KERNVILLE UNION SCHOOL DISTRICT COUNTY OF KERN LAKE ISABELLA, CALIFORNIA AUDIT REPORT JUNE 30, 2012

Transcription

1 COUNTY OF KERN LAKE ISABELLA, CALIFORNIA AUDIT REPORT JUNE 30, 2012 BURKEY COX EVANS & BRADFORD Accountancy Corporation 1058 West Avenue M-14, Suite B Palmdale, CA 93551

2 INTRODUCTORY SECTION

3 JUNE 30, 2012 TABLE OF CONTENTS FOR THE AUDIT REPORT Page No. FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis - Required Supplementary Information BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet Governmental Funds 12 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 13 Statement of Revenues, Expenditures, and Changes in Fund Balances Govemmental Funds 14 Reconciliation of the Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities Statement of Fiduciary Net Assets - Fiduciary Funds Notes to the Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedules General Fund 45 COMBINING AND INDIVIDUAL NONMAJOR FUND FINANCIAL STATEMENTS Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Special Revenue Funds Nonmajor Combining Balance Sheet Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Special Revenue Funds Budgetary Comparison Schedules Child Development Fund Nonmajor (i)

4 JUNE 30, 2012 TABLE OF CONTENTS FOR THE AUDIT REPORT Page No. COMBINING AND INDIVIDUAL NONMAJOR FUND FINANCIAL STATEMENTS (Continued) Budgetary Comparison Schedules (Continued) Cafeteria Fund Deferred Maintenance Fund Special Reserve Fund for Other Than Capital Outlay Projects Special Reserve Fund for Post-Employment Benefits Debt Service Funds Combining Balance Sheet - Nonmajor Debt Service Fund Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Fund Budgetary Comparison Schedules Bond Interest and Redemption Fund Blended Component Unit Capital Projects Funds Combining Balance Sheet - Nonmajor Capital Project Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Capital Project Funds Budgetary Comparison Schedules Building Fund Capital Facilities Fund State School Building Lease-Purchase Fund County School Facilities Fund Special Reserve Fund for Capital Outlay Projects OTHER SUPPLEMENTARY INFORMATION Local Education Agency Organization Structure Schedule of Average Daily Attendance Nonmajor Table 1 (ii)

5 JUNE 30,2012 TABLE OF CONTENTS FOR THE AUDIT REPORT OTHER SUPPLEMENTARY INFORMATION (Continued) Schedule of Instructional Time Schedule of Financial Trends and Analysis Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Schedule of Proposition 10 Financial Assistance Schedule of Charter Schools Notes to Supplementary Information 72 Table 2 73 Table 3 74 Table Table 5 79 Table 6 80 Table OTHER INDEPENDENT AUDITORS' REPORTS Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards Independent Auditors' Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program And On Internal Control Over Compliance In Accordance With OMB Circular A-133 Independent Auditors' Report On State Compliance Auditors' Report On Compliance And On Internal Control Over Proposition 10 Funds Performed In Accordance With Government Auditing Standards FINDINGS AND RECOMMENDATIONS Schedule of Findings and Questioned Costs Schedule of Prior Audit Findings (iii)

6 FINANCIAL SECTION

7 INDEPENDENT AUDITORS' REPORT Board of Trustees Kernville Union School District Lake Isabella, California We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District (the District), as of and for the year ended June 30, 2012, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Kernville Union School District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District as of June 30, 2012, and the respective changes in financial position, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2012, on our consideration of Kernville Union School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison schedules identified as Required Supplementary Information in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with MEMBER AMERICAN INSTITUTE AND OF CERTIFIED PUBLIC ACCOUNTANTS

8 Kernville Union School District Page 2 management's responses to our inquires, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements, We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance, Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Kernville Union School District's financial statements as a whole, The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements, The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U,S, Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and is also not a required part of the financial statements, The accompanying other supplementary information is presented for purposes of additional analysis as required by the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies , published by the Education Audit Appeals Panel, and is also not a required part of the financial statements, The combining and individual nonmajor fund financial statements and other supplementary information and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements, The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America, In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole, ~t~ ~~~R~1Rj~ Accountancy Corporation Palmdale, California November 12,

9 MANAGEMENT'S DISCUSSION AND ANALYSIS - REQUIRED SUPPLEMENTARY INFORMATION

10 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 The management discussion and analysis of the Kernville Union School District's financial position provides an overall view of the School District's financial activities for the fiscal year ended June 30, The intent of this discussion and analysis is to look at the School District's financial performance as a whole and should include a review of the financial statements along with the notes to the financial statements to gain a clear picture of the District's financial position. Financial Highlights The District's General fund financial status increased from the school year by $ 213,649. The District ended the school year with 27% in the General Fund Reserve. Post employment and compensated absence benefit obligations represent 2%, General Obligation Bonds represent 61 % and Certificates of Participation represent 36%. Special Education and employee health/welfare benefits continue to increase. Unrestricted revenues accounted for $4.3 million or 61 % of all General Fund revenues. Program specific revenues in the form of grants, entitlements and charges for services accounted for $2.8 million or 39% of total general fund revenues. Unrestricted expenditures accounted for $4.0 million or 60% of all General Fund expenditures. Program specific expenditures in the form of operating grants, implementing programs account for $2.7 million or 40% of total general fund expenditures. The General Fund had $7.1 million in revenues and $6.8 million in expenditures. General Accepted Accounting Principal Report (GAAP) This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Kernville Union School District's financial status as an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. The Statement of Net Assets and Statement of Activities provide information about the activities of the whole School District, presenting both an aggregate view of the School District's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in short-term as well as what remains for future spending. The fund financial statements also look at the School Dish-ict's most significant funds with all other non-major funds presented in total 3

11 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 in one column. For the Kernville Union School District the General Fund is the most significant fund. REPORTING THE SCHOOL DISTRICT AS A WHOLE Statement of Net Assets and the Statement of Activities While this document contains the large number of funds used by the District to provide programs and activities, the view of the District as a whole looks at all financial transactions and asks the question, "How did we do financially for the Fiscal Year in question?" The Statement of Net Assets and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year revenues and expenditures regardless of when cash is received or paid. These two statements report the District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the District as a whole, the financial position has either improved or diminished. The cause of these changes may be the result of many factors, some financial, and some not. The factors include the District's property tax base, current property tax laws in California restricting revenue growth, facilities condition, required educational programs, and services provided by the District. In the Statement of Net Assets and Statement of Activities the District reports governmental activities. Governmental activities are the activities where most of the District's programs and services are reported including, but not limited to, instruction, support services, plant operation and maintenance, pupil transportation and extracurricular activities. The School District does not have any businesslike activities. 4

12 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 REPORTING THE SCHOOL DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements Fund financial reports provide detailed information about the District's major funds. The District uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the District's most significant funds. The District's major governmental funds are: General Fund is the general operating fund for the District. It is used to account for all financial resources except those required to be accounted for in another fund. Special Reserve Fund-Other than Capital Outlay is used to set aside funds to protect the District from unforeseen economic events. Child Development Fund is used to account for revenues received and expenditures made to operate the District's childcare and development programs. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's cafeteria. Deferred Maintenance is used for the purpose of major repair or replacement of District property. Building Fund is used for the purpose of accounting for General Obligation Bond proceeds that assist in upgrading and modernizing district facilities. State School Facilities Fund is used primarily to account for state apportionments provided for construction and reconstruction of school facilities. Government Funds Most of the District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or Differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. 5

13 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 The District as a Whole Recall that the Statement of Net Assets provides the perspective of the School District as a whole. Total Net Change in Fund Balances ~ Governmental Funds (41,635) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period. Fixed Assets Additions Current Year Depreciation Total 9,867 ( ) Issuance of long-term financial obligations is a source of revenue in the governmental funds, but the receipt of these proceeds increases long-term liabilities in the statement of net assets. (755,003) Employment Benefits Obligations Total (326,878) (326,878) Repayment of long-term financing obligations principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Certificate of Participation General Obligation Bonds Employment Benefit Obligations Total Total Change in Net Assets ~ Governmental Activities 100, , , ,563 (512,953) 6

14 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 DISTRICT SUMMARY Enrollment of 790 was reported on the California Basic Educational Data System (CBEDS). The Annual P-2 reported for Average Daily Attendance (ADA). This reflects a daily attendance of % of our total enrollment. The School District's funded base revenue limit was $4, per ADA. Financial Analysis of the District's Funds The fiscal integrity of the District is reflected in all funds although primary operating expenditures are reflected in the General Fund. General Fund revenues totaled $7.lmillion. The primary source of District revenue was: $2.2 million of state aid $1.7 million from local property tax $3.2 million from Federal, State and Local sources General Fund expenditures totaled $6.8 million consisting, in part, the following: $4.0 million for employee salaries $1.8 million for employee benefits $1.0 million for books, supplies, services, operating expenses, building, repairs and equipment 7

15 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 Table 1 provides a summary of the School District's 2012 revenue and expenditures for all funds. Table 1 Governmental Funds - All Funds Revenues Revenue Limit Sources: State Apportionments Local Sou rces Federal Revenue Other State Revenue Other Local Revenue Total Revenues Expenditures Instruction Instruction - Related Services Pupil Services Ancillary Services General Administration Plant Services Other Outgo Debt Service: Principal/ In terest Total Expenditures Net Decrease in Fund Balance Other Financing Sources: Transfers In Transfers Out Total Other Financing Sources Net Change in Fund Balance 2,182,912 1,710,435 1,285,024 1,772,049 1,050,080 3,734, ,910 1,554,780 13, , , , , ,379 (309,379) 8,0000,506 8,042,174 (41,668) (41,635) 8

16 MANAGEMENT DISCUSSION AND ANALYSIS FOR KERNVILLE UNION SCHOOL DISTRICT FISCAL YEAR ENDED JUNE 30, 2012 Long-Term Debt The District ended the year with a total of $11.1 million in outstanding financing obligations. The District is continuing to pay down the debt in accordance with scheduled long-term debt payments. Post employment benefit obligations represent 2% of the District's outstanding debt. General Obligation Bonds represent 61 % and Certificate of Participation represents 36% of the outstanding long-term debt. The District's Future Long-term debt and the uncertainty of the state's economic outlook are predominant factors in the District's future. The potential of the state revenue limit's negative or zero COLA coupled with continuing deficits in conjunction with Prop 98 uncertainty compound the School District's ability to forecast revenue. 9

