INTERNATIONAL ACADEMY OF FLINT, PSA. REPORT ON FINANCIAL STATEMENTS (with required supplementary and additional supplementary information)

Transcription

1 INTERNATIONAL ACADEMY OF FLINT, PSA REPORT ON FINANCIAL STATEMENTS (with required supplementary and additional supplementary information) YEAR ENDED JUNE 30, 2012

2 TABLE OF CONTENTS Independent Auditor s Report Management s Discussion and Analysis PAGE I - II III - VIII Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Budgetary Comparison Schedules: General Fund 5 Notes to the Financial Statements 6 17 Other Supplemental Schedules: Schedule 1 Schedule of Bonded Indebtness 18 Schedule 2 Bond Covenant Schedule 19

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5 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 This section of the International Academy of Flints' annual financial report presents our discussion and analysis of the Academy's financial performance during the year ended June 30, Please read it in conjunction with the Academy's financial statements, which immediately follow this section. Using this Annual Report This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand International Academy financially as a whole. The Government-wide financial statements provide information about the activities of the whole Academy, presenting both an aggregate view of the Academy's finances and a longer-term view of those finances. The fund financial statements provide the next level of detail. For governmental activities, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements look at the Academy's operations in more detail than the Government-wide financial statements by providing information about the Academy's most significant funds - the General Fund, Debt Service Fund, and Capital Projects Fund, with all other funds presented in one column as nonmajor funds. Management's Discussion and Analysis (MD&A) (Required Supplemental Information) Basic Financial Statements Government-wide Financial Statements Fund Financial Statements Notes to the Basic Financial Statements (Required Supplemental Information) Budgetary Information for Major Funds Other Supplemental Information Reporting the Academy as a Whole - Government-wide Financial Statements One of the most important questions asked about the Academy is, "As a whole, what is the Academy's financial condition as a result of the year's activities?" The statement of net assets and the statement of activities, which appear first in the Academy's financial statements, report information on the Academy as a whole and its activities in a way that helps you answer this question. We prepare these statements to include all assets and liabilities, using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Academy's net assets - the difference between assets and liabilities, as reported in the statement of net assets - as one way to measure the Academy's financial health or financial position. Over time, increases or decreases in the Academy's net assets - as reported in the statement of activities - are indicators of whether its financial health is improving or deteriorating. The relationship between revenues and expenses is the Academy's operating results. However, the Academy's goal is to provide services to our students, not to generate profits as commercial entities do. One must consider many other nonfinancial factors, such as the quality of the education provided and the safety of the schools, to assess the overall health of the Academy. The statement of net assets and the statement of activities report the governmental activities for the Academy, which encompass all of the Academy's services, including instruction, support services, community services, athletics, and food services. Property taxes, unrestricted State aid (foundation allowance revenue), and State and federal grants finance most of these activities. -III-

6 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Reporting the Academy's Most Significant Funds Fund Financial Statements The Academy's fund financial statements provide detailed information about the most significant funds - not the Academy as a whole. Some funds are required to be established by State law and by bond covenants. However, the Academy establishes many other funds to help it control and manage money for particular purposes (the Food Service and Athletics Funds are examples) or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money (such as bond-funded construction funds used for voter-approved capital projects). The governmental funds of the Academy use the following accounting approach: Governmental funds - All of the Academy's services are reported in governmental funds. Governmental fund reporting focuses on showing how money flows into and out of funds and the balances left at year end that are available for spending. They 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 operations of the Academy and the 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 the Academy's programs. We describe the relationship (or differences) between governmental activities (reported in the statement of net assets and the statement of activities) and governmental funds in reconciliation. The Academy as a Whole Recall that the statement of net assets provides the perspective of the Academy as a whole. The following table provides a summary of the Academy's net assets as of June 30, 2012 and 2011: NET ASSETS SUMMARY ASSETS Current Assets $6,950,474 $6,852,436 Non-Current Assets 13,398,237 13,086,016 TOTAL ASSETS $20,348,711 $19,938,452 LIABILITIES Current Liabilities $1,788,298 $2,008,694 Long-Term Liabilities 16,208,992 15,942,512 Total Liabilities $17,997,290 $17,951,206 NET ASSETS Invested in Capital Assets - Net of Related Debt (Deficit) (3,151,629) (3,134,670) Restricted - Capital Projects 755, ,897 Restricted - Debt Service 2,607,737 2,473,061 Restricted - Food Service 280,550 49,845 Unrestricted 1,859,362 2,002,113 Total Net Assets $2,351,421 $1,987,246 TOTAL LIABILITIES AND NET ASSETS $20,348,711 $19,938,452 -IV-

