OFFICIAL STATEMENT UNIFIED SCHOOL DISTRICT NO. 313 RENO COUNTY, KANSAS (BUHLER) $3,080,000 TAXABLE GENERAL OBLIGATION REFUNDING BONDS SERIES 2012-B

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1 BOOK-ENTRY ONLY OFFICIAL STATEMENT RATING: MOODY S: A2 In the opinion of Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), the interest on the Series 2012-A Bonds (including any original issue discount properly allocable to an owner thereof) is: (a) excluded from gross income for federal income tax purposes; and (b) not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations. The interest on the Bonds is exempt from income taxation by the State of Kansas. The Series 2012-A Bonds have not been designated as qualified tax-exempt obligations within the meaning of Code 265(b)(3). The stated interest on the Series 2012-B Bonds is included in gross income as interest for federal income tax purposes. See TAX MATTERS Opinion of Bond Counsel herein. UNIFIED SCHOOL DISTRICT NO. 313 RENO COUNTY, KANSAS (BUHLER) $44,995,000 GENERAL OBLIGATION BONDS SERIES 2012-A Dated: Date of Delivery $3,080,000 TAXABLE GENERAL OBLIGATION REFUNDING BONDS SERIES 2012-B Due: September 1, As shown on inside cover The General Obligation Bonds, Series 2012-A (the Series 2012-A Bonds ) and the Taxable General Obligation Refunding Bonds, Series 2012-B (the Series 2012-B Bonds ) (collectively the Bonds or the Series 2012 Bonds ) will be issued by the Unified School District No. 313, Reno County, Kansas (Buhler) (the District or the Issuer ), as fully registered bonds, without coupons, and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denominations of $5,000 or any integral multiple thereof (the "Authorized Denomination"). Purchasers will not receive certificates representing their interests in Bonds purchased. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bond owners or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners (as herein defined) of the Bonds. Principal of the Series 2012-A Bonds will be payable annually on September 1, beginning in Principal of the Series 2012-B Bonds will be payable annually on September 1, beginning in Semiannual interest on the Bonds will be payable on March 1 and September 1, beginning on March 1, 2013 (the Interest Payment Dates ). Principal will be payable upon presentation and surrender of the Bonds by the registered owners thereof at the office of the First National Bank of Hutchinson, Hutchinson, Kansas, as paying agent and bond registrar (the "Paying Agent" and "Bond Registrar"). Interest payable on each Bond shall be paid to the persons who are the registered owners of the Bonds as of the close of business on the fifteenth day (whether or not a business day) of the calendar month preceding each interest payment date by check or draft of the Paying Agent mailed to such registered owner or, in the case of an interest payment to a registered owner of $500,000 or more in aggregate principal amount of Bonds, by electronic transfer. So long as DTC or its nominee, Cede & Co., is the Owner of the Bonds, such payments will be made directly to DTC. DTC is expected, in turn, to remit such principal and interest to the DTC Participants (herein defined) for subsequent disbursement to the Beneficial Owners. The Bonds and the interest thereon will constitute general obligations of the Issuer, payable from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the Issuer. See THE BONDS-Security for the Bonds" herein. The Series 2012-A Bonds maturing on September 1, 2023 and thereafter will be subject to redemption prior to maturity at the option of the Issuer on September 1, 2022 and any date thereafter, in whole or in part, at the redemption price of par, plus accrued interest to the date of redemption as more fully described herein. The Series 2012-B Bonds are not subject to optional redemption prior to their stated maturity. See THE BONDS-Redemption Provisions herein. The Bonds are offered when, as and if issued by the District, subject to the approval of legality by Gilmore & Bell, P.C., Wichita, Kansas, Bond Counsel. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about on or about August 30, The date of this Official Statement is July 19, 2012.

2 UNIFIED SCHOOL DISTRICT NO. 313 RENO COUNTY, KANSAS (BUHLER) $44,995,000 GENERAL OBLIGATION BONDS SERIES 2012-A $3,080,000 TAXABLE GENERAL OBLIGATION REFUNDING BONDS SERIES 2012-B MATURITY SCHEDULE Dated: Date of Delivery Due: September 1, as shown below SERIES 2012-A BONDS SERIAL BONDS Stated Maturity September 1 Principal Amount Interest Rate Yield CUSIP (1) 2020 $695, % 2.150% CZ ,175, % 2.340% DA ,310, % 2.480% DB ,455, % 2.810% DC ,600, % 2.940% DD ,760, % 3.080% DE ,930, % 3.160% DF ,610, % 3.340% DG , % 3.240% DN ,780, % 3.420% DH , % 3.320% DP ,970, % 3.490% DJ , % 3.390% DQ ,665, % 3.460% DK ,885, % 3.530% DL ,120, % 3.590% DM2 TERM BONDS Stated Maturity Principal Interest September 1 Amount Rate Yield CUSIP (1) 2037 $19,540, % 4.040% DS9 SERIES 2012-B BONDS SERIAL BONDS Stated Maturity September 1 Principal Amount Interest Rate Yield CUSIP (1) 2017 $825, % 1.749% DT , % 2.010% DU , % 2.260% DV , % 2.529% DR1 (All plus accrued interest, if any) (1) CUSIP numbers have been assigned to this issue by Standard & Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc., and are included solely for the convenience of the Owners of the Bonds. Neither the Issuer nor the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth above.

3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE BONDS ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION. THE REGISTRATION, QUALIFICATION OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE JURISDICTIONS NOR ANY OF THEIR AGENCIES HAVE GUARANTEED OR PASSED UPON THE SAFETY OF THE BONDS AS AN INVESTMENT, UPON THE PROBABILITY OF ANY EARNINGS THEREON OR UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. THIS OFFICIAL STATEMENT CONTAINS STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS" AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF WHEN USED IN THIS OFFICIAL STATEMENT, THE WORDS "ESTIMATE," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.

4 UNIFIED SCHOOL DISTRICT NO. 313 RENO COUNTY, KANSAS (BUHLER) Burkholder Administrative Center 406 West 7 th Avenue Buhler, Kansas (620) BOARD OF EDUCATION Vernon Goerl, President Laura Meyer Dick, Vice President Marilyn Bolton, Member Greg Lackey, Member Matt McCabe, Member Dale Suiter, Member Cliff Wray, Member ADMINISTRATIVE OFFICERS SUPERINTENDENT Dr. Dan Stiffler BUSINESS MANAGER/CLERK OF THE BOARD Todd Stephenson BOND COUNSEL Gilmore & Bell, P.C. Wichita, Kansas CERTIFIED PUBLIC ACCOUNTANTS Adams, Brown, Beran & Ball, Chartered Wichita, Kansas UNDERWRITER Piper Jaffray & Co. Leawood, Kansas (i)

5 No dealer, broker, salesman or other person has been authorized by the Issuer or the Underwriter to give any information or to make any representations with respect to the Bonds other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein concerning the Issuer has been furnished by the Issuer and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer since the date hereof. This Official Statement does not constitute a contract between the Issuer or the Underwriter and any one or more of the purchasers, Owners or Beneficial Owners of the Bonds. TABLE OF CONTENTS Page INTRODUCTION... 1 THE BONDS... 2 THE DEPOSITORY TRUST COMPANY... 7 THE PROJECT...8 THE REFUNDING PLAN...8 VERIFICATION OF ESCROW...9 SOURCES AND USES OF FUNDS... 9 RISK FACTORS AND INVESTMENT CONSIDERATIONS... 9 BOND RATING ABSENCE OF LITIGATION LEGAL MATTERS TAX MATTERS UNDERWRITING AUTHORIZATION OF OFFICIAL STATEMENT Appendix A Information Concerning the District... A-1 Appendix B Financial Statements And Report of Independent Auditors as of June 30, B-1 Appendix C - Summary of Financing Documents... C-1 (ii)

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7 OFFICIAL STATEMENT UNIFIED SCHOOL DISTRICT NO. 313 RENO COUNTY, KANSAS (BUHLER) $44,995,000 GENERAL OBLIGATION BONDS SERIES 2012-A $3,080,000 TAXABLE GENERAL OBLIGATION REFUNDING BONDS SERIES 2012-B INTRODUCTION General Matters The purpose of this Official Statement is to furnish information relating to the Unified School District No. 313, Reno County, Kansas (Buhler) (the Issuer or the District ), and the General Obligation Bonds, Series 2012-A (the Series A Bonds ) of the District, dated as of August 30, 2012 (the Dated Date ), to be issued in the principal amount of $44,995,000 and the Taxable General Obligation Refunding Bonds, Series 2012-B (the Series 2012-B Bonds ) of the District, dated as of the Dated Date, to be issued in the principal amount of $3,080,000 (the Series 2012-A Bonds and Series 2012-B Bonds collectively referred to herein as the Bonds ). The Appendices to this Official Statement are integral parts of this document, to be read in their entirety. The District is a unified school district duly organized and existing under the laws of the State of Kansas. Additional information regarding the District is contained in APPENDIX A to this Official Statement. The material contained on the cover page, in the body and in the Appendices to this Official Statement are to be read in their entirety. All financial and other information presented herein has been compiled by the Underwriter. The presentation of information herein, including tables of receipts from various taxes, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the District. No representation is made that past experience, as might be shown by such financial or other information, will necessarily continue or be repeated in the future. Bond Counsel has participated in the preparation of this Official Statement as described under the section captioned LEGAL MATTERS. Definitions Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in "APPENDIX C SUMMARY OF FINANCING DOCUMENTS." Continuing Disclosure The Securities and Exchange Commission (the SEC ) has promulgated amendments to Rule 15c2-12 (the Rule ), requiring continuous secondary market disclosure. In the Bond Resolution, hereinafter defined, the Issuer has covenanted to provide annually certain financial information and operating data and other information necessary to comply with the Rule, and to transmit the same to the Municipal Securities Rulemaking Board. This covenant is for the benefit of and is enforceable by the Beneficial Owners of the Series 2012 Bonds. For more information regarding the Issuer's continuing disclosure undertaking, see "APPENDIX C SUMMARY OF FINANCING DOCUMENTS The Continuing Disclosure Instructions". The District has entered into continuing disclosure undertakings required by Rule 15c2-12 in connection with bonds previously issued. During the past five years, the Issuer has not complied with its obligation under such continuing disclosure undertakings. However, the Issuer has taken remedial action to file its audited financial statements, and such statements are currently available on EMMA. In the future, the District intends to file both audited financial statements and operating data on a timely basis. The District has adopted written procedures with respect on ongoing compliance with its continuing disclosure undertakings. A copy of the procedures is available from the District upon request. 1

8 Additional Information Additional information regarding the Issuer or the Bonds may be obtained from the Clerk of the Issuer at the address set forth in the preface to this Official Statement or from the Underwriter, Piper Jaffray & Co., Overbrook Road, Suite 310, Leawood, Kansas (913) Authority for the Bonds THE BONDS The Bonds are being issued pursuant to and in full compliance with the Constitution and statutes of the State of Kansas (the State ), including K.S.A et seq., K.S.A et seq., and with respect to the Series 2012-A Bonds: K.S.A (f), K.S.A and K.S.A et seq., and with respect to the Series 2012-B Bonds: K.S.A et seq., all as amended and supplemented from time to time (the Act ) and a resolution adopted by the governing body of the District (the Bond Resolution ). Security for the Bonds The Bonds shall be general obligations of the District payable as to both principal and interest from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the District. The full faith, credit and resources of the District are hereby irrevocably pledged for the prompt payment of the principal of and interest on the Bonds as the same become due. Levy and Collection of Annual Tax, Transfer to Debt Service Account The governing body of the Issuer shall annually make provision for the payment of principal of, premium, if any, and interest on the Bonds as the same become due by, to the extent necessary, levying and collecting the necessary taxes upon all of the taxable tangible property within the Issuer in the manner provided by law. Such taxes shall be extended upon the tax rolls in each of the several years, respectively, and shall be levied and collected at the same time and in the same manner as the other ad valorem taxes of the Issuer are levied and collected. The proceeds derived from said taxes shall be deposited in the Bond and Interest Fund, shall be kept separate and apart from all other funds of the Issuer, shall thereafter be transferred to the Debt Service Account and shall be used solely for the payment of the principal of and interest on the Bonds as and when the same become due, taking into account any scheduled mandatory redemptions, and the fees and expenses of the Paying Agent. Description of the Bonds The Bonds shall consist of fully registered book-entry-only bonds in the denomination of $5,000 or any integral multiples thereof (the "Authorized Denomination") and shall be numbered in such manner as the Bond Registrar shall determine. All of the Bonds shall be dated as of the Dated Date, shall become due in the amounts, on the Stated Maturities, subject to redemption and payment, prior to their Stated Maturities, and shall bear interest at the rates per annum set forth on the inside cover page of this Official Statement. The Bonds shall bear interest (computed on the basis of twelve 30-day months) from the later of the Dated Date or the most recent Interest Payment Date to which interest has been paid on the Interest Payment Dates in the manner hereinafter set forth. Designation of Paying Agent and Bond Registrar The Issuer will at all times maintain a paying agent and bond registrar meeting the qualifications set forth in the Bond Resolution. The Issuer reserves the right to appoint a successor paying agent or bond registrar. No resignation or removal of the paying agent or bond registrar shall become effective until a successor has been appointed and has accepted the duties of paying agent or bond registrar. Every paying agent or bond registrar appointed by the Issuer shall at all times meet the requirements of Kansas law. The First National Bank of Hutchinson, Hutchinson, Kansas (the "Bond Registrar" and "Paying Agent") has been designated by the Issuer as paying agent for the payment of principal of and interest on the Bonds and bond registrar with respect to the registration, transfer and exchange of Bonds. 2

9 Method and Place of Payment of the Bonds The principal of, or Redemption Price, and interest on the Bonds shall be payable in any coin or currency which, on the respective dates of payment thereof, is legal tender for the payment of public and private debts. The principal or Redemption Price of each Bond shall be paid at Maturity or at the Redemption Date to the Person in whose name such Bond is registered on the Bond Register at the Maturity or at the Redemption Date thereof, upon presentation and surrender of such Bond at the principal office of the Paying Agent. The interest payable on each Bond on any Interest Payment Date shall be paid to the Owner of such Bond as shown on the Bond Register at the close of business on the Record Date for such interest (a) by check or draft mailed by the Paying Agent to the address of such Owner shown on the Bond Register or at such other address as is furnished to the Paying Agent in writing by such Owner; or (b) in the case of an interest payment to Cede & Co. or any Owner of $500,000 or more in aggregate principal amount of Bonds, by electronic transfer to such Owner upon written notice given to the Bond Registrar by such Owner, not less than 15 days prior to the Record Date for such interest, containing the electronic transfer instructions including the bank, ABA routing number and account number to which such Owner wishes to have such transfer directed. Notwithstanding the foregoing, any Defaulted Interest with respect to any Bond shall cease to be payable to the Owner of such Bond on the relevant Record Date and shall be payable to the Owner in whose name such Bond is registered at the close of business on the Special Record Date for the payment of such Defaulted Interest, which Special Record Date shall be fixed as hereinafter specified. The Issuer shall notify the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Bond and the date of the proposed payment (which date shall be at least 30 days after receipt of such notice by the Paying Agent) and shall deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest. Following receipt of such funds the Paying Agent shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment. The Paying Agent shall notify the Issuer of such Special Record Date and shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, by first class mail, postage prepaid, to each Owner of a Bond entitled to such notice not less than 10 days prior to such Special Record Date. SO LONG AS CEDE & CO., REMAINS THE REGISTERED OWNER OF THE BONDS, THE PAYING AGENT SHALL TRANSMIT PAYMENTS TO THE SECURITIES DEPOSITORY, WHICH SHALL REMIT SUCH PAYMENTS IN ACCORDANCE WITH ITS NORMAL PROCEDURES. See "THE BONDS Book-Entry Bonds; Securities Depository." Payments Due on Saturdays, Sundays and Holidays In any case where a Bond Payment Date is not a Business Day, then payment of principal, Redemption Price or interest need not be made on such Bond Payment Date but may be made on the next succeeding Business Day with the same force and effect as if made on such Bond Payment Date, and no interest shall accrue for the period after such Bond Payment Date. Book-Entry Bonds; Securities Depository The Bonds shall initially be registered to Cede & Co., the nominee for the Securities Depository, and no Beneficial Owner will receive certificates representing their respective interests in the Bonds, except in the event the Bond Registrar issues Replacement Bonds. It is anticipated that during the term of the Bonds, the Securities Depository will make bookentry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Bond Registrar authenticates and delivers Replacement Bonds to the Beneficial Owners as described in the following paragraphs. The Issuer may decide, subject to the requirements of the Operational Arrangements of DTC (or a successor Securities Depository), and the following provisions of this section to discontinue use of the system of book-entry transfers through DTC (or a successor Securities Depository): (a) If the Issuer determines (1) that the Securities Depository is unable to properly discharge its responsibilities, or (2) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (3) that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Owner other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds; or 3

10 (b) if the Bond Registrar receives written notice from Participants having interest in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Owner other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Bond Registrar shall notify the Owners of such determination or such notice and of the availability of certificates to owners requesting the same, and the Bond Registrar shall register in the name of and authenticate and deliver Replacement Bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each, making such adjustments as it may find necessary or appropriate as to accrued interest and previous calls for redemption; provided, that in the case of a determination under (a)(1) or (a)(2) of this paragraph, the Issuer, with the consent of the Bond Registrar, may select a successor securities depository in accordance with the following paragraph to effect book-entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has possession of at least one Bond. Upon the issuance of Replacement Bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Bond Registrar, to the extent applicable with respect to such Replacement Bonds. If the Securities Depository resigns and the Issuer, the Bond Registrar or Owners are unable to locate a qualified successor of the Securities Depository, then the Bond Registrar shall authenticate and cause delivery of Replacement Bonds to Owners, as provided herein. The Bond Registrar may rely on information from the Securities Depository and its Participants as to the names of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of Replacement Bonds shall be paid for by the Issuer. In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the Issuer may appoint a successor Securities Depository provided the Bond Registrar receives written evidence satisfactory to the Bond Registrar with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Bond Registrar upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of the Bonds to the successor Securities Depository in appropriate denominations and form as provided in the Bond Resolution. Registration, Transfer and Exchange of Bonds As long as any of the Bonds remain Outstanding, each Bond when issued shall be registered in the name of the Owner thereof on the Bond Register. Bonds may be transferred and exchanged only on the Bond Register as hereinafter provided. Upon surrender of any Bond at the principal office of the Bond Registrar, the Bond Registrar shall transfer or exchange such Bond for a new Bond or Bonds in any authorized denomination of the same Stated Maturity and in the same aggregate principal amount as the Bond that was presented for transfer or exchange. Bonds presented for transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in a form and with guarantee of signature satisfactory to the Bond Registrar, duly executed by the Owner thereof or by the Owner's duly authorized agent. In all cases in which the privilege of transferring or exchanging Bonds is exercised, the Bond Registrar shall authenticate and deliver Bonds in accordance with the provisions of the Bond Resolution. The Issuer shall pay the fees and expenses of the Bond Registrar for the registration, transfer and exchange of Bonds. Any additional costs or fees that might be incurred in the secondary market, other than fees of the Bond Registrar, are the responsibility of the Owners of the Bonds. In the event any Owner fails to provide a correct taxpayer identification number to the Paying Agent, the Paying Agent may make a charge against such Owner sufficient to pay any governmental charge required to be paid as a result of such failure. The Issuer and the Bond Registrar shall not be required (a) to register the transfer or exchange of any Bond that has been called for redemption after notice of such redemption has been ailed by the Paying Agent and during the period of 15 days next preceding the date of mailing of such notice of redemption; or (b) to register the transfer or exchange of any Bond during a period beginning at the opening of business on the day after receiving written notice from the Issuer of its intent to pay Defaulted Interest and ending at the close of business on the date fixed for the payment of Defaulted Interest. 4