17 BASIC FINANCIAL STATEMENTS

18 GOVERNMENT-WIDE FINANCIAL STATEMENTS

19 STATEMENT OF NET ASSETS JUNE 30, 2012 ASSETS: Cash in County Treasury Cash in Revolving Fund Cash with a Fiscal Accounts Receivable Stores Inventories Other Current Assets Capital Assets (Net) Total Assets LIABILITIES: Accounts Payable Deferred Revenues Noncurrent Liabilities: Due within one year Due in more than one year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted For: Debt Service Capital Projects Other Purposes Unrestricted Total Net Assets Governmental Activities $ 3,019,658 14, ,969 1,279,804 20,386 17,864,355 22,511, ,587 27, ,341 10,616,923 11,530,053 6,878, ,821 1,400,841 66,558 2,055,339 $ 10,981,930 See the Independent Auditors' Report and accompanying notes to the financial statement 10

20 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30,2012 Functions/Programs PRIMARY GOVERNMENT: Government Activities: Instruction Instruction-Related Services Pupil Services Ancillary Services General Administration Plant Services Other Outgo Total Governrnental Activities Total Primary Government $ $ Expenses 4,394, ,910 1,640,521 13, , , ,809 8,513,491 8,513,491 $ $ Net (Expense) Revenue and Changes in Program Revenues Net Assets Operating Charges for Grants and Governmental Services Contributions Activities $ 1,556,444 $ (2,837,836) 302,179 (453,731 ) 42, ,806 (839,290) 4,453 (8,633) 198,575 (347,829) 257,140 (460,341 ) 48,681 (397,128) 42,425 3,126,278 (5,344,788) 42,425 $ 3,126,278 (5,344,788) General Revenues: Revenue Limit Sources Federal Revenues State Revenues Local Revenues Transfers Total General Revenues Change in Net Assets Net Assets - Beginning Net Assets - Ending 3,893,347 45, , ,973 4,831,803 (512,985) 11,494,915 $ 10,981,930 See the Independent Auditors' Report and accompanying notes to the financial statement 11

21 FUND FINANCIAL STATEMENTS

22 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2012 ASSETS: Cash in County Treasury Cash in Revolving Fund Cash with a Fiscal AgentlTrustee Accounts Receivable Due from Other Funds Stores Inventories Prepaid Expenditures Total Assets LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable Due to Other Funds Deferred Revenue Total Liabilities Fund Balance: Nonspendable Fund Balances: Revolving Cash Stores Inventories Prepaid Items Committed Fund Balances: Committed for Economic Uncertainties ASSigned Fund Balances Unassigned: Reserve for Economic Uncertainty Other Unassigned Unassigned, reported in nonmajor: Debt Service Funds Total Fund Balance Total Liabilities and Fund Balances General Fund Building Fund $ 1,229,025 $ 1,286,856 4,176 1,210,735 2,195 11,975 $ 2,455,911 $ 1,289,051 $ 313,367 $ 16, ,948 4,176 1,633, , ,674 1,289,051 2,125,963 1,289,051 $ 2,455,911 $ 1,289,051 Other Governmental Funds Total Governmental Funds $ 503,777 $ 3,019,658 10,000 14, , ,969 66,874 1,279,804 11,975 25,635 25,635 20,386 20,386 $ 914,641 $ 4,659,603 $ 13,220 $ 326,587 11,975 11,975 10,621 27,202 35, ,764 10,000 14,176 25,635 25,635 20,386 20,386 1,633, ,208 1,854, , , , , ,825 4,293,839 $ 914,641 $ 4,659,603 See the Independent Auditors' Report and accompanying notes to the financial statement 12

23 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS FOR THE YEAR ENDED JUNE 30,2012 Total Fund Balances - Governmental Funds $ 4,293,839 Capital assets used for governmental activities are not financial resources and therefore are not reported as assets in Governmental Funds. The cost of the assets is $23,019,195 and the accumulated depreciation is $5,154, ,864,355 All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the noncurrent portion of capital leases, compensated absences and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current fiscal year. In general, liabilities that mature or come due for payment during the fiscal year are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a current liability in the fund financial statements when due but rather recognized as an expense when paid. Long-term liabilities, including all bonds, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Current bond and debt and all long-term liabilities at year end consist of: Certificates of Participation General Obligation Bonds Employment Benefit Obligations Total Net Assets - Governmental Activities $ 4,125,000 6,784, ,270 (11,176,264) $ 10,981,930 The accompanying notes are an integral part of this statement. -13-

24 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30,2012 General Fund Revenues: Revenue Limit Sources: State Apportionments $ 2,182,912 Local Sources 1,710,435 Federal Revenue 953,511 Other State Revenue 1,573,608 Other Local Revenue 648,444 Total Revenues 7,068,910 $ Building Fund 10,803 10,803 Other Governmental Funds Total Governmental Funds $ $ 2,182,912 1,710, ,513 1,285, ,441 1,772, ,839 1,050, ,793 8,000,506 Expenditures: Instruction 3,622,156 Instruction - Related Services 673,518 Pupil Services 1,192,875 Ancillary Services 13,086 General Administration 522,820 Plant Services 663,502 Other Outgo 138,064 Debt Service: Principal Interest 4,995 Total Expenditures 6,831,016 7,125 7, ,059 3,734,215 82, , ,905 1,554,780 13,086 23, ,404 46, , , , , , ,745 1,204,033 8,042,174 Excess (Deficiency) of Revenues Over (Under) Expenditures 237,894 3,678 (283,240) (41,668) Other Financing Sources (Uses): Transfers In Transfers Out (24,245) Total Other Financing Sources (Uses) (24,245) (285,134) (285,134) 309, ,379 (309,379) 309,379 Net Change in Fund Balance 213,649 (281,456) 26,139 (41,668) Fund Balance, July 1 1,912,314 Fund Balance, June 30 $ 2,125,963 1,570,507 $ 1,289, ,686 4,335,507 $ 878,825 $ 4,293,839 See the Independent Auditors' Report and accompanying notes to the financial statement 14

25 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 Total Net Change in Fund Balances Governmental Funds $ (41,668) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period. Fixed Assets Additions $ Current Year Depreciation 9,868 Total (755,002) Issuance of long-term financial obligations is a source of revenue in the governmental funds, but the receipt of these proceeds increases long-term liabilities in the statement of net assets. Employment Benefit Obligations 326,878 Total (326,878) Repayment of long-term financing obligations principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Certificates of Participation General Obligation Bonds Employment Benefit Obligations 100, , ,075 Total 610,563 Total Change in Net Assets - Governmental Activities $ (512,985) The accompanying notes are an integral part of this statement

26 STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2012 ASSETS: Cash on Hand and in Banks Total Assets LIABILITIES: Due to Student Groups Total Liabilities NET ASSETS: Total Net Assets $ $ $ $ Agency Fund Student Body Fund 24,456 24,456 24,456 24,456 See the Independent Auditors' Report and accompanying notes to the financial statement 16

27 NOTES TO THE BASIC FINANCIAL STATEMENTS

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accounting Policies The District accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GAS B) and the American Institute of Certified Public Accountants (AICPA). B. Reporting Entity The Kernville Union School District is the level of government primarily accountable for activities related to public education. The governing authority consists of five elected officials who, together, constitute the Board of Trustees. The Kernville Union School District (the "District") and the Blended Component Unit made up of Public Property Financing Corporation of California (the "Corporation") have financial and operational relationships which meet the reporting entity definition criteria of the GASB Statement No. 14, The Financial Reporting Entity, for inclusion of certain activities of the Corporation as a component unit of the District. Accordingly, certain financial activities of the Corporation have been included in the financial statements of the District. The following are those aspects of the relationship between the District and the Corporation which satisfy GASB Statement No. 14 criteria: Manifestations of Oversight The District's Superintendent and Assistant Superintendent - Business Services, function as agents of the Corporation. Neither individual receives additional compensation for work performed in this capacity. The District exercises significant influence over operations of the Corporation as it is anticipated that the District will be the major lessee of all facilities owned by the Corporation and hold title to all assets acquired by the Corporation. Accountability for Fiscal Matters The subject financing arrangement of the Corporation must have the consent of the District. Any deficits incurred by the Corporation for the subject transactions will be reflected in the lease payments of the District. Any surpluses of the Corporation for the subject transactions revert to the District at the end of the lease period. It is anticipated that the District's lease payments will be the major revenue source of the Corporation for the subject transactions. The District has assumed a "moral obligation" and potentially a legal obligation, for any debt incurred by the Corporation. Scope of Public Service The Corporation was created for the sole purpose of financially assisting school districts. The Corporation is a nonprofit, public benefit corporation incorporated under the laws of the State of California on April 6, The Corporation was formed to provide financing assistance to the District for the construction and acquisition of major capital facilities. Upon completion of the subject transactions the District intends to occupy the Corporation's facilities under a lease-purchase agreement effective through the year At the end of the lease term, title of the Corporation's property will pass to the District for no additional consideration

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Presentation The subject transactions and the Corporation's financial activity are presented in the financial statements as the Blended Component Unit Capital Projects Fund and the Blended Component Unit Debt Service Fund. Certificates of Participation issued by the Corporation are included in the Long-Term Debt. Fixed Assets acquired or constructed by the Corporation are included in the Fixed Assets. C. Basis of Presentation Government-wide Financial Statements: The government-wide financial statements (Le., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the District and its component units. Internal service fund activity is eliminated to avoid doubling revenues and expenses. The government-wide staternents are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund and fiduciary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements, therefore, include reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for the governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the District's governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues of the District, with certain exceptions. The comparison of direct expenses with program revenues identifies the intent to which each governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements: Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major governmental fund is presented in a separate column, and all non-major funds are aggregated into one column. Fiduciary funds are reported by fund type. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds present increases (Le., revenues and other financing sources) and decreases (Le. expenditures and other financial uses) in net current assets. Fiduciary funds are reported using the economic resources measurement focus. D. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Fiduciary funds use the accrual basis of accounting

30 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenues - Exchange and Non-exchange Transactions: Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. "Available" means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, "available" means collectible within the current period or within 60 days after year-end. Non-eXChange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used of the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned (Deferred) Revenue: Deferred revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred revenue. On governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have also been recorded as deferred revenue. Expenses/Expenditures: On the accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, and then unrestricted resources as they are needed. E. Fund Accounting The accounts of the District are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The District's accounts are organized major, non-major, and fiduciary funds as follows: MAJOR GOVERNMENTAL FUNDS 1. General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund

31 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2. Building Fund is used to account for the activity (proceeds and capital acquisitions) for the District's 2004 General Obligation Bonds. NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. The District maintains five non-major special revenue funds: 1. Child Development Fund is used to account for revenues received and expenditures made to operate the District's childcare and development programs. 2. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's cafeteria. 3. Deferred Maintenance Fund is used for the purpose of major repair or replacement of District property. 4. Special Reserve Fund - Other than Capital Outlay is used to set aside funds to protect the District from unforeseen economic events. 5. Special Reserve for Post-Employment Benefits is used to account for the accumulation of reserves available to pay current and future post-employment retiree health benefits. Debt Service Funds are used to account for the accumulation of resources for and the payment of general longterm debt principal, interest and related costs. The District maintains two non-major debt service funds: 1. Bond Interest and Redemption Fund is used to account for the accumulation of resources for, and the principal and interest payments of the General Obligation Bonds. 2. Blended Component Unit Debt Service Fund is used to account for bond interest and redemption of bond principal of the District's Certificates of Participation (component unit). Capital Projects Funds are used to account for the acquisition and/or construction of all major governmental general fixed assets. The District maintains four non-major capital projects funds: 1. Capital Facilities Fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act (CEQA). 2. State School Building Lease/Purchase Fund is used primarily to account for state apportionments provided for construction and reconstruction of school facilities (Education Code Sections ). 3. County School Facilities Fund is used to account for Proposition 1 A funds received from the Office of Public Schools Construction. These funds will be used for school growth construction under the State match program. 4. Special Reserve Fund for Capital Outlay Projects is used to account for revenues accumulated and expended for capital expenditures including building, sites, improvements and equipment. FIDUCIARY FUNDS Agency Funds are used to account for assets of others for which the District acts as an agent. The District maintains three agency funds one for each school's student body

32 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Budgets and Budgetarv Accounting Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all governmental funds. By state law the District's Governing Board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's Governing Board satisfied these requirements. These budgets are revised by the District's Governing Board and District Superintendent during the year to give consideration to unanticipated income and expenditures. The original and final revised budgets are presented for the General Fund in the financial statements. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account. G. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances were liquidated at June 30, H. Assets, Liabilities, and Equity 1. Deposits and Investments Cash balances held in banks and in revolving funds are insured to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial institutions is fully insured or collateralized. In accordance with Education Code Section 41001, the District maintains substantially all its cash in the County Treasury. The County pools these funds with those of other districts in the County and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool. The County is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the County are either secured by federal depository insurance or are collateralized. The amount of dollars invested in derivatives with the County Treasury was not significant as of June 30, Eliminations / Interfund Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as interfund receivables and payables. These interfund receivables and payables are eliminated on the Government-wide Statement of Net Assets. 3. Stores Inventories and Prepaid Expenditures Inventories are recorded using the purchases method in that the cost is recorded as expenditure at the time individual inventory items are purchased. Inventories are valued at average cost and consist of expendable supplies held for consumption. Reported inventories are equally offset by a fund balance reserve that indicates that these amounts are not "available for appropriation and expenditure" even though they are a component of net current assets

33 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District has the option of reporting expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure when incurred. 4. Capital Assets Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance is expensed as incurred. Depreciation on all assets is provided on the straight-line basis over the following estimated useful lives: Site Improvements Building and Improvements Furniture and Equipment Vehicles Estimated Useful Lives years years 5-15 years 10 years 5. Accrued Liabilities and Long-Term Debt Obligations All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In general, pay abies and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the noncurrent portion of capital leases, compensated absences and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current fiscal year. In general, liabilities that mature or come due for payment during the fiscal year are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a current liability in the fund financial statements when due but rather recognized as an expense when paid. 6. Unearned (Deferred) Revenue Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on specific projects and programs exceed qualified expenditures. 7. Compensated Absences All vacation pay plus related payroll taxes is accrued when incurred in the government-wide financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expense in the period taken, since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires

34 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 8. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line basis. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are reported as prepaid expenditures and amortized over the term of the related debt. In the fund financial statements, governmental funds recognize bond premiums and discounts as well as bond issuance costs, during the current period. The face amount of the debt issued, premiums, or discounts is reported as other financing sources/uses. 9. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any borrowing used for the acquisition, construction, or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District's policy is to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. 10. Fund Balance Reserves and Designations Nonspendable Fund Balance. The portion of fund balance reflecting assets not in spendable form, either because they will never convert to cash (such as prepaid Items) or must remain intact pursuant to legal or contractual requirements (such as the principal of a permanent endowment). Nonspendable Revolving Cash. The portion of fund balance reflecting the value of the revolving cash account. Nonspendable Stores. The portion of fund balance reflecting the value of stores. Nonspendable Prepaid Items. The portion of fund balance reflecting the value of prepaid items. All Other Nonspendable Assets. The portion of fund balance reflecting the value of nonspendable assets not specified above. For example, this object issued for the legal reserve required for Certificates of Participation, the long-term portion of notes receivable, or the principle of a permanent endowment. Reserve for Encumbrances (Budgetary account). An account set aside to provide for encumbrances. Generally, encumbrances are closed at the end of the fiscal year, and new purchase orders or contracts are opened for the subsequent year. Restricted Fund Balance Restricted Balance. The portion of fund balance representing resources subject to externally imposed and legally enforceable constraints imposed either by external resource providers, e.g., grantors or creditors, or by law through constitutional provisions or enabling legislation. Examples include unspent balances or restricted state and federal grants, and unspent proceeds of general obligation bonds. Committed Fund Balance. The portion of fund balance representing resources whose use is constrained by limitations self-imposed by the District through formal action of its highest level of decision-making authority. The constraints can be modified or removed only through the same process by which they were imposed. The action imposing the constraint must be made by the end of the reporting period. The actual amounts may be determined at a later date, prior to the issuance of the financial statements

35 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stabilization Arrangements. The portion of fund balance set aside pursuant to a stabilization arrangement is more formal than the reserve for economic uncertainties recommended by the Criteria and Standards for fiscal solvency or other minimum fund balance policy. The level of constraint must meet the criteria to be reported as committed, and the circumstances in which the resources are used must be specific and non routine. Other Commitments. The portion of fund balance representing commitments other than stabilization arrangements. Assigned Fund Balance. The portion of fund balance representing resources that are intended to be used for specific purposes but for which the constraints do not meet the criteria to be reported as restricted or committed. Intent may be established either by the District's highest level of decision-making or by a designated body or official. Constraints giving rise to assigned fund balance may be imposed at any time before the financial statements are issued, and may be modified or removed by a process less formal than is required for committed fund balance. In governmental fund types other than the general fund, this is the residual fund balance classification. Other Assignments. The position of fund balances representing assignment. Unassigned Fund Balance. committed, or assigned. The portion of fund balance not classified as nonspendable, restated, Reserve for Economic Uncertainties. The position of unassigned fund balance set aside pursuant to a minimum fund balance policy. This amount includes the reserve recommended by the Criteria and Standards for fiscal solvency, as well as additional reserve established pursuant to local policy. Unassigned/Unappropriated. In the general fund, residual fund balance in excess of amount reported in the nonspendable, restricted, committed or assigned fund balance classifications and net of Reserve for Economic Uncertainties. In all governmental funds including the general fund, the excess of nonspendable, restricted, and committed fund balance over total fund balance (deficits). Assigned amounts must be reduced or estimated if a deficit exists. For budgetary purposes, this account represents the excess of estimated revenue and estimated other financial sources over appropriations and estimated other financing uses. Spending Order Policy. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless for the governing board has provided otherwise in its commitment or assignment actions. 11. Revenue Limit / Property Tax The District's revenue limit is received from a combination of local property taxes, state apportionments, and other local sources. The county is responsible for assessing, collecting, and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property in the county. The levy is based on the assessed values as of the preceding March 1, which is also the lien date. Property taxes on the secured roll are due on November 1 and February 1, and taxes become delinquent after December 10 and April 10, respectively. Property taxes on the unsecured roll are due on the lien date (March 1), and become delinquent if unpaid by August

36 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue in accordance with the alternate method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax rollapproximately October 1 of each year. The County Auditor reports the amount of the District's allocated property tax revenue to the California Department of Education. Property taxes are recorded as local revenue limit sources by the District. The California Department of Education reduces the District's entitlement by the District's local property tax revenue. The balance is paid from the state General Fund, and is known as the State Apportionment. The District's base revenue limit is the amount of general-purpose tax revenue, per average daily attendance (ADA), that the District is entitled to by law. This amount is multiplied by the second period ADA to derive the District's total entitlement. I. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures or expenses, as appropriate, during the reporting period. Actual results could differ from those estimates. NOTE 2 - CASH AND INVESTMENTS General The District has adopted Governmental Accounting Standards Board Statement 31 (GASB 31) which requires investments of governmental agencies to be reported at fair value. However, investment pools, such as a state or county treasury, may report the value of short-term investments with remaining maturities of less than 90 days at amortized costs. The majority of the County Treasury investments have a remaining maturity of less than 90 days. In addition, GASB 31 does not apply to immaterial cosuvalue differences. The District adopted GASB Statement No. 40, Deposit and Investment Risk Disclosures, as of July 1, GASB Statement No. 40 requires governmental entities to assess categories of risk associated with their deposits and investments and disclose these risks. Unrestricted Cash and investments consisted of the following at June 30, 2012: Governmental Funds Cash on Hand and in Banks Pooled Investments - Kern County Treasury Cash with Fiscal Agent $ 14,176 3,019, ,969 Total $ 3,321,

37 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 2 - CASH AND INVESTMENTS (Continued) All cash and time deposits are entirely insured or collateralized. The California Government Code requires state banks to secure District deposits by pledging government securities as collateral. The fair value of pledged securities must equal at least 110% of the District's deposits. The District may waive collateral requirements for deposits that are fully insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). The surplus funds of the District may be invested in any of the approved investments contained in the California Government code Sections et seq., limited further by the investment policy adopted by the District. Investments Authorized by the California Government Code and the District's Investment Policy The following table identifies the investment types that are authorized by the District in accordance with the California Government Code or the District's investment policy, where more restrictive. The table also identifies certain provisions of the California Government Code or the District's investment policy, where more restrictive that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by trustees that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District's investment policy. Maximum Maximum Percentage of Authorized Investment Type Maturity Portfolio * State and Local Agency Bonds 5 years 100% U.S. Treasury Notes 5 years ** 100% Federal Agency Obligations 5 years ** 100% Banker's Acceptances 180 days 40% Commercial Paper 270 days 40% Non-negotiable Certificates of Deposit 1 year 30% Negotiable Certificates of Deposit 5 years 30% Medium-Tern Notes 5 years 30% Repurchases Agreements 30 days 100% Money Market Funds N/A 20% California Local Agency Investments Fund (LAIF) N/A 100% Maximum Investment in One Issuer None None None 30% 10% None None None None None 10% * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. ** Except when authorized by the District's legislative body in accordance with Govemment Code Section Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools such as the Kern County Investment Pools. The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by the state or local government units by pledging securities in an undivided collateral pool held by a depository regulated under