7 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 RESULTS OF OPERATIONS: For the fiscal years ended June 30, 2012 and 2011, the District wide results of operations were: REVENUES General Revenues: State Sources - Unrestricted $8,066,948 $8,607,749 Federal Sources - Unrestricted 126, ,114 Other General Revenues 174, ,640 Total General Revenues $8,368,073 $8,952,503 Operating Grants: Federal 1,759,779 2,063,857 State of Michigan 709, ,215 Other 118, ,346 Total Operating Grants $2,587,728 $2,796,418 Charges for Services: Food Service 59,117 98,265 Athletics 41,526 34,247 Other Charges for Services 13,483 10,028 Total Charges for Services $114,126 $142,540 Total Revenues $11,069,927 $11,891,461 EXPENSES Instruction & Instructional Support 4,349,002 4,458,693 Support Services 4,440,628 4,343,740 Community Services 72, ,068 Food Service 398, ,223 Interest 919, ,009 Depreciation 525, ,143 Total Expenses $10,705,752 $10,869,876 INCREASE IN NET ASSETS $364,175 $1,021,585 BEGINNING NET ASSETS 1,987, ,661 ENDING NET ASSETS $2,351,421 $1,987,246 -V-

8 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 GOVERNMENT- WIDE FINANCIAL ANALYSIS Analysis of Financial Position: During the year ended June 30, 2012, the District s Total Net Assets increased by $364,175 to a total of $2,351,421. The largest portion of the net assets are the District s investment in capital assets. Net assets (invested in capital assets, net of related debt) decreased by $16,959 during the year due to depreciation exceeding the purchase of new capital assets and principal payments on related debt. The districts Unrestricted Net Assets decreased by $142,751 during the year and the restricted portion of the net assets increased by $523,885. The restricted Net Assets consist of the Investment in Capital Assets-net of related debt. The unrestricted net assets may be used to fund the educational services provided to students. The significant changes in unrestricted net assets was the general fund expenditures exceeding revenues. Analysis of Results of Operations The District s overall revenues exceeded expenses for the year by $364,175. The total revenues decreased by $821,534 or 7% over last year s amounts. The major changes were decreases in state aid and federal grants. Expenditures decreased by $164,124 or 1% over last year s amounts. Major changes were due to conservative approaches to budgeting and reductions in staffing as well as extra-curricular programming. FINANCIAL ANALYSIS OF GOVERNMENT S FUNDS GOVERNMENTAL FUNDS Analysis of Financial Position The focus of the District s governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the district s financing requirements. In particular, unreserved fund balance may serve as a useful measure of government s net resources available for spending at the end of the fiscal year. An analysis of changes for the governmental funds is as follows: General Fund The district s general fund is the chief operating fund of the district. Unreserved fund balance for the general fund increased by $62,241 during the year with the increase coming primarily in cash. Revenues for the year decreased by $896,124 primarily from decreases in state aid and federal grants. Expenditures and other financing uses decreased by $419,450, primarily from reductions in staff and program expenses. The major source of general fund revenues is state aid. An analysis follows: 1. Per Student, Foundation Allowance: Annually, the State of Michigan establishes the per student foundation allowance. The International Academy of Flint, PSA foundation allowance was $7,110 per student for the school year. 2. Student Enrollment: The District s student enrollment for the fall count of was 1,148 students. A decrease of 45 students from the prior year. GENERAL FUND BUDGETARY HIGHLIGHTS: GENERAL FUND BUDGET VS. ACTUAL Variance Original & Final Variance Actual Fiscal Year Original Budget Final Budget Actual Budget % & Final Budget % Revenue $10,624,783 $10,570,007 $10,541, Expenditures 10,810,269 10,625,833 10,479, TOTAL ($185,486) ($55,826) $62,241 -VI-

9 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 ANALYSIS OF BUDGETS: The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to July 1, the start of the fiscal year. As a matter of practice, International Academy of Flint, PSA amends its budget during the school year. The June, 2012 budget amendment was the final budget for the fiscal year. Original vs. Final Budgets Revenues There was no significant variance between the original and final budget. Expenditures Variations between the original and final budget were due to mid-year adjustments based on actual revenues and expense. Actual Results vs. Final Budgets Revenues There was no significant variance between the final budget and actual revenues. Expenditures Changes between actual expenditures and the final budget were due to conservative spending in addition to the allocation of summer school expense to the subsequent year. CAPITAL ASSET AND DEBT ADMINISTRATION A. Debt, Principal Payments The District made principal payments on bonded, long term debt obligations that reduced the amount of the District s long term liabilities as follows: Principal Balance Beginning Increases Principal Payments & Deductions Principal Balance Ending Bonds $16,540,000 $0 $290,000 $16,250,000 Issuance Discount (319,314) 11,826 0 (307,488) Installment Contract 0 622,625 15, ,354 Total Long-Term Debt $16,220,686 $634,451 $305,271 $16,549,866 In August 2011 the District entered into a installment contract with Siemens Financial Services, Inc. in the amount of $622,625 for the installment of lighting retrofits and HVAC upgrades. The contract calls for 127 monthly payments of $6,928 including interest at 6.05% per annum. The balance at June 30, 2012 was $607,354. Payments on this debt are recorded in the District s Capital Project Fund. -VII-