11 Mutilated, Lost, Stolen or Destroyed Bonds If (a) any mutilated Bond is surrendered to the Bond Registrar or the Bond Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Bond, and (b) there is delivered to the Issuer and the Bond Registrar such security or indemnity as may be required by each of them, then, in the absence of notice to the Issuer or the Bond Registrar that such Bond has been acquired by a bona fide purchaser, the Issuer shall execute and, upon the Issuer's request, the Bond Registrar shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Bond, a new Bond of the same Stated Maturity and of like tenor and principal amount. If any such mutilated, destroyed, lost or stolen Bond has become or is about to become due and payable, the Issuer, in its discretion, may pay such Bond instead of issuing a new Bond. Upon the issuance of any new Bond as described in this paragraph, the Issuer may require the payment by the Owner of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Paying Agent) connected therewith. Nonpresentment of Bonds If any Bond is not presented for payment when the principal thereof becomes due at Maturity, if funds sufficient to pay such Bond have been made available to the Paying Agent all liability of the Issuer to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Paying Agent to hold such funds, without liability for interest thereon, for the benefit of the Owner of such Bond, who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under this Bond Resolution or on, or with respect to, said Bond. If any Bond is not presented for payment within four (4) years following the date when such Bond becomes due at Maturity, the Paying Agent shall repay to the Issuer the funds theretofore held by it for payment of such Bond, and such Bond shall, subject to the defense of any applicable statute of limitation, thereafter be an unsecured obligation of the Issuer, and the Owner thereof shall be entitled to look only to the Issuer for payment, and then only to the extent of the amount so repaid to it by the Paying Agent, and the Issuer shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Redemption Provisions Optional Redemption. (a) At the option of the Issuer, the Series 2012-A Bonds maturing September 1, 2023 and thereafter may be called for redemption and payment prior to their Stated Maturity on September 1, 2022, and thereafter as a whole or in part (selection of maturities and the amount of Bonds of each maturity to be redeemed to be determined by the Issuer in such equitable manner as it may determine) at any time, at the Redemption Price of 100% (expressed as a percentage of the principal amount), plus accrued interest thereon to the Redemption Date. (b) The Series 2012-B Bonds are not subject to redemption and payment prior to maturity. Mandatory Redemption. Series 2012-A Bonds. (a) 2037 Term Bonds. The 2037 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements hereinafter set forth at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The payments which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on September 1 in each year, the following principal amounts of such 2037 Term Bonds: *Final Maturity Principal Amount Year $3,365, ,620, ,895, ,180, ,480, * 5

12 Selection of Bonds to be Redeemed. Bonds shall be redeemed only in an Authorized Denomination. When less than all of the Bonds are to be redeemed and paid prior to their Stated Maturity, such Bonds shall be redeemed in such manner as the Issuer shall determine, Bonds of less than a full Stated Maturity shall be selected by the Bond Registrar in minimum Authorized Denomination in such equitable manner as the Bond Registrar may determine. In the case of a partial redemption of Bonds by lot when Bonds of denominations greater than a minimum Authorized Denomination are then Outstanding, then for all purposes in connection with such redemption each minimum Authorized Denomination of face value shall be treated as though it were a separate Bond of a minimum Authorized Denomination. If it is determined that one or more, but not all, of the minimum Authorized Denomination value represented by any Bond is selected for redemption, then upon notice of intention to redeem such minimum Authorized Denomination, the Owner or the Owner's duly authorized agent shall forthwith present and surrender such Bond to the Bond Registrar: (1) for payment of the Redemption Price and interest to the Redemption Date of such minimum Authorized Denomination value called for redemption, and (2) for exchange, without charge to the Owner thereof, for a new Bond or Bonds of the aggregate principal amount of the unredeemed portion of the principal amount of such Bond. If the Owner of any such Bond fails to present such Bond to the Paying Agent for payment and exchange as aforesaid, such Bond shall, nevertheless, become due and payable on the redemption date to the extent of the minimum Authorized Denomination value called for redemption (and to that extent only). Notice and Effect of Call for Redemption. Unless waived by any Owner of Bonds to be redeemed, if the Issuer shall call any Bonds for redemption and payment prior to the Stated Maturity thereof, the Issuer shall, give notice of the intention of the Issuer to call and pay said Bonds, said notice to be published not less than 30 days prior to the Redemption Date. The Issuer shall also give written notice of its intention to call and pay said Bonds to the Bond Registrar and the Purchaser. In addition, the Issuer shall cause the Bond Registrar to give written notice of redemption to the Owners of said Bonds. Each of said written notices shall be deposited in the United States first class mail not less than 30 days prior to the Redemption Date. All official notices of redemption shall be dated and shall contain the following information: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption of any Bonds, the respective principal amounts) of the Bonds to be redeemed; (d) a statement that on the Redemption Date the Redemption Price will become due and payable upon each such Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after the Redemption Date; and (e) the place where such Bonds are to be surrendered for payment of the Redemption Price, which shall be the principal office of the Paying Agent. The failure of any Owner to receive notice given as heretofore provided or an immaterial defect therein shall not invalidate any redemption. Prior to any Redemption Date, the Issuer shall deposit with the Paying Agent an amount of money sufficient to pay the Redemption Price of all the Bonds or portions of Bonds that are to be redeemed on such Redemption Date. Official notice of redemption having been given as aforesaid, the Bonds or portions of Bonds to be redeemed shall become due and payable on the Redemption Date, at the Redemption Price therein specified, and from and after the Redemption Date (unless the Issuer defaults in the payment of the Redemption Price) such Bonds or portion of Bonds shall cease to bear interest. For so long as the Securities Depository is effecting book-entry transfers of the Bonds, the Bond Registrar shall provide the notices specified to the Securities Depository. It is expected that the Securities Depository shall, in turn, notify its Participants and that the Participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of the Securities Depository or a Participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Bond Registrar, the Securities Depository, a Participant or otherwise) to notify the Beneficial Owner of the Bond so affected, shall not affect the validity of the redemption of such Bond. In addition to the foregoing notice, the Issuer shall provide such notices of redemption as are required by the Disclosure Instructions. The Paying Agent is also directed to comply with any mandatory or voluntary standards then in effect for processing redemptions of municipal securities established by the State or the Securities and Exchange Commission. Failure to comply with such standards shall not affect or invalidate the redemption of any Bond. 6

13 THE DEPOSITORY TRUST COMPANY 1. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each scheduled maturity of the Bonds, and will be deposited with DTC. 2. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 7

14 8. Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or Paying Agent, on the payment date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. 10. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. THE PROJECT On June 5, 2012, the voters in the District approved the issuance of general obligation bonds in an amount not to exceed $44,995,000. The Series 2012-A Bonds are being issued to pay the costs to: (a) acquire a site, make site improvements and construct, furnish and equip a new PK-5 Elementary School; (b) construct, furnish and equip additions and make renovations to Buhler Elementary School; (c) construct, furnish and equip additions and make renovations to Union Valley Elementary School; (d) construct, furnish and equip additions and make renovations to Prairie Hills Middle School, including related track improvements; (e) make renovations to Buhler High School; (f) make all other necessary improvements appurtenant thereto (collectively, the Project ); and (g) pay costs of issuance on the Series 2012-A Bonds. THE REFUNDING PLAN The District has outstanding the General Obligation Refunding Bonds, Series 2003 (the Refunded Bonds ) to be refunded with the proceeds of the Series 2012-B Bonds in order to restructure the District s debt service requirements. A description of the Refunded Bonds and the payment date for such Refunded Bonds are set forth as follows: Series 2003 General Obligation Refunding Bonds Maturity Date Maturity Amount Redemption Date Refunded Amount Interest Rate Redemption Price September 1, 2013 $1,315,000 N/A $900, % N/A September 1, ,375,000 September 1, , % 100% September 1, ,435,000 September 1, , % 100% September 1, ,015,000 September 1, , % 100% An Escrow Fund will be established for the Refunded Bonds pursuant to the terms of the Escrow Trust Agreement dated as of the Dated Date by and between the Issuer and The First National Bank of Hutchinson, Hutchinson, Kansas (the Escrow Agent ). See APPENDIX C SUMMARY OF FINANCING DOCUMENTS The Escrow Trust Agreement for a discussion of the manner in which the Escrow Fund is administered. 8

15 VERIFICATION OF ESCROW The accuracy of the mathematical computations of the adequacy of cash and certain Escrowed Securities to be held by the Escrow Agent pursuant to the Escrow Agreement, together with the interest to be earned thereon, to pay the principal of, premium if any, and interest due and to become due on the Refunded Bonds to and including the applicable maturity or redemption date thereof, will be verified by Robert Thomas CPA, LLC, Certified Public Accountant, Shawnee Mission, Kansas. Such verification of the accuracy of such mathematical computations will be based upon information supplied by the Underwriter. SOURCES AND USES OF FUNDS The following table summarizes the sources and uses of funds associated with the issuance of the Bonds: Sources of Funds: Series 2012-A Bonds Series 2012-B Bonds Principal Amount of the Bonds $44,995, $3,080, Reoffering Premium 1,147, Transfer from Series 2003 Debt Service Fund , Total $46,142, $3,129, Uses of Funds: Deposit to Improvement Fund $44,995, $0.00 Deposit to Escrow Fund ,092, Deposit to Debt Service Fund 728, , Costs of Issuance 81, , Underwriter s Discount 337, , Total $46,142, $3,129, RISK FACTORS AND INVESTMENT CONSIDERATIONS A PROSPECTIVE PURCHASER OF THE BONDS DESCRIBED HEREIN SHOULD BE AWARE THAT THERE ARE CERTAIN RISKS ASSOCIATED WITH THE BONDS WHICH MUST BE RECOGNIZED. THE FOLLOWING STATEMENTS REGARDING CERTAIN RISKS ASSOCIATED WITH THE OFFERING SHOULD NOT BE CONSIDERED AS A COMPLETE DESCRIPTION OF ALL RISKS TO BE CONSIDERED IN THE DECISION TO PURCHASE THE BONDS. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD ANALYZE CAREFULLY THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT AND ADDITIONAL INFORMATION IN THE FORM OF THE COMPLETE DOCUMENTS SUMMARIZED HEREIN, COPIES OF WHICH ARE AVAILABLE AND MAY BE OBTAINED FROM THE ISSUER OR THE UNDERWRITER. Legal Matters Various state and federal laws, regulations and constitutional provisions apply to the obligations created by the Bonds. There is no assurance that there will not be any change in, interpretation of, or addition to such applicable laws, provisions and regulations which would have a material effect, either directly or indirectly, on the Issuer or the taxing authority of the Issuer. Limitations on Remedies Available to Owners of Bonds The enforceability of the rights and remedies of the owners of Bonds, and the obligations incurred by the Issuer in issuing the Bonds, are subject to the following: the federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the United States Constitution; and the reasonable and necessary exercise, in certain unusual situations, of the police power inherent in the State of Kansas and its governmental subdivisions in the interest of serving a legitimate and significant public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy and otherwise, and consequently may involve risks of delay, limitation or modification of their rights. 9

16 Taxation of Interest on the Series 2012-A Bonds An opinion of Bond Counsel will be obtained to the effect that interest earned on the Series 2012-A Bonds is excludable from gross income for federal income tax purposes under current provisions of the Internal Revenue Code of 1986, as amended (the Code ), and applicable rulings and regulations under the Code; however, an application for a ruling has not been made and an opinion of counsel is not binding upon the Internal Revenue Service. There can be no assurance that the present provisions of the Code, or the rules and regulations thereunder, will not be adversely amended or modified, thereby rendering the interest earned on the Series 2012-A Bonds includable in gross income for federal income tax purposes. The Issuer has covenanted in the Bond Resolution and in other documents and certificates to be delivered in connection with the issuance of the Series 2012-A Bonds to comply with the provisions of the Code, including those which require the Issuer to take or omit to take certain actions after the issuance of the Series 2012-A Bonds. Because the existence and continuation of the excludability of the interest on the Series 2012-A Bonds depends upon events occurring after the date of issuance of the Series 2012-A Bonds, the opinion of Bond Counsel described under TAX MATTERS assumes the compliance by the Issuer with the provisions of the Code described above and the regulations relating thereto. No opinion is expressed by Bond Counsel with respect to the excludability of the interest on the Series 2012-A Bonds in the event of noncompliance with such provisions. The failure of the Issuer to comply with the provisions described above may cause the interest on the Series 2012-A Bonds to become includable in gross income as of the date of issuance. State Aid As described under the heading "School District Funding Formula" and the sections following in APPENDIX A, the State of Kansas provides a substantial portion of the money for the operation of school districts in the State. See APPENDIX A State Financial Aid. However, the District is obligated to levy unlimited ad valorem taxes to provide for debt service payments on the Bonds regardless of the amount of State aid received. Premium on Bonds The initial offering prices of certain maturities of the Bonds that are subject to optional redemption are in excess of the respective principal amounts thereof. Any person who purchases a Bond in excess of its principal amount, whether during the initial offering or in a secondary market transaction, should consider that the Bonds are subject to redemption at par under the various circumstances described under "THE BONDS - Redemption Provisions". No Additional Interest or Mandatory Redemption upon Event of Taxability The Bond Resolution does not provide for the payment of additional interest or penalty on the Series 2012-A Bonds or the mandatory redemption thereof if the interest thereon becomes includable in gross income for federal income tax purposes. Likewise, the Bond Resolution does not provide for the payment of any additional interest or penalty on the Bonds if the interest thereon becomes includable in gross income for Kansas income tax purposes. Suitability of Investment The tax exempt feature of the Series 2012-A Bonds is more valuable to high tax bracket investors than to investors who are in low tax brackets, and so the value of the interest compensation to any particular investor will vary with individual tax rates. Each prospective investor should carefully examine this Official Statement, including the Appendices hereto, and its own financial condition to make a judgment as to its ability to bear the economic risk of such an investment, and whether or not the Bonds are an appropriate investment. Market for the Bonds Bond Rating. The Bonds have been assigned the financial ratings set forth in the section hereof entitled RATINGS. There is no assurance that a particular rating will remain in effect for any given period of time or that it will not be revised, either downward or upward, or withdrawn entirely, if in the judgment of the agency originally establishing such rating, circumstances so warrant. Any downward revision or withdrawal of any rating may have an adverse affect on the market price of the Bonds. 10

17 Secondary Market. There is no assurance that a secondary market will develop for the purchase and sale of the Bonds. It is the present practice of the Underwriter, however, to make a secondary market as dealers in issues of municipal bonds which the Underwriter distributes. The Underwriter intends to continue this practice with respect to the Bonds, but is not obligated to do so. Prices of bonds traded in the secondary market, though, are subject to adjustment upward and downward in response to changes in the credit markets. From time to time it may be necessary for the Underwriter to suspend indefinitely secondary market trading in the Bonds as a result of the financial condition or market position of the Underwriter, prevailing market conditions, lack of adequate current financial information about the Issuer, or a material adverse change in the financial condition of the Issuer, whether or not the Bonds are in default as to principal and interest payments, and other factors which in the opinion of the Underwriter may give rise to uncertainty concerning prudent secondary market practices. THE FOREGOING STATEMENTS REGARDING CERTAIN RISKS ASSOCIATED WITH THE OFFERING SHOULD NOT BE CONSIDERED AS A COMPLETE DESCRIPTION OF ALL RISKS TO BE CONSIDERED IN THE DECISION TO PURCHASE THE BONDS. BOND RATING Moody s Investor Service has assigned an independent rating of A2 to the Bonds. Any further explanation of the significance of such rating may be obtained only from the rating agency. The rating does not constitute a recommendation by the rating agency to buy, sell or hold any Bonds, including the Bonds. There is no assurance that any rating when assigned to the Bonds will continue for any period of time or that it will not be revised or withdrawn. A revision or withdrawal of the rating when assigned to the Bonds may have an adverse affect on the market price of the Bonds. ABSENCE OF LITIGATION The Issuer, in the ordinary course of business, is a party to various legal proceedings. In the opinion of management of the Issuer, any judgment rendered against the Issuer in such proceedings would not materially adversely effect the financial position of the Issuer. The Issuer certifies that there is no controversy, suit or other proceeding of any kind pending or threatened wherein or whereby any question is raised or may be raised, questioning, disputing or affecting in any way the legal organization of the Issuer or its boundaries, or the right or title of any of its officers to their respective offices, or the legality of any official act or the constitutionality or validity of the indebtedness represented by the Bonds or the validity of said Bonds, or any of the proceedings had in relation to the authorization, issuance or sale thereof, or the levy and collection of a tax to pay the principal and interest thereof. Approval of Bonds LEGAL MATTERS All matters incident to the authorization and issuance of the Bonds are subject to the approval of Gilmore & Bell, P.C., Wichita, Kansas ( Bond Counsel ). The factual and financial information appearing herein has been supplied or reviewed by certain officials of the District and its certified public accountants, as referred to herein. Bond Counsel has not participated in the preparation of the Official Statement and therefore expresses no opinion as to the accuracy or sufficiency thereof, except for the matters appearing in the sections of this Official Statement captioned THE BONDS, LEGAL MATTERS, TAX MATTERS and APPENDIX C SUMMARY OF FINANCING DOCUMENTS. Payment of the legal fee of Bond Counsel is contingent upon the delivery of the Bonds. Certain Relationships Bond Counsel has represented the Underwriter in transactions unrelated to the issuance of the Bonds, but is not representing the Underwriter in connection with the issuance of the Bonds. 11

18 TAX MATTERS The following is a summary of the material federal and state income tax consequences of holding and disposing of the Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of holders subject to special treatment under the federal income tax laws (for example, dealers in securities or other persons who do not hold the Bonds as a capital asset, tax-exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Kansas, does not discuss the consequences to an owner under state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Bonds in the secondary market at a premium or a discount. Prospective investors are advised to consult their own tax advisors regarding federal, state, local and other tax considerations of holding and disposing of the Bonds. Opinion of Bond Counsel Series 2012-A Bonds In the opinion of Bond Counsel, under the law existing as of the issue date of the Series 2012-A Bonds: Federal Tax Exemption. The interest on the Series 2012-A Bonds (including any original issue discount properly allocable to an owner thereof) is excluded from gross income for federal income tax purposes. Alternative Minimum Tax. Interest on the Series 2012-A Bonds is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Bank Qualification. The Series 2012-A Bonds have not been designated as qualified tax-exempt obligations for purposes of Code 265(b). Kansas Tax Exemption. The interest on the Series 2012-A Bonds is exempt from income taxation by the State. No Other Opinions. Bond Counsel s opinions are provided as of the date of the original issue of the Series 2012-A Bonds, subject to the condition that the Issuer comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2012-A Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The Issuer has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2012-A Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2012-A Bonds. Bond Counsel is expressing no opinion regarding other federal, state or local tax consequences arising with respect to the Series 2012-A Bonds. Other Tax Consequences Original Issue Discount. For Federal income tax purposes, original issue discount ( OID ) is the excess of the stated redemption price at maturity of a Series 2012-A Bond over its issue price. The issue price of a Series 2012-A Bond is the first price at which a substantial amount of the Series 2012-A Bonds of that maturity have been sold (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). Under Code 1288, OID on tax-exempt bonds accrues on a compound basis. The amount of OID that accrues to an owner of a Series 2012-A Bond during any accrual period generally equals: (a) the issue price of that Series 2012-A Bond, plus the amount of OID accrued in all prior accrual periods; multiplied by (b) the yield to maturity on that Series A Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period); minus (c) any interest payable on that Series 2012-A Bond during that accrual period. The amount of OID accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excludable from gross income for Federal income tax purposes, and will increase the owner s tax basis in that Series 2012-A Bond. Prospective investors should consult their own tax advisors concerning the calculation and accrual of OID. Original Issue Premium. If a Series 2012-A Bond is issued at a price that exceeds the stated redemption price at maturity of the Series 2012-A Bond, the excess of the purchase price over the stated redemption price at maturity constitutes premium on that Series 2012-A Bond. Under Code 171, the purchaser of that Series 2012-A Bond must amortize the premium over the term of the Series 2012-A Bond using constant yield principles, based on the purchaser s yield to maturity. As premium is amortized, the owner s basis in the Series 2012-A Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to the owner. This will result in an increase in the gain (or decrease in the loss) to be recognized for Federal income tax purposes on sale or disposition of the Series 2012-A Bond 12