38 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 2 - CASH AND INVESTMENTS (Continued) state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 100% of the total amount deposited by the public agencies. California law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Of the bank balances, up to $250,000 is federally insured and the remaining balance is collateralized in accordance with the Code; however, the collateralized securities are not held in the District' name. Investment in Kern Investment Pool In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the Kern County Treasury as part of the common investment pool. The District is considered to be an involuntary participant in the external investment pool. Interest is deposited into participating funds, except for the payroll-clearing fund, which is credited to the General Fund. The County is restricted by Government Code Section pursuant to Section to invest in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of the investment. Generally, the longer the maturity of the investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways the District manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as necessary to provide requirements for cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the District's investments to market rate fluctuation is provided by the following table that shows the distribution of the District's investments by maturity date. Investments at June 30, 2012, consisted of the following: Fair Value Carrying Investment Type Fair Value Adjustment Amount Kem County Investment Pool Unrestricted $ 3,002,114 $ 17,544 $ 3,019,658 Total 114 $ 17,544 $ 3,019,658 * Due to the immaterial nature of the Fair Value Adjustment, the Kern County Investment Pool balances are reflected in their carrying amount in the financial statement. Remaining Maturity (in Months) 12 Months Over 36 Investment Type Amount or Less Months Months Kem County Investment Pool Unrestricted $ 3,019,658 $ 1,669,871 $ 866,642 $ 483,145 Total $ 3,019,658 $ 1,669,871 $ 866,642 $ 483,

39 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 2 CASH AND INVESTMENTS (Continued) Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by, where applicable, the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of year-end for each investment type. Credit rating as of June 30, 2012, consisted of the following: Minimum Exempt Legal from Ratings Investment Amount Rating Disclosure AAA Kern County Investment Pool - Unrestricted $ 3,019,658 N/A $ 3,019,658 N/A Total $ 3,019,658 $ 3,019,658 Derivative Investments The District did not directly enter into any derivative investments

40 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 3 EXCESS OF EXPENDITURES OVER APPROPRIATIONS As of June 30, 2012, expenditures exceeded final appropriations in individual funds as follows: General Fund: Capital Outlay Other Outgo Transfers Out Excess Exeenditures $ 9,867 $ 138,064 $ 24,245 Child Development Fund: Classified Salaries Books and Supplies Services and Other Operating Expenditures Direct Support $ 11,4 70 $ 6,308 $ 292 $ 3,443 Cafeteria Fund: Classified Salaries Employee Benefits Services and Other Operating Expenditures $ 6,933 $ 3,179 $ 5,591 Deferred Maintenance Fund: Services and Other Operating Expenditures $ 4,384 Bond Interest and Redemption Fund: Principal Interest and Fiscal Charges $ 174,489 $ 117,583 Blended Component Unit Fund - Debt Service: Principal Interest and Fiscal Charges $ 100,000 $ 185,167 Building Fund: Services and Other Operating Expenditures Transfers Out $ 7,125 $ 35,134 Special Reserve Fund for Capital Outlay: Capital Outlay $ 7,

41 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 4 - ACCOUNTS RECEIVABLE Receivables at June 30, 2012, consist of the following: Governmental Funds Other Total General Building Governmental Governmental Fund Fund Funds Funds Federal Government: Federal Financial Assistance Programs $ 135,334 0 $ 40,606 $ 175,940 Total Federal 135, , ,940 State Government: State Financial Assistance Programs 25, ,348 44,349 State Apportionment Revenue Limit 815, ,796 Total State 840, , ,145 Local Receivables: Local Sources 231, , ,415 Interest Receivable 2,741 2, ,304 Total Local 234,604 2,195 6, ,719 Total Accounts Receivable $ 1,210,735 $ 2,195 $ 66,874 $ 1,279,804 NOTE 5 - INTERFUND TRANSACTIONS Interfund activity is reported as either loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables, as appropriate, and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers among governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements

42 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 5 - INTERFUND TRANSACTIONS (Continued) Due From 1 Due To Other Funds - Individual fund interfund receivables and payable balances at June 30, 2012, are as follows: Fund Govemmental Interfund Interfund Receivable Payable General Fund $ 11,975 $ 0 Child Development Fund Cafeteria Fund 0 11,322 Total $ 11,975 $ 11,975 Interfund Transfers Consist of operating transfers from funds receiving resources to funds through which the resources are to be expended. Interfund transfers for the 2011/2012 fiscal year: Transfers In Transfers Out Amount Governmental Funds 1. General Fund 2. Building Fund Child Development Fund Corporate Debt Service $ 24, ,134 Total $ 309,379 ========

43 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 6 - CAPITAL ASSETS The changes in capital assets for the year ended June 30, 2012, are shown below: Balance Balance July 1,2011 Additions Deletions June 30, 2012 Non-depreciable Capital Assets Land $ 262,886 $ 0 $ 0 $ 262,886 Work In Progress Total Non-depreciable Capital Assets 262, ,886 Depreciable Capital Assets Improvements 20,734, ,734,621 Equipment 2,011,821 9, ,021,689 Vehicles Total Depreciable Capital Assets 22,746,442 9,868 0 Less: Accumulated Depreciation: Improvements 2,659, , ,328,775 Equipment 1,730,458 95, ,826,066 Vehicles Total Accumulated Depreciation 4,389, , ,154,841 Net Depreciable Capital Assets 18,356,471 (755,002) 0 17,601,469 Total Capital Assets, Net $ 18,619,357 $ (755,002) $ 0 $ 17,864,355 Depreciation Expense was Charged to Governmental Activities as follows: Instruction $ 669,262 Transportation 95,608 Total Depreciation Expenses $ 764,

44 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 7 - LONG-TERM DEBT OBLIGATIONS On March 2, 2004, the registered voters of the District authorized the issuance and sale of up to $5,600,000 principal amount of general obligation bonds. On May 20, 2004, the District sold $3,488,371 of "Series A" general obligation bonds with interest rates ranging from 3.00% to 7.625% for the purpose of financing new construction and additions to and modernization of school facilities for the District At June 30, 2012, the principal balance of the General Obligation Bonds - Series A was $2,928,371. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June Interest Total $ 125, , , , ,000 1,420, , $ 100,124 94,633 88,242 80,796 72, ,020 1,605,813 1,255,815 $ 225, , , , ,264 1,607,020 2,050,000 1,499,999 Totals $ 2,928,371 $ 3,484,707 $ 6,413,078 On March 2, 2004, the registered voters of the District authorized the issuance and sale of up to $5,600,000 principal amount of general obligation bonds. On May 20, 2007, the District sold $1,015,982 of "Series A" general obligation bonds with interest rates ranging from 3.50% to 5.540% for the purpose of financing new construction and additions to and modernization of school facilities for the District At June 30, 2012, the principal balance of the General Obligation Bonds Series B was $860,982. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2013 $ 40, , , , , , , ,328 $ 5,757 4,247 2, , , , $ 45,757 44,247 47,621 45,878 39, , ,452 1,053,513 Totals $ 860,982 $ 1,011,000 $ 1,871,

45 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 7 - LONG-TERM DEBT OBLIGATIONS (Continued) On December 4, 2007, the District sold $1,095,437 of "Series C" general obligation bonds with an interest rate of 4.70% that were authorized by the General Obligation Bonds Election on March 2, The bonds are for the financing of new construction and modernization of school facilities for the District. At June 30, 2012, the principal balance outstanding of the General Obligation Bonds Series C was $1,044,443. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June Principal Interest 2013 $ ,110 $ 29,400 31,384 29,781 31, , , , ,022 12,108 14,418 16,910 20,414 25, , ,335 1,043,168 o $ 39,218 43,818 48,294 50,195 56, , ,206 1,295, ,022 Totals $ 2,759,408 General Obligation Bonds - Series 0 On August 19, 2008, the District sold $1,951,196 of "Series on general obligation bonds consisting solely of Capital Appreciation Bonds that were authorized by the General Obligation Bonds Election on June 8, 2008, which accrete value. The interest shown below is the estimated accretion based upon the assumptions used by bond counsel and the current interest rate assumptions. The bonds are for the financing of new construction and modernization of school facilities for the District. At June 30, 2012, the principal balance outstanding of the General Obligation Bonds - Series 0 was $1,951,197. The principal and interest repayment of the general obligation bonds are as follows: Year Ending June 30, Principal Interest Total 2013 $ 13, , , , , , , , , ,920 1,991 2,580 3,169 5,021 5,830 66, , ,750 3,868,852 3,657,080 $ 15,000 15,000 15,000 20,000 20, , , ,000 4,790,000 4,275,000 Totals $ 1,951,197 $ 8,068,803 $ 10,020,

46 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 7 - LONG-TERM DEBT OBLIGATIONS (Continued) The combined bonds future principal and interest repayment of the general obligation bonds are as follows: Year Ending June Interest Total 2013 $ 205, ,980 $ 325, , , , , , , , , , , , , ,826, ,196 2,413, ,083 2,351,575 3,263, ,037,194 3,246,917 4,284, ,157,170 3,868,852 5,026, ,657,081 4,275,001 $ 6,784,994 $ 14,279,476 Certificates of Partici(:2ation On November 7, 2005, the Kernville Union School District Blended Component Unit issued Certificates of Participation in the amount of $4,660,000 with interest rates ranging from 3.00% to 4.90%. At June 30, 2012, the principal balance outstanding of the Certificates of Participation was $4,125,000. The Certificates mature through September 2036, as follows: Year Ending June 30, Principal Interest Total 2013 $ 100,000 $ , , , , , , ,040, ,025,000 Totals $ 4,125,000 $ 181, , , , , , , ,094 97,472 2,638,819 $ 281, , , , ,380 1,415,397 1,408,206 1,401,094 1,122,472 $ 6,763,