10 INTERNATIONAL ACADEMY OF FLINT, PSA MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 CAPITAL ASSET AND DEBT ADMINISTRATION (Continued) B. Capital Assets The district s net investment in capital assets increased by $312,221 during the fiscal year. This can be summarized as follows: Balance Balance Beginning Additions Deductions Ending Capital Assets $14,759,651 $837,477 $0 $15,597,128 Less: Accumulated Depreciation (1,673,635) (525,256) 0 (2,198,891) Net Investment Capital Outlay $13,086,016 $312,221 $0 $13,398,237 Significant additions were due to the installation of energy improvements. ECONOMIC FACTORS AND NEXT YEAR S BUDGET AND RATES State Aid The foundation amount for the school year is expected to remain the same per student. The district's September 2012 enrollment is expected to remain consistent. Retirement Rates The continuing cost of health insurance to current and potential retirees continues to drive the rate increases the Michigan School Employees Retirement System recommends to the legislature for approval. At the time the budget was adopted the rate was anticipated to increase to 27.37% from 24.46% effective October 1, The legislature has subsequently adopted a retirement reform package which calls for the retirement rate to remain at 24.46% for the year. The International Academy of Flint, PSA 2012/2013 adopted budget is as follows: REVENUE $10,208,485 EXPENDITURES 10,208,485 NET (UNDER) BUDGET $0 CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens and taxpayers with a general overview of the District s finances. If you have questions about this report or need additional information, contact the Board Liaison Officer, International Academy of Flint, PSA. -VIII-

11 INTERNATIONAL ACADEMY OF FLINT, PSA STATEMENT OF NET ASSETS AS OF JUNE 30, 2012 Governmental Activities ASSETS CURRENT ASSETS Cash and Cash Equivalents $4,874,528 Due from Other Governmental Units 2,073,304 Prepaid Expenses 2,642 Total Current Assets $6,950,474 NON-CURRENT ASSETS Land 242,676 Capital Assets 15,354,452 Less: Accumulated Depreciation (2,198,891) Total Noncurrent Assets $13,398,237 TOTAL ASSETS $20,348,711 LIABILITIES CURRENT LIABILITIES Accounts Payable $1,241,927 Accrued Expenses 150,517 Deferred Revenue 54,980 Current Portion of Long-Term Obligations 340,874 Total Current Liabilities $1,788,298 NON-CURRENT LIABILITIES Noncurrent Portion of Long-Term Obligations 16,208,992 TOTAL LIABILITIES $17,997,290 NET ASSETS NET ASSETS Invested in Capital Assets, Net of Related Debt (Deficit) (3,151,629) Restricted for: Debt Service 2,607,737 Capital Projects 755,401 Food Service 280,550 Unrestricted 1,859,362 TOTAL NET ASSETS $2,351,421 TOTAL LIABILITIES AND NET ASSETS $20,348,711 See accompanying notes to the basic financial statements. -1-

12 INTERNATIONAL ACADEMY OF FLINT, PSA STATEMENT OF ACTIVITIES Program Revenues Net (Expense) Operating Revenue & Charges For Grants and Change in FUNCTIONS/PROGRAMS Expenses Services Contributions Net Assets Governmental Activities: Instruction $4,349,002 $13,483 $2,071,701 ($2,263,818) Support Services 4,440,628 41,526 21,662 (4,377,440) Community Services 72, (72,563) Food Service 398,543 59, , ,939 Interest - Long-Term Obligations 919, (919,760) Depreciation - Unallocated 525, (525,256) TOTALS $10,705,752 $114,126 $2,587,728 ($8,003,898) General Revenues: State Sources - Unrestricted 8,066,948 Federal Sources - Unrestricted 126,367 Interest 5,152 Other General Revenues 169,606 Total General Revenues and Transfers $8,368,073 Change in Net Assets $364,175 Net Assets - Beginning 1,987,246 Net Assets - Ending $2,351,421 See accompanying notes to the basic financial statements. -2-