19 prior to its maturity. Even though the owner s basis is reduced, no Federal income tax deduction is allowed. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. Sale, Exchange or Retirement of Series 2012-A Bonds. Upon the sale, exchange or retirement (including redemption) of a Series 2012-A Bond, an owner of the Series 2012-A Bond generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale, exchange or retirement of the Series 2012-A Bond (other than in respect of accrued and unpaid interest) and such owner s adjusted tax basis in the Series 2012-A Bond. To the extent the Series 2012-A Bonds are held as a capital asset, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the Series 2012-A Bond has been held for more than 12 months at the time of sale, exchange or retirement. Reporting Requirements. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on Series 2012-A Bonds, and to the proceeds paid on the sale of Series 2012-A Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to such payments if the owner fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. The amount of any backup withholding from a payment to an owner will be allowed as a credit against the owner s federal income tax liability. Collateral Federal Income Tax Consequences. Prospective purchasers of the Series 2012-A Bonds should be aware that ownership of the Series 2012-A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Series 2012-A Bonds. Bond Counsel expresses no opinion regarding these tax consequences. Purchasers of Series 2012-A Bonds should consult their tax advisors as to the applicability of these tax consequences and other federal income tax consequences of the purchase, ownership and disposition of the Series 2012-A Bonds, including the possible application of state, local, foreign and other tax laws. Opinion of Bond Counsel Series 2012-B Bonds Kansas Tax Exemption. The interest on the Series 2012-B Bonds is exempt from income taxation by the State. Interest Taxable. Interest on the Series 2012-B Bonds is included in gross income for federal income tax purposes. No Other Opinions. Bond Counsel expresses no opinion regarding other federal, state or local tax consequences arising with respect to the Series 2012-B Bonds. UNDERWRITING The Series 2012-A Bonds are being purchased for reoffering by Piper Jaffray & Co., Leawood, Kansas (the Underwriter ) at a price equal to the principal amount of the Series 2012-A Bonds, less an underwriting discount of $337,462.50, plus an original issue premium of $1,147, The Bond Purchase Agreement provides that the Underwriter will purchase all of the Series 2012-A Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2012-A Bonds is subject to various conditions contained in the Bond Purchase Agreement. The Series 2012-B Bonds are being purchased for reoffering by the Underwriter at a price equal to the principal amount of the Series 2012-B Bonds, less an underwriting discount of $23, The Bond Purchase Agreement provides that the Underwriter will purchase all of the Series 2012-B Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2012-B Bonds is subject to various conditions contained in the Bond Purchase Agreement. The Bonds will be offered to the public initially at the prices determined to produce the yields set forth on the inside cover page of this Official Statement. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing the Bonds into investment trusts) at prices other than the price stated on the inside cover page hereof and may change the initial offering price from time to time subsequent to the date hereof. In connection with the offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. 13

20 The Underwriter and Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, entered into an agreement (the Agreement ) which enables Pershing LLC to distribute certain new issue municipal securities underwritten by or allocated to the Underwriter, including the Bonds. Under the Agreement, the Underwriter will share with Pershing LLC a portion of the fee or commission paid to the Underwriter. AUTHORIZATION OF OFFICIAL STATEMENT The preparation of this Official Statement and its distribution has been authorized by the governing body of the District as of the date on the cover page hereof. This Official Statement is submitted in connection with the issuance of the Bonds and may not be reproduced or used as a whole or in part for any other purpose. This Official Statement does not constitute a contract between the District or the Underwriter and any one or more of the purchasers, Owners or Beneficial Owners of the Bonds. UNIFIED SCHOOL DISTRICT NO. 313, RENO COUNTY, KANSAS (BUHLER) By: /s/ Vernon Goerl President, Board of Education 14

21 APPENDIX A INFORMATION CONCERNING THE ISSUER A-1

22 APPENDIX A INFORMATION CONCERNING THE ISSUER GENERAL Size and Location The District is located in the Cities of Buhler, Kansas and Hutchinson, Kansas, Reno County, Kansas (the County ) which is approximately 13 miles northeast of Hutchinson, Kansas, 20 miles south of McPherson, Kansas, and 60 miles northwest of Wichita, Kansas. The District is primarily located in Reno County with a portion of the District also located in Harvey County, Kansas. The District encompasses approximately 137 square miles and has a current estimated population of approximately 10,000 persons and a current student enrollment of 2,272. Reno County ranks 8 th in population of the 105 Kansas Counties. Government and Organization of the District The District was formed in 1965 as part of the Kansas School Unification Program. A seven member Board of Education governs the District. The Board members are all elected at large and serve staggered four year terms. District Facilities The District currently operates four elementary schools, one middle school and one senior high school. The following table lists the various school buildings and sites owned by the District and the present enrollment. School Grades Taught Enrollment Buhler Elementary K Obee Elementary* K Prosperity Elementary* Union Valley Elementary K Prairie Hills Middle School Buhler High School *The District has announced plans to close the Obee and Prosperity Elementary Schools upon construction of the new elementary school. Enrollment The following table lists the history of enrollment in the District's schools for the years indicated. Year Enrollment 2002/03 2, /04 2, /05 2, /06 2, /07 2, /08 2, /09 2, /10 2, /11 2, /12 2,272 All of the District's schools are rated "comprehensive" by the State Department of Education, which is the highest rating attainable. Such rating reflects the evaluation of the Department in all areas of the School District's operation including curriculum, facilities, teaching staff, administrative staff, etc. Such rating does not constitute and is not intended to imply any credit evaluation of the Bonds. A-2

23 Higher Education Facilities Post-secondary education is accessible to residents of the District through the Hutchinson Community College and Area Vocational School. Higher education is also available outside of the District in nearby cities at Wichita State University in Wichita, Friends University in Wichita, Newman University in Wichita, Bethel College in North Newton, Sterling College in Sterling and McPherson College in McPherson. Municipal Services and Utilities Western Resources supplies electricity to the area. Natural gas service is provided by Peoples Natural Gas, Western Resources and Arkansas-Louisiana Gas Company. Telephone service is provided by Southwestern Bell. Multimedia Cable TV operates a cable television system in the District. The cities of Buhler and Hutchinson provide water and sewer utility service to the area. Fire and police protection are provided by the county and city governments in the District. Transportation and Communication Facilities The area is served by several major highways including U.S. Highway 50 and Kansas Highways 17, 61 and 96. Rail service is provided by the following railroads: Amtrak, Frisco, Hutchinson, Missouri Pacific, Burlington Northern-Santa Fe, Southern Pacific, and Union Pacific. The Hutchinson Airport provides runways capable of handling private and corporate aircraft. Regularly scheduled air service is available at Mid-Continent Airport in Wichita, Kansas located 40 miles from the District. The area has a daily community newspaper, five radio stations and five television stations. Cable television services are available to subscribers through Multimedia Cable TV. Medical and Health Facilities Residents of the District have access to Promise Regional Medical Center located in nearby Hutchinson, Kansas. The Medical Center was constructed in 1975 on an 83 acre site and has over 200 acute care beds and 30 skilled nursing units. Since its original construction, a $2.3 million Linear Accelerator Cancer Treatment Facility has been added to the Hospital s facilities as well as a $5 million retirement center including intermediate care, a 60-bed nursing center and a 30-suite assisted living facility, same-day surgery facility and an open heart surgery facility. The Hutchinson Clinic which includes ambulatory surgery and dialysis treatment centers, brings together 65 physicians and nearly 700 health care professionals to provide advanced health care services. Recreational Facilities The County offers a rich diversity of facilities, attractions, events and cultural arts amenities to residents and the approximately 1.5 million annual visitors to the community. A modern, full-service Convention Center, provides 45,000 square feet of banquet and meeting space. Reno County is the site of the Kansas State Fair Grounds which draw thousands of visitors year round, but especially each September for the Kansas State Fair. The Kansas Cosmosphere and Space Museum houses the largest collection of space artifacts outside the Smithsonian Institution and the largest collection of Soviet space hardware in the Western world. The museum, along with its education programs and IMAX Theater, is a major tourist destination, drawing visitors from all over the world. The Kansas Underground Salt Museum is the community s newest tourist attraction. This cavernous, subterranean museum, located in a working salt mine, offers a fascinating historical, cultural and geological account of salt mining. The Reno County Museum features rotating exhibit galleries that recount the County s history and heritage from its earliest beginnings to present day. One highlight of community life is the annual National Junior College Athletic Association Men s Division I Basketball Tournament held each year at the Hutchinson Sports Arena. ECONOMIC INFORMATION Reno County is a rich agricultural area and generally ranks as one of the top wheat producing counties in Kansas. The County also ranks high in the production of sorghum, barley, alfalfa, hay, alfalfa seed, milk and eggs. The County is one of the largest prime wheat markets in the world with storage capacity of nearly 42 million bushels. The County has long been one of the primary salt producing areas in the country. In addition, the County has a diversified economic base with more than 200 industries including: paper products, hydraulic valves, signs, farm machinery, agricultural research, food distribution and processing, millwork, baked goods, ice cream, school buses, ambulances, rebuilt engines, grain handling equipment and mobile homes. A-3

24 Major Employers Residents of the District have employment opportunities in the City of Hutchinson and throughout Reno County. Listed below are the major employers located in or near the District and the number employed by each: Major Employers Product/Service Number of Full- & Part-time Employees Promise Regional Medical Center Medical Services 1,251 Hutchinson Unified School District No. 308 Education 850 Dillon Companies Groceries 838 Hutchinson Clinic Medical Services 785 Tyson Prepared Foods Precooked Meats 520 Hutchinson Correctional Facility State Prison 512 Wal-Mart Super Center Discount Retailer 362 Buhler Unified School District No. 313 Education 356 Grand Prairie Hotel and Convention Center Hospitality 290 Kroeger Accounting Services Back Office & Support 287 Wesley Towers Health Care/Retirement Services 254 Mennonite Manor Health Care/Retirement Services 248 Kuhn Krause, Inc. Agricultural Manufacturer 246 Collins Bus Corporation Type A Bus Manufacturer 218 Nickerson Unified School District No. 309 Public Education 216 Lowen Corporation Industrial Marking/Sign Mfr. 201 Portfolio Recovery Associates Debt Collection 196 The Medical Center Medical Services 185 Data Center, Inc. Financial Technology / Banking 176 Horizons Mental Health Center Health Care 174 First National Bank of Hutchinson Financial Services 170 Morton Salt, Inc. Salt 150 Siemens Wind Power Wind Turbine Components Mfr. 150 Eaton Corporation Hydraulic Components Mfr. 147 Kwik Shop, Inc Retail Store 145 TECH, Inc. Education & Training for Special Needs 140 Good Samaritan Society Hutchinson Village Retirement, Assisted Living 140 Social Rehabilitation Services Social Services 124 Hutchinson News, The Newspapers 122 Jackson Dairy Food - Bakers, Processors & Wholesalers 121 Sonoco Manufacturers - Paper Products 115 TSW Products Manufacturer - Hydraulic parts 114 Cargill Salt Salt 107 Conklin Cars Hutchinson Automobile - Dealers 105 APAC-Kansas, Inc. - Shears Division Commercial Contractors 103 Source: Hutchinson Chamber of Commerce (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) A-4

25 Labor Force The following table sets forth the labor force figures for Reno County, Harvey County and the State of Kansas: Source: Kansas Statistical Abstract Oil Production RENO COUNTY Year Total Labor Force Employed Unemployed Unemployed Rate ,978 31,423 1, % ,111 31,381 1, % ,830 31,089 1, % ,107 30,450 1, % ,140 31,668 1, % ,525 31,214 1, % ,709 31,358 1, % ,873 32,778 2, % ,751 32,640 2, % HARVEY COUNTY Year Total Labor Force Employed Unemployed Unemployed Rate ,762 17, % ,672 16, % ,858 16, % ,033 17, % ,953 17, % ,995 17, % ,337 17, % ,095 16,846 1, % ,829 16,510 1, % STATE OF KANSAS Year Total Labor Force Employed Unemployed Unemployed Rate ,425,342 1,351,738 73, % ,447,500 1,366,100 81, % ,463,943 1,383,654 80, % ,475,800 1,400,800 75, % ,474,044 1,410,048 63, % ,484,237 1,425,049 60, % ,496,943 1,431,340 65, % ,518,924 1,416, , % ,502,324 1,396, , % The oil production (in thousands of barrels) for Reno County and Harvey County for the years listed is indicated in the following table: RENO COUNTY Year Oil Production Year Oil Production , , , , , , , , , ,440 A-5

26 Source: Kansas Statistical Abstract Retail Sales Tax Collections HARVEY COUNTY Year Oil Production Year Oil Production , , , , , , , , , ,756 The following table lists Reno County's state sales tax collections for the years listed. Source: Kansas Statistical Abstract Financial and Banking Institutions Year Sales Tax Collections Per Capita Sales Tax 2001 $35,770,100 $ ,603, ,624, ,741, ,118, ,230, ,906, ,006, ,258, ,233, There are currently 10 banks located in Reno County with 28 banking locations. For the years listed, bank deposits of the County's banks are as follows: Total Bank Year Deposits 2001 $756,494, ,653, ,757, ,089, ,000, ,000, ,000, ,000, ,000, ,028,000,000 Source: Kansas Statistical Abstract A-6

27 Population The following table shows the approximate population of the City of Hutchinson, City of Buhler and Reno County in the years indicated. The District serves the City of Buhler, the northeast portion of the City of Hutchinson and the surrounding area. Year City of Hutchinson Population City of Buhler Population Reno County Population ,603 1,357 64, ,251 1,347 63, ,053 1,335 63, ,828 1,332 63, ,741 1,330 63, ,746 1,331 63, ,548 1,324 63, ,714 1,329 63, ,795 1,331 63, ,080 1,327 63, ,080 1,327 64,607 The median age of persons in Reno County and the State of Kansas is 38.3 and 36.0, respectively, per the 2010 Census. Source: U.S. Census Data, Kansas Statistical Abstract Personal Income Reno County total personal income and per capita income and the State of Kansas per capita income are listed for the years indicated, in the following table. Source: Kansas Statistical Abstract Reno County Total Personal Income Reno County Per Capita Income State of Kansas Per Capita Income Year 2000 $1,579,138,000 $24,410 $28, ,639,883,000 25,438 29, ,638,053,000 25,610 29, ,682,980,000 26,434 30, ,686,542,000 26,617 31, ,714,894,000 27,110 33, ,839,642,000 29,101 35, ,941,464,000 20,810 37, ,055,613,000 32,512 40, ,064,007,000 32,577 39,173 Accounting, Budgeting and Auditing Procedures FINANCIAL INFORMATION The District's financial statements are presented in compliance with the cash basis and budget laws of Kansas. Revenues are recognized when cash is received and expenditures are recognized when an amount is encumbered. An amount is encumbered when the District makes a purchase order, contract or other commitment for the expenditure, in order to reserve that portion of the applicable budget appropriation. When the related goods or services are received and subsequently paid, the payment is recorded in the applicable budgetary funds account and the encumbrance is canceled. The District's fiscal year is mandated to run from July 1 to June 30. An annual budget for the coming eighteen months is required to be prepared by the District, for all funds not exempt from the budget requirement. A computation of estimated receipts and disbursements is prepared and presented to the governing body of the District prior to August 1. A public hearing is held and a final budget adopted prior to August 25th. A-7

28 Kansas law prohibits governmental units from creating indebtedness unless there are funds on hand in the proper accounts and unencumbered by previous action with which to pay such indebtedness. An exception to this cash-basis operation is made where provision has been made for payment of obligations by bonds or other specific debt obligations authorized by law. The financial records of the District are audited annually by a firm of independent certified public accountants in accordance with generally accepted auditing standards. In recent years, the annual audit has been performed by Adams, Brown, Beran & Ball, Chartered, Wichita, Kansas. Copies of the audit reports for the past five (5) years are on file in the Clerk's office and are available for review. The audited financial statements for the Fiscal Year ended June 30, 2011 are attached hereto as Appendix B. The Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments in June 1999, which established new requirements for the annual financial reports of state and local governments. Among the major changes embodied in Statement 34, governments will now be required to a) report on the overall state of the government s financial health, not just its overall "funds" in a newly required Management s Discussion and Analysis (MD&A), b) provide the most complete information available about the cost of delivering services to their citizens in the annual report which will now also include financial statements prepared using full accrual accounting for all of the government s activities, c) include information about the government s public infrastructure assets such as bridges, roads and storm sewers, and d) prepare an introductory narrative section analyzing the government s financial performance. The GASB standard took effect for larger governments ($100 million plus in revenues) beginning with fiscal years ending after June 15, Medium-sized governments (between $10 and $100 million in revenue) have applied the Statement beginning with fiscal years ending after June 15, 2003 and smaller governments (under $10 million in revenue) began with fiscal years ending after June 15, The District does not implement GASB Statement No. 34 for its financial statements. The District has obtained a waiver from generally accepted accounting principles which allows the District to revert to the statutory basis of accounting. Property Valuations The determination of assessed valuation and the collection of property taxes for all political subdivisions in the state of Kansas is the responsibility of the various counties under the direction of state statutes. The County Appraiser's office determines the assessed valuation that is to be used as a basis for the mill levy on property located in the District. Property subject to ad valorem taxation is divided into two classes, real property and personal property. Real property is divided into seven subclasses; there are six subclasses of personal property. The real property (Class 1) subclasses are: (i) real property used for residential purposes including multi-family mobile or manufactured homes and the real property on which such homes are located, assessed at 11.5%, (ii) agricultural land, valued on the basis of agricultural income or productivity, assessed at 30%, (iii) vacant lots, assessed at 12%, (iv) real property, owned and operated by a not-for-profit organization not subject to federal income taxation, pursuant to Section 501 of the Internal Revenue Code, assessed at 12%, (v) public utility real property, except railroad real property, assessed at the average rate that all other commercial and industrial property is assessed, assessed at 33%, (vi) real property used for commercial and industrial purposes and buildings and other improvements located on land devoted to agricultural use, assessed at 25%, and (vii) all other urban and real property not otherwise specifically classified, assessed at 30%. Tangible personal property (Class 2) subclasses are: (i) mobile homes used for residential purposes, assessed at 11.5%, (ii) mineral leasehold interests, except oil leasehold interests, the average daily production from which is 5 barrels or less, and natural gas leasehold interests, the average daily production from which is 100 mcf or less, which shall be assessed at 25%, assessed at 30%, (iii) public utility tangible personal property, including inventories thereof, except railroad personal property, including inventories thereof, which shall be assessed at the average rate all other commercial and industrial property is assessed, assessed at 33%, (iv) all categories of motor vehicles not defined and specifically valued and taxed pursuant to law enacted prior to January 1, 1985, assessed at 20%, (v) commercial and industrial machinery and equipment which if its economic life is 7 years or more, shall be valued at its retail cost, when new, less seven-year straight-line depreciation, or which, if its economic life is less than 7 years, shall be valued at its retail cost when new, less straight-line depreciation over its economic life, except that, the value so obtained for such property, notwithstanding its economic life and as long as such property is being used, shall not be less than 20% of the retail cost when new of such property, assessed at 25%, and (vi) all other tangible personal property not otherwise specifically classified, assessed at 30%. All property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, farm machinery and equipment, merchants' and manufacturers' inventories, other than public utility inventories included in subclass (3) of class 2, livestock, and all household goods and personal effects not used for the production of income, shall be exempted from property taxation. A-8

29 The 2006 Kansas Legislature exempted from all property or ad valorem property taxes levied under the laws of the State all commercial, industrial, telecommunications and railroad machinery and equipment acquired by qualified purchase or lease after June 30, 2006 or transported into the State after June 30, 2006 for the purpose of expanding an existing business or creation of a new business. Assessed Valuation The following table shows the assessed valuation of the taxable tangible property within the District for the following years: Source: Reno County Clerk Source: Harvey County Clerk RENO COUNTY PORTION OF DISTRICT Year Real Property Personal Property Utilities Motor Vehicles Total Valuation 2003 $71,547,299 $9,836,203 $19,650,985 $15,084,096 $116,118, ,988,275 9,334,971 21,488,336 15,018, ,829, ,433,523 9,700,085 22,418,166 15,330, ,882, ,000,631 11,422,935 20,090,448 15,586, ,100, ,622,563 9,813,153 20,531,744 15,912, ,880, ,366,080 9,391,829 18,107,200 15,879, ,744, ,384,239 7,521,626 19,032,814 15,810, ,749, ,114,459 7,540,023 20,459,814 15,861, ,975, ,775,703 7,493,689 22,834,710 16,535, ,639,457 HARVEY COUNTY PORTION OF DISTRICT Year Real Property Personal Property Utilities Motor Vehicles Total Valuation 2003 $1,719,014 $356,220 $289,282 $185,646 $2,550, ,770, , , ,643 2,700, ,795, , , ,627 2,905, ,793, , , ,896 3,229, ,777, , , ,979 3,238, ,742,638 1,267, , ,378 3,545, ,658, , , ,597 2,994, ,646, , , ,638 3,206, ,650,490 1,375, , ,119 3,741,264 TOTAL ASSESSED VALUATION Total Year Valuation 2003 $118,668, ,530, ,787, ,330, ,118, ,289, ,743, ,182, ,380,721 A-9

