund expenditures. The General Fund had $7.7 million in revenues and $6.9 million in expenditures. General Accepted Accounting Principal Report (GAAP) This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Kernville Union School District's financial status as an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. The Statement of Net Assets and Statement of Activities provide information about the activities of the whole School District, presenting both an aggregate view of the School District's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in short-term as well as what remains for future spending. The fund financial statements also look at the School District's most significant funds with all other non-major funds presented in total 3

11 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 in one colunm. For the Kernville Union School District the General Fund is the most significant fund. REPORTING THE SCHOOL DISTRICT AS A WHOLE Statement of Net Assets and the Statement of Activities While this document contains the large number of funds used by the District to provide programs and activities, the view of the District as a whole looks at all financial transactions and asks the question, "How did we do financially for the Fiscal Year in question?" The Statement of Net Assets and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year revenues and expenditures regardless of when cash is received or paid. These two statements report the District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the District as a whole, the financial position has either improved or diminished. The cause of these changes may be the result of many factors, some financial, and some not. The factors include the District's property tax base, current property tax laws in California restricting revenue growth, facilities condition, required educational programs, and services provided by the District. In the Statement of Net Assets and Statement of Activities the District reports governmental activities. Governmental activities are the activities where most of the District's programs and services are reported including, but not limited to, instruction, support services, plant operation and maintenarice, pupil transportation and extracurricular activities. The School District does not have any businesslike activities. 4

12 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 REPORTING THE SCHOOL DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements Fund financial reports provide detailed information about the District's major funds. The District uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the District's most significant funds. The District's major governmental funds are: General Fund is the general operating fund for the District. It is used to account for all financial resources except those required to be accounted for in another fund. Special Reserve Fund-Other than Capital Outlay is used to set aside funds to protect the District from unforeseen economic events. Child Development Fund is used to account for revenues received and expenditures made to operate the District's childcare and development programs. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's cafeteria. Deferred Maintenance is used for the purpose of major repair or replacement of District property. Building Fund - is used for the purpose of accounting for General Obligation Bond proceeds that assist in upgrading and modernizing district facilities. State School Facilities Fund is used primarily to account for state apportionments provided for construction and reconstruction of school facilities. Government Funds Most of the District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or Differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. 5

13 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 The District as a Whole Recall that the Statement of Net Assets provides the perspective of the School District as a whole. Total Net Change in Fund Balances - Governmental Funds 952,434 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 as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period. Fixed Assets Additions Current Year Depreciation Total 50,669 (317,493) Issuance of long-term financial obligations is a source of revenue in the governmental funds, but the receipt ofthese proceeds increases long-term liabilities in the statement of net assets. (266,824) Employment Benefits Obligations Total (329,177) (329,177) Repayment oflong-term financing obligations principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Certificate of Participation General Obligation Bonds Employment Benefit Obligations Total Total Change in Net Assets - Governmental Activities 95, , , , ,102 6

14 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 DISTRICT SUMMARY EnroIlment of 795 was reported on the California Basic Educational Data System (CBEDS). The Annual P-2 reported for Average Daily Attendance (ADA). This reflects a daily attendance of 94.45% of our total enroilment. The School District's funded base revenue limit was $5, per ADA. Financial Analysis of the District's Funds The fiscal integrity of the District is reflected in all funds although primary operating expenditures are reflected in the General Fund. General Fund revenues totaled $7.7 million. The primary source of District revenue was: $2.5 million of state aid $1.6 million from local property tax $3.6 million from Federal, State and Local sources General Fund expenditures totaled $6.9 million consisting, in part, the following: $4.1 million for employee salaries $1.7 million for employee benefits $1.1 million for books, supplies, services, operating expenses, building, repairs and equipment 7

15 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 Table 1 provides a summary of the School District's 2011 revenue and expenditures for all funds. Table 1 Governmental Funds - All Funds Revenues Revenue Limit Sources: State Apportionments Local Sources Federal Revenue Other State Revenue Other Local Revenue Total Revenues Expenditures Instruction Instruction - Related Services Pu pi! Services Ancillary Services General Administration Plant Services Other Outgo Debt Service: Principal/Interest Total Expenditures Net Decrease in Fund Balance Other Financing Sources: Transfers In Transfers Out Total Other Financing Sources Net Change in Fund Balance 2,549,600 1,911,982 1,359,008 2,321, ,547 3,779, ,549 1,738,577 1, , , , ,239 1,879,778 (1,879,778) 9,018,601 8,135, , ,768 8

16 MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2011 Long-Term Debt The District ended the year with a total of $11.1 million in outstanding financing obligations. The District is continuing to pay down the debt in accordance with scheduled long-term debt payments. Post employment benefit obligations represent 2.6 % of the District's outstanding debt. General Obligation Bonds represent 61.2% and Certificate of Participation represents 36.1 % of the outstanding long-term debt. The District's Future Long-term debt and the uncertainty of the state's economic outlook are predominant factors in the District's future. The potential of the state revenue limit's negative or zero COLA coupled with continuing deficits in conjunction with Prop 98 uncertainty compound the School District's ability to forecast revenue. 9

17 BASIC FINANCIAL STATEMENTS

18 GOVERNMENT-WIDE FINANCIAL STATEMENTS

19 STATEMENT OF NET ASSETS JUNE 30, 2011 ASSETS: Cash in County Treasury Cash in Revolving Fund Cash with a Fiscal AgentlTrustee Accounts Receivable Stores Inventories Other Current Assets Fixed Assets (Net) Total Assets LIABILITIES: Accounts Payable Deferred Revenues Noncurrent Liabllllles: Due within one year Due in more than one year Tolal Liabllllles NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted For: Federal and State Programs Debt Service Capital Projects Unrestricted Total Net Assets Governmental Acllvilles $ 3,408,807 14, ,970 1,412,122 17,793 20,386 18,619, ;780; , , ,Q42 10,890,908 12,285,697 7,349, , ,482 1,643,029 1,799,591 $ 11,~ The accompanying notes are an Integral part of this statement. 10

20 This page is left blank intentionally.

21 Net (Expense) Revenue and Changes in Net Assets _._."---. Governmental Activities ~~ $ (2, ) ( ) ( ) (1.120) ( ) (84.650) ( ) --( )..-i:I ~l 4, , , ,478 $ _ 11,4~.1,9j_~ 12

22 FUND FINANCIAL STATEMENTS

23 BALANCE SHEET-GOVERNMENTAL FUNDS JUNE 3D, 2011 ASSETS: Cash in County Treasury Cash in Revolving Fund Cash with a Fiscal AgentlTrustee Accounts Receivable Due from Other Funds Stores Inventories Prepaid Expenditures Total Assets General Fund ~-- $ 1,346,917 4,176 1,334,135 34,685 $ ~---2J19;-9T:f Other Total Building Govemmental Govemmenlal Fund Funds Funds ~-- ---~ ~----- $ 1,570,921 $ 490,969 $ 3,408,807 10,000 14, , , , ,122 2,134 36,819 17,793 17,793 20,386 20,386 - $ ~----:r;573,807 $ 904,353 $--5,198,073 LIABILITIES AND FUND BALANCE: liabilities: Accounts Payable Due to Other Funds Deferred Revenue Total liabilities $ 676, , ,599 $ 3,300 $ 7,743 $ 687,412 36,819 36,819 7, ,335 3,300 51, ,566 Fund Balance: Nonspendable Fund Balances: Restricted Fund Balances Committed Fund Balances: Committed for Economic Uncertainties Assigned Fund Balances Unassigned: Other Unassigned Unassigned, reported In nonmajor. Special Revenue Funds Debt Service Funds Capital Projects Funds Total Fund Balance 196,937 1,711,201 4,176 1,912, ,937 1,711,201 4,316 4,316 1,570,507 1,574, , , , , , ,456 1,570, ,686 4,335,507 Total Liabilities and Fund Balances $ 2,719,913 $ 1,573,807 $ 904,353 $ 5,198,073 The accompanying notes are an Integral part of this statement. 13

24 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 Total Fund Balances - Governmental Funds $ 4,335,507 Capital assets used for governmental activities are not financial resources and therefore are not reported as assets in Governmental Funds. The cost of the assets is $23,009,328 and the accumulated depreciation is $4,389, ,619,357 All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the noncurrent portion of capital leases, compensated absences and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current fiscal year. In general, liabilities that mature or come due for payment during the fiscal year are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a current liability In the fund financial statements when due but rather recognized as an expense when paid. Long-term liabilities, including all bonds, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Current bond and debt and all long-term liabilities at year end consist of. Certificates of Participation General Obligation Bonds Employment Benefit Obligations $ (4,225,000) (6,959,482) (275,467) (11,459,949) Total Net Assets - Governmental Activities $ 11,494,915 The accompanying notes are an Integral part of this statement

25 _ ~ -.~. STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30,2011 General Fund Revenues: Revenue Limit Sources: State Apportionments $ 2,549,600 Local Sources 1,618,383 Federal Revenue 1,021,177 other State Revenue 1,771,571 Other Local Revenue 779,372 Total Revenues =X,740,~_03 Expenditures: Instruction 3,671,936 Instruction - Related Services 540,343 Pupil Services 1,389,526 Ancillary Services 1,852 General AdminIstration 540,118 Plant Services 653,372 Other Outgo 129,966 Debt Service: Principal Interest 7,083 Total Expenditures 6,934, ~----- Other Total Building Governmental Governmental Fund Funds Funds --~ $ $ $ 2,549, ,599 1,911, ,831 1,359, ,893 2,321,464 4,296 92, , ,274, ~ :-:-~ 9;01_8;501 ::-=~=:4;f~a: 107,261 3,779,197 80, , ,051 1,738,577 1, ,490 7, , , , , , , ,335 7,869 1,193,7.? 8,135,832 Excess (Deficiency) of Revenues OVer (Under) Expenditures 805,907_ (3,573) 80, ,769 Other Financing Sources (Uses): Transfers In 64,942 Transfers Out Total other Financing Sources (Uses) 64,942 Net Change In Fund Balance 870,849 Fund Balance, July 1 1,041,465 Fund Balance, June 30 $ 1,912,314 1,531, ,375 1,879,778 (93,412) (1,786,366) (1,879,778) 1,438,049 (1,502,991 ) 1,434,476 (1,422,556) 882, ,031 2,275,242 3,452,738 $ 1,570,507 $ 852,686 $ 4,335,507 The accompanying notes are an Integral part of this statement. 15