13 INTERNATIONAL ACADEMY OF FLINT, PSA BALANCE SHEET GOVERNMENTAL FUNDS AS OF JUNE 30, 2012 Non-Major Capital General Debt Capital Improvement Fund Service Projects Fund ASSETS Cash and Cash Equivalents $1,423,666 $2,387,737 $725,526 $58,733 Due from Other Funds 0 220, Due from Other Governmental Units 2,051, Prepaid Expenditures 2, TOTAL ASSETS $3,477,599 $2,607,737 $725,526 $58,733 LIABILITIES Accounts Payable $1,192,740 $0 $3,500 $25,358 Due to Other Funds 220, Deferred Revenue 54, Total Liabilities $1,467,720 $0 $3,500 $25,358 FUND BALANCES Non-Spendable Prepaid Expenditures 2, Restricted Debt Retirement 0 2,607, Capital Projects ,026 33,375 Food Service Unassigned 2,007, Total Fund Balances $2,009,879 $2,607,737 $722,026 $33,375 TOTAL LIABILITIES AND FUND BALANCES $3,477,599 $2,607,737 $725,526 $58,733 See accompanying notes to the basic financial statements. -3-

14 INTERNATIONAL ACADEMY OF FLINT, PSA RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES AS OF JUNE 30, 2012 Non-Major Total Governmental Fund Balances: $5,653,567 Food Total Service Governmental Amounts reported for governmental activities in the statement of Fund Funds net assets are different because: $278,866 $4,874,528 Capital assets used in governmental activities are not 0 220,000 financial resources and therefore are not reported as 22,013 2,073,304 assets in governmental resources and therefore 0 2,642 are not reported as assets in governmental funds. The cost of the assets is $15,597,128 and the $300,879 $7,170,474 accumulated depreciation is $2,198,891 13,398,237 Accrued Interest on Long-Term Debt (150,517) $20,329 $1,241,927 Long-term liabilities, including bonds payable, are not 0 220,000 due and payable in the current period and therefore 0 54,980 are not reported as liabilities in the funds. $20,329 $1,516,907 Long-term liabilities at year end consist of: Bonds Payable Including Premium & Deferred Charges $16,250,000 Issuance Discount (307,488) 0 2,642 Installment Contract 607,354 Total Long-Term Liabilities (16,549,866) 0 2,607, ,401 TOTAL NET ASSETS - 280, ,550 GOVERNMENTAL ACTIVITIES $2,351, ,007,237 $280,550 $5,653,567 $300,879 $7,170,474

15 INTERNATIONAL ACADEMY OF FLINT, PSA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Non-Major Capital General Debt Capital Improvement Fund Service Projects Fund REVENUES Local Sources $249,727 $1,011 $255 $6 State Sources 8,754, Federal Sources 1,414, Total Revenues $10,417,865 $1,011 $255 $6 EXPENDITURES Current: Instruction 4,349, Support Services 4,342, Food Services Community Services 72, Debt Service Principal 0 290, Interest 0 910, Capital Outlay ,475 0 Total Expenditures $8,764,269 $1,200,350 $899,475 $0 Excess (Deficiency) of Revenues Over (Under) Expenditures $1,653,596 ($1,199,339) ($899,220) $6 OTHER FINANCING SOURCES (USES) Transfers from (to) Other Funds (1,687,231) 1,334, ,450 0 Transfers from Other Governmental Unit 96, Loan Proceeds ,625 Other Transfers (1,002) 0 (49,765) 0 Total Other Financing Sources (Uses) ($1,591,355) $1,334,015 $850,310 $0 Net Change in Fund Balance $62,241 $134,676 ($48,910) $6 FUND BALANCE - BEGINNING - 1,947,638 2,473, ,936 33,369 FUND BALANCE - ENDING $2,009,879 $2,607,737 $722,026 $33,375 See accompanying notes to the basic financial statements. -4-

16 Non-Major Total net change in fund balances - governmental funds $378,718 Food Total Service Governmental Amounts reported for governmental activities in the statement of Fund Funds activities are different because: $59,117 $310,116 Governmental funds report capital outlays as expenditures. 22,290 8,776,357 However, in the statement of activities, the cost of those assets 472,075 1,886,146 is allocated over their estimated useful lives as depreciation $553,482 $10,972,619 expense. This is allocated the amount by which depreciation exceeded capital outlay in the current period. 312,221 Repayment of bond principal is an expenditure in the governmental 0 4,349,002 funds, but the repayment reduces long-term liabilities in the 0 4,342,704 statement of net assets. This is the amount of repayments 398, ,543 reported as expenditures in the governmental funds. 290, ,563 Proceeds from Installment Contract (622,625) 0 290, ,350 Payments on Installment Contract 15, ,475 $398,543 $11,262,637 Change in accrued interest on long-term liabilities 2,416 $154,939 ($290,018) Underwriter's discount/premium reported as expenditures/ revenue in the funds and amortized in the statement of activities. (11,826) 75, ,878 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $364, ,625 0 (50,767) $75,766 $668,736 $230,705 $378,718 49,845 83,214 $280,550 $461,932 INTERNATIONAL ACADEMY OF FLINT, PSA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