30 Estimated Market Valuation The following table shows the estimated market valuation assuming an average assessment ratio of 16% for property within the District for the following years: Property Tax Levies and Collections Year Estimated Market Value 2003 $741,679, ,566, ,923, ,313, ,243, ,811, ,647, ,642, ,379,506 Tax statements are mailed November 1 each year and may be paid in full or one-half on or before December 20 with the remaining one-half due on or before May 10 of the following year. Taxes that are unpaid on the due dates are considered delinquent and accrue interest at a per annum rate established by State law until paid or until the property is sold for taxes. Real estate bearing unpaid taxes is advertised for sale on or before August 1 of each year and is sold by the County for taxes and all legal charges on the first Tuesday in September. Properties that are sold and not redeemed within two years after the tax sale are subject to foreclosure sale, except homestead properties which are subject to foreclosure sale after three years. Personal taxes are due and may be paid in the same manner as real estate taxes, with the same interest applying to delinquencies. If personal taxes are not paid when due, and after written notice, warrants are issued and placed in the hands of the Sheriff for collection. If not paid on or before October 1, legal judgment is entered and the delinquent tax becomes a lien on the property. Unless renewed, a non-enforced lien expires five years after it is entered. Motor vehicle taxes are collected periodically throughout the year concurrently with the renewal of motor vehicle tags based upon the value of such vehicles. Such tax receipts are distributed to all taxing subdivisions, including the State of Kansas, in proportion to the number of mills levied within each taxpayer's tax levy unit. Tax Levies: below: The following table shows the District's mill levies by fund (per $1,000 of assessed valuation) for the years as set forth Supplemental General Fund Capital Outlay Fund Recreation/ General Benefits Fiscal Year General Fund Bond & Interest District Levy Total Levy 2002/ / / / / / / / / / Source: County Clerk A-10

31 Aggregate Tax Levies: The aggregate tax levies of the District and overlapping and underlying jurisdictions for the years indicated are included in the following table: Hutchinson Community College City Reno County FD Jt. 2 and Little River Twsp Fiscal Year School District State Total Levy 2002/ / / / / / / / / / Source: County Clerk Tax Collection Record: The following table sets forth tax collection information for the District for the years indicated: Source: County Treasurer Major Taxpayers: Total Taxes Levied Current Tax Collections Percent of Levy Collected Year 2002 $4,090,326 $3,946, % ,389,834 4,233, % ,956,924 4,785, % ,165,496 4,943, % ,828,671 4,705, % ,240,119 5,125, % ,470,559 5,324, % ,648,290 5,517, % ,921,997 5,767, % ,104,366 5,937, % The following table sets forth the ten largest taxpayers in the District for taxes paid during 2011: Source: County Appraiser Taxpayer Assessed Valuation Taxes Paid Main Line, Inc $18,001,650 $4,500,413 Sands of Hutchinson, LLC 8,392,130 2,098,033 Lowe s Home Center 5,300,000 1,316,920 City Beverage Co, Inc 4,294,180 1,073,545 Aluminum Company of America 3,790, ,733 Prairie Dunes, Inc 2,898, ,727 HCRI Kansas Properties, LLC 5,524, ,311 Bric Hutchinson, LLC 2,328, ,000 City of Hutchinson - IRB 2,160, ,026 Prairie Village Residences, LLC 4,585, ,286 A-11

32 School District Funding Formula Overview. In 1992 the Kansas Legislature made significant changes to the method of funding primary and secondary public education in the state. These changes were made in response to a lawsuit brought forth by several school districts. The Governor of the State of Kansas signed this legislation (the Plan ) into law in early A number of modifications were made to the Plan in subsequent sessions of the Kansas Legislature. The primary effects of the Plan were to shift the majority of responsibility for funding primary and secondary public education to the state, equalize statewide property tax rates for education, and equalize the per-pupil spending of school districts. The Plan provided for state aid to assist districts with principal and interest payments on voted general obligation bond issues; however, it did not impact a school district s obligation to provide for the payment of the principal of and interest on its existing and future general obligation bonded indebtedness. Various amendments to the Plan have been made by the Kansas Legislature. Litigation was instituted in 1999 against the State, which resulted in various court decisions and subsequent legislative changes to the Plan. The Plan, as amended, is summarized below. Subsequent litigation was instituted in 2010 against the State based on funding levels to implement the Plan (see the subsection hereof entitled Pending Litigation ). Funding for the Plan. Funding for the Plan involved implementing a number of changes to the property, sales and income tax structures in the state. The following is a brief summary of these changes. Local Effort Property Taxes. In an effort to provide a uniform property tax rate for education across the state, a fixed general fund mill levy was implemented. Each district was required to levy taxes for its general fund at the following rates: School Year(s) Mill Levy 1992/ / / The Plan was also modified to exclude the first $20,000 of appraised valuation of each parcel of residential property from the general fund mill levy. All other taxable tangible property within a district is subject to this uniform tax rate. The District's Bond and Interest Fund, from which principal and interest payments are financed, is exempt from this tax limitation. The effect of the Plan s property tax equalization effort was to cause the majority of districts to experience significant declines in their property tax rates, while a small number of districts with higher assessed valuations experienced increases. To make up the revenue lost by lowering property taxes in the majority of Kansas school districts, several revenue enhancements were adopted or increased to provide a source of funds for state financial aid to school districts, including changes to State sales and income taxes. Sales and Use Tax. The statewide sales and use tax was increased from 4.25% to 4.90% effective July 1, Additionally, several goods and services which had previously been exempt were now made subject to the tax or taxed at a reduced rate of 2.50%. Effective July 1, 2002, the statewide sales and use tax was increased to 5.30%. Effective July 1, 2010, the statewide sales and use tax was increased by 1%; 0.6% of which will sunset on June 30, Income Taxes. Several changes were made to individual and corporate income tax rates and levels of income at which the taxes became effective. The net effect of these changes was to slightly decrease individual income taxes in the lower income levels while increasing rates for higher levels of income. Additionally, certain deductions to taxable income that had previously been allowed, such as federal income taxes, were removed. General Fund Operations. Revenue to support general fund operations is provided to districts through state financial aid ( SFA ). Total SFA is calculated each year by multiplying base state aid per pupil ( BSAPP ) by the adjusted enrollment of a district. Adjusted enrollment means the district s full-time enrollment adjusted by certain weighting factors which result in adjusting the SFA. Generally, weighting factors are available for special education students, the opening of new facilities, students considered at-risk and non-proficient, students transported over certain distances, students in districts with very low, very high, or declining enrollments, and students in special programs such as bilingual and vocational education, virtual education and preschool. A-12

33 BSAPP is determined by statute, subject to reduction in the amount of legislative appropriations from the state general fund for general state aid and Governor executive orders based on revenue collections for such purposes. The original 1992 BSAPP was $3,600 which was incrementally increased to $4,492 for school year and each year thereafter. Subsequent Legislative appropriation reductions and executive orders reduced BSAPP for school years and The 2011 Kansas Legislature approved the BSAPP reduction to $3,937 for the school year and $3,780 for the school year. The 2012 Kansas Legislature approved a BSAPP increase to $3,840 for the school year. The amount of SFA that a district actually receives each year from the State is offset by the district s local revenue generating effort. The local effort generally includes the fixed general fund property tax levy, motor vehicle tax collections and any remaining fund balances. If the local effort is insufficient to generate the BSAPP, then the balance of funds needed is provided by the state. If the local effort generates in excess of the BSAPP, then the surplus must be remitted to the state. The District's general state aid entitlement is paid monthly from the state school district finance fund during July through May according to the amount needed to meet operating expenses with the balance paid in June. Any amount not so paid in June shall be paid on July 1 or as soon thereafter as funds are available for such payment, which shall be recorded and accounted by the district as received on June 30. Funds and Accounts. Several different fund categories are created and authorized by the Plan, including: (a) the general fund from which operating expenses are paid, (b) the supplemental general fund (Local Option Budget), (c) the contingency reserve fund, which may not exceed 10% of the general fund budget for school years through and 6% of the general fund thereafter, (d) program-weighted funds for expenditures for program-weighted items such as vocational education and bilingual education, (e) categorical funds such as special education, food service, driver training, virtual school, etc., (f) a special liability expense fund, (g) a special reserve fund, (h) a textbook and student materials revolving fund, and (i) tuition reimbursement fund. Transfers made from the general fund to any other fund are considered an operating expense. The district may transfer money from the general fund to any categorical fund of the district and may transfer money in the general fund to a program weighted fund, subject to certain conditions. Supplemental General Fund. In order to provide additional funding for operations, the Plan also allows a district to create a supplemental general fund. The supplemental general fund can be used for the same purposes as the general fund. The supplemental general fund is financed through a local option budget ( LOB ) which may equal up to 31% of the District s General Fund Budget Authority (as calculated prior to the 2009 legislative budget adjustments using $4,433 BSAPP authorized in 2008, times the weighted enrollment, plus state special education aid). The LOB represents an ad valorem tax on all taxable tangible property in the District. Additional state aid is available, based on relative levels of assessed valuation, to assist districts in funding the supplemental general fund. If a district adopts a LOB in excess of 25%, and the resolution authorizing the LOB so provides, monies attributable to the LOB in excess of 25% may be transferred to the district s capital improvement fund and capital outlay fund. In each school year, a district that has adopted a LOB is eligible for entitlement to an amount of supplemental general state aid determined by a formula that takes into account the district's assessed value per pupil ( AVPP ) and other factors. Amounts in the supplemental general fund may not be expended nor transferred to the general fund for the purpose of making payments under lease-purchase agreement involving the acquisition of land or buildings. Any district that has adopted a LOB in excess of 30% may also, subject to notice and protest, make a cost of living adjustment to such levy. Each LOB must be approved by the District s governing body and may, under circumstances, be subject to notice and protest and/or referendum. Any LOB in excess of 30% of the state financial aid of the district in the current school year shall not be effective unless approved by a majority of the qualified electors of the district. Capital Outlay Funds. The Plan authorizes any district to initiate a capital outlay levy in an amount not to exceed 8 mills (exception for existing levies in greater amounts) for a period not to exceed 5 years upon all taxable tangible property within the district. Prior to instituting such capital outlay levy, the board of education of the district shall adopt a resolution declaring an intent to institute the levy, which resolution shall be published and is subject to protest petition. A capital outlay levy may be reauthorized in the same manner during the last levy period. Funds generated by such levy, and funds transferred from the general fund of the district, are deposited into a capital outlay fund. Moneys in the capital outlay fund may be expended for land acquisition, making capital improvements and acquisition of school buses and equipment for the district. A district may issue general obligation capital outlay bonds in an amount determined by formula that will be repaid from funds derived from the current capital outlay levy. The District adopted a resolution in 2012 setting the maximum mill levy for the Capital Outlay Fund at 6 mills for the next five years. A-13

34 In addition, there is established in the State treasury the school district capital outlay state aid fund. Any district that levies a capital outlay levy is eligible to receive moneys from the school district capital outlay state aid fund based on a state aid percentage factor determined on a formula inversely related to the AVPP as compared to the median AVPP of all districts in the State. Each year, the State Board of Education determines the AVPP of each district, rounded to the nearest $1,000. The median AVPP for all districts is calculated and a percentage factor (the state aid computation percentage ) is assigned to the AVPP. For each $1,000 AVPP above or below the state median AVPP, the factor changes by 1.0 percentage point inversely to AVPP. The state computation percentage is 25%. The district's state aid computation percentage is multiplied by the district's capital outlay mill levy, not to exceed 8 mills and 2010 legislation eliminated funding for school district capital outlay state aid for the school years. Lease Purchase Agreements. K.S.A authorizes school districts to enter into lease purchase agreements for a term not to exceed 10 years, subject to annual appropriation requirements of the cash-basis law. Any lease purchase agreement entered into by a school district which involves the acquisition of land or buildings, is for a term exceeding the current fiscal year and provides for annual payments which in the aggregate exceed $100,000, requires that the district publish a resolution declaring its intent to enter such agreement once each week for two consecutive weeks in a newspaper of general circulation within the district. An election shall be required if 5% of the qualified voters in the district file a petition with the county election officer within 30 days of the last publication of the resolution. Capital Improvement Fund. There is established in the State Treasury the school district Capital Improvement Fund ( CIF ). The CIF is intended to assist districts on making principal and interest payments on voted general obligation bond issues. Each school district that is obligated to make payments from its bond and interest fund is entitled to receive state aid from the CIF in an amount inversely related to its AVPP. Each year the State Board of Education determines the AVPP of each district, rounded to the nearest $1,000. The median AVPP for all districts is calculated and a percentage factor (the state aid computation percentage ) is assigned to the AVPP. For each $1,000 AVPP above or below the state median AVPP, the factor changes by 1.0 percentage point inversely to AVPP. The percentage assigned to a district is its state aid percentage factor. The factor may not exceed 100%. The state aid computation factor is 5% for contractual bond obligations incurred by school districts prior to July 1, 1992 and 25% for contractual bond obligations incurred after July 1, Any school district that receives payments from the CIF and has experienced at least a five percent per year or 50 pupil decline in enrollment (whichever is greater) for the previous three years must seek a recommendation from the Joint Committee on State Building Construction prior to issuing bonds for the construction of a new building. If the Joint Committee recommends against the issuance of bonds and the district proceeds to issue bonds, the district is not entitled to receive payments from the CIF for those bonds. The District's entitlement of state aid from the CIF each year is determined by applying the state aid percentage factors to the bond and interest fund payment obligation for that year. It is anticipated that this source of state funding will pay approximately 25% of the District's debt service on the Bonds for the school year No assurance can be given that state assistance will continue in future years. However, the District is obligated to levy unlimited ad valorem taxes to provide for debt service payments on the Bonds, regardless of any State aid. Pending Litigation. In November 2010 a lawsuit was filed in the District Court for Shawnee County, Kansas, against the State by certain individuals on behalf of students and four unified school districts on behalf of themselves and as representatives of a defined class, alleging that the Plan is a funding scheme in violation of the State constitution that does not properly fund an adequate education for Kansas pupils, that current funding levels are not sufficient to fund the Plan as adopted by the Legislature, and that Plan funding is not distributed fairly among school districts. Litigation of this lawsuit is currently proceeding. A separate lawsuit was filed in December 2010 in the United States District Court in Kansas City, Kansas, against the State by certain individuals on behalf of students alleging that the Plan violates the equal protection clause of the United States Constitution. In March 2011, a United States District judge dismissed this action; an appeal before the United States 10 th Circuit Court of Appeals is pending. Pension and Employee Retirement Plans The District participates in the Kansas Public Employees Retirement System (KPERS) established in 1962, as an instrumentality of the State, pursuant to K.S.A et seq., to provide retirement and related benefits to public employees in Kansas. KPERS is governed by a board of trustees consisting of nine members, including four members appointed by the Governor subject to confirmation by the State Senate, one appointed by the President of the Senate, one appointed by the Speaker of the House of Representatives, two elected by members and retirants of the retirement system, which must be members of such system, and the State Treasurer. Members of the board of trustees serve four-year terms and elect a chairperson annually. The board of trustees appoints an Executive Director to serve as the managing officer of KPERS and employs a staff of approximately 95 people. A-14

35 As of June 30, 2011, KPERS serves about 279,000 members and 1,500 participating employers, including the State, school districts, counties, cities, public libraries, hospitals and other governmental units. KPERS administers the following three statewide, defined benefit retirement plans for public employees: (a) (b) (c) Kansas Public Employees Retirement System; Kansas Police and Firemen s Retirement System; and Kansas Retirement System for Judges. These three plans are separate and distinct with different membership groups, actuarial assumptions, experience, contribution rates and benefit options. The Kansas Public Employees Retirement System is the largest of the three plans, accounting for more than 95% of the members. The Kansas Public Employees Retirement System is further divided into two separate groups, as follows: (a) State/School Group - includes members employed by the State, school districts, community colleges, vocational-technical schools and educational cooperatives. The State of Kansas makes all employer contributions for this group, 85% of which comes from the State General Fund. State legislation enacted in 2003 made certain pre-1962 Board employees (which are part of a small group of pre-1962 Board and University of Kansas Hospital Authority employees known as the TIAA Group ), special members of the State/School Group. (b) Local Group - all participating cities, counties, library boards, water districts and political subdivisions are included in this group. Local employers contribute at a different rate than the State/School Group rate. State legislation enacted in 2003 made certain pre-1962 employees of the University of Kansas Hospital Authority (which are a part of a small group of pre-1962 Board and University of Kansas Hospital Authority employees known as the TIAA Group ), special members of the Local Group. KPERS is currently a qualified, governmental, 401(a) defined benefit pension plan, and has received IRS determination letters attesting to the plan s qualified status dated October 14, 1999 and March 5, KPERS is also a contributory defined benefit plan, meaning that employees make contributions to the plan. This contrasts it from noncontributory pension plans (more common in the private sector), which are funded solely by employer contributions. The District's employees currently annually contribute: (a) 4% of their gross salary to the plan if such employees are KPERS Tier 1 members (covered employment prior to July 1, 2009), or (b) 6% of their gross salary to the plan if such employees are KPERS Tier 2 members (covered employment on or after July 1, 2009). The State's contribution for school employees varies from year to year based upon the annual actuarial valuation and appraisal made by KPERS, subject to legislative caps on percentage increases. Currently, the State's contribution is 9.77% of the employee s gross salary, for the period beginning July 1, 2011, through June 30, Effective July 1, 2012, the rate increases to 10.37%. According to the Valuation Report as of December 31, 2010 (the Valuation Report ) the KPERS School Group, of which the Issuer is a member, carried an unfunded accrued actuarial liability ( UAAL ) of $5.313 billion at the end of KPERS actuaries identified that an employer contribution rate of 15.12% of covered payroll would be necessary, in addition to statutory contributions by covered employees, to eliminate the UAAL by 2033, the end of the actuarial period. Because the annual growth in employer contribution rates is limited by State law, the actual contribution rate permitted at the time of calculation was only 9.97%. As a result, members of the School Group are underfunding their projected actuarial liabilities and the UAAL can be expected to grow over time. KPERS actuaries project the required employer contribution rate to increase by the maximum, 0.60%, each year until such time as the permitted rate equals the actuarial rate. The authors of the Valuation Report expect this to occur in approximately 2031 based upon the actuarial assumptions made by the authors. The 2012 Kansas legislature adopted a number of changes to KPERS, including: (a) Effective January 1, 2015, the creation of a new KPERS Tier 3 category (covered employment on or after January 1, 2015) based on a cash balance plan. Each Tier 3 participant shall have a retirement annuity account to which such participant shall contribute 6% of their gross salary to the plan. The employer or State contribution varies based on longevity of participant service: (1) 3% for less than 5 years; (2) 4% for at least 5 years but less than 12 years; (3) 5% for at least 12 years but less than 24 years; and (4) 6% for 24 or more years. Such account shall receive an interest credit of 5.25% per annum, and under certain circumstances, shall receive additional interest credits. Subject to certain exceptions, a Tier 3 participant, upon retirement, shall receive a single life annuity benefit. (b) Increasing the statutory maximum employer contribution annual increase from 0.6% per year (status quo) to 0.9% per year in 2014, 1.0% in 2015, 1.1% in 2016 and 1.2% per year by (c) Effective January 1, 2014, providing additional contribution flexibility for Tier 1 participants with corresponding benefit adjustments. A-15