26 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 3D, 2011 Total Net Change in Fund Balances - Governmental Funds $ 952,434 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 as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period. Fixed Assets Additions $ Current Year Depreciation 50,669 (317,493) Total (266,824) Issuance of long-term financial obligations is a source of revenue In the governmental funds, but the receipt of these proceeds Increases long-term liabilities in the statement of net assets. Employment Benefit Obligations (329,177) Total (329,177) Repayment of long-term financing obligations principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Certificates of Participation General Obligation Bonds Employment Benefit Obligations 95, , ,765 Total 560,669 Total Change in Net Assets - Governmental Activities $ 917,102 The accompanying notes are an integral part of this statement

27 STA TEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2011 ASSETS: Cash on Hand and In Banks Total Assets LIABILITIES: Due to Student Groups Total Liabilities $ $ Agency Fund Siudent Body Fund 37,875. 3?,Bi~- NET ASSETS: T olal Net Assels ~~ $.'c~.c=,.=,. The accompanying noles are an inlegral part of this slalemen!. 17

28 NOTES TO THE BASIC FINANCIAL STATEMENTS

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accounting Policies The District accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's Califomia School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GAS B) and the American Institute of Certified Public Accountants (AICPA). B. Reporting Entity The Kernville Union School District is the level of government primarily accountable for activities related to public education. The governing authority consists of five elected officials who, together, constitute the Board of Trustees. The Kernville Union School District (the "District") and the Blended Component Unit made up of Public Property Financing Corporation of California (the "Corporation") have financial and operational relationships which meet the reporting entity definition criteria of the GASB Statement No. 14, The Financial Reporling Entity, for inclusion of certain activities of the Corporation as a component unit of the District. Accordingly, certain financial activities of the Corporation have been included in the financial statements of the District. The following are those aspects of the relationship between the District and the Corporation which satisfy GASB Statement No. 14 criteria: Manifestations of Oversight The Dlstrlcrs Superintendent and Assistant Superintendent - Business Services, function as agents of the Corporation. Neither individual receives additional compensation for work performed In this capacity. The District exercises significant influence over operations of the Corporation as it is anticipated that the District will be the major lessee of all facilities owned by the Corporation and hold titie to all assets acquired by the Corporation. Accountability for Fiscal Matters The subject financing arrangement of the Corporation must have the consent of the District. Any deficits incurred by the Corporation for the subject transactions will be reflected in the lease payments of the District. Any surpluses of the Corporation for the subject transactions revert to the District at the end of the lease period. It is anticipated that the District's lease payments will be the major revenue source of the Corporation for the subject transactions. The District has assumed a "moral obligation" and potentially a legal obligation, for any debt incurred by the Corporation. Scope of Public Service The Corporation was created for the sole purpose of financially assisting school districts. The Corporation is a nonprofit, public benefit corporation incorporated under the laws of the State of California on April 6, The Corporation was formed to provide financing assistance to the District for the construction and acquisition of major capital facilities. Upon completion of the subject transactions the District Intends to occupy the Corporation's facilities under a lease-purchase agreement effective through the year At the end of the lease term, title of the Corporation's property will pass to the District for no additional consideration

30 NOTES TO FINANCIAL STATEMENTS JUNE 3D, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Presentation The subject transactions and the Corporation's financial activity are presented in the financial statements as the Blended Component Unit Capital Projects Fund and the Blended Component Unit Debt Service Fund. Certificates of Participation issued by the Corporation are included in the Long-Term Debt. Fixed Assets acquired or constructed by the Corporation are inciuded in the Fixed Assets. C. Basis of Presentation Government-wide Financial Statements: The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report infonnation on all of the nonfiduciary activities of the District and its component units. Internal seivice fund activity is eliminated to avoid doubling revenues and expenses. The government-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund and fiduciary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements, therefore, include reconciliation with bnef explanations to belter identify the relationship between the government-wide statements and the statements for the governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the Distnct's governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particuiar function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues of the District, with certain exceptions. The companson of direct expenses with program revenues Identifies the Intent to which each governmental function is self-financing or draws from the general revenues of the D1stnct. Fund Financial Statements: Fund financial statements report detailed infonnation about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major governmental fund is presented in a separate column, and all non-major funds are aggregated into one column. Fiduciary funds are reported by fund type. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds present increases (i.e., revenues and other financing sources) and decreases (I.e. expenditures and other financial uses) in net current assets. Fiduciary funds are reported using the economic resources measurement focus. D. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized In the accounts and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Fiduciary funds use the accrual basis of accounting

31 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenues - Exchange and Non-exchange Transactions: Revenue resulling from exchange transaclions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the ITscal year In which the resources are measurable and become available. "Available" means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabililies of the current fiscal year. For the District, "available" means colleclible within the current period or within 60 days after year-end. Non-exchange transaclions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized In the fiscal year for which the taxes are levied. Revenue from grants and enlitlements Is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements Include timing requirements, which specify the year when the resources are to be used of the fiscal year when use Is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, In which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned ideferred) Revenue: Deferred revenue arises when assets are received before revenue recognition criteria have been salisfied. Grants and enlitlements received before eligibility requirements are met are recorded as deferred revenue. On governmental fund financial statements, receivables associated with non-exchange transaclions that will not be collected within the availability period have also been recorded as deferred revenue. Expenses/Expenditures: On the accrual basis of accounling, expenses are recognized at the lime a liability Is incurred. On the modified accrual basis of accounling, expenditures are generally recognized In the accounling period in which the related fund liability Is Incurred, as under the accrual basis of accounling. However, under the modified accrual basis of accounling, debt service expendilures, as well as expenditures related to compensated absences and claims and Judgments, are recorded only when payment is due. Allocations of cost, such as deprecialion and amortizalion, are not recognized In the governmental funds. When both restricted and unrestricted resources are available for use, it Is the District's policy to use restricted resources first, and then unrestricted resources as they are needed. E. Fund Accounling The accounts of the District are organized on the basis of funds or account groups, each of which Is considered to be a separate accounling entlly. The operalions of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending acllvilles are controlled. The District's accounts are organized major, non-major, and fiduciary funds as follows: MAJOR GOVERNMENTAL FUNDS 1. General Fund Is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund

32 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2. Building Fund is used to account for the activity (proceeds and capital acquisitions) for the District's 2004 General Obligation Bonds. NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. The District maintains five non-major special revenue funds: 1. Child Development Fund is used to account for revenues received and expenditures made to operate the District's childcare and development programs. 2. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's cafeteria. 3. Deferred Maintenance Fund is used for the purpose of major repair or replacement of District property. 4. Special Reserve Fund - other than Capital Outlay Is used to set aside funds to protect the District from unforeseen economic events. 5. Special Reserve for Post-Employment Benefits is used to account for the accumulation of reserves available to pay current and future post-employment retiree health benefits. Debt Service Funds are used to account for the accumulation of resources for and the payment of general longterm debt principal, interest and related costs. The District maintains two non-major debt service funds: 1. Bond Interest and Redemption Fund is used to account for the accumulation of resources for, and the principal and interest payments of the General Obligation Bonds. 2. Blended Component Unit Debt Service Fund is used to account for bond interest and redemption of bond principal of the District's Certificates of Participation (component unit). Capital Projects Funds are used to account for the acquisition and/or construction of all major governmental general fixed assets. The District maintains three non-major capital projects funds: 1. Capital Facilities Fund Is used to account for resources received from developer Impact fees assessed under provisions of the California Environmental Quality Act (CEQA). 2. State School Building Lease/Purchase Fund is used primarily to account for state apportionments provided for construction and reconstruction of school facilities (Education Code Sections ). 3. County School Facilities Fund is used to account for Proposition 1A funds received from the Office of Public Schools Construction. These funds will be used for school growth construction under the State match program. 4. Special Reserve Fund for Capital Outlay Prolects Is used to account for revenues accumulated and expended for capital expenditures Including building, sites, Improvements and equipment. FIDUCIARY FUNDS Agency Funds are used to account for assets of others for which the District acts as an agent. The District maintains three agency funds one for each school's student body

33 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Budgels and Budgetary Accounting Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all governmental funds. By state law the District's Governing Board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's Governing Board satisfied these requirements. These budgets are revised by the District's Governing Board and District Superintendent during the year to give consideration to unanticipated income and expenditures. The original and final revised budgets are presented for the General Fund in the financial statements. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account. G. Encumbrances Encumbrance accounting is used in all budgeted funds to reserye portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances were liquidated at June 30, H. Assets, Liabilities, and Eguity 1. Deposits and Investments Cash balances held in banks and in revolving funds are insured to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial Institutions is fully insured or collateralized. In accordance with Education Code Section 41001, the District maintains substantially all Its cash in the County Treasury. The County pools these funds with those of other districts in the County and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned Is deposited quarterly Into participating funds. Any Investment losses are proportionately shared by all funds in the pool. The County is authorized to deposit cash and Invest excess funds by California Government Code Section et seq. The funds maintained by the County are either secured by federal depository Insurance or are collateralized. The amount of dollars invested in derivatives with the County Treasury was not significant as of June 30, Eliminations /Interfund Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as interfund receivables and payables. These interfund receivables and payables are eliminated on the Government-wide Statement of Net Assets. 3. Stores Inventories and Prepaid Expenditures Inventories are recorded using the purchases method In that the cost is recorded as expenditure at the time Individual Inventory Items are purchased. Inventories are valued at average cost and consist of expendable supplies held for consumption. Reported Inventories are equally offset by a fund balance reserye that Indicates that these amounts are not "available for appropriation and expenditure" even though they are a component of net current assets

34 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Districl has the option of reporting expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure when incurred. 4. Capital Assets Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays Ihat significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance is expensed as incurred. Depreciation on all assets is provided on the straight-line basis over the following estimated useful lives: Description Site I mproveme nts Building and Improvements Furniture and Equipment Vehicles Estimated Useful Lives years years 5-15years 10 years 5. Accrued Liabilities and Long-Term Debt Obligations All payables, accrued liabilities and long-term obligations are reported In the government-wide financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the noncurrent portion of capital leases, compensated absences and special termination benefits that will be paid from governmental funds are reported as a liability In the fund financial statements only to the extent that they are due for payment during the current fiscal year. In general, liabilities that mature or come due for payment during the fiscal year are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a current liability in the fund financial statements when due but rather recognized as an expense when paid.. 6. Unearned (Deferred) Revenue Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been Incurred. Deferred revenue Is recorded to the extent cash received on specific projects and programs exceed qualified expenditures. 7. Compensated Absences All vacation pay plus related payroll taxes is accrued when incurred in the government-wide financial statements. A liability for these amounts Is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to. record sick leave as an operating expense in the period taken, since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires

35 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 8. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Assets. Bond premiums and discounts, as well as Issuance costs, are deferred and amortized over the life of the bonds using the straight-line basis. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are reported as prepaid expenditures and amortized over the term of the related debt. In the fund financial statements, governmental funds recognize bond premiums and discounts as well as bond Issuance costs, during the current period. The face amount of the debt issued, premiums, or discounts is reported as other financing sources/uses. 9. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any borrowing used for the acquisition, construction, or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through exlernal restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District's policy is to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. 10. Fund Balance Reserves and Designations Nonspendable Fund Balance. The portion of fund balance reflecting assets not In spendable form, either because they will never convert to cash (such as prepaid items) or must remain intact pursuant to legal or contractual requirements (such as the principal of a permanent endowment). Nonspendable Revolving Cash. The portion of fund balance reflecting the value of the revolving cash account. Nonspendable Stores. The portion of fund balance reflecting the value of stores. Nonspendable Prepaid Items. The portion of fund balance reflecting the value of prepaid items. Ail Other Nonspendable Assets. The portion of fund balance reflecting the value of nonspendable assets not specified above. For example, this object issued for the legal reserve required for Certificates of Participation, the long-term portion of notes receivable, or the principle of a permanent endowment. Reserve for Encumbrances (Budgetary account). An account set aside to provide for encumbrances. Generally, encumbrances are closed at the end of the fiscal year, and new purchase orders or contracts are opened for the subsequent year. Restricted Balance. The portion of fund balance representing resources subject to externally Imposed and legally enforceable constraints imposed either by external resource providers, e.g., grantors or creditors, or by law through constitutional provisions or enabling legislation. Examples include unspent balances or restricted state and federal grants, and unspent proceeds of general obligation bonds. Committed Fund Balance. The portion of fund balance representing resources whose use is constrained by limitations self-imposed by the District through formal action of its highest level of decision-making authority. The constraints can be modified or removed only through the same process by which they were imposed. The action imposing the constraint must be made by the end of the reporting period. The actual amounts may be determined at a later date, prior to the issuance of the financial statements

36 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stabilization Arrangements, The portion of fund balance set aside pursuant to a stabilization arrangement is more formal than the reserve for economic uncertainties recommended by the Criteria and Standards for fiscal solvency or other minimum fund balance policy. The level of constraint must meet the criteria to be reported as committed, and the circumstances in which the resources are used must be specific and non routine. other Commitments. The portion of fund balance representing commitments other than stabilization arrangements. Assigned Fund Balance. The portion of fund balance representing resources that are intended to be used for specific purposes but for which the constraints do not meet the criteria to be reported as restricted or committed. Intent may be established either by the District's highest level of decision-making or by a designated body or official. Constraints giving rise to assigned fund balance may be imposed at any time before the financial statements are issued, and may be modified or removed by a process less formal than is required for committed fund balance. In governmental fund types other than the general fund, this is the residual fund balance classification. other Assignments. The position of fund balances representing assignment. Unassigned Fund Balance. committed, or assigned. The portion of fund balance not classified as nonspendable, restated, Reserve for Economic Uncertainties. The position of unassigned fund balance set aside pursuant to a minimum fund balance policy. This amount includes the reserve recommended by the Criteria and Standards for fiscal solvency, as well as additional reserve established pursuant to local policy. Unassigned/Unappropriated. In the general fund, residual fund balance in excess of amount reported in the nonspendable, restricted, committed or assigned fund balance classifications and net of Reserve for Economic Uncertainties. In all governmental funds including the general fund, the excess of nonspendable, restricted, and committed fund balance over total fund balance (deficits). Assigned amounts must be reduced or estimated if a deficit exists. For budgetary purposes, this account represents the excess of estimated revenue and estimated other financial sources over appropriations and estimated other financing uses. 11. Revenue Limit / Property Tax The District's revenue limit Is received from a combination of local property taxes, state apportionments, and other local sources. The county is responsible for assessing, collecting, and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property In the county. The levy is based on the assessed values as of the preceding March 1, which is also the lien date. Property taxes on the secured roll are due on November 1 and February 1, and taxes become delinquent after December 10 and April 10, respectively. Property taxes on the unsecured roll are due on the lien date (March 1), and become delinquent if unpaid by August 31. Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue In accordance with the alternate method of distribution prescribed by Section 4705 of the California Revenue and TaxafIon Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax rollapproximately October 1 of each year

37 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The County Auditor reports the amount of the District's allocated property tax revenue to the California Department of Educalion. Property taxes are recorded as local revenue limit sources by the District. The California Department of Education reduces the District's entitlement by the District's local property tax revenue. The balance Is paid from the state General Fund, and Is known as the State Apportionment. The District's base revenue limit Is the amount of general-purpose tax revenue, per average daily attendance (ADA), that the District is entitled to by law. This amount is multiplied by the second period ADA to derive the District's total entitlement. I. Use of Estimates The preparation of financial statements In conformity with accounting principles generally accepted In the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures or expenses, as appropriate, during the reporting period. Actual results could differ from those estimates. J. New Accounting Pronouncements GASB Statement No The Financial Reporting Entity; Omnibus - amendment of GASB No. 14 and No. 34- statement modifies certain requirements for inclusion of component units In the financial reporting entity. For organizations that previously were required to be Included as components units by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would need to be present between the primary government and that organization for it to be Included in the reporting entity as a component unit. Furthermore, for organizations that do not meet the financial accountability criteria for inclusion as component units but that, nevertheless, should be included because the primary government's management determines that It would be misleading to exclude them, this Statement clarifies the manner In which that determination should be made and the types of relationships that generally should be considered In making the determination. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) In certain circumstances. For component units that currently are blended based on the "substantively the same governing body" criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility (as defined in paragraph aa) for the activities of the component unit. New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government. The blending provisions are amended to clarify that funds of a blended component unit have the same financial reporting requirements as a fund of the primary government. Lastly, additional reporting guidance Is provided for blending a component unit if the primary government Is a business-type activity that uses a single column presentation for financial reporting. This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a primary government to report its equity interest in a component unit as an asset. The provisions of this Statement are effective for financial statements for periods beginning after June 15, Earlier application is encouraged. GASB Statement No Codification of Accounting and Financial Reporting Guidance Contained In Pre November 30, 19a9 FASBand AICPA Pronouncements - is to incorporate into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements Issued on or before November 30, 19a9, which does not conflict with or contradict GASB pronouncements: 1. Financial Accounting Standards Board (FASB) Statements and Interpretations. 2. Accounting Principles Board Opinions. 3. Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AI CPA) Committee on Accounting Procedure

38 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Hereinafter, these pronouncements collectively are referred to as the "FASB and AICPA pronouncements." This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, thereby eliminating the election provided in paragraph 7 of that Statement for enterprise funds and business-type activities to apply post November 30, 1989 FASB Statement and Interpretations that do not conflict with or contradict GASB pronouncements. However, entities can continue to apply, as other accounting literature, post-november 30, 1989 FASB pronouncements that do not conflict with or contradict GASB pronouncements, including this Statement. The requirements of this Statement are affective for financial statements for periods beginning after December 15, Earlier application is encouraged. The provisions of this Statement generally are required to be applied retroactively for all periods presented. K. Implementation of New Accounting Pronouncements The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of Statement 54 Is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing govemmental fund type definitions. The Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe the constraints Imposed upon the use of the resources reported in the governmental funds. The definitions of the general fund, special revenue fund type, capital projects fund type, debt service fund type and permanent fund type are clarified by the provisions in this Statement. The requirements of this Statement are effective for financial statements periods beginning after June 15, 2010, and have been Implemented on this financial statement. NOTE 2 - CASH AND INVESTMENTS General The District has adopted Governmental Accounting Standards Board Statement 31 (GASB 31) which requires Investments of governrnental agencies to be reported at fair value. However, Investment pools, such as a state or county treasury, may report the value of short-term investments with remaining maturities of less than 90 days at amortized costs. The majority of the County Treasury investments have a remaining maturity of less than 90 days. In addition, GASB 31 does not apply to immaterial cosvvalue differences. The District adopted GASB Statement No. 40, Deposit and Investment Risk Disclosures, as of July 1, GASB Statement No. 40 requires governmental entitles 10 assess categories of risk associated with their deposits and investments and disclose these risks

39 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 2 - CASH AND INVESTMENTS (Continued) Unrestricted Cash and investments consisted of the following at June 30, 2011: Cash on Hand and in Banks Pooled Investments - Kern County Treasury Cash with Fiscal Agent $ Governmental Funds 14,176 3,408, ,970 Total $ 3,710,953 All cash and time deposits are entirely insured or collateralized. The California Government Code requires state banks to secure District deposits by pledging government securities as collateral. The fair value of pledged securities must equal at least 110% of the District's deposits. The District may waive collateral requirements for deposits that are fully Insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). The surplus funds of the District may be Invested in any of the approved Investments contained In the California Government code Sections et seq., limited further by the investment policy adopted by the District. Investments Authorized by the Entity's Investment Policy The District's investment policy authorizes investment in the local government Investment pool administered by Kern County. The District's Investment policy does not contain any specific provisions Intended to limit the District's exposure to Interest rate risk, credit risk, and concentration of credit risk. Additionally, the District may Invest Idle or surplus funds In accordance with California Government Code Section The following represents permissible investments per this code section Local agency bonds, notes or warrants within the state United States Treasury instruments Registered state warrants or treasury notes Securities ofthe U.S. Government, or its agencies Bankers acceptances Commercial paper Certificates of deposit (or time deposits) placed with commercial banks andlor savings and loan companies Repurchase or reverse repurchase agreements Medium term corporate notes Shares of beneficial Interest Issued by diversified management companies Certificate of Participation Obligations with first priority security Collateralized mortgage obligations Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District's Investment policy. The District had no debt proceeds investments as of June 30,