17 INTERNATIONAL ACADEMY OF FLINT, PSA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND Budgeted Amounts Variance With Original Final Actual Final Budget REVENUES Local Sources $276,481 $285,435 $249,727 ($35,708) State Sources 8,990,076 8,792,726 8,754,067 (38,659) Federal Sources 1,190,948 1,412,813 1,414,071 1,258 Total Revenues $10,457,505 $10,490,974 $10,417,865 ($73,109) OTHER FINANCING SOURCES Transfers from Other Funds 26,275 Transfers from Other Governmental Units 96,878 Other Transfers 430 Total Other Financing Sources 167,278 79,033 $123,583 44,550 Total Other Revenues and Other Financing Sources $10,624,783 $10,570,007 $10,541,448 ($28,559) EXPENDITURES Current: Instruction 4,457,538 4,271,771 4,349,002 (77,231) Student Services 554, , ,332 (31,286) Instructional Support 632, , ,317 47,926 General Administration 1,580,713 1,497,504 1,336, ,700 School Administration 336, , ,798 30,944 Business Administration 130, , ,879 6,272 Operation & Maintenance of Plant 685, , ,388 12,375 Transportation 85, , ,376 (4,572) Support Services - Other 350, , ,810 (97,990) Community Services 173, ,758 72, ,195 Total Expenditures $8,986,254 $8,938,602 $8,764,269 $174,333 OTHER FINANCING USES Transfers to Other Funds 1,824,015 1,687,231 1,713,506 (26,275) Other Transfers 0 0 1,432 (1,432) Total Other Financing Uses $1,824,015 $1,687,231 $1,714,938 ($27,707) Total Expenditures and Other Financing Uses $10,810,269 $10,625,833 $10,479,207 $146,626 Net Change in Fund Balance ($185,486) ($55,826) $62,241 $118,067 FUND BALANCE - BEGINNING 1,947,638 FUND BALANCE - ENDING $2,009,879 See accompanying notes to the basic financial statements. -5-

18 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the International Academy of Flint, PSA (the "Academy") conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The following is a summary of the significant accounting policies used by the Academy: Reporting Entity The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational financial relationships that determine which of the governmental organizations are a part of the Academy's reporting entity, and which organizations are legally separate, component units of the Academy. Based on the application of the criteria, the Academy does not contain any component units. Reporting Entity The Academy was formed as a charter school academy pursuant to the Michigan School Code of 1976, as amended by Act No. 362 of the Public Acts of 1993 and Act No. 416 of the Public Acts of The Academy received its initial charter approval from Central Michigan University (CMU) on August 17, Contract with the Management Company - The Academy entered into a management agreement with Flint Educational Management, LLC commencing July 1, 2007 and expired June 30, Under the terms of that management agreement, Flint Educational Management, LLC (FEM) manages and operates the Academy. When the Academy's Fund Balance is greater than $500,000, FEM received 97 percent rather than 95 percent of the state school aid received by the Academy after a 3 percent administration fee is deducted by CMU. FEM is responsible for reporting to the Academy's Board, the expenditures made in accordance with the budget adopted by the Board. FEM retained any management fees in excess of expenditures and the Academy was not liable to fund any deficits incurred by FEM. The expenditures made by FEM are categorized according to function as defined by state educational guidelines in the financial statements of the Academy. The amount paid to FEM for management fees for the year ended June 30, 2012 was $468,961. The amount paid to CMU for oversight fees was $240,803. Beginning July 1, 2012 through June 30, 2017, the fees paid to FEM shall be as follows: Fees paid to the Education Provider shall be identified as line items in the Operating Budget to include a Management Fee. Management Fees shall consists of up to 10 percent (10%) of the Student Foundation Payment. Such fee shall apply so long as funds are available in the budget to do so. However, in no event shall the minimum Management fee be less than $500,000, nor shall the maximum Management Fee be more than $1,000,000. Management Fees shall be calculated on the first pupil day count of each academic year and adjusted on the second pupil count day of that academic year suing the formula set forth in the State School Aid Act of 1979m as amended. The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. All of the Academy's government-wide activities are considered governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenue includes (I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes, intergovernmental payments, and other items not properly included among program revenues are reported instead as general revenue. -6-