47 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 8 - LONG-TERM DEBT SCHEDULE OF CHANGES A schedule of changes in long~term debt for the year ended June 30, 2012, is shown below: Balance Balance July 1, 2011 Additions Deletions June 30,2012 Due Within One Year General Obligation Bonds $ 6,959,482 $ 0 $ 174,488 $ 6,784,994 Certificates of Participation 4,225, ,000 4,125, , ,000 Sub-Total Debt Obligations 11,184, ,488 10,909,994 9 Compensated Absences 14,347 12,049 14,348 12,048 Post Employment Benefits Obligations 261, , ,222 Sub-Total Employment Obligations 275, , ,075 Totals $ 11,459,949 $ 326, ,222 $ 559,341 NOTE 9 - LEASES A. Canital Lease Obligations The District has not entered into any capital leases where the title passes to the District upon the expiration of the lease period. B. Onerating Leases The District has not entered into any operating leases with a lease term in excess of one year. NOTE 10 - ALTERNATIVE RETIREMENT PLAN Plan Descrintion Effective October 1, 1994, the Kernville Union School District adopted the SISC Defined Benefit Plan as an alternative to Social Security. The District pays the full cost of the plan and the benefits are designated to be paid out at age 65, however, benefits can be received upon termination or retirement. All benefits are 100% vested beginning on date of participation. All employees who are not participating in any other retirement plan are immediately eligible for participation. Employees who are members of, or retired from, the Public Employees' Retirement System (PERS) or the State Teachers' Retirement System (STRS) are generally not eligible for participation. Funding Policy Members do not contribute to the SISC Defined Benefit Plan. The District contributes 4,2% of the eligible member's annual payroll. The contribution is intended to provide an annual normal retirement benefit equal to 1.5% of the eligible member's final average pay for covered service up to 30 years

48 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 10- ALTERNATIVE RETIREMENT PLAN (Continued) The Kernville Union School District's contribution to the SISC Defined Benefit Plan for the fiscal year ended June 30, 2012, was $6,896 and equaled 100% of the required contribution. NOTE 11 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System, and classified employees are members of the Public Employees' Retirement System. State Teachers' Retirement System (STRS) Plan Description The Kernville Union School District contributes to the State Teachers' Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS, 7667 Folsom Boulevard, Sacramento, California Funding Policy Active plan members are required to contribute 8% of their salary and the Kernville Union School District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2011/2012 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The Kernville Union School District's contributions to STRS for the fiscal years ended June 30, 2012, 2011, and 2010 were $215,137, $221,757, and $248,120, respectively, and equal 100% of the required contributions for each year. California Public Employees' Retirement System (CaIPERS) Plan Description The Kernville Union School District contributes to the School Employer Pool under the California Public Employees' Retirement System (CaIPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaIPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees' Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California Funding Policy Active plan members are required to contribute 7% of their salary (7% of monthly salary over $ if the member participates in Social Security), and the Kernville Union School District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2011/2012 was % of annual payroll. The contribution requirements of the plan members are established by state statute. The Kernville Union School District's contributions to CalPERS for the fiscal years ended June 30, 2012, 2011, and 2010 were $157,613, $160,527, and $154,155, respectively, and equal 100% of the required contributions for each year

49 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 12 - COMMITMENTS AND CONTINGENCIES A. State and Federal Allowances, Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. If the review or audit discloses exceptions, the District may incur a liability to grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursements will not be material. B. Joint Powers Agreements The District is a member of the Self-Insured Schools of Kern. Although these insurance programs have been reviewed for adequate protection, it is understood that a contingent liability could exist whenever a district is selfinsured. The District also participates in joint powers agreements for legal services and education services for special education students that are coordinated by the Kern County Superintendent of Schools. Each joint powers agreement is governed by a board of representatives of the member districts independently accountable for its operations and fiscal matters. The relationship between the District and the JPA's is such that they are not considered component units of the District for financial reporting purposes. C. Early Retirement During the fiscal year ended June 30, 2012, no employees accepted any early retirement incentive program, pursuant to Education Code Section and 44929, whereby the service credit to eligible employees is increased by two years. D. Pending Litigation As of June 30, 2012, there are no claims or litigation involving the District. NOTE 13 - COUNTY PROPERTY TAX CONTINGENT LIABILITIES Kernville Union School District's share of the estimated property tax liability based on information gathered from the Office of the Auditor-Controller of the County of Kern through June 30, 2012 for litigation and other tax refund claims pending at that time is as follows: Total Liabilities (as of June 30,2012) $ 71,199 Less: 1m pounds (as of June 30, 2012) 55,246 Net Lia bility $ 15,953 It should be noted that these figures do not include any appeals or litigation filed or completed after June 30, 2012, but they do include provisions for valuations and taxes in dispute through June 30, NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS In addition to the pension benefits described in Note 10 the District provides post retirement health care benefits to all employees who retire from the District on or after attaining age 55 with at least 10 years of service. These post retirement health care benefits will be paid through age 65. On June 30, 2012, 31 retirees met these eligibility requirements. For the fiscal year ending June 30, 2012, $321,727 in post retirement health care benefits was paid by the District

50 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 14 POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) A. Plan Description In addition to the pension benefits described in Notes 8 and 11, the District provides post retirement benefits including medical. These coverages are self-insured on a pooled basis through the Self-Insured Schools of California (SISC). Eligibility for District-paid Benefits In addition to the basic plan below, those retiring prior to July 1, 2014, receive a district contribution toward Medicare supplement coverage until age 70. The amount paid by the District for the Medicare supplement coverage decreases from 100% for those retiring prior to July 1, 2006 by 10% per year to 50% where it remains until June 30, C ertificat ed Classified Benefit types provi ded Medical ani y Medical Only Duration of Benefits ToAge 65 To Age 65 Required Service 10 Years 10Years Minimum Age Dependent Coverage Yes Yes District Contribution % Choice of 100% or Annual Ch oice of 100% or Annual Cash Payment of $5,000 * Cash Payment of $5,000 * District Cap Active Rate Active Rate B. Funding Policy * Some retirees are entitled to an annual cash payment of $7,500, but this amount reduces to $5,000 and will be avail able to few, if any, future retirees. Costs and liabilities associated with these cash payments are not reflected in this report. As required by GASB 45, an actuary will determine the District's Annual Required Contributions (ARC) at least once every two fiscal years. The ARC is calculated in accordance with certain parameters, and includes (1) the Normal Cost for one year, and (2) a component for amortization of the total unfunded actuarial accrued liability (UAAL) over a period not to exceed 30 years. GASB 45 does not require pre-funding of OPEB benefits. Therefore, the District's funding policy is to continue to pay healthcare premiums for retirees as they fall due. The District has elected not to establish an irrevocable trust at this time. The Board of Trustees reserves the authority to review and amend this funding policy from time to time, in order to ensure that the funding policy continues to best suit the circumstances of the District

51 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 14 POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) C. Annual OPES Cost and Net OPES Obligation/(Asset) The following table shows the components of the District's Annual OPES Cost for the fiscal year ended June 30, 2012, the amount actually contributed to the plan, and changes in the District's New OPES Obligation/(Assets): Item FYE 06/30/12 Annual Required Contributions Interest on Net OPES Obligation/(Asset) Adjustment to Annual Required Contributions $ 314,829 Annual OPES Cost (Expense) Contributions Made 317,829 (321,727) Increase (Decrease) in New OPES Obligation/(Asset) Net OPES Obligation/(Asset) - Seginning of Year (6,898) 261,120 New OPES Obligation/(Asset) - End of Year The District's Annual OPES Cost, the percentage of Annual OPES Cost contributed to the plan, and the Net OPES Obligation/(Asset) for the fiscal year ended June 30, 2012, are as follows: Percentage of Net OPES Fiscal Annual Actual Annual OPES Obligationl Year Ended OPES Cost Contribution Cost Contributed (Assetl 6130/2012 $ 314,829 $ $321, % $ (6,898) 6130/2011 $ 314,829 $ $294, % $ 20,306 D. Funded Status and Funding Progress The funded status of the plan as of June 30, 2012, the end of the first year of GASS 45 applicability, was as follows: Projected Unit Credit UAAL asa Actuarial Actuarial Actuarial Unfunded Percentage Valuation Value of Accrued AAL Funded Covered of Covered Date Assets Liability (UAAL) Ratio Payroll Payroll 8/1/2009 $ 0 $ $3,698,400 $ 3,698, % $ $4,819, % - 40-

52 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 14 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (Continued) D. Funded Status and Funding Progress (Continued) Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the Annual Required Contributions of the District are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, will present multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Because fiscal year ended June 30, 2012 is the year of implementation of GASB Statement No. 45, only one year is presented in the schedule at this time. In future years, required three year trend analysis will be presented. E. Actuarial Methods of Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce short-term perspective of the calculations. The plan's most recent actuarial valuation was performed as of August 8, In that valuation, the Projected Unit Credit (PUC) Cost Method was used. The actuarial assumptions included a 5 percent investment rate of return (net of administrative expenses), an annual medical cost trend rate of 9 percent initially, reduced by decrements to an ultimate rate of 5 percent after 4 years, and an annual dental/vision trend rate of 4 percent per year for all future years. These assumptions reflect an implicit 3.0 percent general inflation assumption. This District's unfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over 22 years. The remaining amortization period as of June 30, 2012 was 22 years. NOTE 15 - JOINT VENTURES {JOINT POWERS AGREEMEND The Kernville Union School District participates in three joint ventures under joint powers agreements (JPAs): Self Insured Schools of California I (SISC I), Self Insured Schools of California II (SISC II), and Self Insured Schools of California III (SISC III). The relationship between the Kernville Union School District and the JPA's is such that none of the JPA's is a component unit of Kernville Union School District for financial reporting purposes. Self Insured Schools of California I, II, and III: SISC I, II, and III arranged for and provide worker's compensation (SISC I), property and liability (SISC II), and health (SISC III) insurance coverage for their member districts. Approximately 250 districts in central and southern Califomia participate in one or more of the SISC's. Each SISC is governed by an Executive Committee consisting of nine to thirteen members elected by the individual SISC governing boards. Each participant district provides one member for each goveming board. Each board controls the operations of its related SISC, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the boards. Each member district pays premiums commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in SISC I, SISC II, and/or SISC III