40 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 2 - CASH AND INVESTMENTS (Continued) Disclosures Relating to Interest Rate Risk Interest rate risk Is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an Investment, the greater the sensitivity of its fair value to changes in market interest rates. As of fiscal year-end, the weighted average maturity of the investments contained in the Kern County Investment Pool is approximately seventeen (17) months, and the weighted average maturity of the inveslment held by Wells Fargo Bank as a fiscal agent is approximately eighteen (18) months. Information about the sensitivity of the fair values of the District's inveslments to market Interest rate fluctuations is provided by the following table that shows the maturity date of each investment: Maturity Carrying Fair Value Date Amount Adjustment' Kern County Investment Pool - 17 months Unrestricted average $ 3,408,807 $ (11,550) $ Wells Fargo Bank - Cash with 18 months Fiscal Agent average $ 287,970 $ 0 $ Fair Value 3,397, ,970 The Fair Value Adjustment at June 30, 2011, was not recorded on the books of the Kernville Union School District as the adjustment was not considered significant. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an Issuer of an investment will not fulfill its obligation to the holder of the inveslment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Neither the Kern County Investment Pool nor the Wells Fargo Bank Government Securities held as a fiscal agent have a rating provided by a nationally recognized statistical rating organization. Concentration of Credit Risk The investment policy of the District contains no limitations on the amount that can be invested in anyone Issuer beyond that stipulated by the California Government Code. Investments in anyone issuer that represent 5% or more of totallnveslments by reporting unit are as follows: As of June 30, 2011, $3,408,807 of the cash and investments are held In the form of a noimegotiable unrated Investment in the Kern County Inveslment Pool. As of June 30, 2011, $287,970 of the cash and investments are held In the form of negotiable federal securities investment in Wells Fargo Bank as a fiscal agent of the District. Custodial Credit Risk Custodial credit risk for deposits is the risk that, In the event of the failure of a depository financial institution, a government will not be able to recover Its deposits or will not be able to recover collateral securities that are In the possession of an outside party. The California Government Code and the District's inveslment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial Institutions to secure Distnct deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits

41 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 2 - CASH AND INVESTMENTS (Continued) None of the District's deposits with financial institutions were in excess of federal depository insurance limits. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., brokerdealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools such as the Kern County Investment Pool. Investment In Kern Countv Investment Pool In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the Kem County Treasury as part of the common investment pool. The District is considered to be an involuntary participant in the external investment pool. Interest is deposited Into participating funds, except for the payroll-clearing fund, which is credited to the General Fund. The County is restricted by Government Code Section pursuant to Section to invest in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. Derivative Investments The District did not directly enter into any derivative investments. Investments - Restricted The District did not enter into any restricted Investments

42 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 3 - EXCESS OF EXPENDITURES OVER APPROPRIATIONS As of June 30, 2011, expenditures exceeded final appropriations in individual funds as follows: General Fund: Appropriations Category Services and other Operating Expenditures Other Outgo Interest Excess Ex~enditures $ 23,119 $ 4,540 $ 2,083 Child Development Fund: Classified Salaries Transfers Out $ 19,454 $ 34,666 Cafeteria Fund: Classified Salaries Services and other Operating Expenditures $ 24,986 $ 6,087 Deferred Maintenance Fund: Transfers Out $ 30,276 Bond Interest and Redemption Fund: Principal Interest and Fiscal Charges $ 152,904 $ 119,829 Blended Component Unit Fund - Debt Service: Principal Interest and Fiscal Charges $ 95,000 $ 188,423 Building Fund: Books and Supplies Services and other Operating Expenditures Transfers Out $ 16 $ 7,853 $ 93,412 County School Facilities: Books and Supplies Services and other Operating Expend~ures Capital Outlay Transfers Out $ 128 $ 1,344 $ 44,043 $ 1,479,

43 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 4 - ACCOUNTS RECEIVABLE Receivables at June 30, 2011, consist of the following: -- Governmental Funds General Fund Federal Government: Federal Financial Assistance Programs $ 108,232 Total Federal 108,232 Other Total Building Governmental Governmental Fund Funds Funds $ 0 $ 50,426 $ 158, , ,658 State Government: State Financial Assistance Programs 235,873 State Apportionment Revenue Limit 670,731 Total State 906,604 Local Receivables: Local Sources 315,864 Interest Receivable 3,435 Total Local 319, , , , , , , ,515 26, , ,566 Total Accounts Receivable $ 1,334,135 $ 752 $ 77,235 $ 1,412,122 NOTE 5 -INTERFUND TRANSACTIONS Interfund activity is reported as either loans, selvlces provided, reimbursements, or transfers. Loans are reported as Interfund receivables and payables, as appropriate, and are subject to elimination upon consolidation. SelVices provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements are when one fund Incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers among governmental or proprietary funds are nelled as part of the reconciliation to the government-wide financial statements

44 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 5 INTER FUND TRANSACTIONS (Continued) Due From 1 Due To other Funds - Individual fund interfund receivables and payable balances at June 30, 2011, are as follows: Govemmental Interfund Interfund Receivable Payable General Fund Child Development Fund Building Fund County School Facilities Fund $ 34,685 o 2,134 o $ o 34,685 o 2,134 Total $ 36,819 $ 36,819 Interfund Transfers - Consist of operating transfers from funds receiving resources to funds through which the resources are to be expended. Interfund transfers for the 2010/2011 fiscal year were as follows: Governmental Funds Transfers In Transfers Out Amount 1. General Fund Deferred Maintenance $ 30, General Fund Child Development Fund 34, Blended Component Unit - Debt Service Building Fund 93, Blended Component Unit - Debt Service County School Facilities Fund 189, Building Fund County School Facilities Fund 1,531,461 Total $ 1,879,

45 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 6 - FIXED ASSETS AND DEPRECIATION The changes in fixed assets for the year ended June 30, 2011, are shown below: Balance July 1,2010 Additions Balance Deletions June 30, 2011 Land $ 262,886 $ 0 $ Sites, Buildings and Improvements 20,690,578 44,043 Machinery and Equipment 2,005,195 6,626 0 $ 262, ,734, ,011,821 Totals 22,958,659 50, ,009,328 Less: Accumulated Depreciation Sites, Building sand Improvements 2,424, ,085 Machinery and Equipment 1,648,050 82, ,659, ,730,458 Totals 4,072, , ,389,971 Governmental Activities Capital Assets, Net $ 18,886,181 $ (266,824) $ 0 $ 18,619,357 Depreciation Expense was charged to Governmental Activities as follows: Instruction $ 235,085 Transportation 82,408 Total Depreciation Expenses $ 317,

46 NOTES TO FINANCIAL STATEMENTS JUNE 3D, 2011 NOTE 7 - LONG TERM DEBT OBLIGATIONS General Obligation Bonds Series A On March 2, 2004, the registered voters of the District authorized the issuance and sale of up to $5,600,000 principal amount of general obligation bonds. On May 20, 2004, the District sold $3,488,371 of "Series A" general obligation bonds with interest rates ranging from 3.00% to 7.625% for the purpose of financing new construction and additions to and modernization of school facilities for Ihe District. At June 30, 2011, the principal batance of the General Obligation Bonds - Series A was $3,038,371. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 110, , , , , ,280, , , Totals $ 3,038,371 $ 104, ,124 94,633 88,243 80, ,659 1,248,534 1,621, $ 3,589,532 $ 214, , , , ,796 1,530,659 1,953,624 1,950,000 o o $ 6,627,902 General Obligation Bonds - Series B On March 2, 2004, the registered voters of the District authorized the Issuance and sale of up to $5,600,000 princtpal amount of general obligation bonds. On May 20, 2007, the District sold $1,015,982 of "Series A" general obligation bonds with Interest rates ranging from 3.50% to 5.540% for the purpose of financing new construction and additions to and modernization of school facilities for the District. At June 30, 2011, the principal balance of the General Obligation Bonds - Series B was $900,982. The principal and Interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 40, , , , , , , , , Totals $ 900,982 $ 7,248 5,758 4,248 2, , , , ,841 0 $ 1,018,248 $ 47,248 45,758 44,248 47,621 45, , , , ,320 o $ 1,919,229 35

47 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 7 - LONG-TERM DEBT OBLIGATIONS (Continued) General Obligation Bonds Series C On December 4, 2007, the District sold $1,095,437 of "Series C" general obligation bonds with an interest rate of 4.70% that were authorized by the General Obligation Bonds Election on March 2, The bonds are for the financing of new construction and modemization of school facilities for the District. At June 30, 2011, the principal balance outstanding of the General Obligation Bonds - Series C was $1,068,932. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 24,489 $ 9,245 $ 33, ,110 12,108 39, ,400 14,418 43, ,384 16,910 48, ,781 20,414 50, , , , , , , , ,772 1,068, , , , Totals $ 1,068,932 $ 1,724,210 $ 2,793,142 General Obligation Bonds Series D On :August 19, 2008, the District sold $1,951,196 of "Series D" general obligation bonds consisting solely of Capital Appreciation Bonds that were authorized by the General Obligation Bonds Election on June 8, 2008, which accrete value. The Interest shown below Is the estimated accretion based upon the assumptions used by bond counsel and the current Interest rate assumptions. The bonds are for the financing of new construction and modernization of school facilities for the District. At June 30, 2011, the principal balance outstanding of the General Obligation Bonds - Series D was $1,951,197. The principal and Interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ , , , , , , , , , ,991 2,580 3,169 5,021 53, , ,004 2,883,796 4,718,203 $ o 15,000 15,000 15,000 20, , , ,000 3,625,000 5,545,000 Totals $ 1,951,197 $ 8,068,803 $ 10,020,

48 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 7 - LONG-TERM DEBT OBLIGATIONS (Continued) The combined bonds future principal and Interest repayment of the general obligation bonds are as follows: COMBINED SERIES A, SERIES B, SERIES C AND SERIES 0 GENERAL OBLIGATION BONDS REPAYMENT Year Ending June 30, Principal Interest Total 2012 $ 174, , , , , ,677, ,159, , ,197, , , , , , , ,901 1,915,252 3,170,582 3,431,626 4,718,203 $ 295, , , , ,868 2,266,940 3,074,693 4,140,136 4,628,876 5,545,000 $ 6,959,482 $ 14,400,792 $ 21,360,274 Certificates of Particigation On November 7, 2005, the Kernville Union Schooi District Blended Component Unit issued Certificates of Participation in the amount of $4,660,000 with interest rates ranging from 3.00% to 4.90%. At June 30, 2011, the principal balance outstanding of the Certificates of Participation was $4,225,000. The Certificates mature through September 2036, as follows: Year Ending June 30, Principal Interest Total 2012 $ , , , , , , , ,000 1,250,000 $ 185, , , , , , , , ,081 $ 285, , , , ,080 1,418,671 1,409,993 1,402,803 1,400,081 Totals $ 4,225,000 =========== $ 2,823,985 $ 7,048,