19 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All of the Academy's government-wide activities are considered governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenue includes (I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes, intergovernmental payments, and other items not properly included among program revenues are reported instead as general revenue. Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. Measurement Focus. Basis of Accounting, and Financial Statement Presentation Government-wide Financial Statements - The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants, categorical aid, and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Amounts reported as program revenue include (I) charges to customers or applicants for goods, services, or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions. Internally dedicated resources are reported as general revenue rather than as program revenue. Likewise, general revenue includes all taxes and unrestricted state aid. Fund Financial Statements - Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Academy considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Unrestricted state aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be available, as they are collected within 60 days of year end, and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be available only when cash is received by the Academy. -7-

20 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Academy reports the following major governmental funds: General Fund - The General Fund is the Academy's primary operating fund. It accounts for all financial resources of the Academy, except those required to be accounted for in another fund. Capital Projects Fund - The Capital Projects Fund is used to record bond proceeds or other revenue and the disbursement of invoices specifically designated for acquiring new school sites, buildings, equipment, and for remodeling. The fund operates until the purpose for which it was created is accomplished. For this fund, the School District has complied with the applicable provisions of 1212(1) of the Revised School Code and the applicable section of the Revised Bulletin for School District audits of Bonded Construction Funds. Debt Service Fund - The Debt Service Fund is used to record tax, interest, other revenue for payment of interest, principal, and other expenditures on the 2008 bond issue. Additionally, the Academy reports the following fund types: Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted to expenditure for specified purposes. The Academy's Special Revenue Funds include the Food Services Funds. Any operating deficit generated by these activities is the responsibility of the General Fund. Capital Improvement Fund - The Capital Improvement Fund is used to account for the facility use fund that is set aside each year to pay for future repairs and improvements of the building. Assets. Liabilities, and Net Assets or Equity Cash and Investments - Cash and investments include cash on hand, demand deposits, and short-term investments with a maturity of three months or less when acquired. Investments are stated at fair value. Receivables and Payables - In general, outstanding balances between funds are reported as "due to/from other funds." Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as "advances to/from other funds." All trade receivables are shown net of an allowance for uncollectible amounts. The Academy considers all receivables to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. The State of Michigan utilized a foundation allowance approach, which provides for specific annual amount of revenue per student based on a state-wide formula. The foundation allowance is funded from a combination of state and local sources. Revenues from state sources are primarily governed by the School Aid Act and the School Code of Michigan. The state portion of the foundation is provided from the state's School Aid Fund and is recognized as revenue in accordance with state law and accounting principles generally accepted in the United States of America. Prepaid Costs - Certain payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid costs in both government-wide and fund financial statements. Restricted Net Assets - When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Academy's policy is to first apply restricted resources. -8-

21 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets - Capital assets, which include land, buildings, equipment, and vehicles, are reported in the applicable governmental column in the government-wide financial statements. Capital assets are defined by the Academy as assets with an initial individual cost of more than $ 5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair and maintenance that do not add to the value or materially extend asset life are not capitalized. The Academy does not have infrastructure-type assets. Buildings, equipment, and vehicles are depreciated using the straight-line method over the following useful lives: Buildings and improvements Land improvements Furniture and other equipment 20 to 50 years 10 to 20 years 5 to 10 years 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 effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and are amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issuance costs are reported as debt service expenditures. Fund Balance - The District implemented, Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. Fund balances for each of the District's governmental funds (General Fund, special revenue funds, capital projects funds, and debt service funds) are displayed in the following classifications depicting the relative strength of the spending constraints placed on the purposes for which resources can be used: * Nonspendable fund balance - amounts that cannot be spent because they are either not in a spendable form (such as inventories and prepaid amounts) or are legally or contractually required to be maintained intact. * Restricted fund balance - amounts that can be spent only for specific purposes because of constraints imposed by external providers (such as grantors, bondholders, and higher levels of government), or imposed by constitutional provisions or enabling legislation. The District s Capital Projects Fund, Debt Service Fund and Food Service balances are considered restricted. * Committed fund balance - amounts that can be spent only for specific purposes determined by a formal action resolution of the District s highest level of decision-making authority, the Board of Education. * Assigned fund balance - amounts the District intends to use for specific purposes that do not meet the criteria to be classified as restricted or committed. The intent is expressed by the Board of Education. -9-