36 (d) adjustments. (e) Effective January 1, 2014, eliminate COLA adjustments for Tier 2 participants with corresponding benefit Provide additional flexibility for alternative investments for the plan (f) Provide for a single actually-determined employer contribution rate covering all three KPERS Tiers, calculated for each KPERS group. (g) Provide new State funding sources to assist in reducing UAAL. The 2012 legislation, which is pending Governor approval, did not address changes for the Kansas Police and Firemen s Retirement System or the Kansas Retirement System for Judges. Debt Summary DEBT STRUCTURE The following table summarizes certain key statistics with respect to the Issuer's general obligation debt, including the Bonds: Assessed Valuation... $148,380,721 Estimated Actual Valuation 1... $927,379,506 Outstanding General Obligation Bonds 2... $51,525,000 Overlapping Debt... $19,137,722 Direct debt per capita... $5, Direct and overlapping debt per capita... $7, Direct debt as a percentage of Assessed Valuation % Direct debt as a percentage of Estimated Actual Valuation % Direct & overlapping debt as a percentage of Assessed Valuation % Direct & overlapping debt as a percentage of Estimated Actual Valuation % 1 Estimated Actual Valuation based upon an average assessment ratio of 16%. 2 The State established the CIF in 1992 to assist school districts on making principal and interest payments on voted general obligation bond issues. Each school district that is obligated to make payments from its bond and interest fund is entitled to receive state aid from the CIF. A school district's entitlement of state aid from the CIF each year is determined by applying its state aid percentage factor to the bond and interest fund payment obligation for that year. For the school year , it is anticipated this source of state funding will pay approximately 25% of the debt service on general obligation bonds issued by the District. Such state aid was not taken into account to determine the amount of the District s outstanding general obligation bonds. Although the CIF has provided state aid in each year since its inception, no assurance can be given that state aid will continue in future years. However, the District is obligated to levy unlimited ad valorem taxes to provide for debt service payments on its outstanding general obligation bonds, including the Bonds, regardless of any state aid. See Property Tax Levies and Collection School District Funding Formula Capital Improvement Fund above for additional information concerning the CIF and such state aid. Current Indebtedness of the Issuer The following table sets forth as of the date of issuance of the Bonds all of the outstanding obligations of the Issuer, including the Bonds, but excluding any Refunded Bonds: GENERAL OBLIGATION BONDS Description of Indebtedness Series Dated Date Original Principal Amount Amount Outstanding Final Maturity General Obligation Refunding Bonds /01/2003 $8,985,000 $3,450,000 9/1/2016 General Obligation Bonds 2012-A 8/30/ ,995,000 44,995,000 9/1/2037 Taxable General Obligation Refunding Bonds 2012-B 8/30/2012 3,080,000 3,080,000 9/1/2019 Total = $51,525,000 A-16

37 General Obligation Debt Service Requirements The following debt service schedule shows the principal and interest requirements for all outstanding general obligation indebtedness of the Issuer, including the Bonds. Debt Service Schedule Series 2012 Bonds Year Outstanding Bonds Principal Interest Total 2012 $1,316, $1,316, , $1,822, ,310, , ,817, ,402, , ,817, ,445, , ,817, ,505, $825, ,817, ,642, , ,802, ,697, , ,784, ,779, ,060, ,762, ,822, ,175, ,732, ,907, ,310, ,685, ,995, ,455, ,632, ,087, ,600, ,574, ,174, ,760, ,510, ,270, ,930, ,440, ,370, ,110, ,363, ,473, ,280, ,292, ,572, ,470, ,214, ,684, ,665, ,128, ,793, ,885, ,021, ,906, ,120, , ,026, ,365, , ,146, ,620, , ,267, ,895, , ,397, ,180, , ,526, ,480, , ,659, TOTAL = $3,706, $48,075, $33,400, $85,182, A-17

38 Overlapping and Underlying Indebtedness The following table sets forth overlapping and underlying indebtedness as of July 1, 2012, and the percent attributable (on the basis of assessed valuation) to the District: Outstanding General Obligation Indebtedness Percent Applicable to Issuer Amount Applicable to Issuer Taxing Jurisdiction Reno County $10,265, % $2,662,471 Harvey County 5,545, % 77,076 City of Buhler 835, % 176,352 City of Hutchinson 30,142, % 14,495,516 Hutchinson Community College 6,655, % 1,726,307 Total = $53,442,476 $19,137,722 Source: County Clerk Additional Indebtedness The District does not currently plan to issue any additional general obligation bonds in the near future. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) A-18

39 APPENDIX B FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011

40 (THIS PAGE LEFT BLANK INTENTIONALLY)

41 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Primary Government Financial Statements With Independent Auditors' Report For the Year Ended June 30, 2011

42 (THIS PAGE LEFT BLANK INTENTIONALLY)

43 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Primary Government Financial Statements With Independent Auditors' Report For the Year Ended June 30, 2011 TABLE OF CONTENTS Independent Auditors' Report 1 Statement 1 - Summary of Cash Receipts, Expenditures and Unencumbered Cash 3 Statement 2 - Summary of Expenditures - Actual and Budget 4 Statement 3 - Statement of Cash Receipts and Expenditures - Actual and Budget Individually Presented by Fund Governmental Fund Categories General Funds 3-1 General Fund Supplemental General Fund 6 Special Revenue Funds 3-3 Capital Outlay Fund Driver Training Fund Food Service Fund Professional Development Fund Parent Education Fund Special Education Fund Vocational Education Fund KPERS Retirement Contributions Fund Gifts and Grants Fund Bilingual Education Fund Contingency Reserve Fund Student Material Fund Buhler CARES Programs Fund Title I Fund Title I-ARRA Fund Title IIA Fund Title lid Technology Education Fund Title IV Fund PEP Grant Fund Obee TRC Grant Fund Prosperity TRC Grant Fund Perkins Reserve Fund At Risk Fund Universal Kindergarten Fund BGS TRC Grant Fund PHMS TRC Grant Fund Three School Fund 33 Debt Service Fund 3-30 Bond and Interest Fund Statement 4 - Summary of Cash Receipts and Cash Disbursements Agency Funds 35

44 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Primary Government Financial Statements With Independent Auditors' Report For the Year Ended June 30, 2011 TABLE OF CONTENTS (continued) Statement 5 - Summary of Cash Receipts, Expenditures, and Unencumbered Cash District Activity Funds 36 Notes to Financial Statements 37 Supplementary Infonnation Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 49 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 Schedule of Findings and Questioned Costs 53 Summary Schedule of Prior Audit Findings 59 Schedule of Expenditures of Federal Awards 60 Notes to Schedule of Expenditures of Federal Awards 61

45 ADAMS BROWN BERAN _ & BALL _". Certified Public Accountants INDEPENDENT AUDITORS' REPORT To the Board of Education Unified School District No. 313 Buhler, Kansas Buhler, Kansas We have audited the accompanying primary government financial statements of Unified School District No. 313 Buhler, Kansas, as of and for the year ended June 30, 2011, as listed in the table of contents. These financial statements are the responsibility of Unified School District No. 313 Buhler, Kansas' management Our responsibility is to express opinions on these financial statements based on our audit We conducted our audit in accordance auditing standards generally accepted in the United States of America, the Kansas Municipal Audit Guide and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards and the audit guide 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinions. The financial statements do not include financial data for the Districfs legally separate componentunit, the Buhler USD Education Foundation. Accounting principles generally accepted in the United States ofamerica require the financial data for this component unit to be reported with the financial data ofthe District's primary government unless the District also issues financial statements forthe financial reporting entity that include the financial data for its component unit The District has not issued such reporting entity financial statements. Because ofthis departure from accounting principles generally accepted in the United States ofamerica, the cash and unencumbered cash balances of the aggregate discretely presented component unit would have been reported as $130,693 for the Buhler USD Education Foundation. As described more fully in Note 1, Unified School District No. 313 Buhler, Kansas has prepared these financial statements using accounting practices prescribed or permitted by the State of Kansas, whose practices differ from accounting principles generally accepted in the United States ofamerica. The effect on the financial statements of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. In our opinion, because of the effects of the matter discussed in the preceding two paragraphs, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofamerica, the financial position of Unified School District No. 313 Buhler, Kansas as of June 30, 2011, or the changes in its financial position for the year then ended. Further, Unified School District No. 313 Buhler, Kansas has not presented a managemenfs discussion and analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not required to be part of, the basic financial statements. 1

46 Unified School District No. 313 BUhler, Kansas Page Two In ouropinion, the financial statements referred to above present fairly, in all material respects, the cash and unencumbered cash balances ofeach fund ofunified School District No. 313 Buhler, Kansas, as ofjune 30, 2011, and their respective cash receipts and disbursements and budgetary results for the year then ended. on the basis of accounting described in Note 1. In accordance with Govemment Auditing Standards, we have also issued our report dated December 12, 2011 on our consideration of Unified School District No. 313 Buhler, Kansas' 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 ofthat report is to describe the scope ofour 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 auditperformed in accordancewith GovemmentAuditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Unified School District No. 313 Buhler, Kansas' financial statements as a whole. The accompanying schedule ofexpenditures offederal awards is presented for purposes ofadditional analysis as required by the U.S. Office of Management and BudgetCircularA-133, Audits ofstates, Local Govemments, and Non-Profit Organizations, and is not a required part of the financial statements. The schedule of expenditures of federal awards is the responsibility of management and is derived from and relates 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 directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and otheradditional procedures in accordancewith auditing standards generallyaccepted in the United StatesofAmerica. In ouropinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. -A O~. _ ~.LJ~{J IA~B~-B~ & BALL, dim. Certified Public Accountants December 12,

47 Add Outstanding Beginning Prior Year Ending Encumbrances Unencumbered Cancelled Cash Unencumbered and Accounts Ending Funds Cash Balance Encumbrances Receipts Expenditures Cash Balance Payable Cash Balance Governmental Fund Categories General Funds General Fund $ (923,712) 13,657,926 13,011,476 (277,262) 75, ,0801 Supplemental General Fund (197,637) 4,603,377 4,319,894 85, ,085 Special Revenue Funds Capital Outlay Fund 162,483 3,338 1,270,051 1,277, ,506 37, ,961 Driver Training Fund 67,733 93, ,233 60,840 60,840 Food Service Fund 215,722 1,211,314 1,171, , ,654 Professional Development Fund 10,000 40, ,000 50,000 Parent Education Fund 16,664 16,500 16,496 18,868 18,868 Special Education Fund 721,215 2,949,886 2,982, , ,558 Vocational Education Fund 2, , ,936 50,000 22,279 72,279 KPERS Retirement Contributions Fund 681, ,313 Gifts and Grants Fund 94,232 37, ,481 12, ,530 Bilingual Education Fund 2,000 59,615 51,615 10,000 10,000 Contingency Reserve Fund 428, , ,414 Student Material Fund 11,005 99,489 56,605 53,889 53,889 Buhler CARES Programs Fund 6, , ,710 19,203 19,203 Title I Fund 63, , ,001 (78,398) 208 (78,190) Title I- ARRA Fund 57,103 57,103 Title IIA Fund 15, , t68 65,385 (17,070) (17,070) Title 110 Technology Education Fund Title IV Fund 5,521 4,363 1, ,650 PEP Grant Fund (1,379) 59,650 52,003 6, ,575 Prosperity TRC Grant Fund 62,199 45,550 16, ,149 Perkins Reserve Fund 17,252 17,252 At Risk Fund 100,195 2, , , , ,637 Universal Kindergarten Fund (5,973) 10,409 4,436 BGS TRC Grant Fund (740) 5,593 4,853 PHMS TRC Grant Fund (10,528) ,261 16, ,307 Three School Fund 9,543 4,030 5,813 5,813 District Activity Funds 146, , , , ,370 Debt Service Fund Bond and Interest Fund 1,449, ,413,589 1, ,424,009 Total Primary Government (Excluding Agency Funds) $ 2,378,232 9,720 28,960,805 28,061,855 3,286, ,706 3,424,608 - Composition of Cash Checking Accounts $ 3A82,632 less Agency Funds per Statement 4 (58,024) Total Primary Government (ExclUding Agency Funds) $ 3,424,608 UNIFIED SCHOOL DISTRICT NO, 313 BUHLER, KANSAS Summary of Cash Receipts, Expenditures and Unencumbered Cash For the Year Ended June 30, 2011 Stalemenl1 The notes to the financial statements are an integral part of this statement 3

48 Statement 2 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Summary of Expenditures - Actual end Budget For the Year Ended June 30, 2011 Funds Governmental Fund Categories General Funds Generel Fund Supplemental General Fund Special Revenue Funds Capital Outlay Fund Driver Training Fund Food Service Fund Professional Deveiopment Fund Parent Education Fund Special Education Fund Vocational Education Fund KPERS Retirement Contributions Fund Gifts and Grants Fund Biiingual Education Fund At-Risk Fund Debt Service Fund Bond and Interest Fund $ Certified Budget 13,332,277 4,459,135 1,258, ,233 1,437,982 10,000 18,000 3,000, , , ,000 76, ,650 1,413,589 Adjustment to Comply with Legal Max (523,641) (139,241) Adjustment for Qualifying Budget Credits 202,840 61,522 Total Expenditures Budget for Chargeable to Comparison Current Year 13,011,476 13,011,476 4,319,894 4,319,894 1,319,844 1,277, , ,233 1,437,982 1,171,382 10, ,000 16,496 3,000,103 2,982, , , , , , ,481 76,000 51, , ,079 1,413,589 1,413,589 Variance Over (Under) (42,478) (266,600) (9,600) (1,504) (17,560) (82,014) (101,934) (4,519) (24,385) (19,571) The notes to the financial statements ere an integral part of this statement. 4

49 Statement 3-1 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS General Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Prior Year Current Year Variance Over Actual Actual Budget (Under) cash Receipts Taxes and Shared Revenues Ad Valorem Tax $ 2,126,793 2,248,024 2,210, Delinquent Tax ,750 35,925 7,825 Severance Tax 2,241 3,080 3,080 Intergovernmental Revenues Equalization Aid 8, ,378,615 8,775,536 ( ) State Special Education 2.108,270 2,175,969 2,076, Federal Aid - ARRA , ,156 Federal Grant 1,000 Federal Aid - Education Jobs Funds 385, ,492 Reimbursed Expenses 141, , ,840 Total Cash Receipts ,874 13,657, , ,486 Expenditures Instruction 5.628,905 4,811,481 5,845,674 (834,193) Student Support Services 436, , ( ) Instructional Support Staff 434, , ,500 (122,015) General Administration 462, , ,983 (128,807) School Administration 1.129,158 1,109,069 1,186,000 (76,931) Other Supplemental Services , , Operations and Maintenance 1, ,698,924 1, Student Activities 104, , ,488 Student Transportation 565, , ,459 (45.770) Professional Development 19,816 24,035 24,035 Operating Transfers 2,120,753 2,949,886 2,110, ,886 Adjustment to Comply wnh legal Max (523,641) 523,641 legal General Fund BUdget ,843 13,011,476 12,808, ,840 (a) Adjustment for Qualifying Budget Credits ( ) Total Expenditures 13,216,843 13,011,476 13,011,476 Cash Receipts Over (Under) Expenditures 70, ,450 Unencumbered Cash - Beginning (993,743) (923,712) Unencumbered Cash - Ending $ (923,712) (277,262) (a) Adjustment for Qualifying Budget Credits Reimbursed Expenses Over Amounts Budgeted $ 202,840 The notes to the financial statements are an integral part of this statement. 5

50 Statement 3-2 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Supplemental General Fund Statement of Cash Receipts and Expenditures - Actual and BUdget For the Year Ended June 30, 2011 (Wrth Comparative Actual Totals for the Prior Year Ended June ) Current Year Variance Prior Year Over Actual Actual Budget (Under) Cash Receipts Taxes and Shared Revenues Ad Valorem Tax $ 2, ,290, ,288 Delinquent Tax 48,502 49,259 34, Motor Vehicle Tax 301, , ,659 (29,198) Intergovernmental Revenues Equalization Aid 1, ,967, , ,090 Federal Aid - ARRA 476,833 Total Cash Receipts 4,278,343 4,603,377 4,312, ,703 Expenditures Instruction 1,514,874 2,265,193 1,772, ,254 Student Support SelVices 25,000 (25.000) General Administration 6,558 15,151 9,500 5,651 Other Supplemental SelVices 2,490 2,564 85,000 (82,436) Operations and Maintenance 280, , ,500 (49,443) Capital Outlay 21,778 Operating Transfers 2,536,999 1,769,929 2,250,196 (480,267) Adjustment to Comply wtth Legal Max (139,241) Total Expenditures 4,363,548 4,319,894 4,319,894 cash Receipts Over (Under) Expenditures (85.305) 283,483 Unencumbered Cash - Beginning ( ) (197,637) Unencumbered Cash Ending $ (197,637) 85,846 The notes to the financial statements are an integral part of this statement. 6

51 Statement 3-3 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Capital Outlay Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual BUdget (Under) Cash Receipts Taxes and Shared Revenues Ad Valorem Tax $ 928, ,200 1,027,657 (45,457) Delinquent Tax 13,864 18,545 23,588 (5,043) Motor Vehicle Tax 98,942 98, ,653 (67,699) Interest on Idle Funds 26,440 20,665 40,000 (19,335) Rental Income 325 4,880 4,880 other Income 8,285 8,285 Reimbursed Expenses 62, ,522 75,000 61,522 Operating Transfers 12,483 Total Cash Receipts 1,142,312 1,270,051 1,332,898 (62,847) Expenditures Instruction 283, , ,000 (91,327) Operations and Maintenance , , ,323 Student Transportation 213, , ,000 (13,313) Site Acquisition 108,000 (108,000) Facility Acquisition and Construction 344, , ,322 42,361 (a) Adjustment for Qualifying Budget Credtts 61,522 (61,522) Total Expenditures 1,224,963 l,2n,366 1,319,644 (42,478) Cash Receipts Over (Under) Expenditures (82,651) (7,315) Unencumbered Cash - Beginning 245, ,483 Prior Year Cancelled Encumbrances 3,338 Unencumbered Cash Ending $ 162, ,506 (a) Adjusbnent for Qualifying Budget Credits Reimbursed Expenses Over Amounts Budgeted $ 61,522 The notes to the financial statements are an integral part of this statement. 7

52 Statement 3-4 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Driver Training Fund Statement of Cash Receipts and Expendttures - Actual and Budget For the Year Ended June 30, 2011 (Wrth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual Budget (Under) Cash Receipts Intergovernmental Revenue State Aid $ 13,800 22,496 28,000 (S,S04) Fees 6S,984 70,844 6S.000 S,844 Total Cash Receipts 79,784 93,340 93, Expenditures Instruction 86,201 83,842 9S,733 (11,891) Vehicle Operations 3,929 16,391 4,SOO 11,891 Total Expenditures 90, , ,233 cash Receipts Over (Under) Expenditures (10,346) (6,893) Unencumbered Cash Beginning 78,079 67,733 Unencumbered Cash - Endln9 $ 67,733 60,840 The notes to the financial statements are an integral part of this statement. 8

53 Statement 3-5 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Food Service Fund Statement of Cash Receipts and Expenditures R Actual and Budget For the Year Ended June 30, 2011 (Wrth Comparative Actual Totals for the PMor Year Ended June 30, 2010) cash Receipts Intergovernmental Revenues Current Year Variance Prior Year Over Actual Actual Budget (Under) State Aid $ 12,779 12,859 11, Federal Aid 487, , ,285 (46,033) Federal Grant 6,215 6,215 lunch Receipts Students 601, , ,970 57,198 Adults 88,420 57, ,070 (139,094) Other Income 26,546 34,844 25,000 9,844 Total Cash Receipts 1,197,245 1,211,314 1,322,260 (110,946) Expenditures Operations and Maintenance 26,442 9,884 62,982 (53,098) Food SelVice Operation 1,158,015 1,161,498 1,375,000 (213,502) Total Expenditures 1,184,457 1,171,382 1,437,982 (288,600) cash Receipts Over (Under) Expenditures 12,788 39,932 Unencumbered Cash - Beginning 202, ,722 Unencumbered Cash Ending $ 215, ,654 The notes to the financial statements are an integral part of this statement. 9

54 Statement 3-6 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Professional Development Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual Budget (Under) Cash Receipts Operating Transfers $ 10,340 40,400 10, Expenditures Instructional Support Staff 10, ,000 (9,600) Cash Receipts Over (Under) Expenditures 40,000 Unencumbered Cash - Beginning 10,000 10,000 Unencumbered Cash Ending $ ,000 The notes to the financial statements are an integral part of this statement. 10

55 Statement 3~7 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Parent Education Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (Wrth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual Budget (Under) Cash Receipts Operating Transfers $ 17,000 16,500 17,000 (500) Expenditures Student Support Services 16,004 16,496 18,000 (1,504) Cash Receipts Over (Under) Expenditures Unencumbered Cash - Beginning ,864 Unencumbered Cash - Ending $ 18,864 18,868 The notes to the financial statements are an integral part of this statement. 11

56 Statement 3-8 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Special Education Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual Budget (Under) Cash Receipts Operating Transfers $ 3, ,949,886 2, Expenditures Instruction 2,428,029 2,413, ,895 Student Transportation Services 490, , (73,455) Total Expenditures 2.918,844 2,982, (17,560) Cash Receipts Over (Under) expenditures 193,931 (32,657) Unencumbered Cash Beginning 527, ,215 Unencumbered Cash - Ending $ 721, ,558 The notes to the financial statements are an integral part of this statement. 12