49 NOTES TO FINANCIAL STATEMENTS JUNE 3D, 2011 NOTE 8 - LONG-TERM DEBT SCHEDULE OF CHANGES A schedule of changes in long-term debt for the year ended June 30, 2011, is shown below: Balance July 1, 2010 Additions Deletions Balance June 30, 2011 Due Within One Year General Obligation Bonds $ 7,112,386 $ 0 $ 152,904 $ 6,959, ,489 Certificates of Participation 4,320, ,000 4,225, ,000 SUb-Total Debt Obligations 11,432, ,904 11,184, ,489 Compensated Absences 18,212 14,348 18,212 14,348 0 Post Employment Benefits Obligations 240, , , , ,553 SUb-Total Employment Obli9ations 259, , , , ,553 Totals $ 11,691,442 $ 329,177 $ 560,669 $ 11,459,950 $ 569,042 NOTE 9 - LEASES A. Cagital Lease Obligations The District has not entered Into any capital leases where the titie passes to the District upon the expiration of the lease period. B. Dgerating Leases The District has not entered Into any operating leases with a lease term In excess of one year. NOTE 10 - ALTERNATIVE RETIREMENT PLAN Plan Descrigtion Effective October 1, 1994, the Kernville Union School District adopted the SISC Defined Benefit Plan as an alternative to Social Security. The District pays the full cost of the plan and the benefits are designated to be paid out at age 65, however, benefits can be received upon termination or retirement. All benefits are 100% vested beginning on date of participation. All employees who are not participating in any other retirement plan are Immediately eligible for participation. Employees who are members of, or retired from, the Public Employees' Retirement System (PERS) or the State Teachers' Retirement System (STRS) are generally not eligible for participation. Funding Policy Members do not contribute to the SISC Defined Benefit Plan. The District contributes 3.9% of the eligible member's annual payroll. The contribution is intended to provide an annual normal retirement benefit equal to 1.5% of the eligible member's final average pay for covered service up to 30 years

50 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 10 - ALTERNATIVE RETIREMENT PLAN (Continued) The Kernville Union School District's contribution to the SISC Defined Benefit Plan for the fiscal year ended June 30, 2011, was $15,000 and equaled 100% of the required contribution. NOTE 11 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of Califomia. Certificated employees are members of the State Teachers' Retirement System, and classified employees are members of the Public Employees' Retirement System. State Teachers' Retirement System (STRS) Plan Description The Kernville Union School District contributes to the State Teachers' Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and sunivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS, 7667 Folsom Boulevard, Sacramento, Callfomia Funding Policy Active plan members are required to contrlbule 8% of their salary and the Kernville Union School District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2010/2011 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The Kernville Union School District's contributions to STRS for the fiscal years ended June 30, 2011, 2010, and 2009 were $221,757, $248,120, and $248,120, respectively, and equal 100% of the required contributions for each year. California Public Employees' Retirement System (CaIPERS) Plan Description The Kernville Union School District contributes to the School Employer Pool under the California Public Ernployees' Retirement System (CaIPERS), a cost-sharing multiple-employer public employee retirement systern defined benefit pension plan administered by CaIPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustrnents, and death benefits to plan members and beneficiaries. Benefit provisions are eslabllshed by state statutes, as legislatively amended, within the Public Employees' Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Caples of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California Funding Policy Active plan members are required to contribute 7% of their salary (7% of monthly salary over $ if the member participates in Social Security), and the Kernville Union School District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Adrninistratlon. The required employer contribution rate for fiscal year 2010/2011 was % of annual payroll. The contribution requirements of the plan members are established by state statute. The Kernville Union School District's contributions to CalPERS for the fiscal years ended June 30, 2011, 2010, and 2009 were $160,527, $154,155 and $149,843, respectively, and equal 100% of the required contributions for each year

51 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 12 - COMMITMENTS AND CONTINGENCIES A. State and Federal Allowances, Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. If the review or audit discloses exceptions, the District may incur a liability to grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursements will not be material. B. Joint Powers Agreements The District is a member of the Self-Insured Schools of Kern. Although these insurance programs have been reviewed for adequate protection, it is understood that a contingent liability could exist whenever a district is self Insured. The District also participates in joint powers agreements for legal services and education services for special education students that are coordinated by the Kern County Superintendent of Schools. Each joint powers agreement is governed by a board of representatives of the mernber districts independentiy accountable for its operations and fiscal matters. The relationship between the District and the JPA's Is such that they are not considered cornponent units of the District for financial reporting purposes. C. Early Retirement During the fiscal year ended June 30, 2011, no employees accepted any early retirement incentive program, pursuant to Education Code Section and 44929, whereby the service credit to eligible employees Is increased by two years. D. Pending Litigation As of June 30, 2011, there are no claims or litigation involving the District. NOTE 13 - COUNTY PROPERTY TAX CONTINGENT LIABILITIES Kernville Union School District's share of the estimated property tax liability based on information gathered from the Office of the Auditor-Controller of the County of Kern through June 30, 2011 for litigation and other tax refund claims pending at that time is as follows: Total liabilities (as of June 30, 2011) $ 147,873 Less: Impounds (as of June 30, 2011) (147,873) Net Liability $ o It should be noted that these figures do not include any appeals or litigation filed or completed after June 30, 2011, but they do Include provisions for valuations and taxes in dispute through June 30, NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS In addition to the pension benefits described in Note 10 the District provides post retirement health care benefits to all employees who retire from the District on or after attaining age 55 with at least 10 years of service. These post retirement health care benefits will be paid through age 65. On June 30, 2011, 32 retirees met these eligibility requirements. For the fiscal year ending June 30, 2011, $265,424 In post retirement health care benefits was paid by the District

52 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) A. Plan Description In addition to the pension benefits described in Notes 8 and 11, the District provides post retirement benefits including medical. These coverages are self-insured on a pooled basis through the Self-Insured Schools of Califomia (SISC). Eligibility for District-paid Benefits In addition to the basic plan below, those retiring prior to July 1, 2014 receive a district contribution toward Medicare supplement coverage until age 70. The amount paid by the District for the Medicare supplement coverage decreases from 100% for those retiring prior to July 1, 2006 by 10% per year to 50% where it remains until June 30, Certificated Classified Benefit types provi ded Medical Onl y Medical Only Duration of Benefits ToAge 65 To Age 65 Required Service 10 Years 10 Years Minimum Age Dependent Coverage Yes Yes District Contribution % Choice of 100% or Annual Ch oice of 100% or Annual Cash Payment of $5,000 * Cash Payment of $5,000 * District Cap Active Rate Active Rate Some retirees are entitled to an annual cash payment of $7,500, but this amount reduces to $5,000 and will be available to few, if any, future retirees. Costs and liabilities associated with these cash payments are not reflected In this report. B. Funding Policy As required by GASB 45, an actuary will determine the District's Annual Required Contributions (ARC) at least once every two fiscal years. The ARC is calculated in accordance with certain parameters, and includes (1) the Normal Cost for one year, and (2) a component for amortization of the total unfunded actuarial accrued liability (UAAL) over a period not to exceed 30 years. GASB 45 does not require pre-funding of OPEB benefits. Therefore, the District's funding policy is to continue to pay healthcare premiums for retirees as they fall due. The District has elected not to establish an irrevocable trust at this time. The Board of Trustees reserves the authority to review and amend this funding policy from time to time, in order to ensure that the funding policy continues to best suit the circumstances of the District

53 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) C. Annual OPEB Cosl and Net OPEB Obligation/(Assetl The following table shows the components of the District's Annual OPEB Cost for the fiscal year ended June 30, 2011, the amount actually contributed to the plan, and changes in the District's New OPEB Obligation/(Assets): Item Jun e 30, 2011 Annual Required Contributions Interest on Net OPEB Obligation/(Asset) Adjustment to Annual Required Contributions $ 314,829 o o Annual OPEB Cost (Expense) Contributions Made 314,829 (294,553) Ina-ease in NewOPEB Obligation/(Asset) Net OPEB Obligatlon/(Asset) - Beginning of Year New OPEB Obllgatlon/(Asset) - End of Year $ 20, , ,120 The District's Annual OPEB Cost, the percentage of Annual OPES Cost contributed to the plan, and the Net OPEB Obligatlon/(Asset) for the fiscal year ended June 30, 2011, are as follows: Percentage of Net OPEB Rscal Annual Actual AnnualOPEB Obligation/ Year Ended OPEB Cost Contribution Cost Contributed (Asset) 6130/2011 $ 314,829 $ $294, % $ 20,276 D. Funded Status and FUQdlng P[ogress The funded status of the plan as of June 30, 2011, the end of the first year of GASB 45 applicability, was as follows: Projected Unit Credit UAAL as a Actuarial Actuarial Actuarial Unfunded Percentage Valuation Value of Aca-ued AAL Funded Covered of Covered Date Assets Liability (UAAL) Ratio Payroll Payroll 8/1/2009 $ 0 $ $3,698,400 $ 3,698, % $ $4,819, % - 42-

54 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) D. Funded Slatus and Funding Progress (Continued) Actuarial valualions of an ongoing plan involve estimales of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employmenl, mortality, and the healthcare cost trend. Amounts determined regarding the funded stalus of the plan and the Annual Required Contributions of the District are subject to continual revision as actual results are compared with past expectations and new eslimates are made about the future. The schedule of funding progress, presented as required supplementary Information following the notes to the financial statements, will present mulliyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabililies for benefits. Because fiscal year ended June 30, 2011 Is the year of implementation of GASB Statement No. 45, only one year is presented in the schedule at this lime. In future years, required three year trend analysis will be presented. E. Actuarial Methods of Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the lime of each valualion and the historical pattem of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce short-term perspeclive of the calculalions. The plan's most recent actuarial valuation was performed as of August S, In that valuation, the Projected Unit Credit (PUC) Cost Method was used. The actuarial assumptions included a 5 percent investment rate of retum (net of administralive expenses), an annual medical cost trend rate of 9 percent inilially, reduced by. decrements to an ultimate rate of 5 percent after 4 years, and an annual dental/vision trend rate of 4 percent per year for all future years. These assumptions reflect an implicit 3.0 percent general inflalion assumplion. This District's unfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over 22 years. The remaining amortization period as of June 30, 2011 was 22 years. NOTE 15 - JOINT VENTURES (JOINT POWERS AGREEMENT! The Kernville Union School District participates in three joint ventures under joint powers agreements (JPAs): Self Insured Schools of Califomia I (SISC I), Self Insured Schools of California II (SISC II), and Self Insured Schools of California III (SISC III). The relationship between the Kernville Union School District and the JPA's Is such that none of the JPA's Is a component unit of Kernville Union School District for financial reporting purposes. Self Insured Schools of California I, II, and III: SISC I, II, and III arranged for and provide worker's compensation (SISC I), property and liability (SISC II), and heallh (SISC III) insurance coverage for their member districts. Approximately 250 districts In central and southem California participate in one or more of the SISC's. Each SISC is govemed by an executive Committee consisling of nine to thirteen members elected by the individual SISC goveming boards. Each participant district provides one member for each governing board. Each board controls the operalions of its related SISC, including selection of management and approval of operating budgets, Independent of any influence by the member districts beyond their representalion on the boards. Each member district pays premiums commensurate with the level of coverage requested and shares surpluses and deficlls proportionate to their partlclpalion in SISC I, SISC II, andlor SISC III, - 43-