22 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) * Unassigned fund balance - amounts that are available for any purpose; these amounts can be reported only in the District's General Fund. The District would typically use restricted fund balance first, followed by committed resources, and then assigned resources as appropriate opportunities arise, but reserve the right to selectively spend unassigned resources first to defer the use of these classified funds. 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2) STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information - Annual budgets are adopted on a basis consistent with generally accepted accounting principles and state law for the General Fund and all Special Revenue Funds. All annual appropriations lapse at fiscal year end. The budget document presents information by fund and function. The legal level of budgetary control adopted by the governing body is the functional level. State law requires the Academy to have its budget in place by July 1. Expenditures in excess of amounts budgeted are a violation of Michigan law. State law permits districts to amend their budgets during the year. During the year, the budget was amended in a legally permissible manner. The Academy increased budgeted amounts during the year in response to updated awards from the state and other governmental entities during the fiscal school year, as well as the purchase of land. Excess of Expenditures Over Appropriations in Budgeted Funds - During the year, the Academy incurred expenditures in the General Fund which were in excess of the amounts budgeted, as follows: Budget Actual Instruction $ 4,271,771 $ 4,349,002 Student Services 550, ,332 Transportation 219, ,376 Support Services Other 360, ,810 Other Financing Uses 1,687,231 1,174,938 3) DEPOSITS AND INVESTMENTS As of June 30, 2012, the District no investments. Interest rate risk. In accordance with its investment policy, the District will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market; and, investing operating funds primarily in shorterterm securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the District s cash requirements. Credit risk. State law limits investments in commercial paper and corporate bonds to a prime or better rating issued by nationally recognized statistical rating organizations (NRSROs). As of June 30, 2012, the District s investment in the investment pool was rated AAA by Standards & Poor s and AAA by Moody s Investors Service. -10-

23 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 3) DEPOSITS AND INVESTMENTS (Continued) Concentration of credit risk. The District will minimize concentration of credit risk, which is the risk of loss attributed to the magnitude of the Academy s investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. Custodial credit risk deposits. In the case of deposits, this is the risk that in the event of a bank failure, the Academy s deposits may not be returned to it. As of June 30, 2012, $2,737,089 of the Academy s bank balance of $4,930,654 was exposed to custodial credit risk. Custodial credit risk investments. For an investment, this is the risk that, in the event of the failure of the counterparty, the Academy will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Academy will minimize custodial credit risk, which is the risk of loss due to the failure of the security issuer or backer, by; limiting investments to the types of securities allowed by law; and pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the Academy will do business. Foreign currency risk. The Academy is not authorized to invest in investments which have this type of risk. The above amounts as previously report in Note 3: Deposits $ 4,874,528 4) RECEIVABLES Receivables at June 30, 2012, consist of taxes, accounts (fees), intergovernmental grants and interest. All receivables are considered collectible in full due to the ability to foreclose for the nonpayment of taxes, the stable condition of State programs, and the current year guarantee of federal funds. A summary of the principal items of intergovernmental receivables (due from other governmental units) follows: GOVERNMENTAL ACTIVITIES AMOUNT State Aid $ 1,604,200 Federal 442,982 Other 26,122 TOTAL $ 2,073,

24 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 5) CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2012, was as follows: Balance Balance Beginning Additions Deductions Ending GOVERNMENTAL ACTIVITIES Land $235,137 $7,539 $0 $242,676 Buildings and Improvements 11,236, , ,066,628 Land Improvements 572, ,629 Equipment and Furniture 2,715, ,715,195 Totals at Historical Cost $14,759,651 $837,477 $0 $15,597,128 Less: Accumulated Depreciation Buildings and Improvements (790,107) (225,105) 0 (1,015,212) Land Improvements (81,298) (29,593) 0 (110,891) Equipment and Furniture (802,230) (270,558) 0 (1,072,788) Total Accumulated Depreciation ($1,673,635) ($525,256) $0 ($2,198,891) GOVERNMENTAL ACTIVITIES CAPITAL ASSETS - NET $13,086,016 $312,221 $0 $13,398,237 Depreciation expense was not charged to activities as the Academy considers its assets to impact multiple activities and allocation is not practical. 6) INTERFUND ACTIVITY Interfund balances at June 30, 2012 consisted of the following: DUE TO DUE FROM Debt Service General Fund $220,000 These balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting systems, and (3) payments between funds are made. 7) INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2012, consisted of the following: TRANSFERS TO TRANSFERS FROM General Debt Fund Service Total Food Service $75,766 $0 $75,766 Debt Service Fund 1,334, ,334,015 Capital Projects 277, ,567 TOTAL $1,687,231 $117 $1,687,348 These Transfers made from the capital improvement fund to the debt service are required to satisfy bond covenants and are earmarked for meeting principal requirements of outstanding bonds. -12-