53 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 15 - JOINT VENTURES (JOINT POWERS AGREEMENT) (Continued) Condensed Financial Information Condensed financial information for SISC I, SISC II for the year ended June 30, 2011, (latest information available) and SISC III for the year ended September 30, 2011, (latest information available) is as follows: SISCI Total Assets $ 93,923,692 SISC II $ 49,811,860 SISC III $ 268,938,894 Total Liabilities 63,099,280 Retained Earnings / (Deficit) =$==:::::::::::===== 30,824,412 33,038,659 $ 16,773, ,138,431 $ 146,800,463 Total Revenues $ 11,548,714 $ 18,374,095 $ 1,161,865,492 Total Expenditures 15,068,287 22,036,858 1,168,327,424 Net Increase (Decrease) in Fund Balance $ (3,519,573) $ (3,662,763) $ (6,461,932) NOTE 16 - SHORT-TERM DEBT I TAX REVENUE ANTICIPATION NOTES On March 31, 2011, the District issued Tax Revenue Anticipation Notes (TRANS) with a principal balance of $449,030. The note carries interest at a rate of 1.00 percent and will be due and payable on October 1, It is projected that note proceeds will be invested at an average yield of 1.70 percent. The District issues tax anticipation notes in advance of property tax collections. These notes are necessary because the District's tax collections are received only twice a year shortly before their April 1 and October 1 due dates. Short-term debt activity for the year ended June 30, 2012, was as follows: Tax Revenue Beginning Ending Anticipation Notes Balance Issued Redeemed Balance 2010/2011 $ 449,030 $ 0 $ 449,030 $ 0 $ 449,030 $ 0 $ 449,030 $ 0-42-

54 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 17 - SUBSEQUENT EVENTS No reportable subsequent events. NOTE 18 - COMPLIANCE AND ACCOUNTABILITY A. Finance-Related Legal and Contractual Provisions. In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance-related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violation None reported Action Taken Not applicable B. Deficit Fund Balance or Fund Net Assets of Individual Funds Following are funds having deficit fund balances or fund net assets at year end, if any, along with remarks which address such deficits: Fund Name None reported Deficit Amount Not applicable Remarks Not applicable NOTE 19 - MINIMUM FUND BALANCE POLICY The District is committed to maintaining a prudent level of financial resources to protect against the need to reduce service levels because of temporary revenue shortfalls or unpredicted expenditures. This District's Minimum Fund Balance Policy require a Reserve for Economic Uncertainties, consisting of unassigned amounts, equal to no less than six (6) months of general fund operating expenditures, or eight percent (8%) of General Fund expenditure and other financing uses. NOTE 20 - EFFECTIVE GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENTS ISSUED, NOT YET The Govemmental Accounting Standards Board (GAS B) has issued several pronouncements prior to June 30, 2012, that have effective dates that may impact future financial presentation. Govemmental Accounting Standards Board Statement No. 60 In November 2010, the GASB issued Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. This standard addresses how to account for and report service concession arrangements (SCAs), a type of public-private or public-public partnership that state and local govemments are increasingly entering into. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time. Governmental Accounting Standards Board Statement No. 61 In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity, Omnibus. This standard is designed to improve financial reporting for governmental entities amending the requirements of GASB Statement No. 14, The Financial Reporting Entity, and GASB Statement No. 34, Basic Financial Statement and Management's Discussion and Analysis for State and Local Governments. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time

55 NOTES TO FINANCIAL STATEMENTS JUNE 30,2012 NOTE 20 - GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENTS ISSUED, NOT YET EFFECTIVE (Continued) Governmental Accounting Standards Board Statement No. 63 In June 2011, the GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This standard is designed to improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time. Governmental Accounting Standards Board Statement No. 64 In June 2011, the GASB issued Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions - an amendment of GASB Statement No. 53. This standard is designed to improve financial reporting by clarifying the circumstances in which hedge accounting should continue when a swap counterparty or swap counterparty's credit support provider is replaced. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time. Governmental Accounting Standards Board Statement No. 65 The GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognized, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time. Governmental Accounting Standards Board Statement No. 66 The GASB issued Statement No. 66, Technical Corrections an amendment of GASB Statement No. 10 and No. 62. The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Govemmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement is effective for financial statements for periods beginning after December 15, The impact of the implementation of this statement to the District's financial statements has not been assessed at this time

56 REQUIRED SUPPLEMENTARY INFORMATION

57 GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Revenue Limit Sources: State Apportionments Loca! Sources Federal Revenue Other State Revenue Other Local Revenue Total Revenues $ Budgeted Amounts Original Final 2,356,208 $ 2,289,153 1,609,981 1,657, , ,090 1,567,107 1,611, , ,734 7,094,227 7,135,005 Actual Variance with Final Budget Positive (Negative) $ 2,182,912 $ (106,241) 1,710,435 52, , ,573,608 (37,692) 648,444 24,710 7,068,910 (66,095) Expenditures: Current: Certificated Salaries Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures Other Outgo Direct Support/Indirect Costs Capital Outlay Debt Service: Interest Total Expenditures 2,730,110 2,719,315 1,491,860 1,546,352 1,828,645 1,932, , , , ,172 (19,777) (19,777) 123, ,937 7,054,178 7,278,551 2,560, ,793 1,477,410 68,942 1,836,359 96, , , ,603 34, ,064 (138,064) (23,220) 3,443 9,867 (9,867) 4, ,942 6,831, ,535 Excess (Deficiency) of Revenues Over (Under) Expenditures 40,049 (143,546) 237, ,440 Other Financing Sources (Uses): Transfers Out Total Other Financing Sources (Uses) (24,245) (24,245) (24,245) (24,245) Net Change in Fund Balance 40,049 (143,546) 213, ,195 Fund Balance, July 1 Fund Balance, June 30 $ 1,912,314 1,912,314 1,952,363 $ 1,768,768 1,912,314 $ 2,125,963 $ 357,195 See the Independent Auditors' Report and accompanying notes to the financial statement 45

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

59 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2012 Total Special Debt Capital Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds ASSETS: Cash in County Treasury $ 116,290 $ 275,959 $ 111,528 $ 503,777 Cash in Revolving Fund 10,000 10,000 Cash with a Fiscal Agent/Trustee 287, ,969 Accounts Receivable 66, ,874 Stores Inventories 25,635 25,635 Prepaid Expenditures 20,386 20,386 Total Assets $ 239,005 $ 563,928 $ 111,708 $ 914,641 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 13,220 $ $ $ 13,220 Due to Other Funds 11,975 11,975 Deferred Revenue 10,621 10,621 Total Liabilities 35,816 35,816 Fund Balance: Nonspendable Fund Balances: Revolving Cash 10,000 10,000 Stores Inventories 25,635 25,635 Prepaid Items 20,386 20,386 Assigned Fund Balances 147, , , ,208 Unassigned: Unassigned, reported in non major: Debt Service Funds 257, ,596 Total Fund Balance 203, , , ,825 Total Liabilities and Fund Balances $ 239,005 $ 563,928 $ 111,708 $ 914,641 See the Independent Auditors' Report and accompanying notes to the financial statement 46

60 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30,2012 Total Special Debt Capital Nonmajor Revenue Service Projects Governmental Funds Funds Funds Funds Revenues: Federal Revenue $ 331,513 $ $ $ 331,513 Other State Revenue 192,433 6, ,441 Other Local Revenue 67, ,459 18, ,839 Total Revenues 591, ,467 18, ,793 Expenditures: Instruction 112, ,059 Instruction - Related Selvices 82,392 82,392 Pupil Services 361, ,905 General Administration 23, ,584 Plant Services 39,512 7,342 46,854 Debt Service: Principal 274, ,489 Interest 302, ,750 Total Expenditures 619, ,239 7,706 1,204,033 Excess (Deficiency) of Revenues Over (Under) Expenditures (27,720) (266,772) 11,252 (283,240) Other Financing Sources (Uses): Transfers In 24, , ,379 Total Other Financing Sources (Uses) 24, , ,379 Net Change in Fund Balance (3,475) 18,362 11,252 26,139 Fund Balance, July 1 206, , , ,686 Fund Balance, June 30 $ 203,189 $ 563,928 $ 111,708 $ 878,825 See the Independent Auditors' Report and accompanying notes to the financial statement 47

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62 COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS JUNE 30,2012 ASSETS: Cash in County Treasury Cash in Revolving Fund Accounts Receivable Stores Inventones Prepaid Expenditures Total Assets LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable Due to Other Funds Deferred Revenue Total Liabilities Fund Balance: Nonspendable Fund Balances: Revolving Cash Stores Inventories Prepaid Items Assigned Fund Balances Total Fund Balance Total Liabilities and Fund Balances Child Development Fund $ 2,921 10,394 $ 13,315 $ 2, ,621 13,315 $ 13,315 Cafeteria Fund $ 36,691 10,000 56,170 25,635 20,386 $ 148,882 $ 6,795 11,322 18,117 10,000 25,635 20,386 74, ,765 $ 148,882 See the Independent Auditors' Report and accompanying notes to the financial statement 48

63 Deferred Maintenance Fund Special Reserve Fund for Other Than Capital Outlay Post Employment Benefits Fund Total Nonmajor Special Revenue Funds $ 4,384 $ 5, $ 4,391 $ 5,859 $ 66,445 $ 113 $ 66,558 $ ,000 66,694 25,635 20, ,005 $ 4,384 $ 4,384 $ $ 13,220 11,975 10,621 35, , ,859 $ 4,391 $ 5,859 66,558 66,558 $ 66,558 $ 10,000 25,635 20, , , ,005 49

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65 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30,2012 Child Development Cafeteria Fund Fund Revenues: Federal Revenue $ $ 331,513 Other State Revenue 164,901 27,532 Other Local Revenue 24,153 42,664 Total Revenues 189, ,709 Expenditures: Instruction 112,059 Instruction - Related Services 82,392 Pupil Services 361,905 General Administration 11,898 11,322 Plant Services 6,950 28,178 Total Expenditures 213, ,405 Excess (Deficiency) of Revenues Over (Under) Expenditures (24,245) 304 Other Financing Sources (Uses): Transfers In 24,245 Total Other Financing Sources (Uses) 24,245 Net Change in Fund Balance 304 Fund Balance, July 1 130,461 Fund Balance, June 30 $ $ 130,765 See the Independent Auditors' Report and accompanying notes to the financial statement 50

66 Total Nonmajor Deferred Special Reserve Post Special Maintenance Fund for Other Employment Revenue Fund Than Capital Outlay Benefits Fund Funds $ $ $ $ 331, , , , ,059 82, ,905 23,220 4,384 39,512 4, ,088 (4,350) (27,720) 24,245 24,245 (4,350) (3,475) 4,357 5,812 66, ,664 $ 7 $ 5,859 $ 66,558 $ 203,189 51

67 CHILD DEVELOPMENT FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2012 Revenues: Other State Revenue Other Local Revenue Total Revenues Expenditures: Current: Certificated Salaries Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures Direct Support/Indirect Costs Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Total Other Financing Sources (Uses) Net Change in Fund Balance Budget $ 173,312 33, ,701 89,105 48,189 49,795 9,657 1,500 8, ,701 Actual Variance Positive (Negative) $ 164,901 $ (8,411) 24,153 (9,236) 189,054 (17,647) 75,674 13,431 59,659 (11,470) 48,311 1,484 15,965 (6,308) 1,792 (292) 11,898 (3,443) 213,299 (6,598) (24,245) (24,245) 24,245 24,245 24,245 24,245 Fund Balance, July 1 Fund Balance, June 30 $ $ $ See the Independent Auditors' Report and accompanying notes to the financial statement 52

68 CAFETERIA FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Federal Revenue Other State Revenue Other Local Revenue Total Revenues Expenditures: Current: Classified Salaries Employee Benefits Books And Supplies Services And Other Operating Expenditures Direct Support/Indirect Costs Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 Budget $ 320,000 26,000 45, , ,114 49, ,328 26,600 11, ,578 (22,078) (22,078) 130,461 $ 108,383 Actual Variance Positive (Negative) $ 331,513 $ 11,513 27,532 1,532 42,664 (2,836) 401,709 10, ,047 (6,933) 52,393 (3,179) 162,452 27,876 32,191 (5,591 ) 11, ,405 12, , , ,461 $ 130,765 $ 22,382 See the Independent Auditors' Report and accompanying notes to the financial statement 53

69 DEFERRED MAINTENANCE FUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 34 $ Expenditures: Current: Services And Other Operating Expenditures Total Expenditures 4,384 (4,384) 4,384 (4,384) Excess (Deficiency) of Revenues Over (Under) Expenditures (4,350) (4,350) Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance (4,350) (4,350) Fund Balance, July 1 Fund Balance, June 30 4,357 $ 4,357 4,357 $ 7 $ (4,350) See the Independent Auditors' Report and accompanying notes to the financial statement 54

70 SPECIAL RESERVE FUND FOR OTHER THAN CAPITAL OUTLA Y PROJECTS SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 2012 Revenues: Other Local Revenue $ Total Revenues Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Budget Actual Variance Positive (Negative) $ 47 $ Fund Balance, July 1 5,812 Fund Balance, June 30 $ 5,812 5,812 $ 5,859 $ 47 See the Independent Auditors' Report and accompanying notes to the financial statement 55

71 SPECIAL RESERVE FUND FOR POST-EMPLOYMENT BENEFITS SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 524 $ Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 66,034 $ 66,034 66,034 $ 66,558 $ 524 See the Independent Auditors' Report and accompanying notes to the financial statement 56

72 COMBINING BALANCE SHEET NONMAJOR DEBT SERVICE FUNDS JUNE 30, 2012 Total Nonmajor Bond Blended Debt Interest Component Service & Redemption Unit Funds ASSETS: Cash in County Treasury $ 275,959 $ $ 275,959 Cash with a Fiscal AgentlTrustee 287, ,969 Total Assets $ 275,959 $ 287,969 $ 563,928 LIABILITIES AND FUND BALANCE: Liabilities: Total Liabilities Fund Balance: Assigned Fund Balances $ 18,363 $ 287,969 $ 306,332 Unassigned: Unassigned, reported in nonmajor: Debt Service Funds 257, ,596 Total Fund Balance 275, , ,928 Total Liabilities and Fund Balances $ 275,959 $ 287,969 $ 563,928 See the Independent Auditors' Report and accompanying notes to the financial statement 57

73 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2012 Total Nonmajor Bond Blended Debt Interest Component Service & Redemption Unit Funds Revenues: Other State Revenue $ 6,008 $ $ 6,008 Other Local Revenue 304, ,459 Total Revenues 310, ,467 Expenditures: Debt Service: Principal 174, , ,489 Interest 117, , ,750 Total Expenditures 292, , ,239 Excess (Deficiency) of Revenues Over (Under) Expenditures 18,363 (285,135) (266,772) Other Financing Sources (Uses): Transfers In 285, ,134 Total Other Financing Sources (Uses) 285, ,134 Net Change in Fund Balance 18,363 (1 ) 18,362 Fund Balance, July 1 257, , ,566 Fund Balance, June 30 $ 275,959 $ 287,969 $ 563,928 See the Independent Auditors' Report and accompanying notes to the financial statement 58

74 BOND INTEREST AND REDEMPTION FUND DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other State Revenue Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 6,008 $ 6, , , , ,435 Expenditures: Debt Service: Prmcipal Interest Total Expenditures 174,489 (174,489) 117,583 (117,583) 292,072 (292,072) Excess (Deficiency) of Revenues Over (Under) Expenditures 18,363 18,363 Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance 18,363 18,363 Fund Balance, July 1 Fund Balance, June 30 $ 257, ,596 $ 275,959 $ 275,959 See the Independent Auditors' Report and accompanying notes to the financial statement 59

75 BLENDED COMPONENT UNIT DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 32 $ Expenditures: Debt Service: Principal Interest Total Expenditures 100,000 (100,000) 185,167 (185,167) 285,167 (285,167) Excess (Deficiency) of Revenues Over (Under) Expenditures (285,135) (285,135) Other Financing Sources (Uses): Transfers In Total Other Financing Sources (Uses) 285, , , ,134 Net Change in Fund Balance (1 ) (1 ) Fund Balance, July 1 Fund Balance, June 30 $ 287, ,970 $ 287,969 $ 287,969 See the Independent Auditors' Report and accompanying notes to the financial statement 60

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77 COMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS JUNE 30,2012 ASSETS: Cash in County Treasury Accounts Receivable Total Assets LIABILITIES AND FUND BALANCE: Liabilities: Total Liabilities Fund Balance: Assigned Fund Balances Total Fund Balance Total Liabilities and Fund Balances Capital Facilities Fund $ 45, $ 45,775 $ 45,775 45,775 $ 45,775 State School Building Lease $ 76 $ 76 $ $ 76 See the Independent Auditors' Report and accompanying notes to the financial statement 61

78 County School Facilities Fund Reserve Fund for Capital Outlay Projects Total Nonmajor Capital Projects Funds $ $ $ $ 65, ,847 $ $ 111, ,708 $ $ 65,847 65,847 $ 111, ,708 $ 10 $ 65,847 $ 111,708 62

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80 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues Capital Facilities Fund $ 18,417 18,417 $ State School Building Lease Expenditures: General Administration Plant Services Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures 18,053 Net Change in Fund Balance 18,053 Fund Balance, July 1 Fund Balance, June 30 27,722 $ 45,775 $ See the Independent Auditors' Report and accompanying notes to the financial statement 63

81 Total Nonmajor County School Special Reserve Capital Facilities Fund for Capital Projects Fund Outlay Projects Funds $ 10 $ 530 $ 18, , ,342 7,342 7,342 7, (6,812) 11, (6,812) 11,252 72, ,456 $ 10 $ 65,847 $ 111,708 64

82 BUILDING FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 10,803 $ 10,803 10,803 10,803 Expenditures: Current: Services And Other Operating Expenditures Total Expenditures 7,125 (7,125) 7,125 (7,125) Excess (Deficiency) of Revenues Over (Under) Expenditures 3,678 3,678 Other Financing Sources (Uses): Transfers Out Total Other FinanCing Sources (Uses) (250,000) (250,000) (285,134) (35,134) (285,134) (35,134) Net Change in Fund Balance (250,000) (281,456) (31,456) Fund Balance, July 1 Fund Balance, June 30 1,570,507 $ 1,320,507 1,570,507 $ 1,289,051 $ (31,456) See the Independent Auditors' Report and accompanying notes to the financial statement 65

83 CAPITAL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues Expenditures: Current: Services And Other Operating Expenditures Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 Budget $ 41,000 41,000 40,000 40,000 1,000 1,000 27,722 $ 28,722 Actual Variance Positive (Negative) $ 18,417 $ (22,583) 18, , ,636 18,053 17,053 18,053 17,053 27,722 $ 45,775 $ 17,053 See the Independent Auditors' Report and accompanying notes to the financial statement 66

84 STATE SCHOOL BUILDING LEASE-PURCHASE FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2012 Revenues: Other Local Revenue Total Revenues $ Budget $ Actual $ Variance Positive (Negative) Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 $ $ $ See the Independent Auditors' Report and accompanying notes to the financial statement 67

85 COUNTY SCHOOL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues $ Budget Actual Variance Positive (Negative) $ 10 $ Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 $ $ 10 $ 10 See the Independent Auditors' Report and accompanying notes to the financial statement 68

86 SPECIAL RESERVE FUND FOR CAPITAL OUTLA Y PROJECTS CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2012 Revenues: Other Local Revenue Total Revenues Expenditures: Current: Books And Supplies Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 Budget $ ,659 $ 73,159 Actual Variance Positive (Negative) $ 530 $ ,342 (7,342) 7,342 (7,342) (6,812) (7,312) (6,812) (7,312) 72,659 $ 65,847 $ (7,312) See the Independent Auditors' Report and accompanying notes to the financial statement 69

87 OTHER SUPPLEMENTARY INFORMATION

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

89 SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2012 TABLE 1 ELEMENTARY Second Period Report Annual Report Kindergarten First through Third Fourth through Sixth Seventh and Eighth Special Education Home and Hospital Community Day School Total Elementary Full Time Independent Study ADA SUMMER SCHOOL Elementary o o GENERAL Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Average daily attendance is based on the Second Period Report for the period ending April 15 and the Annual Report for the period ending June 30. See the accompanying Notes to Supplementary Information