55 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 15 - JOINT VENTURES (JOINT POWERS AGREEMENT! (Continued) Condensed Financial Information Condensed financial information for SISC I, SISC II for the year ended June 30, 2010, (latest information available) and SISC III for the year ended September 30, 2010, (latest Information available) is as follows: SISC I SISCII SISC III Total Assets $ 99,484,397 $ 48,535,533 $ 251,295,365 Liabilities (65,140,412) (28,099,569) (98,032,970) Retained Earnings 1 (Deficit) $ 34,343,985 $ 20,435,964 $ 153,262,395 Total Revenues $ 11,764,108 $ 19,992,504 $ 1,007,164,422 Total Expenditures 21,872,668 15,185,355 (1,044,275,890) Net Increase (Decrease) in Fund Balance $ (10,108,560) $ 4,807,149 $ (37,111,468) NOTE 16 - SHORT-TERM DEBT 1 TAX REVENUE ANTICIPATION NOTES On June 11, 2010, the District issued Tax Revenue Anticipation Notes (TRANS) with a principal balance of $1,200,000. The note carries Interest at a rate of 1.00 percent and will be due and payable on November 1, It Is projected that note proceeds will be invested at an average yield of 1.70 percent. On March 31, 2011, the District issued Tax Revenue Anticipation Notes (TRANS) with a principal balance of $449,030. The note carries interest at a rate of 1.00 percent and will be due and payable on October 1, It Is projected that note proceeds will be invested at an average yield of 1.70 percent. The District issues tax anticipation notes in advance of property tax collections. These notes are necessary because the District's tax collections are received only twice a year shortly before their April 1 and October 1 due dates. Short-term debt activity for the year ended June 30, 2011, was as follows: Tax Revenue Anticipation Notes Beginning Balance Issued Redeemed Ending Balance 2010/2011 $ 1,200,000 $ 449,030 $ 1,200,000 $ 449,030 $ 1,200,000 $ 449,030 $ 1,200,000 $ 449,

56 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 17 - SUBSEQUENT EVENTS No reportable subsequent events. NOTE 18 - COMPLIANCE AND ACCOUNTABILITY A. Finance-Related Legal and Contractual Provisions. In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance-related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violation None reported Action Taken Not applicable B. Deficit Fund Balance or Fund Net Assets of Individual Funds Following are funds having deficit fund balances or fund net assets at year end, if any, along with remarks which address such deficits: Fund Name None reported Deficit Amount Not applicable Remarks Not applicable NOTE 19 - MINIMUM FUND BALANCE POLICY The District is committed to maintaining a prudent level of financial resources to protect against the need to reduce service levels because of temporary revenue shortfalls or unpredlcted expenditures. This Dlstrtct's Minimum Fund Balance Policy require a Reserve for Economic Uncertainties, consisting of unassigned amounts, equal to no less than six (6) months of general fund operating expenditures, or eight percent (8%) of General Fund expenditure and other financing Uses

57 REQUIRED SUPPLEMENTARY INFORMATION

58 GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Revenue Limit Sources: State Apportionments Local Sources Federal Revenue Other Staie Revenue Other Local Revenue Total Revenues $ 2,389,866 1,459, , ,748 42,250 _ 4,564,363 Actual $ 2,470,743 $ 2,549,600 1,851,551 1,618, ,649 1,021,177 1,708,925 1,771, , , ,502,218 =~7,740~filf Variance with Final Budget Positive JN~e9atl\<el. $ 78,857 (233,168) 204,528 62, ,022 ==~237,~~5~ Expenditures: Current: Certificated Sataries Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures other Outgo Capital Outlay Debt Service: Interest T alai Expenditures 2,058, ,354 1,850, , , ,426 7,000 5,000 5,243,835 2,830,926 2,624,378 1,641,766 1,508,971 1,850,730 1,727, , , , , , ,966 7,000 6,626 5,000 7,083 7,430,101 6,934, , , ,338 62,592 (23,119) (4,540) 374 (2,083) 495,905 Excess (Deficiency) of Revenues Over (Under) Expenditures (679,472) 72, , ,790 Other Financing Sources (Uses): Transfers In Total Other financing Sources (Uses) 64,942 64,942 64,942 64,942 Net Change In Fund Balance (679,472) 72, , ,732 Fund Balance, July 1 Fund Balance, June 30 1,041,465 $ 361,993 $ 1,041,465 1,041,465 1,113,582 $ 1,912,314 $ 798,732 The accompanying notes are an Integral part of this statement. 46

59 COMBINING STATEMENTS AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES This section includes financial information and disclosures not required by the Governmental Accounting Standards Board and are not considered a part of the basic financial statements. It may, however, include Information that is required by other entities.

60 ~-- COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2011 Total Special Debt Capital Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds ASSETS: ~----- ~~,---~~-- ~ Cash In County Treasury $ 133,095 $ 257,596 $ 100,278 $ 490,969 Cash In Revolving Fund 10,000 10,000 Cash with a Fiscal Agent/Trustee 287, ,970 Accounts Receivable 74,923 2,312 77,235 Stores Inventories 17,793 17,793 Prepaid Expenditures 20,386 20,386 Total Assets $ 256,197 $ ==-= 5~5,~~6 $ =~!Di:~g~o~ $ ::~oo 901,~~3 LIABILITIES AND FUND BALANCE: Liab11lties: Accounts Payable $ 7,743 $ $ $ 7,743 Due to Other Funds 34,685 2,134 36,819 Deferred Revenue 7,105 7,105 Total Liab11lties 49,533 2,134.. _~~67 Fund Balance: Assigned Fund Balances 4,316 4,316 UnaSSigned: UnaSSigned, reported In non major: Special Revenue Funds 202, ,348 Debt Service Funds 545, ,566 Capital Projects Funds 100, ,456 Total Fund Balance 206, , , ,686 Total Liabilities and Fund Balances $ 256,197 $ 545,566 $ 102,590 $ 904,353 The accompanying notes are an Integral part of this statement. 47

61 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 3D, 2011 Total Special Debt Capital Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds --~-----,-~ ---~" ~--.. Revenues: Revenue Limit Sources: Local Sources $ $ 293,599 $ $ 293,599 Federal Revenue 337, ,831 Other State Revenue 257, , ,893 Other Local Revenue 50,480 2,317 40,082 92,879 Total Revenues.. 64,454 =~295~946_._- 332,802 ~==f;274,2ii2 Expenditures: Instruction 107, ,261 Instruction - Related Services 80,206 80,206 Pupil Services 349, ,051 General Administration Plant Services 55,206 45, ,721 Debt Service: Principal 247, ,904 Interest 308, ,252 Total Expenditures ---sgl,724 ~ 556,f56 45,887 1,193,767 Excess (Deficiency) of Revenues Over (Under).Expendltures 53,730 ~260,210) 286,915 80,435 Other FinanCing Sources (Uses): Transfers In 283, ,375 Transfers Out (64,942) (1,721,424) (1,786,366) Total Other Financing Sources (Uses) (64,942) 283,375 (1,721,424) _ (1,502,991) Net Change in Fund Balance (11,212) 23,165 (1,434,509) (1.422,556) Fund Balance, July 1 217, ,401 1,534,965 2,275,242 Fund Balance, June 30 $ 206,664 $ 545,566 $ 100,456 $ 852,68~ The accompanying notes are an integral part of this statement. 48

62 This page is left blank intentionally.

63 Deferred Maintenance Fund Special Reserve Fund for Other Than Capital Outlay Post Employment Benefits Fund Total Nonmajor Special Revenue Funds $ $ 4,349 8 _1,3 t $ $ 5, (;,812 $ $ 65, ,Q34. $ 133,095 10,000 74,923 17,793 20,386 $ 2(;6,197 $ $ $ $ 7,743 34,685 7, ~~5a3 4,316 4, ,357 5, S,l:f12 66, _6_~,()3<f 202, ,664 $ <1,357 $ - 5,812 $ $.256,1~! u._ 50

64 This page is left blank intentionally..

65 Total Nonmajor Deferred Special Reserve Post Special Maintenance Fund for other Employment Revenue Fund ThanCapltal Outlay Benefits Fund Funds $ $ $ $ 337,801 30, , ,480 30, , ~------~ ,261 80, ,051 55,206 ~ - ---~~~, 7-Z4 ~~~.30,3H ~ ~.- _ (30,276)._ , (64,942) ~-==~Q:~t6j ~J64;94~) (11,212) 4,316 5,756 65, ,676 $ :~: _~.u-{357 $ ="= 5,61~ $ ---~66,034 $ ';:664 52

66 CHILD DEVELOPMENT FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE Revenues: Other State Revenue Other Local Revenue Total Revenues. Budget $ 194, ~=~~!f.~~~ Actual $ 198, ~- -198!!l55 $ Variance Positive (Ne_galive) (160) 372_2 Expenditures: Current: Certificated Salaries Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures Total Expenditures 79,814 44,432 47, ,000 -:..~~,572 77,274 63,886 44,510 10, Il?178 2,540 (19,454) 3,420 1, J1T,.Bil~) Excess (Deficiency) of Revenues Over (Under) Expenditures 9,661 1,777. i7,884) Other Financing Sources (Uses): Transfers Out Total other Financing Sources (Uses)._--._-- (34,666) _. (34;666) (34,666) _. (34.666) Net Change In Fund Balance _~_._~!,6~ (32,889)._--- _.142,550) Fund Balance. July 1 Fund Balance. June 30 32,889 $.-- 42,55Cr.32,889 $ $ =_-~= (42,~~) The accompanying notes are an Integral part of this statement. 53