25 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 8) OPERATING LEASES Flint Education Management, LLC makes lease payments on behalf of International Academy of Flint (the lease holder) for the copier equipment at a monthly rate of $2,075. The financial obligation for the copier is paid by Flint Education Management, LLC, pursuant to the educational service provider agreement. The leases are classified as operating leases. Lease expense related to equipment for the year ended June 30, 2012 totaled $26,109. The future minimum payments are as follows: YEAR ENDED JUNE 30, AMOUNT 2013 $ 24, ,580 TOTAL $ 27,474 9) GENERAL LONG-TERM DEBT The Academy issues bonds, notes, and other contractual commitments to provide for the acquisition and construction of major capital facilities and the acquisition of certain equipment. General obligation bonds are direct obligations and pledge the full faith and credit of the Academy. Notes and installment purchase agreements are also general obligations of the Academy. Other long-term obligations include compensated absences, claims and judgments, termination benefits, and certain risk liabilities. A) General Obligation Bonds $17,175,000 serial bonds due in annual installments of $265,000 to $1,140,000 through October 1, 2037; interest at 5.0% % $ 16,250,000 Future Revenues Pledged for Debt Payment - The Academy has pledged a portion of revenue from the state foundation grant to be transferred to the debt service fund each year for the payment of the above bonds. Proceeds from the bonds provided financing for the purchase and addition to the school building. B) Installment Contract In August 2011 the District entered into a installment contract with Siemens Financial Services, Inc. in the amount of $622,625 for the installment of lighting retrofits and HVAC upgrades. The contract calls for 127 monthly payments of $6,928 including interest at 6.05% per annum. The balance at June 30, 2012 was $607,354. Payments on this debt are recorded in the District s Capital Project Fund. C) Changes in General Long-Term Debt Balance Balance Amount Due Governmental Activities: Beginning Additions Deductions Ending in One Year Bonds $16,540,000 $0 $290,000 $16,250,000 $305,000 Issuance Discount (319,314) 11,826 0 (307,488) (11,826) Installment Contract 0 622,625 15, ,354 47,700 Total Governmental Activities $16,220,686 $634,451 $305,271 $16,549,866 $340,

26 INTERNATIONAL ACADEMY OF FLINT, PSA - FLINT, MICHIGAN NOTES TO FINANCIAL STATEMENTS 9) GENERAL LONG-TERM DEBT (Continued) D) Annual Principal Requirements The annual principal requirements for all debts outstanding as of June 30, 2012 are as follows: Bonds Installment Payable Contract Interest Total June 30, 2013 $305,000 $47,700 $938,537 $1,291,237 June 30, ,000 50, ,319 1,290,986 June 30, ,000 53, ,168 1,284,987 June 30, ,000 57, ,320 1,283,487 June 30, ,000 60, ,514 1,291,237 June 30, ,150, ,278 3,936,178 6,423,456 June 30, ,795, ,238,157 6,033,157 June 30, ,660, ,370,825 6,030,825 June 30, ,835, ,193,986 6,028,986 June 30, ,140, ,550 1,205,550 TOTAL $16,250,000 $607,354 $15,306,554 $32,163,908 The interest expenditures on long-term obligations for the year were $941, ) RISK MANAGEMENT The Academy is exposed to various risks of loss related to property loss, torts, errors and omissions, and employee injuries (workers' compensation), as well as medical benefits provided to employees. The risk of employee injuries and medical benefits for employees of the management company are covered by insurance held by the management company. The Academy has purchased commercial insurance for all other claims. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage since inception. The shared-risk pool program in which the Academy participates operates as a common risk-sharing management program for school districts in Michigan; member premiums are used to purchase commercial excess insurance coverage and to pay member claims in excess of deductible amounts. 11) DEFINED BENEFIT PENSION PLAN Plan Description The District participates in the statewide Michigan Public School Employees' Retirement System (MPSERS), a cost sharing multiple-employer state-wide defined benefit public employee retirement plan governed by the State of Michigan. The MPSERS provides retirement survivor and disability benefits and postretirement benefits for health, dental and vision for substantially all employees of the District. The MPSERS was established by Public Act 136 of 1945 and operated under the provisions of Public Act 300 of 1980, as amended. The MPSERS issues a publicly available financial report that includes financial statements and required supplementary information for MPSERS. That report may be obtained by writing to Michigan Public School Employees Retirement System, P.O. Box 30171, Lansing, Michigan or by calling (800) It is also available at