57 Statement 3-9 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Vocational Education Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Prior Year Actual Other Fees $ 4,000 Operating Transfers 614,661 Total Cash Receipts 618,661 Current Year Variance Over Actual Budget (Under) 2,075 2, , ,950 (36,218) 609, ,950 (34,143) Expenditures Instruction 617,333 Instructional Support Staff 678 Operations and Maintenance , ,350 (86,500) (667) 6,053 1,000 5,053 Total Expenditures 618, , ,950 (82.014) Cash Receipts Over (Under) Expenditures 47,871 Unencumbered cash - Beginning Prior Year Cancelled Encumbrances 2,129 Unencumbered Cash - Ending $ 60,000 The notes to the financial statements are an integral part of this statement. 13

58 Statement 3-10 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS KPERS Retirement Contributions Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (WIth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Current Year Variance Prior Year Over Actual Actual BUdget (Under) cash Receipts Intergovernmental Revenue State Aid $ 809, , ,174 (215,861 ) Expenditures Instruction 494, , ,781 (62,179) Student Support Services 24,296 20,439 23,497 (3,058) Instructional Support Staff 24,296 20,439 23,497 (3,058) General Administration 24,296 20,439 23,497 (3,058) School Administration 64,789 54,505 62,659 (8.154) Other Supplemental services ,439 23,497 (3,058) Operations and Maintenance 64,789 54,505 62,659 (8,154) Student Transportation 56,690 47,692 54,827 (7,135) Food Service Operations 32,394 27,253 31,333 (4.080) Total Expenditures 809, , ,247 (101,934) cash Receipts Over (Under) Expenditures Unencumbered Cash - Beginning Unencumbered Cash - Ending $ The notes to the financial statements are an integral part of this statement. 14

59 Statement 3-11 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Gifts and Grants Fund Statement of Cash Receipts and Expenditures - Actual and BUdget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Intergovernmental Revenues Current Year Variance Prior Year Over Actual Actual Budget (Under) Slate Grant $ 6,930 6,105 6,105 Federal Grant 840 1,350 1,350 Other Revenue From Local Sources 101,731 30,013 35,000 (4,987) Total Cash Receipts 109,501 37,468 35,000 2,468 Expenditures Instruction 37,745 21,021 45,000 (23,979) Cap~al Outlay 98, ,460 Talai Expenditures 37, , ,000 (4,519) Cash Receipts Over (Under) Expenditures 71,756 (82,013) Unencumbered Cash - Beginning 22,476 94,232 Unencumbered Cash Ending $ 94,232 12,219 The notes to the financial statements are an integral part of this statement. 15

60 Statement 3-12 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS BUlngual Education Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June ) Current Year Variance Prior Year Actual Over Actual Budget (Under) Cash Receipts Operating Transfers $ 11,304 59,616 76,000 (16,385) Expenditures Instruction 61,304 51,615 76,000 (24,385) Cash Receipts Over (Under) Expenditures (50,000) 8,000 Unencumbered Cash - Beginning 50,000 Prior Year cancelled Encumbrances 2,000 Unencumbered Cash - Ending $==== 10,000 The notes to the financial statements are an integral part of this statement. 16

61 Statement 3-13 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Contingency Reserve Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (With Comparative Actual Totals tor the Prior Year Ended June ) Prior Year Actual Current Year Actual cash Receipts $ Expenditures Cash Receipts Over (Under) Expenditures Unencumbered Cash ~ Beginning 428, ,414 Unencumbered Cash - Ending $ ==,;;4;;;28;;;,,;;,41;;:4~ 428,414 The notes to the financial statements are an integral part of this statement. 17

62 Statement 3-14 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Student Material Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (W"rth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Book Rental Fees Other Income Operating Transfers Prior Year Actual $ 97,650 2,025 43,173 Current Year Actual 99,489 Tatal Cash Receipts 142,848 99,489 Expenditures Instruction 131,843 56,605 Cash Receipts Over (Under) Expenditures 11,005 42,884 Unencumbered Cash - Beginning 11,005 Unencumbered Cash - Ending $ ==~1~1~,OO~5~ 53,889 The notes to the financial statements are an integral part of this statement. 18

63 Statement 3-15 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Buhler CARES Programs Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Prior Year Current Year Actual Actual Cash Receipts Other Revenue From Local Sources $ 122, ,183 Expenditures Instruction 129, ,321 Worker's Compensation 389 Total Expenditures 129, ,710 Cash Receipts Over (Under) Expenditures (6,375) 12,473 Unencumbered Cash Beginning 13,105 6,730 Unencumbered Cash - Ending $ 6,730 19,203 The notes to the financial statements are an integral part of this statement. 19

64 Statement 3-16 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Title I Fund Statement of Cash Receipts and Expenditures For the Year Ended June (Wrth Comparative Actual Totals for the Prior Year Ended June 30,2010) Cash Receipts Intergovernmental Revenues Federal Aid Prior Year Actual $ 223,367 Current Year Actual 112,756 Expenditures Instruction 159, ,001 Cash Receipts Over (Under) Expenditures 63,847 (142,245) Unencumbered Cash ~ Beginning 63,847 Unencumbered Cash - Ending $ ==~6~3;,;:,84;;;:7~ (78,398) The notes to the financial statements are an integral part of this statement. 20

65 Statement 3-17 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Title I - ARRA Fund Statement of Cash Receipts and Expenditures For the Vear Ended June (With Comparative Actual Totals for the Prior Vear Ended June 30, 2010) Cash Receipts Intergovernmental Revenue Federal Aid - ARRA Expenditures Instruction Refunded ARRA Aid Total Expenditures Prior Vear Actual Current Year Actual $ 114,206 57,103 57,103 57,103 57, ,206 57,103 Cash Receipts Over (Under) Expenditures Unencumbered Cash Beginning Unencumbered Cash - Ending $===.;.. The notes to the financial statements are an integral part of this statement. 21

66 Statement J-18 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS TIUe IIA Fund Statement of Cash Receipts and Expend~ures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) cash Receipts Intergovernmental Revenue Federal Aid Prior Year Actual $ 54,635 Current Year Actual 32,168 Expenditures Instruction 39,635 65,J85 Cash Receipts Over (Under) Expenditures 15,000 (33,217) Unencumbered Cash Beginning 15,988 Prior Year Cancelled Encumbrances Unencumbered Cash Ending $ ==~1;;:5~.9~88~ (17,070) The notes to the financial statements are an integral part of this statement. 22

67 Statement 3-19 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS TItle 110 Technology Education Fund Statement of Cash Receipts and Expenditures For the Year Ended June (Wrth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Intergovernmental Revenues Prior Year Actual Current Year Actual Federal Aid $ 1, Federal Aid - ARRA 4,457 Total Cash Receipts 6, Expenditures Instruction 6, Cash Receipts Over (Under) Expenditures 157 Unencumbered Cash - Beginning 157 Unencumbered Cash - Ending $ The notes to the financial statements are an integral part of this statement. 23

68 Statement 3~20 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Tltie IV Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Intergovernmental Revenue Federal Aid Prior Year Actual $ 5,559 Current Year Actual Expenditures Instruction 38 4,363 Cash Receipts Over (Under) Expenditures 5,521 (4,363) Unencumbered Cash - Beginning 5,521 Unencumbered Cash Ending $ ==~5g;,52~1~ 1,158 The notes to the financial statements are an integral part of this statement. 24

69 Statement 3-21 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS PEP Grant Fund Statement of Cash Receipts and Expenditures For the Vear Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Intergovernmental Revenue Federal Grant Reimbursed Expenses Operating Transfers Prior Year Actual $ 179, ,552 Current Year Actual 14,100 Total Cash Receipts 201,577 59,650 Expenditures Instruction 202,956 52,003 Cash Receipts Over (Under) Expenditures (1,379) 7,547 Unencumbered Cash - Beginning (1,379) Unencumbered Cash Ending $ ==d,;(1,;;,3.;..:79:&,) 6,268 The notes to the financial statements are an integral part of this statement. 25

70 Statement 3 22 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER. KANSAS Obee TRC Grant Fund Statement of Cash Receipts and Expenditures Forthe Vear Ended June 30, 2011 (With Comparative Actual Totals for the Prior Vear Ended June 30, 2010) Cash Receipts Operating Transfers Prior Year Actual $ 13,723 Current Year Actual Expenditures Cash Receipts Over (Under) Expenditures 13,723 Unencumbered Cash Beginning (13,723) Unencumbered cash - Ending $===,,;.. The notes to the financial statements are an integral part of this statement. 26

71 Statement 3-23 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Prosperity TRC Grant Fund Statement of Cash Receipts and Expendnures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Prior Year Actual Cash Receipts Intergovernmental Revenue Federal Aid $ 100,000 Operating Transfers 32,801 Current Year Actual 28,000 34,199 Total Cash Receipts 132,801 62,199 Expenditures Instruction 60,650 Contractual 111 Total Expenditures 60,761 45,550 Cash Receipts Over (Under) Expenditures 72,040 16,649 Unencumbered Cash - Beginning (72,040) Unencumbered Cash - Ending $ 16,649 The notes to the financial statements are an integral part of this statement. 27

72 Statement 3-24 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Perkins ReseNe Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (Wrth Comparative ActualTotals for the Prior Vear Ended June 30, 2010) Cash Receipts Intergovernmental Revenue Federal Aid other Local Aid $ Prior Year Actual Current Vear Actual 10,965 6,287 Total Cash Receipts 17,252 Expenditures Instruction 17,252 Cash Receipts Over (Under) Expenditures Unencumbered cash - Beginning Unencumbered Cash Ending $===,;", The notes to the financial statements are an integral part of this statement. 28

73 Statement 3-25 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS At Risk Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 3D, 2010) Cash Receipts Current Year Variance Prior Year Over Actual Actual Budget (Under) Operating Transfers $ 754, , ,650 58,140 Other Revenue From Local Sources 6 Total Cash Receipts 754, , ,650 58,140 Expenditures Instruction 653, , ,650 (21,072) Other Purchased Services 1,501 1,501 Total Expenditures 653, , ,650 (19,571) cash Receipts Over (Under) Expenditures 100,195 (2,289) Unencumbered Cash - Beginning 100,195 Prior Year Cancelled Encumbrances 2,094 Unencumbened cash - Ending $ 100, ,000 The notes to the financial statements are an integral part of this statement. 29

74 Statement 3-26 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Universal Kindergarten Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Prior Year Current Actual Actual Cash Receipts Private Grant Aid $ 66,265 10,409 Year Expenditures Instruction 44,374 4,436 Cash Receipts Over (Under) Expenditures 21,891 5,973 Unencumbered Cash Beginning (27.864) (5,973) Unencumbered Cash Ending $ (5,973) The notes to the financial statements are an integral part of this statement. 30

75 Statement 3-27 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS BGS TRC Grant Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Intergovernmental Revenue Federal Aid Operating Transfers Prior Year Actual $ 20,000 13,768 Current Year Actual 5,593 Total Cash Receipts 33,768 5,593 Expenditures Instruction Indirect Costs Contractual 30, ,500 4,853 Total Expendjtures 34,508 4,853 Cash Receipts Over (Under) Expenditures (740) 740 Unencumbered Cash Beginning (7401 Unencumbered Cash Ending $ ===(!;.74,;;0;;,) The notes to the financial statements are an integral part of this statement. 31

76 Statement 3-28 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS PHMs TRC Grant Fund Statement of Cash Receipts and Expend~ures For the Year Ended June 30, 2011 (With Comparative Actual Totals for the Prior Year Ended June 30, 2010) Prior Year Actual Current Year Actual Cash Receipts Intergovernmental Revenue Federal Aid - ARRA $ 125,000 Other Grants 3,991 Operating Transfers 50,000 Total Cash Receipts 3, ,000 Expenditures Instruction 20, ,308 Operating Transfers 5,953 Total Expenditures 20, ,261 Cash Receipts Over (Under) Expenditures (16,898) 26,739 Unencumbered Cash - Beginning 6,370 (10,528) Unencumbered Cash - Ending $ (10,528) 16,211 The notes to the financial statements are an integral part of this statement. 32

77 Statement 3-29 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Three School Fund Statement of Cash Receipts and Expenditures For the Year Ended June 30, 2011 (Wrth Comparative Actual Totals for the Prior Year Ended June 30, 2010) Cash Receipts Other Grants Operating Transfers $ Prior Year Actual Current Year Actual 3,890 5,953 Talai Cash Receipts 9,843 Expenditures Instruction 4,030 Cash Receipts Over (Under) Expenditures Unencumbered Cash Beginning Unencumbered Cash Ending $===,;;" 5,813 The notes to the financial statements are an integral part of this statement. 33

78 Statement 3-30 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Bond and Interest Fund Statement of Cash Receipts and Expenditures - Actual and Budget For the Year Ended June (Wrth Comparative Actual Totals for the Prior Year Ended June 30, 2010) cash Receipts Prior Year Current Year Actual Actual Budget Taxes and Shared Revenues Ad Valorem Tax $ 906, , ,547 Delinquent Tax 16,741 19,783 15,359 Motor Vehicle Tax 101,460 99, ,605 Intergovernmental Revenue State Aid 393, , ,533 Variance Over (Under) 17,063 4,424 (13,059) Total Cash Receipts 1,417,930 1,388,472 1,380,044 8,428 Expenditures Principal Payments 1,065,000 1,135,000 1,135,000 Interest Payments 338, , ,589 Commission and Postage 3 1 (1) 1 Total Expenditures 1,403,731 1,413,589 1,413,589 Cash Receipts Over (Under) Expenditures 14,199 (26,117) Unencumbered Cash - Beginning 1,434,927 1,449,126 Unencumbered Cash - Ending $ 1,449,126 1,424,009 The notes to the financial statements are an integral part of this statement. 34

79 Statement 4 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Agency Funds Summary of Cash Receipts and Cash Disbursements For the Year Ended June 30, 2011 Beginning Cash Cash Ending Funds Cash Balance Receipts Disbursements Cash Balance Buhler High School Art Club $ 1, , Buhler Singers 6,572 20,528 18,243 8,857 Cheerleaders 10,734 13,982 14,562 10,154 Dance Team Debate 667 5,443 4,079 2,031 FBLA FCA 3,356 4,404 4,502 3,258 FCCLA 1,578 5,374 5,915 1,037 FFA , ,315 2,524 French Club International Club Junior Class 1,942 4,311 3, Key Club 187 1,112 1, National Honor Society SADD Scholars Bowl 1, , Science Club Senior Class 2,061 2,232 3, Spanish Club 466 1,255 1, Student Council 652 6,714 5,021 2,346 Robotics Club Maroon Crn 120 2,699 2, Creative Writing Club BHS Crimestoppers Senior legacy Project 3,893 1,896 1,997 Golden Millenium Scholarship Total Buhler High School 35, , ,182 41,881 Prairie Hills Middle School Student Council 4,196 2,883 1,405 5,674 Band Projects 1,044 3,181 4, Total Prairie Hills Middle School 5,240 6,064 5,519 5,785 Prosperity Grade School Student Activity 10,337 11,505 12,065 9,m Pennies for Pages Band Total Prosperity Grade School 10,356 12,191 12,497 10,050 other Agency Funds District Payroll Clearing Fund 2,503 1,649,850 1,652, Buhler High School Sales Tax 371 4,447 4,818 Prairie Hills Middle School Sales Tax 196 1,647 1, Total Other Agency Funds 3,070 1,655,944 1,658, Total Agency Funds $ 53, ,025 1,863,904 58,024 The notes to the financial statements are an integral part of this statement. 35

80 Statement 5 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS District Activity Funds Summary of Cash Receipts, Expenditures, and Unencumbered Cash For the Year Ended June 30, 2011 Add Outstanding Beginning Ending Encumbrances Unencumbered Cash Unencumbered and Accounts Ending Funds Cash Balance Receipts Expenditures Cash Balance Payable Cash Balance Buhler High School Activity Tickets $ ,814 6,456 6,270 6,270 Athletics 63, , ,163 77,341 77,341 Ag Mechanics 864 2,909 1,586 2,187 2,187 Color Guard 1,520 2,830 3, Dramatics Fall Musical , ,911 2,911 General and Guidance 11,351 39,147 42,679 7,819 7,819 Instrumental Music 18, ,354 83,149 40,297 40,297 Plants Vo-Ag 2, ,065 3,155 3,155 English Department 2,847 1,833 1,014 1,014 Shop Projects 873 1,221 1,044 1,050 1,050 Student Flowers Vocal Music 2,545 5,843 8, Yearbook: and Journalism 4,001 4,208 3,753 4,456 4,456 Total Buhler High School 109, , , , ,168 Prairie Hills Middle School Athletics 20,193 49,037 38,522 30,708 30,708 Magazine and Book Sales 563 3,688 3, other Special Projects Total Prairie Hills Middle School 20,877 52,723 42,073 31,527 31,527 Buhler Grade School Buhler Cares 35,434 35,434 Special Projects 8,163 13,289 10,783 10,669 10,669 Total Buhler Grade School 8,163 48,723 46,217 10,869 10,669 Prosperity Grade School Cares Club 22,372 22,372 Special Projects 2,514 2,514 Total Prosperity Grade School 24,886 24,888 Obee Grade School Ubrary Projects Student Projects 4,647 7,791 8,966 3,472 3,472 Tolal Obee Grade School 4,871 7,854 8,993 3,532 3,532 Union Valley Grade School Cares Club 69,519 69,519 Student Projects 3,520 7,094 7,140 3,474 3,474 Total Union Valley Grade School 3,520 76,613 76,659 3,474 3,474 Total District Activity Funds $ 146, , , ,370 The notes to the financial statements are an integral part of this statement. 36

81 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unified School District No. 313 BUhler, Kansas has established a uniform system of accounting maintained to reflect compliance with the applicable laws ofthe State ofkansas. The accompanying financial statements are presented in order to conform to the cash basis and budget laws of the State of Kansas, which is a comprehensive basis of accounting other than accounting principles generally accepted in the Untted States of America. The following is a summary of such significant policies. Reporting Entity The District is a municipal corporation govemed by an elected seven-member board. The financial statements of the District consist of all the funds of the District that are considered to be controlled by or dependent on the District. Control or dependence is determined on the basis ofbudget adoption, taxing authority, funding, and appointment ofthe respective governing board. The following is a component unit of the District. The District exercises significant influence or accountability based primarily on operational or financial relationships with the District (as distinct from legal relationships). Buhler USD Education Foundation The Buhler USD Education Foundation is organized as a nonprofit organization in the State of Kansas for the purpose ofproviding charitable and educational functions to the District. One member ofthe Board of Trustees of the Foundation is also a member of the Board of Education ofthe District. Their financial statements are not included in this report. Contact the District Clerk for information on how to obtain this financial information. The District is the primary government as defined in GASB #14 and further amended by GASB #39. The School Board is elected by the public. The Board has the authority to make decisions, levy taxes, influence operations and has the primary accountability in fiscal matters. Use of Estimates The preparation of financial statements on a prescribed basis of accounting that demonstrates compliance with the cash basis and budget laws of the State of Kansas requires management to make estimates and assumptions that affect the reported amount ofunencumbered cash balances and accounts payable during the reporting period. Actual results could differ from these estimates. Basis of Presentation - Fund Accounting The accounts ofthe District are organized and operated on the basis offunds. In governmental accounting, a fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance related legal and contractual provisions. The minimum number of funds is maintained consistent with legal and managerial requirements. The following categories of funds comprise the financial activities of the District for the year ended June 30, Governmental Fund Categories General Funds - to account for all financial resources except those required to be reported in another fund. 37

82 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Special Revenue Funds - to account for the proceeds of specific revenue sources that are legally restricted to expenditure for a specified purpose. DistrictActivity Funds - a special revenue fund that accounts for the receipts and disbursements of monies from District activities. These organizations exist with the explicit approval ofand are subject to revocation by the District's Board of Education. The students participate in the activities, but the board of education has control of the expenditures. This accounting reflects the District's agency relationship with the student activity organizations. Debt Service Fund - to account for the accumulation of resources for, and the payment of, general longterm debt principal and interest Fiduciary Fund Categories Agency Funds - to account for assets held by the District as trustee or agent for others. Student Activity Funds - an agency fund that accounts for the receipts and disbursements of monies from student activity organizations in which the students participate and are involved in the management of the organization's activities. These organizations exist With the explicit approval of and are SUbject to revocation by the District's Board of Education. The student organization approves the expenditure, not the Board of Education. This accounting reflects the District's agency relationship with the student activity organizations. Statutory Basis of Accounting The statutory basis of accounting, as used in the preparation ofthese statutory basis financial statements, is designed to demonstrate compliance with the cash basis and budget laws of the State of Kansas. Cash receipts are recognized when the cash balance ofa fund is increased. Expenditures include disbursements, accounts payable, and encumbrances, with disbursements being adjusted for prior year's accounts payable and encumbrances. Encumbrances are commitments related to unperformed (executory) contra~ for goods and services, and are usually evidenced by a purchase order or written contract. Foran interfund transaction, a cash receipt is reccrded in the fund receiving cash from another fund, and an expenditure would be charged in the fund from which the transfer is made. The District has approved a resolution that is in compliance with K.SA a(c), waiving the requirement for application of generally accepted accounting principles and allowing the District to use the statutory basis of accounting. Departure From Accounting Principles Generally Accepted in the United States of America The basis of accounting described above results in a financial statement presentation which shows cash receipts, expenditures, cash and unencumbered cash balances, and expenditures compared to budget. Balance sheets that would have shown noncash assets such as receivables, inventories, and prepaid expenses, liabilities such as deferred revenue and matured principal and interest payable, and reservations of the fund balance are not presented. Under accounting principles generally accepted in the United States of America, encumbrances are only recognized as a reservation offund balance; encumbrances outstanding at year end do not constitute expenditures or liabilities. Consequently, the expenditures as reported do not present the cost of goods and services received during the fiscal yearin accordance with generally accepted accounting principles. Capital assets that account for the land, buildings, and equipment owned by the District are notpresented in thefinancial statements. Also, long-term debtsuch asgeneral obligation bonds, revenue bonds, capital leases, temporary notes, and compensated absences are not presented in the financial statements. 38

83 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Budgetary Information Kansas statutes require that an annual operating budget be legally adopted for the general fund, special revenue funds (unless specifically exempted by statute), debt service funds, and enterprise funds. Although directory rather than mandatory, the statutes provide for the following sequence and timetable in the adoption of the legal annual operating budget. a. Preparation of the budget for the succeeding fiscal year on or before August 1st. b. Publication in local newspaper on or before August 5th of the proposed budget and notice of public hearing on the budget. c. Public hearing on or before August 15th, but at least 10 days after publication of notice of hearing. d. Adoption of the final budget on or before August 25th. The statutes allow for the governing body to increase the originally adopted budget for previously unbudgeted increases in revenue other than ad valorem property taxes. To do this, a notice ofpublic hearing to amend the budget must be published in the local newspaper. At least 10 daysafterpublication, the hearing may be held and the governing body may amend the budget at that time. There were no such budget amendments forthis year. The statutes permit transferring budgeted amounts between line items within an individual fund. However, such statutes prohibit expenditures in excess of the total amount of the adopted budget of expenditures of individual funds. Budget comparison statements are presented for each fund showing actual receipts and expenditures compared to legally budgeted receipts and expenditures. All legal annual operating budgets are prepared using the statutory basisofaccounting, in which revenues are recognized when cash is received and expenditures include disbursements, accounts payable, and encumbrances, with disbursements being adjusted for prior years accounts payable and encumbrances. Encumbrances are commitments by the District for future payments and are supported by a document evidencing the commitment, such as a purchase order or contract. Any unused budgeted expenditure authority lapses at year-end. A legal operating budget is not required for capital project funds, fiduciary funds, permanent funds and the following special revenuefunds: ContingencyReserve Fund, StudentMaterial Fund, BuhlerCARES Programs Fund, Title I Fund, Title I - ARRA Fund, Title IIA Fund, Title 110 Technology Education Fund, Title IV Fund, PEP Grant Fund, Obee TRC Grant Fund, Prosperity TRC Grant Fund, Perkins Reserve Fund, Universal Kindergarten Fund, BGS TRC Grant Fund, PHMS TRC Grant Fund, Three School Fund, and District Activity Funds. Spending in funds which are not subject to the legal annual operating budget requirement is controlled by federal regulations, other statutes, or the use of internal spending limits established by the governing body. Deposits and Investments The Districtfollows the practiceofpooling cash and investments ofall funds. Each fund's portionoftotal cash is summarized by fund category in the summary of cash receipts, expenditures, and unencumbered cash. 39

84 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K.S.A establishes the depositories which may be used by the District. The statute requires banks eligible to hold the District's funds have a main or branch bank in the county in which the District is located, or in an adjoining county ifsuch institution has been designated as an official depository, and the banks provide an acceptable rate of retum on funds. In addition, K.SA requires the banks to pledge securities for deposits in excess of FDIC coverage. The District has no other policies that would further limit interest rate risk. K.S.A limits the District's investments of idle funds to time deposits, open accounts, and certificates ofdepositwith allowable financial institutions; U.S. govemmentsecurities; temporarynotes; no-fund warrants; repurchase agreements; and the Kansas Municipallnveslment Pool. The District has no investment policy that would further limit its investment choices. Concentration of Credit Risk State statutes place no limit on the amount the District may invest in anyone issuer as long as the investments are adequately secured under KS.A and KSA Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event ofa bank failure, the District's deposits may not be retumed to it. State statutes require the District's deposits in financial institutions to be entirely covered by federal depository insurance or by collateral held under a joint custody receipt issued by a bank within the State of Kansas, the Federal Reserve Bank of Kansas City, or the Federal Home Loan Bank oftopeka, except during designated "peak periods" when required coverage is 50%. The District does not use "peak periods". All deposits were legally secured at June 30, At June 30, 2011, the District's carrying amount of deposits was $3,482,632, and the bank balance was $4,512,931. Of the bank balance, $516,411 was covered by federal depository insurance, $1,770,497 was collateralized with securities held by the pledging institution's agents in the District's name, and $2,226,023 was collateralized by Federal Home Loan Bank Letters of Credit. Compensated Absences Sick Leave Certified Employees - The policy regarding sick leave is that each full-time teacher will be allowed 15 days sick leave the first year of employment and 10 days per year, thereafter, accumulative to 70 days. Administrative personnel may accumulate up to 75 days. Teachers employed part-time shall be granted leave on a pro-rated basis. Certified employees will be compensated for unused sick leave at the rate of $20 per day upon retirement or early retirement from the District when in compliance with the early retirement eligibility guidelines. Classified Employees - Each classified employee will be allowed 1 sick day per month of contracted employment immediately following the successful completion ofany initial probationary period cumulative to a maximum of 70 days. Any employee who has reached age 60 and has at least 10 consecutive years employment with the District, may, upon retirement, apply for payment of unused sick leave at a rate of $20 per day. The total potential sick leave liability at June 30, 2011 was $40,

85 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Vacation Classified employees under contract for 12 months will receive non-accumulative vacation pay according to the following schedule: 1. Five days per year after the first and second year of employment. 2. Ten days per year after the third through the ninth year of employment. 3. Fifteen days per year after the tenth year of employment. All vacation pay must be used by June 30 of each year or forfeited. vacation leave at June 30, Consequently, there is no liability for Personal Leave Certified Employees - Each employee is allowed two days of personal leave each contract yearaccumulative to three to five days based upon years of service. Classified Employees - Each full-time and part-time contracted employee is allowed three days nonaccumulative personal leave each year. Personal leave is forfeited upcn termination. Consequently, there is no liability for personal leave at June 30, Defined Benefit Pension Plan Plan Description The District contributes to the Kansas Public Employees Retirement System (KPERS), a cost-sharing multiple-employer defined benefit pension plan as provided by K.SA , et seq. KPERS provides retirement benefits, life insurance, disability income benefits, and death benefits. Kansas law establishes and amends benefit provisions. KPERS issues a publicly available financial report that includes financial statements and required supplementary information. Thatrepcrt may be obtained bywriting to KPERS (611 S. Kansas, Suite 100, Topeka, KS ) or by calling Funding Policy K.SA establishes the KPERS member-employee contribution rate at 4% and 6% (ifhired on or after July 1,2009) of covered salary. Member-employees' contributions are withheld by their employer and paid to KPERS according to the provisions of section 414(h) of the Intemal Revenue Code. The State of Kansas is required to contribute the remaining amountnecessaryto achieve actuariallydeterminedcontribution rate. The State currently contributes 9.17% ofcovered payroll and 16.48% for non-licensed KPERS retirees and 20.48% for licensed KPERS retirees. These contribution requirements are established by KPERS and are periodically revised. The State of Kansas' contributions to KPERS for all Kansas public school employees for the years ending June 30, 2011,2010, and 2009 were $253,834,044, $248,468,186 and $242,277,363 respectively, equal to the required contributions for each yearas set forth by the legislature. The amountsattributableto the District for the years ending June 30, 2011, 2010, and 2009 were $681,314 $809,859 and $792,377, respectively. 41

86 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Other Post Employment Benefits As provided by K.SA , the District allows retirees to participate in the group health insurance plan. While each retiree pays the full amount ofthe applicable premium, conceptually, the District is subsidizing the retirees because each participant is charged a level of premium regardless ofage. However, the cost of this subsidy has not been quantified in these financial statements. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the District makes health care benefits available to eligible former employees and eligible dependents. Certain requirements are outlined by the federal government for this coverage. The premium is paid in full by the insured. There is no cost to the District under this program. Early Retirement Benefits The District provides an early retirement program for certain eligible employees. Generally, the employee must have completed 10 years of service with the District and have worked for the District through their 60" birthday or have reached an age and length of service in Kansas public schools totaling 85. Those eligible under this program may receive benefits for up to five years. Payments under this program were $286,169 during the year ended June 30, Property Tax Calendar Collection ofcurrent year property tax by the County Treasurer is not completed, apportioned nor distributed to the various subdivisions until the succeeding year, such procedure being in conformity with governing state statutes. Property taxes are collected and remitted to the County Treasurer. Taxes levied annually on November 1st are due one-half by December 20th and one-half by May 10th. Major tax distributions are made in the months of December through July. Lien dates for personal property are in March and August and lien dates for real property are in September. Taxes are recognized as revenue in the year received. Delinquent tax payments are recognized as revenue in the year received. Restricted Assets Restricted cash balances are reported in various funds that are legally restricted for specified uses such as the payment ofdebt service and fiscal fees on long-term debt and for expenditures approved in federal and state grant contracts. Reimbursements The District records reimbursable expenditures (or expenses) in the fund that makes the disbursement and records reimbursements as revenue to the receiving fund. For purposes of budgetary comparison, the expenditures (or expenses) are properly offset by the reimbursements. NOTE 2 - INTERFUND TRANSFERS Interfund transfers within the reporting entity are substantially for the purpose of subsidizing operating functions, funding capital projects and asset acquisitions, or maintaining debt service on a routine basis as authorized by Kansas statutes. Unified School District No. 313 Buhler, Kansas' interfund transfers and statutory authority for the year ended June 30, 2011 were as follows: 42

87 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 2 -INTERFUND TRANSFERS (continued) From General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund Supplemental General Fund PHMS TRC Grant Fund NOTE 3 - LITIGATION To Special Education Fund Bilingual Education Fund Professional Development Fund Parent Education Fund PHMS TRC Grant Fund Vocational Education Fund PEP Grant Fund BGS TRC Grant Fund Prosperity TRC Grant Fund At Risk Fund Three School Fund Statutory Authority KS.A K.S.A KS.A. 72-{l433 KS.A K.S.A K.S.A. 72-{l433 KS.A. 72-{l433 KS.A KS.A K.S.A Split Fund Amount $ 2,949,886 59,615 40,400 16,500 50, ,732 14,100 5,593 34, ,790 5,953 Unified School District No. 313 Buhler, Kansas is party to various legal proceedings which normally occur in governmental operations. These legal proceedings are not likely to have a material adverse impact on the affected funds of the District. NOTE 4 - RISK MANAGEMENT Unified School District No. 313 Buhler, Kansas is exposed to various risks of loss related to torts; theft of, damage to, and destruction ofassets; errors and omissions; injuries to employees; and natural disasters. The District has been unable to obtain health insurance at a cost it considered to be economically justifiable. For this reason, the District joined together with other school districts in the State to participate in the Educational Services and Staff Development Association ofcentral Kansas (ESSDACK) Health Insurance Group, a public entity risk pool operating as a common risk management and insurance program for numerous participating districts. The District pays a monthly premium to the ESSDACK Health Insurance Group for its health insurance coverage. The agreement to participate provides that the ESSDACK Health Insurance Group will be selfsustaining through member premiums and will reinsure through commercial companies forclaims in excess of $500,000 for each insured event. Additional premiums may be due if total claims for the pool are different than anticipated by ESSDACK Health Insurance Group management. The District continues to carry commercial insurance for all other risks of loss, including property, general liability, inland marine, automobile, umbrella, linebacker, and employee dishonesty. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. 43

88 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 5 - GRANTS AND SHARED REVENUES Unified School District No. 313 Buhler, Kansas participates in numerous state and federal grant programs, which are governed by various rules and regulations for the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantoragencies; therefore, to the extentthat the District has not complied with the rules and regulations governing the grants, refunds ofany money received may be required. In the opinion of the District, any liability for reimbursement, which may arise as a result of the audit, is not believed to be material. NOTE 6 - COMPARATIVE DATA Comparative data for the prior year has been presented in Statement 3 in the accompanying financial statements in order to provide an understanding of changes in Unified School District No. 313 Buhler, Kansas' cash and unencumbered cash balances. However, complete comparative data (presentation ofprior year totals in Statement 1) has not been presented since their inclusion would make the statement unduly complex and difficult to read. NOTE 7 - RELATED PARTY TRANSACTIONS Unified School District No. 313 Buhler, Kansas contracted Wray & Sons Roofing, Inc. for various repair projects during the 2011 fiscal year. The total remitted to Wray & Sons Roofing, Inc. during the 2011 fiscal year was $170,858. CliffWray is one of the owners ofwray & Sons Roofing, Inc., as well as a school board member. The Districtpurchased servicesand suppliesfrom BeckerTireand Treading, Inc. Thetotal remitted to Becker TIre and Treading, Inc. during the 2011 fiscal year was $14,624. One of the owners of Becker Tire and Treading, Inc. is the spouse of the Business Manager, Todd Stephenson. The District purchased services from First National Travel. The total remitted to First National Travel during the 2011 fiscal yearwas $5,539. Laura Meyer Dick is one ofthe owners of First National Travel, as well as a school board member. The District purchased services from Lackey's Landscaping. The total remitted to Lackey's Landscaping during the 2011 fiscal yearwas $750. Greg Lackey is the owner of Lackey's Landscaping, as well as a school board member. NOTE 8 - SUBSEQUENT EVENTS On November 16, 2011 Unified School District No. 313 Buhler, Kansas received notice from the Kansas State Department of Education that they were required to repay $28,551 in Title I ARRA funds from the school year. The District had provided Tille I services to 39 students who were not part of the Targeted Assistance Program, and not eligible for services. These costs are reflected in the Schedule of Findings and Questioned Costs, Section III, as finding 2011-E. 44

89 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 9 - LONG-TERM DEBT Unified School District No. 313 Buhler, Kansas has the following types of long-term debt General Obligation Bonds On March 1,1997, the District issued $16,000,000 in Series 1996B bonds to construct, renovate, improve, equip, furnish, repair, remodel and update the Buhler High School, Prairie Hills Middle School, Buhler Grade School, Union Valley Grade School, Prosperity Grade School, and Obee Grade School. On July 1, 2003, the District issued $8,985,000 Series 2003 refunding bonds for the purpose of providing funds for refunding an equal amount of the Series 1996B bonds. Lease Obligations The District has entered various lease agreements with options to purchase at the expiration of the lease terms. The leases contain a fiscal funding clause. 45

90 Date of Balance Balance Interest Date of Amount Final Beginning ReductionsJ End of Issue Rates Issue of Issue Maturity oryesr Additions Payments Net Change Year General Obligation Bonds Building Bonds, Series 1996 B 5.90% 03/01/1997 $ 16,000, $ 995, ,000 (995,000) Refunding Bonds, Series % - 3.5% 07/01/2003 8,985,000 09/ ,750, ,000 ( ) 7,610,000 Capital Leases Payable Computers 5.57% 12/16/ ,465 07/05/ ,445 36,445 (38,445) Buses 4.24% 09/10/ , / , ,129 (147,129) 153,369 Band Equipment 5.00% 04/ ,734 07/01/ ,440 5,146 (5,146) 10,294 Energy Management System 4.25%-Var 04/ ,200,000 03/ ,000,000 25,000 (25,000) 975,000 Total Contractual Indebtedness 10,099,383 1,350,720 (1,350,720) 8,748,663 Compensated Absences 53,902 (13,042) 40,860 Total Long-Tenn Debt $ !.Q, _1,350,7~ (l,363,i 2) _ 8,789,523 YEAR Total Principal General Obligation Refunding Bonds $ 1,210,000 1,260,000 1,315,000 1,375,000 1,435,000 1,015,000 7,610,000 Capital Leases 188,553 35,110 30, ,000 1,138,663 Total Principal 1,398,553 1,295,110~ ~46,OOO 2,280,000 1,436,000 1,015,000 8,748,663 Interest General Obligation Refunding Bonds 229, , , ,659 59,920 17, ,406 Capital Leases 48,087 40,768 38,888 37, ,366 Total Interest. 277, , , ,272 59,920 17, ,761 Total Principal and Interest $ ~JS7_5,905 _1L527,305 _ 1,534,269 2,404,272 1,494,920 1,032,763 9,669,424 Interest Paid 29, ,235 2,141 12, , , ,269 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 9 LONG-TERM DEBT (continued) Changes in long-term liabilities for the District for the year ended June 30, 2011, were as follows: Current maturities of long term debt and interest for the next five years and in five year increments through maturity are as follows: 46

91 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial statements June 30, 2011 NOTE 11 - COMPLIANCE WITH K.S.A (d) AND K.S.A (d) K.SA (d) and K.S.A (d) require the school district to record any payment of general state aid that is due to be paid during the month of June and is paid to the school district after June 30, 85 a receipt for the school year ending on June 30. The following shows the revenue as required by these statutes. UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS General Fund Statutory Revenues and Expendnures - Statutory and BUdget For the Year Ended June Statutory Revenues Variance Statutory Over Transactions Budget (Under) Taxes and Shared Revenues Ad Valorem Tax $ 2,248,024 2,210,855 37,169 Delinquent Tax 43,750 35,925 7,825 Severance Tax 3,080 3,080 Intergovernmental Revenues Equalization Aid 7,731,187 8,775,538 (1,044,389) State Special Education 2,175,969 2,076,968 99,001 Federal Aid - ARRA 220, ,156 Federal Aid - Education Jobs Funds 385, ,492 Reimbursed Expenses 202,840 (a) 202,840 Total Statutory Revenues 13,010,478 13,319,440 (308,962) Expenditures Instruction 4,811,481 5,645,674 (834,193) Student Support Services 197, ,500 (255,512) Instructional Support Staff 392, ,500 (122,015) General Administration 369, ,983 (128,807) School Administration 1,109,069 1,186,000 (76,931) Other Supplemental Services 760, ,200 45,055 Operations and Maintenance 1,698,924 1,617,961 80,963 Student Activities 152, ,488 Student Transportation 545, ,459 (45,770) Professional Development 24,035 24,035 Operating Transfers 2,949,886 2,110, ,886 Adjustment to Comply with Legal Max (523,641) 523,641 Legal General Fund BUdget 13,011,476 12,808, ,840 (a) Adjustment for Qualifyin9 Budget Credits 202,840 (202,840) Total Expenditures and Legal General Fund Budget 13,011,476 13,011,476 Statutory Revenues Over (Under) Expenditures (998) Modified Unecumbered Cash - Beginning 998 Modified Unecumbered Cash - Endin9 $ (a) Adjusbnent for Qualifying BUdget Credns Reimbursed Expenses Over Amounts BUdgeted' $ 202,840 47

92 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Financial Statements June 30, 2011 NOTE 11 - COMPLIANCE WITH K.S.A (d) AND K.S.A (d) (continued) UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Supplemental General Fund Statutory Revenues and Expenditures - Statutory and BUdget For the Year Ended June 30, 2011 Variance Statutory Transactions Budget Over (Under) Statutory Revenues Taxes and Shared Revenues Ad Valorem Tax DelinquentTax Motor Vehicle Tax $ 2,290,944 49, ,461 2,173,656 34, , ,288 14,523 (29,198) Intergovernmental Revenues Equalization Aid 1,718,430 1,779, ,090 Total Statutory Revenues 4,354,094 4,312, ,703 Expenditures Instruction 2,265,193 1,772, ,254 Student Support Services General Administration Other Supplemental Services Operations and Maintenance 15,151 2, ,057 25,000 9,500 85, ,500 (25,000) 5,651 (82,436) (49,443) Operating Transfers 1,769,929 2,250,196 (480,267) Adjustment to Comply with Legal Max (139,241) 139,241 Total Expenditures and Legal Supplemental General Fund Budget 4,319,894 4,319,894 Statutory Revenues Over (Under) Expenditures 34,200 Modified Unecumbered Cash - Beginning 146,502 Modified Unecumbered Cash - Ending $ ==";1~8~0,~70~2:,, 48