67 -.--~-- CAFETERIA FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Federal Revenue Other State Revenue Other Local Revenue Total Revenues Budget Actual $ 311,970 3,400 $ 337,801 28,282 82,000 49,426. ).97.:,~fO ~5;~0~ $ Variance Positive.. (Negative). 25,831 24,8B2 (32,574).!~13fl Expenditures: Current: Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures Total Expenditures 126,974 57, ,328 26, ~:@, ,960 54, ,657 32,687 :lil.4;s4s: (24,9B6) 3,504 49,671 (6,OB7).. ~?, 102 Excess (Deficiency) of Revenues Over (Under) Expenditures (19,278) 20,9.fl.~ 40,241 Other Financing Sources (Uses): Total other Financing Sources (Uses) ~--~ _._--_ Net Change In Fund Balance _._119,2!~... 20,963 _.. 40,241 Fund Balance, July 1 Fund Balance, June ,498 $ -- 90, ,498 $ - - r30,4eif $ :::.~1Q~~1 The accompanying notes are an integral part of this statement. 54

68 DEFERRED MAINTENANCE FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Other State Revenue Other Local Revenue Total Revenues $ Budget $ Actual 30,276 $ 41 _30;31[ Variance Positive (Negative) 30, ,~17 Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers Out Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, July 1 Fund Balance, June 30 The accompanying notes are an Integral part of this statement. (30,276) ---~(3d,276) 41 4,316 $==~4,~ ~ (30,276)... _ (3o,271il 41 55

69 SPECIAL RESERVE FUND FOR OTHER THAN CAPITAL OUTLA Y PROJECTS SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Other Local Revenue Total Revenues $ Budget Actual $ $ Variance Positive (Negative) Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 The accompanying notes are an Integral part of this statement. 56

70 SPECIAL RESERVE FUND FOR POST-EMPLOYMENT BENEFITS SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Other Local Revenue Total Revenues Budpel Actual $ $ 619 $ 6Hr Variance Positive lne.9at lve ) --- Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, July 1 Fund Balance, June 30 The accompanying notes are an Integral part of this statement

71 COMBINING BALANCE SHEET NONMAJOR DEBT SERVICE FUNDS JUNE 3D, 2011 ASSETS: Cash in County Treasury Cash with a Fiscal AgentlTrustee Total Assets Bond Interest &!,<"derrlptlon $ 257,596 $ Blended Component Unit Total Nonmajor Debt Service Funds $ 257, ,970 $ ---_.. _. 545,~[~ LlABILITtES AND FUND BALANCE: Liabilities: Total Liabilities Fund Balance: Unassigned: Unassigned, reported In nonmajor: Debt Service Funds Total Fund Balance $ 257,596 ~= ,59I $. 545,566 -=-J.'I5,566~ Total Liabilities and Fund Balances The accompanying notes are an Integral part of this statement. 58

72 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30,2011 Revenues: Revenue Limit Sources: Local Sources Federal Revenue Olher Local Revenue Total Revenues Bond Interest & i'le,jempti(jn $ 293, ,317. -:295)116 Blended Component Unit Total Nonmajor Debt Service Funds $ $ 293, , ~946 Expenditures: Debt Service: Principal Interest Total Expenditures Excess (DefiCiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, July 1 Fund Balance, June , , ~2f.t, :@:l ~~,2~3._ ~--- 23, ,413 $ z5j;596 95, , , ,252 -=--- 2S.32112~ 556,.156 (~~,:3.!l3) ~60,210) 283, ,375 _-Xa.~~ =-~ 2~,3?. (18) 23, , ,401 $ ,970 $ 545,566 The accompanying notes are an Integral part of this statement. 59

73 BOND INTEREST AND REDEMPTION FUND DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Revenue limit Sources: Local Sources Other Local Revenue Total Revenues $ Actual $ 293,599 2,317 :--:_~5:91~- $ Variance Positive (Negative) 293,599 2,317 3~5"9i~ Expenditures: Debt Service: Principal Interest Total Expenditures 152, , ,'7:f3 (152,904) (119,829) -- - j2!3.7~3i Excess (Deficiency) of Revenues Over (Under) Expenditures?3,183 Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, July 1 Fund Balance, June 30 The accompanying notes are an Integral part of this statement. 234,413 $--234;413 23,1~3_ 234,413 $---~5!,596~ 60

74 BLENDED COMPONENT UNIT DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Federal Revenue Total Revenues Variance Positive Actual tnega~~ve) _ $ $ 30 $ Expenditures: Debt Service: Prine/pal Interest Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Total Other Financing Sources (Uses) Net Change in Fund Balance 95, , ;423: j28~3!l31 283,375 :::::-283,375 (95,000) (188,423) ---(283,423) 283, Fund Balance, July 1 Fund Balance, June ,988 $-- 287,988 :.=-=:-:;--=~= The accompanying notes are an Integral part of this statement. 61

75 This page is left blank intentionally.

76 County School Facilities Fund Special Reserve Fund for Capital Outlay Projects Total Nonmajor Capital Projects Funds $ $ 2,134 2,13{ $ $ 72, ,659 $ $ 100,278 2, ,590 $ 2,134 _~~ 2,!?I $ 72, ~. - 72, ,456 _ 100,456 $ 102,5!l.0 63

77 This page is left blank intentionally.

78 .-.-~----- Total Nonmajor County School Special Reserve Capital Facilities Fund for Capital Projects Fund qtjtla\:'.i"r:9j-"-ct,, Funds ---- $ 292,720 $ $ 292,720 12, ,082 -~ ~05!3.4! 682 -~ -332,802 ~-~--~ ~.45;5r ,515 45,515 _. ~..::45;~Bt ~_...259, ~ 286, (1,721,424) (1,721,424).,----,-----,-,-- (1,721,424) =Ji~72:C42<1) ~ (1,461,591 ) 682 (1,434,509) 1,461,591 71,977 1,534,965 $ $ 72,659 $ -~- -1(fO,45Ir 65

79 BUILDING FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Other Local Revenue Total Revenues Expenditures: Current: Books And Supplies Services And Olher Operating Expenditures Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change In Fund Balance Fund Balance, July 1 Fund Balance, June 30 The accompanying notes are an Integral part of this statement. Budget $ $... _ _. --~~.. ~ ,031 $ -:::-J}8,ll3,1: $ Actual Variance Positive (Negative) 4,296 $ 4,296-4,29~ ~, (16) 7,853 (7,853) _t,bs9 _ (1~B69) (3,5?3) (3,573) 1,531,461 1,531,461 (93,412) (93,412).:"~-,'l.3Il =1~4:lI..o49-1,4~-,,,76_ -- 1,43~, , !~!:q,:5(j7c $ WM1 6 66

80 CAPITAL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Other Local Revenue Total Revenues $ 41,000 ~~ ::~::4~, 000 Actual Variance Posltlve (Negatl ll,,) _ (14,229) (B",229) Expenditures: Current: Services And Other Operating Expenditures Total Expenditures 40,000 ==40,000 39, ,628 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,000 26,399 25,399 Other Financing Sources (Uses): Total other Financing Sources (Uses) Net Change in Fund Balance -'-'1,000 26,39~ Fund Balance, July 1 Fund Balance, June 30 1,323 $===2,323 The accompanying notes are an Integral part of this statement. 67

81 STATE SCHOOL BUILDING LEASE-PURCHASE FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Olher Local Revenue Total Revenues Budget $ $ Actual 1 1 $ Variance Positive..( Negative). Expenditures: Total Expenditures Excess (Deficiency) of Revenues OVer (Under) Expenditures 1 1 Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change In Fund Balance 1 1 Fund Balance, July 1 Fund Balance, June $~=~.=.==-7-f The accompanying notes are an integral part of this statement. 68

82 COUNTY SCHOOL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Other State Revenue Other Local Revenue Total Revenues Expenditures: Current: Books And Supplies Services And Other Operating Expenditures Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 3D The accompanying notes are an Integral part of this statement. Budge~ $ 250,000 31,446 -~--281,446 ~---,- -_. -,, _.._ ,446 (241,855) (241,855) 39,591 1,461,591 $ 1,501,182 Actual ---- ~ Variance Positive ~Qa_tiveL $ 292,720 $ 42,720 12,628 (18,818) 305,348 23, (128) 1,344 (1,344) - 44,043 (44,043) 259,833 (21,613) (1,721,424) (1,479,569) (1,721,424) (1,479,569) (1,461,591) (1,501,182) 1,461,591 $ $_. (Ui01,1B2) 69

83 SPECIAL RESERVE FUND FOR CAPITAL OUTLA Y PROJECTS CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2011 Revenues: Other Local Revenue Total Revenues $ BiJdget 2,500 2,500~ Actual $ $ Variance Positive (Negative) (1,818) (1,818) Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures 2, j1,8.15l) Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change In Fund Balance 2, _(10818 ) Fund Balance, July 1 Fund Balance, June 30 71,977 $====}~~7! The accompanying notes are an Integral part of this statement. 70

84 OTHER SUPPLEMENTARY INFORMATION SECTION

85 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2011 The Kernville Union School District was established in The District has not made any changes during the year in the school district's boundaries. During the 2010/2011 school year the District operated two elementary schools, one middle school, one community day school and one preschool. The members of the Board of Trustees of the Kernville Union School District holding office during the audit period and their respective expiration dates of terms of office were as follows: BOARD OF TRUSTEES MEMBER Wendy Russ Ross Elliot Thomas Moore Gregory Davis William Staton OFFICE President Clerk Trustee Rep. Member Member TERM EXPIRES November, 2014 November, 2012 November, 2012 November, 2014 November, 2014 ADMINISTRATION Robin Shives Superintendent Tina Foster Chief Business Official

86 SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2011 TABLE 1 ELEMENTARY Second Period Report Annual Report Kindergarten First through Third Fourth through Sixth Seventh and Eighth Special Education Total Elementary Full Time Independent Study ADA SUMMER SCHOOL Elementary o o GENERAL Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint Is to provide Ihe basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and In different programs. Average daily attendance is based on the Second Period Report for the period ending April 15 and the Annual Report for the period ending June 30. See the accompanying Notes to Supplementary Information