90 SCHEDULE OF INSTRUCTIONAL TIME TABLE 2 FOR THE YEAR ENDED JUNE 30, 2012 Number of Days Minutes Actual Actual Traditional Grade Level Requirements Minutes Minutes Calendar Status Kindergarten 36,000 31,500 59, In compliance Grade 1 50,400 45,500 51, In compliance Grade 2 50,400 45,500 51, In compliance Grade 3 50,400 45,500 51, In compliance Grade 4 54,000 52,500 60, In compliance Grade 5 54,000 52,500 60, In compliance Grade 6 54,000 52,500 61, In compliance Grade 7 54,000 61,250 61, In compliance Grade 8 54,000 61,250 61, In compliance GENERAL The District must maintain their instructional minutes at either the actual minutes or the requirements, whichever is greater, as required by Education Code Section The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the District complied with the provisions of Education Code Sections through See the accompanying Notes to Supplementary Information

91 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2012 TABLE 3 GENERAL FUND Revenues and Other Financial Sources Expenditures Other Uses and Transfers Out Total Outgo Change in Fund Balance (Deficit) Ending Fund Balance Budget 2013 $ 6,559,852 7,057, $ 7,805,045 6,831,016 6,934,196 7,501,338 24, ,000 6,855,261 7,536, , ,367 $ 1,041,465 Available Reserves (1) Designated for Economic Uncertainties Undesignated Fund Balance $ $ 2,121,788 $ 861, ,675 Available Reserves as a Percentage of Total Outgo 23.01% 30.95% 24.68% 11.43% State Recommended Available Reserve Percentage 4.00% 4.00% 4.00% 4.00% Available Reserves Over (Under) State Recommended Reserve Percentage 19.01% 26.95% # 20.68% 7.43% Total Long-Term Debt $ 10,616,924 $ 11,176,264 $ 11,460,980 $ 11,691,442 Average Daily Attendance at P GENERAL This schedule discloses the District's financial trends by displaying past years data with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. (1) Available reserves consist of all undesignated fund balances and all funds designated for economic uncertainty contained within the General Fund and Special Reserve Fund, (other than capital outlay projects). General Fund Available reserves have increased by $1,260,025 during the past three years but are anticipated to decrease by $497,892 through June 30, Long-Term Debt The District issued $3,488,371 in General Obligation Bonds "Series A" in 2003/2004. The District issued $1,015,982 in General Obligation Bonds "Series B' in 2006/2007. The District issued $1,095,645 in General Obligation Bonds "Series C' in 2007/2008. The District issued $1,951,197 in General Obligation Bonds "Series 0" in 2008/2009. The District also maintains Certificates of Participation obligations of $4,125,000. Attendance Average Daily Attendance (ADA) has decreased by 58 students or 7% during the past three years. See the accompanying Notes to Supplementary Information

92 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2012 TABLE 4 Federal Catalog Pass-Through Entity (CFDA) Identifying Federal FEDERAL PROGRAM NAME Number Number Expenditures u.s. Department of Education Passed Through the California Department of Education: * NClB Title I NClB Title II - Improving Teacher Quality ,600 72,953 NClB Title X McKinney-Vento Homeless Assistance IDEA Part B - Special Education, local Assistance IDEA Part B - Federal Preschool Grants IDEA Part B - Pre-School local Entitlement ARRA Education Jobs Fund NClB VI - low Income School Program A A B , ,769 3,954 7,831 92,442 39,890 u.s. Department of Agriculture Passed Through California Department of Education: * National School lunch * School Breakfast Program Forest Reserve N/A 250,494 81,019 45,872 u.s. Department of Health Services Passed Through California Department Health Services: Medi-Cal Billing Option ,178 Total Federal Awards $ 1,260,730 * Tested as a major program under OMB Circular A-133. GENERAL The accompanying schedule of expenditures of federal awards includes the federal grant activity of Kernville Union School District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the general purpose or basic financial statements. See the accompanying Notes to Supplementary Information

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94 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2012 GENERAL FUND June 30,2012 Annual Financial and Budget Report Fund Balances $ 2,150,208 BUILDING FUND Adjustments and Reclassifications Increasing (Decreasing) the Fund Balance: Cash in County Treasury - (Overstated) Understated 0 Cash with Fiscal Agent - (Overstated) Understated 0 Accounts Receivable - (Overstated) Understated 0 Inventory 0 Prepaid Expenses 0 Accounts Payable - Overstated (Understated) 0 Due to Other Funds - Overstated (Understated) (24,245) Net Adjustments and Reclassifications (24,245) June 30, 2012 Audited Financial Statements Fund Balances $ 2,125, $ 1,289,051 See the accompanying Notes to Supplementary Information

95 TABLE 5 Page 1 of 2 SPECIAL RESERVE FUND FOR CHILD DEFERRED OTHER THAN DEVELOPMENT CAFETERIA MAINTENANCE CAPITAL PROJECTS FUND FUND FUND FUND SPECIAL RESERVE FUND FOR POST EMPLOYMENT BENEFITS 0 $ 130,765 7 $ 66, $ 130,765 $ 7 $ 66,558 See the accompanying Notes to Supplementary Information

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97 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2012 BOND INTEREST AND REDEMPTION FUND June 30, 2012 Annual Financial and Budget Report Fund Balances $ 275,959 BLENDED COMPONENT UNIT DEBT SERVICE 0 Adjustments and Reclassifications Increasing (Decreasing) the Fund Balance: Cash in County Treasury - (Overstated) Understated 0 Cash with Fiscal Agent - (Overstated) Understated 0 Accounts Receivable - (Overstated) Understated 0 Inventory 0 Prepaid Expenses 0 Accounts Payable - Overstated (Understated) 0 Due to Other Funds - Overstated (Understated) 0 Net Adjustments and Reclassifications 0 June 30, 2012 Audited Financial Statements Fund Balances $ 275, , ,969 $ 287,969 See the accompanying Notes to Supplementary Information

98 TABLE 5 Page 2 of 2 CAPITAL FACILITIES FUND $ 45,775 $ STATE SCHOOL SPECIAL BUILDING COUNTY RESERVE LEASE I SCHOOL (CAPITAL PURCHASE FACILITIES PROJECTS FUND FUND 76 $ $ 45, $ 65,847 See the accompanying Notes to Supplementary Information

99 SCHEDULE OF PROPOSITION 10 FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30,2012 TABLE 6 PRIOR YEAR CURRENT YEAR CASH TOTAL RECEIPTS AND RECEIPTS AND DEFERRED PROGRAM NAME GRANT PERIOD GRANT AMOUNT REVENUE RECOGNIZED REVENUE RECOGNIZED CURRENT YEAR EXPENDITURES REVENUE AT 06/30/12 California Children and Families Act of 1998 (Proposition 10) Kern County Child & Family Services Agency Totals 07/01/11 06/30/12 $ 194,889 $ 0 $ 194,889 $ $194,889 0 $ 0 $ 194,889 $ $194,889 o See the accompanying Notes to Supplementary Information,

100 SCHEDULE OF CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2012 TABLE 7 No charter schools are chartered by Kernville Union School District. Included in Audit? None N/A - 80-

101 NOTES TO SUPPLEMENTARY INFORMATION JUNE 30, 2012 NOTE 1 - PURPOSE OF SCHEDULES A. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Average daily attendance is based on the Second Period Report for the period ending April 15, and the Annual Report for the period ending June 30. B. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Educational Code Section through C. Schedule of Financial Trends and Analysis This schedule provides disclosures of financial trends by displaying past years' data along with current year budget information. These disclosures are consistent with the responsibility to evaluate the District's ability to continue as a going concem for a reasonable period of time. D. Schedule of Expenditures of Federal Awards OMB Circular A-133 requires a disclosure of the financial activities of all federally funded programs. To comply with OMB Circular A-133 this schedule was prepared for the District. E. Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balances of all funds and the total liabilities of the general long-term debt account group as reported on the Annual Financial and Budget Report to the audited financial statements. F. Schedule of Charter Schools This schedule provides information as to any charter schools charted by the District and whether these charter schools are included in the District's audit report. NOTE 2 - KERN COUNTY CONSORTIUM PARTICIPATION Kernville Union School District is a member of a Kern County Consortium comprised of numerous member schools. The activity of the Consortium is to receive, disburse, and account for two of the District's programs: Drug Free Schools Tobacco Use Prevention Education All funds are received directly by the Kern County Superintendent of Schools Office and are pooled together and accounted for and expended on behalf of its member districts. NOTE 3 - SCHEDULE OF PROPOSITION 10 FINANCIAL ASSISTANCE This schedule provides disclosure required by the California Children and Families Act of 1998 and the Kern County Children and Families Commission pursuant to the Proposition 10 program specific audit

102 NOTES TO SUPPLEMENTARY INFORMATION JUNE 30,2012 NOTE 4 - EXCESS SICK LEAVE In the current fiscal year the District did not authorize or accrue any excess sick leave for the superintendent, any other high-level administrator who is a member of CalSTRS or teachers (non-administrators)

103 OTHER INDEPENDENT AUDITORS' REPORTS

104 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Kernville Union School District Lake Isabella, California We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kernville Union School District, as of and for the year ended June 30, 2012, which collectively comprise the Kernville Union School District's basic financial statements and have issued our report thereon dated November 12, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of Kernville Union School District, is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Kernville Union School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Kernville Union School District internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Kernville Union School District's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over financial reporting, described in the accompanying schedule of findings and questioned costs that we consider to be significant deficiencies in internal control over financial reporting as items through 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. MEMBER AMERICAN INSTITUTE AND OF CERTIFIED PUBLIC ACCOUNTANTS

105 Kernville Union School District Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether Kernville Union School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests did not disclose instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Kernville Union School District's response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit Kernville Union School District's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, others within the entity, the Board of Trustee's and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Palmdale, California November 12,

106 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 Board of Trustees Kernville Union School District Lake Isabella, California Compliance We have audited Kernville Union School District's (the District) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Kernville Union School District's major federal programs for the year ended June 30, Kernville Union School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of federal laws, regulations, and the provisions of federal contracts or grant agreements applicable to each of its major federal programs is the responsibility of Kernville Union School District's management. Our responsibility is to express an opinion on the Kemville Union School District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Govemments, and Non Profit Organizations. Those standards and OMB Circular 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 the Kernville Union School District's 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 the Kernville Union School District's compliance with those requirements. In our opinion, the Kernville Union School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items through Internal Control Over Compliance Management of Kernville Union School District is responsible for establishing and maintaining effective internal control over compliance with requirements of federal laws, regulations, and the provisions of federal contracts or grant agreements applicable to federal programs. In planning and performing our audit, we considered the Kemville Union School District's intemal control over compliance with 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 of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, MEMBER AMERICAN INSTITUTE AND OF CERTIFIED PUBLIC ACCOUNTANTS