93 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Supplementary Information

94 1111 ADAMS BROWN II BERAN & BALL Certified Public Accountants INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAnERS BASED ON AN AUDIT OFFINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS To the Board of Education Unified School District No. 313 BUhler, Kansas Buhler, Kansas We have audited the financial statements of Unified School District No. 313 Buhler, Kansas as of and for the year ended June 30, 2011, and have issued our report thereon dated December 12, The report on the audited financial statements was adverse because it was not presented in conformity with accounting principles generally accepted in the United States ofamerica; however, it was unqualified as presented on a prescribed basis ofaccounting that demonstrates compliancewith the cash basis and budgetlaws ofthe State of Kansas, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Except as discussed in the preceding sentence, we conducted our audit in accordancewith auditing standards generallyaccepted in the United StatesofAmerica, the Kansas Municipal Audit Guide, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered Unified School District No. 313 Buhler, Kansas' 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 anopinion on the effectiveness of Unified School District No. 313 Buhler, Kansas' internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Unified School District No. 313 Buhler, Kansas' internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph of this section and was not designed to identify all deficiencies in intemal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule offindings and questioned costs, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control existswhen the design oroperation ofa control doesnotallowmanagementor employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in intemal control such that there is a reasonable possibility that a material misstatement ofthe entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs (2011-A) to be a material weakness. 49

95 Unified School District No. 313 Buhler, Kansas Page Two A significant deficiency is a deficiency, or a combination ofdeficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule offindings and questioned costs as items and 2011-C to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether Unified School District No. 313 Buhler, Kansas' 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 directand material effecton the determination offinancial statementamounts. 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain other matters that we reported to management of Unified School District No. 313 Buhler, Kansas in a separate letter dated December 12, Unified School District No. 313 Buhler, Kansas' response to the findings identified in ouraudit is described in the accompanying schedule of findings and questioned costs. We did not audit Unified School District No. 313 Buhler, Kansas', response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, the Board of Education, others within the entity, federal awarding agencies and pass-through entities, and for filing with the Kansas Department ofadministration, Division ofaccounts and Reports, and is not intended to be and should not be used by anyone other than these specified parnes. December 12,

96 Certified Public Accountants 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 To the Board of Education Unified School District No. 313 Buhler, Kansas BUhler, Kansas Compliance We have audited Unified School District No. 313 Buhler, Kansas' compliance with the types ofcompliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Unified School District No. 313 Buhler, Kansas' major federal programs for the year ended June 30, Unified School District No. 313 Buhler, Kansas' major federal programs are identified in the summary ofauditors' results section ofthe accompanying schedule offindings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Unified School District No. 313 Buhler, Kansas' management. Our responsibility is to express an opinion on Unified SChool District No. 313 Buhler, Kansas' compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofamerica; the Kansas MunicipalAudit Guide; the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the ComptrollerGeneral ofthe United States; and OMS CircularA 133, Audits ofstates, Local Governments, and Non-Profit Organizations. Those standards and OMSCircular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Unified School District No. 313 Buhler, Kansas' compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Unified School District No. 313 Buhler, Kansas' compliance with those requirements. As described in items 2011-D, 2011-E, and 2011-F in the accompanying schedule offindings and questioned costs, Unified School District No. 313 Buhler, Kansas did not comply with requirements regarding documentation of Employee Time and Effort, Level of Effort-Supplement, Not Supplant, and Allowable Costs/Cost Principles that are applicable to its Title I Grants to Local Educational Agencies and Title I Grants to Local Educational Agencies, Recovery Act. Compliance with such requirements is necessary, in our opinion, for Unified School District No. 313 Buhler, Kansas, to comply with the requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, Unified School District No. 313 Buhler, Kansas complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal programs for the year ended June 30,

97 Unified School District No. 313 Buhler, Kansas Page Two Internal Control Over Compliance Management of Unified School District No. 313 Buhler, Kansas is responsible for establishing and maintaining effective internal control over compliance with the requirements oflaws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Unified School District No. 313 Buhler, Kansas' internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose ofexpressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Unified School District No. 313 Buhler, Kansas' internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type ofcompliance requirement ofa federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination ofdeficiencies, in internal control overcompliance, such that there is a reasonable possibility that material noncompliance with a type ofcompliance requirement ofa federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in intemal control over compliance described in the accompanying schedule offindings and questioned costs as items and 2011-E to be material weaknesses. A significant deficiency in internal control overcompliance is a deficiency, ora combination ofdeficiencies, in internal control over compliance with a type ofcompliance requirement ofa federal program that is less severe than a material weakness in internal control over compliance, yet importantenough to merit attention by those charged with governance. We consider the deficiency in internal control over compliance described in the accompanying schedule of finding and questioned costs as item 2011-F to be a significant deficiency. Unified School District No. 313 Buhler, Kansas' responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Unified School District No. 313 Buhler, Kansas' responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of management, the Board of Education, others within the entity, federal awarding agencies and pass-through entities, and for filing with the Kansas Department of Administration, Division ofaccounts and Reports, and is not intended to be and should not be used by anyone other than these specified parties. ~~6ieoAA~~.t/ Certified Public Accountants December 12,

98 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 SECTION I - SUMMARY OF AUDITORS' RESULTS FINANCIAL STATEMENTS Type of auditors' report issued: Qualified Internal control over financial reporting Material weakness identified? x Yes No Significant deficiencies identified? x Yes No Noncompliance material to financial statements noted? Yes x None reported FEDERAL AWARDS Internal control over major programs: Material weakness identified? x Yes No Significant deficiency identified? x Yes None reported Type of auditors' report issued on compliance for major programs: Qualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) atomb Circular A-133? x Yes No Identification of major programs: CFDA Numbers Name of Federal Program School Breakfast Program National School Lunch Program Education Jobs Fund Title I Grants to local Educational Agencies Title I Grants to Local Educational Agencies, Recovery Act Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes x No 53

99 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 Material Weakness in Internal Control 2011-A SECTION 11- FINANCIAL STATEMENT FINDINGS Criteria The payroll clearing account should reconcile to a zero balance after the completion of the payroll cycle. Condition The payroll clearing account had a significant negative balance at the end of the fiscal year. Effect The cash balances of the District were materially misstated, and no compensating control identified the error. Cause Joumal entries were not recorded to transfer health insurance payments into the payroll clearing account from the general fund, resulting in a negative balance. Recommendation Payroll staff should reconcile the payroll clearing account after each pay period to ensure that the account nets to a zero balance. Views of responsible officials and planned corrective actions The District will implement internal controls to ensure that payroll staff reconciles the payroll clearing account after each cycle. Significant Deficiencies in Internal Control 2011-B Criteria Internal controls should be in place to insure that employees do not have incompatible duties. Condition The District did not have adequate segregation ofduties. Effect Management may not become aware of problems or irregularities within a timely manner. Cause The District is unable to hire additional personnel to remedy due to its size and financial resources. Recommendation There is no recommendation. The size ofthe District precludes management from hiring additional personnel. It would not be feasible for the District to have adequate segregation ofduties. Views of responsible officials and planned corrective actions The District is aware that several employees have incompatible duties. However, due to its size and financial resources, it is unable to hire additional personnel. 54

100 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 SECTION 11- FINANCIAL STATEMENT FINDINGS Significant Deficiencies in Internal Control (continued) 2011-C Criteria Client personnel responsible for the accounting and reporting function should have the necessary skills and knowledge to apply generally accepted accounting principles in recording the entity's financial transactions or when preparing financial statements. Condition Client personnel responsible for the accounting and reporting function do not have the necessary skills and knowledge to apply generally accepted accounting principles. Effect Financial transactions and financial statements may not properly reflect financial information in accordance with generally accepted accounting principles. Cause The District's accounting personnel are unable to obtain the training necessary to obtain these skills due to its size and financial resources. Recommendation Continual training of accounting personnel should be implemented to ensure financial transactions and financial statements are being presented as accurately as possible. Views of responsible officials and planned corrective actions The District is aware that personnel responsible for the accounting and reporting function do not have the necessary skills and knowledge to apply generally accepted accounting principles. However, due to the size and financial resources ofthe District, it would not be feasible to obtain the necessary training. 55

101 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 Federal Awarding Agency: Pass-Through Entity: CFDA Number and Title: SECTION 111- FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Material Weaknesses in Internal Control and Federal Award Compliance Findings U.S. Department of Education Slate Department of Education Title I Grants to Local Educational Agencies Title I Grants to Local Educational Agencies, Recovery Act Agency Pass-Through Number: , Applicable Compliance Component: Allowable Costs/Cost Principles Questioned Cost Amount: $0 Criteria According to OMB Circular A-87, Attachment B, paragraph 8.h. (3), Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee. Condition Employees whose salaries were paid from federal program funds and worked solely on the program did not complete and sign the required certification. Context A sample oftwentyemployees paid from federal program funds were selected fortesting. Upon testing, itwas discovered that none of the employees or their supervisory official had completed or signed the required certifications. Effect The District has not complied with the certification requirement, and SUbsequently, employees may not be aware that their salaries are paid from a specific federal program. Cause The Coordinator for the Title I Program was not aware of this requirement. Recommendation Procedures should be established and implemented to ensure that employees paid from the federal program funds complete and sign the required certification at least semi-annually. Views of responsible officials and planned corrective actions The District has implemented a requirement that employees paid from federal program funds complete and sign the required certification semi-annually. 56

102 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 SECTION 111- FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Material Weakness in Internal Control and Federal Award Compliance Findings (continued) 2011-E Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: State Department of Education CFDA Number and Title: Title I Grants to Local Educational Agencies, Recovery Act Agency Pass-Through Number: Applicable Compliance Component: Level of Effort-Supplement, Not Supplant Questioned Cost Amount: $28,551 Criteria CFR Section , states that program funds be used only to supplement and increase the level of funds that would, in the absence of the Federal funds, be made available from non-federal sources for the education of participating students. In no case may the District use Federal program funds to supplantfunds from non-federal sources. Condition In the Districfs targeted assistance program school, Title I kindergarten students are not segregated. The District paid salaries with Title I funds for reading instruction for all kindergarten students. Effect The District was not in compliance with the Level of Effort-Supplement, Not Supplant requirement. Cause The districtdoes nothave a clear understanding ofthe Level ofeffort-5upplement, NotSupplantrequirement. Recommendation The District should segregate Title I students and provide Title I services only to them. District personnel should attend additional training so that they fully understand the requirements for Level ofeffort-supplement, Not Supplant. Views of responsible officials and planned corrective actions The District now has a school-widetitle I program in place. This change enablesthe Districtto provide Title I services to all kindergarten students. 57

103 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Findings and Questioned Costs For the Year Ended June 30, 2011 Federal Awarding Agency: Pass-Through Entity: CFDA Number and Title: SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Significant Deficiency in Internal Control and Federal Award Compliance Finding 2011-F Applicable Compliance Component: Allowable Costs/Cost Principles Questioned Cost Amount: $0 U.S. Department of Education State Department of Education Title I Grants to Local Educational Agencies Title I Grants to Local Educational Agencies, Recovery Act Criteria According to 34 CFR sections through , the district must prepare and disseminate to all schools and to all parents ofstudents attending those schools an annual report card tha~ among otherthings, includes the number, names, and percentage of schools identified for school improvement and how long the schools have been so identified. Also stated is the requirement that the each Title I school has developed, jointly with parents of children participating in Title I, Part A services, a written school parental involvement policy, and that each Title I school has convened an annual meeting to which all parents of participating children are invited for the purpose of explaining the Title I program, its requirements, and their right to be involved, including parents of children who are disabled, migrant, or LEP. A dated agenda or minutes should be kept from the meeting as well as parent sign-in sheets. 34 CFR section states that the district must have a policy to ensure that there are no barriers for homeless students to enroll. Condition Documentation did not exist for the above requirements. Context The auditor reviewed the results of a Local Consolidated Plan On-Site Monitoring Visit made by Kansas Department of Education and verified the results with the Title I District Coordinator. Effect The district has no proof that it complied with the above requirements. Cause The district was not aware of the documentation requirements. Recommendation The Title I District Coordinator should develop a policy that included a system of documenting and disseminating Title I information to district parents and the community. Views of Responsible Officials and Planned Corrective Actions The District has implemented a plan for additional training for personnel who will provide oversight for Title I documentation requirements. 58

104 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Summary Schedule of Prior Audit Findings For the Year Ended June 30, 2011 No material findings or questioned costs for the year ended June 30, 2010 are required to be disclosed under OMS Circular A

105 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Schedule of Expenditures of Federal Awards For the Year Ended June Federal Grantorl Pass Through Grantorl Program Title Federal CFDA Number Agency or Pass Through Number Federal Expenditures u.s. Department of Education Passed Through Stale Department of Education Tile I, Part A Cluster- Title I Grants to Local Educational Agencies ARRA - Title I Grants to Local Educational Agencies, Recovery Act $ 255,001 57,103 Total Title I, Part A Cluster 312,104 Education Technology State Grants Cluster Education Technology State Grants ,709 ARRA - Education Technology State Grants, Recovery Act ,000 Total Education Technology state Grants Cluster 153,709 Safe and Drug Free Schools and Communities - State Grants School Preparedness Improving Teacher Quality State Grants U , ,226 ARRA State Fiscal Stabilization Fund (SFSF) Education State Grants. Recovery Act Education Jobs Fund Tech-Prep Education S410A , ,492 10,965 Fund for the Improvement of Education NIA 45,650 Total U.S. Department of Education 1,197,690 U.S. Department of Agriculture Passed Through State Department of Education Child Nutrition Cluster - National School Lunch Program School Breakfast Program , ,408 Total Child Nutrition Cluster 510,252 Fresh Fruits and Vegetables Program Team Nutrition Grants , R Total U.S. Department of Agriculture 515,005 Total expenditures of Federal Awards $ 1,712,695 See accompanying notes to schedule of expenditures of federal awards. 60

106 UNIFIED SCHOOL DISTRICT NO. 313 BUHLER, KANSAS Notes to Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2011 NOTE 1- BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Unified School District No. 313 Buhler, Kansas, and is presented on the basis of accounting that demonstrates compliance with the cash basis and budget laws of the State of Kansas, which is a comprehensive basis of accounting other than generally accepted accounting principles. The information in this schedule is presented in accordance with the requirements of OMS Circular A-133, Audits ofstates, Local Governments, and Non Profit Organizations. 61

107 1111 ADAMS BROWN BERAN & BALL ~i!~r0'fh II "'::,, Certified Public Accountants December 12,2011 To the Board of Education Unified School District No. 313 Buhler, Kansas Buhler, Kansas We have audited the primary govemment financial statements of Unified School District No. 313 Buhler, Kansas for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Govemment Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated August 1, 2011, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects ofaccounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Unified School District No. 313 Buhler, Kansas are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended June 30, 2011, We noted no transactions entered into by the District during the year for which there is a lack of authoritative guidance or consensus, All significant transactions have been recognized in the financial statements in the proper period. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements, The following material misstatement detected as a result of audit procedures was corrected by management: Understatement of cash balances in the payroll clearing fund in the amount of $148,365, Disagreements With Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit.

108 Unified School District No. 313 Buhler, Kansas Page 2 December 12, 2011 Management Representations We have requested certain representations from management that are included in the management representation letter dated December 12,2011. Management Consultations With Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the District's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. OtherAudit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the District's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Audit Recommendations We wish to communicate to the governing body recommendations that we discussed with management to improve operational or administrative efficiencies and for improving internal control. Secretaries of all of the activity fund locations are signing checks for the funds. The person writing checks should never be allowed to sign them. This was occurring with varying regularity at all locations. We strongly recommend that the fund secretaries neither sign the checks, nor be included on the signature card for the account. The principal should sign all checks. As a backup signatory, the District could allow a long-term trusted teacher to sign checks, but this teacher should be used only on a backup basis. At Buhler High School, there was one small outstanding check in the activity fund that was over a year old. This is not a violation of law until such checks are two years old. However, any check outstanding for a long period of time should always be investigated and reissued or cancelled. The District maintains a payroll clearing fund. Monies are transferred in for health insurance payments and other payroll items, and checks are written from the fund to clear it. In theory, it should either not have a balance, or have a known balance for the yet unwritten checks. However, the District has never been able to provide us a reconciliation of the fund, and balances have remained very small until this year. At the end of this fiscal year we noted two errors in this fund that resulted in a material understatement of the District's cash in the amount of $148,365. It is our recommendation that District personnel make an effort to determine the proper balance of this fund, and reconcile it on a regular basis. Our efforts to reconcile the quarterly payroll Forms 941 were hindered by errors in the payroll module of the District's software. We printed 4 quarterly reports from the payroll system, followed by a full-year report from the same system. The 4 quarterly reports logically should have added to the full-year report, but did not. We were able to satisfy ourselves as to the accuracy of the

109 Unified School District No. 313 BUhler, Kansas Page 3 December 12, 's filed. Our recommendation is for the District to contact the software vendor about these anomalous results. It is our belief that the system is properly preparing the reports, but is unable to reproduce the results when printed at a later time. Currently, any cash on hand is locked in the District vault when kept overnight, but checks received are kept in a desk. We recommend that the checks also be locked in the vault at night. Bank reconciliations should be completed after all activity has been recorded. The June 30, 2011 reconciliation was completed prior to all year end transactions had been recorded. In the Buhler High School activity funds the Dance Team, FBLA and International Club organizations had no activity, and no known plans for future activity. If these organizations will not have future projects, we recommend that their remaining funds be transferred to the Student Council, where they can benefit all students. The Kansas Department of Education has requested repayment of $28,551 for salary expense paid from the Title I, Part A Cluster that was used for instruction of non-title I kindergarten students. Since the District has a school-wide program in place at Obee Elementary, this noncompliance is not expected to recur. The Kansas Department of Education performed an On-Site Monitoring Visit and determined that the District has not required employees paid with Title I, Part A cluster funds to certify that they are aware their salaries are paid from federal program funds. The Department also determined there was a lack of required documentation of access to the Districfs state report card to parents and community members, a lack of required documentation of the joint development of a parental involvement policy, and a lack of required documentation of the annual meeting of parents of participating students for the purpose of explaining the Title I program, its requirements, and their right to be involved. It is recommended that additional training be provided for the Tille I Coordinatorand Title I employees aboutthe requirements ofthe program. We will review the status of these items during our next audit engagement. We have already discussed many of these items and suggestions with the appropriate personnel and we will be pleased to discuss them in further detail at your convenience. We are also available to perform additional studies of these matters or to assist you in implementing the recommendations. This information is intended solely for the use of the Board of Education and management of Unified School District No. 313 Buhler, Kansas and is not intended to be and should not be used by anyone other than these specified parties~ ~Ro~B~~lio. Certified Public Accountants

110 Certified Public Accountants December 12, 2011 To the Board of Education and Management Unified School District No. 313 Buhler, Kansas Buhler, Kansas In planning and performing our audit of the primary government financial statements of Unified School District No. 313 Buhler, Kansas as of and for the year ended June 30, 2011, in accordance with auditing standards generally accepted in the United States of America, we considered the District's internal control over financial reporting (internal control) 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 District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be a material weakness and otherdeficiencies that we consider to be significant deficiencies. 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 prevented, or detected and corrected on a timely basis. We consider the following deficiency in the District's internal control to be a material weakness. The District maintains a payroll clearing fund. Monies are transferred in for health insurance payments and other payroll items, and checks are written from the fund to clear it. District personnel have been unable to reconcile this fund to its proper zero balance. In addition, the District recorded expenditures totaling $148,365 from the General Fund at year end, but did not record the receipt in the Clearing Fund. This resulted in a material misstatement of the District's cash position at year-end. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the following deficiencies in the District's internal control to be significant deficiencies. Unified School District No. 313 Buhler, Kansas does not have proper segregation of accounting duties necessary to establish good internal accounting control. We understand the size of the District's accounting and administrative staff and related budget constraints preclude management from hiring additional personnel to achieve proper segregation of duties. The