87 SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2011 TABLE Minutes Actual Grade Level Requirements Minutes Kindergarten 36,000 31,500 Grade 1 50,400 45,500 Grade 2 50,400 45,500 Grade 3 50, ,500 Grade 4 54,000 52,500 Grade 5 54,000 52,500 Grade 6 54,000 52,500 Grade 7 54,000 61,250 Grade 8 54,000 61,250 Number of Days Actual Traditional Minutes Calendar Status 58, In compliance 52, In compliance 52, In compliance 52, In compliance 61, In compliance 63, In compliance 63, In compliance 61, In compliance 61, In compliance GENERAL The District must maintain their Instructional minutes at either the actual minutes or the requirements, whichever Is greater, as required by Education Code Section The District has received Incentive funding for Increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the Dlstnct complied with the provisions of Education Code Sections through See the accompanying Notes to Supplementary Information

88 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 3D, 2011 TABLE 3 Budget GENERAL FUND Revenues and Other Financial Sources Expenditures $ 7,074,549 $ 7,805,045 -"$_-,-,-,-="-,,,,,- 7,780,705 $ 9,072,590 7,054,377 6,934,196 7,501,338 8,751,918 other Uses and Transfers Out ~O_ 0 35,000 65,680 Total Outgo 7,054,377 6,934,196 7,536,338 8,817,598 Change in Fund Balance (Deficit) Ending Fund Balance Available Reserves (1) Designated for Economic Uncertainties Undesignated Fund Balance Available Reserves as a Percentage of Total Outgo State Recommended Available Reserve Percentage Available Reserves Over (Under) State Recommended Reserve Percentage --=2:::0'-',1"'-'72: , ,367 $ 1,932,485 $ 1,912,313,"$~~~~;., 1, ,763 $ 1,731,373 $ 1,711,201,"$~~~S;;;" 861,763 $ 1,731,373 $ 1,711,201,"$~~~S;;;" 0 ~$======O~ ~$====~O~ ~$====~~ 24.54% 24.68% 11.43% 4.00% 4.00% 4.00% 20.54% 20.68% 7.43% 254,992 $ 797,097 $ 350,277 $ 350,277 $ % 4.00% -0.03% Total Long-Term Debt $ 10,891,938 $ 11,460,980 $ 11,691,442 $ 14,648,891 Average Dally Attendance at P-2 GENERAL This schedule discloses the District's financial trends by displaying past years data with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. (1) Available reserves consist of all undeslgnated fund balances and all funds designated for economic uncertainty contained within the General Fund and Special Reserve Fund, (other than capital outlay projects). General Fund Available reserves have increased by $1,360,924 during the past three years but are anticipated to increase by $20,172 through June 30, Long-Term Debt The District Issued $3,488,371 in General Obligation Bonds "Series A" in 2003/2004. The District Issued $1,015,982 in General Obligation Bonds "Series B' in 2006/2007. The District issued $1,095,645 In General Obligation Bonds "Series C'ln 2007/2008. The District Issued $1,951,197 In General Obligation Bonds "Series D" In 2008/2009. The District also maintains Certificates of Participation obligations of $4,590,000. Attendance Average Daily Attendance (ADA) has decreased by students or 9.62% during the past three years. See the accompanying Notes to Supplementary Information. -74-

89 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2011 TABLE 4 FEDERAL PROGRAM NAME Federal Catalog (CFDA) Number Pass-Through Entity Identifying Number Federal Expen ditures U.S. Department of Education Passed Through the Catifornia Department of Education: ARRA - Title 1 NClB Title I NClB Title II - Improving Teacher Quality NClB Title II - Enhancing Education Through Technology NClB Title X McKinney-Vento Homeless Assistance ARRA - Enhancing Education through Technology IDEA local Assistance AARA Fiscal Stabilization Funds * ARRA - Education Jobs Fund' , ,663 71,123 4,304 28,090 6, , ,743 56,861 U.S. Department of Agriculture Passed Through California Department of Education: National School lunch School Breakfast Pr09ram Forest Reserve N/A 253,541 84,260 2,322 U.S. Department of Health Services Passed Through California Department Health Services: Medi-Cal Billing Option ,131 Total Federal Awards $ 1,363,509 Tested as a major program under OMB Circular A-133. GENERAL The accompanying schedule of expenditures of federal awards includes the federal grant activity of Kemville Union School District and is presented on the modified accrual basis of accounting. The infonnation in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit OrganizaUons. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the general purpose or basic financial statements. See the accompanying Notes to Supplementary Information

90 This page is leftblankinte~tlo~any;. ~-..,

91 TABLES Page 1 of2 SPECIAL RESERVE FUND FOR CHILD DEFERRED OTHER THAN DEVELOPMENT CAFETERIA MAINTENANCE CAFETERIA FUND FUND FUND FUND $ 0 $ 130,461 $ 4,357 $ 5,812 SPECIAL RESERVE FUND FOR POST EMPLOYMENT BENEFITS $ 66, $ 0 $ 130,461 $ 4,357 $ 5,812 $ 66,034 See the accompanying Notes to Supplementary Information

92 This page is left blank intentionally.

93 TABLES Page 2 of2 CAPITAL FACILITIES FUND $ 27,722 $ STATE SCHOOL SPECIAL BUILDING COUNTY RESERVE LEASE I SCHOOL (CAPITAL PURCHASE FACILITIES PROJECTS FUND FUND FUND) 75 $ 0 $ 72, $ 27,722 $ 75 $ 0 $ 72,659 See Ihe accompanying Noles 10 Supplemenlary Information

94 SCHEDULE OF PROPOSITION 10 FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30, 2011 TABLE 6 PROGRAM NAME GRANT PERIOO TOTAL GRANT AMOUNT PRIOR YEAR CURRENT YEAR RECEIPTS AND RECEIPTS AND REVENUE REVENUE CURRENT YEAR RECOGNIZED RECOGNIZED EXPENDITURES CASH DEFERRED REVENUE AT 06/30/11 California Children and Families Act of 1998 (Proposition 10) Kern County Child & Family Services Agency 07/01/09-06/30/11 $ 203,206 $ 0 $ 203,206 $ $203,206 $ 0 Totals $ 0 $ 203,206 $ $203,206 $ 0 See the accompanying Notes to Supplementary Information

95 SCHEDULE OF SCHOOL COMMUNITY VIOLENCE PREVENTION PROGRAM FOR THE YEAR ENDED JUNE 30, 2011 TABLE 7 PROGRAM NAME GRANT PERIOD TOTAL GRANT AMOUNT PRIOR YEAR CURRENT YEAR RECEIPTS AND RECEIPTS AND REVENUE REVENUE CURRENT YEAR RECOGNIZED RECOGNIZED EXPENDITURES CASH DEFERRED REVENUE AT School Community Violence Prevention Program Safe and Strong Schools Program 07101/06-06/30/11 $ 497,495 $ 0 $ 103,791 $ $103,791 $ 0 Totals $ 0 $ 103,791 $ $103,791 $ 0 See the accompanying Notes to Supplementary Information

96 SCHEDULE OF CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2011 TABLES No charter schools are chartered by Kernville Union School District. Charter Schools None Included in Audit? N/A - 82-

97 NOTES TO SUPPLEMENTARY INFORMATION JUNE 30, 2011 NOTE 1 - PURPOSE OF SCHEDULES A. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides Information regarding the attendance of students at various grade levels and In different programs. Average daily attendance is based on the Second Period Report for the period ending April 15, and the Annual Report for the period ending June 30. B. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of Instructional time offered by the District and whether the District complied with the provisions of Educational Code Section through C. Schedule of Financial Trends and Analysis This schedule provides disclosures of financial trends by displaying past years' data along with current year budget Informalion. These disclosures are consistent with the responsibility to evaluate the District's ability to continue as a going concern for a reasonable period of time. D. Schedule of Expenditures of Federal Awards OMB Circular A-133 requires a disclosure of the financial activities of all federally funded programs. To comply with OMB Circular A-133 this schedule was prepared for the District. E. Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the Information necessary to reconcile the fund balances of all funds and the total liabilities of the general long-term debt account group as reported on the Annual Financial and Budget Report to the audited financial statements. F. Schedule of Charter Schools This schedule provides information as to any charter schools charted by the District and whether these charter schools are included in the District's audit report. NOTE 2 - KERN COUNTY CONSORTIUM PARTICIPATION Kernville Union School District is a member of a Kern County Consortium comprised of numerous member schools. The aclivity of the Consortium is to receive, disburse, and account for two of the District's programs: Drug Free Schools Tobacco Use Prevention Education All funds are received directly by the Kern County Superintendent of Schools Office and are pooled together and accounted for and expended on behalf of Its member districts. NOTE 3 - SCHEDULE OF PROPOSITION 10 FINANCIAL ASSISTANCE This schedule provides disclosure required by the California Children and Families Act of 1998 and the Kern County Children and Families Commission pursuant to the Proposilion 10 program specific audit

98 NOTES TO SUPPLEMENTARY INFORMATION JUNE 30, 2011 NOTE 4 - EXCESS SICK LEAVE In the current fiscal year the District did not authorize or accrue any excess sick leave for the superintendent, any other high-level administrator who is a member of CalSTRS or teachers (non-administrators)

99 OTHER INDEPENDENT AUDITOR'S REPORTS

100 BURKEY Cox EVANS & BRADFORD 1058 WEST AVENUE M-14. SunE B PALMDALE. CALIFORNIA TE~ (661) FAX: (661) ACCOUNTANCY CORPORATION 425 W", DnuMMOND AVENUe SUnE A RIDGECREST. CAUFORNIA TEL: (760) FAX: (760) GERALD D. BURKEV, CPA (retired) GARY W. Cox. CPA (<ell,ed) SCOTT EVANS, CPA, CFP, CVA LAURA A. BRADFORD. CPA HAROLD W. MANNING. CPA JANETTE HENRIQUEZ. CPA JAMES MANNIE. CPA MARTHA J. WIlliY, CPA 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 Board of Trustees Kernville Union School Distnct Lake Isabella, California We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District, as of and for the year ended June 3D, 2011, which collectively comprise the Kernville Union School District's basic financial statements and have issued our report thereon dated May 31, We conducted our audit In accordance with auditing standards generally accepted In the United States of Amenca and the standards applicable to financial audits contained in Government Auditing Standards, Issued by the Comptroller General of the United States. Internal Control Over Rnancial Reporting In planning and performing our audit, we considered Kernville Union School Distnct'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 Kernville Union School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Kernville Union School Distnct'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 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 descnbed 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 matenal weaknesses, as defined above. Compliance and other Malters As part of obtaining reasonable assurance about whether Kernville Union School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and matenal effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other malters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and questioned costs as items MEMBER: AMERICAN INSTITUTE AND CALIFORi\1~ SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS